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2018 (8) TMI 659 - AT - Income TaxGenuineness of claim of expenditure - whether PCL has given the Bank Guarantee and not - Held that - it is noticed that M/s. PCL Intrtech Lenhydro Consortium JV was awarded the contract and constituent members agreed to demarcate and share, for operational convenience, their responsibilities in respect of execution of the work. It is also noticed that RSJV has taken on sub-contract the work of PCL. As per the said agreement, the margin money and bank guarantee commission is payable by the JV Since PCL-Intertech Consortium was the main contractor, the bank guarantee would have to be provided in its name. Since the assessee has not reflected the Bank Guarantee in its books, it has to be presumed that Bank Guarantee has been given by M/s. PCL and that the assessee is liable to pay the guarantee commission for availing the said service. In these circumstances, the Bank Guarantee commission is allowable as business expenditure.
Issues Involved:
1. Disallowance of Bank Guarantee Commission. 2. Disallowance of Legal Charges under Section 40(a)(ia). 3. Adhoc Disallowance of Expenses. Detailed Analysis: 1. Disallowance of Bank Guarantee Commission: The assessee, engaged in civil construction, filed its return of income for A.Y 2007-08 declaring an income of ?79,49,005. The AO assessed the total income at ?1,69,17,558, which was confirmed by the CIT (A). The ITAT remanded the case to the AO with specific directions. Upon reassessment, the AO disallowed the bank guarantee commission of ?58,61,347. The CIT (A) upheld this disallowance, leading to the present appeal. The ITAT had earlier directed the AO to verify if the bank guarantee was furnished by M/s PCL on behalf of the assessee, but the AO embarked on a fresh inquiry instead. The ITAT reiterated that the bank guarantee commission should be treated as business expenditure if it was provided by PCL on behalf of the assessee, referencing the jurisdictional High Court decision in ACIT vs. Akkamba Textiles Ltd (117 ITR 294). Despite the lack of complete evidence from the assessee, the ITAT concluded that the bank guarantee commission is allowable as business expenditure based on the preponderance of probabilities and the entries in the assessee's books. Thus, grounds 2 to 5 were allowed. 2. Disallowance of Legal Charges under Section 40(a)(ia): The AO disallowed legal charges of ?4,04,000 under Section 40(a)(ia), which was partly allowed by the CIT (A) subject to verification of payment. The ITAT directed that if the assessee is not treated as an "assessee-in-default" under Section 201(1), no disallowance under Section 40(a)(ia) shall be made. The additional grounds of appeal raised by the assessee, being legal in nature, were admitted and remitted to the AO for verification. Thus, grounds 6 to 10 and the additional grounds were allowed for statistical purposes. 3. Adhoc Disallowance of Expenses: The AO made an adhoc disallowance of ?15,00,000 from the claim of expenses, which was upheld by the CIT (A). The ITAT had earlier directed the AO to disallow only 5% of the cash expenses unvouched by proper bills and receipts. However, the AO and CIT (A) maintained the same disallowance due to the lack of submission of bills/vouchers by the assessee. During the hearing, the assessee's counsel submitted that the assessee did not wish to press these grounds of appeal. Consequently, grounds 11 to 14 were rejected as not pressed. Conclusion: The ITAT partly allowed the assessee's appeal, allowing the bank guarantee commission as business expenditure and remitting the issue of legal charges for verification. The adhoc disallowance of expenses was not pressed by the assessee and thus rejected. The order was pronounced in the Open Court on 9th August, 2018.
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