2018 (5) TMI 256 - AT - Income Tax

Disallowance of expenditure limned by the assessee was not allowable as the expenses belong to another entity- bills issued by RRT were the names of Della Technician and not in the name of the assessee - Held that - RRT in its letter dated 29/01/2013 has specifically mentioned that inadvertently bills belonging to the assessee were issued in the name of Della Technicia. We are unable to understand as to why the FAA discarded this evidence though the same was produced before him. He could have called for remand report or could have examined RRT in that regard. But, he simply confirmed the order of the AO. In our opinion the course adopted by the FAA is not as per the law. As a representative of the State, he is supposed to be an instrument in collecting due taxes and pass and adjudication order based on the evidences. As he has failed to do so, therefore, reversing his order we decide first ground of appeal in favour of the assessee. Disallowance of staff welfare expenses - Held that - As AO said assessee was engaged in constructing villas in remote area. Considering the above fact, in our opinion, expenditure incurred for purchasing television sets, refrigerators etc. cannot be disallowed. The necessity of the business is to be decided by the assessee itself and not by the AO. It is not the case of the revenue authorities that those items were used by the family of the directors of the company for by the families of the officers of the company. It is said that AO. s should not step into the shoes of the assessee. Considering the peculiar facts of the case, we are of the opinion that the FAA was not justified in confirming the disallowance made by the AO. - Decided in favour of the assessee. Disallowance of the labour charges - Held that - The details given by the assessee had to be further investigated. Therefore, in the interest of Justice, we are restoring that the issue to the file of the AO. He s direct to afford a reasonable into the assessee. The assessee would five detailed submissions and explanation before the AO.- Decided in favour of the assessee for statistical purposes. Deduction in closing value of work in progress - Held that - In the circumstances we hold that no reduction can be made as far as the amounts involved in grounds of appeal no. 1-3 are concerned. The AO is directed to restrict the reduction of work in progress to the undisputed disallowances only. Last ground is decided in favour of the assessee.

Summary

Issues involved:
1. Disallowance of expenses paid to R. R. Trading (RRT)
2. Disallowance of staff welfare expenses
3. Disallowance of purchases made by the assessee
4. Disallowance of labor charges
5. Deduction in closing value of work in progress

Detailed Analysis:
1. The first issue pertains to the disallowance of expenses paid to R. R. Trading (RRT). The Assessing Officer (AO) disallowed a portion of the expenses as the bills were raised in the name of another entity, Della Technicia, instead of the assessee. The First Appellate Authority (FAA) upheld the AO's decision. However, the Appellate Tribunal found that RRT had acknowledged the error in billing and confirmed that the expenses were for the assessee. The Tribunal criticized the FAA for not considering this evidence and reversed the decision in favor of the assessee.

2. The second issue involves the disallowance of staff welfare expenses, specifically for the purchase of items like refrigerators and television sets. The AO and FAA disallowed these expenses, stating they were not wholly and exclusively for the business. The Appellate Tribunal disagreed, emphasizing that the necessity of such expenses should be determined by the assessee, not the revenue authorities. The Tribunal overturned the disallowance, ruling in favor of the assessee.

3. The third issue concerns the disallowance of purchases made by the assessee due to billing discrepancies. The FAA upheld the AO's decision, but the Tribunal, following its decision on the first issue, allowed the appeal in favor of the assessee, as the bills were ultimately found to pertain to the assessee.

4. The fourth issue relates to the disallowance of labor charges by the AO, which the FAA upheld. The Appellate Tribunal found that further verification was needed and remanded the issue back to the AO for a detailed investigation. The Tribunal ruled partially in favor of the assessee on this ground.

5. The final issue involves the deduction in the closing value of work in progress by the AO, which the FAA confirmed. The assessee argued that the deduction should be limited to undisputed disallowances only. The Appellate Tribunal agreed with the assessee, directing the AO to restrict the reduction of work in progress to undisputed disallowances. The Tribunal ruled in favor of the assessee on this ground, resulting in the partial allowance of the appeal.

In conclusion, the Appellate Tribunal partially allowed the appeal filed by the assessee, overturning several disallowances made by the AO and FAA based on detailed analysis and consideration of the evidence presented.