2022 (11) TMI 607 - AT - Income Tax

Additions u/s. 69A - unexplained expenditure on the basis of District Valuation Officer s report - AO while referring the case for DVO u/s.142A, the assessing officer has not doubted the books of account maintained by the assessee - HELD THAT - We are of the considered view that the assessment year involved herein is A.Y. 2010-11 which is prior to the insertion of sub-section (2) to Section 142A by the Finance Act, 2014 with effect from 2014. Without rejection of books of account the assessing officer ought not to have referred the matter to DVO to determine the cost of construction of the Project of the assessee. Therefore the ground raised by the Revenue does not find any merit and the addition made u/s. 69A deleted by the CIT(A) is hereby upheld. Addition u/s. 40(a)(ia) - HELD THAT - Without looking into these details, the assessing officer made disallowance u/s. 40(a)(ia) which is arbitrary. CIT(A) after verification of the details have deleted the additions which does not require any interference by us. Therefore Ground is devoid of merits and the same is rejected. Adhoc disallowance of labour expenses - HELD THAT - The assessee produced all the details namely Ledger account, bills/vouchers and Muster Roll of the employees who worked for the construction project. It is seen from record, the same have been produced before the AO but without assigning any good reason, the A.O. has made an adhoc disallowance at 20%. Therefore the addition is without any legal basis and therefore the deletion made by CIT(A) is hereby upheld.

Summary

Issues Involved:
1. Addition of unexplained expenditure under Section 69C based on the District Valuation Officer (DVO) report.
2. Disallowance under Section 40(a)(ia) for non-deduction of tax at source on professional fees and advertisement expenses.
3. Adhoc disallowance of 20% of total expenditure on labor charges.

Issue-wise Detailed Analysis:

1. Addition of Unexplained Expenditure under Section 69C:
The Revenue challenged the deletion of Rs. 23,43,123/- added by the Assessing Officer (A.O.) as unexplained expenditure based on the DVO's report. The A.O. referred the cost of construction to the DVO without rejecting the books of account maintained by the assessee, which were duly audited. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, citing the Supreme Court's ruling in Sargam Cinema vs. CIT, which stipulates that without rejecting the books of account, the A.O. cannot refer the matter to the DVO under Section 142A. This principle was further supported by the Madras High Court in CIT vs. A.L. Homes and the Delhi Tribunal in Westland Buildtech (P.) Ltd. vs. ITO. The Tribunal upheld the CIT(A)'s decision, stating that the assessment year in question was prior to the amendment introduced by the Finance Act, 2014, which allowed such references without rejecting the books. Therefore, the addition under Section 69C was not justified.

2. Disallowance under Section 40(a)(ia):
The A.O. disallowed Rs. 91,00,002/- for non-deduction of tax at source on payments for professional fees and advertisement expenses. The assessee provided evidence, including ledger accounts and TDS returns, showing that appropriate TDS was deducted where required, such as payments to Municipal Corporation, Bhopal, and various consultants. The CIT(A) verified these details and deleted the disallowance. The Tribunal found that the A.O. had arbitrarily disallowed the expenses without proper verification and upheld the CIT(A)'s decision to delete the addition.

3. Adhoc Disallowance of Labor Charges:
The A.O. made an adhoc disallowance of 20% of labor charges amounting to Rs. 7,52,564/- due to unsigned vouchers. The assessee produced comprehensive records, including ledger accounts, bills, vouchers, and muster rolls with signatures and thumb impressions of the laborers. The CIT(A) verified these documents and found no basis for the disallowance, leading to its deletion. The Tribunal upheld this decision, noting that the A.O.'s disallowance was without any legal basis.

Appeal for A.Y. 2011-12:
For the assessment year 2011-12, the Revenue raised similar issues regarding unexplained expenditure under Section 69C and labor charges disallowance. The Tribunal applied the same reasoning as in the previous assessment year and dismissed the Revenue's appeal.

Cross Objections by the Assessee:
The assessee's cross objections were in support of the CIT(A)'s order. As the Tribunal upheld the CIT(A)'s decisions, the cross objections were allowed.

Conclusion:
The Tribunal dismissed both appeals filed by the Revenue and allowed the cross objections filed by the assessee, thereby upholding the CIT(A)'s deletions of the additions and disallowances made by the A.O.