SELPRINT,MUMBAI vs. DCIT 22(2), NAVI MUMBAI

Per Sanjay Garg, Judicial Member:

1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of payments in the nature of purchases from M/s M.R. Enterprises of Rs.13,51,484 u/s 40(a)(ia) on account of non-deduction of TDS on payments made to it ignoring the fact that M/s. M.R. Enterprises has already discharged the tax liability by duly filing the return of income the due date of filing of the return of income by the appellant. The disallowance being bad in law the same needs to be deleted.

2. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming disallowance of rent of Rs.2,40,000/- u/s.4O(a)(ia) without appreciating the fact that the TDS of Rs.36,720 on the above amount had been deducted and deposited on 15.05.2008 i.e. within due date stipulated u/s 200(1).

3. a) On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming disallowance of commission of Rs.2,00,000/- u/s 4O(a)(ia) without appreciating the fact that the TDS was deducted on 31.03.2008 and deposited on 15.05.2008 i.e. within the due date stipulated under section 200(1).

b) Also, without prejudice to the above, the learned CIT(A) erred in ignoring the fact that the commission was already paid to Mr Hardik Kothari during the previous year ended 31 March 2008 and therefore, provisions of section 40(a)(ia) would not apply as section 40(a)(ia) provides for disallowance in relation to the amounts payable and not to amounts already paid during the previous year.

The addition being bad in law the same needs to be deleted.

On the facts and circumstances of the case and in law the learned CIT(A) 4. erred in confirming disallowance of Rs.1,50,000/- towards salary paid to Mr Hardik Kothari holding that no payment of salary has been reflected in the ledger account of Mr Hardik Kothari without appreciating the fact that the payment has been routed through Salary Account. The addition being bad in law and arbitrary in nature needs to be deleted.

On the facts and circumstances of the case and in law the learned CIT(A) 5. erred in confirming disallowance of Rs.99,416/- being 1/3rd of the payments made to Mr. Vinit Kothari Rs.1,48,250/- towards purchase of software under section 37 of the Act holding that no sufficient details or bills for job charges were filed before the learned CIT(A).

Learned CIT(A) erred in not appreciating the fact all the details and explanations in relation to payment towards software charges including return of income of Mr Vinit Kothari were filed before the learned CIT(A). The addition being bad in law the same needs to be deleted.

On the facts and circumstances of the case and in law the learned CIT(A) 6. erred in confirming the addition of unsecured loans of Rs.1,79,400/- under section 68 ignoring the fact that the said amount pertains to the commission of Rs.1,79,400 (net of TDS) that is already disallowed by the learned AO and confirmed by the learned CIT(A). The addition leading to taxing the amount twice is bad in law and needs to be deleted.

3 M/s. Selprint 3. The Ld. A.R. of the assessee has invited our attention to ground No.1 vide which the disallowance has been made by the lower authorities under section 40(a)(ia) on account of non deduction of TDS on payments made to M/s. M.R. Enterprises. It is the contention of the Ld. A.R. that M/s. M.R. Enterprises has already discharged the tax liability by duly filing the return of income. He has contended that as per the new proviso inserted in section 40(a)(ia) vide Finance Act, 2012 w.e.f. 01.04.13 wherein it has been provided that if the assessee fails to deduct TDS in respect of any payment to which the TDS provisions apply but he is not deemed to be an assessee in default under section 201 of the Act, which provides that if the payee of the such amount computed the same into his income tax return and has paid the due taxes, then such an assessee will not be deemed to be an assessee in default and then no disallowance is attracted under section 40(a)(ia). He has further submitted that the said newly inserted proviso to section 40(a)(ia) is in fact clarificatory in nature and should be applied/retrospectively for the year under consideration and as such no disallowance is attracted on this issue.

4 M/s. Selprint ordinate Bangalore bench of the Tribunal in the case of “Shri S.M. Anand Vs. ACIT” in ITA No.183/Bang./13 for A.Y. 2005-06 vide order dated 21.02.14. The relevant part of the findings of the Tribunal given in the said case, are reproduced as under: “3.4.1 We have heard the rival submissions and perused and carefully considered the material on record. Admittedly, the assessee has not deducted tax at source on the payments made to Sri G.Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotian of Rs.1,54,75,000. As pointed out by the learned Authorised Representative as far as the payments made to the aforesaid two persons is concerned the fact that the said payees / recipients have shown the said amounts in their respective books of account and profit and loss accounts and also that the same has been offered to tax in their returns of income is not controverted by the authorities below. In our considered opinion, since the payees / recipients i.e. G. Ramesh and Ramesh Kotian have already shown these amounts in their respective books of account audited under section 44AB of the Act; declared and offered the same to tax in their returns of income for the relevant period, thus by virtue of the amendment to the provisions of section 40(a)(ia) of the Act by insertion of the second proviso to section 40(a)(ia) of the Act w.e.f. ;1.4.2013, the provisions of section 40(a)(ia) of the Act would not be attracted to the payments made by the assessee i.e. Sri G. Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotian of Rs.1,54,75,000. This view of ours, is in accordance with the decision of the co-ordinate bench of this Tribunal in the case of Ananda Markala (supra) wherein it was held that the insertion of the second proviso to section 40(a)(1a) of the Act should be read retrospectively from 1.4.2005 and not prospectively from 1.4.2013. In this view of the matter, the provisions of section 40(a)(ia) of the Act is not attracted to the payments made by the assessee to Sri G.Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotian of Rs.1,54,75,000 since the object of introduction of section 40(a)(ia) of the Act is achieved for the reason that the payees / recipients have declared and offered to tax the payments received from the assessee in their respective hands.

3.4.2 As regards the issue of non-furnishing of Form No.26A, we are of the view that since the second proviso to section 40(a)(ia) of the Act is held to be retrospective in operation w.e.f. 1.4.2005, similarly, Form 26A was to be filed for an assessee not to be held as an assessees in default as per proviso to section 201 of the Act. In all fairness, the assessee in the period under consideration i.e. Assessment Year 205-06 could not have contemplated that such a compliance was to be made and therefore in the interest of equity and justice we set aside the order of the learned CIT (Appeals) and remit the matter to the file of the Assessing Officer directing the Assessing Officer to consider the allowance or otherwise of the expenditure claimed amounting to Rs.4,23,96,500; being the payments made by the assessee to Sri G. Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotiar, of Rs.1,54,75,000 after affording the assessee adequate opportunity to file Form No.26A and only after due verification of whether the aforesaid two payees / recipients have reflected the same receipts in their books of account and have 5 M/s. Selprint offered the some to tax. In these circumstances, we hereby set aside the order of the learned CIT (Appeals) to the file of the Assessing Officer only for the limited purpose as directed above.”

Ground Nos. 2 & 3: 7. The contentions raised by the assessee in ground No.2 are that the assessee had already deducted the TDS of Rs.36,720/- on the amount of rent paid of Rs.2,40,000/- and the same was deposited with the treasury within due date stipulated under section 200(1) of the Act. It may be observed that section 40(a)(ia) was amended by the Finance Act, 2010 and as per the amended provisions the expenditure has to be allowed if the deposit is made within the due date of filing of return of income. The Hon’ble Kolkata High Court, in the case of “Virgin Creations” in of 2011 decided on 23.11.2011, has held that the said amendment is retrospective in nature. Following the said decision, the Mumbai Bench of the Tribunal, in the case of “Piyush C. Mehta” 52 SOT 27, has allowed the claim of the assessee if the deposit has been made before the due date of filing of return of income. We decide this issue accordingly and restore the matter to the file of the Assessing Officer

6 M/s. Selprint (hereinafter referred to as the AO) to verify whether the TDS was deducted and deposited within the due date of filing of return and if found so, then the AO to allow the claim of the assessee accordingly.

Ground No.4 8. Vide ground No.4, the assessee has agitated the confirmation of disallowance of Rs.1,50,000/- towards salary paid to Mr. Hardik Kothari, son of the partner of the assessee firm. The AO disallowed the 1/3rd of the amount of salary paid to Mr. Hardik Kothari on the ground that the above payment was nothing but method adopted by the assessee for diversion of taxable profits. The Ld. CIT(A), however, observed that the ledger account of Mr. Hardik Kothari showed a commission of Rs.1,79,400/- only and there was no further credit for the salary shown in his name of Rs.1,50,000/-. He, therefore, observed that no salary had been paid to Mr. Hardik Kothari of an amount of Rs.1,50,000/-. He, therefore, disallowed the entire amount of Rs.1,50,000/- as the same was not reflected in the ledger account. The Ld. A.R. of the assessee, before us, has invited our attention to page 15 of the paper book which is a letter dated 18.08.10 addressed to Commissioner of Income Tax wherein a justification has been given regarding payment of commission to Mr. Hardik Kothari and it has been explained that Mr. Hardik Kothari was son of the partner of the firm namely Mr. Viren Kothari that to encourage him for hard work, efficiency and sincerity the firm decided to offer him salary of Rs.12,500/- and commission on sale of products. It has been explained that he has been looking after production quality and customer relationship. The Ld. A.R. has further invited our attention to the written submissions dated 29.08.11 submitted by the assessee to the Ld. CIT(A) wherein it has been explained that the amount of salary paid to Mr. Hardik Kothari was reasonable. The Ld. A.R. has further explained that the payment of salary was routed through salary account. He has further submitted that the payment of salary to Mr. Hardik

7 M/s. Selprint Kothari has been allowed in the past. Considering the above submissions of the Ld. A.R., we do not find any justification on the part of lower authorities to disallow the amount of salary paid to Mr. Hardik Kothari, son of the partner. This issue is accordingly decided in favour of the assessee.

Ground No.5 9. Vide ground No.5, the assessee has agitated the confirmation of disallowance of Rs.99,416/- being 1/3rd of the payments made to Mr. Vinit Kothari and Rs.1,48,250/- towards purchase of software. The Ld. A.R. of the assessee has invited our attention to page 20 of the paper book which is a letter dated 31.08.2010 addressed to Commissioner of Income Tax wherein it has been explained that Mr. Vinit Kothari had developed a software which was useful for looking after the day to day production, quality and other requirements. Mr. Vinit Kothari also gave training regarding the said software. The assessee paid the amount in question to Mr. Vinit Kothari for designing and developing a software and providing training in this respect. The AO had disallowed 1/3rd of the said expenditure whereas the Ld. CIT(A) observed that the amount in question was actually being paid as labour processing charges on which TDS has been deducted. He observed that since Mr. Vinit Kothari was not having any business in individual capacity or running any other business entity where he was doing the labour processing job, hence the payment was nothing but a trick to reduce the profits to avoid tax.

Ground No.6 11. The Ld. CIT(A) has confirmed the addition of unsecured loans of Rs.1,79,400/- under section 68. At the outset, the Ld. A.R. of the assessee has explained that the said amount pertained to the commission of Rs.1,79,400/- (net of TDS) that was already disallowed by the AO and confirmed by the Ld. CIT(A). He has explained that this amount was in respect of commission paid and not the loan received. Considering the above submissions of the assessee, we feel that the issue requires reexamination at the hands of AO. The AO is directed to examine the contentions of the assessee in this regard and decide the issue afresh in accordance with law.

Order pronounced in the open court on 21.10.2015.