Addition brushing aside Certificate issued by DDIT (Exemptions) is untenable in law

ITO Vs Ramesh Chawla (ITAT Delhi)

ITAT Delhi held that addition on the allegation of non-deduction of TDS unsustainable as AO failed to point out on which payments the assessee had not deducted TDS. Also, the claim of the assessee is supported by the certificate issued by the DDIT (Exemptions).

Facts- During the year under consideration the assessee claimed expenses on sundry creditors, freight expenses paid, loading and unloading expenses, car and telephone expenses, exemption of dividend income u/s. 10(35) of the I.T. Act, 1961 and deduction u/s. 80C of the I.T. Act, 1961. The A.O. called for certain information/documents by issuing notices, in response to which, the assessee offered his explanation.

However, the explanations offered by the assessee was not found acceptable to A.O. and, therefore, the A.O. disallowed the expenses claimed and not allowed deductions as claimed by the assessee and determined the income of the assessee at Rs.6,49,08,820/- as against the returned income of assessee at Rs.11,91,320/- under section 143(3) of the I.T. Act, 1961 vide order dated 28.03.2013.

Aggrieved by the order of the A.O, the assessee carried the matter in appeal before the Ld. CIT(A), who vide order dated 24.08.2017 partly allowed the appeal of the assessee.

Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

It is alleged that the assessee out of total payment of freight charges of Rs.6,88,52,781/- had only deducted the TDS at Rs.1,22,29,474/- and, therefore, the remaining freight charges are disallowed due to non-deduction of TDS.

Another allegation is that the assessee in some cases has not deducted TDS in loading and unloading payments. Accordingly, AO made addition of Rs. 54,57,876/-.

Conclusion- We find that in the instant issue the A.O. had failed to point out where the TDS was not deducted by the A.O. and also not treated the freight expenses in question as bogus. Therefore, we find force in the submissions of the Learned Counsel for the Assessee. The Ld. CIT(A) after calling the remand report from the A.O, deleted the addition.

We find that the A.O. in his order has failed to point out on which payments the assessee had not deducted TDS. Further, the A.O. also had not considered the Certificate issued by the DDIT (Exemptions) during the assessment year under consideration, as per which, TDS was not applicable in respect of wages and levy received and thereby, the assessee had not deducted TDS. However, the A.O. simply brushed aside the Certificate issued by the DDIT (Exemptions) and made the addition, which is not sustained as per law. We, therefore, find no fallacy in the findings of the Ld. CIT(A) on this issue.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal filed by the Revenue is directed against the order dated 24.08.2017 of the Ld. CIT(A)-25, Delhi, relating to the A.Y. 2010-11.

2. Briefly stated facts of the case are that the assessee is an individual and proprietor of M/s. Chawla Highway Carriages and is engaged in the business of transportation of goods after hiring of trucks on behalf of different traders for Mumbai-Delhi route. The assessee filed his return of income on 14.10.2010 declaring total income of Rs.11,91,320/-. The case of the assessee was selected for compulsory scrutiny and notices under sections 143(2) and 142(1) of the I.T. Act, 1961 were issued and served upon the assessee. In response to the said notices, the Authorised Representative of the Assessee appeared before the A.O. and filed details/documents called for therein which were examined by the A.O. on test check basis and placed on record. During the year under consideration the assessee claimed expenses on sundry creditors, freight expenses paid, loading and unloading expenses, car and telephone expenses, exemption of dividend income under section 10(35) of the I.T. Act, 1961 and deduction under section 80C of the I.T. Act, 1961. The A.O. called for certain information/documents by issuing notices, in response to which, the assessee offered his explanation. However, the explanations offered by the assessee was not found acceptable to A.O. and, therefore, the A.O. disallowed the expenses claimed and not allowed deductions as claimed by the assessee and determined the income of the assessee at Rs.6,49,08,820/- as against the returned income of assessee at Rs.11,91,320/- under section 143(3) of the I.T. Act, 1961 vide order dated 28.03.2013.

2.1. Aggrieved by the order of the A.O, the assessee carried the matter in appeal before the Ld. CIT(A), who vide order dated 24.08.2017 partly allowed the appeal of the assessee.

3. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal and has raised the following grounds:

“(i) On the facts and in the circumstances of the case Ld. CIT(A) has erred in law in deleting the addition of Rs.5,08,398/- on account of sundry creditors by ignoring that the assessee failed to establish the genuineness of creditors.

(ii) On the facts and in the circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of Rs.5,66,23,307/- towards freight expenses by ignoring that the assessee was not entitled to produce additional evidences/documents during the appellate proceedings as per clause (b) of rule 46(1) in view of the fact that the assessee was accorded sufficient opportunities to file documentary evidences during assessment proceedings.

iii) On the facts and in the circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of Rs.53,17,313/- towards loading and unloading expenses by ignoring that the assessee was not entitled to produce additional evidences/documents during the appellate proceedings as per clause (b) of rule 46(1) in view of the fact that the assessee was accorded sufficient opportunities to file documentary evidences during assessment proceedings.

(iv) On the facts and in the circumstances of the case, Ld. CIT(A) has erred in law in ignoring that the out of payment of Rs. 53,17,313/-, an amount of Rs.28,00,349/- paid to Goods Transport Labour Board, Mumbai was liable for Tax Deduction of Source under Chapter XVII as certificate of exemption u/s 197 issued by DDIT(E)-II(I), Mumbai did not pertain to assessment year under consideration.

(v) The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.”

4. Ground of appeal no.1 of the Revenue relates to deletion of addition on account of sundry creditors at Rs.5,08,398/- by the Ld. CIT(A).

5. During the course of assessment proceedings, the A.O. noted that there are 27 Transporters towards whom the amount of Rs.5,08,398/- was shown as payable in the ‘list of sundry creditors [transporters] as on 31.03.2010’. When the A.O. called for full particulars of parties, the assessee reduced the list of parties to 14 instead of 27 and in absence of proper explanation offered by the assessee with respect to difference in the two lists, the A.O. made the addition of Rs.5,08,398/- in the hands of assessee under section 41 of the I.T. Act, 1961.

6. During the course of hearing, the Ld. D.R. relied upon the order of the A.O. and submitted that the assessee at the first instance has furnished the list of 27 sundry creditors before the A.O. and when the A.O. called for the full address of the sundry creditors such as name, address, PAN etc., the assessee filed another set of sundry creditors containing 14 parties only instead of 27 and since the list of sundry creditors furnished by the assessee do not depict the correct names and the amounts of sundry creditors outstanding against the name of the so-called sundry creditors, the A.O. correctly made the impugned addition and, thus, he prayed that the order of the A.O. be confirmed on this issue.

7. The Learned Counsel for the Assessee, on the other hand, relied on the order of the Ld. CIT(A). He submitted that during the course of assessment proceedings the A.O. had never issued questionnaire dated 06.07.2012 to the assessee. He submitted that whenever the A.O. asked for confirmation of the account, the assessee provided the particulars of very Truck owner and filed all relevant documents and details relating to the various parties. However, the A.O. had not considered the documents and evidences filed before him as called for and made the impugned addition on the pretext of two lists and some names, amounts are not tallied and accepted the names and amounts in respect of 05 parties in the assessment order, but, added entire sundry creditors including the 05 parties which is contradictory. However, on appeal, the Ld. CIT(A) after calling the remand report from the A.O. deleted the addition made by the A.O. He, accordingly, prayed that the order of the Ld. CIT(A) be confirmed.

8. We have heard the Learned Representatives of both the parties and perused the material on record. We find force in the submissions of the Learned Counsel for the Assessee. The Ld. CIT(A) noted in his order that the A.O. himself has admitted in the remand report dated 13.08.2014 that there were 05 parties whose names and amounts were same in the two lists submitted by the assessee and the total amount of creditors is also not disputed by the A.O. Further, the A.O. had not admitted the documents/evidences filed by the assessee before him. The relevant observations of the Ld. CIT(A) on this issue are as under :

“8.39. Similarly, the explanations given by the Assessee in the Written Submissions filed along with the Application under Rule 46 A were brushed aside. It is seen that the Accountant of the Assessee sometimes mentioned the name of the Agent through whom he arranged the Trucks and sometimes he mentioned the name of the actual Truck owners and due to this there were varying Names and Amounts. However, the Assessing Officer, in the Remand Reporthas not been able to point out any discrepancy in the explanations given by the Appellant.

8.40. In view of the above, there is no justification for the addition of the amount of Rs.5,08,398/- towards Sundry Creditors, which is hereby deleted.”

8.1. Since the Ld. CIT(A) has deleted the addition after calling the remand report from the A.O. which fact has not been disputed by the Ld. D.R, we find no fallacy in the findings of the Ld. CIT(A). We, therefore, confirm the order of the Ld. CIT(A) on this issue. Accordingly, ground of appeal no.1 of Revenue is dismissed.

9. On ground of appeal no.2 with respect to deletion of addition of Rs.5,66,23,307/- by the Ld. CIT(A) on account of freight expenses, the Ld. D.R. submitted that as per the provisions of Section 194C of the I.T. Act, 1961 the assessee is liable to deduct TDS in respect of freight charges paid. The assessee out of total payment of freight charges of Rs.6,88,52,781/- had only deducted the TDS at Rs.1,22,29,474/- and, therefore, the A.O. rightly added the remaining freight charges paid by him amounting to Rs.5,66,23,307/- to the total income of assessee and prayed that the order of the A.O. be confirmed.

10. The Learned Counsel for the Assessee, on the other hand, heavily relied on the order of the Ld. CIT(A). He submitted that the authorities below were not disputed the fact that the freight expenses in question were not paid or were bogus and the A.O. had unable to mention where TDS was to be deducted as per law. Therefore, the Ld. CIT(A), after examining the remand report from the A.O, rightly deleted the addition. He prayed that the order of the Ld. CIT(A) be confirmed.

11. We have heard the Learned Representatives of both the parties and perused the material on record. We find that in the instant issue the A.O. had failed to point out where the TDS was not deducted by the A.O. and also not treated the freight expenses in question as bogus. Therefore, we find force in the submissions of the Learned Counsel for the Assessee. The Ld. CIT(A) after calling the remand report from the A.O, deleted the addition. The relevant findings of the Ld. CIT(A) on this issue are as under :

“8.20. The Assessing Officer has neither in the Assessment Order, nor in the Remand Report made out any case for disallowance of Freight Expenses amounting to Rs.5,66,23,307/-, as is apparent from the above discussion. Hence, the disallowance of Freight Expenses on the ground at TDS was not imposed was not at all justified, as the Assessing Officer could not come up with even a single case where TDS was to be deducted as per Law, but was not deducted by the Appellant. There is no allegation that the Freight Expenses in question were not paid or were bogus. Hence, there is no justification for disallowance of Freight Expenses amounting to Rs.5,66,23,307/-. Accordingly, the addition of Rs.5,66,23,307/- is hereby deleted”.

11.1. From the careful perusal of the order of the Ld. CIT(A), we have noticed that he had deleted the addition after examining the remand report submitted by the A.O. The Ld. CIT(A) noted that the A.O. could not come up with even a single case where TDS was to be deducted as per law and there is no allegation of freight expenses in question were bogus. Therefore, the Ld. CIT(A) deleted the impugned addition of Rs.5,66,23,307/-. In absence of any contrary material brought to our notice by the Ld. D.R, we find no fallacy in the findings of the Ld. CIT(A). We, therefore, confirm the order of the Ld. CIT(A) on this issue. Ground of appeal no.2 of Revenue is accordingly dismissed.

12. Ground of appeal nos.3 and 4 are relates to deletion of addition of Rs.53,17,313/- on account of loading and unloading expenses.

13. During the course of hearing, the Ld. D.R. strongly relied on the order of A.O. and submitted that though sufficient opportunities have been provided to the assessee to furnish requisite documents, the assessee was failed to produce the same before the A.O. Therefore, the A.O. rightly made the addition of Rs.53,17,313/- and prayed that the order of the A.O. be confirmed.

14. The Learned Counsel for the Assessee on the other hand strongly relied on the order of the Ld. CIT(A) and submitted that the A.O. made the impugned addition on account of loading and unloading payments at Rs.54,57,876/- on the ground that in some cases TDS was not deducted, but, the A.O. had not pointed out in the assessment order as to which are such payments, on which, the assessee was liable to deduct the TDS. He submitted that during the remand proceedings also, the Certificate issued by Dy. Director of Income Tax (Exemptions)-II(I), Mumbai as per which TDS was not applicable in respect of Wages and Levy received by the Goods Transport Labour Board, Mumbai at Rs.28,00,349/- out of Rs.53,17,313/-during the assessment year under consideration. However, the A.O. ignored this Certificate of DDIT (Exemptions) and made the impugned addition, which cannot be sustained in the eye of law as the A.O. has not considered the Certificate issued by one of Competent Authority of Income Tax Department which is with respect to exempt of deduction of TDS. He further submitted that the Ld. CIT(A) disallowed a sum of Rs.1,40,563/- out of loading and unloading expenses and the balance addition of Rs.53,17,313/- was deleted by him i.e., [Rs.54,57,876/- (-) Rs.1,40,563/- = Rs.53,17,313/-]. The Learned Counsel for the Assessee, thus, prayed that the order of the Ld. CIT(A) be confirmed on this issue.

15. We have heard the rival submissions and perused the material on record. The dispute of the Revenue on this issue is that the assessee had not deducted the TDS on account of loading and unloading expenses and, therefore, the A.O. made an addition of Rs.54,57,876/- and the Ld. CIT(A) restricted the addition to Rs.1,40,563/- , thereby, the Ld. CIT(A) deleted the addition for the balance amount of Rs.53,17,313/-. We find that the A.O. in his order has failed to point out on which payments the assessee had not deducted TDS. Further, the A.O. also had not considered the Certificate issued by the DDIT (Exemptions) during the assessment year under consideration, as per which, TDS was not applicable in respect of wages and levy received and thereby, the assessee had not deducted TDS. However, the A.O. simply brushed aside the Certificate issued by the DDIT (Exemptions) and made the addition, which is not sustained as per law. We, therefore, find no fallacy in the findings of the Ld. CIT(A) on this issue. The relevant findings of the Ld. CIT(A) on this issue are as under :

“8.28. Section 194C(5), as applicable for the period 01.04.09 to 31.03.10, i.e. the previous year relevant to AY 10-11 (the year under consideration) is as under :

“(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed twenty thousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceed^ fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.”

8.29. Perusal of the above shows that the condition for deduction of Tax at Source in case the aggregate of amounts credited or paid or likely to be credited or paid to a particular person (Contractor) exceeded Rs.50,000/-, was an additional provision.

Thus, as per Section 194C (as applicable for AY 10-11), the Assessee was liable to deduct TDS on all One-time payments credited or paid or likely to be credited or pai exceeding Rs.20,000/-, and also in cases where the aggregate of such amounts credite or paid or likely to be credited or paid to a particular person (Contractor) exceeds Rs.50,000/-. Thus, the deduction was to be made if either of the two conditions wer satisfied, not if both the conditions were satisfied.

8.30. Hence, it is held that Tax at Source was deductable in respect of payment amounting to Rs.1,40,563/- whose details have been given above, and in the absence deduction of Tax at Source, the amount of Rs.1,40,563/- was to be disallowed. For the balance amount of ‘Loading & Unloading Expenses’ amounting to Rs.53,17,313/- (Rs.54,57,876/- less Rs.1,40,563/-), there is nothing to indicate that any TDS was deductable of that these amounts were disallowable. Accordingly, disallowance of Rs.1,40,563/- out of ‘Loading & Unloading Expenses’ is hereby confirmed and the balance of Rs.53,17,313/- is hereby deleted.”

15.1. We find that the Ld. CIT(A) had only restricted the addition to the extent TDS which was deductible i.e., Rs.1,40,563/- and deleted the balance addition of Rs.53,17,313/- out of the total addition of Rs.54,57,876/-made by the A.O. Since the order of the Ld. CIT(A) on this issue is in accordance with the provisions of Income Tax Act, we find no infirmity in the order of the Ld. CIT(A) and we, therefore, confirm his order and dismiss the ground of appeal Nos.3 and 4 of the Revenue.

16. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 24.11.2022.