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Facts
The assessee, an AOP engaged in infrastructure, faced disallowance of "contingency" expenses after a survey u/s 133A. The AO alleged these expenses were unaccounted cash expenditures generated through fictitious bookings, disallowing Rs. 1.18 Cr for AY 2016-17. The CIT(A) partially upheld this, restricting the disallowance to 2.5% (Rs. 2.95 lakhs) under Section 37(1).
Held
The Tribunal noted that the total costs in CTC reports matched the books, and all expenditures were recorded. It clarified that presumptions under Section 132(4A) for search cases do not apply to survey cases (Section 133A). Since the revenue failed to provide cogent evidence of unaccounted expenditure and the books were accepted, the Tribunal directed the deletion of all additions related to contingency expenses.
Key Issues
Whether "contingency" expenses, fully recorded in the books, could be disallowed as bogus and unaccounted cash expenditure after a survey under Section 133A.
Sections Cited
Section 133A, Section 132(4A), Section 37(1), Section 271(1)(c)
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HONBLE & SHRI RAJ KUMAR CHAUHAN, HONBLE
PER NARENDRA KUMAR BILLAIYA, AM: I.T.A. No. 4556/Mum/2024, I.T.A. No. 4566/Mum/2024, I.T.A. No. 4563/Mum/2024 & I.T.A. No. 4558/Mum/2024 are four separate appeals by the assessee preferred against four separate orders of the ld. Commissioner of Income Tax (Appeals) 53, Mumbai, dated 26/07/2024, pertaining to AYs 2016-17, 2017-18, 2018-19 & 2022-23. 2 Since common issues are involved in the captioned appeals, they were heard together and are disposed off by this common order for the sake of convenience and brevity.
Since the underlying facts in the impugned issues are identical, at the concession of rival representatives, we have considered the facts for AY 2016-17 in ITA No. 4556/Mum/2024. 4. Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidence brought to our notice duly considered in light of Rule 18(6) of the ITAT Rules, 1963. 5. Briefly stated the facts of the case are that the assessee is an AOP (Association of Persons) being a joint venture between ITD Cementation India Ltd., and Indian company and Italian Thai Development Public Company Limited, a foreign enterprise, and is engaged in the business of infrastructure development to undertake projects of construction of roads, bridges, metro railway contracts, water supply project on contract basis from Government/non-government entities. The joint venture has entered into contracts of water supply projects for Kolkata Municipal Corporation and earned contract revenue from these projects.
A survey action u/s 133A of the Act was carried out in ITD Cem group and related entities on 26/10/2021. During the course of survey operation it is found that the assessee is following a unique method of accounting and the same is followed by the assessee group entities to record unaccounted cash expenses which is deployed to secure work contracts from the contractee organizations. It was noticed that the assessee prepares Cost to Completion (CTC) reports which provide pen picture of the actual cost incurred for the project under each expense head - both Estimated costs and also the actual costs. The AO was of the opinion that the evidence found in a survey discovered the term "Contingency” used to denote those expenses which are not recorded in the books of account and are spent in cash for non-business purposes. On this presumption, the AO alleged that the assessee has incurred certain unaccounted expense in cash that is bogus expenditure and such cash have been generated by debiting fictitious expenditure in the ledger account/books of accounts. The AO further presumed that the contingency expenses shown in the CTC reports are adjusted in various costing heads of the books of accounts by passing “adjustment entries" which are 1) booking of artificial expenditure from shell entities and 2) booking of over-invoiced expenditure from regular vendors. The AO further alleged that the assessee has booked various bogus expenses in order to generate cash for meeting 'contingency' expenses.
The AO rubbished the contention of the assessee that the entire contingency expenditure is accounted in the books of accounts, though the AO categorically admitted that the total cost figure in the CTC report matches the total cost figure in the books of accounts, the cost booked under each head is different in the CTC report and the books of accounts.
The basis for not accepting the contention of the assessee by the AO is at page 31 of the assessment order, which is extracted for ready reference:- “10. The submission filed by the assessee has been considered, but not found acceptable on the following grounds: i. The assessee has not followed the SOP for issuing PO/WO in various entities, which was followed in issuing PO/WO in other expenses. The assessee has submitted that SOP has not been followed in some instances before issuing PO/WO due to exigencies of work. The reason given by assessee is not acceptable because SOP has been followed in other cases other than these bogus transactions. Also, assessee failed to provide any reason for such exigencies to divert the regular procedure followed to issue the PO/WO. Further, it is noticed that the amount involved is very high and in standard practice expenditure and exigencies get proper approval from concerned authorities. The assessee failed to submit any documentary evidence to support the claim of assessee that SOP has been diverted in issuing PO/WO for the above referred expenses due to exigencies like nature of exigencies, prior or post approval for such exigencies, any standard practice followed for expenses due to exigencies. ii. The assessee shown its inability to produce vendor wise list for contingency expenses. iii. The assessee shown its inability to provide books of account wherein contingency expenses has been maintained. iv. The assessee shown its inability to provide break up of liaisoning expenses. and contingency expenses. v. The assessee has failed to submit the delivery challan/stock register/e-way bill/labour register of parties to whom notices u/s 133(6) were issued.
In view of the above, it is found that the assessee has followed SOP for issuing WO/PO and the same is considered as sacred for the organization, which was not followed before issuing WO/PO in some of the cases. Also, the assessee has failed to submit vendorwise list of contingency expenses, books of account where contingency expenses were maintained and breakup of contingency expenses and liaising expenses. As the assessee has failed to prove the genuineness of its claim towards contingency expenses amounting to Rs. 1,18,00,000/-, the same is hereby disallowed and added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) is initiated separately for concealment of income.”
Similar view has been taken in the captioned appeals during the assessment proceedings, though the quantum may differ.
The additions were challenged before the ld. CIT(A) and the ld. CIT(A) after considering the facts and submissions, held as under:- “14. 22. In view of the above, I am unable to agree with the contention of the appellant that the entire expenses recorded in the books of account are genuine and that they do not include any part of expenses which are not allowable u/s 37(1) of the Act. There are more than enough evidences to prove otherwise. At the same time, it is seen that the persons concerned have repeatedly emphasized in the respective statement that such expenses form a small portion of the expense. The few evidences cited above do not warrant 100% disallowance of contingency expenses. In I.T.T.A.No.21 of 2013 dated 23.07.2013 in the case of CIT vs Sri Kamlekar Shankar Lal, the Hon'ble AP HC held that