2010 (12) TMI 851 - AT - Income Tax

Non Reconciliation of professional fee received with TDS certificates - assessee contended that the entire fees received by him are by cheques which may come from the clients or from instructing advocates or Chartered Accountants in case they have collected the amounts from the clients; therefore it is not practically possible for him to give a detailed party wise breakup of fees received. - Held that - in absence of any contrary material brought by the revenue authorities that the assessee has received amount more than the professional fees than what has been declared by him no addition should have been made. It is also a fact that the professional income declared by the assessee far exceeds the professional fees as per AIR information. There may be so many reasons such as low deduction of tax non-deduction of tax deduction on account of reimbursement of expenses etc. for which the figure as per the AIR may not tally with the income declared by the assessee on account of professional fees from various clients. - addition of Rs.47, 37, 000/- deleted - Decided in favor of assessee. Unexplained investment - investment in mutual funds - held that - As per the certificate issued by the mutual funds the name of assessee appears as second holder - held that - Assessing Officer has already informed the Assessing Officer having jurisdiction of the above two persons (first holder) as per his letter dated 17.11.2009 to take necessary action at their end. Therefore in our considered opinion the addition is uncalled for on this account in the hands of the assessee. In this view of the matter we set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of Rs.75 lacs. - Decided in favor of assessee. Disallowance u/s 14A / Rule 8D - expenses related to exempted income - Dividend income of Rs.6.39 crores - the expenditure disallowed by the Assessing Officer at Rs.50, 000/- appears to be very reasonable considering the volume of dividend income. In this view of the matter we do not find any infirmity in the order of the CIT(A) sustaining the disallowance of Rs.50, 000/- made by the Assessing Officer.

Summary

Issues Involved:
1. Addition of Rs.4.75 crores as unexplained investment in mutual funds.
2. Addition of Rs.47,37,000/- due to non-reconciliation of professional fee receipts with TDS certificates.
3. Disallowance of Rs.50,000/- under Section 14A for expenses attributable to exempt dividend income.

Issue-wise Detailed Analysis:

1. Addition of Rs.4.75 crores as unexplained investment in mutual funds:
The Assessing Officer (AO) added Rs.4.75 crores to the assessee's income, citing unexplained investments in various mutual funds. The assessee failed to provide satisfactory explanations or supporting evidence for these investments. Upon appeal, the CIT(A) remanded the matter to the AO, who, after further inquiries, accepted Rs.4 crores as explained but maintained Rs.75 lacs as unexplained. The Tribunal found that the investments in DSP Black Rock and SBI Mutual Fund were made by the assessee's parents, with the assessee as a joint holder. Since the parents were separately assessed for income tax and the investments were made through their bank accounts, the Tribunal directed the AO to delete the addition of Rs.75 lacs.

2. Addition of Rs.47,37,000/- due to non-reconciliation of professional fee receipts with TDS certificates:
The AO added Rs.47,37,000/- to the assessee's income, citing non-reconciliation of professional fee receipts with TDS certificates and AIR information. The assessee argued that all professional fees were received by cheques and deposited in a single bank account, and that the total professional fees declared exceeded the AIR information. The Tribunal noted the lack of contrary evidence from the revenue authorities and accepted the assessee's explanation that it was impractical to provide a detailed party-wise breakup of fees. The Tribunal directed the AO to delete the addition, finding sufficient force in the assessee's submissions.

3. Disallowance of Rs.50,000/- under Section 14A for expenses attributable to exempt dividend income:
The AO disallowed Rs.50,000/- on an estimated basis under Section 14A, attributing it to expenses related to earning tax-free dividend income of Rs.6.39 crores. The assessee contended that the entire expenditure was related to professional income. The Tribunal, however, found that some expenditure must be attributable to monitoring and managing the investments yielding the dividend income. Given the volume of dividend income, the Tribunal deemed the disallowance of Rs.50,000/- reasonable and upheld the CIT(A)'s decision.

Conclusion:
The Tribunal partly allowed the appeal, directing the deletion of additions related to unexplained investments in mutual funds and non-reconciliation of professional fees, while sustaining the disallowance under Section 14A. The order was pronounced on 8.12.2010.