ACIT, Tambaram V. Enrec Engineers, CHENNAI

ITA 1911/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8479 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 24-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVASRINIVAS IRS
• Keywords: Peak credit; Non-deduction of tax
• Section: 194C; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.1910 & 1911/MDS/2016 ' $ %$ / ASSESSMENT YEARS : 2009-2010 & 2010-2011 THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE -22, TAMBARAM VS. M/S. ENREC ENGINEERS, NO.49, 13 TH CROSS STREET, NEW COLONY, CHROMPET, CHENNAI 600 044. [PAN AABFE 3594Q] ( / APPELLANT) ( /RESPONDENT) &' ( ) / APPELLANT BY : SHRI. SHIVA SRINIVAS, IRS, JCIT. *+&' ( ) /RESPONDENT BY : NONE ( , / DATE OF HEARING : 07-09-2016 -.% ( , / DATE OF PRONOUNCEMENT : 21-09-2016 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THESE TWO APPEALS BY DEPARTMENT ARE DIRECTED AGA INST COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS)-10, CHENNAI, DATED 28.03.2016 FOR THE ABOVE ASSESSMENT YEARS. SINCE THE ISSUE IN THESE THREE APPEALS ARE COMMON IN NATU RE, THESE APPEALS ITA NOS.1910 & 1911/2016 :- 2 -: ARE COMBINED, HEARD TOGETHER, AND DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. FOR THE SAKE OF CONVEN IENCE, WE TAKE UP ITA NO.1910/MDS/2016 OF ASSESSMENT YEAR 2006-2010. 2. THE FIRST COMMON GROUND RAISED BY THE DEPARTMENT IN THESE TWO APPEAL IS THAT THE LD. COMMISSIONER OF INCOME T AX (APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE. FOR THE SAKE OF CONVEN IENCE, WE TAKE UP ITA NO.1910/MDS/2016 OF ASSESSMENT YEAR 2009-2010 F OR ADJUDICATION. 3. THE BRIEF FACTS OF THE CASE ARE THE LD. ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD PAID LABOUR CHARGES OF ;53,70,401/- FOR THE ASSESSMENT YEAR 2009-10 RESPE CTIVELY AND DID NOT DEDUCT TDS ON THE PAYMENTS. THE AO CALL ED FOR THE EXPLANATION AND THE ASSESSEE REPLIED THAT SECTI ON 40(A)(IA) WOULD BE APPLICABLE ONLY TO THE EXPENDITU RE PAYABLE AT THE END OF THE YEAR AND NOT THE EXPENDIT URE PAID ON WHICH NO TAX DEDUCTION WAS MADE AND BY RELY ING ON THE FINANCE BILL 2004 STATED THAT THE WORDS 'PA ID' AND 'PAYABLE' WERE SEPARATE AND DISTINCT AND SEPARATE CONSEQUENCES HAD BEEN PROVIDED IN THE ACT FOR NON- DEDUCTION AND NON-PAYMENT OF TAX. THE ASSESSING OFFICER DID ITA NOS.1910 & 1911/2016 :- 3 -: NOT ACCEPT THE REPLY OF THE ASSESSEE AND DISALLOWED THE AMOUNT OF ;53,70,401/- U/S 40(A)(IA) AS THESE CONTR ACT PAYMENTS FELL UNDER SECTION 194C AND THE ASSESSEE SHOULD HAVE DEDUCTED TDS ON THEM. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE BY FO LLOWING THE ORDER OF SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ADDL. CIT (136 ITD 23) (VIZAG) (SB) WHEREAS IT WAS HELD THAT PROVISIONS OF SEC. 40(A)(IA) OF THE ACT ARE ONLY AP PLICABLE TO THE AMOUNT SHOWN AS PAYABLE ON DATE OF THE BALANCE SH EET AND IT CANNOT BE APPLIED TO THE EXPENDITURE ALREADY PAID BY THE ASSESSEE AND ALSO LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THAT PROVISIONS OF SEC. 40(A)(IA) OF THE ACT CANNOT BE APPLIED IN V IEW OF THE SECOND PROVISO TO SEC. 40(A)(IA) OF THE ACT W.E.F. 01.04.2 013 RELEVANT TO THE ASSESSMENT YEAR 2013-2014 AND SUBSEQUENT YEARS IN VIEW OF THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD (2015) 377 IIR 635 WHEREIN IT IS HELD THAT THE AFORESAID AMENDMENT WHICH IS CURATIVE IN NATURE SHO ULD BE APPLICABLE RETROSPECTIVELY. RESPECTFULLY RELYING ON THE DECIS ION OF THE HONBLE ITA NOS.1910 & 1911/2016 :- 4 -: DELHI HIGH COURT, THE COMMISSIONER OF INCOME TAX (A PPEALS) DIRECTED THE LD. ASSESSING OFFICER TO DELETE THE DISALLOWANC E U/S.40(A) (IA) OF THE ACT IN RESPECT OF THOSE PAYMENTS IN WHICH THE A SSESSEE HAS SUBMITTED THE DETAILS OF PAN BY WAY OF AFFIDAVITS. AGGRIEVED BY THE ORDER, THE REVENUE FILED AN APPEAL BEFORE TRIBUNAL. 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, WE PROCEED TO DISPOSE THE APPEALS AFTER HEARING THE LD . DEPARTMENTAL REPRESENTATIVE. WE PERUSED THE MATERIAL ON RECORD A ND JUDICIAL DECISIONS CITED SUPRA. IN OUR OPINION SIMILAR ISSU E CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF T. PALANIVELU VS. INCOME TAX OFFICER, IN ITA NO. 618/MDS/2015, DATED 29.04.2015 WHEREIN IT WAS HELD AS UNDER:- 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSP ORTS VS. ACIT (2012) 136 ITD 23 (VISAKHAPATNAM) AND JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. M/S. VECTOR SHIPPING SERVICES (P) LTD IN ITA NO.122 OF 2013 DATED 09.7.2013 HELD THAT SEC 40(A)(IA) IS NO T APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESS MENT YEA IN RESPECT OF THESE PAYMENT. HOWEVER, THE ASSE SSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTAND ING EXPENSES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IMPUGNED AMOUNT IS OUTSTANDING AT THE E ND OF THE CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR EITHER IN THE NAME OF THE PARTY OR ITA NOS.1910 & 1911/2016 :- 5 -: OUTSTANDING EXPENSES. HENCE, IN THE INTEREST OF JU STICE, WE ARE REMITTING THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAI M OF THE ASSESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVI DENCE IN SUPPORT OF HIS CLAIM. 4. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED AMOUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE O F THE ASSESSMENT YEAR IN RESPECT OF THE EXPENSES EITHER AS OUTSTANDING EXPENSES OR AS SUNDRY CREDITORS, THIS A MOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. SO, WE DO NOT FIND ANY INFIRMITY IN THIS ISSUE. THE PAYMENT WHICH IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE FINANCIA L YEAR CANNOT BE DISALLOWED. IN THE PRESENT CASE, THE LD. DEPARTMEN TAL REPRESENTATIVE IS NOT ABLE TO SHOW THAT THE IMPUGNED AMOUNT OUTSTA NDING AT THE END OF THE CLOSE OF THE FINANCIAL YEAR. ACCORDINGLY, WE ARE IN AGREEMENT WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THIS GROUND RAISED BY THE REVENUE IS DISMI SSED IN BOTH THE APPEALS. 5. THE NEXT GROUND IN ITA NO.1910/2016 RAISED BY THE R EVENUE IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DELETING THE ADDITION OF ;30,10,838/- MADE TOWARDS UNEXPLAIN ED CASH CREDIT IN THE ACCOUNT OF THE PARTNER MRS. JAYAKODI. 6. THE BRIEF FACTS OF THE CASE ARE THAT I N THE AY 2009-10, THE AO OBSERVED THAT AN AMOUNT OF ;30,10,838/ - HAD BEEN ITA NOS.1910 & 1911/2016 :- 6 -: CREDITED IN THE CURRENT ACCOUNT OF ONE OF THE PARTN ER MR. P. JAYAKODI ON VARIOUS DATES FROM APRIL 2008 TO OCTOBE R 2008, APART FROM ;3,OO,000/-- OF SALARY AND ;18,02,105/- BEING 90% OF SHARE PROFIT FOR THE THAT IT WAS OUT OF WITHDRAWAL DURING THE YEAR. THE AO OBSERVED THAT THE CURRENT A CCOUNT SHOWED WITHDRAWAL OF ABOVE 1 LAKH ONLY FROM NOVEMBE R 2008, AND BEFORE NOVEMBER 2008 WITHDRAWALS WERE OF SMALL AMOUNTS. THE ASSESSEE REPLIED THAT THE AMOUNT WAS AGRICULTURAL INCOME DERIVED FROM THE AGRICULTURAL L ANDS OF 18 ACRES IN HIS HUF AT THENI AND A NET DEBIT OF ;12,82 ,007/- FOR THE YEAR ENDED 31.03.2008 WAS UTILIZED FOR INVES TMENT IN THE CURRENT ACCOUNT FOR THE YEAR ENDED 31.03.200 9 WITH M/S. ENREC ENGINEERS. FURTHER THE ASSESSEE SUBMITTED THE COPIE S OF FAMILY PARTITION DEED AND CHITTA AND ADANGAL IN SUP PORT OF ITS CLAIM. THE AO DID NOT ACCEPT THE REPLY OF THE A SSESSEE AND OBSERVED THAT MERE PARTITION DEED AND CHITTA A ND ADANGAL WOULD NOT SUFFICE TO PROVE THE SOURCE FOR T HE AMOUNTS CREDITED IN THE CURRENT ACCOUNT. THE AO FUR THER OBSERVED THAT IF THE ASSESSEE HAD BALANCE OUT OF THE LAST YEAR WITHDRAWAL, IT SHOULD HAVE CRE DITED THE SAME IN THE CURRENT ACCOUNT AS ON 31.03.2008 ITSELF AND THE ITA NOS.1910 & 1911/2016 :- 7 -: CASH ON HAND AS ON 31.03.2008 SHOULD HAVE BEEN SHOW N IN THE BALANCE SHEET ALSO. AS THE ASSESSEE HAS NOT PRO DUCED ANY DETAIL AS TO THE CULTIVATION AND EVIDENCE THAT THE AMOUNT WAS EARNED OUT OF THE AGRICULTURAL PRODUCE A ND ALSO AS NO RETURN OF INCOME WAS FILED FOR THE AY 2009-10 , THE AO DISALLOWED THE CASH CREDITS OF ;.30,10,838/- IN THE PARTNER'S ACCOUNT U/S 68 AND ADDED TO THE TOTAL INC OME. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL BE FORE THE COMMISSIONER OF INCOME TAX (APPEALS). 6. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE CASH CREDIT IN THE PARTNER'S ACCOUNT OF ;30,10,838/ -, THE LD. ASSESSI NG OFFICER HAS MADE THE ADDITION ON THE GROUND THAT THE ASSESSEE DID NOT SUBMIT THE DETAILS FOR THE AGRICU LTURAL INCOME. THE ASSESSEE 'S AR HAS SUBMITTED A COPY OF THE PARTITION DEED AND THE EVIDENCES FOR HAVING GROWN C OCONUT TREES IN 19.13 ACRES BY THE HUF. THE ASSESSEE'S AR HAS SUBMITTED THAT ALTHOUGH THESE DETAILS WERE SUBMITTE D BEFORE THE AO, THE SAME WAS NOT CONSIDERED. WHEN TH E ASSESSEE WAS ASKED TO WORK OUT THE PEAK CREDIT IN RESPECT OF THE AFORESAID CASH CREDITS IN VIEW OF EARLIER CA SH ITA NOS.1910 & 1911/2016 :- 8 -: WITHDRAWALS, THE ASSESSEE 'S AR HAS WORKED OUT THE PEAK CREDIT AT ;4,20,746/ -. AS THE AO HAS NOT CONSIDERE D THE ASSESSEE 'S CLAIM OF EARLIER CASH WITHDRAWALS AS A SOURCE FOR FUTURE CASH CREDITS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONVINCED THAT ADOPTING PEAK CREDIT IS A FAIR PROPOSITION UNDER SUCH FACTS AND CIRCUMSTANCES. THE REFORE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECT ED THE LD. ASSESSING OFFICER TO RESTRICT THE ADDITION ON ACCOUNT OF CASH CREDIT IN PARTNER'S ACCOUNT OF ;30,10,838/- TO ;4,20,746/. A GRIEVED BY THE ORDER, THE REVENUE ASSAILED AN APPEA L BEFORE THE TRIBUNAL. 7. BEFORE US, THE PLEA OF THE LD. DEPARTMENTAL REPRES ENTATIVE THAT ASSESSEE HAS NOT FURNISHED PARTNERS FINANCIAL STATEMENTS SO AS TO VERIFY THE AVAILABILITY OF FUNDS WITH PARTNERS TO M AKE INVESTMENT IN ASSESSEE COMPANY. BEING SO, IN OUR OPINION, THE AS SESSEE HAS TO EXPLAIN NOT ONLY IDENTITY OF THE PARTNERS, BUT ALSO CAPACITY OF THE PARTNERS TO INVEST THIS IMPUGNED AMOUNT IN ASSESSEE FIRM. ACCORDINGLY, WE REMIT THIS ISSUE IN DISPUTE TO THE FILE OF THE LD. ASSESSING OFFICER FOR FRESH CONSIDERATION WITH A DI RECTION TO ASSESSEE TO PROVE THE CAPACITY AND GENUINENESS OF THE TRANSACTI ONS ALONGWITH ITA NOS.1910 & 1911/2016 :- 9 -: IDENTITY OF THE PARTNERS. THIS GROUND OF THE REVENU E IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEALS OF THE REVENUE IN IT A NO.1910/MDS/2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND ITA NO.1911/MDS/2016 IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 21ST DAY OF S EPTEMBER, 2016, AT CHENNAI. SD/- . ! ) (G. PAVAN KUMAR) / JUDICIAL MEMBER SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER / CHENNAI 0 / DATED:21.09.2016 KV 1 ( *',23 43%, / COPY TO: 1 . &' / APPELLANT 3. 5, () / CIT(A) 5. 389 *',' / DR 2. *+&' / RESPONDENT 4. 5, / CIT 6. 9:$ ; / GF