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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI AMIT SHUKLA & DR. B.R.R. KUMAR
O R D E R PER AMIT SHUKLA, J.M.:
The aforesaid appeal has been filed by the revenue against impugned order dated 13.1.2015, passed by Ld. CIT(Appeals)-8, Delhi for the quantum of assessment passed u/s 143(3) for the assessment year 2010-11. In the grounds of appeal the revenue has raised following grounds:-
1. On the facts and in the circumstances of the case Ld. CIT(A) erred in law and on facts in deleting the disallowance of Rs. 97,900/- made by the Assessing Officer u/s 40(a)(ia) of the Income Tax Act, 1961.
The Ld. CIT(A) has erred in law and on facts in deleting addition of Rs. 14,81,258/- made by the Assessing Officer out of Labour expensed.
3. The Ld. CIT (A) has erred in law and on facts in deleting disallowance of Rs. 2,22,59,664/- made by the Assessing Officer u/s 68 of the Income Tax Act, 1961 being unconfirmed creditors.” 2. The facts in brief are that the assessee company is engaged in the business of construction activity. During the course of assessment proceedings the AO noted that assessee has debited a sum of Rs. 28,20,900/- in the profit and loss account as commission paid. However, assessee has not deducted TDS on the same amount. Accordingly, AO has made disallowance u/s 40(a)(ia). Further, he noted that assessee has claimed Labour expenses of Rs. 1,48,13,585/- as a part of construction expenses shown at Rs. 11,65,55,315/- . Ld. AO has made adhoc disallowance of 10% after observing and holding as under:- “The assessee has claimed labour expenses of Rs. 1,48,13,585/- as part of the construction expenses at Rs. 11,65,55,315/-. The assessee has furnished month wise/labour-wise detail of expenditure incurred. However, on verification of such detail, it has been observed that inspite of labour in number being on an average 200 on month to month basis, the assessee company has not complied with Labour Law Provisions such EPF & ESI etc. Moreover, it is not clear whether the so called muster roll of the labour as submitted belong to the assessee company and its sites of execution of work during the year. Therefore, an adhoc disallowance @ 10% is made out of labour charges. The assessee has not furnished books of accounts and relevant vouchers for verification in this regard. A Sum of Rs. 14,81,358/- is therefore added to the income of the assessee.”
Lastly, AO noted that assessee has claimed huge outstanding liability on account of sundry creditor at Rs. 2,35,43,180/- as on the date of balance sheet. After getting the details of the sundry creditors from the assessee, AO had sent notices u/s 133(6) to the parties and observed that none of the parties responded such notices. Accordingly he treated the entire sundry creditors as unexplained which have been added u/s 68. The details of the sundry creditors and additions made are as under:- S. No. Name of the Assessee Amount 1 M/s Ashiana Ispat Ltd. 3,12,363 2 M/s H S Enterprises 2,44,219 3 M/s Kundan Lai Bhagwan Das 4,05,178 4 M/s Monga Iron & Steel Pvt. Ltd. 9,69,099 5 M/s Sristhi Sales Corporation 26,50,250 6 M/s Yogesh Agencies 3,95,446 7 Shri Yousuf Khan 6,50,000 8 NKG Infrastructure Ltd. 1,66,33,109 Total 2,22,59,664
Ld. CIT (A) in so far as disallowance u/s 40(a)(ia) is concerned observed that this amount was shown as paid in the balance sheet and therefore, no disallowance could have been made and deleted the said addition after following the judgment of Hon’ble Allahabad High Court in the case of Vector Shipping Services Pvt. Ltd. CC No. 8068/2014.
In so far as adhoc disallowance of labour expenses are concerned assessee’s submissions before the Ld. CIT(A) is as under:- “The Ld. AO has disallowed Rs. 14,81,358/- being 10% of labour expenses amounting to Rs. 1,48,13,585/-. The Ld. AO has mentioned that there is violation of EPF and ESI Act without mentioning as to how. He has also mentioned that it is not clear to him whether the muster roll pertains to the assessee company. Details of monthly expenses on labour were filed vide letter dated 04/03/2013 alongwith further details of payments each labour wise. Copies of all the muster rolls were also filed. The name of the assessee company is clearly visible on the muster rolls including the site of execution of work. Though there is no violation of EFP and ESI but even if it is there, IT Act does not provide disallowance of wages on this account. The Ld. AO has not given any basis for disallowance of 10% of wages. Therefore, in view of the facts already on the record, the disallowance may kindly be deleted.”
In the first appeal, Ld. CIT (A) after perusing the entire details filed before him and the explanation of the assessee has deleted the said disallowance on the ground that AO has not given any basis for 10% of disallowance and payment of EPF and ESI is not necessary for the purpose of disallowance.
Lastly, on the issue of addition u/s 68 on account of sundry creditors, the assessee has given a detailed submission which has been noted in the impugned order from pages 11 to 14. One of the main contention raised by the assessee before the Ld.CIT(A) was that the addition under the head sundry creditors during the year on account of sundry creditor was only Rs. 35,36,546/- and therefore under no circumstances the sundry creditors coming from the earlier years could have been added in this year u/s 68. Ld. CIT (A) has deleted the said addition after observing and holding as under:- “ (iii) I have considered the issue and noticed that Ld. AO has not provided opportunity to the appellant to file the objection against
the non compliance of notices issued by the AO u/s 133(6) of the IT Act. From the chart reproduced above, it is clear that during the year the addition against creditors is only Rs. 35,36,564/-. Even if the AO wants to add on account of non reconciliation of balances against the sundry creditors, only current year’s payment can be considered for addition. Ld. AO is directed to provide sufficient opportunity to the Ld. AR of the appellant at the time of order giving effect to this order and verify the explanation given by the appellant and accordingly reconsider the amount taken by him. Respectfully following the case of CIT v. Pancham Dass Jain (2006) 156 Taxman 507 (All.). I am of the opinion that provisions of section 68 are not attracted to amounts representing purchases made on credit. Since all purchases are claimed in Profit & Loss Account, only unpaid purchases reflected in balance sheet cannot be added u/s 68 of the I.T. Act. Hence, Ground No. 8 is allowed.”
Before us Ld. DR, in so far as disallowance u/s 40(a)(ia) is concerned, submitted that now the Supreme Court judgment in the case of Palam Gas Services vs. CIT 394 ITR 300 (SC) the Hon’ble Supreme Court has settled the issue that not only on the amount shown as payable is disallowable u/s 40(a)(ai) but also on the amount shown as paid. Thus, reasoning of the Ld. CIT (A) deserves to be rejected.
On the other hand, Ld. Counsel for the assessee admitted that the controversy of ‘paid’ and ‘payable’ in respect of disallowance u/s 40(a)(ia) has been set at rest by the Hon’ble Supreme Court. However, he submitted that, firstly, now in view of second proviso to section 40(a)(ia) r.w.s. first proviso to section 201, no disallowance can be made if the payee has accounted for the commission income as its income and has shown the payment received in the income tax return and paid taxes thereon. The second limb of argument was that, now in view of amended provision u/s 40(a)(ia) introduced w.e.f. 1.4.2015, only 30% can be disallowed. He submitted that now there are certain decisions of the Tribunal that such amendment has to given retrospective effect. In support he relied upon the judgment of Delhi bench in the case of Smt. Kanta Yadav vs. ITO; 2017-TIOL-1425-ITAT- DEL.
9. We have heard the rival submissions and also perused the relevant finding given in the impugned orders qua the disallowance u/s 40(a)(ia). Admittedly the Ld. CIT(A) has deleted the disallowance on the ground that the only amount which has been shown as payable in the books of account will entail disallowance u/s 40(a)(ia) and not the amount which has been paid even though TDS has been deducted. Now this issue has been set at rest by the Hon’ble Supreme Court in the case of Palam Gas Service vs. CIT (supra) that disallowance u/s 40(a)(ia) is applicable not only on the payable amount but also on paid and under both the circumstances TDS should be deducted. Thus, reasoning given by the Ld. CIT (A) is rejected. However, we agree with the other contention of the Ld. Counsel that if the payee has accounted for the commission as his income and has shown it in his return of income and also paid tax thereon then no disallowance can be made in terms of second proviso to section 40(a)(ia) r.w.s first proviso to section 201. The AO is accordingly directed to verify the contention of the assessee that if payee has accounted for the commission payment received by him as his income and has paid taxes thereon, then no disallowance should be made.
In so far as the second contention of the Ld. Counsel is concerned that only 30% should be disallowed in view of amendment brought in the statute w.e.f. 01-04-2015 and should be applied retrospectively and reliance on the decision of Tribunal in the case of Smt. Kanta Yadav vs. ITO (supra), we are unable to subscribe to the contention of the Ld. Counsel, because when a substantive provision has been brought in the statute from a prospective date, it cannot be given retrospective effect. Because, now the statute has quantified the disallowance at a flat rate of 30% instead of 100% and such a reduced percentage of disallowance cannot be imported for all the past assessments. Further, such an amendment cannot be held to be beneficiary provision or clarificatory albeit as this provision now quantifies the disallowance at a certain percentage and such a quantification of disallowance cannot be held to be retrospective. For example, where disallowance has been made hundred percent and assessee does not challenge the quantum, then can he claim that disallowance ought to have been at reduced percentage. In a vice versa situation if amended provision increase the quantum of disallowance, then can revenue retrospectively disallow higher percentage of disallowance. Answer would be no. Whenever there is an amendment with regard to rate of tax or fixation of any quantum of deduction for disallowance or allowance, then such an amendment has to be interpreted prospectively only after the statute has brought the provision with prospective date. It is a trite law that a substantive provision cannot be given retrospective effect unless statute provides for. Its only when any beneficial provision is brought in the statute to undo any hardship and or remove any mischief, then such an amended provision is given retrospective effect. Thus, the contention raised by the assessee is dismissed.
Accordingly this issue is restored back to the file of the AO only with respect to the verification of the fact whether payee has shown the commission amount as his income or not, which is to be examined in light of second proviso to section 40(a)(ia).
In so far as disallowance of wages is concerned, Ld. DR submitted that AO in the assessment order has clearly mentioned that books of accounts along with supporting bills and vouchers and other necessary documents have not been produced therefore, AO was justified in making adhoc disallowance. In support he relied upon the following two judgments:- 1. CIT vs. S.G. Exports (P&H) 336 ITR 2 2. Rajasthan Metal Store vs. ITO Thus, he submitted that the disallowance made by the AO should be confirmed.
On the other hand, Ld. Counsel for the assessee submitted that assessee has produced all the details of month wise wages and muster roll labour payment which was filed not only before the AO but also before the Ld. CIT (A) and also the copy of which has been placed on the paper book from pages 40 to 80. Thus, without there being any discrepancy in muster roll no disallowance can be made.
After considering the relevant finding given in the impugned order as well as material placed before us, we find that from the perusal of the muster roll that it clearly pertains to the assessee company and month wise details of labour payment has been given along with rate and days of work and the quantum wages paid. Nowhere has it been pointed out that such labour payments is excessive as compared to the earlier year or are not in consonance with the overall trading result or past history. Thus, adhoc disallowance cannot be made on the reasons given by the AO for making the adhoc addition cannot be sustained. In the result, order of the Ld. CIT (A) is confirmed and additions stands deleted.
Lastly in so far as addition on account of sundry creditors are concerned, Ld. DR submitted that all the sundry creditors remained unverified even in response to enquiries made by the AO u/s 133(6). AO at page 5 of the assessment order has clearly mentioned that assessee has not filed any supporting bills/ vouchers or books of accounts. Accordingly, he submitted that such an addition has to be made u/s 68 and in support he relied upon the following judgment of Hon’ble Karnataka High Court in the case of Rekha Krishna Raj Vs. ITO [2013] 215 Taxman 159/33 taxmann.com.
On the other hand, Ld. Counsel for the assessee submitted that assessee has filed copy of ledger account of the sundry creditors which gives the opening and closing balances as well as bill numbers, details of payment made and additions made during the year. Ld. AO without even verifying the books of accounts or the records as produced before him has made the entire addition u/s 68 when most of the amount were not credited during the year and they are coming from the earlier years. He thus strongly supported the order of the Ld. CIT (A).