M/s. Vichitra Constructions Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5047/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5176 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: VED JAIN ADV SH ASHISH GOEL
• Keywords: Depreciation; Principle of natural justice; Corroborative evidences; Revenue expenditure; Capital expenditure; TDS
• Section: 143(3); 142(1); 143(1)

Judgement Text

1 ITA NO. 5047 & 5048/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 5047/DEL/20 15 (A.Y 2010-11) I.T.A. NO. 5048/DEL/20 15 (A.Y 2011-12) VICHITRA CONSTRUCTIONS PVT. LTD. A-1/31, JANAKPURI NEW DELHI AAACV0836C (APPELLANT) VS ADDL. CIT RANGE-17, C. R. BUILDING NEW DELHI (RESPONDENT) APPELLANT BY SH. VED JAIN, ADV, SH. ASHISH GOEL, CA RESPONDENT BY MS. ASHIMA NEB, SR. DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER DATED 03/04/2015 PASSED BY CIT(A)-IX, NEW DELHI FOR ASSE SSMENT YEAR 2010-11. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- I.T.A. NO. 5047/DEL/2015 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN THE LAW, THE ID. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF LABOUR CHARGES OF RS. 48,82,520/- TREATED AS UNE XPLAINED EXPENSES AND ADDING BACK TO THE TOTAL INCOME AND, THEREFORE, THE ADDITION OF RS. 48,82,520/- OUGHT TO BE DELETED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. DATE OF HEARING 28.02.2019 DATE OF PRONOUNCEMENT 27.05.2019 2 ITA NO. 5047 & 5048/DEL/2013 COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF MAKING AD HOC DISALLOWANCE OF 10% OF WAGES EXPEN SE AMOUNTING TO RS. 47,61,266/-. THIS ADDITION MAY KINDLY BE DELETED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF MAKING AN AD HOC DISALLOWANCE OF 20% OF MACHINE RUNNING EXPENSE AMOUNTING TO RS. 42,25,120/-. THIS ADDITION MAY KIN DLY BE DELETED. 4. THAT THE COMMISSIONER (APPEAL) ERRED IN NOT DIS POSING OFF THE GROUND TAKEN BY THE ASSESSEE BEFORE HIM WITH RESPECT TO AD DITION OF RS. 79,25,891 ON ACCOUNT OF CREDITORS AND THE COMMISSIONER (APPEAL) MAY KINDLY BE DIRECTED TO PASS APPROPRIATE ORDER TO DISPOSE OFF THE GROUND. A) THAT THE COMMISSIONER (APPEAL) ERRED IN NOT DISPOS ING OFF THE GROUND TAKEN BY THE ASSESSEE BEFORE HIM WITH RESPECT TO AD DITION OF RS. 79,25,891 ON ACCOUNT OF CREDITORS AND THE COMMISSIONER (APPEAL) MAY KINDLY BE DIRECTED TO PASS APPROPRIATE ORDER TO DISPOSE OFF THE GROUND. B) THAT THE ASSESSING OFFICER ERRED IN ADDING RS. 79, 25,891 ON ACCOUNT OF CREDITORS ALTHOUGH THE POST SENT TO THE CREDITORS W AS DULY SERVED UPON THEM, ALL THE CREDITORS HAD SUBMITTED CONFIRMATION, THE A SSESSEE HAD PAID CREDITORS THROUGH BANKING CHANNEL AND THE AO HAD ADDED EVEN O PENING BALANCE OF CREDITORS OUTSTANDING AS AT THE BEGINNING OF THE YE AR UNDER CONSIDERATION. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN TH E LAW, ID. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTION OF THE ASSE SSING OFFICER OF TREATING BILLS OF MACHINERY HIRE CHARGES AMOUNTING TO RS. 1,16,000 /- AS BOGUS. THIS ADDITION MADE TO TOTAL INCOME ON SUCH BASIS MAY KIN DLY BE DELETED. 6. WITHOUT PREJUDICE TO ABOVE, GROSS PROFIT RATIO OF THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE ADDITIONS MADE IN THE ASSESS MENT ORDER COMES TO 35.05%, WHICH IS EXORBITANTLY HIGH, PARTICULARLY IN VIEW OF THE FACT THAT THE 3 ITA NO. 5047 & 5048/DEL/2013 GROSS PROFIT RATIO FOR THE LAST PRECEDING THREE YEA RS ASSESSED BY WAY OF SCRUTINY ASSESSMENT IS NEVER HIGHER THAN 20.50%. I.T.A. NO. 5048/DEL/2015 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF ADDITION OF RS. 1,11,37,516/- ON ACCOUNT OF DIFF ERENCE BETWEEN CONTRACT REVENUE AS PER 26AS AND CONTRACT REVENUE CREDITED T O P&L A/C AND, THEREFORE, THE ADDITION OF RS. 1,11,37,516/- OUGHT TO BE DELET ED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF ENHANCING THE VALUE OF CLOSING WORK IN PROGRESS BY ADDING A SUM OF RS. 13,12,441/- ON ACCOUNT OF SERVICE TAX TO BE CHARGED AND RS. 26,12,139/- ON ACCOUNT OF GROSS PROFIT TO BE EARNED AT THE TIME OF ACTUAL SALES OF FINISHED WORK AND, THEREFORE, THE ADDITION OF RS. 39,24,580/ - OUGHT TO BE DELETED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF MAKING AN ADDITION OF RS. 32,09,510/- BY TREATIN G THE PURCHASE OF MACHINE SPARE PARTS AS A CAPITAL EXPENDITURE INSTEAD OF REV ENUE EXPENDITURE AS CLAIMED BY THE APPELLANT AND, THEREFORE, IT IS PRAY ED THAT THE ADDITIONS OF RS. 32,09,510/- MAY KINDLY BE DELETED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF MAKING AN AD HOC DISALLOWANCE OF 5% OF LABOUR CH ARGES PAID AND THEREBY MAKING AN ADDITION OF RS. 16,76,565/- IN THE TOTAL INCOME AND, THEREFORE, IT IS PRAYED THAT THE ADDITIONS OF RS. 16,76,565/- MAY KI NDLY BE DELETED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER 4 ITA NO. 5047 & 5048/DEL/2013 OF TREATING 50% OF ELECTRICITY EXPENSES AS PERSONAL EXPENSES OF DIRECTORS. AS THE EXPENSES HAVE BEEN INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE ADDITION OF RS. 87,640/- MAY KINDLY BE DELETED. 3. WE ARE FIRST TAKING UP A.Y. 2010-11 BEING ITA NO . 5047/DEL/2015. THE ASSESSEE COMPANY IS A CONTRACTOR COMPANY. THE ASSE SSEE FILED THE RETURN OF INCOME ON 11/1/2011 FOR ASSESSMENT YEAR 2010-11 DEC LARING AT INCOME OF RS. 63,32,647/-. THE CASE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY, THE CASES WERE TAKEN UP FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED ON 25/8/2011 AND SERVED UPON THE ASSESSEE. THEREAFTER, NOTICES U/S 142(1) ALONG WITH QUESTIONNAIRE WAS ISSUED AND DULY SERVED UPON THE ASSESSEE WHEREIN CERTAIN SPECIFIC DETAILS WERE CALLED FOR. IN RESPONSE TO THESE NOTICES, CA/AR OF THE ASSESSEE ATTENDED THE ASSESSMENT PROCE EDINGS FROM TIME TO TIME AND FILED THE NECESSARY DETAILS WHICH WERE TAKEN ON RECORD BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MADE VARIOUS ADDITI ONS THEREBY ASSESSING THE TOTAL INCOME AT RS. 2,87,28,065/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT (A). THE CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AS RELATES TO GROUND NO.1 REGARDING ADDITION ON ACCOUNT OF LABOUR CHARGES OF RS. 48,82,520/- TREATED AS UNEXPLAINED E XPENSES, THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE MADE PAYMENT TO THE SUB-CONTRACTORS AMOUNTING TO RS. 2,9 3,43,526/- AND DEDUCTED TDS THEREON AND ALSO MADE THE PAYMENT FOR LABOUR CHARGES AMOUNTING TO RS. 48,82,520/- ON WHICH TDS HAD NOT B EEN DEDUCTED SINCE THE PAYMENTS MADE BY THE ASSESSEE WERE BELOW THE TH RESHOLD LIMIT. THE ASSESSEE COMPANY HOWEVER MISTAKENLY HAS TAKEN THE A MOUNT OF RS. 48,82,520/- UNDER THE HEAD SUB-CONTRACTOR AND SHO WN THE TOTAL PAYMENT TO SUB-CONTRACTOR AMOUNTING TO RS. 3,42,26,046/-. D URING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OF FICER ASKED THE ASSESSEE 5 ITA NO. 5047 & 5048/DEL/2013 TO FURNISH DETAILS IN RESPECT OF LABOUR CHARGES OF RS.48,82,520/-. IN RESPONSE TO THE SAME, ASSESSEE FILED AUDITORS CERTI FICATE CERTIFYING THAT SAID MISTAKE WAS THAT OF WRONG CLASSIFICATION AND ALSO P RODUCED MUSTER ROLLS OF THE LABOURERS IN PHOTOCOPY AS WELL AS IN ORIGINAL. VIDE SUBMISSION DATED 18.03.2013, THE ASSESSEE FURNISHED COPIES OF MUSTER ROLLS FOR RS. 48,82,520/-, PAYMENT OF WHICH INCURRED THROUGH EMPL OYEES. DETAILS ARE AS FOLLOWS. LABOUR PAYMENT SITE PAID THROUGH EMPLOYEES PAPER BOOK REF RS.24,13,204/ - REWARI HITESH AGGARWAL PG. NO. 49 - 79 RS.24,69,316/ - AMBALA AMIT GUPTA PG. NO. 80 - 129 THE ASSESSING OFFICER HOWEVER DOUBTED THE GENUINENE SS OF THE ABOVE DOCUMENTS ON BASIS LIKE, THOSE DOCUMENTS WERE FRESH LOOKING DOCUMENTS WITH DUST MARKS ETC. AND HAS ALSO OBSERVED THAT ALL EGED THE DISSIMILARITY IN THE SIGNATURES OF VARIOUS LABOURERS AND ADDED THE E NTIRE AMOUNT OF RS. 48,82,520/- IN THE HANDS OF THE ASSESSEE TREATING THE SAME AS U NEXPLAINED. AGGRIEVED BY ORDER PASSED BY THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). THE LD. AR FURTHER SUBMI TTED THAT THE CIT(A) UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER W ITHOUT APPRECIATING THE EXPLANATIONS AND SUBMISSIONS MADE BY THE ASSESSEE D URING THE APPELLATE PROCEEDINGS AND ALSO ON THE GROUND THAT THE ASSESSE E FAILED TO EXPLAIN THE REASON FOR LOW NET PROFIT WHICH WAS NOT THE CASE OF THE ASSESSING OFFICER. THE LD. AR SUBMITTED THAT THE ASSESSEE IS IN THE BU SINESS OF CONSTRUCTION AND THE SAME HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER AND THE PAYMENTS MADE TO THE LABOURERS ARE PART OF THE BUSINESS ACTI VITIES WHICH CANNOT BE IGNORED. THERE IS NO ALLEGATION THAT THE ASSESSEE H AD NOT MADE SUCH PAYMENTS TO THE LABOURERS OR THERE IS NO SUCH CONSTRUCTION W ORK GOING ON. THE LD. AR SUBMITTED THAT ASSESSEE HAS BEEN MAINTAINING REGULA R BOOKS OF ACCOUNTS DULY AUDITED UNDER SECTION 44AB OF THE ACT WHICH HAVE NO T BEEN REJECTED BY THE 6 ITA NO. 5047 & 5048/DEL/2013 ASSESSING OFFICER. THE LD. AR SUBMITTED THAT THE AD DITION HAS BEEN MADE ON FLIMSY GROUNDS WITHOUT THERE BEING ANY BASIS AND CO MPLETELY IGNORING THE ASSESSEES EXPLANATIONS IN THIS REGARD. FURTHER, TH E ASSESSING OFFICER HAD NOT RAISED ANY ISSUE OF LOW NET PROFIT WHILE MAKING ADD ITION ON THIS COUNT AND THEREFORE CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION ON THIS GROUND ALTHOUGH THE ASSESSEE HAS FULLY EXPLAINED THE REASO N FOR DECLINE IN NET PROFIT TO THE ASSESSING OFFICER. 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). THE LD. DR FURTHER SUBMITTED THAT THE GENUINENESS O F THE MUSTER ROLLS WERE DOUBTED BY THE ASSESSING OFFICER AND THE SAME WAS N OT PROPERLY ANSWERED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. BES IDES THAT THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS FAILED TO E XPLAIN THE REASON FOR LOW NET PROFIT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE GENUINENES S OF THE MUSTER ROLLS WERE THOUGH DOUBTED, THE BOOKS OF ACCOUNTS WERE NEVER RE JECTED BY THE ASSESSING OFFICER. BESIDES THIS THE ASSESSEE EXPLAINED THE RE ASON FOR DECLINE IN NET PROFIT DURING THE ASSESSMENT ORDER WHICH WAS NEVER DOUBTED BY THE ASSESSING OFFICER. THE ASSESSEE FILED AUDITORS CERTIFICATE CE RTIFYING THAT SAID MISTAKE WAS THAT OF WRONG CLASSIFICATION AND ALSO PRODUCED MUSTER ROLLS OF THE LABOURERS IN PHOTOCOPY AS WELL AS IN ORIGINAL. THIS WAS NEVER CONSIDERED BY THE ASSESSING OFFICER AS WELL AS THE CIT(A). THE REFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE O F THE ASSESSING OFFICER TO VERIFY THE GENUINENESS OF THE ASSESSEES CLAIM I N LIGHT OF THE MUSTER ROLLS AND THE AUDITORS CERTIFICATE. THUS, GROUND N O. 1 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. AS RELATES TO GROUND NO.2 REGARDING AD HOC DISAL LOWANCE OF WAGES @ 10% 7 ITA NO. 5047 & 5048/DEL/2013 RS. 47,61,266/- ON ACCOUNT OF LABOUR EXPENSES ON TH E GROUND THAT THERE IS AN INCREASE IN THE LABOUR EXPENSES IN THE MONTH OF FEB RUARY & MARCH. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED 10% OF THE TOTAL EXPENDITURE OF RS.4,76,12,669/-. THE CIT(A) FURTHER SUSTAINED AD HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE B ASIS THAT AD HOC DISALLOWANCE CANNOT BE SAID TO BE UNJUSTIFIED. IN T HIS REGARD, THE LD. AR SUBMITTED THAT THERE IS NO ALLEGATION THAT THESE LA BOUR CHARGES HAVE NOT BEEN PAID BY THE ASSESSEE. THE ONLY ALLEGATION OF THE AS SESSING OFFICER IS THAT THE LABOUR CHARGES HAS SUDDENLY INCREASED TO RS. 75 LAK HS IN FEB AND MARCH FROM 28 LAKHS IN JANUARY. THE ASSESSEE HAS GIVEN MONTH W ISE DETAILS OF LABOUR CHARGES AND THE SAME IS QUOTED BY THE ASSESSING OFF ICER ON PAGE 4 PARA 15 OF THE ASSESSMENT ORDER. AS PER THESE MONTH-WISE DETAI LS, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS IGNORED THAT THERE ARE PAYMEN TS AMOUNTING TO RS. 72,91,802/- IN THE MONTH OF NOVEMBER, RS. 44,45,609 /- IN THE MONTH OF MAY & RS.. 47,40,014 IN THE MONTH OF JANUARY AND THEREFOR E IT CANNOT BE SAID THAT THERE IS SUDDEN INCREASE IN THE AMOUNT OF LABOUR CH ARGES. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE COMPANY HAS BEEN REGULARL Y MAINTAINING BOOKS OF ACCOUNTS THERE ARE DULY AUDITED AND THE SAME HAS BE EN ACCEPTED BY THE ASSESSING OFFICER THERE IS NO ADVERSE FINDING OF TH E ASSESSING OFFICER IN RELATION TO THESE DOCUMENTS. IT IS A WELL SETTLED LAW THAT T HE ADHOC ADDITIONS CANNOT BE MADE IN THE HANDS WITH THE COMPANY. THE LD. AR RELI ED UPON THE JUDGMENT OF ACIT V. MODI RUBBER LTD. [ITA NO. 1952/DEL/2014] DA TED 15/5/2018 OF THE TRIBUNAL AND ALSO RELIED UPON THE FOLLOWING JUD GMENTS: NITIN SALES CORPORATION V. ITO IN ITA NO.1809/DEL/2 005 DATED 11.07.2008 DELHI HIGH COURT. SH. DEVENDER KUMAR V. ITO IN ITA NO. 3239/DEL/2014 DATED 30.08.2016 ITAT DELHI. ACIT V. AMTEK AUTO LTD. [2006] 112 TTJ 455 ITAT DEL HI. 8 ITA NO. 5047 & 5048/DEL/2013 SH. GAGAN GOYAL V. JCIT IN ITA NO. 1514/DEL/2015 D ATED 02.08.2016 ITAT DELHI. THEREFORE, THE LD. AR SUBMITTED THAT IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, THE AD HOC ADDITIONS MADE BY THE AS SESSING OFFICER AND SUSTAINED BY THE CIT(A) WITHOUT ANY BASIS ARE BAD I N LAW AND LIABLE TO BE DELETED. 9. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). THE LD. DR FURTHER SUBMITTED THAT THERE IS SUDDEN I NCREASE IN LABOUR CHARGES WHICH WAS NOT PROPERLY EXPLAINED BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER RIGHTLY MADE ADDITIONS. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS NOT MADE ANY ALLE GATION THAT THESE LABOUR CHARGES HAVE NOT BEEN PAID BY THE ASSESSEE. THE ONL Y ALLEGATION OF THE ASSESSING OFFICER IS THAT THE LABOUR CHARGES HAS SU DDENLY INCREASED TO RS. 75 LAKHS IN FEB AND MARCH FROM 28 LAKHS IN JANUARY BUT THAT CANNOT BE SOLE CRITERIA FOR MAKING ADDITION. THE ASSESSEE HAS GIV EN MONTH WISE DETAILS OF LABOUR CHARGES AND THE SAME IS QUOTED BY THE ASSESS ING OFFICER ON PAGE 4 PARA 15 OF THE ASSESSMENT ORDER. AS PER THESE MONTH-WISE DETAILS, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS IGNORED THAT THERE ARE PA YMENTS AMOUNTING TO RS. 72,91,802/- IN THE MONTH OF NOVEMBER, RS. 44,45,609 /- IN THE MONTH OF MAY & RS.. 47,40,014 IN THE MONTH OF JANUARY AND THEREFOR E IT CANNOT BE SAID THAT THERE IS SUDDEN INCREASE IN THE AMOUNT OF LABOUR CH ARGES. BESIDES THIS, THE ASSESSING OFFICER ALSO IGNORED THAT THE COMPANY HAS BEEN REGULARLY MAINTAINING BOOKS OF ACCOUNTS WHICH ARE DULY AUDITE D AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THERE IS NO ADVE RSE FINDING OF THE ASSESSING OFFICER IN RELATION TO THESE DOCUMENTS. IT IS A WEL L SETTLED LAW THAT THE AD HOC ADDITIONS CANNOT BE MADE IN THE HANDS WITH THE COMP ANY. THEREFORE, THE ASSESSING OFFICER AS WELL AS THE CIT(A) WAS NOT COR RECT IN MAKING THIS ADDITION. 9 ITA NO. 5047 & 5048/DEL/2013 GROUND NO. 2 IS ALLOWED. 11. AS RELATES TO GROUND NO.3 REGARDING AD HOC DISA LLOWANCE OF 20% OF MACHINE RUNNING EXPENSE OF RS.42,25,120/- MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF MACHINERY RUNNING EXPENSES WHICH WAS ON THE FOLLOWING GROUNDS: THERE IS INCREASE IN THE EXPENSES IN THE MONTH OF M ARCH. THESE EXPENSES ARE HIGH CONSIDERING THE SIZE OF OPE RATION OF THE COMPANY. ASSESSEE HAS PURCHASED 'VALVE MANIFOLD HOWEVER COU LD NOT PROVIDE ANY DETAIL OR EXPLANATION TO EXPLAIN THE NATURE OF THE ITEM 12. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED 20% OF THE TOTAL EXPENDITURE OF RS.2,11,25,602/ WHICH COME S TO RS. 42,25,120/-. THE CIT (A) HAS FURTHER CONFIRMED THE ALLEGATIONS OF TH E ASSESSING OFFICER AND SUSTAINED THE AD HOC DISALLOWANCE MADE BY HIM. IN T HIS REGARD, THE LD. AR SUBMITTED THAT THERE IS INCREASE IN EXPENSE IN THE MONTH OF MARCH. THE ASSESSEE HAS GIVEN MONTH WISE DETAILS OF MACHINE RU NNING EXPENSES AND THE SAME IS QUOTED BY THE ASSESSING OFFICER ON PAGE 5 P ARA C OF THE ASSESSMENT ORDER. AS PER THESE MONTH-WISE DETAILS, IT IS EVIDE NT THAT THE ASSESSING OFFICER HAS IGNORED THAT THERE ARE PAYMENTS AMOUNTING TO RS . 24,64,963/- IN THE MONTH OF MAY, RS. 19,64,043/- IN THE MONTH OF JANUA RY AND THEREFORE IT CANNOT BE SAID THAT HIGHEST EXPENDITURE IN THE MONT H OF MARCH. THESE EXPENSES ARE HIGH CONSIDERING THE SIZE OF OPERATION OF THE COMPANY. THE ASSESSING OFFICER HAS COMPLETELY IGNORED THE FACT T HAT TURNOVER OF THE COMPANY IS RS. 17,94,72,968/- AND GROSS VALUE OF FI XED ASSETS AMOUNTING TO RS. 174,374,389/- AS ON 31.3.2010. THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND DUE TO HEAVY USE OF THE MACHINERY, THE NORMAL REPLACEMENT OF THE SPARE PARTS CANNOT BE IGNORED. FURTHER THE A SSESSING OFFICER HAS MADE THIS ALLEGATION BY INDULGING IN SURMISES WITHOUT GI VING ANY JUSTIFICATION FOR THE 10 ITA NO. 5047 & 5048/DEL/2013 SAME. THE ASSESSEE HAS PURCHASED VALVE MANIFOLD HOWEVER COULD NOT PROVIDE ANY DETAIL OR EXPLANATION TO EXPLAIN THE NATURE OF THE ITEM. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER COMPLETELY IGN ORED THE FACT THAT ASSESSEE HAS SUBMITTED COPY OF BILL OF VALVE MANIFOLD MACHIN E RS. 619,645/-. THE ASSESSEE ALSO SUBMITTED THE PARTS WISE STRUCTURE OF HYDRAULIC ASSEMBLY IN WHICH VALVE MANIFOLD USED AS ONLY A PART. THE L D. AR POINTED OUT THAT THE SAID PARTS ARE USED IN HYDRAULIC ASSEMBLY. PART AT SERIAL NO.3 IS VALVE MANIFOLD WHICH CAN ALSO BE VERIFIED FROM STRUCTURA L DIAGRAM OF HYDRAULIC ASSEMBLY. FROM THE DETAILS FIXED BY THE ASSESSEE. THEREFORE, FROM THE ABOVE OBSERVATIONS, THE LD. AR POINTED THAT VALVE MANIFO LD IS A PART WHICH IS USED IN RUNNING OF MACHINE. IN THIS REGARD, THE LD. AR SUBM ITTED THAT THE COMPANY HAS BEEN REGULARLY MAINTAINING BOOKS OF ACCOUNTS THERE ARE DULY AUDITED AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER THE RE IS NO ADVERSE FINDING OF THE ASSESSING OFFICER IN RELATION TO THESE DOCUMENT S. IT IS A WELL SETTLED LAW THAT AD HOC ADDITION CANNOT BE MADE IN THE HANDS WITH TH E COMPANY. THE LD. AR RELIED UPON THE JUDGMENT OF ACIT V. MODI RUBBER LTD. [ITA NO. 1952/DEL/2014] DATED 15.05.2018 (ITAT DELHI) AND ALSO THE FOLLOWING JUDGMENTS: 1. NITIN SALES CORPORATION V. ITO IN ITA NO.1809/DEL/ 2005 DATED 11.07.2008 DELHI HIGH COURT. 2. SH. DEVENDER KUMAR V. ITO IN ITA NO. 3239/DEL/2014 DATED 30.08.2016 ITAT DELHI. 3. ACIT V. AMTEK AUTO LTD. [2006] 112 TTJ 455 ITAT DE LHI. 4. SH. GAGAN GOYAL V. JCIT IN ITA NO. 1514/DEL/2015 D ATED 02.08.2016 ITAT DELHI. THEREFORE, THE LD. AR SUBMITTED THAT IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, THE ADHOC ADDITIONS MADE BY THE ASS ESSING OFFICER AND SUSTAINED BY THE CIT(A) WITHOUT ANY BASIS ARE BAD I N LAW AND LIABLE TO BE 11 ITA NO. 5047 & 5048/DEL/2013 DELETED. 13. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER COMPLETELY IGNORED THE FACT THAT ASSESSEE HAS SUBMITTED COPY OF BILL OF VA LVE MANIFOLD MACHINE RS. 619,645/-. THE ASSESSEE ALSO SUBMITTED THE PARTS W ISE STRUCTURE OF HYDRAULIC ASSEMBLY IN WHICH VALVE MANIFOLD USED AS ONLY A PART. THE LD. AR POINTED OUT THAT THE SAID PARTS ARE USED IN HYDRAULIC ASSEM BLY. PART AT SERIAL NO.3 IS VALVE MANIFOLD WHICH CAN ALSO BE VERIFIED FROM ST RUCTURAL DIAGRAM OF HYDRAULIC ASSEMBLY. FROM THE DETAILS FIXED BY THE ASSESSEE. THEREFORE, FROM THE ABOVE OBSERVATIONS, THE LD. AR POINTED THAT VA LVE MANIFOLD IS A PART WHICH IS USED IN RUNNING OF MACHINE. FROM THE PERUSAL OF RECORDS IT CAN BE SEEN THAT THE COMPANY HAS BEEN REGULARLY MAINTAINING BOOKS OF ACCOUNTS THERE ARE DULY AUDITED AND THE SAME HAS BEEN ACCEPTED BY THE ASSES SING OFFICER THERE IS NO ADVERSE FINDING OF THE ASSESSING OFFICER IN RELATIO N TO THESE DOCUMENTS. THEREFORE, THE ASSESSING OFFICER AS WELL AS THE CIT (A) WAS NOT CORRECT IN MAKING THIS ADDITION. GROUND NO. 3 IS ALLOWED. 15. AS RELATES TO GROUND NO.4, THE LD. AR SUBMITTED THAT ADDITION IN RESPECT OF NON-RECONCILIATION OF BALANCE OF CREDITORS AMOUN TING TO RS. 79,25,891/-, THE ASSESSING OFFICER HAS IGNORED AND OVERLOOKED THE NE CESSARY DOCUMENTS FILED. 16. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D THE ORDER OF THE CIT(A). 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DOCUMENTS SUBMITTED BY THE ASSESSEE DUR ING THE ASSESSMENT PROCEEDINGS WERE NOT AT ALL CONSIDERED BY THE ASSES SING OFFICER AS WELL AS BY 12 ITA NO. 5047 & 5048/DEL/2013 THE CIT(A). THEREFORE, IT WILL BE APPROPRIATE TO RE MAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER AND DECIDE IT A FRESH. NEE DLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLE S OF NATURAL JUSTICE. GROUND NO. 4 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 18. AS RELATES TO GROUND NO.5, THE LD. AR SUBMITTED THAT REGARDING DISALLOWANCE OF MACHINERY HIRE CHARGES-DG SETS HIRE CHARGES AS BOGUS AND MAKING ADDITION OF RS.1,16,000/-, THE ASSESSING OFF ICER OBSERVED THAT THESE CHARGES ARE BOGUS AS THERE IS NO DETAIL OF SERVICE TAX, TELEPHONE NUMBER AND THERE IS NO ENTRY FOR TDS. THE CIT (A) ALSO SUSTAI NED DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE BASIS THAT ASSESSEE FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF THE CLAIM THAT PAYMENT WERE MADE BY A/C PAYEE CHEQUE. THE LD. AR SUBMITTED THAT THE ALLEGATION OF NON- MENTIONING OF SERVICE TAX, ENTRY FOR TDS AND TELEPHONE NO. HAS BEEN MADE DESPITE CHECKIN G WHETHER THE VENDOR WHO GIVES ON HIRE THIS MACHINERY IS SUBJECT TO SERV ICE TAX OR NOT. FURTHER, THERE IS NO PROVISION TO SHOW DETAILS OF TDS DEDUCTED IS NOT REQUIRED TO BE MENTIONED ON THE BILLS BY THE VENDOR AS IT IS THE CUSTOMER WH O IS TO DEDUCT TDS. FURTHER, THERE IS NAME, ADDRESS OF THE VENDOR ON THE BILL AN D MERELY THAT TELEPHONE NUMBER IS NOT MENTIONED, CANNOT BE REASON FOR TREAT ING THE INVOICE AS BOGUS. WITH REGARDS TO THE ALLEGATION OF THE PAYMENTS MADE BY THE ASSESSEE, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER AND THE CIT (A) HAS NOT APPRECIATED THE FACT THAT IN THE CONFIRMATION GIVEN BY CREDITOR I.E. CHAUDHARY GENERATOR AND ELEC. SERVICES THE SAME IS DULY SIGNED. THUS, I T IS CLEARLY EVIDENT THAT PAYMENT HAS BEEN MADE THROUGH A/C PAYEE CHEQUE, NUM BER OF WHICH IS ALSO SHOWN IN CONFIRMATION. 19. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF RECORDS IT CAN BE SEEN THAT THERE IS NAME, ADDRESS 13 ITA NO. 5047 & 5048/DEL/2013 OF THE VENDOR MENTIONED ON THE BILL AND MERELY NOT MENTIONING TELEPHONE NUMBER CANNOT BE REASON FOR TREATING THE INVOICE AS BOGUS. THE THE ASSESSING OFFICER AND THE CIT (A) HAS NOT AT ALL CONSIDERED T HE ASPECT THAT IN THE CONFIRMATION GIVEN BY CREDITOR I.E. CHAUDHARY GENER ATOR AND ELEC. SERVICES THE SAME IS DULY SIGNED. THUS, IT IS EVIDENT THAT PAYME NT WAS MADE THROUGH A/C PAYEE CHEQUE, AND THE DETAILS OF CHEQUE WAS ALSO SH OWN IN CONFIRMATION. THUS, GROUND NO. 5 IS ALLOWED. 21. IN RESULT, ITA NO. 5047/DEL/2015 FOR A.Y. 2010- 11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 22. NOW WE ARE TAKING UP APPEAL FOR A.Y. 2011-12 B EING I.T.A. NO. 5048/DEL/2015. THE BRIEF FACTS ARE THAT ASSESSEE FI LED RETURN DECLARING INCOME OF RS. 90,98,304/- ON 30/09/2011. RETURN WA S PROCESSED U/S 143(1) OF I.T ACT, 1961. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR COMPULSORY SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED ON 4/9/2012 AND SE RVED UPON THE ASSESSEE. THEREAFTER, NOTICES U/S 142(1) ALONG WITH QUESTIONN AIRE WAS ISSUED AND DULY SERVED UPON THE ASSESSEE WHEREIN CERTAIN SPECIFIC D ETAILS WERE CALLED FOR. IN RESPONSE TO THESE NOTICES, C.A/AR ATTENDED THE ASSE SSMENT PROCEEDINGS FROM TIME TO TIME AND FILED NECESSARY DETAILS WHICH WERE TAKEN ON RECORD BY THE ASSESSING OFFICER. THE ASSESSING OFFICER COMPUTED THE TOTAL TAXABLE INCOME AT RS. 2,91,34,120/- BY MAKING VARIOUS ADDITIONS AND D ISALLOWANCES. 22. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE AS SESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. 23. AS RELATES TO GROUND NO.1, THE LD. AR SUBMITTED THAT ADDITION MADE BY THE ASSESSING OFFICER OF RS. 1,11,37,516/- ON ACCOU NT OF DIFFERENCE BETWEEN CONTRACT REVENUE AS PER 26AS AND CONTRACT REVENUE C REDITED TO PROFIT AND LOSS ACCOUNT WAS IN TWO PARTS: I. ADDITION ON ACCOUNT OF RECONCILIATION OF FORM 2 6AS 14 ITA NO. 5047 & 5048/DEL/2013 AND CONTRACT RECEIPTS SHOWN IN P & L ACCOUNT RS. 73,73,696/- II ADDITION ON ACCOUNT OF UNDERVALUATION OF WIP RS .37,63,820/- AS REGARDS TO ADDITION OF RS. 73,73,696/-, THE LD. AR SUBMITTED THAT DURING ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A SSESSING OFFICER ASKED THE ASSESSEE TO RECONCILE THE DIFFERENCE IN THE CON TRACT RECEIPTS AS PER 26AS WITH THE RECEIPTS SHOWN IN PROFIT & LOSS ACCOUNT. T HE ASSESSING OFFICER IDENTIFIED THAT THERE IS A DIFFERENCE OF RS. 2,14,2 8,277/- AFTER MAKING PARTY WISE ANALYSIS OF THE ENTRIES APPEARING IN FORM 26AS AND THE AMOUNT OF CONTRACT RECEIPT OF THAT PARTY DECLARED BY THE ASSE SSEE. THE ASSESSEE BEFORE THE ASSESSING OFFICER SUBMITTED THAT THE DIFFERENCE OF RS. 2,14,28,277/-WAS ON ACCOUNT OF SERVICE TAX, WORK-IN-PROGRESS AND RET ENTION MONEY, DETAILS ARE AS FOLLOWS: WORK IN PROGRESS (INCLUDING SERVICE TAX) RS.1,40,54,583 SERVICE TAX (PARTIES HAVE DEDUCTED TDS AMOUNT INCLUSIVE OF SERVICE TAX AND ASSESSEE IS SHOWING RECEIPT IN P/L ACCOUNT EXCLUSIVE IN SERVICE TAX) RS.72,75,803 RETENTION MONEY RS.97,978 TOTAL RS.2,14,28,277 THE ASSESSEE SUBMITTED FOLLOWING DOCUMENTS TO JUSTI FY ITS CASE: * RECONCILIATION OF PARTY WISE GIVING SEPARATELY TH E AMOUNT INCLUDED IN TURNOVER, SERVICE TAX AND RETENTION MONEY ALONG WIT H FOLLOWING SUPPORTING DOCUMENTS WHICH ARE PLACE AT PB PG. NO.2 37-297. * COPY OF LEDGER A/C OF PARTY * COPY OF RELEVANT PAGE OF 26AS FOR RECONCILIATION * COPY OF FORM 16A * COPY OF SERVICE TAX OUTPUT LEDGER ALONG WITH COPY OF CHALLANS. 15 ITA NO. 5047 & 5048/DEL/2013 THE LD. AR SUBMITTED THAT ALL THE DIFFERENCES WERE DULY EXPLAINED ALONG WITH ALL NECESSARY SUPPORTING EVIDENCES. HOWEVER, THE ASSESS ING OFFICER ALLOWED CREDIT OF WORK-IN-PROGRESS OF RS. 1,40,54,583/- ONLY. THE ASSESSING OFFICER ADDED THE BALANCE AMOUNT OF RS. 73,73,696/- WHICH REPRESENTS SERVICE TAX OF RS. 72,75,803/- AND RETENTION MONEY OF RS. 97,978/-. T HE CIT(A) CONFIRMED THE ADDITION BY GIVING INCORRECT FINDINGS THAT THE ASSE SSEE HAS NOT FILED ANY EVIDENCE IN RELATION TO SERVICE TAX AND THE RETENTI ON MONEY DESPITE THE ASSESSING OFFICER HIMSELF STATING THAT THE ASSESSEE HAS FILED THE ABOVE DETAILS IN RESPECT OF THE SAME. 24. AS REGARDS TO ADDITION OF RS. 37,63,820/-, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS VA LUED CLOSING STOCK OF WIP AT RS. 1,01,30,003/- EXCLUDING SERVICE TAX AND GROSS P ROFIT AS AGAINST THE AMOUNT OF RS. 1,40,54,583/- APPEARING IN FROM 26AS AND ASKED THE ASSESSEE THE REASON FOR NOT VALUING THE WIP INCLUDING GROSS PROFIT AT RS. 1,40,54,583/-. IN THIS REGARD, ASSESSEE SUBMITTED THAT CLOSING STO CK IS VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER AS PER AS-2, VALUATION OF INVENTORIES. THE LD. AR ALSO SUBMITTED THAT THE VALUATION METHOD IS THE PRESCRIBED METHOD AND IS CONSISTENTLY FOLLOWING THE SAME. HOWEVER, THE AS SESSING OFFICER IGNORING THE CONTENTION OF THE ASSESSEE ADDED THE AMOUNT OF GROS S PROFIT @ 26.78% AS DECLARED IN TAX AUDIT REPORT ON WIP OF RS. 1,40,54, 583/- WHICH COMES TO RS. 37,63,820/-. THE CIT(A) ONLY CONFIRMED THE ADDITION WITHOUT CONSIDERING THE SUBMISSIONS AND EVIDENCES PLACED ON RECORD. SINCE T HE METHOD FOLLOWED BY THE ASSESSEE IS WELL ACCEPTED METHOD OF ACCOUNTING, THE CLOSING STOCK OF WIP IS TO BE VALUED AT RS. 1,01,30,003/- AT THE COST OR MARKE T VALUE WHICHEVER IS LESS. THEREFORE, THE LD. AR SUBMITTED THAT IN VIEW OF THE ABOVE, THE ADDITIONS MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A ) WITHOUT ANY BASIS ARE BAD IN LAW AND LIABLE TO BE DELETED. 25. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE CIT(A). 16 ITA NO. 5047 & 5048/DEL/2013 26. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE RECORDS IT CAN BE SEEN THAT THE AS SESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THE DIFFERENCE OF RS. 2,14,28 ,277/- WHICH WAS ON ACCOUNT OF SERVICE TAX, WORK-IN-PROGRESS AND RETENT ION MONEY. ALL THE DIFFERENCES WERE DULY EXPLAINED ALONG WITH ALL NECE SSARY SUPPORTING EVIDENCES. HOWEVER, THE ASSESSING OFFICER ALLOWED CREDIT OF WO RK-IN-PROGRESS OF RS. 1,40,54,583/- ONLY AND ADDED THE BALANCE AMOUNT OF RS. 73,73,696/- WHICH REPRESENTS SERVICE TAX OF RS. 72,75,803/- AND RETEN TION MONEY OF RS. 97,978/- WITHOUT TAKING INTO COGNIZANCE OF THE EVIDENCES PRO DUCED BY THE ASSESSEE. BESIDES THIS, ASSESSEE HAS VALUED CLOSING STOCK OF WIP AT RS. 1,01,30,003/- EXCLUDING SERVICE TAX AND GROSS PROFIT AS AGAINST T HE AMOUNT OF RS. 1,40,54,583/- APPEARING IN FROM 26AS. THIS ASPECT W AS ALSO IGNORED BY THE ASSESSING OFFICER. THE CIT(A) ALSO HAS NOT TAKEN IN TO CONSIDERATION THESE EVIDENCES AND SIMPLY CONFIRMED THE ADDITIONS. THERE FORE, GROUND NO. 1 IS ALLOWED. 27. AS RELATES TO GROUND NO.2, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER WHILE ENHANCING THE VALUE OF CLOSING WIP BY RS. 39,24,580/- AND ADDING SUM OF RS.13,12,441/- ON ACCOUNT OF SERVICE TAX AND RS.26,12,139/- ON ACCOUNT OF GROSS PROFIT TO BE EARNED WAS NOT CORREC T. THE ASSESSING OFFICER IN THIS ISSUE HAS ADDED THE DIFFERENCE OF RS. 1,40,54, 583/- OF WIP AS PER FORM 26AS AND THE AMOUNT OF WIP OF RS. 1,01,30,003/- DEC LARED BY THE ASSESSEE IN ITS BOOKS WHICH COMES TO RS. 39,24,580/-. THE LD. A R SUBMITTED THAT THIS TANTAMOUNT TO DOUBLE ADDITION SINCE THE AMOUNT OF R S. 37,63,820/- HAS ALREADY BEEN ADDED BY HIM IN PREVIOUS ISSUE. THE LD . AR SUBMITTED THAT THE CIT(A) ALSO AGREED WITH THE CONTENTION OF ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO EXAMINE HIS RECORD AND IF THERE IS A DOU BT, ADDITION OF THE SAME AMOUNT WHICH HAS ALREADY BEEN ADDED IN PARA 1.5 OF THE ASSESSMENT ORDER (RS. 1,11,37,516/-), THEN THE ADDITION WOULD STAND DELET ED. BOTH THE ADDITION NEED TO BE DELETED. THE LD. AR SUBMITTED THAT THE CIT(A) HAS GONE WRONG IN HOLDING 17 ITA NO. 5047 & 5048/DEL/2013 THAT ONE ADDITION WILL BE SUSTAINED. 28. THE LD. DR RELIED UPON ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER IN THIS ISSUE HAS ADD ED THE DIFFERENCE OF RS. 1,40,54,583/- OF WIP AS PER FORM 26AS AND THE AMOUN T OF WIP OF RS. 1,01,30,003/- DECLARED BY THE ASSESSEE IN ITS BOOKS WHICH COMES TO RS. 39,24,580/- WHICH AMOUNT TO DOUBLE ADDITION SINCE T HE AMOUNT OF RS. 37,63,820/- HAS ALREADY BEEN ADDED BY HIM IN PREVIO US ISSUE. BUT WE HAVE TAKEN A VIEW IN THE PREVIOUS ISSUE THAT THIS AMOUNT CANNOT BE ADDED FOR THE REASONS SET OUT THEREIN, THEREFORE, GROUND NO. 2 IS ALLOWED. 30. AS RELATES TO GROUND NO.3, THE LD. AR SUBMITTED THAT ADDITION OF RS. 32,09,510/- BY TREATING THE PURCHASE OF MACHINE SPA RE PARTS AS A CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE IS NOT C ORRECT. THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE CLAIMED SUM OF RS.99,70,862/- ON ACCOUNT OF PURCHASE OF MACHINE PARTS FOR DAY TO DAY REQUIREMENT. THE ASSESSEE IS A CONTRACTOR AND DEALS IN TAKING CONTRACT FOR LAYING OF PIPELINE FOR SEWER AND CABLES ETC. IN VAR IOUS PARTS OF THE COUNTRY. IN LAYING PIPELINE, NUMBER OF PARTS ARE BROKEN AND THEREFORE THE ASSESSEE HAS TO PURCHASE NEW PARTS FOR CARRYING OUT THE WORK . THE LD. AR SUBMITTED THAT DETAILS OF MACHINERY PARTS/ ATTACHMENTS ETC. U SED IN REPAIRING OF MACHINERY ABOVE RS. 1 LAKH ALONG WITH COPY OF BILL WAS ALREADY SUBMITTED BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSIN G OFFICER IDENTIFIED FIVE BILLS AMOUNTING TO RS. 37,72,886/- AND ASKED THE AS SESSEE TO SHOW CAUSE WHY THE SAME BE NOT CAPITALIZED. IN RESPECT OF THE SAME ASSESSEE SUBMITTED A DETAILED REPLY DATED 05.03.2014. HOWEVER, THE ASS ESSING OFFICER TREATED THE PURCHASE OF MACHINE SPARE PARTS AS A CAPITAL EXPEND ITURE INSTEAD OF REVENUE EXPENDITURE ON THE BASIS THAT THESE ARE HEAVY PARTS OF MACHINE AND ADDED THE AMOUNT OF RS. 32,09,510/- AFTER DEDUCTING DEPRECIAT ION @15% ON THE VALUE OF 18 ITA NO. 5047 & 5048/DEL/2013 RS. 37,72,886/-. AGGRIEVED BY THE SAME, ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) ENDORSED THE ALLEGATIONS MADE BY THE ASSESSING OFFICER. IN THIS REGARD, THE LD. AR SUBMITTED THAT IT IS NOT DISPUTED BY THE ASSESSING OFFICER THAT THE ASSESSEE IS HOLDING HEAV Y MACHINERY IN ITS CONSTRUCTION BUSINESS AND CONSIDERING THE NATURE OF ASSESSEES BUSINESS FREQUENT USE OF THE SPARE PARTS OF THE MACHINERY CA NNOT BE DOUBTED. FURTHER, ASSESSEE IN HIS REPLY HAS GIVEN JUSTIFICATION FOR E ACH ITEM PURCHASED AND THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS NOT CON TROVERTED THE SAME. FURTHER IT IS NOT THE CASE OF THE ASSESSING OFFICER AS WELL AS THE CIT(A) THAT THERE IS ANY ENDURING BENEFIT TO THE ASSESSEE. THE LD. AR RELIED UPON THE DECISION IN CASE OF CIT V. SUPER CASSETTES INDUSTRIES LTD. (ITA 171/201 0, ITA NO. 197/2010, ITA 626/2010 DATED 17/10/2011 OF THE HONBLE DELHI HIGH COURT DELHI AND THE DECISION IN CASE OF CIT V. MAHALAXMI TEXTILES MILLS LTD. [1965] 56 ITR 556 OF THE HONBLE MADRAS HIGH COURT. THE LD. AR ALSO RELI ED UPON THE FOLLOWING JUDGMENTS:- 1. CIT V. CELLULOSE PRODUCTS OF INDIA LTD. [1985] 151 ITR 499- GUJARAT HIGH COURT 2. CIT V. MALHOTRA INDUSTRIAL CORPORATION [2002] 254 I TR 635- PUNJAB & HARYANA HIGH COURT 3. CIT V. M/S MALERKOTLA STEELS AND ALLOYS PVT. LTD.[2 011] 336 ITR 49-- PUNJAB & HARYANA HIGH COURT THEREFORE, IN VIEW OF THE ABOVE, THE LD. AR SUBMITT ED THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER WITH RESPECT TO TREATING T HE PURCHASE OF MACHINE SPARE PARTS AS A CAPITAL EXPENDITURE INSTEAD OF REVENUE E XPENDITURE WITHOUT ANY BASIS ARE BAD IN LAW AND LIABLE TO BE DELETED. 31. THE LD. DR RELIED UPON ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 19 ITA NO. 5047 & 5048/DEL/2013 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE RECORDS IT CAN BE SEEN THAT THERE IS NO DISPUTE BY THE ASSESSING OFFICER THAT THE ASSESSEE IS HOLDING HEAV Y MACHINERY IN ITS CONSTRUCTION BUSINESS AND CONSIDERING THE NATURE OF ASSESSEES BUSINESS FREQUENT USE OF THE SPARE PARTS OF THE MACHINERY. T HUS, IT IS AN ADMITTED FACT. THE ASSESSEE IN HIS REPLY FILED BEFORE THE ASSESSIN G OFFICER HAS GIVEN JUSTIFICATION FOR EACH ITEM PURCHASED DURING THE AS SESSMENT PROCEEDINGS AND THE ASSESSING OFFICER AS WELL AS THE CIT(A) DID NOT POINT OUT ANY CONTRADICTORY RECORDS TO THAT EFFECT. DETAILS OF MACHINERY PARTS/ ATTACHMENTS ETC. USED IN REPAIRING OF MACHINERY ABOVE RS. 1 LAKH ALONG WITH COPY OF BILL WAS SUBMITTED BEFORE THE ASSESSING OFFICER. HOWEVER, TH E ASSESSING OFFICER IDENTIFIED FIVE BILLS AMOUNTING TO RS. 37,72,886/- AND ASKED THE ASSESSEE TO SHOW CAUSE WHY THE SAME BE NOT CAPITALIZED FOR WHIC H THE ASSESSEE FILED THE REPLY. BEING A CONTRACTOR WHO DEALS IN LAYING O F PIPELINES FOR SEWER AND CABLES, IT IS NECESSITY TO REPLACE THE BROKEN PARTS WHICH ARE DAMAGED IN TRANSPORTATION AND HAS TO PURCHASE THE NEW PARTS FO R CARRYING OUT THE WORK. HOWEVER, THE ASSESSING OFFICER TREATED THE PU RCHASE OF MACHINE SPARE PARTS AS A CAPITAL EXPENDITURE INSTEAD OF REVENUE E XPENDITURE ON THE BASIS THAT THESE ARE HEAVY PARTS OF MACHINE AND ADDED THE AMOU NT OF RS. 32,09,510/- AFTER DEDUCTING DEPRECIATION @15% ON THE VALUE OF R S. 37,72,886/- WHICH IS NOT CORRECT AS IT IS AN INTEGRAL PART OF THE BUSINE SS OF THE ASSESSEE. THEREFORE, GROUND NO. 3 IS ALLOWED. 33. AS RELATES TO GROUND NO.4, THE LD. AR SUBMITTED THAT AD HOC DISALLOWANCE OF 5% OF LABOUR CHARGES PAID OF RS.16, 76,565/- MADE BY THE ASSESSING OFFICER IS NOT CORRECT. THE ASSESSING OFF ICER DISALLOWED 5% OF THE TOTAL EXPENDITURE OF RS.3,35,31,286/-ON THE BASIS T HAT THE COPIES OF VOUCHERS PRODUCED WERE UNSIGNED AND THUS ASSESSE FAILED TO P ROVE GENUINENESS. THE CIT (A) FURTHER SUSTAINED AD HOC DISALLOWANCE MADE BY T HE ASSESSING OFFICER ON THE BASIS THAT THE ASSESSE FAILED TO PRODUCE THE REQUIR ED DETAILS. IN THIS REGARD, IT IS SUBMITTED THAT THERE IS NO ALLEGATION THAT THESE LA BOUR CHARGES HAVE NOT BEEN 20 ITA NO. 5047 & 5048/DEL/2013 PAID BY THE ASSESSEE AND VOUCHERS OF THE SAME HAS B EEN PRODUCED BEFORE THE ASSESSING OFFICER. THE LD. AR SUBMITTED THAT COPY O F LEDGER A/C OF LABOUR EXPENSES WERE SUBMITTED BEFORE THE ASSESSING OFFICE R. THE LD. AR SUBMITTED THAT ONLY ALLEGATION OF THE ASSESSING OFFICER IS TH AT THE COPIES OF VOUCHERS WERE UNSIGNED FOR WHICH HE SUBMITTED THAT THE COMPANY HA S BEEN REGULARLY MAINTAINING BOOKS OF ACCOUNTS WHICH ARE DULY AUDITE D AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE LD. AR FURTH ER SUBMITTED THAT THERE IS NO ADVERSE FINDING OF THE ASSESSING OFFICER IN RELA TION TO THESE DOCUMENTS. IT IS A WELL SET LAW THAT THE AD HOC ADDITION CANNOT BE M ADE IN THE HANDS WITH THE COMPANY. THE LD. AR RELIED UPON THE DECISIO OF ACIT V. MODI RUBBER LTD. [ITA NO. 1952/DEL/2014] DATED 15.05.2018 (ITAT DELH I) AND ALSO RELIED UPON THE FOLLOWING JUDGMENTS. SH. DEVENDER KUMAR V. ITO IN ITA NO. 3239/DEL/2014 ORDER DATED 30.08.2016 ITAT DELHI ACIT V. AMTEK AUTO LTD. [2006] 112 TTJ 455 ITAT DEL HI SH. GAGAN GOYAL V. JCIT IN ITA NO.1514/DEL/2015 DAT ED 02.08.2016 ITAT DELHI NITIN SALES CORPORATION V. ITO IN ITA NO.1809/DEL/ 2005 DATED 11.07.2008 DELHI HIGH COURT. THEREFORE, IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEM ENTS, THE LD. AR SUBMITTED THAT THE AD HOC ADDITIONS MADE BY THE ASSESSING OFF ICER AND SUSTAINED BY THE CIT(A) WITHOUT ANY BASIS ARE BAD IN LAW AND LIABLE TO BE DELETED . 34. THE LD. DR RELIED UPON ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 35. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER DISALLOWED 5% OF THE TOTAL EXPENDITURE OF RS.3,35,31,286/-ON THE BASIS THAT THE COPIES OF VOU CHERS PRODUCED WERE 21 ITA NO. 5047 & 5048/DEL/2013 UNSIGNED AND THUS ASSESSE FAILED TO PROVE GENUINENE SS WHICH WAS CONFIRMED BY THE CIT (A). FROM THE PERUSAL OF RECORDS IT CAN BE SEEN THAT THERE IS NO DOUBT RAISED BY THE ASSESSING OFFICER THAT THESE LABOUR C HARGES HAVE NOT BEEN PAID BY THE ASSESSEE AND VOUCHERS OF THE SAME HAS BEEN PROD UCED BEFORE THE ASSESSING OFFICER. THE COPY OF LEDGER A/C OF LABOUR EXPENSES WERE SUBMITTED BEFORE THE ASSESSING OFFICER WHICH WAS IGNORED BY THE ASSESSIN G OFFICER AS WELL AS BY THE CIT(A). THE FACT REMAINS THAT THE COMPANY HAS BEEN REGULARLY MAINTAINING BOOKS OF ACCOUNTS WHICH ARE DULY AUDITED AND THE SA ME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THEREFORE, IT WILL BE APPROP RIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRES H ADJUDICATION. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOL LOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 4 IS PARTLY ALLOWED FOR STATIST ICAL PURPOSE. 36. AS RELATES TO GROUND NO.5, THE LD. AR SUBMITTED THAT THIS GROUND DEALS WITH THE ACTION OF THE CIT(A) IN CONFIRMING THE ACT ION OF THE ASSESSING OFFICER OF TREATING 50% OF ELECTRICITY EXPENSES AS PERSONAL EX PENSES OF DIRECTORS. THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATI ON, REGISTERED OFFICE OF THE COMPANY IS IN THE RESIDENCE OF THE DIRECTORS AT A1/31, JANAKPURI, NEW DELHI. NO ELECTRICITY EXPENSES FOR THIS OFFICE HAS BEEN CHARGED DURING THE YEAR. IN ADDITION TO REGISTERED OFFICE, A1/B-6, LOCAL SHO PPING COMPLEX, JANAKPURI IS THE ADMINISTRATIVE OFFICE OF THE COMPANY FOR WHICH ASSESSEE COMPANY HAS CLAIMED ELECTRICITY EXPENSES OF RS. 175,258/- D URING THE YEAR UNDER CONSIDERATION. THE ASSESSEE SUBMITTED VIDE SUBMISSI ON DATED 05.03.2014 BEFORE THE ASSESSING OFFICER THAT ALL THE WORK IS D ONE FROM THE ADMINISTRATIVE OFFICE SO NO DISALLOWANCE SHOULD BE MADE OUT OF ELE CTRICITY EXPENSE AS EXPENSE CLAIMED PERTAINS TO ONLY ADMINISTRATIVE OFFICE OF T HE COMPANY. THE ASSESSING OFFICER HAS DISALLOWED 50% OF EXPENSES ON THE PREMI SE THAT THE ELECTRICITY BILLS PERTAINS TO REGD. OFFICE LOCATED AT A1/31, JANAKPUR I, NEW DELHI WHICH IS ALSO THE RESIDENCE OF THE DIRECTORS. THEREFORE, HE HAS T REATED 50% EXPENSES AS PERSONAL EXPENSES AND ACCORDINGLY DISALLOWED THE SA ME. BEFORE CIT (A), ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS D ISALLOWED EXPENSES ON THE 22 ITA NO. 5047 & 5048/DEL/2013 BASIS OF EARLIER YEARS DISALLOWANCE. THE LD. AR SU BMITTED THAT IN A.Y. 2009-10, THE ASSESSING OFFICER ALSO DISALLOWED THE ELECTRICI TY EXPENSES ON ACCOUNT OF COMMON EXPENSES AS RESIDENCE AND THE OFFICE ARE IN THE SAME PREMISES. HOWEVER, FOR THE YEAR UNDER CONSIDERATION, FACTS AR E DIFFERENT AS ASSESSEE HAS SUO-MOTTO NOT CLAIMED ELECTRICITY EXPENSES FOR THE PREMISES AT A1/31, JANAKPURI, NEW DELHI, THE REGISTERED OFFICE OF THE COMPANY. THE ASSESSEE HAS CLAIMED ELECTRICITY EXPENSES ONLY WITH RESPECT TO A DMINISTRATIVE OFFICE OF THE COMPANY AT A1/B-6, LOCAL SHOPPING COMPLEX, JANAKPUR I, NEW DELHI WHERE DIRECTORS NOT RESIDE. THEREFORE, ELECTRICITY EXPENSES DISALLOWED BY THE ASSESSING OFFICER SOLELY ON THE BASIS THAT ELECTRIC ITY EXPENSES ARE COMMON EXPENSES FOR THE RESIDENCE OF DIRECTORS AND OFFICE PREMISE IGNORED THE FACT THAT ASSESSEE HAS NOT CLAIMED ANY EXPENSE FOR THE RESIDE NCE WHERE REGISTERED OFFICE IS SITUATED AND THE SAME IS UPHELD BY THE CI T(A) IS BAD IN LAW AND LIABLE TO BE DELETED. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PREJUDICE, IN CASE OF A COMPANY NO DISALLOWANCE CAN BE MADE ON AC COUNT OF PERSONAL EXPENDITURE. THE LD. AR RELIED UPON THE FOLLOWING J UDGMENTS: CIT V SAYAJI IRON & STEEL CO. 253 ITR 749 (GUJ) COCA COLA INDIA LTD. VS. JCIT (2006) 102 ITD 134 ( PUNE) LAVRIDSKNUDSANMASKINFABRIK (INDIA) LTD. VS. ADDL. C IT (2006) 102 TTJ (PUNE) 882 DCIT VS HARYANA OXYGEN LTD. (1999) 76 ITD (DEL) 32 DINESH MILLS LTD. V. CIT (2002) 254 ITR 673 (GUJ) CIT VS. S.S.P. (P) LTD. (2011) 202 TAXMAN 386 (P&H) FRIENDS CLEARING AGENCY (P) LD. VS. CIT (2011) 332 ITR 269 (DEL) ) 37. THE LD. DR RELIED UPON ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 38. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE BASIS FOR THIS ADDITION MADE BY THE ASS ESSING OFFICER WAS IN RESPECT OF ADDITION MADE IN A.Y. 2009-10. BUT THE ASSESSING OFFICER FAILED TO APPRECIATE 23 ITA NO. 5047 & 5048/DEL/2013 THE CHANGING SCENARIO IN PRESENT ASSESSMENT YEAR. I N A.Y. 2009-10, THE PREMISES USED FOR COMPANY WAS RESIDENCE OF THE DIRE CTORS. HOWEVER, FOR THE YEAR UNDER CONSIDERATION, FACTS ARE DIFFERENT AS ASSESSEE HAS SUO-MOTTO NOT CLAIMED ELECTRICITY EXPENSES FOR THE PREMISES AT A1 /31, JANAKPURI, NEW DELHI, THE REGISTERED OFFICE OF THE COMPANY. THE ASSESSEE HAS CLAIMED ELECTRICITY EXPENSES ONLY WITH RESPECT TO ADMINISTRATIVE OFFICE OF THE COMPANY AT A1/B-6, LOCAL SHOPPING COMPLEX, JANAKPURI, NEW DELHI WHERE DIRECTORS ARE NOT RESIDE. THEREFORE, ELECTRICITY EXPENSES DISALLOWED BY THE ASSESSING OF FICER ENTIRELY ON THE BASIS THAT ELECTRICITY EXPENSES ARE COMMON EXPE NSES FOR THE RESIDENCE OF DIRECTORS AND OFFICE PREMISE WHILE IGNORING THE FAC T THAT ASSESSEE HAS NOT CLAIMED ANY EXPENSE FOR THE RESIDENCE WHERE REGISTE RED OFFICE IS SITUATED AND THE SAME IS UPHELD BY THE CIT(A) IS NOT CORRECT . THUS, GROUND NO. 5 IS ALLOWED. 39. IN RESULT, ITA NO. 5048/DEL/2015 FOR A.Y. 2011- 12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 27/05/2019 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 24 ITA NO. 5047 & 5048/DEL/2013 ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 01.03.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 01.03.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 2 9 .0 5 .2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 3 0 .0 5 .2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 3 0 .0 5 .2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK