Income Tax Appellate Tribunal - Agra
Tomer Bulders & Contractors Pvt. Ltd., ... vs Department Of Income Tax on 11 December, 2012
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. Advocate
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 Assessment 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 conditions of bid.
3. The disallowance made by the A.O. has been deleted by the CIT(A) as under:- (Paragraph no.2.2, page no.2) 2 ITA No.303/Agr/2012 A.Y. 2006-07 "2.2 On perusal, appellant's submissions are found acceptable. Bid amount of Rs.4,32,000/-had been forfeited in the regular 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 penalty imposed by the concerned department. It has been held by Hon'ble Allahabad High Court in case of CIT vs. Sugar Dealers (1975) 100 ITR 424 (All.) that forfeiture of earnest money is an allowable expenditure in the regular course of business of the appellant as it is incurred 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 parties and records perused. We find that the CIT(A) while deciding assessee's appeal followed the judgement of Hon'ble Allahabad High Court in the case of CIT 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 under the proviso to section 37(1) of the Act. The Revenue did not point out any contrary facts against the finding of CIT(A). In the light of that, we do not find any infirmity 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 deleted by the CIT(A) as under:- (Paragraph no. 3.2, page no.3) 3 ITA No.303/Agr/2012 A.Y. 2006-07 "3.2 Appellant's submissions have been considered carefully and are found acceptable. As per its P&L account enclosed with the return, the appellant has nowhere claimed this amount as an expense. Rather it has been reflected in the balance sheet under the head time extension charges to be adjusted subsequently on completion of relevant projects. In any case, it has been held by various courts that penalty or damages paid for delay in execution of contracts 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, hereby, deleted."
7. We have heard the ld. Representatives of the parties. 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 find that these are strictly not in the nature of penalty as provided in proviso to section 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 order, the order of CIT(A) on the issue is confirmed.
8. The third ground is in respect of disallowance of mess expenses and repair & maintenance expenses. The A.O. has made the addition of Rs.1,00,000 + 4,50,000/-, total Rs.5,50,000/-.
4 ITA No.303/Agr/2012
A.Y. 2006-07
9. The CIT(A) has sustained the addition to the extent 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 appellant and the assessment order, it is seen that the AO has not made the said disallowance on account of their non verifiability based on certain vouchers. Thus, the appellant's submissions are not found relevant to these two grounds. As per its profit & loss account, the appellant has claimed the mess expenses at Rs.5,05,442/- this year as compared to Rs.2,71,237/-, last year. Similarly, repair and maintenance 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. Appellant's contractual receipts have increased from Rs.25.11 crores to Rs.31.93 crores, this year, meaning thereby increase 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 maintenance expenses have increased by 7% (from Rs.65,70,388/- to Rs.70,59,269/-). It has been held by Hon'ble Mumbai ITAT in case of Asstt. CIT vs. Arthur Anderson & Co. (2005) 94 TTJ (Mum) 736 that the very concept of token disallowance is bad in law because it is inherently based on surmises and conjunctures and devoid of a legal sustainable foundation. To make disallowance in respect of legitimate business expenses, the appellant has to show nexus between the expenditure and business purpose. A.O. cannot be allowed to substitute 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 disallowances are not found sustainable. However, considering the nature of business of the appellant spread far away and various sites involving illiterate labourers and keeping in view percentage increased in these expenses as compared to appellant's contractual receipts (as mentioned above), disallowance @ 10% in respect of mess expenses is justified and reasonable which works out to Rs.50,545/-. The appellant has also failed to explain the reason for such disproportionate abnormal increase in these expenses. Accordingly, addition of Rs.50,545/- out of Rs.5,50,000/- is, hereby, confirmed."
5 ITA No.303/Agr/2012
A.Y. 2006-07
10. We have heard the ld. Representatives of the parties and records perused. We find that the CIT(A) has considered the case made out by the A.O. and, after considering the nature of business activities of the 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 Rs.5,05,442/-, the Revenue failed to point out any contrary material to the finding of 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 purchasers 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 nos.7 & 8) "7.2 Appellant's submissions have been considered carefully. A.O. has made the said disallowance mainly because these purchases have been made in cash and are not well supported with bills and vouchers. However, no specific instance has been brought on record in respect of their non verifiability. As mentioned in preceding paras, A.O. is not found justified in making additions without bringing any adverse material on record. A.O. has failed to show that these cash purchases have been made in violation of provisions of the Act or that cash payments are not reflected in appellant's books of accounts. A.O. has accepted trading results of the appellant company declared on the basis of total sales/contract receipts and consequent purchases. A.O. is not found justified in not accepting a part of these purchases 6 ITA No.303/Agr/2012 A.Y. 2006-07 without rejecting appellant's books of accounts or without bringing any cogent material on record. Accordingly, addition of Rs.4,72,956/- is, hereby, deleted."
13. We have heard the ld. Representatives of the parties and records perused. The ld. Authorised Representative tried to demonstrate by referring comparative position of expenditure of iron and steel and gross profit declared by the assessee and submitted that expenditure claimed by the assessee were the expenditures incurred for the purpose of business. But he failed to point out that the assessee is having supporting bills for purchases pointed out by the A.O. for Rs.4,72,956/-. We find that the items of iron and steel are used by contractor and builder is purchase expenditure. These items are subject to other taxes, VAT, Sales Tax and octroi etc. The assessee is supposed to maintain all these supporting bills. It was specifically pointed out by the A.O. to the assessee that purchase of Rs.4,72,956/- out of total purchases of Rs.1,24,12,503/- were purchased in cash without supporting bills. The assessee failed to produce those bills. When the assessee failed to produce supporting bills, an inference can be drawn against the assessee that the assessee purchased the goods from gray market. 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 case of Vijaya Proteins vs. ACIT, 58 ITD 428 (Ahd.) wherein 25% of such expenses has been confirmed. Following the said ratio laid down in the said order and after considering the facts of the case, we are of the considered view that in such case some disallowance is 7 ITA No.303/Agr/2012 A.Y. 2006-07 warranted. We find that the A.O. and CIT(A) both are 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 addition on the ground that expenditures were incurred for the purpose of business. In such cases benefits which assessee the got by purchasing in cash without 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 extent 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 partly 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