BRAINHUNT MANPOWER & MANAGMENT CONSULTANTS, Nagpur V. INCOME TAX OFFICER, WAD 1(1), Nagpur

ITA 34/NAG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93427 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 21-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Opportunity of being heard; Principle of natural justice; Fair market value; Corroborative evidences

Judgement Text

1 ITA NO. 34/NAG/2014 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T. A. NO. 34/NAG/2014 ASSESSMENT YEAR : 2008 - 09. M/S BRAINHUNT MANPOWER & THE INCOME - TAX OFFICER, MANAGEMENT CONSULTANTS, V/S. WARD - 1(1), NAGPUR. C/O MANOJ G. MORYANI, BEHIND SUT MARKET, GANDHIBAGH, NAGPUR - 440002. PAN AAFFB7664J (APPELLANT) RESPONDENT. APPELLANT BY : SHRI MANOJ MORYANI. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 04 - 0 6 - 2015 DATE OF PRONOUNCEMENT : 10 TH JULY, 2015. O R D E R PER SHRI SHAMIN YAHYA, A.M . THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - 16 , MUMBAI (CAMP NAGPUR ) DATED 21 - 11 - 2013 AND PERTAINS TO ASSESSMENT YEAR 200 8 - 09 . THE GROUNDS OF APPEAL READ AS UNDER: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN C ONFIRMING THE ADDITION OF ?RS.8,70,000/ - ON ACCOUNT OF HUNTING CHARGES CLAIMED IN PROFIT AND LOSS ACCOUNT, THEREFORE, ORDER PASSED IN UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 2 ITA NO. 34/NAG/2014 2. THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING THE CLAIM UNDER SECTIO N 40A(2)(A) BUT THE COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT GOING INTO MERIT OF THE CASE ERRED IN DISALLOWING THE CLAIM UNDER SECTION 40A(2)(B), THEREFORE ORDER PASSED IN ILLEGAL, INVALID AND BAD IN LAW. 2. IN THIS CASE THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PAID ` .8,70,000/ - IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD HUNTING CHARGES. THE ASSESSING OFFICER FOUND THAT THESE PAYMENTS WERE MADE TO SMT. SONALI BIREWAR ( ` .70,000/ - ), SMT. SHWETA SADAC HAR ( ` .4,00,000/ - ) AND SMT. ARTI BIREWAR ( ` .4,00,000/ - ) WHO ARE SPECIFIED PERSONS WITHIN THE MEANING OF SECTION 40A(2)(B) OF THE ACT. SUMMONS WERE ISSUED TO THE ABOVE NAMED PE R SONS AND STATEMENTS WERE RECORDED. THE ASSESSING OFFICER NOTED SOME PORTIONS OF THE STATEMENT OF THESE PERSONS IN THE ASSESSMENT ORDER. THESE STATEMENTS SHOWED THAT THESE PERSONS HAD NO AGREEMENT WITH THE ASSESSEE COMPANY. THEY DID NOT HAVE ANY GOVERNMENT REGISTRATION. THEY DID NOT HAVE ANY ORDER OR ANY DOCUMENTARY EVIDENCE REGARDING WORK DONE FOR THE ASSESSEE. CONSIDERING THIS, THE ASSESSING OFFICER CONCLUDED AS UNDER : REPLY OF THE ASSESSEE HAS ALSO BEEN CONSIDERED. NO DOCUMENTARY EVIDENCE IN SUPPORT OF WORK DONE BY THE ABOVE MENTIONED SPECIFIED PERSONS HAVE BEEN SUBMITTED. IN VIEW OF THE ABOVE, I HEREBY DISALLOW ` .8,70,000/ - CLAIMED BY THE ASSESSEE UNDER THE HEAD HEAD HUNTING CHARGES OF THE PROFIT AND LOSS ACCOUNT, AND ADDED TO THE INCOME OF THE ASSESSEE U/S 40A(2)(A) OF THE I.T. ACT. 3. BEFORE THE LEARNED CIT(APPEALS ), IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE IS ENGAGED IN PROVIDING RECRUITMENT SERVICES TO PRIVATE SECTOR COMPANIES. THE ASSESSEE COMPANY RECEIVES MANPOWER REQUIREMENT FROM COMPANIES FOR MANAGEMENT CADRE AND SEARCH PEOPLE MATCHING THEIR REQUIREM ENTS BY DIFFERENT 3 ITA NO. 34/NAG/2014 METHODS. SHORTLISTED CANDIDATES ARE CALLED FOR INTERVIEW AND FINALIZED AFTER GOING THROUGH STRINGENT PROCESS. THE ASSESSEE COMPANY GETS PAID FOR THEIR SERVICES WHEN THE CANDIDATE IS FINALIZED BY COMPANY. WITH REGARD TO THE THREE PERSONS P AYMENTS TO WHOM HAVE BEEN DISALLOWED BY THE ASSESSING OFFICER, IT WAS STATED THAT THESE PERSONS PERFORM DUTIES FOR THE ASSESSEE COMPANY AND ARE UNDER OPERATION PROCESS FOR OUR RECRUITMENT SERVICES WITH A TEAM OF EMPLOYEES UNDER THEM. THEY PERFORM THE FOLL OWING WORKS IN THE ASSESSEE COMPANY. 1. RECEIPT OF JOB DESCRIPTION FROM DIFFERENT COMPANY FOR A PARTICULAR OPENING. 2. FORWARDING JOB DESCRIPTION TO CONCERNED RECRUITMENT TEAM ALONGWITH DETAILS OF JOB PROFILE. 3. SEARCH THE MATCHING CV THROUGH JOB POR TALS LIKE NAUKRI.COM, OLD DATABASES ETC. 4. MATCHING CVS ARE SENT TO RESPECTIVE COMPANY. 5. SHORTLISTING AND SCHEDULING OF CANDIDATES FOR PERSONAL INTERVIEWS. 6. TELECALLING AND MAILING THE SCHEDULES TO RESPECTIVE COMPANY AND CANDIDATES. 7. RECORDI NG FEEDBACK FROM CANDIDATES AND MANAGING APPOINTMENTS. THESE THREE PERSONS ARE PAID SUBSEQUENTLY ONCE THE ASSIGNMENTS ARE FULFILLED IN DUE COURSE. DURING THE YEAR 2007 - 08 AROUND 108 POSITIONS WERE SHARED WITH THEM TOGETHER AND THEY HAVE BEEN PAID ON THE BA SIS OF NUMBERS OF POSITIONS CLOSED AND LEVEL OF DIFFICULTY HANDLED BY EACH. IN STATEMENTS RECORDED ON SUMMON, ALL THREE PERSONS HAVE CONFIRMED THAT ABOVE PAYMENTS WERE MADE TO THEM FOR THE WORK THEY PERFORMED FOR THE ASSESSEE COMPANY. ALL THE THREE ARE ASS ESSED TO TAX & FILED THEIR RETURN SHOWING THE ABOVE INCOME AND WHICH WAS ACCEPTED BY THE DEPARTMENT ALL THE ABOVE PAYMENTS ARE MADE BY CHEQUES AND THE RECEIPT OF PAYMENT WERE ACCEPTED BY THEM IN THEIR STATEMENT. THE STATEMENTS RECORDED BY THE ASSESSING OFF ICER HAVE 4 ITA NO. 34/NAG/2014 NOT BEEN CONFRONTED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. RELYING ON THE SAME WITHOUT CONFRONTING THE ASSESSEE AND ADDING THE SAME IS A GAINST THE PRINCIPLE OF NATURAL JUSTICE. ON THE ABOVE MENTIONED PREPOSITION ASSESSEE PL ACED RELIANCE ON (1980) 125 ITR 713 (SC) KISHANCHAND CHELLARAM V/S - COMMISSIONER OF INCOME TAX. 4. HOWEVER, CONSIDERING THE ABOVE, THE LEARNED CIT(APPEALS) WAS NOT SATISFIED WITH THE ASSESSEES CONTENTION. HE OBSERVED THAT THE ASSESSEE COMPANY HAS NOT FU RNISHED ANY EVIDENCE OF QUALIFICATIONS OF THESE PERSONS WHICH MADE THEM SUITABLE FOR THE JOB PERFORMED. HE REJECTED THE CLAIM OF FILING OF INCOME TAX RETURNS CLAIMING THAT NOMINAL TAXES HAVE BEEN PAID BY THEM. LEARNED CIT(APPEALS) CONCLUDED AS UNDER : AS REGARDS THE CONTENTION OF RECORDED STATEMENTS NOT HAVING BEEN CONFRONTED, COPY OF THE STATEMENTS WAS FILED WITH THE APPEAL, INDICATING THAT THE APPELLANT WAS PROVIDED WITH THE SAME EVEN IF AT A LATER DATE AND AS SUCH, IN APPEAL PROCEEDINGS, THE APP ELLANT HAS HAD SUFFICIENT OPPORTUNITY TO REBUT THE SAME, AND THE WRITTEN SUBMISSIONS NOW MADE IN APPEAL PROCEEDINGS HAVE BEEN AFTER SUCH STATEMENTS WERE AVAILABLE TO THE APPELLANT, AND SO CONSIDERED. IN APPEAL PROCEEDINGS, THE APPELLANT HAS NOT FILED AN Y SUPPORTING EVIDENCE OF THE DUTIES PERFORMED, QUALIFICATIONS OF THE PERSONS, AND THE MERE FACT THAT THE RECEIPTS WERE DECLARED IS NOT SUFFICIENT TO REBUT THE AO'S CONCLUSION AS DISCUSSED ABOVE. 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECOR DS. WE FIND THAT SECTION 40A(2)(A) OF THE ACT PROVIDES FOR DISALLOWANCE OF THAT PART OF EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE TO A SPECIFIED PERSON WHICH IN AO ' S OPINION IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE CASE OR SERVICES OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE 5 ITA NO. 34/NAG/2014 ASSESSEE WHICH IN THE OPINION OF THE ASSESSING OFFICER IS EXCESSIVE OR UNREASONABLE. NOW WE NOTE THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE UNDER SECTION 40A(2)(A) ON THE BASIS OF THE STATEMENT RECORDED FROM THESE PERSONS ON THE GROUND THAT NO DOCUMENTARY EVIDENCE IN SUPPORT OF THE WORK DONE BY THE ABOVE PERSONS WERE SUBMITTED. WE FIND THAT SECTION 40A(2)(A) PROVIDES FOR DISALLOWANCE OF THAT PART OF EXPENDITURE WHI CH HE CONSIDER EXCESSIVE OR UNREASONABLE EXPENSES. WE FIND THAT THERE IS NO RECORD OR FINDING BY THE ASSESSING OFFICER AS TO WHAT IS THE REASONABLE EXPENDITURE IN THIS REGARD. THE ASSESSING OFFICER HAS ALSO NOT HELD THAT THESE EXPENDITURE ARE BOGUS. IN SU CH CIRCUMSTANCES, THERE IS NO COGENT BASIS FOR MAKING ANY DISALLOWANCE UNDER SECTION 40A(2)(A) OF THE ACT. THE ASSESSEE HAS GIVEN DETAIL S ABOUT THE SERVICES OBTAINED FROM THESE PERSONS BEFORE THE CIT(APPEALS) AS ABOVE. IT IS NOT THE CASE OF THE AUTHORITIE S BELOW THAT THE ASSESSEE HAS DONE HIS BUSINESS WITHOUT ANY SERVICES RECEIVED. HENCE COGENT BASIS FOR DISALLOWANCE UNDER SECTION 40A(2)(A) HAVE NOT AT ALL BEEN BROUGHT ON RECORD. FURTHER WE FIND THAT THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER HA S OBTAINED THE STATEMENTS BEHIND BACK OF THE ASSESSEE WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE AND HAS PLACED RELIANCE UPON THE HONBLE APEX COURT DECISION IN THE CASE KISHANCHAND CHELARAM 125 ITR 713. LEARNED CIT(APPEALS) HAS REJECTED THIS CONTEN TION ON THE GROUND THAT THE STATEMENTS WERE AVAILABLE TO THE ASSESSEE IN THE APPELLATE PROCEEDINGS. WE FIND THAT THIS LINE OF REASONING OF THE LEARNED CIT(APPEALS) IS NOT AT ALL SUSTAINABLE. FAILURE AT THE TIME OF ASSESSMENT BY THE ASSESSING OFFICER TO PRO VIDE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD CANNOT BE CURED BY THE LEARNED CIT(APPEALS) IN CLAI M ING THAT THE ASSESSEE HAD THE OPPORTUNITY BEFORE THE LEARNED CIT(APPEALS) IN THE APPELLATE PROCEEDINGS. IN THIS VIEW OF THE MATTER, IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENT, IN OUR CONSIDERED OPINION, THE ASSESSMENT ORDER IS NOT AT ALL 6 ITA NO. 34/NAG/2014 SUSTAINABLE. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 6. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JULY, 2015. SD/ - SD/ - ( MUK UL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 10 TH JULY, 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER ASSI STANT REGISTRAR, ITAT, NAGPUR WAKODE