2017 (12) TMI 615 - AT - Income Tax

Addition of Project Monitoring Expenses and Erection and Commissioning Charges - whether the assessee has failed before the A.O to specify the reason of less profit this year although turnover went up substantially as compare to last year - Held that - As perused all the records and gone through the order of the CIT(A) wherein the CIT(A) has rightly deleted the addition as the Assessing Officer made the estimated addition or ad-hoc addition without assigning any reason to that effect. Merely, on the basis of surmises, the Assessing Officer cannot make an addition when the assessee has given all the details about the expenses and the same was never doubted by the Assessing Officer at any point of time. CIT(A) rightly held that the Assessing Officer made estimated disallowances because of some expenses which had gone up, however, the Assessing Officer had not brought on record a single instance of expenses not being vouched properly or any of these expense being artificially inflated or being of a bogus nature, the CIT(A) further held that there was no allegation that the expenditure occurred out of any other activity and Assessing Officer did not bring on record any instance of the expenditure being used for purposes of the other business. The addition made by the AO was rightly deleted by the CIT(A) - Decided against revenue

Summary

Issues involved: Appeal against disallowance of project monitoring expenses and erection and commissioning charges for Assessment Year 2011-12.

Analysis:
1. Disallowance of Expenses: The Assessing Officer noted a decrease in net profit despite an increase in turnover, attributing it to a substantial increase in project monitoring expenses and erection and commissioning charges. The assessee explained the increase in expenses due to projects in different locations in India. However, the Assessing Officer rejected the explanation, leading to a disallowance of ?75,16,013 from the expenses, adding it to the total income of the assessee.

2. CIT(A) Decision: The CIT(A) observed that the Assessing Officer made estimated disallowances without providing concrete evidence of expenses being improperly vouched or inflated. The CIT(A) emphasized that no expenses were shown to be used for other activities or businesses. Consequently, the CIT(A) deleted the addition made by the Assessing Officer, stating that the disallowance was routine and ad-hoc without a valid basis.

3. Appellate Tribunal Decision: The Tribunal reviewed the case and found that the Assessing Officer's disallowance lacked specific instances or evidence to justify the action. Referring to legal precedents, the Tribunal emphasized that ad-hoc disallowances without clear reasons are unsustainable. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the addition of ?75,16,013, as the Assessing Officer's disallowance lacked substantive grounds.

4. Conclusion: Ultimately, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the disallowance of expenses. The Tribunal concurred with the CIT(A)'s reasoning that the Assessing Officer's actions were based on estimates without concrete proof, justifying the deletion of the addition. The judgment highlights the importance of providing specific evidence before making disallowances and emphasizes that suspicions alone cannot warrant such actions.

This detailed analysis of the judgment showcases the progression of the case from the Assessing Officer's disallowance to the final decision by the Appellate Tribunal, emphasizing the need for substantiated reasoning in tax assessments.