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IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘B’ BENCH, KOLKATA Before : Shri P.M.Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member
I.T.A. No. 2647/Kol/2013 A.Y : 2009-10
I.T.O., Ward-30(2), Kolkata P-7, Chowringhee Square, Kolkata-700069 Appellant -Vs-
Jatindra Nath Ghosh 115C, Rash Behari Avenue, Triangular Park, Kolkata-700029. PAN: ADRPG 7034 L Respondent
Appearances by: For the Appellant: Shri Saurabh Kumar, Addl. CIT(DR) For the Respondent: Shri Pratyush Jhunjhunwala, Advocate
Date of hearing : 12-10-2017 Date of pronouncement : 05-01-2018
Shri. S.S.VISWANETHRA RAVI, JM: 1. This appeal by the Revenue against the order dated 12.08.2013 passed by the Ld. CIT(A)-XIV, Kolkata for assessment year 2009-10.
The brief facts of this case are that the assessee is an individual and engaged in the engineering consultancy and project work. The ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 1
assessee filed return of income by declaring an amount of Rs. 7,59,021/-and notices u/s 143(2) and 142(1) of the Act were issued in response to which the assessee attended from time to time before the AO.
Ground no.1 is relating to deletion of disallowance made u/s 14A of the Act.
The AO found the assessee has long term investment of Rs. 3,93,500/- in shares, PPF and mutual funds. The AO asked the assessee to explain as to why the disallowance u/s 14A read with Rule 8D(2) should not be made. The assessee stated vide its letter dated 08.10.2011 that no exempt income was earned in the year under consideration and the provision of section 14A is not applicable to the issue on hand. The AO by placing reliance on the decision of ITAT, Delhi in the case of Chem Invest Ltd. vs ITO determined the expenses to be disallowed in spite of having no exempt income earned by invoking Rule 8D(2) of Income Tax Rules, 1962 and Rs. 30,186/- was added to the total income of the assessee. Aggrieved the assessee before the CIT(A) contended all the investments are brought forward from earlier years accounts and the same were made from assessee’s own capital. The AO examined the books of accounts, bank statement and other details produced before him and arbitrarily disallowed the impugned addition u/s 14A of the Act, disallowed the said amount by ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 2
invoking Rule 8D(2) of the Income Tax Rules, 1962. The Ld. CIT(A) considering the decision of Hon’ble High Court of Delhi in the case of Chem Investment Ltd. which was overruled the decision of the Hon’ble Special Bench relied on by the AO and deleted the said addition. The relevant portion of which is reproduced herein below:
“4.2. I have examined and considered the written submission of the appellant as well as assessment order. It is seen that there was neither any new Investrnent nor any part of expenditure was incurred in relation to exempt income during the concern Assessment Year. All the investments are brought forward balance from earlier year's account and made out of the appellant assessed total income. Moreover, the assessment was made originally for earlier years and also subsequent year by the then Assessing Officer accepting the claim of the appellant. With reference to the Special Bench decision of the ITAT, Delhi in Cheminvest Ltd. VS. ITO [which judgement was overruled by the Hon'ble Delhi High Court by its consolidated judgement delivered on 18.11.2011 in Maxopp Investment Ltd. Vs. CIT (ITA 687/2009) including the appeal of the said Cheminvest Ltd. VS. CIT (ITA 856/2009)], considering the above facts and decision of Hon'ble Delhi High Court the claim of the appellant is accepted. In the result, the appeal succeeds on this ground and accordingly the appellant gets relief of Rs.30,186/-.”
The Ld. DR relied on the order of AO and the Ld. AR placed reliance on the order of Hon’ble High Court of Delhi and supported the finding of the Ld. CIT(A).
Heard the rival submissions and perused the material available on record. We find that the AO has made the said disallowance by placing reliance on the decision of Hon’ble Special Bench which was overruled by the Hon’ble High Court of Delhi. We find that the assessee has made investments in shares, PPF and mutual funds and no exempt income was earned during the year under consideration. Therefore, in view of decision of Hon’ble High Court of Delhi we find no infirmity in the order of Ld. CIT(A) and accordingly the ground raised in this regard by the Revenue is dismissed.
ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 3
Ground nos. 2 and 3 are relating to deletion of disallowances made u/s 40(a)(ia) of the Act on account of short deduction and non- deduction of TDS.
During the course of scrutiny proceedings, the AO found the assessee made short deduction in respect of Bhumia construction & Sepai Baidya and for other sub-contractor for non-deduction of TDS. The AO show caused the assessee by letter dated 04.11.2011 to furnish its explanation for non-deduction as well as short deduction of TDS regarding sub-contract/service charges, drawing and drafting, load testing charges and calibration charges and soil exploration charges. The AO further requested the required evidences regarding service charges, nature of work. The assessee submitted its reply vide its letter dated 21.11.2011. The assessee in nut shell stated as under:
(i) the amount of Rs. 17,12,322/- even advance payments received from its clients prior to commencing of work and the said work was actually instituted during the subsequent financial year and the same has been shown as commission liability during the year under consideration.
(ii) Regarding payment to reliable construction it was contended the said payment was made for supply of stone dust and other materials no TDS is warranted.
(iii) regarding Bhunia Construction the assessee stated TDS was deducted except same payment which the assessee paid directly.
(iv) To avoid local disturbances and nuisance the assessee paid service charges to various parties. ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 4
(v) Regarding drawing and drafting payment was made from time to time.
(vi) TDS were deducted on low charges to Haldia Nirman Project Pvt. Ltd. and no TDS was deducted on same payments which were below taxable limit.
(vii) Regarding Callibration Charges amounts were paid towards upgradation.
(viii) Regarding transport charges were contended that the transport were arranged legally and paid directly through vouchers by the site supervisors.
(ix) Regarding business promotion expenses the assessee stated that it was incurred exclusively for business purposes under incentives and incidental expenses by way of rewards to various high profile persons for development of its business.
The AO on verification and examination of the submission of the assessee observed that the assessee did not furnish any evidence whatsoever in support of its claim and accordingly disallowed an amount of Rs. 3,64,349/- and Rs. 3,89,145/- being short deduction and an amount of Rs. 1,15,36,280/- being non-deduction of TDS and added totaling to Rs. 1,22,89,774/- to the total income of the assessee.
“6.4. The reply of the assessee is examined. It is seen that the assessee has not furnished any evidence what so ever in support of its claim made in the reply. The services rendered by the assessee are admittedly in the nature of fees for technical services. In respect of contract and in respect of other contractual payments, the assessee has paid for doing some other services. The nature of services has not been disputed. It is also not disputed whether TDS was deductable or not. The assessee rightfully acknowledges that TDS was deductable however it was not deducted due to some other problem. Rendering of services like Drawing and Drafting is a highly technical work which can be done only by specialized engineer. The assessee was required to deduct TDS on this payment. Similarly, the payment of load testing charge is in respect of examining the strength of the structure. This service is rendered by technical persons specialized in this field. The assessee was required to deduct TDS at the rate of 10% on Drawing and Drafting, load testing charges. Similarly for payment of calibration charges, no TDS was deducted. The alignment of the structure is examined and for this purpose, the assessee has paid calibration without deduction of TDS. 6.5 The assessee had some projects being carried out at various places. The same was subcontracted to parties like Reliable Construction, D. B. Enterprise, etc. However, no TDS was made on such subcontract and contract for work / labour. Therefore, the expenditure is disallowable as per the provision of section u/s. 40(a)(ia) of Act. The expenditures are disallowable for other reasons also. It is seen that most of the expenditures are' made in cash. During the course of assessment proceeding, the assessee was required to furnish the evidence of payment. However, the same could not be produced by the assessee. On this ground alone, the expenditures are disallowable. ITA No. 2647/Kol/2013
Jatindra Nath Ghosh 5
6.6 . In view of the above, an amount of Rs. 3,64,349/- and Rs. 3,89,145/- is added to the total income being short deduction of TOS. An amount of Rs. 1,15,36,280/- is added to the total income of the assessee as the assessee has not deducted any TDS on these amount.
6.7 In view of the above, the total addition of Rs. 1,22,89,774/- is added to the total income of the assessee.”
Aggrieved, the assessee challenged the same before the CIT(A). The CIT(A) by examining the documents and bill produced before him in first appellate proceedings deleted the addition observing as under:
“5.1. The A.O. has added a slim of Rs, 1,22,89,774/- to the total income of the appellant by making disallowance under section 40(a)(ia) of the Act referring to his discussion at para-6.6 of the said assessment order, it appears that the total addition of Rs. 1,22,89,774/- consist of Rs. 3,64,349/- and Rs. 3,89,145/- for short deduction of TDS and Rs. 1,15,36,280/- for non-deduction of any TDS. Discussion as to the disallowance of said sum of Rs. 3,64,349/- and Rs. 3,80585/- was made in Para-6.2 of the assessment order from which it appears that the said two disallowance were with reference to the transaction with M/s Bhunia Construction and M/s Sepai Baidya. There was however neither any break up of the balance addition of the sum of Rs. 1,15,36,280/- nor specific discussion about the same in the assessment order.
5.2. Payment made by the appellant to M/s. Bhunia Construction was mainly in respect of the piling work at various sites done by them as sub-contractor. During the financial year 2008-09 relevant to assessment year 2009-10 under consideration the applicant deducted TDS from the payments made to them from time to time and also deducted/deposited the TDS on the outstanding payment made to them during the next year against there bill for the works done by them during the subject financial year ,2008-09. Since such deduction and payment of TDS amount was made before the "due date specified in sub-section (1) of section139" i.e. before the 30th September 2009, so no disallowance called for in such case u/s 40(a) (ia) of the Act. .M/s Sepia Baidya is engaged by the applicant in collection of soil by boring of soil at different measurement a part of the soil exploration works at the various sites. For such works TDS was to be deducted/deductible @ 1.03% u/s 194C of the Act as works contract. The amount paid to the said Sepai Baidya is not in the nature' of "fees for technical services" as defined in Explanation (b) to the section 194J, of the Act as presumed by the A.O. On the basis of the documents produced by the applicant and argument made by the A.R Sec. 194C is applicable, since the applicant deducted total TDS amount Rs.1721/- from the part payment made against the total bill amount of Rs. 3,80,585/-; Such short deduction of TDS of Rs. 2199/- @1.03% for the bill amount of Rs. 2,13,495/-is considered disallowed and added to the applicants income.
5.3. As specified above, there is no breakup of the other sum of Rs.1,15,36,280/- disallowed by the assessing officer on the ground of non-deduction of any TDS. The name and amount mentioned in the Table given in Para 6.1 of the assessment order includes the name and amount M/s Bhunia Construction and M/s Sepai Baidya discussed above. Various others name and amount mentioned in the said Table includes the amount of supply and/or the reimbursement of expenses made by the appellant, on which there is no scope or provision for deduction of TDS. There are various other names in which cases aggregate amount of bill for the work done by each of them (excluding the cost of material and reimbursement of expenses) are less than the statutory amount on which there was no requirement of any TDS as per the provisions of the I. T. Act.
5.4. In Para 6.5 of the assessment order the A.D. has specifically mentioned the name of Reliable Construction and D .B Enterprises - in respect of which the appellant in the course of assessment proceeding specifically submitted that payment were made to them for supply of stone dust and other materials used for the infrastructure development of Eastern Railway Site at Kuntighat. From the bills of the said parties submitted by the applicant it will. appear that such bills were mainly for the supply of goods, material and reimbursement of expenses. There is no requirement of any TDS on the supply of materials and/or reimbursement of expenses as per provision of section 40(1)(ia) of the Act. ITA No. 2647/Kol/2013
Jatindra Nath Ghosh 6
5.5. I have gone through the assessment order passed by the A. O. and also have carefully considered the submissions and supporting vouchers made by the appellant, I find that there is sufficient force in the arguments given by the A. R. In the light .of the above facts and following the ratio 'decidende' of the Hon'ble Courts (supra) it is held that firstly, the provisions of section 194C read with Sec. 40(a)(ia) of the Act are not applicable to the case of the appellant. Secondly, nature of expenses incurred by the assessee do not form part of expenses disallowable under section 40(a)(ia) of the Act. Thirdly, when such type of expenses incurred by the appellant were totally paid and not remained payable as at the end of the relevant accounting period, provisions of section 40(a)(ia) of the Act are not applicable. Further, the appellant has clarified all the five questions raised as above and is clarifications are found satisfactory and convincing. Thus no adverse inference could be drawn on the issue even after making intrusive inquiries in respect of the transition of business made by the appellant. Thus it is held that the A.O. was not justified in making addition of Rs. 1,20,76,279/-(except disallowed of Rs. 2,13,495/-) on account of disallowance made under section 40(a)(ia) of the 1. T . Act., 1961.”
The Ld. DR submits the assessee did not supply any evidence before AO in support of his claim regarding the heads of which the AO made the additions. The Ld. DR referred to para no.6.4 and argued that the CIT(A) having accepting the new evidences without seeking any comments by way of remand report from the AO deleted the said amount which is violation of 46A of the Rules, 1962. The DR argued that the issue on hand requires verification of evidences filed before this Tribunal through paper book from pages at 151 to 403 and prayed to remand the issue to the file of AO for verification.
Before us the Ld. AR submits all the details were submitted before the AO in spite of which AO made the addition arbitrarily without examining the said details. The AR in support of his contentions filed paper book containing in respect of impugned amount involving ground nos. 2 and 3 referred to page nos. 151 to 403 and argued having the said material evidences before the Ld. AO the additions were made and the CIT(A) by examining the same deleted the said addition and Ld. AR referred to page no. 151 and argued that all the ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 7
payments were made towards reimbursement of expenses for stone dust lifting, for dressing and levelling etc. therefore, the addition made u/s 40a(ia) is not maintainable. The AR also placed reliance on the decision of the Hon’ble High Court of Gujarat in the case of Consumer Marketing (India) Pvt. Ltd. reported in (2015) 64 taxmann.com 16 (Gujarat) for the proposition no TDS is maintainable on reimbursement of expenses.
Heard the rival submission and perused the material available on record. It is observed from the assessment order it is clearly mentioned by the AO that the assessee did not furnish any evidence in support of his claim on expenditure. But however, it is seen from para no. 5.2, 5.3 and 5.4 the CIT(A) observed and deleted the said addition on the basis of documents and bills. Therefore, it shows that the assessee submitted a new documents before the CIT(A) which were not admittedly before the AO for his verification. Therefore, in these circumstances we deem it appropriate to remand this issue to the file of the AO for verification in terms of evidences filed before us from pages 151 to 403. Thus, ground nos. 2 and 3 are allowed for statistical purposes.
Ground no. 4 is relating to disallowance made u/s 40A(3) of the Act on account of payments in cash aggregate of payments exceeding the statutory limit of Rs. 20,000/-. ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 8
The AO found the assessee made payment of Rs. 21,42,876/- in cash and show caused to explain why the said cash payment should not be disallowed u/s 40A(3) of the Act. In response to which assessee vide its letter dated 21.11.2011 stating the most of the payments of purchase was made by cheques and all cleared through banks. The AO considering the said submission found the assessee failed to furnish any evidence to show that the cash payments are not covered u/s 40A(3) of the Act and accordingly an amount of Rs. 21,42,876/- was disallowed and added to the total income of the assessee. Aggrieved the assessee challenged the said addition before the CIT(A). The assessee contended before the CIT(A) that number of payments mentioned in the assessment order includes the payment made by the account payee cheques which were detailed in the statement filed in the paper book. The CIT(A) considering the same deleted the said amount by observing that the payments has shown by the AO in the table at page nos. 12,13 and 14 reflects the most payments were made through account payee cheques.
Before us the DR submits there was no explanation nor any evidence showing the amounts were made through account payee cheques before the AO but however, it appears from the order of CIT(A) the assessee submitted the details of the said amount placing on which the CIT(A) without seeking any report from the AO deleted
ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 9
the said amount which is against law. The Ld. DR prayed to remand the issue to the file of the AO for verification. The Ld. AR submits that all the details were submitted before the Ld. AO but did not consider the same in right perspective and referred to page nos. 416 to 452 and argued the said details were filed before the AO as well as CIT(A). The CIT(A) considering the same deleted the said amount by observing that the amounts shown by the AO are mostly through account payee cheques. The AR referred to page no 416 which is ledger account of Viva Chowdhury and argued the service charges mentioned therein clearly shows the cash payments were below the statutory limit. The AR argued that all the payments which were made in cash were below Rs.20,000/- and the addition made u/s 40A(3) is not maintainable.
Heard the rival submissions and perused the material available on record. It is observed that there is no evidence filed before the AO but however it is seen the CIT(A) has examined the same payments as reflected in page nos. 12,13 and 14 and AO found that all payments were made through account payee cheques. In our opinion, the CIT(A) has verified the said payments in details found to be made through account payee cheques. The Ld. AR before us referred to page nos. 416 to 453 which are in the ledger accounts of the various entities as reflected in AO’s order under the different head i.e. service charge, drawing and drafting, machinery hire charges, material testing charges, soil exploration charges, transport charges and business ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 10
promotion charges. Therefore, in our opinion the order of CIT(A) justified in holding the payments were made through account payee cheques and all other payments were made in cash are below the prescribed monetary limit u/s 40A(3) of the Act. Therefore, we find no infirmity in the order of CIT(A). Accordingly, ground no. 4 raised by the Revenue is dismissed.
Ground no. 5 is relating to deletion of addition made on account of unexplained cash credit.
The AO found the amount of cash deposits of Rs. 6,97,985/- in two banks and for non-explaining the said cash deposits the AO added the said amount under unexplained cash credit u/s 68 of the Act. The CIT(A) found from the examination of bank accounts and held the same are not related to the year under consideration. The CIT(A) also observed that the said cash deposits includes the duplication of same amount and transfer from other account of the assessee.
“7.1. The A.O. has added a sum of Rs.6,97,985/- under the head ‘Income from Other Sources' as unexplained cash credit under section 68 of the Act (Para – 7.4 of the assessment order) referring to the details given in Page-11 of the assessment order. During the time of my verification I have found that various dates and amount in the Table given at Page-11 of the assessment order as cash deposits made by the appellant in his bank accounts; from the various amounts and dates of the deposits it would appear that numbers of transactions are not related to the year under consideration, includes duplication of the same amount, transfer from the other account of the appellant and not cash deposit. Other deposits are also from the existing balance of cash available with the appellant as will appear from the cash book of the appellant. The addition made by the A.O. was not with reference to any unexplained .cash credit appearing in the books of accounts of the appellant therefore invocation of section 68 of the Act is also unjustified. Therefore I allow this ground of appeal.”
ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 11
The DR relied on the order of the AO. The AR referred to page nos. 408 to 412 and argued the said deposits were relating to earlier years but not relevant year under consideration. The AR also submits that they were not cash deposits and filed evidences showing transfer from one account to other account and there was duplication of amounts. The AR supported the order of CIT(A) and prayed to dismiss the grounds raised by the Revenue in this regard.
Heard the rival submissions and perused the material available on record. It is observed from the page no. 408 of the paper book of the cash was deposited out of existing cash as per cash book. Regarding the account of the statement of the Kalikapur Branch which reflects opening balance in savings bank twice on 20.10.2008 at serial nos. 2 and 9. It is also observed at page no. 409, some of the payments were cancelled and transferred to SB account. Therefore, as rightly observed by the CIT(A) that there were cancellation of some amounts, duplication of amounts and also transferred from one existing account to another account belonging to the assessee. Therefore, we find no infirmity in the order of CIT(A). The addition made u/s 68 of the Act is deleted. Therefore the ground no. 5 raised by the Revenue is dismissed.
ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 12
In the result, the appeal of the Revenue is partly allowed.
Order pronounced in the open Court on 05-01-2018.
Sd/- Sd/- P.M. Jagtap S.S. Viswanethra Ravi Accountant Member Judicial Member Date: 05-01-2018
SB,Sr. PS
Copies to : (1) Appellant/Department: I.T.O., Ward-30(2), Kolkata. (2) Respondent/Assessee: Jatindra Nath Ghosh. (3)Commissioner of Income-tax (Appeals) (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File
By order
Sr.PS/H.O.O ITAT, Kolkata
ITA No. 2647/Kol/2013 Jatindra Nath Ghosh 13