2015 (9) TMI 380 - AT - Income Tax

Disallowance of amount of service tax payable u/s 43B - Held that - Since the said amount of service tax was not received during the year, the ld. AR argued that no disallowance can be made on this score u/s 43B. For this proposition, he relied on the judgment of CIT VS. Ovira Logistics (P) Ltd. (2015 (4) TMI 684 - BOMBAY HIGH COURT). For similar proposition, he relied on the order passed by the Chennai bench of the tribunal in ACIT VS. Real Image Media Technologies (P) Ltd. (2007 (12) TMI 263 - ITAT MADRAS-C ) in which it has been held that service-tax though billed but not received not having become payable to the credit of the Central Government by virtue of s. 68 of the Finance Act, 1994, r/w r. 6 of the Service-tax Rules, 1994, the same cannot be disallowed under s. 43B. No contrary decision has been brought to our notice by the ld. AR. Thus we hold that since the amount of service tax in dispute was admittedly not realized by the assessee, the same could not be disallowed u/s 43B. Decided in favour of assessee. Addition of amount of bad debts written off in the books of account - Held that - There is no dispute on the fact that the assessee wrote off a sum of ₹ 7.75 lac in his books of account as bad debt. The Hon ble Supreme Court in T.R.F. Ltd. vs. CIT (2010 (2) TMI 211 - SUPREME COURT ) has held that after 1.4.1989 the assessee is not required to establish that the debt has become bad in the previous year and a deduction on account of bad debts is permissible on a simple write off of the amount of bad debt. The deduction on account of bad debts is permissible on write off only if the amount of debt has been taken into account in computing the income of the assessee for the instant year or an earlier year. As decided in DCIT vs Shreyas S. Morakhiya (2010 (7) TMI 455 - ITAT MUMBAI ) amount receivable by the assessee share broker on account of brokerage is a part of debt receivable by him from his clients against purchase of shares on their behalf and, once such brokerage is credited to his Profit & Loss Account and the same is taken into account in computing his income, the condition stipulated in section 36(2)(i) gets satisfied and, therefore, the write off of the debt representing the irrecoverable amount receivable from the clients against purchase of shares on their behalf is allowable as bad debt. The Hon ble Bombay High Court in CIT vs. Shreyas S. Morakhiya (2012 (3) TMI 103 - BOMBAY HIGH COURT) has approved the view taken by the Special Bench supra. The facts of the instant case are, mutatis mutandis, similar to those considered and decided in the aforenoted judicial precedents. As such, the assessee deserves to succeed on this ground. - Decided in favour of assessee. Non-deduction of tax on commission and brokerage u/s 40(a)(ia) - AO opined that the assessee was required to deduct tax at source u/s 194H - Held that - The instant assessee is an individual. As such, he is liable to make deduction of tax at source from commission income u/s 194H only if the condition enshrined in the second proviso is satisfied, i.e. sales or gross receipts must exceed the monetary limit (Rs.40 lac at that time) during the financial year preceding the financial year in which commission is paid. Thus if the assessee in question pays commission or brokerage in the previous year 2007-08 relevant to assessment year 2008-09, then, his sales, gross receipts or turnover for the previous year 2006-07 relevant to assessment year 2007-08 must exceed ₹ 40 lac so as to make him liable for deduction of tax at source u/s 194H of the Act. Adverting to the facts of the instant case, we find that the total turnover of the assessee for the immediately preceding year was ₹ 26.74 lac. Since this amount of total turnover for the immediately preceding year does not breach the limit of ₹ 40 lac, there can be no obligation on the assessee to deduct tax at source on commission paid in the previous year relevant to assessment year under consideration.- Decided in favour of assessee. Addition u/s 68 - CIT(A) deleted the addition - Held that - The assessee furnished reconciliation before the ld. CIT(A) in respect of balances of the parties appearing in his books of account and the corresponding balances in the books of such parties. The ld. CIT(A) found reconciliation in order and, accordingly, deleted the addition. The ld. DR could not controvert any discrepancy in such reconciliation. Under such circumstances, we are of the considered opinion that the ld. CIT(A) has taken an unimpeachable view on this issue.- Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of service tax under section 43B of the Income-tax Act, 1961.
2. Disallowance of bad debts written off in the books of account.
3. Non-deduction of tax on commission and brokerage under section 40(a)(ia) of the Act.
4. Addition made by the AO under section 68 of the Act.

Issue 1: Disallowance of service tax under section 43B:
The primary question was whether section 43B applies to the unpaid service tax amount not realized by the assessee. The assessee contended that since the service tax was not received, it should not be disallowed under section 43B. The tribunal referred to precedents and held that if the service tax billed but not received, it cannot be disallowed under section 43B. The tribunal relied on judgments to support this decision, ultimately allowing the assessee's appeal on this ground.

Issue 2: Disallowance of bad debts written off:
The issue revolved around the deduction claimed by the assessee for bad debts written off in the books of account. The AO disallowed the deduction, questioning the substantiation of debit notes issued towards non-recoveries. The tribunal analyzed the provisions of section 36(2) and relevant case laws. It was held that the write-off of bad debts is permissible if the debt has been taken into account in computing the income of the assessee. Relying on judicial precedents, the tribunal allowed the deduction for bad debts written off, overturning the AO's decision.

Issue 3: Non-deduction of tax on commission and brokerage:
The dispute centered on the disallowance made by the AO under section 40(a)(ia) for non-deduction of tax on commission payment. The tribunal examined the provisions of section 194H and the conditions for tax deduction on commission income. It was established that the assessee, being an individual, was not liable to deduct tax at source as the turnover did not exceed the prescribed limit. The tribunal upheld the decision of the CIT(A) in deleting the disallowance, citing similar views taken in the preceding year.

Issue 4: Addition made under section 68 of the Act:
The AO made an addition under section 68 based on discrepancies in creditor and debtor balances. The assessee provided reconciliation before the CIT(A), which led to the deletion of the addition. The tribunal found the reconciliation satisfactory and upheld the CIT(A)'s decision, noting the absence of any discrepancies highlighted by the revenue. Consequently, the tribunal dismissed the revenue's appeal on this ground.

In conclusion, the tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal, addressing all the issues raised in the cross-appeals.