2023 (6) TMI 81 - AT - Income Tax

Adhoc addition of 20% of mobilization advance u/s 68 r.w.s. 115BBE - CIT(A) deleted the addition observing that details regarding mobilization advances were fully filed before the assessing officer and thus the conclusion of Ld. AO of absence of the evidences was factually incorrect - HELD THAT - The Bench is of considered opinion that the genuineness, identity and creditworthiness of the parties making mobilization advances was never questioned so no addition could have been made by Ld. AO by invoking provisions of section 68 - there seems to be no justification to make an adhoc disallowance u/s 68 of the Act. Ld. AO was suppose to either accept mobilization advance as a whole on the basis of running account or to a disbelieve the whole. Ad hoc disallowance without pointing out any shortcoming in accounting method or books is not sustainable. On this account alone the ground deserves to be dismissed. AO failed to take into consideration the details of mobilization advances in the form of short term and long term mobilization advances duly matched with the total outstanding mobilization advance - The Bench is not inclined to interfere in the findings of Ld. CIT(A) deleting the addition. Decided in favour of assessee. TDS credit denied - As observed that the claim of assesses was that mobilization advances received during the year on which TDS gets deducted stands offered as income of the same year and stand offered in the form of WIP. CIT(A) has duly taken into consideration the position of mobilization advances received during the year and the fact that when the Ld. AO has given TDS credit in ITNS 150 and therein had disallowed TDS credit to the extent Rs. 2,52,32,908/-. TDS credit cannot be added as income of the assessee as the same leads to double taxation. The cross objection of the assessee claiming TDS of the entire amount 2,52,32,908 /- instead of proportionate credit given by Ld. CIT(A) was not pressed. Disallowance of salary and wages - assessee has violated matching principle of accounting by claiming excess expenditure in proportion to the revenue offered to taxation - CIT-A deleted the addition - HELD THAT - CIT(A) has rightly concluded that Ld. AO has mistaken in referring to note 23 of the P L account which only reflected the position of opening materials, purchases and closing materials. The position of WIP is not shown in this note but part of Note 24. The method of valuation of WIP has been consistently followed by the assessee over years and has been accepted in preceding as well as succeeding years. The same is also in accordance with accounting standards. Thus, the disallowance on adhoc basis without any rational has been rightly deleted by Ld. CIT(A) and no interference is called for. The ground is decided against the Revenue.

Summary

Issues involved:
The issues involved in this judgment include the addition of mobilization advances, disallowance of TDS credit, charging of interest under section 234D of the Act, and disallowance of salary and wages.

Addition of Mobilization Advances:
The assessee, a construction company, received mobilization advances which were initially recognized as a liability and later adjusted as part of revenue. The Assessing Officer made an ad hoc addition of 20% of the mobilization advances as undisclosed income. The CIT(A) deleted the addition, stating that all details were provided to the AO and there was no basis for the addition. The genuineness of the advances was not questioned, and the AO failed to justify the ad hoc disallowance. The CIT(A) considered all evidence provided by the assessee, including audited accounts and project details, and concluded that the addition was unwarranted. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not question the identity or creditworthiness of the parties involved, making the addition unsustainable.

Disallowance of TDS Credit:
The claim of the assessee was that mobilization advances received during the year, on which TDS was deducted, were offered as income in the form of Work in Progress (WIP). The CIT(A) noted that the TDS credit disallowed by the AO would lead to double taxation and therefore should not be added as income. The assessee's cross objection regarding TDS credit was not pressed, and the Tribunal found no substance in the Revenue's ground on this issue.

Charging of Interest under Section 234D of the Act:
The AO charged interest under section 234D of the Act, which was contested by the assessee. However, the judgment does not provide specific details or arguments related to this issue.

Disallowance of Salary and Wages:
The AO disallowed salary and wages expenses, alleging a violation of the matching principle of accounting. The CIT(A) clarified that the expenses were accounted for correctly and in line with accounting standards. The method of valuation of Work in Progress (WIP) was consistent and accepted, leading to the deletion of the disallowance. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance was unjustified and without rational basis.

Conclusion:
Both appeals by the Revenue were dismissed on merits, with the Tribunal upholding the CIT(A)'s decisions. The cross objections were dismissed as not pressed. The judgment was pronounced on 29th May, 2023.