2017 (1) TMI 629 - AT - Income Tax

Non-deduction of TDS while making payment on account of commission - as per assessee the said commission was paid to his staff and thus it was not attracted Section 40(a)(ia) - Held that - As during the hearing in remand report the assessee produced all books of accounts documents salary register before the AO in response to the remand report sent by the CIT(A). Accordingly the AO sent the notice u/s.131 of the Act to the said 5 staff of the assessee by post to their residential address for their personal appearance with documents. Four of the staff out of five staffs appeared before the AO along with their voter ID and bank accounts and they all admitted that they received salary very nominal amount and they received commission on their sale as their designation is Sales Representatives . On considering and being satisfied of their identity with the documentary evidence such as books of accounts vouchers bank accounts voter ID etc. and on considering the oral submissions and acceptance of sale for the staff of the assessee the AO has rightly observed that commission was paid to the staff of the assessee. Ld. AR also submitted that the remand report prepared by the AO after giving further opportunity of being heard to the assessee and after verification of all returns and witnesses and there is no infirmity in the remand report therefore ld. CIT(A) must accept it. The remand report was prepared by the AO after thoroughly verification of books of accounts documents as well as personal appearances of the staff of the assessee in respect of notice u/s.131 of the I.T.Act. But the ld. CIT(A) disbelieved in the remand report of the AO and passed the erroneous order - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance/addition of ?7,15,000/- on account of introduction of fresh capital by a partner.
2. Disallowance/addition of ?10,30,926/- on account of non-deduction of TDS on commission payments.

Issue-wise Detailed Analysis:

1. Disallowance/Additions of ?7,15,000/- on Account of Introduction of Fresh Capital by a Partner:

The Assessing Officer (AO) added ?7,15,000/- as unexplained under Section 68 of the Income Tax Act. The assessee argued that the capital was introduced by a partner, Mr. Dibyendu Dutta, from his own funds. The AO's remand report confirmed that the partner introduced his capital from his bank account and audit report of his personal business, "Akash Enterprise." However, the Commissioner of Income Tax (Appeals) [CIT(A)] did not consider the remand report, stating discrepancies in the bank account details and the balance sheet of Akash Enterprise. The CIT(A) confirmed the addition, citing the assessee's failure to prove the capacity of the creditor and the genuineness of the transactions.

The Income Tax Appellate Tribunal (ITAT) found merit in the assessee's submissions, noting that the AO's remand report after thorough verification supported the assessee's claim. The ITAT directed the CIT(A) to delete the addition, emphasizing that the CIT(A) should have accepted the remand report prepared after verifying all relevant documents and personal appearances of the staff.

2. Disallowance/Additions of ?10,30,926/- on Account of Non-Deduction of TDS on Commission Payments:

The AO added ?10,30,926/- due to non-deduction of TDS on commission payments. The assessee contended that the commission was paid to its staff, not to third parties, and thus Section 40(a)(ia) of the Income Tax Act was not applicable. During remand proceedings, the assessee produced all relevant documents, including books of accounts and salary registers, which were verified by the AO. Notices under Section 131 were sent to the staff, and four out of five staff members appeared, confirming receipt of commission as sales representatives.

Despite this, the CIT(A) did not consider the remand report, citing discrepancies in the list of staff provided. The ITAT found that the CIT(A) acted beyond jurisdiction by not considering the remand report and the evidence provided. The ITAT noted that the AO's remand report was prepared after thorough verification and personal appearances of the staff, and there was no infirmity in it. The ITAT directed the CIT(A) to delete the addition, relying on relevant case laws supporting the assessee's position.

Conclusion:

The ITAT concluded that the CIT(A) failed to properly consider the remand reports and the evidence provided by the assessee. The ITAT directed the CIT(A) to delete the additions of ?7,15,000/- and ?10,30,926/-, allowing both appeals filed by the assessee. The order was pronounced in the open court on 28/10/2016.