Sh. Dinesh Kumar, Contractor, Mandi V. ACIT, Mandi

ITA 11/CHANDI/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1401 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: R R THAKUR
• Keywords: Opportunity of being heard
• Section: 194C; 54; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: B B ENCH: CHANDIGARH BEFORE HONBLE SHRI D K SRIVASTAVA, AM AND HONBLE MS. SUSHMA CHOWLA, JM ITA NO. 331/CHANDI/2010 ASSESSMENT YEAR: 2006-07 DCIT, MANDI CIRCLE, MANDI (HP) V DINESH KUMAR, H NO. 331/12, SOULI KHAD MANDI PAN: ADAPK 3209 J ITA NO. 11/CHANDI/2010 ASSESSMENT YEAR: 2006-07 DINESH KUMAR V ACIT MANDI (HP) SAULI KHAD, MANDI DEPARTMENT BY: SHRI N.K. SAINI ASSESSEE BY: SHRI R.R. THAKUR ORDER D K SRIVASTAVA: BOTH THE PARTIES, NAMELY, THE DEPAR TMENT AND THE ASSESSEE ARE IN APPEAL AGAINST THE ORDER PASSED BY THE LD. CIT(A) ON 21.10.2009. THE ISSUES RAISED BY THEM IN THEIR RESP ECTIVE GROUNDS OF APPEAL ARE INTER-LINKED. WE, THEREFORE, FIND IT CONVENIENT TO DISPOSE OFF BOTH OF THEM BY A CONSOLIDATED ORDER. 2. IN ITA NO. 331/CHANDI/2010, THE DEPARTMENT HAS T AKEN THE FOLLOWING GROUNDS OF APPEAL:- 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY A PPLYING NET PROFIT @ 8% AFTER REJECTING THE BOOKS OF ACCOUNT. 2 I IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE AO RESTORED. 3. IN ITA NO. 11/CHANDI/2010, THE ASSESSEE HAS TAKE N THE FOLLOWING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN DISMISSING THE APPEAL OF THE APPELLANT WITHOUT GOING THROUGH THE FACTS AND CIRCU MSTANCES OF THE CASE. DINESH KUMAR, SAULI KHAD & REVENUE 331 & 11/CHANDI/2010 2 2 2 THAT THE LD. CIT(A) HAS ERRED N NOT ALLOWING THE PAYMENT OF RS. 92,28,804/- DISALLOWED U/S 40(A)(IA) AS THE BOO KS OF ACCOUNT WERE REJECTED BY THE AO. THE RESULTS OF THE BOOKS OF ACC OUNT WERE REJECTED AND THE ADDITION OF RS. 92,28,804/- IS NOT LIKELY TO ST AND THE TEST OF APPEAL WHICH MAY KINDLY BE DELETED. 3 THAT THE LD. CIT(A) HAS ERRED TO ADD THE PAYMENT OF RS. 7,21,720/- U/S 40(A)(IA) IN THE INCOME OF THE APPEL LANT WHERE SECTION 194-C DOES NOT APPLY. THE ADDITION MAY KINDLY BE D ELETED. 4 THAT THE LD. CIT(A) HAS ERRED TO CONFIRM A NET P ROFIT RATE OF 8% ON THE TOTAL TURN OVER THE APPELLANT EVEN WHEN BOOK S OF ACCOUNT ARE ACCEPTED AND NET PROFIT RATE IS HIGHER THAN THE PR OFIT DECLARED IN EARLIER YEARS. SO NET PROFIT RATE MAY KINDLY BE REDUCED. 5 THE LD. CIT(A) HAS ERRED TO CONFIRM ADDITION OF MATERIAL RECOVERY OF RS. 37,48,903/- WHICH WAS NOT A POINT O F DISPUTE. BY DOING THIS, THE LD. CIT(A) HAVE ENHANCED THE INCOME WITHO UT GIVING OPPORTUNITY OF BEING HEARD. THE ADDITION MAY KINDLY BE DELETED . 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, A CIVIL CONTRACTOR, FILED HIS RETURN OF INCOME ON 31 ST OCT 2006 RETURNING TOTAL INCOME AT RS. 35,15,785/-. AFTER PROCESSING THE RET URN U/S 143(1), THE RETURN WAS TAKEN UP FOR SCRUTINY. DURING THE COURSE OF SCR UTINY THE AO NOTICED THAT THE ASSESSEE HAS RETURNED NET PROFIT AMOUNTING TO RS. 3 6,29,434/- AGAINST THE CONTRACT RECEIPTS AMOUNTING TO RS. 6,48,21,137/- IN THE YEAR UNDER APPEAL. HE FURTHER NOTICED THAT THE CONTRACT RECEIPTS AND NET PROFIT SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WERE R S.2,51,30,128/- AND RS.18,66,155/- RESPECTIVELY. THE AO ALSO NOTICED SE VERAL DISCREPANCIES IN THE BOOKS OF ACCOUNT WHICH ARE ENUMERATED AT LENGTH IN THE ASSESSMENT ORDER. IN VIEW OF THE DISCREPANCIES IN THE BOOKS OF ACCOUNT, THE AO REJECTED THE BOOK RESULTS AND CONSEQUENTLY APPLIED NET PROFIT RATE OF 8% ON GROSS CONTRACT RECEIPTS. HE COMPUTED THE OPERATIONAL INCOME FROM C ONTRACT RECEIPT AT RS. 54,85,604/- BEING 8% OF CONTRACT RECEIPTS, I.E., RS .6,85,70,004/-. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUC TION OF CERTAIN EXPENSES WITHOUT DEDUCTION OF TAX AT SOURCE. HE, THEREFORE, APPLIED THE PROVISIONS OF SECTION 40(A)(IA) AND CONSEQUENTLY DISALLOWED A SU M OF RS. 92,28,834/-. DINESH KUMAR, SAULI KHAD & REVENUE 331 & 11/CHANDI/2010 3 3 5. AGGRIEVED BY THE ORDER PASSED BY THE AO, THE ASS ESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) ACCEPT ED THE PLEA OF THE ASSESSEE THAT THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF A CCOUNT WITH THE FOLLOWING OBSERVATIONS: SINCE THE APPELLANTS CONTENTION REGARDING MAINTEN ANCE OF REGULAR OF BOOKS IS ACCEPTED NO DEDUCTION ON ACCOUNT OF MATERIAL RECOVERY AT RS. 37,48,903/- IS ALLOWABLE. THE ADDIT ION ON ACCOUNT OF MATERIAL RECOVERY IS CONFIRMED AT RS. 37,48,903/- A S PER ORIGINAL ORDER. 6. APROPOS THE DISALLOWANCE MADE BY THE AO U/S 40(A )(IA), THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO WITH THE FOLLOWING OBSERVATIONS: 5 RIVAL SUBMISSIONS HAVE BEEN CONSIDERED CAREFULLY BY THE UNDERSIGNED. THE APPELLANT IS AGGRIEVED WITH APPLI CATION OF ESTIMATED 8% RATE ON GROSS RECEIPTS WHEN REGULAR BOOKS OF ACC OUNT ARE BEING MAINTAINED BY HIM. THE DISALLOWANCE U/S 40(A)(IA) C AN BE MADE ONLY IN CASES WHERE BOOKS ARE NOT REJECTED. THE APPELLANT H AS SUBMITTED VIDE WRITTEN SUBMISSIONS THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE IN ITS CASE BECAUSE NO AMOUNT IS PAYMENT PAYABLE TO SUB CONTRACTORS ON 31.3.2006. DISALLOWANCE U/S 40(A)(I A) IS ATTRACTED BECAUSE PROVISIONS OF TDS ARE NOT COMPLIED WITH. THE PROVIS IONS OF SECTION 194-C ARE CLEARLY ATTRACTED IN THIS CASE BECAUSE THE APPE LLANT CONTRACT IS LIABLE TO DEDUCT TDS AT 1% U/S 194-C OF THE INCOME-TAX ACT, W HICH PROVIDES FOR DEDUCTION OF TAX AT SOURCE IN THE FOLLOWING CIRCUMS TANCES. A) AT THE TIME OF CREDIT OF ANY SUM TO THE ACCOUNT OF THE SUB CONTRACTOR OR; B) AT THE TIME OF PAYMENT OFANY SUM IN CASH/BY ISSU E OF A CHEQUE/DRAFT OR ANY OTHER MODE. THEREFORE, THE TDS U/S 194-C(2) WAS CLEARLY DEDUCT IBLE FROM THE PAYMENT TO SUB-CONTRACTOR AND PROVISIONS OF SEC TION 40(A)(IA) ARE ATTRACTED AS A RESULT. THE APPELLANTS FURTHER CONTENTION IS THAT THE PRO VISIONS OF194- C ARE NOT APPLICABLE TO FOLLOWING PAYMENTS:- 1 PAYMENT TO BHUPINDER LAL MAHAJAN RS. 5,12,720/- DINESH KUMAR, SAULI KHAD & REVENUE 331 & 11/CHANDI/2010 4 4 2 PAYAMENT TO L.R. SAINI FOR HIRING MACHINERY RS. 92,000/- 3 PAYMENT TO SMT. SUSHILA TO CONSTRUCTION OF B/WALL RS. 50,000/- 4 PAYMENT TO HARNAM SINGH FOR CRATE WORK AND SIDE DRAIN RS. 47,000/- 5 PAYMENT TO JAGDISH SINGH FOR FITTING OF FLOOR PIPE RS. 20,000/- 5(I) THE APPELLANTS CONTENTION HAS NO SUBSTANCE KE EPING IN VIEW THE FACT THAT PAYMENTS AT NO. 1 & 2 FOR HIRING OF M ACHINERY ARE CLEARLY COVERED U/S 194-C WHEREAS PAYMENTS AT NOS. 3 TO 4 A RE IN THE NATURE OF PAYMENT TO SUB CONTRACTORS FOR CARRYING OUT PART WO RK COVERED U/S 194C(2). THEREFORE, THE APPELLANT IS CLEARLY UNDER DEFAULT OF TDS U/S 194C & 194-1 AND COVERED U/S 40(A)(IA) WHICH PROVIDES FO R DISALLOWANCE OF PAYMENTS TO CONTRACTORS/SUB CONTRACTORS ON WHICH TA X HAS NOT BEEN DEDUCTED. AS A RESULT THE DISALLOWANCE U/S 40(A)(IA ) IS CONFIRMED. THE AO IS DIRECTED TO INITIATE PENALTY U/S 271C FOR FAILUR E TO DEDUCTION TAX. HOWEVER THE AO IS DIRECTED TO VERIFY THE TDS DEDUCT ION IN THE MONTH OF MARCH AND PAID IN ASSESSMENT YEAR 2007-08 ALLOW CRE DIT THEREOF ACCORDINGLY. 7. BY A SUBSEQUENT ORDER DATED 10.3.10 PASSED U/S 1 54 OF THE INCOME-TAX ACT AT THE INSTANCE OF THE ASSESSING OFF ICER, THE CIT(A) HAS PASSED THE FOLLOWING ORDER: 3 I HAVE CONSIDERED THE APPLICATIONS MADE IN THIS REGARD. CLARIFICATION IS ISSUED AS UNDER: 1 APPLICATION OF NET RATE OF 8% NO ADDITION HAS BEEN CONFIRMED ON THIS GROUND. 2 DEDUCTION ON ACCOUNT OF RECOVERY OF MATERIAL NO DEDUCTION ON ACCOUNT OF MATERIAL RECOVERY IS AL LOWED SINCE THE APPELLANT HAS FAILED TO PROVE DAY TO DAY CONTROL OF THE DEPARTMENT / GOVT OVER MATRIAL SUPPLIED. DINESH KUMAR, SAULI KHAD & REVENUE 331 & 11/CHANDI/2010 5 5 8. AT THIS STAGE, IT MAY BE RELEVANT TO MENTION THA T THE AO HAD INITIALLY NOT EXCLUDED THE COST OF MATERIAL SUPPLIE D BY THE CONTRACTEE FROM THE CONTRACT RECEIPTS. HOWEVER, THE ASSESSING OFFICER, BY HIS ORDER U/S 154, ALLOWED THE BENEFIT OF COST OF MATERIAL SUPPLIED BY THE CON TRACTEE AMOUNTING TO RS. 37,48,913/- AND CONSEQUENTLY EXCLUDED THE SAME FROM CONTRACT RECEIPTS WHILE APPLYING NET PROFIT RATE OF 8%. IN ORDER WORDS, THE CONTRACT RECEIPTS WERE RE- CALCULATED BY EXCLUDING THE COST OF MATERIAL SUPPLI ED BY THE CONTRACTEE (RS. 37,,48,913/-) FROM THE CONTRACT RECEIPTS AMOUNTING TO RS. 6,85,70,040/-. THIS HAS LED TO THE POSITION THAT WHILE THE ASSESSING OF FICER, BY HIS ORDER PASSED U/S 154, HAS EXCLUDED THE COST OF MATERIAL SUPPLIED BY THE CONTRACTEE TO THE ASSESSEE FROM THE CONTRACT RECEIPTS, THE LD. CIT(A) , BY HIS ORDER PASSED UNDER SECTION 154, DECLINED TO EXCLUDE THE COST OF MATERI AL SUPPLIED BY THE CONTRACTEE FROM CONTRACT RECEIPTS WITH THE OBSERVATIONS AS REP RODUCED EARLIER. 9. IN SUPPORT OF THE APPEAL, THE LEARNED DR SUBMITT ED THAT THE ORDER PASSED BY THE LD. CIT(A) WAS LIABLE TO BE VAC ATED IN ITS TOTALITY FOR THE REASONS THAT THE LD. CIT(A) HAS GIVEN NO REASON FOR REJECTING THE DETAILED FINDINGS RECORDED IN THE ASSESSMENT ORDER FOR INVOK ING SECTION 145(3). HE SUBMITTED THAT THE LD. CIT(A) HAS GIVEN NO REASON F OR REVERSING THE DETAILED FINDING RECORDED BY THE AO IN THE ASSESSMENT ORDER FOR HOLDING THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE NOT CORRECT AND COMPLETE IN TERMS OF SECTION 145(3). 10. IN REPLY, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE CIT(A) UPHOLDING THE SUBMISSION OF THE ASSESSEE THAT THE BOOKS OF ACCOUNT WERE PROPERLY MAINTAINED. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN AS TO HOW THE ORDER OF THE LD. CIT(A) COULD BE UPHELD IN THE ABSENCE OF ANY REASONING GIV EN BY THE LD. CIT(A) TO REBUT THE FINDING RECORDED BY THE AO THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT, INCOMPLETE AND NOT SUP PORTED BY VERIFIABLE VOUCHERS. 11. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CO NSIDERED THEIR SUBMISSIONS. THE AO HAS GIVEN DETAILED REASONS IN THE ASSESSMENT ORDER AS TO HOW THE BOOKS OF ACCOUNT REPORTEDLY MAINTAINED BY T HE ASSESSEE WERE INCORRECT, INCOMPLETE AND NOT SUPPORTED BY VOUCHERS. THUS THE CONCLUSION REACHED BY THE DINESH KUMAR, SAULI KHAD & REVENUE 331 & 11/CHANDI/2010 6 6 ASSESSING OFFICER THAT THE BOOKS OF ACCOUNT MAINTAI NED BY THE ASSESSEE WERE DEFICIENT IN MATERIAL RESPECTS THAT HE REJECTED THE OPERATIONAL RESULTS AND RESULTANTLY PROCEEDED TO APPLY NET PROFIT RATE OF 8 %. THERE IS ABSOLUTELY NO DISCUSSION IN THE APPELLATE ORDER PASSED BY THE CIT (A) IN THIS BEHALF. THE LD. CIT(A) HAS GIVEN NO REASONS FOR REJECTING THE FINDI NGS OF THE AO IN THIS REGARD. THE ONLY OBSERVATION THAT THE LD. CIT(A) HAS MADE I N HIS APPELLATE ORDER IS THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE ACCEPTED. 12. WE FURTHER FIND THAT A SPECIFIC GROUND OF APPEA L WAS TAKEN BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE CORRECTNESS OF THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT AND BOOK R ESULTS. THE LD. CIT(A) HAS NEITHER EXAMINED THE AFORESAID ASPECT IN PROPER PER SPECTIVE NOR PASSED A SPEAKING ORDER IN THIS BEHALF NOR BROUGHT OUT ANY M ATERIAL ON RECORD TO REJECT THE FINDINGS OF THE AO RECORDED IN THE ASSESSMENT O RDER IN THIS BEHALF. IN THIS VIEW OF THE MATTER, IT IS CONSIDERED APPROPRIATE TO SET ASIDE THE ORDER PASSED BY THE CIT(A) IN ITS ENTIRETY AND RESTORE THE MATTER T O HIS FILE WITH THE DIRECTION TO PASS A FRESH ORDER IN CONFORMITY WITH LAW GIVING RE ASONS FOR HIS DECISION ON EACH GROUND OF APPEAL TAKEN BEFORE HIM. 13. OTHER ISSUES RAISED BY BOTH THE PARTIES AND MOR E PARTICULARLY THE ASSESSEE IN HIS GROUNDS OF APPEAL ARE INTER-LIN KED WITH THE REJECTION OF BOOKS OF ACCOUNT. UNLESS THE ISSUE OF REJECTION OF BOOK R ESULTS IS DECIDED FIRST, IT IS NOT POSSIBLE TO ADJUDICATE UPON OTHER GROUNDS OF APPEAL . IT IS FOR THIS REASON THAT WE HAVE SET ASIDE THE APPELLATE ORDER PASSED BY THE CI T(A) IN ITS ENTIRELY WITH THE DIRECTION TO PASS A FRESH APPELLATE ORDER IN CONFOR MITY WITH LAW. WHILE DOING SO, OTHER ISSUES RAISED BY THE ASSESSEE WOULD ALSO BE E XAMINED AND ADJUDICATED UPON IN ACCORDANCE WITH LAW. REASONABLE OPPORTUNITY OF HEARING SHALL BE GIVEN TO BOTH THE PARTIES. 14. FOR THE SAKE OF CLARITY, IT IS CLARIFIED THAT A LL THE ACTIONS TAKEN IN PURSUANCE OF TO IMPUGNED ORDER PASSED BY THE LD. CI T(A) SHALL AUTOMATICALLY STAND VACATED. 12. APPEALS FILED BY BOTH THE PARTIES ARE TREATED A S ALLOWED FOR STATISTICAL PURPOSE WITH THE AFORESAID OBSERVATIONS . ORDER PRONOUNCED ON 18 FEBRUARY 2011 DINESH KUMAR, SAULI KHAD & REVENUE 331 & 11/CHANDI/2010 7 7 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER CHANDIGARH: THE 18 FEBRUARY 2011 SURESH COPY TO: 1. THE APPELLANT, DINESH KUMAR, SAUI KHAD, MANDI 2. THE RESPONDENT, ACIT, MANDI 3. THE CIT(A), SHIMLA 4. THE LD. CIT, SHIMLA 4. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH