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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI K. NARSIMHA CHARY
PER SHRI K.N. CHARY, J.M. Aggrieved by the order dated 12.07.2013 in appeal no.
82/12-13/CIT(A)-III relevant to the assessment year 2010-11 passed by the Ld. Commissioner of Income Tax (Appeals)-III, New Delhi (hereinafter for short referred to as the “Ld. CIT(A)”), Assessee preferred this appeal on the following grounds:
1. “The Ld. CIT (A) has erred in law and facts of the case in confirming the addition of Rs. 51,00,000/- made by the AO by rejecting the claim of expenses incurred for the business, which is arbitrary, baseless, unjustified and bad in law.
The assessee craves to leave the right to add, amend or modify the grounds of appeal.” 2. Briefly stated facts are that the assessee is a company engaged in the business of providing IT enabled connectivity, management and control of buildings, integrated facilities and public infrastructure leading to remote facility management. Copy of profit and loss account, balance sheet and audit report u/s 44AB of the Act, for the year under consideration, was submitted by the assessee during the course of assessment proceedings. For the AY 2010-11 they have filed their return of income on 15.10.2010 declaring a total loss of Rs. 2,11,32,933/-. During the scrutiny AO found that as compared to the earlier assessment order there was a huge increase in the proportionate cost of project material. He called upon the assessee to explain why there is huge difference in the cost of material at 40.64% in the earlier, whereas it happens to be at 49.73% for the current year. Not being satisfied with the explanation of the assessee that it is not an abnormal thing in Hi-tech business, AO verified the details of cost of material and found that the assessee had debited a sum of Rs. 51,00,000/- in its projects-import ledger account. AO recorded a finding that the assessee did not respond to the clarification sought by way of order sheet entry dated 24.12.2012, as such, AO disallowed the expenses to a tune of Rs. 51 lakhs and added the same back to the income of the assessee.
3. In appeal Ld. Commissioner sought the very same information from the assessee. It seems before the Ld. CIT (A) assessee produced the ledger account books in respect of Rs. 20,49,100/- relating to the invoices issued by two parties namely Tridonic Atco and Nesma Trading Company respectively. On verification of these amounts of expenditure namely Rs.6,43,867/- under invoice dated 16.03.2010, Rs. 7,56,214/- under invoice dated 30.01.2011 issued by Tridonic Atco and Rs. 6,49,019/- invoice dated 30.01.2011 issued by Nesma Trading Company, Ld. CIT (A) recorded that the assessee’s name is not to be found on the invoice dated 16.03.2010, whereas under invoice dated 30.01.2011 issued by Tridonic Atco and Nesma Trading Company the goods were delivered one and half year and one year respectively earlier to the issuance of the invoice, as such, Ld. CIT (A) thought that it is quite unlikely, as such, they cannot be believed. On this score, he rejected the expenses to a tune of Rs.20,49,100/- covered by the invoices referred to above. In respect of the balance amount of Rs. 30,50,900/- the Ld. CIT (A) stated that in spite of number of demands the assessee failed to furnish the details in respect of the expenditure covered by this amount, as such, the same has to be disallowed. As a net result of the above discussion, Ld. CIT (A) upheld the disallowance to the tune of Rs. 51 lakhs and dismissed the appeal. Hence, the assessee is before us in this appeal.
It is the submission of the Ld. AR that the project under the name and style M/s Saudi International Petrochemical Company (SIPCHEM) was started in the AY 2008-09 and was completed in the AY 2010-11. The assessee recognized an income of Rs. 3,00,61,376/- for the year ending with 31.03.2010 and all the expenses incurred against the said project were also booked in the same year. In that process an expenditure of Rs. 1,64,30,323/- under the head “Cost of material”, including an amount of Rs. 51 lakhs relevant for this appeal and such, Rs. 51 lakhs was provided as expenditure being payable for the year under consideration.
According to the assessee, since the project work is spread in so many countries there is a long gap between the services provided and the bills of expenses received. Further the income was booked instantly on the basis of negotiation as soon as acknowledge by the client. This resulted in booking the Revenue in full, but the corresponding amount of expenses were also booked in compliance with the matching concept. According to the Ld. AR having made the provision for the expenses to a tune of Rs. 51 lakhs, at the end of the year the negotiations were kept going on and finally the expenses only to the tune of Rs. 20,41,000/- were materialized. In these circumstances, the assessee considered the balance provision amount of Rs. 30,50,900/- as no longer necessary and written off the liability to the tune of Rs.30,50,900/- in the next year and paid the taxes thereon.
However, without appreciating these facts Ld. CIT (A) dismissed the appeal stating that no details for Rs. 30,50,900/- were furnished, as such, such expenses are liable to the disallowed and in so far as the balance amount of Rs. 20,40,900/-, the invoices were not found to be satisfactory, as such, that amount is also liable to be disallowed.
Ld. DR argued that there is an attempt to over write the invoices as is evident from the invoice dated 30.01.2011 said to have been issued by Nesma Trading Company and the authorities below are quite justified in disallowing the expenses for want of proof. Further according to the Ld. DR when the assessee received goods long prior to the end of the relevant assessment year, there was no reason as to why there is a provision for Rs. 51 lakhs, where the goods were received in respect of only Rs. 20,49,100/-.
According to the Ld. DR the profit is shifted unduly from the AY 2010-11 to the subsequent year by dubious methods. He further submits that when the Ld. AR submits that in this digital age the transactions are done in e-form, as such, bills etc. need not be looked into, there is no reason for the delay in the assessee securing the invoices. When the goods were received in the earlier financial years the assessee should have made the provision in those years only.
As could be seen from the assessment order by paragraph No. 4, AO recorded that in respect of the debit entry relating to Rs.51 lakhs in the project import ledger account of the assessee, the assessee was called upon to clarify the same with reasons for claiming the provision of expenses vide order-sheet entry dated 24.12.2012 but no proper reply was given. Ld. CIT (A) also vide paragraph No. 4.2 of his order recorded that during the appellate proceedings the assessee was called upon to furnish the information relating to the details of the expenses of Rs. 51 lakhs along with necessary vouchers, bills and justification as to how they were towards business expenses and the nature of expenses for which the provision was created in the year under consideration. Ld. CIT (A) further recorded a finding that the assessee produced three invoices namely two invoices issued by one Tridonic Atco and one by Nesma Trading Company, whereas no details in respect of the expense of Rs. 30,50,900/- was ever produced. There is no dispute in respect of the observations of the Ld. CIT (A) that the delivery of goods under the vouchers submitted by the assessee took place more than one year prior to the date of invoices. In such an event, we do not find any reasonable explanation from the assessee as to why the provision is created for the amounts more than twice the expenditure that was incurred towards purchase of goods.
Further even before us the assessee did not produce any material to co-relate the commercial invoice no. 92335948 dated 16.03.2010 with the assessee, except the payment schedule. So also in respect of the other two invoices, the suspicion entertained by the Ld. CIT (A) does not seem to be baseless. When the assessee is taking shelter of the digital age for not producing the invoices in original, delivery notes, project order, shipment note, delivery note or any other correspondence evidencing the placing of order and receiving the same in the year under consideration, we are of the opinion that for the same reason the assessee should not have pleaded any delay in receiving the invoices. When the goods were delivered even according to the assessee more than a year prior to the dates of invoices, nothing prevented the assessee from securing the relevant documents in digital form without any delay. The defense taken by the assessee for not producing the documents sought for by the authorities below does not fit in the explanation offered by them, or to explain the receipt of invoices more than one year or one and half year after the delivery of goods. The goods must have been entered in the inventory and in different registers at different places may be in physical or digital form. But the assessee is unable to produce the required documents and their communication in any form. In the circumstances, we find it difficult to brush aside the observations of the Ld. CIT (A) that the non furnishing of the primary details at any stage of proceedings and the infirmities in the documents that were produced at the appellate stage, created a reasonable doubt as to the authenticity of the provision and the expenditure. We do not find anything unusual in the Ld. CIT (A) entertaining a doubt that it is very unlikely that a foreign supplier waits for a year or so for issuing the invoices and receiving the payments after delivery of goods. Certainly this unusual commercial transaction requires the proof in the form of the terms and conditions, correspondence and other evidence like delivery note, shipment note, etc.
Assessee failed to plead before us any reasons for their inability in securing such evidence at least by now in support of their contentions. All these facts put together, do not inspire any confidence in our mind to believe that when the goods were delivered for a sum of Rs. 20,49,100/-, the assessee does not know the probable value thereof and went on to create the provision for a sum of Rs. 51 lakhs, could not secure the primary evidence even in respect of the expenditure that was booked, and unable to explain why the balance provision for Rs. 30,50,900/- had to be created. All these things show that at the end of the relevant financial year the assessee did not have even the faintest idea as to the probable expenditure that may have to be paid for which the provision has to be created. We, therefore, find that the plea taken by the assessee does not seem to be believable ex facie, as such. With this view of the things, we do not propose to interfere with the findings of the Ld. CIT (A) while dismissing the appeal. We, therefore, find the appeal devoid of merits and accordingly, the same is liable to be dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 16.11.2017