B. Ramakotaiah, A.M.:— This is an appeal by assessee against the order of Commissioner of Income Tax (Appeals)-18, Mumbai having concurrent jurisdiction at Hyderabad dated 07-03-2013. Assessee is aggrieved on various additions made in the assessment order, as confirmed by the CIT(A) partly.
2. Briefly stated, assessee is proprietor of M/s. Discovery Global Services Inc, a business concern, engaged in sourcing candidates with necessary skill set for corporate placements and providing training as required by the companies. He filed return of income for AY. 2008-09 admitting total income of Rs. 1,85,520/-. In the scrutiny assessment completed by the Assessing Officer (AO), it was noticed that assessee has shown total receipts at Rs. 27,30,457/- whereas 26AS statement in the departmental compute records indicate receipt of Rs. 1,11,12,048/- in the name of 24 parties. In the course of assessment proceedings, assessee was asked to explain the difference in the receipts shown in the P & L A/c and as per Form 26AS. It was submitted by assessee that he had not rendered any services to 1. M/s. Genpact India, 2. Bharti Airtel Limited, 3. Maan Hospitality Limited and 4. Biz Assist Services Private Limited. AO issued notices u/s. 133(6) of the Income Tax Act [Act] to these four parties. In response, M/s. Genpact India and Maan Hospitality Limited submitted information. M/s. Genpact India confirmed that they have paid Rs. 1,42,989/- against technical and professional services for the period of 01-04-2007 to 31-03-2008. However, the amount reflected in Form 26AS statement was Rs. 61,36,595/-. AO in the assessment order took cognizance of Rs. 1,42,989/- acknowledged by M/s. Genpact India and deleted the balance amount in computation of receipts. M/s. Maan Hospitality Limited confirmed payment of Rs. 30,000/- which was also reflected in 26AS statement. Thus, AO got confirmation to an extent of Rs. 1,72,989/-. There was no response from the other two persons i.e., Bharti Airtel Limited and Biz Assist Services Private Limited. AO accordingly out of the total receipts of Rs. 1,11,12,048/- considered the disclosed receipts at Rs. 23,87,985/- and made an addition of difference after excluding the amount not confirmed by Genpact.
2.1. In addition to the above, AO also noticed that assessee has made payments of Rs. 2,95,226/- towards subscription to various search engines and another amount of Rs. 71,000/- towards professional services. On the reason that TDS was not made on payment of these amounts, AO disallowed the above amounts u/s. 40(a)(ia).
2.2. AO also considered that assessee was not able to produce Books of Account, bills and vouchers. Therefore, in the absence of Books of Account, income of assessee is estimated at 20% of total receipts i.e., accounted receipts of Rs. 27,30,457/- × 20% = 5,46,091/-. Thus, taking the profit from the P & L A/c of Rs. 2,84,000/-, AO made all the above said additions and assessed income of Rs. 35,84,302/-.
3. Assessee contested the same before the Ld. CIT(A) alleging that the information in 26AS statement is not correct and further, various disallowances made or estimations made are not correct. It is also further contended that the profit should have been taken Rs. 1,85,520/- rather than Rs. 2,84,000/- taken by the AO in the computation. Ld. CIT(A) in the course of appellate proceedings asked the AO to make further enquiries and report. Accordingly, AO made further enquiries and sent remand report which was stated in para 2.2. After considering the replies of the parties and assessee vide para 2.3 of the order, Ld. CIT(A) confirmed the receipts of M/s. Aegis BPO Services at Rs. 20,940/- IHRR Hospitality Services Pvt. Ltd., of Rs. 5,38,998/- and Biz Assist of Rs. 13,48,320/-. The balance of the amount was deleted stating that these are the cases of inadvertent mistakes in uploading the TAN. While confirming the above amount partly, Ld. CIT(A) also confirmed the additions made u/s. 40(a)(ia) to an extent of Rs. 3,66,226/-.
3.1. With reference to the estimation of income at 20%, Ld. CIT(A) mistook the same as disallowance of 20% expenditure. He went on to justify the disallowance of expenditure stating that in the absence of any evidence, AO has made disallowance at 20% of total expenditure claimed. Ld. CIT(A) relied on various case law in support of the above and dismissed assessee's contentions.
4. Assessee has raised as many as 11 grounds on the above issues. Gr. Nos. 2, 4, 6, 8 & 10 are the grounds raised before the CIT(A) about the action of the AO whereas, Gr. Nos. 3, 5, 7, 9 & 11 are grounds pertaining to action of CIT(A). Gr. Nos. 1 & 12 are general in nature.
5. Ld. Counsel referring to the order of the AO and CIT(A) submitted that in the impugned assessment year, since computerization was not properly undertaken both by the department and assessees, most of the assessees have resorted to uploading data with whatever Pan available with them. That may be the reason why, assessee was credited with so much turnover which is not correct. He referred to the reply received from M/s. Genpact India and order of the AO to submit that as much as Rs. 59,93,606/- was not even paid to assessee was reflected in Form 26AS statement. It was assessee's contention that whatever the turnover he has reported, is on the basis of Books of Account and in support, filed the bank statements as well. But AO in the absence of any contradictory information, simply relied on 26AS statement to bring the entire amount to tax. With reference to the turnovers confirmed during the course of remand proceedings before the CIT(A), it was submitted that the confirmation letters from those parties were not given to assessee and assessee could not reply. It was further submitted that AO has added the entire turnover as income which was also partly confirmed by the Ld. CIT(A). With reference to the disallowance u/s. 40(a)(ia), it was submitted that there is no liability for TDS and even if it was to be considered that there was a liability, since the entire amount was paid during the year and as no outstanding amount was available at the end of the year, following the Special Bench decision of Merilyn Shipping & Transports v. ACIT, (2012) [136 ITD 23] [16 ITR 1] (SB) (Visakha.)(Trib.) as upheld by the Allahabad High Court and partly by the AP High Court, no disallowance can be made u/s. 40(a)(ia). With reference to 20% estimation of income on receipts, it was submitted that AO not only took the amount from the P & L A/c wrongly, but also estimated the income at 20% of the total receipts which itself is a double addition. Apart from that, it was submitted that once income is estimated, other disallowances cannot be resorted to as held by the jurisdictional High Court in the case of Indwell Constructions v. Commissioner Of Income-Tax. [232 ITR 776]. It was submitted that not only the AO, but even the CIT(A) has wrongly confirmed the additions.
6. Ld. DR however, submitted that AO excluded almost entire turnover which was confirmed as not belonging to assessee, but most of the people have confirmed that turnovers belong to assessee, therefore, addition was warranted. It was explained that in that year, uploading of returns with upto 90% of the PANs is made compulsory. Therefore, there could be some mistakes, but not as stated by assessee's counsel. He referred to the order of CIT(A) that parties have confirmed the turnovers and therefore, order of the CIT(A) is to be upheld. With reference to 40(a)(ia), it was submitted that assessee has not made TDS therefore, disallowance is warranted. While accepting that AO estimated 20% of the total receipts as income whereas, CIT(A) confirmed the 20% as disallowance of expenditure, he supported the order of AO. With reference to the initial figure of profit from the business, he agreed that this can be as per the P & L A/c and can be remitted to AO for verification and adoption of the correct amount.
7. We have considered the rival contentions and perused the orders of the AO and CIT(A). As seen from the record, there are about 24 parties who uploaded data in Form 26AS totaling to Rs. 1,11,12,048/-. Out of these 24 parties, in the course of assessment proceedings, assessee was denying rendering any services to four companies. The receipts from two companies who have confirmed rendering services was added by the AO himself. Out of the balance two companies, Bharti Airtel Limited did not confirm. Therefore, Ld. CIT(A) deleted the same. Biz Assist Services Private Limited did not confirm in the course of enquiry by the AO, but it seems they have confirmed in the course of remand proceedings to an extent of Rs. 13,48,320/-. With reference to the balance of the companies, it is not clear from the order why they are again being verified. It seems, CIT(A) ordered enquiry on all companies and some of them may be from assessee's own accepted turnovers. In the absence of any clarity on this issue from either party, we are unable to examine whether there is any duplication of the accounted turnover in the final confirmed turnover. Be that as it may, the entire turnover cannot be the income. As noted earlier, AO not only added the turnover but also estimated 20% of the accounted receipts as ‘Income from Business’. However, while computing the income, not only he considered the estimation of the income but also actual income declared by assessee that too at a higher figure. According to assessee, the profit from P & L A/c Rs. 1,85,520/-, whereas AO adopted Rs. 2,84,000/-. Even though it was pointed out before the CIT(A), no direction was given on this. Apart from the above estimation, AO also disallowed incomes u/s. 40(a)(ia). Since no outstanding amount was available at the end of the year, disallowance U/s. 40(a)(ia) does not arise. Not only that, AO did not examine whether the payments are covered by provisions of TDS or not except stating that they are provisional payments covered by 194J. The quantum of payment as to how many parties it was paid and for what purpose it was paid has not been examined. Be that as it may, disallowance of statutory amounts does not arise, once the profit is estimated by AO by rejecting the Books of Accounts, based on the entries in the Books of Accounts. In view of this, the only way to adjudicate all the issues is to resort to estimation of income in assessee's case. AO estimated 20% of the total receipts as income, (27,30,457 × 20%) in the order. There is no basis for that. We are of the opinion that the profit can be estimated at 10% of the total receipts of accounted receipts of Rs. 27,30,457/- + confirmed receipts on enquiry of Rs. 19,08,258/- i.e., Rs. 46,38,715/- as turnover. In arriving at 10% profit, we have kept in mind offered income as per P & L A/c taken by the AO(Rs. 2,84,000/- out of the receipts of Rs. 27,30,450/- which is approximately 10%). Even though assessee contended that amount should be taken at Rs. 1,85,520/- this amount seems to be amount of ‘returned income’ not income from P & L A/c. Therefore, taking the amount adopted by AO as basis, profit can be estimated at 10% of the turnover which can be determined as profit from the business activity. Since total profit was estimated, the disallowance u/s. 40(a)(ia) does not arise. Even otherwise, addition is not warranted as the amount was not outstanding at the end of the year. Considering these factors, we direct the AO to determine the total income at Rs. 4,63,870/- and allow of any statutory deductions claimed out of the gross total income in the computation of income. With these directions, the grounds are considered partly allowed.
8. In the result, appeal is partly allowed.