Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Shri Shailendra Garg

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 6 / 2018 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Shri Shailendra Garg, C/o M/s Garment Craft India (P) Ltd. F-47, Malviya Industrial Area, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prabhansh Sharma for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 15/02/2018 1. By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby the tribunal hasdismissed the appeal of the department and confirmed the orderof CIT(A). 2.Counsel for the appellant has framed following substantialquestions of law:- “i) Whether in the facts and circumstancesof the case, the ITAT was justified inupholding the order of CIT(A) in deleting theaddition of Rs.6637834/- u/s 40(a)(ia) madeby the Assessing Officer for non deduction oftax at source and holding the same not tobe covered u/s 194H of Income Tax Act. ii) Whether in the facts and circumstances ofthe case, the ITAT was justified in deletingthe addition of Rs.179838/- made fordepositing the employees’ contribution to PF& ESI beyond the prescribed time limitprovided in the respective Acts. iii) Whether in the facts and circumstancesof the case, the ITAT was justified in holdingthat the employees’ contribution to PF & ESIare governed by the provisions of Section433 and not by section 36(1)(va) r.w.s.2(24)(x) of the Income Tax Act.” 3.The facts of the case are that the case of the assessee waspicked up for scrutiny assessment and the assessment undersection 143(3) of the Income Tax Act, 1961 (hereinafter referredto as the Act) was framed vide order dated 10th March, 2014.While framing the assessment, the AO made additions in respectof disallowance on account of non deduction of tax under section194H by invoking provisions of section 40(a)(ia) of the Act of Rs.66,37,834/-, delayed payment of PF and ESI of Rs. 1,79,838/-,unrecognized liability lying in the shape of Suspense amount Rs.10,02,378/-, interest on loan against property of Rs. 7,24,527/-,business promotion expenses of Rs. 1,03,750/-, disallowance onaccount of sales tax and income tax payment of Rs. 3,113/- anddisallowance of telephone expenses of Rs. 33,159/-. Beingaggrieved, the assessee preferred an appeal before ld. CIT (A),who after considering the submissions partly allowed the appeal.While partly allowing the appeal, the ld. CIT (A) deleted theaddition made on account of non-deduction of tax by invokingprovisions of section 40(a)(ia) of Rs. 66,37,834/- and deleted theaddition made on account of delayed payment of PF & ESIcontribution. He, however, confirmed the additions made onaccount of disallowance of telephone expenses and businesspromotion expenses. Further, the ld. CIT (A) deleted the additionmade on account of interest expenses of Rs. 7,24,527/- and 4.While considering the matter, the tribunal has observed as under:- 6.2. We have heard ld. D/R and perused thematerial available on record. We find thatthe issue is well settled by the variousjudicial precedents including the judgmentof Hon’ble Rajasthan High Court in the caseof CIT vs. SBBJ (2014) 265 CTR 471 (Raj.),Jaipur Vidhyut Vithran Nigam Ltd., 265 CTR62 (Raj.), ACIT vs. Om Metals & MineralsPvt. Ltd. XLII Tax World 51 (JP) in favour ofthe assessee. Therefore, considering thatthe employee’s contribution of EPF and ESIhas been deposited before due date of filingof the return, the assessee is entitled fordeduction. Thus the addition is deleted. Thegrounds of the department are rejected. 4.While considering the matter, the tribunal has observed as under:- 6.2. We have heard ld. D/R and perused thematerial available on record. We find thatthe issue is well settled by the variousjudicial precedents including the judgmentof Hon’ble Rajasthan High Court in the caseof CIT vs. SBBJ (2014) 265 CTR 471 (Raj.),Jaipur Vidhyut Vithran Nigam Ltd., 265 CTR62 (Raj.), ACIT vs. Om Metals & MineralsPvt. Ltd. XLII Tax World 51 (JP) in favour ofthe assessee. Therefore, considering thatthe employee’s contribution of EPF and ESIhas been deposited before due date of filingof the return, the assessee is entitled fordeduction. Thus the addition is deleted. Thegrounds of the department are rejected. 7.2. We have heard ld. D/R, perused thematerial available on record and gonethrough the orders of the authorities below.The ld. CIT (A) has deleted the addition byobserving as under :- “6.3. I have perused the facts of the case,the assessment order and the submissionsof the appellant. An amount of Rs.7,63,334/- was found debited under thehead “Interest to Others” and included anamount of Rs. 7,24,527/- paid to HDFC Bankbeing the amount of interest on loan againstproperty. As noted by the Assessing Officer,the assessee was required to furnish thedetails of loan alongwith the purpose andutilization of such loan. However, no detailswere produced before the Assessing Officerand this fact has been admitted in appellateproceedings also that the details were notsubmitted before the Assessing Officer dueto oversight. However, in the presentproceedings also no details have beensubmitted. The Authorized Representativehas pleaded that since the assessee isbehind bars due to some legal cases, he isunable to produce any further details. TheAssessing Officer had opined that theassessee is liable to prove that the expenses (interest on loan) were incurred wholly andexclusively for the purpose of the business,and in the absence of the same, hasdisallowed this expenditure. The authorizedRepresentative has submitted that the booksof account were produced during theassessment proceedings and the loan is stilloutstanding to an extent of Rs.1,93,54,731/- and appearing in Schedule 2of the audited balance sheet of M/s.Garment Crafts. While it is true that thedetails of this loan were not submittedduring assessment proceedings but thesame is appearing in the books of accountswhich were produced an examined by theAssessing Officer. The Assessing Officer hasnot brought out any reason as to how hehas concluded that the loan was not used forthe purpose of business. Since, the loan aswell as the interest amount is appearing inthe audited books of account, there isnothing on record to show that the amountswere utilized for other than businesspurposes, the disallowance made by theAssessing Officer is deleted. This ground ofappeal is allowed.” The ld. D/R has not brought on record anycontrary material to controvert the abovefindings of the ld. CIT (A). Therefore,considering the above observations, we findno reason to interfere in the order of ld. CIT(A), which is hereby affirmed. The ground ofthe revenue is rejected." 5.Even otherwise, the issue no.1 is squarely covered by thedecision of this court in the case of assessee himself in D.B. ITANo.70/2017 decided on 11.10.2017 wherein it has been held asunder:- He has taken us the order of AO which reads asunder:-under:- “It is observed from the Direct Incomementioned in Schedule No. 6 of the audit reportthat the assessee has shown advertisementrevenue of Rs. 22271252/- & further reducedRs. 13197053/- in the form of discount onadvertisement. In order to examine the nature 5.Even otherwise, the issue no.1 is squarely covered by thedecision of this court in the case of assessee himself in D.B. ITANo.70/2017 decided on 11.10.2017 wherein it has been held asunder:- He has taken us the order of AO which reads asunder:-under:- “It is observed from the Direct Incomementioned in Schedule No. 6 of the audit reportthat the assessee has shown advertisementrevenue of Rs. 22271252/- & further reducedRs. 13197053/- in the form of discount onadvertisement. In order to examine the nature of alleged discount, the assessee was asked toexplain the nature of such head of allegeddiscount with supporting documents. Theassessee vide written reply dt. 24.12.2009 hastried to explain that discount is allowed to thecustomers whose advertisement has beenpublished in the news paper. Further explainedthat the assessee is raising bill of full amount ofcharges and then credit note is issued fordiscount against advertisement charges andfinally net payment i.e. net of discount isreceived from customers. The discount is notallowed to any middle man, it is credited or paidto the persons of whom advertisement ispublished in news paper. The contention putforth by the assessee hasbeen considered carefully but not foundconvincing for the reason that the allegeddiscount claimed to have been allowed to thecustomers are not discount but infact it is acommission allowed to the persons throughwhom advertisement is received for publishing innews paper. It is also appropriate to mentionhere that all persons including laymen know thatin this line of business, only commission is givento the middle men through whomadvertisements are received. In this line ofbusiness, no advertisement can be receivedwithout any middlemen or news agency from theremote as well as various corners of the cityarea. The assessee has also failed to furnish thename & complete address of the persons towhom such alleged discount claimed to havebeen allowed nor filed any copy of credit note insupport of his claim. In view of abovecircumstances, the identity of recipients of thealleged discount as well as contention ofassessee remained completely unverified andnot subject to verification. Further all the newspublishers nominate their news agencies in theirnetwork for receiving advertisement for whichcommission is paid. Being of similar nature ofbusiness, the assessee has adopted the samepractice to avoid litigation of the Income taxprovisions he has changed the nomenclature ofthe expenses and claimed to have been allowedalleged discount as against commission. Becauseon the payment of commission, TDS is requiredto be made as per rates prescribed undersection 194H of I.T. Act and deposit the sameinto the Central Government account withinprescribed time limit otherwise the same shallnot be allowed as expenditures u/s 40(a)(ia) ofthe I.T. Act. Due to change of nomenclature, the nature of expenses can not be changed. Infactthe discount claimed to have been given iscommission & TDS on payment of suchcommission (alleged discount) should have beenmade but the assessee has failed to deduct theTDS & violated the provisions of section 194Hthus the amount of Rs.13197053/- is notallowed as expenditure in view of provisions ofsection 40(a)(ia) of the I.T. Act and added thesame to the total income of assessee. 6.He contended that the CIT(A) whileobserving in para 4.1 has specifically givenfinding that the AO could have inquired in theagency and everything and he remanded backthe matter to the AO. For ready reference theobservations of CIT(A) are reproduced asunder:- nature of expenses can not be changed. Infactthe discount claimed to have been given iscommission & TDS on payment of suchcommission (alleged discount) should have beenmade but the assessee has failed to deduct theTDS & violated the provisions of section 194Hthus the amount of Rs.13197053/- is notallowed as expenditure in view of provisions ofsection 40(a)(ia) of the I.T. Act and added thesame to the total income of assessee. 6.He contended that the CIT(A) whileobserving in para 4.1 has specifically givenfinding that the AO could have inquired in theagency and everything and he remanded backthe matter to the AO. For ready reference theobservations of CIT(A) are reproduced asunder:- “I have duly considered the submissions of theappellant. The appellant is engaged in thebusiness of publication of newspaper by thename of Mahaka Bharat. The appellant had paiddiscount of Rs. 1,31,97,053/- to his customersand various advertising agencies. Thenomenclature of “discount paid” was evidentfrom the entries in the books of account, auditedprofit & loss account wherein the expenditurewas duly recorded as discount paid and tax auditreport in Form No. 3CD wherein auditors had notmade any qualification. All these documentscategorically mentioned that discount was paidon advertising revenues. The AO howeverconcluded without making any inquiries orbringing any material on record that the allegeddiscount was in nature of commission. The AOthereafter made a commission was allowed tothe agents. The AO held that the assessee hadchanged the nomenclature just to escape fromthe provisions of section 402(a)(ia) of the ITAct. The AO further held that the assessee wasrequired to deduct TDS in light of provisions ofsection 194H of the IT Act and made theimpugned disallowance of Rs. 1,31,97,053/- u/s40(a)(ia) of the IT Act. On careful considerationof the facts, I find that the AO has not made anysort of inquiry from the customers or theadvertising agencies. The books of account ofthe assessee were duly audited and completedetails in this regard were available to the AO.The AO had no basis to hold that the discount ofRs. 1,31,97,053/- was allegedly in the nature ofcommission except for making generalobservations. While doing so, the AO also ignored the entries in the books of account, thecredit notes issued by the assessee to hisvarious customers and advertising agencies.” 7.He contended that the Tribunal whileconsidering the matter has observed as under:-“In the consideration of entirely of facts andcircumstances. We hold that the amount paid byway of discount to the advertisement agencies,springs from a relationship on principal toprincipal basis and does not constitutecommission as contemplated by provisions ofSection 194H of the Act. In view thereof, we seeno infirmity in the order of the learned CIT(A) inholding that the provisions of Section 40(a)(ia) ofthe Act are not applicable and thereby deletingthe disallowances. The order of the learnedCIT(A) is upheld.” 8.It is contended that the Tribunal has goneon entirely different basis therefore, the issue isrequired to be decided in favour of thedepartment and the assessment made by the AOis required to be restored. 8.1. He has also strongly relied upon thedecision of Kerala High Court in case ofCommissioner of Income Tax vs. Director, PrasarBharti reported in [2010] 325 ITR 205 (Ker.)wherein it has been held as under:- 8.It is contended that the Tribunal has goneon entirely different basis therefore, the issue isrequired to be decided in favour of thedepartment and the assessment made by the AOis required to be restored. 8.1. He has also strongly relied upon thedecision of Kerala High Court in case ofCommissioner of Income Tax vs. Director, PrasarBharti reported in [2010] 325 ITR 205 (Ker.)wherein it has been held as under:- “2. Respondent is a fully owned Government ofIndia undertaking engaged in telecast of news,various sports, entertainments, cinemas andother programmes. Advertisement income is amajor source of revenue for all telecastingcompaniesincludingtherespondent.Advertisements are canvassed through agentsappointed by the respondent under agreementwith them. Advertising agencies recognised bythe respondent are of two types, theunregistered agencies which are not entitled toany credit facility and the other type areregisteredagencieswhicharegivenaccreditationandcreditfacilitywithDoordarshan. In other words, while the firstcategory will be able to telecast advertisementprogrammes canvassed from customers only onadvance payment, the other category can havetelecast done before making payments.Advertisement charges are based on air-timeused for telecasting advertisement material.Rates are also varying depending upon the timeof advertisement. However, these matters have no relevance for the purpose of deciding thiscase because the issue involved is whether thecommission paid @ 15 per cent by therespondent on advertisement charges remittedby the advertising agencies is subject to TDS ascommission under Section 194H of the Act. Foreasy reference, we extract hereunder therelevant portion of Section 194H for the purposeof deciding this case: 194H. Commission or brokerage--Any person,not being an individual or an HUF, who isresponsible for paying, on or after the 1st day ofJune, 2001, to a resident, any income by way ofcommission (not being insurance commissionreferred to in Section 194D) or brokerage, shall,at the time of credit of such income to theaccount of the payee or at the time of paymentof such income in cash or by the issue of acheque or draft or by any other mode, whicheveris earlier, deduct Income Tax thereon @ ten percent: Provided.... Provided.... Provided also that no deduction shall be madeunder this section on any commission orbrokerage payable by Bharat Sanchar NigamLtd. or Mahanagar Telephone Nigam Ltd. to theirpubliccallofficefranchisees. Explanation--For the purposes of this section-- (i) 'commission or brokerage' includes anypayment received or receivable directly orindirectly, by a person acting on behalf ofanother person for services rendered (not beingprofessional services) or for any services in thecourse of buying or selling of goods or in relationto any transaction relating to any asset, valuablearticle or thing, not being securities. During hearing copies of agreements executedby the respondent with two parties areproduced. The nature of transactions as statedin Annex. B agreement between Doordarshananditsagenciesisasfollows:Whereas, for the better regulation of thepractice of advertising and to secure the bestadvertising service for advertisers, theDoordarshan Commercial Service has agreed to allow commission in respect of advertisementsplaced by any advertising agent and accreditedbyit. (2) By the agency : In consideration of theaccreditation herein afforded and of thecommission to which the agency will be entitledbyreasonofsuchaccreditation. (c) the remuneration of the agency for placingadvertisements in the commercial service shallbe in the form of standard agency commission of15 (fifteen) per cent to be paid by theDoordarshanCommercialService. allow commission in respect of advertisementsplaced by any advertising agent and accreditedbyit. (2) By the agency : In consideration of theaccreditation herein afforded and of thecommission to which the agency will be entitledbyreasonofsuchaccreditation. (c) the remuneration of the agency for placingadvertisements in the commercial service shallbe in the form of standard agency commission of15 (fifteen) per cent to be paid by theDoordarshanCommercialService. From the above it is very clear that parties haveunderstood their relationship as principal andagent and what is paid to the agent byDoordarshan is 15 per cent of advertisementcharges collected and remitted to it by the agentwhich is in the form of commission payable tothe agent by Doordarshan. Counsel for therespondent referred to one of the agreementswhere the commission is referred to as standarddiscount and contended that the arrangementbetween respondent and advertising agency isnot agency but is a principal to principalarrangement of sharing advertisement charges.We are unable to accept this contention becauseadvertisement contract entered into between thecustomer and the agency is for telecastingadvertisement in Doordarshan channels. Theagent canvasses advertisement on behalf ofDoordarshan under agreement between themand the advertisement charges recovered fromthe customers are also in accordance with tariffprescribed by Doordarshan which is incorporatedin the agreement. Further it is specifically statedin the agreement that advertisement materialshould also conform to the discipline introducedby Doordarshan which is nothing but aGovernment agency which cannot telecast allwhat is desired to be telecast by advertisingagencies. In fact, Doordarshan is bound byadvertisement contract canvassed by advertisingagencies and it is their duty under theagreement between them and the advertisingagencies to telecast advertisement material interms of the contract which the agency signswith the customer. In our view, the transaction isa pure agency arrangement between therespondent and the advertising agenciesbecause one acts for the other and the act of theagent binds the respondent in their capacity as principal of the agent. It is pertinent to note thatcommission or brokerage defined under Expln.(i) to Section 194H has a wide meaning and itcovers any payment received or receivabledirectly or indirectly by a person acting on behalfof another person for services rendered. In thiscase, no one can doubt that 15 per centcommission paid to advertising agencies by theDoordarshan is for canvassing advertisementson behalf of the respondent. So much so, thepayment of 15 per cent, by whatever namecalled, whether discount or commission, fallswithin the definition of "commission" as definedunder Expln. (i) to Section 194H of the Act. principal of the agent. It is pertinent to note thatcommission or brokerage defined under Expln.(i) to Section 194H has a wide meaning and itcovers any payment received or receivabledirectly or indirectly by a person acting on behalfof another person for services rendered. In thiscase, no one can doubt that 15 per centcommission paid to advertising agencies by theDoordarshan is for canvassing advertisementson behalf of the respondent. So much so, thepayment of 15 per cent, by whatever namecalled, whether discount or commission, fallswithin the definition of "commission" as definedunder Expln. (i) to Section 194H of the Act. 5. Even though counsel for the respondent hasrelied on the decision of the Gujarat High Courtin Ahmedabad Stamp Vendors Association v.Union of India MANU/GJ/0167/2002 : (2002)176 CTR (Guj) 193 : (2002) 257 ITR 202 (Guj)and a decision of learned Single Judge of thisCourt in M.S. Hameed and Ors. v. Director ofState Lotteries and Ors. MANU/KE/0446/2001 :(2001) 165 CTR (Ker) 481 : (2001) 249 ITR 186(Ker) and contended that commission payablecannot be subjected to deduction, we are unableto accept this argument because the casedecided by the Gujarat High Court pertains tosale of stamp by the Government to stampvendors at a discount and the case decided bythis Court pertains to sale of lottery tickets tothe agents at a discounted price. In both thecases, the purchasers, namely, stamp vendorsand lottery agents purchased stamps and lotterytickets respectively at a discounted priceandthey run the business at their risk. They willget the discount retained by the Governmentonly if stamp paper or lottery ticket is sold anddestruction of the stamp paper or lottery ticketbefore sale in their hands will be a complete lossto them. Therefore the transactions of purchaseat discounted price and sale at face value wererightly treated as not agency transactions by theCourts. On the other hand, in this case, on factsand based on terms of agreements betweenparties, we find that the transaction is pureagency arrangement whereunder respondentallows the agents to canvass advertisement forthem at tariff prescribed by the respondent onpayment of commission of 15 per cent. Wetherefore allow the appeals reversing the ordersof the Tribunal and restore the orders ofassessment confirmed in first appeals. However it is for the respondent to invoke, if permissible,the indemnity clause and recover the levies fromthe agents.” 9.We have heard counsel for the appellant. 10.We have gone through the order andproceedings of the matter. It is not in disputethat the amount which has been received by theassessee was after deducting the commission,stock brokerage or whatever term is awardedand the same has been shown in the books ofaccounts and as stated by Mr. Mathur, if thedetails are to be given reads as under:- “The advertisement are to be procured by suchagencies at the rates and terms decided betweenthem and advertiser, assessee has no involvementtherein. In the case of Kerala State StampVendors Association vs. Office of the AccountantGeneral, the Hon’ble Kerala High Court held thatwhat is liable for TDS is commission of brokerageand not the incentives given on the basis ofprincipal to principal relations.” 6.Regarding issues no.2 & 3 relating to PF & ESI, thecontroversy is pending before the Supreme Court in SLPNo.16249/2014 (The State of Rajasthan CIT, Jaipur vs. M/s. StateBank of Bikaner and Jaipur), hence, the issues are decided subjectto SLP. 7.In that view of the matter, no substantial questions of lawarises. 8.The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 11.