Sh. Ashwani sehgal prop., Kapurthala V. Income Tax Officer,

ITA 576/ASR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8808 (ITAT-AMRITSAR)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 21-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JALANDH AR ) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.576(ASR)/2016 ASSESSMENT YEARS: 2009-10 SH. ASHWANI SEHGAL , PROP: S.S.TRADING CO., JAMA MASID, KAPURTHALA PAN: AQWPS-3601H VS. I NCOME T AX O FFICER , KAPURTHALA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SANDEEPVIJH (CA.) RESPONDENT BY: SH. BHAWANI SHANKAR (DR.) DATE OF HEARING: 17.01. 2017 DATE OF PRONOUNCEMENT: 20.01.2017 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF LD. CIT(A ), JALANDHAR, DATED 05.09.216 FOR ASST. YEAR: 2009-10. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 384,000 /- U/S 40(A) (IA). THE SUBMISSIONS MADE ON THE ISSUE HAVE NOT BEEN PRO PERLY APPRECIATED. (II) THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OUT OF THE LABOUR CH ARGES TO THE EXTENT OF RS. 518,330/- (RS. 268,330/- + 250,000/-) . THE DETAILED SUBMISSIONS MADE ON THE ISSUE HAVE NOT BEEN PROPERL Y APPRECIATED. (III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OUT OF INSURANCE EXP ENSES OF RS. 125,259/- WHILE DEALING WITH DISALLOWANCE OUT OF CA R & TELEPHONE ITA NOS.5 76 (ASR)/2016 ASST. YEAR: 2009-2010 2 EXPENSES. THE FIGURE OF RS.125,259/- PERTAINS TO TR UCK INSURANCE AND NO DISALLOWANCE OUT OF THE SAME WAS CALLED FOR. 3. AT THE OUTSET, THE LD. AR INVITED OUR ATTENTION TO THE S YNOPSIS FILED BY HIM AND FURTHER INVITED OUR ATTENTION TO GROUND NO.1 OF THE APPEAL AND SUBMITTED THAT ASSESSEE HAD PAID A SUM OF RS.1,92,000/- EA CH TO HIS BROTHERS FOR USE OF THEIR TRUCKS IN HIS BUSINESS AND SUCH AM OUNT WERE PAID WITHOUT DEDUCTION OF TAX AT SOURCE (TDS). IT WA S SUBMITTED THAT ASSESSING OFFICER MADE DISALLOWANCE U/S 40(A)(IA) HOLDING THAT TH E ASSESSEE WAS LIABLE FOR TAX DEDUCTION AT SOURCE, WHILE HOLDING SO T HE PLEA OF THE ASSESSEE THAT THE BROTHERS WERE HOLDING ONLY TWO TRUCKS EACH A ND THEREFORE, AS PER SECOND PROVISO TO SEC.194C(3) THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS WAS REJECTED. IT WAS SUBMITTED THAT ASSESSIN G OFFICER HELD THAT THESE PROVISIONS WERE APPLICABLE TO ONLY SUB- CONTRACTORS AND SINCE THE ASSESSEE WAS NOT A SUB-CONTRACTOR AND THEREFORE, IT WA S NOT APPLICABLE TO IT. THE LD. AR IN THIS RESPECT INVITED OUR ATTENTION TO COPY OF PROFIT & LOSS ACCOUNT PLACED AT (PB-11), WITH A VI EW TO HIGHLIGHT THAT ASSESSEE HAD RECEIVED AN AMOUNT OF RS.19.35 LACS AS FREIGHT CHAR GES AS CONTRACTOR AND HAD PAID OUT OF SUCH FREIGHT CHARGES, AS CH ARGES TO THE PAYEES AS CONTRACTOR TO SUB-CONTRACTORS AND THEREFORE, THE PROVISIO NS OF SEC 194C(3) WERE APPLICABLE. 4. IN HIS WRITTEN SYNOPSIS, THE LD. AR HAD ALSO TAKEN ALTER NATIVE ARGUMENT THAT SINCE THE SUM OF FREIGHT CHARGES WERE NOT PAYABLE, THEREFORE, IN VIEW OF THE JUDGMENTS OF ALLAHABAD HIGH COURT IN THE CASE OF ITA NOS.5 76 (ASR)/2016 ASST. YEAR: 2009-2010 3 CIT VS. VECTOR SHIPPING SERVICES (P)357ITR 0642 (ALL), THE PROVISIONS OF SEC.40(A)(IA) WERE NOT APPLICABLE, HOWEVER IN THE SAME SYNOPSIS THE LD. AR HAS MENTIONED THAT THE JURISDICTIONAL HIGH COURT, HAD T AKEN A CONTRARY VIEW UNDER SUCH CIRCUMSTANCES AND THEREFORE, THIS ARGUMENT WAS NOT ADVANCED DURING THE PROCEEDINGS BEFORE US. 5. AS REGARDS SECOND GROUND OF APPEAL, THE LD. AR SUBMITTED TH AT ASSESSEE HAD INCURRED A TOTAL EXPENDITURE OF RS.57,69,845/- A S LABOUR CHARGES. THE ASSESSING OFFICER HAD DISALLOWED AN AMOUNT OF RS.2,68,330/-ON ACCOUNT OF FACT THAT IN SOME OF THE VOUCHERS NAME MENTIONED ON THE VOUCHERS AND THE PAYEES WERE DIFFERENT. THE LD. AR IN THIS RESPECT SUBMITTED THAT THE ASSESSEE USED TO MAKE VOUCHER PAYMENTS IN THE NAME OF LEADER OF THE GROUP OF THE LABOUR AND SOME TI MES IN THE ABSENCE OF LEADER THE PAYMENTS WERE MADE TO ANOTHER PERSONS FORMI NG PART OF THE GROUP, HOWEVER, THE FACT REMAINS THAT THE EXPENSES WER E INCURRED FOR THE PURPOSES OF BUSINESS AND IN FACT THE RATIO OF LABOUR EXPENSES HAD COME DOWN SUBSTANTIALLY AS COMPARED TO PREVIOUS YEAR S AND IN THIS RESPECT, OUR ATTENTION WAS INVITED TO (PB-22) W HERE A CHART SHOWING THE RATIO OF LABOUR CHARGES FOR VARIOUS YEARS AS COMPAR ED TO PURCHASE AND SALES WERE PLACED. 6. AS REGARDS THE THIRD GROUND OF APPEAL REGARDING DISALLOWANCE OF INSURANCE EXPENSES, THE LD. AR SUBMITTED THAT EXPENSES WERE INCUR RED ON TRUCKS OWNED BY ASSESEE AND THIS ISSUE CAN BE REMANDED BACK TO THE ITA NOS.5 76 (ASR)/2016 ASST. YEAR: 2009-2010 4 ASSESSING OFFICER FOR VERIFICATION OF THE FACT AS TO WHETHER THE INS URANCE EXPENSES RELATED TO TRUCKS OWNED BY ASSESSEE OR NOT. 7. THE LD. DR ON THE OTHER HAND, HEAVILY PLACED HIS RELIANCE O N THE ORDER ON AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN HUSK. FOR THE PURPOSE OF SUPPLYING HU SK THE ASSESEE HAD TAKEN FOUR TRUKS FROM HIS WIFE AND TWO TRUCKS EACH F ROM HIS BROTHERS IN ADDITION TO OWN TRUCKS. DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESEE WAS SHOW CAUSED AS TO WHY TDS WAS NOT DEDUCTED ON PAYMENTS OF RS.1,92,000,/- MADE TO EACH SH. ANIL SEHGAL AND SH. SANDEEP SEHGAL BROTHERS OF THE ASSESSEE. IN REPLY THE ASSESSEE SUBMITTED THAT ASSESSEE MAINLY SUPPLIES HUSK TO JAGTJIT INDUSTRIES, PHAGWA RA, JAGATJIT INDUSTRIES, HOSIARPUR AND ONCE RATE OF SUPPLY OF HUSK WAS FIXED FOR SPECIFIED PERIOD, ASSESSEE WAS TO SUPPLY FIXED QUANTITY OF HU SK AT FIXED PRICE. IT WAS FURTHER SUBMITTED THAT ASSESSEE USED HIS FULL CAP ACITY OF CARRYING VEHICLES TO FULFILL HIS TIME BOUND COMMITMENTS AN D SOME TIMES IT USED TO HIRE TRUCKS FROM OUT SIDE TO FULFILL THESE CO MMITMENTS. IT WAS SUBMITTED THAT THE PERSONS DELIVERING HUSK IN THEIR OWN TRU CKS HAD NO DIRECT LINKS WITH THE BUSINESS CONCERN TO WHICH THEY WERE SUPP LYING HUSK AND THUS, THEY WERE SUPPLYING HUSK IN THE CAPACITY AS SUB- CONTRACTOR AND WERE GETTING HIRE LEASING CHARGES FROM THE ASSESSEE. IN ITA NOS.5 76 (ASR)/2016 ASST. YEAR: 2009-2010 5 THIS RESPECT, THE ASSESSEE RELIED PROVISIONS TO SEC.194C(3) WHICH PRO VIDE THAT IN CASE THE AMOUNTS WERE PAID TO SUB-CONTRACTOR DURING TH E COURSE OF BUSINESS OF PLAYING, HIRING OR LEASING GOODS CARRIAGES, THE CONT RACTOR WAS NOT OBLIGED TO DEDUCT TDS, IF THE SUB-CONTRACTOR DID NO T OWN MORE THAN TWO TRUCKS. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE ARGUMENT OF THE ASSESSEE AS IN HIS OPINION, THE AFORESAID PROVISO W AS APPLICABLE TO SUB-CONTRACTORS ENGAGED IN THE PLAYING, HIRING OR LEASING GOODS CARRIAGES. HE HELD THAT ASSESSEE WAS ENGAGED IN THE TRADING OF HUSK WHICH IS TRANSPORTED BY HIS TRUCKS AND FURTHER HE HELD TH AT ASSESSEE WAS MAKING LUMP SUM PAYMENTS STATED AS HIRE CHARGES TO TRUCK OWNERS FOR USE BY HIM IN HIS BUSINESS AND THEREFORE HE H ELD THAT PAYEES WERE NOT ACTING AS SUB CONTRACTORS. HE ALSO HELD THAT NO EVIDENCES OF OWNERSHIP OF TRUCKS BY SH. ANIL SEHGAL AND SH. SAN DEEP SEHGAL WERE PROVIDED. IN VIEW OF THE ABOVE FACTS, HE MADE THE DISALLOWANCE U/S 40(A)(IA). BEFORE US, THE LD. AR HAS ARGUED THAT ASSESSEE HAD ALSO EARNED FREIGHT WHICH IS APPARENT FROM (PB-11) WHICH IS A COPY OF P &L ACCOUNT AND THEREFORE, AS A CONTRACTOR HE RECEIVED FREIGHT AND AS SUB-CONTRA CTOR HE HAD MADE PAYMENTS OF HIRE CHARGES. THEREFORE, HE ARGUED THAT HIS CASE WAS SQUARELY COVERED BY PROVISIONS OF SEC.194C(3) OF THE ACT. WE FIND THAT THIS FACT IS NOT COMING OUT OF MATERIAL ON RECOR D AS TO WHETHER THE ASSESSEE HAD PAID FREIGHT CHARGES OUT OF FREIGHT EARNED BY HIM. THERE IS NO FINDING OF THE AUTHORITIES BELOW REGARDING THIS ASPECT THO UGH ITA NOS.5 76 (ASR)/2016 ASST. YEAR: 2009-2010 6 ASSESSEE HAD SPECIFICALLY TAKEN THIS ARGUMENT, THEREFORE, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE OFFICE OF ASSESSING OF FICER, WHO SHOULD EXAMINE AS TO WHETHER THE ASSESSEE HAD MADE PAYMENTS OF FREIGHT CHARGES AS CONTRACTOR OUT OF INCOME EARNED BY HIM AS FR EIGHT TO SUB CONTRACTORS AND IF IT FOUND IS TO BE CORRECT THEN SHOULD DECIDE THE ISSUE IN VIEW OF PROVISIONS OF SEC.194C(3) OF THE ACT. 9. NOW COMING TO THE SECOND ISSUE OF DISALLOWANCE OUT OF LABO UR CHARGES, WE FIND THAT ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.57.69,843/- OUT OF WHICH THE ASSESSING OFFICER OBSERVED THAT FO R PAYMENTS OF RS.2,68,330/- THERE WERE DIFFERENCES IN NAMES MENTIONED ON VOUCHERS AND IN THE SIGNATURE OF PAYEES. THE ASSESSING OFFICER AL SO DISALLOWED A FURTHER AMOUNT OF RS.5,50,000/- OUT OF REMA INING LABOUR CHARGES ON AD HOC BASIS. THE LD. CIT(A) HAS UPHELD THE DISAL LOWANCE OF RS.2,68,330/- WHEREAS HE HAS RESTRICTED THE AD HOC DISALLOWAN CE TO RS.2,50,000/-. IN THIS RESPECT, WE ARE IN AGREEMENT WITH THE AUTHORITIES BELOW WHERE THEY HAVE FOUND SPECIFIC DEFECTS IN THE VOUCHERS. THE ADDITION HAS BEEN MADE ON ACCOUNT OF SPECIFIC DEFECTS IN THE NAME S MENTIONED ON VOUCHERS AND NAMES MENTIONED AS PAYEES. THE ASSESSEE FAILED TO SUBSTANTIATE THE DISCREPANCIES, THEREFORE, WE CONFIRM TH E DISALLOWANCE TO THIS EXTENT. HOWEVER, AS REGARDS AD HOC DISALLOWA NCE WHERE IN AO DID NOT FIND ANY DISCREPANCY THE SUSTENANCE OF PA RT DISALLOWANCE IS NOT WARRANTED IN VIEW OF THE FACT THAT LA BOUR CHARGES HAD COME DOWN FROM 2.29% IN2005-06 TO 1.84% IN THIS YEAR AS HAS BEEN ITA NOS.5 76 (ASR)/2016 ASST. YEAR: 2009-2010 7 OBSERVED BY LD. CIT(A). THE LD. CIT(A) WAS JUSTIFIED IN SUS TAINING PART DISALLOWANCE, IF THE EXPENSES IN THE PRESENT YEAR HAPPED TO BE ON HIGHER SIDE AS COMPARED TO THE EARLIER YEAR. THEREFORE, IN A CASE LIKE T HIS THE LD. CIT(A) SHOULD HAVE TAKEN A BROADER VIEW FOR EXAMINING THE G ENUINENESS OF EXPENSES BY COMPARING THE EARLIER YEARS RATIO OF EXPENSES TO PU RCHASE AND SALES. WE HAVE ALREADY CONFIRMED A DISALLOWANCE OF RS.2,68,3 30/- OUT OF THE TOTAL EXPENSES FOR SPECIFIC DEFECTS IN VOUCHERS. IN VIEW OF THE ABOVE, FURTHER DISALLOWANCE OF RS.2,50,000/- IS NOT JUSTIFIED AND THEREFORE, THE ASSESSEE GETS A RELIEF OF RS.2,50,000/-. 10. AS REGARDS THIRD GROUND OF APPEAL REGARDING INSURANCE EXPEN SES OF TRUCKS AS REQUESTED BY LD. AR WE REMIT THE ISSUE BACK TO THE ASSESSING OFFICER, WHO SHOULD EXAMINE AS TO WHETHER THE INSURANCE EXPENSES RELATED TO TRUCKS OWNED BY ASSESSEE OR NOT AND WILL ADJUDICATE THE SAME IN ACCORDANCE WITH LAW. 11. IN NUTSHELL, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALL OWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20.01. 2017. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20.01.2017. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), ITA NOS.5 76 (ASR)/2016 ASST. YEAR: 2009-2010 8 (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER