2017 (3) TMI 96

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....rder. 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 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, i....

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....able 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 pre....

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.... 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 o....

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....enue. 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 expe....

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....nation 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 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....

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....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 a....