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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-5, (in short “Ld. CIT(A)”), Ahmedabad in Appeal No. CIT(A)-5/ACIT Cir.5(2)/167/2016-17 vide order dated 16.08.2018 passed for Assessment Year 2-14-15.
The Assessee has taken the following grounds of appeal:-
“1. The order passed by the Ld. CIT(A) is against law, equity & justice. 2. The Ld. CIT(A) has erred in law and on facts in upholding the disallowance U/S 40(a)(ia) of the Act of Rs. 8,36,800/-. 3. The Ld. CIT(A) has erred in law and on facts in upholding the disallowance of sales promotion expense of Rs. 1,57,900/-. 4. The Ld. CIT(A) has erred in law and on facts in upholding the addition U/S 41 of the Act of Rs. 6,76,68,302/-.
Shri Mufiz Burhamuddin Siddiqui vs. ACIT Asst.Year –2014-15 - 2–
5. The Ld. CIT(A) has erred in law and on facts in upholding the disallowance of bad debt U/S 36(1)(vii) of the Act of Rs. 8,03,029/-.
6. The Ld. CIT(A) has erred in law and on facts in upholding the addition U/S 68 of Rs. 23,50,000/-. 7. The appellant Craves liberty to add, amends, alter or modify all or any grounds of appeal before final appeal.” Ground No. 2:- Disallowance under Section 40(a)(ia) of the Act of Rs. 8,36,800/-
The brief facts of the case are that the assessee is an individual and has filed return of income on 29.11.2014 showing total income of Rs. 72,90,348/-.
During the course of assessment proceedings, the Assessing Officer observed that assessee had paid salary of Rs. 4,77,600/- to M/s. Sameena Siddiqui, wife of the assessee and Rs. 3,59,200/- to Mr. Burhannuddin Siddiqui, father of the assessee. However, no TDS was deducted by the assessee. The assessee vide letter dated 06.12.2016 and 14.12.2016 accepted that no TDS has been deducted and accepted the disallowance. Accordingly, the Assessing Officer disallowed a sum of Rs. 8,36,800/- and added the same to the income of the assessee.
In appeal, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that, when the assessee has itself agreed to the addition, and there is nothing on record to prove that such addition was made under some threat or coercion, then the appeal of the assessee is not sustainable on this issue.
Before us, the Counsel for the assessee submitted that the Ld. Assessing Officer has erred in invoking Section 40(a)(ia) of the Act, in respect of salary expenses since salary does not come within the ambit of the Section 40(a)(ia)
Shri Mufiz Burhamuddin Siddiqui vs. ACIT Asst.Year –2014-15 - 3– of the Act in the first instance. Accordingly, the Counsel for the assessee submitted that no disallowance could have been made under Section 40(a)(ia) of the Act on account of non-deduction of TDS on salary expenses.
On going through the facts of the case, we observe that the payments relate to salary paid to Indian residents, and on perusal of Section 40(a)(ia) of the Act, no disallowance can be made for not withholding of tax on salary paid to Indian residents.
It would be useful to reproduce the relevant extracts of 40(a)(ia) of the Act for ready reference :-
“(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work)], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent o/such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: On reading the above provision that salary is not within ambit of Sec. 40(a)(ia) of the Act. "
In view of the above, Ground No. 2 of the assessee's appeal is allowed.
Ground No.3:- Sales promotion expenses of Rs. 1,57,900/-
The brief facts in relation to this ground of appeal are that during the assessment proceedings, the assessee claimed an amount of Rs. 1,57,900/- as sales promotion expenses.
Shri Mufiz Burhamuddin Siddiqui vs. ACIT Asst.Year –2014-15 - 4–
During the course of assessment proceedings, the assessee submitted that the payments were made by cheque and were duly reflecting in the bank account. However, the assessee submitted that the vouchers were not available and the same could not be produced.
In appeal, Ld. CIT(A) dismissed the appeal of the assessee with the following observations:-
“3.4. Second ground of appeal is regarding disallowance of sales promotion expenditure. It is noticed that the assessee had claimed an amount ofRs. 1,57,9001-as sales promotion expenditure. During the assessment proceedings the AR intimated that the vouchers were not available and could not be produced and vide order sheet entry dtd. 13.12.2016 the AR has conveyed acceptance for the addition. Since, the disallowance has been made on agreed basis before the A.O. hence the appellant doesn 't have any right to make appeal against the agreed additions/disallowances. 3.4.1. In this regard the reliance is also placed in the case of Mahesh B. Shah Vs. CIT (Ker) 238 ITR 130 and Ramesh Chandra & Co. Vs. CIT (Bom) 168 ITR 375 wherein it has been held that once the appellant has agreed for some addition before the A. O. then the appellant did not have any right to file the appeal against such agreed addition unless the appellant proves that the addition was made under some threat or coercion. In the instant case there is nothing on record to say that the agreement for addition was under any threat and hence the appeal is not maintainable. Thus the same is dismissed.”
Before us, the Counsel for the assessee drew our attention to Page 29 of the Paper Book and submitted that the expenses was ever incurred by cheque and a lumpsum amount of Rs. 1,57,900/- was paid towards sales promotion expenses.
On going through the records of the case, it is observed that the assessee has made a lumpsum payment of Rs. 1,57,900/- towards sales promotion expenses, however, neither the copy of vouchers has been produced, and nor it is clear as to whom such sales promotion expenses have been made and further, it is also not clear as to the precise nature of such expenses.
Shri Mufiz Burhamuddin Siddiqui vs. ACIT Asst.Year –2014-15 - 5– Accordingly, in light of the fact that no information available with regards to the nature of payments and any supporting vouchers, we are inclined to agree with the order of Ld. CIT(A) on this issue. In the instant facts, for sales promotion expenses to be allowed, there has to be some clarity on the nature of expenses being incurred, and that these were incurred for the purpose of business of assessee. In absence of any clarity with regards to the nature of payments, sales promotion expenses cannot be allowed to the assessee under Section 37 of the Act simply on the ground that payments have been made through banking channels.
In the result, Ground no. 3 of the assessee's appeal is dismissed.
Ground No.4:- Addition under Section 41 of the Act of Rs. 6,76,68,302/- 16. The brief facts in relation to this ground of appeal are that for many of the creditors, the opening and closing balances was found to be the same by the Assessing Officer. The Assessing Officer asked the assessee to explain that since the creditors have been standing unchanged for past many years, then why an addition should not be made under Section 41 of the Act, to the income of the assessee.
During the course of assessment, the assessee appeared on 20.12.2016 and give list of creditors and the Assessing Officer observed that an amount of Rs. 6,76,68,302/- has been standing in the Credit for more than three years in respect of four creditors. Further, the Assessing Officer observed that no payments have been made by the assessee with respect to any bills raised by these creditors. Accordingly, the Assessing Officer added a sum of Rs. 6,76,68,302/- to the total income of the assessee under Section 41 of the Act.
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In appeal, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that the assessee has failed to furnish any details / documentary evidences in respect of the above creditors.
The assessee is in appeal before us against the aforesaid addition confirmed by Ld. CIT(A). Before us, the Counsel for the assessee submitted that the Assessing Officer has failed to appreciate that all the purchases / balances, for which additions have been made by the Assessing Officer pertain to current year purchases only and the said purchases are not outstanding for a period of over three years as alleged by the Assessing Officer. The Counsel for the assessee submitted that the additions have been made on account of mis-appreciation of facts and the aforesaid additions are liable to be deleted.
On going through the facts of the case and the quantum of additions involved, in the interest of justice, the matter is restored to the file of Assessing Officer to verify the statement made by the Counsel for the Assessee and pass an order in accordance with law.
In the result, Ground No. 4 of the assessee's appeal is allowed for statistical purposes.
Ground No.5:- Disallowance of bad debts claimed under Section 36(l)(vii) of the Act.
During the course of assessment, the Assessing Officer observed that assessee has claimed a sum of Rs. 8,03,029/- written as bad debts during the year under consideration. However, despite several opportunities, the assessee could not give any explanation / justification for claim of the aforesaid bad
Shri Mufiz Burhamuddin Siddiqui vs. ACIT Asst.Year –2014-15 - 7– debts. Accordingly, the Assessing Officer disallowed a sum of Rs. 8,03,029/- and added the same to the income of the assessee.
In appeal, CIT(A) dismissed the appeal of the assessee with the following observations:-
“3.6.2. Facts of the case and the submissions are considered. The appellant has failed to establish that all the conditions of the provisions of Section 36(2) of the Act are satisfied. The appellant has failed to establish that these amounts had ever been offered as income. In these circumstances the disallowance of bad debts made by the AO is justified. Thus the ground of appeal is dismissed.”
24. The assessee is in appeal before us against the aforesaid addition confirmed by the Ld. CIT(A). Before us the Counsel for the assessee submitted that the aforesaid amount has been written off as irrevocable in the books of accounts of the assessee. Further, the aforesaid debts have been offered as income in earlier assessment years. Accordingly, since both the conditions of claiming bad debts have been satisfied, no addition is called for under Section 36(l)(vii) of the Act.
On going through the records of the case, while the assessee has submitted that the amounts have been written off in the books of the assessee as bad debts, however, we observe that no specific details have been submitted whether the above amounts have been offered to income in the earlier assessment years. Accordingly, in the interest of justice, the matter is restored to the file of Assessing Officer for carrying out necessary verification in this regard, and pass appropriate orders in accordance with law.
In the result, Ground No. 5 of the assessee's appeal is allowed for statistical purposes.
Shri Mufiz Burhamuddin Siddiqui vs. ACIT Asst.Year –2014-15 - 8– Ground No. 6:- Addition of Rs. 23,50,000/- under Section 68 of the Act
The brief facts in relation to this ground of appeal are that during the course of assessment, the Assessing Officer observed that the assessee had obtained loan of Rs. 15,00,000/- from M.V. Kumar and an amount of Rs. 8,50,000/- from Uma lyer. The Assessing Officer observed that Ms. Uma lyer had not filed return of income and Mr. M.V. Kumar had filed return of income declaring income of Rs. 25,009/- only. Accordingly, the Assessing Officer was of the view that the assessee has failed to establish the credit worthiness of Mr. M.V. Kumar and Ms. Uma lyer and accordingly made an addition of Rs. 23,50,000/- under Section 68 of the Act.
28. In appeal, CIT(A) dismissed the appeal of the assessee with the following observations:-
“3.7.2 Facts of the case and the submissions are considered. The AO has called for details and asked assessee to establish the creditworthiness of Shri MV Kumar and Uma lyear. However, assessee failed to furnish requisite details in this regard. The primary onus is on the assessee to prove the genuineness and creditworthiness of the creditors. Assessee has failed to discharge its primary onus, therefore, the addition made by the AO is justified. Thus the ground of appeal is dismissed.”
29. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) confirming the addition made by the Assessing Officer under Section 68 of the Act. Before us, the assessee submitted that the details of the lenders have been furnished to the Assessing Officer and he relied on the case of CIT vs. Ranchhod Jivabhai Nakhave 21 taxmann.com 159 (Gujarat) on the proposition that where lenders are income tax assessees whose PAN have been disclosed, the Assessing Officer cannot ask the assessee to further prove genuineness of transactions, without first verifying such facts from income tax returns of lenders.
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On going through the records of the case, we are of the considered view that the aforesaid decision cited by the assessee is of no assistance to the assessee since one of the assessee has not filed it's return of income, while the other assessee disclosed a meagre income of Rs. 25,009/- only. Accordingly, apparently the assessee has not been able to prove the creditworthiness of the lenders. However, in the interest of justice, the matter is restored to the file of Assessing Officer to allow the assessee to give any supporting documents / justification to substantiate the creditworthiness of the aforesaid lenders.
In the result, Ground No. 6 of the assessee's appeal is allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purposes. This Order pronounced in Open Court on 10/04/2024
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/04/2024 TANMAY, Sr. PS TRUE COPY आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file.