9911796707
TMI Blog2022 (12) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... nced before us we are of the considered view that the credit for prepared taxes carry forward for A.Y 2017-18 as claimed by the assessee in A.Y 2081-19 is required to be allowed subject to verification of the amount carry forward with that of the income offered in the year under consideration. Addition of the sales promotion expenses - Allowable business expenses u/s 37(1) - HELD THAT:- It is not disputed by both the parties that the assessee is engaged in the business of Business Support Services. Therefore, the expenditure is required to be incurred by the assessee as per instructions of the client. We have also gone through the orders of the lower authorities and details submitted by the assessee. The contentions as raised by the Revenue are factual and based on the inadequate details filed by the assessee and revenue argued that why the missing details is required which the assessee has not submitted to the satisfaction of the assessing officer and therefore, we are of the considered view that the Assessing Officer was not in a position to verify various aspect on account of the on account of non-submission of the various details by the assessee called for by the ld. AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leting the additions made u/s 37(1) of the Act of Rs. 2,63,00,865/-. 4. The fact as culled out from the records is that return of income was filed on 28/10/2018 declaring total income of Rs. 83,47,660/-. The case of the assessee was selected for limited scrutiny assessment under the E-assessment scheme, 2019 on the two issue (i) Unsecured Loans (ii) Business Expenses. Notice u/s 143(2) of the Income Tax Act, 1961 was served on 28/09/2010. Notice u/s 142(1) of the Act was issued on 11/12/2019 calling details in respect issues for which case has been selected for the scrutiny. The assessee submitted details on 10/11/2020, 5/09/2020 and 27/02/2021. The assessee is a service company, engaged in backend support activities for banking insurance companies which majorly consist of infrastructure support, marketing campaigns through road shows, distribution of pumps-lets, installation of canopies, mailers and SMS to insurance company s customers, distribution and delivery of insurance policies to customers. The business promotion marketing expenses incurred by the assessee are for the promotion of business of clients. During the year, the assessee claimed sales promotion of Rs. 5,51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shivganga Drillers (P) Ltd. Vs. CPC (2022) 195 ITD 555 where it is held that if assessee company had offered to tax relevant income out of which TDS was deducted in AY 2017-18, credit of TDS was to be allowed during AY 2017-18 in accordance with mandate of section 199 read with Rule 37BA even though payers had deducted TDS in financial year relevant to AY 2018-19. In view of above, AO be directed to allow the credit of TDS of Rs.8,52,736/- not allowed by him. Departmental Appeal Only Ground Whether under the facts circumstances, the Ld. CIT(A) was justified in deleting the addition made u/s 37(1) of the Act of Rs.2,63,00,865/-. Facts:- 1. The assessee is engaged in providing customized back end support services. It mainly consists of infrastructure support, marketing campaigns through road shows, distribution of pamphlets, installation of canopies, mailers and SMS to customers, arranging conferences, etc. as per the requirement of customers. 2. During the year assessee incurred expenditure on business promotion and marketing of Rs.5,51,07,678/- for the promotion of business of its customers. The AO observed that against the receipt of Rs.9,06,26,927 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of business shall be allowed in computing the income chargeable under the head business. The AO has not pointed out any expenses claimed by the assessee which is of capital nature or personal expense or for non business purpose or bogus or inflated. Hence, the disallowance made by AO u/s 37(1) of the Act has been rightly deleted by the CIT(A). 2. So far as increase in the quantum of expenditure is concerned, it can be noted that during the year under consideration the assessee carried out the work of investors meet, arranging conferences, making sign boards, etc. in connection with the public issue of shares of AU Small Finance Bank Ltd. As per the understanding with AU Bank they would pay cost + 10% margin to the assessee for this work (DPB 23). Assessee incurred expenditure of Rs.3,84,38,750/- on carrying out this work on which after adding margin of around 10%, the assessee received Rs.4,23,00,000/- from them. For this reason the expenditure incurred is more as compared to last year. After excluding both the receipt and expenditure incurred with reference to the work of AU Small Finance Bank Ltd., the remaining expenditure is Rs.1,66,68,928/- (5,51,07,678-3,84,38,750) on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP/AO without rejecting books of account of assessee had made adhoc disallowance on suspicion while there was no material showing expenditure not for purpose of business, adhoc additions were to be deleted. Katira Construction Ltd. Vs. ACIT (2020) 185 ITD 173 (Rajkot) (Trib.) Where books of account of assessee have not been rejected, onus is on AO to point out specific expenses which were not incurred in connection with business and thereafter he can make disallowance under provision of section 37 and as such there is no provision provided under Act empowering AO to make disallowance on adhoc basis despite fact that assessee consents for such disallowance during assessment proceedings. In view of above, addition made by the AO is rightly deleted by Ld. CIT(A) and therefore, ground of the department be dismissed. First, we will take up ITA No. 293/JP/2022 filed by the assessee. 6. The only grievance raised by the ld. AR of the assessee in the appeal filed by the assessee is that the ld. AO and ld. CIT(A) has not allowed the credit for TDS for an amount of Rs. 56,42,822/- as claimed by the assessee but has allowed only to the extent of Rs. 47,90,086/-. Thus, effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority. (2)279(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee : Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).] (ii) The declaration filed by the deductee under clause (1) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person. (iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) the assessee has taken up this issue vide ground no. 1 2 by filling an appeal against the order of the ld. CIT(A). On this issue the ld. AR of the assessee submitted before the bench that in the ITR-6 for A.Y. 2017-18 there is specific column from where assessee can carry forward and disclose the amount of TDS deducted for taking carryforward to subsequent year [Assessee s paper book Page No. 35 ] in column 15B(1). Based on these arguments the ld. AR of the assessee submitted that the lower authorities erred in law as well as in fact in interpreting provisions of section 199 read with rule 37BA. The ld. AR thus, explained that though the TDS has been deducted in A. Y. 2017-18 but the same was shown as to be carried forward in the year under consideration i.e. A. Y. 2018-19. In the light of this fact ld. AR seek necessary direction to the ld. Jurisdictional A.O. to allow the claim which is in accordance with the provision of law and rules framed there under. 9. Per contra, the ld. DR on this issue fairly accepted the contention and factual arguments supported by the evidence. But at the same time, he has contended that let this issue of offering the income be verified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promotion expenses to turnover ratio 25 % and 16% respectively. Whereas the assessee claimed sales promotion of Rs. 5,51,07,678/- which is 48% of total turnover of Rs. 11,52,27,253/-. To verify this claim of sales promotion expenses, the details were called from the assessee. The assessee submitted client wise sales promotion expenses chart showing sales promotion, bills and bank statement in respect of sales promotion. As regards the other details assessee submitted that no ratio of sales promotion expenses with that of gross profit of the assessee can be calculated. As already stated, the company is in service sector, the competition is un-matchingly increasing day by day. There are many other companies who are ready to provide the services to assessee s client at much lower rates as compared to assessee. Assessee has no option other than to reduce its margin/rates. The severe competition has effected the assessee so badly that its business has almost vanished. In 2018, the revenue has gone down to Rs. 1152 lacs as against Rs. 3408 lacs in 2017 and in 2019 to Rs. 87 lacs only. 13.1 On 23.02.2021 notice was issued to seek the purpose for the expenses, nature of services provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 1,22,955 86,914 71 Grand total 9,06,26,927 5,51,07,677 61 13.2 It is surprised to see that in once case, more expenses have been incurred than the revenue generated from that client. No prudent business enterprise will spend 109%, 91%, 71%, 51% of its earning on the sales promotion of the client. 13.3 The increase of 23% in the claim of sales promotion expenses as compared to earlier year is not realistic as not supported by the details and supportive documents. However for each entry of sales promotion expense, the assessee has not furnished the purpose for such expenses, nature of service provided by those parties, details of event, and how such expenses were utilized wholly and exclusively for the purpose of the business of the assessee. The few hotel bills submitted by the assessee were for stay of some persons, but how it is related to sales promotion activity for clients is not explained. For the limited details submitted by the assessee, it cannot concluded that sales promotion expenses has been incurred wholly and exclusively for the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt per se cannot be reason for resorting to addition. It can provide the foundation for further investigation. In this regard, the AO had not pointed out any specific instance of booking of bogus expenses. No particular defect has been pointed out in the audited account. In view of this, lump sum disallowance is uncalled for. Ground no. 1 is allowed. 15. Revenue did not accept the finding of the ld. CIT(A) in deleting the addition of Rs. 2,63,00,865/- this appeal is filed by the revenue solely challenging the action of deleting the addition. To support the contention raised in this appeal the revenue has relied upon the written submission and the same is reiterated here in below: Written brief by the DR in support of departmental appeal May I please to your Honors The above cited appeal has been filed by the department against the order of Id CIT(A), NFAC, Delhi in Appeal No NFAC/2017-18/10020255 dated 6.6.2022. Appeal was filed by the assessee against the order of the FAO u/s 143(3) of the Act dated 4.5.2021. Brief facts: The assessee is in the field of providing services to corporates for infrastructure/market support. It has claimed sales promotion expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1). Arguments in support of departmental appeal 1. First finding is not relevant and has no impact on the profitability of the case. The expenses have been incurred by the assessee for its own business of providing services to its clients and for such services, it has incurred the expenses. So how it affects the reasonableness or genuineness of such expenses, if these are incurred for the services of clients. 2. Second finding of the Id CIT(A) is unjustified and contrary to the facts of the case. There is nothing on record to show that the assessee had received markup amount of 10% only and all the expenses were incurred by the concerned party/client. It is factually incorrect. The AU Small finance Bank has not incurred any expenses directly but has actually paid Rs 4.23 crore to the assessee for providing marketing services and it is the assessee, who has incurred and claiming expenses of Rs. 3.84 crore for promotion of business of AU Small finance bank. The Bank has made due TDS on entire payment of Rs 4.23 crore. Had the sales promotion expenses were incurred directly by the Bank, then there was no need to pay the amount to the assessee and deduct tax on that. 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls are handmade and prima facie not genuine (Bill of Shiv Ratan caterers page No 2 and 3). On page No 3, the bills No are 589 to 592 dated 21.4.17 to 25.4.2017 but on page No 1, there are bill No 675 to 694 issued before 21.4.17. How is it possible to issue bills of 675 to 694 prior to 21.4.17 when Bill No 589 was issued on 21.4.2017? These bills are prima facie manipulated bills. Some bills are for purchase of costly dinner sets (Bill of Kanwal Collection, page No 4), and Bill of purchase of locket and necklace (Bill of Kalyan Jewellers, page No 5). These bills are not supported with any document as to whom these items were given and how the same was related to promotion of the business and of which specific client. Some of the bills are with narration of number of purchase order but other bills of the same concern are without any reference of purchase order (Bills of Classic Signage P Ltd page No 6 and 7). Some bills of same work item, placed by same purchase order but huge difference in rates of work item (Bills of M/s Expand page 8 and 9). Certain Hotel Bills are without any service tax/vat, whereas these taxes are mandatory for hotel business (Bill of Sunshine resort, compare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. As already stated, the company is in service sector, the competition is un matchingly increasing day by day. There are many other companies who are ready to provide the services to assessee's client at much lower rates as compared to assessee. Assessee has no option other than to reduce its margin/rates. The severe competition has affected the assessee so badly that its business has almost vanished. In 2018, the revenue has gone down to Rs.1152 lacs as against Rs.3408 lacs in 2017 and in 2019 to Rs.87 lacs only. 17. The ld. DR also drawn our attention to the details filed by the assessee and submitted that in connection with the claim of the expenses specific questions raised by the Assessing Officer relating two questions that who attended the conferences who are persons stayed in the hotel. Secondly, the gift articles purchased and claimed by the assessee as sales promotion expenditure are purely in the nature of personal expenditure and how it is related to the business of the assessee is not explained. The ld. DR drawn our attention to chart wherein the claim of sales promotion expenses and the relevant revenue from the client receipt is declared by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 61 18. From this chart, the ld. DR submitted that the sales promotion expenses are ranging from 2% to 109% of the Revenue and therefore, there is no consistency in the claim of sales promotion expenditure claimed by the assessee. The ld. DR further drawn our attention to the bills submitted by the assessee wherein the personal expenditure like necklace and rocket purchased from Kalyan Jewellers were claimed as sales promotion expenditure. The ld. DR further submitted that invoice issued by Kanwal Collections wherein purchase of dinner sets is claimed as sales promotion expenditure how it is related to the business of the assessee and whether the same are given under the breach of law is not considered by the ld. CIT(A) while considering the appeal of the assessee. Therefore, ld. DR further drawn our attention to the provisions of section 37(1) of the I.T. Act wherein the law itself restrict allowance and prescribe the condition that the expenditure should not be in the nature of capital expenditure and personal expenditure of the assessee. He also drawn our attention to explanation (1) of section 37(1) which contains as under:- 37 (1) Any expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between 2% to 109% which itself suggest the correctness of the claim and it gives the correct picture of business of the assessee and the expenditure claimed are wholly and exclusively in nature of business expenditure and is allowable u/s 37(1) of the Act. Before the ld. AO all these details were furnished. Thus, the AO has made choose and pick and prepared a chart which is not correct. As regards, the expenditure claimed on higher side which is on account of management of public issue of AU Small Finance Bank wherein the much of the expenditure is claimed by the assessee and if the AO is not satisfied, he might have issued a notice as per provision of section 133(6) of the I.T. Act and have got verified the details. The ld. AR of the assessee submitted that the National Faceless Appellate Proceeding cannot be challenged by the Department on the grounds that they have not received fair chance to represent the case. He vehemently argued that the expenditure claimed by the assessee under the head of sales promotion is not commensurate with the receipt the expenditure incurred are not verifiable so as to confirm whether the expenditure incurred and claimed by the assessee are in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locations and therefore, it has nothing to do with the issue related to the personal expenditure or capital expenditure so far as to the business of the assessee is concerned. 22. In the rejoinder of the submission, the ld. DR submitted that there is an excess claim of expenditure is not supported in the assessment proceedings and confirmation of AU Bank is nothing but self-serving document submitted by the assessee themselves, the assessee dealing with corporate clients. There is no agreement or any written instructions and the contravention of any provision of the law is not apparent from the various personal nature expenditure claimed by the assessee. It is also not evident from the details submitted for the expenses incurred for hotel booked, whether the person stayed are not under the contravention of any law or not. Whether the parties are related parties or the expenditure are in the nature of personal expenditure is not established in the absence of the relevant information. The ld. DR also raised whether the provisions of TDS as applicable is applicable or not is not verified as the assessee has not given complete details. Based on these set of arguments ld. DR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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