GOWTHAMI INFRATECH PRIVATE LIMITED, HYDERABAD,HYDERABAD vs. ACIT, CIRCLE-2(2), HYDERABAD, HYDERABAD

Briefly stated, assessee-company is in the business of civil contract. There were survey operations on 16-09-2013 and during the survey, it was noticed that assessee had paid a certain ‘coordination charges’ in cash on various RA bills. When this was confronted, the Executive Director of assessee-company in the solemn statement stated that these loose sheets contained several transactions, particularly co-ordination expenses approved to be incurred by them. Thereafter, solemn statement of Shri K. Vijay Kumar, promoter of the KVK Group of companies was recorded on 18-09-2013, wherein he has admitted that they were incurring expenditures to an extent of 1.25% on the turnover on account of REC [Rural Electrification Corporation] works executed at Orissa, M.P. and Belgaum and these expenditures were paid in cash and were accounted for under various heads. As it was not possible to identify and segregate, assessee’s Managing Director, admitted to offer the above expenditure as income in the impugned assessment years. During the assessment proceedings, for which returns were already filed, assessee furnished a note on coordination expenses in which it was stated that the actual payment received against RA bills was Rs. 38.64 Crores and expenditure incurred on that was Rs. 51,84,760/- in AY. 2012-13 and Rs. 37.54 Crores in AY. 2011- 12 and expenditure was Rs. 32,60,810/-. AO, however, considered the entire receipts of P&L A/c [rather than the RA bills pertaining to REC) on which amounts have been received and disallowed an

The above computation of the assessee was considered and it was observed that during survey proceedings, the Co-ordination expenses for Ay. 2012-13, was worked out at Rs. 48,40,472/-. Hence the same is added back to the income of the assessee.

AO, however, made other disallowances like – prior period expenses, bank interest, disallowance u/s. 43B also in AY. 2011-12. He has initiation proceedings u/s. 271(1)(c) without recording any satisfaction separately.

Assessee contended before the Ld.CIT(A) that these expenditures were actually incurred and assessee has agreed for addition in the course of survey statement, as it was difficult to identify a particular expenditure incurred by assessee as the total expenditure was in crores of rupees. No appeal was preferred only because the expenditure involved is only 1.25% on the actual payment received, which was booked in the books of account in cash. It is also submitted that assessee neither concealed the income nor furnished any inaccurate particulars of income and mere disallowance of expenditure claim does not warrant any penalty. Ld.CIT(A), however, did not agree and in his detailed order concurred with AO and confirmed the penalty.

Ld. Counsel reiterated the submissions and submitted that there is no dispute that the amounts have been incurred by assessee and registered in the books of account as an expenditure under various heads. There is also no dispute that AO has considered a higher disallowance on the entire turnover of assessee, even though assessee statement indicates that the coordination expenses were only on REC project that too, on the actual amount received. He referred to the statement made to AO and the disallowance made, to submit that AO has disallowed more amount than what was actually spent by assessee, but considering that a statement was given, assessee has not preferred any appeal. It was submitted that assessee’s acceptance of disallowance does not mean that assessee has concealed the particulars of income or furnished inaccurate particulars of income.

Ld.DR, however, submitted that assessee has camouflaged the coordination expenses which are not legal expenditure under various heads and when confronted in a survey, has agreed for disallowance of the above amounts which would not have come to the notice of the AO, but for the survey of operations. It was submitted that the penalty is warranted on the facts of the case. He relied on the judgment of the Hon'ble Supreme Court in the case of MAK Data P. Ltd., Vs. CIT-II (Civil Appeal No. 9772 of 2013) and also on the judgment of CIT Vs. Atul Bindal (SC) to support the contentions of Revenue.

Ld. Counsel, however, submitted that the penalty notice has not specified whether the penalty was for concealment of income or for furnishing of inaccurate particulars and accordingly, the penalty is not warranted and relied on the judgment of the Hon’ble jurisdictional High Court in the case of The Principal CIT, Visakhapatnam vs. Baisetty Revathi (ITTA No.684 of 2016, dated 13.07.2017).

We have considered the rival contentions and perused the order of authorities. There is no dispute that during the survey operations, assessee was found to have been spent certain coordination expenses, which are booked as other expenditure in the books of account. In the absence of any quantification thereon or identification thereon, assessee admitted that about 1.25% of the REC bills actually received payment. However, AO in his order, did not go by the statement of the partner, but disallowed 1.25% on the entire turnover reported by assessee in the books of account. Even though there is no dispute that assessee has spent

In the result, both the appeals of assessee are allowed.

Deputy Commissioner of Income Tax, Circle-2(2), Hyderabad.

Asst. Commissioner of Income Tax, Circle-2(2), Hyderabad.

CIT (Appeals)-2, Hyderabad.

Pr.CIT-2, Hyderabad.

D.R. ITAT, Hyderabad.

Guard File.