2019 (11) TMI 205 - AT - Income Tax

Expenditure incurred qua commission and brokerage - Allowable business expenditure - CIT (A) disallowed these expenses on the premise that the assessee has failed to furnish copy of bills raised by the payees and that notices issued under section 133(6) have not been responded by the payees - HELD THAT - CIT (A) was required to return finding if the expenditure are genuine and have been incurred for the purpose of business and then to record the finding that the payment has been made. Answers to both these questions have been given by the AO that payment to both the parties, namely, ABC Real Estate and Real Estate Opportunities Investment on account of commission and brokerage has been proved from the books of account of the parties and from bank statement. So, merely on the ground that letter sent to the parties under section 133(6) of the Act by the AO remained unanswered and bills issued by the payees and details of transactions in respect of brokerage and commission payments have been made, the expenses cannot be disallowed - assessee has given confirmation from both the aforesaid parties along with bank statement. Furthermore, the assessee has duly deducted the TDS on these payments. So, in these circumstances, we are of the considered view that the ld. CIT (A) has erred in confirming the disallowance of claim of ₹ 12,24,329/- out of disallowance of ₹ 15,02,977/- made by the AO on account of expenditure of commission and brokerage, hence ordered to be deleted. Disallowance under the head commission and brokerage paid to six payees - non-compliance of notices issued u/s 133 (6) of the Act by the six of the payees and assessee has not submitted bills and vouchers for making such payment - Assessee has also not given the details as to qua which of the properties booking was made and commission was paid and what was the rate of commission and proof of rendering actual services - HELD THAT - when the AO has categorically mentioned that all the payments made by the assessee are verifiable being duly recorded in the books of assessee, which have not been otherwise disputed and the same are duly corroborated with bank statement and ledger account. Moreover, out of 22 payees to whom the brokerage have been paid, only 6 payees did not respond. However, their confirmation is available on record. So, when there is no dispute as to the identity of the payees and genuineness of the expenditure has nowhere been disputed by the ld. CIT (A) and these expenditure made under the head commission and brokerage have not been disallowed in the preceding or succeeding year, the same cannot be disallowed. In these circumstances, we are of the considered view that the ld. CIT (A) has erred in making disallowance Addition of sundry creditors - HELD THAT - When assessee has undisputedly maintaining its books of account on the basis of mercantile system of accounting and the amount in question is shown as opening balance in the books of assessee in the account of I.M. Puri Co. and such expenses having been incurred in the preceding years had not been paid, was shown as outstanding to the creditor s account. In these circumstances, the addition could not be sustained as there is no evidence on record that such liability has ceased to exist. We have examined opening balance of the assessee, available at page 212 of the paper book, in the account of I.M. Puri Com. wherein amount in question has been shown as opening balance in the account of I.M. Puri Co. So, in these circumstances, we are of the considered view that disallowance made by the ld. CIT (A) is not sustainable, hence ordered to be deleted. Deduction u/s 35D - enhancement made by the ld. CIT (A) u/s 251 - HELD THAT - We fail to agree with the ld. CIT (A) that the proposed enhancement is not a new source of income and is very much part of the income assessable under the head income from business and profession . Bare perusal of the assessment order goes to prove that when the AO has computed the business income of the assessee, question of allowability or dis-allowability of claim in question has not been discussed and decided. So, we are of the considered view that the expenditure disallowed by the ld. CIT (A) by way of enhancement certainly amounts to new source of income. CIT (A) has recorded the finding that when the deduction has been claimed in the computation of income under section 35D of the Act rather ignored to examine the claim. Again, the identical issue has been decided by Hon ble Supreme Court in case of CIT vs. Rai Bahadur Hardutroy Motilal Chamaria 1967 (4) TMI 8 - SUPREME COURT by holding that, the Appellate Assistant Commissioner has no jurisdiction under section 31 (3) of the I.T. Act, 1922 which is pari-materia with section 251(1) of the Act to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order . Disallowance of the interest paid on loans - HELD THAT - CIT (A) has thrashed the issue in entirety by perusing the closing balance of the assessee at ₹ 459.77 crores whereas interest free loan was of ₹ 229.4 crores and the assessee company was having share capital and reserves of ₹ 759.93 crores and when the loan was given for business expediency of subsidiaries duly explained by the assessee and appreciated by the ld. CIT (A) that the amount paid during the year under assessment was ₹ 275.16 crores from internal accruals, the ld. CIT (A) has rightly deleted the addition by relying upon the decision rendered by Hon ble Supreme Court in SA Builders 2006 (12) TMI 82 - SUPREME COURT - AO in remand proceedings has not given any comments, for the reasons best known to him rather raised a bald objection that additional evidence sought to be led by assessee be not admitted as the assessee had already been granted adequate opportunity, thus has impliedly admitted the submissions of the assessee explaining aforesaid facts that addition was not sustainable, hence ld. CIT (A) has rightly deleted the addition Disallowance of advertisement and publicity expenses - Steep increase in advertisement and publicity expenses by the assessee during the year under assessment - assessee has failed to furnish complete information in respect of some of the parties to whom the payment has been made qua advertisement and publicity expenses - HELD THAT - AO has not conducted proper enquiry before making the addition in question, the ld. CIT (A) who is having co-terminus powers was required to conduct the enquiry himself or would have called the remand report before deleting such addition. Ld. CIT (A) rather harped upon the case laws without thrashing the facts of the case and deleted the addition, which order is not sustainable in the eyes of law. In view of the matter, we are of the considered view that the issue is required to be remanded back to AO to decide afresh after providing adequate opportunity of being heard to the assessee. Unverified sundry creditors - CIT-A deleted the addition - HELD THAT - Revenue has failed to controvert the findings returned by the ld. CIT (A) which are purely based upon remand report given by the AO, ledger account of the aforesaid sundry creditors from their books of account and confirmation obtained from the parties in question at the time of audit and AO has specifically recorded the fact that the submissions of the assessee were verifiable from the books of account. CIT (A) has confirmed the addition in case of the parties whose confirmations have not been brought on record by the assessee rather their denial has been obtained by the AO. In these circumstances, we are of the considered view that there is no perversity or illegality in the deletion made by the ld. CIT (A)

Summary

Issues Involved:

1. Partial confirmation and enhancement of income by the CIT(A).
2. Disallowance of commission and brokerage expenses.
3. Disallowance of advertisement and publicity expenses.
4. Disallowance of unverifiable sundry creditors.
5. Enhancement of income by the CIT(A) under section 35D.
6. Initiation of penalty proceedings under section 271(1)(c).
7. Levy of interest under sections 234B and 234D.
8. Deletion of additions by the CIT(A) based on additional evidence.

Detailed Analysis:

1. Partial Confirmation and Enhancement of Income by the CIT(A):
The assessee challenged the CIT(A)'s decision to partially confirm the assessment order and enhance the income by ?2,69,66,400/-. The Tribunal found that the CIT(A) had erred in enhancing the income as the expenditure in question was allowable as a business expenditure for the assessment year. The Tribunal concluded that the CIT(A) had no jurisdiction to enhance the income that was neither the subject matter of appeal nor of assessment.

2. Disallowance of Commission and Brokerage Expenses:
The assessee contested the disallowance of ?12,24,329/- out of ?15,02,977/- on account of commission and brokerage. The Tribunal noted that the payments were verifiable from the books and bank statements, and TDS had been duly deducted. The disallowance was deleted as the expenses were genuine and incurred for business purposes.

Regarding the disallowance of ?14,38,050/- out of ?1,19,94,194/-, the Tribunal found that the payments were verifiable and supported by confirmations from the payees. The disallowance was deleted as the expenses were genuine and incurred for business purposes.

3. Disallowance of Advertisement and Publicity Expenses:
The CIT(A) had confirmed the disallowance of ?14,38,050/- under the head "advertisement and publicity" out of ?1,19,94,194/-. The Tribunal found that the payments were verifiable from the books and bank statements, and TDS had been duly deducted. The disallowance was deleted as the expenses were genuine and incurred for business purposes.

4. Disallowance of Unverifiable Sundry Creditors:
The assessee challenged the disallowance of ?5,96,175/- made by the AO from sundry creditors. The Tribunal found that the amount was shown as an opening balance in the books of the assessee and was related to the preceding years. The addition was deleted as there was no evidence that the liability had ceased to exist.

5. Enhancement of Income by the CIT(A) under Section 35D:
The CIT(A) had enhanced the income by ?2,69,66,400/- being 1/5th of the expenditure incurred during the previous year relevant to AY 2007-08. The Tribunal found that the CIT(A) had exceeded his jurisdiction under section 251(2) of the Act as the amount was not the subject matter of the appeal. The enhancement was deleted as it amounted to a new source of income.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal found that the initiation of penalty proceedings under section 271(1)(c) was premature and did not require specific findings.

7. Levy of Interest under Sections 234B and 234D:
The Tribunal found that the levy of interest under sections 234B and 234D was consequential in nature and did not require specific findings.

8. Deletion of Additions by the CIT(A) Based on Additional Evidence:
The CIT(A) had deleted several additions made by the AO on the basis of additional evidence led by the assessee during appellate proceedings. The Tribunal found that the Revenue had not challenged the admission of additional evidence. The deletions were upheld as the CIT(A) had rightly relied on the additional evidence.

Conclusion:
The assessee's appeal was allowed, and the Revenue's appeal was partly allowed for statistical purposes. The Tribunal directed the AO to decide certain issues afresh after providing adequate opportunity to the assessee.