Loading judgment…
Facts
The assessee, a proprietor of an export business, debited Rs. 10,00,000/- in its P&L account in FY 2005-06 as an advance paid in FY 2001-02 for consultancy. The assessee also claimed motor car expenses and telephone expenses. The AO made additions on these counts.
Held
The Tribunal restored the matter of Rs. 10,00,000/- advance to the AO for verification of payment and TDS applicability. Regarding motor car expenses, the disallowance was restricted to 10%. The disallowance of telephone expenses was directed to be deleted.
Key Issues
Whether the expenditure claimed as prior period expenses was admissible and whether TDS provisions were correctly applied. Also, the extent of disallowance for motor car expenses.
Sections Cited
250, 139(1), 143(3), 40(a)(ia), 194J
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: VIKRAM SINGH YADAVSHRI ANIKESH BANERJEE
O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter, ‘Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for the Assessment Year 2006-07, date of order 07/08/2025. The impugned order was emanated from the order of the Learned Assistant Commissioner of Income-tax- 20(1), Mumbai (in short, ‘Ld.AO’) passed under section 143(3) of the Act, date of order 31/12/2008.
Amrita Prabhakar Deodhar 2. The assessee has taken the following grounds of appeal:-
1. The said Legal & Professional fees amounting to Rs 10,00,000/-was paid to Mr. Nitin Barve during the FY 2001-02 as an Advance to consult, advise and oversee the Firm export business Since the TDS provisions were not applicable during that FY, hence the TDS was not deducted on payment of the same. Since the outcome of outsourcing the sales promotion activity was I visualised in the FY 2005-06 on the basis of sales achieved due to outsourcing the activity, and on the basis of the expenses claimed by the receiver, the advance payment was debited in the books during that year. By debiting the expense during the relevant FY, the intention was not to reduce the tax liability only in that FY, as the assessee was regular tax paying citizen with higher tax bracket.
2. The Motor car expenses and depreciation amounting to Rs 33,424/- for the FY 2005-06, was on actual basis incurred for the business purpose only, as the assessee was almost using the vehicle regularly for the business purpose only and any expense on personal nature was not even booked in the books of the assessee.
3. Telephone expense amounting to Rs 23,517/- was booked for the FY 2005-06 which was actual expense for the business purpose 3 only i.e. average PM for less than Rs.2000/-. The telephone exp is reasonable considering the roles and responsibilities performed by the Assessee.”
3. The brief facts of the case are that the assessee is a proprietor of M/s Intel Exports Corporation, which is carrying on as exporters of electronic instruments. During the impugned assessment year, the assessee filed the return u/s 139(1) of the Act. The assessment was framed u/s 143(3) and the addition was made under different heads. The aggrieved assessee filed an appeal before the Ld.CIT(A). The Ld. CIT(A) upheld the addition related to debit of Rs.10 lakhs in the P&L Account related to payment to Shri Nitin Barve during the period of 01/04/2001 to 31/03/2002 as an advance towards “consultancy & professional charges”. The alleged amount was debited to P&L Account during the impugned previous year 2005-06. Further, the addition was confirmed related to disallowance of expenses Amrita Prabhakar Deodhar under the head “motor car expenses & car depreciation’ amount to Rs.33,424/- and under the head “telephone expenses” amount to Rs.23,517/-. In respect of both these expenses, the Ld.CIT(A) disallowed 20% of the expenses claimed by the assessee. The aggrieved assessee filed an appeal before us.
The Ld.AR argued and stated that the on debiting of Rs 10lakh the assessee had already made the payment to consultant on FY 2001-02. The TDS will not be applicable for the payment. Only the book adjustment was made during the the impugned assessment year. Related to expenses the Ld. AR stated that the assessee had made minimum expenses. So, the disallowance should be deleted.
The Ld. DR relied on the orders of revenue authorities. The Ld.DR further argued that the assessee was not able to bring any evidence before any of the authority that the alleged amount of Rs.10 lakhs was paid during 2001-02. When the amount was paid, the TDS provisions u/s 194J of the Act was applicable. The assessee had never deducted TDS during the payment in FY 2001-02 and not in FY 2005-06. So the assessee has contravened provisions of section 40(a)(ia) of the Act. Therefore, the addition was correctly made by the Ld.AO. Related to the disallowance of expenses, the Ld. DR specifically mentioned that the assessee was not maintaining the log book related to the use of vehicle. So the addition is rightly upheld by the Ld.CIT(A). The Ld. DR invited our attention to paragraphs 5.6 & 5.7 of the appellate order, which are extracted below:- “5.6 During the course of appellate proceedings, the appellant stated that the amount of Rs. 10,00,000/- was paid to Mr. Nitin Barve during the period 01.04.2001 to 31.03.2002 as an advance towards consultancy and professional charges and the same was debited to profit & Amrita Prabhakar Deodhar loss account during the previous year 2005-2006 on completion of the assignment given to him. She further stated that Mr. Nitin Barve widely traveled abroad on behalf of Intel Exports Corporation for six years i.e. accounting years 1998-99 to 2003-2004 and Mr. Nitin Barve was paid an advance of Rs. 10,00,000/- during said period. She added that on expiry of warranty of export sales period, the said advance given to Mr. Nitin Barve was claimed as expenditure. The said export business activity was stopped on discontinuation of his services. She furnished the details of customer wise sales (in Rs.) year wise for the period from April 1998 to March 2009 along with her written submission dated 24.02.2010 as under:
5.7 It is pertinent to mention here that where an assessee claims prior period expenditure in the current year onus is on him to substantiate the claim. It is because the settled principle is that the deductions can be permitted in respect of only those expenses which are incurred in the relevant accounting year for the purpose of computing yearly profits and gains. However, in the instant case, the appellant has stated that Mr. Nitin Barve widely travelled abroad on behalf of Intel Exports Corporation for six years ie. accounting years 1998-99 to 2003- 2004. Even if, Mr. Nitin Barve had travelled abroad on behalf of the appellant during accounting years 1998-99 to 2003-04, the revenue of the appellant would have been affected for those years only and not during the assessment year under consideration. From the above submission of the appellant, it is clear that the no sales has been made by the appellant to the parties from F.Y. 2004-05 onwards after Mr. Nitin Barve left his service with the appellant in F.Y. 2003-04 Since the appellant was following mercantile system of accounting, it was appellant who had to establish that liability pertaining to previous year i.e., prior period expenses, was actually Amrita Prabhakar Deodhar crystallized during instant year. However, in the instant case, it is clear from the submission of the appellant that the business of the appellant was affected due to service provided by Mr. Nitin Barve till F.Y. 2003-04. Since, the appellant failed to establish that expenses in question were actually crystallized during instant year, same is to be disallowed. In view of the above discussion, after duly considering the assessment order framed, the facts of the case and the issues involved, the addition of Rs. 10,00,000/- made on account of disallowance of expenses claimed by the appellant under the head 'Legal & professional fees' is upheld and this ground of appeal is dismissed.”
We have heard the rival submissions and perused the material available on record. Based on the arguments advanced by the Ld. DR, it is observed that the assessee had debited an amount of Rs.10,00,000/-, which was claimed to have been paid in A.Y. 2001-02 as an advance to a consultant, Shri Nitin Barve. The said amount was debited to the Profit & Loss Account in the impugned assessment year. The assessee contended that no TDS was applicable in its case. On perusal of the record, we find that the assessee did not deduct TDS under section 194J of the Act when the amount was debited to the Profit & Loss Account during the year under consideration. Further, no evidence has been placed on record to show that TDS was deducted either in A.Y. 2001-02 at the time of payment, or in A.Y. 2005-06 when the expenditure was claimed in the books. There is no material to substantiate the stand of the assessee. In the interest of justice, we are of the view that the assessee deserves one more opportunity to substantiate its claim before the Ld. AO. Accordingly, the matter is restored to the file of the Ld. AO for verification of the fact of payment and the applicability of TDS, and to decide the issue afresh after granting adequate opportunity to the assessee.
Amrita Prabhakar Deodhar 6.1 Disallowance of “Motor Car Expenses & Depreciation” and “Telephone Expenses” With respect to the disallowance of telephone expenses, we note that the Ld. AO has not brought any specific allegation or material on record to justify the addition. Therefore, the disallowance of Rs.23,570/- made under the head “telephone expenses” is directed to be deleted. However, with respect to motor car expenses and depreciation, the revenue has alleged that the assessee failed to maintain a log book to demonstrate exclusive business use. The Ld. AR also could not bring any evidence on record to establish that the motor car was not used for personal purposes. Considering the overall facts and submissions, we deem it appropriate to restrict the disallowance to 10% as against 20% sustained by the Ld. CIT(A). Accordingly, Ground No.1 is allowed for statistical purposes, Ground No.2 is partly allowed, and Ground No.3 is allowed.