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Income Tax Appellate Tribunal, ‘D’ BENCH
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
Shri S.S.Viswanethra Ravi, JM:
This appeal by the assessee is directed against the order dated 31-05-2016 passed by the Commissioner of Income Tax(Appeals), Burdwan for the assessment year 2010-11.
The assessee has raised the following grounds:-
FOR THAT on a true and proper interpretation of the scope and ambit of the provisions of s. 40 (a)(ia) of the Income tax Act, 1961, the Ld. Commissioner of Income Tax (Appeals)- Burdwan was absolutely in error in upholding the action of the W. Income Tax Officer. Ward 2(4). Burdwan in resorting to the impugned addition of Rs, 4.10.090/- on account of alleged infringement of s. 194C of the Act on extraneous parameters which are not amenable to reason and the purported findings on that behalf is absolutely arbitrary, unreasonable and perverse. 2. FOR THAT on the facts and in the circumstances of the instant case, the Ld. Commissioner of Income Tax (Appeals)-Burdwan acted unlawfully in upholding the impugned addition in the sum of Rs, 4.10,090/- resorted to by the Ld. Income Tax Officer. Ward 2(4), Burdwan within the province of s, 40(a)(ia) of the Income Tax Act. 1961 by misreading the facts and circumstances of the instant case and such specious finding reached on that behalf in violation of the statutory prescription is wholly illegal,illegitimate and infirm in law. 3. FOR THAT the W. Commissioner of Income Tax (Appeals)-Burdwan acted unlawfully in upholding the purported addition in an amount of Rs.1.24.500/- out of expenses under the head gifts made by the Ld. Income Tax Officer. Ward 2(4). Burdwan without considering the commercial expediency thereof by misreading the facts and circumstances of the instant case and such adverse finding reached on unconnected parameters alien to the issue is altogether unfounded. unjustified and untenable in law. 4. FOR THAT the Ld. Commissioner of Income Tax (Appeals)-Burdwan erred in upholding the disallowance in an amount of Rs, 1.24.500/- made by the W. Income Tax Officer. Ward 2(4). Burdwan on account of expense incurred under the head gifts and the specious action on that behalf is totally opposed to law.
2 ITA No. 1676/Kol/2016 Kali Kinkar Roy
The assessee is an individual and being an agent for Pancard Clubs Limited derives income from commission. The Assessee filed return of income on 06-09-2010 disclosing a total income of Rs. 4,93,153/-. Thereafter, notices u/s. 143(2) and 142(1) were issued and in response, the assessee was represented through his Advocate in support of his return.
Ground no’s 2 and 3 raised challenging the addition of Rs.4,10,090/- made for violation of Section 194C of the Act.
In course of assessment proceedings, the AO found from the income and expenditure account that the Assessee debited an amount of Rs.5,67,300/- under the head ‘Travelling expenses’ and out of such amount a sum to an extent of Rs.4,10,090/- were paid to payments on account of car and four wheeler hire charges without any deduction of tax at source as required u/s. 194C of the Act to following parties: (i) Achintya Mukherjee of Rs. 1,00,122/-, (ii) Obhinoy Maji of Rs. 68,530/-, (iii) Pradip Kumar Keshari of Rs. 70,375/-, (iv) Biswajit Bhattacharyya of Rs. 1,08,670/- (v) Somenath Banerjee of Rs. 62,393/- Rs. 4,10,090/-
The Assessee explained that the payees had issued their Permanent Account Numbers in compliance to s. 194C(6) of Act and no tax could be deducted on the entire sum of Rs. 4,10,090/- paid on that account. The AO was not satisfied with such explanation and added the said sum of Rs. 4,10,090/- to the total income of the assessee. The CIT-A dismissed the appeal of the Assessee for non prosecution.
Before us, the Ld.AR submits that the Assessee hired cars and four wheelers from the above said parties in pursuance of his business needs and all these payees submitted their Permanent Account Numbers as required u/s. 194C(6) of the Act for non- deduction of tax at source from the
3 ITA No. 1676/Kol/2016 Kali Kinkar Roy payments in respect of hire charges of cars and four wheelers and the assesse could not deduct tax at source from such payments. The AO being in wrong opinion disallowed impugned amount as the Permanent Account Numbers submitted by the payees were not filed With the appropriate authority as required U/Sec’s 194C(6) and s.194C(7) of the Act. The Ld.AR submitted that the assessee had provided the details of owners of such vehicles incorporating their names, addresses and amounts paid to and received by all of them which were duly Furnished to the AO as desired by him in course of the assessment proceedings and argued that no legal liability to deduct tax at source on the assessee. The Ld.AR pleaded that in view of their furnishing of their Permanent Account Numbers to the Assessee and the payment made to such parties does not fall within the scope of Sec 194C of the Act for deduction of tax at source and no addition U/Section 40(a)(ia) of the Act is maintainable. The Ld.AR argued that no disallowance is maintainable if the assessee complies with the provisions of Section 194C(6) of the Act and placed reliance on the order 09-09-2016 of Coordinate Bench of this Tribunal in ITA No. 1420/Kol/2015 in the case of Soma Rani Ghosh Vs. DCIT. On the other hand, the Ld.DR relied on the order of AO.
Heard rival submissions and perused the material available on record. It is an admitted fact that since all the payees submitted their Permanent Account Numbers in the assessment proceedings. The provision contemplated in Sec 194C(6) permits no deduction of TDS shall be made u/s. 194C(1) if the payee furnishes PAN to the payer. We find that the requirement of Section 194C(6) of the Act submission of Permanent Account Number which enable the payer from no deduction of TDS. The finding of the AO was that the Permanent Account Numbers furnished cannot be accepted as it was not filed with the appropriate authority as required u/s. 194C(7) of the Act and whether such failure attracts and invokes the jurisdiction under Section 40(a)(ia) of the Act. At this juncture, we may refer the order of Coordinate Bench of this Tribunal which held that provisions of section
4 ITA No. 1676/Kol/2016 Kali Kinkar Roy 194C(6) and section 194C(7) are independent to each other and can join together not be read together to attract the disallowance U/Section 40(a)(ia) of the Act. The relevant portion of which is reproduced hereunder:
v) Sections 194C(6) and Section 194C(7) are independent of each other, and cannot be read together to attract disallowance u/s. 40(a)(ia) read with Section 194C of the Act; and vi) if the assessee complies with the provisions of Section 194C(6), no disallowance u/s. 40(a)(ia) of the Act is permissible, even there is violation of the provisions of Section 194C(7) of the Act.
In the present issue as discussed the fact remains admitted the payees furnished PANs to the Assessee, but, the Assessee could not furnish the same to the prescribed authority within time and whether such failure attracts the addition and disallowance under section 40(a)(ia)of the Act, in our opinion there is violation of section 194C(7) and disallowance under section 40(a)(ia) does not arise as held by the Coordinate Bench supra, accordingly, the impugned addition made thereon shall go and thus, ground no’s 2 and 3 raised by the Assessee are allowed.
Ground no’s -3 and 4 are related to an addition of Rs.1,24,500/- made on account of GIFT treating the same as bogus expenses.
The AO found that the Assessee debited an amount of Rs.1,24,500/- and the AO asked the Assessee to explain the nexus between the gift of Rs.1,24,500/- in his accounts vis-a-vis his commission earning activities. In support of the same, the Assessee produced evidences of advance payments in respect of diary, calendar and pen etc.. from Uma Chabighar of Rs. 85,500/- and shirt and trouser from Shamsundar Bastralaya of Rs. 39,000/-. The AO on perusal of the books revealed that the credit entries were made under the head “Gift to customer” and found the submissions of the assessee are self contradictory to entries made in the books. The AO treated the same as bogus expenses and disallowed the amount of Rs.1,24,500/- and added to the total income of the Assessee. As discussed in aforementioned para that the CIT-A dismissed the appeal of the Assessee for non-prosecution.
5 ITA No. 1676/Kol/2016 Kali Kinkar Roy 12. Before us, the Ld.AR submits that the expenditure on gifts is a business strategy and the AO had not verified the veracity of evidences confirming the purchase of diary, calendar and pen etc.. from Uma Chabighar of Rs. 85,500/- and shirt and trouser from Shamsundar Bastralaya of Rs. 39,000/- filed along with written submission dt:17-12- 2012 which was discarded by him on the pretext of irrelevant document. The Ld.AR argued that the said confirmations obtained from " Uma Chabighar" and "Sham sundar Bastralay” proves the genuinity of the expenses incurred in that respect beyond doubt. The Ld.AR also pointed out that no disallowance could be made towards expenses when genuinity of the payments are not disputed. The Ld.AR submitted that it is a common feature of the expenses incurred in business activities in giving gifts in seeking prospects and accordingly offered gifts in the nature of diary, calendar and pen on some instances and shirt and trouser pieces to some. The Ld.AR argued that the gift to customers stand fully proved and were incurred wholly, necessarily and exclusively for the purpose of business and as such the expenditure claimed under head "Gift to Customers" was claimed rightly and is fully allowable u/s. 37(1) of the Act.
Heard rival submissions and perused the material evidence on record. In course of assessment proceedings the AO disallowed such sum on observing that the said payments were shown as credit entry in the books of Assessee and whereas on perusal of the documents as filed by the Assessee along with written submissions such sum was paid by the Assessee as advance, which according to him is a contradictory stand. It is an undisputed fact the Assessee has claimed a sum of Rs. 1,24,500/- on account of "Gift to Customers" in his Profit & Loss Accounts and it is evident from the books of accounts. It is observed from the assessment order in page no-4 and 5 wherein the AO discussed the details of payments made by the Assessee and it clearly shows the Assessee made piecemeal payments for purchase of Diary, Calendar, Pen from “Uma Chabighar' and shirt and trouser pieces
6 ITA No. 1676/Kol/2016 Kali Kinkar Roy from “Shamsundar Bastralaya" and treated said amounts as "credits" and in our opinion the Assessee correctly done so as the Assessee did not have received the items from the said two parties. The finding of the AO was that the payments should not have been treated as credits and should have been offset on receipt of items ordered. We find that assessee had shown the expenses on gifts in the books of accounts by directly debiting the expenses in the cash book and without routing the same through the concerned supplier account. We find that assessee has correctly debited in the Profit & Loss Account and since there is no dispute that the expenses under the head Gift to customer so incurred were incidental to business and could not be said that the expenses were disallowable, accordingly, ground no’s 3 and 4 raised in this regard are allowed.
In the result, the appeal of the assessee is allowed Order pronounced in the open Court on 31-01-2017
Sd/- Sd/- M. Balaganesh S.S.Viswanethra Ravi Accountant Member Judicial Member
Dated 31 - 01-2017 Copy of the order forwarded to: 1. Appellant/Assessee: Shri Kali Kinkar Roy C/o S.N Ghosh & Associates, Advocates, Seven Brothers’ Lodge, P.O Burhoshibtala, P.S Chinsurah, Dist Hooghly, Pin 712105 2 Respondent/Department : Income Tax Officer W 2(4), BWN, Aaykar Bhawan, Court Compound, Kachari Road, P.O Burdwan Sadar, P.S Burdwan, Dist Burdwan Pin 713101. 3. CIT, 4. CIT(A), 5. DR, Kolkata Benches, Kolkata **PP/SPS [ True Copy] By order, Asstt Registrar