COMMISSIONER OF INCOME TAX V. M/S RAJINDER PARSHAD JAIN

ITA/228/2014

AI Insights

The case revolves around an appeal by the Commissioner of Income-tax, Hisar, challenging the order of the Income Tax Appellate Tribunal, Chandigarh, which had modified the assessing officer's decision regarding the net profit rate and certain tax deductions. The Tribunal reduced the net profit rate from 12% to 6% based on the assessee's past profit rates and directed a re-examination of tax deductions on payments to sub-contractors. Additionally, the Tribunal upheld the deletion of an addition for work in progress, which was already included in the total costs. The High Court's decision focused on whether the Tribunal's modifications were justified and whether the legal interpretations applied were correct.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 729300 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 20-11-2014
• Assessment Year: misc
• Other Referred Cases: ACIT Vs Merilyn Shipping & Transporters {136 ITD 23 (SB) (Vishakhapatnam)}
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: TEJENDER JOSHI
• Keywords: Assessment Year; Income tax appellate tribunal; Net profit rate; Tax deduction at source; Work-in-progress
• Section: 40(a)(ia)

Judgement Text

"ITA -228-2014 [ 1 ] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA-228-2014 (O&M) Date of decision: 20.11.2014 The Commissioner of Income-tax, Hisar ..... Appellant VERSUS M/s Rajinder Parshad Jain ..... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S. WALIA Present: Mr.Tejender K. Joshi, Advocate, for the appellant. ******* RAJIVE BHALLA, J. (ORAL) The revenue is before us, challenging order dated 28.08.2012, passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh, (hereinafter referred to as the 'Tribunal'), on the following substantial questions of law: - “i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in directing the AO to apply net profit rate of 6% against 12% whereas Hon'ble Punjab & Haryana High Court itself in different set of facts had applied net profit rate of 10%. ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in accepting the interpretation adopted by Vishakhapatnam Special Bench of ITAT in case of ACIT Vs Merilyn Shipping & Transporters {136 ITD 23 (SB) (Vishakhapatnam)} that the disallowance u/s 40(a)(ia) is to be made only in respect of payments which are outstanding at the end of financial year and payment of which is without deduction of tax (after end of Financial Year). iii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in deleting the addition of Rs.8,04,948/-, though the same had been shown by the assessee under the sub-head 'work-in-progress' and has not been reflected in the Trading Account.” Before dealing with the submissions made by counsel for the revenue, it would be appropriate to delimit the facts in brief. The assessee is a civil contractor and during assessment ITA -228-2014 [ 2 ] year 2008-09, filed a return of income. The return was selected for scrutiny and vide order dated 10.11.2010, the assessing officer while rejecting the accounts books, assessed income by applying a net profit rate of 12% on gross receipts. The assessing officer also made additions, under Section 40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') for failure to deduct tax at source regarding payment to sub-contractors. The assessing officer also made an addition on account of work in progress. Aggrieved by this order, the assessee filed an appeal. The Commissioner of Income Tax (Appeals), Rohtak, (hereinafter referred to as the 'CIT(A) vide order dated 18.03.2011, deleted the net profit rate of 12% by holding that no reason has been assigned for rejecting accounts books, confirmed additions on account of non-deduction of tax at source and held that as deletion on account of work in progress is already reflected in the accounts, the addition has been rendered infructuous. Both the revenue as well as the assessee filed separate appeals. The Tribunal by way of the impugned order, affirmed the order passed by the assessing officer rejecting the accounts books but reduced the net rate profit to 6%. As regards additions made on account of deduction of tax at source, the Tribunal directed the assessing officer to examine the genuineness of payments. As regards work in progress, the Tribunal affirmed the order passed by the CIT (A). ITA -228-2014 [ 3 ] Counsel for the appellant submits that the Tribunal has not assigned any reason for applying a net profit rate of 6% particularly when the assessing officer has after due consideration of the facts given reasons for applying a net profit rate of 12%. As regards addition on account of failure to deduct tax at source, it is contended that as Section 40(a)(ia) of the Act is mandatory and does not admit to any exception, the opinion recorded by the Tribunal, to the contrary is against the statue and must, therefore, be set aside. As regards question No.3, it is submitted that neither the CIT(A) nor the Tribunal have assigned any reason for deleting the addition made on account of work in progress. We have heard counsel for the appellant, perused the impugned order as well as orders passed by the CIT(A) and the assessing officer and are not inclined to entertain the appeal much less to hold that any substantial question of law arises for adjudication. The Tribunal has applied a net profit rate of 6% as it was in consonance with the past history of the assessee. At the time of initial hearing, we had called upon counsel for the appellant-revenue to apprise the Court about the net profit rate applied to the assessee in years previous and subsequent to the assessment year in dispute. Counsel for the appellant fairly concedes, on instructions that in the preceding as well as the following year a net profit rate of 6.75% and 5% respectively was applied by the assessing officer and has also placed on record order for assessment year 2009-2010 where a net profit rate of 5% has been applied to the assessee. We, therefore, find ITA -228-2014 [ 4 ] no error in the discretion exercised by the Tribunal in applying a net profit rate of 6%. As regards the question relating to deduction of tax at source, suffice it to state that the Tribunal has merely restored the matter to the assessing officer by asking him to verify the transactions and if found to be correct, pass orders accordingly by holding as follows: - “8. On perusal of the record we find that the issue in this appeal is in relation to the disallowance made out of payments of labour charges paid for non deduction of tax at source under the provisions of section 194C of the Act. The said disallowance was made by invoking the provisions of section 40(a)(ia) of the Act. The Special Bench of Vishakhapatnam reported in ACIT Vs. Merilyn Shipping & Transports [136 ITD 23 (SB) (Vishakhapatnam)] had laid down the principle that where the amounts have been paid during the year under consideration itself and nothing is payable at the close of the year, no disallowance was warranted under section 40(a)(ia) of the Act for non deduction of tax at source out of such amount paid during the year. Following the above said parity of reasoning, we direct the Assessing Officer to verify the stand of the assessee and in case the said amounts have been paid by the assessee during the year under consideration, no disallowance is warranted out of said payments in line with the provisions of section 40(a)(ia) of the Act. Reasonable opportunity of hearing shall be afforded to the assessee by the Assessing Officer for adjudicating the issue. The ground of appeal raised by the assessee is allowed for statistical purposes.” We find no reason whether in fact or in law to interfere with the above finding as the Tribunal has left it on the assessing officer to determine whether payments were made by the assessee during the year under consideration. The third point need not detain us for long as a perusal of the order passed by the CIT(A) as well as the Tribunal reveals that Rs.8,04,948/- added on account of work in progress, had already been taken into account in the total costs of the works and, therefore, ITA -228-2014 [ 5 ] the addition made by the assessing officer was not warranted. The Tribunal has recorded that the representative from the department was unable to controvert findings recorded by the CIT(A) in respect thereof. We are rather mystified as to why question No.3 has been framed as a question of law. Consequently, we answer the questions of law against the revenue and dispose of the appeal accordingly. [ RAJIVE BHALLA ] JUDGE 20.11.2014 [ B.S. WALIA ] Shamsher S.Sabharwal JUDGE SHAMSHER SINGH 2014.12.01 16:20 I attest to the accuracy and authenticity of this document Chandigarh "