RAJDEEP PRASAD SHAW,NORTH 24 PARGANAS vs. ITO, WARD-51(3), KOLKATA, KOLKATA

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 & 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. & 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. & 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.”

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 & 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.

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.

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 & 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.