Sohanlal Mohanlal Bhandari, Nashik vs Department Of Income Tax

Asst. Commissioner of Income Tax, Shri Sohanlal Mohanlal Bhandari, Circle-1, Nashik. Opp. Police Station, Niphad, Tal- Vs. Niphad, Distt. Nashik - 422 209. (Appellant) (Respondent) PAN No.ABTPB2116L

Revenue By: Shri B. C. Malakar Assessee By: Shri Abhay Avchat

Date of hearing : 25-05-2015 Date of pronouncement : 29-05-2015

ORDER

PER VIKAS AWASTHY, JM:-

This appeal has been filed by the Revenue against the order of the

Commissioner of Income Tax (Appeals)-I, Nashik dated 31.05.2013 for

the assessment year 2010-11.

2. In this appeal, the Revenue has raised as many as 8 grounds,

which are as under :-

"1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Nashik was justified in deleting the addition of Rs.15,28,921/- made on account of disallowance of Bad debts.

2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Nashik was justified in holding that TDS provision does not attract on the hamali payment of Rs.10,20,000/- either in the form of commission or contract.

3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Nashik was justified in deleting the disallowance of expenses 2 ITA No.1542/PN/2013, A.Y. 2010-11

claimed u/s 36 of Rs.1,30,255/-, made by the Assessing Officer.

4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Nashik was justified in deleting the disallowances of prior period expenses of Rs.5,13,637/-, made by the Assessing Officer.

5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-I, Nashik was justified in deleting the disallowance u/s 40(a)((2)(b) of Rs.60,000/-, made by the Assessing Officer.

6. The appellant prays the order of the Assessing Officer may be restored.

7. The appellant prays to adduce such further evidence to substantiate his case.

8. The appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when the occasion demands."

The grounds of appeal No.6, 7 and 8 are general in nature. Thus,

the effective grounds of appeal are from No.1 to 5 which are to be

adjudicated upon.

3. The first ground raised by the Revenue in its appeal is with regard

to deleting the addition of Rs.15,28,921/- with respect to disallowance of

bad debts. The assessee is a commission agent. During the period

relevant to the assessment year under appeal, the assessee claimed bad

debts of Rs.15,28,921/-. The Assessing Officer rejected the claim of

assessee on the ground, that the assessee has made no effort to recover

the amount written-off as bad debts.

In appeal, the Commissioner of Income Tax (Appeals) following the

judgement of the Hon'ble Supreme Court of India in the case of T.R.F.

Ltd. vs. CIT reported as 323 ITR 397 (SC) deleted the addition.

We do not find any infirmity in the findings of the CIT(A) in

deleting the addition. The Hon'ble Supreme Court of India in the case of

T.R.F. Ltd. vs. CIT (supra) has held as under :-

3 ITA No.1542/PN/2013, A.Y. 2010-11 "This position in law is well-settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off."

The Hon'ble Apex Court has unambiguously held that it is not

necessary for assessee to establish that the debt, in fact has become

irrecoverable. The only requirement is that the bad debt are to be

written off as irrecoverable in the accounts of the assessee. In the

present case the Revenue has not disputed the recording of bad debts

written off in the Books of account. The Revenue has overstepped its

jurisdiction in questioning the manner of declaring debts as bad. In view

of the law laid down by the Hon'ble Supreme Court of India, this ground

of appeal of the Revenue is dismissed.

4. The second ground raised by the Revenue in its appeal is with

respect to non-deduction of tax at source on payments made to a group

of persons total amounting to Rs.10,20,000/-. The assessee has made

payments to a group of persons through their group leader towards

regular trade expenses such as Railway Wagon cleaning charges,

Railway Wagon loading and unloading charges, Railway Station site

cleaning charges, etc.. The Assessing Officer disallowed the same under

section 40(a)(ia) of the Act for non-deduction of TDS on the said

payments. The Assessing Officer held that the payments are in the

nature of commission. The Commissioner of Income Tax (Appeals) by 4 ITA No.1542/PN/2013, A.Y. 2010-11

following the order of Tribunal in assessee's own case for assessment

year 2008-09 deleted the addition.

5. The Ld. Counsel for the assessee has placed on record the copy of

the order of the Tribunal in assessee's own case for assessment year

2008-09 in ITA No.990/PN/2011 decided on 15.10.2012, wherein,

identical issue has been decided. The relevant extract of the findings of

the Tribunal in aforesaid appeal is as under :-

"5. The next issue is disallowance made by the A.O of Rs. 10,20,000/- u/s. 40a(ia) of the Act for non-compliance of TDS provision. The A.O has observed that ledger extract of commission submitted by the assessee showed that the assessee had paid commission of Rs. 51,000/- to 20 ITA No. 990/PN/2011 & C.O.NO.89/PN/11 Sohanlal Mohanlal Bhandari A.Y.2008-09 parties, which list is given on page No. 3 of the assessment order. The A.O asked the assessee to justify the payment of commission paid to those parties and also to justify non-deduction of TDS from the payment made to those persons. The assessee contended that the amount is paid to a group of persons (Toli) at the station towards cleaning expenses of Railway Wagons and other charges. The assessee furnished the photo copies of the vouchers for the payment made to one of the recipient Shri Rajendra Ambadas Shingare, who has received all the payments. There were 24 vouchers which have been signed by Shingare. The amount has been accounted in the books of account under the head 'Commission'. The A.O made the disallowance by giving the reason that there were conflicting and divergent stands of the assessee in respect of the said payment and hence, the said payment cannot be considered genuine. He further held that even if it is a genuine payment made to a person organizing labour for carrying out work of Railway Wagons, it is in the nature of a contractual payment and assessee was duty bound to make the TDS u/s. 194C of the Act. The A.O., therefore, on this reason also made the disallowance and made the addition to the extent of Rs. 10,20,000/- in his total income.

6. The Ld CIT(A) deleted the addition made by the A.O. The reasons given by the Ld CIT(A) are as under :

"6.4. From the above observations of the ld. AO, it is apparent that he has made the impugned disallowance on two grounds. Firstly, according to him, the entire commission payment of Rs. 10,20,000/- is not genuine as the appellant has taken different stand while writing the books of account and filing the return of income. Secondly, the payment made for organizing labour work for carrying out the cleaning of railway wagon was, in the AO's opinion in the nature of contractual payment on which TDS was required to be deducted u/s 194C. Since the appellant has not deducted the TDS, the impugned amount was disallowed. The appellant's 5 ITA No.1542/PN/2013, A.Y. 2010-11

business is that of commission and transport agent. In this process, the appellant is required to take railway wagons on hire from the railways and before the wagons are put to use and afterwards also, the appellant is obliged to keep them clean and properly washed. Therefore, the appellant was required to take the services of group of persons who were paid labourers for cleaning the railway wagons. Therefore, it is found to be an integral part of the appellant's business. The ld. AO has not invoked the provisions of section 40a(ia), instead he has primarily treated the entire commission payment as not genuine. However, while giving the finding, the ld. AO has not properly appreciated the facts of the case and the nature of business. The ld. AR has canvassed before me that proper upkeep and cleanliness of the railway wagon taken by the appellant from the railways is the appellant's responsibility. The work and services rendered by the various persons to whom the impugned amount was paid has not been disputed or denied by the Assessing Officer. With regard to the fact recorded by the AO that all these payments were received by one ITA No. 990/PN/2011 & C.O.NO.89/PN/11 Sohanlal Mohanlal Bhandari A.Y.2008-09 individual Shri Rajendra Ambadas Shingare, the ld.

AR has argued tht payment in affect was made to 20 different persons which are reproduced on page 3 of the impugned assessment order, however, the person Shri Rajendra Ambadas Shingare was only the Toli leader who has brought all these workers for keeping the job of cleaning done. The appellant has furnished copies of vouchers for payment before the Assessing Officer and the fact of payment has not been disputed. On going through the findings of the Assessing Officer, it is seen that he has disputed the increase in the payment to these workers from Rs. 1500 to Rs. 4000/- and concluded that the payments were not genuine. The ld. AR has submitted that there is no diversity in the stand taken by the appellant in the books of account and in the return of income. Whatever has been recorded in the books of account, the same has been incorporated while filing return of income. This contention is found to be correct. With regard to the increase in the payments under this head, it was submitted by the ld. AR that the payments have increased per person from Rs. 1500 to Rs.4000/- keeping in view the amount of job required to be done and the availability of the workers for the job.

In my considered views, this cannot be held against the appellant. With regard to the second ground taken by the Assessing Officer for making the impugned disallowance, it is noted that this is not a contractual payment within the meaning of section 194C. There was no contract between the appellant and the persons who carried out the wagon cleaning job. Instead the payments have been made to individual workers through their Toli leader vis. Rajendra Ambadas Shingare. The Toli leader by no stretch of imagination can be called a labour contractor. Therefore, there is no application of section 194C on these facts. As a natural corollary to this finding, Section 40a(ia) is also not applicable, which the Assessing Officer has otherwise not invoked while making the impugned disallowance. The appellant's case is, therefore, supported by the decision of the Hon'ble Tribunal in the case of Samanwaya V. Asstt. CIT (supra) 6 ITA No.1542/PN/2013, A.Y. 2010-11

and the Apex Court in the case of Birla Cement Works vs. CBDT (supra). In view of these findings of fact and the position or law, the impugned disallowance of Rs. 10,20,000/- is unjustified and the same is directed to be deleted. This ground of appeal is, therefore, allowed."

Now, the Revenue is in appeal before us.

7. We have heard the parties and perused the record. We find that so far as genuineness of the payment is concerned, it is not the case of the A.O that the assessee is not using Railway Wagons for transportation. The Ld Counsel argued that it is a custom that the Toli leader accepts the payment and in the group they carry out the cleaning job. He further argues that increase in the payment was due to market demand i.e. from Rs. 1500/- to Rs. 4000/-. He also argued that except suspicion, nothing is there to support the view taken by the A.O.

8. Per contra, the Ld. D.R. submits that it is certainly strange that the payment is increased from Rs. 1500/- to Rs. 4000/-. In our opinion, the A.O should have taken some pains to bring on record some material to show that the amounts paid by the assessee which were duly recorded in ITA No. 990/PN/2011 & C.O.NO.89/PN/11 Sohanlal Mohanlal Bhandari A.Y.2008-09 the books of account were inflated as admittedly, it is not disputed by the A.O that assessee was required the services for cleaning the Railway Wagons.

9. So far as the second reason of the A.O is concerned, in our opinion, it is a custom in that particular trade to make a group and undertake cleaning work. In our opinion, it cannot be said as a supply of labourers but, the group of labourers is engaged themselves and provisions of Sec. 194C are not applicable as rightly held by the Ld CIT(A). We find no reason to interfere with the order of the CIT(A) on this issue. Accordingly, relevant ground taken by the Revenue is dismissed."

We find that there has been no change in the facts and

circumstances in this assessment year as well. The payments have been

made to Shri Rajendra Ambadas Shingare who is group leader. It has

come on record that in earlier assessment years also, the payments on

behalf of all the labour were received by the same group leader.

Therefore, respectfully following the decision of the Co-ordinate Bench

for the assessment year 2008-09 in the case of the assessee, we hold

that the provisions of section 194C are not attracted on the payments

made to group leader. We dismiss this ground of appeal of the Revenue

for aforesaid reasons.

7 ITA No.1542/PN/2013, A.Y. 2010-11 6. The third ground raised by the Revenue in appeal is deleting of

disallowance of expenses claimed under section 36 of the Act. The

assessee has claimed fuel expenses to the tune of Rs.1,30,255/- for the

vehicles used for business. The Assessing Officer disallowed the same

on the ground that the assessee is not able to show the genuineness of

the expenditure. The Assessing Officer further held that the vehicles for

which fuel expenditure has been claimed belongs to the employees and

does not appear in the Balance Sheet of the assessee.

7. In appeal, the Commissioner of Income Tax (Appeals) after

examining the issue held as under :-

"5.3 I have carefully considered the facts of the case and the rival contentions. The AO has made the impugned disallowance in respect of fuel expenses used in the vehicles belonging to the employees on the ground that these vehicles are not appearing in the Balance Sheet of the assessee. This issue has been examined. The assessee is an individual and has number of employees out of which three vehicles i.e. Maruti and Indigo are owned by his employees which are also used for the purpose of business of the assessee. The assessee has reimbursed the fuel expenses. Such expenditure is, therefore, allowable under section 37. It is not necessary that a vehicle should necessarily be owned by the business or should appear in the block of assets to entitle a claim of expenses in respect of fuel of such vehicles. It is not a case of the assessee that he has claimed depreciation on such vehicles. The assessee has only claimed fuel expenses and there is no dispute that these were utilized for the purpose of business. On these facts and in the circumstances, the expenses of Rs.1,30,255/- is an allowable expenditure under section 37 as the same has been utilized for the purpose of business. The AO is not justified in making the impugned disallowance. The disallowance of Rs.1,30,255/- is therefore, deleted. This ground of appeal is allowed."

The only argument raised by the Ld. Departmental Representative

is that the fuel expenses claimed on the vehicles were not owned by the

assessee. We do not find force in the submissions of the Ld.

Departmental Representative. Even if the vehicles were owned by the

employees, it is not disputed that they were used for the purpose of

assessee's business.

8 ITA No.1542/PN/2013, A.Y. 2010-11 We do not find any infirmity in the observation of the

Commissioner of Income Tax (Appeals) in deleting the addition.

Accordingly, this ground of appeal of the Revenue is dismissed.

8. The fourth ground in appeal of the Revenue relates to deleting of

disallowance of prior period expenses Rs.5,13,637/-. The assessee has

claimed expenditure to the tune of Rs.5,13,637/- in respect of payments

made on account of Weigh Bridge Maintenance Charges, Rail

Commission, Hamali Charges, Rent Niphad KK Sangh, Computer

Expenses. The Assessing Officer disallowed the expenditure by treating

them as prior period expenses.

9. In appeal before the Commissioner of Income Tax (Appeals), the

assessee again furnished all the documents relating to the expenditure

disallowed. The Commissioner of Income Tax (Appeals) after examining

the same held as under :-

"The assessee has demonstrated that liability in respect of these expenses got crystallized in the previous year relevant to the assessment year under appeal. Therefore, these become payable during this assessment year. The contention of the assessee has been examined and found to be correct. The AO's observation with regard to non-deduction of TDS in respect of commission of Rs.3,03,33/- paid to Shri Shankarlal Bhamki Thakkar is factually incorrect in so far as the assessee has submitted necessary proof as copy of account to demonstrate that TDS of Rs.78,228/- has been deducted on this payment. Therefore, no such disallowance is warranted under section 40(a)(ia). There is no dispute with regard to the non-payment or genuineness of these expenses. As these expenses were crystallized and paid during the assessment year under appeal, such expenses are allowable expenditure under section 37. The impugned disallowance of Rs.5,13,637/- is unjustified and is therefore deleted. This ground of appeal is allowed."

In view of the categoric findings of the Commissioner of Income

Tax (Appeals) about the genuineness of the expenditure, we do not find

any reason to interfere with the same. The Ld. Departmental 9 ITA No.1542/PN/2013, A.Y. 2010-11

Representative has not able to controvert the observation of the

Commission of Income Tax (Appeals) on this issue. Accordingly, this

ground of appeal of the Revenue is dismissed.

10. The last ground in appeal of the Revenue is deleting of

disallowance under section 40(a)(2)(b) of the Act. The assessee has

debited salary of Rs.1,20,000/- in the name of Smt. Sapna Bhandari,

wife of assessee's nephew. The Assessing Officer disallowed 50% of

salary. The Assessing Officer held that the salary has been paid to the

relative of assessee.

In appeal, the Commissioner of Income Tax (Appeals) deleted the

addition with following observations :-

"7.3 I have carefully considered the facts of the case and the rival contentions. The assessee has paid salary of Rs.1,20,000/- to a person viz. Sapna Bhandari who is the wife of the assessee's nephew Shri Vishal Bhandari. The assessee has submitted that this lady is a qualified data entry operator and the services rendered are very useful to the business of the assessee. It was also demonstrated that she is not a relative of a "person" as defined under section 40(A)(2)(b) r.w.s. 2(41). This has been examined. There is no dispute that Smt. Sapna Bhandari has rendered services as data entry operator to the assessee. As per the definition of the relative as per section 2(41) the term relative in relation to an individual means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual. As may be seen, the person is the wife of the assessee's nephew, therefore, is not covered by the definition of a relative of a person under section 40(A)(2)(b). The ld. AO has not brought any material of evidence such as comparative data or independent market research, if any, to justify the estimation of market rate for the salary paid to this person. As may be seen the total salary payment to this person is Rs.1,20,000/- which is roughly Rs.10,000/- per month, which according to the present economic scenario demand and supply in the service sector is quite reasonable. On both these counts, i.e. on the applicability of section 40(A)(2)(b) and the reasonableness of the market rate the impugned addition is not justified and the same is, therefore, deleted. This ground of appeal is allowed."

10 ITA No.1542/PN/2013, A.Y. 2010-11 We are in agreement with the findings of the CIT(A) on this issue.

The wife of assessee's nephew does not fall within the definition of

'relative' as defined in section 2(41) of the Act, which reads as under :-

"2(41) "relative", in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual."

Accordingly, no disallowance can be made in respect of salary paid

to Smt. Sapna Bhandari. This ground of appeal of the Revenue is

dismissed being devoid of merit.

11. In the result, the appeal of the Revenue is dismissed being devoid

of merit.

Order pronounced on Friday, the 29th day of May, 2015

at Pune.

Sd/- Sd/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 29th May, 2015

Sujeet

Copy to

1 Assessee 2 Department 3 The CIT(A)-I, Nashik 4 The CIT-I, Nashik 5 The DR, ITAT, "B" Bench, Pune. 6 Guard file.

By Order

//True Copy//

Sr. Private Secretary Income Tax Appellate Tribunal, Pune