THE ACIT, CIRCLE-1,, SURAT vs. M/S. DEWSHREE NETWORK PVT.LTD.,, SURAT

In the first Ground of appeal, the Assessing Officer has raised the following grievance: - “1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made of Rs.49,31,040/- on account of disallowance of placement expenses inspite of the fact that the assessee failed to prove any nexus between them and the parties in whose names expense were claimed.”

Briefly stated the relevant facts of the case are during the course of assessment proceedings the Assessing Officer noted that the assessee has incurred expenditure of Rs.1,64,36,800/- on account of placement expenses. This expenditure was very high comparable to the similar expenditure incurred in the immediately preceding year at Rs.17,79,992. The Assessing Officer was of the view that as the assessee has not given any justification for the increase in expenditure or any supporting evidences like bills/vouchers in respect of the same, it is a fit case to disallow 30%, on estimate basis, for want of verification. Accordingly, disallowance of Rs.49,31,040/- was made.

Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the ld. CIT(A). During the course of proceedings before the ld. CIT(A), it was pointed out that non compliance before the Assessing Officer was attributable to the authorized representative then handling the case which was negligent in his professional work. The entire relevant details were produced before the ld. CIT(A) who then called for remand report on the same. In the remand report, the Assessing Officer heavily relied on the assessment order u/s.143(3) in the case of M/s. S. D. Enterprises, the organization, which has rendered placement services, The ACIT vs. M/s. Dewshree Network Pvt. Ltd. Asst.Year –2009-10 wherein a finding was given that no work was actually done by M/s. S. D. Enterprises. Ld. CIT(A) then took note of the appellate order passed by the ld. CIT(A) in the case of M/s. S. D. Enterprises, wherein, the disallowance was restricted to 15%. Considering the submissions of the A.O. and the remand report given by the A.O. in the case of M/s. S. D. Enterprises, the CIT(A) was of the opinion that clearly work was done by M/s. S. D. Enterprises and the mere fact that a part of expenditure incurred by M/s. S. D. Enterprises was disallowed. It is not the mere fact that the expenditure was deductable u/s.38(1) of the I.T. Act, ld. CIT(A) also noted that so far as the partial disallowance of expenses incurred by the M/s. S. D. Enterprises is concerned, it will have no impact in the case of the assessee since that is necessary for the purpose of the assessee, whether the work actually done by M/s. S. D. Enterprises. On the basis of this reasoning, the ld. CIT(A) deleted the impugned disallowance of Rs.49,31,040/-. The Assessing Officer is aggrieved and is in appeal before us.

We have heard the rival submissions and perused the material on record.

When this appeal was called out for hearing, our attention was invited to the decision dated 11/04/2014 of a co-ordinate bench of this Tribunal in the case of M/s. S. D. Enterprises vs. ACIT and vice versa (ITA No.2618/Ahd/2012 & 2794/Ahd/2012), wherein, the stand of the CIT(A) upholding the claim made by the assessee that expenditure was actually incurred was upheld. It was thus contended that once the services were The ACIT vs. M/s. Dewshree Network Pvt. Ltd. Asst.Year –2009-10 provided and the Tribunal has reached a categorical finding that services were rendered, there cannot be any occasion to uphold the disallowance in the case of the organization availing this service i.e. the assessee before us on the services rendered. When the Assessing Officer simply placed his reliance on the stand of the Assessing Officer, we see merits in the plea taken by the ld. Counsel. It is a settled factual finding of the Tribunal that the service was rendered by the Enterprises. We have to essentially hold that the disallowance in the present case, which rests on the contention that no such services rendered, ceases to be sustainable in law. In this view of the matter, we urge to uphold the action of the ld. CIT(A) and decline to interfere in the matter. Ground No.1 is thus dismissed.

In the second Ground of appeal, the Assessing Officer has raised the following grievance :

So far as this grievance of the Assessing Officer is concerned, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noted that there is an unusual increase in the cable maintenance charges in the current year, which is Rs.45,92,515/-, comparing to Rs.4,44,998/- shown in the immediately preceding year. In the absence of details & evidences, the expenses could not be verified fully. The A.O. thus disallowed 30% of the expenditure so claim by the assessee. The ACIT vs. M/s. Dewshree Network Pvt. Ltd. Asst.Year –2009-10

We have heard the rival submissions and perused the material on record.

So far as the deletion of disallowance, in respect of the expenditure incurred by making payment to M/s. S.D. Enterprises is concerned, there cannot be any dispute. Following the view so taken while dealing in ground no.1 of this appeal, the deletion is to be upheld. As regards the remaining expenditure of Rs.4,82,214/-, ld. Departmental Representative’s contention is that this amount has been remained completely verified and thus the amount should be deleted in this case. Ld. Counsel for the assessee contents that the The ACIT vs. M/s. Dewshree Network Pvt. Ltd. Asst.Year –2009-10 A.O. himself has disallowed only 30% of the expenditure, it would not be appropriate for us to increase the proportionate disallowance. In our considered view, the mere fact that Rs.4,82,214/- is paid by the assessee to a concern other than M/s. S. D. Enterprises by itself cannot be reason enough to disallow the entire payment. In view of this discussion, we uphold the findings of the ld. CIT(A) and decline to interfere in the matter. Therefore, ground no.2 is dismissed.

In third Ground of appeal, the Assessing Officer has raised the following grievance:-