2013 (12) TMI 62 - AT - Income Tax

Course execution charges Held that - The appellant was imparting training in the field of computer and information technology in collaboration with US based company. The appellant was conducting examinations and giving certificates to students in India on behalf of US company. For that purpose, the appellant was collecting testing fees from the students and remitting to the same to the US company. The appellant filed entire details of expenses to the AO. In the facts and circumstances, the AO was not justified in making part disallowances that too on adhoc basis - The assessee filed entire details of the expenditures actually incurred, before the AO and the AO had not doubted the genuineness of the claim of the assessee. In the absence of any contrary material on record, the order of CIT(A) is upheld Decided against Revenue. Franchisee management fee Held that - The major source of revenue was the sales proceeds received from the franchisees - The appellant was paying management fee to the franchisees from year to year and the said payment has been accepted as appellant s business expenses. The AO did not doubted the genuineness of such payment of management fee to the franchisees The disallowance was made on the basis of comparison made with the receipts and payments of immediately previous assessment year 2001-02 only The CIT(A) held that the AO has made disallowance on the basis of incorrect figures The ld. DR could not bring any material to controvert the facts stated by ld. CIT(A) - The AO has made the disallowance by comparing a wrong figures of the previous year on adhoc basis Decided against Revenue.

Issues Involved:
1. Deletion of disallowance of course execution charges.
2. Acceptance of additional evidence in contravention of Rule 46A.
3. Deletion of disallowance of franchisee management fee.
4. Acceptance of additional evidence concerning franchisee management fee in contravention of Rule 46A.

Detailed Analysis:

1. Deletion of Disallowance of Course Execution Charges:
The department contested the deletion of disallowance of course execution charges amounting to Rs. 16,54,681/-. The Assessing Officer (AO) had disallowed this amount on the grounds that the assessee provided only numeric details without names and addresses of the recipients, making it impossible to verify the genuineness of the expenditure. The AO restricted the allowable expenditure to the percentage claimed in the preceding assessment year, which was 15.6% of the operating income, resulting in the disallowance of Rs. 16,54,681/-.

The CIT(A) deleted the disallowance, noting that the AO did not doubt the genuineness of the expenditure but made an ad-hoc disallowance based on the previous year's percentage. The CIT(A) found that the assessee provided all necessary details, and the AO's decision to restrict the claim was unjustified. The Tribunal upheld the CIT(A)'s order, noting that the AO had not provided any contrary material to dispute the details submitted by the assessee.

2. Acceptance of Additional Evidence in Contravention of Rule 46A:
The department argued that the CIT(A) accepted additional evidence in contravention of Rule 46A of the Income Tax Rules, 1962. However, during the hearing, the department's representative could not demonstrate how the additional evidence violated Rule 46A. The Tribunal observed that the CIT(A) had considered all the details provided by the assessee, which were also submitted during the assessment proceedings. Therefore, the Tribunal found no infirmity in the CIT(A)'s order and rejected the department's grounds on this issue.

3. Deletion of Disallowance of Franchisee Management Fee:
The department challenged the deletion of disallowance of Rs. 9,65,300/- out of the franchisee management fee of Rs. 3,06,11,682/-. The AO disallowed this amount because the assessee did not provide names and addresses of the parties to whom the fees were paid, nor any agreements to prove the genuineness of the expenses. The AO restricted the allowable franchisee management fee to the percentage claimed in the previous assessment year, resulting in the disallowance.

The CIT(A) deleted the disallowance, noting that the assessee had provided all necessary details and explained the computation of the franchisee management fee. The CIT(A) observed that the AO had compared incorrect figures and reached an incorrect conclusion. The Tribunal upheld the CIT(A)'s order, noting that the AO's disallowance was based on a wrong comparison and was made on an ad-hoc basis. The Tribunal found no material to contradict the CIT(A)'s findings and upheld the deletion of the disallowance.

4. Acceptance of Additional Evidence Concerning Franchisee Management Fee in Contravention of Rule 46A:
Similar to the issue with course execution charges, the department argued that the CIT(A) accepted additional evidence in contravention of Rule 46A. However, the Tribunal found that the CIT(A) had considered all details provided by the assessee during the assessment proceedings. The Tribunal noted that the AO had not provided any comments or objections to the evidence submitted by the assessee. Therefore, the Tribunal upheld the CIT(A)'s order and rejected the department's grounds on this issue.

Conclusion:
The Tribunal dismissed the department's appeal, upholding the CIT(A)'s deletion of disallowances for both course execution charges and franchisee management fees. The Tribunal found no violation of Rule 46A in the acceptance of additional evidence and confirmed that the AO's disallowances were unjustified and based on incorrect comparisons. The appeal was dismissed, and the order was pronounced in the open court on November 20, 2013.

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