2018 (6) TMI 1189 - AT - Income Tax

Disallowance of 10% of the total expenditure incurred by the assessee on ad hoc basis - Held 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. 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 engaged 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 disallow the expenditure @10% and treat it as work in progress - Decided against revenue Disallowance of repair and maintenance - 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 - Held that - the 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. Sterling and Wilson Pvt. Ltd for wiring and electrical accessories to make the lease premises usable for the business of the assessee - Decided against revenue Disallowance of consultancy charges - Held that - The details submitted 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 - Decided against revenue

Summary

Issues Involved:
- Disallowance of consultancy charges for Assessment Year 2010-11
- Disallowance of expenses claimed by the assessee for Assessment Year 2011-12

Analysis:

Issue 1 - Disallowance of Consultancy Charges for Assessment Year 2010-11:
- The Revenue appealed against the deletion of disallowance of &8377; 4,05,02,738/- (10% of total expenditure) by the AO. The CIT(A) deleted the addition based on rejection of book results without rejecting the books of accounts. The AO failed to provide reasons for questioning the correctness of the books. The CIT(A) held project-wise accounting not mandatory for the nature of business. The AO's mismatch claims between revenue and expenses were clarified. Relying on legal precedents and accounting standards, the disallowance was deleted.
- The Tribunal found the AO disallowed expenditure on an ad hoc basis without sufficient evidence of work in progress. As revenue was recognized on milestone basis, no work in progress existed at year-end. The absence of identified expenditure did not warrant disallowance. The Tribunal upheld the CIT(A)'s decision based on legal precedents, dismissing the Revenue's appeal.

Issue 2 - Disallowance of Expenses Claimed by the Assessee for Assessment Year 2011-12:
- The Revenue challenged the deletion of &8377; 3,99,88,032/- in expenses and &8377; 17,08,096/- in consultancy expenses by the CIT(A). The AO disallowed expenses based on previous disallowances and lack of proof of genuineness. The CIT(A) deleted the disallowances after the assessee provided detailed evidence.
- The Tribunal noted the assessee's detailed explanations and evidence submitted to prove the increase in consultancy expenses. Lack of response from some parties to AO's notices did not justify ad hoc disallowance. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, citing the overwhelming evidence provided by the assessee.

In conclusion, the Tribunal dismissed the Revenue's appeals for both years, upholding the CIT(A)'s decisions to delete the disallowances based on lack of sufficient evidence and adherence to legal precedents and accounting standards.