WELKIN TELECOM INFRA PVT. LTD,KOLKATA vs. DCIT, CIR.11(1), KOLKATA

Brief facts of the case is that the assessee company is engaged in the business of providing support service to various telephone operators in the field of Operation & Maintenance/Surveillance Management Services for Tower Sites, providing telecom equipment implementation and roll out projects services to telecom original equipment manufacturers. According to assessee it operates around 3300 sites in different states. The assessee filed its return of income for the relevant assessment year on 26.11.2014 reflecting total income of Rs.4,94,33,170/- and subsequently filed revised return on 16.04.2015 declaring total income of Rs. 4,23,15,150/-. Thereafter, the return was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). Subsequently the case of the assessee was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act was issued on the assessee company. Pursuant to the notices, the AO acknowledges that the Ld. AR of the assessee company appeared from time to time and submitted the requisitioned

Aggrieved by the additions/disallowances made by the AO, the assessee filed an appeal before the Ld. CIT(A) who partly allowed the appeal of the assessee. Still not satisfied with the order passed by the Ld. CIT(A), the assessee is in appeal before us by raising the revised ground no.1 which reads as under:

We have heard both the parties and perused the records The Ld AR appearing on behalf of the assessee pointed out that, during the assessment proceedings, it was brought to the notice of AO that the assessee is engaged in the business of providing support services to various telecom operators and as such is largely dependent on manpower to execute the task undertaken by it. According to Ld. AR, the assessee is providing end to end services for setting up of Cellular Sites. According to him, the scope of services to various telecom operators include identifying and acquisition of sites, municipal clearance and other statutory clearances, soil testing, civil foundation, tower erection, DG installation, obtaining NOC and permission to install/operate DG set at sites and etc. And that the assessee was providing these services in more than 3300 sites. Therefore, according to him, significant number of employees were recruited every year at different sites to look after the day to day

The Ld. AR took us through the contents of the remand report to show that the AO had simply relied on the Special Audit Report of the preceding AY 2013-14 wherein the Special Auditor had reported that no such expenditure existed in that year because the vouchers of such expenses did not contain any supporting materials regarding attendance, salary breakup, overtime etc. and also details like the name of the employees concerned, to whom such salaries were paid etc. The Ld AR submitted that just because in the earlier year (AY 2013-14) the company was unable to furnish proper vouchers due to lackadaisical attitude of disgruntled employees/trainees in its finance/commerce department, the same reasoning cannot be ipso facto applied in the relevant year as well. According to Ld. AR, the facts of each assessment year has to be examined on stand-alone basis in as much as the principle of res-judicata does not apply in income-tax proceedings. Therefore, according to Ld. AR, the AO approached the claim of assessee with prejudice, suspicion and bias of certain facts of earlier years and got carried away to make the erroneous addition.

He pointed out that the ledger accounts submitted in the relevant year contained the requisite details viz., date, document no, amount, mode of payment, cheque date and number and narration of expenses. According to Ld. AR, the narration given in the voucher itself explains the nature of expenditure incurred. The Ld. AR also drew our attention to the narrations in the ledger account which evidenced that the assessee had made payment for conveyance, electricity bills, oil purchase, AC maintenance, cleaning, purchase of materials (like fan, cable tie, silicon, pliers, screw driver etc), reimbursement of expenses, petty cash expenses and for salaries & wages. He pointed that no further details were either sought by the AO nor was any further enquiry made by the AO in the remand proceedings, which according to him, showed that the AO was unable to point out any infirmity or defect in the details/evidences furnished for the relevant year. Instead the AO had alleged that the ledger copy of ‘site expenses’ and sample offer letters did not establish that the genuineness of expenses claimed. Referring to the remand report, the Ld. CIT(A) also did not agree with the

The Ld. AR further submitted that the addition made u/s 69C of theAct was itself erroneous and drew our attention to section 69C of the Act which reads as follows:

The Ld. AR also brought to our attention that the actual site expenses incurred by the assessee company during the year was Rs.1,02,95,994/- (66,15,994 + 28,80,000 + 8,00,000). He pointed out that the sum of Rs.28,80,000/- was the salary paid to the trainees/employees who are stationed at different sites and therefore the same ought to have been transferred to the ledger account of ‘site expenses’ but inadvertently, the accountant of the company transferred the amount of Rs.28,80,000/- from the ledger of ‘Salaries & Wages’ to the ledger of ‘Transportation Expenses’ by way of a journal entry passed on 31.03.2014. For this, he drew our attention to the ledger of Transportation Expenses(refer entry dated 31-03-2014, placed at page 104 of paper book. It is seen that the narration of the entry is 'SALARY AND WAGES AMT. TRF'. Further, it was brought to our notice that the same accountant transferred a sum of Rs.8,00,000/- pertaining to the ledger 'Site Expenses' to the ledger 'Office Expenses'. The Ld. AR submitted that this mistake was noticed only during the course of assessment proceedings and since the accountant was unable to explain the reason for such erroneous journal entry passed on 31-03-2014, he was terminated from his job. The Ld. AR drew our attention to the copy of his appointment letter and resignation letter enclosed at page 105-109 of paper book. He thus submitted that the actual site expenses was Rs.1,02,95,994/-

An alternate contention assailing the action of the Ld. CIT(A) for making ad-hoc disallowance of 90% of the site expenses was made before us. He submitted that the disallowance was not in accordance with the law. According to him, the Ld. CIT(A) has not rejected books of accounts u/s 145(3) of the Act and therefore he could not have arbitrarily made ad-hoc disallowance in the relevant year. He submitted that although the assessee had

Per contra, the Ld. DR vehemently opposed the plea of the Ld. AR and submitted that assessee had inflated the expenditure in the earlier year which led to the Special Audit and the claims were found to be not supported by any proper evidence. So according to Ld. DR, the AO/Ld. CIT(A) has rightly not allowed the expenditure in the absence of evidence. Therefore, the Ld. DR does not want us to interfere with the action of the Ld. CIT(A).

Having heard both the parties and after perusal of the record as noted by us, we find that the admitted facts of the case are that, the assessee is giving support service to various telecommunication operators and was functioning at more than 3300 work sites. In order to fulfill its contractual obligations with the various telecom operators, it largely depended on huge manpower. For that it had recruited number of raw recruits who were trained as trainees and sent to far flung places scattered all round the country. It was brought to our notice that the employees were mainly trainees for whom meager stipends were given till successful completion of their probation period. And since its sites were situated in the far flung areas of the West Bengal and there were no banking facilities and since the amounts/stipend were meager the disbursal of the same were made mainly through cash. Although the AO noted that ‘site expenses’ were to the tune of Rs.66,15,994/-, but it is noted that due to inadvertent error on the part of the accountant, certain items of site expenses to the tune of Rs.28,80,000/- & Rs. 8,00,000/- were erroneously transferred to the ledgers of ‘transportation expenses’ and ‘office expenses’ respectively. We thus note that the actual site expenses was to the tune of Rs. 1,02,95,994/- (Rs.66,15,994 + Rs.28,80,000/- + Rs.8,00,000/-). It is noted that the assessee had filed vouchers/ledgers for discharging the burden to prove the veracity of the claim (refer pages 33-83 of paper book). The details of sample appointment letters (refer pages 84-97 of paper book) and the rationale for payment

It is noted that the lower authorities were primarily influenced by the special audit carried out in the earlier assessment year and therefore nursed a suspicion in the mind while adjudicating this claim. It should be borne in mind that the maxim “falsus in uno fallsus in omnibus”meaning false in one thing is false in everything is not applicable in the Indian context as held by the Hon’ble Supreme Court in the case of Smt. Shakila Abdul Gofarkhan Vs. Vasant Raghunath Dhoble 2003 AIR SCN 5343 and Israr Vs. State of UP 2004 AIR SCW 6916. Even if for argument sake, certain flaws were found during the assessee’s special audit conducted for earlier year (i.e. AY 2013-14), the said Special Audit Report cannot be the sole ground for disbelieving the expenditure claimed in relevant year, without first discarding the evidence brought on record by the assessee to substantiate the claim and that too with cogent reasons. This, according to us, has not been done by the lower authorities. In that view of the matter, the impugned action of both the AO and Ld. CIT(A) in disbelieving the genuineness of expenses by relying on earlier year’s special audit is held to be untenable on facts and in law.

Moreover, according to us, no ad-hoc disallowance can be made without following the due process of law as contemplated u/s. 145 and 144 of the Act. Before making the ad- hoc disallowance of 90% of the site expenses, no defects in the books of accounts were brought on record by the Ld. CIT(A) nor books of accounts were rejected by him. In the

We also rely on the decision of this Tribunal in the case of ACIT vs. Shyam Sunder Agarwal (ITA No.l182/KOL/2013) dated 27-05-2016 wherein it was held that-

Moreover, the AO erred in disallowing the expenses by invoking u/s. 69C of the Act because, in this case, not only the expenses were recorded in the books of accounts but the assessee was also able to prove the source of expenditure claimed. The assessee has

In the light of the aforesaid discussion, and relying on the case laws (supra) and the peculiar facts and circumstances of the case, the disallowance of site expenses is hereby deleted. Ground No. 1 of the appeal stands allowed.

Next ground i.e. ground no. 2 of the appeal of the assessee is against the action of the Ld. CIT(A) in confirming the disallowance of office expenses of Rs.7,18,878/-.

Brief facts are that, according to the AO the assessee had incurred an amount of Rs.14,37,756/- which was shown as ‘Office Expenses’ as compared to the sum of Rs.5,39,518/- incurred in the last year. So, the assessee was asked to explain the significant increase. Pursuant to the query, the assessee explained that a sum of Rs.8,00,000/- was on account of ‘salary and wages’ payable at different sites which ought to have been transferred to the ledger of 'Site Expenses' but due to inadvertent error of the accountant of the company, it was wrongly transferred to the ledger of 'Office Expenses' and therefore if such sum is excluded, then the actual Office Expenses incurred by the assessee was only Rs.6,37,756/- (Rs.14,37,756 – Rs.8,00,000) which was comparable to the earlier year. In this regard, the Ld. AR drew our attention to the copy of the ledger of 'Office Expenses' which is enclosed at page 154-172 of the paper book, and particularly the entry dated 31-03-2014 (Page 172 of paper-book) whose narration read 'SALARY AND WAGES AMT. TRF's. As regards the actual sum of Rs.6,37,756/-, it was brought to the notice of AO that the said expenses were incurred for the purpose of procuring items such as hand soaps, bleaching powders, tea, snacks, coffee, stationary, coffee and tea vending machines and etc. and that

We have heard rival submissions and gone through the facts and circumstances of the case. It is noted that the assessee in order to substantiate the claim of office expenditure had filed vouchers/bills/ledger copies before Ld. CIT(A) and the remand report was also called for by the Ld. CIT(A) from AO. The main plank of the impugned disallowance was that according to AO the office expenses has increased significantly to Rs.14,37,756/- as compared to last year’s expenses of Rs.5,39,518/- and therefore 50% of such expenses were excessive in his view. As noted above, the office expenses during the current year was only Rs.6,36,756/- and not Rs.14,37,756/- as discussed (supra). This confusion arose because of the inadvertent error on the part of the accountant, which has already been discussed above. This fact even though was brought to the notice of the lower authorities but it was ignored. Having gone through the ledger and details of expenses, we agree with the Ld. AR that the actual office expenses was only Rs.6,87,756/- and not Rs.14,37,756/-. The said amount was commensurate with the office expenses incurred in earlier year and therefore the reasoning based on which the lower authorities justified the impugned disallowance stands vacated. Moreover, according to law, what has to be seen is whether the expenditure is genuine and the same has been incurred wholly for the purpose of the business. It is noted that the disallowance was made purely on surmises and conjectures. The said expenses were incurred for the purpose of procuring items such as hand soaps, bleaching powders, tea, snacks, coffee, stationary, coffee and tea for vending machines etc. which is necessary for units work sites also spreading to 3000 places. These items were purchased in the normal course of business and are found to be necessary for the smooth functioning of the business. Further, as already discussed while adjudicating Ground No. 1, Section 69C cannot be

Ground No. 3 is against the action of the Ld. CIT(A) confirming the disallowance of “Transportation Expenditure” of Rs.25,92,000/-.

Brief facts are that the AO noted from the ledger account of “Transportation Expenditure” of Rs.31,20,457/- that the assessee had booked expenses of Rs. 28,80,000/- on 31-03-2014. The AO held that the assessee is not able to substantiate the genuineness of these expenses and therefore disallowed the sum of Rs.28,80,000/- reflected in 31-03-2014 holding it to be unexplained expenditure u/s 69C of the Act. Before the Ld. CIT(A) it was submitted that there was a mistake and actually the sum of Rs.28,80,000/- was ‘salary’ paid to the trainees/employees stationed at different sites and the same should have been transferred to the ledger account of 'Site Expenses' but inadvertently, the accountant of the company, Mr. Basant Parakh had transferred the amount of Rs.28,80,000/- to the ledger of Transportation Expenses by way of a journal entry passed on 31-03-2014. The Ld. AR drew our attention to the ledger of Transportation Expenses (refer entry dated 31-03-2014). The narration of the entry it is noted as 'SALARY AND WAGES AMT. TRF'. Since these facts were not available at the time of assessment, the Ld. CIT(A) had remanded this issue to AO who rejected the explanation offered by the assessee, by stating that putting the blame on an employee is merely an afterthought of the assessee to hoodwink the department. The Ld. CIT(A) thereafter held that since the detailed vouchers showing actual expenditure were not available, but considering the nature of business of the assessee and the fact that the assessee was operating in more than 3000 sites, he allowed 10% of the transportation expenses and disallowed 90% of the transportation expenses amounting to Rs.25,92,000/-. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us.

Having heard both parties, we have already noted that, in this case due to the mistake of the accountant, as found earlier, Rs.28,80,000/- has been shown as expenses along with transportation expenses booked by the assessee. It has been brought to our notice that the transport expenses is to the tune of Rs, 2,40,457/- and the balance sum of Rs.28,80,000/- was on account of salary expenditure, which we have already taken note of while adjudicating the site expenses wherein we noted that site expenses included the salary disbursement of Rs.28,80,000/- was part of the said expenses. When this fact has been accepted by us, so the disallowance of Rs.28,80,000/- by the AO and the action of the Ld. CIT(A) confirming 90% of the said disallowance, is in itself erroneous and is accordingly directed to be deleted. Ground No. 3 is accordingly allowed.

Ground nos. 4 of the appeal of assessee is against the disallowance of sum of Rs.2,99,999/- debited under the head ‘Misc. Expenses written off’. The AO had disallowed the said claim on the ground that the assessee is not able to substantiate its claim by furnishing documentary evidences. During the course of appellate proceedings before the Ld. CIT(A), the assessee submitted the details of miscellaneous expenses with supporting vouchers enclosed at page 110-125 of the paper book. So, the Ld. CIT(A) called for remand report from AO. It was brought to the notice of the Ld. CIT(A) and the AO that, it would be evident from the supporting vouchers, the said expenses were incurred for the purpose of security licences fees, procuring sanitary items such as hand soaps, bleaching powders, purchase of food items such as tea/coffee/snacks for the staff, arranging review meetings at sites and etc. These expenses were incurred in the normal course of business and were actually office expenses which was inadvertently booked under the ledger 'Misc. Expenses written off. The AO however refused to accept the claim of the assessee on the ground that these documentary evidences were filed only during the appellate stage and these self-made vouchers were not sufficient to establish the genuineness of the expenses. The Ld. CIT(A) without appreciating the evidence filed by the assessee and sustained the addition made in the assessment order by finding fault with some inadvertent error (copy of same voucher placed twice in the paper book) and also alleging split up of payment and discarding all

Assailing the action of Ld. CIT(A), the Ld. AR pointed out that each of the voucher furnished contained the purpose of expenditure incurred. And if the AO would have gone through the vouchers then he would have definitely found that the expenditures were incurred for specific purposes. According to Ld. AR, the remand report clearly shows that he (AO) had not verified the vouchers and rejected the claim of the assessee without application of mind. Per contra, the Ld. DR supported the order of the lower authorities.

Heard both the parties. The Ld. CIT(A) had first pointed out that the voucher Nos. 117 & 118 were the same and according to him the bills were split up to avoid scrutiny. This particular anomaly led him to disbelieve the genuineness of expenditure. It is noted that the Ld. CIT(A) had wrongly referred to Page Nos. 117 & 118 of the paper-book placed before him as Voucher Nos. 117 & 118. It has been brought to our notice that inadvertently, the same voucher was placed repeatedly at page 117 of the paper book and again at page 118 of the paper book filed before the Ld. CIT(A). Thus, the same voucher has been placed twice in the paper book. The Ld. CIT(A) mistook the 'page number of the paper book viz 117 and 118' as 'voucher number 117 and 118'and erroneously alleged that bills have been split to avoid scrutiny. We however note that it is the same bill dated 28-09-2013 placed at page 117 and page 118 which he has been referring to in his order. As such, this anomaly raised by Ld. CIT(A) stands explained.

It was further observed by the Ld. CIT(A) that self-made vouchers were furnished without any supporting bills, In our view, merely because expenses incurred were incurred in cash and were supported by self-made vouchers, the same cannot be disbelieved for making disallowance in the hands of the assessee. It is noted that the Ld. CIT(A) has not recorded any specific finding to allege that the expenses incurred by the assessee were either in-genuine or not incurred for the purposes of business. The only anomaly pointed out by Ld. CIT(A) has been found to be duly explained in the preceding paragraph. The

Ground no. 5 of appeal of the assessee is against the disallowance of subscription and donation of Rs.l,71,861/-. Brief facts as noted by the AO are that during the year, the assessee incurred an amount of Rs.l,71,861/- on account of subscription and donation paid to local puja committee and local clubs. The AO opined that since donation and subscription paid to local puja committee and local clubs are not eligible for deduction u/s 80G of the Act, such donation is not wholly and exclusively for the purpose of business and hence the sum was disallowed in the assessment order. On appeal, the Ld. CIT(A) confirmed the same. Aggrieved, the assessee has come before us.

Heard both the parties. It is noted that the subscription has been paid to different committees and associations towards Jagadhatri Puja/Kali Puja/ Mohurram in the local vicinity where the assessee operates its business. According to Ld. AR these subscriptions are paid to the local clubs / committees etc. for smooth functioning of the business. He submitted that these expenses have not been incurred for the personal benefit of the directors/employees but are exclusively incurred for the purpose of business and is therefore an allowable expense u/s 37 of the Act. Upon perusing the details of the donation and subscription, which is placed at pages 126-136 of the paper book, we find merit in the claim of the assessee. For this, we rely on the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Bata India Ltd. (1993) 201 ITR 884 (Cal) wherein it was held that,

Ground no. 6 of assessee’s appeal is against the disallowance of Balance written off of Rs.2,14,904/-. Brief facts as noted the AO are that the assessee has claimed Rs.2,14,904/- as balances written off. The assessee was asked to explain the same. In this regard, it was submitted that the ‘Balances written off’ consists of the following items:

The detailed ledger and supporting journal entry were brought to the notice of authorities below and is found placed at pages 152-153 of the paper book. In this regard, it is noted that the assessee company had paid excess TDS on contractor amounting to Rs.1,75,312/- and excess VAT of the Rs.40,550/- in the earlier years and therefore, the same was lying outstanding in the books, since these excess statutory payments were no longer realizable, the assessee decided to write off these amounts standing in the books. Since the balances were written off in the normal course of business, the assessee claimed that it is allowable u/s. 37 of the Act. However the Ld. CIT(A) did not appreciate the same and sustained the order of the AO. In this context, it is noted that since these excess statutory payments were no longer realizable, the assessee has written off these amounts standing in the books. According to assessee, since these balances were written off in the normal course of business, the same is allowable u/s. 37 of the Act. However, it is not clearly discernible as to whether the assessee had actually written off this claim in the books of the assessee so, the same is restored back to AO for verification. Excess VAT payment and other two items the AO may verify whether these amounts had been actually written off in the books and netted off in the respective asset heads. He may also verify whether these write off are in

Ground no.7 is against the disallowance of Rs.16,45,657/- on account of interest paid on delayed payment of tax. Brief facts as noted by the AO are that, during the relevant Assessment Year the assessee had made delayed payment of its statutory dues namely service tax, professional tax and TDS and hence it had to pay interest of Rs.16,45,657/- for making delayed payment of its statutory dues. The assessee thereafter claimed the said interest expenditure in the return of income which was disallowed by the AO holding that the interest payment was penal in nature.

In the appellate proceedings before the Ld. CIT(A), the assessee claimed that the interest payment disallowed by the AO was compensatory in nature and not penal in nature and therefore the same is allowable u/s 37 of the Act. In this regard, the assessee relied upon the judgment of the Hon'ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254ITR 799. Following the decision of the Hon’ble Apex Court and other judicial precedents cited before him, the Ld. CIT(A) deleted the disallowance of interest paid by the assessee on delayed payment of service tax and professional tax. The Ld. CIT(A) however upheld the disallowance of interest paid on delayed payment of TDS by relying on the judgment of the Hon'ble Madras High Court in the case of CIT vs Chennai Properties and Investment Ltd reported in (1999) 239 ITR 435. Aggrieved by this action, the assessee is now in appeal before us.

We have heard both the parties and perused the judicial precedents available on this subject. The question before us is, whether the interest paid on non-deduction of TDS/late payment of TDS can be claimed as expenditure for determining the taxable income. The Ld. AR of the assessee pointed out that for claiming any expenditure under the head ‘Profits & Gains from Business’, it has to be in pursuance to the provisions of Section 30 to 37 of the Act and such expenditure should not be subjected to disallowance u/s 40 or 43B of the Act. So, it is first required to be ascertained as to whether the interest paid on TDS qualifies as

The Ld. AR of the assessee has rightly pointed out that the tax deducted/withheld (TDS) on the expenses for and on behalf of the recipient, is somewhat akin to collection and payment of GST, professional tax, VAT etc., which is also discharged and paid for on behalf of the Government. Like GST, professional tax, VAT, even the TDS is a deductible item of business expenditure. The Hon’ble Supreme Court in the case of Lachmandas Mathura Vs. CIT (supra) has held that interest paid on delayed payment of taxes are compensatory in nature and therefore should be treated as expended wholly and exclusively for the purposes of the business or profession. Since the responsibility of payment of taxes including deduction and remittance of TDS is part and parcel of the business operations of the assessee, any consequences arising there from has direct connection with the business operations of the assessee. We therefore find merit in the contention of the Ld. AR that the interest expended on discharge of such vicarious liability concerning payment of TDS is compensatory in nature and therefore eligible for deduction u/s 37 of the Act. The aforesaid view finds support from the following observations of the Hon’ble Karnataka High Court in

The above proposition can also be looked at from another angle. Section 40(a)(ii) of the Act uses the phrase "profits or gains of any business or profession". The Hon’ble Supreme Court in the case of JaipuriaSamla Amalgamated Collieries Ltd. vs. CIT (82 ITR 580) has held that, the words "profits or gains of any business or profession" employed in section 40(a)(ii), have reference only to profits or gains as determined u/s 28/29 of the Act. Hence, on conjoint reading of the decisions of the Hon’ble Supreme Court in the cases of JaipuriaSamla Amalgamated Collieries Ltd. vs. CIT (82 ITR 580) and Bharat Commerce & Industries Ltd. v. CIT (supra), it can be safely inferred that Section 40(a)(ii) of the Act cannot bring within its ambit any tax or interest paid on any other sums apart from profits or gains earned in business. In the present case, the assessee had paid interest under Section 201(1A) on delayed payment of TDS. The said TDS represented the taxes paid for an on behalf of the payees to the credit of the Government. Section 199 of the Act in clear terms provides that, any deduction of tax and payment thereof to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. In other words, TDS is treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made. It is therefore evident that ‘TDS’ qua the assessee, is not income-tax on its "profits or gains of any business or profession" assessable u/s 28 of the Act. Instead it is the tax on the profits and gains of the business of the recipient.

Ground no. 8 is against the disallowance in respect of Claim of Gratuity and Leave Encashment Payment of Rs.71,18,021/-. Brief facts of the issue are that, the assessee had originally e-filed its return of income for AY 2014-15 on 26-11-2014 declaring total income of Rs.4,94,33,170/-. Subsequently, the assessee e-filed revised return declaring total income of Rs.4,23,15,150/-. On perusal of the return it was observed that the assessee had claimed deduction for the Gratuity and Leave Encashment ofRs.71,18,021/- written back in the P&L A/c. According to AO, the TAR did not reflect that the Gratuity and Leave Encashment of Rs.71,18,021/- was actually paid before the due date of filing the return and therefore the AO rejected the claim of the assessee and disallowed sum of Rs.71,18,021/- in the assessment order.

During the course of appellate proceedings before the Ld. CIT(A), it was submitted that Gratuity and Leave Encashment ofRs.71,18,021/- was debited in the books in AY 2011- 12. In the order passed u/s 143(3) dated 17-02-2014 for AY 2011-12, the AO had disallowed the Gratuity and Leave Encashment of Rs.71,18,021/- on account of non- payment u/s 43B of the Act. Since these liabilities, which were brought forward from AY 2011-12, were no longer required, it was written back in the books in the current year and accordingly, the assessee credited the sum of Rs.71,18,021/- under the head ‘Liability no longer required written back' and the same was shown in the audited accounts under the head 'Non Operating Income'. The breakup of 'Non Operating Income' is as follows:

According to assessee, since the expense of Rs.71,18,021/- was disallowed in the assessment order of A Y 2011-12, the write back of such sum upon its cessation in the relevant AY 2014-15 was not taxable and hence it was rightly excluded while computing the taxable income. According to assessee, the impugned disallowance tantamounts to double addition of the same sum of Rs.71,18021/- which had already been disallowed in the year of debit i.e. AY 2011-12. A copy of the original computation, revised computation and assessment order for AY 2011-12 was submitted before the Ld.CIT(A), which is found placed at page 182-185 of the paper book. In the remand report, the AO himself stated that “the explanation of the assessee is considered and appears to be acceptable”[refer page 213 of the paper book]. Assailing the action of the Ld. CIT(A), the Ld. AR submitted that the Ld. CIT(A )simply ignored the submission filed by the assessee and the remand report of the AO and directed the AO to verify the return of income filed by the assessee for the current year and the assessment order of AY 2011-12 and verify whether gratuity and leave encashment has been disallowed in A Y 2011-12 or not. According to the assessee, this action of the Ld. CIT(A) was erroneous and by doing so, the Ld. CIT(A) has exceeded his jurisdiction. Per contra, the Ld. DR submitted that the Ld. CIT(A) only asked the AO to verify the veracity of the claim of the assessee and so the Ld. AR need not to get perturbed by the action of Ld. CIT(A), so he does not want us to interfere with the order of the Ld. CIT(A).

Having heard both the parties, we note that in AY 2011-12, the assessee had claimed expenditure to the tune of Rs.71,18,021/- in relation to gratuity and leave encashment which had been disallowed in the assessment order dated 17.02.2014 for AY 2011-12, found placed at pages 182 – 183 of the paper book. This piece of contemporaneous evidence was available both before AO & CIT(A). It was this very sum, which was written back in the P&L A/c of the relevant year, as these expenses were no longer payable. Since the expense was never allowed as deduction in the year of debit/accrual i.e. AY 2011-12, the corresponding write back also cannot be taxed, having regard to the extant provisions of Section 41(1) of the Act. In view of the

In the result, appeal of the assessee is partly allowed.