2018 (1) TMI 1188 - AT - Income Tax

Tribunal partially allows appeal, deletes balance from total income, remands disallowance issue for fresh consideration.

The tribunal partly allowed the appeal, ordering the deletion of the addition of the outstanding balance of Rs. 34,90,058/- to the total income under ... Adding the outstanding balance of creditor to the total income - Held that:- The assessee’s payment for whatever reasons got struck overseas for services rendered to Oil & Gas industry and in order to protect its interest and in consistent with MOU with its agent, it withheld the corresponding payment of commission payable to its agent as it has not realised its payments from customers whose business this agent Badar Al Safran generated as claimed by the assessee. It was incumbent on the learned AO as well learned CIT(A) to have gone into greater scrutiny and examination to disprove the contentions of the assessee and merely making bald statement is not sufficient. Assessee has also produced details of court cases at Kuwait and correspondences with its overseas buyers/agents w.r.t. its efforts for making recovery etc to justify that these payments are still due from the customers albeit the same was produced before the tribunal for the first time. Revenue has not brought on record any incriminating material to support its stand despite having sufficient opportunity to had made necessary enquiries and verification at level of AO as well learned CIT(A) whose powers are coterminous with that of the AO which unfortunately the Revenue did not do so while the assessee placed all the facts before the authorities below. We do not find any justification in sustaining/confirming additions made by the AO/CIT(A) under the factual matrix of the case which we hereby ordered to be deleted. Addition u/s 14A - Held that:- There is no evidence on record that the assessee has not received any exempt dividend income during relevant previous year as also the taxability of dividend income receivable from foreign company namely Pyramid Engineering & Consulting Limited , UK in which assessee has claimed to have invested is also required to be gone through as these aspects are not been gone through by the authorities below. It is settled principle of law that tax can only be levied by or under the authority of law which is also the mandate of the Constitution of India under Article 365. Merely acquiescence to pay tax on the income which is not subjected to tax under the provisions of law will not make that income chargeable to tax which is certainly not the mandate of law. Thus, this matter need to be set aside and restored to the file of the AO for de-novo determination of the issue on merits in accordance with the law. Issues Involved:1. Addition of outstanding balance of creditor M/s Badar Al Safran to the total income.2. Disallowance under Section 14A of the Income-tax Act, 1961.Detailed Analysis:1. Addition of Outstanding Balance of Creditor M/s Badar Al Safran:The primary issue in this case was whether the outstanding balance of Rs. 34,90,058/- payable to M/s Badar Al Safran should be added to the total income of the assessee under Section 41(1) of the Income-tax Act, 1961. The assessee, an engineering and designing services company, had an outstanding payable to M/s Badar Al Safran for more than 1460 days. The AO treated this liability as ceased to exist due to the lack of proof of any request for payment clearance from the creditor, thus adding it to the income under cessation of liability.The assessee argued that the commission was payable to M/s Badar Al Safran based on the realization of sales proceeds from the customers procured through the agent. The total commission due was Rs. 1,31,61,824/-, out of which Rs. 96,71,766/- had been paid, leaving Rs. 34,90,058/- outstanding. The assessee contended that there was no remission or cessation of liability during the relevant assessment year, and the liability was still reflected in the books of accounts.The CIT(A) dismissed the appeal, stating that the MOU with M/s Badar Al Safran was not enforceable as it was not on stamp paper and not registered. The CIT(A) also noted the high commission rate and the lack of correspondence from the creditor demanding payment, concluding that the liability was not genuine.Upon appeal to the tribunal, it was observed that the MOU and ledger accounts were presented to the authorities, and the commission was payable on the realization of proceeds from debtors. The tribunal found that the revenue had not provided evidence to disprove the genuineness of the MOU or the commission liability. It was noted that the assessee acted in a manner consistent with commercial expediency by withholding the commission payment until the realization of proceeds. The tribunal ordered the deletion of the addition made by the AO and CIT(A).2. Disallowance under Section 14A:The second issue was the disallowance of Rs. 2,64,062/- under Section 14A of the Income-tax Act, 1961. The AO observed that the assessee had taken loans and invested in share application money and other investments that did not generate taxable income. The AO calculated the disallowance based on the average value of investments and total assets.The assessee admitted to the addition before the CIT(A) and did not pursue this ground of appeal, leading to the dismissal of the ground by the CIT(A).However, before the tribunal, the assessee argued that no exempt dividend income was received during the relevant year, citing the decisions of the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT and Joint Investments Private Ltd. v. CIT, which state that no disallowance should be made if no exempt income is earned.The tribunal noted that it was not clear from the orders of the authorities whether any exempt dividend income was received. The tribunal found that the matter required further examination to determine the quantum of exempt income and the taxability of dividend income from foreign investments. The tribunal set aside the matter and restored it to the AO for de-novo determination, ensuring proper opportunity for the assessee to present their case.Conclusion:The appeal of the assessee was partly allowed. The tribunal ordered the deletion of the addition of the outstanding balance of Rs. 34,90,058/- and remanded the issue of disallowance under Section 14A back to the AO for fresh consideration. The order was pronounced in the open court on 23.01.2018.