2019 (4) TMI 1017 - AT - Income Tax

Disallowance on account of interest and penalty on service tax - HELD THAT - The payment of interest on late deposit of service tax with the government account was compensatory in nature and as the same character i.e. of service tax. This aspect was rightly taken into account by the CIT(A) in its finding. Since, the service tax is permissible deduction the interest paid for late deposit of the same is also a permissible deduction and should be allowed in the same manner. Ground No. 1 of Revenue s appeal is dismissed. Disallowance of additional service tax - HELD THAT - The amount of service tax paid by the assessee was not in the nature of penalty but represented the tax which was not collected by the assessee from its customers and was paid out of its own debited and was thus allowable u/s 37(1) . The amount was expanded by the assessee during the course of its business and it was wholly and exclusively for the business purposes. The expenses cannot be said that the same was not related to business of the assessee as it was the duty of the assessee to deduct service tax while providing service to the customers. Therefore, it comes under the purview of business expenses and hence is rightly deleted by the CIT (A). Ground of Revenue s appeal is dismissed Disallowance of the amount debited under the head short and excess - HELD THAT - The amounts debited under this head represented the pity difference in the balances of the debtors either on account of rounding off the balances or under recovery of such amount from debtors which were allowable as business expenditure u/s 36(1)(vii) of the Income Tax Act, 1961. Thus, the CIT(A) rightly deleted this addition. Disallowance of unexplained expenditure - HELD THAT - The assessee before the Assessing Officer filed complete bill vise details along with copies of invoices received from the factory at the time of delivery of diesel as well as filed confirmed copy of its ledger account in the books of M/s Garg Road Lines along with copy of bank statement/duly reflect the payments made by the assessee on various dates of M/s Garg Road Lines for supply of diesels. All these relevant evidences were ignored by the Assessing Officer during the assessment proceeding. The CIT(A) has rightly taken into account all the details filed by the assessee before the Assessing Officer and after verifying the same arrived at the right conclusion that the claim of the assessee is right as the purchase of diesel from the said party was genuine. The assessee has satisfied all the three elements of genuineness creditworthiness and identity of the parties, as per the provisions of the Income Tax Act. Therefore, there is no need to interfere with the findings of the CIT(A). Addition on account of expenses claimed in profit and loss account - AO made 1/5th addition on account of expenses claim being profit and loss account - HELD THAT - CIT(A) has rightly observed that the assessee fail to produce evidence to substantiate the assets in questions were exclusively use for business purpose only. There was no explanation given to cash as well but after considering the overall effect. The CIT(A) has rightly disallowed 1/10th of the total motor car expenses including depreciation and telephone expenses claim by the assessee. Low declaration of contract amount in the contract with M/s Pico Deepali Overlays Consortium group - revenue recognition - disputed contractual receipt - HELD THAT - The Hon ble Supreme Court in the case of CIT Vs. Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT OF INDIA have observed that the income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then it be said that the purposed of taxability that the income is not hypothetical and it has really accrued to the assessee. Mere filing of the suit for recovery will not in law make it an income which has accrued. AO while passing the Assessment order dated 21.03.2013 and CIT(A) while passing the appellate order dated 26.12.2014 observed that by filing the suit against the consortium the Assessee had claimed a right to receive the income. This findings of the Revenue authorities are contrary to the decision of the Hon ble Apex Court in case of Excel Industries 2013 (10) TMI 324 - SUPREME COURT . Thus, Ground No. 1 of the assessee s appeal is allowed. Addition in respect of low declaration of contract amount in the contract with Central Public Works Department (CPWD) - revenue recognition - running contract - HELD THAT - Here, a right to receive arose in the hands of the assesse when the assessee concern signed an agreement with Consortium of CWG for providing electrical support for opening and closing ceremony of Common Wealth Games. But the facts are that the Assessee could only determine the exact amount payable to it when the R/A Bills were provided to it to, in turn, include it as income in its books of accounts. As per Accounting Standard 9 on revenue recognition issued by the ICAI, para 11 of the main principle inter-alia states if at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. The payment (Rs. 27,72,354/-) for the work done in the contracts with CPWD was made through the tenth RA Bill dated 13.11.2011. Thus, the Assessee included the income in its books of accounts as income credited for the AY 2012-13. Thus, the assessee has postponed the revenue recognition due to the reason that the exact amount payable was not determined and the expected time for receiving payment was also not definite. - Ground of assessee is allowed. Disallowance of business promotion expenses - HELD THAT - The assessee provided tickets of the opening ceremony to both the customers and the employees. The expenditure incurred was bonafide. The ledger account for the said expenses showed that the amount was incurred for the purchase of opening ceremony tickets of the CWG-2010. The AO decided that Assessee failed to establish that the business purpose in incurring the said expenses. Thus, the AO made an addition of ₹ 15,50,000/- in the income of the Assessee. The CIT (A) upheld the addition made by Assessing Officer. But while determining this addition the Assessing Officer as well as CIT(A) has not looked into the aspect of the business purpose involved in the same. By providing the tickets to the customers and the employees, the assessee promoted its business and has earned a reputation that it is involved in the big events such CWG-2010. This may not yield the immediate business but it impacts the business prospects of the assessee for such large future events. Thus, the Assessing Officer as well as CIT(A) was not correct in disallowing the said expenses. - Ground of assessee is allowed. Addition on account of scrap sale - HELD THAT - As these electrical items were of a capital nature, their residual value was determined to be 46% like the other electrical items. Thus, the total addition by the AO on the basis of the scrap value of all the aforementioned was of ₹ 3,35,58,732/-. This entire addition though based on evidence produced by the Assessee during the Assessment proceedings, the Assessing Officer has not taken into account all the relevant evidence while determining the addition on the scrap sale. Besides that the Assessing Officer has not given any basis as to estimation of these sale of scrap. Thus, the reasoning to arrive at this addition is not properly given by the Assessing Officer. The CIT(A) also failed to do the same. Therefore, it will be appropriate that the remand back this issue to the file of the Assessing Officer and after verifying all the evidences produced by the assessee take a cogent view and give a proper reason as to whether this addition sustains or not. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 4 is partly allowed for statistical purpose. Disallowance of hire charges - HELD THAT - Assessing Officer requested for non-admission of additional evidence adduced by the Assessee without appreciating the facts of the case and the documents submitted under the said rule. CIT(A) rejected the application under Rule 46A of the Income Tax Rules, 1962, without commenting on the above-mentioned documents submitted to prove the identity, genuineness and creditworthiness of the transaction. Thus, it will be appropriate to remand back this issue to the file of the Assessing Officer and after taking cognizance of the documents in the form of additional evidence, the Assessing Officer should decide this claim accordingly. Needless to say the assessee be given opportunity of hearing by following principles of natural justice. Ground is partly allowed for statistical purpose.

Summary

Issues Involved:

1. Deletion of ?15,50,903/- disallowed by the AO on account of interest and penalty on service tax.
2. Deletion of ?6,488/- disallowed by the AO on account of disallowance of additional service tax.
3. Deletion of ?79,084/- disallowed by the AO on account of disallowance of amount debited under the head 'short and excess'.
4. Deletion of ?76,92,840/- made by the AO on account of disallowance of unexplained expenditure.
5. Restriction of addition to ?3,68,580/- from ?7,37,158/- made by the AO on account of expenses claimed in P&L account.
6. Confirmation of addition of ?6,99,24,861/- made by the AO, being the alleged amount of contract revenue receivable from M/s. Pico Deepali Overlays Consortium.
7. Confirmation of addition of ?27,72,354/- made by the AO, being the alleged amount of contract revenue receivable by the appellant from Central Public Works Department (CPWD).
8. Confirmation of disallowance of ?15,50,000/- incurred by the appellant on account of business promotion.
9. Confirmation of notional addition of ?3,35,58,732/- on account of income from alleged sale of scrap.
10. Confirmation of disallowance of ?62,33,080 on account of hire charges paid by the appellant.
11. Confirmation of ad-hoc disallowance to the extent of ?3,68,579 (i.e., 1/10th of ?36,85,792) made by the AO on account of various expenses incurred by the appellant in the regular course of business.
12. Confirmation of levy of interest under sections 234B and 234D of the Act.

Issue-wise Detailed Analysis:

1. Deletion of ?15,50,903/- disallowed by the AO on account of interest and penalty on service tax:
The Tribunal upheld the CIT(A)'s decision that the payment of interest on late deposit of service tax was compensatory in nature and had the same character as service tax. Since service tax is a permissible deduction, the interest paid for late deposit is also a permissible deduction. Ground No. 1 of Revenue’s appeal was dismissed.

2. Deletion of ?6,488/- disallowed by the AO on account of disallowance of additional service tax:
The Tribunal agreed with the CIT(A) that the amount of service tax paid was not in the nature of penalty but represented tax not collected from customers and paid out of the assessee's own debited. This was allowable under section 37(1) of the Income Tax Act, 1961. Ground No. 2 of Revenue’s appeal was dismissed.

3. Deletion of ?79,084/- disallowed by the AO on account of disallowance of amount debited under the head 'short and excess':
The Tribunal found that the amounts debited under this head represented petty differences in debtor balances, allowable as business expenditure under section 36(1)(vii) of the Income Tax Act, 1961. Ground No. 3 of Revenue’s appeal was dismissed.

4. Deletion of ?76,92,840/- made by the AO on account of disallowance of unexplained expenditure:
The Tribunal noted that the assessee provided complete bill-wise details and evidence of diesel purchases from M/s Garg Road Lines, which the AO ignored. The CIT(A) verified the evidence and rightly deleted the addition. Ground No. 4 of Revenue’s appeal was dismissed.

5. Restriction of addition to ?3,68,580/- from ?7,37,158/- made by the AO on account of expenses claimed in P&L account:
The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 1/10th of the total motor car expenses, including depreciation and telephone expenses, due to the lack of evidence that these assets were used exclusively for business purposes. Ground No. 5 of Revenue’s appeal and Ground No. 6 of the assessee’s appeal were dismissed.

6. Confirmation of addition of ?6,99,24,861/- made by the AO, being the alleged amount of contract revenue receivable from M/s. Pico Deepali Overlays Consortium:
The Tribunal found that the assessee had no direct dealing with OCCWG-2010 and the payment was contingent on receipt by the consortium. The addition was contrary to the decision of the Hon’ble Supreme Court in CIT v. Excel Industries Ltd. Ground No. 1 of the assessee’s appeal was allowed.

7. Confirmation of addition of ?27,72,354/- made by the AO, being the alleged amount of contract revenue receivable by the appellant from CPWD:
The Tribunal agreed that the exact amount payable was not determined until the R/A Bills were provided. The assessee included the income in its books for AY 2012-13. Ground No. 2 of the assessee’s appeal was allowed.

8. Confirmation of disallowance of ?15,50,000/- incurred by the appellant on account of business promotion:
The Tribunal found that the expenditure on CWG-2010 tickets was bona fide and for business promotion, impacting future business prospects. Ground No. 3 of the assessee’s appeal was allowed.

9. Confirmation of notional addition of ?3,35,58,732/- on account of income from alleged sale of scrap:
The Tribunal noted that the AO made the addition without providing a basis or confronting the documents. The issue was remanded back to the AO for verification of evidence. Ground No. 4 was partly allowed for statistical purposes.

10. Confirmation of disallowance of ?62,33,080 on account of hire charges paid by the appellant:
The Tribunal remanded the issue back to the AO to consider additional evidence and decide accordingly. Ground No. 5 was partly allowed for statistical purposes.

11. Confirmation of ad-hoc disallowance to the extent of ?3,68,579 (i.e., 1/10th of ?36,85,792) made by the AO on account of various expenses incurred by the appellant in the regular course of business:
This issue was decided while addressing Ground No. 5 of the Revenue’s appeal. Ground No. 6 of the assessee’s appeal was dismissed.

12. Confirmation of levy of interest under sections 234B and 234D of the Act:
The Tribunal did not separately address this issue, implying no change to the CIT(A)'s decision.

Conclusion:
The appeal of the Revenue was dismissed, and the appeal of the assessee was partly allowed for statistical purposes. The stay application was dismissed.