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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG, JM & SHRI L.P. SAHU, AM
Per L.P.Sahu, AM: This is an appeal filed by the Revenue against the order of CIT(A)- 2, Bhubaneswar, dated 30.11.2016 for the assessment year 2010-2011, on the following grounds of appeal :-
On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the disallowance of expenses of Rs.13,95,94,000/- u/s.40(a)(ia) of the Act.
The appellant craves to alter, amend or add any other ground that may be considered necessary in course of the appeal proceeding.
Brief facts of the case are that the assessee is engaged in the business of supply of essential items under public distribution system and 2 filed its return of income for A.Y.2010-2011 on 12.10.2010 declaring total income of Rs.Nil. The case was selected for scrutiny under CASS and statutory notices were issued to the assessee. During the course of assessment proceedings, it was noticed by the AO that the assessee has claimed the expenses towards storage commission/incidental to storage agents of Rs.13,95,94,000/- in the profit and loss account. The assessee was asked to produce the details of payments made and TDS etc. It was noticed by the AO that there was no TDS made as per Section 194H of the Act. The assessee submitted that the payments to storage agents does not fall for TDS purpose as per Section 194H of the Act, which attracts the provisions of Section 194C of the Act and the assessee has made compliance as per Section 194C of the Act and copy of agreement was also produced.
From the submissions of the assessee the AO was not satisfied and concluded that there is a relation between both the parties as principal and agent and whatever has been paid is in the nature of commission payments, therefore, there was failure on the part of the assessee to deduct TDS as per the provisions of Section 40(a)(ia) of the Act disqualifying the payment made under the said head to the entire amount and added to the total income of the assessee.
Feeling aggrieved by the order of AO, the assessee appealed before the CIT(A) wherein the assessee filed written submissions and submitted that the assessee has filed proof of deposit of TDS in government account. The CIT(A) on the basis of documents produced
3 before him, called a remand report from the AO but till the date of passing of the order by the CIT(A), the AO did not submit the same, therefore, the CIT(A) on the basis of the documents available before him, decided the issue in favour of the assessee.
Further feeling aggrieved, the Revenue is now in appeal before the Income Tax Appellate Tribunal.
Ld. DR relied on the order of AO and submitted that the assessee has paid commission to the storage agents and has debited in the profit and loss account as commission, therefore, the AO has rightly disallowed the claim of expenses of the assessee as per the provisions of Section 40(a)(ia) of the Act for non-deduction of TDS under the particular provisions of the Income Tax Act, 1961 i.e. u/s.194H of the Act, therefore, the order of the AO should be restored.
On the other hand, ld.AR relied on the order of CIT(A) and submitted that the CIT(A) has rightly deleted the addition considering the submissions and facts of the case available before him. In addition to this, ld. AR also submitted a written synopsis which reads as under :- “The above named assessee is assessed to income under the juri iction of Assistant Commissioner of Income Tax, Circle-2(2), Bhubaneswar having PAN :AAACO2570J. The above named assessee is a Public Sector Undertaking wholly owned by the Government of Odisha. The Government of Odisha has entrusted to the assessee the responsibility of providing essential commodities through the public distribution system mainly to the people below the poverty line. The assessee corporation is virtually an extension of Civil Supplies Department to carry out following activities on behalf of the Government being the owner of the assessee Corporation. The appellant company filed the return of income for the relevant assessment year; 2010-11 showing total income of Rs. NIL The activities carried out by the corporation are as under:
4 i. To make available essential commodities like rice, wheat and sugar at a reasonable price to the common people without any profit. ii. To make available rice at the doorstep of people in Integrated Tribal Development Programme / Draught Prone Area Programme at subsidized rate. The return was selected for scrutiny and subsequently departmental notices U/s143(2) & 142(1) were served on the appellant. In response to departmental notice the appellant appeared through its authorized representative to explain the queries along with relevant books of account and other evidences. The learned assessing officer was apparently satisfied with the clarification given both verbal as well in writing. While completing the assessment the learned assessing officer under certain conjecture and surmises added the following to the total income and raised the demand tax amounting to Rs.6,43,66,030.007- including interest of Rs.1,70,38,080.00: Amount (Rs.) Payment of Commission to storage agents u/s.40(a)(ia) 13,95,94,000.00 B. Extracts of submissions before the Honourable First Appellate Authority : To make available food grains / food stuff and / or other essential commodities at the Block / Urban Local Body level for distribution to beneficiaries under Government Schemes such as Annapurna......etc. the appellant Corporation obtains services of persons called as storage agents, who carry out all the work on behalf of the Corporation and in turn are paid /reimbursed with godown rent, transportation charges, loading , unloading etc. and a consolidated margin per quintal of stock is paid. The amount being paid to them is debited to storage commission / incidental to storage expense. While making payments, tax is deducted at source by the appellant Corporation U/s.194C and such taxes are timely deposited into Central Government's account. However, the learned assessing officer out of mis-interpretation of provisions of section 40(a)(ia) of the Income Tax Act.,1961, disallowed the entire expenses on the ground that tax was supposed to be deducted @ 10% U/S.194H and it has not been done, although it has deducted tax from source as per requirement of section 40(a)(ia). In continuation to the ground of appeal filed, it is to further submit that; the learned assessing officer has put emphasis on payment of commission to invoke Section 194H of the Income tax Act.,1961, whereas ignored the payments and / or reimbursements to the storage agents made for godown rent, transportation charges, loading , unloading etc. and a consolidated margin calculated at per quintal of stock. The Learned Assessing Officer has also knowingly
5 omitted to mention the fact that, deduction of tax at source has been made U/S.194C of the Income Tax Act., 1961. Hence, a wrong interpretation of provisions of sec-40(a)(i.a) and non-presentation of facts have been done by the learned assessing officer. When tax has been deducted at source and the same has been deposited by the appellant to the account of the Central Government, it was not proper on his part to disallow the said expenses on the ground that tax has not been deducted at source as per section 194H. Various judicial pronouncements are there, which support appellant's stand that once tax deducted though as per provisions of other section ( here 194C), disallowance U/s.40(a)(ia) can not be done. 2012 in a similar matter, had decided in favour of the assessee, the highlights of which are presented as follows: "Disallowance u/s. 40(a)(ia)-Short deduction of tax at source - validity-assessee deducted tax u/s 194C(2) being payments made to sub-contractors-AO claimed that payments were in nature of machinery hire charges falling under head "rent" and previous provisions of section 1941 were applicable and assessee had done lesser deduction of tax-Disallowance was made to payment proportionately u/s.40(a) (ia)-Revenue claimed that addition u/s.40(a)(ia) can be made even though payments was genuine- Held, for making addition u/s.40(a)(ia), it had to be shown that tax was deductible at source and such tax was not deducted by assessee-Where tax was deducted by assessee, even under bonafide wrong impression, under wrong provisions of TDS, provisions of section 40(a)(ia) could not be invoked-Assessee had deducted tax u/s.194C(2) and not u/s. 1941 and no case was made by AO that TDS was not deposited with Government account- Section 40(a)(ia) does not treat assessee as defaulter where there was shortfall in deduction-lf there was any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, assessee could be declared to be an assessee in default u/s.201 and no disallowance can be made by invoking provisions of section 40 (a)(ia)-Expenses were not liable to be disallowed on account of short deduction of tax at source-Order of CIT (A) was confirmed-Revenue's appeal was dismissed." (2013) 36 CCH 343 Del Trib, the Honourable Delhi ITAT Bench "F" in another similar case on 24th May, 2013 had also decided in favour of the assessee; the High Lights of which are as follows:
6 "Business expenditure-Disallowance u/s.40a(ia)-Short deduction of tax and consequent non payment thereof-Assessee was providing Engineering consultancy services had filed return-AO held that assessee had deducted tax u/s.194C in respect of certain payments deductible u/s.194J -AO made proportionate disallowance u/s. 40a(ia) for short deduction of tax and consequent non -payment thereof -CIT (A) deleted addition-Held, Tribunal had decided impugned issue in favour of assessee in I.T.A. No.86/Del/2012 by holding that if there is any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, assessee can be declared to be assessee in default u/s.201 and no disallowance can be made by invoking provisions of section 40(a)(ia)-Present case was similar to facts and circumstances of case as decided by Tribunal in A.Y 2008-09-Thus, there was no infirmity in impugned order-Revenue's appeal dismissed." In view of the above, when the appellant has been vested with the responsibility : i. To make available essential commodities like rice, wheat and sugar at a reasonable price to the common people without any profit. ii. To make available rice at the doorstep of people in integrated Tribal Development Programme / Draught Prone Area Programme at subsidized rate. And it has deducted at source from Storage Agents as per provision of one section of the TDS Chapter (i.e. 194C), the learned assessing officer's ground that TDS has not been made as per provisions of a particular section (i.e. 194H) and therefore the disallowance U/s. 40(a)(ia) has been made. Accordingly, ld. AR submitted that the appeal of the Revenue deserves to be dismissed.
After hearing both the sides, perusing the entire materials available on record and the orders of authorities below, prima facie, we would like to reproduce the relevant part of the agreement between assessee and storage agent for completeness of our order, as under :- “ORISSA STATE CIVIL SUPPLIES CORPORATION LIMITED STORAGE AGENT AGREEMENT Storage Agency Agreement for the period from 01.11. 2008 to 31.10.2010 ………………..
7 And where as it is the purpose of the Corporation to make available Food grains/Food stuff and/or other essential commodities at the Blocks. ULBs level for ultimate distribution to beneficiaries under Public Distribution System including govt, schemes such as ANNAPURNA. ANTYODAYA YOJANA etc and or for open market intervention. And whereas the Storage Agent has agreed to serve the Corporation on the terms and conditions herein after appearing. NOW THESE PRESENTS: WITNESS IS AND PARTIES HERETO IN PRESENCE OF FOLLOWING WITNESSED HEREBY MUTUALLY AGREE AS FOLLOWS: (f) "Storage Agent" (SA) shall mean individual person/ firm _society/Cooperative Society/Companies etc. who has been duly appointed by the Managing Director and consequent upon such appointment has signed the contract / agreement. Storage agent shall utilize his own godown or take godowns under the ownership of the Corporation on hire basis available in his area of operation at prescribed rate, on first priority unless otherwise proved unfeasible -' unacceptable for storing stock. The selected Storage Agent shall furnish a)Certified copies of his property documents basing upon which the solvency certificate was issued to him. by executing a mortgage deed in favour of M.D, OSCSC Ltd..C-2. Nayapally. Bhubaneswar- 12. b)Non-interest bearing Security Deposit of Rs, 1.00,000.00 (Rupees One Lakh) in shape of Bank Draft drawn in any Nationalised Bank in favour of M.D. of OSCSC Ltd payable at Bhubaneswar for handling PDS commodities and food stuff released for other Govt, schemes. (iv) The Storage Agent shall deliver the stock to retailer strictly as per the advice of the Corporation/Collector/District Manager-Block Development Officer on collection of cost i.e. consumer price less, the retailers margin. The quantity & date of issue of PDS Commodities to the retailers must be intimated to C.S.O-Cum- D.M. soon after the issue. (v) No shortage of stock in any manner under any circumstances is allowed to Storage Agent. (vi) The Storage. Agent shall be responsible for safe and proper handling, transportation, storage, custody and/or sale of the delivered stocks and shall be liable for any damage, loss or shortage caused due to any reason or circumstances during loading, unloading, transportation and storage etc. The Storage Agent shall also ensure scientific storage of the stocks as per the conditions mentioned at Schedule - 1 appended to this agreement. (vii) The Storage Agent shall refrain from holding non-prepaid stock disproportionate to the Security amount furnished by him and shall strive to facilitate its distribution among the Retailers within minimum possible time.
8 (viii) The delivered stocks shall be disposed-off on "first-in and first- out" methodor as per the order of the District Manager ' M.D. (ix) The Storage Agent shall lift the stock from FC1 depot on production of Delivery Order from the authorized officer of the Corporation deployed at FC! or from Corporation's own godown or from any other Storage Agent's godown or from any other place as per the direction of the District Manager within the time stipulated in the Delivery Order. Payment to the Storage Agent (i) For all the services rendered by the Storage Agent except transportation under this agreement he is entitled to a consolidated margin per quintal of stock as per the Govt./Corporation approved rate revised from time to time, basing on the storage charges, incidental expenses & interest on investment. (ii) The Storage Agent will be reimbursed the transportation charges as per the Govt Corporation approved rate revised from time to time . (iii) The Storage Agent shall also be reimbursed the differential amount if any paid to the retailers, by way of less receipt from Retailer's as per the authorisation of Collector Block Development Officer/D.M/Marketing Inspector will be reimbursed to him on production of claim along with supporting documents. (iv) Tor all such charges mentioned at. i, ii & iii. the Storage Agent shall submit to the District Manager, separate monthly bills in respect of disposal of delivered stock, made during the month by the 1 s, week of succeeding month. (v) Payment shall be made at the district office of the Corporation in each month upon the claim preferred by the Storage Agent on the basis of quantity issued. Die settlement in respect of cost of unfitted stock payable, if any to Storage Agent and the penalties and/or other dues, if any, recoverable from Storage Agent shall be done at the time of payment of monthly bills of the Storage Agent. (vi) The Corporation shall not pay any remuneration to storage agent for handling of PDS stock ; for deployment of man power if made for handling the PDS stock or for any other purpose, what so ever it may be. (vii) The Corporation reserves the right to deduct the statutory dues such as Income Tax. TDS etc. from the pending or future bills of the storage agent. Termination of Agreement. A.The agreement may be terminated by either party by giving 60 days notice in writing to the other. B.Notwithstanding anything to the Contrary herein contained, the Corporation shall be at liberty to terminate with agreement forthwith upon or at any time after happening any of the following,- (a.) if the Storage Agent, shall commit a breach of the covenant as specified under clause-2 B (v)” From the agreement, it is impliedly clear that the storage agent has to carry out multiple works for smooth running of the Public Distribution
9 System. Accordingly, they have been remunerated. The assessee has deducted TDS as per Section 194C of the Act, 1961 and has duly deposited into the Central Government Account and other compliance has been fulfilled by the assessee. We noticed that ld.CIT(A) has passed a good reasoned order, which reads as under :- “4.2 My predecessor in office, vide letter dated 18.03.2016 forwarded the appellant's submission to the assessing officer for submission of remand report. As per this office letter dated26.08.2016, a reminder was sent to the assessing officer to submit the remand report on or before 12.09.2016. The assessing officer vide his letter dated 01.09.2016 requested for more time to submit the remand report. However, till today, the assessing officer has not submitted the remand report. As it can be seen from this, sufficient time of more than eight months has been given to the assessing officer to submit his comments on the appellant's submission in the form of remand report. The assessing officer has not availed of this opportunity. In view of this, the issue is decided in the absence of remand report. As per the written submission dated 16.03.2016 of the appellant (running into 101 pages), storage agents to whom the payment has been made, their PAN, gross amount and tax deducted at source has been given. In these details, the appellant has also attached the proof of deposit of TDS in government account. Further, vide submissions dated 30.11.2016 the appellant has stated that the assessing officer has knowingly omitted to mention the fact that the appellant has deducted the tax at source u/s. 194C. Further, the appellant has relied upon the decisions in the cases of S. K. Tekriwal vs Commissioner of Income Tax reported in 361 ITR 432(Cal) and Pankaj Bhargava vs Asst. Commissioner of Income Tax reported in 36 CCH 343 (Del Trib) dated 24th May, 2013. The relevant portion of the submission of the appellant is as below: "In addition to above it is to further submit that, the learned assessing officer has made disallowance of Rs. 13,95,94,000.00 on the ground that TDS was deductible U/s.194B and not U/s.194C of the Income Tax Act,1961. In this context, attention of your Honour is invited to page-2 and Page-3 of the Assessment Order wherein details of work done by storage agents and payment terms have been reproduced from the agreement. The agreement specifically speaks the nature of work to be executed by'the Storage Agent and the payment to be made to them inform of a consolidated margin based on storage charges, incidental expenses etc. Although from inception the word commission is used for payment to storage agent, in fact, it is a contract to be covered U/s.l94C and accordingly from inception tax is deducted from storage agent U/s.l94C and deposited. An accounting nomenclature of 10 "Commission" cannot be the deciding factor for TDS when the payment is in lieu of work done including that for storage charges, incidental expenses etc. The learned assessing officer has made the addition for non deduction of tax U/s.40(a)(ia), when the assessee has not been declared as a defaulter under the 1st proviso of sub-section-1 of Section 201 of the Income Tax Act. By deducting tax U/s.40(a)(ia), itself complied the provision of the said section for which no addition was supposed to be made. In continuation to the ground of appeal filed, it is to further submit that; the learned assessing officer has put emphasis on payment of commission to invoke Section 194H of the Income tax Act.,1961, whereas the payments and / or reimbursements to the storage agents are also made for godown rent, transportation charges, loading, unloading etc. The Learned Assessing Officer has also knowingly omitted to mention the fact that, deduction of tax at source has been made U/s.l94C of the Income Tax Act.,1961. Hence, a wrong interpretation of provisions of sec-40(a)(ia) and non-presentation of facts have been done by the learned assessing officer. When tax has been deducted at source and the same has been deposited by the appellant to the account of the Central Government, it was not proper on his part to disallow the said expenses on the ground that tax has not been deducted at source as per section 194H. Various judicial pronouncements are there, which support appellant's stand that once tax deducted though as per provisions of other section (here 194C), disallowance U/s. 40(a) (ia) can not be done. 2012 in a similar matter, had decided in favour of the assessee, the highlights of which are presented as follows: "Disallowance u/s. 40(a)(ia)-Short deduction of tax at source- validity-assessee deducted tax u/s 194C(2) being payments made to sub-contractors-AO claimed that payments were in nature of machinery hire charges falling under head "rent" and previous provisions of section 1941 were applicable and assessee had done lesser deduction of tax-Disallowance was made to payment proportionately u/s.40(a) (ia)-Revenue claimed that addition u/s.40(a) (ia) can be made even though payments was genuine- Held, for making addition u/s. 40(a) (ia), it had to be shown that tax was deductible at source and such tax was not deducted by assessee-Wliere tax was deducted by assessee, even under bonafide wrong impression, under wrong provisions of TDS, provisions of section 40(a) (ia) could not be invoked-Assessee had deducted tax u/s.J94C(2) and not u/s. 1941 and no case was made
11 by AO that TDS was not deposited with Government account- Section 40(a)(ia) does not treat assessee as defaulter where there was shortfall in deduction-lf there was any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, assessee could be declared to be an assessee in default u/s.201 and no disallowance can be made by invoking provisions of section 40 (a) (ia)-Expenses were not liable to be disallowed on account of short deduction of tax at source-Order of CIT (A) was confirmed-Revenue's appeal was dismissed. " "F" in another similar case on 24 May, 2013 had also decided in favour of the assessee; the High Lights of which are as follows: "Business expenditure-Disallowance u/s.40a(ia)-Short deduction of tax and consequent non payment thereof-Assessee was providing Engineering consultancy services had filed return-AO held that assessee had deducted tax U/S.194C in respect of certain payments deductible u/s.194J -AO made proportionate disallowance u/s. 40a(ia) for short deduction of tax and consequent non -payment thereof-CIT (A) deleted addition-Held, Tribunal had decided impugned issue in favour of assessee in IT.A: No.86/Del/2012 by holding that if there is any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, assessee can be declared to be assessee in default u/s.201 and no disallowance can be made by invoking provisions of section 40(a) (ia)-Present case was similar to facts and circumstances of case as decided by Tribunal in A.Y2008-09-Thus, there was no infirmity in impugned order-Revenue's appeal dismissed." In view of the above, when the appellant has been vested with the responsibility: i. To make available essential commodities like rice, wheat and sugar at a reasonable price to the common people without any profit. ii. To make available rice at the doorstep of people * in ITDP/DPAP at subsidized rate. And it has deducted tax at source from Storage Agents as per provision of one section of the TDS Chapter (i.e. 194C), the learned assessing officer's ground that TDS has not been made as per provisions of a particular section (i.e. 194H) and therefore the disallowance U/s. 40(a)(ia) has been made is not maintainable in the eyes of law."
3 I have perused the assessment order and the submissions filed by the appellant during the course of appeal proceedings. The appellant has filed an agreement with storage agents, which was also filed during the assessment proceedings. As per this 12 agreement, storage agents have multifarious duties to perform such as safe and proper handling, transportation, storage, custody of stocks and distribution of stocks from FCI godown to appellant's godown etc. It is a contract running into 13 pages between the appellant and the storage agents in which rights and duties of the two parties have been enumerated. 1 agree with the appellant that such payment to the storage agents will come under the provisions of section 194C of I. T. Act, 1961. The appellant has deducted tax at source u/s. 194C and deposited the tax in government account.
4 Considering the above, the addition made by the assessing officer of Rs. 13,95,94,000/- is ordered to be deleted and the ground of appeal is allowed.”
From the above observations of the CIT(A), we find that after discussing in detail, the CIT(A) agreed with the contention of assessee that such payment to the storage agents will come under the provisions of Section 194C of the Act and the assessee has deducted tax at source u/s.194C of the Act and deposited the tax in the Government account. Therefore, the CIT(A) deleted the addition made by the AO. Ld.DR also could not bring any cogent material on record to controvert the above findings of the CIT(A) and case laws relied on by the ld. AR. Accordingly, we do not find any good reason to interfere with the findings reached by the CIT(A) in this regard and the same is upheld. Hence, the ground of appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 19/08/2019. (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 19/08/2019 प्र.कु.मम/PKM, Sr.P.S.
13 आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant- . DCIT, Corporate Circle-1(2), Bhubaneswar 2. प्रत्यथी / The Respondent- M/s Orissa State Civil Supplies Corporation Ltd Unit-8,Gopabandhu Nagar Bhubaneswar आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. 5. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 6. गार्ग पाईऱ / Guard file. आदेशािुसार/ BY ORDER, सत्यावऩत प्रयत //// (Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack