THE DEPUTY COMMISSIONER OF INCOME TAX vs. SHRI A BALARAMA REDDY

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ITA/361/2010HC KarnatakaKAHC01066994201014 November 2018Bench: RAVI MALIMATH,K.NATARAJAN6 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the assessee discharged the primary onus by providing confirmation letters, names, addresses, and ledger copies of trade creditors. The High Court agreed that the amounts were supported by entries for goods and services, upholding the lower authorities' decision.

What were the facts?

The assessee claimed Rs. 2,04,35,257/- as trade creditors, but the Assessing Officer added it back as income due to lack of creditworthiness. The Commissioner (Appeals) and the ITAT allowed the assessee's claim.

What were the issues?

Whether the appellate authorities were correct in accepting trade creditors without examining creditworthiness, and whether payments to labourers were correctly treated as wages not requiring TDS under Section 194C.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194C

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 14TH DAY OF NOVEMBER, 2018 BEFORE THE HON’BLE MR. JUSTICE RAVI MALIMATH

AND THE HON’BLE MR. JUSTICE K.NATARAJAN INCOME TAX APPEAL No.361 OF 2010 BETWEEN:

1.

THE DEPUTY COMMISSIONER

INCOME TAX, CIRCLE – 1 DAVANAGERE

2.

THE INCOME – TAX OFFICER WARD – 1, CHITRADURGA ... APPELLANTS (BY SRI: K.V.ARAVIND, ADVOCATE) AND:

SRI.A. BALARAMA REDDY CLASS I CONTRACTOR SRUJANA NILAYA, S.R.LAYOUT CHITRADURGA ... RESPONDENT

(BY SRIYUTHS A SHANKAR AND M.LAVA, ADVOCATES) THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX APPEAL ACT, 1961 ARISING OUT OF ORDER DATED 20.05.2010 PASSED IN INCOME TAX APPEAL NO.745/Bang/2009, FOR THE ASSESSMENT YEAR 2005- 2006, PRAYING TO I)FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II)ALLOW THE

APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN INCOME TAX APPEAL NO.745/Bang/2009 DATED 20.05.2010 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD – 1, CHITRADURGA, IN THE INTEREST OF JUSTICE AND EQUITY.

THIS INCOME TAX APPEAL COMING ON FOR HEARING THIS DAY, RAVI MALIMATH. J., DELIVERED THE FOLLOWING:

J U D G M E N T

The assessee is carrying on the business of construction. With respect to the assessment year 2005- 06, he filed a return of income. He claimed a sum of Rs.2,04,35,257/- as trade creditors. On verification, the Assessing Officer found that the confirmation letters were false and did not have credit worthiness. Therefore, this amount came to be added back as the income of the assessee. Aggrieved by the same, an appeal was filed before the Commissioner of Income-Tax (Appeals), Hubli. The appeal was allowed. The exemption claimed by the assessee was allowed. Aggrieved by the same, the Revenue preferred an appeal. The same was rejected. Hence, the present appeal by the Revenue.

2.

By the order dated 1.6.2011 the appeal was admitted to consider the following substantial question of law :- Whether the finding of the Appellate Authorities that a sum of Rs.2,04,35,257/- shown as trade creditors should be accepted as the same had been reflected in the accounts and the name, address and confirmatory letters were produced without examining the credit worthiness is perverse, arbitrary and baseless and therefore unsustainable?

3.

The learned counsel for the appellants submits that based on the facts and circumstances involved, two other questions of law, as follows, would arise for consideration in this appeal. 1. Whether the Appellate Authorities were correct in holding that a sum of Rs.70,76,774/- was payments made to labourers as wages and therefore the same was not payment to sub-contractor/contractor u/s.194C of the Act and consequently

provisions of section 40(a)(ia) of the Act was not applicable? 2. Whether the Appellate Authorities were correct in granting relief to the assessee by recording different reasons which were not supported by any material and therefore recorded a perverse finding without appreciating that even wages paid will be liable to tax at source?

4.

On hearing the learned counsels, we are of the view that the aforementioned two substantial questions of law also arise for consideration in this appeal. Hence, we have considered the appeal so far as all the three substantial questions of law are concerned. 5. With regard to the first substantial question of law, the Tribunal was of the view that the assessee has discharged the primary onus of proving the genuineness of the sundry creditors since he has filed confirmation letters along with the names and addresses of the respective trade creditors. He has also furnished the ledger account copies of the creditors duly certified by the creditors.

Therefore, the Commissioner of Income Tax (Appeals) has rightly held that the assessee has discharged the primary onus of proving the genuineness of the trade creditors. It was also noticed by the Tribunal that credits are supported by the corresponding entries relating to supply of goods and availing of services; that the ledger account copies were also certified by the creditors which were produced before the Assessing Authority, their names address etc. were all furnished; that those accounts are regularly running in the books of accounts of the assessee. Therefore, the Tribunal declined to interfere.

6.

On consideration of the order passed by the Tribunal, we are of the view that the reasons assigned are just and proper. It cannot be said that all the amounts involved are cash credits. They are supported by corresponding entries relating to supply of goods and availing of services. In the circumstances, we are of the view that the appellate authorities were justified in coming to the conclusion that a sum of Rs.2,04,35,257/- should be

accepted. Hence, the first substantial question of law is held in favour of the Assessee and against the Revenue. So far as the second and third substantial questions of law are concerned, the same are covered by the order of this Court dated 25.05.2011 passed in Income Tax Appeal No.363 of 2010. 7. In view of the same, the second and third substantial questions of law are answered against the Revenue and in favour of the assessee by following the order of this Court in Income Tax Appeal No.363 of 2010 disposed off on 25.05.2011. Accordingly, the appeal is disposed off.

SD/-

SD/- JUDGE JUDGE

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