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Facts
The assessee, a partnership firm engaged in civil contracting and sale of bitumen, declared an income of Rs. 5,12,459 for AY 2014-15. The case was selected for scrutiny, and after assessment proceedings, income was assessed at Rs. 12,47,305 after disallowances. The assessee appealed against the additions.
Held
The Tribunal held that the disallowance of Rs. 60,480 for delayed payment of employee's contribution to PF was justified as per Section 36(1)(va). However, the disallowance of Rs. 5,00,000 forfeited as a deposit for a contract was treated as a business expenditure and allowed. The ad-hoc disallowance of 5% on labour and machinery charges was also set aside. The claim for interest on TDS was disallowed.
Key Issues
Whether the forfeited deposit for a contract is a business expenditure, whether ad-hoc disallowances without rejecting books are sustainable, and if interest on TDS is allowable.
Sections Cited
143(3), 143(2), 142(1), 36(1)(va), 2(24)(x), 37, 201, 201(1A)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC”, PUNE
Before: DR.MANISH BORAD
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
This appeal filed by the assessee pertaining to the Assessment Year 2014-15 is directed against the order dated 17.10.2024 passed by Addl/JCIT(A)-1, Chandigarh which in turn is arising out of the Assessment order dated 28.12.2016 passed u/s.143(3) of the Act.
Facts of the case in brief are that the assessee is a partnership firm engaged in the business of Civil Contractors and sale of bitumen under the name and style “M/s. R.R. Kapoor. Income of Rs.5,12,459/- declared in the return for the A.Y. 2014- 15 furnished on 25.03.2015. After the case being selected for complete scrutiny through CASS and validly serving of notices u/s.143(2) and 142(1) of the Act, assessment proceedings were carried out and after considering the submissions of the assessee income assessed at Rs.12,47,305/- after making few disallowances. Though the assessee challenged these additions before the ld. CIT(A) but failed to succeed. The assessee is now in appeal before me raising various four grounds of appeal.
3. Ground No.1 by the assessee reads as under :
“1. On the basis of facts and in the circumstances of the case and as per law, the Addl. Commissioner of Income-tax (Appeals) is not justified in confirming the disallowance of Rs.60,480/- which was made by the AO by invoking provisions of section 36(1)(va) of the Act i.e. on account of delay in payment of Employees Contribution to Provident Fund”.
The assessee failed to succeed on this ground as it is squarely covered against the assessee by virtue of decision of Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) as there is delay in payment of Employees Contribution to Provident Fund and the case of the assessee is hit by Section 36(1)(va) r.w.s. 2(24)(x) of the Act. Accordingly, Ground No.1 raised by the assessee is dismissed.
Ground No.2 raised by the assessee reads as under :
“2. On the basis of facts and in the circumstances of the case and as per law, the Addl. Commissioner of Income-tax (Appeals) is not justified in confirming the disallowance Rs. 5,00,000/- which was made by the AO on account of payment made to Public Works Division East (Pune) by holding that the said payment is in the nature of penalty.”
Facts in brief are that the assessee is a Civil Contractor who gave Rs.5.00 lakh as deposit to Public Works Division, East, Pune for securing a contract but after the contract was awarded, assessee refused to accept for the business reasons and as a result Rs.5.00 lakh was forfeited and the same was claimed as an expenditure in the profit and loss account. Ld. AO treated the said sum being the payment made towards offence for the activity M/s. R.R. Kapoor Company prohibited by law and applied Explanation 1 to section 37 disallowing the said sum. I however on going through the record notice that the assessee turnover is approximately Rs.19.00 crore. The assessee is in the regular course of business and applied for contract with PWD. It is evident that the assessee had refused to carry out the contract. The refusal can be for many reasons like lesser contract amount, difficulty in carrying out the awarded work in the prescribed time limit or lack of resources etc. This is purely the decision of the Management to carry out the business activity and they have to think in the interest of the business and it is possible that with minimum loss of Rs.5.00 lakh they saved much more than what they would have incurred had they carried out the contract. Further, I find that the alleged sum cannot be equated to payment for any offence prohibited by law and it is merely a business expenditure which deserves to be allowed u/s.37 of the Act. Finding of ld.CIT(A) is thus set aside and ground of appeal No.2 raised by the assessee is allowed.
7. Ground No.3 raised by the assessee reads as under : “3. On the basis of facts and in the circumstances of the case and as per law, the Addl. Commissioner of Income-tax (Appeals) is not justified in confirming the disallowance made by the AO of Rs.1,16,990/- i.e. 5% of Labour charges, machinery hire charges and machinery repairs.”
8. From the above ground, I notice that the ld.AO made adhoc disallowance of 5% on the labour charges, machinery hire charges and machinery repairs. Ld. AO has not rejected the book results and has also not estimated the net profits. Further adhoc addition is not supported by any evidence which would indicate that the ld.AO has examined the record and the purchase expense vouchers and found any discrepancy in the same. In view thereof, such adhoc addition cannot stand for. Finding of ld.CIT(A) on this issue is also set-aside and Ground No.3 raised by the assessee stands allowed.
9. Ground No.4 raised by the assessee reads as under :
“4. On the basis of facts and in the circumstances of the case and as per law, the Addl. Commissioner of Income-tax (Appeals) is not justified in confirming the disallowance of the claim of deduction of interest of Rs. 57,375/- paid u/s 201/1A of the Income-tax Act
From the above ground, I notice that the assessee has claimed the interest on TDS. In my considered view the interest paid on late payment of TDS u/s.201/201(1A) is not an allowable expenditure and for this I find support from the judgment of Hon’ble Madras High Court in the case of CIT Vs. Chennai Properties & Investment Ltd. (1999) 239 ITR 435. Ld. AR failed to controvert the binding precedent. I therefore fail to find any merit in this ground raised by the assessee. Accordingly, finding of ld.CIT(A) is affirmed and ground No.4 raised by the assessee is dismissed.
Ground No.5 being general in nature needs no adjudication.
In the result, the appeal of the assessee is partly allowed.
Order pronounced on this 02nd day of April, 2025.