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TMI Blog2016 (11) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... ed activities largely for the Samsung group of companies. The assessee declared profit before tax amounting to Rs. 12.11 crores and odd on its turnover of Rs. 34.70 crores and odd, giving net profit rate of 35 per cent. on the turnover. The Assessing Officer observed that in the immediately preceding assessment year, the assessee declared a net profit at Rs. 10.47 crores on its turnover of Rs. 27.57 crores, giving the net profit rate of 38 per cent. Considering the steep fall of about 3 per cent. in the net profit rate, the Assessing Officer made addition of Rs. 1,04,10,944 by applying 38 per cent. net profit rate. The learned Commissioner of Income-tax (Appeals) sustained the addition. The assessee is aggrieved against the sustenance of this addition. 4. We have heard the rival submissions and perused the relevant material on record. It is observed that the only basis for making and sustaining the addition of Rs. 1.04 crores is the application of higher net profit rate of 38 per cent., being the profit rate of the immediately preceding year, as against 35 per cent. declared by the assessee for the year under consideration. The Assessing Officer has simply recorded in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss account as against total receipts of Rs. 123,07,65,261 as per the information available in Form 26AS. The Assessing Officer opined that the assessee had shown receipts lower by Rs. 88.37 crores, being the differential amount between Rs. 123.07 crores and Rs. 34.70 crores. In the absence of the assessee filing copy of account of the vendors to whom payments were made or any confirmation/identification numbers such as PAN, etc., and the addresses of the vendors, the Assessing Officer treated short receipts declared by the assessee at Rs. 88.37 crores as its business income. The assessee filed certain details before the learned Commissioner of Income-tax (Appeals). Vide letter dated July 24, 2014, the learned Commissioner of Income-tax (Appeals) required the assessee to give complete details of payments made to vendors, etc., which were not initially given. In the absence of any response, the learned Commissioner of Income-tax (Appeals) again required the assessee to furnish current address of 13 vendors "(picked up on sample basis)" for the purpose of verification by the Assessing Officer. The Assessing Officer, vide his letter dated September 4, 2014, informed that the notices u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,17,05,301 The unconfirmed amount of Rs. 3,17,05,301 to be disallowed 10. Shark Design Studio Pvt. Ltd. 3,45,42,617 Confirmed - Confirmed 11. Next Step Engineering Pvt. Ltd. 3,89,73,075 - Confirmation not received. The unconfirmed amount of Rs. 3,80,73,075 to be disallowed on account of non-confirmation. 12. Primesite Outdoor Advertising Pvt. Ltd. 3,40,12,655 Confirmed - Confirmed 13. Kalpakaaru Projects Pvt. Ltd. 3,33,28,317 Confirmed - Confirmed Total 1,45,84,74,454 96,25,57,244 48,27,46,541 7. The learned first appellate authority observed that out of total payments claimed to have been made by the assessee to the above 13 parties totalling Rs. 145.84 crores and odd, confirmations were received for a sum of Rs. 96.25 crores, leaving the unconfirmed balances out of the alleged payments to these 13 parties at Rs. 48.27 crores. The learned Commissioner of Income-tax (Appeals) sustained addition of Rs. 48.27 crores out of payments claimed to have been made to these 13 parties. He further noted that the total payments claimed to have been made by the assessee were to the tune of Rs. 229.71 crores, out of which confirmed transactions we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we set aside the impugned order and remit the matter to the file of the Assessing Officer for deciding this issue afresh after seeking details from the assessee and vendors and, thereafter, reconciling the position. If the payments are proved to have been genuinely made by the assessee to the vendors, then, of course, no addition can be made to that extent. If, however, the payments are found to be not genuinely made, then such alleged payments would qualify for addition. 9. Before parting with this issue, we would like to deal with the contention of the learned authorised representative that the restoration should be confined only to Rs. 48.27 crores, being the amount for which confirmations were not received out of 13 parties and no restoration should be made in respect of the remaining amount because the learned Commissioner of Income-tax (Appeals) did not specifically cause these vendors to be investigated. We are unable to accept this contention for the obvious reason that the assessee did not furnish complete details before the Assessing Officer at the assessment stage, with the result the requisite investigation could not be done. The learned Commissioner of Income-tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing payments for purchase of material; Rs. 1,20,49,546, being reimbursement of expenses paid to employees/vendors; and Rs. 16,638, being expenses below threshold limit) under section 40(a)(ia) on account of non-deduction of tax at source. The assessee is aggrieved against the making of this enhancement by the learned Commissioner of Income-tax (Appeals). 12. We have heard the rival submissions and perused the relevant material on record. At the outset, the learned authorised representative contended that the learned Commissioner of Income-tax (Appeals) was not justified in making enhancement in the shape of disallowance under section40(a)(ia) by discovering a new source of income, which was not a subject matter of examination by the Assessing Officer. For this proposition, he relied on the judgment of the hon'ble Delhi High Court in CIT v. Sardari Lal and Co. [2001] 251 ITR 864 (Delhi) [FB]. In our considered opinion, this judgment does not advance the case of the assessee because the powers of the first appellate authority to make enhancement are clipped only on discovering a new source of income not considered by the Assessing Officer in the order appealed against. As again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of Rs. 21.31 lakhs. 14. The assessee has filed a request for admission of additional evidence, being, two bills of Rs. 27,000 each drawn in the name of the assessee, which were originally in the name of Cheil World Wide. The learned authorised representative submitted that the new bills could not be filed before the learned Commissioner of Income-tax (Appeals) as these were not available at the material time and the assessee could manage to obtain the same only later on. As regards the remaining sum of Rs. 1.77 lakhs, the learned authorised representative submitted that the evidence which was earlier not available now can be produced for examination. It was, therefore, prayed that this issue may be restored for a fresh consideration. The learned Departmental representative submitted that it would be more appropriate if the restoration is made to the Assessing Officer instead of the learned Commissioner of Income-tax (Appeals), to which the learned authorised representative did not object. Since the details of Rs. 2.91 lakhs were not available with the assessee at the time when the learned Commissioner of Income-tax (Appeals) made enhancement, in our considered opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r verifying the assessee's contention and, then, deciding it accordingly. Both the sides were unanimous in their argument that this issue may be restored for fresh examination by the Assessing Officer. 18. The third component of disallowance made by the learned Commissioner of Income-tax (Appeals) under section 40(a)(ia) is a sum of Rs. 64,92,390, being payments made to certain vendors on which no tax at source was deducted under section 194C of the Act. The learned Commissioner of Income-tax (Appeals) noticed that the assessee did not deduct tax at source on payments amounting to Rs. 114,94,919 as such payments, in his opinion, fell within the definition of "work" as provided in section 194C of the Act. On a sample basis, he elaborated a few instances as given in annexure 8, submitted by the assessee, as under : Voucher number and date Party Inv. amount (Rs.) Remarks BDM/2009-10/020 dated 2-9-2009 Design Matrix 6,94,820 Bill shows service tax at 4.12 per cent. for supply of furniture and fixture. There is no service tax for purchase of furniture but only VAT. If service tax is being paid then it proves that element of labour is involved. MIPL/37/09-10 dated 21-5- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us while dealing with the second issue. We, therefore, direct a fresh examination of the disallowance made by the learned Commissioner of Income-tax (Appeals) at Rs. 64,92,390 at the Assessing Officer's end. Needless to say, the assessee will be allowed a reasonable opportunity of hearing by the Assessing Officer. 21. Next item of disallowance is a sum of Rs. 120,49,546, being reimbursement of expense paid to employees/vendors. The assessee paid a sum of Rs. 1.20 crores as reimbursement of costs incurred by employees on its behalf. The learned Commissioner of Income-tax (Appeals) observed that the assessee did give a detailed list of employees and description of costs incurred. Since the expenditure shown against each employee was running into lakhs of rupees, the learned Commissioner of Income-tax (Appeals) required the assessee to furnish evidence like bank statement of employees to prove that these expenses were actually incurred by them. In the absence of the same, the learned Commissioner of Income-tax (Appeals) made disallowance of Rs. 1.20 crores under section 40(a)(ia) of the Act. 22. We have heard the rival submissions and perused the relevant material on record. Det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in making a proper deduction of tax at source. If an expense itself is bogus or non- genuine, the same is disallowable at the threshold, and there can be no question of application of section 40(a)(ia) of the Act. Since, in the instant case, the learned Commissioner of Income-tax (Appeals) has taken recourse to the power of enhancement on the ground that the amounts were disallowable under section 40(a)(ia), he was supposed to confine himself to that score rather than travelling beyond in examining the very deductibility or otherwise of such expenses. On going through the details of such expenses, it transpires that these are payments of revenue nature not requiring any deduction of tax at source under the relevant provisions. The learned Departmental representative also could not point out the applicability of any particular section requiring deduction of tax at source from any of such payments. Under these circumstances, we cannot sustain the disallowance of Rs. 1.20 crores under section 40(a)(ia) of the Act. The same is, therefore, deleted. 23. The last component of this disallowance is a sum of Rs. 16,638, being "expense below threshold limit". Without going deep into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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