Das Enterprise, Kolkata V. CIT, Kolkata-12, Kolkata, Kolkata

ITA 160/KOL/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3117 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 09-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S SRIVASTAVA
• Assessee Lawyers: K M RAY
• Keywords: Question of law
• Section: 143(3); 133(6); 145; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI, WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 160 / KOL / 2015 ASSESSMENT YEAR :2010-11 DAS ENTERPRISE 3, MANGOE LANE 2ND FLOOR, KOLKATA-700 001 [ PAN NO. AAEFD 1366 Q ] V/S . COMMISSIONER OF INCOME TAX-12, 110 SHANTI PALLY AAYAKAR BHAWAN, POORVA KOLKATA-700 107 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI K.M.RAY, FCA /BY RESPONDENT SHRI S.SRIVASTAVA, CIT-DR /DATE OF HEARING 04-01-2016 /DATE OF PRONOUNCEMENT 10-02-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY ASSESSEE IS AGAINST THE ORDER PASSE D BY LD. COMMISSIONER OF INCOME TAX-12, KOLKATA NO. M.NO.CIT -12/KOL /TECH/ 263/ 2014-15/2021-24 DATED 22.01.2015. ASSESSMENT WAS FR AMED BY ACIT, CIRCLE- 34, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 26.12.2012 FOR ASSE SSMENT YEAR 2010-11. 2. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PAR TNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF TRADING AND SERVICES. TH E LD. CIT(A) FOUND THE ITA NO.160/KOL/2015 A.Y. 2010- 11 DAS ENTERPRISE V. CIT-12 KOL. PAGE 2 ORDER OF AO IS ERRONEOUS IN SO FAR IT IS AS PREJUDI CIAL TO THE INTEREST OF REVENUE ON ACCOUNT OF THE FOLLOWING : 1. THE LD. CIT OBSERVED THE DISCREPANCY BETWEEN THE FINANCIAL STATEMENTS SUBMITTED TO THE BANK AND SUBMITTED TO T HE INCOME TAX OFFICE. THE ASSESSEE DECLARED THE DEBTORS IN ITS BA LANCE-SHEET SUBMITTED TO THE BANK FOR AN AMOUNT OF RS. 30,48,96 8.00 WHEREAS THE SAME AMOUNT OF LABOUR CHARGES WAS NOT REFLECTIN G IN ITS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET SUBMITTED TO THE INC OME TAX OFFICE. THE LD. CIT ALSO OBSERVED THAT THE ASSESSEE IS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING. ACCORDINGLY, LD. CIT ISSUED S HOW CAUSE NOTICE UNDER SECTION 263 OF THE ACT FOR THE CLARIFI CATION OF DISCREPANCY AS STATED ABOVE. 1.1 IN COMPLIANCE TO THE NOTICE, THE ASSESSEE SUBMI TTED THAT IT FOLLOWS THE CASH SYSTEM OF ACCOUNTING. THE SAID INCOME FOR THE AMOUNT OF RS. 30,48,968/- HAS BEEN DULY RECOGNIZED IN THE SUB SEQUENT A.YS. 2011-12 AND 2012-13. ASSESSEE ALSO SUBMITTED THAT T HE RECEIPT OF LABOUR CHARGE WAS SUBJECT TO TDS WHICH WAS DEDUCTED IN THE SUBSEQUENT YEAR ONLY. SO IT WAS PERFECTLY LEGAL TO ACCOUNT FOR THE LABOUR CHARGES IN THE YEAR OF RECEIPT IN WHICH THE TDS WAS ALSO DEDUCTED. THEREFORE, ASSESSEE HAS NOT CONCEALED IT S INCOME FOR THE RELEVANT A.Y 2010-11. THEREFORE, THE ORDER OF AO CA NNOT BE HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. 1.2 HOWEVER, LD. CIT HAS DISREGARDED THE CLAIM OF A SSESSEE BY HOLDING THAT THE ASSESSEE IS NOT FOLLOWING CASH SYSTEM OF A CCOUNTING, THEREFORE LABOUR CHARGES CANNOT BE ACCOUNTED ON CAS H BASIS. ACCORDINGLY THE LD. CIT ALSO OBSERVED THAT THERE IS CLEAR VIOLATION OF SECTION 145 OF THE ACT WITH REGARD TO THE METHOD OF ACCOUNTING ADOPTED FOR WORKING OUT THE TOTAL INCOME OF THE ASS ESSEE. ITA NO.160/KOL/2015 A.Y. 2010- 11 DAS ENTERPRISE V. CIT-12 KOL. PAGE 3 2. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HA S CLAIMED COMMISSION EXPENSE IN THE PROFIT AND LOSS ACCOUNT I N THE NAME OF SIX PARTIES IN CONNECTION WITH THE PROJECT AWARDED BY T HE WEST BENGAL GOVERNMENT FOR AN AMOUNT OF RS.20,28,930/-. THE LD. CIT OBSERVED THAT ALL THE AGREEMENTS FOR THE COMMISSION PAYMENT HAVE BEEN MADE IN THE MONTH OF MARCH 2009 ONLY AND THAT TOO O N THE LETTER HEAD OF THE ASSESSEE. THE LANGUAGE AND WORDINGS OF ALL THE AGREEMENTS WERE SAME. ALL THE SIX PARTIES HAVE RAIS ED THE BILLS TO THE ASSESSEE IN THE MONTH OF MARCH 2010 ONLY. THE AO HA S ALLOWED THE COMMISSION EXPENSES WITHOUT CROSS VERIFYING THE SAM E FROM THE GOVERNMENT OF WEST BENGAL AS TO WHETHER THERE WAS T HE INVOLVEMENT OF ANY MIDDLE PERSON IN RELATION TO THE AWARD OF THE CONTRACT AND SETTLING THE TRANSACTION FOR THE SAME. THERE WAS ALSO A NEED TO ESTABLISH WHETHER THE COMMISSION EXPENSES H AVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 2.1 IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 263 OF THE ACT, THE ASSESSEE SUBMITTED THAT THE AO HAS MADE DETAILED EN QUIRY BY ISSUING NOTICE UNDER SECTION 133(6) OF THE ACT TO T HE COMMISSION AGENT. IN FACT THE COMMISSION PAYMENT WAS DULY SUPP ORTED WITH THE AGREEMENT AND SAME WAS CONFIRMED FROM THE PARTIES. BESIDES THE ABOVE THE COMMISSION AGENTS WERE WORKING IN THE CAP ACITY OF THE SUBCONTRACTORS BUT THE TRANSACTION HAS JUST BEEN TE RMED AS COMMISSION. THE GENUINE SERVICES WERE PROVIDED BY T HE AGENTS IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. BESID ES THE ABOVE THE ASSESSEE SUBMITTED THAT ORDER OF THE AO ON THE ISSU E OF COMMISSION HAS BEEN MERGED WITH THE ORDER OF THE LD. CIT(A). T HE ISSUE OF THE COMMISSION HAS BEEN DULY CONSIDERED BY THE LD. CIT( A) DURING THE APPELLATE PROCEEDINGS. 2.2 HOWEVER THE LD. CIT HAS DISREGARDED THE PLEA OF THE ASSESSEE BY OBSERVING AS UNDER : ITA NO.160/KOL/2015 A.Y. 2010- 11 DAS ENTERPRISE V. CIT-12 KOL. PAGE 4 1) THAT THE ASSESSEE FAILED TO PRODUCE ANY DOCUMEN T FOR THE SERVICES RENDERED BY THE COMMISSION AGENT IN CONNEC TION WITH THE CONTRACT OF THE ASSESSEE WITH THE GOVT. OF WEST BEN GAL. 2) THE AO HAS ALSO NOT VERIFIED WHETHER THE COMMISS ION EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF THE BUSINESS. 3) THE AO MADE NO ENQUIRY FROM THE GOVT. OF WEST BE NGAL AS TO WHETHER THERE WAS INVOLVEMENT OF ANY COMMISSION AGENT. 4) THE ISSUE BEFORE THE LD. CIT(A) AT THE TIME OF APPELLATE PROCEEDINGS ON THE VERY SAME COMMISSION EXPENSES WA S ON A DIFFERENT FOOTING. IT WAS WITH REGARD TO THE ADDITI ON MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPENSE S PERTAINING TO PRIOR PERIOD FOR AN AMOUNT OF RS. 4,8 7,115.00. THE ISSUE OF COMMISSION EXPENSE WHETHER IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS WAS NEV ER BEFORE THE LD. CIT(A). ACCORDINGLY, LD. CIT HELD THAT ORDER PASSED BY AO I S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. NOW, BEING AGGRIEVED BY THIS ORDER OF LD. CIT AS SESSEE CAME IN APPEAL BEFORE US. SHRI K.M.RAY, LD. AUTHORIZED REPRESENTATIVE APPEARI NG ON BEHALF OF ASSESSEE AND SHRI S.SRIVASTAVA, LD DEPARTMENTAL REPRESENTATI VE APPEARING ON BEHALF OF REVENUE. ITA NO.160/KOL/2015 A.Y. 2010- 11 DAS ENTERPRISE V. CIT-12 KOL. PAGE 5 4. AT THE OUTSET THE LD. DR OBJECTED THAT THE GROUN DS RAISED BY THE ASSESSEE ARE NOT CLEAR AND THEY ARE NON-SPEAKING GR OUND OF APPEAL. WE FIND THAT IT IS A VALID POINT RAISED BY LD. DR AS THE GR OUNDS RAISED IN APPEAL ARE NOT SPEAKING GROUNDS. HOWEVER WE ADMITTED THE GROUNDS A S SUBMITTED BEFORE US BY LD. AR IN THE INTEREST JUSTICE AND FAIR PLAY. SO WE DECIDED TO HEAR THE APPEAL ON MERIT. 4.1 WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. AR SUBMITTED BE FORE US THAT LABOUR CHARGES INCOME WAS DULY RECOGNIZED IN THE SUBSEQUENT YEAR A LONG WITH THE TDS CERTIFICATES. THE BILLS FOR LABOUR CHARGES WERE ALS O RAISED ONLY IN THE SUBSEQUENT YEAR. HOWEVER, THE REASON FOR THE MISMAT CH BETWEEN THE DETAILS SUBMITTED BEFORE DEPARTMENT AND SUBMITTED IN ITS BA NK WAS TO SHOW HIGHER AMOUNT OF RECOVERABLE IN ORDER TO AVAIL THE BANK LO AN FACILITIES IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. THE LD. AR ALSO RELIED IN SUPPORT OF HIS CLAIM IN THE ORDER OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. ADITYA BUILDERS 378 ITR 75 (BOM) STATING THAT THE A SSESSEE CAN FOLLOW THE CASH ACCOUNTING SYSTEM FOR THE LABOUR CHARGES. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT. 4.2 REGARDING THE COMMISSION ISSUE LD. AR SUBMITTED THAT THE COMMISSION WAS DISALLOWED BY AO IN HIS ASSESSMENT ORDER AND MA TTER WAS TRAVELLED BEFORE LD. CIT(A) WHO DECIDED THIS APPEAL IN FAVOUR OF ASSESSEE. IT WAS FURTHER SUBMITTED BY LD. AR THAT ONCE THE ORDER OF LD. CIT(A) HAS PASSED ON THE ISSUE RAISED BY ASSESSEE IN ITS APPEAL THEN THE ORDER OF THE AO GETS MERGED WITH THE ORDER OF LD. CIT(A) AND IN THAT EVE NT LD. CIT CANNOT REOPEN THE CASE U/S 263 OF THE ACT. THE LD. AR IN SUPPORT OF HIS CLAIM RELIED IN THE ORDER OF HONBLE GUJRAT HIGH COURT IN THE CASE OF BILAG INDUSTRIES PVT. LTD. VS CIT , SPECIAL CIVIL APPLICATION NO. 24128 OF 2005 WHERE IT WAS HELD THAT THE ORDER OF THE AO WAS MERGED WITH THE ORDER OF THE LD . CIT(A). LD. AR RELIED ON THE ORDER OF AO. ON THE OTHER HAND THE LD. DR SUBMI TTED THAT LD. CIT(A) ITA NO.160/KOL/2015 A.Y. 2010- 11 DAS ENTERPRISE V. CIT-12 KOL. PAGE 6 GRANTED RELIEF TO ASSESSEE ON A DIFFERENT FOOTING O N THE GROUND OF GENUINENESS OF EXPENSES. THERE IS NO DOUBT ABOUT THE PAYMENT MA DE AND ABOUT GENUINENESS OF THE PARTIES. HOWEVER, AO HAS NOT VER IFIED WHETHER THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE AND IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. THERE FORE, THE ORDER OF LD. CIT PASSED U/S. 263 FOR HOLDING THE ORDER OF AO ERRONEO US AND PREJUDICIAL TO THE INTEREST OF REVENUE IS CORRECT. LD. DR VEHEMENTLY R ELIED ON THE ORDER OF LD. CIT. 4.3 FROM THE AFORESAID DISCUSSION, WE FIND THAT AO COULD NOT MAKE THE VERIFICATION FOR THE AMOUNT OF 30,48,968/- TOWARDS THE INCOME OF LABOUR CHARGES WHICH WAS NOT DISCLOSED BY ASSESSEE IN HIS RETURN OF INCOME. THEREFORE, LD. CIT HELD THAT ORDER OF AO IS ERRONEO US AND PREJUDICIAL TO THE INTEREST OF REVENUE. HOWEVER BEFORE US THE LD. AR S UBMITTED THAT THE SAME INCOME HAS BEEN DECLARED IN SUBSEQUENT YEARS AND TH IS FACT WAS BROUGHT TO THE NOTICE OF LD. CIT WHILE FRAMING THE ORDER U/S 2 63 OF THE ACT. BESIDES THE LD. AR SUBMITTED THAT ASSESSEE HAS BEEN FOLLOWING T HE SYSTEM OF CASH ACCOUNTING SYSTEM CONSISTENTLY. THE FACT HAS ALSO B EEN CROSSED VERIFIED FROM THE DEDUCTION OF TDS IN THE SUBSEQUENT YEAR I.E. AY 2011-12 AND 2012-13 RESPECTIVELY. HOWEVER WE FIND THAT THE LD. AR HAD N OT BROUGHT ANYTHING ON RECORD THAT THE DISPUTED INCOME WAS DECLARED BY THE ASSESSEE IN THE SUBSEQUENT YEAR AND THE TDS WAS ALSO DEDUCTED IN TH E SUBSEQUENT YEAR. THE CASE CITED BY THE LD. AR ABOVE REGARDING THE LABOUR CHARGES INCOME IS DIFFERENT FROM THE FACTS OF THE INSTANT CASE. THE C ASE LAW WAS ON THE ISSUE OF PROJECT COMPLETION METHOD AND PERCENTAGE COMPLETION METHOD FOR WORKING OUT THE PROFIT OF THE ASSESSEE ENGAGED IN THE CONSTRUCT ION OF COMMERCIAL AND RESIDENTIAL PREMISES. ACCORDINGLY WE ARE NOT INCLIN ED TO INTERFERE IN THE ORDER OF THE LD. CIT. IN VIEW OF THIS MATTER, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO.160/KOL/2015 A.Y. 2010- 11 DAS ENTERPRISE V. CIT-12 KOL. PAGE 7 4.4 REGARDING THE ISSUE OF THE COMMISSION EXPENSES WE FIND FROM THE AFORESAID DISCUSSION THAT COMMISSION EXPENSES WERE CLAIMED BY ASSESSEE FOR AN AMOUNT OF 20,28,930/- BUT AO HAS NOT VERIFIED WHETHER THE CO MMISSION WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE ASSESSEE FAILED TO PRODUCE THE NECESSARY DETAILS FO R THE ACTUAL SERVICES PROVIDED BY THE PARTIES IN CONNECTION WITH THE BUSI NESS OF THE ASSESSEE. THIS MATTER WAS ALSO EXAMINED BY THE AO AND TRAVELLED UP TO LD. CIT(A) BUT THE ISSUE WAS ALTOGETHER DIFFERENT. HERE THE LD. CIT HE LD THE ISSUE HAS NOT BEEN EXAMINED BY THE AO SO AS TO ASCERTAIN WHETHER THE E XPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSE SSEE. THE AO HAS ALSO NOT CONFIRMED FROM THE GOVERNMENT OF WEST BENGAL WHICH AWARDED THE CONTRACT TO THE ASSESSEE BY ISSUING NOTICE U/S 133(6) OF THE ACT TO ASCERTAIN WHAT SERVICES WERE RENDERED BY THE COMMISSION AGENT. ACC ORDINGLY THE LD. CIT HELD THE ORDER OF THE AO ERRONEOUS IN SO FAR AS PREJUDIC IAL TO THE INTEREST OF REVENUE. IN THE CASE ON HAND THE GENUINENESS OF THE COMMISSION PAYMENT AND CONFIRMATION FROM THE PARTIES HAVE NOT BEEN DOU BTED BUT THE ISSUE RELATES WHETHER SUCH EXPENSES WERE INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF THE BUSINESS. WE ALSO FIND FROM THE SUBMISSION O F THE ASSESSEE AND THE ORDER OF THE AO THAT THIS ISSUE HAS NOT BEEN ADJUDI CATED IN THE LINE OF THE DIRECTION OF THE LD. CIT. HOWEVER, WE FIND FROM DEC ISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. M/S ASHOK HANDLOOM FACTORY PVT. LTD. IN ITA NO. 19 OF 2016 DATED 01.02.2016 WHEREIN THE HONBLE HIGH COURT HAS HELD THAT IT IS SETTLED LAW THAT THE COMMISSIONER OF INCOME TAX CAN EXERCISE HIS JURISDI CTION U/S 263 OF THE ACT ONLY IN CASES WHERE NO ENQUIRY IS MADE BY THE ASSES SING OFFICER. IN THE INSTANT CASE, IT IS ADMITTED BY THE INCOME TAX DEPA RTMENT THAT THE ASSESSING OFFICER HAD MADE SOME ENQUIRIES THOUGH ACCORDING TO THEM IT WAS NOT A PROPER ENQUIRY. IN OUR VIEW OF THE FAT THAT SOME EN QUIRY WAS MADE IS SUFFICIENT TO DEBAR THE AUTHORITIES FROM EXERCISING THE POWERS U/S 263 OF THE ACT. THE TRIBUNAL WAS ACCORDINGLY JUSTIFIED IN SETTING ASIDE THE ORDER PASSED U/S 263 OF THE ACT. WE DO NOT FIND ANY SUBSTANTIAL QUESTION OF LAW ARISING FOR ITA NO.160/KOL/2015 A.Y. 2010- 11 DAS ENTERPRISE V. CIT-12 KOL. PAGE 8 CONSIDERATION THE APPEAL IS ACCORDINGLY DISMISSED. IN THE CASE ONE HAND, THE AO HAS MADE AN ADDITION BY DISALLOWING THE COMMISSI ON EXPENSES AFTER MAKING THE NECESSARY ENQUIRY. THE INSTANT CASE IS D ULY COVERED WITH THE DECISION OF HONBLE ALLAHABAD HIGH COURT M/S ASHOK HANDLOOM FACTORY PVT. LTD. (SUPRA) AS DISCUSSED ABOVE, THEREFORE RELYING ON T HE SAME, WE REVERSE THE ORDER OF LD. CIT FOR U/S 263 OF THE ACT. 5. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 10/ 02/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) *DKP !- 10 /0 2 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DAS ENTERPRISE, 3 MANGOE LANE 2 ND FLOOR, KOLKATA-01 2. /RESPONDENT-CIT-12, 110 SHANTI PALLY AAYAKAR BHAWAN , POORVA KOLKATA-107 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,