2018 (5) TMI 2062 - AT - Income Tax

Claim of expenditure u/s. 57 - disallowing the Cost of Operation against which the appellant has earned income during the year under appeal - HELD THAT - A perusal of the sub-contract as also the Invoice clearly shows that the area is an estimated quantity only. This being so, we find no reason to disallow the expenditure nor is there any evidence to show that the transaction entered into between the assessee and M/s.Coastal Projects Pvt. Ltd., was not genuine. In these circumstances, the addition as made by the AO in respect of the subcontracting of the contract work to M/s.Coastal Projects Pvt. Ltd. representing the expenses claimed towards cost of operation stands deleted. Disallowance of the expenditure towards interest disallowed - HELD THAT - Respectfully following the decision of the Co-ordinate Bench of this Tribunal, the issue is restored to the file of the AO for re-adjudication 2018 (5) TMI 2061 - ITAT CHENNAI Disallowing the Cost of Operation against which the appellant has earned income during the year under appeal - HELD THAT - . A perusal of the Assessment Order clearly shows that the assessee did not have adequate opportunity to substantiate its claim before the AO. This being so, the issue in respect of the addition is restored to the file of the AO for re-adjudication. Here, it is to be kept in mind that an addition cannot be made merely on the basis of a statement recorded or a unsupported disclosure made by an assessee in the statement recorded in the course of a survey. Assessment is to be made on the basis of evidences. In regard to the issue of the disallowance of the interest expenditure u/s.57, it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the case of the sister concern company M/s.Arohi Infrastructure Pvt. Ltd., and M/s.Aparti Constructions Pvt. Ltd., referred to supra, which is also been extracted earlier. In these circumstances, on identical findings, the issue in this appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate its case. Consequently, the appeal filed by the assessee is partly allowed for statistical purposes

Summary

Issues Involved:
1. Disallowance of Cost of Operation.
2. Disallowance of Interest Expenditure under Section 57 of the Income Tax Act.
3. Non-adjudication of Tax Credit.
4. Levy of Interest under Sections 234B, 234D, and 244A of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Cost of Operation:
The assessee's appeal contested the disallowance of ?1,81,50,000 for AY 2010-11 and ?9,00,00,000 for AY 2011-12 as cost of operation. The assessee argued that the disallowed amounts were genuine expenditures incurred under sub-contracts with M/s. Coastal Projects Pvt. Ltd. The Tribunal noted that the work order and invoices supported the assessee's claim, showing the contracted area and payments made. The Tribunal found no evidence to suggest the transactions were not genuine and thus deleted the disallowance for AY 2010-11. For AY 2011-12, the Tribunal restored the issue to the Assessing Officer (AO) for re-adjudication, emphasizing that additions cannot be made solely based on statements recorded during surveys without supporting evidence.

2. Disallowance of Interest Expenditure under Section 57:
The assessee claimed interest expenditure under Section 57 of the Income Tax Act, which was disallowed by the AO. The Tribunal referenced its previous decisions in the cases of the assessee's sister concerns, M/s. Arohi Infrastructure Pvt. Ltd. and M/s. Aparti Constructions Pvt. Ltd., where similar issues were adjudicated. The Tribunal directed the AO to verify if the loans were taken from the holding company and if the interest was paid on such loans. If the loans were used for further lending, the interest paid should be allowed, and only the net interest should be assessed as income. Thus, the issue was restored to the AO for re-adjudication for both assessment years.

3. Non-adjudication of Tax Credit:
The assessee raised issues regarding tax credits reflected in Form 26AS and the Annual Tax Statement under Section 203AA of the Income Tax Act, which were not adjudicated by the CIT(A). The Tribunal did not provide a detailed analysis on this issue but implied that it should be addressed during the re-adjudication process by the AO.

4. Levy of Interest under Sections 234B, 234D, and 244A:
The assessee contested the levy of interest under Sections 234B, 234D, and 244A of the Income Tax Act. The Tribunal did not explicitly address this issue separately but indicated that the AO should consider all relevant details during the re-adjudication process.

Conclusion:
The appeals for both assessment years were partly allowed for statistical purposes. The Tribunal directed the AO to re-adjudicate the issues concerning the disallowance of interest expenditure and the cost of operation for AY 2011-12, ensuring that the assessee is granted adequate opportunity to substantiate its claims. The Tribunal emphasized the need for evidence-based assessments and proper verification of transactions and expenditures.