Sri K. Narendrareddy, Hyderabad V. ITO,Ward 15(3), Hyderabad

ITA 531/HYD/2014

• Counselvise Citation: 53122514 RSA 2014
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 26-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1805/HYD/13 : ASSESSMENT YEAR 2007 - 08 ITA NO.531/HYD/14 : ASSESSMENT YEAR 2008 - 09 SHRI K.NAREND R A REDDY, (PROP. - - SRI AVANTHIKA CONTRACTORS), HYDERABAD (PAN AELPK 9920 J ) V/S. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 16(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI A.SRINIVAS RESPONDENT BY : SHRI SOLGY JOSE T.KOTTARAM DR DATE OF HEARING 1 .0 7 .2014 DATE OF PRONOUNCEMENT 9. 0 7.2014 O R D E R PER B.RAMAKOTAIAH, ACCOUNTANT MEMBER: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME - TAX(APPEALS) II , HYDERABAD , BOTH DATED 28 . 10 .2013, IN THE CONTEXT OF THE ORDERS PASSED BY THE ASSESSING OFFICER UNDER S.201(1) AND S.201(1A) OF THE INCOME TAX ACT,1961, FOR THE ASSESSMENT YEAR 2007 - 08 AND 2008 - 09. SINCE FAC TUAL BACKGROUND AND THE ISSUES INVOLVED IN BOTH THESE APPEALS ARE COMMON, THEY ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FACTS OF THE CASE IN BRIEF, COMMON FOR BOTH THE YEARS, ARE THAT THE ASSESSEE IS ENGAGED IN THE B USINESS O F EXECUTION OF CIVIL CONTRACT WORKS. A SURVEY OPERATION UNDER S.133A OF THE INCOME TAX ACT,1961 WAS CONDUCTED ON 24.3.2008 IN THE BUSINESS PREMISES OF M /S. SRI AVANTHIKA C ONTR A CTORS, WHICH IS A PROPRIET A RY CONCERN OF SHRI K. NA RENDR A REDDY. FOLLOWING THE SURVEY, SUMMONS UN D ER S.131 AND LETTERS W E RE ISSUED TO THE I TA NO . 1805 /HYD/201 3 & ANR. SHRI K.NAREND R A REDDY, HYDERABAD 2 ASSESSEE CALLING FO R THE BOOKS O F ACC O UNT AND OTHER RELEVANT DETAIL S RELATING TO TD S FOR THE FINANCIAL YEARS 2006 - 07 AND 2007 - 0 8. ON EXAMINING THE INFORMATION FILED AND THE B OOKS OF ACCOUNT, INSTANCES OF VIOLATION OF TDS PROVISIONS AND NON - DEDUCTION OF TAX AT SOURCE WERE OBSERVED IN RELATION TO PAYMENTS MADE BY THE ASSESSEE BY WAY OF TRANSPORTATION CHARGES , RENT, PROFESSIONAL CHARGES, FINANCIAL CHARGES, EARTH WORKS/LABOUR PAYM ENTS MADE. ACCORDINGLY PROCEEDINGS WERE INITIATED IN TERMS OF S.201(1)/S.201(1A) OF THE ACT, TREATING T HE ASSESSEE AS AN ASSESSEE - IN - DEFAULT, IN RELATION TO THE VARIOUS PAYMENTS MADE DURING THE YEARS UNDER CONSIDERATION . NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE IN RESPONSE, THE ASSESSING OFFICER ULTIMATELY, VIDE ORDERS DATED 31.3.2011, RAISED TOTAL DEMAND S OF RS.23,769,575 UNDER S.201(1) AND OF RS.14,38,806 UNDER 201(1A) , AGGREGATING TO RS.38,18,384, FOR THE ASSESSMENT YEAR 2007 - 08, AND OF RS. 77 ,76,244 UNDER S.201(1) AND OF RS.43,49,416 UNDER S.201(1A) OF THE ACT , AGGREGATING TO RS.1,24,15,659 FOR THE ASSESSMENT YEAR 2008 - 09 , IN RELATION TO VARIOUS PAYMENTS MADE UNDER THE ABOVE HEADS DURING THE YEARS UNDER APPEAL. 3. ON APPEAL, THE CIT(A) SUSTAINED THE ORDER OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2007 - 08 IN ITS ENTIRETY AND DISMISSED THE APPEAL OF THE ASSESSEE FOR THAT YEAR. SHE, HOWEVER, BY THE IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2008 - 09 , ACCEPTED THE CONTENTIONS OF THE ASSES SEE WITH REGARD TO COMPLIANCE WITH THE TDS PROVISIONS IN RESPECT OF PAYMENTS TO SUB - CONTRACTORS, AND NON - APPLICABILITY OF TDS PROVISIONS TO THE MOBILIZATION CHARGES PAID MADE TO HINDUSTAN STEEL WORKS CONSTRUCTIONS LIMITED AND AIRPORT AUTHORITY OF INDIA, WH ICH ARE GOVERNMENT ORGANISATIONS, AND CONSEQUENTLY PARTLY ALLOWED THE APPEAL OF THE ASSESSEE FOR THAT YEAR. 4. AGGRIEVED, ASSESSEE PREFERRED THESE APPEALS BEFORE US FOR THE ASSESSMENT YEARS 2007 - 08 AS WELL AS 2008 - 09 I TA NO . 1805 /HYD/201 3 & ANR. SHRI K.NAREND R A REDDY, HYDERABAD 3 5. GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITA NO.1805/HYD/2013 FOR ASSESSMENT YEAR 2007 - 08 READ AS FOLLOWS - 1. THE ORDER OF THE A. O . IS CONTRARY TO LAW, FACTS AND CIR C UM S TANCES OF THE CASE. 2. THE A.O. OUGHT NOT TO HAVE DETERMINED THE SHO R T DEDUCTION WITH RESPECT TO EARTH WORK/L ABOU R CHARGES WHEN THERE WAS NO SHO R T DEDUCTION. 3. THE APPELLATE COMMISSIONER OUGHT NOT TO HAVE CONFIRMED THE ABO VE ACTION OF THE A. O . DETERMINING THAT THERE WAS SHO R T DEDUCTION OF TDS WITH RESPE C T TO EARTH WORK AND LABOU R PAYMENTS. 4. THE A.O. OUGHT N O T TO HAVE DETERM I N ED THE INTEREST U/S. 201(1A) ON TH E ABO V E SHO R T DE D UC T ION AND THE APPELLATE COM M ISSION E R OUGHT NOT TO HAVE CONFI R MED THE IN T ER E ST. 5. . 6. IN ADDITION TO THE GROUNDS OF GENERAL NATURE BEING 1, 4 AND 5 ABOVE, ON ISSUE OF SHORT DEDUCTION OF TAX WITH RESPECT TO EARTH WORK/LABOUR CHARGES, IDENTICAL CORRESPONDING GROUNDS HAVE BEEN RAISED IN ITA NO.531/HYD/2014 FOR THE ASSESSMENT YEAR 2008 - 09 AS WELL, WHICH APPEAR AS GROUNDS NO.4, 5 AND 6. THROUGH GROUNDS NO.2 AND 3 OF THE APPEAL FO R ASSESSMENT YEAR 2008 - 09, THE ASSESSEE CONTESTS THE DETERMINATION OF SHORT DEDUCTION OF TAX WITH RESPECT TO FINANCIAL CHARGES. 7. LET US FIRST CONSIDER THE COMMON GROUNDS RELATING TO SHORT DEDUCTION OF TAX WITH RESPECT TO PAYMENTS MADE BY THE ASS ESSEE TOWARDS EARTH WORK/LABOUR CHARGES , ALLEGEDLY WITHOUT COMPLYING WITH THE TDS PROVISIONS. 8. LEARNED COUNSEL FOR THE ASSESSEE, REITERATING THE CON T ENTION S URGED BEFORE THE R E VENUE AUTHO R ITI E S SUBMI T TED THAT ASSESSEE IS IN THE BUSINESS OF EXECUTING CO NTRACTS AND THESE PAYMENTS PERTAIN TO EXCAVATION, CUTTING OF EARTH FOR RESERVOIRS, BUNDING, CANAL LINING WORK, ETC. AND THE BULK OF CONTRACTS WERE FOR GOVERNMENT, AND MAJORITY OF THE WORKS HAPPEN I TA NO . 1805 /HYD/201 3 & ANR. SHRI K.NAREND R A REDDY, HYDERABAD 4 IN REMOTE PLACES. HE FURTHER SUBMITTED MAJOR CHUNK OF EXPEN DITURE PERTAIN TO LABOUR PA Y MENT S AND AT ANY POINT O F TIME, 30 0 0 TO 4000 LABOU R WERE WORKING IN VARIOUS SITES, AND TH E SE LABOUR ARE DIVIDED INTO TEAMS AND PL A CED UNDER SUPERVISORS. BOOK S WERE MAIN T AIN E D TO MONITOR THE MAN HOURS PUT IN BY THE LABOU R , WHICH FORM THE B A SIS FOR WAGES TO B E PAID. HE FURTHER SUBMI T TED THAT THERE ARE NO SUB - CON T RACTORS FOR THE LABOUR AND ALL THE LABOU R WERE DIRECTLY EMP L OYED BY TH E ASSESSEE AND THE PAYMENTS WERE MADE DIRECTLY BY THE ASSESSEE TO THE LABOUR, EITHER DAILY OR WEEKLY OR FORTNIGHTLY AT VARIOUS SITES DEPENDING ON THE NATURE OF WORK. PLACING RELIANCE ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V/S. KALINDI AGRO BIOTECH LTD. (2012) 20 TAXMANN.COM.339(DELHI), DULY FURNISHING A COPY THEREOF BEFOR E US, HE SUBMITTED THAT WHERE ASSESSEE MADE DIRECT PAYMENTS TO THE LABOUR, THE PROVISIONS OF S.194C ARE NOT APPLICABLE. HE POINTED OUT THAT THERE WAS SURVEY IN TH E EARLIER YEARS AND THE DETAILS, AS TO THE MANNER OF PAYM E N T TO LABOU R FOR EARTH WORK WAS GI VEN IN TH E FORM OF SWORN STATEMENT. CON S EQUENT THE R ETO, IT WAS SUBMITTED THAT AN AMOUNT OF RS .1.7 CRORES EACH FOR ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 WAS OFFERED TOWARDS DISCREPANCIES IN EARTH WORK PAYM E N TS , AND THE ASSESSING OFFICER ACCEPTING THE SAID OF FER, BASED ON THE FACT THAT THE PAYM E N T S WERE MADE BY THE ASSESSEE TO THE LABOU R DIRECTLY AND NOT THROUGH SUB - CON T RACTORS , PASSED ORDERS UNDER S.143(3) FOR THOSE YEARS. HAVING DONE SO, HE SUBMITTED THAT THE ASSESSING OFFICER IN THE PRESENT TDS PROCEEDING S CANNOT COME TO A DIFFERENT CONCLUSION ON THE SAME SET OF FACTS. 9. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE CONTRARY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) ON THIS ISSUE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. IT IS EVIDENT FROM THE MATERIAL ON RECORD THAT PRIOR TO THE SURVEY I TA NO . 1805 /HYD/201 3 & ANR. SHRI K.NAREND R A REDDY, HYDERABAD 5 OPERATIONS UNDER S.133A WITH RESPECT TO THE TDS DEDUCTIONS THAT TOOK PLACE ON 24.3.2008, WHICH GAVE RISE TO THE PRESENT PROCEEDINGS UNDER S.201(1) AND S.201(1A) OF THE ACT, THERE WERE SURVEY OPERATIONS UNDER S.133A OF THE ACT ON 23.10.2007 CONDUCTED ON THE PREMISES OF THE ASSESSEE BY THE ASSESSING OFFICER IN ASSE SSMENT PROCEEDINGS . DURING THE COURSE OF SAID SURVEY, THE ASSESSEE ALSO ADMITTED ADDITIONAL INCOME OF RS.3.40 CRORES FOR THE ASSESSMENT YEAR 2006 - 07 AND 2007 - 08 TOWARDS UNVERIFIABLE EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT. THE RELEVANT ASSESSM ENT ORDERS PLACED ON RECORD IN THE IMPUGNED YEARS DO INDICATE THAT ASSESSING OFFICER EXAMINED THE PAYMENTS IN DETAIL AND ACCEPTED THE ADDITIONAL INCOME OFFERED ON THESE PAYMENTS. HAD THE PAYMENTS BEEN MADE TO SUB - CONTRACTORS AS ALLEGED, THE ASSESSING OFFI CER CERTAINLY WOULD HAVE INVOKED PROVISIONS OF S.40A(IA) AND NOT S.37(1) IN THE SCRUTINY PROCEEDINGS. HAVING ACCEPTED THE OFFER MADE BY THE ASSESSEE, BASED ON THE REASON THAT THE PAYMENTS TO LABOUR FOR EARTH WORK WERE DIRECTLY MADE BY THE ASSESSEE AND TH ERE ARE NO SUB - CONTRACTORS FOR THE LABOUR, AND BOOKS ARE MAINTAINED TO MONITOR THE MAN HOURS PUT IN BY THE LABOUR, IT IS NEITHER FAIR NOR PROPER FOR THE REVENUE AUTHORITIES TO ARRIVE AT A CONTRARY CONCLUSION BY IMPUTING THE INVOLVEMENT OF SUB - CONTRACTORS A ND THEREBY INVOKING THE PROVISION S OF S.201(1) AND S.201(1A), SO AS TO RAISE DEMANDS ON ACCOUNT OF NON - COMPLIANCE WITH THE TDS PROVISIONS IN RELATION TO SUCH PAYMENTS. THE STAND TAKEN BY THE REVENUE AUTHORITIES IN THESE PROCEEDINGS, BEING NOT HARMONIOUS W ITH THE STAND TAKEN EARLIER IN THE CONTEXT OF REGULAR ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2007 - 08 AND 2008 - 09, BASED ON THE MATERIAL FOUND DURING THE COURSE OF SURVEY CONDUCTED ON 23.10.2007, WE ARE UNABLE TO CONCUR WITH THE VIEW TAKEN BY THE REVEN UE AUTHORITIES. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE CIT(A) AND ASSESSING OFFICER AND DIRECT THE ASSESSING OFFICER TO DELETE THE DEMANDS RAISED UNDER S.201(1) AND S.201(1A) IN RELATION TO PAYMENTS MADE BY THE ASSESSEE TOWARDS LABOUR/EARTH WORKS. A SSESSEES GROUNDS ON THIS ISSUE FOR BOTH THE YEARS ARE ALLOWED. I TA NO . 1805 /HYD/201 3 & ANR. SHRI K.NAREND R A REDDY, HYDERABAD 6 11. AS FOR THE GRIEVANCE OF THE ASSESSEE IN THE APPEAL FOR ASSESSMENT YEAR 2008 - 09, WITH REGARD TO DEMAND RAISED UNDER S.201(1) AND S.201(1A) IN RESPECT OF FINANCIAL CHARGES PAID BY THE ASSE SSEE TO SEVEN PARTIES, THE CLAIM OF THE ASSESSEE WAS THAT HE WAS NO T LI A BLE TO TDS UNDER S. 194A AS THE EQUIPMENT TAKEN ON HIRE PURCHASE FROM THE CONCERNED PAR T IES AND THE PAYM E N TS M ADE TO THOSE PARTIES ARE NO T IN THE NATURE OF IN TE R E ST, AN D TH E R E FORE DO N O T FALL WITHIN THE PU RV IEW OF S.194A. WHILE THE ASSESSING OFFICER, REJECTING THE CONTENTIONS OF THE ASSESSEE INVOKED THE PROVISION S O F S.201(1) AND 201(1A) IN RELATION TO THESE PAYMENTS MADE BY THE ASSESSEE TOWARDS FINANCE CHARGES, THE CIT(A) BY THE IMPUG NED ORDER AFTER ELABORATE DISCUSSION OF THE VARIOUS INSTRUCTIONS AND CIRCULARS OF THE CBDT ON THE ISSUE, ULTIMATELY UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED, ASSESSEE IS IN APPEAL ON THIS ASPECT. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSION S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. THE PARTIES TO WHOM FINANCE CHARGES IN QUESTION HAVE BEEN PAID ARE FIN A NCE COMPANIES, AND THE CONTENTION OF THE ASSESSEE IS THAT THE SAID CHARGES HAVE BEEN INCURRE D ON ACCOUNT OF EQUIPMENT TAKEN ON HIRE PURCHASE FROM THOSE PARTIES, AND THE PAYMENTS MADE TO THOSE PARTIES ARE NO T IN THE NATURE OF INTEREST. IN THIS CONNECTION, IT IS SUBMITTED, PLACING RELIANCE ON THE CIRCULARS NO.738 DATED 25 TH MARCH, 1996 AND CIRCU LAR NO760 DATED 13.1.1998 OF THE CBDT THAT THE TDS PROVISIONS ARE NOT APPLICABLE TO THE HIRE PURCHASE TRANSACTIONS. T HE CIT(A), AFTER DISCUSSING THE INSTRUCTIONS OF THE CBDT ON THE ISSUE, OBSERVING THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT THE TRANSA CTIONS ARE GENUINE HIRE PURCHASE TRANSACTIONS, UPHELD THE VIEW TAKEN BY THE ASSESSING OFFICER. SINCE THE THIS OBSERVATION OF THE CIT(A) IS CONTRARY TO THE CLAIM OF THE ASSESSEE AS TO THE NATURE OF THE TRANSACTIONS, BEIN G OF HIRE PURCHASE TR A N S ACTIONS, WE DEEM IT JUST AND PROPER IN THE INTEREST OF JUSTICE, TO SET ASIDE THE ORDER OF I TA NO . 1805 /HYD/201 3 & ANR. SHRI K.NAREND R A REDDY, HYDERABAD 7 THE CIT(A) AND RESTORE THE MATTER TO THE FILE O F THE ASSESSING OFFICER FOR RE - CONSIDERATION OF THE MATTER. THE ASSESSING OFFICER SHALL DETERMINE IN THE FIRST PLACE THE NATURE O F THE TRANSACTIONS, IN RELATION TO WHICH FINANCIAL CHARGES IN QUESTION HAVE BEEN PAID, AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM THAT THE TRANSACTIONS IN QUESTION ARE GENUINE HIRE PURCHASE TRANSACTIONS, AND THEREAFTER DE CIDE THE APPLICABILITY OF THE TDS PROVISIONS TO SUCH FINANCE CHARGES PAID BY THE ASSESSEE. THE ASSESSING OFFICER SHALL ACCORDINGLY DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 13. IN THE RESULT, WHILE THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08, BEING ITA NO.1805/HYD/2013 IS ALLOWED, THE SAME FOR ASSESSMENT YEAR 2008 - 09, BEING ITA NO.531/HYD/2014, IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED I N THE COURT ON 9 TH JULY, 2014 SD/ - SD/ - (ASHA VIJAYARAGHAVAN) ( B.RAMAKOTAIAH ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 9 TH JULY, 2014 COPY FORWARDED TO: 1. SHRI K.NAREND R A REDDY, (PROP.SRI AVANTHIKA CONTRACTORS), 7 - 1 - 18,610 B, NILGIRI BLOCK, ADITYA ENCLAVE, AMEERPET, HYDERABAD 2 . INCOME TAX OFFICER WARD 15(3), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) II HYDERABAD 4. COMMISSIONER OF INCOME - TAX I, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S