TMI Blog2022 (5) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice expenses - HELD THAT:- According to law, what has to be seen is whether the expenditure is genuine and the same has been incurred wholly for the purpose of the business. It is noted that the disallowance was made purely on surmises and conjectures. The said expenses were incurred for the purpose of procuring items such as hand soaps, bleaching powders, tea, snacks, coffee, stationary, coffee and tea for vending machines etc. which is necessary for units work sites also spreading to 3000 places. These items were purchased in the normal course of business and are found to be necessary for the smooth functioning of the business. Further, as already discussed while adjudicating Ground No. 1, Section 69C cannot be invoked n the facts of the present case. It is not a case that the expenses were not recorded in the books of accounts or that their source of payments were in doubt. The case laws cited by the AO/Ld. CIT(A,) as discussed while adjudicating Ground no. 1, is not applicable in the assessee's case. For the reasons as aforesaid, we do not countenance the action of the lower authorities in disallowing office expenses and accordingly direct the AO to delete the impugned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een incurred for the personal benefit of the directors/employees but are exclusively incurred for the purpose of business and is therefore an allowable expense u/s. 37 of the Act. Upon perusing the details of the donation and subscription, we find merit in the claim of the assessee. Disallowance of Balance written off - HELD THAT:- Since the balances were written off in the normal course of business, the assessee claimed that it is allowable u/s. 37 - However the Ld. CIT(A) did not appreciate the same and sustained the order of the AO. In this context, it is noted that since these excess statutory payments were no longer realizable, the assessee has written off these amounts standing in the books. According to assessee, since these balances were written off in the normal course of business, the same is allowable u/s. 37 - However, it is not clearly discernible as to whether the assessee had actually written off this claim in the books of the assessee so, the same is restored back to AO for verification. Excess VAT payment and other two items the AO may verify whether these amounts had been actually written off in the books and netted off in the respective asset heads. He may a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12, the corresponding write back also cannot be taxed, having regard to the extant provisions of Section 41(1) of the Act. In view of the foregoing and the fact that the AO in the remand report has also accepted the assessee's contention by observing the explanation of the assessee is considered and appears to be acceptable the action of Ld. CIT(A) sending the issue back to the AO for further verification is held to be unwarranted. Therefore, in the light of aforesaid facts and circumstances, the directions given by Ld. CIT(A) is set aside and we direct deletion of the impugned disallowance. - I.T.A. No. 12/Kol/2021 - - - Dated:- 18-4-2022 - Shri A. T. Varkey , JM And Shri Rjesh Kumar , AM For the Appellant : S. K. Tulsiyan , Advocate For the Respondents : Ranu Biswas , Addl. CIT ORDER Per Shri A. T. Varkey , JM This is an appeal preferred by the assessee against the order of Ld. CIT(A)-4, Kolkata dated 24.09.2020 for AY 2014-15. 2. Brief facts of the case is that the assessee company is engaged in the business of providing support service to various telephone operators in the field of Operation Maintenance/Surveillance Management Services for T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that, during the assessment proceedings, it was brought to the notice of AO that the assessee is engaged in the business of providing support services to various telecom operators and as such is largely dependent on manpower to execute the task undertaken by it. According to Ld. AR, the assessee is providing end to end services for setting up of Cellular Sites. According to him, the scope of services to various telecom operators include identifying and acquisition of sites, municipal clearance and other statutory clearances, soil testing, civil foundation, tower erection, DG installation, obtaining NOC and permission to install/operate DG set at sites and etc. And that the assessee was providing these services in more than 3300 sites. Therefore, according to him, significant number of employees were recruited every year at different sites to look after the day to day operations. The Ld. AR pointed out that it was the policy of the company to recruit skilled persons as trainees for certain period of time and after their successful training period they were appointed and placed on the payrolls of the company. According to him, the major chunk of 'Site Expenses' are disbur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the AO had simply relied on the Special Audit Report of the preceding AY 2013-14 wherein the Special Auditor had reported that no such expenditure existed in that year because the vouchers of such expenses did not contain any supporting materials regarding attendance, salary breakup, overtime etc. and also details like the name of the employees concerned, to whom such salaries were paid etc. The Ld. AR submitted that just because in the earlier year (AY 2013-14) the company was unable to furnish proper vouchers due to lackadaisical attitude of disgruntled employees/trainees in its finance/commerce department, the same reasoning cannot be ipso facto applied in the relevant year as well. According to Ld. AR, the facts of each assessment year has to be examined on stand-alone basis in as much as the principle of res-judicata does not apply in income-tax proceedings. Therefore, according to Ld. AR, the AO approached the claim of assessee with prejudice, suspicion and bias of certain facts of earlier years and got carried away to make the erroneous addition. 7. He pointed out that the ledger accounts submitted in the relevant year contained the requisite details viz., date, documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to him, section 69C of the Act is attracted when the following conditions are satisfied:- (i) The assessee incurs an expenditure; (ii) for which he offered no explanation in respect of the source of expenditure or the explanation offered by him is unsatisfactory. 10. So, according to him, only when both these two conditions are satisfied, the deeming provisions of section 69C of the Act are attracted. In other words only on failure of the assessee to satisfactorily explain the 'source' of the expenditure, the amount of expenditure claimed by an assessee may be added to his income. According to him, in the present case, since the source of payment of 'Site Expenses' was from own funds of the assessee company, no addition u/s. 69C of the Act was warranted at all. The Ld. AR demonstrated this fact from the Balance Sheet and Profit and Loss A/c of the assessee company for the year which is found enclosed at Page 12 and 13 of the paper book. He invited our attention to the Total Revenue of Rs. 58,17,66,847/- reported therein and corresponding expenses of Rs. 52,88,51,596/-. Thus, according to him it can be safely inferred that the source of payment of entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant documents/materials to substantiate the 'site expenditure' during the assessment proceedings, but the Ld. CIT(A) ignored the vouchers/bills/ledger copies and erroneously sustained 90% of the disallowance of the claim. According to him this impugned action of unjustified and that the expenditure claimed by the assessee may be allowed. 13. Per contra, the Ld. DR vehemently opposed the plea of the Ld. AR and submitted that assessee had inflated the expenditure in the earlier year which led to the Special Audit and the claims were found to be not supported by any proper evidence. So according to Ld. DR, the AO/Ld. CIT(A) has rightly not allowed the expenditure in the absence of evidence. Therefore, the Ld. DR does not want us to interfere with the action of the Ld. CIT(A). 14. Having heard both the parties and after perusal of the record as noted by us, we find that the admitted facts of the case are that, the assessee is giving support service to various telecommunication operators and was functioning at more than 3300 work sites. In order to fulfill its contractual obligations with the various telecom operators, it largely depended on huge manpower. For that it had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lse in one thing is false in everything is not applicable in the Indian context as held by the Hon'ble Supreme Court in the case of Smt. Shakila Abdul Gofarkhan Vs. Vasant Raghunath Dhoble 2003 AIR SCN 5343 and Israr Vs. State of UP 2004 AIR SCW 6916. Even if for argument sake, certain flaws were found during the assessee's special audit conducted for earlier year (i.e. AY 2013-14), the said Special Audit Report cannot be the sole ground for disbelieving the expenditure claimed in relevant year, without first discarding the evidence brought on record by the assessee to substantiate the claim and that too with cogent reasons. This, according to us, has not been done by the lower authorities. In that view of the matter, the impugned action of both the AO and Ld. CIT(A) in disbelieving the genuineness of expenses by relying on earlier year's special audit is held to be untenable on facts and in law. 16. Moreover, according to us, no ad-hoc disallowance can be made without following the due process of law as contemplated u/s. 145 and 144 of the Act. Before making the ad-hoc disallowance of 90% of the site expenses, no defects in the books of accounts were brought on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate proceedings before Ld. CIT(A)/remand proceedings conducted by the AO under directions of Ld. CIT(A). The powers of Ld. CIT(A) are co-terminus with powers of the AO. No enquiries were conducted by the AO/Ld. CIT(A) even during appellate/remand proceedings. The books of accounts were not rejected by authorities below nor any defect is pointed out by the AO/Ld. CIT(A) in the books of accounts maintained by the assessee. There is no allegation by Revenue that the assessee claimed any bogus expenses or any attempt is made to defraud Revenue. Under these circumstances keeping in view factual matrix of the case, we are of the considered view that aforesaid ad-hoc disallowance of expenses under various heads of expenses to the tune of 10% of the total expenses incurred by the assessee under these heads of expenses is not warranted and we order deletion of the said ad-hoc disallowance of expenses. The assessee succeeds on ground number 5 and 6 raised by it in memo of appeal filed with tribunal. We order accordingly. 17. We also rely on the decision of this Tribunal in the case of ACIT vs. Shyam Sunder Agarwal (ITA No. 1182/KOL/2013) dated 27-05-2016 wherein it was held that- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore ad-hoc disallowance out of the total expenditure was made. In the present case however, we note that the bills and vouchers were duly produced before the Ld. CIT(A) and the same was also sent to the AO for his remand report. The Ld. CIT(A) also observes that the assessee has also submitted the document number, document date, voucher amount, cheque date, cheque number and narration Hence, the judgments cited by the Ld. CIT(A) are found to be factually distinguishable and hence of no relevance. 19. Moreover, the AO erred in disallowing the expenses by invoking u/s. 69C of the Act because, in this case, not only the expenses were recorded in the books of accounts but the assessee was also able to prove the source of expenditure claimed. The assessee has demonstrated that the source of expenses was the revenues earned during the year, which is evident from Pages 12 13 of the paper book. Hence, the reliance placed by the AO on the decisions of the Hon'ble Calcutta High Court in the case of CIT vs Bhagwati Developers P Ltd. (261 ITR 658) L.M. Thapar vs. CIT (149 ITR 383) is found to be misplaced in as much as in both these judgments the expenses found to have been in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is now in appeal before us. 23. We have heard rival submissions and gone through the facts and circumstances of the case. It is noted that the assessee in order to substantiate the claim of office expenditure had filed vouchers/bills/ledger copies before Ld. CIT(A) and the remand report was also called for by the Ld. CIT(A) from AO. The main plank of the impugned disallowance was that according to AO the office expenses has increased significantly to Rs. 14,37,756/- as compared to last year's expenses of Rs. 5,39,518/- and therefore 50% of such expenses were excessive in his view. As noted above, the office expenses during the current year was only Rs. 6,36,756/- and not Rs. 14,37,756/- as discussed (supra). This confusion arose because of the inadvertent error on the part of the accountant, which has already been discussed above. This fact even though was brought to the notice of the lower authorities but it was ignored. Having gone through the ledger and details of expenses, we agree with the Ld. AR that the actual office expenses was only Rs. 6,87,756/- and not Rs. 14,37,756/-. The said amount was commensurate with the office expenses incurred in earlier year and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the ledger of Transportation Expenses (refer entry dated 31-03-2014). The narration of the entry it is noted as 'SALARY AND WAGES AMT. TRF'. Since these facts were not available at the time of assessment, the Ld. CIT(A) had remanded this issue to AO who rejected the explanation offered by the assessee, by stating that putting the blame on an employee is merely an afterthought of the assessee to hoodwink the department. The Ld. CIT(A) thereafter held that since the detailed vouchers showing actual expenditure were not available, but considering the nature of business of the assessee and the fact that the assessee was operating in more than 3000 sites, he allowed 10% of the transportation expenses and disallowed 90% of the transportation expenses amounting to Rs. 25,92,000/-. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. 26. Having heard both parties, we have already noted that, in this case due to the mistake of the accountant, as found earlier, Rs. 28,80,000/- has been shown as expenses along with transportation expenses booked by the assessee. It has been brought to our notice that the transport expenses is to the tune of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred. And if the AO would have gone through the vouchers then he would have definitely found that the expenditures were incurred for specific purposes. According to Ld. AR, the remand report clearly shows that he (AO) had not verified the vouchers and rejected the claim of the assessee without application of mind. Per contra, the Ld. DR supported the order of the lower authorities. 29. Heard both the parties. The Ld. CIT(A) had first pointed out that the voucher Nos. 117 118 were the same and according to him the bills were split up to avoid scrutiny. This particular anomaly led him to disbelieve the genuineness of expenditure. It is noted that the Ld. CIT(A) had wrongly referred to Page Nos. 117 118 of the paper-book placed before him as Voucher Nos. 117 118. It has been brought to our notice that inadvertently, the same voucher was placed repeatedly at page 117 of the paper book and again at page 118 of the paper book filed before the Ld. CIT(A). Thus, the same voucher has been placed twice in the paper book. The Ld. CIT(A) mistook the 'page number of the paper book viz 117 and 118' as 'voucher number 117 and 118'and erroneously alleged that bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble jurisdictional High Court in the case of CIT vs. Bata India Ltd. (1993) 201 ITR 884 (Cal) wherein it was held that, ii) that the amount of Rs. 1,87,411 represented contributions which the retail shops of the assessee had to pay to the organisers of local festivals. Having regard to the extensive market and the numerous retail shops set up by the assessee for the sale of its product, the total expenditure of Rs. 1,87,411 is really a negligible amount. In the festival months, the shops in this part of the country had to pay contributions towards community celebrations to keep the youths in the neighbourhood of the shop happy to ensure smooth conduct of the business. The expenditure could be said to be an expenditure required to maintain the business. No element was there in the expenditure as could be termed as sales promotion. Section 37 (3A) was not applicable. 33. Following the decision cited (supra), we allow the claim of the assessee. Ground No. 5 therefore stands allowed. 34. Ground no. 6 of assessee's appeal is against the disallowance of Balance written off of Rs. 2,14,904/-. Brief facts as noted the AO are that the assessee has claimed Rs. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of interest paid on delayed payment of tax. Brief facts as noted by the AO are that, during the relevant Assessment Year the assessee had made delayed payment of its statutory dues namely service tax, professional tax and TDS and hence it had to pay interest of Rs. 16,45,657/- for making delayed payment of its statutory dues. The assessee thereafter claimed the said interest expenditure in the return of income which was disallowed by the AO holding that the interest payment was penal in nature. 37. In the appellate proceedings before the Ld. CIT(A), the assessee claimed that the interest payment disallowed by the AO was compensatory in nature and not penal in nature and therefore the same is allowable u/s. 37 of the Act. In this regard, the assessee relied upon the judgment of the Hon'ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799. Following the decision of the Hon'ble Apex Court and other judicial precedents cited before him, the Ld. CIT(A) deleted the disallowance of interest paid by the assessee on delayed payment of service tax and professional tax. The Ld. CIT(A) however upheld the disallowance of interest paid on delayed pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Lachmandas Mathura Vs. CIT (supra) has held that interest paid on delayed payment of taxes are compensatory in nature and therefore should be treated as expended wholly and exclusively for the purposes of the business or profession. Since the responsibility of payment of taxes including deduction and remittance of TDS is part and parcel of the business operations of the assessee, any consequences arising there from has direct connection with the business operations of the assessee. We therefore find merit in the contention of the Ld. AR that the interest expended on discharge of such vicarious liability concerning payment of TDS is compensatory in nature and therefore eligible for deduction u/s. 37 of the Act. The aforesaid view finds support from the following observations of the Hon'ble Karnataka High Court in the case of CIT Vs Oriental Insurance Co. Ltd. (315 ITR 102), wherein Hon'ble High court held that interest for late payment of TDS is not in penal nature by observing as follows: 7. In the Mittal Steel case (supra), the proviso to s. 201 was under consideration. The said proviso empowers levy of penalty if the TDS deduction is not effected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Ltd. (supra) is not applicable. 42. The above proposition can also be looked at from another angle. Section 40(a)(ii) of the Act uses the phrase profits or gains of any business or profession . The Hon'ble Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd. vs. CIT (82 ITR 580) has held that, the words profits or gains of any business or profession employed in section 40(a)(ii), have reference only to profits or gains as determined u/s. 28/29 of the Act. Hence, on conjoint reading of the decisions of the Hon'ble Supreme Court in the cases of Jaipuria Samla Amalgamated Collieries Ltd. vs. CIT (82 ITR 580) and Bharat Commerce Industries Ltd. v. CIT (supra), it can be safely inferred that Section 40(a)(ii) of the Act cannot bring within its ambit any tax or interest paid on any other sums apart from profits or gains earned in business. In the present case, the assessee had paid interest under Section 201(1A) on delayed payment of TDS. The said TDS represented the taxes paid for an on behalf of the payees to the credit of the Government. Section 199 of the Act in clear terms provides that, any deduction of tax and payment thereof to the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs. 71,18,021/- under the head 'Liability no longer required written back' and the same was shown in the audited accounts under the head 'Non Operating Income'. The breakup of 'Non Operating Income' is as follows: Non Operating Income Sl. No. Heads of Accounts Amount 1. Common Parts Credit - TMTL 100,378.72 2. Freight Charges Received 5,139.24 3. Liability no longer required written back [Gratuity Leave Encashment] 7,118,021.00 4. Misc. Income 880,463.61 5. Prior Period Adjustments - TMTL 631,532.69 6. Rent Received 50,000.00 7. Packing Charges Received 1,681.34 ..... 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