2014 (1) TMI 194 - AT - Income Tax

Genuineness of the expenses Certified data purchase Held that - The data can be collected from any government and private agency - the Revenue authorities could not dictate to the assessee as to how and in what manner the businessman shall have to run its business - The expenditure shall have to be considered from the point of view of the businessman/assessee and not from the point of view of the Revenue authorities - Following CIT v. Dhanrajgirji Raja Narasingirji 1973 (3) TMI 6 - SUPREME Court - The assessee on the basis of the evidences have been able to prove that the assessee actually purchased data from M/s. Shiva Fund Trust and maintained complete details on the same and same information have been used for the purpose of earning business income - The credentials of M/s. Shiva Fund Trust are also genuine because the Revenue Department has accepted the income declared by the party in their return of income which was received from the assessee - in the absence of any data purchased from this party, the assessee would not have been able to earn commission income. As compared to subsequent assessment year, the assessee has incurred lesser expenses under the head certified data purchased, thus, the history of the assessee would also suggest that the assessee has actually and genuinely incurred expenses under the head data purchased - The Assessing Officer did not point out any specific defect in any data purchased by the assessee for the purpose of business, therefore, in the absence of any incriminating material or finding against the assessee, the Assessing Officer was not justified in holding that the assessee could not substantiate the above expenses under the head data purchase - the entire disallowance under the head is wholly unjustified Decided in favour of Assessee. Expenses relating to salary Held that - There are three types of salary paid as has been noted by the Assessing Officer in the assessment order, i.e., salary paid to administrative staff/supervisor and remaining salary/wages paid temporary staff, apprentice and field staff and in their cases no provident fund provisions are applicable - The assessee has filed copies of Form 16 to show that genuine payments of the salary have been made to the staffs who are employed for the purpose of the business of the assessee - the assessee maintained complete details on the same issue regarding salary payment - looking to the previous year salary paid to the staff in percentage and volume of business receipts - there is no question on inflating expenses by the assessee under the head salary as has been found by the Assessing Officer - the complete data were produced before the Assessing Officer in which no specific details against the assessee have been pointed out by the Assessing Officer Further salary accounts have been filed to show that payment of salary have been made to large number of employees and details of month-wise and namewise have been maintained - Payment of salary cannot constitute payment of commission - No specific details of violation of TDS provisions have been noted in assessment order - salary has paid for the purpose of business and the Assessing Officer has not brought any adverse material against the assessee thus, in the absence of any material against the assessee, there was no justification to disallow 30 percent of the expenses out of salary Decided in favour of Assessee. Expenses relating to referral fees Held that - All the expenses related to the earning of commission from Bajaj Allianz have been incurred wholly and exclusively for the purpose of business of the assessee - The referral fees and the disallowance should be maintained at 5 per cent. of the total expenses claimed by the assessee under this head as against proposed by the Assessing Officer of 30 per cent - the authorities were not justified in disallowing the expenses under the head certified data purchased and salary, wages and bonus - The additions made on account of disallowances of 30 per cent. of expenses under these heads Decided partly in favour of Assessee.

Issues Involved:
1. Disallowance of 30% of expenses related to certified data purchase.
2. Disallowance of 30% of expenses related to salary, wages, and bonus.
3. Disallowance of 30% of expenses related to referral fees.

Detailed Analysis:

1. Disallowance of 30% of expenses related to certified data purchase:

The Assessing Officer (AO) observed that the assessee had purchased data worth Rs. 70,36,440 from M/s. Shiva Fund Trust, managed by the brother of the managing director of the assessee. The AO questioned the genuineness and utility of this data, noting that similar information could be obtained from governmental and private agencies. The AO also doubted the credentials of M/s. Shiva Fund Trust. However, the assessee provided detailed records of data purchased and used for business purposes, including acknowledgment of income by M/s. Shiva Fund Trust. The Tribunal found that the assessee maintained complete details and used the data for earning business income, and the credentials of M/s. Shiva Fund Trust were genuine. The Tribunal concluded that the disallowance under this head was unjustified and deleted the addition.

2. Disallowance of 30% of expenses related to salary, wages, and bonus:

The AO noted that the assessee paid Rs. 4,49,63,429 under the head "Salary and wages" but did not produce vouchers to substantiate the payments. The AO found that the assessee maintained salary records for about 12,000 entries, ranging from Rs. 2,000 to Rs. 8,000, but did not provide specific details of violations of TDS provisions. The Tribunal observed that the assessee maintained complete records and paid genuine salaries to a large number of employees for business purposes. The Tribunal also noted that in the preceding and subsequent assessment years, no disallowances were made under this head. The Tribunal concluded that the disallowance of 30% of salary expenses was unjustified and deleted the addition.

3. Disallowance of 30% of expenses related to referral fees:

The AO questioned the genuineness of referral fee expenses amounting to Rs. 4,03,52,970, noting discrepancies such as payments made in cash through self-made vouchers, payments received by persons other than those shown in the books, and non-production of persons for examination. The AO issued notices and summons to verify the genuineness of the expenses, but received limited responses. The Tribunal found that the assessee maintained complete details and paid referral fees for business purposes. The Tribunal noted that in the preceding assessment year, no disallowances were made under this head, and the percentage of referral fee expenses in the assessment year under appeal was reasonable. Considering certain discrepancies noted by the AO, the Tribunal concluded that a 5% disallowance under this head would be justified instead of 30%. The Tribunal partly allowed the appeal by restricting the disallowance to 5% of the referral fee expenses.

Conclusion:

The Tribunal deleted the disallowances of 30% of expenses under the heads of certified data purchase and salary, wages, and bonus. However, it restricted the disallowance under the head of referral fees to 5% of the expenses claimed by the assessee. The appeal of the assessee was partly allowed.

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