2017 (9) TMI 1216 - AT - Income Tax

Addition on account of alleged suppression of service value received - Held that - Admittedly, the assessee s books of account are audited and the AO could not find any discrepancy in the same. Merely because the 26AS when compared with the service value as reflected in the P&L Account of the assessee cannot be the ground to make the addition. In such cases, we should take note that the assessee has no control over the Form 26AS which is generated by the department when the payer credits the tax deducted at source electronically by entering the PAN details of the assessee, where mistake during entering the PAN details or figures cannot be ruled out. The assessee maintained its books of account in the regular business which is audited and has received its receipts through banking channel. In such a scenario, in order to disbelieve the assessee s P&L Account when there is discrepancy with Form 26AS, then it is the bounden duty of the AO to give opportunity to the assessee to confront the payer and to find out the correct figure, without doing so, the addition made simply believing the Form 26AS will be an arbitrary exercise of power which cannot be sustained and, therefore, we direct deletion of the same. This ground of appeal of assessee is allowed. Disallowance of 20% of the site expenses - Held that - Before the AO, the assessee produced internal vouchers and bills wherever it could get the bills that was produced; and of course the office vouchers were produced before the AO. However, the AO has disallowed 20% holding that expenses may not be bona fide and genuine. We do not subscribe to such action of the authorities below on the facts and circumstances of the case as discussed above. The ad-hoc disallowance of 20% is akin to arbitrariness and based on surmises and conjectures without spelling out the defects in the vouchers and books produced before him. The books of account of the assessee are audited and the AO has not found any default with the books of account. If there was any item-wise defect noticed by the AO, then he should have disallowed the said item-wise disallowance but not ad-hoc disallowance which cannot stand under scrutiny of law and, therefore, we are inclined to allow this ground of appeal of the assessee.

Summary

Issues:
1. Addition of alleged suppression of service value received
2. Disallowance of 20% of site expenses claimed

Analysis:

Issue 1: Addition of alleged suppression of service value received
The appeal was filed against the order confirming the addition of ?5,17,925 on account of alleged suppression of service value received. The assessee, engaged in Road Survey Consultancy, declared a total income of ?18,78,030. Discrepancies were noted between the service value shown in Form 26AS and the P&L Account of the assessee. The AO added the sum of ?5,17,925 to the income of the assessee based on these discrepancies. However, the assessee argued that the difference in receipts was due to netting of service tax and that the Form 26AS cannot be solely relied upon. The Tribunal held that the assessee's books were audited, and discrepancies in Form 26AS do not justify additions without giving the assessee an opportunity to confront the payer. The Tribunal directed the deletion of the addition, emphasizing the importance of verifying discrepancies before making arbitrary additions.

Issue 2: Disallowance of 20% of site expenses claimed
The second ground of appeal was against the disallowance of 20% of site expenses claimed by the assessee, adding ?4,16,104. The assessee operated in high-risk zones in the North Eastern region, where proper vouchers for expenses were not readily available due to the difficult terrain and insurgency activities. The AO disallowed 20% of the expenses claimed, citing lack of bills/vouchers. The Tribunal noted the challenging working conditions of the assessee and the necessity to provide lucrative incentives to employees to work in such areas. It found the ad-hoc disallowance of 20% to be arbitrary and not based on any specific defects in the vouchers produced. As the books of account were audited and no specific default was found, the Tribunal allowed this ground of appeal, emphasizing the lack of justification for the disallowance.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the deletion of the addition made on the alleged suppression of service value received and rejecting the disallowance of 20% of site expenses claimed. The Tribunal highlighted the importance of proper verification before making additions and the need to consider business expediency in challenging working conditions.