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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri N.V. Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
Both appeals by the assessee are arising out of order of Commissioner of Income Tax (Appeals)-XXXII, Kolkata in appeal No.205 276/CIT(A)- XXXII/10-11/08-09/51(3)/Kol dated 20.06.2012 & 27.10.2010. Assessments were framed by ITO Ward-51(3), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 31.12.2010 for assessment years 2008-09 & 2006-07 respectively.
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 2 These two appeals are filed by the same assessee, therefore we heard them together. We deem it convenient to pass a common order.
First we take up ITA No. 1114/Kol/2012 A.y. 08-09. 2. First issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the addition of ₹5,24,500/- in respect of outstanding balance of sundry creditors namely M/s R.B. Steel Traders appearing in the books of account.
Briefly stated facts are that assessee is an individual and engaged in business of civil contractor, fabrication job and supply. During the year under consideration, assessee has shown creditor of ₹5,24,500/- in his books of account in the name of M/s R.B.Steel Traders. Enquiring by the AO M/s R.B. Steel Traders confirms that, there was no outstanding balance. On question by AO to assessee about the outstanding balance of the creditor, assessee submitted that the outstanding balance is brought forward balance payable by assessee to M/s R.B.Steel traders. However, AO disregarded the explanation made by assessee and held that assessee’s claim is bogus and accordingly he added it to the total income of assessee.
Aggrieved, assessee preferred appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- “This ground is related to the Addition of Rs.5,24,500/- as bogus creditors in the name of R.B. Steel Centre. At the appellate stage the submission of the assessee as well as the order of the AO duly considered. At the time of assessment proceedings as well as appellate proceedings the appellant accepted that this outstanding balance is brought forward balance from earlier year and has nothing to do with the transaction under the year under consideration. This plea of the appellant is not tenable because of any trade liability found to be out genuine by the AO for any year, the amount is chargeable to the tax in that year when Assessing Officer found bogus. The section 41(1) of the IT Act empowered to the AO to do so. In submissions the A/R of the appellant taken another argument ‘the adjustment made by the said party resulting into Nil outstanding balance as per their banks of
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 3 account may be for the reason known to them and which may not have simultaneous effect in the books of your appellant. In simple language, it is not a benefit in respect of trading liability by way of neither remission nor cessation obtained/availed by your appellant. It is a completely result of unilateral act on the part of the said sundry creditor party and not on the part of your appellant.’ This argument of the appellant is not true. The adjustment made by the appellant not the third party. Secondly the appellant taken the benefit by creating bogus trade liability. The appellant will not make the payment because there is no outstanding balance from the third party.
Thirdly the appellant taken the shelter of explanation 1 to section 41(1) of the IT Act is justified. Thus the addition made by the AO is confirmed. Hence this ground is not allowed.”
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
Shri A.K. Tibrewal, Ld. Authorized Representative appearing on behalf of assessee and Shri Niloy Baran Som, Ld. Departmental Representative appearing on behalf of Revenue.
We have heard rival contentions of both the parties and perused the materials available on record. Ld. AR submitted paper book which is running in pages from 1 to 34 and stated that as per the book of assessee the party’s outstanding balance is appearing for an amount of ₹5,24,500/- and this amount was brought from earlier year and he requested not to make any addition. On the other hand, Ld. DR vehemently relied on the orders of authorities below. From the aforesaid discussion, we find that AO treated this outstanding balance as bogus because party in his confirmation stated that the outstanding balance at the year end is NIL. We further find from the records that this is the liability against expenses which has been claimed in earlier year by assessee and these expenses have been duly recorded and allowed in earlier year. However, the payment has not been made to the party M/s R.B. Steel Centre during the relevant year so it is appearing in assessee’s under payable account in its books of account. Now it is an established law
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 4 that any expense which has been claimed in the relevant year and corresponding the liability in relation to that expense has not ceased to exist in the books of account of assessee that has to be added in the income of assessee by virtue of provision u/s 41(1) of the Act. We however find from the records that the confirmation obtained from the party R.B.Steel traders during the assessment proceedings was never confronted to assessee. This fact has been brought before us by the ld. AR. Since the confirmation has not been confronted to the assessee by the AO. We deem it proper to set aside the order of Ld. CIT(A) on this issue and remand the issue to the file of AO for fresh adjudication as per law after providing reasonable opportunity of being heard to assessee This ground of assessee’s appeal is allowed for statistical purpose.
Next ground in assessee’s appeal is that during the year assessee was showing a credit liability to M/s Kedia Pipes in the year end for an amount of ₹65,153. On confirmation from the party the amount receivable was nil. Therefore AO presumed that payment has been made by assessee in cash for the same amount and he disallowed the payment u/s. 40A(3) of the Act and added it to the total income of assessee.
Aggrieved, assessee preferred appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- “This ground is related to the addition of Rs.65,153/- u/s 40A(3) of the IT Act. The Assessing Officer in his assessment order clearly mention that “assessee has wrongly shown the above amount as the closing balance in his accounts even though he has already made the payment to the party in cash”. This finding of the Assessing Officer is very significant it shows that adjustment made by the appellant not by the third party, one side the appellant is making the payment in cash and another side he is showing bogus trade liability. It proves that the adjustment made by the appellant and not by the third party. So the plea taken by the appellant in his submission and Explanation 1 of the section 41(1) of the IT Act is not applicable. So the addition of Rs.65,153/- is justified. I confirm the addition u/s. 41(1) of the IT Act.
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 5 Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
We have heard rival contentions of both the side and perused the materials available on record. Ld AR submitted that liability is very much appearing in the books of account of assessee and no payment was made by assessee during the relevant year. The ld. AR also submitted that the confirmation obtained was never confronted with the assessee. From the aforesaid discussion, we find that AO has disallowed the claim of assessee because the party M/s Kedia Pipes confirmed the amount payable balance is nil. However, Ld. AR of assessee claimed before us that said confirmation was never confronted before us. In view of the above consideration, we restore this matter to the file of Assessing Officer with a direction to confront the receipt from the party with the assessee and pass a speaking order as per law. This ground of assessee’s appeal is allowed for statistical purpose.
Next ground is as regards that Ld. CIT(A) has erred in confirming the action of AO on account of making the disallowance on estimate basis. The assessee has claimed several expenses in its profit and loss account for an amount of ₹6,49,658/-. Such expenses include loading and unloading charges Rs. 221905.00, general expenses Rs. 74343.00, pooja expenses Rs. 4862.00, repair and maintenance Rs. 53168.00, travelling and conveyance Rs. 32925.00, advertisement Rs. 12100.00, entertainment Rs. 56885.00, staff welfare Rs. 60710.00, and supervision charges 132760.00. On question by AO to assessee about the supporting evidence in relation to expenses claimed, the assessee submitted that he maintains only self-made vouchers in respect of expenses claimed. In absence of evidence in support of expense, all the entire expenses are not verifiable. Therefore, 20% of such expenses amounting to ₹129931/- was disallowed by AO and added it to assessee’s income.
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 6 10. Aggrieved, assessee preferred appeal before Ld. CIT(A) who upheld the action of AO after giving some relief by observing by as under:- “This ground is related to the addition on various expenses claimed by the appellant. The Assessing Officer made the addition of Rs.1,29,931/- and treating the various expenses as non genuine because appellant having only self made voucher. Hence the AO treated 20% expenses as non genuine. During the appellate proceeding the appellant argued in his submission that assessing officer has also not pointed out any specific defect. Considering the fact and circumstances of the case I am of the view that the addition made by the AO is higher side so I confirm the disallowance @ 15% of various expenses which comes to Rs.97,449/- and the balance is deleted. Hence the ground is partly allowed.”
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
We have heard rival contentions and perused the materials available on record. Ld. AR submitted that the said expenses were disallowed by Assessing Officer simply on surmise and suspicious basis and books of account of assessee were maintained along with all bills and vouchers and same were audited by a qualified Chartered Accountant and no adverse remarks were made by CA in relation to genuineness of its books of account. Ld. DR on the other hand vehemently relied on the orders of authorities below. From the aforesaid discussion, we find that AO disallowed the expense on ad hoc basis for absence of and vouchers. We further find that no adverse remarks from the auditor regarding the books of accounts of the assessee. Besides AO has not rejected the books of account of assessee and there is no comment made by AO regarding correctness of income and expenses. The AO has merely disallowed the expenses on ad hoc basis which is not as per the law. However we find that the element of bogus expenses cannot be disregarded. It is the duty of the assessee to produce the supporting documents for justifying the expenses claimed in the business. Therefore, in
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 7 view of above, we are inclined to limit the disallowance of all the expenses to the extent 5%. Therefore we partly allow this ground of assessee’s appeal.
In the result, assessee’s appeal is partly allowed.
Coming to ITA No. 1237/Kol/2012 in Assessment Year 06-07. 13. Sole issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the action of Assessing Officer on account of violation of Sec.40(a)(ia) of the Act of ₹5,25,529/-.
Briefly stated facts assessee has claimed the fabrication charges for an amount of ₹5,25,529/- in the name of M/s D.D. Engineering Works. During the course of assessment proceedings, AO found that such expense incurred by assessee without deducting TDS u/s. 194C of the Act. On question by AO to assessee for violation of provision of Sec. 194-C of the Act assessee admitted that no tax was deducted. Therefore, AO invoked the provision of Sec. 40(a)(ia) of the Act and added the same to the income of assessee.
Aggrieved, assessee preferred appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- “I have carefully perused the assessment order and the submissions of the assessee. The case laws relied upon by the assessee are not applicable to the facts of the assessee’s case. In Hindustan Coca Cola Beverage Private Ltd. (supra) the issue before the Hon'ble Supreme Court was regarding charging of the interest u/s. 201(IA). In fact in that case the assessee had deducted tax at source u/s. 194C, whereas the Assessing Officer's view was that the tax should have been deducted u/s. 194I. The Assessing Officer having held the appellant to be “assessee in default” for the shortfall in the amount of tax deducted at source levied interest u/s. 210(IA) on the amount of tax short deducted.
Therefore, that judgement was given in context of charging of interest u/s. 210(IA), whereas the issue in the instant case is disallowance us. 40(a)(ia) of claim of expenses on account of non-deduction of tax at source.
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 8 Now coming to the facts of the case, it is an admitted act that the payment made by the assessee to D.D. Engineering was liable to deduction of tax at source u/s. 194C and that the assessee failed to deduct such tax. Therefore, the AO had rightly disallowed u/s. 40(a)(ia) the claim of expenditure by the assessee of that amounts. Accordingly, the disallowance made by the A.O. is confirmed and this ground of appeal is dismissed.”
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
We have heard rival submissions of both the parties and perused the materials available on record. Ld. AR submitted the paper book which is running from pages 1 to 15 and stated that amount payable by assessee to M/s D.D Engineering Works was only paid ₹ 36,011/- at the year end, whereas expense claimed by assessee during the year was at ₹5,25,528/- hence it means that balance amount of ₹4,89,557/- was paid during the year. Ld. AR further submitted that amount payable at the yearend was only ₹36,011/- and therefore the liability for non-deduction of TDS should be worked out in relation to the outstanding balance appearing at the yearend in its books of account. Ld. AR relied on the judgment of Hon'ble Supreme Court in the case of Hindusthan Coca Cola Beverage Pvt. Ltd. vs- CIT (2007), 293 ITR 226 (SC), wherein it was held that if assessee has paid a tax even though assessee failed to deduct the said tax cannot be recovered once again from the assessee as it amounts to double deduction of taxes. From the aforesaid discussion, we find that AO has disallowed the expenses due to violation of provision of Sec. 194-C vis-à-vis u/s. 40(a)(ia) of the Act. However, we find that there is an amendment in proviso to Sec. 40(a)(ia) r.w.s. 1st proviso to Sec. 201, wherein, if any payee has paid the taxes by offering / disclosing the said receipt in his / her return of income, then the payer (the assessee herein) should not be treated as assessee in default and no disallowance u/s 40(a)(ia) of the Act could operate in that scenario. The said proviso though inserted by the Finance Act, 2012 w.e.f. 01.04.2013 has been held to be retrospective in
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 9 operation by recent decision of the Hon'ble Delhi High Court in the case of CIT v. Ansal Land mark Township (P) Ltd. reported in (2015) taxmann.com 45 (Del) wherein the question raised before the court and the decision rendered thereon is reproduced herein below for the sake of clarity: “Question: Whether the second proviso to Section 40(a)(ia) (inserted by the Finance Act, 2012), which states that TDs shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not? Held: Section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee.
Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn’t deducted TDS an amount paid to deductee and, in turn, deductee also hasn’t offered to tax income embedded in such amount.
The penalty for tax withholding lapse per se is separately provided under section 271C and, therefore section 40(a)(ia) isn’t attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue.
The Agra Tribunal in the case of Rajiv Kumar Agarwal v. ACIT (2014) 45 taxmann.com 555 (Agra-Trib) has held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and ha retrospective effect from 1st April, 2005, being the date from which sub- clause (ia) of section 40(8) was inserted by the Finance (No.2) Act, 2004, even though the Finance Act, 2012 had not specifically0 stated that proviso is retrospective in nature.
The High Court affirmed the ratio laid down by the Agra Tribunal and held that said proviso is declaratory and curative in nature and has retrospective effect from 1st April, 2005”
Respectfully following the aforesaid decision of Hon'ble Delhi High Court, we deem it fit and appropriate in the interest of justice and fair play to set aside this issue to the file of Assessing Officer to decide the issue afresh in the light
ITA No.1114 & 1237/Kol/2012 A.Ys. 08-09 & 06-07 Rajdeep Prasad Shaw v. ITO Wd-51(3) Kol. Page 10 of the aforesaid judgment to ensure whether the deductee has paid taxes on their income. Accordingly, we direct the Assessing Officer to verify whether the payees have included the subject mentioned receipts in their respective returns and paid taxes thereon or not. If that is so, then disallowance u/s. 40(a)(ia) of the Act shall not be made in the hands of the assessee. Accordingly, the ground raised by assessee is allowed for statistical purposes.
In the result, appeal in ITA No.1114/Kol/2012 is partly allowed and that of ITA No.1237/Kol/2012 is allowed for statistical purpose. Order pronounced in the open court 11/12/2015 Sd/- Sd/- (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 11/12/2015 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-Rajeep Prasad Shaw, 29, East Ghoshpara Rd, P.O. Kankinara, Dist. 24-Paraganas (North), Pin 743 126 2. राज�व/Revenue-ITO Wd.51(3) Block-D2&3 Uttarapan Complex, Manicktala Civic Centre, Kolkata 54 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।