Sri P.Mohan Reddy, Hyderabad V. DCIT, Hyderabad

ITA 735/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66484 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G V HEMALATHA
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Depreciation; Competent authority
• Section: 43B; 143(3); 37(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.735/ HYD/2009 : ASS ESSMENT YEAR 2005-06 ITA NO.1009/ HYD/2011 : AS SESSMENT YEAR 2005-06 SHRI P.MOHAN REDDY, HYDERABAD [PAN - ABPPP 4226 K] V/S. DY. COMMISSIONER OF INCOME-TAX CIRCLE 9(1), HYDERABAD (APPELLANT) (RESP ONDENT) APPELLANT BY : SHRI K.A.SAI PRASAD DEPARTMENT BY : SMT. G.V.HEMALATHA CIT-DR DATE OF HEARING 11.10.2012 DATE OF PRONOUNCEMENT 30.11.2012 O R D E R PER SANJAY ARORA, ACCOUNTANT MEMBER: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE, CH ALLENGING THE REVISIONARY ORDER UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 26/3/2009 BY THE COMMISSIONER OF INCOME-TAX-VI, HYDERABAD (CIT FOR SHORT) FOR THE ASSESSMENT YEAR (AY) 2005-06, AS WELL AS THE APPELLATE ORDER PASSED BY THE COMMISSIONER OF INCOME- TAX(APPEALS),VIJAYAWADA (CIT(A) FOR SHORT) DATED 30/3/2011, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT FOR THE SAID YEAR FRAMED IN PURSUANCE TO THE REVISIONARY ORDER UNDER CHALLENGE. ITA NO. 1009/HYD./2011 2.1 OPENING THE ARGUMENTS FOR AND ON BEHALF OF THE ASSESSEE, IT WAS SUBMITTED BY THE LD. A.R., HIS COUNSEL, THAT THE APPELLATE ORDER IS NOT MAINTAINABLE AS THE LD. CIT(A) HAS NOT ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 2 DISPOSED OF THE ASSESSEES APPEAL ON MERITS, I.E., OF THE DIFFERENT ISSUES INVOLVED, BUT ONLY ON THE BASIS THAT THE ASSESSEES APPEAL BEFORE HIM IS NOT MAINTAINABLE. THE ORDER APPEALED AGAINST, THOUGH MADE IN PURSUANCE TO A SECTION 263 ORDER, IS NEVERTHELESS AN ASSESSMENT UNDER SECTION 143(3) OF THE ACT AND, ACCORDINGLY, T HE FIRST APPEAL THERE-AGAINST WOULD LIE ONLY BEFORE THE FIRST APPELLATE AUTHORITY, BEING TH E LD. CIT(A). HE, THEREFORE, PRAYED FOR A DIRECTION FOR THE MATTER BEING RESTORED BACK TO THE FILE OF THE LD. CIT(A) FOR A DECISION ON MERITS; IN WHICH CASE, HE FURTHER CLARIFIED, HE WOU LD BE DISINCLINED TO PRESS THE ASSESSEES APPEAL AGAINST THE REVISIONARY ORDER, EVEN THOUGH T HE ASSESSEE HAD A GOOD CASE IN RESPECT OF HIS APPEAL AGAINST THE SAID ORDER AS WELL, SO TH AT THE SAME COULD BE DISMISSED AS NOT PRESSED. 2.2 THE LD. A.R., ACCEDING TO NOT PRESS THE APP EAL AGAINST THE REVISION ORDER IN CASE THE MATTER IS RESTORED FOR A DECISION ON MERITS IN RESP ECT OF THE IMPUGNED APPELLATE ORDER, THE SAME WAS GONE THROUGH. THE SAME CLARIFIES, IN NO UN CERTAIN TERMS, THAT EVEN THOUGH THE ASSESSMENT UNDER REFERENCE IS TITLED AS AN ASSESSME NT UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT, THE SAME IS IN ESSENCE AND SUBSTANCE ONLY AN ORDER GIVING EFFECT TO THE REVISIONARY ORDER, INASMUCH AS THE LD. CIT HAS GIVEN CLEAR DIRECTIONS TO THE ASSESSING AUTHORITY FOR CARRYING OUT SPECIFIC ADDITIONS/DISAL LOWANCES, LEAVING NO ROOM FOR VERIFICATION OR ADJUDICATION BY THE ASSESSING AUTHO RITY. WE ARE, THUS, IN COMPLETE AGREEMENT WITH THE LD. CIT(A) THAT HIS PROCEEDING T O DECIDE THE ASSESSEES APPEAL AGAINST SUCH ASSESSMENT ON MERITS IS PRECLUDED BY LAW, BEIN G HIT BY EXPLANATION (C) TO SECTION 263(1) OF THE ACT, AND AFFIRM THAT HE HAS RIGHTLY R EFRAINED FROM DECIDING THE SAME. IN FACT, THE ASSESSING OFFICER HIMSELF, IN RESPONSE TO THE A SSESSEES ARGUMENTS BEFORE HIM, ADMITS THAT HE HAS NO SCOPE FOR APPLYING HIS MIND IN RESPE CT OF THREE OF THE FOUR MATTERS BEING DEALT WITH BY HIM. FURTHER, WE, ON PERUSING THE ENT IRE IMPUGNED REVISIONARY ORDER TO SATISFY OURSELVES WITH REGARD TO THE VALIDITY OF TH E FINDING BY THE LD. CIT(A), I.E., OF THE ASSESSMENT ORDER BEING IN EFFECT AND SUBSTANCE ONLY A CONSEQUENTIAL ORDER, FIND THE SAME TO BE TRUE FOR ALL THE ISSUES DEALT WITH BY THE ASS ESSING OFFICER (AO) IN THE REVISED ASSESSMENT. THE ASSESSEES PRAYER, AS MADE THROUGH THE LD. A.R., THEREFORE, CANNOT BE ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 3 ACCEDED TO, I.E., BOTH IN LAW AND ON FACTS AND, ACC ORDINGLY, WE PROCEED TO HEAR THE ASSESSEES APPEAL (WHICH WE SHALL TAKE UP ISSUE-WIS E) AGAINST THE REVISIONARY ORDER, REJECTING THE ASSESSEES CONTENTION AND, THUS, HIS APPEAL AGAINST THE IMPUGNED APPELLATE ORDER. WE DECIDE ACCORDINGLY. ITA NO. 735/HYD./2011 3. THE FIRST ISSUE IN THE SECOND APPEAL (RAISED P ER GROUND #2, WITH GD. #1 BEING GENERAL IN NATURE, WARRANTING NO ADJUDICATION), IS THE ASSE SSEES CLAIM FOR DEPRECIATION ON 12 TIPPERS (@ 12.5%) ADMITTEDLY PURCHASED ON THE LAST DAY OF THE PREVIOUS YEAR, WHICH STOOD ALLOWED BY THE AO IN ASSESSMENT WITHOUT ANY VERIFIC ATION. THE LD. AR DURING HEARING STATED THAT HE WAS NOT PRESSING THIS GROUND. THE SA ME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 4. THE SECOND ISSUE (GROUND NO.3) IS WITH REGARD TO THE ASSESSEES CLAIM FOR DEPRECIATION ON TRACTORS. THE ASSESSEE HAVING CLAIM ED IT AT 40%, I.E., AS AGAINST THE NORMAL 25%, THE SAME WAS ENQUIRED INTO BY THE LD. C IT. CLEARLY, THERE BEING NO ENQUIRY BY THE ASSESSING OFFICER WITH REGARD TO THE ASSESSE ES CLAIM FOR ENHANCED DEPRECIATION, THE ACTION OF THE LD. CIT U/S. 263 OF THE ACT CANNO T BE QUESTIONED. THE ASSESSEES CASE BEFORE THE COMPETENT AUTHORITY WAS THAT THESE TRACT ORS WERE HIRED OUT BY HIM; THE AMOUNT EARNED (RS.30,000) HAVING BEEN CREDITED TO THE EXPE NSE ACCOUNT TRACTOR HIRE CHARGES IN ACCOUNTS, CLAIMING THE BALANCE RS.15,16,320/- IN TH E SAID ACCOUNT (PB PAGE 16) . THAT IS, THE CLAIM FOR HIGHER RATE OF DEPRECIATION IS ON ACC OUNT OF TRACTORS BEING GIVEN ON HIRE. THE LD. CIT DID NOT FIND THE ASSESSEES EXPLANATION ACC EPTABLE IN VIEW OF ITS NON- SUBSTANTIATION, FOR WHICH THE ASSESSEE WAS SPECIFIC ALLY REQUISITIONED VIDE HIS LETTER DATED 13.3.2009 (PB PGS. 12-13). THE ASSESSEE FAILING TO FURNISH ANY MATERIAL IN SUPPORT OF ITS CLAIM, I.E., APART FROM THE TWO CREDIT ENTRIES IN I TS ACCOUNTS (TO THE ACCOUNT HIRE CHARGES PAID), HE DIRECTED FOR RESTRICTION OF THE ASSESSEE S CLAIM TO THE NORMAL 25%. BEFORE US, THE LD. A.R. PLEADED FOR RESTOR ATION TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION OF THE ASSESSEES CLAIM, WHI CH WAS OBJECTED TO BY THE LD. D.R. IN ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 4 VIEW OF THE ASSESSEE HAVING BEEN ALLOWED SPECIFIC O PPORTUNITY BY THE LD. CIT FOR THE PURPOSE, WHEREAT THE ASSESSEE FAILED TO PROVE HIS C LAIM (REFER PARA 4.2 OF THE REVISIONARY ORDER) . 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. WE FIND NO INFIRMITY IN THE IMPUGNED ORDER ON THE ASSESSEES THIS GROUND . WE HAVE ALREADY NOTED THE ABSENCE OF ANY ENQUIRY OR APPLICATION OF MIND BY THE AO IN THE MATTER, WHICH WOULD MAKE HIS ORDER PER SE ERRONEOUS TO THE EXTENT THAT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. MERELY CREDITING SOME SUMS IN THE ACCOUNTS WOULD NO T PROVE THE FACT OF THE SAME FLOWING BY WAY OF HIRE CHARGES. WE CAN UNDERSTAND OF THE AS SESSEE SUBMITTING THE PRIMARY DETAILS, VIZ. THE TRACTOR NUMBERS; THE NAME/S AND ADDRESS/S OF THE PARTY/S TO WHICH TRACTOR/S WERE HIRED OUT; THE TERMS, AS WELL AS THE PERIOD THEREOF , ETC., SO THAT IT HAS AT LEAST MADE OUT A PRIMA FACIE CASE BEFORE US, WHICH COULD THEN BE CONSIDERED FOR RESTORATION FOR NECESSARY VERIFICATION. WHY, THE AMOUNTS HAVING BEEN RECEIVE D BY THE ASSESSEE IN CASH, WOULD ONLY HAVE BEEN DULY RECEIPTED BY HIM, SO THAT SOME OF TH E SAID BASIC INFORMATION WOULD FLOW THERE-FROM, WHILE THE ASSESSEES CASE IS DE HORS ANY MATERIAL OR INFORMATION, WITH EVEN THE REGISTRATION NUMBER/S AND, THUS, THE IDENTITY O F THE TRACTOR/S HIRED OUT BY HIM BEING NOT MADE AVAILABLE. IT COULD WELL BE THAT THE ASSES SEE HAD HIRED OUT, I.E., ASSUMING SO, THE TRACTORS RENTED BY HIM AND TOWARD WHICH HE HAS PAID RENT/HIRE CHARGES, SO THAT NO CASE FOR CLAIM OF HIGHER DEPRECIATION ON OWN TRACTORS IS MAD E OUT. RATHER, THE LD. A.R. WOULD CONTEND THAT IT IS ONLY ONE TRACTOR WHICH STANDS HI RED OUT, WHILE ALL THROUGH, INCLUDING THE NARRATION TO THE TWO ENTRIES FOR RS.30,000/- IN THE ACCOUNTS (PB PG. 16), STATE IT TO BE IN RESPECT OF TRACTORS. FURTHER, THE SAME IS ONLY F OR THE LAST 1 MONTH OF THE YEAR; THE LD. A.R. CLAIMING THAT THE HIRING OUT IS DONE WHEN TH E TRACTORS ARE DEEMED SURPLUS BY THE ASSESSEE, SO THAT THE ENTITLEMENT FOR (ADDITIONAL) DEPRECIATION WOULD ARISE ONLY FOR OR IN RELATION TO THE SAID PERIOD OF THE PREVIOUS YEAR. C ONTINUING FURTHER, THE HIRE INCOME APPEARS TO BE ONLY BY WAY OF RENTAL INCOME, EVEN AS THE REQUIREMENT OF LAW, AS ALSO EXPLAINED BY THE BENCH DURING HEARING, IS FOR THE S AME BEING USED IN THE BUSINESS OF HIRE. THE ASSESSEE ADMITTEDLY LETTING OUT TRACTORS, I.E., PRESUMING SO, ONLY WHEN THE SAME ARE ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 5 NOT REQUIRED FOR ITS CONSTRUCTION PURPOSES, NO CASE FOR CHARGE OF DEPRECIATION AT THE HIGHER RATE ON OWN TRACTOR/S, IS, UNDER THE CIRCUMSTANCES MADE OUT FOR US TO INTERFERE WITH THE IMPUGNED ORDER IN ANY MANNER. WE DECIDE ACCORDINGLY . 6. THE NEXT ISSUE IN APPEAL, WHICH RATHER TRANSLATE S INTO TWO SEPARATE DISALLOWANCES/ADDITIONS, IS WITH REFERENCE TO THE A SSESSEES CLAIM FOR SALES-TAX, CLAIMED IN THE SUM OF RS.43.53 LAKHS. A PERUSAL OF THE SALES- TAX ASSESSMENT FOR THE RELEVANT YEAR BY THE LD. CIT, HOWEVER, REVEALED THAT THE ASSESSEES LIABILITY FOR THE YEAR TO SALES-TAX STANDS ASSESSED AT RS.16.53 LAKHS. THE ASSESSEE WAS, ACCO RDINGLY, SHOW CAUSED IN RESPECT OF ITS CLAIM FOR THE BALANCE RS.26.99 LAKHS VIDE NOTICE DA TED 12/2/2009 (PB PGS. 6-7). THE ASSESSEE, WITH REFERENCE TO THE SALES-TAX ASSESSMEN T ORDER FOR THE YEAR (PB PGS. 18-21), CLARIFIED THAT THE SALES-TAX PAID, AS ASSESSED, WAS IN FACT AT RS.39.34 LAKHS, AND THAT THE LD. CIT HAD ERRED IN STATING THE FIGURE THEREOF AT RS.1 6.53 LAKHS. THAT BEING ADMITTEDLY THE CASE, THE LD. A.R. ASSEVERATED, THE ASSESSEE HAD SH OWN THAT THE ASSERTION MADE BY THE LD. CIT PER THE SHOW CAUSE NOTICE IS WRONG, SO THAT HIS ORDER WOULD NOT SURVIVE AS THERE IS NO BASIS FOR A VALID ASSUMPTION OF JURISDICTION U/S. 2 63. EVEN AS CLARIFIED BY THE BENCH DURING THE HEARING, THE WRONG FIGURE OF RS.16,53,12 7/- STATED IN THE SHOW CAUSE NOTICE NOTWITHSTANDING, WE COULD HARDLY DISAGREE MORE WITH THE LD. A.R. THIS IS AS APPARENTLY THERE CONTINUES TO BE A DIFFERENCE BETWEEN THE SALE S-TAX LIABILITY FOR THE RELEVANT YEAR AS ASSESSED AND THAT PAID BY THE ASSESSEE, SO THAT AN EXPLANATION FOR THE BALANCE WOULD IN ANY CASE NEED TO BE FURNISHED IN THE SECTION 263 PR OCEEDINGS. TRUE, SECTION 43B OF THE ACT STIPULATES THE CONDITION OF PAYMENT FOR DEDUCTI ON OF THE SUMS SPECIFIED THEREIN, WHICH INCLUDES SALES-TAX, BUT THE SAME IS ONLY AN A DDITIONAL QUALIFICATION, SO THAT THE SUM SHOULD BE OTHERWISE DEDUCTIBLE. ANY PAYMENT IN EXCE SS OF THE LIABILITY IS ONLY A PAYMENT IN ADVANCE OR IN EXCESS, AND WOULD THUS NOT BE ENTI TLED FOR DEDUCTION, WHICH IN THE PRESENT CASE IS ONLY UNDER SECTION 37(1) OF THE ACT . THE WHOLE PREMISE OF THE SHOW CAUSE NOTICE, AS ISSUED BY THE LD. CIT, IS TOWARD EXAMIN ING THE ASSESSEES CLAIM FOR SALES-TAX, BEING APPARENTLY PAID AND, THUS, MADE IN EXCESS OF THE ASSESSED LIABILITY TOWARD SALES-TAX. FURTHER ON, THAT DOES NOT AT ALL IMPLY THAT A DISAL LOWANCE IN ITS RESPECT WOULD NECESSARILY ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 6 FOLLOW, AND WHICH WOULD ONLY DEPEND ON THE MERITS O F THE ASSESSEES EXPLANATION FOR THE SAME, INCLUDING ITS SUBSTANTIATION, WHERE CALLED UP ON TO DO SO. COMING BACK TO THE FACTS OF THE CASE, TH E LD. CIT BEING NOT SATISFIED WITH REGARD TO THE SALES-TAX LIABILITY AS CLAIMED BY THE ASSESSEE, RESTRICTED THE DISALLOWANCE QUA SALES-TAX LIABILITY TO THE BALANCE AMOUNT OF RS.4.18 LAKHS (I .E., RS.43.53 LAKHS - RS.39.34 LAKHS). FURTHER, AS THE LIABILITY FOR THE YEAR AS PER THE A SSESSMENT ORDER WAS ONLY AT RS.37.62 LAKHS (INCORRECTLY TYPED IN THE IMPUGNED ORDER AS RS.37.82 LACS), RESULTING IN A REFUND FOR RS.1.72 LAKHS TO THE ASSESSEE, AND WHICH HAD NO T BEEN OFFERED AS INCOME, HE FURTHER DIRECTED FOR AN ADDITION FOR THE SAME. THUS, IN EFF ECT, HE RESTRICTS THE ASSESSEES ALLOWANCE TOWARD SALES-TAX FOR THE YEAR TO RS.37.62 LAKHS (I. E., THE LIABILITY AS ASSESSED FOR THE YEAR), DISALLOWING THE BALANCE RS.5.91 LAKHS IN THE FORM O F RS.4.18 LAKHS AND RS.1.72 LAKHS. 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE M ATERIAL ON RECORD. 7.1 IT IS, FIRSTLY, PATENT THAT THE ASSESSING OFF ICER HAD NOT LOOKED INTO THE MATTER. TRUE, NO LIABILITY TOWARD SALES-TAX OUTSTANDING AS AT THE YEAR-END IN ACCOUNTS ONLY IMPLIES PAYMENT OF THE AMOUNT DEBITED THEREIN (THROUGH THE PROFIT AND LOSS ACCOUNT), AND FOR WHICH DEDUCTION IS BEING CLAIMED BY THE ASSESSEE. H OWEVER, AS AFORE-STATED, AND AS ALSO EXPLAINED BY THE LD. CIT, THE SAME (CLAIMED AMOUNT) IS TO AGREE WITH THE ACTUAL LIABILITY, AND ANY PAYMENT IN EXCESS IS ONLY RECOVERABLE, I.E. , AN ASSET BY DEFINITION, AND CANNOT BE ALLOWED EVEN CONSIDERING THE MANDATE OF SECTION 43B OF THE ACT, WHICH STIPULATES THE CONDITION OF OTHERWISE ALLOWABLE. THERE IS, THUS, NO MERIT IN THE ASSESSEES CONTENTION OF THE ENQUIRY INITIATED BY THE LD. CIT AS BEING UNWAR RANTED AND IN EXCESS OF HIS JURISDICTION, I.E., GIVEN THAT IT IS NOT IN DISPUTE THAT THE ASSE SSEE SEEKS TO CLAIM THROUGH ITS ACCOUNTS ONLY THE AMOUNT OF SALES-TAX LIABILITY ACTUALLY PAI D DURING A YEAR; THE SAME BEING SUBJECT TO SECTION 43B OF THE ACT. THE ACTION OF THE LD. CI T IN INVOKING SEC. 263 OF THE ACT ON THIS GROUND IS, THUS, JUSTIFIED; ABSENCE OF PROPER ENQUIRY, WHERE OTHERWISE DUE, IT IS TRITE LAW, WOULD MAKE AN ORDER PER SE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTE REST OF THE REVENUE [REFER, INTER ALIA, MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 243 ITR 83 (SC); RAM PYARI DEVI SAROGI V. CIT , 67 ITR 84 (SC); SWAROOP VEGETABLE PRODUCT INDUSTRIES ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 7 LTD. V. CIT , 187 ITR 412 (ALL.); GEE VEE ENTERPRISES V. CIT (ADDL.) , 99 ITR 375 (DEL.); RAJALAKSHMI MILLS LTD. V. ITO , 121 ITD 343 (CHENNAI) (SB)]. 7.2 COMING TO THE MERITS OF THE CASE, THE ASSESS EE HAS EXPLAINED THAT THE AMOUNT PAID DURING THE YEAR, WHICH IS, IN FACT, SUBSTANTIALLY ( RS. 40.53) BY WAY OF TAX DEDUCTED AT SOURCE, RECOVERED FROM HIS ACCOUNT AGAINST THE BILL S RAISED BY HIM ON THE CONTRACTEES (WITH ONLY THE BALANCE RS.3 LAKHS BEING PAID BY WAY OF A DIRECT PAYMENT), TO THE EXTENT THE SAME WORKS TO BE IN EXCESS, I.E., RS. 5.91 LAKH S, HAS IN FACT BEEN NOT REFUNDED BY THE SALES TAX DEPARTMENT, BUT ADJUSTED AGAINST THE OUTS TANDING LIABILITY FOR EARLIER YEARS, BEING THE PREVIOUS YEARS RELEVANT TO FINANCIAL YEAR S 2002-03 & 2003-04. THE LD. A.R. WOULD TAKE US THROUGH THE ASSESSEES SUBMISSIONS IN THIS REGARD DATED 12/3/2009 BEFORE THE LD. CIT (PB PG. 8-11), AS ALSO THE TABULAR MATR IX FOR THE EARLIER YEARS (SUPRA), TO SHOW THAT THE PAYMENTS MADE IN THOSE YEARS, AT WHICH AMO UNT THE CLAIM FOR THOSE YEARS STANDS RESTRICTED TO, IS LESS THAN THE ACTUAL LIABILITY FO R THOSE YEARS. THERE IS, AGAIN, NO DISPUTE QUA THE LEGAL POSITION IN THIS REGARD. SALES-TAX IS, INTER ALIA , SUBJECT TO SECTION 43B OF THE ACT AND, THEREFORE, WOULD FALL FOR DEDUCTION ONLY FOR THE YEAR OF PAYMENT IRRESPECTIVE OF THE YEAR TO WHI CH THE LIABILITY IN ITS RESPECT PERTAINS. THE ONLY CRITERION OR CONDITION IS THAT THE SAME MU ST HAVE ALREADY ACCRUED, OR ELSE IT WOULD ONLY BE A PAYMENT IN ADVANCE AND, HENCE, NOT OTHERWISE ALLOWABLE, I.E., U/S. 37(1) ITSELF. IN THIS REGARD WE FIRSTLY OBSERVE THAT WHIL E THE ASSESSEES ACCOUNTS REFLECT A TOTAL PAYMENT AT RS. 43.53 LACS (PB PGS. 36-47), THE SALE-TAX AUTHORITIES ADMIT A PAYMENT FOR THE YEAR AT RS. 39.34 LACS , WHICH IS QUIZZICAL AND, FURTHER, ASSESS THE LIABI LITY FOR THE YEAR AT RS. 37.62 LACS ONLY, RESULTING IN A REFUND OF RS . 1.72 LACS ONLY TO THE ASSESSEE (PB PG. 18-21, 22), AND WHICH POSITION IS ACCEPTED AND, IN ANY CASE, NOT DENIED OR DISPUTED BY THE ASSESSEE. THE SUBJECT MATTER OF THE ASSESSEES CLAI MS IN THIS REGARD BEING ONLY, OR LIABLE TO BEING, EVIDENCED FROM ITS RECORDS, WE ARE AT LOSS T O UNDERSTAND AS TO WHY HE COULD NOT HAVE PROVED THE SAME BEFORE THE REVISIONARY AUTHORI TY, SETTLING THE MATTER, WHICH CAN HARDLY BE CONSIDERED AS CONTENTIOUS, FOR IT TO TRAV EL TO THE APPELLATE FORUM. THE LD. CIT SHOULD ALSO HAVE IN OUR VIEW REQUIRED THE ASSESSEE TO FURNISH THE NECESSARY DOCUMENTS IN ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 8 RELATION TO ITS ASSESSMENT FOR THE EARLIER YEARS AS WELL AS QUA THE ADJUSTMENT BY THE SALES- TAX DEPARTMENT, AS BEING MENTIONED BY HIM, BEFORE C ONCLUDING THE MATTER, RATHER THAN MERELY STATING OF HIM AS HAVING NOT SUBSTANTIATED I TS CLAIMS, WHICH COULD THEN HAVE BEEN POSSIBLY SO BY THE ASSESSEE PER HIS SECOND LETTER D ATED 25/3/2009 (PB PGS. 14-15). UNDER THE CIRCUMSTANCES, AND IN THE INTEREST OF JUSTICE, WE, THEREFORE, ONLY CONSIDER IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER TO UNDERTAKE THE NECESSARY EXAMINATION AND VERIFICATION, AND DECIDE THE ISSUE ON THE BASIS OF THE FACTS DETERMINED BY HIM IN ACCORDANCE WITH LAW. 7.3 NO SEPARATE CONSIDERATION OR ADJUDICATION QUA THE REFUND AMOUNT OF RS.1.72 LAKHS IS, IN OUR VIEW, REQUIRED TO BE ISSUED. THIS IS AS THE ASSESSEES EXPLANATION COVERS THE ENTIRE AMOUNT CLAIMED (RS.43.53 LAKHS), OF WHICH TH E SAID AMOUNT IS A PART. ONCE THE ASSESSEE IS ABLE TO DEMONSTRATE THE PAYMENT, AND TH E ADJUSTMENT BY THE SALES TAX AUTHORITIES (CLAIMED AT RS. 5.91 LACS) OF THE AMOUN T DEEMED AS IN EXCESS ON ASSESSMENT OF ITS LIABILITY UNDER THE RELEVANT STATUTE FOR THE YE AR, AGAINST THE ASSESSED LIABILITY FOR EARLIER YEARS, WHICH IS OUTSTANDING, NO CASE FOR ANY ADDITI ON ON THIS COUNT IS MADE OUT. FURTHER, BY WAY OF ABUNDANT CAUTION WE MAY ALSO ADD THAT AS LONG AS THE ADJUSTMENT QUA THE IMPUGNED AMOUNT STANDS MADE BY THE SALES TAX DEPART MENT, IT WOULD NOT MATTER WHEN THE SAME IS ACTUALLY MADE. THIS IS AS EVEN THE DETE RMINATION OF THE LIABILITY FOR THE CURRENT YEAR BY THE RELEVANT AUTHORITIES IS ONLY ON 31/3/20 07, I.E., SUBSEQUENT TO THE CLOSE OF THE RELEVANT YEAR, AND WHICH COULD NOT BUT BE OTHERWISE . THAT IS, EVEN THE ADJUSTMENT OF THE AMOUNT PAID DURING THE YEAR AGAINST LIABILITY FOR T HE CURRENT YEAR TAKES PLACE LATER, EVEN AFTER CLOSE OF THE ACCOUNTS FOR THE YEAR. THE ONLY QUESTION, THEREFORE, THAT IS RELEVANT IS WHETHER THE AMOUNT CLAIMED AS PAID, I.E., RS. 43.53 LACS (OR ANY PART THEREOF) WAS RECOVERABLE FROM THE CONCERNED DEPARTMENT AS AT THE YEAR-END . AS SUCH, IF AND TO THE EXTENT THE SAME IS ADJUSTED AGAINST THE ACCRUED LIA BILITY OUTSTANDING AS AT THE YEAR-END, THOUGH THE SAID ADJUSTMENT IS MADE LATER, IT CANNOT BE CONSIDERED AS RECOVERABLE AS AT THE RELEVANT YEAR-END. THE SAID ADJUSTMENT WOULD OF COU RSE BE IRRESPECTIVE OF THE YEAR, I.E., WHETHER THE CURRENT YEAR OR A PRECEDING YEAR, IN DI SCHARGE OF LIABILITY FOR WHICH THE SAID ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 9 ADJUSTMENT OR SET OFF STANDS MADE. WE DECIDE ACCORD INGLY, SO THAT THE ASSESSEES RELEVANT GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT ISSUE ARISING IN THE INSTANT APPEAL IS IN RELATION TO THE RETENTION OF A PART OF THE VALUE OF A CONTRACT SUB-CONTRACTED BY THE ASSES SEE TO ANOTHER, I.E., M/S. DEEPIKA CONSTRUCTIONS. THE CHARGE BY THE COMPETENT AUTHORIT Y IS THAT THE ASSESSEE HAD NOT RETAINED THE REQUIRED 8% OF THE NET CONSIDERATION RECEIVED ( I.E., NET OF THE MANDATORY DEDUCTIONS BY WAY OF SEINERAGE, NAC AND OTHER RECOVERIES), ON THE CONTRACT AMOUNT SUB-CONTRACTED TO THE SAID FIRM. THE ASSESSEE, IN REPLY, EXPLAINED THAT THIS WAS NOT THE CASE; IT HAD, FOLLOWING ITS REGULAR METHOD OF ACCOUNTING, DULY AC COUNTED FOR THE ENTIRE CONTRACT RECEIPT OF RS.179.31 LAKHS AS WELL AS THE MANDATORY CHARGES DEDUCTED THERE-FROM (RS.24 LACS), AS ALSO THE AMOUNT PAID TO M/S. DEEPIKA CONSTRUCTIONS (RS.145.43 LACS). THERE IS THUS NO QUESTION OF IT NOT RETAINING THE STIPULATED 8%, OR OF IT HAVING ESCAPED BEING ACCOUNTED FOR IN ITS ACCOUNTS FOR THE RELEVANT YEAR. THE DIFFEREN CE OF RS 2.54 LACS, I.E., BETWEEN 92% OF THE NET CONSIDERATION, WHICH WORKS TO RS.142.89 LAC S, AND THE AMOUNT ACTUALLY PAID TO M/S. DEEPIKA CONSTRUCTIONS (RS. 145.43 LACS), IS ON ACCOUNT OF ADDITIONAL WORK DONE BY IT (THE SUB-CONTRACTOR). THE RELEVANT AMOUNTS HAVING B EEN DULY EXPLAINED WITH REFERENCE TO ITS ACCOUNTS (PB PG. 17, 49), THERE IS NO SCOPE FOR APPLICATION OF SECTION 263 OF THE ACT ON THIS GROUND. THIS ASPECT, I.E., THE METHOD OF ACCOU NTING FOLLOWED BY THE ASSESSEE IN THIS REGARD, HAD BEEN DULY EXAMINED BY THE LD. CIT FOR A PRECEDING YEAR, I.E., ASSESSMENT YEAR 2003-04, AND ON BEING SATISFIED THE SAID PROCEEDING S WERE DROPPED, AND WHICH FACT WAS ALSO BROUGHT TO THE NOTICE OF THE PRESENT INCUMBENT BY THE ASSESSEE VIDE HIS SUBMISSION BEFORE HIM DATED 12/3/2009 (PB PAGES 8-11, AT PG. 1 1). THE IMPUGNED PROCEEDINGS ARE, THUS, IT WAS CONTENDED, WITHOUT JURISDICTION. 8.1 WE ARE UNABLE TO AGREE WITH THE ASSESSEES C LAIMS. THIS IS AS, WITHOUT DOUBT, NO CASE WOULD STAND TO ARISE IF THE ASSESSEE HAD SHOWN RETENTION OF THE STIPULATED 8%, OR RS. 12,42,529/-, WITH REFERENCE TO ITS ACCOUNTS FOR THE YEAR. THE FACT, HOWEVER, IS THAT THE ASSESSEE RETAINED A LOWER AMOUNT, CLAIMING THE SAME TO BE ON ACCOUNT OF THE ADDITIONAL ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 10 WORK DONE BY THE SUB-CONTRACTOR. SURELY, THE ENTIRE CONTRACT HAVING BEEN SUB-CONTRACTED, SO THAT THE ASSESSEE IS NOT REQUIRED TO PERFORM ANY WORK IN RELATION THERETO, THE PERFORMANCE OF ADDITIONAL WORK WOULD ONLY BE WITH R EFERENCE TO THE PRINCIPAL CONTRACT, ENTITLING CHARGE OF ADDITIONAL AMOUNT BY THE ASSESS EE-CONTRACTOR TO THE CONTRACTEE. OR AT LEAST A QUERY AS TO WHY NO FURTHER CLAIM, I.E., FOR THE ADDITIONAL WORK CARRIED OUT (THROUGH HIS SUB-CONTRACTOR), WAS MADE BY THE ASSESSEE, WHIC H WOULD RESULT IN AN ADDITIONAL INCOME OF RS. 0.22 LACS (RS.2.54 LAKHS PAID X 8/92) , I.E., IN ADDITION TO THE STIPULATED 8% (RS. 12.43 LACS), WHILE THE ASSESSEES ACCOUNTS ADM ITTEDLY REVEAL A PROFIT OF ONLY RS. 9.89 LACS (I.E., RS. 12.43 LACS MINUS RS. 2.54 LACS) ON THIS CONTRACT. THE ASSESSEE MAY WELL HAVE AN EXPLANATION FOR THE SAME, BUT IT CANNOT CLAIM TO HAVE RETAINED THE ENTIRE 8% AND, THUS, MET THE QUERY RAISED BY THE LD. CIT (VIDE HIS SHOW CAUSE NOTICE) IN FULL, SO THAT HE WAS, IN PROCEEDING FURTHER, TRAVELING OUTSIDE THE SAID NOTI CE, AND WHICH CANNOT BE. ON BEING SO EXPLAINED BY THE BENCH DURING THE HEARING, THE LD. A.R. WOULD SUBMIT THAT NO QUERY QUA THE ADDITIONAL WORK HAD IN FACT BEEN RAISED BY THE LD. CIT, WHO PROCEEDED, RATHER, TO STATE THAT THE ASSESSEE HAS NOT ACCOUNTED FOR THE ENTIRE RECEIPT; THE CORRESPONDING TDS CERTIFICATE EXHIBITING THE VALUE OF THE CONTRACT AT RS.194.75 LAKHS AND NOT RS.179.31 LAKHS, SO THAT THERE WAS AN APPARENT SHORTFALL OF RS.15.44 LAKHS, DIRECTING FOR ADDITION FOR THE SAID AMOUNT. 8.2 THE QUERY QUA THE ACCOUNTING FOR THE ADDITIONAL WORK THAT AROSE IN OUR MIND EMANATES DIRECTLY FROM THE ASSESSEES EXPLANATION T OWARD RETENTION OF THE FULL 8% ON THE NET CONTRACT AMOUNT, WHICH WAS FOUND ON FACTS AS IN CORRECT. IT IS NOT NECESSARY THAT THE LD. CIT SHOULD ALSO HAVE QUERIED THUS. THE LARGER CONTE XT IN WHICH THE SAID QUERY IS STATED BY US IS WHETHER THE SUBSEQUENT QUERY RAISED FLOWS DIR ECTLY FROM THE INITIAL QUERY STATED IN THE SHOW CAUSE NOTICE OR THE ASSESSEES EXPLANATION WITH REGARD THERETO. IF SO, THE NEXT QUESTION WOULD BE, IF IT IS PERTINENT AND, TWO, IF THE ASSESSEE HAS BEEN ABLE TO MEET IT FULLY, OR THE QUERY THAT MAY FOLLOW OR FLOW FROM HIS SUBSE QUENT EXPLANATION, AND SO ON. THE POINT IS THAT THE POWER OF THE LD. CIT CANNOT BE CO NSTRUED IN A PEDANTIC MANNER, BUT ONLY IN A WHOLESOME, PURPOSIVE MANNER. HOWEVER, WHEN ON VERIFICATION, WHICH IS WITH ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 11 REFERENCE TO THE MATERIAL ADDUCED; THE AO HAVING MA DE NONE, IT IS FOUND BY HIM THAT THE ACTUAL VALUE OF THE CONTRACT IS RS.194.75 LAKHS AND NOT RS.179.31 LAKHS, IN OUR VIEW, THE LD. CIT WAS WELL WITHIN HIS RIGHTS TO QUESTION THE ASSESSEE ON THAT, AND DIRECT ADDITION OF DIFFERENCE OF ADDITION OF RS.15.44 LAKHS WHERE HE F OUND ASSESSEES EXPLANATION AS WANTING. AS SUCH, WE ARE UNABLE TO HOLD THAT THERE HAS BEEN AN INVALID ASSUMPTION OF JURISDICTION U/S. 263 OF THE ACT BY THE LD. CIT QUA THIS ASPECT OF THE ASSESSEES ASSESSMENT. 8.3 COMING TO THE MERITS OF THE CASE, THE LD. A .R. WOULD SHOW US THAT THE SAID BALANCE AMOUNT HAD BEEN TAKEN BY THE ASSESSEE UNDER WORK-IN -PROGRESS (WIP) (REFER PB PAGE 49). THERE HAD BEEN, THUS, NO OMISSION TO ACCOUNT FOR AN Y VALUE BY THE ASSESSEE. EVEN THOUGH THE TDS CERTIFICATE/S IS ISSUED FOR THE TOTAL VALUE OF THE CONTRACT (RS.194.75 LAKHS), THE ASSESSEE COULD RECOGNIZE INCOME IN ITS ACCOUNTS ONL Y FOR THE VALUE FOR WHICH WORK IS CERTIFIED, AND FOR WHICH IT CAN BE CLAIM TO BE PAID (BY THE CONTRACTEE). EVEN THOUGH THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN AS TO WHY , IN THAT CASE, CREDIT IS ALLOWED TO IT BY THE CONTRACTEE FOR THE FULL AMOUNT, WHICH WAS STATE D TO BE ON ACCOUNT OF THE PECULIAR METHOD OF ACCOUNTING FOLLOWED BY THE GOVERNMENT DEP ARTMENTS, WE CONSIDER THAT THE ASSESSEE CANNOT BE HELD RESPONSIBLE FOR THIS, AS LO NG AS WHAT IS STATED IS TRUE, I.E., THAT THE WORK HAS ACTUALLY BEEN CERTIFIED BY THE CONTRACTEE AT RS.179.31 LAKHS ONLY. FURTHER, THE ASSESSEE HAVING PERFORMED THE ENTIRE WORK UNDER THE CONTRACT (THOUGH THROUGH ITS SUB- CONTRACTOR), SO THAT IT WOULD ALSO HAVE BEEN CORRES PONDINGLY CHARGED BY THE SUB- CONTRACTOR FOR THE ENTIRE WORK, IT CARRIED OVER THE BALANCE, UNCERTIFIED WORK AS ITS WIP AS AT THE YEAR-END. THE ASSESSEES EXPLANATION IS, THU S, CORRECT AND COMPLETE, SO THAT THE ENTIRE CONTRACT VALUE, FOR WHICH THE BILL/S WERE RA ISED BY IT ON THE CONTRACTEE, AS WELL AS ON IT BY THE SUB-CONTRACTOR, STANDS DULY ACCOUNTED FOR . THERE IS NO ADVERSE FINDING BY THE LD. CIT WITH REGARD TO ANY OF THESE PRIMARY FACTS, I.E. , APART FROM THE TDS BEING DEDUCTED AT A HIGHER AMOUNT (FOR WHICH WE HAVE FOUND THE ASSESS EE AS NOT RESPONSIBLE). WE ARE, UNDER THE CIRCUMSTANCES, UNABLE TO SAY AS TO HOW AN D ON WHAT BASIS LD. CIT HAS FOUND THE IMPUGNED AMOUNT TO BE UNACCOUNTED FOR, DIRECTING FO R ITS ADDITION. THE ADVERSE INFERENCE ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 12 DRAWN BY HIM WITH REFERENCE TO THE PAYMENTS TO M/S. DEEPIKA CONSTRUCTIONS 21/4/2004 ONWARDS, EVEN AS THE CONTRACT WITH IT IS DATED 13/1 2/2004, IS MISCONCEIVED. THIS IS ALL THE PAYMENTS TO THE SAID FIRM, AS APPARENT FROM THE COP Y OF ITS LEDGER ACCOUNT IN THE ASSESSEES BOOKS (PB PG. 17), ARE ON ACCOUNT PAYME NTS AND, FURTHER, THE CREDITS ALLOWED THERETO DURING THE YEAR ARE ONLY FOR PAYMENTS RECEI VED FROM IT OR AGAINST THE BILL DRAWN IN PURSUANCE TO THIS CONTRACT. IN FACT, THE ONLY QUEST ION, IN OUR VIEW, THAT SURVIVES THE ASSESSEES EXPLANATION, HOWEVER, IS IF THE AMOUNT C LAIMED BY WAY OF TDS IS ON THE ENTIRE AMOUNT OF RS.194.75 LAKHS, I.E., FOR WHICH THE TDS CERTIFICATE STANDS ISSUED TO IT, OR IS RESTRICTED TO THE AMOUNT PROPORTIONATE TO THE AMOUN T ACCOUNTED AND CLAIMED BY IT AS ITS INCOME FOR THE YEAR, I.E., RS.179.31 LAKHS. THAT IS , APART FROM VERIFICATION OF THIS ASPECT, WHICH SHALL BE UNDERTAKEN BY THE ASSESSING OFFICER, AND MODIFICATION OF THE ASSESSEES ASSESSMENT TO THAT EXTENT, WHERE FOUND AS INCONSIST ENT WITH THE ASSESSEES EXPLANATION AND/OR ITS ACCOUNTS/RETURN, NO OTHER MODIFICATION O N THIS ASPECT, IN OUR VIEW, IS, UNDER THE CIRCUMSTANCES, WARRANTED. WE DECIDE ACCORDINGLY, S ETTING ASIDE THE IMPUGNED ORDER TO THAT EXTENT. 9. IN THE RESULT, THE ASSESSEES APPEAL (IN ITA NO. 1009/HYD.2011) IS DISMISSED AND HIS APPEAL (IN ITA NO. 735/HYD./2011) IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 30.11.2012 SD/- SD/- (SAKTIJIT DEY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- 30 TH NOVEMBER, 2012 COPY FORWARDED TO: 1. SHRI P.MOHAN REDDY, M/S CH. PARTHASARATHY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, ST. NO.1, ASHOK NAGAR, HYDERABAD. ITA NOS.735/HYD./2009 & 1009/HYD/201 1 SHRI P.MOHAN REDDY, HYDERABAD. 13 2. 3. 4 5. DY. COMMISSIONER OF INCOME-TAX, CIRCLE 9(1), HYDERA BAD COMMISSIONER OF INCOME-TAX-VI, HYDERABAD COMMISSIONER OF INCOME-TAX (APPEALS),VIJAYAWADA DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. J.J.