Rajendra Rupchand Malpani, Latur V. Deputy Commissioner of Income-tax,

ITA 1833/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7716 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 08-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 1833/PUN/2014 / ASSESSMENT YEAR 2007-08 SHRI RAJENDRA RUPCHAND MALPANI, PROP. OF M/S. R.Z. MALPANI, 1-161, SHANTINIKETAN COLONY, AUSA ROAD, LATUR PAN : ABPPM8079B . / APPELLANT V/S DCI T, CIRCLE - 3, NANDED . / RESPONDENT . / ITA NO. 1995/PUN/2014 / ASSESSMENT YEAR 2007-08 DCIT, CIRCLE - 3, NANDED . / APPELLANT V/S SHRI RAJENDRA RUPCHAND MALPANI, PROP. OF M/S. R.Z. MALPANI, 1-161, SHANTINIKETAN COLONY, AUSA ROAD, LATUR PAN : ABPPM8079B . / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI AJAY MODI / ORDER PER D. KARUNAKARA RAO, AM : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A), AURANGABAD, DATED 18-08-2014 FOR THE ASSESSMENT YEAR 2007-08. / DATE OF HEARING : 17.08.2017 / DATE OF PRONOUNCEMENT: 23.08.2017 2 ITA NOS.1833 & 1995/PUN/2014 SHRI RAJENDRA RUPCHAND MALPANI 2. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF PETROL PUMP AND RETAIL A ND WHOLESALE TRADING IN TELECOMMUNICATION PRODUCTS. ASSESSEE FILED THE RET URN OF INCOME ON 29-10-2007 DECLARING TOTAL INCOME OF RS.14,67,550/-. AO ASSES SED THE INCOME OF THE ASSESSEE U/S.143(3) AT RS.21,23,363/- VIDE THE ORDE R DATED 30-10-2009 AFTER MAKING AN ADDITION OF RS.6,55,813/- ON ACCOUNT OF D ISALLOWANCE OF VARIOUS EXPENSES. FURTHER, AO NOTICED THAT ASSESSEE RECEIV ED THE CONTRACT RECEIPTS IN CHEQUES FROM THE CONTRACTEES AMOUNTING TO RS.72,46, 386/- WHICH WAS NOT ACCOUNTED IN THE BOOKS OF ACCOUNT FOR THE YEAR UNDE R CONSIDERATION. ACTUALLY, THEY WERE ACCOUNTED IN THE SUBSEQUENT ASSESSMENT YE ARS. FOR TAXING THE SAME IN THE YEAR UNDER CONSIDERATION, AO ISSUED NOTICE U /S.148 OF THE ACT ON 28-03- 2012. ASSESSEE EXECUTES CERTAIN CONTRACTS DIRECTLY AND LEASED OUT OTHERS TO THE SUB-CONTRACTORS KEEPING A PERCENTAGE OF COMMISSION FOR HIM. IN EITHER CASE, ASSESSEE RECEIVES THE CONTRACT AMOUNTS FROM THE CON TRACTEE AND ACCOUNTS THEM AS PER THE CASH BASIS OF ACCOUNTING. EVENTUALLY, I N THE REASSESSMENT, AO MADE ADDITION OF RS.72,46,386/- ON ACCOUNT OF UNACCOUNTE D CHEQUES FOR CONTRACT RECEIPTS. 3. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT( A) GRANTED PART RELIEF AND CONFIRMED THE PORTION RELATING TO THE DIRECT CONTRA CT RECEIPTS AMOUNTING TO RS.34,68,386/-. AGGRIEVED WITH THE SAID CONFIRMATI ON, THE ASSESSEE IS IN APPEAL BEFORE US REFERRING TO THE GROUNDS RAISED BY THE AS SESSEE IN THE APPEAL. AGGRIEVED WITH THE RELIEF GRANTED BY THE CIT(A), TH E REVENUE IS IN APPEAL BEFORE US WITH THE GROUNDS REFERRED IN THE APPEAL OF THE R EVENUE. 4. IN CONNECTION WITH THE ASSESSEES APPEAL, NARRAT ING THE AFOREMENTIONED FACTS, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE FOLLOWS THE CASH SYSTEM OF ACCOUNTING. ACCORDINGLY, THE ASSESSEE DI D NOT RECOGNIZE THE RECEIPTS 3 ITA NOS.1833 & 1995/PUN/2014 SHRI RAJENDRA RUPCHAND MALPANI OF RS.72,46,386/- AS THESE AMOUNTS WERE RECEIVED B Y THE ASSESSEE ONLY IN APRIL & MAY, 2007, I.E. AFTER THE END OF THE RELEVANT PRE VIOUS YEAR. HOWEVER, THE CASE OF THE AO IS THAT THE SAID AMOUNT WERE RECEIVED AT THE FAG END OF MARCH, 2007 AND THEREFORE, THESE AMOUNTS SHOULD HAVE BEEN CREDI TED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. IN ANY C ASE, EITHER THE ORDER OF THE AO OR THAT OF THE CIT(A) DO NOT MENTION EXACT DATE OF THE CHEQUES, DATE OF THE ENCASHMENT OF CHEQUES, DATE OF SUBMISSION TO THE BA NK FOR ENCASHMENT, BANK STATEMENTS ETC., 5. DURING THE PROCEEDINGS BEFORE US, IN RESPONSE TO THE QUERY FROM THE BENCH RELATING TO THE EXACT DATE OF THE CHEQUES REC EIVED BY THE ASSESSEE BOTH FOR DIRECT CONTRACT RECEIPTS AS WELL AS THE SUB-CON TRACTED CONTRACT RECEIPTS, LD. COUNSEL FOR THE ASSESSEE MERELY STATED THAT THE CHE QUES WERE RECEIVED BY THE ASSESSEE IN APRIL & MAY, 2007. AS PER THE DOCUMENT FILED BEFORE US, WE FOUND THAT THEY RELATE TO THE WORKS DONE IN CONNECTION WI TH THE GIRLS HOSTEL, PUNE, LIBRARY BUILDING AND AGRICULTURAL COLLEGE. HOWEVER , LD. COUNSEL FOR THE ASSESSEE WAS UNABLE THE EXPLAIN THE EXACT CHEQUE NUMBER, DAT E OF THE CHEQUES RECEIVED BY THE ASSESSEE, DATE OF PRESENTATION TO BANK FOR E NCASHMENT, BANK STATEMENTS ETC., FURTHER, HE MENTIONED THAT THE ASSESSEE IS C ONSISTENTLY FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND RECEIPTS ARE ACCOUNTED BAS ED ON THE DATE OF RECEIPT/ENCASHMENT OF CHEQUES AND IN THAT CASE, THE ASSESSEES BOOKS OF ACCOUNT SHOULD NOT BE DISTURBED. BY THIS METHOD OF ACCOUNT ING, THE CHEQUES RECEIVED IN THE MONTHS OF APRIL AND MAY, 2007 MUST NOT BE ACCOU NTED AS TAXABLE RECEIPTS OF THE ASSESSEE FOR THE A.Y. 2007-08. IN RESPECT OF T HE SAME, LD. COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS FILED BEFORE U S. 6. IN REPLY TO THE ABOVE, LD. DEPARTMENTAL REPRESEN TATIVE FOR THE REVENUE RELIED ON THE ORDER OF THE CIT(A) WHEREIN IT IS MEN TIONED THAT THE SAID CHEQUES 4 ITA NOS.1833 & 1995/PUN/2014 SHRI RAJENDRA RUPCHAND MALPANI WERE RECEIVED AT THE FAG END OF THE ACCOUNTING YEAR AND THEREFORE THE ORDER OF CIT(A) SHOULD BE CONFIRMED 7. WE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE EXAMINED THE ORDER OF THE CIT(A) THOROUGHLY ON T HIS LIMITED ISSUE AND WE FIND THE DISCUSSION GIVEN BY THE CIT(A) IN PARA NOS . 10 TO 10.4 IS RELEVANT, AND WE PROCEED TO EXTRACT THE SAME AS UNDER : 10 . I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME, IT HAS BEEN NOTICED THAT THE APPELLANT HAS FOLLOWED CASH SYSTEM OF ACCOUNTING. THIS FACT HAS ALSO BEEN MENTI ONED BY THE A . O. ON THE FIRST PAGE OF ASSESSMENT ORDER FOR THE YEAR UNDER APPEAL . THEREFORE, IT IS EVIDENT THAT THE APP E LLANT CAN INCUR EXPENDITURE IN RESPECT OF PAYMENT T O SUB - CONTRACTORS ONLY AFTER ENCASHMENT OF THE CHEQUES. I T HAS ALSO BEEN POINTED OUT BY THE APPELLANT THAT DURING THE YEAR UNDER APPEAL ABOUT 74% WORK HAS BEEN PERFORMED BY SUB-CONTRACTORS . THE APPELLANT HAS FURTHER SUBMITTED THAT THE SAID CHEQUES HAVE BEEN ACCOUNTED FOR IN THE SUBSEQUENT Y EAR ON ACTUAL REC E IPT OF THE SAME FROM THE GO V ERNMENT DEPARTMENT AND THE SAME HAVE BEEN CR E DITED TO PROFIT AND LOSS ACCOUNT OF THE SUBSEQUENT YEAR A ND THE PA Y MENTS HAVE BEEN MADE TO THE SUB-CONTRACTORS OUT OF THE SAID RECEIPT AND CLAIMED AS EXPEND I TURE IN THE SUBSEQUEN T YEAR . THE APPELLANT HAS POINT E D OUT THAT THE PROFIT IN RESPECT OF THE SAID WORK HAS BEEN TAXED IN THE SUBSEQUENT Y EAR AND HENCE CANNOT BE AGAIN TAXED IN THE CURRENT YEAR. THE APPELLANT H AS ALTERNATIVELY STATED THAT AT THE MOST ONLY THE PROFIT IN RESPECT OF THE SAID CHEQUES OF RS.72 , 46,386/- MAY BE TAXED IN THE CURRENT YEAR . 10.1 ON PERUSAL OF THE SUBMISSION OF THE APPELLANT DATED 24/07/2014 , IT HAS BEEN NOTICED THAT THE APPELLANT HAS CLAIMED THAT TH E A . O. HAS INCORRECTLY WORKED OUT THE AMOUNT OF CHEQUES RECEIVED AND REMAI NED UNCASHED AT RS.72,46,386/- AS AGAINST ACTUAL RECEIPT OF RS.66,8 2,668/- AFTER DEDUCTION OF MATERIAL SUPPLIED, TDS ETC. THE A . O. HAS FURTHER POINTED OUT THAT THE SAID AMOUNT OF CHEQUES RECEIVED IN RESPECT OF OWN CONTRA CTS IS RS . 34,68,980/- AND THE AMOUNT OF CHEQUES RECEIVED IN RESPECT OF SU BLET CONTRACT WORK IS RS.32,13,688 / -. IT HAS BEEN NOTICED THAT THE DIFFERENCE BETWEEN THE AMOUNT CONSIDERED BY THE A . O. AT RS.72 , 46,386 /- AND EXPLAINED AND CLAIMED BY THE APPELLANT AT RS.66,82,668 / - IS MOSTLY ON ACCOUNT OF TDS OF RS.2,27,193/ - WHICH HAS BEEN CREDITED TO PROFIT & LOSS ACCOUNT BY THE APPELLANT AND ON ACCOUNT OF DEDUCTION/RECOVERY TOWARDS MATERIAL ETC. 10.2 ON PERUSAL OF THE AUDITED BALANCE SHEET AND CO MMENTS IN THE TAX AUDIT REPORT, IT HAS BEEN NOTICED THAT THE TAX AUDITOR HA S POINTED OUT THAT IN RESPECT OF CONTRACT WORK OF CENTRAL RAILWAY ETC., T HE AMOUNT SPENT ON WORK HAS BEEN SHOWN AS WORK-IN-PROGRESS AS THE SAME IS R ECOVERED IN SUBSEQUENT YEAR. THE APPELLANT HAS, THEREFORE, SHOWN WORK-IN-P ROGRESS IN BALANCE SHEET ON FIVE COUNTS TO THE EXTENT OF RS.1,15 , 37 , 105 / - AS IS EVIDENT FROM THE SCHEDULE OF CURRENT ASSETS . 10.3 IN RESPECT OF THE CHEQUES RECEIVED TO THE EXTE NT OF RS. 34,68,980/-, IT IS EVIDENT THAT THE SAME ARE IN RESPECT OF THE WORK CARRIED OUT BY THE APPELLANT UPTO 31/03/2007 AND WHICH HAVE NOT BEEN E NCASHED. THE SAID CHEQUES HAVE BEEN ISSUED PRIOR TO 01/04/2007 AND HE NCE THE SAME ARE CERTAINLY IN RESPECT OF WORK COMPLETED PRIOR TO THE YEAR ENDED ON 5 ITA NOS.1833 & 1995/PUN/2014 SHRI RAJENDRA RUPCHAND MALPANI 31/03/2007. ON PERUSAL OF THE BALANCE SHEET, IT HA S BEEN NOTICED THAT NO WORK IN PROGRESS IN RESPECT OF THE SAID OWN CONTRAC T WORK OF GIRLS HOSTEL BUILDING, PUNE AND LIBRARY BUILDING HAS BEEN SHOWN IN THE BALANCE SHEET AS AT 31/03/2007. THEREFORE, IT IS EVIDENT THAT THE EX PENDITURE IN RESPECT OF THE SAID WORK HAS BEEN CLAIMED IN THE PROFIT & LOSS ACCOUNT WITHOUT CONSIDERING THE RECEIPT OF THE SAME, CLAIMING THAT THE SAID REC EIPTS HAVE BEEN RECEIVED IN SUBSEQUENT YEAR AND THE APPELLANT IS FOLLOWING CASH SYSTEM OF ACCOUNTING. THIS CLAIM OF THE APPELLANT IS CONTRARY TO THE MATC HING SYSTEM OF ACCOUNTANCY AS PER WHICH IN ORDER TO ARRIVE AT PROFIT OF THE YE AR, THE INCOME AND ALSO EXPENDITURE FOR THE PARTICULAR WORK IS TO BE CONSID ERED IN THE SAME YEAR. THE ABOVE SYSTEM FOLLOWED BY THE APPELLANT IN RESPECT O F OWN CONTRACT WORK OF GIRLS HOSTEL BUILDING, PUNE AND LIBRARY BUILDING IS CONTRARY TO THE ACCOUNTING SYSTEM FOLLOWED BY THE APPELLANT IN RESPECT OF THE WORK RELATED TO THE WORK IN PROGRESS SHOWN IN THE BALANCE SHEET; IN RESPECT OF THE SAID WORK OF CENTRAL RAILWAY ETC., THE APPELLANT HAS SHOWN EXPENDITURE N OT IN THE PROFIT & LOSS ACCOUNT BUT IN THE BALANCE SHEET AS THE CONTRACT RE CEIPTS HAVE NOT BEEN RECEIVED. 10 . 4 IT IS SETTLED LAW THAT IRRESPECTIVE OF THE FACT W HETHER THE ASSESSEE IS FOLLOWING CASH SYSTEM OR MERCANTILE SYSTEM OF ACCOU NTING, THE ADVANCE RECEIVED IN RESPECT OF WHICH NO SERVICES HAVE BEEN RENDERED/NO WORK HAS BEEN CARRIED OUT, THE ADVANCE IS TO BE SHOWN IN BAL ANCE SHEET AND THE ADVANCE RECEIPT CANNOT BE REGARDED AS INCOME . THE COROLLARY OF THE ABOVE LEGAL POSITION IS THAT IN THE CASES WHERE EXPENDITU RE HAS ONLY BEEN INCURRED AND NO RECEIPT IN RESPECT OF THE WORK CARRIED OUT H AS BEEN RECEIVED, THE EXPENDITURE IS TO BE SHOWN IN THE BALANCE SHEET AS WORK IN PROGRESS AND CANNOT BE CLAIMED AS EXPENDITURE. . . . . . . 8. FROM THE ABOVE, IT IS CLEAR THAT THERE IS NO CLA RITY ON THE FACTS RELATING TO THE DATES OF THE CHEQUES, THE DATES OF RECEIPT OF T HE CHEQUES BY THE ASSESSEE AND DATE OF ENCASHMENT OF THESE CHEQUES. THE ORDERS OF AO/CIT(A) DO NOT CONTAIN CREDIBLE REASONS FOR NOT ACCOUNTING THE SA ME FOR THE YEAR UNDER CONSIDERATION. THESE ARE THE BASIC FACTS REQUIRED FOR ADJUDICATION OF THESE APPEALS. THEREFORE, IN OUR CONSIDERED VIEW, FOR WA NT OF THE ABOVE SAID FACTS, MATTERS SHOULD BE REMANDED TO THE FILE OF THE AO FO R FRESH ADJUDICATION OF THE ISSUE. LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE CONVEYED NO OBJECTION FOR THE SAME. IN THE REMAND PROCEEDINGS, THE AO IS DIR ECTED TO GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AO SHA LL NOT MAKE ANY ADDITION IF HE FINDS THAT THE CHEQUES ARE DATED AND ENCASHED AFTER THE END OF THE PREVIOUS YEAR UNDER CONSIDERATION. IN CASE REPEAT OF THE SAID AD DITIONS, FOR ANY REASONS, THE AO SHALL PASS A SPEAKING ORDER CONSIDERING ALL THE ARGUMENTS OF THE ASSESSEE AS WELL THE DECISIONS RELIED UPON BY HIM IN HIS ORDER. ACCORDINGLY, ALL THE GROUNDS 6 ITA NOS.1833 & 1995/PUN/2014 SHRI RAJENDRA RUPCHAND MALPANI RAISED BY THE ASSESSEE IN THE APPEALS OF THE ASSESS EE AND THE REVENUE ARE REMANDED TO THE FILE OF AO FOR DENOVO ADJUDICATION. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 23 RD AUGUST, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. THE CIT (A) , AURANGABAD THE CIT, AURANGABAD 5 . % , , B BENCH PUNE; 6 . / GUARD FILE.