Dnyandeo Dharma Shejal, V. Asstt. CIT Cir. 1, Solapur,

ITA 735/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3349 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: misc
• Appeal Filed On: 27-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K DUBEY
• Assessee Lawyers: DILIP S RAHURKAR
• Keywords: Depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, B PUNE BEFORE SHRI I.C. SUDHIR, JM AND SHRI R.C. SHARMA, AM I.T.A. NO. 735/PN/2009 : 2003-04 DNYANDEO DHARMA SHEJAL BLOCK NO. 167/168 SHRIKANT NAGAR VIJAPUR ROAD 413 001 PAN AOUPS 9653 R APPELLANT VS. ASSTT. CIT CIR. 1, SOLAPUR RESPONDENT APPELLANT BY : SHRI DILIP S. RAHURKAR RESPONDENT BY: SHRI M.K. DUBEY ORDER PER I.C. SUDHIR, JM THE ASSESSEE HAS QUESTIONED THE VALIDITY OF ORDER PASSED U/S 263 OF THE ACT ON SEVERAL GROUNDS RAISING A SOL E ISSUE AS TO WHETHER THE LEARNED CIT WAS JUSTIFIED IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE A.O WAS ERRONEOUS AN D PREJUDICIAL TO THE INTEREST O REVENUE. 2. WE WOULD LIKE TO RECORD HERE THAT THE GROUNDS OF APPEAL ARE UNNECESSARILY RUNNING IN FIVE PAGES WHEREIN THE SUBMISSIONS WHICH SHOULD HAVE BEEN FORMED PART OF T HE ARGUMENT OF THE ASSESSEE HAVE ALSO BEEN INCLUDED. AS PER RULE 8 OF INCOME-TAX (APPELLATE TRIBUNAL) RULES 196 3, THE GROUNDS OF THE APPEAL ARE REQUIRED TO BE RAISED IN CONCISE FORM ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 2 DEVOID OF ANY ARGUMENTS IN SUPPORT. WE HOPE THAT I N FUTURE, THE LEARNED COUNSEL WILL TAKE CARE OF TO SAVE HIS O WN PRECIOUS TIME AND THAT OF THE TRIBUNAL. 3. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF ORDER IMPUGNED, MATERIAL ON RECORD AND THE DECISIONS RELIED UPON. 4. THE RELEVANT FACTS ARE THAT INITIALLY, THE RETUR N OF INCOME WAS PROCESSED U/S 143(1) ACCEPTING THE SAME. LATER ON, RETURN WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT ORDER WAS FRAMED U/S 143(3) DETERMINING INCOME AT RS. 31,31,1 60/-. THE LEARNED CIT ON EXAMINATION OF RECORDS OF THE AS SESSEE REMAINED OF THE PRIMA FACIE VIEW THAT THE ASSESSMEN T ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. HE ACCORDINGLY ISSUED A SHOW CAUSE NOTICE U/S 263. TH E INVOCATION OF THE PROVISIONS OF SECTION 263 WAS PRO POSED BY THE LEARNED CIT ON THE BASIS THAT (1) THE A.O THOUG H HAS MADE SEVERAL ADVERSE REMARKS WITH REGARD TO SELF MADE VO UCHERS BUT HAS SIMPLY TREATED THESE VOUCHERS (RELATING TO LABO UR EXPENSES) TO BE DEFECTIVE INSTEAD OF EXAMINING THEI R GENUINENESS AND IN DISALLOWING 8% OF THE CLAIMED LA BOUR CHARGES WITHOUT ANY BASIS; (2) NECESSARY INQUIRIES HAVE NOT BEEN MADE BY THE A.O ON THE DETAILS OF THE CLAIMED MACHINERY HIRE CHARGES AND NATURE OF PAYMENT TO THOSE PERSONS ; AND (3) CORRESPONDING DEPRECIATION ON MOTOR CAR HAS NOT BEE N ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 3 DISALLOWED U/S 38(2) WHILE DISALLOWING MOTOR CAR EX PENSES FOR PERSONAL USE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE FURNISHED IN RESPONSE TO NOTICE ISSUED U/S 263 OF THE ACT THE LEARNED CIT IN CONCLUDING PARA 4 OF THE ORD ER HAS HELD THE ASSESSMENT ORDER AS ERRONEOUS IN SO FAR AS IT I S PREJUDICIAL TO THE INTEREST OF REVENUE ON THE BASIS THAT THE A. O SHOULD HAVE VERIFIED THE GENUINENESS OF CLAIMED EXPENDITUR E ON LABOUR CHARGES THAT IT WAS INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF BUSINESS INSTEAD OF MAKING 8% ADHOC DISALLOWANCE, HE SHOULD HAVE MADE DISALLOWANCE OF T HE ACTUAL AMOUNT WHICH THE ASSESSEE FAILED TO SUBSTANTIATE AS ACTUALLY INCURRED AND/OR WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. 5. THE CONTENTION OF THE LEARNED AR REMAINED THAT T HE LEARNED CIT HAS ERRED IN NOT CONSIDERING THAT THE A .O HAD MADE DETAILED INQUIRIES BEFORE PASSING THE ASSESSME NT ORDER ON THE ISSUE. HE HAD EXAMINED BOOKS OF ACCOUNTS, V OUCHERS, OTHER RELEVANT RECORDS AND ANSWER OF THE ASSESSEE T O THE DETAILED QUESTIONNAIRE ISSUED BY HIM. LEARNED CIT WAS THUS NOT JUSTIFIED IN CANCELING THE ASSESSMENT ON THE BA SIS THAT VOUCHERS PRODUCED IN SUPPORT OF LABOUR CHARGES BY T HE ASSESSEE NEED FURTHER VERIFICATION FROM THE ANGLE O F GENUINENESS. IT IS THUS SUBSTITUTION OF HIS VIEW B Y THE LEARNED CIT TO THE EFFECT THAT THE VOUCHERS IN SUPPORT OF L ABOUR ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 4 CHARGES CLAIMED BY THE ASSESSEE NEED FURTHER VERIFI CATION IN THE PLACE OF THE FACT FOUND OUT BY THE A.O TO THE E FFECT THAT THE CONCERNED VOUCHERS ARE MERELY DEFECTIVE. THE LEARN ED AR SUBMITTED THAT AS FAR AS THE VOUCHERS IN QUESTION A RE CONCERNED THOUGH SELF MADE BUT CONSTITUTE A CONCEPT OF A PALATABLE EVIDENCE WHICH ARE ACCEPTED TO THE CHARTE RED ACCOUNTANT FOR THE PURPOSE OF AUDIT. IT SHOULD BE KEPT IN MIND THAT SUCH TYPE OF SELF MADE VOUCHERS ARE PREPA RED BY THE SEMI-ILLITERATE SITE SUPERVISORS WORKING AT THE REM OTE PLACE OF WORK. THE LEARNED CIT HAS ALSO ERRED IN NOT CONSID ERING THE NET PROFIT SHOWN BY THE ASSESSEE FOR THE A.Y. 2003- 04 WAS MORE BY ABOUT 1% EVEN THOUGH HIS CONTRACT RECEIPTS HAS GONE UP BY ABOUT RS. 60,00,000/-. THE LEARNED AR SUBMIT TED FURTHER THAT THE ASSESSEE WAS IN FIRST APPEAL QUEST IONING THE DISALLOWANCE MADE BY THE A.O OUT OF LABOUR CHARGES WHEN THE NOTICE U/S 263 WAS ISSUED. THE LEARNED AR REFERRED PAGES NO. 27, 33, 34 AND 35 OF THE PAPER BOOK I.E. QUERIES RA ISED BY THE A.O FROM THE ASSESSEE AND REPLY OF THE ASSESSEE TO HIM, COPIES WHEREOF HAVE BEEN PLACED AT PAGES NO. 36 TO 49 OF T HE PAPER BOOK RELATING TO THE CLAIMED LABOUR CHARGES. HE SU BMITTED THAT LABOUR MUSTERS, VOUCHERS, SITE-WISE AND GANG-W ISE LABOUR CHARGES, OPENING OUTSTANDING LABOUR CHARGES WAS ALS O EXPLAINED. DETAILED CONTRACT ACCOUNT ALONG WITH SI TE-WISE SALES OF LABOUR CHARGES WAS ALSO FURNISHED. AT PAG ES 52 AND ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 5 53 OF THE PAPER BOOK THE ASSESSEE HAS MADE AVAILABL E GROUNDS OF APPEAL BEFORE THE LEARNED CIT(A). 6. THE LEARNED DR ON THE OTHER HAND TRIED TO JUSTIF Y THE REVISIONAL ORDER IN QUESTION WITH THE SUBMISSION TH AT ALLOWING CLAIM WITHOUT CONDUCTING PROPER INQUIRIES BY THE A. O IS ERRONEOUS ORDER AND THE LEARNED CIT HAS RIGHTLY SET ASIDE THE SAME UNDER THE PROVISIONS OF SECTION 263 OF THE ACT WITH DIRECTION TO A.O TO PASS FRESH ASSESSMENT ORDER CON SIDERING ALL THE ISSUES AND EVERY ASPECT AFTER AFFORDING REASONA BLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. AFTER HAVING GONE THROUGH THE ORDERS OF THE LOWE R AUTHORITIES IN VIEW OF THE ARGUMENTS ADVANCED BY BO TH THE PARTIES, WE FIND THAT THE ASSESSEE IS IN TELEPHONE CONTRACT BUSINESS IN THE NAME AND STYLE OF SUYOG TELECOM I N THE PROPRIETARY CONCERN. SUCH TYPE OF CONTRACT MAINLY COVERS ERRECTION OF TOWERS, INSTALLATION AND COMMISSIONING OF ULTRA HIGH FREQUENCY (UHF), MOBILE, OPTICAL FIBER CABLE ( OFC) SYSTEM AND EXCHANGE EARTHING WORK. THE A.O FOUND I N THE P & L A/C THAT THE ASSESSEE HAS SHOWN CONTRACT RECEIP TS OF RS. 2,88,72,821/- AGAINST WHICH THE ASSESSEE HAS SHOWN LABOUR CHARGES OF RS. 2,17,29,520/-. THE ASSESSEE WAS ASK ED TO EXPLAIN THE PAYMENT OF CLAIMED LABOUR CHARGES. THE SUBMISSION OF THE ASSESSEE REMAINED THAT HIS MAIN B USINESS ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 6 IS CONTRACT BUSINESS FOR WHICH LABOUR CHARGES HAVE BEEN PAID. THE ASSESSEE PRODUCED SELF MADE VOUCHERS WHEREIN NO DETAILS OF NATURE OF WORK CARRIED OUT BY THE ASSESSEE AT SI TE WAS MENTIONED NOR THE SELF MADE VOUCHERS CONTAINED THE PERIOD IN WHICH THE WORK WAS CARRIED OUT. THE ASSESSEE ALSO FAILED TO EXPLAIN NUMBER OF PERSONS EMPLOYED FOR CONTRACT WOR K TO WHOM LABOUR CHARGES HAVE BEEN PAID. THE A.O NOTED FURTHER THAT SELF MADE VOUCHERS PREPARED BY THE ASSESSEE AR E DEFECTIVE ALSO. UNDER THIS BACKGROUND, THE A.O CAME TO THE C ONCLUSION THAT DISALLOWANCE OF 8% OF THE TOTAL LABOUR CHARGES OF RS. 2,17,29,520/- WHICH WORKS OUT TO RS. 17,38,362/- WO ULD BE REASONABLE AND ORDERED ACCORDINGLY. THE LEARNED CI T HAS HELD THE ASSESSMENT ORDER IN THIS REGARD AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE ON THE BASIS THAT THE DISALLOWANCE AT THE RATE OF 8% OF THE LABOUR CHARGE S IS WITHOUT PROPER BASIS AND THE A.O SHOULD HAVE VERIFIED THE G ENUINENESS OF THE EXPENDITURE THAT IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. INSTEAD OF MAKING 8% ADHOC DISALLOWANCE, HE SHOULD HAVE MADE DISALLOWANCE OF T HE ACTUAL AMOUNT WHICH THE ASSESSEE FAILED TO SUBSTANTIATE AS ACTUALLY INCURRED AND/OR WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, HELD THE LEARNED CIT IT IS NOT IN DISPUTE THAT IN THE NATURE OF BUSINESS OF THE ASSESSEE EXTE NT OF INVOLVEMENT OF LABOUR IS MORE. THUS, IN OUR VIEW M AJOR PAYMENT TOWARDS LABOUR IS NATURALLY OUT OF THE CONT RACT ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 7 RECEIPTS. THUS MERELY ON THE BASIS OF DEFECTIVE SE LF MADE VOUCHERS WHICH ARE GENERALLY PREPARED BY SEMI-ILLIT ERATE SUPERVISORS AT SITE, THE CLAIMED LABOUR PAYMENT CAN NOT BE DENIED. UNDER THESE CIRCUMSTANCES, THE ONLY OPTION LEFT WITH THE A.O WAS TO MAKE A REASONABLE DISALLOWANCE KEEPI NG IN VIEW THE NATURE OF BUSINESS AND ITS TURNOVER BY EXE RCISING HIS DISCRETION JUDICIOUSLY. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DISALLOWANCE AT THE RATE OF 8% OF THE TOTAL CLAIMED LABOUR CHARGES OF RS. 2,17,29,520/- WHICH W ORKED OUT TO RS. 17,38,362/- BY THE A.O CANNOT BE HELD UNREAS ONABLE LOOKING TO THE NATURE OF BUSINESS OF THE ASSESSEE A ND THE TOTAL RECEIPTS. WE THUS DO NOT AGREE WITH THE VIEW OF TH E LEARNED CIT THAT INSTEAD OF MAKING 8% DISALLOWANCE A.O SHOU LD HAVE MADE DISALLOWANCE OF THE ACTUAL AMOUNT WHICH THE AS SESSEE FAILED TO SUBSTANTIATE AS ACTUALLY INCURRED AND/OR WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS IT IS NOT PRACTICAL APPROACH TO DECIDE THE MATTER U NDER THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ESPECIA LLY WHEN THERE IS NO DISPUTE ON THE CONTRACT RECEIPT AND THA T THE NATURE OF JOB OF THE ASSESSEE IS LABOUR ORIENTED AND FURTH ER THAT THE VOUCHERS ARE MADE BY SEMI-ILLITERATE SUPERVISORS AT DIFFERENT SITES. IT IS AN ESTABLISHED POSITION OF LAW THAT T HE PROVISIONS UNDER SECTION 263 OF THE ACT CANNOT BE INVOKED ONLY BECAUSE THE LEARNED CIT NURTURES A DIFFERENT VIEW ON THE IS SUE THAN THAT OF THE A.O. THE ASSESSMENT ORDER ON THIS ISSU E THUS ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 8 CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE SIMPLY BECAUSE THE LEARNED CIT WAS HAVIN G DIFFERENT VIEW ON THE ISSUE. WE HOWEVER, FIND THAT THE A.O HAS NOT DISCUSSED IN HIS ASSESSMENT ORDER REGARDING THE CLAIMED MACHINERY HIRE CHARGES OF RS. 38.61 LAKHS BILLED BY FOUR PERSONS ALONG WITH TOTAL PAYMENT OF RS. 51.29 LAKHS TO THE PERSONS WHO HIRED THE MACHINERY. THE A.O HAS ALSO N OT DISCUSSED ABOUT THE CLAIMED DEPRECIATION ON MOTOR C ARS WHILE MAKING DISALLOWANCE OUT OF THE CLAIMED MOTOR CAR EX PENSES ON PERSONAL USER BASIS. THE QUESTIONNAIRE ISSUED BY T HE A.O FROM TIME TO TIME AND REPLY OF THE ASSESSEE THERETO , COPIES WHEREOF HAVE BEEN PLACED IN PAPER BOOK FILED ON BEH ALF OF THE ASSESSEE SUGGEST THAT THE QUERY WAS RAISED BY THE A .O REGARDING MACHINERY CHARGES, THE PETROL AND DIESEL EXPENSES ALONG WITH OTHER QUERY AND THE SAME WAS RESPONDED B Y THE ASSESSEE BY FILING DETAILS THEREOF. THE ABSENCE OF DISCUSSION ABOUT THE SAME IN THE ASSESSMENT ORDER HOWEVER, SUG GESTS THAT THE A.O BEING SATISFIED WITH THE REPLY FURNISH ED BY THE ASSESSEE IN THIS REGARD HAS NOT MADE ANY DISALLOWAN CE OUT OF THE CLAIMED MACHINERY HIRE CHARGES AND HAS ALSO NOT MADE ANY SEPARATE DISALLOWANCE OUT OF THE CLAIMED DEPREC IATION, IF ANY. EVEN IN THE REVISIONAL ORDER IN QUESTION IN C ONCLUDING PARA NO. 4 THE WHOLE EMPHASIS OF THE LEARNED CIT IN TREATING THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVENUE HAS REMAINED THE DISALLOWAN CE OF 8% OF ITA NO. 735/PN/2008 DNYANDEEO DHARMA SHEJAL A.Y. 2003-04 9 THE LABOUR CHARGES MADE BY THE A.O INSTEAD OF MAKIN G DISALLOWANCE OF ACTUAL AMOUNT WHICH THE ASSESSEE FA ILED TO SUBSTANTIATE AS ACTUALLY INCURRED AND/OR WAS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN TH IS REGARD, WE HAVE ALREADY DISCUSSED HEREINABOVE THAT THE ASSESSM ENT ORDER CANNOT BE HELD ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE. THE REVISIONAL ORDER IN QUESTION IS THUS SET ASIDE AND THE ASSESSMENT ORDER IS RESTORED. THE GROUND IS ACC ORDINGLY ALLOWED. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST 2010. SD/- SD/- (R.C. SHARMA) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE,DATED THE 31 ST AUGUST 2010 ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT IV PUNE (4) THE D.R. B BENCH, PUNE TRUE COPY BY ORDER, ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCHES, PUNE