SUBHALAXMI AGENCIES PVT. LTD.,NAYAGARH vs. JCIT, RAMGE-2, BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No. 132/CTK/2016: Asst. Year 2011-12 C.O.No.15/CTK/2016 (in ITA No.201/CTK/2016) Assessment Year: 2012-13

Subhalaxmi Agencies Pvt Vs. Joint Commissioner of Income Tax, Raagne-2, 3rd Ltd., At: Gopinathpur Sahi, PO: Rajsunakhala, Dist: floor, Aayakar Bhavan, Nayagarh. Rajaswa Vihar, Bhubaneswar. PAN/GIR No.AAJCS 7772 D (Appellant) .. ( Respondent)

ITA No. 174 & 201/CTK/2016 Assessment Years : 2011-2012 & 2012-13

Joint Commissioner of Vs. Subhalaxmi Agencies Pvt Income Tax, Raagne-2, 3rd Ltd., At: Gopinathpur Sahi, floor, Aayakar Bhavan, PO: Rajsunakhala, Dist: Rajaswa Vihar, Nayagarh. Bhubaneswar PAN/GIR No.AAJCS 7772 D (Appellant) .. ( Respondent)

Assessee by : Shri S.K.Agarwal, AR Revenue by : Shri D.K.Pradhan, DR

Date of Hearing : 08/11/ 2017 Date of Pronouncement : 21/11/ 2017

O R D E R Per N.S.Saini, AM The cross appeals filed by the assessee and the revenue against the

order of the CIT(A)- 3, Bhubaneswar dated 5.1.2016 for the assessment

year 2011-2012 and the appeal filed by the revenue and cross objection

filed by the assessee are directed against the order dated 1.2.2016 of the

CIT(A)-1, Bhubaneswar for the assessment year 2012-2013.

First, we take up the appeals for the assessment year 2011-12 2. Ground No.1 of Revenue’s appeal is directed against the order of

the CIT(A) in deleting the addition of Rs.26,597/- made by the Assessing

Officer u/s.40(a)(ia) of the Act. Ground No.1 of the assessee’s appeal is

directed against the order of the CIT(A) in disallowing interest of

Rs.1,49,144/- paid to NBFC and audit fees of Rs.1,35,300/- u/s.40(a)(ia)

of the Act.

that the assessee has paid interest of Rs.1,49,144/- to Non-banking

finance company (NBFC) and also Rs.1,35,300/- to auditor as audit fees

without deducting of tax at source u/s.194A and u/s.194J of the Act. In

reply to show cause notice, the assessee submitted that there is no

liability to deduct tax at source on payment of interest to NBFC, being a

financial corporation, that nothing was payable as interest or audit fees by

the end of the year and, therefore, placing reliance on the decision of

ITAT Visakhapatnam in the case of Merilyn Shipping & Transports vs

ACIT, 146 TTJ (Vis) 1, Hon’ble Allahabad High Court in the case of CIT vs.

Vector Shipping Service (P) Ltd., 262 CTR (All) 545 and ITAT Mumbai

benches in the case of ACIT vs. Rishti Stock & Shares (P) Ltd., 97 DTR 92

submitted that provisions of section 40(a)(ia) are not attracted. The

Assessing Officer did not accept the above submission of the assessee

and rejected the explanation of the assessee relying on the decision of

Hon’ble Kolkata High Court in the case of CIT vs. Crescent Export

Syndicates, 216 Taxman 258 and Hon’ble Gujarat High Court in the case

of CIT vs. Sikandar Khan N. Tunva, 357 ITR 312 (Guj), wherein, it was

held that section 40(a)(ia) would cover not only the amounts which are

payable at the end of the previous year but also which payable at any

time during the year.

assessee filed appeal before the CIT(A).

decision of Hon’ble H.P. High Court in the case of Palam Gas Service vs

CIT, (2014) 47 taxmann.com 310 (HP) confirmed the disallowance

observing that the assessee is required to deduct tax at source u/s.194A

of the Act and having failed to do so, the Assessing Officer is justified in

invoking provisions of section 40(a)(ia) of the Act and adding back

interest of Rs.1,22,547/- paid to NBFC and Rs.1,35,300/- as audit fees for

failure of the assessee to deduct tax at source u/s.194C of the Act.

Accordingly, he confirmed the addition of Rs.2,57,847/- giving relief of

Rs.26,597/- being interest paid to Axis Bank for which tax was not liable

to be deducted in accordance with the provisions of section 194A

(3)(iii)(a) of the Act.

CIT(A) was not justified in confirming the disallowance of interest

payment of Rs.1,22,547/- and audit fees of Rs.1,35,300/- as there are

contrary decisions of different Hon’ble High Court on the issue that if

there is no amount outstanding payable at the end of the financial year,

then no TDS was to be deducted, then the decision favourable to the

assessee should have been followed in view of the decision of Hon’ble

Supreme Court in the case of CIT vs. Vegetable Products Ltd., 88 ITR 192

(SC).

decision of Hon’ble Supreme Court in the case of Palam Gas Service VS

CIT, (TS-170-SC-2017] wherein, the Hon’ble Supreme Court held that

the amount payable includes the amount paid as well as payable during

the financial year and confirmed the order of the decision of Hon’ble

H.P.High Court in the case of Palam Gas Service (supra).

decision of Hon’ble Supreme Court in the case of Palam Gas Service

(supra), wherein, it has been held that the amount payable includes the

amount paid as well as payable during the financial year, we find no error

in the order of the CIT(A), which is hereby confirmed and ground No.1 of

appeal of the assessee is dismissed.

not point out any error in the order of the CIT(A) in deleting the interest

of Rs.26,597/- paid to Axis Bank Ltd., on which, the assessee was not

required to deduct tax at source under the provisions of section

194A(3)(iii)(a) of the Act. Therefore, Ground No.1 of appeal of the

revenue is also dismissed.

the CIT(A) was not justified in confirming the disallowance of

Rs.3,07,744/- made u/s.36(1)(va) of the Act in view of the fact that same

had been paid before the filing of return u/s.139(1) of the Act and was

allowable u/s.43B of the Act.

that out of employee’s contribution to the Provident Fund of

Rs.4,61,616/-, an amount of Rs.3,07,744/- was not paid within the

stipulated time provided under the PF Act and, therefore, he show caused

the assessee as to why same should not be disallowed u/s.43B of the Act.

The assessee submitted that Hon’ble Supreme Court in the case of CIT vs.

Alom Extrusions Ltd., 227 CTR 417 and Hon’ble Rajasthan High Court in

the case of Jaipur Vidyut Vitaran Nigam ltd., vs CIT, 98 DTR 105 (Raj)

have held that as per provisions of section 43B of the Act, if the amount is

paid before the due date of filing of return of income, Section 36(1)(va)

is not applicable. It was also submitted that in the case of the assessee

itself for the assessment year 2008-09, the disallowance made

u/s.36(1)(va) was deleted by the CIT(A) and the Tribunal. Therefore, no

contrary view should be drawn and expenditure should be allowed. The

Assessing Officer did not accept the contention of the assessee and made

disallowance of employee’s contribution to PF u/s.36(1)(va)/43B r.w.s.

2(24)(x) of the Act and added Rs.3,07,744/- to the income of the

assessee.

on the ground that the assessee has not deposited the employee’s

contribution to PF account on due date specified in section 36(1)(va).

employee’s contribution to PF u/s.36(1)(va) was warranted where

payments have been made by the assessee before the due date of filing

the return of income u/s.139(1) of the Act and relied on following

decisions:

i) CIT vs Alom Extrusions Ltd., (2009) 227 CTR 417 (SC)

ii) CIT vs. Jaipur Vidyut Vitran Nigam ltd., 98 DTR 105 (Raj)

iii) CIT vs. Hemla Embroidery Mills (P) Ltd., 366 ITR (P&H) 167

iv) CIT vs. Udaipur Dugdh Utpakak Sahakari Sangh ltd., 356 ITR (Raj)163.

He also submitted that in the case of the assessee itself for the

assessment year 2008-09, on similar facts, the Tribunal has confirmed

the order of the CIT(A) deleting the disallowance.

authorities.

authorities and materials available on record. In the instant case, the

Assessing Officer has disallowed the claim of deduction u/s.36(1)(va) of

the Act as the employee’s contribution was not paid within the due date

specified under the PF Act, which was confirmed in appeal by the CIT(A)

by following various judicial pronouncements as stated in his order.

Teraoka (P) Ltd.vs DCIT, (2014) 366 ITR 408 vide judgment dated

4.2.2014 held that the word contribution would mean in EPF and ESI Act

refers to both employees and employers contribution to PF and, therefore,

no disallowance is to be made under section 43B. Therefore, deduction is

also available to employee’s contribution to PF u/s.43B of the Act.

Further, the Hon’ble Rajasthan High Court in the case of CIT Vs. State

Bank of Bikaner and jaipur (2014) 363 ITR 70 (Raj) (HC) and Jaipur

Vidyut Vitaran Nigam Ltd., (2014) 363 ITR 307 (Raj) held that section

43B overrides section 36(1)(va) and deduction is available for employee’s

contribution u/s.43B of the Act To same effect is the decision of Hon’ble

Uttarakhand High Court in the case of CIT vs.Kichha Sugar Company Ltd

. (2013) 356 ITR 351 (Uttarakhand–HC) order dated 20.5.2013. To

the same effect is also the decision of Hon’ble Rajasthan High court in the

case of CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd (2013) 35

taxmann.com 616 (Raj). The contrary view is that of Hon’ble Gujarat

High Court in the case of CIT vs Gujarat State Road Transport Corpn.

(2014) 366 ITR 170 (Guj) order dated 26.12.2013, wherein, it was held

that 43B does not apply to employee’s contribution and only section

2(24)(x) read with section 36(1)(va) is applicable. Therefore, employee’s

contribution is disallowed if not paid within the due date as per EPF/ESI

Act. The said decision was rendered after considering the decision of

Hon’ble Supreme Court in the case of Alom Extrusions (supra). The

Hon’ble Calcutta High Court in the case of CIT vs Vijaya Shree Ltd.,

(2011) TMI 30 held that employees contribution to PF/ESI is also covered

by section 43B and is allowable as deduction if paid before due date of

filing the return of income. The Hon’ble Bombay High Court in the case of

CIT Vs. Ghatge Patil Transports Ltd., (2014), 368 ITR 749 has held that

employees contribution to PF and ESI is allowable if the same is deposited

before the due date of filing of return of income u/s.39(1) of the Act. The

Hon’ble Delhi High Court in CIT Vs. AIMIL Limited [2010] 321 ITR 508

(DEL) has held that the employees’ contribution towards EPF and ESI etc.

deposited after the due date but before the time allowed for filing the

return u/s.139(1) will not call for any disallowance u/s.36(1)(va). The

Hon’ble Patna High Court in the case of Bihar State Warehousing

Corporation Ltd vs CIT, (2016) 71 taxmann.com 247(Patna) after

considering the decision of Hon’ble Bombay High Court in the case of

Ghatge Patil Transports Ltd and P&H High Court in the case of CIT vs.

Hemla Embroidery Mills (P) Ltd., 2014) 366 ITR 167 (P&H) and the

decision of Hon’ble Supreme Court in the case of Alom Extrusion Ltd.,

(supra) has held as under:

“9.On further appeal both by the Department and the Assessee, the appeal of the Department was dismissed as also that of the assessee. Aggrieved by the same, the present appeal has been filed by the assessee. The appeal was admitted on the following substantial questions of law:— "(i) Whether on the facts and in the circumstances of the case the Tribunal is justified in upholding the addition of Rs.8,32,507/- made under Section 2 (24)(x) read with Section 36(l)(va) of the Income-tax Act?

(ii) Whether on the facts and in the circumstances of the case the Tribunal is correct in holding that the provision for gratuity was not made towards approved gratuity fund and that the gratuity has not become payable during the financial year and that the provision has not been made on actuarial valuation basis?" 10. Learned counsel for the assessee submits that the Tribunal was not justified in not following its earlier order dated 20.12.2001 passed in the case of M/s. Sintra Ltd. v. ACIT I.T.Appeal No. 497/Pat/1996 in which under similar circumstances, it was held that the treatment meted out to the employees' contribution by disallowing the same was also on the basis, i.e., the delay in credit to the appropriate authorities, which was condoned by the appropriate authorities and thus the contention of the Department was found to be without force and it was held that there was no reason to consider the amount as income from other sources of the assessee and the addition was deleted. It is submitted that the present matter is practically on the same footing as the employees' contributions were paid within due date of filing of return and as a matter of fact some of the amounts of employees' contribution was deposited well within the financial year 1.4 2002 to 31.03.2003 itself. It is further submitted by learned counsel that there was no reason to treat/consider the said delayed payment in a different manner from the employer's contribution to the Provident Fund and both should have been dealt with under Section 43B of the Act and there was no justification for invoking sub-section (2) of Section 24 (x) read with Section 36 (1) (va) of the Act for disallowing the same.

to allow deduction of contribution to, inter alia, any provident fund if made before the due date as per the Employees Provident Fund Act during the previous year. This again resulted in implementation problems as a result of which the second proviso was deleted and the first proviso was amended bringing about uniformity by equating tax, duty and fee with contribution to labour welfare funds. It was made clear that the benefit of deduction would be applicable, provided the payments are made before the due date for filing of the return. 14. From a perusal of the aforesaid decision, it is evident that it does not specifically refer to the employees' contribution or employer's contribution and both have been treated on the same footing. So far as difficulties in complying with the due date under the EPF Act vis-a-vis the previous year of the Income-tax is concerned, there can be no distinction between the payment of employees or employer's contribution and the same difficulties would be faced for both. In Alom Extrusions' case, the Court has broadly dealt with contribution to be made by the employers to the Labour Welfare Fund without making any distinction between employees and employer's contributions, as the deposits have to be made by the employer of both type of contributions. 15. The issue as to whether a distinction can be made between the employees' contribution and employer's contribution with regard to applicability of Section 43B of the Act was squarely raised before the Bombay High Court in Ghatge Patil Transports case {supra) and before the Punjab and Haryana High Court in Hernia Embroidery Mills' case {supra) and both the High Courts have answered the same holding that both the employees' and employer's contributions are covered by the amendment of Section 43B of the Act after considering Alom Extrusions'case {supra). 16. Although technical reading of Section 43B and the provisions of sub-section (2) of Section 24 (x) read with Section 36 (1) (va) of the Act creates the impression that the employees' contribution would continue to be treated differently under a different head of deduction, as the head of deduction is separate under Section 43 B and Section 36 of the Act but on a broader reading of the amendments made to Section 43B repeatedly and the intention of Parliament, there appears to be sufficient justification for taking the view that the employees' and the employer's contribution ought to

be treated in the same manner. In Alom Extrusions'case (supra), as pointed out earlier, the Supreme Court has not made any distinction between the two as similar problem of implementation would arise in both the cases, although specific issue was not raised therein; but both the Bombay High Court and the Punjab and Haryana High Court in the above referred cases after considering Alom Extrusions' case (supra) have answered the question treating the two contributions on the same footing. 17. Thus, I am inclined to respectfully agree with the view taken by the Bombay High Court and the Punjab and Haryana High Court.”

different High Courts and none of them is the Hon’ble Jurisdictional High

Court, then the decision favourable to the assessee should be followed.

This view is supported by the decision of Hon’ble Supreme Court in the

case of CIT vs. Vegetables Product Ltd., 88 ITR 192 (SC). Therefore,

respectfully following the decision of Hon’ble Karnataka High Court in the

case of Essae Teraoka (P) Ltd. vs DCIT (supra) and other decisions

referred above (supra), we hold that employee’s contribution to PF is

allowable deduction to the assessee if deposited before due date of filing

of return u/s.139(1)of the Act. Therefore, we set aside the orders of lower

authorities and delete the disallowance of employee’s contribution to PF of

Rs.3,07,744/- and allow this ground of appeal of the assessee. Hence,

this ground of appeal of the assessee is allowed.

the CIT(A) was not justified in confirming addition of Rs.4,00,000/- for

suppression of bran productions. In Ground No.2 of the appeal, the

grievance of the revenue is that the CIT(A) was not justified in deleting

the addition of Rs.48,31,475/- on account of suppression of bran

products.

that as per information furnished by the assessee, percentage of product

of rice, broken rice, rice bran and husk in custom milling of paddy of

OSCSC ltd., NEFED, LEAVY was 68%, 2%, 4% and 26%, respectively.

The Assessing Officer collected the information from Indian Institute of

Crop Processing Technology and Central Rice Research Institute regarding

the percentage of yield and as per the information furnished by CRRI,

Government of India has specified yield of rice from parboiled paddy and

raw paddy at 68% and 67% respectively and yield of bran at 8%, husk at

21% , small broken rice at 2% and rice husk small at 1 to 2%. From the

above information, the Assessing Officer inferred that yield of bran should

have been at least 8% in assessee’s case as against 4% and estimated

the understated product of bran at Rs.52,27,475/- on the basis of

average rate taken by the assessee and total quantity of bran produced.

The Assessing Officer issued show cause to explain as to why 4% of bran

shown less should not be treated suppressed yield of bran. In reply, the

assessee submitted that CRRI is a research institute which carries on

research based on the best quality of paddy produced from all over India,

that percentage of output depends upon many factors like quality of

paddy, quality machinery used, voltage fluctuation, type skilled labour

etc, and therefore, the yardstick cannot be applied to the assessee. It

was further submitted that percentage of yield given by the assessee is

better than the yield given by other rice mills operating in Nayagarh

District. The Assessing Officer found that the rate of yield informed by

CRRI is based on information gathered from yield shown by local paddy

manufacturers of State of Orissa and the assessee has no concrete

evidence to prove the correctness of percentage of yield shown by it or

to disprove the correctness of claim of CRRI. Therefore, the Assessing

Officer held that the assessee has suppressed yield of bran by 4% and

estimating the value of suppressed bran at Rs.52,27,475/-, he added it

to the total income. He also noticed short delivery of rice of Rs.196 kg.

and estimating the value of short supply at Rs.4,000/-, total

addition on this count was made at Rs.52,31,475/-.

in Form 3CD, the assessee has maintained cash book, ledger, purchase

register, sales register, stock register, quantitative details of paddy mill

and rice, rice bran, broken rice and husk are not appearing in clause 28 of

the tax audit report. Like-wise, break up of sales of different items

manufactured by the assessee and break up of other income are not

available in Schedule 14 and Schedule 15. Though stock register is

maintained but it is not maintained even on broader classification of

milling and manufacture of rice, etc of raw paddy and parboiled paddy,

what to speak of stock on quality-wise details of paddy and rice or

quality-wise details of by -products bran, broken rice and husk. The

annexure-3 filed alongwith paper book is not part of the Form 3CD and

even in Annexure-3, complete information regarding yield of by-products

and sale are not available. Therefore, no information is available

regarding husk as by product, though it is salable item.

Rajesh Kumar Agarwal, Prop. Rajesh Trading Co. Raipur vs ITO in ITA

No.32/Blp/2011 for assessment year 2005-06 order dated 24.12.2014

has held as under:

"5. We have heard the rival submissions and perused the material before us. Undisputed facts of the case are that the assessee had not shown any sale of husk during the year under appeal. It cannot be believed that he did not sell a commodity like hush that is in great demand. Argument goes against the normal human behavior. No businessman will leave any chance of earning money. So, to say that the assessee did not sell husk will be like accepting the improbable proposition. However, considering the argument made by the assessee that the addition was on higher side, in the interest of justice, we are restricting it to Rs. One lakhs only. Effective ground is allowed in favour of the assessee, in part."

before him that husk is not accounted for in the books of account since it

is used as fuel in course of manufacturing activities of the assessee. The

CIT(A) further observed that Schedules against expenses are broadly

classified and no reference of expense, if any, can be inferred from such

Schedules.

yield of rice, rice bran and husk depend upon various factors like internal

or genetic / factors like dwarfness, disease. resistance flavor, fine grain

characteristic, cooking qualities etc, and external or environmental factors

like climate, soil, water supply, supply of plant nutrients, skilled labour,

but yield of rice in normal standard is between 67% to 68%, broken rice

is between 2%. to 4% , rice bran is between 7% to 8% and the balance is

20% to 24% as husk. In assessee’s case, yield of rice, broken rice, bran,

and husk is 68%, 2%, 4% and 26% from milling of paddy of all custom

millers and there should have .been variance in yield as yield depends

upon various factors discussed above. Therefore, information supplied by

the assessee was not only deficient in material particulars but also better

particulars are not made available on record. He observed that it is clear

that record of the assessee lacks probity and transparency so far as

material information is concerned. He referred the decision of Hon’ble

Punjab & Haryana High Court in the case of G.V.(God Vishnu) Rice Unit vs

CIT, 210 Taxman 358. Thereafter, the CIT(A) observed that in the facts

and circumstances of the case of the assessee, reference made by the

Assessing Officer to CRRI and application of the information received

from CRRI to assessee’s case is not altogether irrelevant. The

information furnished by the CRRI indicates something wrong in the

books of account like for example, percentage of yield being, constant

from milling of paddy of different millers, percentage of yield of husk at

higher side indicating probability of suppression of actual yield of rice,

broken rice or bran and in order to establish the probabilities to

demonstrable facts, the Assessing Officer was required to make some

more exercise like identifying defects in purchases and sales. This has

not been done and hence, simply on the basis of the information,

percentage of yield cannot be reduced and the percentage of bran cannot

be increased correspondingly and addition cannot be made by

presuming suppressed bran yielded as sold. Keeping in overall facts-

and circumstances of the case of the assessee, he held that all is not well

with the books of account of the assessee, and, therefore, addition to the

extent of Rs. 4,00,000/- on ad hoc basis is confirmed to pluck possible

leakage of revenue and allowed partial relief to the assessee.

comparing yield of CRRI with yield of the assessee’s by-product bran and

making addition of Rs.52,31,475/- and the CIT(A) was not justified in

confirming the addition of Rs.4 lakhs out of the same.

available on record, we find that the finding of the CIT(A) is that the

percentage of yield of rice as per CRRI is between 67% to 68%, broken

rice is between 2 to 4%, rice bran is between 7% to 8% and the balance

is 20% to 24% as husk cannot be applied to the facts of the assessee

without making more exercise like defects in purchase and sales could

not be controverted by ld D.R.

CIT(A) that the books of account of the assessee were defective and,

therefore, the addition of Rs.4 lakhs was justified in the given facts and

circumstances of the case. No material was brought on record by ld D.R.

to show that the assessee has shown suppressed production of bran and

has sold them outside books of account. Therefore, the findings of the

CIT(A) does not call for any interference by us. Similarly, no material was

brought on record by ld A.R. to show that the disallowance of Rs.4 lakhs

made by the CIT(A) was to pluck possible leakage of revenue. Hence, we

find no good reason to interfere with the order of the CIT(A), which is

hereby confirmed and Ground No.3 of the assessee as well as Ground

No.2 of the revenue’s are dismissed.

order of the CIT(A) in deleting the addition of Rs.2,217/- made by the

Assessing Officer on account of disallowance of donation.

donation of Rs.2,217/- debited under the head “donation” since the

expenses was not allowable under the Act.

business in rural area and had donated a sum of Rs.2,217/- to local

people for organizing the different pujas To keep the good relationship

with local people and for smooth operation of the business, it has to

donate to different puja or programmes organized by local people. The

CIT(A) observed that looking to the turnover of the assessee, donation to

local people for puja organized by them in different occasions is quite

reasonable and hence, directed the Assessing Officer to allow the

expenses as admissible u/s.37(1) of the Act.

supported the order of the CIT(A).

available on record, we find that no specific error could be pointed by ld

D.R. in the order of the CIT(A) and hence, we find no good reason to

interfere with the order of the CIT(A), which is hereby confirmed and

Ground No.3 of appeal of the revenue is dismissed.

of the CIT(A) in deleting addition of Rs.46,97,330/- made by the

Assessing Officer on account of carriage and freight expenses

u/s.40(a)(ia) of the Act. Ground No.6 of the appeal of the assessee is

directed against the order of the CIT(A) in confirming the disallowance of

Rs.6,29,325/- u/s.40(a)(ia) of the Act for expenses incurred under the

head carriage and freight.

that the assessee has claimed carriage and freight expenses of

Rs.53,26,655/- and noticed that most of the payments were made in cash

without deducting tax at source from such payments as per provisions of

section 194C of the Act and, therefore, the assessee was show caused as

to why the deduction should not be disallowed u/s.40(a)(ia) of the Act.

The assessee submitted that as per provisions of section 194C of the Act,

TDS was required to be made from the transporters if transportation was

carried out under a contract and no deduction was required to be made

from the amount of any sum credited or paid or likely to be credited or

paid to the account of or to the contractor if such sum did not exceed

Rs.30,000/- and since the assessee had no contract with the transporters

and as the payment did not exceed Rs.30,000/-, TDS provisions were not

applicable to the case of the assessee. The Assessing Officer did not

accept the explanation of the assessee since the assessee did not furnish

any corroborative evidence in support of its claim that payment to each

transporter was less than Rs.30,000/- and, therefore, by invoking the

provisions of section 40(a)(ia) of the Act, he disallowed deduction of

Rs.53,26,655/- to the assessee.

at source from the payment of Rs.53,26,655/- on the ground that nothing

was payable by the end of the year. He observed that the submission

was not acceptable in view of the decision of Hon’ble H.P. High Court in

the case of Palam Gas Service vs CIT, (2014) 47 taxmann.com 310 (HP)

and observed that the assessee is required to deduct tax at source

u/s.194C of the Act and having failed to do so, the Assessing Officer is

justified in invoking provisions of section 40(a)(ia) of the Act. He further

observed that even the submission that nothing was payable was not

correct as per the facts of the case and this view was supported from the

submission of the assessee at page 32 of the paper book, wherein, out of

payment of Rs.6,29,325/- due to Srikakulam Lorry Transport, Shree

Hanuman Industries, Raj Laxmi Road Carrier, Maheswari Freight Carrier,

New Multani Freight Carrier, Cuttack Fast Carrier, Raj Mastan Roadway,

payment outstanding by the end of the year was Rs.3,22,805/-. He

observed that on perusal of material available on record with reference to

claim of the assessee that it had obtained PAN from all the transporters

before paying carriage & freight charges was misplaced since the

assessee has simply filed certain cash vouchers on freight charges and

nowhere even PAN of the recipient has been kept on record. He noted

that sub-section (6) of section 194C of the Act was inserted by Finance

Act, 2015 w.e.f. 1.6.2015 and accordingly, no deduction shall be made

from any sum credited or paid or likely to be credited or paid during the

previous year to the account of a contractor during the course of business

of plying, hiring or leasing goods carriages, where such contractor owns

ten or less good carriages at any time during the previous year and

furnishes a declaration to that effect alongwith his PAN to the person

paying or crediting such sum. Therefore, newly inserted provisions of

section 194C is not applicable in the assessment year under appeal. The

CIT(A) further observed that annexure-5 filed with the paper book is

ledger account of carriage & freight expenses and on perusal of the same,

it appears that in most cases payments were made in cash payment to

each transporter being less than Rs.75,000/- with no individual payment

exceeding Rs.30,000/- except in the case of Srikakulam Lorry Transport,

Shree Hanuman Industries, Raj Laxmi Road Carrier, Maheswari Freight

Carrier, New Multani Freight Carrier, Cuttack Fast Carrier and Raj Mastan

Roadway. He observed that it was evident from record that in some

cases the transportation and freight charges were reimbursed from the

suppliers/purchasers like from Shree Krishna Supply Agency and in most

cases, the assessee incurred the transportation and freight charges.

Since the goods were transported at assessee’s risk, the assessee had to

deduct tax at source on payments to transporters as per provisions of law

and for that even oral contract with the transporters was enough.

Keeping in view the overall facts and circumstances of the case, he found

that it was only in case of payments to Srikakulam Lorry Transport, Shree

Hanuman Industries, Raj Laxmi Road Carrier, Maheswari Freight Carrier,

New Multani Freight Carrier, Cuttack Fast Carrier, Raj Mastan Roadway as

submitted by ld A.R. at page 31 of paper book, the assessee had the

liability to deduct at source on payment of Rs.6,29,325/- only and,

therefore, for the failure of the assessee to deduct the tax at source on

such payment to transporters u/s.194C, addition to the total income by

invoking provisions of section 40(a)(ia) is restricted to Rs.6,29,325/- and

allowed partial relief to the assessee.

well as assessee are in appeal before us.

Officer whereas ld A.R. of the assessee submitted that the CIT(A) was not

justified in sustaining the addition of Rs.6,29,325/- on the ground of non-

deduction of tax from the payments made.

hearing could not controvert the findings of the CIT(A) that from

verification of Annexure-5 filed in the paper book, which was the ledger

account of carriage and freight expenses, it was observed by the CIT(A)

that in most cases payments were made in cash to the transporters was

less than Rs.75,000/- during the year and no individual payment

exceeded Rs.30,000/- except in the case of Srikakulam Lorry Transport,

Shree Hanuman Industries, Raj Laxmi Road Carrier, Maheswari Freight

Carrier, New Multani Freight Carrier, Cuttack Fast Carrier, Raj Mastan

Roadway and, therefore, he deleted the addition of Rs.46,97,330/- in

view of the provisions of section 194C(5) of the Act, which provides that

in such cases no TDS was to be deducted from the payments made for

transportation of goods and, therefore, no disallowance can be made

u/s.40(a)(ia) of the Act for non-deduction of TDS from such payments.

We find that the assessee before the CIT(A) relied on the decision of ITAT

Visakhapatnam Bench in the case of Merilyn Shipping & Transports vs

ACIT, 146 TTJ 1, Hon’ble Allahabad High Court in the case of CIT vs.

Vector Shipping Services (P) Ltd.,262 CTR 545 that where no amount was

outstanding and payable as at the end of the year, no TDS was required

to be deducted from the payments made for transportation charges. The

CIT(A) has found that in the case of Srikakulam Lorry Transport, Shree

Hanuman Industries, Raj Laxmi Road Carrier, Maheswari Freight Carrier,

New Multani Freight Carrier, Cuttack Fast Carrier, Raj Mastan Roadway

the amount outstanding and payable to them was Rs.3,22,805/- and,

therefore, opined that the assessee should have deducted TDS from

payment of Rs.6,29,325/- made to those parties and hence, confirmed

the addition for non-deduction of TDS u/s.40(a)(ia) of the Act. We find

that Hon’ble Supreme Court in the case of Palam Gas Service VS CIT,

(TS-170-SC-2017] has held that the amount payable includes the amount

paid as well as payable during the financial year. Therefore, we find that

the order of the CIT(A) in confirming the addition of Rs.6,29,325/- is in

conformity with the decision of the Hon’ble Supreme Court in the case of

Palam Gas Service (supra). Hence, we find no good reason to interfere

with the order of the CIT(A) on this count. Hence, Ground No.4 of the

revenue as well as Ground No.6 of the appeal of the assessee, both are

dismissed.

CIT(A) in confirming the disallowance of penalty of Rs.92,200/- paid to

CESU.

electricity bills of Rs.67,77,580/-, penalty of Rs.92,200/- was debited

alongwith the electricity bill. In response to show cause notice, the

assessee submitted that penalty of Rs.92,200/- was imposed by CESU for

over drawal of powers and not for violation of law. The Assessing Officer

opined that the penalty is not allowable expenses and, therefore, he

disallowed the same and added to the total income of the assessee.

assessee is operating in rural areas and due to frequent of power

fluctuation, at certain point of time, there is over drawal of power and,

the CESU charges penalty for the same. Reference was made on the

decision of Hon’ble Calcutta High Court in the case of CIT vs. Todi Tea

Company Ltd., 239 ITR 28(Cal), wherein, it was held that the

compensation paid for the breach of contract is revenue expenditure and

allowable in the year it had been incurred by the assessee.

observed that if an assessee is penalised under one Act, he cannot claim

that the amount is deductible against his income under another Act. He

also observed that deduction will not be permitted of the amounts paid as

penalty or fine as expenditure incurred wholly and exclusively for the

purpose of business. He further observed that the assessee paid penalty

of Rs.92,200/- to CESU and it was the duty of the assessee to explain the

nature of penalty imposed on it with proper evidence, but this has not

been done. Therefore, in view of the assessee’s failure to disclose fully

the nature of offence committed by it, the CIT(A) confirmed the penalty

imposed by the Assessing Officer.

lower authorities.

authorities.

penalty levied by it for overdrawal of power than the sanctioned limit. No

material was brought on record by ld A.R. of the assessee to show that

the amount paid to CESU of Rs.92,200/- was not penalty but

compensation for overdrawal of power. Hence, we find no good reason to

interfere with the order of the CIT(A), which is hereby confirmed and

ground of appeal of the assessee is dismissed.

order of the CIT(A) in confirming the adhoc disallowance of 10% of the

amount debited under the loading and unloading charges of

Rs.24,00,633/-.

loading and unloading charges of Rs.24,00,633/-, found that all the

expenses were supported by self-made vouchers. Since the genuineness

of the vouchers cannot be accepted on account of unverifiable nature of

expenditure, the Assessing Officer made adhoc disallowance of

Rs.2,40,063/- being 10% of total expenses of Rs.24,00,633/-.

on the business of rice mill and for the rice under PDS scheme, it had to

lift the paddy from the Mandi and while delivering the rice to OSCSC or

NAFED, it had to deliver the rice at the godown of the OSCSC/NAFED.

Therefore, the assessee had incurred expenditure of Rs.24,00,633/-.

However, OSCSC reimbursed only the loading and unloading charges to

the assessee as per the rates prescribed by the Government and the

assessee debits the whole of expenditure in its profit and loss account and

part of reimbursement is shown as other income in the profit and loss

account.

voluminous, the Assessing Officer test checked the vouchers of two

months and found that the details were not complete and, therefore, the

Assessing Officer is justified in making partial disallowance to plug the

possible revenue leakage.

in confirming the adhoc disallowance of expenses incurred under the head

“loading and unloading charges” without pointing for which of the

expenditure incurred, complete details were not available.

authorities.

available on record, we find that the Assessing Officer disallowed 10% of

the expenses of Rs.24,00,633/- claimed by the assessee under the head

“loading and unloading charges” on the ground that complete details were

not available.

out for which of the expenses, complete details were not available to the

Assessing Officer, the Assessing Officer was not justified in making adhoc

disallowance of 10% out of total expenses of Rs.24,00,633/- claimed by

the assessee under the head “loading and unloading charges” and the

CIT(A) was not justified in confirming the same.

Assessing Officer while making the addition to the income of the assessee

by disallowing expenditure genuinely claimed by the assessee incurred for

the business purpose of the assessee has to give complete details and

reasons as to why he is making the disallowance. We find that the

reasons given by the Assessing Officer while making the disallowance is

vague. He has not pointed out in his order which details are not available

for the bills and vouchers produced by the assessee and how the

expenditures claimed by the assessee are not available. In absence of

the same in our considered view, the disallowance made is not

sustainable under the law. Hence, we set aside the orders of lower

authorities and vacate the disallowance of Rs.2,40,063/- and allow this

ground of appeal of the assessee.

order of the CIT(A) in confirming the addition of Rs.20,996/- on account

of undisclosed TDS under the head “commission” based on 26AS

statement.

receipt of Rs.20,996/- as commission from Shri Mahadev Edible Products

Ltd., and Good Health Agro Tech Ltd. Before the Assessing Officer, it was

submitted by the assessee that the books of account were finalised on the

basis of 26AS statement but while taking the print out of 26AS statement

on 4th March, 2014, the excess credit of commission payment of

Rs.20,996/- was found. The commission was not recorded due to non-

receipt of credit notes from the concerned parties till date of finalisation of

account and even TDS of Rs.2,100/- was not claimed. Therefore, the

Assessing Officer added Rs.20,996/- to the total income of the assessee.

observing as under:

“The appellant had trading relationship with Shri Mahadev Edible Products Limited and Good Health Agro Tech Ltd. and the parties paid th< alleged sum in the financial year relevant to the assessment year under appeal The appellant is regularly following mercantile system of accounting and therefore, the alleged receipts ought to have been shown as income of the year under consideration. This has not been done simply for the reason that the appellant was not aware of the credit notes at the time of finalization of accounts. But the facts remain undisputed that the payments were genuine,

Similar fact came up for decision of the Hon'ble High Court of Karnataka in the case of Smt. J. Rama Vs. C1T reported in (2010) 194 Taxman 37. In the instant case, the assessee was maintaining the books of account on mercantile basis. During the assessment proceedings, the AO noticed that the amount of TDS certificates enclosed with the return was more than receipts disclosed in the income and expenditure account. The TDS certificates enclosed with the return amounted to Rs. 1,70,89,004/- whereas the receipt disclosed was Rs. 1,64,06,036/-. The AO assessed the differential amount. The Hon'ble High Court, in para 9 of the order, has held thus;

"9. Insofar as the second substantial question of law is concerned, the facts are not in dispute. The TDS certificates enclosed with the return amounted to Rs.1,70,89,004/- whereas the receipt disclosed in the income and expenditure amount, was Rs. 1,64,06,036/-. This discrepancy is admitted. The explanation offered is that a portion

of the said TDS deductions are claimed in the subsequent year. The amount of Rs. 6,82,968/- was received by the assessee in following year. As rightly pointed out by the authorities, when the assessee is following the maintenance of books of account on mercantile basis, accounting and reflecting on receipt basis is not proper and therefore, rightly they have upheld the deduction made."

In the case of M/s. Pest-O-Kill Shivaji Hagar, Korba Vs. CIT, Bilaspur, the gross contract receipts was Rs. 41,73,137/- as per the Certificate enclosed with the return. However, the assessee has shown the gross receipt at Rs. 38,75,298/-. Thus, the difference in gross receipt 2,97,837/- was treated as income of the assessee. The CIT(Appeal), Bilaspur and the Hon'ble Tribunal confirmed the addition. The assessee moved to the Hon'ble High Court, Chhattisgarh against the order of the Tribunal. The counsel of the assessee vehemently argued before the Hon'ble High Court that the AO ought to have computed profit @ 7.2% on above receipts and that amount alone could be added as income of the assessee on this count. The Hon'ble High Court, in para 11 of the order in ITA NO. 02/2006 dated 03-07-2009 has held, thus:

"The law laid down in the judgments cited by the appellants, is that the income tax on a given rate can be applied to the assessee only after assessing the taxable income, meaning thereby that before applying the rate at which tax is to be levied upon the assessee, his income has to be assessed. In the instant case, the assessee filed his return for the assessment year showing gross receipt of Rs. 38,75,298/-. On verification of the documents enclosed with the return and information received from Balco, it revealed that the assessee had suppressed gross receipt of Rs. 2,97,539/-. The appellant had also filed Profit & Loss Account-showing total income of Rs. 7675/-. The appellant was afforded with an opportunity to explain the above discrepancy. The explanation forwarded by the appellant for the aforesaid discrepancy was again forwarded to the AO and remand report was obtained. On receiving the remand report, the CIT(Appeal) forwarded copy of the same alongwith annexure to the appellant for giving his response, however, he failed to give his response. In these circumstances, the 'suppressed receipt amount of Rs. 2,97,639/- has been added in income of the appellant. In our considered opinion, the reasoning assigned by the AO, which has been subsequently confirmed in CIT(Appeal) and ITAT, is proper and addition of the aforesaid amount in income of the assessee has been rightly made. No substantial question of law, as proposed by the appellant, arises for adjudication of this appeal." Thus, as per the principle of Accounting Standard and in view of the above legal prepositions the entire receipts of Rs. 20,996/- is

required to be assessed as income of the appellant company for the year under reference. There is no infirmity in the order of the A.O. in assessing the same as deemed income and therefore, addition made on this count is confirmed.” 60. Ld A.R. of the assessee during the course of hearing did not make

any submission on this ground of appeal. Hence, the same is dismissed

for want of prosecution.

CIT(A) erred in confirming the disallowance of pre-paid insurance of

Rs.1,84,871/-.

that the assessee has claimed insurance expenses of Rs.4,22,623/- in the

profit and loss account, which includes prepaid insurance premium of

Rs.1,84,871/-. On a show cause notice issued to the assessee, it was

submitted that the assessee debits total amount of insurance expenses

paid during the year in its profit and loss account and this practice is

followed by the assessee since inception. It was submitted that for

assessment year 2008-09, assessment was made u/s.143(3) of the Act

and no disallowance was made by the Assessing Officer on account of

prepaid insurance expenses. Therefore, it was urged that following the

rule of consistency, no disallowance should be made and placed reliance

on the decision of Ahmedabad Benches of the Tribunal in the case of

Arvind Fashions Ltd vs ACIT, 45 DTR (Ahd) 299, wherein, it was held that

during the course of assessment, the rule of consistency should be

followed. Further, it was held that though the res-judicata as such no

application to the income tax proceedings rule of consistency to be

followed on factual matters repeated from year to year-chord of

consistency running through the assessments of several years can be cut

off only if facts are substantial different from the earlier assessment years

capable of leading to different findings. The Assessing Officer was not

convinced with the arguments of the assessee. He observed that the

assessee was following mercantile system of accounting, according to

which, prepaid insurance expenses should have been shown by the

assessee on the assets side of the balance sheet and should not have

claimed as the expenses. Hence, he disallowed deduction for

Rs.1,84,871/-.

While doing so, he relied on the decision of Hon’ble Supreme Court in the

case of CIT vs. British Paint India Ltd., 183 ITR 44 (SC), where, it was

held that each year being a self contained unit, taxes of a particular year

is payable with reference to income of that year in terms of the Act.

Therefore, he held that expenditure of subsequent year in case of the

assessee cannot be allowed to arrive at the correct income of the year

under reference and even if this accounting practice is regularly followed.

authorities.

authorities.

expenses of Rs.1,84,871/- pertains to subsequent year and is not

expenditure in this year and this fact is not disputed by ld A.R. of the

assessee during the course of hearing. It is not in dispute that the

assessee is following mercantile system of accounting. As per the

mercantile system of accounting, the amount of expenses which is

accrued during the year is allowable as deduction to the assessee. Since

the prepaid insurance expenses claimed by the assessee of Rs.1,84,871/-

is not accrued during the year, therefore, the disallowance has been

rightly made by the Assessing Officer while computing the income of the

assessee and the CIT(A) is fully justified in confirming the same.

Therefore, We find no good reason to interfere with the order of the

CIT(A) and dismiss the ground of appeal of the assessee.

appeal filed by the assessee is partly allowed.

Now we take up the appeal filed by the revenue and cross objection filed by the assessee for assessment year 2012-13.

the CIT(A) erred in deleting the disallowance of Rs.2,74,400/- made on

account of penalty u/s.40(a)(ii) of the Act.

the assessee had included an amount of penalty of Rs.2,74,400/- in the

total electricity bill of Rs.95,32,877/- debited to the P&L account. The

Assessing Officer disallowed the same on the ground that the amount paid

as penalty is not allowable expenses.

the ground that penalty paid to CESU for overdrawal of power cannot be

considered to be an expenditure incurred by the assessee for any purpose

which is an offence or which is prohibited by law.

the assessment year 2011-12, we have confirmed the order of the CIT(A)

upholding the addition made by the Assessing Officer in para 46 of this

order. For the reasons given therein, we set aside the order of the CIT(A)

and restore back the order of the Assessing Officer being amount paid to

CESU as penalty and made addition of Rs.2,74,400/-. Thus, this ground of

appeal of the revenue is allowed.

the CIT(A) erred in deleting the addition of Rs.31,44,327/- made by the

Assessing Officer on account of suppression of bran products.

addition of Rs.31,44,327/- on the ground that the yield of rice bran shown

by the assessee was much lower than the standard yield arrived at by

Indian Institute of Crop Processing Technology and Central Rice Research

Institute (CRRI), Cuttack.

on account of suppression of bran products on the ground that the

Assessing Officer has not brought any other materials on record to show

that the assessee has actually suppressed the yield of bran.

the assessment year 2011-12, we have upheld the action of the CIT(A) in

deleting the addition made on account of suppression of bran in paras 21

to 29 of this order. For the detailed reasons given therein, we uphold the

order of the CIT(A) and the ground of appeal of the revenue is dismissed.

the CIT(A) was not justified in deleting the addition of Rs.1,88,218/-

made by the Assessing Officer on account of disallowance of loading &

unloading charges.

the assessee has debited Rs.18,82,180/- on account of loading and

unloading charges. The Assessing Officer observed that the vouchers

furnished in respect of such expenditure were self-made and unverifiable

and, therefore, disallowed 10% of the same on estimate basis.

Rs.1,88,218/- on the ground that the Assessing Officer has not specified

any vouchers which are unverifiable.

assessment year 2011-12, which was confirmed in appeal by the CIT(A).

We have deleted the addition for the reasons given in paras 48 to 56 of

this order. We confirm the order of the CIT(A) for the same reasons as

given in assessment year 2011-12 and dismiss this ground of appeal of

revenue.

support of the order of the CIT(A). As the assessee has no grievance

against the order of the CIT(A), therefore, these grounds of cross

objection of the assessee are infructuous and, accordingly, they are

dismissed.

that the authorities below were not justified in not allowing the

employee’s contribution to PF of Rs.17,544/- u/s.36(1)(va) of the Act.

authorities below, we find that if the employee’s contribution to PF is

deposited before due date of filing of return u/s.139(1) of the Act, in view

of the decision of Hon’ble Karnataka High Court in the case of Essae

Teraoka (P) Ltd. (supra), the same is allowable deduction. Similar issue

had come up for consideration in the assessment year 2011-12 in the

appeal filed by the assessee. For the reasons given therein in paras 11 to

18, we set aside the orders of lower authorities and vacate the

disallowance of Rs.17,544/- and allow this ground of cross objection of

the assessee.

that the CIT(A) erred in confirming the addition of Rs.14,411/- being the

expenses incurred under the head donation.

has debited Rs.14,411/- on account of donation. The Assessing Officer

observed that since the amount paid as donation is not allowable

expenses, he disallowed for the same.

was made by the Assessing Officer and the CIT(A) has deleted the

disallowance made on account of donation. We have upheld the findings

of the CIT(A) in deleting the disallowance in paras 30 to 33. For the

reasons given therein, we set aside the orders of lower authorities and

delete the disallowance of Rs.14,411/- and allow this ground of cross

objection of the assessee.

that the CIT(A) erred in confirming the addition of Rs.58,860/- under the

head commission merely based on the 26AS statement.

addition of Rs.58,860/- on the basis of 26AS statement, wherein, certain

commission receipts were found which were not disclosed as income. The

commission was received from Good Health Agro Tech Ltd., on which TDS

of Rs.1,177/- was deducted by the payer as per 26AS statement. The

assessee explained before the Assessing Officer that the commission had

not been reflected in the books of account due to non-receipt of credit

notes from the concerned party till finalisation of accounts. The Assessing

Officer did not accept the explanation of the assessee and disallowed

Rs.58,860/-.

of cross objection. Hence, the same is dismissed for want of prosecution.

that the CIT(A) was not justified in confirming the disallowance of prepaid

insurance of Rs.57,743/-.

assessee has debited an amount of Rs.5,45,882/- which include prepaid

insurance of Rs.2,42,614/-. Before the Assessing Officer, it was explained

that right from the inception of the company, the same method of

accounting was being followed in respect of insurance payment and as a

matter of consistency, the amount paid for insurance was claimed as

expenditure irrespective of the fact that it related to the subsequent year.

The Assessing Officer did not find the explanation of the assessee

satisfactory and, disallowed the same.

on the ground that the prepaid insurance did not relate to the relevant

previous year and as such cannot be allowed in mercantile system of

accounting being followed by the assessee.

assessment year 2011-12 in the appeal filed by the assessee. We have

upheld the action of the authorities below and dismissed the ground of

assessee for the reasons given in paras 62 to 66 of this order. Following

the same, we uphold the action of the lower authorities and dismiss this

ground of cross objection of the assessee.

cross objection filed by the assessee is partly allowed.

Order pronounced on 21/11/2017.

Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 21 /11/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant /Assesse:Subhalaxmi Agencies Ptd.,Nayagarh. 2. The Revenue:JCIT, Range-2 Bhubaneswar 3. The CIT(A)- 3, Bhubaneswar 4. Pr.CIT-3, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// BY ORDER,

SR.PRIVATE SECRETARY ITAT, Cuttack