M/s Sanjeev Construction, V. I.T.O.,

ITA 82/RAN/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85432 (ITAT-RANCHI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 03-03-2014
• Court: TRIBUNAL
• Department Lawyers: CHOUDHARY ORAM JCITLD
• Assessee Lawyers: S K PODDAR; M K CHOUDHARY LD ARS
• Keywords: Opportunity of being heard
• Section: 40A(3); 143(3); 194C; 6

Judgement Text

INCOME TAX APPELLATE TRIBUNAL, CIRCUIT BENCH, RANCHI BEFORE HON'BLE SHRI H.L. KARWA, PRESIDENT , AND HON'BLE SHRI B.R. BASKARAN, ACCOUNTANT M EMBER ITA NO . 82 /RAN/2014 A.Y 200 8 - 09 M/S. S ANJEEV CONSTRUCTION VS. I.T.O W 3(1), RANCHI ( ASSESSEE ) ( RESPONDENT ) ITA NO . 146 /RAN/2014 A.Y 200 8 - 09 I.T.O W 3(1), RANCHI VS. M/S. SANJEEV CONSTRUCTION PAN: AABFM5728Q ( DEPARTMENT ) ( ASSESSEE ) C.O NO. 2 3 /RAN/14 [ITA NO. 146 /RAN/2014 A.Y 200 8 - 09 ] M/S. SANJEEV CONSTRUCTION VS. I.T.O W 3(1), RANCHI ( CROSS OBJE CTOR ) ( DEPARTMENT ) FOR THE A SSESSEE : S/ SH RI S.K PODDAR & M.K. CHOUDHARY, LD.ARS FOR THE RESPONDENT : SHRI CHOUDHARY ORAM, JCIT/LD.DR DATE OF HEARING : 2 8 - 11 - 2014 DATE OF PRONOUNCEMENT: 2 8 - 11 - 201 4 ORDER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THE CROSS APPEALS FILED BY THE PARTIES AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAI NST THE ORDER DATED 17 - 01 - 2014 PASSED BY LD. CIT(A) , RANCHI (JHARKHAND) AND THEY RELATE TO THE ASSESSMENT YEAR 200 8 - 09 . SINCE IDENTICAL ISSUE S ARE INVOLVED IN THE CROSS THE APPEALS AND CROSS OBJECTION , THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON ISSUE IN THE APPEALS FILED BY BOTH THE PARTIES RELATES TO DISALLOWANCE MADE OUT OF MATERIAL PURCHASE EXPENSES . 2 ITA NO S . 82,146 & CO 23 RAN/14 M/S. SANJEEV CONSTRUC TION,RANCHI 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE HAD CLAIMED MATER IAL PURCHASE EXPENSES TO THE TUNE OF RS.76.30 LAKHS . THE ASSESSING OFFICER NOTICED THAT THE ABOVE SAID EXPENSES WERE SUPPORTED MOSTLY BY SELF MADE VOUCHERS. ACCORDINGLY, HE DISALLOWED 50 % OF THE CLAIM. THE LD.CIT(A) , HOWEVER, REDUCED THE SAME TO 10% . HENC E, BOTH THE PARTIES ARE AGGRIEVED BY THE SAID DECISION OF THE LD.CIT(A). 4. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENT FOR PURCHASE OF MATERIALS THROUGH CHEQUE S ALSO AND HENCE THE SAME SHOULD NOT HAVE BEEN DOUBTED. HE FURTHER SUBMITTED THAT THE MATERIALS WERE PURCHASED FROM THE DEALERS OPERAT ING IN UNORGANIZED SECTORS AND THEY DO NOT ISSUE PRINTED BILLS . HE FURTHER SUBMITTED THAT THE ASSESSEE HAS OBTAINED SIGNATURES OF THE SUPPLIERS IN THE VOUCHERS PREPARED BY THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT T HE LD.CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION TO THE TUNE OF 10% OF THE EXPENSES ALSO. 5. ON THE CONTRARY, THE LD.DR SUBMITTED THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE EXPENSES FULLY. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS INCURRED MOST PART OF THE EXPENSES IN CASH AND HENCE THE SAME WAS NOT SUSCEPTIBLE FOR VERIFICATION . ACCORDINGLY, HE SUBMITTED THAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING 50 % OF THE CLAIM AND THE LD CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE TO THE TUNE OF 10%. 6. HAVING HEARD THE RIVAL SUBMISSIONS AND ALSO CONSIDERING THE FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION, WE ARE OF THE VIEW THAT TH E DISALLOWANCE OF 50% OF THE CLAIM BY THE ASSES SING OFFICER IS VERY MUCH ON THE HIGHER SIDE. WE NOTICE THAT THE ASSESSING OFFICER HAS NOT COMPARED THE MATERIALS PURCHASE OF EXPENSES VIS - - VIS THE QUANTITY OF WORK CARRIED OUT BY THE ASSESSEE. FURTHER THE FACT THAT THE ASSESSEE WAS CONSTRAINED TO INCUR THE EXPENSES BY WAY OF CASH DUE TO PREVAILING TRADE PRACTICE HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER. SINCE THE ASSESSEE HAS INCURRED THE EXPENSES BY WAY OF CASH, THE 3 ITA NO S . 82,146 & CO 23 RAN/14 M/S. SANJEEV CONSTRUC TION,RANCHI POSSIBILITY OF EXISTENCE OF DEFICINCIES IN THE CLAIM LIKE INFLATION OF EXPENSE S ETC., CANNOT BE ALTOGETHER RULED OUT. W E NOTICE THAT THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO 10% , WHICH ALSO APPEARS TO US ON THE HIGHER SIDE. HENCE, ON CONSIDERATION OF FACTS PREVAILING IN THIS CASE, WE DIRECT THE ASSESS ING OFFICER TO RESTRICT TH E ADDITION TO 8% OF MATERIALS PURCHASE OF EXPENSES. THE ORDER OF THE LD.CIT(A) STANDS MODIFIED. W E ORDER ACCORDINGLY. 7. THE LD.AR APPEARING ON BEHALF OF THE ASSESSEE DID NOT PRESS THE OTHER GROUNDS RAISED IN THE APPEAL FILED BY THE ASSESSEE. ACCORDING LY, THEY ARE DISMISSED AS NOT PRESSED. 8. WE SHALL NOW TAKE UP THE OTHER ISSUES URGED BY THE REVENUE IN ITS APPEAAL. THE FIRST INDEPENDENT ISSUE RELATES TO THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT. ACCORDING TO T HE ASSESSING OFFICER , THE ASSESSEE HAS PAID A SUM OF RS.2.70 LAKH S TO A CONCERN NAMED M/S. SANDILYA CONSTRUCTION T O EXECUTE SOME WORKS , WITHOUT DEDUCTING TAX AT SOUR CE [TDS] FROM THE SAME . HENCE, HE DISALLOWED THE ENTIRE AMOUNT OF RS.2.70 LAKHS BY INVOKING THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT. BEFORE LD.CIT(A) , THE ASSESSEE SUBMITTED THAT THE PAYMENT OF RS.2.70 LAKHS WAS NOT MADE FOR EXECUTION OF ANY WORK , BUT IT WAS A CASE OF REPAYMENT OF LOAN TAKEN BY THE ASSESSEE FROM THE SAID CONCERN . ACCORDINGLY, THE ASSESSEE CONTENDED TH AT THERE WAS NO NECESSITY TO DEDUCT ANY TAX AT SOURCE (TDS) U/S. 194C OF THE ACT. ACCORDINGLY, THE LD.CIT(A) HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) IS NOT ATTRACTED TO A LOAN TRANSACTION. ACCORDINGLY, HE DELETED THE DISALLOWANCE OF RS.2.70 LAKHS MADE BY THE ASSESSING OFFICER. 9. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT T HE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTRADICT THE FINDINGS GIVEN BY LD CIT(A) THAT IT WAS A LOAN TRANSACTION, I.E., TH E IMPUGNE D PAYMENT OF RS.2.70 LAKSHS WAS REPAYMENT OF LOAN AMOUNT EARLIER TAKEN BY THE ASSESSEE FROM M/S SANDILYA CONSTRUCTIONS . UNDER THESE SET OF FACTS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. 4 ITA NO S . 82,146 & CO 23 RAN/14 M/S. SANJEEV CONSTRUC TION,RANCHI 10. THE NEXT ISSUE IS RELATING TO THE DISALLOWANCE MADE U/S. 40A(3) OF THE ACT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE PAYMENT AGGREGATING OF RS.13.75 LAKHS IN VIOLATION OF THE PROVISIONS OF SEC. 40A(3) OF THE ACT, WHICH MANDATES THAT THE PAYMENTS EX CEEDING RS.20,000/ - IS REQUIRED TO BE PAID BY WAY OF ACCOUNT PAYEE CHEQUES . IN THIS REGARD, THE AO CALLED FOR PHOTO COPIES OF CHEQUES ISSUED BY THE ASSESSEE FROM ORIENTAL BANK OF COMMERCE AND ACCORDINGLY RECORDED A FINDING THAT THE IMPUGNED CHEQUES WERE NO T ACCOUNT PAYEE CHEQUES. HE NCE THE AO DISALLOWED THE ENTIRE AMOUNT BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 11. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) TOOK THE VIEW THAT TH E DISALLOWANCE U/S. 40A(3) CANNOT BE MADE IF THE PROVISIONS OF SECTION 145(3) IS APPLIED AND THE INCOME IS ESTIMATED. ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE U/S. 40A(3) OF THE ACT. WE NOTICE THAT THE LD.CIT(A) HAS TAKEN THE VIEW THAT THE DISALLOWANCE MADE OUT OF MATERIAL PURCHASE EXPENSES WAS ON ACCOUN T OF REJECTION OF BOOKS OF ACCOUNT AND THE SAME HAS RESULTED IN ESTIMATION OF INCOME U/S. 143(3) OF THE ACT. HOWEVER , WE ARE UNABLE TO AGREE WITH THE SAID VIEW. WE NOTICE THAT THE ASSESSING OFFICER HAS NOWHERE STATED THAT HE IS REJECTI N G THE BOOKS OF ACCOUNT AND CONSEQUENTLY ESTIMATING THE INCOME. ON THE CONTRARY, A PERUSAL OF THE ASSESSMENT ORDER WOULD SHOW THAT THE ASSESSING OFFICER HAS PROCEEDED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE BY STARTING FROM THE INCOME RETURNED BY THE ASSESSEE AND T HEN MAKING VARIOUS ADDITIONS . WE FURTHER NOTICE THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OUT OF MATERIALS PURCHASE EXPENSES, S INCE ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE MATERIAL PURCHASE EXPE NSES . IN OUR VIEW, THE DISALLOWANCE MADE OUT OF MATERIAL PURCHASE EXPENSE IS DUE TO POSSIBILITY OF INFLATION OF EXPENSES AND OTHER DEFICIENCIES AND T HE SAME CANNOT CONSIDERED TO BE A CASE OF REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF INCOME , BUT IT WAS SIMPLY A REJECTION OF CLAIM MADE BY THE ASSESSEE . HENCE, IN OUR VIEW, THE LD CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 40A(3) OF THE ACT ON THE WRONG PRESUMPTION THAT THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED AND THE INCOME HAS BE EN ESTIMATED U/S 145(3) OF THE ACT. 5 ITA NO S . 82,146 & CO 23 RAN/14 M/S. SANJEEV CONSTRUC TION,RANCHI 12. HOWEVER, W E NOTICE THAT THE AO HAS NOT EXAMINED THE APPLICABILITY OF EXCEPTIONS GIVEN IN RULE 6DD OF THE IT RULES. THE LD A.R PLEADED THAT THE APPLICABILITY OF THE ABOVE SAID RULE TO THE IMPUGNED PAYMENTS NEED S TO BE EXAMINED. IN VIEW OF THE ABOVE , WE ARE OF THE VIEW THAT THE ISSUE RELATING TO DISALLOWANCE MADE U/S. 40A(3) OF THE ACT REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISS UE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER W ITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSE. 13. THE ASSESSEE HAS ALSO FILED THE CROSS OBJECTION SUPPORTING BY THE ORDER OF THE LD.CIT(A) . HENCE, IT DOES NOT REQUIRE ANY ADJUDICATION. 14 . IN THE RESULT, THE APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS TREATED AS PARTLY ALLOWED AND THE CROSS OBJECTION FILED BY THE AS SESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 2 8 - 11 - 2014 SD/ - SD/ - [ H.L. KARWA ] [ B.R. BASKARAN ] PRESIDENT ACCOUNTANT MEMBER DT. 2 8 - 11 - 2014 PLACE : RANCHI PP, SR. PS COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT : M/S. SANJEEV CONSTRUCTION, RANCHI 2 THE RESPONDENT: I T O W 3(1), RANCHI 3. .THE CIT, 4.THE C IT(A), 5.DR, ITAT CIRCUIT BENCH, RANCHI 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT. REGISTRAR 6 ITA NO S . 82,146 & CO 23 RAN/14 M/S. SANJEEV CONSTRUC TION,RANCHI 1. DATE OF DICTATION ............. 2 7 - 11 - 2014 ....................... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATI NG MEMBER ........................OTHER MEMBER ....... - 11 - 2014 ........................ 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. ..................... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEM ENT.................................. 2 7 - 11 - 2014 ................................................... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S ................ 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK ........................... ............ 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ......................................... 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ............................................................... .................................. 9. DATE OF DESPATCH OF THE ORDER ..............................................................