Business disallowance under section 40(a)(ia) for Non-deduction of tax at source on Retainership fee paid by assessee & shown as salary by recipient in their return

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Business disallowance under section 40(a)(ia) for Non-deduction of tax at source on Retainership fee paid by assessee & shown as salary by recipient in their return

Both the recipients of retainership fee paid by assessee filed their income-tax return and claimed in the said return that amount in question was received as a salary from assessee and when income shown by recipients had been accepted as such there was no reason to doubt explanation given by assessee, accordingly, disallowance made under section 40(a)(ia) was not sustainable.

Assessee claimed deduction of retainership fee paid to one ‘D’ and one ‘P’. AO disallowed deduction under section 40(a)(ia) for want of TDS under section 194C. Assessee’s case was that payments were made during festive season and it was remuneration in respect of sales boys who were not regular sales employees of assessee and tax had not been deducted from retainership fees as services were covered under section 192B and not under section 194C and since payment was like salary provisions of section 40(a)(ia) were not applicable.

It is held that Both the recipients filed their income-tax return and claimed in the said return that amount in question was received as a salary from assessee and when income shown by recipients had been accepted as such there was no reason to doubt explanation given by assessee. Accordingly, disallowance made under section 40(a)(ia) was not sustainable.

Decision: In assessee’s favour.

IN THE ITAT, CHANDIGARH BENCH

N.K. SAINI, V.P.

Demarte Silk and Sarees v. ITO

ITA No. 760/Chd/2018

21 August, 2019

Assessee by: Parikshit Aggarwal, CA

Revenue by: Chandrakanta, Sr. DR

ORDER

N.K. Saini, V.P.

This is an appeal by the assessee against the Order, dt. 5-3-2018 of learned Commissioner (Appeals)-3, Ludhiana.

  1. In the present appeal, assessee has raised the following grounds :–
  2. That the impugned order is against facts and law.
  3. That on law, facts and circumstances of the case, the Worthy Commissioner (Appeals) was not justified in confirming the disallowance of Salary to Partners of Rs. 2,52,000 by erroneously holding that the same has not been paid according to the terms of partnership deed even when the original partnership deed and addendum thereto were duly produced by the appellant firm.
  4. That on law, facts and circumstances of the case, the Worthy Commissioner (Appeals) has erred in confirming the disallowance of retainership expenses of Rs. 3,00,000 paid on account of Technical and Professional services to 2 persons namely Daljeet Singh and Pawan Kumar even when the same were duly offered to tax in the return of income by those persons and the amounts were paid in lieu of services rendered by them.
  5. That on law, facts and circumstances of the case, the Worthy Commissioner (Appeals) has erred in confirming the disallowance of 1/5th of the total claimed expenses of Rs. 6,04,300, i.e., Rs. 1,20,860 in relation to vehicles of the appellant firm by holding them to be of personal nature.
  6. That on law, facts and circumstances of the case, the Worthy Commissioner (Appeals) has erred in confirming the disallowance of Rs. 1,00,000 out of total claimed expenses of Rs. 6,13,924 on estimated basis related to various office expenses by holding them to be partially unvouched.
  7. That on law, facts and circumstances of the case, the worthy Commissioner (Appeals) has erred in confirming the disallowance of Rs. 19,683 under section 36(1)(iii) on account of advance of Rs. 1,64,030 by applying notional interest rate of 12% p.a.
  8. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.
  9. Ground Nos. 1 & 7 are general in nature and Ground No. 4 to 6 were not pressed so these grounds do not require any comment on my part.
  10. Vide Ground No. 2, the grievance of the assessee relates to the confirmation of disallowance of Rs. 2,52,000 paid as salary to the partners.

4.1 The facts related to this issue in brief are that the assessee filed its return of income on 28-9-2012 declaring the income of Rs. 5,45,720 which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’), later on the case was selected for scrutiny.

  1. During the course of assessment proceedings the assessing officer noticed that the assessee had debited salary to the partners at Rs. 4,32,000, i.e., Rs. 1,44,000 each to Shri Jaimal Singh, Shri Parvinderpal Singh and Shri Amanpreet Singh. He asked the assessee to furnish the copy of the partnership deed. From the said partnership deed the assessing officer noticed that as per terms of the partnership deed salary to each of the partners would be Rs. 5,000 per month. He asked the assessee to show cause as to why excess salary claimed may not be disallowed. In response the assessee submitted that Addendum Partnership Deed was made on 1-4-2011 to include a clause, according to which salary @ Rs. 12,000 per month was allowed (copy of the said Addendum Partnership deed was furnished which has been reproduced by the assessing officer at page no. 6 of theAssessment Order, dt. 13-2-2015). It was also claimed that salary paid by the assessee had been shown by the partners in their respective return of income. The assessing officer however did not find merit in the submissions of the assessee and made the disallowance of Rs. 2,52,000 by observing in para 2.8 of the assessment Order, dt. 13-2-2015 as under :–

2.8 From the above facts, it is evident that the contention of the assessee is not acceptable as the same has no force. As per the provisions of section 40(b)(v) of the Income Tax Act 1961, no deduction will be admissible if the amount of remuneration payable to each working partner is not specified in the partnership deed. In the case of the assessee, as per the partnership deed, it has been quantified & specified that salary of Rs. 5,000 will be given to the partners whose names have been also mentioned therein. Therefore, salary of Rs. 1,80,000 (60,000 × 3) is allowable to the assessee concern in accordance with terms of partnership deed and excess salary claimed at Rs. 2,52,000 (4,32,000 – 1,80,000) is disallowed and added back to the income of the assessee in view of the following facts :–

(i) Limits of salary to the working partners have been specified in the partnership deed that salary of 5,000 per month will be given to three partners. Hence, excess salary claimed is to disallowed.

(ii) The assessee has willfully failed to produce the legible copy of partnership deed and furnished only after receiving final opportunity-from this office.

(iii) The assessee produced a copy of addendum only after receiving the final show cause notice that why excess salary be not disallowed in view of the provisions of the partnership deed. From these facts, it is evident that the so called addendum has been prepared after thought.

(iv) The said addendum has been claimed to made on 1-4-2011 whereas document on which the same has been written is purchased on 1-12-2002, This shows that this is after thought exercise.

(v) The assessee failed to produce the original addendum in this office for verification.

(vi) During the assessment proceedings, the assessee was again and again requested to furnish the legible copy of partnership deed but the assessee never stated that an addendum is also made. The assessee only came out with the plea that an addendum was made after receiving the show cause notice for disallowing the excess salary claimed.

  1. Being aggrieved the assessee carried the matter to the learned Commissioner (Appeals) and furnished the written submissions which had been incorporated by the learned Commissioner (Appeals) in para 4.1 of the impugned order and read as under :–

It is submitted that during the year in question the appellant firm, debited the partner’s salary of Rs. 4,32,000 to its Profit & Loss A/c duly conforming to the provisions of section 40(b) of the Act. The salary at the rate of Rs. 12,000 pm to the partners was paid as per the terms of the partnership deed of the appellant firm. The original partnership deed of the appellant firm was made on 1-12-2002 which included the term of Partner’s salary @ Rs. 5000 pm to all the three partners of the appellant firm with the condition of freedom to change the amount of salary as per the mutual understanding of the partners of the appellant firm. On the same day, i.e., 1-12-2002, an addendum to the partnership deed was also made which was made to take effect from the date 1-4-2011.

The addendum to the partnership deed was made to increase/revise the amount of partner’s salary to the value of Rs. 12,000 pm from the already existing rate of Rs. 5,000 pm. The term/caption of the addendum clearly entails that the addendum partnership is made effective on 1-4-2011 (although made on 1-12-2002). In this position, disallowance of salary of Rs. 2,52,000 by learned assessing officer is unjustified. Point wise submission on the allegations of the learned assessing officer (as per the page-8 of assessment order) is as follows :–

(1) It is submitted that the salary of Rs. 4,32,000 credited and paid to the partners of the appellant firm according to the legal document, i.e., partnership deed (effective from 1-12-2002) and addendum partnership deed (effective from 1-4-2011) only and not according to wishes of the appellant firm. The salary amount of Rs. 4,32,000 is duly an authorized amount of salary. The original partnership deed made on 1-12-2002 authorized salary at the rate of Rs. 5,000 pm and the addendum partnership was made on 1-4-2011 on the legal document purchased on the same day as on the day on which partnership deed of the appellant firm was made, i.e., 1-12-2002 which was made to increase the amount of salary to the partners to Rs. 12,000 pm with effect from 1-4-2011 itself and hence for the year in question credit of partner’s salary of Rs. 12,000 pm to the 3 partners each was duly according to the addendum partnership deed.

(2) It is submitted that the salary to partners expense of Rs. 4,32,000 is genuinely claimed expense as the same is supported by legal documents, i.e., partnership deed and addendum to partnership deed. Further, it is submitted that both of the documents are valid documents signed and attested by all the partners of the appellant firm, by witnesses and by notary public. Further, both of these documents are present on record with the appellant and duly filed during the assessment proceedings by the appellant. It is a settled law that when the expense is supported by documents and documents are submitted during the assessment proceedings by the assessee, no disallowance of the expense can be made by the assessing officer.

(3) It is very important to note that Partnership deed duly includes the clause at point No. 10 that “the partners shall be at liberty to increase or decrease the remuneration and interest payable to them from time to time in the interest of the partnership business and provision of section 40(b) shall apply to these payments. This clause clarifies the fact that the salary to partners may change in any year(s) at the sole discretion of the partners of the appellant mutually agreed between them. Hence, amount of salary is not a specific amount but is the amount allowable as per the section 40(b) of the Act. This clause is also written in the addendum to partnership deed “that all the partners now available entitled to receive remuneration to the tune of Rs. 12,000 each per month with respect from V day of April 2011 or in accordance with the provisions of section 40(b) of the Income Tax Act.” It is clear that both of these documents hold that the salary to the partners is allowable as per the provisions of section 40(b) of the Act. Further, it is stated that as per the CBDT Circular No. 739, dt. 25-3-1996, it is clarified by the Board that the remuneration to the partners are allowable, if the amount of remuneration is stated or the manner of calculation (i.e., Allowability as per the section 40(b) of the Act) is stated in the legal document. Copy of the circular is enclosed. In the case of the appellant amount of remuneration @ Rs. 12,000 pm to each partner is also stated along with 2nd condition (add on with the condition either of the conditions may be followed) condition of Allowability of salary under section 40(b) of the Act. Hence, no disallowance of salary is warranted.

(4) The partners were free to increase their salaries at mutual agreement. So they also made an addendum to partnership deed to put the quantum of the increased salary amount pm to all partners at a future date. The addendum was made putting the clause of increased amount of salary to partners with effect from 1-4-2011 to avoid any ambiguity. So addendum is nothing but a legal document carrying forward the clauses written in the partnership deed itself of the appellant firm

(5) The allegation of learned assessing officer is not correct that the appellant firm willfully failed to produce the legible copy of partnership deed and furnished the same only after receiving the final opportunity from the learned assessing officer’s office. In this regard it is said that the appellant duly provided the documents as earliest as it could. On various dates of hearing, the counsel of the appellant and appellant were not there in town or were occupied somewhere and they duly sought adjournments by sending their official to learned assessing officer. When, no proceedings were attended in between, how could there be filed any document. Further, in starting of the assessment proceedings, the counsel provided the Xerox copy of the partnership deed of the appellant firm, but the same got photocopied on lighter ink mode and was not properly legible. It is not like a willful failure to produce the partnership deed. But later when learned assessing officer asked for the clear Xerox copy of the partnership deed, then counsel again provided the same with better photocopy which was more legible. Hence, no negative inference should be made by the learned assessing officer.

(6) As regards the allegation of not providing of copy of addendum till final show cause, it is submitted that the appellant duly provided the copy of partnership deed along with all documents to learned assessing officer at the start of the assessment proceedings. It is only when, the learned assessing officer asked the clarification about the quantum of salary paid to partner of the appellant firm, the appellant submitted the copy of addendum of partnership deed to the learned AO. When, the learned assessing officer asked about the copy of addendum deed, the appellant immediately provided the same to learned assessing officer. In this case, no negative inference by learned assessing officer is warranted at all, and the copy of addendum to partnership deed duly states that the same is made on the date 1-4-2011 (on legal document purchased with partnership deed documents on 1-12-2002). When the document was made on 1-4-2011 then how can same be the afterthought of the appellant. Allegation of the learned assessing officer is unjustified.

(7) As regards, the original addendum to partnership deed, it is submitted that the appellant submitted during the assessment proceedings too that the original addendum of partnership deed got misplaced by the appellant. Even after lots of efforts, the same could not be traced and hence, could not be submitted. The copy of the same could be submitted with learned assessing officer because the scanned copy of addendum was available in the appellant’s records.

(8) As already submitted the appellant provided the copy of partnership deed during assessment proceedings though 1″ time Xerox copy was of poor quality and because of that the partnership deed was not properly legible. But it submitted the copy again with better quality of xerox which was properly legible by the learned assessing officer. It did not strike to the appellant about the submission of addendum too to learned assessing officer. It is after the notice of learned assessing officer, the appellant submitted the copy of addendum to learned assessing officer. It is submitted that the appellant and even every assessee while the income tax proceedings does not automatically submits the documents with a pre-knowledge that the assessing officers would be needing those documents, it is only after the notice from the assessing officers seeking some particular documents, the assesses submit the same during assessment proceedings. In such case, no negative inference must be made by the learned assessing officer.

(9) Concluding the above, it is submitted that the whole allegation on which the addition of Rs. 2,52,000 was made by the learned assessing officer is that the appellant submitted not legible copy of partnership deed initially and legible copy of partnership deed after notice of learned assessing officer and submitted copy of addendum of partnership deed after the notice of the learned assessing officer. In this regard, we submit that appellant duly provided the copy of partnership deed twice to the learned assessing officer. As already submitted that due to poor quality Xerox once the submitted copy was not properly legible but the appellant submitted the properly legible Xerox copy again on the request of learned assessing officer and addendum copy was also submitted as and when asked for by the learned assessing officer. What is the point of making negative inference in these facts? In the very first submission regarding salary expense, the appellant submitted that the salary paid @ Rs. 12,000 pm is authorized by the partnership documents. When the salary of Rs. 12,000 pm is duly authorized by the addendum to partners of the appellant firm and copy of the addendum was filed with the learned assessing officer, then how can the same be treated as unauthorized amount of salary paid? Partnership deed as well as addendum to partnership deed both is legal and valid documents signed and prepared by all the 3 partners of the appellant firm and that too in presence of witnesses and these documents are duly signed and attested by the Notary public. Copy of both these documents was placed before the learned assessing officer during the assessment proceedings are produced herewith too. It is submitted that partnership deed as well as addendum has the clause of salary to partners showing the quantum of salary to avoid any ambiguity. Further, salary paid of Rs. 4,32,000 (Rs. 1,44,000 to 3 partners each) is fully allowable because :–

The salary paid to partners and debited to P & L A/c keeping in mind the provisions and calculation under section 40(b) of the Act.

Salary of Rs. 1,44,000 to each partner annually is authorized by addendum to partnership deed with effect from 1-4-2011.

All the partners are Income Tax assesses and declared the salary income in their income tax returns and also submitted the certificate to this effect during assessment proceedings before learned assessing officer.

Keeping in mind the above facts, submissions and legal position, the ground of the appellant firm may please be allowed.

  1. The learned Commissioner (Appeals) however did not find merit in the submissions of the assessee and sustained the disallowance made by the assessing officer by observing in para 4.2 of the impugned order as under :–

4.2 I have carefully considered rival submission. I have also gone through the assessment order. The appellant has vehemently contended that the original partnership deed of the appellant firm was made on 1-12-2002 which included the term of Partner’s salary @ Rs. 5000 pm to all the three partners of the appellant firm with the condition of freedom to change the amount of salary as per the mutual understanding of the partners of the appellant firm. On the same day, i.e., 1-12-2002, an addendum to the partnership deed was also made which was to take effect from the date 1-4-2011. The assessing officer at the time of assessment proceedings has not considered the amended partnership deed dated 1-12-2002.

I have also gone through the partnership dated 1-12-2002 and addendum to the partnership deed also stated to be dated 1-12-2002 by the appellant during the course of assessment proceedings. However I have seen the amended partnership deed is dated 1-4-2011.whereas the document was purchased on 1-12-2002. The assessee in his written submission has mentioned, that the addendum partnership deed was also written on 1-12-2002, which is not the case. As on a date of partnership deed it is clearly mentioned that the addendum partnership deed is made on 1-4-2011. Therefore there is mismatch of statement given by the assessee during the course of assessment proceedings with regard to the date of writing off addendum of partnership deed, which is also evident from the perusal of the copy of addendum partnership deed filed at the time of appellate proceedings. In my considered opinion the assessee has failed to clarify this difference at the time of assessment proceedings. The assessing officer has denied take cognizance of the act in an addendum partnership deed, stating that the document was purchased on 1-12-2002. In my considered opinion the difference of addendum of partnership deed, as stated by the assessee and as found on the addendum partnership deed has not been explained by the assessee, therefore document cannot be relied upon. Accordingly the disallowance of Rs. 2,52,000 on account of disallowance of salary paid to the partners is sustained. This ground of appeal is dismissed.

  1. Now the assessee is in appeal.
  2. Learned Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that as per Clause 10 of the partnership deed dt. 1-12-2002 the salary may be increased or decreased from time to time in the interest of partnership business and that vide addendum deed dt. 1-4-2011 the salary was increased to Rs. 12,000 each of the partners per month with effect from 1-4-2011. It was also stated that in the subsequent years the increased salary had been accepted and no disallowance was made. Therefore the disallowance made by the assessing officer and sustained by the learned Commissioner (Appeals) for year under consideration was not justified.
  3. In her rival submissions the learned Sr. D.R. strongly supported the orders of the authorities below and further submitted that the theory of the addendum deed was an afterthought.
  4. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case the contention of the assessee that vide Clause 10 of the partnership deed dt. 1-12-2002 the salary may be increased or decreased from time to time in the interest of partnership business has not been rebutted. It is also noticed that the assessing officer himself admitted in the assessment order that the assessee furnished addendum partnership deed which has been reproduced at page no. 6 of the said assessment order. In the said addendum to partnership deed it has been mentioned that the partnership deed was executed on 1-12-2002 and with effect from 1-4-2011, the remuneration to the partners had been increased to Rs. 12,000 each per month. The assessing officer did not accept the said addendum deed for the reasons that the Stamp Papers on which the addendum to partnership deed was written was dt. 1-12-2002. In my opinion it cannot be a ground to disallow the claim of the assessee particularly when the remuneration claimed by the partners was not in excess of the amount prescribed in Clause (b) to section 40 of the Act. Moreover the claim of the assessee that in the subsequent years the increased salary had been accepted was not rebutted, therefore by considering the totality of the facts the disallowance made by the assessing officer and sustained by the learned Commissioner (Appeals) is deleted.
  5. Vide Ground No. 3 the grievance of the assessee relates to the disallowance of retainership expenses amounting to Rs. 3,00,000 paid on account of Technical and Professional services to two persons namely Shri Daljeet Singh and Shri Pawan Kumar.
  6. Facts relating to the issue in brief are that the assessing officer during the course of assessment proceedings noticed that the assessee had debited Rs. 3,00,000 in the Profit & Loss account under the head ‘Retainership Expenses’ paid to Shri Daljeet Singh amounting to Rs. 1,20,000 and Shri Pawan Kumar amounting to Rs. 1,80,000. He asked the assessee to furnish the following information :–

(a) Copy of agreement entered into for retainership with the above said persons.

(b) Nature of services rendered by the these persons.

(c) Whether tax has been deducted on retainership given to them as the assessee claimed that amount has been given to these persons for technical and professional services and tax is to deducted in view of provisions of section 194C of the Income Tax Act, 1961.

13.1 In response the assessee submitted that the tax had not been deducted on retainership fee as the services were covered under section 192B and not under section 194C of the Act. The assessing officer asked the assessee to produce the persons to whom retainership fee was paid. In response the assessee submitted that during the festive season the assessee used to appoint persons on display, outfits, in front of customer and the retainership was as good as salary. The assessing officer was of the view that the assessee diverted its income in the hands of two persons for the following reasons :–

(a) The assessee has failed to produce the persons to whom it has claimed that retainership at Rs. 3,00,000 has been paid in spite of repeated opportunities allowed to it.

(b) In its preliminary reply, the assessee contended that amount of Rs. 3,00,000 was paid to the two persons for rendering professional and technical services by the two persons. When pointed out by this office that whether any tax has been deducted on the technical/professional fee given as per provisions of section 194C of the Income Tax Act, 1961, the assessee changed its version that the amount paid is salary which falls under section 192B of the Act.

(c) The assessee has failed to furnish copy of agreement entered into with the two persons for retainership.

(d) The assessee has stated that services of the above mentioned two persons were taken during the festive season only. Perusal of copies of returns of income and computation chart of the said persons filed by the assessee reveals that they have shown receipt of amounts received from the assessee only in their returns of income and no other income has been shown. It is beyond understanding that how the persons from whom the assessee has taken technical/professional services remained vacant and not earned any income other than earned from the assessee. Therefore, it is evident that the assessee has diverted its income in the hands of these two persons which remained below taxable at Rs. 1,80,000 & Rs. 1,20,000.

Reliance was placed on the following case laws :–

— Sassoon J. David & Co. (P) Ltd. v. CIT (1979) 118 ITR 261 (SC) : 1979 TaxPub(DT) 1025 (SC)

— L.H. Sugar Factory & Oil Mills (P) Ltd. v. CIT (1980) 125 ITR 293 (SC) : 1980 TaxPub(DT) 1125 (SC); and

— CIT v. Imperial Chemical Industries (India) (P) Ltd. (1969) 74 ITR 17 (SC) : 1969 TaxPub(DT) 0335 (SC)

— Jaswant Trading Co. v. CIT (1995) 211 ITR 24 (Raj) : 1995 TaxPub(DT) 0461 (Raj-HC)

Accordingly, addition of Rs. 3,00,000 was made.

  1. Being aggrieved the assessee carried the matter to the learned Commissioner (Appeals) and submitted as under :–

Disallowance of Retainership fee of Rs. 3,00,000 paid to following 2 persons is unwarranted on following counts :–

Name of the Persons Amount of Retainership fee paid (Rs.)
Daljeet Singh 1,20,000
Pawan Kumar 1,80,000
TOTAL 3,00,000

(a) It is submitted that first of all the allegation of learned assessing officer that the retainership fee of Rs. 3,00,000 had been paid for Technical and professional services to the persons in question namely Daljeet Singh & Pawan Kumar is not correct. As submitted in the reply dt. 6-2-2015 during assessment proceedings by the appellant that these 2 persons were hired during the festive season to display the outfits in front of the customers and the retainership is as good as salary. It is clear that these 2 persons were hired for the sales boys work during the peak period of the business when there is huge rush of the customers at the appellant’s showroom and the sales people already working within are not sufficient in number to handle the rush. So the appellant sometimes hires such sales people. It is very much clear that the amount paid to the sales people is neither a fee for technical services nor a professional fee. Further, it is important to note that the qualification of these 2 persons is only graduation and the services of graduates are not covered in the Technical/professional services. Hence, when no technical/professional fee has been paid by the appellant firm to these 2 persons and the amount paid is only salary, no TDS provisions of section 194J of the Act were applicable.

(b) As regards ambiguity whether TDS provisions were attracted or not arisen only because the appellant debited the salary expenses of Rs. 3,00,000 paid in respect of sales boys services of these 2 persons to retainership expenses. As already stated retainership is as good as salary. Because remuneration paid to sales force of the appellant firm is nothing but salary. The only reason to charge the salary of these 2 persons under the head of Retainership expense is that these 2 persons were not the regular sales employee of the appellant firm but were only hired in the festive season when the regular working sales force were not sufficient enough for the work of showing outfits in front of customers. Hence, as these 2 persons were hired for short period of time of festive season, their remuneration was not charged under head salary but under retainership expense. Also, retainership expense by its meaning and nature denotes the part time services fees and fee to retain someone for some particular time period. Keeping in mind these facts, Retainership expenses may please be treated as salary expenses only and no negative inference may please be made.

(c) The appellant firm has duly checked the provisions of TDS on salary under section 192B of the Act. As salary amount was lower than the minimum prescribed limit for tax deduction, no tax was deductible under section 192B of the Act.

(d) Further, it is submitted that the appellant firm duly produced the copy of income tax returns of these persons namely Shri Daljeet Singh & Shri Pawan Kumar along with their confirmed copy of ledger accounts of those persons. These confirms to the identity and genuineness of the persons in question. Keeping in mind these facts, disallowance of the retainership expense is unwarranted.

(e) Also, it is apparent from the income tax returns of the persons in question that they have included the retainership fee received from the appellant firm in their total income. It is a settled law that when the expense claimed by an assessee is duly shown in his/her income by the recipient, no disallowance can be made.

(f) It is important to state that learned assessing officer has made the disallowance of retainership expenses of Rs. 3,00,000 by charging the provisions of incorrect section of the Act, i.e., 194C of the Act. On one hand, learned assessing officer is alleging that the payment of retainership expenses to these 2 persons have been made in respect of fee for technical and professional services and other side alleging that the appellant should have made a contract with these persons and should have deducted TDS under section 194C of the Act on the payment of retainership fee paid to them. In this regard, it is already submitted that the persons in question are neither Technical nor professionals. Hence, payment to them does not attract the provisions of section 194J of the Act.

(g) Further, it is submitted that there is no contract between the appellant firm and the persons in question for the provisions of services. Hence, where there is no contract oral or written, there does not arise any question of deduction of tax at source under section 194C of the Act.

Keeping in mind the above facts, submissions and legal position, the ground of the appellant firm may please be allowed.

  1. Learned Commissioner (Appeals) after considering the submissions of the assessee observed that the assessee had not been able to explain satisfactory nature and non applicability of the TDS provisions and that the assessee had failed to furnish any work relation or agreement with those parties to whom retainership fees claimed to have been paid.
  2. Now the assessee is in appeal.
  3. Learned Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the genuineness of the explanation had not be doubted and that the assessee hired the sales man from the market to whom retainership fee was paid but there was no contractual obligation and that the payment was like salary to which provisions of section 40(a)(ia) were not applicable. It was further submitted that the persons to whom this amount was paid had shown the same as salary in their respective return of income which has been accepted by the Department. My attention was drawn towards page no. 27 to 30 of the assessee’s compilation which are the copies of acknowledgment of the Income Tax Returns and computation of income. It was further submitted that both the persons Shri Pawan Kumar and Shri Daljeet Singh also confirmed that they had received sum of Rs. 1,80,000 and Rs. 1,20,000 respectively for the aforesaid contention the reference was made at page 31 & 32 of the assessee’s compilation.
  4. In her rival submissions the learned Sr. D.R. supported the orders of the authorities below and reiterated the observations made in para 5.4 of the impugned order.
  5. I have considered the submissions of both the parties and perused the material available on the record. In the present case it appears that the assessing officer made the disallowance for the reasons that the assessee did not deduct TDS on the payments made to Shri Pawan Kumar and Shri Daljeet Singh amounting to Rs. 1,80,000 & Rs. 1,20,000 respectively. The contention of the assessee was that the payments were made during the festive season and it was remuneration in respect of sales boys who were not the regular sales employees of the assessee, both those persons filed their Income Tax Return and claimed in the said return that the amount in question was received as a salary from the assessee and furnished copies of their returns of income before finalization of the assessment proceedings. In the present case the returns of income were furnished by Shri Daljeet Singh on 30-3-2013 wherein the income of Rs. 1,20,000 has been shown as salary received from the assessee which is evident from page no. 27 & 28 of the assessee’s compilation. Similarly Shri Pawan Kumar furnished the return of income on 7-5-2013 and had shown the salary of Rs. 1,80,000 received from the assessee which is evident from page no. 29 & 30 of the assessee’s compilation. In the present case when the income shown by the recipients had been accepted, there was no reason to doubt explanation given by the assessee. I therefore, by considering the totality of the facts deem it appropriate to delete the addition made by the assessing officer and sustained by the learned Commissioner (Appeals).
  6. In the result, appeal of the assessee is partly allowed.

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