Ashok Kumar Nayak, Bhadrak V. ITO, Bhadrak

ITA 141/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4391 (ITAT-CUTTACK)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 25-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: P K MISHRA; D DAS ARS
• Keywords: Wrong claim; Set aside
• Section: 68

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 141 /CTK/2011 (ASSESSMENT YEAR 2007 - 08) ASHOK KUMAR NAYAK, KHERA SAHI, BIDEIPU R, BHADRAK, ORISSA PAN: ABNPPN 4255 N VERSUS INCOME - TAX OFFICER, BHADRAK WARD, AT/P.O.CHARMPA, DIST.BHADRAK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI P.K.MISHRA AND D.DAS, ARS FOR THE RESPONDENT SMT. PARAMITA TRIPATHY, DR ORDER SHRI K.K.GUPT A, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING THE PURPORTED OUTSTANDING LIABILITIES FOR EXPENSES BEARING NO EVIDENCE BROUGHT TO TAX BY THE ASSESSING OFFICER IN HIS ORDER U/S.143(3) AS BOGUS OR NOT GENUINE. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD BY THE AUTHORITIES BELOW ARE THAT THE ASSESSEE IS ENGAGED IN CIVIL CONTRACT WORKS AND FILED ITS RETURN DISCLOSING INCOME OF RS.4,64,870 WHICH WAS SUBJECTED TO SCRUT INY U/S.143(3). INSPITE OF SEVERAL NOTICES ISSUED BY THE ASSESSING OFFICER U/S.142(1), THE ASSESSEE WAS NOT ABLE TO FURNISH THE DETAILS REQUIRED BY HIM TO ESTABLISH THE OUTSTANDING EXPENSES AMOUNTING TO RS.99,43,730 AS AGAINST EXPENSES CLAIMED IN THE P & L ACC OUNT AMOUNTING TO RS.1,1 8,71,250 ON ACCOUNT OF MACHINE HIRE CHARGES. AFTER PERUSING THE VARIOUS SUBMISSIONS AND OTHER MATERIAL, THE ASSESSING OFFICER HELD THAT THE OUTSTANDING LIABILITY ON ACCOUNT OF MACHINE HIRE CHARGES AMOUNTING TO RS.70,20,660 WAS NOT GENUINE. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE CASE OF THE ASSESSEE APPELLANT THAT THE EXPENSES ARE INCURRED AS AND WHEN THEY ARE CLAIMED BY THE PAYEES. IN ITA NO.144/CTK/2011 2 RESPECT OF MACHINE HIRE CHARGES, IT WAS SUBMIT TED THAT THE ASSESSEE CARIES ON WORK BY DEPENDING ON HIS SUPERVISOR S AT VARIOUS SITE S WHO ENGAGE THE HIRING OF MACHINERIES AND EXECUTION OF WORK FOR ULTIMATE PAYMENTS. THE ASSESSING OFFICER HAD NOT CALLED FOR ANY SPECIFIC PERSON TO DEPOSE BEFORE HIM FOR TH E PURPOSE OF ESTABLISHING THE TRUE LIABILITY OF THE EXPENSES I NCURRED IN THE IMPUGNED ASSESSMENT YEAR AND CLAIMED IN THE P & L ACCOUNT. THE OUTSTANDING EXPENSES AMOUNTING TO RS.99,43,730 THEREFORE OUGHT TO HAVE BEEN CONSIDERED ALONG WITH THE OTHER EXPENSES STILL PAYABLE NAMELY DIRECT EXPENSES OF OIL AND LUBRICANT WHICH HAS BEEN ACCEPTED OTHERWISE. HAVING CLAIMED ALL THE EXPENSES, THE ASSESSING OFFICER OUGHT NOT TO HAVE DISALLOWED THE OUTSTANDING LIABILITY ON ACCOUNT OF EXPENSES CLAIMED WHICH ISSUE WAS REMAN DED BY THE LEARNED CIT(A) TO THE ASSESSING OFFICER. UNFORTUNATELY THE LEARNED CIT(A) SOUGHT TO VERIFY THOSE PAYEES WHO WERE NEVER BEFORE THE ASSESSEE IN VIEW OF THE FA C T THAT THE SUPERVISORS WORKING IN THE REMOTE AREA HAD HIRED THE MACHINES FOR EXECUTING T HE WORK OF THE ASSESSEE WAS KNOWN TO THEM ONLY . THE LEARNED CIT(A) IN HIS ORDER DEVOTED THE INCIDENCE OF NON - PR E SENCE OF THE PAYEES TO THE VIEW DENYING THAT HE EVER CONDUCTED ANY BUSINESS WITH THE ASSESSEE. THE LEARNED CIT(A) THEREAFTER CONCLUDED THAT THE ESTIMATION OF INCOME AT 29.08% BY THE ASSESSING OFFICER HAD NO BEARING TO THE FACT THAT THE ASSESSEE WAS TO EXPLAIN THE NATURE OF OUTSTANDING LIABILITIES AGAINST THE INCOME RENDERED ON THE TOTAL CONTRACT RECEITS . 3. THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE AUTHORITIES BELOW HAVE MISDIRECTED THEMSELVES TO HOLD A VIEW THAT THE OUTSTANDING EXPENSES PAYABLE IN THE SUBSEQUENT PERIOD WERE ACCOUNTED FOR AS AND WHEN THE SUPERVISORS OF THE ASSESSEE SUBMITTED THE BILLS OF THE PAYEES. THE FACT THAT TH E PAYEES WERE NEVER CONFRONTED BY THE ASSESSING AUTHORITIES IN VIEW OF HAVING NO RELATION , OTHER THAN WITH THE SUPERVISOR WHO CLAIMED THESE ITA NO.144/CTK/2011 3 EXPENSES AS PART OF CONTRACT WORK CARRIED OUT BY THE ASSESSEE WAS A MATTER OF INTE RNAL ADMINISTRATION. THE BILLS THA T WERE CLAIMED AS OUTSTANDING WERE PRODUCED BEFORE THE AUTHORITIES BELOW AND THE SUMMONS ISSUED WERE TO THE PAYEES ON THE BASIS OF LIST OF OUTSTANDING EXPENSES. OBVIOUSLY THE PAYEES WERE NOT DIRECTLY ENGAGED BY THE ASSESSEE BUT BY THE SUPERVISORS WHO WAS T O JUSTIFY HIS CLAIM AGAINST BILLS WAS TO BE INCORPORATED AS CLAIMED FOR THE CIVIL WORK CARRIED OUT AGAINST WHICH GROSS INCOME HAS BEEN ACCEPTED BY THE AUTHORITIES BELOW VIS - - VIS THE TAX DEDUCTED AT SOURCE CERTIFICATE COMPLIES TO THAT EFFECT. IN THE PECUL IAR BUSINESS OF A CONTRACTOR THE EXPENSES FOR A PARTICULAR PROJECT HAS TO BE ACCOUNTED FOR IRRESPECTIVE OF THE PERSONS TO WHOM IT IS TO BE PAID INSOFAR AS THE CONTRACTEES WILL PASS THE BILL ONLY WHEN THE WORK HAS BEEN COMPLETED. THE ASSESSEE THEREFORE SUBM ITTED THAT IT IS UNDISPUTED FACTS THAT THE GOVERNMENT AUTHORITIES OR THE CONTRACTEES HAVE ACKNOWLEDGED TO PAY THE BILLS AGAINST EXPENDITURE INCURRED WHICH BY NO STRETCH OF IMAGINATION HAS BEEN SHOWN AS PAYABLE BY THE ASSESSEE COULD BE DENIED AS BOGUS. NO B USINESS MAN WOULD PAY WITHOUT INCURRING EXPENDITURE. THE APPELLANT BEFORE THE LEARNED CIT(A) THEREFORE WAS JUSTIFIED IN HOLDING THAT HAVING ACKNOWLEDGED THE GROSS RECEIPTS THE DISALLOWANCE WOULD TANTAMOUNT TO INCOME ESTIMATION OF 29% OF GROSS RECEIPT S, W HICH WAS BEYOND ANY COMPREHENSION. THERE WAS NO DISALLOWANCE OF EXPENSES AS CAN BE PERUSED IN THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED CIT(A) WHO DEVOTED EFFORT S IN BRINGING ON RECORD THE NON - GENUINITY OF THE CREDITS OR EXPENSES WHETHER COULD BE SUBJECTED TO ADDITION U/S.68. HE PRAYED THAT IN ORDER TO DETERMINE THE TRUE INCOME IN THE HANDS OF THE ASSESSEE IT WAS TO BE ONLY ON THE BASIS OF ESTIMATION OF PROFITS BY INVOKING THE PROVISIONS OF SECTION 145(3) WHICH OPPORTUNITY MAY KINDLY BE AFFORDED TO THE ASSESSEE BY RESTORING THE ISSUE TO BE DEALT WITH BY THE LEARNED ASSESSING OFFICER. ITA NO.144/CTK/2011 4 4. THE LEARNED DR OPPOSED THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE BY INDICATING THAT THE ENTRIES HAVE BEEN ESTABLISHED AS BOGUS WHEN THE LEARNED CIT(A) WAS CONSTRAINED TO REMAND THE MATTER TO THE ASSESSING OFFICER FOR ESTABLISHING THE BOGUS AND NON - GENUINITY NATURE OF THE LIABILITY. THE ASSESSEE COULD NOT PROVE THE LIABILITY WAS THEREFORE RIGHTLY BROUGHT TO TAX AS BOGUS. SHE FULLY SUPPORTED THE ORDER OF T HE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO HOLD THAT ONCE ESTIMATION IS RESORTED TO IN ESTABLISHING INCOMPETENCY OF THE ASSESSEE T O BRING ON RECORD THE DIRECT COST INCURRED FOR EXECUTING THE CONTRACT WORKS AGAINST WHICH PAYMENTS HAVE BEEN RECEIVED WHETHER COULD BE A FALSE CLAIM BEFORE THE CONTRACTEES AS WELL. IT IS NOT THE CASE OF THE ASSESSING OFFICER TO HOLD THAT THE EXPENSES CLAI MED AS PART OF CONTRACT WORK CARRIE D OUT COULD RESULT IN CREATING CREDIT S UNDER THE PROVISIONS OF SECTION 68 AS THE ASSESSEE IS UNABLE TO ESTABLISH ITS IDENTITY, GENUINITY AND CREDITWORTHINESS. THE ASSESSEE HAS BEEN CLAIMING THE EXECUTION OF THE CONTRACT A T SITE REQUIRES HIRING OF MACHINES WHICH ARE ON THE SPOT CARRIED OUT AND THE ASSESSEE HAS NO REASON TO HOLD THEIR PAYMENT TILL SUCH TIME THE BILLS ARE NOT RAISED. THE BILLS ARE SUBMITTED BY THE SUPERVISORS OF THE ASSESSEE WHO ALONE CONFRONTS THE PAYEES FO R THESE EXPENSES INCURRED ON BEHALF OF THE ASSESSEE. WE FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PECULIAR BUSINESS CIRCUMSTANCES OF THE ASSESSEE IT WAS REQUIRED FOR VERIFICATION OF THE BOOKS OF ACCOUNT TO HOLD THAT THE LIABILITIES ARE BOGUS WHEN NO PAYMENT HAS BEEN MADE EITHER IN THE IMPUGNED ASSESSMENT YEAR OR IN THE SUBSEQUENT YEAR UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. IT IS NOT THE CASE OF THE LEARNED CIT (A) THAT THE AMOUNT HAS BEEN SHOWN AS BOGUS LIABILITIES JUS T BECAUSE THE ITA NO.144/CTK/2011 5 SUMMONS ISSUED WERE TO VERIFY THE NATURE OF INCOME EARNED BY THE PAYEES WHETHER WERE SUBJECTED TO PROVISIONS OF THE I.T.ACT. HE CONFIRMED THE ADDITION ONLY ON THE BASIS THAT THE SAID PAYEES DID NOT RESPOND TO THE SUMMONS ISSUED U/S.131. THE V ERIFICATION HAS NOT BEEN CARRIED OUT IN ACCORDANCE WITH THE FACTS AS BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AND THE LEARNED CIT(A). THIS RESULTED IN ASSESSEE SUBMITTING THE ALTERNATE PLEA BEFORE THE AUTHORITIES THAT THE PROFIT AT 29 % ON THE GROSS RECEIPTS WAS HIGHLY IMPROBABLE AND MAY BE RE - CONSIDERED WITH THE SET PRINCIPLES FOR THE BUSINESS OF THE ASSESSEE AS A CONTRACTOR. WHEN ALL THE EXPENSE HAVE TO BE ALLOWED U/S.44AD AND THE NET INCOME HAS TO BE TAXED AT 8% WAS WHEN NO BOOKS OF ACCOUNT WERE MAINTAINED. HERE, THE ASSESSEE HAS BEEN ABLE TO PRODUCE NE C ESSARY EVIDENCE IN CLAIMING THE EXPENSES BUT WAS SUBJECTED TO VERIFICATION OF THE OUTSTANDING LIABILITIES AGA INST VARIOUS HEADS WHICH REMAIN INTER - CONNECTED THEREFORE CANNOT BE ISOLATE D ONLY FOR THE PURPOSE OF MACHINE HIRING CHARGES AS PAYABLE AGAINST TOTAL INCURRING O F EXPENSES OF RS.1,18,71,250. WE ARE OF THE CONSIDERED VIEW THAT OIL AND LUBRICANTS CLAIMED AS EXPENSES AMOUNTING TO RS.56,22,772 ALSO HAVE TO BE CONSIDERED TOGETHER WITH MACHINE HIRING CHARGES WAS TO BE ESTABLISHED FOR HOLDING THE MACHINE HIRING CHARGES REMAINING PAYABLE AS BOGUS . HAVING FOUND NO INFIRMITY IN THE OTHER CLAIM OF EXPENDITURE , THE ASSESSING OFFICER THEREFORE SOUGHT TO TAX ONLY RS.70,20,660 BEING MACHINE HIRIN G CHARGES PAYABLE TO THOSE VERY OWNERS OF MACHINERIES WHO CARRIED OUT THE WORK OF THE ASSESSEE THROUGH HIS SUPERVISORS REQUIRES VERIFICATION IN ACCORDANCE WITH THE SET BUSINESS PROCEDURE AND NOT ON ASSUMPTION AND PRESUMPTION. THE OUTSTANDING EXPEN SES AS CL AIMED IN THE BOOKS OF ACCOUNT WAS THEREFORE TO BE CARRIED OUT BY VERIFYING ITS NATURE WHEN SUBSEQUENT PAYMENT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING COULD BE CALLED FOR HOLDING THE NON - ITA NO.144/CTK/2011 6 PERSONAL ITEM OF EXPENDITURE VIS - - VIS A CASH CREDITOR WAS TO ESTAB LISH BEYOND DOUBT ITS NON - INCURRING AFTER VERIFICATION OF ITS IDENTITY, GENUINITY AND CREDITWORTHINESS. WE DO NOT FIND ANY MERIT IN THE CONFIRMATION THEREOF BY THE LEARNED CIT(A). THE ORDER OF THE LEARNED CIT(A) IS THEREFORE SET ASIDE AND THE ASSESSING OFF ICER IS DIRECTED TO MAKE DE NOVO ASSESSMENT AFTER AFFORDING OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE NATURE OF ENTRIES IN ITS BOOKS OF ACCOUNT SPECIALLY THOSE WHICH HAVE RESULTED IN THE EXPENSES TO BE CLAIMED IN ACCORDANCE WITH THE PRINCIPLES OF BUSINESS BUT REQUIRE VERIFICATION ON THE SPECIFIC FINDING BY THE ASSESSING OFFICER THAT THE EXPENSES ARE NOT GENUINE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN OPEN COURT ON DT. 27 TH MAY, 2011 SD/ - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 27 TH MAY, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: ASHOK KUMAR NAYAK, KHERA SAHI, BIDEIPUR, BHADRAK, ORISSA 2. THE RESPONDENT: INCOME - TAX OFFICER, BHADRAK WARD, AT/P.O.CHARMPA, DIST.BHADRAK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY O RDER, SENIOR PRIVATE SECRETARY.