Income Tax Appellate Tribunal - Rajkot
Ghelabhai Tapubhai Dabhi,, vs Income Tax Officer, Ward-1(2),, ... on 27 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT
BENCH, RAJKOT
[Conducted through E-Court at Ahmedabad]
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA No. 243/Rjt/2014
(Assessment Year:2009-10)
Shri Ghelabhai Tapubhai Dabhi
At Post Nagarka, Gondal,
Dist. Rajkot Appellant
Vs.
The Income-tax Officer,
Ward. 1(2), Rajkot Respondent
PAN: AGDPD6122D
&
ITA No. 4/Rjt/2015
(Assessment Year:2009-10)
Shri Valjibhai Jesanbgbhai Dabhi
Momai Krupa, 5, Bhagvatpara, Gondal,
Dist. Rajkot Appellant
Vs.
The Income-tax Officer,
Ward. 1(2), Rajkot Respondent
PAN: AGGPD2725F
आवेदक क ओर से/By Assessee : Shri D. M. Rindani, A.R.
राज व क ओर से/By Revenue : Shri Arvind N. Sontakke, Sr.
D.R.
ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi &
Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -2-
सन
ु वाई क तार ख/Date of Hearing : 16.02.2017
घोषणा क तार ख/Date of
Pronouncement : 27.02.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
These two different assessees have filed their instant appeals against the CIT-I, Rajkot's separate orders dated 19.03.2014 (in both cases), directing the Assessing Officer to frame the regular assessments in their respective cases afresh after re-assessing allowability of deduction of labour expenses u/s.40(a)(ia) or unexplained labour expenses u/s.69C, in proceedings u/s.263 of the Income Tax Act, 1961; in short "the Act".
We heard these cases together stated to be involving identical set of facts as well as the relevant issues involved. We thus propose to decide both these appeals by way of a common order.
2. These two assessees are labour contractors. They filed their respective return on 16.09.2009 declaring income of Rs.3,73,570/- and Rs.7,93,000/-. The Assessing Officer thereafter framed regular assessments on 14.11.2011 in the two cases on identical lines disallowing 15% of site, soil work, tree cutting and water expenses in former assessee's case coming to Rs.84,039/- & Rs.78,383/-; respectively.
3. These case files indicate that the learned CIT thereafter issued Section 263 show cause notices separately to both assessees on 25.11.2013 proposing therein to revise the above regular assessments. There is no dispute that the CIT's show cause notices raised identical issues except variation in the amount of contractual receipts and labour charges reading respective figures ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi & Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -3- of Rs.2,93,74,739/- and Rs.2,03,07,643/- in former and Rs.4,28,64,756/- & Rs.4,10,51,529/- in latter assessee's case. We thus deem it appropriate to above stated show cause notice in latter assessee's case reading as under:
"2.6 Therefore, a notice u/s. 263 of the I.T. Act dated 25-11-2013, as under, was issued and served upon the assessee.
"Upon perusal of records of AY 2009-10, it is seen that on order u/s 143(3) of the Act was passed by the AO on 14/11/2011 by making addition of site expenses of Rs. 78,383/- out of site expense, matikam expenses and water expenses and total income was assessed to Rs.8,71,380/-.
2. It is found that during the previous year relevant to the above A.Y. you derived income from labour job work as observed from the contract account. Where total receipts of Rs. 4,28,64,756/- have been shown. During the relevant period, you have also claimed deduction for labour charges of Rs. 4,10,51,529/-.
3. Perusal of your balance sheet as on 31-03-2009 shows that there were a liability of Rs. 8,38,01,328/- for sundry creditors. The detail of sundry creditors shows that all the sundry creditors were pertaining to labour expense payable, however, no details of the persons have been given in the balance sheet, to whom you were liable to make payment on account of labour charges. On analysis of the labour expense claimed in contract account and labour expense payable as shown in the balance sheet, it is found that labour expense payable as on 31st March was more than the entire sum of labour expense claimed during the relevant period.
4. Further, in point 4 of notes to accounts in schedule-7 of the tax audit report, it is mentioned in respect of the creditors that the names appearing against amount outstanding were those of labour suppliers, who have supplied labour, it is further , mentioned that relevant payments were made directly to the labour not through or to the labour suppliers and therefore you did not deduct tax at source as the individual payment was below the limit prescribed.
5. In the income tax Act, 1961, it is provided in Sec. 194C that any person responsible for paying any sum to a sub-contractor including a labour supplier shall make TDS at prescribed sale at the time of credit of such sum to the subcontractor. On going through the prepara, it is observed that you have engaged labour through labour suppliers and the sum shown outstanding on account o/f labour expense payable was pertaining to such sub-contractors. Therefore it ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi & Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -4- is apparent that you were responsible to make TDS amount of the sum at the time making credit in the accounts of such per sons, which you failed to do so.
6. As per Sec. 40(a)(ia) of the Act, no deduction shall allowed for any amount payable to sub-contractor, if the TDS as per Sec. 194C of the Act has not been made. It is duly admitted by you that no any TDS was made out of labour expense.
7. The assessing officer has not verified the genuineness of labour charges paid to individual labour by examining such labourers. This examination was necessary on account of the claim of the assessee that the labourers were unpaid creditors for a long period, because labours cannot wait for the payment of their wages for a long period of 12. months or so. This examination was also necessary on account of the claim of the assessee that by making payments individually to each labour, the liability to deduct tax from the combined liabilities of such labourers standing in the names of their suppliers was not there. This inaction on the part of AO is erroneous and is prejudicial to the interest of the revenue.
8. The above facts show that the assessment order passed by the Assessing Officer in respect of A.Y. 2009-10 appears to be erroneous because the AO did not apply his mind on the labour expense and labour expense payable as appearing the final account vis-a-vis facts mentioned in the tax audit report and prejudicial to the interest of the revenue because the assessee was allowed the claim of deduction of labour expense without making necessary verification for application of Sec. 194C r.w.s. 40(a)(ia) of the Act. Therefore, I intend to initiate proceedings u/s 263 of the Act and pass a suitable order. Before passing such order, you are hereby given an opportunity of being heard in the matter. Please state as to why the order passed by the Assessing Officer in your case should not be revised after making necessary inquiry. In this connection, you are requested to attend this office on 05-12-2013 at 4.30PM.."
4. These assessees filed their respective replies on 10.12.2013 and 03.03.2014 identically pleading therein that the Assessing Officer had conducted all due enquiries / verifications in course of framing the above regular assessments. The CIT however rejects the same in his two orders under challenge. We again reproduce his order in latter assessee's case reading as under:
ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi &Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -5- "4.1 The claim of appellant that the Assessing Officer has verified each and every bills/vouchers and not doubted the claim of the appellant regarding the direct payments made to the labourers, is not evidenced from records. The relevant entries in the order sheet show that Assessing Officer issued a questionnaire on 07-01-2011 u/s 142(1), asking assessee to submit "Copy of tax audit report", "Copy of P&L a/c and B/S", "Annual Report, Notes of accounts", "Computation of income". The assessee submitted part details on 14-09-2011, and remaining details on 10-10-2011. The books of accounts were also produced before the Assessing Officer on 12-11-2011. However except for agreeing for an estimated disallowance of 15% of misc. expenses, site expenses and .water expenses, there is not a whisper on labour expenses during the entire assessment proceeding as apparent from order sheet entries, details called for u/s 142(1) notice, and the assessment order.
4.2 The contention, that the appellant has directly made payment to the labourers and not through Mukadam and that the labour payment does not exceed Rs. 20,000/- in each case, is not supported by relevant evidences available in records. At the time of present revisionary proceedings, assessee did not produce the evidence of identity of labourers to prove the above contention. The identity is normally proved by name and address of a person with relevant proof of identity such as Voter Card, PAN, Aadhar etc. The assessee submitted only the reference to the notes forming part of audited accounts during the revisionary proceedings, where it is mentioned that the outstanding creditors were labour suppliers who had supplied labour, though the payments were made directly to the labourers not through or to the labour suppliers. Auditor made another remark that the individual payments were below the limit prescribed for deducting any TDS. The investigation during assessment and audit are two different modes of verification. The audit requires only test checks of all accounts whereas the investigation at the time of assessment requires thorough check of selected accounts. The accounts for thorough investigation under assessment are the "labour payment" account" and corresponding "creditor" accounts. The records do not give any indication of any investigation of these accounts by the Assessing Officer. Moreover, the assessee also did not produce the identity of the labours etc. at the time of revisionary proceedings to prove his point. Therefore, assessee has failed to prove that the error committed by the Assessing Officer of not examining the claim of assessee of making payment to individual labours, is not prejudicial to revenue. Assessee has relied on the decision of H'ble ITAT-Rajkot in case of Shri Mahesh Savjibhai Katariya in ITA 493/Rjt/2012 dated 12-07-2013. H'ble ITAT had allowed the deduction on labour payments without any deduction of TDS because that assessee had made the payment to the labourers and single payment did not exceed Rs. 20,000/- and the Revenue did not produce any evidence to disprove this finding of fact. Secondly, in the above case, all the labourers were paid immediately for the work during the year. In present case labourers were kept unpaid even after the year end for long duration which is highly unlikely in case of a labourer. Assessee has submitted that the main contractor received payment from the government quite late and therefore assessee also received the payment from the main contractor quite late and therefore made the payments to the labourers quite late. The explanation of assessee and the normal trend in market that the wages of a labour are paid immediately shows the possibility of unaccounted money being paid to these workers by the assessee before he received the cheque from the main contractor. This issue is also required to be examined.
ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi &Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -6-
4.3 Assessing Officer has allowed the claim of deduction of labour expense
without examining the fact regarding the actual recipient of labour charges. The investigation would require examination of Mukadams as well as the identity and examination of labourers to establish the fact whether the payment of labour charges was made to the Mukadams or directly to the labourers. The investigation would also require examination of these persons to establish whether payments to labourers was made earlier than what is shown in books of account through unaccounted money. In case the payment is made to the Mukadams, the provisions of sec, 40(a)(ia) of the Act would apply for disallowance of labour expenses for making such payment without making TDS. In case the payment was made through unaccounted money to the labourers at an earlier date, the same would constitute unexplained expenditure u/s 69C of the I.T.Act. In view of the above discussed facts, it is clear that the assessment order passed u/s. 143(3) on 14-11-2011 for Assessment Year 2009-10 is erroneous and prejudicial to the interest of Revenue. By the powers vested in CIT-1, Rajkot u/s. 263 of the I T Act, this order of the Assessing Officer is set aside, The Assessing Officer is': directed to reassess the allowability of deduction for labour expenses u/s. 40(a)(ia) of: the Act or unexplained labour expenditure u/s 69C on the points discussed above and complete the assessment afresh as per law."
There is again no issue that the CIT's order under challenge in former assessee's case also issues the same directions to the Assessing Officer. This leaves these two assessees aggrieved.
5. We have heard both the parties strongly arguing against and in support of the CIT's directions under challenge. There is no dispute that he has exercised his jurisdiction vested u/s.263 of the Act in issuing the above stated directions for the reason that the Assessing Officer did not conduct the relevant enquiries/verifications qua the abovestated labour expenses of the two assessees in course of framing the respective regular assessments. We find this reason to be factually incorrect. It emerges that the Assessing Officer had issued Section 142(1) notices in both cases on 29.08.2011 seeking details of the impugned labour expenses. These two assessees filed their respective replies on 14.09.2011 in respect to the said questionnaire alongwith the copy of schedule 7 -notes to accounts forming part of the balance sheet regarding TDS on labour payments in question. The same culminated in the impugned regular assessments wherein the Assessing ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi & Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -7- Officer did not make any disallowance in both the cases. Learned Departmental Representative at this stage argues that the Assessing Officer did not corporate even a single observation to this effect in the two assessment orders. We observe that there is no such condition as held in hon'ble Bombay high court's decision in Gabriel India Ltd.'s case 203 ITR
108. It has further come on record that this tribunal in ITA No.245/Rjt/2014 Shri Indrajitsinh Bhalubhai Dabhi vs. ITO (assessees' group case) decided on 04.03.2016 has already reversed similar CIT's order of even date as follows:
"5. We have given a thoughtful consideration to the orders of the authorities below. In his show cause notice u/s. 263 of the Act, the Commissioner observes as under:-
2. It is found that during the previous year relevant to the above A,Y,, you derived income from labour job work as observed from the contract account, where total receipts of Rs, 4,76,14,0517/-
have been shown. During the relevant period, you have also claimed deduction for labour charges of Rs, 3,89,14,880/-
3. Perusal of your balance sheet as on 31-03-2009 shows that there were a liability of Rs. 5,57,67,111/- for sundry creditors. The detail of sundry creditors shows that sundry creditors of Rs, 5,53,60,045/- were pertaining to labour expense payable, however, no details of the persons have been given in the balance sheet, to whom you were liable to make payment on account of labour charges. On analysis of the labour expense claimed in contract account and labour expense payable as shown in the balance sheet, it is found that labour expense payable as on 31st March was more than the entire sum of labour expense claimed during the relevant period.
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7.The assessing officer has not verified the genuineness of labour charges paid to individual labour by examining such labourers. This examination was necessary on account of the claim of the assessee that the labourers were unpaid creditors for a long period, because labours cannot wait for the payment of their wages for a long period of 12 months or so. This examination was also necessary on account of the claim of the assessee that by making payments individually to each labour, the liability to deduct tax from the combined liabilities of such labourers standing in the names of their suppliers was not there. This inaction on the part of A.O is erroneous and is prejudicial to the interest of the revenue.
8. The above facts show that the assessment order passed by the Assessing Officer in respect of A.Y. 2009-10 appears to be erroneous because the AO did not apply his mind on the labour ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi & Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -8- expense and labour expenses payable as appearing the final accounts vis-a-vis facts mentioned in the tax audit report and prejudicial to the interest of the revenue because the assessee was allowed the claim of deduction of labour expense without making necessary verification for application of Sec, 194C r.w.s. 40(a)(ia) of the Act. Therefore, I intend to initiate proceedings u/s;263 of the Act and pass a suitable order. Before passing such order, you are hereby given an opportunity of being heard in the matter, Please state as to why the order passed by the Assessing Officer in your case should not be revised after making necessary inquiry. In this connection, you are requested to attend this office on 05.12,2013 at 4.30 PM.
6. To the specific queries raised by the ld. Commissioner let us see the queries raised during the course of the assessment proceedings by the A.O vide notice dated 05.08.2011 which is placed at page 7 of the paper book. The relevant queries raised therein:-
Q3. Please, reconcile your income declared with the TDS deducted/claimed. Also, submit section wise details of tax deducted and paid by you.
Q5. Please, submit copy of ledger account of expenses exceeding Rs. 1 lac for the year.
Q6. Please, submit copy of account with complete postal address and PAN of the sundry creditors (above Rs. 1 lac).
Q9. Please, submit copy of TDS returns and sales tax returns filed for the year.
7. To the specific queries, the reply of the assessee dated 05.09.2011 can be found at page 8 of the paper book in which Q3. has been answered as not applicable for Q5. Ledger copy of account of expenses exceeding Rs. 1 lac were filed in response to Q6.Copy of account with complete postal address and PAN of the sundry creditor were enclosed and for Q9. Copy of TDS returns and Sales tax returns filed for the year were enclosed.
8. After considering the detailed reply along with documentary evidences, the A.O in his assessment order observes as under:-
2. Subsequently, a notice u/s. 142 (1) along with questioner letter was issued on 05-08-2011 and served, requesting to submit details & produce books of accounts on 17-08-2011. In response to notices issued u/s. 143(2) and 142(1) of the Act, Shri Dhiren H. Lotia, Advocate and Authorized Representative of the assessee has attended the case from time to time and submitted the details as called for and produced books of accounts. The details submitted were placed on record and books of accounts were test checked.
The case was discussed with him.
ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi &Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 -9-
9. A perusal of the aforementioned factual matrix shows that the A.O has thoroughly examined the contentious issues raised by the ld. Commissioner. The Hon'ble Bombay High Court in the case of Gabrial India Ltd. 203 ITR 108 has held that "the decision of the Income Tax Officer could not be held to be erroneous simply because in his order, he did not make an elaborate discussion in that regard".
10. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. 243 ITR 83 has laid down the following ratio:-
"A bare reading of section. 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under ii, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous hut is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous"
11. The AO has taken a view which may be different from the view of the Ld. Commissioner and assuming that the view taken by the AO is a loss to the Revenue but the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. (supra) has held that " every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue,"
for e.g. when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Ld. Commissioner does not agree, it cannot be treated as an order which is erroneous or prejudicial to the interest of Revenue unless the view taken by the Income Tax Officer is unsustainable in law.
12. The Bombay High Court in CIT Vs Gabrial India Ltd., (1993) 203 ITR 108 has held that "the decision of the Income Tax Officer could not be held to be erroneous simply because in his order, he did not make an elaborate discussion in that regard". Considering the facts in totality in the light of the judicial decisions discussed hereinabove, in our understanding of law, the assessment order is neither erroneous nor prejudicial to the interest of the revenue. We, therefore, set aside the impugned order passed by the Ld. Commissioner u/s. 263 and restore that of the Assessing Officer passed u/s. 143(3) of the Act."
ITA Nos. 243/Rjt/2014 & 4/Rjt/2015 (Shri Ghelabhai T. Dabhi &Shri Valjibhai J. Dabhi vs. ITO) A.Y. 2009-10 - 10 -
Learned Departmental Representative concedes very fairly that there is no distinction on facts involved in these two sets of cases. We appreciate this fair stand and accept assessees' arguments challenging correctness of CIT's orders under challenge in these two cases thereby restoring the abovestated regular assessments in their respective cases.
5. These two assessees' appeals are allowed.
[Pronounced in the open Court on this the 27th day of February, 2017.] Sd/- Sd/-
(PRAMOD KUMAR) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 27/02/2017
True Copy
S.K.SINHA
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT, Rajkot