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TMI Blog2016 (5) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... l as on facts of the case in confirming the addition of Rs. 4,60,152.00 u/s. 40(a)(ia) of the I.T.Act 1961 being the amount of commission paid to different parties on which no TDS was deducted on the grounds which are not correct. 3. For that the Ld. Commissioner of Income Tax (Appeal)- VI/Kol has erred in law as well as on facts of the case in confirming the addition of Rs. 1,45,655.00 u/s. 40(a)(ia) of the I.T.Act 1961 being the amount of bill discounting and service charges paid to different parties on which no TDS was deducted on the grounds which are not correct. 4. For that the Ld. Commissioner of Income Tax (Appeal)-: VI/Kol has erred in law as well as on facts of the case in confirming the addition of Rs. 2,52,000.00 u/s. 40(a)(ia) of the I.T.Act 1961 being the amount of consultancy charges paid to different parties on which no TDS was deducted on the grounds which are not correct. 5. For that the Ld. Commissioner of Income Tax (Appeal)-VI/Kol is not correct in "directing the Ld. A.O. to charge interest U/s. 234B & 234D after giving effect to the appellate order. 6. For that the Ld. Commissioner of Income Tax (Appeal)- VI/Kol has erred in law as well as on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through the exact process of work. M/s. B.P.Projects Pvt. Ltd. has taken the work of Process of Galvanising on job basis and snot on labour basis. The particular job was galvanizing for which M/s. B.P.Projects Pvt. Ltd. charged Rs. 21- per K.G. of weight of Cable Tray. This is job charges paid by the appellant besides the Zinc M/s.B.P.Projects Pvt. Ltd. paid wages to their labourers for completing the job as such the said payment by M/s. B.P.Projects Pvt. Ltd. to their labours comes under the head Labour Charges and the payment made by the appellant to M/s.B.P.Projects Pvt. Ltd. comes under the head job charges. The Ld. Assessing Officer in his remand report at page-2 line 18 has stated as under :- It is important to mention that the bills raised by M/s.B. P. Projects Pvt. Ltd. is solely for the purpose of "galvanizing process' charges" therefore there is no doubt that the said company has charged cost of materials for galvanizing other the labour charges. This is also important that galvanizing process charges includes "mainly labour charges" which are substantial in this process. Hence the amount of Rs. 16, 03,206.00 paid to Service Provider is in the nature of labour ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.10.2012 submitted the Ld. Assessing Officer is enclosed herewith. g) Thus the disallowance and addition of Rs. 16, 33, 578. 30 u/s.40(a)(ia) of the I.T Act 1961 is not correct, justify & proper & requires to be deleted. " 6. The CIT-A after considering the remand report and reply to such remand report filed by the assessee by way of written submissions dt:20-11-2012, CIT-A held as under: 14. I have carefully considered the observations of the Assessing Officer in the assessment order, remand report and submissions of the appellant. The appellant has submitted that the particular job was galvanizing for which M/s. B. P. Projects Pvt. Ltd. charged Rs. 2/- per K.G. of weight of Cable Tray. This is job charges paid by the appellant and the Zinc was supplied by the appellant. M/s. B. P. Projects Pvt. Ltd. had paid wages to their labourers for completing the job. The plea of the appellant is that the said payment by M/s. B. P. Projects Pvt. Ltd. to their labourers comes under the head Labour Charges and the payment made-by the appellant to M/s. B. P. Projects Pvt. Ltd. comes under the head job charges. The appellant had made a payment of Rs. 16,03,206 to M/s. B. P. Projects Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITA T in Rajiv Kumar Agarwal v. A CIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: "On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004." 14. The Court is of the view that the above reasoning of the Agra Bench of IT AT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o doubt that the assessee in this case has made the payments as transportation charges in the nature of hiring charges for goods carried vehicles. The main contention of the assessee is, however, that the payments have not been made in pursuance of a contract between the assessee and the transporters. Now the question arises before us, whether there is contractual relationship between the assessee and the persons to whom the assessee had made the payments in the nature of hiring charges for goods carried vehicles. In our opinion, a contract need not be in writing; even an oral contract is good enough to invoke the provisions of Section 194 C. As Hon'ble Karnataka High Court has observed in the case of Smt J Rama Vs CIT (236 CTR 105), "Law does not stipulate the existence of a written contract as a condition precedent for ( invoking the provisions of Section 194 C with respect to) payment of TDS". The transporters have received the payments from the assessee towards the transportation charges, therefore, the presumption normally be that one would proceed on the basis that there was a contract for hiring of goods carried vehicles. Therefore, if the assessee has made the payment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40( a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40[a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. According to him, it has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount In Grindlays Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held by the Hon'ble Calcutta High Court as follows at pages 469-470 of the reports: "A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the Tribunal. We, however, make it clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:- "E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee. Under the existing provisions of Chapter XVII -B of the Income-tax Act; a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of nondeduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction. However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. These beneficial provisions are proposed to be applicable only in the case of resident payee. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment; submitted by the assessee that the commission of Rs. 1000/- to Rs. 2300/- has been shown as payable to hundreds of people which is the after-thought of the assessee. It cannot be that (he commission expenses of Rs. l000/- to Rs. 2300/- had been incurred to hundreds of the 'people and not a single person was paid during the relevant financial year. Hence, it is clear' that the commission expenses claimed is a bogus claim of the assessee and it is requested from the Ld. CIT(A) that this amount of Rs. 4, 60, 152/- should be treated as bogus expenses claimed by the assessee. The same is true for the consultancy charges of Rs. 2,52,550/- and; therefore, it should also be treated as bogus expenses claimed by the assessee. " 18. The Assessing, Officer in. its Remand report vide letter No. DCIT/CIR-5/Kol/Remand/2012-13/1022 dated 08.1 0.2012 submitted as under:- "On going through the paper book submitted by the assessee and submissions made during the remand proceedings it has been observed that the assessee has observed that the assessee has paid commission of Rs. 4, 60, 152/- to a number of parties for securing orders for twelve companies located at various places. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in this transaction no TDS were to be deducted by the appellant and the provisions of section 194H r.w.s. 40(a)(ia) do not become applicable. Therefore, in the facts and circumstances it is held that the appellant is not able to Justify the genuineness of the expenditure and evidence of its actual incurring arid disbursing to the concerned persons. 20. The Hon'ble Delhi High Court in the case of CIT Vs. Modi Industries Ltd reported in (1992)(200 IT 341) has held as follows:- 'the expenditure was not incurred ~holly and exclusively for the purpose of assessee's business. Commission paid was not deductible. " 21. The Hon'ble Apex Court in the case of Lachminarayan Mondal (86 ITR 439 (SC) has also held as follows:- "it is still open to the Department/Assessing Officer to consider the relevant facts and, determine for himself whether the commission has been paid to the agents was wholly and, exclusively for purpose of the assessee's business for allowing deduction u/s 37 of the Act. " 22. The Hon'ble Madhya Pradesh-High Court in the case of Ramdas Ramlal reported in (1983) 149 ITR 256 held as follows:- "The burden to prove the genuineness of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the procedure established the assessee shall produce all the details before the authorities, after due verification of the material available on record which are filed by the assessee without any supporting evidence both the authorities below arrived to a conclusion that the said payments made to various persons are self made and non-verifiable. Therefore, we hold that the assessee had clearly failed to prove genuineness of expenditure, consequently, the addition made on this issue stands confirmed. Accordingly ground no-2 raised by the assessee is dismissed. 15. Ground no.3 relates to disallowance made on account of bill discounting and Invoice charges of Rs. 1,45,655/- by the AO by invoking sec 40(a)(ia) of the Act. The CIT(A) pointed out to remand report that the financial institutions charged discounts on the direction of the assessee and as the amount was above Rs. 2,500/- and it is the responsibility of the assessee to deduct the TDS and confirmed the addition made by the AO and the observation of which is reproduced herein below:- "26. The Assessing Officer in the, Remand report vide letter No. DCIT/CIR- 5/Ko1/Remand/2012-13/1022 dated 08:-;10.2012 submitted as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT-A that the assessee did not pay any amount and the banks and the financial institutions paid amounts after deducting their charges appears to be true. 18. In this regard we may refer to the case law relied on by the assessee in the case of CIT vs Cargill Global Trading (P) Ltd reported in 355 ITR 94. The facts are that the AO noticed that the assessee had paid a sum of Rs. 3.97 crores to its associate concern, M/s Kargil Financial Services Asia (P) Ltd. (CFSA), Singapore on account of discounted charges for getting the export sale bills discounted. In appeal the CIT(A) deleted the addition holding that the discount paid by the assessee to CFSA cannot be held to be interest and the provisions of s. 40(a)(i) of the Act would not apply and he allowed the expenditure of Rs. 3.97 crores as claimed by the assessee. The Tribunal observed that discounting charges were not in the nature of interest paid by the assessee and assessee had received net amount of bill of exchange accepted by the purchaser after deducting amount of discount. The Hon'ble High Court supra agreed with the discussion and decision rendered by the Tribunal portion of which is reproduced as under: "9. The word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill of exchange accepted by the purchaser. CFSA, not having any PE in India, is not liable to tax in respect of such discount earned by it and hence the assessee is not under obligation to deduct tax at source under s. 195 of the Act. Accordingly, the same amount cannot be disallowed by invoking s. 40(a)(i) of the Act." 11. We are in agreement with the aforesaid discussion on the legal aspect. It may be pointed out that the CBDT has issued one Circular No. 65 way back on 2nd Sept., 1971 clarifying the position in respect of income by way of interest under s. 194 r/w s. 197(1) and (2) of the Act as under : "1....Where the supplier of goods makes over the usance bill/hundi to his bank which discounts the same and credits the net amount to the supplier's account straightaway without waiting for realization of the bill on due date, the property in the usance bill/hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such a payment cannot technically be hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties 10wards consultancy charges which is less than Rs. 20,000/- in each case. In view of the above payment details section 194J of the IT Act 1961 is not attracted. During the remand proceedings the it was told to the A/R of assessee that the said payments do not appear to be genuine and he was directed to produce the parties and make comments but assessee has neither made any comment in respect of its genuineness nor produced any of the above parties. Therefore, genuineness of the above payments is not proved by the assessee instead of giving him sufficient opportunity. Hence the said payment cannot be held to be genuine and addition made by A. 0. is valid" 32. The Assessing Officer during the assessment order has observed that due to non attendance after giving adequate opportunities disallowed this amount for non deduction of TDS. The appellant is notable to show that what kind of professional services were taken by it from so many different persons. It *is held that since the disallowance was made u/s. 40(a)(ia),' ,the appellant has shown the payments to different persons in cash for less than Rs. 20,000/- each through the self made vouchers. 21. Before us, the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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