M/S D. D. INFOTECH,KOLKATA vs. INCOME TAX OFFICER -WARD 50(1), KOLKATA, KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM:

Ground No.1: By this combined ground, the assessee challenges the disallowance/addition of Rs.71,587/-, Rs.7,15,000/- and Rs.10,70,926/- being difference in TDS amounts, fresh introduction of capital by one of the partner and commission payment respectively. The assessee has claimed that though M/s. Forbes Infotainment Ltd. issued commission payment of Rs.14,96,531/-, the company had issued debit notes for Rs.23,190/- & Rs.48,397/- on 07.02.2007 & 10.01.07 totalling Rs.71,587/- and accordingly the commission was less declared by the assessee. The assessee filed the debit notes during the appellate proceedings and these were also forwarded to the A.O. for comments. As the A.O. has also not objected to these facts, the addition of Rs.71,587/- is deleted. The next addition is the addition of Rs.7,15,000/- made on account of introduction of fresh capital by Mr. Dibyendu Dutta, a partner. The assessee has claimed that it is in the business of online lottery (Lotto) and it was required to pay a security deposit to M/s. Forbes Infotainment Ltd. It was claimed that since on 02.05.2006 the Firm had no bank. account, a payment of Rs.7,04,450/- was made by Sri Dibyendu Dutta from his own bank account No.01600/050512 with the State Bank of India, Barasat Branch. A further sum of Rs.12.550/- was declared spent by him in cash from his proprietary business M/s. Akash Enterprise for the purposes of the Firm. In the remand report the A.O. has not questioned the submission of the assessee and the A.O. also has not made any verification as he was supposed to. The A.O. has wrongly relied on certain non- speaking documents eg. a copy of a bank statement which does not mention any customer`s name. No verification was done by the A.O. regarding the immediate sources of the funds, no verification was done from the M/s. Forbes Infotainment Ltd. and the books of the assessee or of the Partner also were not verified. The A.O. has further relied on a letter dated nil addressed to the A.O. wherein Sri Dibyendu Dutta merely mentions that the above payment were made by him from his bank account of his proprietary business M/s. Akash Enterprises. The firm`s bank account no. was given in the letter and the Final Accounts of M/s. Akash Enterprises was also filed. However, it is noted that the Balance Sheet of M/s. Akash

Enterprise does not mention SB A/c. No.011600/050512. The Balance Sheet mention the account number as SB alc. NO.11217060779 & 01660/062338. Further the Balance Sheet of M/s. Akash Enterprise does not declare any substantial drawings from the capital account of Sri Dibyendu Dutta. The total drawing declared is only Rs.60.000/-. Also the personal Balance Sheet of Sri Dibyendu Dutta was not filed. [It is also seen that a Business Investment of Rs.8.14.605/- is declared on the asset aside of the Balance sheet of M/s. Akash Enterprise but it is not considered since the investment in the firm M/s. D.D. lnfotech is not made in the name of M/s. Akash Enterprise]. As the A/R has also not filed any evidence before the undersigned ( the bank alc., the papers of M/s. Akash Enterprise were filed only before the A.O.)., the addition of Rs.7,15,000/- is confirmed on the ground that the assessee has not been able to discharge the onus of proving the capacity of the creditor and the genuineness of the transactions.

As regards the payment of commission of Rs.10,30,926/-, the assessee had not made any submission before the A.O. However. during the appellate proceedings the assessee claimed for the first time that the commission was paid to staff of the assessee. The assessee has claimed that all the staff are engaged for the purpose of selling lotto machine to the retailers for and on belief of the firm/appellant and the firm/appellant earned commission from the company on the basis of sales activity. However, before the A.O., during the remand proceedings, the 'staff’ who attended claimed that they distributed maximum amount of the received commission among the retailers and operators for the purpose of selling of lotto machines. But neither in the assessment proceedings, nor in the appellate proceeding and also not even during the remand proceedings the assessee or its 'staff gave any details of the sales effected partywise by each employee who had received the commission. Further they have not given any details of the parties to whom they supposedly passed over the commission to. The business of online lottery of M/s. Forbes Infotainment Ltd worked on installation of lottery terminals where the ordinary people can play the lottery. In this business the retailers & distributor place a deposit with the company against the terminal installed, which was returned back by M/s. Forbes Infotainment Ltd. in exchange for the terminals when M/s. Forbes Infotainment shut shop. Therefore, it is not clear why the assessee is required to pay commission for "Sales". (The retailers were earning a commission on the lottery played through the lotto machines installed in their premises and they certainly do not require to be paid.) Thus in the absence of the compelling need and evidence it is held that the commission has not been paid to the employees and the explanation is only a ploy to reduce taxable income. By this method the assessee had incurred expenditure of Rs. 1 0,30,926/- against total commission receipts of Rs.14.24.944/- The business model of M/s. Forbes lnfotainment Ltd. is to allow the distributors and retailiers to earn commission based on the amount 4 D.D.Infotech of lottery played on the lottery machines distributed and installed on the premises respectively. In addition to the general arguments above, the case presents some serious problem. There is no reliability of the replies of the assessee during the appellate as well as during the remand proceedings. Here it is necessary to mention that the auditor of the assessee M/s. Das & Associates had filed an explanation regarding the discrepancy on Audit Report for F.Y.2007-08 corresponding to A.Y. 2008-09 dated 17.10.2009. The same is extracted as below: "I have received an query from Sri Dibyendu Dutta. Partner of M/s. D.D. Infotech of K N C. Road, Barasat, Northh-24 Parganas. Kolkata-700 1124 being PAN NO.AAFFD9070L on 10-10-2009 regarding explanation of commission paid to staff. I have carefully examined the books of accounts and copy of final accounts along with P & L A/c. As per ledger of the assessee in page no.26 and page no.27 it is clear that the assessee paid a sum of Rs.42.000/- towards salary to 5(five) staff namely (a) Ajoy Kumar Mondal. (h) Anup Kumar Dutta. Cc) Chandan Saha (d) Sankar Chowdhury. (e) Gurpreet Singh. It is explained that I have made an audit report during the paid in respect of the assessee firm on 19-09-2008 of which commission paid has shown a sum of Rs.9.28.440.00 in place of Rs.8,86,440.00. Actually my staff Sri Narendra Nath Das was committed a mistake in typing while the actual head in profit & loss ale should be commission & salary paid of Rs 9,28,440.00 in place of wrongly typing as commission paid of Rs. 9,28,440.

1). For the fact and circumstances, the CIT (Appeals) failed to consider the remand report of the AO which he gathered from the enquiry made by him during the course of hearing. He confirmed the order of the AO on the ground of addition made by him for introduced capital of a partner amounting to Rs. 7,15,000/- which may be deleted.

5 D.D.Infotech 2). For the fact and circumstances, the CIT Appeals failed to consider a sum of Rs. 10,36,926/- on account of non deduction of TDS from the commission payment to others. But it is not a fact that the commission payment made to others, it was paid to the staff of the appellant only which may be deleted. 3). And your petitioner craves leaves, to amend, alter, rectify etc. the grounds of appeal on or before hearing.

Submission for ground No. 1 ( ITA 30/Kol/2014) a) it is submitted by your appellant that the assessing officer added a sum of Rs. 7,15,000/- on account of a partner Sri Dibyendu Dutta as unexplained u/s 68. It is also submitted by the appellant that the CIT (Al asked the assessing officer to produce remand report in this matter. The Assessing Officer called for clarification of the assessee with regard to the submission in the appeal. During the course of hearing before the Assessing Officer, the assessee/appellant produced all relevant documents, such as bank statement, audit report of his personal business namely "Akash Enterprise" etc. and on perusal of all the documents the Assessing Officer has been satisfied that the introduction capital of Rs.7,15,000/- is not unexplained. But, the CIT (A) did not consider the remand report of the Assessing Officer on the ground that the bank account of which cheque was issued to the appellant firm as introduction of capital of said Sri Dibyendu Dutta, partner of the appellant firm is not shown in the balance sheet of AKASH ENTERPRISE, and, said partner Sri Dibyendu Dutta did not withdraw said sum from his business. As such he confirm the assessment order of the A.O. Your appellant beg to submit that in the remand report the Assessing Officer rightly observed that the partner of the appellant firm Sri Dibyendu Dutta introduced his capital of Rs.7,15,000/= into the firm from his own fund which collaborated his bank account as well as the audit report of the said AKASH ENTERPRISE and also it was already shown in his own audit report at the assessts side of Balance Sheet, so question of withdrawal of said amount is not permissible under accounts system, assessee already made declaration before the income tax department regarding his investment and also the said bank account is not the business account, and thus, it cannot be said that as unexplained with the provision of section 68.

Submission for ground No. 2 ,of ITA 30/Kol/2014 and ground No. 1 of ITA 31/Kol/2014) b).the Assessing Officer added a sum of Rs.10,30,926/- on account of non-deduction of TDS while making the payment on account of Commission. The appellant submits before the CIT (A) that the said commission paid to his staff and thus it was not attracted section 40(a)(ia) of the Income Tax Act. In the remand report, the Assessing Officer observed that as the assessee failed to produced books of accounts, salary register etc. before the assessing officer during the course of hearing u/s 143(2), he made this addition. But, during the hearing under remand report, assessee produced all books of accounts, documents, salary register before the assessing officer in response to remand report sent by the CIT (A). Accordingly, the Assessing Officer sent notice u/s 131 to the said five staff of the assessee by post to their residential address for their personal appearance with documents. Four of the staff out of five staff appeared before the A.O. along with their voters ID and bank account and they all admitted that they received salary very nominal amount and they received commission on their sale as their designation as "Sales Representatives". On considering and being satisfaction of their identity with the documentary evidence such as books of accounts, vouchers, bank account, voter's id, etc. and on considering the oral submission and acceptance of said four staff of the appellant the Assessing Officer rightly observed that the commission paid to the staff of the appellant.

But, without considering the remand report as well as all the documentary evidence, oral submission and merit of the case, as well as said four staff that were appeared before the A.O. in response to a notice issued u/s 131 of the Act, the CIT (A) did not consider the actual fact and merit of the case on the ground that the assessee submitted two separate set of list of the staff. Regarding the matter he failed to peruse the record properly as then authorized Advocate Sri Partha Pratim Chakraborty of the assessee already submitted an affidavit stating inter-alia that he produced a wrong list of the staff as necessary documents were unavailable to him on that time during the course of hearing u/s 143(2). The CIT (A) has no jurisdiction to turn down a declaration made by an Advocate by way of affidavit until or unless it is proved to be ingenuine.

Your appellant begs to submit that the CIT (A) acted beyond his jurisdiction. He failed to maintain the statute mandatorily required. The CIT (A) while deciding the appeal to set out the issue for determination and the decision thereof along with reasons for arriving at the decision. Without findings any adverse findings or merit of the case, he cannot be disbelief the remand report of the Assessing Officer who sent the remand report after properly and fully verified in accordance of law. In this regard the 7 D.D.Infotech decision of ITAT, Delhi in the case of "Wood house Developers Ltd., Vs. Department of Income Tax, being ITA No. 1982/DeI/2011 may be considered. It is submitted by the appellant that in the case of M.M. Muthuwappa vs. The Commissioner of Income Tax, Hon'ble Madras High Court was rightly observed, "The order of remand made by the Appellate Assistant Commissioner is solely based on the ground that a further opportunity should be given to the assesses to produce their books of account." In this case, the CIT (A) ignored that as the assesse unable to produce books of accounts and documents before the Assessing Officer, he already denied the proper and positive opportunity of being heard. But while, the CIT (A) order remands report from the Assessing Officer after verify the books of accounts and documents in respect of the grounds of appeal of the appellant. After thoroughly verify the books of accounts and documents as well as personal appearance of the staff of the appellant in respect of notice u/s 131, the Assessing Officer made a remand report which was sent to the CIT (A) in due time. But, the CIT(A) ignoring the statute of the Income Tax Laws, disbelief the observation of the Assessing Officer which he gathered from the evidence and records of the case and pass an erroneous order according to his own self made findings without follow the actual merit of the case. In the case of, "lTAT, Delhi, "D" Bench, being ITA No. 3874/Del/2010, the Hon'ble Bench has observed as follows: "The evidence and information is forwarded by CIT(A) to AO. The income tax act contemplates that the AO being entrusted with the job of assessment will verify the information from department record, summoning third parties and examining the evidence. If further time is needed it would have been allowed by CIT(A), in this case no such request for time has been made by AO. The CIT(A) should have summoned the witnesses and conducted further enquiries." In this case CIT(A) neither enquired the matter nor tried to gathered any evidence from the record, merit, deposition, documents, and departmental record etc. Thus, it is said that the order of the CIT (A) does not confrontation of the records, documents and merit of the case and thus, it may be deleted and or set aside.

8. On the other hand, ld. DR for the Revenue has vehemently submitted that ld. CIT(A) has passed a reasoned order. The assessee under consideration has failed to prove the capacity of the creditors and genuineness of the transfer of money without deducting tax at source.

The dispute under consideration is that the assessee has paid commission to its staff in addition to their normal salary. The assessee has not deducted any tax at source. Ld. DR also submitted that neither in assessee or its staff gave any details of the sales effected party-wise by each employee, who have received the commission. The business of online lottery of M/s Forbes Infotainment Ltd. worked on installation of lottery terminals where the ordinary people can play the lottery. In this business the retailers and distributor place a deposit with the company against the terminal installed, which was returned back by M/s Forbes Infotainment Ltd. in exchange for the terminals when M/s Forbes Infotainment Shut shop. Therefore, it is not clear why the assessee is required to pay commission for “Sales”. Ld. DR also pointed out that the name of employees also different and it is not certain to whom they have provided their services.

On considering and being satisfied of their identity with the documentary evidence such as books of accounts, vouchers, bank accounts, voter ID etc. and on considering the oral submissions and acceptance of sale for the staff of the assessee, the AO has rightly observed that commission was paid to the staff of the assessee. Ld. AR also submitted that the remand report prepared by the AO after giving further opportunity of being heard to the assessee and after verification of all returns and witnesses and there is no infirmity in the remand report, therefore, ld. CIT(A) must accept it. The remand report was prepared by the AO after thoroughly verification of books of accounts, documents as well as personal appearances of the staff of the assessee in respect of notice u/s.131 of the I.T.Act. But the ld. CIT(A) disbelieved in the remand report of the AO and passed the erroneous order. In addition to this, ld. AR for the assessee relied on the following judgments :- i) Woodhouse Developers Ltd., dated 26-10-2012; ii) M.M.Muthuwappa Vs. CIT, [1962] 46 ITR 1107 (Madras) iii) Jitender Gupta, ITA No.3874/Del/2010, order dated 16-12- 2011.

10 D.D.Infotech The sum and substance of the case referred by the ld. AR for the assessee are same, as he has submitted in his explanation before us. Considering the above cited facts and circumstances of the case and the case laws cited by ld. AR of the assessee, we direct the ld. CIT(A) to delete the addition. 11. In the result, both appeals filed by the assessee (i.e. ITA Nos.30 &31/Kol/2014) are allowed. Order pronounced in the open court on this 28/10/2016.