ACIT, NEW DELHI vs. SH. HABIB AHMED, NEW DELHI

The grounds of appeal are as under:-

The assessee is a proprietor of business concerns named as M/s Habibs & M/s Habib & Sons. M/s Habibs is engaged in running saloons in various parts of Delhi and M/s Habib & Sons is engaged in running the training academy. The assessee filed his return of income for the A.Y 2008-09 on 30th September 2008 disclosing a total income of Rs.5,80,250/-.

As relates to Ground No.1, the assessee has claimed commission expenses of Rs.18,69,981/- in the profit and loss account. In response to the notice, the assessee submitted that the commission was paid to various parties with whom the assessee has opened different partnership entities in and out of Delhi. As an evidence to the commission paid the assessee has submitted management agreement/collaboration agreement with various parties to whom the commission has been paid. The assessee had an arrangement of the net profit sharing in the ratio of 65:35 on the amount after reducing, the operating expenses from the gross receipts with various parties. The assessee claimed 35% of the net profit sharing paid to the various parties as commission expenses. The Assessing Officer has added Rs.19,60,022/- as business income on account of net profits received from outlets at Rohini (Delhi), Dehradun, Noida and Faridabad. The Ld. CIT(A) deleted the said addition of Rs. 19,60,022/-.

The DR submitted that the agreements are neither of franchise in nature or that of collaboration agreement. All the payments were made from the assessee’s account only. The DR further submitted that the respective parties were only agents and there was different arrangement altogether diverting the actual nature of the agreements. The DR relied upon Para 4.7 of the Assessing Officer ’s order. The DR submitted that the Assessing Officer and Ld. CIT(A)’s order is non-speaking in this respect and is required to be restored back to the Assessing Officer.

The AR submitted that the Ld. CIT(A) had passed the order after proper perusal of all the agreements which were annexed to paper book & the same were submitted before the Assessing Officer as well as Ld. CIT(A). Therefore, Ld. CIT(A)’s order is just and proper.

We have perused all the records and heard both the parties. The assessee has given all the details related to collaboration agreement as well as audited accounts and tax audit. The same was annexed at Page 152, 188 to the paper book of the assessee and submitted before the authorities by the assessee. Thus, the relevant material as to how the profits are earned was explained by the assessee with relevant documents before the Assessing Officer as well as before the Ld. CIT(A). The CIT(A) has rightly held that as per the terms of the agreements, the assessee was collecting the total revenue and booking the same as its income out of the gross collections, reducing the service tax. The agreed percentage of revenue share is being paid to the partner franchisees and booked the same as commission in the books of accounts. All the payments of commission were paid by cheques to the franchise after deducting the tax at source at applicable rates. This finding of the CIT(A) is right and is upheld.

In result, Ground No. 1 of Revenue is dismissed.

Ground No. 2 relates to addition of Rs. 2,54,369 on account of excess claim of rent. The Assessing Officer stated that the assessee has submitted only the copy of rental agreements up to Rs.90,000/- as per the rental agreement the assessee was due to pay an amount of Rs.10,80,000/- on account of the rental expenses. The Assessing Officer further held that in respect to the remaining rental expenses the assessee had no justification in terms of any documents/evidences to substantiate the claims. Further in case of the branch out lets rental expenses or other premises related expenses are turn by other parties and in case of employees’ HRA was dealt in their salary component. Hence no additional rental expenses were allowed and addition of Rs.2,54,369/- was made by the Assessing Officer .

The Ld. CIT(A) held that the assessee has filed copies of TDS Certificates which included service tax of Rs.1,00,116/- and arrear rent of Rs.91,253/-. The addition was deleted on the account of production of TDS Certificate by the CIT(A).

Ground No. 3 relates to addition of Rs. 3,97,930/- on account of business promotion expenses. The Assessing Officer held that there was no bills in respect of any of the ledger entry & the same were provided by the assessee in respect of the business promotion expenses. The Ld. CIT(A) in its order has given a finding that the assessee produced the copy of ledger account along with complete bills/vouchers. The Ld. CIT(A) has perused major bills which were filed by the assessee during the course of the Ld. CIT(A)’s proceedings.

Ground No. 4 relates to repair and maintenance expenses. The Assessing Officer found that as per the ledger account these expenses were only amounting to Rs.3,91,394/-. The Assessing Officer added an amount of Rs.39,623/- to the income of the assessee on account of being the bogus claims. The Ld. CIT(A) deleted the addition of Rs.2,35,320/- made by the Assessing Officer by holding that the same is on estimated basis.

The DR submitted that there was additional evidence produced by the assessee before the CIT(A) which was not at all produced before the Assessing Officer. The Assessing Officer requested for the relevant documents in respect of additions made on account of excess claim of rent, business promotion expenses and repairs and maintenance. But assessee failed to do so. Therefore, the DR submitted that the Ld. CIT(A) should have given the opportunity to Assessing Officer as per Rule 46A as relates to additional evidences, which the Ld. CIT(A) failed to do so. The AR relied upon the Ld. CIT(A)’s order.

We have perused all the relevant documents and heard both the parties. It is observed that in respect of the additions made on account of excess claim of rent, business promotion expenses and repairs and maintenance, the AO requested the assessee to furnish the necessary details for enabling him to complete the assessment, but the assessee did not properly comply with. However, the Ld. CIT(A) has deleted the addition by taking into consideration several documents/evidence, which were not furnished before the AO, without giving any opportunity to the AO in terms of Rule 46A. As such, his action cannot be countenanced. Under the given circumstances, we are of the considered opinion that the ends of justice would meet adequately, if the impugned order is set aside and the matter is restored to the file of the AO for deciding these issues afresh as per law. We order accordingly. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh assessment proceedings. Ground Nos. 2, 3 and 4 of the Revenue are allowed for statistical purposes

In result, the appeal is partly allowed for statistical purpose.

The grounds of appeals are as under:-

Both the sides are in agreement that the facts and circumstances of this ground are similar to Ground No. 1 for the Assessment Year 2008-09. Following the view taken hereinabove, we decide this ground against the Revenue.

In result, the appeal of the Revenue is dismissed.