GIRISH M KOTHARI,MUMBAI vs. JCIT RG 23(2), MUMBAI

As far as ground no.1, is concerned, the fact in brief are, the assessee is an individual. For the assessment year under consideration, he filed his return of income on 30th September 2009, declaring total income of ` 7,03,30,150. During the assessment proceedings, the Assessing Officer, on the basis of AIR information, found that while in the return of income, the assessee has shown income from other sources comprising of interest received from bank and other interest aggregating to ` 2,54,435, whereas interest received of ` 6,68,022, from M/s. Everest Niwara, on which the payer has also deducted tax has not been offered as income. Alleging that in spite of opportunity granted the assessee could not reconcile the discrepancy / difference, the Assessing Officer added the amount of ` 6,60,822, as income from other sources.

Before the first appellate authority, while challenging the addition made by the Assessing Officer, it was submitted by the assessee that it has not received any such interest from the concerned party, hence,

Reiterating the submissions made before the first appellate authority, the learned Counsel for the assessee submitted before us that the assessee was not aware of any such interest payment as he actually did not receive interest. Therefore, it was not shown as income. However, the learned Counsel for the assessee admitted that the assessee is following mercantile system of accounting. Alternatively, it was submitted by the assessee that in case the amount of ` 6,60,822, is treated as assessee’s income, then credit should be given to the tax deducted at source on such amount by the payer. In this context, the learned Counsel for the assessee submitted a copy of Form no.26AS evidencing deduction of tax of ` 68,064.

The learned Departmental Representative relied upon the decision of the first appellate authority.

We have considered the submissions of the parties and perused the material available on record. There is no dispute to the fact that the assessee is following mercantile system of accounting. Moreover, as per the AIR information available in Assessing Officer’s record, assessee in the relevant F.Y. has received interest of ` 6,60,822 from Everest Niwara. This fact is also evident from form no.26AS, a copy of which is submitted before us by the learned Counsel for the assessee. Therefore, once the interest amount has been credited to the assessee and tax has been deducted by the payer, the assessee cannot take the plea of not offering the income on the ground that he has not actually received the same. We, therefore, do not find any infirmity in the action of the Departmental Authorities in assessing the amount of ` 6,60,822. However, we accept assessee’s alternative claim that if the said amount is treated as income of the assessee, then credit for TDS has to be given. As it appears from Form no.26AS, an amount of ` 68,064, has been deducted at source by the payer while crediting the interest amount of ` 6,60,822. We, therefore, direct the Assessing Officer to verify this fact and give credit of the TDS to the assessee accordingly.

In grounds no.2 and 3, the assessee has challenged the part disallowance of expenses on account of professional fees and salary.

Briefly stated the facts are, during the assessment proceedings, the Assessing Officer noticed that assessee has two separate business streams and has separate sets of annual account for the two business. He found that the assessee is having proprietorship concern in the name and style of Roshan Communication, and the second one is in his individual name.

As far as his individual business activity is concerned, as per the Profit & Loss account assessee has shown professional fee of ` 3.23 crore and claimed expenditure of ` 10,20,240 comprising of audit fee, bank charges, salary, depreciation, etc. As observed by the Assessing Officer, the professional fees is on account of non–compete fee received from M/s. Digi Home Entertainment Pvt. Ltd. Therefore, he was of the view that as assessee has earned income from a single transaction there is no necessity of incurring such huge expenditure. He also observed that the expenditure claimed was not supported by any documentary evidence. He, therefore, out of the total expenditure of ` 10,02,240, allowed an amount of ` 21,633, while disallowing balance amount of ` 9,80,607. Being aggrieved of such disallowance, assessee challenged the same before the first appellate authority.

The learned Commissioner (Appeals), after considering the submissions of the assessee in the light of the facts and material on record, observed that as far as professional fee and salary expenditure are concerned, the assessee has not deducted tax at source on such payment nor has produced any evidence to substantiate the claim. He, therefore, while disallowing the professional fee of ` 1 lakh in toto, allowed an amount of ` 25,000, from the expenditure claimed toward salary / wages amounting to ` 3 lakh. Still aggrieved with the disallowance by the first appellate authority, the assessee is in appeal before us.

The learned Authorised Representative submitted before us as far as payment of professional fee is concerned, the assessee being an individual, is not required to deduct tax at source in view of second proviso to section 194J which prescribes that unless assessee’s turnover from business or profession during the immediately preceding financial year exceeds the prescribed limit no tax is required to be deducted. The learned Counsel for the assessee referring to the Profit & Loss account for the F.Y. 2007–08 corresponding to assessment year 2008–09, submitted, assessee’s turnover from business or profession is much below the prescribed limit under section 44AB. Hence, assessee is not required to deduct tax.

As far as the expenditure incurred towards salary / wages, are concerned, the learned Counsel for the assessee submitted that the expenditure was disallowed only for the reason of absence of evidence. He submitted that salary was paid to regular employees only, however, details could not be filed before the first appellate authority as they were never called for. However, furnishing the details of salary payment through a statement showing the name of employees and salary paid as well as bill from Chartered Accountant, confirmation letter and ledger account from Chartered Accountant, he requested for admitting them as additional evidence and if necessary restore the matter back to the file of the Assessing Officer for proper verification.

The learned Departmental Representative submitted that he has no objection if the matter is restored to the file of the Assessing Officer for deciding afresh after verifying the evidence submitted by the assessee.

We have considered the submissions of the parties and perused the material available on record. It is clear from the order of the first appellate authority, he has disallowed the claim of expenditure on account of professional (audit) fee and salary expenditure for the Shri Girish M. Kothari 8 reason that firstly the assessee has not deducted tax at source and secondly he has failed to produce necessary evidence.

Before us, the assessee has submitted documents by way of additional evidence to indicate that expenditure incurred towards professional fee and salary are genuine. Considering the fact that the evidence produced have a crucial bearing for determining assessee’s claim, we admit them as additional evidence. However, it is a fact on record that these evidences were not filed before the Departmental Authorities. Moreover, it has been contended by the learned counsel that payment of professional fee would not attract the provisions of section 194J in view of the second provision to sub–section (1) of section 194J. It is found that this argument advanced by the learned counsel before us was not taken before the Assessing Officer or the first appellate authority. Therefore, considering the submissions made by the learned counsel as aforesaid on applicability of section 194J as well as the additional evidence produced, we are of the view that the matter relating to allowance of assessee’s claim on professional fee and salary requires examination afresh. Accordingly, the issue raised in grounds no.2 and 3 relating to claim of salary and professional fee is restored back to the file of the Assessing Officer for considering afresh after verifying the additional evidences and assessee’s contentions on Shri Girish M. Kothari 9 the issue. The Assessing Officer must afford reasonable opportunity of being heard to the assessee. Grounds no.2 and 3 are allowed for statistical purposes.

In the result, assessee’s appeal is partly allowed for statistical purposes. Order pronounced in the open Court on 06.11.2015