2019 (2) TMI 1363 - AT - Income Tax

TDS u/s 194H - addition on account of the liabilities of consolidation charges outstanding as on 31.03.2009 for non deduction of tds - transactions being of sale /purchase and relationship being on principal to principal basis - HELD THAT - MOU makes it clear that the contract between the consolidators and the assessee company is in the nature of contract of sale with a guarantee period and not a contract of agency and the difference between the agreed price and sale price for surrender of rights was an incentive /compensation /profit (whatever one may call) for offer of sale with guarantee which cannot be called a commission or a brokerage for invoking the provisions of section 194H as the contract between the consolidators and the assesse company was a contract of a principal with a principal. The principal-agent relationship which is a sine qua non for invoking provisions of section 194H is missing in this case. It was a contract of sale with a guarantee period. The Hon ble Delhi High Court in case of CIT vs. Mother Dairy India Ltd. 2012 (2) TMI 80 - DELHI HIGH COURT held that amount received for undertaking procurement and marketing of milk and milk products through concessionaires is a case of purchase of milk outright and not agency sales. Disallowance of salary and wages - HELD THAT - The adhoc addition made by the Assessing Officer at 80% of the salary and wages claimed has been reduced by the CIT(A) to 20% of such salary and wages on the basis that it is excessive in nature. The CIT(A) has taken proper consideration of the nature of the assesse s business and its turnover in consonance with the ratio of salary and wages vis-a-vis turnover. Addition u/s 68 - Cash credit of Surjeet Singh - HELD THAT - Assessing Officer noted Surjeet Singh s confirmation. Yet, the person himself could not be produced before the Assessing Officer as the time given was short towards the end of the assessment proceedings. The Ld. AR submitted that he can be produced if so directed by the Tribunal.Therefore, we are of the opinion that it will be appropriate to remand back this issue to the file of the Assessing Officer to decide the same afresh after verifying all the details about the cash credits including presence of Shri Surjeet Singh before the Assessing Officer and his confirmation. TDS u/s 194H - HELD THAT - It is pertinent to note that some of the evidences were not before the Assessing Officer and Assessing Officer has also not verified the whereabouts of Shri Mange Ram. Therefore, it will be appropriate to remand back this issue this issue to the file of the Assessing Officer to decide the same afresh after verifying all the details about the said transaction. Needless to say, the assessee be given the opportunity of hearing by following principles of natural justice. Ground No. 4 is partly allowed for statistical purpose. Addition he provision of 40(a)(ia) r.w.s.l94H - HELD THAT - AR submitted that the evidence of identity & address of Shri Dharm Raj & the receipt of payment of ₹ 42,84,375/- by him for Makan, Tubewell, fasal, Pad-poudha, Murgi farm had been filed for verification alongwith sale deed of the land. As regards treating the separate additional payment to Shri Dharm Raj as mentioned above as in the nature of commission for extraneous grounds for certain services, as held by the CIT(A), no cogent reason and material /evidence has been given to treat this as commission in order to invoke the provision of sec 40(a)(ia) r.w.s. 194H despite of the evidence given by the assessee. TDS u/s 194H - consideration of various land and structures on the land purchased - HELD THAT - evidence of identity & address of Shri Dharm Raj & the receipt of payment of ₹ 42,84,375/- by him for Makan, Tubewell, fasal, Pad-poudha, Murgi farm had been filed for verification alongwith sale deed of the land which was not at all considered by the revenue authorities. As regards treating the separate additional payment to Shri Dharm Raj as in the nature of commission for extraneous grounds for certain services, while deciding this issue also the Assessing Officer as well as CIT(A) failed to looked into the material /evidence given by the Assessee before treating this as commission in order to invoke the provision of sec 40(a)(ia) r.w.s. 194H - it will be appropriate to remand back this issue this issue to the file of the Assessing Officer to decide the same afresh

Summary

Issues Involved:
1. Disallowance of ?2,58,00,000 for non-deduction of TDS under Section 194H read with Section 40(a)(ia) of the IT Act.
2. Disallowance of ?43,93,291 (20% of salary and wages).
3. Unexplained cash credit of ?48,00,000 under Section 68 of the IT Act.
4. Disallowance of ?50,00,000 paid for facilitating possession of land under Section 194H read with Section 40(a)(ia) of the IT Act.
5. Disallowance of ?42,84,375 paid for various movables and structures on the land purchase under Section 194H read with Section 40(a)(ia) of the IT Act.

Issue-wise Detailed Analysis:

1. Disallowance of ?2,58,00,000 for non-deduction of TDS under Section 194H read with Section 40(a)(ia):
The assessee argued that the relationship between the consolidators and the assessee was on a principal-to-principal basis, not an agency relationship. The MOU defined the 'consolidation charges' as the difference between the agreed price and sale price, which was considered an incentive or profit, not commission or brokerage. The Tribunal agreed, noting that the MOU indicated a contract of sale with a guarantee period, not a contract of agency. The principal-agent relationship required for Section 194H was absent. Citing the Delhi High Court's decision in CIT vs. Mother Dairy India Ltd., the Tribunal allowed the ground, concluding that the provisions of Section 194H were not applicable.

2. Disallowance of ?43,93,291 (20% of salary and wages):
The assessee contended that the ad-hoc addition of 20% was arbitrary and excessive. The CIT(A) had reduced the initial 80% disallowance by the Assessing Officer to 20%, considering the nature of the assessee's business and its turnover. The Tribunal found no reason to interfere with the CIT(A)'s findings, as the ratio of salary and wages to turnover was consistent with the previous year. Therefore, this ground was dismissed.

3. Unexplained cash credit of ?48,00,000 under Section 68:
The assessee argued that the addition was confirmed due to the non-production of the cash creditor, Shri Surjeet Singh, and the absence of his income tax particulars. The Tribunal noted that the Assessing Officer had recorded Surjeet Singh's confirmation but could not verify his presence due to the short time frame. The Tribunal remanded the issue back to the Assessing Officer for fresh verification, including the presence of Shri Surjeet Singh, ensuring the assessee's right to a hearing. This ground was partly allowed for statistical purposes.

4. Disallowance of ?50,00,000 paid for facilitating possession of land:
The assessee claimed that the payment to Shri Mange Ram was for giving possession of the land, not commission. The CIT(A) treated it as a commission subject to TDS under Section 194H. The Tribunal found that the Assessing Officer had not verified the whereabouts of Shri Mange Ram and some evidence was not considered. The issue was remanded back to the Assessing Officer for fresh verification, ensuring the assessee's right to a hearing. This ground was partly allowed for statistical purposes.

5. Disallowance of ?42,84,375 paid for various movables and structures on the land purchase:
The assessee clarified that the payment was for built-up structures and other assets, not commission. The Tribunal noted that the evidence of the identity and address of Shri Dharm Raj and the receipt of payment had not been considered by the revenue authorities. The issue was remanded back to the Assessing Officer for fresh verification, ensuring the assessee's right to a hearing. This ground was partly allowed for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific issues remanded back to the Assessing Officer for fresh verification and consideration, ensuring adherence to the principles of natural justice. The order was pronounced in the open court on 20th February 2019.