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TMI Blog2017 (3) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Govt. of Karnataka, it is all the more necessary to examine the facts whether the assessee has sold arrack on principal to principal basis to these vendors, or vendors were acting as commission agents of the assessee. If it is established that assessee has issued invoices in the name of vendors and supplied arrack to them, the transaction would be on principal to principal basis and the vendors cannot be held to be commission agents of the assessee. Nomenclature to the difference in receipt of sale proceeds and sale consideration is irrelevant. But these aspects were not examined by the lower authorities. Since the assessee has taken a categorical stand before the CIT(Appeals) that the vendors were duly authorised and approved by the Govt. of Karnataka to transact in arrack, the CIT(A) should have examined as to how sale of arrack was effected and in whose favour invoice was raised. Therefore, we are of the opinion that this issue requires fresh adjudication by the AO. Disallowance of interest - Held that:- We have carefully examined the order of CIT(A) for AY 2005-06 where the issue was examined in detail and we find that the CIT(A) has directed the AO to recompute the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. 2. The assessment is bad in law as the mandatory conditions to assume jurisdiction under section 148 does not exist and consequently the assessment made is bad in law. 3. The issue of notice under section 148 of the Act during the pendency of a valid subsisting return is bad in law. 4. The assessing officer by issuing notice under section 148 of the Act has sought to extend the proceedings which is not permissible in law. 5. The order of assessment is bad in law in so far as the issues for which the assessing officer has not given the details collected by him without putting to the appellant as the same are in violation of the principles of natural justice. 6. The Appellant denies itself to liable to be assessed on the total income determined by the authorities below as against an income of ₹ 2,26,38,594/- returned by the Appellant under the facts and circumstances of the case. 7. The authorities below failed to appreciate that the cash payments to the tune of ₹ 1,11,56,360/- is for the purchase of arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The Appellant craves leave to add, alter, substitute and delete any or all of the grounds of appeal urged above. 16. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice. Grounds of Appeal in Revenue s appeal (ITA 71/B/2011) 1. The order of the Ld CIT(A) is opposed to law and facts of the case. 2. The Ld CITJA has not appreciated the fact that disallowance made u/s 40(a)(ia) was rightly done, as the assessee failed to deduct tax in view of the provisions of Sec 194H. 3. The Ld CIT(A) has not appreciated the fact that exception clauses provided as per Sec 194A(3) has not been provided to Sec 194H of the IT Act, vis-a-vis to the deduction of taxes at source and that the disallowance u/s 40(a)(ia) has been properly done while concluding the assessment proceedings. 4. The Ld CIT(A) has not appreciated the fact that, while making disallowance u/s 40(3)(ia), the definition for 'Commission Brokerage' as provided in Explanation to Sec 194H of the IT Act, has been rightly followed in letter and Spirit as far as payment made to Canara Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of his contentions, he placed reliance on the following judgments:- (1) Trustees of HEH the Nizam s Supplementary Family Trust v. CIT, 242 ITR 381 (SC) (2) CIT v. Sambhudayal Dwarkadas, 218 ITR 123 (MP) (3) Jhunjhunwala Vanaspati Ltd. v. ACIT, 266 ITR 664 (All) (4) CIT v. K.M. Pachayappan, 304 ITR 264 (Mad) (5) CIT v. Qatalys Software Technologies Ltd., 308 ITR 249 (Mad) (6) Renuka Industries v. ITO in ITA No.187 of 2003, order dated 28.11.2007 (Karnataka High Court) (7) Super Spinning Mills Ltd. v. ACIT, 3 ITR [Trib] 258 (Chennai) (8) L.T. Karle Co. in ITA No.364/Bang/2010, order dated 11.02.2011. (9) CIT v. Abad Fisheries, 65 DTR 370 (Kerala HC) (10)CIT v. Anajana Sabharwal, 71 DTR 313 (Allahabad HC) 6. The ld. counsel for the assessee further invited our attention to the reasons recorded by the AO for reopening the assessment with the submission that in the reasons recorded, the AO made a reference to the original and revised return filed by the assessee. Though he has tried to state that reopening was done to regularise the revised return, but in fact the revised return was acknowledged by the AO as it was processed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the light of processing of revised return u/s. 143(1), it cannot be said that revised return filed by the assessee was non est in law and it requires a proper regularisation by issuing notice u/s. 148 of the Act. 10. After processing the return, the AO has formed a belief that as per information from ADIT(Inv), the assessee has not disclosed certain amount in its return originally filed, but before the AO could record the reasons, assessee had already filed the revised return declaring additional income. Once the assessee has already declared the additional income by filing a revised return which was processed u/s. 143(1) of the Act, we find no merit in the reasons recorded by the AO that certain income has escaped assessment. Moreover, the notice u/s. 148 was issued before expiry of time available for issuance of notice u/s. 143(2) of the Act with respect to the revised return. 11. We have also examined the judgment of the Hon'ble Apex Court in the case of Trust of Trustees of HEH the Nizam s Supplementary Family Trust v. CIT, 242 ITR 381 (SC) in which it has been categorically held that it is settled law that unless the return of income already fled is disposed of, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude the above, the addl income now offered, after enquiries made by the Dept, requires to be verified. The RI also has to be regularised. I have reason to believe that income to the extent of Deposits made of ₹ 6943000/- and accrued interest of ₹ 241,170/- have escaped assessment as per provisions of sec. 147. Issue Notice u/s. 148. 15. From a careful perusal of reasons recorded, it appears that on the basis of the report of ADIT(Inv), the AO has formed a belief that deposits in the UTI Bank of ₹ 69,43,000 and the interest earned thereon were not disclosed by the assessee, therefore income escaped assessment. These reasons were recorded not only after the filing of revised return, but after the revised return was processed u/s. 143(1) of the Act. In the statement of income filed along with the revised return, the assessee has already offered the cash remittance to UTI Bank of ₹ 69,43,000 and interest of ₹ 2,41,170. Accordingly taxable income was worked out to ₹ 2,26,38,594. This much of income was not only offered by filing a revised return (copy of revised return is available at page 53 of the compilation), but also the revised return was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r XVII B of the act and consequently no disallowance is warranted on the facts and circumstances of the case. The assessing officer also failed to appreciate that the authorities governing the provisions of Chapter XVII B have not passed any order in this regard. 6. The authorities below failed to appreciate the fact that disallowance under section 40(a)(ia) is permissible only if the deduction is claimed under section 30 to 38 of the Income-tax Act, 1961 under the facts and circumstances of the case. 7. The authorities below are not justified in disallowing Interest on account of diversion of funds on the facts and circumstances of the case. The authorities below failed to appreciate that there was huge credit balance of the partners as a whole and no interest was charged by the firm to any of the partners for either debit or credit balance and the authorities below were not correct in sitting in judgment over the commercial expediency of the business man under the facts and circumstances of the case. 8. The Appellant denies itself liable to be charged to interest under section 234B and 234D of the Income Tax Act and requires to be cancelled on the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(Appeals) while passing the order for AY 2005-06 and following the said order, the CIT(A) has confirmed disallowance in the instant case. 19. In order to understand the facts of the case, we have to look into the order of the CIT(A) for AY 2005-06 wherefrom the facts are that the assessee had debited a sum of ₹ 32,69,190 in the nature of discount and was claimed to be vendors commission. The AO had disallowed the payment having invoked section 194H of the Act r.w. sec. 40(a)(ia) of the Act for non-deduction of tax at source. 20. Aggrieved, the assessee preferred an appeal before the CIT(Appeals) and contended that in the normal practice in the line of business, the contractor has to supply arrack to various vending points or locations in the respective operational areas as permitted by Govt. of Karnataka. The vendor who sells the arrack would retain certain portion of the sale proceeds and return the balance amount to the supplier i.e., appellant. In the case of the appellant, the arrack was supplied to vendor at different points at ₹ 13 per arrack packet and the vendor sold the arrack packet at ₹ 12.50 deducting a sum of ₹ 0.50 as their charges. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities are not proper. 23. On the other hand, the ld. DR has placed reliance upon the order of CIT(A). 24. Having carefully examined the orders of lower authorities in the light of rival submissions, we find that there is no dispute with regard to legal position that nomenclature given by the assessee to a particular transaction is not conclusive proof of true nature of the transaction. The nature of transaction has to be looked into by the relevant evidence available. There is no dispute that assessee had been supplying arrack to different vendors at different vending points. Now the question arises whether the assessee has made the sales to different vendors on a principal to principal basis, or whether different vendors were acting as agents of assessee. The assessee has categorically stated that vending points are the locations in the respective operational area which were also permitted by Govt. of Karnataka to sell arrack at the rate prescribed by Govt. It was also stated that all stocks were approved and licensed by Govt. of Karnataka and these facts were not controverted by the CIT(Appeals) in his order. He has simply concluded that vendors were not having licence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, it is consequential in nature and needs no independent adjudication. ITA 72/Bang/2011 28. In the revenue's appeal, ground Nos.1 to 4 relate to disallowance of commission brokerage for non-deduction of tax at source. The CIT(Appeals) has also followed the earlier order for AY 2005-06 wherein the issue was discussed at length. 29. The ld. DR placed reliance on the order of AO in this regard and whereas the ld. counsel for the assessee has contended that the issue was examined in detail by the CIT(A), therefore no interference is called for. 30. From a careful perusal of the record, we find that the AO had made the disallowance of ₹ 90,08,515 towards bank guarantee commission. The assessee was asked to explain the nature of expenses and in response thereto it was stated that when guarantee commission was paid to Canara Bank for bank guarantee obtained in respect of license granted by Govt. of Karnataka. The assessee has got bank guarantee from Canara Bank of ₹ 45 crores during the FY 2005-06 relevant to AY 2006-07. Further, as per the terms of agreement, the assessee has paid bank guarantee commission @ 2% of the total guarantee amount. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case. 3. The authorities below are not justified in disallowing the professional charges paid of ₹ 2,70,000/- u/s 40(a)(ia) of the Act on the facts and circumstances of the case. 4. The authorities below failed to appreciate the fact that disallowance under section 40(a)(ia) is permissible only if the deduction is claimed under section 30 to 38 of the Income-tax Act, 1961 under the facts and circumstances of the case. 5. The authorities below are not justified in law in disallowing a sum of ₹ 1,44,216/- being 20% of the total telephone expenses debited in the profit and loss account under the facts and circumstances of the case. 6. The authorities below failed to appreciate the fact that consent cannot confer jurisdiction and hence the admission made by the authorised representative is not binding under the facts and circumstances of the case. 7. The Appellant denies itself liable to be charged to interest under section 234B and 234D of the Income Tax Act and requires to be cancelled on the facts and circumstances of the case. Further the levy is also bad in law as the period, rate and quantum on which levied are all not disernable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(ia) of the Act. 37. The ld. counsel for the assessee further contended that when the recipients have paid the taxes, the assessee cannot be held to be in default and disallowance u/s. 40(a)(ia) cannot be made. 38. The ld. DR placed reliance upon the order of CIT(Appeals). 39. Having carefully examined the orders of lower authorities in the light of rival submissions, we find that now the provisions of section 201(1) and section 40(a)(ia) has been toned down by subsequent amendments and as per second provisio to section 40(a)(ia), when the assessee is not in default, it is to be presumed that assessee has deducted and paid the taxes. This aspect was not examined by the CIT(A). Therefore, we are of the view that let this issue be examined in the light of the amended provisions of section 40(a)(ia) of the Act by the Assessing Officer. Accordingly, this issue is restored to the file of the Assessing Officer. 40. Ground No.5 relates to the disallowance of telephone expenses. In this regard, we find that the AO has disallowed 20% of the total claim towards telephone expenses on account of personal use. Since the possibility of personal use of telephone cannot be ruled out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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