DCIT Vs Sareen Sports Industries (ITAT Delhi)
ITAT Delhi held that TDS provisions are not applicable in case of commission paid to bank and commission paid to partners. Accordingly, disallowance u/s 40(a)(ia) unsustainable.
Facts-
In course of assessment proceedings, while examining the audited financial statement of the assessee, the assessing officer found that a total credit balance of Rs.19,67,12,224 has been shown in the balance sheet. After calling for and examining the necessary details, the assessing officer observed that assessee could furnish details and confirmation in respect of sundry creditors of Rs.1,19,48,831. Further, he observed, sundry creditors of Rs.3,95,30,742 related to the preceding year i.e. assessment year 2010-11. Thus, treating the balance sundry creditors of Rs.14,52,33,651 as unexplained cash credit under Section 68 of the Act, he added back to the income of the assessee. Assessee challenged the aforesaid addition before learned Commissioner (Appeals) and the same was deleted.
In course of assessment proceedings, the assessing officer noticed that the assessee has paid commission of Rs.24,69,362 to partners, agents and bank without deducting tax at source. Accordingly, he disallowed the amount under Section 40(a)(ia) of the Act.
Conclusion-
Addition of unexplained cash credit u/s 68 –
Held that on examination of documentary evidence, the assessee’ contention regarding the genuineness of the sundry creditors appears to be correct.
Disallowance under section 40(a)(ia) –
As regards, commission to bank, the assessing officer has accepted that TDS provisions are not applicable to commission paid to bank. Thus, this addition was also rightly deleted. The only addition which, therefore, remains is commission to partners amounting to Rs.3,68,305. As righty observed by learned Commissioner (Appeals), commission paid to partners is not covered under Section 194H of the Act as there is no employer and employee or principal agent relationship between the partners and the firm. Thus, we do not find any reason to interfere with the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
PER SAKTIJIT DEY, JUDICIAL MEMBER:
Captioned appeal by the Revenue and cross-objection of the assessee arise out of order dated 28.03.20 16 of learned Commissioner of Income-Tax (Appeals), Meerut for the assessment year 2011-12.
ITA No.3777/Del/2016:
2. Ground nos. 6 & 7 raised by the department being general in nature are dismissed.
3. In ground no.1, Revenue has challenged deletion of addition of 4,20,326 representing disallowance of proportionate interest on interest free advances.
4. Briefly, the facts are, assessee is a resident partnership firm engaged in manufacturing of support goods. For the assessment year under dispute, assessee had filed its return of income on 30.09.20 11 declaring total income of Rs.98,53,078.
5. In course of assessment proceedings, the assessing officer, after examining the details available on record, noticed that assessee had claimed deduction on account of payment of interest to bank, partners and others, whereas, assessee had given interest free advances/loan to various persons amounting to Rs.35,02,720. Therefore, he called upon the assessee to explain why a part of his interest expenditure should not be disallowed as the borrowed funds were advanced for non-business purposes. Though, the assessee made his submission against the proposed disallowance, however, being dissatisfied with the submission of assessee, the assessing officer computed interest @ 12% on the alleged interest free advances of Rs.35,02,720 and disallowed an amount of Rs.4,20,326, being proportionate interest chargeable on the interest free advances. Assessee contested the aforesaid disallowance before learned Commissioner (Appeals).
6. Before the first appellate authority, assessee could furnish the details of the so called advances to different persons and explain that they are not in the nature of interest free advances/loans. The evidences furnished and submissions made were forwarded to the assessing officer for his comments.
7. After taking into consideration the submissions of the assessee and evidences on record and the observations of the assessing officer in the remand report, learned Commissioner (Appeals) held that the allegation of the assessing officer regarding interest free advances to various persons are incorrect. After analyzing the factual position, learned Commissioner (Appeals) deleted the disallowance of Rs.4,20,326.
8. We have considered rival submissions and perused material on
9. The alleged interest free advances/loans on which the assessing officer has made the proportionate interest disallowances are as under:
