2015 (11) TMI 1127 - AT - Income Tax

Addition on account of suppressed receipts - Additions on the basis of 26AS statement - CIT(A) deleted the addition - as per OLTAS information, 26AS details and also per TDS form 16A the amount has been credited to the account of the assessee by the company - whether there is no record with the company that the payment has been made directly to the retailers? - Held that - As evident from affidavit a copy placed the assessee has categorically stated that the impugned amount of ₹ 58,78,256 shown in form No. 26AS was neither received by me nor receivable to me and that the above stated amount was directly paid by the Vodafone Essar Digilink Ltd to the retailers of the company, a complete list of which is provided by the company and placed on file . We have further noted that vide letter dated 15.12.2011 (duly acknowledge by the office on 23.12.2011 Vodafone Digilink Ltd has given a complete break up of ₹ 58 ,78,256 and given details of the retailers to whom the related payments have been made. There is no material to come to the conclusion that assessee ever received any such coupons or payments nor the same are reflected in his books of accounts or bank statements. The fact that these payments are made by coupons and vouchers etc. can also not be put against the assessee since the assessee never received the same and there is no evidence to the contrary. Apparently, entire confusion has started from the fact that, perhaps as a measure of abundant caution, Vodafone deducted tax at source in respect of the vouchers etc and, for whatever reasons, stated, the name of distributor as collective recipient of entire sum. On these facts, in our considered view, learned CIT(A) was quite justified in deleting the impugned addition. We approve his conclusions, and decline to interfere in the matter. - Decided in favour of assessee. Addition made on account of low G.P.- discrepancies in the stock register - CIT(A) deleted the addition - Held that - The specific discrepancy pointed out by the AO has already been explained by the assessee and the Assessing Officer has in remand proceedings, accepted the explanation. The stock re cords were produced before the AO as well, and, therefore, an adverse remark b y the tax auditor ceases to be much relevant any way. In any case, there is nothing to show incorrectness of accounts and just because gross profit rate this year is lower the books of accounts cannot be rejected. In these circumstances , the conclusions arrived at by the CIT(A) do not require to be interfered with. We approve the same and decline to interfere in the matter. - Decided in favour of assessee. Addition made on account of excessive salary - CIT(A) deleted the addition - Held that - There is no dispute that the salary expenditure is properly supported by necessary evidences and vouchers, but yet the AO had disallowed a part of increase in salary because it was not proportionate to increase in sales. This approach proceeds on fallacious assumption that increase in an expense must correspond to increase in benefit by that increase in expenses. It is only elementary that relationship between an expense and the benefits arising from such an expense can never be so linear and static. The allowance for deduction, in any case, is not dependent on the result it prod uces. As long as expenses are supported by evidences and there is nothing to even call into question the factum of expense having been incurred, the disallowance of such expenses cannot be made for the reason that expense is excessive. In view of these discussion, as also approving the reasoning adopted by the CIT(A), we approve the conclusions arrived at by the CIT(A) - Decided in favour of assessee. Disallowance of interest u/s. 14A and interest for personal use of borrowed funds - CIT(A) deleted the addition - Held that - CIT(A) has given a categorical finding that borrowed funds are not used for any of these purposes. No material is brought before us to controvert these findings. Accordingly, we see no reasons to disturb conclusion arrived at by the CIT (A) in respect of these disallowance. The same is the position with respect to addition on account of low drawings. The AO had estimated annual household expenses at ₹ 1,20,000 but then admittedly drawings of assessee and his wife, put together, are ₹ 1,58,000. No addition is called for in respect of this addition for low household drawings either. Similarly, disallowances on account of shop expenses, telephone expenses, sales promotion expenses and car expenses etc are purely on adhoc basis without any specific reasons. Learned CIT(A) rightly deleted the same. We approve his action on this point as well, and decline to interfere in the matter. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of suppressed receipts.
2. Deletion of addition on account of low gross profit.
3. Deletion of addition on account of excessive salary.
4. Deletion of various disallowances and additions related to interest, personal use expenses, and household withdrawals.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Suppressed Receipts:
The Assessing Officer (AO) raised a grievance regarding the deletion of an addition of Rs. 58,78,256, which was made on the grounds of suppressed receipts. The AO argued that the amount was credited to the assessee's account as per OLTAS information, Form 26AS, and TDS Form 16A. However, the assessee claimed that the amount represented Vodafone Currency directly issued to retailers and not received by the assessee. The CIT(A) deleted the addition, noting that no evidence was brought by the AO to show that the amount was received or receivable by the assessee. The Tribunal upheld the CIT(A)'s decision, stating that database information alone cannot be the basis for income addition and that the AO failed to bring any material evidence to support the claim that the assessee received the amount.

2. Deletion of Addition on Account of Low Gross Profit:
The AO noted a fall in the gross profit rate from 1.90% in the preceding year to 1.45% and made an addition of Rs. 9,28,230 due to discrepancies in the stock register. The assessee explained the fall in GP due to increased sales and provided stock registers and quantitative details. The CIT(A) deleted the addition, stating that the AO did not make any adverse comments on the stock registers during remand proceedings and failed to prove the unreliability of the books of accounts. The Tribunal agreed with the CIT(A), noting that the specific discrepancies pointed out by the AO were explained and accepted during remand proceedings, and there was no evidence of incorrectness in the accounts.

3. Deletion of Addition on Account of Excessive Salary:
The AO disallowed a part of the salary expenses, noting a disproportionate increase compared to the increase in sales. The assessee provided salary registers and affidavits from employees, which the AO did not dispute. The CIT(A) deleted the disallowance, criticizing the AO's arbitrary estimation based on turnover increase. The Tribunal upheld the CIT(A)'s decision, emphasizing that the relationship between expenses and benefits is not linear, and as long as expenses are supported by evidence, they cannot be disallowed for being excessive.

4. Deletion of Various Disallowances and Additions:
The AO made several disallowances on an estimated basis, including interest disallowance under sections 14A and 36(1)(iii), and expenses for personal use of car, telephone, shop, and sales promotion. The CIT(A) deleted these disallowances, noting that personal use disallowances cannot be made on mere suspicion and that the assessee's drawings were sufficient to cover household expenses. The Tribunal found no material to counter the CIT(A)'s findings and upheld the deletion of these disallowances, agreeing that they were made on an ad-hoc basis without specific reasons.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decisions on all grounds, and pronounced the judgment in the open court on 31st March, 2015.