Income Tax Appellate Tribunal - Rajkot
Shri Mahipal Mohanbhai Sindhav,, ... vs The Income Tax Officer, Ward-1(2),, ... on 22 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH , RAJKOT
(Conducted through E-Court at Ahmedabad)
[Coram: Shri S. S. Godara, JM & Shri Manish Borad, AM ]
ITA No. 244/Rjt/2014
Asst. Year: -2009-10
Shri Mahipal M. Sindhav, Vs. Commissioner of Income
Manmohar Niwas, Nr. Tax-1, Rajkot.
Kashivishvanath Temple,
Gondal, Dist. Rajkot.
Appellant Respondent
PAN BBBPS 9399K
AND
ITA No. 270/Rjt/2014
Asst. Year: -2009-10
Shri Sureshbhai K. Kataria, Vs. Commissioner of Income
Post- At Panchiavadar, Tax-1, Rajkot.
Gondal, Dist. Rajkot.
Appellant Respondent
PAN ADSPK 4928L
Appellant by Shri D.M. Rindani,AR
Respondent by Shri Arvind N. Sontake, Sr.DR
Date of hearing: 15/2/2017
Date of pronouncement: 22/02/2017
ORDER
PER Manish Borad, Accountant Member.
These two appeals filed by different assessees for Asst. Year 2009-10 are directed against the orders of ld. Commissioner of ITA No. 270 & 244/Rjt/2014 2 Asst. Year 2009-10 Income Tax-1, Rajkot, dated 19.03.2014 passed u/s 263 of the IT Act, 1961 (in short the Act). Since the issue involved in this appeals are similar, these were heard together and are being disposed of by this common order for the sake of convenience. Following grounds have been raised by assessee.
Grounds in ITA No. 244/Rjt/2014 are:
(1) The Learned Commissioner of Income Tax Rajkot - I, Rajkot has erred in passing order u/s. 263 of the Act whereby setting aside the order passed by the Assessing Officer is unwarranted, unjustified and bad in law. The Commissioner of Income Tax alleged that the order passed u/s. 143(3) on 14.11.2011 for the year under consideration is erroneous and prejudicial to the interest of Revenue is unjustified, unwarranted and bad in law.
(2) The Learned Commissioner of Income Tax Rajkot - I, Rajkot has erred in directing the Assessing Officer to reassess the allowability of deduction for labour expenses u/s. 40(a)(ia) of the Act or unexplained labour expenses u/s. 69C and complete the assessment afresh is unwarranted, unjustified and bad in law.
Your applicant reserves the right in addition or alteration in the grounds of appeal at the time of hearing.
Grounds in ITA No.270/Rjt/2014 are -
(1) The Learned Commissioner of Income Tax Rajkot - I, Rajkot has erred in passing order u/s. 263 of the Act whereby setting aside the order passed by the Assessing Officer is unwarranted, unjustified and bad in law. The Commissioner of Income Tax alleged that the order passed u/s. 143(3) on 14.11.2011 for the year under consideration is erroneous and prejudicial to the interest of Revenue is unjustified, unwarranted and bad in law.
(2) The Learned Commissioner of Income Tax Rajkot - I, Rajkot has erred in directing the Assessing Officer to reassess the allowability of deduction for labour expenses u/s. 40(a)(ia) of the Act or unexplained labour expenses u/s. 69C and complete the assessment afresh is unwarranted, unjustified and bad in law.
Your applicant reserves the right in addition or alteration in the grounds of appeal at the time of hearing.
ITA No. 270 & 244/Rjt/2014 3Asst. Year 2009-10
2. At the outset ld. Authorised Representative for the assessees submitted that both these appeals are squarely covered by the decision of the Co-ordinate Bench, Rajkoth in the case of Indrajitsinh B. Dabhi vs. ITO, Wd-1(2), Rajkot in ITA No.245/Rjt/2014 dated 4.3.2016 wherein similar facts have been dealt with.
3. We first take up ITA No.244/Rjt/2014 for Asst. Year 2009-10. Briefly stated facts are that assessee is an individual engaged in the activities of labour contractor. Return of income for Asst. Year 2009- 10 was filed on 16.9.2009 declaring total income at Rs.9,13,390/-. Case was selected for scrutiny assessment and notice u/s 143(2) of the Act dated 23.08.2010 was issued followed by notice u/s 142(1) of the Act along with questionnaire duly served upon on the assessee. Assessment proceedings were attended by ld. Authorised Representative and submitted details as called for and produced books of accounts which were duly checked by ld. Assessing Officer. Assessment u/s 143(3) of the Act was framed on 14.11.2011 after disallowing certain expenses totaling to Rs.79,480/- and assessing the income at Rs.9,92,870/-. No further appeal was filed by the assessee against the impugned addition.
4. Thereafter ld. Commissioner of Income Tax, Rajkot-1, invoked his power u/s 263 of the Act and on perusal of the assessment record of assessee for Asst. Year 2009-10 and observed that assessee had claimed deduction for labour charges of Rs.6,53,06,032/- in Profit & Loss a/c and balance sheet sundry creditors payable as on 31.3.2009 shown at Rs.8,94,69,871/-. However, no details of the ITA No. 270 & 244/Rjt/2014 4 Asst. Year 2009-10 persons to whom labour expenses were payable were mentioned in the schedule attached to the balance sheet. So ld. Commissioner of Income Tax observed that labour expenses payable as on 31.3.2009 was more than the entire sum of labour expenses claimed during the year. He also observed that no tax was deducted at source during the year. Thereafter notice u/s 263 of the Act dated 25.11.2013 was issued and duly served upon the assessee which reads as under :-
''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 79,480/- out of site expense, matikam expenses, water expenses and transport expenses and total income was assessed to Rs.9,92,872/-.
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. 6,69,88,650/~ have been shown. During the relevant period, you have also claimed deduction for labour charges ofRs. 6,53,06,032/-.
3. Perusal of your balance sheet as on 31-03-2009 shows that there were a liability of Rs. 8,94,69,871/- 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 31s' 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 sub-
contractor. On going through the prepara, it is observed that you have engaged labour through labour suppliers and the sum shown outstanding on account of labour expense payable was pertaining to such sub-contractors. Therefore it is ITA No. 270 & 244/Rjt/2014 5 Asst. Year 2009-10 apparent that you were responsible to make TDS amount of the sum at the time making credit in the accounts of such persons, 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 assesses that the labourers were unpaid creditors for a long period, because labours cannot wail 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 he 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.-"
5. In response to the show cause notice issued assessee through its submissions asserted upon the fact that all necessary information relating to the financial transactions entered by the assessee were duly filed before the ld. Assessing Officer who has test checked the documents and has made proper application of mind while framing the assessment order. Submissions made by assessee before ld. Commissioner of Income Tax are reproduced below:-ITA No. 270 & 244/Rjt/2014 6
Asst. Year 2009-10
3. In response to the said notice, Shri Dhiren H. Lotia, ITP and AR appeared and furnished a written submission dated 10-12-2013. The relevant portion of the reply of the assessee is reproduced hereunder:
"1.1 In (his 'context, it is to be stated that at the time of original assessment the appellant produced books of accounts, detailed vouchers etc. at the time of original assessment. The appellant has regularly maintained vouchers in respect of payments to labourers. The Assessing Officer has thoroughly verified each and every bills/vouchers etc. and not doubled the claim of the appellant regarding the direct payments made to the labourers. Therefore the question ofnon verification of the genuineness of labour charges paid lo individual labour by examining such labourers by the Assessing Officer does no! arise. It would be pertinent to mention here that at the time of assess men! proceedings, the appellant produced books of accounts, detailed vouchers etc. The Assessing Officer has made through verification and not doubted the claim of the appellant in respect of labour charges. The contention that the appellant has directly made payment to the labourers and not through Mukadam and thai the labour payment does not exceed Rs. 20,000/- in each case is also accepted by the Assessing Officer at the time of assessment proceedings.
1.2 The appellant reproduce hereunder the notes forming part of audited accounts Notes/Remarks on 3CD for the year ended j/5' March, 2006.
(2) In respect of schedule 'B' creditors for goods and expenses this is to clarify that names appearing against credit amount outstanding are those of labour suppliers who have supplied labour at through payments are made directly to the labourers not through or to the labour suppliers and therefore the assessee does not have deduct tax at source and no TDS has been made since the individual payments are below the limit prescribed, "
1.3 At the time of assessment proceedings, the appellant submitted vouchers in respect of payment made to the labourers in support of Its contention that the appellant has directly made payments to the labourers and not through Mukadam. Moreover, it is respectfully submitted that the labourers were carrying out the work at different sites and the payment is made to them on individual basis. Further, the provisions of section 40(a)(ia) of the IT Act are attracted in respect of non deduction of amount which remains payable to a resident in respect of interest, commission, brokerage, rent, royal, fees for professional services. It is not applicable where expenditure is paid. The ITA No. 270 & 244/Rjt/2014 7 Asst. Year 2009-10 provisions of section 40(a)(ia) are applicable only if the payments are outstanding during the year.
As regards the claim of the assessee that the labourers were unpaid creditors for a long period, because labourers cannot wait for the payment of their wages for a long period of 12 months or so it is clarified that the payment to the assessee is delayed from main contractor. The payment to main contractors is delayed from Government agencies like Power Grid. GETCO etc. The payment to the labourers is made on receipt by the assessee from the main contractors.
1.4 The appellant relies upon the decision in the case of Shri Mahesh Savjibhai Katariya whereby the Id. CIT(A)-I, Raj hot in appeal No. CIT(A)-I/Rjt/0124/11- 12 dated 27-06-2012 allowed the appeal in favour of the assessee. The Assessing Officer had made addition of (he same issue. The gist of findings given by the Id. C!T(A) is reproduced hereunder:
"4.2 1 have carefully considered the finding given by the Assessing Officer and the submission of the AR of the appellant. It has been held by the Hon'ble ITAT, Ahmedabad in the case of Lctxmi Protein Products P. Ltd. (3 1TR 768)(2010) that when the payments made to labourers through their representative and single payment does not exceed Rs.20,000/-, tax need not be deducted at source. In the instant case, the payments were made to labourers through Mukadam which is evident from the ledger account of labour expense and single payment does not exceed Rs. 20,0001-. Moreover the provisions of s. 40(a)(ia) are not applicable if the payment of expenditure has already been made or the expenditure is not outstanding at the end of the financial year. Reliance can also be placed on the decision of Merilyne Shipping & Transport vs. ACIT (2012) 136 ITD 23 (Vishakhapatnam) (SBj/20 Taxman 244. Therefore, in view of the facts and circumstances of the appellant's case and the legal position in the cases of Laxmi Protein Products P. Ltd. (supra) & Merilyne Shipping & Transport (supra) the disallowance ofRs. 2,10,94,2431- is hereby directed to be deleted. The ground of appeal is allowed. "
1.5 Aggrieved with order of Id. ICT(A), the Department preferred appeal before the Hon 'ble ITAT, Rajkot Bench, Rajkot. The Hon 'ble ITAT dismissed the appeal of the revenue in ITA No. 493/Rjt/2012 dated ] 2-07-2013. The gist of findings given by the Hon'ble ITAT is reproduced hereinider;
"6. . . Having heard both sides, we hove carefully gone through the orders of the authorities below. Admittedly, as per latest judgment of Hon'ble Gujarat High Court in the case of CIT vs. Sikandarkhan N. ITA No. 270 & 244/Rjt/2014 8 Asst. Year 2009-10 Tunvar (2013) 33 Taxmann.co. 133 (Gujj. llie view taken by the ITAT, Vishakhapatnam (SB) that . sec. 40(a)(ia) would cover only amounts which are payable as on 31S! March of '. a particular year is no! more a good. law. However, in our considered opinion, the view taken by the CIT (A) deleting disallowance made u/s. 40(a)(ia) deserves ' to be upheld because the assessee has made the payment to the labourers through their representatives and single payment does not exceed Rs. 20.000/-. The Revenue has not produced any evidence to disprove this finding of fact reported by Id. CIT (A) in I he" impugned order. We therefore, inclined to upheld the order of Id. CIT (A) keeping in view the decision of ITAT, Ahmedabad in the case of Laxmi Protein Products P. Ltd. (supra), Resultantly, the appeal of the .. Revenue is dismissed. "
(copy of appellate order of Hon'ble C1T(A) & Hon'ble IT AT is enclosed herewith for kind perusal), The facts of the case of Shri Mahesh Savjibhai Katariya is squarely applicable to the case of the appellant and hence it is a covered matter. 1.6 The appellant relies upon the following decisions:
(1) Laxmi Protein Products P. Ltd. (3ITR 768) (2010) 1TAT, Ahmedabad (2) Jaipur Vidyut Nigam Ltd. vs. SCIT- 123 TTJ 8889 JPO (3) Teja Construction vs. AC1T - IT A No. 308/HYD/2009 (4) CIT vs. Dewan Chand- 178 Taxman 173 (Delhi High court) (5) Samanwaya vs. A C1T (2009) 34 A OT 332 (Koikata) (6) A CIT vs. Kalindi Agro Biotech - ITR 249 (Del) (7) CIT vs. Rathinam - 241 CTR (Mad) 476 (201J) Under the facts and circumstances of the case, your honour is. requested to drop the proceedings u/s. 263 of the IT act and oblige. "
6. On perusal of the submissions of assessee ld. Commissioner of Income Tax affirmed the fact that books of accounts were produced before the ld. Assessing Officer on 12.11.2011. However, he was not convinced with the order of ld. Assessing Officer who has only disallowed 15% of site expenses, matikam, expenses, water expenses and transport expenses and there was no whisper on labour expenses incurred during the year. He accordingly invoked power u/s 263 of the Act and treated the assessment order passed u/s 143(3) of the Act dated 14.11.2011 as erroneous and prejudicial ITA No. 270 & 244/Rjt/2014 9 Asst. Year 2009-10 to the interest of revenue and set aside the same and ordered for assessing it afresh by observing as follows :-
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 1TAT 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 ITA No. 270 & 244/Rjt/2014 10 Asst. Year 2009-10 workers by the assessee before he received the cheque from the main contractor. This issue is also required to be examined.
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 ihe payment is made to the Mukadams, the provisions of sec. 40(a)(ia) of the Act uould 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 l.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.
7. Aggrieved, assessee is now in appeal before the Tribunal.
8. Ld. Authorised Representative submitted that the directions given by ld. Commissioner of Income Tax u/s 263 of the Act to complete assessment afresh is bad in law and amounts to change in opinion since Assessing Officer had framed assessment after adequate/proper enquiry about the issues on which proceedings u/s 263 have been initiated. Further specific enquiries, replies and evidences were placed efore ld. Assessing Officer and, therefore, order passed by Assessing Officer cannot be treated as erroneous and prejudicial to the interest of Revenue. Ld. Authorised Representative further submitted that the issues raised in this appeal ITA No. 270 & 244/Rjt/2014 11 Asst. Year 2009-10 are squarely covered in favour of assessee by the decision of the Tribunal in the case of Shri Indrajitsinh Dabhi vs. ITO (supra) wherein the same ld. Commissioner of Income Tax passed the order u/s 263 of the Act dated 19.3.2014 raising similar issues relating to labour contract charges and sundry creditors payable. Ld. Authorised Representative also submitted that adjudicating similar issue the Tribunal has quashed the order of ld. Commissioner of Income Tax u/s 263 of the Act and restored the order of ld. Assessing Officer u/s 143(3) of the Act.
9. Reliance was also placed on another decision of Co-ordinate Bench in the case of Shri Siddharth Sureshbhai Doshi vs. Commissioner of Income Tax in ITA No.530/Rjt/2014.
10. On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld. Commissioner of Income Tax and also relied on the judgment of Hon. Apex Court in the case of Amitabh Bachchan (2016) 384 ITR 0200(SC).
11. We have heard the rival contentions and perused the record and also gone through the decisions relied on by the ld. Representatives. Assessee's only grievance is against ld. Commissioner of Income Tax's order u/s 263 of the Act holding the order passed u/s 143(3) of the Act as erroneous and prejudicial to the interest of revenue. We observe that in the case of assessee assessment u/s 143(3) of the Act was completed on 14.11.11 after making a minor disallowance @15% fo site expenses, matikum ITA No. 270 & 244/Rjt/2014 12 Asst. Year 2009-10 expenses, water expenses and transport expenses totaling to Rs.79,480/-. On perusal of assessment records, ld. Commissioner of Income Tax observed that assessee has claimed labour charges of Rs.6,53,06,032/- and in the audited balance sheet sundry creditors pertaining to labour expenses payable was shown at Rs.8,94,69,871/- which meant that labour expenses payable at the end of the year were much more than the entire sum of labour expenses claimed during the year. It is also observed by ld. Commissioner of Income Tax that there was no list of names of the labourers to whom huge amount was payable and nor there was any tax deducted at source which was unverifiable due to lack of proper details. Further payment to labourers in cash was made after lapse of long period which as per ld. Commissioner of Income Tax was unbelievable as to why a labourer will stay without being paid for such long time. Another reason for setting aside the order of ld. Assessing Officer was that in the impugned assessment order there was no discussion about labour charges which were of a magnitude of Rs.6.53 crores without having any proper supporting evidences whereas disallowance of minor amount of disallowance of Rs.79,480/- on account of site expenses, matikam expenses , water expenses and transport expenses was made.
11.1 Further during the course of proceedings ld. Authorised Representative has heavily relied on the decision of Co-ordinate Bench in the case of Indrajitsinh B. Dabhi (supra) and on the other hand ld. Departmental Representative has been unable to prove that ITA No. 270 & 244/Rjt/2014 13 Asst. Year 2009-10 the facts of the case were similar to that adjudicated by Hon. Supreme Court in the case of Amitabh Bachchan (supra).
11.2 Further analyzing the submissions of ld. Authorised Representative we examined the facts of the appeal before us with that being dealt by the Co-ordinate Bench in the case of Indrajitsinh B. Dabhi (supra) and observe that they are verbatim similar except for the amount of labour charges and sundry creditors payable. Apart from that assessment order and order of ld. Commissioner of Income Tax are of similar dates and language of notice issued its contents and the reply submitted were also almost similar. We further observe that Co-ordinate Bench adjudicating the case of Indrajitsinh B. Dabhi (supra) has quashed the order u/s 263 of the Act and restored the order u/s 143(3) of the Act of Assessing Officer by observing 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 jf 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, 5,53,50.045/- were pertaining to labour expense payable, ho-'ever, no details o<c the persons have been given in the balance sheet, to 'horn 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.
ITA No. 270 & 244/Rjt/2014 14Asst. Year 2009-10
4.....
5.....
6.....
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 assesses 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 expense and labour expenses payable as appearing the final accounts vis-a-vis facts mentioned in the fax 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:253 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 w/?y the order passed by the Assessing Officer in your case should not be 'evised 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 Id, 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 detail's of tax deducted arid paid by you.
Q5. Please, submit copy of ledger account of expenses exceeding Rs, 1lac 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.ITA No. 270 & 244/Rjt/2014 15
Asst. Year 2009-10
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
05. Ledger copy of account of expenses exceeding Rs. 1 lac were filed in esponse 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 assesses 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.
9. A perusal of the aforementioned factual matrix shows that the A.O nas thoroughly examined the contentious issues raised by the Id. Commissioner. The Hon'bie 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'bie 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 ITA No. 270 & 244/Rjt/2014 16 Asst. Year 2009-10 to correct each and every type rf mistake or error committed by the Assessing Officer, it is only when a/- 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 Assessing Officer 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. W% 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.
13. Considering the facts of the case in the light of the afore-stated judicial decisions, in our considered opinion, there is no error in the assessment order made u/s. 143(3) of the Act which can bu said to be erroneous and prejudicial to the interest of the revenue. We, therefore set aside the order of the Id. CIT and restore that o< the A.O, appeal filed by the assessee is accordingly allowed.
12. Respectfully following the decision of Co-ordinate Bench in the case of Indrajitsinh B. Dabhi (supra) we find that the decision of Co- ordinate Bench is squarely applicable on the facts of the case we are dealing with in this appeal and, therefore, following the same we set aside the order of ld. Commissioner of Income Tax u/s 263 of the Act and restore the order u/s 143(3) of the Act passed by ld. Assessing Officer as the same was neither erroneous nor prejudicial to the interest of Revenue. Accordingly, we allow the appeal of the assessee.
ITA No. 270 & 244/Rjt/2014 17Asst. Year 2009-10
13. Now we take up ITA No.270/Rjt/2014 wherein following grounds have been raised by the assessee :-
(3) The Learned Commissioner of Income Tax Rajkot - I, Rajkot has erred in passing order u/s. 263 of the Act whereby setting aside the order passed by the Assessing Officer is unwarranted, unjustified and bad in law. The Commissioner of Income Tax alleged that the order passed u/s. 143(3) on
14.11.2011 for the year under consideration is erroneous and prejudicial to the interest of Revenue is unjustified, unwarranted and bad in law.
(4) The Learned Commissioner of Income Tax Rajkot - I, Rajkot has erred in directing the Assessing Officer to reassess the allowability of deduction for labour expenses u/s. 40(a)(ia) of the Act or unexplained labour expenses u/s. 69C and complete the assessment afresh is unwarranted, unjustified and bad in law.
Your applicant reserves the right in addition or alteration in the grounds of appeal at the time of hearing.
14. We observe that the issues raised in this appeal are similar to those adjudicated by us in ITA No.244/Rjt/2014 wherein we have relied on the decision of Co-ordinate Bench in the case of Indrajitsinh B. Dabhi (supra) and applying the same decision, we set aside the order u/s 263 of the Act by ld. Commissioner of Income Tax and find that order u/s 143(3) of the Act dated 14.11.2011 was neither erroneous nor prejudicial to the interest of Revenue and, we therefore, restore the same. Accordingly, this appeal of assessee is also allowed.
ITA No. 270 & 244/Rjt/2014 18Asst. Year 2009-10
15. In the result, both the appeals of assessees are allowed.
Order pronounced in the open Court on 22nd February, 2017 Sd/- sd/-
(S. S. Godara) (Manish Borad)
Judicial Member Accountant Member
Dated 22/02/2017
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Rajkot
1. Date of dictation:20/02/2017
2. Date on which the typed draft is placed before the
Dictating Member 22/02/2017 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 22/2/17
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: