LAWRENCE DANIYANA TELKAR vs. THE PR COMMISSIONER OF INCOME TAX

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WP/103735/2018HC KarnatakaKAHC02002135201812 December 2024Bench: C.M. POONACHA8 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court partly allowed the writ petition. Regarding the first issue, the Court found merit in the petitioner's contention that the net profit of ₹11,70,977 from agency work had already been offered. Therefore, this amount should be deducted from the addition of ₹34,60,599 made under Section 143(3). The Court directed the Assessing Officer to pass a reassessment order with the addition adjusted to ₹22,89,622. Concerning the second issue, the Court upheld the disallowance of cash expenses. It reasoned that while the petitioner claimed diary notings as evidence, no corresponding material, bills, or vouchers were produced to substantiate these expenses. Consequently, no fault was found with the AO or the revision authority for disallowing these expenses. The Court did not explicitly mention the penalty under Section 271B in its final order.

What were the facts?

The petitioner, Lawrence Daniyana Telkar, filed a writ petition challenging orders passed under Section 264 and Section 143(3) of the Income Tax Act, 1961, for Assessment Year 2014-15. The petitioner acts as an agent for land promoters and a contractor for developing layouts. The Assessing Officer (AO) passed an order on December 29, 2016, assessing a net amount payable of ₹14,89,610. The petitioner then filed a revision petition under Section 264 before the Principal Commissioner of Income Tax, which was rejected by an order dated March 23, 2018. The petitioner is aggrieved by the disallowance of ₹34,60,599 as expenditure and a potential double addition of ₹11,70,977, as well as the levy of penalty under Section 271B.

What were the issues?

1. Whether the addition of ₹34,60,599 under Section 143(3) of the IT Act was erroneous, specifically concerning the inclusion of ₹11,70,977 which the petitioner claims was already offered as net profit, leading to a required addition of ₹22,89,622 instead. - Assessee's contention: The sum of ₹11,70,977, representing net profit from agency work, was erroneously included in the addition of ₹34,60,599. This amount should have been deducted, making the correct addition ₹22,89,622. - Revenue's contention: Not recorded. 2. Whether the Assessing Officer and the revision authority ought to have accepted the petitioner's explanation regarding expenses incurred in cash, considering the nature of the business. - Assessee's contention: The petitioner's explanation for cash expenses, supported by diary notings, should have been accepted and allowed as deductions. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 264,Section 271B

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC-D:18097 WP No. 103735 of 2018

IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH

DATED THIS THE 12TH DAY OF DECEMBER, 2024

BEFORE THE HON'BLE MR. JUSTICE C.M. POONACHA

WRIT PETITION NO.103735 OF 2018 (T-IT)

BETWEEN:

LAWRENCE DANIYANA TELKAR, S/O. DANIYAN RAMACHANDRA TELKAR, AGED ABOUT: 50 YEARS, R/AT: NO.47/1, CHRISTIAN COLONY, 2ND CROSS, GHANTIKERI, HUBBALLI – 580 020. …PETITIONER

(BY SRI R. CHANDRASHEKAR AND FOR SRI R. RAMAMURTHY, ADVOCATE) AND:

1.

THE PR COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDING, NAVANAGAR, HUBBALLI – 580 025.

2.

THE INICOME TAX OFFICER WARD-3(4), CENTRAL REVENUE BUIDLING, NAVANAGAR, HUBBALLI – 580 025. …RESPONDENTS

[BY SRI R.V.RAVIRAJ, ADVOCATE FOR RESPONDENT; SRI M.THIRUMALAESH, ADVOCATE FOR RESPONDENT (V/O DATED 01.08.2024)]

Digitally signed by VISHAL NINGAPPA PATTIHAL Location: High Court of Karnataka

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO, QUASH THE ORDER PASSED U/S.264 OF THE ACT PASSED BY THE FIRST RESPONDENT PASSED FOR THE ASSESSMENT YEAR 2014-15 DATED 23.03.2018 (ANNEXURE-"A") AS THE SAME IS NOT SUSTAINABLE IN LAW. QUASH THE ORDER OF SECOND RESPONDENT DATED 29.12.2016 PASSED U/S. 143(3) OF THE ACT (ANNEXURE-"B") INSOFAR AS THE DISALLOWANCE OF RS.34,60,599/- HOLDING THE PETITINER HAS CLAIMED EXPENDITURE. DIRECT THE SECOND RESPONDENT TO DELETE THE SUM OF RS.11,70,977/- FROM OUT OF THE ASSESSED INCOME, SINCE THE PETITIONER HAS ADMITTED THE ABOVE INCOME OUT OF THE SUM OF RS.30,60,599/- AND IT AMOUNTS DOUBLE ADDITION. QUASH THAT PORTION OF THE ORDER PASSED U/S.264 OF THE ACT PASSED BY THE FIRST RESPONDENT PASSED FOR THE ASSESSMENT YEAR 2014-15 DATED 23.03.2018 (ANNEXURE-"A" INSOFAR AS THE DECISION RENDERED IN REGARD TO LEVY OF PENALTY U/S./271B OF THE ACT, ALTERNATIVELY AND ETC.,

THIS WRIT PETITION, COMING ON FOR PRELIMINARY HEARING - B GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

CORAM: THE HON'BLE MR. JUSTICE C.M. POONACHA

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NC: 2024:KHC-D:18097 WP No. 103735 of 2018

ORAL ORDER

(PER: THE HON'BLE MR. JUSTICE C.M. POONACHA)

The present petition is filed seeking for the following reliefs: “i) quash the order passed u/s.264 of the Act passed by the First Respondent passed for the assessment year 2014-15 dated 23.03.2018 (Annexure-A) as the same is not sustainable in law. ii) quash the order of Second Respondent dated 29.12.2016 passed u/s. 143(3) of the Act (Annexure-B) in so far as the disallowance of Rs.34,60,599/- holding the Petitioner has claimed expenditure. iii) Direct the Second Respondent to delete the sum of Rs.11,70,977/- from out of the assessed income, since the Petitioner has admitted the above income out of the sum of Rs.30,60,599/- and it amounts double addition. iv) quash that portion of the order passed u/s.264 of the Act passed by the First Respondent passed for the assessment year 2014-15 dated 23.03.2018 (Annexure-A) in so far as the decision rendered in regard to levy of penalty u/s./271B of the Act, alternatively. v) To issue such other writ or writs as the Hon’ble Court deems it fit in the interest of justice and equity.”

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NC: 2024:KHC-D:18097 WP No. 103735 of 2018

2.

The factual matrix in nutshell leading to the present petition are that it is the case of the petitioner that he acts as an agent for land promoters to enter into agreement on their behalf and also acts as a contractor for developing layouts. 3. Vide assessment order dated 29.12.2016 passed in respect of Assessment Year1 2014-15, the Income Tax Officer2 assessed the net amount payable as ₹14,89,610/-. Being aggrieved, the petitioner preferred a revision under Section 264 of the Income Tax Act 19613 before the Principal Commissioner of Income Tax, Hubballi4. In the said revision proceedings after the observations of the Assessing Officer5 was secured and after considering the written submissions put forth on behalf of the petitioner, vide order dated 23.03.2018, the Commissioner rejected the revision petition filed by the petitioner. Being aggrieved, the present writ petition is filed. 4. Heard submissions of learned counsels Sri R. Chandrashekhar and Kashinath Kalmath for the Sri Rama

1 Hereinafter referred to as ‘AY’ 2 Hereinafter referred to as ‘ITO’ 3 Hereinafter referred to as ‘the IT Act’ 4 Hereinafter referred to as ‘the Commissioner’ 5 Hereinafter referred to as ‘AO’

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NC: 2024:KHC-D:18097 WP No. 103735 of 2018

Murthy for the petitioner/Assessee and learned counsel Sri M. Thirumalesh for the respondent/revenue. 5. Learned counsel for the petitioner seeks to assail the assessment order as well as the order passed by the revision authority on two grounds: i) While calculating the income returned and making addition under Section 143(3) of the IT Act the AO has added a sum of ₹34,60,599/- and has erroneously included the sum of ₹11,70,977/- in respect of the profit with regard to the agency work. It is the contention of the petitioner that the sum of ₹11,70,977/- ought to have been deducted and the addition that has to be made as under Section 143(3) of the IT Act was required to be in a sum of ₹22,89,622/-. ii) Having regard to the nature of business that the petitioner was carrying on the assessing authority as well as the revisional authority ought to have accepted the explanation of the petitioner regarding incurring of various

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NC: 2024:KHC-D:18097 WP No. 103735 of 2018

expenses in cash and ought to have given reductions to the same. 6. With regard to the first contention put forth by the petitioner, it is forthcoming from paragraph No.1.2 of the order dated 23.03.2018 (Annexure-A) that the petitioner had shown receipts for a sum of ₹1,38,04,299/- in respect of which a profit of ₹11,70,977/- was shown. It is forthcoming that the income returned of both agency work and civil subcontract work has been shown in a sum of ₹15,83,140/- in the AO. Thereafter it is forthcoming that a sum of ₹34,60,599/- has been added under Section 143(3) of the IT Act which is the total receipts of the agency work i.e., ₹1,38,04,299/- and deducting from the same the sum of ₹1,03,43,700/- which the assessing officer has allowed as expenses towards actual payment made. It is relevant to note that out of the receipt sum of ₹1,38,04,299/- from agency work, the sum of ₹11,70,977/- has already been offered as net profit. Hence the said amount of ₹11,70,977/- ought to have been deducted from the sum of ₹34,60,599/-. Hence the total addition to be made as per Section 143(3) of the IT Act was required to be in a sum of ₹22,89,622/- instead

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NC: 2024:KHC-D:18097 WP No. 103735 of 2018

of ₹34,60,599/-. Hence, respondent No.2 is required to pass the reassessment order by taking note of the aforementioned. 7. With regard to the second contention, although it is vehement contention of the petitioner that having regard to the nature of business that is carried out by the petitioner the payments having been made by cash and notings have been made in the diary by the petitioners, the same ought to have been accepted by respondent No.2. However, the said contention is not liable to be accepted. 8. Having regard to the fact that the revision authority has considered in detail the assertions made by the petitioner in the proceeding under Section 264 of the IT Act a perusal of which clearly discloses that the petitioner has not produced any document with regard to the expenses allegedly incurred by cash, the contention of the petitioner that the noting in the diary ought to be considered will not in any way aid to the case of the petitioner since corresponding material/bills/vouchers have not been produced in that regard. Hence, no fault can be found either by the order of the AO as well as the revision authority in disallowing the said expenses.

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9.

In view of the discussion made above, the following: ORDER i) The writ petition is partly allowed. ii) The net profit sum of ₹11,70,977/- is required to be deducted from the addition of ₹34,64,599/- made under Section 143(3) of the IT Act and respondent No.2/Assessing Officer shall pass reassessment order by taking the addition made as per Section 143(3) of the IT Act as ₹22,89,622/-. iii) Needful by respondent No.2 within four weeks from the receipt of the copy of this order.

Sd/- (C.M. POONACHA) JUDGE

SSP/CT-ASC List No.: 1 Sl No.: 94

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