Sh. Sunil Sethi, New Delhi V. ACIT, New Delhi

ITA 3103/DEL/2014

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3193 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 08-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; TDS; Set aside
• Section: 40A(3); 194C; 201(1); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 3103/DEL/2014 ASSESSMENT YEAR: 2007-08 SUNIL SETHI, 37, RAJPUR ROAD, DELHI 110 054 (PAN: AKJPS4479G) VS. ACIT, CIRCLE 20(1), NEW DELHI APPELLANT RESPONDENT ASSESSEE BY SHRI K. SAMPATH, ADVOCATE REVENUE BY SHRI PRADEEP SINGH GAUTAM, SR. DR ORDER THIS APPEAL FILED BY THE AS SESSEE AGAINST THE IMPUGNED ORDER DATED 27.02.2014 PASSED BY THE LD. CIT(APPEALS)-XXI I, NEW DELHI IN RELATION TO ASSESSMENT YEAR 2007-08 ON THE FOLLOWIN G GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE AUTHORITIES BELOW ERRED IN MAKING THE FOLLOWING ADDITIONS TO THE RETURNED INCOME:- 1. RS. 10,68,968/- BEING THE AMOUNT OF REIMBURSEMENT OF INTERST U/S. 40A(IA) OF THE ACT; 2. RS. 7,94,786/- ON ACCOUNT OF WAGERS PAID U/S. 40A(IA) OF THE ACT; 3. RS. 80,000/- BEING THE AMOUNT OF REMUNERATION PAID BY INVOKING PROVISION OF SECTION 40(A)(2) OF THE ACT; 4. RS. 26,000/- BY APPLYING PROVISION OF SECTION 40A(3) OF THE ACT; 5. RS. 19,424/- AND RS. 33,947/- UNDER THE HEADS VEHICLE RUNNING EXPENSES AND 2 TELEPHONE EXPENSES RESPECTIVELY ON ESTIMATE BASIS TREATING THE SAME AS PERSONAL IN NATURE. ALL THE ABOVE ACTIONS BEING ARBITRARY, ERRONEOUS AND UNJUST MUST BE QUASHED WITH DIRECTIONS FOR APPROPRIATE RELIEF. 2. ASSESSEE HAS ALSO FILED AN APPLICATION FOR ADM ISSION OF ADDITIONAL GROUND, THE CONTENTS THEREOF ARE READ AS UNDER:- APPLCIATION FOR ADMISSION OF ADDITIONAL GROUND OF APPEAL. MAY IT PLEASE YOUR HONOUR OVER AND ABOVE THE FIVE GROUNDS OF APPEAL TAKEN IN THE STATUTORY FORM NO. 36 AS FILED, THE FOLLOWING ADDITIONAL GROUND OF APPEAL IS FILED: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE AUTHORITIES BELOW ERRED IN DISALLOWING RS/ 10,68,968/- UNDER SECTION 40A(IA) OF THE INCOME TAX ACT, 1961 WITHOUT EVEN PAUSING TO CONSIDER WHETHER THE RECEIPT IS OF SUCH INCOMES ON WHICH TAX HAD BEEN PAID ON THOSE INCOMES BY THE RESPECTIVE RECIPIENTS AS ENVISAGED UNDER THE PROVISO TO SECTION 201(1) OF THE ACT. HAVING NOT BEEN VERIFIED AT THE LEVEL OF THE ASSESSING OFFICER DURING ASSESSMENT IT IS PLEADED THA T THE ISSUE BE KINDLY REMANDED BACK TO THE ASSESSING OFFICER FOR CONSIDERATION AND FRESH ORDERS. THE ABOVE GROUND WAS NOT TAKEN SPECIFICALLY THOUGH THE DISALLOWANCE UNDER SECTION 40A(1A) OF TH E ACT WAS AGITATED AGAINST. THAT IS BECAUSE THE NEED FOR VERIFICATION CAME TO BE INSERTED IN THE STATUTE WITH EFFECT FROM 01.07.2012 BY THE FINANCE ACT, 2012 WHICH DATE INCIDENTALLY WAS AFTER THE COMPLETION OF THE ASSESS MENT BY THE ASSESSING OFFICER. THE OMISSION TO RAISE THE GROUND EARLIER WAS, THEREFORE, NOT OUT OF ANY NEGLI GENCE 3 OR MALAFIDES. THE GROUND BEING LEGAL MERITS TO BE ADMITTED AS SUCH. 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE AS SESSEE STATED THAT ADDITIONAL GROUND MAY BE ADMITTED AND DECIDED ACCOR DINGLY. IN SUPPORT OF OTHER GROUNDS, HE FILED THE WRITTEN SYNOPSIS, WHIC H READ AS UNDER- THIS APPEAL IS DIRECTED AGAINST THE ORDER OF THE ID. CIT (APPEALS)-XXII, NEW DELHI, IN APPEAL NO. 228/2009-1 0 DATED 27.02.2014. 2.1 THE GROUNDS TAKEN IN APPEAL ARE FIVE IN NUMBER AS UNDER: 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE AUTHORITIES BELOW ERRED IN MAKING THE FOLLOWING ADDITIONS TO THE RETURNED INCOME:- I. RS.10,68,968/- BEING THE AMOUNT OF REIMBURSEMENT OF INTEREST U/S 40A(IA) OF THE ACT; 2. RS.7,94,786/- ON ACCOUNT OF WAGES PAID U/S 40A(IA) OF THE ACT; 3. RS.80,000/- BEING THE AMOUNT OF REMUNERATION PAID BY INVOKING PROVISION OF SECTION 40 (A) (2) OF THE ACT; 4. RS.26,000/- BY APPLYING PROVISION OF SECTION 40A (3) OF THE ACT; 5. RS.19424/- AND RS.33,947/- UNDER THE HEADS 'VEHICLE RUNNING EXPENSES' AND 'TELEPHONE EXPENSES' RESPECTIVELY ON ESTIMATE BASIS TREATING THE SAME AS PERSONAL IN NATURE. ALL THE ABOVE ACTIONS BEING ARBITRARY, ERRONEOUS AND UNJUST MUST BE QUASHED WITH DIRECTIONS FOR APPROPRIATE RELIEF.' 2.2 THE APPELLANT SHRI SUNIL SETHI IS A SUB-AGENT OF ICICI BANK FOR PROVISION OF VEHICLE LOANS. HE IS AL SO RELATED TO UPPER INDIA TRADING CO. [DELHI] PVT. LTD. 4 ('UITCDPL') WHICH IS THE SOLE-SELLING AGENT FOR HER O HONDA MOTORCYCLES IN DELHI AS ITS DIRECTOR. THE APPELLANT HAS AN UNDERSTANDING WITH (UITCDPL) THAT H E WOULD RENDER COMPREHENSIVE ASSISTANCE AND SUPPORT IN THE SALE OF MOTORCYCLES BY IT INCLUDING FACILITATIO N OF LOONS FOR PURCHASE BY CUSTOMERS, AFTER SALE SERVICE ETC. ETC. WITH THIS AGENDA THE FURTHER UNDERSTANDING OF THE APPELLANT WITH (UITCDPL) WAS THAT THE EXPENSES INCURRED BY THE APPELLANT IN THE PROCESS WOULD ALL B E SHARED WITH UITCDPL AND REIMBURSED TO IT. 2.3 SUBMISSIONS GROUND-WISE ARE AS UNDER: 3.1 THE FIRST GROUND IS WITH REGARD TO THE DISALLOWAN CE OF A SUM OF RS.10,68,968/- BEING INTEREST REIMBURSEMENT DISALLOWED UNDER SECTION 40A(IA) OF TH E INCOME TAX ACT, 1961 ('THE ACT') BY THE ASSESSING O FFICER AND CONFIRMED BY THE ID. CIT (APPEALS). THE OBSERVATIONS OF THE ASSESSING OFFICER WHILE SO DOIN G HAVE BEEN EXTRACTED IN DETAIL BY THE LD. CIT (APPEALS ) IN HIS ORDER AT PARA 6 ON PAGE NOS. 3 & 4. ACCORDING T O THE ASSESSING OFFICER ADMITTEDLY THE ASSESSEE-APPELLANT HAD NOT DEDUCTED ANY TAX AT SOURCE. AS PER THE PROVISIONS OF SECTION 194A OF THE ACT THE ASSESSEE W AS REQUIRED TO DEDUCT TDS ON AMOUNT EXCEEDING RS.5,OOO/- AT THE SPECIFIED RATES. IN THE INSTANT CA SE, HOWEVER, THE ASSESSEE FAILED TO DEDUCT TDS. SINCE IT WAS CREDITED TO A RESIDENT ON WHICH TAX HAD NOT BEEN DEDUCTED CONSEQUENTLY THE SAME NOT BE DEDUCTED IN COMPUTING TOTAL INCOME CHARGEABLE UNDER THE HEAD 'PROFIT AND GAINS FROM BUSINESS AND PROFESSION'. SO THE INTEREST CHARGES OF RS.10,68,968/- WERE DISALLOWED U/S 40A(IA) BY ADDING IT BACK TO THE ASSESSEE'S INCOME. THE LD. CIT (APPEALS) CONFIRMED THE ADDITION AS MADE BY THE ASSESSING OFFICER WITH OBSERVATIONS AS ARE CONTAINED ON PAGE 19 OF THE IMPUGNED APPELLATE ORDER. HE OBSERVED THAT THE APPELLANT HAD ADMITTED FAILURE TO DEDUCT AND PAY TDS. THE CLAIM OF THE APPELLANT OF A SUBSISTING AGREEMENT WITH UITCDPL OF WHICH THE APPELLANT WAS A DIRECTOR COULD NOT CHANGE THE NATUR E OF THE EXPENSES TO A RE-IMBURSEMENT. ANY SUCH CLAIM CO ULD NOT BE ALLOWED AS NO AGREEMENT COULD NOT GO BEYOND THE 5 PROVISIONS OF THE INCOME TAX ACT. SINCE APPELLANT D ID NOT DEDUCT TDS ON INTEREST PAYMENT OF RS.10,68,968/- THE TOTAL INTEREST PAYMENT HAD TO BE DISALLOWED U/S 40A(IA) OF THE ACT AND SO THE ADDITION MADE BY THE ASSESSING OFFICER HAD TO BE UPHELD. 3.2 IT IS RESPECTFULLY SUBMITTED BEFORE THE HON'BLE TRIBUNAL THAT THE AUTHORITIES BELOW HAVE FAILED TO N OTE THE PURPORT AND SCHEME OF THE ACT. WHILE IT IS TRUE THAT AN AGREEMENT BETWEEN THE TWO ASSESSEES CANNOT OVER- RIDE THE PROVISIONS OF THE I. T. ACT YET IT IS ALSO EQUALLY TRUE THAT THE PROVISIONS OF THE ACT, AS THEY ARE, A RE REQUIRED TO BE APPLIED NOTWITHSTANDING EXISTENCE OF A NY AGREEMENT OR NOT. PROVISO TO SECTION 201 (1) PROVIDES AS UNDER: 'PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL O FFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PA RT OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THI S CHAPTER ON THE SUM PAID TO A [PAYEE] SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH [PAYEE] - (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTIO N 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME; AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFEC T FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED:] 3.3 APPELLANT SEEKS LEAVE TO SUBMIT A COPY OF THE ACKNOWLEDGEMENT OF THE INCOME TAX RETURN AS FILED BY FOR THE YEAR UITCDPL. IN TERMS OF THE PROVISO, THER EFORE, APPELLANT DESERVES RELIEF BUT CONNECTED AFTER VERIFIC ATION OF THE CONNECTED TECTS. PLEADED ACCORDINGLY. 4.1 GROUND NO. 2 IS AGAINST THE CONFIRMATION OF THE DISALLOWANCES OF WAGES IN A SUM OF RS.7,94,786/- AL SO U/S 40A(IA) OF THE ACT. THE APPELLANT HAS PAID WAGES TO 6 TEMPORARY STAFF NUMBERING 19 IN A SUM OF RS.10,15,778/-. THESE WERE IN RESPECT OF SECURITIES AND MAINTENANCE SERVICES AMONGST OTHER AVAILED BY THE APPELLANT IN THE NORMAL COURSE OF ITS BUSINESS FROM DIFFERENT PERSONS. THE ASSESSING OFFICER CONSTRUED E ACH INDIVIDUAL PAYMENT OF THESE LABOURERS AS BEING PURSUANT TO A CONTRACT AND OPINED THAT THEY WERE COVERED U/S 194C OF THE ACT AND WITH THE APPELLANT NO T HAVING DEDUCTED AT SOURCE THE SAME WERE NOT ALLOWABLE AS DEDUCTION AGAINST INCOME AS COMPUTED IN TERMS OF THE PROHIBITION U/S 40A(IA) OF THE ACT. OBSERVATION S OF THE ASSESSING OFFICER ARE EXTRACTED IN FULL BY THE I D. CIT (APPEALS) IN THE IMPUGNED APPELLATE ORDER ON PAGE NOS . 5,6 & 7. 4.2 THE ID. CIT (APPEALS) CONFIRMED THE ADDITION AS MADE BY THE ASSESSING OFFICER IN TERMS OF HIS OBSERVATIONS AS CONTAINED IN PARA 8.3 ON PAGE NOS. 1 9 & 20 OF THE APPELLATE ORDER. HE WAS OF THE VIEW THAT SINCE THERE WAS NO EVIDENCE THAT THE PAYMENTS WERE N OT COVERED UNDER THE PROVISIONS OF SECTION 194C OF THE A CT AND FURTHER THAT THE GENUINENESS OF SUCH PAYMENTS WI TH MONTH-WISE DETAILS WERE NOT AVAILABLE THE SAME WERE RIGHTLY DISALLOWED BY THE ASSESSING OFFICER IN ASSESSMENT U/S 40A(IA) OF THE ACT. 4.3 IT IS SUBMITTED THAT THE AUTHORITIES BELOW ERRE D IN CONSTRUING THE PAYMENTS MADE TO CASUAL LABOURERS AN D THE MAINTENANCE STAFF AND OTHER AS BEING PURSUANT TO A CONTRACT. THEY WERE ALL EMPLOYEES AND EACH ONE OF TH EM WAS AN INDEPENDENT EMPLOYEE WITH NO CONNECTION OR ASSOCIATION WITH ANY ORGANIZATION WHICH WAS IN THE BUSINESS OF PROVIDING SERVICES. THERE WAS NO CONTRA CT AS ENVISAGED U/S 194C OF THE ACT WITH ANYONE. THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO ESTABLISH THE EXISTENCE OF ANY CONTRACT, V ALID OR OTHERWISE, BETWEEN THE APPELLANT AND THESE CASUAL WORKERS. EACH PQYMENT HAS TO BE CONSIDERED SEPARATEL Y FOR TDS IN TERMS OF SECTION 194A OF THE ACT. EACH ONE OF THESE PAYMENTS MADE TO CASUAL WORKERS WAS LESS THAN THE MAXIMUM AMOUNT NOT EXIGIBLE TO TAX DURING THIS YEAR. THERE WAS THEREFORE, NO LIABILITY TO DEDUCT TA X AT 7 SOURCE EVEN UNDER SECTION 194A OF THE ACT. CONSEQUENTLY SECTION 40A(IA) OF THE ACT HAD NO APPLICATION TO THE FACTS OF THE CASE. THE DISALLOWA NCE AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE ID . CIT (APPEALS) IS THUS PALPABLY ERRONEOUS AND MERITS TO BE ANNULLED. 5. GROUND NOS. 3 CONCERNS DISALLOWANCE U/S 40 (A) (2 ) OF THE ACT. THE APPELLANT HAD PAID REMUNERATION OF RS.L,60,OOO/- TO HIS DAUGHTER CHANDINI WHO WAS A SALES EXECUTIVE IN THE ORGANIZATION OF THE APPELLAN T. APPELLANT HIMSELF HAD OTHER BUSINESS ACTIVITIES INCLUDING THAT OF BEING A DIRECTOR IN UITCDPL AND SO REQUIRED MANAGERIAL SUPPORT. THE ASSESSING OFFICER W AS OF THE VIEW THAT THERE WAS AN EXTRA COMMERCIAL ELEM ENT IN THE PAYMENT MADE TO THE DAUGHTER. HE COMPARED THE REMUNERATION PAID TO HER WITH THOSE PAID TO THE STAF F OTHERWISE EMPLOYED BY THE APPELLANT AND OPINED THAT 50% OF THE SALARY PAID TO HER WAS REQUIRED TO BE DISALLOWED. THE FULL DISCUSSION ON THIS POINT AS DO NE BY THE ASSESSING OFFICER IS CONTAINED ON PAGE NOS. 7, 8 , 9 & 10 OF THE IMPUGNED CIT (APPEALS) 'S ORDER. IN APPEA L THE ID. CIT (APPEAL) CONFIRMED THE ADDITION AS MADE BY THE ASSESSING OFFICER IN THE CASE OF CHANDINI. T IS RESPECTFULLY SUBMITTED THAT THE ID. CLT (APPEALS) FE LL INTO AN ERROR IN COMPARING THE REMUNERATION PAID FOR 12 MONTHS SERVICE TO CHANDINI WITH THE REMUNERATION OF OTHERS PAID FOR SERVICES RENDERED SPORADICALLY AND A LSO FOR SHORT PERIODS DURING THE YEAR. THE COMPASSION AS MADE BY THE ASSESSING OFFICER WAS BETWEEN UN- COMPARABLES AND BEING SO WAS INVALID. IT IS PLEADED THAT THE ENTIRE REMUNERATION AS PAID TO CHANDINI MU ST BE DIRECTED TO BE ALLOWED IN VIEW OF THE EXCELLENT PERFORMANCE OF THE APPELLANT DURING THE YEAR WHERE T HE SALES OF VEHICLES DOUBLED .AS COMPARED TO THE PRECEDI NG YEAR. 6.1 GROUND NOS. 4 & 5 ARE IN RESPECT OF NOMINAL DISALLOWANCES CONCERNING DISALLOWANCE U/S 40 (A) (2 ) OF THE ACT AND PERSONAL USE FOR VEHICLES AND PHONES. IT IS SUBMITTED THAT THE EXPENSES AS INCURRED ARE ALL GENUI NE AND BEING SO IN TERMS OF THE DECISION OF THE HON'BL E 8 PUNJAB & HARYANA HIGH COURT IN THE CASE OF GURUDAS KAMAT NO DISALLOWANCE OF SECTION 40A(2) VARITY WAS WARRANTED. AS TO PERSONAL EXPENSES THE LD. CIT(A) H AD ARBITRARILY CONFIRMED 20% DISALLOWANCE WHICH WAS HIGHLY EXCESSIVE. PLEADED ACCORDINGLY. 4. LD. DR RELIED UPON THE ORDERS OF THE AUTHORITI ES BELOW. 5. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS ESPECIALLY THE IMPUGNED ORDER; ADDITIONAL GROUND AS WELL AS WRIT TEN SYNOPSIS FILED BY THE ASSESSEE COUNSEL. AFTER PERUSING THE AFORES AID ADDITIONAL GROUND, I AM OF THE VIEW THAT IN THE INTEREST OF JU STICE, THE SAME IS ADMITTED. I FIND CONSIDERABLE COGENCY IN THE CONT ENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AUTHORITIES BELOW ERRED IN DISALLOWING RS.10,68,968/- UNDER SECTION 40A(IA) OF THE INCOME TAX ACT, 1961 WITHOUT EVEN PAUSING TO CONSIDER WHETHER THE RECEIPT IS OF SUCH INCOMES ON WHICH TAX HAD BEEN PAID ON THOSE INCOMES BY THE RESPECTIVE RECIPIENTS AS ENVISAGED UNDER THE PROVISO TO SECTIO N 201(1) OF THE ACT. IT IS ALSO NOTED THAT THE THIS HAS NOT BEEN VERIFIE D AT THE LEVEL OF THE ASSESSING OFFICER DURING ASSESSMENT, THEREFORE, THE RE IS FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE MATTER MAY BE REMANDED BACK TO THE ASSESSING OFFICER FOR CONSIDE RATION AND FRESH ORDERS. IN VIEW OF ABOVE, DISCUSSIONS, THE ADDITIONA L GROUND AS AFORESAID AS WELL AS THE OTHER INTER-RELATED GROUNDS NO. 1 TO 5 RAISED BY THE ASSESSEE IN THE APPEAL ARE ALSO SET ASIDE TO THE FI LE OF THE AO FOR FRESH ADJUDICATION, AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ASSESSEE IS ALSO DIRECTED TO FULLY COOPE RATE WITH THE AO AND FILE ALL THE NECESSARY EVIDENCES, IF ANY, TO SUBST ANTIATE HIS CASE. 9 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 03/12/2019. SD/- (H.S. SIDHU) JUDICIAL MEMBER DATED: 03/12/2019 SRB COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI