M/s S. Kumar Constructions, Kanpur V. Income Tax Officer-3(4), Kanpur

ITA 45/LKW/2014

• Counselvise Citation: 4523714 RSA 2014
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Difference of opinion; Agreed addition; Change of opinion
• Section: 147; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.45/LKW/2014 ASSESSMENT YEAR:2008 - 09 M/S S. KUMAR CONSTRUCTIONS, 128/131/7 K BLOCK, KIDWAI NAGAR, KANPUR. PAN:AAXFS5247C VS. INCOME TAX OFFICER - 3(4), KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED ON BEHALF OF ASSESSEE AGAINST THE ORDER OF CIT(A), INTER ALIA, ON VARIOUS GROUNDS, WHICH ARE AS UNDER: 1. THAT THE NOTICE ISSUED U/S 148 OF THE INCOME TAX ACT, 1961 DATED 25.05.2010 IN THE PRESENT CASE IS ILLEGAL AND CONSEQUENTLY THE ASSESSMENT ORDER PASSED U/S 147/143(3) OF THE INCOME TAX ACT, 1961 VIDE ORDER DATED 14.11.2013 IS INSUPPORTABLE IN LAW AND ON FACTS. 2. THAT THE LD. CIT(A) - II, KANPUR HAS ERRED IN LAW AND ON F ACTS IN HOLDING THAT THE A.O. HAS RIGHTLY ISSUED THE NOTICE U/S 148 OF THE INCOME TAX ACT, 1961 ALTHOUGH THE SAME WAS ISSUED MERELY ON THE 'CHANGE OF OPINION' WITHOUT ADEQUATE OR SUFFICIENT REASON(S) OR BASIS, HENCE THE CONSEQUENT ASSESSMENT ORDER WAS LIAB LE TO BE QUASHED. 3. THAT A.R. OF THE APPELLANT WAS NOT VESTED WITH ANY AUTHORITY UNDER THE POWER OF ATTORNEY GIVEN TO HIM BY APPELLANT BY SHRI SWARAN SINGH, F.C.A. SHRI S. K. JAIN, F.C.A. RESPONDENT BY SHRI AJAY KUMAR, D.R. DATE OF HEARING 28/02/2014 DATE OF PRONOUNCEMENT 1 1 / 0 4 / 2 0 1 4 2 THE APPELLANT FIRM OR OTHERWISE TO AGREE TO ENHANCEMENT OF INCOME IN ANY MANNER WHATSOEVER THEREFORE, THE ADDITION (ENHANCEMENT) MADE BY THE LD. A.O. IN THE GARB OF AGREED ADDITION IS ILLEGAL AND WITHOUT ANY BASIS AND LIABLE TO BE DELETED. 4. THAT THE LD. CIT(A) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN ARBITRARILY ENHANCING THE ASSESSED INCOME BY A SUM OF RS.20 LACS ON ACCOUNT OF ALLEGED UNVERIFIABLE LABOUR CHARGES AFTER HIMSELF ACCEPTING THE ESTIMATED NET PROFIT RATE OF 10% & ALSO ACCEPTING THE APPELLANT'S CLAIM OF ALLOWANCE OF INTEREST AND REMUNERATION TO THE PARTNERS. 5. THAT THE LD. CIT(A) - II KANPUR HAS ALSO ERRED IN LAW A ND ON FACTS IN NOT ISSUING AND SERVING ANY SHOW CAUSE NOTICE U/S 251 OF THE INCOME TAX ACT, 1961 ON THE APPELLANT FIRM BEFORE ENHANCEMENT OF INCOME, THEREFORE, THE ORDER IS BAD IN LAW, CONTRARY TO THE FACTS AND LIABLE TO BE QUASHED/ANNULLED. 6. THAT THE L D. C.I.T.(A) - II, KANPUR HAS MIS - STATED THAT THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS AGREED FOR THE ENHANCEMENT OF INCOME BY RS.20.00 LACS BY ORDER SHEET ENTRY DATED 24.10.2013, WHICH IS INCORRECT THEREFORE CONSEQUENT ADDITION (ENHANCEMENT) IS LIA BLE TO BE DELETED. 7. THAT THE LD. C.I.T ( A) - II , KANPUR HAS ERRED IN LAW AND ON FACTS IN NOT PROPERLY ADJUDICATING THE GROUND OF APPEAL NO. 8 TAKEN BY THE APPELLANT BEFORE HIM. 8. THAT THE ADDITIONS/DISALLOWANCES MADE BY THE LD. CIT(A) - II, KAN PUR ARE WHOLLY UNJUSTIFIED, UNFOUNDED, WITHOUT PROPER BASIS AND IN ANY CASE MUCH TOO HIGH AND EXCESSIVE. 9. THAT THE IMPUGNED ORDER IS ILLEGAL AND IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND EQUITY, THEREFORE, THE SAME IS LIABLE TO BE QUAS HED. 10. THAT ANY OTHER RELIEF OR RELIEFS AS YOUR HONOUR MAY DEEM LIT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, BE GRANTED. 3 2. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS OF APPEAL BUT THESE GROUNDS RELATE MAINLY ON THREE ISSUES. FIRST IS THE VALIDITY OF THE REOPENING OF THE ASSESSMENT AND ISSUANCE OF NOTICE U/S 148 AND THE SECOND IS THE ENHANCEMENT OF THE INCOME BY THE CIT(A) WITHOUT ISSUING NOTICE TO THE ASSESSEE AND THIRD IS THE ADDITIONS MADE BY THE ASSESSING OFFICER AND SUSTAI NED BY CIT(A) MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST AND REMUNERATION PAID TO THE PARTNERS. 3. BEFORE PROCEEDING ON MERIT, IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE HAS NOT BEEN MAINTAINING REGULAR BOOKS OF ACCOUNT AND DID NOT GET ITS BOOKS O F ACCOUNT AUDITED AS PER THE PROVISIONS OF SECTION 4 4AB OF THE INCOME - TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) THOUGH HIS GROSS RECEIPTS CROSSED THE LIMIT AS IT HAS BEEN SHOWN AT RS.55,15,358/ - . ON ACCOUNT OF NON MAINTENANCE OF BOOKS OF ACCOUNT, THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST AND REMUNERATION PAID TO THE PARTNERS AS THE BOOKS OF ACCOUNT WERE NOT MAINTAINED AND COMPUTED THE INCOME AT 10% OF THE GROSS RECEIPTS BESIDES THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST AND REMUNERATION TO PARTNERS. AN APPEAL WAS PREFERRED BEFORE THE CIT(A) AND THE CIT(A) BESIDES SUSTAINING THE ADDITION HAS ALSO DISALLOWED 50% OF THE LABOUR CHARGES CLAIMED BY THE ASSESSEE AND ACCORDINGLY THE INCOME WAS ENHANCED BY RS.20 LAC. THOUGH THE CIT(A) HAS OBSERVED IN HIS ORDER THAT WHILE ENHANCING THE INCOME BY RS.20 LAC , THE LEARNED COUNSEL FOR THE ASSESSEE HAS AGREED TO IT BUT IN FACT THERE WAS NO SPECIFIC AGREEMENT ON BEHALF OF THE ASSESSEES COUNSEL THROUGH HE HAS SIGNED THE ORDER SHEET ENHANCING THE INCOME OF RS.20 LAC ON ACCOUNT OF DISALLOWANCE OF LABOUR EXPENSES. 4. THE ASSESSEE HAS CHALLENGED BEFORE US THE VALIDITY OF THE REOPENING OF THE ASSESSMENT AND ISSUANCE OF NOTICE U/S 148 OF THE ACT BESIDES THE ADDITIONS CONFIRMED BY CIT(A) AND ALSO THE ADDITION MADE ON ACCOUNT OF ENHANCEMENT OF INCOME. 4 5. SO FAR AS THE I SSUE OF VALIDITY OF REOPENING OF THE ASSESSMENT IS CONCERNED, IT IS CLEAR FROM THE RECORD THAT THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT AND NOTHING WAS PLACED BEFORE THE ASSESSING OFFICER WHILE FILING THE RETURN OF INCOME. THE RETURN OF INCOME WAS ORIGINALLY PROCESSED U/S 143(1) OF THE ACT. LATER ON, HAVING NOTED THAT THE ASSESSEE APPLIED THE NET PROFIT RATE OF 10% ON THE TOTAL RECEIPTS AND THEREAFTER CLAIMED INTEREST AND REMUNERATION PAID TO PARTNERS AND FILED THE RETURN OF INCOME AT NIL, THE ASSESSING OFFICER HAS FORMED BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THOUGH THE ASSESSEE HAS CLAIMED THAT THE ASSESSMENT WAS REOPENING ON ACCOUNT OF CHANGE OF OPINION BUT WE ARE OF THE VIEW THAT THE ORIGINALLY RETURN WAS PROCESSE D U/S 143(1), THEREFORE, IT CANNOT BE SAID THAT WHILE PROCESSING THE RETURN U/S 143(1), THERE IS APPLICATION OF MIND OF THE ASSESSING OFFICER IN ANY OF THE ISSUES INVOLVED. HAVING NOTED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, THE ASSESSING O FFICER HAS ISSUED NOTICE U/S 148 OF THE ACT AND FRAMED THE ASSESSMENT U/S 147 OF THE ACT. WE, THEREFORE, ARE OF THE VIEW THAT THERE IS NO IRREGULARITY OR ILLEGALITY IN THE REOPENING OF THE ASSESSMENT IN THE LIGHT OF THE JUDGMENT OF HON'BLE APEX COURT IN T HE CASE OF ASSISTANT COMMISSIONER OF INCOME - TAX VS RAJESH JHAVERI STOCK BROKERS P. LTD. [2007] 291 ITR 500. WE, THEREFORE FIND NO MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY WE DISMISS THE SAME. 6. SO FAR AS OTHER GROUNDS OF ESTIMATION OF INCOME AND DISALLOWANCE OF INTEREST AND REMUNERATIONS PAID TO PARTNERS IS CONCERNED, WE FIND THAT THE ASSESSEE HAS HIMSELF DECLARED NET PROFIT AT 10% OF THE GROSS RECEIPTS. THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST AND REMUNERATION PAID TO PARTNERS FOR THE R EASONS THAT THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT, THEREFORE, IN THE ABSENCE OF BOOKS OF ACCOUNT, HOW THE ASSESSEE CAN CLAIM INTEREST AND REMUNERATION PAID TO ITS PARTNERS. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO 5 ADMITTED THAT THE ASSESSEE HAS NEVER MAINTAINED ANY BOOKS OF ACCOUNT AND ALL THE TIMES HE HAS FURNISHED THE RETURN ON ESTIMATE BASIS. IT WAS ALSO BROUGHT TO OUR NOTICE THAT ON ACCOUNT OF NON MAINTENANCE OF BOOKS OF ACCOUNT PENALTY U/S 271A WAS AL SO SLAPPED ON THE ASSESSEE . T HEREFORE, IT IS A CASE WHERE THE ASSESSEE IS IN A HABIT OF NON MAINTENANCE OF BOOKS OF ACCOUNT AND FILED THE RETURN ON ESTIMATE BASIS. UNDER SUCH CIRCUMSTANCES, THE ASSESSEE CANNOT GET THE BENEFIT OF ITS OWN WRONG . MOREOVER, THE CONDUCT OF THE ASSESSEE CANNOT BE APPRECIATED. THEREFORE, THE CLAIM OF INTEREST AND REMUNERATION PAID TO PARTNERS CANNOT BE ENTERTAINED WITHOUT VERIFYING THE RECORDS OF THE ASSESSEE. ADMITTEDLY, THE BOOKS OF ACCOUNT ARE NOT AVAILABLE FOR VERIFICATIO N, THEREFORE, THE VERACITY OF THE CONTENTION OF THE ASSESSEE THAT HE HAS PAID THE INTEREST AND REMUNERATION TO PARTNERS CANNOT BE VERIFIED. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF INTEREST AND REMUNERATION PAID TO PARTNERS ON THE GROUND THAT THE SAID CLAIM COULD NOT BE VERIFIED IN THE ABSENCE OF BOOKS OF ACCOUNT, THEREFORE, WE FIND NO INFIRMITY IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ON PERUSAL OF THE RETURN OF INCOME, WE NOTICE THAT THE ASSESSEE HAS SET OFF ALL THE NET PROFIT COMPUTE D ON ESTIMATED BASIS OF 10% OF TOTAL RECEIPT WITH THE INTEREST AND REMUNERATION PAID TO PARTNERS AND FILED THE RETURN OF INCOME AT NIL INCOME. IF THIS PRACTICE IS ALLOWED TO BE DONE, SUCH TYPE OF ASSESSEE WOULD NEVER MAINTAIN BOOKS OF ACCOUNT AND WOULD NO T FILE THE CORRECT RETURN OF INCOME FOR ASSESSMENT. WE, THEREFORE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE PAYMENT OF INTEREST AND REMUNERATION TO ITS PARTNERS IN THE ABSENCE OF BOOKS OF ACCOUNT. 7. SO FAR AS THE ENHANCEMENT OF INCOME OF RS.20 LAC IS CONCERNED, WE FIND THAT CIT(A) HAS DISALLOWED 50% OF LABOUR EXPENSES ON THE GROUND THAT THE EXPENSES ARE NOT VERIFIABLE DUE TO NON MAINTENANCE OF PROPER BOOKS OF ACCOUNT. IN THIS REGARD THE CIT(A) HAS OBSERVED IN HIS ORDER THAT T HE LEARNED COUNSEL FOR THE ASSESSEE HAS AGREED TO IT BUT THERE IS NO 6 SPECIFIC AGREEMENT IN THE ORDER SHEET AS COPY OF THE ORDER SHEET IS PLACED ON RECORD. WE FIND THAT IN THE ORDER SHEET THE CIT(A) HAS MENTIONED THE FACTS OF ENHANCEMENT OF INCOME OF RS.20 LAC ON ACCOUNT OF NON VERIFICATION OF LABOUR EXPENSES BUT THE ASSESSEES COUNSEL DID NOT AGREE TO IT . H E HAS SIMPLY PUT SIGNATURE ON THE ORDER SHEET WHICH CANNOT BE CALLED AN AGREEMENT ON THE PART OF THE COUNSEL OF THE ASSESSEE. MOREOVER, WHEN THE CIT(A) HAS AGREED TO THE ESTIMATION OF NET PROFIT OF THE ASSESSEE AT 10% OF THE GROSS RECEIPTS, THE SEPARATE DISALLOWANCE ON ACCOUNT OF LABOUR EXPENSES IS NOT CALLED FOR IN THE ABSEN CE OF BOOKS OF ACCOUNT. WE, THEREFORE, FIND NO MERIT IN ENHANCEMENT MADE BY CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION OF RS.20 LAC. WE, HOWEVER, AGREE WITH THE INCOME ASSESSED BY THE ASSESSING OFFICER BY MAKING THE DI SALLOWANCE OF INTEREST AND REMUNERATION PAID TO PARTNERS. ACCORDINGLY, THE ORDER OF CIT(A) IS SET ASIDE AND ORDER OF ASSESSING OFFICER IS RESTORED. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON 1 1 / 0 4 / 2 0 1 4 ) SD/. SD/. ( A. K. GARODIA ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 1 / 0 4 / 2 0 1 4 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR