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Income Tax Appellate Tribunal, ‘’C’’ BENCH, AHMEDABAD
(Applicant) (Respondent) Assessee by : Shri Sakar Sharma, A.R Revenue by : Shri L.P. Jain, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 24/06/2019 घोषणा क� तार�ख /Date of Pronouncement: 28/06/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-VIII, Ahmedabad [Ld.CIT(A) in short], dated 29/10/2014 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here- in-after referred to as "the Act") dated 22/03/2013 relevant to Assessment Year (AY) 2010-11.
The assessee has raised the following grounds of appeal: Page 1 of 10
1 The Ld.CIT(A) erred on facts and in law in confirming disallowance of Rs.5,47,863/- in respect of purchase of diesel and oil from Ashapura Petroleum- Lakhtar without appreciating the explanations and submission of the appellant in right perspective. 2 The Id CIT(Appeals) erred on facts and in law in confirming disallowance of Rs.2,01,054/- in respect of purchases made from JP Stone Crusher P Ltd. without appreciating the explanations and submissions of the appellant in right perspective.
The 1st issue raised by the assessee is that learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of ₹5,47,863.00 for the expenses incurred on the purchases of diesel and oil in the absence of supporting evidence.
The assessee in the present case is a private Ltd company and engaged in the business of civil construction work. The assessee is mainly working on the projects awarded by the state/central government. The assessee in the year under consideration claimed to have purchased diesel and oil from our Ashapura petroleum amounting to ₹ 5,47,863.00 only. The AO during the assessment proceedings to verify the genuineness of the purchases from Ashapura petroleum issued a notice under section 133(6) of the Act, but there was no response. Accordingly, the AO treated the same as bogus expenses and added to the total income of the assessee.
The aggrieved assessee preferred an appeal to learned CIT-A.
The assessee before the learned CIT (A) filed the additional evidence under rule 46A of Income Tax Rule. The additional evidences filed by the assessee were represented by the copy of the account confirmation along with the bills maintained by the assessee in its books and contra confirmation from the party.
3.1 The learner CIT (A) accordingly called for the remand report from the AO who submitted the same vide letter dated 28th August 2014 as detailed under: i. The entire purchases of diesel and oil from Ashapura petroleum were made within the duration of 25 days from 4 March 2010 to 29th of March 2010. ii. The photocopies of the bills filed by the assessee were tempered. There was overwriting and correction on the bills. iii. The assessee did not file the original bills. 3.2 The assessee in his rejoinder before the learned CIT (A) submitted that the diesel and the oil expenses were directly incurred in connection with the “LAKHTAR project”. It has declared a contract receipt of ₹ 54,35,091.00 and the closing work in progress of ₹ 69,41,752.00 in respect of such project which was duly accepted by the Revenue. Under the “LAKHTAR project”, it was constructing the canal wherein the digging and the removing of sand was done by using the tractors.
3.3 It was purchasing the diesel and the oil from Ashapura petroleum from the month of January 2010 against the advance payment made by it. But the party issued the consolidated bill in the last month of the financial year under consideration.
3.4 The original bills were lost at the project site; therefore it failed to file the original bills to the AO during the assessment proceedings. However, the AO accepted the confirmation from the Ashapura petroleum which was produced during the remand proceeding before him.
3.5 All the payments for the purchase of diesel and oil were made through account pay cheques which were not disputed.
3.6 There was no tampering in the bills issued by Ashapura petroleum and filed to the AO during the assessment proceedings. There was no mismatch in the dates of the bills issued by the party. There was no overwriting/ cutting on the bills issued by the party.
3.7 The learned CIT (A) after considering the submission of the assessee confirmed the order of the AO by observing that the assessee failed to justify based on evidence for the defects pointed out by the AO during the assessment proceedings. Therefore the reply furnished by the assessee was general in nature.
Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 214 and submitted that the books of accounts of the assessee were not rejected. Similarly, the impugned expenses were accepted by the Revenue in the subsequent assessment years.
On the contrary the learned DR before us vehemently supported the order of the authorities below.
We have heard the rival contentions and perused the materials available on record. The facts of the case are not in dispute. Therefore we are not inclined to repeat the same for the sake of brevity and convenience.
6.1 From the preceding discussion, we note that the activity of the assessee under the“LAKHTAR project” was to construct the canal which certainly requires digging and removal of the sand from the earth. Essentially for this activity, the assessee has to use machinery and vehicles for the transportation of the sand. This fact was not disputed by the authorities below.
6.2 Similarly, the fact that the payment was made through account payee cheque was not in dispute.
6.3 There was no allegation in the order of the authorities below that the notice issued under section 133(6) of the Act was not served upon the assessee.
6.4 We also note that the assessee has also purchased diesel and oil from Ashapura petroleum in the subsequent assessment year 2011-12 which were accepted by the AO in the assessment framed under section 143(3) of the Act. Thus it is not a case that the purchases were made only in the year under consideration. Therefore, in such circumstances, we are of the view that the assessee deserves some relief.
6.5 However, we further note that the assessee has claimed the expenses under the head diesel and oil purchase amounting to Rs. 5,47,863.00 as evident from the copy of the ledger placed on page 178 of the Paper book. The assessee out of such expenses has recovered an amount of Rs. Page 5 of 10 2,59,966.00 from the subcontractors. Similarly, the assessee out of such expenses has shown closing stock of the diesel and oil as on 31st March 2010 amounting to ₹ 61,154.00 only. Thus, it is transpired that the assessee effectively has claimed expenses towards diesel and oil in the financial statement for Rs. 2,26,743.00 only. This fact can be presented in the following manner: i. total expenses incurred for the diesel and oil Rs. 5,47,863.00 ii. less: the amount recovered and closing stock a. Jadav Ramabhai Vasrambhai Rs. 48,268.00 b. Manilal Gordhandas Patel Rs. 1,70,844.00 c. Babubhai Prabhudas Patel Rs. 40,854.00 d. closing stock 61,154.00 3,21,120.00 Balance claimed in the profit and loss account 2,26,743.00 6.6 However, the AO has made the disallowance of ₹ 5,47,863.00, which appears incorrect amount of disallowance in the given facts and circumstances. Thus, in case the amount of diesel and oil expenses needs to be disallowed, then at the most it can be disallowed to the extent of 2,26,743.00 only.
6.7 The next question arises if the assessee is claiming the reimbursement of the diesel and oil expenses from the parties, then there is no question of charging the same in the profit and loss account. On a question to the learned AR for the assessee, he replied that the assessee is also incurring the diesel and oil expenses for its in-house consumption. The learned AR in support of his claim to attention on page No. 207 of the paper book where the fixed assets schedule of the assessee was placed. As such, the learned AR for the assessee justified that it has incurred the diesel and oil expenses on its plant and machinery used by it. The learned AR for the assessee also admitted the fact that the assessee has not maintained the separate ledger for the diesel and oil expenses incurred for in-house consumption and supplied to the subcontractors.
6.8 Considering the facts as stated above, the in-house consumption of diesel and oil cannot be neglected. But the fact that the assessee has not maintained separate ledgers for the in-house consumption of the diesel and oil viz a viz supplied to the subcontractors cannot be ignored. Therefore in the interest of justice and fair play, we are inclined to restrict the disallowance to the tune of ₹1,13,371.00 being 50% of the expenses under the head diesel and oil as discussed above. Hence the ground of appeal of the assessee is partly allowed.
The 2nd issue raised by the assessee is that learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of ₹ 2,01,054.00 out of the total purchases of Rs. 22,60,400.00 from J.P. Stone Crusher Pvt. Ltd. (for short JPSCPL)
The assessee in the year under consideration has claimed to have purchased the materials from JPSCPL amounting to ₹ 22,60,400.00 only. The AO during the assessment proceedings to verify the genuineness of the purchases from JPSCPL issued a notice under section 133(6) of the Act, but there was no response. Accordingly, the AO treated the same as bogus expenses and added to the total income of the assessee.
The aggrieved assessee preferred an appeal to learned CIT-A. The assessee before the learned CIT (A) filed the additional evidence under rule 46A of Income Tax Rule. Accordingly, the learned CIT (A) called for the Remand report from the AO who in turn submitted that the party, i.e. JPSCPL has shown corresponding sales in its books of accounts for ₹20,59,356.00 leaving a difference of rupees 2,01,054.00 which was shown excessive purchased by the assessee.
The learned CIT (A) after considering the submission of the assessee and the remand report of the AO reduced the disallowance of the purchases to ₹2,01,054.00 only.
Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
The learned AR before us submitted that the payment made to JPSCPL was not returned back by it. Similarly there was no purchase made by the assessee in the subsequent years.
On the contrary, the learned DR before us vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and the perused the materials available on record. The dispute in the instant case relates to the difference between the amount of purchases for Rs. 2,01,054.00 shown by the assessee viz a viz the amount of sales shown by the party to the assessee in its books of accounts.
12.1 From the preceding discussion we note certain undisputed facts as detailed under: i. The assessee has made the entire payment through cheque amounting to Rs. 22,60,400 which was duly admitted by the party JPSCPL. Accordingly, JPSCPL has shown the amount payable to the assessee for rupees 2,01,054.00 in its balance sheet as on 31 March 2010. ii. The amount shown as a liability by JPSCPL was never returned as per the claim of the assessee which was not doubted by the authorities below. iii. The assessee made the payment to JPSCPL in the course of the business. In view of the above, even the amount of rupees 2,01,054.00 is treated as an advance to JPSCPL; the assessee is entitled to write it off in the books of accounts if it becomes irrecoverable as it is arising in the course of the business. As the assessee has not shown the amount as an advance in its books of accounts, therefore it can be inferred that it has been written off by the assessee in the year under consideration.
12.2 In addition to the above, we are of the view that the disallowance cannot be made for the expenses claimed by the assessee merely on the ground that the other party has shown liability in its books of accounts. The treatment of the accounting entries in the books of 3rd parties cannot be decisive for the claim of the assessee.
12.3 It is settled law that the expenses/advances written off in the course of the business are eligible for deduction either under section 28(i) or 37(1) of the Act.
12.4 In view of the above we hold that the assessee is eligible for the deduction for ₹2,01,054.00 on account of the money paid to JPSCPL in the course of the business. Hence we disagree with the view taken by the learned CIT-A. Accordingly, we reverse the same and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed .
Order pronounced in the Court on 28/06/2019 at Ahmedabad.