TMI Blog2019 (7) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... see has given month wise details of labour charges and the same is quoted by the AO on Page 4 Para 15 of the Assessment Order. As per these month-wise details, it is evident that the AO has ignored that there are payments in the month of November, May January and therefore it cannot be said that there is sudden increase in the amount of labour charges. Besides this, the Assessing Officer also ignored that the company has been regularly maintaining books of accounts which are duly audited and the same has been accepted by the Assessing Officer. There is no adverse finding of the AO in relation to these documents. It is a well settled law that the ad hoc additions cannot be made in the hands with the company. AO as well as the CIT(A) was not correct in making this addition. Ground No. 2 is allowed. Ad hoc disallowance of 20% of Machine Running Expense - increase in the expenses in the month of March, These expenses are high considering the size of operation of the company and Assessee has purchased 'valve manifold however could not provide any detail or explanation to explain the nature of the item - HELD THAT :- AO completely ignored the fact that assessee has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of undervaluation of WIP - HELD THAT :- From the records it can be seen that the Assessee submitted before the AO the difference of ₹ 2,14,28,277/- which was on account of Service Tax, Work-in-progress and retention Money. All the differences were duly explained along with all necessary supporting evidences. AO allowed credit of work-in-progress of ₹ 1,40,54,583/- only and added the balance amount of ₹ 73,73,696/- which represents service tax of ₹ 72,75,803/- and retention money of ₹ 97,978/- without taking into cognizance of the evidences produced by the Assessee. Besides this, assessee has valued Closing stock of WIP at ₹ 1,01,30,003/- excluding Service Tax and Gross Profit as against the amount of ₹ 1,40,54,583/- appearing in From 26AS. This aspect was also ignored by the AOr. The CIT(A) also has not taken into consideration these evidences and simply confirmed the additions. Therefore, Ground is allowed. Enhancing the value of closing WIP - adding sum on account of Service Tax and on account of gross profit to be earned - AO in this issue has added the difference of WIP as per Form 26AS and the amount of WIP declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Assessing Officer that these labour charges have not been paid by the assessee and vouchers of the same has been produced before the Assessing Officer. The copy of ledger A/c of Labour Expenses were submitted before the Assessing Officer which was ignored by the Assessing 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 same has been accepted by the Assessing Officer. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for fresh adjudication - Ground allowed for statistical purpose. Addition treating 50% of electricity expenses as personal expenses of directors - common expenses for the residence of directors and office premise - based on earlier year - HELD THAT :- 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 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,891 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 ₹ 79,25,891 on account of creditors although the post sent to the creditors was duly served upon them, all the creditors had submitted confirmation, the assessee had paid creditors through banking channel and the AO had added even opening balance of creditors outstanding as at the beginning of the year under consideration. 5. On the facts and circumstances of the case in the law, Id. Commissioner (Appeal) erred in confirming the action of the Assessing Officer of treating bills of machinery hire charges amounting to ₹ 1,16,000/- as bogus. This addition made to total income on such basis may kindly be deleted. 6. Without prejudice to above, gross profit ratio of the assessee after taking into consideration the additions made in the assessment order comes to 35.05%, which is exorbitantly high, particularly in view of the fact that the gross profit ratio for the last preceding three years assessed by way of scrutiny assessment is never higher t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceedings from time to time and filed the necessary details which were taken on record by the Assessing Officer. The Assessing Officer made various additions thereby assessing the total income at ₹ 2,87,28,065/-. 4. Being aggrieved by the assessment order, the assessee 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 ₹ 48,82,520/- treated as unexplained expenses, the Ld. AR submitted that during the year under consideration, assessee made payment to the sub-contractors amounting to ₹ 2,93,43,526/- and deducted TDS thereon and also made the payment for labour charges amounting to ₹ 48,82,520/- on which TDS had not been deducted since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s activities which cannot be ignored. There is no allegation that the assessee had not made such payments to the labourers or there is no such construction work going on. The Ld. AR submitted that assessee has been maintaining regular books of accounts duly audited under Section 44AB of the Act which have not been rejected by the Assessing Officer. The Ld. AR submitted that the addition has been made on flimsy grounds without there being any basis and completely ignoring the assessee s explanations in this regard. Further, the Assessing Officer had not raised any issue of low net profit while making addition on this count and therefore CIT(A) is not justified in confirming the addition on this ground although the assessee has fully explained the reason 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 of the muster rolls were doubted by the Assessing Officer and the same was not properly answered by the Assessee during the Assessment proceedings. Besides that the Ld. DR further submitted that the assessee has failed to explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by the Assessing Officer there is no adverse finding of the Assessing Officer in relation to these documents. It is a well settled law that the adhoc additions cannot be made in the hands with the company. The Ld. AR relied upon the judgment of ACIT v. Modi Rubber Ltd. [ITA No. 1952/Del/2014] dated 15/5/2018 of the Tribunal and also relied upon the following judgments: Nitin Sales Corporation v. ITO in ITA No.1809/Del/2005 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 Delhi. Sh. Gagan Goyal v. JCIT in ITA No. 1514/Del/2015 dated 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 Assessing Officer and sustained by the CIT(A) without any basis are bad in 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 increase in labour charges which was not properly explained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crease in expense in the month of March. The Assessee has given month wise details of Machine Running Expenses and the same is quoted by the Assessing Officer on Page 5 Para C of the Assessment Order. As per these month-wise details, it is evident that the Assessing Officer has ignored that there are payments amounting to ₹ 24,64,963/- in the month of May, ₹ 19,64,043/- in the month of January and therefore it cannot be said that highest expenditure in the month of March. These expenses are high considering the size of operation of the company. The Assessing Officer has completely ignored the fact that turnover of the company is ₹ 17,94,72,968/- and gross value of fixed assets amounting to ₹ 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 Assessing Officer has made this allegation by indulging in surmises without giving any justification for the 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 Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the details fixed by the assessee. Therefore, from the above observations, the Ld. AR pointed that Valve 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 Assessing Officer there is no adverse finding of the Assessing Officer in relation 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 amounting to ₹ 79,25,891/-, the Assessing Officer has ignored and overlooked the necessary documents filed. 16. The Ld. DR relied upon the Assessment Order and 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 during the assessment proceedings were not at all considered by the Assessing Officer as well as by the CIT(A). Therefore, it will be appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... que, and the details of cheque was also shown 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 being I.T.A. No. 5048/DEL/2015. The brief facts are that assessee filed return declaring income of ₹ 90,98,304/- on 30/09/2011. Return was 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 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, C.A/AR attended the assessment 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 ₹ 2,91,34,120/- by making various additions and disallowances. 22. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idences. However, the Assessing Officer allowed credit of work-in-progress of ₹ 1,40,54,583/- only. The Assessing Officer added the balance amount of ₹ 73,73,696/- which represents service tax of ₹ 72,75,803/- and retention money of ₹ 97,978/-. The CIT(A) confirmed the addition by giving incorrect findings that the assessee has not filed any evidence in relation to service tax and the retention 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 ₹ 37,63,820/-, the Ld. AR submitted that the Assessing Officer observed that assessee has valued Closing stock of WIP at ₹ 1,01,30,003/- excluding Service Tax and Gross Profit as against the amount of ₹ 1,40,54,583/- appearing in From 26AS and asked the assessee the reason for not valuing the WIP including Gross profit at ₹ 1,40,54,583/-. In this regard, assessee submitted that Closing Stock 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01,30,003/- declared by the assessee in its books which comes to ₹ 39,24,580/-. The Ld. AR submitted that this tantamount to double addition since the amount of ₹ 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 doubt, addition of the same amount which has already been added in Para 1.5 of the assessment order (₹ 1,11,37,516/-), then the addition would stand deleted. Both the addition need to be deleted. The Ld. AR submitted that the CIT(A) has gone wrong in holding 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 added the difference of ₹ 1,40,54,583/- of WIP as per Form 26AS and the amount of WIP of ₹ 1,01,30,003/- declared by the assessee in its books which comes to ₹ 39,24,580/- which amount to double addition since the amount of ₹ 37,63,820/- has already been add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 197/2010, ITA 626/2010 dated 17/10/2011 of the Hon ble Delhi High Court Delhi and the decision in case of CIT v. Mahalaxmi Textiles Mills Ltd. [1965] 56 ITR 556 of the Hon ble Madras High Court. The Ld. AR also relied 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 ITR 635- Punjab Haryana High Court 3. CIT v. M/s Malerkotla Steels and Alloys Pvt. Ltd.[2011] 336 ITR 49-- Punjab Haryana High Court Therefore, in view of the above, the Ld. AR submitted that the additions made by the Assessing Officer with respect to treating the purchase of machine spare parts as a capital expenditure instead of revenue expenditure 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). 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 heavy machinery in its construction business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning books of accounts which are duly audited and the same has been accepted by the Assessing Officer. The Ld. AR further submitted that there is no adverse finding of the Assessing Officer in relation to these documents. It is a well set law that the ad hoc addition cannot be made 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 Delhi) 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 Delhi Sh. Gagan Goyal v. JCIT in ITA No.1514/Del/2015 dated 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 pronouncements, the Ld. AR submitted that the ad hoc additions made by the Assessing Officer 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 he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses and accordingly disallowed the same. Before CIT (A), assessee submitted that the Assessing Officer has disallowed expenses on the basis of earlier year s disallowance. The Ld. AR submitted that in A.Y. 2009-10, the Assessing Officer also disallowed the Electricity Expenses on account of common expenses as residence and the office are in the same premises. 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 not reside. Therefore, Electricity Expenses disallowed by the Assessing Officer solely on the basis that electricity expenses are common expenses for the residence of directors and office premise ignored the fact that Assessee has not claimed any expense for the residence where registered office is situated and the same is upheld by the CIT(A) is bad in law and liable to be deleted. The Ld. AR further submitted that without prej ..... X X X X Extracts X X X X X X X X Extracts X X X X
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