DCIT, Circle-1, Nashik V. Entraco Powers Systems Pvt Ltd, Nashik

ITA 1039/PUN/2012

• Counselvise Citation: 103924514 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1039/PN/2012 (ASSESSMENT YEAR : 2009-10) DY.CIT, CIRCLE-1, NASHIK .. APPELLANT VS. ENTRACO POWERS SYSTEMS PVT. LTD., A-36/2, NICE AREA, MIDC, SATPUR, NASHIK .. RESPONDENT PAN NO.AAACE6332J ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI P.L. PATHADE DATE OF HEARING : 03-04-2014 DATE OF PRONOUNCEMENT : 30-04-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 27-03-2012 OF THE CIT(A)-I, NASHIK RELATING T O ASSESSMENT YEAR 2009-10. 2. GROUNDS OF APPEAL NO.1 & 2 BY THE REVENUE READ A S UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADDI TION OF RS.2,52,44,092/- WHICH WAS MADE ON ACCOUNT OF INFLATE D PURCHASE WHICH WAS DEBITED IN THE NAME OF THE PERSON SPECIFIED U/S.40 A(2)(B) OF THE INCOME TAX ACT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS INFLATED TURNOVER TO SHOW HIGHER PROFIT FOR OBTAINING AND CON TINUING LOAN FROM FINANCIAL INSTITUTION. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF ENGINEERI NG GOODS. IT FILED ITS 2 RETURN OF INCOME ON 30-09-2009 DECLARING TOTAL INCO ME OF RS.32,96,809/. IN THIS CASE A SURVEY ACTION U/S.13 3A OF THE I.T. ACT WAS CONDUCTED ON 09-08-2010. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO FURNISH THE SALES AND PURCHASE BILLS, VOUCHERS ETC. IN RESPECT OF THE SISTER CONCERNS. T HE ASSESSEE FURNISHED EXTRACTS OF ACCOUNT OF THE FOLLOWING 4 SISTER CONCE RNS APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY. IT WAS STATED BY THE ASSESSEE THAT THE FOLLOWING PURCHASE BILLS OF THE ABOVE SIST ER CONCERNS ARE NOT AVAILABLE : SR. NO. NAME OF THE SISTER CONCERN TOTAL AMT. DEBITED IN THE BOOKS OF ACCOUNT (RS.) AMT. OF BILLS NOT AVAILABLE (RS.) REMARKS 1 2 3 4 5 1 M/S. ENGINEERING MARKETING COMPANY PVT. LTD. (EMCPL) 4,80,58,490 1,70,52,378 ASSESSEE HAS FURNISHED CONFIRMATION FROM THE CREDITOR M/S. ENGINEERING MARKETING COMPANY PVT. LTD. (EMCPL) REGARDING PURCHASES OF RS.3,10,06,112/- 2 M/S. EPS TRADING CORPORATION PROP. SHRI RAJESH NASHIKKAR 21,08,217 7,58,217 THE BALANCE AMOUNT OF RS.13.70 LACS REPRESENT RECEIPT THROUGH CHEQUE OF BANK OF BARODA 3 M/S. ENGINEERS TRADING COMPANY, PROP. SHRI MANGESH NASHIKKAR 35,64,106 22,83,232 THE BALANCE AMOUNT OF RS.10.90 LACS REPRESENT THE BANK RECEIPT AND RS.2,30,874/- IS ADJUSTED AGAINST THE REMUNERATION OF SHRI MANGESH NASHIKKAR 4 M/S. S.S. ENTERPRISES, PROP. SACHIN SONAR 3,92,13,481 51,50,265 IT IS CLAIMED BY THE ASSESSEE THAT AN AMOUNT OF RS.51,50,265/- WAS ONLY DEBITED IN P&L ACCOUNT, SINCE THE ENTRY OF RS.3,40,63,216/- WAS REVERSED ON 31-03-2009 THROUGH J.V. TOTAL 9,29,44,294 2,52,44,092 2.2 THE AO NOTED THAT THE ABOVE PARTIES ARE RELATED PARTIES OF THE ASSESSEE COMPANY AS PER THE PROVISIONS OF SECTION 4 0A(2)(B) OF THE I.T. ACT. SINCE THE PURCHASES COULD NOT BE PROVED TO BE GENUINE BY THE 3 ASSESSEE THE AO WAS OF THE OPINION THAT THE ASSESSE E HAS MERELY DEBITED THE EXPENDITURE IN THE NAMES OF THE SISTER CONCERNS FOR REDUCING THE PROFIT. SINCE THE ASSESSEE COULD NOT PROVE THE GEN UINENESS OF THE PURCHASES THE AO HELD THAT THE ASSESSEE HAS INFLATE D THE EXPENDITURE UNDER THE HEAD OF PURCHASES FROM ITS SISTER CONCERN S TO REDUCE THE PROFIT. HE ACCORDINGLY MADE ADDITION OF RS.2,52,44,092/-. 3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT ALTHOUGH THE AO HAS MADE ADDITION OF FICTITIOUS PURCHASE OF RS.2,52,44, 092/- HE HAS IGNORED FICTITIOUS SALES OF RS.4,96,54,580/- WHICH IS APPAR ENT FROM THE SAID LEDGER EXTRACTS OF THE SISTER CONCERN. IT WAS ARGUED THAT THE ASSESSEE HAD INFLATED TURNOVER AND ALSO PROFIT IN ORDER TO OBTAI N LOAN/ TO CONTINUE THE LOAN FROM FINANCIAL INSTITUTIONS AND IT WAS ORALLY BROUGHT TO THE NOTICE OF THE AO. IT WAS ARGUED THAT IF THE FICTITIOUS PUR CHASE AND FICTITIOUS SALES ARE REDUCED THEN THERE WILL BE SUBSTANTIAL LOSS. 4. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 5.5 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE , THE ASSESSMENT ORDER AND THE RIVAL CONTENTIONS. ON PERUSAL OF THE SA ME AND PARTICULARLY THE COPIES OF EXTRACT OF ACCOUNT OF THE SISTER CONCERN I.E. ENGINEERS MARKETING PVT. LTD., IN ITS BOOKS AND COPY OF APPELLA NT'S ACCOUNT IN THE BOOKS OF SISTER CONCERN, IT HAS BEEN NOTICED THAT THE T RADING SALES OF RS.4,96,54,580/- APPEARING IN THE BOOKS OF THE APPELL ANT COMPANY DO NOT FIGURE IN THE BOOKS OF ENGINEERING MARKETING PVT. LT D. THIS FACT IS UNDISPUTED, THEREFORE, IT IS ESTABLISHED THAT THE APPEL LANT HAS SHOWN FICTITIOUS PURCHASES IN ORDER TO PRETEND HIGHER PROFIT S IN ITS ACCOUNTS. AS A COROLLARY TO THIS ATTEMPT, IT IS ALSO SEEN THAT THE A SSESSEE HAS ALSO PROJECTED FICTITIOUS SALES WHICH ARE MORE THAN THE FI CTITIOUS PURCHASES. THEREFORE, THE CONTENTION OF THE APPELLANT THAT IT HAS INFLATED TURNOVER TO SHOW HIGHER PROFIT FOR OBTAINING AND CO NTINUING LOAN FROM FINANCIAL INSTITUTION HAS BEEN FOUND TO BE COR RECT. IT IS ALSO PERTINENT TO NOTE HERE THAT THE HON'BLE ITAT PUNE I N PARA 5 OF THE ORDER DATED 26/10/2007 IN THE CASE OF BARKHA FARMS VS. ITO IN ITA NO.182/PN/07 IN WHICH ASSESSEE COMPANY HAS MADE CERTAIN MANIPULATIONS HAS OBSERVED AS UNDER: 4 'THERE ARE OTHER LAWS TO TAKE CARE OF SUCH MANIPULATI ONS BUT AS FAR AS IT LEGISLATION IS CONCERNED, IT CANNOT TAX A NON EXISTENT INCOME MERELY BECAUSE THE ASSESSEE HAS BEEN UNSCRUPULOUS OR WANTING IN H IS CONDUCT.' IN VIEW OF THESE FACTS IT IS THUS ESTABLISHED THAT THERE IS NO CAUSE FOR MAKING ANY DISALLOWANCE ON THIS ACCOUNT. AT THE BEST THE ASSESSEE CAN BE CHARGED WITH FALSE STATEMENT IN VERIFICATION IN THE R ETURN OF INCOME IN SO FAR AS IT HAS ADMITTED TO SHOW UNREAL PROFITS. IN VIEW OF THE ABOVE FACTS AND DISCUSSION, I AM OF THE CONSIDERED VIEW THAT THE AO IS NOT JUSTIFIED IN MAKING THE IMPUGNED DISALLOWANCE OF RS.2,52,44,092/- ON ACCOUNT OF FICTITIOUS PURCHASES IG NORING THE SIMILAR FICTITIOUS SALES TO THE SISTER CONCERN. THE ADDITION OF RS.2,52,44,092/- IS, THEREFORE, DELETED. GROUND NOS. L & 2 ARE ALLOWED 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OBJ ECTED TO THE RELIEF GRANTED BY THE CIT(A). HE SUBMITTED THAT TH E DECISION OF THE CIT(A) IS BASED ON THE MERE SUBMISSION OF THE ASSES SEE THAT FOR WANT OF FUND IT HAS INFLATED ITS PURCHASES. THERE WAS NO S UBSTANTIAL EVIDENCE PRODUCED BEFORE THE CIT(A) TO PROVE THAT THESE TRAN SACTIONS ARE FICTITIOUS. HE SUBMITTED THAT THE AO HAS MADE THE ADDITION ON THE BASIS OF IMPOUNDED DOCUMENT FOUND DURING THE COURSE OF SU RVEY ACTION HELD ON 09-03-2010 WHICH WAS FOUND FROM THE ASSESSEES P REMISES. THE TRANSACTION SHOWN BY THE ASSESSEE WITH ITS SISTER C ONCERN EPS TRADING CORPORATION WAS MADE THROUGH BANK OF BARODA. THE B ILLS WERE RAISED IN RESPECT OF THESE TRANSACTIONS. THE ASSESSEE HAS FU RNISHED CONFIRMATION FROM THE CREDITOR M/S. ENGINEERING MARKETING COMPAN Y PVT. LTD. REGARDING PURCHASES OF RS.3,10,06,112/-. FROM THE ABOVE IT CAN BE SAID THAT THE TRANSACTIONS MADE BY THE ASSESSEE WITH ITS SISTER CONCERN IS FICTITIOUS. IN SUCH A CASE WHERE BILLS WERE RAISED , PAYMENT WERE MADE THROUGH BANKS AND ASSESSEE HAS FURNISHED CONFIRMATI ON LETTERS FROM THE CREDITORS, THE TRANSACTIONS CANNOT BE SAID AS FICTI TIOUS. THE ASSESSEE HAS 5 NEVER PRODUCED ANY EVIDENCE TO PROVE THE TRANSACTIO N AS FAKE OR FICTITIOUS. HE ACCORDINGLY SUBMITTED THAT THE ORDE R OF THE LD.CIT(A) BE REVERSED AND THAT OF THE AO BE RESTORED. 6. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND STRONGLY RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSING OFFICER MADE ADDITION OF RS .2,52,44,092/- ON THE GROUND THAT THE ASSESSEE COULD NOT PROVE THE GENUIN ENESS OF SUCH PURCHASES WHICH WERE PURCHASED FROM THE RELATED PAR TIES AND THE ASSESSEE HAS MERELY DEBITED SUCH EXPENDITURE IN THE NAME OF SISTER CONCERNS FOR REDUCING THE PROFIT. IN OTHER WORDS, ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAS INFLATED THE EXP ENDITURE UNDER THE HEAD PURCHASES FROM ITS SISTER CONCERNS TO REDUCE THE PROFIT. 7.1 WE FIND THE LD.CIT(A) DELETED THE ADDITION ON T HE GROUND THAT ALTHOUGH THE ASSESSEE HAS DEBITED FICTITIOUS PURCHA SES HOWEVER THE ASSESSING OFFICER HAS IGNORED THE FICTITIOUS SALES. HE ACCORDINGLY ACCEPTED THE SUBMISSION OF THE ASSESSEE THAT IT HAS INFLATED TURNOVER TO SHOW HIGHER PROFIT FOR OBTAINING AND CONTINUING LOA N FROM FINANCIAL INSTITUTION AS CORRECT. WE FIND WHILE ALLOWING THE RELIEF TO THE ASSESSEE THE LD.CIT(A) MERELY ACCEPTED THE SUBMISSIONS OF TH E ASSESSEE WITHOUT CONSIDERING THE IMPOUNDED DOCUMENTS FOUND DURING TH E COURSE OF SURVEY. FURTHER, WHEN BILLS WERE RAISED BY THE SIST ER CONCERNS AND THE 6 PAYMENTS WERE MADE THROUGH BANKING CHANNEL, IT IS V ERY DIFFICULT TO ACCEPT SUCH A PROPOSITION ESPECIALLY WHEN THE PURCH ASE AND SALES ARE NOT INFLATED EQUALLY BUT THERE IS HUGE DISPARITY BETWEE N THE PURCHASES AND SALES. ALTHOUGH THE ISSUE OF FICTITIOUS PURCHASES AND FICTITIOUS SALES WAS NEVER BROUGHT TO THE NOTICE OF THE ASSESSING OFFICE R, WE FIND THE ASSESSEE TOOK A PLEA BEFORE THE CIT(A) THAT IT HAS INFLATED ITS PURCHASES AND SALES ALSO TO OBTAIN LOAN FROM BANKS OR FINANCIAL INSTITU TIONS AND THE ASSESSING OFFICER HAS CONSIDERED ONLY THE FICTITIOUS PURCHASE S AND NOT CONSIDERED THE FICTITIOUS SALES. SINCE THESE FACTS WERE NEVER BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER, THERE WAS NO OCCASION ON THE PART OF THE ASSESSING OFFICER TO EXAMINE THE RECORDS OF THE SISTER CONCER NS OR SUMMON THEM AND IF THE SALES WERE SHOWN IN THE NAME OF CERTAIN PARTIES, WHETHER SUCH SALES ARE RECORDED IN THEIR BOOKS OR NOT. THIS ASP ECT WAS NEVER VERIFIED BY THE CIT(A) AND HE WAS CARRIED AWAY BY THE SUBMIS SIONS MADE BY THE ASSESSEE BEFORE HIM WITHOUT EVEN CALLING FOR A REMA ND REPORT. THERE IS NO VERIFICATION OF THE SALES TAX RETURN BY THE LD.C IT(A) TO FIND OUT WHETHER THE ASSESSEE HAS INFLATED THE SALES IN THE SALES TAX RETURN OR NOT. IN OUR OPINION, BEFORE ARRIVING AT A CONCLUSION, TH E FACTS ARE REQUIRED TO BE VERIFIED AS TO WHETHER THE SALES ARE ALSO FICTIT IOUS OR NOT, A FACT WHICH HAS NEVER BEEN EXAMINED BY ANY OF THE LOWER AUTHORI TIES. THE ASSESSEE HAS ALSO NEVER BROUGHT THIS ASPECT BEFORE THE ASSES SING OFFICER THAT THERE ARE ALSO FICTITIOUS SALES. THE ASSESSEE HAS ONLY F ILED BEFORE THE ASSESSING OFFICER A COPY OF LEDGER EXTRACTS OF ENTRACO POWER SYSTEMS PVT. LTD. IN THE BOOKS OF ENGINEERING MARKETING COMPANY PVT. LTD . AND VICE VERSA. THE LEDGER EXTRACT OF THE OTHER RELATED CONCERNS AR E NOT FILED IN THE PAPER BOOK. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE ARE OF THE 7 CONSIDERED OPINION THAT THE MATTER REQUIRES FRESH A DJUDICATION AT THE LEVEL OF THE ASSESSING OFFICER IN THE LIGHT OF OUR ABOVE DISCUSSION. WE, THEREFORE, SET-ASIDE THE ORDER OF THE CIT(A) ON THI S ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRE SH ADJUDICATION IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER SHALL G IVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS UN DER : 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADD ITION OF RS.4,09,812/- WHICH WAS DISALLOWED U/S.40(A)(IA) OF THE INCOME TAX A CT AS THE AMOUNT WAS PAID WITHOUT DEDUCTION OF TDS AS PER PROVISION OF CHAPTER XVIIB OF THE INCOME TAX ACT. 8.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE H AS NOT DEDUCTED TDS AND DEPOSITED THE SAME TO THE CREDIT OF THE GOVERNM ENT ACCOUNT IN RESPECT OF THE FOLLOWING PAYMENTS : SL.NO. AMOUNT (RS.) PAYEE UNDER SECTION ON ACCOUNT OF 1 14,076 ARIWALI SECURITY ORGANISATION 194C SECURITY CHARGES 2 25,000 DEEPIKA ENGINEERS 194C REPAIRS AND MAINTENANCE 3 80,000 SHRI VIGHNAHARTA ELECTRICAL WORKS 194C LABOUR CHARGES 4 82,248 BHAGWATI SHIPPING PVT. LTD. 194C SERVICE CHARGES 5 2,08,488 DHL LEMUIR LOGISTICS P. LTD. OCEAN FREIGHT TOTAL 4,09,812 FOLLOWING THE PROVISIONS OF SECTION 40(A)(IA) THE A O MADE ADDITION OF RS.4,09,812/- TO THE TOTAL INCOME OF THE ASSESSEE. 8 9. BEFORE THE CIT(A) IT WAS SUBMITTED THAT PROVISIO N OF SECTION 40(A)(IA) IS APPLICABLE TO THE AMOUNTS PAYABLE I.E. OUTSTANDING AT THE YEAR END AND IN THE CASES WHERE THE AMOUNT OF EXPENDITUR E IS NOT OUTSTANDING AND IS PAID IN THE SAME YEAR THEN THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE APPLIED. VARIOUS DECISIONS WERE ALSO BRO UGHT TO THE NOTICE OF THE CIT(A). 10. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION OF RS.4,09,812/- BY OBSERVING AS UNDER : 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE ASSESSMENT ORDER AND THE RIVAL CONTENTIONS. ON PERUSAL OF THE SAME, IT HAS BEEN NOTICED THAT THE AO HAS DISALLOWED PAYMENT TO ARAVALI SECURITIES RS. 14,076/- ON ACCOUNT OF SHORT DEDUCTION OF TAX TO A V ERY SMALL EXTENT. IN THIS REGARD, THE APPELLANT HAS CONTENDED THAT AS PER T HE PROVISIONS OF SECTION 40(A)(IA), IF THE TAX HAS BEEN DEDUCTED AND P AID IN RESPECT OF THE EXPENDITURE LIABLE TO TDS, THEN THE EXPENDITURE CAN NOT BE DISALLOWED ON THE GROUND OF SHORT DEDUCTION OF TDS ON ACCOUNT OF L OWER RATE OR UNDER INCORRECT SECTION. THIS PROPOSITION OF LAW IS SUPPORTED BY THE DECISION OF HON'BLE KOLKATA ITAT IN THE CASE OF DCIT VS. S.K. TE KRIWAL, ITA NO.1135/KOL/2010 A.Y. 2007-08 DECIDED ON 21/10/2011 (BCAJ, DEC., 2011, PAGE NOS. 32 & 33), RELIED ON BY THE APPELLANT . IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND RESPECTFULLY FOLLOWING THE RATI O LAID DOWN BY THE ABOVE MENTIONED DECISION, RELIED ON BY THE APPELLANT , I AM OF THE CONSIDERED VIEW THAT THE A.O. IS NOT JUSTIFIED IN DISAL LOWING AN AMOUNT OF RS.14,076/- U/S. 40(A)(IA) OF THE ACT. THE A.O. HAS ALSO DISALLOWED EXPENDITURE AMOUNTING TO RS. 3,95,736/- U/S. 40(A)(IA), WHICH HAS ALREADY BEEN PAID BY THE AP PELLANT WITHIN THE FINANCIAL YEAR 2008-09 ITSELF AND THE SAME WAS NOT PAY ABLE AT THE YEAR END. THE APPELLANT HAS CLAIMED THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE IN RESPECT OF THE EXPENDITURE PAYABL E AT THE YEAR END AND NOT TO THE EXPENDITURE PAID WITHIN THE CURRENT YEAR . THIS PROPOSITION OF LAW IS FORTIFIED BY THE VARIOUS DECISIONS RELIED ON BY THE APPELLANT REPRODUCED IN THE EARLIER PARA, INCLUDING THE DECISI ONS OF HON'BLE JURISDICTIONAL ITAT, PUNE. IN VIEW OF THE ABOVE FACT S AND DISCUSSION AND RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE AB OVE MENTIONED DECISIONS, RELIED ON BY THE APPELLANT, I AM OF THE CO NSIDERED VIEW THAT THE A.O. IS NOT JUSTIFIED IN DISALLOWING AN AMOUNT OF RS.3, 95,376/- U/S. 40(A)(IA) OF THE ACT IN RESPECT OF THE PAYMENTS MADE WITHIN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE A.O. IS ACCORDINGLY DIRECTED TO DELETE THE ADDIT ION OF RS. 4,09,812/-. GROUND NO.3 IS THUS ALLOWED. 9 10.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. SO FAR AS THE DISALLOWANCE OF RS.14,076/- IS CONCERNED WE FIND THE SAME WAS DISAL LOWED BY THE ASSESSING OFFICER ON ACCOUNT OF SHORT DEDUCTION OF TAX WHERE THE PAYMENT WAS MADE TO ARAVALI SECURITIES. WE FIND TH E LD.CIT(A) FOLLOWING THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. S.K. TEKRIWAL (SUPRA) DELETED THE ADDIT ION ON THE GROUND THAT NO DISALLOWANCE CAN BE MADE FOR SHORT DEDUCTIO N OF TAX U/S.40(A)(IA). NOTHING CONTRARY WAS BROUGHT TO OUR NOTICE BY THE L D. DEPARTMENTAL REPRESENTATIVE AGAINST THE ORDER OF THE TRIBUNAL WH ICH HAS BEEN FOLLOWED BY LD.CIT(A). THEREFORE, THE DISALLOWANCE OF RS.14 ,076/- ON ACCOUNT OF SHORT DEDUCTION OF TAX ON PAYMENT MADE TO ARAVALI S ECURITIES IS DELETED AND THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD . 11.1 SO FAR AS THE DISALLOWANCE OF RS.3,95,736/- U/ S.40(A)(IA) IS CONCERNED WE FIND THE LD.CIT(A) FOLLOWING VARIOUS D ECISIONS HELD THAT SINCE NO AMOUNT WAS PAYABLE AT THE YEAR END, THEREF ORE, NO DISALLOWANCE CAN BE MADE. HOWEVER, THE SAME CANNOT BE ACCEPTED I N VIEW OF THE CONSISTENT DECISIONS OF THE PUNE BENCHES OF THE TRI BUNAL WHERE IT HAS BEEN HELD THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE FOR PAYMENTS MADE WITHOUT DEDUCTION OF TAX EVEN IF NO AMOUNT IS PAYABLE AT THE END OF THE YEAR. 10 11.2 HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE HAS MADE A NEW LEGAL ARGUMENT THAT THE FINANCE ACT, 2010 HAS AMENDED THE FIRST PROVISO TO SECTION 40(A)(IA) W.E.F. 01-04-2010 AND IT HAS BEEN HELD BY VARIOUS JUDICIAL AUTHORITIES THAT SUCH AMENDMENT IS RETROSP ECTIVE IN NATURE. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SECOND PROVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FI NANCE ACT, 2012 W.E.F. 01-04-2013 WHEREIN IT IS STATED THAT DISALLOWANCE U /S.40(A)(IA) OF THE ACT NEED NOT BE MADE IF THE ASSESSEE IS NOT DEEMED TO B E AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SECTION 201(1) O F THE I.T. ACT., THEREFORE, THIS SHOULD ALSO BE HELD AS RETROSPECTIV E SINCE IT HAS BEEN INTRODUCED TO ELIMINATE UNINTENDED CONSEQUENCES WHI CH MAY CAUSE UNDUE HARDSHIP TO THE TAX PAYERS. 11.3 WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF TH E LD. COUNSEL FOR THE ASSESSEE. WE FIND THE COCHIN BENCH OF THE TRIB UNAL IN THE CASE OF ANTONY D. MUNDACKAL (SUPRA) RELIED ON BY LD. COUNSE L FOR THE ASSESSEE, HAD AN OCCASION TO DECIDE AN ISSUE IN THE LIGHT OF THE ABOVE ARGUMENT AND HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE RELEVANT OBSERVATION OF THE TRIBUN AL AT PARA 7 OF THE ORDER READ AS UNDER: 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. ACCORDING TO THE ASSESSEE, THERE IS NO WRITTEN CONTRACT BETWEEN HIM AND THE PERSONS DOING POLISHING WORKS. ACCORDINGLY, THE ASSESSEE HAS CONTENDED BEFORE US THAT THE PROVISIONS OF SEC. 194C SHALL NOT APPLY TO THE POLISHING CHARGES. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER HAS GIVEN A CLEAR FINDING THAT ESSENTIAL INGREDIENTS OF A CONTRACT ARE VERY MUCH AVAILABLE IN THE POLISHING WORKS ENTRUSTED BY THE ASSESSEE. FURTHER WE NOTICE THAT THE CBDT, VIDE CIRCULAR NO.433 DATED 25-09-1985 (1986)(157 ITR ST. 27) HAS CLARIFIED THAT THE PROVISI ONS OF SEC. 194C ARE WIDE ENOUGH TO COVER ORAL CONTRACTS ALSO. A CONTRACT IS NORMALLY REDUCED IN WRITING IN ORDER TO MAKE CLEAR THE TERMS AND COND ITIONS, OBLIGATIONS OF THE PARTIES TO THE CONTRACT ETC. IF THE CONDITIONS OF CONTRACT ARE OTHERWISE UNDERSTOOD BY THE PARTIES, IN VIEW OF THE REPEATED TR ANSACTIONS, IN OUR 11 VIEW, THE ABSENCE OF A WRITTEN CONTRACT WOULD NOT MA KE ANY DIFFERENCE. IN THE INSTANT CASE, THE ASSESSEE IS REPEATEDLY GIVEN WORKS TO THE POLISHING PEOPLE AND HENCE THE TERMS AND CONDITIONS OF THE WORK WOULD BE CLEARLY UNDERSTOOD BY BOTH THE PARTIES. ACCORDINGLY, WE REJEC T THIS CONTENTION OF THE ASSESSEE AND HOLD THAT THE PROVISIONS OF SEC. 194C SHAL L APPLY TO THE POLISHING WORKS GIVEN BY THE ASSESSEE. 7.1 ACCORDING TO LD A.R, THE ASSESSEE HAS ACTED AS A CO NDUIT PIPE IN CONNECTION WITH THE POLISHING WORKS BETWEEN THE CUSTOM ERS AND THE PERSON DOING POLISHING JOB. ACCORDINGLY, IT WAS SUBMIT TED THAT THERE IS NO PROFIT ELEMENT IN THE SAID TRANSACTIONS. THE LD A.R FU RTHER SUBMITTED THAT THE ASSESSEE HAS INCLUDED THE COST OF POLISHING WORKS IN TH E SALE VALUE OF ALUMINIUM EXTRUSIONS, WITHOUT KNOWING TAX IMPLICATION S. HOWEVER, WE NOTICE THAT THE ASSESSEE DID NOT FURNISH ANY PROOF TO SUB STANTIATE THE ABOVE SAID CLAIMS. THE ASSESSEE, BEING A DEALER IN ALUMIN IUM EXTRUSIONS, HAS ONLY SUPPLIED THE PRODUCTS AFTER CARRYING OUT THE POLISHING WORKS ACCORDING TO THE TASTE AND REQUIREMENT OF CUSTOMERS. I T IS ONLY ONE OF THE MANY BUSINESS TECHNIQUES NORMALLY ADOPTED BY A BUSINESS MA N TO IMPROVE HIS SALES, SINCE IT WILL BE VERY DIFFICULT FOR CUSTOMERS TO IDENTIFY THE POLISHING PEOPLE AND GET THE WORK DONE BY THEMSEL VES. HENCE, WE ARE OF THE VIEW THAT IT MAY NOT BE CORRECT TO ARGUE THA T THE CONTRACT EXISTED BETWEEN THE CUSTOMERS AND THE POLISHING PEOPLE. IN FAC T, THE CUSTOMER MAY NOT HAVE ANY CONTACT WITH THE POLISHING PEOPLE I N THIS TYPE OF TRANSACTIONS. HENCE, IT IS HARD TO BELIEVE THE CLAIM O F THE ASSESSEE THAT HE HAS ACTED AS MERE CONDUIT PIPE BETWEEN THE CUSTOMERS AN D POLISHING PEOPLE, ACCORDINGLY, THE CLAIM THAT THE ASSESSEE STANDS IN A FIDUCIARY CAPACITY IS ALSO LIABLE TO BE REJECTED. IN THIS KIND OF FACTUAL SITUATION, IN OUR VIEW, THE EXISTENCE OR ABSENCE OF PROFIT ELEMENT IN THE POLISHING WORKS DOES NOT MAKE ANY DIFFERENCE. 7.2 THE LD COUNSEL, BY PLACING RELIANCE ON THE DECI SION OF SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING AND TRANSPORTS (SUPRA) CONTENDED THAT THE PROVISIONS OF SEC. 40(A)(IA) SHALL APPLY ONLY TO AMOUNT PAYABLE AND NOT TO THE AMOUNT PAID. HOWEVER, THE HON'BLE GU JARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDAR KHAN N TUNVAR (357 ITR 3 12) AND THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CR ESCENT EXPORT SYNDICATE (ITAT 20 OF 2013) HAVE HELD THAT THE DECI SION RENDERED BY THE SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING & TR ANSPORTS IS NOT A GOOD LAW. THE LD A.R, HOWEVER, PLACED RELIANCE ON THE DE CISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES (357 ITR 642). ON A CAREFUL PERUSAL OF THE DECISION GIVEN BY H ON'BLE ALLAHABAD HIGH COURT, WE NOTICE THAT THE HIGH COURT HAS DECIDE D THE ISSUE REFERRED TO IT ON A DIFFERENT FOOTING AND HAS MADE A PASSING CO MMENT ABOUT THE DECISION RENDERED BY THE SPECIAL BENCH. THUS, THE RAT IO OF THE SAID DECISION IS DIFFERENT FROM THAT RENDERED IN THE CASE O F MERYLINE SHIPPING AND TRANSPORTS BY THE SPECIAL BENCH. HENCE, WE ARE IN CLINED TO REJECT THE CONTENTIONS OF THE ASSESSEE ON THIS POINT ALSO. 7.3 THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCO-COLA BEVERAGES LTD (SUPRA) IN ORDER TO CONTEND THAT THE REVENUE IS NOT ENTITLED TO RECOV ER TAXES, IF THE RECIPIENT HAS DECLARED THE PAYMENTS IN HIS RETURN OF I NCOME. WE NOTICE THAT THE ABOVE SAID DECISION WAS RENDERED IN THE CONTE XT OF THE PROVISIONS OF SEC. 201(1) AND HENCE, WE ARE OF THE VIE W THAT THE RATIO OF THE SAID DECISION CANNOT BE APPLIED TO THE DISALLOWANC E MADE U/S 40(A)(IA) OF THE ACT, 12 7.4 THE LAST CONTENTION OF THE ASSESSEE IS THAT THE SECON D PROVISO TO SEC, 40(A)(IA) OF THE ACT, INSERTED BY THE FINANCE A CT, 2012 WITH EFFECT FROM 1.4.2013 IS CLARIFICATORY IN NATURE AND HENCE T HE BENEFIT OF THE SAME SHOULD BE APPLIED RETROSPECTIVELY. HOWEVER, THE CORRE CTNESS OF THIS CONTENTION HAS NOT BEEN EXAMINED BY THE TAX AUTHORIT IES. HENCE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THIS CONTENTION OF THE ASSESSEE REQUIRES EXAMINATION AT THE END OF THE ASSESSING OF FICER. ACCORDINGLY, WE MODIFY THE ORDER OF THE LD.CIT(A) A ND SET ASIDE THIS GROUND TO THE FILE OF THE ASSESSING OFFICER WITH THE DI RECTION TO EXAMINE THE ABOVE SAID CONTENTION OF THE ASSESSEE AND DECIDE THE SAME IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPOR TUNITY OF BEING HEARD. WE MAKE IT CLEAR THAT WE HAVE, IN EFFECT, R EJECTED ALL THE CONTENTIONS OF THE ASSESSEE EXCEPT THE GROUND RELATING T O APPLICABILITY OF THE SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT TO THE YEAR UNDER CONSIDERATION. 11.4 SINCE THE ABOVE ARGUMENTS ARE BEING ADVANCED B EFORE THE TRIBUNAL FOR THE FIRST TIME AND THE CORRECTNESS OF THE CONTE NTION HAS NOT BEEN EXAMINED BY THE TAX AUTHORITIES, THEREFORE, RESPECT FULLY FOLLOWING THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL CITED (SUPRA) AND IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE F ILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ABOVE CONTE NTION OF THE ASSESSEE AND DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 12. GROUNDS OF APPEAL NO.4 BY THE REVENUE READS AS UNDER : 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE DISAL LOWANCE OF PAYMENTS MADE TOWARDS EMPLOYEES CONTRIBUTION OF ESIC A ND PF WHICH WAS NOT PAID WITHIN THE DUE DATE AS PRESCRIBED IN TH E ACT. 12.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ASSE SSING OFFICER MADE ADDITION OF RS.10,794/- BEING DELAYED PAYMENT OF PF (RS.8,680) AND ESIC (RS.2,114) ON THE GROUND THAT SAME WERE PAID B EYOND THE TIME LIMIT PRESCRIBED UNDER THE PF & ESIC ACT. 13 13. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE CON TRIBUTION TOWARDS PF & ESIC WERE DELAYED BY 15 DAYS AND 9 DAYS IN RES PECT OF APRIL 2008 AND SEPTEMBER 2008 RESPECTIVELY. THE ASSESSEE HAS M ADE THE PAYMENT IN THE SAME FINANCIAL YEAR, I.E. MUCH PRIOR TO THE DUE DATE OF FILING OF THE INCOME-TAX RETURN. THEREFORE, THE DISALLOWANCE IS NOT JUSTIFIED. VARIOUS DECISIONS RELIED ON BY THE ASSESSING OFFICER WERE S TATED TO BE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 14. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. A.M.I. LTD. REPORTED IN 321 ITR 508 THE LD.CIT(A) DELETED THE ADDITION. 14.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 15. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DIS PUTE TO THE FACT THAT ALTHOUGH THE PF & ESIC DUES WERE NOT DEPOSITED WITH IN THE STATUTORY DUE DATE PRESCRIBED UNDER THE RELEVANT ACT, HOWEVER , THE SAME HAS BEEN DEPOSITED WITHIN THE SAME FINANCIAL YEAR, I.E. MUCH PRIOR TO THE DUE DATE OF FILING OF THE RETURN. THE COORDINATE BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTENT VIEW THAT IF THE EMPLOYEES CO NTRIBUTION TO PF & ESIC, ARE DEPOSITED PRIOR TO THE DUE DATE OF FILING OF THE RETURN U/S.139(1), THEN THE SAME CANNOT BE DISALLOWED. SI NCE THE ASSESSEE IN THE INSTANT CASE HAS ADMITTEDLY DEPOSITED THE PF & ESIC DUES BEFORE THE DUE DATE OF FILING OF THE RETURN U/S.139(1), THEREFORE, WE FIND NO INFIRMITY IN 14 THE ORDER OF THE CIT(A) DELETING THE ADDITION BY FO LLOWING THE DECISION IN THE CASE OF AMI LTD. (SUPRA). ACCORDINGLY, THE SAM E IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 30-04-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED 30 TH APRIL, 2014 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, NASHIK 4. THE CIT-I, NASHIK 5. DR A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE