ASST CIT 11(3)(1), MUMBAI vs. TRAIL BLAZER TOURS(INDIA) P.LTD, MUMBAI

This appeal, filed by the Revenue, being 22nd October 2014 passed by learned Commissioner of Income Tax (Appeals)- 18, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2011-12, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 20th February 2014 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

The brief facts of the case are that the assessee is engaged in the business of providing services relating to tours and travel. It was observed by the AO during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act that the assessee has made short deduction of tax deducted at source on rent to the tune of Rs.1,79,169/- as under:

Aggrieved by the assessment order dated 20.02.2014 passed by the AO u/s. 143(3) of the Act , the assessee filed first appeal with learned CIT(A) and contended that the AO calculated TDS on service tax component included in the rent and the details were furnished before the learned CIT(A). Further, it was submitted that w.r.t. Nitras Exports Private Limited, the party has given low deduction of tax at source certificate authorizing to deduct tax at source @2% instead of 10%. The assessee relied on CBDT circular no 4 dated 28-04- 2008 wherein the CBDT clarified that the service tax amount should be excluded while calculating TDS on rent as the service tax is collected to be paid to Government. In Remand Report also the AO submitted that there is short deduction of TDS on rental payments. The learned CIT(A) allowed the appeal of the assessee on this ground relying on CBDT circular no 4 dated 28-04-2008 that Tax is not to be deducted at source under Section 194I of the Act on service tax component and shall be deducted on rental component only vide appellate order dated 22-10-2014 passed by learned CIT(A).

Aggrieved by the appellate order dated 22-10-2014 passed by the learned CIT(A) , the Revenue is in appeal before the Tribunal wherein learned DR contended that additional evidences were filed by the assessee before the learned CIT(A) which were not filed before the AO in assessment proceedings nor in remand proceedings and hence learned CIT(A) erred in admitting additional evidences without forwarding the same to the AO in violation of Rule 46A of Income Tax Rules, 1962, while the learned AR relied on the orders of learned CIT(A) and submitted that the tax cannot be deducted at source u/s 194I of the Act on service tax component while it can be only deducted at rent component as per CBDT circular no 4 dated 28-04-2008. Further the learned counsel submitted that with respect to Nitras Exports Private Limited , the said party has submitted lower deduction TDS certificate issued by the Revenue to deduct TDS@ 2%instead of 10%. On being asked to produce the said certificate of lower deduction of TDS furnished by Nitras Exports Private Limited, the learned counsel for the assessee stated that the same shall be produced with copy to learned DR. It is the say of learned counsel for the assessee that the powers of the learned CIT(A) is co-terminus with powers of the AO.

We have heard the rival contentions and perused the material on record. We have observed that the assessee has paid rentals on which tax was deducted at source as per chart produced in preceding para’s. The assessee did not deducted tax at source u/s 194I of the Act on service tax component as per CBDT circular no 4 dated 28-04-2008 for which we are in agreement with the contentions of the learned counsel for the assessee which has also been upheld by the learned CIT(A). The Revenue is aggrieved in the instant appeal that the additional evidences being admitted by the learned CIT(A) in violation of Rule 46A of the Income Tax Rules, 1962 as the same were not forwarded by the learned CIT(A) to the AO for verification and hence these additional evidences were not evaluated by the learned AO in the assessment ITA 7774/Mum/2014 5 proceedings nor in the remand proceedings. Thus, for limited purposes of verification of the claim of the assessee that the service tax component was separately charged from the rent paid by the assessee and the assessee duly deducted tax at source on rent paid u/s 194I of the Act and it is only on service tax component , no tax was deducted at source u/s 194I of the Act,we are remanding the matter back to the file of the AO for limited verification as stipulated by us as above. Secondly, with respect to rent paid to Nitras Exports Private Limited, the assessee deducted TDS @2% instead of 10% as mandated u/s 194I of the Act. The assessee did not produce the lower deduction of tax at source certificate issued by the Revenue authorizing deduction of TDS @2% instead of 10% u/s. 194I of the Act before the Tribunal as stated during the course of hearing before the Bench by learned counsel for the assessee and hence we are remanding the matter back to the AO whereby the assessee shall produce the said certificate of lower deduction of tax at source before the AO for necessary verifications and examination. With the above stated directions, the ground no 1 is disposed off. We order accordingly.

The next effective ground raised by the Revenue is with respect to deletion by the learned CIT(A) of addition made by the AO with respect to difference in the income as reported in 26AS vis-a-vis with income as reported in the return of income filed with Revenue by admitting additional evidences without complying with the requirements of Rule 46A of Income Tax Rules, 1962 where in the said additional evidences were not filed before the AO during the assessment proceedings as well during the remand proceedings.

Aggrieved by the appellate order dated 22-10-2014 passed by learned CIT(A) , the Revenue is in appeal before the Tribunal and it is the say of the learned DR that the learned CIT(A)has admitted additional evidences filed by the assessee in appellate proceedings without sending the same to the AO for ITA 7774/Mum/2014 10 his comments as mandated under Rule 46A of Income Tax Rules, 1962 and hence the order of learned CIT(A) is not sustainable in law. It was submitted by learned DR that despite several reminders , the assessee did not come forward to give details before the AO to reconcile the difference between the amount reflected as commission income in Profit and Loss Account as per books of accounts vis-à-vis the amount of income as reflected in AS 26. The learned DR submitted that the matter be remanded to the AO for necessary verifications and examination. The learned counsel for the assessee relied upon the orders of the learned CIT(A). The learned counsel for the assessee drew our attentions to the paper book filed and submitted that reply was given whereby details of TDS as per form 26AS and bifurcation of TDS was furnished before the AO vide reply dated 14-02-2014(pb/page58). It was submitted that on 10-3-2014 i.e. after passing of an assessment order dated 20-02-2014 by the AO u/s. 143(3) of the Act , an rectification application was moved with the AO u/s 154 of the Act on 12-03-2014 which is placed at paper book / page 59-61,66-75 . The replies submitted before learned CIT(A) in appellate proceedings is also placed in paper book page 62-65. The remand report sent by the AO is placed in paper book 76-78. The replies submitted by the assessee before learned CIT(A) in response to the remand report of the AO is placed in paper book page 79-81. We have gone through all the relevant documents as mentioned above and placed in paper book and the submissions of both the rival parties including orders of the authorities below. The assessee did not filed complete details of gross commission income and discount allowed separately before the AO in assessment proceedings while only net figures of commission income were placed before the AO which were reflected in the books of accounts as net commission income earned by the assessee while the form no 26AS reflected the gross commission income and hence mismatch of Rs.1,36,03,915/- being discount allowed by the assessee out of commission income. This claim of ITA 7774/Mum/2014 11 discount of Rs.1,36,03,915/- was never verified and examined by the AO during the assessment proceedings as only the net commission income figures were there before the AO as were reflected in Profit and Loss account of the assessee as per books of accounts , and the gross commission income figures were there before the AO during assessment proceedings as were reflected in AS 26 , which difference of Rs.1,36,03,915/- was thereby added to the income of the assessee by the AO as simplicitor difference in the income as per books of accounts vis-à-vis income as reflected in form no AS 26 , without examining and verifying the claim of deduction claimed by the assessee of discount allowed of Rs.1,36,03,915/- out of gross commission income as the said facts of having allowed discount out of gross commission were never before the AO. The assessee raised this issue in proceedings u/s 154 of the Act filed on 12-03-2014 anterior to framing of impugned assessment order dated 20-02-2014 u/s 143(3) of the Act, which disclosure of details in proceedings u/s 154 of the Act is irrelevant to the appellate proceedings arising from the assessment order u/s 143(3) of the Act. The assessee submitted replies before the learned CIT(A) in appellate proceedings whereby it explained the difference between the gross commission income and net commission income and that being discount allowed by the assessee of Rs.136,03,915/- out of gross commission income. It is the say of the learned DR that additional evidences submitted by the assessee were never forwarded by the learned CIT(A) to the AO which is in violation of Rule 46A of the Income Tax Rules , 1962 and the assessee did not submit details to reconcile the difference of receipts in books of account vis-à-vis with receipts as reflected in form no 26AS. We are of considered view that the interest of justice will be best served if the issue is set aside and restored to the file of the AO for de- novo adjudication of the matter on merits with respect to the addition of Rs.1,74,09,425 made by the AO on account of difference in the receipts as reported in books of accounts vis-à-vis receipts as reported in Form No 26AS inter-alia, including the examination and verification of the claim of discount ITA 7774/Mum/2014 12 given by the assessee of Rs.1,36,03,915/- out of gross commission income. Needless to say proper and sufficient opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. The assessee will be allowed by the AO to produce all necessary and relevant evidences and explanations to support its contentions . The assessee is directed to co-operate with Revenue in set aside proceedings. We order accordingly.

In the result, appeal filed by the assessee in 2011-12 is allowed as indicated above.