TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 705
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....on 31.03.2011 declaring total income of Rs. 3,97,10,060/-. Against the said return of income, the assessment was completed by the Joint Commissioner of Income Tax, Range-1, Jalgaon ('the Assessing Officer') vide order dated 25.03.2013 passed u/s 143(3) of the Income Tax Act, 1961 ('the Act') at a total income of Rs. 54,69,74,040/-. While doing so, the Assessing Officer made several disallowances. Out of which, three disallowances, with which we are concerned, as follows : (i) Disallowance of Interest over loan given to sister concern of Rs. 1,90,56,762/-; (ii) Disallowance of labour charges u/s 40(a)(ia) of Rs. 15,16,16,600; and, (iii) Disallowance u/s 41(1) of Rs. 94,59,495/-. 4. Being aggrieved by the above disallowances, an appeal was preferred before the ld. CIT(A), who vide impugned order, had granted relief in respect of addition of interest u/s 36(1)(iii) of Rs. 1,90,56,762/- by returning a finding of fact that the interest free funds are more than the borrowed funds and the advances to the sister concern be presumed to have been made out of the free funds and, therefore, no disallowance u/s 36(1)(iii) was warranted placing reliance on the decision of the Hon'ble Juri....
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....of assessment proceedings or the proceedings before the ld. CIT(A). 7. Being aggrieved by the order of the ld. CIT(A), which is against the assessee, the assessee is in appeal before us in ITA No.773/PUN/2015 for the assessment year 2010-11 and being aggrieved by the decision of the ld. CIT(A) that no disallowance u/s 36(1)(iii) is warranted, the Revenue is in appeal in ITA No.841/PUN/2015 for the assessment year 2010-11. ITA No.773/PUN/2015, A.Y. 2010-11 - By Assessee 8. First, we shall take up the assessee's appeal in ITA No.773/PUN/2015 for the assessment year 2010-11 for adjudication. 9. The ground of appeal nos.1 to 4 raised by the assessee are dismissed as not pressed during the course of hearing of the appeal. 10. The ground of appeal no.5 challenges the decision of the ld. CIT(A) confirming the addition u/s 41(1) of Rs. 94,59,495/- on account of alleged bogus sundry creditors. During the course of assessment proceedings, the Assessing Officer had called for the details of outstanding liabilities pertaining to the creditors. The Assessing Officer also carried out the verification of sundry creditors by exercising the power vested with him u/s 133(6) of the Act. On such....
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.... need not delve into the aspect whether mere non-production of confirmation from the sundry creditors entails the addition or not as both sides had agreed to remand the matter to the file of the Assessing Officer for the purpose of verification of fact whether or not the payments were made to the sundry creditors in subsequent period through banking channels. Once, it is found that the sundry creditors were paid in subsequent year it would undoubtedly establish the genuineness nature of the sundry creditors. Therefore, this ground of appeal no.5 is remanded to the file of the Assessing Officer with a direction to verify the evidence of payment made to the sundry creditors in subsequent year, if found so, not to make any addition as bogus credits in the present assessment year. As a result, this ground of appeal no.5 raised by the is partly allowed for statistical purposes. 16. The ground of appeal no.6 challenges the ad-hoc disallowance of 30% of the labour charges of Rs. 14,52,00,000/- doubting the genuineness of the expenditure. During the course of assessment proceedings, the Assessing Officer disallowed the 30% labour charges of Rs. 14,52,00,000/- by holding that the assessee ....
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....bour charges was made. Therefore, it is pleaded that on the principle of consistency also no disallowance of labour charges to the extent of 30% can be made. 20. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 21. We heard the rival submissions and perused the material on record. The issue in the present ground of appeal relates to the ad-hoc disallowance of 30% of the labour charges. It is a case of the Assessing Officer that the labour payments are subject to provisions of TDS. For non-compliance of TDS provisions, made the disallowance u/s 40(a)(ia) of the Act and also invoked section 40A(3) of the Act. However, on appeal before the ld. CIT(A), the reasoning of the Assessing Officer was turned down by the ld. CIT(A) by holding that the provisions of section 40A(3) have no application since no single payment exceeded Rs. 20,000/- in single day. Further, the ld. CIT(A) also ruled out the applicability of the provisions of section 40(a)(ia) of the Act. During the remand proceedings before the ld. CIT(A), the assessee could not produce the labourers for cross-verification, coupled with the fact that the vouchers are self-made, the ld. CIT(A) m....
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....to the fact that tender documents computed 30% of the contract value as a labour component and the actual charges only 33% of the contract value which is merely 10% excess. Thus, in any event, it cannot be said that the labour charges incurred are excessive or unreasonable. Therefore, the decision of the ld. CIT(A) making the ad-hoc disallowance of labour charges at 30% cannot be sustained in the eyes of law. Accordingly, this ground of appeal no.6 stands allowed. 24. The ground of appeal nos.7 to 10 not pressed and the same are dismissed as not pressed. 25. The ground of appeal no.11 challenges the decision of the ld. CIT(A) confirming the blasting charges of Rs. 40,20,100/- u/s 40(a)(ia) of the Act. The Assessing Officer made addition on account of blasting charges of Rs. 40,20,100/- paid to M/s. Patidar Enterprises, Khargaon for non-deduction of TDS u/s 194C of the Act. Even on appeal before the ld. CIT(A), the same was confirmed. 26. It is submitted before us that the payee had already offered the receipt to tax in the return of income and, therefore, the benefit of second proviso to section 40(a)(ia) should be granted after due verification. 27. On the other hand, ld. Sr. ....
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....CIT(A), the Revenue is in appeal before us. 36. The ld. DR placing reliance on the order of the Assessing Officer submitted that the ld. CIT(A) ought not to have granted relief. 37. On the other hand, ld. AR submitted that own funds available with the assessee company by way of share capital and reserve as on 31.03.2010 is Rs. 29,30,91,020/- as against the interest free loans given to sister concern of Rs. 15,88,06,348/-. Therefore, the question of disallowance u/s 36(1)(iii) does not arise. He further submitted that when the mixed funds is used for the purpose of making the interest free loan, presumption should be drawn that free funds are used for the purpose of making the interest free loan. He also relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Industries Ltd., 410 ITR 466 (SC) affirming the decision of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Industries Ltd., 161 DTR 420 (Bom.-HC) and CIT vs. Reliance Utilities & Power Ltd., 313 ITR 340 (Bom.-HC). 38. We heard the rival submissions and perused the material on record. The issue in the present appeal of the Revenue relates to the disallowance of proportionate intere....
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.... A.Y. 2011-12 - BY Revenue 40. Now, we shall take up the cross appeals of the assessee as well as the Revenue in ITA No.774/PUN/2015 and ITA No.842/PUN/2015 for the assessment year 2011-12. 41. Briefly, the facts of the case are as under :- The assessee is a private limited company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of execution of Government Contracts and trading in coal. The return of income for the assessment year 2011-12 was filed on 16.02.2012 declaring total income of Rs.Nil. Against the said return of income, the assessment was completed by the Joint Commissioner of Income Tax, Range-1, Jalgaon ('the Assessing Officer') vide order dated 26.03.2014 passed u/s 143(3) of the Income Tax Act, 1961 ('the Act') at a total income of Rs. 9,39,79,630/-. While doing so, the Assessing Officer rejected the book results in respect of the business of execution of civil contracts primarily on the ground that there is fall in the net profit as compared to the preceding years, no stock register and salary wages register had been maintained by the assessee company and the cash payment was made to the labourers. After rejecting the bo....
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....ssessing Officer that the assessee has not followed the method of accounting employed regularly. The reasons given by the Assessing Officer for rejection of book results is that there is fall in net profit as compared to earlier years and the defects in the maintenance of stock and labour register. It is settled position of law that mere fall in the gross profit and does not form the basis for rejection of the book results as held by catena of following decisions :- (i) Pioneer Sports Ltd. vs. CIT, 2 ITR 305 (Lah); (ii) Pandit Bros. vs. CIT, 26 ITR 159 (Punj); (iii) Veeriah Reddiar (S) vs. CIT, 38 ITR 152 (Ker.); (iv) Perianna Pillai & Co. (RMP) vs. CIT, 42 ITR 370 (Mad.); (v) Durai Raj (M) vs. CIT, 83 ITR 484 (Ker.); (vi) International Forest Co. vs. CIT, 101 ITR 721 (J&K); (vii) Motiram Pesumal vs. CIT, 149 ITR 786 (MP); (viii) Namasivayam Chettiar (SN) vs. CIT, 38 ITR 579 (SC); (ix) Punjab Trading Co. Ltd. vs. CIT, 53 ITR 335 (Pun.); and, (x) Deputy Commissioner of Income-tax, Lucknow vs. Hanuman Sugar (Khandsari ) Mills (P.) Ltd., [2013] 38 taxmann.com 53 (Allahabad). 46. The relevant paragraphs of the judgement of the Hon'ble Allahabad High Court in the ca....
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....ing, to consider whether the income, profits and gains can properly be deduced therefrom, and to proceed according to his judgment on this question." Again as observed by this court in Commissioner of Income-tax v. McMillan and Co. [1958] 33 ITR 182, the expression "in the opinion of the Income-tax Officer" in the proviso to section 13 of the Indian Income-tax Act, 1922, does not confer a mere discretionary power; in the context it imposes a statutory duty on the Income-tax Officer to examine in every case the method of accounting employed by the assessee and to see whether or not it has been regularly employed and to determine whether the income, profits and gains of the assessee could properly be deduced therefrom." 48. Though the decision was rendered under pre-amended provisions of the act, the general principle laid therein can be very well applied in the context of amended provisions of section 145 of the Act. Furthermore, the approach of the Assessing Officer while rejecting the book results is also flawed for the following reasons :- (i) Though the Assessing Officer referred to certain defects in the maintenance of books of account, we are unable to discern from asses....
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....ssessee the information supplied by the departmental representative and without giving any opportunity to the assessee to rebut the information so supplied and declining to take into consideration all materials which the assessee wanted to produce in support of the case constituted a violation of the fundamental rules of justice and called for interference on our part. In Mehta Parikh and Co. v. Commissioner of Income-tax [1956] 30 ITR 181 this court observed that the conclusions based on facts proved or admitted may be conclusions of fact but whether a particular inference can legitimately be drawn from such conclusions may be a question of law. Where, however, the fact finding authority has acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, the court is entitled to interfere. In our decision in Sree Meenakshi Mills v. Commissioner of Income-tax [1957] 31 ITR 28 after discussing the various authorities on the subject we laid down that: "(3) A finding on a question of fact is open to attack under section 66(1)....
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....ground of appeal no.2 raised by the Revenue. 52. In the result, the appeal filed by the Revenue in ITA No.842/PUN/2015 for the assessment year 2011-12 stands dismissed. ITA No.774/PUN/2015, A.Y. 2011-12 - By Assessee 53. Now, we shall take up the assessee's appeal in ITA No.774/PUN/2015 for the assessment year 2011-12 challenging the decision of the ld. CIT(A) making ad-hoc disallowance of 30% of the labour charges. The issue was discussed in great detail in the appeal of the assessee in ITA No.773/PUN/2015 for the assessment year 2010-11. For the reasons stated therein, we hold that no ad-hoc disallowance of labour charges is warranted. Accordingly, ground of appeal is allowed. 54. The ground of appeal nos.2 to 7 are dismissed as not pressed during the course of hearing of appeal. 55. In the result, the appeal filed by the assessee in ITA No.774/PUN/2015 for the assessment year 2011-12 stands partly allowed. ITA No.864/PUN/2016, A.Y. 2012-13 - By Revenue 56. Now, we shall take up the Revenue's appeal in ITA No.864/PUN/2016 for the assessment year 2012-13 challenging the decision of the ld. CIT(A) holding that the rejection of book results is not just and proper. This issu....
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....e is partly allowed for statistical purposes. 61. In the result, the appeal filed by the Revenue ITA No.864/PUN/2016 for the assessment year 2012-13 stands partly allowed for statistical purposes. ITA No.709/PUN/2016, A.Y. 2012-13 - By Assessee 62. Now, we shall take up the assessee's appeal in ITA No.709/PUN/2016 for the assessment year 2012-13. 63. The ground of appeal nos.1 to 7 are dismissed as not pressed. 64. The only ground of appeal pressed relates disallowance of 20% of the labour charges by the ld. CIT(A). This issue was discussed in great detail in assessee's appeal for the assessment year 2010-11 in ITA No.773/PUN/2015. For the reason stated therein, we allow this ground of appeal in favour of the assessee. 65. In the result, the appeal filed by the assessee in ITA No.709/PUN/2016 for the assessment year 2012-13 stands partly allowed. 66. Now, we shall take up the cross appeals of the Revenue as well as the assessee in ITA No.566/PUN/2017 and ITA No.802/PUN/2017 for the assessment year 2013-14. 67. Briefly, the facts of the case are as under :- The assessee is a private limited company incorporated under the provisions of the Companies Act, 1956. It is engaged....
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.... no reason to take a deliberate decision to not challenge similar addition sustained by CIT(A) in A.Y. 2013-14. This fact clearly substantiates that the marginal delay of 24 days in filing the present appeal was not intentional and hence, the said delay may please be allowed, in the interest of justice." 71. On the other hand, ld. Sr. DR has no serious objection for condonation of delay for 24 days. 72. Having regard to the averments made in the affidavit praying for condonation of delay, we are of the considered opinion that it is fit case for condonation of delay for 24 days. Accordingly, we condone the delay of 24 days and admit the appeal for adjudication. 73. The only issue in the present appeal relates to the disallowance of labour charges to the extent of 7.5% by the ld. CIT(A). For the reasons stated by us in the assessee's appeal for the assessment year 2010-11 in ITA No.773/PUN/2015, we hold that no ad-hoc disallowance of labour charges can be made. Accordingly, this ground of appeal stands allowed. 74. The ground of appeal no.2 is not pressed during the course of hearing of appeal. Hence, the same is dismissed as not pressed. 75. In the result, the appeal filed by ....