The ACIT, Vapi Circle, Vapi V. Shri Ashok B.Doshi, Vapi

ITA 702/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6200 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 05-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Opportunity of being heard
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.702 / AHD/2009 (ASSESSMENT YEAR 2005-06) ACIT, VAI CIRCLE, VAPI VS. SHRI ASHOK B DOSHI, PROP. J J INDUSTRIES, C-1, B/31, GIDC, VAPI PAN/GIR NO. : ABHPD0069L (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI B L YADAV, SR. DR RESPONDENT BY: SHRI BHUPENDRA SHAH, AR O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A), VALSAD DATED 08.12.2008 FOR THE ASSESSMENT YEAR 200 5-06. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C1T(A) HAS ERRED IN DELETING THE ADDITION O F RS.42,03,289/- ACCOUNT OF UNRECORDED SALES WITHOUT CONSIDERING THE FACTS NARRATED BY THE AO IN ITS ENT IRETY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.2,12,894/- ON ACCOUNT OF UNDER VALUATION OF CLOS ING STOCK WITHOUT CONSIDERING THE FACTS THAT CERTAIN CONSUMAB LE ITEMS WERE NEITHER CONSUMED BY THE ASSESSEE NOR CONSIDERE D FOR THE VALUATION OF CLOSING STORK. I.T.A.NO. 702/AHD/2009 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE E ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN RE STRICTING THE ADDITION MADE ON COUNT OF VALUATION OF RAW MATER IAL LYING WITH THE JOB WORKERS TO RS.L1,37,037/- FROM RS.21,5 5,077/- AND THEREBY GRANTING RELIEF OF RS.10,18,040/-WITHOU T CONSIDERING THE FACT THAT COMPONENT OF LAB OUR CHARGES HAS TO BE INCLUDED WHILE VALUING THE SEMI FINISHED J GOODS LYING WITH THE JOB WORKERS AS ON 31.03.2005. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.27,80,300/-MADE U/S. 40(A)(IA) WITHOUT CONSID ERING THE RATIO LAID DOWN BY THE RAJKOT 1TAT BENCH IN THE CAS E OF ESSAR OIL LTD- VS. ITO REPORTED IN 77 ITD 92 (RAJKO T). IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) BE SET ASIDE AND THAT THE ORDER OF THE AO BE RESTORED. 2. THE BRIEF FACTS OF THE CASE REGARDING THIS ISSUE ARE NOTED BY THE LD. CIT(A) ON PAGE 1 OF HIS ORDER AND THE SAME ARE REPR ODUCED BELOW: THE NEXT GROUND OF APPEAL IS REGARDING ADDITION OF RS.42,03,289/- ON ACCOUNT OF UNRECORDED SALES. THE AO OBSERVED THAT THE APPELLANT HAD SOLD 531.620 TONES OF RAW MA TERIAL AND ISSUED RAW MATERIAL OF 618.123 TONES FOR PRODUCTION . THE APPELLANT WAS MANUFACTURING NUTS AND BOLTS AND WAS ALSO PURCH ASING SEMI - FINISHED NUTS FROM THE MARKETS. THE QUANTITY OF SEM I-FINISHED NUTS PURCHASED AND SOLD AFTER FURTHER PROCESSING WAS DED UCTED FROM THE BALANCE AVAILABLE BUT WHILE ISSUING SEMI-FINISHED N UTS, THE QUANTITY WAS NOT CREDITED IN THE REGISTER. THE AO FURTHER OB SERVED THAT THE APPELLANT HAD SOLD AND DEDUCTED 47.868 TONES OF SEM I-FINISHED NUTS DURING THE YEAR MANUFACTURED OUT OF ROUND BARS WITH OUT RECORDING THE SAME IN THE BOOKS. HE THEREFORE MADE AN ADDITIO N OF RS.42032897- AS INCOME ON ACCOUNT OF UNRECORDED SAL ES. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). BEFORE LD. CIT(A) IT WAS SUBMITTED BY THE ASSESSEE THAT ON ALL THE THREE TYPES OF ITEMS I.E. BOLTS, STUDS AND NUTS WERE MANU FACTURED TILL OCTOBER 2004 BUT FOR MEETING THE SPECIFIC REQUIREMENT OF EA CH TRANSACTION, ASSESSEE STARTED BUYING NUTS FROM THE MARKET FROM N OV. 2004. IT WAS ALSO I.T.A.NO. 702/AHD/2009 3 SUBMITTED THAT THE ASSESSEE WAS MAINTAINING TWO REG ISTERS, ONE REFLECTING RAW MATERIAL CONSUMPTION AND THE OTHER REFLECTING Q UANTITY OF NUTS SUPPLIED. IT WAS ALSO SUBMITTED THAT THE BILLS MEN TIONED IN THE ASSESSMENT ORDER WERE FOR STUDS WITH NUTS AND BOLTS. THESE IN CLUDE STUDS AND BOLTS MANUFACTURED BY THE ASSESSEE AND NUTS WHICH WERE PU RCHASED BY THE ASSESSEE AND SUPPLIED TO THE CUSTOMERS. ASSESSEE A LSO SUBMITTED THAT THE ASSESSEE HAS DEDUCTED RAW MATERIAL CONSUMPTION FROM STUDS AND BOLTS AND TRADED NUTS WERE DEDUCTED FROM THE EXCISE REGISTER FOR NUTS. IT WAS ALSO SUBMITTED THAT COMPLETE DETAILS OF NUTS PURCHASED D URING THE YEAR WERE FILED BEFORE THE A.O. AND THE TOTAL PURCHASE OF NUT S DURING THE YEAR WERE ONLY FOR RS.16.69 LACS INCLUSIVE OF VAT AND SALES T AX AND THESE WOULD NOT FETCH PRICE OF RS.42.03 LACS AS OBSERVED BY THE A.O . EVEN IF THE SAME WERE SOLD IN THE OPEN MARKET. IT IS NOTED BY THE L D. CIT(A) THAT THE ASSESSEE FILED COPIES OF THE RELEVANT SALE BILLS AN D PRODUCED THE TRADED GOODS REGISTER AND RAW MATERIAL CONSUMPTION REGISTE R FOR VERIFICATION. AFTER CONSIDERING THESE FACTS AND DOCUMENTS, IT WAS HELD BY THE LD. CIT(A) THAT DECISION MADE BY THE A.O. IS NOT JUSTIF IED. HE, THEREFORE, DELETED THE SAME. NOW, THE REVENUE IS IN APPEAL BE FORE US. 4. IT IS SUBMITTED BY THE LD. D.R. OF THE REVENUE T HAT LD. CIT(A) HAS NEITHER OBTAINED ANY REMAND REPORT FORM THE A.O. NO R PROVIDED ANY OPPORTUNITY TO THE A.O. AND HENCE, THIS MATTER SHOU LD GO BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. A.R. THAT LD. CIT(A) HAS EXAMINED ALL THE FACTS AND DOCUMENTS AND HENCE HIS ORDER SHOULD BE UPHELD. REGARDING NON-O BTAINING OF REMAND REPORT, IT WAS SUBMITTED BY HIM THAT ASSESSEE HAD M ADE A REQUEST TO THE A.O. FOR SUBMITTING THE REMAND REPORT TO LD. CIT(A) BUT IN SPITE OF ASSESSEES TWO LETTERS DATED 31.07.2008 AND 21.11.2 008, AS APPEARING ON PAGES 116 AND 117 OF THE PAPER BOOK, NO REMAND REPO RT WAS SUBMITTED BY I.T.A.NO. 702/AHD/2009 4 THE A.O. TO THE CIT(A) AND HENCE, THE ORDER OF LD. CIT(A) SHOULD BE UPHELD. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THERE IS NO MENTION IN THE ORDER OF LD. CIT(A) THAT HE HAD ASKED THE A.O. FOR SUBMITTING A REMAND REPORT. IN THE LETTER S OF THE ASSESSEE DATED 31.07.2008 AND 21.11.2008, AS APPEARING ON PAGES 11 6 AND 117 OF THE PAPER BOOK, WE FIND THAT IT IS STATED BY THE ASSESS EE IN THESE TWO LETTERS THAT HE UNDERSTAND THAT THE CIT(A) HAS ASKED THE A. O. FOR REMAND REPORT AND HAS ALSO SENT A REMINDER BUT STILL THE REMAND R EPORT WAS NOT SENT BY THE A.O. TILL D ATE. THERE IS NO MENTION REGARDING ANY LETTER OF THE LD. CIT(A) AS PER WHICH HE HAS ASKED FOR ANY REMAND REP ORT FROM THE A.O. MERELY ON THE BASIS OF THESE TWO LETTERS OF THE ASS ESSEE, WHICH WERE WRITTEN BY HIM TO THE A.O. WITH A COPY TO LD. CIT(A ), IT CAN NOT BE CONCLUDED THAT THE LD. CIT(A) HAS ASKED THE A.O. TO SUBMIT REMAND REPORT AND THE A.O. DID NOT SUBMIT THE SAME. THERE IS NOTHING IN THE ORDER OF LD. CIT(A) REGARDING HIS REQUEST FOR REMAN D REPORT. HE HAS DECIDED THE ISSUE ON THE BASIS OF SUBMISSIONS OF TH E ASSESSEE BEFORE HIM WITHOUT GIVING ANY OPPORTUNITY TO THE A.O. AND HENC E, WE FEEL THAT IN THE INTEREST OF JUSTICE, THIS MATTER SHOULD GO BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. HENCE, WE SET ASIDE THE ORDER OF L D. CIT(A) ON HIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. THE A.O. SHOULD PROVIDE NECESSARY OPPORTUNITY TO TH E ASSESSEE AND AFTER EXAMINING ALL THE FACTS AND SUBMISSIONS OF THE ASSE SSEE, HE SHOULD PASS NECESSARY ORDER AS PER LAW. GROUND NO.1 OF THE REV ENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 6. THE BRIEF FACTS RELATED TO GROUND NO.2 OF THE RE VENUE IS THAT THE ASSESSEE WAS ACCOUNTING FOR CONSUMPTION OF CONSUMAB LES INCLUDING FURNACE OIL CORRUGATED BOX AND OTHER CHEMICAL ON PU RCHASE BASIS WITHOUT I.T.A.NO. 702/AHD/2009 5 ACCOUNTING FOR THE CLOSING STOCK. THE STAND OF THE ASSESSEE IS THAT THE ASSESSEE IS FOLLOWING THIS CONSISTENT PRACTICE THAT THE CONSUMABLES WERE SHOWN AS CONSUMPTION IN THE YEAR OF PURCHASE ITSELF . THE A.O. WAS NOT SATISFIED AND HE REJECTED THE EXPLANATION OF THE AS SESSEE AND MADE AN ADDITION ON THIS ACCOUNT TO THE EXTENT OF CLOSING S TOCK OF THESE ITEMS AT THE END OF THE PRESENT YEAR. BEING AGGRIEVED, THE ASS ESSEE CARRIED THE MATTER BEFORE LD. CIT(A). CIT(A) HAS DELETED THIS ADDITIO N ON THE BASIS THAT ADDITION OF VALUE OF CONSUMABLES IN THE CLOSING STO CK IN THE PRESENT YEAR WILL RESULT IN AN INCREASE IN OPENING STOCK IN THE NEXT YEAR AND THE EXERCISE WILL BE REVENUE NEUTRAL. HE HELD THAT SINC E THE ASSESSEE IS CONSISTENTLY FOLLOWING THIS PRACTICE OF DEBITING TH E CONSUMABLES TO THE PROFIT & LOSS ACCOUNT OF THE YEAR OF PURCHASE, ADDI TION ON THIS ACCOUNT WILL NOT RESULT IN ANY GAIN TO THE REVENUE. 7. LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. A.R. SUPPORTED THE ORDERS OF LOWER AUTHORITIES. HE H AS MADE ONE MORE SUBMISSION THAT THE DETAILS OF CLOSING STOCK AS ON 31.03.2004 IS APPEARING ON PAGE 54 OF THE PAPER BOOK SHOWING CLOSING STOCK ON THAT DATE OF RS.1,75,155/-. IT IS SUBMITTED THAT IF THE ASSESSE ES PRACTICE OF THE DEBITING OF PURCHASES OF CONSUMABLES IN THE YEAR OF PURCHASE IS REJECTED THEN, THE ASSESSEE SHOULD BE ALLOWED DEDUCTION ON A CCOUNT OF OPENING STOCK IN THE PRESENT YEAR AND IF THIS IS DONE, THE NET EFFECT IN THE PRESENT YEAR WILL BE ONLY OF THE BALANCE AMOUNT I.E. RS.37, 730/- (212894 175155). THIS WAS CONTENDED AS AN ALTERNATIVE CON TENTION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. ALTHOUGH WE ARE OF THE OPINION THAT THE PRACTICE OF THE ASSE SSEE OF SHOWING CONSUMABLES PURCHASES IN THE YEAR AS CONSUMPTION OF THAT YEAR ITSELF WITHOUT GIVING EFFECT OF OPENING AND CLOSING STOCK OF THOSE ITEMS IS NOT CORRECT METHOD BUT THIS IS A FACT HAT ASSESSEE IS C ONSISTENTLY FOLLOWING THIS I.T.A.NO. 702/AHD/2009 6 METHOD YEAR AFTER YEAR. IF WE DECIDE TO REDUCE CLO SING STOCK OF THE PRESENT YEAR FORM THE CONSUMPTION OF CONSUMABLES TH EN THE CONSUMPTION OF CONSUMABLES HAS TO BE INCREASED BY OPENING STOCK IN THE PRESENT YEAR AND AS A RESULT NET ADDITION IN THE PRESENT YEAR CA N ONLY BE OF THE MAXIMUM AMOUNT OF RS.37,739/-. THE CONSEQUENT EFFE CT HAS TO BE GIVEN IN THE PRECEDING YEAR AS WELL AS IN THE SUCCEEDING YEARS AND THE TOTAL EFFECT ON THE TAX LIABILITY ON THE ASSESSEE WILL BE REVENUE NEUTRAL. THE AMOUNT INVOLVED IS VERY SMALL AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE AND THIS GROUND O F THE REVENUE IS REJECTED. 9. REGARDING GROUND NO.3, THE BRIEF FACTS ARE THAT IT IS NOTED BY THE A.O. THAT THE ASSESSEE IS SUPPLYING RAW MATERIAL TO OUTSIDE PARTIES FOR JOB WORK AND THE TOTAL QUANTITY OF STOCK OF RAW MATERIA L WAS 138.035 MT AS AGAINST 137 MT TAKEN IN THE PHYSICAL STATEMENT. TH E A.O. VALUED CLOSING STOCK ON THE BASIS OF FIFO METHOD ON THE BASIS OF P URCHASES MADE DURING 5/1 TO 6/3 AND MADE ADDITION OF RS.21,55,077/- ON T HIS ACCOUNT. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE LD. CIT(A). CIT(A) HAS CONFIRMED THE PART ADDITION AND HELD THA T THE ADDITION MADE BY THE A.O. OF RS.9,18,040/- ON ACCOUNT OF JOB WORK CHARGES FOR VALUING THE CLOSING STOCK IS NOT JUSTIFIED. HOWEVER, WHILE GIVING THE FINAL DIRECTION, HE STATED THAT THE TOTAL ADDITION ON THI S ACCOUNT IS DIRECTED TO BE RESTRICTED TO RS.11,37,037/- ONLY AGAINST THE ADDIT ION MADE BY THE A.O. OF RS.21,55,077/- AND THEREBY GRANTING A RELIEF OF RS. 10,18,040/- AND NOW, THE REVENUE IS IN APPEAL BEFORE US. 10. IT IS SUBMITTED BY THE LD. D.R. THAT THERE IS O NE ARITHMETICAL MISTAKE AT THE TIME OF GIVING FINAL DIRECTION BY TH E LD. CIT(A) AND HENCE, THE SAME HAS TO BE RECTIFIED IN ANY CASE AND THE AD DITION TO BE UPHELD SHOULD BE RS.12,37,037/- AND NOT RS.11,37,037/- EVE N IF IT IS HELD THAT CIT(A) WAS JUSTIFIED IN REDUCING THIS ADDITION. TH E 2 ND CONTENTION OF THE I.T.A.NO. 702/AHD/2009 7 LD. D.R. IS THAT THE JOB WORK CHARGES SHOULD ALSO B E INCLUDED IN THE VALUE OF CLOSING STOCK AND HENCE THE ORDER OF LD. CIT(A) SHOULD BE REVERSED AND THAT OF THE A.O. SHOULD BE RESTORED. 11. AS AGAINST THIS, IT IS SUBMITTED BY THE LD. A.R . THAT PAYMENT OF LABOUR CHARGES WITH REGARD TO THE W.I.P. LYING WITH THE JOB WORKERS WAS NOT MADE IN THE PRESENT YEAR AND NO DEDUCTION HAS B EEN CLAIMED ON THIS ACCOUNT AND, THEREFORE, THE ADDITION MADE BY THE A. O. IS NOT JUSTIFIED. AT THIS JUNCTURE, THE BENCH WANTED TO SEE THE DETAILS OF EXPENSES ON ACCOUNT OF LABOUR CHARGES INCURRED BY THE ASSESSEE IN THE L AST THREE MONTHS OF THE FINANCIAL YEAR 2004-05 WHICH IS AMOUNTING TO RS.36, 72,161/- AS NOTED BY THE A.O. ON PAGE 8 OF THE ASSESSMENT ORDER. IN REP LY, LD. A.R. SUBMITTED THAT THOSE DETAILS ARE NOT READILY AVAILABLE BUT TH E DETAILS OF LABOUR CHARGES FOR THE NEXT FINANCIAL YEAR IS AVAILABLE ON PAGES 5 8-64 OF THE PAPER BOOK AND SOME LABOUR CHARGES BILLS OF THE SUCCEEDING YEA R ARE ALSO AVAILABLE ON PAGES 65-98 OF THE PAPER BOOK AND FROM THE SAME, IT CAN BE SEEN THAT THESE BILLS RAISED IN THE NEXT YEAR ARE IN CONNECTI ON WITH THE MATERIAL LYING WITH THE JOB WORKERS AT THE CLOSE OF THE PRESENT YE AR I.E. 31.03.2005 AND HENCE, THIS IS VERY CLEAR THAT IF FOR THE MATERIAL LYING WITH THE JOB WORKERS, BILLS FOR THE JOB WORK CHARGES WERE RAISED BY THE JOB WORKERS IN THE NEXT YEAR AND WERE ACCOUNTED FOR IN THAT YEAR, NO ADDITI ON SHOULD BE MADE IN THE VALUE OF CLOSING STOCK OF THE SEMI FINISHED GOO DS LYING WITH THE JOB WORKERS AT THE END OF THE PRESENT YEAR. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THOUGH THE ORDERS OF AUTHORITI ES BELOW. WE FIND THAT THE ADDITION WAS MADE BY THE A.O. ON THIS BASI S THAT IN THE LAST THREE MONTHS OF THE CURRENT FINANCIAL YEAR, THE ASSESSEE HAS PAID EXPENSES FOR LABOUR CHARGES TO THE EXTENT OF RS.36,72,161/-. I T IS ALSO NOTED BY THE A.O. THAT THE ASSESSEE HAS 128.025 MT OF RAW MATERI AL IN PROCESS IN VARIOUS STAGES OF PRODUCTION FOR EACH PROCESS OF JO B WORK, THE ASSESSEE IS I.T.A.NO. 702/AHD/2009 8 PAYING DIFFERENT RATES ACCORDING TO THE JOB. FROM THESE OBSERVATIONS OF THE A.O., IT IS SEEN THAT IT MAY BE THAT SOME PROCE SSES WERE ALREADY CARRIED OUT FOR THE MATERIAL LYING WITH THE JOB WOR KS AT THE END OF THE PRESENT YEAR BUT SOME PROCESSES WERE STILL REQUIRED TO BE CARRIED OUT AND HENCE THOSE MATERIAL WERE NOT FINISHED AT THE END O F THE PRESENT YEAR. THE BILLS RAISED BY THE JOB WORKERS IN THE NEXT YEAR MA Y BE RELATING TO THOSE PROCESSES WITH REGARD TO RAW MATERIAL WHICH WERE CA RRIED OUT AFTERWARDS BUT THIS DOES NOT MEAN THAT NO EXPENSES ON ACCOUNT OF LABOUR CHARGES FOR THIS UNFINISHED MATERIAL WAS ACCOUNTED FOR IN THE P RESENT YEAR UNLESS THE COMPLETE DETAILS OF LABOUR CHARGES DEBITED IN THE L AST THREE MONTHS OF THE PRESENT YEAR ARE EXAMINED. THOSE DETAILS OR BILLS ARE NOT MADE AVAILABLE TO US. THERE IS NO COMMENT OF THE LD. CIT(A) ALSO ON THOSE DETAILS. EVEN THIS IS NOT STATED BY LD. CIT(A) THAT THESE BI LLS OF THE CURRENT YEAR WERE EXAMINED BY HIM. UNDER THESE FACTS, WE FEEL T HAT IN THE INTEREST OF JUSTICE, THIS MATTER SHOULD GO BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. HENCE, WE SET ASIDE THE ORDER OF LD. CIT (A) AND RESTORE THIS MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DEC ISION. THE ASSESSEE HAS TO FURNISH COMPLETE DETAILS OF THE JOB WORK CHARGES FOR THE LAST THREE MONTHS OF THE PRESENT YEAR OF RS.36,72,161/- ALONG WITH THE RELEVANT BILLS. FORM THESE DETAILS AND BILLS, IT HAS TO BE EXAMINED AS TO WHETHER THESE CHARGES INCLUDE ANY LABOUR CHARGES HAVING BEEN PAID IN CONNECTION WITH THE MATERIAL LYING WITH THE JOB WORKERS AS ON 31.03 .2005. IF IT IS FOUND THAT SOME PAYMENTS WERE MADE ON ACCOUNT OF JOB WORK CHARGES FOR THESE MATERIAL, WHICH ARE LYING WITH THE JOB WORKERS AS O N 31.03.2005, THEN TO THE EXTENT OF SUCH JOB WORK CHARGES HAVING BEEN PAI D IN THE PRESENT YEAR, ADDITION HAS TO BE MADE IN THE CLOSING STOCK OF THE ASSESSEE OF THE PRESENT YEAR ON A SUITABLE BASIS. SUCH ADDITION SHOULD BE ACTUAL, IF COMPLETE DETAILS ARE AVAILABLE AND IF SUCH COMPLETE DETAILS ARE NOT AVAILABLE, THEN SUCH ADDITION HAS TO BE MADE ON A REASONABLE BASIS. AT THE SAME TIME, IF I.T.A.NO. 702/AHD/2009 9 IT IS FOUND THAT THIS PAYMENT OF LABOUR CHARGES IN THE LAST THREE MONTHS OF THE PRESENT YEAR OF RS.36.72 LACS DO NOT INCLUDE AN Y PAYMENT IN RELATION TO THE MATERIAL LYING IN CLOSING STOCK OF 128.025 M T WITH THE JOB WORKERS AT THE YEAR END, THEN NO ADDITION CAN BE MADE ON TH IS ACCOUNT. THE A.O. SHOULD PASS NECESSARY ORDER AS PER LAW IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE REVNEUE IS ALLOWED FOR STATISTIC AL PURPOSES. 13. REGARDING GROUND NO.4, THE BRIEF FACTS OF THE C ASE ARE THAT IT IS NOTED BY THE A.O. IN PARA 7 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF RS.51,24,625/- AS LABOUR CHAR GES IN THE ACCOUNT OF HEM INDUSTRIES DURING THE PRESENT YEAR. THE A.O. H AS ALSO NOTED THAT ASSESSEE HAS NOT DEDUCTED TAX ON THIS EXPENSE OF LA BOUR CHARGES. WHEN QUERY WAS RAISED BY THE A.O., THE ASSESSEE HAS SUBM ITTED A COPY OF CERTIFICATE DATED 22.12.2004 ISSUED BY DCIT (TDS) 1 (2), MUMBAI AUTHORIZING THE PRINCIPAL OFFICER FOR NOT DEDUCTING TDS WITH REGARD TO PAYMENT TO M/S. HEM INDUSTRIES UNDER THE HEAD LABOU R CHARGES. THE A.O. HAS NOTED THAT THIS CERTIFICATE WAS ISSUED ON 22.12 .2004 AND CAME INTO EFFECT ONLY FOR THE AMOUNT CREDITED ONLY AFTER 22.1 2.2004. THE A.O. HAS FURTHER NOTED THAT UP TO 22.12.2004, THE ASSESSEE H AS CREDITED AN AMOUNT OF RS.27,80,300/- IN THE ACCOUNT OF M/S. HEM INDUST RIES. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 194C OF THE INCOME TAX ACT, 1961 ON THIS PAYMENT OF RS.27,80,300/- MADE TO M/S. HEM INDUSTRIES, AS PER THE A.O., THE P ROVISIONS OF SECTION 40(A)(IA) ARE ATTRACTED IN THE CASE OF THE ASSESSEE . ON THIS BASIS, THE A.O. DISALLOWED THE CLAIM OF THE ASSESSEE U/S 40(A)(IA) TO THE EXTENT OF RS.27,80,300/-. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A). 14. LD. CIT(A) HAS DELETED THIS DISALLOWANCE ON THI S BASIS THAT THE CERTIFICATE ISSUED BY THE DEPARTMENT FOR NOT DEDUCT ING TAX IS FOR THE ENTIRE I.T.A.NO. 702/AHD/2009 10 FINANCIAL YEAR AND NOT FOR THE PART OF THE YEAR. H E HAS HELD THAT EVEN IF THE A.O.S CONTENTION THAT TAX WAS REQUIRED TO BE DEDUC TED TILL 22.12.2004 IS ACCEPTED, THEN IT WOULD BE TREATED AS PAID ON 22.12 .2004 AS PER THE CERTIFICATE ISSUED BY THE DEPARTMENT. ON HIS BASIS , LD. CIT(A) HAS DELETED THIS DISALLOWANCE AND NOW, THE REVENUE IS I N APPEAL BEFORE US. 15. IT IS SUBMITTED BY THE LD. D.R. THAT SINCE THE CERTIFICATE IN QUESTION WAS ISSUED ON 22.12.2004, THE ASSESSEE WAS REQUIRED TO DEDUCT TDS TILL THAT DATE AND HENCE THE A.O. IS JUSTIFIED IN MAKING DISALLOWANCE. IT IS ALSO SUBMITTED THAT THE CERTIFICATE IN QUESTION IS AVAILABLE ON PAGE 99 OF THE PAPER BOOK AS PER WHICH, TDS IS NOT REQUIRED TO BE DEDUCTED TO THE EXTENT OF PAYMENT OF RS.50 LACS AND HENCE, IN THE P RESENT YEAR, TOTAL PAYMENT BY THE ASSESSEE TO THIS PARTY IS MORE THAN RS.50 LACS AND ON THE BALANCE PAYMENT OF RS.1,24,625/- TO HEM INDUSTRIES, TDS WAS REQUIRED TO BE DEDUCTED EVEN AS PER THIS CERTIFICATE. 16. AS AGAINST THIS, LD. A.R. SUPPORTED THE ORDER O F LD. CIT(A). IT IS ALSO SUBMITTED THAT THERE IS NO MENTION IN THE RELE VANT SECTION REGARDING THE DATE FROM WHICH THE CERTIFICATE GRANTED WILL BE APPLICABLE. RELIANCE WAS PLACED ON THE FOLLOWING TRIBUNAL DECISIONS: (A) BANBSAL PARIVAHAN (I) PVT. LTD. 137 TTJ (MUM.) 319 (B) SHRI KANUBHAI RAMJI MAKWANA (2010) TIOL 765 IT AT, AHMEDABAD 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS IS UNDISPUTED FACT THAT A CERTIFICATE WAS GRANTED BY DCIT (TDS) RAGE 1(2), MUMBAI ON 22.12.2004 AUTHORIZING THE PRI NCIPAL OFFICER OF THE ASSESSEE FOR MAKING PAYMENT TO HEM INDUSTRIES T O THE EXTENT OF RS.50 LACS WITHOUT MAKING ANY DEDUCTION OF TDS. THE CASE OF THE A.O. IS THAT SINCE THE CERTIFICATE IS DATED 22.12.2004, THE ASSE SSEE WAS REQUIRED TO DEDUCT TDS UP TO 22.12.2004 AND SINCE IT WAS NOT DO NE BY HIM, THE I.T.A.NO. 702/AHD/2009 11 PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE WITH REGARD TO THE PAYMENTS/CREDITS TILL 21.12.2004 OF RS.27,80,300/-. TO APPRECIATE THIS ISSUE, WE FEEL THAT PROVISIONS OF SECTION 40(A)(IA) ARE RELEVANT AND THE SAME ARE REPRODUCED BELOW: SEC. 40(A)(IA).. (IA) ANY INTEREST, COMMISSION OR BROKERAGE,[RENT, R OYALTY] PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAY, RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CA BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, N [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTIO N 139:] PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEE N DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED- (A) DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE SAID DUE DATE; OR (B) DURING ANY OTHER MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE END OF THE SAID PREVIOUS YEAR, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS B EEN PAID. 18. WHEN WE GO THROUGH THE PROVISIONS OF SECTION 40 (A)(IA) AND THE PROVISO, WE FIND THAT EVEN IF NO TAX HAS BEEN DEDUC TED BY THE ASSESSEE FOR ANY PAYMENT, IN THE YEAR OF PAYMENT OR CREDIT, THE ASSESSEE CAN DEDUCT A TAX AFTERWARDS EVEN IN THE SUBSEQUENT YEAR AND MAKE THE PAYMENT TO THE CREDIT OF CENTRAL GOVERNMENT AND IF THE ASSESSEE DO ES SO, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION IN THAT YEAR I.E. THE YEAR I N WHICH TAX WAS DEDUCTED AND PAID. HENCE, IN THE PRESENT CASE ALSO, EVEN IF ASSESSEE DID NOT DEDUCT TAX ON THE AMOUNT CREDITED BY IT TO THE ACCOUNT OF M/S. HEM INDUSTRIES TILL 21.12.2004, IT WAS OPEN FOR THE ASSESSEE TO DEDUCT SUCH TAX AFTERWARDS IN THE PRESENT YEAR AND EVEN IN THE SUBSEQUENT YEAR BU T IN VIEW OF THIS CERTIFICATE ISSUED BY THE DEPARTMENT ON 22.12.2004, THE ASSESSEE WAS NOT IN A POSITION TO DO SO BECAUSE IT WAS DIRECTED BY T HE DEPARTMENT BEING DCIT (TDS) RANGE 1(2) (MUMBAI) AUTHORIZING THE PRIN CIPAL OFFICER OF THE ASSESSEE TO MAKE PAYMENT OF CONTRACT AMOUNT OF RS.50 LACS TO M/S. I.T.A.NO. 702/AHD/2009 12 HEM INDUSTRIES WITHOUT DEDUCTING TDS TILL THE CERTI FICATE REMAINED IN FORCE IN RESPECT OF PAYMENTS UP TO 31.03.2005. WE ARE OF THE CONSIDERED OPINION THAT IN VIEW OF THIS CERTIFICATE ISSUED BY THE DEPARTMENT, THE ASSESSEE WAS NOT IN A POSITION TO DEDUCT THE TAX ON CE THIS CERTIFICATE OF THE DEPARTMENT WAS MADE AVAILABLE TO THE ASSESSEE. ADM ITTEDLY, THIS CERTIFICATE IN QUESTION IS DATED 22.12.2004 AND HEN CE, IT CAN BE MADE AVAILABLE TO THE ASSESSEE COMPANY AFTER THAT DATE O NLY & TILL THAT DATE, THE ASSESSEE W AS REQUIRED TO DEDUCT TDS, WHICH WAS NOT DONE BY THE ASSESSEE. BUT SECTION 40(A)(IA) PERMITS THE ASSESS EE TO DEDUCT SUCH TDS EVEN IN THE NEXT YEAR & ON SUCH DEDUCTION & PAYMENT , DEDUCTION IS ALLOWABLE TO THE ASSESSEE. HENCE, IN THE PRESENT C ASE, THE ASSESSEE COULD HAVE DEDUCTED TDS AT ANY POINT OF TIME AFTER 22.12. 2004 AND ON DOING SO, THE ASSESSEE WOULD HAVE BEEN ELIGIBLE FOR DEDUCTION FOR THE EXPENSES & SECTION 40(A)(IA) WOULD HAVE NO ROLE TO PLAY. BUT IN OUR CONSIDERED OPINION, IN VIEW OF THIS CERTIFICATE BY DCIT (TDS) DATED 22.12.2004, THE ASSESSEE WAS NOT ELIGIBLE TO DEDUCT TDS AFTER THIS CERTIFICATE WAS MADE AVAILABLE TO THE ASSESSEE BY THE PAYEE. HENCE, AS ON 1.4.2005, I.E. ON 1SST DAY OF THE PRESENT ASSESSMENT YEAR, THERE WAS NO DE FAULT BY THE ASSESSEE FOR PAYMENT UP TO RS.50 LACS TO THIS PARTY FOR WHIC H THE PROVISIONS OF SECTION 40(A)(IA) CAN BE INVOKED. UNDER THESE CIR CUMSTANCES, WE FEEL THAT IT CANNOT BE SAID THAT SECTION 40(A)(IA) CAN B E INVOKED FOR THE PAYMENTS MADE BY THE ASSESSEE TO HEM INDUSTRIES TO THE EXTENT OF RS.50 LACS. BUT FOR THE PAYMENTS MADE BY THE ASSESSEE TO THAT PARTY IN EXCESS OF RS.50 LACS I.E. RS.1,24,625/- (RS.51,24,625 50,00 ,000), WE FEEL THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TDS ON THE EXCESS A MOUNT OVER RS.50 LACS I.E. RS.1,24,625/- AND SINCE IT WAS NOT DONE B Y THE ASSESSEE, SECTION 40(A)(IA) IS APPLICABLE WITH REGARD TO PAYMENT OF R S.1,24,625/-. WE THEREFORE, HOLD THAT THE DISALLOWANCE CAN BE MADE U /S 40(A)(IA) TO THE I.T.A.NO. 702/AHD/2009 13 EXTENT OF RS.1,24,625/-. WE DIRECT ACCORDINGLY. T HIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 19. IN THE RESULT, APPEAL OF THE REVENUE STANDS PAR TLY ALLOWED. 20. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY 2011. SD./- SD./- (D. K. TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 15 TH JULY, 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 12/7 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13/7 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 14/7 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 15/7 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 15/7 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 15/7/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER.