TMI Blog2012 (8) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... er grounds Held that:- It is settled preposition of law that power of the first appellate authority is co-terminus with that of the AO and is required to look into the issue and examine the same which has not been properly dealt with by the AO. Here in this case, the CIT(A) has not discovered any new source of income which was not before the AO but has examined the issue which was before the AO and grounds before him. It is not a case where the AO has made an addition on X and Y account and the CIT(A) has discovered some new source of addition for taxing the income on Z account. This is more so when the assessee himself has taken contradicting stand, on one hand he is claiming the credit of entire TDS amount and on the other hand, contending that the entire payment received by him is not his receipts. Therefore, the CIT(A) was fully justified in law in acquiring the jurisdiction for making the enhancement of the income. Preview of Section 194C - assessee contended JR & Company to be main contractor and that only the payment routed through the assessee - Held that:- It is observed from agreement that assessee was assigned and was solely responsible for “carrying out the work” ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of the agreement it is borne out that there is any title in favour of JR & Co. by the NIBM. In absence of such clause, it cannot be held that there was a diversion of any income by overriding title. It was assessee’s obligation alone to get the work done. The payment received by the assessee was as per terms of agreement only. Issue is, thus, decided against the assessee. Telephone and vehicle expenses - ad hoc dis- allowance of Rs 50,000 assuming it to be personal in nature - Held that:- Since assessee has himself shown personal expenditure of Rs.4,02,902/- on account of usage of telephone and vehicle, which has not been claimed as business expenditure, there was no occasion to make any kind of ad hoc disallowance on account of personal usage - Decided in favor of assessee - ITA No.298/Mum/2012 - - - Dated:- 22-6-2012 - SHRI P.M. JAGTAP, SHRI AMIT SHUKLA, JJ. Appellant by: Mr. Farrokh Irani Respondent by: Mr. Rupinder Brar O R D E R PER AMIT SHUKLA (J.M.) : This appeal has been filed by the assessee against the order dated 28-11-2011, passed by the CIT(A)-28, Mumbai for the quantum of assessment passed under Section 143(3) for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has various sub grounds. The issue relates to enhancement of income by Rs.289.65 lakhs by the CIT(A), who has made the disallowance after invoking the provisions under Section 40 (a)(ia) on the payments of Rs.289.65 lakhs made to JR Co. on account of non-deduction of TDS under Section 194C. 6. The genesis of the issue started from the stage of assessment proceedings when the assessee has claimed amount of TDS of Rs.35,56,901/- in his return of income. The Assessing Officer observed that out of this sum, the income of TDS of Rs.6,51,012/- was not shown in the instant year on cash basis. Therefore, he disallowed the TDS amount of Rs.6,51,012/- on the ground that the same can be claimed only when the income is shown in the total income of the assessee. He, therefore, allowed the credit of TDS to the extent of Rs.29,05,889/- and the balance amount of TDS of Rs.6,51,012/- was disallowed. This matter was agitated in first appeal. 6.1 The assessee in the first appeal, on the one hand, raised the ground for disallowing the credit of Rs.6,51,012/- and on the other hand, contended that the National Institute of Bank Management (hereinafter referred to as the NIBM ) has wrongly deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reliance was also made to clause IV, which provides for scope of work and clause VIII, which provides for professional fees. From the said clauses, it was argued that the agreement is for contract for professional services. It was also pointed out that the JR Co. was the main contractor and not a sub-contractor and there is a direct relationship between JR Co. and NIBM and they had the relationship of a contractor and the contractee. In support of this, following documents were filed :- a. Bills raised by the contractor on NIBM (sample enclosed); b. Letter dated 23rd April, 2006 from the contractor confirming the award of contract (enclosed) c. Letter dated 7th June, 2007 from the contractor to NIBM asking for TDS certificates (enclosed) d. Letter dated 6th July, 2007 from RJB-A to NIBM asking for issuing TDS Certificates in the name of contractors (enclosed) e. Letter dated 15th July, 2007 from the contractor to NIBM asking for either providing TDS Certificates or the amount of TDS (enclosed). It was further submitted that the assessee is not earning any margin from the contractors and whatever the payment has been made is reimbursed to the said contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the income assessed by the AO. The AO should issue a demand notice in respect of this additional demand and proceed under the Act accordingly. Since receipt from work is now being brought to tax, credit for tax deducted at source of Rs.6,51,012/- can be given by the AO. This ground of appeal is decided in favour of the assessee in view of enhancement to assessed income being made vide this order. 9. The appeal is disposed of with enhancement of Rs.289.65 lakhs. While making this addition to the assessed income, AO is required to give relief of Rs.3,53,168/- (Rs.50,000 + Rs.77,164 + Rs.2,25,554) as per discussions above from the assessee income. 8. Learned Senior Counsel on behalf of the assessee has structured his argument on the issue of enhancement and disallowance under Section 40(ia) in the following manner :- 1. The enhancement made by the CIT(Appeal) is without jurisdiction. 2. The enhancement made by the CIT(Appeal) is erroneous on merits, inter-alia because; A(1) The CIT(Appeal) erred in holding that, the appellant is a contractor, and therefore, the provisions of section 194C and, consequently, section 40(a)(ia) were applicable to him. A(2) Without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lal and Co., reported in (2001) 251 ITR 865 (FB), wherein the Hon ble Full Bench has held that the view taken by the Hon ble Supreme Court still holds good and whenever the question of taxability of income from a new source which had not been considered by the Assessing is concerned, the jurisdiction to deal with the same lies under Section 147/148 and 263 and the similar power is not available to the first appellate authority. Based on these judgments, he submitted that the very assumption of the CIT(A) that Rs.289.65 crores is an income of the assessee, was not the subject matter of the assessment or the scrutiny by the Assessing Officer. The Assessing Officer was besieged with the credit of the TDS amount of Rs.6,51,012/- only which was flowing from the return. What the CIT(A) has done, he has tried to make the enhancement of income and addition on a new source of income, by holding that entire receipts as taxable, on the ground that TDS was not deducted under Section 194C, therefore, the provisions of Section 40(a)(ia) comes into operation. Such an action, definitely amounts to discovering of a new source of income and taxability thereof is beyond the jurisdiction of the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k giving the details of purchase items and contract work. In support of this contention, reliance was placed on the decision of Hon ble Bombay High Court in the case of CIT Vs. Angel Capital Debit Market Ltd, passed in ITANO.475/2011, vide order dated 28-7-2011 and the Hon ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. Vs. CIT, reported in (2010) 327 ITR 456. 9.3 The Third limb of his argument was that no disallowance under Section 40(a)(ia) could be made in respect of amount paid during the year as the same is applicable only on the amount payable and in support of his contention, he relied upon the decision of the Special Bench in the case of M/s Merilyn Shipping and Transporters Vs. ACIT, passed in ITA No.477/VIZ/2008. The details of amount payable have been provided at page 58 of the paper book. 9.4 The next contention of the Ld. AR was that there was a reasonable cause for non-deduction of tax at source by the assessee as he was under the bonafide belief that he is not a contractor and as such he was not required to deduct the TDS which is evident from the letters written by the assessee and also by the contractor. Therefore, in view of the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear cut contract of work between the assessee and NIBM. On the issue of TDS on supply of material and amount payable, he submitted that this matter should be sent back to the Assessing Officer to verify and examine the same. For the various other issues, he strongly relied upon the findings given by the CIT(A). 11. We have carefully considered the rival submissions and perused the entire material placed on record. The main issue in ground No.1 relates to enhancement of income by Rs.289.65 lakhs , due to non-deduction of TDS under Section 194C and consequent disallowance under Section 40(a)(ia). From the various sub grounds, given in ground No.1 and the arguments of the learned counsel, following issues are emerging, which needs to be adjudicated by us :- 1st issue :- Whether on the facts and circumstances of the case, learned CIT(A) was justified in enhancing the income of Rs.289.65 lakhs; 2 nd issue :- Whether there was any work done in pursuance of a contract as per the agreement by the assessee in terms of provisions of Section 194C; 3rd issue : -Whether on the facts and circumstances of the case, any disallowance under Section 40(a)(ia) is called for in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is shown in the total income of the assessee. The Assessing Officer, accordingly allowed the credit of TDS for sum of Rs.29,05,889/- (35,56,901 - 6,51,012/-) and in a way treated the entire payment received by the assessee as his receipts and income. 12.1 At the stage of CIT(A) this issue of disallowance of TDS credit of Rs.6,51,012/- was challenged. While examining this issue, the CIT(A) looked into the agreement entered into by the assessee and the NIBM and examined the payment details and also the TDS deducted. It was on the examination of these documents, the CIT(A) came to the conclusion that the assessee was liable to deduct TDS on the payment made to the contractor i.e.JR Company and, accordingly, he held that the entire payment of Rs.289.65 lakhs should be treated as income of the assessee in view of the provisions of Section 40(a)(ia). On this background, we proceed to decide the various issues as have been carved out by us as above. Decision on 1st Issue :- 13. The subject matter of appeal before the CIT(A) in ground No.6 before him, was the disallowance of TDS credit of Rs.6,51,012/-. The TDS amount of Rs.35,56,901/- is borne out from the TDS certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer. Here in this case, the CIT(A) has not discovered any new source of income which was not before the Assessing Officer but has examined the issue which was before the Assessing Officer and grounds before him. It is not a case where the Assessing Officer has made an addition on X and Y account and the CIT(A) has discovered some new source of addition for taxing the income on Z account. What the CIT(A) has done, he has examined the issue in detail which was subject matter before him and came to the conclusion that the Assessing Officer has failed to take note of the legal implication of the issue before him. This is more so when the assessee himself has taken contradicting stand, on one hand he is claiming the credit of entire TDS amount and on the other hand, contending that the entire payment received by him is not his receipts. Thus, on the facts of the present case, the ratio laid down by the Hon ble Supreme Court as relied upon by the learned Senior counsel, does not apply to the instant case and, therefore, the CIT(A) was fully justified in law in acquiring the jurisdiction for making the enhancement of the income. Hence, the contention of the learned Seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready provided or shall provide the Client with the following evaluation and design services: a) studying the site to determine the scope of the Works b) re-designing the interior spaces identified for the purpose by the Client c) preparing general specifications for the materials and other parameters of the building materials, furnishings and products to be used d) preparing a summary schedule of rates and quantities e) procuring the approval by the Client of the summary schedule of rates and quantities to determine the Final Cost of Works. 2) Supervision of the Works: RJB-A shall supervise the procurement, supply and construction management activities and be solely and fully responsible to the Client for ensuring compliance with the Client s requirements. 3) Implementation of the Works: a) RJB-A shall be permitted to utilise the services of any firm or firms for the purpose of executing the Works, which shall include project management, construction management, and procurement and supply of materials and products. b) The relationship between the Client and RJB-A with respect to the firms so appointed by RJB-A to execute the Works shall be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpentry, and installation of all procurements. 2) Stage I Detailed Brief, Conceptual Design, Final Cost Estimate 3) Stage II Mobilisation 4) Stage III Job Progression a) Carry out all site works including civil, electrical, HVACI plumbing, tiling, painting, polishing, and carpentry. b) Place orders for all off-site procurements including carpeting, furniture, appliances, equipment, soft furnishings and accessories. 5) Stage IV Virtual Job Completion and Handover a) Effectively finish all site work listed above to enable occupation by the client. b) Install all off-site procurements listed above. c) Handover of site to Client in a ready to use state. 6) Stage V Snag List a) Within 15 days of handover of site, the Client provides a list of quality issues they wish to have attended to by RJB-A. b) RJB-A attends to these issues, or explains to the Client why the issue is not a material quality issue. V) TIME LINES FOR EXECUTION OF PROJECT 1) Ideally, the above stages would run sequentially. However, considering the extremely short time line available for executing the project, the activities of multiple stages wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevailing at the time of payment by the Client. , 2) The Client shall pay RJB-A professional fees as follows: a) 50% of the fees calculated on the basis of the Final Cost Estimate on preparation and certification of the Final Cost Estimate as specified in Para VII) 2) c) above and submission to the Client of the Enabling Drawings b) 100% of the fess calculated on the basis of the Revised Final Cost Estimate, less amounts already paid, upon Virtual Completion and Hand Over as specified in Paragraph V) 2) above and submission of a certified statement of the Cost of Works. IX) OTHER PROVISIONS 1) Expenses: The Client shall reimburse RJB-A the following expenses: a) Any other costs or expenses as pre-approved between RJB-A and the Client at mutually agreed terms. 2) Services not included a) If the scope of the project differs substantially from the scope laid down in this agreement, then the Terms and Conditions also the fees and schedules of payments may be re-worked within the suggested framework by mutual consent and on terms agreeable to both the Client and RJB-A. 3) Authority: Subject to the conditions outlined in this Agreement the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum of half of one percent (0.5%) of the Final Cost Estimate per week of delay, subject to a maximum of 5% of the Final Cost Estimate, as liquidated damages. (i) Such moneys shall be deducted from any dues which become due to RJB-A (ii) The deduction of such sum shall not, however, absolve RJB-A of their responsibility and obligation to complete the work in its entirety. 7. Defects after completion : a) For a period of 12 month after the Virtual Completion of the Works, RJB-A shall be responsible for any defect, or other faults in the Works carried out which may appear and shall be rectified at its own cost any defect, or other faults in the Works carried out which may appear. b) RJB-A shall, upon the direction and writing of the Client, and within such reasonable time as shall be specified therein, have rectified and made good by the Contractor at his cost. c) If RJB-A does not have the defects attended to within a reasonable time, the Client shall be entitled to have the defect rectified at its cost and adjust the expenses so incurred against the amount being withheld by the Client . 14.1 If we analyse the above important clauses, following things ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and guidance, who in this case can be referred to as a sub-contractor . The assessee has carried out the work, specifically the works contract part through JR Company. However, the risk and responsibility which is associated with a contract lies with the assessee only and JR Company has merely shared the risk and responsibility with the assessee. Thus, there is a clear cut relationship of a contractor and sub-contractor between the assessee qua the JR Company. Once the payment has been received in terms of the agreement, which was for a specific work to be done in pursuance of the agreement and the payment has been credited to the account of the assessee, this definitely forms part of the assessee s receipts. This is also further fortified by the fact that the NIBM deducted TDS on the entire payment made to the assessee which was in line with the terms specified in the agreement itself. Raising of invoice bills by JR Co. to NIBM will not make any difference as he has submitted the bill for carrying out the works contract which were assigned and approved by the assessee and the payment of which has been received by the assessee. It was only if such bills have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40(a)(ia) is factually and legally correct. Thus, this issue is also decided against the assessee. Decision on 4th Issue :- 16. The next issue is whether any disallowance can be made under Section 40(a)(ia) for non-deduction of TDS under Section 194C on bought out items i.e on purchases of material. From the perusal of the records as placed before us, it is seen that large amount of payment relates to purchases and supply of materials. The obligation to deduct TDS is limited to the appropriate proportion of the income which is chargeable to tax. The payment of supply and charges of material do not partake the character of income in this case and there is no mark up for supply of purchases of items. Such payments are merely a reimbursement of expenses incurred for purchases and do not have any element of income. The judgment in the case of CIT Vs. Angel Capital Debit Market Ltd (supra) of the jurisdictional High Court as relied upon by the AR is squarely applicable. Therefore, we hold that the disallowance under Section 40(a)(ia) cannot be made on bought out/supply and purchases of materials as there was no liability to deduct TDS under Section 194C and, therefore, such a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Kotak Securities Ltd. (supra) will not be applicable on the facts of the assessee s case. Thus, this issue is decided against the assessee. Decision on 6th Issue :- 18. The next issue is whether the provisions of Section 40(a)(ia) is applicable only to amount payable on the last day. As agreed by both the parties, this issue stands covered by the decision of Hon ble Special Bench in the case of M/s Merilyn Shipping and Transporters Vs. ACIT (supra), wherein it has been held that the provision of Section 40(a)(ia) is applicable to the tax which is deductible on the sums payable. Accordingly the Assessing Officer is directed to verify the amount which are payable as on the last date i.e on the date of balance sheet and restrict the disallowance on the amount payable. (The details of which has been given at page 56 of the paper book). Accordingly, following the decision of the Special Bench, this issue is therefore, decided in favour of the assessee, subject to verification by the Assessing Officer. Decision on Last Issue :- 19. Lastly, whether there was any diversion of income at source. As stated earlier, nowhere from the reading of the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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