C I T vs. BRIJ PAL SHARMA

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision : 17.2.2009. Commissioner of Income Tax, Faridabad ....Appellant Versus Shri Brij Pal Sharma ....Respondent CORAM: Hon'ble Mr. Justice J.S. Khehar Hon'ble Mr. Justice Nawab Singh Present : Mr. Yogesh Putney, Advocate, for the appellant. J.S. Khehar. J. (Oral) Through the instant appeal, the appellant has raised the following questions of law:- i) “Whether on the facts and in the circumstances of the case, the ITAT is right in law in confirming the order of Ld. CIT(A) deleting the addition of Rs.1,29,316/- made on account of bogus liability, disregarding the fact that cash payments below Rs.20,000/- were made on different dates and the assessee failed to produce the creditor, who was stated to have left from his place?” ii) “Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal is right in law in affirming the decision of the Ld. CIT(A) in deleting the addition of Rs.4,00,000/- made by the Assessing Officer u/s 40A(2) on account of truck hire charges, holding that the AO had not demonstrated in what manner the charges were excessive, disregarding the fact that the charges were paid to the assessee's son at rate per trip instead of normal practice of monthly rent?” iii) Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal is right in law in affirming the decision of the Ld. CIT(A) in deleting the addition of Rs.17,70,339/- made by the Assessing Officer on account of bogus liability in the account of M/s. Anuj Construction, disregarding the fact that the liability was created in a period of last three months of financial year, and the assessee failed to produce the creditor for verification?” On the first question, it would be pertinent to mention that a sum of Rs.1,29,316/- paid by cash by the respondent-assessee as tractor charges was ordered to be deleted by the Assessing Officer on account of the fact that the assessee had failed to produce either the creditor or any other material to establish that the aforesaid cash payment was made by the respondent-assessee towards tractor charges. The aforestated determination of the Assessing Officer was set-aside by the Commissioner of Income Tax (Appeals) vide his order dated 14.9.2004 and affirmed by the Income Tax Appellate Tribunal vide its impugned order dated 23.11.2007. On the second question, the Assessing Officer ordered a deletion from out of the machinery hire charges paid to M/s Satyen Enterprises by asserting that the same were on the higher side by invoking Section 40A(2)(b) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The instant deduction was also set-aside by the Commissioner of Income Tax (Appeals) vide his order dated 14.9.2004, which was affirmed by the impugned order passed by the Income Tax Appellate Tribunal dated 23.11.2007. In so far as the third question is concerned, the Assessing Officer arrived at the conclusion, that a sum of Rs.17,70,339/- paid to M/s Anuj Construction was a bogus liability created by the respondent-assessee at the end of the financial year. The aforesaid amount was deleted from the expense incurred by the respondent-assessee as the respondent-assessee had failed to produce the creditor or verifiable material to establish the aforesaid liability. In so far as the first question is concerned, it would not be out of place to mention that a sum of Rs.5,96,220/- was alleged to have been paid as tractor charges to Sh. Dharminder. The aforesaid payments were made through normal banking channels except a sum of Rs.1,29,316/- which was paid by way of cash. The cash payment was not accepted as a genuine transaction, and as such, a sum of Rs.1,29,316/- shown as having been incurred by the respondent-assessee towards tractor charges were ordered to be deleted. The Income Tax Appellate Tribunal while dealing with the issue in hand arrived at the conclusion, that the onus to establish that the aforesaid payment of Rs.1,29,316/- had not been paid by the respondent-assessee to Dharminder, was entirely on the shoulders of the Revenue and that, the Revenue had collected no evidence to establish that the aforestated payment was not genuine. When the same matter was agitated before the Income Tax Appellate Tribunal, the Tribunal noticed the assertion at the hands of the assessee based on a communication dated 26.3.2004. Through the aforesaid communication, the respondent-assessee asserted his inability to produce the aforestated Dharminder but requested the Assessing Officer to issue summons to him so as to enable the Assessing Officer to determine for himself the veracity of the claim of the respondent- assessee. Since the Assessing Officer did not take cudgels of collecting any material to ascertain the genuineness of the payment of Rs.1,29,316/-, and further more also, did not consider it just and appropriate to summon the aforestated Dharminder in exercise of the authority vested in him under Section 131 of the Act, the Income Tax Appellate Tribunal concluded that there was no material with the Assessing Officer to conclude that the payment of a sum of Rs.1,29,316/- made by way of cash by the respondent- assessee to the aforestated Dharminder was bogus. We have also considered the issue pertaining to the deduction of Rs.1,29,316/-. The solitary contention of the learned counsel for the appellant before us has been, that the non-production of the aforestated Dharminder at the hands of the respondent-assessee was vital to the issue in hand. It was also submitted by the learned counsel for the appellant that there was no reason for the Assessing Officer to summon the aforesaid Dharminder on account of the fact that the respondent-assessee had himself expressed in his letter dated 26.3.2004, that Dharminder was not available. Having considered the totality of the facts and circumstances of the present case, we are first and foremost of the view, that the submission made by the learned counsel for the appellant is only a disputed question of fact. The Commissioner of Income Tax (Appeals), as well as, the Income Tax Appellate Tribunal have concurred in concluding that the Assessing Officer recorded a finding on the issue in hand without any material whatsoever. While confirming the concurrent findings recorded by the Appellate Authority, we are also of the view that it was ardent obligation of the Assessing Officer to at least summon the aforestated Dharminder in furtherance of the communication dated 26.3.2004 addressed by the respondent-assessee. Having failed to discharge the aforesaid obligation, it does not lie in the mouth of the Revenue to press the instant claim of deduction of Rs.1,29,316/- which the respondent-assessee claims to have incurred as tractor charges. It is not possible for us to accept, that the Assessing Officer could not have enforced the presence of Dharminder in the background of the fact that, a substantial amount of the payment of Rs.5,96,220/- as tractor charges was made by the respondent-assessee to the aforestated Dharminder by way of normal banking channel. There should

therefore have been no difficulty either to ascertain his address or to summon him. The second question raised by the appellant-Revenue pertains to the payment of Rs.18,75,875/- to M/s Satyen Enterprises. Out of this amount, the Assessing Officer ordered the deduction of Rs.4 lacs alleging that excessive payments were made to M/s Satyen Enterprises. In this behalf, the Assessing Officer placed reliance on Section 40A(2)(b) of the Act. Undoubtedly, the Assessing Officer had the authority, as well as, the juri iction to evaluate the excessive or unreasonable expenses incurred at the hands of the respondent-assessee in favour of a relative of the assessee. The expense of Rs.18,75,875/- is stated to have been incurred towards truck charges by the respondent-assessee in favour of M/s Satyen Enterprises. It is not a matter of dispute that the proprietorship of M/s Satyen Enterprises is in the hands of the son of the respondent-assessee, namely, Satyen Sharma. While exercising the authority vested in the Assessing Officer under Section 40A(2)(b) of the Act, the Assessing Officer acknowledged, that payments were made to M/s Satyen Enterprises at the rate of Rs.70/- per truck. The Commissioner of Income Tax (Appeals) accepted the appeal of the respondent-assessee and set-aside the determination of the Assessing Officer vide order dated 14.9.2004. The Income Tax Appellate Tribunal upheld the determination rendered by the Commissioner of Income Tax (Appeals) vide its order dated 23.11.2007. In order to canvass the second question, learned counsel for the appellant has vehemently contended, that the charges should have been paid to M/s Satyen Enterprises on a monthly basis, and not on truck basis. This, according to the learned counsel for the appellant, is a sufficient basis to conclude, that favour was shown by the respondent- assessee to his son, namely, Satyen Sharma, who was the sole proprietor of M/s Satyen Enterprises.

We have considered the second submission advanced by the learned counsel for the appellant on the issue of truck charges. It is not possible for us to accept the contention of the learned counsel for the appellant. A perusal of the order passed by the Income Tax Appellate Tribunal reveals that truck charges were also paid by the respondent- assessee to M/s Mehta Construction Company. Truck charges were paid to M/s Mehta Construction Company at the rate of Rs.80/- and Rs.70/- per truck. The payment made by the respondent-assessee to M/s Mehta Construction Company has been accepted by the Assessing Officer as a valid and genuine payment on tractor basis and not on monthly basis. In the background of the aforesaid factual position, it is also apparent that the respondent-assessee paid charges less than the charges paid to M/s Mehta Construction Company for the same work to M/s Satyen Enterprises. As noticed hereinabove, M/s Satyen Enterprises was paid at the rate of Rs.70/- per truck. Thus viewed, it is not possible for us to accept that the Assessing Officer could have invoked Section 40A(2)(b) of the Act. The aforesaid provision can be invoked in case, an assessee incurs “...excessive and unreasonable charges...” favouring a relative of the assessee. Since the charges paid to M/s Satyen Enterprises were admittedly less than the charges paid to M/s Mehta Construction Company. We are of the view that the Assessing Officer could not have validly invoked Section 40A(2)(b) of the Act to order a deduction of a sum of Rs.4 lacs out of the truck charges/expenses incurred by the respondent-assessee favouring M/s Satyen Enterprises. The third question raised by the appellant pertains to deduction of machinery charges quantified as Rs.20,91,369/- allegedly having been paid to the account of M/s Anuj Construction for a period of three months from January 2001 to March 2001 at the rate of Rs.1500/- per hour. The claim of the Assessing Officer, in this behalf, was that the cost of the excavator engaged in the work under reference was Rs.40 lacs and as such, payment of Rs.20 lacs, and that too, for work to be executed over a period of three months was highly excessive. The Assessing Officer also arrived at the conclusion that at the same rate as was charged by M/s Anuj Construction if the excavator had been used for the whole year, the respondent-assessee could have purchased a new excavator, which costed only a sum of Rs.40 lacs. In the appeal preferred by the assessee against the order passed by the Assessing Officer on the issue of the aforesaid deduction ordered by the Assessing Officer, the Commissioner of Income Tax (Appeals) vide his order dated 14.9.2004, upheld the order of assessment. It is therefore that the respondent-assessee preferred a further appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal accepted the appeal of the respondent-assessee on the third question vide its order dated 23.11.2007. It is the vehement contention of the learned counsel for the appellant, that the onus to establish that the aforesaid expenditure had actually been incurred by the respondent-assessee rested on the shoulders of the respondent-assessee himself, and that, despite being required, the respondent-assessee had failed to produce the party with which the contract for execution of excavation work had been executed, and as such, it was inevitable for the Assessing Officer to treat the aforesaid payment as bogus. Having considered the totality of the facts and circumstances pertaining to the third question raised at the hands of the learned counsel for the appellant, we are of the view, that yet again the Income Tax Appellate Tribunal was fully justified in its determination. In so far as the instant issue is concerned, it was wholly unreasonable for the Assessing Officer to determine the veracity of the transaction on the basis of the cost of the excavator. There are other added costs including man power and fuel etc. which are liable to be taken into consideration while determining the expenses incurred in operating an excavator. The purchase of an excavator and to engage staff for its use and maintenance may or may not be a profitable/conceivable business venture. This would depend on the nature of contracts executed by an individual. The purchase of an excavator by itself is, in our view, an irrelevant consideration to determine the genuineness of the expenses incurred by the respondent-assessee. In any case, in so far as the present issue is concerned, it is apparent that the assessee had filed signed confirmation of the expenses to M/s Anuj Construction by the Manager/Accountant of the said firm, confirming that the aforesaid expense had been incurred by the respondent-assessee for excavation work executed by M/s Anuj Construction. The respondent- assessee had additionally also produced its account book which established that a sum of Rs.20,91,369/- was shown to have been credited in the account of M/s Anuj Construction with a closing balance of Rs.17,70,339/- as on 31.3.2001. The Assessing Officer did not accept the material produced by the respondent-assessee merely on account of the fact that the confirmation in question produced by the respondent-assessee did not bear a date and further on account of the fact that the said confirmation had been signed merely by the Manager/Accountant of M/s Anuj Construction. In our view, it was not open to the Assessing Officer to determine the matter without any further investigation so as to be able to repudiate the material relied upon by the assessee. It was open to the Assessing Officer to exercise authority vested in him under Section 131 of the Act, so as to summon personnel from M/s Anuj Construction, in order to determine the veracity of the material relied upon by the respondent-assessee. Having not taken the aforesaid imperative procedural requirement, it was not open to the Assessing Officer to reject the material produced by the respondent- assessee. The instant rejection must definitely be treated to be an arbitrary determination of authority at the hands of Assessing Officer. It is therefore not possible to accept the third contention canvassed on behalf of the appellant. No other submission besides those referred to hereinabove was advanced on behalf of the appellant-Revenue.

For the reasons recorded here-in-above, we find no merit in this appeal and the same is accordingly dismissed. (J.S. Khehar)

Judge

(Nawab Singh) Judge 17.2.2009. SN