Cheil India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 6184/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7405 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL CHANDER SHARMA
• Assessee Lawyers: SALIL KAPOOR MS ANANYA KAPOOR
• Keywords: Business income; Additional evidence; Non-deduction of tax
• Section: 133(6); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.6184/DEL/2014 ASSESSMENT YEAR : 2010-11 CHEIL INDIA PVT. LTD. (FORMERLY KNOWN AS CHEIL COMMUNICATIONS INDIA PVT. LTD.), 2 ND FLOOR, BLOCK-C, VIPUL TECH SQUARE, SECTOR 43, GOLF COURSE ROAD, GURGAON. PAN: AACCC2299Q VS. DCIT, CIRCLE-3(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR, ADVOCATE, MS ANANYA KAPOOR, ADVOCATE & SHRI SANAT KAPOOR, ADVOCATE DEPARTMENT BY : SHRI SUNIL CHANDER SHARMA, CIT, DR DATE OF HEARING : 11.08.2016 DATE OF PRONOUNCEMENT : 17.08.2016 ORDER PER R.S. SYAL, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 20.10.2014 IN RELATION TO THE ASSESSM ENT YEAR 2010-11. ITA NO.6184/DEL/2014 2 2. CONCISE GROUNDS HAVE BEEN FILED BY THE ASSESSEE IN SUPERSESSION OF THE ORIGINAL GROUNDS TAKEN IN FORM NO. 36. THE LD. AR ARGUED ONLY THREE ISSUES. REST OF THE ISSUES TAKEN THROUGH OTHER GROU NDS ARE DISMISSED AS EITHER GENERAL OR NOT PRESSED. 3. THE FIRST ISSUE IS ABOUT THE CONFIRMATION OF A DDITION ON ACCOUNT OF NET PROFIT RATE. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ADVERTISEMENT, BRAND PRO MOTION AND OTHER RELATED ACTIVITIES LARGELY FOR THE SAMSUNG GROUP OF COMPANIES. THE ASSESSEE DECLARED PROFIT BEFORE TAX AMOUNTING TO RS .12.11 CRORE AND ODD ON ITS TURNOVER OF RS.34.70 CRORE AND ODD, GIVING N ET PROFIT RATE OF 35% ON THE TURNOVER. THE AO OBSERVED THAT IN THE IMMED IATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEE DECLARED NET PROFIT A T RS.10.47 CRORE ON ITS TURNOVER OF RS.27.57 CRORE, GIVING NP RATE OF 38%. CONSIDERING THE STEEP FALL OF ABOUT 3% IN THE NET PROFIT RATE, THE AO MADE ADDITION OF RS.1,04,10,944/- BY APPLYING 38% NET PROFIT RATE. THE LD. CIT(A) SUSTAINED THE ADDITION. THE ASSESSEE IS AGGRIEVED A GAINST THE SUSTENANCE OF THIS ADDITION. ITA NO.6184/DEL/2014 3 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ONLY B ASIS FOR MAKING AND SUSTAINING THE ADDITION OF RS.1.04 CRORE IS THE APP LICATION OF HIGHER NET PROFIT RATE OF 38%, BEING THE PROFIT RATE OF IMMEDI ATELY PRECEDING YEAR, AS AGAINST 35% DECLARED BY THE ASSESSEE FOR THE YEA R UNDER CONSIDERATION. THE AO HAS SIMPLY RECORDED IN THE ASSESSMENT ORDER THAT THE ASSESSEE DID NOT FURNISH ANY JUSTIFICATION FOR FALL IN NET P ROFIT RATE. AS AGAINST THIS, WE FIND THAT THE ASSESSEE DID GIVE EXPLANATION VIDE LETTER DATED 19.6.2012 ADDRESSED TO THE AO, WHOSE COPY IS AVAILABLE ON PAG E 106 OF THE PAPER BOOK. VIDE PARA 6 OF THIS LETTER, THE ASSESSEE ST ATED THAT DUE TO EXPANSION PLANS, THE OPERATING AND OTHER ADMINISTRA TIVE EXPENSES INCREASED MARGINALLY WHICH RESULTED INTO REDUCTION IN NET PROFIT RATE. THE ASSESSEE ALSO FILED A CHART BEFORE THE AO GIVIN G NET PROFIT RATE OF EARLIER YEARS, VIZ., 38% FOR THE AY 2009-10 AND 24. 80% FOR AY 2008- 09. IT WAS SUBMITTED THAT THE LOWER NET PROFIT RAT E OF 24.80% WAS ACCEPTED BY THE AO IN THE SCRUTINY ASSESSMENT MADE FOR THE AY 2008- 09. THUS, IT IS SEEN THAT THE NET PROFIT RATE IN TH E ASSESSEES LINE OF BUSINESS IS NOT CONSISTENT OVER THE YEARS. SINCE T HE AO HIMSELF HAS ITA NO.6184/DEL/2014 4 ACCEPTED NP RATE OF 24.80% FOR THE AY 2008-09, THER E CAN BE NO REASON TO MAKE ADDITION @ 3% ON ACCOUNT OF NET PROFIT RATE FOR THE YEAR UNDER CONSIDERATION SIMPLY ON THE GROUND THAT SUCH PROFIT RATE WAS LESS THAN 38% FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE AO HAS JUST MENTIONED THAT THERE IS MAJOR INCREASE IN VARIOUS H EADS OF EXPENSES, BUT, HE HAS NOT POINTED OUT AS TO HOW SUCH INCREASE WAS NOT COMMENSURATE WITH THE BUSINESS OR WAS NOT PROPERLY JUSTIFIED. TH ERE CANNOT BE ANY HARD AND FAST RULE OF INCURRING SIMILAR AMOUNT OF EXPENS ES OR EARNING A SIMILAR NET PROFIT RATE OVER THE YEARS. THERE SHOULD BE SO ME PLAUSIBLE REASONS FOR MAKING ADDITION ON ACCOUNT OF PROFIT RATE. SINC E THE AO DID NOT REJECT THE BOOKS OF THE ASSESSEE AND GAVE UNSUSTAIN ABLE REASONS FOR MAKING ADDITION @ 3% OF TURNOVER, WE ARE SATISFIED THAT THE LD. CIT(A), TOO, WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION ON SUCH FLIMSY GROUNDS. WE, THEREFORE, ORDER FOR THE DELETION OF THIS ADDIT ION. THIS ISSUE IS DECIDED IN THE ASSESSEES FAVOUR. 5. THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAIN ST THE CONFIRMATION OF DISALLOWANCE OF PAYMENT TO CERTAIN VENDORS. THE FACTS APROPOS THIS ITA NO.6184/DEL/2014 5 ISSUE ARE THAT THE ASSESSEE DECLARED RECEIPTS OF RS .34,70,31,473/- IN ITS PROFIT AND LOSS ACCOUNT AS AGAINST TOTAL RECEIPTS O F RS.123,07,65,261/- AS PER THE INFORMATION AVAILABLE IN FORM NO.26AS. THE AO OPINED THAT THE ASSESSEE HAD SHOWN RECEIPTS LOWER BY RS.88.37 CRORE , BEING THE DIFFERENTIAL AMOUNT BETWEEN RS.123.07 CRORE AND RS. 34.70 CRORE. IN THE ABSENCE OF THE ASSESSEE FILING COPY OF ACCOUNT OF T HE VENDORS TO WHOM PAYMENTS WERE MADE OR ANY CONFIRMATION/IDENTIFICATI ON NUMBERS SUCH AS PAN, ETC. AND THE ADDRESSES OF THE VENDORS, THE AO TREATED SHORT RECEIPTS DECLARED BY THE ASSESSEE AT RS.88.37 CRORE AS ITS BUSINESS INCOME. THE ASSESSEE FILED CERTAIN DETAILS BEFORE THE LD. CIT(A ). VIDE LETTER DATED 24.7.2014, THE LD. CIT(A) REQUIRED THE ASSESSEE TO GIVE COMPLETE DETAILS OF PAYMENTS MADE TO VENDORS ETC, WHICH WERE NOT INI TIALLY GIVEN. IN THE ABSENCE OF ANY RESPONSE, THE LD. CIT(A) AGAIN REQUI RED THE ASSESSEE TO FURNISH CURRENT ADDRESS OF 13 VENDORS `(PICKED UP O N SAMPLE BASIS) FOR THE PURPOSE OF VERIFICATION BY THE AO. THE AO VIDE HIS LETTER DATED 4.9.2014 INFORMED THAT THE NOTICES U/S 133(6) WERE ISSUED TO THE VENDORS AND GAVE THE STATUS AS UNDER:- ITA NO.6184/DEL/2014 6 AY 2010-11 S.NO. NAME OF THE VENDORS AS PER ASSESSEE AS PER CONFIRMATION 1. TLG INDIA LTD. 722522398 NO REPLY 2. BATES INDIA LTD. 142369639 NO REPLY 3. PLATINUM COMMUNICATION PVT. LTD. 134801473 42920246 4. ESPN SOFTWARE INDIA PVT. LTD. 70000000 RECEIVED BACK UNSERVED 5. ELECTROSPARK 58551808 NO REPLY 6. COMMUNIQUE MARKETING SOLUTIONS PVT. LTD. 55735946 NO REPLY 7. NEW COLOUR SCREEN PVT. LTD. 47933574 NO REPLY 8. TATA TELESERVICES LTD. 44168372 NO REPLY 9. LUSTRA PRINT PROCESS PVT. LTD. 41534580 - 10. SHARK DESIGN STUDIO PVT. LTD. 34542617 NO REPLY 11. NEXT STEP ENGINEERING PVT. LTD. 38973075 NO REP LY 12. PRIMESITE OUTDOOR ADVERTISING PVT. LTD. 34012655 - 13. KALPAKAARU PROJECTS PVT. LTD. 33328317 RECEIVED BACK UNSERVED 6. ON THE BASIS OF THE ABOVE CHART, THE LD. CIT(A) OBSERVED THAT NO CONFIRMATIONS WERE AT ALL RECEIVED FROM SIX PARTIES AND THREE PARTIES PARTLY CONFIRMED THE AMOUNTS. HE, THEREFORE, DREW A CHART OF CONFIRMATION/NON-CONFIRMATION AS FOLLOWS:- S.NO. NAME OF THE VENDORS PAYMENT MADE AS PER APPELLANT CONFIRMATION RECEIVED CONFIRMATION NOT RECEIVED REMARKS 1. TLG INDIA LTD. 722522398 718304016 42,18,382 THE UNCONFIRMED AMOUNT OF RS.42,18,382 TO BE DISALLOWED. 2. BATES INDIA LTD. 142369639 CONFIRMATION RECEIVED - CONFIRMATION RECEIVED. 3. PLATINUM COMMUNICATION PVT. LTD. 134801473 - CONFIRMATION NOT RECEIVED THE UNCONFIRMED AMOUNT OF RS.134801473 TO BE DISALLOWED. ITA NO.6184/DEL/2014 7 4. ESPN SOFTWARE INDIA PVT. LTD. 70000000 - CONFIRMATION NOT RECEIVED THE UNCONFIRMED AMOUNT OF RS.70000000 TO BE DISALLOWED. 5. ELECTROSPARK 58551808 - CONFIRMATION NOT RECEIVED THE UNCONFIRMED AMOUNT OF RS.58551808 TO BE DISALLOWED. 6. COMMUNIQUE MARKETING SOLUTIONS PVT. LTD. 55735946 - CONFIRMATION NOT RECEIVED. THE UNCONFIRMED AMOUNT OF RS.55735946 TO BE DISALLOWED. 7. NEW COLOUR SCREEN PVT. LTD. 47933574 3341390 44592184 THE UNCONFIRMED AMOUNT OF RS.44592184 TO BE DISALLOWED. 8. TATA TELESERVICES LTD. 44168372 - CONFIRMATION NOT RECEIVED. THE UNCONFIRMED AMOUNT OF RS.44168372/- TO BE DISALLOWED. 9. LUSTRA PRINT PROCESS PVT. LTD. 41534580 9829279 31705301 THE UNCONFIRMED AMOUNT OF RS.31705301 TO BE DISALLOWED. 10. SHARK DESIGN STUDIO PVT. LTD. 34542617 CONFIRMED - CONFIRMED 11. NEXT STEP ENGINEERING PVT. LTD. 38973075 - CONFIRMATION NOT RECEIVED. THE UNCONFIRMED AMOUNT OF RS.38073075 TO BE DISALLOWED ON ACCOUNT OF NON- CONFIRMATION. 12. PRIMESITE OUTDOOR ADVERTISING PVT. LTD. 34012655 CONFIRMED - CONFIRMED 13. KALPAKAARU PROJECTS PVT. LTD. 33328317 CONFIRMED - CONFIRMED. TOTAL 1458474454 962557244 482746541 ITA NO.6184/DEL/2014 8 7. THE LD. FIRST APPELLATE AUTHORITY OBSERVED THAT OUT OF TOTAL PAYMENTS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE TO THE AB OVE 13 PARTIES TOTALING RS.145.84 CRORE AND ODD, CONFIRMATIONS WER E RECEIVED FOR A SUM OF RS.96.25 CRORE, LEAVING THE UNCONFIRMED BALANCES OUT OF THE ALLEGED PAYMENTS TO THESE 13 PARTIES AT RS.48.27 CRORE. TH E LD. CIT(A) SUSTAINED ADDITION OF RS.48.27 CRORE OUT OF PAYMENTS CLAIMED TO HAVE BEEN MADE TO THESE 13 PARTIES. HE FURTHER NOTED THAT THE TOT AL PAYMENTS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE WERE TO THE TUNE OF RS.229.71 CRORE, OUT OF WHICH CONFIRMED TRANSACTIONS WERE ONLY RS.96.25 CRORE. HE COMPUTED THE REMAINING AMOUNT AT RS.133.45 CRORE. SINCE A S UM OF RS.48.25 CRORE REPRESENTING UNCONFIRMED PAYMENTS OUT OF 13 PARTIES WAS SUSTAINED AS DISALLOWANCE, THE LD. CIT(A) MADE DISALLOWANCE FOR A FURTHER SUM OF RS.42,59,03,111/-, REPRESENTING 50% OF THE REMAININ G SUM OF RS.85.18 CRORE. THAT IS HOW, THE TOTAL DISALLOWANCE WAS SUS TAINED AT RS.90.86 CRORE AND ODD, WHICH ADDITION HAS BEEN ASSAILED BY THE ASSESSEE BEFORE US. ITA NO.6184/DEL/2014 9 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS CARRYING ON TH E BUSINESS OF DOING ADVERTISEMENT MAINLY FOR SAMSUNG GROUP OF COMPANIES IN PRINT AND ELECTRONIC MEDIA. THIS WORK IS OUTSOURCED FROM VEND ORS. THE VENDORS RAISE BILL ON THE ASSESSEE FOR THE AMOUNT PAYABLE T O THEM AND THE ASSESSEE RAISES BILL FOR THE AMOUNT PAYABLE TO VEND ORS PLUS ITS REMUNERATION ON ITS CLIENTS. THE ASSESSEE DREW ITS PROFIT & LOSS ACCOUNT, A COPY OF WHICH IS AVAILABLE ON PAGE 64 OF THE PAPER BOOK, BY SHOWING ITS REMUNERATION AS REVENUE. IN OTHER WORD S, THE ASSESSEE DID NOT DECLARE THE RECEIPTS FROM ITS CLIENTS ON INCOME SIDE AND PAYMENTS TO VENDORS ON THE EXPENDITURE SIDE. IN OUR VIEW, THE MERE FACT OF THE ASSESSEE ADOPTING A PARTICULAR WAY OF PRESENTING IT S ACCOUNTS, CANNOT PER SE BE CONCLUSIVE OF UNDER-STATEMENT OF INCOME, WHICH N EEDS TO BE DETERMINED ON THE TOUCHSTONE OF THE FACTUAL AND LEG AL POSITION PREVAILING IN A CASE. ADVERTING TO THE FACTS OF THE INSTANT C ASE, WE FIND THAT THE ASSESSEE HAS BEEN CONSISTENTLY ADOPTING THIS APPROA CH OF DECLARING INCOME, WHICH HAS BEEN CONSTANTLY REJECTED BY THE A O BY MAKING SIMILAR ADDITIONS IN THE EARLIER YEARS. THIS ISSUE HAS BEEN THE SUBJECT ITA NO.6184/DEL/2014 10 MATTER OF ATTENTION BY THE TRIBUNAL IN EARLIER YEA RS, WHICH HAS RESTORED THE MATTER TO THE AO FOR PROCURING REQUISITE DETAIL S FROM THE VENDORS BY THE EXERCISE OF HIS POWERS AND, THEREAFTER, MAKING RECONCILIATION WITH THE TRANSACTIONS RECORDED IN THE ASSESSEES BOOKS OF AC COUNT BEFORE MAKING ANY ADDITION FOR DEFICIENCY OR OTHERWISE. A COPY OF THE TRIBUNAL ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, NAME LY, 2009-10 IS AVAILABLE ON PAGE 93 OF THE PAPER BOOK. AS THE FAC TS AND CIRCUMSTANCES OF THE INSTANT YEAR ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF THE AO FO R DECIDING THIS ISSUE AFRESH AFTER SEEKING DETAILS FROM THE ASSESSEE AND VENDORS AND, THEREAFTER, RECONCILING THE POSITION. IF THE PAYME NTS ARE PROVED TO HAVE BEEN GENUINELY MADE BY THE ASSESSEE TO THE VENDORS, THEN, OF COURSE, NO ADDITION CAN BE MADE TO THAT EXTENT. IF HOWEVER, T HE PAYMENTS ARE FOUND TO BE NOT GENUINELY MADE, THEN SUCH ALLEGED PAYMENT S WOULD QUALIFY FOR ADDITION. ITA NO.6184/DEL/2014 11 9. BEFORE PARTING WITH THIS ISSUE, WE WOULD LIKE TO DEAL WITH THE CONTENTION OF THE LD. AR THAT THE RESTORATION SHOUL D BE CONFINED ONLY TO RS.48.27 CRORE, BEING THE AMOUNT FOR WHICH CONFIRMA TIONS WERE NOT RECEIVED OUT OF 13 PARTIES AND NO RESTORATION SHOUL D BE MADE IN RESPECT OF THE REMAINING AMOUNT BECAUSE THE LD. CIT(A) DID NOT SPECIFICALLY CAUSE THESE VENDORS TO BE INVESTIGATED. WE ARE UNA BLE TO ACCEPT THIS CONTENTION FOR THE OBVIOUS REASON THAT THE ASSESSEE DID NOT FURNISH COMPLETE DETAILS BEFORE THE AO AT THE ASSESSMENT ST AGE, WITH THE RESULT THE REQUISITE INVESTIGATION COULD NOT BE DONE. THE LD. CIT(A) STARTED INVESTIGATION AT THE INSTANCE OF THE ASSESSEE AND F IRSTLY REQUIRED THE COMPLETE DETAILS WHICH WERE NOT FILED AND THEN SOUG HT CONFIRMATIONS FROM 13 PARTIES ON A RANDOM/SAMPLE BASIS. THIS DO ES NOT MEAN THAT THE PAYMENTS MADE TO VENDORS QUA THE REMAINING TRANSACTIONS WERE FOUND TO BE GENUINE BY THE AO OR THE LD. CIT(A). SINCE THE DETAILS CONCERNING THE REMAINING PARTIES WERE NEVER MADE AVAILABLE TO THE AO, THEIR GENUINENESS CANNOT BE ACCEPTED UNLESS THE VERIFICAT ION IS MADE BY THE AO ON SUPPLY OF SUCH DETAILS BY THE ASSESSEE. WE, THEREFORE, DIRECT THAT THE ENTIRE ADDITION OF RS.90.86 CRORE WILL BE THE S UBJECT MATTER OF ITA NO.6184/DEL/2014 12 EXAMINATION BY THE AO IN FRESH PROCEEDINGS AND SUCH EXAMINATION WILL NOT BE RESTRICTED TO A SUM OF RS.48.27 CRORE. NEED LESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F HEARING AND WILL BE OBLIGED TO FURNISH NECESSARY DETAILS AS CALLED FOR BY THE AO TO SATISFY HIMSELF AS TO THE GENUINENESS OF THE VENDOR PAYMENT S. 10. THE LAST ISSUE IS ABOUT THE ENHANCEMENT MADE BY THE LD. CIT(A) BY MAKING DISALLOWANCE OF RS.2,85,34,862/- U/S 40(A)(I A) OF THE ACT FOR PAYMENTS MADE WITHOUT DEDUCTION OF TAX AT SOURCE. 11. THE LD. CIT(A) OBSERVED FROM THE DETAILS FILED BY THE ASSESSEE THAT CERTAIN PAYMENTS WERE MADE TO PARTIES/THIRD PARTY V ENDORS WITHOUT DEDUCTION OF TAX AT SOURCE. A SHOW CAUSE LETTER DA TED 24.7.2014 WAS ISSUED ASKING THE ASSESSEE TO GIVE DETAILS OF VARIO US PAYMENTS MADE WITHOUT TAX WITHHOLDING. IN THE ABSENCE OF ANY DET AILS FORTHCOMING FROM THE SIDE OF THE ASSESSEE, THE LD. CIT(A) SENT A REM INDER DATED 5.8.2014 AND, THEREAFTER, ONE MORE LETTER DATED 21.8.2014 RE QUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOWANCE U/S 40(A)(IA) BE NOT MADE ON PAYMENTS MADE TO THIRD PARTIES WITHOUT DEDUCTION OF TAX AT SOURCE. THE ITA NO.6184/DEL/2014 13 ASSESSEE FILED SUBMISSIONS ON 22.8.2014. CONSIDERI NG THE DETAILS FILED BY THE ASSESSEE, THE LD. CIT(A) DISALLOWED A SUM OF RS.2,85,34,682/-/- (RS.2,31,000/-, BEING PAYMENT TO PRINT/ELECTRONIC MEDIA; RS.97,45,288/-, BEING NON-DEDUCTION DUE TO LOWER WITHHOLDING CERTIF ICATES FURNISHED BY VENDORS; RS.64,92,390/-, BEING PAYMENTS FOR PURCHAS E OF MATERIAL; RS.1,20,49,546/-, BEING REIMBURSEMENT OF EXPENSES P AID TO EMPLOYEES/VENDORS; AND RS.16,638/-, BEING EXPENSES BELOW THRESHOLD LIMIT) U/S 40(A)(IA) ON ACCOUNT OF NON-DEDUCTION O F TAX AT SOURCE. THE ASSESSEE IS AGGRIEVED AGAINST THE MAKING OF THIS EN HANCEMENT BY THE LD. CIT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, THE LD. AR CONT ENDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN MAKING ENHANCEMENT IN T HE SHAPE OF DISALLOWANCE U/S 40(A)(IA) BY DISCOVERING A NEW SOU RCE OF INCOME, WHICH WAS NOT SUBJECT MATTER OF EXAMINATION BY THE AO. F OR THIS PROPOSITION, HE RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CIT VS. SARDARI LAL & CO. (2001) 251 ITR 864 (DEL (FB). IN OUR CONSIDERED ITA NO.6184/DEL/2014 14 OPINION, THIS JUDGMENT DOES NOT ADVANCE THE CASE OF THE ASSESSEE BECAUSE THE POWERS OF THE FIRST APPELLATE AUTHORITY TO MAKE ENHANCEMENT ARE CLIPPED ONLY ON DISCOVERING A NEW SOURCE OF INCOME NOT CONSIDERED BY THE AO IN THE ORDER APPEALED AGAINST. AS AGAINST T HIS RATIO DECIDENDI OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT, WE FI ND THAT THE FACTUAL POSITION OBTAINING IN THE INSTANT CASE IS ABSOLUTEL Y DIFFERENT. THE LD. CIT(A) HAS MADE ENHANCEMENT U/S 40(A)(IA) IN RESPEC T OF NON-DEDUCTION OF TAX AT SOURCE FROM PAYMENTS MADE BY THE ASSESSEE TO VARIOUS VENDORS. THE AO IN HIS ORDER HAS MADE DISALLOWANCE OF RS.88. 37 CRORE ON ACCOUNT OF VENDOR PAYMENTS. AS THE DISALLOWANCE U/S 40(A)(IA) IS CONFINED TO VENDOR PAYMENTS MADE BY THE ASSESSEE, W HICH IS AN ITEM APPROPRIATELY CONSIDERED BY THE AO, IT CANNOT BE S AID THAT THE LD. CIT(A) MADE ENHANCEMENT BY DISCOVERING A NEW SOURCE OF INCOME. IT IS RATHER ANOTHER ASPECT OF THE SAME MATTER. THIS IS S UBJECT TO A RIDER THAT THERE CANNOT BE DOUBLE DISALLOWANCE OF SIMILAR AMOU NT, FIRSTLY BECAUSE OF UNPROVED PAYMENTS AND THEN DUE TO APPLICATION OF SECTION 40(A)(IA) OF THE ACT. THE FACTS OF THE INSTANT CASE JUSTIFYING T HE ENHANCEMENT BY THE LD. CIT(A) ARE MORE APPROPRIATELY COVERED BY A LATE R JUDGMENT OF THE ITA NO.6184/DEL/2014 15 HONBLE DELHI HIGH COURT IN GURINDER MOHAN SINGH NINDRAJOG VS. CIT 348 ITR 170 (DEL) IN WHICH THEIR LORDSHIPS HAVE HELD THAT WHERE THE AO DEALT WITH THE ISSUE IN THE ASSESSMENT AND WAS THE SUBJECT MATTER OF APPEAL, THE CIT(A) WAS EMPOWERED TO ENHANCE AN ASSE SSMENT QUA THE NET ASSESSED SUM U/S 251(1)(A). IN VIEW OF THE FOR EGOING DISCUSSION, WE ARE SATISFIED THAT THIS LEGAL ARGUMENT TENDERED BY THE LD. AR HAS NO FORCE AND IS HENCE JETTISONED. 13. NOW, WE TAKE UP THE DISALLOWANCES MADE BY THE L D. CIT(A) IN SERIATIM. FIRST COMPONENT OF DISALLOWANCE U/S 40(A )(IA) IS A SUM OF RS.2.31 CRORE, BEING THE PAYMENTS MADE TO PRINT/ELE CTRONIC MEDIA. THE ASSESSEE PAID THIS SUM TO KOREAN ASSOCIATION IN IND IA. ON PERUSAL OF DETAILS FILED BY THE ASSESSEE, IT WAS OBSERVED BY T HE LD. CIT(A) THAT THE ASSESSEE SUBMITTED ONLY TWO BILLS OF RS.27,000/- EA CH WHICH WERE IN THE NAME OF CHEIL WORLD WIDE, BEING A SEPARATE ENTITY. FOR THE REMAINING SUM OF RS.1.77 LAC, THE ASSESSEE DID NOT FURNISH AN Y EVIDENCE. THAT IS HOW THE LD. CIT(A) MADE DISALLOWANCE OF RS.21.31 LA C. ITA NO.6184/DEL/2014 16 14. THE ASSESSEE HAS FILED A REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE, BEING, TWO BILLS OF RS.27,000/- EACH DRA WN IN THE NAME OF THE ASSESSEE, WHICH WERE ORIGINALLY IN THE NAME OF CHEI L WORLD WIDE. THE LD. AR SUBMITTED THAT THE NEW BILLS COULD NOT BE FI LED BEFORE THE LD. CIT(A) AS THESE WERE NOT AVAILABLE AT THE MATERIAL TIME AND THE ASSESSEE COULD MANAGE TO OBTAIN THE SAME ONLY LATER ON. AS REGARDS THE REMAINING SUM OF RS.1.77 LAC, THE LD. AR SUBMITTED THAT THE EVIDENCE WHICH WAS EARLIER NOT AVAILABLE NOW CAN BE PRODUCED FOR EXAMINATION. IT WAS, THEREFORE, PRAYED THAT THIS ISSUE MAY BE RESTO RED FOR A FRESH CONSIDERATION. THE LD. DR SUBMITTED THAT IT WOULD BE MORE APPROPRIATE IF THE RESTORATION IS MADE TO THE AO INSTEAD OF THE LD. CIT(A), TO WHICH THE LD. AR DID NOT OBJECT. SINCE THE DETAILS OF RS .2.91 LAC WERE NOT AVAILABLE WITH THE ASSESSEE AT THE TIME WHEN THE LD . CIT(A) MADE ENHANCEMENT, IN OUR CONSIDERED OPINION, THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THIS ISSUE IS RESTORED TO THE FILE OF AO FOR A FRESH CONSIDERATION AND DECISION. WE ORDER ACCORDINGLY. ITA NO.6184/DEL/2014 17 15. SECOND ITEM OF DISALLOWANCE IS A SUM OF RS.97,4 5,288/-, BEING NON-DEDUCTION OF TAX DUE TO LOWER WITHHOLDING CERTI FICATE FURNISHED BY THE VENDORS. THE LD. CIT(A) NOTICED THAT THE ASSES SEE CLAIMED TO HAVE MADE PAYMENTS TO PARTIES ON WHICH TAX WAS NOT DEDUC TED DUE TO LOWER/NIL WITHHOLDING CERTIFICATES, THE DETAILS OF WHICH WERE FURNISHED. ON PERUSAL OF ANNEXURE 2 AND 7 SUBMITTED BY THE ASS ESSEE VIDE LETTER DATED 5.9.2014, THE LD. CIT(A) OBSERVED THAT THE AS SESSEE SHOWED TO HAVE MADE THE FOLLOWING PAYMENTS:- (I) TLG INDIA PVT. LTD. (LEO BURNETT) - RS.97,45,28 8/- (II) TLG INDIA PVT. LTD. - RS.71,55,16,097/- 16. THE LD. CIT(A) NOTICED THAT THE LOWER/NIL WITHH OLDING CERTIFICATES FOR THE RELEVANT YEAR WERE ONLY IN THE NAME OF TLG INDIA PVT. LTD. SINCE NO SUCH CERTIFICATE EXEMPTING PAYMENTS TO TLG INDIA PVT. LTD. (LEO BURNETT) AMOUNTING TO RS.97.45 LAC WAS AVAILABLE, T HE LD. CIT(A) MADE DISALLOWANCE U/S 40(A)(IA) OF THE ACT FOR THE PAYME NTS MADE TO THIS CONCERN. 17. THE LD. AR CONTENDED THAT TLG INDIA PVT. LTD. A ND TLG INDIA PVT. LTD. (LEO BURNETT) ARE ONE AND THE SAME ENTITY HAVI NG ONLY ONE ITA NO.6184/DEL/2014 18 PERMANENT ACCOUNT NUMBER. IT WAS SUBMITTED THAT TH E CERTIFICATE OF LOWER/NIL WITHHOLDING WAS APPLICABLE IN RESPECT OF THE PAYMENTS AMOUNTING TO RS.97.45 LAC AS WELL. ON A PERUSAL OF DETAILS FURNISHED BEFORE THE LD. CIT(A), A COPY OF WHICH IS AVAILABLE ON PAGE 377 OF THE PAPER BOOK, WE FIND THAT THE ASSESSEE, IN FACT, MAD E CLASSIFICATION OF THE PAYMENTS TO THE ENTITIES AS RECORDED BY THE LD. CIT (A). SINCE THE ASSESSEE ITSELF HAD SHOWN TLG INDIA PVT. LTD. AND T LG INDIA PVT. LTD. (LEO BURNETT) AS SEPARATE ENTITIES, THE LD. CIT(A) COULD NOT HAVE PRESUMED THE SAME TO BE ONE ENTITY ALONE. HOWEVER, CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CAS E, WE ARE SATISFIED THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNE D ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO FOR VERIFY ING THE ASSESSEES CONTENTION AND, THEN, DECIDING IT ACCORDINGLY. BOT H THE SIDES WERE UNANIMOUS IN THEIR ARGUMENT THAT THIS ISSUE MAY BE RESTORED FOR FRESH EXAMINATION BY THE AO. 18. THE THIRD COMPONENT OF DISALLOWANCE MADE BY THE LD. CIT(A) U/S 40(A)(IA) IS A SUM OF RS.64,92,390/-, BEING PAYMENT S MADE TO CERTAIN ITA NO.6184/DEL/2014 19 VENDORS ON WHICH NO TAX AT SOURCE WAS DEDUCTED U/S 194C OF THE ACT. THE LD. CIT(A) NOTICED THAT THE ASSESSEE DID NOT DE DUCT TAX AT SOURCE ON PAYMENTS AMOUNTING TO RS.114,94,919/- AS SUCH PAYME NTS, IN HIS OPINION, FELL WITHIN THE DEFINITION OF WORK AS P ROVIDED IN SECTION 194C OF THE ACT. ON A SAMPLE BASIS, HE ELABORATED FEW I NSTANCES AS GIVEN IN ANNEXURE 8, SUBMITTED BY THE ASSESSEE, AS UNDER:- VOUCHER NUMBER & DATE PARTY INV. AMOUNT REMARKS BDM/2009-10/020 DATED 02.09.2009 DESIGN MATRIX 6,94,820 BILL SHOWS SERVICE TAX @ 4.1 2% FOR SUPPLY OF FURNITURE & FIXTURE. THERE IS NO SERVICE TAX FOR PURCHASE OF FURNITURE BUT ONLY VAT. IF SERVICE TAX IS BEING PAID THEN IT PROVES THAT ELEMENT OF LABOUR IS INVOLVED. MIPL/37/09-10 DATED 21.05.2009 MAGNUM INTERIORS PVT. LTD. 1,49,410/- THE BILL IS FOR DISMANTLING OF EXISTING FIXTURES/INSTALLATION EXPENSE WHICH CLEARLY INVOLVE USE OF LABOUR. 797 DATED 06.02.2010 RETAIL FIXTURES AND FURNITURE 207009 ALL THESE INVOLVED PACKING CHARGES/ASSEMBLING CHARGES 825 DATED 19.02.2010 RETAIL FIXTURES AND FURNITURE 41402 826 DATED 19.02.2010 RETAIL FIXTURES AND FURNITURE 41402 801 DATED 06.02.2010 RETAIL FIXTURES AND FURNITURE 41402 849 DATED 03.03.2010 RETAIL FIXTURES AND FURNITURE 162801 802 DATED 06.02.2010 RETAIL FIXTURES AND FURNITURE 41095 758 DATED 03.12.2009 RETAIL FIXTURES AND FURNITURE 110520 TOTAL 1489861 ITA NO.6184/DEL/2014 20 19. ON A PERUSAL OF THE ABOVE CHART, THE LD. CIT(A) HELD THAT MOST OF THE PAYMENTS DID NOT QUALIFY AS TRANSACTIONS OF SAL E, BUT INVOLVED USE OF LABOUR FOR PACKING, ASSEMBLING AND DISMANTLING. HE , THEREFORE, MADE DISALLOWANCE OF RS.14,89,867/-, BEING THE AMOUNT DI SCUSSED ABOVE AND FURTHER DISALLOWED 50% OF THE REMAINING AMOUNT OF R S.100,05,058/- (RS.114,94,919/- MINUS RS.14,89,861/). THIS RESUL TED INTO DISALLOWANCE OF RS.64,92,390/- U/S 40(A)(IA) OF THE ACT. 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT THE LD. CIT(A) MADE THE DISALLOWANCE AS, IN HIS OPINION, THESE PAYMENTS WERE MADE WITHOU T DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. THE LD. AR CONTENDED T HAT THE LD. CIT(A) DID NOT EXAMINE THE DETAILS PROPERLY INASMUCH AS TH E QUID PRO QUO FOR THE CONSIDERATION PAID DID NOT QUALIFY AS WORK IN ALL THE CASES. THIS CONTENTION HAS NOT BEEN REFUTED BY THE LD. DR. WE A RE SATISFIED THAT THIS ISSUE HAS NOT BEEN PROPERLY EXAMINED. AND THE DISAL LOWANCE HAS BEEN MADE U/S 40(A)(IA). ACCEDING TO THE REQUEST FROM B OTH THE SIDES, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT TH E MATTER TO THE FILE OF ITA NO.6184/DEL/2014 21 AO FOR A DE NOVO ADJUDICATION OF THIS ISSUE. THE LD. ARS ARGUMENT THAT THE RESTORATION SHOULD BE MADE ONLY FOR THE DISALLO WANCE TO THE TUNE OF RS.14,89,861/- AND NOT FOR THE 50% OF THE REMAINING AMOUNT, IS NOT ACCEPTABLE IN VIEW OF THE REASONS GIVEN BY US WHILE DEALING WITH THE SECOND ISSUE. WE, THEREFORE, DIRECT A FRESH EXAMIN ATION OF THE DISALLOWANCE MADE BY THE LD. CIT(A) AT RS.64,92,390 /- AT THE AOS END. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF HEARING BY THE AO. 21. NEXT ITEM OF DISALLOWANCE IS A SUM OF RS.120,49 ,546/-, BEING REIMBURSEMENT OF EXPENSE PAID TO EMPLOYEES/VENDORS. THE ASSESSEE PAID A SUM OF RS.1.20 CRORE AS REIMBURSEMENT OF COS TS INCURRED BY EMPLOYEES ON ITS BEHALF. THE LD. CIT(A) OBSERVED T HAT THE ASSESSEE DID GIVE A DETAILED LIST OF EMPLOYEES AND DESCRIPTION O F COSTS INCURRED. SINCE THE EXPENDITURE SHOWN AGAINST EACH EMPLOYEE WAS RUN NING INTO LACS OF RUPEES, THE LD. CIT(A) REQUIRED THE ASSESSEE TO FUR NISH EVIDENCE LIKE BANK STATEMENT OF EMPLOYEES TO PROVE THAT THESE EXP ENSES WERE ACTUALLY ITA NO.6184/DEL/2014 22 INCURRED BY THEM. IN THE ABSENCE OF THE SAME, THE LD. CIT(A) MADE DISALLOWANCE OF RS.1.20 CRORE U/S 40(A)(IA) OF THE ACT. 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. DETAILS OF REIMBURSEMENT OF EX PENSES IS AVAILABLE ON PAGE 491 TO 522 OF THE PAPER BOOK. THIS IS A DATE- WISE CHART GIVING EMPLOYEES NAME INCURRING THE EXPENSES, THEN, THE D ESCRIPTION OF THE EXPENSE AND, THEN, THE AMOUNT. NATURE OF EXPENSES AS GIVEN ON THESE PAGES VARIES FROM STAFF ENTERTAINMENT TO CAR PARKIN G, MOBILE EXPENSES, DRIVERS SALARIES, TRAVELLING EXPENSES, CRICKET MAT CH FEE, STATIONERY, SNACKS, ENTERTAINMENT, MEDICAL REIMBURSEMENT, TELEP HONE REIMBURSEMENT AND PETROL BILLS ETC. THESE ARE THE AMOUNTS INCURRED BY THE EMPLOYEES, BUT, REIMBURSED BY THE ASSESSEE. A P ERUSAL OF THE DESCRIPTION OF EXPENSES INDICATES THAT THESE ARE OT HERWISE OF REVENUE NATURE NOT REQUIRING ANY DEDUCTION OF TAX AT SOURCE UNDER THE RELEVANT PROVISIONS OF THE ACT. THE LD. CIT(A) HAS MADE DIS ALLOWANCE BY NOTICING THAT THE PAYMENTS WERE RUNNING INTO LACS W HILE THE ASSESSEE COULD NOT FILE ANY EVIDENCE LIKE BANK STATEMENT OF EMPLOYEES TO PROVE ITA NO.6184/DEL/2014 23 THAT THESE EXPENSES WERE ACTUALLY INCURRED. THAT IS HOW, HE ENDED UP MAKING A DISALLOWANCE U/S 40(A)(IA) AMOUNTING TO RS .1.20 CRORE. IN OUR CONSIDERED OPINION, THERE IS A MARKED DIFFERENCE BE TWEEN AN ADDITION MADE BY THE AO WHILE FINALIZING THE ASSESSMENT AND ENHANCEMENT MADE BY THE LD. CIT(A). WHEREAS IT IS OPEN TO THE AO TO EXAMINE ANY ISSUE OR ANY ASPECT CONCERNING THE ASSESSMENT, THE POWER OF THE CIT(A) IN MAKING ENHANCEMENT IS RESTRICTED TO THE NOTICE OF E NHANCEMENT. AS THE LD. CIT(A) IN THE INSTANT CASE ISSUED NOTICE FOR EN HANCEMENT ON ACCOUNT OF DISALLOWANCE FOR NON-DEDUCTION OF TAX AT SOURCE, HE OUGHT TO HAVE CONFINED HIMSELF TO THE DISALLOWANCE U/S 40(A)(IA). IT IS NOT OPEN TO THE CIT(A) TO ISSUE ENHANCEMENT NOTICE ON ONE GROUND AN D MAKE ACTUAL ENHANCEMENT ON ANOTHER. REVERTING TO THE FACTS, WE FIND THAT THE LD. CIT(A) ISSUED NOTICE OF ENHANCEMENT FOR DISALLOWAN CE U/S 40(A)(IA) AND HAS ALSO, IN FACT, MADE THIS DISALLOWANCE BY MENTIO NING AMOUNT OF RS.120,49,546/- IS HENCE DISALLOWED U/S 40(A)(IA). THERE IS A PRELIMINARY PRESUMPTION IN MAKING DISALLOWANCE U/S 40(A)(IA) THAT THE EXPENSES WERE GENUINELY INCURRED BUT THERE WAS FAIL URE ON THE PART OF THE ASSESSEE IN MAKING A PROPER DEDUCTION OF TAX AT SOU RCE. IF AN EXPENSE ITA NO.6184/DEL/2014 24 ITSELF IS BOGUS OR NON-GENUINE, THE SAME IS DISALLO WABLE AT THE THRESHOLD, AND THERE CAN BE NO QUESTION OF APPLICATION OF SECT ION 40(A)(IA) OF THE ACT. SINCE, IN THE INSTANT CASE, THE LD. CIT(A) HA S TAKEN RECOURSE TO THE POWER OF ENHANCEMENT ON THE GROUND THAT THE AMOUNTS WERE DISALLOWABLE U/S 40(A)(IA), HE WAS SUPPOSED TO CON FINE HIMSELF TO THAT SCORE RATHER THAN TRAVELLING BEYOND IN EXAMINING TH E VERY DEDUCTIBILITY OR OTHERWISE OF SUCH EXPENSES. ON GOING THROUGH TH E DETAILS OF SUCH EXPENSES, IT TRANSPIRES THAT THESE ARE PAYMENTS OF REVENUE NATURE NOT REQUIRING ANY DEDUCTION OF TAX AT SOURCE UNDER THE RELEVANT PROVISIONS. THE LD. DR ALSO COULD NOT POINT OUT THE APPLICABILI TY OF ANY PARTICULAR SECTION REQUIRING DEDUCTION OF TAX AT SOURCE FROM A NY OF SUCH PAYMENTS. UNDER THESE CIRCUMSTANCES, WE CANNOT SUSTAIN THE DI SALLOWANCE OF RS.1.20 CRORE U/S 40(A)(IA) OF THE ACT. THE SAME I S, THEREFORE, DELETED. 23. THE LAST COMPONENT OF THIS DISALLOWANCE IS A SU M OF RS.16,638/-, BEING `EXPENSE BELOW THRESHOLD LIMIT. WITHOUT GOI NG DEEP INTO THE DETAILS, IT IS FOUND THAT THE ASSESSEE MADE PAYMEN T OF RS.16,638/- IN TOTAL TO TWO PARTIES WHICH IS LESS THAN THE PRESCRI BED LIMIT OF RS.20,000/- ITA NO.6184/DEL/2014 25 U/S 194C REQUIRING ANY DEDUCTION OF TAX AT SOURCE. WE, THEREFORE, HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF THIS SUM. THE SAME IS, THEREFORE, DELETED. 24. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.08.201 6. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 17 TH AUGUST, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.