M/s Mahimananda Mishra, Cuttack v. CIT, Cuttack

ITA 302/CTK/2011 | 2006-2007
Pronouncement Date: 16-09-2011

Appeal Details

RSA Number 30222114 RSA 2011
Assessee PAN AAFFM2518J
Bench Cuttack
Appeal Number ITA 302/CTK/2011
Duration Of Justice 3 month(s) 19 day(s)
Appellant M/s Mahimananda Mishra, Cuttack
Respondent CIT, Cuttack
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 16-09-2011
Date Of Final Hearing 13-09-2011
Next Hearing Date 13-09-2011
Assessment Year 2006-2007
Appeal Filed On 27-05-2011
Judgment Text
IN THE INCME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE : SHRI K.K.GUPTA AM AND SHRI K.S.S.PRASAD RAO JM ITA NO. 302/CTK/2011 (ASSESSMENT YEAR 2006 - 07) M/S.MAHIMANANDA MISHRA AT ORIYA BAZAR BUXI BAZAR CUTTACK 753 001 PAN: AAFFM 2518 J VERSUS COMMISSIONER OF INCOME - TAX CUTTACK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SASWAT ACHARYA AR FOR THE RESPONDENT SMT. PARAMITA TRIPATHY DR DATE OF HEARING : 13.09.2011 DATE OF PRONOUNCEMENT : 16.09.2011 ORDER SHRI K.K.G UPTA AM : THIS APPEAL OF THE ASSESSEE AGITATES THE ORDER OF THE LEARNED CIT U/S.263. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A FIRM DERIVING INCOME FROM LABOUR CONTRACT WORK. THE ASSESSEE FILED ITS RETURN FOR THE A.Y. 2006 - 07 ON 31.03.2008 DECLARING INCOME OF 4 70 960 ACCOMPANIED BY TAX AUDIT REPORT 44AB OF THE INCOME - TAX ACT 1961 . THE RETURN WAS PROCESSED U/S 143(1) ACCEPTING THE RETURNED INCOME. LATER ON THE CASE WAS SELECTED FOR SCRU TINY IN RESPONSE TO WHICH THE A R OF THE ASSESSEE APPEARED FROM TIME TO TI ME AND FILED THE REPLIES IN RESPECT OF QUERIES MADE AND THE ASSESSMENT WAS COMPLETED U /S 143(3) THAT RESULTED IN REFUND OF 3 45 990 . THE LEARNED CIT INITIATED PROCEEDINGS U/S 263 BY OBSERVING THAT THE ASSESSMENT ORDER DT. 23.12.2006 IS ERRONEOUS AND PREJUD I CIAL TO THE INTEREST OF REVENUE. IN RESPONSE TO SHOW CAUSE NOTICE ISSUED BY THE LEARNED CIT THE ASSESSEE FILED AN EXHAUSTIVE WRITTEN REPLY EXPLAINING THE DISCREPANCY ALLEG ED IN THE SHOW CAUSE NOTICE AND FINALLY REQUESTED THE LEARNED CIT TO DROP THE P ROCE EDINGS IN VIEW OF THE DUE EXPLA NATION FOR THE SAME. THE LEARNED CIT HAS REPRODUCED THE ENTIRE EXPLANATION OFFERED BY THE ASSESSEE IN HIS ORDER AND FINALLY SET ASIDE THE MATTER TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION ITA NO.302 /CTK/2011 2 OF FACTS AND PROPER APPLICATION OF MIND IN THE REASSESSMENT PROCEEDINGS IN THE FOLLOWING LINES. 1. THE ASSESSING OFFICER HAS TO CALL FOR COPY OF AGREEMENT IF ANY WITH PRINCIPAL FOR INCURRING ANY EXPENDITURE ON BEHALF OF SUCH PRINCIPAL IN THE COURSE OF CARRYING ON BUSINESS RELEVANT T O THE F/Y 2005 - 06. 2. THE ASSESSING OFFICER HAS TO CALL FOR THE LEDGER ACCOUNT IN WHICH EXPENDITURE INCURRED ON BEHALF OF THE PRINCIPAL ON DAY TO DAY BASIS NOT TREATED AS ASSESSEES OWN BUSINESS RELATED EXPENDITURE HAVE BEEN RECORDED IN A CONSISTENT AND R EGULAR BASIS FOR THE F/Y 2005 - 06 IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE FIRM. 3. COPY OF BILLS / INVOICES RAISED IF ANY BY THE ASSESSEE ON THE PRINCIPAL SHOWING DETAILS OF EXPENDITURE INCURRED ON BEHALF OF THE PRINCIPAL AND THE AMOUNT CLAIM ED AS REIMBURSABLE FOR F / Y 2005 - 06. 4. THE ASSESSING OFFICER HAS TO CALL FOR DOCUMENT RECEIVED FROM PRINCIPAL ALLOWING SUCH CLAIM OF REIMBURSEMENT INCURRED BY THE ASSESSEE FIRM ON BEHALF OF THE PRINCIPAL FOR THE F / Y 2005 - 06. 5. THE ASSESSING OFFICE R HAS TO CALL FOR INFORMATION FROM VARIOUS PRINCIPALS REGARDING BILLS RAISED BY THE ASSESSEE FIRM DURING THE F/Y 2005 - 06 / SUM ACTUALLY RECEIVED FROM THEM TOWARDS CONTRACT RECEIPTS DURING THE F /Y 2005 - 06 AMOUNTS OUTSTANDING IF ANY AS ON 31 .03.2006. AGGRIEVED T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT T HE ORDER PASSED BY THE LEARNED CIT IS EX - FACIE ILLEGAL ARBITRARY EXCESSIVE AND IS BASED ON INCORRECT APPRECIATION OF LAW A S WELL AS THE FACTS AND CIRCUMSTANCES OF THE CASE AND THUS DESERVES TO BE QUASHED IN LIMINE. HE SUBMITTE D THAT THE ASSESSING OFFICER HAD ALREADY CALLED FOR THE COPY OF THE AGREEMENT AT THE SCRUTINY ASSESSMENT STAGE WHICH HAS BEEN REITERATED BEFORE THE LEA RNED CIT FOR WHICH NO FURTHER EXAMINATION OF THE ITA NO.302 /CTK/2011 3 SAME IS REQUIRED AT THIS STAGE. THE ASSESSING OFFICER HA D EXAMINED THE EXPENDITURE INCURRED ON BEHALF OF THE PRINCIPAL BY THE APPELLANT ON DAY TO DAY BASIS AT THE TIME OF MAKING SCRUTINY ASSESSMENT AND FURT HER EXAMINING OF THE SAME WOULD END UP IN FUTILE EXERCISE WITHOUT ANY TANGIBLE RESULT. THE RE - EXAMINATION OF THE DOCUMENTS FROM THE PRINCIPAL WOULD ALSO MEET THE SAME FATE AND AS SUCH COMPLETELY UNWARRANTED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. HE CONTENDED THAT CALLING FOR INFORMATION FROM VARIOUS PRINCIPALS REGARDING BILLS RAISED BY THE ASSESSEE FIRM AND SOME ACTUALLY RECEIVED HAS ALREADY BEEN EXPLAINED TO THE ASSESSING OFFICER INCLUDING THE LEARNED CIT AND NO PRACTICAL PURPOSE WOULD SOLVE FROM T HE RE - EXAMINATION OF THE SAID ACCOUNTS. HE CONTENDED THAT THE LEARNED CIT BEING SATISFIED OVER THE MATTER BY GIVING HIS SEAL OF APPROVAL IT IS UNNECESSARILY TO DIG THE PAST WHICH WOULD WAST E PUBLIC TIME ON A FUTILE EXERCISE. HE CONTINUED THAT THE LEARNED CIT OBSERVED AS REASONS FOR ISSUING THE SHOW CAUSE NOTICE IN THE ORDER U/S.263 BY TRYING TO RECONCILE THE DI FFERENCE IF ANY WAS IN THE GROSS RECEIPTS RENDERED TO TAX BY THE ASSESSEE VIS - - VIS THE DEBTORS OUTSTANDING WHICH OUGHT TO HAVE MATCHED. FOR THIS P URPOSE HE SUBMITTED A COPY OF THE RECONCILIATION WHICH INTERALIA INDICATED THAT THE AMOUNT RAISED FOR REIMBURSEMENT BY THE CONTRACTEE NAMELY ICCL WAS AGAINST THE BILLS RAISED FOR REIMBURSEMENT OF THE STATUTORY DUES SUCH AS PROVIDENT FUND AND ESI CONTRIBUT IONS ALONG WITH THE ACTUAL WAGES PAID TO THE LABOURERS WHO WERE ACTUALLY NOT ON THE ROLLS OF THE ASSESSEE. THIS AGREEMENT WAS PERUSED BY THE LEARNED CIT BUT HE HELD IT AS AN OPINION OF THE ASSESSEE AS WAS NOTED BY HIM IN HIS ORDER WHICH INDICATED THAT THE DIFFERENCE OF 77 48 598 WAS RECONCILED TO THE FACT THAT THE THREE PARTIES FROM WHOM THE TDS CERTIFICATES WERE OBTAINED HAD INCLUDED THE AMOUNTS OF THE BILLS WHICH THEY HAVE ONLY REIMBURSED. THEREFORE THE SAME CANNOT BE CONSIDERED FOR THE PURPOSE OF GRANT ING CREDIT TO THE ASSESSEE AGAINST ANY ITA NO.302 /CTK/2011 4 EXPENDITURE MADE WAS MISDIRECTED FOR THE ASSESSING OFFICER TO VERIFY AS IT WOULD LEAD TO NO USEFUL PURPOSE WHEN THE PAYMENTS HAVE BEEN ACTUALLY REIMBURSED TO THE ASSESSEE WHICH CANNOT BE VERIFIED BEING ROUTED THROUGH THE PARTIES LEDGER ACCOUNT COPIES AS FURNISHED. FOR THIS PURPOSE HE FURNISHED A S AMPLE COPY OF THE BILL RAISED ON ICCL WHEN ONLY THE SUPERVISION CHARGES AMOUNTING TO 1 LAKH PER MONTH HAS BEEN RAISED ON WHICH SERVICE TAX HAS BEEN CHARGED I N ACCORDANCE WITH THE SERVICE TAX ACT. THE EMPLOYEES CONTRIBUTIONS TO PF & ESI HAVE BEEN REDUCED WHEN THE PAYMENTS HAVE BEEN MADE TO THE LABOURERS AS WAGES HAVE BEEN REIMBURSED. IN THIS VIEW OF THE MATTER THE CONTENTION OF THE LEARNED CIT THAT WHETHER THE EXPENSES HAVE BEEN BORNE BY THE CONTRACTEE OR THE CONTRACTOR BECOMES IMMATERIAL FOR THE PURPOSE OF PERUSING THE AGREEMENT AS DIRECTED BY THE LEARNED CIT TO THE ASSESSING OFFICER. HE SUBMITTED THAT THE ASSESSEE HAS BEEN SUBJECTED TO S CRUTINY ON THE RATE OF RETURN ON SUCH INCOME BY THE HONBLE JURISDICTIONAL HIGH COURT AS WELL AS THE HONBLE TRIBUNAL N EARLIER YEARS WHEN THE PERCENTAGE OF PROFIT HAD BEEN ACCEPTED AT 6% WAS NOT TO BE FURTHER VERIFIED ON THE BASIS OF SUCH AGREEMENT N VIEW OF THE FACT OF THE DIRECTION OF THE LEARNED CIT APPEARS TO BE MORE ON THE BASIS OF AN EXERCISE TO BE UNDERTAKEN BY THE ASSESSING OFFICER FOR VERIFYING THE CARRYING OUT A PARTICULAR BUSINESS IN A PARTI CULAR MANNER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ACCOUNTING TREATMENT GIVEN TO THE VARIOUS EXPENDITURES INCURRED FOR REIMBURSEMENT RESULTED IN DEDUCTION OF TAX AT SOURCE AS THE ASSESSEE WAS A SUB - CONTRACTOR ON THE AMOUNTS WHICH REIMBU RSEMENT HAS BEEN RECEIVED THEREFORE COULD NOT BE FURTHER PROBED AS NO PREJUDICE TO THE REVENUE IS CAUSED BY GRANTING CREDIT TO SUCH TDS CERTIFICATES. THE AMOUNT WAS VERIFIED FOR REFUND TO THE ASSESSEE BY THE ASSESSING OFFICER IN THE PROCEEDINGS U/S.143(3) THEREFORE COULD NOT BE THE SUBJECT MATTER FOR ASSUMING JURISDICTION ITA NO.302 /CTK/2011 5 U/S.263 BY THE LEARNED CIT. HE SUBMITTED THE RECONCILIATION OF THE SUM OF 65 56 109 WHICH CONTRACT RECEIPTS HE PRESUMED WAS SUBJECT TO DEDUCTION OF TAX SOURCE WAS ACTUALLY THE REIMBURSEMENT ALONG WITH THE OTHER PARTIES WHEN THE ONUS OF ESTABLISHING THE LABOURERS EMPLOYED WERE THE EMPLOYEES OF THE ICCL OR THE ASSESSEE IS CLEARLY ESTABLISHED BEYOND DOUBT THEREFORE WAS AN EXERCISE T O RE - ESTABLISH THE FACT THAT WH AT THE LEARNED CIT COULD APPRECIATE WAS TO BE SUPPLEMENTED BY THE ASSESSING OFFICER TO END IN THE RESULT A NULLITY WHEN NO LOSS OF REVENUE COULD EITHER WAY BE ESTABLISHED . THE LEARNED CIT THEREFORE BEGAN HIS ASSUMING JURISDICTION BY FINDING AN ERROR IN THE ACCOUNTING TREATMENT BY THE ASSESSEE AND NOT THAT THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS. HE PRAYED THAT THE ORDER OF THE LEARNED CIT MAY KINDLY BE SET ASIDE . 4. THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT. SHE SUBMITTED THAT IT WAS TO BE VERIFIED WHETHER THE EMPLOYEES WHO WERE EMPLOYEES OF THE ICCL OR THE ASSESSEE CONTRACTOR N VIEW OF THE FACT THAT THE ASSESSING OFFICER HAD NOT VERIFIED THE BILLS R AISED TO COMPARE THE SAME WITH THE TDS CERTIFICATES WHICH WERE ON RECORD AS VERIFIED BY THE LEARNED CIT. FINDING THE MISMATCH BETWEEN THE TDS CERTIFICATES AND THE GROSS RECEIPTS SHOWN BY THE ASSESSEE MAY BE I N A PARTICULAR METHOD OF ACCOUNTING OF THESE E XPENSES BUT WAS TO BE VERIFIED WHICH THE LEARNED CIT IN HIS ORDER DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER WAS IN ACCORDANCE WITH THE AGREEMENT. SHE PROPOSED THAT IT WAS NOT THE METHOD OF CONDUCTING BUSINESS WITH A PARTICULAR PARTY BUT THE FACT TH AT THE ASSESSEE WAS SUPPLYING LABOURERS ALSO AND NOT ONLY SUPERVISING THEM WAS THE CONTENTION OF THE LEARNED CIT FOR INVOKING THE PROVISIONS OF SECTION 263. THE ASSESSING OFFICER THEREFORE HAD NOT VERIFIED THAT THE PAYMENTS ON ACCOUNT OF PF & ESI AND THE WAGES WERE ACTUALLY TO BE BORNE BY THE SUBCONTRACTOR THE ASSESSEE OR THE EMPLOYER AS INDICATED IN THE ITA NO.302 /CTK/2011 6 AGREEMENT. SHE PRAYED THAT THE DIRECTION OF THE LEARNED CIT MAY KINDLY BE UPHELD FOR THE ASSESSING OFFICER TO CARRY OUT. 5. WE HAVE HEARD THE RIVAL CONTE NTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS WE ARE INCLINED TO HOLD THAT THE SHOW CAUSE NOTICE ISSUED BY THE LEARNED CIT WAS ON THE BASIS OF FINDING THAT THERE WAS A MISMATCH OF THE AMOUNT OF TDS THE CRE DIT WAS GRANTED BY THE ASSESSING OFFICER WITHOUT SPREADING OVER THE S AME TO THE AMOUNT OF GROSS RECEIPTS ACCOUNTED FOR BY THE ASSESSEE. THE LEARNED CIT THEREAFTER PROCEEDED TO VERIFY THE RECONCILIATION OF THE ASSESSEE BY LOCATING THE DIFFERENCE OF 77 48 5 98 WHICH INCLUDED THE DIFFERENCE OF 65 56 109 BEING THE WAGES REIMBURSED BY THE ICCL TO THE ASSESSEE ON THE BASIS OF BILLS RAISED BY THE ASSESSEE. THE ASSESSEE WAS ONLY SUPERVISING THE LABOURERS SO CONTACTED FOR ICCL AS PER THE AGREEMENT FOR SUPPLY OF LA BOUR ON CONTRACT. THE CONTROL OF LABOURERS THEREFORE BECOMES PREDOMINANT AS THE SERVICES PROVIDED BY THE ASSESSEE ALONG WITH THE CLAIM OF REIMBURSEMENT OF WAGES AND THE AMOUNT OF PF & ESI CONTRIBUTION PAID ON BEHALF OF THE EMPLOYER BUT ACKNOWLEDGED IN ICCL KITTY COULD NOT BE THE INCOME OF THE ASSESSEE BEFORE US. THEREFORE THIS CLEARLY INDICATES THAT THE MISMATCH BETWEEN THE TDS AND THE GROSS RECEIPTS STOOD RECONCILED IN ACCORDANCE WITH THE ACCOUNTING PRINCIPLES WHICH ERROR COULD BE ASSIGNED TO THE FACT THA T THE ICCL PROPOSED TO DEDUCT TAX ON THE AMOUNT OF WAGES WHICH THEY HAVE REIMBURSED BUT ALSO CLAIMED AS EXPENDITURE. THE CREDIT FOR TAX DEDUCTED AT SOURCE WAS THEREFORE RIGHTLY CLAIMED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WHICH ORDER HAS BEEN PERUS ED BY US INDICATING THAT THE ASSESSING OFFICER HAD VERIFIED ALL THE EXPENSES ALONG WITH THE OUTSTANDING LIABILITIES WHICH WAGES COULD NOT BE SAID TO HAVE REMAINED PAYABLE ALONG WITH THE DETAILS OF PF PAYMENT NOT PERTAINING TO THE EMPLOYEES OR LABOURERS CLA IMED REIMBURSEMENT FOR. IN OTHER WORDS IT ITA NO.302 /CTK/2011 7 WAS NOT THE CASE OF THE LEARNED CIT TO ESTABLISH THAT THE EXPENDITURE INCURRED BY ONE WAS TO BE THE INCOME OF THE OTHER. THE ASSESSEE HAS BEEN CARRYING OUT THE SUPERVISORY WORK FOR OTHER CLIENTS AS WELL THEREFORE COULD NOT BE SUBJECTED TO VERIFICATION ON THE M ANNER OF ITS CONDUCTING OF BUSINESS I.E. THE LABOURERS TO BE EMPLOYED FOR A PARTICULAR PURPOSE SHOWING LOYALTY TO THE EMPLOYER FOR WHO THEY WORK. NO CLAIM MORE THAN WHAT HAS BEEN PAID TO THE LABOURERS CAN BE MADE AS HAS BEEN OPINED BY THE LEARNED CIT IN HIS ORDER THAT WOULD BECOME FRAUDULENT NOT ONLY FOR THE PURPOSE OF INCOME - TAX ALONE. THE ASSESSING OFFICER THEREFORE RIGHTLY CONSIDERED THAT THE INCOME RETURNED BY THE ASSESSEE WAS IN ACCORDANCE WITH THE PROVI SIONS OF THE INCOME - TAX ACT 1961 AND MORE SO THE LEARNED COUNSEL FOR THE ASSESSEES SUBMISSION OF THE ASSESSING OFFICER ACCEPTING THE ASSESSEES RETURN OF INCOME AS PER T HE PAST RETURNS ON PERCENTAGE WHICH HAS ALL BEEN SUBJECTED TO SCRUTINY BY THE TRIBUNAL AS WELL AS BY HONBLE JURISDICTIONAL HIGH COURT. IN OTHER WORDS THE DIRECTION OF THE LEARNED CIT TO THE ASSESSING OFFICER WOULD BE AN EXERCISE IN FUTILITY INSOFAR AS HAVING ENTERED INTO AN AGREEMENT WITH THE CONTRACTEE FOR THE JOBS AND RECONCILIATION TO ESTABLISH THE MISMATCH BETWEEN THE TAX DEDUCTED AT SOURCE AND THE GROSS RECEIPTS SHOWN BY THE ASSESSEE CLINCHES THE FACT THAT NO MONEY LAUNDERING OR FRAUDULENT UNLAWFUL ACTIVITIES HAVE BEEN CARRIED OUT BY THE ASSESSEE FOR THE PURPOSE OF ESTABLISHING THAT THE APPREHENSION IN THE MIND OF THE LEARNED DR THAT THE LABOURERS WHOSE PF BEING THE EMPLOYERS SHARE HAS BEEN PAID FOR BY THE ASSESSEE ON BEHALF OF THE ACTUAL EMPLOYER. THIS WOULD ONLY MEAN THAT THE SUPERVISION WAS CARRIED OUT BY THE ASSESSEE IN ACCORDANCE WITH THE AGREEMENT AND WAS NOT TO BE FURTHER VERIFIED INSOFAR AS ASSUMING BUT NOT ACCEPTING THE ASSUMING OF JURISDICTION OF REVISIONARY POWERS IF ANY OUGHT TO HAVE BEEN APPLIED IN THE CASE OF ICCL FOR THE REASONS INDICATED IN THE SHOW CAUSE NOTICE AND NOT TO ITA NO.302 /CTK/2011 8 THE APPELLANT BEFORE US. IN THIS VIEW OF THE MATTER THE AMOUNT IDENTIFIED BY THE LEARNED CIT WHETHER ERRONEOUS OR PREJUDICIAL TO THE IN TEREST OF REVENUE CANNOT BE ESTABLISHED EITHER WAY BY THE ASSESSING OFFICER. THE EXERCISE UNDERTAKEN BY THE LEARNED CIT WAS SUFFICIENT TO REST THE CASE AND IN THAT CASE THE LEARNED CIT WOULD HAVE DONE GREATER JUSTICE HAD HE DROPPED THE PROCEEDINGS INITIAT ED U/S.263 INSTEAD OF FURTHER DIRECTING THE ASSESSING OFFICER FOR FURTHER RE - VERIFICATION. IN VIEW OF THE ABOVE THE ORDER OF THE LEARNED CIT IS SET ASIDE. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBE R (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 16 TH SEPTEMBER 2011 H.K.PADHEE SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.MAHIMANANDA MISHRA AT ORIYA BAZAR BUXI BAZAR CUTTACK 753 001 2. THE RESPONDENT: COMMISSIONER OF INCOME - TAX CUTTACK. 3. THE CIT 4. THE CIT(A) 5. THE DR CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY.