Revenue appeal partly allowed for AY 2011-2012. Tribunal upholds CIT(A)'s decisions on expenses, remands compensation issue.

The appeal filed by the revenue for the assessment year 2011-2012 was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s decisions on secondment expenses and bogus purchases while remanding the issue of compensation from customers back to the AO for fresh adjudication.

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Issues Involved:
1. Allowance of secondment expenses without TDS deduction.
2. Addition of Rs. 30 lakhs on estimated basis for compensation from customers.
3. Addition on account of bogus purchases.

Detailed Analysis:

1. Allowance of Secondment Expenses without TDS Deduction:
The revenue challenged the allowance of secondment expenses amounting to Rs. 2,23,52,923/- on which tax was not deducted at source. The Assessing Officer (AO) disallowed this expense under section 40(a)(ia) of the Income Tax Act, 1961, as the assessee did not obtain a certificate for non-deduction of TDS from the appropriate authority. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the expense, relying on the Bombay High Court's decision in CIT Vs. Kotak Securities Ltd. The Tribunal upheld the CIT(A)'s decision, citing the assessee's own case for the assessment year 2010-11, where a similar issue was decided in favor of the assessee. The Tribunal noted that the secondment agreement did not constitute "fees for technical services" and dismissed the revenue's appeal on this ground.

2. Addition of Rs. 30 Lakhs on Estimated Basis for Compensation from Customers:
The AO added Rs. 30 lakhs to the assessee's income on an estimated basis for compensation receivable from customers, arguing that the assessee, following the mercantile system of accounting, should account for compensation on an accrual basis. The CIT(A) deleted this addition. The Tribunal observed that this issue had been sent back to the AO for re-adjudication in the assessee's own case for the assessment year 2009-10. Following the precedent, the Tribunal remanded the issue back to the AO for fresh adjudication in accordance with the principles laid down in ITA No. 6832/Mum/2011. Thus, this ground was allowed for statistical purposes.

3. Addition on Account of Bogus Purchases:
The AO made an addition of Rs. 67,574/- to the income of the assessee on the grounds of obtaining bogus bills from M/s Viraj Enterprises without purchasing any raw material. The CIT(A) restricted the addition to 12.5% of the total amount of bogus purchases, following the Gujarat High Court's decision in CIT vs. Simit P. Seth, which held that only the profit element embedded in such purchases should be taxed. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not reject the sales shown by the assessee and that there was no justification for making a 100% addition of the bogus purchases. The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the revenue's appeal on this ground.

Conclusion:
The appeal filed by the revenue for the assessment year 2011-2012 was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s decisions on secondment expenses and bogus purchases while remanding the issue of compensation from customers back to the AO for fresh adjudication. The order was pronounced in the open court on 28th February, 2018.

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