Case Law Details
Umananda Rice Mill Ltd Vs ACIT (ITAT Kolkata)
ITAT Kolkata held that disallowance under section 40a(ia) of the Income Tax Act for non-deduction of TDS untenable if payee has duly disclosed the receipt of the impugned payment in their return of income.
Facts-
The assessee has paid documentation charges consisting of freight and transportation charges of Rs. 6,24,709/- to Satyam Services on which tax was not deducted at source as required by the provisions of Section 194C of the Act. Accordingly a show cause notice was issued to the assessee as to why the disallowance should be made u/s 40a(ia) of the Act which was replied by the assessee’s Counsel before the AO by submitting that the said payment has duly been shown as income by Satyam Services in its return of income for AY 2011-12 and has paid tax accordingly. The assessee relied on the decision of Hon’ble Apex Court in the case of Hindusthan Coca Cola Beverages Pvt. Ltd. vs. CIT Appeal (civil) 3765 of 2007 wherein it has been held that no disallowance is required to be made as due tax has already been made under the Act by the recipient of income.
CIT(A) dismissed the appeal of the assessee. Being aggrieved, the present appeal is filed.
Conclusion-
The ld CIT(A) confirmed disallowance on the ground that the assessee has committed a default u/s 194C of the Act and decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT is not applicable to the facts of the case. Having gone through the facts on record and ratio laid down in the said decision, we are of the view, the crux of the ratio laid down in the said decision is that where the assessee has made any payment and the payee has duly disclosed the said receipt in the return of income and has paid taxes thereon, no disallowance u/s 40a(ia) of the Act to be made. therefore the Ld. CIT(A) has not interpreted the decision correctly. Since the payment made by the assessee to Satyam Services has duly been shown in the return of income of the said recipient and due tax was also paid which is not in dispute at all. Therefore respectfully following the ratio as laid down in the Apex Court decision as referred to above, we are inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)- Burdwan, (hereinafter referred to as the Ld. CIT(A)”] dated 08.09.2020 for the AY 2011-12.
2. Though the Registry has pointed out that the appeal is time barred, however, in view of the decision of the Hon’ble Supreme Court in Miscellaneous Application No. 665 of 2021 in SMW(C ) No. 3 of 2020, the period of filing appeal during the COVID19 pandemic is to be excluded for the purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period.
3. The issue raised in Ground nos. 1,2 and 3 is against the part confirmation of addition of Rs. 72,96,000/- by the Ld. CIT(A) out of total addition of Rs. 1,63,24,000/- made by the AO u/s 68 of the Act.
4. Facts in brief are that the AO during the course of assessment proceedings noted that the assessee has received money under the head share capital of Rs. 33,64,800/- as well as share premium of Rs. 1,34,59,200/- aggregating to Rs. 1,68,24,000/- and accordingly called upon the assessee to furnish the proofs of identity, credit worthiness and genuineness of the investors with their confirmations. The assesse furnished the details of allottees with other evidences including the bank statements of the share applicants. The assessee submitted that the share capital and share premium were received from 160 persons. It was submitted that from 28 persons share application money was received by cheques whereas in case of 132 persons share application money was received in cash . The AO doubted the genuineness of the share capital received from 26 persons who had invested Rs. 86 Lakhs by cheques in the share capital and share premium of the assessee. The AO also doubted the genuineness of the transaction of investment by Susanta Ghosh for which the bank statement was not furnished by the assesse in respect of whom the assesse furnished compete details comprising ITR’ s ,PANs , balance sheets and confirmations etc . Besides the AO had also treated Rs. 75,24,000/- as unexplained cash credit which was received in cash from 132 persons in respect of which identity, creditworthiness and genuineness were not proved and finally made an addition of Rs. 1,63,24,000/- u/s 68 of the Act as unexplained cash credit to the income of the assessee.
5. The Ld. CIT(A) partly allowed the appeal of the assessee on this issue by directing the AO to delete the addition in respect of investors from whom the money was received by cheques by giving detailed findings that the assessee has proved the identity, creditworthiness of the investors and also the genuineness of the transactions while confirming the addition to the tune of Rs. 72,96,000/- where the money was made in cash from 128 investors on the ground that the said transactions were not genuine as they were made in cash. The ld CIT(A) also called for the remand report from the AO which was furnished by the AO vide letter dated 14.10.2019 in which no adverse inference was drawn by the ld AO. The ld AO observed and stated in that report that all the investors who invested by cheques have filed their PAN,s , ITRs, bank statements and balance sheets and also confirmed the transactions of investments in shares in the assesse company. The investors who invested in cash of Rs, 57,000/- each were primarily connected with agricultural activities and have filed their Vote I.D. cards besides confirming the transactions of investments in the shares of assesse company while appearing in response to summons u/s 131 of the Act. However the ld CIT(A) partly confirmed the addition to the extent of Rs. 72,96,000/- on the ground that the investments were made in cash. Hence the assesse is in appeal against the part confirmation of the addition to the tune of Rs. 72,96,000/-.
6. After hearing the rival contentions and perusing the material on record including the impugned order and evidences placed before us in the form of vote I.D. cards ,confirmations, balance sheets, identity proofs with regard to128shareholders, we note that all these investors were belonging to far flung areas which san banking facilities and were primarily engaged in agricultural and farming activities. We further note that the AO issued summons u/s 131 to all the share subscribers who personally appeared before the AO in compliance to the summons and confirmed their investments in the equity shares of the assessee besides furnishing the evidences as to the source thereof. We note that these parties were identifiable and were with rural background and were not having access to the banking facilities. We observe that the ld AO has added the amount received in cash from 128 investors u/s 68 of the Act as unexplained only on the ground that this investment were made in cash. Even the remand report called for by the Ld. CIT(A) in the appellate proceedings did not doubt the genuineness of the agricultural background of the investors and it was accepted by the AO himself that these persons were belonging to rural areas. We observe that the AO has harped on the sole basis of investments being in cash which cannot be a sole ground for making the additions particularly when the investors appeared personally before the AO in response to summons issued u/s 131 of the Act and admitted and confirmed the investments in the shares of the assesse company. Further we have perused the said remand report dated 14.10.2019 and find that nowhere in the remand report any adverse inference was drawn the AO of any kind whatsoever. The AO even stated in the remand report that investors were either engaged in small scale proprietary business of trading in paddy or were engaged in agricultural operations. The AO also noted that the cash deposited into the bank accounts was out of was out of normal business operation and all have filed their ITRs , balance Sheets , personal P & L A/Cs and bank statements who invested in the assesse company by cheques. As regards those investors who invested in the assessee’s shares in cash in small amounts have filed their voter I.D cards , balance sheets and confirmed the transactions by personally appearing before the AO in response to summons issued u/s 131 of the Act. It was also stated by the AO that there is no bar on buying shares in cash and any person can invest this much amount. Under these facts and circumstances, we are not in concurrence with the conclusion of the Ld. CIT(A) that the assessee has failed to discharge the onus of proving the creditworthiness of all the creditors and genuineness of the transactions. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition of Rs, 72,96,000/-. Accordingly ground nos. 1, 2 and 3 raised by the assessee are allowed.
7. Issue raised in ground no. 4 is against the confirmation of addition of Rs. 50 Lakh by Ld. CIT(A) in respect of disclosure made in the survey operation in respect of excess stocks found.
8. Facts in brief are that a survey operation was conducted on the business premises of the assessee on 28.02.2011 u/s 133A of the Act. During the course of survey operation several discrepancies were noted in the stocks of paddy, rice and rice The assessee accordingly made a disclosure of Rs. 50 Lakhs qua the excess stocks. During the course of assessment proceedings , the AO calculated the excess stocks to the extent of 10,164 quintals of common paddy the value of which comes of Rs. 1,01,64,000/-. The AO after allowing the credit of disclosure of stocks of Rs. 50 lacs computed the excess stocks at Rs. 51,34,000/- and added the same to the income of the assessee as unexplained investments besides making additions gross profits and unexplained stocks in the assessment framed u/s 143(3) of the Act dated 28.03.20 14.
9. The Ld. CIT(A) in the appellate proceedings came to the conclusion that Rs. 50 Lakhs which was disclosed by the assessee during survey operation is required to be added to the income of the assessee on the ground that the assessee has failed to give necessary proofs of incorporating the same in the return of income and also in the profit and loss account for AY 2011-12 whereas the remaining additions were deleted .Pertinent to state that explanation of the assesse as regards Rs. 50 lacs disclosure of stock has been accepted by the AO and he allowed credit of the same while making the Now the assessee has challenged the said order of Ld. CIT(A) before us on the ground that the first appellate authority has totally failed to appreciate the facts of disclosure having been fully disclosed in the return of income and profit and loss account.
10. The Ld. A.R. took us through the copy of stock extracts of paddy, Banskathi from 28.02.2011 to 31.03.2011 filed page no. 465 of the PB and pointed out with the help of the said stock extracts that stock of Rs. 38,80,000/- was shown in the inward column with quantity of 242500 quintal of stocks on 28.02.2011 which continued in the stock register till the year end . The ld AR submitted that the final stock was determined at Rs. 1,82,87,000/- with corresponding quantity of 10,440 quintal as on 31.3.2011 after taking into account the stocks disclosed as stated herein above. Similarly the Ld. A.R. drew our attention to stock extracts of paddy miniket a copy of which is placed at page 466 of PB on which the assessee has shown Rs. 11,20,000/- representing 800 quintal in the inward column in the stock register which also continued till the year end up to 3 1.03.201 1and stock as on the date was arrived at The ld AR therefore submitted that stocks of Rs. 50 Lakhs stood incorporated in the books of account and also in the profit and loss account of the assessee and net profits were determined accordingly . The ld AR finally prayed that the order of ld CIT(A) may kindly be set aside by allowing the appeal of the assessee as the ld CIT(A) has completely failed to appreciate the facts on records.
11. We have heard the rival contentions and perused the material on record. We have examined the records of stocks as placed before us and find that the stocks disclosed during survey of Rs. 50 lacs were duly incorporated in the books of accounts of the assessee as is apparent from page no. 465 and 466 of the paper book. Even AO has accepted the fact that assessee has shown the stocks of Rs. 50 lacs in the books of accounts and allowed the credit thereof. Considering these facts , we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition of Rs. 50 Accordingly ground no. 4 is allowed.
12. Issue raised in ground no. 5 is against upholding the disallowance of Rs. 6,24,709/- as made by the AO u/s 40a(ia) read with Section 194 of the Act.
13. Facts in brief are that during the year the assessee has paid documentation charges consisting of freight and transportation charges of Rs. 6,24,709/- to Satyam Services on which tax was not deducted at source as required by the provisions of Section 194C of the Act. Accordingly a show cause notice was issued to the assessee as to why the disallowance should be made u/s 40a(ia) of the Act which was replied by the assessee’s Counsel before the AO by submitting that the said payment has duly been shown as income by Satyam Services in its return of income for AY 2011-12 and has paid tax accordingly. The assessee relied on the decision of Hon’ble Apex Court in the case of Hindusthan Coca Cola Beverages Pvt. Ltd. vs. CIT Appeal (civil) 3765 of 2007 wherein it has been held that no disallowance is required to be made as due tax has already been made under the Act by the recipient of income.
14. The Ld. CIT(A) dismissed the appeal of the assessee on the ground that the assessee has admitted the non-deduction of tax at source and thus reached a conclusion that assessee has committed a default u/s 194C of the Act. The ld CIT(A) also distinguished the decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT (supra) and held that it was not applicable to the facts of the case as this case covers the issue of short deduction of tax whereas in the case of assessee it has failed to deduct TDS totally and thus confirmed the addition.
15. Having heard the rival submissions and perusing the material on record, the undisputed facts are that the assessee has made payment to Satyam Services on account of documentation charges without deduction of tax at source u/s 194C of the Act which was disallowed by AO u/s 40a(ia) of the Act. The ld CIT(A) confirmed disallowance on the ground that the assessee has committed a default u/s 194C of the Act and decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT (supra) is not applicable to the facts of the case. Having gone through the facts on record and ratio laid down in the said decision, we are of the view, the crux of the ratio laid down in the said decision is that where the assessee has made any payment and the payee has duly disclosed the said receipt in the return of income and has paid taxes thereon, no disallowance u/s 40a(ia) of the Act to be made. therefore the Ld. CIT(A) has not interpreted the decision correctly. Since the payment made by the assessee to Satyam Services has duly been shown in the return of income of the said recipient and due tax was also paid which is not in dispute at all. Therefore respectfully following the ratio as laid down in the Apex Court decision as referred to above , we are inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the
16. In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 3rd November, 2022
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