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Cheil India Pvt Ltd (Formerly Known As Cheil Communications India Pvt Ltd) Versus Income-Tax Officer, Ward-3 (3) , New Delhi

2015 (8) TMI 918 - ITAT DELHI

Addition of amount paid/payable to the vendor i.e. Star India Private Limited ('Star India') u/s 68 - Star India did not respond to the notice issued by the learned AO under section 133(6) - Held that:- Disallowance has been made and upheld by the authorities below merely on the basis that the Star India Pvt. Ltd. did not bother to respond the notices issued under sec. 133(6) of the Act by the Assessing Officer to them. The authorities below have not bothered to examine the veracity of the docum .....

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liance before the Assessing Officer, for which the assessee cannot be penalized. Though we are aware that it is second round of the appeal before the ITAT, still to meet the end of justice the only option left with us is to set aside the matter to the file of the Assessing Officer to examine the veracity of the documents filed by the assessee in support of the genuineness of the claimed payment of ₹ 4,55,41,557 to Star India Pvt. Ltd. after affording opportunity of being heard to the asses .....

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h has not been considered by the Assessing Officer, hence it was exceeding of jurisdiction by the CIT(Appeals) in a set aside matter by the ITAT in the present case. The decisions relied upon by the CIT(DR) having distinguishable facts are not relevant as main thrust of the Learned CIT(DR) in his contentions is that the Learned CIT(Appeals) has coterminus powers as of the Assessing Officer, hence, he is empowered to do what an Assessing Officer can do for the assessment and the directed disallow .....

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eals) has exceeded her jurisdiction on an issue which was never raised by the Assessing Officer or remained the subject matter of the setting aside order of the ITAT. Similarly, the Learned CIT(Appeals) has also exceeded her jurisdiction by directing the Assessing Officer to initiate penalty proceedings under sec. 201(1) of the Act - Decided in favour of assessee. - ITA No. 6183/Del/2014 - Dated:- 16-7-2015 - N. K. Saini, AM And I. C. Sudhir, JM,JJ. For the Appellant : Shri Salil Kapoor, Adv. an .....

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s and in law, in confirming the addition made by Income-tax Officer, Ward 3(3), New Delhi ('learned AO') being the amount paid/payable by Appellant to its vendor i.e. Star India Private Limited ('Star India') on the sole premise that Star India did not respond to the notice issued by the learned AO under section 133(6) of the Act. 2.1. That the learned CIT(A) has grossly erred in holding a huge disallowance which is based on presumptions, assumptions, conjecture and surmises and .....

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Appellant related to payments made to Star India which included copy of ledger account incorporating the details of invoices received and payments made to Star India, copy of invoices issued by Star India and extracts of bank statements evidencing the payment to Star India. 5. That the learned CIT(A) has grossly erred both on facts and in law in holding that amount not confirmed by Star India should be disallowed under section 68 of the Act. 6. That the notice issued by learned CIT(A) for enhanc .....

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Hon'ble ITAT. 7.1. The learned CIT(A) has completely disregarded the fact that the Hon'ble ITAT had referred the matter to the learned AO only for verification of pass-through cost and therefore, enhancement made is illegal, bad in law and without jurisdiction. 8. That the learned CIT(A) has grossly erred on facts and in law in exceeding her jurisdiction and in enhancing the income of the Appellant by making addition on issue which was never raised by the learned AO 9. That the learned .....

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t the payments made to print/ electronic media are specifically exempted from deduction of tax at source as per CBDT Circular No 715 dated 8 August 1995 and Circular No 717dated 14 August 1995. 9.3. Without prejudice to the above, the learned CIT(A) has erred in disallowing the amount paid/ payable to Star India by the Appellant when such amount has already been disallowed on account of non-receipt of confirmation from Star India and the same results into double disallowance of the same amount. .....

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Circular No 715 dated 8 August 1995. 11. That the learned CIT(A) has erred on facts and in law in disallowing the payment of ₹ 97,29,688 made by the Appellant to its vendors without deduction of tax at source under section 40(a)(ia) of the Act. 11.1. The learned CIT(A) has disregarded the fact that such payments were made without deduction of tax in light of lower tax withholding certificate furnished by the vendors and submitted by Appellant to learned CIT(A). 11.2. The learned CIT(A) has .....

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e ground that these payments are made for work undertaken by the vendors and are subject to withholding tax under section 194C of the Act. 13. That the learned CIT(A) has erred on facts and in law in disallowing the payment of ₹ 13,14,406 made to its vendors for supply of materials without deduction of tax at source under section 40(a)(ia) of the Act on adhoc basis and presuming that even such payments are subject to withholding tax. 14. That the learned CIT(A) has erred on facts and in la .....

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ciating that reimbursement of expenses is not income of the recipient and accordingly, no withholding is required. 14.2. The learned CIT(A) while making such disallowance has completely ignored the evidences filed by the Appellant (i.e. sample bills, credit card statements, etc.) to substantiate the fact that such expenses were pure cost to cost reimbursements and no further specific evidences were sought by the learned CIT(A). 14.3. Without prejudice to above, even if such reimbursements are ta .....

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view of the facts and circumstances of the case and in view of the insertion of second proviso to section 40(a)(ia) of the Act, no such disallowance made by learned CIT(A) under section 40(a)(ia) of the Act is uncalled for. 17. Without prejudice to the above grounds, benefit of second proviso to section 40(a)(ia) of the Act should be allowed in the year in which TDS is deemed to be deducted and paid. 18. That the learned CIT(A) has exceeded her jurisdiction by directing the learned AO to initiat .....

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ties below, material available on record and the decisions relied upon. 3. Ground No.1 is general in nature, hence, does not need independent adjudication. 4. Ground Nos.2 to 5: The facts in brief are that the appellant is engaged in the business of advertising, communication, publicity and other services for its customers. The appellant undertakes advertising services for its clients in capacity of an agent. The appellant acts as an intermediary between its clients and the third party vendors i .....

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ough profit and loss account. This accounting treatment is in accordance with the accounting standards prescribed in India. For the assessment year 'A.Y' 2007-08, the appellant filed its return of income declaring a total income of ₹ 21,977,994. The case was picked up for scrutiny assessment under sec. 143(2) of the Income-tax Act, 1961 ('the Act'). 5. During the course of assessment proceedings, ld Assessing Officer had asked the appellant to explain the difference between .....

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recognized in balance sheet both as payable to third party vendors and receivable from client. The appellant also filed reconciliation between the two amounts. Further, the appellant also furnished supplementary details along with above reconciliation such as party wise details of amount paid or payable to the third party vendors amounting to ₹ 893,992,187. 6. Final assessment order was passed under sec. 143(3) read with 144C of the Act and an addition of ₹ 893,992,187 was made on a .....

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the pass through cost disallowed during the course of original assessment proceedings, the ld. A.O. issued fresh notices under sec. 133(6) of the Act to the vendors of the appellant. Such notices were duly complied by all the vendors except in the case of Star India Pvt. Ltd. ('Star India'). Therefore, Ld. A.O. has added ₹ 45,541,557 (being amount claimed by the appellant as paid/payable to Star India) to the returned income of the appellant and passed the assessment order dated Fe .....

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sponse filed by Star India obtained from Ld. A.O. is enclosed as Annexure II. Since confirmation has reached the office of the Ld. A.O. after the order was passed, cognizance of such confirmation has not been taken by the Ld. A.O. However, once effect of such confirmation is considered, the additions made by the Ld. A.O. will not survive, claimed the assessee. 8. The aggrieved assessee went in first appeal but could not succeed as the Learned CIT(Appeals) has upheld the disallowance of ₹ 4 .....

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Assessing Officer after the order was passed and accordingly the Assessing Officer did not take cognizance of the said confirmation. He referred page No. 84 to 92 of the paper book-I wherein copy of the said confirmation has been made available. The Learned AR submitted that besides the said confirmation filed by Star India Pvt. Ltd. before the Assessing Officer on 10.3.2014 subsequent to the passing of the assessment order, the assessee in support of its claim had also submitted evidences like .....

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the Assessing Officer stated that no confirmation was filed by Star India Pvt. Ltd. within the time allowed by the Assessing Officer. The Assessing Officer thus ignored the fact that confirmation was already received by his office during the remand proceedings. Based on such remand report, the Learned CIT(Appeals) has upheld the disallowance as unconfirmed amount. The Learned AR contended that the above payments have been made through the bank account of the assessee which were also on record. T .....

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. ITO - 56 ITD 561 (Cal.); v ) Rajesh P. Soni vs. CIT - 100 TTJ 892 (Ahd.); vi) Anish Ahmed & Sons vs. CIT - 297 ITR 441 (S.C); 10. The Learned AR submitted further that provisions of section 68 are not applicable as held by the Learned CIT(Appeals) while upholding the disallowance since there is no outstanding credit balance of ₹ 4,55,41,557 in the books of the assessee on account of Star India Pvt. Ltd. and the closing balance on 31.3.2007 is nil. He submitted that assessee had avail .....

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ect matter in the original assessment or revised assessment framed by the Assessing Officer. Without prejudice to the above submissions, the Learned AR submitted that disallowance under sec. 68 of the Act is unwarranted where the identity of the creditor (Star India Pvt. Ltd.) is established. He placed reliance on the following decisions: i) Manoj Aggarwal & Ors. Vs. DCIT - 310 ITR 99 (Del.) ii) CIT vs. Lovely Exports - 216 CTR 195 (S.C) 11. The Learned AR submitted further that the assessee .....

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ty vendors towards such advertisement spent is recognized as "pass through cost" in the balance sheet and is not debited to the profit and loss account. He submitted that the ITAT in the case of assessee for the assessment year 2005-06 has discussed nature of the business of the assessee vide order dated 30.11.2010 in ITA No. 712/Del/2010 holding that the assessee simply acts as an intermediary between the ultimate customers and the third party vendor in order to facilitate placement o .....

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of the Act to them, the Assessing Officer was having no option but to make the disallowance of the doubted payment. 13. Having gone through the orders of the authorities below, we find that out of the notices under sec. 133(6) of the Act issued to eleven vendors of the company to verify the deemed income on account of short receipts declared in profit and loss account of ₹ 89,39,92,000, ten responded the notice and filed confirmation except Star India Pvt. Ltd. The Assessing Officer thus .....

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ith their accounts maintained by the assessee; ledger account of Star India Pvt. Ltd. maintained by the assessee; invoice received from Star India Pvt. Ltd.; relevant extracts of bank statement highlighting the payments made to Star India Pvt. Ltd. by the assessee and reconciliation between amount confirmed by Star India Pvt. Ltd. to the Assessing Officer and amount as per accounts of assessee. This fact had also not been rebutted by the department that after completion of the assessment under s .....

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ce of any response, the Assessing Officer furnished its remand report dated 04.09.2014 upholding the disallowance. Thus, we find that the disallowance has been made and upheld by the authorities below merely on the basis that the Star India Pvt. Ltd. did not bother to respond the notices issued under sec. 133(6) of the Act by the Assessing Officer to them. The authorities below have not bothered to examine the veracity of the documents filed by the assessee in support of the genuineness of the c .....

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t be penalized. Though we are aware that it is second round of the appeal before the ITAT, still to meet the end of justice the only option left with us is to set aside the matter to the file of the Assessing Officer to examine the veracity of the documents filed by the assessee in support of the genuineness of the claimed payment of ₹ 4,55,41,557 to Star India Pvt. Ltd. after affording opportunity of being heard to the assessee and decide the issue afresh. It is ordered accordingly. Groun .....

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e ITAT. He submitted that the ITAT had referred the matter to the Assessing Officer only for verification of pass through cost and, therefore, enhancement made is illegal and without jurisdiction. The Learned AR submitted that disallowance under sec. 40(a)(ia) of the Act as directed by the Learned CIT(Appeals) was not the subject matter of the earlier assessment. He placed reliance on the decision of Hon'ble High Court of Delhi in the case of CIT vs. Sardari Lal & Co. - 251 ITR 864 (Del. .....

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e of Sardari Lal & Co.(supra), the Assessing Officer had not looked into some facts for which directions were issued by the appellate authority. It was in this light of the matter, the Hon'ble Delhi High Court held as "looking from the aforesaid angles, the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate c .....

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fact that some items are shown as pass through without deduction of tax were very much investigated by the Assessing Officer in both the rounds of assessment. He also placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering (P) Ltd. - 198 ITR 297 (S.C) . The learned CIT(DR) submitted further that the issue of method of accounting followed by the assessee, non-deduction of TDS (evidenced by the discrepancy in 26AS statements), passed through costs were v .....

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the assessee under sec. 40(a)(ia) of the Act, the Learned CIT(Appeals) has enhanced the income without appreciating that the appeal was preferred against the order passed by the Assessing Officer under sec. 254 read with sec. 143(3) of the Act pursuant to the specific direction of the ITAT, thus, the Learned CIT(Appeals) has exceeded the jurisdiction. The contention of the learned CIT(DR) on the other hand remained that the cited decisions by the Learned AR having distinguishable facts are not .....

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relevant para numbers 21 to 24 of the order dated 31.1.2012 of the ITAT is being reproduced hereunder: "21. In this regard, it is seen that indeed, the A.O. collected evidence at the back of the assessee and never confronted the same to the assessee. The assessee was not allowed any opportunity to rebut the evidence. However, the A.O. went on to make the addition of ₹ 89,39,92,188, on account of the alleged short receipts declared in the profit and loss account. Now this is entirely i .....

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ssee to rebut the evidence collected by the A.O. at the back of the assessee. 22. In this regard, a perusal of the relevant portion of the DRP's order, as reproduced herein above, shows that the assessee has produced confirmations from 45 vendors before the DRP, and the DRP had forwarded the same to the A.O. for verification. The A.O. had requested for more time to make the verification. The DRP, however, directed the A.O. to verify the evidence and if the A.O. were satisfied, he was to rest .....

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he entire evidence collected to the assessee. 24. In the result, for statistical purposes, the appeal of the assessee is treated as allowed." 18. The perusal of above order of the ITAT, as submitted by the Learned CIT(DR) does not suggest that the ITAT has simply directed that the assessee be granted sufficient opportunity but opportunity was afforded to the assessee to rebut the evidence used by the Assessing Officer regarding the addition of ₹ 89,39,92,188 made by the Assessing Offi .....

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it and loss account but enhanced the income by directing the Assessing Officer to disallow payments made by the assessee under sec. 40(a)(ia) of the Act. We thus find substance in the contentions of the Learned AR that by directing the Assessing Officer to make the disallowance of payments made by the assessee under sec. 40(a)(ia) of the Act, the Learned CIT(Appeals) has introduced in the assessment a new source of income, which is not allowed in an assessment which was made by the Assessing Off .....

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assessment pursuant to a set aside. In the case of CIT vs. Sardari Lal & Co. (supra), the Hon'ble jurisdictional High Court has been pleased to hold that the ITAT was justified in holding that in calling for a remand report on the noted four points, the AAC had exceeded his jurisdiction. While computing the total business income of the assessee, the Assessing Officer in that case had estimated the sales at an enhanced figure and had applied a higher rate of gross profit. Thus, the only .....

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ct the Assessing Officer to conduct inquiry on the said four points. Hon'ble High Court came to the conclusion that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under sec. 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific pro .....

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