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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAJESH KUMAR, AM
O R D E R PER RAJESH KUMAR, A. M: This is an appeal filed by the assessee and is directed against the order of the Ld.CIT(A)-12, Mumbai dated 7.12.2012 pertaining to A.Y.2009- 10. Ground No.1.1.1 is against the confirmation of addition of Rs.33,80,000/- by the ld. CIT(A) as made by the AO in respect of alleged sales to DLF Services Limited during the year ended on 31.3.2009.
During the course of assessment proceedings, the AO found on the basis of AIR information/Income Tax that item No.3807 appended at page 206 of AIR in relation to DLF Services Ltd that an amount of 2 2203/Mum/2013 Rs.33,80,000/- was paid /credited with corresponding TDS deducted of Rs.76,591/- and that the assessee has claimed TDS in the return of income whereas the receipt of Rs.33,80,000/- was not shown as income by the assessee. The AO asked the assessee by issuing a show cause notice to explain difference of Rs.33,80,000/- and as to why the same was not credited in the profit and loss account whereas the corresponding TDS on the said amount was duly claimed by the assessee in its return of income. The assessee in reply to the show cause notice submitted before the AO that it had wrongly claimed TDS of Rs.76,591/- which was deducted on a contract which was never executed and ultimately cancelled. No confirmation letter from DLF Services Limited was filed by the assessee to corroborate its averments that the said income never materialized and the contract was ultimately cancelled. Finally, the AO added the difference of Rs.33,80,000/- to the total income of the assessee by noting that the assessee failed to prove the fact of not having performed the contract.
During the appellate proceedings before the First Appellate Authority, the ld. CIT(A) also dismissed the appeal of the assessee on this ground that the assessee took credit of TDS on an amount of Rs.33,80,000/- which proved that the corresponding income also accrued to the assessee which was not accounted for by the assessee in the books of account and shown in the profit and loss account. The CIT(A) dismissed
3 2203/Mum/2013 the ground by rejecting the submissions and arguments of the assessee as the assessee could not provide the even the provisional bills even on which the TDS was deducted by DLF Services Ltd by observing and holding as under:- “3.4 Carefully considering the issue, I find myself not in agreement with the statement of the appellant that the AO should not have made an addition of Rs.33,80,000/- in its case. It is seen that the AO has made the said addition in respect of the amount reported in the AIR information and on the basis of the fact that even though the appellant had claimed TDS benefit in the computation of income filed the corresponding income had not been reflected as receipts in the P&L Alc. However before doing so, the AO had given the appellant an opportunity to explain its case as to why it had claimed the benefit of the tax deducted at source when the corresponding income had not been offered for taxation. The AO had also asked the appellant to reconcile the said entry as found in the AIR which showed that the appellant had received an amount of Rs.33,80,0001- from DLF Services Ltd. It is seen that on being so confronted the appellant had withdrawn its claim of tax deducted at source as made in the computation of income. It had further stated by the appellant that the amount was a provision made based on the amount to be received for services to be rendered to DLF Services Ltd. As the services had not been rendered the amount had not been received but as DLF Services Ltd. had taken the provision into account and deducted the TDS the same was reflected in the AIR information received by the assessing officer. No document in the form of letters, confirmations, etc. to establish the above statements had been furnished by the appellant. It was also not stated as to what the service that had to be rendered was and why it was not rendered. Under the circumstances, the observation of the AO that all income had not been offered for taxation by the appellant cannot be held to be incorrect. During the course of appellate proceedings, I find that the situation has remained the same. The appellant has reiterated the submission as made before the assessing officer. Besides this, an affidavit has been filed by the finance director reiterating the statement as made before the AO and wherein the plea taken is that as the said DLF Services Ltd. have ceased to be the client of the appellant they are not cooperating with the appellant and providing
4 2203/Mum/2013 the appellant confirmations to say that the concerned amount was not paid to the appellant as the corresponding work had not been done. However, no documents to establish the validity of the statement and the affidavit have been filed which would go to prove that the amount of Rs.33,80,000/- was never received by the appellant. The appellant has stated that it is filing a copy of the contract as signed with DLF Services Ltd. which would clear the issue. However, the same has not been done. In fact, what has been filed is a letter dated 5/12/2008 which states that the actual contract and the legal terms are being finalized and pending the same the commercial terms of understanding is being captured in the letter. According to the said letter, it is also noticed that DLF Services Ltd. will pay the appellant the due amount within 22 days of the appellant raising a Performa invoice in the activity month. The appellant has submitted the said letter with a rider stating that if the said amount of Rs.33,80,000/- is treated as receipt then only 2.75% of the same should be treated as income of the appellant as the terms of contract show that the appellant would receive a commission equivalent to 2.75% of the total media cost and that the media cost in respect of media booking etc. shall be borne by DLF Services Ltd. Under the circumstances, it is seen that the letter would have no meaning in the present context as it is not a concrete agreement but a general letter, which does not carry any specific details of the work concerned. Secondly, it is also seen that regarding the other receipts from DLF Services Ltd. received in the year the appellant has offered the total amount of receipt as its income. No claim regarding the reimbursement made by DLF Services Ltd. has been stated and no commission income calculated. Besides, it is also for consideration that no TDS is to be charged on a reimbursement amount. Seeing to the quantum of TDS, it is clear that it could not be corresponding to the amount of 2.75% of Rs.33,80,000/- stated by the appellant as being its commission income, the rest being reimbursement. Therefore, there stands no reason why the taxable income in the case of the activity under question should be restricted to only 2.75% of Rs.33,80,000/-. Besides, it is also to be considered as stated earlier that the said letter is not the actual contract. The actual contract was never of the appellant and is therefore irrelevant to the present issue. It has also not been explained by the appellant as to why it had claimed the benefit of tax deducted at source when it was very much aware of the fact that it had not undertake in the activity or raised the final invoice for it to have received Rs.33,80,000/- as income/receipt. It has also not been explained as 5 2203/Mum/2013 to how DLF Services Ltd. have deducted tax at source if they were not issued a bill by the appellant. No one deducts tax or makes payment on the basis of estimates. Here it is also stated that copy of the so called provisional bill raised was never produced by the appellant. For DLF Services Ltd. to have deducted tax at source the appellant must have informed them the sale amount even if it was an estimate by way of a written invoice. For stating that it was an estimate or likewise only and not actual invoice on which TDS had been wrongly deducted as no final sale invoice was raised due to work not done, the appellant was required to submit proof of the same. It is a well known fact that no TDS can be claimed without corresponding income. The very fact that the appellant has claimed tax deducted at source benefit would go to show that there did arise a corresponding income in the case of the appellant which the appellant has not booked as the receipt in its Profit and Loss Account. Therefore, the action of the AO in making the said addition is upheld and confirmed. This ground of appeal as raised by the appellant is dismissed.”
The ld. AR submitted before us that the AO chose to make addition on the basis of AIR information which showed an entry that the DLF Services Limited had deduced tax of Rs.76,591/- on the total sales of Rs.33,80,000/- whereas as a matter of fact the said contract never executed and materialized and income was not accrued in favour of the assessee though admitting that the claim of TDS was made in the return of income by the assessee but the same was reversed and revised the movement the assessee reconciled AIR data and the said claim of TDS was reversed immediately. It was also argued that the AO has not made any further inquiry from DLF Services Limited in order to verify the AIR information and merely made the addition on the basis of AIR information was not justified and fair and also not sustainable in the eyes of law as 6 2203/Mum/2013 the AO has not discharged his onus once the assessee filed the necessary details as to DLF Services Ltd. Finally the prayed that the addition was also wrongly upheld by the CIT(A) which has no basis and made without verification as the contract was never executed and performed and therefore the addition be ordered to be deleted.
On the other hand, the ld DR heavily relied on the orders of authorities below.
We have carefully considered the submissions of the parties, perused the material placed before us including the orders of authorities below. We find that the addition in this case has been made by the AO on the basis of AIR information which shows that the amount of Rs.33,80,000/- was paid/credited in favour of the assessee on a/c of sale of advertisement pace by the assessee and accordingly TDS of Rs.76,591/- was also shown to be deducted. The said amount of TDS was also claimed by the assessee which was reversed after the AO asked the assessee to reconcile the AIR information. The ld. AR of the assessee argued before the AO as well as before the ld.CIT(A) that the assessee entered into a contract with the DLF Services Limited for supply of space for advertisement which never materialized and consequently not shown in the income of the assessee. We are convinced with the arguments of the ld AR that sale which has not taken place as the contract for sale of space was cancelled and thus never
7 2203/Mum/2013 materialized can not be said to have accrued to the assessee and therefore cannot be considered as income of the year under consideration regardless of the facts that the TDS was deducted by M/s DLF Services Limited. In the present case before us, we find that the AO has not bothered to further verity the facts qua the entries in AIR information whereas the information as regards M/s DLF Services Limited were available with the AO and he proceeded to rely on the AIR information solely without further verification. The addition on the basis of entries in AIR as the these entries are made by the parties other than the assessee and can not be sustained In this case, the assessee claimed to have not executed contract and claimed that the income never materialized and therefore cannot be form part of income in the books of account which was not verified by the AO at all. Similarly the ld CIT(A), the ld.CIT(A) confirmed the action of the AO on the ground that the TDS of Rs. 76,591/- was deducted on the sales of Rs. 33,80,000/- which proved that the assessee had made the sale to M/S DLF Services Ltd is also wrong.In view of these facts as discussed above, we are of the considered opinion that the order by the ld. CIT(A) cannot be sustained and we ,therefore, set aside the order of ld. CIT(A) and direct the AO to delete the addition of Rs.33,80,000/-.
8 2203/Mum/2013
At the time of hearing, the ld. AR did not press ground No.1.1.2, therefore dismissed as not pressed.
The issue raised in the ground of appeal
No.1.1.3 has been taken care of in the ground no.1.1.1, therefore need not to be adjudicated upon. Accordingly dismissed as infructuous.
9. The issue raised in ground no.1.2.1 is with regard to confirmation of addition of Rs.6,22,705/- by the ld. CIT(A) as made by the AO in respect of provisions for sundry balances written off. During the course of assessment proceedings, the AO found that the assessee has debited provisions for sundry balances written off to the tune of Rs.6,22,705/- in the profit and loss account which were not added back to the income of the assessee at the time of filing of the return of income and accordingly assessee was issued show cause notice which was replied vide letter dated 24.12.2011 submitting therein that the provisions remained to be disallowed inadvertently and offered the same to the AO to be added to the income of the assessee and accordingly the AO added Rs.6,22,705/- to the income of the assessee as stated in assessment order. However upon realizing the mistake the assessee raised the issue before the First Appellate Authority by submitting that assessee has wrongly made admission before the AO qua of provisions for sundry balances of Rs.6,22,705/- which was not provisions but amounts actually written off
9 2203/Mum/2013 on account of sundry balances not recoverable. The assessee submitted that the amounts written off represented the bad debts for non payment of services tax by ONGC and RBI. The ld. CIT(A) have not found the reply of the assessee convincing and dismissed the appeal by observing and holding as under: “4.3 Carefully considering the above submissions made by the appellant, I find that the appellant has been submitting mutually contradictory statements all along from the time of assessment proceedings to the final date of appellate hearing. The appellant, I find, itself is not very aware of its own accounts and as to why a certain debit has been claimed. In the final reply given, the appellant has stated that the amount represents a part of sundry balances written off which was also a part of its miscellaneous expenses for the year 31/3/2009. However, no further details have been submitted as to why the debit was declared as provision. It is also not explained as to what was the amount that was reversed in the subsequent year and not claimed by way of deduction' from the taxable income of the appellant for that year. Under the circumstances, I find there is no infirmity in the order of the AO which has been passed after taking the reply of the appellant into consideration. As stated in the said order it is seen that the addition has been made as requested by the appellant on a query raised by the appellant. Contradictory statements filed subsequently as a ground of appeal, statement of facts and submission do not help the case of the appellant at all. In fact, the ground of appeal has been raised on very different fact than what the appellant as now claimed in its letter filed on 7.12.2012. Besides this, complete supporting documents for the final statement made to be accepted have also not been furnished. Complete bad debts accounts have not been submitted. Neither have the accounts of ONGC and RBI submitted in spite of opportunities given. Keeping the totality of circumstances in view, it transpires that the appellant is not at all alert in maintaining its accounts. Accordingly, various statements are being made which are mutually contradictory and cannot thus be accepted. This ground of appeal therefore would need o be dismissed and the action of the AO would need to be confirmed”.
10 2203/Mum/2013
The ld. AR vehemently submitted before us that the provisions of sundry balances written off were of Rs.6,22,705/- were not provisions but actual bad debts written off on account of non-payment of service tax by ONGC and RBI. The ld. AR attempted to explain the issue by drawing our attention to page No.21 of the paper book i.e. Schedule -12 under the head “operating and general expenses” in which the last second item was provisions for doubtful debts Rs.5,86,721/- and last first item was miscellaneous expenses to the tune of Rs.2,142,548/-. The ld. counsel further pointed out that the sundry balances written off of Rs.6,22,705/- were included in miscellaneous expenses which were actually written off amounts and not provision for the doubtful debts as has been observed by the authorities below which were appearing separately as second last item in the above schedule. The ld. Counsel further drew out attention to page 22 of the paper book which contains the details of miscellaneous expenses for the year ending on 31.3.2009 which included “Sundry Debit Balances Written off” appearing at item no. 9. The ld. Counsel finally submitted that since the amount written off of Rs.6,22,705/- represented the actual bad debts written off as corroborated by the audited balance sheet of the assessee and prayed that same be allowed as the assessee had made wrong admission inadvertently before the AO but duly explained before the ld CIT(A) who did not consider the submissions and arguments
11 2203/Mum/2013 despite being proved with supporting evidences in the form of audited balance sheet for that year and finally prayed that the additions of Rs. 6,22,705/- be deleted in view of the background of the case. On the contrary, the ld. DR heavily relied on the orders of authorities below.
After hearing both the parties and on perusal of the record specially pages 21 to 26 of the paper book we find that the assessee has not claimed provisions for doubtful debts to the tune of Rs.6,22,705/- but Rs.5,86,721/- which is second last item in schedule No.12 under the head “operating and general expenses” at page 21 of the paper book and the actual amounts written off Rs.6,22,705/- were included under the head miscellaneous expenses details thereof were filed by the assessee at pages 22 of the paper book which is reproduced below : S.No. Particulars Amount in Rs. 1 Recruitment 4,89,105 2 Foreign exchange fluctuation 3,52,585 3 Other miscellaneous expenses 8,737 4 Books and periodicals 20,426 5 Business promotion expenses 7,656 6 Entertainment and gifts 33,767 7 Bank charges 11,172 8 Award entry fees 41,400 9 Sundry debits balance written off 6,22,705 10 Washing and cleaning 4,66,262 11 Security charges 81,734 Total 21,42,548 The above details of miscellaneous expenses reveals that 9th item of the above details represented Sundry debits balances written off which adequately proved beyond doubt that the assessee has not claimed the provisions of sundry balances written off but actual wrote off in the books
12 2203/Mum/2013 and the said amount, therefore, in our view, admissible under the provisions of Act. Accordingly we set aside the order of ld CIT(A) and direct the AO to allow the claim of the assessee for bad debts of Rs. 6,22,705/-. 12. In the result the appeal of the assessee is partly allowed. Order pronounced in the open court on 16.08.2016.