ITO 13(2)-3, MUMBAI V. DINESH D. SEJPAL, MUMBAI

ITA 1373/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48902 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 31-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA. NO. 1373/MUM/2010 ASSESSMENT YEAR 2006-2007 ITO 13 (2)-3 MUMBAI 20. VS. MR. DINESH D. SEJPAL MUMBAI 03 PAN AAFPS3787H (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI V.V.SHASTRI (SR. D.R.) FOR RESPONDENT ; -NONE- ORDER PER D. MANMOHAN, V.P. 1. FOLLOWING GROUNDS WERE URGED BY THE REVENUE IN THIS APPEAL : 1. THE LEARNED CIT(A), ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN DELE TING THE DISALLOWANCE OF RS.71,40,476/- U/S. 40(A)(IA) HOLDING THAT PROVISION U/S. 194C IS NOT ATTRACTED WITHOUT APPRECIATING THE FACT THAT ASSESSEE ACT AS AN AGENT AND PAYS CONTRACT CHARGES AS PER DEBIT IN P & L ACCOUNT WITHIN THE PURVIEW OF SECTION 194C OF THE A CT. 2. THE LEARNED CIT(A), ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN DELE TING THE ADDITION OF CONTRACT RECEIPT OF RS.3,59,662/- H OLDING THAT ASSESSEE IS MAINTAINING ITS BOOKS ON CASH METH OD AND OTHER 4 PARTIES ON MERCANTILE SYSTEM WITHOUT APPRECIATING THE FACT THAT AS PER THE STATEMENT FIL ED BY THE ASSESSEE, THE METHOD OF ACCOUNTING FOLLOWED BY HIM IS MERCANTILE AND NOT CASH SYSTEM. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE THOUGH NOTICES WERE DIRECTED TO BE SERVED THROUGH D.R. AND NUMBER OF OPPORTUNITIES WERE GIVEN TO THE REVENUE TO ENABLE THEM TO SERVE T HE NOTICE, LEARNED 2 D.R. WAS UNABLE TO FURNISH ANY EVIDENCE TO PROVE TH AT NOTICE WAS SERVED UPON THE ASSESSEE. HAVING REGARD TO THE FACT THAT THE ISSUES ARE COVERED, WE DISPOSE OF THE APPEAL EX-PARTE, QUA THE ASSESSEE. 3. WE HAVE HEARD THE LEARNED DR AND CAREFULLY PERU SED THE RECORD. THE ASSESSEE WAS ENGAGED IN THE BUSINESS AS A SHIPPING BROKERAGE AGENT; THE ASSESSEE FACILITATES THE CLEAR ING OF GOODS FROM THE CUSTOMS AUTHORITIES AND EARNED SERVICE CHARGES. AT THE REQUEST OF THE CLIENTS ASSESSEE ALSO ARRANGES FOR TRANSPORTATION O F GOODS TO CLIENTS DESTINATION. HIS PRINCIPAL INCOME WAS IN THE FORM O F COMMISSION. AS PER ASSESSEES CONTENTION ALL EXPENSES WERE INCURRE D BY HIM FOR AND ON BEHALF OF THE CLIENTS WHICH WERE REIMBURSED ON T HE BASIS OF DEBIT NOTES RAISED ON THE CLIENTS. THOUGH TAX WAS DEDUCTE D AT SOURCE ON THE GROSS RECEIPTS BY WAY OF COMMISSION, NO TAX WAS DED UCTED ON THE AMOUNT OF EXPENSES, REIMBURSED BY THE CLIENTS. ASSE SSING OFFICER WAS OF THE OPINION THAT BY VIRTUE OF PROVISIONS OF SECT ION 194C OF THE ACT TAX IS DEDUCTIBLE AT SOURCE ON THE EXPENDITURE, REI MBURSED BY THE CLIENTS. ASSESSING OFFICER FURTHER OBSERVED THAT IF THE REIMBURSED AMOUNT IS ALSO TAKEN INTO CONSIDERATION THE TURNOVE R OF THE ASSESSEE WOULD EXCEED THE MINIMUM LIMIT PRESCRIBED UNDER SEC TION 44AB OF THE ACT. ASSESSING OFFICER WAS OF THE OPINION THAT IN T HE EVENT OF NON- DEDUCTION OF TAX ON THE EXPENDITURE INCURRED, PROVI SIONS OF SECTION 40(A)(IA) OF THE I.T. ACT GETS ATTRACTED AND ASSESS EE, BEING A PROPRIETOR OF M/S. PRAVESH AGENCY, WAS REQUIRED TO DEDUCT TAX ON SUB-CONTRACT, UNDER SECTION 194C OF THE ACT. ASSESSING OFFICER TH US CONCLUDED THAT THE AMOUNT OF CLEARING AND FORWARDING CHARGES PAID BY THE ASSESSEE IS LIABLE TO BE DISALLOWED UNDER SECTION 40(A)(IA). 5. DURING HE COURSE OF ASSESSMENT PROCEEDINGS ASSE SSING OFFICER NOTICED THAT THE FOLLOWING CONTRACT RECEIPT S WERE NOT OFFERED FOR TAX : 3 (1) SUKUMA EXPORTS RS.2,43,880 (2) -DO- RS. 26,205 (3) KANU KRISHNA CORPN. RS. 38,559 (4) STERLING EXPORTS RS. 51,018 --------------- RS.3,59,662 ---------------- 5.1. DESPITE REPLY TO THE SHOW CAUSE NOTICE, THE A SSESSING OFFICER CONCLUDED THAT THE RECEIPTS ARE LIABLE TO T AX IN THE YEAR UNDER CONSIDERATION. 6. ON AN APPEAL FILED BEFORE THE CIT(A), IT WAS CO NTENDED THAT OUT OF THE TOTAL AMOUNT SHOWN AS TURNOVER, THE ACTUAL TURNOVER PERTAINING TO BROKERAGE RECEIPTS IS ONLY TO THE TUN E OF RS.21,12,224/- AND THE BALANCE OF RS.71,40,476/- IS PURELY IN THE NATURE OF REIMBURSEMENT AND IT CANNOT BE TREATED AS INCOME OF THE ASSESSEE. SANS THE REIMBURSEMENT COMPONENT, THE TURNOVER DOES NOT EXCEED THE REQUISITE LIMIT UNDER SECTION 44AB OF THE ACT. IT W AS FURTHER CONTENDED THAT EVEN IF IT IS ASSUMED THAT THE TURNOVER EXCEED ED THE REQUISITE LIMIT, ASSESSEE CANNOT BE SAID TO BE LIABLE FOR DED UCTION OF TAX SINCE THE PAYMENT FOR TRANSPORTATION AND ALL OTHER EXPEND ITURE INCURRED BY THE ASSESSEE WERE NOT ON ACCOUNT OF A WRITTEN AGREE MENT OF CONTRACT OR SUB-CONTRACT SINCE THERE WAS NO BACK TO BACK ARRANG EMENT BETWEEN THE PARTIES. RELYING UPON SEVERAL DECISIONS IT WAS CONTENDED THAT THE DISALLOWANCE MADE UNDER SECTION 40(A) (IA) IS NOT I N ACCORDANCE WITH LAW. 7. AS REGARDS THE DISALLOWANCE OF RS.3,59,662/-, I T WAS CONTENDED THAT THE ASSESSEE MAINTAINED ITS BOOKS ON CASH SYSTEM WHEREAS THE OTHER PARTIES WHO HAD DEDUCTED THE TAX MAINTAINED THEIR BOOKS ON MERCANTILE SYSTEM AND THEREFORE, THERE WAS A MISMATCH. IN OTHERWORDS, THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO MAKE THE DISALLOWANCE BECAUSE OF THE DIFFERENT METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. 4 8. LEARNED CIT(A) AGREED WITH THE CONTENTION OF TH E ASSESSEE ON BOTH THE ISSUES. HE OBSERVED THAT THERE IS NOTHI NG ON RECORD TO SUGGEST THAT ANY CONTRACT EXISTED BETWEEN THE ASSES SEE AND THE OTHER TRANSPORTERS AND THERE ARE NO DEFINITE TERMS AND CO NDITIONS FOR EXECUTING THE WORK IN WHICH EVENT PROVISIONS OF SEC TION 194C ARE NOT APPLICABLE CONSEQUENTLY, IT IS NOT A FIT CASE FOR M AKING DISALLOWANCE UNDER SECTION 40 (A) (IA) OF THE ACT. HAVING REGAR D TO THE CIRCUMSTANCES OF THE CASE, HE HELD THAT THE DISALLO WANCE MADE BY ASSESSING OFFICER IS NOT CALLED FOR. IN THIS REGARD HE OBSERVED, IN PARA 2.3 AS UNDER : I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL AND SINCE ON THE ABOVE GIVEN FACTS IT IS VE RY CLEAR THAT THE RECEIPTS WERE NOTHING BUT EXPENSES INCURRE D ON BEHALF OF THE INDIVIDUAL CLIENTS AND WHICH WERE NOT CLAIMED AS EXPENSES BUT DEBITED TO THE RESPECTIVE C LIENTS ACCOUNT, AS ALSO THE FACT THAT THESE ARE PURELY REIMBURSEMENT TO THE APPELLANT AND HAVE NO ELEMENT OF PROFIT IN THEM AND THEREFORE THE PROVISIONS OF SECT ION 194C WOULD NOT BE ATTRACTED HOWEVER EVEN OTHERWISE RATIO OF THE CASES OF ITO VS. DR. WILLMAR SCHWABE I NDIA (P) LTD. 95 TTJ (DEL.) 53 AND R.R. CARRYING CORPORATION VS. ACIT ITAT, CUTTACK BENCH (2009) 30 DTR (CTK) (TRIB) 569 CLEARLY APPLY TO THE GIVEN FACTS OF THE CASE AND FO LLOWING THE SAME I DELETE THE DISALLOWANCE OF RS.71,40,476/ - MADE U/S. 40A(IA). ACCORDINGLY, THIS GROUND OF APPE AL IS ALLOWED. 9. WITH REGARD TO DISALLOWANCE OF RS.3,59,662/- LE ARNED CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE A ND DELETED THE ADDITION BY OBSERVING IN PARA 3.2 AS UNDER : 5 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL AND IT IS CLEAR THAT THE APPELLANT MAINTAIN S ITS BOOKS ON CASH METHOD AND THE OTHER 4 PARTIES ON MERCANTILE SYSTEM AND THEREFORE THERE IS BOUND TO B E THIS MISMATCH. THIS CANNOT RESULT IN A DISALLOWANCE AND THEREFORE THE DISALLOWANCE SO MADE OF RS.3,59,662/- IS DELETED. 10. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. LEA RNED D.R. COULD NOT BRING ON RECORD ANY EVIDENCE TO CONTRADIC T THE FINDINGS OF THE LEARNED CIT(A), ON BOTH THE ISSUES. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY TH E LEARNED CIT(A). THEREFORE, AS PRONOUNCED IN THE OPEN COURT, APPEAL FILED BY THE REVENUE IS DISMISSED. SD/- SD/- (T.R. SOOD) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 01 ST JUNE, 2011 VBP/- COPY TO 1. THE ITO 13(2)-3, ROOM NO. 425/477, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-20. 2. MR. DINESH D. SEJPAL, PROP. M/S. PARVESH AGENCY, 1 ST FLOOR, 230, SAMUEL STREET, MUMBAI-03. PAN AAFPS3787H 3. CIT(A)-24, MUMBAI 4. CIT-13, MUMBAI 5. DR D BENCH 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.