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TMI Blog2012 (9) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... company. If at all the assessee-company has to reconcile, it has to reconcile payments of Rs. 4.86 crores as centre share and not mere Rs. 17 lakhs, as reconciled by the company - thus the assessee suppressed its income and no infirmity on this issue in sustaining the addition towards suppression of income - against assessee. Inflation of Advertisement expenses - Held that:- As seen from the evidences on record, the contention of the assessee appears to be self contradictory, the partnership deed of M/s. Pace Media and Mercantile Services was actually executed on 1st day of March, 2000 and was duly registered with Registrar of Firm on 19th May, 2000, thus, the very contention of the assessee that it came to know of the advertisement commission after nine months of business is not correct since it had already executed the partnership deed and registered the same much in advance - that though the assesseecompany was under obligation to deduct TDS on all advertisement payments, it had failed to do so in respect of payments made to M/s. Pace Media and Mercantile Services - against assessee. - ITA No. 126/Hyd/2011 - - - Dated:- 29-6-2012 - SHRI CHANDRA POOJARI, AND SHRI SAKTIJIT D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions relating to reduction of receipts and inflation of advertisement expenses, be directed to be deleted. 3. Brief facts of the case are that the facts are that the assessee company is engaged in the business of computer education and training. A survey under section 133A of the Income-tax Act, 1961 was conducted in the business premises of the assessee on 28.12.2001. During survey proceedings, the sworn statement of Sri A. Venkat Reddy, Managing Director of the company was recorded and the differences both in the gross receipts and advertisement expenses shown in the return of income vis-a-vis the books of account were confronted to him. The Managing Director surrendered an amount of Rs. 42,73,301 on account of the discrepancies. However, in the return of income filed after the survey operation, an additional income of only Rs. 20 lakhs was disclosed. The details are reproduced below from the impugned order of the Assessing Officer dated 31.12.2008: "A survey u/s 133A of I.T. Act was conducted in the business premises of the assessee on 28.12.2001. During survey operation, verification of books of account revealed the following discrepancies. i. Gross receipts: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,155 + Rs. 12,90,146) which is evident from his answer to question No. 24 which is reproduced below: Q. No: 24. Do you want to say anything other than the above? A: The above statement is given by me voluntarily, without any coercion, force or threat and whatever stated above is correctly recorded as stated by me, since I have voluntarily offered an amount of Rs. 42,73,301 towards ``` 7. But, in the revised return filed on 06.02.2002, assessee had offered only Rs. 20,00,000 as .additional income. Assessee, vide its letter dated 07.02.2002 tried to explain the discrepancies as under, stating that such discrepancies were occurred due to non-posting of the journal entries in the respective ledger folios: (i) Gross receipts (Rs.): Gross receipts as per the books of account impounded vide folio No. 38 (General Ledger No. 2) in credit. 1,92,58,513 Add: Sundry debtors (receivables from franchisee) Journal voucher No. 126 2,62,380 Less: Refundable security deposit received JV No. 153 2,05,000 Less: Centre share folio No. 300 in debit balance 30,40,539 Goss receipts as per the profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to M/s. Pace Media and Mercantile Services. Further, assessee did not file any information regarding the basis for refunding amounts to Franchisee Centres. No agreement copies with such Franchisee Centres were filed and no proper evidence was filed in support of it claim of refundable security deposit centre share. In view of the above and as the assessee failed to reconcile the discrepancy of Rs. 29,83,155 in gross receipts and Rs. 12,90,146 in advertisement expenses and as the assessee had already offered to tax Rs. 20,00,000 vide revised return filed, the balance amount of Rs. 22,73,301 is now added to the returned income. 17. Delay in remittances of TDS: As seen from column No. 27 to 3CD report, the assessee had remitted TDS of Rs. 4,125 belatedly which was deducted from professional fees. Therefore, the assessee is liable to pay interest u/s. 201(lA) from January, 2001 to October, 2001 on Rs. 4,125 and from February, 2001 to October, 2001 on Rs. 4,125. The interest u/s 201(1A) worked out to Rs. 492 and Rs. 512 totalling to Rs. 1,004. The interest is accordingly charged. 18. With the above discussion, income of the assessee is computed as under: In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the assessee company had not filed any evidence regarding the basis for payment to Franchisee Centres. From the copies of the agreements referred to above, it can be seen that there was an agreement on the part of the assessee-company to pay such amounts to different Franchisee Centres and thus, there was an obligation cast upon it to made such payments which is an expenditure directly relatable to earning income. 8. The learned AR submitted that statements demonstrating payment of Rs. 11,32,553 to 55 different centres containing the name of the centre/ place, date of payment, amount, and proof of each such payment are submitted. He submitted that from the respective pages, it can be seen that the claim of payment is indicated through cheque or DD or cash. Most of the payments are through cheques/DDs only and these payments are co-related to the Global Trust Bank account maintained by the assessee company. 9. The AR submitted that the statements containing name and address of the centre (wherever available), payment voucher number and date of payment, amount of payment, mode of payment, and proof of such payment, which is again co-related to the debit entries on diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the impounded books of accounts vide Folio No. 152, the total advertisement expenses were shown at Rs. 31,10,150 while as per the Return of Income filed, the advertisement expenses claimed were Rs. 44,00,296, resulting in alleged overstatement of such expenditure in the Return of Income filed before the Department. During the course of the assessment proceedings, the Managing Director explained that the differential amount of Rs. 12,90,146 was reconciled in the following table, and it was mainly on account of final entries entered in the Journal Book but not posted in the respective Ledger Folios. Expenses as per books of account impounded vide Folio No. 12 31,10,150.10 Add: payment made to Pace Media and Mercantile Services vide Folio No. 125 8,68,146.00 Add: Amount payable to Pace Media and Mercantile Services vide JV No. 166 4,22,000.00 Advertisement expenses as per P L Account 44,00,296.10 12. The learned AR submitted that the view of the Department has been that the Assessee Company in order to reduce its tax liability, inflated its advertisement expenses by the abovementioned sum of Rs. 12,90,146 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same spirit, it has accepted the revised Return, and therefore, with all its disadvantages in not having in its possession all the evidence and material to prove its case for the deletion of the total addition of Rs. 42,73,301, it confined itself to the addition of Rs. 22,73,301 (Rs. 29,83,155 + Rs. 12,90,146 - Rs. 20,00,000) in the present appeal proceedings. The DR also relied on the order of the CIT(A). 15. We have heard both the parties and perused the material on record. The main plea of the assessee is that the difference between gross receipts disclosed to the Department and manually prepared found during the course of survey (Rs. 1,92,58,513 Rs. 1,62,75,354 = Rs. 29,83,159) is due to payment of commission to various franchisees spread over the southern part of the State. It was also pleaded that the assessee deducted the commission paid to the franchisees and disclosed the net receipts. However, it was actual fact that in any franchise agreement, it is the franchisees who pay the commission to the principal and vice-versa. It is the franchisee who is in the field of generation of income and he is in receipt of the amount from the customers and then it will be pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and franchisor shall be determined on a month to month basis and distributed between them by 10th day of the following month. For this purpose, the franchise shall send the prescribed monthly report for each of the completed month before the 5th day of the following calendar month to enable Pace forward the share of the franchisee by the 10th of that month." Thus, in light of the above clauses, it is not just the payment of Rs. 30,40,543/- that required to be seen but the proof of payment of Rs. 4.86 crores (being 75%) has to be seen even considering the figure given by the assessee company of Rs. 1.62 crores. Further, as seen from the schedule VI to the profit and loss account filed along with the return of income, the assessee-company has incurred Rs. 30.0 lakhs towards payment to NSIC, Rs. 40.67 lakhs towards course material and Rs. 44.00 lakhs towards advertisement expenditure. Thus, it is clear that when all these expenses are to be borne by the assessee-company, the figures taken in the books of account have naturally to be net figures not gross figures. These adjustments as made by journal entries are clearly an afterthought to reduce the profit of the company. If at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership firm of the Directors. It was contended that after nine months of business, during FY 2000-01, the assessee-company came to know about the commission of 15% received as advertising agency and accordingly to save that additional 15%, it has opened a partnership firm to release the advertisements of the company. However, as seen from the evidences on record, the contention of the assessee appears to be self contradictory, the partnership deed of M/s. Pace Media and Mercantile Services was actually executed on 1st day of March, 2000 and was duly registered with Registrar of Firm on 19th May, 2000 (Copy enclosed). Thus, the very contention of the assessee that it came to know of the advertisement commission after nine months of business is not correct since it had already executed the partnership deed and registered the same much in advance. Further, it is seen that though the assesseecompany was under obligation to deduct TDS on all advertisement payments, it had failed to do so in respect of payments made to M/s. Pace Media and Mercantile Services. It is also observed that though the assesseecompany is claiming huge payments to M/s. Pace Media and Mercantile Services, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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