2011 (10) TMI 644 - AT - Income Tax

TDS u/s 194H - addition u/s 40(a)(ia) - non deduction of tds - relationship of Principal to Principal between the assessee and the retailer/dealers - full payment of SIM Card/Research Coupons

Issues Involved:
1. Sustaining addition of Rs. 5,00,000/- against Rs. 30,87,080/- made by AO on account of suppressed sales.
2. Deleting disallowance of Rs. 10,00,000/- made by AO on account of indirect expenses.
3. Deleting addition of Rs. 16,99,837/- made on account of net profit from separate electronics and electrical business.
4. Deleting disallowance of Rs. 98,02,544 (Rs. 91,83,554 + Rs. 6,18,990/-) made by AO under section 40(a)(ia) of the Act.

Issue-wise Detailed Analysis:

1. Sustaining Addition of Rs. 5,00,000/- against Rs. 30,87,080/- Made by AO on Account of Suppressed Sales:
The AO observed decreasing GP and NP rates from A.Y. 2004-05 to A.Y. 2007-08 and noted various deficiencies in the assessee's books, including unverifiable cash sales, higher commissions to unidentifiable purchasers, and discrepancies in sales figures. Consequently, the AO rejected the books of account u/s 145(3) and added Rs. 30,87,080/- for suppressed sales. The CIT (A) found the AO's addition unjustified but sustained a lump sum disallowance of Rs. 5,00,000/-. The Tribunal found the disallowance of Rs. 5,00,000/- by the CIT (A) on the higher side and reduced it to Rs. 2.5 lakhs, thus partly allowing the assessee's cross objection.

2. Deleting Disallowance of Rs. 10,00,000/- Made by AO on Account of Indirect Expenses:
The AO compared the GP and NP rates of the assessee's branches and found significant differences, leading to a disallowance of Rs. 10,00,000/- for inflated indirect expenses. The CIT (A) found the disallowance unjustified as the AO did not make any specific enquiry or bring material evidence to show the expenses were false or non-genuine. The CIT (A) deleted the disallowance, and the Tribunal confirmed this decision, finding no reason to interfere with the CIT (A)'s findings.

3. Deleting Addition of Rs. 16,99,837/- Made on Account of Net Profit from Separate Electronics and Electrical Business:
The AO noted a net loss of Rs. 15,21,301/- in the electronics and electricals business and suspected the loss was declared to offset profits from BSNL franchiseeship. The AO compared the assessee's results with another similar business and estimated a net profit of 1%, resulting in an addition of Rs. 16,99,837/-. The CIT (A) found the AO's addition based on suspicion without specific adverse material evidence and deleted the addition. The Tribunal upheld the CIT (A)'s decision, finding no reason to interfere.

4. Deleting Disallowance of Rs. 98,02,544 (Rs. 91,83,554 + Rs. 6,18,990/-) Made by AO under Section 40(a)(ia) of the Act:
The AO disallowed Rs. 91,83,554/- under section 40(a)(ia) for non-deduction of TDS on commission paid to retailers, treating the relationship between the assessee and retailers as that of principal and agent. The CIT (A) found the relationship to be principal-to-principal, not requiring TDS under section 194H, and deleted the disallowance. Similarly, the AO disallowed Rs. 6,18,990/- for scheme and discount payments, which the CIT (A) also deleted on the same grounds. The Tribunal confirmed the CIT (A)'s findings, agreeing that the relationship was principal-to-principal and not subject to TDS provisions.

Conclusion:
The Tribunal dismissed the department's appeal and partly allowed the assessee's cross objection, reducing the sustained addition for suppressed sales to Rs. 2.5 lakhs and confirming the deletion of disallowances for indirect expenses, net profit adjustments, and TDS-related disallowances.

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