A.C.I.T.,Circle-1, Gwalior V. M/s Tomer Bulders & Contractors Pvt. Ltd., Gwalior

ITA 303/AGR/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0561 (ITAT-AGRA)
• Duration Of Justice: 6 year(s) 10 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Assessee Lawyers: K C AGARWAL
• Keywords: Business expenditure; Set aside
• Section: 37(1); 205

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.303/AGR/2012 ASSESSMENT YEAR: 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S. TOMAR BUILDERS & CIRCLE-1, GWALIOR. CONTRACTORS PVT. LTD., A-18, VINAY NAGAR, SECTOR-4, GWALIOR (M.P.) (PAN: AAACT 7312 F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.K. MISHRA, JR. D.R. RESPONDENT BY : SHRI K.C. AGARWAL. ADVOCAT E DATE OF HEARING : 11.12.2012 DATE OF PRONOUNCEMENT OF ORDER : 11.01.2013 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 19.04.2012 PASSED BY THE LD. CIT(A), GWALIOR FOR THE ASSESSMEN T YEAR 2006-07. 2. THE FIRST GROUND OF APPEAL PERTAINS TO ADDITION OF RS.4,32,000/- ON ACCOUNT OF EARNEST MONEY FORFEITED FOR NON-COMPLIANCE OF CONDI TIONS OF BID. 3. THE DISALLOWANCE MADE BY THE A.O. HAS BEEN DELET ED BY THE CIT(A) AS UNDER:- (PARAGRAPH NO.2.2, PAGE NO.2) ITA NO.303/AGR/2012 A.Y. 2006-07 2 2.2 ON PERUSAL, APPELLANTS SUBMISSIONS ARE FOUND ACCEPTABLE. BID AMOUNT OF RS.4,32,000/-HAD BEEN FORFEITED IN THE RE GULAR COURSE OF BUSINESS OF THE APPELLANT TO AVOID LOSSES TO IT AS A RESULT OF ACCEPTANCE OF BID AT LOWER RATES. IT IS NOT IN NATURE OF PENA LTY IMPOSED BY THE CONCERNED DEPARTMENT. IT HAS BEEN HELD BY HONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. SUGAR DEALERS (1975) 100 I TR 424 (ALL.) THAT FORFEITURE OF EARNEST MONEY IS AN ALLOWABLE EXPENDI TURE IN THE REGULAR COURSE OF BUSINESS OF THE APPELLANT AS IT IS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. ACCORDINGLY , ADDITION OF RS.4,32,000/- IS, HEREBY, DELETED. 4. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. WE FIND THAT THE CIT(A) WHILE DECIDING ASSESSEES A PPEAL FOLLOWED THE JUDGEMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CI T VS. SUGAR DEALERS (1975) 100 ITR 424 (ALL.). WE FIND THAT THE CIT(A) HELD THAT IT IS BUSINESS EXPENDITURE AND NOT IN THE NATURE OF PENALTY IMPOSED AS REQUIRED UN DER THE PROVISO TO SECTION 37(1) OF THE ACT. THE REVENUE DID NOT POINT OUT ANY CONT RARY FACTS AGAINST THE FINDING OF CIT(A). IN THE LIGHT OF THAT, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF CIT(A). THE ORDER OF CIT(A) IS CONFIRMED ON THE ISSUE. 5. THE SECOND GROUND OF APPEAL PERTAINS TO ADDITION OF RS.1,55,053/- ON ACCOUNT OF VARIOUS PENALTIES. 6. THE DISALLOWANCE MADE BY THE A.O. HAS BEEN DELET ED BY THE CIT(A) AS UNDER:- (PARAGRAPH NO. 3.2, PAGE NO.3) ITA NO.303/AGR/2012 A.Y. 2006-07 3 3.2 APPELLANTS SUBMISSIONS HAVE BEEN CONSIDERED C AREFULLY AND ARE FOUND ACCEPTABLE. AS PER ITS P&L ACCOUNT ENCLO SED WITH THE RETURN, THE APPELLANT HAS NOWHERE CLAIMED THIS AMOU NT AS AN EXPENSE. RATHER IT HAS BEEN REFLECTED IN THE BALANCE SHEET U NDER THE HEAD TIME EXTENSION CHARGES TO BE ADJUSTED SUBSEQUENTLY ON CO MPLETION OF RELEVANT PROJECTS. IN ANY CASE, IT HAS BEEN HELD B Y VARIOUS COURTS THAT PENALTY OR DAMAGES PAID FOR DELAY IN EXECUTION OF C ONTRACTS IS AN ALLOWABLE EXPENDITURE INCURRED IN REGULAR COURSE OF BUSINESS AS THE SAME IS NOT FOR INFRACTION OF LAW BUT FOR BREACH OF CONTRACT. IT IS INCIDENTAL TO BUSINESS AND AN ADMISSIBLE DEDUCTION U/S 37(1). [CIT VS. AHMEDABAD COTTON MANUFACTURING CO. LTD. (1994) 205 ITR 163 (SC); CIT VS. INDO ASIAN SWITCHGEARS (P) LTD. (1996) 222 ITR 772 (P&H). IN VIEW OF ABOVE, ADDITION OF RS.1,55,053/- IS, HER EBY, DELETED. 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES. WE NOTICED THAT SO- CALLED PENALTY AMOUNT HAVE BEEN PAID BY ASSESSEE ON ACCOUNT OF LATE COMPLETION OF WORK, NON-DEPLOYMENT OF TECHNICAL STAFF ETC. WE FIN D THAT THESE ARE STRICTLY NOT IN THE NATURE OF PENALTY AS PROVIDED IN PROVISO TO SEC TION 37(1) OF THE ACT. THESE ARE BUSINESS EXPENDITURE. WE FIND THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION. IN THE LIGHT OF DISCUSSION MADE IN PARA 4 OF THIS ORDE R, THE ORDER OF CIT(A) ON THE ISSUE IS CONFIRMED. 8. THE THIRD GROUND IS IN RESPECT OF DISALLOWANCE O F MESS EXPENSES AND REPAIR & MAINTENANCE EXPENSES. THE A.O. HAS MADE THE ADDITI ON OF RS.1,00,000 + 4,50,000/-, TOTAL RS.5,50,000/-. ITA NO.303/AGR/2012 A.Y. 2006-07 4 9. THE CIT(A) HAS SUSTAINED THE ADDITION TO THE EXT ENT OF RS.50,545/- OUT OF TOTAL DISALLOWANCE OF RS.5,50,000/- AND DELETED THE BALANCE AMOUNT AS UNDER :- (PARAGRAPH NO. 6.2, PAGE ANOS.6 & 7) 6.2 ON PERUSAL OF RECORDS, SUBMISSIONS OF THE APPE LLANT AND THE ASSESSMENT ORDER, IT IS SEEN THAT THE AO HAS NOT MA DE THE SAID DISALLOWANCE ON ACCOUNT OF THEIR NON VERIFIABILITY BASED ON CERTAIN VOUCHERS. THUS, THE APPELLANTS SUBMISSIONS ARE NO T FOUND RELEVANT TO THESE TWO GROUNDS. AS PER ITS PROFIT & LOSS ACCOUN T, THE APPELLANT HAS CLAIMED THE MESS EXPENSES AT RS.5,05,442/- THIS YEA R AS COMPARED TO RS.2,71,237/-, LAST YEAR. SIMILARLY, REPAIR AND MA INTENANCE EXPENSES ON VEHICLE AND PLANT & MACHINERY HAVE BEEN SHOWN AT RS.70,59,269/- IN THE CURRENT YEAR AS COMPARED TO RS.65,70,388/-, LAST YEAR. APPELLANTS CONTRACTUAL RECEIPTS HAVE INCREASED FRO M RS.25.11 CRORES TO RS.31.93 CRORES, THIS YEAR, MEANING THEREBY INCR EASE OF RS.27.6%. IN COMPARISON, MESS EXPENSES HAVE INCREASED TO RS.5 ,05,442/- FROM RS.2,71,237/- I.E. 86%. SIMILARLY, REPAIR AND MAIN TENANCE EXPENSES HAVE INCREASED BY 7% (FROM RS.65,70,388/- TO RS.70, 59,269/-). IT HAS BEEN HELD BY HONBLE MUMBAI ITAT IN CASE OF ASSTT. CIT VS. ARTHUR ANDERSON & CO. (2005) 94 TTJ (MUM) 736 THAT THE VER Y CONCEPT OF TOKEN DISALLOWANCE IS BAD IN LAW BECAUSE IT IS INHE RENTLY BASED ON SURMISES AND CONJUNCTURES AND DEVOID OF A LEGAL SUS TAINABLE FOUNDATION. TO MAKE DISALLOWANCE IN RESPECT OF LEG ITIMATE BUSINESS EXPENSES, THE APPELLANT HAS TO SHOW NEXUS BETWEEN T HE EXPENDITURE AND BUSINESS PURPOSE. A.O. CANNOT BE ALLOWED TO SU BSTITUTE HIS OPINION FOR THAT OF THE APPELLANT AS IF HE HIMSELF IS THE BUSINESSMAN. SINCE THE A.O. HIMSELF HAS NOT DISPUTED THAT THESE EXPENSES HAVE BEEN INCURRED FOR BUSINESS PURPOSES, LUMP-SUM ADHOC DISA LLOWANCES ARE NOT FOUND SUSTAINABLE. HOWEVER, CONSIDERING THE NA TURE OF BUSINESS OF THE APPELLANT SPREAD FAR AWAY AND VARIOUS SITES INV OLVING ILLITERATE LABOURERS AND KEEPING IN VIEW PERCENTAGE INCREASED IN THESE EXPENSES AS COMPARED TO APPELLANTS CONTRACTUAL RECEIPTS (AS MENTIONED ABOVE), DISALLOWANCE @ 10% IN RESPECT OF MESS EXPEN SES IS JUSTIFIED AND REASONABLE WHICH WORKS OUT TO RS.50,545/-. THE APPELLANT HAS ALSO FAILED TO EXPLAIN THE REASON FOR SUCH DISPROPO RTIONATE ABNORMAL INCREASE IN THESE EXPENSES. ACCORDINGLY, ADDITION OF RS.50,545/- OUT OF RS.5,50,000/- IS, HEREBY, CONFIRMED. ITA NO.303/AGR/2012 A.Y. 2006-07 5 10. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE FIND THAT THE CIT(A) HAS CONSIDERED THE CASE MAD E OUT BY THE A.O. AND, AFTER CONSIDERING THE NATURE OF BUSINESS ACTIVITIES OF TH E ASSESSEE, HE FOUND THAT LUMP SUM DISALLOWANCE CANNOT BE SUSTAINED. HOWEVER, IN RESPECT OF MESS EXPENSES ADDITION SUSTAINED BY HIM TO THE EXTENT OF 10% OF R S.5,05,442/-, THE REVENUE FAILED TO POINT OUT ANY CONTRARY MATERIAL TO THE FINDING O F CIT(A). IN THE LIGHT OF THAT, WE CONFIRM THE ORDER OF THE CIT(A) ON THE ISSUE. 11. THE FOURTH GROUND IS IN RESPECT OF DISALLOWANCE OF RS.4,72,956/- ON ACCOUNT OF PURCHASE OF IRON AND STEEL. 12. THE ASSESSEE CLAIMED EXPENSES OF RS.1,24,12,503 /- ON ACCOUNT OF PURCHASE OF IRON AND STEEL. THE A.O. FOUND THAT CASH PURCHA SERS HAVE BEEN MADE FOR RS.4,72,956/- WHICH ARE NOT SUPPORTED BY BILLS AND VOUCHERS. THE CIT(A) DELETED THE ADDITION AS UNDER :- (PARAGRAPH NO.7.2, PAGE NO S.7 & 8) 7.2 APPELLANTS SUBMISSIONS HAVE BEEN CONSIDERED C AREFULLY. A.O. HAS MADE THE SAID DISALLOWANCE MAINLY BECAUSE THESE PURCHASES HAVE BEEN MADE IN CASH AND ARE NOT WELL SUPPORTED WITH B ILLS AND VOUCHERS. HOWEVER, NO SPECIFIC INSTANCE HAS BEEN BROUGHT ON R ECORD IN RESPECT OF THEIR NON VERIFIABILITY. AS MENTIONED IN PRECED ING PARAS, A.O. IS NOT FOUND JUSTIFIED IN MAKING ADDITIONS WITHOUT BRI NGING ANY ADVERSE MATERIAL ON RECORD. A.O. HAS FAILED TO SHOW THAT T HESE CASH PURCHASES HAVE BEEN MADE IN VIOLATION OF PROVISIONS OF THE AC T OR THAT CASH PAYMENTS ARE NOT REFLECTED IN APPELLANTS BOOKS OF ACCOUNTS. A.O. HAS ACCEPTED TRADING RESULTS OF THE APPELLANT COMPANY D ECLARED ON THE BASIS OF TOTAL SALES/CONTRACT RECEIPTS AND CONSEQUE NT PURCHASES. A.O. IS NOT FOUND JUSTIFIED IN NOT ACCEPTING A PART OF T HESE PURCHASES ITA NO.303/AGR/2012 A.Y. 2006-07 6 WITHOUT REJECTING APPELLANTS BOOKS OF ACCOUNTS OR WITHOUT BRINGING ANY COGENT MATERIAL ON RECORD. ACCORDINGLY, ADDITI ON OF RS.4,72,956/- IS, HEREBY, DELETED. 13. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE LD. AUTHORISED REPRESENTATIVE TRIED TO DEMONSTR ATE BY REFERRING COMPARATIVE POSITION OF EXPENDITURE OF IRON AND STEEL AND GROSS PROFIT DECLARED BY THE ASSESSEE AND SUBMITTED THAT EXPENDITURE CLAIMED BY THE ASSES SEE WERE THE EXPENDITURES INCURRED FOR THE PURPOSE OF BUSINESS. BUT HE FAILE D TO POINT OUT THAT THE ASSESSEE IS HAVING SUPPORTING BILLS FOR PURCHASES POINTED OUT B Y THE A.O. FOR RS.4,72,956/-. WE FIND THAT THE ITEMS OF IRON AND STEEL ARE USED B Y CONTRACTOR AND BUILDER IS PURCHASE EXPENDITURE. THESE ITEMS ARE SUBJECT TO O THER TAXES, VAT, SALES TAX AND OCTROI ETC. THE ASSESSEE IS SUPPOSED TO MAINTAIN A LL THESE SUPPORTING BILLS. IT WAS SPECIFICALLY POINTED OUT BY THE A.O. TO THE ASSESSE E THAT PURCHASE OF RS.4,72,956/- OUT OF TOTAL PURCHASES OF RS.1,24,12,503/- WERE PUR CHASED IN CASH WITHOUT SUPPORTING BILLS. THE ASSESSEE FAILED TO PRODUCE T HOSE BILLS. WHEN THE ASSESSEE FAILED TO PRODUCE SUPPORTING BILLS, AN INFERENCE CA N BE DRAWN AGAINST THE ASSESSEE THAT THE ASSESSEE PURCHASED THE GOODS FROM GRAY MAR KET. UNDER THAT CIRCUMSTANCES, THE ASSESSEE GOT SOME BENEFIT OF LOCAL TAXES ETC. THIS ASPECT OF THE MATTER HAS BEEN DECIDED BY THE I.T.A.T., AHMEDABAD BENCH IN THE CAS E OF VIJAYA PROTEINS VS. ACIT, 58 ITD 428 (AHD.) WHEREIN 25% OF SUCH EXPENSE S HAS BEEN CONFIRMED. FOLLOWING THE SAID RATIO LAID DOWN IN THE SAID ORDE R AND AFTER CONSIDERING THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT IN SUCH CASE SOME DISALLOWANCE IS ITA NO.303/AGR/2012 A.Y. 2006-07 7 WARRANTED. WE FIND THAT THE A.O. AND CIT(A) BOTH A RE NOT CORRECT AS ENTIRE EXPENDITURE CANNOT BE DISALLOWED WHEN THE ASSESSEE EXPLAINED THAT IN FACT THE GOODS WERE USED. THE CIT(A) CANNOT DELETE ENTIRE A DDITION ON THE GROUND THAT EXPENDITURES WERE INCURRED FOR THE PURPOSE OF BUSIN ESS. IN SUCH CASES BENEFITS WHICH ASSESSEE THE GOT BY PURCHASING IN CASH WITHOU T BILLS IN THE FORM OF LOCAL TAX AND OTHER BENEFITS, THE ADDITION TO THAT EXTENT IS WARRANTED. WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND DISALLOWANCE TO THE E XTENT OF 25% OF PURCHASES MADE IN CASH WITHOUT SUPPORTING BILLS IS SUSTAINED OF WHICH CALCULATION COMES TO RS.1,18,239/-. WE ACCORDINGLY CONFIRM THE ADDITION TO THE EXTENT OF RS.1,18,239/- OUT OF TOTAL ADDITION OF RS.4,72,956/- AND BALANCE IS DELETED. 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY