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2019 (4) TMI 1282 - AT - Income TaxAddition on account of non-reconciliation of commission received from BSNL - assessee is the proprietor of M/s International Telecom Network and is serving as a BSNL franchisee and the marketing partner of BSNL - HELD THAT - The assessee was unable to reconcile the difference in Form 26AS and ld. Counsel also fairly agreed with us that assessee has failed to reconcile the difference. AO as well as ld. CIT(A) both were wrongly treated the entire receipt as undisclosed income of the assessee instead to tax the profit element. We note that the gross profit rate of assessee is 5% therefore to meet the end of justice, we are of the view that ad hoc disallowance @ 6.5% should be sustained on the differential amount of 26AS to the tune of ₹ 5,82,626/- which comes to ₹ 37,870/-. Therefore we direct the Assessing Officer to disallow, only 6.5% of ₹ 5,82,626/-. Accordingly, we allow this ground partly. Estimated disallowance of discount to field staff and salary to staff to the tune of 15% of the expenses made - Non rejection of books of accounts - HELD THAT - AO has not passed any order u/s 144 - thus without rejecting books of accounts of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses by paying salary to staff and allowing discount to field staff. Therefore, action of AO is not acceptable. On appeal by the assessee, the ld. CIT(A) held that in order to protect the interest of revenue, it would be suffice to make an estimated disallowance of 15% of the claim of the salary. We note that ld. CIT(A) also sustained the addition based on estimation which is not acceptable for the reasons given above. As regards the discount claimed by the assessee the ld. CIT(A) noted that discount allowed by the Assessing Officer as per his own estimates is more than the amount claimed by the assessee, therefore ld. CIT(A) restricted the claim of the assessee to the lesser of the two figures. However, we note that assessee claimed discount given to field staff at ₹ 31,90,617/- and salary paid at ₹ 19,52,536/-. The Assessing Officer computed the discount @ 2.5% at ₹ 9,44,97,724/- which comes to ₹ 23,62,443/-; as against the claim of the assessee to the tune of ₹ 31,90,617/-. Thus, the Assessing Officer made the total disallowance of ₹ 27,80,709/- (31,90,617 19,52,536 23,62,443) which is hereby deleted. Non deduction of TDS - Addition on advertisement charges u/s 40a(ia) - HELD THAT - If the payee has included the receipts in his books of accounts and has offered for taxes then disallowance on account of non-deduction of TDS, will not arise. The ld. DR for the revenue has fairly agreed with the submission made by ld. Counsel, therefore, we remit this issue back to the file of Assessing Officer with the direction to examine whether receipts has been offered for taxation by the payee. If the payee has offered for taxation then no disallowance shall be made in respect of receipts of ₹ 1,33,500/- TDS u/s 194C - 15% ad hoc disallowance of supervision charges - AO disallowed the supervision charges on the ground that no TDS was deducted on contractual payments to supervisors - HELD THAT - We note that Assessing Officer has not denied in the assessment order that supervision charges were not paid. We note that these payments are not contractual in nature therefore provisions of section 194C does not apply. Hence, we delete the entire addition made by Assessing Officer Addition on account of legal charges paid by the assessee to Advocate - TDS liability - HELD THAT - The assessee s explanation was rejected by the Ld. CIT(A) without ascribing any detailed reasoning. We note that the ld. Counsel submitted before the Bench that this payment is against the reimbursement of expenses and does not contain any income element therefore no TDS is required. We find merit in the submissions of the assessee that the said advance is against the reimbursement of expenses which does not require deduction of any TDS, hence, we delete the addition. Disallowance of rent u/s 40a(ia) paid to three different owners - HELD THAT - All the payments to each person is below threshold limit of ₹ 1,80,000/-, and since it is below threshold limit therefore this does not require any deduction of TDS. However, considering the principle of natural justice and fair play we remit this issue back to the file of the Ld. Assessing Officer to examine whether each payment to these three land lord is below threshold limit of ₹ 1,80,000/- or not, if it is below ₹ 1,80,000/- no disallowance would be made - we direct the AO to examine the payments and adjudicate this issue in accordance with law. Hence we allow this ground raised by the assessee for statistical purposes. Disallowance on account of general expenses, miscellaneous expenses, conveyance expenses, printing, repairs and maintenance expenses - non rejection of books of accounts - CIT(A) reduced it to 15% - HELD THAT - AO has not pointed out any cogent reasoning for making these disallowances. We note that assessee s books of accounts are not rejected by Assessing Officer u/s 145(3) of the Act and the assessment was carried out u/s 143(3) of the Act. Moreover, the Assessing Officer has not examined the genuineness of these expenses item wise. The Assessing Officer ought to disallow only those expenses for which the assessee has not submitted bills and vouchers to substantiate the bona fide of the claim. Without rejecting the books of accounts of the assessee and to make estimated disallowance is not justifiable and it needs to be deleted. Service tax liability - service tax liability which was directly paid by BSNL after year end from deduction of their account - HELD THAT - no documentary evidence in support of this claim could be brought on record in the assessment stage and even at the appellate stage. In the absence of documentary evidence this ground was dismissed. We note that ld. DR for the revenue disputed that it is not certain whether impugned amount is a service tax liability or not. Therefore we are of the view that this fact needs to be examined by Assessing Officer whether the impugned amount of ₹ 20,90,729/- is pertained to service tax liability or not. If it is a service tax liability no disallowance is warranted u/s 43B of the Act. Therefore we set aside the order of ld. CIT(A) for this issue and remit the issue back to the file of Assessing Officer to adjudicate the issue in accordance with law.
Issues Involved:
1. Addition of ?5,82,626 on account of non-reconciliation of commission received from BSNL. 2. Estimated disallowance of discount to field staff and salary to staff. 3. Disallowance of ?1,33,500 on account of advertisement charges under Section 40(a)(ia). 4. Ad hoc disallowance of 15% of supervision charges. 5. Disallowance of legal charges amounting to ?34,700. 6. Disallowance of rent under Section 40(a)(ia) amounting to ?3,98,193. 7. Ad hoc disallowance of 15% on general business expenses. 8. Service tax liability of ?20,90,729. Issue-wise Detailed Analysis: 1. Addition of ?5,82,626 on account of non-reconciliation of commission received from BSNL: The assessee, a BSNL franchisee, reported commission and discount receipts of ?1,65,71,193, including service tax. However, a discrepancy of ?5,82,626 was noted between the reported amount and Form 26AS. The Tribunal acknowledged the assessee's failure to reconcile this difference but directed that only the gross profit rate (6.5%) should be applied to the differential amount, resulting in a disallowance of ?37,870 instead of the entire ?5,82,626. 2. Estimated disallowance of discount to field staff and salary to staff: The assessee claimed discounts and salaries totaling ?31,90,617 and ?19,52,536, respectively. The Assessing Officer (AO) disallowed ?27,80,709, suspecting inflation of expenses without rejecting the books of accounts. The Tribunal found the AO's estimation without rejecting the books of accounts unjustifiable and deleted the disallowance. 3. Disallowance of ?1,33,500 on account of advertisement charges under Section 40(a)(ia): The AO disallowed ?6,28,978 and ?2,41,500 for advertisement and legal charges, respectively, for non-deduction of TDS. The CIT(A) deleted ?4,95,478 related to material purchases, confirming the balance ?1,33,500. The Tribunal remitted the issue back to the AO to verify if the payee included the amount in their income, directing no disallowance if taxes were paid. 4. Ad hoc disallowance of 15% of supervision charges: The AO disallowed ?11,28,047 for non-deduction of TDS on contractual payments. The Tribunal noted these were payments to regular employees below the TDS threshold and deleted the entire disallowance. 5. Disallowance of legal charges amounting to ?34,700: The AO disallowed ?34,700 paid to an advocate under Section 40(a)(ia). The Tribunal accepted the assessee's claim that the payment was for reimbursement of expenses without an income element, thus not requiring TDS, and deleted the disallowance. 6. Disallowance of rent under Section 40(a)(ia) amounting to ?3,98,193: The assessee paid rent to three individuals, each below the ?1,80,000 threshold for TDS. The Tribunal remitted the issue back to the AO to verify if each payment was below the threshold, directing no disallowance if confirmed. 7. Ad hoc disallowance of 15% on general business expenses: The AO made a 20% estimated disallowance on various business expenses, reduced to 15% by the CIT(A). The Tribunal found no cogent reason for these disallowances without rejecting the books of accounts and deleted the disallowance of ?30,56,072. 8. Service tax liability of ?20,90,729: The AO treated the service tax liability as bogus due to lack of documentary evidence. The Tribunal remitted the issue back to the AO to verify if the amount pertains to service tax liability, directing no disallowance if confirmed. Conclusion: The appeal was partly allowed, with several issues remitted back to the AO for verification and appropriate action based on the provided evidence. The Tribunal emphasized the need for proper verification and adherence to legal provisions in making disallowances.
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