M/s. Pavai Agro Service, Tiruchengode V. ACIT, Salem

ITA 657/CHNY/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4441 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI PRADEEP PARIKH, VICE PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 657/MDS/2010 ASSESSMENT YEAR : 2006-07 M/S. PAVAI AGRO SERVICE, 3, S.V.A.ENSION III, TIRUCHENGODE-637 211 PAN : AAEFP0340E (APPELLANT) V. THE ASST. COMMISSIONER OF INCOME- TAX, CIRCLE-II, SALEM. (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR RESPONDENT BY : SHRI P.B. SEKARAN, CIT (DR) O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER O F INCOME-TAX, SALEM PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 IN C. NO. 9544(9)/2007-08/SLM DATED 26-03-2010 FOR THE ASSESSMENT YEAR 2006-07. 2. SHRI S. SRIDHAR, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI P. B. SEKARAN, LEARNED CIT-DR REPRESENTED ON BEHALF OF THE REVENUE. 3. IT WAS SUBMITTED BY THE LEARNED AUTHORIZED REPR ESENTATIVE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS UNDERTAKING CONTRACT WORKS FOR DIGGING BOREWELLS. IT WAS THE SUBMISSION THAT THE RETURN F ILED BY THE ASSESSEE CAME TO BE PROCESSED AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 02-04- 2007 MAKING CERTAIN ADDITIONS. IT WAS THE SUBMISSI ON THAT SUBSEQUENTLY THE ITA NO.657/MDS/10 2 LEARNED CIT, SALEM ISSUED A SHOW CAUSE NOTICE U/S. 263 ON 10-01-2008 WHEREIN THE LEARNED CIT HAD PROPOSED TO REVISE THE ASSESSME NT ON THE GROUND THAT THE ADDITIONAL CIT VIDE HIS LETTER DATED 30-03-2007 HAD DIRECTED THE AO TO VERIFY ADJUSTMENT OF ADVANCES IN SUBSEQUENT MONTHS APRIL, MAY & JUNE,2006 FROM THE BOOKS OF ACCOUNT MAINTAINED FOR THE SUBSEQUENT ASSE SSMENT YEAR AND AS TO WHETHER TAX HAS BEEN DEDUCTED AT SOURCE FROM COMMIS SION, AUDIT FEE, INTEREST, FREIGHT AND HIRE CHARGES AND THERE WAS NOTHING ON R ECORD TO SUGGEST THAT SUCH AN EXERCISE HAD BEEN UNDERTAKEN BY THE AO. IT WAS THE FURTHER SUBMISSION THAT THE LEARNED CIT HAD ALSO PROPOSED REVISION ON THE G ROUND THAT THE LIST OF CREDITORS INCLUDED TWO MAJOR CREDITORS, WHICH APPEA RED TO BE THE SISTER CONCERNS OF THE ASSESSEE AND THE AO HAD NOT EXAMINED THE NAT URE OF TRANSACTIONS WITH THE PARTIES FOR THE APPLICABILITY OF THE PROVISIONS OF SECTION 40A (2)(A) OF THE INCOME- TAX ACT, 1961. IT WAS ALSO THE SUBMISSION THAT THE LEARNED CIT HAD INVOKED THE JURISDICTION U/S 263 TO REVISE THE ASSESSMENT IN RE SPECT OF THE LOANS EXCEEDING THE LIMIT PRESCRIBED U/S. 269SS OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD REPLIED TO THE SHOW CAUSE NOTICE WHERE IN IT WAS SPECIFICALLY INFORMED TO THE CIT THAT THE DIRECTIONS GIVEN BY TH E LEARNED ADDL. CIT TO THE AO HAD BEEN COMPLIED WITH AND THE AO HAD SUBMITTED A D RAFT PROPOSAL TO THE ADDL. CIT IN RESPECT OF THE ADJUSTMENT OF ADVANCES IN THE SUBSEQUENT MONTHS AND ALSO IN RESPECT OF THE TAX DEDUCTED AT SOURCE. HE DREW OUR ATTENTION TO PARAS 3.1 TO 3.5 OF THE ORDER OF THE LEARNED CIT WHEREIN THE LEA RNED CIT HAS ALSO BROUGHT OUT ITA NO.657/MDS/10 3 THE PART OF THE REPORT FILED BY THE AO TO THE ADDL. CIT. IT WAS THE FURTHER SUBMISSION THAT THE SO CALLED DIRECTIONS FROM THE A DDL. CIT WAS NOT A SUO MOTU DIRECTION FROM THE ADDL. CIT BUT WAS THE DIRECTION OF THE ADDL. CIT ON THE CLARIFICATION REQUESTED FOR BY THE AO IN RESPECT OF CERTAIN ADDITIONS WHICH WERE TO BE MADE IN THE COURSE OF ORIGINAL ASSESSMENT. HE DR EW OUR ATTENTION TO THE LETTER DATED 28-03-2007 ADDRESSED TO THE ADDL. CIT BY THE AO WHICH IS EXTRACTED AS FOLLOWS: 2DFP0007/ACIT-II/SLM OFFICE OF THE ASSISTANT COMMI SSIONER OF INCOME-TAX, CIRCLE-II, SALEM-636 007. DATE :28-03-2007 TO THE ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-II, SALEM. SIR, SUB : DIRECTION U/S 144A IN THE CASE OF M/ S. PAAVAI, AGRO SERVICE, TIRUCHENGODE ASSESSMENT YEA R 2006-07 REG. ______ THE ABOVE ASSESSEE IS A BOREWELL CONTRA CTOR. AS THE GROSS CONTRACT RECEIPTS RECEIVED BY THE ASSESSEE FIRM IS MORE THAN RS. 1 CRORE FOR THE ABOVE ASSESSMENT YEAR, THE CASE HAS BEEN TAKEN UP FOR SCRUTINY AS PER THE PARAMETERS LA ID DOWN BY THE BOARD. THE ASSESSEES REPRESENTATIVE APPEAR ED IN RESPONSE TO THIS OFFICE NOTICES. THE BOOKS OF ACCO UNTS AND ALL OTHER DETAILS FURNISHED BY THE ASSESSEE WERE EX AMINED. FOLLOWING ARE THE ISSUES WHICH WARRANT SQUARE ADDITIONS: ITA NO.657/MDS/10 4 1) DURING THE ASSESSMENT PROCEEDINGS, IT IS NOTICE D THAT THE ASSESSEE HAS MADE A CLAIM OF DEPRECIATION TOWAR DS RIG LORRY IN ONE CASE @ 30% INSTEAD OF 15%. THEREFORE THE EXCESS CLAIM OF DEPRECIATION OF 15% AMOUNTING TO RS . 2,06,331/- REQUIRES TO BE DISALLOWED. 2) THE ASSESSEE HAS CLAIMED A SUM OF RS. 49,806/- TOWARDS DEPRECIATION IN RESPECT OF CAR, OUT OF THIS 1/5 TH OF THE SAME IS PROPOSED TO BE DISALLOWED FOR BEING PER SONAL USE OF THE PARTNERS OF THE ASSESSEE FIRM. 3) THE SAME ASSESSEE HAS DEBITED A SUM OF RS. 1,14 ,357/- TOWARDS TRAVELING TO P&L A/C, OUT OF HIS A SUM EQUI VALENT TO 1/5 TH OF THE SAME IS PROPOSED TO BE DISALLOWED FOR BEING PERSONAL USE OF THE PARTNERS OF THE FIRM. 4) THE ASSESSEE HAS CLAIMED A SUM OF RS. 99,267/- TOWARDS PAYMENT OF TELEPHONE CHARGES, OUT OF THIS A SUM EQUIVALENT TO 1/5 TH OF THE SAME IS PROPOSED TO BE DISALLOWED FOR BEING PERSONAL USE OF THE PARTNERS OF THE FIRM. 5) IT IS SEEN THAT THE ASSESSEE HAS SHOWN A SUM R S. 55,50,000/- TOWARDS SITE ADVANCE RECEIPT. OUT OF T HIS 10%OF THE SAME AMOUNTING TO RS. 5,50,000/- IS ALSO PROPOS ED TO BE DISALLOWED SINCE CERTAIN ITEMS OF THIS RECEIPTS ARE NOT CAPABLE OF VERIFICATION FOR WHICH THE ASSESSEE ALSO HAS NOT RAISED ANY OBJECTION AS A GESTURE OF CO-OPERATION S INCE THE RECEIPTS WOULD BE ADJUSTED AS AND WHEN THE FINAL RO UND OF WORK IS COMPLETED DURING THE ENSUING PERIOD ALMOST IN ALL THE CASES. THE PROPOSED ESTIMATED DISALLOWANCE APP EARS TO BE REASONABLE. IN THE ABOVE CIRCUMSTANCES THE PROPOSED ADDITIONS MAY BETAKEN INTO CONSIDERATION WHILE GIVING DIRECTION U /S 144A. FILE SUBMITTED. YOURS FAITHFULLY, SD/- (J. VELAYUTHAM) ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-II, SALEM. ENCL : M.R. OF A.Y. 2006-2007' ITA NO.657/MDS/10 5 HE FURTHER DREW OUR ATTENTION TO THE DIRECTION GIVE N BY THE LEARNED ADDL. CIT TO THE AO WHICH IS AS FOLLOWS: NO. ADDL.CIT/R-II/144A/06-0 OFFICE OF THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-II, SALEM. DATED : 30-3-2007. MEMORANDUM SUB : SCRUTINY ASSESSMENT CASE OF M/S. PAAVAI AGR O SERVICE, TIRUCHENGODE A.Y. 2006-07 DIRECTION U/S 144A REG. REF : ACIT, CIRCLE-II, SALEMS LETTER IN 2DFP0007/ ACIT-II/SLM DATED 28-3-2007. THE ABOVE CASE HAS BEEN REFERRED TO THE UNDERSIGNED SEEKING DIRECTIONS U/S 144A FOR COMPLETION OF SCRUTINY ASSESSMENT. AS AGAINST THE TOTAL INCOME RETURNED BY THE ASSESSEE OF RS. 23,69,330/- THE A.O . HAS PROPOSED THE ADDITIONS AS PARA (1) TO (5). THE ABOVE PROPOSAL APPEARS TO BE REASONABLE SUBJECT TO THE FOLLOWING OBSERVATIONS. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RIG W ORKS E. DRILLING AND EXCAVATION OF EARTH WORKS. NET PROFIT AFTER DEPRECI ATION AND INTEREST TO PARTNERS CAPITAL AND REMUNERATION TO PARTNERS WORKS OUT TO 2 .81%. BEFORE CONSIDERING INTEREST AND SALARY TO PARTNERS, THE PERCENTAGE COM ES TO 4.47% AND BEFORE DEPRECIATION IT WORKS OUT TO 10%. PRIMA FACIE, THE BUSINESS RESULTS ARE FAIR AND REASONABLE. HOWEVER, BEFORE COMPLETING THE SCRUTIN Y ASSESSMENTS IT IS ADVISABLE TO CARRY OUT THE FOLLOWING EXERCISE. (A) TO HAVE A COMPARATIVE ANALYSIS OF RECEIPTS AND EXPENSES OF THE YEAR UNDER REVIEW VIS--VIS THE PRECEDING YEAR AND IF TH ERE IS ANY DISPROPORTIONATE INCREASE IN EXPENDITURE OR FALL IN RECEIPTS THE SAM E MAY.SPARES (B) REPAIRS AND RENEWALS. (C) DIESEL AND OIL (D) BIT, HAMMER AN D THE (E) SAMPLES AND PURCHASE OF TYRES, THE SAME MAY BE CHECKED AT RANDO MLY THROUGH THE INSPECTOR OF INCOME-TAX WHO SHOULD VERIFY BILLS AND VOUCHERS AND IF ANY LAPSES FOUND, SUITABLE ADDITIONS MAY BE MADE. 3. IN THE COMPUTATION OF TOTAL INCOME STATEMENT, TH E ASSESSEE HAS DISALLOWED A SUM OF RS. 1,08,485/- FOR NON-COMPLIAN CE TO TDS PROVISIONS. THE ASSESSING OFFICER MAY VERIFY THE PROVISIONS OF TDS IN RESPECT OF THE COMMISSION, ITA NO.657/MDS/10 6 AUDIT FEE, INTEREST, FREIGHT, HIRE CHARGES AND ENSU RE THAT THE DISALLOWANCE MADE IS ADEQUATE OR NOT. 4. NATURE OF WORKMENS WELFARE EXPENSES MAY BE EXAM INED. 5. EMPLOYEES CONTRIBUTION FOR MARCH, 2006 AMOUNTING TO RS. 3,598/- IS PAID ON 11-4-2006. IT IS AN INCOME U/S 2(24)(). SINCE THE AMOUNT IS PAID BELATEDLY AFTER MARCH, THIS MAY BE ADDED AS INCOME. 6. THE ASSESSEE HAS CREDITED INTEREST ON ADVANCES M ADE TO PARTNERS OF RS. 1,11,035/-, WHEREAS INTEREST PAID ON LOANS BORROWED AMOUNTS TO RS. 1,86,666/-. THE AO MAY VERIFY WHETHER THE ASSESSEE HAS RECEIVED INTEREST FROM PARTNERS AT A LOWER RATE THAN THE INTEREST PAI D TO THE PARTIES FROM WHOM MONEY WAS BORROWED. 7. BALANCE-SHEET DETAILS LOAN CREDITORS SCHEDULE 3 - RS. 25,00,000/-:- THE ASSESSEE HAS BORROWED LOAN OF RS. 25 LACS FROM THREE PARTIES FOR WHICH CONFIRMATION LETTERS ARE FILED. THEY ARE ALL APPEARED TO BE IT ASSESSEES WITH PAN AND ARE ASSESSED IN SALEM WARDS AND CIRCLE S. THE BORROWALS MAY BE CROSS CHECKED WITH THE RELEVANT IT FILES. 8. SITE ADVANCES RS. 55,55,000/-:- IN PARA 5 OF PAGE 2, THE ASSESSING OFFICER HAS PRO POSED 10% DISALLOWANCE OF RS. 55,55,000/- I.E. RS. 5,50,000/- FOR WHICH THE ASSES SEE HAS NO OBJECTION. THE AO MAY PLEASE VERIFY WHETHER SIMILAR ADVANCES ARE APPE ARING IN THE EARLIER YEARS OR IS IT FOR THE FIRST TIME THE ASSESSEE IS CREDITING SUCH A HUGE AMOUNT. AS PER DETAILS FILED, THE ENTIRE AMOUNT IS RECEIVED FROM V ARIOUS PARTIES; MAY BE FROM AGRICULTURISTS RESIDING IN NORTH INDIA. IF THE SITE ADVANCE PAYMENTS ARE GENUINE, THE SAME WOULD HAVE BEEN GET ADJUSTED IN THE SUBSEQ UENT MONTHS I.E. APRIL, MAY AND JUNE, 2006 BY WHICH TIME, THE WORK COULD HAVE B EEN EXECUTED. THIS FACT MAY BE VERIFIED WITH THE ACCOUNT BOOK MAINTAINED FO R THE SUBSEQUENT YEAR. AFTER COMPLETION OF ASSESSMENT A COPY OF THE ASSESS MENT ORDER MAY BE FURNISHED. RECORDS ARE RETURNED. SD/- (A. RADHAKRISHNAN) ADDL. COMMISSIONER OF INCOME-TAX, RANGE-II, SALEM. TO THE ACIT, CIRCLE-II, SALEM. ITA NO.657/MDS/10 7 THUS IT WAS THE SUBMISSION THAT THE AO HAD REQUESTE D THE ADDL. CIT FOR DIRECTIONS U/S. 144A AND THE ADDITIONAL CIT HAD GIV EN DIRECTIONS UNDER SECTION 144A AND THE AO HAD ALSO COMPLIED WITH THE DIRECTIO NS GIVEN U/S. 144A BY THE ADDITIONAL CIT AND CONSEQUENTLY THERE WAS NO ERROR IN THE ASSESSMENT ORDER PASSED UNDER SEC. 143(3) ON 2-4-2007 WHICH CALLED F OR THE INVOCATION OF THE POWERS OF THE LEARNED CIT U/S. 263. 4. IN REPLY THE LEARNED CIT-DR SUBMITTED THAT T HE ORDER PASSED BY THE LEARNED CIT U/S. 263 WAS LIABLE TO BE UPHELD INSOFAR AS FOU R ISSUES HAVE BEEN RAISED THEREIN AND THERE WAS NO DISCUSSION ON THE FOUR ISS UES IN THE ASSESSMENT ORDER AND THESE FOUR ISSUES ALSO ROSE OUT OF THE DIRECTIO NS OF THE LEARNED ADDL. CIT. IT WAS THE SUBMISSION THAT THE ASSESSMENT ORDER WAS SI LENT IN RESPECT OF THE DIRECTIONS ISSUED BY THE LEARNED ADDL. CIT AND CONS EQUENTLY THERE WAS NON- APPLICATION OF MIND BY THE AO WHICH GAVE CAUSE FOR REVISION U/S. 263. HE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTSET A PERUSAL OF THE LETTER ADDRESSED TO THE ADDL. CIT BY THE AO FOR DIR ECTIONS U/S. 144A WHICH HAS BEEN EXTRACTED EARLIER, AS ALSO THE DIRECTION OF TH E LEARNED ADDL. CIT U/S 144A MUST BE CONSIDERED AS PART OF THE RECORD. IT IS N OTICED THAT THE AO HAS APPLIED HIS MIND ON THE ISSUE NO.1 AS RAISED BY THE LEARNED CIT. A PERUSAL OF THE DIRECTIONS OF THE LEARNED ADDL. CIT CLEARLY SHOWS T HAT ISSUES NO. 1 AND 3 HAVE BEEN CONSIDERED BY THE LEARNED ADDITIONAL CIT WHILE GIVING THE DIRECTION U/S. ITA NO.657/MDS/10 8 144A. A PERUSAL OF THE ORDER OF THE LEARNED CIT WH EREIN HE HAS EXTRACTED THE DRAFT SUBMITTED BY THE AO TO THE ADDL. CIT CLEARLY SHOWS THAT THE AO HAS EXAMINED ALL THE FOUR ITEMS WHILE GIVING REPLY TO T HE ADDL. CIT. THUS ALL THE ISSUES WHICH ARE BEING NOW RAKED UP BY THE LEARNED CIT IN HIS ORDER U/S. 263 ARE ISSUES WHICH HAVE BEEN DISCUSSED NOT ONLY BY THE A O BUT ALSO BY THE ADDL. CIT. THUS NOT ONE BUT TWO MINDS APPLIED ON THE ISSUES WH ICH HAVE BEEN RAISED. A PERUSAL OF THE ORDER OF THE LEARNED CIT SHOWS THAT HE HAS NOT POINTED OUT AS TO WHAT IS THE ERROR IN THE ASSESSMENT ORDER PASSED. A PLAIN STATEMENT THAT SOMETHING HAS NOT BEEN CONSIDERED OR THAT THERE HAS BEEN NO FINDING OF THE AO IN RESPECT OF A PARTICULAR ISSUE DOES NOT GIVE A BL ANKET APPROVAL FOR THE CIT TO INVOKE HIS POWER UNDER SECTION 263. A PERUSAL OF T HE PROVISIONS OF SECTION 263 ITSELF CLEARLY SHOWS THAT THE LEARNED CIT SHOULD CA LL FOR THE RECORDS AND EXAMINE THE RECORDS AND AFTER GIVING THE ASSESSEE AN OPPORT UNITY OF BEING HEARD MAKE OR CAUSE TO BE MADE SUCH ENQUIRY AS HE DEEMS NECESSARY AND THEN ONLY PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY JUSTIFY. HERE WHAT IS TOTALLY LACKING IS THE ENQUIRY MADE BY THE LEARNED CIT TO SHOW THAT THE ORDER OF THE AO IS ERRONEOUS AND HAS RESULTED IN PREJUDICE TO THE REVE NUE. WHEN PASSING THE ORIGINAL ORDER IT IS VERY CLEAR THAT THE AO HAS CON SIDERED THE ISSUES AND HE HAS EXPRESSED HIS OPINION AS IS EVIDENT FROM THE DRAFT REPLY GIVEN TO THE ADDL. CIT IN RESPECT OF THE DIRECTIONS ISSUED BY THE ADDITIONAL CIT U/S. 144A. THUS WHAT IS NOTICED IS THAT UNDER THE GARB OF REVISION U/S. 263 THE LEARNED CIT IS ATTEMPTING ITA NO.657/MDS/10 9 TO RE-START A FISHING ENQUIRY AND RAKE UP ISSUES WH ICH HAVE ALREADY BEEN CONSIDERED AND DECIDED BY THE AO. IN THE CIRCUMSTA NCES, WE ARE OF THE VIEW THAT THE ORDER PASSED U/S. 263 BY THE LEARNED CIT I S UNSUSTAINABLE ON THE FACTS OF THE CASE AND CONSEQUENTLY THE SAME IS QUASHED. IN THE CIRCUMSTANCES, THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. THE ORDER WAS PRONOUNCED IN THE COURT ON 16-07-2 010. SD/- SD/- ( PRADEEP PARIKH) (GEORGE MATHAN) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 16 TH JULY, 2010. H. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A) (4) CIT (5) D.R. (6) GUARD FILE