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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-6, Kolkata dated 22.02.2016. Assessment was framed by ITO Ward- 54(4), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 25.03.2013 for assessment year 2010-11. Shri P.K. Agarwal, Ld. Authorized Representative appeared on behalf of assessee and Shri Tanuj Neogi, Ld. Departmental Representative represented on behalf of Revenue.
Briefly, the facts are that the assessee, an individual engaged profession of advocacy. The assessee for the year under consideration filed its return of income declaring total income of ₹12,34,963/- comprising income from profession and other source. Subsequently, the case was selected for scrutiny and notice u/s. 143(2)/142(1) A.Y.2010-11 M/s Ashim Kr. Chatterjee Vs. ITO Wd-54(4) Kol. Page 2 of the Act was issued upon assessee. Assessment was framed u/s. 143(3) of the Act at a total income of ₹26,31,610/- after making certain additions / disallowances to the total income of the assessee.
First issue raised by assessee in ground No.1 to 4 are that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the addition of ₹4,27,330/- on account of non-deduction of TDS.
The assessee in the year under consideration has made the payments to counsels and advocates as detailed below:- Sl.No Name Amount (Rs) 1 A. Chatterjee 1,30,000 2 P.K.Das 34,000 3 Raja Basu Choudhury 2,29,330 4 Pratap Chattrjee 34,000 The AO observed that in each case payment is exceeding the limit of Rs.20,000/- and assessee was under obligation to deduct the TDS on aforesaid payments under section 194J of the Act. It was also observed that the accounts of the assessee were also subject to audit u/s 44AB of the Act in the immediate preceding Assessment Year. On question by AO for the non-deduction of tax, the assessee submitted that the accountant has made a mistake for non-deduction of TDS inadvertently and expressed no objection for the proposed addition as per law. Accordingly, AO has disallowed the same and added to the total income of assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before the ld. CIT-A submitted that fees to the counsel and advocates were reimbursed by the client of assessee. The accounting entries shown in the form of expense cannot change the character of the payments made by assessee. As such, the accounting entries are not decisive in taxation issues. However, Ld. CIT(A) disregarded the claim of assessee and confirmed the order of AO by observing as under:- “3.3 I have considered the facts of the case and the appellant’s submissions. It is not disputed that tax had not been deducted by the appellant. The appellant also relied upon other case to state that reimbursement of expenses does not attract the A.Y.2010-11 M/s Ashim Kr. Chatterjee Vs. ITO Wd-54(4) Kol. Page 3 provisions requiring deduction of tax at source but the facts of those cases are distinguishable. In those cases, the assessee had reimbursed expenses to the payee whereas in the instant case, it is the appellant’s claim that expenses incurred by him in the form of payments to other advocates and counsels on behalf of his clients were reimbursed by the client. As regards, the reliance on the decision in of Hon'ble ITAT, Kolkata in the case of Sharma Kajoria & Co. Vs DCIT (supra), the bills have been produced by the appellant for the first time during the appellate proceedings and are contrary to submissions made during the assessment proceedings. Further, in that case, the appellant had not debited the relevant expenses to the profit and loss amount but in the present case the advocate payments and counsel payments have been debited to the profit and loss account by the appellant. Hence, I hold that the appellant should have deducted tax at source on the impugned counsel payment and advocate payments. Therefore, the disallowance of advocate payments of Rs.2,97,330/- and counsel payments of Rs.1,30,000/- u/s 40(a)(ia) of the Act is confirmed.”
Aggrieved by this, assessee has come up in appeal before us on the following grounds:- “(1) For that Ld. Assessing Officer as well as Ld. CIT(Appeals) both had erred in law and in fact in making addition of Rs.1,30,000/- as counsels payment and Rs.2,97,330/- as Advocates payments u/s. 40(a)(ia) of the Income Tax Act, 1961, (in short ‘Act’) under the facts and circumstances. (2) For that the payments made by the Appellant Assessee engaged in legal profession as solicitor and advocates were reimbursements by appellant assessee’s clients and disallowance u/s. 40(a)(ia) of the Act in respect of reimbursement expenses were devoid of any substantial basis. (3) For that the accounting entries made in the books of account are not decisive of nature of payment which is a settled principle of law and the same has been ignored by Ld. CIT(Appeals). (4). For that the disallowances u/s 40(a)(ia) were deleted by Hon'ble ITAT Kolkata Bench in the case of Sharma Kajaria & Co. Vs. deputy Commissioner of Income Tax, Circle-54-Lol. (2012)50 SOT 282 (Kol) and Ld. CIT(Appeals)had erred in not following the same although the said case was brought to his notice in appeal proceedings.”
Before us Ld. AR for the assessee filed paper book which is running pages from 1 to 40 and reiterated same submissions as made before Ld. CIT(A). He also drew our attention on pages 5 to 9 where the copies of sample bills were placed. In those sample bills, the payments collected on behalf of counsel and advocates were shown separately. On the other hand, Ld. DR submitted that additional evidences are submitted and accordingly prayed before the Bench to restore the issue to the file of AO. A.Y.2010-11 M/s Ashim Kr. Chatterjee Vs. ITO Wd-54(4) Kol. Page 4 7. We have heard the rival contentions and perused the materials available on record. The issue in the case relates to the disallowances made by the AO on account of non-deduction of tax on the payment of professional fees as specified under section 194J of the Act. The disallowance made by the AO has been subsequently confirmed by the learned CIT-A. The provisions of section 40(a)(ia) of the act, under which the impugned disallowances has been made, provides as under. Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 88[38], the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,— (a) ………….. (ia) any interest, commission or brokerage, 91[rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, 92[has not been paid on or before the due date specified in sub-section (1) of section 139 :] 93[Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.] Explanation.—For the purposes of this sub-clause,— (i) “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) “professional services” shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) “work” shall have the same meaning as in Explanation III to section 194C; 94[(v) “rent” shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] A plain reading of the above statutory provision makes it clear that this provision seeks to restrict the deductions which are otherwise permissible under section 30 to 38 of the Act. In other words a disallowance can be made only in respect of an amount which is sought to be deducted by virtue of the provisions of these sections. A.Y.2010-11 M/s Ashim Kr. Chatterjee Vs. ITO Wd-54(4) Kol. Page 5 In the instant case before us the contention of the assessee is that the payment made to the lawyers is nothing but the reimbursement of expenses therefore there cannot be any occasion to invoke the provisions of section 40(a)(ia) of the Act. However the learned CIT-A observed that the payment to the Counsels has been debited in the profit and loss account. The argument of the learned AR is that the treatment given to a transaction in the books of accounts or profit and loss account is not decisive of the true nature of the transaction. On perusal of the pages 1 to 4 of paper book where the bills raised to the parties are placed, we find that the assessee has claimed the payment for senior counsel from its client separately. The sample bills produced before us for our consideration justify that the assessee is charging the fees from its clients for the counsels separately. Thus the amount of fees collected from the clients in the name of the senior counsel amounts to reimbursement of expenses. Accordingly the claim of the assessee is that he had no share of income out of these counsel payments and accordingly not liable for the TDS deduction. We find force in the argument of the ld AR but at the same time the gamut of the facts of the case needs verification. On this proposition the learned DR fairly did not dispute the same but prayed to restore the matter to the file of the assessing officer for the necessary verification on this aspect. In view of these discussions and bearing in mind entirety of the case we deem it fit and proper to restore the matter to the file of the assessing officer for adjudication de novo in the light of our above observation and in accordance with the law. While doing so the assessing officer shall give a due and fair opportunity of hearing to the assessee and shall decide the matter by way of speaking order in accordance with the law. Hence this ground of appeal of the assessee is allowed for the statistical purposes.
8. Next issue raised by assessee in ground No. 5 & 6 are that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of R.9.50 lakh as unexplained investment u/s 69 of the Act.
9. The assessee in the year under consideration has made payment to Gita Ganesh Promoters Ltd. (GGPL for short) for the purchase of flats and payment was made through banking channel as detailed as under:- A.Y.2010-11 M/s Ashim Kr. Chatterjee Vs. ITO Wd-54(4) Kol. Page 6 Sl. No. Date of payment Amount (Rs) 1. 26.03.2010 9.86 lakh 2. 31.12.2009 9.50 lakh However, during the course of assessment proceedings, AO observed that payment of ₹9.86 lakh has been shown in the balance sheet of assessee. Therefore, AO treated the payment of ₹9.50 lakh as undisclosed investment and added to the total income of assessee. 10. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that provision of Sec. 69 of the Act attracts on unexplained investment but in the instant case, the payment was made through bank account. Therefore, the action of AO treating the payment of ₹ 9.50 lakh as undisclosed investment is without any base, however, Ld. CIT(A) confirmed the action of AO by observing as under:- “4.3 I have considered the facts of the case and the appellant’s submissions. The appellant’s explanation regarding the payment of Rs.9,50,00/- made by him to M/s Geeta Ganesh Promoters Ltd. on 31.12.2009 is that although it was not reflected in the books of account, the payment had been made out of a disclosed bank account. However, the appellant has not explained as to how the books of account balanced under the double-entry method of book-keeping in the absence of entry regarding the payment of Rs.9,50,000/-. This shows that books are unreliable and the discrepancy of Rs.9,50,000/- which would arise if the payment of Rs.9,50,000/- is taken into account in the books of account remains unexplained . In the light of the gaps in the explanation of the A./R, the addition of Rs.9,50,000/- is confirmed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld. AR for the assessee has reiterated same submissions as made before Ld. CIT(A) whereas Ld. DR for the Revenue vehemently relied on the order of Authorities Below.
We have heard the rival contentions and perused the materials available on record. The issue in the case relates to the disallowances made by the AO on account of payment to GGPL for Rs. 9.50 lakh which has not been disclosed in the balance sheet of the assessee. The AO has treated the impugned payment as unexplained investment u/s 69 of the Act due to non-disclosure of the same in the balance sheet of A.Y.2010-11 M/s Ashim Kr. Chatterjee Vs. ITO Wd-54(4) Kol. Page 7 the assessee. The disallowances made by the AO was subsequently confirmed by the ld CIT(A). The provisions of section 69 of the Act, under which the impugned addition has been made reads as under : “Unexplained investments. 69. where in the financial year immediately preceding the assessment year the assessee has made investments which are not record in the boa, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the “ assessee of such financial year.”
A plain look at the above provisions reveals that the provisions are attracted where the assessee has made investments which are not recorded in the books of accounts and at the same time the assessee either does not offer any explanation order the explanation is not satisfactory. Admittedly the payment was made through banking Channel and the relevant bank was disclosed by the assessee in its return of income. But still the question/ issue remains unanswered i.e. once the payment has been made from the disclosed bank account then where the effect of such transaction has gone in the balance sheet of the assessee. On perusal of the AO order we find that the assessee has made the payment to the GGPL 2 times in the year under consideration for the purchase of the flats. The 1st payment was of Rs. 9.86 lakh which has been duly disclosed in the balance sheet but the 2nd payment for Rs.9.50 lakh to the same party and for the same transaction has not been shown in the name of the GGPL in the balance sheet. Non-disclosure of the 2nd payment has created suspicion in the mind of the AO and in the absence of any satisfactory reply from the assessee in this regard, the AO had resorted to treat the same as unexplained investment u/s69 of the Act. There is no dispute that the payment was made to the GGPL for Rs.9.50 lakh though bank which was disclosed in the return of the assessee. However, the pertinent issue is that the same entry is not reflecting in the balance sheet of the assessee. Therefore, in our considered view the instant issue needs to be re-examined by the AO. Therefore, in the interest of justice and fair play we are inclined to remit the issue to the file of AO for fresh adjudication in accordance with the law and in the light of above observations. It is needless to A.Y.2010-11 M/s Ashim Kr. Chatterjee Vs. ITO Wd-54(4) Kol. Page 8 mention that the assessee should co-operate in the assessment proceedings before the AO. Hence, this ground of appeal of the assessee is allowed for the statistical purposes.