2012 (9) TMI 394 - AT - Income Tax

Suppression of receipts - difference between gross receipts disclosed to the Department and manually prepared - assessee has pleaded that the difference is only on account of payment of commission to franchisees - Held that - Considering the clause VI of franchisee agreement it is not just the payment of Rs. 30,40,543/- that required to be seen but the proof of payment of Rs. 4.86 crores (being 75%) has to be seen even considering the figure given by the assessee company of Rs. 1.62 crores. Further, as seen from the schedule VI to the profit and loss account filed along with the return of income, the assessee-company has incurred Rs. 30.0 lakhs towards payment to NSIC, Rs. 40.67 lakhs towards course material and Rs. 44.00 lakhs towards advertisement expenditure. Thus, it is clear that when all these expenses are to be borne by the assessee-company, the figures taken in the books of account have naturally to be net figures not gross figures. These adjustments as made by journal entries are clearly an afterthought to reduce the profit of the company. If at all the assessee-company has to reconcile, it has to reconcile payments of Rs. 4.86 crores as centre share and not mere Rs. 17 lakhs, as reconciled by the company - thus the assessee suppressed its income and no infirmity on this issue in sustaining the addition towards suppression of income - against assessee. Inflation of Advertisement expenses - Held that - As seen from the evidences on record, the contention of the assessee appears to be self contradictory, the partnership deed of M/s. Pace Media and Mercantile Services was actually executed on 1st day of March, 2000 and was duly registered with Registrar of Firm on 19th May, 2000, thus, the very contention of the assessee that it came to know of the advertisement commission after nine months of business is not correct since it had already executed the partnership deed and registered the same much in advance - that though the assesseecompany was under obligation to deduct TDS on all advertisement payments, it had failed to do so in respect of payments made to M/s. Pace Media and Mercantile Services - against assessee.

Summary

Issues Involved:
1. Suppression of Gross Receipts
2. Inflation of Advertisement Expenses
3. Delay in Remittance of TDS

Detailed Analysis:

1. Suppression of Gross Receipts:
The main issue was the discrepancy between the gross receipts reported in the return of income and the books of account. During a survey under section 133A of the Income-tax Act, 1961, it was found that the gross receipts as per the return were Rs. 1,62,75,354, while the books showed Rs. 1,92,58,513, indicating a suppression of Rs. 29,83,155. The Managing Director admitted that these discrepancies were due to non-posting of journal entries and offered an additional income of Rs. 42,73,301 during the survey. However, only Rs. 20 lakhs was disclosed in the revised return. The assessee claimed that the differences were due to refundable security deposits and center shares, which were not properly recorded. The Assessing Officer and CIT(A) did not accept these explanations due to lack of supporting evidence. The ITAT confirmed the addition, stating that the assessee failed to substantiate its claims with proper documentation and the discrepancies appeared to be an afterthought to reduce taxable income.

2. Inflation of Advertisement Expenses:
The second issue was the inflation of advertisement expenses. The return of income showed advertisement expenses of Rs. 44,00,296, while the impounded books reflected Rs. 31,10,150, indicating an excess claim of Rs. 12,90,146. The Managing Director admitted during the survey that the expenses were inflated to reduce taxable income. The assessee later claimed that the differential amount was due to payments made to M/s. Pace Media & Mercantile Services, a partnership firm. However, the Assessing Officer and CIT(A) found no evidence of such payments and noted that the firm had not filed its return of income. The ITAT upheld the addition, observing that the assessee's explanations were inconsistent and lacked evidentiary support, indicating an attempt to inflate expenses post-survey.

3. Delay in Remittance of TDS:
The Assessing Officer noted that the assessee had delayed remitting TDS of Rs. 4,125, deducted from professional fees, and charged interest under section 201(1A) amounting to Rs. 1,004. This was included in the total income computation.

Conclusion:
The ITAT dismissed the appeal, confirming the additions made by the Assessing Officer and CIT(A) for suppression of gross receipts and inflation of advertisement expenses. The tribunal found that the assessee failed to provide substantial evidence to support its claims and the discrepancies were an afterthought to reduce taxable income. The interest charged for delay in TDS remittance was also upheld.