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Income Tax Appellate Tribunal, “RAIPUR” BENCH, RAIPUR
Before: SHRI PRADIP KUMAR KEDIA & SHRI PAWAN SINGH
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeals have been filed at the instance of the assessee against the separate orders of the Commissioner of Income Tax (Appeals), Bilaspur (‘CIT(A)’ in short) for both assessment years as tabulated hereunder:
ITA Nos. Name of AY order of order of AO’s order assessee CIT(A) AO dated under Section dated 140/RPR/ Mohan 2012-13 11.07.16 17.03.15 143(3)of the 2017 Sukumaran Act 141/RPR/ Mohan 2013-14 24.03.17 07.03.16 143(3)of the 2017 Sukumaran Act
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 2 - ITA No. 140/RPR/2017-A.Y. 2012-13
The grounds of appeal raised by the assessee read as under:
“1. The learned Commissioner (Appeals) erred in law as well on facts in making the enhancement without giving notice to the assessee. 2. The learned Commissioner (Appeals) erred in enhancing the total income by Rs 3296000/-. 3. The learned Commissioner (Appeals) erred in law as well on facts to issue directions to the A.O. suggesting enhancement of income for the assessment year not in appeal. 4. The learned Commissioner (Appeals) erred in rejecting the claim of service tax amounting to Rs. 8212939/- paid before the due date of return. 5. The order of the CIT (Appeals) erred in restricting the disallowance of wages to Rs. 257722/-. 6. The order of the CIT (Appeals) sustaining the addition of Rs. 2,00,000/- on account of lumpsum disallowance out of transportation charges and site expenses.”
The assessee is a proprietor of M/s. Gayatri Constructions which is engaged in the business of execution of contract work of erection, fabrication, maintenance and labour supply on contract basis. The assessee filed return of income for AY 2012-13 in question declaring total income of Rs.1,32,95,560/-. The books of accounts were audited under s.44AB of the Act. The case of the assessee was subjected to scrutiny assessment. The AO inter alia observed that the assessee had claimed expenditure of Rs.2,04,88,913/- incurred under the head ‘service tax’. However, in the course of the assessment, the assessee moved an application that the assessee is entitled to higher figure of deduction towards service tax amounting to Rs.2,87,01,852/- on the ground that the expenses towards service tax is allowable on actual payment basis as paid up to the filing of return of income under s.139(1) of the Act. The AO, however, rejected the request of the assessee for entitlement of
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 3 - higher claim which was not routed through the return of income. According to the AO, the assessee could have claimed deduction by way of return filed under s.139(1) or by filing revised return within the given time limit and since this was not done by the assessee, the claim of allowance of deduction of Rs.2,87,01,852/- as against the existing claim of Rs.2,04,88,913/- debited in the P&L account was rejected. The AO also made certain disallowances under various heads expenses and assessed income at Rs.1,62,16,864/-.
Aggrieved by the disallowances carried out by the AO and also for refusing to allow additional claim towards service tax expense, the assessee preferred appeal before the CIT(A).
The CIT(A), however, denied the relief towards enhanced quantification of service tax deduction remaining unclaimed in ROI. The CIT(A) also simultaneously raised doubt on the quantum of service tax deductions claimed year after year and made analysis of claim on service tax from A.Y. 2007-08 onwards up to A.Y. 2012-13 in question and finally came to conclusion that an amount of Rs.32,96,000/- deserves to be enhanced on account of excess claim of service tax made by the assessee as per his P&L account. The CIT(A) further directed the AO to take remedial action in all earlier years and also directed exclusion of the interest expenditure incurred on belated payment of service tax in earlier assessment years. However, the CIT(A) also granted some part relief on other expenses disallowed by the AO.
Aggrieved by the denial of substantive relief sought and simultaneous enhancement of income to the contrary coupled with other remedial actions directed in other assessment years etc. the assessee preferred appeal before the Tribunal.
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 4 - 7. We have heard rival submissions on various issued raised and perused the orders of the lower authorities.
The ground nos. 1 & 2 concern enhancement of total income by Rs.32,96,000/-.
8.1 In this regard, it is the contention of the assessee that the order of the first appellate authority is contrary to facts and law because: (i) the enhancement for AY 2012-13 in question and similar directions to the AO suggesting enhancement for the earlier years, without giving any notice to the assessee is in total disrespect to the ratio laid down by the Hon’ble Supreme Court in CIT vs. Rai Bahadur Harduttroy Motilal Chamaria (1967) 66 ITR 443 (SC). (ii) In view of the bar created by section 251 read with section 150(2), the CIT(Appeals) has no jurisdiction to issue ‘directions’ to the AO suggesting enhancement of income concerning other assessment years not in appeal before him and his action in this regard is opposed to the ratio of the SC in ITO v. Murlidhar Bhagawan Das (1964) 52 ITR 335 (SC). (iii) The issue of service tax was a matter of agitation in AY 2011-12 and consequently, the assessment order in that year on the issue of service tax stood merged with the first appellate order of the then CIT(Appeals) and hence the present incumbent had no jurisdiction to review the subject matter and issue directions in such an instance. It was contended that the action of the CIT(Appeals) in this regard is in total disregard to the decisions of the SC in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CIT v. Simon Carves Ltd, (1976) 105 ITR 212, 219 (SC); and CIT v. Rao Thakur Narayan Singh (1965) 56 ITR 234(SC).
8.2 On appraisal of the submissions made on behalf of the assessee and on perusal of the orders of the CIT(A), it appears self-
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 5 - evident that the enhancement for the assessment year in question was carried out by the CIT(A) without giving any formal intimation to the assessee in this regard and without communicating the basis for arriving at the said figure of enhancement to the assessee. Such approach of the CIT(A) is contrary to statutory protocol as well as law codified in S. 251(2) of the Act. It is trite that the enhancement in the assessed income, if any, can be considered and advanced only if an opportunity is given for that purpose as held in Gedore Tools (P.) Ltd. vs. CIT (1999) 238 ITR 268 (Del.). Pertinently, the power of enhancement conferred under s. 251(1) of the Act is restricted to the subject-matter of assessment or the source of income which have been considered expressly or by clear implication by the AO from the point of view of the taxability of the assessee. Besides, the enhancement proceedings are intrinsically a serious exercise undertaken independently by the CIT(A). Hence, for making any comments adverse to the assessee, it is bounden duty of the CIT(A) to follow due process of law before coming to his own conclusions on unverified facts and before making comments thereon. The CIT(A) is bound to confront the assessee with material evidence, if any, in his possession. The statutory obligations in case of enhancement are far wider. As alleged, the impugned enhancement has apparently been made without giving notice to the assessee and without confronting him with his process of reasoning for doing so. The impugned enhancement is thus wholly unsustainable in law. The direction for enhancement is thus quashed and set aside. Ground No.1 & 2 of the appeal of the assessee are thus allowed.
We now advert to Ground No.3 of the assessee for suggesting enhancement of income to the AO for the earlier assessment years which are not in appeal before him.
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 6 - 9.1 The sum and substance of the plea of the assessee in this regard is that the CIT(A) has no jurisdiction to issue directions to the AO suggesting enhancement of income for the assessment years not pending before him in appeal and hence such directions given by him for the A.Y. 2010-11 onwards while sitting in appellate jurisdiction for AY 2012-13 is contrary to the scope of powers conferred upon him under s. 251(1) of the Act. Consequently, such directions to the AO for exploring additions in the earlier years towards disallowances out of service tax claims and interest thereon are bad in law at the threshold and thus unsustainable. This is more so on account of fact that Section 251 r.w.s. 150(2) of the Act does not save the time limit prescribed under s.149 of the Act in respect of escaped assessment for the years other than that which is subject matter of appeal.
9.2 Section 251 of the Act stipulates exercise of power conferred upon the CIT(A) in respect of appeals pending before him. The first appellate authority may thus inter alia enhance the assessed income of the assessment year in appeal but however such power of enhancement does not extend to other assessment years. Conjunctively, we also advert to Section 150 of the Act. Section 150 of the Act enables the Revenue to reopen beyond ordinary time limits prescribed under s.149 of the Act in some exceptional circumstances. Section 150(1) overrides the provisions of Section 149 of the Act which lays down the time limits for issuance of notice under s.148 of the Act. In other words, s.150(1) enables the authorities to lift the embargo of period of limitation provided under s.149 of the Act to reopen the assessment in appropriate situations. Section 150(2) of the Act, however, insulates the assessee from the operation of Section 150(1) of the Act in the circumstances specified therein. As per Section 150(2), only those assessments can be reopened which have not already attained finality due to bar of
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 7 - limitation under s. 149 at the time of passing assessment order which is subject matter of appeal. Hence, the CIT(A) cannot formulate a ‘finding’ or a ‘directions’ pertaining to assessment years which had already become time barred at the time of passing assessment order in question.
9.3 It may be significant to note here that the scope of expressions ‘findings’ and ‘directions’ contemplated in Section 150 of the Act and Section 153 of the Act is limited in its sweep. A ‘direction’ or a ‘finding’ as contemplated in Section 150/S. 153 of the Act must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in reference to a particular assessment year. It is again pertinent to note that expression ‘direction’ or ‘finding’ contemplated in s.150 & s.153 of the Act cannot be construed in vacuum but must be collated to the directions which the CIT(A) is empowered under s.250 / s.251. It may further be pertinent to observe that for the purposes of directions contemplated under s.150(1) of the Act, the authority concerned is expected to examine the records of the proceedings as held in CIT vs. Green World Corporation 314 ITR 81 (SC).
9.4 In this backdrop, we find palpable merit in the plea of the assessee that neither under s.251 of the Act nor under s.150(1) of the Act, the CIT(A) is entitled to issue directions to the AO to reopen the assessments of the earlier years for the purposes of disallowances towards service tax claims without showing necessity of such directions for the purposes of adjudication of present dispute. Section 251 of the Act as noted earlier restricts the scope of powers to the appeal before it. The CIT(A) cannot travel to other assessment years. Similarly, to invoke Section 150(1) of the Act, it is incumbent upon the CIT(A) to demonstrate the fact that the finding/direction in question is necessary for disposal of the issue
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 8 - before him. To be a necessary finding, it must be directly involved in the disposal of the case. Similarly, to be a direction as contemplated by Section 150/ S.153 of the Act, it must be an express ‘direction’ necessary for disposal of the case before the concerned authority.
9.5 On reading of the first appellate order, it is evident that findings of the CIT(A) seeks to travel beyond the A.Y. 2012-13 in question and seeks to displace the completed assessment of the other years (some of which have already become time barred at the time of passing of original assessment order in appeal) by giving directions to the AO to take remedial actions towards service tax allowed in earlier assessment years. Such findings and directions are outside the scope of powers entrusted under S. 251 as well as S.150(1) of the Act. To reiterate, Section 150(1) does not permit issue of such directions to the AO without showing as to how such findings/directions are necessary for the purposes of adjudicating the issue of allowability of service tax in the year in question.
9.6 Noticeably, in the instant case, the issue of allowability of service tax was also examined by the AO under s.143(3) of the Act for AY 2010-11. The appeal on the point was filed before the CIT(A). The order of the AO thus stood merged with the first appellate order. Such assessment already merged in the order of the higher authority cannot be distributed by the authority of equal rank. Hence, action of the CIT(A) can not be upheld from this perspective as well.
9.7 As a sequel to such delineation, the directions to the AO to examine the service tax issue in relation to earlier assessment years require to be quashed and expunged. We do so accordingly. Ground No.3 of the assessee’s appeal is thus allowed.
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 9 - 10. Ground No.4 concerns rejection of enhanced claim of service tax on actual payment basis before the due date of return. As stated, the claim was rejected on the ground that such claim for extra deduction does not arise from ROI. In the instant case, at the time of scrutiny proceedings, the assessee raised an additional claim for allowability of service tax at higher figure of Rs.2,87,01,852/- in place of Rs.2,04,88,913/- originally claimed in the return of income on the ground that deduction is allowed under S. 43B on actual payment basis upto the due date of filing ROI. The AO has denied such higher claim made without corresponding revision of ROI. The assessee stated that the lower claim has been made out of mistake and advertence on the part of the assessee. It is the contention of the assessee that such mistake in making wrong claim will not operate as any kind of estoppel against the assessee regardless of whether the revised return was filed or not. It is contended that once the assessee is in a position to show that it has been over-assessed under the provisions of the Act even on account of assessee’s own mistake or otherwise, the Revenue is under duty to assess correct income.
10.1 It is trite that the authorities under the Act are under sacrosanct obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, mis-conception or not being properly instructed, is over assessed, the authorities under the Act are required to ensure that only legitimate tax dues are collected. This is the view which flows from innumerable judgments including CIT vs. Shelly Products (2003) 261 ITR 367 (SC), S. R. Koshti vs. CIT (2005) 276 ITR 165 (Guj), Ester Industries vs. CIT (2009) 185 TAXMAN 266 (Delhi) and CIT vs. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 349 ITR 336 (Bom). The essence of these decisions are that mere admission on the part of the assessee with respect to an addition/disallowance
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 10 - in its original return or in revised return would not ipso facto bar an assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. It is thus well settled that if a particular income is not taxable under the Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. The Revenue authorities cannot enforce untenable actions of the assessee against it which led to declaration of income of higher amount incorrectly. It is thus open to assessee to show that it was over assessed under erroneous impression of law or facts even if it is attributable to the mistake of assessee.
10.2 So viewed, we do see potency in the argument laid on behalf of the assessee that both AO and CIT(A) committed error in denying the relief claimed. In our considered view, the action of the revenue authorities is in defiance of the judicial precedents on the issue and thus cannot be countenanced. In our view, the assessee can not be prevented from raising such additional claim merely because the ROI could not be revised. The factual matrix towards actual payments however does not appear to have been verified by the AO. It would thus be in fitness of things to remit the issue back to the file of AO. The AO shall allow the higher claim of service tax in accordance with law on being satisfied with the actual payments. It shall be open to the assessee to adduce evidence and explanation as may be considered necessary in support of higher claim of deduction. The issue is accordingly set aside to the file of the AO for proper determination of entitlement of service tax claim in question.
Consequently, Ground no.4 of the assessee is allowed for statistical purposes.
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 11 - 12. Ground Nos. 5 & 6 concern lump sum disallowances out of wages and ‘transportation charges & site expenses’ sustained by the CIT(A) to the tune of Rs.2,57,722/- & Rs.2 Lakhs; respectively.
12.1. At the time of hearing, the assessee could not seriously dispute the rationale for indulging in estimations of disallowance in the facts of the case. A part relief has been granted by the CIT(A) out of estimations under the head ‘wages’. No relief has been granted on ‘transportation charges and site expenses’. In the absence of any attendant circumstances on record, some estimations cannot be entirely condemned. However, having regard to nature of business and totality of circumstances, a further relief of Rs. One lakh each from two expense heads in question appears just and benign and would meet the ends of justice.
12.2 Ground Nos. 5 & 6 of the assessee’s appeal are thus partly allowed.
In the result, appeal of the assessee is partly allowed.
ITA No. 141/RPR/2017-A.Y. 2013-14
The grounds of appeal raised by the assessee read as under:
“1. The learned Commissioner (Appeals) erred in not allowing the claim of service tax amounting to Rs.6088361/- paid before the due date of return. 2. The order of the CIT (Appeals) erred in restricting the disallowance of wages to Rs. 200000/-. 3. The order of the CIT (Appeals) sustaining the addition of Rs. 2,00,000/- on account of lumpsum disallowance out of transportation charges and site expenses.”
With reference to Ground No.1, the CIT(A) has followed the observations made in his appellate order concerning AY 2012-13
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 12 - and dismissed the enhanced claim of the assessee made on the basis of actual payment of service tax before due date of filing of return of income.
The aforesaid order of the CIT(A) has been subjected to challenge in this common order with reference to ITA No. 140/RPR/2017 A.Y. 2012-13. All the objections of the CIT(A) has been dealt with in the preceding paragraphs concerning A.Y. 2012- 13. Identical objections have been reiterated by CIT(A) which forms the premise for denial of the relief claimed. Hence, all the observations made in relation to ITA No. 140/RPR/2017 A.Y. 2012- 13 shall apply mutatis mutandis. As a consequence, the assessee would be entitled to relief as claimed on showing the correctness of claim on facts before the AO. In consonance with the directions issued in A.Y. 2012-13, the identical directions shall apply for A.Y. 2013-14 in question as well. The issue is accordingly set aside to the file of the AO on similar grounds for proper determination of entitlement of service tax claim in question as per law.
Consequently, Ground No.1 of the assessee’s appeal is allowed for statistical purposes.
Ground Nos. 1 & 2 concerning lump sum disallowances out of wages and ‘transportation charges & site expenses’ amounting to Rs.2 Lakhs under each head.
In sync with para 12.1 of this order concerning A.Y. 2012-13 dealing with the identical issue, in our view, it will be just and proper to grant relief of Rs.1 Lakh each under both the expenses head. The AO is directed to revise the estimated disallowance accordingly.
ITA Nos. 140 & 141/RPR/2017 (Mohan Sukumaran vs. DCIT) A.Ys. 2012-13 & 2013-14 - 13 - 20. Ground No.2 of assessee’s appeal is partly allowed.
In the result, appeal of the assessee is partly allowed.
In the combined result, both the appeals of the assessee are partly allowed.
Order pronounced on 26/10/2021 by placing the result on the Notice Board as per Rule 34(4) of the Income Tax (Appellate Tribunal) Rule, 1963.
Sd/- Sd/- (PAWAN SINGH) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर / DR, ITAT, RAIPUR 6. गाड� फाइल / Guard file. By order,
Sr. Private Secretary ITAT, Raipur (on Tour)