Income Tax Appellate Tribunal - Chandigarh
Dcit, Sirsa vs M/S Jandu Construction Co., Sirsa on 14 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'A', CHANDIGARH
BEFORE MS. DIVA SINGH, JUDICIAL MEMBER
AND Dr.B.R.R.KUMAR, ACCOUNTANT MEMBER
ITA No. 774/CHD/2014
Assessment Year : 2007-08
The DCIT, Vs M/s Jandu Construction Co.,
Sirsa. Sirsa.
PAN : AAFFJ6392M
(Appellant) (Respondent)
Appellant by : Smt. Chandra Kanta, Sr.DR
Respondent by : Shri Sudhir Sehgal
Date of hearing : 06.09.2017
Date of Pronouncement : 14.11. 2017
ORDER
PER DIVA SINGH,JM The present appeal has been filed by the Revenue assailing the correctness of the order dated 23.06.2014 on the following grounds :
1. The Ld. CIT(A) erred in quashing the re-opening of assessment u/s 147 despite the facts that there was sufficient material available on records for forming the belief that the income to the extent of Rs. 1,01,91,230/- escaped assessment on account of applicability of provisions u/s 40(a)(ia) as there was default in deduction of IDS.
2. The Ld. CIT(A) erred in quashing the re-opening of assessment u/s 147 without appreciating the fact that ITO, Ward-2, Fatehabad, who completed the original assessment had not considered the issue of default in deduction of TDS in respect of the machinery rent paid / shown payable as well as shuttering expenses.
3. The CIT(A) erred in law in holding the proceedings initiated by AO u/s 147 as null and void without appreciating the settled position of law that if the Assessing Officer has reason to believe that income has escaped assessment, jurisdiction to re-open the assessment is conferred as held by the Hon'ble Apex Court in the case of the Asstt. Commissioner of Income Tax vs. Rakesh Jhaveri Stock Broker (P) Ltd. 291 ITR 500.
4. The CIT(A) erred in reaching to the conclusion that the nature of contract against which the payment for 'machinery rent' is shown is that of hiring of machinery.
2. The ld. Sr.DR inviting attention to the impugned order submitted that the decision of the CIT(A) in quashing the re-opening as well as the deletion of the addition on merit has been assailed by the Revenue in the present proceedings. For the assumption of jurisdiction, it was submitted, that the department is placing reliance upon the fact that re-opening has been done on the basis of audit objection pointed out in ITA 774/CHD/2014 A.Y. 2007-08 Page 2 of 19 the scrutiny assessment order passed u/s 143(3) dated 10.12.2009. It was her submission that the reasons have been recorded and objections to the same have been placed on record by the assessee. These objections, it was submitted, have been disposed off by the AO by way of a speaking order, copy of this, it was submitted, has been placed at pages 167 to 174. Accordingly, it was her submission that re-opening on facts was justified and heavy reliance was placed by the Revenue upon this order. It was clarified that the re-opening has been done within four years. It was also her submission that the AO had issued notice u/s 154 and thereafter it was dropped. Copy of the said order available with the ld. Sr.DR was shown to the Bench. Ld. AR submitted that the same is placed at page 140 of the Paper Book filed and thus, is available on record.
2.1 Reverting back to the arguments, it was submitted by the ld. Sr.DR that the proceedings have been initiated u/s 148 after dropping the proceedings u/s 154 of the Act. The Department, it was submitted, places heavy reliance on that also as the objections posed by the assessee had been considered and rejected by the AO. Accordingly, it was submitted, the occasion to still be aggrieved did not exit.
2.2 On merits, it was submitted, that though the AO in the present proceedings has held that the assessee has entered into a job work contract and it is not a contract for rent. Attention was invited to assessment order dated 26.03.2013 passed u/s 143(3)/147 page 8 para 8 wherein the assessee's explanation offered has been held to be not tenable as the assessee had not furnished any bills or supporting evidences to prove its contentions. The decisions relied upon in the facts of the present case by the AO, it was submitted, are fully applicable.
2.3 The finding of the CIT(A) that it was a case of change of opinion on facts is an incorrect finding as it ignores the detailed rejection of assessee's objections by the AO. The fact on record that the AO during the scrutiny assessment proceedings had not even cared to verify any facts, it was submitted, has been ignored. The impugned order, it was submitted, may be reversed. Reliance was placed upon CIT vs P. V.S. Beedies (P) Ltd (1999) 237 ITR 13 (SC). Referring to the said decision, it was submitted that the Apex Court has upheld that re-opening based ITA 774/CHD/2014 A.Y. 2007-08 Page 3 of 19 on factual information given by the Audit Party is fully maintainable and in the facts of the present case, re-opening has been done specifically on the basis of objections of the Audit Party. Accordingly, it was argued that the decisions relied upon to the contrary by the assessee and the CIT(A) have no relevance.
2.4 In view of these arguments and submissions, it was her prayer that re-opening was maintainable under law and the findings of the CIT(A) on the jurisdictional issue as well as on merit were not maintainable.
3. The ld. AR heavily relying upon the impugned order submitted that the present case was a fit case wherein change of opinion was demonstrated on the face of the record itself. Reliance was placed upon the synopsis filed. The factual history of the issue stated to have been addressed in page 2 of the same, it was submitted brings out the fact that each and every aspect of the issue has been examined and verified by the AO in the scrutiny proceedings. In order to demonstrate this fact, attention was invited to Paper Book page 18 wherein detailed reply on query by the AO was addressed to the AO on the issues para 9 and 10 would demonstrate this fact. Attention was invited to another reply placed at page 21 of the Paper Book where in paras 3 and 4 are again detailed reply on the aforesaid issue which was made available on query to the AO by the assessee during the assessment proceedings by the assessee. Inviting attention to Paper Book page 23, it was submitted that copy of accounts of machinery rented from various parties had been attached at Paper Book page 24 to 122 Reply of the assessee at page 23 para 3, typed copy of the same, it was submitted, is placed at Paper Book page 124. Attention was invited to the order dated 10.12.2009 of the AO and it was submitted that the order was passed after considering the detailed replies on this very issue. Copy of the order, it was submitted, is placed at pages 125-128. A perusal of the same, it was submitted, would show that when at page 125 paras 2 and 3 of the same are read alongwith the last 4-5 lines in para 4, it would demonstrate that ultimately the AO considering these specific facts and after going through various replies of the assessee finally made an addition of Rs. 1,60,000/-. The said order, it was submitted, was dated 10.12.2009.
ITA 774/CHD/2014 A.Y. 2007-08 Page 4 of 19 3.1 It was submitted that the matter did not rest there. The AO, thereafter, probably on account of change of AO or the same AO again considering the fact that the very same issue may have been overlooked on 21.09.2010 while passing the order issued notice u/s 154 dated 21.09.2010 on the following grounds :
"i) A sum of Rs, 10496430/- debited in Profit & Loss A/c on account of MachineryRent; out of which Rs, 9995660/- shown as payable in the balance sheet.
No tax has been deducted at source. As per provisions of section 40(a)(ia) due to non deduction of TDS the same is disallowable and needed to be add back in your income,
ii) A sum of Rs, 765520/-debited in Profit & Loss A/c on account of shuttering charges. No tax has been deducted at source. As per provisions of section 40(a)(ia) due to non deduction of TDS the same is disallowable and needed to be add back in your income."
3.2 The assessee, it was submitted, this time also on the same issue filed a detailed reply on the very same issue as in the 147/148 proceedings to the AO. Copy of this, it was submitted, is placed at pages 130-131 of the Paper Book.
3.3 Referring to the said pages, it was submitted, that on the first issue, the following reply of the assessee, was filed.:
"Machinery rent has been claimed at Rs. 10496430/- out of which a sum of Rs. 9995660/- remained payable. During the last quarter of year the assessee undertook subcontract work of Gaward Construction Company for construction of road. For the purpose the assessee had to engage JCB/tractor for digging of Miti and lifting and bringing of Miti and Material. Details of machinery rent payable are submitted herewith. It may be submitted here that the entire payment was made in subsequent months after receipt of the payment from Gaward Construction Company."
Form the submissions made, it is clear that the payments, in question were made on account of rent of JCB machine/tractors and also for purchases of material i.e. Mitti/Water etc. required for construction of Road. Provisions of Sec. 194C relating to tax deduction form payment of contractors/sub-contractors arc applicable only where contract is either a work contract or a contract for supply of labour for contract. These provisions are, therefore, not applicable for payments made under contract for sale of goods. In view of this, the provisions of Sec 194C are not applicable in the case of the assessee as either the payment has been made for purchase of material i.e. Mitti/Water etc or on account of rent of JCB Machines and Tractors. Wef. 13/07/2006 such payments are covered U/s 1941 of the Income Tax Act, 1961 i.e. TDS form rent payment. The provisions are applicable only where the amount of such payments exceed Rs. 120000/- in the account of each payee. The copies of account of all these persons/parties to whom payments were made or credited on account of purchase of material (which do not fall under the TDS provisions), rent for Tractor/JCB machines/ shuttering are enclosed. Your Honour will appreciate that out of total claim made for Rs. 10496430/- -on account of machinery rent, material purchase is for Rs. 3311565/- and rent for Road-Roller, JCB Machine and Tractor etc. at Rs. 7184865/- and the payment in none of the cases exceed Rs. 120000/- and hence the provisions of Sec. 1941 of the Income Tax Act. 1961 are also not applicable.
ITA 774/CHD/2014 A.Y. 2007-08 Page 5 of 19 3.4 On the next issue, the following reply was filed by the assessee. The relevant extract heavily relied upon at page 131 of the Paper Book is reproduced hereunder:
Regarding shuttering charges of Rs. 765520/-, it is submitted that these payments are not only on account of rent of machinery but payments are also made for purchases of Rassi, Kassi, Bhatal, Ganti, Durmut, Phatta, Balli, Pipe etc. (Shuttering items), which are of perishable and consumable nature. All these items are being used by labour and most of the items are lost or damaged. Since the payments were made for purchase of consumable and perishable shuttering items, the TDS provisions are not applicable. The photo copies of purchase bills are enclosed for your kind perusal. Further, the rent paid to each payee does not exceed Rs. 120000-, TDS provisions U/s 1941 are also not applicable. Copies of account of these parties giving bifurcation for purchase of material and rent are also enclosed.
3.5 After considering these replies, it was submitted, the AO proceeded to drop the 154 proceedings. The sample copies of the rented machinery which were made available again to the AO in the 154 proceedings, it was submitted, are available at pages 132 to 137 of the Paper Book. Accordingly, it was his submission that twice two different AOs at two different points of time have looked at the very same issue and since in 143(3) proceedings, addition of Rs. 1,60,000/- stood made, no error was found by the AO in the 154 proceedings.
3.6 The fact that the re-opening was done on the basis of audit objections, it was submitted, is an admitted fact. Attention for the said purpose was invited to Paper Book page No. 141 to 147. Attention was invited to the fact that this specific information was conveyed to the AO by the Audit Party. The AO has addressed this information in very categoric terms. Copy of the said reply is placed at pages 146 to 147.
The said document was referred to so as to emphasize the fact that the Audit Memo was dated 01.05.2012, Audit Objection was dated 30.04.2012 and reply as per the signature thereon was dated 24.09.2012. Referring to the reasons mentioned by the AO wherein it is already mentioned that it is the audit objection which position has not been disputed by the ld. Sr.DR also brings out the fact that the entire basis for re-opening is the very same issue. Despite this, in the notice u/s 148, it was submitted, the AO is stating incorrect facts. Attention was invited to page 138 of the Paper Book. On the basis of these facts, it was his submission that it is a case of change of opinion, as such the issue had been correctly decided by the CIT(A).
ITA 774/CHD/2014 A.Y. 2007-08 Page 6 of 19 3.7 For the legal proposition relied upon in support of the said assertion, attention was invited to the Paper Book numbering 130 pages which contained the judgements relied upon. Inviting attention to the case of Indian & Eastern Newspaper Society V CIT 119 ITR 996 (S.C), it was submitted, that the Court has categorically held that the opinion of the internal audit party on a point of law does not constitute information. Reliance was also placed upon the case of CIT Vs Sant Ram Mangat Ram 312 ITR 100 (P&H). Inviting attention to specific page 4 of the Paper Book, it was submitted, it is again for the proposition that assessment can not be reopened merely upon the advice of the Audit Party because such an act would amount to change of opinion. Attention was invited to N K Roadways Pvt. Ltd. Vs ITO (OSD) 362 ITR 522 (Guj) specific page 8 of the Paper Book, again for the proposition that re-opening based only on the objection raised by the Audit Party without any independent belief of the AO coming out from the reasons recorded would make the assumption of jurisdiction vulnerable.
3.8 In the facts of the present case, it was submitted, after enquiring into the issue at length, order u/s 143(3) has been passed. The said scrutiny order was further subjected to proceedings u/s 154 on the very same issue and after initiation and enquiring into the very same issues again, they were dropped. Similarly relying upon the decision of the Gujrat High Court in the case of CIT Vs Shilp Gravures Ltd. 220 Taxman 382 (Guj) and another decision of the same High Court in Raajratna Metal Industries Ltd. V ACIT 371 ITR 222 and order of the ITAT in ITO Vs Essential Moto 17 DTR (Chd-Trib) 281 and Adani Exports V DCIT 240 ITR 224 another decision of the Gujrat High Court, it was submitted that considering the CBDT order No. 828 dated 24.02.1975 wherein re-opening on the basis of audit objection have been unilaterally and constantly frowned upon by the Courts. Accordingly, it was his submission that by dismissing the appeal of the Revenue, the order may be upheld. Reliance was also placed upon the decision of the Hon'ble Delhi High Court in the case of CIT Vs Simbhaoli Sugar Mills Ltd. (ITA No. 1391/2009, High Court of Delhi, New Delhi). Relying on the same, it was submitted, that the entire legal issue has been settled by the Hon'ble Delhi High Court by making the following observation :
"12. The sum and substance of discussion is that reassessment proceedings under ITA 774/CHD/2014 A.Y. 2007-08 Page 7 of 19 Section 147 read with 148 of the Act cannot be initiated merely based on the audit report . An audit is principally intended for the purpose of satisfying the auditor with regard to sufficiency of rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue. As per para (3) of the circular issued by the Board on July 28, 1960, also an audit department should not in any way substitute itself for the revenue authorities in the performance of their statutory duties."
3.9. Reliance was also placed upon the case of Symbolics Ltd. V ACIT 370 ITR 119 (Guj) for the proposition that independent application of mind should be evident from the reasons recorded. Referring to the head-note of the said decision, it was submitted, that the order deserves to be upheld. The relevant extract heavily relied upon reads as under "it is not necessary to enter into arena of judging whether AO had issued notice on strength of his own belief that income chargeable to tax had escaped assessment upon issue being pointed out by revenue audit party or that in plain terms, it was opinion of revenue audit party upon which AO had acted without independent application of mind--impugned notice quashed--Petition allowed."
3.10 In the facts of the present case, it was submitted that it is a case of change of opinion. Inviting attention to the decisions relied upon, it was submitted, that change of opinion cannot be the basis for re-opening. Attention was invited to the case of Aroni Commercials Ltd. V DCIT 88 CCH 62 (Mum-HC) wherein Hon'ble Court has held that "Very basis of reasons for re-opening was examined during course of assessment proceedings, leading to assessment order and thus, present notice for re-opening was only on account of change of opinion". For similar proposition, reliance was placed upon order of the ITAT in Audco India Ltd. Vs ITO 39 SOT (Mum-Trib) 481 for the proposition , "Scope of s. 147 is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier-Re-opening not valid." . Attention was also invited to decision of the Gujrat High Court in the case of H.K.Buildcon Ltd. V ITO 339 ITR 535 (Guj) for the proposition that in the absence of any new material, where specific queries were raised by the AO. In the facts of the present case, it was submitted that it is evident from the record itself that specific query was raised by the AO in relation to the very same issue which forms the basis of reasons recorded and the ITA 774/CHD/2014 A.Y. 2007-08 Page 8 of 19 assessee had replied to the same in response to notice under s. 142(1) in the assessment stage before the original order was framed. It was submitted that the Court had noted that the successor AO has come to form a different opinion on the same set of facts and material on record without establishing any lapse on the part of the assessee or any fresh information--Therefore, impugned notice under-- s.148 and the consequential reassessment order was quashed.
3.11 Referring to another decision of the Gujrat High Court in Parixit Industries Pvt. Ltd. Vs ACIT 352 ITR 349 (Guj) it was submitted that in the absence of any tangible material, the re-opening has to be quashed. The Court had clearly held in the facts of the said case that, "In the absence of existence of "any tangible material" to come to the conclusion that there was escapement of income from assessment, the AO exceeded his authority to reopen the at merely on the basis of a "change of opinion"
Application allowed". For similar proposition, reliance was placed upon CIT Vs Kelvinator of India Ltd. 320 ITR 561 (S.C) and ACIT Vs ICICI Securities Primary Dealership Ltd. 348 ITR 299 (S.C). Inviting attention to DCIT Vs Vikas Sharma 34 ITR (Trib) 617 (Chd-Trib), it was submitted that where on facts, information was always available at the time of completion of original assessment, which had been completed after due enquiry by an order u/s 143(3) as in the facts of the present case and the reasons recorded accordingly referring to the same facts, re- assessment proceedings, it was submitted, have been held to be wrongly initiated.
3.12 Similarly, it was submitted that by various other decisions namely; Commissioner of Income Tax V/s Kelvinator of India Ltd. 320 ITR 561 (SC); ACIT V/s ICICI Securities Primary Dealership Ltd 348 ITR 299 (SC); Deputy Commissioner of Income Tax V/s Vikas Sharma 34 ITR (Trib) 617(Chd-Trib); Raajratna Metal Industries V/s Assistant Commissioner of Income Tax 371 ITR 222 GUJ-HC; Purity Tech textile (P) Ltd. V/s Assistant Commissioner of Income Tax 325 ITR459 MUM-HC Sunil Gavaskar V/s Income Tax Officer (International Taxation) 47 ITR (Trib) MUM-TRIB, Income Tax Officer V/s Everlon Synthetics Pvt. Ltd. 47 CCH 113 MUM-Tribunal; BBF Industries Ltd V/s The Joint Commissioner of Income Tax (OSD) ITA No.1162/CHD/2012, ITAT, Chandigarh Bench, Chandigarh Baldev Singh V/s The Income Tax ITA 774/CHD/2014 A.Y. 2007-08 Page 9 of 19 Officer ITA No.293/CHD/2012, ITAT, Chandigarh Bench, Chandigarh the Courts have consistently frowned upon re-opening concluded assessments without adequate reasons which fully apply to the facts of the present case and these decisions were heavily relied upon. Specific attention was invited to the order dated 20.11.2014 of ITAT Chandigarh Bench, Chandigarh in BBF Industries Ltd. Vs JCIT (OSD) ITA No. 1162/CHD/2012 and order dated 26.02.2016 in Baldev Singh Vs ITO ITA 293/CHD/2012. Reliance was also placed upon order dated 28.08.2017 in ITA 1252/CHD/2016 alongwith C.O. and others in ACIT Vs Nikka Mal Jewellers, 318 ITR 295 (Del) in Carlton Overseas (P) Ltd. V ITO & ors. and 372 ITR 762 (Bom) in CIT Vs Jet Speed Audio P.Ltd.
Reliance was also placed upon decision of ITAT Chandigarh Bench in Dharminder Sharma V DCIT ITA 775/CHD/2015 dated 30.03.2016 (specific pages 21-22) and Vinod Malhotra V ACIT in ITA 334/CHD/2014 dated 28.09.2015 (specific page 42) in support of its claim. Copy of the circular No. 681 dated 08.03.1994 para 7(iii) was also relied upon. Accordingly, on the basis of these submissions, arguments and decisions of different Courts and Tribunal orders, it was submitted, that the impugned order deserves to be upheld.
3.13 Reiterating the arguments advanced before the CIT(A) on merit which have not been assailed by the Revenue, it was submitted that heavy reliance is placed thereon. The CIT(A), it was submitted, has dealt with the issue on merits at length and even on without prejudice arguments that Section 194C itself was not applicable which have not been assailed by the Revenue. However, heavy reliance, it was submitted, has been placed thereon by the assessee.
3.14 Addressing the decision of the Apex Court relied upon by the ld. Sr.DR namely PVS Beedies, it was submitted that the Apex Court in the facts of the said decisions passed the order considering the facts where in the original assessment order the AO had granted deduction u/s 80G ignoring the factual mistake that the recognition granted to the charitable trust stood withdrawn. Thus, since in the original proceedings, the factual inaccuracy was pointed out by the Audit Objection had not been noted, it is only in these peculiar circumstances that the re-opening was upheld which is not a fact in the present proceedings. It was his submission that the factual error pointed out ITA 774/CHD/2014 A.Y. 2007-08 Page 10 of 19 by the Audit Party had been overlooked does not recognize the principle that all audit objections necessitate a re-opening. Accordingly, it was submitted that the submissions of the ld. Sr.DR that the decisions relied upon to the contrary have no relevance, was a mistaken appreciation of law and these decisions are fully applicable.
4. The ld. Sr.DR sought permission to clarify the fact that the reliance placed by the ld. AR on the reply to the audit objection is actually a reply of the ITO and not by the AO. It was her submission that at best, it can be said to be an opinion of the ITO and not the reason of the AO. In the facts of the present case, it was her submission that the reasons have been recorded by the AO and it is not a case of change of opinion.
5. We have heard the rival submissions and perused the material available on record. The assessee in the facts of the present case derives income from civil contractor business. The return filed on 31.10.2007 having been processed u/s 143(1) was subjected to a scrutiny order u/s 143(3) on 10.12.2009 wherein the returned income of Rs. 4,48,260/- was assed at an income of Rs. 11,08,260/- wherein the following additions admittedly stood made by the AO :
i Out of machinery rent expenses vide para No. 2 of the 300000.00 assessment order dated 10.12.2009 ii Out of labour expenses vide para No. 3 of the 200000.00 assessment order dated 10.12.2009 iii Out of material, labour and other expenses vide para No. 4 160000.00 of the assessment order dated 10.12.2009 Total 660000.00 5.1 It is further borne out from the record that notice u/s 154 dated 21.09.2010 was issued requiring the assessee to explain as to why the assessment order passed in the case be not rectified as it suffered from certain apparent mistakes. Following mistakes were pointed out in the said notice :
" i) A sum of Rs. 1,04,96,430/- debited in Profit and Loss account on account of Machinery rent, out of which Rs. 99,95,660/- shown as payable in the balance sheet. No tax has been deducted at source. As per provisions of sections 40(a)(ia) due to non-deduction of TDS the same is disallowable and needed to be add back in your income.
ITA 774/CHD/2014 A.Y. 2007-08 Page 11 of 19
ii) A sum of Rs. 7,65,520/- debited in Profit & Loss account on account of shuttering charges. No tax has been deducted at source. As per provisions of section 40(a)(ia) due to non deduction of TDS, the same is disallowable and needed to be added back in your income."
5.2 The assessee's reply vide letter dated 25.10.2010 on both the issues has already been extracted in para 3.1 to 3.3 of this order. Repetition is refrained from. On the basis of these submissions, the assessee put-forth the following prayer :
"Since the assessee firm was not required to deduct tax either u/s 194C or u/s 194I of the Income Tax Act,1961, Your Honour is required to kindly vacate the notice and oblige.
From the above submissions, it is clear that the assessee duly explained the position that out of total claim made at Rs. 1,04,96,430/-, a sum of Rs. 33,11,565/- relates to purchase of material on which TDS provisions are not applicable. The remaining amount is in respect of rent/hire charges for tractor/jcb machine etc on which on which tax at source was not required to be deducted u/s 194C of the Act and though TDS provisions U/s 1941 were applicable w.e.f. 13.07.2006 yet the assessee was not required to deduct tax under that section either as payment to individual payee did not exceed the limit of Rs. 1,20,000/- warranting deduction of tax at source. 5.3 Perusal of the impugned order shows that considering these submissions, the CIT(A) proceeded to consider the facts in the following manner :
"The abovesaid reply was submitted on 25.10.2010 and the assessee was under bonafide belief that the then AO was satisfied with the submissions made before him because no order u/s 154 of the Income Tax Act,1961 was passed by the Deptt. Served upon the assessee.
Thereafter, no order seems to have been passed in pursuance of notice u/s 154.
5.2 That, after lapse of 17 months from the submission of reply in response to notice u/s 154, the AO initiated re-assessment proceedings U/s 147 of the Income Tax Act, 1961 on 05.03.2012 on the following grounds:-
(i) "The assessee firm has filed its return of income declaring an income of Rs.
448260/- on 31.10.2007. The same was processed U/s 143(1) on 03.03.2009. Assessment in t his case has been completed U/s 143(3) on 10.12.2009 at a total income of Rs. 1108260/-. Later on it was noticed that the assessee has debited an amount of Rs. 10496430/- in the Profit 85 Loss account under the head machinery rent, out of which Rs. 9995660/- has been shown as payable to various person Form the reply of the assessee dated 02.12.2009, in which the assessee stated that "during the last quarter of year. The assessee undertook sub- contract work of Gawar Construction Company of construction of road. For the purpose, the assessee had to engage JCB/Tractors for digging of Mitti, lifting and bringing of Mitti". It is clear that the assessee engaged the JCB and tractor for excavation of mitti bringing of mitti and material, which comes under the term of 'execution of wok'. The payment made towards excavation work, cannot be termed as rent but it comes under the work contract payment in view of section 194-C of the Act.
The assessee has made payment in each case exceeding Rs. 50,000/-without deduction tax at source. Since the assessee has not deducted the tax on payment of above charges, the whole of amount of Rs. 10,49,6,430/- is liable to be disallowed and added U/s 40(a)(ia) of the Act.
ITA 774/CHD/2014 A.Y. 2007-08 Page 12 of 19
ii) Furtyher the assessee had paid shuttering charges amounting to Rs. 765520/- as per details given below :
Balaji Steel Shuttering Rs. 285200/-
Jai Maa Shuttering Store Rs. 283750/-
Kundu Shuttering Store Rs. 196570/-
The payments of shuttering charges are nothing but the rent for use of equipments/fitting/plants which is covered within the definition of rent in view of explanation of section 194-1 of the Act. The assessee should have deducted tax at source on payment of these charges. Since the assessee has not deducted the tax on payment of above charges, the whole of amount of Rs. 765520/- is liable to be disallowed and added U/s 40(a)(ia) of the Act." 5.3. The initiation of re-assessment proceedings U/s 147 were objected to by the appellant in view of the following facts and legal position:-
"i) The assessee is a civil contractor and during the year, the assessee under took contract and sub-contract from M/s Gawar Construction Company for construction of roads. For execution of such type of contract work main material such as retta/stone/water is required. The work of labour is leveling of mitti etc. As submitted above, the assessment was completed vide order U/s 143(3) dated 10.12.2009 on total income of Rs.
1108260/- as against returned income of Rs. 448260/-. After completion of the assessment, the assessee received a notice U/s 154 dated 21.09.2010, perhaps on the basis of objection of the Audit party, referred to above.
(ii) The notice U/s 154 of Income Tax Act, 1961 was duly replied vide reply dated 25.10.2010 as explained above.
Thereafter, no communication was received by the assessee till the date proceedings initiated U/s 154, supra. From these facts, it is clear that the department wanted to rectify the mistakes, mentioned in the notice U/s 154, though there was no mistake of facts or law; and in the pendency of proceedings U/s 154, initiation of re-assessment proceedings U/s 147 of the Income Tax Act, 1961 is not in order in the eyes of law. Rectification of mistake apparent from the record cannot be equated with the power of reopening under section 147 and 148 which is conferred on the Assessing Officer to reopen the cases under assessments when the conditions mentioned in the said sections are satisfied.
The object and purpose of the two provisions is separate and the preconditions and requirements are different. The words "reasons to believe" when income chargeable to tax has escaped assessment has a different connotation and requirements and cannot be equated with the power under section 154 to rectify the mistakes apparent from the record".
In support of the above submissions, the appellant has relied upon various judgments of the Ronnie Courts and ITAT's. 5.4. The A.R. also submitted that during the course of assessment proceedings. The A.O. required the assessee to furnish the details of machinery rent paid by the appellant including the details of outstanding liabilities and also to furnish documentary evidences with regard to discharging of outstanding liabilities on account of machinery rent after 31,03.2007 as mentioned at para No.2 of the assessment order. In compliance of this query, the appellant duly furnished all the requisite details related to machinery rent like copy of account of all the parties to whom the rent on account of hiring of machinery i.e. road roller, JCB machines and tractors etc. was paid. It is was also submitted that machinery rent was inclusive of expenses on account of purchases of material amounting to Rs.33,11,565/-. All the books of accounts and vouchers showing the payment on account of machinery rent & purchases of material were also produced during the course of assessment proceedings. The A.O. after examining all the details regarding machinery rent paid by the appellant disallowed a sum of Rs.3,00,000/- as mentioned at para No.2 of the assessment order.
ITA 774/CHD/2014 A.Y. 2007-08 Page 13 of 19 The said disallowance was made on the ground that the assessee firm itself having machinery of the same type which has been shown as taken on rent and the assessee failed to furnish complete details/addresses of the persons to whom payments on this accounts were made.
Therefore, from the above facts, it is very much clear that the A.O. had fully examined the issue of machinery rent paid by the appellant at the time of making the original assessment.
From the above facts, it is clear that the assessee duly disclosed all material facts before the A.O. during the assessment proceedings by furnishing all the details, producing books of accounts and the A.O. duly examined those details and books of accounts and had the TDS provision been applicable on such payments, he would not have disallowed a sum of Rs.3,00,000/- out of machinery rent paid by the appellant. It is pertinent to mention here that no new material has come on record which goes to show that these payments are to be disallowed u/s 40(a) (ia) of The Income Tax Act, 1961. It is just a change of opinion and therefore, initiation of proceedings u/.s 147 of The Income Tax Act, 1961 is not in accordance with the provision of law.
In support of the above submissions, the appellant submitted various judgments of the Hon'ble Courts and ITAT's.
6. The A.O. rejected all the objections raised by the assessee against initiation of re-assessment proceedings on the ground that the Assessing Officer has not examined the above expenses with regard to provision of tax deduction at source i.e. disallowance U/s 40(a)(ia) of the Income Tax Act, 1961. Hence, there is no change of opinion. Change of opinion comes to the rescue of the assessee only when Assessing Officer has taken one of the permissible views at the time of original proceeding. A wrong application of law can not be held as a permissible view and that can always be changed for appreciating law and in support of his finding The A.O. cited various judgments of the Hon'ble Courts and ITAT's."
5.4 It is seen tat the Sr.DR has not made any arguments to assail that the factual consideration of the issue, the CIT(A) has either ignored a fact or has taken a fact into consideration whose existence was in doubt. Thus, no infirmity in the facts being considered by the CIT(A) has been pointed out by the Revenue. Reverting back to the order under challenge, it is seen that on considering the facts in the aforementioned manner, the CIT(A) concluded the issues vide para 7, 8 and 8.1 on these facts holding as under :
"7. I have carefully considered the rival submissions of the appellant and the assessment order. From the facts narrated in the paragraphs above it is seen that after framing the assessment u/s 143(3), a notice u/s 154 was issued on two grounds and both the grounds are also subject matter of "reasons recanted ""for reopening the case u/s. 147. This inter alia means that not only did the return of income assessed but also the proceedings u/s 154 have been concluded after the assessee has submitted its reply. After all these stages reopening u/s 147 of the Act has been initiated by issuance of notice u/s!48. On this background, the validity of the proceedings u/s 147 has been challenged before me.
8. It is a settled principle of law that under section 147, the proceedings for the reassessment can be initiated only if the A.O. has "reasons to believe" that the income chargeable to tax has escaped assessment for any assessment year. The question whether the A.O. had "reasons to believe" is not a question of limitation only, but it is a question of jurisdiction, a vital thing which can always be investigated and looked upon by the appellate ITA 774/CHD/2014 A.Y. 2007-08 Page 14 of 19 authorities. Here in this case, from a bare perusal of the "reasons recorded" it is evident that the same is based on the reasoning given in the notice u/s. 154 issued earlier by the A.O. and no new material has been brought on record showing any live link or nexus with the income chargeable to tax which can be said to have escaped assessment. There are two issues which have been raised in the "reasons recorded", firstly, regarding disallowance of machinery rent u/s 40(a)(ia) amounting to Rs. 1,04,96,430/- for not deducting TDS u/s 194-C and secondly disallowance of shuttering charges u/s 40(a)(ia) amounting to Rs. 7,65,520/- for not deducting TDS u/s 194-1. The answer to these issues had already been placed by the assessee before the A.O. vide letter dated 25.10.2010 in pursuance of notice u/s. 154. Besides that there is o other ground or reason in the "reasons recorded".
8.1. On these facts, it cannot be held that the A.O. entertained any "reason to believe" to acquire jurisdiction in this case for reopening the assessment u/sl47. The words "reason to believe" are stronger than the words "is satisfied". The belief entertained by the Assessing Officer must not be an arbitrary or irrational. It must be based on the reasons which are relevant and material. The "reasons to believe" does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in a good faith and it cannot be merely pretence for reopening the case u/s 147 in a casual manner or on extraneous factor. Not only this, the reason to believe should have a rational connection and relevant bearing on the formation of the belief having live link or nexus with the income chargeable to tax escaping the assessment. It should neither be extraneous nor irrelevant. Nowhere from the "reasons recorded" by the Assessing Officer can a reasonable belief be entertained in this case that the income chargeable to tax has escaped assessment primarily on the ground that firstly, the issue regarding machinery rent has already been considered vide para no.2 of the original assessment order made "u/s 143(3) in which an addition of Rs.3,00,000/- has already been made, secondly, the appellant explained the same during the course of proceedings u/s 154. On these facts of the assessee's case, it cannot be held that the A.O. can entertain the "reason to believe" for income chargeable to tax escaping assessment. Thus based on such "reasons recorded", it cannot be held that the A.O. can acquire a jurisdiction for reopening the case u/s. 147 and accordingly, on this ground alone the proceedings u/s. 147 is quashed."
5.5 A perusal of the impugned order further brings out the fact that relying upon decision of the Apex Court in the case of CIT V Kelvinator of India Ltd. (2010) 320 ITR 561, Satnam Overseas Ltd. V Addl. CIT (2010) 188 Taxman 172 (Del), CIT-VI New Delhi V Usha International Ltd. (2012) 210 Taxman 188/25 Taxman.com 200 (Delhi)(FB), CIT V M/s Asahi Alpha Ltd. Faridabad (2010) 43 I.T.Reps 495 (P&H), Berger Pains Ltd. V ACIT (2010) 322 ITR 369 (Cal), Addl. CIT Vs Shreyas Gramin Bank (2012) 210 Taxman 276 (S.C)/(2012) 25 Taxmann.com 282 (S.C), ITAT Mumbai Bench decision in the case of Nawany Corp. (I) Ltd. V ITO (2012) 21 Taxman.com 217 (Mum).,CIT Ludhiana-II V the Deputy Chief Accounts Officer,Markfed, Khanna (2008) 173 Taxman 149 (P&H). and CIT Vs Hindustan Lever Ltd. (2008) 306 ITR 25 (Guj) the CIT(A) further proceeded to consider the claim of the assessee even on merits in para 9 of his order. He further went on to consider that without ITA 774/CHD/2014 A.Y. 2007-08 Page 15 of 19 prejudice to the above even otherwise, provisions of Section 194C were not applicable on the facts of the present case on account of the fact that rent of Rs. 1,04,96,430/- shown in the Profit & Loss Account under the head 'Travel" and in view of the following facts on record :
i) That assessee is a civil contractor and during the year under consideration the assessee also took contract form.M/s Gawar Construction Co. for construction of roads and the assessee's main work was to prepare pad base level. For the purpose, the assessee was required to purchase mitti/water etc for execution of work. Out of payments shown under the head 'machinery rent', the assessee had purchased rnitti/water from a number of persons for a sum of Rs.
3311565/-. The assessee purchased the said material from nearby villagers who owned tractors and the material was supplied by those persons on FOR basis. The leveling of mitti etc was got done through the assessee's own labour which was deployed on daily wages basis for which expenses of Rs. 16871507/- have been claimed in the profit and loss account. It is a common knowledge "and practice that mitti is purchased from the persons who are residing nearby site of work/ contract. The tractor owners supply mitti to the contractors at the site and the suppliers of mitti do not involve themselves in leveling of the site or mitti. The expenditure of Rs. 3311565/- shown under the head is only on account of purchase of material i.e. mitti etc which has been supplied by the selling parties on FOR basis.
Even the contractors sometime purchase such material from the persons who bring such material at the site without order from the contractors. Since the assessee has paid amount for purchase of material only, there was no requirement of the assessee to deduct tax at source."
5.6 Noting the fact that the remaining expenditure of Rs.7184865/- (10496430-3311565) related to payment on account of hiring of machinery and equipment required for execution of contract work where the assessee took subcontract from M/s Gawar Construction Co. for construction of roads/mainly upto pad level and considering the argument on facts that for completion of contract work within the stipulated period, the assessee required machinery such as tractor/JCB machines and Road-Rollers which it took on hire/rent, he accepted the argument that complete right to use the said machinery accordingly was transferred to the assessee firm and the transferors have no control thereafter till the machinery was returned to them. All the running expenses, accordingly, were born by the assessee after the machinery/equipment was taken on hire/rent. The following details given were accordingly, considered:
a. Labour wages-including salary/wages 16871507/-
paid for running of JCB/tractors etc.
b. Diesel Exps. 9805220/-
ITA 774/CHD/2014
A.Y. 2007-08
Page 16 of 19
5.7 It has also been argued before the CIT(A) and considered by him that all the payments to the transferor of machinery were made as a rent with respect to the number of months/days/hours used by the appellant firm. The machinery was completely under the control and possession of the assessee firm and was used in the business according to the directions of the assessee firm. The transferor of the machinery had no interference, control or possession of any kind till the completion of the period of rent. In view of these facts, it was submitted before the CIT(A) and it has been considered by him that it is very much clear that all the machines/equipment were taken on rent/hire and payment of rent/hire charges do not fall within the ambit of provision of section 194C of The Income Tax Act, 1961 as explained below:-
"To come within meaning of limb (a) of Section 194C, a contract must involve the carrying out of any work- whether tangible or intangible and that in the case of a contract for carrying out intangible work (service contract) with the help of any machinery, the test is that there is, firstly, an obligation to carry out a specified work and secondly the command, control and possession of the machinery remain with the contractor.
On the other hand, in a machinery hire contract, there will be no obligation of the lender to carry out any specified work and secondly, the control command and possession of the machinery will temporarily pass on to the hirer. In the assessee's case the command, control and possession of the machinery/equipment remained with the assessee and payments were not made w.r.t. the quantum of work."
5.8 No infirmity in the aforesaid conclusion or for that matter on facts has been pointed out by the Revenue. The ld. AR in the facts of the present case, on the contrary drew specific attention to these submissions before the CIT(A) where the assessee had argued and it was submitted that it has been considered as the assessee had successfully demonstrated that the running cost of these equipments were borne by the assessee. The said findings, it was submitted, have not been assailed by the Revenue. In view of these facts, even otherwise the case of the assessee does not fall under the provisions of sec. 194C. It can fall under the provision of section 194-1 of the Income Tax Act, 1961. Relying on the order, it has been argued that in assessee's case the contract under reference was not for carrying out any specified work-tangible or intangible- with or without the help of machinery. Rather the machinery/equipment were taken on hire after taking their possession/control for use in the assessee's business at assessee's discretion and the command, control and ITA 774/CHD/2014 A.Y. 2007-08 Page 17 of 19 possession of the machinery remained with the assessee during the period of hire. The payment to the persons from whom t h e i r machinery/equipment taken was made with reference to the time, length of usage of the machines and not w.r.t the quantum of any work done. On the basis of these arguments without prejudice to the argument on the issues of jurisdiction and even on merits, it has been argued that Section 194C was not attracted. These arguments, it has been pointed out, have not been rebutted by the Revenue. On behalf of the tax payer, it has been canvassed before the CIT(A) and reiterated before us that by all tests and considerations, the contract under reference was machinery hire contract and not a contract for carrying out any work within the meaning of limb (a) of section 194C of the Act. It has also been argued before CIT(A) and accepted by the CIT(A) that even the contract under reference could not be held as a contract for supply of labour within the meaning of limb (b) of section 194C of the Income Tax Act, 1961 because no labour was supplied by the persons from whom machinery was taken on rent. The assessee has argued and demonstrated the argument on facts before the CIT(A) which finding has not been assailed by the Revenue that the labour of the assessee deployed by the assessee on daily wages basis were used for running these machines/equipments. It was pointed out that even where the machines were taken on hire with operators, section 194C does not come into picture because the provision of men to operate the hired machines was incidental and subservient to the hiring of machines and could not be separate and independent form the hiring of machines. The machines could not be hired without the operating personnel, as in that case they would be useless and serve no purpose of the assessee. In the context of the aforementioned facts, reliance has been placed upon various decisions and circulars of the CBDT namely circular No. 681 dated 08.03.94 , decision of Madras High Court in the case of CIT V Poompuhar Shipping Corp. Ltd. (2006) 153 Taxman 486, ITAT Delhi 'F' decision in DCIT, Haldwani V Raj Luxmi Stone Crusher (2012) 21 Taxman.com 475 (Del), ITAT Amritsar decision in DCIT V Satish Aggarwal &Co. (2010) 122 ITD 35 (Asr.), Delhi High Court decision in CIT V BMR Associates (2011) 12 Taxman.com 201 (Delhi), Madras High ITA 774/CHD/2014 A.Y. 2007-08 Page 18 of 19 Court decision in CIT-1 Tricchirapalli V D.Rathinam (2011) 197 Taxman 486/9 Taxman.com 239 (Mad) considering which the CIT(A) has concluded the issue on merit also in favour of the assessee holding as under :
"9.1 I have carefully considered the facts of the case and have gone through the AO's order and the submissions of the appellant. The undisputed facts are that the Ld. A.O. vide para No.2 of the original assessment order made u/s 143(3) has observed that assessee firm itself is having machinery of the type that is HYWA, Denfer etc. which has been shown as taken on rent. Further, during the course of proceedings u/s 154, the appellant submitted the copy of accounts of the parties/persons from whom material was purchased and machinery rent was paid/payable. All the machinery i.e. tractor, JCB and road roller etc. running expenses like salary and diesel etc. as claimed by the appellant were allowed as such while framing the assessment u/s 147.
In view of the above facts the contract under reference was purely a contract for the hiring of machinery & equipment and the obligation of the lender under the contract was limited to supplying specific machines, his contractual obligation stood discharged with the handing over of temporary possession of the machines to the hirer and he was not responsible thereafter for the performance or disposal of any specific work and that the machines were utilized in the business of the assessee at its own discretion and the payments under the contract accrued with reference to the time length of usage of the machines and not with reference to the quantum of any work done. So the lender neither had any work obligation nor any command, control and possession of the machines after they were temporarily handed over to the hirer. The provisions of section 194C of the Act is having two limbs; (a) carrying out any work or (b) for supply of labour for carrying out any work and in order to fall within the meaning of limb (a) of section 194C of the Act, a contract must involve the carrying out of any work, whether tangible "or "intangible" and in the case of a contract for carrying out intangible work (service contract) with the help of any machinery, the test is that there is, firstly, an obligation to carry out a specified work, and secondly, the command, control and possession of the machinery remain with the contractor, on the other hand, in a machinery hire contract, there will be no obligation of the lender to carry out any specific work and secondly, the control, command and possession of the machinery will temporarily pass to the hirer.
The contract under reference was not for carrying out any special work tangible or intangible, with or without the help of machinery, the contract was for taking temporary possession of manned & maintained machines to be used by the assessee in its business at its discretion and the command, control and possession of the machines during the period of the hire passed to the assessee and further the payments under the contract accrued with reference to the time length of usage of the machines and not with reference to the quantum of any work done. Therefore, the work under reference was a machinery hire contract, and not a contract for carrying out any work within the meaning of limb (a) of section 194C of the Act. The contract under reference could not be said to be contract for the supply of labour within the meaning of limb (b) of section 194C of the Act because the contract was essentially for the hiring of machinery and not for the supply of labour.
As in the present case, there were purchases of material and contract was a machinery hire contract and not a contract for carrying out any work, therefore, the provisions of Section 194C of the Act were not applicable to the facts of the present case."
5.9 We find that these material findings on facts stand unrebutted on record.
ITA 774/CHD/2014 A.Y. 2007-08 Page 19 of 19
6. Accordingly, in the peculiar facts and circumstances, which we had elaborated at length in the earlier part of this order, we find that there is no merit in the appeal of the Revenue. The detailed finding on the jurisdiction issue by itself is sufficient to address the departmental grievance, however, since the parties have argued in detail on merits also which issue has also been dealt by the CIT(A), we find that even on merits, the Revenue has no case as not only the issue has been considered by the AO in the first round and then in the 154 proceedings, even on merits, the Revenue has failed to make out any case in its favour. Being satisfied with the reasoning and conclusion arrived at by the CIT(A) on the facts as they stand, the departmental appeal is dismissed.
6.1 Before parting, we deem it appropriate to observe that the matter being purely factual has been decided on the basis of facts on record. The decisions relied upon by the parties for the proposition/principle of law they address, have been considered, reference thereto is refrained from as the matter is purely factual on which the settled legal principles apply. Reference to PVS Beedies relied upon by the Revenue is considered necessary so as to highlight that the said decision does not lay down a blanket principle that in each and every case of Audit Objection, re-opening is warranted. The said decision is fact specific and the principle laid down therein cannot be said to be a universal principle to be applied for every re-opening based on Audit Objection.
7. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 14th Nov.,2017.
Sd/- Sd/-
( Dr.B.R.KUMAR) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
Asstt. Registrar
ITAT/CHD