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2016 (11) TMI 1043 - AT - Income TaxAddition 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 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 reasons for making addition on account of profit rate. Since the Assessing Officer did not reject 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 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 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 without deduction of tax at source - Held that - Assessee has filed a request for admission of additional evidence, being, two bills of ₹ 27,000 each drawn in the name of the assessee, which were originally in the name of Cheil World Wide as the new bills could not be filed before the learned Commissioner 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. 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 to lower withholding certificate furnished by the vendors - Held that - On a perusal of the details furnished before the learned Commissioner of Income-tax (Appeals)we find that the assessee, in fact, made classification of the payments to the entities as recorded by the learned Commissioner of Income-tax (Appeals). Since the assessee itself had shown TLG India Pvt. Ltd. and TLG India Pvt. Ltd. (Leo Burnett) as separate entities, the learned 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 section 194C - Held that - ommissioner of Income-tax (Appeals) made the disallowance as, in his opinion, these payments were made without deduction of tax at source under section 194C of the Act. 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 provisions. The learned Departmental representative also could not point out the applicability of any particular 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. We, therefore, hold that the learned Commissioner of Income-tax (Appeals) was not justified in making the disallowance of this sum. The same is, therefore, deleted.
Issues Involved:
1. Confirmation of addition on account of net profit rate. 2. Confirmation of disallowance of payment to certain vendors. 3. Enhancement made under section 40(a)(ia) for payments made without deduction of tax at source. Issue-wise Detailed Analysis: 1. Confirmation of Addition on Account of Net Profit Rate: The first issue revolves around the confirmation of an addition due to a discrepancy in the net profit rate. The assessee, engaged in advertisement and brand promotion, declared a net profit rate of 35% on a turnover of ?34.70 crores for the assessment year 2010-11, compared to a 38% net profit rate in the previous year. The Assessing Officer (AO) added ?1,04,10,944 by applying the previous year's 38% net profit rate, citing a lack of justification for the fall. However, the assessee explained that increased operating and administrative expenses due to expansion plans led to a reduced net profit rate. The Tribunal noted that the AO had accepted a lower net profit rate of 24.80% in an earlier year and did not reject the assessee’s books. Consequently, the Tribunal found the addition unjustified and ordered its deletion, deciding the issue in the assessee’s favor. 2. Confirmation of Disallowance of Payment to Certain Vendors: The second issue concerns the disallowance of payments to vendors due to discrepancies between declared receipts and those reflected in Form 26AS. The AO treated the differential amount of ?88.37 crores as business income due to the absence of vendor confirmations. The Commissioner of Income-tax (Appeals) (CIT(A)) sustained a disallowance of ?48.27 crores based on partial confirmations from vendors and an additional disallowance of ?42.59 crores (50% of the remaining unconfirmed amount), totaling ?90.86 crores. The Tribunal, noting similar issues in previous years, remitted the matter to the AO for fresh examination, emphasizing the need for reconciliation of vendor payments. The Tribunal directed the AO to verify the genuineness of the payments and allowed the assessee an opportunity to furnish necessary details, extending the examination to the entire disallowance amount. 3. Enhancement Made under Section 40(a)(ia) for Payments Made Without Deduction of Tax at Source: The third issue pertains to an enhancement made by the CIT(A) under section 40(a)(ia) for payments made without tax deduction at source. The CIT(A) disallowed ?2,85,34,682 for non-deduction of tax on various payments, including those to print/electronic media, payments due to lower withholding certificates, payments for material purchases, and reimbursement of expenses. The Tribunal addressed each component: - Print/Electronic Media Payments: The Tribunal restored the issue to the AO for fresh consideration, allowing the assessee to present additional evidence. - Payments Due to Lower Withholding Certificates: The Tribunal restored this issue to the AO for verification, noting that the assessee claimed TLG India Pvt. Ltd. and TLG India Pvt. Ltd. (Leo Burnett) were the same entity. - Payments for Material Purchases: The Tribunal remitted the issue to the AO for de novo adjudication, emphasizing the need for proper examination of whether the payments qualified as "work" under section 194C. - Reimbursement of Expenses: The Tribunal found that the expenses were of a revenue nature not requiring tax deduction and deleted the disallowance of ?1.20 crores. - Expenses Below Threshold Limit: The Tribunal deleted the disallowance of ?16,638, noting that the payments were below the prescribed limit of ?20,000 under section 194C. Conclusion: The Tribunal partly allowed the appeal, providing detailed directions for fresh examinations and deletions of certain disallowances, ensuring a thorough and fair assessment process. The order was pronounced on August 17, 2016.
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