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

Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI

For Appellant: Shri Neeraj Mangla, C.A

For Respondent: Shri Anuj Garg, Sr. D.R

Hearing: 09.07.2024

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’, NEW DELHI BEFORE SH. CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SH. M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 191/DEL/2024 (Assessment Year : 2017-18) SSA Projects Pvt. Ltd. Vs. ACIT E-423, Hari Nagar, Circle – 5(3)(1) Phase-2, Near Raj Public G. B. Nagar School, Badarpur, Noida New Delhi – 110044 PAN No. AAJCS 3282 N (APPELLANT) (RESPONDENT) Assessee by Shri Neeraj Mangla, C.A. Revenue by Shri Anuj Garg, Sr. D.R. Date of hearing: 09.07.2024 Date of Pronouncement: .08.2024 ORDER PER M. BALAGANESH, A.M.:

This appeal in ITA No.191/Del/2021 for A.Y. 2017-18 arises out of the order by National Faceless Appeal Centre (NFAC), Delhi in appeal No. ITBA/NFAC/S/250/2023-24/1058154887(1) dated 22.11.2023 (hereinafter referred to as ld CIT(A) in short) against the order of assessment passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 29.12.2019 by the Assessing Officer (hereinafter referred to as ld. AO).

The Ground Nos. 1 & 9 raised by the assessee are general in

ITA No. 191/DEL/2024 SSA Projects Pvt. Ltd. vs. ACIT 2 nature and does not require any specific adjudication.

The Ground Nos. 2 to 7 raised by the assessee are challenging the confirmation of action of the ld. AO in disallowing the expenses on adhoc basis as under:- Consumable expenses : Rs. 7,32,518/- Wages and Salaries : Rs. 25,76,638/- Miscellaneous : Rs. 2,27,755/- Expenses Other Expenses : Rs. 1,49,831/-

We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of works contract / sale of plumbing / fire fighting and sanitary items. With regard to consumable expenses, the ld. AO observed that the assessee had debited a sum of Rs.7,32,518/- on account of consumable expenses, for which no details with supporting bills and vouchers were furnished and hence disallowed as unverifiable expenses. With regard to salaries and wages, the ld. AO had observed that the assessee had not produced the documentary evidences of all wages / salary paid and hence 15% of the same were sought to be disallowed on adhoc basis. Similarly the ld. AO sought to disallow 15% of certain expenses such as Works Contract Tax, Rent Charges, Bonus/Exgratia charges, Business Promotion expenses, Legal and Professional charges on adhoc basis on the ground that the vouchers maintained by the assessee were not fully vouched. Similarly the ld. AO disallowed 15% of Conveyance and Vehicle running expenses, insurance, newspapers & periodicals, business promotion expenses, repairs & maintenance, telephone expenses on the ground that the personal element on these expenses cannot be ruled out.

ITA No. 191/DEL/2024 SSA Projects Pvt. Ltd. vs. ACIT 3

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

ITA No. 191/DEL/2024 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%. 6. 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

ITA No. 191/DEL/2024 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.

ITA No. 191/DEL/2024 SSA Projects Pvt. Ltd. vs. ACIT 6

Learned AO further in para 3 of his order observed that cash balance available with the assessee as on 31.10.2016 was Rs.46,96,634/-. With these observations, the learned AO made an addition of Rs.39,80,500/- towards cash deposit in bank account as unexplained income. The assessee submitted the complete month wise opening cash balance, withdrawal, deposits and closing cash balance for the year under consideration as well as in the immediate preceding year as under:-

Month Op. Cash in Withdrawal Cash Closing Hand from Bank Deposit Balance in bank April 2016 12,61,136 14,00,000 19,88,835 May 2016 19,88,835 21,64,000 32,55,542 June 2016 32,55,542 20,62,000 42,07,298 July 2016 42,07,298 1,00,000 28,75,276 Aug 2016 28,75,276 23,50,500 41,43,896 Sep 2016 41,43,896 6,13,000 33,38,588 Oct 2016 33,38,588 17,64,500 46,96,634 Nov 2016 (Till 46,96,634 280,000 40,78,164 08 Nov 2016) 09.11.2016 40,78,164 74,000 41,36,403 to 30.11.2016 Dec 2016 41,36,403 3,19,000 39,80,500 3,58,613 Jan 2017 3,58,613 3,99,500 3,59,727 Feb 2017 3,59,727 25,33,000 10,04,968 Mar 2017 10,04,968 12,40,000 10,95,148

Similar chart of month-wise details of cash in hand for immediately preceding year also furnished, which is as under: Month Op. Cash Withdrawal Cash Closing Deposit in Hand from Bank in bank Balance April 2015 46,592 8,65,000 6,94,071 May 2015 6,94,071 3,12,800 4,80,837 June 2015 4,80,837 5,77,300 85,000 7,47,949 July 2015 7,47,949 30,42,000 24,52,723 Aug 2015 24,52,723 93,000 17,43,762 Sep 2015 17,43,762 19,93,500 31,000 21,25,867 Oct 2015 21,25,867 8,15,000 13,95,280 Nov 2015 (Till 13,95,280 5,50,000 18,43,281 08 Nov 2015) to 18,43,281 10,10,000 20,55,254

ITA No. 191/DEL/2024 SSA Projects Pvt. Ltd. vs. ACIT 7

30.11.2015 Dec 2015 20,55,254 5,32,000 1,000 17,34,392 Jan 2016 17,34,392 14,44,850 14,48,334 Feb 2016 14,48,334 18,50,000 20,49,515 Mar 2016 20,49,515 5,74,000 12,61,136

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.

10.

We find that the basis of deletion of addition towards cash deposits by learned NFAC, Delhi is incorrect. We had already deleted

ITA No. 191/DEL/2024 SSA Projects Pvt. Ltd. vs. ACIT 8

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:-

MONTH CURRENT YEAR (2016-17) PRECEDING YEARI201S-2016) PURCHASE SALES PURCHASE SALES Credit Cash Credit Cash Credit Cash Credlt Cash APRIL 1226322 21960 1245705 _ 1392788 12595 511124 • MAY 708346 - 8490651 . 1223624 44906 2903771 JUNE 3S44S10 17410 4328867 1687636 4504 873959 - JULY 1614408 2419 . - 2107068 182966 898159 - AUG 3395707 4759 2955148 • 2147359 2915344 - SEPTEMB 1891162.9 81949 1696477 . 1342742 30693 179660 - ER OCTOBER 2061264.1 68845 5329740 . 1400933 4049081 • 8 UPT0 8TH 152977.3 1188835 * 262508 16265 1127462 - NOVEMB 1067900.2 _ - 23203111 100000 - ER DECEMB 3336474.8 1332727 - 1863917 167680 507705 ER 3 6 JANUARY 3582101.6 10733 3242627 • 2825196 6389108 FEBUARY 3328867.1 • 5028499 - 4081885 6509501 - 9 MARCH 5119560.8 35752 1646676 - 1537027 4537 593296 ) 8 C 31029602 243827 633005931 24192994 46414* 3289783 \ i

11.

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

ITA No. 191/DEL/2024 SSA Projects Pvt. Ltd. vs. ACIT 9

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.

12.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 30.08.2024

Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 30.08.2024 Priti Yadav, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

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