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2016 (11) TMI 1043 - ITAT DELHI

2016 (11) TMI 1043 - ITAT DELHI - [2016] 50 ITR (Trib) 443 - Addition on account of net profit rate - estimation of income - exceptional increase in the expenditures - Held that:- Since the Assessing Officer himself has accepted the net profit rate of 24.80 per cent. for the assessment year 2008-09, there can be no reason to make addition at 3 per cent. on account of net profit rate for the year under consideration simply on the ground that such profit rate was less than 38 per cent. for the imm .....

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the books of the assessee and gave unsustainable reasons for making addition at 3 per cent. of the turnover, we are satisfied that CIT(Appeals), too, was not justified in upholding the addition on such flimsy grounds. We, therefore, order for the deletion of this addition - Decided in favour of assessee - Disallowance of payment to certain vendors - Held that:- CIT(Appeals) started investigation at the instance of the assessee and, firstly, required the complete details which were not filed .....

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We, therefore, direct that the entire addition of ₹ 90.86 crores will be the subject matter of examination by the Assessing Officer in fresh proceedings and such examination will not be restricted to a sum of ₹ 48.27 crores. Needless to say, the assessee will be allowed a reasonable opportunity of hearing and will be obliged to furnish necessary details as called for by the Assessing Officer to satisfy himself as to the genuineness of the vendor payments. - Disallowance under se .....

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ter on. As regards the remaining sum of ₹ 1.77 lakhs, the learned authorised representative submitted that the evidence which was earlier not available now can be produced for examination. Since the details of ₹ 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, the ends of justice would meet adequately if this issue is restored to the file of the Assessing Officer for a fresh .....

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earned Commissioner of Income-tax (Appeals) could not have presumed the same to be one entity alone. However, considering the entirety of the facts and circumstances of the case, we are satisfied that it would be in the fitness of things if the impugned order is set aside and the matter is restored to the file of the Assessing Officer for verifying the assessee's contention and, then, deciding it accordingly. - Payments made to certain vendors on which no tax at source was deducted under sec .....

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resentative. We are satisfied that this issue has not been properly examined and the disallowance has been made under section 40(a)(ia). Acceding to the request from both the sides, we set aside the impugned order on this score and remit the matter to the file of the Assessing Officer for a de novo adjudication of this issue. - Non deduction of tds on reimbursement of expense paid to employees/vendors - Held that:- Commissioner of Income-tax (Appeals) has taken recourse to the power of enha .....

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ticular section requiring deduction of tax at source from any of such payments. Under these circumstances, we cannot sustain the disallowance under section 40(a)(ia) of the Act. - Disallowance of a sum being "expense below threshold limit" - Held that:- Without going deep into the details, it is found that the assessee made payment of ₹ 16,638 in total to two parties which is less than the prescribed limit of ₹ 20,000 under section 194C requiring any deduction of tax at source. W .....

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gainst the order passed by the Commissioner of Income-tax (Appeals) on October 20, 2014, in relation to the assessment year 2010-11. 2. Concise grounds have been filed by the assessee in supersession of the original grounds taken in Form 36. The learned authorised representative argued only three issues. Rest of the issues taken through other grounds are dismissed as either general or not pressed. 3. The first issue is about the confirmation of addition on account of net profit rate. Briefly sta .....

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.47 crores on its turnover of ₹ 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 ₹ 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 ob .....

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n, vide letter dated June 19, 2012, addressed to the Assessing Officer, whose copy is available on page 106 of the paper book. Vide paragraph 6 of this letter, the assessee stated that due to expansion plans, the operating and other administrative expenses increased marginally which resulted into reduction in net profit rate. The assessee also filed a chart before the Assessing Officer giving net profit rate of earlier years, viz., 38 per cent. for the assessment year 2009-10 and 24.80 per cent. .....

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ccount of net profit rate for the year under consideration simply on the ground that such profit rate was less than 38 per cent. for the immediately preceding assessment year. The Assessing Officer has just mentioned that there is major increase in various heads of expenses, but, he has not pointed out as to how such increase was not commensurate with the business or was not properly justified. There cannot be any hard and fast rule of incurring similar amount of expenses or earning a similar ne .....

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sessee's favour. 5. The second issue raised by the assessee is against the confirmation of disallowance of payment to certain vendors. The facts apropos this issue are that the assessee declared receipts of ₹ 34,70,31,473 in its profit and loss account as against total receipts of ₹ 123,07,65,261 as per the information available in Form 26AS. The Assessing Officer opined that the assessee had shown receipts lower by ₹ 88.37 crores, being the differential amount between S .....

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ner 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 under section 133(6) .....

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9,33,574 No reply 8. Tata Teleservices Ltd. 4,41,68,372 No reply 9. Lustra Print Process Pvt. Ltd. 4,15,34,580 - 10. Shark Design Studio Pvt. Ltd. 3,45,42,617 No reply 11. Next Step Engineering Pvt. Ltd. 3,89,73,075 No reply 12. Primesite Outdoor Advertising Pvt. Ltd. 3,40,12,655 - 13. Kalpakaaru Projects Pvt. Ltd. 3,33,28,317 Received back unserved 6. On the basis of the above chart, the learned Commissioner of Income- tax (Appeals) observed that no confirmations were at all received from six p .....

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ceived The unconfirmed amount of ₹ 13,48,01,473 to be disallowed 4. ESPN Software India Pvt. Ltd. 7,00,00,000 - Confirmation not received The unconfirmed amount of ₹ 7,00,00,000 to be disallowed 5. Electrospark 5,85,51,808 - Confirmation not received The unconfirmed amount of ₹ 5,85,51,808 to be disallowed 6. Communique Marketing Solutions Pvt. Ltd. 5,57,35,946 - Confirmation not received. The unconfirmed amount of ₹ 5,57,35,946 to be disallowed 7. New Colour Screen Pvt. .....

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ceived. The unconfirmed amount of ₹ 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 ₹ 145.84 crores and odd, confirmations were r .....

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computed the remaining amount at ₹ 133.45 crores. Since a sum of ₹ 48.25 crores representing unconfirmed payments out of 13 parties was sustained as disallowance, the learned Commissioner of Income-tax (Appeals) made disallowance for a further sum of ₹ 42,59,03,111, representing 50 per cent. of the remaining sum of ₹ 85.18 crores. That is how the total disallowance was sustained at ₹ 90.86 crores and odd, which addition has been assailed by the assessee before us. .....

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lable on page 64 of the paper book, by showing its remuneration as revenue. In other words, the assessee did not declare the receipts from its clients on income side and payments to vendors on the expenditure side. In our view, the mere fact of the assessee adopting a particular way of presenting its accounts, cannot per se be conclusive of understatement of income, which needs to be determined on the touchstone of the factual and legal position prevailing in a case. Adverting to the facts of th .....

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ns recorded in the assessee's books of account before making any addition for deficiency or otherwise. A copy of the Tribunal order for the immediately preceding assessment year, namely, 2009-10 is available on page 93 of the paper book. As the facts and circumstances of the instant year are mutatis mutandis similar to those of the earlier years, respectfully following the precedent, we set aside the impugned order and remit the matter to the file of the Assessing Officer for deciding this i .....

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ration should be confined only to ₹ 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 res .....

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details concerning the remaining parties were never made available to the Assessing Officer, their genuineness cannot be accepted unless the verification is made by the Assessing Officer on supply of such details by the assessee. We, therefore, direct that the entire addition of ₹ 90.86 crores will be the subject matter of examination by the Assessing Officer in fresh proceedings and such examination will not be restricted to a sum of ₹ 48.27 crores. Needless to say, the assessee wil .....

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ved from the details filed by the assessee that certain payments were made to parties/ third party vendors without deduction of tax at source. A show-cause letter dated July 24, 2014, was issued asking the assessee to give details of various payments made without tax withholding. In the absence of any details forthcoming from the side of the assessee, the learned Commissioner of Income-tax (Appeals) sent a reminder dated August 5, 2014, and, thereafter, one more letter dated August 21, 2014, req .....

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dors; ₹ 64,92,390, being payments for purchase of material; ₹ 1,20,49,546, being reimbursement of expenses paid to employees/vendors; and ₹ 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 lear .....

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e 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 against this ratio decidendi of the judgment of the hon'ble Delhi High Court, we find that the factual position obtaining in the instant case is absolutely different. The learned Commissioner of Income-tax (Appeals) has made enhancement under section 40(a)(ia) in resp .....

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is rather another aspect of the same matter. This is subject to a rider that there cannot be double disallowance of similar amount, firstly because of unproved payments and then due to application of section 40(a)(ia) of the Act. The facts of the instant case justifying the enhancement by the learned Commissioner of Income-tax (Appeals) are more appropriately covered by a later judgment of the hon'ble Delhi High Court in Gurinder Mohan Singh Nindrajog v. CIT [2012] 348 ITR 170 (Delhi) in wh .....

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ssioner of Income-tax (Appeals) in seriatim. First component of disallowance under section 40(a)(ia) is a sum of ₹ 2.31 crores, being the payments made to print/electronic media. The assessee paid this sum to Korean Association in India. On a perusal of details filed by the assessee, it was observed by the learned Commissioner of Income-tax (Appeals) that the assessee submitted only two bills of ₹ 27,000 each which were in the name of Cheil World Wide, being a separate entity. For th .....

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ssioner 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 ₹ 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 .....

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decision. We order accordingly. 15. Second item of disallowance is a sum of ₹ 97,45,288, being non- deduction of tax due to lower withholding certificate furnished by the vendors. The learned Commissioner of Income-tax (Appeals) noticed that the assessee claimed to have made payments to parties on which tax was not deducted due to lower/nil withholding certificates, the details of which were furnished. On a perusal of annexures 2 and 7 submitted by the assessee, vide letter dated September .....

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₹ 97.45 lakhs was available, the learned Commissioner of Income-tax (Appeals) made disallowance under section 40(a)(ia) of the Act for the payments made to this concern. 17. The learned authorised representative contended that TLG India Pvt. Ltd. and TLG India Pvt. Ltd. (Leo Burnett) are one and the same entity having only one permanent account number. It was submitted that the certificate of lower/nil withholding was applicable in respect of the payments amounting to ₹ 97.45 lakhs a .....

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umed the same to be one entity alone. However, considering the entirety of the facts and circumstances of the case, we are satisfied that it would be in the fitness of things if the impugned order is set aside and the matter is restored to the file of the Assessing Officer for 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 comp .....

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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 21-5-2009 Magnum Interior .....

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es and furniture 41,095 758 dated 3-12-2009 Retail fixtures and furniture 1,10,520 Total 14,89,861 19. On a perusal of the above chart, the learned Commissioner of Income- tax (Appeals) held that most of the payments did not qualify as transactions of sale but involved use of labour for packing, assembling and dismantling. He, therefore, made disallowance of ₹ 14,89,861, being the amount discussed above and further disallowed 50 per cent. of the remaining amount of ₹ 100,05,058 (Rs. .....

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e-tax (Appeals) did not examine the details properly inasmuch as the quid pro quo for the consideration paid did not qualify as "work" in all the cases. This contention has not been refuted by the learned Departmental representative. We are satisfied that this issue has not been properly examined and the disallowance has been made under section 40(a)(ia). Acceding to the request from both the sides, we set aside the impugned order on this score and remit the matter to the file of the A .....

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sessing 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 ₹ 120,49,546, being reimbursement of expense paid to employees/vendors. The assessee paid a sum of ₹ 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 co .....

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t material on record. Details of reimbursement of expenses is available on pages 491 to 522 of the paper book. This is a date-wise chart giving the employee's name incurring the expenses, then, the description of the expense and, then, the amount. Nature of expenses as given on these pages varies from staff entertainment to car parking, mobile expenses, drivers' salaries, travelling expenses, cricket match fee, stationery, snacks, entertainment, medical reimbursement, telephone reimburse .....

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ve that these expenses were actually incurred. That is how, he ended up making a disallowance under section 40(a)(ia) amounting to ₹ 1.20 crores. In our considered opinion, there is a marked difference between an addition made by the Assessing Officer while finalising the assessment and enhancement made by the learned Commissioner of Income-tax (Appeals). Whereas it is open to the Assessing Officer to examine any issue or any aspect concerning the assessment, the power of the Commissioner .....

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e find that the learned Commissioner of Income-tax (Appeals) issued notice of enhancement for disallowance under section 40(a)(ia) and has also, in fact, made this disallowance by mentioning "Amount of ₹ 120,49,546 is hence disallowed under section 40(a)(ia)". There is a preliminary presumption in making disallowance under section 40(a)(ia) that the expenses were genuinely incurred but there was failure on the part of the assessee in making a proper deduction of tax at source. If .....

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