Mr. Eldho Thomas, Ernakulam V. The ITO, Thodupuzha

ITA 177/COCH/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7654 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 17-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2016
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: A S NARAYANAMOORTHY
• Section: 143(3); 147; 148; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER I.T.A. NO. 177/ COCH/201 6 ASSESSMENT YEAR : 200 6 - 07 MR. ELDHO THOMAS, PROP: LEELA ELECTRIC POWER SERVICES, PAMPAKUDA, ERNAKULAM, KOCHI-686 667. [PAN:ACDPT 9769N] VS. THE INCOME TAX OFFICER, WARD-1, THODUPUZHA. (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) ASSESSEE BY SHRI A. S . NARAYANAMOORTHY, CA REVENUE BY SHRI A. DHANARAJ, SR.DR DATE OF HEARING 1 7 /10 / 201 6 DATE OF PRONOUNCEMENT 1 7 TH / /10/ 201 6 O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS D IRECTED AGAINST THE ORDER OF THE CIT(A)-II, KOCHI DATED 05/01/2016. THE RELEVANT AS SESSMENT YEAR IS ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE AS FO LLOWS: THE ASSESSEE IS AN A GRADE ELECTRICAL CONTRACTO R. FOR THE ASSESSMENT YEAR 2006-07, THE RETURN OF INCOME WAS FILED ON 31.10.20 06 DECLARING A TOTAL INCOME OF RS.3,34,643/-. SUBSEQUENTLY, NOTICE U/S. 148 WAS I SSUED TO THE ASSESSEE AND I.T.A. NO.177/COCH/2016 2 REASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 WAS COMPLETED VIDE ORDER DATED 22.08.2011. WHILE COMPLETING THE REASS ESSMENT, THE ASSESSING OFFICER DISALLOWED AMOUNT OF RS,14,56,941/- BY INVO KING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND ALSO A SUM OF RS.7,72,500/ - U/S. 68 OF THE I.T. ACT, BEING CREDITS IN THE ASSESSEES CAPITAL ACCOUNT. 3. AGGRIEVED BY THESE TWO ADDITIONS, THE ASSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) CONFIRMED THE ADDI TIONS MADE BY THE ASSESSING OFFICER AND DISMISSED THE APPEAL FILED BY THE ASSES SEE VIDE HIS ORDER DATED 05/01/2016. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) CONFIRMING THE ADDITIONS MADE BY THE ASSESSING OFFICER, THE ASSESSEE HAS FILED THE PRESE NT APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS ) IS AGAINST FACTS AND LAW. 2. THE COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CO NFIRMING THE ADDITION U/S. 40(A)(IA) WITHOUT PROPER APPRECIATION OF FACTS AND WRONG PRESUMPTIONS. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THERE WAS NO CONTRACT INV OLVED AND THE WAGES WERE PAID TO INDIVIDUAL WORKERS AND THE WAGES REGISTER WAS ALSO FURNISHED. COMMISSIONER OF INCOME TAX(APPEALS) FAILED TO APPRECIATE THAT THE PAYMENT OF WAGES COULD BE SUPPO RTED ONLY BY INTERNAL VOUCHERS. COMMISSIONER OF INCOME TAX(APPE ALS) WENT WRONG IN HIS CONCLUSION THAT IT WAS STATED IN THE T AX AUDIT REPORT THAT PAYMENTS WERE MADE IN VIOLATION OF SECTION 40( A)(IA), WHEN THERE WAS NO SUCH MENTION IN THE AUDIT REPORT. THE REASON GIVEN I.T.A. NO.177/COCH/2016 3 BY THE ASSESSING AUTHORITY AND THE COMMISSIONER FOR THE DISALLOWANCE ARE TOTALLY DIFFERENT AND IRRELEVANT. 3. COMMISSIONER OF INCOME TAX(APPEALS) WENT WRONG IN UPHOLDING THE ADDITION OF RS.7,72,500/- U/S. 68 WITHOUT PROPE R APPRECIATION OF FACTS. COMMISSIONER OF INCOME TAX(APPEALS) FAILED TO APPRECIATE THAT THE AMOUNTS WERE RECEIVED FROM APPELLANTS PARE NTS OUT OF THEIR AGRICULTURAL INCOME EARNED ON A DAILY BASIS A ND THE SAME WAS CREDITED IN THE CASH BOOK AND USED FOR THE DAY TO D AY EXPENSES OF THE BUSINESS. THE COMMISSIONER OF INCOME TAX(APPEA LS) WENT WRONG IN THINKING THAT THE AMOUNTS RECEIVED WERE TO BE DEPOSITED IN THE BANK ACCOUNT BEFORE BEING USED FOR THE BUSIN ESS. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. THE LD. DR ON THE OTHER HA ND SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE CIT(A). 6. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ELECTRICAL C ONTRACT. IT IS A LABOUR INTENSIVE BUSINESS AND THE WORKS ARE UNDERTAKEN AT DIFFERENT SITES. FOR OPERATIONAL CONVENIENCE AND TO SIMPLIFY THE ACCOUNTING PROCEDUR E, THE PAYMENTS WERE MADE TO A GROUP LEADER WHO IN TURN MAKES THE PAYMENTS TO THE OTHER WORKERS. THE GROUP LEADER AND THE OTHER WORKERS ARE EMPLOYEES IN THE WAGE REGISTER MAINTAINED BY THE ASSESSEE. THE GROUP LEADER IS PA ID ON BEHALF OF VARIOUS WORKERS AS AN AGENT AND THIS PAYMENT IS COVERED UND ER RULE 6DD(K) OF THE ACT. THE GROUP LEADER IS PROVIDED WITH AN INCENTIVE FOR SUPERVISING THE WORK FORCE. THE PAYMENTS MADE TO THE WORKERS WHO ARE IN THE MUSTER ROLL/WAGE REGISTER OF THE ASSESSEE AT VARIOUS WORK SITES AGGREGATING TO RS.14 ,56,941/-, DOES NOT ATTRACT THE I.T.A. NO.177/COCH/2016 4 PROVISIONS OF TDS SINCE IT DOES NOT TANTAMOUNT TO A SUB-CONTRACT. THERE IS NOTHING ON RECORD TO SUGGEST THAT THERE IS CONTRACT INVOLVE D AND THE WORK HAS BEEN ENTRUSTED ON A SUB-CONTRACT BASIS. ON THE CONTRARY , THE WAGE REGISTER PLACED ON RECORD CLEARLY SHOWS THAT THESE PAYMENTS WERE MADE TO THE LABOURERS AND FOR CONVENIENCE SAKE, THEY ARE PAID TO A GROUP LEADER W HO HIMSELF IS A PART OF ASSESSEES LABOUR FORCE. 6.1 THE CIT(A) HAS GIVEN MUCH EMPHASIS ON THE TAX AUDIT REPORT. ACCORDING TO THE CIT(A) THE TAX AUDIT REPORT HAS MENTIONED THAT THE IMPUGNED PAYMENTS ARE TO BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE TAX AUDIT REPORT IS PLACED ON RECORD AT PAGES 1 TO 22 O F THE PAPER BOOK FILED BY THE ASSESSEE. ON PERUSAL OF THE TAX AUDIT REPORT, I HA VE TO STATE THAT THERE IS NO MENTION OF VIOLATION OF THE PROVISIONS OF SECTION 4 0(A)(IA), WITH REFERENCE TO PAYMENTS MADE FOR SUB-CONTRACT WORK. THEREFORE, TH E CIT(A)S SOLE REASON FOR CONFIRMING THE ASSESSING OFFICERS ACTION BY STATIN G THAT TAX AUDIT REPORT UNDER SECTION 44AB SHOWS VIOLATION OF THE PROVISIONS OF S ECTION 40(A)(IA) WITH REGARD TO THESE PAYMENTS, IS CONTRARY TO THE FACTS ON RECORD. 6.2 MOREOVER, I FIND THAT THE ASSESSEE IS A SMAL L TIME ELECTRICAL CONTRACTOR HAVING A TURNOVER OF AROUND RS.50 LAKHS AND THE TOT AL EXPENDITURE PAID TO THE LABOURERS IS ONLY AMOUNTING TO RS.14,56,941/- AND T HE ENTIRE EXPENDITURE HAS BEEN DISALLOWED BY INVOKING THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE ACT. I.T.A. NO.177/COCH/2016 5 SECTION 40(A)(IA) IS A DEEMING PROVISION AND HAS TO BE STRICTLY CONSTRUED. WHEN THERE IS NOTHING ON RECORD TO SUGGEST THAT THERE IS SUB-CONTRACTING OF ELECTRICAL WORK, INVOCATION OF THE PROVISIONS OF SECTION 40(A) (IA) OF THE ACT IS NOT WARRANTED. THEREFORE, I AM OF THE VIEW THAT DISALL OWANCE OF EXPENDITURE OF RS.14,56,941/- BY INVOKING THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IS NOT WARRANT ED. THUS GROUND NO. 2 RAISED IN THIS APPEAL IS ALLOWED. 7. THE CIT(A) HAS CONFIRMED THE ADDITION MADE U/ S. 68 OF THE ACT BY OBSERVING AS UNDER: THE APPELLANT HAS TAKEN THE PLEA THAT THE CASH CRE DIT HAS BEEN SOURCED OUT OF THE INCOME OF THE ASSESSEES FATHER AND MOTHER, FROM PENSION AND AGRICULTURAL OPERATIONS ETC. IT HAS BEEN EXPLAINED BEFORE THE ASSESSING OFFICER THAT CASH HAVE BEEN RECEIVED ON VARIOUS OCC ASIONS FROM PARENTS BUT, THE COPY OF BANK STATEMENT FILED FOR THE PROPRIETAR Y CONCERN, M/S. LEELA ELECTRICAL POWER SERVICES DO NOT SHOW SUCH CASH CRED ITS AT FREQUENT INTERVALS. NO OTHER BANK ACCOUNT HAS BEEN PRODUCED DURING THE APPEAL PROCEEDINGS. IT IS SEEN THAT FROM THE PARENTS ACCOUNT THAT CASH OF SMALL DENOMINATIONS OF RS.4,000/- AND RS.5,000/- HAVE BEEN WITHDRAWN BUT, NO MATCHING CASH CREDITS INTO BANK ACCOUNT ON THE SAME DATES OR THE DATE NEAR AROUND ARE FOUND TO BE MATCHING. HENCE, ON FACTS THE EVIDENCE S FURNISHED BY THE APPELLANT DO NOT MATCH BETWEEN THE WITHDRAWALS OF F UNDS IN THE HANDS OF THE PARENTS TO THOSE OF THE CASH DEPOSITS INTO THE ASSE SSEES ACCOUNT. IN VIEW OF THIS, IT IS HELD THAT THE SOURCE FOR SUCH CASH DEPO SITS REMAIN EXPLAINED. THUS, THE ADDITION MADE BY THE ASSESSING OFFICER U/S. 68 OF THE ACT IS UPHELD. ACCORDINGLY, THE APPEAL ON THIS GROUND IS DISMISSED . 7.1 THE CIT(A) HAS CATEGORICALLY FOUND THAT THERE IS NO MATCHING CASH AVAILABLE IN ASSESSEES PARENTS ACCOUNTS TO THE ADVANCE SUM OF R S.7,72,500/-. THE MERE I.T.A. NO.177/COCH/2016 6 STATEMENT OF THE ASSESSEE THAT HIS PARENTS ARE IN R ECEIPT OF AGRICULTURAL INCOME WITHOUT PRODUCING NECESSARY EVIDENCE WOULD NOT SUFF ICE. ACCORDINGLY, THE VIEW TAKEN BY THE INCOME TAX AUTHORITIES ON THIS ISSUE I S CONFIRMED. THUS GROUND NO. 3 RAISED IS REJECTED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS PARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 17 TH -10-2016 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER PLACE: KOCHI DATED: 17 TH OCTOBER, 2016 GJ COPY TO: 1. MR. ELDHO THOMAS, PROP: LEELA ELECTRIC POWER SERVI CES, PAMPAKUDA, ERNAKULAM, KOCHI-686 667. 2. THE INCOME TAX OFFICER, WARD-1, THODUPUZHA.. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR ) I.T.A.T., COCHIN