ACIT, Thiruvalla V. Shri Prasad mathew, Thiruvalla

ITA 580/COCH/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52307 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 11-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-12-2009
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: M P JAYANTHAN NAMPOOTHIRI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 580/COCH/2009 ASSESSMENT YEAR:2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, THIRUVALLA. VS. SHRI PRASAD MATHEW, KUTTIKKATTU HOUSE, KADAPRA, KUMBANAD. [PAN: AGBPM 0102G] (REVENUE-APPELLANT) (ASSESSEE- RESPONDENT) REVENUE BY MS. S. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI M.P.JAYANTHAN NAMPOOTHIRI, FCA DATE OF HEARING 12/10/2011 DATE OF PRONOUNCEMENT 16/12/2011 O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOCHI DATED 01-10-2009, AN D THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2006-07. 2. THE APPEAL INVOLVES A SINGLE ISSUE, I.E., THE MA INTAINABILITY IN LAW OF THE DISALLOWANCE MADE IN THE SUM OF ` 24,77,521/- U/S. 40(A)(IA) OF THE INCOME TAX ACT, 1 961 (`THE ACT HEREINAFTER) BY THE ASSESSING OFFICER (A O), I.E., VIDE ORDER U/S. 143(3) OF THE ACT DATED 23-12-2008, SINCE DELETED VIDE THE IMPUGN ED ORDER. 3. THE BACKGROUND FACTS OF THE CASE ARE THAT ON EXA MINATION OF THE ASSESSEES ACCOUNTS DURING THE COURSE OF THE ASSESSMENT PROCEE DINGS, THE ASSESSEE - AN INDIVIDUAL CONTRACTOR ENGAGED IN THE EXECUTION OF WORKS FOR PW D, WAS OBSERVED BY THE AO TO HAVE I.T.A. NO.580 /COCH/2009 PRASAD MATHEW VS. ACIT, THIRUVALLA 2 CREDITED HIRE CHARGES IN THE SUM OF ` 24,98,662/- TO THE ACCOUNT OF ONE, SHRI REJI MATHEW , TO WHOM PAYMENTS IN THE AGGREGATE OF ` 8,99,079/- WERE MADE DURING THE YEAR, LEAVING A CLOSING CREDIT BALANCE OF ` 15,99,583/- IN HIS ACCOUNT. SHRI REJI MATHEW WAS, THUS, ONLY A SUB-CONTRACTOR ENGAGED IN THE SUPPLY OF LORRIES AGA INST DEFINED CONSIDERATION IN THE FORM OF HIRE CHARGES CREDITED. AS NO TAX STOOD DEDUCTED AT SOURCE THERE-FROM, WHICH WAS REQUIRED TO U/S. 194C(2) OF THE ACT, THE ENTIRE LOR RY HIRE CHARGES CLAIMED PER THE P&L ACCOUNT, I.E., 24,77,521/-, WERE DISALLOWED, INVOKI NG S. 40(A)(IA) OF THE ACT. THE ASSESSEES PLEA THAT SHRI REJI MATHEW, BEING THE AS SESSEES YOUNGER BROTHER, WAS ONLY EXTENDING HELP TO HIS ELDER BROTHER BY SUPERVISING THE LORRY OPERATIONS, WAS FOUND BY THE AO TO BE ONLY AN ALIBI, ADVANCED TO EXPLAIN THE ADM ITTED DEFAULT. IN APPEAL, SIMILAR CONTENTIONS WERE RAISED BEFORE THE LD. CIT(A). THE LORRIES WERE TAKEN ON HIRE DIRECTLY FROM THE REGULAR LORRY OPERATORS FOR TRANSPORTING M ATERIAL TO THE SITE/S. THERE WAS COMPLETE DESCRIPTION OF THE LORRY TRIPS MADE DURING THE WHOLE YEAR IN THE ASSESSEES BOOKS. PAYMENT TO THE LORRY OWNERS, WHICH WAS MADE BY THE ASSESSEES BROTHER (SHRI REJI MATHEW), WAS UNDER SUCH CIRCUMSTANCES ONLY A SHORT TERM ADVANCE, AND COULD NOT BE CONSIDERED AS TOWARD CARRYING OUT ANY WORK. TREATIN G HIM AS A SUB-CONTRACTOR WAS THUS NOT CORRECT. THE LD. CIT(A) EXAMINED THE CASE RECOR DS, INCLUDING THE TENDERS FOR THE CONTRACTS EXECUTED AND THE BILLS RAISED BY THE TRAN SPORTERS FOR LORRY HIRE CHARGES, WHICH WERE FOUND TO BE IN THE NAME OF THE APPELLANT, WHOS E RECORDS CLEARLY SHOWED THE COMPLETE DETAILS OF THE LORRY HIRE CHARGES. IN HIS VIEW, THEREFORE, THERE WAS NOTHING TO WARRANT TREATING SHRI REJI MATHEW AS A SUB-CONTRACT OR AND, ACCORDINGLY, TO UPHOLD THE APPLICATION OF S. 40(A)(IA) R/W S. 194C(2) OF THE A CT. AGGRIEVED, THE REVENUE IS IN APPEAL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WHILE THE REVENUES CASE, BASED ON THE ASSESSEES ACCOUNTS, W HEREIN CREDIT FOR THE LORRY HIRE CHARGES STANDS MADE TO THE ACCOUNT OF SHRI REJI MAT HEW, IS THAT HE IS A SUB-CONTRACTOR, UNDERTAKING THE SUPPLY OF LORRIES AND THE CONCOMITA NT TRANSPORTATION OF MATERIALS TO THE SITE/S, THE ASSESSEES CASE IS THAT HE IS ONLY EXTE NDING A FREE HELP TO THE ASSESSEE, BEING HIS YOUNGER BROTHER. FURTHER, THE PAYMENT TO THE LORRY DRIVERS IS MADE AFTER VERIFICATION OF THE MATERIALS BY SHRI REJI MATHEW, AND THE PAYMENT OF H IRE CHARGES THERETO BY HIM IS ONLY I.T.A. NO.580 /COCH/2009 PRASAD MATHEW VS. ACIT, THIRUVALLA 3 FOR AND ON BEHALF OF THE ASSESSEE. WITHOUT DOUBT, T HE BILLS FOR LORRY CHARGES HAVE BEEN RAISED DIRECTLY ON THE ASSESSEE, WHICH WOULD NOT BE THE CASE IF SHRI REJI MATHEW WAS WORKING AS A SUB-CONTRACTOR, BUT THEN NEITHER IN TH AT CASE WOULD HIS ACCOUNT STAND TO BE CREDITED (IN THE ASSESSEES BOOKS) NOR PAYMENTS TO THE LORRY OWNERS MADE BY HIM (FROM HIS OWN FUNDS). AGAIN, HE HAS NOT BEEN REMUNERATED FOR HIS `SERVICES, WHILE A SUB- CONTRACTOR WOULD ONLY WORK (OR NORMALLY SO) FOR PRO FIT, RECKONED ON THE BASIS OF THE DIFFERENCE BETWEEN HIS CHARGE FOR WORK UNDERTAKEN A ND THE COST INCURRED TOWARD THE SAME. WE ARE CONSCIOUS THAT IT MAY WELL BE THAT AS PER THE ARRANGEMENT OBTAINING, THE ASSESSEE HAS CHOSEN TO RECORD THE LORRY BILLS IN HI S BOOKS DIRECTLY, WHILE THE SUB- CONTRACTORS REMUNERATION COULD BE IN THE FORM OF A FIXED COMMISSION, CHARGED SEPARATELY BY HIM. HOWEVER, A SUB-CONTRACTOR IS BY DEFINITION ONE WHO PERFORMS THE WORK HIMSELF, WHILE MANAGING IT THROUGH ENGAGEMENT OF OTHERS, AS SUPPLY OF LORRIES AT THE REQUIRED TIME AND PLACE IN THE INSTANT CASE, WOULD IMPLY A PRINCI PAL-AGENT RELATIONSHIP OR EVEN AN EMPLOYER-EMPLOYEE RELATIONSHIP, REMUNERATION FOR WH ICH (COMMISSION OR SALARY) IS AGAIN SUBJECT TO DEDUCTION OF TAX AT SOURCE. WHATEVER THE CASE MAY BE, ADMITTEDLY, NO REMUNERATION HAS BEEN ALLOWED TO SH. REJI MATHEW. A S SUCH, IT IS DIFFICULT TO SAY THAT HE UNDERTOOK THE WORK AND PERFORMED IN THE CAPACITY OF A SUB-CONTRACTOR. IT IS INDEED SURPRISING THAT THE PAYMENTS CLAIMED TO BE MADE BY SHRI REJI MATHEW FOR AND ON BEHALF OF THE ASSESSEE, ACTUALLY INVOLVED HIS OWN FUNDS; W HILE THE ASSESSEE OWES SHRI REJI MATHEW A SUM OF ` 15,99,583/- AS AT THE YEAR-END, NO AMOUNT IS OSTENS IBLY DUE BY HIM TO THE LORRY OWNERS. THE SAME HAS BEEN CONSIDERED BY T HE LD. CIT(A) AS A SHORT-TERM ADVANCE BY HIM TO THE ASSESSEE. BUT THEN THE QUESTI ON IS: WHY WOULD HE DO SO WITHOUT ANY FINANCIAL INTEREST? THIS IS AS IT WOULD IMPLY B ESTOWING LABOUR AND FINANCIAL RESOURCES, IF NOT ENTAILING FINANCIAL RISK AS WELL, WITHOUT AN Y CONSIDERATION OR INTEREST. ECONOMIC TRANSACTIONS MUST HAVE AN ECONOMIC RATIONALE OR EXP LANATION THERETO. HOWEVER, NO ENQUIRY IN THIS RESPECT HAS BEEN MADE BY THE AUTHOR ITIES BELOW, SO THAT IT IS DIFFICULT TO BASE ANY CONCLUSION ON THE SAID FACT. ACCORDINGLY, ON THE BALANCE OF THE WEIGHT OF EVIDENCE BEFORE US, WE ARE INCLINED TO BE IN AGREEM ENT WITH THE ASSESSEES CASE, AND HOLD THAT THE REVENUE HAS BEEN UNABLE TO SHOW THAT SHRI REJI MATHEW WAS INDEED WORKING AS A SUB-CONTRACTOR FOR THE ASSESSEE, FOR IT TO CONTEND AN APPLICATION OF S. 194C(2) AND, I.T.A. NO.580 /COCH/2009 PRASAD MATHEW VS. ACIT, THIRUVALLA 4 CONSEQUENTLY, S. 40(A)(IA) OF THE ACT, THE ONUS FOR WHICH IS ON THE REVENUE. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 16TH DECEMBER, 2011 GJ COPY TO: 1. SHRI PRASAD MATHEW, KUTTIKKATTU HOUSE, KADAPRA, KUMBANAD. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, THIRUVALLA. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV,KOCH I 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .