NUTEC BICKLEY WESMAN KILNS PVT. LTD.,KOLKATA vs. ITO, WARD-12(1), KOLKATA, KOLKATA

Brief facts of the case:- The assessee is a company and manufactures kilns used in Ceramic and other industries. The issues before us is whether the disallowance of service tax of Rs.2,06,443/- u/s 43B of the Act and the disallowance of Rs.27,19,098/-, being administrative expense on proportionate bases is right in law.

After hearing rival contentions, we find that the assessee received certain advances against orders by raising proforma invoices and these advances also contain an element of service tax. These advances are not income of the assessee. No expenditure has been claimed relatable to this receipt of advance. Hence, the service tax collected as part of the advances has also not been claimed as expenditure incurred by the assessee. When no expenditure is incurred or claimed during the year of this service tax received as part of advance, the question of disallowance u/s 43B of the Act, does not arise. Hence, we allow ground no. 1 of the assessee.

Ground No. 2, the assessee’s case is that, it undertakes contract works. During the year it completed the contract entered with M/s. Kohler India Corporation Ltd. of Rs.46,37,221/-. It further received a contract from M/s Hi-Tech Chemicals Pvt. Ltd., for Rs.5,77,02,000/-. During the year, the assessee received advance of Rs.2,45,34,458/- form these contracts. Against these contracts it had incurred for purchases/manufacturing of inventory of Rs.1,84,07,838/-. This inventory purchased was not routed through the profit and loss account and has reflected directly in the balance sheet. The Assessing Officer observed that the assessee has debited administrative expenses during the year. Unlike the case of expenditure incurred on purchases/manufacture. He was of the opinion that the entire administrative expenditure cannot be allowed in the year of claim as the contract is spread over more than one year and hence he made a proportionate disallowance. The assessee submitted before the ld. CIT(A) that those expenses, which cannot be allocated to any specific contract, are debited to the profit and loss account. It was submitted that the assessee has to run an administrative office and has to communicate with various parties and also render sales and service for several contracts. The ld. CIT(A) rejected these contentions and confirmed the order of the Assessing Officer. Before us the same contention is raised by the assessee. 4.1 The Assessing Officer nor the ld. CIT(A) have doubted the genuineness of the expenditure claimed. The assessee has specifically pointed out that those administrative expenses which cannot be allocated to any particular contract work, is charged in the profit and loss account during the year. This submission of the assessee has not been controverted either by the Assessing Officer or by the ld. CIT(A). The ld. D/R, also could not controvert these submission of the assessee that the expenditure in question are overhead expenses. Hence, in view of the above discussion, we are of the considered view that the expenditure incurred has to be allowed, as there are overhead expenses which cannot be allocated to any specific contract work. The issue boils down to the year of allowability only. Thus, we delete the disallowance and allow Ground No. 2 of the assessee.

Ground No. 3 & 4 are general in nature.

In the result, appeal of the assessee in , is allowed.

We now take up wherein the ld. CIT(A) confirmed the penalty levied by the Assessing Officer u/s 271B of the Act, as the assessee had not got its account audited u/s 44AB of the Act.

The only claim of the assessee is that, its gross receipts was Rs.46,93,872/- and not Rs.73,25,630/- as stated by the Assessing Officer and hence the quantum of penalty should have been Rs.23,469/- instead of the amount of Rs.36,628. In other words, the issue boils down to the quantification of the penalty. 8.1. In the statement of facts given before the ld. CIT(A), the assessee has given a clear breakup of its gross receipts and also explained that the amount of Rs.22,10,748/-, was only reflected as the advance received from Hi-tech Chemicals Pvt. Ltd. He pointed out that though TDS was deducted, this amount was not taken as turnover by the assessee. The ld. CIT(A) has not adjudicated this issue. The ld. D/R, could not controvert this factual submission of the ld. Counsel for the assessee. Hence, we direct that the penalty in question be reduced to Rs.23,469/-.

In the result, appeal of the assessee is allowed in part. Kolkata, the 27th day of June, 2018.