NADIMPALLY VENKATA SANKAR RAMA KRISHNAM RAJU,VISAKHAPATNAM vs. THE ITO, VISAKHAPATNAM

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the assessee is directed against order of the

Principal Commissioner of Income Tax-1,(PCIT) Visakhapatnam vide

F.No.Pr.CIT-1/VSP/263/2016-17 dated 31.3.2017 for the assessment

2008-09. 1

ITA No.322 /Vizag/2017 N. Venkata Sankar Rama Krishnam Raju, VSKP 2. The assessee is an individual and proprietor of Malvika Marketing

& Financial Services, Visakhapatnam filed his return of income on

21.01.2009 for the assessment year 2008-09 admitting total taxable

income of ` 4,80,690/- and deriving from business and income from

other sources. The assessee is carrying on business as recovery agent

for banks and financial corporations under the name Malvika Marketing

& Financial Services. The assessment u/s. 143(3) of the Income Tax

Act, 1961 (hereinafter called as 'the Act') was completed in the

case of the assessee on 16.04.2010 on total income of

Rs.6,28,330/-. Subsequently, the assessment, so completed was

reopened by issue of notice u/s.148 of the act and the

reassessment u/s.143(3) r.w.s. 147 of the Income-tax Act 1961 was

completed on 31.03.2015 by determining the total income at

Rs.6,82,016/-. The Ld.PCIT has taken up the case for revision u/s

263 and observed from the Profit & Loss A/c for the year under

consideration that an amount of Rs.84,82,547/- was debited to the

Profit & Loss A/c under the head 'Staff Salaries' and there was

huge variation in the total number of employees to whom the

salaries were stated to have been paid every month. The pattern of

payments and the varying number of employees to whom the

salaries were shown to have been made every month suggest that

ITA No.322 /Vizag/2017 N. Venkata Sankar Rama Krishnam Raju, VSKP the payments were in the nature of commission for the services, if

any, rendered by these persons to the assessee. Further, from the

details placed on assessment record, the Ld. PCIT could not make

out whether the assessee has deducted the PF, ESI etc. from the

payments made to such employees or not and in the absence of

any evidence for such statutory payments under PF, ESI Act etc.,

the Ld. PCIT was of the view that the payments cannot be

regarded as 'salaries' but are in the nature of commission

payments for loan recoveries, and attract the TDS u/s.194H of the

Income-tax Act. Since the assessee has failed to deduct the tax at

source as required u/s 194H, the PCIT was of the view that the

provisions of Sec.40(a)(ia) of the I T Act are attracted to such

payments and the expenditure of Rs.84,82,547/¬ required to be

disallowed. Since the Assessing Officer failed to examine all these

aspects in the reassessment , the PCIT held that the assessment

order dt.31.03.2015 passed u/s.143(3) r.w.s. 147 of the Income

Tax Act for Asst. Year 2008-09 was prima facie erroneous and

prejudicial to the interest of the revenue and accordingly issued

the notice under section 263 of the Act. The Ld. A.R. of the

assessee contended before the Pr. CIT that the assessment was

completed u/s 143(3) of the Act after considering the above issue

ITA No.322 /Vizag/2017 N. Venkata Sankar Rama Krishnam Raju, VSKP and the A.O. has taken conscious view that payment do not attract

TDS u/s 194H of the Act. Accordingly the view taken by the AO for

not invoking the provisions of sec. 194H is one of the possible

views and hence invoking of provisions of sec. 263 of the IT Act

are not warranted in this case. The contentions of the Ld. A.R.

were not accepted by the Pr. CIT and held that the assessment

completed u/s 143(3) r.w.s. 147 of the IT Act for the Asst. Year

2008-09 is erroneous and prejudicial to the interest of Revenue.

Consequently, Pr. CIT directed the A.O. to disallow expenditure of

Rs. 84,82,547/- claimed under the head 'staff salaries' as per sec.

40(a)(ia) of the IT Act as the assessee has not complied with the

provisions of sec. 194H of the IT Act.

appeal before this Tribunal.

available on record and gone through the orders of the authorities

below. In this case, the initial assessment was completed u/s

143(3) of the Act by an order dated 16.4.2010. In the assessment

order passed u/s 143(3) of the Act, the A.O. has called for the

details of the salaries paid vide questionnaire dated 5.11.2009 and

ITA No.322 /Vizag/2017 N. Venkata Sankar Rama Krishnam Raju, VSKP the assessee has submitted the relevant details. The assessee has

submitted all the details of salaries and incentives paid for the

period from April, 2007 to March, 2008 as per the paper book page

No.28 and 29 and the notice u/s 142 of the Act dated 5.11.2009 in

paper book page No.26. Therefore, from the above, it is clear that

the A.O. has verified the details of salaries paid and accepted that

the payment as salaries paid to various employees and completed

the assessment. Further, the A.O. reopened and completed the

assessment u/s 143(3) r.w.s. 147 of the Act vide order dated

31.3.2015 which is also enclosed by the assessee as page No.68 &

69 of the paper book. From the body of the assessment order it is

noted that the assessment was reopened for the purpose of

verification of payment of huge salaries. After verification of the

details filed by the assessee, the A.O. completed the reassessment

without making any addition relating to tax deduction at source.

In the order u/s 263 of the Act, the Ld.PCIT directed the A.O. to

disallow the expenditure of ` 84,82,547/- for the assessee’s failure

to deduct tax u/s 194H of the Act. In this case, the assessee has

accounted the expenditure under the head salaries paid to the

employees and the Ld. Principal CIT was of the view that the

payment was in the nature of commission. The assessee during

ITA No.322 /Vizag/2017 N. Venkata Sankar Rama Krishnam Raju, VSKP the appeal hearing argued that the assessee is engaged in the

finance of automobile industry and require number of employees

depending on the outstanding dues. The assessee engaged its

employees as per the requirement on month to month basis

including short term and temporary employees. Therefore, there

was variation in monthly expenditure. The A.O. has verified the

payment of salaries on both the occasions of original assessment

as well as revised assessment and the Ld. A.R. argued that

invoking the jurisdiction u/s 263, is incorrect and order passed u/s

263 of the Act required to be quashed. It is a fact that the A.O.

has taken up the case for scrutiny and verified the salaries, which

is evident from the paper book filed by the assessee and this fact

was not disputed by the Ld. D.R. at the time of hearing. The

reassessment was also taken up for verification of salaries debited

to profit & loss account and the A.O. completed the reassessment

after duly verifying the details. Therefore, it is established beyond

doubt that the A.O. has considered the issue and taken a conscious

decision that the payment was salaries and there was no

requirement of disallowance. Therefore, there is no case for

revision u/s 263 of the Act, hence, we set aside the order passed

ITA No.322 /Vizag/2017 N. Venkata Sankar Rama Krishnam Raju, VSKP by the Ld. Principal Commissioner of Income Tax u/s 263 of the

Act and allow the appeal of the assessee.

The above order was pronounced in the open court on 4th Apr’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 04.04.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:-