PRINCIPAL COMMISSIONER OF I T JAIPUR-3 vs. SHRI MANOJ KUMAR JOHARI

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 78 / 2016 Principal Commissioner of Income Tax, Jaipur-3, Statue Circle, C- Scheme, Jaipur. ----Appellant Versus Sh. Manoj Kumar Johari Prop. M/s. The Art Palace, Ramgarh Shekhawati, Sikar (Raj.) A.Y.2009-10. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 05/09/2017 1. By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby Tribunal has partly allowed the appeal of the assessee. 2. This court while admitting the appeal on 4.10.2016 framed following substantial question of law:- “1. Whether the Tribunal is justified in law in allowing the deduction u/a 10BA on Income of Rs. 7,80,143/- ignoring the material fact, that the assessee did not fulfill the prerequisite conditions prescribed under sub- section 2 of section 10BA and was not eligible for the deduction at all on the aforementioned income?

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business premises where very old firm M/s. Indian Art Palace was carrying the business. He used the same old machinery belonging to M/s. Indian Art Palace, for which he paid rent to that concern. He also paid rent for the business premises separately, to M/s. Indian Art Palace. Assessee added to the machinery every year but continued to use the plant and machinery and premises of M/s. Indian Art Palace and is till using these assets. 3.1 The assessee claimed 100% deduction of his profit u/s 80IB from A.Y. 2003-04 to A.Y. 2005-06. When 100% deduction was not available to assessee from A.Y. 2006-07 onwards, the assessee switched over his claim from Section 80IB to section 10BA, though there was no noticeable change in the nature of assessee’s business. No new undertaking was set up by the assessee in A.Y. 2006-07 to 2009-10. As is evident from the sequence of events, the same business at the same place and with same machinery had been going on for several years, in the name of M/s. Indian Art Palace. 4. It is contended that issue no.1 is squarely covered by the decision of this court in ITA No.113/2012 & 114/2012 (CIT Jaipur- III vs. Manoj Kumar Johari) decided on 29.8.2017 wherein it has been held as under:- “By way of the appeals, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeals. This Court while admitting the matter framed the following question of law:-

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In DBITA No. 113/2012 & In DBITA No. 114/2012 “Whether the Tribunal was justified in the facts and circumstances in allowing relief of exemption under Section 10BA of the Act even when the substanttive and material conditions which was pre-requisite were not fulfilled, on the basis of appellants own case in A.Y. 2005-2006 which was based on different point and is pending in appeal before Hon’ble High Court u/s 260A of the Act?” Counsel for the appellant contended that the Tribunal has seriously committed an error in confirming the order of CIT(A) and wrongly reversed the view taken by the AO. Counsel for the respondent has relied upon the decision of this Court in case of CIT vs. Manoj Kumar Johri in Tax Appeal No. 243/2011 decided today wherein it has been observed as under:- “Before proceeding with the matter, whether the Tribunal was right in setting aside the order under Section 263 which has been passed by the CIT(A), that question has been considered by the Tribunal in Appeal No.243/2011 and the same was argued by Mr. Sameer Jain. The Tribunal while discussing the issue has relied upon different decisions of the High Court and after considering in detail has come to the conclusion that while invoking the provisions under Section 263 of the Act, the assessment order is prejudicial to the interest of revenue. The subsequent proceedings which took place on 24.09.2008 could not be relied upon. Taking support of Section 263 (1)(b), the concept of record is the record which was available with the A.O. at the time of assessment. If the contention which has been raised by Mr. Jain is taken into consideration, no assessee will be assessee. If the subsequent events to the assessment order is taken into consideration then the scope of Section 263 will be enlarged. In that view of the matter, we are of the opinion that the record which was available with the A.O. is required to be taken into

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consideration and the tribunal while considering the matter has taken into consideration the seven documents, more particularly D.L.C. Certificate which could be procured easily and the other documents like export licence which has been grantedw.e.f. 02.09.2002 and registration certificate granted by C.T.O. w.e.f. 26.08.2002. He has also produced the muster roll register. In that view of the matter, the tribunal has considered the complete facts in detail. It will not be appropriate to re-appreciate the facts, more particularly when the tribunal has observed that the discussion which has been done by the A.O. have not been specifically rebutted by the Department. In that view of the matter, we are of the opinion that the view taken by the Tribunal is just and proper. The issue is required to be answered in favour of the assessee against the department.” 4.2 In view of the above, the issue no.1 is answered in favour of the assessee and against the department. 4.3 Regarding issue no.2, Mr. Jain has taken us to the order of the AO in para no.8 which reads as under:- “8. Disallowance U/s 40(a)(ia):- Assessee had filed the details of the payment made to M/s Sachin Cargo Movers with letter dated 20.12.2011. Perusal of such details shows tha substantial amount was paid to them as transport charges. Total of such payments for transport is Rs.43,21,000/-. Assessee was required to deduct tax at source on such payments, however no tax was deducted at source. On being asked, it is explained that assessee did not pay any transportation charges to any transporter directly under this head and the assessee only reimburse the actual expenditure incurred by Sachin Cargo on the behalf of assessee and hence TDS provisions were not

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attracted on these payments as per circular No. 715 dated 08.08.1995. The explanation filed by assessee is not acceptable because assessee has not filed any details or evidence to show that M/s Sachin Cargo had passed on the entire transport charges to transporter(s) and not retained any margin for itself out of these payments. Assessee has not filed details or produced vouchers from transporters to whom exact amount was paid by M/s Sachin Cargo on behalf of assessee. Since assessee has not deducted tax at source on payments of disallowance of Rs.43,21,000/-, is made u/s40(a)(ia) of the Act. 4.4 He has also taken us to the order of the CIT(A) which reads as under:- 5.1. A.O. noticed that the appellant paid total of Rs.43,21,000/- to M/s. Sachin Cargo Movers for transport without deducting tax at source Appellant explained that he only rembursed the actual expenditure increased by M/s. Sachin Cargo Movers who in turn deducted the tax while making payment to the appellant could not prove that the entire transport charges paid to M/s. Sachin Cargo Movers was paid to the transports and no margin was retained by this concern. He therefore,

disallowed

sum

of Rs.43,21,000/- U/s. 40(a)(ia) of the Act. A.O. further noticed that the TDS made on some contract payments was not deposited within the due dates. He therefore, disallowed a sum of Rs.30,92,718/- U/s. 40(a)(ia) of the Act. 5.2. Ld. AR in his written submission stated that no transport charges were paid by the appellant to M/s. Sachin Cargo Movers. He only paid C&F charges which included the reimbursement of various expenses incurred by the C & F agent including the transporting charges. Appellant has not made any direct payment of transport charges to the transporters. Hence,

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provision of sec. 194C are not applicable on such payment to M/s. Scchin Cargo Movers. It was alternatively claimed that no disallowance U/s. 40(a)(ia) can be made since the entire payment was made during the year and nothing remained payable at the year end. Ld. A.R. relied on the decisions of ITAT, Jaipur in the case of jaipur Vidhyut Vitran nigam Ltd. (2009) (26 DTR 79) and special Bench decision in the case of Marilyn Shipping and Transport (2012) (146 TTJ 1) (Visakha SB). In respect of Late deposit of TDS made on contract payments, it was submitted that the entire payment was made before the due date of filing the return U/s. 139(1). Alternatively it was claimed that since the entire contract amounts were paid before the end of the year and the thing remained outstanding, no disallowance can be made U/s. 40(a)(ia) of the Act. 4.5 He further contended that the tribunal has committed serious error in allowing the appeal of the assessee observing as under:- 4.2 Ld. Counsel for the assessee contends that the assessee paid no transport charges. The assessee appointed an agent M/s Sachin Cargo Movers, B-56, Model Town, Jagatpura Road, Jaipur for shipping the goods from factory site to inland port for onwards export out of India. The agent reimburses all expenses made by it therein and raises a bill there for which assessee reimbursed. The total charges paid are Rs. 1,23,24,384.26 which are debited in P & L A/c as C & F charges. The breakup of charges are as under:- (I) THC etc. charges 42,56,773.49 (ii) ICD/cfs Inland haulage charges 21,81,974.23 (iii) Transporation & Handling charges 43,21,000.00

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(iv) Fumigation charges 3,01,746.00 (v) GSP charges 74,400.00 (vi) Sachin

Cargo

Agency charges 2,66,500.00 (vii) Other charges 62,718.00 (viii) Ocean freight 7,89,270.24 Ld. AO picked up transport charges of Rs. 43,21,000/- and held that assessee has not deducted due TDS there from and disallowed the same u/s 40(a)(ia) of I.T. Act, 1961. In this connection it is submitted that assessee has not directly paid these transport charges but are reimbursed by him to Sachin Cargo Movers. M/s Sachin Cargo Movers who has paid the transport charges and deducted due TDS from transporters and deposited the same in accordance with provisions of I.T. Act, 1961. This is neither disputed in earlier or current year. Since the agent who paid these transport charges deducted due tax there from, the assessee is thus not liable to deduct TDS from transportation charges. Necessary details of these payment with evidence that M/s Sachin Cargo movers having deducted and paid due TDS from transportation charges was furnished. A certificate from M/s Sachin Cargo Movers to this effect is also on record. In these facts of the case the disallowance made u/s 40a(ia) by . A.O. in the hands of assessee is unjustified and bad in law. Ld. CIT (A) upheld the action of A.O. by holding that in effect, the transport charges were paid by appellant on which TDS was required to be made. If agent paid TDS on behalf of assessee it will not exonerate assessee from liability. It ITA No. 479/JP/2013 ACIT ,Circle- Sikar vs. Shri Manoj Kumar Johari. 6 is submitted that both the authorities below did not appreciate that transportation charges were incurred by agent on behalf of assessee and relationship between assessee and agent is principal and agent and in such case assessee is not required to deduct tax at source and there can be no disallowance u/s 40 (a) (ia). The agent reimbursed only

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transport charges actually paid by him after deducting TDS and for his services charged assessee on which service tax was also paid. The ld. AR of the assessee relied on following decisions. (i) CIT Vs. Harbans Lal Malhotra & Sons P. Ltd. (2013)262 CTR 94 (Cal). (ii) CIT Vs. Gujrat Narmada Valley Fertilisers Co. Ltd. (2014)361 ITR 192 (Guj). It is further contended that the same issue is covered in favour of the assessee by ITAT Jaipur Bench (ITA No. 1111/JP/2011 dated 21-11- 2014) in assessee's own case for the assessment year 2008-09 by observing as under:- ‘’10.6 We have heard the rival contentions and perused the materials available on record. In our considered view the nature of between assessee & M/s. Sachin Cargo Movers, C&F Agent, was for reimbursement of expenses. Besides, the TDS thereon has been deducted by the agent as mentioned above. By now, it has been settled by various Courts that reimbursement of expenses are not liable for deduction u/s 40(a)(ia) of the Act. In any case the agent has deducted the TDS a fact not disputed by revenue, in this eventuality also the case laws cited by the ld. AR supports this proposition. In view thereof, we hold that the expenses paid to M/s. Sachin Cargo Movers,

C&F

Agent,

being

for reimbursement of expenses cannot be disallowed u/s 40(a)(ia) of the Act. Thus Ground No. 3 of the assessee is allowed.’’ 4.6 He has also taken us to issue no.3 and contended that the finding recorded by tribunal with regard to Section 69 is also contrary to law and required to be reversed inasmuch as stock which was closing for the previous year, the same has been changed in the profit and loss account.

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4.7 Counsel for the respondent Mr. Jhanwar relied on regarding issue no.2 on following decision which are referred in ITA No.3/2011 (Commissioner of Income Tax vs. M/s. Daulat Enterprises & other connected cases) decided on 31.7.2017 and another decision of this court in ITA No.579/2009 (CIT vs. Principal Officer JVVNL) decided on 26.5.2017 wherein it has been held as under:- “Issue No.2, counsel for the respondent has relied upon the decision of this Court in Ajmer Vidhut Vitran Nigam Ltd. Vs. Authority for Advance & Ors., in D.B. Civil Writ Petition No. 20195/2012, decided on 19th October, 2016, wherein it has been observed as under: “2. Counsel for the petitioner relied on the provisions of Section 194C and 194J which reads as under :- 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor85) for carrying out any work85 (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to— (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub- section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of

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such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub- clause (e) of clause (iv) of the Explanation, tax shall be deducted at source— (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 86[thirty] thousand rupees 194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of — (a) fees for professional services, or (b) fees for technical services26, 27[or] [(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or] [(c) royalty, or (d) any sum referred to in clause (va) of section 28,]shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 29[ten] per cent of such sum as income-tax on income comprised therein”

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(2001) 251 ItR 53 (MAD.), 6. M.S. Jewellery Vs. Assistant Commissioner (ASSESSMENT) Agricultural Income Tax and Sales Tax and Anr. (1994) 208 ITR 531 (KER.), 7. CIT vs. Maharashtra State Electricity Distribution Co. Ltd., (2015) 119 DTR (BOM) 278, 8. Commissioner of Income Tax-II and Ors. Vs Delhi Transport Ltd. Manu/ DE/ 2199/2015. 5. We have heard learned counsel for the parties. 6. In view of the fact that issue is concluded by decision of Bombay High Court and Delhi High Court and SLP against the same has been dismissed. In that view of the matter the issues are required to be answered in favour of the assessee against the department.” 4.8 Regarding question no.3, he relied upon the decision of Supreme Court in Commissioner of Income Tax vs. Excel Industries Ltd. (2013) 358 ITR 295 wherein Supreme court held as under:-

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“20. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the Assessee. 21. In so far as the present case is concerned, even if it is assumed that the Assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the Assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the Assessee.” 5. We have heard counsel for the parties. 5.1 With regard to issue no.2, it is observed that since it was reimbursement, in our considered opinion, the tribunal has not committed error in allowing the appeal of the assessee. The further contention by the department if it is reimbursement, it will be open for the department to examine the matter on merits and take independent view considering law prevailing on the date on which situation arises. 5.2 Regarding unexplained investment u/s 69, in our considered opinion, the facts of the case were rightly appreciated by the tribunal and the tribunal has not committed serious error in taking into account the stock value on the date and subsequently carried forward.

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5.3 In that view of the matter, the issues are answered in favour of the assessee and against the department. 6. The appeal stands dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Brijesh79.