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Facts
The assessee, Timex Group India Ltd., appealed against the CIT(A)'s order regarding disallowance of miscellaneous expenses and a mismatch in sales turnover. The Revenue's appeal was concerning transfer pricing issues. Both parties agreed that transfer pricing issues were settled under APA.
Held
The Tribunal found merit in the assessee's ground regarding the ad-hoc disallowance of miscellaneous expenses and allowed it. The Tribunal also found the assessee's explanation for the sales turnover mismatch plausible and directed the deletion of the addition, allowing the ground. However, the disallowance under Section 40(a)(i) of the Act was upheld as the assessee failed to provide substantiating material.
Key Issues
Whether the ad-hoc disallowance of miscellaneous expenses and the addition on account of sales turnover mismatch were justified, and whether the disallowance under Section 40(a)(i) was correct.
Sections Cited
40(a)(i)
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Income Tax Appellate Tribunal, DELHI BENCH “D”, DELHI
Before: SHRI VIKAS AWASTHY& SHRI MANISH AGARWAL
PER VIKAS AWASTHY, JM: These cross appeals by the assessee and the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-44, New Delhi (hereinafter referred to as ‘the CIT(A)’) dated 24.06.2019, for AY 2014-15. 2. Shri Vikrant A Maheshwari, appearing on behalf of the assessee at the outset submitted that the grounds of appeal
no. 5 to 10 are in respect of Advertisement Marketing and Sales Promotion Expenditure (AMP). The said issue is now covered by Advance Pricing Arrangement (APA), hence, ground no. 5 to 10 of appeal are withdrawn. He submitted that a letter dated 01.10.2024 to this effect has already been filed. He contended that the only issues that survive for adjudication are ground no. 11 to 13 of the appeal. With regard to Department’s appeal he submitted that all the grounds of appeal are relating to Transfer Pricing issues that have been now settled in APA. The ld. DR endorsed the statement made by ld. Counsel for the assessee with respect to the issues raised in Department’s appeal.
3. Thus, in light of the above position explained by rival sides the grounds of appeal for our consideration in the appeal by the assessee are as under:-
11. That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in upholding the action of the AO in disallowing 50% of the expenses under the head miscellaneous expenses amounting to Rs.9,47,475/-.
12. That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO / TO to examine the alleged difference of rounding off and not & 7599 /DEL/2019 (A.Y. 2014-15) appreciating that the difference in the turnover reported by the Appellant in the IT return and tax audit report is on account of rounding off, therefore, the Ld. CIT(A) has erred in not granting the relief to the Appellant in relation to the addition made by the AO in this regard amounting to INR 47,106-.
That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to examine the alleged default in deduction at source and in not granting relief to the Appellant with regard to the addition made by the AO under Section 40(a)(i) of the Act amounting to INR 50,088.” 3.1. The ld. Counsel submits that in ground no. 11 of appeal the assessee has assailed the findings of the CIT(A) in upholding ad-hoc disallowance of miscellaneous expenses to the extent of 50%. During assessment proceedings the assessee furnished details of Miscellaneous Expenses. Miscellaneous Expenditure is with respect to meeting and conferences. The Assessing Officer (AO) questioned increase in Miscellaneous Expenditure. The assessee explained that the increase in expenditure was on account of increase in the number of regional meetings with various dealers and distributors with a focus for increase in sales and growth of the company. Further, the expenditure was with regard to Annual General Meetings (AGM). The AO in an arbitrary manner only allowed 50% of expenses though, the expenses were duly supported by the bills. The CIT(A) upheld the same. 3.2. In respect to ground no. 12 he submitted that, the addition is with respect to mis-match in the sales turnover as reported in Audited Report and the ITR. The assessee explained the reason for mis-match, the AO without considering the same made addition of Rs.47,106/-. 3.3. With regard to ground of appeal
no. 13, the ld. Counsel submits that the AO made disallowance u/s. 40(a)(i) of the Act alleging that the assessee has not & 7599 /DEL/2019 (A.Y. 2014-15) deducted tax at source on sum of Rs.50,088/-. The assessee furnished party wise tabulation of the amounts paid but the AO refused to accept the same.
4. Per contra, Shri Vikram Singh Sharma representing the Department defended findings of the AO and the CIT(A) in respect of aforesaid additions and prayed for dismissing appeal of the assessee.
5. Both sides heard, orders of the authorities below examined. The ground of appeal no. 1 to 4 are general, hence, require to separate adjudication.
6. With regard to ground no. 5 to 10 of appeal, both the sides have unanimously stated that the issues have been settled under APA. The Tribunal vide zimni order dated 01.10.2024 has recorded this fact. The ld. Counsel for the assessee has prayed for withdrawing ground of appeal no. 5 to 10. In light of the statement made by ld. Counsel for the assesses at Bar, ground no. 5 to 10 are dismissed as withdrawn.
7. In ground of appeal no. 11, the assessee has assailed ad-hoc disallowance of miscellaneous expenditure to the extent of 50%. A perusal of the assessment order reveals that the AO has accepted the expenditure which is primarily in connection with meetings and conferences including AGM. The AO has merely questioned the increase in expenditure as compared of previous assessment year. The assessee was specifically asked to explain and justify expenditure of Rs.18,94,950/-. The assessee furnished bills to substantiate expenditure. In addition to the bills assessee also furnished copies of invoices, voucher and proof of payment in respect of the expenditure in relation to the AGM. Once, the assessee has furnished relevant documents to substantiate its claim, no ad-hoc & 7599 /DEL/2019 (A.Y. 2014-15) disallowance of the expenditure is warranted. Thus, we find merit in the ground of appeal no. 11, the same is allowed.
8. The ground of appeal no. 12 is with regard to mis-match of sales turnover reported in Audit Report and the ITR. The contention of the assessee is that the difference of Rs.47,106/-is on account rounding up of figures in lakhs reported in the financial statements and the ITR. The actual figures were reported in the Audit Report without any rounding off. We find that the amount of addition is minuscule as compared to the sale turnover of the assessee. The sale turnover reported in the ITR is Rs.123,85,00,000/- whereas sales turnover as per tax Audit Report is Rs.123,55,52,894/-. There was total difference of Rs.2,47,106/-. The AO accepted the difference of Rs.2,00,000/- which was in respect of dealer signing fee reported under other operating revenue and made addition of the remaining amount of Rs.47,106/-. We find explanation of the assessee plausible, hence, addition of Rs.47,106/- is directed to be deleted. The assessee succeeds on ground no. 12.
8. In so far as disallowance u/s.40(a)(i) of the Act, we find that the assessee has furnished details of the parties to whom amounts were paid. It is contention of the assessee that there was error by the Tax Auditor in the tax audit report in wrongly mentioning the amount against the names of two entities. No material to substantiate the aforesaid argument is filed by the assessee nor any clarifications/rectifications from the Tax Auditor is furnished, hence, the disallowance u/s.40(a)(i) of the Act is upheld. Ground of appeal no. 13 is dismissed
9. In the result, appeal of the assessee is partly allowed.