M/S CHUNDER KHATORE & ASSOCIATES,KOLKATA vs. INCOME TAX OFFICER, WARD - 54(1), KOLKATA, KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XXXVI, Kolkata dated 12.08.2013. Assessment was framed by ITO Ward-54(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2009 for assessment year 2007-08. The grounds raised by the assessee per its appeal are as under:- “1. For that the order of the Ld. CIT(A) is arbitrary, illegal and bad in law. 2. For that the Ld. CIT(A) erred in confirming the addition of Rs.1257,040/- being the payment made for hiring charges in connection with the completion of specified work where services for physical

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 2 verification of assets along with location thereof, the closing stock, different statutory registers and books and various other related jobs was to be carried out for a number of clients for which there were receipts of over Rs.46 lakhs.

Shri S.M.Surana, Ld. Authorized Representative appeared on behalf of assessee and Shri A.K.Pande, Ld. Departmental Representative appeared on behalf of Revenue.

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 3 reasons i.e. Non deduction of Tax at Source (TDS for short) u/s 194J of the Act and genuineness of expenses. Facts in brief are that assessee a partnership firm of Chartered Accountants and rendering professional services. During the year under consideration, assessee claimed an expense of ₹15,12,750/- under the head “ Consultancy & Accounting charges”. During the course of assessment proceedings, AO observed that expenses “consultancy & accountancy charges” were subject to the provision of TDS. Accordingly, he sought clarification regarding the TDS provision and requested to produce the bills, vouchers in support of its expenditure. However, assessee failed to furnish the same and claimed that the expense shown under the head “consultancy & accountancy charges” are factually shown under the wrong head but it should be under the head “hiring charges”. It was submitted that certain persons were hired for physical verification stock and fixed assets of the clients. As such no professional/ technical services were involved in the activity of physical verification. Therefore, the provision of Sec. 194C is attracted in place of Sec. 194J of the Act. However, AO observed that for the physical verification of the client’s business, person having requisites expert knowledge are required. Therefore the assessee has defaulted in not deducting TDS 194J of the Act. Accordingly, AO has disallowed a sum of ₹12,51,040/- on account of non deduction of TDS and non production of documentary evidence and accordingly added the same to the total income of assessee.

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 4 clerical work requires no specific professional skill. Besides above, assessee submitted that the people were outsourced only for limited purpose of physical verification activity of the client’s business and these people do not work for a long time. They were hired for a span of 2/3 months. Some people were hired assignment-wise and they leave the firm once the assignment is complete. Therefore, it is not possible to collect the required information about the people to whom the charges were paid. It is also to note that hired people were non-technical but all of them were working under the supervision of a technical person. Accordingly, the contention of assessee is that work cannot be rendered by the non-technical person is not valid. In proving the genuineness of the expences, assessee had submitted written submission and relevant extract is reproduced below:- “3.4 The A/R of the appellant filed his written submission, the relevant portion of which is reproduced herein below:-

‘1. It is humbly submitted that the appellant firm is a Chartered Accountants firm rendering professional services. The appellant firm had rendered service in the nature of taking physical verification of stock, of clients fixed assets etc., during the year and had engaged the services of various personnel to whom hiring personnel charges of Rs.12,57,040/- have been paid. The amount has been paid for contracting / hiring people for effectively carrying out the professional services.

The Ld. Assessing Officer had disallowed the expenses U/s 40(a)(ia) of the Income Tax Act, 1961 on the ground that TDS u/s. 194J of Income tax Act, 1961 has not been deducted. It is humbly submitted in this regard that the consultancy charges are in the nature of hiring charges paid for hiring non qualified personnel.

Section 194J reads as follows: 194J.(1) Any person, not being an individual or a Hindu undivided family, who I responsible for paying to a resident any sum by way of – (a) Fes for professional services, or (b) Fees for technical services ….. …. …. ….. …. Shall, at the time of credit of such sum … … deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein:

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 5 … … … … … … … … … Explanation. – For the purposes of this section,- (a) “professional services” mans services rendered by a person in the curse of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section.

Thus, section 194J is attracted only in cases where the services are rendered by a professional educated in a particular discipline. In the present case, as rightly pointed out by the AO, the payments are made to ladies and gentlemen who are not much educated and have been hired to conduct clerical workings like counting, recording etc of stock, counting of fixed assets, labeling etc. Such, clerical work requires no specific professional skill.”

However, Ld. CIT(A) disregarded the plea taken by assessee that payments were made to clerical assistance and many of them worked as student of CA / CS / ICWA which is clearly of the nature of fees of professional services and therefore attracts the provision of Sec.194J of the Act.

3.1 Ld. CIT(A) also doubted the genuineness of the expenditure claimed by assessee on the ground that the alleged persons to whom payments were made did not appear in response to summon issued to them. In many occasion, summons issued came back as un-served. Ld. CIT(A) also rejected the documents submitted by the assessee at the time of hearing on the ground that documents submitted are not reliable and he confirmed the action of AO.

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 6 purview of TDS provision as specified u/s. 194C of the Act. Further, Ld AR stated that assessee has submitted the copies of IT returns along with PAN of various persons, the details of the clients for which physical verification of the stock / fixed assets were carried out which is placed on record. He requested the Bench to decide the issue on merit.

On the other hand, Ld. DR relied on the orders of Authorities Below.

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 7 legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section. Notified professions under section 44AA are in terms Notification No. S.O. 17(E), dated 12th January, 1977 issued under section 44AA prescribed the following professions :

(a) The profession of authorised representative "Authorised representative" means a person, who represents any other person, on payment of any fee or remuneration, before any tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy.

(b) The profession of film artist: "Film artist" means any person engaged in his professional capacity in the production of a cinematograph film, whether produced by him or by any other persons as (i) an actor; (ii) a cameraman; (iii) a director, including an assistant director; (iv) a music director, including an assistant music director; (v) an art director, including an assistant art director; (vi) a dance director, including an assistant dance director; (vii) an editor; (viii) a singer; (ix) a lyricist; (x) a story writer; (xi) a screen play writer; (xii) a dialogue writer; and (xiii) a dress designer.

The Notification number S.O. 2675 dated 25th September, 1992 under section 44AA prescribed profession of Company Secretary. Profession defined under section 2(36) Section 2(36) defines "profession" includes vocation. But this definition cannot be used for section 194J because the Explanation to section 194J specifically defined "professional services" for purpose of section 194J.

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 8 Technical services "Fees for technical services" is defined in Explanation (b) to section 194J. It states that "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9.

The Explanation 2 to clause (vi) of sub-section (1) of section 9 states that "Fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries".

In view of above, we find that the aforesaid expenditure claimed by the assessee under the head consultancy & accounting charges does not represent the professional services as explained under section 194J of the Act. Merely the assessee has claimed the nomenclature under the head consultancy will not amount to professional services. No doubt the services given by the CA firm to its clients in the instant case amounts to professional services but the services availed by the firm from outside for the physical verification of stock do not amount to professional services. Hence the payments made are covered under the provisions of section 194C of the Act. We also further find that in none of the case, the payment has exceeded Rs.50,000/-, We also find that 28 persons had made representation before Income Tax Authority and the ld. AR has submitted the copies of income tax returns along with PAN of various persons. We accordingly, considering the totality of the facts of the present case, we are inclined to reverse the orders of Authorities Below. This issue of assessee’s appeal is allowed. Assessing Officer is directed accordingly.

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 9 6. Coming to next issue raised by assessee in this appeal is that Ld. CIT(A) erred in restricting the disallowance out of office expense incurred by assessee to the extent of 10% of ₹8,39,858/-.

During the year assessee has claimed reimbursement expense for an amount of ₹8,39,858/- by crediting in its profit and loss account. This reimbursement expense was claimed by assessee from its clients on actual basis of the expenditure incurred. Against the receipt of such reimbursement expenses and assessee has claimed expenses of ₹ 8,39,858/- exactly same amount by debiting the profit and loss a/c. On verification of expense claimed by assessee, the AO found that in some cases self-made vouchers were available and in some cases there was no voucher in support of expenses claimed by assessee. Accordingly, AO opined that the possibility of personal expense cannot be ruled out therefore 20% of Rs.8,39,858/- which comes to Rs.1,67,972/- was disallowed and added back to the total income of assessee.

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.

ITA No.2489/Kol/2013 A.Y.2007-08 M/s Chunder Khatore & Associates v. ITO, Wd-54(1) Kol. Page 10 case, we find that AO has not brought out any specific ground so as to disallowing the expense as claimed in assessee’s profit and loss a/c. He has disallowed the expenses on ad hoc basis without appreciating the fact that income shown by assessee in the form of reimbursement of expense and expenditure claimed in the form of reimbursement expenses are equal. Therefore, in our considered view, the question of having any income out of reimbursement of expense does not arise. Therefore, we are inclined to reverse the orders of Authorities Below and issue raised by assessee is allowed. AO is directed accordingly. 9. Last issue of assessee’s appeal in ground No.8 is general in nature and does not require any adjudication.