SSA PROJECTS PVT. LTD.,DELHI vs. ACIT, CIRCLE-5(3)(1), G B NAGAR, NOIDA

The assessee explained before the ld. NFAC, Delhi regarding consumable expenses of Rs.7,32,518/-, this amount was not included in the cost of material consumed and that cost of material consumed which was debited in profit and loss account only consist of raw material used. Apart from that, there was separate consumable expenses which were not forming part of raw material consumed. The assessee enclosed the ledger account of Consumable expenses in that regard to prove that the same were incurred wholly and exclusively for the purpose of business and there was no duplication of deduction claimed by the assessee. With regard to salary and wages, the assessee submitted that it had maintained all proper records along with documentary evidences for the same. The month wise employee wise details were enclosed by the assessee for the kind reference of the ld. NFAC, Delhi. With regard to expenses such as Works Contract Tax, Rent charges, business promotion expenses, consultancy expenses, conveyance and vehicle expenses, vehicle running expenses, insurance, newspapers & periodicals, repairs & maintenance and telephone expenses, the assessee submitted that it had maintained proper books of accounts, vouchers and supporting evidences and the entire books of accounts were duly produced for the verification of the ld. NFAC, Delhi. It was also pointed out that the ld. AO had taken incorrect amounts while making disallowance in respect of legal and professional expenses, insurance charges and newspapers & periodicals. Further it was pointed out that disallowance of business promotion expenses was made twice on adhoc basis as the same was considered once while disallowing the Miscellaneous Expenses and again while disallowing other expenses. It was specifically pointed out that no defects were pointed out by the ld. AO in the books and SSA Projects Pvt. Ltd. vs. ACIT 4 evidences submitted by the assessee and hence without invoking the provisions of section 145(3) of the Act, the ld. AO could not have resorted to make adhoc disallowance of expenses. The assessee also furnished a chart of various expenses in tabular form with comparative figures for the Asst Years 2014-15, 2015-16, 2016-17 and 2017-18 which are tabulated in Pages 10 to 13 of the order of the ld. NFAC, Delhi together with the corresponding net profit for the relevant years. It was submitted that the net profit of the assessee had increased during the year and expenses incurred for the year are more or less comparable with that of preceding years. The ld. NFAC, Delhi however, completely ignored all the contentions of the assessee and resorted to uphold the disallowance of expenses made by the ld. AO on adhoc basis. The ld. NFAC, Delhi however, directed the ld. AO to consider the correct figure of legal and professional charges, business promotion expenses to be considered only once, insurance amount, newspapers & periodicals. The ld. NFAC, Delhi also resorted to enhance the adhoc disallowance of other expenses from 10% to 15%.

At the outset, we find that the books of accounts were completely produced before the lower authorities by the assessee. The assessee had duly furnished the complete details of consumable expenses, works contract tax, site rent expenses, business promotion expenses, consultancy expenses, legal & professional expenses, conveyance expenses, labour charges paid, bonus/exgratia charges, repairs & maintenance , salary & wages paid before the lower authorities. The assessee had also produced the audited financials for the years ended 31.3.2014, 31.3.2015, 31.3.2016 and 31.3.2017 to enable the lower authorities to have a comparison of each of the expenditure that is sought to be disallowed. We find that all the expenses are duly comparable with that of the earlier years. No specific defects were SSA Projects Pvt. Ltd. vs. ACIT 5 pointed out by the ld. AO or by the ld. NFAC, Delhi on the same. Merely making a general bald statement that vouchers submitted are not verifiable, personal element of expenses cannot be ruled out , etc would not suffice. The assessee is a private limited company and the books of accounts were duly subjected to statutory and tax audit as per the provisions of the Companies Act and Income Tax Act. Admittedly, the lower authorities had not resorted to reject the book results of the assessee company by invoking the provisions of section 145(3) of the Act. In any event, there is no scope for making any adhoc disallowance in the facts and circumstances of the instant case. Accordingly, the Ground Nos. 2 to 7 raised by the assessee are hereby allowed.

Ground No. 8 raised by the assessee is challenging the addition made on account of cash deposits made during the demonetization period in the sum of Rs.39,80,500/-.

We have heard the rival submissions and perused the material available on record. The learned AO observed that assessee had made cash deposit of Rs.39,80,500/- during the demonetization period. In pages 2 and 3 of his assessment order, the learned AO prepared a tabulation of cash withdrawals, cash deposits, opening balance and closing cash balance from the period Sep 2015 to Dec 2015 and Sep 2016 to Dec 2016. Learned AO observed that assessee had maintained a huge cash balance in hand during the year under consideration and the same was not comparable with that of the immediately preceding year. Accordingly, the learned AO disbelieved the availability of cash balance with the assessee and proceed to treat the cash deposit in its bank of Rs.39,80,500/- to have emanated from undisclosed sources.

The assessee had also explained that he is engaged in the business of works contract and its labour oriented job wherein there is huge requirement of retaining heavy cash balance. The entire books of account along with cash books and ledger were indeed produced by the assessee before the AO for its verification. The entire cash deposits were sourced out of available cash balance. The learned NFAC, Delhi, however, did not give any finding with regard to the availability of cash balance with the assessee as per the cash book submitted. However, very strangely, he proceeded to delete the addition by observing that the cash deposits were sourced out of opening cash balance in hand of Rs.12.61 lacs and certain disallowance of expenses were also made by the learned AO on adhoc basis which also would act as a cash source for the assessee to explain the cash deposits. In other words, the learned NFAC, Delhi used the adhoc disallowance of expenses made by the learned AO as a cash source available with assessee to explain the cash deposits made. Against this observation, the assessee is in appeal before us even though the addition towards cash deposit has been deleted by the learned CIT(A). It is pertinent to note that Revenue had not preferred any appeal against the deletion of the addition by the learned CIT(A) as no evidence to this effect was brought on record by the learned DR before us.

We find that the basis of deletion of addition towards cash deposits by learned NFAC, Delhi is incorrect. We had already deleted the disallowance made towards expenses on adhoc basis in ground nos.2 to 7 hereinabove. As regards the cash deposits made in the bank account, we find that assessee is having sufficient cash balance in its kitty to explain the source for cash deposits made in the bank. Apart from that, the assessee had given the month wise details of the purchases, month wise details of sales for the year under consideration as well as immediately preceding year. There was no cash sale at all made by the assessee. These facts are evident from the table reproduced below:-

The entire cash book for the whole year is duly produced before the AO and learned NFAC, Delhi. Hence, it is established beyond reasonable doubt that the cash deposits made in bank account are properly explained by available cash balance with the assessee as per its cash book. Hence, there is absolutely no case for making any addition towards cash deposits. Accordingly, the Ground No.8 raised by the assessee is allowed.

In the result, appeal of the assessee is allowed.