POWER LINERS,JAIPUR vs. ACIT, JAIPUR

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ITA 194/JPR/2017Status: DisposedITAT Jaipur03 January 2018AY 2012-138 pages
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What did the Tribunal hold?

The Tribunal deleted the disallowance under Section 40(a)(ia) as the income was already estimated after rejecting the books. For Section 43B, the disallowance was set aside, subject to verification that the assessee did not claim the service tax as an expenditure.

What were the facts?

The assessee's books of accounts were rejected by the AO, who then estimated the income. The assessee appealed against the confirmation of this rejection and subsequent disallowances under sections 40(a)(ia) and 43B.

What were the issues?

Whether disallowances under Section 40(a)(ia) and 43B are permissible after the rejection of books and estimation of income. Whether service tax disallowance under Section 43B is valid if no deduction was claimed by the assessee.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 40(a)(ia),Section 43B

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Cases cited in this judgment(3)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR

Before: SHRI VIJAY PAL RAO, JM & DR. ARJUN LAL SAINI, AM vk;dj vihy la-@ITA No. 194/JP/2017

For Appellant: Shri Rohan Sogani (CA) jktLo dh vksj ls@
Hearing: 08/11/2017Pronounced: 08/01/2018

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa MkW0 vtqZu yky lSuh] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & DR. ARJUN LAL SAINI, AM vk;dj vihy la-@ITA No. 194/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2012-13 cuke M/s Power Liners, A.C.I.T., Vs. 205, Upasana Apartment, Bihari Circle-3, Marg, Banipark, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AALFP 2459 F vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rohan Sogani (CA) jktLo dh vksj ls@ Revenue by : Shri P.P. Meena (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 08/11/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 08/01/2018 vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M.

This appeal by the assessee is directed against the order dated

29/12/2016 of ld. CIT(A)-I, Jaipur for the A.Y. 2012-13. The assessee has

raised following grounds of appeal: “1. In the facts and circumstances of the case and in law CIT(A) has erred in confirming the action of the Id. AO in rejecting the books of accounts of the assessee company by invoking the provisions of section 145(3) of the Income Tax Act, 1961. The action of the CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the rejection of books of accounts. 2. In the facts and circumstances of the case and in law the Id. CIT (A) has erred in confirming the action of the Id. AO in disallowing a sum of Rs. 16,17,487/- under section 40(a)(ia) of the Income Tax

ITA 194/JP/2017_ 2 Power Liners Vs ACIT

Act, 1961. The action of Id. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing of the said disallowance of Rs. 16,17,487/-.

3.

In the facts and circumstances of the case and in law the Id. CIT (A) has erred in confirming the action of the Id. AO in disallowing a sum of Rs. 14,30,423/- of service tax under section 43B of the Income Tax Act, 1961. The action of the CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 14,30,423/-.”

2.

At the time of hearing, the ld AR of the assessee has stated that the

assessee does want to press ground No. 1 and the same may be dismissed

as not pressed. The ld DR has raised no objection if ground No. 1 of the

assessee’s appeal is dismissed being not pressed. Accordingly, ground No.

1 of the assessee’s appeal is dismissed being not pressed.

3.

Ground No. 2 of the assessee’s appeal is regarding disallowance

made U/s 40(a)(ia) of the Income Tax Act, 1961 (in short the Act). The ld

AR of the assessee has submitted that the Assessing Officer has rejected

the books of account of the assessee and estimated the income of the

assessee by applying N.P. rate, therefore, once the income of the assessee

is estimated by applying the N.P. rate then no further disallowance is called

for U/s 40(a)(ia) of the Act. In support of his contention he has relied upon

the decision of Coordinate Bench of this Tribunal in the case of Rakesh

Construction Co. Vs ACIT in ITA No. 274/JP/2014 order dated 23/09/2016.

ITA 194/JP/2017_ 3 Power Liners Vs ACIT

Thus, the ld AR has submitted that once the income of the assessee is

estimated after rejection of books of account, no disallowance can be made

U/s 40(a)(ia) of the Act. Alternatively, the ld AR of the assessee has

submitted that as per the amendment in Section 40(a)(ia) of the Act only

30% of the sum payable to a resident shall be disallowance if the tax is not

deducted at source. The said amendment is explanatory in nature and

therefore, it is applicable retrospectively. The ld AR of the assessee has

relied on the decision of Hon'ble Supreme Court in the case of CIT Vs

Vatika Township Pvt. Ltd. 109 DTR 33 and submitted that the Hon’ble Apex

Court has observed that if legislation confers a benefit on some persons but

without inflicting a corresponding detriment on some other person or on

the public generally, then the presumption would be that such legislation

giving it a purposive construction, would warrant it to be given a

retrospective effect. The ld AR has contended that even in a case it is held

that the disallowance U/s 40(a)(ia) of the Act is warranted, the same will

be restricted only 30% of the amount payable or paid.

4.

On the other hand, the ld DR has relied on the orders of the

authorities below.

5.

We have considered the rival submissions as well as relevant

materials available on the record. There is no dispute that the income of

ITA 194/JP/2017_ 4 Power Liners Vs ACIT

the assessee was determined by the Assessing Officer on the basis of the

estimation and best judgment after rejecting the books of account U/s

145(3) of the Act. The Assessing Officer has applied N.P. rate of 8% on the

total receipts of Rs. 1,53,44,942/- and accordingly, the addition of Rs.

2,18,277/- was made by the Assessing Officer. The ld CIT(A) has confirmed

the addition of the Assessing Officer by rejecting the contention of the

assessee. The amount was already paid during the previous year and not

payable at the end of the year. Thus, it is clear that the contention raised

by the assessee before us that after rejection of books of account and

estimation of income of the assessee, no further addition can be made by

the Assessing Officer, has not been considered or decided by the ld.

CIT(A). We find that the Coordinate Bench of this Tribunal in the case of

Rakesh Construction Co. Vs. ACIT (supra) while dealing with the identical

issue has held in para 2.4 as under:

“2.4 We have heard the rival contentions and perused the material available on record. In the instant case, the books of accounts were rejected u/s 145(3) of the Act and thereafter the AO has estimated net profit @ 5.05% on contract receipt after deduction of depreciation, interest and remuneration paid to partners as against net profit of 2.39% declared by the assessee. From the perusal of the assessment order, it is noted that there have been discussions between the AO and the assessee in terms of estimating the net profit rate once the books of account have been rejected. As part of

ITA 194/JP/2017_ 5 Power Liners Vs ACIT

that discussion, it is noted that in response to AO's show-cause as to why 8.5% net profit rate should not be allowed, the Id. AR has submitted that if the net profit at the rate of 8.5% is applied, then the deduction on account of payment of hiring charges for machinery taken on rent amounting to Rs. 22,41,600/- and Rs. 21,60,000/- are also to be allowed. The Ld. AO finally decided to apply net profit of 5.05% which has been agreed upon by the assessee. It is therefore seen that issue of allowance of payments of machinery hire charges has been duly taken into consideration by the AO while estimating the N.P. rate of 5.05% Further, it is noted that the decision of Hon'ble Kolkatta High Court in the case of Arjun Bhowmick (supra) directly support the case of the assessee. In that case, the view taken by the Kolkotta Bench of the ITAT has been confirmed by the Honble High Court wherein it has held that "once the n.p. rate is estimated, the AO cannot based this disallowance on the same books of accounts for the purpose of disallowance by invoking provisions of section 40(a)(ia) of the Act or general disallowance u/s 37 of the Act. The estimation made by the AO of net profit will take care of every addition related to business income or business receipts and no further disallowance can be made." It is also noted that Jaipur Bench of ITAT in the case of Banas Sand Toll Tax collection (supra) has taken a similar view in the matter following the decision in case of Hon'ble Andhra Pradesh High Court in the case of Indwell Construction (232 ITR 776). In light of above, we see no reason for AO to invoke provisions of section 154 of the Act. Hence, the order passed by the AO u/s 154 is quashed and the original order passed u/s 143(3) of the Act is sustained.”

Following the order of the Coordinate Bench of this Tribunal (supra) we

delete the addition made by the Assessing Officer on this account.

ITA 194/JP/2017_ 6 Power Liners Vs ACIT

6.

Ground No.3 of the assessee’s appeal is regarding disallowance made

U/s 43B of the Act. The ld AR of the assessee has submitted that the

Assessing Officer has made an addition on account of service tax U/s 43B

of the Act. He has further submitted that the assessee has not made any

claim of expenditure in the P&L account or in computation of income on

account of service tax payable, therefore, no disallowance is called for U/s

43B of the Act. In support of his contention, he has relied upon the

decision of Hon’ble Bombay High court in the case of CIT Vs Knight Frank

(India) Pvt. Ltd. 242 Taxman 313 (Bom) and submitted that the Hon'ble

High Court has held that the assessee had not claimed any deduction on

account of the service tax payable in order to determine its taxable income,

there can no occasion to invoke Section 43B of the Act.

7.

On the other hand, the ld DR has relied on the orders of the

authorities below.

8.

We have considered the rival submissions of both the parties as well

as relevant materials available on the record. There is no quarrel on the

point that if the assessee has not claimed a deduction on account of service

tax payable then the provisions of Section 43B of the Act cannot be

invoked. However, at the same time, it is also to be kept in mind that when

the assessee has not claimed any deduction for the year under

ITA 194/JP/2017_ 7 Power Liners Vs ACIT

consideration and which has not been disallowed U/s 43B of the Act then

the assessee cannot take the benefit of Section 43B in future when the said

service tax is paid because the assessee has not included this amount as

part of turnover. The Hon'ble Bombay High Court in the case of CIT Vs

Knight Frank (India) Pvt. Ltd.(supra) has held in para 7 as under:

“7. Regarding question (ii): (a) It is an admitted position before us that the respondent assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income. In the above view, there can be no occasion to invoke Section 43B of the Act.

(b) Mr. Suresh Kumar, learned Counsel for the Revenue fairly states that the issue stands concluded against the Revenue by the decision of this Court in Commissioner of Income Tax Vs Ovira Logistics Pvt. Ltd. 377 ITR 129 and Commissioner of Income Tax Vs Calibre Personnel Service Pvt. Ltd. (Income Tax Appeal No. 158 of 2013) rendered on 2nd February, 2015.

(c) In view of the above, the question (ii) as proposed is covered by the decision of this Court. Therefore, it does not give rise to any substantial question of law. Thus, not entertained.”

Following the decision of the Hon’ble Bombay High Court cited above, the

disallowance made by the Assessing Officer is not sustainable. However,

subject to the verification of the fact that the assessee has not made any

claim while computing its taxable income. Accordingly, the Assessing

Officer is directed to verify this fact then allow the claim of the assessee.

ITA 194/JP/2017_ 8 Power Liners Vs ACIT 9. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 08/01/2018.

Sd/- Sd/- ¼MkW0 vtqZu yky lSuh½ ¼fot; iky jko½ (Dr. Arjun Lal Saini) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 08th January, 2018

*Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s Power Liners, Jaipur. 1. izR;FkhZ@ The Respondent- The A.C.I.T., Circle-3, Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 194/JP/2017) 6.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत

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