BEEJAY ASSOCIATES CONTRACT P. LTD,PUNE vs. ITO 6(1)(3), MUMBAI

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ITA 936/MUM/2016Status: DisposedITAT Mumbai13 June 2018AY 2012-138 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal deleted the ad-hoc disallowances on site expenses, labour charges, and transportation charges as they were made without proper reasoning and without rejecting the books of account. The grounds related to scaffolding expenditure were dismissed as not pressed. The addition under Section 41(1) was restored to the Assessing Officer for fresh adjudication.

What were the facts?

The assessee company appealed against the CIT(A)'s order which partly sustained additions made by the Assessing Officer. The additions pertained to disallowances on site expenses, labour charges, transportation charges, scaffolding expenditure, and an addition under Section 41(1).

What were the issues?

Whether ad-hoc disallowances of expenses without proper justification and without rejecting the books of account are sustainable. Whether a liability of sundry creditors can be added back under Section 41(1) if the liability has not ceased.

Which sections of the Income-tax Act were involved?

Section 41(1)

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Cases cited in this judgment(2)Show list

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1.

This appeal by assessee is directed against the order of ld. Commissioner of Income-tax (Appeals)-12, Mumbai [ld. CIT(A)] dated 07.12.2015 for Assessment Year 2012-13, which arises from the assessment order passed under section 143(3) dated 19.12.2015. The assessee has raised the following grounds of appeal:

1. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in partly sustaining the additions/ disallowances made in the assessment order that too without appreciating the facts and circumstances of the case fully and properly.

2. On the facts and in the circumstances of the case and in law, the learned C.LT. (A) erred in upholding the action of the A. O. in disallowing an amount of Rs.41,130/- out of site expenses and that too without assigning any proper reason. 3. On the facts and in the circumstances of the case and in law, the learned C.LT (A) erred in upholding the action of the A. O. in disallowing an amount of Rs.35,19,215/- out of the Labour Charges expenditure incurred of Rs.3,51,92,149/- and that too without assigning any proper reason.

Mum 16-Beejay Associates Contract P. Ltd.

4.

On the facts and in the circumstances of the case and in law, the learned C.LT. (A) erred in upholding the action of the A. O. in disallowing an amount of Rs.11,45,455/ - out of the total transportation charges incurred of Rs.1,14,54,551/ - and that too without assigning any proper reason.

5.

On the facts and in the circumstances of the case and in law, the learned C.LT.(A) erred in upholding the action of the A. O. in disallowing an amount of Rs.14,96,939/ - out of the centering scaffolding expenditure incurred of Rs.19,95,985/- by holding the same as capital expenditure. 6. Without prejudice to ground no.4 and on the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have directed the A. O. to allow depreciation @ 100% in respect of the centering and scaffolding items. 7. On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in upholding the action of the A.O. in making an addition of an amount of Rs.1,03,963/ - u/s 41(1) of the Act.

2.

Brief facts of the case are that the assessee is a company filed its return of income for Assessment Year 2012-13 on 27.09.2012 declaring total income of Rs. 29,82,350/-. The assessment was completed under section 143(3) on 19.02.2015 determining the total income of Rs. 95,64,240/-. The Assessing Officer while passing the assessment order made various addition/disallowance on account of site expenses, labour charges, transportation charges, disallowing scaffolding expenditure and addition under section 41(1) of the Act. On appeal before the ld. CIT(A), the assessee was given partial relief on various disallowances, therefore, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.

3.

We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the Mum 16-Beejay Associates Contract P. Ltd. material available on record. Ground No.1 is general, therefore, needs no adjudication. Hence, dismissed.

4. Ground No.2 relates to disallowance of Rs. 41,130/- on account of site expenses. The ld. AR of the assessee submits that the lower authorities disallowed the expenses without assigning proper reasoning. The assessee has debited Rs. 8,22,601/- which consist of Rs. 3,40,504/- as miscellaneous expenses, Rs. 2,93,807/- as site transport and Rs. 1,88,290/- on account of site consumables. The Assessing Officer disallowed 5% of the total expenses on the basis of Note No. 26.12 in Auditor’s report. The ld. CIT(A) also confirmed the disallowance with similar observation. On the other hand, the ld. DR for the Revenue supported the order of authorities below. The ld. DR submits that assessee failed to substantiate the claim with documentary evidence; therefore, the reasonable disallowance was made by Assessing Officer. 5. We have considered the submission of both the parties and have gone through the orders of authorities below. We have noted that the lower authority has made the disallowance on adhoc basis; no specific reason for arriving at 5% of disallowance is mentioned. The assessee is engaged in the business of Civil Engineer and Building Contractor. The lower authority has not disputed the genuinenity of the expenses. In our view, the disallowance on adhoc basis is not sustainable; therefore, the same is deleted. In the result the ground no. 2 of the appeal is allowed. 3 ITA No. 936 Mum 16-Beejay Associates Contract P. Ltd.

6.

Ground No.3 & 4 relates to disallowance of labour charges and transportation charges. The ld. AR of the assessee submits that the assessee incurred expenditure of Rs. 3,51,92,149/- on account of labour charges and Rs.114,54,551/- on transportation charges. The Assessing Officer disallowed 10% of the total expenditure on both the counts, without any specific reason. The ld. CIT(A) confirmed the disallowance on the same observation. The ld AR submitted a chart showing that the assessee incurred labour charges of Rs. 1,52,83,838/- and Rs. 4,12,31,018/- in earlier Assessment Years i.e. in AY 2010-11 & 2011-12 respectively, however, no disallowance was made. Further, in AY 2013-14 & 2014-15 only 1% of labour charges was disallowed. Similarly details were furnished in respect of transportation charges showing that in AY 2010-11 & 2011-12 no disallowance was made; further in AY 2013-14 & 2014-15 only 1% of transportation charges was disallowed. On the other hand, the ld. DR for the Revenue supported the order of authorities below. The ld DR submits that each year has to be assessed on the basis of nature of expenses and that principal of res-judicata is not applicable in the income-tax cases. The ld. DR for the Revenue submits that the assessee failed to substantiate the labour expenses. Therefore, the Assessing Officer disallowed a reasonable expenditure.

7.

We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that total turnover 4 Mum 16-Beejay Associates Contract P. Ltd.

of the assessee during the year was 17,15,70,430/-. The assessee has debited Rs. 3,51,92,149/- on account of labour charges. The Assessing Officer disallowed the 10% of labour charges without assigning any reason. Similarly, the assessee debited Rs. 1,14,54,551/- on account of transportation charges. The Assessing Officer also disallowed the 10% of transportation charges without assigning any reason. Similarly, the ld. CIT(A) confirmed both the addition on his observation that normally in line of business as of assessee, the net profit is generally 8% of the gross receipt. The contract receipt of assessee is Rs. 17,05,38,323/- and the assessee has offered income of Rs. 29,82,350/- only. The contention of the assessee that similar expenses were allowed in earlier years was not accepted holding that normally the percentage of labour and transport to the turnover is fixed by the defence personnel. It was further observed that the Assessing Officer made the disallowance in absence of verification due to non-filing of documentary evidence. The addition is not made because of high expenses but due to the fact that assessee is unable to produce proper evidences of such expenses and accordingly sustained the addition.

8.

We have noted that in earlier AY 2010-11 & 2011-12, no disallowance was made on account of labour and transportation charges, similarly for subsequent AY 2013-14 & 2014-15 only disallowance of 1% was made. We have further noted that the Assessing Officer has not given any 5 Mum 16-Beejay Associates Contract P. Ltd. specific reason for adhoc disallowance. The ld. CIT(A) gave his finding that expenses are not higher but the assessee is unable to give proper evidence of such expenses. In our view, the adhoc disallowance without rejecting the books of account is not proper, therefore, the disallowance of labour charges and transportation deleted. In the result the ground No.3&4 of the appeal are allowed.

9.

Ground No. 5 & 6 relates to treating the scaffolding expenditure as capital expenditure. Ground No. 6 relates to depreciation. The ld. AR of the assessee submits that he is not pressing the ground No. 5 & 6. Considering the contention of ld. AR of the assessee, grounds No. 5 & 6 are dismissed.

10.

Ground No.7 relates to addition under section 41(1) of the Act of Rs. 1,03,963/- The ld. AR of the assessee submits that the Assessing Officer disallowed the liability of sundry creditors of Rs. 1,03,693/- in absence of confirmation from five parties. The liability of the assessee has not ceased finally during the year. The ld. CIT(A) also confirmed the addition with the similar observation. The ld. AR of the assessee further submits that due to execution of work resulting in higher expenses, the liability of sundry creditor was increased. Some of the bills were received in the subsequent/next year which resulted in higher expenses and sundry creditors. In support of his submission, the ld. AR relied upon the decision of CCIT versus Kasaria Tea Company Ltd. [254 ITR 434 (SC) ], CIT vs Mum 16-Beejay Associates Contract P. Ltd. Sugauli Sugar Works (P.) Ltd. [236 ITR 518 (SC)] and CIT vs Tamilnadu Tourism Development Corporation [288 ITR 146 (Mad)]. On the other hand, the ld. DR for the Revenue supported the orders of authorities below.

11.

We have considered the rival submission of the parties and have gone through the orders of authorities below. The Assessing Officer made disallowance on his observation that as on 01.04.2011 there is no further transaction during the year and the liability remained till 31.03.2012 and that the representative of assessee agreed for addition to that extent. The ld. CIT(A) also confirmed the action of Assessing Officer with similar observation. In our view, there is no estoppel against the law. In case the liability is not ceased finally, no disallowance on account of sundry creditor is warranted. We have further noted that no documentary evidence furnished before us. Therefore, we deem it appropriate to restore this ground of appeal

to the file of Assessing Officer to decide it afresh. The assessee is also directed to provide necessary details and evidences to the Assessing Officer for his consideration. Hence, this ground of appeal is allowed for statistical purpose.

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

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