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Income Tax Appellate Tribunal, DELHI ‘SMC’ BENCH,
Before: SHRI B.P. JAIN
This appeal of the assessee arises from the order of the ld. CIT(A)-14, New Delhi vide order dated 19.12.2016 for assessment year 2011-12 in appeal number 612/14-15/IT/Del/2015-16.
Brief facts as emanating out of the orders passed by lower authorities are narrated to have idea of the controversy involved. Assessee e-filed his return of income on 25/09/2012 with total income
2 ITA No. 958/DEL/2017 of Rs. 6 12170/-. The case was selected for security vide notice issued under section 143 (2) on 08/08/2013. The assessee is an authorised distributor of M/s Vodafone and selling recharge coupons of mobile and also provides new connection with the help of retailers in Delhi. During the year under consideration sales have been declared at Rs. 1 9682 7016/- and one of the expenditure debited in P&L account was rupees 205 2490/-as commission given to retailers under the head direct expenses. It was explained by assessee during the course of assessment proceedings that said amount in fact represents the incentive given to retailers by the company M/s. Vodafone and assessee has never received said amount in its coffers, only on paper said amount is reflected in Ledger account of the assessee by the company concerned for sake of administrative convenience. This commission amount was directly given by M/s. Vodafone to retailers and assessee has no locus in that. However, the AO, during the course of assessment proceedings vide order sheet entry dated 15/12/2014 show caused assessee as to why said amount may not be disallowed under section 40(a)(ia) of the act for want of tax deduction at source, as according to assessing officer said amount should have been subjected to tax deduction at source. But the provision in which tax deduction should have been made has been left open to guesses. In paragraph 9 of the assessment
3 ITA No. 958/DEL/2017 order, it is stated that “the issue under consideration in this case is whether the assessee, having shown the commission paid to retailers amounting to rupees 205 2490/- in the profit and loss account, is liable to deduct TDS on such payments under the provisions of section 40(a)(ia) of income tax act,1961?. Thus holding, the assessing officer has proceeded to apply provisions of section 40(a)(ia) of the act to disallow said amount, treating said sum as commission paid to retailers by the assessee. Aggrieved by this action of the assessing officer, assessee filed appeal before first appellate authority that is Commissioner of income tax appeals.
As evident from detailed statement of facts filed before first appellate authority enclosed with form 35, assessee has given all the nitty-gritty of the facts, wherein it is explained and highlighted that the for purposes of matching of accounts only book entries made by the assessee in its profit and loss account so as to tally the accounts with M/s. Vodafone, as M/s. Vodafone has credited and debited assesse’s account in its Ledger, simultaneously assessee has also in its books of accounts taken that entry in its books of accounts and then debited the commission what M/s. Vodafone has debited. It was further explained in that statement of facts if assessee would have
4 ITA No. 958/DEL/2017 taken net figure of commission received entire issue would have become easy to understand. That is, entire confusion arises due to passing of entry in books of accounts. It was explained by the assessee to the first appellate authority that assessee has never incurred any expenses as far as said sum is concerned. On the other hand, if commission is taken on net basis, this will never reflect in the assesses books. Thus explaining, assessee pleaded for deletion of the addition. The CIT(A), after calling for remand report dated 14/10/2016 has proceeded to give his findings at page 10 of his order wherein it is held that assessee was under duty to deduct tax on said sum for want of which assessing officer was held to be justified in invoking section 40(a)(ia) in disallowing subject sum. Thus remaining empty handed assessee has filed this appeal before this Tribunal.
Following grounds of appeal have been raised by the assessee :
a. That on the facts and in the circumstances of the case and in law, the CIT-Appeals erred in sustaining the addition of rupees 205 2490/- under section 40(a)(ia) without a preceding the various contentions raised by the assessee; b. that on the facts and in the circumstance of the case and in law, the CIT-Appeals erred in sustaining the applicability
5 ITA No. 958/DEL/2017 of section 40(a)(ia) without appreciating the following aspects of the case: i. assessee has never received this amount in his bank account; ii. only on basis of book entries, adverse inferences is drawn; iii. No real income arises in the present case; iv. question of payment cannot arise when receipt itself is not there; c. that on the facts and in the circumstance of the case and in law, the CIT-Appeals erred in sustaining the addition of rupees 205 2490/-under section 40(a)(ia) without giving the benefit of proviso to section 40(a)(ia) which says that if payee pays the tax on a sum no disallowed under section 40(a)(ia) shall be made; d. that on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the addition of rupees 2052490/- under section 40(a)(ia) without a preceding that no amount is payable at the end of the financial year; e. that on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the addition of Rs. 2 052490/- under section 40(a)(ia) without a preceding at story of doubtful penalisation comes to the rescue of the assessee;
During the course of the hearing Ld. counsel of the assessee has vehemently argued that addition sustained by the lower authorities is
6 ITA No. 958/DEL/2017 purely bad in law. In his first plank of argument he submitted that when it is undisputed that assessee has never received said sum, merely on basis of book entries, no adverse inference can be drawn, as to say assessee has incurred an expenditure first it should be established that assessee has received the said sum. Elaborating this argument, ld counsel submitted that, when M/s. Vodafone is neither given any such sum to the assessee, and has just credited/debited said sum in assesses Ledger in its books, to tally the same assessee has made the reciprocal entries in its books of accounts, this cannot be treated as receipt by the assessee so as to treat the debit made by the assessee as “expenditure” within the meaning of the profit and gains from business and profession under the income tax Act, 1961. Sh Goel submitted before me that statement of facts filed before first appellate authority clearly explained the factual position underlying the issue. Further, he submitted before me that at no occasion any of the lower authority has clarified the exact/specific provision under chapter XVII-B dealing with tax deduction at source where assessee was obliged to deduct the tax at source on said sum. For this, Sh Goel has drawn my attention to order passed by assessing officer and show cause order sheet entry reproduced at page No. 3/paragraph 7 of the order passed by assessing officer. On this count itself, he pleaded that
7 ITA No. 958/DEL/2017 addition made is unlawful for want of specific and clear charge of applicable TDS provision. Various authorities were mentioned which are filed in paper book running into 47 pages placed on records. At serial No. 4, 5, 6 following case laws were relied:
a. Hon’ble Delhi High Court decision in case of Hardarshan Singh reported at 350 ITR 427 (pages 27 to 34); b. Hon’ble Delhi ITAT decision in case of Kavita order dated 19th may 2016 (pages 35 to 37) c. Hon’ble Delhi ITAT decision in case of Vikas Yadav order dated 2nd /8/2016 placed in paper book at pages 38 to 47; Thus arguing, assessee’s counsel Sh. Goel pleaded for deletion of the addition.
Countering the arguments of the Ld counsel of the assessee, Ld. Sr. DR vehemently supported the orders passed by the lower authorities and pleaded for confirmation of the addition. Ld. DR principally submitted that the assessee has grossly failed to discharge its burden so as to prove its case, which is rightly confirmed by lower authorities.
I have carefully gone through the submissions made by both the sides which have received my full and complete attention. On careful
8 ITA No. 958/DEL/2017 consideration of the orders passed by the lower authorities in light of the case law cited and arguments made, I am of the considered opinion that the addition made by the assessing officer and as sustained by the first appellate authority is patently against the law for the reasons given in succeeding paragraphs. As rightly and correctly argued by Sh. Goel, when receipt itself has not been completed qua assessee, it is difficult to understand as to how the said sum on mere basis of book entries can be treated as expenditure/payment so as to draw or attract tax deduction at source. That is, when receipt itself is not there qua assessee (commission has been directly paid by M/s. Vodafone to retailers), there can be no situation where said notional/artificial receipt can be treated as expenditure/payment qua assessee for the purposes of tax deduction at source. To say in simple words to treat a payment as expenditure for purposes of income tax act on which any tax can be deducted, the corresponding receipt must also be established in hands of assessee.
This is a plain case where neither receipt is of the assessee nor payment is of the assessee. Only M/s. Vodafone has passed certain journal entries in its books of accounts in the Ledger of the assessee. Correspondingly, assessee has also made the book entries in its books
9 ITA No. 958/DEL/2017 of account so as to tally and match the same. This innocuous act of assessee cannot give license to the revenue authorities to apply punitive provisions of section 40(a)(ia) which requires strict interpretation. To apply said provision, in my humble view first there should be receipt and then there should be corresponding expenditure qua assessee, in absence of which said provision cannot be applied. It is settled law that mere book entries are not conclusive to taxation.
As far as principle relating to book entries are not final and conclusive I find support in my view by recent Hon’ble Supreme Court decision in case of a Taparia Tools reported 372 ITR 605 “it has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See – Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta [1972] 3 SCC 252; Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras v. Commissioner of Income Tax, Madras [1997] 6 SCC 117; Sutlej Cotton Mills Ltd. v. Commissioner of Income Tax, Calcutta [1978] 4 SCC 358; and United Commercial Bank, Calcutta v. Commissioner of Income Tax, WB-III, Calcutta [1999] 8 SCC 338”. This principle is squarely applicable to the facts of the instant case.
10 ITA No. 958/DEL/2017 10. As far as principle relating to applicability of section 40(a)(ia) of the act is concerned, the following erudite observations of Hon’ble Delhi High Court in case of Hardarshan Singh (supra) will support our findings:
“5. Unfortunately for the assessee, the Assessing Officer as also the Commissioner of Income Tax (Appeals) did not agree with this contention of the assessee and both of them held that the assessee was not an intermediary or a facilitator but, there was a privity of contract between the assessee and the clients for carriage of goods. The Tribunal, however, has reversed this finding by holding that the assessee had no privity of contract for carriage of goods with the clients and that the assessee merely acted as a facilitator or as an intermediary. The Tribunal observed as under:-
"5.3 We have considered the facts of the case and submissions made before us. We may explain the contents of the bill as mentioned above. The assessee raised a bill no. 3916 dated 26.03.2007 on the aforesaid Delhi Assam Roadways and asked it to arrange the trucks of the capacity of 25 tons on his behalf. The bill amount was Rs. 70,000/- and Rs. 50,000/- were paid to Ram Kishan, driver. Second bill of same number and date shows the contract value at Rs. 70,000/- and balance payable at Rs. 20,000/-. The challan no. 3916 of the same date shows balance freight at Rs. 17,900/- and commission of Rs. 2,100/-. This details show that a contract has been entered into between the two parties for a sum of Rs. 70,000/- and advance payment of
11 ITA No. 958/DEL/2017 Rs. 50,000/- has been made through the driver of the Delhi Assam Roadways. The assessee has not done the work of actual transportation of goods. He earned only the commission of Rs. 2,100/-. Thus, it becomes clear that the assessee acted as intermediary between the client and Delhi Assam Roadways Corporation Ltd. The company carried the goods and the advance received from the customer was handed over to the driver of the company. In the final bill, the advance and the commission of the assessee were deducted from the bill amount of Rs. 70,000/- and the assessee had to receive commission of Rs. 2,100/- from the company. According to us, it cannot be said that assessee really entered into the contract of transportation of goods. He merely acted as an intermediary. Thus, the facts seem to be similar to the facts in the case of Grewal Brothers (supra) although the provisions of Partnership Act make the position of law somewhat messy. In the case of Cargo Linkers, the assessee acted as an intermediary between the exports and the airlines. It received the amount from the exporter and handed over the same to the airline, who paid commission. These facts are also nearer to the facts of the case at hand. Accordingly, following this decision, it is held that the assessee was not liable to deduct tax at source. In view thereof, no addition could have been made u/s 40(ia). Thus, ground no.1 is allowed."
Before us, the learned counsel for the revenue sought to argue that the assessee was the 'person responsible' for paying as provided in Section 194C read with Section 204 of the said Act. However, that would only apply if there was privity of contract of carriage between the assessee and its clients. On facts, the
12 ITA No. 958/DEL/2017 Tribunal has held that the assessee was merely a facilitator or an intermediary and that it did not enter into any contract for carriage of goods with its clients.
It is also the case of the assessee that it did not undertake any carriage of goods by itself through its trucks / lorries other than in respect of its 'own booking' business which has already suffered TDS at the time of receipt of payments by the assessee. The learned counsel for the respondent/ assessee referred to the decision of a Division Bench of this Court in the case of CIT v. Cargo Linkers: (2009) 179 Taxman 151 (Del). We find that the said decision covers the case of the assessee in its favour. In Cargo Linkers (supra), the assessee was a partnership firm carrying on the business of clearing and forwarding agents and booking cargo for the transportation abroad by various airlines operating in India. The assessee collected freight charges from the exporters who intended to send the goods through a particular airline and paid the amount to the airline or its general sales agents and for the services rendered, the assessee charged commission from the airlines. According to the Assessing Officer, in that case, the assessee was liable to deduct tax at source on the payments made to the airlines. As can be noticed, the factual position is somewhat similar to the facts of the present case. Here also, the assessee collects freight charges from the clients who intended to transport their goods through separate transporters. The entire amount collected from the clients is paid to the transporters after deducting commission from the said amount.
13 ITA No. 958/DEL/2017 8. In Cargo Linkers (supra), it was contended on behalf of the assessee that the assessee was not the 'person responsible' for making payment in terms of Section 194C of the said Act. In that case, the Tribunal had also noted and found as a matter of fact that the assessee was nothing but an intermediary between the exporters and the airlines as it booked cargo for and on behalf of the exporters and mainly facilitated the contract for carrying goods. The principal contract was between the exporter and the airline. This court, in Cargo Linkers (supra), agreed with the view of the Tribunal which had mainly decided an issue of fact, namely, the nature of the contract between the parties concerned. The Court also observed that it had also been found as a matter of fact that the contract was actually between the exporter and the airline and the assessee was only an intermediary and, therefore, it was not the 'person responsible' for deduction of tax at source in terms of Section 194C of the said Act.
We feel that the decision in Cargo Linkers (supra) completely covers the case in favour of the assessee and against the respondent. The Tribunal has already found as a matter of fact that the contract was between the assessee's clients and the transporters and that the assessee had mainly acted as a facilitator or as an intermediary.”
Facts of present case are similar to the facts of aforesaid case. Here also the assessee can be treated only as intermediary/facilitator
14 ITA No. 958/DEL/2017 in worst-case although that is also not the case as entire privity is between M/s. Vodafone and retailers so far as said sum is concerned, in which assessee has no role. Therefore, neither the receipt is of the assessee nor the amount debited in profit and loss account is expenditure of assessee.
I have also gone through the identical cases decided by this Tribunal in cases of Kavita and Vikas Yadav [supra[. The ratio of these decisions is squarely applicable to the facts of the present case. More particular and specific is the decision of this Tribunal in case of ITO vs Basant Kumar order dated 31.3.2015 the relevant paragraph is reproduced below for sake of ready reference:
"6. It is only elementary that information as per database of the revenue authorities cannot be, by itself, a legally sustainable basis for addition being made to the income of the assessee and that such inputs are at best starting points for appropriate inquiries. There is nothing more than these information inputs which have been put against the assessee. We have also noted that, as evident from affidavit a copy of which is placed before us at page 26 of the paper book, the assessee has categorically stated that the impugned "amount of Rs.58,78,256 shown in form No. 26AS was neither received by me nor receivable to me" and that "the above stated amount of Rs.58,78,256j- was directly paid by ITA NO.735/Del/2015 the Vodafone Essar Digilink Ltd to
15 ITA No. 958/DEL/2017 the retailers of the company, a complete list of which is provided by the company and placed on file
We have further noted that vide letter dated 15.12.2011 (duly acknowledged by the office on 23.12.2011 - evidence placed on record at page 27 of the paper book), Vodafone, Digilink Ltd has given a complete break up of Rs.58,78,256 and given details of the retailers to whom the related payments have been made. There is no material to come to the conclusion that assessee ever received any such coupons or payments nor the same are reflected in his books of accounts or bank statements. The fact that these payments are made by coupons and vouchers etc. can also not be put against the assessee since the assessee never received the same and there is no evidence to the contrary. Apparently, entire confusion has started from the fact that, perhaps as a measure of abundant caution, Vodafone deducted tax at source in ITA NO.735/Del/2015 respect of the vouchers etc and, for whatever reasons, stated, the name of distributor as collective recipient of entire sum. On these facts, in our considered view, learned CIT(A) was quite justified in deleting the impugned addition of Rs.58,78,256. We approve his conclusions, and decline to interfere in the matter.
Ground No.1 is thus dismissed." (Emphasis supplied by me)
When such is the legal position as discussed above it is really painful to note that revenue authorities make such kind of additions
16 ITA No. 958/DEL/2017 which causes harassment to the taxpayer and do not yield any revenue.
Lastly, attention was drawn to the observations of their lordships of Hon’ble Supreme Court wherein very recently in case of CIT vs Balbir Singh Maini, vide order dated 4/10/2017 with regard to taxation of hypothetical income has succinctly observed as under:
“(xi) This Court, in Commissioner of Income Tax v. Excel Industries, (2014) 13 SCC 459 at 463-464 referred to various judgments on the expression “accrues”, and then held:
“14. First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. Shoorji Vallabhdas and Co. [CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (ITR p. 148)
“… Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a ‘hypothetical income’, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”
17 ITA No. 958/DEL/2017 15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word “accrue” and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11)
“11. … the date of payment … does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately.”
This Court further held, and in our opinion more importantly, that income accrues when there “arises a corresponding liability of the other party from whom the income becomes due to pay that amount”.
It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee.
Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee.”
(xii) In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at
18 ITA No. 958/DEL/2017 all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act.
(xiii) In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains “arose” from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act.”
These observations fortify my view that present addition relates to taxation of hypothetical income. In the present case, according to my humble understanding, there would be no accrual of said sum qua assessee so as to treat its debit in book entries as payment/ expenditure for the purposes of disallowance under the head profit and gains of business and profession for purposes of income tax Act. The assessee has never got the right to receive the said sum as its income from M/s Vodafone. Therefore also, the action of the lower authorities cannot be sustained. On basis of my aforesaid discussion, I have no hesitation in deleting the sole addition of Rs. 20,52,490/- made under section 40(a)(ia) of the act. Ground of appeal raised by the assessee is allowed.
19 ITA No. 958/DEL/2017
In the result, the appeal of the assessee in ITA No. 958/DEL/2017 is allowed.
The order is pronounced in the open court on 16.10.2017.
Sd/- [B.P. JAIN] ACCOUNTANT MEMBER
Dated: 16th October, 2017
VL/