SRI. ANIL KUMAR JOSEPH,BANGALORE vs. DCIT, BANGALORE

Appellant By : Shri V. Srinivasan, C.A. Respondent By : Shri N. Balakrishnan, JCIT (D.R) Date of Hearing : 26.5.2015. Date of Pronouncement : 3.7.2015. O R D E R Per Shri Jason P. Boaz, A.M. : These are cross appeals by the assessee and Revenue, directed against the order of the Commissioner of Income Tax (Appeals), LTU, Bangalore dt.16.4.2014 for Assessment Year 2008-09. 2. The facts of the case, briefly, are as under :-

2 & 1036/Bang/2014 2.1 The assessee is an individual engaged in the business of acting as collection agents for banks for the recovery of their debts, considered as bad and doubtful debts, which have become non-performing assets. The assessee filed his return of income for Assessment Year 2008-09 on 3.11.2008 declaring income of Rs.14,36,988. The return was processed under Section 143(1) of the Income Tax Act, 1961 (herein after referred to as 'the Act') and the case was subsequently taken up for scrutiny. In the course of assessment proceedings, the Assessing Officer noticed that while in the profit and loss account the assessee had claimed expenditure of Rs.55,30,572 as ‘Collection Commission’, but on verification of the books of account, it was seen that the assessee had debited a sum of only Rs.42,83,604. Since the expenses as per books of account was Rs.42,83,604 as against the assessee's claim of Rs.55,30,572, the difference of Rs.12,46,968 was disallowed on account of excess claim of expenditure. Similarly the Assessing Officer on examination of the assessee's claim of expenditure on account of ‘sales commission’ found that as against expenditure of Rs.40,42,000 claimed in the assessee's profit and loss account, the amount debited in the books of account was Rs.36,76,400 and therefore the excess expenditure claimed i.e. of Rs.3,66,000 was disallowed. Apart from this, the Assessing Officer invoked the provisions of Section 40(a)(ia) of the Act and proceeded to disallow Rs.30,62,689 in respect of ‘collection commission’ and disallowance of Rs.35,75,500 in respect of ‘sales commission’ for failure to deduct tax at source thereon. Thus, the Assessing Officer completed the order of assessment for Assessment Year 2008-09 under Section 143(3) of the Act vide order dt.20.12.2010 determining the income 3 ITA Nos.845 & 1036/Bang/2014 of the assessee at Rs.96,88,145 as against the returned income ofRs.14,36,988 in view of the following additions/disallowances :- i) Excess claim of collection commission : Rs.12,46,968. ii) Excess claim of sales commission : Rs.3,66,000. iii) Disallowance u/s. 40(a)(ia) : Rs.66,38,189.

2.2 Aggrieved by the order of assessment dt.20.12.2010 for Assessment Year 2008- 09, the assessee preferred an appeal before the CIT (Appeals), LTU, Bangalore. The learned CIT(A) disposed off the assessee's appeal vide order dt.16.4.2014 allowing the assessee partial relief. The learned CIT(A) deleted the entire disallowance made by the Assessing Officer towards the excess claim of collection commission expenditure of Rs.12,46,968 and in respect of the disallowance of Rs.3,66,200 made towards excess claim of expenditure towards sales commission, the learned CIT(A) sustained the addition to the extent of Rs.500 only. The learned CIT(A), however, confirmed the disallowance under Section 40(a)(ia) of the Act.

in Revenue’s appeal are as under :-

1. The order of the learned CIT (Appeals) is opposed to the facts of the case brought on record.

4 & 1036/Bang/2014 2. On the facts and in law, the learned CIT (Appeals) erred in deleting the addition of Rs.;12,46,968 being the excess claim of ‘commission on collection’ claimed by the assessee disallowed by the Assessing Officer for want of adequate proof to verify the accuracy of the amount of expenditure claimed.

3. On the facts and in law, the learned CIT (Appeals) erred in deleting the addition of Rs.3,65,500 being the excess claim of ‘commission on sales’ for want of adequate proof and substantiation at the time of assessment proceedings.

4. On the facts of the case, the learned CIT (Appeals) erred in ordering for deletion of addition made in spite of assessee ;not furnishing the complete books of accounts to verify the claim of expenditure both at the time of assessment and remand proceedings and the fact intimated to the learned CIT (Appeals) vide remand report submitted.

at the time of hearing the case with a prayer to restore the order of A.O.”

5. The Grounds at S.Nos.1 and 5 of Revenue’s appeal are general in nature and therefore no adjudication is called for thereon. 6.1 Grounds 2 to 4 of Revenue’s appeal relate to the disallowances of Rs.12,46,968 and Rs.3,65,500 on account of ‘commission on collection’ and ‘commission on sales’ respectively that have been deleted by the learned CIT(A) in the impugned order. In respect of these grounds, the learned Departmental Representative contended that the disallowances were made by the Assessing Officer as there were discrepancies detected between the amount claimed in the profit and loss account and the books of account produced before the Assessing Officer. It was submitted that, on appeal before the learned CIT(A), the assessee contended that the Assessing Officer had only partially considered/examined the books of account as he had not verified the entire claim with regard to two proprietary concerns of the assessee viz. M/s. Sanforce and M/s.Tracers. On the basis of this submission made by the assessee, the learned CIT(A) called for a remand report 5 & 1036/Bang/2014 from the Assessing Officer after verification of the assessee's claim. The learned Departmental Representative submitted that in remand proceedings, the assessee did not produce the entire books of account before the Assessing Officer for verification of the above claim and contended that in these circumstances, the deletion of these disallowances by the CIT (Appeals) was erroneous. In this regard, the learned Departmental Representative referred to the remand report of the Assessing Officer dt.18.2.2014 where this fact of non-production of books of account is recorded at para 2 on page 1 thereof. 6.2 Per contra, the learned Authorised Representative of the assessee supported and relied on the finding in the order of the learned CIT(A) on this issue. The learned Authorised Representative drew our attention to the written submissions filed by the assessee and copies of the ledger accounts in respect of ‘collection commission’ and ‘sales commission’ of both the concerns of the assessee, viz. m/s. Tracers and M/s.Sanforce that were placed before the learned CIT(A) and which was also available before the Assessing Officer both in assessment and remand proceedings. The learned Authorised Representative submitted that originally the disallowance was made in the order of assessment on account of partial examination of the details filed by the assessee since the Assessing Officer had examined the ledger accounts only till February, 2008 and that too only in respect of one concern. The learned Authorised Representative submitted that the learned CIT(A) has examined the assessee's claims and found that there was no excess 6 ITA Nos.845 & 1036/Bang/2014 claim made by the assessee in the profit and loss account and therefore deleted the addition. It was pleaded that the order of the learned CIT(A) be upheld. 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record. The learned CIT(A) has disposed off this issue in paras 3.1 to 3.4 of the impugned order holding as under :- “ 3.1 Before me in appeal it was pointed out that the Assessing Officer had missed out the claim of expenditure in one of the two proprietorship concerns operated by the appellant. The details, which are evident from the separate audited Profit & Loss Account submitted for each proprietorship concern, are summarized below : M/s. Sanforce M/s. Tracers Total Claim debited As per A.O. Collection Rs.47,85,800 Rs.7,44,772 Rs.55,30,572 Rs.42,83,604 being commission entries upto Feb.2008 only. Sales Rs.36,76,400 Rs.3,65,500 Rs.40,42,400 Rs.36,76,400. commission 3.2 The A.O. was asked to comment on the above during remand proceedings but replied that in the absence of books of account he was unable to do so. I find from assessment record that the books of account had been produced before him on 9.11.2010 and during remand proceedings the extract of ledger accounts were once again filed. A ledger is clearly included in the definition of books of account. The A.O.’s remarks, therefore, do not convey an intention to arrive at factual accuracy and appear to be dilatory in nature. 3.3 The evidences in the form of audited financial statements of the two proprietorship concerns and the ledger extracts clearly indicate that as far as collection commission is concerned the figure adopted by the Assessing Officer is incomplete and has missed out the entries of March, 2008 for M/s. Sanforce and for the entire year for M/s. Tracers. If these amounts are taken into account, there is no difference as pointed out by the Assessing Officer. The addition towards collection commission is, therefore, directed to be deleted. 3.4 With regard to sales commission, the amount debited in the Profit & Loss Account of M/s. Traces under this head is Rs.3,65,500 which has not been considered by the A.O. The total of the two proprietorship concerns under this 7 & 1036/Bang/2014 head comes to Rs.40,41,900 against which the assessee has debited Rs.40,42,400. The difference, therefore, is only of Rs.500 and only this is to be brought to tax.” 6.3.2 On a perusal and appraisal of the details/facts on record, we find that the observations of the learned CIT(A), while deleting the disallowances made by the Assessing Officer to be in order since originally these disallowances were made on the ground that there were differences between the amounts claimed in the profit and loss account and the relevant ledger accounts produced in the course of assessment proceedings. The explanation put forth by the assessee before the learned CIT(A) was that there were two concerns operated by the assessee and if the expenditure claimed in both these concerns were taken together and for the entire period under consideration, there will be no difference at all. That this claim has been examined by the learned CIT(A) and found to be correct is not in doubt as is evident from the impugned order. We find no merit in the plea raised by Revenue that the disallowance has to be sustained since the entire books of account were not produced in remand proceedings. The production of the entire books of accounts, in our view, was not required in so far as examining the veracity of the assessee's claim. What is material for examination was the copies of the ledger accounts of the concerned proprietary concerns viz. M/s. Traces and M/s. Sanforce vis-a-vis the financial statements of both these concerns from which it will become clear as to whether there is a difference in the extent of expenditure claimed as per the profit and loss account and the ledgers of the parties in the books of account. These have been produced before the authorities below in appellate and remand 8 & 1036/Bang/2014 proceedings and it is clear from the categorical finding of the learned CIT(A) that there is no difference at all. In this factual matrix, we are of the considered view that the deletion of the disallowances of Rs.12,46,968 and Rs.3,65,500 made on account of excess claim of expenditure of ‘commission on collection’ and ‘commission on sales’, by the learned CIT(A) cannot be faulted, calls for no interference therein by us and is consequently upheld. Accordingly, grounds raised by Revenue at S.Nos.2 to 4 are dismissed.

7. In the result, Revenue’s appeal for Assessment Year 2008-09 is dismissed. Assessee's Appeal for A.Y. 2008-09 in .

8. The Grounds raised in the assessee's appeal are as under :- “

1. The orders of the authorities below in so far s they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and in the circumstances of the case.

2. The learned CIT (Appeals) is not justified in sustaining the disallowance of a sum of Rs.30,62,689 under Section 40(a)(ia) of the Act, on collection commission under the facts and in the circumstances of the appellant’s case.

3. The learned CIT (Appeals) is not justified in sustaining the disallowance of a sum of Rs.35,75,500 under Section 40(a)(ia) of the Act, on sales commission under the facts and in the circumstances of the appellant’s case.

4. The learned CIT (Appeals) is not justified in sustaining the aforesaid disallowances without noticing that the same was not payable and hence, the disallowances made were misconceived and hence, the same is liable to be deleted.

5. Without prejudice to the right to seek waiver with the Hon'ble CCIT / DG, the appellant denies himself liable to be charged to interest under Section 234A, 234B and 234C of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.

6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”

9 & 1036/Bang/2014 9. The Grounds at S.Nos.1 and 6 of the as appeal are general in nature and not being urged before us, are dismissed as infructuous.

“ 26. We are of the view that the reasoning of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd(supra) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship.

11 & 1036/Bang/2014 � In the case of DCIT vs. Ashika Stock Broking Ltd. reported in 44 SOT 556 the Hon’ble Kolkata ITAT has decided the matter in favour of revenue and after following its decision dated 15.01.2010 in the case of Poddar Son’s EXL. P Ltd vs. ITO in ITA No. 1418(Kol.)/09 has held that provisions of Section 40(a)(ia) of the Act are applicable to even sums paid during the year.

� In the case of Teja Construction vs. ACIT reported in 39 SOT 13 the Hon’ble Hyderabad ITAT has decided the issue against the Revenue and has held that provisions of Section 40(a)(ia) of the Act are not applicable in respect of sums/amount paid during the year and which are not payable at end of the year on date of balance sheet, as it is applicable only in respect of “Payable amount” shown in balance sheet as outstanding expenses on which TDS has not been made. Similar laws were laid in various other cases. � To resolve the above issue Special Bench was constituted and the Hon’ble Visakhapatnam Special Bench of ITAT in the case of Merilyn Shipping & Transport vs. Addl CIT reported in 20 taxmann.com 244 has decided the issue against the Revenue and after comparing the proposed and enacted provision which is intended from the replacement of the words in the proposed and enacted provision from the words ‘amount credited or paid’ to ‘payable’ has held that it has to be concluded that provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS.

13 & 1036/Bang/2014 30. Thus there are two views on the issue, one in favour of the assessee expressed by the Hon’ble Allahabad High Court and the other against the assessee expressed by the Hon’ble Gujarat & Calcutta High Courts. Admittedly, there is no decision rendered by the jurisdictional High Court on this issue. In the given circumstances, following the decision of the Hon’ble Supreme Court in the case of Vegetable Products Ltd. (supra), we hold that where two views are possible on an issue, the view in favour of the assessee has to be preferred. Following the decision of the Hon’ble Allahabad High Court, we uphold the order of the CIT(A).

Order pronounced in the open court on 3rd July, 2015.