ITO, NEW DELHI vs. M/S FABER STAR FACILITIES MANAGEMENT LTD., NOIDA

Brief facts of the case are that the assessee is a company and they have filed their return of income on 27.9.2010 declaring nil income. By order dated 2 28.3.2018, the assessment was completed at an income of Rs.2,23,53,188/- by making addition of Rs.11,79,179/- on account of disallowance of expenses on the ground that the assessee failed to file justification for claim of such expenses; a sum of Rs.11,29,699/- u/s 40(ia) of the Income-tax Act, 1961 (“the Act”) by making disallowance of a sum for not deducting the tax at source; and a sum of Rs.2,00,44,310/- being the closing balance of the creditors.

When the assessee preferred appeal, learned CIT(A) deleted the same. In respect of the addition of Rs.11,79,179/- he held that though the assessee filed the details, the AO without identifying whether any expenditure claimed to be bogus or was not wholly and exclusively for the purpose of business, as such, the disallowance of expenditure of Rs.11,79,179/- had to be deleted. In respect of the disallowance of expenses of Rs.11,29,699/- u/s 40(ia), learned CIT(A) recorded that such an expenditure comprises of payments to one M/s Kone Elevator India P. Ltd. To the tune of Rs.4,52,160/-; prepaid expenses to the tune of Rs.3,95,902/- and the payment made pursuant to the debit notes issues by the clients to the tune of Rs.2,81,637/- and out of these three payments, M/s Kone Elevators India Ltd. had obtained the certificate from the department for nil deduction of tax for the financial year 2009-10 and sine the certificate was produced, the learned CIOT(A) held that the assessee was not required to deduct the tax at source in respect of the payments made to M/s Kone Elevators India Ltd. In respect of Rs.3,95,902/- on account of prepaid expenses. Learned CIT(A) recorded that the tax was deducted as per the prescribed rates applicable for Financial year 2008-09 and 2009-10 respectively and relevant record was produced before the learned AO. In respect of the payments pursuant to the debit notes, learned CIT(A) recorded that the expenses were incurred by the clients of the assessee in which various debit notes were raised and the “Annual maintenance charges BEMS” is nothing but the 3 reimbursement of the expenses which does not require the tax to be deducted at source. Learned CIT(A), therefore, deleted the addition of Rs.11,29,699/- made u/s 40(ia) of the Act. Coming to the addition of Rs.2,00,44,310/- being the closing balance of the creditors, learned CIT(A) deleted the same on the ground that except M/s Telerex Communications, the other creditors in respect of whom learned AO made the addition were not at all appearing in the books of accounts of the assessee and also that even the balance shown standing in the account of M/s Telerex Communication was nil as on 31.3.2010. By recording this fact, learned CIT(A) deleted this amount also.

Revenue is, therefore, in appeal before us stating that the learned CIT(A) wrongly admitted the additional evidence in respect of the disallowance of Rs.11,79,179/- and Rs.11,29,699/- and he also did not ascertain the facts by way of remand report in respect of deletion of Rs.2,00,44,310/-.

It is the argument of the learned DR that before the learned CIT(A), assessee produced the details of the expenditure incurred by the associate companies as well as holding company and also the certificate obtained from the Department by M/s Kone Elevators India Ltd. in respect of the deduction of tax for the Financial Year 2009-10. So also she submitted that in respect of Rs.2,00,44,310/- also, the learned CIT(A) should have called for the remand report.

We have gone through the record. Though the assessment order passed u/s 144 of the Act, it is not the case of the revenue that no record whatsoever was available with the Department. Assessment order reads that on 6.3.2013, the assessee filed details containing the TDS details and confirmation in respect of certain payees. However, learned AO recorded that the assessee has not filed any justification for the expenses. It is pertinent to note that as rightly observed by the 4 learned CIT(A), learned AO did not doubt the genuineness of the expenditure and at the same time, he did not record a finding that such expenses were wholly and exclusively incurred for the purpose of business. Without entertaining any doubt as to the genuineness of the expenditure and without recording a finding that the expenses were not incurred wholly and exclusively for the purpose of business, it is not open for the learned AO to disallow the expenses without specifically pointing out any discrepancy in the books of accounts. We, therefore, are of the considered opinion that disallowance of the entire amount of Rs.11,79,179/- incurred by the associate company on behalf of the assessee and also by the holding company which was later on reimbursed by the assessee. There is no denial of the fact recorded by the learned CIT(A) that these expenses are of the nature of regular day to day expenses falling within the ambit of Section 37(1) of the Act. In these circumstances, we are of the considered opinion that the learned CIT(A) is justified in deleting the same and such a finding need not be interfered with.

Now coming to the disallowance of Rs.11,29,699/- u/s 40(ia) of the Act, there is no denial of the fact that M/s Kone Elevators India Ltd. were issued certificate by the Department for nil deduction of tax in the FY 2009-10. So also in respect of the prepaid expenses, there is no denial of the fact that the assessee deducted the tax of such expenses as per the prescribed rates applicable for the financial years 2008-09 and 2009-10 respectively and also the department does not dispute the correctness of the expenses incurred by the clients of the assessee by raising debit notes and subsequently, reimbursed of the same by the assessee. In these circumstances, we fail to understand how the learned CIT(A) is wrong in deleting the same. Substance has to be preferred to the form. When the issuance of departmental certificate is not in dispute so also the payment of tax at a 5 particular rate applicable for the FYs 2008-09 and 2009-10, it is not open for the department to contend that the learned CIT(A) is not justified in not accepting the same when contended by the assessee. We, therefore, do not find any perversity in the findings of the learned CIT(A) on this account.

Lastly, coming to the deletion of the addition of Rs.2,00,44,310/- on account of the closing balance of the creditors, it is not the case of the department that no balance sheet was available with the learned AO. It was asserted by the assessee before the learned CIT(A) that the details of the creditors were filed before the learned AO by letter dated 7.2.2013. Then the AO is expected to look into the record that was available before him in respect of the creditors and the department could have easily disprove the assertion of the assessee that out of the six creditors enumerated by the learned AO in his order, 5 are not to be found in the books of accounts of the assessee. It is also a verifiable fact that whether really Rs.98,04,680/- was appearing in the balance standing in the account of M/s Telerex Communications. Assessee’s case is that as on 31.3.2010, nil balance was there in respect of this entry. After perusing the record, learned CIT(A) recorded as a matter of fact that 5 creditors are not appearing in the books of accounts of the assessee and also that there was no balance in the account of M/s Telerex Communications. In this context, learned CIT(A) recorded that “It is regretted to note that the Assessing Officer has not at all applied his mind while making the assessment.” When the assessment is not done basing on the record and no record is properly adverted to by the learned AO as noted by the learned CIT(A), we do not find any merit in the contention of the revenue that the additional evidence should not have been admitted by the learned CIT(A). When it is the finding of the learned CIT(A) that for disallowance of Rs.11,79,179/- on account of the regular day to day expenditure, the AO has not identified the expenditure either to be 6 bogus or to be for the purposes other than the business, not calling for the remand report is of little consequence. So also the reasons recorded by the learned CIT(A) while deleting the other two additions are also perfectly legal and justifiable. We, therefore, do not find any reason to interfere with the same. Appeal being devoid of merit, is hereby dismissed.

In the result, appeal of the revenue is dismissed. Order pronounced in the Open Court on 29th November, 2018. Sd/- sd/- (PRASHANT MAHARISHI) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29th November, 2018 VJ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 Draft dictated on 27.11.2018 Draft placed before author 28.11.2018 Draft proposed & placed before the second member Draft discussed/approved by Second Member. Approved Draft comes to the Sr.PS/PS Kept for pronouncement on Date of uploading order on the website File sent to the Bench Clerk Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.