2015 (5) TMI 716 - AT - Income Tax

Disallowance of deferred revenue expenses - Held that - Assessee has not placed any material on record to support its contention of it satisfying the principle of matching concept nor could controvert the observations by ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) and thus this ground of Assessee is dismissed - Decided against assesse. Disallowance made on account of gift and presentation expenses - held that - On perusing the ledger account it is seen that the amount mainly paid to Mr. N. Gopinath for the purpose of gift. Apart from the narration of the entry, no details as called for by the A.O has been placed before us. However, considering that the Assessee is a public Ltd. Co. and considering the nature of the business of the Assessee and considering the totality of facts,we are of the view that the disallowance if made at 10% of the expenditure would meet the ends of justice as against 20% made by the A.O. - Decided partly in favour of assesse. Adhoc disallowance of miscellaneous expenses - held that - The expenses in relation to the membership fees of American Express Credit Card was disallowed in the absence of the details. With respect to the adhoc disallowance at 10% we find that the action of A.O was upheld by ld. CIT(A). Considering the totality of the facts and the type of business which the Assessee is into, we are of the view that the ends of justice shall be met by making a lump sum addition and in such circumstances we direct that the addition be restricted to ₹ 50,000/- on adhoc basis Decided partly in favour of assesse. Addition of suppression of contract receipts on adhoc basis - Held that - In the present case, the addition between the contract receipts shown as per the TDS certificate and the amount credited by the Assessee in its Profit and Loss account was considered as income of the A.O. A.O had noted that the Assessee could not reconcile the difference between the TDS certificates and the Profit and Loss account. We also find that ld. CIT(A) has also noted that Assessee could not reconcile the difference either before A.O or before him. Before us, ld. A.R. has submitted that the difference was on account of mobilization advance which has been offered to tax in subsequent years and it was further submitted that if the Assessee is granted one more opportunity it would be in a position to reconcile the difference. The ld. A.R. further submitted that aforesaid method of accounting has been consistently followed by the Assessee and has been accepted by the Revenue authorities. Considering the aforesaid submissions of the Assessee, we are of the view that in the interest of justice one more opportunity be granted to the Assessee so that the Assessee could reconcile the contract receipts before A.O - Decided in favour of assesse for statistical purposes.

Summary

Issues Involved:
1. Disallowance of deferred revenue expenses.
2. Disallowance of gift and presentation expenses.
3. Ad hoc disallowance of miscellaneous expenses.
4. Addition on account of suppression of contract receipts.

Issue-wise Detailed Analysis:

1. Disallowance of Deferred Revenue Expenses:
The Assessee claimed Rs. 2,97,284 as deferred revenue expenditure for modification expenses aimed at improving productivity and quality. The A.O. disallowed this on the grounds that the expenses did not pertain to the year under consideration. The CIT(A) upheld this disallowance, noting the Assessee failed to provide details justifying the spreading of expenses over multiple years as per the "matching principle." The Tribunal agreed with the CIT(A), emphasizing the lack of supporting material from the Assessee to substantiate its claim, thus dismissing this ground of appeal.

2. Disallowance of Gift and Presentation Expenses:
The A.O. disallowed 20% of the gift and presentation expenses (Rs. 38,124) due to the Assessee's failure to provide details of recipients and items. The CIT(A) upheld this disallowance, citing unverifiability under section 37(1). The Tribunal, while recognizing the Assessee's status as a public Ltd. Co. and the nature of its business, reduced the disallowance to 10% of the expenses, thus partly allowing this ground of appeal.

3. Ad Hoc Disallowance of Miscellaneous Expenses:
The A.O. disallowed Rs. 71,500 out of advertisement and publicity expenses, considering them as donations, and Rs. 29,925 for membership fees of the Managing Director's American Express Credit Card, deeming it personal. Additionally, 10% of miscellaneous expenses amounting to Rs. 1,01,451 was disallowed due to unverifiability. The CIT(A) upheld these disallowances, noting the lack of detailed justification from the Assessee. The Tribunal, considering the Assessee's business nature, directed a lump sum addition of Rs. 50,000 on an ad hoc basis, thus partly allowing this ground of appeal.

4. Addition on Account of Suppression of Contract Receipts:
The A.O. added Rs. 66,93,121 due to a discrepancy between contract receipts as per TDS certificates and the Profit and Loss account. The Assessee argued this was due to mobilization advances reflected as liabilities. The CIT(A) upheld the addition, noting the Assessee's failure to reconcile the difference and the claiming of TDS credit for the entire amount. The Tribunal, acknowledging the Assessee's consistent accounting method and the potential for reconciliation, remitted the issue back to the A.O. for fresh consideration, allowing this ground of appeal for statistical purposes.

Conclusion:
The Tribunal's order resulted in partial relief for the Assessee, with specific directions for reassessment on the issue of suppression of contract receipts while upholding or modifying other disallowances based on available evidence and the nature of the Assessee's business. The appeal was thus partly allowed for statistical purposes.