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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI AMIT SHUKLA
The aforesaid appeal has been filed by the Assessee against the impugned order dated 09.01.2018 passed by Ld. Commissioner of Income Tax (Appeals)-XI, New Delhi for the quantum of assessment passed u/s. 143(3) for the Assessment Year 2013-14. The grounds raised by the assessee are as under: “1. That the Ld. Commissioner of Income Tax (Appeals), 11, New Delhi has grossly erred in law and on facts in confirming the additions/disallowances made by the AO computing the total income of the assessee to the tune of Rs. 37,61,728/- as against income returned by the assessee at Rs. 6,42,970/-.
2. That the Ld. Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in confirming the additions made by the AO to the tune of Rs.4,93,038/- u/s 40(a)(ia) of the Income Tax Act, 1961.
3. That the Ld. Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in confirming the disallowance made by the AO of Rs.3,91,506/-on account of cash handling expenses. The AO further failed to appreciate that the amount in question was for business purposes only.
4. That the Ld. Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in confirming the disallowance of Rs. 18 lakhs on account of remuneration paid to the partner. 5. That the Ld. Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in confirming the disallowance of claim made by assessee of bad debts amounting to Rs.4,34,217/-. 6. That Ld. Commissioner of Income Tax (Appeals) has failed to provide reasonable and sufficient opportunity to the assessee.”
In so far as grounds no. 2 and 3 are concerned, ld. counsel submitted that the same now stands covered by the decision of Tribunal in assessee’s own case in the Assessment Years 2011-12 and 2012-13.
The facts in brief qua the disallowance u/s. 40(ia) of Rs.4,93,038/- are that assessee was engaged in the business of distribution and sale of petrol and petroleum products, and is authorized dealer of BPCL. The assessee has debited sum of Rs.4,93,038/- under the head ‘LFR rent’. The ld. Assessing Officer noted that assessee has not filed any evidence of TDS deducted on such rent. He has also incorporated the relevant clauses of the rent agreement and held that assessee was liable to deduct tax @10% on the payment of rent and accordingly made a disallowance u/s.40(ia).
Ld. CIT (A) in his ex parte order has confirmed the said disallowance.
I find that this issue had come up for consideration in the earlier years also, wherein the Tribunal had deleted the said disallowance after holding and observing as under:-
“3. I have heard both the sides and perused the relevant material on record. The case of the Revenue is that the assessee made a payment of Rent to BPCL and did not deduct tax at source which attracted disallowance under section 40(a)(ia). Second proviso to section 40(a)(ia) provides that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to Section 201(1), then for the purposes of section 40(a)(ia) it shall be deemed that the assessee has deducted and paid tax on said sum on the date of furnishing of return of income by the resident payee. The essence of this provision is that if the payer has not made deduction of tax at source, but the payee has furnished his return of income u/s 139 of the Act by including the amount received from the assessee-payer, then the assessee shall be deemed to have deducted and paid tax on the date of furnishing of return of income by the payee and as such no disallowance under section 40(a)(ia) will be made. Though this proviso has been inserted by the Finance Act 2012 w.e.f. 1.4.2013 but several courts have held it to be retrospective. The Hon'ble’ jurisdictional High Court in CIT vs. Ansal Landmark Township Private Limited (2015) 279 CTR 384 (Del) has held that second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1.4.2005. On a conjoint reading of second proviso to section 40(a)(ia) and first proviso to section 201(1), it becomes graphically clear that if the payee has furnished his return of income under section 139 and has taken into account such sum paid by the payer for computing income in such return of income and has paid income tax thereon, then the payer cannot be treated as assessee in default. A fortiori, no disallowance under section 40(a)(ia) can be made in such circumstances.
4. Adverting to the facts of the instant case, it is seen that the assessee paid a sum of Rs.6,36,920/- to Bharat Petroleum Corporation Limited. There can be question of suspecting that the BPCL did not include such rental income from the assessee in its return of income. It is, therefore, held that the case of the assessee is covered by second proviso to section 40(a)(ia) and hence the disallowance made cannot be sustained. I, therefore, order to delete the disallowance. This ground is allowed.”
Thus, respectfully following the similar facts permeating in this year also, I delete the said disallowance u/s.40(a)(ia).
The next issue pertains to disallowance of Rs.3,91,506/- on account of cash handling expenses.
The ld. Assessing Officer noted that assessee has claimed cash handling charges of Rs.3,91,506/-. In response to the show cause notice, assessee submitted that the said amount was paid to three persons on account of cash handling expenditure and in fact it was a kind of salary paid to them and no other payment has been made over and above the salary during the year. Ld. Assessing Officer has disallowed the same after holding and observing as under:
“Perusal of nature of expenditure shows that assessee is a firm which deals in selling petrol and petroleum products from its Petrol Pump, resulting generation of cash throughout the working hours, handling of cash is a responsible and risky work and keeping in view the safety of the amount, either assessee would engage professionals (private persons) or rely on its faithful employees. Had assess taken the services of professionals, he would have deducted TDS, being payment t professionals on such amount, which is not the case here and in the absence of documentary evidence, the genuineness of the expenditure claimed could not be proved. Therefore, the amount of Rs.3,91,506/- remained in genuine expenditure and not relating to business of the assessee, hence disallowed and added to the income. Further, on similar ground in A.Y. 2011-12 addition made by the AO has been upheld by the Id. CIT(A) in his order.”
Ld. CIT(A) has confirmed the said disallowance.
We find that this issue has been decided by the Tribunal after holding and observing as under:
“6. After considering the rival submission and perusing the relevant material on record, it can be seen that the assessee paid cash handling charges to certain persons on monthly basis. Vouchers for such payments have been placed on record. Since such expenses were incurred during the course of business and were necessary for carrying on the business, in my considered opinion, the same should not have been disallowed. I, therefore, order to delete the addition.”
Moreover, I find that the reasoning given by the Assessing Officer that handling of cash is responsible and risky work for which he should have engaged professionals, then he was required to deduct TDS. Such a reasoning for making the disallowance cannot be held to be valid ground, because in the nature of business carried out by the assessee which is selling of petrol and petroleum product from its petrol pump, huge cash is generated throughout the working hours and if assessee is paying cash handling charges to two persons which is in the form of salary, then disallowance cannot be made especially when vouchers for such payment have been produced. Accordingly, respectfully following the order of the Tribunal for the earlier years, I delete the same.
Coming to the issue of disallowance of Rs.18 lacs on account of remuneration paid to the partners, the Assessing Officer on the perusal of the P&L account noted that assessee has claimed Rs.24 lacs as partners remuneration out of which Shri Kamaljeet Singh Sethi got salary of Rs.12 lacs and two other lady partners have received Rs.6 lasc each. On going through the partnership deed, he asked the assessee, why the other two ladies were getting salary, in response, assessee submitted that they are getting remuneration since the date of introduction of these partners in the partnership firm and the same remuneration has been paid in the earlier years also. AO also noted clause 18 of the Partnership Deed which read as under:
“That Shri Kamaljeet Singh Sethi the party of the first party will be working partner and hereby authorized to receive remuneration at the rate of Rs.15,000/- per month w.e.f.1st June, 2004. Smt.
Puswhpjeet Kaur and Smt. Satwant Kaur will be non working partners and they will not receive any remuneration.”
AO held that, since proper explanation was not given by the assessee, he worked out the disallowance of Rs.18 lac, i.e., he disallowed the remuneration paid to two ladies partners and has also disallowed Rs.6 lac on account of salary paid to Shri Kamaljeet Singh Sethi. Such a disallowance has been confirmed by the ld. CIT(A) also.
Before us, ld. counsel for the assessee has submitted that not only in the earlier years but also in the subsequent year the remuneration paid to the partners have always been allowed and looking to the fact that over the period of time assessee’s business has increased and partnership deed was entered way back in the year 2004, therefore, increase in salary and in remuneration is wholly justified. Further, the partners’ remuneration has to be allowed in terms of Section 40(b). Accordingly, he requested that matter can be remanded back to the file of the Assessing Officer to examine the past history and also allow remuneration as per the specific provision given in Section 40(b).
Ld. D.R. has no objection if the matter has been examined afresh by the Assessing Officer.
Accordingly, I remit the issue back to the file of the Assessing Officer to see whether similar remuneration paid to the partners have been allowed in the earlier years or in subsequent year or not; and secondly, he should examine the partners’ salary and remuneration are paid in accordance with provision contained in Section 40(b) or not. AO will give opportunity of hearing to the assessee to substantiate is case. Thus, this issue is treated as allowed for statistical purposes.
Lastly, with regard to the disallowance of claim of bad debt of Rs. 4,34,217/-, it is seen that Assessing Officer has disallowed the same on the ground that no documentary evidences have been filed for claim of such and bad debt remained not genuine.
Before us, ld. counsel for the assessee submitted that now the only requirement under the law is that, whether bad debt has been written off as irrecoverable in the books of account of the assessee or not and there is no longer any requirement to prove or establish that the debt has become bad or has become irrecoverable. This is in consonance with the judgment of the Hon'ble Supreme Court in the case of TRF Ltd. (2010) 190 Taxman. 391 (SC).
On the other hand, Ld. D.R. relied upon the order of the Assessing Officer and ld. CIT(A) and submitted the no documentary evidences have been filed.
I find that, nowhere Assessing Officer has disputed the fact that assessee has not written off the bad debts as irrecoverable in the books of account, albeit the case of the Assessing Officer is that Assessee has not produced any documentary evidences that debt has become bad. As stated by the ld. counsel now there is no requirement under the law for the assessee to establish that debt has become irrecoverable and it is enough that the same is written off as irrecoverable in the books of account of the assessee. This has been also clarified by the CBDT Circular dated 30.05.2016 being Circular No.12/2016 [F.No.279/Misc/140/2015-ITJ], wherein the CBDT has clarified that now in the wake of judgment of Hon'ble Supreme Court in the case of TRF Ltd. (supra) no appeal should be filed by the Revenue before any Court or Tribunal. Thus, this clarification by CBDT also supports the case of the assessee. Hence, this ground is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 26th February, 2019.