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TMI Blog2021 (4) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the assessee. The ld. AR Shri Akhilesh Kumar Jain has however submitted a letter dated 09.03.2021 wherein he has stated that the appeal may be decided taking into consideration the written submissions so filed on behalf of the assessee. In his written submission, the ld AR on behalf of the assessee has submitted as under: "Ground No.1- Addition of Rs. 1,60,983/= for delayed deposit of employees share of ESI & PF contribution Facts and Submissions - (i) All dues were deposited well before due date of filing of Return of Income as is evident from the perusal of the table reproduced on page 2 of the appellate order. (ii) There was no addition in the assessments on the issue in earlier assessment years except for AY 2007-08 and 2008-09 which were subsequently deleted by the learned CIT (Appeals) in orders dated 30.04.2014 and 06.03.2013. (iii) No disallowance / addition is attracted in view of several decisions including that of the ITAT-JPR, the jurisdictional Rajasthan High Court as well as the Supreme Court. Few of such decisions are cited below- (a) DCIT vs. Rajasthan Renewable Energy Corporation Ltd. [ITA No. 772/JP/2018 & 817/JP/2018] (b) DCIT, CC-II Vs. J K I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 3- Lump Sum Disallowance of Rs. 250000/- sustained being expenses alleging that expenses were not verifiable in absence of proper bills/ paid on self-made vouchers. Facts and Submissions - (i) Being a large organisation there is strict internal control system in operation and each expense is subject to verification by superior authority before payment/recording in books of accounts. (ii) Being a large organisation in health services and operating various Units - Multi Super Speciality Hospital, Nursing School-College, CT & MRI centre under PPP mode at SMS Hospital, payment of expenses by way of reimbursement of cash to staff members on self-made vouchers cannot be avoided. (iii) Perusal of table reproduced on page 8 and 9 of the appellate order reveals that all the payments were made to known persons. Out of aggregate expenses of Rs. 44,79,018.61 (33,69,566.97 + 11,09,451.64) a sum of Rs. 12,89,080.58 (7,13,656.59 + 5,75,423.99) was reimbursement to staff members and rest amount paid/credited to outside parties against their bills. (iv) All the expenses fulfilled the allowability criteria prescribed in section 37(1) of the Income Tax Act, 1961. (v) Reliance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble jurisdictional Court has decided as follows: "6. With regard to issue No. 2 and 3 the controversy is pending before the Supreme Court in C.I.T, Jaipur Vs. M/s State Bank of Bikaner and Jaipur in SLP(c) No. 16249/2014, therefore, subject to decision of SLP, for the present, these issues are decided in favour of the department and against the assessee. It will be open for the department to recover the amount if the decision is in their favour." In view of the same the disallowance made by the Assessing Officer is confirmed. This ground of appeal is dismissed." "3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer made the disallowance by holding that the assessee is following mercantile system of accounting and therefore prior paid expenses are not allowable. Ld. Authorized Representative filed the details of the expenses and claimed that the same were settled during the year. On perusal of overall facts, I find that out of the total expenses, only the expenses relating to the salary to staff amounting to Rs. 8,496/- is settled during the year. Therefore, the disallowance of Rs. 8,496/- is deleted. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited in DB ITA No. 10,11 & 12/2018 dated 13.03.2018. In the case of PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited (supra) the Hon'ble High Court has considered this issue in para 4 to 6 as under:- "4. So far as question No. 1 is concerned, the same is now covered by the decisions of this Court in Principal Commissioner of Income-Tax V/s Rajasthan state seed Corporation Ltd. [2016] 386 ITR 267 (Raj) wherein it has been held as under:- "In so far as the expenditure incurred on State Renewal Fund is concerned, the said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the course of business and expenditure of this nature being for business expediency is certainly allowable deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. Hence, disallowances/additions made by the AO on account of employees contribution to PF & ESI are deleted." We accordingly set-aside the order of the ld CIT(A) and the disallowance made by the AO towards employees contribution to ESI and PF is hereby deleted. In the result, the ground no. 1 of the assessee's appeal is allowed. 5. Regarding disallowance of prior period expenses, it is incumbent upon the assessee to account for the expenses in respective financial year in which they are incurred or the liability towards such expenses has accrued which is in line with the mercantile system of accounting as well as concept of matching accounting principle where the revenues and corresponding expenses are accounted for in the respective years. At the same time, there are business exigencies where at times, there are disputes regarding the availment/rendering of services or the quantification of amount payable and the same are settled in subsequent financial year. To take care of such exigencies, what is relevant to determine is the crystallization of liability or in other words, when the amount has actually become due and payable. Secondly, from the Revenue's perspective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the AO and at the same time, holding that the disallowance seems to be bit excessive has restricted the disallowance to Rs. 250,000/-. We find that the AO is well within his right and jurisdiction to examine the claim of the expenses and adopt an appropriate methodology of determining the nature and sample size of expenses and on examination thereof, where he find that the expense are not genuine or have not been incurred for the purposes of business, the same can be disallowed. However, before arriving at such a finding, he has to record specific finding highlighting particular expenditure which accordingly to him is not allowable and the reasons for the same which in the instant case is conspicuously absent and thus, the disallowance so made and sustained by the ld CIT(A) is clearly in the nature of an adhoc disallowance which cannot be sustained in the eyes of law. Similar view has been taken by the Coordinate Bench in case of Meghalaya Construction and Supply Company vs ACIT (supra) where it was held as under: "5. We have heard the rival contentions and perused the material available on record. The Assessing Officer has recorded a finding that on examination of bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to provide supporting documents to prove that such expenditures are incurred wholly and exclusively for the purpose of business or profession. Therefore, in my considered view a disallowance of Rs. 1,50,000/- out of the expenses claimed on the above mentioned expenditure is reasonable to cover the discrepancies mentioned by the A.O. in the assessment order. Accordingly, the ground of appeal on this issue is dismissed." If certain claim of expenditure is not found to be incurred wholly and exclusively for the business purpose of the assessee then the same is liable to be disallowed. However, if the expenditure incurred by the assessee is found for the business purpose of the assessee then due to certain irregularity in maintaining the supporting evidence an ad hoc disallowance is not called for. Accordingly, without specifying the instance of the expenditure, which is either excessive or found not incurred for the business of the assessee, the action of the A.O. in making ad hoc disallowance and confirmed by the ld. CIT(A) is not justified. Hence, ad hoc disallowance of Rs. 1.50 lacs is deleted." In light of above discussions, the adhoc disallowance of expenses so made b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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