M/s Pappu Garments, Kolkata V. ITO, Wd-28(4), Kolkata, Kolkata

ITA 259/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4331 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 14-02-2014
• Court: TRIBUNAL
• Department Lawyers: BANIBRATA DUTTA ADCIT
• Assessee Lawyers: MALAY DHAR; SANKHA SADHU
• Section: 143(3); 133(6); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENC H KOLKATA BEFORE SHRI K. NARASIMHA CHARY, JM & DR. A.L.SAINI , AM ./ ITA NO.259/KOL/2014 ( / ASSESSMENT YEAR :2010-2011) M/S PAPPU GARMENTS, 62/1, TOLLYGUNGE CIRCULAR, KOLKATA-700053 VS. ITO WARD-28(4), KOLKATA, 2 GARIAHAT ROAD, (SOUTH), KOLKATA-700068 ./ ./PAN/GIR NO. : AAGFP 9974 L ( /APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI MALAY DHAR & SANKHA SADHU, ADVOCATE /REVENUE BY : SHRI BANIBRATA DUTTA, ADCIT / DATE OF HEARING : 19/10/2016 /DATE OF PRONOUNCEMENT 26/10/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO THE ASSESSMENT YEAR 2010-2011, IS DIRECTED AGAINST AN O RDER PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIV, KOLKATA I N APPEAL NO.180/CIT(A)-XIV/2012-13, DATED 31.10.2013, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER (AO) UNDER SECTION143(3) OF THE INCOME TAX ACT 1961, (IN SHORT THE ACT), DATE D 06.12.2012. 2. THE FACTS OF THE CASE QUA THE ASSESSEE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 19.08.2010 SHOWING TOTAL IN COME OF RS.2,75,880/-. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY U/S.1 43(3) OF THE ACT AND THE AO COMPLETED THE ASSESSMENT BY MAKING ADDITION OF RS.28,73,299/- ON ACCOUNT OF STITCHING CHARGES. THE AO OBSERVED TH AT THE ASSESSEE DID ITA NO.259/14 2 NOT DEDUCT THE TDS U/S.194C(1) OF THE ACT WHILE MAK ING PAYMENT TO THE CONTRACTORS/SUB-CONTRACTORS, THEREFORE, THE ADDITIO N WAS MADE. 3. AGGRIEVED FROM THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO HAS CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THE FOLLOWING :- 6.2. I HAVE HEARD THE VERBAL ARGUMENT AND EXAMINED WRITTEN SUBMISSION AND BILLS VOUCHERS SUBMITTED BY THE A.R. OF THE APPELLANT, GONE THROUGH THE RECORDS, PERUSED THE AS SESSMENT ORDER CAREFULLY. THE DISALLOWANCE OF EXPENDITURE AMOUNTIN G TO RS.28,73,299/- U/S. 40(A)(IA) ON ACCOUNT OF NON-DED UCTION OF TAX. THE A.O. HAS ASKED TO EXPLAIN AS TO WHY THE EXPENSE S CLAIMED WOULD NOT BE DISALLOWED IN CONTRAVENTION OF PROVISI ON U/S. 194C(1) FOLLOWED BY THE PROVISION U/S. 40(A)(IA) OF THE I. T. ACT, 1961. IN REPLY A.R. STATED WITH THE CITATION OF VARIOUS REFERENCES THAT PROVISION U/S. 40(A)(IA) IS APPLICABLE ONLY WHEN THE AMOUNTS REMAI N PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR AND IF AMOUNT IS ACTUA LLY PAID AND TAX IS NOT DEDUCTED AS PER ANY SECTION APPLICABLE UNDER CH APTER XVII OF THE I. T. ACT., 1961, PAYMENTS CANNOT BE LIABLE FOR DISALLOWANCE. AS FAR AS THE TDS IN QUESTION IS CONCERNED PROVISION U /S. 194C(1) OF THE I. T. ACT., 1961, CONSTRUED THAT 'ANY PERSON RE SPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND A SPECIFIED PERSON SHALL, AT ANY TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR AT THE TIME OF PAYMENT THEREOF IN CASH O R BY ISSUE OF CHEQUE/DRAFT OR ANY OTHER MODE WHICHEVER IS EARLIER , DEDUCT AN AMOUNT EQUAL TO THE SPECIFIED PERCENTAGE OF SUCH SU M AS INCOME TAX COMPRISED THEREIN'. SO, THE QUESTION OF PAID OR PAYABLE ARISES AS SOON AS IT BECOMES DUE. HENCE, WHENEVER ANY AMOU NT IS CREDITED TO ANY ACCOUNT OF PARTY, TAX IS REQUIRED T O BE DEDUCTED. CONSIDERING THE ABOVE DISCUSSION, SUBMISSION MADE B Y THE A.R. OF THE APPELLANT FIRM IS HEREBY REFUTED AND ENTIRE EXP ENSES OF RS.28,73,299/- CLAIMED UNDER THE HEAD STITCHING CHA RGES ADDED BACK TO THE TOTAL INCOME. 4.2.1. IN VIEW OF MY ABOVE FINDINGS AND A CAREFUL P ERUSAL OF IMPUGNED ASSESSMENT ORDER I FIND NO INFIRMITY IN TH E ACTION OF A.O. IN DISALLOWING EXPENSE OF RS. 28,73,299/- U/S. 40(A )(IA) OF THE I. T. ACT., 1961. AND I DISMISSED GROUND NO. 4 OF THE INS TANT APPEAL. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) THE ASSESSEE IS IN FURTHER APPEAL BEFORE US AND HAS TAKEN THE FOLLOWIN G GROUNDS OF APPEAL :- 1. FOR THAT THE ORDER PASSED BY THE LEARNED COMMIS SIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G THE ITA NO.259/14 3 DISALLOWANCE OF THE EXPENDITURE CLAIMED UNDER HEAD, 'STITCHING CHARGES' AMOUNTING TO RS.28,73,299 WITHOUT TAKING I NTO CONSIDERATION OF THE FACTS, EVIDENCES AND ARGUMENTS ADDUCED TO HIM BY THE APPELLANT THAT THE PROVISIONS OF SECT ION 40(A)(IA) OF THE INCOME-TAX ACT, 1961 WAS NOT APPLICABLE IN THIS CASE. 2. FOR THAT HAVING REGARD TO THE FACTS THAT THE CON DITION PRECEDENT FOR INVOKING JURISDICTION U/S. 40(A)(IA) OF THE SAI D ACT DID NOT EXIST IN THIS CASE AND IN VIEW OF THIS, RELIANCE MADE ON THE CITATIONS WHICH WAS WHOLLY APPLICABLE IN THE INSTANT CASE, TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) SHOULD NOT HAV E ACTED ARBITRARILY AND CAPRICIOUSLY IN DISMISSING THE GROU ND RAISED BY THE APPELLANT AS REGARD DISALLOWANCE OF THE EXPENDI TURE OF RS.28,73,299. 5. ALTHOUGH THE ASSESSEE HAS RAISED TWO GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING, GRIEVANCE OF THE ASSESSEE HAS BEEN CONFINED TO GROUND NO.1. GROUND NO.2, CITED ABOVE, IS JUST REPETITION TO GROUND NO.1. 6. BRIEF FACTS QUA THE GROUND NO.1 IS THAT, THE AS SESSEE FIRM CLAIMED TO HAVE EXPENDED OF RS.31,99,803/- AGAINST 32 (THIR TY TWO) PARTIES UNDER THE HEAD STITCHING CHARGES. SOME OF THE PARTIES WER E ISSUED NOTICE U/S- 133(6) OF THE I.T. ACT,1961, SEEKING INFORMATION AN D THE PAYMENTS WERE CONFIRMED BY THE COMPLIANCES KEPT IN THE ASSESSMENT FOLDER. LIST OF OUTSIDE STITCHING CHARGES REVEALS THAT ASSESSEE FIR M PAID TO THE FOLLOWING PARTIES CORRESPONDING TO THE AMOUNT MENTIONED SIDE BY SIDE. NAME OF THE PARTY ADDRESS OF THE PARTY AMOUNT PAID MONA GARMENTS VILL+PO.-ALAMBABI, FALTA, SOUTH 24 PARGANAS, PIN- 743503 RS.10,43,747/- M.D.ENTERPRISE VILL+PO.-ALAMBABI, FALTA, SOUTH 24 PARGANAS, PIN- 743503 RS.12,74,520/- BALAJI GARMENTS 10B, INDRA KR. KARNANI STREET, KOLKATA-700001 RS.2,19,462/- MD. SAIFUL MONDAL VILL-CHOURASI, BSP ROAD, BERACHAPA, NORTH 24 PARGANAS. RS.3,35,570/- TOTAL RS.28,73,299 ITA NO.259/14 4 THE ISSUE WAS BROUGHT TO THE NOTICE OF THE A/R BY THE AO AND ASKED TO EXPLAIN AS TO WHY THE EXPENSES CLAIMED WOULD NOT BE DISALLOWED IN CONTRAVENTION OF PROVISION U/S-194C(1) FOLLOWED BY THE PROVISION U/S- 40(A)(IA) OF THE I.T.ACT, 1961. IN REPLY, A/R STATE D WITH THE CITATION OF VARIOUS REFERENCES THAT PROVISION U/S.40(A)(IA) IS APPLICABLE ONLY WHEN THE AMOUNTS REMAIN PAYABLE TO A CONTRACTOR OR SUB-CONTR ACTOR AND IF AMOUNT IS ACTUALLY PAID AND TAX IS NOT DEDUCTED AS PER ANY SE CTION APPLICABLE UNDER CHAPTER-XVII OF THE I.T. ACT.1961, PAYMENTS CANNOT BE LIABLE FOR DISALLOWANCE. AS FAR AS THE TDS IN QUESTION IS CONC ERNED, PROVISION U/S- 194C(1) OF THE I.T. ACT, CONSTRUED THAT 'ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK I N PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND A SPECIFIED PER SON SHALL, AT ANY TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRAC TOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF CHEQUE/DRAFT OR ANY OTHER MODE WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO THE SPECIFIED PERCENTAGE OF SUCH SUM AS INCOME TAX COMPRISED THEREIN'. SO, T HE QUESTION OF PAID OR PAYABLE ARISES AS SOON AS IT BECOMES DUE. HENCE, WH ENEVER ANY AMOUNT IS CREDITED TO ANY ACCOUNT OF PARTY, TAX IS REQUIRE D TO BE DEDUCTED. CONSIDERING THE ABOVE DISCUSSION, SUBMISSION MADE B Y THE A/R OF THE ASSESSEE FIRM IS HEREBY REFUTED AND ENTIRE EXPENSES OF RS.28,73,299/- CLAIMED UNDER THE HEAD 'STITCHING CHARGES' ADDED BA CK TO THE TOTAL INCOME. 7. LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE A SSESSEE UNDER CONSIDERATION IS ENGAGED IN MANUFACTURING OF GARMEN TS. THE ASSESSEE ITA NO.259/14 5 GETS STITCHING WORK FROM OTHER PARTIES/LABOURERS. THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) IS NOT APPLICABLE TO THE CASE UNDER CONSIDERATION. LD. AR ALSO POINTED OUT THAT THE PARTIES TO WHOM THE PA YMENT HAS BEEN MADE, (WHICH HAVE BEEN SHOWN IN THE ASSESSMENT ORDE R), ARE NOT DIRECTLY CONNECTED WITH THE ASSESSEE. THESE PARTIES WERE WOR KING ON BEHALF OF THE OTHER AGENT. THEREFORE, AN AGENT/MEDIATOR IS WORKIN G. IT MEANS THE PARTIES, WHICH HAVE BEEN SHOWN IN THE ASSESSMENT OR DER ARE NOT DIRECTLY LINKED WITH THE ASSESSEE. THEREFORE, THE ASSESSEE D OES NOT DEDUCT TDS WHILE MAKING PAYMENT TO THESE PARTIES, WHO HAVE WOR KED IN THE MANUFACTURING ORGANIZATIONS OF THE ASSESSEE ON BEHA LF OF THE OTHER AGENTS. THE ASSESSEE MAY BE LIABLE TO DEDUCT TDS, I F ANY, WHILE MAKING PAYMENT TO THE AGENT/MEDIATOR. HE POINTED OUT THAT THESE PARTIES USED TO WORK ON THE BASIS OF VERBAL/WRITTEN CONTRACT BETWE EN THE AGENT AND THE ASSESSEE. LD. AR ALSO RELIED ON THE JUDGMENT OF TH E HONBLE HIGH COURT IN THE CASE OF JIAUDDIN MOLLAH VS. CIT-XVI, ITA NO. 145 OF 2010, DATED 13- 06-2016, WHICH IS ON SIMILAR FACTS UNDER CONSIDERAT ION. THE IMPORTANT PARA OF THE JUDGMENT IS QUOTED BELOW: MR. DHAR CONTENDED WITH SOME JUSTIFICATION THAT B EFORE HIS CLIENT CAN BE ROPED IN UNDER SECTION 194C (2), THE REVENUE HAS TO ESTABLISH THAT THE ASSESSEE HAS ENTERED INTO A CONT RACT WITH THE AFORESAID FOUR PERSONS FOR CARRYING OUT THE WHOLE OR PART OF THE WORK UNDERTAKEN BY THE ASSESSEE. HE SUBMITTED THAT THERE IS NOTHING ON THE RECORD TO SHOW THAT THE ASSESSEE HAS ASSIGNED T HE WORK UNDERTAKEN BY HIM TO THE AFORESAID FOUR PERSONS OR TO ANYONE OF THEM. HE ADDED THAT THERE HAS TO BE AN OFFER AND AC CEPTANCE BEFORE A CONTRACT CAN COME INTO EXISTENCE. IN THE C ASE BEFORE US, THERE IS NOTHING TO SHOW THAT THERE WAS ANY OFFER A ND ACCEPTANCE BETWEEN THE ASSESSEE AND THE AFORESAID FOUR PERSONS . ITA NO.259/14 6 8. ON THE OTHER HAND, LD. DR FOR THE REVENUE HAS PO INTED OUT THAT PARTIES FROM WHOM THE ASSESSEE GETS STITCHING WORK DONE ARE ENTERPRISES AND FIRMS, THEREFORE, THE STATEMENT OF THE ASSESSEE THAT HE GETS WORK DONE THROUGH LABOURERS IS WRONG. EXCEPT TO ONE INDI VIDUAL MD. SAIFUL MONDAL, OTHERS ARE FIRMS AND ENTERPRISES. THE FIRM S AND ENTERPRISES CANNOT BE LABOURERS. IN ADDITION TO THIS, LD. DR FO R THE REVENUE HAS ALSO PRIMARILY REITERATED THE STAND TAKEN BY THE AO, WHI CH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 9. HAVING HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD, WE NOTICED THAT THIS CASE REQU IRES A FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. AS LD. AR FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THERE WAS AN AGREEMENT (WRITTEN/ORAL) BETWEEN THE ASSESSEE AND AGENT. THE AGENT WAS RESPONSIBLE FOR ALL THE LABOURERS AND WORKERS AND T HE SAID AGENT USED TO MONITOR THE LABOURERS AND WORKERS. THE SAID VERBAL/ WRITTEN AGREEMENT WAS NOT PRODUCED BY THE ASSESSEE BEFORE THE ASSESSI NG OFFICER; DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT. THEREFORE, THIS PRIMARY DOCUMENT ( WRITTEN/VERBAL AGREEMENT) NEEDS TO BE EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQ UIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, W E SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THIS ISSUE, TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO ASCERTAIN THE ISSUE AFTER EX AMINATION OF THE AGREEMENT BETWEEN ASSESSEE AND AGENT, AS EXPLAINED ABOVE. ITA NO.259/14 7 10. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26/1 0/2016. SD/ - (NARASIMHA CHARY) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 26/10/2016 & ()* /PRAKASH MISHRA , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) & ' , / ITAT, 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 4 ( ) / THE CIT(A), KOLKATA. 4. 4 / CIT 5. 56 7 8 , 8 , / DR, ITAT, KOLKATA 6. 7 9 / GUARD FILE. 5 //TRUE COPY//