D.C.I.T CIR - 55,KOLKATA, KOLKATA vs. SRI SANTIBRATA SAHA, KOLKATA

This appeal of the revenue arises out of the order of the learned CIT(A), XXXVI, Kolkata in Appeal No.02/CIT(A)-XXXVI/Kol/10-11 dated 28-01-2013 for the assessment year 2007-08 passed against the order of assessment framed by the learned AO u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

3.1. The brief facts of this issue is that the assessee deals in medicine on wholesale basis and is a proprietor of M/s N.Saha Agency and M/s N.Saha & Co which were subjected to survey proceedings u/s 133A of the Act on 3.3.2009. The Learned AO observed that the closing balance of sundry creditors as on 31.3.2007 was Rs. 19,60,680/- and compared the same with that as on 31.3.2006 which was Rs. 18,90,446/- and for want of details brought the difference of Rs. 70,234/- ( 1960680-1890446) to tax as unverifiable creditors. On first appeal, the Learned CITA deleted the same as the addition made was only on mere surmise and conjecture. Aggrieved, the revenue is in appeal before us on the following ground:- “1) On the facts and circumstances of the case the ld.CIT(A) is not justified by deleting the addition on account of bogus creditors even after the assessee failed to produce the list creditors during assessment as well as remand proceedings.”

3.2. The Learned DR vehemently supported the order of the Learned AO. In response to this, the Learned AR argued that the comparison made by the Learned AO with regard to closing balance of sundry creditors of two different years is patently wrong due to the fact that the sundry creditors had increased by Rs. 70,234/- during the year due to fresh purchases made during the year. In any case, if at all, any addition is to be made, it could be made only in the Asst Year 2006-07 and not in the Asst Year 2007-08 (year under appeal) in respect of discrepancies in opening balance of sundry creditors, if any. He further argued that the Learned AO had accepted the gross profit declared by the assessee in the revised return filed pursuant to survey and when trading results are accepted, where is the question of making any separate addition towards unverifiable creditors.

3.3. We have heard the rival submissions. We find lot of force in the arguments of the Learned AR in respect of this addition that when the trading results are accepted by the Learned AO based on revised return filed by the assessee, there is no scope for disputing the veracity of the trade creditors as admittedly the trade creditors had emanated only out of purchases made by the assessee. Moreover, we find that in any case, there is no scope for making any addition towards the discrepancies, if any, in the opening balance of sundry creditors in the assessment year under appeal. We find that the Learned CITA had given a finding that the sundry creditors in Asst Year 2006-07 has been accepted by the Learned AO and not disputed. In these circumstances, we find no infirmity in the order of the Learned CITA and accordingly, the ground no. 1 raised by the revenue is dismissed.

4.1. The brief facts of this issue is that the assessee debited a sum of Rs. 9,57,884/- in the profit and loss account of M/s N.Saha & Co as commission on sales. The Learned AO invoked the provisions of section 40(a)(ia) of the Act and made disallowance of the same. On first appeal, before the Learned CITA, the assessee filed a ledger account of commission on sales reflecting therein date wise payments to several distributors. It was submitted by the assessee that the commission paid was not to agents but to the persons who had purchased mobile recharge coupons from the assessee and pleaded that the same is actually a turnover discount but wronly nomenclatured in the profit and loss account as commission on sales. The Learned CITA rightly forwarded this ledger account and other details submitted before him for the first time to the Learned AO and called for a remand report. The Learned AO in remand proceedings did not accede to the plea of the asssessee that the subject mentioned payments are only turnover discount but not commission, but however, accepted that payments in excess of Rs. 2,500/- alone would be subjected to disallowance u/s 40(a)(ia) read with section 194H of the Act which was worked out at Rs. 5,29,539/- . The Learned CITA held that the payments are made by a principal to its agent and not principal to principal. He also gave a categorical finding that the subjectmentioned payments are only discount paid to purchasers of recharge coupons and the nomenclature in the books of accounts would not be the determining factor for framing an addition and accordingly deleted the addition of Rs. 9,57,884/-. Aggrieved, the revenue is in appeal before us on the following ground:- “2. On the facts and circumstances of the case the ld.CIT(A) is not justified by deleting the addition u/s. 40(a)(ia) for non-deduction of TDS on commission on sales by treating it as trade discount to customers completely ignoring the material brought on records by the AO during remand stage that the assessee himself termed it as commission on sales.”

4.2. The Learned DR argued that the finding given by the Learned CIT(A) that payments are made based on principal to principal relationship was made without giving any opportunity to the Learned AO and hence there is violation of Rule 46A of the IT Rules in this regard. In response to this, the Learned AR argued that the remand report was called for by the Learned CITA and the entire details submitted by the assessee before him was duly submitted before the Learned AO also in remand proceedings. The Learned AO in remand report did not accept the contentions of the assessee. Hence the argument of the Learned DR in this regard is factually incorrect.

4.3. We have heard the rival submissions and perused the materials available on record. We find from the statement of facts and grounds of appeal of the revenue, the observations made by the Learned AO in his remand report on this impugned issue is also attached along with the appeal memo. Hence it is incorrect on the part of the Learned DR to state that there is violation of Rule 46A of IT Rules. Even otherwise we find that there is no specific ground raised by the revenue with regard to violation of Rule 46A in their grounds of appeal. With regard to the merits of the case, we are in total agreement with the finding given by the Learned CITA that the subject mentioned payments made by the assessee are only discount paid to the purchasers of recharge coupons though wrongly categorized as commission on sales in the books of accounts. We also agree that the nomenclature in books of accounts would not be the determinative factor for understanding the real nature of the transaction and it is well settled that substance would always prevail over its form. We hold that in these facts and circumstances, the payments made by the assessee is in the category of principal to principal and the provisions of section 194H of the Act would come into play only when the payment is from principal to agent. Hence we find no infirmity in the order of the Learned CITA in this regard. Accordingly, the ground no. 2 raised by the revenue is dismissed.