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2017 (8) TMI 441 - AT - Income TaxDeemed income - difference between revenue disclosed by the assessee in P&L account and the amount of the receipts shown in Form No.26AS - Held that - Identical issue has already been dealt with in AY 2005-06 2010 (11) TMI 630 - ITAT DELHI in assessee s own case by the ITAT, Delhi Bench B , New Delhi (order available at page 1 to 45 of the paper book) and has been answered in favour of the assessee. Moreover, the assessee has been held to have borrowed in the capacity of an agent and this proposition of fact and law has also been accepted by the ld. DRP in its order for AY 2009-10 lying at page 47 to 63 of paper book 1. So, impugning the accounting policy followed by assessee by ld. CIT (A)/AO is mis-interpretation of settled proposition in assessee s own case by the ITAT as well as DRP. Addition being the amount paid/payable by the assessee to third party vendors - vendors did not respond to the notice issued by the AO u/s 133 (6) - Held that - The assessee is carrying on the business of advertisement for Samsung Groups of company in print and electronic media by way of outsourcing from the vendors, When the vendor raises the bill on the assessee for the payment of the amount, then assessee raises bill for the amount payable to the vendors plus its remuneration on its clients. Perusal of P&L account, available at page 74 of the paper book 1 of 2, shows that the assessee has not declared its receipt from its clients on income side and payment to the vendors on the expenditure side which otherwise does not amount to under-statement of income. This issue requires to be determined on the basis of factual and legal position applicable in this case and by following the order dated 17.08.2016 (supra) passed by the coordinate Bench for AY 2010- 11, applicable to the identical facts of this case, the impugned order is set aside and the matter is restored to the AO for deciding this issue afresh after providing an opportunity of being heard to the assessee. In case, the payment is actually made by the assessee to the vendors in terms of the Agreement then no addition can be made otherwise addition on account of alleged payment can be made. Addition u/s 68 - ad hoc addition being 50% of the amount paid/payable to the vendors to whom no notices were sent by the AO - Held that - When no notice has been sent to the vendors to whom the payments have been made by assessee by raising bills to his clients along with its remuneration, no ad hoc addition can be made. We are of the considered view that this issue is also required to be restored to the AO to decide afresh after issuing notice and procuring requisite information under the law and to decide the issue afresh after providing an opportunity of being heard to the assessee. Non deduction of tds - payment made to its vendors for supply of material - Held that - As discussed in the preceding paras, while determining grounds above all the vendors have not come up before the AO and out of 22 vendors, only 8 vendors have confirmed the receipt and such an addition cannot be made by randomly picking up the facts. Secondly, when the issue has already been determined in favour of the assessee by the Tribunal in AY 2010-11 that the assessee is not a sub-contractor but an agent, the service element is apparently not there in the supply of material to attract section 194C of the Act. So, in the given circumstances, we are of the considered view that this issue is required to be determined afresh after providing an opportunity of being heard to the assessee after due verification. So far as question of disallowance of payment i.e. 50% of the balance amount made to its vendors for supply of material without deduction of TDS u/s 40(a)(ia) of the Act on ad hoc basis is concerned, the same is also required to be determined afresh in the light of the findings returned on grounds no.3 to 8. Furthermore, the entire facts as to the supply of material by the vendors are yet to be brought on record by the AO by making discreet investigation. So, consequently, grounds no.9 to 14 are determined in favour of assessee. Addition on account of decrease in the Net Profit (NP) ratio - Held that - Bare perusal of the comparative chart of GP and NP rates for AY 2007-08 and AY 2013-14 goes to prove that net profit ratio in the instant case has never been consistent and even otherwise, it cannot be consistent as it depends upon numerous reasons. When the audited books of account have not been rejected, merely making an addition on ground of fall in NP ratio is not sustainable in the eyes of law. Moreover, the assessee has duly explained the reasons for fall in the net profit ratio in AY 2011-12 viz. fall in service income; increase in personnel expenses; and increase in depreciation charges which have been reproduced by the ld. CIT (A) of the impugned order but has not preferred to assign any reason for not accepting the contentions raised by the assessee. So, in view of the facts and circumstances of the case, we are of the considered view that in the absence of any cogent reasons, addition on the basis of fall in net profit ratio, that too without rejecting the books of account, is not sustainable, hence deleted.
Issues Involved:
1. Validity of the appellate order passed by the CIT(A). 2. Legality of the assessment order passed by the AO. 3. Rejection of the assessee's accounting method by CIT(A). 4. Addition of ?65,52,74,478 due to non-response from third-party vendors. 5. Disallowance under Section 68 for unconfirmed amounts. 6. Adhoc addition of ?23,93,44,462 for vendors not issued notices. 7. Legality of enhancement notice and enhancement by CIT(A). 8. Jurisdictional overreach by CIT(A) in enhancing income. 9. Disallowance of ?27,50,306 for non-deduction of TDS. 10. Disallowance of ?1,89,784 for non-deduction of TDS on an adhoc basis. 11. Disallowance of pass-through costs under Section 40(a)(ia). 12. Non-reduction of corresponding amounts recovered from customers. 13. Applicability of second proviso to Section 40(a)(ia). 14. Allowance of TDS benefit in the year it is deemed deducted and paid. 15. Erroneous computation of additional income. 16. Addition of ?3,01,15,968 on account of decrease in net profit ratio. 17. Direction to initiate penalty proceedings under Section 201(1). 18. Allegation of passing the order in haste and without adequate opportunity. Detailed Analysis: Ground No. 1: The ground was general in nature and did not require specific adjudication. Ground No. 2: The ground was not pressed by the assessee, and thus, it was decided against the assessee. Grounds No. 3, 4, 5, 6, 7, 8 & 18: The primary challenge was the AO's treatment of the difference between revenue disclosed in the P&L account and the receipts shown in Form No. 26AS as deemed income. The assessee disclosed revenue of ?31,70,10,189 in the P&L account, while Form No. 26AS showed receipts of ?163,17,01,764, resulting in a discrepancy of ?131,46,91,575. The assessee contended this difference arose due to its accounting policy and provided a reconciliation statement. The Tribunal noted that the CIT(A) and AO misinterpreted the business model and accounting policy, as the assessee was acting as an agent, a position supported by previous ITAT and DRP orders. The Tribunal restored the matter to the AO for fresh adjudication, emphasizing the need for verification of payments to vendors and proper reconciliation. Grounds No. 9, 10, 11, 12, 13 & 14: The assessee challenged the disallowance of ?27,50,306 and ?1,89,784 for non-deduction of TDS under Section 40(a)(ia). The CIT(A) disallowed these amounts, arguing that the payments involved work contracts liable for TDS under Section 194C. The Tribunal, referencing its previous order, stated that the CIT(A) could enhance the assessment but required proper verification. The Tribunal restored the matter to the AO for fresh adjudication, emphasizing the need for detailed investigation and verification of vendor payments. Ground No. 15: This ground was not pressed by the assessee and was decided against the assessee. Ground No. 16: The assessee challenged the addition of ?3,01,15,968 due to a decrease in the net profit ratio. The Tribunal noted that the net profit ratio had varied over the years and that the CIT(A) did not provide reasons for confirming the addition. The Tribunal held that without rejecting the audited books of account, an addition based solely on a fall in the net profit ratio was unsustainable and deleted the addition. Ground No. 17: This ground was considered premature and decided against the assessee. Conclusion: The appeal was partly allowed for statistical purposes, with several issues remanded to the AO for fresh adjudication and verification. The Tribunal emphasized the need for proper investigation, reconciliation, and adherence to legal standards in the assessment process.
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