TUV India Pvt. Ltd. Vs DCIT (ITAT Mumbai)
No defects in the books of accounts were brought on record by the authorities below nor books of accounts were rejected by the authorities below. If the authorities were not satisfied with aforesaid details , then they ought to have called for further details. In the preceding assessment year i.e. ay: 2010-11 and in immediately succeeding assessment year i.e. ay: 2012-13, no adhoc disallowances of expenses were made by the AO in an assessment framed u/s. 143(3) of the Act. The assessment orders for ay: 2010-11 and ay: 2012-13 are placed in file. The assessee has discharged its onus by bringing on record complete details of the expenses incurred by it albeit the same was brought on record during the course of appellate proceedings before learned CIT(A)/remand proceedings conducted by the AO under directions of learned CIT(A). The powers of learned CIT(A) are co-terminus with powers of the AO. No enquiries were conducted by the AO/learned CIT(A) even during appellate/remand proceedings . The books of accounts were not rejected by authorities below nor any defect is pointed out by the AO/learned CIT(A) in the books of accounts maintained by the assessee. There is no allegation by Revenue that the assessee claimed any bogus expenses or any attempt is made to defraud Revenue. Under these circumstances keeping in view factual matrix of the case, we are of the considered view that aforesaid adhoc disallowance of expenses under various heads of expenses to the tune of 10% of the total expenses incurred by the assessee under these heads of expenses is not warranted and we order deletion of the said adhoc disallowance of expenses.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal, filed by assessee, being ITA No. 6628/Mum/2017, is directed against appellate order dated 05.09.2017 in appeal no. CIT(A) -22/DCIT-10(3)/IT-314/ 13-14, passed by learned Commissioner of Income Tax (appeals)-24, Mumbai (hereinafter called “the CIT(A)”), for assessment year(ay) 2011-12, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 29.01.2014 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for ay:20 11-12.
2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”), reads as under:-
“1) The learned Commissioner of Income Tax (Appeals) failed to consider that the notice under section 143(2) of the Act issued by the Assessing Officer was time barred, and hence, the order passed under section 143(3) of the Act was illegal and bad in law.
2) The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 1,80,57,980/-, being income corresponding to alleged unreconciled TDS 18,05,798/-, as per the Form 26AS.
3) Having regard to letter dated February 24, 2017 filed with the Assessing Officer during remand proceedings, remand report dated March 24, 2017 and letter dated April 10, 2017 filed with the Commissioner of Income Tax (Appeals) during appeal proceedings, the Appellant submits that the finding of the Commissioner of Income Tax (Appeals) that some amount of TDS is unreconciled is perverse, and contrary to facts on record.
4) In any event, the Appellant Company submits that the addition of Rs. 1,80,57,980/- is highly excessive and arbitrary, and the same requires to be reduced substantially .In any event, the alleged difference in TDS could not have exceeded Rs. 12,82,637/-
5) The learned Commissioner of Income Tax (Appeals) erred in confirming the ad hoc disallowance of 10% amounting to Rs. 2,76,51,835/-, in respect of the various expenses claimed by the Appellant. Having regard to the facts and circumstances of the case, the Appellant submits that the disallowance is unwarranted and requires to be deleted.
6) Without prejudice to the above ground, and in any event, the Appellant submits that the above disallowance is grossly excessive and arbitrary, and the same requires to be reduced substantially.
7) The learned Commissioner of Income Tax (Appeals) erred in holding that interest under section 234A of the Act of Rs. 4,41,960/- of the Act is mandatory and consequential, ignoring the fact that the Appellant had filed its Return of Income within the time prescribed under the Act, The Appellant denies its liability to be levied any such interest under section 234A of the Act.”
3. The brief facts of the case are that the assessee is engaged in the business of certification for Quality & Environmental Management Systems, QS 9000 for Automobile Industry, Third Party Inspection, CE Marketing and other related work. The assessee also carries out testing services and solutions for the food and agricultural sector.
4. The Ld. Counsel for the assessee at the outset submitted that the assessee did not wish to pursue Ground no. 1 raised by it in memo of appeal filed with tribunal and the same may be dismissed as not being The Ld. DR did not raised any objection to the dismissal of ground no. 1 as not bring pressed by the assessee. After hearing both the parties , we dismiss Ground no. 1 raised by assessee in memo of appeal filed by it with tribunal as not bring pressed. Thus, Ground no. 1 stand dismissed. We order accordingly.
5. So far as Ground no. 7 raised by assessee in its memo of appeal filed with tribunal is concerned, it is submitted by learned counsel for the assessee that the AO has already rectified and granted relief sought by the assessee and it is submitted that ground no. 7 be also dismissed as assessee has already got the relief sought from the AO. The Ld. DR did not raised any objection to the dismissal of Ground No. 7 raised by assessee in its memo of appeal filed with tribunal. After hearing both the parties , we dismiss this Ground No. 7 raised by assessee in memo of appeal filed with the tribunal as not being pressed. We order accordingly.
6. It is then brought to the notice of the Bench during the course of hearing that now there are only two effective issues which need to be adjudicated by tribunal, wherein Ground no. 2 to 4 raised by assessee in memo of appeal field with tribunal represent one effective issue concerning additions made on account of mismatch of Income-tax deducted at source(TDS) as per books of accounts maintained by the assessee with the TDS credit as is appearing in Form no. 26AS information per income-tax data base . It was then submitted that second effective issue in this appeal filed by assessee is covered by Ground No. 5 and 6 raised by assessee in memo of appeal filed with tribunal which concerns itself with ad-hoc disallowance of expenses @10% amounting to Rs. 2,76,51,835/- out of aggregate expenses to the tune of Rs. 27,65,18,354/- claimed by assessee under various heads of expenses.
7. During the course of assessment proceedings conducted by the AO u/s 143(3) read with Section 143(2) of the 1961 Act, the AO observed that the assessee has claimed TDS of Rs. 6,02,54,624/- in its return of income filed with Revenue , as against TDS as appearing in AIR information data base of income-tax department to the tune of Rs. 6,33,43,230/-. The assessee was asked by AO to explain the aforesaid difference and to reconcile income as is represented by aforesaid TDS as appearing in AIR information per data base of Income-tax department with that of income disclosed in return of income filed by assessee with Revenue. As per AO, the assessee failed to submit reconciliation statements for the receipts as are appearing in its return of income with receipts as are reflected in AIR information . Thus, the AO concluded that the assessee has not disclosed the receipts of fee/income represented by TDS of Rs. 30,88,606/- and it was observed by the AO that the assessee‟s main activities are from receipts covered under the provisions of Section 194J on which TDS was required to be deducted @10% which led AO to make additions to the income of the assessee to the tune of Rs. 3,08,86,060/- by extrapolating TDS , which income was brought to tax by the AO in the hands of the assessee as undisclosed income/receipts of the assessee, vide assessment order dated 29.01.2014 passed by the AO u/s 143(3) of the 1961 Act. The AO also observed that the assessee vide letter dated 08.02.20 13 has itself admitted that the TDS as per Form No. 26AS is Rs. 6,33,43,059/- and as per AO the assessee failed to explain the income represented by aforesaid receipts which were offered to tax in the year under consideration and hence the differential income computed between aforesaid TDS as per Form No. 26AS information per income-tax data base and income as offered for taxation as per return of income of Rs. 6,02,54,624/- were brought to tax by the AO in the hands of the assessee, to the tune of Rs. 3,08,86,060/- vide assessment order dated 29.01.2014 passed by the AO u/s 143(3) of the 1961 Act.
8. The second addition which was made by the AO was with respect to various expenditure incurred by the assessee under different heads of expenses which expenses aggregated to Rs. 27,65,18,354/- , which stood disallowed by the AO on ad-hoc basis @ 10% of the aforesaid expenses, vide assessment order dated 01.2014 passed by the AO u/s 143(3) of the 1961 Act leading to additions to the income of the assessee to the tune of Rs. 2,76,51,835/- in the hands of the assessee. The AO had observed that assessee had failed to give documentary evidences and details with respect to these expenses to substantiate these expenses. It was also observed by the AO that complete details were not submitted by the assessee during assessment proceedings and under these circumstances it could not be established that these expenses were incurred wholly and exclusively for the purposes of business of the assessee and also it could not be concluded whether these expenses are revenue in nature. The AO also observed that in absence of aforesaid details, it could not be established that proper income-tax was deducted by the assessee while making payments for these expenses as is mandated under Chapter XVII-B of the 1961 Act which led AO to make additions to the tune of Rs. 2,76,51,835/- being ad-hoc disallowance @ 10% of the expenses aggregating to Rs. 27,65,18,354/- of the total expenses incurred by assessee under various heads of income as are enumerated in details in assessment order dated 29.01.2014 passed by the AO u/s 143(3) of the 1961 Act.
9. The assessee being aggrieved by additions made by the AO vide assessment order dated 29.01.2014 passed u/s 143(3) of the 1961 Act, filed first appeal with learned CIT(A) and detailed contentions were raised by assessee before learned CIT(A) with respect to both the issues. It was explained by the assessee that no proper and adequate opportunity was given to the assessee by the AO during the course of assessment proceedings. It was also claimed that AIR information on the basis of which additions were made by the AO on account of TDS differential between as reported in AIR information and as filed in return of income filed with Revenue, was itself not provided to the assessee and in the absence thereof , it would have not been possible for the assessee to reconcile the differences between TDS as reported in AIR information per data base of income-tax department and as filed in return of income filed with Revenue. During the course of appellate proceedings before learned CIT(A), it was submitted by the assessee, as under:-
“No appropriate opportunity given to the appellant before passing the assessment order
3. Although the notice under section 143(2) was not served to the appellant within the time limit specified under section 143(2) of the Act, the learned DCIT (during the course of the hearing on 7 October 2013) requested the appellant to file the details requested in the notice issued under section 142(1) once the same is compiled.
4. Without prejudice to appellants plea that notice under section 143(2) selecting the case for scrutiny was not served on time and hence the assessment proceeding was time-barred, the appellant started compiling the details as requested by the learned DCIT in his notice dated 24 September 2013.
5. Vide letter dated 6 November 2013, the appellant filed part of the details requested in the notice and for the balance details, requested for some more time. For the balance details, the learned DCIT asked the appellant to file the details by end of December 2013.
6. On 18 December 2013, the staff of the learned DCIT called the authorised representative of the appellant to discuss the case. On the same day the authorised representative of the appellant appeared before the staff of the learned DCIT wherein the staff issued a fresh notice under section 142(1) dated 18 December 2013.
7. During the course of the hearing, the authorised representative of the appellant checked with the staff of the learned DCIT whether the appellant is required to file the details as per earlier notice (dated 24 September 2013) and the details as per the new notice dated 18 December The staff of the learned DCIT informed that the earlier notice dated 24 September 2013 can be ignored and asked the appellant to file the details as requested in the new notice dated 18 December on 26 December 2013, on the basis of which the assessment will be completed, Further , the staff of the DCIT also informed that hence forth the appellant has to file the details / discuss the case with him, and only at the time of finalising the assessment order, the learned DCIT will take the hearing.
8. Accordingly, the appellant compiled and filed around 65% of the details requested in the notice dated 18 December 2013 vide its letter dated 26 December 2013. The appellant submits that during the current year there was change in the Financial Controller and new Financial Controller has assumed the office only in the month of October 2013. Further, in the accounts team of the company, there were few changes and some of the old staff had left the organisation. Due to these problems, the appellant was taking little more time to compile the data requested by the learned DCIT. However, as stated above, 65% of the details requested in the notice dated 18 December 2013 had already been filed and request was made to give some more time for the balance details. The request of the appellant was accepted and the staff of the learned DCIT asked the appellant to file the balance details by 2 January 2014.
8. On 2 January 2014, when the representative of the appellant company called the staff of learned DCIT to check his availability, they were informed that he is on leave for 15-20 days because he was unwell and will discuss the case when he resumes the office.
9. On 21 January 2014, the authorised representative of the appellant again called the staff of the learned DCIT to check whether he has resumed office and were informed that he was still on leave and will take some more time to resume office.
10. On 6 February 2014, the authorised representative of the appellant once again called the staff of the learned DCIT to check his availability. The staff of the learned DCIT asked them to meet him on 7 February 2014 to discuss the case. Accordingly, the authorized representatives of the appellant visited the office of the learned DCIT on 7 February 2014 and were informed that the staff had still not resumed the office.
12. On the same day i.e. 7 February 2014, the appellant received an order dated 29 January 2014 passed under section 143(3) of the Act, wherein the total income of the appellant for the assessment year 2011-12 was assessed at Rs. 28,23,92,670 and a demand of Rs. 2,83,04,300 has been raised.
13. It is submitted that inspite of constant follow-up with the staff of the learned DCIT, the appellant was not provided with an opportunity to file necessary details / submission and represent its case before the learned DCIT before the assessment order was passed.”
9.2 Coming to the additions made by the AO , it was submitted by the assessee before learned CIT(A) with respect to first issue that there was a difference of Rs. 30,88,606/- in the TDS as was reflected in Form no. 26AS per income-tax department data base and as claimed by the assessee in return of income filed with the Revenue and based on the same additions to the income of the assessee were made by the AO to the tune of Rs. 3,08,86,060/- by holding that these are professional services and provisions of Section 194J are applicable which contemplate deduction of income-tax at source @10% and an amount of Rs. 3,08,86,060/- stood added to income of the assessee by the AO by extrapolating the income accordingly. The assessee claimed that it was not provided with AIR information by the AO during the course of assessment proceedings. The assessee also claimed before learned CIT(A) that proper and adequate opportunity of hearing was not provided by the AO during the course of assessment proceedings. The assessee submitted that the AO‟s observations that the assessee has not submitted explanation and reconciliation of TDS is not correct. The assessee prayed that these additions be deleted. The assessee also submitted that at the time of filing of return of income, it claimed credit of TDS based on original TDS certificates available with it even though income offered by the assessee was much more than the claim for credit of TDS. . The assessee submitted that it claimed TDS credit of Rs. 6,02,54,624/- based on original TDS certificates available with it at the time of filing of return of income but Revenue gave credit of TDS of Rs. 5,99,27,222/- while processing return of income u/s 143(1) of the 1961 Act and the assessee filed rectification application on 08.02.2013 and at that point of time TDS credit as is appearing in Form Number 26AS per data base of income tax department was Rs. 6,33,43,059/- which was claimed by assessee in rectification application , and against which entire income was already offered to tax by assessee while filing return of income originally with Department. It was explained that it is common phenomenon that TDS certificates are not available at the time of filing of return of income and credit of TDS is claimed based on available TDS certificates but later as and when these TDS certificates are received and are reflected in Form No. 26AS, the credit for said TDS are claimed. The assessee reiterated that it offered entire income to tax in return of income filed with Revenue and no income was concealed by the assessee from Revenue in its return of income filed with Revenue. The assessee also submitted chart of income earned/accrued to it , as detailed here under:-
