Sannaredy Sudheer Kumar, Visakhapatnam V. The ITO, Visakhapatnam

ITA 301/VIZ/2016

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9800 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 31-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Non-deduction of tax; Assessment record
• Section: 40A(3); 143(3); 194C; 263

Judgement Text

ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.301/VIZAG/2016 ( / ASSESSMENT YEAR: 2011-12) SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM VS. ITO, WARD - 1(3), VISAKHAPATNAM [PAN: AUBPS5438F ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI ARAVINDAKSHAN, DR / DATE OF HEARING : 08.09.2 016 / DATE OF PRONOUNCEMENT : 07.10.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF PRINCIPAL CIT-1, VISAKHAPATNAM DATED 31.3.2016 AND IT PERTAINS TO THE ASSESSMENT YEAR 2011-12. ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRANSPORT CONTRACT, FILE D HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 30.9.2011 DECLAR ING TOTAL INCOME OF ` 6,99,560/-. THE ASSESSMENT FOR THE YEAR HAS BEEN C OMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED AS 'THE ACT') ON 31.12.2013 AND DETERMINED TOTAL INCOME OF ` 9,14,560/- BY MAKING ADDITIONS OF ` 95,000/-U/S 40A(3) OF THE ACT AND FURTHER ADDITION OF ` 1,20,000/- TOWARDS LOADING AND UNLOADING CHARGES. 3. THE PRINCIPAL CIT, VISAKHAPATNAM ISSUED A SHOW C AUSE NOTICE DATED 18.3.2016 AND ASKED TO EXPLAIN WHY THE ASSESS MENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE I.T. ACT, DATED 31.12 .2013 SHALL NOT BE REVISED UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. THE PRINCIPAL CIT, PROPOSED TO REVISE THE ASSESSMENT ORDER FOR TH E REASON THAT ON EXAMINATION OF ASSESSMENT RECORDS, CERTAIN OMISSION S AND COMMISSIONS WERE NOTICED WHICH RENDER THE ASSESSMENT ORDER ERRO NEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, I N TERMS OF SECTION 263 OF THE ACT. THE PRINCIPAL CIT, IN THE SAID SHOW CAUSE NOTICE, OBSERVED THAT THE A.O. HAS NOT VERIFIED THE ISSUE OF APPLICABILIT Y OF TDS ON PAYMENT MADE TO SUB CONTRACTORS. THE PRINCIPAL CIT, FURTHER OBSERVED THAT THE A.O. HAS COMPLETED THE ASSESSMENT WITHOUT EXAMINING THE ISSUE OF ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 3 APPLICABILITY OF TDS PROVISIONS, BY MAKING CERTAIN ADHOC DISALLOWANCE OF EXPENDITURE WHICH RENDER THE ASSESSMENT ORDER ERRON EOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE REFORE, ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY THE ASSESSMEN T ORDER PASSED U/S 143(3) OF THE ACT DATED 31.12.2013 SHALL NOT BE REV ISED UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. 4. THOUGH ADEQUATE OPPORTUNITY WAS GRANTED TO FURNI SH THE EXPLANATIONS ON 28.3.2016, 30.3.2016 & 31.3.2016, N O EXPLANATION HAS BEEN FURNISHED FOR NON-DEDUCTION OF TAX AT SOURCE O N SUB CONTRACT PAYMENT MADE BY THE ASSESSEE. SINCE, THE ASSESSEE FAILED TO COMPLY WITH THE SHOW CAUSE NOTICES, THE PR. CIT COMPLETED REVISION PROCEEDINGS BASED ON THE MATERIALS AVAILABLE ON RECORD. IN THE PROCEEDINGS BEFORE HIM, THE PRINCIPAL CIT OBSERVED THAT THE ASSESSEE H AS MADE PAYMENT TOWARDS HIRE CHARGES IN CASE OF 7 PARTIES AND THE A MOUNT PAID TO THEM EXCEEDS ` 75,000/- IN EACH CASE ATTRACTING PROVISIONS OF SEC TION 194C OF THE ACT, HOWEVER, IT IS NOTICED FROM THE TAX AUDIT REPORT FORM 3CD, TAX WAS NOT DEDUCTED AT SOURCE FROM SUCH CREDITS/PAYMEN TS TOWARDS HIRE CHARGES AS REQUIRED U/S 194C OF THE ACT. AS THE TD S WAS NOT MADE ON SUCH CREDITS TOWARDS HIRE CHARGES, THE EXPENDITURE CLAIMED TO THE EXTENT OF ` 12,05,000/- WITHIN THE TOTAL HIRE CHARGES DEBITED TO THE P&L ACCOUNT ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 4 OUGHT TO HAVE BEEN DISALLOWED U/S 40(A)(IA) OF THE ACT, BUT THE A.O. HAS FAILED TO DO SO. IT IS EVIDENT FROM THE RECORD THAT NO QUERY AT ALL WAS RAISED NOR ANY CLARIFICATION WAS SOUGHT ON THIS ISS UE DURING THE ASSESSMENT PROCEEDINGS. THE RECORD DOES NOT ALSO IN DICATE THAT THE A.O. HAD APPLIED HIS MIND TO FACTS AND MATERIALS ON RECO RD THROUGH A PROCESS OF ENQUIRY AND INVESTIGATION AND FORMED A VIEW ON T HE ISSUE. THUS, THE ASSESSMENT ORDER IS PASSED WITHOUT MAKING ANY ENQUI RIES ON THE ISSUE. IN SUCH CIRCUMSTANCES, THE ASSESSMENT ORDER UNDER C ONSIDERATION IS DEEMED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF THE REVENUE UNDER EXPLANATION 2 TO SECTION 263 OF THE ACT. WITH THESE OBSERVATIONS, REVISED THE ASSESSMENT ORDER PASSED U/S 143(3) OF T HE ACT DATED 31.12.2013 AND DIRECTED THE A.O. TO DISALLOW THE IM PUGNED HIRE CHARGES OF ` 12,05,000/- CLAIMED BY THE ASSESSEE AND ADDED BACK TO THE TOTAL INCOME ASSESSED IN THE ASSESSMENT ORDER U/S 143(3) OF THE ACT DATED 31.12.2013. A COPY OF THE ORDER GIVING EFFECT TO T HIS ORDER SHALL BE FORWARDED TO THIS OFFICE FOR RECORD. AGGRIEVED BY T HE CIT ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. A.R. FOR THE ASSESSEE, SUBMITTED THAT TH E ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, DAT ED 31.12.2013 IS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, AS ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 5 THE A.O. HAS EXAMINED THE ISSUE OF APPLICABILITY OF TDS ON PAYMENT OF HIRE CHARGES. THE A.R. FURTHER SUBMITTED THAT THE CIT WAS NOT CORRECT IN DIRECTING THE A.O. TO DISALLOW HIRE CHARGES, AS THE A.O. HAS EXAMINED THE ISSUE AT THE TIME OF COMPLETION OF ASSESSMENT AND A FTER SATISFIED WITH THE EXPLANATIONS OFFERED BY THE ASSESSEE, CHOSEN TO COMPLETE THE ASSESSMENT BY MAKING ADHOC DISALLOWANCES WHICH IS D IFFERENT FROM THE ISSUE QUESTIONED BY THE PRINCIPAL CIT. THE A.R. FU RTHER SUBMITTED THAT THE A.O. HAS EXAMINED THE ISSUE, AT THE TIME OF ASS ESSMENT BY A SPECIFIC QUESTIONNAIRE AND THE ASSESSEE HAS SUBMITTED ALL TH E DETAILS BEFORE THE A.O., THEREFORE, THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE ASSESSMENT ORDER PASSED BY THE A.O. IS ERRONEOU S IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD . A.R. FURTHER SUBMITTED THAT THE ISSUE OF DISALLOWANCE OF HIRE CHARGES IS C OVERED BY SPECIAL BENCH DECISION OF ITAT, VISAKHAPATNAM IN THE CASE O F MERILYN SHIPPING AND TRANSPORTS VS. ACIT 136 ITD 23., AS SUCH THERE IS NO PREJUDICE IS CAUSED TO THE REVENUE. THEREFORE, THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE ASSESSMENT ORDER PASSED BY THE A.O. IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. THE LD. D.R. ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF PRINCIPAL CIT. ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 6 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE PRINCIPAL CIT ASSUMED JURISDICTION TO REVISE THE AS SESSMENT ORDER FOR THE REASON THAT THE A.O. HAS NOT CONDUCTED PROPER ENQUI RY BEFORE COMPLETION OF ASSESSMENT, THEREBY THE ASSESSMENT OR DER PASSED BY THE A.O. U/S 143(3) OF THE ACT DATED 31.12.2013 IS ERRO NEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT REVISED THE ASSESSMENT ORDER FOR THE REASON THAT THE A.O. HAS C OMPLETED THE ASSESSMENT WITHOUT EXAMINING THE ISSUE OF APPLICABI LITY OF TDS PROVISIONS U/S 194C OF THE ACT, ON HIRE CHARGES PAI D BY THE ASSESSEE. THE CIT, FURTHER, OBSERVED THAT THE ASSESSEE HAS IN CURRED HIRE CHARGES AND PAID AMOUNT TO 7 PERSONS EXCEEDING ` 75,000/- IN EACH CASE ATTRACTING PROVISIONS OF SECTION 194C OF THE ACT, H OWEVER, IT IS NOTICED FROM THE TAX AUDIT REPORT IN FORM 3CD, THAT TAX WAS NOT DEDUCTED AT SOURCE FROM SUCH PAYMENTS. THE A.O. WITHOUT EXAMINI NG THE ISSUE, SIMPLY COMPLETED ASSESSMENT BY MAKING CERTAIN ADHOC DISALLOWANCES OF EXPENDITURE DIFFERENT FROM THE HIRE CHARGES WHICH R ENDER THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJU DICIAL TO THE INTEREST OF THE REVENUE. ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 7 7. IT IS THE CONTENTION OF THE ASSESSEE THAT THE A. O. HAS EXAMINED THE ISSUE OF APPLICABILITY OF TDS ON HIRE CHARGES AND A FTER SATISFIED WITH THE EXPLANATIONS FURNISHED BY THE ASSESSEE, CHOSEN TO C OMPLETE THE ASSESSMENT BY MAKING CERTAIN ADHOC DISALLOWANCES DI FFERENT FROM THE ISSUE OF HIRE CHARGES, THEREFORE, THE CIT WAS NOT C ORRECT IN HOLDING THAT THE A.O. HAS NOT EXAMINED THE ISSUE OF APPLICABILIT Y OF TDS. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. HAS EXAMIN ED THE ISSUE AS SUCH THE ASSESSMENT ORDER PASSED BY THE A.O. IS NOT ERRONEOUS. IT IS FURTHER SUBMITTED THAT THE ISSUE INVOLVED IN THE RE VISION PROCEEDINGS IS COVERED BY THE SPECIAL BENCH DECISION OF ITAT, VISA KHAPATNAM IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUP RA), WHEREIN THE ITAT HELD THAT NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT, CAN BE MADE WHEN THE EXPENDITURE INCURRED HAS BEEN PAID BEFORE THE END OF THE RELEVANT FINANCIAL YEAR. IN THE PRESENT CASE ON HA ND, THE ASSESSEE HAS PAID EXPENDITURE BEFORE THE END OF THE FINANCIAL YE AR, AS SUCH THE QUESTION OF APPLICABILITY OF TDS AND CONSEQUENT DIS ALLOWANCE OF AMOUNT U/S 40(A)(IA) OF THE ACT DOES NOT ARISE. THE PRINCI PAL CIT, MAY HOLD THE ASSESSMENT ORDER PASSED BY THE A.O. MAY BE ERRONEOU S, BUT IT CANNOT BE PREJUDICIAL TO THE INTEREST OF THE REVENUE, AS T HERE IS NO PREJUDICE IS CAUSED TO THE REVENUE, AS THE ISSUE INVOLVED IS SQU ARELY COVERED BY THE DECISION OF JURISDICTIONAL ITAT, THEREFORE, THE PRI NCIPAL CIT WAS ERRED IN ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 8 HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE A.O . IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REV ENUE. 8. THE PR. CIT ASSUMED JURISDICTION TO REVISE THE A SSESSMENT ORDER ON THE GROUND THAT THE A.O. HAS FAILED TO EXAMINE THE ISSUE OF APPLICABILITY OF THE PROVISIONS OF SECTION 194C OF THE ACT, ON HI RE CHARGES INCURRED BY THE ASSESSEE. IT IS TRUE THAT THE ISSUE INVOLVED I N REVISION PROCEEDINGS I.E. DISALLOWANCE OF HIRE CHARGES U/S 40(A)(IA) OF THE ACT IS COVERED BY THE SPECIAL BENCH DECISION OF ITAT, VISAKHAPATNAM I N THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA). ALT HOUGH, NO PREJUDICE IS CAUSED TO THE REVENUE AS POINTED OUT BY THE LD. A.R., THE ASSESSEE FAILED TO OFFER ANY EXPLANATION WHY HE COULD NOT AP PEAR BEFORE THE PRINCIPAL CIT AND EXPLAINED THE FACT THAT THE QUEST ION RAISED BY THE PRINCIPAL CIT IS CONSIDERED BY THE A.O. AND ALSO TH E PROVISIONS OF SECTION 194C OF THE ACT ARE NOT APPLICABLE, AS THE IMPUGNED AMOUNT HAS BEEN PAID BEFORE THE END OF THE RELEVANT FINANCIAL YEAR. IT IS ALSO AN ADMITTED FACT THAT THE A.O. HAS NOT EXAMINED THE ISSUE AT TH E TIME OF COMPLETION OF ASSESSMENT, HOWEVER, THERE IS NO REVENUE LOSS IS CAUSED TO THE EXCHEQUER BECAUSE THE ISSUE IS COVERED BY THE DECIS ION OF ITAT, SPECIAL BENCH (SB), WHEREIN THE ITAT HELD THAT NO DISALLOWA NCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, ON THE AMOUNTS PAID WITHI N THE END OF THE ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 9 FINANCIAL YEAR. SINCE, THE ASSESSEE FAILED TO APPEA R BEFORE THE CIT, WE ARE OF THE OPINION THAT THE CIT CANNOT PRESUME THIN GS WHICH IS IN THE MINDS OF ASSESSEE, AS SUCH OPINED THAT CIT HAS RIGH TLY ASSUMED HIS JURISDICTION TO REVISE THE ASSESSMENT ORDER BASED O N THE INFORMATION AVAILABLE ON RECORD AND HIS ORDER IS UPHELD. HOWEVE R, WE DEEM IT APPROPRIATE TO MODIFY THE DIRECTIONS GIVEN BY THE C IT TO DISALLOW IMPUGNED EXPENDITURE AND SET ASIDE THE ASSESSMENT O RDER PASSED BY THE A.O. U/S 143(3) AND DIRECT THE A.O. TO RE-DO TH E ASSESSMENT AFRESH IN THE LIGHT OF ABOVE DISCUSSION IN ACCORDANCE WITH LAW, AFTER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 7 TH OCT16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 07.10.2016 VG/SPS ITA NO.301/VIZAG/2016 SANNAREDDY SUDHEER KUMAR, VISAKHAPATNAM 10 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SANNAREDDY SUDHEER KUMAR, D.NO.4 9-17-12, SECOND FLOOR, LALITHA NAGAR, VISAKHAPATNAM. 2. / THE RESPONDENT THE ITO, WARD-1(3), VISAKHAPATN AM 3. + / THE PRINCIPAL CIT-1, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM