Amrut Textiles, Surat V. The Income tax Officer,Ward-9(1), Surat

ITA 3811/AHD/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76728 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 24-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Non-deduction of tax
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 3811/AHD/2008 (ASSESSMENT YEAR: 2005-06) AMRUT TEXTILES 72, MAHATMA IND. ESTATE, KAPODRA, VARACHHA ROAD, SURAT V/S ITO WARD 9(1), SURAT (APPELLANT) (RESPONDENT) PAN: AAIFA 4970 B APPELLANT BY : SHRI MEHUL R. SHAH RESPONDENT BY : SHRI R. K. DHANISTA, SR. D.R. ( )/ ORDER DATE OF HEARING : 18-02-201 4 DATE OF PRONOUNCEMENT : 16 -05-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-V, SURAT DATED 11.10.2008 FOR A.Y. 2005-06. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MA NUFACTURING GREY CLOTH TRADING AND MANUFACTURING OF TEXTILE GOODS. ASSESSE E FILED ITS RETURN OF INCOME FOR A.Y. 05-06 ON 31.10.2005 SHOWING TOTAL INCOME O F RS. 2,20,907/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE A SSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 28.12.2007 AN D THE TOTAL INCOME WAS ITA NO 3811/ AHD/2008 . A.Y. 2005- 06 2 DETERMINED AT RS. 1,42,54,030/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDE R DATED 11.10.2008 DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US AT T HE OUTSET, THE LD. A.R. SUBMITTED THAT THOUGH THE ASSESSEE HAS RAISED VARIO US GROUNDS THE ONLY EFFECTIVE GROUND WHICH IT WANTS TO ARGUE ARE GROUND 1 & 2 AND BOTH THE GROUNDS ARE INTERCONNECTED. THE GROUND NO 1 & 2 REA DS AS UNDER:- 1. THAT THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING THE ADDITION U/S. 40(A) OF THE I.T. ACT OF RS. 1,40,33,118/- ON ACCOUNT OF DISALLOWANCE OF VARIOUS AMOUNTS FOR NON-DEDUCTION OF TAX THEREON. 2. THAT THE CIT(A) GROSSLY ERRED IN LAW IN CONFIRMING THE VIEW THAT ENTIRE EXPENSES SHOULD BE DISALLOWED AND NOT THAT EXPENSES WHICH REMAIN OUTST ANDING AT THE YEAR END AS ENVISAGED IN THE USE OF WORDS AMOUNT PAYABLE IN SECTION 40(A)(IA). 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O . NOTICED THAT ASSESSEE WAS MANUFACTURING GREY CLOTH AND FOR WHICH IT HAD S TATED TO HAVE TAKEN LOOMS AND OTHER MACHINERIES ON RENT FROM SISTER CONCERNS. HE ALSO NOTICED THAT ASSESSEE WAS CARRYING OUT THE SAME ACTIVITIES IN EA RLIER YEARS ALSO FROM SAME SISTER CONCERNS AND HAD PAID JOB WORK CHARGES TO TH EM AND HAD ALSO DEDUCTED TDS ON THE PAYMENT OF JOB CHARGES. HE ALS O NOTICED THAT IN EARLIER YEARS, THE SISTER CONCERNS HAD FILED THEIR INDIVIDU AL INCOME TAX RETURN OF LOSS AND HAD CLAIMED REFUND OF THE TDS ON JOB WORK CHARG ES WHICH WAS DEDUCTED BY THE ASSESSEE. HOWEVER DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE DID NOT DEDUCT ANY TDS FROM PAYMENT TO SISTER CONCE RNS. THE REASON FOR NON-DEDUCTION WAS STATED THAT DURING THE YEAR, THE ASSESSEE HAD ENTERED INTO AGREEMENT WITH THE SISTER CONCERNS FOR LEASE OF THE IR PLACE, PLANT AND MACHINERIES AT AN AGREED RATE. SINCE THE AMOUNT THA T WAS PAID TO SISTER CONCERNS WERE BELOW THE LIMIT PRESCRIBED FOR DEDUCT ION OF TAX, THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT A ND THEREFORE NO TAX WAS DEDUCTED BY THE ASSESSEE. A.O. COMPARED THE MODUS O PERANDI OF THE BUSINESS DURING THE YEAR OF THE ASSESSEE WITH THE P RECEDING PREVIOUS YEAR AND NOTED THAT THERE WAS NO MATERIAL CHANGE IN WORK ING OF THE ASSESSEE. IN IMMEDIATE PRECEDING ASSESSMENT YEAR, ASSESSEE WAS M AKING PERIODICAL PAYMENTS TO ITS SISTER CONCERNS AND AT THE YEAR END , ENTRY WAS PASSED FOR ITA NO 3811/ AHD/2008 . A.Y. 2005- 06 3 WORK CONTRACT AND TAX WAS DEDUCTED WHEREAS IN THE Y EAR UNDER CONSIDERATION THOUGH THE ASSESSEE WAS MAKING PERIODICAL PAYMENT, THE SAME WERE TREATED TO BE IN NATURE OF REIMBURSEMENT AND TOWARDS RENTAL S AND THEREFORE NO TAX WAS DEDUCTED. THE ASSESSEE WAS ASKED TO SHOW AS TO WHY THE PAYMENT MADE TO SISTER CONCERNS NOT BE TREATED AS CONTRACT AND SINCE NO TDS WAS DEDUCTED, SAME BE DISALLOWED UNDER SECTION 40(A)(IA ) OF THE ACT. THE ASSESSEE INTERALIA SUBMITTED THAT THE PAYMENT MADE TO SISTER CONCERNS WAS IN THE NATURE OF REIMBURSEMENT OF THE EXPENSES AND WER E NOT IN THE NATURE OF CONTRACT PAYMENTS THEREFORE THERE WAS NO QUESTION O F DEDUCTION OF TAX AT SOURCE. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOU ND ACCEPTABLE TO THE A.O. FOR THE FOLLOWING REASONS (I) THERE WAS AN ORA L AGREEMENT BETWEEN ASSESSEE AND THE SISTER CONCERNS, ALL OF THEM WERE SYSTEMATICALLY CARRYING OUT THE EXPENSES AND THE SAME WAS REIMBURSED BY THE ASSESSEE EVERY MONTH. (II) THE ASSESSEE WAS MAINTAINING SEPARATE L ABOUR REGISTER AND WAGES REGISTER FOR EACH OF THE SISTER CONCERNS. (III) ALL THE EXPENSES WERE INCURRED BY SISTER CONCERNS AND THE SISTER CONCERNS HAVE BEEN R EIMBURSED BY THE ASSESSEE. FURTHER THE EXPENSES WERE NOT INCURRED D IRECTLY BY THE ASSESSEE NOR PAID BY ASSESSEE. A.O. WAS FURTHER OF THE VIEW THAT ALL THE EXPENSES WERE INCURRED BY SISTER CONCERNS AND ASSESSEE HAD ONLY R EIMBURSED BY PASSING BOOK ENTRIES WHICH ACCORDING TO HIM PROVES THAT THE WRITTEN AGREEMENT OF RENT WAS NOT CONFINED TO RENT ONLY BUT WAS A POSITIVE AG REEMENT FOR ALL THE WORK TO BE CARRIED OUT BY THE SISTER CONCERNS FOR THE ASSES SEE. HE WAS THEREFORE OF THE VIEW THAT ASSESSEE HAD PLANNED HIS AFFAIRS IN S UCH WAY THAT BY MERELY CREATING DOCUMENTS BETWEEN SISTER CONCERNS IT AVOI DED PROVISION OF TDS ON JOB WORK CHARGES PAYABLE TO SISTER CONCERNS. HE ACC ORDINGLY TREATED THE ACTIVITY CARRIED OUT BY SISTER CONCERNS AS JOB WORK ACTIVITY AND NOT BEING DIFFERENT FROM THE ACTIVITY CARRIED OUT BY THEM IN EARLIER YEARS FOR THE ASSESSEE. SINCE NO TDS WAS DEDUCTED BY ASSESSEE ON THE PAYMENTS MADE TO SISTER CONCERNS, A.O. WAS OF THE VIEW THAT PROVI SIONS OF SECTION 40(A)(IA) WERE APPLICABLE. HE ACCORDINGLY DISALLOWED THE ENTI RE EXPENDITURE OF RS. 1,40,33,118/- U/S. 40(A)(IA) OF THE ACT ON ACCOUNT OF NON DEDUCTION OF TDS U/S. ITA NO 3811/ AHD/2008 . A.Y. 2005- 06 4 194C OF THE ACT. AGGRIEVED BY THE ORDER OF A.O, AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE CONFIRMED THE DISALLOWANCE MADE BY A.O BY HOLDING A S UNDER:- DURING THE APPELLATE PROCEEDINGS THE APPELLANT H AS REITERATED ITS EARLIER-STAND THAT PROVISIONS OF SECTION 194 C MAKES IT CLEAR THAT TAX SHOULD BE DED UCTED FROM THE PAYMENT INVOLVING INCOME AND SINCE IN THE INSTANT CASE THE EXPENSES WERE MERELY REIMBU RSED TO THE SISTER CONCERN AND SINCE THERE IS NO ELEMENT OF PROFIT INVOLVED IN SUCH REPAYMENT QUESTI ON OF DEDUCTION OF TAX WOULD NOT ARISE, IN ITS SUPPORT THE APPELLANT HAS FILED COPIES OF VOUCHERS WHERE THE NAME OF THE APPELLANT FIRM HAS BEEN INSCRIBED TO SHOW THAT THE PAYMENTS WERE MADE FOR T HE APPELLANT FIRM AND NOT IN THE CAPACITY OF THEIR OWN PAYMENTS WHICH WERE THEREAFTER RECOVERED IN THE FORM OF CHARGES. THUS THERE WAS RATHER A RELATION OF AGENT AND PRINCIPAL AND NOT THE CONTRAC T PER SE FOR WORK. FURTHER THE APPELLANT HAS ALSO SUBMITTED THAT SINCE ALL THE PARTIES WERE PARTNERS OF THE FIRM QUESTION OF TDS WOULD NOT ARISE SINCE PAYMENT TO SELF WOULD NOT BE PAYMENT TO OUTSIDERS A ND THEREFORE THERE IS NO QUESTION OF TDS FOR PAYMENT TO SELF. THE APPELLANT HAS FURTHER SUBMITTE D THAT THERE WAS NO CONTRACT BETWEEN THE APPELLANT FIRM AND THOSE SISTER CONCERNS AND THAT IN ALL THE VOUCHERS NAMES OF SISTER CONCERNS AND APPELLANT FIR M NAME HAS BEEN INSCRIBED MEANING THEREBY THAT SUCH P AYMENT WAS MADE FOR THE APPELLANT FIRM AND WHEN SUCH PAYMENT IS REIMBURSED .THERE IS NO QUESTI ON,OF TDS SINCE NO ADDITIONAL CHARGES ARE LEVIED ON SUCH PAYMENT AND THAT CREDIT IS GIVEN TO SISTER CONCERNS WERE GIVEN ONLY FOR ACTUAL EXPENSES INCURRED THROUGH THEM. FURTHER IT IS VEHEMENTLY SUB MITTED THAT RENT WAS PAID SOLELY FOR LEASING OF MACHINERIES AND PREMISES AND NOT FOR ANY CONSIDERAT ION TO WORK AS HAS BEEN ENVISAGED. IN THIS REGARD THE APPELLANT HAS FILED COPIES OF AGREEMENTS, ENTER ED INTO BETWEEN THE SISTER CONCERNS AND ITSELF. ALS O ACCORDING TO THE APPELLANT THOSE SISTER CONCERNS HA D ACCOUNTED FOR ONLY RENTAL CHARGES AS INCOME AND NOT OTHER EXPENSES/AND THEREFORE IT IS ABSOLUTELY C LEAR THAT CONTRACT WHICH DID EXISTED WAS ONLY FORM RENTING OF PREMISES AND MACHINERIES AND NOT OTHERWI SE FOR CONTRACT OF WORK. THE APPELLANT HAS FURTHER SUBMITTED THAT THE PROVISIONS OF SECTION 40A(IA) IS APPLICABLE ONLY WITH RESPECT TO PAYMENT OUTSTANDIN G SINCE THE WORDS USED IN SECTION 40A(IA) READS AS UN DER, 'AMOUNTS PAYABLE TO A CONTRACTOR OR SUBCONTRACTOR B EING RESIDENT FOR CARRYING OUT ANY WORK ' ACCORDING TO THE APPELLANT PERSON FOLLOWING MERCANT ILE SYSTEM OF ACCOUNTING WHERE THE BASE OF DEDUCTION OF TAX IS ON THE AMOUNT CREDITED TO THE A CCOUNT OF THE CONTRACTOR. THE EXPLANATION II TO SECTION 194C HAS ALSO VISUALIZED SUCH A SITUATION A ND HENCE LAW IN ITS WISDOM HAS VISUALIZED THOSE CASES WHERE SUCH CREDITING THOUGH SUBJECT TO TDS AR E NOT BROUGHT TO TAX BY WAY OF DISALLOWANCE U/S 40A(IA) BEING A VERY HARSH PROVISION HENCE THE ONLY SITUATION ENVISAGED IS THAT WHERE EXPENSES WHICH REMAINS OUTSTANDING AND DUE FOR PAYMENT AT THE YEAR END OVER WHICH NO TDS HAS BEEN DEDUCTED AND PAID WOULD COME UNDER THE AMBIT OF SUCH SECTION. AN D THAT PAYMENT WHICH IS MADE AND NOT OUTSTANDING, WOULD COME UNDER THE PROVISIONS OF TDS VIOLATION AND WOULD NOT ATTRACT PROVISIONS OF SECTION 40A(IA), IT IS THUS SUBMITTED THAT DISALLOW ANCE MADE BY THE AO SHOULD BE DELETED. I HAVE GONE THROUGH THE CONTENTION OF THE APPELLANT AS WELL AS THAT OF THE AO. AS REGARD THE APPELLANT 'S PLEA THAT PROVISIONS OF SECTION 40A(IA) WOULD BE AT TRACTED ONLY FOR THOSE PAYMENT WHICH REMAINED OUT STANDING AT THE YEAR END AND ON WHICH TAX HAS NOT B EEN DEDUCTED , IS CONCERNED, I AM UNABLE TO ACCEDE TO THE ARGUMENT OF THE APPELLANT, THE WORD PAYABLE IS MEANT FOR OBLIGATION CREATED FOR PAYMENT AND WHETHER OR NOT SUCH PAYMENT IS MADE EITHER BEFORE O R AFTER THE YEAR END WOULD NOT ALTER THE SITUATION. THE WORD PAYABLE SHOULD BE CONSTRUED IN ITS NATURAL MEANING WHERE PAYABLE IS USED FOR OBLIGATION TO MAKE PAYMENT AND IN ANY CONTRACT EVEN AS AGENT AND PRINCIPAL FIRST-THERE SHOULD BE AN OBLIGATION TO MAKE PAYMENT AND ACTUAL PAYMENT IS ONLY AN AFTERMAT H OF SUCH OBLIGATION AND THEREFORE THE APPELLANT'S PLEA THAT THE 'WORD PAYABLE USED IS MER ELY ON ACCOUNT OF OUTSTANDING YEAR END PAYMENT IS CONCERN THE SAME COULD NOT BE ACCEPTED AND SUCH INT ERPRETATION WOULD RATHER DISTORT THE LEGISLATURE INTENT, IN ANY CASE THE AMENDMENT TO SECTION 40(A)( IA) HAS PUT AT REST THE ISSUE RAISED BY THE APPELLA NT IN-CLEAR TERMS WHERE ANY PAYMENT WHICH PERTAINS TO PERIOD PRIOR TO MARCH THE DEDUCTION WOULD NOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION IF THE TDS IS NOT DEDUCTED AND PAID BEFORE THE YEAR END AND THE ONLY CONCESSION ALLOWED IS FOR THE PAYMENTS PER TAINING TO MARCH WHERE EVEN THE TAX HAS BEEN DEPOSITED BEFORE FILING OF THE RETURN OF INCOME NO DISALLOWANCE WOULD BE CALLED FOR. THUS THIS ARGUMENT OF THE APPELLANT IS OF NO SIGNIFICANCE AFT ER THE AMENDMENT TO SECTION 40A(IA) WHICH IS RETROSPECTIVELY APPLICABLE AND HENCE THIS GROUND OF APPEAL DOES NOT FIND FAVOUR. ITA NO 3811/ AHD/2008 . A.Y. 2005- 06 5 THEREFORE THE ONLY QUESTION THAT ARISES IS AS TO WH ETHER THE PAYMENT OF RENT COULD BE SAID TO BE CONSIDERATION FOR SERVICES IN TERMS OF RUNNING POWE R LOOMS BY THE SISTER CONCERNS AS WAS THE CASE IN PRECEDING PREVIOUS YEAR, IT IS NOW WELL SETTLED THA T WHAT IS IMPORTANT IS SUBSTANCE OVER FORM AND THAT THE ASSESSING AUTHORITIES ARE ENTITLED TO PIERCE TH E VIEL WHERE THE TRUE NATURE OF TRANSACTION ARE DIFFERENT THAN THAT OF ITS FORM IN WHICH THE SAME A RE EFFECTED. IN THE INSTANT CASE WHAT IS IMPORTANT IS MERELY CHANGE OF BOOK KEEPING ENTRIES AS OTHERWISE THE ACTUAL AFFAIRS OF THE APPELLANT FIRM VIZ.A.VIZ ITS SISTER CONCERNS ALMOST REMAINED THE SAME. I.E. IN P RECEDING PREVIOUS YEAR ALSO THE APPELLANT WAS MAKING PERIODICAL PAYMENTS AND ALL THE EXPENSES OF THE NATURE SOUGHT TO BE INCURRED IN THE CURRENT YEAR WERE INCURRED BY THOSE SISTER CONCERNS IN PREC EDING PREVIOUS YEAR AND THAT THERE IS NO CHANGE IN ACTUAL WORKING BARRING THAT IN PRECEDING PREVIOUS Y EAR THE .APPELLANT WAS MAKING AN .YEAR END ENTRY FOR WORK CARRIED OUT WHERE AS IN THE CURRENT YEAR E NTRIES ARE MADE FOR EXPENSES AND YEAR END ENTRY FOR RENT IS MADE SEPARATELY. NONETHELESS SO FAR AS ACTU AL WORKING IS CONCERNED EVEN IN PREVIOUS YEAR ALSO ALL THOSE EXPENSES WERE INCURRED BY THOSE SISTER CO NCERNS AND IN THE YEAR UNDER CONSIDERATION ALSO ALL THOSE EXPENSES ARE INCURRED BY THOSE SISTER CONCERN S ONLY AND THEREFORE IN SUM AND SUBSTANCE THERE IS NO CHANGE IN WORKING SAVE AND EXCEPT BOOK KEEPING E NTRIES WHERE THE PROFIT ELEMENT IS WORKED OUT UNDER THE GUISE OF RENT BUT IN SUM AND SUBSTANCE TH ERE IS NO CHANGE OF WHATSOEVER NATURE IN WORKING BETWEEN THE APPELLANT FIRM AND THOSE SISTER CONCERN S AND THEREFORE THE APPELLANT'S PLEA THAT PROVISION S OF TDS WOULD NOT BE APPLICABLE IS FAR FROM FACTS OF THE CASE. THUS I AM IN AGREEMENT WITH THE AO THAT IN THE INSTANT CASE THE RENT IS NOTHING BUT CONSIDE RATION FOR ALL THE SERVICES RENDERED BY THOSE SISTE R CONCERNS AND HENCE IT WOULD BE INAPT TO SAY THAT SI NCE THERE WAS RENTAL AGREEMENT BETWEEN THE PARTIES AND EXPENSES INCURRED WERE SOLELY ON AGENCY TERMS I S OUT OF PLACE AND CAN NOT BE ACCEPTED MORE SO IN LINE WITH ARRANGEMENTS BETWEEN THE PARTIES WHICH AR E CONSISTENTLY FOLLOWED IN THE SAME LINE THUS LOOKING TO THE FACTS OF THE CASE SINCE NO TDS IS DE DUCTED BY THE APPELLANT ON SUCH PAYMENTS PROVISIONS OF SECTION 40A(IA) WOULD BE APPLICABLE IN FULL FORC E. AND SINCE THE APPELLANT HAS NOT DEDUCTED TAX OR PAID TO THE GOVT. TREASURY DISALLOWANCE MADE BY THE AO IS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S NOW IN APPEAL BEFORE US. 6. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIO NS MADE BEFORE A.O. AND CIT(A). HE FURTHER SUBMITTED THAT ASSESSEE NEITHER SUPPLIED RAW MATERIALS TO SISTER CONCERNS NOR RECEIVED THE FINISHED GOODS BEI NG PROCESSED BY SISTER CONCERNS. THE PURCHASE OF RAW MATERIALS AND PROCESS ING OF GOODS WAS DONE UNDER ITS SUPERVISION AND THUS IT CANNOT BE SAID TH AT ASSESSEE WAS GETTING THE WORK DONE ON JOB WORK BASIS. HE FURTHER SUBMITTED T HAT THERE WAS NEITHER ANY ORAL OR WRITTEN AGREEMENT FOR VARIOUS EXPENSES THAT WERE BEING INCURRED BY THE SISTER GROUPS. THE ASSESSEE HAD SIMPLY INCURRE D AND PAID THE VARIOUS EXPENSES. HE FURTHER SUBMITTED THAT THERE WAS NO CO NTRACT FOR ELECTRICITY EXPENSES AND PROPERTY TAX BUT WAS AN ACCOMMODATION FACILITY WITH SISTER GROUPS AND IT WAS NOTHING BUT FINANCING BY THE SIST ER GROUP FROM THE CURRENT ACCOUNT MAINTAINED. HE FURTHER SUBMITTED THAT SINC E THE RENT PAID TO SISTER CONCERN WAS BELOW THE LIMITS PRESCRIBED FOR DEDUCTI ON OF TDS AND ON REIMBURSEMENT NO TDS WAS DEDUCTIBLE, NO TDS WAS DED UCTED HE FURTHER ITA NO 3811/ AHD/2008 . A.Y. 2005- 06 6 SUBMITTED THAT A.O. HAS NOT DOUBTED THE EXPENSES BU T HAS ONLY HELD THE SINCE THE EXPENSES ON WHICH THE ASSESSEE SHOULD HAVE DEDU CTED HAS NOT DEDUCTED THE TDS, THE EXPENDITURE WAS DISALLOWED. HE FURTHER SUBMITTED THAT THE TOTAL TURNOVER OF THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION WAS RS. 3.45 CRORES AND THE G.P FOR THE YEAR WAS 2.91%. IF THE ENTIRE EXPENSES ARE DISALLOWED, THE G.P WOULD WORK OUT TO MORE THAN 35% WHICH WOULD BE QUITE HIGH. HE ALSO SUBMITTED THAT THE A.O HAS NOT REJEC TED THE BOOKS OF ACCOUNTS MEANING THEREBY THAT HE HAS NOT DOUBTED THE EXPENSE S. HE FURTHER SUBMITTED THAT THE RETURN OF INCOME OF THE SISTER CONCERNS HA VE BEEN ACCEPTED BY THE DEPARTMENT. HE ALSO PLACED RELIANCE DECISION IN TH E CASE OF CIT VS. UNITED RICELAND LTD. (2010) 322 ITR 594 AND THE DECISION I N THE CASE OF OM SATYA EXIM PVT. LTD VS. ITO IN ITA NO. 1335/AHD/2010 ORDE R DATED 13 TH MAY, 2011 THE COPY OF WHICH WAS PLACED AT PAGE 136 OF THE PAP ER BOOK. HE THUS SUBMITTED THAT THE ADDITION MADE BY THE A.O. WAS UN CALLED FOR AND THEREFORE BE DELETED. . 7. THE LD. D.R. ON THE OTHER HAND POINTED TO THE FI NDINGS OF A.O. HE FURTHER SUBMITTED THAT THERE WAS NO CHANGE IN THE NATURE OF BUSINESS ACTIVITY OF THE ASSESSEE AS COMPARED TO EARLIER YEARS AND THE ASSES SEE HAS ONLY DEVISED THE METHOD IN THE CURRENT YEAR SO AS TO AVOID THE P ROVISIONS OF TDS. HE FURTHER SUBMITTED THAT THE EXPENSES WERE NOT IN THE NATURE OF REIMBURSEMENT BUT WERE IN THE NATURE OF JOB CHARGES. HE THUS SUPP ORTED THE ORDER OF A.O. AND CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF GREY CLOTH IN THE YEAR UNDER CONSIDERATION AND ALSO IN EARLIER YEARS. IT IS ALSO A FACT THAT IN THE EARLIER YEARS, THE ASSESSEE WAS GE TTING THE WORK OF WEAVING DONE FROM SISTER CONCERNS FOR WHICH IT WAS PAYING J OB WORK CHARGES AND ALSO DEDUCTING THE TDS U/S 194C OF THE ACT. IT IS ALSO A FACT THAT THE SISTER CONCERNS IN EARLIER YEARS WERE HAVING LOSSES AND WH ILE FILING THEIR INCOME TAX ITA NO 3811/ AHD/2008 . A.Y. 2005- 06 7 RETURNS, THE ENTIRE TDS DEDUCTED BY THE ASSESSEE WA S CLAIMED BY THEM AS REFUND. DURING THE YEAR UNDER CONSIDERATION IT IS S UBMISSION OF THE ASSESSEE THAT IT WAS REIMBURSING THE EXPENSES TO THE SISTER CONCERNS AND ON THE REIMBURSEMENT, THE PROVISIONS OF TDS WERE NOT APPLI CABLE AND THEREFORE NO TDS WAS DEDUCTED. CIT(A) WHILE UPHOLDING THE DISAL LOWANCE MADE BY THE A.O. HAS NOTED THAT YEAR UNDER CONSIDERATION, ONLY CHANGE AS PER IMMEDIATE PRECEDING YEAR WAS THAT, IN THE YEAR UNDER CONSIDER ATION, ASSESSEE HAD TAKEN THE MACHINERIES AND OTHER FACILITIES OF SISTE R CONCERN ON RENT (WHICH WAS NOT IN THE CASE OF IMMEDIATE PRECEDING YEAR) ALL TH E EXPENSES WHICH WERE INCURRED IN THE CURRENT YEAR WERE SIMILAR TO THAT O F EARLIER YEARS AND THAT THERE WAS NO CHANGE IN THE ACTUAL WORKING EXCEPT THAT IN THE PRECEDING PREVIOUS YEAR, ENTRIES WERE MADE FOR EXPENSES AT THE YEAR EN D AND ENTRY FOR RENT WAS MADE SEPARATELY. HE HAS FURTHER GIVEN A FINDING TH AT THERE WAS NO CHANGE IN THE WORKING OF THE ASSESSEE IN THE YEAR UNDER CONSI DERATION EXCEPT THE METHOD OF BOOK KEEPING ENTRIES. THE A.O. HAS CONSID ERED THE ENTIRE EXPENSES TO BE LIABLE FOR TDS DEDUCTION AND ON ACCO UNT OF NON DEDUCTION OF TDS, APPLIED THE PROVISIONS OF SECTION 40(A)(IA) FO R MAKING THE DISALLOWANCE. IT IS ALSO A FACT THAT THE EXPENSES HAVE BEEN INCUR RED ON VARIOUS HEADS, THE EXACT DETAILS OF WHICH HAS NOT BEEN PLACED BEFORE U S BY BOTH THE PARTIES. FURTHER IT IS ALSO A FACT THAT THE INCURRING OF EXP ENSES HAVE NOT BEEN DOUBTED BY A.O NOR HAS HE REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. A.O HAS ONLY PROCEEDED ON THE BASIS OF PRESUMPTION THAT THE ENTIRE EXPENSES ARE LIABLE FOR TDS DEDUCTION. WE ARE OF THE VIEW THAT THE ENTIRE EXPENSES CANNOT BE CONSIDERED FOR DISALLOWANCE U/S. 40(A)(IA) ON TH E BASIS OF PRESUMPTION ONLY AS THERE IS NO MATERIAL BROUGHT ON RECORD BY THE RE VENUE TO SUGGEST THAT THE CHANGE IN THE POLICY OF THE ASSESSEE IN TAKING MACH INES AND OTHER FACILITIES OF SISTER CONCERN ON RENT WAS FICTITIOUS AND THEREFORE THE ADDITION MADE U/S. 40(A)(IA) IS DELETED. FURTHER AS PER THE ASSESSEE I F THE ENTIRE EXPENSES ARE DISALLOWED, THE GROSS PROFIT RATIO WOULD WORK OUT T O MORE THAN 35% AS AGAINST THE GROSS PROFIT OF 2.91% SHOWN BY THE ASSESSEE WHI CH IS UNREALISTIC. THUS CONSIDERING THE PECULIARITIES AND TOTALITY OF THE F ACTS, WE FIND THAT THE ACCOUNTS ITA NO 3811/ AHD/2008 . A.Y. 2005- 06 8 OF ASSESSEE DO NOT REFLECT THE CORRECT STATE OF AFF AIRS OF THE ASSESSEE AND THEREFORE WE ARE OF THE VIEW THAT ENDS OF JUSTICE S HALL BE MET IF THE ADDITION IS MADE AT RS. 20 LACS IN THE TRADING RESULT OF THE A SSESSEE. WE THUS DIRECT ACCORDINGLY. 9. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16 -05 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD