DCIT, CIRCLE-4(2), KOLKATA, KOLKATA vs. M/S MERCURY CAR RENTALS LIMITED, KOLKATA

The first ground of appeal is against the action of the Ld. CIT(A) in deleting the addition of Rs.82,13,618/- as undisclosed income ignoring the provisions of sec. 199 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

Brief facts of the case as noted by the AO are that the assessee is into the business of giving vehicles on rentals. The AO noted from the ITS details that there was some mis- match, therefore, the assessee was asked to reconcile the same. According to AO, the assessee could not reconcile the ITS statement vis-à-vis the books of account in terms of quantum of income, its nature of transaction in respect of parties. According to AO, as per ITS details income under the head ‘commission brokerage’ comes to Rs.64,75,433/- (u/s. 194J), rent (u/s. 194-I) Rs.4,60,850/- and professional fees for Rs.12,77,335/-. According to AO, in the reconciliation statement submitted by the assessee it has been stated that the fees

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee company is engaged in the business of transportation and car rentals. It was brought to our notice by the Ld. AR that the assessee supplies chauffer driven cars on rent to customers for a period of time as per the customers’ requirement. Elaborating on the business, the Ld. AR submitted that the time period for which vehicles may be given to customers varied for few hours on a day to a full day or for a number of days depending upon the requirement of the customers. According to Ld. AR, the assessee company operates through its branch offices situated in almost all the major cities and places of tourist interests in India. It was brought to our notice that as per the ITS details generated by the Department through its software and the reports thrown by it is based on the inputs filed by the payee who deducts TDS on payments made to assessee and as per the payee’s understanding of the fiscal statute. And it was pointed out to us by the Ld. AR that in case if the deductee fills up the quarterly TDS incorrectly, the assessee cannot be penalized and according to ld. AR the nature of the transaction between the payee and the assessee cannot be ascertained by the TDS deduction erroneously made by the payee/deductee of TDS. In order to show that the deductees in this case has erroneously made the deduction under various heads, the Ld. AR drew our attention to the TDS details from which it is seen that the assessee purportedly received Rs.23,286/- as dividend (sec. 194); Rs.22,61,20,789/- deduction u/s. 194C (contractees); Rs.64,75,433/- deduction u/s. 194H (commission/brokerage); Rs.4,60,850/- TDS u/s. 194-I (rent); Rs.12,77,335/- TDS u/s. 194J (fee for professional service). The Ld. AR pointed out that with regard to the dividend income, the fact is that assessee did not make any investment in shares of companies or in mutual fund to yield dividend. Thus, it was pointed out by the Ld. AR that there could be no question of assessee receiving any dividend income and it is common

Second ground is in respect of deleting the addition of Rs.30,95,643/- under the head ‘royalty expenses’. Brief facts of the case are that from the details the AO found that the assessee has debited royalty of Rs.2,22,57,030/- in the P&L Account. The details of royalty calculation and identity of the party has been furnished. According to AO, the royalty pertaining to earlier year for Rs.30,95,643/- has been debited in this year’s account as is evident from the notes on account, where it was recorded that the same is not related to the current year. When AO asked for explanation from assessee it filed a submission wherefrom the AO found that royalty was paid to ‘Avis’ and due to revision of calculations/computation as per decision of management, the same has been raised during the year. However, according to AO, since the expenses are not related to this year, the same cannot be allowed and so he added back the same to the total income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who deleted the addition. Aggrieved, revenue is in appeal before us.

We have heard rival submissions and perused the records. We note that the AO has disallowed an amount of Rs.30,95,643/- out of the total royalty payment of Rs.2,22,57,030/- during the year on the ground that the same pertained to earlier years. We note that in this year the basis of royalty computation has been changed with retrospective effect from 01.04.2003 arising out of a policy decision and the additional expenditure on account of royalty has been actually determined during the year under consideration before us. The Ld. CIT(A) has clearly made a finding of fact that this liability was determined this year and this liability crystallized during the current year. This finding of fact has not been challenged by the revenue before us. Therefore, when the liability has crystallized in this year, it cannot be called as prior period expenditure and since the additional expenditure on account of royalty has been determined and has crystallized during the year under consideration, it is an

Ground no. 3 is against the action of the Ld. CIT(A) in deleting the addition of provision for bad debts of Rs.46,63,357/- to assessee’s book profit ignoring the provisions of item (c) of Explanation 1 below section 115JB of the Act.

Brief facts of the case are that the AO had added back an amount of Rs.46,63,357/- representing the provision for doubtful debts to book profit for the purpose of computation of deemed total income and tax liability u/s. 115JB(1) of the Act. The AO has added back an amount of Rs.46,63,357/- representing doubtful debts for computation of total income. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the same. Aggrieved, revenue is before us.

We have heard rival submissions and perused the records. At the time of hearing Ld. AR fairly conceded that this issue needs to be held against the assessee. We note that the Hon’ble Delhi High Court in the case of CIT Vs. ILPEA Paramount P. Ltd. (2011) 336 ITR 54 (Del) wherein the Hon’ble Court has held as under:

In the result, appeal of the revenue is partly allowed.