Sh. Ashok Kumar Prop., Hoshiarpur V. The Dy. Commissioner of Income Tax, Hoshiarpur

ITA 575/ASR/2013

• Counselvise Citation: 57520914 RSA 2013
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-02-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 09-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Non compliance; Assessment record
• Section: 44AD; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.575(ASR)/2013 ASSESSMENT YEAR:2003-04 PAN :ABNPK1332M SHRI ASHOK KUMAR PROP. VS. DY. COMMR. OF INCOME T AX, M/S. PRAGATI TOWER CORPORATION, HOSHIARPUR RANGE, HOSHIARPUR. 157, VASANT VIHAR, HOSHIARPUR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. SURINDER MAHAJAN, CA RESPONDENT BY:SH. MAHAVIR SINGH, DR DATE OF HEARING: 26/02/2014 DATE OF PRONOUNCEMENT:28/02/2014 ORDER PER BENCH ; THIS APPEAL OF ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED FOR THE ASSESSMENT YEA 2003-04. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOW ANCE OF TOTAL HIRE CHARGES OF RS.5,43,050/- PAID TO M/S. AS SOCIATED INDUSTRIAL CORPORATION AND M/S. ARVIND DRILLING COM PANY OF RS.2,95,050/- AND RS.2,48,000/- RESPECTIVELY. B) THAT LD. CIT(A) HAS GROSSLY ERRED IN CONCLUDING THA T LD. DCIT HAS COMPLIED WITH DIRECTIONS U/S 263 OF THE A CT ITA NO.575(ASR)/2013 2 WHEREIN LD. CIT(A), JALANDHAR, DIRECTED THE A.O. TO EXAMINE WHETHER PLANT & MACHINERY OWNED BY M/S. ASSOCIATED INDL. CORPORATION AND M/S. ARVIND DRILLING COMPANY HAD AC TUALLY BEEN HIRED OUT TO THE ASSESSEE AND IF SO WHAT WAS T HE REASONABLE AMOUNT THAT SHOULD HAVE BEEN PAID BY THE ASSESSEE TO THESE FIRMS. A.O. WAS FURTHER DIRECTED TO WORK OUT DISALLOWANCE US 40A(2)(A) THE ACT, IF ANY. C) THAT ADDITION CONFIRMED IS ILLEGAL AND BAD IN LAW W INCE A.O. HAS NOT COMPLIED WITH PROVISIONS OF SECTION 40A(2)( A) OF THE ACT WHILE DISALLOWING TOTAL HIRE CHARGES OF RS.5,43 ,050/- PAID TO M/S. ASSOCIATED INDL. CORPORATION AND M/S. ARVIND DRILLING COMPANY. 2. A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS. 6,12,371/- OUT OF REPAIR & GENERAL EXPENSES OF RS.13,25,742/-. ADDITION CONFIRMED IS ILLEGAL AND BAD IN LAW. B) THAT LD. CIT(A) HAS GROSSLY ERRED IN CONCLUDING THAT LD. DCIT HAS COMPLIED WITH DIRECTIONS U/S 263 OF THE AC T WHEREIN LD. CIT(A), JALANDHAR, DIRECTED THE A.O. TO EXAMINE GENUINENESS AND REASONABILITY OF EXPENSES INCURRED ON REPAIR & GENERAL EXPENSES AND DETERMINE THE AMOUNT TO BE DIS ALLOWED OUT OF SUCH EXPENSES U/S 40A(2)(A) OF THE ACT, IF A NY. FOR THIS PURPOSE A.O. MAY COLLECT INFORMATION FROM THE PHE DEPARTMENT OF THE CONCERNED STATE AS ALSO FROM COMP ARABLE CASES. NON COMPLIANCE WITH THE DIRECTIONS U/S 263 O F THE ACT MAKES THE ALLEGED ASSESSMENT FRAMED ILLEGAL & BAD I N LAW. C) THAT ADDITION CONFIRMED IS ILLEGAL AND BAD IN L AW WINCE A.O. HAS NOT COMPLIED WITH PROVISIONS OF SECTION 40 A(2)(A) OF THE ACT WHILE MAKING ADDITION OF RS.6,12,371/- OUT OF REPAIR & GENERAL EXPENSES OF RS.13,25,742/-. 3. THAT THE ASSESSEE REQUEST FOR LEAVE TO ADD OR AN NEX ANY OTHER GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR DIS POSED OFF. ITA NO.575(ASR)/2013 3 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PROPRIETOR OF A BUSINESS CONCERN NAMELY M/S PRAGTI TOWERS CORPORATI ON WHICH IS ENGAGED IN THE BUSINESS OF DEEP TUBE-WELLS BORING ON CONTRA CT BASIS IN PUNJAB, HIMACHAL PRADESH & JAMMU & KASHMIR (LEH-LADAKH). TH E AREA OF BUSINESS OF THE ASSESSEE IS STATED TO BE MAINLY HIMACHAL PRA DESH. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 29.11.2003 DECLARING AN INCOME OF RS. 9,65,260/-. THE ORIGINAL ASSESSMENT IN THIS CASE WA S COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 BY THE ASSESSING OFFICER VIDE ORDER DATED 23.11.2005 AT AN ASSESSED INCOME OF RS. 10,23,940/- . WHILE FRAMING THE ORIGINAL ASSESSMENT IN THIS CASE, THE ASSESSING OFF ICER HAS MADE AN ADDITION OF RS. 58,680/- TO THE RETURNED INCOME OF THE ASSES SEE WHICH REPRESENTS DISALLOWANCE OUT OF (I) CAR RUNNING EXPENSES : RS. 44,763/- (1/5 TH OF TOTAL EXPENSES), (II) MISCELLANEOUS EXPENSES : RS. 2,000/ -, (III) DONATION : RS. 60/- AND (IV) TELEPHONE/MOBILE EXPENSES : RS. 11,857/- ( 1/4 TH OF TOTAL EXPENSES). IT APPEARS THAT NO APPEAL WAS FILED BY THE ASSESSEE AG AINST THIS ORDER. 2.1 FROM THE PERUSAL OF THE ASSESSMENT RECORDS AND ASSESSMENT ORDER DATED 23.11.2005, IT WAS NOTICED BY THE LEARN ED COMMISSIONER OF INCOME TAX, JALANDHAR-I, JALANDHAR THAT THE CLAIM O F VARIOUS EXPENSES SUCH AS (I) RS. 74.81 LAKHS UNDER THE HEAD LABOUR EXPENSES . ITA NO.575(ASR)/2013 4 (II) RS. 13.26 LAKHS UNDER THE HEAD REPAIRING AND GENERAL EXPENSED PAID TO SISTER CONCERNS. (III) RS. 5.43 LAKHS UNDER THE HEAD HIRE CHARGES P AID TO SISTER CONCERNS, (IV) RS. 72.29 LAKHS UNDER THE HEAD PURCHASES ETC. HAVE BEEN ALLOWED BY THE ASSESSING OFFICER WITHOUT MAKING ANY PROPER VERIFICATION/ENQUIRIES. APART FROM THIS, IT WAS ALS O NOTICED BY THE LEARNED COMMISSIONER THAT DEPRECIATION ON THE PURCHASES OF MACHINERY OF RS. 28.20 LAKHS, STATED TO BE PURCHASED DURING THE YEAR UNDER CONSIDERATION, WAS ALLOWED BY THE ASSESSING OFFICER WITHOUT MAKING ANY WORTHWHILE ENQUIRY OR VERIFICATION. SOME OTHER DEFECTS WERE ALSO NOTICED BY HIM ACCORDING TO WHICH, THE ASSESSING OFFICER HAS ACCEPTED CERTAIN C LAIMS OF THE ASSESSEE WITHOUT MAKING ANY PROPER ENQUIRY OR WORTHWHILE VER IFICATION. HENCE, IN THE OPINION OF THE LEARNED CIT, THE ORDER PASSED BY THE ASSESSING OFFICER DATED 23.11.2005 WAS ERRONEOUS INSOFAR AS IT WAS PREJUDIC IAL TO THE INTEREST OF REVENUE AND INITIATED PROCEEDINGS U/S 263 OF THE IN COME TAX ACT, 1961 BY ISSUING SHOW CAUSE NOTICE DATED 01.09.2006. AFTER M AKING DETAILED ENQUIRIES, THE LEARNED CIT, JALANDHAR-I, JALANDHAR HAS PASSED ORDER U/S 263 OF THE INCOME TAX ACT, 1961 DATED 17.01.2008. 2.2 IT WAS NOTICED BY THE A.O. THAT DURING THE COUR SE OF SET ASIDE PROCEEDINGS, THE ASSESSEE PRODUCED COMPUTER GENERAT ED COPIES OF LEDGER ACCOUNTS OF M/S ASSOCIATED INDUSTRIAL CORP. AND M/S ARVIND DRILLING COMPANY WHICH WERE STATED TO BE UNAVAILABLE DURING THE COURSE OF ITA NO.575(ASR)/2013 5 PROCEEDING U/S 263 OF THE INCOME TAX ACT, 1961. THE BOOKS OF ACCOUNT ALSO SUDDENLY APPEARED/BORN DURING THE COURSE OF SET ASI DE PROCEEDINGS. THE COPIES OF CERTAIN BILLS (NOT IN ORIGINAL) AND INTER NALLY MADE VOUCHES WERE ALSO FILED DURING SET ASIDE PROCEEDINGS WHICH WERE ALSO UNAVAILABLE DURING 263 PROCEEDINGS. THE PAYMENT MADE IN RESPECT OF PUR CHASES MADE BY M/S ASSOCIATED INDUSTRIAL CORP. ARE IN CASH. THE RECEIP TS IN RESPECT OF SALE OF THE MACHINERY BY THIS CONCERN ARE ALSO IN CASH. THE INC OME OF BOTH THE RELATED PARTIES HAS BEEN SHOWN UNDER DEEMING PROVISIONS. HA D THE BOOKS BEEN AVAILABLE WITH THE SISTER CONCERNS, THERE WAS NO NE ED TO APPLY DEEMING PROVISIONS TO ARRIVE AT TAXABLE INCOME OF THE RELAT ED CONCERNS. THE PHOTO COPIES OF BILLS WHICH WERE PRODUCED DURING THE COUR SE OF SET ASIDE PROCEEDINGS APPEARS TO BE NON-GENUINE ON THE FACE O F IT AS THE BILLS DO NOT CONTAIN ANY TELEPHONE NUMBER OF THE PARTIES, ST/CST NUMBER ET. THE PAYMENTS TO THESE PARTIES WAS ALSO MADE IN CASE. AL L THESE SEQUENCE OF EVENTS CREATES SERIOUS DOUBTS REGARDING GENUINENESS OF EXPENSES INCURRED ON HIRING OF MACHINERY FROM SISTER CONCERNS. SIMILAR D OUBT IS WITH REGARD TO GENUINENESS OF REPAID AND MAINTENANCE EXPENSES PAID TO RELATED CONCERN(S). THE ASSESSEE HAS ALSO NOT PRODUCED ANY BILLS IN RES PECT OF MACHINERY OWNED BY THE RELATED PARTIES TO WHOM HUGE PAYMENTS WITH R EGARD TO HIRING CHARGES HAVE BEEN PAID. THE BILLS WERE ALSO NOT PRODUCED DU RING THE COURSE OF ITA NO.575(ASR)/2013 6 VARIOUS PROCEEDINGS BEFORE THE INCOME TAX AUTHORITI ES WHICH ALSO INCLUDES APPELLATE PROCEEDINGS. 3. BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE SU BMISSIONS WHICH WERE FORWARDED TO THE AO, WHO SUBMITTED THE REPORT AND IN THE REJOINDER, ASSESSEES COMMENTS WERE TAKEN. THE LD. CIT(A) AFTE R CONSIDERING THE REMAND REPORT AND THE EXPLANATION OF THE ASSESSEE D ISMISSED THE APPEAL OF THE ASSESSEE BY GIVING FINDINGS IN PARA 18.1 & 18.2 OF THE ORDER, WHICH ARE REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 18.1 ON CAREFUL CONSIDERATION OF THE MATERIAL BROUGHT ON RECORD, I AM OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS VEHEMENTLY FAILED TO PROVE THE GENUINENESS OF EXPENSES PAID IN RESPEC T OF REPAIR AND MAINTENANCE CHARGES AND HIRING CHARGES TO THE RELAT ED PARTIES. ALTHOUGH THE ASSESSEE HAS TRIED HIS LEVEL BEST TO P ROVE THAT THE EXPENSES HAVE ACTUALLY BEEN INCURRED BUT THE SUPPOR TING BILLS IN RESPECT OF PURCHASES MADE BY THE RELATED CONCERNS R EMAINED UNVERIFIABLE DURING THE COURSE OF ASSESSMENT AS WEL L AS APPELLANT PROCEEDINGS. MOREOVER, THE BILLS PRODUCED APPEARS T O BE NON GENUINE ON THE FACE OF IT AS THESE BILLS APPEARS TO HAVE BE EN OBTAINED FROM ENTRY PROVIDERS. I APPRECIATE THE EFFORTS MADE BY T HE ASSESSEE TO PROVE NON GENUINE BUSINESS EXPENDITURE AS GENUINE BUSINES S EXPENDITURE WITH THE HELP OF CONCOCTED STORIES AND NON GENUINE BILLS/VOUCHERS. THE ASSESSING OFFICERS EFFORTS TO PROVE THE GENUINENES S OF BILLS WERE GOT FAILED ON ONE PRETEXT OR THE OTHER. THE ASSESSEE HA S ALSO FAILED TO PRODUCE THE PARTIES FROM WHOM THE PURCHASES HAVE BE EN STATED TO BE MADE BEFORE THE ASSESSING OFFICER ON ONE PRETEXT OR ANOTHER. THE SAYING OF THE ASSESSEE THAT HE HAS NO BUSINESS DEAL ING WITH THE PARTIES FROM WHOM THE RELATED CONCERNS HAVE MADE PURCHASES AND THAT HE IS NOT BOUND TO PRODUCE THESE PARTIES IS TOTALLY UNJUS TIFIED AS THE RELATED CONCERNS ARE HIS FAMILY CONCERNS AND HE HAS CLAIMED THE PAYMENTS MADE TO THE RELATED PARTIES AS BUSINESS EXPENDITURE THE BOOKS OF ACCOUNT. THE PRIMARY ONUS LIES ON THE ASSESSEE AS H E HAS MADE CLAIM OF EXPENSES PAID TO THE RELATED CONCERNS WHICH HAS NOT BEEN ITA NO.575(ASR)/2013 7 DISCHARGED. THERE IS NO TELEPHONE NUMBER, SC/CST ON THE BILLS PRODUCED WHICH PROVES BEYOND DOUBT THAT THE BILLS A RE NOT GENUINE. EVEN THE BILLS IN RESPECT OF PURCHASES OF MACHINERY BY THE RELATED CONCERNS WERE NOT PRODUCED ON THE PRETEXT THAT THE BILLS ARE VERY OLD. THE ASSESSEE HAS TOTALLY FAILED TO PROVE THAT THE R ELATED CONCERNS DO HAVE SOME MACHINERY WHICH CAN BE GIVEN ON HIRE TO T HE ASSESSEE. ON ONE HAND, THE ASSESSEE SAYS THAT THE REPAID WORK IS A VERY SPECIALIZED JOB AND ON THE OTHER HAND NO PAYMENTS APPEARS TO HA VE BEEN MADE TO ANY SKILLED PERSONS WHO CARRIED OUT THE REPAIRS. TH E ASSESSEE COULD NOT ADDUCE ANY EVIDENCE TO SHOW THAT THE PERSONS EN GAGED IN THE SPECIALIZED REPAIR WORK DO HAVE SOME SPECIALIZED EX PERIENCE OR EXPERTISE IN REPAIRING THE SOPHISTICATED MACHINERY. NO PAYMENT IN RESPECT OF SALARY ETC. HAVE BEEN DEBITED TO P&L ACC OUNT. IN MY CONSIDERED OPINION, THE ASSESSEE HAS TOTALLY FAILED TO JUSTIFY THE PAYMENTS MADE TO RELATED PARTIES WITH REGARD TO HIR E CHARGES AS WELL AS REPAIR AND MAINTENANCE CHARGES AND ITS REASONABL ENESS. I AM ALSO OF THE OPINION THAT THE ASSESSING OFFICER WAS MORE CONSIDERATE IN DISALLOWING ONLY 50% OF THE REPAIR CHARGES. THE JUD ICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE HAVE ENT IRELY DIFFERENT FACTS. I ALSO DO NOT FIND ANY FAULT WITH THE ASSESS ING OFFICER AS HE HAS PROVIDED MORE THAN SUFFICIENT OPPORTUNITIES TO THE ASSESSEE TO PROVE THE GENUINENESS OF THE CLAIMED EXPENSES. I ALSO FIN D THAT THE ASSESSING OFFICER HAS ENTIRELY FOLLOWED THE DIRECTION AS CONT AINED IN ORDER U/S 263 OF THE INCOME TAX ACT, 1961. THE REASONABLENESS OF THE EXPENSES CAN ONLY BE VERIFIED WHEN THE EXPENSES HAVE BEEN CO NSIDERED AS GENUINE. SHOWING MORE NET PROFIT AS COMPARED TO EAR LIER YEARS DO NOT PROVIDE LICENCE TO THE ASSESSEE TO CLAIM NON GENUIN E EXPENDITURE. 18.2 IN THESE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT THE ASSESSING OFFICER IS FULLY JUSTIFIED IN DISALLOWING 100% OF HIRE CHARGES AND 50% OF REPAIR AND MAINTENANCE C HARGES ALLEGEDLY PAID TO RELATED PARTIES AS THE ASSESSEE ABSOLUTELY FAILED TO PROVE THAT THE EXPENSES ARE GENUINE BUSINESS EXPENDITURE. I AM ALSO OF THE OPINION THAT THE DISALLOWANCE ARE ALSO VERY REASONA BLE AND ARE NOT EXCESSIVE AS SUBMITTED BY THE ASSESSEE IN ALTERNATI VE PLEA IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. I, THEREFORE, CONFIRM THE ADDITIONS/DISALLOWANCE MADE BY THE ASSESSING OFFICE R AS CHALLENGED VIDE GROUNDS OF APPEAL NO. 1 TO 4. IN THE RESULT, G ROUNDS OF APPEAL NO. 1 TO 4 TAKEN BY THE ASSESSEE ARE DISMISSED. ITA NO.575(ASR)/2013 8 4. THE LD. COUNSEL FOR THE ASSESSEE, SH. SURINDER M AHAJAN, CA ARGUED AND INVITED OUR ATTENTION TO THE ORDER OF THE LD. C IT, JALANDHAR-1, DATED 17.01.2008, WHICH FOR THE SAKE OF CONVENIENCE IS RE PRODUCED AS UNDER: IN MY VIEW, ALL THE ISSUES EXCEPT THOSE RELATING TO REPAIRS AND MAINTENANCE EXPENSES AND HIRING CHARGES HAVE BEEN E XPLAINED SATISFACTORILY. AS REGARDS THE EXPENSES ON REPAIRS AND MAINTENANCE, I FIND THAT M/S ASSOCIATED INDUSTRIAL CORPORATION IS A CONCERN OWNED BY ASSESSEES WIFE SMT. AMARJIT KAUR. BOOKS OF ACCO UNT OF M/S ASSOCIATED INDUSTRIAL CORPORATION WERE CALLED FOR D URING THE COURSE OF THESE PROCEEDINGS. IT WAS STATED BY SHRI MAHAJAN THAT THESE BOOKS WERE NOT AVAILABLE. NO EVIDENCE IN THE FORM OF BILL S/VOUCHERS ETC. WAS AVAILABLE IN SUPPORT OF THE EXPENSES INCURRED BY M/ S ASSOCIATED INDUSTRIAL CORPORATION. IT IS SEEN THAT M/S ASSOCIA TED INDUSTRIAL CORPORATION HAS SHOWN INCOME OF RS. 56,350/- ON SAL E OF SPARE PARTS/REPAIRING CHARGES ETC. OF RS. 11.27,000/-. TH E AMOUNT OF RS. 56,350/- HAS BEEN WORKED OUT AT 5% OF THE RECEIPTS SUPPOSEDLY BY U/S 44AF OF THE ACT. IN MY VIEW, THE ASSESSING OFFICER HAS CLEARLY FAILED IN NOT MAKING APPROPRIATE ENQUIRIES SO FAR AS ASSES SEES CLAIM FOR EXPENSES ON REPAIRING AND MAINTENANCE ARE CONCERNED . THE ASSESSING OFFICER OUGHT TO HAVE TAKEN NOTE OF THE FACT THAT M /S ASSOCIATED INDUSTRIAL CORPORATION WAS A PERSON COVERED U/S 40A (2)(B) OF THE ACT AND AS SUCH IT WAS NECESSARY FOR HIM TO EXAMINE THE GENUINENESS AND REASONABILITY OF THE EXPENSES FOR WHICH PAYMENT HAD BEEN MADE TO THE SAID CONCERN. THE ASSESSING OFFICER HAS NOT DONE SO . THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS CLEARLY ER RONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AND IS AS SUCH SET ASIDE WITH THE DIRECTION THAT THE ASSESSING OFFICER SHOULD EXA MINE THE GENUINENESS AND REASONABILITY OF THE EXPENSES INCUR RED ON REPAIRING AND MAINTENANCE AND DETERMINE THE AMOUNT TO BE DISA LLOWED OUT OF SUCH EXPENSES U/S 40A(2)(A), IF ANY. FOR THIS PURPO SE, THE ASSESSING OFFICER MAY COLLECT INFORMATION FROM THE PHE DEPART MENTS OF THE CONCERNED STATES AS ALSO FROM COMPARABLE CASES, IF ANY. THE POSITION REGARDING THE PAYMENT OF HIRING CHARGE S PAID TO M/S ASSOCIATED INDUSTRIAL CORPORATION AND M/S ARVIND DR ILLING COMPANY IS MORE OR LESS SIMILAR. M/S ARVIND DRILLING COMPAN Y IS OWNED BY ASSESSEES BROTHER, NAMELY, SHRI ARVIND KUMAR. THE BOOKS OF ACCOUNT ITA NO.575(ASR)/2013 9 OF M/S ARVIND DRILLING COMPANY WERE CALLED FOR IN T HE COURSE OF THESE PROCEEDINGS BUT WERE STATED TO BE UNAVAILABLE. IN H IS RETURN FOR THE ASSESSMENT YEAR 2003-04, SHRI ARVIND KUMAR HAS SHOW NET PROFIT OF RS. 79,600/- ON RECEIPTS OF RS. 9,95,000/- FROM THE BUSINESS OF CIVIL CONSTRUCTION. THE NET PROFIT HAS BEEN ESTIMATED AT 8% OF THE RECEIPTS SUPPOSEDLY U/S 44AD OF INCOME TAX ACT. IT IS NOT CL EAR WHETHER M/S ASSOCIATED INDUSTRIAL CORPORATION AND M/S ARVIND DR ILLING COMPANY OWNED ANY EQUIPMENT AT ALL WHICH THEY COULD HAVE HI RED OUT THE ASSESSEE. EVEN IF THEY WERE IN POSSESSING OF SUCH E QUIPMENT, IT WAS THE DUTY OF THE ASSESSING OFFICER TO EXAMINE THE REASON ABILITY OF THE HIRING CHARGES PAID TO THEM. THIS HAS NOT BEEN DONE. IN MY VIEW, THEREFORE, THE ASSESSEE ORDER IS CLEARLY ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE IN THIS REGARD. THE ASSESSM ENT ORDER IS, THEREFORE, SET ASIDE WITH THE DIRECTION THAT THE AS SESSING OFFICER SHOULD EXAMINE WHETHER ANY PLANT AND MACHINERY OWNE D BY M/S ASSOCIATED INDUSTRIAL CORPORATION AND M/S ARVIND DR ILLING COMPANY HAD ACTUALLY BEEN HIRED OUT BY THEM TO THE ASSESSEE AND IF SO WHAT WAS THE REASONABLE AMOUNT THAT SHOULD HAVE BEEN PAID BY THE ASSESSEE TO THEM BY WAY OF HIRING CHARGES. THE BALANCE OUT OF T HE HIRING CHARGES DEBITED TO P&L ACCOUNT, IF ANY, SHOULD BE DISALLOWE D U/S 40A(2)(A). I DO NOT CONSIDER IT NECESSARY TO REFER TO THE VARI OUS DECISIONS RELIED UPON BY THE LEARNED COUNSEL DURING THE COURS E OF THESE PROCEEDINGS AS, ON THE ISSUES ON WHICH THE ASSESSME NT ORDER IS BEING SET ASIDE, THE ASSESSMENT ORDER IS CLEARLY ERRONEOU S INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IN THE RESULT, THE ASSESSMENT ORDER IS SET ASIDE FO R THE LIMITED PURPOSE OF MAKING RELEVANT ENQUIRIES WITH REGARD TO THE GEN UINENESS AND REASONABILITY OF THE EXPENSES CLAIMED BY WAY OF REP AIR & MAINTENANCE EXPENSES AND HIRING CHARGES. THE ASSESSING OFFICER WILL NO DOUBT GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE BEFORE MAKING THE ASSESSMENT AFRESH. 5. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE LD. CIT(A) HAS DIRECTED THE A.O. TO FIND GENUINENESS AND REASONABI LITY OF EXPENSES, WHETHER EXPENSES ARE COVERED UNDER SECTION 40A(2)(A) OF THE ACT AND TO DECIDE THE ITA NO.575(ASR)/2013 10 ISSUE BY COLLECTING INFORMATION FROM THE PHE DEPART MENT, WHEREAS THE AO HAS NOT FOLLOWED THE DIRECTION OF THE LD. CIT(A) AN D NO INFORMATION HAS BEEN PROCURED FROM THE PHE DEPARTMENT OF DIFFERENT STATE S WHICH ARE ENGAGED IN SIMILAR BUSINESS ON IDENTICAL TYPE OF REPAIR. THE R EPAIRING WAS CARRIED OUT BY ASSOCIATED INDUSTRIAL CORPORATION AND NO REPAIR HA S BEEN DONE BY M/S. ARVIND DRILLING CO. THE REPAIRS ARE ON ACCOUNT OF A IR COMPRESSORS, REPAIRS OF HYDRAULIC SYSTEM AND REPAIRS OF CUMINS ENGINE OF THE MACHINE. THIS SPECIAL TYPE OF REPAIR JOBS ARE BASED AT DELHI, HYD ERABAD, CHANNAI ETC. AND TO CALL THESE COMPANIES FOR REPAIRS INVOLVE SUSPENS ION OF WORK FOR LONG TIME WHICH RESULT IN NON-COMPLETION OF CONTRACTS IN TIME RESULTING IN PAYMENT OF DAMAGES. IT IS ALSO MENTIONED THAT REPAIR EXPENSES WERE ALLOWED IN THE EARLIER YEARS. THE LD. COUNSEL FOR THE ASSESSEE IN VITED OUR ATTENTION TO PAGE 27 OF THE PAPER BOOK WHICH IS SUBMISSION BEFORE THE LD. CIT(A) WITH REGARD TO NET PROFIT DECLARED IN THE ASSESSEE IN THE IMPUG NED YEAR AS WELL AS IN THE PRECEDING YEAR: ASSTT. YEAR CONTRACT MONEY RECEIVED NET PROFIT N.P. INCOME RETURNED INCOME ASSESSED ASSESSMENT COMPLETED 2001- 02 19687974 415226 2.11% 408326 502403 U/S 143(3) OF THE ACT 2002- 03 18325282 826592 4.51% 876052 876052 U/S 143(1) OF THE ACT 2003- 04 21840173 1077198 4.93% 965260 1023940 U/S 143(3) OF THE ACT. ITA NO.575(ASR)/2013 11 A COPY OF THE SCRUTINY ASSESSMENT UNDER SECTION 143 (3) IS ATTACHED AT PB 53 -54. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR A TTENTION TO PB-49 OF THE SUBMISSIONS BEFORE THE LD. CIT(A) DATED 13.01.2013 WHERE HIRE CHARGES AND REPAIR CHARGES HAVE BEEN ALLOWED AND COMPARISON OF THE SAME MADE WITH THE PRECEDING YEAR AS UNDER: 8. F.Y. REPAIR HIRE CHARGES TOTAL OF REPAIR & HC CONTRACT RECEIPT % OF LC & HC 2000-01 5,87,725/- 19,64,611/- 25,52,336/- 1,96,87, 974/- 12.96% 2001-02 10,56,818/- 24,12,338/- 34,69,156/- 1,83,25 ,282/- 18.93% 2002-03 13,25,742/- 7,48,283/- 20,74,025/- 2,18,40, 174/- 09.50% 5.1. IN THE FACTS AND CIRCUMSTANCES, THE LD. COUNSE L FOR THE ASSESSEE PRAYED TO DELETE THE ADDITION SO MADE. 6. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF BOTH THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE LD. CIT(A) HAS PASSED THE ORDER TO EXAMINE THE GENUINENESS AND REASONABILITY OF EXPEND ITURE TO FIND OUT WHETHER THE EXPENDITURE IS COVERED UNDER SECTION 40 A(2)(A) OF THE ACT, BY COLLECTING INFORMATION FROM PHE DEPARTMENT WHICH, I N FACT, HAS NOT BEEN DONE BY THE A.O. MOREOVER, AS POINTED OUT BY THE LD . COUNSEL FOR THE ASSESSEE, SUCH EXPENSES HAVE BEEN ALLOWED IN THE PR ECEDING YEARS, AS ITA NO.575(ASR)/2013 12 MENTIONED HEREINABOVE, AT 12.96% AND 18.93% , WHERE AS IN THE PRESENT YEAR IT IS JUST 09.50%. ALSO NET PROFIT RATE DURING THE IMPUGNED YEAR IS HIGHER AT 4.93% AS COMPARED TO THE PRECEDING YEARS AT 4.51% & 2.11% AS MENTIONED HEREINABOVE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO HAS NOT TAKEN INTO CONSIDERATION ALL THESE FACTS AND THE LD . CIT(A) FURTHER IS NOT JUSTIFIED TO CONFIRM THE ACTION OF THE ASSESSING OF FICER. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) IS DIRECTED TO BE REVERSED AND BOTH THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 8. GROUND NO.3 IS GENERAL IN NATURE, THEREFORE, DOE S NOT REQUIRE ANY ADJUDICATION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.575(ASR)/2013 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH FEBRUARY, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28TH FEBRUARY, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH. ASHOK KUMAR PROP. PRAGATI TOWER CO RPN. HOSHIARPUR. 2. THE DCIT, HOSHIARPUR RANGE, HOSHIARPUR. 3. THE CIT(A), JLR. 4. THE CIT, JLR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER