2013 (2) TMI 91 - AT - Income Tax

Method of accounting - Adjustment of MODVAT Credit - Clause 22(a) of the Form 3CD Inclusion or exclusion of Excise receivable, Service tax receivable and VAT receivable in closing stock - Whether the assessee has adopted exclusive method or the inclusive method Held that - Following the decision in case of Narmada Chematur Petrochemicals Ltd. (2010 (8) TMI 263 - GUJARAT HIGH COURT) that unless and until the amount of the Duty is not entered on one side as an item of cost, it cannot be taken as a component of the value of the closing stock on the either side. The true purpose of crediting the value of unsold stock is to balance to cost of those goods entered into other side of account. As decides in case of UNIQUE INDUSTRIES (2008 (5) TMI 238 - GUJARAT HIGH COURT) that the Excise duty, Sales Tax and other duties form part of the closing stock when the same are incurred. The question of including the excise duty in the value of stock arises only if the purchases debited to P&L account are inclusive of excise duty. The basic question which is yet to be ascertained is that whether the assessee has adopted exclusive method or the inclusive method and decides on the basis given decided cases Remand back to A.O. Disallowance of commission - Genuineness of the payment of sales commission Burden of proving the expense - Ground of commercial expediency for the ultimate benefit of the business Held that - Following the decision in case of Shahzada Nand And Sons (1977 (4) TMI 4 - SUPREME COURT) that the requirement of commercial expediency must be judged in the context of socio-economic thinking. In deciding whether a payment was made for the purpose of business, the correct approach would be to see whether it was made on the ground of commercial expediency for the ultimate benefit of the business. As concluding from the facts of the case Assessee contains several correspondence, copies of the debit-notes, information about the work done by those persons, their PANs, the basis of payment of commission on the supply of the machinery or the orders procured and the amount of TDS deducted on the payment of commission In favour of assessee Disallowance u/s 40(a)(ia) Fail to deduct TDS u/s 194 J u/s 194 I - Payment for consultancy charges Payment for Rent - Assessee is an individual Held that - the issue of deduction of tax at source has been mixed up between the applicability of section 194-I & Sec.194-J. It is worth to note that both these provisions have an exception, therefore, not to apply in the case of an Individual assessee. This aspect has to be re-considered by the Revenue Authorities. Next, is the determination of nature of Professional Services. As per assessee if a person does not have any professional qualification then how can he render professional services. This plea was not before the A.O., therefore the qualification of these persons alleged not to fall within this category has not been examined Remand back to A.O. Disallowance of Foreign Travelling expense Personal expenditure - Travel of wife and daughter Held that - The part relief was granted by CIT(A) in respect of disallowance pertained to the travel expenditure of wife. However, in respect of the expenditure incurred for travel of the daughter the disallowance was confirmed. A query was raised about the purpose of visit of the daughter which remained unanswered, hence we are also of the opinion that the disallowance was correctly made as per law In favour of revenue

Summary

Issues Involved:
1. Addition under Section 145A for excise receivable, service tax receivable, and VAT receivable.
2. Addition of commission paid to various parties.
3. Disallowance under Section 40(a)(ia) for failure to deduct tax at source.
4. Disallowance of foreign traveling expenses for the assessee's daughter.

Detailed Analysis:

1. Addition under Section 145A for Excise Receivable, Service Tax Receivable, and VAT Receivable:
The learned CIT(A) confirmed the addition of Rs.18,30,999 under Section 145A, asserting that excise receivable, service tax receivable, and VAT receivable should be part of the closing stock. The assessee contended that these were excess credits at the end of the year and should not be considered income. The AO observed that the assessee did not include unutilized balances of taxes in the value of the closing stock, which is required under Section 145A. The Tribunal noted that the method of accounting (exclusive or inclusive) adopted by the assessee needed verification. The matter was remanded back to the AO for fresh adjudication to ascertain the correct accounting method and apply the legal provisions accordingly.

2. Addition of Commission Paid to Various Parties:
The AO disallowed the commission of Rs.35,57,000 paid to various parties, stating that the assessee failed to prove the services rendered with documentary evidence. The CIT(A) upheld this disallowance, emphasizing the lack of evidence for services rendered and the necessity of proving that the payments were made exclusively for business purposes. The Tribunal, however, found that the assessee provided sufficient evidence, including debit notes, PANs of recipients, and TDS deductions. The Tribunal concluded that the commission payments were genuine and necessary for business, thus directing the deletion of the addition.

3. Disallowance under Section 40(a)(ia) for Failure to Deduct Tax at Source:
The AO disallowed Rs.7,38,500 under Section 40(a)(ia) for failure to deduct tax at source on consultancy charges. The assessee argued that the payments were not for professional services as defined under Section 194-J and thus did not require TDS deduction. The CIT(A) partially upheld the AO's disallowance, directing verification of certain payments. The Tribunal noted the need to re-examine whether the services qualified as professional and whether the payees were regular employees or consultants. The issue was remanded back to the AO for re-adjudication.

4. Disallowance of Foreign Traveling Expenses for the Assessee's Daughter:
The AO disallowed Rs.1,34,276 as personal expenditure for the travel of the assessee's wife and daughter. The CIT(A) granted partial relief for the wife's travel expenses but upheld the disallowance for the daughter's travel, citing lack of business purpose. The Tribunal agreed with the CIT(A), confirming the disallowance for the daughter's travel expenses as personal in nature.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, remanding certain issues back to the AO for fresh adjudication and directing the deletion of specific disallowances. The detailed examination of accounting methods, evidence of services rendered, and the nature of payments was emphasized for accurate determination of tax liabilities.