SH. SURENDRA KUMAR WADHWA,NEW DELHI vs. ITO, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’: NEW DELHI BEFORE SH. I.C. SUDHIR, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 1792/Del/2014 Assessment Year: 2009-10 Mr. Surendra Kumar Wadhwa, C/o- Vs. Income Tax Officer, Ward -20(2), Mr. Ajay Kumar Sharma, 14, School New Delhi Lane, Barakhamba Road, New Delhi GIR/PAN : AABPW0250F (Appellant) (Respondent) Appellant by Sh. Ajay Kumar Sharma, Adv. Respondent by Smt. Rishpal Bedi, JCIT (DR) Date of hearing 18.04.2016 Date of pronouncement 08.06.2016 ORDER PER O.P. KANT, A.M.: This appeal of the assessee is directed order dated 27/01/2014 of the learned Commissioner of Income-tax (Appeals)-V, New Delhi for assessment year 2000-10, raising following grounds: 1. That, the assessment order and the Appellate Order are based on conjucture and surmises and against the facts of the case and the law laid down in this respect. 2. That, the Assessing Officer and the Hon’ble CIT (A) has errored in taxing the commission payable of Rs. 4,08,080 in this year, while this amount belongs to the subsequent year when the bills were raised and the amount was received. The Appellant has never offered to tax in this year Rs. 4,08,080. The submission of the Assessing Officer in this respect is his words and not the words of the Appellant. The Affidavit can be submitted for the confirmation of this submission. 3. That, the Hon’ble CIT (A) has errored in considering the loan processing fees as a capital expenditure instead of revenue expenditure. The Loan processing fees payable to bank is a bank charges for rendering services for granting the loan for car for business purpose. This amount cannot be considered as capital expenditure. This is revenue expenditure. 4. That, the Hon’ble CIT (A) has errored in saying that the amount of Rs. 3,90,579 may be reduced from the income for the A.Y. 2010- 11 if such amount has indeed been taxed twice.

2 ITA No. 1792/Del/2014 AY: 2009-10 2. The facts in brief are that the assessee filed return of income declaring income of Rs. 3,96,360/- on 15/01/2009. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and served within the stipulated period. The assessee was proprietor of the firm M/s. Wadhwa & Associates, which was engaged in supplying various items to state transport operators on commission basis. The Assessing Officer observed that total receipts as the TDS Certificates was of Rs. 46,23,089/- whereas the assessee declared income of only Rs. 39,36,887/-. The Assessing Officer mentioned in the assessment order that the assessee offered this differential amount of Rs. 4,08,080/- for taxation, however, the assessee disputed this fact and challenged the addition before the learned Commissioner of Income-tax (Appeals). Further, the Assessing Officer held the amount of Rs. 3,520/- towards loan processing fee of car as capital expenditure and disallowed accordingly. Before learned Commissioner of Income-tax (Appeals), the assessee submitted that it was receiving the commission on behalf of various companies/firms for supplying goods to various State Transport Corporation and the commission of the assessee was due only when the money was received by those companies/firms upon acceptance of the goods by the respective State Transport Corporation. It was further submitted that the assessee could issue bills, only when the payment was actually received by those companies/firms and during the year under consideration the main dispute was in respect of bills issued to M/s. Modi Industries Ltd. It was submitted that M/s Modi Industries Ltd. booked the payment of commission on provisional basis without receipt of bills issued by the assessee, whereas the assessee while filing the return, had taken the credit of the TDS of Rs. 40,245/- as reflected in form No. 26AS on this provisional commission, however, the commission income connected to the TDS was credited in the next assessment year because the bills for the same were issued in next financial year., i.e., financial year 2009-10 corresponding to assessment year 2010-11. It was further stated that bills of Rs. 4,77,183/- were issued in the first quarter of the next year to M/s Modi Industries, who approved

3 ITA No. 1792/Del/2014 AY: 2009-10 bills of Rs. 3,90,670/-. Accordingly, the assessee submitted that once the income has already been assessed in next assessment year, same may not be taxed again in the current year. However, the ld. Commissioner of Income-tax (Appeals) held that the AO has rightly taxed the income in the year in which tax credit of TDS has been claimed and directed the assessee to apply for rectification before the AO for exclusion of said income out of assessment year 2010-11, if such income had been taxed twice. The addition of Rs. 3,520/- towards loan processing fee of vehicle held by the Assessing Officer as capital expenditure was also upheld by the learned Commissioner of Income-tax (Appeals). Aggrieved with the above findings of the learned Commissioner of Income-tax (Appeals), the assessee is in appeal raising the grounds reproduced above. 3. The ground No. 1 of the appeal being general in nature, is not required to be adjudicated upon at our end. 4. In grounds no. 2 and 4, the assessee has challenged the addition of Rs. 4,08,080/- of the commission, the tax deducted at source (TDS), in respect of which has been claimed in the year under consideration but the income was offered in subsequent year. 4.1 Before us, learned Authorized Representative of the assessee submitted that the assessee was following regular method of raising bills only on receipt of payment by companies/firms from State Transport Corporation and accordingly the income from M/s Modi Industries Ltd. was shown in the assessment year 2010-11 as the bills in respect of the income were only raised in the previous year corresponding to the assessment year 2010-11. In support of the contention, the learned AR relied on the decision of third member ITAT in the case of Smt Versa G Salunke Vs. Deputy Commissioner of Income Tax reported in 101 TTJ 703 (TM). 4.2 On the other hand, the learned Sr. DR relying on the orders of the authorities below submitted that income was to be assessed as per the tax credit of TDS availed by the assessee.

4 ITA No. 1792/Del/2014 AY: 2009-10 4.3 We have heard the rival submissions and perused the material on record. The issue in dispute here is that the Revenue wants to assess the income in the year in which tax was deducted on that income, whereas the assessee wants to tax the income according to the regular method of accounting followed by the assessee. The issue in dispute is squarely covered by the finding of the Hon’ble third member of the Tribunal in the case of Smt. Varsha G Salunhke Vs. DCIT (supra). The relevant findings of the said decision are reproduced as under: “6. Sections 198 and 199 of the Act nowhere provide for an exception either to the determination of the income under the aforesaid provisions of sections 28, 29 or as to the method of accounting employed under section 145 of the Act, which alone could be the basis for computation of income under the provisions of sections 28 to 43A of the Act. Section 198 has a limited intention. It only declares the amounts deducted at source under sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-I, section 194J, section 194K, section 195, section 196A, section 196B, section 196C and section 196D to be treated as an income received. The purpose of section 198 is not to carve out an exception to section 145 of the Act. Section 199 of the Act has two objectives - one to declare the tax deducted at source as payment of tax on behalf of the person on whose behalf the deduction was made and to give credit for the amount so deducted on the production of the certificate in the assessment made for the assessment year for which such income is assessable. The second objective mentioned in section 199 is only to answer the question as to the year in which the credit for tax deducted at source shall be given. It links up the credit with assessment year in which such income is assessable. In other words, the Assessing Officer is bound to give credit in the year in which the income is offered to tax. This section 199 does not empower the Assessing Officer to determine the year of assessability of the income itself but it only mandates the year in which the credit is to be given on the basis of the certificate furnished. In other words, when the assessee produces the certificates of TDS, the Assessing Officer is required to verify whether the assessee has offered the income pertained to the certificate before giving credit. If he finds that the income of the certificate is not shown, the Assessing Officer has only not to give the credit for TDS in that assessment year and has to defer the credit being given to the year in which the income is to be assessee. At the cost of repetition, it may be mentioned that sections 198 and 199 do not in any way change the year of assessability of income, which depends upon the method of accounting regularly employed by the assessee. They only deal with the year in which the credit has to be given by the Assessing Officer. It cannot be disputed that according to the method of accounting employed by the assessee the income in respect of the three TDS Certificates, which are mentioned in paragraph 3 above, does not pertain to the assessment year in question, but it pertains to the next assessment year and, in fact, in that year the assessee has offered the same to tax. Therefore, the credit in respect of these three TDS Certificates shall not be given in the assessment year under consideration, but the credit for the same shall be given in the next assessment year in which the income is shown to have been assessed. 7. In the light of the above discussions, I agree with the reasoning given by the learned Accountant Member, who has correctly directed the exclusion of the income represented by these three TDS Certificates from being assessed in the assessment year 1997-

5 ITA No. 1792/Del/2014 AY: 2009-10 98, i.e., the year under consideration. But the assessee, in the light of the scheme of the provisions of sections 198 and 199 of the Act, shall not be allowed to claim the credit in respect of these TDS Certificates for which the income has not been returned by her as a result of the method of accounting employed. The credit shall be carried forward and the assessee will get the credit for the present TDS Certificate in the year in which she offers the income to tax on the basis of the method of accounting regularly employed.” 4.4 Thus the Tribunal has clearly held that the provisions related to tax deducted at source (TDS) cannot decide the year of taxability of the income and it is decided according to the method of accounting employed under section 145 of the Act. In the case in hand, also the assessee has followed the regular method of accounting of income and accordingly declared income from M/s. Modi Industries Ltd. in the assessment year 2010-11. Thus, respectfully following the ratio of the above said decision, we delete the addition made in the year under consideration and direct the Assessing Officer to assess the income from M/s Modi Industries Ltd. of Rs. 3,90,579/- in assessment year 2010-11 in accordance with the regular method of accounting followed by the assessee, however, the credit of tax deducted at source (TDS) corresponding to the income should also be given in the assessment year 2010-11. The credit of TDS in respect of the income from M/s Modi Industries Ltd. allowed in the year under consideration has to be reduced/withdrawn accordingly. We also set aside the direction of the learned Commissioner of Income Tax (Appeals) directing the assessee for making request before the AO for exclusion of such income from A.Y.: 2010- 11. The ground of the appeal is accordingly partly allowed. 5. In ground No. 3, the assessee has challenged holding of loan processing fee of Rs. 3,520/-as capital expenditure. In absence of any explanation, the AO held the expenditure as capital expenditure as it was related to the purchase of car, being a capital asset. Before the learned Commissioner of Income-tax (Appeals), the assessee submitted that the payment was just like a bank charges payable to bank for rendering services like providing loan for the car. On the issue in dispute the learned Commissioner of Income-tax(Appeals) held as under:

6 ITA No. 1792/Del/2014 AY: 2009-10 “………………………………………………………………… On this issue it is held that since the car loan processing fee charged by the bank is for the purposes of purchase of car which is a capital asset, therefore this amount being inextrically linked to the purchase of the said capital asset deserves to be capitalized and not allowed as a Revenue expense. However, upon capitalization of the loan procession fee, deprecation on this amount should be allowed in terms of the rates prescribed in the Income Tax Rules. Subject to this direction appeal on this issue is accordingly disposed off.” 5.1 Learned Authorized Representative reiterated the submission made before the learned Commissioner of Income-tax(Appeals), whereas, on the other hand, the Sr. DR relied on the authorities below. 5.2 We have heard the rival submissions and perused the material on record. As a loan processing fee has been paid for the purpose of purchase of a car, which is a capital asset and paid or accrued before the capital asset was put to first use, therefore, this amount being connected with the purchase price, it was part of actual cost of the asset to the assessee, accordingly, we find no infirmity in the finding of the learned Commissioner of Income-tax(Appeals) on the issue in dispute and accordingly we uphold the same. The ground of appeal is accordingly dismissed. 6. In the result, appeal of the assessee is partly allowed for statistical purpose. The decision is pronounced in the open court on 8th June, 2016. Sd/- Sd/- (I.C. SUDHIR) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 8th June, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi