TMI Blog2016 (11) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and then sought confirmations from 13 parties "on a random/sample basis." This does not mean that the payments made to vendors qua the remaining transactions were found to be genuine by the Assessing Officer or the learned Commissioner of Income-tax (Appeals). Since the 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 will be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned authorised representative contended that the learned Commissioner of Income-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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 assessment order that the assessee did not furnish any justification for fall in net profit rate. As against this, we find that the assessee did give explanation, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 under section 133(6) were issued to the vendors and gave the status as under : Sl. No. Name of the vendors Assessment year 2010-11 As per assessee (Rs.) As per confirmation 1. TLG India Ltd. 72,25,22,398 No reply 2. Bates India Ltd. 14,23,69,639 No reply 3. Platinum Communication Pvt. Ltd. 13,48,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Ltd. 4,79,33,574 33,41,390 4,45,92,184 The unconfirmed amount of ₹ 4,45,92,184 to be disallowed 8. Tata Teleservices Ltd. 4,41,68,372 - Confirmation not received. The unconfirmed amount of ₹ 4,41,68,372 to be disallowed 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant material on record. The assessee is carrying on the business of doing advertisement mainly for the Samsung group of companies in print and electronic media. This work is outsourced from vendors. The vendors raise bill on the assessee for the amount payable to them and the assessee raises bill for the amount payable to vendors plus its remuneration on its clients. The assessee drew its profit and loss account, a copy of which is available 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 the instant case, we find that the assessee has been consistently adopting this approach of declaring income, which has been constantly rejected by the Assessing Officer by making similar additions in the earlier years. This issue has been the subject matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 10. The last issue is about the enhancement made by the learned Commissioner of Income-tax (Appeals) by making disallowance of ₹ 2,85,34,862 under section 40(a)(ia) of the Act for the payments made without deduction of tax at source. 11. The learned Commissioner of Income-tax (Appeals) observed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined to vendor payments made by the assessee, which is an item appropriately considered by the Assessing Officer, it cannot be said that the learned Commissioner of Income-tax (Appeals) made enhancement by discovering a new source of income. It 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 which their Lordships have held that where the Assessing Officer dealt with the issue in the assessment and was the subject matter of appeal, the Commissioner of Income-tax (Appeals) was empowered to enhance an assessment qua the net assessed sum under section 251(1)(a). In view of the foregoing discussion, we are satisfied that this legal argument tendered by the learned authorised representative has no force and is hence jettisoned. 13. Now, we tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il withholding certificates, the details of which were furnished. On a perusal of annexures 2 and 7 submitted by the assessee, vide letter dated September 5, 2014, the learned Commissioner of Income-tax (Appeals) observed that the assessee showed to have made the following payments : (i) TLG India Pvt. Ltd. (Leo Burnett) ₹ 97,45,288 (ii) TLG India Pvt. Ltd. ₹ 71,55,16,097 16. The learned Commissioner of Income-tax (Appeals) noticed that the lower/nil withholding certificates for the relevant year were only in the name of TLG India Pvt. Ltd. Since no such certificate exempting payments to TLG India Pvt. Ltd. (Leo Burnett) amounting to ₹ 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 as well. On a perusal of the detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,07,009 All these involved packing charges/assembling charges 825 dated 19-2-2010 Retail fixtures and furniture 41,402 826 dated 19-2-2010 Retail fixtures and furniture 41,402 801 dated 6-2-2010 Retail fixtures and furniture 41,402 849 dated 3-3-2010 Retail fixtures and furniture 1,62,801 802 dated 6-2-2010 Retail fixtures 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 disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actually incurred by them. In the absence of the same, the learned Commissioner of Income-tax (Appeals) made disallowance of ₹ 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. 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 reimbursement and petrol bills, etc. These are the amounts incurred by the employees but reimbursed by the assessee. A perusal of the description of expenses indicates that these are otherwise of revenue nature not requiring any deduction of tax at source under the relevant provisions of the Act. The learned Commissioner of Income-tax (Appeals) has made disallowance by noticing that the payments were running into lakhs while the assessee could not file any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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