2018 (6) TMI 445 - AT - Income Tax

Disallowance being 30% of service and supervision charges made by the assessee - Held that - AO allowed 70% of the total expenses made on account of service and supervision charges as thought fit there was no reason to reject the balance 30% of it. The expenses so incurred in this particular head was also properly recorded in the books of account of the assessee which was neither rejected by the AO. Case of COMMISSIONER OF INCOME TAX VERSUS THE LAKSHMI VILAS BANK LTD 2014 (4) TMI 827 - MADRAS HIGH COURT followed. Order passed by the ld. CIT(A) confirming the order of addition made by the AO on estimated basis without assigning any reason thereof is incorrect - decided in favour of assessee. Disallowance being 30% as incurred on professional and legal charges - Held that - We have gone through the materials available on records. We however could not justify the attempt and conduct of the assesee to substantiate the genuineness of such expenses in its entirety in the absence of valid documents. We therefore think it fit to disallow 15% of it and delete 15% of the addition made by the AO in this regard. The said ground of appeal is thus partly allowed. Addition for bad and doubtful debts written back and reduced from the other expenses - Held that - The action of non acceptance of the genuine claim of the assessee by the lower authorities is unjustified and liable to be deleted. We consider it fair and proper in the interest of justice to set aside the orders of the authorities below on the issue in dispute and restore the matter to the file of the AO to decide the same afresh after giving the assessee proper opportunity of hearing and upon taking into consideration of the entire evidence already available on record as well as other documentary evidence which the assessee may choose to file in support of the claim on the issue.

Summary

Issues Involved:
1. Addition of Rs. 80,000 for non-deduction of tax at source under section 194J.
2. Disallowance of Rs. 1,58,061 for service and supervision charges.
3. Disallowance of Rs. 64,020 for professional and legal charges.
4. Addition of Rs. 7,00,000 for bad and doubtful debts.

Analysis:

Issue 1: Addition of Rs. 80,000 for non-deduction of tax at source under section 194J:
The appellant challenged the addition on the grounds of non-deduction of tax at source under section 194J. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)) confirmed the addition. However, during the appeal, the appellant decided not to press this ground, leading to its dismissal.

Issue 2: Disallowance of Rs. 1,58,061 for service and supervision charges:
The AO disallowed 30% of the claimed service and supervision charges amounting to Rs. 1,58,061 due to lack of supporting bills. The CIT(A) upheld this disallowance. The appellant argued that the expenses were genuine and properly recorded in the books of accounts. Citing relevant case laws, the Tribunal found the disallowance on an estimated basis without proper justification to be incorrect and unsustainable. Hence, the Tribunal deleted the disallowance.

Issue 3: Disallowance of Rs. 64,020 for professional and legal charges:
The AO disallowed 30% of the total professional and legal charges of Rs. 2,99,396 due to lack of valid documents. The CIT(A) also upheld this disallowance. The Tribunal, after considering the genuineness of the expenses, decided to partly allow the appeal by deleting 15% of the disallowance.

Issue 4: Addition of Rs. 7,00,000 for bad and doubtful debts:
The AO added Rs. 7,00,000 for bad and doubtful debts written back during the relevant assessment year. The CIT(A) supported this addition. The appellant explained that the amount was mistakenly shown in the profit and loss account, resulting in incorrect taxation. Citing legal precedents, the Tribunal found the non-acceptance of the appellant's claim unjustified. The Tribunal set aside the lower authorities' orders and directed the AO to re-examine the issue, considering the evidence and giving the appellant a fair hearing.

In conclusion, the Tribunal partly allowed the appeal, deleting certain additions and directing a re-examination of the issue related to bad and doubtful debts.