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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI S.V. MEHROTRA, & SHRI CHANDRA MOHAN GARG
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal filed by the assessee is directed against the order of the CIT(A), Hissar, dated 14/03/2013 for A.Y 2008-09 passed u/s 263(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'.
2. The grounds raised by the assessee read as follows :
“1. Because the action is under challenge on facts and law qua the assumption and application of revision jurisdiction u/s 263 since there is 'material facts' containing 'material particulars' showing the application of mind by the A.O.
Because there is an erroneous interpretation rendered to the 'privity of contract' (Indian Contract Act 1872) between the consignor and the transporter (beneficiary) by changing the nature of the assessee's income qua the amount of Rs. 1,37,04,773/-.
3. Because the action for invoking the provision of Section 40(a)(ia) r/w section 194C(3)(i) before amendment and Section 194C(6) w.e.f. 1.4.2009 is being challenged on facts and law particularly looking into the facts and circumstances and nature of business.”
Briefly stated, the facts giving rise to this appeal, as emanating from the assessment order are that on a perusal of assessment records, the ld. CIT Hissar noticed that the assessee has claimed credit of TDS of Rs.9,66,267/- on gross receipts of Rs.4,22,44,740/- as per Form(s) No.16A whereas gross receipts of Rs.2,90,04,667/- only have been shown in the Profit & Loss Account [PLA for short]. In this way, less receipts of Rs.1,32,40,073/- were shown in the PLA by the assessee. The ld. CIT issued notice u/s 263 of the Act by observing that the A.O. failed to (i) notice the issue, (ii) make necessary investigation and (iii) consequently make suitable
Rs.1,32,40,073/-. After receiving the reply from the assessee, the ld. CIT, Hissar passed impugned order u/s 263 of the Act by setting aside the assessment order dated 19.10.2010 passed u/s 143(3) of the Act. Now the aggrieved assessee has filed this appeal challenging the issuance of notice and invocation of revisional powers contemplated u/s 263 of the Act.
We have heard the rival submissions and have carefully perused the relevant material on record. The ld. Counsel for the assessee [ld.
AR] first of all drew our attention towards page 1 para 3 of the impugned order and submitted that the A.O, in the original assessment proceedings, issued notice and conducted enquiries regarding the issue picked up by the ld. CIT. The ld. AR pointed out that the assessee in its receipt and payment account cum profit and loss account and balance sheet for the year ending 31.3.2008 [copy placed at page 63 of the assessee’s paper book 1] has shown freight amounting to Rs. 2.90 crores and commission receipt of Rs. 3,45,800/- which has been properly examined by the A.O during the original assessment proceedings by way of issuing questionnaire dated 27.8.2010 [pages 1 and 2 PB 1] and the assessee filed detailed reply to this questionnaire
12.10.2010 [Pages 3 and 4 PB 1]. The ld. AR pointed out that in the said questionnaire 5 and 8, the A.O asked the assessee to furnish complete details of commission receipt of Rs. 3,45,800/- with documentary evidence and also directed to produce complete books of accounts with bills and vouchers which were submitted during the assessment proceedings by way of reply dated 12.10.2010. The ld. AR contended that in reply to question No. 11, the assessee specifically stated that the firm has not deducted TDS of any person because there was no liability of TDS and thus no return of TDS has been filed. The ld. AR also contended that in the reply at Sl. No. 5 and 18, the assessee submitted copy of accounts of commission receipt of Rs. 3,45,800/- and regular books of accounts, bills and vouchers were also submitted for verification. Therefore, the A.O made a detailed enquiry during the original assessment proceedings by way of issuing questionnaire and receiving reply from the assessee. The ld. AR also submitted that the commission ledger account from 1.4.2007 to 31.3.2008 was submitted to the assessee during the assessment proceedings which is available at pages 1 to 40 of the APB-II. The ld. AR also submitted that in para 4.3.1, the assessee ‘s reply vide letter dated 26.12.2012 has been reproduced by the ld. CIT wherein the assessee elaborately submitted that as per modus operandi of the assessee, goods are booked by them for transportation, for which vehicles are engaged by us. In this case, the freight is settled with the consignor / consignee, and received by them. The ld. AR further submitted that vehicle owners were paid the amount of freight as per the verbal agreement with them. This act, according to the ld. AR is a “Pucca Arhatiya”. The ld. AR submitted that many a times they make available vehicles for transportation of goods on commission basis. In that case the freight was directly paid to the vehicle owners by the consignor to the consignee and they charged fixed amount of commission for their services which act is a “Kachcha Arhatiya” on commission basis. The ld. AR further contended that the amount directly received by them from consignor or consignee (as Pacca Arhatiya) has been declared as 'Gross Receipts’ in Profit & Loss Account whereas the amount received as commission on booking of vehicles (as kachcha Arhatiya) has been shown under the head ‘Commission’ in profit & loss account. Copy of Profit & Loss A/c & Balance Sheet audited by the Chartered Accountant has been placed on record. In the case of Kachcha Arhatiya, gross amount of commission only is considered for the purpose of turnover.
The ld. AR further submitted that on the amount of Rs. 1.32 crores, the assessee only received commission in the form of cash and TDS certificates wherein TDS was deducted in the name of the assessee and thus cash commission and TDS amount were treated by the assessee as its income. The ld. AR vehemently contended that the assessee rendered services as kaccha arhatia which brought commission to the assessee in the form of cash and TDS certificates which created doubt in the mind of the CIT and in this, the CIT has to apply his mind to the facts and modus operandi of the assessee’s business as stated above. The ld. AR also pointed out that if there is no written agreement, then TDS provisions of section 194 C is not applicable and the assessee acted as kaccha arhatia on verbal agreement only and therefore, the assessee was entitled to receive commission only and freight was directly paid by the consigner or consignee to the transport vehicle owner after deducting TDS in the name of the assessee because he is undertaking services of make available vehicles for transportation of goods to the destination of the consigner to the destination of the consignee in which the assessee is receiving cash commission, TDS certificates which also form part of commission receipts and the assessee offered entire commission
TDS vouchers which were credited to the commission account on 31.3.2008 within the financial period and in this situation the order of the AO could not allege as erroneous or prejudicial to the interest of the Revenue because the AO made specific enquiry with regard to commission receipt received by the assessee on the act of kaccha arhatia which includes amount of TDS certificates and the assessee has shown entire commission receipts in cash and in the form of TDS certificates to tax and accordingly claimed TDS set off during the assessment proceedings under the bonafide being that the assessee is receiving commission on the act of kaccha arhatia in the form of cash and commission. He, therefore, offered both the elements to tax and bonafide claim of TDS which was allowed by the AO and this order of the AO cannot be held as erroneous or prejudicial to the interest of the Revenue. To support this contention, the ld. AR has placed reliance on the decision of the Hon'ble High Court in the case of CIT Vs. Sunbeam Auto Ltd reported at [2011] 332 ITR 167 [DHC] and the decision of the Hon'ble Punjab and Haryana High Court in the case of United Role Land Ltd reported at [2010] 322 ITR 594 [P&H]. The ld. AR also drew our attention towards the judgment of the Hon'ble
Supreme Court in the case of CIT Vs. Max India Ltd [2007] 295 ITR 282 [SC] and submitted that the CIT passed impugned order u/s 263 of the Act and it was held by the Hon'ble High Court that where two view are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as erroneous or prejudicial to the interest of the Revenue and the CIT could not exercise powers u/s 263 of the Act. The ld. AR also drew our attention towards the order of the ITAT Chandigarh Bench dated 22.9.2011 in the case of Jagron Truck Operators Union Vs. ITO in for A.Y 2006-07 and submitted that the provisions of section 194C are not attracted in respect of payments made by the assessee union to its truck operators/owners and consequently deduction claimed on account of such freight charges is to be allowed as deduction and provisions of section 40a(ia) are not attracted.
Replying to above submissions of the ld. DR, placing reliance on the decision of the ITAT Delhi ‘E’ Bench in the case of NIIT Vs. CIT in for A.Y 1999-2000 dated 27.3.2015 reported at 60 Taxmann.com 313 [Delhi submitted that as per para 28 to 28.2 of this order, merely a questionnaire was issued
and reply was filed by the assessee ipso facto does not fulfil the requirements of adequate enquire. The ld. DR vehemently pointed out that the assessee undertook transportation liability of goods form consigner destination to consignee destination and it worked as principal to principal basis and the assessee’s contention that he is commission agent is not acceptable. The ld. DR also contended that the AO did not ask the assessee to file reconciliation and he did not see because of the difference between the amount of freight receipts and TDS claim and he did not examine the issue properly and adequately, therefore, it is a case of adequate enquiry which assessment order is erroneous and prejudicial to the interest of the Revenue. The ld. DR further drew our attention to APB – 1 pages 3-4 and 39-40 and contended that at page 10, the CIT entered the difference between the figure of TDS certificates and receipt of freight accounted by the assessee and no enquiry was made by the AO to verify this difference, therefore, the order was rightly held as erroneous and prejudicial to the interest of the Revenue.
The ld. DR further drew our attention towards para 7.3.1. at pages 8 of the CIT’s order and contended that on examination of contention of the assessee, it was found that the account
statement received from the six companies reveals that he details of freight receipts, as shown in the books of accounts has not been accounted by the assessee in the PLA. The ld. DR further contended that unilateral act of the assessee claiming credit of TDS, claiming it to be received as commission and not accounting freight receipts, is clearly against the provisions of the Act as well as the established principles of accounting.
Therefore, the CIT was right in invoking revision provisions of section 263 of the Act. The ld. DR also pointed out that from the letter received from Kalika Steel Alloys Pvt. available at page 47 of the assessee’s PB, it is clear that the payments have been made to the assessee by M/s Kalika Steel Alloys Pvt. Ltd under a contract and the AO has not examined the issue in a proper perspective. The ld. DR also pointed out that the AO did not call for the required details, hence he did not make adequate enquiry in regard to the freight receipts and, therefore, it is clear case of inadequate enquiry which establishes the fact that the order of the AO is not only erroneous but also prejudicial to the interest of the Revenue. Therefore, the ld. CIT was just and correct in revising the assessment order. The ld. DR lastly pointed out that there is no regular entry of TDS in the commission account and F.Y. i.e.
31.3.2008 and TDS shown from various consigners and consignees is of different percentage which creates a doubt in the mind on the TDS certificates issued by respective consigners and consignees in favour of the assessee especially when the amount pertaining to TDS has not been shown as freight receipt by the assessee in its PLA.
In rejoinder, the ld. AR contended that the letter of M/s Kalika Steel Alloys Pvt. Ltd pointed out by the CIT-DR at page 47 of the APB-II, is not an agreement but it is merely an information to the CIT regarding payments made to the assessee against various invoices to the truck drivers/owners who used to bring the material to the premises of M/s Kalika Steel Alloys Pvt Ltd. and there is no other document which could establish that there was written agreement between eh assessee and the respective consigners and consignees regarding transportation of goods. The ld. AR also pointed out that the assessee does not own any truck or vehicle and the assessee is merely working as commission agent to establish the contract between the consigners who wish to send goods to the consignees located at different places.
Therefore, it cannot be stated that the assessee itself undertook the liability of transportation of goods from consigner’s destination to the consignee’ destination and the assessee merely worked as a liaison agent between the consigners- consignees/truck vehicle owners/drivers by charging commission.
Therefore, the provisions of section 194C of the Act are not applicable to the assessee.
On careful consideration of the above, we are of the view that the CIT(A) has not alleged that the assessee is truck or vehicle owner and undertakes the responsibilities of transportation of goods from the consigner’s destination to the consignee’ destination. From the receipt and payment account and PLA for the relevant period placed at page 63 of APB-1, we note that the assessee has shown freight receipts of 2.90 crores and commission receipt of Rs. 3,45,800/-. Against this receipt, the assessee claimed freight paid of Rs. 2.79 crores. From the questionnaire dated 27.8.2010, the AO during the assessment proceedings u/s 143(1) of the Act and reply of the assessee to the said questionnaire dated 10.12.2010, we clearly note that the AO asked the assessee to furnish various documents/details/bills and vouchers including details regarding commission received alongwith documentary evidence, complete books of account and the assessee submitted the same alongwith reply dated 12.10.2010. This action of the AO has been stated in the first para of the assessment order. In para 2 of the assessment order, the AO categorically noted that the assessee firm is doing the business of transport agency on commission basis and has no truck of their own. Before that, in para 1, the AO noted that audited copies of receipt and payment account cum PLA and Balance Sheet obtained from the assessee during the course of assessment proceedings. Written explanation filed from time to time was examined with reference to the details given in return and also verified from the books of account which were produced and test checked. The AO noticed that the details of information asked for have been furnished and placed on record making it an integral part of the assessment record and after analysing the information and discussions made with the counsel of the assessee, assessment has been framed. In second para, the AO noted that the assessee has paid freight of Rs. 2.79 crores and salary and wages at Rs. 6.94 lakhs and the assessee was asked to furnish the complete details in respect of these expenses. The AO further noted that on an examination of the books of account and the details so filed, it was found that some of the freight
expenses were supported with internal vouchers. The position with regard to salary was more alarming in as much as all the expenses with regard to the salary were supported through internal vouchers and that too paid in cash. Accordingly, the AO, after discussing the matter with the counsel of the assessee who agreed to an adhoc addition of Rs. 75,000/- to cover the aforesaid discrepancies and also to plug in the leakage in profit, added a sum of Rs. 75,000/- to the total income of the assessee.
In the case of ITAT Delhi ‘E’ Bench NIIT Vs. CIT [supra], authored by one of us, it was observed thus:
“ if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be well within his powers u/s 263 to intervene in the matter. An inquiry which is just farce or mere pretence of inquiry, cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. We find that ld. Commissioner, while considering this argument of assessee has observed that the representative of the assessee was assured that this issue will be considered with independent application of mind while passing the order u/s 263. Therefore, when specific issues will be considered, it will be examined whether the AO had reached the level of satisfaction by carrying out necessary inquiries qua that issue or not. Ground is disposed of accordingly.”
In the light of the above proposition, when we analyse the facts and circumstances of the present case, we note that the AO accepted the amount of freight receipts and freight paid/ shown in the PLA but disputed the amount of commission of Rs. 3,45,800/- and thereafter, issued a questionnaire to the assessee on various issues including the issue of said commission. The assessee filed detailed reply alongwith copy of freight paid, copy of account of freight receipt, balance sheet of creditors and explanation regarding claim of expenses. The assessee filed copy of account of commission received of Rs. 3,45,800/- and regular books of accounts, bills and vouchers were also submitted for verification. From copy of commission account from 1.4.2007 to 31.3.2008 submitted at pages 1 to 40 of the APB – II, we
observe that the assessee submitted that the entire details regarding receipt for commission from 1.4.2007 to 31.3.2008 and we also observe that the assessee also credited amount of TDS receivable from various parties, being amount of TDS certificates received from various clients which was also transferred to commission account. The CIT has not raised any doubt regarding amount of commission shown by the assessee and the modus operandi of business of the assessee wherein it undertook two kinds of activities for earning commission viz. Pucca arahtia wherein the assessee received freight from consigner/consignee and after deducting its commission remaining amount is further paid to the truck owners/drivers ad in this segment, the amount of freight received is shown on the right side of the PLA and freight paid to the truck owner/drivers is shown on the left side of the PLA and the amount of surplus become the profit of the earned as commission on the second segment when the assessee works as kaccha arhatia, it makes available the vehicles to the consigners for transportation of goods from the consigner doorstep to the consignee doorstep and only charging commission in the form of cash/TDS certificates issued by the respective payer either consigner or consignee.
We should bear in mind that in the kaccha arhatia account, the assessee not only credited commission received in cash but also credit amount of commission received by it during the financial period and these commission amounts received in the form of TDS certificates has been credited at the end of the financial year which is the normal practice followed by the assessee in all the earlier and subsequent years and this fact has not been contracted or demolished by the CIT or ld. DR.
Now we find it appropriate it consider the ratio of the decisions relied upon by the ld. AR. In the case of CIT Vs. Sunbeam [supra] the Hon'ble High Court of Delhi held that if the AO having made enquires, elicited replies and thereafter allowed the expenditure on tools and dues as revenue expenditure, it cannot be said that it is a case of ‘lack of enquiry’ and, therefore, the assessment order passed by the AO allowing deduction of said expenditure could not be revised u/s 263 of the Act, more so, as the view taken by the AO was one of the possible views and the CIT himself was not clear as to whether the said expenditure is to be treated as capital or revenue expenditure. Therefore, the order cannot be alleged as erroneous or prejudicial to the interest of the Revenue.
In the case of CIT Vs. United Rice Land [supra], it has been held that there being neither any oral or written agreement between the assessee and the assessee transporters of goods not it is proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price, the assessee was not liable to deduct tax u/s 194C of the Act from the payments made to the transporters.
Reverting back to the facts of the present case as emanating from the original assessment order at para 2, it is amply clear that the assessee firm is doing business of transportation agency on commission basis and has no truck or vehicle of its own. So far as the issue of oral or written agreement between the assessee and the transporters is concerned, we are unable to see any document or fact which could lead us to infer that the assessee was providing services to the various consignors or consignees for transportation of goods under any oral or written agreement.
We may also point out that the CIT has not alleged that it was the first year of business of the assessee and that the accounting practice adopted by the assessee for the F.Y. under consideration was consistently being adopted by the assessee during the earlier and subsequent A.Y also without any change or deviation. So far as modus operandi of the business of the assessee is concerned, we are convinced that there were two types of transactions viz; first, where the assessee receives freight amount from consigners/consignees and after deducting its commission, balance is paid to the truck owners/drivers who provided transportation services from the destination of the consignor to the destination of the consignee. Second type of modus operandi of the assessee firm, as noted by us and could not be demolished by the CIT or ld. DR, is that the assessee makes available trucks/vehicles for transportation of goods by fixing freight and thereafter, freight is directly paid by the consignor/consignee to the truck owners/drivers and the assessee, in the capacity of transportation commission agent only receives commission in cash and in the form of TDS certificates issued by respective payers which was also accounted for in the books of accounts of the assessee and credited to the commission account pertaining to the services rendered by the assessee as kaccha arhatia. On a point raised by the CIT-DR that a difference is shown between the percentage earned by the assessee from the activity of freight received and freight paid as pucca arhatia with the percentage earned by the assessee from impugned commission of Rs. 3,45,800/- which was earned on receipt of Rs. 1.32 crores, it was contended that for working as pucca arhatia, the assessee requires more staff and undertakes risk of receiving payment on behalf of truck owners and it is further paid to truck owners, therefore, the percentage of commission earned therefrom is little higher than the commission earned from kaccha arhatia wherein no risk of receiving freight amount and further paying the drivers and no risk is involved and there was no need of appointing any staff, cashier or maintaining bank account or cash in hand.
Therefore, this difference is quite justified which was also noticed by the AO after analysing the reply to the questionnaire of the assessee filed on 12.10.2010 before the
On the basis of foregoing discussion, we are satisfied and convinced that the AO picked up the issue of commission received by the assessee and shown in the credit side of the PLA and made enquiry from the assessee and after receving reply from the assessee and verifying the books of accounts and relevant bills and vouchers submitted by the assessee, accepted the claim of the assessee. We may further point out that when the assessee is adopting this practice of crediting commission in cash and TDS vouchers to the commission account pertaining to the services rendered as kaccha arhatia and crediting total amount of commission to the PLA and claiming TDS during the assessment proceedings, then the practice which has been consistently followed by the assessee during the earlier and subsequent A.Ys and accepted by the AO could not be disturbed without any substantial material or allegation and the AO was quite justified and correct in accepting the claim of the assessee in this regard after due verification of details, PLA, TDS certificates and other relevant bills and vouchers produced by the assessee. We may point out that it is not required for AO to mention minute details of assessment proceedings in the assessment order in so many words, however, for invoking the provisions of section 263 of ht Act, it has to be established that the conclusion drawn by the AO was not in accordance with the provisions of the Act and was not sustainable. Therefore, the order is erroneous and prejudicial to the interest of the Revenue on account of inadequate enquiry on a particular issue which caused prejudice to the Revenue. In the present case, when the assessee is showing its modus operandi of business on two segments and making accounting entries accordingly, then, we are unable to see any reason to hold that the conclusion drawn by the AO or in accordance with the provisions of the Act or was unsustainable as per relevant provisions of the Act. In the present case, since the assessee firm is not owning any trucks or vehicles of its own and merely working as transportation commission agent, and it is running services without any oral or written agreement, then the provisions of section 194C of the Act do not apply to the transactions undertaken by the assessee. So far as difference between commission earned from pucca and kaccha arhatia is concerned, we are satisfied that for undertaking pucca arhatia services, the assessee requires number of staff members and it has to undertake the risk of receiving and paying cash whereas, in the kaccha arhatia working, the assessee requires no staff members and the risk factor is very less and thus the difference in the percentage commission earned from two different activities is quite justified which cannot be taken as an allegation to the conclusion drawn by the AO that the order is erroneous and prejudicial to the interest of the Revenue. The present case cannot be held as a lack of enquiry. Therefore, we are unable to agree with the conclusion drawn by the CIT, Hissar that the order of the AO passed u/s 143(3) of the Act dated 19.10.2010 is erroneous and prejudicial to the interest of the Revenue which requires invocation of revisional powers u/s 263 of the Act. On the basis of foregoing discussion, we are inclined to hold that the ld. CIT invoked revisional powers u/s 263 of the Act without any legal or justified basis.
Therefore, the notice and impugned order passed u/s 263 of the Act setting aside the impugned assessment order cannot be held as valid and sustainable in the eyes of law and thus we decline to accept the allegations of the ld. CIT(A) that the A.O did not notice the issue, did not make necessary investigations and consequently make suitable addition in respect of Rs. 1,32,40,073/- for which TDS was claimed but not shown in the PLA as in any case the A.O cannot made addition regarding this amount because this cannot be deemed as income of the assessee. The A.O noticed the issue, hence he issued questionnaire asking details from the assessee and after taking and considering the reply of the assessee, allowed the claim and thus it is not a case f no enquiry or inadequate enquiry which cannot be alleged as just pretence of enquiry. Keeping view the proposition laid down by the Tribunal order in the case of NIIT [supra], the A.O reached to the satisfaction after conducting enquiry in a proper manner wherein he placed questionnaire and reply of the assessee supported by relevant documentary evidence on record and after considering the same. The A.O as a rational person being informed of the nuances of tax, reached to a conclusion for framing assessment after due appreciation of facts. Thus, in the present case, we are not in agreement with the conclusion recorded by the ld. CIT(A) in the impugned order and it cannot be alleged that the original assessment order is erroneous and prejudicial to the interest of the Revenue. Thus, we hold that the impugned order is void ab initio and has been passed without any valid reasons and consequently we quash the same.
In the result, the appeal of the assessee stands allowed.
The order is pronounced in the open court on 29.08.2016.