2012 (12) TMI 755 - AT - Income Tax

Disallowance of electricity expense - apartment in a building by the name Heera Panna - Held that - As the assessee could not evidence the said claim that the apartment, belonging to a close relative, is being used as a conference room, i.e., for meeting the patients, etc. the disallowance stood restricted to Rs. 16,497/-, on the assessee leading evidence to the effect that the actual expenditure qua the said apartment had been wrongly assumed by the AO, and was in fact only at the said amount Liability becomes due for payment by the year-end or not? - Held that - This is as undisputedly all the bills in the present case stand raised only in the month of April, 2007. In fact, the amount does not become due for payment immediately on the raising of the bill, as certain time lag is necessary for its communication to the payer, besides allowance of certain time period for effecting the payment is also necessary. The due date, which represents the last date for payment, though not clarified, would only be subsequent to the raising of the bill, which itself is in the second week of April, 2007 - in favour of assessee. Non deduction of TDS - technical services covered u/s. 194J Held that - With regard to the application of section 194J, i.e., qua technical services payment made to under-graduate students, undergoing three-year diploma in Ophthalmology, leading to the qualification of an Ophthalmology Assistant, paid during third (final) year of their course. The students are enrolled for the program after passing Class 12. It is only after the successful completion of this program that they would qualify as professionals, capable of rendering either professional or technical services. The same is only an allowance to an apprentice or an intern, rightly termed as a stipend, which is defined as a sum of money paid to the students for living expenses. As regards the balance payment (of Rs. 7,79,740/-) to the doctors undergoing post graduation, rather super-specialty courses, the same are highly technical courses, admission to which it is severely restricted and regulated, and only upon meeting high standards of professional competence prescribed for the purpose and is not covered under the provisions of sec.194J. Following the decision of in case of Merilyn Shipping and Transports vs. Addl. CIT 2012 (4) TMI 290 - ITAT VISAKHAPATNAM provisions of section 40(a)(ia) would apply only to the amount outstanding as at the year-end. The assessee s alternate ground is also to be allowed, even as no amount of stipend is liable for disallowance u/s. 40(a)(ia) of the Act - assessee succeeds. Disallowance of various expenses in part Held that - Onus to prove the expenditure to the satisfaction of the AO is on the assessee. Besides, the expenditure claimed is u/s. 37(1), which, therefore, has necessarily to be proved as having been actually incurred and, further, wholly and exclusively of the purpose of the assessee s business. When the factum of the expenditure is not proved, which can only be on the basis of some reliable evidences/ materials, which have been found missing in the present case, a part disallowance by the Revenue cannot be faulted with - Disallowance of expense is restricted to 10%, as against 20% by the Revenue to meet the ends of justice. Disallowance of Discount - Held that - Addition of Rs. 1 lakh to cover the leakage of Income is not on account of enhancement in income, as stated by the AO, who in fact has disallowed the discount presumed to have been allowed by the assessee on his receipts. No basis whatsoever, including the absence of the patient register, to infer the assessee as having allowed the discount against every bill raised by it and, secondly, of the same being not genuine - no merit in his sustenance of the said disallowance by CIT(A) and is therefore deleted - In the result, assessee s appeal is partly allowed.

Issues Involved:

1. Disallowance of electricity expenses.
2. Deductibility of advance electricity payment.
3. Disallowance due to non-deduction of tax at source on technical services.
4. Disallowance of hospital maintenance and other expenses.
5. Addition in respect of discount allowed by the assessee.

Detailed Analysis:

1. Disallowance of Electricity Expenses:

The assessee challenged the disallowance of two electricity expenses: Rs. 16,497/- and Rs. 70,000/-. The Rs. 16,497/- disallowance pertained to electricity expenses for an apartment claimed to be used for business purposes. The assessee failed to provide evidence supporting this claim, leading to the confirmation of the disallowance. The Rs. 70,000/- disallowance was due to the advance payment of electricity expenses, which the assessee argued should be deductible as it was based on meter readings. The tribunal held that the liability for the electricity expense had arisen during the relevant year, and thus, the assessee's claim was valid. Therefore, the disallowance of Rs. 70,000/- was overturned.

2. Deductibility of Advance Electricity Payment:

The tribunal examined the timing of the liability's accrual, noting that the bills were raised in April 2007. Despite the bills being raised post-year-end, the tribunal found that the liability had arisen during the relevant year since the services were availed during that period. The tribunal cited accepted accounting principles and relevant case law to support this view, concluding that the advance payment was deductible in the year it was incurred.

3. Disallowance Due to Non-Deduction of Tax at Source on Technical Services:

The assessee paid stipends to students and doctors, which the Revenue considered fees for professional and technical services, requiring tax deduction at source under section 194J. The tribunal differentiated between payments to under-graduate students and post-graduate doctors. It held that stipends to under-graduate students were not fees for professional services, as the students were not yet qualified professionals. Similarly, stipends to post-graduate doctors were not fees but allowances for living expenses during their training. Consequently, no tax deduction was required, and the disallowance under section 40(a)(ia) was not applicable. Additionally, the tribunal referenced a special bench decision supporting the assessee's case.

4. Disallowance of Hospital Maintenance and Other Expenses:

The Revenue disallowed 20% of hospital maintenance, repair, and other expenses due to inadequate documentation. The tribunal acknowledged the need for proper verification but found the 20% disallowance excessive. It reduced the disallowance to 10%, considering it a fair adjustment given the lack of detailed evidence.

5. Addition in Respect of Discount Allowed by the Assessee:

The Revenue presumed a 5% discount on the assessee's gross receipts and disallowed 50% of this presumed discount due to the lack of detailed records. The tribunal found no basis for the presumption that discounts were allowed on every bill or that they were not genuine. It rejected the Revenue's addition, noting the absence of concrete evidence to support the disallowance. The tribunal deleted the Rs. 1.00 lac addition sustained by the CIT(A).

Conclusion:

The tribunal partly allowed the assessee's appeal, confirming some disallowances, reducing others, and overturning the disallowance related to the advance electricity payment and the addition for presumed discounts.

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