Ita/70/2017 Of Sudarsanan P.s v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 6 DAY OF JULY 2021 / 15TH ASHADHA, 1943 ITA NO. 70 OF 2017 AGAINST THE ORDER DATED 08.01.2016 OF THE I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM IN ITA 388/COCH/2014 FOR THE ASSESSMENT YEAR 2007-08 -APPELLANT/ RESPONDENT/ ASSESSEE : SUDARSANAN P.S.,COIRLAND EXPORTS, ASRAMAM WARD, AVALOOKUNNU P.O., ALAPPUZHA - 688 006. BY ADVS.SRI.S.ARUN RAJSMT.C.T.SUJA RESPONDENT/ APPELLANT/ REVENUE : COMMISSIONER OF INCOME TAX,PUBLIC LIBRARY BUILDING, LAL BAHADUR SASTRI ROAD, KOTTAYAM - 686 001. BY ADVS.SRI.JOSE JOSEPH, SC, FOR INCOME TAXSRI.P.K.RAVINDRANATHA MENON (SR.) THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 06.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT The assessee is engaged in the business of manufacture and sale ofcoir mats and mattings. For the assessment year 2007-08, the return filed bythe assessee was accepted and a refund was also granted. Howeverproceedings for reopening of assessment were initiated and the assessee wascalled upon to produce the balance sheet and the profit and loss account forthe assessment year 2007-08. Assessee replied that the accounts weremisplaced. 2. Noticing that assessee had submitted audited accounts fordifferent assessment years with the State Bank of India, after collecting thesaid audited accounts from the Bank, assessing officer proposed to assess theincome on the basis of the said accounts filed by the assessee. After findingthat the assessee failed to furnish the books of account fearing detection ofescapement of income, the assessee was re-assessed on the basis of theaudited accounts furnished before the bank. After rejecting the contentions ofthe assessee, the total income was fixed at Rs.46,82,920/-. The figure wasarrived at by disallowing an amount of Rs.32,18,677/- from deduction underfreight charges as per Section 40(a)(ia) of the Income Tax Act, 1961[Hereinafter referred to as 'the Act'] for failure to deduct TDS under Section194C of the Act. A further sum of Rs.8,86,790/- was also disallowed underSection 40(a)(ia) of the Act for failure to deduct TDS under Section 194H. Yet another sum of Rs.3,26,380/- was added to gross total income under Section69C of the Act, since the assessee failed to furnish any details to prove thesource. 3. On appeal, the Commissioner Appeals allowed the appeal inpart and directed deletion of the dis-allowance of a total of Rs.41,05,467/-under Section 40(a)(ia) of the Act as well as the addition of Rs.3,26,380/-under Section 69C of the Act. 4. The Revenue went in appeal to the Appellate Tribunal. Afterfinding that the conclusion of the Appellate Authority that once the assessingofficer accepted the estimated income, the provisions of Section 40(a)(ia)cannot have an application is not a correct proposition of law, the Tribunalrestored the order of the assessing officer. This appeal is thus preferred underSection 260A of the Act. Though the appeal was admitted on five substantialquestions of law with the consent of the counsel for both sides, we rephrasedthe questions of law as follows :- 1. Whether sub-clause (k) of Section 194(c) has applicability for the previous year 2006-07 (AY-2007-08). 2. Whether the Tribunal was correct in restoring the addition of Rs.32,88,677/- made by the assessing officer on account of the dis-allowance under Section 40(a)(ia) of the Act for non-payment of TDS underSection 194C of the Act. 3. Whether the addition of Rs.8,86,790/- made by the assessing officer as affirmed by the Tribunal on account of disallowing theclaim under Section 40(a)(ia) of the Act, for non-payment of TDS under ITA NO. 70 OF 2017 Section 194H of the Act is justified. 1. Whether sub-clause (k) of Section 194(c) has applicability for the previous year 2006-07 (AY-2007-08). 2. Whether the Tribunal was correct in restoring the addition of Rs.32,88,677/- made by the assessing officer on account of the dis-allowance under Section 40(a)(ia) of the Act for non-payment of TDS underSection 194C of the Act. 3. Whether the addition of Rs.8,86,790/- made by the assessing officer as affirmed by the Tribunal on account of disallowing theclaim under Section 40(a)(ia) of the Act, for non-payment of TDS under ITA NO. 70 OF 2017 Section 194H of the Act is justified. 4. Whether the Tribunal was justified in restoring the additionof Rs.3,26,380/- made by the assessing officer under Section 69C of theAct. 5. We heard Adv.Arun Raj S., the learned counsel for the assesseeas well as Adv.Jose Joseph, the learned Standing Counsel for the Departmentof Tax. 6. The learned counsel for the appellant argued that as far as dis-allowance of the amounts under Section 40(a)(ia) are concerned, the Tribunalas well as the assessing authority had failed to consider the inapplicability ofSection 194C (k) to the asseessee for the relevant assessment year. Adv.ArunRaj contended that assessee had no liability to deduct TDS for the freightcharges paid, since they were all paid separately to different individuals whichwere all less than Rs.20,000/-. He further pointed out that the disallowance onaccount of non-deduction of TDS under Section 194H, amounting toRs.8,86,790/- also ought not to have been directed to be added since evenaccording to the assessing officer, the audit report that was given to the bankwas prepared by a reputed chartered accountant and when he had not pointedout any mistake in the audit report, the assessing officer could not have gonebehind the audit report and found mistakes in it. 7. The learned Standing Counsel for the Department, on the otherhand justified the conclusions of the Tribunal and pointed out that the instantcase was not one fit for interference and also that no case had been made outby the assessee for interference. 8. We have considered the rival contentions. Admittedly theassessee had failed to produce the books of account for verification and theassessee accepted assessment to be carried out on the basis of accounts andrecords available with the assessing officer. When the assessee failed toproduce the books of account, the officer was justified in assessing the incomeon the basis of the audited accounts furnished by the assessee himself andproduced before the bank authorities. In fact, after consenting to such anassessment, assessee cannot thereafter turn around and object to the relianceof the records obtained by the assessing officer. 9. However, certain payments made by the assessee and claimeddeduction as expenses were disallowed by the assessing officer under Section40(a)(ia) for the reason that tax had not been deducted at source for thosepayments. The payment of Rs.32,18,677/- were claimed to have been madeby the assessee as freight and coolie charges, and carriage charges. Theassessing officer held those charges to be not liable for deduction as theassessee had failed to deduct tax at source under Section 194C of the Act.Though the CIT Appeals interfered with the said finding, the Appellate Tribunalrestored the findings of the assessing officer. 10. It is relevant to note that the obligation to deduct tax forpayments made to an individual under Section 194C, beyond the monetarylimit was brought into effect only from 01.06.2007. As rightly contended byAdv.Arun Raj Sub clause (k) of Section 194C was brought into effect by theFinance Act, 2007. Though Section 2 of the Finance Act, 2007 states that 10. It is relevant to note that the obligation to deduct tax forpayments made to an individual under Section 194C, beyond the monetarylimit was brought into effect only from 01.06.2007. As rightly contended byAdv.Arun Raj Sub clause (k) of Section 194C was brought into effect by theFinance Act, 2007. Though Section 2 of the Finance Act, 2007 states that Section 2 to Section 93 of the Amendment Act will come into effect from01.04.2007, Section 54 of the Finance Act, 2007 which amends Section 194Cof the Act specifies that the amendment in 194C will be substituted with effectfrom 01.06.2007. Thus, it is beyond the pale of any dispute, that the liabilityfor deducting tax at source for payments made to individual contractors abovethe monetary limits arose only with effect from 01.06.2007. When the liabilityto make such deduction arose from 01.06.2007, it cannot be assumed that forfailure to deduct such a tax at source for the previous year 2006-07,(i.e.01.04.2006 to 31.03.2007), the assessee should be put to a liability fornon-deduction of such tax at source. We, therefore, hold that the asseesseewas not bound to deduct tax at source for payment made to individualcontractors for the assessment year in question. In the circumstances, theTribunal went wrong in interfering with the order of the First AppellateAuthority directing deletion of the disallowance made under Section 40(a)(ia)to the extent of Rs.32,18,677/- for non-payment of TDS under Section 194C ofthe Act. We hold that the assessee was entitled to deduct the aforesaid sumeven though tax had not been deducted at source. 11. The claim for deduction of the commission or brokerage paidby the assessee was negated by the assessing officer as well as the AppellateTribunal. Admittedly, the assessee had paid commission and brokerage to theextent of Rs.8,86,790/-. The assessee was bound to prove that suchpayments were made to different persons and the value of such paymentswere all less than the monetary limits prescribed under law. When the books of accounts were not produced before the assessing officer and there were norecords to justify the claim of the assessee, the assessing officer was entitledto draw inferences. The burden to clarify a doubt raised by the department isupon the assessee. When the assessee fails to explain the doubtfulcircumstances, the assessing officer is entitled to draw assumptions from thecircumstances arising in the case. 12. In the absence of any record or material to show that thecommission or brokerage paid by the assessee to the extent of Rs.8,86,790/-were to different individuals and each one of such payments were less than themonetary limit of Rs.20,000/-, we are of the view that the Tribunal wasjustified in interfering with the order of the First Appellate Authority.Accordingly, we affirm the order of the Tribunal as far as the claim underSection 194H of the Act is concerned. The last question that was argued byAdv.Arun Raj related to the claim under Section 69C of the Act for the paymentof Rs.3,26,380/-. As mentioned earlier, when satisfactory explanation is notoffered by the assessee, the assessing officer is entitled to draw inferences.The expenditure to the extent mentioned above was not found by theassessing officer to be on the basis of any known sources of income. TheTribunal as a final fact finding authority came to the conclusion that in theabsence of any details furnished by the assessee, the conclusion of theassessing officer that the above referred amount was incurred out ofundisclosed sources cannot be faulted. In the above circumstances, we affirmthe finding of the Tribunal as related to the claim under Section 69C. In view of the above consideration, the first two questions of lawclaimed in this appeal are answered in favour of the assessee while the lattertwo are are answered in favour of the department. This appeal is therefore allowed in part. Sd/-S.V.BHATTI, JUDGE In view of the above consideration, the first two questions of lawclaimed in this appeal are answered in favour of the assessee while the lattertwo are are answered in favour of the department. This appeal is therefore allowed in part. Sd/-S.V.BHATTI, JUDGE Sd/- BECHU KURIAN THOMAS, JUDGE RKM APPENDIX OF ITA 70/2017 PETITIONER'S ANNEXURES :