Case Law Details
Assessee is dealing in lottery business and original assessment was completed u/s. 143(3) of the Act vide order dated 21.05.2009, whereby the AO without going into the details and allowability of expenses, disallowed on estimate basis a sum of Rs.87,700/- out of the total expenses. Subsequently, CIT-XVI, Kolkata issued show cause notice to revise the assessment u/s. 263 of the Act framed by AO u/s. 143(3) of the Act for the reason that the AO has not examined the applicability of section 194G read with section 40(a)(ia) of the Act in respect of commission payments made to retailers. For this, CIT while revising the assessment has observed in para 4 and 5 as under:
“4. I have considered the matter carefully. Perusal of the assessment records shows that the AO has not examined the applicability of Section 194G read with Section 40(a)(ia) in respect of the commission payment made to the retailers during the course of assessment proceedings. Further, the applicability of Section 194J read with section 40(a)(ia) in respect of the accounting charges payment has also not been examined. In view of these facts, I am of the considered opinion that the assessment is erroneous and prejudicial to the interest of revenue.
5. I, therefore, set aside the assessment with a direction that the AO should pass the Assessment order afresh. During course of the reassessment proceedings, the AO is directed to examine all relevant facts regarding the commission payments to the lottery retailers and the accounting payment charges in light of Sections 194G and 194J respectively. The assessee’s explanation should be examined and verification should be made with respect to the claim of arrangement with the Principal namely M/s. T. S. Distributors. The assessment order should be passed after grant of due opportunity to the Assessee.”
This revision order u/s. 263 of the Act was accepted by the assessee and not challenged in appeal and AO in term of revision order proceeded to assess the income of the assessee. The assessee has paid commission of Rs.29,16,145/- to various lottery agents without deducting TDS u/s. 194G of the act and accordingly, the AO disallowed the commission payments by invoking the provisions of section 40(a)(ia) of the Act read with section 194G of the Act as well as on genuineness of payments also. Aggrieved, assessee preferred appeal before CIT(A). The assessee before CIT(A) claimed that the assessee has filed complete details of commission payment to various persons and in each case the commission payment is less than Rs.1000/-. This information was also filed before the AO, which was claimed by the assessee. Before the CIT(A) assessee admitted that the assessee has filed the name of the persons wherein commission payments were below Rs.1,000/- but could not file addresses and is unable to produce these retailers for the reason that all these retailers are street hawkers coming on daily basis and it is not possible to bring them to department for verification. But CIT(A) confirmed the addition by giving reasoning that the assessee intentionally filed various names around 1600 without any address and clearly admitted that he is unable to produce these retailers before him. Aggrieved, assessee is in second appeal before us.
We have heard rival submissions and gone through facts and circumstances of the case. We find from the facts of the case that the assessee has made commission payments amounting to Rs.29,16,145/- for sale of lottery tickets to various lottery agents. The assessee claimed to have made commission payment to 1600 persons and he has filed names of these 1600 persons but without addresses of the commission recipients as the said recipients have no permanent establishment from where they are running permanent business. Most of the agents are hawkers and they are selling lottery tickets by travelling. The assessee has also not filed any receipt of payment of the said commission. We find that the assessee is not the principal here he is only a liaison officer/stockist working on behalf of the principal i.e. T. S. Distributor. The business of T. S. Distributor is in the line of on-line lottery business. Principal T. S. Distributor controls the entire business through internet operation and particular programming. As such commission of each of the retailer is related to the principal who has the license to use that particular on line lottery. In view of the factual matrix of the case, we are of the view that the payments below Rs 1000/- to each hawker, the assessee is not liable to deduct tax at source u/s 194G of the Act. Accordingly, we delete the disallowance made by AO and confirmed by CIT(A).
In respect of genuineness, we find force in the argument of Ld. Counsel for the assessee that the CIT in his revision order u/s 263 of the Act only directed the AO to examine the applicability of sec. 194G read with section 40(a)(ia) of the Act and not genuineness of the expenditure. The entire premise of the revision order for making disallowance is only the applicability of section 40(a)(ia) of the Act. The CIT in his revision order has no where directed the AO to examine the genuineness of payments as is clear from the above reproduced para 4 and 5 of the revision order. Accordingly, we accept the plea of the assessee and the order of CIT(A) qua confirming the expenditure on the aspect of genuineness is reversed. Accordingly, in entirety the issue is allowed in favour of the assessee.
