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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & MS. SUCHITRA RAGHUNATH KAMBLE
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Commissioner of Income (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 27.01.2023 under section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the Asst.Year 2014-15.
Ground No.1 raised by the assessee reads as under:
“1.00 ADDITION OF RS. 31, 27, 945 /- ON ACCOUNT OF DOUBLE DEDUCTION OF SERVICE TAX. 1.01 On the facts and circumstances of your appellant's case as well as in law, the Id. AO has erred in making addition of Rs.31,27,945 /- to the total income on account of assumption of double deduction of service tax from the professional receipts. Your appellant had actually paid Rs.31,27,945/- as Service Tax from his Bank account and as per cash system of accounting said amounts is allowed as an when paid to the Government which Id.AO failed to appreciate the fact and proceed for addition. Further your appellant wish
ITA No.188/Ahd/2023 2 to state that the amount of service tax paid pertains to Indirect Tax and the same can never be income of the assessee.”
The issue relates to addition made of Rs.31,27,945/- on account of double deduction of service tax claimed by the assessee. The assessment order reveals that the AO found that the assessee had shown his professional receipts in his profit & loss account of Rs.1,99,41,724/- net of service tax ,and in the return of income also the assessee had reduced the service tax element of Rs.31,27,945/- from this net professional receipts of Rs.1.99 crores and showed net professional fee according at Rs.1,68,13,779/-. Thus, as per the AO the assessee had reduced the service tax component of Rs.31,27,945/- twice; once while arriving at the receipt of Rs.1,99,41,724/- in the Income & Expenditure a/c and other again while arriving at the receipt of Rs.1,68,13,779/ in the Return of Income filed. Thus, according to the AO, the assessee had claimed double deduction of service tax of Rs.31,27,945/-, which was accordingly disallowed by him. The same was confirmed by the ld.CIT(A) in the absence of any representation from the assessee before him.
Before us, the ld.counsel for the assessee demonstrated from the facts from records that it was not a case of double deduction of service tax. His pleadings in brief words was that Rs.1,99,41,724/- was the gross receipts of the assessee inclusive of service tax shown in the return of income filed by the assessee, and after deducting the service tax element, net receipt of the assessee was Rs.1,68,13,779/- which was reflected in the Income & Expenditure of the assessee; that the assessee had not claimed any deduction of service tax from its net receipt of Rs.1,68,13,779/-. Therefore, in effect, the assessee had claimed deduction of service tax only once and not twice. To this effect he first drew our attention to the letter filed to the AO during the
ITA No.188/Ahd/2023 3 assessment proceedings dated 7.11.2016 placed before us at PB Page No.11 to 14 and specifically drew our attention to point no.2 of the letter, wherein the assessee had contended that he was following cash system of accounting. He thereafter drew our attention to the ledger account of the “Fees Income” received by the assessee placed before us at PB Page No.8 to 9, pointing out therefrom that the total receipts accounted for during the year by the assessee following the cash system of accounting was Rs.1,99,41,724/-. He thereafter drew our attention to the service tax ledger account maintained, again on cash basis, placed before us at PB Page No.10, pointing out there from that the assessee had paid service tax amounting to Rs.31,27,945/- during the year. Thereafter, he drew our attention to income & expenditure account of the assessee based on this ledger account, placed before us at PB Page No.65 wherein it was pointed out that the assessee had accounted for professional fees net of service tax amounting to Rs.1,68,13,779/-( Rs.1,99,41,724 - Rs.31,27,945). It was pointed out from the Income & Expenditure that no expenditure on account of service tax was claimed in the Income & Expenditure account separately, but was reduced from the professional receipt of the assessee of Rs.1,68,13,779/- i.e. (Rs.1,99,41,724/- minus Rs.31,27,945). Thereafter, the ld.counsel for the assessee pointed out that the return of income filed by him was also based on these figures. He drew our attention to PB Page No.57 being relevant page of ITR wherein the computation of business income was mentioned, and he pointed out therefrom that the gross receipts of business mentioned therein was Rs.1,99,41,724/- against which the assessee had claimed deduction on account of service tax of Rs.31,27,945/-. He, therefore pointed out that it was abundantly clear during the assessment proceedings itself that the assessee had not claimed any double deduction on account of service tax paid of
ITA No.188/Ahd/2023 4 Rs.31,27,945/-; that while the income & expenditure account showed receipt net of service tax, the return of income showed receipts gross of service tax, and the service tax was reduced there from separately. He also drew our attention to the letter filed to the AO during the assessment proceedings dated 17.10.2016 wherein this fact was clearly brought out, pointing out that the income and expenditure account showed sale turnover net of service tax, while the ITR reflected the figure of gross turnover and service tax separately at the point no.2 as under:
The ld.DR was unable to controvert any of the above factual contentions made by the assessee before us.
In view of the above, we are convinced with the assessee, as duly demonstrated from the records that, there is no case of double deduction of service tax claimed by the assessee amounting to Rs.31,27,945/-. The assessee, we have noted had clearly demonstrated that while its income & expenditure account reflected its professional receipts net of service tax, the ITR showed the receipts
ITA No.188/Ahd/2023 5 gross of service tax and separate deduction on account of service tax was claimed. The ld.AO/CIT(A) have clearly mis-appreciated the facts of the case before them, while disallowing service tax to the tune of Rs.31,27,945/- allegedly and incorrectly on account of double deduction on the same. We have noted that the AO had also noted that the assessee had contended to have account for its receipts on mercantile basis. But it has been pointed out to us that the assessee had clearly stated to the AO during the assessment proceedings itself vide its letter dated 8.11.2016; that all its accounting was done on cash basis. Therefore, in view of the above, finding no merit in the addition made on account of alleged double deduction of service tax of Rs.31,27,945/-, we direct deletion of the addition confirmed by the ld.CIT(A).
Ground no.1 of the assessee is allowed.
Ground No.2 raised by the assessee reads as under:
“2.00 DISALLOWNACE MADE U/S 40A (2) (b) OF THE ACT. 2.01 On the basis of facts and circumstances of your appellant's case as well as in law, the Id. AO has erred in disallowing the claim of salary expense made to the wife of appellant to the extent of Rs.11,700 /- under section 40A(2)(b) of the Act. The Id. AO has made additions of Rs.11,700/- TDS deducted from salary payment of employee namely Neha Harish Karnik added as salary payments to related persons u/s 40A(2)(b) of the Act.”
The facts relating to the case are that the assessee was found to have claimed salary expenses of Rs.15,85,650/- which allegedly included a sum of Rs.9,71,700/- paid to his wife. The AO noted from the details filed by the assessee that his wife had returned salary receipt of only Rs.9,60,000/- to tax in her return of income. Accordingly, the balance of Rs.11,700/- claimed by the assessee was
ITA No.188/Ahd/2023 6 found to be excess claim of salary expenses by the AO and disallowed. The same was confirmed by the ld.CIT(A).
The ld.CIT(A) though notes that none came present on behalf of the assessee, but he did note the assessee’s contention against the impugned disallowance from the statement of the facts before him to the effect that the amount of Rs.11,700/- did not pertain to the salary paid to his wife, but was TDS on salary paid to another employee of the assessee.
Before us, the ld.counsel for the assessee contended that Rs.11,700/- was TDS deducted from salary paid to his employee viz. Ms.Neha Harish Kamik. Our attention was drawn to the salary account maintained by the assessee placed at PB Page No.26 to 28. It was pointed out that the assessee had paid total salary of Rs.15,85,650/- to various persons including his wife, Sunita Patel, Neha Kamik, Archana and others, which is evident from the narration given in the ledger account itself. He therefore contended that there was no case for making any disallowance of Rs.11,700/-.
Before us the ld.DR relied on the orders of the Revenue authorities.
We have noted that the AO has made this disallowance without confronting the same to the assessee. Before the ld.CIT(A), the assessee had explained that the amount of Rs.11,700/- pertained to the salary paid to another employee and not his wife. The complete ledger account of the salary so drawn recorded and reflected the facts of payment of salary to various persons.
In view of the above, we see no reasons to confirm the disallowance of Rs.11,700/- on account of excess salary allegedly paid
ITA No.188/Ahd/2023 7 to the wife of the assessee. The disallowance so made is therefore directed to be deleted.
Ground No.2 is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 10th May, 2024 at Ahmedabad.
Sd/- Sd/- (SUCHITRA RAGHUNATH KAMBLE) (ANNAPURNA GUPTA) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad,dated 10/05/2024