DCIT, CIR-7(1), KOLKATA, KOLKATA vs. M/S CAPILLARY TECHNOLOGIES PVT. LTD., KOLKATA

1. The captionedappeal filed by the Revenue, pertaining to assessment year 2011-12, is directed against the orders passed by the Commissioner of Income- tax (Appeals)-16, Kolkata, in Appeal No. 624/CIT(A)-16/Kol/2014-15/C- 7(1)/Kol, dated 31-03-2016, which in turn arises out of an order passed by the Assessing Officer u/s. 143(3)of the Income-Tax Act, 1961 (in short, the Act), dated28-03-2014.

Grounds of appeal

In ground No.1 the main grievance of the Revenue is that the Ld. CIT(A) has allowed salary of Rs. 37,04,232/- which was inflated by the assessee in the books of accounts to evade tax.

Brief facts qua the issue are that during the scrutiny assessment the assessing officer (AO) noted that assessee has debited Salary expenses to the tune of Rs. 1,63,71,077/- to the profit and loss account. On being asked, the assessee submitted month-wise salary statement before the AO and also submitted that the HDFC bank pays salary to employees as per said salary statement.On receipt of the salary statementthe notice u/s 133(6) was issued by the AO to the Bank Manager, HDFC Bank, BTM Layout Branch, Bangalore. In response to notice U/s 133(6), the said bank furnishedbank statement of the assesse company for the financial year 2010-1l to the AO. On perusal of the said statement and also the month-wise statement of the assesse, it was found that the salary was paid as below:-

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A), who has deleted the impugned addition made by the AO. Aggrieved, the Revenue is in appeal before us.

We have given a careful consideration to the rival submissions and perused the material available on record, we note that on perusal of the Profit and Loss account and details mentioned under schedule 12 of financial statements, it was observed by the assessing officer that the assessee debited Salary to the tune of Rs.1 ,63,71 ,077/- to the profit and loss account. The assessee submitted month-wise salary statement before AO. On perusal of the said statement and also the month-wise statement of the assessee, it wasnoted by AO that the salary was paid totaling to Rs. 1,48,14,124/-. The actual salary payment on the basis of bank statement and details in record was to the tune of (Rs.1 ,48,14,124-Rs.21,47,279)= Rs.1,26,66,845/-. But the assessee debited salary to the profit and loss account to the tune of Rs.1,63,71,077/- which is inflated as per the AO to the tune of Rs.37,04,232/-(Rs.1,63,71,077 - Rs.1,26,66,845). The ld Counsel for the assessee submitted before us that thesaid difference between the salary debited in profit and loss account and salary paid by bank hadarisen due to the following reasons:

On the other hand, Ld DR for the revenue submitted before us that ld AO has compared the salary statement with the bank statement and worked out the differences in a systematic way therefore, addition made by AO should be sustained. We note that the reconciliation between salary debited in the assessee's books and the salary as shown to be paid by bank was submitted by the assessee before the AO and the AO failed to bring any cogent evidence on record to show that reconciliation made by assessee is wrong. Moreover, the assessee had filed the details of salary expenses incurred per month per employee as well as director's remuneration paid in the F.Y. 2010-11 to the AO, and also filed the details of payments of salary made through assessee's bankers. We note that the figure of salary which is treated as bogus by the Ld. AO is not false at all. These salary figures noted above is subject to various deductions made from salary as well other adjustments as explained by the ld Counsel in para no. 9 of this order. These deductions and adjustments were not considered by the AO therefore, addition made by the AO is without any base.That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid addition. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

The brief facts of the issue are that on perusal of 26AS statement, the AO observed that the assesseedid not disclose fully and truly of all the receipts and income details of which are given below:

Aggrieved by the order of the AO, the assesse carried the matter in appeal before the ld. CIT(A), who has deleted the addition. Aggrieved, the Revenue is in appeal before us.

We have given our careful consideration to the rival submissions and perused the material available on record, we note that the Ld. AO has taken up individual cases for matching the 26AS with the amount of income booked by the assessee and made no attempt to reconcile the total income as booked by the assessee and total income on which TDS was deducted. The ld Counsel for the assessee explained the Bench, the each case of discrepancy. In case of Aditya Birla Nuvo Ltd., the assessee had raised bills and booked income in the name of its retail partners and other brands working in the name of Aditya Birla Nuvo Ltd. such as Peter England, Planet Fashion etc. However, TDS was deducted by the parent company namely, Aditya Birla Nuvo Ltd., hence the difference. If the total income booked in the name of the brand partners in the books of theassessee is considered, it would reconcile with the amount of income shown in 26AS by Aditya Birla Nuvo Ltd, hence the difference is reconciliatory in nature. In case of Alok H&A Ltd, the assessee has raised the first invoice on the customer on 26.02.2010. i.e. F.Y. 2009-10, whereas customer has considered the same in F.Y. 2010-11 and deducted TDS thereon. In case of Celebrity Fashion, Ltd,the 26AS submitted at the time of scrutiny assessment, though showed a higher income on which TDS was deducted by the assessee's client, later it was rectified and as per the current 26AS dated 16.03.2016., the income is now Rs. 17,19,478/-, which is lower than the income booked by the assessee in his books. In the case of Indus League Clothing Ltd, the counsel submitted that the assessee had raised bills and booked income in the name of its retail partners and other brands working in the name of Indus League Clothing Ltd. such as Jealous 21, John Miller, Urban Yoga etc. However, TDS was deducted by the parent company, Indus League Clothing Ltd, hence the difference. However, if the total income booked in the name of the brand partners in the books of the assessee is considered, it would reconcile with the amount of income shown in 26AS by Indus League Clothing Ltd., hence the difference is reconciliatory in nature.

However, the ld Counsel fairly agreed that so far total reconciliation of 26AS is concerned, taking into account all the parties mentioned above, there would be still a difference to the tune of Rs. 1,77,864/-, and the same may be added to the total income of the assessee.Therefore, out of the total disallowance of Rs.23,16,911/- made by AO we confirm the addition of Rs.1,77,864/-, and the balance amount is deleted. Therefore, we allow this ground raised by the Revenue partly.

Ground No. 3 raised by the Revenue relates to deletion of the expenditure towards "Travelling Expenses" and "Repair & Maintenance”.

Brief facts qua the issue are that on perusal of the Profit and Lossaccount, anddetails under schedule-13 of the financial statements, it wasnoticed by the AO that the assesse debited ‘Travelling Expenses’ to the profit and loss account to the tune of Rs.39,02,561/- and Repairs& Maintenance of Rs.3,61,228/-. On being asked, the assessee submittedsome bills and vouchers. However, the AO observed that the purpose of the tour and travel was not cleared and in absence of verifiable bills vouchers genuineness of these transactions cannot be ascertained. Therefore, the AO disallow Rs. 7,80,512/- i.e. 20% of Travelling Expenses and Repair & Maintenance of Rs. 72,245/- i.e. 20% of this expenses and add back to the total income of the assessee.

Aggrieve by the stand taken by the AO, the assesse carried the matter in appeal before the ld. CIT(A), who had deleted the addition. Aggrieved, the Revenue is in appeal before us.

We have given a careful consideration to the rival submissions and perused the material available on record, we note that assessing officer made the ad-hoc disallowance solely on the ground that the purpose of the tour and travel was not clearand in absence of verifiable bills vouchers genuineness of these transactions cannot be ascertained and identities of the payees have been proved by the assessee. We note that in the case of travelling expenses, the assessee submitted detailed break- up of travelling expenses incurred by it. The assessee also submitted the printout of bills from various sites such as ‘make my trips’ etc. as well as the purpose and place of travelling were submitted and in case of reimbursements of expenses, proper supporting were submitted by assessee. Thus, the contentionof the Ld. AO that these payments were made against self-made debit vouchers is totally false and is without bringing and cogent evidence on record. We note that all details and supporting were submitted by the assessee.

We note that in the case of repairs and maintenance expenses, the Ld. AO never asked for any details or bills. Had the Ld. AO asked for such details, the assessee would have produced the same, as all details were available with it. Thus, the Ld. AO without giving proper opportunity of being, disallowed the expense based on his own whims and personal surmises. We note that the Ld. AO has no where mentioned specific instances where in his opinion, such expenses have been found to be false. He has made an ad-hoc disallowance treating 20% of such expenses as false. The disallowance of genuine business expenditure on estimate basis without any conclusive evidence to prove it otherwise, is totally irrational, illogical and is based on presumption, whims and surmises. For that we rely on the judgment of the coordinate Bench Mumbai in the case of Dy. Commissioner of IT Mumbai vs. Metropolis Health Services (I) Pvt.Ltd.(ITA No.4973/Mum/2009), wherein it was held that the disallowance of expenses which are genuine, based on personal whims and surmises is bad and may be deleted.That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid addition. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

In the result, the appeal filed by the Revenue is dismissed.