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TMI Blog2012 (8) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure of Rs.1,00,000/- out of telephone and vehicle expenses on ad hoc basis assuming it to be personal in nature. It was submitted by the assessee that he has incurred personal expenditure of Rs.4,02,902/- on account of use of telephone and vehicle, which has not been claimed as business expenditure and, therefore, the disallowance of Rs.1,00,000/- out of claim of expenditure of Rs.3,64,752/- on telephone and Rs.1,96,547/- on vehicle expenses are not reasonable and not called for. The CIT(A) restricted the disallowance to Rs.50,000/- on the ground that the personal element could not be ruled out. 3.1. Learned AR on behalf of the assessee has submitted that the assessee has its own vehicle for the personal purposes and a huge expenditure on account of telephone and vehicle has also been shown as personal expenses which has not been claimed as business expenditure. Hence, no disallowance is called for. On the other hand, learned CITDR relied upon the findings of the CIT(A). 4. We have carefully gone through the finding of the Assessing Officer as well as CIT(A) and also the rival submissions. After considering the fact as stated by the learned AR and also borne out from the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, who is a qualified Architect, was appointed by NIBM to implement the project of NIBM at Pune for planning and implementing of refurbishment of a hostel at the NIBM campus. The agreement was entered into on 8th May, 2006 between NIBM and the assessee. The assessee was required to implement the entire project on the terms and conditions stated in the said agreement. The CIT(A) during the course of the appellate proceedings after noting the various terms and conditions given in the various clauses of the agreement, observed that the assessee was not only responsible for the Architect work but also for the entire civil and electrical contract. Even though the assessee could engage contractors of his choice for completion of work, but he was solely responsible for the execution of the work and was alone responsible to NIBM vis-à-vis the contractors and suppliers. He, therefore, was of the opinion that the payment for the entire project routed through the assessee is his gross receipts and payment made to JR &Co. is an expense as they were sub-contractors. Accordingly, the enhancement notice was issued to the assessee vide letter dated 3-9-2011. 6.2 It was submitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts while completing the assessment of the assessee, after verifying all the documents and records placed before him and, therefore, the enhancement proposal is legally not tenable. Alternatively, it was also submitted that the contractor has already offered his income to tax and it is not the stand of the department that the assessee had earned any margin in the contract work, therefore, such a disallowance is not called for. Another alternative argument was that the entire amount is not liable for TDS as not all the transaction attract TDS as the portion of some billings is for supply of goods. 7. Learned CIT(A) rejected the entire contentions and submissions of the assessee and after referring to various clauses of the agreement dated 8-5-2006 between the assessee and NIBM, observed and held as under :- "8.4 I have perused the reply and I find that there is no merit in the submission. I, in view of discussion in para 8.2 above, hold that assessee was the contractor and JR & Co. was the sub-contractor. The assessee has failed to produce any agreement between NIBM and JR & Co. appointing JR & Co. as contractor. The assessee has shown receipts in his books after excluding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-deduction of tax at source by assessee and, therefore, the provisions of section 40(a)(ia) were inapplicable. B. Without prejudice to A above, the CIT(Appeal) ought to have appreciated that there was diversion of Income at source in favour of JR & Co. and hence, there was no question of section 40(a)(ia) of the Act, being applicable to it." 9. On the issue of enhancement, learned counsel submitted that the subject matter of appeal before the CIT(A) was disallowance of TDS credit for sum of Rs.6,51,012/- and the CIT(A) was obliged to adjudicate the said ground in the manner in which the Assessing Officer has decided the issue. The taxing of entire receipts of Rs.289.65 lakhs under Section 40(a)(ia) was definitely a new source of income, which as per law, the CIT(A) could not have done so. In support of his contention, he has made extensive reference to the decision of Hon'ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry, reported in (1962) 44 ITR 891 and CIT(Central) Vs. Rai Bahadur Hardutroy Motilal Chamaria, reported in (1967) 66 ITR 443. Relying upon the said judgments, he submitted that the CIT(A) has no power to enhance the assessment by di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it has been mentioned that they have been awarded a contract by the NIBM. He also pointed out the details of payment given at page 19 of the paper book and also the copy of invoices/bills raised by JR& Co. to the NIBM. Copy of such bills have been placed in the paper book from pages 20-33 of the paper book. From such bills, he vehemently argued that the invoices have been directly raised by the contractor to the NIBM and the assessee had no role to play as a contractor. The assessee was merely an agent to forward the payment to the contractor and has not recorded the said payment in his books of accounts which is evident from the audited copy of the profit and loss accounts. The payment made by the NIBM to the assessee after deducting TDS, has been objected to, which is evident from the fact that the letter was written by the contractor to the NIBM that TDS certificate should be issued on the amount received by them. The copy of such letter dated 7-6-2007 has been placed in the paper book at page 34. Similarly, the assessee has written letter to NIBM that TDS certificate and the deduction of tax should have been in the name of the contractors i.e. JR & company and requested t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into consideration then also it is evident that the assessee was not entitled to the receipts and, therefore, there was a clear cut diversion of income at source and, therefore, no such disallowance should be made. If the entire receipts is excluded at source then there is remain no question of expenditure. 10. Per Contra, learned CIT DR on the aspect of enhancement of income submitted that there was no new source of income as the subject matter of dispute related to TDS, which was flowing from the agreement and the transaction between the NIBM, assessee and the contractors. The learned CIT(A) has not discovered any new source of income but has examined the terms of the agreement between the two parties and the deduction of TDS aspect, which was the subject matter of appeal before him while adjudicating the issue of credit of TDS. In support of his argument, he relied upon the decision of ITAT Delhi Bench in the case of L. Dee's Vs. ITO, reported in (2009) 120 ITD 138(Delhi), wherein it has been held that the scope of power of CIT(A) is co-terminus with that of the Assessing Officer and he is empowered to do what the Assessing Officer can do and he has power to direct the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce. 12. The facts in brief are that the assessee is an architect, who has entered into an agreement on 8th May, 2006 with NIBM for comprehensive refurbishment of hostel at NIBM Campus, Khondhwekhurd, Pune. The assessee was appointed to implement the project on the terms and conditions specified in the said agreement and was solely responsible to carry out the "work" as defined in the said agreement. In pursuance of the "work" done for the project, the assessee had received payment of Rs.2,89,65,778/- from NIBM and also architect fees of Rs.18.10 lakhs. On the entire payment, TDS has been deducted by the NIBM. The payment so received by the assessee has not been taken as receipts in the profit loss account even though it has been incorporated in the books of account in a separate ledger appearing in the paper book at page 58, wherein receipts from NIBM and the payments has been made to contractor namely, JR & Company has been shown. However, the credit of the TDS for sum of Rs.35,56,900/- for the entire payment deducted by NIBM has been claimed by the assessee in his return of income. From the facts, it is also borne out that M/s JR & Company had been appointed as a contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld. AR. There is absolutely no dispute with regard to the proposition laid down by the Hon'ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry, (supra), that the first appellate authority has no power to enhance the assessment by discovering a new source of income which has not been considered by the Assessing Officer in the order appealed against and also on the law laid down by the Hon'ble supreme Court in the case of Rai Bahadur Hardutroy Motilal Chamaria (supra), that the power of enhancement by the first appellate was restricted to the sources of income which have been the subject matter of the assessment or the source of income which has been considered expressly or by clear implication from the point of view of taxability and the first appellate authority had no power to assess the new source of income not considered by the Assessing Officer. Here in this case, as have been discussed above, the CIT(A) has not brought out any new source of income which had not been considered by the Assessing Officer. The Assessing Officer while adjudicating the issue of credit of TDS was required to examine the nature of the payment on which TDS has been deducted. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment to the contractor. To examine this fact whether as per the agreement the responsibility of doing the "work in pursuance of contract" was with the assessee or with the M/s JR & Company, it would be relevant to refer various clauses of the agreement, which have been also referred to by the learned CIT(A) and the assessee. The agreement shows that it has been entered between NIBM which have been referred to as a 'client' and the assessee M/s Ratan J. Batliboi referred to as RJB-A in the agreement. The relevant portion of the agreement are reproduced herein below for the sake of ready reference :- I) APPOINTMENT : The client hereby appoints RJB-A, and RJB-A accepts the appointment and agrees to implement the Project on the terms and conditions stated hereinafter. II) DEFINITIONS 1) x x x x a) x x x x b) "The Works" means the work or works to be executed to erect and complete the defined project intended by the Client and in connection with which the Client has engaged RJB-A to implement the project. c) x x x x d) "Final Cost Estimate" means the detailed listing of the total cost of the Project as calculated by RJB-A after preparing a final Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to specific performance from RJB-A only (iv) The Client shall make payments to RJB-A only and not to such firms. However, the Client acknowledges that the payments shall be on two separate accounts and shall be accounted for accordingly. (v) The Client shall make payments to RJB-A towards two heads of accounts. The two account heads for payments shall be as under: * Towards professional fees and services * Towards Cost of Works which shall be managed by RJB-A on behalf of the Client as a representative or agent for disbursement towards the Cost of Works as and when the need arises. RJB-A shall be solely responsible to the Client for the management and disbursement of the funds and shall have complete freedom to decide on the disbursement thereof as it deems fit. c) The Client shall have no obligations to such contractors or suppliers being utilised by RJB-A. d) Wherever in this agreement there is a reference to contractors or suppliers in relation to executing the Works or procuring and supplying products, such reference shall be deemed to mean as RJB-A IV) SCOPE OF WORK 1) General - Overview of responsibilities: RJB-A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te: 4) The Virtual Completion and Hand Over of the site by RJB-A to the Client will be 2 months from the date of signing of this Agreement, receipt of first payment as per Para VII) 3) below, procurement of local body clearances if any, and handing over the site to RJB-A without any hindrances. This time frame of 2 months is subject to the following. VI) x x x x. VII) COST OF PROJECT AND PAYMENT SCHEDULE 1) Cost of Works: The sanctioned Cost of Works, excluding Professional Fees, but including all taxes and expenses to be incurred by RJB-A and its contractors and suppliers, is estimated at Rs. 250 lacs. 2) Final Cost Estimate: a) RJB-A and the client shall jointly survey the site and arrive at a consensus of the quantities involved. Such quantities shall include, without limiting, the following: (i) Carpet areas (ii) Built-up areas (iii) Wall areas (iv) Waterproofing areas (v) Quantities of furniture and fixtures (vi) Quantities of furnishings and accessories b) The quantity as determined above shall be applied to the rates specified in the "Specifications and Rate Sheet" attached as An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the limits set by these conditions. d) Appoint a firm or firms to procure and supply materials and products to the Client and to undertake the management of the construction activities on site. e) Provide the services and execute the tasks specified in this Agreement. (i) RJB-A shall not proceed with any stage of the Project without the Client's consent and completed payments to RJB-A for services rendered and works executed upto that particular stage." 4) Liability : a) x x x b) x x x c) RJB-A shall ensure that any contractors or service providers selected by RJB-A to work on the project shall fully company with the different provisions of the various labour law statutes. (i) RJB-A should fully ensure that such contractors or service providers fully comply with the provisions of Contract Labour (Regulation & Abolition) Act, 1970,ESI Act, 1948, EPF & MP Act, 1952, Minimum Wages Act, 1948 and such other statutes. (ii) Any employee of the contractors selected by RJB-A would be exclusive employees of the said contractor and this agreement does not create any relationship of an employer and employee between the client and the employees eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and design, supervision of the work and complete implementation of the work. ii) The NIBM has no direct or indirect obligation for the contractors or suppliers employed or utilised by the assessee and the assessee shall be fully responsible for any such performance by such suppliers and contractors. The assessee has to prepare two accounts under two heads - one towards professional fee and services and second for cost of work implemented by the assessee on behalf of the NIBM. The scope of the work as given in the agreement is very comprehensive and the assessee alone is responsible to carry out the entire work and to complete the project in the given time schedule. iii) All the payments shall be made to the assessee only at the time of completion of various stages as defined in the agreement. The entire cost of work including taxes and expenses are to be implemented by the assessee. Apart from the payment for the work done, the assessee shall also be paid professional fee also. The entire liability and the risk and responsibility of the work done shall lie upon the assessee including the penalty for non-completion, defects after completion etc. iv) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the work. In fact, there is no a whisper or mention about JR & Co. in the entire agreement. Once this is not so, it does not makes any difference, whether the invoices has been raised by the JR & Co. directly to NIBM. Even the letters which has been referred to by the learned AR in the paper book will also not make any difference or improve upon the assessee's case. Once the payment has been received by the assessee for "carrying out the work in pursuance of a contract" and TDS has been deducted on the entire payment by NIBM, the assessee while making the payment to JR & Co., which here in this case, are sub-contractors, the assessee was also liable for deducting tax at source as per the rate specified in Section 194C. 14.3 In our conclusion, we agree with the finding of the CIT(A) that the entire payment which has been received, are to be treated as receipts of the assessee and the payment made to JR & Co. as an outgoing expenses for getting the work done through JR & Co.. Thus, the assessee was responsible for deducting TDS under Section 194C for making the payment to JR &Co. This conclusion also gets fortified by the fact that the assessee has claimed the credit of entire TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, this issue is decided in favour of the assessee subject to verification by the Assessing Officer. Decision on 5th Issue :- 17. Learned AR has raised the issue of 'reasonable cause' for non-deducting of the TDS in the wake of Jurisdictional High Court decision in the case of Kotak Securities Ltd. (supra). In the instant case as has been brought out on record that the entire payment by NIBM was received by the assessee and not only that, TDS deducted by the NIBM has been claimed as part of his income. The credit of TDS amount has also been claimed in the Return of Income, which was partly denied by the Assessing Officer. Thereafter assessee went step further to claim the credit of TDS amount not allowed by the Assessing Officer before the CIT(A). It was at the stage of CIT(A), when the enhancement notice was issued, the assessee made submission that the TDS has wrongly been deducted by NIBM in his case. Under these circumstances, certainly there cannot be a case of reasonable cause for non-deducting of TDS on payment made to JR & Co. The assessee right from the stage of filing of return to the stage of Assessing Officer and further upto filing of appeal before the CIT(A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was held by the Hon'ble Supreme Court that the true test for the application of the rule of diversion of income by an overriding title is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, are there in every case, but it is the nature of the obligation which is decisive fact. Explaining further, it was observed by the Hon'ble Supreme Court that there is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of obligation cannot be said to be a part of the income of the assessee. Where by the obligation, income is diverted before it reaches to the assessee, it is deductible, but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It was held by the Hon'ble Supreme Court that it is the first kind of payment which can truly be excluded and not the second. The second payment is merely an obligation to pay another a portion of one's own income which has been received and is since applied. Here in this case, there never was any title in favour of JR&Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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