Brief of the Case: In the cited case, ITAT inter-alia held that since the payments have been made as reimbursement of expenses to the agents of the appellant, therefore, appellant was not obliged to deduct TDS under section 194C of the Act and as such, no disallowance is warranted u/s 40(a)(ia) of the IT Act.
Facts of the Case: The Assessee was running two proprietorship concerns in the name and style of M/s.Mosaic House (India) and M/s.Diler Stone. M/s Mosaic House (India) was a new concern and M/s.Diler Stone was an existing concern of the assessee. The assessee deals in domestic and foreign sale of stone tiles. The Return declaring total income of Rs.7,37,090/- was filed on 2.11.2007. The return was processed u/s. 143(1) on returned income. Statutory notice u/s. 143(2) and 142(1) were issued along with questionnaire. The assessee filed the details, but not produced books of accounts. Later books were produced but without vouchers. After going through the records, AO completed the assessment u/s.143(3) of the I.T. Act vide his order dated 24.12.2009 and made various additions.
Against the assessment order dated 24.12.2009, assessee appealed before the CIT(A), who vide impugned order dated 19.11.2010 had dismissed the appeal of the assessee by upholding the additions made by the AO.
The Assessee had filed these Appeals against the separate impugned orders dated 19.11.2010 for A.Y 2007-08 and dated 28.3.2012 (A.Y 2009-10) passed by the CIT(A).
Since some issues involved in both the appeals were common, it was disposed by consolidated order.
Grounds for appeal before ITAT:
The grounds raised in ITA No.467/Del/2011 (A.Y. 2007-2008) were
(1) That the CIT (A) has erred in confirming the addition of Rs.12,67,193/- by not considering the sale agreement of Rs.11,50,000/- while all the relevant documents and other facts are on record.
(2) That the CIT (A) has erred in confirming the addition of Rs.3,86,041/- by ignoring that the said amount was out of withdrawals entry of Rs.4 Lakh from the books of M/s Mosaic House (India) Kund.
(3) That the addition of Rs.1,07,939/- the alleged difference in sundry creditors accounts confirmed by the learned CIT(A) was against the facts, written submissions and documents on record.
(4) That the CIT has grossly erred in confirming the disallowance the expenditure claimed at Rs.18,72,599/- incurred in exporting in goods out of India by foreign shipping companies through Indian Agents while all the relevant documents and certificates are on record.
(5) That the confirming of 50% disallowance of expenses at Rs.1,54,665/- out of Rs.3,09,330/- by the CIT (A) ignoring and without discussing that the expenses are under various heads and quite relevant to the business activities and none of the same are of capital or personal in nature.
The grounds raised in ITA No. 2222/Del/2012 (A.Y. 2009-10) were
(1) That the CIT (A) has erred in confirming the addition of Rs.13,21,034/- alleged difference in the account of M/s.Venus Stone, Spain. He had further erred in ignoring all the facts, figures and relevant documents.
(2) That the confirming of addition of Rs.6 lakh which was made by the AO u/s 40A(3) by the CIT (A) was quite arbitrary, excessive, against facts and Law of the case. The CIT (A) also erred in not considering the reply, bank statement and other documents on record.
(3) That the CIT (A) had erred in confirming the additions of Rs.15,31,108/- the payment made to M/s.Pooja Freight Forwarders, the intermediary agent on the behalf of appellant regarding in land haulage charges/Freight charges etc. to foreign agents and Govt. agencies where the provisions of Section 194C i.e. TDS not applicable.
(4) That the CIT (A) had also grossly erred in enhancing the freight charges at Rs.18,03,881/-which were paid for exporting the goods outside India to shipping agent exempted under the provisions of TDS. He has also ignored the facts and certificates of the shipping agents are on record and were duly considered by AO while allowing the same.
(5) That the disallowing the entire payments of Rs.33,34,986/- made to M/s.Pooja Freight Forwarders the intermediary agent on account of various expenses. He has further erred in applying the provisions of Section 40(a)(ia) read with Section 194C on all the payments supported-with copies of bills and relevant documents on record.
(6) That the confirming for additions of Rs.24,760/- the alleged calculations of interest on trade advances to M/s.Vipin Stone, Kund, confirmed by the CIT (A) was quite arbitrary, ignoring all the facts and figures on record.
(7) That the confirming of addition of Rs.95,830/- i.e. agricultural income supported with documents on record by the CIT (A) was quite arbitrary. He had further erred in ignoring the reply, documents and submissions which are very well on record.
(8) That the confirming the additions of Rs.33,900/- i.e. 20% disallowances of expenses under various heads are quite arbitrary and without any findings.
(9) That the confirming the addition of Rs.20,000/- under house hold expenses by the CIT (A) without any concrete findings and detection on record.
Contention of the revenue: Revenue contended that
ITA No.467/Del/2011 (A.Y. 2007-2008)
(1) The explanation of the appellant that he had received advance of Rs.11,50,000/- in March 2006 is an afterthought. The affidavit furnished is on self-serving documents and, suffers from discrepancies.
(2) No evidence to show withdrawal of cash of Rs.4 lakh from Mosaic India.
(3) Payments have been made in cash out of the books and therefore such payments had been treated as income from undisclosed sources u/s 68 of the IT Act.
(4) No evidence was filed to prove that payment made to agents of shipping companies and, in absence thereof, appellant obliged to deduct TDS u/s 194C of the Act and, since no TDS has been deducted, sum was disallowed u/s 40(a)(ia) of the IT Act.
(5) The internal vouchers do not have narration and signed by one man was same style. As such, genuineness and reasonableness of explanation was not ascertainable.
Contention of the Assessee: Assessee submitted that
ITA No.467/Del/2011 (A.Y. 2007-2008)
(1) The difference of Rs.12,67,193/- was on account of advance against land Rs.11,50,000/- and transfer from Diler stone Rs.1,95,320/-. The fact of advance of Rs.11,50,000/- having been received is evident from Agreement to sell dated 26.3.2006, Cash flow statement and Revised cash book. The AO accepted the cash balance at the close of year to be as declared in the cash book/financial statement. In such circumstances, logically and legally, it ought to be held that cash payments was out of advance which was received in March 2006. That factum of advance has been also confirmed by affidavits of eight persons and statement of two persons recorded during assessment proceedings, which have been brushed aside by the AO/CIT(A). Affidavits have been filed; mere non appearance in response to summons cannot be a ground to reject the claim of assessee.
(2) A sum of Rs.4,00,000/- was transferred for Mosaic House (India) on 23.5.2006 and once revised cash book of Diler Stone and Mosaic House was placed on record, the AO/CIT(A) cold not automatically discredit the same.
(3) Perusal of Paper Book would show that payment to all parties a subsequent year have been made by account payee cheques except Haryana. It is submitted that even in rejoinder to report dated 23.7.2010. The appellant has furnished reply dated 16.8.2010 which have been overlooked by the CIT(A) wherein complete details were placed on record, but no enquiries have been made.
(4) It is well settled law that provision of section 194C of the IT Act are not attracted on payments made to agents of non-resident shipping companies as has been held in the judgments 163 Taxman 479 (Del) CIT vs. Continental Carriers (P) Ltd. Further, no disallowance be made under section 40a(ia) of the IT Act as the issue involved is squarely covered by the decisions and judgments cited above and there is no distinguishing feature. It is also well settled law that reimbursement of expenses is not eligible for deduction of TDS under section 194C of the Act in view of the judgments ITA No. 359 and 511/2012 (Del) dated 25.8.2014 CIT vs. Opera Global (P) Ltd.
(5) In absence of any basis given by the learned Assessing Officer, the disallowance is not tenable. Moreover it is not a case where books of accounts have been produced along-with vouchers. It is submitted that vouchers are always self generated and suspicion howsoever strong cannot be basis to disallowance an eligible expenditure.
Held by CIT (A): The CIT (A) dismissed the appeal of the assessee by upholding the additions made by the AO.
Held by ITAT:
ITA No.467/Del/2011 (A.Y. 2007-2008)
(1) and (2) ITAT accepted the contention of the Assessee that the issue be restored to the file for the AO for verification after examination of the persons who have advanced to the appellant. It was directed that while conducting fresh examination, the AO would look into the explanation tendered and the revised cash book and not merely discredit the same. Accordingly, the issue of addition regarding unexplained deposit in the cash book of the appellant is restored to the file of the AO for de-nova examination and adjudication after granting necessary opportunity to the appellant.
(3) The assessee was afforded opportunity to produce the creditors before the AO during the remand proceedings. The appellant could not produce these parties inspite of several opportunities. But for furnishing the bills of these parties, no efforts were made to prove his version. It is not the case of not receiving any response from the creditors or return of the letters as comeback un-served. Under these circumstances, onus is on the appellant to prove that the liability exists by producing them or furnishing reconciliation statement etc. Instead the assessee has merely given the address etc. of the creditors which was already available with AO. In that background ITAT upheld the order of the CIT(A) and dismiss the ground raised by the assessee.
(4) Most of the payments made by the assessee were reimbursement of expenses. When expenditure is reconciled there is no element of income to the recipient. It was held that since the payments have been made as reimbursement of expenses to the agents of the appellant, therefore, appellant was not obliged to deduct TDS under section 194C of the Act and as such, no disallowance is warranted u/s 40(a)(ia) of the IT Act. Having regard to the above, ITAT deleted the addition and allowed the ground raised by the appellant.
(5) CIT(A) had considered the issue and the submissions made by the Assessee and observed that the AO made a categorical finding regarding the genuineness, reasonableness and verifiability of the bills. The Revenue Authority has come to the conclusion against the assessee, after verifying the vouchers produced by the assessee. Keeping in view of the facts and circumstances, CIT(A) has rightly held that the disallowance made by the AO was treated as fair and reasonable and thus the addition of Rs.1,54,665/- was sustained, hence, ITAT upheld the order of the CIT(A) on this issue and dismiss the ground raised by the assessee.
In the result, ITA No. 467/Del/2011 (A.Y. 2007-08) was party allowed.
ITA No. 2222/Del/2012 (A.Y. 2009-10)
(1) ITAT observed that there was a difference of accounts. The sales was Rs.1.08 crores and the ledger account reflected Rs.1.21 crores. As the assessee furnished a copy of the reconciliation. The opening balance is Rs.13,21,034/-. All these were export sales and a perusal of this copy of the ledger of M/s.Venus Stores, Spain demonstrates that the figures have been reconciles, the discrepancy explained. In the result ground no.1 is allowed.
(2) ITAT observed that it was not disputed by the assessee that the cheques were not bearer cheques. The assessee’s counsel failed to lead only evidence and submissions as to how the particular transactions are covered under Rule 6DD. ITAT opinioned that CIT(A) was right in observing that mere statement that the purchasers have no bank account at that very place has no meaning without explaining the circumstances under which the assessee had to issue bearer cheques and as to how the transactions are covered under Rule 6DD. In view of above, CIT(A) has force in his finding in holding that in the absence of any evidence led by the assessee, the action of the AO in disallowing the amount u/s. 40A(3) was upheld, which does not need any interference on our part, hence, ITAT uphold the same and dismiss the ground raised by the assessee.
(3) (4) and (5) in the assessee’s own case the issue was the same as dealt with by ITAT in the order for the AY 2007-08 above. Consistent with the view taken therein, ITAT allowed the ground by deleting the said deletion.
(6) As the addition was on account of notional interest, it was well settled law that the Hon’ble Gauhati High Court in the case of Highways Constructions Co. Pvt. Ltd. vs. Commissioner of Income Tax 199 ITR 702 held that notional interest cannot be charged. This ground is allowed.
(7) This ground was relating to confirmation of addition of Rs.95,830/-, which was not pressed before ITAT, hence, the same was dismissed.
(8) The addition of Rs.33,900/- i.e. 20% disallowances of expenses under various heads is concerned, ITAT found that fact finding has been given by the AO that some of the expenses are un-vouched or not properly vouched. The Assessee had not contravened these observations of the AO. Therefore, in view of the above factual finding of the AO, ITAT upheld the order of the CIT (A) on this issue and decided the issue against the assessee by dismissing the ground raised in this appeal.
(9) The addition of Rs.20,000/- under house hold expenses is concerned, ITAT found that the AO noted that the house hold withdrawals of Rs.1.00 lakh are quite low in response to which the assessee stated that theirs is an agriculture based family and he has only two school going dependent children and the withdrawals are quite reasonable and justice. Having regard to the status and life style enjoyed by the family, the AO estimated the expenses at Rs.10000/- per month and made an addition of Rs.20,000/-. ITAT opined that the CIT(A) was quite reasonable in sustaining the estimating addition of Rs.10,000/-, hence, ITAT upheld the order of the CIT(A) on this issue and decided the ground against the assessee.
In the result, ITA No.2222/Del/2012 (A.Y. 2009-10) filed by the assessee is partly allowed.