Laxmi Prasad Sahu, Accountant Member
1. This assessee's appeal for AY 2012-13 is directed against the CIT(A), Hyderabad's order, dated 31/08/2018 involving proceedings u/s 143(3) of the Income Tax Act, 1961 ; in short "the Act", on the following grounds of appeal:
"1. The Ld.CIT(A) erred both in facts and law by dismissing the appeal for the assessment year 2012- 13 vide order in Appeal no.0026/CIT(A)-1,Hyderabad /2015-16/2018-19 dated 31.08.2018.
2. The Ld. CIT(A) erred in upholding the addition made by AO of Rs.68)8A96/being the @20% disallowance towards land development charges of Rs.3,41,42,478/- though considered as revenue expenditure and is to be allowed, but erred in upholding the said addition without valid reason, which is against to the principle of natural justice.
3. Without prejudice to the above, the Ld.CIT(A) ought to have restricted the disallowance to 0.5% of Land Development expenditure Rs. 3,41,42,478/- keeping in view of the decision of the Hon'ble IT AT in the case of M/ s Padmalaya Telefilms Limited Vs ACIT in ITA no. 410 to 413/Hyd/2006.
4. The Ld.CIT(A) ought to have considered in deleting the disallowance made of Rs 61,042/ -u/ s 43B by the AO instead of restricting the same to Rs. 54,490/-.
5. The appellant may add or alter or amend or modify or substitute or delete and/ or rescind all or any of the grounds of appeal at any time before or during the course of hearing of appeal. "
2. Brief facts of the case are that the assesse e filed its return of income for the AY 2012-13 on 30/09/2012 admitting an income of Rs. (-) 71,82,011/- under normal provisions and u/s 115JB of Rs. 69,37,799/-. Subsequently, the case was selected for scrutiny under CASS and accordingly statutory notices were issued to the assessee, against which, the assessee filed the information. 2.1 During the Scrutiny proceedings on verification of the Profit and loss account, the AO noticed that, the assessee had claimed an amount of Rs. 3,41,42,478/- as expenditure as "Land development charges" under the head "purchase of Land/ Development". He observed that in support of this expenditure claim, the assessee produced only part Bills & vouchers and on verification of the same, he noticed that, most of the vouchers produced were self-made and also not in proper order for verification. Therefore, the AO considering the nature of Business/trade and also Revenue admitted by the assessee company, 20% of the expenditure claimed under this head "Land development charges " amounting to Rs. 68,28,496/- was disallowed and added back to the assessee's total income. 2.2. Further, on verification of Profit & loss account, the AO noticed that that, the assessee claimed an amount of Rs. 85,784/- as "Contribution to PF & ESCI"., Under the head "Employee benefit expenses". But on going through the details submitted with regard to the above payments, he noticed that the assessee paid only an amount of Rs.24,742/- in time, and the balance amount of Rs. 61,042/- has not paid in time, hence the late payment of Rs.61,042/ - was not allowable expenditure U/s. 43B of the Act, and accordingly the above amount of Rs.61,042/is disallowed u/s 43B and added back to the assessee total income.
3. When the assessee preferred an appeal before the CIT(A), the CIT(A) confirmed the order of the AO.
4. Before us, the ld. AR of the assessee submitted that the disallowance of Rs. 68,28,496/- comes to 9.75% of the total expenses debited to P&L Account of the assessee i.e. Rs. 7,00,38,195/-, which is a too big a percentage to disallow on a wholesome basis. He submitted that the disallowance was made on mere suspicion ignoring that the audited books of account had been certified by the tax auditors. He submitted that the expenses were incurred wholly and exclusively for the purpose of busines and were in direct proportion to the business needs of the company .
The expenses were incurred on the wages paid to the labourers for the work done by them on the land, on the raw materials and other site expenses. He contended that the adhoc addition made on the ground that the expenses are not fully supported by vouchers is quite unreasonable, unwarranted and deserves to be deleted.
5. The ld. CIT-DR, on the other hand relied on the orders of revenue authorities and submitted that the assessee has not submitted any details about the land purchase and no breakup of the land development expenses were submitted before the revenue authorities. He, therefore, submitted that the AO has rightly made disallowance of 20% of expenditure on land development expenses due to self - made vouchers.
6. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The AO made the disallowance of 20% disallowance on the land development expenses claimed by the assessee on the ground that the assessee failed to establish the expenses are genuine as the most of the vouchers produced were self-made and also not in proper order for verification. The contention of the assessee is that disallowance of 20% of total expenditure is very high. Considering the totality of the facts of the case, we direct the AO to disallow 10% of the total expenditure of Rs. 3,41,42,478/-, instead of 20% made by him. Accordingly, the ground Nos. 2 & 3 raised on this issue are partly allowed.
7. As regards ground No. 4 regarding disallowance of Rs. 61,042/- u/s 43B, The AO noticed that the assessee company had claimed an amount of Rs. 85,784/- as contribution to PF & ESCI under the head 'employee benefit expenses". However, he observed that the assessee paid only an amount of Rs. 24,742/- in time and the balance amount of Rs. 61,042/- was not paid in time. As the late payments of Rs. 61,042/- were not allowable expenditure u/s 43B, the AO disallowed the same u/s 43B of the Act. The CIT(A) confirmed the same.
8. We remit the issue back to the file of the AO with a direction to decide the same afresh as per the decision of Hon'ble Delhi High Court in the case of CIT Vs. Bharat Hotels Ltd., ITA No. 271/2005, vide its order dated 6 th September, 2018 wherein the Hon'ble Court has held as under:
"8. Having regard to the specific provisions of the Employees€Ÿ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT€Ÿs decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts constituting deductions from employees€Ÿ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.
9. In view of this discussion, the Revenue€Ÿs appe
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al is partly allowed. The AO is directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms of the prevailing provisions and notifications. We also clarify that the assessee would be entitled to deduction in terms of Section 36(1)(va) of the Act." Therefore, the AO is directed to decide the issue in line with the above decision after giving reasonable opportunity of hearing to the assessee in the matter. Thus, ground No. 3 raised by the assessee is treated as allowed for statistical purposes. 9. Ground Nos. 1 & 5 are general in nature, hence, need no adjudication. 10. In the result, appeal of the assessee is partly allowed for statistical purposes.