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Facts
The assessee, proprietor of a Hindi daily newspaper, challenged the CIT(A)'s order which partly sustained additions made by the AO. The additions, arising from assessment under Section 143(3) and subsequent Section 263 proceedings, included Rs.34.20 lakh for sundry creditors under Section 40A(3), Rs.15.00 lakh for various expenses, and Rs.7.50 lakh for rent expenditure.
Held
The Tribunal remanded the disallowance under Section 40A(3) regarding sundry creditors back to the AO for fresh verification. It held that the ad-hoc disallowances of 10% on hoarding material purchases and 15% on rent expenses were not justified, as the assessee had provided substantiation for both.
Key Issues
Whether disallowances related to sundry creditors, hoarding material purchases, and rent expenses were justified, particularly when payments were in cash or without full documentation.
Sections Cited
143(3), 263, 40A(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘F’: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI KRINWANT SAHAY, ACCOUNTNAT MEMBER
ORDER PER ANUBHAV SHARMA, JM,
This appeal has been preferred by the assessee against order dated 18.03.2019 of the learned Commissioner of Income Tax (Appeals)-38, New Delhi, in Appeal No.CIT(A), Delhi-38/10318/17-18, arising out of order dated 31.12.2017 passed u/s 143(3)/263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the ACIT, Circle-55(1), New Delhi, pertaining to Assessment Year 2012-13.
The return of assessee was processed u/s 143(3) of the Act at income of Rs.13,83,620/- and subsequently vide order u/s 263 of the Act, the Assessing Officer was asked to verify and scrutinize certain issues, which were examined by the Assessing Officer in the present impugned order leading to addition of Rs.34,20,000/- on the basis that certain payments shown as payable by the creditors during the year are not reflected in their bank accounts and are thus subject to the provisions of section 40A(3) of the Act. A disallowance of Rs.15,00,218/- was made on account of various expenses @10%, and a disallowance of Rs.7,50,000/- was made as disallowance of rent paid to the extent of 50%.
The ld. CIT(A) has sustained the same partly for which assessee is in appeal before the Tribunal raising following grounds;
On hearing both sides, we find that primarily the ld. Authorized Representatives of the both sides, rely the cases of their sides as casted below.
As regards ground no.1, arising out of disallowance of Rs.34,20,000/-, we find that the assessee is a proprietor of M/s Amar Bharti & Rashtriya Besahara Jan, small Hindi daily newspaper. During the year, the assessee has shown gross turnover of Rs.42,73,36,431/- and gross profit of Rs.17,18,07,977/- with gross profit rate of 40.20%. During the year, the assessee has shown net profit of Rs.73,43,310/- and after scrutiny assessment, income was assessed at net total income of Rs.1,31,83,620/- and thereafter in u/s 263 proceedings, certain directions were issued to verify the sundry creditors. The Assessing Officer required assessee to produce the sundry creditors and statements on oath were taken which may part of the assessment order. It comes up that sundry creditors specifically said that mode of payment was bank/cheque. During the course of the hearing, the ld. AR has filed before us the details showing payment made to creditors through bank corresponding to bank statement filed in the paper book. It was pointed out that in case of Swati Enterprises, an amount of Rs.65,000/- is shown in the ledger of the party and the bank statement. In case of City Publicity, Rs.55,000/- were cash payments, however, there is a ledger entry. Further, in case of Forever Advertising, there are two entries of Rs.30,000/- and Rs.70,000/- which are cash payments but same also have corresponding ledger entries and apart from that remaining are reflected in ledger as well as in the bank statements.
5.1 We are of the considered view that parties were identified and there is nothing to doubt genuineness of payment and creditors in the their own statements have supported the assessee, thus the finding of the ld. CIT(A) in sustaining the addition on the basis that payments were made in cash and were not reflected in the bank account as no evidences were produced, justifies that the issue be restored to the files of the Assessing Officer to give assessee an opportunity afresh to bring evidences indicating the payments were reflected in the bank accounts of the respective parties or otherwise justified as cash payments. Accordingly, this ground is allowed for statistical purposes.
In ground no.2, we find that the assessee has debited an amount of Rs.40,71,256/- under the head hording material purchase in his profit & loss account and a disallowance of 10% was made by the Assessing Officer. We find substance in the assertion of the assessee that when the Assessing Officer has verified the purchases from sundry creditors, there was no reason to disturb the same. The adhoc disallowance is not justified. Ground is sustained.
As regards ground no.3; AO has made the addition of 15% of rent expenditure Rs. 50,00,000/- i.e. Rs.7,50,000/- for the reason that assessee has not submitted any rent agreement & it is difficult to establish the genuineness of the expenses and the non applicability of TDS on the same. In this regard, it is submitted for assesse that assessee has submitted rent agreement for most of the properties. However, few properties where rent is small, so no TDS is required to be deducted as per law & similarly assessee has not made any rent agreement also AO has made the addition of 15% of rent expenditure without any basis merely on estimation basis which is not justified as the assessee has already shown net profit rate of 3.08% on turnover of Rs.42.73 crores. Moreover, AO has verified various rented properties, then AO can also verify these properties which AO has not done. The nature of work of assesse justifies renting properties for distribution of publications and same may be of petty landlords or even licence fee for short users. In any case adhoc disallowance of such an expense is not justified. The ground is sustained.
Accordingly the appeal is allowed partly with consequences to follow.