ACIT, Circle - 2, Durgapur v. M/s. Roy Mitra Enterprises, Durgapur

ITA 1821/KOL/2009 | 2006-2007
Pronouncement Date: 24-02-2012

Appeal Details

RSA Number 182123514 RSA 2009
Assessee PAN AAHFR6703L
Bench Kolkata
Appeal Number ITA 1821/KOL/2009
Duration Of Justice 2 year(s) 3 month(s) 19 day(s)
Appellant ACIT, Circle - 2, Durgapur
Respondent M/s. Roy Mitra Enterprises, Durgapur
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 24-02-2012
Date Of Final Hearing 01-07-2010
Next Hearing Date 01-07-2010
Assessment Year 2006-2007
Appeal Filed On 04-11-2009
Judgment Text
1 A IN THE INCOME TAX APPELLATE TRIBUNAL BENCH- A KOL KATA . .. . . .. . !' ] BEFORE SRI N.VIJAYAKUMARAN JUDICIAL MEMBER & SRI C.D. RAO AC COUNTANT MEMBER # # # # / ITA NO. 1703 (KOL) OF 2009 $% &'/ ASSESSMENT YEAR 2006-07 ROY MITRA ENTERPRISE BURDWAN. (PAN-AAHFR6703L) ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE-2 DURGAPUR. (*+ / APPELLANT ) VERSUS (-.*+/ RESPONDENT ) # # # # / ITA NOS. 1821/K/09 & 1119/K/10 $% &'/ ASSESSMENT YEARS 2006-07 & 2007-08 ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE-2 DURGAPUR.. ROY MITRA ENTERPRISE BURDWAN.(PAN-AAHFR6703L) (*+ / APPELLANT ) VERSUS (-.*+/ RESPONDENT ) FOR THE ASSESSEE: / SRI SOUMITRA CHOUDHURY FOR THE DEPARTMENT: / S/SRI NIRAJ KUMAR & ANJAN PD. ROY / 0 ' /DATE OF HEARING : 23/02/2012 1& 0 ' /DATE OF PRONOUNCEMENT : 24/02/2012 !2 / ORDER ( . .. . . .. . ) !' (C.D. RAO) ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE-FIRM FOR ASSESSMENT YE AR 2006-07 AND APPEALS OF THE DEPARTMENT FOR ASSESSMENT YEARS 2006-07 AND 2007-08 RELATING TO THE SAME ASSESSEE ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. ITA NO. 1703 (KOL)/2009 A.Y. 2006-07 (ASSESSEES APPEAL) 2. THIS APPEAL OF THE ASSESSEE-FIRM IS DIRECTED AG AINST THE ORDER OF LD. C.I.T.(A) DURGAPUR DATED 10/8/2009 FOR THE ASSESSMENT YEAR 20 06-07. THE ASSESSEE HAS RAISED SEVERAL GROUNDS WHICH ARE ALL DIRECTED AGAINST DIS ALLOWANCE MADE U/S. 40(A)(IA) OF THE 2 ACT IN THE SUM OF RS.1 44 91 357/-. IN THIS RESPEC T THE FOLLOWING GROUNDS HAVE BEEN RAISED :- 1. FOR THAT ON THE FACTS OF THE CASE THE ORDE R PASSED BY THE LD. CIT(A) IS COMPLETELY ARBITRARY UNJUSTIFIED AND ILLEGAL. 2. FOR THAT ON THE FACTS OF THE CASE THE LD. CIT(A) WAS WRONG IN NOT CONSIDERING THE FACT THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON HIRE CHARGES PAID TO M/S BHARAT EARTH MOVERS AMOUNTING TO RS.1 44 91 357 .00 THEREFORE DISALLOWANCE MADE U/S 40(A)(IA) IS COMPLETELY ARBIT RARY UNJUSTIFIED AND ILLEGAL. 3. WHETHER ON THE FACT AND IN THE CIRCUMSTANC ES LD. CIT(A) IS JUSTIFIED BY COMING TO THE CONCLUSION THAT M/S BHARAT EARTH MOVERS EXEC UTED WORKS CONTRACT MERELY OBSERVING THE APPARENT FACTS. 4. LD. CIT(A) IS NOT JUSTIFIED BY DISMISSING THE APPEAL ON THE ISSUE OF ADDITION OF RS. 1 44 91 357/- WITHOUT AFFORDING OPPORTUNITY OF CROSS EXAMINATION WITH THE ALLEGED FIRM TO UNEARTH THE FACT. 5. LD. CIT(A) IS NOT JUSTIFIED BY DISMISSING THE APPEAL ON THE ISSUE OF ADDITION OF RS.1 44 91 357/- RELYING ON THE INSPECTORS REPORT AND ON THE STATEMENT OF PARTNER OF FIRM I.E. M/S. BHARAT EARTH MOVERS. 6. LD. CIT(A) IS NOT JUSTIFIED BY PUTTING EM PHASIS ON THE INSPECTOR REPORT ON THE ISSUE OF WAY BILL FOR MACHINERIES PLACED ON HIRE ON THE BASIS OF WHICH HE DISMISSED THE APPEAL AS ONE OF THE REASONS. 7. LD. CIT(A)S OPINION ON THIS ISSUE OF DIS MISSAL OF APPEAL IS CONTRADICTORY IN VIEW OF THE FACT THAT IN ONE HAND HE IS RELYING ON THE INSPECTOR REPORT ON THE OTHER HAND HE IS IGNORING THE FACT AS REGARD NON-MA INTENANCE BOOKS OF ACCOUNT AS REPORTED BY THE INSPECTOR OF THE SAID FIRM. 3. THE FACTS ON THIS ISSUE ARE THAT THE ASSESSEE-F IRM IS A CONTRACTOR AND ALSO EARNING INCOME FROM MACHINERY HIRE CHARGES. RETURN OF INCO ME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS FILED SHOWING INCOME OF RS.45 57 740/-. THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION U/S. 143(3) WAS FRAMED ON A TOTAL INCOME OF RS.2 60 14 550/- AS AGAINST INCOME DECLARED BY THE ASSESSEE IN ITS RETURN AT RS.45 57 740/- MAKING THEREBY ADDITION OF RS.1 44 9 1 357/- U/S. 40(A)(IA) OF THE ACT. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE-FIRM EXECUTED CONTRACT JOB FOR CONSTRUCTION OF FENCING ALONG WITH BOARDER ROAD AT MAHADEVO MEGHALAYA OBTAINED FROM NATIONAL BUILDINGS CONSTRUCTION CORPN . LTD. (NBCC). REFERRING TO LETTER OF AWARD FOR THE SAID CONSTRUCTION ISSUED BY NBCC DATED 6/12/2004 A COPY OF 3 WHICH IS PLACED IN THE ASSESSEES PAPER BOOK AT PAG ES 14 TO 20 THE ASSESSEE CLAIMED THAT IT EXECUTED CONTRACT JOB AT MEGHALAYA WHERE BA NDH IS A COMMON FEATURE DUE TO DISTURBED AREA. THE LOCATION OF THE CONTRACT SITE W AS ON WASHING UP OF SAND AND EARTH SURROUNDED BY HILLS. AS PER CLAUSE-11.1 OF LETTER OF AWARD ISSUED BY NBCC DATED 06/12/2004 A COPY OF WHICH IS PLACED AT PAGES 14 T O 20 OF THE PAPER BOOK THE TERMS & CONDITION FOR MOBILIZATION OF EQUIPMENT FOR THE CON TRACTED JOB WERE AS UNDER :- YOU SHALL MOBILIZE ALL THE NECESSARY PLANT/MACHI NERY AND EQUIPMENT AS REQUIRED FOR THE SUCCESSFUL AND TIME COMPLETION OF WORK. IF DURING THE CURRENCY OF CONTRACT IT IS FOUND BY THE ENGINEER I N CHARGE THAT THE PROGRESS OF WORK IS NOT SATISFACTORY YOU SHALL PROMPTLY MOBILI ZE ADDITIONAL PLANT AND EQUIPMENT AS MAY BE REQUIRED AND DIRECTED BY THE EN GINEER-IN CHARGE FOR ENSUING SATISFACTORY PROGRESS OF WORK AT SITE AT NO EXTRA COST TO NBCC. ACCORDING TO THE ASSESSEE THEREFORE IT HAD TO PUT THE MACHINERY IN USE NOT ON HOUR BASIS BUT ON EARTH-CUTTING MEASUREMENT BASIS UNDER DIRECT CONTROL AND SUPERVISION OF THE FIRM ITSELF. THE LD. A.O. OBSERVED THAT AS PER THE ASSESSEES STATEMENT THE NATURE OF TRANSACTION WITH M/S. BHARAT EARTH MOVERS AS HIRE CHARGES OF MACHINERY WAS JUST TO AVOID TDS PROVISION AND CONSEQUENTIAL ADDITION THER EOF. HE ON THE BASIS OF INSPECTORS REPORT AND BILL RAISED BY M/S. BHARAT E ARTH MOVERS ON 31/3/2006 ON THE ASSESSEE FOUND THE FOLLOWING PARTICULARS :- SL.NO. PARTICULARS QUANTITIES R A T E AMOUNT 1 2 REF. WORK ORDER/CONTRACT NO: PERIOD OF WORK BILL FOR CONSTRUCTION OF BORDER FENCING AT MAHADEVO MEGHALAYA EARTH EXCAVATION ORDINARY ROCK EXCAVATION 237647.25 CUBIC METER 92024.25 CUBIC METER @ RS.30/- PER CUBIC METER. @ RS.80/- PER CUBIC METER. TOTAL RS.71 29 417 RS.73 61 940 RS.144 91 357 ON THE BASIS OF THE BILL RAISED BY M/S. BHARAT EART H MOVERS AND INSPECTORS REPORT THE LD. A.O. CAME TO THE CONCLUSION THAT THE BILL UNDOU BTEDLY AND APPARENTLY APPEARS CONTRACTUAL. THE A.O. ALSO OBSERVED THAT HAD IT BEEN REALLY A PAYMENT FOR HIRE CHARGES OR NON CONTRACTUAL PAYMENT THE ASSESSEE M /S ROY MITRA ENTERPRISE MUST HAVE 4 OBJECTED AND WOULD HAVE SETTLED THE MATTER WITH M/S BHARAT EARTH MOVERS WITH REGARD TO NATURE OF PAYMENT MADE BY HIM TO M/S BHARAT EART H MOVERS. THEREFORE THE LD. A.O. BASING ON THE BILL RAISED BY M/S. BHARAT EARTH MOVERS ON THE ASSESSEE-FIRM CAME TO THE CONCLUSION THAT M/S. BHARAT EARTH MOVERS HAD EXECUTED CONTRACT WORK WITH THE ASSESSEE BUT NO TDS WAS DEDUCTED BY THE ASSESSEE O N SUCH CONTRACTUAL CONSIDERATION. AS SUCH THE LD. A.O. HELD THE SUM OF RS.1 44 91 357 /- ON THIS ACCOUNT NOT ALLOWABLE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSES SEE U/S. 40(A)(IA) READ WITH SEC. 194C OF THE ACT. BEING AGGRIEVED THE ASSESSEE PREF ERRED APPEAL BEFORE THE LD. CIT(A). 4. BEFORE THE LD. C.I.T.(A) THE ASSESSEE REITERAT ED THE SUBMISSIONS AS MADE BEFORE THE LD. A.O. IT WAS FURTHER SUBMITTED THAT AS PER CERTIFICATE ISSUED BY M/S. BHARAT EARTH MOVERS IT WAS CLEAR THAT THE PAYMENT WAS ON ACCOUN T OF HIRE CHARGES TO M/S. BHARAT EARTH MOVERS AND NOT FOR ANY CONTRACTUAL WORK RELAT ING TO EXCAVATION OF EARTH AND ROCK. IN THE SAID CERTIFICATE IT WAS STATED THAT M ACHINERY WAS PLACED ON HIRE WITH THE ASSESSEE DURING THE RELEVANT PERIOD AT MEGHALAYA SI TE AND USED FOR EARTH EXCAVATION AND/OR ROCK EXCAVATION AND THAT HIRE CHARGES WERE N OT PAID ON HOURLY BASIS BUT ON THE BASIS OF MEASUREMENT OF EARTH OR ROCK EXCAVATED BY USING THE SAID MACHINERY AND SUCH ARRANGEMENT WAS MADE IN VIEW OF THE TROUBLE PRONE L OCALITY. THE LD. C.I.T.(A) FORWARDED THE SAID CERTIFICATE TO THE LD. A.O. FOR HIS REPORT WHO IN TURN DEPUTED INSPECTOR TO INVESTIGATE INTO THE MATTER WITH M/S. BHARAT EARTH MOVERS. THE C.I.T.(A) OBSERVED THAT THE INSPECTOR ENQUIRED FROM ONE OF TH E PARTNERS OF M/S. BHARAT EARTH MOVERS SRI PINTU SENGUPTA WHO DENIED TO HAVE ISS UED ANY SUCH CERTIFICATE BY THE FIRM. IT WAS ALSO STATED THAT THE FIRM HAD NOT GIVE N ANY MACHINERY ON HIRE TO THE ASSESSEE AND THERE WAS NO WRITTEN CONTRACT BETWEEN HIS FIRM AND THE ASSESSEE AND THE JOB WAS DONE ON THE BASIS OF VERBAL AGREEMENT. THE INSPECTOR ALSO STATED THAT THE ENQUIRIES SHOWED THAT M/S. BHARAT EARTH MOVERS HAD RENDERED CONTRACTUAL SERVICE BY WAY OF WORK CONTRACT WITH THE AID OF MACHINERIES AR RANGED AND SUPPLIED BY THE ASSESSEE-FIRM. ON THE ABOVE FACTS THE LD. C.I.T.(A ) UPHELD THE ACTION OF THE LD. A.O. IN NOT ALLOWING THE EXPENDITURE AS DEDUCTION AND ADDIT ION THEREOF U/S. 40(A)(IA) OF THE ACT. 5. THE LEARNED COUNSEL FOR THE ASSESSEE IN SUPPORT OF HIS CONTENTION FILED BEFORE US THE FOLLOWING EVIDENCES WHICH ARE PLACED IN THE PA PER BOOK :- 5 (A) PAGE-21 : CERTIFICATE FROM BHARAT EARTH MOVERS CONFIRMING THAT THEY PLACED MACHINERIES ON HIRE TO THE ASSESSEE-FIRM DURING THE PERIOD FROM 1/5/2005 TO 31/3/2006 AT MAHADEVA MEGHALAYA WORK SITE FOR EARTH EXCAVATI ON AND ROCK EXCAVATION AND USED ACCORDING TO THE ASSESSEES NEED. (B) PAGE-13 : INSPECTORS REPORT THE INSPECTOR CONDUCTED ENQUIRY FROM ONE OF THE PARTNERS OF M/S. BHARAT EARTH MOVERS SRI PINTU SEN GUPTA AND ACCORDING TO SRI SENGUPTAS STATEMENT THERE WAS NO WRITTEN CONTRACT BETWEEN THE ASSESSEE AND M/S. BHARAT EARTH MOVERS AND THE WHOLE JOB WAS DONE ON T HE BASIS OF VERBAL AGREEMENT. IN THIS CONTEXT HE FURTHER SUBMITTED THAT WHILE THE L D. A.0. TOOK THE STAND THAT THERE WAS ORAL CONTRACT/AGREEMENT FOR THE CONTRACTUAL JOB DI SBELIEVING THE EXPLANATION OF THE ASSESSEE AND SUPPORTING DOCUMENTS THEREOF ONUS OF PROOF TO THE ABOVE EXTENT SHIFTS ON THE DEPARTMENT TO ESTABLISH BY BRINGING ON RECORD E VIDENTIAL DOCUMENTS THAT THERE WAS INDEED EXISTENCE OF AN ORAL AGREEMENT WHICH THE DE PARTMENT FAILED TO DO. (C) PAGE-9 : LEDGER A/C OF M/S. BHARAT EARTH MOV ERS IN THE BOOKS OF THE ASSESSEE FOR THE PERIOD 1/4/05 TO 31/3/06 SHOWING DEBIT OF H IRE CHARGES OF MACHINE (RECEIPTS). (D) PAGE-43 : MEGHALAYA EXPENSES ACCOUNT SHOWING EXPENSES UNDER SEVERAL HEADS AND PROVING THAT MACHINERIES WERE PUT TO USE BY THE ASSESSEE ON RENT AND NOT ON SUB-CONTRACT BASIS. (E) PAGE-25 : BILL OF M/S. BHARAT EARTH MOVERS ON THE BASIS OF WHICH THE LD. A.O. PRESUMED M/S. BHARAT EARTH MOVERS AS SUB-CONTRACTOR OF THE ASSESSEE-FIRM. THE LEARNED COUNSEL IN THIS CONNECTION SUBMITTED THAT T HE ASSESSEE MADE SECURITY DEPOSIT WITH NBCC AGAINST AWARD OF CONTRACT JOB FOR CONSTRU CTION OF FENCING ALONG WITH BOARDER ROAD AT MAHADEVO MEGHALAYA BECAUSE IT HAS THE OBLIGATION TO DISCHARGE THE CONTRACT JOB SATISFACTORILY. HERE M/S. BHARAT EARTH MOVERS HAD NO OBLIGATION TO THE ASSESSEE BECAUSE SIMPLY THERE WAS DEPLOYMENT OF MA CHINERY. THEREFORE NO SECURITY DEPOSIT WAS REQUIRED TO DEPLOY MACHINERY. (F) ACCORDING TO CBDT CIRCULAR CONTAINED IN 276 IT R (ST) 165 CERTAIN AMOUNTS SHALL NOT BE ALLOWED AS DEDUCTION WHILE COMPUTING I NCOME UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION IF TAX IS NOT DEDU CTED AT SOURCE. IT HAS BEEN CLARIFIED IN THAT CIRCULAR THAT WITH A VIEW TO AUGMENT COMPLIANC E WITH TDS PROVISIONS IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS TO THEM IT HAS BEEN PROVIDED THAT NO DEDUCTION 6 WILL BE ALLOWED WHERE TAX IS NOT DEDUCTED FROM PAYM ENTS UNDER DIFFERENT CATEGORIES AS MENTIONED THEREIN. BUT IN THE CASE OF THE ASSESSEE IT WAS NOT THE CASE OF THE DEPARTMENT THAT BOGUS PAYMENTS WERE MADE BY THE ASS ESSEE AND THERE WAS AT ALL NO JOB BEING CARRIED OUT BY THE ASSESSEE AT MEGHALAYA. (G) ANOTHER NOTEWORTHY POINT REVEALS FROM THE BILL ITSELF THAT THE BILL ISSUED BY M/S. BHARAT EARTH MOVERS WHICH WAS RELIED UPON BY THE R EVENUE AUTHORITIES WAS MADE FOR EARTH EXCAVATION AND ORDINARY ROCK EXCAVATION AND M EASUREMENT OF SUCH WORK WAS GIVEN THEREIN AGAINST COST CHARGED. IT IS NOT INCLU DED ANY CONSTRUCTION MATERIAL OR INVOLVEMENT OF LABOUR. SO IT DOES NOT COME UNDER TH E PURVIEW OF EITHER SUB-CONTRACT JOB OR WORKS CONTRACT. HE FURTHER SUBMITTED THAT T HE JOB ASSIGNED BY NBCC TO THE ASSESSEE WAS CONSTRUCTION OF BORDER FENCING AT MAHA DEVO MEGHALAYA. THIS REFERENCE WAS USED BY BHARAT EARTH MOVERS WHILE THE BILL WAS RAISED BY M/S. BHARAT EARTH MOVERS AGAINST THE ASSESSEE. THIS DOES NOT IMPLY TH AT THE WHOLE OR THE PART OF THE JOB WAS EXECUTED BY BHARAT EARTH MOVERS. (H) REFERRING TO PAGE-21 OF THE PAPER BOOK WHICH WAS A CERTIFICATE ISSUED BY THE MANAGER OF M/S. BHARAT EARTH MOVERS AND PAGES-24 & 25 OF THE PAPER BOOK WHICH WERE THE BILLS ISSUED BY M/S. BHARAT EARTH MOVERS THE LEARNED COUNSEL POINTED OUT THAT IN BOTH THESE DOCUMENTS THE SIGNATORY WAS THE SAME PERSON I.E. MANAGER OF M/S. BHARAT EARTH MOVERS WHO ISSUED CERTIFICATE CONFIRM ING PLACEMENT OF MACHINERIES ON HIRE TO THE ASSESSEE-FIRM. THE LEARNED COUNSEL ARGUED THAT THE ASSESSEES CA SE UNDER THE GIVEN FACTS SHALL FALL U/S. 194-I OF THE ACT WHICH WAS AMENDED BY THE TAXATION LAWS (AMENDMENT) ACT 2006 W.E.F. 13/7/2006 AND THEREFORE THE SAID SECT ION IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y. 2006 -07. HE ALSO SUBMITTED THAT THERE IS NO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR 2007-08 SINCE THE ASSESSEE HAS DEDUCTED TDS AS APPLICABLE U/S. 194-I OF THE ACT. HE THEREFORE CONTENDED THAT THE REVENUE IS NOT JU STIFIED IN INVOKING PROVISIONS OF SEC. 40(A)(IA) READ WITH SEC. 194C OF THE ACT. THE LEARNED COUNSEL ON THE ABOVE FACTS AND SUBMISS IONS THEREFORE CONTENDED THAT ON THE BILL RAISED BY M/S. BHARAT EARTH MOVERS THE ASSESSEE HAD MADE PAYMENT ON MEASUREMENT BASIS BECAUSE THE POSSESSION OF THE MA CHINERIES WERE GIVEN TO THE 7 ASSESSEE SO THAT ASSESSEE MAY USE THOSE MACHINERIES IN THE WAY IT WANTS. THEREFORE ADDITION MADE U/S. 40(A)(IA) R.W.S. 194C OF THE ACT IS LIABLE TO BE DELETED. HE RELIED ON THE FOLLOWING DECISIONS : CIT (TDS) VS. UNITED RICE LAND LTD. [(2008) 174 T AXMAN 286 (P&H)] RAKSHIT TRANSPORT VS. ACIT [ITA NO.262/KOL/2009 ORDER DATED 11/9/2009] SAMANWAYA VS. ACIT [(2009) 34 SOT 332 (KOL)] 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTH ER HAND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE LD. A. O. WAS JUSTIFIED IN ADDING BACK RS.1 44 91 357/- WHICH WAS PAID/CREDITED TO M/S. BH ARAT EARTH MOVERS ON ACCOUNT OF CONTRACT JOB U/S. 40(A)(IA) OF THE ACT. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PART IES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE PAPERS PLACED IN THE PAPER BOOK. ON PERUSAL OF THE ASSESSMENT ORDER WE FIND THAT THE LD. A.O. CONSIDERED SUM OF RS.1 44 91 357/- ON THE BASIS OF THE BILL ISSUED BY M/S. BHARAT EARTH MOVERS AS CONTRACTUAL AND ACCORDINGLY INVOKED PROVISIONS OF SEC.40(A)(IA)/194C OF THE ACT. SECTION 194C OF THE ACT SPEAKS OF PAYMENTS TO CONTR ACTORS AND SUB-CONTRACTORS. ACCORDING TO THIS SECTION ANY PERSON RESPONSIBLE F OR PAYING ANY SUM TO ANY RESIDENT I.E. CONTRACTOR FOR CARRYING OUT ANY WORK INCLUDIN G SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT BETWEEN THE CO NTRACTOR AND ANY FIRM ETC. SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF TH E CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER IS EARLIER DEDUCT AN AMOUNT EQUAL TO ONE PER CENT IN CASE OF ADVERTISING AND IN ANY OTHER CASE TWO PER CENT OF SUCH SUM AS INCO ME-TAX ON INCOME COMPRISED THEREIN. NOW WE HAVE TO EXAMINE CONTRACTOR AND SUB- CONTRACTOR WITH REFERENCE TO THE JOB NATURE OF JOB ETC. BECAUSE BEFORE TAKING A D ECISION ON THE APPLICABILITY OF TDS U/S. 194C OF THE ACT ON A CONTRACT IT IS REQUIRED TO BE EXAMINED WHETHER THE CONTRACT IS A CONTRACT FOR WORK OR A CONTRACT FOR SALE. TD S SHALL BE APPLICABLE ONLY WHERE IT IS A CONTRACT FOR WORK AS PER THE PRINCIPLES LAID DO WN IN PARA 7(VI)(A) OF CIRCULAR NO. 681 DATED 8-3-1994 AND CIRCULAR NO. 13/2006 DATED 13-12-2006. CLAUSE (A) OF PARA 7(VI) OF THE ABOVE CIRCULAR IS REPRODUCED BELOW : 8 (A) SINCE CONTRACTS FOR THE CONSTRUCTION REP AID RENOVATION OR ALTERATION OF BUILDINGS OR DAMS OR LAYING OF ROADS OR AIRFIELDS O R RAILWAY LINES OR ERECTION OR INSTALLATION OF PLANT AND MACHINERY ARE IN THE NATU RE OF CONTRACTS FOR WORK AND LABOUR INCOME-TAX WILL HAVE TO BE DEDUCTED FROM PA YMENTS MADE IN RESPECT OF SUCH CONTRACTS. SIMILARLY CONTRACTS GRANTED FOR P ROCESSING OF GOODS SUPPLIED BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON WHERE THE OWNERSHIP OF SUCH GOODS REMAINS AT ALL TIMES WITH THE GOVERNMENT OR S UCH PERSON WILL ALSO FALL WITHIN THE PURVIEW OF THIS SECTION. THE SAME POSIT ION WILL OBTAIN IN RESPECT OF CONTRACTS FOR FABRICATION OF ANY ARTICLE OR THING W HERE MATERIALS ARE SUPPLIED BY THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND TH E FABRICATION WORK IS DONE BY A CONTRACTOR. THE AFORESAID GUIDELINES HAVE FURTHER BEEN CLARIFIE D IN CIRCULAR NO. 13/2006 DATED 13/12/2006 THE RELEVANT PORTION OF WHICH IS REPROD UCED BELOW :- 3. IT IS THEREFORE CLARIFIED THAT THE PROVISI ONS OF SECTION 194C WOULD APPLY IN RESPECT OF A CONTRACT FOR SUPPLY OF ANY ARTICLE OR THING AS PER PRESCRIBED SPECIFICATIONS ONLY IF IT IS A CONTRACT FOR WORK AN D NOT A CONTRACT FOR SALE AS PER THE PRINCIPLES IN THIS REGARD LAID DOWN IN PARA 7(V I) OF CIRCULAR NO.681 DATED 8 TH MARCH 1994. FURTHER AS PER CIRCULAR NO. 558 DATED 28 TH MARCH 1990 THE APPLICABILITY OF THE PROVISIONS OF SECTION 194C WILL HAVE TO BE EXAMINED WITH REFERENCE TO THE TERMS AND CONDITIONS OF EACH CONTRACT. 7.1. NOW WE LOOK INTO THE MEANING OF CONTRACTOR AND SUB-CONTRACTOR. FROM A PERUSAL OF SECTION 194C OF THE ACT IT IS OBVIOUS T HAT A CONTRACTOR FOR THE PURPOSE OF THE PROVISIONS OF THIS SECTION WOULD BE ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CENTRAL OR ANY STATE GOVERNMENT ANY LOCAL AUTHORIT Y AND CORPORATION ESTABLISHED BY OR UNDER A CENTRAL STATE OR PROVINCIAL ACT ANY COMPA NY OR ANY CO-OPERATIVE SOCIETY FOR CARRYING OUT ANY WORK INCLUDING THE SUPPLY OF LABOU R FOR CARRYING OUT ANY WORK AND A SUB-CONTRACTOR WOULD MEAN ANY PERSON WHO ENTERS I NTO A CONTRACT WITH THE CONTRACTOR FOR CARRYING OUT OR FOR THE SUPPLY OF LABOUR FOR C ARRYING OUT THE WHOLE OR PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR UNDER A CONTRACT WITH ANY OF THE AUTHORITIES NAMED ABOVE OR FOR SUPPLY WHETHER WHOLLY OR PARTLY ANY LA BOUR WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY IN TERMS OF HIS CONTRACT WITH ANY OF THE AFORESAID AUTHORITIES. HONBLE HIMACHAL PRADESH HIGH COURT HAD THE OCCASIO N TO DEAL WITH THE MEANING OF CONTRACTOR AND SUB-CONTRACTOR IN TERMS OF SEC. 194C IN THE CASE OF ITO V. RAMA NAND & CO. [163 ITR 702 704 (HP)]. IN THAT CASE THE RESPONDENT-FIRM PURCHASED 9 FROM THE GOVERNMENT CERTAIN QUANTITY OF SCENTS OF T IMBER. IT WAS HELD THAT THE RESPONDENT-FIRM WAS NOT A CONTRACTOR WITHIN THE M EANING OF SECTION 194C AS IT HAD NOT ENTERED INTO ANY CONTRACT FOR CARRYING OUT ANY WORK OR FOR SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK WITH ANY GOVERNMENT LOCAL AU THORITY CORPORATION COMPANY OR CO-OPERATIVE SOCIETY. THEREFORE THE PAYMENTS MADE BY THE RESPONDENT-FIRM TO ANY PERSON COULD NOT BE TREATED AS PAYMENTS MADE BY A CONTRACTOR TO A SUB-CONTRACTOR SO AS TO ATTRACT THE PROVISION 194C(2). THE RELEVANT PORTION OF THE OBSERVATION OF THEIR LORDSHIPS OF HONBLE HIMACHAL PRADESH HIGH COURT AT PAGE 704 OF THE REPORT IS TO QUOTE AS UNDER :- IT IS OBVIOUS FROM THE ABOVE EXTRACTED PROVISIONS T HAT A CONTRACTOR FOR THE PURPOSE OF THESE PROVISIONS WOULD BE ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CENTRAL OR ANY STATE GOVERNMENT ANY LOCAL AUTHORITY ANY CORPORATION ESTABLISHED BY OR UNDER A CENTRAL STAT E OR PROVINCIAL ACT ANY COMPANY OR ANY CO-OPERATIVE SOCIETY FOR CARRYING OU T ANY WORK INCLUDING THE SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK AND A S UB-CONTRACTOR WOULD MEAN ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CONTRACTOR CARRYING OUT OR FOR THE SUPPLY OF LABOUR FOR CARRYING OUT THE W HOLE OR PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR UNDER A CONTRACT WITH ANY OF THE AUTHORITIES NAMED ABOVE OR FOR SUPPLY WHETHER WHOLLY OR PARTLY ANY LABOUT WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY IN TERMS OF HIS CONTRACT WITH ANY OF THE AFORESAID AUTHORITIES. NOW IN THE INSTANT CASES ADMITTEDLY THE RESPONDENT FIRM HAD NOT ENTERED INTO ANY CONTRACT FOR CARRYING OUT ANY WORK OR FOR SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK WITH ANY GOVERN MENT LOCAL AUTHORITY CORPORATION COMPANY OR CO-OPERATIVE SOCIETY. THE RESPONDENT THUS NOT BEING A CONTRACTOR THE PAYMENTS MADE BY THIS FIRM TO ANY PERSON CANNOT BE TREATED AS PAYMENTS MADE BY A CONTRACTOR TO A SUB-CONTRACTO R SO AS TO ATTRACT THE PROVISIONS OF SECTION 194C(2) OF THE ACT . [EMPHASIS SUPPLIED] IT IS PERTINENT TO MENTION HERE THAT THE DEPARTMENT FILED S.L.P. BEFORE THE HONBLE SUPREME COURT IN THE ABOVE CASE AND THEIR LORDSHIPS OF HONBLE SUPREME COURT UPHELD THE DECISION OF HONBLE HIMACHAL PRADESH HIG H COURT AND THUS DISMISSED THE S.L.P. [157 ITR (ST) 31]. FROM THE ABOVE THEREFOR E IT IS CLEAR THAT THERE SHOULD BE A RELATION AS CONTRACTOR AND SUB-CONTRACTOR TO CARRY OUT ANY WORK OR FOR SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK. 8. IT IS AN ADMITTED POSITION THAT THE ASSESSEE WO ULD BE LIABLE FOR DEDUCTION OF TAX ON PAYMENTS MADE BY HIM UNDER A VALID CONTRACT. IN THE CASE OF THE ASSESSEE AS PER REPORT OF THE INSPECTOR THERE WAS NO WRITTEN CONTR ACT BETWEEN THE ASSESSEE AND M/S. 10 BHARAT EARTH MOVERS ALTHOUGH ONE OF THE PARTNERS I N HIS STATEMENT HAS STATED THAT THERE WAS VERBAL AGREEMENT. THE ASSESSEE FILED A CERTIFIC ATE ISSUED BY M/S. BHARAT EARTH MOVERS UNDER THE SIGNATURE OF THE MANAGER STATING T HAT THE PAYMENT WAS ON ACCOUNT OF HIRE CHARGES TO M/S. BHARAT EARTH MOVERS ON MEASURE MENT BASIS FOR EXCAVATION OF EARTH AND ROCK AND NOT FOR ANY CONTRACTUAL WORK REL ATING TO CONSTRUCTION OF BOARDER FENCING . THE SAME PERSON OF M/S. BHARAT EARTH MOVE RS ISSUED THE IMPUGNED BILL BASING UPON WHICH THE DEPARTMENT TREATED THE TRANSA CTION AS CONTRACTUAL AND NOT ON ACCOUNT OF HIRE OF MACHINERY ON MEASUREMENT BASIS. THEREFORE THERE IS NO WRITTEN AGREEMENT AND ASSUMPTION OF THE LD. A.O. OF HAVING AN ORAL AGREEMENT IS NOT CORROBORATED WITH ANY EVIDENCES ON RECORD. ON THE OTHER HAND THE ASSESSEE IS ABLE TO ESTABLISH THAT IT WORKED ON PEACE-MEAL BASIS ON HIR ING OF EARTH MOVING MACHINERIES ETC. FOR WHICH THE ASSESSEE HAS SUBMITTED A CERTIFICATE ISSUED BY M/S. BHARAT EARTH MOVERS. IN SUCH CIRCUMSTANCES THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX IN TERMS OF SEC.194C OF THE ACT. THE HONBLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF CIT VS. UNITED RICE LAND LTD.(SUPRA) UNDER SIMILAR CIRCUMSTANCES H ELD AS UNDER :- THE AO HAD HELD THE ASSESSEE LIABLE FOR DEDUCTION O F TAX ONLY ON THE ASSUMPTION THAT ASSESSEE WAS HAVING AGREEMENT WITH THE PARTIES THROUGH WHOM TRUCKS WERE ARRANGED FOR TRANSPORTATION OF GOODS. HOWEVER THE CIT(A) HAS RECORDED A FINDING OF FACT THAT THERE WAS NEITHER A NY ORAL OR WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND TRANSPORTERS FOR CARRIAGE OF GOODS NOR IT HAS BEEN PROVED THAT ANY SUM OF MONEY REGARDING FREIGHT CHAR GES WAS PAID TO THEM IN PURSUANCE OF A CONTRACT FOR SPECIFIC PERIOD QUANTITY OR PRICE. THIS FINDING OF FACT WAS RECORDED BY THE CIT(A) AFTER CONSIDERING THE CERTIFICATE FURNISHED BY THE TRANSPORTERS. THE TRIBUNAL HAS ALSO RECORDED A FINDING OF FACT THAT THE DEPARTMENT HAS NOT CONTROVERTED THE SAID FINDING OF THE CIT (A) EVEN BEFORE THE TRIBUNAL. WHILE RECORDING THIS FINDING OF FACT THE TRIBUNAL HAS CLEARLY STATED THAT NOTHING HAS BEEN BROUGHT ON RECORD BY T HE AO TO PROVE THAT THERE WAS WRITTEN OR ORAL AGREEMENT BETWEEN THE ALLEGED P ARTIES FOR CARRIAGE OF THE GOODS. IN VIEW OF THE ABOVE THE FINDING OF FACT R ECORDED BY THE TRIBUNAL IS NOT TO BE INTERFERED WITH . [EMPHASIS SUPPLIED] 9. ON THE ABOVE FACTS AND CIRCUMSTANCES OF THE CA SE WE ARE OF THE CONSIDERED VIEW THAT THE TRANSACTIONS OF THE ASSESSEE WILL FALL UND ER THE PROVISIONS OF SEC. 194-I OF THE ACT WHICH IS EFFECTIVE FROM 13/7/2006. SINCE THE ASSESSMENT YEAR INVOLVED IN THIS APPEAL OF THE ASSESSEE IS 2006-07 WHICH IS PRIOR T O THE AMENDMENT MADE BY THE TAXATION LAWS (AMENDMENT) ACT 2006 W.E.F. 13/7/200 6 WE FIND NO JUSTIFICATION ON THE PART OF THE REVENUE AUTHORITIES TO TREAT THE SA ID TRANSACTIONS UNDER THE PROVISIONS OF 11 SEC. 194C TO ATTRACT PROVISIONS OF SEC. 40(A)(IA) O F THE ACT. IT IS FURTHER PERTINENT TO MENTION HERE THAT THE LEARNED COUNSEL DURING COURSE OF ARGUMENT SUBMITTED THAT IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR 2007-08 THE RE IS NO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT SINCE THE ASSESSEE HAS DEDUCTE D TDS AS APPLICABLE UNDER THE AMENDED PROVISIONS OF SEC. 194-I OF THE ACT WHICH HAS SNOT BEEN CONTROVERTED DBY THE LD. DEPARTMENTAL REPRESENTATIVE. WE THEREFORE SE T ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND HOLD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS U/S. 194C ON THE PAYMENTS OF RS.1 44 91 357/- TO M/S. BHARAT EARTH M OVERS AND THEREFORE THE ADDITION U/S. 40(A)(IA) MADE BY THE A.O. AND SUSTAINED BY TH E C.I.T.(A) WAS UNWARRANTED. THE SAME IS THEREFORE DIRECTED TO BE DELETED. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS A LLOWED. ITA NO. 1821 (KOL)/2009 A.Y. 2006-07 } REVENUES APPEALS. ITA NO. 1119 (KOL)/2010 A.Y. 2007-08 } 11. IN GROUND NO.1 FOR ASSESSMENT YEAR 2006-07 TH E DEPARTMENT HAS OBJECTED TO THE DELETION OF ADDITION OF RS.33 13 143/- U/S. 69C OF THE ACT BY THE LD. C.I.T.(A) BEING PAYMENTS MADE TO DIFFERENT PARTIES AGAINST EARLIER YEARS LIABILITIES. THE LD. A.O. TREATED THIS AS UNEXPLAINED EXPENDITURE. THE ASSESS EE EXPLAINED BEFORE THE LD. C.I.T.(A) THAT THE AMOUNTS OUTSTANDING IN THE NAMES OF THESE CREDITORS WERE ALL OLD BROUGHT FORWARD BALANCES OF THE EARLIER YEAR AND PE RTAINED TO OUTSTANDING LIABILITY OF THE EARLIER YEAR. IT WAS FURTHER STARTED THAT THE RE WAS NO DEBIT IN RESPECT OF THE AMOUNTS PAID TO THESE PARTIES IN THE YEAR UNDER CON SIDERATION. THE EXPLANATION OF THE ASSESSEE ALONG WITH SUPPORTING PAPERS WERE FORWARDE D TO THE A.O. FOR HIS VERIFICATION AND COMMENT WHICH WAS ON THE SAME LINE AS ADOPTED DURING ASSESSMENT PROCEEDINGS. THE ASSESSEE FURTHER SUBMITTED THAT OUT OF SEVEN PE RSONS SIX PERSONS DENIED TO HAVE BEEN ENTERED INTO ANY TRANSACTION WITH THE ASSESSEE AND THAT MERE RECORDING OF SUCH TRANSACTION FOR ANY OF THE PREVIOUS YEARS IN THE BO OKS OF THE ASSESSEE CANNOT BE GIVEN ANY CREDENCE. THEREFORE ALTHOUGH THE AMOUNTS WERE NOT FOUND TO HAVE BEEN PAID FOR THE YEAR UNDER CONSIDERATION ADDITION WAS ARBITRAR ILY MADE BY THE LD. A.O. THE LD. C.I.T.(A) AFTER CONSIDERING THE ASSESSEES SUBMISSI ON REMAND REPORT AND EVIDENCE ON RECORD OBSERVED THAT IT IS AN ADMITTED FACT THAT TH E PAYMENTS RELATE TO LIABILITIES BROUGHT FORWARD IN THE BOOKS AND BALANCE SHEET FROM THE EAR LIER YEAR. FURTHER THE PAYMENTS 12 HAVE NOT BEEN MADE FOR EXPENSES INCURRED DURING THE YEAR UNDER APPEAL FOR GOODS OR SERVICES AND THERE IS NO DEBIT IN THE P/L ACCOUNT O F THE PAYMENTS. THEREFORE AFTER TAKING INTO CONSIDERATION SEC. 69C OF THE ACT THE LD. C.I.T.(A) HELD THE DISALLOWANCE MADE BY THE LD. A.O. NOT LEGALLY TENABLE BY OBSERVI NG AS UNDER :- A PLAIN READING OF THE ABOVE WOULD SHOW THAT A D ISALLOWANCE UNDER THE SECTION CAN ONLY BE MADE IN RESPECT OF EXPENDITURE INCURRED DURING THE FINANCIAL YEAR FOR WHICH ASSESSMENT ORDER IS BEING PASSED. THE MU MBAI TRIBUNAL IN THE CASE OF HARAKCHAND P. VORA VS. A.C.I.T. [2000] 68 TTJ 41 7 HELD THAT ADDITION U/S. 69C CAN BE MADE ONLY IN THE ASSESSMENT YEAR RELEVAN T TO THE FINANCIAL YEAR IN WHICH THE EXPENDITURE WAS INCURRED. THE SCHEME OF THE SECTION AS WELL AS THE ABOVE CITED DECISION WOULD SHOW THAT ADDITION U/S. 69CI CAN ONLY BE MADE FOR EXPENDITURE INCURRED IN THE RELEVANT FINANCIAL/PREV IOUS YEAR. I AM THEREFORE CONSTRAINED TO HOLD THAT THE DISALLOWANCE U/S. 69C IS NOT LEGALLY TENABLE AND THE SAME IS DELETED. 12. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL PLACED ON RECORD. THERE IS NO DISPUTE TO THE FACT THAT THE PAYMENTS IN QUESTIO N RELATED TO THE LIABILITIES BROUGHT FORWARD FROM EARLIER YEAR I.E. PAYMENTS WERE MADE AGAINST THE OPENING BALANCE OF LIABILITIES OF THE ASSESSMENT YEAR UNDER CONSIDERAT ION. IN SUCH CIRCUMSTANCES BY NO STRETCH OF IMAGINATION PROVISIONS OF SEC. 69C OF T HE ACT DO APPLY TO SUCH TRANSACTIONS. IT IS ALSO NOT DISPUTED THAT THE PAYMENTS HAVE NOT BEEN ENTERED IN THE P/L ACCOUNT AND CLAIMED AS EXPENDITURE. IN THAT VIEW OF THE MATTER WE FIND NO INFIRMITY IN THE ORDER OF LD. C.I.T.(A) IN DELETING THE ADDITION OF RS.33 13 143/- MADE U/S. 69C OF THE ACT WHICH IS UPHELD. 13. IDENTICAL ISSUE WAS ALSO SUBJECT MATTER OF APP EAL BY THE REVENUE FOR ASSESSMENT YEAR 2007-08. IN THIS ASSESSMENT YEAR THE LD. A.O . ADDED RS.54 19 625/- U/S. 69C OF THE ACT WHICH WAS DELETED BY THE LD. C.I.T.(A). F OR THE DISCUSSIONS MADE ABOVE AND REASONS ADOPTED WHILE DELETING THE ADDITION OF RS.3 3 13 143/- FOR ASSESSMENT YEAR 2006-07 WE UPHOLD THE ORDER OF LD. C.I.T.(A) ON TH IS ISSUE IN DELETING THE SAID ADDITION MADE U/S. 69C OF THE ACT FOR ASSESSMENT YEAR 2007-0 8. 14. IN THE REVENUES APPEAL FOR ASSESSMENT YEAR 20 06-07 THE ONLY OTHER GROUND RAISED WAS WITH RESPECT TO LD. C.I.T.(A)S ACTION I N DELETING THE ADDITION OF RS.7 75 104/- ON ACCOUNT OF ALLOWING OF HIGHER RATE OF DEPRECIATION ON MACHINERY GIVEN ON HIRE. THE LD. A.O. OBSERVED THAT THE ASSES SEE HAS CREDITED RS.68 07 328/- AS HIRE CHARGES OF MACHINERIES RECEIVED FROM M/S. BHAR AT EARTH MOVERS WHICH HAS BEEN 13 CONFIRMED BY THE PARTNER OF THE SAID FIRM. ON THE A BOVE FACTS THE LD. C.I.T.(A) HELD THAT THE ASSESSEE IS ENTITLED TO HIGHER RATE OF DEP RECIATION AND THUS GAVE RELIEF TO THE ASSESSEE IN RESPECT OF DISALLOWANCE OF RS.7 75 104/ - BY HOLDING AS UNDER :- FROM A PERUSAL OF THE ABOVE IT WOULD BE CLEAR TH AT THE MACHINERIES WERE LET OUT OF HIRE AND THAT SUBSTANTIAL INCOME WAS ALSO EARNED FROM THE SAME. THE CONFIRMATION IS MADE BY THE ACTUAL PERSON WHO HAS H IRED THE MACHINERIES AND IT IS MADE TO THE A.O. THEREFORE THE CONFIRMATION IS IN THE NATURE OF INDEPENDENT EVIDENCE WHICH MUST BE TAKEN INTO ACCOUNT. I THER EFORE HOLD THAT MACHINERY WAS GIVEN ON HIRE AND THEREFORE WOULD BE ENTITLED T O A HIGHER RATE OF DEPRECIATION. THE ASSESSEE IS THEREFORE GETS A R ELIEF IN RESPECT OF DISALLOWANCE OF RS.7 75 104/- IN RESPECT OF EXCESS DEPRECIATION. 15. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIALS PLACED ON RECORD. THE ABOVE FINDING OF FACT BY THE LD. C.I.T.(A) COULD NO T BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE BEFORE US. THAT BEING SO WE FIND NO JUSTIFICATION TO INTERFERE WITH THE SAID FINDING OF THE LD. C.I.T.(A ) IN ALLOWING HIGHER RATE OF DEPRECIATION ON MACHINERIES LET OUT ON HIRE BASIS. WE THEREFORE UPHOLD HIS ORDER ON THIS ISSUE AND DISMISSED THE GROUND RAISED BY THE D EPARTMENT. 16. THE ONLY OTHER GROUND IN THE REVENUES APPEAL FOR ASSESSMENT YEAR 2007-08 VIDE GROUND NO.2 IS WITH REGARD TO DIRECTION OF LD . C.I.T.(A) TO APPLY PROFIT @ 3% OF TURNOVER INSTEAD OF 4.5% AS ESTIMATED BY THE LD. A. O. THE LD. A.O. OBSERVED THAT THE ASSESSEE HAS DISCLOSED CONTRACT PROFITS OF RS.36 02 406/- WHICH WAS @ 1.77% OF THE GROSS RECEIPTS OF RS.20 33 34 118/-. THE EXPLANATI ON OF THE ASSESSEE FOR SUCH LOW PROFIT WAS NOT ACCEPTED BY THE LD. A.O. HE THEREFO RE ON ESTIMATE BASIS APPLIED PROFIT RATE AT 4.5% ON THE GROSS RECEIPTS AND TOOK THE CON TRACT INCOME AT RS.91 50 000/-. IN THIS WAY THE CONTRACT PROFIT WAS ENHANCED BY RS.55 47 594/- [RS.91 50 000 RS.36 02 406]. 17. THE LD. C.I.T.(A) AFTER DISCUSSING THE FACTS A ND RELATED CASE LAWS DIRECTED THE LD. A.O. TO TAKE CONTRACT PROFIT @ 3% INSTEAD OF 4.5% B Y OBSERVING AS UNDER :- 5. AFTER ENHANCING THE INCOME THE AO. HAS DISCUSS ED THE ISSUE OF PAYMENT TO FAKE CREDITORS. THE FACTS ARE THAT THERE WERE SOME CREDITORS BEING BROUGHT FORWARD FROM F.YR.2004-05. ENQUIRIES REGARDING THES E CREDITORS WERE MADE BY THE A.O. IN A.YR.2O06-07 PERTAINING TO F.YR.2005-06 AS SOME PAYMENTS HAD BEEN MADE IN THAT YEAR AS WELL AS IN THE F.YR.2006- 07 WHICH IS THE RELEVANT F.YR. UNDER APPEAL. THE A.O. WAS OF THE OPINION THAT THE CREDITORS WERE BOGUS AND MADE AN ADDITION ON ACCOUNT OF THE PAYMENTS MADE TO THE BROUGHT FORWARD CREDITORS IN A.YR.2005-06. THE MATTER CAME IN APPEA L BEFORE ME. IN THAT APPEAL 14 I HELD THAT DISALLOWANCE U/S.69C CAN ONLY BE MADE I N RESPECT OF EXPENDITURE INCURRED DURING THE F.YR. FOR WHICH THE ASSESSMENT ORDER WAS BEING PASSED. RELIANCE WAS PLACED BY ME IN THIS REGARD ON THE MUM BAI TRIBUNALS DECISION IN THE CASE OF HARAKCHAND P. VORA VS. AC1T(200O) 68 TT J. THE A.O. HAS NOT MADE AN ADDITION IN THE RELEVANT YEAR UNDER APPEAL BUT HAS DISCUSSED THE ISSUE IN DETAIL IN LIGHT OF THE BEST JUDGMENT ASSESSMENT ORDER PASS ED. HE HAS OBSERVED THAT THE PAYMENT OF RS.54 19 625/- TO THE FAKE CREDITORS REP RESENTED INCOME OF THE ASSESSEE AS THE AMOUNT HAS NOT BEEN PAID. THE LEARN ED A/R REFERRING TO GROUND NO.1 STATED THAT THIS STATEMENT WAS WRONG AS PAYMEN T HAD BEEN MADE AS WOULD BE APPARENT FROM THE PERUSAL OF THE CASH BOOK AND L EDGER. THE SAME WERE PRODUCED BEFORE ME IN SUPPORT OF THIS CONTENTION. I T WAS ALSO STATED THAT THE PAYMENTS TO THE CREDITORS WAS NOT DEBITED TO THE P & L A/C. AND HENCE NO ADDITION SHOULD BE MADE IN THIS REGARD. I HAVE CONS IDERED THE MATTER. I HAVE ALREADY ADJUDICATED UPON THIS ISSUE IN THE ASSESSEE S OWN APPEAL FOR A.YR. 2006- 07 AND HELD THAT ADDITION CAN ONLY BE MADE IN THE Y EAR OF EXPENDITURE OR WHEN THE CREDITOR FIRST APPEARS IN THE BOOKS. EVEN OTHER WISE FOR THIS YEAR THIS IS AN ACADEMIC DISCUSSION AS NO ADDITION HAS BEEN MADE ON ACCOUNT OF PAYMENT TO THE CREDITORS. 6. COMING TO THE QUESTION OF REJECTION OF BOOKS OF ACCOUNTS AND PASSING OF BEST JUDGMENT ORDER I HAVE CONSIDERED THE MATTER. THE KE RALA HIGH COURT IN THE CASE OF MANI AND COMPANY VS. CIT 256 ITR 373 HELD THAT A O WAS FULLY JUSTIFIED IN REJECTING THE ACCOUNTS OF THE ASSESSEE AND RESORTIN G TO ESTIMATION WHEN THE BOOKS OF ORIGINAL ENTRY WERE NOT PRODUCED BEFORE THE A.O DURING COURSE OF THE ASSESSMENT PROCEEDINGS. THE PATNA HIGH COURT IN THE CASE OF CIT VS. WARASAT HUSSAIN 171 ITR 405 HAS HELD THAT ASSESSMENT BY EST IMATE IS ONE OF THE KNOWN PROCESSES OF ASSESSMENT IN THE TAXATION WORLD. THEI R LORDSHIPS OBSERVED WHERE THE ASSESSEE CONCEALED RELEVANT MATERIAL/EVIDENCE; THE REVENUE HAS NO OPTION BUT TO MAKE A BEST JUDGMENT ASSESSMENT BY ESTIMATE. IN THE PRESENT CASE UNDER APPEAL BOOKS WERE NOT PRODUCED. THE MOST PRIMARILY EVIDENCE IN AN ASSESSMENT PROCEEDINGS ARE THE BOOKS OF ACCOUNT ON THE BASIS O F WHICH THE RETURN HAS BEEN PREPARED. THE VERACITY AND CORRECTNESS OF THE RETUR N OF INCOME IS SUBSTANTIATED TO A LARGE EXTENT BY PRODUCTION OF THE BOOKS OF ACCOUN TS. NON-PRODUCTION WILL INEVITABLY ATTRACT ADVERSE INFERENCE. UNDER THE CIR CUMSTANCES I AM OF THE OPINION THAT THE AOS RESORT TO ESTIMATION WAS IN P RINCIPLE CORRECT. 7. COMING TO THE ISSUE OF QUANTUM OF ESTIMATION OF INCOME I HAVE IN PRINCIPLE HELD THAT THE A.OS RESORT TO ESTIMATION WAS CORREC T. DURING COURSE OF THE APPEAL PROCEEDINGS THE LEARNED A/R SUBMITTED THAT EVEN IF THE ESTIMATION OF INCOME BY THE A.O WAS HELD TO BE CORRECT IN PRINCIPLE THE QU ANTUM WAS VERY EXCESSIVE. ATTENTION WAS DRAWN TO GROUND NO.5 OF THE APPEAL IN THIS REGARD. THE LEARNED A/R STATED THAT WHILE MAKING A BEST JUDGMENT ASSESS MENT THE PAST RECORDS OF THE ASSESSEE NEEDED TO BE EXAMINED. IT WAS STATED THAT THE NET PROFIT RATE FOR A.YR.2004-05 WAS 1.8% FOR A.YR.2005-06 1.74% FOR A.YR.2006-07 2.04% AND FOR THE A.YR. UNDER APPEAL IT WAS 1.78%. IT WAS STA TED THAT THE ASSESSEE WAS A BIG CONTRACTOR HAVING SUBSTANTIAL TURNOVER AND WAS DEPE NDENT FOR MOST OF THE WORK ON STAFF AS CLOSE PERSONAL SUPERVISION WAS NOT POSS IBLE IN VIEW OF THE VOLUME OF WORK AND THE ADVANCED AGE OF THE PARTNERS. I HAVE C ONSIDERED THE MATTER. THE 15 SUPREME COURT IN THE CASE OF BRIJBHUSAN LALL PARDUM AN KUMAR VS. CIT 115 ITR 524 OBSERVED THAT THE AUTHORITY MAKING A BEST J UDGMENT ASSESSMENT MUST MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME OF T HE ASSESSEE AND THOUGH ARBITRARINESS CANNOT BE AVOIDED IN SUCH AN ESTIMATE THE SAME MUST NOT BE CAPRICIOUS BUT SHOULD HAVE A REASONABLE NEXUS TO TH E AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CASE. SIMILAR OBSERVATIONS WER E MADE IN ANOTHER CASE BY THE APEX COURT NAMELY STATE OF KERALA VS. C. VELUK UTTY 60 ITR 239. I HAVE ALREADY HELD THAT THE ESTIMATION WAS JUSTIFIED. HO WEVER KEEPING IN VIEW OF STHE PAST RECORDS OF THE ASSESSEE AS WELL AS THE AMOUNT OF PROFIT ASSESSED IN SUCH CASES I AM OF THE OPINION THAT CALCULATION OF NET PROFIT @ 3% (WHICH WOULD RESULT IN AN ENHANCEMENT OF INCOME BY APPROXIMATELY 70%) IN PLACE OF 4.5% WOULD MEET THE ENDS OF JUSTICE. THE A.O. IS THEREF ORE DIRECTED TO COMPUTE NET BUSINESS PROFIT ACCORDINGLY. 18. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL PLACED ON RECORD. THE LD. C.I.T.(A) HAS ELABORATELY DISCUSSED THE ISSUE AND C AME TO A REASONABLE CONCLUSION THAT NET PROFIT @ 3% INSTEAD OF 4.5% ESTIMATED BY THE LD . A.O. WOULD MEET THE ENDS OF JUSTICE UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE. AFTER CAREFUL PERUSAL OF THE SAID OBSERVATION/FINDING WE ARE INCLINED TO UPHOLD THE DIRECTION GIVEN BY THE LD. C.I.T.(A) TO THE LD. A.O. TO COMPUTE CONTRACT PROFIT @ 3% IN PLACE OF 4.5%. THAT BEING SO THE GROUND OF APPEAL RAISED BY THE DEPARTMENT IN THIS R EGARD IS DISMISSED. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 IS ALLOWED AND APPEALS OF THE DEPARTMENT FOR ASSESSMENT YEARS 2006-07 & 2007-08 ARE DISMISSED. 3 !2 '! 4 5 36 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 24.2. 2012. SD/- SD/- ( ) ( . .. . . .. . ) !' (N.VIJAYAKUMARAN) JUDICIAL MEMBER (C.D. RAO) ACCOUNTANT MEMBER ( (( ( ' ' ' ') )) ) DATE: 24 TH -02-2012 16 # # # # / ITA NO. 1703 (KOL) OF 2009 # # # # / ITA NOS. 1821/K/09 & 1119/K/10 !2 0 -$$ 7!&8- COPY OF THE ORDER FORWARDED TO: 1. *+ / THE APPELLANT : M/S. ROY MITRA ENTERPRISE RAMA KRISHNA PALLY BENACH ITY DURGAPUR-13 (BURDWAN) 2 -.*+ / THE RESPONDENT : A.C.I.T. CIRCLE-2 DURGAPUR. 3. $2 () : THE CIT(A) DURGAPUR. 4. $2/ THE C.I.T. DURGAPUR 5 =$5 -$ / DR ITAT KOLKATA BENCHES KOLKATA 6 GUARD FILE . . -$/ TRUE COPY !2/ BY ORDER (DKP) ASSTT. REGISTRAR .