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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
I.T.A. No. 97/KOL./2012 Assessment year: 2007-2008 Page 1 of 7
IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘B’ BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member
I.T.A. No. 97/KOL/ 2012 Assessment Year: 2007-2008 M/s. B.S. Engineering Enterprise,.....................................Appellant 17/10E, Mall Road, Dum Dum, Kolkata-700 080 [PAN : AAGFB 1853 N]
-Vs.- Deputy Commissioner of Income Tax,............................Respondent Circle-50, Kolkata, Manicktola Civic Centre, Uttarapan Complex, DS-II, Kolkata-700 054
Appearances by: Shri Maloy Dhar, Advocate, for the assessee Shri Rajat Kumar Kureel, JCIT, Sr. D.R., for the Department
Date of concluding the hearing : May 02, 2016 Date of pronouncing the order : June 17, 2016
O R D E R Per Shri P.M. Jagtap :- This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-XXXII, Kolkata dated 21.10.2011 for the assessment year 2007-08. The common issue raised in Grounds No. 1 & 2 relates to the addition of Rs.8,95,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by way of disallowance under section 40(a)(ia).
The assessee in the present case is a partnership firm, which is engaged in the business of manufacturing of Conveyor Belt and other Moulded items. The return of income for the year under consideration was filed by it on 05.11.2007 declaring total income of Rs.7,49,120/-. During the course of assessment proceedings, it was noticed by the
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Assessing Officer on perusal of the accounts of the assessee that an expenditure of Rs.8,95,000/- is claimed to be incurred on commission. He also noted that the said expenditure to the extent of Rs.4,00,000/- was actually paid by the assessee in the year under consideration on two equal instalments of Rs.2,00,000/- on 15.03.2007 and 29.03.2007 and the balance amount of Rs.4,95,000/- was outstanding. Since no tax at source was deducted by the assessee from the commission as required by the provisions of section 194H, the Assessing Officer required the assessee to explain as to why the entire commission of Rs.8,95,000/- should not be disallowed under section 40(a)(ia). In this regard, no satisfactory explanation could be offered by the assessee and the Assessing Officer, therefore, proceeded to make a disallowance of Rs.8,95,000/- under section 40(a)(ia) on account of commission for the failure of the assessee to deduct tax at source as required under section 194H.
The disallowance made by the Assessing Officer under section 40(a)(ia) was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and the following submissions were made by the assessee in support of its case on this issue before the ld. CIT(Appeals):- “4.1. The assessee incurred expenditure of Rs.8,95,000/- on account of remuneration and the assessee paid a sum of Rs.4,00,000/- during the relevant previous year. The assessee provided balance sum of Rs.4,95,000/- as liability in its account. The accountant debited the entire sum to Commission Account inadvertently. Although the assessee furnished explanation as regard nature of expenses and produced evidence in support of its contention, but the learned Assessing Officer disregarded the explanation given by the assessee. The learned Assessing Officer observed that the assessee was liable to deduct tax u/s. 194H. The learned Assessing Officer disallowed the expenditure in application of section 40(a)(ia) as the assessee failed to deduct tax at source from such payments.
4.2 As stated in earlier paragraph (Para 2.1) the assessee appointed three persons for the period from the month of September 2006 to April 2007 and paid their remuneration as mentioned hereunder:
Sri Sita Nath Tewari............. Rs.2,95,000/- Sri Shiladitya Banerjee......... Rs.3,00,000/-
I.T.A. No. 97/KOL./2012 Assessment year: 2007-2008 Page 3 of 7
Sri Budhyaditya Banerjee......Rs.3,00,000/- _______________________ Total .................. Rs.8,95,000/- ________________________
It is pertinent to mention here that the assessee paid an aggregate amount of Rs.4,00,000/- and balance sum of Rs.4,95,000/- was not credited to the accounts of those persons in the books. Of course, the sum of Rs.4,95,000/- appeared as liability for payment in the books of account. Those persons rendered services as the employees and they did not set as selling agents for commercial expediency. Also the payments were not made to those persons for representation in order to obtain orders for goods or products or for 'buying or selling of goods. In this case, it is clear that their salaries were drawn by them for their services and not for any other purpose.
4.3 In ordinary parlance, salary connotes remuneration or payment for work done or services rendered. In Gestener Duplicators P. Ltd. v. CIT (110 ITR 1 SC) the Supreme Court observed that in the case of salary, the recompense could be determined wholly on the basis of time spent on service or wholly by work done or partly by the time spent in service and partly by work done. From the facts stated hereinabove, it is clear that the payments made to those persons took the character of salary. The learned Assessing Officer erroneously treated the payments as commission. In fact no element of services were involved which could be said to be commission. Therefore, the question of deduction of tax at source from such payments does not arise at all u/s. 194H. Consequently, non-deduction of tax at source cannot be brought within the purview of section 40(a)(ia) of the Act. I, therefore, submit that the disallowance of Rs.8,95,000/- was wholly unjustified and unwarranted in this case”.
The ld. CIT(Appeals) did not find merit in the submissions made by the assessee and rejecting the same, he proceeded to confirm the disallowance made by the Assessing Officer under section 40(a)(ia) for the following reasons given in his impugned order:- “From the details noted by the A.O. in the assessment order it is observed that out of the sum of Rs.8,95,000/- the assessee had made payments of Rs.2,00,000/- each on 15.03.2007 and 29.03.2007 and the balance amount of Rs.4,95,000/- was shown outstanding at the end of the relevant financial year. If the claim of the assessee that the 'expenditure booked under the head "Commission" was actually remuneration paid to employees was true, then normally the payment for the same would have been on monthly basis and not in lump sum payment of Rs.2,00,000/- each on just two occasions. The facts of the case do
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not support the assessee's claim of the impugned amount of Rs.8,95,000/- being in the nature of remuneration paid to its employees. The assessee himself has clarified the impugned payment to be "Commission". During the assessment proceedings the assessee never claimed the said expenditure to be in the nature of 'salary' paid to employees and that there was any mistake in its accounts in that regard”.
5 The ld. counsel for the assessee mainly reiterated before us the submissions made on behalf of the assessee before the ld. CIT(Appeals) on this issue. His main contention was that the amount in question disallowed by the Assessing Officer under section 40(a)(ia) was, in fact, in the nature of salary and the same was inadvertently accounted for as commission in the books of account. To support and substantiate his contention, the ld. counsel for the assessee invited our attention to the revised Profit & Loss Account placed at page no. 37 of the paper book to show that the amount in question was finally debited to the Profit & Loss Account under the head “salary and bonus”. He submitted that this revised Profit & Loss Account along with the affidavit of the partner of the assessee-firm is being filed as an additional evidence and requested that the same may be admitted as the assessee was not given proper and sufficient opportunity by the Assessing Officer during the course of assessment proceedings to explain the exact nature of the amount in question. He also urged that the matter may be sent back to the Assessing Officer to decide the issue afresh in the light of this additional evidence after giving one more opportunity to the assessee to support and substantiate its case on the issue.
The ld. D.R., on the other hand, strongly supported the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer under section 40(a)(ia). He contended that the amount in question was shown as commission in the books of account by the assessee-firm itself and the new stand taken by it before the ld. CIT(Appeals) by saying that the same was in the nature of remuneration has already been rejected by the ld. CIT(Appeals) by giving convincing
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reasons. He pointed out that out of the total amount of Rs.8,95,000/-, a sum of only Rs.4,00,000/- was paid by the assessee during the year under consideration and that too at the fag end of the year, while the balance amount of Rs.4,95,000/- had remained outstanding. He contended that this undisputed position itself is sufficient to show that the amount in question is not in the nature of salary or remuneration, which is normally payable on monthly basis. He also strongly objected to the admission of revised Profit & Loss Account filed by the assessee as additional evidence before the Tribunal by submitting that the same filed by the assessee along with an affidavit is nothing but self-serving evidence, which is being filed as an after-thought to get over the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(ia).
We have considered the rival submissions and also perused the relevant material available on record. It is observed that the amount of Rs.8,95,000/- in question was shown by the assessee in its books of account as commission expenditure and when the Assessing Officer found that no tax at source was deducted therefrom as required by the provisions of section 194H, he afforded an opportunity to the assessee to explain as to why disallowance under section 40(a)(ia) should not be made. As noted by the ld. CIT(Appeals) in his impugned order, the assessee, however, never claimed before the Assessing Officer that the amount in question is in the nature of salary and not commission and this stand was taken by the assessee for the first time only before the ld. CIT(Appeals). The ld. CIT(Appeals), however, found that out of the total amount of Rs.8,95,000/- claimed to be in the nature of remuneration by the assessee, a sum of Rs.4,00,000/- only was paid and that too at the fag end of the year under consideration while the balance amount of Rs.4,95,000/- had remained outstanding. Keeping in view this manner and method of payments made by the assessee, the ld. CIT(Appeals) rejected the new stand taken by the assessee before him by observing that the payment of remuneration is normally made on monthly basis and
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not in lumpsum. During the course of appellate proceedings before the Tribunal, the assessee has filed a revised Profit & Loss Account, wherein the amount in question is shown under the head “salary and bonus” and has sought admission of the same as additional evidence along with the affidavit filed by the partner of the assessee-firm. However, as rightly contended by the ld. D.R., these documents filed by the assessee as additional evidence are only self-serving evidence, which is apparently filed as an after-thought to get over the disallowance under section 40(a)(ia). Moreover, the ld. counsel for the assessee has not been able to offer any satisfactory explanation as regards the occasion for preparing a revised Profit & Loss Account and the date on which the same is done. He has also not been able to explain as to what prevented the asseessee from filing the same before the authorities below, especially before the ld. CIT(Appeals), when new stand based on the nature of amount in question being remuneration was taken by the assessee. It is also pertinent to note that no other evidence whatsoever has been filed by the assessee either before the authorities below or even before us to establish the employer- employee relationship between it and the concerned persons to whom the amount in question was paid or payable.
Having regard to all these facts of the case, we decline to admit the additional evidence filed by the assessee and uphold the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer under section 40(a)(ia).
As regards the other issue raised by the assessee in Grounds No. 3 & 4 relating to the disallowance of Rs.40,677/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of General Charges and Travelling & Conveyance, it is observed that the expenses claimed by the assessee under the head “General Charges” amounting to Rs.1,84,620/- and “Travelling and Conveyance” amounting to Rs.2,22,113/- were found to be supported by mostly self-made vouchers. The Assessing Officer, therefore, disallowed the said expenses to the extent of 10% and the
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disallowance so made was confirmed by the ld. CIT(Appeals) on the ground that the expenses claimed by the assessee and supported mostly by self-made vouchers were not fully verifiable.
After considering the rival submissions and perusing the relevant material available on record, we find merit in the contention of the ld. counsel for the assessee that in the absence of any specific or material defects pointed out by the Assessing Officer to show the unverifiable element involved in the expenses, the disallowance made merely on the ground that the expenses are supported mostly by self-made vouchers is not sustainable and the ld. CIT(Appeals) is not justified in confirming the same. We, therefore, delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow Grounds No. 3 & 4 of the assessee’s appeal.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on June 17, 2016. Sd/- Sd/- (S.S. Viswanethra Ravi) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 17th day of June, 2016 Copies to : (1) M/s. B.S. Engineering Enterprise, 17/10E, Mall Road, Dum Dum, Kolkata-700 080 (2) Deputy Commissioner of Income Tax, Circle-50, Kolkata, Manicktola Civic Centre, Uttarapan Complex, DS-II, Kolkata-700 054 (3) Commissioner of Income-tax (Appeals)-XXXII, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.