Case Law Details
Amit Jain Vs ITO (ITAT Kolkata)- Assessee made a foreign trip to Roam, Dubai and Kathmandu and claimed expenses at Rs.1,45,151/-. Assessing Officer required the assessee to produce the evidence and also business purposes. Assessee stated that foreign tour was for surveying interiors of foreign hotels and resorts at the request of his client Arneja Creation & Hotels (P) Ltd. who wanted interiors of their hotel project at Darjeeling in similar fashion as those at Kathmandu. Assessee explained that tour to Roam was for the purpose of exploring prospectus of importing special type of Marbles for interior decoration and Dubai was a stop-over en-route to Rome. Assessing Officer in the absence of evidence treated 20% of foreign trip expenses as personal in nature and disallowed a sum of Rs.29,003/-. We find that none of the authorities below have denied that this is not for the purpose of business. Once it is not denied, the foreign trip expenses cannot be disallowed on ad-hoc basis.
Amit Jain Vs. Income Tax Officer
Decided by- ITAT Kolkatta
I.T.A Nos. 1673 & 1674/Kol/2010
Assessment Years: 2006- 07 & 2007- 08
Decided on – 30.06.2011
ORDER
Shri Mahavir Singh, Judicial Member :
These two appeals filed by assessee are arising out of separate orders of CIT(A)- XIX, Kolkata in Appeal Nos. 143&395/CIT(A)-XIX/ITO, Wd.32(1)/08-09 & 09-10 vide dated 09-02-2009 and 19-02-2010. Assessments were framed by I.T.O, Ward 32(1), Kolkata for assessment years 2006-07 and 2007-08 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 31-12-2008 and 3 1-12-2009.
“1. That on the facts and in the circumstances of the case, the id. A.O. as well the Ld. CIT(A)-XIX, Kol were not justified in not allowing the Bad Debts of Rs.4,580/- on the alleged ground by ignoring the fact that said amount was actually irrecoverable. Even otherwise the same is allowable as “Discount Allowed”. Hence, the addition made by AO and sustained by the LD. CIT(A)- XIX, Kol as aforesaid is unjustified, arbitrary, excessive and based on surmises and guess and therefore liable to be deleted in full.”
3. We have heard rival submissions and gone through facts and circumstances of case. The AO during the course of assessment proceedings noted that assessee claimed discount/ bad debts at Rs. 4,580/-, but in the nomenclature of ‘bad debts’. The AO observed that assessee did some consultancy and supervision job for Oriental Apartment (P) Ltd and raised bill against the same at Rs. 1,10,200/-. The assessee received Rs. 1 lac as advance and balance amount of Rs. 10,200/- was claimed as bad debt. The assessee explained that he has not received balance amount and claimed the same as bad debt. The AO found from NSDL site that Oriental Apartment Pvt. Ltd. has deposited TDS on account of assessee at Rs. 5,620/-, hence balance claim of assessee of bad debt of Rs.4,580/- was disallowed. We find that assessee has written off this amount in its books of account, this can be treated as discount or bad debt, because the claim of the assessee will not be defeated by mentioning nomenclature. Accordingly, we allow this claim of assessee. This issue of assessee’s appeal is allowed.
“2. That the Id. A. O. as well as the Ld CIT (A)-XIX, Kol was not justified in not allowing the expenses to the extent of Rs. 29,030/- on Foreign Travel expenses by ignoring the fact that the above trips were purely for business purpose and there was no personal element involved therein as alleged by the both Ld. A. O. and CIT(A)XIX, Kol nor at all. Hence, the addition made by the ld. A. O. being unjustified and arbitrary is liable to be deleted in full.”
5. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee made a foreign trip to Roam, Dubai and Kathmandu and claimed expenses at Rs.1,45,151/-. Assessing Officer required the assessee to produce the evidence and also business purposes. Assessee stated that foreign tour was for surveying interiors of foreign hotels and resorts at the request of his client Arneja Creation & Hotels (P) Ltd. who wanted interiors of their hotel project at Darjeeling in similar fashion as those at Kathmandu. Assessee explained that tour to Roam was for the purpose of exploring prospectus of importing special type of Marbles for interior decoration and Dubai was a stop-over en-route to Rome. Assessing Officer in the absence of evidence treated 20% of foreign trip expenses as personal in nature and disallowed a sum of Rs. 29,003/-. We find that none of the authorities below have denied that this is not for the purpose of business. Once it is not denied, the foreign trip expenses cannot be disallowed on ad-hoc basis. Accordingly, we delete the dis allowance and orders of the authorities below are reversed. This issue of assessee’s appeal is allowed.
A.Y. 2006-07
3. That the Ld. CIT(A). was not justified in not allowing the balance Labour charges amounting to Rs. 7,64,521/- against total additions of made by the Ld. AO on the alleged ground Rs. 8,49,468/- by ignoring the fact that the said payment towards Labour Charges did not require T.D.S. for the year under appeal. Even otherwise no dis allowance U/s 40(a)(ia) of the Act can be made in respect of amount already/actually paid during the year to the respective payees. Hence, the addition being unjustified, illegal and/or arbitrary is liable to be deleted in full.
A.Y. 2007-08
2. That the Ld. A. O. was not justified in not allowing the Labour charges amounting to Rs. 33,15,894/- by ignoring the fact that the said payment towards Labour Charges did not require T.D.S. for the year under appeal, even otherwise no dis allowance U/s40(a)(ia) of the Act can be made in respect of amount already/actually paid during the year to the respective payees. Hence the Ld. CIT(A)-XIX, Kol also was not justifies in confirming/sustaining said additions on the alleged ground. Hence, the addition made by the Ld. AO and sustained by the Ld. CIT(A)-XIX, Kol being unjustified, illegal and/or arbitrary is liable to be deleted in full.”
7. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has claimed expenditure of Rs.6,42,000/- and Rs.33, 15,894/- on account of labour charges in these two assessment years. Assessing Officer disallowed the expenditure by observing that assessee has not deducted TDS and accordingly invoked provisions of section 40A(ia) of the Act. CIT(A) also confirmed the action of Assessing Officer. We find that this issue has been settled by this Bench of Tribunal, Kolkata in the case of ACIT Vs Smt. Keya Seth in ITA No.842 & 843/K/2010 for assessment years 2006-07 & 2007-08 vide order dated 11.03.2011, wherein exactly the same issue has been decided as under:
“5. We have heard rival contentions and gone through facts and circumstances of the case. It is an admitted position that the assessee an individual carrying on the business of Ayurvedic (Cosmetic Division) and the consultancy on beautician and also related therapies . As claimed by the assessee, whether the provisions of Section 194(1) as existed in assessment years 2006-07 & 2007-08 will apply to the assessee or not? Admittedly, assessee has not deducted any TDS on advertisement payment and according to her, provisions of Section 194C(1) as existed in the relevant assessment years will not obliterate any duty on assessee to deduct TDS. Now, we have to examine this. The relevant provisions of Section 194C(1) & (2) as exist in assessment year 2006-0 7 & 2007-08 reads as under :-
“(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and–
(a) the Central Government or any State Government ;or
(b) any local authority ; or
(c) any corporation established by or under a Central, State or Provincial Act ; or
(d) any company, or
(e) any co-operative society ; or
(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both ; or
(g) any society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India ; or
(h) any trust ; or
(i) any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956), or
(j) any firm, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode,
whichever is earlier, deduct an amount equal to–
(i) one per cent. in case of advertising,
(ii) in any other case two per cent.
of such sum as income-tax on income comprised therein.
(2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein.”
XXXX XXXX XXXX
6. From the above provisions of Section 194C(1), it is clear that the payments made by individual or Hindu Undivided Family does not come within the ambit of TDS i.e. the expenditure incurred for advertisement as individual and HUF are specifically excluded in the above provisions. The provision of Sub-Section (2) applies only to payments made to Sub-Contractors and not to Contractors. Accordingly, Assessing Officer can not made dis allowance by invoking provisions of Section 40a(ia), as present assessee being an individual is not liable to deduct tax in view of provisions of Section 194C(1) as existed in the relevant assessment years. No doubt, assessee ’s turnover exceeds the monetary limit as specified under clause (a) or clause (b) of Section 44AB and the assessee ’s accounts are subject to audit and the assessee has audited her accounts and filed Tax Audit Report along with return of income. We find that the Assessing Officer has made dis allowance in view of the amended provisions of Section 194C(1) by the Finance Act, 2007 with effect from 01.06.2007 wherein it is proposed to amend Sub-Section (1) in Section 194C so as to include payments made by any individual or Hindu Undivided Family whose total sales / gross receipts or turnover from the business or profession carried on by him exceed monetary limit specified under clause (a) or clause (b) or Section 44AB during the financial year or immediately preceding financial year in which such sum is credited or paid to the account of the Contractor. This amendment takes effect from 1st day of June, 2007 and is applicable for and from assessment year 2008- 09. In Section 194C(1) with effect from 01.06.2007, by the Finance Act, 2007, clause as inserted, reads as under
“(k) any individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to –
(i) one per cent in case of advertising,
(ii) in any other case two per cent, of such sum as income-tax on income comprised therein :
Provided that no individual or a Hindu Undivided Family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu Undivided Family.”
7. We find from the arguments of Ld.SR. DR that revenue want to invoke provisions of Sub-Section (2) of Section 194C for furtherance of this case but we are of the considered view that Section 194C(2) will apply to the payments made to Sub-Contractors by the Contractor and not by the assessee. In the present case, it is an admitted position that the assessee has made payments on advertisement to the Contractors and not to Sub-Contractors. Further as referred by Ld. Counsel for the assessee, this provision was explained by CBDT Circular No.3 of 2008 dated 12.03.2008 which is reported in (2008)299 ITR 8 (Statute) and the relevant Circular as reported at page 71, reads as under :-
“54. Expansion of scope of the provisions of section 194C.
54.1 The existing provisions of sub-section (1) of section 194C provided for deduction of income-tax at source from any sum credited or paid to the resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government, local authorities, statutory corporations, companies, co-operative societies, statutory authorities engaged in providing housing accommodation, etc., registered societies, trusts, universities and firms. The rate of TDS is 1% in respect of advertising contracts and 2% in other cases.
54.2 The existing provisions of sub-section (1) of section 194C did not provide for deduction of tax at source on payments made by an individual or a Hindu undivided family to a contractor.
54.3 Considering the rising number of contracts being awarded by individuals and HUFs carrying on business or profession and the increasing volume of such payments to contractors, it was felt that there is need to require such persons to deduct tax at source from payments made by them to contractors.
54.4 There would be genuine difficulties if individuals or HUFs with small business turnovers or gross receipts of profession are required to deduct tax at source. An exception in such cases would be justified. Similarly the contracts awarded by an individual or a member of HUF of HUF exclusively for personal purposes merit exclusion.
54.5 Accordingly, the Finance Act, 2007, has substituted the said sub-section (1) to include in its ambit such individual or a Hindu undivided whose total sales, gross receipts or turnover from the business or profession carried on exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding financial year in which sum is credited or paid to the account of the contractor. This amendment shall not apply in respect of payments made to a contractor by any individual or a member of a Hindu undivided family exclusively for their personal purposes.
54.6 Applicability – This amendment will take effect from the 1st day of June, 2007.”
8. In view of the above clear provisions of Section 194(1) as existing in assessment years 2006-07 & 2007-08, i.e. relevant assessment years in the present appeals, it is clear that the assessee is under no obligation to deduct TDS on the expenditure of advertisement, as the assessee being an individual, and the claim of the assessee is as per provisions of law. Once the assessee is not liable to deduct TDS under the provision of Section 194C(1), the provisions of Section 40a(ia) for making disallowance of expenditure for non-deduction of TDS will not apply. We further find that, it is not the case of the revenue that the expenses are bogus or unreasonable or excessive but the disallowance is made merely for non-deduction of TDS. Accordingly, we are of the considered view that CIT(A) has rightly deleted the disallowance and we confirm the same.”
6. As the legal issue raised by the assessee is exactly on similar facts in the present case, taking a consistent view, we are of the view that the amended provisions of section 194C(1) of the Act will not apply to the present assessment year of the assessee. Accordingly, this issue of the assessee’s appeal is allowed.”
Following the aforesaid decision of the coordinate Bench of this Tribunal, we allow this ground of appeal of the assessee for both the assessment years under appeal.
8. The next issue in ITA No. 1674/K/2010 is as regards to the order of CIT(A) confirming the action of Assessing Officer in disallowing donation of Rs. 29,400/-. For this, the assessee has raised following ground no.1:
“I. That on the facts and in the circumstances of the case, the ld. A. O. as well the Ld. CIT(A)-XIX, Kol was not justified in not allowing the subscription and/or donations of Rs. 29,400/- on the alleged ground by ignoring the fact that said amount was actually for the purpose of business exigencies. Even otherwise same is allowable as business expenditure.”
Order pronounced in the open court on 30.06.2011
