SK. GOLAM MUSTAFA,JAJPUR vs. ACIT, CIRCLE-1(1), CUTTACK

आयकर अपील�य अ�धकरण, कटक �यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अपील सं./ITA No.132/CTK/2018 Assessment Year: 2012-2013 SK.GOLAM MUSTAFA Vs. ACIT, Circle-1(1), Cuttack New Siaria, Trijanga, Rehabilitation Colony, Danagadi, Jajpur-755026 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AKGPM 6161 L (अपीलाथ� /Appellant) (��यथ� / Respondent) .. �नधा�रती क� ओर से /Assessee by : Shri P.K.Sahoo, AR राज�व क� ओर से /Revenue by : Shri Subhendu Dutta, DR सुनवाई क� तार�ख / Date of Hearing : 30/08/2018 घोषणा क� तार�ख/Date of Pronouncement 31/08/2018 आदेश / O R D E R Per Shri Pavan Kumar Gadale, JM: This is an appeal filed by the assessee against the order of CIT(A), Cuttack, dated 27.02.2018 passed in I.T.Appeal No.0005/2015-16 for the assessment year 2012-2013. 2. The assessee has raised the following grounds of appeal :- 1. The order of learned Commissioner of Income Tax(Appeals) Cuttack confirming the addition of Rs 2,35,127/- made by the ACIT,Circle-l(l) Cuttack under section 40A(3) of IT ACT 1961 in computing the business income of the assessee is arbitrary to law and the facts of the case. 2. The learned Commissioner of Incometax (APPEATS),Cuttack is not justified in disallowing the professional fees paid amounting to Rs 6,68,680/- on the ground that no TDS has been deducted from such payments. 3. The Appellant craves leave to add or amend any grounds of appeal. 3. Brief facts of the case are that the assessee is engaged in the business of contract work under the name and style of Royal Enterprises

2 ITA No.132/CTK/2018 and filed the return of income on 31.03.2012 for the A.Y.2012-2013

declaring total income of Rs.17,00,971/-. The return of income was

processed u/s.143(1) of the Act. Subsequently the case was selected under scrutiny under CASS and notices u/s.143(2) & 142(1) of the Act

were issued. In compliance of the same, ld. AR appeared before the AO and case was discussed. Thereafter the AO completed the assessment

assessing total income at Rs.33,09,561/- and passed order u/s.143(3) of the Act, dated 02.03.2015 making various disallowances.

before the CIT(A). In the appellate proceedings, the assessee has

reiterated the submissions made before the AO. The CIT(A) after

considering the submissions of assessee and findings of the AO, partly

allowed the appeal of the assessee.

argued that the AO has disallowed the safety expenses aggregating to

Rs.2,35,127/-. The CIT(A) in appellate proceedings has erred in

confirming the addition without considering the details of bank statements

of the recipient. Ld. AR’s contention that these payments are through

account payee cheques and not by cash and in respect of second ground

ld. AR submitted that the CIT(A) has erred in confirming the addition of

Rs.6,68,680/- for non-deduction of TDS on technical and professional charges. Ld. AR further submitted that the CIT(A) should have disallowed

30% of expenses as per the amended provisions in Section 40(a)(ia) of

3 ITA No.132/CTK/2018 the Act and the CIT(A) observed that this provision is w.e.f.01.04.2015,

therefore, sustained the addition. Hence, the ld. AR prayed for allowing

the appeal. 7. Contra, ld. DR supported the orders of AO and submitted that the

assessee has made cash payments under safety expenses and could not support with any evidence or reasons for payment in cash. Similarly, the

TDS has not been deduced in respect of professional fees u/s.194J, therefore, ld.DR prayed for dismissal of the appeal.

record. On the first disputed issue of disallowance u/s.40A(3), ld. AR

submitted that the provision of Section 40A(3) of the Act does not apply in

the present case as the payments are made by cheques. We find that the

AO on verification of the profit and loss account observed that

Rs.15,90,980/- towards safety expenses and also ledger account was

furnished in the course of assessment proceedings. On verification it was

found that the cash payments were made by the assessee to the shop

namely FAIR DEAL in various dates violating the provisions of Section

40A(3) of the Act. We find that in the assessment proceedings the

assessee has not filed any details on the above findings and could not

substantiate with any reason or reasonable cause for making the

payments in cash, whereas in appellate proceedings the assessee

submitted that these payments are not cash payments but in account payee cheques. Ld. CIT(A) compared the bank statements of fair deal

4 ITA No.132/CTK/2018

where account payee cheques were issued. To this effect, ld. CIT(A) has

incorporated a chart and observed as under :-

Sl.No. Date Head Amount of payment in cash 01. 09/05/2011 Safety Rs.25,980/- expenses 02. 06/07/2011 -do- Rs.26,858/- 03. 22/09/2011 -do- Rs.26,000/- 04. 22/09/2011 -do- Rs.58,203/- 05. 04/12/2011 -do- Rs.21,190/- 06. 16/12/2011 -do- Rs.76,898/- Total:Rs.2,35,127/- In the appellate proceedings, the counsel for the assessee submitted the bank statement of M/s. Fair Deal to show that the amounts were made by account payee cheques and not in cash. The chart submitted by the counsel is reproduced as under-:

Sl.No. Cheque No. Date Bank Amount 01. 5822 23/07/2011 SBI Rs.25,980/- 02. 6671 16/03/2012 SBI Rs.1,00,000/- 03. 56914 07/05/2012 SBI Rs.1,45,000/-

A comparison of the chart produced above with that produced by the Assessing Officer shows that the dates and the amounts do not tally. Further, item no.s in the assessee's chart relates to the next assessment year i.e. AY.-2013-14. Also, the bank account of M/s. Fair Deals which was produced during the appellate proceedings lacks narration of debit and credit entries which makes it unclear as to whom these cheque payments are being made to. Hence, the explanation of die assessee as regards the disallowance u/s. 40A(3) is rejected and the Assessing Officers addition is confirmed.

We found that the assessee could not substantiate with any evidence

that these payments on particular dates as per the ledger are not the

cash payments but through account payee cheques. Even we have found

that the dates mentioned by the AO at Sl.No.1 to 6 which are referred at

page 4 of the CIT(A)’s order, they are not able to tally, therefore, the

assessee could not give proper explanations and reasons and, hence, we

are not inclined to interfere with the findings of the CIT(A) and dismiss this

ground of appeal of the assessee.

5 ITA No.132/CTK/2018 9. In respect of second ground raised by the assessee for non-

deduction of TDS paid for professional fees of Rs.6,68,680/-. The AO

found that the assessee has debited towards technical and professional cons. charges. On further verification the assessee has not deducted

TDS on the amount of Rs.6,68,680/-. Ld. AO applied the provision of Section 194J as the assessee could not substantiate with any evidence

and also the reasons for non-deduction of TDS. Similarly, in the appellate proceedings, ld AR submitted that the amount has been paid by account

payee cheque and relied on the judicial decisions. Ld. CIT(A) having

consider the findings of the AO and submissions of the assessee found

that the assessee could not produce any evidence of deduction of TDS

and also rejected assessee’s contention of disallowance of 30% of the

expenses as per the amended provision to Section 40(a)(ia) of the Act

w.e.f. 01.04.2015. A query raised in the course of hearing proceedings to

the ld. AR whether the recipients have offered this income in their

individual assessment, if so evidence to be filed, ld.AR could not submit

any details, however, only submitted that income has been offered by

them in their individual returns and relied on the decision of the Jaipur

Bench of the Tibunal in the case of Shri Rajendra Yadav vs. ITO (Jaipur

Trib) ITA No. 895/JP/2012, order dated 29.01.2016, wherein the Tribunal

has observed that though the substitution in Section 40 of the Act has

been made effective w.e.f.01.04.2015, the benefit of the amendment should be given to the assessee. The observation of the Tribunal reads as

under :-

6 ITA No.132/CTK/2018 “6. We have heard rival contentions and perused the material available on record. It is an admitted fact that the appellant carried on the business of trading of marble tiles and slab. It is also an admitted fact that the marble blocks are purchased by the assessee and the same marble blocks are sent to M/s. Garvit Stonex, M/s. Chanda Marbles & M/s. Nidhi Granites for the purpose of sawing and edge cutting with a view to convert the marble blocks into marble tiles. In the assessment year under consideration, the assessee has paid a sum of Rs 1,54,711/- to M/s. M/s. Garvit Stonex, Rs. 3,92,711/- to M/s. Chanda Marbles & Rs. 2,28,700/- to M/s. Nidhi Granites totaling Rs. 7,76,122/- for edge cutting and sawing charges on various dates. From the details given, the AO and the ld. CIT (A) has worked out the average cutting and sawing charges of more than Rs. 2155/- per day paid to the said M/s. Garvit Stonex, M/s.Chanda Marbles & M/s. Nidhi Granites. In our view, the said firms/companies are doing the edge cutting and sawing on regular basis and are also having business relationship with the assessee. The regular bills were being raised by the said concerned persons on the assessee and the assessee had been making the payment to the said persons. We do not agree with the contention of the assessee that there is no written contract or oral contract with the said persons/firms which make the payment amenable for deduction of TDS under section 194C of the IT Act. We do not find force in the submissions, as per our understanding, under the contract at every promise and every set of promises are formed. The consideration for each other is an agreement and an agreement enforceable by law is a contract. In the present case, the contract stands concluded when the assessee asked M/s. Garvit Stonex and others to do the edge cutting and sawing of granite blocks and convert them into marble tiles for it for a consideration. The moment the said contractors/persons doing the sawing and edge cutting of the marble blocks, the said persons are entitled for the amount required to be paid as per the bills raise by them. In fact, in the present case after doing the edge cutting and sawing, the charges were even paid by the assessee, in our understanding, a contract has come into existence between the assessee and M/s. Garvit Stonex and others. In our view, the assessee is responsible for paying the amount to such persons i.e. contractor for carrying out the specific work. Therefore, the assessee is liable to deduct the tax on such payments. Since the assessee has failed to deduct the tax on the amount paid by it to such persons/contractor, the assessee is duty bound to deduct the tax, and non deduction of tax by the assessee, attracts the provisions of section 40(a)(ia).

6.1. Recently in the matter of P.M.S. Diesels 2015 ] 59 taxmann.com 100 (Punjab & Haryana), Hon’ble Punjab & Haryana High Court had elaborately discussed the judgment passed by the Hon’ble Calcutta High Court and Hon’ble Gujarat High Court, Hon’ble Allahabad High Court and other judgments as available and thereafter has come to the conclusion that the provisions of section 40(a)(ia) are mandatory in nature and non compliance/non

7 ITA No.132/CTK/2018 deduction of tax attracts disallowance of the entire amount. Having said so, we will be failing in our duty if we do not discuss the amendment brought in by the Finance (No. 2) Act 2014 with effect from 1.4.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payable to a resident has been substituted. In the present case, the authorities below has added the entire sum of Rs. 7,51,322/- by disallowing the whole of the amount. Though the substitution in section 40 has been made effective with effective from 1.4.2015, in our view the benefit of the amendment should be given to the assessee either by directing the AO to confirm from the contractors, namely, M/s. Garvit Stonex, M/s. Chanda Marbles and M/s. Nidhi Granites as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of Rs.7,51,322/-. In our view, it will be tied of justice if the disallowance is only restricted to 30% of Rs. 7,51,322/-. Accordingly, the appeal of the assessee is partly allowed in the above said manner. 7. In the result, appeal of the assessee is partly allowed.”

provisions of law and the judicial precedence, are of the substantive

opinion that the assessee has made the payment without deduction of

TDS in respect of professional income. Accordingly, we remit this issue to

the file of AO, who shall examine and verify the details of payee, who

have offered their income in their individual assessment and the assessee

shall cooperate in submitting the details of income tax of the payees and

Form No.26 be submitted. If the AO finds that the recipients have

deposited the tax, then the AO may consider the claim of the assessee in

accordance with the provisions of law and this ground of appeal of the

assessee is allowed for statistical purposes.

8 ITA No.132/CTK/2018 11. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on this 31/08/2018. Sd/- Sd/- (N.S.SAINI) (PAVAN KUMAR GADALE) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER कटक Cuttack; �दनांक Dated 31/08/2018 �.कु.�म/PKM, Senior Private Secretary आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- 1. SK.GOLAM MUSTAFA New Siaria, Trijanga, Rehabilitation Colony, Danagadi, Jajpur-755026 ��यथ� / The Respondent- 2. ACIT, Circle-1(1), Cuttack आयकर आयु�त(अपील) / The CIT(A), 3. आयकर आयु�त / CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कटक / DR, ITAT, Cuttack 5. गाड� फाईल / Guard file. 6. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपील�य अ�धकरण, कटक / ITAT, Cuttack