2018 (1) TMI 849 - AT - Income Tax

Addition on account of sales promotion and advertisement expenses as unproved / bogus - Held that - When the permanent account number as well as other particulars of the income tax assessment of the said party were placed on record before the A.O., he could have easily verified the claim of the assessee directly with the said party instead of harping on the failure of the assessee to give the correct address or produce the said party for verification. As regards the claim of the assessee for deduction paid to M/s. Latest Publicity House for supply of gift articles, it is not supported by any relevant documentary evidence such as bills, delivery challans, vouchers etc and in the absence of the same, the claim of the assessee for the said expenses cannot be allowed. - Decided partly in favour of assessee TDS u/s 194C - Disallowance u/s 40(a)(ia) - payment for performing accountancy job and computer consultancy - contract entered into by the assessee with the said persons - Held that - As rightly held by the authorities below, when the amount in question was paid by the assessee to the concerned 3 persons at the fixed rate on monthly basis for the specified services rendered by them, there was bound to be an oral contract on the basis which the services were agreed to be rendered on retainership basis. The assessee, therefore, was liable to deduct tax at source in terms of section 194C and having failed to do so, the amount in question was liable to be disallowed under section 40(a)(ia). - Decided against assessee. Addition of installation and delivery expenses - CIT-A sustained 50% expenses - Held that - Disallowance made by the A.O. for such expenses entirely was not justifiable keeping in view the nature of the assessee s business of dealing in electronic goods which very much required incurring of expenditure on installation and delivery charges on regular basis - Disallowance made by the Ld. CIT(A) vide his impugned order is excessive and unreasonable and having regard to all the facts of the case including especially the nature of assessee s business as well as the quantum of expenditure claimed, it would be fair and reasonable to make a disallowance of 50% out of installation and delivery charges to 25%.- Decided partly in favour of assessee Disallowance u/s 40A(3), car expenses and telephone expenses - Held that - A perusal of the relevant portion of the order of authorities below also shows that a very fair and reasonable view has been taken by them while making this disallowances - Decided against assessee.

Summary

Issues:
1. Validity of assessment under section 143(3)
2. Disallowance of sales promotion and advertisement expenses
3. Disallowance under section 40(a)(ia)
4. Disallowance of installation and delivery expenses
5. Disallowance under section 40A(3)
6. Disallowance of car and telephone expenses
7. Additional ground on disallowance of bad debts

Validity of assessment under section 143(3):
The assessee challenged the assessment made by the A.O. under section 143(3), but later withdrew the challenge. The grounds were dismissed as not pressed.

Disallowance of sales promotion and advertisement expenses:
The A.O. disallowed Rs. 15,69,950/- claimed by the assessee as sales promotion and advertisement expenses, treating it as unproved/bogus. The Ld. CIT(A) confirmed the disallowance, stating that the documentary evidence provided by the assessee was insufficient to prove the services rendered by the party. However, the ITAT found merit in the evidence presented, allowing the deduction for hoarding charges but disallowing the expenses for gift articles due to lack of supporting documentation.

Disallowance under section 40(a)(ia):
A disallowance of Rs. 2,31,120/- was made by the A.O. and confirmed by the Ld. CIT(A) under section 40(a)(ia) for failure to deduct tax at source from payments made to three persons. The ITAT upheld the disallowance, stating that the payments were made on a monthly basis for specified services, creating an oral contract that required tax deduction at source.

Disallowance of installation and delivery expenses:
The A.O. disallowed the entire amount of Rs. 2,68,689/- claimed by the assessee for installation and delivery expenses due to lack of verifiable details. The Ld. CIT(A) reduced the disallowance to 50%. The ITAT found the 50% disallowance excessive, modifying it to 25% considering the nature of the assessee's business.

Disallowance under section 40A(3):
The disallowances under section 40A(3) for various expenses were upheld by the ITAT as fair and reasonable, as no material contentions were raised by the assessee to support their case.

Additional ground on disallowance of bad debts:
Although the assessee filed an application for an additional ground on the disallowance of bad debts, no arguments were presented at the hearing. The ITAT did not address this ground due to the lack of contention from the assessee.

In conclusion, the ITAT partly allowed the appeal of the assessee, modifying certain disallowances while upholding others based on the evidence and legal provisions presented during the proceedings.