Income Tax Appellate Tribunal - Jaipur
Acit, Jaipur vs Latala Construction Company, Jaipur on 7 March, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 194/JP/2015
fu/kZkj.k o"kZ@Assessment Year : 2010-11.
The Asstt. Commissioner of Income-tax, cuke M/s. Latala Construction Co.,
Circle-5, Vs. B-19, Transport Nagar,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AABFL 1873F
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by: Shri R.A. Verma (Addl. CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Mahendra Gargieya (Advocate)
lquokbZ dh rkjh[k@ Date of Hearing : 21.12.2017
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 07/03.2018.
vkns'k@ ORDER
PER VIJAY PAL RAO, JM :
This appeal by the revenue is directed against the order dated 22nd December, 2014 of ld. CIT (A)-2,Jaipur for the assessment year 2010-11. The revenue has raised the following grounds :-
(i) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of material expenses of Rs. 19,49,612/- made by the AO.
(ii) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of material expenses of labour expenses of Rs. 13,65,356/- made by the AO.
(iii) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of vehicle expenses of Rs. 23,85,203/- made by the AO.
(iv) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the 2 disallowance out of telephone expenses of Rs. 24,085/- made by the AO.
(v) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of interest from FDRs of Rs. 25,34,962/- made by the AO.
(vi) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the addition u/s 41 of Rs. 4,44,645/- made by the AO.
(vii) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance out of house rent of Rs. 98,400/- made by the AO.
(viii) (a) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting addition of Rs. 38,500/- made for depositing the employee's contribution to PF & ESI beyond the prescribed time limit provided in the respective Acts.
(b) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in holding that employee's contribution to PF & ESI are governed by the provision of section 43B and not by section 36(1)(va) r.w.s. 2(24)(x) of I.T. Act.
(ix) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance u/s 194A of Rs. 4,74,201/- made by the AO.
(x) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting the disallowance u/s 194H of Rs. 14,12,035/- made by the AO.
(xi) The applicant craves its rights to add, amend or alter any of the grounds on or before the hearing.
Ground Nos. 1 to 4 are regarding disallowances of material expenses, labour expenses, vehicle expenses and telephone expenses.
2. The assessee is a Government Civil Contractor and filed its return of income on 14th October, 2010 declaring totaling income of Rs. 1,07,46,270/-. Subsequently the return was revised on 21st April, 2011 wherein the assessee declared total income of Rs. 80,20,200/-. The reason of revised return was explained by the assessee as a technical error in computing the total income in the original return of 3 income. During the assessment proceedings, the AO pointed out specific defects in the books of accounts regarding non maintenance of stock register, valuation of opening stock and closing stock given on estimate basis, consumption of raw material not verifiable etc. Accordingly, the AO rejected the books of accounts under section 145(3) of the IT Act. The AO, thereafter, disallowed 10% out of material expenses, labour & wages and telephone expenses and 20% out of conveyance expenses, travelling expenses, diesel expenses, repair & maintenances expenses and depreciation. On appeal, the ld. CIT (A) confirmed the rejection of books of account under section 145(3) of the Act which has not been challenged by the assessee. However, the CIT (A) deleted the addition made by the AO. Hence the revenue has filed the present appeal.
3. Before us the ld. D/R has submitted that the ld. CIT (A) did not consider and appreciate the defects pointed out by the AO in respect of each head of expenses. The ld. CIT (A) has deleted the entire addition made by the AO on account of vehicle maintenance and telephone expenses without considering the personal use of vehicle and telephone. He has relied upon the order dated 28th September, 2016 of the Coordinate Bench of the Tribunal in the case of M/s. Choudhary & Brothers vs. ACIT in ITA No. 54/JP/2013 and submitted that the Tribunal has confirmed the estimation of income by applying the Net Profit Rate at 17%. 3.1. On the other hand, the ld. A/R has submitted that the net profit rate declared by the assessee for the year under consideration is 13.73% before depreciation, interest and salary to the partners which is higher than the past net profit declared by the assesee. The Tribunal in assessee's own case for the assessment year 2007- 08 has considered and decided an identical issue and held that in case the net profit 4 declared by the assessee is more than the past year, then no addition is required. He has relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Gotan Lime Khaniz Udyog, 256 ITR 243 (Raj.) and submitted that the Hon'ble High Court has held that mere rejection of books of accounts need not necessarily lead to addition to the returned income. The ld. A/R has further submitted that the decision in case of Choudhary & Brothers is not applicable in the facts of the case in hand because in the said case the assessee's past history was considered for the purpose of estimation of income by applying net profit rate declared by the assessee in the earlier year and, therefore, a net profit declared by another assessee cannot be considered as a standard bench mark for another assessee rather the assesee's own past net profit can be the basis of estimation of income. He has supported the order of ld. CIT (A).
4. We have considered the rival submissions as well as the relevant material on record. The AO after rejection of books of accounts under section 145(3) made disallowance of various expenses and tested the income of the assessee with net profit rate. It is pertinent to state that once the books of accounts are rejected by the AO, the only recourse is left with the AO is to estimate the income/profit of the assessee by applying proper and reasonable basis. It is settled position as held by the Hon'ble Jurisdictional High Court that the past history of GP/NP declared by the assessee is a proper guidance for estimation of income. In the case in hand, the AO pointed out certain defects in the books of accounts and rejected the book result under section 145(3) of the Act. The ld. CIT (A) confirmed the rejection of books of accounts and the assessee did not challenge the said decision of the authorities below. Thus once the books of accounts are rejected, the AO cannot make a 5 disallowance of expenditure pertaining to the trading account if the estimation of income of assessee is based on GP rate. Even in case of net profit is taken as the basis of estimation, the scope of disallowance of other expenditure is also very limited. Therefore, the expenses which are part of trading account would be covered under the estimation of income by applying GP rate. However, the expenses beyond the trading account are subject to verification and allowability being incurred wholly and exclusively for the purpose of business of the assessee. It is pertinent to note that in case the income of the assesee is computed on the basis of estimation of net profit and further claim of deduction is allowed which is again subjected to the verification and confirmity of the provisions of the Act then the very purpose of invoking the provisions of section 145(3) would be defeated. Therefore, in these facts and circumstances when the book results are rejected, the income of the assessee is required to be estimated either on the basis of GP or NP rate without allowing further expenditure. The provisions of section 44AD are relevant on this point which provides the estimation of profits from the business of civil contract as of the assessee before us. Thus the provisions of section 44AD can be taken as a guidance for estimation of the income of the assessee from the business of civil contract. The Hon'ble Kerala High Court of Samurai Techno Trading Co. Pvt. Ltd. vs. CIT, 197 Taxman 144 (Ker.) has held in para 6 as under :-
" 6. In the appeals filed for the years 1994-95 and 1995-96, we find that the common issue pertains to estimation of income from civil work at 8 per cent of the total contract receipts. Even though the Assessing Officer made estimation only because the assessee's books of account were found to be unreliable and uncreditworthy, since, counsel appearing for the appellants canvassed for acceptance of books of account, we have to necessarily refer to the reason for rejection of 6 books of account at least for one year. It is seen that on examining the books of account, the Assessing Officer noticed that the assessee has shown cash payment of Rs. 80.16 lakhs on a single day, i.e., on the last date of the previous year relevant for the assessment year 1994- 95 i.e., on 31-3-1994. In order to verify the genuineness of the transaction, the Assessing Officer issued notice to the persons in whose names vouchers were prepared by the assessee for having made the payments. The notices sent to some of the parties were returned stating that no such party exists and some of the persons who appeared before the Assessing Officer gave sworn statement stating that they have not received the amount from the assessee. We have no doubt in our mind that the assessee's account is absolutely unbelievable because on a single day, i.e. on 31-3-1994, the assessee is stated to have given Rs. 19.2 lakhs towards tractor hiring charges, Rs. 3.71 lakhs towards water charges and Rs. 57.25 lakhs towards the labour charges for earthmoving. We do not know how labour charges got accumulated for the whole accounting year to justify payment of cash of Rs. 57.25 lakhs on the last date of the previous year. In our view, when the cash payment of Rs. 80.16 lakhs on a single day itself gave rise to doubt in the mind of the Assessing Officer, he rightly cross checked the genuineness of the payments by issuing summons to the persons whose names were shown in the vouchers prepared by the assessee. The result was that partly, vouchers were found to be bogus, and partly stand disproved. We do not know on what ground the appellants can seek for acceptance of books of account which was found to be unworthy of credit by three lower authorities. In the absence of credible books of account, option of the AO under s. 145(3) of the IT Act is to make assessment on estimation basis in terms of s. 144 of the IT Act. In this case, we find the order of the Tribunal is quite favourable to the assessee because as against the estimation of 10 per cent made by the Assessing Officer, the Tribunal has reduced the estimation to 8 per cent of the total works turnover. There is logic and reason in estimation of income from civil construction work at 8 per cent because under the presumptive scheme, section 44AD provides for assessment of income on civil construction work at 8 per cent where the contractor's turnover is below Rs. 40 lakhs. Even though counsel for the appellant contended that section 44AD has no application as the contract amount is above Rs. 40 lakhs, we do not think, there is justification to interfere with the order of the Tribunal because in the first place, the Tribunal has granted part relief to the assessee by reducing the estimated income from 10 per cent to 8 per cent. Secondly, what the Tribunal has done, is only to follow section 7 44AD as a guideline for estimation of income from civil work. We, therefore, find no justification to interfere with this part of the order of the Tribunal. It is worthwhile to note that while confirming the estimation of income at reduced percentage, the Tribunal cancelled separate addition made by the Assessing Officer under the head 'other income' which is a huge amount of Rs. 15,44,353. We are of the view that after getting deletion of addition of Rs. 15,44,353, the assessee cannot canvass for modification of other part of the order of the Tribunal confirming estimation of income at the reduced percentage of 8 per cent which is a reason for deleting the separate addition without considering it independently on merit. "
Accordingly the income of the assessee shall be computed by taking the NP @ 8% and no further deduction shall be allowed. The AO is directed to compute the income of the assessee by applying NP @ 8% on the turnover without further deduction.
5. In the result, the ground nos. 1 to 4 of the revenue's appeal are partly allowed.
Ground no. 5 is regarding addition on account of interest on FDRs.
6. The AO noted that the assessee has accrued interest on FDRs at Rs. 25,34,962/- but the same has not been declared as part of total income. He has noted that the assessee is following mercantile system of accounting and, therefore, interest accrued on FDR should have been declared as part of the total income. Accordingly, the AO added interest on FDRs of Rs. 25,34,962/- to the total income of the assessee. On appeal, the ld. CIT (A) deleted the addition made by the AO by noting the fact that the assessee has included in the total income the amount of interest accrued on FDRs during the year under consideration. 8
7. We have heard ld. D/R as well as ld. A/R and considered the relevant material on record. The AO made the addition of closing balance of the interest accrued on FDRs shown in the balance sheet without considering the opening balance and interest accrued during the year already credited to the Profit & Loss account of the assessee. The ld. CIT (A) has considered and decided this issue in para 3.3 as under :-
" 3.3. I have perused the facts of the case, the assessment order and the submissions of the appellant. I have perused the accrued interest account of the assessee. The Assessing Officer has added the closing balance of the accrued interest account amounting to Rs. 25,34,962/-, taken to the Balance Sheet, to the total income without considering that there is an opening balance of Rs. 20,16,009/-. The accrued interest during the year amounts to Rs. 10,00,335/- from Bank of India and Rs. 2,59,252/- from Syndicate Bank which has been credited to the Profit and loss account of the assessee. Also, I have perused Form No. 26AS of the appellant and find that the interest income in Form No. 26AS is less than the amount credited by the assessee to the Profit and loss account. The appellant has also explained the accounting entries for accrued interest. In view of the above discussion, it is held that the assessee has correctly shown the interest income in the profit and loss account and there is no under reporting of interest income. This accrued interest on FDRs is to be treated as Income from other sources. Therefore, the addition made by the Assessing Officer of accrued interest of Rs. 25,34,962/- is directed to be deleted and the interest shown by the appellant in the profit and loss account is directed to be treated as Income from other sources."9
Thus it is clear that the ld. CIT (A) has considered the fact that the actual interest accrued during the year on FDRs has already been included in the total income of the assessee. This factual finding of the ld. CIT (A) has not been controverted before us by the department. Hence we do not find any error or illegality in the order of ld. CIT (A) qua this issue.
Ground No. 6 is regarding addition made under section 41(1) of the IT Act.
8. During the assessment proceedings, the AO noted that the ABN Amro Bank and India Bulls had settled their loans at Rs. 8,36,400/- as against outstanding liabilities of Rs. 12,36,250/-. Thus the AO was of the view that there was a reduction of Rs. 12,72,728/- in the outstanding liability towards bank and NBFC. The AO further noted that the assessee has credited only Rs. 8,28,083/- as against the total reduction given to the assessee of Rs. 12,72,728/-. Thus the AO added the balance amount of Rs. 4,44,645/- to the income of the assessee under section 41(1) of the Act. On appeal, the ld. CIT (A) has deleted the addition made by the AO by considering the fact that the assessee has correctly credited the amount on account of reduction/waiver granted to the assessee under the Settlement of Loans.
9. We have heard the ld. D/R as well as the ld. A/R and considered the relevant material on record. The AO considered the amount waived off by the bank and NBFC as per the settlement letters issued by the bank and NBFC. The AO accordingly added difference amount of the outstanding liabilities to the income of the assessee. The ld. CIT (A) deleted the addition by considering the facts as recorded in the books of account in para 4.4 as under :-
10
" 4.4. During this year, banks and financial institutions have settled apart of the assessee's outstanding liabilities. The assessee has credited an amount of Rs. 8,28,083/- in the finance expenditure account for the above cessation of liabilities. The Assessing Officer has computed the above figures relating to cessation of liabilities pertaining to three accounts, during the eyar and has come to the conclusion that a further amount of Rs. 4,44,645/- should be added to the total income on account of section 41(1). The appellant has also given a chart pertaining to cessation of liabilities pertaining to two accounts of ABN Amro Bank and two account of India Bulls. I have checked this chart with the individual ledger accounts showing the opening balance and the amount paid before the settlement of liabilities and the settlement letters issued by the above bank/financial institution with respect to each of the four accounts and find that the figures given by the appellant are correct. In the chart given by the Assessing Officer, I find that the figure of outstanding liability does not match with the amounts reflected in the books of accounts. In view of the above discussion, the Assessing Officer is directed to delete the above addition of Rs. 4,44,645/- made u/s 41 of the I.T. Act, 1961."
Thus it is not disputed that in the books of account the assessee has shown the outstanding amount which is less than amount shown in the settlement letters. Accordingly the remission of liability under section 41(1) has to be considered as per the books of account and not as per the claim of the creditor. Hence we do not find any error or illegality in the order of ld. CIT (A) qua this issue, when the outstanding liability shown in the books of account of the assessee is not in dispute. 11
Ground No. 7 is regarding disallowance of House Rent Allowance.
10. The AO noted that during the year under consideration the assessee has claimed expenses on account of House Rent of Rs. 98,400/- in the Profit & Loss account. However, the same has not been disallowed in the computation of income being not part of business income. The assessee explained that the same has been incurred on the employees of the company. However, the AO did not accept the contention and explanation of the assessee and disallowed the said amount of Rs.98,400/-. On appeal, the ld. CIT (A) deleted the disallowance made by the AO by holding that the House Rent Allowance is an allowable business expenditure.
11. We have heard the ld. D/R as well as the ld. A/R and considered the relevant material on record. The AO has not disputed that the house rent of Rs. 98,400/- was paid by the assessee to its employees being House Rent Allowance. The assessee produced the supporting record being ledger account of HRA. The ld. CIT (A) has decided this issue in para 4.5 as under :-
" 4.5. As regards, the disallowance of House Rent allowance of Rs. 98,400/- the appellant has explained that this expenditure has been incurred on employees and is therefore, an allowable business expenditure. I agree with the contention of the appellant and therefore, the Assessing Officer is directed to delete the above disallowance."
When the nature of expenditure being house rent allowance paid to the employees has not been disputed, then the same is an allowable business expenditure and, therefore, we do not find any error or illegality in the order of ld. CIT (A) qua this issue. The same is upheld.
12
Ground No. 8 is regarding disallowance of PF and ESI.
12. The AO made the disallowance of Rs. 38,590/- on account of delayed payment made in respect of employees contribution to PF and ESI. On appeal, the ld. CIT (A) has deleted the disallowance made by the AO by considering the fact that the payment was made by the assessee before the due date of filing of return under section 139 of the Act i.e. 31st October, 2010. The relevant finding of ld. CIT (A) on this issue is in para 4.6 as under :-
"4.6. Admittedly, employee's contribution to PF has been paid by the appellant, in all instances, before the due date of filing the return of income u/s 139(1). This fact is therefore, not in dispute. In view of the judgements of the Rajasthan High Court in the case Jaipur Vidhyut Vithran Nigam Ltd., 265 CTR 62 (Raj.), CIT vs. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.), and other case laws on this issue, the claim of the appellant is allowable. Accordingly, this disallowance made by the Assessing Officer is, directed to be deleted."
Thus the issue is now covered by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. State Bank of Bikaner & Jaipur, 363 ITR 70 (Raj.) as well as the decision in the case of CIT vs. Jaipur Vidhyut Vithran Nigam Ltd., 363 ITR 307 (Raj.). In view of the binding precedents of Hon'ble Jurisdictional High Court, we do not find any error or illegality in the order of the ld. CIT (A) qua this issue. 13
Ground No. 9 is regarding disallowance under section 40(a)(ia).
13. The AO noted that the assessee has failed to deduct TDS on interest to ABN Amro Bank and two other financial institutions, namely India Bull Services Ltd. and M/s. Reliance Capital total amounting to Rs. 11,59,266/-. The AO accordingly disallowed Rs. 4,74,201/- under section 40(a)(ia) holding that these NBFCs are not exempt from TDS under section 194A(3)(iiia) of the Act. On appeal, the ld. CIT (A) has deleted the disallowance made by the AO in respect of interest payment to the ABN Amro Bank as the bank is covered by the Banking Regulations Act, 1949 and such payment of interest is covered by the provisions of section 194A(3)(iii). However, the ld. CIT (A) has confirmed the disallowance made by the AO in respect of the interest payment to NBFCs.
14. We have heard the ld. D/R as well as the ld. A/R and considered the relevant material on record. As far as the interest to ABN Amro Bank is concerned, there is no dispute that the interest paid is covered under section 194A(3)(iii) of the Act and, therefore, the assessee is not under obligation to deduct TDS against the interest to the bank. Hence, we do not find any error or illegality in the order of ld. CIT (A) qua this issue.
Ground No. 10 is regarding disallowance under section 40(a)(ia) in respect of Bank Guarantee Commission.
15. The AO noted that the assessee has claimed to have paid Bank Guarantee Commission amounting to Rs. 14,12,035/-. The AO was of the view that as per provisions of section 194H, the assessee was required to deduct TDS @ 10%. Accordingly the AO made the disallowance of said amount by invoking the provisions 14 of section 40(a)(ia). On appeal, the ld. CIT (A) has deleted the addition by holding that the Bank Guarantee Commission is not in the nature of brokerage as envisaged in section 194H as the relationship between the assessee and the bank is not of Principal - Agent.
16. We have heard the ld. D/R as well as the ld. A/R and considered the relevant material on record. The ld.CIT (A) has considered this issue in para 4.9 as under :-
" 4.9. The Assessing Officer has made a disallowance u/s 40(a)(ia) on account of failure on the part of the assessee to deduct TDS u/s 194H on payment of Guarantee Commission amounting to Rs. 14,12,035/-. I have perused the judgment of the ITAT, Mumbai in the above case of Kotak Securities (2012) 18 taxmann.com 48 (Mum.). This case examines whether the commission on bank guarantee is covered by the provisions of section 194H i.e. whether commission on bank guarantee is "commission or brokerage" is envisaged in section 194H. The relevant extract of this order is reproduced below -
A plain reading of section 194H indicates that tax withholding requirements under section 194H apply in respect of 'commission or brokerage', which, in turn, is defined by Explanation to section 194H. [Para 5] The expression 'commission' and 'brokerage' have been used together in the statute. It is well settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together, they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. [Para 6] When one look at the connotations of expression 'commission or brokerage' in its cognate sense, as in the light of the principle of noscitur a sociis, scope of expression 'commission', for this purpose, will be confined to 'an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions' and shall not extend to the payments, such as 'bank guarantee commission', which are in the nature of fees for services rendered or product offered by the recipient of such payments on principal-to-principal basis. Even when an expression is statutorily defined under section 2, it still has to meet the test of contextual relevance as section 2 itself starts with the words "In this Act (i.e. Income-tax Act), unless context 15 otherwise requires…", and, therefore, contextual meaning assumes significance. Every definition in the Income-tax Act must depend on the context in which the expression is set out, and the context, in which expression 'commission' appears in section 194H, i.e. , along with the expression 'brokerage', significantly restricts its connotations. The common parlance meaning of the expression 'commission', thus, does not extend to a payment which is in the nature of fees for a product or service; it must remain restricted to a payment in the nature of reward for effecting sales or business transactions, etc. The inclusive definition of the expression 'commission or brokerage' in Explanation to section 194H is quite in harmony with this approach as it only provides that "any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities" is includible in the scope of meaning of 'commission or brokerage'. Therefore, what the inclusive definition really contains is nothing but normal meaning of the expression 'commission or brokerage'. When inclusive definition contains ordinary normal connotations of an expression, even an inclusive definition has to be treated as exhaustive. That is the situation in the instant case as well. Even as definition of expression 'commission or brokerage', in Explanation to section 194H, is stated to be exclusive, it does not really mean anything other than what has been specifically stated in the said definition. Therefore, principal- agent relationship is a sine qua non for invoking the provisions of section 194H. In the instant case, there is no principal-agent relationship between the bank issuing the bank guarantee and the assessee. When bank issues the bank guarantee on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount to, on demand, the beneficiary, and it is in consideration of this commitment, the bank charges a fees which is customarily termed as 'bank guarantee commission' . While it is termed as 'guarantee commission', it is not in the nature of 'commission' as it is understood in common business parlance and in the context of section 194H. This transaction is not a transaction between principal and agent so as to attract the tax deduction requirements under section 194H. Therefore, the Commissioner (Appeals) indeed erred in holding that the assessee was indeed under an obligation to deduct tax at source under section 194H from payments made by the assessee to various banks. As the assessee was not required to deduct tax at source under section 194H, the question of levy of interest under section 201(1A) cannot arise. [Para 9] In view of the above discussions, the impugned demands under section 201(1) and 201(1A) read with section 194H are to be quashed. [Para 10]."
The above judgment is applicable to the facts of this issue. The commission on bank guarantee is not covered by the expression 'commission or brokerage' as envisaged in section 194H since the relationship between the assessee and the bank is not of principal- agent. Also, commission on bank guarantee is not covered by the 16 Explanation (i) which gives an inclusive definition of the term 'commission or brokerage'. Following the above order of the ITAT, Mumbai, it is held that the appellant is not liable to deduct tax at source on commission on bank guarantee as per the provisions of section 194H and therefore, the provisions of section 40(a)(ia) are not applicable on this expenditure. The Assessing Officer is therefore, directed to delete this disallowance made u/s 40(a)(ia)." It is clear that the ld. CIT (A) has decided this issue by following the decision of the Mumbai Bench of the Tribunal in the case of Kotak Securities (supra). Therefore, in the absence of any contrary view, we do not find any reason to interfere with the order of ld. CIT (A) qua this issue.
17. In the result, appeal of the Revenue is partly allowed.
Order is pronounced in the open court on 07/03/2018.
Sd/- Sd/-
( HkkxpUn ) (fot; iky jkWo ½
( BHAGCHAND ) (VIJAY PAL RAO)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Jaipur
Dated:- 07/03/2018.
Das/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- The ACIT, Circle-5, Jaipur.
2. The Respondent - M/s. Latala Construction Company, Jaipur.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (ITA No. 194/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 17