DCIT, New Delhi V. M/s. Lahmeyer International (India) (P) Ltd., New Delhi

ITA 6073/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5911 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence; Capital expenditure
• Section: 143(3); 133(6); 6

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 4350 & 6073/DEL/2014 (ASSESSMENT YEAR: 2010 - 11 AND 2011 - 12 ) DCIT, CIRCLE - 4(1), NEW DELHI VS. LAHMEYER INTERNATIONAL (INDIA) (P) LTD, A - 23, 2 ND FLOOR, NEETI BAGH, NEW DELHI PAN: AAACL1902H (APPELLANT) (RESPONDENT) REVENUE BY : SHRI HIREN MEHTA, CA ASSESSEE BY: SHRI AMIT JAIN, SR. DR DATE OF HEARING 09/04/2018 DATE OF PRONOUNCEMENT 2 1 / 06 / 2018 O R D E R PER PRASHANT MAHARISHI , A. M. 1. TH ESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - VIII, NEW DELHI DATED 25.08.2014 FOR ASSESSMENT YEAR 2011 - 12 AND 23.05.2014 IS FOR THE ASSESSMENT YEAR 2010 - 11 , WHEREIN, THE LD CIT(A) HAS DELETED THE ADDITION OF RS. 3.99 CRORES ON AD HOC BASIS OUT OF TOTAL EXPENDITURE OF RS. 17.08 LACS ON ACCOUNT OF CONSULTANCY CHARGES @5%. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2010 - 11: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 4,05,02,738/ - BEING 10% OF RS. 40,50,27,384/ - (EXCLUDING DEPRECIATION) MADE BY THE AO? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT (A) WAS RIGHT IN DELETING THE ADDITION OF RS. 4,79,159/ - TREATING THE SAME AS REVENUE NATURE? 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. DCIT VS LAHMEYER INTERNATIONAL (INDIA) (P) LTD, ITA NO. 4350 & 6073/DEL/2014 (ASSESSMENT YEAR: 2010 - 11 AND 2011 - 12) PAGE | 2 4. THAT THE ORDER OF THE LD. CIT (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2011 - 12 : - 1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 3,99,88,032/ - MADE BY A.O. ON ACCOUNT OF EXPENSES CLAIMED BY THE ASSESSEE? 2 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING T HE DISALLOWANCE MADE BY A.O. ON ACCOUNT OF CONSULTANCY EXPENSES AMOUNTING TO RS. 17,08,096/ - ? 3 THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT T ENABLE ON FACTS AND IN LAW. 4 THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 5 THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND OR FOREGO ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS THE COMPANY ENGAGED IS THE BUSINESS OF PROVIDING CONSULTANCY SERVICES IN POWER SECTOR. 5. FOR ASSESSMENT YEAR 2010 - 11 THE A SSESSEE FILED ITS RETURN OF INCOME ON 12.10.2010 SHOWING INCOME OF RS. 46097550/ - . THE ASSESSMENT U/S 143(3) WAS MADE ON 11.01.2013 AT RS. 87144450/ - . THE LD AO DISALLOWED RS. 40502738/ - BEING 10% OF THE TOTAL EXPENDITURE IN ABSENCE OF PROJECT - WISE EXPENDI TURE. THE MAIN REASON FOR THE DISALLOWANCE IS THAT THE ASSESSEE HAS NOT DONE PROJECT WISE ACCOUNTING, NO WORK IN PROGRESS IN THE CASE OF THE ASSESSEE WAS SHOWN. IN THE REPLY , THE ASSESSEE HAS ALSO SUBMITTED THAT THERE IS NO WORK IN PROGRESS AT THE TIME OF DISALLOWANCE. 6. SIMILARLY, FOR ASSESSMENT YEAR 2011 - 12 IT FILED ITS RETURN OF INCOME ON 30.11.2011 OF RS. 65167869/ - . THE ASSESSMENT WAS MADE U/S 143(3) OF THE ACT ON 31.03.2014 BY THE LD AO OF RS. 106893668/ - . HE DISALLOWED RS. 39988032/ - ON ACCOUNT OF RS. 70490770/ - BEING 10% OF THE TOTAL EXPENDITURE OF RS. 804907708/ - . THE LD AO NOTED THAT SIMILAR DISALLOWANCE OF RS. 4.05 CRORES HAS BEEN MADE IN THE EARLIER YEARS AND THEREFORE, FROM THE DISALLOWANCE OF RS. 8.04 CRORES HE GRANTED THE CREDIT FOR THE SAME AND MADE THE NET DISALLOWANCE OF RS. 3.99 CRORES. DCIT VS LAHMEYER INTERNATIONAL (INDIA) (P) LTD, ITA NO. 4350 & 6073/DEL/2014 (ASSESSMENT YEAR: 2010 - 11 AND 2011 - 12) PAGE | 3 7. THE ASSESSEE PREFERRED APPEAL FOR BOTH THE YEARS BEFORE THE LD CIT(A) WHO DELETED THE ADDITION FOR AY 2010 - 11 THAT THE IMPUGNED ADDITION IS BASED UPON THE REJECTION OF THE BOOK RESULTS BUT THE LD AO HAS FAILED TO REJECT THE BOOKS OF ACCOUNTS. THE LD AO HAS ALSO NOT GIVEN ANY REASON THAT WHY HE IS NOT SATISFY ABOUT THE CORRECTNESS AND COMPLETENESS OF THE BOOKS OF ACCOUNTS. HE FURTHER HELD THAT LOOKING TO THE NATURE OF BUSINESS THE PROJECT WISE ACCOUNTI NG IS NEITHER MANDATORY NOR FEASIBLE. WITH RESPECT TO THE ALLOCATION OF THE EXPENSES IN WORK IN PROGRESS HE HELD THAT THESE EXPENSES ARE NOT FIXED EXPENSES. FURTHER, IN THE PAST YEARS THE METHOD OF ACCOUNTING WAS ACCEPTED BY THE REVENUE. HE FURTHER HELD T HAT TWO INSTANCES POINTED OUT BY THE LD AO OF MISMATCH BETWEEN THE REVENUE RECOGNIZED AND EXPENSES INCURRED ARE CLARIFIED. THEREFORE, RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN CASE OF CHAINRUP SAMPATRAM VS. CIT AND CIT VS. MALAYALAM PLAN T ATIO NS LTD AND ACCOUNTING STANDARD 2 HE DELETED THE DISALLOWANCE. FOR ASSESSMENT YEAR 2011 - 12 HE FOLLOWED HIS EARLIER YEARS ORDER FOR ASSESSMENT YEAR 2010 - 11. THEREFORE, THE REVENUE IS IN APPEAL BEFORE US ON THIS ISSUE AS PER GROUND NO. 1 FOR BOTH THE YEARS. 8. THE LD DR RELIED UPON THE ORDERS OF THE LD AO AND SUBMITTED THAT IN ABSENCE OF WORK IN PROGRESS SHOW N BY THE ASSESSEE THE DISALLOWANCE HAS BEEN CORRECTLY MADE BY THE LD AO. 9. THE LD AR RELIED ON THE ORDER OF THE LD CIT(A). HE FURTHER STATED THAT THE LD CIT( A) HAS DELETED THE DISALLOWANCE BASED ON THE DECISION OF BOMBAY HIGH COURT IN CASE OF BHOR INDUSTRIES 204 ITR 180. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FIND THAT THE LD AO HAS DISALLOWED 10% OF THE TOTAL EXPENDITURE INCURRED BY THE ASSES SEE ON AD HOC BASIS. AS THE ASSESSEE IS ENGAGED IN PROVIDING SERVICES IT RECOGNIZED REVENUE ON MILESTONE BASIS. AS SOON AS MILESTONE IS ACHIEVED THE INVOICES HAVE BEEN RAISED, HENCE, IT WAS CONTENDED BY THE ASSESSEE THAT THERE IS NOT REMAINED ANY WORK IN P ROGRESS AT THE END OF THE YEAR. THE LD AO ASKED THE ASSESSEE TO FURNISH PROJECT WISE REVENUE AND THE PROJECT WISE EXPENSES WHICH THE ASSESSEE DID NOT MAINTAIN AND THEREFORE, SAME WAS NOT GIVEN DCIT VS LAHMEYER INTERNATIONAL (INDIA) (P) LTD, ITA NO. 4350 & 6073/DEL/2014 (ASSESSMENT YEAR: 2010 - 11 AND 2011 - 12) PAGE | 4 AND ON OUR EXAMINATION OF THE METHOD OF ACCOUNTING APPLIED BY T HE ASSESSEE , IT APPEAR S THAT WHEN THE ASSESSEE HAS RECEIVED BILLING AS PER MILESTONE AND FROM THE MILESTONE TILL THE CLOSE OF THE YEAR THERE ARE NO EXPENDITURE IDENTIFIED BY THE LD AO THEN THERE CANNOT BE ANY WORK IN PROGRESS IN THE BUSINESS OF THE ASSESSEE. THE LD AO COULD NOT FIND OUT THAT WHETHER THERE IS SUCH EXPENDITURE EXISTS OR NOT. IT WAS ALSO NOT FOUND BY THE LD AO THAT THE ASSESSEE HAS INCURRED SUBSTANTIAL EXPENDITURE . IF THE MILESTONE BEFORE THE CLOSE OF THE YEAR . AS THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF CONSULTANCY SERVICES DEFINITELY THERE CAN BE SUM OVER LAP OF THE EXPENSES BETWEEN TWO YEARS. HOWEVER THAT DOES NOT GIVE ANY RISE TO THE AO TO DISALL OW THE EXPEN DITURE @10% AND TREAT IT AS WORK IN PROGRESS. WE DO NOT FIND ANY REASON TO DEVIATE FROM THIS REASON GIVEN BY THE LD CIT(A) IN DELETING THE ABOVE DISALLOWANCE. EVEN OTHERWISE THE ORDER OF THE LD CIT(A) IS REASONABLE AS IT FOLLOWS THE DECISION OF THE HONBLE BOMBAY HIGH COURT , WE DO NOT HAVE ANY REASON TO DEVIATE FROM THE SAME. ACC ORDINGLY GROUND NO. 1 OF THE APPEAL OF THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 11. GROUND NO. 2 OF THE APPEAL FOR ASSESSMENT YEAR 2010 - 11 IS WITH RESPECT TO DISALLOWANCE OF RS. 479159/ - . THE ASSESSEE HAS INCURRED RS. 598949/ - AS REPAIR AND MAINTENANCE T HE LD AO STATED THAT THIS EXPENDITURE IS INCURRED FOR WIRING ELECTRICITY ETC IS CAPITAL IN NATURE FOR THE REASON THAT ASSESSEE IS CARRYING BUSINESS IN RENTED PREMISES. ACCORDING TO HIM ASSESSEE DERIVED BENEFIT OF ENDURING NATURE. HE ALLOWED DEPRECATION @20 % AND DISALLOWED THE BALANCE SUM HOLDING IT TO BE CAPITAL EXPENDITURE. THE LD CIT(A) DELETED THE SAME VIDE PARA NO. 11 OF HIS ORDER. ACCORDING TO HIM THESE EXPENDITURE ARE INCURRED MERELY FOR PRESERVING AND MAINTAINING THE EXISTING ASSETS. ACCORDING TO HIM , NO NEW ASSET IS CREATED. 12. THE LD DR RELIED UPON THE ORDER OF THE LD AO AND LD AR RELIED UPON HIS SUBMISSION MADE BEFORE THE LD CIT(A). 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON EXAMINATION OF THE INFORMATION WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A) FOR THE REASON THAT THE DCIT VS LAHMEYER INTERNATIONAL (INDIA) (P) LTD, ITA NO. 4350 & 6073/DEL/2014 (ASSESSMENT YEAR: 2010 - 11 AND 2011 - 12) PAGE | 5 EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE SAID TO BE AN EXPENDITURE OF AN ENDURING NATURE. THE ABOVE SUM IS PAID BY THE ASSESSEE ON 01.11.2009 TO M/S. S TERLING AND WILSON PVT. LTD FOR WIRING AND ELECTRICAL ACCESSORIES TO MAKE THE LEASE PREMISES USABLE FOR THE BUSINESS OF THE ASSESSEE. ACCORDINGLY, GROUND NO. 2 OF THE APPEAL OF THE REVENUE FOR AY 2010 - 11 IS DISMISSED. 14. GROUND NO. 2 OF THE APPEAL IS WITH RESPECT TO DISALLOWANCE OF CONSULTANCY CHARGES OF RS. 303009385/ - AS IN THE PREVIOUS YEAR THE EXPENDITURE IS ONLY OF RS. 4.44 CRORES, THEREFORE THE LD AO ASKED THE ASSESSEE TO EXPLAIN THE INCREASE OF SUCH EXPENDITURE. THE ASSESSEE EXPLAINED THAT THE ABOVE EXPENDITURE HAS BEEN INCURRED BASED ON THE TURN OVER WHICH HAS ALSO INCREASED SUBSTANTIALLY. IT WAS FURTHER STATED THAT THERE IS INCREASE OF 36.7% IN THE TURNOVER WHEREAS, THE INCREASE IN THE CONSULTANCY EXPENSES IS ONLY RS. 20.4 CRORES. THE ASSESSEE FURTHER SUBMITTED THE DETAILS OF THE EXPENDITURE SUCH AS COPIES OF THE CONTRACT AND INVOICES RAISED BY THE CONSULTANTS. THE LD AO ALSO ISSUED NOTICE U/S 133(6) OF THE ACT TO THE VARIOUS CONSULTANTS WHERE FROM IN SOME CASES REP LY WAS RECEIVED WHEREAS IN SOME CASES REPLY WAS NOT RECEIVED. IN FEW OF CASES NOTICE RECEIVED BACK . THEREFORE , THE LD AO DISALLOWED 5% OF THE EXPENDITURE AMOUNTING TO RS. 1708096/ - ON ACCOUNT OF FAILURE OF THE ASSESSEE TO P ROVE THE GENUINENESS OF SUCH EXPE NDITURE. THE MATTER WAS CARRIED BEFORE THE LD CIT(A) WHEREIN, THE ASSESSEE SUBSTANTIATED THE CLAIM STATING COMPLETE DETAILS WHICH IS RE PRODUCED AT PARA 18 OF THE ORDER OF THE LD CIT(A). ON VERIFICATION OF THAT DETAILS AS WELL AS ADDITIONAL EVIDENCE SUBMITT ED BEFORE HIM HE DELETED THE DISALLOWANCE. THE REVENUE CHALLENGED THE SAME VIDE GROUND NO. 2 . 15. LD DR RELIED UPON THE ORDER OF THE LD AO. THE LD AR RELIED UPON THE ORDER OF THE LD CIT(A). 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE ORD ERS OF THE LOWER AUTHORITIES. BEFORE THE LD CIT(A) THE LD AR SUBMITTED THE DETAILED REASON FOR INCREASE IN CONSULTANCY EXPENDITURE AS WAS SUBMITTED BEFORE THE LD AO. WITH RESPECT TO THE PARTIES FROM WHOM REPLY COULD NOT BE OBTAINED DCIT VS LAHMEYER INTERNATIONAL (INDIA) (P) LTD, ITA NO. 4350 & 6073/DEL/2014 (ASSESSMENT YEAR: 2010 - 11 AND 2011 - 12) PAGE | 6 U/S 133(6) OF THE ACT, T HE ASSESSEE SUBMITTED THAT OUT OF 9 PARTIES ONLY THREE PARTIES RESPONDED TO THE LD AO AND THE BALANCE SIX PARTIES EITHER DID NOT REPLY OR NOTICE WERE NOT SERVED. THE ASSESSEE SUBMITTED THE DETAILS OF ALL THE PARTIES BEFORE THE LD CIT(A). THE DETAILS SUBMIT TED WERE COPIES OF THE INCOME TAX RETURN, TDS CERTIFICATE, COPIES OF TRAVELLING EXPENSES, COPIES OF CONTRACT AND BANK STATEMENT TO PROVE THE EXPENDITURE. IN VIEW OF THESE OVERWHELMING DETAILS SUBMITTED BY THE ASSESSEE BEFORE THE LD CIT(A) , HE DELETED THE DISALLOWANCE. EVEN OTHERWISE IF BEFORE THE LD AO THE PARTIES DID NOT RESPOND OR DID NOT SUBMIT THE REQUISITE DETAILS , HE DOES NOT HAVE ANY AUTHORITY TO APPLY THE AD HOC PERCENTAGE FOR MAKING DISALLOWANCE. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN DELETING THE DISALLOWANCE. ACCORDINGLY, GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 17. ACCORDINGLY, APPEAL S FOR BOTH THE YEARS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 1 / 06 / 2018 . - S D / - - S D / - ( AMIT SH UKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 1 / 06 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI