2014 (1) TMI 1368 - AT - Income Tax

Adhoc disallowance of expenditure incurred in cash - Held that - The details furnished by the assessee before the Assessing Officer/ CIT (A) are not open to third party scrutiny and they have not sustained to severe scrutiny of the Revenue Authorities - The adhoc disallowance made by CIT(A) was justified - Partly allowed in favour of assessee. Disallowance out of expenditure like bank charges, office maintenance, telephone expenses, staff salary, depreciation - Held that - These are the expenses to be taken to the work-in-progress as expenses of the business to be carried forward till the projects are complete as appellant is following the project completion method - These expenses in work-in-progress can be considered at the time when the projects are complete and revenue is recognized - The allowance of expenditure is deferred because of the method followed by the appellant on completion of project only - Assessee should not be allowed to deviate from this method without there being no specific and sustainable reason - Decided against assessee. Non-deduction of TDS - Held that - As the assessee is following the project completion method, the expenses in work-in-progress can be considered at the time when the projects are complete and revenue is recognized -The impugned expenses on which no TDS is made cannot be disallowed in this year as it is not charged in the P&L Account - The claim is to be deferred till the revenue recognized in the year in which the project is completed - Decided against assessee.

Summary

Issues:
1. Disallowance of expenses on ad-hoc basis without complete details.
2. Disallowance of expenses debited to work-in-progress account.
3. Disallowance of expenses for non-deduction of TDS.

Issue 1: Disallowance of Expenses on Ad-hoc Basis
In the first appeal (ITA No.8850/M/2010), the assessee challenged the addition of Rs. 1 lac on an ad-hoc basis due to incomplete details of expenses. The CIT (A) directed the AO to delete this addition as the expenses were debited to work-in-progress without being charged in the P&L Account. The ITAT partially allowed the appeal, restricting the disallowance to Rs. 75,000 on an ad-hoc basis, considering the lack of sustainable details provided by the assessee.

Issue 2: Disallowance of Expenses Debited to Work-in-Progress Account
In the second appeal (ITA No.8852/M/2010), the AO disallowed Rs. 4,19,789 of expenses debited to work-in-progress, claiming no business activity by the assessee. The CIT (A) partly allowed the appeal, allowing the expenses to be included in work-in-progress for future recognition. The ITAT upheld the CIT (A)'s decision, dismissing the argument that expenses could not be apportioned between projects and emphasizing the need for consistent accounting methods.

Issue 3: Disallowance of Expenses for Non-Deduction of TDS
Regarding the disallowance of Rs. 2,02,987 for non-deduction of TDS in the third appeal, the CIT (A) deferred the allowance of this amount until revenue recognition upon project completion. The ITAT agreed with the CIT (A)'s decision, emphasizing the adherence to the project completion method and the timing of expense recognition based on revenue realization.

In conclusion, the ITAT Mumbai, in a consolidated order, addressed the issues of ad-hoc disallowance of expenses, expenses debited to work-in-progress, and disallowance for non-deduction of TDS. The judgments highlighted the importance of providing complete and sustainable details of expenses, consistent accounting methods, and timing of expense recognition based on project completion and revenue realization. The appeals were partly allowed or dismissed based on the merits of each issue presented.