ITO, Sirsa V. Sh. Hardev Singh, Sirsa

ITA 364/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5391 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ INDERJEET SING H; S N DHAMIJA
• Assessee Lawyers: N K SAINI
• Keywords: TDS; Set aside
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES ACHANDIGARH BEFORE SH D.K.SRIVASTAVA,ACCOUNTANT MEMBER & MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 364/CHD/2011 ASSESSMENT YEAR: 2007-08 I.T.O., WARD-2, V SHRI HARDEV SINGH, SIRSA. PROP. M/S KANG TRADING CO., SRI JIWAN NAGAR. SIRSA. PAN NO. ACXPS-2959R & C.O.49/CHD/2011 IN ITA 364/CHD/2011 SHRI HARDEV SINGH, V I.T.O., WARD-2, PROP. M/S KANG TRADING CO., SIRSA. SRI JIWAN NAGAR,SIRSA. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI N.K.SAINI APPELLANT BY: S/SHRI DHEERAJ INDERJEET SING H & S.N.DHAMIJA ORDER PER SUSHMA CHOWLA, JM THE REVENUE HAS FILED THE APPEAL AGAINST THE ORDER OF CIT(A), DATED 24.01.2011 RELATING TO ASSESSMENT YEAR 2007-0 8 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE REVENUE HAS RAISED UNDER MENTIONED GROUNDS O F APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.9,70,801/- MADE ON ACCOUNT OF CONTRACT RECEIPTS FROM THE M/S SUNSTAR OVERSEAS LTD. IGNORING THE FAC T THAT THE ASSESSEE HAD RECEIVED THE SAID PAYMENT AS 2 FREIGHT CHARGES, PAID BY HIM TO THE TRUCK OWNERS BU T NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF RS.50,000/- IGNORING THE FACT THAT THE AMOUNT HA S BEEN ADVANCED OUT OF INTEREST BEARING LOANS. 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE ASSE SSEE FILED A COMPILATION OF PAPERS INCLUDING CROSS OBJECTION I N FORM NO.36A OF I.T.RULES. THE CROSS OBJECTION FILED BY THE ASSESSEE WERE IN SUPPORT OF THE ORDER OF CIT(A) AND SINCE TH E ASSESSEE WAS NOT AGGRIEVED BY ANY OF THE OBSERVATION OF THE CIT(A), THE SAID C.OS WERE HEARD ALONGWITH THE APPEAL OF THE RE VENUE. THE REGISTRY WAS DIRECTED TO REGISTER THE C.O. FILED BY THE ASSESSEE. THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION R AISED BY THE ASSESSEE WERE HERD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 4. THE ISSUE RAISED BY THE REVENUE VIDE GROUND NO.1 IS IN RESPECT OF DELETION OF ADDITION OF RS.9,70,801/-. 5. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE HAD FURNISHED THE RETURN OF INCOME SHOWING INCOME F ROM BROKERAGE, DAMI AND INTEREST TOTALING RS.476,397/- AND THE NET PROFIT WAS DECLARED AT RS.103,260/-. THE ASSESSEE H AD CLAIMED CREDIT OF TDS TOTALING RS.50,894/-, OUT OF WHICH A SUM OF RS.44,745/- WAS DEDUCTED OUT OF PAYMENTS RECEIVED FROM M/S MUKTA TUBEWELL & MACHINERY STORE AND M/S SUN STAR OVERSEAS LTD. THE BREAK-UP OF THE PAYMENTS RECEIVED I.E. CO MMISSION, CONTRACT AND INTEREST ARE INCORPORATED IN PARA 2 AT PAGE 1 OF THE ASSESSMENT ORDER. THE ASSESSEE HAD ACCOUNTED FOR T HE 3 COMMISSION RECEIVED FROM THE SAID PARTIES AND ALSO INTEREST AND LABOUR RECEIPTS FROM THE SAID PARTIES. HOWEVER, TH E ASSESSEE HAD NOT ACCOUNTED FOR THE CONTRACT PAYMENT OF RS.970,80 1/- IN ITS PROFIT & LOSS ACCOUNT, ON WHICH TAX WAS DEDUCTED AT SOURCE. THE EXPLANATION OF THE ASSESSEE WAS THAT IT HAD NOT RECEIVED ANY CONTRACT PAYMENT FROM M/S SUN STAR OVERSEAS LTD. T HE CLAIM OF THE ASSESSEE WAS THAT IT HAD ONLY RECEIVED BROKERAG E FROM THE SAID PARTY ON THE SUPPLY OF PADDY. HOWEVER, AS CER TAIN PAYMENTS WERE WITHHELD BY THE SAID COMPANY, A CIVIL SUIT FOR RECOVERY AND SETTLEMENT OF ACCOUNTS WAS FILED BY TH E ASSESSEE. THE AO WAS OF THE VIEW THAT AS IT HAD CLAIMED CREDI T OF CORRESPONDING TDS, THE ASSESSEE SHOULD HAVE ACCOUNT ED FOR THE CONTRACT RECEIPTS. ACCORDINGLY AN ADDITION OF RS.9, 70,801/- WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE. THE CIT( A) CALLED FOR A REMAND REPORT FROM THE AO AGAINST THE SUBMISSIONS MADE BY THE ASSESSEE IN RESPECT OF THE SAID CONTRACT RECEIP TS. IN THE REMAND REPORT, THE AO REPORTED THAT M/S SUN STAR OV ERSEAS LTD. HAD APPOINTED THE ASSESSEE AS THEIR COMMISSION AGEN T FOR THE PURCHASE OF PADDY IN JIWAN NAGAR MANDI AND DISPATCH THE SAME TO THE WORK-SITE OF THE COMPANY. AS IT WAS NOT POS SIBLE FOR THE SAID COMPANY TO DEAL WITH LARGE NUMBER OF TRUCK DRI VERS FOR TRANSPORTATION OF PADDY, IT USED TO MAKE PAYMENTS T O THE ASSESSEE, WHO IN TURN DISBURSED THE SAME TO THE TRU CK DRIVERS. THE ASSESSEE CLARIFIED THAT NO FORMAL CONTRACT IN T HIS REGARD HAD BEEN EXECUTED AND THE CIVIL SUIT FILED BY THE ASSES SEE HAD NO LINK WITH THIS TRANSACTION. IN THE VERIFICATION EXERCIS E CARRIED OUT BY THE AO, THE ASSESSEE STATED THAT AS THE FREIGHT PAY MENT WAS MADE BY THE COMPANY, HE SIMPLY HANDLED ENCASHMENT AND DI STRIBUTION OF THE SAME TO THE TRUCK DRIVERS AND AS SUCH NO LED GER ACCOUNT IN 4 RESPECT OF THE SAID PAYMENTS WAS REFLECTED IN HIS C ASH BOOK, AS HE DERIVED NO INCOME FROM SUCH ARRANGEMENT. THE CI T(A) HELD AS UNDER : I HAVE CONSIDERED THE ISSUE, THE REMAND REPORT OF THE AO AND THE SUBMISSIONS MADE BY THE AR. IT IS EVIDENT FROM THE FACTS THAT THE APPELLANT HAS NEITH ER ENTERED INTO A CONTRACT NOR RECEIVED ANY AMOUNT FOR EXECUTING THE CONTRACT FROM M/S SUN STAR OVERSEAS LTD. AN INFORMAL WORKING SEEMS TO HAVE BEEN MADE BETWEEN THE APPELLANT AND THE COMPANY TO FACILITATE THE PAYMENT TO TRUCK DRIVERS. THAT IS WHY THE AMOUNT OF RS.9,70,801/- IS NEITHER REFLECTED IN THE BOOKS OF THE APPELLANT NOR THAT OF THE COMPANY. HOWEVER, ISSUANCE OF TDS CERTIFICATE BY THE COMPANY TO THE APPELLANT WHEN NO AMOUNTS WERE GIVEN IS INTRIGUING. THE CONDUCT OF THE APPELLANT IN CLAIMI NG TDS WITHOUT OFFERING THE AMOUNT AS INCOME IS ALSO NOT ABOVE BOARD. CONSIDERING THE TOTALITY OF THE FACTS, IT IS HELD THAT THE APPELLANT NEITHER RECEIV ED NOR WAS DUE ANY AMOUNT FROM M/S SUN STAR OVERSEAS LTD. ON ACCOUNT OF THE CONTRACT ALLEGED TO HAVE BEE N ENTERED AS PER THE TDS CERTIFICATE. AS SUCH THE ADDITION MADE BY THE AO OF RS.9,70,801/- IN THIS REGARD IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. HOWEVER, THE AO SHALL NOT GIVE CREDIT FOR THE TDS IN THIS REGARD. 6. LD. DR FOR THE REVENUE POINTED OUT THAT THE VERY FACT THAT TDS WAS DEDUCTED BY THE SAID PARTY, REFLECTS THE NA TURE OF THE PAYMENT RECEIVED BY THE ASSESSEE AND IN THE ABSENCE OF THE SAME BEING REFLECTED IN ITS BOOKS OF ACCOUNT, THE ORDER OF THE AO IS TO BE UPHELD. THE LD. AR FOR THE ASSESSEE PLACING REL IANCE ON THE ORDER OF THE CIT(A) POINTED OUT THAT NO BENEFIT OF THE TDS DEDUCTED HAS BEEN ALLOWED TO THE ASSESSEE BY THE CI T(A), AFTER EXCLUDING THE SAID INCOME IN THE HANDS OF THE ASSES SEE. 5 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS APPOINTED AS A COMMISSION AGENT FOR THE PURCHASE OF PADDY BY M/S SUN STAR OVERSEAS LTD. TH E COMMISSION RECEIVED BY THE ASSESSEE FROM THE AFORES AID PARTY IS REFLECTED AS PART OF THE RECEIPTS FOR THE YEAR UNDE R CONSIDERATION. IN ADDITION TO THE SAID COMMISSION, FURTHER AMOUNT TOTALING RS.970,801/- WAS RECEIVED BY THE ASSESSEE FROM THE SAID PARTY. THE CLAIM OF THE ASSESSEE IN THIS REGARD IS THAT TH E SAID PAYMENT IN TURN IS DISTRIBUTED TO THE VARIOUS TRUCK OWNERS ON BEHALF OF THE SAID PARTY AND IT HAD NOT RECEIVED ANY SHARE IN THE SAID RECEIPTS. HOWEVER, TAX AT SOURCE WAS DEDUCTED BY T HE SAID PARTY OUT OF THE SAID RECEIPTS AND THE ASSESSEE HAD CLAIM ED CREDIT OF TDS DEDUCTED AT RS.44,745/-, IN ITS RETURN OF INCOM E, THOUGH NO PART OF THE SAID RECEIPTS WERE INCLUDED AS ITS INCO ME. FROM THE PERUSAL OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS APPARENT THAT THE UNDERSTANDING IN THE NATURE OF A CONTRACT WAS THOUGH ORALLY AGREED UPON BETWEEN THE PARTIES HAS BEEN EST ABLISHED, IN VIEW OF THE FACT THAT CERTAIN AMOUNTS ARE RELEASED BY THE SAID PARTY TO THE ASSESSEE BEFORE US, FOR FURTHER DISBUR SEMENT TO THE TRUCK DRIVERS, WHO WERE ENGAGED IN THE TRANSPORTATI ON OF PADDY. UNDER THE PROVISIONS OF SECTION 194C OF THE ACT WHE RE ANY PERSON IS RESPONSIBLE FOR PAYING ANY SUM TO ANY RES IDENT FOR CARRYING OUT ANY WORK, INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY SUCH WORK, PURSUANT TO A CONTRACT BETWEEN T HEM, THEN AT THE TIME OF CREDIT OF SUCH PAYMENT OR AT THE TIME O F PAYMENT THEREOF, THE ACT REQUIRES DEDUCTION OF TAX AT SOURC E. THE COMPANY M/S SUN STAR OVERSEAS OTD. DURING THE YEAR UNDER CONSIDERATION HAD RELEASED PAYMENT AGGREGATING TO R S.970,801/- TO THE ASSESSEE. IT WAS TREATED AS A CONTRACT BY TH E SAID CONCERN 6 AS IS EVIDENT FROM THE FACTUM OF DEDUCTION OF TAX A T SOURCE AT RS.44,745/-. THE NATURE OF THE UNDERSTANDING BETWE EN THE PARTIES EXISTS BY WAY OF AN ORAL CONTRACT BETWEEN T HE PARTIES, WHICH WAS ACTED UPON BY THE SAID PARTIES AND EVEN T AX WAS DEDUCTED AT SOURCE. IN THE ENTIRETY OF FACTS AND CI RCUMSTANCES OF THE CASE, WE HOLD THAT THE INCOME EMBEDDED IN SUCH PAYMENTS IS TO BE INCLUDED IN THE HANDS OF THE ASSESSEE AS INCO ME OF THE ASSESSEE. IN THE ABSENCE OF ANY DETAILS FILED BY T HE ASSESSEE, WE ARE LEFT WITH NO OPTION BUT TO ESTIMATE THE INCOME IN THE HANDS OF THE ASSESSEE AND ACCORDINGLY WE ESTIMATE THE INC OME ON SUCH RECEIPTS IN THE HANDS OF THE ASSESSEE @ 10% OF THE TOTAL RECEIPTS AND THE BENEFIT OF THE TAX DEDUCTED AT SOURCE IS TO BE ALLOWED AGAINST SUCH INCOME INCLUDED IN THE HANDS OF THE AS SESSEE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) IN THIS REGARD AND DIRECT THE AO TO RECOMPUTE THE INCOME OF THE AS SESSEE BY INCLUDING 10% OF THE TOTAL RECEIPTS AS INCOME OF TH E ASSESSEE. ALLOW THE CREDIT OF TDS. GROUND NO.1 RAISED BY THE REVENUE, THUS PARTLY ALLOWED. THE GROUND RAISED IN CROSS OBJ ECTION IN THIS REGARD IS PARTLY ALLOWED. 8. GROUND NO.2 RAISED BY THE REVENUE AGAINST DELETI ON OF ADDITION OF RS.50,000/-. THE AO, FROM THE PERUSAL OF THE ACCOUNTS OF SUNDRY DEBTORS NOTED THE ASSESSEE NOT T O HAVE CHARGED ANY INTEREST ON DEBIT BALANCES OUTSTANDING AGAINST PARTIES THOUGH IT HAD PAID INTEREST TOTALING RS.1,0 8,000/- DURING THE YEAR. THE TOTAL CAPITAL OF THE ASSESSEE WAS RS .218,859/- AND ACCORDINGLY A SUM OF RS.50,000/- WAS DISALLOWED OUT OF THE INTEREST ACCOUNT BY THE AO AND ADDED TO THE INCOME OF THE ASSESSEE. THE CIT(A) CONSIDERED THE SAID ADVANCES TO BE IN THE 7 NORMAL COURSE OF BUSINESS ACTIVITY CARRIED ON BY TH E ASSESSEE AND DELETED THE ADDITION OF RS.50,000/-. 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE TOTAL OUTSTANDING SUNDRY DEBTORS FOR THE YEAR U NDER CONSIDERATION WERE RS.43,78,308/- AS AGAINST TOTAL CREDITORS OF RS.36,35,779/-. THE SAID DEBIT BALANCES WERE ON ACC OUNT OF ADVANCES MADE BY THE ASSESSEE TO THE ZAMIDARS/FARME RS SO THAT THEY SELL THEIR PRODUCE TO THE ASSESSEE. THE ASSES SEE CLAIMS TO HAVE MADE THE ABOVESAID ADVANCES DURING THE COURSE OF CARRYING ON ITS BUSINESS ACTIVITY. THE ASSESSEE IS A COMMIS SION AGENT WHO HAS SHOWN INCOME FROM COMMISSION DURING THE YEA R. THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF INTERE ST PAYMENT OF RS.1,08,000/- DURING THE YEAR. THE AO NOTED THE ASSESSEE TO HAVE PAID INTEREST AMOUNTING TO RS.143,314/- TO THE BANK AS PER THE COPY OF INTEREST PAID ACCOUNT. THE ISSUE TO BE ADDRESSED IN THE PRESENT CASE IS LIMITED TO THE EXTENT THAT WHET HER ANY INTEREST/DISALLOWANCE IS WARRANTED IN THE PRESENT C ASE. WE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD THAT WHERE THE SAID SUNDRY DEBTORS ARE ON ACCOUNT OF AL THE BUSINESS AD VANCES MADE BY THE ASSESSEE, THERE IS NO MERIT IN APPLYING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ABHIS HEK INDUSTRIES V CIT 286 ITR 1(P&H) FOR WORKING OUT THE DISALLOWANCE OUT OF INTEREST ACCOUNT. ACCORDINGLY, WE HOLD THAT ASSESSEE IS ENTITLED TO THE DEDUCTION CLAIMED ON AC COUNT OF INTEREST PAYMENT. GROUND NO.2 RAISED BY THE REVENU E IS DISMISSED. 8 10. THE BALANCE GROUNDS IN CROSS OBJECTION FILED BY THE ASSESSEE ARE IN SUPPORT OF THE ORDER OF CIT(A) AND HENCE THE SAME ARE DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE AND CR OSS OBJECTIONS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JUNE, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) JUDICIAL MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE,2011 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH