TMI Blog2022 (12) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... n the bills/ vouchers of the assessee. Considering all we deem it proper to restore the issue denovo to the file of AO with a direction to verify each and every bills and voucher and make only specific addition where he finds that the assessee failed to substantiate the expenditure by producing necessary evidence to his satisfaction. In our opinion, the AO can not make any ad-hoc disallowance without pointing out the specific instances i.e AO can disallow the expenditure on actual basis, in case assessee failed to produce the evidence in support of its case. Needless to say the AO shall decide the issue as per fact and law after following the principle of natural justice.Hence, the ground raised by revenue is allowed for statistical purposes. Unexplained work in progress - CIT-A deleted the addition - HELD THAT:- Considering submissions of the assessee and also on account of fact that the ld.CIT(A) had passed a non-speaking, cryptic and perfunctory order without dealing with the objection of the Assessing Officer, had allowed the ground of the assessee, therefore, in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.Ys 2011-12 to 2015-16. Both the Revenue and assessee raised identical grounds in the above appeals, therefore, the grounds raised by the Revenue for the A.Y 2012-13 in ITA No.553/Hyd/2020 is taken as a lead case and the grounds raised therein is reproduced below: 1. The ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee. 2. The Id CIT(A) erred in deleting the disallowance of Rs.12,40,36,185/- towards Operating Maintenance expenses, when the Assessing Officer has clearly mentioned in the assessment order that during the search and post-search enquiries the appellant failed to furnish all the bills/vouchers, hence a detailed show cause notice was issued to the assessee company wherein all the facts relating to the bogus/accommodation entries of purchase bills/unexplained unverifiable expenses with various vendors have been pointed. 3. The ld CIT(A) erred in deleting the addition of Rs. 4,54,98,600/- towards unexplained work-in-progress capitalized in books without appreciating the fact that a detailed show cause notice was issued covering the issues of search involving claim of non-genuine/bogus purchases/ unexplained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te maintenance expenses for site security charges and manpower costs etc. along with repairs and maintenance charges claimed under head operating/maintenance expenses and were perused during search for necessary reconciliation of such claim of expenses in P L a/c with etc. Accordingly supporting bills/vouchers during the search, assessee company was asked to submit bills/vouchers and other relevant supporting ledger extracts etc as applicable in support of the assessee's clam of huge expenses under civil work/ labour wok expenses for maintenance, repair and manpower related payment proofs as applicable for F.Ys 2009-10 to 2014-15. With reference to this assessee could not submit all bills and vouchers for necessary verification/ reconciliation with relevant vouchers and ledger extracts explaining the various sites involved in incurring such expenses of repair and maintenance involving unskilled labor with earth works, security supervision etc. As assessee could not submit all the details as sought in search and post search proceedings, a detailed show cause letter was issued to the assessee to submit the same in full as applicable a per 1.T.Act as claimed in the Return of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epair charges/expenses and same comes to Rs.12,40,36,185/- is disallowed as expenses attributable to inflation of expenditure under various expenditures involving civil works bills, earth works, transportation and installation works etc. Addition: Rs. 12,40,36,185 /-. Penalty proceedings u/s. 271(1)(c) are initiated separately for submission of inaccurate particulars of income . 4. The learned CIT (A) while dealing with the issue had deleted the addition of 20% of the total amount confirmed by the Assessing Officer by holding as under: 5. I have considered the assessment order and submissions of the appellant. It is seen that the addition made by the Assessing Officer is not based on any material seized during the course of search. Apparently there is no finding as to inflation of expenses or debiting bogus expenditure by the appellant company. Further, it is seen that the appellant maintains vouches etc at various placed and on sample basis evidences were produced before the Assessing Officer. There is no specific adverse finding of the Assessing Officer. The observations are general without pointing out any specific deficiencies The appellant is a corporate wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58,87,85,251 2.1.2. The learned AO has disallowed 20% of aforesaid expenditure on ad hoc basis stating that the same is attributable to inflation of expenditure along with the following reasons; Name and address of the recipient and signature of payee is not mentioned in the sample invoices submitted; Full description of maintenance/security work involved, repairs undertaken is missing in some of the sample invoices Order of the learned CIT(A) 2.1.3. The learned CIT(A) after the examining the details submitted before the learned AO held that Appellant maintains the vouchers etc at various places and on sample basis evidences are produced before the AO and there is no specific adverse finding of the AO. The learned CIT(A) observed that the Appellant is a corporate which is owned/run under professional management and the estimate disallowance at 20% has no basis. Accordingly, the learned CIT(A) deleted the adjustment proposed by the AO. 2.1.4. The Revenue has now raised a ground before your goodself against the deletion of the disallowance made by stating that in absence of the Appellant to furnish all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. The crux of the judicial precedents in this regard is captured below; The officer is not allowed to make disallowances as per his whims based on wrong conclusions drawn. Prima-facie, the assessing officer is required to point out the defects in the books and not merely make token disallowances based on surmises and conjectures, devoid of any merits. The ad hoc disallowance of expenses is not permitted under the law. The tax officer is required to properly examine the books of account and demonstrate as to why an expenditure shall not be admissible to the assessee. Where perusal of nature of expenses indicates that the same were part and parcel of the costs incurred in connection with the business of the assessee, disallowance of the same on ad hoc basis is incorrect. Therefore, expenditure incurred in the ordinary course of business, which is deductible under the provisions of the Act, shall not be disallowed on ad hoc basis without full and proper examination of the books of accounts. Where the tax officer has not rejected the books of accounts and similar nature of expenses were allowed in the past scrutiny assessments, disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee stated that each Site-wise/Project Wise ledger extracts and each minor and major head wise civil works bills/vouchers are not readily reconcilable to submit in the desired fashion/reconciliation to verify all civil works and related labor expenses involving various security, repair and maintenance payments etc., as incurred in security, erection, supervision and maintenance of structures involving these works. However, assessee strongly contended all these as indeed expenses incurred in full at various sites involving labor charges, erection and site repair charges and related earth works and could and submit/made available few bills / vouchers for perusal and verification as pertains to part of few months. Further, assessee contended these involve huge expenses covering huge data involving various bills and vouchers of minor expenses grouped under each site/project expenses so as to arrive at total expenses as claimed. On perusal of certain bills/vouchers as made available, it is noticeable that some of them are improperly vouched without full details such as address, recipient name, payee signature and name, full description oi maintenance/ security work involved, repairs u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee failed to produce the evidence in support of its case. Needless to say the AO shall decide the issue as per fact and law after following the principle of natural justice. We hold and direct accordingly. 9. So far as the decision relied on by the learned counsel for the assessee in the case of R.G.Buildwell Engineers Ltd. 99 taxmann.com 284 is concerned, we find that in the said case, the books of accounts of the assessee were not rejected and it was also the case that in the past consistently such expenses were allowed in the scrutiny assessment. In our opinion, the said decision is not applicable as the case in hand is a search assessment where the material was found showing the unexplained expenditure incurred by the assessee. In the search proceedings it was mentioned that the assessee failed to substantiate the expenditure mentioned in the bills / vouchers. Similarly, the decision in the case of I.I.C. Systems 44 taxmann.com 169 is also not applicable to the facts of the case on hand as in the present case, the Assessing Officer has brought on record the discrepancy in the bills and vouchers on test check basis. However, he has failed to quantify the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant. Accordingly, the addition is deleted The appellant succeeds on this ground. 12. It was the contention of the learned DR that the capital work in progress can only be allowed by the Assessing Officer if the assessee shows the evidence of the actual expenditure incurred for raising the capital assets. Nothing has been brought on record by the assessee during the course of assessment proceedings. Therefore, the contention of the learned DR is that the deletion made by the learned CIT (A) is without any basis. 13. Per contra, the learned AR submitted that sufficient information and documents were provided by the assessee. It was also the contention of the learned AR that once the expenditure has not been routed through P L A/c, no addition can be made by the Assessing Officer. He also submitted written submission to this effect which reads as under: 3.1. Facts of the case 3.1.1. The Appellant is into the business of providing passive telecom infrastructure and capitalizes the portion of certain expenditures in relation to operating and maintenance expense, interest expense etc. whenever a new tower comes into existence. 3.1.2. For the previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment are dealt in section 69 of the Act. The relevant provision of section 69 of the Act is reproduced below : Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. 3.2.3. Given the above, the Appellant wish to submit that the investment can be considered as unexplained investment only when they are not recorded in the books of accounts. 3.2.4. In the present case, CWIP was duly recorded in the books of accounts which was also disclosed in the balance sheet. Further, the learned AO disallowed the expenses based on the disclosure made in the audited accounts. 3.2.5. Therefore, the said amount duly recorded in the books of account cannot be considered as non-genuine/ as unexplained investment. 3.2.6. In this regard, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO erred in stating that genuineness of expense could not be verified in absence of availability of voucher and failed to consider the fact that CWIP is capitalized out of operating and maintenance expense and other such expenditures incurred towards erection of tower. 3.2.10. In this regard, we wish to submit that the Appellant had submitted sample bills before the learned AO for operating and maintenance expense based upon which he has made disallowance to the extent of 20% of operating and maintenance expense. The details furnished regarding operating and maintenance expense and submission of the Appellant are captured in Para 4 above. Further, additional invoices towards the CWIP expense submitted before the learned CIT(A) also forms part of page 86 to page 106 of the paperbook. 3.2.11. In view of the above, the Appellant submits that the contention of AO that no evidence were furnished to justify claim is not correct. 3.2.12. We also submit that disallowance of capitalized portion of interest costs is erroneous given that the interest were paid to bank and financial institution and the same was also allowed as deduction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide the issue as per fact and law after giving due opportunity of being heard to the assessee. Though, in the written submission, the ld.AR had referred to certain decisions, those decisions are not applicable to the facts of the present case and moreover, none of these decisions were referred during the course of arguments before us. Accordingly, we allow the ground of the Revenue for statistical purposes and remand back the issue to the file of Assessing Officer. 16. Effective Ground No.6 is raised by the Revenue is regarding disallowance of Rs.8,79,00,000/- towards provision for site restoration costs without appreciating the facts brought on record by the Assessing Officer. The learned DR drew the attention of the Bench to Para 5.2 5.3 of the order passed by the Assessing Officer which read as under: 5.2 Considering the above facts, it is noticeable that assessee has made similar claim for this A.Y. involving notional claim of provision. Hence, a detailed show cause was issued requesting information in detail along with re-working of quantum of claim made in Profit and Loss account/I.T. computation filed with Return of Income involving this issue of site res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re distinguishable and are not applicable to assessee's case on facts and ratios of adjudication relied by assessee. It is an established law under the I.T. Act, no provision is allowable against an accrued income of this year and more so in the case of un-ascertained liabilities which are unlikely to occur in the near future. Hence, assessee plea is not acceptable on this count also. 5.4 In view of the above detailed discussion, assessee claims of site restoration cost of Rs. 8,79,00,000/- in the Audit report as discussed in detail as above is to disallowed as claimed mistakenly in the computation at correctly Rs.8,79,00,000/- as filed with the Return of Income and same is brought to tax as claimed for A. Y. 2012-13 . Addition: Rs.8,79,00,000/- Penalty proceedings u/s. 271(1)(c) are initiated separately for submission of inaccurate particulars of income . 17. The learned DR has also drawn our attention to the findings given by the learned CIT (A) which is mentioned in para 7.2 of the order which reads as under: 7.2 I have considered the assessment order and submission of the appellant. The ground on which the Assessing Officer made addition is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o restore the sites to its original position as it was before erecting the tower on vacating the site. Accordingly, the Appellant estimates the expenses required to be incurred to restore the sites to its original position and provision is created for the same in the books as 'Site restoration expenses'. 4.1.3. The site restoration cost is estimated by the Appellant to include likely expenses to be incurred towards labor and material costs etc. 4.1.4. In the assessment order, the learned AO has disallowed the aforesaid expense as unascertained liability and contended as under; It is a fact on record that this is a clear provision which is set aside amount for incurring in future years in the event of site restoration cost; The Assessee has not incurred any such expenditure till date and is conveniently creating a provision for future possible liability and claiming the same as present year attributable expenditure. This way of accounting/claims are not allowable as per mercantile method of accounting read with the provisions of the Act as it is a mere provision which is neither accrued nor an ascertained liability. Assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re vacating the site, the Appellant is liable to restore the site to its original condition. Accordingly, when the Appellant enters into contract with landlord and commences erection of site, it is under an obligation to restore such land and thus liability to restore the site arises in the year of taking sites on lease. Accordingly, the Appellant has created provision towards the estimated expenses to be incurred in connection with restoration of sites. Requirement of Companies Act 4.2.5. The Appellant is a company incorporated under the provisions of the Companies Act, 1956 and as per section 211 of the Companies, Act 1956 it is mandatory for the Appellant to follow the Accounting Standards prescribed under the Companies Accounting Standard Rules, 2006. The Appellant has created provision for site restoration cost as per the provisions of Accounting Standard (AS) 29- Accounting for provisions, contingent assets and contingent liabilities notified by the Ministry of Corporate Assets vide Notification No. 1/3/2006/CL-V dated 07 December 2006 pursuant to the provisions of section 211(3C) of the Companies Act 1956. 4.2.6. As per AS 29, a provision is rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 145 of the Act. Judicial precedents on allowability of provision: 4.2.9. The Hon'ble Supreme Court in the case of CIT v. Bharat Earth Movers2 held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in present though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 4.2.10. Further, the reliance is also placed on the decision of the Hon'ble Supreme Court in case of Calcutta Co. Ltd. v. CIT3, wherein the assessee had purchased land and sold them in plots fit for building purposes undertaking to develop them. When the plots were sold, the assessee undertook to carry out the development within a stated period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch it was supposed to incur for filing those pits. It is an admitted fact that when an assessee follows the mercantile system of accounting, he needs to make a provision in the account books towards all related expenditure whether or not paid during the same financial year. The only requirement is that the assessee needs to make a provision with a reasonable estimate. Incurring of expenses: 4.2.14. The Appellant further submits that it has been incurring expenses towards restoration of sites during the subsequent years and the details of the same are provided vide additional evidence before your goodself. Accordingly, the contention of the learned AO that the Appellant never incurred expenses towards the site restoration is not correct. The enclosed Note for approval demonstrates the incurrence of expenses for site restoration. Income Computation and Disclosure Standard (ICDS) 4.2.15. Though the provisions of ICDS are not applicable to the year under consideration, reference is drawn to the ICDS-X: Provisions, Contingent Liability and Contingent Assets wherein it is stated that provision shall be allowed as deduction subject to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant's case and therefore, the provision in relation to site restoration shall be allowed in the year of erection of towers on those sites. It is a well settled principle that although the ultimate cost to be incurred in future it is necessary to estimate and to provide for the same for computing the business income in line with principal of matching concept. Given the above, since all the condition prescribed under the accounting standards, ICDS as well as conditions laid down by judicial precedents being satisfied by the Appellant, we pray before your goodselves to kindly allow deduction towards provision for site restoration expenses and uphold the deletion made by the learned CIT(A) in this regard. Applicability of Rule 46A 4.2.18. The Revenue has erred in stating that the learned CIT(A) has failed to remand the matter to the AO for verification. In this regard, the Appellant submits that as per Rule 46A of the Income-tax Rules 1962, the learned CIT(A) not take into account any evidence produced under sub-rule (1) of Rule 46A unless the learned AO has been allowed a reasonable opportunity. 4.2.19. In this regard, we wish to refer to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e wish to draw reference to provision of section 250(4) of the Act as well which states that - The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals) 4.2.21. In this regard, we wish to place reliance on the decision of the Hon'ble Jurisdictional ITAT in the case of DCIT Vs. NE Technologies India (P.) Ltd [2014147 taxmann.com 405 (Hyderabad - Trib.) as well, wherein the Hon'ble ITAT had held as under with respect to admission of additional evidence: ...The matters to be considered by the first appellate authority need not be confined to what was considered by the Assessing Officer while making the order appealed against... In the instant case the entire additional evidence has come on the record of the first appellate authority because the first appellate authority decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered The learned CIT(A) was empowered to do so under the provisions of Section 250(4).. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that deletion of the disallowance based on legal provision cannot be construed to be within the ambit of 'additional evidence' for the purpose of Rule 46A, even though the Assessee files the additional evidence. Further, reference is also drawn to Hon'ble Gauhati ITAT decision CIT Vs. Poddar Swadesh Udyog (P.) Ltd. [2008] 168 Taxman 182 (Gauhati) wherein it was held that the CIT(A) and Tribunal had committed no error in law in relying upon the documents filed subsequently at the appellate stage, which were in continuation of the books of account and other documents filed before the Assessing Officer. 4.2.26. We submit that the decision of the learned CIT(A) in favor of the Appellant is pursuant to the detailed legal submission filed and there was no requirement to remand the matter to the learned AO. Accordingly, we humbly request your goodself to dismiss the said ground raised by the Revenue. 20. We have heard the rival contentions and perused the material available on record. We find the AO in this case made the additions on the ground that assessee has not incurred any such expenditure till date and could not submit any bills and vouch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity- (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.] 22. The Rules were framed by the Board in accordance with the power conferred on it by section 295 of the Act and the Rules after being framed were laid befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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