2019 (9) TMI 498 - AT - Income Tax

Addition in respect of expenses incurred for operating the toll plaza - CIT(A) deleted additions by admitting the fresh evidence - whether the same is contravention of Rule 46A of the I.T. Rules - HELD THAT - AO has not brought out anything on record to demonstrate that the expenses were not incurred for the purpose of business neither he has brought on record anything for the proposition that the expenses claimed were not supported with bills and vouchers. CIT(A) has allowed relief to the assessee by recording his elaborate findings CIT(A) are quite exhaustive wherein we do not find any infirmity. As regards the arguments of D. R. regarding fresh evidence accepted in violation of Rule 46A of the I.T. Rules, we find that CIT(A) has noted that on perusal of toll collection statement submitted by the assessee, in the last week in the month of March, 2014, there were total amount of toll plaza fee payable and he has also noted that total amount payable as toll plaza fee comes out. These findings are based upon a letter dated 06/12/2016 and this letter was addressed to AO during assessment proceedings. Therefore, the learned CIT(A) has not relied upon any additional evidence while giving relief to the assessee. Appeal filed by the Revenue is dismissed

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) regarding expenses incurred for operating the toll plaza.
2. Deletion of addition made by AO regarding the amount payable to National Highway Authority of India (NHAI).
3. Deletion of addition made by AO on account of salary and wages.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Regarding Toll Plaza Expenses:
The AO made an addition of ?62,70,485/- by disallowing operational expenses for the toll plaza business, arguing that the rise in expenses was not substantiated by the assessee. The AO compared the expenses with the previous year and concluded that the increase was unjustified. The CIT(A) deleted this addition, stating that the AO had not demonstrated that the expenses were not incurred for business purposes or lacked supporting bills and vouchers. The CIT(A) noted that the assessee provided valid reasons for the increased expenses, such as managing toll operations in Southern India, which posed logistical challenges and language barriers. The CIT(A) emphasized that the AO's disallowance was based on conjectures and surmises without any adverse material to prove the excessiveness of the payments.

2. Deletion of Addition Regarding Amount Payable to NHAI:
The AO added ?1,27,07,644/- to the total income of the assessee, arguing that the amount shown as payable to NHAI was not substantiated with evidence and was actually paid in April 2014. The CIT(A) deleted this addition, explaining that the assessee followed the mercantile system of accounting, where expenses are accounted for when they accrue, not when they are paid. The CIT(A) highlighted that the toll collection for the last week of March 2014 was accounted for in the same accounting year, and the corresponding expenditure was a liability accrued and due to be paid as per the contract with NHAI.

3. Deletion of Addition Regarding Salary and Wages:
The AO disallowed ?2,21,02,473/- (20% of the total salary and wages) on the grounds that the assessee claimed excessive salary payments without sufficient evidence. The CIT(A) deleted this disallowance, noting that the assessee provided a comparative analysis of salary and wages for the current and previous years, showing only a marginal increase. The CIT(A) observed that the AO did not bring any material evidence to prove that the expenses were excessive or not genuine. The CIT(A) also pointed out that the books of accounts were audited, and the AO did not invoke section 145(3) to reject them. The CIT(A) concluded that the disallowance was based on conjectures and surmises without any material evidence.

Conclusion:
The Tribunal upheld the CIT(A)'s findings and dismissed the Revenue's appeals in both I.T.A. No.249/Lkw/2018 and I.T.A. No.672/Lkw/2018, along with the assessee's cross objections. The Tribunal found no infirmity in the CIT(A)'s detailed and exhaustive findings, which were based on proper examination of facts and circumstances. The Tribunal also noted that the CIT(A) did not rely on any additional evidence in violation of Rule 46A while providing relief to the assessee. The order was pronounced in the open court on 06/09/2019.