Sivankutty, Alappuzha V. ITO Ward-4, Alappuzha, Alappuzha

ITA 564/COCH/2022

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 1053 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 21-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R KRISHNAN
• Keywords: Revision of order; TDS; Set aside
• Section: 263; 143(3); 40(a)(ia); 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Chandra Poojari, AM & Shri George George K, JM ITA No.564/Coch/2022 : Asst.Year 2017-2018 Sri.Sivankutty Shanmughalayam Kandalloor North Pattoli Market PO, Karthikapally Alappuzha – 690 531 PAN : DCVPS6273K. v. The Income Tax Officer Ward 4 Alappuzha. (Appellant) (Respondent) Appellant by : Sri.R Krishnan, CA Respondent by : Smt.J.M.Jammuna Devi, Sr.DR Date of Hearing : 01.08.2022 Date of Pronouncement : 02.08.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against Principal Commissioner of Income-tax’s (PCIT) order dated 30.03.2022 passed u/s 263 of the I.T.Act. The relevant assessment year is 2017-2018. 2. The grounds raised read as follows: “1) The learned Principal Commissioner of Income Tax erred in setting aside the assessment, invoking the provisions of Section 263 of the Income Tax Act. 2) The learned Principal Commissioner of Income Tax ought to have appreciated that the appellant does not pay any commission to anybody as he is a wholesale lottery agent, who sells lottery tickets to sub-dealers. 3) The learned Principal Commissioner of Income Tax ought to have appreciated that the Government deducts tax on prize winning tickets in the name of the appellant and the ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 2 appellant merely acts as a postman, collecting the amounts and passing on the same to the real beneficiaries. 4) The learned Principal Commissioner of Income Tax erred in stating that the Assessing Officer had not made any enquiry. The Assessing Officer, having understood the transaction correctly and having regard to the judicial precedence on the subject, has rightly not made any disallowance in the assessment u/s 40(a)(ia). 5) The learned Principal Commissioner of Income Tax ought to have appreciated that the nomenclature in the books of accounts is of no relevance, but the real transaction is what matters. Merely because an account is titled as 'Commission', that is not conclusive evidence of the actual nature of transaction. 6) The learned Principal Commissioner of Income Tax ought to have taken cognizance of the fact that the payments of prize money on winning tickets is paid by the Government, who is the person responsible for deducting tax and the appellant was under no obligation to deduct tax at source. 7) The learned Principal Commissioner of Income Tax ought to have noted that the twin conditions of error and prejudice should be satisfied for invoking the provisions of Section 263 of the Income Tax Act. The condition with regard to prejudice has not been satisfied in this case, so much so, the provisions of Section 263 cannot be invoked.” 3. The brief facts of the case are as follows: The assessee an individual, is a wholesale lottery agent. For the assessment year 2017-2018, the return of income was filed on 11.10.2017 disclosing total income of Rs.10,63,630. The assessment was selected for scrutiny and order dated 30.08.2019 u/s 143(3) of the I.T.Act was passed, by making adhoc disallowance of expenditure of Rs.1,14,472. The total income assessed was at Rs.11,78,102. Subsequently, the PCIT issued notice u/s 263 of the I.T.Act. The PCIT was of the view that the assessment order dated 30.08.2019 passed u/s ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 3 143(3) of the I.T.Act was erroneous and prejudicial to the interest of the revenue, since the commission payment in the ledger account exceeded Rs.15,000 (limit prescribed u/s 194H of the I.T.Act) and no TDS has been deducted. Hence, the expenditure claimed is to be disallowed u/s 40(a)(ia) of the I.T.Act. The assessee filed objections to the show cause notice issued u/s 263 of the I.T.Act. It was submitted that the assessee in his capacity as a wholesale dealer sells the tickets to sub agents and the sub agents to the general public. It was stated that the Government deducts tax on prize winning tickets in the name of the assessee and the assessee merely acts as a postman, collecting the amounts and passing on the same to the real beneficiaries. It was submitted that the A.O. having understood the transaction correctly and having regard to the judicial precedence on the subject, has rightly made no disallowance u/s 40(a)(ia) of the I.T.Act. It was stated that since the tax is deducted in assessee’s name by the Government, the amount was shown as income of the assessee and corresponding payment to the beneficiaries as expenses in assessee’s books. Therefore, it was contended that the assessee is not liable for deduction of tax u/s 194H of the I.T.Act. 4. The PCIT, however, rejected the contentions of the assessee. The PCIT after quoting section 263 of the I.T.Act and placing reliance on the judgment of the Hon’ble Apex Court in the case of M/s.Malabar Industrial Co. reported in 243 ITR 83 (SC) observed that an incorrect assumption of facts or an ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 4 incorrect application of law will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue. The PCIT set aside the assessment order and directed the A.O. to complete the assessment de novo and pass an order in accordance with law as per the time limit specified u/s 153 of the I.T.Act. The relevant observation of the PCIT reads as follows:- “6. From a perusal of the records, it is noticed that the following aspect has not been considered while framing the Assessment Order: 6.1 It is a fact that the during the FY 2016-17 relevant to the AY 2017-18, the assessee maintained a consolidated ledger for payment and receipt of commission However, as per the said ledger, there were payments exceeding Rs.15,000 on which the assessee was liable to deduct TDS u/s 194H. As the assessee had not deducted TDS on such payments, the AO ought to have disallowed these payments u/s 40(a)(ia) of the Act but he has failed to do so. 6.2 During the course of the present revisionary proceedings, the assessee stated that the amounts received by him as 'commission' are prizes announced by the Government in favour of the persons holding / selling the lottery tickets and the assessee receives these amounts in his capacity as a wholesaler which is then passed on to the real beneficiaries. The assessee has further submitted that the Government deducts the TDS before making payment to the assessee and the assessee after retaining his portion of income on prize winning tickets passes on the net amount after TDS to the eligible beneficiaries. The assessee has claimed that the amounts reflected in the ledger are consolidated amounts clubbed together and there is no single payment exceeding Rs.15,000/- and also since the person responsible for making the payment is the Government and not the assessee, the provisions of section 194H are not attracted. 6.3 From the brief discussion narrated above, it could be seen that the assessee is making out a case as if he has no connection to the receipt and alleged disbursement of various sums of money to different people. The books of accounts, specifically the consolidated ledger incorporating both the receipt of commission as well as payment of same contains no details helping the cause of the assessee as explained by him in his submissions made during the course of present revisionary proceedings. On the contrary, it is the net amount arrived at in the consolidated ledger folio which is credited to his P&L account and shown as his income for the year. ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 5 In any case, it is evident that the AO has not applied his mind to the issue at hand and has passed the impugned assessment order after incorrectly assuming the facts of the matter. Assessee's own counterfoil related commission receipts etc. were not examined by AO. In my view, the impugned assessment order passed by the AO is erroneous and also prejudicial to the interests of the revenue. 7. The above omission by the Assessing Officer in the Assessment Order is erroneous in so far as it is prejudicial to the interest of revenue. Therefore, the Assessment Order on the above issue is set aside to the Assessing Officer for de-novo examination and to pass a speaking order in accordance with law as per time limit specified under Section 153 of the Income Tax Act, after affording due opportunity to the Assessee.” 5. Aggrieved by the order of the PCIT passed u/s 263 of the I.T.Act, the assessee has filed the present appeal before the Tribunal. The learned Counsel for the assessee reiterated the submissions made before the PCIT. The learned AR also placed reliance on the orders of the ITAT in the case of ACIT v. M/s.Meenakshy Enterprises & Ors. in ITA No.510/Coch/2013 & Ors. (order dated 25.10.2016), wherein it was held that the wholesale dealer of lottery tickets, who sells tickets to sub agents is not liable for TDS u/s 194G or u/s 194H of the I.T.Act. 6. The learned Departmental Representative supported the findings of the PCIT. 6. We have heard rival submissions and perused the material on record. Admittedly, the assessee is a wholesale dealer of lottery tickets. The assessee sells lottery tickets to sub agents on principal to principal basis and was not liable for TDS deduction either u/s 194G or u/s 194H of the I.T.Act. On identical facts, the Cochin Bench of the Tribunal in the case of ACIT v. M/s.Meenakshy Enterprises & Ors. (supra) had ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 6 held that the assessee does not give any commission to the sub agents. Further, it was held that the remuneration / prizes to the sub agents, inasmuch as the value of prize winning lottery tickets is claimed from the Government agency supplying the lottery tickets to the assessee. It was found that Government agency after deduction of TDS, credits the value prized lotteries to the account of the assessee, who thereafter, passes on the same to the sub agents. Therefore, in the given facts of the case, it was held that application of section 194G / 194H of the I.T.Act was not warranted. The relevant finding of the Cochin Bench of the Tribunal, reads as follows:- “9. We have heard the rival submissions and perused the record of the case. The assessee, in the present case, purchases lottery tickets from various government department and sells the same to the sub agents, who thereafter, sell the lottery tickets further down the ladder to retailers and then to the general public. Admittedly, the assessee collects the value of prize winning tickets from the government agency on which TDS is already deducted by the government agency / supplier before crediting the amount to the assessee. The assessee thereafter, passes on the said value to the sub agents, claiming the value of prize winning tickets. The assessee is not responsible for announcing any award or making payment by itself to the sub agents. The assessee merely passes on the value of prize winning tickets to the sub agents. 10. The provisions contained in section 194G of the Act provides for deduction of TDS by any person who is responsible for paying to any person, who is stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize on such tickets, at the time of credit of such income to the account of the payee. The said section has to be read as a whole and the requirement of deduction of tax will only arise when there is a payment of income by way of commission, remuneration or prize on lottery tickets. In the present case, the assessee is not giving any commission to the sub agents as there is a sale being effected between the assessee and the sub agents and the assessee after transferring the lottery tickets to the sub agents has no control over the same. Moreover, it is not a case where the assessee is giving any ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 7 remuneration or prize to the sub agents, in as much as the value of prize winning lottery tickets is claimed from the government agency supplying the lottery tickets to the assessee. The government agency after deduction of TDS credits the value to the account of the assessee who, thereafter, passes on the same to the sub agents. In the facts of the present case we find that the application of section 194G/194H of the Act was not warranted. 11. The Hon’ble ITAT Kolkata Bench in the case of M/s. Future Distributors Vs. Principal CIT, ITA No. 277/Kol/2016 while considering an identical question held as under :- “23. As rightly contended by the ld. counsel for the assessee, the amount in question can be considered a sin the nature of commission for the purpose of section 40(a)(ia) read with section 194G only if the same represents payment received or receivable, directly or indirectly, by a person acting on behalf of another person for any services rendered, inter alia, in the course of buying or selling of goods. In short, even if the amount in question is in the nature of income by way of remuneration or prize on lottery tickets and the person, who is responsible for paying to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, such income by way of remuneration or prize fails to deduct tax at source, the provision of section 40(a)(ia) cannot be invoked to make a disallowance on account of such remuneration or prize and the said provision would get attracted only when the amount is in the nature of commission as defined in clause (i) of Explanation to section 194H. As already noted, the term ‘commission’ as defined in Clause (i) of Explanation 194H includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered, inter alia, for the purpose of buying or selling of goods and as rightly contended by the ld. counsel for the assessee, there has to be a relationship of principal-agent between the concerned two persons in order to say that the payment received or receivable by one person acting on behalf of another person for the services rendered is in the nature of commission. In this regard, the ld. counsel for the assessee has relied on the decision of the Hon’ble High Court of Sikkim in the case of M/s. Future Gaming & Hotel Services Pvt. Limited –vs.- Union of India rendered on 24.01.2015 in W.P. (C) No. 39 of 2015. In the said case, the petitioner was engaged in the business of sale of paper lottery tickets and had produced, during the course of said business, the lottery tickets in bulk ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 8 from the Government and resold the same to the public at large through various agents, stockists, re-sellers., etc. The issue that arose for the consideration of Hon’ble High Court of Sikkim was whether the petitioner was liable to pay service tax. In this context, Hon’ble High Court of Sikkim examined the relationship between the concerned parties in the light of the agreement entered into between them and after referring to the relevant terms and conditions of the said agreement, the sums and substance of which is similar to the agreement entered into by the assessee in the present case with its stockist(sample copy available at page 129 to 137 of the paper book), it was held by Their Lordships that the activity of the petitioner comprising of promotion, organising, reselling or in any other manner assisting or arranging the lottery tickets of the State, did not establish the relationship of principal and agent but it was rather that of a buyer and a seller on principal to principal basis in view of the nature of the transactions being bulk purchase of the lottery tickets by the petitioners from the State Government on full payment of price as a natural business transaction as well as other related features and there being no privity of contract between the State Government and the stockists, agents, resellers, etc. under the petitioners. 24. As per the terms and conditions of the agreements entered into between the assessee and its stockist (copy of stockist Agreement placed at pages 129 to 137 of the paper book), the assessee-firm and the stockists were acting on principal to principal basis, inasmuch as, the stockists were free to act in their capacity and once the lottery tickets were sold to them, such lottery tickets stood transferred to the stockists. The stockists were mainly concerned with their shares on sale of lottery tickets and they were not entitled to receive any commission on sale of lottery tickets from the assessee. They were free to sale the lottery tickets to any sub-stockists or retailers at the sale determined prices as per their free will and the contract between the assessee and the stockists was that of purchase and sale of lottery tickets and not that of rendering services on commission. In the matter of lottery business as governed by the relevant agreements, the stockists were to act on their own and not for or on behalf of the assessee. The relationship between the assessee and the stockists thus was that of principal to principal and there being no principal – agent relationship between them as held by the Hon’ble High Court of Sikkim in the case of Future Gaming and Hotel Services Pvt. Limited (supra), we agree with the contention of ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 9 the ld. counsel for the assessee that the amount in question was not in the nature of commission as defined in clause (i) of Explanation to Section 194H so as to attract the provision of section 40(a)(ia) read with section 194G. In our opinion, the amount in question representing the disbursal of prize monies on lottery tickets thus was not liable to be disallowed under section 40(a)(ia) in the facts and circumstances of the case and there was no error in the order of the Assessing Officer not making such disallowance as alleged by the ld.CIT justifying revision under section 263. 12. Having held that the section 194G of the Act is not applicable to the present case, we do not consider it necessary to go into the other question raised by the department as to whether the transaction was in the nature of service or whether the disallowance under section 40(a)(ia) excludes section 194G of the Act.” 8. The A.O. in the order passed u/s 143(3) of the I.T.Act (order dated 30.08.2019) had called for all the relevant details and documents and has examined the same. It was noticed that lottery was purchased from District Lottery Office and he had transferred the amount to their bank account from his cash deposits. The A.O. has examined the issue and taken a conscious decision that no disallowance u/s 40(a)(ia) of the I.T.Act is warranted. The A.O’s view in the light of the ITAT order in the case of ACIT v. M/s.Meenakshy Enterprises & Ors. (supra) is a plausible view. Hence, it cannot be stated that the A.O.’s order dated 30.08.2019, is erroneous. In this context, we rely on the judgment of the Hon’ble Apex Court in the case of CIT v. Max India Limited reported in (2007) 295 ITR 282 (SC) and the Hon’ble Delhi High Court in the case of CIT v. Sunbeam Auto Limited reported in (2011) 332 ITR 167 (Delhi). 9. For the aforesaid reasons and the judicial pronouncements, cited supra, we are of the view that the PCIT ITA No.573/Coch/2022. M/s.Kreem Foods Private Limited. 10 is not justified in invoking his revisionary powers u/s 263 of the I.T.Act on facts of present case. Accordingly, the impugned order passed u/s 263 of the I.T.Act is quashed. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 02 nd day of August, 2022. Sd/- (Chandra Poojari) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Kochi ; Dated : 02 nd August, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-NFAC, Delhi. 4. The CIT, Cochin. 5. The DR, ITAT, Cochin. 6. Guard File. Asst.Registrar/ITAT, Cochin