Based on 26AS alone no additions could be made.

Short Overview:

Based on 26AS alone no additions could be made. This could at best be a starting point for necessary verification but it could not be a standalone basis to justify the addition. Therefore, matter was remitted back to AO and additions can be made only if AO brings any independent evidence.

AO observed that assessee failed to reconcile interest income with its books of accounts and therefore added back said amount as undisclosed interest income as shown in the Form 26AS. Assessee submitted that this income did not pertain to it and for that reason the company did not even claim the credit for the corresponding taxes deducted at source.

It is held that, Based on 26AS alone no additions could be made. This could at best be a starting point for necessary verification but it could not be a standalone basis to justify the addition. Therefore, matter was remitted back to AO for the limited purpose of verifying the information. And in case AO brings any independent evidence that assessee actually received interest income, then only he can bring the same to tax.

Decision: In assessee’s favour (by way of remand).

IN THE ITAT, KOLKATA BENCH

A.T. VARKEY, J.M.

Mercury Car Rentals (P) Ltd. v. Dy. CIT

I.T.A. No. 1442/Kol/2018

10 April, 2019

Appellant by: A.K. Tibrewal, Authorised Representative

Respondent by: Biswanath Das, Addl. Commissioner

This appeal has been preferred by the assessee against the order of the learned Commissioner (Appeals)-2, Kolkata (‘learned Commissioner (Appeals)) dated 11-4-2018for the assessment year 2012-13.

2. The first ground of appeal is against the learned Commissioner (Appeals)’s order confirming the disallowance of lease rentals of Rs. 21,57,334 holding it to be excess/double deduction claimed in the computation of income. Briefly stated the facts of the case are that the appellant company is engaged in the business of rendering car rental services. In the assessment completed under section 143(3), the assessing officer had disallowed the claim for lease rentals of Rs. 21,57,334 paid by the appellant in respect of the cars used by their employees. The assessing officer had noted that the staff welfare expenses of Rs. 2,20,37,335 incurred by the appellant company had already been debited to the profit & loss account and in that view of the matter he held that the separate claim for deduction of lease rentals of Rs. 21,57,334 made by the appellant in computation of income was an excessive/double claim since in assessing officer’s view such expenditure already formed part of the staff welfare expenses of Rs. 2,20,37,335 debited in profit & loss account. On appeal the learned Commissioner (Appeals) confirmed the disallowance on the ground that the appellant was unable to provide any cogent evidence that it was not an excessive deduction claimed in the return of income. Aggrieved, the appellant is now in appeal before us.

3. We have heard the rival submissions of both the parties. The learned Authorised Representative of the appellant submitted that the claim for deduction of lease rentals was in accordance with the decision of the Hon’ble Supreme Court in the case of I.C.D.S. Ltd v. CIT (2013) 350 ITR 527 (SC) : 2013 TaxPub(DT) 414 (SC) and therefore urged that the impugned disallowance be deleted. Per contra the learned Departmental Representative supported the order of the lower authorities and argued that the issue at hand was claim of double deduction rather than allowability of the lease rentals. He submitted that the appellant was unable to produce any evidence to show that the separate claim made in respect of lease rentals did not form part of the staff welfare expenses and hence urged that the order of the lower authorities be upheld.

4. After examining the contentions put forth by both the parties, it is noted that the issue at hand does not concern the legal allowability of the claim of lease rentals and to that extent I agree with the learned Authorised Representative of the appellant that the allowability of principal component of the lease rentals stands decided in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of I.C.D.S. Ltd v. CIT (supra). It is however noted that in the assessment order the assessing officer has nowhere questioned the allowability of the deduction of lease rentals but disallowed the impugned sum on the ground that it was an excessive deduction claimed by the appellant since according to him this amount formed part of the ‘staff welfare expenses’ and which were separately debited in the profit & loss account. I note that before the learned Commissioner (Appeals) as well this Tribunal the appellant was unable to provide any evidence to show that the expenses debited in profit & loss account did not include this amount of lease rentals separately claimed as deduction in the computation of income. The learned Authorised Representative appearing on behalf of the appellant therefore requested that the matter be remanded back to the assessing officer and sufficient opportunity be allowed to the appellant to prove that the claim was not an excessive deduction and that the impugned sum did not form part of the staff welfare expenses debited to profit & loss account. Therefore in the interest of justice and fair play, I deem it fit and appropriate to remand this issue to the file of assessing officer for de novo adjudication after examining the additional evidences, if any, filed by the appellant in support of his contentions. Needless to say, the assessing officer shall allow sufficient opportunity of hearing to the appellant in this regard. This ground accordingly stand allowed for statistical purposes.

5. The second ground in the appeal of assessee is against the learned Commissioner (Appeals)’s order confirming the action of assessing officer in sustaining the addition of interest income of Rs. 67,939 relying on Statement in Form 26AS. During the course of assessment proceeding, the assessing officer observed that assessee failed to reconcile interest income to the extent of Rs. 67,939 with its books of accounts and therefore added back the said amount as undisclosed interest income of the appellant as shown in the Form 26AS. Aggrieved by this order, the assessee preferred an appeal before learned Commissioner (Appeals), where it submitted that this income did not pertain to it and for that reason the company did not even claim the credit for the corresponding taxes deducted at source on the impugned sum of Rs. 67,939. The appellant therefore urged before the learned Commissioner (Appeals) that the impugned addition be set aside. The learned Commissioner (Appeals) however disregarded the plea taken before him and confirmed the impugned addition. Aggrieved by the order of the learned Commissioner (Appeals), the appellant is now in appeal before us.

6. Having heard the rival submissions and having perused the material on record, I am of the considered view that based on 26AS alone no additions can be made. This can at best be a starting point for necessary verification but it cannot, on standalone basis, justify the impugned addition. I therefore consider it appropriate to remit the matter to the file of the assessing officer strictly for the limited purpose of verifying the information. In case, he can find any independent evidence for the relevant assessment year 2012-13 that the appellant had actually received the impugned interest income, then only he can bring the same to tax. It is made clear that the onus will be on the assessing officer to bring on record independent evidence after making enquiries from the payees and that the assessee cannot be expected to discharge the impossible burden of proving a negative i.e., that the assessee did not receive such interest income. With these observations, and for the limited purposes as set out in the foregoing, the matter stands restored to the file of the assessing officer. Needless to add that any material found adverse to the assessee, will have to be confronted to the assessee by the assessing officer and in that case the assessing officer shall pass a fresh speaking order after giving due and fair opportunity of hearing to the assessee. This ground accordingly stand allowed for statistical purposes.

7. The third ground of appeal is against the learned Commissioner (Appeals)’s action of confirming the addition made by the assessing officer on account of the provision set aside for long-term employees’ benefits in the form of gratuity, leave encashment, ex-gratia & bonus while assessing the book profit under section 115JB of the Act. Briefly stated the facts of the case are that the appellant had provided for the long term employees benefits inter alia including provision for gratuity, bonus and leave encashment etc. in terms of the mandatory Accounting Standards -15 issued by the Institute of Chartered Accountants of India. From the Notes forming part of the Annual Financial Statements for the relevant FY 2011-12, it is observed that provision for employee benefits have been provided on a scientific and systematic basis. Actuarial valuation reports were obtained to determine the said liability; copies of which have been placed in the paper book as well. The assessing officer without assigning any reason added back these provisions to the computation of book profit under section 115JB. On appeal, the learned Commissioner (Appeals) also confirmed the impugned additions. Aggrieved by the order of learned Commissioner (Appeals), the appellant is now in appeal before us.

8. Having heard the rival submissions and after perusing the material on record; it is noted that the provisions in respect of gratuity, leave encashment, ex-gratia & bonus were created on actuarial basis and had been estimated with reasonable certainty. Accordingly such provisions cannot be said to be provisions of unascertained liabilities so to add it back under clause (c) of the Explanation to section 115JB(2). Since these provisions are in the nature of ascertained liabilities, I am of the considered view that the same is allowable while computing book profit under section 115JB of the Income Tax Act. In this regard, I rely on the decision of this Tribunal in the case of Eastern Power Distribution Co. of AP Ltd v. ACIT (2011) 139 TTJ 94 (Visakhapatnam) : 2012 TaxPub(DT) 550 (Visakhapatnam-Trib) wherein on identical set of facts this Tribunal held as follows :–

“8.2 It is not in dispute that, in the instant case, the impugned amount of Rs. 9.08 crores has been appropriated towards the terminal benefits of the employees of the assessee-company viz., gratuity and pension payable, on the basis of actuarial valuation. In the following cases it has been held that such kind of provision falls under the category of “Ascertained liability” :–

(a) CIT v. ILPEA Paramount (P.) Ltd. (2010) 192 Taxman 65 (Delhi) : 2010 TaxPub(DT) 1554 (Del-HC)

(b) CIT v. National Hydro Electric Power Corpn. Ltd. (2010) 45 DTR (Punj..&Har.) 117 : 2010 TaxPub(DT) 2085 (P&H-HC)

In both the cases it has been held that the provision made for gratuity is an ascertained liability and hence the same is deductible while computing book profit under section 115JA/115JB. In the second mentioned case, it has been held that the provision made for leave encashment, post-retirement medical benefit are also ascertained liabilities, which are deductible under section 115JB from the book profits. In the instant case, though the amount provided for the terminal benefits has been transferred to a “Reserve Fund”, in our view, the amount so provided relates to a provision only. Since the said provisions falls in the category of “Ascertained liability”, the same is allowable while computing the book profit under section 115JB. In view of the above, we reverse the order of learned Commissioner (Appeals) and direct the assessing officer to exclude the amount relating to provision made for terminal benefits while computing the profits under section 115JB of the Act.”

9. Following the decision of the coordinate Bench of this Tribunal in the case of Eastern Power Distribution Co. of AP Ltd v. ACIT (supra), the assessing officer is directed to delete the additions made in respect of the provisions for gratuity, leave encashment, ex-gratia & bonus in the computation of book profit under section 115JB. This ground accordingly stands allowed.

10. In the result, the appeal of the assessee is partly allowed for statistical purpose.