Vasanthy Natrajan, Mumbai vs Department Of Income Tax

Per I.P. Bansal (JM):-

This appeal filed by the Revenue is directed against the order passed by learned CIT(A) dated 7.6.2012 for A.Y. 2009-10. Grounds of appeal read as under :-

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in disallowing the addition made by the AO on account of commission / brokerage of Rs. 2,26,54,449/- without appreciating the fact that the assessee has failed to produce evidences to show that the deductors have reversed the entries wrongly made by them in their original TDS returns by way of its revision."

On the facts and in the circumstances of the case and in law, the Ld. CJT('A) has erred in deleting the disallowances made by the AO an account of business promotion expenses of Rs.10,98,4201-, electricity expenses of R5,98,2141- and rent payment of Rs. 1,18,840/- without appreciating the fact that the said expenses were incurred by the assessee in cash and inspite of sufficient opportunities has failed to produce bills/vouchers in support of these expenses and other details like names and addresses of the persons to whom the payment for these expenses were alleged to be made."

"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowances made by the AO on account of books & periodicals expenses of Rs. 88,5001-, printing and stationery of Rs. 1,79,115/-, miscellaneous expenses of Rs. 89,544/-, advertisement expenses of R5.8510001- and entertainment expenses of Rs. 7112501- to 10% as against 25% without appreciating the fact that the assessee inspite of sufficient opportunities has failed to establish the co-relation between income and expenditure as claimed by her under these heads with supporting documentary evidences."

"On the facts and in the circumstances of the case and in law, the Ld. CJT(A) has erred in restricting the disallowances made by the AO on account of travelling & conveyance expenses of R5. 3,68,332/- to 10% as against 25% without appreciating the fact that the assessee inspite of sufficient opportunities has failed to establish the co-relation between income and expenditure as claimed by her under this head with supporting documentary evidences."

"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowances made by the AO on account of gift expenses of Rs.3,83,9411- to 20% as against 25% without appreciating the fact that the assessee inspite of sufficient opportunities has failed to produce the nature of expenses claimed under this head and also the proof and confirmation of its receipt."

2. Apropos ground No. 1, facts are as under. The assessee is carrying on business as commission agent and commission income was shown at Rs.1,91,84,002/- from Twinkle Envirotech Ltd. and Royal Twinkle Star Club Ltd. and net profit before tax was declared at Rs. 1,51,39,106/-. From the details generated from ITS, it was found by the Assessing Officer that the assessee had received brokerage income of Rs. 2,73,97,631/- from Twinkle Envirotech Ltd. and Rs. 1,84,05,979/- from Royal Twinkle Star Club Ltd. Thus, total difference between the brokerage shown by the assessee in her profit and loss account and details generated from the system was computed at Rs. 2,66,19,608/- as per following table inscribed in para 5 of the assessment order:-

3. The assessee was required to explain the same and it was submitted that there were some double entries and the income shown by the assessee is correct. The assessee also submitted conformation letters from both companies in respect of commission earned and TDS deducted thereon to support that whatever is shown in profit and loss account is correct. However, the Assessing Officer did not accept such submission of the assessee on the ground that the assessee has failed to produce documentary evidence that the two companies from whom the assessee has received commission have reversed the entries wrongly made in the original TDS return by way of return of original TDS return. Therefore the Assessing Officer made the addition of Rs. 2,26,54,449/-. Addition was challanged before learned CIT(A) and similar submissions were made. Learned CIT(A) after going through the details submitted by the assessee has observed that the aforementioned addition was made on the basis of AIR information and the same cannot be sustained for the following reasons :-

1. The Assessing Officer has added an amount of Rs.1,43,26,190/- as commission received from M/s.Twinkel Envirotech Ltd. and Rs.83,28,2591- as commission received from M/s. Twinkle Star Club Ltd on the basis of 26AS information. In fact both the companies had uploaded erroneous entries into 26AS system and they have rectified

these entries by reversing these entries. Correct payment of commission has been uploaded into system. These figures tally with the commission actually received by the appellant. The correct commission received from Twinkle Envirotech Ltd. amount to Rs.1,14,16,452/- and from Royal Twinkle Star Club Rs.77,67,5501-. Hence there is no discrepancy.

2 Letters were written from this office to M/s.Twinkle Envirotech and M/s,Rcayl Twinkle Star Club for confirming the actual commission paid to the appellant. Both the companies have confirmed the figures which tally with appellants claim.

3 The bank account of the appellant do not reflect any additional commission receipts relating to these overstated figures.

4 The TDS credit claimed by the appellant also is proportionate to the amount received as commission. The deductor has also filed copy of 16A from which tallies with these figures.

4. Aggrieved by the deletion, the department has raised ground No. 1.

5. Learned Departmental Representative relying upon the order passed by the Assessing Officer submitted that the addition was rightly made and learned CIT(A) has wrongly deleted the same. It was submitted that the order passed by learned CIT(A) should be set aside and that of the Assessing Officer be restored.

6. On the other hand it was submitted by ld. AR that the conformation received from both the parties are filed at page No. 1&2 of the paper book alongwtih Form No. 26AS, copy of which is filed at page No. 3&4 of the paper book. It was further submitted that the profit and loss account of the assessee is filed at page No. 6 of the paper book. It was submitted that the income shown by the assessee in profit and loss account is tallying with the income shown in the confirmation and also in the TDS certificate. Thus, it was submitted by ld. AR that learned CIT(A) did not commit any error in accepting the claim of the assessee. It was submitted that the Assessing Officer did not accept the claim simply on the ground that the evidence regarding reversal of the entries was not filed by the assessee in respect of the two companies from whom commission has been received. It was submitted that in view of the Form 26AS, there was no need to file any such evidence. Thus, it was submitted by ld. AR that addition has rightly been deleted by learned CIT(A) and his order should be upheld.

7. We have heard both the parties and their contentions have carefully been considered. After careful consideration, we found that learned CIT(A) did not commit any error in granting appropriate relief to the assessee. Right from the beginning it was the case of the assessee that it had earned total commission of Rs.1,91,84,002/- from both the parties and confirmations were also submitted. The Assessing Officer disbelieved such contention of the assessee on the ground that the assessee failed to show as to whether entries made by those companies were reversed or not. If confirmations are filed by the assessee from the parties then without verifying the same the Assessing Officer could not add any further amount to the income of the assessee without discarding evidence submitted by the assessee in the shape of the confirmation. Later on the assessee was able to submit TDS certificate also in which correct amount was shown. In view of these evidences, we are of the opinion that there is no infirmity in the order passed by learned CIT(A). Therefore we dismiss ground No. 1.

8. Ground No. 2 to 5 relates to disallowance made by the Assessing Officer. The Assessing Officer disallowed various expenses for a total sum of Rs. 22,42,961/- details of which have been given in the order passed by learned CIT(A) in para 4 as under :-

9. From the details, it has been observed by learned CIT(A) that so far as it relates to expenses incurred under the head 'business promotion expenses', the Assessing Officer disallowed the expenses in their entirety i.e. whole sum of Rs.10,98,420/-. It was further observed by learned CIT(A) that the said amount can consists of initial membership fees paid back or discount given to nearly 600 persons in respect of whose membership assessee has earned commission and these amounts range from 1600 to 2100 and cannot adequately vouched. The list of members in respect of whom commission paid was already submitted to the Assessing Officer. On these facts learned CIT(A) observed that the entire expenses cannot be disallowed. The assessee had discharged her burden of proof by submitting the name of the persons to whom such incentive/discount/commission has been paid and thus learned CIT(A) has deleted the disallowance.

10. On the issue of deletion of business promotion expenses it was submitted by learned Departmental Representative that learned CIT(A) has wrongly deleted the entire addition and therefore order passed by learned CIT(A) on this issue should be set aside and that of the Assessing Officer be restored back. On other disallowances Ld. DR relied on the order passed by AO & submitted that Ld. CIT(A) has committed an error in granting relief to the assessee.

11. On the other hand, it was submitted by ld. AR that the complete details of name of persons were submitted to the Assessing Officer and these details are comprised at page No. 14 to 24 of the paper book. It was submitted that the amount ranges from 1600 to 2100 and assessee has earned huge commission from those persons. Thus, it was submitted that after appreciating the evidence filed by the assessee the addition has been deleted, therefore order of learned CIT(A) on this issue should be upheld. On other disallowances it was submitted by Ld. AR that after considering the facts Ld. CIT(A) has given appropriate relief and his order should be upheld.

12. We have heard both the parties and their contentions have carefully been considered. The Assessing Officer disallowed these expenditure as these were paid in cash and the assessee could not submit appropriate evidence to prove incurrence of expenditure. Before learned CIT(A) it was submitted that for earning commission in respect of fund mobilizing, commission agents have been assigned, certain responsibilities for which the assessee had to maintain office at several places to offer customer service and also to pay some portion of the commission back. It was also submitted that the net profit declared by the assessee on the entire receipt of Rs. 1.91 crores is 78.92%, therefore disallowance made by the Assessing Officer was not right. It was submitted that percentage which have been disallowed by the Assessing Officer on account of various expense as under :-

13. On going through these submissions of the assessee learned CIT(A) has deleted the disallowance made on account of business promotion expenses, rent and electricity expenses. However, learned CIT(A) has upheld the disallowance at 20% of the expenses incurred in respect of telephone and 10% of expenses incurred on account of vehicle, car depreciation and periodicals/printing and stationery, meeting expenses, travelling and conveyance. He also upheld the disallowance to the extent of 20% in respect of gift expenses. Learned CIT(A) has also taken into consideration that according to the CBDT Instruction No.225/26/2006-ITA-II(Pt.) dated 8.9.2010, wherein guidelines for completion of scrutiny assessment selected on the basis of AIR information laid down and if disallowances are made in excess of Rs. 10 lakhs, then the Assessing Officer has to obtain prior permission/approval of the jurisdictional CIT to proceed with area of investigation other than AIR based scrutiny assessment. He observed that such instructions have not been followed and from the assessment record he noted that the Assessing Officer did not consider the aforementioned CBDT instructions while proceeding to make other disallowable business expenses. It is in these circumstances, learned CIT(A) has deleted the disallowance made by the Assessing Officer to the extent mentioned above.

14. After hearing both the parties, we are of the opinion that the disallowance deleted by learned CIT(A) is on the submissions and explanation submitted by the assessee and some of the disallowances have been upheld on the basis of estimate. Keeping in view of the entirety of the facts mentioned above and also fact that the assessee has shown net profit @ 78.92%and also fact that the Assessing Officer did not follow the aforementioned Instruction of CBDT, we are of the opinion that no interference is required in the order of learned CIT(A) so as to it relates to Ground 2 to 5 of the Departmental appeal. It may be mentioned here that the Department did not bring any material on record to suggest that findings recorded by learned CIT(A), are contrary to the facts narrated by learned CIT(A).

15. In view of the above discussion, we decline to interfere in the relief granted by learned CIT(A) in respect of Ground No. 2 to 5 and they are dismissed.

16. In the result, appeal filed by the Department is dismissed.

Order pronounced on 25th day of March 2015.

Sd/-

(RAJENDRA) ACCOUNTANT MEMBER

Sd/-

(I.P. BANSAL) JUDICIAL MEMBER

Mumbai; Dated :25/3/2015

Copy of the Order forwarded to :

The Appellant The Respondent The CIT(A) CIT DR, ITAT, Mumbai Guard File.

BY ORDER,

//True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai PS

S.No. Description Date Intls

1 Shorthand script attached yes

2 Draft dictated on 16.3.2015

Sr.P.S./P.S 3 Draft placed before author 17.3.2015

Sr.P.S/PS 4 Draft proposed & placed before the second Member

JM/AM 5 Draft discussed/approved by second Member

JM/AM 6 Approved Draft comes to the Sr.P.S./PS

Sr.P.S./P.S

7.

Kept for pronouncement on .3.2015

Sr. P.S./P.S.

8. File sent to the Bench Clerk .3.2015

Sr.P.S./P.S 9 Date on which file goes to the Head Clerk

10 Date of Dispatch of order

PAGE 8 I.T.A. No. 5613/Mum/2012