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TMI Blog2011 (9) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... yment for making charges on account of non-deduction of tax u/s 194C, disallowance of a sum of ₹ 1,10,53,737/- claimed as business loss on account of embezzlement by its employees; and also addition of ₹ 30,34,147/- on account of inflation of purchases. Aggrieved, the assessee preferred appeal before the ld. CIT(A) and he has given a part relief to the assessee by deleting the addition of ₹ 1,10,53,737/- added on account of disallowance of loss due to embezzlement but sustaining the addition of ₹ 12,52,682/- treating it as covered under the provisions of section 40(a)(ia) of the Act. Now, both the parties are aggrieved Revenue is aggrieved against the deletion of ₹ 1,10,53,737/- added after disallowing the loss claimed on account of embezzlement by employees and the assessee has disputed the sustained addition of ₹ 12,52,682/- being in violation of the provisions of section 194C of the Act. 3. In Revenue s appeal, the dispute is not regarding the factum of loss due to embezzlement by employees. The Revenue has accepted this fact that the employees did commit embezzlement and there is no dispute with regard to the quantity of embezzlement. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial available on record. The main crux of the submission made by the ld. CIT/DR, Dr. I. Vijayakumar, in his oral submission as well as in the grounds is that even though the loss claimed by the assessee was during the fag end of financial year 2005- 06, it cannot be said that the assessee was totally unaware of the loss/theft at the time of finalizing the accounts for the said year. He has also referred to the Balance Sheet wherein as on 31.3.2006, quantity of closing stock has been certified to be 91-19.734 gms meaning thereby the assessee-firm had so much of gold jewellery on that date and non-mention has been made about the loss therein. So, in these circumstances, it has been argued that this claim of the assessee would result in total claim of loss if it is so allowed in the year under consideration. We can summarize the submissions made on behalf of the assessee-firm by the ld.AR, as under: (a) For that the Assessing Officer erred in disallowing a sum of ₹ 1,10,53,737/- being loss claimed on account of embezzlement by employee citing reasons that the loss belongs to the previous year relevant to assessment year 2006-07 and hence not allowable in the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issing. The recovery of gold was made and Police filed Final Report on 23.5.2006 before the court of Metropolitan Magistrate. This gold jewellery or cash seized from the accused became the Government s property and was in the possession of the court. In such circumstances, one cannot come to a definite conclusion as to when this property can be recovered by a court order because the criminal proceedings may take sometime or even longer time if the accused file appeal which he is entitled to as per law. The assessee has claimed this loss in financial year 2006-07 because it was detected during that period. It is that financial year in which it has to claim this loss and no other financial year as has been expressed by the Assessing Officer. The Assessing Officer has accepted the genuineness of the FIR after getting it confirmed from the Commissioner of Police, There is no two opinions about the fact, as is evident from the available records, that the assessee-firm discovered this theft only in the month of April 2006 which pertains to assessment year 2007-08. The assessee-firm has recovered certain quantity of embezzled gold ornaments and has finally determined the loss of 17,799.90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details. The assessee complied with the same and after verification it was found by the Assessing Officer that the assessee had received ₹ 1,09,55,492/- as making charges. The assessee has paid ₹ 71,28,387/- as making charges . According to the Assessing Officer, provisions of section 194C(1) of the Act are attracted. The assessee is required to deduct tax at source/payments made towards making charges but the assessee has not deducted tax at souce for this payment. Consequently, with reference to section 40(a)(ia), the Assessing Officer proposed to add the amount of ₹ 12,52,682/- to the total income which the assessee firm was required to deduct tax at sources towards making charges. The assessee replied vide letter dated 23.12.2009 that in respect of payments made for making charges of gold jewellery, provisions of section 40(a)(ia) would not be attracted. The reason for this contention is given that in a case where the jeweler has failed to deduct tax at source on the contract payments made towards making charges for the jewellery which would be part of his purchase cost or in other words, part of its trading account or as the case may be manufacturing account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y apply and the assessee would become entitled to the desired relief. But as per section 194C, any person responsible for paying any sum to any recipient carrying out any specific work is responsible for deducting tax at source which results in disallowance of the entire amount u/s 40(a)(ia) of the Act starting from assessment year 2005-06. But such payments should be towards contract for work. The assessee gets ornaments from the workmen or goldsmith as stated above as per the prevalent practice, gold and precious stones are given to them and they make jewellery as per the specification of the jeweler. From that point if these payments are considered then TDS becomes deductible. Although there is no direct decision available on this issue but when both points of view are weighed and certain decisions like the one in the case of Attar Singh Gurumukh Singh vs ITO(supra), particularly page 5 of the judgment and its para 6, which reads as under, is considered, then this expenditure becomes allowable. 6. As to the second question it may be stated that the word expenditure has not been defined in the Act. It is a word of wide import. Sec. 40A(3) refers to the expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3). The only discordant note struck on this aspect is by the Gauhati High Court in CIT vs. Hardware Exchange (1991) 95 CTR (Gau) 183 : (1991) 190 ITR 61 (Gau) : TC18R.45l. The Gauhati High Court has observed that s. 40A(3) applies only to payments made on account of expenditure incurred and that the payment made for purchase of stock-in-trade cannot be termed as expenditure incurred since money does not go out irretrievably in such cases. We are enable to agree with the view taken by the Gauhati High Court. 2. The ITAT, Hyderabad Bench, in the case of Teja Constructions vs ACIT, 129 TTJ(Hyd)(UO)57, and the ITAT, Mumbai Bench, in the case of S.B.Builders and Developers vs ITO, 136 TTJ(Mmbai) 420, have taken view favourable to the assessee with regard to consultancy fees, architect s fees, commission and professional charges etc. Keeping in view the peculiar circumstances of this case, we hold that no TDS was deductible in such payments. Our above view is mainly based on the fact that small amount of tax is involved and when two possible views are available on one issue, the view favourable to the assessee has been taken. Therefore, our decision should not be treated as a p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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