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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI CHANDRA MOHAN GARG & SHRI B.M. BIYANI
आदेश/O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 13.09.2021passed by learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi[“Ld. CIT(A)”], which in turn arises out of assessment-order dated 30.11.2015 passed by learned DCIT, Circle-5(1), Bhopal[“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year[“AY”] 2013- 14, the assessee has filed this appeal on following grounds:
“1. That on the facts and the circumstances of the case, the learned CIT(A) has erred in confirming disallowance of Rs. 18,43,138/-on account of difference in billing as accounted for in the audited financial statements as compared with the amount reported in Form 26AS.
We win Ltd. Assessment year 2013-14 2. That on the facts and the circumstances of the case, the learned CIT(A) has erred in confirming disallowance of Rs. 64,14,456/-on account of amount paid as salary to employees of the company.
3. That on the facts and the circumstances of the case, the learned CIT(A) has erred in confirming disallowance of Rs. 19,45,672/-on account of allowances paid to the employees of the company.” 2. Heard the learned Representatives of both sides at length and case- records perused.
The registry has informed that the present-appeal is filed after a delay of 77 days and therefore time-barred. Ld. AR prayed that the delay has occurred due to Covid-19 Pandemic. The Ld. AR further placed reliance on the order of Hon’ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020 read with Misc. Applications, by which suo motu extension of the limitation-period for filing of appeals w.e.f. 15.03.2020 under all laws has been granted and hence there is no delay in fact. We confronted the Ld. DR who agreed to the submission of Ld. AR. In view of this, the appeal is proceeded with for hearing, there being no delay.
Briefly stated the facts are such that the assessee-company is mainly engaged in the business of providing BPO services to telecom service- providers, such as Idea Cellular, Videcon Telecommunications, Tata Teleservices, Reliances Communication Bharti Airtel, etc. It filed return of relevant AY 2013-14 electronically declaring a total income of Rs. 56,79,941/- which was subjected to scrutiny-assessment by issuing statutory notices u/s 143(2)/142(1). Finally, the Ld. AO completed assessment determining a total income of Rs. 2,13,29,618/- after making certain additions, namely (i) Addition of Rs. 86,43,938/- on account of mis- match in gross-receipts between 26AS and P&L A/c of assessee; (ii) Disallowance of Rs. 1,42,00,000/- out of salary paid to employees; and (iii) Disallowance of Rs. 19,45,672/- out of allowances paid to employees. Aggrieved, the assessee filed first-appeal to Ld. CIT(A) wherein the Ld. CIT(A)
We win Ltd. Assessment year 2013-14 granted part-relief in (i) and (ii) and no relief in (iii). Still aggrieved, the assessee has come in this appeal before us assailing the additions confirmed by Ld. CIT(A).
Ground No. 1:
In this ground, the assessee claims that the Ld. CIT(A) has erred in confirming the addition to the extent of Rs. 18,43,138/- on account of mis- match in 26AS and P&L A/c.
During assessment-proceeding, Ld. AO observed that the gross- receipts of assessee as per Form 26AS were Rs. 6,27,53,997/- as against which the assessee had shown receipts of Rs. 5,41,10,059/- in P&L A/c; thus the receipts shown by assessee were lesser by Rs. 86,43,938/-. When the Ld. AO confronted the assessee on this issue, the assessee submitted that it was following AS-9 for revenue recognition since inception and accordingly recognized the receipts of its business on “completion of service contracts” which has mainly resulted in the difference, besides other elements. The assessee also submitted two-types of reconciliations, viz. (i) firstly, the reconciliation of 26AS vis-à-vis books of account which is re- produced at Page No. 3 of the assessment-order, which shows that after eliminating the differences, there remained a difference of Rs. 4,49,600/- in favour of department i.e. the gross-receipts shown by assessee were higher than the gross-receipts reflected in 26AS; (ii) Secondly, the reconciliation of Service-tax Return vis-à-vis books of account which is re-produced at Page No. 4 of the assessment-order, which shows a meagre difference of Rs. 871/- only. The assessee attempted to convince the Ld. AO with such reconciliation-statements. But the Ld. AO made addition of Rs. 86,43,938/-, being the difference of Rs. 6,27,53,997/- as per Form 26AS and Rs. 5,41,10,059/- as per P&L A/c.
During first-appeal the assessee made detailed submissions, which are incorporated in Para No. 4.1 and 4.3 of the order of first-appeal, to We win Ltd. Assessment year 2013-14 satisfy the Ld. CIT(A) that the revenue recorded in the books of account is correct (or even higher) and no addition should have been made by Ld. AO. The Ld. CIT(A), however, granted a partial relief of Rs. 68,00,300/- by observing and holding as under:
“6.3 During the appellant proceedings it has been submitted that, "The assessing officer has erred in adding the difference of sales as per audited accounts and that shown in 26AS. AO asked the explanation for difference of offered for tax and that shown in 26AS, which was duly provided and acknowledged in the assessment order also. The actual difference was to the tune of Rs. 4,49,600/- only which is lower in 26AS after the adjustment as reflected in reconciliation statement. Company follows net basis of recording sales i.e. the Service tax portion is not shown as sales income nor Service tax payment is claimed as expenses in audited P&L accounts. The service portion is shown as liability in balance sheet to be paid to Govt. In 26AS the service tax portion is also shown as income and TDS deducted. The service tax amount for the FY 2012-13 amounts to Rs. 68,00,080/-. A reconciliation with service tax returns was also produced to AO which is also duly acknowledged. AO chose to ignore these reconciliations with remarks that "failed to submit appropriate reasons". When detailed reconciliation item wise was submitted, the appropriate reasons are there and each of them should have been discussed by AO for rejection. However AO simply discarded the entire reconciliation with short remarks, which is not as per law and thus assessment order is not a speaking order."
6.4 I have carefully examined the facts of the case. It is admitted fact that as per TDS certificate gross receipts is Rs. 6,27,53,997/-. It has been admitted by the appellant that the service tax amount for the F.Y. 2012-13 amounts to Rs. 68,00,080/-. It has been also admitted by the appellant that company follows net basis of recording sale i.e. service tax portion is not shown as sales income nor service tax payment is claimed as expense. In audited P&L Accounts, the service tax portion is shown as liability in Balance Sheet to be paid to Govt. In 26AS the service tax portion is also shown in income and TDS are also deducted on this service tax portion. Considering these facts net of service tax gross sale for the year under consideration shall be Rs. 6,27,53,997- Rs 68,00,080/- = Rs 5,59,53,197/-, whereas in the P&L A/c sale has been disclosed at Rs. 5,41,10,059/-, therefore still there is difference of Rs. 18,43,138/- which remains unexplained. Therefore, out of addition of Rs. 86,43,938/- an addition of Rs. 18,43,138/- is hereby confirmed and remaining amount of Rs. 68,00,300/- is hereby deleted. This ground of appeal is partly allowed.”
We win Ltd. Assessment year 2013-14 8. Ld. AR representing the assesseedrew our attention to Page No. 3 of the assessment-order where the reconciliation of 26AS vis-à-vis Books of account, submitted by assessee during assessment-proceeding, is reproduced by Ld. AO. Referring to the same, the Ld. AR pointed out that, after eliminating the differences, there remained a difference of Rs. 4,49,600/- in favour of department i.e. the gross-receipts shown by assessee were higher than the gross-receipts reflected in 26AS; hence the Ld. AO was not justified to draw adverse interference against assessee at the assessment-stage itself. Ld. AR also submitted that even the Ld. CIT(A) has given benefit of service-tax but not allowed all elements of difference, which is wrong. Per contra, Ld. DR emphasized that the Ld. AO has found difference of Rs. 86,43,938/-, out of which the Ld. CIT(A) has already given relief of Rs. 68,00,300/- leaving still anet difference of Rs. 18,43,138/- which is rightly confirmed by Ld. CIT(A).
We have considered rival submissions of both sides and perused the material held on record. We observe that the assessee has provided reconciliations-statementat the first stage of assessment itself, but the Ld. AO has not given any consideration to the same and just computed the difference of two figures, viz. (i) gross receipts shown by 26AS and (ii) gross- receipt shown in P&L A/c; and thereby made addition of the arithmetical difference. Going further, we observe that the Ld. CIT(A) has picked only one element of differences from the reconciliation-statement submitted by assessee, viz. service-tax of Rs. 68,00,300/- and ignored other elementsfor no reason. On perusal of appeal-order, we do not find any cogent reason having been assigned by Ld. CIT(A) for ignoring other elements mentioned by assessee in the reconciliation-statement. The Ld. CIT(A) has made a concluding remark “difference of Rs. 18,43,138/- remains unexplained” but not taken pains to consider other elements mentioned by assessee.Needless to mention that the assessee is a company and its accounts are subjected to statutory audit. Thus, in such a situation, where the revenue-authorities do not have any basis to negate other elements of reconciliation given by We win Ltd. Assessment year 2013-14 assessee, we are inclined to accept the reconciliation submitted. Admittedly, the reconciliation made by assesseedemonstrates favourable position to revenuei.e. the gross-receipts shown in P&L A/c are higher than the gross- receipts shown by 26AS. That brings us to delete the addition of Rs. 18,43,138/- made/confirmed by revenue-authorities and we do so. The assessee succeeds in this ground.
Ground No. 2:
In this ground, the assessee claims that the Ld. CIT(A) has erred in confirming the disallowance to the extent of Rs. 64,14,456/- out of salary expenditure.
Ld. AO made this disallowance by a very short-para no. 2 in assessment-order, which is reproduced below:
In the P&L account, assessee has debited salary expenses amounting to Rs. 2,01,66,319/-. While verification of supporting bills and vouchers, it has been observed that supporting evidences of few entries were not found and some payments were made in cash. Keeping in view of above narrated facts, it would be quite reasonable and justifiable to disallow a lump sum of Rs. 1,42,00,000/- out of above mentioned expense. Addition : Rs. 1,42,00,000/-
During first-appeal, Ld. CIT(A) dealt with this disallowance as under:
“7.4 On perusal of details, it has been noted that for the month of February 2013 an salary expenses have been incurred amounting to Rs. 21,82,031/-. Out of the said salary expenditure Rs. 5,42,058/- has been incurred through banking channel and remaining salary of Rs. 16,39,973/- has been incurred in cash. Same way for the month of May, 2012 salary expenses have been incurred amounting to Rs. 13,55,652/-.Out of the said salary expenditure Rs. 7,45,109/- has been incurred through banking channel and remaining salary of Rs. 6,10,543/- has been incurred in cash. Thus, by average basis for the these above two months salary expenses have been incurred amounting to Rs. 35,37,683/-. Out of the said salary expenditure Rs. 12,87,167/- has been incurred through banking channel and remaining salary of Rs. 22,50,516/- has been incurred in cash. By applying same
We win Ltd. Assessment year 2013-14 formula for whole year salary expense in cash will be Rs 1,28,28,912/- (20166319*2250516/3537683).”
7.5 Since expenditure incurred in cash on substantial basis under any head requires supporting documents. However, no supporting documents that number of workers employed during the month with the billing has been get verified by the appellant. Therefore, expenditure incurred in cash remains unexplained fully and appellant failed to justify that this expenditure incurred fully and exclusively for the business purpose. The cash has no trail and requires substantial justification. Under the head salary an expenditure of Rs. 1,28,28,912/- incurred in cash. It is also fact that when any expenditure incurred specially in cash but not fully explained than for disallowing some estimate required. Considering the overall facts and circumstance I confirm the disallowance @50% of cash component of salary expenditure, being cash has no trail. Therefore, expenditure of Rs. 64,14,456/- (12828912*50%) is hereby confirmed. Thus, remaining addition of Rs. 79,85,544/- is hereby deleted. This ground of appeal is partly allowed.”
13. Before us, Ld. AR representing the assessee made vehement submissions and argued very strongly that the Ld. AO has made a whopping disallowance of Rs. 1,42,00,000/- on lump sum basis just by making very general and baseless observations such as the evidences of “few entries” were not found and “some payments” were made in cash. Ld. AR submitted that the Ld. AO has not cited a single instance where the evidence was not found. Then, carrying us to the order of first-appeal, Ld. AR submitted that the CIT(A) has also made a fallacious kind of estimation on the basis of“average-theory” and given part-relief of 50% to the assessee, rather than making a judicious effort to delete the entire disallowance wrongly made by Ld. AO. Ld. AR submitted that revenue-authorities have made/upheld disallowance for the sake of scrutiny-proceeding; without taking into account that the assessee’s business is man-power oriented and it has to incur high amount of outflow on salary-payments to employees. Regarding cash-payment to some employees, Ld. AR submitted that the assessee is engaged in BPO business wherein it has to engage low-level, low-salaried staff to whom the payments could be made in cash only. Drawing our attention to Page No. 59 to 69, where a sample copy of the salary-sheet for We win Ltd. Assessment year 2013-14 the month of May, 2012 is placed, Ld. AR strongly referred to the columns in the salary-sheet such as S.No.; employee name; father/husband name; date of joining; basic pay;number of days;components of salary like basic, HRA, allowances; deduction on account of PF, ESI; net salary, etc. Ld. AR also carried us to the last column where every employee has signed against his name, acknowledging receipt of salary. Ld. AR submitted that such detailed and authentic sheets of salary were submitted to Ld. AO during assessment- proceeding, still the Ld. AO has made observations suitable to him. Ld. AR further argued that none of the payments violates the limit prescribed by Parliamentary wisdom in section 40A(3). Lastly, the Ld. AR submitted that there are innumerable decisions of Hon’ble Courts where it has been held that there is no authority in Income-tax Act, 1961 whereby the authorities can make lump-sum disallowance. Ld. AR placed reliance on a few decisions including the decision of ITAT, Indore in DCIT-1(1), Indore Vs. Brilliant Estate Pvt. Ltd., dated 13.12.2018to support this contention.
14. Per contra, Ld. DR representing the revenue defended the assessment- order. Ld. DR further went on arguing that the Ld. CIT(A) has already granted sufficient relief to the assessee and the assessee deserves no further relief in the matter.
15. We have considered rival contentions of both sides and perused the material held on record including the orders of lower-authorities. We observe that the Ld. AO has made a very hefty addition of Rs. 1,42,00,000/- through a very small paragraph; without citing a single instance of lapse of assessee; and just adopting a lump sum figure of Rs. 1,42,00,000/- with no basis. Going further, we observe that the Ld. CIT(A) has just applied a self-devised “average theory” and given part-relief of 50% to please the assessee, but however,he has not settled the grievance of assessee fully. On perusal of salary sheet of May, 2012 to which our attention has been drawn (discussed elaborately in foregoing paragraph), we clearly find that the assessee has We win Ltd. Assessment year 2013-14 maintained complete details of salary and the employees have also signed and acknowledged the payments made by assessee. We further observe that the employees to whom salary was paid, were covered under PF/ESI. Thus, with such documentary evidences on record, we find that the assessee has fully explained the expenditure of salary. We also observe that the assessee is a company and its books of account are duly audited. Finally, we are also mindful of the consistent view being taken by Hon’ble Courts / Benches of ITAT that there is no authority in income-tax law to make or encourage the disallowance on adhoc basis. As relied upon by Ld. AR, one such decision given by Co-ordinate Bench of ITAT, Indore holding the same ratio is DCIT- 1(1), Indore Vs. Brilliant Estate Pvt. Ltd., dated 13.12.2018, where it has been held thus:
24. We find that the assessee is a limited company and has maintained regular books of account and financial statement are duly audited and books results have not been rejected by the Brilliant Estate Pvt. Ltd. No major discrepancies have been noticed. Disallowance of Rs. 2,00,000/- has been merely made on the observation that some of the expenditure are incurred in cash and some vouchers are self-made and surprisingly there is no specific observation by the Ld. AO which could prove that the assessee has claimed the expenses with a motive to evade the tax nor any observation has been made by the Ld. AO for challenging the genuineness of the particular expenditure. In these given facts and circumstances merely making a ad-hoc disallowance of Rs. 2,00,000/- and completely disregarding the audited financial statements was certainly not justified on the part of the Ld. AO. Therefore we find no infirmity in the finding of Ld. CIT(A) deleting the disallowance of Rs. 2,00,000/- placing reliance of various judgments. In the result ground no.2 raised by the revenue stands dismissed.
16. In view of above discussions and respectfully following theabovedecision of ITAT, Indore, we are of the view that the revenue- authorities have wrongly made/upheld the disallowance. Being so, we direct the Ld. AO to delete the same. The assessee succeeds in this ground.
Ground No. 3:
We win Ltd. Assessment year 2013-14 17. In this ground, the assessee claims that the Ld. CIT(A) erred in confirming the disallowance to the extent of Rs. 19,45,672/- out of “allowances” expenditure.
Ld. AO made this disallowance by a very short-para no. 3 in assessment-order, which is reproduced below:
“In the P&L account, assessee has debited allowances expenses amounting to Rs. 96,03,860/- under the head of Employee Cost. There is increase in this expense in respect of previous year amounting to Rs. 19,45,672/- and assessee failed to submit any reasonable evidence in respect of this increase. Thereforeamount of Rs. 19,45,672/- is being disallowed and added back to the total income of assessee.
Addition : Rs. 19,45,672/-” 19. During first-appeal, Ld. CIT(A) dealt with this disallowance as under:
“8.4 On perusal of note-14 of employee cost it has been observed that salary of Rs. 2.01,66,319/- has been incurred whereas in the previous year it was Rs. 2,33,95,090/-, this there is substantial reduction under salary, however under the allowance it has been increased from Rs. 76,58,188/- (of Previous year) to Rs. 96,03,860/-. Thus, there is substantial increase of Rs. 19,45,672/-.
8.5 When any expenditure is debited to P&L A/c thus onus will be on the appellant to justify the expenditure with proper supporting documents. If the appellant was not satisfied with the decision of AO, should have been produced the supporting documents in the appellate proceedings. However, the appellant failed, as discussed above salary reduced by substantial amount of Rs. 30,00,000/- but at same timeallowance increase by Rs. 19,45,672/- without any substantial reason does not justify. The appellant has not justified the expenditure
We win Ltd. Assessment year 2013-14 with supporting documents of expenses and not explained that it fully incurred for business purposes only. Therefore, am of the view that no interference is required on the decision of AO. Therefore, this ground of appeal is dismissed.”
Before us, Ld. AR representing the assessee submitted that the assessee, being engaged in BPO activity, had to pay various kind of allowances to its staff, which are also evidences by the salary-sheet of May, 2012 month (discussed in foregoing paragraph). Ld. AR submitted that the assessee is a company and it has to change in salary structure from time to time for motivating and retaining employees. He submitted that during the year, the assessee had to revise salary structure so as to reduce salary component and increase allowances and that is the precise reason that salary had reduced from Rs. 2,33,95,090/- in preceding year to Rs. 2,01,66,319/- in current year and these was increase in allowances from Rs. 76,56,188/- to Rs. 96,03,860/-. Ld. AR submitted that the total salary expenditure was Rs. 3,10,51,278/- (Rs. 2,33,95,090/- + Rs. 76,56,188/-) in preceding year and Rs. 2,97,70,179/- (Rs. 2,01,66,319/- + Rs. 96,03,860/-) in current year, which clearly demonstrates that there is no increase in total cost of employees. Ld. AR submitted that the lower authorities have considered allowance-component separately, without considering this underlying fact, and thus made adverse conclusion which is far from fact.
Ld. DR dutifully defended the orders of lower-authorities.
We have considered the rival submissions of both sides. After a careful consideration, we find sufficient merit in the submission of Ld. AR that due to change in salary-structure, the salary has come down and conversely the allowances component had increased, but however the total employee cost has not increased. On perusal of salary-sheet, we also find that the assessee has maintained employee-wise details of allowance paid and the same is duly signed and acknowledged by respective employees. Thus, the revenue-
We win Ltd. Assessment year 2013-14 authorities are not justified in making disallowance. We, therefore, delete the disallowance made by authorities. The assessee succeeds in this ground too.
Resultantly, this appeal of assessee is allowed.
Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 03/02/2023. Order pronounced in the open court on ….../……/2023.