2015 (8) TMI 1539 - AT - Income Tax

Disallowance of job charges @ 10% - Non rejection of books of accounts - HELD THAT - Addition has been made only on estimated basis by the AO and the ld. AO disallowed 20% of the job charges and the ld. CIT(A) restricted the same to 10% of the job charges is totally unwarranted as the entire books of account and vouchers were duly produced by the assessee during the course of assessment proceedings. Without rejection of the books of account, the action of the ld. AO as well as the CIT(A) in sustaining the addition on an estimated basis is arbitrary and unwarranted. Hence no hesitation to delete the said addition made in the sum of ₹ 9,000/- being 10% of the job charges. Hence, this ground of appeal is allowed. Disallowance of administrative expenses - HELD THAT - Addition has been made only on estimated basis by the AO and the ld. AO disallowed 20% of the administrative expenses and the ld. CIT(A) upholding the action of AO is totally unwarranted as the entire books of account and vouchers were duly produced by the assessee during the course of assessment proceedings. Without rejection of the books of account, the action of the ld. AO as well as the ld. CIT(A) erred in sustaining the addition on an estimated basis is arbitrary and unwarranted. Addition being professional fees received by the assessee from I.C.I.C.I. Prudential Life Insurance Corporation Ltd .- HELD THAT - As seen from the materials available on record that ICICI Prudential Life Insurance Corporation Ltd had cut a cheque on 21.03.2008 and tax was duly deducted on the same which is mentioned in the TDS certificate of the assessee and in consonance with the mercantile method of accounting followed by the assessee, the assessee ought to have disclosed this receipt as income in A.Y.2008-09. Hence the action of the assessee in not disclosing the same is not appreciated. However, it is also seen that the assessee has offered the same in A.Y.2009-10 on receipt basis - hereby direct the ld. AO to withdraw that income in A.Y.2009-10 together with TDS thereon to meet the ends of justice and in order to avoid double taxation of the same receipt. Accordingly, this ground of appeal is dismissed subjected to the directions contained herein above

Summary

Issues:
1. Disallowance of job charges @ 10%
2. Disallowance of administrative expenses
3. Addition of professional fees received from I.C.I.C.I. Prudential Life Insurance Corporation Ltd.

Analysis:

Issue 1: Disallowance of job charges @ 10%
The appeal pertains to the disallowance of job charges at a rate of 10% by the Assessing Officer (AO) and subsequent confirmation by the Commissioner of Income Tax (Appeals) [CIT(A)] at the rate of 10%. The Tribunal noted that the disallowance was made on an estimated basis without proper verifiable evidence, despite the assessee producing books of accounts, bills, and vouchers during the assessment proceedings. The Tribunal found the disallowance to be unwarranted and arbitrary, as the entire documentation was available for verification. Consequently, the Tribunal allowed the appeal and deleted the addition of Rs. 9,000, representing 10% of the job charges.

Issue 2: Disallowance of administrative expenses
Similarly, the issue of disallowance of administrative expenses at a rate of 20% was raised in the appeal. The AO disallowed a portion of administrative expenses on an ad hoc basis due to lack of verifiable evidence, a decision upheld by the CIT(A). However, the Tribunal found that the disallowance was made without rejecting the books of account, rendering it arbitrary and unwarranted. As the assessee had produced all relevant documentation during the assessment, the Tribunal decided to delete the addition of Rs. 9,372, representing 20% of the administrative expenses.

Issue 3: Addition of professional fees received
The final issue revolved around the addition of professional fees received by the assessee from I.C.I.C.I. Prudential Life Insurance Corporation Ltd. The AO added the professional fees as income for the relevant assessment year, despite the assessee following the mercantile system of accounting and offering the income for taxation in the subsequent year. The CIT(A) upheld the AO's decision, considering the method of accounting employed by the assessee. However, the Tribunal acknowledged that the fees were received after the relevant financial year and were subsequently offered for taxation in the following year. To prevent double taxation, the Tribunal directed the AO to withdraw the income for the current year and include it in the subsequent year's assessment, along with the corresponding TDS. Consequently, the Tribunal partially allowed the assessee's appeal in this regard.

In conclusion, the Tribunal addressed and resolved all the issues raised by the assessee, providing detailed reasoning and analysis for each issue, resulting in a partial allowance of the appeal.