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Shri Anil Kumar Joseph, Bangalore Versus Dy. Commissioner of Income Tax, Circle 9 (1) , Bangalore

Dis allowances of of ‘commission on collection’ and ‘commission on sales’ - CIT(A) deleted the addition - Held that:- Originally these disallowances were made on the ground that there were differences between the amounts claimed in the profit and loss account and the relevant ledger accounts produced in the course of assessment proceedings. The explanation put forth by the assessee before the learned CIT(A) was that there were two concerns operated by the assessee and if the expenditure claimed .....

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ed in so far as examining the veracity of the assessee's claim. What is material for examination was the copies of the ledger accounts of the concerned proprietary concerns viz. M/s. Traces and M/s. Sanforce vis-a-vis the financial statements of both these concerns from which it will become clear as to whether there is a difference in the extent of expenditure claimed as per the profit and loss account and the ledgers of the parties in the books of account. These have been produced before the au .....

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, since this averment of the assessee is not discernible from the impugned order, we set aside this issue to the file of the Assessing Officer. The Assessing Officer shall ascertain whether the assessee has paid the amounts or not. In case it is found that the payments have already been made as contended by the assessee i.e. on or before 31st March, 2008, then the Assessing Officer shall examine the issue in the light of the order of the co-ordinate bench in the case of Ananda Markala (2014 (12) .....

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6.4.2014 for Assessment Year 2008-09. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is an individual engaged in the business of acting as collection agents for banks for the recovery of their debts, considered as bad and doubtful debts, which have become non-performing assets. The assessee filed his return of income for Assessment Year 2008-09 on 3.11.2008 declaring income of ₹ 14,36,988. The return was processed under Section 143(1) of the Income Tax Act, 1961 (herei .....

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e's claim of ₹ 55,30,572, the difference of ₹ 12,46,968 was disallowed on account of excess claim of expenditure. Similarly the Assessing Officer on examination of the assessee's claim of expenditure on account of sales commission found that as against expenditure of ₹ 40,42,000 claimed in the assessee's profit and loss account, the amount debited in the books of account was ₹ 36,76,400 and therefore the excess expenditure claimed i.e. of ₹ 3,66,000 was .....

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88,145 as against the returned income ofRs.14,36,988 in view of the following additions/disallowances :- i) Excess claim of collection commission : ₹ 12,46,968. ii) Excess claim of sales commission : ₹ 3,66,000. iii) Disallowance u/s. 40(a)(ia) : ₹ 66,38,189. 2.2 Aggrieved by the order of assessment dt.20.12.2010 for Assessment Year 2008- 09, the assessee preferred an appeal before the CIT (Appeals), LTU, Bangalore. The learned CIT(A) disposed off the assessee's appeal vide .....

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of the Act. 3. Both Revenue and the assessee are aggrieved by the order of the CIT (Appeals), LTU, Bangalore dt.16.4.2014 for Assessment Year 2008-09 and have filed separate cross appeals before this Tribunal. We shall now proceed to dispose off these cross appeals hereunder. Revenue s Appeal for Assessment Year 2008-09 in ITA No.1036/Bang/2014. 4. The Grounds raised in Revenue s appeal are as under :- 1. The order of the learned CIT (Appeals) is opposed to the facts of the case brought on reco .....

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n at the time of assessment proceedings. 4. On the facts of the case, the learned CIT (Appeals) erred in ordering for deletion of addition made in spite of assessee ;not furnishing the complete books of accounts to verify the claim of expenditure both at the time of assessment and remand proceedings and the fact intimated to the learned CIT (Appeals) vide remand report submitted. 5. The appellant craves for permission to add, modify or delete the grounds of appeal at the time of hearing the case .....

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ed that the disallowances were made by the Assessing Officer as there were discrepancies detected between the amount claimed in the profit and loss account and the books of account produced before the Assessing Officer. It was submitted that, on appeal before the learned CIT(A), the assessee contended that the Assessing Officer had only partially considered/examined the books of account as he had not verified the entire claim with regard to two proprietary concerns of the assessee viz. M/s. Sanf .....

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erroneous. In this regard, the learned Departmental Representative referred to the remand report of the Assessing Officer dt.18.2.2014 where this fact of non-production of books of account is recorded at para 2 on page 1 thereof. 6.2 Per contra, the learned Authorised Representative of the assessee supported and relied on the finding in the order of the learned CIT(A) on this issue. The learned Authorised Representative drew our attention to the written submissions filed by the assessee and cop .....

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ssessing Officer had examined the ledger accounts only till February, 2008 and that too only in respect of one concern. The learned Authorised Representative submitted that the learned CIT(A) has examined the assessee's claims and found that there was no excess claim made by the assessee in the profit and loss account and therefore deleted the addition. It was pleaded that the order of the learned CIT(A) be upheld. 6.3.1 We have heard the rival contentions and perused and carefully considere .....

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m debited As per A.O. Collection commission Rs.47,85,800 Rs.7,44,772 Rs.55,30,572 Rs.42,83,604 being entries upto Feb.2008 only. Sales commission Rs.36,76,400 Rs.3,65,500 Rs.40,42,400 Rs.36,76,400. 3.2 The A.O. was asked to comment on the above during remand proceedings but replied that in the absence of books of account he was unable to do so. I find from assessment record that the books of account had been produced before him on 9.11.2010 and during remand proceedings the extract of ledger acc .....

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f March, 2008 for M/s. Sanforce and for the entire year for M/s. Tracers. If these amounts are taken into account, there is no difference as pointed out by the Assessing Officer. The addition towards collection commission is, therefore, directed to be deleted. 3.4 With regard to sales commission, the amount debited in the Profit & Loss Account of M/s. Traces under this head is ₹ 3,65,500 which has not been considered by the A.O. The total of the two proprietorship concerns under this h .....

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ofit and loss account and the relevant ledger accounts produced in the course of assessment proceedings. The explanation put forth by the assessee before the learned CIT(A) was that there were two concerns operated by the assessee and if the expenditure claimed in both these concerns were taken together and for the entire period under consideration, there will be no difference at all. That this claim has been examined by the learned CIT(A) and found to be correct is not in doubt as is evident fr .....

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atements of both these concerns from which it will become clear as to whether there is a difference in the extent of expenditure claimed as per the profit and loss account and the ledgers of the parties in the books of account. These have been produced before the authorities below in appellate and remand proceedings and it is clear from the categorical finding of the learned CIT(A) that there is no difference at all. In this factual matrix, we are of the considered view that the deletion of the .....

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n the assessee's appeal are as under :- 1. The orders of the authorities below in so far s they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and in the circumstances of the case. 2. The learned CIT (Appeals) is not justified in sustaining the disallowance of a sum of ₹ 30,62,689 under Section 40(a)(ia) of the Act, on collection commission under the facts and in the circumstances of the appellant s case. 3. The learned CIT (Appeals) is .....

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CIT / DG, the appellant denies himself liable to be charged to interest under Section 234A, 234B and 234C of the Act, which under the facts and in the circumstances of the appellant s case deserves to be cancelled. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution .....

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2 ITR 1) and we, therefore, uphold the action of the Assessing Officer in charging the said interest. The Assessing Officer is, however, directed to recompute the interest chargeable u/s. 234A, 234B and 234C of the Act, if any, while giving effect to this order....... 11.1 Thus, the Grounds at S.Nos. 2 to 4 of the assessee's appeal remain the only effective grounds for adjudication of the assessee's appeal; which are in respect of the disallowance under Section 40(a)(ia) of the Act amoun .....

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d of the year viz. as on 31st March. It was also submitted that on merits, there was no requirement to deduct tax at source under Section 194C or 194H of the Act and therefore, the disallowance made under Section 40(a)(ia) of the Act was not called for. The learned Authorised Representative pleaded that, in view of the judicial decisions cited, these disallowances require to be deleted. 11.2 The learned Departmental Representative supported the impugned order of the learned CIT(A) who has chosen .....

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. in ITA No.122/2013 dt.9.7.2013, which upheld the finding of the Special Bench of the ITAT, Visakhapatnam in the case of Merilyn Shipping (2012) 16 ITR (Trib) 1, Visakhapatnam (SB). The relevant portion of the decision and observation of the co-ordinate bench in the case of Ananda Markala (supra) at paras 26 to 31 thereof are extracted hereunder :- 26. We are of the view that the reasoning of the Hon ble Supreme Court in the case of Alom Extrusions Ltd(supra) will equally to the amendment to Se .....

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equent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. 27. As far as the appeal of the revenue is concerned, we find that the use of word Payable , in Section 40(a)(ia) of the Act has created controversy as to whether payable includes amounts paid during the year. There were conflicting decisions rendered by the Tribunal. § In the case of DCIT vs. Ashika Stock Broking Ltd. reported in 44 SOT 556 the Hon ble Kolkata ITAT has .....

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of sums/amount paid during the year and which are not payable at end of the year on date of balance sheet, as it is applicable only in respect of Payable amount shown in balance sheet as outstanding expenses on which TDS has not been made. Similar laws were laid in various other cases. § To resolve the above issue Special Bench was constituted and the Hon ble Visakhapatnam Special Bench of ITAT in the case of Merilyn Shipping & Transport vs. Addl CIT reported in 20 taxmann.com 244 has d .....

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he previous year, without deduction of TDS. 28. In CIT Vs. Sikandarkhan N.Tunvar & Others, TAX APPEAL NO. 905 of 2012 & others Dated02/05/2013, the Hon ble Gujarat High Court held that in Merilyn Shipping 146 TTJ 1 (Viz) (SB,) the majority held that as the Finance Bill proposed the words amount credited or paid and as the Finance Act used the words amounts payable , s. 40(a)(ia) could only apply to amounts that are outstanding as of 31st March and not to amounts already paid during the y .....

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ituation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. There is no logic why the legislature would have desired to bring a .....

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yable as on 31st March of a particular year but also which are payable at any time during the year. The Hon ble Kolkata High Court in CIT Vs. Md.Jakir Hossai Mondal (supra) did not agree with the view of the Special Bench in the case of Merilyn Shipping following its judgment on 3rd April, 2013 in ITAT No. 20 of 2013, G.A. No. 190 of 2013 (CIT, Kolkata-XI Vs. Crescent Export Syndicates) holding that the views expressed in the case of Merilyn Shipping & Transports (ITA.477/Viz./2008 dated 20. .....

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B) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head Income from Business and Profession in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance .....

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by the end of the year. We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does not arise for consideration in the appeal. The income tax appeal is dismissed. 30. Thus there are two views on the issue, one in favour of the assessee expressed by the Hon ble Allahabad High Court and the other against the assessee expressed by the Hon ble Gujarat & Calcutta High Cour .....

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