ACIT, CHENNAI V. Shri S.Seshadri, CHENNAI

ITA 1244/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4929 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-06-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 04-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VENKATNARAYANAN
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER A ND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 1244/MDS/2009 ASSESSMENT YEAR : 2002-03 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-V, CHENNAI. V. SHRI S. SESHADRI, NO.32, AMBIKA COMPLEX, ARCOT ROAD, KODAMBAKKAM, CHENNAI-600 024. (PAN : AIOPS8863M) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI VENKATNARAYANAN O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-VIII, CHENNAI IN ITA NO.3/05-06 DATED 26-05-2009 FOR THE ASSESSMENT YEAR 2002-03. THE ASSESSEE HAS REQUESTE D FOR ADJOURNMENT VIDE LETTER DATED 08-06-2011. AS THE REQUEST FOR ADJOUR NMENT HAS NOT BEEN FOUND TO BE SUBSTANTIATED, THE REQUEST WAS REJECTED AND THE APPEAL WAS HEARD ON MERITS. 2. SHRI SHAJI P. JACOB, LEARNED SR. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI VENKATNARAYANAN, ADVOCATE REPRESENTED ON BEHAL F OF THE ASSESSEE. 3. IN THE REVENUES APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : I.T.A. NO. 1244/MDS/2009 2 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO T HE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN DELETING THE CASH C REDIT OF ` 4 LAKHS IN THE NAME OF M/S. BALAJI CONSTRUCTION. 2.1. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD NOT PRODUCED CONFIRMATION LETTER EITHER AT THE ORIGINAL ASSESSMENT STAGE OR AT THE REMAND STAGE AND HAS CAT EGORICALLY ADMITTED THAT THE ADDRESS GIVEN BY HIM WAS INCORREC T. 2.2 THE LD. CIT(A) HAS SIMPLY GONE BY THE VERSION OF THE ASSESSEE THAT THE AMOUNT WAS RECEIVED BY CHEQUE WIT HOUT APPRECIATING THAT THE RECEIPT OF MONEY BY CHEQUE, W ITHOUT PROVING THE IDENTITY WILL NOT SUFFICE THE PURPOSE. 2.3. THE LD. CIT(A) HAS FAILED TO NOTE THAT CHEQUE TRANSACTIONS NEED NOT BE GENUINE AS LAID DOWN BY THE CALCUTTA HI GH COURT IN THE CASE OF CIT V. UNITED COMMERCIAL BANK LTD., (187 IT R 596) AND IN THE CASE OF CIT V. PRECISION FINANCE PVT. LTD. (198 4) (208 ITR 465- CAL). 2.4. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS NOT ESTABLISHED THE IDENTITY AND CREDI TWORTHINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION AN D TO HAVE SUSTAINED THE ADDITION. 3. THE LEARNED CIT(A) ERRED IN DELETING THE DISALL OWANCE OF ` 12,94,433/- ON THE GROUND THAT IT REPRESENTS RETENT ION MONEY ONLY. 3.1 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE R EMAND REPORT WHEREIN THE MATTER WAS EXAMINED IN DETAIL AN D ` 5,39,500 REPRESENTING CONTINGENT EXPENDITURE WHICH WAS NOT A SCERTAINED WAS SOUGHT TO BE DISALLOWED. I.T.A. NO. 1244/MDS/2009 3 3.2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD RAISED BILL AND HAD ACTUALLY RECEIVED THE FULL AMOUNT, EXCEPT IN THE CASE OF CMWSSB AMOUNTING TO ` 7,69,275 AS ON 31.3.2002, AND HAD DEBITED THE ENTIRE AMOUNT OF LAB OUR EXPENSES BUT PROVISION TOWARD EXPENSES OF ` 12,94, 933 WAS SHOWN AS OUTSTANDING. 3.3 THE LD. CIT(A) HAVING OVERLOOKED THE REMAND RE PORT OUGHT TO HAVE NOTED THAT IT WAS NOT THE CONTENTION OF THE ASSESSEE FROM THE BEGINNING THAT HE HAS OFFERED THE RETENTION MON EY TO AASSESSMENT AND THE APPEAL IS AGAINST THE DISALLOWA NCE OF PROVISION OF LABOUR CHARGES ONLY. 3.4. THE LD. CIT(A) HAS FAILED TO NOTE THAT IN THE ASSESSMENT ORDER, THE AO HAS POINTED OUT THE NARRATION GIVEN F OR THE ENTRY MADE IN THE BOOKS AS BEING AMOUNT PROVIDED TOWARDS PROPOSED EXPENSES FOR LABOUR PAYMENTS AND LABOUR RETENTION M ONEY DUE AND THAT WHEN THE ASSESSEE HIMSELF HAS MADE THE NAR RATION, THERE IS NO REASON TO ATTACH DIFFERENT MEANING ALTOGETHER . 3.5. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE AMOUNT REPRESENTED THE AMOUNTS INCURRED AFTER THE END OF T HE ACCOUNTING YEAR AND THE AMOUNT RETAINED TOWARDS LABOUR CHARGES PAYABLE BY HIM AND NOT RECEIVABLE. 3.6. THE LD. CIT(A) HAVING ERRED IN TAKING THAT TH E RETENTION MONEY RECEIVABLE HAS BEEN BROUGHT TO TAX OR THAT TH E AMOUNTS DUE COULD HAVE BEEN REDUCED OUT OF RECEIPTS, HAS FAILED TO NOTE THAT THE ASSESSEE HAS ACCOUNTED FOR RECEIPTS WHICH ARE ACTUA LLY RECEIVED OR RECEIVABLE AND THAT THE AMOUNT DISALLOWED IS THE PR OVISION MADE FOR EXPENSES WHICH IS HELD AS CONTINGENT OR UNASCER TAINED LIABILITY WHICH STILL STANDS DEBITED TO LABOUR CHARGES ACCOUN T I.T.A. NO. 1244/MDS/2009 4 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE SET ASIDE AND THAT OF A SSESSING OFFICER RESTORED. 4. IN REGARD TO GROUND NOS. 2 TO 2.4 IT WAS SUBMITT ED BY THE LEARNED DR THAT IN THE COURSE OF ASSESSMENT THE ASSESSEE HAS BEEN QUES TIONED IN REGARD TO THE CASH CREDIT RECEIVED FROM VARIOUS PERSONS. IT WAS THE S UBMISSION THAT IN REGARD TO M/S. BALAJI CONSTRUCTION, THE OPENING BALANCE WAS ` 4 LAKHS DURING THE YEAR AND THE ASSESSEE HAD RECEIVED ` 3,50,000 AS CASH CREDIT. NO CONFIRMATION LETTERS OR ASSESSMENT DETAILS OR ANY DETAILS IN REGARD TO THE SAID BALAJI CONSTRUCTION HAD BEEN PRODUCED BY THE ASSESSEE. IT WAS THE SUBMISSI ON THAT IN THE COURSE OF REMAND PROCEEDINGS THE ASSESSEE HAS NOT BEEN ABLE T O SUBSTANTIATE THE CLAIM OF THE CREDITOR. IT WAS THE SUBMISSION THAT THE ASSES SING OFFICER IN THE ORIGINAL ASSESSMENT ITSELF DISALLOWED THE SAID AMOUNT AS UNE XPLAINED CASH CREDIT. IT WAS THE SUBMISSION THAT IN THE REMAND PROCEEDINGS, (THE COPY OF THE REMAND REPORT IS AT PAGES 11 TO 18 OF THE ASSESSEES PAPER BOOK), AT PAGE 6 OF THE REMAND REPORT, IT HAD BEEN CATEGORICALLY CONFIRMED BY THE ASSESSIN G OFFICER THAT THE IDENTITY OF THE CREDITOR HAS NOT BEEN ESTABLISHED. IT WAS THE FURTHER SUBMISSION THAT THE ASSESSEES REPRESENTATIVE HAD ALSO SPECIFICALLY ADM ITTED THAT THE CREDITOR WAS NOT PRESENTLY AVAILABLE AT THE ADDRESS GIVEN THEREIN WH ICH HAS ALSO BEEN BROUGHT OUT IN THE REMAND REPORT. IT WAS THE SUBMISSION THAT T HE LEARNED CIT(A) HAD DELETED I.T.A. NO. 1244/MDS/2009 5 THE ADDITION BY HOLDING THAT THE REPAYMENTS HAD BEE N MADE BY WAY OF ACCOUNT- PAYEE CHEQUES. IT WAS THE SUBMISSION THAT WHEN THE IDENTITY AND EVEN THE ADDRESS OF THE CREDITOR ITSELF WAS UNKNOWN, JUST BE CAUSE THE ASSESSEE HAD ISSUED CHEQUES IN THE NAME OF THE SAID BOGUS CREDITOR, THE ADDITION COULD NOT BE DELETED. IT WAS THE SUBMISSION THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE REVERSED. 5. IN REPLY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT IN THE REMAND REPORT THE ASSESSING OFFICER HIMSELF HAS SPECIFICAL LY RECORDED THAT THE ASSESSEE HAD PLEADED THAT THE REPAYMENTS HAD BEEN MADE BY CH EQUES SUBSEQUENT TO THE END OF THE PREVIOUS YEAR. THE ASSESSEE HAD ALSO PR ODUCED THE CHEQUE NUMBER AND THE BANK THROUGH WHICH THE PAYMENTS HAD BEEN MA DE AND THE COPY OF THE BANK ACCOUNT ALSO SHOWED THE SAID AMOUNT. IT WAS T HE SUBMISSION THAT JUST BECAUSE THE ASSESSEE COULD NOT PRODUCE THE CREDITOR , IN VIEW OF THE FACT THAT THE ASSESSEE HAD PRODUCED THE BANK STATEMENTS AND THE R EPAYMENTS HAD BEEN MADE BY ACCOUNT-PAYEE CHEQUES, THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE CONFIRMED ON THE ISSUE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS NOTICED THAT THE PRIMARY ONUS IN REGARD TO THE CASH CREDIT IS ON THE GENUINE NESS, IDENTITY AND THE CREDITWORTHINESS OF THE CREDITOR WHICH IS TO BE PRO VED AND AS NONE OF THE CRITERIA HAD BEEN PROVED IN THIS CASE, WE ARE OF THE VIEW TH AT THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE IS UNSUSTAINABLE IN LAW. THE ASSESSEE HAS BEEN UNABLE TO I.T.A. NO. 1244/MDS/2009 6 PRODUCE CONFIRMATION LETTER FROM THE CREDITOR. THE ASSESSEE HAS BEEN UNABLE TO GIVE CORRECT ADDRESS OF THE CREDITOR AND NOW THE AS SESSEE SAYS THAT THE REPAYMENT HAS BEEN MADE BY WAY OF ACCOUNT-PAYEE CHE QUES AND THE REVENUE IS TO GO AND FIND THE ADDRESS OF THE CREDITOR THROUGH THE BANK ACCOUNT, WHICH TOO FAR FETCHED. IN THE CIRCUMSTANCES, THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS REVERSED AND THE GROUNDS NO.2 TO 2.4 IN THE REVENUES APPEAL STAND ALLOWED. 7. IN REGARD TO GROUNDS NO. 3 TO 3.6 IT WAS SUBMITT ED BY THE LEARNED DR THAT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER HAD DISALLOWED THE PROVISION FOR EXPENSES TO THE EXTENT OF ` 12,94,433/-. IT WAS THE SUBMISSION THAT IN APPEAL BEFORE THE LEARNED CIT(A) REMAND REP ORT HAD BEEN CALLED FOR AND IN THE REMAND PROCEEDINGS THE ASSESSING OFFICER HAD RE -EXAMINED THE WHOLE ISSUE IN LINE WITH THE EVIDENCES PRODUCED AND AT PAGES 3 & 4 OF HIS REMAND REPORT THE ASSESSING OFFICER HAD CATEGORICALLY FOUND THAT OUT OF THE DEMAND OF ` 12 94,433/- AN AMOUNT OF ` 8,18,433/- WAS AN ASCERTAINED LIABILITY. IT WAS TH E FURTHER SUBMISSION THAT OUT OF THE AMOUNT OF ` 8,18,433/- AN AMOUNT OF ` 3,17,500/- HAD BEEN PAID IN CASH AND CONSEQUENTLY IN VIEW OF THE P ROVISIONS OF SECTION 40A(3) OF THE ACT THE SUM OF ` 63,500/- WAS DISALLOWABLE. IT WAS THE SUBMISSION THAT AS REGARDS THE BALANCE OF ` 4,76,000/- OUT OF ` 12,94,433/-, THE AMOUNT REPRESENTED AN AMOUNT OF ` 2,50,000/- IN RESPECT OF THE CIVIL WORKS IN RESPEC T OF SPML (M/S. SUBHASH PROJECTS MARKETING LTD.) AND ` 2,26,000/- IN RESPECT OF CMWSSB I.T.A. NO. 1244/MDS/2009 7 (CHENNAI METRO WATER SUPPLY AND SEWERAGE BOARD). I T WAS THE SUBMISSION THAT THESE AMOUNTS OF ` 2,50,000/- AND ` 2,26,000/- WERE CLEARLY PROVISION MADE ON ESTIMATED BASIS TOWARDS FUTURE CONTINGENCIES. IT W AS THE SUBMISSION THAT THE ASSESSEE HAD COMPLETED THE CONTRACT WORKS BOTH WITH SPML AND CMWSSB BEFORE THE END OF THE FINANCIAL YEAR AND HAD RECEIVED THE FULL PAYMENT AND ALSO OFFERED THE FULL PAYMENT IN ITS RETURN. IT WAS THE SUBMISS ION THAT ON THE GROUND THAT THE ASSESSEE HAD THE LIABILITY TO CARRY OUT THE WORK UN TIL THE DEFECT LIABILITY PERIOD OF 24 MONTHS HAD EXPIRED, THE ASSESSEE HAD PROVIDED FO R ` 2,50,000/- IN RESPECT OF SPML AND ` 2,26,000/- IN RESPECT OF CMWSSB. IT WAS THE SUBMI SSION THAT THE ASSESSING OFFICER HAD CATEGORICALLY FOUND THAT THER E WAS NO SCIENTIFIC BASIS FOR ARRIVING AT THE ESTIMATE AND AS THE SAID AMOUNT WAS PURELY AN ESTIMATED PROVISION FOR EXPENSES, THE SAME HAD BEEN DISALLOWED. IT WAS THE SUBMISSION THAT THE LEARNED CIT(A) HAD DELETED THE ADDITION IN TOTO BY HOLDING THAT THE SAID ESTIMATED EXPENSES WERE IN FACT RETENTION MONIES. IT WAS THE SUBMISSION THAT THERE WAS NO RETENTION MONEY HELD BY EITHER SPML OR CMNWSSB. IT WAS SUBMITTED THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE REVERS ED. 8. IN REPLY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAD A LIABILITY TO RECTIFY ANY DEFECT DURING THE DE FECT LIABILITY PERIOD OF 24 MONTHS AND CONSEQUENTLY THE ASSESSEE HAD PROVIDED FOR THE PROVISION OF EXPENSES. IT WAS THE SUBMISSION THAT THE ORDER OF THE LEARNED CI T(A) IS LIABLE TO BE SUSTAINED. I.T.A. NO. 1244/MDS/2009 8 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET IT IS NOTICED THAT THE REVENUE IS CHALLENGING THE DELETION OF THE DISA LLOWANCE OF ONLY ` 5,39,500/-. THE REVENUE IS NOT IN CHALLENGE AGAINST THE ALLOWAN CE OF THE PROVISION FOR EXPENDITURE REPRESENTING THE ASCERTAINED LIABILITY WHICH HAS BEEN ASCERTAINED BY THE ASSESSING OFFICER IN THE REMAND REPORT. THIS A MOUNT OF ` 5,39,500/- REPRESENTS AN ADDITION OF ` 2,50,000/- BEING THE PROVISION FOR EXPENSES OF SPM L AND ` 2,26,000/- REPRESENTING A PROVISION FOR EXPENSES I N RESPECT OF CMWSSB AND AN AMOUNT OF ` 63,500/- BEING A DISALLOWANCE U/S 40A(3). HERE IT IS NOTICED THAT THE DISALLOWANCE U/S 40A(3) WAS NOT AN ISSUE IN THE ASSESSMENT NOR WAS IT AN ISSUE IN THE APPELLATE PROCEEDINGS. THIS IS AN ISS UE WHICH IS RAISED IN THE REMAND PROCEEDINGS AND NO SHOW CAUSE NOTICE HAS BEEN ISSUE D TO THE ASSESSEE. CONSEQUENTLY, THE DISALLOWANCE WHICH IS BEING PRAYE D FOR INVOKING THE PROVISIONS OF SECTION 40A(3) IN RESPECT OF THE AMOUNT OF ` 63,500/- CANNOT BE THE SUBJECT MATTER OF APPEAL BEFORE US AS THIS ISSUE DOES NOT A RISE OUT OF THE ASSESSMENT ORDER OR THE ORDER OF THE LEARNED CIT(A). 10. IN REGARD TO THE BALANCE OF ` 2,50,000/- AND ` 2,26,000/- TOTALING TO ` 4,76,000/-, IT IS NOTICED THAT THE ASSESSING OFFICE R HAS SPECIFICALLY GIVEN A FINDING THAT THERE WAS NO SCIENTIFIC BASIS FOR ARRIVING AT THIS ESTIMATE. IT IS NOTICED THAT THE ASSESSEE HAS COMPLETED THE CONTRACT WORKS OF SP ML AND CMWSSB AND THE ASSESSEE HAS ALSO OFFERED THE INCOME FROM BOTH THES E CONTRACTS. THERE IS NO RETENTION MONEY RETAINED IN THE CASE OF SPML OR CMW SSB. THE PROVISION FOR I.T.A. NO. 1244/MDS/2009 9 EXPENSES IS A SIMPLE PROVISION WHICH IS NOT AN ALLO WABLE EXPENDITURE WHEN COMPUTING THE INCOME OF AN ASSESSEE. IN THE CIRCUM STANCES, AS THE AMOUNT OF ` 4,76,000/- IS FOUND TO BE NOT AN ASCERTAINED LIABIL ITY NOR IT IS A LIABILITY WHICH IS ESTIMATED BY APPLYING ANY SCIENTIFIC BASIS, THE DEL ETION OF THE SAME BY THE LEARNED CIT(A) STANDS REVERSED. IN THE CIRCUMSTANCES, THE FINDING OF THE LEARNED CIT(A) IN RESPECT OF THE DISALLOWANCE OF THE PROVISION FOR EXPENSES IN RESPECT OF ` 4,76,000/- BEING THE AGGREGATE OF ` 2,50,000/- IN RESPECT OF SPML AND ` 2,26,000/- IN RESPECT OF CMWSSB STANDS REVERSED AND THE ORDER OF THE LEARNED ASSESSING OFFICER ON THIS ISSUE STANDS RESTORED TO THE EXTENT OF ` 4,76,000/- ONLY. IN THE CIRCUMSTANCES GROUNDS NO.3 TO 3.6 IN THE REV ENUES APPEAL ARE PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED. 12. THE ORDER WAS PRONOUNCED IN THE COURT ON 10/06/ 2011. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 10 TH JUNE, 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE