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Cheil India P. Ltd. (formerly known as Cheil Communications India P. Ltd.) Versus Deputy Commissioner of Income-Tax

2016 (11) TMI 1043 - ITAT DELHI

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 immediately preceding assessment year. AO has just mentioned tha .....

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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 and then sought confirmations from 13 parties "on a random/sa .....

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.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 section 40(a)(ia) - payments made to print/electronic media wit .....

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he 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 consideration and decision. - Non- deduction of tax due .....

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esumed 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 section 194C - Held that:- ommissioner of Income-tax (Appeals) m .....

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operly 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 unde .....

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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. We, therefore, hold that the learned Commissioner of Income-ta .....

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peals) 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 stated, the facts of the case are that the assessee is engaged i .....

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e 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 observed that the only basis for making and sustaining the addi .....

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g 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. for the assessment year 2008- 09. It was submitted that the .....

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mply 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 net profit rate over the years. There should be some plausible .....

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ee 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 ₹ 123.07 crores and ₹ 34.70 crores. In the absence of .....

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plete 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 .....

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ply 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 parties and three parties partly confirmed the amounts. He, th .....

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isallowed 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 .....

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isallowed 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 received for a sum of ₹ 96.25 crores, leaving the unconf .....

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e 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. 8. We have heard the rival submissions and perused the releva .....

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on 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 consistent .....

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ing 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 issue afresh after seeking details from the assessee and vendo .....

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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 learne .....

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lable 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 a reasonable opportunity of hearing and will be .....

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nts 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, requiring the assessee to show cause as to why disallowance unde .....

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ial; ₹ 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 learned authorised representative contended that the learned Comm .....

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pellate 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 respect of non-deduction of tax at source from payments made by t .....

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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 Office .....

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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 the remaining sum of ₹ 1.77 lakhs, the assessee did not f .....

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t 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 if the restoration is made to the Assessing Officer instead .....

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ce 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 5, 2014, the learned Commissioner of Income-tax (Appeals) ob .....

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f 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 details furnished before the lear .....

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e 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 component of disallowance made by the learned Commissioner of Inc .....

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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 Interiors Pvt. Ltd. 1,49,410 The bill is for dismantling of existing .....

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nd 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. 114,94,919 minus ₹ 14,89,861). This resulted into disal .....

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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. Th .....

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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 costs incurred. Since the expenditure shown against each employ .....

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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 .....

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e 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 of Income-tax (Appeals) in making enhancement is restricted t .....

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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 an expense itself is bogus or non- genuine, the same is disa .....

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