2019 (10) TMI 706 - AT - Income Tax

Addition on account of suppressed receipts - AO not considered the revised return of income - HELD THAT - Allegation of assessing officer is that TDS disclosed in the return of income is only of 3.03 crore; whereas as per Form 26 AS is 5.18 crore. We have noted that in the ordinal return of income the assessee claimed TDS of 3.03 crore however in the revised return of income filed by assessee on 5th November 2013 the assessee claimed TDS of 6.53(as per page 73 of paper book) . This fact clearly shows that the assessing officer has not considered the revised return of income. The revised return of income was filed within prescribed period of limitation under the Act. Considering the fact that the assessing officer has not considered the revised return of income filed by assessee within time we restore this ground of appeal to the file of assessing officer to verify the fact and grant relief to the assessee in accordance with law. Disallowance of 25% of expenses - allegation of the Assessing Officer that the assessee has not maintained log books for use of expenses for business as well as for non-business purpose - HELD THAT - AO has not called any specific voucher bills or invoices before discarding the submission of the assessee. Commissioner (Appeals) confirmed the action of assessing officer with similar observation without specifying any reason or deficiency in the evidence furnish by assessee. The assessee is a corporate entity and engaged in the business of integrated financial services which consist of investment banking portfolio fund management corporate advisory institutional broking and distribution retail brokering distribution in mutual advisory services and distribution etc. Since none of the expenses claimed by assessee is disputed by the lower authorities. The lower authorities merely disallowed the expenses on ad-hock basis. Considering the fact that no deficiencies in the evidence furnish by the assessee was not specified nor any specific reason before making ad hoc disallowance was given by assessing officer therefore we direct the assessing officer to delete the entire addition - Decided in favour of assessee Disallowance of computer maintenance expenses - HELD THAT - Assessee has specifically stated in his reply dated 12th December 2014 that only system maintenance expenses were debited to the particular head. The assessee has not debited software charges in its profit and loss account. The assessee also stated that most of the expenditure is incurred on annual maintenance contract with a validity of one year only. The Hon ble jurisdictional High Court in CIT versus Raychem RPG Ltd 2011 (7) TMI 953 - BOMBAY HIGH COURT held that even the expenditure is incurred for acquisition of software the same is allowable as revenue expenditure. Therefore considering the decision of Hon ble Bombay High Court referred we direct the assessing officer to delete the entire disallowance on account of computer maintenance expenses. In the result this ground of appeal is allowed. Disallowance of bad-debts - HELD THAT - As perusal of those documentary evidence clearly establish that the assessee was able to recover only 20 lakhs and accordingly the remaining amount of 32.68 lakhs was claimed as bad-debts. Similar disallowance was made for Assessment Year 2010-11 and on in appeal before the ld. Commissioner (Appeals) the same was deleted. The assessee has specifically stated that income was duly accounted in earlier years. In our considered view the assessee fulfilled all requisite condition prescribed under section 36(2) of the Act. Moreover on similar set of fact the similar disallowance was deleted by ld. Commissioner (Appeals) in appeal for Assessment Year 2010-11. Therefore no justifiable reason for making disallowance of bad-debts written off which has been sufficiently justified by assessee. Hence we direct the Assessing Officer to delete the disallowance of bad-debts. Disallowance on depreciation on office equipment - @ 10% OR 15% - HELD THAT - Assessing Officer restricted the disallowances to 10% on the air-conditioners refrigerators water heaters communication equipment etc. instead of 15% as claimed by assessee holding that as per Appendix -1 the depreciation is allowable @ 10% only. We have noted that as per the rate of depreciation the 10% rate is applicable in respect of furniture and fittings including electrical fittings which consist of electrical wiring switches sockets and other fittings and fans. None of the item on which the assessee claimed is falls in the category-II of Appendix-1. Moreover we find force in the submission of ld. AR of the assessee that the assessee correctly classified the items as a part of Plant Machinery block. We are also in full agreement with the submission of ld. AR of the assessee that once the assets form part of block of asset the same cannot be interfered in any subsequent year. Hence we direct the Assessing Officer to delete the disallowance Disallowance on account of loss on error trade - HELD THAT - Assessee-company is engaged in the business of financial services which consist of investment banking portfolio and fund management institutional broking and distribution retail broking etc. The assessee in the show-cause notice issued by Assessing Officer has explained that due to human error in punching the wrong scrip code or punching of wrong quantity or in punching buy order in place of sale order due to human error the mistake may occur which may result in income or loss - assessee has sufficiently explained the trade loss. The Assessing Officer instead of considering the loss on account of error trade treated the same as speculative loss. We have further noted that the assessee has shown total receipt from operation of 74.24 crore and the trade loss claimed by assessee is miniscule. Explanation furnished by assessee we direct the Assessing Officer to delete the disallowance on account of trade error - Appeal filed by assessee is allowed.

Summary

Issues Involved:

1. Addition for Suppressed Receipts
2. Disallowance of 25% Expenses
3. Disallowance of Computer Maintenance Expenses
4. Disallowance of Bad Debts
5. Disallowance of Depreciation
6. Disallowance of Loss on Error Trade

Detailed Analysis:

1. Addition for Suppressed Receipts:

The Assessing Officer (AO) made an addition of ?16,09,63,742, citing a discrepancy between the income disclosed in the assessee's return (?38.04 crore) and the gross receipts as per Form 26AS (?54.14 crore). The assessee argued that the gross receipts in Form 26AS should not be directly compared with the income declared in the return, as the latter is net of expenses. The assessee also pointed out that the total revenue declared in the profit and loss account was ?94.22 crore, which is higher than the receipts in Form 26AS. The AO did not consider the revised return filed by the assessee, which claimed a TDS of ?6.53 crore instead of ?3.03 crore. The Tribunal restored this ground to the AO for verification, directing that the revised return should be considered and relief granted accordingly.

2. Disallowance of 25% Expenses:

The AO disallowed 25% of the expenses on the grounds that some were supported by self-made vouchers and lacked proper documentation. The assessee contended that all expenses were for business purposes and supported by necessary vouchers, which were produced during the assessment. The Tribunal noted that the AO did not specify any particular infirmity in the evidence provided by the assessee and made a general disallowance without proper justification. The Tribunal directed the AO to delete the entire disallowance, as the expenses were incurred for business purposes and adequately substantiated.

3. Disallowance of Computer Maintenance Expenses:

The AO treated the computer maintenance expenses as capital expenditure, allowing only 60% depreciation on them. The assessee argued that these expenses were mainly for annual maintenance contracts, which are revenue in nature. The Tribunal agreed with the assessee, citing the jurisdictional High Court's decision in CIT v. Raychem RPG Ltd., which held that even expenditure on software acquisition is allowable as revenue expenditure. The Tribunal directed the AO to delete the disallowance entirely.

4. Disallowance of Bad Debts:

The AO disallowed the bad debt claim of ?32.68 lakhs, stating that the assessee did not provide sufficient details to prove that the debt was included in the income of earlier years. The assessee provided evidence that the bad debt was from receivables of a client, GNRC Ltd., and was offered as income in earlier years. The Tribunal noted that similar disallowances were deleted in previous years and found that the assessee had fulfilled the conditions under Section 36(2) of the Income Tax Act. The Tribunal directed the AO to delete the disallowance.

5. Disallowance of Depreciation:

The AO disallowed ?6.10 lakhs of depreciation, arguing that office equipment should be depreciated at 10% instead of 15%. The assessee contended that assets like air-conditioners, refrigerators, and communication equipment fall under 'Plant and Machinery' and should be depreciated at 15%. The Tribunal agreed with the assessee, noting that these assets were correctly classified under 'Plant and Machinery' and that once an asset forms part of a block, it cannot be reclassified in subsequent years. The Tribunal directed the AO to delete the disallowance.

6. Disallowance of Loss on Error Trade:

The AO disallowed a loss of ?1 lakh on error trade, treating it as speculative loss under Explanation to Section 73. The assessee explained that the loss was due to human errors in trading, which were not speculative in nature. The Tribunal found the assessee's explanation satisfactory and noted that the loss was a minuscule percentage of the total receipts. The Tribunal directed the AO to delete the disallowance.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the AO to delete the disallowances and additions made under various grounds, as they were not justified based on the evidence and explanations provided by the assessee.