2018 (1) TMI 1367 - AT - Income Tax

Addition on account of under-reported income - Held that - AO has considered only receipt of ₹ 11,89,074/- in Profit & Loss Account whereas as per Profit & Loss Account filed by the assessee it shows that the assessee has shown receipt of ₹ 14,37,002/-. It is not understood as from where he brought the receipt of ₹ 11,89,074/-. Even the ld. DR could not explain from where the Assessing Officer has picked the figure. I find the ld. CIT(A) without applying his mind as mechanically upheld the order of the Assessing Officer.Thus restore the issue to the file of the Assessing Officer for fresh adjudication. Disallowance of bad debts due to non-furnishing of any explanation or details in this regard - Held that - CIT(A) has not adjudicated the issue. Since the assessee has debited an amount of ₹ 77,774/- in the Profit & Loss Account, he is entitled to such bad debt in view of the decision of the Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT . Therefore, this ground by the assessee is allowed. Disallowance of telephone expenses - Assessing Officer has made disallowance of ₹ 38,534/- being 1/5th of the telephone expenses being probable personal use which has been restricted by the ld. CIT(A) to 50% of such expenses - Held that - Considering the facts that certain free calls are allowed by the Telephone Department, lump sum disallowance of ₹ 10,000/- under the facts and circumstances of the case will meet the ends of justice. I hold and direct accordingly. The issue relating to the telephone expenses is accordingly partly allowed. Levy of interest u/s 234B and 234D is concerned, the same is mandatory and consequential in nature. However, direct the Assessing Officer to verify the computation and rectify the arithmetical in accuracy, if any. This ground raised by the assessee is dismissed.

Summary

Issues:
1. Reopening of assessment for AY 2007-08 based on TDS discrepancies.
2. Disallowance of expenses and addition of under-reported income.
3. Appeal against CIT(A)'s order sustaining additions.
4. Grounds related to reopening of assessment not pressed.
5. Discrepancy in income receipts as per Profit & Loss Account.
6. Disallowance of telephone expenses and bad debts.
7. Levy of interest under sections 234B and 234D.

Reopening of Assessment:
The case involved the reopening of assessment for AY 2007-08 due to discrepancies in Tax Deducted at Source (TDS) as per 26AS statement and the income declared by the assessee. The Assessing Officer suspected an income escape of ?6,23,131, leading to the reassessment. The Tribunal dismissed the grounds related to the reopening as they were not pressed due to the smallness of the amount involved.

Disallowed Expenses and Under-Reported Income:
The Assessing Officer disallowed telephone expenses and bad debts, adding the under-reported income of ?6,23,131. The CIT(A) upheld the addition of ?6,23,131 but restricted the disallowed telephone expenses to 5%. However, the issue of bad debts was not adjudicated. The Tribunal directed a fresh adjudication by the Assessing Officer on the under-reported income issue, considering the total receipts declared by the assessee and the discrepancy in the figures presented.

Telephone Expenses and Bad Debts:
Regarding telephone expenses, the Tribunal reduced the disallowance to a lump sum of ?10,000, considering the free calls allowed by the Telephone Department. The Tribunal allowed the bad debts claimed by the assessee as they were debited in the Profit & Loss Account, following the decision of the Supreme Court in a relevant case.

Interest Levy under Sections 234B and 234D:
The Tribunal noted the mandatory nature of interest levy under sections 234B and 234D but directed the Assessing Officer to verify the computation for any mathematical inaccuracies. The grounds raised by the assessee regarding interest levy were dismissed.

In conclusion, the appeal by the assessee was partly allowed for statistical purposes, with specific directions given for fresh adjudication on the under-reported income issue and adjustments made to the disallowed expenses. The Tribunal emphasized the importance of a thorough assessment process and adherence to legal provisions in determining the final tax liabilities.