M/S BRAHMDEO SINHA & CO. HARDCOKE (P) LTD.,KOLKATA vs. ACIT, CIR-3(1), KOLKATA, KOLKATA

Ground No.1 raised by the assessee reads as follows :- “1) That the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of RS.1 ,65,790 made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 which sum was claimed by the Appellant Company to brokers for arranging trucks/lorries for transportation of goods. “

The Assessee is a company. It is engaged in the business of manufacturing of hard coke. For the purpose of manufacturing of hard coke the assessee has to transport coal from coal mines. In the course of assessment proceedings, the AO noticed that the assessee had incurred expenditure of a sum of Rs.38,71,161/- under the head “ selling and distribution expenses”. The same was claimed as a deduction while computing income of the business under the head “Income from Business or Profession”. On perusal of the break-up of the aforesaid expenses the AO noticed that a sum of Rs.1,65,790/- out of the aforesaid sum of Rs.38,71,161/- was paid by the assessee to various brokers for arranging trucks for transportation of coal. It is not in M/s. Brahmdeo Sinha & Co.Hardcoke (P)Ltd A.Y.2009-10 2 dispute that the assesse gave a complete break-up of the sum paid to the brokers. These details are available at page nos. 33 to 53 of the assessee’s paper book. The vouchers in support of each of the payments is also available at pages 54 to 72 of the assessee’s paper book. The AO noticed that the vouchers did not contain the names of the recipients of the payments. The AO was of the view that the payments had been split into smaller payments to avoid compliance with the provisions of the Act with regard to deduction of tax at source. He therefore disallowed a sum of Rs.1,65,790/- by invoking the provision of section 40(a)(ia) of the Act, for the Assessee’s failure to deduct tax at source.

Before CIT(A) the assessee submitted that the amounts paid for arranging trucks for transportation of coal, would not fall within the ambit of either section 194C of the Act (payments made to contractors) or 194H of the Act, being commission brokerage. It was submitted that there was no contract for providing any service and payment to each of the person in the whole year did not exceed any of the limits laid down in any of the provision for deduction of TDS. The assessee placed reliance on the decision of the Hon’ble Calcutta High Court in the case of CIT vs M/s. Stumm India in of 2009 wherein it was held that existence of a contract is a sine quo non for applicability of the provisions of Sec.194C of the Act and that if a facility available to any member of the public is utilized then it cannot be said that there was a contract for carrying out any work on behalf of the payee. The CIT(A), however confirmed the order of AO by observing that the bills did not contain the names of the persons to whom the payments were made and therefore the addition made by the AO was fully justified.

Aggrieved by the order of CIT(A) the assessee has raised ground no.1 before the Tribunal.

The ld. DR reiterated the submissions made before the revenue authorities. The ld. DR relied on the order of CIT(A). After considering the rival submissions we are M/s. Brahmdeo Sinha & Co.Hardcoke (P)Ltd A.Y.2009-10 3 of the view that the nature of the payment as to whether it would be a payment to a contractor for carrying out work or commission or brokerage is not clear. It is the plea of the assessee that without payment to those persons it was impossible for the assessee to transport coal. It was also submitted that the persons who arrange for transportation of coal through trucks work in unorganised sector and cannot be traced. It is not possible to identify those persons also. From the various details furnished by the assessee which we have referred to in the earlier part of the order, it appears that each of the payment is very nominal and does not exceed any of the limits imposing obligation for TDS as laid down in the act. The fact that the identity of the payees are not established cannot lead to a conclusion that the payments made by the assessee were above the limits which requires deduction of tax at source. The genuineness of the expenses and the practice prevalent in the trade has not been disputed by the revenue. In such circumstances, we are of the view that the addition made by the AO and sustained by CIT(A) is purely on assumption and surmises and the same is accordingly directed to be deleted. Ground no.1 raised by the assessee is allowed.

Ground no.2 raised by the assessee reads as follows :-

The assessee had incurred expenses on JCB repairing and maintenance of Rs.2,06,958/- and machine repairing and maintenance expenses of Rs.1,16,813/- both these sums total to a sum of Rs.3,23,772/-. For non production of vouchers and bills in support of the aforesaid expenses, the AO disallowed 50% of the aforesaid expenses which resulted in addition of Rs.1,61,885/- to the total income ,of the assessee.

Before CIT(A), the assessee pointed out that all bills and vouchers were produced before the AO and the allegation of the AO to the contrary in the order of M/s. Brahmdeo Sinha & Co.Hardcoke (P)Ltd A.Y.2009-10 4 assessment was not correct. The assessee produced all the bills and vouchers before CIT(A) and submitted that no defects or discrepancies whatsoever have been pointed out by the AO in the claim of the Assessee and therefore addition made was not justified. The CIT(A) however without noticing the aforesaid submissions upheld the order or the AO for the very same reason given by the AO viz., for non production of bills and vouchers.

Aggrieved by the order of CIT(A) the assessee raised ground no.2 before the Tribunal.

We have heard the rival submissions. The ledger account of JCB repair and maintenance charges and ledger account of machine repair and maintenance expenses are placed in pages 74 to 80 of the assessee’s paper book. Sample bills and vouchers of the aforesaid expenses are also placed at pages 81 to 89 of the assessee’s paper book. In the order of the AO instead of mentioning of “JCB repair and maintenance expenses”, the AO has mentioned “door repairing and maintenance” which is incorrect. On a perusal of the details filed in the paper book and on noticing that both AO and the CIT(A) have proceeded on a wrong basis namely non-production of bills and vouchers by the assessee, we are of the view that the expenses disallowed by the AO and CIT(A) cannot be sustained. The addition is therefore directed to be deleted. Ground no.2 raised by the assessee is allowed.

Ground No.3 raised by the assessee reads as follows :- “3) That the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.18,250 made by the Assessing Officer which sum was claimed by the Appellant Company under section 350 of the Act. “

The assessee had claimed as deduction a sum of Rs.18,250/- in the profit and loss account as deduction in computing income from business and this deduction was claimed u./s 35D of the Act. U/s.35D of the Act, where an assessee being an Indian company, resident in India, incurs any expenses before commencement of his business or after commencement of his business in connection with the extension of his M/s. Brahmdeo Sinha & Co.Hardcoke (P)Ltd A.Y.2009-10 5 undertaking or setting up a new unit, expenses set out in Sec.35D-(2) of the Act incurred by the Assessee for the purpose mentioned in Sec.35D(1) of the Act will be allowed as deduction in five equal instalments over a period of five years. The assessee incurred expenses falling within the ambit of section 35D(2) in A.Y.2007-08 and was allowed deduction in that year at 1/5th of the expenses as well as in A.Y.2008-09. In the present A.Y. the assessee should get the deduction 1/5th of such expenses. The AO and CIT(A) ignoring the submissions of the assessee disallowed the claim of the assessee for deduction on the ground that bills and vouchers were not filed in support of the expenses. We are of the view that the expenses in question are to be allowed as deduction. The ld. Counsel for the assessee however fairly submitted before us that out of the aforesaid sum of Rs.18,250/- a sum of Rs.9,000/- was fees paid for increase in share capital and was not eligible for deduction u/s 35D of the Act. The deduction is therefore directed to be disallowed and the deduction of the remaining sum of Rs.9,250/- is directed to be allowed. Ground no.3 is accordingly partly allowed.

Ground No.4 raised by the assessee reads as follows :- “4) That the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.35,735 which sum was claimed by the Appellant Company as value of un-lifted coal and disallowed by the Assessing Officer.”

The assessee claimed as a deduction a sum of Rs.35,735/-. It is the case of the assessee that the deduction claimed represented value of unlifted coal. According to the assessee it makes a deposit in advance to Coal India Ltd., for lifting coal of a specific quantity from colliery. The lifting of coal against particular deposit continues for several months. Between the time the coal is lifted from the colliery and brought to the site there occurs some shortage and that is referred to as unlifted coal. The loss was a nominal business loss and has to be allowed as deduction. AO and CIT(A) for absence of bills and vouchers in support of the claim denied the claim of the assessee for deduction. M/s. Brahmdeo Sinha & Co.Hardcoke (P)Ltd A.Y.2009-10 6

We have perused the ledger account of coal purchase and entries show the quantity of coal bargained for lifting and the quantity of coal received by the assessee and has been accounted as unlifted coal. In our view in the facts and circumstances of the case are sufficient to establish the claim of the assessee for deduction. It cannot be disputed that the loss in question is not incidental to the business and of revenue in nature. In such circumstances, we are of the view that the deduction ought to be allowed by the revenue authorities. We direct that the deduction claimed be allowed. Ground no.4 raised by the assessee is accordingly allowed.

In the result the appeal by the assessee is partly allowed. Order pronounced in the Court on 25.08.2017.