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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, AM:
These appeals filed by the assessee are directed against different orders of
the CIT(A), Kottayam dated 28/01/2016 and pertain to the assessment years
2008-09 and 2009-10.
First we will take up the appeal in ITA No.132/Coch/2016 for the assessment
year 2009-10. The assessee has raised the following grounds:
The CIT (Appeals) failed to consider in the right perspective the explanation offered by the appellant in his written reply dated
I.T.A. No.131 & 132/Coch/2016
18/06/2012 before the officer and also the explanation offered in the course of appellate proceedings.
The lower authorities erred in imposing a penalty of Rs.3,99,604/- without considering in the right perspective the explanation and circumstances under which commission was made while filing the return.
The CIT (Appeals) ought to have held that the appellant has not deliberately concealed any particulars of income or furnished inaccurate particulars of income for the AY 2009-10.
The CIT(A) ought to have noted that the appellant agreed for the addition in the assessment to avoid unnecessary litigation and for purchase of peace in the facts and circumstances of the case.
The lower authorities ought to have noted that in the course of assessment proceedings initially, the bank A/c number informed to the appellant was different and therefore the appellant has stated that there is no such bank account number in his name. The lower authorities failed to consider the matter in the right perspective.
The lower authorities erred in taking the total cash credit of Rs.11,10,650/- deposits on various days throughout the year, without considering the withdrawals in the said Bank account, as concealed amount for imposing penalty.
The facts of the case are that the assessee is a franchisee of TATA
Teleservices Ltd. and also a dealer in automobile parts. The assessee filed its
return of income for the assessment year 2009-10 returning a total income of
Rs.6,78,150/-. The assessment u/s. 143(3) of the Act was completed on
28/12/2011 determining a total income of Rs.18,53,800/-. In pursuance of an
AIR information received, the Assessing Officer completed the assessment by
adding back Rs.11,10,650/- u/s. 69 of the Act. Though the assessee objected
the addition initially, the assessee agreed with the addition made by the
Assessing Officer. Subsequently, the Assessing Officer issued order u/s.
I.T.A. No.131 & 132/Coch/2016
271(1)(c) of the Act, initiating penalty for concealment of income and furnishing
inaccurate particulars of his income in the return filed on 02/12/2009.
Accordingly, the Assessing Officer levied a minimum penalty of Rs.3,99,604/-
u/s. 271(1)(c) of the Act.
Before the CIT(A), the assessee submitted that his brother, an NRI had
operated Savings Bank account with South Indian Bank Ltd., Karunagapally in
assessee’s name for his family and this account was not related to any of the
assessee’s business. It was submitted that the account was closed even before
the penalty order and this fact came to his knowledge very late. Since the
account was opened and operated in assessee’s name, it was submitted that he
had agreed to add the cash credits in the account of the assessee’s total income
to avoid litigation and for purchase of peace. The assessee submitted that the
mutually accepted demand was already paid by the assessee. Hence, it was
prayed that the penalty imposed u/s. 271(1)(c) of the Act may be dropped.
The CIT(A) observed that the assessee concealed the existence of the Bank
account from the Department. According to the CIT(A), the assessee had
furnished inaccurate particulars of his income in the return of income filed. The
CIT(A) rejected the explanation offered by the assessee and confirmed the levy
of penalty u/s. 271(1)(c) of the Act.
I.T.A. No.131 & 132/Coch/2016
Against this, the assessee is in appeal before us.
We have heard the rival contentions and perused the record. As per AIR
information, the assessee had a Savings Bank account with South Indian Bank
Ltd. and deposited a sum of Rs.11,10,650/-. On receipt of show cause notice
from the Assessing Officer on 15/11/2012, the assessee replied vide his letter
dated 23/11/2012 that he had no unexplained cash credit of Rs.11,10,650/- in
any of his bank accounts or bank accounts of the associated concerns. Later, it
was stated that the assessee’s brother, an NRI operated the Bank account and it
was closed before the receipt of notice of levy of penalty. However, the
assessee concealed the fact of unexplained amount deposited in the South
Indian Bank Ltd. and it was not disclosed to the Department. In our considered
opinion, this is a clear case where the assessee inspite of being offered
opportunity to explain the unaccounted bank account, the assessee concealed
the details of income. In other words, it becomes a case of concealment of true
and correct particulars of income chargeable to tax. The concealment of income
made by the assessee was to evade tax. The explanation offered by the
assessee is found to be false, then in these circumstances, the levy of penalty
u/s. 271(1)(c) is justified. It is also noticed that the assessee not only concealed
the correct income, but also attempted to give false explanation. In view of this,
we are of the opinion that the lower authorities were justified in levy of penalty
I.T.A. No.131 & 132/Coch/2016
us. 271(1)(c) of the Act. Hence, this ground of appeal of the assessee is
dismissed. The appeal of the assessee in ITA No. 132/Coch/2016 is dismissed.
In the appeal in ITA No. 131/Coch/2016 for the assessment year 2008-09,
the assessee has raised the following grounds:
The CIT (Appeals) ought to have considered and held that the issuance of notice under section 148 of the Act and reopening of the assessment on the basis of the audit objection for the AY 2008-09 is illegal and arbitrary and liable to be cancelled. The CIT (A) erred in not considering and accepting the additional ground in this regard, which is a pure question of law, raised by the appellant, which fact came to the knowledge of the appellant, in the course of appellate proceedings.
The CIT (Appeals) erred in confirming the order of the assessing officer in disallowing sum of Rs 46,05,833/- under section 40 (a) (ia) of the Income Tax Act for non- deduction of tax u/s 194H of the Act and thereby making addition to the returned income.
The CIT (Appeals) failed to note/understand that the appellant is a franchisee of TATA Tele Services Ltd and the business of the appellant is to sell recharge cards/coupons to the customers and in the said transaction there is no commission payment or any kind of payment made to the customers by the appellant. The assessing officer also failed to look into the very nature of transaction between the appellant.
The CIT (Appeals) and the assessing officer failed to consider that there is no payment made to the end customer by the appellant and therefore the question of TDS does not arise. The authorities below failed to consider/appreciate that the appellant upon selling the recharge coupons to the customers only receives the recharge amount from the customers and sometimes receive the payments from the customers at the discounted rates. The assessee had shown the said discount given to the customers (which is not collected from the customers) as commission because M/s Tata Tele Services Ltd M/s. Tata Tele Services Ltd. deducted tax at source u/s. 194H and given it a nature of commission while making the said payment (which is given in the form of recharge coupons) to appellant (viz as reimbursement). The lower authorities failed to
I.T.A. No.131 & 132/Coch/2016
appreciate the above aspects in the right perspective and erred in holding that the amounts represents commission payment to the customers.
The CIT (Appeals) failed to consider the specific case of the appellant that the discounts /amount adjusted to the individual customers does not exceed Rs 2500/- and therefore, assuming (without accepting) that if the same is considered as commission, the provisions of section 194H of die Income tax Act is not attracted. The CIT (Appeals) failed to consider in the right perspective the ledger extracts/note produced by the appellant to prove that the discounts (amounts not collected from the customers which is mistakenly shown as commission) given to each individual customers do not exceed Rs 2,500/-, which fact the assessing officer has also noticed in the assessment proceedings.
The CIT (Appeals) failed to consider the contentions/submissions of the appellant in the right perspective and decided the appeal on a mistaken understanding of the nature of business of the appellant and the transaction involved.
The facts of the case are that the Assessing Officer noticed that in the profit
and loss account attached with the return of income for the year under
consideration, the assessee had debited an amount of Rs.46,05,833/- on account
of commission payments, but he had not deducted tax u/s. 194H of the Act and
hence, was disallowable u/s. 40(a)(ia) of the Act. The assessee contended that
commission payment of Rs.46,05,833/- was made to end customers and out of
the said amount of Rs.34,36,733/-represented reimbursement of special scheme
payment by the Tata Teleservices Ltd. for which they had deducted TDS.
According to the Assessing Officer, as per the provisions of section 194H of the
Act, the assessee should have deducted tax from payments made by him
irrespective of whether Tata Teleservices Ltd. had deducted or remitted it to the
I.T.A. No.131 & 132/Coch/2016
government account. In view of this, the Assessing Officer made an addition of
Rs.46,05,833/- u/s. 40(a)(ia) of the Act.
Before the CIT(A), the assessee had filed an additional ground that “The
Assessing Officer is not justified in reopening the assessment on the basis of
audit objection.” Before the CIT(A), the assessee further explained the ground
as follows:
“(a) Your appellant is not paying commission to the end customers. The amount consists of discounts given to various parties reimbursed by the company. It has been accounted as commission in books only because Tata Tele Services Ltd. deducted tax u/s. 194H and given it a nature of commission.
(b) Even if it is considered as commission, the amounts adjusted to individual parties do not exceed the exemption limit of Rs.2500/- mentioned in section 194H to attract disallowance u/s. 40(a)(ia) of the Act. This fact was already explained to the Assessing Officer and was almost convinced.
Bifurcation of total commission received in profit and loss account is given below:-
Less: Amount reimbursed by Tata Tele Services Ltd. Rs.51,47,543/- For giving discount to the end customers Rs.34,36,733/- Less: Additional discount given during the Year for fighting competition Rs.11,69,101/- Total expenditure as per Profit and Loss a/c Rs.46,05,834/- Balance being amount of commission included in the income of trading profits Rs. 5,41,709/-
Total amount received as per profit and loss account accounted as commission is Rs.51,47,543/- . This amount includes Rs.34,36,733/- given as recharge discount to end customers reimbursed by the company.
I.T.A. No.131 & 132/Coch/2016
There had been no gain for your appellant in this arrangement. TDS for the said value has already been deducted and uploaded in your appellant’s name by the company. Your appellant is merely acting as an intermediary in handing over the benefit of this scheme to the customers. Copy of instruction letter from the company for giving discount to the customers for Rs.34,36,733/- is also attached herewith.
Further your appellant has given additional discount to customers amounting to Rs.11,69,102/- out of dealer commission received from the company to boost sale to fight competition. (The additional discount given to various parties has also been accounted as commission). In the case of Pareek Electricals vs. Assistant Commissioner of Income-tax Circle-2(1) Cuttack, it has been held that trade discount given to sub-franchisees as a compensation foregoing part of commission already subjected to tax at source by the company shall not attract 194H again and hence the disallowance was unjustified. The copy of judgment is attached here along for your kind perusal.
Additional Ground
As per the additional grounds raised by your appellant, the Assessing Officer is not justified in reopening the assessment on the basis of audit objection. The Hon’ble High Court of Gujarat in the case of Shree Ram Builders vs. Assistant Commissioner of Income-tax (2015) 121 DTR (Guj) 101) has upheld the same. The copy of judgment is attached here along for your kind perusal.”
10.1 The CIT(A) considered the issue on merit. The CIT(A) referred to a
letter produced by the assessee from Tata Teleservices Ltd. dt. 07/12/2010
stating that “following amounts are reimbursed to M/s. MS Communication.
Cricket Hungama Rs.31,16,766/- Miracle Recharge coupon Rs. 2,77,521/- Bakrid X mas Special Schemes Rs. 42,446/- Rs.34,36,733/- From the above, the CIT(A) observed that it is not clear how “Cricket Hangama”
is a scheme reimbursed by the Telephone Company. According to the CIT(A)
reimbursement means “monies actually had been paid to the Assessee”. The
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CIT(A) observed that if the assessee is claiming that it was a discount to the
customer, then the assessee should also receive a discount, instead of that, he
assessee had received commission. Hence the CIT(A) rejected the argument of
the assessee and it was treated as income of the assessee. Further, on
verification of the note book in which details of persons to whom the commission
was paid, the CIT(A) found that it was a handwritten ‘katcha note book’ in which
name and village of persons were written but no proper address was available
and the assessee was not able to produce any confirmation in this regard. The
CIT(A) observed that the case laws relied upon by the assessee were against the
facts of the assessee’s case. The assessee was not able to prove the
genuineness of the discount given by him. Hence, the CIT(A) justified the action
of the Assessing Officer and confirmed the addition.
Against this, the assessee is in appeal before us.
The Ld. DR relied on the order of the lower authorities.
We have heard the rival submissions and perused the record. We find that
the CIT(A) has not at all adjudicated the additional ground raised by the
assessee. In view of this, we vacate the findings of the CIT(A) which was
decided by him on merit and remit the entire issue to the file of the CIT(A) with
a direction to adjudicate the additional ground first and then, if he requires, he
I.T.A. No.131 & 132/Coch/2016
has to decide the other grounds afresh. Accordingly, the appeal of the assessee
is partly allowed for statistical purposes.
In the result, the appeal of the assessee in ITA No. 132/Coch/2016 is
dismissed and the appeal of the assessee in ITA No.131/Coch/2016 is allowed for
statistical purposes. Order pronounced in the open Court on this 01st March, 2019
sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi Dated: 01st March, 2019 GJ Copy to: 1. Shri Manzar Alikunju, Pannampallil House, Thodiyoor North P.O., Karunagapally, Kollam. 2. The Assistant Commissioner of Income-tax, Circle-1, Alappuzha. 3. The Commissioner of Income-tax(Appeals), Kottayam. 4. The Pr. Commissioner of Income-tax, Kottayam 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin
I.T.A. No.131 & 132/Coch/2016