2016 (9) TMI 1427 - AT - Income Tax

Addition on account of suppressed service charges - undisclosed receipts - undisclosed contract receipts - Held that - The assessee derives income from executing the contract job work and in doing so is bound to incur expenses. It is not the case of the revenue that all expenses including the expenses relatable to the undisclosed receipts from execution of contract job work has already been taken into consideration while arriving at the total income of the assessee declared in the return of income by the assessee. Thus the belief of taxing 31.75% which is the disclosed gross profit of the assessee on the undisclosed contract receipts is just and fair and the plea of the Assessee in this regard is directed to be accepted. TDS u/s 194C - Addition u/s 40 (a)(ia) - amounts to different parties for supply of technical works and labourer on a regular basis for conducting AMC job-work - Held that - As decided in case of M/s. Abhoy Charan Bakshi 2016 (5) TMI 755 - ITAT KOLKATA the Assessee has furnished all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. Similar directions as were made above should be given in the present case also. Addition on account of education expenses for the employee of the assessee - Held that - It would be just and proper to set aside the order of CIT(A) on this issue and remand to the AO for fresh consideration of the issue with the liberty to the assessee to establish that the expenses in question were in fact incurred for the education of the children of the employees. If it is so established then the deduction claimed should be allowed.

Summary

Issues Involved:
1. Addition of Rs. 11,99,121/- on account of suppressed service charges.
2. Addition of Rs. 4,36,258/- on account of ECL.
3. Addition of Rs. 7,55,200/- under Section 40(a)(ia) of the Income Tax Act, 1961.
4. Addition of Rs. 79,500/- on account of education expenses for the employee of the assessee.

Detailed Analysis:

1. Addition of Rs. 11,99,121/- on account of suppressed service charges:
The Assessee, engaged in the business of selling oil flow meters and executing contract job work, reported discrepancies between the contract receipts shown in Form 26AS and those declared in the return of income. The Assessing Officer (AO) added Rs. 7,03,010/- as undisclosed receipts. The CIT(A) enhanced this addition to Rs. 11,99,121/- after discovering an undisclosed bank account with Rs. 8,42,459/- credited, which the Assessee admitted but failed to prove was already included in the declared receipts. The Tribunal, referencing the Hon’ble Calcutta High Court's decision in CIT vs M/s. Royal Security Guarding (P) Ltd., held that only the gross profit rate of 31.75% should be applied to the undisclosed receipts, thereby partly allowing the Assessee's grounds.

2. Addition of Rs. 4,36,258/- on account of ECL:
The Assessee contested the addition of Rs. 4,36,258/- shown by Eastern Coalfields Ltd. (ECL) in Form 26AS, claiming only Rs. 27,338/- was received. The CIT(A) upheld the AO's addition, citing the Assessee's failure to provide evidence or obtain confirmation from ECL. The Tribunal did not separately address this issue, implying concurrence with the CIT(A)'s findings.

3. Addition of Rs. 7,55,200/- under Section 40(a)(ia) of the Income Tax Act, 1961:
The AO disallowed Rs. 7,55,200/- for non-deduction of TDS on payments for technical work and labor. The CIT(A) confirmed this disallowance. The Tribunal, referencing its decision in M/s. Abhoy Charan Bakshi, directed the AO to verify if the recipients included the payments in their income returns and paid taxes. If verified, the disallowance should be deleted. The issue was remanded to the AO for verification.

4. Addition of Rs. 79,500/- on account of education expenses for the employee of the assessee:
The AO disallowed Rs. 79,500/- for education expenses, supported only by self-made vouchers and deemed non-business-related. The CIT(A) upheld this disallowance. The Tribunal, considering the Hon’ble Karnataka High Court's decision in Mysore Kirloskar Ltd. Vs CIT, remanded the issue to the AO for fresh consideration, allowing the Assessee to prove the expenses were for employees' children's education.

Conclusion:
The appeal was partly allowed, with specific issues remanded for further verification and consideration by the AO. The Tribunal emphasized applying the gross profit rate to undisclosed receipts and verifying TDS compliance before disallowing expenses.