2019 (10) TMI 1073 - AT - Income Tax

Disallowance of development expenditure towards road construction etc. - development expenditure was due but paid in next year - AO conducted the enquiry from these parties by calling the information under section 133(6) - HELD THAT - When the assessee has produced all the documentary evidences to establish the carrying out the development work and the claim of expenditure is not found to be excessive in consonance with the development work actually done at site, then the disallowance is uncalled for and the same is deleted. Disallowance of 50% development expenses on account of contract work given - ocumentary evidence was not accepted by the ld. CIT (A) on the ground that break up of various items is not given in these quotations and estimations - 50% of the claim is disallowed due to some irregularities in the documents produced by the assessee - HELD THAT - When the work is actually carried out at the site and it is also certified by the JVVNL, then even if there are some irregularities in the bills and vouchers produced by the assessee in not giving the break-up of the items, the claim of the assessee cannot be disallowed. Only in case if it is found that the assessee either made a bogus claim or inflated the expenditure then to the extent of such bogus or inflated claim can be disallowed. Once the claim of expenditure is not found to be excessive or inflated then having regard to the fact that the actual work has been carried out at the site, the claim cannot be disallowed on minor irregularities or defects in the bills/invoices produced by the assessee. Hence the disallowance made by the authorities below is deleted.

Summary

Issues Involved:
1. Disallowance of ?71,20,843/- claimed as development expenditure towards road construction.
2. Disallowance of ?10,00,000/- being 50% of development expenditure incurred towards contract work given to Kundhaliya Construction Company & Silvertech Engineer.
3. Addition of ?55,560/- under section 69A due to discrepancy in the amount advanced by the assessee to Arihant Shivenk Infra Projects Ltd.

Issue-wise Detailed Analysis:

1. Disallowance of ?71,20,843/- as Development Expenditure:

The assessee, a private limited company engaged in real estate, undertook a project named "Khushi Sansar". The AO noted that ?71,20,843/- was shown as outstanding development expenditure as of 31st March 2013 and claimed to have been paid in the subsequent year. Summons were issued to 9 parties, and statements were recorded. These parties denied supplying materials to the assessee, leading the AO to disallow the claim under section 144 of the IT Act. The assessee provided various documents, including invoices, work completion certificates, and NOCs, but the CIT (A) confirmed the disallowance after a remand report.

The assessee argued that the AO did not allow cross-examination of the parties whose statements were recorded in their absence, violating principles of natural justice. The AO did not dispute the actual development work but treated the purchases as bogus based on the suppliers' statements. The assessee produced all relevant bills/invoices, and the AO did not verify their genuineness. The Tribunal concluded that the disallowance was not justified as the actual work was not disputed, and the assessee provided substantial evidence of the development work. Therefore, the disallowance was deleted.

2. Disallowance of ?10,00,000/- (50% of Development Expenditure):

The assessee claimed ?20 lacs for electricity work from M/s. Kundhaliya Construction Co. and M/s. Silvertech Engineer. The AO disallowed 50% of the expenditure due to a lack of evidence. The CIT (A) confirmed the disallowance after a remand report.

The assessee submitted invoices and a certificate from JVVNL certifying the completion of the electrification work. The Tribunal noted that the actual work was carried out and certified by JVVNL, and minor irregularities in the bills should not lead to disallowance. The disallowance was deleted as the claim was not found to be excessive or inflated.

3. Addition of ?55,560/- under Section 69A:

The assessee did not press this ground of appeal during the hearing, and it was dismissed as not pressed.

Conclusion:

The appeal was partly allowed, with the disallowances of ?71,20,843/- and ?10,00,000/- being deleted, and the addition of ?55,560/- under section 69A dismissed as not pressed. The Tribunal emphasized the importance of natural justice and the need for substantial evidence to support claims and disallowances.