ACIT, CIRCLE-14(1), KOLKATA, KOLKATA vs. M/S ATC LOGISTICS PRIVATE LIMITED, KOLKATA

Per M.Balaganesh, AM

2 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 First let us take up the revenue appeal 2. The first issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance made u/s 40(a)(ia) of the Act in the facts and circumstances of the case.

2.1. The brief facts of this issue are that the assessee is a private limited company engaged in the business of logistics and warehousing and had filed its return of income for the Asst Year 2012-13 on 23.8.2012 declaring total income of Rs 1,67,79,745/-. Later this return was revised on 17.12.2012 declaring total income of Rs 1,79,79,750/-. The ld AO on perusal of the profit and loss account noticed that assessee company had claimed expenditure on transportation and handling charges amounting to Rs 5,57,26,122/-. The ld AO asked the assessee to furnish the details of the same together with compliance of TDS provisions thereon. The assessee replied before the ld AO vide its letter dated 16.3.2013 as under:-

Paid with deduction of TDS as per TDS return - Rs 83,27,377/-

Transportation payment to various transporters for Hire of vehicle and including transporter having PAN and reimbursement of fuel charges - Rs 4,73,98,745/- ---------------------- TOTAL Rs 5,57,26,122/- ----------------------

2.2. The ld AO observed that even though the assessee had obtained the PAN from the transporters in terms of section 194C(6) of the Act, it is bound to submit the same before the prescribed income tax authority in terms of section 194C(7) of the Act within the prescribed time which was not done in the instant case. The ld AO also observed that the assessee is obligated to report the same as NIL payment to transporter in Form 26Q as per amendment in Rule 31A of the Income Tax Rules vide Notification No. 16/2011 dated 29.3.2011, which was also not done by the assessee in the instant case. 2

3 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 Accordingly, the ld AO did not accept the assessee’s contention that tax was not deductible on the amounts paid to transporters if they had furnished their PAN and proceeded to disallow the sum of Rs 4,73,98,745/- in the assessment u/s 40(a)(ia) of the Act on account of non-compliance with the provisions of section 194C(6) / (7) of the Act.

2.3. The ld CITA deleted the disallowance by observing as under:- “The appellant’s plea is that section 194C(6) prevents the appellant from effecting TDS on payments to transporters once the payees furnish their PANs. It is further argued that the default, if any, in terms of Section 194C(7) cannot result in holding the appellant as assessee in default as the said default arises much after the date of deductibility. The appellant has to decide whether TDS is to be effected or not immediately when it receives PAN details and when the payment are being made or credited. On furnishing of PANs going ahead with deductions by way of TDS would have been illegal. The conduct u/s 194C(7) is completely extraneous to the requirement of Section 194C(6). Decision whether to deduct or not has to be taken only u/s 194C(6). The AO’s action, therefore, cannot be upheld. This ground [ground no. ix] is thus allowed.”

2.4. Aggrieved, the revenue is in appeal before us.

2.5. We have heard the rival submissions. The ld DR vehemently relied on the order of the ld AO. We find that the ld CITA had deleted the disallowance on the ground that at the time of making payment or credit to the account of the payee, the compliance to TDS provisions are to be considered and looked from this perspective, the assessee in the instant case had indeed obtained PAN from all the transporters and accordingly not liable for deduction of tax at source in terms of section 194C(6) of the Act. We find that this would prove the compliance of the assessee in respect of provisions of section 194C(6) of the Act. However, we find that the legislature lays down further condition to the assessee u/s 194C(7) of the Act requiring the assessee to file those PAN before the concerned authority within the prescribed time. In our considered opinion, the provisions of section 194C(6) and 194C(7) of the Act are to be read together in order to

4 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 serve the purpose of the legislature. We find that the purpose behind the provisions of section 194C(7) of the Act is to enable the revenue to take corresponding action with the payees (i.e transporters) and make verification as to whether they had filed their returns in the first instance and if so, whether they had duly disclosed the subject mentioned transactions in their returns . This verification would be part and parcel of the action plan of the CBDT to track the non-filers of income tax returns or assessees trying to conceal their income for a particular year. We cannot make the purpose of these legislative provisions otiose. We find that there is no evidence on record to prove as to on which date the assessee herein had submitted the PAN before the competent authority as mandated in section 194C(7) of the Act, which aspect requires factual verification by the ld AO. It is also not clear from the records as to whether the assessee had indeed submitted the PAN of transporters before the competent authority as prescribed in section 194C(7) of the Act, which also requires factual verification. In the absence of these facts on record, we are not able to appreciate the various case laws relied upon by the ld AR with regard to section 194C(6) and 194C(7) of the Act in as much as in all those cases, the PAN was indeed submitted to the competent authority but belatedly. Hence in the interest of justice and fairplay, we deem it fit and appropriate to remand this issue to the file of the ld AO for verification of this aspect and decide the issue in accordance with law. Accordingly, the ground no. 1 raised by the revenue is allowed for statistical purposes.

3.1. The brief facts of this issue are that the ld AO asked the assessee to reconcile the turnover reflected in the profit and loss account with that reflected in Form 26AS. The 4

5 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 ld AO observed that the assessee company itself had accepted the following difference totaling Rs 90,10,087/- between turnover declared and turnover as per Form 26AS as under:- Sl. Particulars Amount credited Details of Difference No. as per Form Turnover 26AS 3. Dishnet Wireless Ltd. 3,20,41,467/- 2,33,70,765/- 86,70,702/- 5. Environ Energy Corporation 19,81,396/- 18,35,659/- 1,45,737/- India Pvt. Ltd. 7. Idea Cellular Ltd. 58,16,487/- 57,60,109/- 56,378/- 8. Outotec India Pvt. Ltd. 12,92,385/- 12,83,615/- 8,770/- 11. Transcend Infrastructure Pvt. 1,28,500/- 0 1,28,500/- Ltd. Total Difference 90,10,087/-

Accordingly, the ld AO added the difference in turnover of Rs 90,10,087/- , which has been subjected to deduction of tax at source, to the total income of the assessee.

3.2. The assessee pleaded before the ld CITA that the total turnover shown by the assessee in its profit and loss account was Rs 13,13,15,108/- , whereas the total turnover reflected in Form 26AS was only Rs 8,25,48,615/-. Since the turnover reflected in the profit and loss account is much more than what is reflected in Form 26AS, it was pleaded that there was no undisclosed turnover as alleged by the ld AO. The ld CITA observed that the ld AO has been very selective and has picked up only cases with higher 26AS figures, at the same time , ignoring much higher figures of returned turnover against many other parties. No reason has been given by the ld AO as to why he ignored cases of much higher turnovers than 26AS figures when he picked up for addition 26AS figures in cases it was higher than the offered figures. The ld CITA observed that figures mentioned in Form 26AS were at variance with figures mentioned in profit and loss account in respect of most of the parties. Since the overall turnover disclosed by the assessee was more than what is reflected in 26AS, he deleted the addition made in the sum of Rs 90,10,087/-.

6 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 3.3. Aggrieved, the revenue is in appeal before us.

3.4. We have heard the rival submissions. The ld DR vehemently relied on the order of the ld AO. We find that no effort has been made by the assessee to reconcile the basic difference in turnover between what is reported in its ledgers and that reported in Form 26AS. It is the duty of the assessee to reconcile the turnover in respect of each party vis a vis Form 26AS and give proper explanation thereon. But we find that the ld AO had done cherry picking of the parties wherein, he had considered only those parties where the figures in 26AS are more than what is reflected by the assessee . This action is not tenable as per law. It is not borne out from the records before us as to whether the assessee had claimed the full TDS credit in the return and assessment as reflected in Form 26AS. It is well settled that TDS is related to income offered thereon i.e the TDS could be claimed in the year in which the corresponding income is offered to tax by the assessee. No finding in this regard is given by both AO and the ld CITA for better appreciation of the facts. In our considered opinion, this requires factual verification by the ld AO. In these facts and circumstances, we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of the ld AO for denovo adjudication in accordance with law. The assessee is also directed to furnish proper reconciliation with Form 26AS in respect of each of the party and also given liberty to furnish further evidences in support of its contentions. Accordingly, the ground no. 2 raised by the revenue is allowed for statistical purposes.

4.1. The brief facts of this issue are that the ld AO noticed that the assessee company had introduced fresh share capital of Rs 50,00,000/- and share premium of Rs 6

7 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 50,00,000/- during the year under consideration. The assessee furnished the details before the ld AO as under:- Name of the As on 31.03.2011 As on 31.03.2012 Share Holder Share Capital Share Premium Share Capital Share Premium Tutul 3,70,00,000 86,66,000 3,90,00,000 1,06,66,000 Chowdhury Anushree 15,00,000 6,67,000 30,00,000 21,67,000 Chowdhury Bipul 15,00,000 6,67,000 30,00,000 21,67,000 Chowdhury Total 4,00,00,000 1,00,00,000 4,50,00,000 1,50,00,000

4.2. The assessee stated that the existing shareholders/ directors of the assessee company have introduced additional share capital and share premium totaling to Rs 1,00,00,000/- during the year. The ld AO issued summons u/s 131 of the Act to Shri Tutul Chowdhury, the director who has signed the income tax return for this year to attend and explain the service of making fresh investments in the assessee company and also produce other investors / shareholders to explain their investments in the assessee company. Summons u/s 131 of the Act remained uncomplied with until 9.3.2015 . Later when showcaused in this regard for drawing adverse inference, Shri Tutul Chowdhury appeared on 19.3.2015 and also produced Shri Bipul Chowdhury and Smt Anushree Chowdhury (other shareholders) and submitted copy of their income tax returns, balance sheets and bank statements for Asst Year 2012-13. The ld AO also recorded individual statements from them on oath u/s 131 of the Act and found that these shareholders had made investments in the assessee company towards share capital and share premium both in cash as well as in cheque and also had unsecured loans outstanding in their personal balance sheets as under:-

8 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 Name Total share By cheque By cash Unsecured capital/premium loans in invested during personal the year Balance Sheet Tutul 40,00,000 14,15,000 25,85,000 2,05,52,056 Chowdhury Bipul 30,00,000 4,50,000 25,50,000 44,25,000 Chowdhury Anushree 30,00,000 9,50,000 20,50,000 65,97,000 Chowdhury

4.3. When all these shareholders were specifically asked to explain the source of their investments in the assessee company , all of them replied that investments were made out of own savings / income from salary and own business income and also from some amount of unsecured loans and as these loans had since been repaid in April 2014, they were unable to recollect the lender’s name. The ld AO based on these replies observed that the three shareholders could not satisfactorily prove the source for making investments in cash towards the share capital and share premium to the tune of Rs 71,85,000/- and accordingly treated the same as unexplained cash credit u/s 68 of the Act. However, the ld AO accepted the investments made by these three parties in cheque to the tune of Rs 28,15,000/- during the year under consideration.

4.4. The ld CITA observed that the ld AO having accepted the contributions made by these three shareholders by cheques ought not to have questioned their cash contributions in as much as they are regularly assessed to income tax and they had confirmed the fact of making investments both in cash and cheque in the assessee company. Accordingly, he deleted the addition made in the sum of Rs 71,85,000/-. 4.5. Aggrieved, the revenue is in appeal before us .

4.6. We have heard the rival submissions. The facts stated hereinabove are not reiterated for the sake of brevity. We find that the three shareholders had duly confirmed the factum of making investments in cash as well as cheques in the assessee 8

9 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 company. They had also filed their respective balance sheets and income tax returns to prove their credit worthiness. We find that no finding is given by the authorities below to explain the sources of three shareholders to make investments in cash with facts and figures by clearly proving that as on the date of making the investments in assessee company, whether the three shareholders had sufficient cash balances as per books. This has to be verified from their cash book or from their cash flow statement. The ld AO is accordingly directed to make factual verification of the same in the manner known to law to ascertain the veracity of their creditworthiness. Accordingly, we deem it fit to remand this ground to the file of the ld AO. Accordingly, the Ground No. 3 raised by the revenue is allowed for statistical purposes.

5.1. The brief facts of this issue are that the ld AO noticed that the service tax outstanding as on 313.2012 in the sum of Rs 23,23,380/- was actually paid on 28.3.2013 i.e after the due date of filing the return u/s 139(1) of the Act. The ld AO observed that when assessee was show caused in this regard as to why the same should not be disallowed u/s 43B of the Act, the assessee accepted for the disallowance . Accordingly the ld AO added the sum of Rs 23,23,380/- to the total income of the assessee.

5.2. Before the ld CITA, the assessee stated that it had not claimed any deduction towards service tax and hence the provisions of section 43B of the Act cannot be made applicable at all in the first instance. It explained that service tax is to be paid when collected from the sundry debtors on whom the bills were raised. The amount was realized from the sundry debtors in the next year and accordingly the service tax portion 9

10 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 thereon was also paid in the next year. The assessee placed reliance on the decision of the Hon’ble Bombay High Court in the case of Ovira Logistic P Ltd reported in 232 Taxman 240 (Bom) among other decisions in support of its contentions. The ld CITA following the various judgements on the impugned issue allowed the ground of the assessee. Aggrieved, the revenue is in appeal before us.

5.3. We have heard the rival submissions. We find that the ld DR was not able to provide any contrary case law before us nor was he able to controvert the claim of the assessee that no deduction per se was claimed by the assessee towards service tax so as to fall outside the ambit of section 43B of the Act. The ld AR argued that service tax portion is kept as a liability in the books and as and when the same is paid , the liability account gets knocked off. Hence it does not enter the profit and loss account at all. We find no infirmity in the order of the ld CITA granting relief to the assessee by placing reliance on various decisions. Accordingly, the Ground No. 4 raised by the revenue is dismissed.

7.1. The brief facts of this issue are that the ld AO observed that assessee had granted interest free loans of Rs 2,21,46,138/- to its related parties on one hand , but on the other hand had paid interest on its borrowings. Accordingly, he observed that the 10

11 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 lending to related parties is not part of the business and proceeded to disallow the interest paid on a proportionate basis in the sum of Rs 29,67,423/-. The assessee submitted that it had not taken unsecured loans but all the loans were secured term loans which were granted for the acquisition of the capital assets. Term loan is in fact paid directly by the lender to the supplier of the capital assets. The term loan continued from earlier year. Hence there cannot be a situation wherein term loans could be used for lending to related parties free of interest. It was submitted that the assessee has sufficient own funds in the form of share capital and reserves and surplus which is several times more than the interest free advances made and placed reliance on the decision of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd reported in 313 ITR 340 (Bom), among other decisions. The ld CITA observed that own funds of the assessee company as per the balance sheet was Rs 9.20 crores and interest free loans given to related parties was Rs 2.25 crores. Since the interest free loans of Rs 2.25 crores was less than own funds of Rs 9.20 crores, he held that it would be incorrect to state the borrowed funds were diverted for non-business purposes. Accordingly , he deleted the disallowance of interest in the sum of Rs 29,67,423/-. Aggrieved, the revenue is in appeal before us.

7.2. We have heard the rival submissions. We find that the ld CITA had deleted the disallowance after recording a factual finding that the assessee was having sufficient own funds to advance interest free funds to related parties. This factual finding remain uncontroverted before us by the revenue. Hence we find no infirmity in the order of the ld CITA applying the decision of Hon’ble Bombay High Court supra to the facts of the instant case. Accordingly, the Ground No. 6 raised by the revenue is dismissed.

12 ITA No.1619/Kol/2016& CO NO.57/Kol/2016 M/s ATC Logistics Pvt. Ltd. A.Yr.2012-13 9. The ld AR at the time of hearing stated that the grounds raised in the Cross Objections of the assessee are only supportive of the order of the ld CITA and hence not pressed. Accordingly the cross objections of the assessee are dismissed as not pressed.

Order pronounced in the Court on 11.07.2018

Sd/- Sd/- [A.T. Varkey] [ M.Balaganesh ] Judicial Member Accountant Member Dated : 11.07.2018 SB, Sr. PS

Copy of the order forwarded to: 1. ACIT, Circle-14(1), Kolkata, Aayakar Bhawan Poorva, 110, Shantipally, E.M. Bye Pass, 6th Floor, Kolkata-700107. 2. M/s ATC Logistics Private Limited, Badu Road, Rani Park, Madhyamgram, Kolkata- 700129. 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.