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Income Tax Appellate Tribunal, [ DELHI BENCH “F”: NEW DELHI ]
Before: SHRI AMIT SHUKLA & DR. B.R.R. KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “F”: NEW DELHI ] BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER (Through Video Conferencing) ITA. No. 823/Del/2021 (Assessment Year: 2015-16) M/s. R. K. Jain Infra Pr. CIT, Projects Pvt. Ltd., Vs. Delhi – 7, B–27, 2nd Floor, Near Jain New Delhi. Mandir, Radheypuri, Krishna Nagar, New Delhi – 110 051. PAN: AAGCR1240N (Appellant) (Respondent)
Assessee by : Shri Suresh Gupta, C. A.; Department by: Shri T. Kipgen [CIT] – D. R.; Date of Hearing : 22/11/2021 Date of pronouncement : 30/11/2021
O R D E R PER AMIT SHUKLA, J. M.
This appeal has been filed by the assessee against the impugned order dated 25.03.2021 passed by the ld. Pr. Commissioner of Income Tax, Delhi–7, New Delhi, under Section 263 of the Income Tax Act, 1961 (the Act) for assessment year 2015-16. 2. The assessee has raised the following grounds of appeal:- “1. The Ld. Pr. CIT has assumed power u/s 263 of the Act holding the assessment order dated 12.10.2017 as erroneous and prejudicial to the interest of revenue on the ground that no Page | 1
independent enquiry or verification of the details were made by the AO. Such assumption of power by the Ld. Pr. CIT is not proper in absence of any minimal inquiry conducted by Pr. CIT to support his finding that the order under revision is prejudicial to the interest of revenue and erroneous. 2. On facts and circumstances of the case, the finding of Ld. Pr. CIT that the order under revision is perverse is based on incorrect assumption of facts and in complete disregard to the evidences furnished before him during revision proceedings. “
The facts in brief are that assessee company is engaged in the business of road construction, civil constructiongiven by the PWD Department and for collection, operation and management of toll plazas. The return of income was filed on 1.10.2015 declaring income of Rs.7,19,24,790/-. The case was selected for limited scrutiny under CASS mainly to verify the following three reasons: 1. Large other Expenses claimed in the P& L Account;
Mismatch in sales turnover reported in audit report in ITR; & 3. Mismatch in amount paid under Section 40A(2)(b) in audit report and ITR.
The ld. Assessing Officer after calling for the details on the points on which the case was selected for scrutiny and in response to which assessee has filed its detailed reply along with the evidences and books of accounts. After examining all the details, which were called for from time to time, return of income was accepted vide order dated 12.10.2017 passed under Section 143(3) of the Act.
Thereafter the ld. PCIT in his jurisdiction under Section 263 of the Act issued a show cause notice dated 28.05.2018 raising five distinct issues, which are as under:-
Large other Expenses claimed in the P& L Account; 2. Payment to related parties u/s 40A(2)(b); 3. Other Current Liabilities; 4. Payment to contractors; and 5. Stamp duty paid.
In reply to the show cause notice the assessee submitted a detailed reply and rejoinder. Apart from that it was submitted that except for first issue of large expenses claimed under profit and loss account, the other issues are falling outside the scope of enquiry under limited scrutiny and beyond the ambit of power of the Assessing Officer in the limited scrutiny assessment. The ld. PCIT agreed with the contention raised by the appellant that in so far as issue falling under the scope of enquiry under limited scrutiny cannot be submitted. However, on the issue of large other expenses and non- deduction of TDS on payment to contractors, the ld. PCIT identified the issue of non-verification of business of job work charges which was part of the other expenses claimed as per the profit and loss account and held that on this issue the assessment order is erroneous and prejudicial to the interest of revenue and consequently, he set aside the assessment.
On the issue of large other expenses the relevant observations and show cause notice was as under:-
“1. Large other Expenses Claimed in the P&L Account:- The Assessee has claimed Rs. 13,22,53,761/- as other indirect expenses, Rs. 11354046 as bank charges and Rs. 5,55,30,005/- as direct expenses. Thus the total other expenses as per Column No. 38 of Profit & Loss A/c in ITR is Rs. 69,89,07,858/-. The assessee Page | 3
vide letter 11.10.2017 has submitted the party wise details (only name and no other details like address etc.) of job work given by the company to various sub-contractors and confirmation from those parties. On perusal of the confirmation letters filed by the different parties, it was found that the bill does not have any date mentioned on it. Further, all the bills have same running bill number-1. On further analysis of these confirmations it was found that there is nowhere mention of TIN/VAT/S. Tax Number on the bills. All the bills are printed with same font and same size of the alphabet and in same manner. Prima-facie these bills seem to be bogus, manipulated and not genuine. The AO has not made any effort to cross examine the person/concerns of these bills and had simply accepted and allowed the claim of the assessee. Considering such a substantial amount involved, the AO must have either called for information u/s 133(6) from these parties or must make necessary enquiries before allowing the same. The period of these job works is not ascertainable without any date on it. It is not understandable how the AO has accepted these bills without having any date on it. Further the AO has not made any enquiries or verification which should have been made before allowing the claim of other expenses which is approximately 9.32% of the total sales turnover this year. This other expense amount is almost 1048%of this year’s net profit of Rs. 6,67,17,547/-. The AO has neither examined the genuineness of these expenses nor examined its nature I.e. whether exclusively or wholly for the purpose of business under section 37(1) of the IT Act. The main reason for selection of scrutiny in CASS remained unexamined. The assessment order may be treated as erroneous so far as prejudicial to the interest of revenue. “
Further on the issue of payment made to the contractors the query raised in the show cause notice was as under:- “ 4. Payment to Contractors: In the Audit report, Form 3CD, Column No: 34(a), the assessee has shown Rs. 10,82,64,245/- as payment to contractors (as job work) Page | 4
and deducted TDS on it u/s 194C @1% for Rs 11,26,586/-. But on perusal of the confirmations submitted by the assessee for the payment, it was found that the payment of these job works has either been paid to a firm or to a company but not to any individual of HUF. Therefore, the TDS should be @ 2%which comes to Rs. 21,65,284/-. There is a short deduction/non-deduction of TDS for Rs. 10,38,698/- by the assessee. The AO has failed to examine this issue completely and has allowed the claim of the assessee. Due to this ignorance and inaction by the AO, there is a substantial loss of revenue. The assessment order may be termed as erroneous so far as it is prejudicial to the interest of the revenue. “
The assessee’s submission before the Ld. CIT was that specific show cause notice and query was raised by the Assessing Officer for all the expenses claimed in the profit and loss account including that of job work charges and payment made to the contractors for which assessee has filed detailed reply along with all the details as were required. The Assessing Officer had picked up specifically job work charges of Rs.10.87 crores for further enquiry and the list of parties was also given and the amount of TDS deducted in each case under Section 194C of the Act. The assessee had also furnished the copies of the contract to the job work along with the copy of TDS certificate issued. It was further explained that since job work is primary is in the nature of labour-oriented jobs which are procured from locals and creation in connection with larger contracts received by the assessee as a main contractor and these job works are done by un-organized class. Therefore, it was not possible for every labour for formal written contracts. It was further submitted before the Assessing Officer that against a contract receipt of Rs.141.9 crores job work charges were
Rs.10.87 crores, which was 7.66% and was lower than the previous ratio of 8.61% which has been accepted by the Department.
However, the ld. PCIT did not agree with the assessee and explanation furnished before him along with the details that were submitted before the Assessing Officer and held that no enquiry was made by the Assessing Officer in respect of job charges and, therefore, there was failure on the part of the Assessing Officer to conduct enquiry in the nature of such payment and, therefore, such assessment order is erroneous and prejudicial to the interest of revenue. He further observed that the Assessing Officer should have conducted enquiry under Section 133(6) of the Act from these parties and in absence of such enquiry it cannot be said that the Assessing Officer has made any adequate and proper enquiry. Accordingly, he set aside the assessment order to make fresh assessment on this issue.
Before us, the ld. Counsel for the assessee referred to the various questionnaires and replies and the details filed before the Assessing Officer during the course of assessment proceedings especially with regard to the job work charges and so the validity for allowability of the same. It was only after detailed scrutiny of these details including TDS certificate, bills and vouchers; the Assessing Officer had accepted the payment of job charges. No where the PCIT had disputed that these details have not been filed in the course of assessment proceedings. Party-wise details were submitted along with the copies of bills matching with the TDS certificate on each and every job work payment and confirmation by the parties. Further all the payments were made by account payee cheques and was also brought on record and explained that job work entities and civil construction Page | 6
works are done by the petty workers and civil job specifically and do not have any permanent address once the project is completed. Because then they are shifted to other projects. It was in these circumstances and peculiar business of the assessee, notice under Section 133(6) could not have been complied with. This was also explained before the ld. PCIT. Still without any adverse material on record or he himself conducting any enquiry simply said that the Assessing Officer ought to have issued notice under Section 133(6) of the Act. The same cannot be sustained. He also drew our attention to the specific reply by the appellant to the queries raised.
The appellant vide various replies explained the reason why there is similarity in the bills and numbering and the font. The explanation was that these small-time contractors have to depend for paper work on the staff of the appellant company as they are dedicated to the particular project of the company. Such persons are not well versed in the legal matters such as raising bills and bereft of capacity to employ skilled people to handle such jobs. These job workers provide services in the form of labour force at the locations of the projects. It was also explained that these workers move out once the projects over and therefore issuing notice to them u/s 133(6) will not be a fruitful exercise.
Ld. Counsel further submitted that the Ld. Pr. CIT did not consider the circumstantial explanation and rather skipped the consideration of the same. The only submission on the issue of notice u/s 133(6) was considered. The Ld. Revisionary authority did not consider the merits of the explanation where the peculiar circumstances of the employment of job workers were explained. The Ld. AO appreciated submission of the appellant that the job work Page | 7
charges were less in the year under consideration than in preceding AY both in absolute term and in terms of ratio to turnover/ profit and under the circumstances the AO was entitled to take a view to accept the job work as claimed. The Pr.CIT only discussed the failure to issue notice u/s 133(6) for the fact of the labour being mobile. But no convincing reason is given to rebut the above argument. In any case the view taken by the AO is not something which could not have been taken by a person of ordinary prudence. The fact that the payments have been made through cheques after deduction of TDS u/s 194C is also not dealt by the revisionary authority and the fact that the quantum of expenditure under the head is lower, which is clear from records and argued before him through the submission, remained unconsidered in the impugned order. Thus, it is obvious that the material brought by the assessee for the consideration of Ld. CIT have not been fully factored in by the Ld. CIT; and the Ld. CIT has not fully dealt with the entire force of assessee's submissions before making an adverse decision against the assessee. Moreover, the Ld. CIT has observed in a cryptic, summary and nonspeaking manner in aforesaid order dated, that the AO had not conducted requisite enquiry/investigation on the job work claimed without dealing with submissions made and materials placed by the assessee before the Ld. CIT vide aforesaid Letters as per foregoing paragraphs. The Ld. Pr. CIT, on the futility of the enquiry in the manner desired by him, did not consider the merits of submission by the appellant and rather dismissed the same in very opaque manner stating that the appellant cannot step into the shoes of the AO (para 5 page 8 of the impugned order). But the authority failed to point out any error in the approach adopted by the AO. It is important to note that no error in the order under revision was pointed by the Ld. CIT when in the case of no
enquiry no addition could have been made when the expenses under consideration are lower than the same in previous year accepted by the same AO. This shows the principles of natural justice is not allowed in the effective manner and without addressing to the explanation given by the appellant. The observation in the impugned order are self-contradictory in as much as there is discussion of the information/material submitted by the appellant in the course of assessment proceedings on the issue which does not dispute the fact that the enquiry was made by the AO passing the order under revision but on the contrary in para 5 page 8 of the impugned order the revisionary authority made contradictory allegation that no enquiry or verification even on test check basis was conducted by the AO. These contradictory statement for sure indicate a fact that enquiry had been conducted by the AO on the issue but such enquiry was not of the level desired by the Ld. Pr. CIT. Finally, the Ld. Pr. CIT could not point out the error in the AO’s acceptance of the claim of job work having regard to the facts and circumstances of the case no matter the case of inadequate enquiry or no enquiry made by him.
On the Legal issue challenging action of the Ld. Pr. CIT U/S 263, Ld. Counsel submitted that, the Ld. Pr. CIT erred in assuming jurisdiction and initiating proceeding under section 263 of the Act, since the order passed by the Assessing Officer (‘AO’) was neither ‘erroneous’ nor ‘prejudicial’ to the interest of the revenue as the AO had not only made adequate inquiries, but had also undertaken necessary verification on basis the of the details sought from the assessee during the course of the assessment proceedings and had taken one of the permissible views. As regards maintainability of revisionary proceedings under section 263 of the Income Tax Act, 1961, reliance was placed on the following judicial pronouncements. Page | 9
CIT vs AmritlalBhogilal& Co.34 ITR 130 (SC) 2. CIT vs Smt. AnnapoornammaChandershekhar 17 Com 120 (Kar H.C.) 3. Gabriel India Limited, 203 ITR 108 (Bombay H.C.) 4. CIT vs Nirav Modi,390 ITR 292 (Bombay H.C.) 5. CIT vs Max India Ltd.295 ITR 282 (SC) 6. Malabar Industrial Co. Ltd. vs CIT 243 ITR 83 (SC) 7.CIT vs Vodafone Essar South Ltd., 212 Taxman 184 (Del) (affirmed by the Hon’ble Supreme Court in CC 9308/2013).
On the other hand, the Ld. DR strongly relied upon the order of the ld. PCIT and submitted that here there were 27 parties from whom assessee had done job work and transaction is of more than Rs. 10.87 crores which at least required prima facie enquiry by the Assessing Officer. Even on test-check basis which has not been done and, therefore, such an order is prejudicial to the interest of revenue. The order of the learned Pr. CIT should be confirmed and the Assessing Officer should conduct proper enquiry before accepting the claim of the assessee.
We have heard the rival submissions and also perused the orders of the lower authorities and also various relevant findings in the impugned order as well as material placed on record. The only issue on which the ld. CIT set aside the assessment order is with regard to the payment of job work charges for a sum of Rs.10.87 crores. From the assessment record as placed in the paper book, it is seen that the Assessing Officer has raised specific query with regard to the job work payment and asked for the details including the bills as well as the TDS deducted on every payment. In response the assessee had filed party-wise details, bills and vouchers, details of payments which were
made through account payee cheques and thereafter TDS certificate deducted under Section 194C of the Act with regard to every job work payment along with the confirmations given by the parties. This fact was brought specifically to the ld. PCIT in reply to the show cause notice filed before him and nowhere has he disputed that the details were not filed during the course of assessment proceedings or the AO has not verified before him. The sole reason on which he has held that assessment order is erroneous and prejudicial to the interest of revenue is that the Assessing Officer should have conducted enquiry under Section 133(6) of the Act from these parties and since enquiry has not been conducted under Section 133(6) of the Act, therefore, he came to the conclusion that no enquiry has been done by the Assessing Officer. First of all, nowhere the ld. PCIT has disputed the details which were available on assessment record placed before him. If the job work payment is supported by bills and vouchers and has been made through banking channels, that is, the payments were made through account payee cheques and also confirmed by the parties, then where was the question that these are non genuine. Most importantly, the entire payment is reconciled with the TDS certificates as all the payments were subject to TDS u/s 194C. Apart from that, it is also not the case that during the year job payment has increased as compared to earlier years, rather it is lower than the job work charges paid in the earlier years as mentioned above.
As regards the observation of Ld. CIT that no inquiry was made u/s 133(60, we find the explanation given in the assessee’s reply in response to show cause notice u/s 263 is quite plausible and we are in tandem with the reasons given that in the case of job workers which are mostly migrant labour force, notice under Section 133(6) for the work done in 2014 and 2015, would have been too difficult and also Page | 11
impractical especially when the assessment scrutiny proceedings started after the gap of 3 years. In the assessee’s line of business such who is a main contractor having undertaken construction work at various places, has to get it executed through job workers who are kind of petty sub contactors who get the job work done through various labourers. The job work in the form of labour are done on the different locations and once the project is completed, the workers move out to different places or migrate back their homes and, therefore, it is impossible to get their current addresses so as to enable the Assessing Officer to issue notice under Section 133(6) of the Act, which actually would have been completely futile exercise. Mere saying that failure to issue notice under Section 133(6) by the Assessing Officer to the labourers, the assessment order is erroneous and prejudicial to the interest of revenue de-hors the nature of business activity carried out by the assessee cannot render the assessment order erroneous and prejudicial to the interest of revenue. Nowhere Ld. CIT has, stated that how can notice under Section 133(6) can be served on the labour force who are mobile and having no permanent address. If the payments had been made through cheques after deduction of tax under Section 194C of the Act and is in consonance with the percentage of payment made in the earlier years stands accepted, then there is no reason to doubt the payments and we do not find any reason as to why such payments can be said to be non-genuine. The ld. PCIT has not brought any record or himself conducted any enquiry that such a payment of job work charges are bogus and non-genuine, or are inflated expenditure debited in the profit and loss account. Accordingly, the reasons given by the ld. PCIT for setting aside the assessment order cannot be upheld and the same is set aside and assessment order
accepting the said job work charges is upheld. Accordingly, the appeal of the assessee is allowed. Order pronounced in the open court on : 30/11/2021.
Sd/- Sd/- ( DR. B.R.R. KUMAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 30/11/2021. *MEHTA* Copy forwarded to 1. Appellant; 2. Respondent; 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, New Delhi.
Date of dictation 30.11.2021 Date on which the typed draft is placed before 30.11.2021 the dictating member Date on which the typed draft is placed before 30.11.2021 the other member Date on which the approved draft comes to the 30.11.2021 Sr. PS/ PS Date on which the fair order is placed before the 30.11.2021 dictating member for pronouncement Date on which the fair order comes back to the 30.11.2021 Sr. PS/ PS
date on which the file goes to the Bench Clerk 30.11.2021 Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the order