COMMISSIONER OF INCOME TAX, vs. M/S M.P. KHAITAN,

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ITA/19/2011HC GauhatiGAHC01018887201107 August 20111 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises from the ITAT's order. The Court noted that the assessee had produced all relevant books of accounts and supporting documents, which were examined and accepted by the Assessing Officer. The expenses claimed, including those for staff and labour welfare, staff mess, travelling, conveyance, labour accommodation, donations, and subscriptions, were verified from these documents. Since the expenses were substantiated by the books of accounts, which were before the AO, the Court found no basis for interference with the ITAT's decision. The ITAT's order allowing the appeal and setting aside the CIT's revisionary direction was upheld. The operative direction was that the appeal filed by the Revenue is dismissed.

What were the facts?

The Revenue is aggrieved by an order dated 12th March, 2010, passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Years 2004-05 and 2005-06. The assessee, a contractor, claimed deductions for material purchases and labour expenses. The Assessing Officer (AO) accepted the assessee's books of accounts, including ledgers, cash books, cash memos, vouchers, and bills, and allowed the claimed expenses. The Commissioner of Income Tax (CIT), invoking Section 263 of the Income Tax Act, 1961, initiated revision proceedings, citing the assessee's high turnover of Rs.9.66 crores and a low profit margin of approximately 1% as reasons to believe the AO's order was erroneous. The CIT directed disallowance of 2% of the expenses claimed on labour charges and material purchases. The assessee appealed to the ITAT, which allowed the appeal, leading to the present appeal by the Revenue.

What were the issues?

1. Whether a substantial question of law arises from the ITAT's order allowing the assessee's appeal, thereby setting aside the CIT's revisionary order that disallowed 2% of labour and material expenses (Section 263 of the Income Tax Act, 1961). Assessee's Contention: The assessee argued that the AO had duly examined the books of accounts, including ledgers, cash books, cash memos, vouchers, and bills, and accepted the claimed expenses for staff and labour welfare, staff mess, travelling, conveyance, labour accommodation, donations, and subscriptions. Therefore, the CIT's revisionary action was unwarranted. Revenue's Contention: The Revenue contended that the assessee's low profit margin of about 1% on a high turnover of Rs.9.66 crores indicated that the AO's assessment was possibly erroneous, justifying the revision under Section 263. The Revenue sought to disallow 2% of the expenses claimed on labour and material purchases.

Which sections of the Income-tax Act were involved?

Section 263

AI-generated summary — verify with the full judgment below

ITA 19/2011 BEFORE HON’BLE THE CHIEF JUSTICE MR.MADAN B. LOKUR HON’BLE MR. JUSTICE HRISHIKESH ROY (Madan B. Lokur, CJ)

The Revenue is aggrieved by an order dated 12th March, 2010 passed in IT A No.169 & 170/Gau/2008 relating to the Assessment Years 2004-05 and 2005-06.

The assessee is a contractor and had claimed deduction towards material purchases and labour expenses.

Before the Assessing Officer, the assessee produced his books of account s including ledgers, cash books, cash memos, vouchers, bills etc. These were exa mined by the Assessing Officer and were accepted. On this basis, the expenses cl aimed by the assessee were allowed by the Assessing Officer.

The Commissioner of Income Tax, in exercise of powers conferred by Secti on 263 of the Income Tax Act, 1961 sought to revise the assessment order. The ba sis on which the assessment order was sought to be revised is that the Assessee had a turnover of Rs.9.66 crores and had shown a low profit of about 1%. On this basis, the Commissioner of Income Tax felt that the order passed by the Assessi ng Officer deserved to be revised.

In considering the case of the assessee, the Commissioner of Income Tax passed an order on 28.3.2008/1.5.2008 and came to the conclusion that 2% of the expenses said to have been incurred by the assessee on labour charges and purcha se of materials ought to be disallowed.

Feeling aggrieved, the assessee preferred an appeal before the Income Ta x Appellate Tribunal which came to be allowed by the order under appeal.

In our opinion, only a question of fact has arisen. Insofar as the books of accounts are concerned, they were before the Assessing Officer, including th e ledgers, cash books, cash memos, vouchers, bills etc. It is on the basis of th ese documents that the Assessing Officer allowed the expenses declared by the as sessee on labour charges and material purchases. It may be mentioned that the ex penses said to have been incurred by the assessee were for staff and labour welf are, staff mess expenses, traveling and conveyance hire charges, labour accommod ation, donation and subscription etc.

Since the expenses incurred by the assessee were verified from the book of accounts, we are of the opinion that there is no question of law involved muc h less a substantial question of law.

The order under appeal does not require our interference as no substanti al question of law arises.

Dismissed.

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