2022 (8) TMI 955 - AT - Income Tax

Tribunal Grants Partial Relief in Tax Dispute

The Tribunal deleted the addition of Rs. 5,01,20,544 under Section 69C of the Income Tax Act, as the assessee satisfactorily explained the source of the ... Addition u/s 69C - payment of License Fee - explanation of the assessee that net sale after deducting License Fee paid was recorded in the books - HELD THAT:- In the present case, for the year under consideration the assessee instead of debiting the License Fee in the purchase account reduced it from the sales as such the impact on the profitability was NIL because the License Fee if not reduced from the sales then the figure of the sales account will increase with the same amount of the License Fee which was to be debited separately under the head License Fee in the Trading and P&L Account. When the AO has accepted the gross sales reflected by the assessee in its ledger account and also not doubted the License Fee shown in the ledger account, there was no occasion to deny the benefit of the payment of License Fee which was reduced from the gross sales by the assessee. In that view of the matter we do not see any justification on the part of the Ld. CIT(A) in sustaining the addition made by the AO. Accordingly the same is deleted. Disallowance on account of possible leakage in the revenue out of the various expenses - HELD THAT:- In the present case it is noticed that the AO disallowed the expenses under the head Wages, Salary, Welfare expenses, Travelling expenses, Misc expenses and Telephone expenses totaling to Rs. 1040710/-. He disallowed 1/5th of the said expenses. However no specific defect was pointed out to substantiate that a particular expense was incurred for non business purposes. CIT(A) also sustained the disallowance of Rs. 1,00,000/- without pointing out any specific instance where the expenses were not incurred for the business purposes. At the same time, some of the expenses were unvouched and in such type of cases personal use out of Travelling, Telephone, Welfare expenses and Misc. expenses cannot be ruled out. The assessee incurred the expenses under these heads amounting to Rs. 27200/-, Rs. 32150/-, Rs. 68520/- and Rs, 35940/- totaling to Rs. 1,63,810/-. We therefore in order to cover any possible leakage in the revenue and to meet the ends of justice deem it appropriate to sustain the disallowance of Rs. 50,000/- out of the aforesaid expenses. Accordingly the assessee will get further relief of Rs. 50,000/-. Appeal of assessee partly allowed. Issues Involved:1. Confirmation of addition under Section 69C of the Income Tax Act.2. Confirmation of addition under Section 40A(3) of the Income Tax Act.3. Disallowance of expenses without evidence.4. Addition due to a difference in balance sheet receivables/payables.5. Addition made without issuing a show cause notice and adequate opportunity of being heard.Issue-wise Detailed Analysis:Issue 1: Confirmation of Addition under Section 69C of the Income Tax ActThe primary issue was the confirmation of an addition of Rs. 5,01,20,544 under Section 69C of the Income Tax Act. The assessee had filed a return declaring an income of Rs. 6,70,650, which was processed under section 143(1) of the Act and later selected for scrutiny. During the assessment, the AO found that the assessee had paid Rs. 5,10,48,700 on account of License Fee and Excise Duty but had not debited these expenses in the P&L Account. The assessee claimed that the License Fee and Excise Duty were paid out of sales, and only net sales were credited to the trading and P&L Account. However, the AO considered this explanation as a made-up story and made an addition under Section 69C.On appeal, the CIT(A) observed discrepancies in the assessee's claim and upheld the AO's addition, stating that the assessee's explanation was not supported by documents. The CIT(A) noted that the assessee had initially shown gross sales of Rs. 10,49,84,800, which matched the P&L Account, contradicting the later claim of gross sales of Rs. 15,60,33,500. The CIT(A) concluded that the assessee's claim was an afterthought and sustained the addition of Rs. 5,01,20,544.The Tribunal, however, found that the assessee had furnished all relevant details, including sales and License Fee ledgers, and no discrepancies were pointed out by the AO. The Tribunal noted that the License Fee was reduced from the sales account, resulting in net sales being shown in the P&L Account. The Tribunal concluded that the addition under Section 69C was unjustified as the assessee had explained the source of the License Fee payment. Therefore, the Tribunal deleted the addition.Issue 2: Confirmation of Addition under Section 40A(3) of the Income Tax ActThis issue was not pressed by the assessee during the appeal, and therefore, no comments were made by the Tribunal.Issue 3: Disallowance of Expenses without EvidenceThe AO had disallowed Rs. 2,08,142 out of various expenses, including wages, salary, welfare, traveling, miscellaneous, and telephone expenses, on the grounds that the assessee failed to produce documentary evidence. The CIT(A) sustained a disallowance of Rs. 1,00,000, noting that the assessee did not offer to get the expenses verified during the appellate proceedings.The Tribunal observed that no specific defect was pointed out by the AO or CIT(A) to substantiate that the expenses were not incurred for business purposes. However, considering that some expenses were unvouched, the Tribunal deemed it appropriate to sustain a disallowance of Rs. 50,000 to cover any possible leakage in revenue. Thus, the assessee was given further relief of Rs. 50,000.Issue 4: Addition Due to Difference in Balance Sheet Receivables/PayablesThis issue was not pressed by the assessee during the appeal, and therefore, no comments were made by the Tribunal.Issue 5: Addition Made Without Issuing Show Cause Notice and Adequate Opportunity of Being HeardThis issue was not pressed by the assessee during the appeal, and therefore, no comments were made by the Tribunal.Conclusion:The Tribunal deleted the addition of Rs. 5,01,20,544 under Section 69C, finding the assessee's explanation satisfactory. It also reduced the disallowance of expenses from Rs. 1,00,000 to Rs. 50,000, providing partial relief to the assessee. The appeal was partly allowed.