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2016 (5) TMI 1260
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....ner of Income Tax (Appeal)-VI/Kol has erred in law as well 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.....
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....vt. Ltd. as per their bills was for Galvanising Process Charges which comes under the head job charges. The Ld. Assessing Officer has not gone 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 ....
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....s observation of the Ld. Assessing Officer is not correct as the provisions of Sec. 194C of the I.T Act 1961 is not attracted in both the case. f) A Xerox copy of submission dated 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 th....
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.... the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee 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 ....
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....e these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated 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 o....
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....r) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person" is required to deduct tax at source under section from the amounts so paid or payable. There is no 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 ....
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.... decision of this Tribunal (,SMC' Bench) in ITA No. 1905jKolj2014 for the assessment year 2007-08, in which this Tribunal vide order dated 04.03.2015 has held as under:- "5. I have heard rival contentions and gone through the facts and circumstances of the case. 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 follow....
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....ing is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to 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 sect....
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....e also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee. These amendments will take effect from 1st July, 2012. ll. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue 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, ....
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....ned by the AO under remand proceedings. The AO treated such details of payments produced by the assessee as bogus and found that not a single payment was paid during the relevant financial year. The relevant portion from order of the ld.CIT(A) is reproduced here in below:- 17. The Assessing Officer in its Remand report dated 07.02.2011 submitted as under:- "From the details of commission 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 Re....
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....ht on record, The appellant has deliberately structured its transactions in a way so as to avoid the provisions of section 194H r.w.s 40(a)(ia). The arrangement about real transactions takes place in secret and direct evidence about such dlscreet transaction/agreement would be not available to the department in the normal circumstances during assessment proceedings. The result of these structured transactions was designed that 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 ....
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.... Rs. 4,60,152/- to a number of parties for securing orders from twelve companies located at various places. Further noted that the assessee failed to produce any kind of evidence in respect of appointment of such commission agents either before AO or CIT-A. Mere stating that the assessee has appointed persons as commission agents for each company to follow-up its affairs in support of which no sufficient evidence, whatsoever, filed in this regard. In our opinion, as 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....
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....ch the assessee has not made any payment to the bank. To support of this view, page no- 22 of paper book is a statement of account issued by the Bank of Baroda shows that the assesee's account was deposited with Rs. 8,64,024/- on 17-08-2004 and in page no-23 of paper book goes show that the actual bill amount was Rs. 8,88,000/- and the said bank deposited the balance amount after deducting interest, surcharge and commission mentioned therein. The submissions made by the assessee as it was reflecting in the order 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....
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....2008) 14 DTR (SC) 74. The Hon'ble Supreme Court held that usance interest payable outside India by an undertaking engaged in the business of ship breaking is exempt from payment of income-tax by virtue of Expln. 2 added to s. 10(15)(iv)(c) with retrospective effect from 1st April, 1962 and hence the assessee was not liable to deduct tax at source under s. 195 of the Act. The discounting charges are not in the nature of interest paid by the assessee. Rather after deducting discount the assessee received net amount of the bill 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 ov....
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....any basis and the section 194J of the Act does not attract to the facts of the case as all the payments under professional consultancy charges are below Rs. 20,000/-. The AO admits the fact that all the payments were below Rs. 20,000/- vide remand report, which is reproduced below:- 31. The Assessing Officer in the Remand report vide letter No. DCIT/CIR.5/KoI/Remand/2012-13/1022 dated 08.10.2012 submitted as follows:- "On going through the paper book made by the assessee, it has been observed that assessee has made payment to a no, of parties 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 genuin....