Income Tax Appellate Tribunal - Amritsar
Star Constructions,, Srinagar (Kmr) vs Assessee on 5 May, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P. JAIN, ACCOUNTANT MEMBER
I.T.A. No. 105(Asr)/2012
Assessment Year: 2006-07
PAN: AATFS0796A
M/s Star Constructions, Vs. The Assistant Commissioner
Alnoor Shopping Complex, of Income Tax, Srinagar, Kashmir
Hyderpora By pass Road,
Srinagar, Kashmir
(Appellant) (Respondent)
And
I.T.A. No. 125(Asr)/2012
Assessment Year: 2006-07
PAN: AATFS0796A
Deputy Commissioner of Vs. M/s Star Constructions,
of Income Tax, Circle-3, Srinagar, Chowdhary Bagh, Rainwari
Srinagar.
(Appellant) (Respondent)
Assessee by: Sh. S.K. Kaul, Adv.
Department by: Sh. Mahavir Singh, Sr. DR
Date of hearing: 05.05.2014
Date of pronouncement: 23.05.2014
ORDER
PER BENCH
1. These are the cross appeals filed by the assessee as well as by the Revenue against the impugned order 06.02.2012 passed by learned 2 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 CIT(A), Jammu, for the assessment year 2006-07. The assessee has taken the following grounds of appeal:
i. The order passed by the authorities below is bad in law as notice u/s 143(2) is neither issued or served.
ii. That the authorities below have in an arbitrary and flimsy manner rejected the claim u/s 40(A)(3) on the pretext of non-admission of the evidence for payments exceeding 25,000/-. The disallowance is unjust, arbitrary and without proper application of mind. iii. That the interest u/s 234A/B and C has been charged erroneously as there is no default under the provisions of the Act as the payments are deducted at source in respect of the only income that is taxed by the authorities below.
iv. That the appellant craves leave to add/amend any ground of appeal at the time of hearing of the appeal.
Prayer:-
Therefore, in the premises, it is prayed that the grounds of appeal urge be considered and relief given to the appellant.
2. The Revenue has raised the following grounds of appeal:
i. On the facts and circumstances whether the learned CIT(A) was right in admitting the additional evidence filed by the assessee in the shape of signed and certified copy of partnership deed when the assessee had failed to file the same during assessment proceedings despite sufficient time given to file the same.
ii. On the facts and circumstances whether the learned CIT(A) was right in admitting the additional evidence filed by the assessee in the shape of attendance registers in respect of labourers when the same were not produced during assessment proceedings to substantiate its claim that the payments have been made to the labourers and not to the labour contractor despite sufficient time available with the assessee.
iii. On the facts and circumstances whether the learned CIT(A) has failed to appreciate the fact that the payment 3 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 to the labourers has been made through the heads of the labourers who are not the employees of the assessee. iv. On the facts and circumstances whether the learned CIT(A) was right in deleting the disallowance made u/s 40(a)(ia) when the payments have been made to the heads of the labour who are labour contractor and provisions of section 194C of the Income Tax Act, 1961 are attracted.
The appellant craves to amend or add any one or more grounds of appeal.
3. The facts narrated by learned first appellate authority in para nos. 3 & 4 (page nos. 2 & 4) of the impugned order are not disputed by both the parties, therefore for the sake of convenience, the same are reproduced as under:-
"3. Brief facts of the case are that the return of income was filed on 23.11.2007 declaring an income of Rs. 41,70,930/-. The assessee is a Civil Contractor. During the assessment the A.O. found that there were payments made in cash by the assessee to the tune of Rs. 2,31,52,746/-. The assessee could explain before the A.O. that to the tune of Rs. 59,37,471/- there was no violation of section 40A(e) of the I.T. Act. This claim was accepted by the A.O. as the same was substantiated by the bank account. The A.O. added 20% of the balance amount and added Rs. 34,43,055/- u/s 40A(3) of I.T. Act. Further, the A.O. has made an addition of Rs. 25,20,443/- u/s 40(a)(ia) of the I.T. Act, 1961 on the payments made by assessee in favour of labour charges. The relevant part of assessment order is reproduced herewith for appreciation of the issue involved.
A....."During the year under reference, the assessee has made payments shown as Labour payments." The detail of the same exceeding Rs. 50,000/- is given as under:
S.No. Name of the Gross amount Period of Period of person of payments payment job/work.4
I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07
1. Sh. Abdul 89,340/- 2-1-2005 to 3 months Qayoom 31-1-2006
2. Sh. Abdul59,675/- 12-8-2005 to 1.5 months Rashid Wani 3-10-2005
3. Sh. Farooq14,84,443/- 1-5-2005 to 11 months Ahmed Wani 27-3-2006
4. Sh. Fayaz3,28,825/- 18-8-2005 to 4 months Ahmed Mir 29-12-2005
5. Sh.Gh. Mohd. 87,500/- 16-8-2005 to 1.5 months Wani 1-10-2005
6. Sh. Gh. Qadir 1,05,650/- 13-08-2005 6 months to 22-2-2006
7. Sh. Nayeem 1,80,000/- 5-8-2005 to 7 months ahmed 9-3-2006
8. Sh. Rayaz 1,40,000/- 11-8-2005 to 7 months Ahmed 13-3-2006 Total Rs. 25,20,443/-
From the above stated details i.e., the amount of payments and period of jobs, it is amply evident that these payments are not in the nature of labour payments but contractual payments. The payments are very huge and at an average payment of Rs. 1,34,950/- per month has been made by the assessee. It is beyond any doubt that any type of labour cannot receive such type of big payments except in cases of labour contracts. The assessee was asked about the nature and justification of these payments vide order sheet entry dated 26.12.2008. It has been stated by the counsel of the assessee that consolidated payment is made to the head of the labourers who further disburses the same to the concerned persons engaged by the assessee firm. The explanation offered by the assessee's counsel itself establishes that the assessee was required to deduct tax at source on these payments which were made to the labour contractors i.e. labour mates as provided under Section 194C of the I.T. Act, 1961 it is pertinent to note here that the payments to labourers have not been disbursed through the employee of the assessee, but have been made though labour contractors and labour mates. Thus, the assessee has failed to comply with the provisions of section 194C, as such, the expenses/payments as stated above are 5 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 disallowed in view of the provisions of section 40(a)(ia) of the I.T. Act, 1961, and hence added back to the returned income of the assessee. Therefore, a net addition of Rs. 25,20,443/- is made to the returned income of the assessee on this account.
4. Further, the A.O. noticed and discussed in the assessment order that the assessee furnished the copy of partnership deed dated 31.03.2001 and the same was further supported by a supplementary deed dated 01.04.2004 in view of death of partners and introduction of new partners. The supplementary deed was not signed and certified. After providing the opportunity the A.O. treated the firm as A.O.P. and disallowed an amount of Rs. 6,66,249/- claimed as interest paid to partners u/s 184(4) of the I.T. Act read with section 185 of the I.T. Act."
4. The Assessing Officer completed the assessment on 31.12.2008 for the assessment year 2006-07 under section 143(3)/185 of the Income-tax Act, 1961 (in short "the Act") and made the addition in dispute. Aggrieved by the assessment order, the assessee filed an appeal before the learned first appellate authority, who vide impugned order dated 06.02.2012, partly allowed the appeal of the assessee. Now, being aggrieved with the impugned order, both the assessee and the Revenue have filed the appeals.
5. At the time of hearing, learned counsel for the assessee relied upon the grounds of appeal raised by the assessee and on the contrary learned DR relied upon the order passed by the Assessing Officer.
6I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07
6. We have heard both the parties and perused the relevant records available with us, especially the orders passed by the revenue authority and we are of the view that the learned first appellate authority has adjudicated and decided the issues in dispute raised by the parties on the basis of written submission filed by the assessee as well as after taking remand report from concerned Assessing Officer and gave its findings in para nos. 8 to 19 (pages 17 to 23), for the sake of convenience, the same are reproduced as under:
"8. I have carefully considered the detailed written submissions made from time to time, the assessment order and the remand report. I have also called for the case records and have gone through it carefully. The issues are decided as under viz-a-viz the various grounds of appeal are taken.
9. Grounds No. 1 and 2 relates to the non service of notice u/s 143(2) of IT Act, 1961. After going through the submissions made and the remand report which is categorical in stating that a notice u/s 143(2) of the I.T.Act, 1961 was served well within time, I have also gone through the case records. I find that a notice u/s 143(2) of I.T. Act was issued on 23.10.2007 which was served on 30.10.2007. The notice is duly signed by the recipient. In view of this, the non service is not proved and these grounds of appeal are dismissed. It is to be added here for the clarity that no such plea was ever made before the A.O. and there was a conscious compliance by the assessee before him. In view of this, no grievance on this count remains. Another plea, that after change in incumbent a fresh notice u/s 143(2) of I.T. Act should have been issued, it may be observed that the same A.O., who issued initially notice u/s 143(2) of the I.T. Act has completed the 7 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 assessment. The Addl. CIT, who for a part of the proceedings was assigned the case has no occasion to issue any notice u/s 142(1) of the I.T. Act. Once the notice u/s 143(2) of I.T. Act was issued and served in time, even a change in incumbent would not make it mandatory to issue u/s 143(2) notice again as it was only in continuation of the proceedings. In view of this also the grounds bearing No. 1 and 2 are dismissed.
10. Ground no. 3 is regarding disallowance of Rs. 6,66,249/- as interest payable to partners for want of a signed and certified supplementary copy of partnership deed in view of a change in partnership pattern. After carefully considering, I find that on this issue, the assessee is to succeed. The A.O. himself has admitted in the assessment order that partnership deed dated 31.03.2001 and a supplementary deed dated 01.04.2004 was filed but the same was not signed and certified, I also find from the case records that only on 26.12.2008 (as per order sheet of even date) the query regarding partnership deed was raised (though the order sheet is not signed by assessee's representative). On 29.12.2008 the position is same and it is noted in the order sheet that no signed and certified deed is filed. It is clear that the time available was not enough. I also find that the affidavit of a partners along with the signed and certified deed as filed before my predecessor was sent to A.O. who had not made any comments on merits but requested that since such documents were not produced before A.O. the same should not be admitted in view of Rule 40A of the I.T. Rules.
11. I have already pointed out that only 26.12.2008 the A.O. asked the assessee regarding the certified deed the time was not sufficient and this alone was a reasonable cause. Also in view of non rebuttal of the affidavit, the case of assessee has a lot of force. Moreover, the mistake is technical in nature. The circular No. 14(XL-35) 11.04.1955 which reads as under clarifies the positions:
"Officers of the department must not take advantage of the ignorance of an assessee as to his rights. It is one of their duties to assist the tax paper in every reasonable way, 8 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 particularly in matter cleaning and securing relief and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would in long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the department although therefore, the responsibility for claiming refund and relief rest with assessee on whom it is imposed by law. Officers should draw their attention to any reference or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other.
Freely advise them when approached as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."
12. In view of this discussion as above, the additional evidence is admitted and the A.O. is directed to treat the assessee as a partnership firm and allow the interest to partners as claimed.
13. Ground No. 4 relates to the disallowance of Rs. 34,43,055/- made under Section 40A(3) of I.T. Act. After carefully considering the submissions factually position and material on records and find that assessee is not to succeed in respect of this ground despite the detailed submissions made. The factual position as per records is that during the year the assessee has made payments to the tune of Rs. 59,37,471/- in cheque as evidenced by its bank account and as it stands accepted by the A.O. and no addition in respect of this is made. In view of this the long discussion as to the situation prevailing in Kashmir would not help as to the extent the transaction through cheques were not hampered by this situation. It is not shown by the assessee as to how the situation in Kashmir could selectively affect some of the sellers. Secondly the plea that the certificate submitted from the sellers to be accepted as additional evidence it is seen that they are in respect of the parties who are not a one time or new sellers for the assessee. The list of creditors as per 9 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 records include almost all such sellers who have given certificates to the effect that they have insisted on cash payments. In some cases amounts payable are more than the amounts paid during the year. Thus, these sellers are such that they had a running account with assessee. It is also not the case of assessee that they did not have a bank account. The circular of CBDT as cited by the assessee is also of no help as the initial conditions stipulated are as under:
"(a) due to exceptional or unavoidable circumstances; or
(b) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof."
14. In the present case no exceptional or unavoidable circumstances are established. Neither, it is shown as to how it was impractical to pay through cheque having regard to the nature of transaction and necessity for expeditious settlement. In the transactions of the same nature the assessee had made payments through cheques. In the case where cash is paid they were not finally settled. In view of this both the basic conditions are not fulfilled.
The illustrative list of conditions in which the rule 6DDj would be applicable, as per the circular No. 220(F.No. 2061/17/76-IT/ dated 31.05.1977)
4. "All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet a. the requirements of the said rule are:
a. The purchaser is new to the seller, or b. The transactions are made at a place where either the purchaser or the seller does not have a bank account or c. The transactions and payments are made on a bank holiday; or 10 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 d. The seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non- availability of goods otherwise than from this particular seller or e. The seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods and f. Specify discount is given by the seller for payment to be made by way of cash.
It can be said that it would, generally, satisfy the requirements of rule 6DD(ja), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number."
16. None of the conditions from (a) to (f) is satisfied in this case. No proper details as per the circular i.e. complete address, ST number, PAN etc. are given except a general averment. (The case laws as cited, all relate to situations where the basic conditions are satisfied. It is true that List (a) to (f) above is not exhaustive yet in the case of the assessee it is obvious that cash payments were made because of a mutual understanding having no regard to conditions as set in circular of CBDT. In view of this I hold that the disallowance made for violation of Section 40A(3) of I.T. Act which has nothing to do with genuineness of payments or otherwise, was rightly made and hence hereby confirmed. The additional evidence is not admitted in view of the fact that assessee was allowed due to opportunity by the A.O. and there was no reasonable cause for not filing the same. Even otherwise, for the reasons as discussed above, the disallowance to be confirmed.
17. Ground No. 5 relates to disallowance u/s 40(a)(ia) of the I.T. Act, made by A.O. In the written submission made before my learned predecessor and me the assessee has explained that the payment of labour charges were made to various labourers through mate/supervisors and was not paid under any contract to a labour contractor. In support, the A/R 11 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 of the assessee has filed documents in shape of payment details, as per which the total payment made to one such made was for disbursal to various labour. This payment also include the mate/Supervisor wages which were Rs. 200/- per day. The A/R has also submitted the complete documents such as pages from the attendance registers. These documents along with the written submissions were sent to A.O. from remand report but the A.O. in her report has stated (as already quoted in the order) that on 26.12.2008 the assessee was confronted and representative of the assessee has admitted on 29.12.2008 that the assessee was required to deduct the tax at source on these payments because these payments were very huge and was at an average payment of Rs. 1,34,950/- per month. In this regard, I have gone through the case records once again and find that no such admission appears to have been made as nothing is on records. I reproduce the order sheet entries made on 26.12.2008 and 29.12.2008 respectifely:25 "26.12.2008 Present: Sh. Bashir Ahmed Lone, CA counsel of the assessee. Produced books of accounts, bills etc. for test check. It was observed that at 52 instances, payments (exceeding Rs. 20,000/-) have been made through cash/bearer cheques. The list of some amounting to Rs.
2,31,52,746/- has been prepared (placed on records) and confronted to the "A". The "A" has been asked to furnish his explanation to the next date of hearing.
He is further requested to produce documentary evidence in support of its claim of states as partnership Firm in view of the change in consultation of the "A" Firm.
Sh. Bashir Lone, CA is further requested to state the nature of payments amounting to Rs. 25,20,443/- made under the head "labour" to eight persons. He is also requested to justify the payments and in case it pertains to labour contractor, whether TDS has been deducted u/s 194C. It was made clear that in case of labour contractors/mates and non TDS, the same shall not be allowed of section 40(a)(ia). Case is adjourned to 29.12.2008.
12I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 29.12.2008:... Present Sh. Bashir Ahmed Lone, CA filed reply which is placed on records. He has stated in 16 cases amounting to Rs. 59,37,471/- there is no violation as stated in section 40A(3)(a). The claim of the assessee as substantiated from the bank statement.
With regard to instrument of partnership deed the assessee has not been able to produce the same, as such the case of the assessee is proposed to be assessed AOP Regarding query to the labour payments the assessee has stated that consolidated payments were made to the head of the labourers who further disburses it to the concerned persons engaged by the assessee firm. The assessee is asked to produce the wages/labour register for further verification. Case adjourned to 31.12.2008".
18. It is clear from the above that the query was made at the fag end of the assessment year, yet the assessee in his reply has clearly explained that the payments were made through head of the labourers. There is nothing on records which could suggest that they were labour contractors. The documents in shape of payment details and attendance register which submitted before my learned predecessor could have been examined by the A.O. In view of this, I am inclined to admit this additional evidence not examined and commented by the A.O. through an opportunity to him was available as provided by my predecessor. Needless to repeat that insufficient time and opportunity was provided to assessee. Considering the above, I hold that there was no default U/s 40(a)(ia) of the I.T. Act and delete the disallowance so made.
Before parting it would be discussed that the assessee during hearing sought to raise additional grounds as under:
1. "That the appellant denies the liability to be assessed as AOP as against the status of firm declared by the appellant in his return of income.13
I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07
2. That the benefit of the status of firm has been denied for wrong reasons which are unjust and arbitrary.
19. In this regards, it may be seen that ground No. 3 raised in original grounds of appeal is identical to the additional grounds sought.
The ground No. 3 is already decided hence these additional grounds become infructuous.
Ground No. 6 relates to charging of interest u/s 234B of the IT Act, which is consequential in nature."
7. After going through the aforesaid findings given by the learned first appellate authority on the issues in dispute we are of the view that as regards to the non-service of notice under Section 143(2) of the Act, the issue has been decided against the assessee by the learned first appellate authority after examining the record and he held that the notice under Section 143(2) of the Act was served well within time and there is no need to issue and serve the notice on the change of incumbent. We agree with the finding given by the learned first appellate authority.
8. Secondly, as regards to the disallowances of interest payable to the partner which has been made for want of a signed and certified supplementary copy of partnership deed 14 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 in view of a change in partnership pattern, we find that the valid supplementary copy of partnership deed has been filed by the assessee before the learned first appellate authority and comments of the concerned Assessing Officer has also been taken by the learned first appellate authority and the learned first appellate authority has directed the Assessing Officer to allow the interest to the partners of the partnership firm. We find no infirmity in the finding of the learned first appellate authority.
9. The next issue involved in the present appeal is that regarding disallowance made under Section 40(A)(3) of the Act. The learned first appellate authority has confirmed this disallowance by holding that the assessee has not established any exceptional or unavoidable circumstances under which the assessee was compelled to make the cash payment. Therefore, the finding of the learned first appellate authority is confirmed and the issue has been decided against the assessee.
10. As regards to the disallowance under Section 40(a)(ia) of the Act made by the Assessing Officer and deleted by the learned first appellate authority, we are of the view that the 15 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 assessee has explained that the payment of labour charges was made to various labourers through mate/supervisor and was not paid under any contract to a labour contractor. The assessee has also filed complete documents before the learned first appellate authority who has taken the remand report from the Assessing Officer. After giving opportunity to the Assessing Officer, learned first appellate authority has held that the payments were made through head of the labourers and there was no default under Section 40(a)(ia) of the Act and he has rightly deleted the disallowances made by the Assessing Officer. Thus, we uphold the finding of the learned first appellate authority on this very issue.
11. As regards to the last grounds raised by the assessee, regarding charging of interest under Section 234A/B and C of the Act, this is consequential in nature.
12. Keeping in view the aforesaid facts and circumstances and the relevant findings of learned first appellate authority reproduced above, we are of the view that no interference is called for in the well reasoned order passed by the learned first appellate authority. Therefore, the impugned order dated 16 I.T.A. Nos. 105 & 125(Asr)/2012 Assessment Year: 2006-07 06.02.2012 passed by learned CIT(A), Jammu is upheld and the appeals filed by the assessee as well as by the Revenue are dismissed.
13. In the result, the appeals filed by the assessee as well as by the Revenue are dismissed.
Order pronounced in the open court on 23rd May, 2014 Sd/./- Sd/./-
(B.P. JAIN) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23rd May, 2014 /RK/ Copy of the order forwarded to:
1. The Assessee: M/s Star Constructions, Alnoor Shopping Complex, Hyderpora By pass Road, Srinagar, KMR
2. ACIT, Srinagar, Kashmir
3. DCIT, Circle-3, Srinagar
4. The CIT(A),
5. The CIT,
6. The SR DR, I.T.A.T., True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.