DCIT, JAIPUR vs. COMPUCOM SOFTWARE LIMITED, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 852/JP/2014 fu/kZkj.k o"kZ@Assessment Year :2008-2009 cuke The DCIT, Circle- 6, M/s Compucom Software Limited Jaipur. Vs. 5A, Tilak Bhawan, Tilak Marg C- Scheme, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACG5818P vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajeev Sogani (C.A.) jktLo dh vksj ls@ Revenue by : Shri R.S. Verma ( Addl.CIT)

lquokbZ dh rkjh[k@ Date of Hearing : 19/04/2017 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 25/04/2017 vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the Revenue against the order of Ld. CIT(A), Jaipur 07.10.2014 for A.Y. 2008-09 wherein the Revenue has taken following ground of appeal:- “Whether on the facts and in the circumstances of the case and in law the ld. CIT(Appeals) erred in deleting the penalty imposed u/s 271(1)(c) of Rs. 36,91,580/- without appreciating the fact that the assessee company failed to discharge its statutory liability as per Income-tax Act, 1961. Further the plea of the assessee company that

2 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

there is no mens rea in the case is also not tenable because mensrea is not essential for civil liability of penalty (Union of India V/s Dharmendra Textile Processors (SC) 306 ITR 277).”

“In this case as well, the assessee has made a claim of expenditure which has been disallowed u/s 40(a)(ia) due to failure on the part of the assessee to deduct TDS as per the provisions of Chapter XVII-B. This claim of expenditure has not been disallowed on the grounds that it was not genuine or that it was fabricated, erroneous or false. It is also not a case of the expenditure being unreasonable or excessive. In view of the above judgments, discussed in para 3.4, it is held that mere making of a claim of expenditure which is not sustainable in the

3 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

eyes of law on account of failure to deduct tax at source will not amount to furnishing of inaccurate particulars of income. In view of the above, discussions, the order levying penlty u/s 271(1)(c) is not sustained and is directed to be deleted. Ground No. 1 is allowed. 3. During the course of hearing, the ld. AR has submitted as under:- “3.2 It is undisputed that at the time of booking of expenses and crediting of the ABA Pool Account, the precise amount to be transferred to each ABA was not ascertainable. As the amounts from the respective schools were received after various deductions and a percentage such amount received, net of deduction, was passed on to the ABAs. Since the precise amount to be paid to each ABA at the time of booking of the expense was not known, the assessee company did not deduct tax. However, at the time of actual payout to the ABA, TDS was deducted. 3.4 Reliance is placed on the judgment of the Hon’ble ITAT Chennai Bench in the case of Dishnet Wireless Ltd.[2016] 45 ITR ( Trib) 430 ( Chennai). In this case, the issue before the Hon’ble Tribunal was TDS under section 194C of the Act, in respect of year end provision for estimated expenditure. The assessee company engaged various service providers for rendering serves like address verification, credit certification, content development etc. The assessee also had to pay the various other service providers, for providing value-added services to its subscribers. The assessee estimated the customer verifications expenditure, on the basis of expenditure incurred in the past and made necessary provision in the account. It was held that the tax was to be deducted at source, in respect of the payment to be made by the assessee to various service providers, etc., only if the payee was identified and quantum of payment was also ascertainable on the last day of the financial year. In other words, if while making the general provision for expenses, neither the identity of the payee is known, nor the amount payable is

4 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

ascertainable, then there would be no requirement of TDS, in respect of such provision for expenses. 3.5 Thus, the view adopted by the assessee company of deducting tax at source at the time of actual payment to the individual ABA and not at the time of booking of expense and crediting the ABA Pool Account was one of the plausible views. 3.8 It is to be noted that complete details were disclosed by the assessee company in the return filed in a bona-fide manner, the fact of which is undisputed. The additions made by the ld. AO was solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income and furnishing of inaccurate particulars of such income. 3.9 It is to be stated that mere addition in the assessment proceedings could not be the sole basis for levying penalty under section 271(1)(c) of the Act. Thus a bonafide view taken by the assessee company, even though rejected, would not make the assessee company liable for penalty under section 271(1)(c) of the Act. Hon’ble Supreme Court in the case of reliance petroproducts (P) Ltd. (supra) held that “.. we must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.” “ We do not agree, as the assessee had furnished at the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely

5 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c) of the Act. If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c) of the Act. That is clearly not the intendment of the Legislature.” 3.10 Further, in the below mentioned judgments, Hon’ble Gujarat High Court in case of Nayan C. Shah vs. ITO [2016] ITR 304 (Gujarat) and Karnataka High Court in case of M/s Filtrex Technologies Pvt. Ltd. [2016] 380 ITR 222 have held that no penalty can be levied in case of disallowance under section 40a(ia). 3.24 Any notice issued under section 274, read with Section 271(1)(c) of the Income Tax Act, 1961, should specify under which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. In the absence of which no penalty should be levied on the assessee as determination of such limb is sine qua non for imposition of penalty under section 271(1)(c). 3.25 it is pertinent to note that in the said notice ld. AO has not clearly mentioned the limb, on the basis of which, penalty was proposed to be imposed. Ld AO has simply issued a pre-printed notice without striking off the unnecessary portions of the notice. If the ld. AO was of the view that the assessee has concealed the income by furnishing inaccurate particulars of income then he should have deleted or not mentioned the other limb for imposition of penalty i.e. concealing the particulars of income. The above act of the ld. AO clearly shows that the entire exercise of initiation of penalty proceedings has been done without application of mind.

6 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

3.26 Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 ( Karnataka) after referring to the decision of Hon’ble supreme Court in the case of T. Ashok Pai (Supra) held as under:- “.. Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashokd Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High court in the case of Virgo Marketing reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoked the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard Performa without striking of the relevant clauses will lead to an inference as to non-application of mind..” 3.28 The above ratio laid down in the case of Manjunatha Cotton & ginning Factory (Supra) has been followed by various High Courts in the below mentioned cases. Shri Samson Perinchery, ITA 1154,953,1097,1226 of 2014 ( order dated 05.01.2017) ( Bombay High Court) SSA’s Emerald Meadows [2016] 73 taxmann.com 241 ( Karnataka High Court) Mitsu Industries Ltd., ITA No. 216 of 2004, Gujarat High Court 3.29 An SLP filed by the department against the said order was dismissed by the Hon’ble Supreme Court in the case of SSA’s

7 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

Emerald [2016 73 taxmann.com 248 (SC). Hon’ble Apex Court in the above mentioned case held that “we do not find any merit in this petition. The special leave petition is, accordingly, dismissed”(Emphasis Supplied). Thus the matter has stamp of approval of the Hon’ble Apex Court.” 4. The ld DR is heard who has vehemently argued the matter and relied upon the order of the AO.

5.1 In this regard, it is noted that the assessee company was awarded a contract from the Board of Secondary Education, Rajasthan to impart computer education in approximately 600 schools in the state of Rajasthan. Assessee company in turn subcontracted the assignment to various venders which were called as Authorized Business Associates (ABA). Assessee company entered into agreements with ABAs. As per the agreement, it was the responsibility of ABAs to collect payment from Schools on behalf of the assessee company. Payment was made by the schools after certain deductions such as TDS, electricity charges, penalty etc. out of such amount received by the assessee company from the schools, 80% was passed on to the ABAs. Remaining 20% was retained by the assessee company as its profit. As per the agreement the liability to remit the amount to ABAs, for their share,

8 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

arose only when the assessee company received the entire amount from the school with the help of respective ABAs. Till such time the amount, to be remitted to ABAs, remained outstanding in the books of the assessee company. Once the amount to be received from the school became due, income was recognized and the school was treated as a debtor. At the same time expenditure to the extent of 80% of such gross amount was recognized in the books and an ABA Pool Account was credited and not the individual account of each ABA. Thereafter, when the amount was received from any particular school, the amount due to respective ABA was taken out from ABA Pool Account and transferred to the individual account of such ABA. Assessee company did not deduct TDS on the amount of expenses booked through the ABA Pool Account as the exact amount to be paid to individual ABAs was not ascertained at that point of time. Once the amount was received from the respective school, thereafter the amount to be transferred to individual ABA, looking after that particular school, was ascertained, then the tax was deducted at source on such payment in terms of section 194C of the Act.

5.2 Here it would be relevant to refer to the provisions of section 194C of the Act, the non-compliance thereof has resulted in disallowance u/s 40(a)(ia) and the resultant penalty which reads as under:

“(1) any persons responsible for paying any sum to any resident ( hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified

9 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

persons shall, at the time of credit of such sum to the account of the tractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to –

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. “

5.3 In the instant case, therefore, what is relevant to examine is whether the assessee was responsible for payment of any sum to the ABA for carry out any work in pursuance of a contract. Here, it is relevant to note that it is not just the work which has to be carried out in pursuance of a contract but even the payment (which is payable for carrying out such work) has to be in pursuance of the contract. The assessee company has contended as per its agreement with the individual ABAs, the liability to remit the amount to ABAs for their shares arose only when the assessee company received the entire amount from the respective schools with the help of respective ABAs. Given that there was some dispute because of which payments to the assessee company were withheld by the schools, a fact which has been accepted by the Revenue, the assessee company has not credited or paid the amount to the individual ABAs. At the same time, from an accounting stand point, once the services have been rendered to the respective schools, the amount in relation to such services became due to the assessee and the same was recognized as income and

10 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.

corresponding expenditure to the extent of 80% of such gross amount (due to the ABAs) was recognized in the books under the ABA Pool Account and not to the individual account of the respective ABAs. Therefore, on such credit to the ABA Pool Account, the assessee has not deducted any TDS. However later on when the payment was realized from the schools, the amount was credited to the individual ABA account, TDS was deducted and deposited with the Government. We found force in the above explanation that liability to pay under the contract is a relevant consideration for determining the liability towards the TDS and only when such event happens, the TDS has to be deducted. The entries/credit in the books of account have therefore to be read taking into consideration the contractual obligations under the contract and cannot be read devoid of the same. Its a different matter that such explanation has not been accepted by the AO and by the ld CIT(A) while confirming the disallowance in the quantum proceedings. However, the said explanation continue to hold the fort and support the case of the assessee against non-levy of penalty for furnishing inaccurate particulars of income. Further, the said explanation coupled with the fact that there is no dispute that the expenditure is genuine and the services have been availed by the assessee company and the amount have been paid to them also support the case of the assessee against non-levy of penalty. It is now well settled as held by the Hon’ble Supreme Court in case of Reliance Petroproducts Limited (supra) that mere making of claim which is not sustainable in law by itself will not amount to furnishing inaccurate for return of income. There is no finding given by the Assessing Officer that in the details supplied by the assessee in its return of income, there is any incorrect,

11 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur. erroneous or false information which has been supplied by the assessee.

5.4 Therefore in light of above discussions and in the entirety of the facts and circumstances of the case and respectfully following the decision of the Hon’ble Supreme Court in Reliance Petro products Ltd., we are of the view that the penalty levied by the assessee has rightly been deleted by the ld. CIT (A). Therefore we confirm the order of the ld CIT (A) and ground of appeal taken by the Revenue is dismissed.

In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 25/04/2017

¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 25/04/2017. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- DCIT, Circle-6, Jaipur 2. izR;FkhZ@ The Respondent- M/s Compucom Software Limited 5A, Tilak Bhawan, Tilak Marg C-Scheme, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No.852/JP/2014} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत

12 ITA No. 852/JP/2014 DCIT , Circle-6 vs. M/s Compucom Software Ltd., Jaipur.