Principal Commissioner Of Income Tax, Jaipur-3, Statue Circle, C-Scheme, Jaipur v. Sh. Manoj Kumar Johari

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 78 / 2016 Principal Commissioner of Income Tax, Jaipur-3, Statue Circle, C-Scheme, Jaipur. ----Appellant Versus Sh. Manoj Kumar Johari Prop. M/s. The Art Palace, Ramgarh Shekhawati, Sikar (Raj.) A.Y.2009-10. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 05/09/2017 1. By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby Tribunal has partlyallowed the appeal of the assessee. 2.This court while admitting the appeal on 4.10.2016 framed following substantial question of law:- “1. Whether the Tribunal is justified in law inallowing the deduction u/a 10BA on Incomeof Rs. 7,80,143/- ignoring the material fact,that the assessee did not fulfill theprerequisite conditions prescribed under sub-section 2 of section 10BA and was noteligible for the deduction at all on theaforementioned income? 2. Whether the Tribunal was justified in lawin allowing deduction u/s 40(a) (IA) of Rs.30,92,718 of the IT Act, towards paymentmade to c/f agent and work job workcontractors without deduction and deposit ofTDS within prescribed time by the assessee ? 3. Whether the Tribunal was justified in lawin deleting the addition of Rs. 30,96,050/- onaccount of excess stock found at the time ofsurvey proceedings, ignoring the findings ofthe CIT(A) upholding it as unexplainedinvestment u/s 69 of the Act ?” 3.The facts of the case are that for the A.Y. 2003-04 theassessee declared income from his Proprietary business namedM/s. The Art Palace for the first time. Prior to that, for the A.Y.2002-03, assessee had income of Rs.88,240/- i.e. Rs.7,241/- asinterest and Rs.36,000/- as salary from M/s. Deepak Handicraftsand Rs.45,100/- as income from other sources. As per the balancesheet of assessee for the A.Y. 2002-03, assessee had loan ofRs.14,20,000/- from M/s. Indian Art Palace. M/s. Indian Art Palaceis a family partnership firm having assessee’s brothers, uncles andcousins as partners. M/s. Indian Art Palace was in existence sincelong and was in the same business as is the assessee even today.In the initial year when the assessee started his business he hadno machinery of his own, no business premises of his own and nosufficient capital of his own. All these business in puts werecontributed by M/s. Indian Art Palace, the old existing familyconcern of the assessee. He started his business in the same business premises where very old firm M/s. Indian Art Palace wascarrying the business. He used the same old machinery belongingto M/s. Indian Art Palace, for which he paid rent to that concern.He also paid rent for the business premises separately, to M/s.Indian Art Palace. Assessee added to the machinery every yearbut continued to use the plant and machinery and premises ofM/s. Indian Art Palace and is till using these assets. 3.1The assessee claimed 100% deduction of his profit u/s 80IBfrom A.Y. 2003-04 to A.Y. 2005-06. When 100% deduction wasnot available to assessee from A.Y. 2006-07 onwards, theassessee switched over his claim from Section 80IB to section10BA, though there was no noticeable change in the nature ofassessee’s business. No new undertaking was set up by theassessee in A.Y. 2006-07 to 2009-10. As is evident from thesequence of events, the same business at the same place and withsame machinery had been going on for several years, in the nameof M/s. Indian Art Palace. 3.1The assessee claimed 100% deduction of his profit u/s 80IBfrom A.Y. 2003-04 to A.Y. 2005-06. When 100% deduction wasnot available to assessee from A.Y. 2006-07 onwards, theassessee switched over his claim from Section 80IB to section10BA, though there was no noticeable change in the nature ofassessee’s business. No new undertaking was set up by theassessee in A.Y. 2006-07 to 2009-10. As is evident from thesequence of events, the same business at the same place and withsame machinery had been going on for several years, in the nameof M/s. Indian Art Palace. 4.It is contended that issue no.1 is squarely covered by thedecision of this court in ITA No.113/2012 & 114/2012 (CIT Jaipur-III vs. Manoj Kumar Johari) decided on 29.8.2017 wherein it hasbeen held as under:- “By way of the appeals, the appellant hasassailed the judgment and order of theTribunal whereby the Tribunal has dismissedthe appeals. This Court while admitting the matter framedthe following question of law:- In DBITA No. 113/2012 & In DBITA No.114/2012 “Whether the Tribunal was justified in thefacts and circumstances in allowing relief ofexemption under Section 10BA of the Acteven when the substanttive and materialconditions which was pre-requisite were notfulfilled, on the basis of appellants own casein A.Y. 2005-2006 which was based ondifferent point and is pending in appealbefore Hon’ble High Court u/s 260A of theAct?” Counsel for the appellant contended that theTribunal has seriously committed an error inconfirming the order of CIT(A) and wronglyreversed the view taken by the AO. Counsel for the respondent has relied uponthe decision of this Court in case of CIT vs.Manoj Kumar Johri in Tax Appeal No.243/2011 decided today wherein it has beenobserved as under:- “Before proceeding with the matter, whetherthe Tribunal was right in setting aside theorder under Section 263 which has beenpassed by the CIT(A), that question hasbeen considered by the Tribunal in AppealNo.243/2011 and the same was argued byMr. Sameer Jain. The Tribunal whilediscussing the issue has relied upon differentdecisions of the High Court and afterconsidering in detail has come to theconclusion that while invoking the provisionsunder Section 263 of the Act, theassessment order is prejudicial to theinterest of revenue. The subsequentproceedings which took place on 24.09.2008could not be relied upon. Taking support ofSection 263 (1)(b), the concept of record isthe record which was available with the A.O.at the time of assessment. If the contentionwhich has been raised by Mr. Jain is takeninto consideration, no assessee will beassessee. If the subsequent events to theassessment order is taken into considerationthen the scope of Section 263 will beenlarged. In that view of the matter, we are of theopinion that the record which was availablewith the A.O. is required to be taken into consideration and the tribunal whileconsidering the matter has taken intoconsideration the seven documents, moreparticularly D.L.C. Certificate which could beprocured easily and the other documents likeexport licence which has been grantedw.e.f.02.09.2002 and registration certificategranted by C.T.O. w.e.f. 26.08.2002. He hasalso produced the muster roll register. In that view of the matter, the tribunal hasconsidered the complete facts in detail. Itwill not be appropriate to re-appreciate thefacts, more particularly when the tribunalhas observed that the discussion which hasbeen done by the A.O. have not beenspecifically rebutted by the Department. In that view of the matter, we are of theopinion that the view taken by the Tribunal isjust and proper. The issue is required to beanswered in favour of the assessee againstthe department.” 4.2In view of the above, the issue no.1 is answered in favour of the assessee and against the department. 4.3Regarding issue no.2, Mr. Jain has taken us to the order of In that view of the matter, the tribunal hasconsidered the complete facts in detail. Itwill not be appropriate to re-appreciate thefacts, more particularly when the tribunalhas observed that the discussion which hasbeen done by the A.O. have not beenspecifically rebutted by the Department. In that view of the matter, we are of theopinion that the view taken by the Tribunal isjust and proper. The issue is required to beanswered in favour of the assessee againstthe department.” 4.2In view of the above, the issue no.1 is answered in favour of the assessee and against the department. 4.3Regarding issue no.2, Mr. Jain has taken us to the order of the AO in para no.8 which reads as under:- “8. Disallowance U/s 40(a)(ia):- Assesseehad filed the details of the payment made toM/s Sachin Cargo Movers with letter dated20.12.2011. Perusal of such details showstha substantial amount was paid to them astransport charges. Total of such paymentsfor transport is Rs.43,21,000/-. Assesseewas required to deduct tax at source onsuch payments, however no tax wasdeducted at source. On being asked, it isexplained that assessee did not pay anytransportation charges to any transporterdirectly under this head and the assesseeonly reimburse the actual expenditureincurred by Sachin Cargo on the behalf ofassessee and hence TDS provisions were not attracted on these payments as per circularNo. 715 dated 08.08.1995. The explanation filed by assessee is notacceptable because assessee has not filedany details or evidence to show that M/sSachin Cargo had passed on the entiretransport charges to transporter(s) and notretained any margin for itself out of thesepayments. Assessee has not filed details orproduced vouchers from transporters towhom exact amount was paid by M/s SachinCargo on behalf of assessee. Since assesseehas not deducted tax at source on paymentsof disallowance of Rs.43,21,000/-, is madeu/s40(a)(ia) of the Act. 4.4He has also taken us to the order of the CIT(A) which readsas under:- 5.1. A.O. noticed that the appellant paidtotal of Rs.43,21,000/- to M/s. Sachin CargoMovers for transport without deducting taxat source Appellant explained that he onlyrembursed the actual expenditure increasedby M/s. Sachin Cargo Movers who in turndeducted the tax while making payment tothe appellant could not prove that the entiretransport charges paid to M/s. Sachin CargoMovers was paid to the transports and nomargin was retained by this concern. Hetherefore,disallowedasumofRs.43,21,000/- U/s. 40(a)(ia) of the Act. A.O. further noticed that the TDS made onsome contract payments was not depositedwithin the due dates. He therefore,disallowed a sum of Rs.30,92,718/- U/s.40(a)(ia) of the Act. 5.2. Ld. AR in his written submission statedthat no transport charges were paid by theappellant to M/s. Sachin Cargo Movers. Heonly paid C&F charges which included thereimbursement of various expenses incurredby the C & F agent including thetransporting charges. Appellant has notmade any direct payment of transportcharges to the transporters. Hence, provision of sec. 194C are not applicable onsuch payment to M/s. Scchin Cargo Movers.It was alternatively claimed that nodisallowance U/s. 40(a)(ia) can be madesince the entire payment was made duringthe year and nothing remained payable atthe year end. Ld. A.R. relied on thedecisions of ITAT, Jaipur in the case of jaipurVidhyut Vitran nigam Ltd. (2009) (26 DTR79) and special Bench decision in the case ofMarilyn Shipping and Transport (2012) (146TTJ 1) (Visakha SB). In respect of Latedeposit of TDS made on contract payments,it was submitted that the entire paymentwas made before the due date of filing thereturn U/s. 139(1). Alternatively it wasclaimed that since the entire contractamounts were paid before the end of theyear and the thing remained outstanding, nodisallowance can be made U/s. 40(a)(ia) ofthe Act. 4.5He further contended that the tribunal has committedserious error in allowing the appeal of the assessee observing asunder:- 4.2 Ld. Counsel for the assessee contendsthat the assessee paid no transport charges.The assessee appointed an agent M/s SachinCargo Movers, B-56, Model Town, JagatpuraRoad, Jaipur for shipping the goods fromfactory site to inland port for onwards exportout of India. The agent reimburses allexpenses made by it therein and raises a billthere for which assessee reimbursed. Thetotal charges paid are Rs. 1,23,24,384.26which are debited in P & L A/c as C & Fcharges. The breakup of charges are asunder:- (I)THC etc. charges42,56,773.49ICD/cfs Inland haulage(ii)21,81,974.23chargesTransporation & Handling(iii)43,21,000.00charges Fumigation charges(iv)3,01,746.00GSP charges(v)74,400.00SachinCargoAgency(vi)2,66,500.00chargesOther charges(vii)62,718.00(viii) [Ocean freight]7,89,270.24 Ld. AO picked up transport charges of Rs.43,21,000/- and held that assessee has notdeducted due TDS there from and disallowedthe same u/s 40(a)(ia) of I.T. Act, 1961. Inthis connection it is submitted that assesseehas not directly paid these transport chargesbut are reimbursed by him to Sachin CargoMovers. M/s Sachin Cargo Movers who haspaid the transport charges and deducted dueTDS from transporters and deposited thesame in accordance with provisions of I.T.Act, 1961. This is neither disputed in earlieror current year. Since the agent who paidthese transport charges deducted due taxthere from, the assessee is thus not liable todeduct TDS from transportation charges.Necessary details of these payment withevidence that M/s Sachin Cargo movershaving deducted and paid due TDS fromtransportation charges was furnished. Acertificate from M/s Sachin Cargo Movers tothis effect is also on record. In these facts ofthe case the disallowance made u/s 40a(ia)by . A.O. in the hands of assessee isunjustified and bad in law. Ld. CIT (A)upheld the action of A.O. by holding that ineffect, the transport charges were paid byappellant on which TDS was required to bemade. If agent paid TDS on behalf ofassessee it will not exonerate assessee fromliability. It ITA No. 479/JP/2013 ACIT ,Circle-Sikar vs. Shri Manoj Kumar Johari. 6 issubmitted that both the authorities belowdid not appreciate that transportationcharges were incurred by agent on behalf ofassessee and relationship between assesseeand agent is principal and agent and in suchcase assessee is not required to deduct taxat source and there can be no disallowanceu/s 40 (a) (ia). The agent reimbursed only transport charges actually paid by him afterdeducting TDS and for his services chargedassessee on which service tax was also paid.The ld. AR of the assessee relied onfollowing decisions. (i) CIT Vs. Harbans Lal Malhotra & Sons P.Ltd. (2013)262 CTR 94 (Cal). (ii) CIT Vs. Gujrat Narmada Valley FertilisersCo. Ltd. (2014)361 ITR 192 (Guj). It is further contended that the same issueis covered in favour of the assessee by ITATJaipur Bench (ITA No. 1111/JP/2011 dated21-11- 2014) in assessee's own case for theassessment year 2008-09 by observing asunder:- transport charges actually paid by him afterdeducting TDS and for his services chargedassessee on which service tax was also paid.The ld. AR of the assessee relied onfollowing decisions. (i) CIT Vs. Harbans Lal Malhotra & Sons P.Ltd. (2013)262 CTR 94 (Cal). (ii) CIT Vs. Gujrat Narmada Valley FertilisersCo. Ltd. (2014)361 ITR 192 (Guj). It is further contended that the same issueis covered in favour of the assessee by ITATJaipur Bench (ITA No. 1111/JP/2011 dated21-11- 2014) in assessee's own case for theassessment year 2008-09 by observing asunder:- ‘’10.6 We have heard the rival contentionsand perused the materials available onrecord. In our considered view the nature ofbetween assessee & M/s. Sachin CargoMovers, C&F Agent, was for reimbursementof expenses. Besides, the TDS thereon hasbeen deducted by the agent as mentionedabove. By now, it has been settled byvarious Courts that reimbursement ofexpenses are not liable for deduction u/s40(a)(ia) of the Act. In any case the agenthas deducted the TDS a fact not disputed byrevenue, in this eventuality also the caselaws cited by the ld. AR supports thisproposition. In view thereof, we hold thatthe expenses paid to M/s. Sachin CargoMovers,C&FAgent,beingforreimbursement of expenses cannot bedisallowed u/s 40(a)(ia) of the Act. ThusGround No. 3 of the assessee is allowed.’’ 4.6He has also taken us to issue no.3 and contended that thefinding recorded by tribunal with regard to Section 69 is alsocontrary to law and required to be reversed inasmuch as stockwhich was closing for the previous year, the same has beenchanged in the profit and loss account. 4.7Counsel for the respondent Mr. Jhanwar relied on regardingissue no.2 on following decision which are referred in ITANo.3/2011 (Commissioner of Income Tax vs. M/s. DaulatEnterprises & other connected cases) decided on 31.7.2017 andanother decision of this court in ITA No.579/2009 (CIT vs.Principal Officer JVVNL) decided on 26.5.2017 wherein it has beenheld as under:- “Issue No.2, counsel for the respondent hasrelied upon the decision of this Court inAjmer Vidhut Vitran Nigam Ltd. Vs.Authority for Advance & Ors., in D.B. CivilWrit Petition No. 20195/2012, decided on19th October, 2016, wherein it has beenobserved as under: “2. Counsel for the petitioner relied on theprovisions of Section 194C and 194J whichreads as under :- 194C. (1) Any personresponsible for paying any sum to anyresident (hereafter in this section referredto as the contractor85) for carrying out anywork85 (including supply of labour forcarrying out any work) in pursuance of acontract between the contractor and aspecified person shall, at the time of creditof such sum to the account of thecontractor or at the time of paymentthereof in cash or by issue of a cheque ordraft or by any other mode, whichever isearlier, deduct an amount equal to— (i) oneper cent where the payment is being madeor credit is being given to an individual or aHindu undivided family; (ii) two per centwhere the payment is being made or creditis being given to a person other than anindividual or a Hindu undivided family, ofsuch sum as income-tax on incomecomprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account,whether called "Suspense account" or byany other name, in the books of account ofthe person liable to pay such income, suchcrediting shall be deemed to be credit of such income to the account of the payeeand the provisions of this section shall applyaccordingly. (3) Where any sum is paid or credited forcarrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation,tax shall be deducted at source— (i) on the invoice value excluding the valueof material, if such value is mentionedseparately in the invoice; or (2) Where any sum referred to in sub-section (1) is credited to any account,whether called "Suspense account" or byany other name, in the books of account ofthe person liable to pay such income, suchcrediting shall be deemed to be credit of such income to the account of the payeeand the provisions of this section shall applyaccordingly. (3) Where any sum is paid or credited forcarrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation,tax shall be deducted at source— (i) on the invoice value excluding the valueof material, if such value is mentionedseparately in the invoice; or (ii) on the whole of the invoice value, if thevalue of material is not mentionedseparately in the invoice. (4) No individual or Hindu undivided familyshall be liable to deduct income-tax on thesum credited or paid to the account of thecontractor where such sum is credited orpaid exclusively for personal purposes ofsuch individual or any member of Hinduundivided family. (5) No deduction shall be made from theamount of any sum credited or paid orlikely to be credited or paid to the accountof, or to, the contractor, if such sum doesnot exceed 86[thirty] thousand rupees194J. (1) Any person, not being an individual or aHindu undivided family, who is responsiblefor paying to a resident any sum by way of — (a) fees for professional services, or (b) fees for technical services26, 27[or] [(ba) any remuneration or fees orcommission by whatever name called, otherthan those on which tax is deductible undersection 192, to a director of a company, or][(c) royalty, or (d) any sum referred to inclause (va) of section 28,]shall, at the timeof credit of such sum to the account of thepayee or at the time of payment thereof incash or by issue of a cheque or draft or byany other mode, whichever is earlier,deduct an amount equal to 29[ten] per centof such sum as income-tax on incomecomprised therein” 3. The assessee was bound to deduct TDSin lieu of services received by them and forthe services received by them was liable topay tax within the meaning of Explanation 2to Section 9(1)(vii) of the Act. 4. However counsel for the petitioner Mr.Jhanwar contended that the issue isconcluded in view of the followingdecisions : 1. Commissioner of Income TaxVs. Bharti Cellular Ltd. (2011) 330 ITR 239(SC), 2. Union of India Vs. Satish PanalalShah (2001) 249 ITR 221 (SC), 3.Commissioner of Income Tax Vs. JaipurVidyut Vitran Nigam Ltd. D.B. ITA No.579/2009, High Court of Judicature forRajasthan, Jaipur 4. Commissioner ofIncome Tax Vs Bharti Cellular Ltd (2009)319 ITR 139 (Del.), 5. SkycellCommunications Ltd. and Anr. Vs DeputyCommissioner of Income Tax and Ors.(2001) 251 ItR 53 (MAD.), 6. M.S.Jewellery Vs. Assistant Commissioner(ASSESSMENT) Agricultural Income Tax andSales Tax and Anr. (1994) 208 ITR 531(KER.), 7. CIT vs. Maharashtra StateElectricity Distribution Co. Ltd., (2015) 119DTR (BOM) 278, 8. Commissioner ofIncome Tax-II and Ors. Vs Delhi TransportLtd. Manu/ DE/ 2199/2015. 5. We have heard learned counsel for theparties. 6. In view of the fact that issue is concludedby decision of Bombay High Court and DelhiHigh Court and SLP against the same hasbeen dismissed. In that view of the matterthe issues are required to be answered infavour of the assessee against thedepartment.” 4.8Regarding question no.3, he relied upon the decision ofSupreme Court in Commissioner of Income Tax vs. ExcelIndustries Ltd. (2013) 358 ITR 295 wherein Supreme court heldas under:- “20. It follows from these decisions thatincome accrues when it becomes due but itmust also be accompanied by acorresponding liability of the other party topay the amount. Only then can it be saidthat for the purposes of taxability that theincome is not hypothetical and it has reallyaccrued to the Assessee. 6. In view of the fact that issue is concludedby decision of Bombay High Court and DelhiHigh Court and SLP against the same hasbeen dismissed. In that view of the matterthe issues are required to be answered infavour of the assessee against thedepartment.” 4.8Regarding question no.3, he relied upon the decision ofSupreme Court in Commissioner of Income Tax vs. ExcelIndustries Ltd. (2013) 358 ITR 295 wherein Supreme court heldas under:- “20. It follows from these decisions thatincome accrues when it becomes due but itmust also be accompanied by acorresponding liability of the other party topay the amount. Only then can it be saidthat for the purposes of taxability that theincome is not hypothetical and it has reallyaccrued to the Assessee. 21. In so far as the present case isconcerned, even if it is assumed that theAssessee was entitled to the benefits underthe advance licences as well as under theduty entitlement pass book, there was nocorresponding liability on the customsauthorities to pass on the benefit of dutyfree imports to the Assessee until the goodsare actually imported and made availablefor clearance. The benefits represent, atbest, a hypothetical income which may ormay not materialise and its money value istherefore not the income of the Assessee.” 5.We have heard counsel for the parties. 5.1With regard to issue no.2, it is observed that since it wasreimbursement, in our considered opinion, the tribunal has notcommitted error in allowing the appeal of the assessee. Thefurther contention by the department if it is reimbursement, it willbe open for the department to examine the matter on merits andtake independent view considering law prevailing on the date onwhich situation arises. 5.2Regarding unexplained investment u/s 69, in our consideredopinion, the facts of the case were rightly appreciated by thetribunal and the tribunal has not committed serious error in takinginto account the stock value on the date and subsequently carriedforward. 5.3In that view of the matter, the issues are answered in favourof the assessee and against the department. 6.The appeal stands dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Brijesh79.