2018 (8) TMI 132 - HC - Income Tax

Disallowance of Project Monitoring Expenses and Erection and Commissioning Charges - assessee failed to specify the reason of less profit before the A.O. in the year under consideration although turnover went up substantially as compared to previous year - ITAT deleted addition - Held that - Having heard learned counsel on behalf of the appellant, we do not see any substantial question of law, as arising out from the order, as projected. Consequently, the appeal fails and is dismissed without any order as to cost.

Summary

Issues involved: Appeal under Section 260A of the Income Tax Act challenging the Tribunal's order deleting an addition of ?75,16,013 made by the Assessing Officer based on increased expenses and decreased net profit.

Analysis:

1. Issue 1 - Alleged abnormal increase in expenses leading to reduced profit:
The Assessing Officer contended that the Assessee's turnover had increased significantly, but the net profit had decreased due to a rise in two specific expenses - Profit Monitoring Expenses and Erection and Commissioning Charges. The Assessee explained that the projects were spread across different locations, justifying the expense increase. However, the Assessing Officer rejected this explanation, deeming it imprudent to expand business for reduced profit. Consequently, an addition of ?75,16,013 was made. The Commissioner of Income Tax (Appeals) reversed this decision, noting the absence of evidence showing improper vouchers, artificial inflation, or bogus nature of expenses. The Commissioner emphasized the lack of proof that the expenses were used for non-business purposes, stating that suspicion alone cannot justify an addition. The Tribunal upheld the Commissioner's decision, citing relevant case law.

2. Issue 2 - Disallowance of expenses despite lack of satisfactory explanation:
The appellant raised questions on the ITAT's decision to delete the disallowance of ?75,16,013 from Project Monitoring Expenses and Erection and Commissioning Charges. The appellant argued that the Assessee failed to provide a satisfactory reason for the reduced profit despite a substantial increase in turnover. However, upon hearing the appellant's counsel, the Court found no substantial question of law arising from the order. Consequently, the appeal was dismissed without any order as to costs.

In conclusion, the judgment analyzed the Assessing Officer's decision to add ?75,16,013 to the Assessee's income based on increased expenses and reduced profit, the Commissioner of Income Tax (Appeals)'s reversal of this addition, and the Tribunal's affirmation of the Commissioner's decision. The Court found no substantial legal question in the appeal, leading to its dismissal.