2018 (8) TMI 128 - AT - Income Tax

Tribunal allows Assessee's appeal for fresh assessment, dismisses Revenue's Cross Objections.

The Tribunal allowed the Assessee's appeal, directing a fresh assessment by the AO after admitting all evidences. The Assessee's contentions regarding ... Admission of additional evidences under Rule 46A of the Income-tax Rules, 1962 - remand for de-novo assessment under section 254(1) of the Income-tax Act, 1961 - disallowance of payments to labour (Mukadam) for lack of documentary evidence - application of provisions of Section 40(a)(ia) for failure to deduct tax at source - estimation of profits by appellate authority in absence of admitted evidence - time-barred cross-objections and condonation of delay under section 253(4) of the Income-tax Act, 1961 - dismissal of grounds as not pressed - admission of additional ground of appealDismissal of grounds as not pressed - Grounds 3, 4 and 5 of the assessee's memo of appeal were not pressed and dismissed. - HELD THAT: - The assessee's counsel expressly disclaimed grounds 3 to 5 in the memo of appeal before the tribunal and sought their dismissal as not pressed. The Revenue did not object to the dismissal. The tribunal recorded the concession and dismissed those grounds as not pressed. [Paras 5]Grounds 3, 4 and 5 are dismissed as not pressed.Admission of additional ground of appeal - The assessee's additional ground challenging rejection of audited books / disallowance of expenses when books are audited under Section 44AB was admitted. - HELD THAT: - Counsel for the assessee sought admission of an additional ground of law asserting that when books are audited under Section 44AB and expenses are supported by vouchers and authorisations, disallowance is not warranted. The tribunal found this to be a legal ground fit for admission and directed its inclusion in the appeal. [Paras 6]The additional ground is admitted.Time-barred cross-objections and condonation of delay under section 253(4) of the Income-tax Act, 1961 - The Revenue's cross-objection filed 930 days late without any application for condonation of delay was dismissed as time-barred. - HELD THAT: - The Revenue filed Cross Objections on 30-05-2018 which the tribunal found to be delayed by 930 days beyond the period prescribed under section 253(4). No application for condonation of delay, no affidavit, and no explanation were filed by the Revenue to justify the delay despite participation in appellate proceedings. In these circumstances the tribunal held that the CO was time-barred and dismissed it. [Paras 11]Cross Objections filed by the Revenue are dismissed as time-barred.Admission of additional evidences under Rule 46A of the Income-tax Rules, 1962 - remand for de-novo assessment under section 254(1) of the Income-tax Act, 1961 - disallowance of payments to labour (Mukadam) for lack of documentary evidence - application of provisions of Section 40(a)(ia) for failure to deduct tax at source - estimation of profits by appellate authority in absence of admitted evidence - Whether the appellate rejection of additional evidence and the consequent estimation of profit at 15% by the CIT(A) warranted remand for fresh adjudication. - HELD THAT: - The AO disallowed labour payments (Mukadam and other labour charges) for lack of particulars (names, addresses, PAN, particulars of services) and, in respect of Mukadam payments, alternatively invoked Section 40(a)(ia) for non-deduction of tax. Before the CIT(A) the assessee applied under Rule 46A to admit additional evidences explaining non-production before the AO (illness of partner, departure of accountant, etc.), but the CIT(A) rejected those documents at the threshold and proceeded to estimate profits at 15% of turnover (before partners' remuneration) without adjudicating the evidential claims on merits. The tribunal held that the CIT(A) ought to have admitted the additional evidences or forwarded them to the AO for verification under Rule 46A(3) and that procedural technicalities should not defeat substantive rights absent mala fides. Exercising powers under section 254(1), the tribunal restored the matter to the file of the AO for de-novo framing of assessment, directing the AO to admit and verify all evidences and to determine the genuineness and allowability of the labour-related expenditures and any applicability of Section 40(a)(ia) on merits with opportunity of hearing. [Paras 13]Matter remitted to the AO for de-novo assessment to admit and verify the additional evidences and to decide the issues of genuineness of labour payments, applicability of Section 40(a)(ia) and profit estimation on merits.Final Conclusion: The tribunal dismissed the assessee's specific unpressed grounds, admitted an additional legal ground, dismissed the Revenue's time barred cross-objections, and remitted the substantive disputes concerning disallowance of labour payments, applicability of Section 40(a)(ia) and the CIT(A)'s profit estimation to the Assessing Officer for de-novo adjudication after admission and verification of the additional evidences. Issues Involved:1. Estimation of Income and Acceptance of Book Results2. Disallowance of Interest under Section 36(1)(iii)3. Allowability of Loan Processing Charges4. Allowability of Service Tax and Sales Tax Penalties5. Admission of Additional Grounds of Appeal6. Disallowance of Labour Charges (Mukadam) and Labour Charges7. Applicability of Section 40(a)(ia) for Labour Charges8. Delay in Filing Cross Objections by RevenueIssue-wise Detailed Analysis:1. Estimation of Income and Acceptance of Book Results:The Assessee contended that the CIT(A) erred in estimating income at 15% of gross turnover before interest and remuneration payable to partners, arguing that the returned income at 9% of turnover should be accepted. The Assessee also raised additional grounds that the AO and CIT(A) should not have rejected the book results since the books were audited under Section 44AB and no defects were pointed out by the Tax Auditor or the AO. The Tribunal admitted this additional ground and directed a fresh assessment by the AO after considering all evidences.2. Disallowance of Interest under Section 36(1)(iii):The Assessee argued that the AO should not have disallowed interest amounting to Rs. 1,21,064 under Section 36(1)(iii) as all trade advances were given wholly and exclusively for business purposes. However, this ground was not pressed by the Assessee during the hearing and was dismissed accordingly.3. Allowability of Loan Processing Charges:Similarly, the Assessee contended that loan processing charges of Rs. 17,692 should be allowed as expenses. This ground was also not pressed and was dismissed.4. Allowability of Service Tax and Sales Tax Penalties:The Assessee argued that service tax penalty of Rs. 12,000 and sales tax penalty of Rs. 10,000 were compensatory in nature and should be allowed. This ground was not pressed and was dismissed.5. Admission of Additional Grounds of Appeal:The Tribunal admitted the additional ground raised by the Assessee regarding the rejection of book results despite the books being audited and supported by proper vouchers. The Tribunal directed the AO to consider these evidences in a fresh assessment.6. Disallowance of Labour Charges (Mukadam) and Labour Charges:The AO disallowed labour charges (Mukadam) of Rs. 1,28,93,615 and labour charges of Rs. 8,75,773 due to the Assessee's failure to provide details such as names, addresses, PAN, and services rendered. The CIT(A) upheld the disallowance but estimated profits at 15% of turnover instead of accepting the book results. The Tribunal found that the CIT(A) should have admitted additional evidences and forwarded them to the AO for a remand report. The Tribunal restored the matter to the AO for fresh assessment after admitting all evidences.7. Applicability of Section 40(a)(ia) for Labour Charges:The AO also disallowed the labour charges under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) held that Section 40(a)(ia) was not applicable. The Tribunal directed a fresh assessment by the AO to re-evaluate this issue after considering all evidences.8. Delay in Filing Cross Objections by Revenue:The Revenue's Cross Objections were delayed by 930 days without any application for condonation of delay or affidavit explaining the reasons. The Tribunal dismissed the Cross Objections due to the substantial delay and lack of justification.Conclusion:The Tribunal allowed the Assessee's appeal for statistical purposes, directing a de-novo assessment by the AO after admitting all evidences. The Cross Objections filed by the Revenue were dismissed. The order was pronounced in the open court on 31.07.2018.