SALES EMPORIUM(ULG),KOLKATA vs. ITO,WARD 413(2),KOL., KOLKATA

In ground no 1 and 2, the assessee has challenged the validity of the assessment made by the A.O. under section 143(3). At the time of hearing, the learned counsel for the assessee however has not pressed the said grounds. Ground no 1 & 2 of the assessee’s appeal are accordingly dismissed as not pressed.

The issue involved in ground no 3 relates to the disallowance of Rs, 15,69,950/- made by the A.O. and confirmed by the Ld. CIT(A) on account of sales promotion and advertisement expenses by treating the same as unproved / bogus.

Sales Emporium (ULG) 4. The assessee in the present case is a partnership firm which is engaged in the business of trading in electronic goods. The return of income for the year under consideration was filed by it on 27.09.2008 declaring a total income of Rs. 1,31,440/-. In the said return, deduction was claimed by the assessee on account of payments of Rs. 11,25,000/- and Rs. 4,44,950/- made to M/s. Latest Publicity House towards hoarding charges and gift articles. The claim of the assessee for the said amounts claimed under the head advertisement and sales promotion expenses was examined by the A.O. during the course of assessment proceedings. In this regard, a letter sent by him to M/s. Latest Publicity House at the address given by the assessee was returned unserved by the postal authority with the comments ‘Not Known’. The Income Tax Inspector deputed by the A.O. to make enquiry with the said party also found that there was no such party at the address given by the assessee. Even the assessee failed to produce the said party for verification before the A.O. He however filed the photocopies of bills raised by M/s. Latest Publicity House for hoardings and further submitted that tax at source was also deducted by it from the payments made to M/s. Latest Publicity House. He also pointed out that the said party was regularly assessed to tax and relevant documentary evidence in this regard was also filed by the assessee. The enquiry sought to be made by the A.O. at the telephone numbers printed on the bills of Latest Publicity House filed by the assessee however revealed that the said telephone numbers belonged to some third parties. The A.O., therefore, held that there was no verification possible of the claim of the assessee of having paid the amount of Rs. 15,69,950/- to M/s. Latest Publicity House towards hoarding charges and gift articles in the absence of correct business Sales Emporium (ULG) address or telephone number. He, therefore, concluded that the claim of the assessee on this count was bogus/unverifiable and the deduction claimed by the assessee amounting to Rs. 15,69,950/- on account of advertisement and sales promotion expenses was disallowed by him in the assessment under section 143(3) vide an order dated 2nd December, 2010.

Against the order of the A.O. passed under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and the submissions made before the Assessing Officer on this issue were reiterated on behalf of the assessee before the Ld. CIT(A). Attention of the Ld. CIT(A) was drawn by the assessee to the documentary evidence already filed before the A.O. in the form of bills of M/s. Latest Publicity House for hoarding charges, income tax particulars of the said party as well as photographs of the concerned hoardings in support of its case on this issue. It was also pointed out by the assessee that all the relevant payments were made to M/s. Latest Publicity House by account payee cheques and tax at source was also deducted from the said payments. The Ld. CIT(A) did not find merit in these submissions of the assessee. According to him, documentary evidence filed by the assessee was not sufficient to establish that services were actually rendered by M/s. Latest Publicity House. He also took note of the fact that there was failure on the part of the assessee to produce the said party for verification despite specific opportunity given by the A.O. He accordingly confirmed the disallowance of Rs. 15,69.950/- made by the A.O. on account of advertisement and sales promotion expenses.

The issue raised in ground no 4 relates to the disallowance of Rs. 2,31,120/- made by the A.O. under section 40(a)(ia) and confirmed by the Ld. CIT(A).

During the year under consideration, a total sum of Rs. 2,31,120/- was paid by the assessee to 3 persons on monthly basis as retainership. During the course of assessment proceedings, it was submitted by the assessee that the said persons were computer experts and accountants and the amounts in question was paid to them for performing accountancy job and computer consultancy. It was also submitted that the said persons were not professionals and therefore, tax at source was not required to be deducted from the payments made to them as per section 194J. It was further submitted that there was no contract entered into by the assessee with the said persons and therefore, the provisions of section 194C were not applicable. These submissions of the assessee were not found acceptable by the A.O. According to him, the amount in question having been paid by the assessee at the rate fixed on monthly basis, there was oral contract between the assessee and the said persons Sales Emporium (ULG) and the amount in question having been paid to them for contractual work, the assessee was required to deduct tax at source as per the provisions of section 194C. Since there was failure on the part of the assessee to comply with the said requirement, the A.O. invoked the provisions of section 40(a)(ia) and made a disallowance of Rs. 2,31,120/-. On appeal the Ld. CIT(A) confirmed the said disallowance made by the A.O. for the same reasons as given by the A.O.

I have heard the arguments of both the sides and also perused the relevant material available on record. The learned counsel for the assessee has raised the same contention as raised before the authorities below that in the absence of any contract entered into between the assessee and the concerned 3 persons, the provision of section 194C was not applicable and there was no question of deduction of tax at source. I am unable to accept this contention of the learned counsel for the assessee. As rightly held by the authorities below, when the amount in question was paid by the assessee to the concerned 3 persons at the fixed rate on monthly basis for the specified services rendered by them, there was bound to be an oral contract on the basis which the services were agreed to be rendered on retainership basis. The assessee, therefore, was liable to deduct tax at source in terms of section 194C and having failed to do so, the amount in question was liable to be disallowed under section 40(a)(ia). I, therefore, find no infirmity in the impugned order of the Ld. CIT(A) confirming the disallowance made by the A.O. under section 40(a)(ia) and upholding the same, I dismiss ground no 4 of the assessee’s appeal.

In the P & L A/c, a sum of Rs. 2,68,689/- was debited by the assessee on account of installation and delivery expenses. On verification of the said expenses, it was found by the A.O. that a sum of Rs. 1,000/- was paid by the assessee for matador hire charges towards each trip. Although the assessee produced vouchers in support of its claim for installation and delivery charges, the A.O. found that the address of the owners as well as the registration numbers of the vehicles were not given in the said vouchers. In the absence of the said details, Assessing Officer held that the claim of the assessee for installation and delivery charges was not verifiable from the self made vouchers and proceeded to disallow the entire installation and delivery charges claimed by the assessee. On appeal the Ld. CIT(A) restricted the said disallowance made by the A.O. to 50% after taking into consideration the nature of the assessee’s business which warranted incurring of expenditure on installation and delivery charges in the regular course.

I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that even though the claim of the assessee for installation and delivery charges was not fully verifiable from the self made vouchers produced by the assessee in the absence of relevant details, the disallowance made by the A.O. for such expenses entirely was not justifiable keeping in view the nature of the assessee’s business of dealing in electronic goods