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Income Tax Appellate Tribunal, HYDERABAD ‘B’ BENCH, HYDERABAD.
Before: SHRI RAMA KANTA PANDA & SHRI LALIET KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD ‘B’ BENCH, HYDERABAD.
BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA No.1535/Hyd/2018 (Assessment Year : 2011-12) M/s. Aiswarya Art Vs. Income Tax Officer, Creations Pvt. Ltd., Ward 15(3), Hyderabad. Hyderabad. PAN AAGCA7479J (Appellant) (Respondent) Appellant By : Shri T. Chaitanya Kumar, Adv. Respondent By : Shri Kumar Aditya, (D.R.) Date of Hearing : 20.10.2022 Date of Pronouncement : 20.10.2022 O R D E R Per Shri Rama Kanta Panda, A.M. : This appeal filed by the assessee is directed against the order dt.04.05.2018 of the learned Commissioner of Income Tax (Appeals)-1, Guntur relating to Assessment Year 2011-12.
Facts of the case, in brief, are that the assessee is a company engaged in the business of trading in satellite rights. The assessee filed its Return of Income on
2 ITA No.1535/Hyd/2018 26.12.2011 declaring a total income of Rs.17,47,243. The case was selected for scrutiny under CASS. Accordingly, statutory notices u/s. 143(2) and 143(1) of the Income Tax Act, 1961 (in short ‘the Act’) were issued. However, there was no compliance from the side of the assessee for which summon u/s. 131 of the Act was issued and the statement of the assessee was recorded on 29.01.2014 wherein he agreed to furnish the required information by 30.01.2014. Since there was no compliance despite number of opportunities, the Assessing Officer proceeded to complete the assessment u/s.144 of the Act.
The Assessing Officer noted that the assessee being in the business of trading in Telugu film satellite rights, purchases satellite rights from the producers and sell to the TV Channels. According to the Assessing Officer, the assessee must have incurred the purchases, without which the business cannot be done. Hence he considered the purchases as expenditure. He further noted that the assessee has debited an amount of Rs.57,86,626 to the
3 ITA No.1535/Hyd/2018 profit and loss account for the year ending 30.11.2011 under various heads which are as under :
i) Freight Rs.3,13,017. ii) Power and fuel Rs.49,382. iii) Salaries and wages Rs.18,37,411. iv) Travelling expenses including Foreign Travel Rs.3,51,375. v) Telephone Expenses Rs.1.56,712. vi) Rates and taxes, paid or payable to Government Rs.1,35,000. vii) Audit fee Rs.50,000. viii) Other expenses Rs.27,56,475. ix) Depreciation Rs.1,37,254. Total Expenditure : Rs.57,86,626/-.
According to the Assessing Officer, the administrative cost in case of M/s. Mango Mass Media Pvt. Ltd. which is a comparable company engaged in similar line of business constitutes about 0.5% of the total turnover. Considering the turnover of the assessee at Rs.58,17,56,028/- the Assessing Officer applied the same ratio of 0.5% which came to Rs.29,08,780/-. The Assessing Officer, therefore, made
4 ITA No.1535/Hyd/2018 an addition of Rs.28,77,846 being the difference between Rs.57,86,626 - Rs.29,08,780.
The Assessing Officer similarly observed from the Balance Sheet as on 31.3.2011 that the assessee has shown Sundry Creditors to the tune of Rs.33,22,71,943. Since the assessee failed to produce evidence in support of the creditors, the Assessing Officer made addition of the entire amount of Rs.33,22,71,943. The Assessing Officer accordingly determined total income of the assessee at Rs.34,50,23,490.
In appeal, the learned CIT (Appeals) after calling for a Remand Report from the Assessing Officer, partly allowed the appeal filed by the assessee. So far as the disallowance of Sundry Creditors is concerned, the learned CIT (Appeals) restricted the addition to Rs.3,60,23,827 as against Rs.33,22,71,943 made by the Assessing Officer by observing as under :
5 ITA No.1535/Hyd/2018
“ Ground No.4:
The AO found that as per the balance sheet for the Asst. Year 2011-12, the sundry creditors stood at Rs.33,22,71,943/-. The AO gave several opportunities to the appellant at the time of scrutiny but no information was filed before the AO. In view of this, the AO invoked the provisions of Sec.68 of the Act and added the entire amount to the income returned. The AO also noted that Rs.9,59,05,667/- was the outstanding balance of sundry creditors for the A.Y.2010-11 and also noted that no scrutiny assessment was done for the that year. Hence, the AO has not given relief to the opening balance also. In this regard, it is to be noted that it is a case of ex-parte order. During the appellate proceedings as mentioned supra, the appellant produced confirmations, copies of the agreements as additional evidences which were admitted and examined by the A.O. The report of the A.O. is as under :
6 ITA No.1535/Hyd/2018
7 ITA No.1535/Hyd/2018
8 ITA No.1535/Hyd/2018 The appellant in its rejoinder to the above report vide its letter submitted on 18-01-2018 stated as under:
"With reference to your oral discussion on 28-12- 2017 at your office at the time of appeal hearing you are pointed out that Rs.3,60,23,827/- deference between trial balance and ledger account. In this matter, we beg to bring to your notice that few of my personnel accounts were wrongly taken into company's trial balance at the time of preparation of trial balance on last day financial year in tension atmosphere by our accountant and later we rectified our mistake and prepared current and accurate balance sheet as per our books of accounts. Hence we request you to kindly consider the fact and circumstances and drop if any proceedings.”
The assessment order and the remand report submitted by the Aa on the issue have been carefully considered. The contentions of the appellant as above were also considered. The additional evidences were filed by the appellant and the same were admitted to be fair to decide the appeal. The Aa after giving an opportunity of being heard to the appellant prepared the report considering the confirmations filed. It is a fact that the difference was worked out by the AO having regard to the material facts submitted by the appellant itself. The appellant neither filed any personal account nor produced any documentary evidence to substantiate its claim that some of the personal accounts were taken into the company's trail balance wrongly. The appellant also failed in
9 ITA No.1535/Hyd/2018 producing any evidence to the effect that such mistakes as claimed by it were rectified later. In the absence of any evidence, contrary to the findings of the AO, I am inclined to accept the proposition of the Aa and to confirm the action of the AO to the extent of difference of amount at Rs.3,60,23,827/- as stated in the remand report. Accordingly, the AO is directed to modify the order restricting the addition at Rs.3,60,23,827/- and this ground of appeal is partly allowed.”
So far as the disallowance of Rs.28,77,846/- is concerned, the learned CIT (Appeals) restricted the same to Rs.24,72,269 by observing as under :
“ The A.O. in the assessment proceedings noticed that the amounts which were debited to the Profit & Loss account other than purchases at Rs.57,86,626/- under various heads. The AO also noted that the appellant is in the business of trading of satellite rights. This being an ex-parte order, the AO compared overhead cost with that of a case by name M/s. Mango Mass Media Pvt. Ltd which was also in the business of trading in satellite rights. The AO noted that administration cost constituted at 0.5% of the turnover in the case of M/s. Mango Mass Media Pvt. Ltd. Accordingly, the AO disallowed the expenditure in excess of 0.5°/0 of the turnover
10 ITA No.1535/Hyd/2018 of the appellant company at Rs.28,77,846/- as against the claim of Rs.57,86,626/-. The appellant during the course of appellate proceedings filed additional evidences in support of its expenditure. Having admitted the additional evidences, the same were sent for the examination and comments of the AO. The relevant part of the report of the AO is as under:
" The following expenditure debited in P&L ale as per the ledgers provided by the assessee have been verified and the amounts disallowable against each head is mentioned in the Remarks column below:
11 ITA No.1535/Hyd/2018
The copy of the report was made available to the Ld. AR for his counter comments. However, no comment was submitted by the Ld. AR. Hence, it is presumed that there is no evidence with the appellant to rebut the findings of the AO in the remand report. The Ld. AR also not objected for confirming the additions as suggested by the AO. Hence, the disallowance has to be restricted going by merits. In the remand report, the AO proposed disallowance u/s.40A(3) the following amounts. 1. Freight Rs.1,18,482/- 2. Traveling expenses Rs. 28,561/- 3. Other expenses Rs.1,57,651/- 4. Directors Remuneration Rs.18,00,000/- Rs.21,04,694/- The above proposal appears to be correct.
12 ITA No.1535/Hyd/2018 The AO proposed disallowance u/s.40(a)(ia) as follows: 1. Rates and taxes paid to Govt. Rs.1,35,000/- 2. Audit fee Rs. 50,000/- Though the AO proposed as above, the rates and taxes paid to the government cannot be disallowed u/s.40(a)(ia) of the Act. Hence, under this section, only an amount of Rs.50,000/- has to be disallowed. The AO while commenting on salaries and wages having regard to evidences produced, proposed disallowance of Rs.3,17,575/-. The appellant also not adduced any evidence. Hence the same require disallowance. In view of the above discussions and also considering non-submission of any evidence by the appellant rebutting -the findings of the AO, against the disallowance made by the AO in the assessment at Rs.28, 77,846/-, the disallowance is restricted to Rs.24,72,269/-. Accordingly, this ground of appeal is partly allowed. In effect, the appeal is partly allowed.”
Aggrieved with the order of learned CIT (Appeals), the assessee is in appeal before the Tribunal by raising the following grounds of appeal :
13 ITA No.1535/Hyd/2018 “ 1. The order of the Commissioner of Income-Tax (Appeals) is erroneous both on facts and in law. 2. The order of the learned Commissioner of Income Tax(appeals)erred in confirming action of the assessing Officer in treating the sundry creditors an amount of Rs.3,60,23,827/- u/s. 68 of the I.T Act without considering the appellant submissions. 3. The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing officer in disallowing expenditure an amount of Rs.24,72,269/- u/s. 40 (a)(ia) of the I.T Act without considering the appellant submissions. 4. Any other ground that may be urged at the time of hearing.”
Learned counsel for the assessee referring to the copy of the Remand Report dt.1.12.2016 filed in the Paper Book by the Revenue drew the attention of the Bench to Annexure I and submitted that the addition made by the Assessing Officer and sustained by the learned CIT (Appeals) on the basis of the Remand Report of the Assessing Officer is not correct. He submitted that there are certain items which
14 ITA No.1535/Hyd/2018 are not appearing in Trial Balance, but the Assessing Officer has suggested the addition on account of difference. He submitted that the total sundry creditors shown by the Assessing Officer was Rs.33,22,71,943 whereas the addition has been made on the basis of difference in the Trial Balance and the confirmation letter furnished. He submitted that given an opportunity, the assessee is in a position to substantiate his case with evidence before the Assessing Officer to his satisfaction.
So far as the disallowance of Rs.28,77,846 is concerned, he submitted that the disallowance appears to be on the higher side even after disallowance u/s. 40A(3) and 40(a)(ia) of the Act. He submitted that given an opportunity, the assessee is in a position to file the details before the Assessing Officer to substantiate the expenses. He accordingly submitted that the matter may be restored to the file of Assessing Officer for fresh adjudication.
The learned Departmental Representative, on the other hand, strongly supported the order of the learned CIT
15 ITA No.1535/Hyd/2018 (Appeals). He submitted that the conduct of the assessee by not complying to the statutory notices speaks in volumes. Relying on the various decisions, he submitted that the learned CIT (Appeals) has passed a speaking order giving justifiable reason and therefore the same should be upheld and the grounds raised by the assessee should be dismissed.
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and learned CIT (Appeals) and the Paper Book filed on behalf of the Revenue. We have also considered the various decisions cited before us by both sides. We find in the instant case the Assessing Officer passed order u/s. 143(3) r.w.s. 144 of the Act determining the total income of the assessee at Rs.34,50,23,490 as against Rs.17,47,243 returned by the assessee by making addition of Rs.33,22,71,943 on account of disallowance of Sundry Creditors and Rs.28,77,846 on account of disallowance of certain expenditure. We find the learned CIT (Appeals)
16 ITA No.1535/Hyd/2018 restricted the disallowance of Sundry Creditors to Rs.3,60,23,827 and the disallowance of expenditure to Rs.24,72,269; the reasons of which are already reproduced in the preceding paragraphs. So far as the addition on account of Sundry Creditors is concerned, it is the submission of the learned counsel for the assessee that the addition sustained by the learned CIT (Appeals) on the basis of Remand Report, copy of which has been filed by the Revenue, shows that the addition has been sustained on the basis of difference in the Trial Balance and the confirmations filed. It is his submission that the total of the trial balance is higher than the amount of Sundry Creditors and if given an opportunity the assessee is in a position to substantiate with evidence to the satisfaction of the Assessing Officer that there is no difference as such. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of Assessing Officer with a direction to give an opportunity to the assessee to substantiate his case by producing the cogent evidence and decide the issue as per
17 ITA No.1535/Hyd/2018 fact and law. We hold and direct accordingly. The first issue raised by the assessee is accordingly allowed for statistical purposes.
So far as the second addition i.e. the disallowance of Rs.24,72,269 is concerned, we find here also, the Assessing Officer in the Remand Report has mentioned about the disallowance of expenditure u/s. 40A(3) and 40 (a)(ia) of the Act. He also made comments on account of rate and taxes paid to Government and audit fees stating that it is not known whether TDS has been made on the same. Similarly, the Assessing Officer has even disallowed the depreciation, power expenses, telephone expenses, etc. Under these circumstances we deem it proper to restore the issue to the file of Assessing Officer with a direction to give an opportunity to the assessee to substantiate his case by producing the bills and vouchers to his satisfaction. The assessee is also hereby directed to produce the evidence of deduction of tax from payments where required as per law so as to justify his claim that provisions of section 40(a)(ia)
18 ITA No.1535/Hyd/2018 are not applicable. The Assessing Officer shall decide the issue as per the fact and the law after giving due opportunity to the assessee. We hold and direct accordingly. The second issue raised by the assessee is accordingly allowed for statistical purposes.
The Ground Nos.1 & 4 being general in nature are dismissed.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 20th Oct., 2022.
Sd/- Sd/- (LALIET KUMAR) (RAMA KANTA PANDA) Judicial Member Accountant Member Hyderabad, Dt.20.10.2022. * Reddy gp Copy to : 1. M/s. Aiswarya Art Creations Pvt. Ltd., C/o Shri T. Chaitanyakumar, Advocate, Flat No.102,Gouri Apartment, Urdu Lane, Himayathnagar, Hyderabad. 2. Addl. CIT, Range 13, Hyderabad. 3. Pr. C I T-VI, Hyderabad. 4. CIT(Appeals)-1, Hyderabad. 5. DR, ITAT, Hyderabad. 6. Guard File.
By Order