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2016 (9) TMI 5 - ITAT KOLKATA

2016 (9) TMI 5 - ITAT KOLKATA - TMI - Disallowance u/s. 40(a)(ia) - assessee in default - Held that:- The assessee cannot be treated as a defaulter in view of the first proviso to section 201(1) r/w second proviso to section 40(a)(ia) of the Act if the concerned payee has taken into account the relevant sum for computing income in his return of income furnished u/s. 139 and has paid tax due on the income declared in such return. We, therefore, set aside the impugned order of ld. CIT(A) confirmin .....

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ri Debasish Banerjee, JCIT, Sr.DR ORDER Shri S. S. Viswanethra Ravi, JM This appeal of the assessee arises out of the order of the CIT(A)-Central-XXXVI, Kolkata in Appeal No. 401/CIT(A)-XXXVI/Kol/Wd-3,MSD//10-11/217 dated 18-04- 2013 for the assessment year 2005-06 2. The assesse submitted that the ground no s 1 and 2 are not pressed and accordingly both ground no s 1 and 2 are dismissed. 3. The only ground in this appeal is as to whether CIT-A justified in confirming the order of AO in disallow .....

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ess of trading and servicing of motorcycle and filed his return of income on 27-10-2005. 6. The assessee is a dealer for sale of TVS brand motorcycle for sale in the district of Murshidabad and some areas of Bhirbhum and Nadia Districts of West Bengal. The assessee sells motorcycles in the following manner: A) Cash sales to sub dealers B) Credit sale to sub dealers C) Direct sales to customers from the showroom of the assessee D) sales to customers to mechanics 7. In all the cases mentioned abov .....

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the paper book as illustration. As regards sales at clause (D) above, petty discounts at ₹ 400/500 are paid to each mechanic for bringing the customers - the discount aggregated to ₹ 1,89,900/-during the year. 8. The assessing officer and CIT-A has that they amounts retained by the persons referred to above was in the nature of commission and the assessee ought to have deducted tax at source under section 194H of the act. Since the assessee failed to deduct tax at source, the assessi .....

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omers mentioned at (C) above. In other cases i.e. in respect of sales at clause (A) (B) and (D) above amounting toRs.13,90,070/- the expenditure has been debited in the profit and loss account under the head commission which according to the assessing officer was a mistake. According to assessing officer the nature of relationship between the assessee and the sub dealers is clearly that of principal to principal. The assessee relied on Ahmedabad Stamp Vendors Association vs Union Of India, repor .....

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vices or for any services in the course of laying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing not being securities. Further according to learned AR in a usual business transaction, commission is paid by principal to agent after services are rendered and in the case of the assessee the transactions are in the nature of principal to principal and no element of agency is to be found and no services are to be rendered. The learned AR prayed .....

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9,165.00 JULY 98,100.00 AUGUST 74,485.00 SEPTEMBER 91,995.00 OCTOBER 97,910.00 NOVEMBER 88,685.00 DECEMBER 100,890.00 JANUARY 116,230.00 FEBRUARY 101,985.00 MARCH 89,165.00 1,200,170.00 MECHANIC COMMISSION MONTH AMOUNT APRIL 17,150.00 MAY 16,050.00 JUNE 14,550.00 JULY 16,100.00 AUGUST 14,950.00 SEPTEMBER 14,050.00 OCTOBER 17,200.00 NOVEMBER 15,200.00 DECEMBER 15,500.00 JANUARY 15,700.00 FEBRUARY 16,500.00 MARCH 16,950.00 189,900.00 1,390,070.00 12. The above breakup of commission paid to the mec .....

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ion is in the nature of commission. There is no written agreement between the assessee and sub dealers which is brought on record by the assessee. Therefore it cannot be said that as between the assessee and the sub dealer the relationship is that of principal to principal. Therefore the conclusion drawn by the assessing officer is correct. In this regard assessing officer as observed as follows: A party-wise ledger of the alleged payments of ₹ 13.79,179/- was filed and details of payment .....

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f goods. The transaction with a sub-dealer as far as sale to them is concerned is similar to sale of to an individual purchaser. In the trading account (motorcycle account) the d already allowed a cash discount of ₹ 4,98,645/- on sales. Had the amount of ₹ 13,90,070/- been discount given at the time of sale to its sub-dealer, it could have been or under the head cash discount in the trading account. The assessee aware of the of claim of expenditure namelydiscount and commission. He w .....

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is pertinent to note here that the sub-dealer also paid incentives free service as per company norms etc. and for which details were filed. So the sub-dealer was paid both commission and debit notes. Judging the totality of the facts and circumstances of the case and viewing it through the normal practice of business transaction of a dealer and a sub-dealer, I have of the firm at the sub-dealer were paid commission on sale for their services rendered to their principals M/s Berhampore motorcycle .....

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filed their returns of income and included amounts received from assessee in their returns of income. In this regard, we may refer to the Hon ble High Court of Delhi supra, while dealing with the case on hand, had an occasion to read down the decision of Agra Bench of Tribunal in ITA 337/Agra/2013 as it was relied on, and held and agreed with the reasoning and conclusion to the insertion of second proviso to section 40(a)(ia) of the Act by the legislature. The relevant portion from paras 11 to .....

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1 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfillment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in de .....

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ncerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITA T in Rajiv Kumar Agarwal v. A CIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: "On a concep .....

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n such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fai .....

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lowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. Th .....

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ion to the effect that a curative amendment to avoid unintended consequences is to be treated in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deducti .....

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