ACIT, CIRCLE - 25, KOLKATA, KOLKATA vs. SRI SAUNAK MITRA, KOLKATA

Ground no.1 is against the action of the Ld. CIT(A) in directing the AO to verify the disallowance made of Rs.2,59,770/- in view of the 2nd proviso to sec. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

Brief facts of the case are that the assessee is an advertising agent who carries out its business through his proprietary concern M/s. Colour Purple. In the course of the assessment proceedings, the AO noted that the assessee paid studio hire charges to various parties as given below and claimed total amount of expenditure to the tune of Rs.2,92,384/- under the head ‘studio hire charges’: Sl. No. Name of party Amount paid during the year 1. R. K. Enterprise Rs.21,000/- (Single payment) 2. Dimension Next Rs.1,50,000/- 3. Century Communication Rs.88,770/- Rs.2,59,770/- According to AO, the expenditure involved had an element of contract and so it attracts the provision of sec. 194C of the Act which requires the assessee to deduct tax at source from the amount of expenses in question. Since the assessee did not deduct any tax at source, the AO invoked the provision of sec. 40(a)(ia) of the Act and disallowed the expenditure and added the same to the income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who was pleased to direct AO to verify the claim of assessee in light of second proviso to sec. 40(a)(ia) of the Act and give relief in accordance to law. Aggrieved, the revenue is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Ld. CIT(A) while adjudicating the issue has directed the AO to verify as to whether the payees have included this amount in their respective returns and if they have reflected this income in their return, then as per the second proviso to sec. 40(a)(ia) read with sec. 201(1) of the Act, then no disallowance should be made. We have consistently held that the second proviso to sec. 40(a)(ia) read with sec. 201(1) of the Act is curative/clarificatory in nature and, therefore, retrospective and the Ld. CIT(A) has only directed the AO to verify as to whether the payees have reflected the income from the assessee in their respective returns and if so no disallowance of expenses is warranted which action of the Ld. CIT(A) needs no interference and, therefore, we dismiss this ground of appeal of revenue.

The second ground of appeal of the revenue is against the action of the Ld. CIT(A) in deleting the addition of Rs.1,28,18,201/- made by AO on account of difference in balance of sundry creditors.

Brief facts of the case are that the AO noted that the assessee has claimed to have made various business transactions with a party like Orient Publicity Services Pvt. Ltd. and Selvel Advertising Pvt. Ltd. The AO issued 133(6) notice to both the parties and from the reply received from Orient Publicity Services Pvt. Ltd. it was found that the outstanding liability of the assessee towards the party as on 31.03.2009 was Rs.5,82,769/- whereas the Saunak Mitra., AY 2009-10 assessee claimed its liability towards the said party at Rs.15,99,832/-, thus the AO found a difference of Rs.10,17,063/-. Likewise, in the case of Selvel Advertising Pvt. Ltd. pursuant to the notice u/s. 133(6) notes the said party replied that the outstanding liability towards it was Rs.46,45,200/- as against the assessee’s claim of Rs.1,64,46,338/-, therefore, the AO found a difference of Rs.1,18,01,138/-. So, the AO was of the opinion that the liability of the assessee to the tune of Rs.1,18,01,138/- + Rs.10,17,063/- ceased to exist as on 31.03.2009 and, therefore, he invoked sec. 41(1) of the Act and added it to the income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same by holding as under: “4.2. I have perused the assessment order, submission of the assessee and the assessment order. It was indeed surprising that on a turnover of Rs. 3.09 crore and on a capital of Rs. 4.5 lakhs there would be such massive difference in the figure of Sundry Creditors that too against reputed Sundry Creditors party like Selvel Advertising Pvt. Ltd. Perusal of the assessment record also reveals that in case of Gee Pee Infotech (p) Ltd. From party's conformation statement it is seen that debit balance of Gee Pee Infotech (p) Ltd comes to Rs. 22,42,305/- while the debit balance as per assessee's books towards Gee Pee Infotech (p) Ltd is Rs. 1,17,90,606/-. This difference was quite evident, huge and was there before the Assessing Officer. However the Assessing Officer has not made any comment on this discrepancy. The Ld. authorized representative has submitted that sometimes the advertising agencies like Selvel Advertising Pvt. Ltd. etc. received payment directly from client [like Gee Pee Infotech (p) Ltd] and, therefore the credit balance for advertising services gets reduced in the books of advertising agencies like Selvel Advertising Pvt. Ltd. while in the books of the assessee the credit balance still remains and is reconciled at a later date. In view of the large discrepancy in both debtors and creditors, the explanation given by the assessee seems to be correct. The Assessing Officer has only taken the discrepancy in the creditor's balance while the large discrepancy in the debtor's balance has been ignored by the Assessing Officer. In view of the above I am inclined to agree to the submissions made by the Ld. authorized representative that the discrepancy in the debtor and creditors' are mostly compensatory in nature due to different accounting treatment of the same transaction by different parties. However during the course of hearing the assessee was not able to reconcile the balance of debtor ~d creditors. Therefore some discrepancy/manipulation cannot be ruled out and therefore the books of accounts of the assessee are hereby rejected and profit of the assessee are estimated. The net profit of the assessee may be estimated at 8% of the operating income of Rs. 3,09,71,045/-. In the result this ground of appeal is partly allowed.”

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had a total turnover of Rs.3.09 cr. The Ld. CIT(A) has taken note that the AO has issued notice to both the creditors and debtors and has only recorded the difference in the case of creditors only whereas the Ld. CIT(A) found that the Saunak Mitra., AY 2009-10 sundry debtor M/s. Gee Pee Infotech Pvt. Ltd. has shown debit balance to assessee to the tune of Rs.22,42,305/- whereas as per assessee’s books towards the sundry debtors is Rs.1,17,90,606/-. Thus, there was evidently huge difference in both the creditors as well as the debtors. The discrepancy, the assessee explained to the Ld. CIT(A) that this was due to the fact that the advertising agencies like M/s. Selvel Advertising Pvt. Ltd. received payment directly from the client (like Gee Pee Infotech Pvt. Ltd.) and, therefore, the credit balance for advertising services get reduced in the books of advertising agencies like Selvel Advertising Pvt. Ltd., while in the books of assessee, the credit balance still remains the same and could be reconciled only later. Taking note of the discrepancy in both the debtors and creditors and taking into consideration the plausible explanation given by the assessee the Ld. CIT(A) who enjoys the co-terminus power as that of the AO has resorted to reject the books of account and has estimated the income at 8% of the operating income of Rs.3.09 cr. which action of the Ld. CIT(A) in the peculiar facts and circumstances requires no interference for the reasons stated above. Therefore, this ground of appeal of revenue is dismissed.

In the result, the appeal of the revenue is dismissed.