2014 (1) TMI 1360 - AT - Income Tax

Professional fees - Held that - The assessee has made two payments to two different parties - NSPL and NSCPL - Out of the two parties only NSCPL was engaged in accomodation entries - Only payment made to NSCPL shall be disallowed which have already been disallowed by the assessee himself in its return of income - If it would again be disallowed it will constitute double disallowance - Decided in favour of assessee. TDS - whether the payment made by assessee to various mandals for putting its banner and hoarding are in the nature of advertisement expenses - Held that - As per the CBDT circular dated 08.08.1995 - When there is a contract for putting up hoardings in the nature of advertising contract, provisions of section 194C of the Act would be applicable - If a space is taken on rent and the banners are put on the said space, so hired, they are for the purpose of gaining publicity - Mere publicity could not be a criteria to decide whether the said payments is subject to provisions of section 194C of the Act or section 194I of the Act - The CIT(A) has stated that assessee has made payments to the Mandals etc under a contractual obligation - During the Utsav/festivals seasons the organizers provide space to various persons to put its banners and charge fee from them, not only that the purpose to advertise their products but for providing space to them - The said payment to the mandals could be treated towards rent for the space provided by them to the assessee for putting its hoarding and banners - TDS was required to be deducted u/s 194I of the Act - Decided in favour of assessee. Miscellaneous expenses for purchase of mobile phones - Held that - The expenditure has been incurred on mobile phones and LCD on which assessee is entitled to claim depreciation - The expenditure are capital expenditure forming part of block of assets - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of Rs.35,07,500/- on account of professional fees.
2. Disallowance of Rs.5,50,000/- out of advertisement expenses.
3. Disallowance of Rs.5,31,213/- on account of miscellaneous office expenses treated as capital expenditure.

Detailed Analysis:

1. Disallowance of Rs.35,07,500/- on account of professional fees:
The assessee, engaged in property development, was subject to a search and seizure operation under section 132 of the Income Tax Act, 1961. During the investigation, it was found that the assessee had allegedly taken accommodation bills from M/s Nischal Corporate Services Pvt Ltd. (NCSPL) amounting to Rs.35,07,500/- under the head "professional fees." The AO disallowed this amount, citing that NCSPL was providing bogus entries. The CIT(A) upheld this disallowance, stating the assessee failed to prove the expenditure was for business purposes. However, during the hearing, it was clarified that the assessee had already disallowed Rs.17,53,750/- in its revised return and that the remaining amount was paid to a different entity, Nirjay Securities Pvt.Ltd (NSPL). The Tribunal observed that the payment to NSPL was genuine and supported by evidence, and hence, the disallowance of Rs.35,07,500/- was deleted.

2. Disallowance of Rs.5,50,000/- out of advertisement expenses:
The AO disallowed Rs.15,00,497/- claimed by the assessee as advertisement expenses paid to various Ganesh Uttsav Mandals and Navrata Mandals without deducting TDS under section 194C. The CIT(A) partially upheld the disallowance, reducing it to Rs.5,50,000/-, stating that payments exceeding Rs.20,000/- required TDS deduction under section 194C. The Tribunal, however, concluded that the payments were for renting space for banners and hoardings, thus falling under section 194I. Since none of the payments exceeded Rs.1,20,000/-, the Tribunal deleted the disallowance of Rs.5,50,000/-.

3. Disallowance of Rs.5,31,213/- on account of miscellaneous office expenses treated as capital expenditure:
The AO disallowed Rs.5,31,213/- claimed as miscellaneous office expenses, treating them as capital expenditure for items like chairs and mobile phones. The CIT(A) upheld this, stating that the expenditure was capital in nature and should be included in the block of assets for depreciation. The Tribunal agreed with the CIT(A), noting that the items purchased were expensive and should be treated as capital assets, thus entitling the assessee to claim depreciation as per the Act.

Conclusion:
The appeal was allowed in part. The disallowance of Rs.35,07,500/- on account of professional fees and Rs.5,50,000/- out of advertisement expenses were deleted, while the disallowance of Rs.5,31,213/- as capital expenditure was upheld. The order was pronounced in the open court on January 15, 2014.