TMI Blog2017 (8) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... outsourcing from the vendors, When the vendor raises the bill on the assessee for the payment of the amount, then assessee raises bill for the amount payable to the vendors plus its remuneration on its clients. Perusal of P&L account, available at page 74 of the paper book 1 of 2, shows that the assessee has not declared its receipt from its clients on income side and payment to the vendors on the expenditure side which otherwise does not amount to under-statement of income. This issue requires to be determined on the basis of factual and legal position applicable in this case and by following the order dated 17.08.2016 (supra) passed by the coordinate Bench for AY 2010- 11, applicable to the identical facts of this case, the impugned order is set aside and the matter is restored to the AO for deciding this issue afresh after providing an opportunity of being heard to the assessee. In case, the payment is actually made by the assessee to the vendors in terms of the Agreement then no addition can be made otherwise addition on account of alleged payment can be made. Addition u/s 68 - ad hoc addition being 50% of the amount paid/payable to the vendors to whom no notices were sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in AY 2011-12 viz. fall in service income; increase in personnel expenses; and increase in depreciation charges which have been reproduced by the ld. CIT (A) of the impugned order but has not preferred to assign any reason for not accepting the contentions raised by the assessee. So, in view of the facts and circumstances of the case, we are of the considered view that in the absence of any cogent reasons, addition on the basis of fall in net profit ratio, that too without rejecting the books of account, is not sustainable, hence deleted. - ITA No.6185/Del./2014 - - - Dated:- 9-12-2016 - SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The ASSESSEE : Shri Salil Kapoor, Advocate For The REVENUE : Ms. Rachna Singh, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : The Appellant, Cheil India Private Limited (hereinafter referred to as the assessee ) by filing the present appeal sought to set aside the impugned order dated 20.10.2014 passed by the Commissioner of Income-tax (Appeals)-VI, New Delhi qua the assessment year 2011-12 on the amended grounds (filed vide order dated 11.03.2015) inter alia that :- On the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 CIT(A) has erred on facts and in law in disallowing the payment of ₹ 27,50,306 made to its vendors for supply of materials without deduction of tax at source under section 40(a)(ia) of the Act on the ground that these payments are made for work undertaken by the vendors and are subject to withholding tax under section 194C of the Act. 10. That the learned CIT(A) has erred on facts and in law in disallowing the payment of ₹ 1,89,784 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. 11. That the learned CIT(A) has erred on facts and in law in disallowing pass through cost under section 40(a)(ia) as the same is not warranted since such pass through costs are incurred by the Appellant on behalf of its customers. 12. Without prejudice to above, since pass through costs ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 9% in the Net Profit (NP) i.e. 24.43% of the turnover (Rs.31,70,10,189/-) in the assessment year under consideration as against NP of 35% of the turnover (Rs.34,70,31,473/-) in the last year. AO also noticed that substantial increase in various heads of the expenses. On failure of the assessee company to justify the fall in the NP rate, AO made an addition of ₹ 3,01,15,968/- to the income of the assessee being 9.5% of the total turnover. 4. AO noticed that the assessee company had shown receipt of ₹ 31,70,10,189/- but as per the information available on Form No.26AS, the total receipt is ₹ 163,17,01,764/- and thereby shown the less receipt of ₹ 131,46,91,575/- (Rs.163,17,01,764/- minus ₹ 31,70,10,189/-), which the AO has treated the deemed income of the assessee u/s 199 of the Income-tax Act, 1961 (for short the Act . AO also found income from other sources of ₹ 82,86,371/- has not been tallied with Form No.26AS as disclosed by the assessee. Assessee company has failed to reconcile the receipts shown in the profit loss account with TDS certificates, nor filed any copy of account of the vendors to whom the payment has been made nor any PAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,746,866 Less : Pass through cost (1,521,574,483) Revenue as per P L account 317,010,189 12. Assessee further contended that the ld. CIT (A) has also erred in not treating the assessee as agent by misinterpreting the business model and accounting policy. First of all, when audited books of accounts of the assessee has been accepted and the assessee has been following this accounting policy since long, it is difficult to accept the findings returned by ld. CIT (A) that the assessee is not acting as agent of its client. 13. Identical issue has already been dealt with in ITA No.712/Del/2010 AY 2005-06 dated 30.11.2010 in assessee s own case by the ITAT, Delhi Bench B , New Delhi (order available at page 1 to 45 of the paper book) and has been answered in favour of the assessee. Moreover, the assessee has been held to have borrowed in the capacity of an agent and this proposition of fact and law has also been accepted by the ld. DRP in its order for AY 2009-10 lying at page 47 to 63 of paper book 1. So, impugning the accounting po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bates India Ltd. 196120891 - Confirmation not received The unconfirmed amount of ₹ 196120891 is disallowed. 3. Platinum 108749269 37210001 71539268 The Communication Pvt. Ltd. unconfirmed amount of ₹ 71539268 is disallowed 4. ESPN Software India Pvt. Ltd. 30000000 - Confirmation not received The unconfirmed amount of ₹ 30000000 is disallowed 5. Electrospark 52240742 - Confirmation not received The unconfirmed amount of ₹ 52240742 is disallowed 6. Communique Marketing Solutions Pvt. Ltd. 29368205 - Confirmation not received The unconfirmed amount of ₹ 29368205 is disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation received 19. RMA Consultants Pvt. Ltd. 24553037 - Confirmation not received The unconfirmed amount of ₹ 24553037 is disallowed 20. Google India Pvt. Ltd. 24213802 - Confirmation not received The unconfirmed amount of ₹ 24213802 is disallowed 21. Y Design 24135046 Confirmation received - Confirmation received 22. Superwell Services 21843133 - Confirmation not received The unconfirmed amount of ₹ 21843133 is disallowed Total Amount 1146643611 387611081 655274478 17. The CIT (A) proceeded to conclude that out of payments made in case of 22 parties, unconfirmed payments/transactions amounting to ₹ 65,52,74,478/- is treated as unexplained and dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier years, respectfully following the precedent, we set aside the impugned order and remit the matter to the file of the AO 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. 19. Keeping in view the identical facts of the case at hand and the fact that the assessee is carrying on the business of advertisement for Samsung Groups of company in print and electronic media by way of outsourcing from the vendors, When the vendor raises the bill on the assessee for the payment of the amount, then assessee raises bill for the amount payable to the vendors plus its remuneration on its clients. Perusal of P L account, available at page 74 of the paper book 1 of 2, shows that the assessee has not declared its receipt from its clients on income side and payment to the vendors on the expenditure side which otherwise does not amount to under-statement of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses, air ticketing etc.; that most of the payments do not qualify as a transaction of sale but involves use of labour for packing, assembling, dismantling hence falls within the definition of work contract liable for TDS u/s 194C of the Act and thereby disallowed the amount of ₹ 27,50,306/- and ₹ 1,89,784/- i.e. 50% out of the remaining balance claim under section 40(a)(ia) of the Act. 23. First disallowance of payment of ₹ 27,50,306/- has been made by the ld. CIT (A) made to the vendors for supply of materials without deduction of TDS u/s 40(a)(ia) of the Act on the ground that these payments are made for work undertaken by the vendors. 24. Vide notice dated24.07.2014, ld. CIT (A) called upon the assessee to file details of payment having been made to third party vendors, details of tax deducted on all invoices received from such vendors and reasons for not deducting the taxes on such payments. Assessee filed detail, available at pages 303 to 335 of Volume 2 of paper book, and then called upon the assessee to show cause as to why payment made to such parties without deducting TDS should not be allowed u/s 40(a(ia) of the Act. Ld. AR for the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. The assessee has also challenged the addition of ₹ 3,01,15,968/- confirmed by ld. CIT (A) on account of decrease in the Net Profit (NP) ratio on the ground that the CIT (A) has not assigned any reason for confirming this addition; that in earlier years, no specific addition on the basis of fall in NP has been made and that this issue has already been dealt with and answered in favour of the assessee in its own case in ITA No.6184/Del/2014 qua AY 2010-11 (supra). 29. Assessee in order to support its argument that difference in NP ratio in the earlier years has never been a ground for addition made. A comparative chart of GP and NP for AY 2007-08 to AY 2013-14 is available at page 274 of the paper book part-1 of 2, which is reproduced asunder for ready perusal :- Assessment Year Revenue Other Income Total Revenue Profit before tax Net Profit Ratio 2006-07 143,013,220 1,816,139 144,829,359 30,560,754 21.10 2007-08 134,109,758 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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