Assessee company engaged in the business of developing, buildingandimplementing hydroelectric projects on built, own and operate basis declared Nil income for the previous year ended on 31.03.2007.During the course of scrutiny proceedings the AO disallowed certain claimsmade by the assesse.AO also noticed thatunder the head “Capital Work-in-Progress” the assessee showed gross expenditure of `12,76, 655/- on account of professional fees paid. Assesseefurnished names of the parties, amount paid and proof of TDS.In order to invoke section 69C it has to be shown that the assessee had not explained the source of such expenditure or part thereof. In this case there wasneither dispute regarding source of expenditure nor the dispute that the assessee incurred expenditure. It is not thecase of the Revenue that the assessee claimed it as business expenditure. Itwas only added to the “capital work-in-progress”.It was held that the ITO and CIT who authorised the ITO to prefer an appeal did not apply their mind in the correct perspective and in a very lack lustre and routine manner filed the appeal which, resulted in wastage of time of the court which would be highlighted at appropriate places.
Income Tax Officer – Appellant – Versus - M/s. Growel Energy Co. Ltd – Respondent
IN THE INCOME TAX APPELLATE TRIBUNAL
"G" Bench, Mumbai
ITA No. 338/Mum/2011
(Assessment Year: 2007-08)
Income Tax Officer
M/s. Growel Energy Co. Ltd
Appellant by: ShriShrikantNamdeo
Respondent by: ShriPradipKedia
Hon’bleShri D. Manmohan, Vice President
andHon’bleShri N.K. Billaiya, Accountant Member
Date of Hearing: 10.06.2014
Date of Pronouncement: 13.06.2014
Judgement and facts of the case
O R D E R
Per D. Manmohan, V.P.
This appeal by the Revenue is directed against the order passed by the CIT(A)-19, Mumbai and it pertains to A.Y. 2007-08.
2. At the outset it may be mentioned that the Income Tax Officer, who is the appellant herein, as well as the Commissioner of Income Tax, who has authorised the AO to prefer an appeal, did not apply their mind in the correct perspective and in a very lacklustre and routine manner filed the appeal which, in turn, resulted in wastage of time of the court which would be highlighted at appropriate places.
3. Assessee company is engaged in the business of developing, building and implementing hydroelectric projects on built, own and operate basis. For the previous year ended on 31.03.2007 the assessee declared Nil income. Though the return was processed accordingly, it was later on taken up for scrutiny by issuing notice under section 143(2)/142(1) of the Act. During the course of scrutiny proceedings the AO noticed that the claims made by the assessee were not in accordance with law, which were disallowed and ultimately completed the assessment on a total income of `57,91,270/-. We shall take up the facts concerning each ground separately.
4. Ground No. 1 reads as under: -
“1. On the facts and in the circumstances of the case, the Hon'ble CIT(A) is justified in law in deleting the addition of Rs.12,76,655/-made u/s. 69C of the Act being the unexplained expenditure inthe books of the assessee.”
5. During the course of assessment proceedings the AO noticed thatunder the head “Capital Work-in-Progress” the assessee showed gross expenditure of `12,76, 655/- on account of professional fees paid. Assesseefurnished names of the parties, amount paid and proof of TDS. In the opinion of the AO merely because tax was deducted on payment made itdoes not automatically lead to justification of the purpose; assessee has toestablish the purpose, genuineness and business expediency of such expenditure. It is not in dispute that the assessee claimed it as capital expenditure but the AO proceeded to treat it as unexplained expenditurewithin the meaning of section 69C of the Act and accordingly brought to tax asum of `12,76,655/-.
6. Section 69C refers to a situation where the source of expenditure is not properly explained. Section 69C reads as under: -
“69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, maybe deemed to be the income of the assessee for such financial year.”A careful perusal of the relevant provision shows that when an assesse incurs expenditure from known sources section 69C does not get attracted; in order to invoke the section it has to be shown that the assessee had not explained about the source of such expenditure or part thereof. In the instant case there is no dispute with regard to the source of expenditure and it is also not in dispute that the assessee incurred expenditure. It is not thecase of the Revenue that the assessee claimed it as business expenditure. It was only added to the “capital work-in-progress”.
7. Assessee contended before the CIT(A) that it had furnished complete details of the expenditure such as names of the consultants to whom professional fees has been paid, address of the party/parties along with relevant details. After the said details were filed the AO called upon the assessee to explain as to why the said expenditure should not be disallowed under section 40(a)(ia) of the Act. Again, in response to the said letter, the assessee furnished its reply dated 25th August, 2009 along with copies of quarterly TDS certificates and a summary of the TDS paid to show that no part of the expenditure can be disallowed under section 40(a)(ia) of the Act. However, the AO disallowed the entire expenditure on the ground that therewas no justification of having incurred such expenditure, which is totally illogical and without any basis.
8. The learned CIT(A) examined the issue in the backdrop of the factsplaced before him and noticed that the assessee explained the source of the expenditure and hence the case falls outside the ambit of section 69C of the Act. In this regard he observed as under: -
“4.2 I have considered the findings of the AO as contained in paragraph 3.1 of the assessment order and also submissions as made by the appellant. It is a fact that AO does not dispute genuineness ofthe expenses as claimed. In fact it is on record that details of the payment as made to various parties along with their names, complete address, PAN details, amounts paid and further the TDS deducted were furnished before the AO. It is not disputed that from the details as furnished before the AO, it is seen that said parties are mainly consultants to whom the payments have been made. Thus on the said expenditure, the appellant had offered all the details which the AO had called for. It is not as though no explanation about the said expenditure or it source thereof were not explained to the satisfaction of the AO.Only objection taken by the AO is that justification for having incurred said expenditure has not been established. This reasoning of the AO is certainly outside the scope and ambit of the provisions of section 69C.In fact the condition precedent for applying the provisions of section69C are not present in this case. The condition precedent is to establish existence of expenditure which is not explained satisfactorily by evidence or material on record. In fact the burden on the assessee has-been discharged with all available details furnished, as called for bythe AO. The names, address & PAN were available before him. In fact it is not that as though the expenses were not explained, the disallowance is based only on the reason that there was no justification for the same. From the facts of the case, it is held that the conditions precedent for invoking provisions of section 69C are absentin this case, that the expenditure has been explained by adducing evidence and other relevant material and hence it was not open to theAO to disallow the said expenditure or to treat the same as deemed income under s. 69C of the I.T. Act. When the books of account have been maintained and expenditure recorded with full details andsupported by vouchers, then no addition can be made under S. 69Cvide CIT Vs. Pratap Singh Amar Singh (1993) 200 ITR 788(Rajasthan). Under the circumstances, the addition made under s. 69Ccannot be sustained and is hereby deleted.”
To read the full judgement, please find the attached file.