Shri Kanubhai Ramjibhai Makwana, Anand V. The Income tax Officer,Ward-1, Anand

ITA 3883/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5894 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 18-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M G PATEL
• Keywords: Onus to prove; TDS
• Section: 40A(3); 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 14/06/2010 DRAFTED ON: 15/06/ 2010 1. ITA NO.3883/AHD/2007 A.Y. 2004-05 2. ITA NO.464/AHD/2008 A.Y. 2003-04 KANUBHAI RAMJIBHAI MAKWANA RANGOLI COMPLEX BHALEJ ROAD ANAND VS. THE INCOME TAX OFFICER WARD-1 ANAND PAN/GIR NO. : ACYPM 8211 D (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI M.G. PATEL RESPONDENT BY: SHRI K. MADHUSUDAN, SR. DR O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THESE ARE TWO APPEALS BOTH HAVE BEEN FILED BY TH E ASSESSEE WHICH HAVE EMANATED FROM THE ORDERS OF THE LEARNED CIT(AP PEALS)-IV, BARODA FOR ASSESSMENT YEARS 2003-04 & 2004-05 RESPECTIVELY DATED 30/11/2007 AND 22/08/2007. 2. SOME OF THE GROUNDS ARE IDENTICAL BASED UPON SIM ILAR FACTS, THEREFORE, FOR THE SAKE OF CONVENIENCE, THESE TWO A PPEALS HAVE BEEN CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDE R. GROUND NO.1 FOR ASSESSMENT YEARS 2003-04 & 2004-05 3. THE ISSUE IS IN RESPECT OF DISALLOWANCE OF PAYME NTS TO SUB- CONTRACTORS BY INVOKING THE PROVISIONS OF SECTION 4 0A(2)(B) OF THE I.T. ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 2 - ACT, 1961. FOR ASSESSMENT YEAR 2003-04 THE QUANTUM OF ADDITION WAS RS.2,50,000/- AND FOR ASSESSMENT YEAR 2004-05 THE Q UANTUM INVOLVED IS RS.4,68,707/-. 4. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 24/03 /2006 AS CULLED OUT FROM THE LEAD ASSESSMENT YEAR 2003-04 WERE THAT THE ASSESSEE IN HIS INDIVIDUAL CAPACITY WAS ENGAGED IN THE BUSINESS OF CIVIL CONTRACTOR. IT WAS NOTICED BY THE ASSESSING OFFICER THAT CERTAIN P AYMENTS WERE MADE TO SUB-CONTRACTORS. ON VERIFICATION OF ACCOUNTS, IT WAS FOUND THAT THREE SUCH SUB-CONTRACTORS WERE RELATED TO THE ASSESSEE. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE BILLS SUBMITTED BY T HOSE PARTIES WAS IN RESPECT OF THE WORK UNDERTAKEN BY THEM AT DIFFERENT PLACES. HOWEVER, AS PER ASSESSING OFFICER THOSE BILLS HAVE NOT INDICATE D THE DETAILS OF WORK CARRIED OUT BY THEM. IT WAS ALSO FOUND THAT THE P AYMENTS WERE MADE IN CASH THOUGH EACH PAYMENT WAS SPLIT INTO VARIOUS DA TES EACH BELOW RS.20,000/-. IT WAS ALSO ASKED BY THE ASSESSING OF FICER TO FURNISH SUB- CONTRACT AGREEMENT. IN COMPLIANCE, IT WAS SUBMITTE D THAT THOSE SUB- CONTRACTORS WERE PROVIDING LABOUR AND, HENCE, LABOU R CHARGES WERE PAID TO THEM. THERE WAS DENIAL OF ANY EXISTENCE OF CON TRACT AGREEMENT. IT WAS ALSO EXPLAINED THAT THOSE SUB-CONTRACTORS HAVE CARRIED OUT CIVIL CONSTRUCTION WORK AT DIFFERENT SITES AND THEIR BILL S CONTAINED THE DETAILS OF NATURE OF WORK, MEASUREMENT OF WORK, RATE APPLIED A ND THE ALLOCATION OF THE SITE. IT WAS ALSO EXPLAINED THAT THE CONTRACT GRANTED WHICH WAS STATED TO BE INCLUSIVE OF MATERIAL AND LABOUR CHARG ES. IT WAS ALSO EXPLAINED THAT THE TENDER ITSELF DID NOT BIFURCATE THE RATE OF MATERIAL AND ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 3 - LABOUR CHARGES. HOWEVER, THE LABOUR CHARGES WERE PAID TO THOSE SUB- CONTRACTORS AS PER THE PREVAILING MARKET RATE. THE ASSESSING OFFICER WAS NOT CONVINCED AND ACCORDING TO HIM SINCE THE EXPLAN ATION OF THE ASSESSEE WAS NOT SUPPORTED BY VARIOUS DETAILS SUCH AS BIFURC ATION OF RATE APPLIED OF LABOUR WORK AS ALSO ITEM-WISE MEASUREMENT WAS NOT GIVEN, THEREFORE, THE PAYMENTS WERE EXCESSIVE AS PER THE PROVISIONS OF S ECTION 40A(2)(B) OF THE I.T. ACT, 1961. THE ASSESSING OFFICER HAS DECI DED TO DISALLOW 10% OF THE CLAIM WITH THE RESULT AN ADDITION OF RS.2,50 ,000/- WAS MADE AS PER THE FOLLOWING CALCULATION:- SHRI BHARAT R.MAKWANA RS.10,95,758 SHRI JIGNESH H.PRAJAPATI RS. 7,15,623 SHRI ROHIT H.MAKWANA RS. 6,88,619 TOTAL RS.25,00,000 @ 10% = RS.2,50,000 5. LIKE-WISE FOR ASSESSMENT YEAR 2004-05, THE 10% DISALLOWANCE WAS CALCULATED IN THE FOLLOWING MANNER :- SHRI JIGNESH H.MAKWANA RS.14,21,245 SHRI ROHIT H.MAKWANA RS.10,35,980 SHRI DEEPAK H.MAKWANA RS.10,25,510 SHRI BHARAT R.MAKWANA RS.16,61,335 TOTAL LESS : CASH PAYMENT CONSIDERED SEPTLY. (185000 + 271500) RS.51,44,070 RS.4,57,000 RS.46,87,070 @ 10% ON RS.46,87,070/- IS RS.4,68,707/- ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 4 - 6. THE ISSUE WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. THE LEARNED CIT(APPEALS) HAS AFFIRMED THE ACTION OF TH E ASSESSING OFFICER PRIMARILY ON THE GROUND THAT THE APPELLANT WAS GIVEN OPPORTUNITY BUT HE HAD FAILED TO SUBMIT EVIDENCE TO ESTABLISH THE REASONABLENESS OF THE EXPENDITURE. THE LEARNED CIT (APPEALS) VIDE PARAGRAPH NO.3.3 HAS ALSO OBSERVED THAT APART FROM REITERATING WHAT WAS SUBMITTED BEFORE THE ASSESSING OFFICER, THE LEA RNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE COULD NOT ESTABLISH THAT THE ENTIRE EXPENDITURE HAD BEEN INCURRED FOR THE PURPOSE OF B USINESS. FOR ASSESSMENT YEAR 2004-05, THE LEARNED CIT(APPEALS) H AS DECIDED THE ISSUE AGAINST THE ASSIGNING THOSE VERY REASONS AS HELD IN THE PAST. NOW THE ASSESSEE IS IN APPEAL FOR BOTH THE Y EARS. 7. FROM THE SIDE OF THE REVENUE SHRI K.MADHUSUDAN, SR.D.R. APPEARED AND SUPPORTED THE ACTION OF THE AUTHORITIE S BELOW. HE HAS ARGUED THAT THERE WAS NO AGREEMENT FOR SUCH PAYMENT , HENCE, THE ASSESSING OFFICER HAS RIGHTLY MADE THE DISALLOWANCE . THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO MENTIONED THAT THOUGH THE RETURNS OF THOSE SUB-CONTRACTORS WERE FURNISHED BUT THE PURPOSE WAS SIMPLY TO GET THE RE-FUND OF THE TDS AMOUNT. THE ONUS WAS ON THE ASSESSEE TO PROVE THE REASONABLENESS OF THE EXPENDI TURE. SINCE THE ASSESSEE HAS NOT DISCHARGED THE ONUS, THEREFORE, TH E ISSUE IS COVERED BY THE DECISION OF CIT VS. SHATRUNJAY DIAMONDS RE PORTED AS (2003) 261 ITR 258 (BOMBAY). ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 5 - 8. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH AND ALSO CAREFULLY PERUSED THE ORDERS OF AUTHORITIES BELOW I N THE LIGHT OF THE COMPILATION FILED BEFORE US. CERTAIN IMPORTANT POI NTS AS RAISED BEFORE US FOR CONSIDERATION WERE THAT THE ACCOUNTS BEING AUDITED AS PRESCRIBED U/S.44AB OF THE I.T. ACT, 1961, THEREFOR E, THERE WAS NO REASON TO DISALLOW THE CLAIM OF EXPENDITURE. THAT THE SUB- CONTRACTORS WERE SEPARATELY ASSESSED TO TAX BY FILI NG THEIR RESPECTIVE RETURNS. THAT THE TDS WAS DEDUCTED ON THE SAID PAY MENT AND THE DETAILS WERE FURNISHED BEFORE THE ASSESSING OFFICER . FINALLY, IT WAS VEHEMENTLY ARGUED THAT THE STATUTE DO NOT PRESCRIBE AN ADHOC DISALLOWANCE AND FOR A DISALLOWANCE THE ASSESSING O FFICER OUGHT TO HAVE EAR-MARKED A PARTICULAR PAYMENT AS EXCESSIVE O R UNREASONABLE. REGARDING THE ONUS TO PROVE THAT THE IMPUGNED PAYME NT WAS UNREASONABLE OR EXCESSIVE, A RELIANCE WAS PLACED O N THE CBDT CIRCULAR NO.6-P (LXXVI-66) OF 1968, DATED 6 TH JULY, 1968 WHEREIN VIDE PARAGRAPH NO.74 AN OBSERVATION IS THAT THE INC OME-TAX OFFICER IS EXPECTED TO EXERCISE HIS JUDGMENT IN A REASONABL E AND FAIR MANNER. THE BOARD SAYS THAT IT SHOULD BE BORNE IN MIND THA T THE PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELATIVES AND ASSOCIATE-CONCERNS AND SH OULD NOT BE APPLIED IN A MANNER WHICH WILL CAUSE HARDSHIP IN B ONA FIDE CASES. IN THIS CONTEXT, THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE HAS PLEADED THAT THERE WAS NO EVASION OF TAX IN THE PRESENT ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 6 - CASE BECAUSE THOSE SUB-CONTRACTORS HAVE FILED THEIR INCOME-TAX RETURNS INDEPENDENTLY. IN SUPPORT OF THE CONTENTI ON, A RELIANCE HAS BEEN PLACED ON THE DECISION OF ITAT MUMBAI BENCH B IN THE CASE OF ITO VS. M.M. TEXTILES REPORTED AS [2009] 3 1 SOT 207 (MUM.) FOR THE PROPOSITION THAT IT IS NECESSARY ON THE PART OF THE ASSESSING OFFICER TO PROVE THAT THE EXPENDITURE WAS EXCESSIVE OR UNREASONABLE. THE NEXT PLANK OF ARGUMENT WAS THAT FOR THE PURPOSE OF INVOCATION OF SECTION 40A(2)(B) OF THE I.T. ACT , 1961, THERE IS NO SCOPE OF ADHOC ADDITION. IN SUPPORT OF THIS ARGUME NT, A RELIANCE WAS PLACED ON THE DECISION OF ITAT JODHPUR BENCH IN THE CASE OF NEHA PROTEINS VS. ASST.CIT REPORTED AS (2004) 83 TTJ (JD ) 236. IN THIS CONTEXT, ONE MORE DECISION, VIZ. SHYAM OIL CAKE LTD . VS. ASSTT.CIT REPORTED AS (2004) 83 TTJ (JD) 414 HAS ALSO BEEN CI TED. IN ONE OF THE CASE OF BATIVALA & KARANI VS. ASST.CI T REPORTED AS [2005] 2 SOT 379 (MUM.) AN OBSERVATION WAS MADE THAT THE UNREASONABLENESS SHOULD BE BASED UPON SOME SUBJECTI VE PERCEPTIONS OF THE ASSESSING OFFICER AND DISALLOWANCE SHOULD BE BASED UPON SOME COGENT MATERIAL ON RECORD. SINCE IN THE PRES ENT CASE, THESE BASIC REQUIREMENTS WERE WANTING, HENCE, WE ARE OF T HE VIEW THAT THE APPROACH OF THE ASSESSING OFFICER OF ADHOC DISALLOW ANCE WAS UNWARRANTED, THEREFORE, CANNOT BE APPROVED IN THE E YES OF LAW CONSIDERING THE INTENTION OF THE LEGISLATURE AND TH E LAW LAID DOWN BY VARIOUS JUDICIAL AUTHORITIES. THE FINDINGS OF THE AUTHORITIES BELOW ARE, THEREFORE, HEREBY REVERSED. GROUND ALLOWED IN BOTH THE YEARS. ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 7 - GROUND NO.2 FOR ASSESSMENT YEARS 2003-04 & 2004-05 9. GROUND NO.2 FOR ASSESSMENT YEARS 2003-04 & 2004- 05 IS IN RESPECT OF DISALLOWANCE U/S.40A(3) OF THE I.T. ACT , 1961. FOR ASSESSMENT YEAR 2003-04 THE ADDITION WAS AT RS.1,91 ,800/- AND FOR ASSESSMENT YEAR, IT WAS RS.91,400/-. THE ASSESSING OFFICER HAS FOUND THAT THE PAYMENTS MADE TO CERTAIN SUB-CONTRAC TORS WERE IN CASH. IT WAS NOTED BY HIM THAT THOUGH TDS WAS DED UCTED BUT OVERALL PAYMENT WAS MADE IN CASH AND THE TOTAL OF T HE SAME WAS IN EXCESS OF THE PRESCRIBED LIMIT OF RS.20,000/-. IN HIS OPINION, IT WAS IMPERATIVE TO MAKE THE PAYMENT ABOVE RS.20,000/- IN CASH ON DAILY BASIS BECAUSE ADMITTEDLY THE PAYEE DID NOT HAVE TH E BANK ACCOUNTS. AS PER THE ASSESSING OFFICER, THE PAYMENT WAS SPLIT BELOW RS.20,000/- DELIBERATELY ON EACH DAY, THOUGH A HUG E CASH PAYMENT WAS MADE. ONLY SELF-MADE VOUCHERS WERE PREPARED. IN HIS OPINION, THERE WAS NO JUSTIFICATION FOR MAKING THE CASH PAYMENT WHICH WERE IN VIOLATION OF THE PROVISIONS OF SECTIO N 40A(3) OF THE I.T. ACT, 1961. SINCE THE TOTAL AMOUNT WAS RS.9,59 ,000/-, THEREFORE, FOR ASSESSMENT YEAR 2003-04, 20% OF THE SAME AMOUNT ING TO RS.1,91,800/- WAS DISALLOWED. LIKEWISE, FOR ASSESS MENT YEAR 2004-05 ON THE TOTAL AMOUNT OF RS.4,57,000/-, 20% D ISALLOWANCE OF RS.91,400/- WAS MADE. ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 8 - 10. WHEN THE ISSUE WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY THE ACTION OF THE ASSESSING OFFICER WAS AFFIRMED MA INLY ON THE GROUND THAT THERE WAS NOTHING TO STOP THE ASSESSEE FROM MAKING PAYMENT BY CHEQUE. IN HIS OPINION, ONCE THE ASSESS EE AS WELL AS THE SUB-CONTRACTORS, BOTH OF THEM WERE HAVING BANK ACC OUNTS, THEREFORE, THERE WAS NO REASON FOR MAKING THE CASH PAYMENTS. SINCE THE ACTION OF THE ASSESSING OFFICER WAS AFFIRMED, THEREFORE, T HE ASSESSEE IS NOW FURTHER IN APPEAL. 10.1. FROM THE SIDE OF THE APPELLANT, SHRI M.G. P ATEL, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE PLACED TH E FOLLOWING RELIANCE:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. CIT VS. KOTHARI SANITATION & TILES PVT.LTD. 282 ITR 117 (MAD.) 2. CIT VS. TRIVENIPRASAD PANNALAL 228 ITR 680 3. CIT VS. ALOO SUPPLY CO. 121 ITR 680 (ORI.) 4. SHREE MAHAVIR CORPORATION VS. ITO 258 ITR (AT) 55 11. ON HEARING BOTH THE SIDES AS WELL AS ON CAREFUL PERUSAL OF THE RELEVANT ACCOUNTS, THE ADMITTED FACTUAL POSITION IS THAT ON EACH DAY THERE WAS NOT A SINGLE ENTRY OF CASH PAYMENT EXCEED ING THE LIMIT OF RS.20,000/-. ONCE IT WAS AN ADMITTED POSITION THA T ON A SINGLE DAY EACH CASH ENTRY HAD NOT EXCEEDED THE PRESCRIBED LIM IT OF ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 9 - RS.20,000/-, THEREFORE, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER HAS WRONGLY INVOKED THE PROVISIONS OF SECTI ON 40A(3) OF THE I.T. ACT, 1961. IN OUR CONSCIENTIOUS VIEW, SUCH D ISALLOWANCE WAS OUT OF THE SCOPE AND AMBITS OF THE PROVISIONS OF SE CTION 40A(3) OF THE I.T. ACT, 1961, THEREFORE, WE HEREBY DIRECT TO DELETE THE SAME. FOR BOTH THE YEARS, THIS GROUND IS HEREBY ALLOWED. GROUND NO.3 FOR ASSESSMENT YEAR 2004-05 12. FOR ASSESSMENT YEAR 2004-05 THE APPELLANT HAS A LSO RAISED GROUND NO.3 IN RESPECT OF TELEPHONE EXPENSES DISAL LOWANCE AND PETROL EXPENSES DISALLOWANCE. AT THE TIME OF HEAR ING, THIS GROUND IS NOT CONTESTED BEING TRIFLE IN NATURE BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE, THEREFORE, HEREBY D ISMISSED BEING NOT PRESSED. 13. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEAR 2003-04 IS ALLOWED AND FOR ASSESSMENT YEAR 20 04-05 IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/ 06 /2010. SD/- SD/- ( N.S. SAINI ) ( MUKUL SHRAWA T ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 18 / 06 /2010 T.C. NAIR, SR. PS ITA NO.388 3/AHD/2007 AND ITA NO.464/AHD/2008 KANUBHAI RAMJIBHAI MAKWANA VS. ITO ASST.YEARS 2004-05 & 2003-04 (RESPECTIVELY) - 10 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, BARODA 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD