TGV PROJECTS AND INVESTMENTS PRIVATE LIMITED,HYDERABAD vs. ITO, WARD-2(3), HYDERABAD

The assessee raised the following grounds: “1) On the facts, the disallowance of expenditure is not correct and justified. Since, the appellant has submitted all the supporting bills, vouchers and Ledger Accounts.

2) The accounts of the appellant were audited under the Companies Act,2013 and also as per the provisions of section 44AB of the Income Tax Act,1961. Now it is a settled law that when the Books of Accounts of the appellant were audited by an independent auditor, verification of bills and vouchers is not correct and justified. 3) The disallowance of Service Charges of Rs.4,27,625/- is not correct and justified on facts when it relates to business expenditure. The authenticity and legality of the expenditure is indisputable; hence, the addition is not correct and justified. The assessing officer on estimation basis disallowed an amount of Rs. 4,27,625/-which is 25% of the total service charges of Rs. 17,10,501/-. The disallowance of Service Charges of Rs.4,27,625/- is not correct and justified on facts. Hence, the addition is liable to be deleted. 4) Disallowance of discounts of Rs. 68,49,140/- on room rents is not correct and justified on the facts, liable to be deleted. The business income of the appellant is from the hotel room rents. The gross bills raised in respect of the occupant will contain the discount allowed. Net amount is received from the occupant customer. In such cases the authenticity of the discounts allowed is established and the legality of allowing discounts is not disputable. On the facts, disallowance of discount is not correct and justified, liable to be deleted. In the appellants case, similar discounts were allowed in the earlier years also. 5) Dis-allowance of staff welfare expenditure of Rs. 4,41,383/- on estimation basis is not correct and justified when it relates to business expenditure. The authenticity and legality of the expenditure is indisputable; hence, the addition is not correct and justified. The assessing officer on estimation basis disallowed an amount of Rs. 4,41,383/- which is 25% of the total staff welfare expenditure of Rs. 17,65,532/-. The disallowance of staff welfare expenditure of Rs. 4,41,383/- on estimation basis is not correct and justified on facts. Hence, the addition is liable to be deleted. 6) On the above and other grounds that may arise during the course of appeal, the appellant prefers this appeal.”

The brief facts of the case are that the assessee M/s. TGV Projects and Investments (P) Ltd engaged in the business of Hotels and Other Sectors, filed its return of income for the A.Y 2017-18 on 30.10.2017 admitting total income of Rs.2,23,08,680/-. The case was selected for scrutiny and the assessment has been completed u/s 143(3) of the I.T. Act, 1961 on 27.12.2019 and determined the total income of the assessee at Rs.4,48,43,646/- by making additions towards disallowance of repairs & maintenance expenses of building and Plant & machinery for Rs.1,47,62,073/-, adhoc disallowance of services charges debited to P&L Account for Rs.17,10,501/-, adhoc disallowance of discount debited to P&L Account for Rs.68,49,140/-, adhoc disallowances of staff welfare expenses of Rs.4,41,383/- and also disallowance of employees contribution to PF u/s 2(24)(x) r.w.s. 36(1)(va) of the I.T. Act, 1961 for Rs.54,745/-.

On appeal, the learned CIT (A) partly allowed the appeal filed by the assessee, where he has sustained additions towards disallowance of service charges, disallowance on discount allowed on room rent and disallowance of staff welfare expenses, however, deleted the additions made by the Assessing Officer towards disallowance of repairs and maintenance to building and plant & machinery.

Aggrieved by the order of the learned CIT (A), the assessee is in appeal before the Tribunal.

The first issue that came up for our consideration from Ground No.3 of assessee’s appeal is adhoc disallowance of service charges @ 25% and made addition of Rs.4,27,625/-. The Assessing Officer disallowed 25% of service charges debited to P&L Account on the ground that the assessee has included an amount of Rs.17,10,501/- paid to certain individuals without deducting TDS. Further, the appellant could not file necessary bills & vouchers in support of service charges, therefore, made 25% adhoc disallowance and added back sum of Rs.4,27,625/-.

The learned Counsel for the assessee submitted that the appellant being a company got his accounts audited from a Chartered Accountant and the Auditor has not pointed out any discrepancy in books of account or bills and vouchers maintained for service charges. Therefore, the Assessing Officer is erred in making adhoc disallowance of service charges and thus, same needs to be deleted.

The learned DR, on the other hand, supporting the orders of the authorities below submitted that the assessee has not submitted any bills and vouchers in support of expenditure debited into P&L Account, therefore, the Assessing Officer has Page 4 of 9 rightly disallowed 25% for such expenditure for want of bills and vouchers and their order should be upheld.

We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. It is an admitted fact that the appellant could not explain why it has not deducted TDS on certain payments made to individuals under the head service charges. Further, the appellant also not filed necessary bills and vouchers in support of expenditure debited into P&L Account. Therefore, we cannot find fault with the reasons given by the Assessing Officer to disallow certain portion of service charges. At the same time, the Assessing Officer has not given any reason why 25% expenditure should be disallowed. There is no reason of making adhoc disallowance of any expenditure unless the Assessing Officer makes out a case that the books of account maintained by the assessee are not verifiable and further expenditure debited in the P&L Account is not supported by bills and vouchers. Since, the appellant failed to give necessary bills and vouchers and further the Assessing Officer has also not given any valid reasons for making 25% adhoc disallowance, in our considered view, a reasonable portion of such expenditure needs to be disallowed to meet the ends of justice. Therefore, we direct the Assessing Officer to disallow 10% of service charges debited in the P&L Account and delete 15%.

The next issue that came up for our consideration from Ground No.4 of assessee’s appeal is disallowance of discount on room rent of Rs.68,49,140/-.

The learned Counsel for the assessee submitted that the business income of the appellant is from hotel room rent. The appellant raised gross bills in respect of the occupants and allowed certain discount and net amount is received from occupants. While accounting income in the books of account, the appellant has accounted gross amount charged as per bills and debited discount into the discount account. The Assessing Officer without appreciating relevant facts simply disallowed discount on room rent. Therefore, he submitted that the addition made by the Assessing Officer should be deleted.

The learned DR, on the other hand, supporting the orders of the authorities below submitted that the appellant could not file relevant invoices issued to the clients to verify whether gross billed or net billed amount is considered in the P&L Account. Therefore, the Assessing Officer has rightly disallowed the discount debited to P&L Account and their order should be upheld.

We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. The assessee received room rent from occupants. The Page 6 of 9 assessee claims that it has billed gross amount to customers and allowed discount. Further, while accounting revenue from room rent, gross amount has been credited to income account and discount allowed has been debited in the discount account. If the argument of the assessee is correct, then there is no reason to disallow discount on room rent. The Assessing Officer is not disputed the method of accounting followed by the assessee, but has disallowed the discount debited to P&L Account only on the ground that the appellant has not produced room rent invoices issued to the clients to verify, whether the gross or net amount is considered in the P&L Account. From the observation of the Assessing Officer, it appears that the Assessing Officer has not verified the bills with reference to the books of account maintained by the assessee. At the same time, it is also not clear from the assessment order whether the appellant has furnished the relevant invoices to the Assessing Officer for its verification. Unless the invoices issued to the clients are verified with reference to books of account, it cannot be ascertained whether the appellant has considered gross amount or net amount under the head revenue. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer for verification. Thus, we set aside the order of the learned CIT (A) on this issue and direct the Assessing Officer to verify the claim of the assessee with reference to any evidences that may be filed by the assessee, including the relevant room rent invoices issued to the clients.

The next issue that came up for our consideration from Ground No.5 of assessee’s appeal is adhoc disallowance of staff welfare expenses of Rs.4,41,383/-. The Assessing Officer disallowed 25% of staff welfare expenses debited to P&L Account amounting to Rs.17,65,532/- and made addition of Rs.4,41,383/- for the reasons that the appellant has not produced bills for verification even after giving sufficient time. It is the argument of the learned Counsel for the assessee that the assessee is a company and its books of account are audited. The auditor has not pointed out any discrepancy in its books of account. Therefore, there is no ground for making adhoc disallowance of any expenditure.

We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. The Assessing Officer has not given any valid reason for making adhoc 25% disallowances of staff welfare expenses, except stating that the assessee has not produced bills and vouchers for verification. At the same time, it is not ascertainable from record whether the assessee has produced relevant bills and vouchers to support expenditure debited under the head staff welfare expenses. Since the Assessing Officer has not given any valid reason for 25% adhoc disallowance of expenditure and further the appellant has not furnished necessary bills & vouchers in support of expenditure debited under the head, in our considered view 25% adhoc disallowance appears to be on the higher side.

In the result, appeal filed by the assessee is partly allowed for statistical purposes.