2017 (4) TMI 1561 - AT - Income Tax

Addition being difference between royalty income as per the books and as per tax deducted at source certificates - difference in the amount of tax deducted at source - HELD THAT - Assessee in its submissions filed before the FAA had furnished a table and had tried to reconcile the difference. It appears that the submissions made by the assessee have not been considered properly. Therefore we are of the opinion that in the interest of Justice the matter should be restored back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee who would submit all the necessary papers before the AO with regard to royalty received. Accordingly first ground is decided in favour of the assessee in part. Disallowance u/s. 36(1)(ii) being commission paid to one of the directors - Addition on the Ground that the directors had not rendered services to the company - HELD THAT - It is pertinent to note that the commission was paid as per the Board Resolution that in the earlier year similar expenditure was allowed by the AO that the director had paid taxes on the commission received that the higher slab of tax rate was applicable in both the cases. Considering these facts we are of the opinion that the order of the FAA cannot be endorsed. Ground No.2 is decided in favour of the assessee. Disallowance on account of depreciation and repair and maintenance - HELD THAT - FAA had specifically mentioned that the assessee had not filed the full audit report during the appellate proceedings that the assessee was using its Mumbai property as commercial asset in absence of correct and full details the AO and FAA had made and upheld the disallowance. Considering the peculiar facts and circumstances of the case we are of the opinion that matter should be restored back to the file of AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee and decide the case accordingly. Both the grounds are decided in favour of the assessee in part.

Summary

Issues:
1. Addition of royalty income difference
2. Disallowance of commission paid to director
3. Disallowance of depreciation and repair expenses

Analysis:

1. Addition of Royalty Income Difference:
The Assessing Officer (AO) added ?1.15 lakhs to the income of the assessee due to a variance in royalty income as per books and tax deducted at source certificates. The First Appellate Authority (FAA) upheld the addition stating lack of reconciliation from the sister concern. The Appellate Tribunal found that the submissions made by the assessee were not properly considered. Consequently, the matter was remanded to the AO for fresh adjudication, directing a fair opportunity for the assessee to present necessary documents regarding royalty received. The first ground was decided in favor of the assessee, in part.

2. Disallowance of Commission Paid to Director:
The AO disallowed ?23.55 lakhs paid as commission to a director under section 36(1)(ii) of the Act. The FAA upheld the disallowance stating lack of proof of services rendered by the director. The Tribunal observed that the commission was paid as per the Board Resolution and taxes were duly paid on it. Considering these factors and past practices of allowing similar payments, the Tribunal decided in favor of the assessee, overturning the FAA's decision.

3. Disallowance of Depreciation and Repair Expenses:
The AO disallowed ?4.45 lakhs for depreciation and ?1.15 lakhs for repair and maintenance expenses related to rental income. The FAA directed the AO to verify the claims and restrict the disallowance if found incorrect. The Tribunal noted that the full audit report was not submitted during the appellate proceedings. Given the commercial use of the property, the Tribunal remanded the matter to the AO for a fresh decision, emphasizing a fair hearing for the assessee. Both grounds were decided in favor of the assessee, in part.

In conclusion, the appeal filed by the assessee was partly allowed, with the Tribunal providing detailed reasoning for each issue and directing further action by the Assessing Officer for proper adjudication.