Cosmopolitan Trading Corp., Jaipur vs Assessee

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Siddharth Ranka, & Shri Muzaffar Iqbal, jktLo dh vksj ls@ Revenue by :Smt. Neena Jeph, JCIT -DR

lquokbZ dh rkjh[k@ Date of Hearing : 15/07/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17 /07/2015

vkns'k@ ORDER

PER R.P. TOLANI, JM

This is an appeal filed by the assessee against the order of the ld.

CIT(A)-I, Jaipur dated 28-01-2013 for the assessment year 2008-09

challenging the disallowance of Rs. 2,46,478/- u/s 40(a)(ia) r.w.s. 194C

for non-deduction of TDS from the payments made to job workers. 2 ITA No. 298/JP/2013

M/s. Cosmoplitan Trading Corporation vs. ITO, Ward- 2 (1), Jaipur .

2.1 Brief facts of the case are that the assessee paid job work charges

for processing the stones. During the course of assessment proceedings,

the AO rejected the books of account of the assessee besides disallowance

of Rs. 3,12,891/- was made u/s 40(a)(ia) of the Act for non-deduction of

TDS.

2.2 In first appeal, the ld. CIT(A) upheld the rejection of books of

account of the assessee however qua 40(a)(ia) disallowance partly

accepted the plea of the assessee that in case of rejection of books of

account and estimation of profit, no other addition/disallowance can be

made by following observations.

''4.3 ................. There is some merit in the submissions of the A.R. that gross profit rate has already been applied by ld. CIT(A) vide his order ITA No. 604/07-08 dated 21-05-2008.Therefore, it is seen that he ld. CIT(A) has confirmed the trading addition to the extent of Rs. 66,413/-. Thus the relief is required to be allowed from the total disallowance u/s 40A(ia) of Rs. 3,12,891/-. Therefore, the disallowance u/s 40A)(ia) is confirmed to the extent of Rs. 2,46,478/-.''

2.3 The ld. Counsel for the assessee contends that there was no liability

of deducting TDS, besides referred to the amendment brought u/s

40(a)(ia) of the Act for the effect that if taxes on income received by

payee are paid, then disallowance cannot be made. It is contended that 3 ITA No. 298/JP/2013 M/s. Cosmoplitan Trading Corporation vs. ITO, Ward- 2 (1), Jaipur .

before the AO that returns of income of five job workers were furnished

which included the income from job work charges received from

assessee. For other payees, the confirmations about payees non-taxable

income were filed. Thus the taxability of the job work income in the

hands of the payee stood demonstrated by the assessee.

2.4 Reliance is placed in the case of CIT vs. Banwari Lal Bansidhar,

(1998) 229 ITR 229 for the proposition that if the books of account are

rejected and profits are estimated then no separate addition u/s 40A(3)

can be made. It is held as under:-

''Section 40A(3) of the I.T. Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash Payment exceeding prescribed limits - Assessment year 1971-72 - Whether where income of assessee was computed applying gross profit rate and when no deduction was claimed or allowed to assessee in respect of purchase, no disallowance u/s 40A(3), read with rule 6DD(j), could be made by Assessing Officer - Held, Yes.'

The ld. AR further relied on ITAT Hyderabad decision in the case of

Teja Construction vs. ACIT, (2010) 39 SOT 13 (URO) wherein it is held

as under:-

''Section 145, read with Section 40(a)(ia)of the I.T. Act, 1961- Method of accounting - Rejection of accounts - Assessment year 2005-06 - Whether once books of account are rejected and estimation of income is made, further disallowance u/s 40(a)(ia) is unwarranted - Held, Yes.'' 4 ITA No. 298/JP/2013 M/s. Cosmoplitan Trading Corporation vs. ITO, Ward- 2 (1), Jaipur .

Similar view has been taken in these cases.

(i) ITO vs. Mark Construction (2012) 23 Taxman.com 398 (ITAT Kolkata Bench).

(ii) Ecoasafalt Sa vs. ADIT (Inv.), 24 Taxman. Com 349 (ITAT Delhi Bench)

(iii) ECI Engineering vs. DCIT (ITA No. 2048/Hyd/2011 - ITAT Hyderabad Bench)

2.5 Ld. CIT(A) has referred to Hon'ble Andhra Pradesh Judgment vide

ITA No. 384 of 2012 taking contrary views against ITAT Special Bench

Judgment of Vishakhapatnam in the case of Merilyn Shipping &

Transprot Vs. Addl. CIT (SB) (2012)20 Taxman 244. However, Hon'ble

Allahabad High Court in the case of Vector Shipping has upheld the view

taken in the case of Merilyn Shipping & Transprot Vs. Addl. CIT (supra).

Departmental SLP against Allahbad High Court judgment has been

dismissed by Hon'ble Supreme Court. To address this situation, an

amendment in sec 40(a)(ia) has been made. Thus the divergence of

judicial opinion has been sought to be addressed by this legislative

amendment.

2.6 Further the ld. AR placed reliance of Hon'ble Supreme Court in

the case of CIT vs. Vegetable products Ltd. (1973) 88 ITR 192 for the

proposition that if two views are possible then one view in favour of the 5 ITA No. 298/JP/2013 M/s. Cosmoplitan Trading Corporation vs. ITO, Ward- 2 (1), Jaipur .

assessee should be adopted. Besides, in this case, the taxes have been paid

in the hands of the payees. Further reliance is placed in the case of ITO

vs. Nardev Kumar Gupta vs. ITO (ITA No. 829/JP/2012 dated 23-01-

2012) of ITAT Jaipur Bench.

2.7 The ld. DR supported the order of the ld. CIT(A).

2.8 I have heard the rival contentions and perused the materials

available on record. I find merit in the arguments of the ld. Counsel for

the assessee. Hon'ble Allahabad High Court in the case of CIT vs.

Banwari Lal Bansidhar (supra) has taken a view that once the books of

account are rejected then no other disallowances can be made which is a

fact in this case. Besides, the assessee has demonstrated that taxes on the

impugned job work charges were either paid by payees or they were not

taxable in their hands. Therefore, there is no loss to the Revenue, this fact

has not been disputed. In view of Hon'ble AP & Allahbad High Court

judgments there existed divergence of opinion about Meryllin Shipping

and interpretation about the provisions of Section 40(ia) of the Act. In this

eventuality, Hon'ble Supreme Court in the case of CIT vs. Vegetable

products Ltd. (supra) holds that view favorable to assessee's should be

adopted. Besides in the case of Nardev Kumar Gupta (supra), Jaipur

ITAT has squarely held that if books of accounts are rejected then no 6 ITA No. 298/JP/2013 M/s. Cosmoplitan Trading Corporation vs. ITO, Ward- 2 (1), Jaipur .

other addition/disallowance can be made in the case of the assessee. Thus

in considerations of the aforementioned facts and circumstances of the

case, I hold that no disallowance is justified u/s 40(a)(ia) of the Act in this

case of the assessee. Hence, the ground of the assessee is allowed.

3.0 In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 17/07/2015

Sd/-

¼vkj-ih-rksykuh½ (R.P.Tolani) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 17 /07/ 2015 *Mishra

vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- M/s. Cosmoplitan Trading Corporation, Jaipur

2. izR;FkhZ@ The Respondent- The ITO, Ward- 2 (1), Jaipur

3. vk;dj vk;qDr¼vihy½@ CIT(A).

4. vk;dj vk;qDr@ CIT,

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No.298/JP/2013)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@ Assistant. Registrar