The Gaddomajra Co-operative Labour & Construction Society, Rajpura V. ITO, Rajpura

ITA 299/CHANDI/2013

• Counselvise Citation: 29921514 RSA 2013
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 18-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SSH SUDHIR SEHGAL
• Keywords: Business income; Additional evidence
• Section: 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 299/CHD/2013 ASSESSMENT YEAR: 2008-09 THE GADDOMAJRA COOPERATIVE LABOUR VS. THE ITO, W ARD, & CONSTRUCTION SOCIETY, RAJPURA RAJPURA PAN NO. AABAT3399R (APPELLANT) (RESPONDENT) APPELLANT BY : S/SH. SUDHIR SEHGAL & ASHOK GOYAL RESPONDENT BY : MS. RAJINDER KAUR DATE OF HEARING : 28.09.2015 DATE OF PRONOUNCEMENT : 03..11.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), PATIALA DATED 30.01.2013 RELATING TO ASSESSMENT YEA R 2008-09. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) IS NOT JUSTIFIED IN NOT ENTERTAINING THE ADDITIONAL EVIDENCE WHEN THE FACTS UNDER WHICH IT C OULD NOT BE FILED BEFORE THE LD. ASSESSING OFFICER WERE DULY EXPLAINED. 2 2. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OF DEDUCTION U/S 80P(2)(VI) WHICH IS D ULY SUPPORTED BY THE AUDIT REPORT FORMING PART OF THE R ECORD. 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OF RS. 23,42,700/- FOR ALLEGED NON DED UCTION OF TAX ON VARIOUS PAYMENTS MADE IN CONNECTION WITH THE ACCOMPLISHMENT OF WORK. 4 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF 40% OUT OF LABOUR EXPENSES WITHOUT APPRECIATING THE FACTS OF THE CASE IN RIGHT PERSPEC TIVE. 3. AS REGARDS GROUND NOS..1 & 2 OF THE APPEAL, THE BRIEF FACTS ARE THAT THE ASSESSEE IS A LABOUR AND CONSTRUCTION COOPERATI VE SOCIETY. THE ASSESSEE DECLARED NIL INCOME AFTER CLAIMING DEDUCTI ON U/S 80P(2)(VI) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') AMOUNTING TO RS. 1,11,412/-. THE ASSESSING OFFICER OBSERVED THAT AS PER SECTION 80P( 2) (VI) OF THE ACT, WHOLE OF THE AMOUNT OF PROFIT AND LOSS EARNED BY A COOPER ATIVE SOCIETY AS ARE ATTRIBUTABLE TO THE ACTIVITY OF COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS, IS ALLOWABLE AS DEDUCTION. DURING THE YEAR UNDER C ONSIDERATION THE ASSESSEE HAS CARRIED OUT CONSTRUCTION WORK ON CONTR ACT BASIS AND RECEIVED INCOME OF RS. 43,92,953/- FROM VARIOUS PARTIES. THE ASSESSEE CLAIMED FOLLOWING EXPENSES:- I) EARTH FILLING EXPENSES RS. 4,91,000/- II) KRAH WORK EXPENSES RS. 7,52,000/- III) LABOUR PAID RS. 7,40,000/- IV) RENT PAID RS. 8,98,200/- V) RENT PAID ` RS. 7,56,000/- 3 THE ASSESSING OFFICER OBSERVED THAT DETAILS FURNISH ED WITH REGARD TO THESE ACCOUNTS SHOW THAT THE PAYMENTS HAVE BEEN MADE TO T HE FOLLOWING PERSONS AS PER THE DETAILS BELOW:- S.NO. NAME KERAH WORK DONE RENT (JCB) AMT (RS. RENT (L&T) (AMT RS.) I) RAMESH KUMAR 1,70,000 2,40,000 - II) KEWAL SINGH 192,500 2,37,000 - III) BALDEV SINGH 1,77,500 - 385,500 IV) TIRATH RAM 1,27,500 54,000 - V) CHAMKAUR SINGH - 1,62,000 - VI) BUTA SINGH 75,000 - - VII) BALJINDER SINGH - - 3,70,500 VIII) GORA LAL, CONTRACTOR - 2,05,200 - TOTAL 7,42,500 8,98,200 7,56000 THE ASSESSING OFFICER FURTHER OBSERVED THAT NONE OF THE ABOVE PERSONS ARE MEMBERS OF THE SOCIETY. HE FURTHER POINTED OUT THAT AS PER LIST OF MEMBERS SUBMITTED BY THE ASSESSEE SOCIETY, IN TOTAL 35 MEM BERS ARE THERE. HOWEVER, NO PAYMENT HAS BEEN MADE TO ANY MEMBER OF THE SOCIETY. THE ASSESSEE SOCIETY HAS FAILED TO PROVE THAT ANY WORK WAS DONE BY ITS MEMBE RS. THE ASSESSING OFFICER CONCLUDED THAT THE BASIC CONDITION REQUIRED FOR THE PURPOSE OF CLAIM OF DEDUCTION U/S 80(P)(2)(VI) OF THE ACT I.E. PROFITS EARNED FROM ACTIVITY OF COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBER HAVE NO T BEEN FULFILLED. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITIES TO SUBMIT THE PROOF THAT ANY PAYMENT WAS MADE TO ANY O F ITS MEMBERS FOR CARRYING OUT ANY WORK. THERE WAS NO EXPLANATION OR EVIDENCE BROUGHT ON RECORD BY THE 4 ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT ASSESSEES SOCIETY IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2V)(VI)OF THE ACT A ND THE SAME WAS DISALLOWED. 4. ON APPEAL, THE LD. CIT(A) REJECTED THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER:- 4.1 I HAVE GONE THROUGH THE SUBMISSIONS MADE. IT I S SEEN THAT THE APPELLANT WAS GIVEN ENOUGH OPPORTUNITIES T O SUBMIT THE NECESSARY REPLY WHICH THE APPELLANT FAILED TO D O SO. THEREFORE, THE APPLICATION FOR FILING ADDITIONAL EV IDENCE UNDER RULE 46A IS REJECTED. FURTHER, IT IS ADMITTED THAT THE PAYMENTS ARE MADE TO THE NON-MEMBERS OF THE SOCIETY AND THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE INCOME WHICH IS EXEMPT U /S 80P(2)(VI) IS IN RESPECT OF BUSINESS INCOME DERIVED BY THE LABOUR COOPERATIVE SOCIETY FROM THE ACTIVITY OF DISPOSAL OF COLLECTIVE LABOUR OF ITS MEMBERS. THIS PROVISION WAS INTRODUCED WITH A VIEW TO AVOID THE E XPLOITATION OF LABOUR AND TO ENCOURAGE THOSE ACTUAL WORKERS/LABOURERS TO FORM CO -OPERATIVE SOCIETY FOR THE COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS. IN T HE INSTANT CASE THE ASSESSEE HAS ENGAGED OUTSIDE LABORERS TO WHOM SUBSTANTIAL AMOUNT ON ACCOUNT OF WAGES HAS BEEN PAID, ARE NEITHER THE MEMBER OF THE SOCIETY NO R THEY HAVE ANY CONTROL OR SHARE IN PROFIT OF THE SOCIETY OR THEY HAVE ANY VOT ING RIGHT IN THE SAID SOCIETY. THE PROFIT EARNED BY THE SOCIETY IS WITH THE AID OF OUTSIDE LABORERS WHO ARE NOT THE MEMBERS OF THE SOCIETY AND HENCE SUCH INCOME C ANNOT REGARDED AS INCOME BY A LABOUR COOPERATIVE SOCIETY FROM THE ACTIVITY OF DISPOSAL OF COLLECTIVE LABOUR OF ITS MEMBERS. THUS, INCOME DERIVED BY AS SESSEE COULD NOT BE SAID TO BE INCOME DERIVED BY LABOUR COOPERATIVE SOCIETY FRO M ACTIVITY OF COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS, AND, THEREFORE, INCOME OF THE SOCIETY IS NOT EXEMPT U/S 80P(2)(VI) OF THE ACT. AS REGARDS E GROU ND NO.1 OF THE APPEAL, WE MAY OBSERVE HERE THAT ASSESSEE WAS GIVEN SEVERAL OP PORTUNITIES TO SUBMIT NECESSARY REPLY BUT THE ASSESSEE FAILED TO COMPLY. IN OUR VIEW, THE LD. CIT(A) 5 HAS CORRECTLY REJECTED THE APPLICATION FOR ADMISSI ON OF ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1962. IN VIEW OF THE ABOVE, GROUND NOS. 1 & 2 OF THE APPEAL ARE DISMISSED. 6. GROUND NO.3 RELATES TO DISALLOWANCE OF RS. 23,42 ,700/- MADE U/S 40(A)(IA) OF THE ACT. THE ASSESSEE MADE PAYMENTS TO DIFFERENT CONTRACTORS / PERSONS FOR CARRYING OUT THE WORK OF THE SOCIETY IN THE CAPACIT Y OF SUB CONTRACTORS. THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE AS PER REQUIR EMENT OF SECTION 194C OF THE ACT. THE ASSESSING OFFICER HAS MADE ADDITION OF RS. 23,42,700/- US/ 40(A)(IA) OF THE ACT. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . 7. AT THE TIME OF HEARING OF THE APPEAL LD. COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF P.M.S. DIESELS & OTHERS VS. CIT [2015] 374 ITR 562 (P&H) & OTHERS . IN THE SAND DECISION, THE HON'BLE JURISDICTIONAL HIGH COURT HAS OBSERVED AS UNDER:- THE LIABILITY TO DEDUCT TAX AT SOURCE UNDER THE PR OVISIONS OF CHAPTER XVII OF THE INCOME-TAX ACT, 1961, IS MANDAT ORY. A PERSON RESPONSIBLE FOR PAYING ANY SUM IS ALSO LIABL E TO DEPOSIT THE AMOUNT DEDUCTED IN THE GOVERNMENT ACCOUNT. ALL THE SECTIONS IN CHAPTER XVI1-B REQUIRE A PERSON TO DEDU CT THE TAX AT SOURCE AT THE RATES SPECIFIED THEREIN, THE REQUI REMENT IN EACH OF THE SECTIONS IS PRECEDED BY THE WORD 'SHALL '. THE PROVISIONS ARE, THEREFORE, MANDATORY. THERE IS NOTH ING IN ANY OF THE SECTIONS WHICH SUGGESTS THAT THE WORD 'SHALL ' IS 'MAY'. THE POINT OF TIME AT WHICH THE DEDUCTION IS TO BE M ADE ALSO ESTABLISHES THAT THE PROVISIONS ARE MANDATORY. FOR INSTANCE, UNDER SECTION 194C, A PERSON RESPONSIBLE FOR PAYING THE SUM IS REQUIRED TO DEDUCT THE TAX 'AT THE TIME OF CREDIT O F SUCH SUM TO 6 THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF THE PAYMENT THEREOF...' THAT THE LEGISLATURE HAS GRANTED AN ASS ESSES A RELAXATION FROM THE RIGOURS OF SECTION 40(A)(IA) DO ES NOT DETRACT FROM THE MANDATORY NATURE OF THE LIABILITY TO DEDUCT THE TAX AT SOURCE UNDER THE VARIOUS PROVISIONS OF CHAPT ER XVII-B 8. IN VIEW OF THE ABOVE JUDGMENT OF THE HON'BLE JUR ISDICTIONAL HIIGH COURT PASSED IN THE CASE OF P .M.S. DIESELS & OTHERS VS. CIT (SUPRA), WE DISMISS THIS GROUND OF APPEAL. 9. VIDE GROUND NO.4 OF THE APPEAL, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 4,09,200/-. THE ASSESSEE CLAIMED THE EXPENSE S OF RS. 4,91,000/- ON ACCOUNT OF EARTH FILLING EXPENSES AND RS. 7,40,500/ - ON ACCOUNT OF LABOUR PAID. OUT OF THE ABOVE PAYMENTS, RS. 5,32,200/- WAS PAID IN CASH. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO FU RNISH NAMES AND ADDRESSES OF THE PERSONS TO WHOM THESE PAYMENTS WERE MADE. IN TH E ABSENCE OF DETAILS, THE ASSESSING OFFICER DISALLOWED 40% OF THE EXPENSES. O N APPEAL, THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI SUDHI R SEHGAL LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT MOST OF THE LABOURERS A RE ILLITERATE HAVING NO BANK ACCOUNTS AND WHO ARE NEVER INTERESTED IN ACCEPTING THE LABOUR CHARGES THROUGH CHEQUES. THE DETAILS REGARDING PAYMENTS OF EARTH FI LLING AND LABOUR PAYMENT SUPPLIED FROM TIME TO TIME WERE FURNISHED. HE FURT HER SUBMITTED THAT ASSESSMENT HAS BEEN MADE AT A NET INCOME OF RS. 28, 63,310/- AGAINST THE GROSS RECEIPTS FROM CONTRACT RECEIPTS OF RS. 43,92,953/- WHICH WORKS TO 65.18% OF THE GROSS RECEIPTS. THE ASSESSMENT AT SUCH HIGH NET INC OME OF RS. 65.18 % IS UNHEARD, UNCALLED FOR, UNJUSTIFIED AND NOT POSSIBL E IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS ALSO BROUGHT TO O UR NOTICE THAT RS. 2,08,500/- 7 HAS BEEN PAID THROUGH CHEQUE OUT OF LABOUR PAID AT RS. 7,40,500/- AND THE BALANCE AMOUNT OF RS. 5,32,000/- HAS BEEN PAID IN C ASH. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS DISALLOWED 40% OF THE EXPENSE S; MERELY ON THE GROUND THAT PAYMENTS WERE MADE IN CASH. CONSIDERING THE P ROFIT EARNED BY THE ASSESSEE AND ALSO KEEPING IN VIEW THE NATURE OF ASSESSEES B USINESS, IT CANNOT BE DENIED THAT WITHOUT INCURRING ANY EXPENDITURE SUCH INCOME CAN BE EARNED. THE ASSESSEE HAS EARNED INCOME WITHOUT INCURRING ANY EXPENSES. T HE ASSESSING OFFICER HIMSELF HAS ACCEPTED THAT 60% OF THE EXPENSES WERE INCURRED BY THE ASSESSEE. WE ARE OF THE VIEW THAT DISALLOWANCE OF 40% OF THE EXPENSES IS ON HIGHER SIDE. KEEPING IN VIEW THE NATURE OF ASSESSEES BUSINESS, WE RESTRICT THE DISALLOWANCE TO 5% AS AGAINST 40% APPLIED BY THE AUTHORITIES BEL OW. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE DISALLOWANCE ACCORDINGLY. THIS GROUND OF APPEAL IS ALLOWED PARTLY. 11. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON 03.11.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 3 RD NOVEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 8