ITO 17(1)(4), MUMBAI vs. ANAGHA P. SAWANT, MUMBAI

O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the revenue against the order of CIT(A), Mumbai, for the assessment year 2008-09, in the matter of order passed u/s.143(3) of the I.T.Act on the following grounds :-

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A. 0. to not to disturb the method of accounting and delete the addition of Rs. 53,26,762/- made on account of difference between the Gross Receipts as per Form 16A and Gross receipt as per P&L account

3. "On the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in giving relief of Rs. 53,26,762/- without appreciating the fact that AO correctly made addition to the assessee's total income on account difference between the Gross Receipts as per Form 16A and Gross receipt as per P&L account on mercantile method of accounting which is followed by assessee and reported in TAR"

2. Rival contentions have been heard and record perused. Facts in brief are the assessee, a proprietor of a concern named M/s Vaishnavi Industrial Services, is a labour contractor providing labour to two companies namely, M/s Century Textile Mills and M/s Anandji Haridas & Co. During the course of scrutiny assessment the AO made addition of Rs.53,26,762/- on account of difference between the gross receipts as per Form No.16A and gross receipts as per P&L account. By the impugned order, CIT(A) deleted the addition after observing as under :- “2.6 A perusal of the above reveals that labour charge of Rs.32,21,205/- and the productivity allowance of Rs16,50,325/- received from the above two companies, were in fact paid back. The total of these two works out to Rs 48,71,530/-. This is the reason why these two figures were not shown in the P&L A/c (filed along with the return of income) in the credit side and they were also not shown in the payment side i.e on the debit side. Thus the payments received and the payments made towards labour charges and productivity allowance are only contra entries. 2.7 In support of this the appellant submitted copies of invoice raised, payments received, copies bank account and ledger extracts to prove that the entire transaction is properly accounted. The appellant has also filed the copy of Tax Audit Report before the Assessing Officer. 2.8 The appellant has also filed Income & Expenditure Alc which is available in Exhibit -3 of the paper book. As per the p/l account submitted along with the return of income the assessee has shown 19,79,693 towards service charges received and the service tax collected. The break up of the same is available in this exhibit. The details are as follows: Service Charge Service Tax Total The amount collected from 7,42,816 4,06,551 11,49,367 M/s Anandji & co The amount collected from 3,22,217 5,08,103 8,30,320 M/s Century Textile Mills & Industries ltd. 19,79,697 2.9 The above income admitted by the appellant includes the income out of labour charges received and paid on Rs.48,71,530/- which did not go through the p/l account. This clearly reveals that the assessee has admitted income on these receipts and ultimately the profit earned out this has been offered to tax. 2.10 It is a fact that TDS has been deducted on this gross amount of Rs 48,71,530/-. Though TDS was deducted, the entries being a· 3 contra entry was not shown by the appellant in its P&L Alc. What emerges out of the above discussion is that the appellant has admitted profit on both the wages as well as labour charges. 2.11 In this regard it is relevant to point out the decision of ITAT Ahmadabad in the case of M/s Hans road carriers P. Ltd in ITA No.1792/Ahd/2007. The facts in this case are that the appellant was engaged in the business of providing transportation services and getting commission on arranging the trucks on hire. During the assessment year 2004-05, the Assessing Officer made an addition of Rs 33,80,680/- being the difference in truck hire charges shown in the TDS certificate Rs 34,24,868/- and the receipts shown in the P&L Account Rs.44,000/-. The addition was deleted by the CIT(A). The department was in appeal before ITAT which was dismissed. The finding of Hon’ble ITAT in para-5 is as follows : “We have heard both the sides at some length and also carefully peruse the orders of the authorities below in the light of a short compilation filed and the case law cited. The short legal issue before us is that whether the receipts shown as per the TDS certificate is the income of the assessee to be taxed wholly without any adjustments. To answer this legal question, we have examined the nature of business activity of the assessee and it was found that the assessee-company is carrying on transportation business. Broadly speaking two types of business activity being carried out by the assessee, one, supply of its own trucks on hire for transportation of goods and the hire charges are credited in the books, second, trucks are arranged for the customers on commission basis end the payments were being made directly by the customer to the truck-owners and the assessee only obtained commission. It was explained to Revenue Authorities that though as per the TDS Certificate, the amount mentioned was Rs.34,24,868/- on which TDS of Rs.35,482/- was deducted but on those transactions the assessee had received only commission of Rs.500/- per truck. Therefore, the facts have revealed that the TDS was deducted on the whole amount of freight on trucks supplied through assessee but said amount had an over-riding right of the Truck-owners therefore directly diverted to their respective accounts. On careful examination of the statutory provisions to answer this legal question, it is evident that the deduction of tax at source is not a levy of tax unless and until it is followed by an assessment order making a charge of tax. Even this is also a settled position that the deduction of tax at source in no way expressly indicates that ipso facto the assessee is entitled for the refund or adjustment of tax of the TDS amount against the income mentioned therein. The deduction of tax is not a levy of tax. Deduction of tax at source is merely one of the mode of collection of tax. The amount on which TDS is deducted is subject to charge as per the provisions of the Act. There are few instances which can further elaborate this view. For example, the recipient maintains account on cash basis which may not match with the amounts certified in the TDS Certificate due to the reason that the deductor 4 has maintained the account on mercantile basis. Naturally the deductor will deduct the tax on accrual basis, however, the recipient shall disclose the income on receipt basis. In this situation, there shell always be a mismatch between the amount of receipt as per TDS Certificate and the taxable income offered by the assessee. Due to this reason, the statute has clarified that it is not necessary that the receipts on which tax was deducted as per TDS Certificate should be offered to tax in the same assessment year as per the dotes mentioned in the TDS Certificate. This is one of the few examples, however, one more example can also be cited. There can be an instance that the TDS was deducted on the income which may not be subject to tax at all, such as, eligible for deduction u/s.10A, etc. So the deduction of tax on an income does not ipso facto declare that the amount referred in the TDS certificate is subject to tax on the whole figure that too on the same year mentioned in the certificate. An observation at this stage can be made that the provisions relating to Tax Deduction at Source are not the provisions for the computation of income. An income of a taxpayer is not required to be computed merely with reference to the TDS Certificate but assessment of an income is altogether an independent exercise. With this understanding of law if we compare the facts of the case, and then it is evident that the amount which was certified on the TDS Certificate could or could not have been subject to tax in the hands of the assessee recipient. The deductor had chosen a safe procedure of deduction of tax on the entire amount of freight. Otherwise the freight was to be paid to the truck owners and not to the assessee-company, who is only a conduit in arranging the hiring of the trucks. The freight was to be passed on to the trucks owners, therefore, the freight was not subject to tax in the hands of the assessee. Nevertheless, accounts of the assessee have also demonstrated the same. With the result, the amount on which the TDS was deducted had not matched with the figures of the income disclosed by the assessee in respect of those transactions. Such a business transaction can be dealt with in two ways; i.e. either to be treated as the receipts with overriding liability or secondly that the freight receipts were subject to the expenditure of freight charges to be paid to the truck owners. On appreciation of the facts, the transaction in question had fallen in first category. In view of the above observation the ground of the Revenue has no legal stand, therefore, deserves to be rejected. Additionally, a decision of this coordinate Bench has also been cited in the case of Shushiladevi Anilkumar Singhal reported as (2008) 10 DTR (Ahd)(Trib) 558; relevant portion is reproduced below:- •... In our considered opinion, the provisions of deduction of TDS have been brought in the statute to facilitate the collection of tax. It is not the intention of the legislature that the credit for a portion of TDS deducted and paid is never granted. In the instant case, it is admitted by the Revenue that the amount. of the TDS covered by TDS certificates in question could not be granted to truck operators/owners as the relevant TDS certificates stand in the name of the assessee and not in their name. Thus, credit against 5 the above TDS can be granted to the assessee alone. Further, the said TDS relates to the business transactions of the assessee of the year under appeal and the assessee has duly disclosed her income relating to the transactions represented by the said certificates fort the year under appeal. There is no material on record to show that the amount of TDS was not deducted form the assessee and it was borne by somebody else. The only dispute is that the assessee instead of showing receipt of full freight and then showing the freight paid to truck operators/owners, has shown only the difference between the aforesaid two amounts as here income as because the payments of freight were directly collected by the truck drivers. In our considered opinion, this is simply a matter of presentation of accounts and merely for not presenting in the accounts, the amount of the gross freight and then freight paid to truck operator/owner separately, the claim of TDS cannot be denied to the assessee ... " The view expressed by the Respected Co-ordinate Bench also buttress our humble understanding of law, as also supports the reasons assigned hereinabove, hence resultantly we find no force in the ground of the Revenue, therefore, hereby dismissed. " 2.12 A similar issue was decided by Appellate Tribunal of Cuttack Bench in the case of M/s. R.R. Carrying Corporation Vs. ACIT reported in 126 TTJ 240. It was held by the Hon'ble Bench that only the embedded portion of the profit is to be considered as taxable and not the entire amount in the case of discrepancies between the sale or receipt amount as per books of accounts and the amounts shown in the TDS certificate for taxability purposes. Accordingly, the Tribunal has directed the Assessing Officer to adopt GP rate declared by the tax payer for the assessment year under consideration and compute the addition. 2.13 The facts in the appellant's case is identical to that of the above mentioned cases. what needs to be taxed is only the income element and not the gross receipt. As mentioned above, what was received by the appellant has been totally paid and they were only contra entries. In spite of the reconciliation statement filed, clearly explaining the discrepancy, the AO has added the gross receipts to the total income. The appellant has duly disclosed the income related to the transaction above as mentioned earlier in this order. The fact that the receipts and payments have not been brought through the P&L account has not affected in any way the income and the profit out of the above transaction. It is only a simple matter of presentation of accounts. Having admitted the income on these transaction in the form of service charges for rendering the services, the Assessing Officer has no justification in adding the gross amount as income of the appellant. As mentioned above, all relevant documents in support of the assessee contention had been filed before the AO. It is within the knowledge of the AO that all these have been duly accounted in the books of account. 2.14 it is also to be noted that the Assessing Officer has never questioned the genuineness of the labour payments. As per the 6 concept of real income what needs to be taxed is the actual income accrued to the appellant and not hypothetical income. In this case, the gross receipts as per the TDS certificate, added as income by the Assessing Officer is not a real income accrued to the appellant. To summarize:

1. 1. Against the bills raised by the appellant, the above mentioned companies made payments by cheque which got deposited into assessee's bank account and subsequently paid in to-to towards wages & labour charges.

2. Due entries made in the books of accounts 3. Tax Audit Report has been finalized and there is no adverse finding on this aspect. 4. trading account showing contra entries and re-conciliation statement were submitted before the AO 5. The profit element on the services rendered have been admitted. 2.15 Assessing Officer has never doubted the genuineness of the labour payments. As per the concept of real income, what needs to be taxed is only the income element and not the gross. 2.16 In view of the above discussion, I am inclined to agree with the view taken by the AO; the addition made is hereby deleted. The appellant gets relief to the extent of Rs 48,71,530/-. 2.17 Out of the addition made by the AO of Rs.53,26,762 relief to the extent of Rs.48,71,530/- is granted as per the above discussion and the balance difference works out to Rs 4,11,424/-. (Rs 53,26,762 - Rs 48,71,5301-). This is exactly the difference between the receipt as per the TDS certificate Rs1,54,52,467/- and the gross receipt admitted by the appellant Rs1,50,41 ,403/- as per the "Income & Expenditure A/c. statement (Rs 1,54,52,467 - Rs1,50,41,403 = Rs 4,11,424/-). In respect of this also, the reconciliation was filed before the Assessing Officer. Exhibit -4 of the paper books explains this difference which is as under: Statement showing reconciliation between Gross income accounted in books of accounts and TDS certificate. Total Gross as per accounts 1,50,41,043.00 Less: Difference in bills -- Bonus (6.00) November 2007 (7,12,781.00) January 2008 (1.00) Less:Bills of March 2007 accounted (3,81,753) Add: Bills of March 2008 accounted in 3,92,498.00 subsequent year Add: Advanced received against March 2008 bill 9,00,00.00 Add:Bills for March 2008 less advanced Account in subsequent year 2,14,277.00 1,54,52,457 7 The above reconciliation filed by the appellant is self explanatory and the difference has been explained. However it is relevant to point out the submission of the appellant made before the AO on 24/12/2010 at this juncture. Para 8 of the submission is as under: "Method of accounting : The method of accounting is mercantile as reported in TAR. The wages of every month become due and payable on 7th of next months. E.g. March 2007 wages are payable to the works on 7th of April 2007 and the bill is raised on 5th to 7th of April, amount received and paid to the workers. Thus, the wages of March 2008 are due only on 7th of April 2008 and they do not become receivable and payable in March 2008. Your contention that March 2008 wages receivable should be shown as receivable is not correct for two reasons. Firstly if the wages receivable are shown then wages payable will also will have to be shown. In the accounts, both wages receivable and payable for March 2008 are not shown. In the accounts both wages receivable and payable for March 2008 are not shown. Secondly is March 2008 wages are shown then March 2007 wages will have to be deducted. Thus the method of accounting adopted. by the concern does not require any adjustment. The passing remark made by the AO in this regard appears in page 2 of the assessment order and the same is reproduced below: "As per the reconciliation given by the authorised representative of the assessee it is mentioned that 'the assessee has not included the payment received from M/s. Century Textile Mills of Rs.9,00,000/- and M/s. Anandji Haridas & Co. of Rs. 3, 92,498/- as they are shown in the next year. 2.18 The submission of the appellant makes it clear that the appellant has been consistently raising the bills for the month of March, on 5th to 7th of April of the subsequent F.Y and the same is accounted in the next FY. This method has been consistently followed by the assessee. The AO is directed not to disturb the same. The reconciliation statement also makes it clear that Rs 9,00,000 is only an advance and Rs 3,92498 is march bill accounted in the subsequent year. Since the difference has been clearly explained the addition of Rs.4,11,234/- made by the AO is deleted. The appeal of the appellant is allowed. The appellant gets relief of RS.53,26,762/- (48,71,530 +.4, 11,424) 3. We have considered rival contentions and gone through the orders of authorities below and found that due to difference in freight charges disclosed by the assessee in its return of income vis-à-vis TDS Certificate, 8 addition was made by AO. The AO found that assessee had shown labour charges levied of Rs.1,01,25,705/- whereas TDS Certificate shows total receipt of Rs.1,54,52,467/-. Therefore, the difference was added by the AO in assessee’s income. The CIT(A) accepted assessee’s contention that this receipt was not disclosed in the return, because the exact amount was spent by the assessee and no profit was earned on this receipt. We do not find any merit in this observation of CIT(A) insofar as even if the assessee had incurred expenditure equal to the amount of receipt, both receipt and expenditure are required to be shown in the audited profit and loss account as income and expenditure respectively along with supporting evidence of expenditure so incurred for earning the concerned revenue. Accordingly, the addition deleted by the CIT(A) amounting to Rs.48,71,530/- has no legs to stand. In the interest of justice, we restore this matter to the file of AO for deciding afresh after verifying assessee’s contention that it has incurred equal amount of expenditure with regard to labour charges received so as to reach to the conclusion that no income has been generated out of it. The AO is also directed to verify whether in the audited P&L account the assessee has included both income and expenditure and to decide the issue afresh.

4. The amount of Rs.4,11,234/- was deleted by CIT(A) on the plea that this income pertains to the bills raised by the assessee in the month of March, which has been taken by the assessee as its income in its account in the month of April, 2008. However, nothing was placed on record by the assessee to justify CIT(A)’s conclusion that this income was accounted for 9 ITA No.3241/12 in the next financial year. In the interest of justice, we restore this amount of Rs.4,11,234/- to the file of AO to verify as to whether the assessee has accounted for this income in the subsequent year, so as to justify its of not including the same in the year under consideration.

Sd/- Sd/- (AMIT SHUKLA) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 27/04/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. आदेशाि सार/ BY सत्मावऩत प्रनत //True Copy// ORDER,