ITAT Hyderabad Reduces Adhoc Disallowance on Site Maintenance Expenses: Bollineni Developers Ltd. vs DCIT
Case Overview
The Hyderabad Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of Bollineni Developers Ltd. Vs DCIT (ITAT Hyderabad) pertaining to Assessment Year 2017-18. The Tribunal partially ruled in favour of the assessee, scaling down an adhoc disallowance on site maintenance expenditure from 30% to 10%, thereby granting substantial relief while acknowledging that the documentation furnished was not entirely complete.
Background of the Case
About the Assessee
Bollineni Developers Ltd. is a company engaged in the business of real estate development, civil construction works, and power projects. The assessee is a corporate entity maintaining regular books of account, duly audited by a qualified Accountant.
Return Filing and Assessment
For Assessment Year 2017-18, the assessee filed its original return of income on 29/10/2017, declaring a total loss of Rs. 22,97,14,286/- under the normal provisions of the Income Tax Act, 1961. Subsequently, a revised return was filed on 30/10/2018, wherein the declared total loss was revised downward to Rs. 11,75,58,268/-. The assessment was ultimately concluded under Section 143(3) of the Income Tax Act, 1961 on 30/12/2019.
The Core Dispute: Site Maintenance Expenditure Disallowance
Action Taken by the Assessing Officer
During the course of assessment proceedings, the Assessing Officer took note of expenditure claimed by the assessee under the head "Site Maintenance Expenses" amounting to Rs. 1,49,42,675/-. The Assessing Officer, rather than accepting or rejecting the expenditure in its entirety, chose to apply an adhoc disallowance at the rate of 30% on the said amount, resulting in an addition of Rs. 44,82,802/- to the income of the assessee.
The basis for this adhoc disallowance was singular and specific — the Assessing Officer observed that the said expenditure was backed exclusively by internal self-made vouchers, rendering the same incapable of independent third-party verification. No specific discrepancy in the quantum or nature of the expenditure was identified, nor were the books of account of the assessee formally rejected.
Stand Taken by the Assessee
The assessee raised the following submissions in its defence:
- The Assessing Officer did not reject the books of account maintained by the assessee prior to making the adhoc disallowance
- No specific incorrectness was identified or pointed out in the site maintenance expenditure claimed
- The assessee maintained a payroll for daily wage workers engaged at construction sites
- Workers were made to affix their signatures upon receipt of wages at the site itself
- A wage register was maintained and duly produced before the Assessing Officer
- Cash payment vouchers were also furnished to substantiate each payment made