Income Tax Appellate Tribunal - Pune
B.M.Chaphalkar & Sons , Nashik vs Department Of Income Tax on 26 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH " A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No. 687/PN/2012
(Asstt.Year : 2008-09)
Dy.CIT, Circle-1, Nashik .. Appellant
Vs.
B.M. Chaphalkar and Sons,
26, Dehbanoo Complex,
Pune Road, Nashik Road,
Nashik.
PAN No. AADFB 5084C .. Respondent
Appellant by : Shri Rajiv Harit
Respondent by : Shri Pramod Shingte
Date of Hearing : 26-07-2013
Date of Pronouncement : 31-07-2013
ORDER
PER R.K. PANDA, AM :
This appeal filed by the assessee is directed against the order dated 30-01-2012 of the CIT(A) -I, Nashik relating to assessment year 2008-09.
2. The grounds raised by the assessee are as under :
"1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-I, Nashik was justified in allowing the addition of Rs.142,37,779/- and Rs. 18,20,833/- made on account of Sublet work charges and carting charges respectively.
2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-I, Nashik was justified in holding the payment made by the assessee on account of Sublet work charges and carting charges is genuine.
3. The appellant prays the order of the Assessing Officer may be restored.
4. The appellant prays to adduce such further evidence to substantiate his case.
5. The appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when the occasion demands".2
3. Facts of the case, in brief, are that the assessee is engaged in the business of Civil Construction and filed the return of income declaring total income of Rs.98,46,210/- on 01-07-2008. A survey action u/s.133A was conducted in the business premises of the assessee on 06-08-2009. During the survey action, the bills against the sub-contract expenses claimed by the assessee were not found in respect of some of the sub-contractors. In respect of this, the partner, when confronted stated that the finalisation of the audit report is pending for want of the bills from sub-contractors and has also offered additional income of Rs.30,00,000/- on this account for A.Y. 2009-10 on voluntary basis. The contract and profit and loss account was prepared during the course of the survey action which showed the discrepancy of around Rs.45,11,276/- in the expenses claimed by the assessee. The partner of the assessee firm has offered the same as additional income for taxation for A.Y. 2010-11 on a voluntary basis. For the A.Y. 2008-09, the Assessing Officer made additions of Rs.1820,833/- on account of carting charges and Rs.1,42,37,779/- on account of sublet work and assessed the total income of the appellant at Rs.2,59,04,820/-.
3.1 So far as sublet work is concerned the Assessing Officer mentioned the following reasons for disallowing the same :
"1) During the survey action u/s. 133A on 06/08/2009, the discrepancies were noticed and hence in the A.Ys. 2009-10 and 2010-11, the appellant has offered to tax additional income of Rs. 30,00,000/- and Rs. 45,11,276/-
respectfully during survey action. In survey action one notebook regarding few sub-contractors was found, in whose accounts cheques were deposited and cash was withdrawn and hence these payments to the said contractors are not genuine. The said contractors found noted in the diary have also been paid sub-contract payments during the year under appeal. In the survey action, self made vouchers with signature on which nothing was written were found and impounded.
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2) The bank accounts of the sub-contractors are in. the same bank and branch as that of the appellant.
3) The notices u/s. 133(6) have been issued to the sub-contractors for carting to whom the payments exceeding Rs. 50,000/- have been made and also to subcontractor for sublet work where total payments exceeding Rs.1,00,000/- have been made. The A.O. has pointed out that 7 carting contractors have not confirmed the payments made by the appellant and on 2 carting agents the notices u/s. 133(6) were not served due to incomplete address as remarked by the postal authorities. The A.O. has, further, pointed out that 9 sublet work contractors have not confirmed the payment made by the appellant and notices u/s. 133(6) were not served on 5 subcontractors due to incomplete address as remarked by the postal authorities. The A.O. has pointed out that in respect of one sub-contractor i.e. Shri Bijay Bhaskar Behera, the remark of postal authority was 'left the address'.
4) The appellant has not produced any evidence or has not produced the said sub-contractors before the A.O. on whom notices have been served and have not filed reply confirming the payments made by the appellant and on whom notices u/s. 133(6) could not be served."
3.2 Similarly, in absence of any evidence produced before him to support the claim of expenditure on account of carting charges the Assessing Officer disallowed an amount of Rs.18,20,833/- claimed as expenditure on account of carting charges. Thus, he made total disallowance to Rs.1,60,58,612/- to the returned income of the assessee.
4. Before the CIT(A) it was submitted that the payments to the sub- contracts treated as non genuine by the Assessing Officer are substantially made by cheques and small part of the payment was made in cash whenever there was urgency. TDS has been duly deducted from such payments and all the sub-contractors are having PAN Numbers and are assessed to tax. The sub- contractors have shown such sub contract receipts in their respective returns of income. It was submitted that most of the sub-contractors are from distant places such as Gujarat, Jharkhand and also from Dhule, Jalgaon and Ahmednagar. Details filed before the Assessing Officer giving the names of 4 the contractors with the PAN numbers, their address, total amount, amount of TDS etc were furnished before the Ld.CIT(A). It was further submitted that additional income declared in subsequent years, i.e. A.Y. 2009-10 and 2010-11 cannot be the basis for making addition for A.Y. 2008-09 in absence of any evidence to support that such things were found during the course of survey. The decision of the Pune Bench of the Tribunal (Third Member) in the case of Samrat Beer Bar Vs. DCIT reported in 75 ITD 19 was brought to the notice of the Ld.CIT(A) for the above proposition. Various other decisions were also brought to the notice of the CIT(A).
4.1 It was submitted that the contention of the Assessing Officer that the bank accounts of the sub-contracts are opened in the same bank and branch in which the assessee has bank account is also not correct. It was submitted that the bank accounts of the sub-contractors have been opened in the same bank and branch because after receipt of cheques from the Government departments the amounts can be immediately transferred to the accounts of the sub- contractors so that they can get the amounts immediately for making payments to their labourers. As regards the non-service of notice u/s.133(6) and non- submission of reply by some of the sub-contractors it was submitted that the assessee has furnished addresses of the said contractors which was available with it. The postal authorities could not serve notice u/s.133(6) on 13 sub- contractors due to incomplete address and on one sub-contractor as he had left the address. It was submitted that the assessee had given the particulars as supplied by the sub-contractors and he is not expected to produce or locate the exact address of the sub-contractors after passage of 2 to 3 years. 5
5. So far as the disallowance of sub-contractors for carting and sublet work on account of non-confirmation of the said payments in response to notice u/s.133(6) it was submitted that out of 53 sub-contractors only 23 sub- contractors have not responded to the notice u/s.133(6) and the assessee cannot be punished for their non response to the said notices. Various decisions were also cited to the proposition that no addition under the facts and circumstances of the case is possible merely because notices u/s.133(6) were returned unserved.
6. Based on the arguments advanced by the assessee and relying on the decisions of the Pune Bench of the Tribunal in the case of Samrat Beer Bar Vs. ACIT reported in 75 ITD 19 (TM) and the decision in the case of ACIT Vs. S.R.J. Peety Steels Ltd./Om Re-rolling Mill (P) Ltd. reported in 137 TTJ 627(Pune) the Ld.CIT(A) deleted the addition. While doing so, he observed that the Assessing Officer has not brought on record any evidence that the payments made to the sub-contractors in F.Y. 2007-08 are not genuine. He further observed that instead of summoning the sub-contractors who have not replied to his notice u/s.133(6) during assessment proceedings or verifying them through Inspector particularly as the said sub-contractors are having PAN numbers etc the Assessing Officer was not justified in making such disallowance. He noted that if the addition made by the Assessing Officer is sustained, then the GP rate shall be 62% which is abnormal under the facts and circumstances of the case. He accordingly deleted the addition made by the Assessing Officer.
66.1 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
7. The Ld. Departmental Representative strongly challenged the order of the CIT(A). He submitted that when the assessee was not able to justify the payments to the sub-contractors and failed in producing them before the Assessing Officer for his examination the CITI(A) was not justified in deleting the addition. Referring to the decision of Hon'ble Delhi High Court in the case of CIT Vs. N.R. Portfolio Pvt. Ltd. vide ITA No.134/2012 order dated 21-12- 2012 he drew the attention of the Bench to the following observations :
"8. This court is conscious of a view taken in some of the previous decisions that the assessee cannot be faulted if the share applicants do not respond to summons, and that the state or revenue authorities have the wherewithal to compel anyone to attend legal proceedings. However, that is merely one aspect. An assessee's duty to establish that the amounts which the AO proposes to add back, under Section 68 are properly sourced, does not cease by merely furnishing the names, addresses and PAN particulars, or relying on entries in a Registrar of Companies website. One must remember that in all such cases, more often than not, the company is a private one, and share applicants are known to it, since they are issued on private placement, or even request basis. If the assessee has access to the share applicant's PAN particulars, or bank account statement, surely its relationship is closer than arm's length. Its request to such concerns to participate in income tax proceedings, would, viewed from a pragmatic perspective, be quite strong, because the next possible step for the tax administrators could well be re- opening of such investor's proceedings. That apart, the concept of "shifting onus" does not mean that once certain facts are provided, the assessee's duties are over. If on verification, or during proceedings, the AO cannot contact the share applicants, or that the information becomes unverifiable, or there are further doubts in the pursuit of such details, the onus shifts back to the assessee. At that stage, if it falters, the consequence may well be an addition under Section 68. This court recollects the robustness with which the issue was dealt with, in A. Govindarajulu Mudaliar v CIT, (1958) 34 ITR 807, in the following terms:
"Now the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the 7 finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs."
9. Having regard to the totality of facts and circumstances, particularly the remand report, which was not considered by the Commissioner (Appeals) and the ITAT in its proper perspective, this Court is of the opinion that the question of law requires to be answered in favour of the revenue, and against the assessee. The appeal is therefore, allowed, but without any order as to costs."
7.1 He submitted that during the course of assessment proceedings the assessee neither asked the Assessing Officer to issue summons to the sub- contractors nor produced the details as per the order sheet entry dated 22-12- 2010. Therefore, the Ld.CIT(A), whose powers are coterminous with that of the Assessing Officer, should not have deleted the disallowance.
8. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). He submitted that the Assessing Officer, towards the fag end of the time bearing assessment proceedings, asked the assessee to furnish the details which was not possible. The assessee had filed the complete addresses of the sub-contractors which was available with it as per the addresses given by them. Since payments have been made by account payee cheques, TDS has been deducted, their PAN numbers were available with 8 department, therefore, there was no justification in disbelieving the payment to the sub-contractors. He accordingly submitted that the grounds raised by the Revenue should be dismissed.
9. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that during the course of assessment proceedings the Assessing Officer asked the assessee to justify the genuineness of the expenses incurred in the names of the sub-contractors. The Assessing Officer issued notice u/s.133(6) to various parties by registered post which were returned back undelivered with the postal remark "incomplete address" . In certain other cases the persons who received such notices did not confirm the payment of sublet work charges. When the assessee filed the copies of some of the confirmations the Assessing Officer asked the assessee to produce the mode of receipts of such confirmation and the evidence in support of mode of receipt. The assessee neither produced the envelope nor any other evidence to substantiate the mode of receipt of confirmation. Although the Assessing Officer asked the assessee to furnish the details as per order sheet entry, the assessee never produced the requisite information before completion of the assessment nor asked the AO to issue summons to the parties for verification of the genuineness of such payments. Merely because payments have been made by account payee cheque and TDS has been deducted and PAN numbers are given to the department the same in our opinion cannot absolve the assessee from substantiating the genuineness of the expenditure. 9 9.1 It is the settled proposition of law that for claiming any expenditure as genuine the onus is always on the assessee to substantiate with evidence to the satisfaction of the Assessing Officer that such expenditure is wholly and exclusively incurred for the purpose of business. In the instant case the assessee has failed to do so. Further, as observed earlier, the assessee at no point of time has requested the Assessing Officer to issue summons u/s.131 to the sub-contractors. Under these circumstances, the Ld.CIT(A) whose powers are coterminous with that of the Assessing Officer should not have deleted the addition made by the Assessing Officer. However, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the genuineness of the sub-contract expenditure and carting charges. The Assessing Officer shall decide the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes.
10. In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Pronounced in the Open court on this the 31st day of July 2013.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, dated : 31st July, 2013
satish
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Copy of the order is forwarded to :
1. The assessee
2. The Department
3. The CIT(A)-I, Nashik
4. The CIT-I, Nashik
5. D.R. "A" Bench, Pune
6. Guard File
By order
// True Copy //
Senior Private Secretary,
Income Tax Appellate Tribunal, Pune