2015 (5) TMI 540 - AT - Income Tax

Additions on account of Gross Receipts - CIT(A) confirmed addition alleging that the same has been accrued to the Appellant from M/s. Standard Chartered STCI Capital Markets Ltd. - Held that - We agree with the revenue authorities that since the amount became due and/or accrued to the assessee, the income has emerged and therefore had to be taken as income of the assessee. The case cited by the AR has different facts, and till then it would remain contingent. But in the case in hand, the work was completed and it was the assessee who failed to have a proper collection from her clients to be paid to SC-STCI, on this default by the assessee, the amount though due was not paid to her, therefore, it was her income and the revenue authorities have correctly brought the same tax. - Decided against assessee. Business loss - Whether amount retained by M/ s. Standard Chartered-STCI Capital Markets Ltd is a loss suffered by the Appellant in the course of business of the Appellant? - Held that - The assessee actually suffered loss, not only from the clients, who did not honour their commitments, but from her principal, i.e. SC-STCI, as well who did not pay her in line of their receipts from business and as per clause 6.15. We, therefore, hold that it was a business loss for the year under consideration.We, therefore, direct the revenue authorities to allow ₹ 21,20,714/- as business loss and consequential benefits attached to it. - Decided in favour of assessee. Disallowance of Bad Debts - assessee had been that the money could not be recovered from her clients, which were due to be paid to SCSTCI - Held that - The issue in question is exactly the same was that in Ground above but neither the assessee nor the DR has made any attempt either to reconcile or to differentiate the amounts involved in Ground A and B. It is apparent that the figures too would tally. In such a case it would be better that the AO give an exact finding of fact. We, therefore, set aside the orders of the revenue authorities on this issue and direct the AO to adjudicate afresh. - Decided in favour of assessee for statistical purposes. Disallowance of commission paid - Held that - The fact that the assessee was in business and has shown brokerage received at ₹ 42,28,330/- has not been disputed or disturbed by the revenue authorities. It is also a fact that as per the AO, the assessee would have received income from brokerage at ₹ 67,33,211/-, but declared only ₹ 42,28,330/- which was actually received. To earn that much brokerage, the assessee who in the business must have paid the commission to her brokers/agents and also employed certain staff. On the other hand, the revenue authorities have disallowed the payment of commission u/s 40(a)(ia), which patently means that the assessee has paid the commission and has paid salary to her employee as well. Since the revenue authorities have disallowed the payments of ₹ 4,08,872/- and ₹ 13,08,872/-, for non-deduction of TAS, the issue has created a major block to come to a logical conclusion. Thus isssues need to be adjudicated afresh in line with legal provisions of section 40(a)(ia).- Decided in favour of assessee for statistical purposes. Addition on account of unexplained cash credit & unexplained expenditure - Held that - We have not been able to find out as to how the two figures were derived by the AO. In such a circumstance, most appropriate view would be that the orders of the revenue authorities be set aside with the directions to the AO to re-adjudicate the issues, if required.- Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Additions on account of Gross Receipts
2. Disallowance on account of Bad Debts
3. Disallowance of Commission Paid
4. Disallowance under Section 40(a)(ia)
5. Addition on account of Unexplained Cash Credit under Section 68
6. Addition on account of Unexplained Expenditure under Section 69C
7. Liability to Pay Interest under Sections 234A, 234B, and 234C

Issue-wise Detailed Analysis:

1. Additions on account of Gross Receipts:
The assessee objected to the addition of Rs. 21,20,714/- made by the AO, which was upheld by the CIT(A). The assessee argued that this amount was retained by Standard Chartered - STCI Capital Markets Ltd. due to non-clearance of dues by various clients and was irrecoverable. The AO added this amount to the income, citing the mercantile system of accounting. The ITAT agreed with the revenue authorities, stating that the amount had accrued as income and thus was taxable. However, it was recognized as a business loss due to non-receipt from clients, and the revenue authorities were directed to allow Rs. 21,20,714/- as a business loss.

2. Disallowance on account of Bad Debts:
The assessee claimed Rs. 6,13,413/- as bad debt, which was disallowed by the AO and upheld by the CIT(A). The ITAT noted that the issue was similar to the gross receipts matter and directed the AO to re-adjudicate this issue afresh to determine if the amount should be allowed as bad debt.

3. Disallowance of Commission Paid:
The assessee challenged the disallowance of Rs. 4,08,872/- out of the total commission paid, and the CIT(A) directed the AO to disallow Rs. 13,08,872/- under Section 40(a)(ia) for non-deduction of TDS. The ITAT found that the revenue authorities had not properly adjudicated the issue and directed the AO to re-examine the deduction of TDS and allow the expense if the assessee's contentions were correct.

4. Disallowance under Section 40(a)(ia):
The disallowance of Rs. 40,000/- was contested by the assessee, who argued that the amount was paid to an employee and thus not subject to Section 40(a)(ia). The ITAT directed the AO to re-examine this issue in line with the legal provisions of Section 40(a)(ia).

5. Addition on account of Unexplained Cash Credit under Section 68:
The assessee contested the addition of Rs. 31,427/- as unexplained cash credit. The ITAT found that the AO's basis for this figure was unclear and directed the AO to re-adjudicate the issue.

6. Addition on account of Unexplained Expenditure under Section 69C:
The addition of Rs. 68,941/- as unexplained expenditure was also contested. The ITAT noted the lack of clarity in the AO's determination of this figure and directed the AO to re-examine the issue.

7. Liability to Pay Interest under Sections 234A, 234B, and 234C:
The assessee denied liability for interest under these sections. The ITAT stated that the computation of interest is consequential and depends on the final assessed income.

Conclusion:
The appeal was partly allowed, with several issues being remanded back to the AO for re-adjudication. The ITAT directed the revenue authorities to allow the business loss of Rs. 21,20,714/- and to re-examine the other contested issues in line with legal provisions and the assessee's contentions.

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