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Income Tax Appellate Tribunal, ‘ C’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
These are cross appeals filed by the assessee and Revenue respectively directed against an order dated 15.12.2015 of ld. &695/Mds/2016 :- 2 -:
Commissioner of Income Tax (Appeals)-3, Coimbatore. Appeal of the assessee is taken up first for disposal.
Assessee has taken altogether seven grounds of which 2. ground No.7 is general in nature needing no specific adjudication.
Vide its grounds No.1 & 2, assessee is aggrieved on sustenance of disallowance of �2,66,000/- out of mess expenditure of �33,25,007/- claimed.
Facts apropos are that assessee a civil engineering contractor had filed return for the impugned assessment year disclosing an income of �5,94,78,280/-. During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had claimed mess expenditure of �33,25,007/-. As per ld. Assessing Officer such expenditure was supported only by self made vouchers. According to him, due to lack of evidence, element of personal expenditure in the claim could not be ruled out. He made a disallowance of 8% of claim. Such disallowance came to �2,66,000/-.
Assessee moved in appeal before ld. Commissioner of 5.
Income Tax (Appeals) but did not meet with any success. As per ld. Commissioner of Income Tax (Appeals) assessee had maintained only &695/Mds/2016 :- 3 -: self-made vouchers and therefore disallowance could not be considered as unjustified.
Now before us, ld. Authorised Representative submitted that it had twenty five sites where it was doing construction work.
According to him, disallowance was made arbitrarily though self-made vouchers were available.
Per contra, ld. Departmental Representative strongly 7.
supported the orders of the authorities below.
8. We have considered the rival contentions and perused the orders of the authorities below. Ld. Assessing Officer had resorted to an adhoc disallowance for a reason that expenditure claimed was only supported by self-made vouchers. However, Ld. Assessing Officer has not brought out any specific defect in the self made vouchers. Self- made vouchers can be rejected only if the details like address of the payee, signature of payee and other essential particular is not available. No such defects were pointed out by the ld. Assessing Officer except for a general observation that expenditure was supported only by self-made vouchers. We are of the opinion that disallowance was not warranted. Such disallowance stands deleted.
Grounds No. 1 & 2 of the assessee stand allowed. &695/Mds/2016 :- 4 -:
Vide its grounds No. 3 to 6, grievance of the assessee is on a disallowance of its claim of depreciation on temporary structures.
Facts apropos are that assessee had claimed depreciation @100% on temporary sheds costing �61,61,054/-. As per assessee, it had to have temporary sheds for its labourers and for material storage at its construction sites. However, as per the Ld. Assessing Officer these temporary sheds were constructed with asbestos or tins sheets, cement, concrete flooring and steel rods. According to him, these structures were not temporary in nature, since it could be used for a period of four years. He allowed only 25% of the claim.
Assessee’s appeal before ld. Commissioner of Income Tax 11.
(Appeals) was not meet with any success. Though assessee claimed such expenditure, as a revenue outgo, relying on the Jurisdictional High Court decision in the case of CIT vs. Madras Auto Services (P) Ltd 233 ITR 468, Ld. Commissioner of Income Tax (Appeals) did not accept this contention as well. According to him, by virtue of judgment of the Apex Court in the case of Geotze (India) Ltd vs. CIT 284 ITR 323 such a fresh claim could not be admitted.
Now before us, ld. Authorised Representative submitted that 12. when the structures were in temporary in nature, assessee was &695/Mds/2016 :- 5 -: eligible for 100% depreciation. Reliance was placed on the decision of Hyderabad Bench of the Tribunal in the case of Shalivahana Constructions Ltd. vs. DCIT (12 SOT 406).
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below.
We have considered the rival contentions and perused the orders of the authorities below. It is not disputed that structures erected by the assessee, at its various work sites was for sheltering its labourers and for storage of its materials. May be, it is true that such shelters could have been used for four years. This would not in our opinion be sufficient to conclude that the structure was a permanent one. Co- ordinate Bench in the case of Shalivahana Constructions Ltd (supra) has held as under on similar facts and circumstances at para 7 & 8.
‘’7.In the case of contractors, certain structures are put up at project site on land given temporarily by the contractee. These structures are meant for the use by the contractor as his project office and also for housing labour as well as employees of the contractor. The land is neither owned by the contractor nor is it held by the contractor as leasehold. In this view of the matter, the structures put up on such land, of whatever nature, are purely temporary structures. The assessee might have used material which gives longer life to the structures in question, but the fact remains that the assessee is neither the owner of the land nor has it any claim over the structures after completion/termination of the contract. In fact, when such structures are put up on land not belonging to the person, the expenditure is of &695/Mds/2016 :- 6 -: revenue nature in view of the judgment of the Hon'ble Supreme Court in the case of CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468. The same view has been taken by this Bench of the Tribunal in the case of Premlatha v. ITO 63 ITD 69(sic). We are of the considered opinion that the CIT has overlooked this issue of ownership of land.
Coming to categorisation in Appendix I to Income-tax Rules, 1962, the relevant portion of rates of depreciation (for income-tax) reads as follows:— Block of assets Depreciation allowance as percentage of written down vaule
1 2 I. Buildings ... .... .. (4) Purely temporary 100 erections such as wooden structures...
At best, it is only an illustration of the term "purely temporary erections". Nowhere in this class of assets it is mentioned that a purely temporary erection should not be made of cement or brick. Viewed from the point of ownership of the land, the function of such structures and their utility, and also keeping in mind the ratio of the judgment of the Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, it is difficult to accept the view of the learned CIT that the order passed by the Assessing Officer suffers from an error and it is prejudicial to the interests of the revenue. Under these circumstances, we allow the appeal of the assessee and cancel the order passed by the CIT under section 263 of the Act’’.
&695/Mds/2016 :- 7 -:
According, we are of the opinion that assessee claim was justified. We direct assessee be given 100% depreciation on such temporary structures. Grounds No. 3 to 6 of the assessee stand allowed.
Now, we take up appeal of the Revenue. Revenue has taken 16. altogether seven grounds of which ground No.1, 6 & 7 are general in nature needing no specific adjudication.
Vide its ground No. 2, grievance raised by the Revenue is on the deletion of an addition made by the ld. Assessing Officer for an alleged difference in account of the assessee with one M/s. KPR & Company.
Facts apropos are that during the course of assessment 18. proceedings, from the details filed by the assessee, ld. Assessing Officer noted that assessee had purchased materials worth �1,06,72,968/- from M/s. KPR & Company, Erode. Ld. Assessing Officer issued notice u/s133(6) of the Act to M/s. KPR & Company requiring them to produce copy of the ledger account of the assessee in their books. Based on such ledger account given by M/s. KPR & Company, ld. Assessing Officer found that assessee had purchased &695/Mds/2016 :- 8 -: materials worth �1,79,14,479/- from M/s. KPR & Company during the relevant previous year. Thus, as per ld. Assessing Officer there was a difference of �72,41,511/-. Ld. Assessing Officer was of the opinion that assessee could not give any explanation for such difference. An addition of �72,41,511/- was made.
Before ld. Commissioner of Income Tax (Appeals), argument 19. of the assessee was that actual purchases made from by M/s. KPR & Company was �1,80,37,585/-. As per assessee after deducting credit notes issued by the said concern the net purchase value came down to � 1,79,14,466/-. Contention of the assessee was that out of the said amount �1,06,72,968/- was for building materials and this alone was considered by the ld. Assessing Officer. As per assessee it had acquired, in addition to the building material, other items like centering materials and labour shed materials worth �71,66,640/- and �97,137/-, which were accounted in its fixed assets. As per assessee, if all these three were considered, the purchases stood fully reconciled. Ld. Commissioner of Income Tax (Appeals) was appreciative of these contentions and he deleted the addition.
Now before us, ld. Departmental Representative, strongly 20. assailing the order of the lower authorities submitted that assessee &695/Mds/2016 :- 9 -: did not submit the reconciliation before ld. Assessing Officer. Further, as per ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) had accepted the reconciliation without giving a chance to the ld. Assessing Officer to examine.
Per contra, ld. Authorised Representative submitted that 21.
copy of the account of the M/s. KPR & Company in the books of the assessee placed in the paper book page 15 to 29 would clearly show that the actual purchases effected payments from them came to �1,79,14,466/-. As per ld. Authorised Representative, assessee having produced books of accounts and ld. Assessing Officer having verified such books of accounts, claim of the Revenue that new materials was produced by the assessee before ld. Commissioner of Income Tax (Appeals), was incorrect.
We have considered the rival contentions and perused the 22. orders of the authorities below. Contention of the ld. Authorised Representative is that ld. Assessing Officer had considered the purchase of building materials alone from M/s. KPR & Company when making a comparison with account of the assessee in the books of accounts of M/s. KPR & Company. Apart from this, as per the assessee there were purchases of centering material which were &695/Mds/2016 :- 10 -: accounted as capital assets and other materials accounted in labour shed account. The ledger account of M/s. KPR & Company in the books of the assessee placed at paper book page 15 to 18 shows a aggregate debit balance of �1,71,59,007/- and aggregate credit of �1,81,90,842/-. In the facts and circumstances, we are of the opinion that matter requires a fresh look by the ld. Assessing Officer. We set aside the orders of the lower authorities and remit the issue regarding difference, if any in the account of M/s. KPR & Company back to the ld. Assessing Officer for consideration a fresh in accordance with law.
Ground No.2 is allowed for statistical purpose.
Vide its ground No. 3, grievance raised by the Revenue is 23. that ld. Commissioner of Income Tax (Appeals) deleted an addition of expenditure booked against one Shri. Bojarajan.
Related facts are that assessee had engaged a few sub- 24. contractors for carrying out its work. Shri. Bojarajan was one among these sub contractors. Assessee had paid sums aggregating to �22,00,000/- during the relevant previous year. Ld. Assessing Officer was of the opinion that assessee could not give PAN and address of Shri. Bojarajan. As per ld. Assessing Officer nature of work carried out &695/Mds/2016 :- 11 -: by Shri. Bojarajan was not explained by the assessee. He disallowed the claim and made an addition of �22,00,000/-.
In its appeal before ld. Commissioner of Income Tax 25.
(Appeals), argument of the assessee was that it had deducted TDS at source on payment to Shri. Bojarajan and the payments were made by cheques. Ld. Commissioner of Income Tax (Appeals) held that addition was not sustainable and he deleted the addition.
Now before us, ld. Departmental Representative strongly assailing the orders of the lower authorities submitted that assessee neither furnished PAN nor address of Shri. Bojarajan before ld. Assessing Officer. As per ld. Departmental Representative the claim was allowed by the ld. Commissioner of Income Tax (Appeals) on the back of the ld. Assessing Officer.
Per contra, ld. Authorised Representative submitted that assessee had given address of the Shri. Bojarajan. As per ld. Authorised Representative bills raised by the Shri. Bojarajan placed at paper book page no.32 & 33 clearly gave his address. &695/Mds/2016 :- 12 -:
We have considered the rival contentions and perused the orders of the authorities below. To a question raised by the bench, ld. Authorised Representative submitted that assessee had not produced TDS certificate in form 16A, relating to the payments effected. No doubt in the copies of the contract bill placed at paper book page no. 32& 33, work done by Shri. Bojarajan is mentioned as construction of Hero Honda showroom at Tiruchencode. However, in the assessment order it hs been mentioned by the ld. Assessing Officer that assessee could not furnish address or PAN of the contractor. In these circumstances, we are of the opinion that claim needs fresh look by the ld Assessing Officer. We setside the order and remit the issue regarding claim of �22,00,000/- paid to Shri. Bojarajan back to the Assessing Officer for consideration afresh in accordance with law.
Ground No.3 is allowed for statistical purpose.
Vide ground No.4, grievance raised by the Revenue is that 29. ld. Commissioner of Income Tax (Appeals) deleted an addition u/s.40A(3) of the Act.
Concerned facts are that assessee had produced list of purchases made during the relevant previous year before ld. Assessing Officer. Ld. Assessing Officer was of the opinion that there were cash &695/Mds/2016 :- 13 -:
purchases of �3,45,993/- from M/s. Mahalakshmi Corporation and �2,89,836/- from Venkateswara Hardware. As per ld. Assessing Officer such payments attracted Sec. 40A(3) of the Act. He made disallowance of �6,35,830/-
In its appeal before ld. Commissioner of Income Tax 31.
(Appeals), argument of the assessee was that none of the payment exceeded �20,000/-. Ld. Commissioner of Income Tax (Appeals) deleted the addition based on the above submission.
Now before us, ld. Departmental Representative strongly assailing the orders of the lower authorities submitted that disallowance was unjustly deleted by the ld. Commissioner of Income Tax (Appeals).
Per contra, ld. Authorised Representative placing reliance on 33.
ledger copies of these two concerns in the books of the accounts placed at paper book page 37 to 59, submitted that there were no individual payments in excess of �20,000/-.
We have considered the rival contentions and perused the orders of the authorities below. Though ld. Assessing Officer had mentioned in the assessment order that assessee had produced books of accounts, it is not clear whether he had verified the accounts of &695/Mds/2016 :- 14 -:
M/s. Mahalakshmi Corporation and Venkateswara Hardware carefully.
Claim of the assessee was that none of the payments attracted Sec.40A(3) of the Act. Verification of the ledger accounts of the concerned here in the books of accounts placed at paper book 37 to 59, thus show there is no individual payments in excess of �20,000/- in cash. We are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in deleting such addition. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals). Ground No.4 of the Revenue stands dismissed.
Vide ground No.5, grievance of the Revenue is that ld. 35.
Commissioner of Income Tax (Appeals) allowed the claim of depreciation on certain new machinery without verifying whether such machinery were put to use during the relevant previous year.
Assessee had claimed depreciation on items of plant and machinery purchased from M/s. Expo Hydotech Pvt. Ltd, Coimbatore, M/s. Conveytech Systems, Chennai and M/s. S M Motors (AMV) Salem.
Ld. Assessing Officer was of the opinion that the invoices for plant and machinery were dated 30.03.2011 and it would not have reached the work sites in Andhra Pradesh in one day. Thus, according to ld. Assessing Officer, assessee could not show that plant and machinery &695/Mds/2016 :- 15 -: were used during the relevant previous year. He disallowed claim of depreciation of �2,54,218/- on such plant and machinery.
Assessee’s appeal before ld. Commissioner of Income Tax (Appeals) on this issue was successful. According to him, passive use or ready to use state of the machinery would be sufficient for allowing a claim for depreciation. He deleted the disallowance and directed Assessing Officer to allow 50% of the claim of the depreciation.
Now before us, ld. Departmental Representative submitted 38. that machinery items were not put to use during the relevant previous year. According to him, claim of the assessee was incorrectly allowed by the ld. Commissioner of Income Tax (Appeals).
Per contra, ld. Authorised Representative submitted that the bill for purchase of Convey Tech System was dated 21.03.2011.
According to him, the machine items was cement silo of 100 ton capacity. Further according to him, purchase from S M Motors was AMW truck model 2518 HL (6 x4) truck, and the bill was dated 05.03.2011. In so far as, purchase of machine from M/s. Expo Hydotech Pvt. Ltd, Coimbatore, ld. Authorised Representative fairly admitted that assessee could not produce evidence for supporting the claim of use during the relevant previous year. &695/Mds/2016 :- 16 -:
We have considered the rival contentions and perused the orders of the authorities below. What the assessee brought from M/s.
Conveytech Systems, Chennai was cement silo 100 ton capacity. Bill placed at paper book at page 60 clearly show that it was raised on 21.03.2011. The cement silo does not require any specific installation.
Purchase from S M Motors through bill dated 05.03.2011, copy of which is placed at paper book page 61 is of an AMW truck. The description of the truck given in the bill clearly shows it was supplied in a ready to use manner complete in all respects. Thus in our view, these two machines, were eligible for the claim of depreciation. Ld. Commissioner of Income Tax (Appeals) was in our opinion right in observing that passive us or being in a ready to use station would be treated as sufficient for claim of depreciation. Hence as far as these two machines, are concerned claim of the assessee was rightly allowed by the ld. Commissioner of Income Tax (Appeals). However, as far as third item which was purchased from M/s. Expo Hydotech Pvt. Ltd, Coimbatore, is concerned, admittedly, assessee could not produce any evidence to show use or a ready to use state. Hence, in so far as claim of depreciation for the machinery purchased from M/s.
Expo Hydotech Pvt Ltd is concerned, we setaside the order of the ld. Commissioner of Income Tax (Appeals) and reinstate the disallowance &695/Mds/2016 :- 17 -: made by the ld. Assessing Officer. Ground No.5 of the Revenue is treated as partly allowed.
To summarize, the appeal of the assessee is allowed whereas appeal of the Revenue is partly allowed for statistical purpose.
Order pronounced on Wednesday, the 23rd day of November, 2016, at Chennai.