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Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI SAKTIJIT DEY, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
The above captioned cross appeals by the assessee and the
Revenue for A.Y 2012-13 are preferred against the order of the ld.
CIT(A) - 9, New Delhi dated 30.09.2019. The Revenue has also filed an
appeal for A.Y 2011-12 against the order of the ld. CIT(A) - 9, New
Delhi dated 30.09.2019.
Since the cross appeals and appeal were heard together, they are
being disposed of by this common order for the sake of convenience
and brevity.
At the very outset, the ld. counsel for the assessee moved an
application seeking permission to withdraw the appeal filed by the
assessee in ITA No. 9127/DEL/2019. Noting the contents of the
application, the said appeal is dismissed as withdrawn.
The impugned two appeals by the revenue have common ground
relating to deletion of addition on account of disallowance of
commission on sales, though the quantum of disallowance differs in
both the years.
Since the underlying facts are common in both the years, we are
taking up the facts for A.Y. 2011–12. On perusal of the related party
transaction, the Assessing Officer noticed the following payments
made to persons specified u/s 40A(2)(b) of the Act:
Party Particulars Amount (Rs.) 4.46,72,186 Today Merchandise Pvt. Ltd. (fellow subsidiary Commission paid Living Media India Ltd. (Holding Company) Rent Paid 1,99,246 Living Media India Ltd. (Holding Company) Purchase of Goods 13,24,66,012 Living Media India Ltd. (Holding Company) Purchase of Fixed 9,62,330 Assests Living Media India Ltd. (Holding Company) Services Received 17,50,124
The assessee was asked to furnish details and justification of
payment of commission to M/s Today Merchandise Pvt Limited. Vide
letter dated 10.02.2014 the assessee submitted the justification of
payment of commission with complete documents of services received,
basis of payment, etc. The assessee also furnished copies of debit
notes received from Today Merchandise Private Limited. The Assessing
Officer was of the opinion that the entire payment of commission was
not for business reasons and basis the gross profit earned by the
assessee, the Assessing Officer allowed 25% of commission and
disallowed the balance.
The assessee strongly agitated the matter before the ld. CIT(A)
contending that the provisions of section 40A(2)(b) are not applicable,
as both the payer and the payee are fellow subsidiaries of Living Media
India Ltd, which is the holding company and fellow subsidiaries got
covered under section 40A(2)(b) effective from A.Y 2013–14.
It was further explained that the payments have been made on
the basis of debit notes received by the assessee and there is no
difference between the invoice and debit note. It was also contended
that payment of commission is on the basis of percentage to turn over
and is never on the basis of percentage to gross profit.
After considering the facts and submissions, the ld. CIT(A) was of
the opinion that adhoc disallowance of any expenditure is not
permissible and the Assessing Officer has to give specific findings as to
the effect that either the expenditure is not supported with
bills/vouchers or not recorded in the books of account or it is bogus
and excess claim of expenditure in question is barred by provisions of
the Act.
The ld. CIT(A) further observed that it is the duty of the
Assessing Officer to pinpoint which particular expenditure was not
substantiated, or was not for business exigencies while making the
disallowance. After referring to various judicial decisions, the ld. CITA
directed the Assessing Officer to delete the impugned disallowance.
Before us, though the ld. DR strongly supported the findings of
the Assessing Officer, but could not point out any factual error or
infirmity in the findings of the ld. CITA
After considering the facts in totality and finding that the
disallowance has been made on adhoc basis, as a percentage of gross
profit, we are of the considered view that such disallowance is
baseless and the ld. CIT(A) has rightly deleted the same, which calls
for no interference. Common grounds in both the appeals of the
Revenue are dismissed.
Second grievance in A.Y 2011–12 in ITA No. 9361/DEL/2019
relates to the deletion of disallowance of Rs.1,31,78,278/– on account
of difference in sales as per VAT Return and Sales as per the profit and
loss account.
While scrutinizing the return of income, Assessing Officer noticed
that as per VAT Return the assessee has shown sales/gross turnover at
Rs. 32,37,68,870/-. However, as per the financial statements furnished
by the assessee, the same has been shown at Rs. 25,05,56,212/–.
The assessee was asked about the difference and on receiving no
plausible reply, the Assessing Officer made the addition of Rs.
1,31,78,278/–.
Before the ld. CITA, the assessee strongly contended that, in
fact, there is no difference and furnished re-conciliation. It was also
brought to the notice of the ld. CIT(A) that the Assessing Officer has
not gone through the Schedule 11 of Financial statement wherein the
entire reconciliation has been provided.
After scrutinizing the details furnished by the assessee, the ld.
CIT(A) was convinced that no sales have been made outside the books
and there is no difference between the turnover as shown in the VAT
Return and as shown in the financial statements.
Being satisfied, the ld. CIT(A) deleted the impugned addition.
Before us, the ld. DR supported the findings of the Assessing
Officer.
On the other hand, the ld. counsel for the assessee reiterated
what has been stated before the first Appellate authority.
We have carefully considered the orders of the authorities below.
It is true that the assessee has furnished the details under Schedule 11
of the Financial Statements and had the Assessing Officer gone through
the said Financial Statements, he would have seen that there is no
such difference in the alleged turnover. Further, we find that it is not
the case of the Assessing Officer that the assessee has made sales
outside its books of accounts. We find that rectification is available in
the audited financial statement itself. Therefore, we do not find any
error or infirmity in the findings of the ld. CIT(A). This ground is also
dismissed.
Second grievance in A.Y 2012-13 in ITA No 9362/DEL/ relates to
the deletion of addition of Rs. 54,41,961/– on account of credit
appearing in the books of accounts of Reebok India Ltd, which has not
been accounted in the books of account of the assessee.
During the course of assessment proceedings, the Assessing
Officer received information of the assessee’s transaction with Reebok
India Co. Ltd obtained directly from the party u/s 133(6) of the Act.
On comparison of copy of account of the assessee sent by Reebok India
Limited, the Assessing Officer noticed a difference of Rs. 90,76,128/–.
Assessee was asked to reconcile the difference. As per the
reconciliation filed by the assessee, the Assessing Officer found that
there is a credit amount given by Reebok India Co. Ltd to the assessee
amounting to Rs. 54,41,961/–, which has not been shown by the
assessee. Accordingly, the Assessing Officer added the amount of Rs.
54,41,961/– to the income of the assessee.
Before the ld. CIT(A), the assessee explained that when sale
invoice is raised by Reebok, and no goods have been received by the
assessee, then, on informing Reebok India Co Ltd, the same was
corrected by them in their books of account, and the assessee did not
pass any entry in its books of account. It was explained that it is
because of this Reebok India Co. Ltd first made credit entry and since
the assessee did not receive any goods, it did not pass any entry in its
books of account.
The ld. CIT(A) was convinced with such accounting treatment and
directed the Assessing Officer to delete the impugned addition.
Before us, the ld. DR strongly supported the findings of the
Assessing Officer but could not point out any factual error in the
impugned accounting entry.
We have carefully considered the orders of the authorities below.
The only reason for making the addition is that Reebok India Co. Ltd
has passed a credit entry in its books of account, which was not there
in the books of the assessee. Explanation of the assessee that when the
assessee does not receive any goods, it does not pass any entry and the
other party, i.e. Reebok India Co. Ltd, having debited the assessee,
passes credit entry in their books of account and, therefore, there is
no difference. We do not find any error in such accounting treatment
and, therefore, do not find any reason to interfere with the findings of
the ld. CIT(A). This ground is also dismissed.
In the result, the appeal of the assessee in ITA No.
9127/DEL/2019 as well as the appeals of the Revenue in ITA Nos. 9361
and 9362/DEL/2019 are dismissed.
The order is pronounced in the open court on 15.06.2023.
Sd/- Sd/-
[SAKTIJIT DEY] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 15th JUNE, 2023.
VL/ Copy forwarded to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR
Asst. Registrar, ITAT, New Delhi
Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order