GRADE ONE EVENTS PVT. LTD.,GHAZIABAD V. DCIT, CIRCLE- 1, GHAZIABAD

ITA 1831/DEL/2018

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Grade One Events Pvt. Ltd., engaged in event management and manpower supply, appealed against the order of the Commissioner of Income Tax (Appeals), Ghaziabad, which upheld the additions made by the Assessing Officer (AO) for the Assessment Year 2012-13. The AO had disallowed certain expenses under section 40(a)(ia) due to short deduction of TDS on commission payments and rent, and rejected the books of account under section 145(3), leading to an estimated higher net profit ratio. The Tribunal, referencing decisions from the Delhi and Calcutta High Courts, found that the disallowances under section 40(a)(ia) were not applicable in cases of short deduction of TDS where tax had been deducted under a different provision. The Tribunal also agreed with the assessee's explanation for the decline in net profit ratio due to changes in business arrangements and economic conditions, leading to the rejection of the AO's adjustments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 103009 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Other Referred Cases: Pr. CIT vs. Future First Info Services Pvt. Ltd, CIT Vs S.K.Tekriwal, CIT versus PVS Memorial Hospital Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PARKASH
• Assessee Lawyers: RAJESH MALHOTRA
• Keywords: Difference of opinion; Additional evidence; Rejection of books of accounts; TDS; Non-deduction of tax
• Section: 143(2); 201; 13; 234B; 244A; 40(a)(ia); 194C; 145(3); 40a(ia)

Judgement Text

" ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 1 of 14 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘C’ BENCH, NEW DELHI BEFORE SHRI YOGESH KUMAR US, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No:- 1831/Del/2018 (Assessment Year- 2012-13) Grade One Events Pvt. Ltd., Lajpat Nagar, Sahibabad, Ghaziabad. Vs. DCIT, Circle-1, Ghaziabad. PAN No: AACCG0563B APPELLANT RESPONDENT Assessee by : Sh. Rajesh Malhotra, CA. Revenue by : Shri Om Parkash, Sr. DR Date of Hearing : 08.04.2025 Date of Pronouncement : 16.04.2025 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the Ld. Commissioner of Income Tax (Appeals), Ghaziabad, dated 03.05.2017 for A.Y 2012-13. 2. The assessee has raised the following grounds of appeal: ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 2 of 14 “ 1. On the facts and in the circumstances of the case and in law, the authorities below have stated disallowing a sum of Rs. 64,79,322/- u/s 40(a)(ia) being payment made for Incentives by the assessee. The action of authorities below is wrong, illegal, misconceived, unjustified and bad at law therefore it should be quashed. 2. On the facts and in the circumstances of the case and in law, the authorities below have erred in disallowing a sum of Rs. 33,36,291/- u/s 40(a)(ia) treating the payment made as rent instead of the actual payments made for contract by the assessee. The action of authorities below is wrong, illegal, misconceived, unjustified and bad at law therefore it should be quashed. 3. On the facts and in the circumstances of the case and in law, the authorities below have erred in rejecting the books of account of the assessee u/s 145(3) of the act on the basis of wrong allegations whereas the books of accounts of assessee were duly audited under Companies Act as well as Income Tax Act respectively without any qualification. The action of authorities below is wrong. illegal, misconceived, unjustified and bad at law therefore it should be quashed. 4. On the facts and in the circumstances of the case and in law, the authorities below have erred in making addition for a sum of Rs. 1,62,86,587/- to the income of the assessee by enhancing the estimated NP ratio to 16.35% of total turnover instead of actual 5.45% NP ratio occurred by the assessee. The action of authorities below is wrong, therefore it should be quashed. misconceived, unjustified and bad at law 5. On the facts of the circumstances of the case and in law the authorities below have erred in reversing the interest u/s 244A of the Income Tax Act amounting to Rs 6,84,458/- The action of authorities below is wrong, illegal, misconceived and unjustified therefore it should be quashed. 6. On the facts of the circumstances of the case and in law the authorities below have erred in charging the interest u/s 234D of the Income Tax Act amounting to Rs 10,30,111/- The action of learned Assessing Officer is wrong illegal, misconceived and unjustified therefore it should be quashed. 7. On the facts of the circumstances of the case and in law the authorities below have erred in issuing the direction to charge interest u/s 234B and 234C of the Income Tax Act. The action of authorities below is wrong, illegal, misconceived and unjustified therefore it should be quashed. ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 3 of 14 8. The appellant craves the right to add, submit, alter or withdraw any or all grounds of appeal.” 3. The assessee is a resident private ltd company engaged in the business of Event Management and Manpower supply. The assessee has filed return of income on 29.09.2012, declaring income of Rs.1,13,67,420/-. The case was selected for scrutiny under CASS and notice u/s 143(2) of the Act, dated 07.08.2013, was issued and served upon the assessee. 4. In the course of assessment proceedings, the AO found that the assessee has made payment of commission of Rs 1,04,33,692/- which the assessee has treated it as salary payment and accordingly deducted TDS of Rs 3,94,938/- which works out at 3.79%. The AO held that the nature of payment is ‘commission’ for which TDS @10% under the provision of 194H should have been deducted. Since there is shortfall of 6.21% in deduction of TDS, the AO disallowed the proportionate payment of Rs. 64,79,322/-u/s 40(a)(ia) of the Act. 4.1. The AO similarly found that the assessee had hired advertisement space in mall from M/s Excel Marketing and had ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 4 of 14 deducted TDS @ 2% treating the payment as contractual payment u/s 194C. The AO held that the same isrent paid for hired advertisement space in malls which would come under 194I(b) and therefore, the assessee should have deducted tax @ 10%. Since, there was short deduction of TDS, the proportionate expenses of Rs. 41,70,363/- paid to M/s Excel Marketing, amounting to Rs. 33,36,291/- was disallowed u/s 40(a)(ia) of the Act. 4.2. The assessing officer further rejected the books of account u/s 145(3) and assessed the income of the assessee at an estimated NP ratio of 16.35% of total turnover as against NP of 5.45% declared by the assessee resulting in addition of Rs 1,62,86,587/- 5. The assessee was aggrieved and made an appeal before the CIT(A), who upheld all the additions made by the AO. Aggrieved, assessee is now before us. 6. With respect to ground no 1 and 2, the Ld. AR of the assessee submitted that the issue of deduction u/s 40(a)(ia) has been settled by the Delhi High Court in the case of Pr. CIT vs. Future First Info Services Pvt. Ltdwherein itwas held that whenever there is short deduction of TDS, there is no applicability of 40(a)(ia). The assessee ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 5 of 14 also relied on the decision of Calcutta High Court in the case of CIT Vs S.K.Tekriwal (2014) 46 taxmann.com 444(Cal). The ld. AR fairly conceded that the Kerala High Court in the case of CIT versus PVS Memorial Hospital Ltdreported in60 taxmann.com 69 (Kerala)( 2015) has differed from the view of the Calcutta High Court. 7. Per contra, the Ld. DR relied on the orders of the AO and the CIT(A). 8. We have heard the rival submissions and perused the material available on record. We find that the AO has made the addition u/s 40(a)(ia) on account of short deduction of TDS. In the first instant, the TDS on commission/salary was deducted by the assessee @ 3.79% whereas as per the AO it should have been deducted @ 10% as per the provision of Section 194Hand accordingly, the AO made proportionate disallowance u/s 40(a)(ia) of Rs 64,79,322/-. Similarly, with respect to expenditure on hiring advertisement space in mall, the assessee had deducted TDS @ 2% u/s 194C whereas the AO held that it should have deducted 10% u/s 194I(b)and accordingly, the AO made proportionate disallowance u/s 40(a)(ia) of Rs 33,36,291/- ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 6 of 14 9. We find that the hon’ble jurisdictional High Court has settled this issue in favour of the assessee in the case of Future First Info Services reported at 145 taxmann.com 35 Delhi [2022], July 14, 2022., wherein the Hon’ble Delhi High Court approving the Calcutta High Court decision in the case of CIT Vs S.K.Tekriwal held as under: “ 5. Further, this Court is of the opinion that in cases of short deduction of TDS, disallowance under section 40a(ia) of the Act cannot be made and the correct course of action would have been to invoke Section 201 of the Act. On similar facts, the Calcutta High Court in CIT v. S.K. Tekriwal [2014] 46 taxmann.com 444/361 ITR 432/[2013] 260 CTR 73/2012 SCC Online CAL 12147 dismissed the Revenue's appeal. The relevant para of the said judgement is reproduced herein below: \"We are satisfied that the order under challenge is a just order. The reasoning appearing at paragraph 6 of the judgment and/or order under challenge reads as follows: \"In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40(a)(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194-1 of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 1941 of the Act, thereby lesser deduction of tax. Therevenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s.40(a)(ia) of the Act. We are of the view that the conditions laid down u/s.40(a)(ia) of the Act for making addition is that tax is deductible at source and such ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 7 of 14 tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s. 40(a)(ia) of the Act but where tax is deducted by the assessee, even under bona fide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the assessee has deducted tax u/s. 194C(2) of the Act and not u/s. 1941 of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.\"\" (Emphasis Supplied)” 10. We find that the instant case is not that of non-deduction or no deduction of TDS. There has been deduction of TDS albeit at a lower rate under different provision of TDS as against the provision which the AO applied. We find that there is no case made by the AO that the assessee has been declared as assessee in default u/s 201 of the Income Tax Act for violation of TDS provisions.Though the hon’ble Kerala High Court in the case of CIT versus PVS Memorial Hospital Ltdreported in60 taxmann.com 69 (Kerala)( 2015), has ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 8 of 14 differed with the view of Hon’ble Calcutta High Court, we respectfully follow the decision of jurisdictional Delhi High Court and hold that there is no applicability of the provisions of section 40(a)(ia) in the instant case. Accordingly, we direct the AO to delete the addition made under section 40(a)(ia). The ground No. 1 and 2 of the appeal is allowed. 11. With respect to the ground No. 3 and 4 with regard to the rejection of books of account of the assessee under section 145(3), the ld AR submitted that the AO/CIT(A) ignored that books were duly audited under section 44 AB and no adverse comment was raised by the auditor. It was submitted by the Ld AR that the conclusion of theAOis on the basis of small discrepancies which have been duly explained before the CIT(A) by providing additional evidences on the discrepancies pointed out by the AO. It is also the say of the ld AR that no formal show cause notice was given for applying the profit ratio of the preceding years. 12. With respect to fall in the net profit ratio in the impugned year, the ld AR further explained that the company is engaged into two types of activity: one is Event Management and second is Manpower ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 9 of 14 supply activity. The profit margin is high in the Event Management activity whereas the profit margin in the manpower supply activity is low. The ld AR explained the reason for low profit in the instant year on account of change in business arrangement with RIM India Private Limited (BlackBerry), the assessee’s main client. It is stated that earlier in financial year 2009-10 and 2010-11, the business arrangement with RIM was such that profit ratio was as high as 17.52% to 30.27%. With effect from 1.3.2011 there was a new arrangement which drastically reduced the profit margin to -1.64% as in the new arrangement the assessee was provided salary for the employees with a mark-up. The assessee was further fastened with the liability of absorbing the indirect cost also which resulted in losses to the assessee company. The ld AR further stated that another reason for loss was non-payment of any mark-up on incentive paid to the employee by RIM which resulted in effective loss of 11%. The ld Assessee's Representative summarized that in financial year 2011-12, the total turnover was Rs14.94 crore out of which turnover from manpower supply to BlackBerry comprised Rs 9.76 crore. On manpower supply of Rs 9.76 crore, there was a loss of 16 lakh. From the Event Management business having turnover ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 10 of 14 of ₹ 5.17 crore, there was profit of 97 lakh which resulted in ultimately low profitability of 5.45% for the assessee.The ld AR vehemently submitted that the assessee furnished all the explanation supported by evidences but was completely ignored by the CIT(A). The ld AR placed reliance on the following judicial pronouncements for improper rejection of books of accounts: 1) Subhendu Kumar Subudhi vs. CIT [2022] 136 taxmann.com 87 (Ori) 2) PCIT vs. Smart Value Products and Services Ltd [2022] 138 taxmann.com 508 (HP) 3) Sanjay Agarwal Vs. ITO, Ward-3(3), Jaipur [2021] 131 taxmann.com 331 ITAT Jaipur, 4) CIT Vs. Shiv Agrevo Ltd. [2018] 99 taxmann.com 402 (Raj) 13. We have heard the rival submissions and perused the material on record. We find that the assessing officer has rejected the books of account under section 145(3) on the ground that some of the creditors have been paid in cash for ₹ 20,000 or below. We also find that the AO has rejected the books of account on account of the fact that some of the bills were not presented before him. We find that the books were duly audited under section 44 AB of the income tax act and the AO has not pointed out any specific defect in the accounts. We find considerable force in the arguments of the ld. AR that the discrepancies pointed out by the AO such as payment in ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 11 of 14 cash below Rs 20,000/- and non-presentation of bills, are small and they cannot be based for rejecting the books as unreliable more so as the assessee explained the deficiencies before the CIT(A) with evidences. We agree with the submissions of the ld ARthat where there was a payment in cash for ₹ 20,000 below, the AO could have invoked the provisions of section 40A(3). We also find considerable force in the argument that the AO should have accorded the assessee a meaningful opportunity such as giving a show cause notice before applying the net profit ratio of the preceding years. 14. The assessee has furnished before us as well as the CIT(A), a detailed working at page 79 to 83 and pages 84 to 402 of the paper book, of profitability for each of the activities from AY 2009-10 to AY 2011-12. We are inclined to agree with the submissions of the AR that the profit ratio of the instant year cannot be compared with the preceding 3 financial years for the reason that there was a major change in the business environ of the assessee. The assessee had one major client BlackBerry for which the assessee provided manpower resources. In the earlier arrangement, the salary paid to the employees were not disclosed to the BlackBerry so the margins ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 12 of 14 on the manpower supply was very high. With effect from 28.02.2011, the business arrangement was changed and the salary paid to the employees assigned to BlackBerry was disclosed and the assessee company was allowed only the salary amount and a 10% mark-up on the salary paid. Further, within this 10% mark-up,the assessee was supposed to absorb its indirect cost also which turned the entire activity into a loss-making activity. The reasons extended by the assessee are very plausible which can happen in any business environment and therefore comparing the net profit of the impugned year with the net profit of the earlier 3 preceding years of the instant assessee is not justified. We also find that the assessee has submitted explanation for each and every deficiency pointed out by the assessing officer before the CIT(A) which was ignored without assigning any reasons. Accordingly, we are of the considered view that the addition made on the basis of NP on account of rejection of books of account of the assessee, was not justified. We therefore direct the AO to delete the addition made on account of difference in NP. The ground no 3 and 4 are allowed. ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 13 of 14 15. Ground no 5 and 6 regarding interest u/s 244A and 234D and ground no 7 regarding interest 234B and 234 C are consequential in nature. 16. In the result, the appeal of the assessee in ITA No. 1831/DEL/2018 is allowed. The order is pronounced in the open court on 16.04.2025. Sd/- Sd/- [YOGESH KUMAR US] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16th APRIL, 2025. Pooja/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi ITA- 1831/Del/2018 Grade One Events Pvt. Ltd. Page 14 of 14 Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order 8.04.2025 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 8.04.2025 3. Date on which the typed draft Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes for xerox 12. The date on which the file goes for endorsement 13. The date on which the file goes to the Superintendent for checking 14. The date on which the file goes to the Assistant Registrar for signature on the Tribunal order 15. Date on which the file goes to the dispatch section 16. Date of Dispatch of the Order "