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2017 (2) TMI 442 - ITAT KOLKATA

2017 (2) TMI 442 - ITAT KOLKATA - TMI - TDS u/s 194H - addition u/s 40(a)(ia) on account of payment made by the assessee to the Hawkers - non deduction of tds - Held that:- Concerning the modus operandi of the assessee’ s business as well as the functions performed by the Hawkers, it is of the view that the amount in question paid by the assessee to the Hawkers is in the nature of discount and the same cannot be treated as commission merely on the basis of nomenclature used by the assessee in hi .....

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llowance under section 40(a)(ia) would not arise. - Decided in favour of assessee. - I.T.A. No. 447/KOL/ 2015 - Dated:- 3-2-2017 - Shri P. M. Jagtap, Accountant Member Shri Siddhartha Pratim Dutta, Advocate & Shri Soumitra Ghosh, Advocate, for the assessee Shri Dulal Chandra Mondal, JCIT, Sr. D. R., for the Department ORDER This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax ( Appeals)-XII, Kolkata dated 11. 02.2015 and the solitary issue arising .....

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Loss Account filed along with the said return, a sum of ₹ 14,47,045/- was debited by the assessee on account of Hawkers commission. According to the Assessing Officer, the assessee was required to deduct tax at source from the said amount as per the provisions of section 194H of the Act and since there was failure on the part of the assessee to do so, he required the assesese to explain as to why the amount of ₹ 14,47, 045/- should not be disallowed under section 40( a)(ia). In reply .....

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my account book due to his ignorance. Hence, the word "Commission", in my books of account is a wrong use of the said word for which I am not to be penalised, as my ignorant mistake of use of the word "Commission" will not prove that the deliverymen, actually undertake to deliver the news paper etc. on the basis of "Commission". The delivery persons are nothing but casually engaged labourers who received their labour charges for the purpose of delivery of news pape .....

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placed by me, according to my suitability for the said purpose. Thus, I pay delivery charge only whosoever, for the time being, performs the work of delivery of news paper and magazines. In my books of account, my accountant being not conversant with the technicality of the "Commission" as per I. T. Act, 1961 , mentioned the word " Commission" in my account book due to his ignorance. Hence, the word "Commission", in my books of account is a wrong use of the said wor .....

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son, to the specified destination, are collected by me. The delivery person's services, for collection of prices of news papers etc. are never used by me. The written submissions, in this behalf, have already been submitted by those delivery persons to you to whom also you issued the Show Cause letters. This apart, most of the persons have also affirmed affidavit and notarised before the appointed Notary Public. ( Xerox copies of affidavit are enclosed collectively marked "A") Thus .....

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e. Therefore, in consideration of the above position, I pray Sir, Kindly, to drop the proceedings as initiated u/s. 194{H) of the I. T. Act, 1961 in as much as my mode of dealing with deliverymen can in no way be termed as "Commission". The delivery charges to delivery - men is a sine qua non, in the delivery of news papers otherwise which the distribution of news papers, magazines etc. are not possible. Hope, the explanation supra will convince you on this regard and Oblige . 3. The a .....

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ble article or thing, not being securities". Those hawkers are acting on behalf of the assessee and providing services in selling newspapers, magazine etc. hence the payments made to them by the assessee is commission. (ii) Accountant of the assessee as stated supra, is not as ignorant as it is claimed to be; he is supposed to be and is conversant with the word commission. It is an afterthought to project him as an ignorant person who has prepared, maintained and forwarded his books not onl .....

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commission, is not accepted as true . For the reasons given above as well as other reasons given in the assessment order, the Assessing Officer held that the amount in question paid by the assessee to different Hawkers was in the nature of commission and the assessee was liable to deduct tax at source from the said amount. Since the assessee had failed to do so, the Assessing Officer invoked the provisions of section 40(a)(ia) and made a disallowance of ₹ 14, 47, 045/- in the assessment co .....

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r under section 40(a)( ia) was not sustainable:- The pivot of this appeal is whether the 'hawkers commission' is a misnomer phrase of 'hawker's service charge paid by way of discount on the MRP of newspapers sold by hawking on Road, Rly. Stations, market places etc. and/or by effecting supply of them to the readers of newspaper or not. Before indulging in any discussion on the above issue the commercial relation between the appellant and the hawker' s who get the supply of ne .....

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s of the appellant nor they have any contract for the commercial dealing in this regard, The persons of the hawker' s differ from time to time. The hawker' s pay to the appellant the cost price of the papers supplied to them being the net amount due, after the deduction of discount on the MRP mentioned at the top of the 1st sheet of newspaper. As for the papers returned to the appellant as unsold the amount which differs from time to time in accordance with the direction of ABP, the prin .....

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39;hawker' s discount', a phrase appearing in the Cash book against the charges paid to the hawkers. ( some Xerox sheet of Cash Book giving out the mode of payment made to hawkers are attached hereto as Annexure 'B' for your Honour's perusal and reference). The Ld. AO went through the Cash Book produced before him at the time of hearing, which in fact, he kept with him for some days for thorough examination. The accountant, due to his ignorance, inadvertence on the part of hi .....

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books of account and he brought the expenses within the ambit of the mischief of Sec. 194H of the I. T. Act, 1961., I crave leave to mention here that the Ld. AO did not find any fault in the maintenance of books of a/ c. ( Some Xerox sheets of Cash Book giving out the mode of payment made to the hawkers are attached hereto as Annexure- 'C' for your Honour' s kind perusal). I cannot help saying 'this is very unfortunate. It is, therefore, prayed that by probing into the facts an .....

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his comments and after taking into consideration the comments made by the Assessing Officer as well as the counter comments thereon made by the assessee, the ld. CIT( Appeals) proceeded to confirm the disallowance of ₹ 14, 47, 045/- made by the Assessing Officer under section 40(a)(ia) for the following reasons given in paragraph no. 6 of his impugned order:- 6. I have considered the facts of the case and the submissions of the appellant and the Assessing Officer. All the grounds of appea .....

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appellant's comments are self-explanatory and reproduced above with a view to bring out clearly the claims and counter-claims of the appellant and the Assessing Officer. A large part of the discussion has been devoted to the use of the term " hawker' s commission" in the P&L Account in relation to which the appellant has stated that the term used in the cash book was "hawker' s discount and the auditor had clarified that the payments had been wrongly charged in the .....

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nd the appellant cannot be taken at this stage having regard to the fact that computerised books can be easily edited at any stage. The auditor has also not given any categorical remarks regarding the cash book. Further, he has only certified that the payments should have been described as delivery charges and not commission. The auditor has not certified that the payments were in the nature of discount. Be that as it may, it is a settled position of law that accounting entries cannot be the sol .....

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note here that they have not affirmed that they were offered any discount against the price of the newspapers. It. has also been declared that the price of the newspapers is collected by the newspaper dealer (read 'the appellant ). It is also undisputed that cash payments have been shown to have been made to 'the hawkers by the appellant in the cash books regardless of the nomenclature. The appellant has denied the Assessing Officer's finding that the same set of 16 hawkers was empl .....

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accepted that unsold newspapers were returned to the appellant. The appellant after being given due opportunity of rebutting the contentions of the Assessing Officer in the remand report also did not deny the observation that "It is pertinent to state that in response to the show cause notice dated 16 -12-2011 (for completion of assessment for the A. Y. 2009-10 ) the assessee stated that hawkers were merely delivery persons and "the price of news papers, as delivered by the delivery pe .....

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and the continuity of business relationship as brought out by the Assessing Officer's finding that all the 16 hawkers engaged by the appellant in F.Y. 2008-09 had continued their services in F.Y. 2009- 10 also. It emerges very clearly from the crucial facts narrated above that the hawkers were not engaged in the business of trading in newspapers and the property in the newspapers did not pass at any point in time to the hawkers. It was not as if the hawkers were purchasing the newspapers at .....

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nts for such services, regardless of the terminology used in the accounts to describe such payments and the exact terms and conditions governing such services, if at all there were some strict terms and conditions. The Assessing Officer has referred to the provisions of section 194H in support of his contentions. The explanation to section 194H defines 'commission or brokerage' to include any payment received or receivable, directly or indirectly, by a person acting on behalf of another .....

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very charges in the course of buying and selling newspapers on behalf of the appellant and the appellant has not made out any case to show that such payments are excluded from the purview of the provisions of section 194H. The appellant's reference to his own business relationship as a principal with Anand Bazar Patrika is not relevant in this regard at all. In view of the factual and legal position as aforesaid, I hold that the hawkers were delivering newspapers on behalf of the appellant a .....

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referred this appeal before the Tribunal. 6. The ld. counsel for the assessee submitted that the Assessing Officer as well as the ld. CIT( Appeals) has not appreciated the exact nature of amount in question paid by the assessee to the Hawkers. He submitted that the assessee is in the business of trading in newspapers and magazines and the newspapers and magazines purchased by it from Ananda Bazar Patrika are sold to the Hawkers at the discounted rate on MRP for further sale or distribution to th .....

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rect. He pointed out that the ld. CIT( Appeals) in assessee s own case for A. Y. 2010- 11 has accepted the stand of the assessee by deleting the similar addition made by the Assessing Officer under section 40( a)(ia) and submitted that the Department has not filed any appeal against the said order of the ld. CIT( Appeals) before the Tribunal. 7. The ld. D. R., on the other hand, contended that the Hawkers cannot be treated as buyers of newspapers and magazines from the assessee as they are selli .....

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sale of newspapers and magazines on principal to principal basis as sought to be contended by the ld. counsel for the assessee. 8. I have heard the arguments of both the sides and also perused the relevant material available on record. In order to ascertain the exact nature of the amount in question paid by the assessee to Hawkers, it is necessary to consider the modus operandi of the business of the assessee as well as the functions performed by the assessee and the Hawkers in the course of th .....

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hese services, the Hawkers are compensated by the assessee by charging a discounted price of the newspapers and magazines. The supply or delivery of newspapers and magazines is made by the Hawkers to the customers on their own and there is nothing brought on record by the authorities below to show that such sale or supply was made by the Hawkers to the customers on behalf of the assessee as an agent. The Hawkers generally operate in an unorganized manner and the only compensation which they get .....

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