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Facts
The assessee, a commission agent, filed his return of income. The CPC reversed the TDS claim on proportionate basis, leading to a demand. The assessee's appeal before the CIT(A) was dismissed, prompting the present appeal.
Held
The Tribunal held that the assessee is eligible to claim TDS as available in view of Rule 37BA, considering the nature of business and relevant Board Circulars. The grounds raised by the assessee were allowed.
Key Issues
Whether the TDS credit claim by the assessee, a commission agent, was correctly reversed by the CPC on proportionate basis and if Rule 37BA is applicable to such cases.
Sections Cited
250, 143(1), 194A, 194H, 1941, 194Q, 234A, 234B, 234C, 234F, 44AB, 37BA
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Income Tax Appellate Tribunal, JAIPUR BENCH “SMC”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
This appeal by assessee is directed against the order of CIT(A), Aurangabad dated 10.07.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -
The Ld. Assessing Officer has deviated from the mechanism provided under rule 37BA and erred in computing disallowance of TDS credit on proportionate basis whereas the receipts us 194A, 194H and 1941 are already disclosed by the assessee in his ITR also. The mechanism adopted by the Ld. Assessing Officer is arbitrary in nature and therefore, bad in law. Hence the intimation passed u/s 143(1) be quashed.
2 The Ld. Assessing Officer provided the mechanism of computing the reversal of TDS credit in the intimation passed u/s. 143(1) but failed to fill amounts in it, due to which we are not able to verify the exact amount of reversal. Thus, a non- speaking order was passed by the Ld. Assessing Officer which is against the principle of natural justice and hence be quashed.
3 Since, there is no specific guidance available on mechanism to be adopted for TDS u/s. 194Q in case of commission agents of an Agricultural Produce Marketing Committee, such TDS deducted by purchaser’s u/s. 194Q on invoices of such commission agents should be allowed to the commission agents and rule 37BA should not be invoked on such TDS u/s. 194Q.
4 The appellant craves leave to add, amend or withdraw any of the grounds of appeal during the course of appellate proceedings. The grounds of appeal are without prejudice to each other.
The brief facts of the case are that the assessee filed his return of income on 09.11.2022 declaring total income at Rs. 16,16,990/-. The assessee is a commission agent and procures agricultural produce from various farmers and sells the same to various other trading and manufacturing entities on a commission basis. The assessee collects the sales proceeds of such goods and commission and taxes thereon from such buyers and pays the sale proceeds to farmers in cash. The buyers deduct T.D.S. u/s. 194Q on sale proceeds and u/s. 194H on commission charged by the assessee. The assessee has declared commission income in his ITR along with other receipts including interest and rental income.
3. Intimation issued by the CPC; Bengaluru vide its intimation dated: 17.02.2023 reversed the T.D.S. claim of the assessee by Rs. 2,67,440/- on a proportionate basis after considering Rule 37BA of the I.T. Rules, 1962 and raised a demand of Rs. 2,29,420/- (Including interest u/s. 234A, 234B, 234C and 234F amounting to Rs. 48,543/-). The assessee being aggrieved with this action of the CPC, Bengaluru preferred an appeal before the Ld. Addl./JCIT(A), who in turn dismissed the appeal of the assessee. The assessee, being further aggrieved with the same, preferred the present appeal before us.
4. We have observed the contents of the intimation issued u/s. 143(1) of the Act by the CPC, Bengaluru, order of the Ld. Addl./JCIT(A) and submissions of the assessee along with the grounds taken before us. It is observed that the payment received and disclosed by the assessee is not under challenge and the fact of deduction of T.D.S. thereon under the various provisions of the Act. We have examined Form No. 26AS of the assessee for the year under consideration and that also confirms the receipt of income and T.D.S. thereon. It is observed that the section wise summary submitted by the assessee before us and the Ld. Addl./JCIT(A) clearly revealed that the assessee has declared the income based on Form No. 26AS and there is no deficiency pointed out by the CPC, Bengaluru and Ld. Addl/JCIT(A). Rather, in his order Ld. Addl./JCIT(A) vide para 7 confirmed that the assessee is eligible to claim T.D.S. available in view of Rule 37BA of the Rules.
5. The assessee has already submitted a copy of the Balance-Sheet and Profit & Loss Account to support his ITR for the year under consideration before the Ld. Addl./JCIT(A) vide his submission dated: 15.10.2024. As far as T.D.S. of Rs. 87,347/- u/s. 194Q is concerned, it is observed that since the assessee is a Kachha Arhatiya, to comply with the GST laws, GST invoices are being issued by the assessee to the buyers and the same is duly reflected in their GST returns also, but as far as ITR is concerned they tend to disclose only commission income as the turnover does not pertains to them. On this issue we relied on the Board Circular No. 452 [F. No. 201/3/85-IT(A-II)], Dated: 17.03.1986 and reproduced as under:
“1. Section 44AB, as inserted by the Finance Act, 1984, casts an obligation on every person carrying on business to get his accounts audited, if his total sales, turnover or gross receipts exceed Rs. 40 lakhs in any previous year relevant to the assessment year commencing on 1-4- 1985 or any subsequent assessment year.
2. The Board has received representations from various people, trade associations, etc., to clarify whether in cases where an agent affects sales/turnover on behalf of his principal, such sales/turnover must be treated as the sales/turnover of the agent for the purpose of section 44AB.
The matter was examined in consultation with the Ministry of Law. There are various trade practices prevalent in the country about agency business and no uniform pattern is followed by the commission agents, consignment agents, brokers, kachha arahtias and pacca arahtias dealing in different commodities in different parts of the country. The primary necessity in each instance is to ascertain with precision what the express terms of the contracts are under consideration. Each transaction, therefore, requires it to be examined with reference to its terms and conditions and no hard and fast rule can be laid down as to whether the agent is acting only as an agent or also as a principal.
The Board advised that so far as kachha arahtias are concerned, the turnover does not include the sales affected on behalf of the principals and only the gross commission must be considered for the purpose of section 44AB. But the position is different regarding pacca arahtias. A pacca arahtia is not, in the proper sense of the word, an agent or even del credere agent. The relation between him and his constituent is substantially that between the two principals. Based on various Court pronouncements, following principals of distinction can be laid down between a kachha arahtia and a pacca arahtia: (1) A kachha arahtia acts only as an agent of his constituent and never acts as a principal. A pacca arahtia, on the other hand, is entitled to substitute his own goods for the contract made for the constituent and buy the constituent’s goods on his personal account and thus he acts as regards his constituent. (2) A kachha arahtia brings a privity contract between his constituent and the third party so that each becomes liable to the other. The pacca arahtia, on the other hand, makes himself liable upon the contract not only to the third party but also to his constituent. (3) Though the kachha arahtia does not communicate the name of his constituent to the third party, he does communicate the name of the third party to the constituent. In other words, he is an agent for an unnamed principal. The pacca arahtia, on the other hand, does not inform his constituent as to the third party with whom he has entered a contract on his behalf. (4) The remuneration of a kachha arahtia consists solely of commission and he is not interested in the profits and losses made by his constituent as is not the case with pacca arahtia. (5) The kachha arahtia, unlike the pacca arahtia, does not have any dominion over the goods. (6) The kachha arahtia has no personal interest of his own when he entersa transaction, and his interest is limited to the commission agent’s charges and certain out of pocket expenses whereas a pacca arahtia has a personal interest of his own when he enters a transaction. (7) In the event of any loss, the kachha arahtia is entitled to be indemnified by his principal as is not the case with pacca arahtia.
The above distinction between a kachha arahtia and pacca arahtia may also be relevant for determining the applicability of section 44AB in cases of other types of agents. In the case of agents whose position is like that of kachha arahtia, the turnover is only the commission and does not include the sales on behalf of the principals. In the case of agents of the type of pacca arahtia, on the other hand, the total sales/turnover of the business should be taken into consideration to determine the applicability of the provisions of section 44AB. Circular: No. 452 [F. No. 201/3/85-IT(A-II)], dated 17-3-1986.”
In view of the above circular and unchallenged facts by virtue of Form No. 26AS and even the findings of the Ld. Addl./JCIT(A) vide para 7 confirmed that the assessee is eligible to claim T.D.S. available in view of Rule 37BA of the Rules. Resultantly, grounds raised by the assessee are allowed and the JAO is directed to process the return of the assessee and allow the claim of T.D.S. as claimed by him in his return of income mentioned (supra).
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on the 10thday of April 2025. Sd/- Sd/- (Dr. S. SEETHALAKSHMI) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 10/04/2025 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड� फाइल/Guard file.