2017 (5) TMI 366 - AT - Income Tax

Addition towards sundry creditors for others u/s 68 - assessee failed to furnish details of creditors like partywise breakup, confirmation duly attested in the account copy and bank account details of the creditors - Held that - Once the genuineness of the expenditure was not doubted, the creditors arised out of such expenditure cannot be added u/s 68 of the Act, for the simple reason that the assessee has failed to furnish confirmation letters from parties. We further observed that the assessee has filed a paper book containing details of expenditure incurred under the head Arogya Shree schemes along with ledger extract. On perusal of the details filed by the assessee, we find that the assessee has provided expenditure incurred towards medical camps through marketing agents and the same has been settled subsequently in the next financial year as and when the amount has been received from State Government. Therefore, we are of the view that once the expenditure has been accepted as genuine, the A.O. was erred in treating the creditors arised out of such expenditure as unexplained credits u/s 68 of the Act. The CIT(A) after considering relevant submissions of the assessee and also analyzing the ledger extracts, rightly directed the A.O. to delete the additions made towards sundry creditors for others shown under the head current liabilities. We do not find any error in the order of the CIT(A). - Decided against revenue. Disallowance of 10% expenditure incurred under the head Arogya Shree schemes - Held that - Since the expenditure incurred under the head Arogya Shree schemes mostly remains payable at the end of the year, it is very difficult to ascertain the genuineness of expenditure and also mode of payment, whether the same has been paid by cheque or cash. The A.O. has identified the cash payments and disallowed 10% of such expenditure. In case of the remaining expenditures, because the entire expenditure has been treated as unexplained credits, the A.O. would not have gone into the genuineness of expenditure. The CIT(A) after considering the nature of expenditure and also fact that most of the expenditure are supported by self-made vouchers rightly directed the A.O. to disallow 10% of total expenditure incurred under the head Arogya Shree scheme. We do not find any error in the order of the CIT(A). - Decided against assessee. TDS u/s 194J - professional charges paid to Doctors u/s 40(a)(ia) for failure to deduct tax at source - Held that - On perusal of the ledger extract filed by the assessee, we noticed that the assessee has paid professional charges to visiting consultants on day to day basis, which is much below the threshold limit provided u/s 194J of the Act for deduction of tax at source. Therefore, we are of the view that the assessee not obliged to deduct tax at source on such professional charges. The A.O. without appreciating the facts simply made additions u/s 40(a)(ia) of the Act. No disallowance u/s 40(a)(ia) if expenditure has been paid before the end of the financial year - alternative plea of the assessee - Held that - As in the case of Merilyn Shipping and Transporters Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) has considered the issue and after considering the relevant provisions of the Act, observed that no disallowance can be made u/s 40(a)(ia) of the Act, if expenditure has been paid on or before 31st March of the financial year. In this case, the assessee has filed necessary evidences to prove that the expenditure has been paid before 31st March of the financial year. Therefore, we are of the view that the assessee need not to deduct tax at source u/s 194J of the Act on professional charges paid to doctors as the said payment does not exceed the prescribed limit provided u/s 194J of the Act for deduction of tax at source. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition towards sundry creditors for others u/s 68 of the Act.
2. Disallowance of 10% expenditure incurred under the Arogya Shree schemes.
3. Disallowance of professional charges paid to Doctors u/s 40(a)(ia) of the Act for failure to deduct tax at source u/s 194J of the Act.

Detailed Analysis:

1. Addition towards sundry creditors for others u/s 68 of the Act:

The A.O. added ?1,17,53,802/- under section 68 of the Act, as the assessee failed to provide details such as party-wise breakup, confirmation, and bank account details of the creditors. The assessee argued that these were expenses payable towards the Arogya Shree scheme, incurred for conducting medical camps, and would be reimbursed upon receipt of funds from the State Government. The CIT(A) found that the amount shown under sundry creditors represented outstanding expenditure payable for Arogya Shree expenses due to delayed payments from the Government. The CIT(A) observed that these were not typical sundry creditors but expenses incurred and awaiting reimbursement. Hence, the CIT(A) directed the deletion of the additions, which was upheld by the Tribunal, noting that the A.O. did not doubt the genuineness of the expenses except for a 10% disallowance for lack of proper bills and vouchers.

2. Disallowance of 10% expenditure incurred under the Arogya Shree schemes:

The A.O. disallowed 10% of the expenditure under the Arogya Shree scheme, amounting to ?1,49,63,563/-, as ?32,09,761/- was incurred in cash without proper bills and vouchers. The CIT(A) enhanced this disallowance to 10% of the total expenditure, considering that the nature of the expenses and the fact that many were supported by self-made vouchers made it difficult to verify their genuineness. The Tribunal upheld the CIT(A)'s decision, agreeing that the nature of the expenses warranted a 10% disallowance to account for unsupported claims.

3. Disallowance of professional charges paid to Doctors u/s 40(a)(ia) of the Act for failure to deduct tax at source u/s 194J of the Act:

The A.O. disallowed ?16,62,503/- out of ?1,74,28,000/- paid as professional charges to doctors, as the assessee failed to deduct tax at source on this amount. The assessee contended that TDS was deducted wherever payments exceeded the threshold limits of section 194J, and that the disallowed amount was below this threshold. Alternatively, the assessee argued that since the payments were made before the end of the financial year, no disallowance should be made under section 40(a)(ia) as per the ITAT Visakhapatnam special bench decision in Merilyn Shipping & Transporters Vs. ACIT. The Tribunal found merit in the assessee's argument, noting that the payments were below the threshold limit and were made before the financial year-end. Thus, the Tribunal directed the A.O. to delete the disallowance.

Conclusion:

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, upholding the CIT(A)'s deletion of the addition towards sundry creditors and the 10% disallowance of Arogya Shree expenses, while directing the deletion of the disallowance of professional charges under section 40(a)(ia).