Puthenvila Chacko Veghese, Ahmedabad V. The Income tax Officer,Ward-9(4), Ahmedabad

ITA 232/AHD/2009

• Counselvise Citation: 23220514 RSA 2009
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 27-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: U B MISHRA
• Assessee Lawyers: S N DIVATIA
• Keywords: Business income; Principle of natural justice; TDS
• Section: 40(a)(ia)

Judgement Text

ITA NO.232/AHD/2009 A.Y. 2005-06. 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C. GUPTA, VICE PRESIDENT & SHRI B . P. JAIN, A.M.) I.T.A. NO. 232 /AHD/2009 (ASSESSMENT YEAR : 2005 -2006) PUTHENVILA CHACKO VERGHESE PROP. GEOS ENTERPRISES, 106, GAYATRI COMPLEX, NEAR POWER HOUSE, SABARMATI, AHMEDABAD. (APPELLANT) VS. INCOME TAX OFFICER, WARD 9(4), DIRECT TAX BHAVAN, NEAR PANJARA POLE, AHMEDABAD. (RESPONDENT ) PAN: AATPV 8111 G APPELLANT BY : SHRI S.N.DIVATIA RESPONDENT BY : SHRI U. B. MISHRA, SR. D.R. ( )/ ORDER DATE OF HEARING : 12-12-2011 . DATE OF PRONOUNCEMENT : 16-12-2011. PER: SHRI B.P. JAIN, A.M. THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE LD. CIT (A)-XV, AHMEDABAD DATED 24-12-2008 FOR THE ASSESSMENT YEAR 2005-06. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO.232/AHD/2009 A.Y. 2005-06. 2 1.1. THE ORDER PASSED U/S.250 OF THE ACT ON 24-12- 2008 FOR A.Y. 2005-06 BY CIT(A)-XV AHMEDABAD UPHOLDING THE DISALLOWANCE M ADE BY AO IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 . THE LD. CIT (A) HAS GRIEVOUSLY ERRED IN UPHOLDING T HE DISALLOWANCE WITHOUT CONSIDERING FULLY AND PROPERLY THE EXPLANAT ION OFFERED AND EVIDENCE PRODUCED BY THE APPELLANT. 2.1. THE LD. CIT (A) HAS GRIEVOUSLY ERRED IN LAW AN D/OR ON FACTS IN UPHOLDING THE FOLLOWING DISALLOWANCE: (A) OUT OF INTEREST EXPENSES. RS. 2,125/- (B) CESSATION OF LIABILITY U/S. 41(1) RS.1,31,313 /- (C ) VEHICLE HIRE CHARGES U/S.40(A)(IA) RS . 63,52,786/- 2.2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT (A) OUGHT NOT TO HAVE UPHELD THE ABOVE SAID DISALLOWANCE. 3.1. THE LD. CIT (A FAILED TO APPRECIATE THAT IN RE SPECT OF VEHICLE HIRE CHARGES UPTO 30-09-2004, NO DISALLOWANCE U/S. 40(A )(IA) WAS WARRANTED TO THE EXTENT PAYMENTS DID NOT EXCEED RS.20,000/-. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT NO TDS U/S. 194C(3) WAS REQU IRED TO BE MADE UP TO 30-9-2004, UNLESS THE PAYMENT EXCEEDED RS.20,000/- AND ACCORDINGLY NO DISALLOWANCE WAS WARRANTED IN RESPECT OF RS.12,84,5 46/-. 3.2. THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT IN RESPECT OF THE PAYMENTS AGGREGATING TO RS.34,30,969/-, THE PROVISI ONS OF SEC. 40(A) WERE NOT ATTRACTED. 3.3. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT (A ) OUGHT TO HAVE ALLOWED THE PAYMENTS AGGREGATING RS.12,84,546/- IN RESPECT OF WHICH NO TDS WAS REQUIRED TO BE MADE U/S. 194C(3). 4.1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE AD DITION OF RS.1,31,313/- U/S. 41(1) ON THE GROUND OF FAILURE TO FURNISH THE CONFIRMATION OF THE CREDITORS, THOUGH THE ISSUE WAS COVERED BY THE DECI SION OF ITAT, AHMEDABAD BENCH. ITA NO.232/AHD/2009 A.Y. 2005-06. 3 3. GROUND NO.1.1 AND 1.2 ARE GENERAL IN NATURE AND THEREFORE, DO NOT REQUIRE ANY ADJUDICATION. AS REGARDS GROUND NOS.2.2 TO 4.1, THE SAME ARE THE ARGUMENTS IN SUPPORT OF GROUND NOS.2.1(B) AND 2.1 (C), WHICH DO NOT REQUIRE ANY SEPARATE ADJUDICATION. 4. AS REGARDS GROUND NO.2.1 (A), THE LD. COUNSEL FO R THE ASSESSEE MR. S.N. DIVATIA, DID NOT PRESS THE SAID GROUND AND THEREFOR E, THE SAME IS DISMISSED AS NOT PRESSED. 5. AS REGARDS GROUND NO.2.1 (B) WITH REGARD TO CESS ATION OF LIABILITY U/S. 41(1), THE BRIEF FACTS AS PER PARAGRAPH 4 OF AOS ORDER AT PAGES 2 AND 3 ARE AS UNDER:- THE ASSESSEE HAS SHOWN CREDITORS OF RS.77,49,761/- IN THE BALANCE SHEET. THE ASSESSEE WAS ASKED TO GIVE DETAILED POS TAL ADDRESSED, COPY OF ACCOUNT AND CONFIRMATION OF CREDITORS OF CREDITORS EXCEEDING RS.50,000/-.HE WAS ALSO ASKED TO GIVE PARTICULARS OF CREDITORS WHO ARE MORE THAN 3 YEARS OLD. THE ASSESSEE SIMPLY FURNISHED LIST OF CREDITOR S WITHOUT ANY POSTAL ADDRESS OR CONFIRMATION. AGAIN VIDE LETTER DATED 2- 11-2007 HE WAS ASKED TO FURNISH FULL AND COMPLETE ADDRESS, CONFIRMATION AND DETAILS OF CREDITORS MORE THAN 3 YEARS OLD. THESE DETAILS WERE TO BE SUB MITTED BY 17-11-2007. HOWEVER ON THE STIPULATED DATE NO ONE ATTENDED BUT I RECEIVED A TELEPHONE CALL FROM THE AUTHORIZED REPRESENTATIVE REQUESTING FOR 10 DAYS MORE TIME. THE SAME WAS GRANTED. AGAIN ON 3-12-2007 ONLY LIST OF CREDITORS MORE THAN 3 YEARS OLD WAS FURNISHED WHICH IS AS BELOW:- NAME OF PARTY 31-3-2002 31 -3-2003 31-3-2004 31-3-2005 KALIDAS PATEL 83290 51000 51000 36000 M.L.SHRIMALI 39413 22859 22859 22859 NILESH SONI 56613 44111 44111 44111 SWARANGIG JASSAL 28343 28343 28343 28343 THE AUTHORIZED REPRESENTATIVE WAS AGAIN ASKED TO ES TABLISH THAT THE CREDITORS WERE GENUINE, AND THAT LIABILITY ACTUALLY EXISTED ON 31-3-05, PARTICULARLY AS IN THE SCRUTINY PROCEEDINGS FOR A.Y . 2003-04 ALSO SIMILAR ADDITION WAS MADE ON AN AGREED BASIS AGAINST WHICH ASSESSEE HAS NOT FILED ANY APPEALS. IT WAS ALSO EMPHASIZED THAT LOOKING TO THE NATURE OF BUSINESS IT IS MOST UNLIKELY THAT ANY PERSON HAS GIVEN HIS VEHI CLE ON HIRE TO THE ASSESSEE, ITA NO.232/AHD/2009 A.Y. 2005-06. 4 WILL NOT COLLECT HIS DUES FOR MORE THAN 3 YEARS. IT IS PERTINENT TO MENTION THAT IN THIS WARD, SEVERAL SURVEYS WERE CONDUCTED IN F.Y . 2006-07 AND IN ALMOST EVERY CASE, THE MODUS OPERANDI OF THE TRANSPORTERS IS THAT ON ONE HAND THEY SHOW THE BALANCE OF CREDITORS AS OUTSTANDING IN BAL ANCE SHEET AND OKN THE OTHER HAND THEY PAY OFF THE PERSONS IN CASH OUT SID E THE BOOKS. ALL THESE ISSUES WERE DISCUSSED WITH THE ASSESSEE AS WELL AS HIS AUTHORIZED REPRESENTATIVE AND HE WAS ASKED TO EXPLAIN WHY THE CREDITORS MORE THAN 3 YEARS OLD SHOULD NOT BE BROUGHT TO TAX U/S. 41(1)(A ) OF THE I. T. ACT. THE AUTHORIZED REPRESENTATIVE HAS SIMPLY WRITTEN IN ORD ER SHEET DATED 3-12-2007 AS FOLLOWS: WE ARE NOT AGREEABLE ON THE ABOVE ADDITION. HE HAS OFFERED NO EXPLANATION OR ARGUMENT ON WHY SU CH DISALLOWANCE SHOULD NOT BE MADE. THE ASSESSEE HAS NOT SATISFACTORILY DISCHARGED THE ONUS CAST UPON HIM TO PROVE THAT THE TRADING LIABILITIES OF RS.1,31,31 3/- HAVE NOT CEASED TO EXIST. AS MENTIONED EARLIER, HE HAS NOT FURNISHED THE DETA ILED ADDRESSES OF THE CREDITORS TO ENABLE THE UNDERSIGNED TO MAKE ANY INQ UIRIES. IN VIEW OF ALL THESE FACTS, I HAVE NO OPTION BUT TO TREAT THE LIAB ILITIES AS NON EXISTENT AND ADD THE SAME AS THE INCOME OF THE ASSESSEE U/S. 41( 1) OF THE ACT, I THEREFORE HEREBY ADD RS. 1,31,313/- TO THE TOTAL INCOME OF TH E ASSESSEE. 6. THE LD. CIT (A) CONFIRMED THE ACTION OF THE AO. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT MO ST OF THE PAYMENTS HAVE SINCE BEEN MADE TO THE CREDITORS AND ALL THE CREDITORS AR E OLD CREDITORS AND NO BENEFITS IN RESPECT OF SUCH CREDITOR HAS BEEN OBTAINED BY THE ASSESSEE DURING THE YEAR. 8. THE LD. DR APPEARING ON BEHALF OF THE REVENUE RE LIED UPON THE DECISION OF BOTH THE AUTHORITIES BELOW. ITA NO.232/AHD/2009 A.Y. 2005-06. 5 9. THERE IS NO DISPUTE TO THE FACT THAT ALL THE CRE DITORS ARE OLD CREDITORS. BEFORE THE PROVISIONS OF SECTION 41(1) ARE BROUGHT INTO PL AY TO TAX THE INCOME OF THE ASSESSEE, THE ONUS LIES ON THE REVENUE TO PROVE THA T THE ASSESSEE HAS OBTAINED FROM SUCH PERSON ANY BENEFIT AND IF IT SO ONLY THEN AND ONLY THEN INCOME SHALL BE CHARGEABLE TO INCOME TAX AS INCOME OF THE IMPUGNED YEAR. IN THE PRESENT CASE, THE AO HAS NOT BROUGHT ON RECORD THAT THE ASSESSEE HAS OBTAINED ANY BENEFIT WITH RESPECT TO SUCH TRADING LIABILITY AND THEREFORE, SU CH REMISSION OR CESSATION OF THE LIABILITY BY THE AO CANNOT BE SUBJECT MATTER U/S. 4 1(1) OF THE ACT, THOUGH THE LD. COUNSEL FOR THE ASSESSEE HAD ARGUED THAT THE PAYMEN TS HAVE BEEN MADE TO MOST OF THE CREDITORS IN THE FOLLOWING YEARS. IN THE CIRCUM STANCES AND FACTS OF THE CASE, THE AO IS NOT JUSTIFIED IN MAKING THE ADDITION TO THE I NCOME OF THE ASSESSEE AND HE IS DIRECTED TO DELETE THE SAME. THE ORDER OF THE LD. C IT (A) IS REVERSED ACCORDINGLY. THUS GROUND NO.2.1 (B) OF THE ASSESSEE IS ALLOWED. 10. AS REGARDS GROUND NO.2.1 (C) THE BRIEF FACTS AS EMANATING FROM AOS ORDER VIDE PARAGRAPH-5 AT PAGES 3 TO 5 ARE AS UNDER:- 5. DISALLOWANCE U/S. 40(A)(IA) OF I.T. ACT:- THE ASSESSEE IS IN THE BUSINESS OF HIRING OF PASSEN GER VEHICLES TO COMPANIES AND GOVERNMENT SECTOR UNDERTAKINGS. FOR THIS HE HAS HIS OWN VEHICLES. HOWEVER, WHENEVER THERE IS AN ORDER FOR MORE NUMBER OF VEHICLES, HE IS HIRING VEHICLES FROM THIRD PARTIES, I.E. HE IS GIVI NG A SUBCONTRACT TO OTHER VEHICLE OWNERS. AS PER SECTION 194(C), THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE @ 1% ON SUCH SUB CONTRACT. AS PER SECTION 20 0(1) HE IS BOUND TO DEPOSIT THE SAME INTO GOVERNMENT ACCOUNT WITHIN THE PRESCRIBED TIME. ANY DEFAULT IN EITHER DEDUCTION OF TAX OR IN DEPOSITING THE TAX DEDUCTED WILL ATTRACT THE PROVISIONS OF SECTION 40A (IA) WHICH RE ADS AS BELOW:- NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO N 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION- ITA NO.232/AHD/2009 A.Y. 2005-06. 6 (A) IN THE CASE OF ANY ASSESSEE (IA) ANY INTEREST COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDEN T, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR C ARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIM E PRESCRIBED UNDER SUB- SECTION (1) OF SECTION 200. THE AUDITOR HAS IN ANNEXURE V TO COL.27 OF HIS AUDI T REPORT STATED THAT THE ASSESSEE HAS DEPOSITED TAX OF RS. 87,924/- (INC LUDING SURCHARGE) DEDUCTED ON VEHICLE HIRE CHARGES OF RS. 7012891 ON 4-8-2005 WHICH IS BEYOND THE TIME PRESCRIBED IN SECTION 200(1). THE A SSESSEE WAS THEREFORE ASKED TO EXPLAIN WHY THE SUM OF RS.70,12,891/- SHOU LD NOT BE DISALLOWED? DURING THE COURSE OF HEARINGS THE AUTHORIZED REPRES ENTATIVE HAS STATED THAT THE PROVISION OF SUB CLAUSE (I) TO CLAU SE (3) OF SECTION 194 C WAS INSERTED WITH EFFECT FROM 1-10-2004 ONLY. AS SUCH T HE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ONLY ON PAYMENTS MADE AFTER 1- 10-04, THOUGH FOR CALCULATION LIMIT OF RS.50,000/- PAYMENTS FROM 1-4- 04 HAVE TO BE CONSIDERED. HE HAS GIVEN DETAILS OF PAYMENT MADE BEFORE 1-10-04 WHICH AMOUNT TO RS.29,98,990/-. BALANCE PAYMENT OF RS.40,13,901/- H AS BEEN MADE AFTER 1- 10-04. IN THE ORDER SHEET ENTRY DATED 3-12-07 HE HA S ALSO OBJECTED TO THE ADDITION OF RS.40,13,901/- BY WRITING AS BELOW:- WE ARE NOT AGREEABLE ON THE ABOVE ADDITIONS. THE AUTHORIZED REPRESENTATIVE HAS NOT STATED ANYTHI NG ABOUT WHY HE IS NOT AGREEABLE TO THE ADDITIONS. HE HAS NO ARGUME NTS TO OFFER REGARDING THE APPLICABILITY OR OTHERWISE OF SECTION 40A(IA). I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE PROVISIONS OF BOTH SECTION 194C(3)(I) AND 40A(IA). THE FACTS MAKE IT ABUNDANTLY CLEAR THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AND DEPOSIT ED THE SAME WITHIN THE PRESCRIBED TIME LIMIT. THE LANGUAGE OF SECTION 40A (IA) IS SUCH THAT I THE EVENT OF ANY DEFAULT, THE EXPENSE ON WHICH TDS HAS NOT BEEN MADE, OR AFTER DEDUCTION HAS NOT BEEN DEPOSITED IN TIME SHALL NOT BE ALLOWED TO BE DEDUCTED ITA NO.232/AHD/2009 A.Y. 2005-06. 7 WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE . HENCE FROM THE FACTS AS STATED ABOVE, THE SECTION IS MANDATORY IN NATURE . I AM THEREFORE SATISFIED THAT SECTION 40A (IA) IS APPLICABLE IN RESPECT OF P AYMENTS MADE AFTER 1-10-04 WITHOUT TDS. I THEREFORE DISALLOW RS. 40,13,901/- U/S. 40A (IA) OF THE ACT. PENALTY PROCEEDINGS U/S. 271(1)( C) OF THE I.T. ACT ARE IITIATED FOR CONCEALMENT. 11. THE LD. CIT (A) CONFIRMED THE ACTION OF THE A.O . 12. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESS EE MR. S.N. DIVATIA THAT THE ASSESSEE HAD MADE THE TOTAL PAYMENTS OF RS.83,73,71 4/- ON ACCOUNT OF FREIGHT. OUT OF WHICH RS. 20,20,928/- HAS BEEN PAID ON WHICH TDS HAS BEEN DEDUCTED IN MARCH AND PAID BEFORE THE DUE DATE FOR FILING THE R ETURN OF INCOME WHICH HAS BEEN ALLOWED BY THE LD. CIT (A). AS REGARDS FREIGHT AMOU NTING TO RS.63,52,786/- WHICH IS PAID BETWEEN APRIL TO FEBRUARY,2005, THE PAYMENT OF RS.29,21,817/- WAS MADE BEFORE 30-9-2004 AND RS.34,30,969/- WERE PAID THERE AFTER. THERE WAS AN AMENDMENT WITH EFFECT FROM 1-10-2004 WHICH HAS NOT BEEN TAKEN INTO CONSIDERATION BY THE AO OR BY THE LD. CIT (A). WIT H EFFECT FROM 1-10-2004 THE LIMIT OF RS.20,000/- WAS RAISED TO RS.50,000/- ON W HICH THE ASSESSEE WAS REQUIRED TO DEDUCT TAX ON SUCH PAYMENTS. THE ASSESSEE HAD M ADE THE PAYMENTS BELOW RS.20,000/- ALSO WHICH HAS NOT BEEN EXAMINED BY ANY OF THE AUTHORITIES BELOW. 13. THE LD. DR ON THE OTHER HAND RELIED UPON THE DE CISIONS OF BOTH THE AUTHORITIES BELOW. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE APPEARS TO BE CONVINCING IN VIEW OF THE AMENDMENT MADE IN THE INCOME TAX ACT W. E.F. 1-10-2004 AND NONE OF THE AUTHORITIES BELOW HAVE EXAMINED THE CASE IN VIE W OF THE SAID AMENDMENT. IT WILL BE IN THE INTEREST OF JUSTICE IF THE MATTER IS REMANDED TO THE FILE OF THE AO WHO ITA NO.232/AHD/2009 A.Y. 2005-06. 8 WILL EXAMINE THE ISSUE IN VIEW OF THE SAID AMENDMEN T AND DECIDE THE ISSUE DENOVO BUT BY AFFORDING ADEQUATE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE. THUS GROUND NO.2.1 (C) OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSES. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 16 - 12 - 201 1. SD/- SD/- (G.C. GUPTA) (B. P. JAIN) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-XV, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO.232/AHD/2009 A.Y. 2005-06. 9 1.DATE OF DICTATION 12 - 12 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 13 /12 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..