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2014 (2) TMI 1112 - AT - Income TaxInflated expenditure Held that - The AO and CIT(A) erred in resorting to mathematical jugglery so as to deny the expenditure claimed by the assessee - There is no basis for AO disallowance of the so called inflated expenditure and CIT(A) also did not apply his mind in restricting the amount on an adhoc basis to Rs.1 crore and Rs.1.10 crores without any basis Relying upon CIT vs. Dalmia Cement (Bharat) Ltd. 2001 (9) TMI 48 - DELHI High Court - Without doing anything on record, this sort of disallowance of expenditure claimed by the assessee cannot be accepted or justified - thus, the disallowance of expenditure resorted by the Assessing Officer is cancelled - AO is directed to allow expenditure as claimed Decided in favour of Assessee. Disallowance u/s 40(a)(ia) of the Act - Non genuine expenditure Held that - The payments made to M/s. Apollo Consulting Services Corporation USA does not come within the purview of provisions of section 195 payments made to M/s. Apollo Consulting Services Corporation USA cannot be treated as fees for included services within the meaning of Article 12(4)(b) of DTAA and provisions of section 90(2) are applicable even if the payments constitute fees for technical services under section 9(1)(vii) - Since they are not chargeable under the IT Act, provisions of section 195 are not attracted and assessee has no liability to deduct tax at source - the CIT(A) did not consider fit enough to consider the issue of genuineness of the expenditure, when there are already findings on the issue which was examined in detail by the CIT(A) in another proceeding thus, it cannot be held that the expenditure is not genuine there is no merit in the appeal of the revenue Decided in favour of assessee.
Issues Involved:
1. Inflated Expenditure 2. Non-Genuine Expenditure Raised in Revenue Appeals Detailed Analysis: 1. Inflated Expenditure: The Assessing Officer (A.O.) alleged that the assessee inflated expenditures, particularly under the head 'Salaries,' leading to a significant reduction in profit. The A.O. compared the domestic business expenditure with the previous year, calculated a possible expenditure, and disallowed the difference as inflated expenditure. For A.Y. 2005-06, the disallowed amount was Rs. 1,33,46,705/-, and for A.Y. 2006-07, it was Rs. 1,45,06,710/-. The assessee contested this, providing detailed explanations, bank statements, proof of pay-rolls, and other documents to substantiate the salaries paid. The assessee argued that the A.O. did not pinpoint any specific instance of bogus expenses or employees and that the increase in call centre income justified the expenditure. The CIT(A) partially upheld the disallowance but reduced the amounts to Rs. 1 crore for A.Y. 2005-06 and Rs. 1.10 crores for A.Y. 2006-07. The assessee raised several objections: - The A.O. changed the method of disallowance without giving a fair chance to the assessee, violating natural justice principles. - The A.O. used a mechanical estimation without considering changes in business profile and increased call centre income. - The A.O. did not reject the books of accounts or identify any specific inflated expenditure, making the methodology incorrect. The Tribunal found that the A.O.'s method of backward calculation was unjustified without allegations of non-maintenance of books or non-compliance with notices. The Tribunal directed the A.O. to allow the expenditure as claimed, stating that the disallowance was baseless and unsupported by any findings of non-genuine expenses. 2. Non-Genuine Expenditure Raised in Revenue Appeals: The A.O. disallowed expenditures under section 40(a)(ia) for payments made to M/s. Apollo Consulting Services Corporation USA (ACSC) without deducting tax under section 195. The CIT(A) deleted this addition, following ITAT's earlier decisions that such payments do not attract TDS provisions. The Revenue contested that the CIT(A) ignored the A.O.'s remand report questioning the genuineness of payments to ACSC. The Tribunal noted that the CIT(A) had asked the A.O. to examine the genuineness of the transactions, and the A.O.'s remand report did not provide sufficient evidence to establish the payments as non-genuine. The Tribunal highlighted that the transactions were verified in detail by the A.O. in earlier proceedings, and the CIT(A)'s findings were based on substantial evidence. The Tribunal concluded that the payments to ACSC were genuine business transactions and dismissed the Revenue's grounds, stating that the issue did not arise from the CIT(A)'s order. Conclusion: The Tribunal allowed the assessee's appeals, deleted the disallowance of inflated expenditure, and dismissed the Revenue's appeals regarding non-genuine expenditure. The Tribunal emphasized that the A.O.'s methods were unjustified and unsupported by concrete evidence, and the CIT(A)'s findings were based on detailed verification and substantial evidence.
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