2017 (6) TMI 562 - AT - Income Tax

Disallowance on account of short reporting of income - Reimbursement of expenses - Held that - The reimbursement of expense has been shown by the assessee in its income as reimbursement of expenses for ₹11,03,562/- as evident from the profit and loss account. Therefore, we find that the observation of Authorities Below that assessee has not shown reimbursement of expense in the income is factually incorrect. Therefore we reverse the order of Ld. CIT(A) in this regard and direct the AO to delete the addition. Addition on account of service tax - Held that - We find that Cipla Ltd. has duly furnished its confirmation by stating that TDS was deducted on the amount of service tax. Besides the above the Authorities Below have not brought any defect in the books of account of assessee. Had there been undisclosed income of the assessee then same could have been ascertained from the ledger copies of Cipla Ltd. As such, we find that the addition has been made by Authorities Below on surmise and conjecture. In rejoinder Ld. DR has also not brought anything on record contrary to the arguments placed by Ld. AR. In this view of this matter we reverse the order of Ld. CIT(A) and directed the AO to delete the addition. Hence, this ground of assessee is allowed.

Summary

Issues:
1. Disallowance of income on account of short reporting of income.

Analysis:
The appeal by the assessee challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of income on account of short reporting. The assessee, a private limited company acting as a C & F agent of another company, declared gross receipts of ?1,40,07,155 for the year. However, the Assessing Officer noted a difference of ?24,35,564 between the receipts shown by the assessee and the TDS certificate from the other company. The dispute arose from the reimbursement of expenses and service tax received by the assessee from the other company, on which TDS was deducted. The Assessing Officer treated this difference as undisclosed income and added it to the assessee's total income.

Upon appeal, the Commissioner disregarded the assessee's explanations and upheld the Assessing Officer's decision. The Commissioner noted that the reimbursement of expenses and service tax was not adequately proven by the assessee, especially regarding the details of expenditure incurred and payments made. The Commissioner also highlighted that the agreement between the parties only mentioned commission payments, not TDS on reimbursements. Therefore, the Commissioner confirmed the addition of ?24,35,564 as income.

The assessee further appealed, arguing that the amounts received should not be considered as income. The Appellate Tribunal found that the assessee had indeed shown the reimbursement of expenses in its income and reversed the Commissioner's decision on this aspect. Regarding the service tax component, the Tribunal noted that the other company had confirmed TDS deduction on the service tax amount. As no defects were found in the assessee's books of account, and no undisclosed income was evident, the Tribunal concluded that the addition made by the Commissioner was based on conjecture and directed the Assessing Officer to delete the addition.

In conclusion, the Tribunal allowed the assessee's appeal, overturning the Commissioner's decision on the disallowance of income on account of short reporting.