M/s Bhagwan Dass Jagan Nath, Ambala City V. The Dy.CIT, Circle, Ambala

ITA 142/CHANDI/2023

AI Insights

The case involves an appeal by M/s Bhagwan Dass Jagan Nath against the disallowance of salary and freight expenses by the AO during the assessment year 2017-18. The AO had disallowed these expenses citing non-deduction of TDS and lack of proper documentary evidence to substantiate the claims. The CIT(A) upheld these disallowances, leading to the present appeal. The Tribunal found that the salary expenses were below the taxable limit and thus not subject to TDS, and the documentation provided for the freight expenses was insufficient to prove their genuineness. The Tribunal's decision resulted in the deletion of the salary expense disallowance and a remand of the freight expense issue back to the AO for further examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135493 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 14-03-2023
• Other Referred Cases: DCIT v Satish Aggawal & Co. (2018) 122 ITD 35 (Asr)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WAY OF SALARY EXPENSES WERE DISALLOWED
• Keywords: Opportunity of being heard; TDS
• Section: 143(3); 40(a)(ia); 194C; 192

Judgement Text

आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “बी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ᮰ी आकाश दीप जैन, उपा᭟यᭃ एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 142/Chd/2023 िनधाᭅरण वषᭅ / Assessment Year : 2017-18 M/s Bhagwan Dass Jagan Nath C/o Shri Tejmohan Singh, Advocate #527, Sector-10D, Chandigarh बनाम The Dy. CIT, Circle, Ambala ᭭थायी लेखा सं./PAN NO: AANFB2194H अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Tejmohan Singh, Advocate राज᭭व कᳱ ओर से/ Revenue by : Smt. Moatenla, JCIT, Sr. DR सुनवाई कᳱ तारीख/Date of Hearing : 06/07/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 14/09/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(A), NFAC, Delhi dt. 06/02/2023 pertaining to Assessment Year 2017-18. 2. In the present appeal, the assessee has raised the following grounds of appeal: “1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the disallowance of Salary expenses of Rs.13,89,898/- for alleged non-deduction of TDS which provisions are in fact not attracted and alleged absence of proof/evidence which is arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has further erred in law as well as on facts in upholding the disallowance of Freight expenses of Rs.25,82,600/- for alleged non- deduction of TDS from the expenses which are in fact not attracted and having not substantiated the freight expenses with concrete evidence which is arbitrary and illegal. 3. That the Ld. Commissioner of Income Tax (Appeals) has further erred in holding that Declaration/certificate with PAN BTWPS9807F from M/s Supreme Cargo Carriers to whom freight expenses have been paid is not as per law which is arbitrary and unjustified. 2 4. That the assessee appellant has not been provided/afforded adequate reasonable/sufficient opportunity of being heard according with the principles of natural justice and in accordance with law especially when no SHOW-CAUSE notice to this effect was issued by the Assessing Officer to present its case which is a fundamental infirmity not curable by any provision of the Act/law and hence the order passed is illegal and void abinitio. 5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 6. That the order of the Ld. CIT(A) is erroneous, arbitrary, opposed to the facts of the case and thus untenable.” 3. Briefly the facts of the case are that the assessee firm filed its return of income declaring total income at NIL. Subsequently, notices were issued calling for information and documentation. Taking the same into consideration, the AO completed the assessment proceedings and passed an order u/s 143(3) dated 2/12/2019 made an addition of Rs. 39,72,458/- by disallowing the salary expenses of Rs. 13,89,858/- and freight expenses of Rs. 25,82,600/-. 3.1 During the course of assessment proceedings, the AO noticed that the assessee has not deducted TDS on salary payment to its employees. As per the AO, the list of employees supplied by the assessee is not supported by proper documentary evidence. Thereafter the assessee was asked to upload the bills & vouchers of the salary payment and in response the assessee submitted its reply. However the AO observed that the assessee has uploaded some papers of salary paid to its employees of which the authenticity cannot be proved in any way, and thereafter it was finally held that the genuineness of the salary paid is not proved by the assessee and the sum of Rs. 13,89,858/- being claimed by the assessee by way of salary expenses were disallowed. 3.2 Regarding freight expenses it was observed by the AO that the assessee has not deducted TDS on freight expenses for hire of Trucks that were used for business purposes. It was held by the AO that the list of the trucks used by the assessee does not seem to be genuine in nature as it was not supported by the 3 proper documentary evidence. The assessee has taken the service from only one truck provider namely Supreme Cargo Carrier and no details of TDS deducted on payment to the said party was provided by the assessee. It was held by the AO that authenticity of the Trucks provided could not be proved by the assessee as the assessee has not deducted any TDS on the freight payment. It was finally held by the AO that the genuineness of the freight expenses is not proved by the assessee and hence the sum of Rs. 39,72,458/- were added back to the taxable income of the assessee. 4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A), NFAC, Delhi. It was submitted that the salary payment have been duly accounted for in the books of account however no tax had been deducted at source as salary paid to each of the employees is below the taxable limit and necessary details have been submitted on the income tax portal and the same were again submitted during the course of the appellate proceedings. It was submitted that the salary paid by the assessee firm to its employees has been accounted for and has been allowed right from the date of the inception of the assessee’s business and which is evident from the comparative chart furnished during the course of appellate proceedings. It was submitted that the requisite details and information in terms of salary register, month-wise salary payment were duly submitted during the course of assessment proceedings and which have not been taken into consideration by the AO and the addition have been made. 4.1 Regarding freight expenses, it was submitted that the necessary details and information in terms of freight vouchers and declaration under section 194C(6) from M/s Supreme Cargo Carrier were duly submitted during the course of assessment proceedings and the same were again submitted. It was further submitted that the bills of freight expenses containing necessary details as well as the mode of payment were duly submitted during the course of assessment 4 proceedings and therefore the authenticity of the truck provider namely M/s Supreme Cargo Carrier stands fully proved beyond any doubt. It was submitted that Section 194C(6) clearly states that where a Director owns ten or less goods carriage at any time during the previous year and furnished a declaration to that effect along with his PAN to the person paying or credited such sum, no deduction shall be made from such sum. It was submitted that in the present case, the declaration has been duly submitted by M/s Supreme Cargo Carrier which has neither been considered nor rejected by the AO. Without prejudice, it was further submitted that even in case the explanation so submitted by the assessee is not considered, the disallowance made should have been restricted to 30% and not 100% in terms of 40(a)(ia) of the Act. 4.2 It was further submitted that the addition have been made without rejection of books of account and therefore in absence of rejection of books of account, no disallowance can be made in the hands of the assessee. 5. The submissions so filed by the assessee were considered but not found acceptable to the Ld. CIT(A) and the relevant findings which are under challenge are contained in para 6.1 to 6.4 of the impugned order and the contents thereof reads as under: “6.1 The above submissions of the appellant are carefully considered. The AO has disallowed the salary and freight expenses as the assessee could not prove the genuineness of the same. The AO has observed in the assessment order that the assessee has uploaded some papers of salary of employees, from which the authenticity could not be proved. It is brought on record that even during the appeal proceedings, the appellant has submitted list of some employees and the salary against them. Just a list of some names of the employees and salary against them would not be sufficient to claim the expenses. To claim the expenses, the appellant has to provide some valid / concrete evidence to substantiate the number of employees working and the salaries paid to them. The appellant has failed to provide any valid documentary evidences for the claim of salary expenses neither during the assessment proceedings nor during the appeal proceedings. Therefore, in the absence of proof / evidence for the salary paid to the employees, the AO's disallowance of salary expenses is upheld. 5 6.2 Regarding disallowance of freight expenses, the AO has disallowed the same as the assessee has taken the services from only one truck provider namely 'Supreme Cargo Carrier', the authenticity of which could not be proved by the assessee. The appellant during the appeal proceedings submitted the declaration from the Supreme Cargo Carrier (PAN : BTWPS9807F) as per the provisions of Section 194C(6) and hence has not deducted TDS on the freight expenses. 6.3 In the above declaration, the Supreme Cargo Carrier has declared that the number of goods carriage owned by it is nil and requested not to be deduct TDS from any sum credited or paid by the assessee during the financial year 2016-17. The above referred declaration is very general in nature. Besides, the following format is specified by the Board vide Circular No. 19/2015 dated 27.11.2015 for furnishing the declaration: "Declaration under section 194C(6) of the Income Tax Act, 1961 No ............. (To be provided by payee) Date : From: (Name and address of the payee) To : (Name and address of the payer) The freight / transport charges amounting to Rs .................. fro transportation of goods by goods carriages having Registration Number ............. .....may be paid or credited to my account without deduction of tax under section 194C of the Income Tax Act, 1961. l/We .............. in the capacity of ............... hereby declare that l/We do not own more than ten goods carriage and also did not own more than ten goods carriage at anytime during the period from 1 st April ............. to ...... My Permanent Account Number (PAN) is .................. I hereby enclose a self attested photocopy of my PAN card. Place Signature of the person making declaration" 6.4 As can be seen above, when compared with the declaration filed by the appellant, many vital information like freight amount, registration number, self attested PAN copy, are missing. In this connection attention is drawn to the decision of the Hon'ble ITAT, Amritsar in the case of DCIT v Satish Aggawal & Co. (2018) 122 ITD 35 (Asr) wherein it had been held that provision of trucks without drivers cannot be called as carrying out any 'work'. In the case of the appellant, the provision of trucks is considered to be doubtful. The onus is upon the appellant to prove that the expenses claimed are genuine. In the instant case, the appellant has not substantiated the claim of freight expenses with any concrete evidences and the declaration provided by the Supreme Cargo Carrier is also found to be not as per law. Therefore, the disallowance of freight expenses 6 made by the AO is sustained. With these remarks, this ground of appeal is dismissed.” 6. During the course of hearing, the Ld. AR reiterated the submissions made before the lower authorities and taken us through the submissions filed before the AO during the course of assessment proceedings and in this regard, our reference was drawn to the submission dt. 01/07/2019 wherein the assessee interalia submitted copy of the ledger account of freight expenses alongwith supporting bills/vouchers which are available at assessee’s paper book at pages 86 to 117 and copy of the ledger account of M/s Supreme Cargo Carrier as on 31/03/2017 available at assessee’s paper book at page 132 to 134. Further reference was drawn to the submission filed on 24/07/2019 wherein the assessee submitted the salary and the wages register before the AO which are available at pages 141 to 165. Further reference was drawn to the submission dt. 29/11/2019 wherein the assessee again submitted details of salary paid during the period 01/04/2016 to 31/03/2017 available at paper book page 170 to 175 and details of freight expenses for the said period alongwith copy of the declaration issued by M/s Supreme Cargo Carrier available at assessee’s paper book page 176 to 177. 6.1 It was further submitted that the submissions so made before the AO were again brought to the notice of the Ld. CIT(A) as part of the written submission which are available at assessee’s paper book page 181 to 228. It was accordingly submitted that the assessee has filed the necessary information and documentation in support of its claim of salary and freight expenses and both the lower authorities have failed to appreciate that the TDS provision are not applicable on the salary expenses for the reason that the salary paid to each of the employees is below the taxable limit as so provided in the statute and therefore there is no liability cast on the assessee in terms of section 192 for making any TDS before making any such salary payment to its employees. 7 Further it was submitted that once the declaration has been submitted by M/s Supreme Cargo Carrier under section 194C(6) of the Act, the assessee is absolved from its liability to deduct any TDS and in any case there is no finding recorded by the lower authorities as to why the declaration so submitted by the M/s Supreme Cargo Carrier furnished during the course of assessment proceedings has not been taken into consideration. It was accordingly, submitted that the addition so made by the AO and confirmed by the Ld. CIT(A) be directed to be deleted. 7. Per contra, the Ld. DR relied on the findings of the AO as well as that of the Ld. CIT(A) which we have already taken note of and the same are not been repeated for the sake of brevity. 8. We have heard the rival contentions and purused the material available on record. Firstly, regarding the salary expenses, as we have noted above, the assessee vide its submission, which was filed on 24/07/2019 during the course of assessment proceedings, has submitted the monthly salary and the wages register which are available at pages 141 to 165 of assessee’s paperbook. The salary and wages register has the particulars of the each of the employees in terms of name, father’s name, period of rendering the service during the relevant month, amount of salary and signatures of the respective employees. The assessee has again submitted details of employee wise and month-wise salary paid to the employees vide his submissions dated dt. 29/11/2019 during the course of assessment proceedings. Nothing has been brought on record by the AO as to how the documentation so submitted by the assessee was not found acceptable or for that matter, what more documentation is required to provide the authencity and genuineness of the salary expenditure. The fact that salary payment is below the taxable limit and doesn’t carry TDS obligation u/s 192 and hence, where no TDS is done by the assessee doesn’t lead to the conclusion that salary expenditure itself is not genuine. Further, comparative 8 data of salary expenditure for last two years were also submitted as available at page 185 of the assessee’s paperbook and on perusal thereof, it is noted that though there is a marginal increase in the salary expenditure as a percentage of sales but the fact of the matter is that salary expenditure has been incurred by the assessee in the past and the same has been allowed by the Revenue. Therefore, on what basis, the whole of the salary expenditure has been disallowed during the year is beyond any comprehension. The ld CIT(A) has also summarily rejected the same reiterating the findings of the AO. In light of the same, we are of the considered view that there is no justifiable basis for denial of the salary expenditure and disallowance of Rs 13,89,898/- is hereby directed to be deleted. 9. Regarding freight expenses, the assessee vide submission dt. 01/07/2019 has submitted copy of the ledger account of freight expenses alongwith supporting bills/vouchers which are available at assessee’s paper book at pages 86 to 117, copy of the ledger account of M/s Supreme Cargo Carrier as on 31/03/2017 which are available at assessee’s paper book at page 132 to 134 and copy of declaration u/s 194C(6) which are available at pages 176-177. Nothing has been brought on record by the AO as to how the documentation so submitted by the assessee was not found acceptable or for that matter, what more documentation is required to provide the authencity and genuineness of the freight expenditure. The fact that the assessee has availed the services of only one truck provider cannot be held against the assessee as the said decision is within the domain of the assessee and its business exigency which cannot be challenged by the Revenue. Regarding the format and contents of the declaration u/s 194C(6), the ld CIT(A) has referred to certain deficiency therein in the impugned order and for removing the said deficiency, we deem it appropriate to set-aside the matter to the file of the AO wherein he shall consider the revised declaration. The assessee is also directed to arrange for the 9 revised declaration as pointed out by the ld CIT(A) and the AO is at liberty to verify the same with M/s Supreme Cargo Carrier and where the same is found to be in order, allow the necessary relief to the assessee. The matter is accordingly set-aside to the file of the AO. In the result, the ground of appeal is allowed for statistical purposes. 10. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 14/09/2023. Sd/- Sd/- आकाश दीप जैन िवᮓम ᳲसह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा᭟यᭃ / VICE PRESIDENT लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 14/09/2023 आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 5. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar