| | Once the asset merges in block of assets is entitled to get depreciation till the block of asset equals to zero or company is closed |
| Posted on 28 November 2012 by Apurba Ghosh | |||||||||||||||||||||||||||||||||
CourtINCOME TAX APPELLATE TRIBUNAL BriefFact of the case is depreciation on block of asset. CitationITO, Ward 2 (4), Room No.301, 3rd Floor, CR Building, IP Estate, New Delhi. (Appellant) Vs. Bhandari Engineers & Builders (P) Ltd., 91, Bhandari House, Nehru Place, New Delhi. PAN: AAACB1043K(Respondent) Judgement IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A: NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA No.4892/Del/2010 Assessment Year : 2007-08 ITO, Ward 2 (4), Room No.301, 3rd Floor, CR Building, IP Estate, New Delhi. (Appellant) Vs. Bhandari Engineers & Builders (P) Ltd., 91, Bhandari House, Nehru Place, New Delhi. PAN: AAACB1043K (Respondent) Assessee by: Shri Niren Gupta, CA Revenue by: Shri Ram Bilash Meena, Sr.DR ORDER PER A.D. JAIN, JUDICIAL MEMBER This is an appeal filed by the department for Assessment Year 2007-08 against the order dated 30.08.2010 passed by the CIT (A)-V, New Delhi, taking the following sole effective ground:- "The Ld. CIT (A) has erred on facts and in law in deleting addition of Rs.8,95,351/- made on account of depreciation ignoring that: a) the machinery was not put to use during the whole year under consideration. b) Reliance is placed on the decisions in Unitech Products Ltd. vs. ITO [2008] 22 SOT 430 (Mum); and CIT vs. Bharat Aluminium Co. Ltd. [2010] 187 Taxman 111, wherein it is held that depreciation is allowed only if the asset is used for the purpose of business or profession at least for some time during (not necessarily throughout) the previous year." 2. The assessee claimed depreciation of ` 8,95,351/-, on machinery, as under:-
3. It was contended that during the year, the assessee had no contract receipts; that the assessee was involved in arbitration/legal proceedings to recover its dues/claims from NBC, DS Construction, YOU One Maria in respect of contracts executed in earlier years; that the detailed dues as per the assessee's balance sheet were as follows:-
4. The assessee further contended before the Assessing Officer that it was also to secure contract in Saudi Arabia for approximately ` 300 crores and had also given a bank guarantee of ` 15 crores in furtherance thereof, showing that the assessee was carrying on business activities during the year. 5. The Assessing Officer, however, disallowed the claim of depreciation made by the assessee, placing reliance on the provisions of Section 32 (1) of the IT Act, contending that as per the said provision, depreciation could be allowed on machinery used for the purpose of business or profession and that the claim of depreciation could not be allowed in the absence of any manufacturing activity carried on by the assessee. 6. By virtue of the impugned order, the Ld. CIT (A) deleted the addition made by the Assessing Officer, bringing the department before us. 7. The Ld. DR has contended, challenging the impugned order, that the Ld. CIT (A) has erred in deleting the addition made on account of depreciation; that while doing so, the Ld. CIT (A) has failed to appreciate that the assessee did not put its machinery to use during the whole year, thereby disentitling itself to the claim of depreciation, as per the provisions of Section 32 (1) of the IT Act, which requires depreciation to be allowed only on machinery put to use during the year. The ld. DR has placed reliance on "Unitex Products Ltd. vs. ITO" 22 SOT 429 (Mum) and "CIT vs. Bharat Aluminium Co." 187 Taxman 111 (Del). 8. The ld. counsel for the assessee, on the other hand, has placed strong reliance on the impugned order, submitted that during the year, though admittedly, no manufacturing activity was carried out by the assessee, the assessee was involved in arbitration/legal proceedings to recover its dues/claims, as above and, as such, the assets like office equipment, air conditioners, furniture and fixtures and computers were put to use for the business purposes of the assessee; that user is necessary in the year of purchase or installation, when the depreciation is first claimed and, thereafter, the asset gets merged in the block of assets; that depreciation even on non-existent assets like assets destroyed/stolen, discarded/demolished, where there is no sale value of the asset, or the sale value of the asset is less than its WDV, is allowable under the Act; that in the subsequent years, it is the use of the block of assets, rather than the new asset, which becomes the yardstick for grant of depreciation, as held in "Bharat Aluminium Co." (supra); that in the present case, the assessee had used some of the assets in Block I of assets consisting of plant and machinery, office equipment, air conditioners, etc., entitling it to depreciation on the entire block; that Blocks II and III, consisting of computers and furniture and fixtures were used for day-to-day activities; that the Ld. CIT (A) has correctly deleted the addition wrongly made and in doing so, he has duly taken into consideration all these facts; and that as such, there is no merit in the appeal filed by the department and the same be dismissed. 9. We have heard the parties and have perused the material available on record. Admittedly, no manufacturing activity was carried out by the assessee during the year. The assessee was involved in arbitration/legal proceedings, as above, for recovery of arrears due from its clients/contractors. Undisputedly, the assets on which the depreciation has been claimed stand merged in the block of assets. The assets like office equipment, air conditioners, furniture and fixtures and computers were put to use for the business purposes of the assessee. As such, the assessee has rightly been held entitled to depreciation on the entire blocks. In "Bharat Aluminium Co." (supra), it has been held, inter alia, that once the various assets are kept together and become a block of assets, for the purpose of depreciation, it is one asset; that the new assets lose their identity once they become an inseparable part of the block of assets and it cannot be said that unless a particular asset is used for the purpose of business, depreciation is not to be allowed; that the expression 'used for the purpose of business' in Section 32 (1) of the Act, when applied to a block of assets, would mean the use of the 'block of assets' and not any specific building, machinery, plant or furniture in the said block of assets. "Bharat Aluminium Co." (supra), therefore, is in favour of the assessee, rather than in favour of the department, though the department seeks to place reliance thereon. Therein, it has been held, no doubt, that depreciation is allowable only if the asset is used for the purpose of business at least for some time during the year. Here, however, it is seen that the assets were used during the year for the business purposes of the assessee. "Unitex Products Ltd." (supra) is also to the same effect. Therein, it was held that once an asset was part of a block of assets, and depreciation was granted on that block, it cannot be denied in the subsequent year on the ground that one of the assets was not used by the assessee in some of the years; and that user of assets has to apply upon the block as a whole, instead of upon a new asset. As to how this position runs counter to the claim of the assessee has not been made out on behalf of the department. It rather goes in favour of the assessee and not in favour of the department. 10. The Ld. CIT (A) while deleting the addition, it is seen, has observed as follows:- "11. I have perused the A.O.'s order, written submissions of the ARs and their arguments carefully. Though there is no business receipt of the assessee during this A.Y., there is business activities carried on by him for recovery of arrears due from other clients/contractors. Depreciation is such a thing; it has to be allowed to assessee for purchase or replacement of a new asset of similar nature after certain life span of the equipment, as decided by I.T. Rules. Once the asset merges in block of assets, the assessee is entitled to get depreciation till the block of asset equals to zero or company is closed, which is earlier. If company is closed, then short term capital gain can only be charged to remaining part of depreciation left. The Hon'ble jurisdictional H.C is very clear on treatment of depreciation in the case of BALCO as cited above. The AR's example on sale of Car is also very clear on treatment of depreciation. If the assessee maintains books of accounts on mercantile basis, and there is no sales receipt, still the assessee is entitled to depreciation. The addition made by A.O. of Rs.8,95,351/- is hereby deleted." 11. The Ld. CIT (A) has placed reliance on "Bharat Aluminium Co." (supra) while deleting the addition. 12. In view of the preceding discussion, we do not find any error whatsoever in the order of the Ld. CIT (A) and the same is hereby confirmed. 13. Accordingly, finding no merit in the grievance sought to be raised by the department by way of ground of appeal taken, the same is hereby rejected. 14. In the result, the appeal filed by the department is dismissed. The order pronounced in the open court on 26.10.2012. Sd/- Sd/- [T.S. KAPOOR] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER Dated, 26.10.2012. dk Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY By Order, Deputy Registrar, ITAT, Delhi Benches | |||||||||||||||||||||||||||||||||
 | Unauthorized occupants of premises after termination of tenancy by notice |
| Posted on 28 November 2012 by Apurba Ghosh | |
CourtHIGH COURT OF DELHI BriefImpugned order of 31st May, 2011 upholds petitioner's eviction from ground floor and mezzanine floor of premises No.12/90 at Cannaught Place, New Delhi (henceforth referred to as the 'subject premises'). Respondent- a nationalized bank had purchased subject premises in an auction and the said sale was confirmed by this Court in September, 1974. As respondent- bank had required subject premises for its own bonafide personal use, tenancy of petitioner in the subject premises was terminated by a Notice of 1st November, 1983. Though proceedings for eviction of petitioner from subject premises had commenced under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 in the year 1984, but they had remained stayed as petitioner had preferred writ petition before the Apex Court, which was disposed of in March, 1990. Thereafter, eviction proceedings were resumed. Estate Officer after recording the evidence produced, had passed eviction order of 27th March, 2012 which has been upheld by the Appellate Authority, whose order is under challenge in this writ petition. CitationGONDAL PRESS ..... Petitioner Through: Mr. Ajay Puri, Senior Advocate, With Mr. Amitabh Narayan, Advocate Versus PUNJAB NATIONAL BANK & ANR. ..... Respondents Through: Mr. Rajat Sharma, Advocate Judgement * IN THE HIGH COURT OF DELHI AT New Delhi + W.P.(C) 3721/2012 & CM No.7802/2012 & CM No. 11351/2012 GONDAL PRESS ..... Petitioner Through: Mr. Ajay Puri, Senior Advocate, With Mr. Amitabh Narayan, Advocate Versus PUNJAB NATIONAL BANK & ANR. ..... Respondents Through: Mr. Rajat Sharma, Advocate CORAM: HON'BLE MR. JUSTICE SUNIL GAUR O R D E R % 31.10.2012 1. Impugned order of 31st May, 2011 upholds petitioner's eviction from ground floor and mezzanine floor of premises No.12/90 at Cannaught Place, New Delhi (henceforth referred to as the 'subject premises'). Respondent- a nationalized bank had purchased subject premises in an auction and the said sale was confirmed by this Court in September, 1974. As respondent- bank had required subject premises for its own bonafide personal use, tenancy of petitioner in the subject premises was terminated by a Notice of 1st November, 1983. Though proceedings for eviction of petitioner from subject premises had commenced under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 in the year 1984, but they had remained stayed as petitioner had preferred writ petition before the Apex Court, which was disposed of in March, 1990. Thereafter, eviction proceedings were resumed. Estate Officer after recording the evidence produced, had passed eviction order of 27th March, 2012 which has been upheld by the Appellate Authority, whose order is under challenge in this writ petition. 2. The principle contention advanced by learned senior counsel for petitioner is that eviction proceedings stands vitiated, as opportunity to lead evidence was declined to petitioner and because the subject premises had been already re-entered and that the bonafide requirement of respondent- Bank is not established. 3. To controvert the aforesaid stand taken on behalf of petitioner, respondents' counsel relies upon the impugned order to assert that question of re-entry cannot be subject matter of eviction proceedings when land-lord tenant relationship between the parties is undisputed and bonafide requirement of respondent-Bank stands established from evidence of respondents' witness and petitioner suffers no prejudice because witnesses from Land & Development Office as well as from the New Delhi Municipal Council (hereinafter referred to as the 'L & D.O and NDMC') were not summoned, as it was just a ploy to prolong the eviction proceedings and that non-examination of witnesses from L & D.O and NDMC does not vitiate the eviction proceedings. 4. Submissions advanced, impugned order and the material on record has been duly considered and thereupon it transpires that Estate Officer in its order of 27th March, 2012 (Annexure-B) has framed the issues while passing the order which at first glance, appears to be somewhat incongruous but when eviction order (Annexure-B) is read as it is, then it becomes apparent that use of terminology 'issues' has been inappropriately used whereas what was formulated by the Estate Officer in eviction order (Annexure-B) is the points of determination. Therefore, on this account neither the eviction order (Annexure-B) nor the impugned order (Annexure-A) can be faulted with. 5. At the hearing, much reliance was placed by senior counsel for petitioner upon Estate Officer's order sheet of 9th April, 2010 to show that he was proceeding with pre-determined mind, as much time was consumed by respondent- Bank in filing the rejoinder and so, denial of opportunity to petitioner to examine witnesses from L & D.O and NDMC violates the principles of natural justice, as pendency of eviction proceedings for twenty six years cannot be a valid ground to deny opportunity to petitioner to lead evidence. 6. During the course of hearing, it was put to senior counsel for petitioner as to what for witnesses from L & D.O and NDMC were to be summoned and then it was disclosed that from the evidence of these witnesses it could be shown that the subject premises was re-entered and mutation of subject premises was not in favour of respondent-Bank and this is so evident from RTI Information of April, 2010 (Annexure-D). To say the least, non-examination of witness from NDMC causes no prejudice to petitioner as witness of respondent- Bank had already admitted that the subject premises has not been mutated in its favour. It would be relevant to note the reason put-forth by the witness of respondent-Bank for subject premises having not being mutated in its favour, is that occupants of subject premises had not allowed its inspection by L & D.O officials. Even the evidence of witness from L & D.O regarding subject premises being re-entered would not be of any consequence in the eviction proceedings because once the relationship of land-lord and tenant between the parties is undisputed then petitioner cannot legitimately question the ownership of respondent-Bank, particularly when sale of subject premises to respondent-Bank has been affirmed by this Court vide its Order of 16th November, 1973 (Annexure-E). 7. In view of the aforesaid, the question of re-entry of subject premises pales into insignificance and so RTI information (Annexure-D) which was very much available when petitioner had tendered its evidence and had not relied upon it, would not advance the case of petitioner. Regarding bonafide requirement of subject premises by respondent- Bank, not much is required to be said because there is evidence of Shri N.S. Nayak, Senior Manager of respondent-Bank, of huge rentals being paid by it for running its administrative offices, branches etc.. The evidence tendered on behalf of respondent- Bank of bonafide need of subject premises for administrative/ branch offices remains unshaken in cross-examination. 8. Finding no palpable error in the impugned order, I dismiss the writ petition with costs which are quantified at `50,000/- only and interim order of 13th June, 2012 stands vacated. Pending applications are disposed of as infructuous. (SUNIL GAUR) JUDGE |
| | The notice not received back as unserved is enough to treat served and than non appearance cannot consider |
| Posted on 29 November 2012 by Apurba Ghosh | |
CourtINCOME TAX APPELLATE TRIBUNAL BriefDespite sending notice by the registered post AD sufficiently in advance, assessee did not appear nor any request for adjournment has been received. The notice has also not been received back unserved. Therefore, it is inferred that assessee is not interested in prosecution of these appeals. CitationInder Jain Sons (HUF) C/o-S.Kumar Jain & Associates 2481/9, IInd Floor, New Delhi Gurudwara Road, Karol Bagh, PAN-AAAHI5563E (APPELLANT) Vs ITO,Ward-27(2)New Delhi (RESPONDENT) Judgement IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: 'C' NEW DELHI BEFORE SHRI U.B.S.BEDI, JUDICIAL MEMBER AND SHRI J.S.REDDY, ACCOUNTANT MEMBER I.T.A .Nos-3518 & 3519/Del./2012 (ASSESSMENT YEARs -2001-02 & 2002-03) Inder Jain Sons (HUF) C/o-S.Kumar Jain & Associates 2481/9, IInd Floor, New Delhi Gurudwara Road, Karol Bagh, PAN-AAAHI5563E (APPELLANT) Vs ITO, Ward-27(2) New Delhi (RESPONDENT) Appellant by: None Respondent by: Sh. Satpal Singh, Sr. DR ORDER PER U.B.S.BEDI, JM These two appeals of the assessee emanate from the separate orders passed by CIT(A)-XXIV, New Delhi dated 08.06.2010 & 24.03.2011 for the AYs 2001-02 & 2002-03 respectively. 2. Despite sending notice by the registered post AD sufficiently in advance, assessee did not appear nor any request for adjournment has been received. The notice has also not been received back unserved. Therefore, it is inferred that assessee is not interested in prosecution of these appeals. 3. Having regard to Rule 19(2) and following ITAT, Delhi Bench's decision in the case of Commissioner of Income-tax vs. Multi Plan India (P) Ltd.; 38 ITD 320 (Del), MP High Court decision in the case of Estate of Late Tukojirao Holkar vs. CWT: 223 ITR 480 (M.P) and various other decisions of ITAT. We treat these appeals as unadmitted and dismiss them in limine. 4. In the result, the appeals of the assessee are dismissed. Order pronounced in the Open Court on 23.10.2012. Sd/- Sd/- (J.S.REDDY) (U.B.S.BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23/10/2012 *Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI |
| | Whether foreign traveling expenses is exempted under section 10B |
| Posted on 29 November 2012 by Apurba Ghosh | |
CourtINCOME TAX APPELLATE TRIBUNAL BriefThe assessee has questioned first appellate order on several grounds involving two issues. Firstly as to whether the Ld. CIT(A) has erred in upholding the action of the AO in treating and apportioning the entire foreign traveling expenses of Rs. 19,49,568/- to exports business exempt u/s 10B of the Act instead of Rs. 4,13,308/- apportioned by the assessee company ? (ground Nos. 1.1 to 1.4). Secondly, as to whether the Ld. CIT(A) has erred in sustaining disallowance under section 14A read with Rule 8D of Rs. 11,13,374/- being the estimated expenses allegedly incurred in earning the dividend income and capital gains over and above the disallowance already made by the assesee u/s 14A in its return of income CitationIndica Chemical Industries Pvt. Ltd. A-4, Greater Kailash Part-1 New Delhi 110 048 PAN – AAACI0233Q (Appellant) Vs. Addl. CIT Range – 11 C.R. Building New Delhi. (Respondent) Judgement IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C : NEW DELHI SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA No. 5845/Del/2011 Assessment Year: 2008- 2009 Indica Chemical Industries Pvt. Ltd. A-4, Greater Kailash Part-1 New Delhi 110 048 PAN – AAACI0233Q (Appellant) Vs. Addl. CIT Range – 11 C.R. Building New Delhi. (Respondent) Appellant by: Shri H Mitter, AR. Respondent by: Shri Satpal Singh, Sr. DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER The assessee has questioned first appellate order on several grounds involving two issues. Firstly as to whether the Ld. CIT(A) has erred in upholding the action of the AO in treating and apportioning the entire foreign traveling expenses of Rs. 19,49,568/- to exports business exempt u/s 10B of the Act instead of Rs. 4,13,308/- apportioned by the assessee company ? (ground Nos. 1.1 to 1.4). Secondly, as to whether the Ld. CIT(A) has erred in sustaining disallowance under section 14A read with Rule 8D of Rs. 11,13,374/- being the estimated expenses allegedly incurred in earning the dividend income and capital gains over and above the disallowance already made by the assesee u/s 14A in its return of income ? (ground Nos. 2,2.1 to 2.4) 2. At the outset of hearing the Ld. AR pointed out that the assessee does not wish to press issue No. 2. The related ground Nos. 2,2.1 to 2.4 are required as withdrawn. 3. Ground No. 1 The relevant facts are that the assessee has been engaged in the manufacture of Perlite filteraids and expanded perlite products, perlite blocks at Kotdwar Factories, automobile foam parts at Noida, Pune & Chennai units and Diatomaceous and perlite ore trading at Delhi and Pune. During the course of assessment proceedings, the AO noted that the assessee has claimed exemption u/s 10B of the Act in its EOU Unit located at Noida which is established under EOU scheme for the manufacture and export of part of motor cycles, including automobile components etc. The AO noted that the assessee while preparing the profit and loss account of EOU unit has debited expenditure under the head raw material consumed, packing material consumed , power gas and fuel etc. as direct expenses. However for other expenses under the head like personnel expenses, administrative and selling expenses etc. have not been debited entirely against the sale receipt but have been allocated on the basis of the turnover among exempt and non-exempt units. The assessee claimed to have incurred foreign traveling expenses amounting to Rs. 19,49,567/- which as per the AO was not debited to the profit and loss account of the exempt unit. The AO was of the view that since the entire traveling expenses has been incurred for earning the exempt income, the same need to be debited to the profit and loss account of the exempt unit. The assessee was asked to explain but the AO was not convinced with the explanation furnished by the assessee and thus disallowed the claimed expenses of Rs. 19,49,567/-. The assessee questioned the above action of the AO before the Ld. CIT(A) and it was also argued that an amount of Rs. 497311/- was already reduced by the assessee from the export profit while originally calculating the deduction u/s 10B of the Act and the AO should have taken cognigence of the same while computing the revised profit of the EOU Unit. The Ld. CIT(A) did not agree with the assessee. He however directed the AO to reduce an amount of Rs. 4,97,311/- while computing the profit of EOU unit as the assessee had already reduced this amount in its calculation of deduction u/s 10B. 4. The Ld. AR reiterated the submissions made before the authorities below on the issue. He submitted that some of the foreign visits were common hence in accordance with the method of accounting regularly followed by the assessee, the same like other common expenses were apportioned to the exempt and non exempt units in ratio of their respective turn over. Accordingly out of total foreign traveling expenses of Rs. 19,48,568/- Rs. 4,13,308/- were apportioned to the profit and loss account of EOU unit and Rs. 84,003/- to Kotdwar Unit – II in the ratio of their turnover leaving the balance claim of Rs. 14,52,257/-. He submitted that the apportionment of foreign traveling expenses in the ratio of export turn over to exempt turnover has throughout been accepted by the department in all the earlier years. It is only during the year the AO disregarded the rule of consistency and allocated the entire foreign traveling expenses to export based on misconceived and wrong assumptions. He pointed out that 90% of raw material are imported from 31 foreign suppliers. He pointed out further that even in the assessment year 2009-10 the AO has accepted the account of apportionment of foreign traveling expenses in the ratio of export turn over and exempt turnover adopted by the assessee. The Ld. AR referred page No. 4 to 50 of the paper book filed on behalf of the assessee. These are the copies of profit and loss account and balance sheet alongwith copies of schedule 1 to 4 and 15. He also referred page Nos. 23 to 39 of the paper book. These are the copies of list of suppliers of imported raw material and the countries in which they are located and the export buyers, invoices for export to middle east countries, invoices for participation in EP minerals distributors made in USA and detailed agenda, statement of assessable income filed alongwith the return of income in which expenses attributable to exempt income was disallowed. These documents were filed before the Ld. CIT(A). He also referred page Nos. 13 to 16 of the paper book ( assessee) i.e. copy of letter dated 18.10.2010 filed before the AO. The Ld. AR contended that without considering the above submissions, the authorities below have decided the issue against the assessee. 5. Ld. DR on the other hand oppose the ground and tried to justify the orders of the authorities below. 6. Considering the above submissions especially keeping in mind that in earlier years and in the next assessment year 2009-10, the AO has accepted the similar method of apportionment of foreign traveling expenses in the ratio of export turnover and exempt turnover adopted by the assessee, we are of the view that due consideration has not been given to the submission of the assessee made in this regard by the authorities below. We also find that the assessee should have furnished details of the claimed expenditure to examine its correctness and genuineness. We thus set aside the issue to the file of the AO for fresh consideration after affording opportunity to the assessee to furnish the details of the claim and represent its case. The ground Nos. 1 to 14 involving the issue are thus allowed for statistical purpose. 6. Consequently appeal is allowed for statistical purpose. Order is pronounced in the open court on 30th October, 2012. Sd/- Sd/- (A.N. PAHUJA) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 30/10/2012 *Veena Copy of order forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By Order Deputy Registrar, ITAT | |
| Tags :- whether foreign traveling expenses exempted section 10b |
| | Opportunity to explain source after non responding to subsequent notices by AO |
| Posted on 30 November 2012 by Apurba Ghosh | |
CourtINCOME TAX APPELLATE TRIBUNAL BriefFacts, in brief, as per relevant orders are that return declaring income of ``1,12,277/- beside agricultural income of ``1,05,000/-,filed on 9th July, 2007 by the assessee, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act) issued on 23.07.2008. In this case, AIR information was received that the assessee deposited a sum of ``11 lacs in his saving bank account with Bank of Baroda, Shalimar Bagh, West Branch, Delhi. In response to the aforesaid notice u/s 143(2) of the Act issued on 23.07.2008 at the Kapurthala address given on PAN card, none responded. In response to a subsequent notice issued on 25th August, 2008 at Rohini address, the assessee appeared before the Assessing Officer[AO in short] on 5th September, 2008,when he was requested to file copy of bank statement of all accounts held by him during the previous year, statement of affairs as on 31.3.2006 and 31.3.2007 and history of the assessee along with details of his family and business & the case was adjourned to 22.09.2008. On the adjourned date, no compliance was made by the assessee. Even the subsequent notice dated 5th June, 2009 issued u/s 143(2) of the Act was returned by the postal authorities with the remarks 'premises locked'. Another notice sent on 9th October, 2009 was also returned by the 'postal authorities with the remarks ' left'. In these circumstances, the AO obtained a copy of bank statement of the assessee u/s 133(6) of the Act from the Bank of Baroda, Shalimar Bagh Branch, Delhi. Thereafter, though the AO issued three notices to the assessee u/s 143(2) of the Act on 06.11.2009 at assessee's addresses viz.. 353, Basti Gujra, Jullunder City, Punjab; WZ-8A, Kirti Nagar, New Delhi and village Pondoori Rajputhan, PS Bholath, District Kapurthala, Punjab, requiring his presence on 16.11.2009. However, notice sent to Jullunder & Kirti Nagar,Delhi, were returned unserved by the postal authorities. In these circumstances, when the assessee did not explain the source of cash deposited in his bank account with the Bank of Baroda, the AO proceeded to complete the assessment ex parte u/s 144 of the Act by treating the aforesaid cash amounting to ``11 lacs as unexplained deposit and added u/s 68 of the Act. CitationKuldeep Singh Ghotra A-3/14-15, Sector -11, Rohini, New Delhi [PAN: AYZPS 1699 E ] (Appellant) V/s.Income-tax Of f icer, Ward 21(4),New Delhi (Respondent) Judgement IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'D' BENCH BEFORE SHRI RAJPAL YADAV, JM & SHRI A.N. PAHUJA, AM ITA No.4426 /Del/2012 Assessment year: 2007-08 Kuldeep Singh Ghotra A-3/14-15, Sector -11, Rohini, New Delhi [PAN: AYZPS 1699 E ] (Appellant) V/s. Income-tax Of f icer, Ward 21(4), New Delhi (Respondent) Assessee by Shri Pankaj Dadu, AR Revenue by Ms. Priscil la Singsi t , DR Date of hearing 17-10-2012 Date of pronouncement 17-10-2012 O R D E R A.N.Pahuja:- This appeal filed on 16.08.2012 by the assessee against an order dated 29.02.2012 of the ld. CIT(A)-XI, New Delhi, raises the following grounds:- "The learned Assessing Officer, Ward 21(4), New Delhi has erred in making additions of ``49,433/- on account of deduction under chapter VI-A for want of evidence and ``11 lacs on account of unexplained cash credits. The learned Assessing Officer received information through AIR that the assessee has deposited cash of ``11 lacs in his bank account during financial year 2006-07. After which a notice u/s 143(2) was issued on assessee but the assessee did not receive any notice in respect of that and Assessing Officer without going into the depths and the facts of the case and without providing the opportunity added the said sum to the income of the assessee. An appeal was filed before CIT(A)-XI, New Delhi. But the same was also dismissed by CIT(A)-XI, New Delhi which is totally unfair and unjustified. The above said additions may please be ordered to be deleted. The assessee reserves the right to modify, alter, amend or/and add grounds of appeal on proceedings of the case. 2. Facts, in brief, as per relevant orders are that return declaring income of ``1,12,277/- beside agricultural income of ``1,05,000/-,filed on 9th July, 2007 by the assessee, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act) issued on 23.07.2008. In this case, AIR information was received that the assessee deposited a sum of ``11 lacs in his saving bank account with Bank of Baroda, Shalimar Bagh, West Branch, Delhi. In response to the aforesaid notice u/s 143(2) of the Act issued on 23.07.2008 at the Kapurthala address given on PAN card, none responded. In response to a subsequent notice issued on 25th August, 2008 at Rohini address, the assessee appeared before the Assessing Officer[AO in short] on 5th September, 2008,when he was requested to file copy of bank statement of all accounts held by him during the previous year, statement of affairs as on 31.3.2006 and 31.3.2007 and history of the assessee along with details of his family and business & the case was adjourned to 22.09.2008. On the adjourned date, no compliance was made by the assessee. Even the subsequent notice dated 5th June, 2009 issued u/s 143(2) of the Act was returned by the postal authorities with the remarks 'premises locked'. Another notice sent on 9th October, 2009 was also returned by the 'postal authorities with the remarks ' left'. In these circumstances, the AO obtained a copy of bank statement of the assessee u/s 133(6) of the Act from the Bank of Baroda, Shalimar Bagh Branch, Delhi. Thereafter, though the AO issued three notices to the assessee u/s 143(2) of the Act on 06.11.2009 at assessee's addresses viz.. 353, Basti Gujra, Jullunder City, Punjab; WZ-8A, Kirti Nagar, New Delhi and village Pondoori Rajputhan, PS Bholath, District Kapurthala, Punjab, requiring his presence on 16.11.2009. However, notice sent to Jullunder & Kirti Nagar,Delhi, were returned unserved by the postal authorities. In these circumstances, when the assessee did not explain the source of cash deposited in his bank account with the Bank of Baroda, the AO proceeded to complete the assessment ex parte u/s 144 of the Act by treating the aforesaid cash amounting to ``11 lacs as unexplained deposit and added u/s 68 of the Act. 3. On appeal, the ld. CIT(A) issued a notice dated 24th July, 2011 for hearing on 18th August, 2011, when adjournment was sought by the assessee for 9th September, 2011. None appeared on this date nor responded to subsequent notice dated 19th December, 2011 requiring the assessee to attend on 18.01.2012. The notice dated 24.01.2012 issued for hearing on 15.02.2012 also went unresponded. Another notice dated 31.1.2012 for hearing on 24.2.2012 was handed over to the AO for service through the inspector . The AO had the said notice served through affixture on the premises of the assessee at A-3/14- 15, Sector-11, Rohini, Delhi. None responded to this notice also. In these circumstances, when the assessee did not appear before the ld. CIT(A) nor filed any written submissions, the ld.CIT(A) disposed of the appeal ex parte, holding as under:- "I have perused the documents on record. I shall now take up the various grounds of appeal. The only ground of appeal is in r/o an addition of `11 lacs as unexplained deposit. The Assessing Officer had made the addition since no submissions were filed by the appellant in spite of various opportunities. In spite of several opportunities being given to the appellant. Since no further submissions/evidence was given before me by the appellant the addition of `11 lacs made by the Assessing Officer is confirmed. The grounds of appeal are rejected." 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, the ld. AR on behalf of the assessee prayed that the assessee should be allowed another opportunity to explain the source of cash deposited in his savings bank account with the Bank of Baroda. Similar request has been made in written submissions filed before us. To a query by Bench as to why the assessee did not respond to various notices issued by the AO even after he personally appeared before him on 5th September, 2008 and nor even responded to the subsequent notices issued u/s 143(2) of the Act as also why after seeking adjournment on 18.8.2011 in pursuance to notice issued by the ld. CIT(A) , the assessee did not respond to any of the subsequent notice nor filed any submissions, the ld. AR on behalf of the assessee did not reply and instead reiterated that the matter may be restored to the file of the AO for a fresh opportunity. To a further query by the Bench as to when the default committed by the assessee before the AO and learned CIT(A) have not been explained, why cost of ``10,000/- be not imposed, the ld. AR feebly replied that cost should be reasonable. On the other hand, the ld. DR did not oppose the submissions of the ld. AR for restoring the matter back to the file of the AO for a fresh opportunity. 5. We have heard both the parties and gone through the facts of the case. Indisputably the assessee having appeared personally before the AO on 5th September, 2008, did not explain the source of cash of ``11 lacs deposited in his savings bank account despite sufficient opportunity allowed by the AO nor submitted any explanation before the ld. CIT(A) even after seeking adjournment on 18th August, 2011. The ld. AR did not adduce any reasons before us for noncompliance of various notices issued by the AO and the ld. CIT(A) nor even placed before us any material, explaining the source of aforesaid cash of `11 lacs. In these circumstances, especially when the assessee is now prepared to explain the source of cash deposited in his bank account, in the interest of justice and fair play, we vacate the findings of the ld. CIT(A) and restore the matter to the file of the AO with the directions to allow another opportunity to the asssessee to explain the source of aforesaid cash , subject to payment of cost of ``10,000/- to the Revenue and thereafter, dispose of the matter in accordance with law. It may be clarified that the AO is free to undertake any independent enquires, if found necessary and thereafter, may pass such orders as he deems proper, in accordance with law. The assessee shall pay cost of ``10,000/- to the Revenue within a week of receipt of this order and furnish a copy of challan. Thereafter, the assessee shall suo motu appear before the AO on 18.12.2012 along with evidence, explaining the source of cash of `11 lacs, for expeditious disposal of the matter. With these directions, grounds. raised in the appeal are disposed of , as indicated hereinbefore. 6. No additional ground having been raised before us in terms of residuary ground in the appeal, accordingly, this ground is dismissed. 7. No other plea or argument was made before us. 8. In the result, appeal is allowed but for statistical purposes. Order pronounced in open Court Sd/- Sd/- (RAJPAL YADAV ) (A.N. PAHUJA) (Judicial Member) (Accountant Member) NS Copy of the Order forwarded to:- 1. Assessee 2. Income-tax Officer, Ward 21(4), New Delhi. 3. CIT concerned. 4. CIT(A)-XI,New Delhi 5. DR, ITAT, 'D' Bench, New Delhi 6. Guard File. By Order, Deputy/Asstt.Registrar ITAT, Delhi |
| | TDS on payment to transporter on hired buses |
| Posted on 30 November 2012 by Apurba Ghosh | |
CourtINCOME TAX APPELLATE TRIBUNAL BriefThe brief facts of the case are that the assessee is a company engaged in the business of manufacture and trade in colour TVs, air-conditioners, refrigerators, microwave oven, washing machine, compressors, vacuum cleaners etc. It emerges out from the order of the Assessing Officer that a survey was conducted. The assessee has hired busses/taxies. It has made payment of hire charges to the concerned company after deducting tax under sec. 194C of the Act @ 2%. Learned Assessing Officer was of the opinion that in view of the amended provisions of sec. 194I of the Act w.e.f. Ist June 2007 to 30th June 2009 TDS ought to have been deducted @ 10%. CitationAssistant CIT(TDS), Noida-201301 (UP) (Appellant)Vs M/s. LG Electronics India Pvt. Ltd., Plot No. 51, Udyog Vihar, Surajpur-Kasna Road, Gr.Noida, Gautambudhnagar. (PAN: MRTL00324C) (Respondent) Judgement IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH "D" New Delhi) BEFORE SHRI RAJPAL YADAV AND SHRI A.N. PAHUJA ITA Nos. 4370 to 4372/Del/2012 Asst. Yrs: 2008-09, 2009-10 & 2010-11 Assistant CIT(TDS), Noida-201301 (UP) (Appellant) Vs. M/s. LG Electronics India Pvt. Ltd., Plot No. 51, Udyog Vihar, Surajpur-Kasna Road, Gr.Noida, Gautambudhnagar. (PAN: MRTL00324C) (Respondent) Appellant by: Shri Priscilla Singsit, CIT(DR) Respondent by: None ORDER PER RAJPAL YADAV: JUDICIAL MEMBER The present three appeals are directed at the instance of the revenue against the orders of even date i.e. 10.05.2012 passed by the Learned CIT(Appeals) for assessment years 2008-09 to 2010 11. The grounds of appeals raised by the revenue are verbatim same except variation of date and quantum. They are not in accordance with Rule 8 of the ITAT Rules, they are descriptive and argumentative in nature. In brief, the solitary issue is whether assessee has to deduct TDS under sec. 194C or 194I of the Incometax Act, 1961 on the payments made to the transporters who have plied their buses for transporting the employees and their wards to different destinations as per the agreement between the assessee and the transporters. 2. The brief facts of the case are that the assessee is a company engaged in the business of manufacture and trade in colour TVs, air-conditioners, refrigerators, microwave oven, washing machine, compressors, vacuum cleaners etc. It emerges out from the order of the Assessing Officer that a survey was conducted. The assessee has hired busses/taxies. It has made payment of hire charges to the concerned company after deducting tax under sec. 194C of the Act @ 2%. Learned Assessing Officer was of the opinion that in view of the amended provisions of sec. 194I of the Act w.e.f. Ist June 2007 to 30th June 2009 TDS ought to have been deducted @ 10%. The assessee had made the following payments of hire charges: Rs. 4,42,69,310 F.Y. 2009-10 Rs. 103,072,814 F.Y. 2008-09 Rs. 78,924,153 F.Y. 2007-08 Learned Assessing Officer has confronted the assessee as to why TDS @ 10% was not deducted. The assessee filed submissions vide letter dated 25.3.2011 and pointed out that it was just a service contract and on service contract, TDS was to be deducted under sec. 194C of the Act. The assessee has relied upon the Board's Circular as well as the Order of the ITAT passed in the case of TATA AIG General Insurance Co. Ltd. vs. ITO. Learned Assessing Officer has reproduced the submissions of the assessee but was not satisfied with the explanation. He relied upon the judgment of the Hon'ble Supreme Court in the case of M/s. Associated Hotels & India Ltd. vs. R.N. Kapoor, AIR 1959 page 262. He was of the opinion that Hon'ble Supreme Court has propounded that if under the documents, a party gets exclusive possession of the property, prima facie, he will be considered as a tenant. According to the Assessing Officer, assessee got the possession of the buses and, therefore, it would be construed that the assessee has taken the buses on rent/lease. It is a plant and machinery and on payment of rent a TDS has to be deducted @ 10%. Accordingly, he treated the assessee in default for short deduction of TDS. He raised a demand of Rs.241,11,476 under sec. 201(1)/201(IA) of the Act for assessment years 2008-09 to 2010- 11. He has given the break up on page Nos. 10 & 11 of the impugned order. 3. On appeal, Learned CIT(Appeals) found that assessee had entered into a contract with the owners of the buses for transportation of employees of the company by busses/cab. This agreement was for the facility of transportation. It was the liability of the transporter to maintain the buses, employ a driver. The buses will remain in the possession of the owner. The transporter shall indemnify and keep indemnify the company against any loss, charges, damages and expenses incurred or suffered by the company on account of transporter not having valid license. On an analysis of the agreement, Learned CIT(Appeals) arrived at a conclusion that it is a work contract and the TDS is to be deducted under sec. 194-C of the Act because this work duly falls within the ambit of expression work provided at clause- C Sr. No.IV of Explanation appended to sec. 194C of the Act. 4. In response to the notice of hearing, no one has come present on behalf of the assessee. With the assistance of learned DR, we have gone through the record carefully. On perusal of the Learned CIT(Appeals)'s order, we do not find any merit in these appeals, therefore, we did not explore the other modes of effecting service of notice upon the assessee. We find that Learned CIT(Appeals) has analysised the agreement in the light of ITAT's order passed in the case of ACIT Vs. Accenture Services Pvt. Ltd. reported in 44 SOT 290 and the order of the ITAT in the case of M/s. APJ School Film City, Sector 16A, NOIDA in ITA No. 5882 & 5888/Del/2010. Before the learned first appellate authority, learned ACIT has relied upon the decision of Hon'ble Supreme Court in the case of Associate Hotels Vs. R.N. Kapoor (supra). In our opinion, learned Assessing Officer failed o infer correct position of law from this case. It is observed by the Learned CIT(Appeals) that this case contemplates the exclusive possession of a person over a property, if the document suggests such possession. In the present case, the possession over the buses is of the transporter and not of the assessee. 5. We have also come across similar issues in the cases of ACIT vs. National Capital PowerStation, NTPC Ltd., Vidyut Nagar, Dadri, Gautambudhnagar (UP) rendered in ITA No. 5885/Del/2010. The findings of the ITAT including arguments of the Learned DR read as under: "4. Learned DR while impugning the order of the Learned CIT(Appeals) contended that assessee has taken the busses on hire. It means that the buses were taken on lease and such buses are to be construed as plant. Since the lease payment was made for the hiring of the plant, its case comes within the ambit of explanation appended to sec. 194 I of the Act. It provides that any rent paid for plant or machinery or equipment then TDS is to be deducted at 10%. The learned counsel for the assessee on the other hand, submitted that Assessing Officer has misconstrued the provisions. The assessee has not taken the buses on lease. It had entered into a contract of service whereby the travel agencies were required to supply the buses for transportation of the passengers. The buses were to be plied for a fixed number of hours. The vehicles would remain in the possession of the travel agency. The agency would provide its driver and also maintain the vehicle in good shape. In other words, all responsibility for plying the vehicles is of the transporters. Thus, according to the assessee, it was a service contract of transporting the passengers. It has not taken the buss on lease and used them as plant in business. The learned counsel for the assessee further contended that a similar issue in somewhat different context came up before the Hon'ble Delhi High Court in the case of CIT vs. Prasar Bharti reported in 292 ITR 580. In that case, the facts are that assessee was making certain payment to outside producer for programs under "commissioned category" for which the assessee had been deducting the tax at source under sec. 194C by treating them as contract payment. Assessing Officer alleged that it is fee for professional services or fee for technical service within the ambit of sec. 194J and, therefore, assessee ought to have deducted TDS under sec. 194J of the Act. Learned CIT(Appeals) dismissed the appeal of the assessee. The issue travelled to the ITAT. The ITAT has observed that Explanation 3 of section 194C provides the meaning of expression "work" which includes advertising, broadcasting and telecasting including production of programming for such broadcasting and telecasting. According to the ITAT, a specific provision has been made in sec. 194C which bring within its ambit the contractual work concerning broadcasting and telecasting, therefore, revenue cannot apply section 194J which is more general term. Hon'ble Delhi High Court has upheld this view of the ITAT. The learned counsel for the assessee pointed out in the present case also at Sr. No.4 of the explanation appended to sec. 194C, meaning of expression "work" has been given which provides (a) advertising; (b) broadcasting & telecasting including production of programs for such broadcasting and telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) x x x, (e) x x x. On the strength of Hon'ble Delhi High Court's decision, he pointed out that once specific provision has been provided then there is no need to apply section 194 I of the Act which is in relation to deduction of TDS on payment of rent. 5. We have duly considered the rival contentions and gone through the record carefully. The first disputed point is whether it is a payment being contract of service or a rent for hiring a plant. The emphasis of the Learned DR was that assessee has hired a bus which is akin to taking a plant on lease, therefore, the payment made by the assessee to the travel agency has to be construed as a rent paid for the bus. On the other hand, contention of the assessee is that it has availed the facility of transportation from the travel agency. It has not taken the bus in its possession. According to the contract, the travel agency has to ply the bus for a fixed number of hours. Thus, it is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C. The assessee has placed on record copy of a letter of award for hiring of busses. It has also placed on record copy of the contract entered on Ist of February 2008. On perusal of these documents, it reveals that assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours. Before the Learned First Appellate Authority, assessee has made a reference to Circular No. 558 dated 28.3.1990 issued by the CBDT. In the circular, board has considered this aspect and was of the view that where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service contract for carrying out the work. It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service. Learned First Appellate Authority has considered this aspect while observing that it is a service contract and assessee was to deduct tax under sec. 194 C of the Act. Considering the order of Learned CIT(Appeals) and in view of the above discussion, we do not find any merit in this appeal. It is dismissed". 6. ITAT has also examined this issue in the case of ACIT vs. Accenture Services Pvt. Ltd. 44 SOT 209. Respectfully following the order of the Coordinate Benches, we are of the view that hiring of busses for transportation of employees or their wards is not akin to taking of a plant and machinery on lease. It is only a service contract and the TDS is to be deducted under sec. 194C of the Act @ 2%. Learned first appellate authority has rightly held the assessee not in default under sec. 201(1)/201(1A) of the Act. The appeals are de void of any merit, hence dismissed. Decision pronounced in the open court on 19.10.2012 Sd/- Sd/- (A.N. PAHUJA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19/10/2012 Mohan Lal Copy forwarded to: 1) Appellant 2) Respondent 3) CIT 4) CIT(Appeals) 5) DR:ITAT ASSISTANT REGISTRAR |
2012-TIOL-192-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' AHMEDABAD
BENCH 'A' AHMEDABAD
ITA No.4046/Ahd/2008
Assessment Year: 2005-06
Assessment Year: 2005-06
M/s DETIBH INDIANA
J V, A/1, MANISH APARTMENT
TITHAL ROAD, VALSAD
PAN NO:AAAAD3126F
J V, A/1, MANISH APARTMENT
TITHAL ROAD, VALSAD
PAN NO:AAAAD3126F
Vs
INCOME TAX OFFICER
WARD-1, VALSAD, GUJARAT
WARD-1, VALSAD, GUJARAT
Mukul Kr. Shrawat, JM and B P Jain, AM
Dated: January 20, 2012
Appellant Rep by: Shri S N Soparkar, AR
Respondent Rep by: Shri Awijit Rakshit
Respondent Rep by: Shri Awijit Rakshit
Income tax - Sections 40(a)(ia), 40A(2)(b), 44AD, 143(3), 145, 194C, 200(1) - AOP - Whether when the assessee-AOP passes on its entire income to its shareholders in the capacity of sub-contractor, provisions of Sec 40A(2) automatically comes into play - Whether when the assessee has declared NIL income, an estimated profit of 5% taken into consideration by the AO is sustainable.
Assessee was subjected to tax for A.Y. 2005-06 under the status of AOP. Return of income was filed at Rs NIL. It was noted by the AO that the assessee-AOP was engaged in the business of civil construction. The AOP had undertaken the work of Kandla Port Trust, Nirman Building, New Kandla. The gross contract receipt were shown at Rs.55,24,769/-. AO had also noted that the said Kandla Port Trust had deducted the tax at source on the said receipts. An another fact had also been noted by the AO that the assessee-AOP had two member shareholders - M/s Detibh Engineers (I) Pvt.Ltd and M/s. Indiana Build. The AOP had passed on its entire receipts of Kandla Port Trust in the hands of the two members stated to be as sub-contract payment, which h resulted into "NIL" income in the hands of the AOP and so the entire TDS as claimed as refund. The assessee was asked to submit a copy of return of M/s.Detibh Engineers (I) Pvt.Ltd., member of AOP, and found that for A.Y. 2005-06 total sales were Rs.2,74,40,050/-, however profit was shown at Rs.3,97,324/- which included income from other sources at Rs.3,20,190/- and therefore leaving a meager amount of Rs.77,134/-, as business profit, from the said huge turnover. It was also noted by the AO that the return of the said AOP- member was filed at Mumbai. The objection of the AO was that a sub-contract was given by the assessee to its members. Those members are the persons specified u/s.40A(2)(b) of IT Act. The AOP had passed on the entire amount to its member without retaining any profit, therefore clearly hit by the provisions of section 40A(2)(b) of IT Act. AO has also opined that due to the said unreasonable payment to members, the books of accounts were not properly maintained by the assessee. Therefore, by invoking the provisions of section 145 the book result was rejected. Thereafter, AO referred to section 44AD of IT Act so as to apply a net profit rate on the receipts of the assessee since undisputedly the assessee happened to be a civil contractor. As per AO, though section 44AD envisages that in case of an assessee having turnover of less than Rs.40 lacs, a net profit @ 8% on the turnover could be taken, but the assessee's turnover had exceeded the said limit of turnover. Hence the AO held that it would be fair and reasonable to estimate the profit @ 5% on the total turnover which was calculated at Rs.2,76,238/-. It was worth to mention at this juncture that this profit was not finally taxed in the hands of the assessee because alternatively the A.O. had applied the provisions of an another sec.40(a)(ia).
The AO also pointed out that the payment was made to sub-contractors and the tax deducted thereon was belatedly deposited to the Government account. It was found by the AO that on payment of Rs.55,24,769/- to member-sub-contractor the assessee deducted tax at source of Rs.61,878/- when the amount was credited/paid in the respective account on 31.3.2005. However, the amount so deducted as per the accounts was in fact deposited in Government account on 9.6.2005, when the same ought to have been deposited on or before 31.5.2005. By narrating the provisions of section 40(a)(ia), it was held by the AO that the assessee had not deposited the tax which was deducted u/s.194C of IT Act before the expiry of the time prescribed u/s.200(1) of IT Act. In the result, the claim of deduction of labour charges payment was held as not admissible to the assessee. Resultantly, the entire payment was disallowed. The AO has clarified that on account of the entire amount of disallowance of the total receipts Rs.55,24,770/- no separate addition on account of estimated profit was required. Accordingly an assessment was made which was challenged before CIT(A) but did not get relief.
On appeal, the Tribunal held that,
++ we are of the considered view that the issues raised by this appellant in the grounds of appeal require readjudication at the end of the CIT(A). Before us, a joint venture agreement dated 30th day of January-2004 is placed on record. There is a supplementary agreement; (i) signed on 8th day of February-2005. There is one more agreement in respect of the said contract signed by a contractor on one hand and on another hand signed by Chairman of Kandla Port Trust. These agreements and the terms and conditions laid down therein are important so as to examine the justification of transfer of profit by the appellant-AOP to its member. The authorities below have not examined the terms and conditions under which the AOP had transferred the amount of Rs.55,24,769/- in the account of one of its member. From the orders of the Revenue Authorities, it is not evident that whether they have examined the correct nature of the payment and that whether the nature of payment was from a contractor to a sub-contractor. First of all, this preliminary enquiry has to be satisfied so as to arrive at the applicability of the provisions of section 40(a)(ia) r.w.s. 194C of IT Act;
++ if on investigation, the AO arrives at a conclusion that the provisions of section 194C are to be attracted then the next question is that the tax deducted at source of Rs.61,878/- as on 31.03.2005 was undisputedly deposited on 9/06/2005 was within the prescribed time specially when the return of income was filed on 29/10/2005. It is pertinent to mention that the provisions of section 40(a)(ia) and the proviso annexed had undergone few amendments in the recent past. The AO has to ascertain the correct provision of law as applicable for the year under consideration so as to justify the invocation of this section;
++ next is the question of the invocation of section 40A(2)(b) by the AO and thereafter applying the estimated profit at 5% on the said amount. For the purpose of invocation of this section one of the essential ingredients is that where an assessee incurs any expenditure and the AO is the opinion that such an expenditure is excessive, then the unreasonable amount is not to be allowed as a deduction. But in the present case, whether the impugned payment to its member was in the nature of an expenditure; has not been clearly established. To ascertain and determine the nature of payment the clauses of the agreement and the surrounding circumstances of the case are required to be examined by CIT(A) in the light of the facts narrated by the AO. In this context, it is worth to refer a remand report dated 21/04/2008 furnished before CIT(A) wherein it was informed that the assessee had received a contract from Kandla Port Trust and gave a sub-contract to Detibh Engineers (I) Pvt.Ltd. and Indiana Build. In this remand report, the AO has commented that those receipts were not capital receipts in the hands of the assessee. The AO has also raised a question quote "Now question arises as what is the nature of receipts was it loan/advance/relinquishment of right/gift. Answer is as simple as that these are payments by assessee towards sub-contract for the work executed for Kandla Port Trust" unquote. In our considered view, this aspect requires an in depth adjudication on the basis of the agreements executed between the parties and the constitution of this AOP on the basis of which the alleged amount was transferred in the hands of the members. On account of these reasons, both the issues raised before us vide above referred five grounds are restored back to the file of CIT(A) for de novo adjudication in the light of the directions made hereinabove.
Case remanded
ORDER
Per: Mukul Kr. Shrawat:
This is an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-Valsad dated 25/08/2008. Grounds raised are reproduced below:-
"1. The learned Commissioner of Income tax (Appeals) has erred in law and on facts in upholding estimating profit of the appellant at Rs.2,76,238/- by the learned Assessing Officer by invoking provisions of section 40A(2)(b) of the Income Tax Act, 1961.2. That the learned CIT(Appeal) erred in law and on facts in upholding rejection of book results by the learned Assessing Officer u/s.145 of the Act.3. That the learned CIT (Appeal) erred in law and on facts in approving the invocation of provisions of section 40(a)(ia) of the Act by the learned Assessing Officer, even though the learned Assessing Officer had not allowed any deduction under section 30 to 38 of the Act while estimating the profit of the appellant at Rs.2,76,238/- and subsequently assessing the income of the appellant at Rs.55,24,770/- for the year under appeal.4. That the learned CIT (Appeal) erred in law and on facts in ignoring amendments to Section 40(a)(ia) made by Finance Act, 2008 retrospectively w.e.f. 01-04-2005 while approving application of provision of section 40(a)(ia) of the Act by the learned Assessing Officer while assessing the income of the appellant at Rs.55,24,770/-."
2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 17/12/2007 were that the assessee was subjected to tax for A.Y. 2005-06 under the status of AOP. Return of income was filed at Rs.NIL. It was noted by the AO that the assessee-AOP is engaged in the business of civil construction. The AOP had undertaken the work of Kandla Port Trust, Nirman Building, New Kandla. The gross contract receipt were shown at Rs.55,24,769/-. AO has also noted that the said Kandla Port Trust had deducted the tax at source on the said receipts. An another fact has also been noted by the AO that the assessee-AOP has two members as per the following shares ratio holding:-
| "Name of the Member | Share |
| (i) M/s. Detibh Engineers (I) Pvt.Ltd. | 97.75% |
| (ii) M/s. Indiana Build | 2.25%" |
3. The AOP had passed -on its entire receipts of Kandla Port Trust in the hands of aforementioned two members stated to be as sub-contract payment. Which has resulted into "NIL" income in the hands of the AOP and so the entire TDS as claimed as refund. The assessee was asked to submit a copy of return of M/s.Detibh Engineers (I) Pvt.Ltd., member of AOP, and found that for A.Y. 2005-06 total sales were Rs.2,74,40,050/-, however profit was shown at Rs.3,97,324/- which included income from other sources at Rs.3,20,190/- and therefore leaving a meager amount of Rs.77,134/-, as business profit, from the said huge turnover. It has also been noted by the AO that the return of the said AOP- member was filed at Mumbai. The objection of the AO was that a sub-contract was given by the assessee to its members. Those members are the persons specified u/s.40A(2)(b) of IT Act. The AOP had passed on the entire amount to its member without retaining any profit, therefore clearly hit by the provisions of section 40A(2)(b) of IT Act. AO has also opined that due to the said unreasonable payment to members, the books of accounts were not properly maintained by the assessee. Therefore, by invoking the provisions of section 145 the book result was rejected. Thereafter, AO has referred section 44AD of IT Act so as to apply a net profit rate on the receipts of the assessee since undisputedly the assessee happened to be a civil contractor. As per AO, though section 44AD envisages that in case of an assessee having turnover of less than Rs.40 lacs, a net profit @ 8% on the turnover could be taken, but the assessee's turnover has exceeded the said limit of turnover. Hence the AO had held that it would be fair and reasonable to estimate the profit @ 5% on the total turnover which was calculated at Rs.2,76,238/-. It is worth to mention at this juncture that this profit was not finally taxed in the hands of the assessee because alternatively the A.O. had applied the provisions of an another sec.40(a)(ia) and that disallowance was taxed, relevant discussion follows.
3.1. An another point has also been raised by the AO that the payment was made to sub-contractors and the tax deducted thereon was belatedly deposited to the Government account. It was found by the AO that on payment of Rs.55,24,769/- to member-sub-contractor the assessee deducted tax at source of Rs.61,878/- when the amount was credited/paid in the respective account on 31.3.2005. However, the amount so deducted as per the accounts was in fact deposited in Government account on 9.6.2005, when the same ought to have been deposited on or before 31.5.2005. By narrating the provisions of section 40(a)(ia), it was held by the AO that the assessee had not deposited the tax which was deducted u/s.194C of IT Act before the expiry of the time prescribed u/s.200(1) of IT Act. In the result, the claim of deduction of labour charges payment was held as not admissible to the assessee. Resultantly, the entire payment was disallowed. The AO has clarified that on account of the entire amount of disallowance of the total receipts Rs.55,24,770/- no separate addition on account of estimated profit was required. Accordingly an assessment was made which was challenged before ld.CIT(A).
4. The ld.CIT(A) has called for a remand report. The basic facts, such as, the assessee-AOP received an order from Kandla Port Trust and that tax was deducted by the said Trust and that the AOP is constituted by two Members, one of them had 97.75% share, namely M/s.Detibh Engineers (I) Pvt. Ltd.. and that sub-contract payment of Rs.55,24,769/- was passed on to the said member. We have carefully perused the impugned order of the ld.CIT(A) and we have noted that the finding of ld.CIT(A) is only in respect of estimation of income by applying the profit rate at 5% on the total turnover. We have found that there was no final verdict in respect of the disallowance made u/s.40(a)(ia) of Rs.55,24,769/-. In fact, the total income was assessed by the AO on the said amount. It appears that the first ground raised before ld.CIT(A) was not correctly addressed. It appears that the ld.CIT(A) has given the verdict only in respect of the additional ground raised by the assessee. This fact is evident from the order of the ld.CIT(A) wherein on page Nos.2 & 3 the assessee's grounds and additional grounds were reproduced. Finally, ld.CIT(A) has held as under:-
"Considering the rival contentions, I found the contentions raised by the AR of the app is more of a convenience than legal interpretation. Since, the law is amended in respect of the provisions of section 40a(ia) of the Act, he has conveniently shifted his arguments in respect of the applicability of the provisions of section 40a(ia) of the Act and taken a plea that invocation of the provisions of section 40a(ia) and estimation of income made by the AO is not in accordance with the law. Though he has referred to the accounting standard (AS 7), I found no force in the said arguments. It is surprising to note that in the additional grounds of appeal, he has confirmed that the payment was made to the subcontractors. I found AO has rightly picked up the issue of payment to sub-contractors and invoked the provisions of section 40a(ia), so that he could estimate the income of the app. Since, the AOP app is a joint venture, the phrase of word itself suggests that it is an association of two or more persons to carry out a single business enterprise for profit. Even in the case of general joint venture, the same rules of partnership are applicable and as per definition of joint venture, the necessary elements are (i) express/implied agreements, (ii) common purpose and (iii) sharing of profit or loss. Therefore, the AO has rightly raised an issue that the pap carried out a joint venture is supposed to offer an income irrespective of appropriation of income against the members or otherwise. The app did not offer any income, the estimation of income made by the AO @ 5% on the total turnover and considering the nature of business of the app, I found AO is justified in making this addition. The addition is, therefore, Upheld. The app's Ground No.1 is Dismissed."
5. From the side of the assessee ld.AR Mr.S.N.Soparakr and from the side of the Revenue ld.Sr.DR Mr. Awijit Rakshit appeared.
6. Having heard the submissions of both the sides, we are of the considered view that the issues raised by this appellant in the grounds of appeal require readjudication at the end of the ld.CIT(A). Before us, a joint venture agreement dated 30th day of January-2004 is placed on record. There is a supplementary agreement; (i) signed on 8th day of February-2005. There is one more agreement in respect of the said contract signed by a contractor on one hand and on another hand signed by Chairman of Kandla Port Trust. These agreements and the terms and conditions laid down therein are important so as to examine the justification of transfer of profit by the appellant-AOP to its member. The authorities below have not examined the terms and conditions under which the AOP had transferred the amount of Rs.55,24,769/- in the account of one of its member. From the orders of the Revenue Authorities, it is not evident that whether they have examined the correct nature of the payment and that whether the nature of payment was from a contractor to a sub-contractor. First of all, this preliminary enquiry has to be satisfied so as to arrive at the applicability of the provisions of section 40(a)(ia) r.w.s. 194-C of IT Act.
6.1. If on an investigation as per our direction, the AO arrives at a conclusion that the provisions of section 194C are to be attracted then the next question is that the tax deducted at source of Rs.61,878/- as on 31.03.2005 was undisputedly deposited on 9/06/2005 was within the prescribed time specially when the return of income was filed on 29/10/2005. It is pertinent to mention that the provisions of section 40(a)(ia) and the proviso annexed had undergone few amendments in the recent past. The AO has to ascertain the correct provision of law as applicable for the year under consideration so as to justify the invocation of this section. It is necessary to place on record that the Hon'ble Jurisdictional High Court Ahmedabad in Tax Appeal No.706 of 2011 vide an order dated 18/07/2011 in the case of CIT vs. M/s.J.K.Construction Co. has held as under:
"From the record, it emerges that for payment to contractor, the assessee had made deduction as required under law from time to time and in particular latest by 31.3.2005. This is clear from chart supplied by the assessee before CIT (Appeals) which would establish that deduction in case of several contractors were made on 31.3.2005. All such amounts were deposited with the Government on or around 28.5.2005. In background of above undisputed facts, tribunal was of the opinion that by virtue of amended provisions of Section40(a)(ia) of the Income Tax Act, 1961, assessee has not breached the requirement of deduction and depositing of TDS.Section 40(a)(ia) of the Act as amended with effect from 1.4.2005 read as under:"(ia) any interest, commission, or brokerage, (rent, royalty) fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out ay work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139."Plainly speaking, assessee had to make deduction before 31st March of the year in question and as long as such amounts were deposited before last date of filing of the return, requirements of law would be fulfilled. It was on this basis that tribunal was of the opinion that the assessee committed no wrong and was therefore, entitled to seek deduction of Rs.32,94,149/- from the income which amount the assessee had deducted from payments of contractors and had also deposited with Revenue before the last date of filing of the return. We do not find any illegality in order of tribunal. Tax Appeal is therefore, dismissed."
6.2. Next is the question of the invocation of section 40A(2)(b) by the AO and thereafter applying the estimated profit at 5% on the said amount. For the purpose of invocation of this section one of the essential ingredient is that where an assessee incurs any expenditure and the AO is the opinion that such an expenditure is excessive, then the unreasonable amount is not to be allowed as a deduction. But in the present case, whether the impugned payment to its member was in the nature of an expenditure; has not been clearly established. To ascertain and determine the nature of payment the clauses of the agreement and the surrounding circumstances of the case are required to be examined by ld.CIT(A) in the light of the facts narrated by the AO. In this context, it is worth to refer a remand report dated 21/04/2008 furnished before ld.CIT(A) wherein it was informed that the assessee had received a contract from Kandla Port Trust and gave a sub-contract to Detibh Engineers (I) Pvt.Ltd. and Indiana Build. In this remand report, the AO has commented that those receipts were not capital receipts in the hands of the assessee. The AO has also raised a question quote "Now question arises as what is the nature of receipts was it loan/advance/relinquishment of right/gift. Answer is as simple as that these are payments by assessee towards sub-contract for the work executed for Kandla Port Trust" unquote. In our considered view, this aspect requires an in depth adjudication on the basis of the agreements executed between the parties and the constitution of this AOP on the basis of which the alleged amount was transferred in the hands of the members. On account of these reasons, both the issues raised before us vide above referred five grounds are restored back to the file of ld.CIT(A) for de novo adjudication in the light of the directions made hereinabove. Grounds may be treated as allowed only for statistical purposes.
7. In the result, the appeal of the Assessee is allowed but for statistical purposes.
All cases of such club can be taken for reassessment for the period 200607 to 2008-09 and substantial amount of revnue can be generated in this slow down phase. All these clubs are making huge money and won,t mind paying taxes. No, doubt they will agigate the issue up to supreme court , but after assessment , these clubs can be persuaded to pay taxes as till ITAT they don,t have chance to succeeded in view of below judgement.
-TIOL-189-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' AHMEDABAD
BENCH 'A' AHMEDABAD
ITA No.2136/Ahd/2010
Assessment Year: 2006-07
Assessment Year: 2006-07
ASSTT COMMISSIONER OF INCOME TAX
(OSD)-I, RANGE-4, AHMEDABAD NAVJIVAN TRUST BLDG
OFF ASHRAM ROAD, AHMEDABAD
(OSD)-I, RANGE-4, AHMEDABAD NAVJIVAN TRUST BLDG
OFF ASHRAM ROAD, AHMEDABAD
Vs
KARNAVATI CLUB LIMITED
SARKHEJ GANDHINAGAR
HIGHWAY, AHMEDABAD
PAN NO:AAACK7865Q
SARKHEJ GANDHINAGAR
HIGHWAY, AHMEDABAD
PAN NO:AAACK7865Q
T K Sharma, JM and A N Pahuja, AM
Dated: March 22, 2011
Appellant Rep by: Shri R K Dhanesta, DR
Respondent Rep by: Shri Sunil H Talati, AR
Respondent Rep by: Shri Sunil H Talati, AR
Income Tax - Section 115WB - Whether when the assessee is a club, the expenses like entertainment and telephone are liable to FBT.
Assessee, a recreation club, filed its ROI as per the provisions of Fringe Benefit, the same was selected for scrutiny - During the course of assessment proceedings the AO observed that assessee did not include certain expenses such as Entertainment and telephone in the value of FBT, which expenses as per the view of the AO attract provisions of FBT - Aggrieved with the order of the AO assessee filed appeal before the CIT(A) and contended that provision of FBT were not applicable to assessee since there was no employer -employee relationship between the assessee and its members - CIT(A) allowed the claim of the assessee.
After hearing the parties the ITAT held that,
++ as is apparent from the findings in the impugned order, the CIT(A) did not advert to the provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act at all nor recorded his findings as to why these deeming provisions are not applicable in the instant case;
++ the CIT(A) did not record his specific findings on the issues raised by the AO in the context of interpretation of provisions of sub-sect ion (2) of sect ion 115WB of the Act and ignored altogether the aforesaid observations of the Apex Court in R And B Falcon (A) Pty. Limited, apparently the order passed by the CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure;
++ we may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion. [Mukhtiar Singh Vs. State of Punjab, (1995)1SCC 760(SC)]. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the CIT(A) has not passed a speaking order on the issues raised in this appeal, we consider it fair and appropriate to set aside the order of the CIT(A) and restore the matter to his file for deciding these issues afresh in accordance with law, keeping in mind various judicial pronouncements, including the aforesaid observations of the Apex Court, after allowing sufficient opportunity to both the parties.
Assessee, a recreation club, filed its ROI as per the provisions of Fringe Benefit, the same was selected for scrutiny - During the course of assessment proceedings the AO observed that assessee did not include certain expenses such as Entertainment and telephone in the value of FBT, which expenses as per the view of the AO attract provisions of FBT - Aggrieved with the order of the AO assessee filed appeal before the CIT(A) and contended that provision of FBT were not applicable to assessee since there was no employer -employee relationship between the assessee and its members - CIT(A) allowed the claim of the assessee.
After hearing the parties the ITAT held that,
++ as is apparent from the findings in the impugned order, the CIT(A) did not advert to the provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act at all nor recorded his findings as to why these deeming provisions are not applicable in the instant case;
++ the CIT(A) did not record his specific findings on the issues raised by the AO in the context of interpretation of provisions of sub-sect ion (2) of sect ion 115WB of the Act and ignored altogether the aforesaid observations of the Apex Court in R And B Falcon (A) Pty. Limited, apparently the order passed by the CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure;
++ we may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion. [Mukhtiar Singh Vs. State of Punjab, (1995)1SCC 760(SC)]. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the CIT(A) has not passed a speaking order on the issues raised in this appeal, we consider it fair and appropriate to set aside the order of the CIT(A) and restore the matter to his file for deciding these issues afresh in accordance with law, keeping in mind various judicial pronouncements, including the aforesaid observations of the Apex Court, after allowing sufficient opportunity to both the parties.
Case remanded
ORDER
Per: A N Pahuja:
This appeal by the Revenue against an order dated 19-03-2010 of the ld. CIT(Appeals)-XX, Ahmedabad, for the Assessment Year (AY) 2006-07, raises the following grounds:-
1 "The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.18,76,982/- made by the Assessing Officer out of expenditure on entertainment activities for members, expenditure on activities of games and sports for members & expenditure on telephone provided to members, by treating the said amount as chargeable to fringe benefit tax.1.1 The Ld. CIT(A) has erred in law and on facts in not appreciating the deeming provisions of the section which provide that the expenditure is deemed to have been made on employees if the expenditure is incurred on any of the items specified within the section.2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.3. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent."
2 Facts, in brief, as per relevant orders are that return declaring fringe benefits of Rs.5,998/ - filed on 22-12-2006 by the assessee recreation club, was selected for scrutiny with the issue of a notice u/s 115WE(2) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] on 20-12-2007. During the course of assessment proceedings, the Assessing Officer [AO in short] noticed that the assessee did not include the following expenditure while computing fringe benefits: -
| Account Head | Head under which chargeable under FBT provisions | Amount | Value |
| Entertainment Activities Exp. | Entertainment | Rs.28,66,909/ - | Rs.5,73,382/ - |
| Activities & Games | Entertainment | Rs.61,63,764/ - | Rs.12,32,753/ - |
| Telephone Exp. | Use of Telephone | Rs.3,54,234/ - | Rs.70,847/ - |
| Total | Rs.93,84,907/ - | Rs.18,76,982/ - |
The AO was of the opinion that expenditure on account of entertainment activities was deemed to be Fringe Benefits in terms of clause (A) of sub-section (2) of section 115WB. Similarly, telephone expenditure was deemed to be Fringe Benefits in terms of the said clause (J) of sub-sect ion (2) of section 115WB of the Act. To a query by the AO, the assessee explained in the light of objects and reasons of Fringe Benefit Tax that the expenditure incurred in relation to non-employees did not relate in any manner to employees and, therefore, beyond the scope of levy of Fringe Benefit Tax. It was further pointed out that on a Writ Petition filed by the assessee along with The Gujarat Chamber of Commerce & Industry and others while challenging the validity of the CBDT Circular No.8, dated 29-08-2005 seeking to interpret the provisions of FBT as providing for levy of FBT, even in respect of expenditure incurred for nonemployees or for the business of the employer itself, without conferring any benefit whatsoever on the employees, had been admit ted and the Hon'ble High Court directed the assessees that they may deposit into a separate bank account an amount equal to the FBT incidence on items which fall under category (i) and (ii) relating to non-employees or for the business of the assessee till disposal of Writ Petitions. Accordingly, the assessee had already deposited the amount of Rs.6,31,792/ - in the separate bank account and deposited FBT amount of Rs.2019/- on other items in the Government Treasury. Therefore, the assessee argued that no FBT is liable to be paid by the assessee on the aforesaid amounts. However, the AO did not accept the submissions of the assessee and brought to tax the aforesaid amounts in terms of Circular No.8, dated 29-08-2005 and the provisions of Clause (A) &(J) of subsection 2 of section 115WB of the Act, resulting in an addition of Rs.18,76,982/-.
3. On appeal, the learned CIT(A) deleted the addition in the following terms: -
"4. I have carefully gone through the Assessment Order, submissions and the provisions of Fringe Benefit Tax. On the basis of the conditions laid down in Fringe Benefit Tax it is very clear that Fringe Benefit Tax cannot be levied in this particular case as all the expenditure are incurred wholly and exclusively on the members. It is an undisputed fact that the appellant is a Club and its income is considered as exempt on the concept of mutuality by ITAT following various judgements of High Courts. Copy of the Order of Tribunal for Asst. Year 1994-95 is on record. As the income of the Club is exempt on the concept of mutuality, particularly other than interest income, all other income of the Club is exempt as held by Gujarat High Court in the case of Rajpath Club Ltd. reported in 211 ITR 380 and also in the case of Sports Club of Gujarat Ltd. reported in 171 ITR 504. When the activities and consequential income of the Club are exempt on the ground of mutuality one cannot take a view stretching it further that benefits are attributable to the employees. Fringe Benefit Tax was introduced to bring into tax net the benefits, which are usually enjoyed collectively by the employees and cannot be attributed to individual employees. In this case the expenditure/benefits of employees are offered for Fringe Benefit Tax. Expenditure incurred by the assessee Club on its members can not be by any stretch of imagination treated as Fringe Benefit.4.1 In view of the above I am of the view that the addition made on account of
| Amount | Value | ||
| (g) | Expenditure on Entertainment Activities for members | Rs.28,66,909 | Rs.5,73,382 |
| (h) | Expenditure on Activities Of games and sports for members | Rs.61,63,764 | Rs.2,32,753 |
| (i) | Expenditure on Telephone Provided to members | Rs.3,54,234 | Rs. 70,847 |
| Rs.93,84,907 | Rs.18,76,982 |
are not at all in the nature of Fringe Benefit to its employees. They are the expenditure incurred wholly and exclusively for and towards the members of the Club on which there cannot be a levy of tax under Fringe Benefit Tax. I hold accordingly and direct the Assessing Officer to delete the additions of all the aforesaid three items of expenditure from Fringe Benefit Tax."
4. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO in the light of provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act, contending inter alia, that the ld. CIT(A) ignored altogether the aforesaid deeming provisions. On the other hand, the learned AR on behalf of the assessee supported the findings of the learned CIT(A).
5. We have heard both the parties and gone through the facts of the case. As is apparent from the findings in the impugned order, the ld. CIT(A) did not advert to the provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act at all nor recorded his findings as to why these deeming provisions are not applicable in the instant case. The provisions of sect ion 115WB of the Act, so far as relevant for adjudicating the issue before us, read as under:-
"Sec. 115WB-Fringe benefits(1) For the purposes of this chapter, 'fringe benefits' means any consideration for employment provided by way of-(a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees);(b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members; and………………………………………………………………………………………………(2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namely:(A) entertainment;………………………………………………………………………………………………(J) use of telephone (including mobile phone) other than expenditure on leased telephone lines;.............(3) For the purposes of sub-s. (1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee or any benefit or amenity in the nature of free or subsidised transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence".
6. We further find that the Hon'ble Apex Court in their decision in R And B Falcon (A) Pty. Limited. Vs Commissioner Of Income-Tax, 301 ITR 309 (SC) = (2008-TIOL-94-SC-IT) while referring to CBDT circular no. 8 of 2005 observed in the context of provisions of sec. 115WB o the Act as under:
" Before the AAR, a circular issued by the Central Board of Direct Tax (CBDT) bearing No. 8 of 2005 [(2005) 197 CTR (St) 85] was relied upon by both the parties. We will refer to a part of it. The circular provides for Explanatory Notes on Provisions relating to Fringe Benefit Tax.The object for imposition of the said tax is stated to be as under:"The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, under-taxation of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits, and those which cannot thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because-(a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is collectively enjoyed;(b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability; and(c) of the difficulty in the valuation of the benefits."8. The heading of para 11 of the said circular is "Frequently asked questions". The questions which were posed and answered and in turn are relevant for our purpose read as under:"In terms of the provisions of sub-s. (1) of s. 115WA, an employer in India is liable to FBT in respect of the value of fringe benefits-(a) provided by him to his employees; and(b) deemed to have been provided by him to his employees.The scope of fringe benefits provided or deemed to have been provided is defined in s. 115WB. Sub-s. (1) of the said section defines the scope of fringe benefits provided by the employer to his employees. Similarly, sub-s. (2) of the said section defines the scope of fringe benefits deemed to have been provided by the employer to his employees. Therefore, sub-s. (2) expands the scope of sub-s. (1) through a deeming provision.The provision relating to the computation of the value of the fringe benefits is contained in s. 115WC. It is a settled principle of law that where the computation provisions fail, the charging section cannot be effectuated. Therefore, if there is no provision for computing the value of any particular fringe benefit, such fringe benefit, even if it may fall within cl. (a) of sub-s. (1) of s. 115WB, is not liable to FBT.........19. FBT is payable in the year in which the expenditure is incurred irrespective of whether the expenditure is capitalized or not. However, the same expenditure will not be liable to FBT again in the year in which it is amortized and charged to profit.Is FBT payable by an Indian company having employees based both in and outside India on its total (global) expenditure incurred by it for the purposes referred to in cls. (A) to (P) of sub-s. (2) of s. 115B?20. FBT is payable on the value of fringe benefits provided or deemed to have been provided to employees based in India and determined on a presumptive basis in accordance with the provisions of s. 115WC of the IT Act. The value of such fringe benefits is determined, inter alia, as a proportion of the total amount of expenses incurred for some identified purposes. In the case of an Indian company having employees based both in India and in a foreign country, FBT is payable on the proportion (50 per cent, 20 per cent or 5 per cent, as the case may be of the total amount of expenses incurred for the purposes referred to in cls. (A) to (P) of sub-s. (2) of s. 115WB and attributable to the operations in India. If the company maintains separate books of account for its Indian and foreign operations, FBT would be payable on the amount of expenses reflected in the books of account relating to the Indian operations. If however, no separate accounts are maintained, the amount of expenses attributable to Indian operations would be the proportionate amount of the global expenditure. Further, such proportionate amount shall be determined by applying to the global expenditure the proportion which the number of employees based in India bears to the total worldwide employees of the company.Whether an Indian company carrying on business outside India would be liable to FBT even though none of its employees in such business may be liable to pay income-tax in India?21. An Indian company would be liable to the FBT in India if it has employees based in India. Therefore, if an Indian company carries on business outside India but does not have any employees based in India, such company would not be liable to FBT in India. Does FBT apply to foreign companies?..............103. FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-cl. (ic) of cl. (a) of s. 40 of the IT Act expressly; prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head Profits and gains of business or profession. This prohibition does not apply to the computation of book profit for the purposes of s. 115JB. Accordingly, the FBT is an allowable deduction in the computation of book profit under s. 115JB of the IT Act.…………………………………………… …………………………………………………12. Fringe benefit tax is a new concept. The taxes to be levied on the fringe benefit provided or deemed to have been provided by an employer to employees during the previous year is at the rate of 30 per cent on the value of such fringe benefits. The object for imposition of the said tax, as is evident from the said circular dt. 29th Aug., 2005, was to bring about an equity. The intention of the Parliament was to tax the employer who, on the one hand, deducts the expenditure for the benefit of the employees including entertainment, etc. and on the other when the employees getting the perks are to be taxed, those who get direct or indirect benefits from the expenditures incurred by the employer, no tax is leviable. As stated in the objective, it is for bringing about a horizontal equity and not a vertical equity.13. Sub-s. (1) of s. 115WB contains the interpretation section. It is in two parts. It provides for a direct meaning, as also an expanded meaning. Expanded meaning of the said provision is contained in sub-s. (2). Whereas sub-s. (1) takes within its sweep any consideration for employment, inter alia, by way of privilege service, facility or amenity directly or indirectly, sub-s. (2) thereof expands the said definition stating as to when the fringe benefit would be deemed to have been provided. The expansive meaning of the said term 'benefits' by reason of a legal fiction created also brings within its purview, benefits which would be deemed to have been provided by the employer to his employees during the previous year. Indisputably, sub-s. (3) refers to sub-s. (1) only. Ex facie, it does not have any application in regard to the matters which have been brought within the purview of the FBT by reason of application of the deeming provision. We are concerned here with a question in regard to grant of exemption in respect of 'conveyance' as provided for in cl. (F) of sub-s. (2) and 'tour and travel' which is provided for in cl. (Q) of sub-s. (2) of s. 115WB.14. CBDT categorically states in answer to question number 7 that sub-s. (2) provides for an expansive definition.Does it mean that sub-s. (2) is merely an extension of sub-s. (1) or it is an independent provision? If sub-s. (2) is merely an extension of sub-s. (1), Mr. Ganesh may be right but we must notice that s. 115WA provides for imposition of tax on expenditure incurred by the employer or providing its employees certain benefits. Those benefits which are directly provided are contained in sub-s. (1). Some other benefits, however, which the employer provides to the employees by incurring any expenditure or making any payment for the purpose enumerated therein in the course of his business or profession, irrespective of the fact as to whether any such activity would be carried on a regular basis or not, e.g., entertainment would, by reason of the legal fiction created, also be deemed to have been provided by the employer for the purpose of sub-s. (2). Whereas subs. (1) envisages any amount paid to the employee by way of consideration for employment, what would be the limits thereof are only enumerated in sub-s. (2). We, therefore, are of the opinion that sub-ss. (1) and (2), having regard to the provisions of s. 115WA as also sub-s. (3) of s. 115WB, must be held to be operating in different fields.
7. As already stated and as pointed out in ground no.1.1 in the appeal, since the ld. CIT(A) did not record his specific findings on the issues raised by the AO in the context of interpretation of provisions of sub-sect ion (2) of sect ion 115WB of the Act and ignored altogether the aforesaid observations of the Hon'ble Apex Court, apparently the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure. The requirement of recording of reasons by the quasi-judicial authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. We may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab, (1995)1SCC 760(SC)]. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the ld. CIT(A) has not passed a speaking order on the issues raised in this appeal, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding these issues afresh in accordance with law, keeping in mind various judicial pronouncements, including the aforesaid observations of the Hon'ble Apex Court, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these observations, ground nos. 1 & 1.1 in the appeal of the Revenue for the AY 2003- 04 are disposed of.
8. Ground nos. 2 & 3 being mere prayer nor any submissions having been made before us, do not require any separate adjudication and are, therefore, dismissed.
9. In the result, appeal is allowed, but for statistical purposes.
(Order pronounced in the court today on 22.3.2011)
2012-TIOL-175-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C' AHMEDABAD
BENCH 'C' AHMEDABAD
ITA No.1481/Ahd/2009
Assessment Year: 2005-06
Assessment Year: 2005-06
M/s HAZIRA REFRECTORY WORKS (P) LTD
PLOT NO 47-50, GIDC, ICHHAPORE
VIL LAGE BHATPORE, HAZIRA, SURAT
PLOT NO 47-50, GIDC, ICHHAPORE
VIL LAGE BHATPORE, HAZIRA, SURAT
Vs
INCOME TAX OFFICER
WARD-1(3), SURAT
WARD-1(3), SURAT
D K Tyagi, JM and A Mohan Alankamony, AM
Dated: January 6, 2012
Appellant Rep by: Shri K N Bhatt, AR
Respondent Rep by: Shri Vinod Tanwani , Sr.DR
Respondent Rep by: Shri Vinod Tanwani , Sr.DR
Income Tax - Section 37 - Whether payments of commission which are made in pursuance to an agreement are allowable - Whether for allowing business expenses, the purpose of expense is required to be proved.
Assessee Company engaged in manufacturing refectory items appoints agent for supply of goods and paid commission to that agent - AO disallowed these payments on the ground that percentage of commission was not in proportion of the sales - AO disallowed the payments on the ground that TDS was not deducted on payments and assessee could not produce any evidence regarding rendering of services - CIT(A) affirmed the order of the AO.
On appeal, the ITAT held that,
++ the CIT(A) has also confirmed this addition because before him also no evidence was produced in this regard. The same has been the situation before us as no evidence whatsoever in respect of services being rendered by Shri Bankimchandra Tripathi to the assessee has been brought on record. Therefore, we feel no need to interfere with the order of ld. CIT(A) and the same is hereby confirmed.
Assessee Company engaged in manufacturing refectory items appoints agent for supply of goods and paid commission to that agent - AO disallowed these payments on the ground that percentage of commission was not in proportion of the sales - AO disallowed the payments on the ground that TDS was not deducted on payments and assessee could not produce any evidence regarding rendering of services - CIT(A) affirmed the order of the AO.
On appeal, the ITAT held that,
++ the CIT(A) has also confirmed this addition because before him also no evidence was produced in this regard. The same has been the situation before us as no evidence whatsoever in respect of services being rendered by Shri Bankimchandra Tripathi to the assessee has been brought on record. Therefore, we feel no need to interfere with the order of ld. CIT(A) and the same is hereby confirmed.
Assessee's appeal dismissed
ORDER
Per: D K Tyagi:
This is an appeal filed by the assessee against the order of ld. CIT(A) dated 13.03.2009 for Asst. Year 2005-06. The assessee has raised following grounds in its appeal:-
(1) In view of the facts and circumstances of the case, the ld. CIT(A) erred in confirming the disallowance of commission of Rs.3,50,229/- paid to Rohit Traders and your appellant prays that the same be allowed as claimed by the appellant.(2) In view of the facts and circumstances of the case, the ld.CIT(A) erred in confirming the disallowance u/s 40(a)(ia) of the Tncome-tax Act of commission of Rs.1,13296/- paid to Shri Bankimchandra Tripathi for the alleged failure to deduct TDS and hence your appellant prays that the same be allowed.(3) In view of the facts and circumstances of the case, the ld. CIT(A) erred in confirming the disallowance of incentive of Rs.53,200/- paid to various workers and hence your appellant prays that the same be allowed as claimed by the appellant.(4) In view of the facts and circumstances, the ld. CIT(A) has erred in directing the addition of Rs.68275/- u/s 40(a)(ia) though the appellant himself disallowed it in computation of income and hence your appellant prays that this direction be quashed.
2. Ground No.1 relates to disallowance of commission of Rs.3,50,229/- paid to M/s Rohit Traders. The facts of the case are that the assessee company is engaged in the manufacturing of refractory items. The assessee filed its return of income for Asst. Year 2005-06 on 25.10.2005 by showing total income of Rs.3,15,697/-. The return was processed u/s 143(1) of the IT Act, 27.03.2006 by accepting returned income. The case was selected for scrutiny and a notice u/s 143(2) of the IT Act dated 26.10.2006 was issued which was served upon the assessee through RPAD on 30.10.2006. During the year under consideration the assessee had shown turnover of Rs.2,15,14,514/- and the gross profit is shown at the ratio of 22.60% as against the gross loss shown in the preceding Asst. Year. During the assessment proceedings the assessee claimed commission payment i.e. Rs.3,50,229/- to M/s Rohit Traders, which falls under definition of section 40A(2)(b) of the IT Act. The assessee was asked to prove the genuineness, reasonableness of commission payment made to M/s Rohit Traders. In response, vide letter dated 26.11.2007 it was stated that assessee company had paid commission on the sale of Essar Steel Ltd. amounting to Rs.1,73,497/- and Hindalco Industries Ltd. amounting to Rs.1,76,732/- for obtaining orders for material transferred to above said parties and for liaisoning work with both the parties. The AO asked the assessee to produce evidence for obtaining orders from both the companies and also produce evidence on material transferred to the parties. The AO pointed out that the sales bill did not mention name of M/s Rohit Traders, as commission agent. The AO asked the assessee to furnish evidence from both these parties whether M/s Rohit Traders was indeed acting as commission agent or not. The AO disallowed the commission payment for the following reasons :-
(i) No evidence was given in support of obtaining orders from both the companies.(ii) No evidence was given in support of material transferred and liaisoning work carried out with both these parties.(iii) The bills raised by the assessee company on Essar Steel Ltd. and Hindalco Industries Ltd. did not bear the name of the commission agent.(iv) No evidence was furnished from Essar Steel Ltd. and Hindalco Industries Ltd. confirming that M/s Rohit Traders was indeed commission agent acting between them.(v) Although the assessee has produced a copy of "contract for commission" on its own letterhead signed by M/s Rohit Traders. This agreement does not show the involvement of Essar Steel Ltd. and Hindalco Industries Ltd.(vi) The copy of account of M/s Rohit Traders shows that the entry of commission was passed at the end of the year on 31.03.2005 and no payment of commission was found paid during the year under consideration as and when became due. The entry has not been made sales bill-wise but has been made at the end of the year.(vii) Even though the assessee has claimed 2% commission on sale to Essar Steel Ltd. and Hindalco Industries Ltd. but neither M/s Rohit Traders has raised its bill on every sales bills nor the assessee company credited commission in the account of M/s Rohit Traders at the end of the other sale.(viii) The sales made to Essar Steel Ltd. of Rs.97,09,122.19 and Hindalco Industries Ltd. of Rs.1,03,04,723.00 and if the commission rate is taken at 2% then the same does not match with the claim made by the assessee company. The assessee company has claimed 2% commission on sales of Rs.86.74 lacs to Essar Steel Ltd. and Rs.88.36 lacs to Hindalco Industries Ltd. which further shows that there is no co-relation between the claim and the payment.
3. The assessee carried the matter in appeal before the first appellate authority wherein it was submitted most of the submissions made before the AO during the course of assessment proceedings and also filed copy of debit note raised by M/s Rohit Traders in respect of both the companies are dated 31.03.2005. The assessee argued that the contract agreement could not contain the name of the party to whom the sales are made because the agent was supposed to procure sales from unknown parties also.
4. The ld. CIT(A) after considering the observations of AO and the submissions of the assessee dismissed the ground raised by the assessee vide para 2.3 of his appellate order by observing as under :-
"2.3 I have considered the submission made by the appellant and the observation of the AO. The appellant has clearly failed to answer several questions raised by the AO in the assessment order. The appellant has failed to produce any material in support of agent obtaining orders from these parties. They have failed to furnish any evidence in support of material transferred and liaisoning work carried out by these parties. They have failed to obtain any confirmations from both these parties that M/s Rohit Traders was indeed a middleman or commission agent through which orders were placed. The appellant has failed to bring on record any correspondence in this regard. The appellant has also failed to explain as to why only one credit note was raised by the assessee company on 31.03.2005 in respect of Essar Steel Ltd. and Hindalco Industries Ltd. The appellant has failed to explain as to why credit notes were not raised at the end of the every sale. The appellant has failed to explain why M/s Rohit Traders has failed to raise debit note at the end of the every sale. The appellant has also failed to explain why the claim of commission @2% is on sales much lower than the total sales to these two companies. The sales Hindalco Industries Ltd. is of Rs.103.04 crores but the commission is only of Rs.88.36 lacs. The sales to Essar Steel Ltd. are Rs.97.09 lacs but commission is claimed only on Rs.86.74 lacs. In view of the above reasons, the AO is right in disallowing the commission as the appellant has failed to prove the genuineness of the commission payment. Hence the disallowance made by the AO is correct and this ground of appeal is dismissed."
Against this order of the ld. CIT(A), the assessee is in second appeal.
5. The ld. counsel of the assessee reiterated the submissions made before the lower authorities and further submitted that there was a contract agreement between the assessee and the commission agent, i.e. M/s Rohit Traders which is placed at page 34 of the Paper Book. The ld. counsel submitted that copy of debit note raised by M/s Rohit Traders in respect of both the companies i.e. Essar Steel Ltd. and Hindalco Industries Ltd., had been filed before the AO. The contract agreement could not contain the name(s) of the party to whom the sales were made because the agent is supposed to procure sales from unknown parties also. It was further argued that in pursuance of the contract between the assessee and M/s Rohit Traders, M/s Rohit Traders incurred some expenses on behalf of the assessee which were also reimbursed, which shows that services were rendered by M/s Rohit Traders to the assessee. As far as the finding of the ld. CIT(A) is concerned that 2% commission has not been paid to M/s Rohit Traders on total sales made to Essar Steel Ltd. and Hindalco Industries Ltd. by the assessee it was contended that commission has been paid on net sales excluding the amount of excise etc., therefore, it cannot be a ground for disallowing the expenses of Rs.3,50,229/-, concluding his argument that the orders of lower authorities be set aside and the addition be deleted.
6. On the other hand, the ld. DR supported the orders of lower authorities and submitted that the assessee failed to produce any material in support of agent obtaining orders from the parties. They had failed to furnish any evidence in support of material transferred and liaisoning work carried out by these parties. The assessee failed to explain why M/s Rohit Traders had failed to raise debit note at the end of every sale. Thus the ld. CIT(A) has rightly upheld the action of the AO. His order may kindly be upheld.
7. Heard both the parties, perused the record and we find that there is no dispute about the fact that there was a contract for commission dated 1st April, 2004 between the assessee and M/s Rohit Traders according to which M/s Rohit Traders showed his willingness to handle the contract, obtain order, material supply, collection and do liaison work for the type of goods to be supplied to M/s Essar Steel Ltd. and Hindalco Industries Ltd. and other companies as and when the work is assigned by the Principal and also look after the entire work of the contract. M/s Rohit Traders was to get 2% of the basic amount of sales made by assessee as per this agreement. The contention of the assessee that in pursuance of this agreement expenses incurred by M/s Rohit Traders on behalf of the assessee were also reimbursed by the assessee, thus showing that services for earning this commission were rendered by M/s Rohit Traders, has not been controverted by the Revenue at the time of hearing before us. We further find that ld. CIT(A)'s observation that 2% commission was not paid by the assessee to M/s Rohit Traders on total sales made to M/s Essar Steel Ltd. and M/s Hindalco Industries Ltd. is not correct as the commission was paid on net sales made to these parties excluding excise duty etc. Therefore, this cannot be the reason for disallowing the expenditure on commission. Since in this case commission has been paid by the assessee in pursuance of contract signed between the assessee and M/s Rohit Traders and services were rendered, we feel it was not a fit case in which a meager sum of Rs.3,50,229/- incurred by assessee for payment of commission should have been disallowed and the disallowance so made is hereby deleted.
8. Ground No.2 of assessee's appeal relates to disallowance of commission of Rs.1,13,296/- u/s 40(a)(ia) paid to Shri Bankimchandra Tripathi. In the assessment order the AO has stated that the assessee had claimed a commission payment of Rs.1,13,296/- to Shri Bankimchandra Tripathi even though no such account was available in the ledger in the name of Shri Bankimchandra Tripathi. The AO, therefore, asked the assessee to explain the same. The assessee stated that it had made payment on three different dates and it submitted copy of payment vouchers copy of bank statement, DD through which payment was made and TDS certificate evidencing the payment. The assessee further argued that since the TDS payment was made late, proportionate disallowance has already been made u/s 40(a)(ia) and it amounts to double addition. The AO, however, disallowed the commission payment because the assessee failed to give evidence of rendering services. No evidence was brought on record for services being rendered. The AO further stated that the TDS was not deducted at the rate prescribed under the Income-tax Act.
9. In appeal before ld. CIT(A) the assessee reiterated the submissions made before the AO. The ld. CIT(A) considering the submissions of assessee and the observation of the AO, confirmed the action of AO by observing as under :-
"5.3 I have considered the submissions made by the appellant and the observation of the AO. Neither during the assessment proceedings nor during the appellate proceeding the appellant could produce proof of services having been rendered. It is a settled position of law that even when the services rendered are not proved the commission cannot be allowed. In this regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Laxmirattan Cotton Mills 73 ITR 634 that the burden of proving that services were rendered by the managing agents for earning the remuneration law upon the company and if no reliable evidence was forthcoming the Tribunal was competent to reach the conclusion that it did. The recitals in the managing agency agreement which authorized the managing agents to do certain acts could not be a substitute for evidence that those acts were done by the managing agents. Further, reliance is placed in the case of Lachminarayan Madanalal 86 ITR 439 that the mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. Although there might be such an agreement in existence and the payments might have been made, it is still open to the Income-tax Officer to consider the relevant facts and determine for himself whether the commission said to have been paid to the selling agents or any part thereof is properly deductible under section 37 of the Act. Swadesh Cotton Mills Co. Ltd. vs. CIT (1967) 63 ITR 57 (SC) followed. In view of above, the disallowance made by the AO is confirmed and this ground of appeal is dismissed."
Against this order of ld. CIT(A) assessee is in second appeal before us.
10. Heard both the parties, perused the record and we find that the assessee has paid commission to Shri Bankimchandra Tripathi amounting to Rs.1,13,296/-. The AO has disallowed this commission holding that assessee has failed to give evidence of services rendered by Shri Bankimchandra Tripathi to assessee. The ld. CIT(A) has also confirmed this addition because before him also no evidence was produced in this regard. The same has been the situation before us as no evidence whatsoever in respect of services being rendered by Shri Bankimchandra Tripathi to the assessee has been brought on record. Therefore, we feel no need to interfere with the order of ld. CIT(A) and the same is hereby confirmed.
11. The third ground raised by the assessee is regarding disallowance of Rs.53,200/- claimed as incentive paid to various labourers. In the assessment order, the AO has stated that the assessee had claimed this payment as incentive to the labourers. The assessee filed the details of the same. According to the AO the payments seemed to have been made to the labourers for efficient and timely completion of work and it was in the nature of over time incentive. However, the vouchers filed by the assessee showed that the payments of Rs.3,000/- was commission claimed to have been paid to the sister concern, namely M/s Rohit Traders. Similarly, it consisted of amounts of rs.1,000/- paid to Shri Dineshbhai, Rs.800/- to Shri Mansukhbhai and amount of Rs.1,2000/- paid to Shri Ravjibhai. All these were nothing but commission payment and not incentive. The assessee also did not give nature of work done by these persons. The sister concern of the assessee, M/s Rohit Traders has claimed payment of Rs.13,000/- as having been paid to 13 labourers as Rs.1,000/- per labourer. This claim was at variance with the vouchers prepared by M/s Rohit Traders dated 26.06.2004 which showed that M/s Rohit Traders had claimed 10% commission @ Rs.1,3000/- per person. This shows that the claim of the assessee was totally wrong. The AO has further given various examples of vouchers which are not inconsonance with the claim. The AO has prepared a detailed Annexure,A, B, C & D which show that the claim of payment and contains of vouchers are totally different. These details have been discussed by the AO at page 13 of the assessment order. The AO, therefore, disallowed the claim of this payment of Rs.53,200/- also because the same has been paid to sister concern, M/s Rohit Traders, in respect of which the commission payment had already been found to be bogus in earlier ground.
12. In appeal before ld. CIT(A) the assessee gave a general submission that these payments were made for efficient and timely completion of work. Regarding the mistakes in vouchers about Rs.1,300/- paid to 10 workers instead of Rs.1,000/- and to the workers, the assessee had stated that it is a clerical mistake.
13. The ld. CIT(A) dismissed this ground of assessee by observing as under :-
"6.3 I have considered the submission made by the appellant and the observation of the AO. I do not agree with the appellant that there is a clerical mistake. The appellant has paid Rs,1,000/- to 13 parties but the voucher says 10 workers have been paid at the rate of Rs.1,3000/-. This clearly shows that the entire claim is non-genuine. Similarly, the assessee has failed to show the genuineness of these payments when the vouchers say that it is commission and the assessee says it has incentive. Further, it is very fact that these are pointed out a doubt of genuineness. I agree with the AO and the disallowance made by him is confirmed. Therefore, this ground of appeal is dismissed."
Aggrieved, the assessee is appeal before us.
14, After hearing both the parties and perusing the record, we find that the assessee during the year under appeal has incurred an expenditure of Rs.53,200/- which is incentive paid to various labourers. The AO has disallowed these expenses on the ground that assessee has not filed full details in this respect. The ld. CIT(A) has also confirmed this action of the AO as he was also of the view that assessee has failed to prove the genuineness of the expenses incurred. However, while going through the details filed by the assessee in the Paper Book in respect of these expenses and taking into consideration the smallness of the amount involved that too for welfare of labourers and taking a lenient view of the matter, the addition of Rs.53,200/- made by the AO and sustained by ld. CIT(A) is deleted.
15. The fourth ground of the appeal relating to confirmation of addition of Rs.68,275/- out of Rs.2,67,427/- u/s 40(a)(ia), is not pressed and hence the same is dismissed as not pressed.
16. In the result, the appeal filed by the assessee is partly allowed.
(Order was pronounced in open Court on 6.1.12.)
__._,_.___
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