STARWORTH INFRASTRUCTURE AND CONSTRUCTION LTD,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE

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ITA 1713/BANG/2017Status: DisposedITAT Bangalore07 August 2020AY 2011-128 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO made an ad-hoc disallowance without examining the detailed documentation provided by the assessee. The disallowance was not justified as the assessee had furnished all relevant details and payments were made through banking channels.

What were the facts?

The Assessing Officer (AO) disallowed Rs. 15 lakhs from expenses claimed for cement and material purchases, stating incomplete vouchers and self-made bills. The assessee provided purchase registers, supplier details with TIN numbers, and evidence of banking channel payments.

What were the issues?

Whether an ad-hoc disallowance of expenses is justified when the assessee has provided supporting documentation and evidence of payments through banking channels.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE

Before: SHRI B. R. BASKARAN & SHRI PAVAN KUMAR GADALE

For Respondent: Smt. Priyadarshini Misra, D.R
Hearing: 28.07.2020Pronounced: 07.08.2020

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

1.

The assessee has filed this appeal challenging the order dated 27.3.2017 passed by Ld. CIT(A)-6, Bengaluru and it pertains to the assessment year 2011-12. The grounds urged by the assessee relate to the addition of Rs.15.00 lakhs made by the A.O., being the disallowance made on estimated basis, out

Starworth Infrastructure and Construction Ltd., Bangalore of expenditure claimed towards purchase of cement and purchase of other materials.

2.

The facts relating to the issue are stated in brief. The assessee company is a 100% subsidiary of M/s. Puravankara Ltd., a listed company and is engaged in the business of civil construction. The return filed by the assessee for assessment year 2011-12 was taken up by the A.O. for scrutiny. The A.O. noticed that the direct expenses claimed by the assessee included “purchase of cement” and “purchases of other materials”. The A.O. called for the details from the assessee.

According to the A.O., the assessee was not having complete vouchers and most of the bills were self-made. Accordingly, the A.O. disallowed a sum of Rs.5.00 lakhs out of cement purchase expenses and Rs.10.00 lakhs out of other materials purchased.

Accordingly, the A.O. made addition of Rs.15.00 lakhs in aggregate. The same was confirmed by Ld. CIT(A) and hence the assessee is in appeal before the Tribunal.

3.

The ld. A.R. submitted that the assessee has furnished all the details with regard to the purchase of cement and other

Starworth Infrastructure and Construction Ltd., Bangalore materials before the A.O, vide its letter dated 3.2.2014 furnished before the A.O. Inviting our attention to the copy of the said letter and also the annexures attached thereto, the Ld. A.R. submitted that the assessee has furnished complete details of materials purchased and other direct costs incurred in construction activities. Further, the assessee has also furnished extract of “purchase register”, which contained the details of supplier’s name, items purchased, purchase order number, inward receipt voucher number and date of receipt of materials.

The assessee also furnished the details of suppliers, who have supplied the materials along with their respective TIN numbers.

The Ld. A.R. submitted that the assessee has made all the payments to the suppliers through banking channels only. He submitted that the books of accounts of the assessee have been audited. He submitted that the AO has not found fault with any of these details. He submitted that all the purchases are supported by vouchers, books of accounts, subsidiary registers and also by the payments made through banking channels.

Accordingly, the Ld. A.R. submitted that the A.O. was not Starworth Infrastructure and Construction Ltd., Bangalore justified in making adhoc disallowance, without pointing out any mistakes either in the books of accounts or in the details furnished by the assessee.

4.

The ld. A.R. submitted that the assessee has also made detailed submissions before Ld. CIT(A), inter-alia, contending that the adhoc disallowance made by the AO, without pointing out defects in the books of accounts, is not justified. He submitted that the Ld. CIT(A) also did not examine the details furnished by the assessee and accordingly confirmed the disallowance. The Ld. A.R. placed his reliance on the decision rendered by Hon’ble Punjab & Haryana High Court in the case of CIT Vs. S.S.P. (P) Ltd. (2011) 14 Taxmann.com 87, wherein the Hon’ble Punjab & Haryana High Court has held that adhoc disallowance made without there being any material to justify such disallowance and without pointing out deficiencies in the claim of the assessee, is not justified. Accordingly, the Ld. A.R. prayed for deletion of the disallowances made by the A.O. and confirmed by Ld. CIT(A).

Starworth Infrastructure and Construction Ltd., Bangalore

5.

On the contrary, the Ld. D.R. submitted that the A.O. was constrained to make the adhoc disallowance, since the assessee was not having complete vouchers and most of the bills were self-made. The assessee did not furnish documentary evidences in support of its claim before Ld. CIT(A) also. Accordingly, the Ld. D.R. submitted that the disallowances made by the A.O. should be upheld.

6.

We heard the rival contentions and perused the record.

We notice that the A.O. has made a general observation in the assessment order to the effect that the assessee was not having complete vouchers and most of the bills were self-made. We notice that the above said observation is contrary to the details furnished by the assessee before the A.O. along with letter dated 3.2.2014. The said details would show that the assessee has furnished complete details of materials cost and other direct costs, along with copy of extract of purchase register. A perusal of the same would show that it contains the details of supplier’s name, purchase value, nature of item purchased, purchase order number, material receipt number and material

Starworth Infrastructure and Construction Ltd., Bangalore receipt date. Further, the assessee has also furnished the details of suppliers along with their respective TIN number. It is also stated that the payments have been made to all purchases through banking channels only. Thus, we notice that the assessee has furnished all the relevant details relating to the purchase of materials. Further, the purchases of materials have been corroborated by the purchase register and the payments made through banking channels. It is also submitted that all the suppliers are having TIN numbers, meaning thereby, the suppliers have also been identified. We notice that the assessee has furnished the complete details before the A.O. to prove the purchase of materials. We notice that the A.O. did not examine any of the details furnished by the assessee. If the AO had any doubt about the expenditure, he should have conducted further enquiries to find out genuineness of claim made by the assessee. On the contrary, we notice that the AO has proceeded to make adhoc disallowance by making general observations. It is also pertinent to note that the A.O. has also not pointed out any specific deficiencies, which may disentitle

Starworth Infrastructure and Construction Ltd., Bangalore the assessee to claim the expenses. Accordingly, the decision rendered by Hon’ble Punjab& Haryana High Court in the case of S.S.P. (P) Ltd. (supra) would support the contentions of the assessee. We also notice that the Ld. CIT(A) has also failed to examine the details furnished by the assessee before him.

Under these set of facts, we are of the view that the adhoc disallowance made by the A.O. and confirmed by Ld. CIT(A) is not justified. Accordingly, we set aside the order passed by Ld. CIT(A) and direct the A.O. to delete the above said adhoc disallowance of Rs.15.00 lakhs.

7.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 07.08.2020.

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