2012 (3) TMI 550 - AT - Income Tax

Disallowance being 15% of the total winning payments made to punters - Held that - The Department has not brought anything to show that the facts of the case are any different from that for the AY 2004-05 and 2005-06 covered by the ITAT order. The activity of the Assessee is such that they have to deal daily with numerous individuals in a short span of time when the bettings are on. They accept bets and settle the winning amounts to the winning punters. It will be difficult to maintain complete details about all the persons. The entire payment was through computerized system. The payment was made to the person holding the winning ticket. The Department has not brought to our notice of any instance of payment when there was no winning ticket. In the circumstances respectfully following the decision of the coordinate bench in the Assessee s own case we delete the ad hoc disallowance of 10% of the total payment for winning bets of less than 2500/- each. The Appeal of the Assessee on this issue is allowed. Disallowance u/s 40A(3) - Held that - Sec 40A(3) itself provides that the exceptions will have to be prescribed having regard to the nature and extent of banking facilities available considerations of business expediency and other relevant factors. Taking all these factors considering the nature of activity of the Assessee and the necessity for them to pay cash to the winners immediately we are of the opinion that the condition under Rule 6DD for exemption viz. transactions should have taken place on Bank Holidays should be read down in the case of the Assessee. In this case if the transaction took place beyond the normal Banking Hours on working days and transaction which took place on Sundays and Holidays it would not attract the provisions of sec 40A(3) and no disallowance can be made in respect of payment made to winning punters beyond the normal banking hours or on Bank Holidays u/s 40A(3). As there will be different banking hours for different banks and branches the banking hours of the Main Branch of SBI in Hyderabad shall be taken for this purpose. This issue is remitted back to the files of the AO and AO is directed to re-compute the disallowance u/s 40A(3) as per the above disallowance and the Assessee shall furnish the particulars about the timings of the payment of the winnings to punters. Disallowance in respect of winning payments each less than Rs. 2500/- deleted. TDS u/s 194H - amount disallowed under sec 40(a)(ia) as they constituted commission and no tax was deducted at source - Held that - We find that the TDS Officer by its order dated 6.4.2009 has treated the assessee as assessee in default for not deducting Tax at source and raised the demand u/s 201(1) and 201(1A). It is also been pointed by the AO that at present the assessee itself is making TDS on such payments which proves that the stand of the revenue is correct. The assessee has to establish that it is not acting as Agent of the other Clubs and the amount paid by the assessee to other Race Clubs is only sharing of the profit and not in the nature of collection. The assessee has not brought in detail to prove even in cases of races held in other Clubs as far as betting in Hyderabad is concerned it is between the punters and the assessee. In these circumstances we deem it fit to restore the issue to the file of the AO in order to give another opportunity to the assessee to present its case and establish that there is no principal agent relation ship between the two Clubs. The AO shall after examining the details adjudicate in accordance with law. Demand u/s 201(1) and 201(1A) - addition under sec 40(a)(ia) - amount paid by the assessee to other Race Clubs - Held that - Assessee itself is making TDS on such payments which proves that the stand of the revenue is correct. The assessee has to establish that it is not acting as Agent of the other Clubs and the amount paid by the assessee to other Race Clubs is only sharing of the profit and not in the nature of collection. The assessee has not brought in detail to prove even in cases of races held in other Clubs as far as betting in Hyderabad is concerned it is between the punters and the assessee. In these circumstances we deem it fit to restore the issue to the file of the AO in order to give another opportunity to the assessee to present its case and establish that there is no principal agent relationship between the two Clubs. The AO shall after examining the details adjudicate in accordance with law

Summary

Issues Involved:
1. Disallowance of winning payments
2. Disallowance under Section 40A(3)
3. Reopening of assessment under Section 143(3) read with 147
4. Disallowance under Section 40(a)(ia) for payments to other clubs

Issue-wise Detailed Analysis:

1. Disallowance of Winning Payments:
The first issue concerns the disallowance of Rs. 36,47,05,035/- being 15% of the total winning payments made to punters. The CIT(A) restricted the disallowance to 10%, observing that the assessee failed to maintain proper records for payments less than Rs. 2500/-. The AO disallowed 15% of Rs. 243,13,66,899/- due to unverifiable expenditure. The Tribunal found that this issue was covered in favor of the assessee by previous ITAT orders for AYs 2004-05 and 2005-06, which deleted similar disallowances. The Tribunal noted that the assessee's computerized system was foolproof and no material was brought by the Revenue to show that the facts were different. Therefore, the Tribunal deleted the ad hoc disallowance of 10% of the total payment for winning bets of less than Rs. 2500/- each, allowing the assessee's appeal on this issue.

2. Disallowance under Section 40A(3):
The next issue is the disallowance of Rs. 30,69,356/- under Section 40A(3) for cash payments in excess of Rs. 20,000/-. The AO disallowed 20% of the payments aggregating Rs. 1,53,46,782/- made on Sundays, Saturdays, and after banking hours. The CIT(A) confirmed the disallowance, stating that the payments constituted business expenditure and were covered under Section 40A(3). The Tribunal referred to its previous order, which set aside the issue to the AO for examining whether the payments to punters fell within the scope of Section 40A(3). The Tribunal noted that the assessee's business required immediate cash payments to punters, often beyond banking hours or on holidays, and directed the AO to re-compute the disallowance considering these factors. The Tribunal allowed the assessee's appeal in part for statistical purposes.

3. Reopening of Assessment under Section 143(3) read with 147:
The third issue is the validity of the assessment reopened under Section 143(3) read with 147. The Tribunal upheld the reopening, following the Supreme Court's decision in CIT Vs. Rajesh Jhaveri Stock Brokers P Ltd. (291 ITR 500). The Tribunal confirmed the CIT(A)'s order on this ground and rejected the assessee's appeal, allowing it partly for statistical purposes.

4. Disallowance under Section 40(a)(ia) for Payments to Other Clubs:
The final issue is the disallowance of Rs. 2,68,27,314/- paid to other clubs under Section 40(a)(ia) for non-deduction of tax at source under Section 194H. The CIT(A) deleted the disallowance, observing that the department had accepted a similar decision in the past. However, the Tribunal noted that the TDS Officer had treated the assessee as in default and raised a demand. The Tribunal restored the issue to the AO to examine whether there was a principal-agent relationship between the clubs and whether the payments were in the nature of commission. The Tribunal directed the AO to adjudicate in accordance with the law, allowing the revenue's appeal for statistical purposes.

Conclusion:
- The assessee's appeals were partly allowed for statistical purposes.
- The revenue's appeals were partly allowed or dismissed based on the specific issues involved.
- The Tribunal directed the AO to re-examine certain issues and re-compute disallowances as per the guidelines provided.