JAGDISH CONSTRUCTION LTD,M.P. vs. ADDL CIT 4(2), MUMBAI

Briefly the facts are, the assessee, a company, is engaged in the business of civil constructions, mining, excavation and transportation. For the assessment year under dispute the assessee filed its return of income on 29.09.2012 declaring total income of Rs. 61,11,620/-. During the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of Rs. 31,10,640/- to the profit and loss account towards various expenditures. Therefore, he called upon the assessee to furnish supporting bills and also prove that such expenditure was incurred wholly and exclusively for the purpose of business. In response to the query raised by the Assessing Officer, the assessee furnished bills and vouchers to justify the claim of the expenditure. However, the Assessing Officer was not satisfied with the evidences furnished by the assessee. Therefore, he disallowed 10% out of the expenditure claimed of Rs. 31,10,640/- which worked out to Rs.3,11,064/-. The assessee challenged the aforesaid disallowance before ld. Commissioner (Appeals). After considering the submissions of the assessee ld. Commissioner (Appeals) reduced the disallowance to 5% of the total expenses claimed by the assessee. Ld. Authorized Representative submitted, as against the total turnover at Rs. 19 crores shown by the assessee, expenditure incurred under various head amounted to Rs. 31,10,640/-. Further, she submitted, all expenditures are supported by authentic bills and vouchers. Further, she submitted, under identical facts and circumstances the Tribunal in assessee’s own 3 Jagdish Construction Ltd. case for assessment year 2004-05 had deleted the disallowance made by the Assessing Officer. She submitted, given an opportunity, assessee can prove all the expenditure claimed through proper documentary evidence. Thus, she submitted, the issue may be restored back to the file of the Assessing Officer.

The ld. Departmental Representative, though, relied upon of the observations of the Commissioner (Appeals), however, he has no objection for restoring the issue to the Assessing Officer for fresh adjudication.

We have considered rival submissions and perused the material on record. It is evident, out of the total expenditure claimed of Rs. 31,10,640/- under various heads, the Assessing Officer has disallowed 10% on ad hoc basis which has been reduced to 5% by the ld. Commissioner (Appeals). It is the claim of the assessee before us that all expenditures claimed are supported by authentic bills and vouchers. It is also submitted that under identical facts and circumstances the Tribunal in assessee’s own case for A.Y. 2004-05 has deleted the addition. Considering the aforesaid submissions of the ld. Authorised Representative, we are inclined to restore the issue to the file of the Assessing Officer to examine afresh keeping in view the documentary evidences to be filed as well as the order of the Tribunal claimed to have been passed for assessment year 2004-05. Needless to mention, the Assessing Officer must afford reasonable opportunity of being heard to 4 Jagdish Construction Ltd. the assessee before deciding the issue. This ground is allowed for statistical purposes.

The next issue relates to disallowance of Rs. 15,20,541/- u/s 40(a)(ia) of the Act. Briefly the facts are, during the assessment proceedings the Assessing Officer noticed that the assessee has paid interest amounting to Rs. 15,20,541/- to Non-Banking Financial Institutions (NBFC) without deducting tax at source u/s 194A of the Act. Accordingly, he disallowed the said amount u/s 40(a)(ia) of the Act. Though, the assessee challenged the aforesaid disallowance before the First Appellate Authority, however, he also sustained the disallowance made by the Assessing Officer. The ld. Authorized Representative submitted, though, the assessee has not deducted tax at source while paying the interest, however, the payees have offered the payment received by them as income and have also paid tax. She submitted, though, before the Commissioner (Appeals) the assessee has submitted documentary evidences supporting the aforesaid claim, including certificate from the concerned Chartered Accountant as per the provision of section 201 (1), however, Ld. Commissioner (Appeals) sustained the disallowance without entertaining the evidence filed by the assessee. Thus, ld. Authorised Representative submitted, the issue may be restored back to the Assessing Officer for considering assessee’s claim after verifying the evidences. In this context ld. Authorised 5 Jagdish Construction Ltd. Representative drew our attention to the certificate issued by the Chartered Accountant placed in the paper book.

The ld. Departmental Representative has no objection for fresh verification of assessee’s claim by the Assessing Officer.

We have considered the rival submissions and perused the material on record. Though, it may be a fact that while paying interest of Rs. 15,20,541/- the assessee has not deducted tax at source, however, before the First Appellate Authority the assessee has produced documentary evidences by way of additional evidence to demonstrate that payees/recipient of interest from the assessee have not only offered such income but have also paid tax on it. As could be seen from the facts on record, ld. Commissioner (Appeals) has refused to entertain the additional evidences submitted by the assessee simply on the ground that the assessee did not produce them before the Assessing Officer. In our view, rejection of the additional evidences produced by the assessee at threshold is improper. If the payees, as claimed by the assessee, have offered the interest income to tax, then as per proviso to section 201 (1) read with second proviso to section 40(a)(ia) of the Act, no disallowance can be made u/s 40(a)(ia) of the Act. Therefore, to establish such claim if the assessee furnishes documentary evidences as per the statutory provision, they should not be rejected on technical ground. In view of the aforesaid, we are inclined to restore the issue to the Assessing Office to examine assessee’s claim that the payees have 6 Jagdish Construction Ltd. offered the interest income to tax in the relevant assessment year. In case the assessee is able to establish its claim through proper documentary evidences, in our view, no disallowances u/s 40(a)(ia) can be made. This ground is allowed for statistical purposes.

In the result, assessee appeal is allowed for statistical purposes.