Mr. Bhairavnath Ranganath Kale, Pune V. ACIT, Circle-4, Pune

ITA 814/PUN/2013

• Counselvise Citation: 81424514 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PRAVEENA
• Assessee Lawyers: S N DOSHI
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.814/PN/2013 (ASSESSMENT YEAR 2009-10) MR. BHAIRAVNATH RANGANATH KALE, AT & POST : WARUDE, TAL : SHIRUR, DIST : PUNE 412 209 PAN NO.ABRPK8614J .. APPELLANT VS. ACIT, CIRCLE-4, PUNE .. RESPONDENT ASSESSEE BY : SHRI S.N. DOSHI REVENUE BY : SMT. S. PRAVEENA DATE OF HEARING : 30-06-2014 DATE OF PRONOUNCEMENT : 30-06-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 13-12-2012 OF THE CIT(A)-II, PUNE RELATING TO ASSESSMENT YEAR 2009-10. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN ACCEPTING THE AGRICULTURAL INCOME AT RS.29,75,50 0/- AS AGAINST RS.57,96,720/- AND THEREBY SUSTAINING THE ADDITION OF RS.36,46,720/- DESPITE APPRECIATING THE FACTUAL EXPLANATION ABOUT T HE MODERN SCIENTIFIC METHOD ADOPTED FOR TAKING UP SEVERAL CASH CROPS, ITS SA LE PROCEEDS SUPPORTED BY VALID PARTIES AND DOCUMENTS, DULY ACCOUNT ED IN THE BOOKS OF ACCOUNTS AND MOST IMPORTANTLY NOT POINTING OUT ANY DEFECT THEREIN. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS AN INDIVIDUAL ENGAGED IN DIFFERENT BUSINESSES, I.E. BUSINESS OF D EALING PETROLEUM PRODUCTS, SAND SUPPLIERS AND SAND TRANSPORT IN DIFF ERENT NAMES. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE IMPUGNE D ASSESSMENT YEAR ON 2 12-10-2009 DISCLOSING THE TOTAL INCOME OF RS.21,49, 340/- AND EXEMPT AGRICULTURAL INCOME OF RS.29,75,500/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO PRODUCE TH E DETAILS OF SUCH AGRICULTURAL INCOME. THE ASSESSEE PRODUCED THE 7/1 2 EXTRACTS, BILLS FOR SALE OF AGRICULTURAL PRODUCE, I.E. (SANTRA) AGREED TO BE SOLD AT A PRICE OF RS.16,51,000/- TO A PARTY SHAKURBHAI BAGWAN. SIMIL ARLY, HE PRODUCED THE AGREEMENT TO SALE OF MOSAMBI FOR RS.5,25,000/- TO SHRI JAMIL JABBAR KHAN, BILLS FOR RECEIPT OF AGRICULTURAL INCO ME TO THE EXTENT OF RS.7,81,438/-, SELF-MADE INVOICE RAISED FOR SALE OF MOSAMBI ON SHRI FAROOQ SHAIKH FOR AN AMOUNT OF RS.1,96,220/-. THE ASSESSEE ALSO FILED AN AFFIDAVIT WITH A SELF DECLARATION STATING THAT T HE AGRICULTURAL INCOME FOR THE YEAR UNDER CONSIDERATION IS RS.57,96,720/-. HE ALSO FILED MONTH-WISE LEDGER ACCOUNT FOR AGRICULTURAL INCOME S HOWING THE MINIMUM INCOME OF RS.1,25,610/-. 2.2 THE AO REJECTED THE AFFIDAVIT CLAIMING THE AGRI CULTURAL INCOME OF RS.57,96,720/- WHICH ACCORDING TO HIM WAS FILED TO EXPLAIN THE EXACT AMOUNT OF CAPITAL INTRODUCTION. HE OBSERVED THAT T HE ASSESSEE DID NOT PRODUCE A SINGLE BILL FOR EXPENSES TOWARDS EARNING THE AGRICULTURAL INCOME. THE ASSESSEE DID NOT PRODUCE ANY RECORD FO R THE EMPLOYMENT OF LABOUR FOR THE AGRICULTURAL OPERATIONS. HOWEVER , SINCE THE ASSESSEE WAS CONSISTENTLY SHOWING AGRICULTURAL INCOME, I.E. RS.1,19,325/- FOR A.Y. 2005-06, RS.1,73,150/- FOR A.Y. 2006-07, RS.5, 67,893/- FOR A.Y. 2007-08 AND RS.17,06,507/- FOR A.Y. 2008-09 THE AO ACCEPTED RS.15 LAKHS ON ESTIMATE AS REASONABLE AGRICULTURAL INCOME FOR THE IMPUGNED ASSESSMENT YEAR AS AGAINST RS.29,75,560/- DECLARED BY THE ASSESSEE IN THE ORIGINAL RETURN AND RS.57,96,720/- IN THE SUBMI SSION BEFORE HIM. 3 3. BEFORE THE CIT(A) THE ASSESSEE MADE VARIOUS SUBM ISSIONS AND FILED VARIOUS DETAILS TO SUPPORT THE CLAIM OF AGRIC ULTURAL INCOME. IT WAS SUBMITTED THAT THE LANDS ARE SITUATED AT NEARBY VIL LAGES AND ARE IRRIGATED AND THAT THE INCOME SHOWN STANDS SUPPORTED AS THE P RODUCERS HAVE PURCHASED THE CROPS OF ORANGE, SWEET LIME ETC. STAN DING ON THE LAND AND HAVE ALSO UNDERTAKEN THE RESPONSIBILITY OF PLAN TING AND COLLECTING FRUITS. IT WAS ARGUED THAT THE ASSESSEE IS FAIRLY EDUCATED AND EXPERIENCED IN THE METHODOLOGY OF AGRICULTURAL INCO ME AND BECAUSE OF HIS PERSONAL SKILL HE WAS ABLE TO PUT THE LANDS TO OPTIMUM CAPACITY AND GET CASH CROPS SUCH AS FRUITS BY ADOPTING MODERN ME THODS, REPUTED SEEDS, DRIFT IRRIGATION, WATER STORAGE RESERVES ETC . IT WAS SUBMITTED THAT AGRICULTURAL EXPENSES INCURRED AT RS.8,03,467/- ARE DEBITED TO THE CAPITAL ACCOUNT AND THUS THE NET AGRICULTURAL INCOME WOULD BE RS.49,93,253/-. IT WAS SUBMITTED THAT THE AGRICULTURAL INCOME OF RS .17,06,507/- FOR A.Y. 2008-09 HAD BEEN ACCEPTED U/S.143(3). IT WAS SUBMI TTED THAT THE AGRICULTURAL INCOME HAS GRADUALLY INCREASED YEAR AF TER YEAR BASICALLY BECAUSE THE ASSESSEE HAS BEEN TAKING THE CASH CROPS IN THE FORM OF FRUITS SUCH AS ORANGE, SWEET LIME, SITAPHAL ETC. AND THE T REES WHICH WERE PLANTED 4 TO 5 YEARS BEFORE HAVE BECOME MATURED AND ARE GIVING THE OPTIMUM PRODUCTS. IT WAS FURTHER ARGUED THAT FOR A .Y. 2010-11 AND 2011-12 THE AGRICULTURAL INCOME HAS BEEN DISCLOSED AT RS.36,19,252/- AND RS.41,96,846/- RESPECTIVELY. THIRD PARTY BILLS OBTAINED AND REPORTS OF THE AGRICULTURAL OFFICIALS WERE ALSO FILED BEFOR E CIT(A) TO SUBSTANTIATE THE GENUINENESS OF SUCH HUGE AGRICULTU RAL INCOME. 4 4. HOWEVER, THE LD.CIT(A) WAS NOT FULLY CONVINCED W ITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE ASSESSEE HAD DECLARED AGRICULTURAL INCOME OF RS.29,75,500/- IN T HE RETURN OF INCOME WHEREAS THE SAME WAS CLAIMED AT RS.57,96,720/- DURI NG THE ASSESSMENT PROCEEDINGS STATING THAT THE BALANCE AGRICULTURAL I NCOME WAS FAILED TO BE DISCLOSED. THIS ACCORDING TO THE LD.CIT(A) WAS JUST TO EXPLAIN THE INTRODUCTION OF THE CAPITAL. HOWEVER, CONSIDERING THE CONSISTENT INCREASE IN THE AGRICULTURAL INCOME FROM YEAR TO YE AR, I.E. A.Y. 2005-06 AND A.Y. 2008-09 AND CONSIDERING THE AGRICULTURAL I NCOME DISCLOSED BY THE ASSESSEE AT RS.36,99,252/- FOR A.Y. 2010-11, RS .41,96,843/- FOR A.Y. 2011-12. THE LD.CIT(A) WAS OF THE CONSIDERED VIEW THAT ADOPTION OF RS.21,50,000/- FOR HIS AGRICULTURAL INCOME FOR A .Y. 2009-010 WILL BE REASONABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, OUT OF RS.29,75,500/- OF AGRICULTURAL INCOME SHOWN BY THE ASSESSEE, IN THE RETURN OF INCOME FOR THE YEAR, HE ACCEPTED RS.21,50 ,000/- AS AGRICULTURAL INCOME AS AGAINST RS.15 LAKHS ADOPTED BY THE AO. T HUS, HE GAVE RELIEF OF RS.6,50,000/- OUT OF TOTAL ADDITION OF RS.42,96, 720/- BY THE AO U/S.68 OF THE I.T. ACT ON ACCOUNT OF INTRODUCTION O F FRESH CAPITAL BY THE AO. HE REJECTED THE CONTENTION OF THE ASSESSEE REG ARDING THE AGRICULTURAL INCOME OF RS.57,96,720/- ON THE GROUND THAT SUCH CLAIM, AS EVIDENT FROM THE MATERIAL ON RECORD, IS DEFINITELY EXAGGERATED AND FARFETCHED. HE NOTED THAT AS AGAINST INCOME OF RS. 17,06,507/- FOR A.Y. 2008-09 AND RS.36,99,252/- FOR A.Y. 2010-11 THE CLA IM OF RS.57,96,720/- DURING THE MID-YEAR A.Y. 2009-10 IS HIGHLY IMPROBABLE AND DOES NOT APPEAL TO REASON AND THE CLAIM OF THE ASSESSEE HAS TO BE HELD AS EXAGGERATED AND PLOY AND AN AFTERTHOUGHT T O EXPLAIN THE 5 INTRODUCTION OF CAPITAL BY THE ASSESSEE. REJECTING THE VARIOUS EXPLANATIONS AND ANALYSING THE PROVISIONS OF SECTIO N 110 OF THE EVIDENCE ACT AND HOLDING THAT THE AFFIDAVIT FILED B Y THE ASSESSEE WITH A SELF DECLARATION OF HAVING EARNED THE AGRICULTURAL INCOME OF RS.57,96,725/- IS NOT IN THE PROPER PERSPECTIVE, TH E LD.CIT(A) REJECTED THE CLAIM OF EARNING OF AGRICULTURAL INCOME OF RS.5 7,96,725/-. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE CO PY OF THE ASSESSMENT ORDER FOR A.Y.2011-12 FILED BEFORE US, WE FIND THE AO IN THE ORDER PASSED U/S.143(3) HAS DETERMINED THE AGRICULTURAL I NCOME FOR A.Y. 2011-12 AT RS.32 LAKHS. SIMILARLY, FROM THE PAPER BOOK FILED WE FIND FOR THE A.Y. 2008-09 THE AO IN THE ORDER PASSED U/S .143(3) HAS DETERMINED THE AGRICULTURAL INCOME AT RS.17,06,507/ -. THE EXTENT OF HOLDING OF AGRICULTURAL LAND IS NOT IN DISPUTE. TH E ASSESSEE WAS ALSO DECLARING AGRICULTURAL INCOME IN THE PAST AND IN SU BSEQUENT YEARS ALSO. THE ASSESSEE WHO HAS DECLARED AGRICULTURAL INCOME O F RS.29,75,500/- IN THE RETURN OF INCOME HAS CLAIMED THE SAME TO BE AT RS.57,96,720/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS PRESUMA BLY TO EXPLAIN THE INTRODUCTION OF CAPITAL. WE FIND THE AO RESTRICTED SUCH AGRICULTURAL INCOME TO RS.15 LAKHS WHICH HAS BEEN ACCEPTED AT RS .21,50,000/- BY THE CIT(A). THE REVENUE IS NOT IN APPEAL BEFORE US FOR THE ENHANCED 6 AGRICULTURAL INCOME TAKEN BY THE CIT(A). SINCE THE LD.CIT(A) HAS ACCEPTED RS.21,50,000/- AS AGAINST RS.29,75,500/- T HE GROUND BY THE ASSESSEE THAT THE CIT(A) HAS ERRED IN ACCEPTING THE AGRICULTURAL INCOME AT RS.29,75,500/- AS AGAINST RS.57,96,720/- IS TOTA LLY INCORRECT. 5.1 IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSES SEE THAT AS AGAINST CLAIM OF RS.51,23,507/- FOR A.Y. 2011-12 THE AO HAS ACCEPTED RS.32 LAKHS AS THE INCOME FROM AGRICULTURAL ACTIVITIES AF TER CONSIDERING RS.9,26,664/- AS HIS EXPENSES. IN OTHER WORDS, HE HAS ACCEPTED 80% INCOME AS AGRICULTURAL INCOME. HE ACCORDINGLY SUBM ITTED THAT SAME RATE MAY BE ALLOWED. WE DO NOT FIND ANY SUBSTANCE IN THE SAME. WE FIND AS AGAINST DECLARATION OF INCOME OF RS.51,23,5 07/- FOR THE A.Y. 2011-12 THE AO ACCEPTED RS.32 LAKHS AS NET AGRICULT URAL INCOME AFTER CONSIDERING THE EXPENSES WHICH COMES TO 62.46% OF T HE INCOME DECLARED. THE ASSESSEE HAS ACCEPTED THE SAME AND H AS NOT CHALLENGED BEFORE THE CIT(A). FOR THE IMPUGNED ASSESSMENT YEA R, WE FIND THE ASSESSEE HAD ORIGINALLY DECLARED RS.29,75,500/- AS HIS NET AGRICULTURAL INCOME. AS POINTED OUT BY THE LD.CIT(A), IN THE MI D-YEAR THE AGRICULTURAL INCOME HAS GONE UP SUBSTANTIALLY, WHIC H BY ANY STANDARD CANNOT BE MORE THAN THE PRECEDING AND SUBSEQUENT YE AR. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, THE ADOPTION OF AN AMOUNT OF RS.28 LAKHS ON ESTIMATE AS NET AGRICULTURAL INCOME DURING THE YEAR, IN OUR OPINION, WILL MEET THE ENDS OF JUSTICE. WE HOLD AN D DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY AL LOWED. 7 6. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.2,23,579/- MADE U/ S.40(A)(IA) DISREGARDING THE FACT THAT THE SAID AMOUNT OF INTEREST IS ACTUALLY PAID TO THOSE FINANCIAL COMPANIES AND OVERLOOKING THE SUPPORTI NG DECISION OF THE SPECIAL BENCH, VISAKHAPATNAM IN MERLYN SHIPPING AND TRANSPORT CO. LTD. 16 ITR (TRIB.) 5 MERELY ON THE GROUND THAT THE HIGH COURT OF ANDHRA PRADESH HAS DIRECTED IT IS INTERIM SUSPENSION AN D OVERLOOKING THE FACT THAT INSPITE OF SUCH SUSPENSION THE SAID SPECIAL BENCH IS BINDING. (REFER ITO VS. MGB TRANSPORT KOLKATA ITAT DECIDED ON 19- 03-2013). 6.1 AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DECISION OF THE COORDINATE BENCH OF THE TRIB UNAL IN THE CASE OF ITO VS. M/S. GAURIMAL MAHAJAN AND SONS VIDE ITA NO. 1852/PN/2012 ORDER DATED 06-01-2014 FOR A.Y. 2008-09 SUBMITTED T HAT UNDER IDENTICAL FACTS AND CIRCUMSTANCES THE TRIBUNAL HAS RESTORED T HE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE AMENDMENT TO THE FIRST PROVISO TO SECTION 40(A)(IA) W.E.F. 01-04-2010 BY THE FINANCE ACT, 2010. HE DREW THE ATTENTION OF TH E BENCH TO THE OBSERVATION OF THE TRIBUNAL WHICH READS AS UNDER : 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT( A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE AL SO CONSIDERED THE VARIOUS DECISIONS BROUGHT TO OUR NOTICE BY BOTH THE SID ES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS NOT DEDUCTED TD S ON AN AMOUNT OF RS.58,81,847/- FOR WHICH THE ASSESSING OFFICER APPLYING THE PROVISIONS OF SECTION 40(A)(IA) MADE ADDITION OF THE A BOVE AMOUNT. WE FIND THE LD.CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT PROVISIONS OF SECTION 40(A)(IA) AR E NOT APPLICABLE SINCE NO AMOUNT IS PAYABLE AT THE END OF THE YEAR. W HILE DOING SO, HE RELIED UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT (SUPRA). THE COOR DINATE BENCH IN THE CASE OF VINAY ASHWINIKUMAR JONEJA (SUPRA) HAS ALRE ADY TAKEN A VIEW THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICAB LE EVEN IF NO AMOUNT IS PAYABLE AT THE END OF THE YEAR. THEREFORE , THE ORDER OF THE CIT(A) HAS TO BE REVERSED. 8.1 HOWEVER, THE ASSESSEE HAS MADE A NEW LEGAL ARGUMENT THAT THE FINANCE ACT, 2010 HAS AMENDED THE FIRST PROVISO TO SECT ION 40(A)(IA) W.E.F. 01-04-2010 AND IT HAS BEEN HELD BY VARIOUS JUD ICIAL AUTHORITIES THAT SUCH AMENDMENT IS RETROSPECTIVE IN NATURE. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SECOND PROVISO T O SECTION 40(A)(IA) WAS INSERTED BY THE FINANCE ACT, 2012 W.E.F . 01-04-2013 8 WHEREIN IT IS STATED THAT DISALLOWANCE U/S.40(A)(IA) OF THE ACT NEED NOT BE MADE IF THE ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SECTION 201(1) OF THE I.T. ACT., THEREFORE, THIS SHOULD ALSO BE HELD AS RETROSPECTIVE SINCE IT HAS BEEN IN TRODUCED TO ELIMINATE UNINTENDED CONSEQUENCES WHICH MAY CAUSE UNDU E HARDSHIP TO THE TAX PAYERS. 8.2 WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF ANTONY D. MUNDACKAL (SUPRA) RELIED ON BY LD. COUNSEL FOR THE ASSESSEE, HAD AN OCCASION TO DECIDE AN ISSUE IN THE LIGHT OF THE ABOVE ARGUMENT AND HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH CERTAIN DIRECTIONS. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 7 OF THE ORDER READ AS UNDER: 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. ACCORDING TO THE ASSESSEE, THERE IS NO WRITTEN C ONTRACT BETWEEN HIM AND THE PERSONS DOING POLISHING WORKS. ACCORDINGLY, THE ASSESSEE HAS CONTENDED BEFORE US THAT THE PROVISIONS OF SEC. 194C SHALL NOT APPLY TO THE POLISHING CHARGES. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER HAS GIVEN A CLEAR FINDING THAT ESSENTIAL INGREDIENTS OF A CONTRACT ARE VERY MUCH AVAILABLE IN THE POLISHING WORKS ENTRUSTED BY THE ASSESSEE. FURTHER WE NOTICE THAT THE CBDT, VIDE CIRCULAR NO.4 33 DATED 25-09- 1985 (1986)(157 ITR ST. 27) HAS CLARIFIED THAT THE P ROVISIONS OF SEC. 194C ARE WIDE ENOUGH TO COVER ORAL CONTRACTS ALSO. A CONTRACT IS NORMALLY REDUCED IN WRITING IN ORDER TO MAKE CLEAR THE TERMS AND CONDITIONS, OBLIGATIONS OF THE PARTIES TO THE CONTRAC T ETC. IF THE CONDITIONS OF CONTRACT ARE OTHERWISE UNDERSTOOD BY THE PARTIES, IN VIEW OF THE REPEATED TRANSACTIONS, IN OUR VIEW, THE ABSENCE OF A WRITTEN CONTRACT WOULD NOT MAKE ANY DIFFERENCE. IN THE INSTA NT CASE, THE ASSESSEE IS REPEATEDLY GIVEN WORKS TO THE POLISHING PEOPLE AND HENCE THE TERMS AND CONDITIONS OF THE WORK WOULD BE CLEARLY UNDERSTOOD BY BOTH THE PARTIES. ACCORDINGLY, WE REJECT THIS CONTENT ION OF THE ASSESSEE AND HOLD THAT THE PROVISIONS OF SEC. 194C SHALL APPLY TO THE POLISHING WORKS GIVEN BY THE ASSESSEE. 7.1 ACCORDING TO LD A.R, THE ASSESSEE HAS ACTED AS A CON DUIT PIPE IN CONNECTION WITH THE POLISHING WORKS BETWEEN THE CUSTOM ERS AND THE PERSON DOING POLISHING JOB. ACCORDINGLY, IT WAS SUBMITT ED THAT THERE IS NO PROFIT ELEMENT IN THE SAID TRANSACTIONS. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS INCLUDED THE COST OF POLISHING WORKS IN THE SALE VALUE OF ALUMINIUM EXTRUSIONS, WITHOUT KNOWING TAX IM PLICATIONS. HOWEVER, WE NOTICE THAT THE ASSESSEE DID NOT FURNISH ANY PROOF TO SUBSTANTIATE THE ABOVE SAID CLAIMS. THE ASSESSEE, BEING A D EALER IN ALUMINIUM EXTRUSIONS, HAS ONLY SUPPLIED THE PRODUCTS AFT ER CARRYING OUT THE POLISHING WORKS ACCORDING TO THE TASTE AND REQUIRE MENT OF CUSTOMERS. IT IS ONLY ONE OF THE MANY BUSINESS TECHNIQUES NORMALLY ADOPTED BY A BUSINESS MAN TO IMPROVE HIS SALES, SINCE IT WILL BE VERY DIFFICULT FOR CUSTOMERS TO IDENTIFY THE POLISHING PEOP LE AND GET THE WORK DONE BY THEMSELVES. HENCE, WE ARE OF THE VIEW THAT IT MAY NOT BE CORRECT TO ARGUE THAT THE CONTRACT EXISTED BETWEEN T HE CUSTOMERS AND THE POLISHING PEOPLE. IN FACT, THE CUSTOMER MAY NOT H AVE ANY CONTACT WITH THE POLISHING PEOPLE IN THIS TYPE OF TRANSACTION S. HENCE, IT IS HARD TO BELIEVE THE CLAIM OF THE ASSESSEE THAT HE HAS ACTED A S MERE CONDUIT PIPE BETWEEN THE CUSTOMERS AND POLISHING PEOPLE, ACCOR DINGLY, THE CLAIM THAT THE ASSESSEE STANDS IN A FIDUCIARY CAPACITY IS ALSO LIABLE TO BE REJECTED. IN THIS KIND OF FACTUAL SITUATION, IN OUR V IEW, THE EXISTENCE OR ABSENCE OF PROFIT ELEMENT IN THE POLISHING WORKS DOES N OT MAKE ANY DIFFERENCE. 9 7.2 THE LD COUNSEL, BY PLACING RELIANCE ON THE DECI SION OF SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING AND TRANSPORTS (SUPRA) CONTENDED THAT THE PROVISIONS OF SEC. 40(A)(IA) SHALL A PPLY ONLY TO AMOUNT PAYABLE AND NOT TO THE AMOUNT PAID. HOWEVER, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDAR KH AN N TUNVAR (357 ITR 312) AND THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE (ITAT 20 OF 2013) HAVE HEL D THAT THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING & TRANSPORTS IS NOT A GOOD LAW. THE LD A.R, HOWEVER, P LACED RELIANCE ON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES (357 ITR 642). ON A CAREFUL PERUSAL OF THE DECISION GIVEN BY HON'BLE ALLAHABAD HIGH COURT, WE NOTICE TH AT THE HIGH COURT HAS DECIDED THE ISSUE REFERRED TO IT ON A DIFFERENT FO OTING AND HAS MADE A PASSING COMMENT ABOUT THE DECISION RENDERED BY THE S PECIAL BENCH. THUS, THE RATIO OF THE SAID DECISION IS DIFFERENT FROM THAT RENDERED IN THE CASE OF MERYLINE SHIPPING AND TRANSPORTS BY THE SPECIA L BENCH. HENCE, WE ARE INCLINED TO REJECT THE CONTENTIONS OF THE ASSE SSEE ON THIS POINT ALSO. 7.3 THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCO-COLA BEVERAGES LTD (SUPRA) IN ORDER TO CONTEND THAT THE REVENUE IS NOT ENTITLED TO RECOVER TAXES, IF THE RECIPIENT HAS DECLARED THE PAYMENTS IN HIS RETURN OF INCOME. WE NOTICE THAT THE ABOVE SAID DECISION WAS RENDERED IN THE CONTE XT OF THE PROVISIONS OF SEC. 201(1) AND HENCE, WE ARE OF THE VIE W THAT THE RATIO OF THE SAID DECISION CANNOT BE APPLIED TO THE DISALLOWANC E MADE U/S 40(A)(IA) OF THE ACT, 7.4 THE LAST CONTENTION OF THE ASSESSEE IS THAT THE SECON D PROVISO TO SEC, 40(A)(IA) OF THE ACT, INSERTED BY THE FINANCE A CT, 2012 WITH EFFECT FROM 1.4.2013 IS CLARIFICATORY IN NATURE AND HENCE T HE BENEFIT OF THE SAME SHOULD BE APPLIED RETROSPECTIVELY. HOWEVER, THE C ORRECTNESS OF THIS CONTENTION HAS NOT BEEN EXAMINED BY THE TAX AUTH ORITIES. HENCE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW T HAT THIS CONTENTION OF THE ASSESSEE REQUIRES EXAMINATION AT THE END OF THE ASSESSIN G OFFICER. ACCORDINGLY, WE MODIFY THE ORDER OF THE LD.CIT(A) A ND SET ASIDE THIS GROUND TO THE FILE OF THE ASSESSING OFFICER WITH THE DI RECTION TO EXAMINE THE ABOVE SAID CONTENTION OF THE ASSESSEE AND DECIDE TH E SAME IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORT UNITY OF BEING HEARD. WE MAKE IT CLEAR THAT WE HAVE, IN EFFECT, R EJECTED ALL THE CONTENTIONS OF THE ASSESSEE EXCEPT THE GROUND RELATING T O APPLICABILITY OF THE SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT TO T HE YEAR UNDER CONSIDERATION. 8.3 SINCE THE ABOVE ARGUMENTS ARE BEING ADVANCED BEF ORE THE TRIBUNAL FOR THE FIRST TIME AND THE CORRECTNESS OF TH E CONTENTION HAS NOT BEEN EXAMINED BY THE TAX AUTHORITIES, THEREFORE, RESP ECTFULLY FOLLOWING THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL CIT ED (SUPRA) AND IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE FIL E OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ABOVE CONTE NTION OF THE ASSESSEE AND DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW . NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 10 HE ACCORDINGLY SUBMITTED THAT THIS ISSUE MAY BE SET -ASIDE TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE DIRECTION OF THE TRIBUNAL. THE LD. DEPARTMENTAL REPRESENTATI VE HAS NO OBJECTION FOR THE ABOVE PROPOSITION. IN VIEW OF THE ABOVE, W E RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE I SSUE AFRESH IN THE LIGHT OF THE DIRECTION OF THE TRIBUNAL IN THE CASE OF M/S . GAURIMAL MAHAJAN & SONS (SUPRA) AND IN ACCORDANCE WITH LAW AFTER GIVIN G DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWE D FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 30-06-2014. SD/- SD/- (R.S.PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTAN T MEMBER PUNE DATED: 30 TH JUNE, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-II, PUNE 4. THE CIT-II, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE