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Facts
The appellant firm appealed additions made by the AO and sustained by the CIT(A). These included disallowance of discounts written off, addition of a sum received from a third party, disallowance of service tax liability under Section 43B, and an ad-hoc 15% disallowance of expenses paid in cash.
Held
The Tribunal remitted the first three issues regarding discounts, third-party receipts, and service tax liability back to the AO for fresh examination. However, the Tribunal confirmed the addition relating to the 15% disallowance of cash expenses, finding them unsupported by corroborative evidence and paid via self-made vouchers.
Key Issues
Whether the disallowance of written-off discounts, third-party receipts, and service tax liability is justified, and if the 15% ad-hoc disallowance of cash expenses is proper.
Sections Cited
43B
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Income Tax Appellate Tribunal, Mumbai “E” Bench, Mumbai.
Before: Shri Rahul Chaudhary (JM) & Shri Omkareshwar Chidara (AM)
On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the addition made by the Ld. AO on account of disallowance of discounts of Rs,21,95,254/-, being the amounts irrecoverable from customers, written off by the appellant. The appellant, therefore, prays that the addition of Rs.21,95,254/- made by the Ld, AO and sustained by the Ld. CIT(A), be deleted.
2. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the addition of Rs,l,09,650/~ made by the Ld. AO as alleged undisclosed income, being the amount received from DBC Port Logistics, without appreciating that the said receipt was already accounted for in the books by the appellant, and thus, the same has been taxed twice. The appellant, therefore, prays that the addition of Rs. 1,09,650/- made by the Ld. AO and sustained by the Ld. CIT(A), be deleted.
3. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the addition of Rs.8,10,005/- made by the Ld. AO on account of disallowance u/s.43B, being the liability of Service- tax, which was neither claimed as an expense, nor was it credited to the 2 M/s. Thakur Shipping Agency profit & loss account, by the appellant. The appellant, therefore, prays that the addition of Rs.8,10,005/- made by the Ld. AO and sustained by the Ld, CIT(A), be deleted.
4. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the addition of Rs, 11,09,806/- made by the Ld. AO on account of ad-hoc 15% disallowance of various expenses, incurred by the appellant, on behalf of its customers, which the appellant did not claim as its expenses, because the same was reimbursable by the customers. The appellant, therefore, prays that the addition of Rs.11,09,806/- made by the Ld. AO and sustained by the Ld. CIT(A), be deleted.
The first issue of dispute relates to disallowance of discounts claimed by appellant being the amounts irrecoverable and written off in the books of account. From the assessment order, it is observed that the Ld. AO has held that the appellant did not furnish the details of discounts given to which parties and the confirmation letters from them. At the time of assessment, the appellant has submitted before Ld. AO that the “discounts” claimed include “Bad Debts”. But the Ld. AO held that the appellant did not furnish the details of “bad debts” which were written off and when these amounts were offered for taxation. Hence, the Ld. AO disallowed the claim of “Discounts” to the extent of Rs. 21,95,254/-.
The second issue relates to addition of Rs. 1,09,500/- which was received by appellant as per the 26AS statement but these receipts were not admitted as income. As the appellant could not furnish the details nor reconcile the receipts with 26AS statement, this amount was added by Ld. AO.
The third addition made by the Ld. AO and contested by appellant is with respect to disallowance under section 43B, being the liability of service tax. The appellant’s contention is that this amount was not debited to profit and loss account and hence could not be disallowed by Ld. AO. The AO did not agree with this contention and relied on the decision of Kolkata High Court in the case of CIT Vs. Associated Pigments Ltd. 71 Taxman 244, where
3 M/s. Thakur Shipping Agency it was held that even if the service tax was not routed through the profit and loss account, still the same has to be disallowed under section 43B of the Act and added the same while completing the assessment.
The last addition made by Ld. AO relates to 15% disallowance of labour and other expenses as the same are paid by cash and the appellant did not furnish full details of the same. Moreover, the expenses were also claimed based on self-made vouchers. Hence, 15% of the expenses were disallowed.
Aggrieved by the additions made in the assessment order, the appellant filed an appeal before Ld. CIT(A) and this first appellate authority has confirmed the additions made by Ld. AO and concurred with the logic and discussion with respect to all the four additions.
Then, the appellant firm filed an appeal in ITAT with the Grounds of appeal
mentioned in page No. 1 of this order. Before the ITAT, Ld. AR of the appellant has filed a paper book containing 66 pages and requested the Bench to admit the same as additional evidences. As far as the additions made by Ld. AO with respect to “write off of bad debits”, certain ledger account copies of parties from whom the appellant could not recover the debits which were not filed before lower authorities. These details were mentioned in page 1 to 15 of the paper book. Then, the appellant filed details of debit notes issued to the customers which were not filed before lower authorities. With regard to the issue of disallowance under section 43B of the Service Tax, the appellant submitted that they had all the details of payment of Service Tax, but could not immediately furnish the same and hence requested the Bench to remit the issue to the file of Ld. AO. Thus, details of first two issues were filed for the first time before Bench and details of Service Tax paid were not furnished but the appellant requested the Bench that it may be given an opportunity to file the same before Ld. AO. As far as the third issue relating to disallowance under section 43B, it is not 4. M/s. Thakur Shipping Agency clear from the assessment order/CIT(A) as to when the payments were made by the appellant. As far as the fourth issue of disallowance of 15% of expenses by Ld. AO, the Ld. AR of the appellant submitted that in this nature of business, payment of expenses by cash is necessary and as the same are genuine, the addition made by Ld. AO made may be deleted.
The Ld. DR opposed the submission of additional evidence for the first time before the ITAT. He also relied on the orders of Ld. AO/Ld. CIT(A) pleaded before the Bench that all the additions made by Ld. AO may be confirmed.
Heard both sides and perused the material on record. After hearing extensively from the side of appellant, it is decided that one more opportunity is given to the appellant to file all the evidences with respect to the additions made by Ld. AO with respect to first three issues. Hence, the first three issues are remitted back to the file of Ld. AO for fresh examination and passing the order after taking into consideration the material filed before him. As far as the fourth issue of disallowance of 15% expenses claimed, the Bench agrees with the view of Ld. AO/Ld. CIT(A) because the expenditure claimed are not supported by any corroborative evidences and also the fact remains that most of them are made by cash and the vouchers are self- made. Before both the lower authorities and before ITAT also, no fresh/corroborative evidences with respect to proof of expenses were filed and hence the Bench concurs with the view of Ld. AO and disallowance of 15% of expenditure is held as proper and correct. Hence, the addition made in this regard is confirmed.
To sum up, first three issues are remitted to the file of Ld. AO for examination and the addition in fourth issue relating to disallowance of 15% of expenditure is confirmed.
5 M/s. Thakur Shipping Agency
The appeal of appellant is partly allowed as above.
Order pronounced in the open Court on 21/11/2025.