2018 (3) TMI 1345 - AT - Income Tax

Disallowance towards mobilization of advances claimed by the assessee as sub-contract expenditure - Held that - The mere existence of an agreement between the assessee and the sub-contractor or making a payment by a cheque, does not bind the Assessing Officer to hold that the payment was made exclusively and wholly for the purpose of assessee s business. In the present case, though the assessee made payment of ₹ 2 crores to Mr. K. J. Paul, it was not shown as income in the hands of Mr. K.J. Paul by crediting the said amount in his P&L account and also no bills were raised with reference to this payment against the assessee. On the other hand, it was shown as advance in his hands and no corresponding bills were raised against the assessee. In such circumstances, it is not possible to hold that the assessee actually incurred expenditure wholly and exclusively for the purpose of business. No infirmity in the order of the lower authorities and the case law relied on by the assessee s Counsel is of no assistance to the assessee as the facts of this case are entirely different from the facts of the present case. Accordingly, this ground of appeal of the assessee is rejected. Disallowance of interest on mobilization of advances - Held that - As submitted by assessee interest on mobilization advance was deducted by the awarder and it is to be considered as expenditure whether the awarder has deducted the interest out of the awardee. The amount has to be verified from the tender agreement entered into by the assessee with Cochin Port Trust. The oral argument of the assessee s Counsel cannot establish that there is a condition in the tender agreement to deduct interest towards mobilization of advance given to the assessee by the awarder. Accordingly, we remit this issue to the file of the Assessing Officer to examine this issue with reference to the tender agreement entered into by the assessee with Cochin Port Trust. The Assessing Officer has to consider this issue afresh. Thus this ground of appeal of the assessee is allowed for statistical purposes. Disallowance of depreciation on car and Disallowance of JCB hire charges - Held that - Before us the assessee has not given any reasonable cause for not pressing these grounds before the lower authorities and agitate this issue before us. Accordingly, we find no reason to interfere with the order of the lower authorities on these issues. In view of the above, these grounds are dismissed as not emanating from the order of the CIT(A). Allowability of the claim of 20% labour charges - main crux of the argument of the Revenue is that the assessee had given contract work to sub-contractor and the assessee claimed labour charges which is comparatively on a higher side - Held that - The issue of incurring of labour charges is to be re-examined by the Assessing Officer with reference to bills and vouchers produced by the assessee and to disallow only that portion of labour charges expenditure which is excessive when compared to similar business. Remit this issue to the file of the Assessing Officer for fresh consideration. Thus this ground of appeal of the Revenue is partly allowed for statistical purposes

Issues Involved:
1. Disallowance of ?200 lakhs paid towards mobilization advances.
2. Disallowance of interest on mobilization advances.
3. Disallowance of depreciation on car and JCB hire charges.
4. Allowability of the claim of 20% labor charges without additional evidence.

Detailed Analysis:

1. Disallowance of ?200 Lakhs Paid Towards Mobilization Advances:
The first issue concerns the disallowance of ?200 lakhs paid to Mr. K.J. Paul for mobilization advances claimed as sub-contract expenditure. The assessee argued that this amount was for sub-contract work and was supported by an agreement and TDS deductions. However, the lower authorities noted that the amount was not shown as income in Mr. K.J. Paul's profit and loss account, and no corresponding bills were raised. The Tribunal upheld the disallowance, stating, "All the payments made by the assessee cannot be treated as an expenditure in the hands of the assessee as incurred wholly and exclusively for the purpose of business unless it was incurred for the purpose of business and supported by bills and vouchers." The Tribunal found no infirmity in the lower authorities' order, rejecting the assessee's appeal on this ground.

2. Disallowance of Interest on Mobilization Advances:
The next issue involves the disallowance of ?6,92,830/- claimed as interest on mobilization advances. The Assessing Officer disallowed this amount, finding no evidence to support the claim. The CIT(A) confirmed the disallowance. The Tribunal noted that the assessee failed to provide documentary proof of the interest charges being deducted by the awarder. The Tribunal remitted the issue back to the Assessing Officer for verification from the tender agreement with Cochin Port Trust, allowing this ground of appeal for statistical purposes.

3. Disallowance of Depreciation on Car and JCB Hire Charges:
The assessee raised grounds related to the disallowance of depreciation on a car (?2,74,057/-) and JCB hire charges (?2,13,263/-). These grounds were not pressed before the lower authorities. The Tribunal noted, "Before us the assessee has not given any reasonable cause for not pressing these grounds before the lower authorities and agitate this issue before us." Consequently, these grounds were dismissed.

4. Allowability of the Claim of 20% Labor Charges Without Additional Evidence:
The Revenue appealed against the CIT(A)'s decision to allow 20% labor charges without additional evidence. The Assessing Officer had disallowed ?2,11,61,395/- of labor charges, citing insufficient proof and self-made vouchers. The CIT(A) found the disallowance to be based on estimates and devoid of facts, thus deleting the addition. The Tribunal remitted the issue back to the Assessing Officer, stating, "The issue of incurring of labor charges is to be re-examined by the Assessing Officer with reference to bills and vouchers produced by the assessee and to disallow only that portion of labor charges expenditure which is excessive when compared to similar business." This ground of appeal was allowed for statistical purposes.

Cross Objection:
The Cross Objection filed by the assessee was supportive of the CIT(A) order and became infructuous with the disposal of the Revenue appeal.

Conclusion:
The appeals of the assessee and Revenue were partly allowed for statistical purposes, and the Cross Objection filed by the assessee was dismissed. The Tribunal's order emphasized the necessity for proper documentation and verification of claims to substantiate the expenses and deductions claimed by the assessee.

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