TaxTMI 
TaxTMI 
2012 (9) TMI 394
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....filed before him to which the assessee enclosed copies of the relevant impounded ledger pages were enclosed, which go to show that the assessee's claim was not an afterthought to reduce its receipts. 4. Like wise, the learned CIT(A) was not correct in stating that not a single entry of amount has been reconciled as a result of the arguments of the assessee when the first appellate authority reproduced para 3 of assessee's letter dated 2-11-2010 filed before him to which' were enclosed the relevant pages of impounded ledger to substantiate its claim that such expenses to the tune of Rs. 12,90,140 were incurred towards advertisement and that they were not inflated expenses. 5. The learned CIT(A) was not correct in stating in para 7.7 of his order that the firm of M/s. Pace Media Mercantile Co. has not filed its return of income, when copy of such return was filed before the A.O. and the CIT(A) perused the assessment record. 6. The learned CIT(A) was not justified in observing that the stories and explanations given by the appellant were wholly unsubstantiated, especially when he himself reproduced the relevant paras of assessee's letter dt. 2-11-2010 filed before him to which lett....
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....ial 2000-01. During the course of survey proceedings it was found that the gross receipts were shown at Rs. 1,92,58,513 in the books for the financial year 2000-01. Thus there is a suppression of receipts to the tune of Rs. 29,83,155. Please explain the discrepancy? A. These receipts to the tune of Rs. 29,83,155 are the receipts from various franchise centres which is not Included In the total gross receipts shown in the return of income for the A. Y. 2001-02. Q. No: 21. On perusal of the audited balance sheet and P & L account filed along with the return of income for the A. Y. 2001-02, advertisement expenses were claimed to the tune of Rs. 44,00,296. On perusal of the ledger folio No. 152 the advertisement expenses are reflected to the tune of Rs. 31,10,150 only. Thus Advertisement expenses were claimed at Rs. 13 lakhs more thereby reducing the assessee company's profit. Please explain the same? A: Our actual expenditure towards advertisement expenditure is correctly at Rs. 31,10,150. I have seen the ledger account. Yes, I have shown an amount of Rs. 12,90,146 as excess expenditure towards advertisement expenditure to reduce the income. 6. In view of the above discrepancies f....
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....res and their addresses. There was no agreement for giving back certain share to such centres. c) With regard to advertisement expenses claimed to have been made to Pace Media and Mercantile Services, there was no supporting evidence. d) Though several opportunities were allowed to furnish evidence in support of assessee's claim of reconciliation of gross receipts and advertisement vide its letter dated 07.02.2002, there was no compliance from the assessee." 4. The Assessing Officer added the two discrepancies in the original assessment order since the assessee was not able to reconcile the same. Giving credit for the amount disclosed in the return of income i.e., Rs. 20 lakhs, a net addition of Rs. 22,73,301 was made. The CIT(A) confirmed the addition while the ITAT, as already mentioned remanded the file back to the Assessing Officer for fresh assessment order. In the impugned order, the Assessing Officer once again repeated the additions after giving fresh opportunities to the assessee. The following reasons were given: "15. The assessee had failed to produce proper evidence in support of its claim that advertisement expenses were paid to M/s. Pace Media and Mercantile Servi....
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....ide Folio No. 38 (General Ledger No. 2) in credit: 1,92,58,513 Add: Sundry Debtors (Receivables from Franchisee) Journal Voucher No. 126 2,62,380 Less: Refundable Security Deposit received JV No. 153 2,05,000 Less: Centre Share Folio No. 300 in debit balance 30,40,539 Gross receipts as per the P&L Account 1,62,75,354 7. The AR submitted that the manner of business operations of the assessee company is that it imparts computer education to students of various durations and for this purpose, the assessee company appoints various Franchisee Centres in different towns and cities and in different localities, spread over the southern states. As the franchisor, it makes available the course material, conducts and imparts coaching to various students of different types of courses, conducts examinations, and issues certificates to the successful candidates. For all these services, it collects fee and shares the same with Franchisee Centres. One of the allegations of the department is that the assessee company had not filed any evidence regarding the basis for payment to Franchisee Centres. From the copies of the agreements referred to above, it can be seen that there was an agree....
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.... as per the revised return. 11. Regarding the difference in advertisement expenses and the addition of Rs. 12,90,146 the AR submitted that the assessee company for the purpose of expansion of its business operations was inserting advertisements in different newspapers, periodically in the southern states, for which it had incurred expenses. It issued many advertisements through different advertising agencies and payments were made to them at periodical intervals. Having come to know that newspapers give about 15% as commission to the advertising agencies, the Managing Director entered into a partnership named "M/s. Pace Media and Mercantile Services" with another Director and through which it started issuing advertisements in various newspapers. Volume IV is the Cash Book, Bank Book, General Ledger and Journal of M/s. Pace Media and Mercantile Services (the firm) for the period 01-04-2000 to 31- 03-2001. During the course of survey operations, the Survey officials found that as per the impounded books of accounts vide Folio No. 152, the total advertisement expenses were shown at Rs. 31,10,150 while as per the Return of Income filed, the advertisement expenses claimed were Rs. 44,0....
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.... impounded books of account itself, the impugned addition of Rs. 12,90,146 may please be directed to be deleted. Even here also, since payments were made at regular intervals to M/s. Pace Media and Mercantile Services to the tune of Rs. 8,68,146 (out of which about Rs. 50,000 was by way of cash and balance was through cheques), at least to the extent of Rs. 8,68,146 for which enough evidence was filed before the Department as genuine payment and thus direct the A.O. to delete the addition to that extent, (the differential amount of Rs. 4,22,000) being telescoped without prejudice into the additional income of Rs. 20 lakhs offered in the revised Return. 14. The AR submitted that, due to the facts and circumstances mentioned in detail while filing revised return of income, wherein it had offered Rs. 20 lakhs to purchase peace with the Department to avoid litigation and with a prayer not to take any penal action and in the same spirit, it has accepted the revised Return, and therefore, with all its disadvantages in not having in its possession all the evidence and material to prove its case for the deletion of the total addition of Rs. 42,73,301, it confined itself to the addition of....
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....ance will be paid back to the franchises. As seen from one of the agreement, though there is a clause regarding retaining of 25% royalty and refund of the balance of amount, the same is not holding good when we examine the entire receipts as shown by the assessee. The same agreement also speaks about providing of course material by the assessee-company and also undertaking the advertisement campaign. As regards the financial operations, the clause VI of the agreement on page 4 clearly specifies that "an account with a nationalized bank shall be opened in the name of Pace Computer Education P. Ltd, at the place of the franchisee. All the receipts of the franchisee centres shall be caused to be deposited therein. The account shall be operated by the authorities designated by Pace ..... The shares in the total collection of the franchisee and franchisor shall be determined on a month to month basis and distributed between them by 10th day of the following month. For this purpose, the franchise shall send the prescribed monthly report for each of the completed month before the 5th day of the following calendar month to enable Pace forward the share of the franchisee by the 10th of th....
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....IT(A) were not controverted by the assessee. Further, the remand report sent by the Assessing Officer which is reproduced herein below clearly demonstrates that the assessee inflated the advertisement expenditure as well: "2 Difference in Advertisement expenditure Expenses as per books of accounts impounded vide Folio No. 152 31,10,150.10 Add: Payment made to Pace Media and Mercantile Services Vide Folio No. 125 8,68,146.00 Add: Amount payable to Pace Media and Mercantile Services vide JV No. 166 4,22,000.00 Advertisement expenses as per P&L Account 44,00,296.10 As seen from the chart above, the difference in advertisement expenditure is mainly on account of amount paid and amount payable to M/s. Pace Media and Mercantile Services, which is a partnership firm of the Directors. It was contended that after nine months of business, during FY 2000-01, the assessee-company came to know about the commission of 15% received as advertising agency and accordingly to save that additional 15%, it has opened a partnership firm to release the advertisements of the company. However, as seen from the evidences on record, the contention of the assessee appears to be self contradictory,....