NIRMAL ENTERPRISES,MUMBAI vs. ITO WD 20(2)(3), MUMBAI

In this appeal, the assessee is aggrieved for reopening of assessment and for not supplying the reasons recorded for issue of notice u/s.148.

On merit also the assessee is aggrieved for addition of Rs.1,50,000/-.

We have considered rival contentions and found that vide letter dated 24-4-2013 the assessee has asked for reasons of reopening, however, no reasons were supplied for reopening.

With regard to the addition, we found that assessee has entered into an agreement dated 28/09/2008 with China National Machinery & 2 Equipment Import & Export Corporation for providing consultancy services. As per terms of payment, the assessee firm was to receive Rs.900000 as consultancy charges and Rs.250000 towards reimbursements of travel and other incidental expenses, aggregating to Rs.1150000. A copy of agreement was placed before lower authorities. The assessee firm has raised four debit notes dated 10/04/2009 for Rs.300000; dated 27/04/2009 of Rs.250000; dated 30/06/2009 of Rs.350000 and dated 30/06/2009 of Rs.250000 towards incidental expenses as agreed upon. As against the total reimbursements of expenses of Rs.250000 received, the assessee firm had in fact incurred expenditures of only Rs.150000 and the surplus of Rs.100000 in reimbursements account has also been credited to Profit & Loss account under the heading Consulting fees account aggregating that to Rs.1000000 (i.e. Rs.900000 as per agreement and Rs.100000 surplus in reimbursement account). Thus, the assessee firm has properly accounted for consulting fees including the amount of surplus in reimbursement of expenses. Amount received towards reimbursement of expenses has only to be credited in the account concerned and only surplus/ deficit in that account is to be taken to the Profit & Loss account and the firm by employing this system has perfectly complied with the accounting systems prevent in India. Thus, the amount of consulting fees accounted for Rs.1000000 by the firm includes Rs.900000 towards consulting fees and Rs.100000 towards surplus in reimbursements of incidental expenses is correctly corrected to the Profit & Loss account.