DADIBA KALI PUNDOLE ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOMEM TAX -17(1), MUMBAI

The learned Commissioner of Income Tax (Appeals) erred in holding that the appeal against Intimation under section 143(1) of the Act was not maintainable under section 246A of the Act.

The learned Commissioner of Income Tax (Appeals) erred in dismissing the appeal on the ground that the Appellant had no recourse to appeal against the Intimation under section 143(1), and his only recourse was a rectification application under section 154. 4. The learned Commissioner of Income Tax (Appeals) erred in ignoring section 246A, as introduced by Finance Act (No. 2), 1998 w.e.f. October 1, 1998. 5. Having regard to the facts and circumstances of the case, the Appellant submits that the learned Commissioner of Income Tax (Appeals) erred in confirming the demand of Rs. 1,99,20,200/-raised by the Centralized Processing Centre (CPC).

The Appellant submits that having confirmed that there was a double disallowance in respect of Income Computation and Disclosure Standards (ICDS) adjustment of Rs. 6,200/- to the Returned income, the learned Commissioner of Income Tax (Appeals) ought to have deleted the said disallowance

Having accepted the fact that the Appellant was an auctioneer, and that he was entitled to further TDS credit of Rs. 2,19,46,625/-, the learned Commissioner of Income Tax (Appeals) ought to have allowed the said TDS credit.

The learned Commissioner of Income Tax (Appeals) erred in denying TDS credit to the tune of Rs. 12,25,660/-deducted under section 194Q despite acknowledging the fact that the Appellant was an auctioneer, and the TDS was duly deducted and paid into Government Treasury.

Having regard to the facts and circumstances of the case, the Appellant submits that the Assessing Officer/CPC be directed to grant the said TDS credit of Rs. 12,25,660/-. 10. The learned Commissioner of Income Tax (Appeals) erred in confirming the excess levy of interest under section 2343 of the Act of Rs. 36,10,307/- as against Nil in the Return of Income.

The Appellant submits that the Assessing Officer/CPC be directed to delete interest under section 2348 of the Act to Nil as per return of income.

The learned Commissioner of Income Tax (Appeals) erred in confirming the excess levy of interest under section 234C of the Act of Rs. 29,16,062/- as per the Intimation under section 143(1) as against Rs. 21,31,475/- as per Return of Income.”

The assessee is an individual and is the sole proprietor of three businesses namely (a) Pundole's (b) Pundole Art Gallery and (c) Pundole Exports. Pundole's is an auctioneer and conduct auctions of paintings and art works. Pundole Art Gallery promotes, publishes, exhibit and sells arts and the assessee is maintaining proper books of accounts for the same. Pundole Exports is in the business of exporting fine and decorative art mainly on behalf of Pundole Art Gallery and Pundole's. The assessee filed the return of income for AY 2023-24 on 13.10.2023 declaring total income of Rs. 29,16,71,424/-. The return was processed under section 143(a) of the Act in which the credit for TDS was allowed for an amount of Rs.76,38,594 as against an amount of Rs.2,31,72,785 as claimed by the assessee in the return of income. The reason for not allowing the credit towards TDS deducted under section 194Q is stated to be that the assessee has not offered the corresponding income as reported in Form-26AS.

Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) accepted the submissions of the assessee towards the TDS credit to the tune of Rs.2,19,46,625. With regard to the balance TDS amount of Rs.12,25,660/- the CIT(A) did not accept the submissions of the assessee that tax deducted under section 194Q was deducted by the purchasers of the goods in the Auction conducted by the Pundole and that the said sale is carried out by the assessee as an auctioneer and not as the owner. The assessee furnished the following details with regard to the breakup of the TDS deducted under section 194Q for which credit has not been given.

Though the CIT(A) majorly recorded favourable findings with regard to the short credit for TDS disputed by the assessee dismissed the appeal on the ground that the appeal against the intimation under section 143(1)(a) is not maintainable as per CBDT Circular No. 549 dated 31.10.1989. The assessee is in appeal against the order of the CIT(A).

The ld. AR on the maintainability of the appeal submitted that the CIT(A) has referred to a Circular which was issued prior to introduction of section 246A w.e.f. 01.10.1998 and that the appeal of the assessee against 143(1)(a) intimation is maintainable as per the provisions of section 246A of the Act. The ld. AR in this regard took the Bench the relevant provisions of the Act.

The ld. DR on the fairly conceded that the findings of the CIT(A) with regard to maintainability of the appeal is not tenable. 7. We heard the parties and perused the material on record. The assessee has filed the appeal against the intimation under section 143(1) under section 246A of the Act which read as under:

From the plain reading of the above provisions, it is clear that the appeal against the intimation under section 143(1)(a) can be filed before the CIT(A) and therefore there is no merit in the findings of the CIT(A) on the ground that the appeal against intimation under section 143(1)(a) are not maintainable. The grounds raised by the assessee in this regard are allowed.

With regard to the short credit of TDS. The ld. AR brought to our attention that the assessee has claimed a TDS credit to the tune of Rs. 2,31,72,285/- while filing the return of income and that out of the said amount a credit for Rs. 76,38,594/- only was given by the CPC while processing the return under section 143(1)(a) of the Act. The ld. AR drew our attention to the findings of the CIT(A) with regard to short credit of TDS where the CIT(A) has held that “7.1 During the appeal proceeding, the appellant has contended that the CPC is erred in restricting the TDS credit claimed by the appellant of Rs.2,31,72,285/- in return of income to Rs. 76,38,594/- by invoking rule 37BA of the Income Tax Rule, 1962. The appellant has stated that though the "turnover" of him is merely the commission paid by principal buyer on which the principal buyer deducts TDS under section 194H/194J and which has been duly disclosed as his turnover and offered to tax as income in the Income Tax Return, therefore the TDS deducted by such principal buyers by virtue of provisions of section 194Q, even though not required to, is eligible to be claimed by the agent i.e. appellant in his return of income. The case laws quoted by the appellant are carefully noted.

2 On examination of the submission made by the appellant and other details available on records, it is observed that he is carrying out the business as an auctioneer. The Appellant's role is to facilitate the transaction of auctioning the goods, not to take ownership of the goods. It does not purchase / sale goods in its own capacity. Any property taken on auction by appellant is facilitated by an Agreement entered into between appellant M/s. Pundole's (the Auctioneer) and the Vendors, wherein the terms specifically mentions that the Appellant would merely act as an agent in the process of auction, and at no point would ownership passes on to the Appellant.

2.1 The property is sold to the appellant on a consignment basis and the owner of the artwork is always the seller. As an auctioneer, the appellant only facilitates the transaction of auctioning the goods/paintings, which is ultimately entered into by the buyers and sellers. The appellant has argued that the risks and rewards of ownership never pass on the appellant at any stage of the transaction, and the appellant bears no risk. Therefore, the receipts of hammer price and payment made to vendors is a back-to-back arrangement and there is no profit arising to the appellant (whatever is the Hammer Price i.e the price at which the goods are auctioned is recoverable by the appellant from the winning bidder and payable to the Vendor) and it does not affect the taxable income of the appellant. Therefore, the appellant has stated that the goods sold in auction through appellant are not credited to the Profit and Loss Account in accordance with Accounting Standard 9 (AS 7.2.3 The only reward to the appellant is after the buyer completes the payment of the painting bought in auction, the appellant earns only commission income, which is retained by him and the balance amount is passed on to the seller by the appellant on the Hammer Price. The appellant earns commission income in the form of Vendors (Sellers) Commission whose paintings or goods are auctioned in the auction, as also Buyers Premium from the party which purchases the same in auction. The Vendors Commission and Buyers Premium are duly credited to the Profit and Loss Account under the head "Commission received" and offered to tax by the appellant. Further, the appellant has referred the CBDT's Circular No. 452 [F. No. 201/3/85-ITA-II] dated March 17, 1986 which clarified that in case of any agent, "turnover" does not include sales affected on behalf of principal and only gross commission has to be considered for the purposes of Section 44AB of the Act.

3 From the facts discussed above, it is apparent that the appellant is doing business as an auctioneer. While doing so, the appellant only facilitates the transaction of auctioning the goods/paintings, which is ultimately entered into by the buyers and sellers. It does not purchase / sale goods in its own capacity. Therefore, the risks and rewards of ownership never pass on the appellant at any stage of the transaction, and the appellant bears no risk. The only reward to the appellant is after the buyer completes the payment of the painting bought in auction, the appellant earns only commission income, which is retained by him and the balance amount is passed on to the seller by the appellant on the Hammer Price. The appellant earns commission income in the form of Vendors (Sellers) Commission whose paintings or goods are auctioned in the auction and Buyers premium from the party which purchases the same in auction. Therefore, the claim of appellant that the total turnover of the appellant is nothing but commission income (i.e Vendors / (Sellers) Commission and Buyers premium) and the same has been duly reported in the turnover as per CBDT's Circular No. 452 [F. No. 201/3/85-ITA-II] dated March 17, 1986 is found to be reasonable and acceptable.

3.1 Therefore, the claim of TDS to the extent of income admitted by the appellant under the head of commission income as turnover is allowable as per sec 199 r.w.r 37BA of Income tax rules.

3.2 Sec 199 r.w.r 37BA of Income Tax rules 1962 states that "the Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority."

4 Regarding the claim of TDS credit of Rs.2, 19,46,625/- (other than 194Q):

4.1 It is observed that the appellant has offered total gross receipts of income offered to tax under various heads of Rs. 45,94,36,822/- in the return of income. The breakup of gross total income and corresponding TDS credits admitted in the return of income submitted by the appellant during the appeal proceedings are as under: The Appellant has claimed credit for TDS amounting to Rs. 2,31,72.285/- in his Renin of Income as under:

4.2 Therefore, the corresponding TDS credits of Rs. Rs. 2,19,46,625/- pertained to gross receipts of income offered to tax by the appellant are eligible to allowable as per sec 199 r.w.r. 37BA of the Income Tax Rules. The claim of appellant to the extent of TDS credit Rs. 2,19,46,625/- has merits.

5 Regarding the claim of TDS credit of Rs. 12,25,600/- u/s 194Q:

5.1 It is seen from the records available that the appellant has claimed total TDS credit of Rs.2,31,72,285/- including TDS credit of Rs 12,25,000/- deducted u/s 194Q in return of income. It is admitted by the appellant that the corresponding purchases and sales of Rs. 122,56,60,000/- were not reported by him, due to the fact that the appellant only facilitates the transaction of auctioning the goods/paintings, which is ultimately entered into by the buyers and sellers. It does not purchase / sale goods in its own capacity. 7.5.2 The appellant has also entered into agreement with seller stating as under:

5.3 In view of above, the appellant has submitted that the terms and conditions are the same in all the agreements and as per the agreement the appellant will only be entitled to commission on the auction and the Hammer price less the commission and indirect taxes will be passed on to the vendor. Further, it is admitted by the appellant that the corresponding purchases of Rs.122,56,60,000/- to the TDS credit of Rs. 12,25,000/- u/s 194Q were not reported by him. Therefore, it is evident that the TDS deducted by the buyer at the time of purchase of article through auction u/s 194Q are pertained to seller only. The details of the buyer and TDS deducted u/s 194Q are as under:

5.4 Sec 194Q of the Income Tax Act says that -

5.5 In the present case, as per sec 194Q(1) of the Income Tax Act, the buyer would have deducted TDS @ 0.01 u/s 194Q(1) of the goods value or aggregate of such value exceeding Rs. 50 Lakhs in the name of seller. Since, the appellant is an auctioneer and not credited corresponding purchases and sales of Rs.122,56,60,000/-for the TDS credit of Rs.12,25,000/- deducted u/s 194Q in return of income, the appellant is not eligible to claim such TDS credits in the return of income. Therefore, the claim of appellant to the extent of TDS credit of Rs.12,25,000/- deducted u/s 194Q in return of income has no merits.”

The ld. AR argued that the CIT(A) has accepted the fact that the assessee has made sales as an auctioneer and in para 7.3 has given a clear finding that the sales made as an auctioneer are not the income of the assessee not to be accounted in the books of accounts. The ld. AR further argued that the only reason for denying the TDS credit as given by the CIT(A) in para 7.5.5 of the above order is that the assessee has not accounted for the sales made as an auctioneer. Accordingly, the ld. AR submitted that the CIT(A) has given contrary findings with regard to the allowability of TDS credit deducted under section 194Q of the Act. The ld. AR submitted that since the fact that the auctioneer is not required to account for the entire sales is admitted the TDS credit cannot be denied to the assessee. The ld. AR drew our attention to the various decisions of the Co-ordinate Bench as listed below to submit that the assessee is entitled to claim deduction under section 194Q of the Act.

Decision of Jaipur Tribunal in the case of Kamlesh Kumar Jain vs DCIT (167 taxmann.com 601) 2. Decision of Visakhapatnam Tribunal in the case of Yagneswari General Traders v. ITO (ITA 39/VIZ/2024 dated March 18, 2024) 3. Decision of Jaipur Tribunal in the case of Madan Lal Gupta vs ITO, (Ι.Τ.Α. No.192/JPR/2024 dated April 30, 2024) 4. Decision of Visakhapatnam Tribunal in the case of Chilakala Srinivasa Reddy vs ITO (166 taxmann.com 352) 5. Decision of Visakhapatnam Tribunal in the case of Kanaka Mahalakshmi 12. We heard the parties and perused the material on record. The assessee's return was processed under section 143(1) wherein the CPC gave credit towards TDS for an amount of Rs. 76,38,594/- as against the total claim of Rs. 2,31,72,285/-. The reason for short credit of TDS is that the receipt as per Form 26AS and the receipts declared by the assessee in the return of income do not match. The CIT(A) while considering the issue has accepted the claim of the assessee to the tune of Rs. 2,19,46,625/- (refer para 7.4.2 of CIT(A) as extracted above). Accordingly, we direct the AO to give credit towards TDS as per the findings of the CIT(A). For the balance amount of TDS of Rs. 12,25,600/-, we notice that the only reason for denial of the credit is that the corresponding purchases and sales has not been accounted by the assessee. It is an undisputed fact that the assessee is doing business as an auctioneer and in the process facilitates transactions of auctioning of various goods/painting. It is also an undisputed fact that the assessee earns only commission income out of the transaction which is carried out as part of auction and that the assessee merely acts as an intermediary between the buyer and the seller of the goods / painting. From the perusal of the CIT(A) in para 7.3, we notice that the CIT(A) has accepted the contention of the assessee that the auctioneer is required to account only the commission income and that the auction turnover need not be accounted by placing reliance on the CBDT Circular No. 452(F. No. 201/3/85-ITA- II dated 17.03.1986). Therefore, in our considered view there is merit in the contention of the ld. AR that there is inconsistency in the findings of the CIT(A) while denying the benefit of TDS credit to the assessee on the ground that the turnover on which tax is deducted is not accounted as the turnover of the assessee. From the perusal of the decisions of the various Co-ordinate Benches as cited by the ld. AR we notice that the credit for TDS under section 194Q cannot be denied to the commission agent for the reason that the entire amount on which the commission is earned has not been reflected in the books of accounts. In the case of an auctioneer, party and that the auctioneer gets only a commission. In assessee's case the ld. AR took the Bench through sample contracts and invoices of an auction sale to substantiate the fact that the assessee is earning only commission income and to support the claim that the TDS under section 194Q is done on the same transactions on which the commission income is earned by the assessee. We further notice that the impugned receipts on which tax is deducted under section 194Q were also subject to TDS under section 194H on the commission amount contained therein. Therefore, there is merit in the claim of the assessee that the TDS under section 194Q was deducted out of abundant caution and not for the reason that the amount on which that the tax are deducted are receipts in the hands of the assessee. Further Accounting Standard-9 issued by the Institute of Chartered Accountants of India provides that the revenue in the case where there is an agency relationship is the amount of commission and not the gross inflow of receipts. In view of this discussion, we are of the considered view that the lower authorities are not correct in denying the credit for TDS to the assessee who is an auctioneer on the ground that the amount on which the tax is deducted has not been accounted as revenue in the hands of the assessee. Accordingly, we direct the AO to give credit for the TDS as claimed by the assessee.

In result, the appeal of the assessee is allowed.