2021 (6) TMI 761 - AT - Income Tax

Disallowance of Architect fee and brokerage expenses - AO disallowed said expenses only on the ground that Sri Perumbakkam project was not completed for the year under consideration, but never called for any proof of expenses, whereas, CIT(A) has confirmed additions made by the AO on the ground that assessee has not furnished any evidence - HELD THAT - It is a claim of assessee that had been the AO called for evidence for expenses, the assessee could have furnished said evidence. The assessee was not given opportunity to furnish necessary evidence in support of it expenses, we are of the considered view that issue needs to go back to the file of the AO to give another opportunity to the assessee to file necessary evidence in support of its expenses. Disallowance of sales tax service tax - Claim of the assessee before CIT(A) was that it has opted for composite scheme of payment of sales tax service tax and as per said scheme, taxes on sales cannot be collected from customers - HELD THAT - The sales tax service tax is an item of expenditure, which is deductible in case same is paid by the assessee without collecting from customers - AO as well as learned CIT(A) were erred in disallowing sales tax service tax debited into profit loss account by holding that sales tax service tax is not an expense. As fact with regard to whether the assessee has collected taxes from customers or not is not coming out from records. Therefore, to ascertain the facts, issue has been set aside to the file of the AO and direct him to cause necessary enquiries and if the AO found that the assessee has opted composite method of payment of taxes without collection of taxes from customers, then AO is directed to allow sales tax service tax paid by the assessee as deductible expenses.

Summary

Issues Involved:
1. Disallowance of architect fees and brokerage expenses
2. Disallowance of sales tax and service tax paid

Analysis:

Issue 1: Disallowance of architect fees and brokerage expenses
The appellant contested the disallowance of architect fees and brokerage expenses by the Assessing Officer, arguing that necessary evidence was not requested before the disallowance was made. The CIT(A) upheld the disallowance citing lack of evidence provided by the assessee. The Tribunal noted that the Assessing Officer did not seek proof of expenses before disallowing them. As the appellant was not given an opportunity to furnish supporting evidence, the Tribunal directed the issue to be remanded to the Assessing Officer for the assessee to provide necessary evidence.

Issue 2: Disallowance of sales tax and service tax paid
The appellant claimed that the sales tax and service tax debited into the profit & loss account were paid on sales made by the assessee and that the composite method of tax payment was followed, where taxes were not collected from customers. The Assessing Officer and CIT(A) disallowed these taxes as expenses, stating they were not deductible. The Tribunal found errors in this disallowance, emphasizing that sales tax and service tax are deductible if paid by the assessee without collecting them from customers. As the records did not clarify whether taxes were collected from customers, the Tribunal remanded the issue to the Assessing Officer for further investigation. If it is found that the assessee followed the composite method of tax payment without collecting taxes from customers, the taxes paid will be allowed as deductible expenses.

In conclusion, the appeal was allowed for statistical purposes, and the issues of disallowance of architect fees, brokerage expenses, sales tax, and service tax paid were remanded to the Assessing Officer for proper examination and consideration of evidence provided by the assessee.