AIR CONTROL ENGINEERS, HYDERABAD,HYDERABAD vs. DCIT, CIRCLE-4(1), HYDERABAD, HYDERABAD

The assessee filed this appeal with a delay of 15 days. To this effect, assessee filed a petition for condonation as well as an affidavit wherein it was stated that since the Managing Partner of the firm was not well at the relevant point of time he could not consult the Advocate. A copy of the medical certificate is annexed to the petition. Further, it was stated that the delay was for the reasons beyond its control and is not intentional, therefore, the delay may be condoned. Considering the submissions of the assessee and the objection of the ld. DR, we hereby condone the delay as the assessee was prevented by reasonable cause in not filing the appeal within the stipulated time and the appeal is admitted for hearing and adjudication.

Briefly the facts of the case are, assessee filed its return of income for the AY 2012-13 on 28/09/2012 declaring a total income of Rs. 75,48,110/-. Subsequently, the case was selected for scrutiny under CASS. In responses to the notices issued u/s 143(2) and 142(1), the AR of the assessee submitted the information as called for. On examination of the trading and profit & loss account filed by the assessee, the AO noticed that the assessee had booked expenses of Rs. 2,11,30,207/- as work expenses for the sales, services and AMC services provided by the firm. On examining the information and vouchers furnished by the assessee, the AO observed that for many of the vouchers, the actual nature of services/spares purchased were not clearly mentioned. Considering the volume of turnover done by the assessee, the sales & services rendered and AMC services provided in the light of the total expenditure booked by the assessee, the AO proposed to disallow Rs. 10,00,000/-, for which AR of the assessee agreed for such disallowance. Accordingly, the AO disallowed Rs. 10,00,000/- and assessed the income of the assessee at Rs. 85,48,110/-.

Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). The CIT(A) confirmed the addition made by the AO on the ground that the addition was made on agreed basis and hence no appeal lies against such agreed addition.

Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: 1. The order of the learned Commissioner of Income-Tax (Appeals) is erroneous both on facts and in law.

Before us, the ld. AR of the assessee submitted that though the assessee produced the details of expenditure before the CIT(A), the ld. CIT(A) confirmed the addition made by the AO on ad hoc basis on mere acceptance of ld. AR. There is no basis for such ad-hoc disallowance and also similar disallowance was made by AO in the earlier AY 2009-10, the same was deleted by Hon’ble ITAT.

Ld. DR, on the other hand, relied on the orders of revenue authorities.

Considered the rival submissions and perused the material on record. On verification of record, we find that the assessee filed before the AO as well as CIT(A) complete ledger copy of work expenses, which are placed at page Nos. 41 to 85. We are of the view that almost all the work expenses for the sales, services and AMC services provided by the assessee were accepted by the AO, however, he made an adhoc disallowance of Rs. 10,00,000/- out of total expenses of Rs. 2,11,30,207/- on the ground that in some of the vouchers the actual nature of services/spares purchased were not clearly mentioned. It is not the case of the AO that expenses are related to non-business activity. We find that on similar reasons for the AY 2009-10, the AO made similar disallowance of expenditure and the CIT(A) deleted the same. When the department came in appeal before the ITAT, against the order of CIT(A), the ITAT vide its order dated 30th June, 2014 in ITA No. 863/Hyd/2013, upheld the action of the CIT(A) and dismissed the appeal of the revenue. In this AY, the CIT(A) has confirmed the addition based on mutual acceptance of AO and ld. AR of the assessee. But the practice of acceptance by ld. AR

In the result, appeal of the assessee is allowed.