Income Tax Appellate Tribunal - Jaipur
Htc Pipes & Infra Project Pvt. Ltd, ... vs Ito, Jaipur on 26 July, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 1102/JP/2016
fu/kZkj.k o"kZ@Assessment Year: 2012-13
M/s. HTC Pipes & Infra Project Pvt. Ltd cuke The ITO,
(i) 10, Station Road, Jaipur (ii) Jain & Co. Vs. Ward- 3(2)
228, City Centre, S.C. Road, Jaipur Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCH 5036 L
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assessee by: Shri A.K. Gupta, Advocate &
Shri S.L. Jain, Advocate
jktLo dh vksj ls@ Revenue by:Smt. Seema Meena, JCIT - DR
lquokbZ dh rkjh[k@ Date of Hearing : 05/07/2018
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 26/07/2018
vkns'k@ ORDER
PER BHAGCHAND, AM
The appeal filed by the assessee emanates from the order of the ld. CIT(A)-I, Jaipur dated 29-09-2016 for the Assessment Year 2012-13 raising therein following grounds of appeal.
''1. That the ld. authorities below have grossly erred both in law and facts in invoking the provision of section 145(3) without any justification. The assessee has maintained regular and proper books of account duly audited by ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur Chartered Accountant and expenses are vouched and verifiable.
2. That the ld. authorities below have grossly erred both in law and facts in not accepting CBDT Circular official memorandum (F.No.279/Misc.52/2014-(ITJ] dated 7-11- 2014 issued u/s 119 (2) of the I.T. Act which is binding on all officers employed din the execution of Act (high - pitched assessment without proper basis) [Navneet Lal Jhaveri vs K.K. Sen. AAC (1965) 56 ITR 198 (SC) and therefore, the order so made is without jurisdictions, illegal and void ab initio.
3. Cash Credit Rs. 19,50,000:- That the ld. authorities below have grossly erred both in law and facts in making / confirming additions of Rs. 19,50,000/- u/s 68 of I.T. Act, 1961 without making any enquiry by issuing notice u/s 131. The AO is duty bound to make enquiry from Coordinate Officer (ITA No.1341/Mum/2011 Assessment Year 1996-97 Arun Kumar Muchhala).The assessee has produced evidence about identity of creditor by providing PAN and genuineness by receiving payment through bank account and creditworthiness by attending circumstances and therefore, onus of proof shifts to the revenue.
4. Disallowance of interest u/s 40(a)(ia) Rs. 52,650/- Kamla Choudhary :- That the authorities below have grossly erred both in law and facts in sustaining disallowance of interest payment of Rs. 52,650/- to Smt. Kamla Choudhary on account of non-TDS as required u/s 194A. The section 40(a)(ia) can be invoked where the amount of interest remains payable and not on payment paid during the previous year.
5. Disallowance of Deprisation Expenses of Rs. 13,79,254/-: That the authorities below have grossly erred both in law and facts in sustaining disallowance of deprisation expenses of Rs. 13,79,254/- (full amount) without any basis and justification. The assessee has 2 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur provided copy of ledger account and supporting evidence. Expenses is through banking channel and genuine and not excessive.
6. Disallowance of expenses of Rs. 22,83,153/-:- That on the facts and in the circumstances of the case the AO has grossly erred in law and facts in sustaining disallowance of expenses Rs. 22,83,153/- ( 7% of Rs. 3,26,16,480/-) without any basis and justification. The assessee has provided copy of ledger account and supporting evidence. Expenses is through banking channel and genuine and not excessive.
7. Disallowance of depreciation:- That the authorities below have grossly erred both in law and facts in restricting depreciation allowance of Rs. 1,46,72,895/- in place of Rs. 1,98,22,466/- without any basis and justification.
8. That the authorities below have grossly erred both in law and facts in applying N.P. Rate of 34.48% subject to depreciation as against N.P. Rate of 26.87% shown by the assessee.
Comparative Chart
A.Y. Turnover Net Profit Depreciation Total % of % AO
Profit N.P. Applied
2012-13 74361300 156870 19822470 19979340 26.87 34.48*
*The AO has made itemwise addition by disallowing various expenses and assets positive income Rs. 58,21,930/- and depreciation Rs. 1,98,22,466/- totaling to Rs. 2,56,44,396/- and by adding such disallowance in N.P. comes to 34.48%.
9. No Show cause Notice:- That the ld. CIT(A) has grossly erred both in law and facts in sustaining additions/ disallowance without show cause notice by the AO.
3 ITA No.1102/JP/2016M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur
(a) Cash credits Rs. 19,50,000/-
(b) Disallowance of interest u/s 40(a)(ia) Rs.
52,650/-
© Disallowance of depreciation expenses Rs.
13,79,254/-
(d) Disallowance of expense Rs. 22,83,153/-
(e) Disallowance of Depreciation.
10. That the authorities below have grossly erred both in law and facts in charging interest u/s 234(B) of Rs. S1,79,856/-, 234D of Rs. 1,60,620/- and interest recovered u/s 244A of Rs. 87,563/-
2.1 At the outset of the hearing, the Bench observed that there is delay of 7 days in filing the appeal by the assessee. The ld.AR of the assessee vide application dated 19-04-2017 filed the condonation application with following submissions.
''The present appeal has been filed 7 days late. This delay has occurred on account of serious illness of director's wife who is suffering from Cancer since last many months. Moreover, there was three days public holidays 10,11 and 12December, 2016 being Saturday, Sunday and Barawafat. The Medical Certificate of Smt. Saroj Sharma issued by Dr. Lalit Mohan Sharma, MD and affidavit of Shri Ashok Sharma, Managing Director are attached.'' 2.2 On the other hand, the ld. DR opposed the condonation application of the ld.AR of the assessee.
4 ITA No.1102/JP/2016M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur 2.3 After hearing both the parties and perusing the materials available on record, it is noted that there is delay of 7 days in filing the appeal by the assessee for which the assessee has filed the appropriate reasons (supra). In this view of the matter, the Bench condones the delay of 7 days in filing the appeal by the assessee.
3.1 Apropos Ground No. 1 and Ground No. 8 as per written submissions of the assessee, the facts as emerges from the order of the ld. CIT(A) are as under:-
''3.4.2 Determination:
(i) The brief facts of the case are that the appellant has claimed the following expenses in its trading and profit and loss account for the year under consideration.
Depreciation expenses Rs. 13,79,254/-
Direct expenses Rs. 1,82,36,857/-
Other expenses Rs. 10,85,982/-
Depreciation Rs. 1,46,72,895/-
(ii) During the assessment proceedings, the AO required the appellant to explain the nature of depreciation expenses and also to produce the books of accounts. The appellant neither submitted the nature of depreciation expenses nor produced books of accounts before the AO for verification of above expenses by 5 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur stating that the books of accounts were seized by the Sales Tax Department. However, it was noted by the AO that most of the documents seized by the Sales Tax Department were related to M/s Hanuman Tubewell and only few vouchers relating to the appellant company were seized and it was also noticed that cash book and ledger were not seized by the Sales Tax Department.
(iii) Since, no verification of the above expenses could be made, the AO disallowed the total expenses of Rs. 13,79,254/- claimed on account of depreciation expenses and disallowed 7% of the remaining expenses and made an addition of Rs. 22,83,153/- to the income of the appellant. During the appellate proceedings, it was submitted by the appellant that the AO has made the above additions without rejecting its books of accounts u/s 145(3) of the Act ignoring the fact that its books of accounts were audited by a Chartered Accountant and part of the books of accounts were produced before the AO. It was further submitted that the above disallowance resulting in NP rate of 34.48% which is not possible in this line of business.
(iv) I have duly considered the submissions of the appellant, assessment order and the material placed on record. The AO has impliedly rejected the books of accounts of the appellant as the trading results and other expenses claimed by the appellant were not verifiable as the books of accounts were not produced before the AO during the assessment proceedings. In fact, the appellant has not offered to produce books of accounts during the appellate proceedings also to substantiate its claim. It was the contention of the appellant that the AO has applied NP rate of 34.48% against declared NP rate of 26.87% on turnover of Rs. 7,43,61,300/- which is not possible in this line of business activity. As the appellant has not been able to substantiate its claim of expenses, it is held that the books of accounts of 6 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur the appellant are liable to be rejected u/s 145(3) of the Act and the additions Rs. 13,79,254/- and Rs.
22,83,153/-made by the AO is hereby sustained.'' 3.2 During the course of hearing, the ld.AR of the assessee prayed that the lower authorities have wrongly invoked the provisions of section 145(3) of the Act by applying the n.p. rate of 34.48% as against 26.87% shown by the assessee for which the ld.AR of the assessee filed the following written submission.
''1. Ground No.1&8 ( Rejection of Books of Account by invoking section 145(3) of IT Act, applying NP Rate 34.48% against 26.87% as declared suo moto);
(i) The facts of the issues are that during the year under questioned assessee mainly indulged in the activities of sub contractor of drilling of land to get COAL etc., maintaining regular books of account during day to day business affairs, get audited by the qualified chartered accountants, filling Income Tax Return regularly, filling ROC and VAT return regularly and timely & get checked/assessed their books of account before every government agency as & when it is required, but could not produce some part of books of accounts before the Ld AO during the course of assessment proceedings due to having seizes ion it by Sales Tax Department in the matter of other sister concern's (Hanuman Tube well company's) survey,
(ii) This facts have been brought on the record of the assessment many times during the course of assessment proceedings (kindly refer page no. 81 & 32 of assessee appellant's submission to Ld. AO & page no. 7 of Ld. AO's Assessment order), 7 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur
(iii) But without appreciating the facts of the case the Ld. AO rejected books of accounts and impliedly invoked the provision of section 145(3) of IT Act, 1961 (kindly refer page no. 36 of Ld. CIT(A)'s order),
(iv) Merely non producing any part of books of accounts due to some reasonable reason could not be a valid ground of rejecting the books of account and invoking section 145(3) of It Act, 1961, while audit report proved the existence of correct and fair books of accounts,
(v) At the very outset it is submitted that the assessee appellant is a bonafied IT assessee. He believes in contributing to the National Income as the law of land. With this view he is maintained the complete books of accounts. The same are audited by the qualified CA u/s 44AB of the IT Act. The assessee having consistently following the same method of accounting. It could not be said that the method of accounting followed by the assessee was such that the income could not be properly deduced, as the results of books of accounts preceding the previous year (i.e. A.Y. 2011-12) and subsequent the previous year (i.e. A.Y. 2013- 14 & 2014-15) were accepted the revenue without tempting anything even in their regular assessment proceedings,
(vi) If the Ld. AO does not satisfy with the books of accounts of the assessee appellant as produced before him during the course of assessment proceedings then he is bound to make an honest estimation of income keeping in view of the material available on record, past history of the case, local knowledge, comparable case after confronting with trading results and repute of the assessee. He is also supposed to collect necessary material for the purpose, if so required. An arbitrary, capricious and wild estimation, as done in the present case, are not at all permitted in the eyes of the law. The Ld. AO however did not confirm to its settled legal position.
8 ITA No.1102/JP/2016M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur The same contention contended by Honorable Apex Court in a land mark judgment (BRIJ BHUSHAN LAL PRADUMAN KUMAR V/S CIT 115 ITR 524(SC), Furthermore many more cases have been decided on the basis of this said contention i.e. ITAT RAJKOT BENCH V/S ITO WARD 2(5), RAJKOT2007(105 ITD)585 (RAJKOT) ITAT HYDRABAD BENCH V/S ACIT CIRCLE 3(4) HYDRABAD (2007) 104ITD 537 (HYD.)
(vii) Therefore, it is humble submission in this regard that Net Profit should be calculated on the basis of fair and reasonableness and additions made on the basis of specific defects and estimation as taken for disallowing the expenses should be deleted,
(viii) The assessee appellant declared a quite good effective Net Profit (subject to depreciation) which is 26.87% of total turnover of Rs.7,43,61,300/-(Net profit=156870+Depreciation=19822466=Effective Net Profit=19979336/-), which is quite reasonable as compare to other firms having same nature of business,
(ix) As the assessee appellant involved in drilling work of land for mining or tube well purposes, here in this year he indulged in the activities of drilling of land for getting COAL as sub contractor ship of M/S ASSOCIATED SOAPSTONE DIST. CO PVT. LTD., (kindly refer page no. 2 & 51 & 52 of paper book) it is established that the nature of work of the assessee appellant is sub contractor ship hence in case where books of account have been rejected by the Ld. AO a fair and reasonable estimation can be made on the basis of any other comparable case, here it is kind attention before your honor that the assessee's sister concern (M/S HANUMAN TUBE WELL COMPANY) is also involved in same nature of work since last 40 years, hence in support of assessee's declaration of Net Profit we placed 9 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur before your honor nearest comparable case of the said firm where Ld. AO applied 8% Net Profit rate on turnover subject to Depreciation, Remuneration and Interest, for the same assessment year (i.e.2012-13).
Therefore it is humble submission kindly accept the declared net profit @ 26.87% (subject to depreciation) of total turnover against arbitrarily made huge additions resultant the Net Profit Rate reached @34.48%.
3.3 On the other hand, the ld. DR supported the orders of the lower authorities.
3.4 We have heard the rival contentions and perused the materials available on record. Brief facts of the case are that the assessee company is trading and mining firm which deals in all type of tubewell related items, pipes, pumps and also drilling of tubewell. The AO during the course of assessment proceeding noted that the assessee could not produce the books of account which were not verifiable. Hence, the AO invoked the provisions of section 145(3) and made specific addition which resulted into net profit rate of 34.48% as against 26.87% declared by the assessee which has been confirmed by the ld. CIT(A). It is noted from the records that the nature work of the assessee is a sub-contractor.
The sister concern of the assessee M/s. Hanuman Tubewell also deals in the same line of business wherein the same Assessment Year i.e. 2012- 13, the AO has applied the net profit rate of 8% on the gross receipt. The 10 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur observation of the AO vide his assessment order dated 31-12-2014 in the case of M/s. Hanuman Tubewell Company is as under:-
''In view of the facts mentioned above, the provisions of section 145(3) are invoked and net profit rate at 8% is applied on the gross receipts of Rs. 24,78,46,633/- subject to allowability of depreciation and remuneration & interest paid to partners. Thereafter the interest received during the year will be added to the income of the assessee firm.'' It is further noted from the available record that the assessee has declared the net profit rate of 26.87% (subject to depreciation) while the sister concern of the assessee i.e. M/s Hanuman Tubewell Company has declared the net profit rate of 8% subject to allowability of depreciation and remuneration & interest paid to partners. Taking into consideration the facts and circumstances of the case, it is observed that the assessee having similar type of business has shown better net profit rate of 26.87% as compared to net profit rate of 8% applied by the AO in the case of Hanuman Tubewell Company. In this view of the matter, the Ground No. 1 of the assessee is dismissed and Ground No. 8 of the assessee is allowed by deleting the additions of Rs. 13,79,254/- and Rs. 22,83,153/-
confirmed by the ld. CIT(A).
11 ITA No.1102/JP/2016M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur 4.1 During the course of hearing, the ld.AR of the assessee has not pressed the Ground No. 2. Hence, the same is dismissed being not pressed.
5.1 Apropos Ground No. 3 of the assessee, the facts as emerges from the order of the ld. CIT(A) are as under:-
''3.2.2 Determination:
(i) The brief facts of the case are that the appellant was a trading and mining company dealing in all type of tubewell related items, pipes, pumps and drilling of tubewell also. In the mining work, the company was engaged in deprisation activity. During the year under consideration, the appellant has taken unsecured loans from 28 parties. During the assessment proceedings, the AO required the appellant to file confirmations from the said parties, on a number of occasions and finally after giving ample opportunities to the appellant, the AO made an addition of Rs. 19.50 Lac u/s 69 of the Act in respect of 11 parties from whom the appellant could not file the confirmations. It may be mentioned that the total of 11 parties worked out to Rs.
24.50 Lac and not 19.50 Lac as stated by the AO in the assessment order. Vide order dated 15.04.2015 passed u/s 154 of the Act, the AO excluded the addition of Rs. 5 Lac made in the name of sh. Gaurav Harkawat as the same was included wrongly while making addition u/s 68 of the Act. Therefore, the dispute remains is addition of Rs. 19.50 Lac u/s 68 of the Act in respect of 10 parties as stated in the assessment order.
(ii) During the appellate proceedings, the appellant filed confirmations in respect of cash creditors namely Ms. Kamla Choudhary, Madhwanand Dixit, Swati Khandelwal, Priyanka Gupta and Sunita Gupta without stating that these are additional evidences and without 12 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur stating any reason why these were not produced before the AO during the course of assessment proceedings. Even, no application under Rule 46A of the I.T. Rules was filed for admission of these confirmations as additional evidences. It is pertinent to mention that the appellant has not mentioned anything why these documents were not produced before the AO at the time of assessment proceedings. These facts clearly reveal that the appellant has not come forward with clean hands even during the appellate proceedings. Therefore, the same are not being admitted as additional evidence and the issue is decided without considering them. It would be relevant to reproduce Rule 46A of the IT Rules as under:
"Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals). 46A . (1) The appellant shall not be entitled to produce before the 94[Deputy Commissioner (Appeals)] 95[or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the 96[Assessing Officer], except in the following circumstances, namely :--
(a) where the 97[Assessing Officer] has refused to admit evidence which ought to have been admitted ; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the 97[Assessing Officer] ; or
(c) where the appellant was prevented by sufficient cause from producing before the 97[Assessing Officer] any evidence which is relevant to any ground of appeal ; or
(d) where the 97[Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the 98[Deputy Commissioner (Appeals)] 99[or, as the case may be, the 13 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur Commissioner (Appeals)] records in writing the reasons for its admission.1
(3) The 2[Deputy Commissioner (Appeals)] 3[or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the 4[Assessing Officer] has been allowed a reasonable opportunity--
(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the 5[Deputy Commis-sioner (Appeals)] 6[or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the 7[Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271(1)(c)."
(iii) In view of the provisions of Rule 46A of the I.T. Rules, the additional evidences could be admitted only if the case of the assessee falls in any of the four clauses as mentioned in clause 1 of Rule 46A. It is to be noted that during the assessment proceedings, a number of opportunities were provided by the AO to the appellant to explain cash credits.
(iv) It may be mentioned that the Hon'ble Delhi High Court in the case of Manish Build well 204 Taxman 106 observed as under:
"Rule 46A is a provision which is invoked, on the other hand, by the assessee who is in an appeal before the Commissioner (Appeals). Once the assessee invokes Rule 46A and prays for admission of additional evidence before the Commissioner (Appeals), then the procedure prescribed in the said rule has to be scrupulously followed. The fact that subsection (4) of sec. 250 confers powers on the Commissioner (Appeals) to conduct an enquiry as he thinks fit, while disposing 14 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur of the appeal, cannot be relied upon to contend that the procedural requirements of rule 46A need not be complied with. If such a plea of the assessee is accepted, it would reduce rule 46A to a dead letter because it would then be open to every assessee to furnish additional evidence before the Commissioner (Appeals) and, therefore, contend that the evidence should be accepted and taken on record by the Commissioner (Appeals) by virtue of his powers of enquiry under subsection (4) of section 250. This would mean in turn that the requirement of recording reasons for admitting the additional evidence, the requirement of examining whether the conditions for admitting the additional evidence are satisfied, the requirement that the AO should be allowed a reasonable opportunity of examining the evidence, etc., can be thrown to the winds, a position which is wholly unacceptable and may result in unacceptable and unjust consequences. The fundamental rule which is valid in all branches of law, including Income tax law, is that the assessee should adduce the entire evidence in his possession at the earliest point of time. This ensures full, fair and detailed enquiry and verification. It is for the aforesaid reason that rule 46A starts in a negative manner by saying that an appellant before the Commissioner (Appeals) shall not be entitled to produce before him any evidence, whether oral or documentary, other than the evidence adduced by him before the AO. After making such a general statement, exceptions have been carved out that in certain circumstances it would be open to the Commissioner (Appeals) to admit additional evidence. Therefore, additional evidence can be produced at the first appellate stage only when conditions stipulated in rule 46A are satisfied and a finding is recorded. The conditions prescribed in rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in rule has to be strictly complied with so that rule is meaningfully exercised and not exercised in a routine or cursory 15 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur manner. A distinction should be recognized and maintained between a case where the assessee invokes rule 46A to adduce additional evidence before the Commissioner (Appeals) and a case where the Commissioner (Appeals), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under subsection (4) of section
250. It is only when the exercises his statutory suomotu power under the above subsection, that the requirements of rule 46A need not be followed. On the other hand, whenever the assessee, who is in appeal before him, invokes rule 46A, it is incumbent upon the Commissioner (Appeals) to comply with the requirements of rule strictly."
(v) In view of the above discussion and respectfully following the decision of Hon' ble Delhi High Court, the additional evidences filed by the appellant without submitting any application for their admittance as additional evidence cannot be admitted under Rule 46A of the IT Rules and thus the matter is decided without taking into account these evidences.
(vi) It is noted from the assessment order that a number of opportunities were provided by the AO to the appellant to prove the cash credits, however, no compliance was made in respect of 10 parties as stated in the assessment order. During the appellate proceedings, it was submitted by the appellant that it has discharged its initial onus by filing the confirmations from the cash creditors. I have examined the relevant assessment record of the appellant and observed that no confirmation in respect of these 10 parties was filed during the assessment proceedings before the AO. Therefore, in respect of these 10 parties, the appellant did not discharge even the initial onus to prove the cash credits. It was the contention of the appellant that it proved the identity of cash creditors, genuineness of the transactions and creditworthiness of the cash creditors. It may be mentioned 16 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur that in a number of judicial pronouncements it has been held by the judicial authorities that transactions through banking channels are not sacrosanct. Further, the appellant has not filed any documentary evidence to prove the identity and creditworthiness of these creditors. Even during the appellate proceedings, the appellant filed only confirmations from some of the cash creditors as stated earlier in this order and no evidence including the copy of their income tax return was filed to establish their creditworthiness.
(vii) Therefore, looking to the totality of facts and circumstances of the case, it is held that the AO was justified in making addition of Rs. 19.50 Lac u/s 68 of the Act, hence, the addition is hereby sustained. Thus, this ground of appeal is hereby rejected.'' 5.1 During the course of hearing, the ld.AR of the assessee prayed that the ld. CIT(A) has erred in confirming the addition of Rs. 19.50 lacs u/s 68 of the Act for which the ld.AR of the assessee filed the following written submission.
''3. Ground No.3 (The Ld. CIT (A)-I, has confirmed the action of Ld. AO of Addition of Rs. 19.50 Lac u/s 68 of the Act, on account of cash credit);
(i) The aforementioned ground is related to 10 cash creditors amounting to Rs. 19,50,000/-, who are in dispute as contended by Ld. AO as well as Ld. CIT (A)-I, Jaipur,
(ii) Whereas the Ld. AO alleged that assessee did not produce confirmation of aforementioned cash creditors before them during the course of assessment proceedings while the Ld. CIT (A)-I, Jaipur held in their order that assessee produced some confirmation before them without complying the procedure as stipulated by Rule 46A of IT Rule in this reagrd,
(iii) To make the position clear before your honor we are producing here with a statement of disputed cash creditors & their confirmation as submitted before LD. AO and Ld. CIT (A)-I, Jaipur;-
17 ITA No.1102/JP/2016M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur S.No. Name of Cash Amount Confirmation Confirmation Page Creditors submitted before submitted before Number of Ld. AO Ld. CIT (A) Paper book 1 M/s Classic Color 100000/- AGZPA4654A Yes 37 Chem 2 Roshika 200000/- ABFPK9035K Yes 36 Construction 3 Roormal 100000/- Yes 35 4 Kamla Choudhary 500000/- AASPC8896Q Yes 135 5 Madhwanand Dixit 400000/- ABRPD3992Q Yes 136 6 R S & Sons 100000/- ACSPB6794N Yes 34 7 Shweta Sonkhiya 100000/- ASXPS9240F 8 Sweta Khandelwal 150000/- AXDPK5880E Yes 137 9 Priyanka Gupta 150000/- ALSPG8681Q Yes 138 10 Sunita Gupta 150000/- AHHPG1101A Yes 139 Total 19,50,000/-
(iv) All aforementioned confirmation excepted Number 7 (Shweta Sonkhiya) are annexed as part of paper book on their referred page numbers,
(v) All annexed confirmation having following details;
(a) Name of cash creditor,
(b) Pan of Cash Creditor,
(c) Complete Address of of Cash Creditors excepted creditor no. 3 (Roormal),
(d) Details of transaction,
(e) Signature of Cash Creditors.
(vi) By examining the confirmations, it is established that the amount as taken from said cash creditors were through an account payee cheques, having their PAN/addresses and details of date wise transaction viz. repayment, payment of interest and deduction of Tax thereon etc., these information proved that the transaction as done between assessee appellant and cash creditors are genuine, the identity of cash creditors are not fake and could be verified by the Ld. AO as well as Ld. CIT (A) at their level by issuing summon under section 131 of IT Act,
(vii) Apart of this it is also submitted before your honor that the assessee appellant got audited their books of account by qualified 18 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur chartered accountant for the year under consideration and submitted their report in form Number 3CD before Ld. AO, which described the position of cash creditors by their point no. 24(a), (b) & (c) by which the contention of assessee appellant get strong,
(viii) In contrary to contended by Ld. AO it is submitted before your honor that out of above mentioned 10 cash creditors, the confirmation of Number 1,2,3, &6 were submitted before Ld AO during the course of assessment proceedings and could have been verified by the then by issuing the summon to the concerned parties under section 131 of IT Act, before making any adverse opinion regarding their Identity, genuineness and creditworthiness,
(ix) On same line regarding cash creditor no. 4,5,8,9, & 10 which's confirmation were submitted before Ld. CIT (A)-I only, and could not submit before Ld. AO during the course of assessment proceedings, In this matter it is submitted that these confirmation could not get signed by the concerning cash creditors that time and this fact has also communicated to the Ld. AO by the then reply as submitted during the course of assessment proceedings, (kindly refer point no. 1 on page no. 32 of paper book).
(x) We refer following case laws in support of assessee appellant where initial onus discharged by him by providing Name, PAN, Address of the lenders;
CIT V/S SHREE BARKHA SYNTHETICS 182CTR 175 (RAJ) CIT V/S FIRST POINT FIANANCE LTD. 286 ITR 477 (RAJ) (XI) Mostly persons are IT assessed as they provided their PAN no. hence capacity is proved ;
CIT V/S ORISSA CREDIT CORP. LTD. 159 ITR 78 (SC) CIT V/S P MOHAN KALA 291 ITR 279 (SC)
(xii) Suspicion can not take place the place of reality are settled principles kindly refer;
DHAKESHWARI COTTON MILLS 26 ITR 775 (SC) , RBNJ NAIDU V/S CIT 29 ITR 194 (NAG) KANPUR STEEL CO LTD. V/S CIT 32 ITR 56 (ALL)'' 19 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur 5.3 On the other hand, the ld. DR supported the orders of the lower authorities.
5.4 We have heard the rival contentions and perused the materials available on record. In this case the AO made the addition of Rs. 19.50 lacs u/s 68 of the Act by observing as under:-
''3.7 Since the assessee has been repeatedly requested to file the confirmations of unsecured loans from the day one i.e. 06-01-2014, the date on which 1st query letter was issued, but despite of ample opportunities provided, assessee failed to prove the genuineness of unsecured loans by not filing minimum requirement of PAN and complete address of the parties.
Classic Color Chem 1,00,000/-
Roshika Construction 2,00,000/-
Roormal 1,00,000/-
Gaurav Harkawat 5,00,000/-
Kamla Choudhary 5,00,000/-
Madhwanand Dixit 4,00,000/-
R.S. & Sons 1,00,000/-
Shweta Sonkhiya 1,00,000/-
Sweta Khandelwal 1,50,000/-
Priyanka Gupta 1,50,000/-
Sunita Gupta 1,50,000/-
Rs. 19,50,000/-
Therefore, the credits of Rs. 19,50,000/- in the name of above parties are remained unexplained u/s 68 of the I.T. Act, 1961 as the assessee fails to prove identity, source and creditworthiness of these credits shown in the books of accounts. Hence, the account of Rs. 19,50,000/- added to the income of the assessee.'' 20 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur In first appeal, the ld. CIT(A) has confirmed the action of the AO. From the available records and the written submissions filed by the assessee (supra), it is noted that the assessee has filed the confirmations of the above creditors at Paper book pages i.e. in the name of Classic Colour Chem (Page 37), Roshika Construction (page 36), Roormal (page 35), Kamla Choudhary (page 135), Madhwanand Dixit (page 136), R.S. Sons (Page 34), Sweta Khandelwal (Page 137), Priyanka Gupta (page 138), Sunita Gupta (page 139) except Shweta Sonkhiya. Taking into consideration all the facts, circumstances of the case and the confirmations by the above mentioned lenders/ cash creditors, the Bench does not concur with the findings of the ld. CIT(A) on the issue and direct to delete the addition of Rs. 18.50 lacs and sustained Rs. 1.00 lac in the case of Smt. Shweta Sonkhiya for want of no confirmation. Thus Ground No. 3 of the assessee is partly allowed.
6.1 Apropos Ground No. 4 of the assessee, the facts as emerges from the order of the ld. CIT(A) are as under:-
''3.3.2 Determination:
(i) The brief facts are that during the year under consideration the appellant had paid a sum of Rs. 52,650/- to Smt. Kamla Choudhary as interest without deduction of tax at source. The AO invoked the provisions of section 40a(ia) 21 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur of the Act and made addition of Rs. 52,650/-
to the income of the appellant.
(ii) During the appellate proceeding, it was submitted by the appellant that at the end of the year, the amount was not payable and disallowance u/s 40(a) (ia) of the Act can only be made when the amount is payable at year end. In support of its contention, the appellant relied upon a number of judicial pronouncements. It was further submitted that the interest was paid during the financial year itself and nothing was payable at the end of the year while section 40(a)(ia) of the Act applies on the amount remaining payable at the end of the year.
(iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is an undisputed fact that the appellant claimed to pay a sum of Rs. 52,650/- as interest payment without making TDS thereof. Thus, the provisions of section 40(a)(ia)of the Act are clearly applicable to the instant case under consideration. It was the contention of the appellant that the interest payment has been paid during the year under consideration and nothing was payable at the end of the year and thus the provisions of section 40(a) (ia) of the Act are not applicable.
(iv) The AR also relied on the decision of Hon'ble ITAT, Jaipur in the case of Girdhari Lal Bargoti dated 10.04.2015. I have gone through the above decision of Hon'ble ITAT and observed that the Hon'ble ITAT has not decided the issue on merits and observed that different courts have different views on the issue, therefore, in view of decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., the case was decided in favour of the appellant. It is to be noted that in a recent decision dated 29.04.2015 which is subsequent to the order of Hon'ble ITAT, Jaipur in the case of Girdhari Lal Bargoti, the Hon'ble P & H High court in the case of 22 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur P.M.S. Diesels Vs CIT (2015) 93 CCH 110 PHHC / (2015) 277 CTR 0491 (P&H), the Hon'ble High Court of Punjab & Haryana after considering the cases of CIT vs. M/s Vector Shipping Services (P) Ltd., (2013) 262 CTR (All) 545, V.M. Salgaocar & Bros. (P) Ltd., etc. vs. CIT, etc. (2000) 243 ITR 383 (SC), ACIT vs. Merilyn Shipping & Transporters 136 ITD 23 (SB) (Vishakhapatnam), Tube Investments of India Ltd. and another vs. ACIT, (TDS) and others, (2010) 325 ITR 610 (Mad)held that:
"The provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee."
(v) The same view was taken by the Hon'ble Calcutta High Court in the case of CIT vs. Crescents Exorts Sysdicate, (2013) 216 Taxman 258 (Calcutta) wherein it was held that:
"It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term 'payable' legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both in the 23 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur situation of actual payment as well of the credit of the amount. It becomes very clear from the fact that the phrase, 'on which tax is deductible at source under Chapter XVIIB', was not there in the Bill but incorporated in the Act. This was not without any purpose."
(va) The Hon'ble High Court of Himachal Pradesh in the case of Palam Gas Service Vs CIT, (2014)89CCH 0123HPHC/ (2015) 370 ITR 0740 (HP) held that:
"Lastly, insofar as the plea taken by the appellant that no disallowance can be made under Section 40 (a) (ia) as the freight charges had been paid and were not payable. Suffice it to state that the provisions of Section 40 (a) (ia) of the Act were applicable not only to the amount which were shown as outstanding on the closing of the relevant previous year, but to the entire expenditure which became liable for payment at any point of time during the year under consideration and which was also paid before the closing of the year as rightly held by the authorities below."
(vb) The Hon'ble ITAT, Lucknow Bench in the case of DCIT Vs Ama Medical & Diagnostic Centre (2014) 40 CCH 0581 Lucknow Trib / (2014) 63 SOT 0136 (Lucknow) ((URO)) held that:
"ITAT are of the view that the Hon'ble Jurisdictional High Court has not examined the impugned issue i.e. whether disallowance u/s 40(a)(ia) of the Act could be made only in respect of such amount which are payable as on 31st March of every year under consideration whereas the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court have dealt with the issue in detail in the light of various judicial pronouncement and have categorically held that section 40(a)(ia) would cover not only to the amount which are payable as on 31st 24 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur March of a particular year but also which are payable at any time during the year (para7.5).
ITAT considered opinion that the view view expressed or the ratio laid down by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports has been overruled. Therefore, it cannot be said that since the Hon'ble Jurisdictional High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports, the same has to be followed by the Tribunal situated within the jurisdiction of Hon'ble Allahabad High Court. Had the impugned issue been examined and adjudicated by the Jurisdictional High Court, it would have been respectfully followed by the Tribunal irrespective of the fact that contrary views have been expressed by the different High Courts. The Hon'ble Jurisdictional High Court has not examined the impugned issue at all and simple passing reference was made with regard to the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and the relief was granted to the assessee on merit. Therefore, the ratio laid down in the case of Merilyn Shipping & Transports, which has been suspended by Hon'ble Andhra Pradesh High Court, has not been approved by the Hon'ble Allahabad High Court. Therefore, subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping & Transports (supra), as it was overruled by the other High Court (pra 8).
(vi) It may be mentioned that vide circular no. 10 of 2013 dated 16.12.2013, it has been stated by the CBDT that:
"4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a)(ia) of the Act would cover not only the amounts which are payable as on 31st March of a previous year but also 25 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a)(ia) of the Act the term "payable" would include "amounts which are paid during the previous year"
(vii) It may be mentioned that as per the proviso to section 201 inserted w.e.f. 01.07.2012, the appellant would not be treated as assessee in default if the concerned persons
(i) has furnished its return of income u/s 139;
(ii) has taken into account such sums for computing income in such return of income; and
(iii) has paid the tax due on the income declared by it in such return of income and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed (Form N. 26A)
(viii) In the instance case under consideration, the appellant has not submitted any certificate from a Chartered Accountant in Form No. 26A. It is also noted that the appellant could not prove the unsecured loans alleged to be taken from Ms. Kamla Choudhary, therefore, the interest payment, is otherwise also not allowable. Therefore, in view of the above discussion it is held that the AO was justified in making disallowance of Rs. 52,650/- u/s 40(a) (ia) of the Act, hence, the same is hereby sustained.'' 6.2 During the course of hearing, the ld.AR of the assessee prayed for deletion of disallowance of Rs. 52,680/- u/s 40(a)(ia) of the Act for which the ld.AR of the assessee filed the following written submission.
''4. Ground Number 4 (Disallowing the interest u/s 40(a)(ia) without deducting tax at source);
26 ITA No.1102/JP/2016M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur
(a)(ia), (i) The facts of the case is an interest has been paid to the lender (named M/s Kamla Choudhary) for Rs. 52,650/- without deducting tax at source as required by u/s 194A during the year under questioned hence the Ld. AO made disallowance of Rs. 52,650,/- u/s 40
(ii) At the very outset, it is submitted that at the end of the year amount is not payable i.e. disallowance only when amount remains payable according to S. 40(a)(ia) "Notwithstanding anything to the contrary in sections 41 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--
(a) in the case of any assessee--
42[(i)43 44 any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,-- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII- B and such tax has not been deducted or, after deduction, has not been paid 45[on or before the due date specified in sub-section (1) of section 139] :
It means the section provides for deduction of tax on amount which remains payable to a resident in respect of interest etc. it is not applicable where amount is paid. It is applicable only in case where the payments are due and outstanding.27 ITA No.1102/JP/2016
M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur The word payable is not defined under the act though the word paid is defined u/s 43(2) to mean actually paid or incurred.
S. 40(a)(ia) otherwise being a legal fiction need to be construed strictly in view of the decision of Supreme Court in CIT V/s Mother India Refrigeration Industries Pvt Ltd. 155 ITR 711 (SC). Therefore the disallowance so made may kindly be deleted in full.'' 6.3 On the other hand, the ld. DR supported the order of the ld.
CIT(A) 6.4 We have heard the rival contentions and perused the materials available on record. In this case the AO made the addition of Rs.
52,650/- u/s 40(a)(ia) of the Act by observing as under:-
''4.1 During the year assessee has paid interest of Rs. 52,650/- to Smt. Kamla Chaudhary but no TDS was made as required u/s 194A. Therefore, vide letter dated 13-02-2015 assessee was requested to explain why disallowance u/s 40(a)(ia) should not be made but no reply was filed.
4.2 One more oppotunitu was provided to assessee vide note sheet entry dated 23-02-2015 and letter dated 15-03-2015 but nothing was stated by the assessee.
4.3 Therefore, looking to the above facts of the case, since the assessee was liable to make TDS u/s 194A of the I.T. Act, 1961 and failed to do so, disallowance of Rs. 52,650/- is hereby made u/s 40(a)(ia) of the I.T. Act, 1961.'' 28 ITA No.1102/JP/2016 M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur In first appeal, the ld. CIT(A) has confirmed the action of the AO.
During the course of hearing, the ld.AR of the assessee could not controvert the findings of the lower authorities. Hence, we confirm the order of the ld. CIT(A) on the issue. Thus Ground No. 4 of the assessee is dismissed.
7.1 The Ground No. 5 and 6 of the assessee are relating to De-
pressurization expenses (wrongly mentioned as "Depresation'') amounting to Rs. 13,79,254/- and disallowance of lumpsum 7% of direct expenses amounting to Rs. 22,83,153/-.
7.2 We have heard the rival contentions and perused the materials available on record. This issue has been taken into consideration with the Ground No. 8 of the assessee wherein the disallowance confirmed by the ld. CIT(A) has been deleted. Thus Ground No. 5 and 6 of the assessee are allowed.
8.1 During the coruse of hearing, the ld.AR of the assessee has not pressed the Ground No. 7 & 9. Hence, the same are dismissed being not pressed.
29 ITA No.1102/JP/2016M/s. HTC Pipes & Infra Project Pvt. Ltd. Jaipur vs ITO, Ward- 3(2), Jaipur 9.1 The Ground No. 10 of the assessee is regarding charging of interest u/s 234B & 234D and 244A for recovery of interest which are mandatory and consequential in nature
10. In the result, the appeal of the assessee is partly allowed Order pronounced in the open Court on 26 -07-2018.
Sd/- Sd/- ¼ fot; iky jko ½ ¼HkkxpUn½ (Vijay Pal Rao) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 26 /07/ 2018 *Mishra
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. HTC Pipes & Infra Project Pvt Ltd. Jaipur
2. izR;FkhZ@The Respondent- The ITO, Ward- 3(2), Jaipur
3. vk;dj vk;qDr¼vihy½@ CIT(A).
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.1102 /JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 30