2014 (7) TMI 516 - AT - Income Tax

Payments of commission to petty persons Unverified payments Held that - CIT(A) was of the view that the services rendered by commission agent included procurement of order/indent from various CMOs of Distt. Hospitals spread all over the state of Uttar Pradesh, supply of goods to such district hospitals, collection of payments against supplies and carrying on such follow up works which were essential subsequent to supplies - the assessee has furnished the confirmations and affidavits of these 12 persons also along with the proof of identity such as addresses, copy of PAN, ration card, driving license, copy of return etc. - the assessee has also furnished the details of payment of commission giving the details of particulars of bill, date of bill, order/indent no., amount, of commission, mode of payment, payee name and their addresses to the AO during the assessment proceedings thus, there was no infirmity in the order of the CIT(A) Decided against Revenue. TDS not deducted on commission on sales and remuneration u/s 40(a)(ia) of the Act Held that - CIT(A) followed the decision rendered in CIT vs. Vector Shipping Services Pvt. Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT the provision of 40(a)(ia) was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head Income from Business and Profession in case the assessee does not deduct TDS on such expenses and the default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible - no finding was given by the CIT(A) on merit with regard to the nature of payments thus, the order of the CIT(A) is set aside and the matter is remitted back with the direction to adjudicate the issue on merit as to whether the provisions of section 194C are applicable to the present case and for the remaining issue, whether the provision of section 40(a)(ia) is applicable in respect of such amounts, which are payable as on 31st of March of the year under consideration the disallowance made by the AO u/s 40(a)(ia) cannot be deleted on this basis alone that the amount in question was not unpaid/payable on the last date of the previous year relevant to the present assessment year Decided in favour of Revenue. CIT(A) noted that 15 employees who have been paid liasioner remuneration are listed as marketing staff and their daily attendances have been marked on a register. He has also given a finding that they have been paid monthly salary - Since the total income was below taxable limit, the appellant was not required to deduct any tax u/s 192 of the Act - although disallowance was made by the AO under the provisions of section 40(a)(ia) of the Act, the AO has failed to comment under which section the assessee was liable to deduct TDS so as to attract section 40(a)(ia) of the Act AO has simply mentioned that the payment of lisisoner remuneration is in the nature of contract without conducting any enquiry - the AO has failed to place any material on record to demonstrate that the payments made to the marketing staff was in pursuance of any contract and was covered by section 194C of the Act thus, there was no reason to interfere in the order of the CIT(A) Decided partly in favour of Revenue. Addition of non-confirmation of creditors Held that - The disallowance was made by the AO on account of non-receipt of reply from the creditor M/s Balaji Furnishers to the notice served on him u/s 133 (6)/131 of the Act - in respect of creditor, addition can be made on two basis - First basis can be that a liability has ceased to exist and this addition can be made by invoking the provisions of section 41 (1) of the Act - it is not the case of the AO that the liability has ceased to exist - the assessee has also furnished the copies of invoices of M/s. Balaji Furnishers most of which were related to purchase of chairs, tables and other furnitures - the furnitures so purchased have been supplied to various hospitals - if sale is there, corresponding purchase cannot be said to be bogus - the AO has not brought on record any adverse material even in course of remand proceedings thus, there was no infirmity in the order of the CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 7,98,797/- out of payments of commission to petty persons.
2. Relief of Rs. 3,76,000/- out of commission on sales and Rs. 21,35,000/- on account of remuneration without TDS deduction.
3. Deletion of addition of Rs. 12,29,404/- due to non-confirmation of creditors.

Detailed Analysis:

1. Deletion of Addition of Rs. 7,98,797/- Out of Payments of Commission to Petty Persons:
The Revenue contested the deletion of the addition of Rs. 7,98,797/- made by the Assessing Officer (AO) due to unverified commission payments. The CIT(A) deleted this addition, reasoning that disallowing the same expenditure twice (once under Section 40(a)(ia) and again for non-verifiability) is not permissible. The CIT(A) noted that the assessee had provided confirmations, affidavits, and proof of identity for the commission agents. The AO had accepted similar confirmations from 17 agents but rejected 12 without further inquiry. The Tribunal found no infirmity in the CIT(A)'s order, agreeing that the AO's rejection of the 12 agents' confirmations without inquiry was unjustified. Therefore, the Tribunal upheld the CIT(A)'s decision and rejected the Revenue's ground on this issue.

2. Relief of Rs. 3,76,000/- Out of Commission on Sales and Rs. 21,35,000/- on Account of Remuneration Without TDS Deduction:
The Revenue raised two issues under this ground, both related to disallowances under Section 40(a)(ia) of the Act.

Commission on Sales:
The CIT(A) allowed relief of Rs. 3.76 lakhs on the basis that the commission was not unpaid/payable as of 31/03/2009, following the Special Bench decision in Merilyn Shipping & Transports vs. Addl. CIT and the Allahabad High Court judgment in CIT vs. Vector Shipping Services Pvt. Ltd. The Tribunal, however, noted that the Special Bench decision had been suspended by the Andhra Pradesh High Court and that other High Courts (Gujarat and Calcutta) had held that Section 40(a)(ia) applies to amounts payable at any time during the year. The Tribunal concluded that the CIT(A)'s reliance on the Special Bench decision was misplaced and reversed the CIT(A)'s order, restoring the AO's disallowance.

Remuneration:
The CIT(A) deleted the disallowance of Rs. 21.35 lakhs, finding that the payments were salaries to marketing staff, not requiring TDS under Section 192 as their incomes were below the taxable limit. The AO had not specified under which section TDS was required and had failed to demonstrate that the payments were contractual under Section 194C. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO's disallowance was based on conjecture without material evidence. Thus, this part of the ground was decided in favor of the assessee.

3. Deletion of Addition of Rs. 12,29,404/- Due to Non-Confirmation of Creditors:
The AO had disallowed Rs. 12,29,404/- due to non-receipt of a reply from the creditor, M/s Balaji Furnishers. The CIT(A) found that the assessee had provided confirmed ledger accounts, invoices, and evidence of corresponding sales to hospitals. The AO had not conducted proper inquiries or brought adverse material on record. The Tribunal agreed with the CIT(A), noting that the AO had not shown that the liability had ceased to exist or that the creditor was bogus. The Tribunal found no infirmity in the CIT(A)'s order and rejected the Revenue's ground on this issue.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, upholding the CIT(A)'s decisions on the deletion of Rs. 7,98,797/- and Rs. 12,29,404/-, but reversing the CIT(A)'s relief of Rs. 3.76 lakhs under Section 40(a)(ia) regarding the commission on sales. The Tribunal restored the matter to the CIT(A) for adjudication on the merits of the remuneration disallowance.