ITO, Ludhiana V. Sh. Sham Sunder, Ludhiana

ITA 694/CHANDI/2013

• Counselvise Citation: 69421514 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Business income; Additional evidence
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS.ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 694/CHD/2013 ASSESSMENT YEAR: 2006-07 THE ITO, V SHRI SHAM SUNDER, WARD III(3), S/O LATE INDERJIT SHARMA, LUDHIANA. 8, PUSHAP VIHAR, CANAL ROAD, LUDHIANA. PAN: AJOPS4543F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 17.08.2015 DATE OF PRONOUNCEMENT : 21.08.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(APPEALS)-I LUDHIANA DATED 21.03.2013 FOR ASSESSMENT YEAR 2006-07 CHALLENGING THE ORDER OF LD . CIT(APPEALS) IN RESTRICTING THE ADDITION TO 8% OF R S. 3.34 CR TO 8% OF RS. 29,13,697/- MADE BY ASSESSING OFFICER ON ACCOUNT OF CONTRACTUAL PAYMENTS. 2. THE BRIEF FACTS OF THE CASE ARE THAT ADDITION OF RS. 26,77,990/- HAD BEEN MADE BY THE ASSESSING OFFICER WHICH WAS APPEALED AGAINST BY THE ASSESSEE AND THE SAME H AS BEEN REJECTED BY THE THEN LD. CIT(APPEALS) ON THE G ROUND THAT APPLICATION FOR ADMISSION OF ADDITIONAL EVIDEN CE COULD 2 NOT BE ALLOWED. THE ASSESSEE PREFERRED AN APPEAL B EFORE ITAT WHEREIN THE ORDER OF THE LD. CIT(APPEALS) WAS SET ASIDE WITH DIRECTION TO DECIDE THE ISSUE AFRESH AFTER CON SIDERING THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE. THE ASSESSEE HAD ENTERED INTO A CONTRACT WITH JAGRAON M UNICIPAL COMMITTEE ON 01.03.2005 FOR EFFECTING COLLECTION OF OCTROI ON BEHALF OF THE COMMITTEE WHO IN THE PROCESS HAD C OLLECTED AMOUNT OF RS. 3.34 CR DURING THE FINANCIAL YEAR 200 5-06 UNDER APPEAL. AS PER AGREEMENT, ASSESSEE WAS TO DE POSIT THE ENTIRE COLLECTION OF OCTROI IN THE TREASURY OF MUNICIPAL COMMITTEE FOR THE CONTINUOUS 52 WEEKS. THE ASSESSI NG OFFICER FRAMED ASSESSMENT UNDER SECTION 144 OF THE ACT ON THE GROUND THAT THERE HAD BEEN CONSISTENT NON-COMPL IANCE ON THE PART OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND NO BOOKS OF ACCOUNT HAD BEEN PRODUC ED DESPITE SEEKING ADJOURNMENT. THE ASSESSING OFFICER CARRIED OUT VERIFICATION WITH JAGRAON MUNICIPAL COMMITTEE A ND BROUGHT ON RECORD THE FACTS THAT ASSESSEE HAD RECEI VED TOTAL CONTRACTUAL PAYMENT TO THE TUNE OF RS. 3.34 CR IN R ESPECT OF FINANCIAL YEAR 2005-06 AND INCOME WAS ASSESSED @ 8% ON THE SAID CONTRACTUAL PAYMENTS. 3. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) T HAT ASSESSEE WAS AWARDED AN OCTROI CONTRACT BY THE MUNI CIPAL COMMITTEE OF JAGRAON. UNDER THE CONTRACT, THE ASSE SSEE HAVE TO COLLECT THE OCTROI FROM THE PUBLIC AND GET IT DEPOSITED WITH THE TREASURY OF MUNICIPAL COMMITTEE. FOR COLLECTION OF THE OCTROI, THE ASSESSEE HAS TO EMPLO Y ITS OWN STAFF, PAYMENTS TO THE STAFF OF THE CORPORATION AND TO INCUR 3 OTHER EXPENSES. THE ASSESSEE WAS A COLLECTION AGEN T OF THE MUNICIPAL COMMITTEE AND THUS, COLLECTION CANNOT BE THE GROSS EARNINGS OF THE ASSESSEE. THE ASSESSING OFFI CER SHOULD NOT HAVE COMPUTED THE INCOME ON THE TOTAL R ECEIPTS OF RS. 3.34 CR AND THE GROSS EARNING OF THE ASSESSE E WAS ONLY RS. 29,13,697/-. THE SUMMARY OF THE FACTS OF THE CASE THUS, WAS THAT ASSESSEE ENTERED INTO AGREEMENT WITH JAGRAON MUNICIPAL COMMITTEE FOR COLLECTION OF OCTRO I AND THAT GROSS COLLECTION FROM THE AGREEMENT WAS RS. 3. 34 CR AND AS PER AGREEMENT, THE ASSESSEE HAS SPENT THE AM OUNT FOR COLLECTION AND GROSS COLLECTION LEFT WITH THE A SSESSEE WAS OF RS. 28,61,958/-. THE ASSESSEE WAS ONLY AGENT AN D NOT THE CONTRACTOR AND WAS TO PAY AMOUNT TO THE MUNICIP AL COMMITTEE AS PER THE AGREEMENT. THE ASSESSEE ALSO EXPLAINED THAT THE AGREEMENT SHALL HAVE TO BE CONSI DERED IN ENTIRETY AND THE TOTAL RECEIPTS COULD NOT BE CONSID ERED TO BE THE RECEIPTS OF THE ASSESSEE AS AN AGENT. THE DETA ILED SUBMISSIONS OF THE ASSESSEE ARE NOTED IN THE IMPUGN ED ORDER. IT WAS, THEREFORE, CLARIFIED THAT RELATIONS HIP OF THE ASSESSEE WITH JAGRAON MUNICIPAL COMMITTEE WAS THAT OF PRINCIPAL AND AGENT AND NOT OF THE CONTRACTOR AND CONTRACTEE. THE ASSESSEE ALSO RELIED UPON DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF S.S. & COMPANY VS STATE OF PUNJAB 268 ITR 398. THE SUBMIS SIONS OF THE ASSESSEE WERE FORWARDED TO THE ASSESSING OFF ICER WHO HAS REITERATED THE FACT STATED IN THE ASSESSMENT OR DER. 4. THE ASSESSEE IN THE REJOINDER ALSO REPRESENTED T HE SAME SUBMISSIONS THAT THE ENTIRE RECEIPTS OF THE OCTROI CANNOT BE 4 THE BUSINESS RECEIPTS OF THE ASSESSEE BECAUSE THE S AME SHALL HAVE TO BE DEPOSITED WITH THE MUNICIPAL CORPORATION , JAGRAON. THE GROSS INCOME OF THE ASSESSEE IS THE P AYMENT RECEIVED BY THE OCTROI AGENT FROM MUNICIPAL COMMITT EE, JAGRAON. THE TOTAL CASH COLLECTED ON BEHALF OF THE MUNICIPAL COMMITTEE, JAGRAON CANNOT BE THE TOTAL TURNOVER OF THE OCTROI CONTRACTOR. IT WAS, THEREFORE, PRAYED THAT ADDITION MAY BE DELETED. 5. THE LD. CIT(APPEALS), CONSIDERING THE SUBMISSION S OF THE ASSESSEE IN THE LIGHT OF THE MATERIAL ON RECORD AND CONSIDERING THE AGREEMENT DIRECTED TO RESTRICT THE ADDITION TO 8% OF RS. 29,13,697/- AND REST OF THE ADDITION W AS DELETED. THE FINDINGS OF LD. CIT(APPEALS) IN PARA 6 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER : 6. I HAVE CONSIDERED THE BASIS OF ADDITION MADE BY THE ASSESSING OFFICER AND THE ARGUMENTS OF THE AR ON TH E ISSUE DURING THE APPELLATE PROCEEDINGS. THE ASSESSING OFFI CER HAD TO FRAME ASSESSMENT U/S 144 BY APPLYING PROFIT RATE OF 8% ON THE COLLECTIONS DONE BY THE APPELLANT ON BEHALF OF THE MUNICIPAL CORPORATION AS NO BOOKS OF ACCOUNTS WITH REGARD TO THE EXPENDITURE HAD BEEN PRODUCED. IT IS ALSO SEEN THAT THE ASSESSEE HAD BEEN CONSISTENTLY NON COMPLIAN T TO ASSESSING OFFICER'S QUERIES IN THIS REGARD AND THEREFORE THE ACTION OF THE ASSESSING OFFICER IN FRAMING THE ASSESSME NT UNDER SECTION 144 IS HELD TO BE PERFECTLY IN ORDER. THE NEXT ISSUE TO BE CONSIDERED HERE IS THAT WHAT SHOULD BE THE AMOUNT TO BE CONSIDERED AS RECEIPTS OF THE ASSESSEE ON WHICH 8% RATE OF PROFIT COULD BE APPLIED IN THE ABSENCE OF MAINTENANC E OF BOOKS OF ACCOUNT. THE ASSESSING OFFICER IN THIS REGAR D HAS HELD THAT THE TOTAL AMOUNT COLLECTED BY THE APPELLA NT ON BEHALF OF JAGRAON MUNICIPAL COMMITTEE WAS HIS CONTRACTUAL R ECEIPTS 5 WHEREAS THE APPELLANT HAS CONTENDED THAT IT WAS ONL Y THE AMOUNT GIVEN TO HIM FOR EFFECTING THE COLLECTION BY J AGRAON MUNICIPAL COMMITTEE THAT COULD BE CONSIDERED AS HIS REC EIPTS. THE FACT OF THE MATTER IS THAT THE APPELLANT HAD BEE N ENGAGED BY WAY OF AN EXPRESS WRITTEN AGREEMENT THROUGH WHICH HE WAS AUTHORIZED TO COLLECT THE OCTROI AND REMIT THE SAME TO THE JAGRAON MUNICIPAL COMMITTEE. THE APPELLANT WAS ENTI TLED TO CERTAIN PERCENTAGE OF SUCH COLLECTIONS IN ORDER TO COV ER HIS COSTS AS WELL AS TO MAKE SOME PROFITS. THE GROSS COLLECTIONS OF OCTROI DID NOT BELONG TO THE APPELLANT IN THE FIRST PLACE AND WERE ALWAYS IN THE NATURE OF RECEIPTS WHICH BELONG TO THE CORPORATION BEING A STATUTORY LEVY. THE ENTIRE AMOUNT OF SUCH GR OSS COLLECTIONS THEREFORE COULD NOT BE CONSIDERED TO BE THE RECEIPTS OF THE APPELLANT AND HENCE HIS TURNOVER. SUCH TREATME NTS WOULD AMOUNT TO MAKING HIS RECEIPTS AS HIS PROFITS WHEREA S FACTUALLY THE ASSESSEE HAS RECEIVED ONLY AN AMOUNT OF RS.29,13 ,697/-. THIS AMOUNT HAD FURTHER BEEN USED FOR MEETING THE E XPENSES IN THE FORM OF STAFF ENGAGED TO MANAGE THE WORK AS WEL L AS INCIDENTAL EXPENSES AND SOME OF THE EXPENSES OF PER MANENT STAFF OF MUNICIPAL CORPORATION WHICH WERE TO BE BORN E OUT BY THE ASSESSEE AS PER THE CONTRACTUAL AGREEMENT. THER EFORE, PROFITS IN THE ABSENCE OF MAINTENANCE OF THE BOOKS @ 8% COULD BE ONLY ON THE RECEIPTS OF RS.29,13,697/- AND NOT ON TH E TOTAL GROSS COLLECTIONS OF RS. 3,34,74,871/-. IT IS ALSO IMPORTANT TO APPRECIATE THAT EVEN THIS AMOUNT WAS RECEIVED BY TH E ASSESSEE AFTER GREAT AMOUNT OF LITIGATION WITH JAGRAON MUNICI PAL COMMITTEE, SO MUCH SO, THAT THE ASSESSEE HAD TO APPROA CH THE HON'BLE PUNJAB AND HARYANA HIGH COURT FOR THE SAME. THE PAYMENT DUE TO THE ASSESSEE AS DETAILED ABOVE WAS R ELEASED ONLY IN CONTEMPLATION OF THE POSSIBLE CONTEMPT PROCE EDINGS AGAINST JAGRAON MUNICIPAL COMMITTEE AS EVIDENCED BY THE MINUTES FILED BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS. THE AO WITH REGARD TO ALL THE EVIDENCE FILED IN THE FORM OF WEEKLY COLLECTION SHEETS AS WELL AS MIN UTES OF THE JAGRAON MUNICIPAL COMMITTEE HAS NOT BROUGHT ON RECOR D ANYTHING TO CONTRADICT THE SAME WHICH CLEARLY MEANS THAT CONTENTION OF THE APPELLANT IN THIS REGARD IS FACTU ALLY CORRECT. SUCH AN ISSUE HAS ALSO BEEN THE SUBJECT MATTER OF AP PEAL BEFORE 6 THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF S.S & CO. OCTROI CONTRACTORS VS STATE OF PUNJAB AND OTHERS 26 8 ITR 398. THE HON'BLE PUNJAB AND HARYANA HIGH COURT HELD AS UNDER : - A BARE PERUSAL OF S. 194(1) SHOWS THAT THE TAX HAS TO BE DEDUCTED FROM THE PAYMENTS MADE TO A CONTRACTOR AT THE TIME OF CREDIT OF SUCH AMOUNT TO THE ACCOUNT OF THE CONTRACT OR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE. THUS, IT IS CLEAR THAT THE TAX HAS TO BE DEDUCTED ONLY ON THE PAYMENTS WHICH ARE MADE TO THE CONTRACTOR AND NOT ON THE AMOUNT WHICH IS COLLECTED BY IT ON BEHALF OF THE MUNICIPAL COMMITTEE. ACCORDINGLY, THE WRIT PETITION IS DISPOSED OF WITH THE DIRECTION THAT RESPONDENT NO .3 SHALL BE ENTITLED TO CHARGE INCOME TAX UNDER) S.194C ON THE AM OUNT PAID TO THE PETITIONER AND NOT ON THE BASIS OF GROSS AMOU NT COLLECTED BY WAY OF OCTROI. IT IS FURTHER DIRECTED THAT THE ACCO UNTS OF THE PETITIONER REGARDING ITS LIABILITY TO DEPOSIT THE I NCOME TAX SHALL BE ADJUSTED WITH EFFECT FROM THE DATE OF AGRE EMENT - DARSHAN SINGH & CO. VS.STATE OF PUNJAB(CWP NO. 1798 3 OF 1998, ORDER DT. L ST MARCH, 1999) FOLLOWED.' THE PERUSAL OF THE AFOREMENTIONED JUDGMENT MAKES IT AMPLY CLEAR THAT WHAT IS THE AMOUNT TO BE TREATED AS ASSES SEE'S RECEIPTS FOR THE PURPOSE OF DEDUCTION OF TDS IS NOT GROSS CO LLECTIONS. THIS CLEARLY IMPLIES THAT THE GROSS COLLECTIONS CAN NOT BE T REATED AS TURNOVER OF THE APPELLANT. THIS BEING SO, THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE RATE OF 8% ON GROS S COLLECTION OF RS.3,34,74,871/- IS ERRONEOUS. THE ADDITION MADE SHO ULD BE RESTRICTED TO THE 8% OF 29,13,697/- AND THE REST OF THE ADDITION IS THEREFORE DIRECTED TO BE DELETED. IN THE RESULT APPEAL IS PARTLY ALLOWED. 6. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES. THE LD. DR RELIED UPON ORDER OF THE ASSESSING OFFIC ER. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITER ATED THE 7 SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND REFER RED TO THE AGREEMENT IN QUESTION AND PB-138 WHICH IS A LET TER ISSUED BY EXECUTIVE OFFICER, MUNICIPAL COUNCIL, JAG RAON AFFIRMING THE PAYMENT MADE TO ASSESSEE IN A SUM OF RS. 26,02,386/- ( TAKEN BY LD. CIT(APPEALS) AT RS. 29,1 3,697/-). ON CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIN D ANY MERIT IN THE DEPARTMENTAL APPEAL. IT IS NOT IN DIS PUTE THAT ASSESSEE ENTERED INTO AN AGREEMENT WITH MUNICIPAL COMMITTEE, JAGRAON AND ASSESSEE WAS ACTING AS AN AG ENT OF MUNICIPAL COMMITTEE, JAGRAON. IT IS ALSO NOT IN DI SPUTE THAT AMOUNT IS COLLECTED BY THE AGENT FROM PUBLIC A ND PAID TO MUNICIPAL COMMITTEE, JAGRAON LATER ON. IT IS AL SO NOT IN DISPUTE THAT THE TOTAL AMOUNT COLLECTED AND AMOUNT DEDUCTED BY THE MUNICIPAL COMMITTEE AS INSTALLMENT, STATE RADARI AND SALARY WAS PROVIDED AND THE TOTAL AMOUNT RECEIVED BY ASSESSEE AS PER PB-138 (WHICH IS A LETT ER WRITTEN BY MUNICIPAL COUNCIL, JAGRAON) WAS IN A SUM OF RS. 26,02,386/-. HOWEVER, THE LD. CIT(APPEALS) HAS TAK EN IT TO BE RS. 29,13,697/- AND THIS FIGURE IS NOT DISPUTED BY THE LD. COUNSEL FOR THE ASSESSEE DURING THE COURSE OF ARGUM ENTS. THEREFORE, THE LD. CIT(APPEALS) ON PROPER APPRECIAT ION OF THE FACTS HAS CORRECTLY CAME TO THE CONCLUSION THAT PRO FIT RATE OF 8% IS TO BE APPLIED AGAINST THE RECEIPTS RECEIVED B Y THE ASSESSEE IN A SUM OF RS. 29,13,697/- BECAUSE THE AS SESSEE WAS AUTHORIZED TO COLLECT THE OCTROI AND TO DEPOSIT THE SAME IN THE TREASURY OF MUNICIPAL COMMITTEE, JAGRAON. T HE TOTAL GROSS COLLECTION OF THE OCTROI THUS, DID NOT BELONG TO THE ASSESSEE AND IT WAS A STATUTORY LEVY WHICH WAS TO B E 8 DEPOSITED BY ASSESSEE AS PER AGREEMENT TO THE MUNIC IPAL COMMITTEE, JAGRAON. THEREFORE, THE TOTAL RECEIPTS IN THE FORM OF OCTROI RECEIVED COULD NOT BE TREATED AS TOT AL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF ESTIMAT ING THE PROFIT IN THE CASE OF THE ASSESSEE. 7. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES, IN THE LIGHT OF THE MATERIAL ON RECORD, WE DO NOT F IND ANY ERROR IN THE ORDER OF THE LD. CIT(APPEALS) IN DIREC TING TO APPLY PROFIT RATE AGAINST THE RECEIPTS OF RS. 29,13 ,697/- RECEIVED BY THE ASSESSEE. THE LD. DR HAS NOT BEEN ABLE TO POINT OUT ANY ERROR IN THE ORDER OF THE LD. CIT(APP EALS) THROUGH ANY EVIDENCE OR MATERIAL ON RECORD. THEREF ORE, THERE IS NO MERIT IN THE DEPARTMENTAL APPEAL. THE SAME IS, ACCORDINGLY DISMISSED. 8. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST,2015. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST AUGUST,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH