ACIT, NEW DELHI vs. M/S. VIPUL MEDICORP TPA PVT. LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’: NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 2506/Del/2012 Assessment Year: 2006-07 Asstt. Commissioner of Income Tax, Vs. M/s. Vipul Medicorp TPA Pvt. Ltd., Circle-17(1), Room No. 221, 2nd B-416, Ansal Chamber-I, Bhikaji Floor, C.R. Building, New Delhi Cama Place, New Delhi GIR/PAN : AABCV8668F (Appellant) (Respondent) Appellant by Sh. Amit Jain, Sr. DR Respondent by Sh. Rajesh Arora, CA Date of hearing 18.05.2016 Date of pronouncement 30.06.2016 ORDER PER O.P. KANT, A.M.: This appeal by the Assessing Officer (i.e. ACIT, circle-17 (1), New Delhi) is directed against order dated 28/03/2012 of the Ld. Commissioner of Income-tax (Appeals)-XIX, New Delhi for assessment year 2006-07, raising the following grounds: 1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax(Appeals) erred in deleting an addition of Rs. 1955754/- made out of salary expenses debited to P&L account and admitting additional evidence which had not been produced before the Assessing Officer during the assessee proceedings. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax(Appeals) erred in deleting an addition of Rs. 912922/- made out of printing and stationery expenses on account of the fact that tax at source has not been deducted even though payment to four parties exceeded Rs. 50,000/- and hence tax at source was required to be deducted u/s. 194C of the I.T. Act, 1961. 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax(Appeals) erred in giving a relief of Rs. 63,450/- holding that the asset acquired by the assessee company in the name of a sister concern is also entitled for depreciation in the hands of the assessee.

2 ITA No. 2506/Del/2012 AY: 2006-07 4. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax(Appeals) erred in deleting an addition of Rs. 598833/- out of misc. expenses. 5. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax(Appeals) erred in deleting an addition of Rs. 249588/- on account of preoperative expenses. 6. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of appeal.

3 ITA No. 2506/Del/2012 AY: 2006-07 Officer. However, the assessee did not file the evidence as called for by the ld. Assessing Officer in remand proceedings. After considering the remand report and submission of the assessee, the ld. Commissioner of Income-tax (Appeals) allowed part relief to the assessee. Aggrieved, the Assessing Officer is in appeal before the Tribunal raising the grounds reproduced above. 4. In ground No. 1, the Assessing Officer has challenged the deletion of the addition of Rs. 19,55,754/- in respect of salary expenses and admitting the additional evidences, which had not been produced before the Assessing Officer. 4.1 Fact in respect of the issue in dispute are that during the year under consideration, the Assessing Officer found salary expenses of Rs. 78,23,015/- as compared to expenses of Rs. 34,47,000/- in the immediately preceding year and, therefore, called for details about the employees including their name, residential address, qualification, duty performed, place of posting, total salary paid and mode of payment of salary. The reply filed in response by the assessee was not found to be complete by the Assessing Officer as the details of residential address of the employees were not available, which according to the Assessing Officer was a crucial for verification of the expenses. In view of the facts, the Assessing Officer disallowed one fourth of the salary expenses claimed, which amounted to Rs. 19,55,754/-. The assessee filed additional evidence in the form of salary details of the employees and the remand report was called for by the ld. CIT(A). The Ld. Commissioner of Income-tax (Appeals) observed that most of the personnel were stationed at Gurgaon and Delhi and the Assessing Officer simply brushed aside the explanation of the assessee without pointing out any irregularity. The learned Commissioner of Income Tax(Appeals) further observed that percentage expenditure on the salary has reduced from 57% in immediately preceding year to 30% in the year under consideration. Accordingly, he deleted the addition. 4.2 Before us, the ld. Senior Departmental Representative referring to the remand report of the Assessing Officer, which is available at pages 368 and 369

4 ITA No. 2506/Del/2012 AY: 2006-07 of assessee’s paper book and submitted that certain details in respect of the employees were not filed before the Assessing Officer even during the remand proceeding and, therefore, the learned Commissioner of Income Tax(Appeals) has allowed the expenses without proper verification, and thus requested that the issue may be restored back to the file of the Assessing Officer for verification of the details in respect of the employees. 4.3 On the contrary, the ld. Authorized Representative of the assessee relying on the findings of the Ld. Commissioner of Income-tax (Appeals) submitted that all the details were made available to the Assessing Officer and expenses incurred on salary were duly justified. 4.4 We have heard the rival submissions on the issue in dispute and perused the material on record including the orders of the authorities below and the paper book of the assessee. We find from the remand report of the Assessing Officer available at page 368 and 369 of the assessee’s paper book that the Assessing Officer objected to the admission of the additional evidences, however, while verifying, he found that certain details which were called for, were not made available to him by the assessee. The relevant part of the remand report is reproduced as under: “…………………………………………………………………………….. “1. Disallowance on account of salary payments: The assessee was asked vide order sheet entry dated 16.12.2008 the following details regarding the salary paid to employees i.e. name, residential address, qualification, duty performed, place of posting, salary paid/mode of payment. The assessee did not field the same and accordingly, 1/4th of the expenses amounting to Rs. 19,55,754/- was made. Even now the assessee has just furnished the designation, address and the salary paid in respect of the employees. Even now the qualification and the mode of payment alongwith necessary documentary evidence has not been furnished. In the light of the same, it is requested the 1/4th disallowance made by the Assessing Officer is quite reasonable and may kindly be confirmed. ……………………………………………………………………………………..”

5 ITA No. 2506/Del/2012 AY: 2006-07 4.5 In absence of any complete information in report of the employees, the Assessing Officer could not verify the genuineness of the expenses on salary claimed by the assessee. The ld. Commissioner of Income-tax (Appeals) has allowed the claim of the assessee only on the ground that expenses in percentage terms during the year under consideration were lower as compared to the expenses in percentage terms in the immediately preceding year. But, in our view, that cannot be the only conclusive proof that the expenses incurred during the year were wholly and exclusively for the purpose of the business. It is the duty of the assessee to produce the relevant details so that the Assessing Officer can verify the genuineness of the expenses. In such circumstances, we feel it appropriate to restore the matter back to the file of the Assessing Officer with the direction to the assessee to produce all the relevant details so that the Assessing Officer can verify the genuineness of the expenses and pass order on the issue in dispute in accordance with law. We direct accordingly. Thus, ground No. 1 of the appeal is allowed for statistical purpose. 5. In the ground No. 2, the Revenue has challenged the deletion of addition of Rs. 9,12,922/- made out of printing and a stationary expenses under section 40(a)(ia) of the Act for non-deduction of tax at source. The Assessing Officer observed that tax was not deducted at source by the assessee in respect of payments made to following parties (payments more than Rs. 50,000 during the year) on account of printing job work: S.No. Name of the party Amount 1 M/s Amorphous packing private limited Rs. 1,30,410/- 2 M/s Deep enterprise Rs. 2,05,841/- 3 M/s Unique computer forms Rs. 5,76,671 Total Rs. 9,12,922/-

5.1 In view of non-deduction of tax at source on the payments to the parties, in the above chart, the Assessing Officer disallowed the expenses in terms of section 40(a)(ia) of the Act. Before the ld. Commissioner of Income-tax

6 ITA No. 2506/Del/2012 AY: 2006-07 (Appeals) the assessee produced bills in respect of ‘M/s. Unique Computer forms’ as additional evidences and the same were forwarded to the Assessing Officer for remand report. The ld. Commissioner of Income-tax (Appeals) observed that the expenses under reference were incurred in the course of business and purchases were off the self and subjected to sales tax/VAT and, therefore, he held that TDS was not liable to be deducted on these expenses and he deleted the disallowance accordingly. 5.2 Before us, the Ld. Senior Departmental Representative referring to the remand report which is available at pages 368 to 369 of the assesses’s paper book, submitted that details of the expenses of Rs. 3,39,380/- were only produced before the Assessing Officer in remand proceeding and thus the details in respect of the balance expenses as the same were in the nature of job work or purchase could not be ascertained and the learned Commissioner of Income-tax (Appeals) ignoring the comments of the Assessing Officer decided the issue in favour of the assessee, which was not justified and requested that the assessee may be directed to produce all the information in respect of the expenses before the Assessing Officer and issue may be restored back to the Assessing Officer. 5.3 On the contrary, the ld. Authorized Representative of the assessee relied on the finding of the ld. Commissioner of Income-tax (Appeals). 5.4 Having heard the rival submissions on the issue in dispute and the perusal of the material on record, we find that in remand proceedings, only details in respect of expenses of Rs. 3,39,380/-, was produced before the Assessing Officer and on the basis of that the ld. Commissioner of Income-tax (Appeals) has arrived at a conclusion that all the expenses were in the nature of purchases subjected to sales tax/VAT. We find that, above conclusion was based on the perusal of the part of the expenses only. The relevant part of the remand report is reproduced as under: “3. Printing & Stationery : An addition of Rs. 9,12,922/- was disallowed on account of twin reasons with regard to the abnormal increase in expenses from the

7 ITA No. 2506/Del/2012 AY: 2006-07 preceding year where the same was Rs. 2,07,000/- as compared to this year expense of Rs. 12,90,123/- and further, no TDS has been deducted. Now the assessee has submitted that the bills and vouchers of M/s. Unique Computers are being enclosed. A perusal of the same shows that payment of Rs. 3,39,380/- has been made as per the ledger account filed whereas the total expenditure was Rs. 12,90,123/-. Even now the assessee has not been able to submit the evidence of balance purchases alongwith justification of the same and deduction of tax in respect of the payments made to printing & stationery. Hence, the Assessing Officer has rightly disallowed the same.”

5.5 Possibility of expenses in the nature of job work in balance expenses cannot be ruled out without verifying the same by the Assessing Officer. In the circumstances, we feel it appropriate to restore the matter back to the file of the Assessing Officer to verify whether the expenses are in the nature of job work liable for tax deduction at source and decide the issue in accordance with law. Needless to mention that the assessee shall be provided sufficient opportunity of hearing. The assessee is also directed to produce the details of all the expenses involved in issue in dispute. Thus, ground No. 2 of the appeal is accordingly allowed for statistical purpose. 6. In ground No. 3, the Revenue has challenged the deletion of disallowance of depreciation amounting to Rs. 63,450/-. The Assessing Officer held that purchase bills in respect of the computer purchased were not in the name of the assessee company, accordingly disallowed the depreciation of Rs. 63,450/-. 6.1 6.1 Before the ld. Commissioner of Income-tax (Appeals), the assessee contended that by mistake bills were issued in the name of sister concern M/s Vipul Insurance Brokers Private Limited by the supplier of computers due to similarity of name and common management and the said sister concern did not claim depreciation on those fixed assets. The ld. Commissioner of Income Tax (Appeals), allowed the claim of the assessee in view of the fact that no depreciation was claimed by the sister concern on the assets in reference.

8 ITA No. 2506/Del/2012 AY: 2006-07 6.2 Before us, ld. Senior Departmental Representative relying on the order of the Assessing Officer submitted that claim of the depreciation should not be allowed to the assessee as assets were not owned by the assessee. 6.3 On the other hand, the ld. Authorized Representative of the assessee relied on the order of the ld. Commissioner of Income-tax (Appeals). 6.4 Having heard the rival submissions on the issue in dispute, we are of the view that the only issue involved is whether the assets in reference were owned by the assessee and put to use. In the remand report of the Assessing Officer, which is available at pages 368 to 369 of the assessee’s paper book, it is reported that no evidence whether the assets in reference were put to use, was furnished. The Ld. Commissioner of Income-tax (Appeals) has overlooked this objection of the Assessing Officer. In view of the above facts, we feel it appropriate to restore the matter back to the file of the Assessing Officer, with the directions to provide opportunity of hearing to the assessee and decide the issue in accordance with law. The assessee is also directed to produce all the relevant evidences in support of its claim of the depreciation. Accordingly, ground no. 3 of appeal is allowed for statistical purpose. 7. In ground No. 4, the Revenue challenged the deletion of an addition of Rs. 5,98,833/- out of miscellaneous expenses. The Assessing Officer in view of the increase in the expenses under the head as compared to the preceding year and non-production of supporting bills and vouchers, disallowed 50% of the expenses under the head amounting to Rs. 5,98,833/-. 7.1 Before the Ld. Commissioner of Income-tax (Appeals), the assessee submitted that these expenses were subjected to fringe benefit tax (FBT) and quantum of the expenditure was not high in view of the increased turnover over the last year. In view of the submission of the assessee, the ld. Commissioner of Income-tax (Appeals) deleted the addition. 7.2 Having heard the rival submissions on the issue in dispute, we are of the view that the Assessing Officer has disallowed the expenses on ad-hoc basis

9 ITA No. 2506/Del/2012 AY: 2006-07 mainly due to non-production of supporting bills and vouchers, whereas ld. Commissioner of Income-tax (Appeals) has allowed the claim of the assessee on the ground that all these expenses were subjected to fringe benefit tax. We find that in the case of Om International Vs. Asstt. Commissioner of Income Tax, in ITA No. 2310 & 2311/Mum./2012, for AYs 2006-07 and 2007-08, the Tribunal has held that once the expenses are subjected to fringe benefit tax, no further disallowance in respect of those expenses is warranted. Respectfully following the above finding, we restore the matter to the file of the Assessing Officer for verifying whether the expenses in dispute were subjected to the fringe benefit tax and if so then no addition is called for on the issue in dispute. Thus, ground no. 4 of the appeal is accordingly allowed for statistical purpose. 8. In ground No. 5, the Revenue challenged the deletion of an addition of Rs. 2,49,588/- on account of pre-operative expenses. The Assessing Officer disallowed the claim of the assessee of Rs. 2,49,588/- on the ground that there was no provision in the Income Tax Act for allowability of the preoperative expenses. 8.1 Before the ld. Commissioner of Income-tax (Appeals), the assessee pleaded that the expenses of Rs. 12,47,944/- were incurred before the commencement of the business and the assessee chosen to write off the said expenditure over a period of five years commencing from the year under consideration, accordingly the assessee claimed 1/5th of the expenses of Rs. 12,47,944/- which amounted to Rs. 2,49,588/-. The Ld. Commissioner of Income-tax (Appeals) held that the whole of the expenses were allowable in the year under consideration, however, the assessee had chosen to write off over a period of time and in view of the fact there was no loss to the Revenue and, therefore, he allowed the claim of the assessee. 8.2 Having heard the rival submissions of the parties on the issue in dispute, we are of the opinion that if the expenses are incurred before commencement of the business than the assessee is entitled to amortize the expenses and claim

10 ITA No. 2506/Del/2012 AY: 2006-07 1/5th of the expenses over a period of five years in terms of section 35D of the Act subject to the condition that the expenses incurred are in the nature of expenses specified under section 35D(2) of the Act. Since the details of the expenses incurred has not been provided, we feel it appropriate to restore the matter back to the file of the Assessing Officer to examine the nature of expenses and decide the issue of allowability in accordance with law. Needless to mention that the assessee shall be provided sufficient opportunity of hearing. Thus, ground no. 5 of the appeal is accordingly allowed for statistical purpose. 9. In the result, appeal of the Revenue is allowed for statistical purposes. The decision is pronounced in the open court on 30th June, 2016.

Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th June, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi