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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF FEBRUARY 2016
PRESENT
THE HON’BLE MR.JUSTICE JAYANT PATEL
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
ITA No.432/2010
BETWEEN
COMMISSIONER OF INCOME TAX-III, C.R. BUILDING
QUEENS ROAD
BANGALORE.
ASSISTANT COMMISSIONER
OF INCOME-TAX, CIRCLE-2(1)
MANGALORE.
…APPELLANTS
(BY SRI. E.I.SANMATHI, ADVOCATE)
AND
M/S. HASSAN HAJEE & CO. NEAR OLD MUNICIPAL OFFICE BUNDER, MANGALORE.
….RESPONDENT
(BY SMT.JINITA CHATTERJEE, ADVOCATE FOR SRI.S.PARTHASARATHI, ADVOCATE)
THIS APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, TO SET ASIDE THE ORDER DATED 16.07.2010 PASSED BY THE ITAT, ‘B’ BENCH BANGALORE AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS ITA NOs.67 & 68/BANG/2010, IN THE INTEREST OF JUSTICE AND EQUITY.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, JAYANT PATEL, J., DELIVERED THE FOLLOWING:
JUDGMENT
The present appeal is directed against the Order dated 24.07.2009 passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’, Bangalore Bench ‘B’, Bangalore, [hereinafter referred to as ‘Tribunal’, for short] in ITA Nos.67 & 68/Bang/2010, by raising the following substantial questions of law. “1. Whether under the facts and circumstances of the case, the tribunal was right in law in restricting the addition to 1.6% in respect of an expenditure which is of such nature as covered by section 37(1) of the income tax Act, 1961?
Whether under the facts and circumstances of the case, the tribunal right in law in restricting the addition to 1.6% in
3 respect of wages instead of 10.3% and 6.6% adopted by the assessing authority respectively for the Assessment Years 2002- 03 and 2003-04, when the onus to prove the genuineness of expenditure claimed has not been discharged by the assessee”?
We have heard Mr. E.I. Sanmathi, learned Counsel for the Appellants – Revenue and Ms. Jinita Chatterjee, learned Counsel appearing for the Respondent.
We may record that the Tribunal on the aspects of restriction of disallowance to the extent of 1.6% in the impugned order at paragraph-11.1, has observed thus: “In the instant case, we find the restriction of disallowance to 1.6% of the total wages paid for asst. year 2002-03 (Rs.4,38,27,054) and for assessment year 2003-04 (Rs.4,62,71,697) is reasonable and correct. The Tribunal for assessment year 2004-05 (ITA No.947/08 dated 30.04.2009) had sustained the disallowance of Rs.15 lakhs, which works to 1.6% of the total wages amounting to Rs.9,28,18,382/-. The total wages as a percentage of gross turnover was lower in the concerned two assessment
4 years as compared to assessment year 2004-05. Therefore, restricting the disallowance to 1.6% of the total wages is only reasonable under the given facts and circumstances of the case. Moreover, the revenue has not brought in any material to dispel the finding of the learned CIT(A). Hence, we hold that the order of the CIT(A) is correct and in accordance with law and therefore, the grounds raised by the revenue are rejected.”
We would have further considered the matter. However, learned Counsel for the Appellants- Revenue has brought to our notice that the decision of the Tribunal itself in ITA No.947/Bang/2008 dated 30.04.2009 was carried before this Court in ITA No.450/2009 and this Court vide Judgment dated 1.6.2015 has set aside the said Order of the Tribunal and has remanded the matter to the Tribunal for further consideration in accordance with law.
In view of the above, one of the vital basis for the decision of the Tribunal in the impugned Order was its earlier view in ITA No.947/Bang/2008 dated
5 30.04.2009 and when this Court has by the aforesaid Judgment in ITA No.450/2009 has set aside the said order of the Tribunal and has remanded the matter, we find that similar course deserves to be adopted even in the present matter.
We may record that this Court in the above referred decision in ITA No.450/2009, had observed thus: “This appeal is filed by the Revenue questioning the order dated 30.4.2009 passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ in ITA No.947/Bang/08 (Assessment year 2004-05). The appellants have prayed for confirmation of the order dated 22.4.2008 passed by the Commissioner of Income Tax (Appeals) {‘Appellate Commissioner’ for short}.
The assessee is involved in Stevedoring operations of vessels and carrying on loading and unloading work at the port; assessee has engaged labour force from New Mangalore Port Trust (‘NMPT’ for short), registered cargo Handling Workers Administrative Wing (RCHWAW); the payment to the labour so engaged would be made by cheques to NMPT and in turn NMPT would disburse the wages to the workers. Case of
6 the assessee is that as the registered labour force at NMPT did not agree to work beyond the limit fixed by them, the assessee had engaged the services of the private workers and had made payment in cash to the extent of Rs.1,17,59,931/- and through cheques to sub-contractors to the extent of Rs.2,70,70,745/-; the payments were made through self made vouchers. According to the assessee, loading and unloading operations were carried out by it by making the following payments:
(a) Rs.2,53,29,660/- through cheque to NMPT Workers’ Union.
(b) Rs.2,70,70,745/- to sub-contractors who brought the workers privately to the port for the purpose of unloading the iron ore. The payments were made through cheque to the sub-contractors.
(c) Cash of Rs.1,17,59,931/- was paid by the assessee to the gang leaders who had brought the workers privately as speed money.
The Assessing Officer allowed the contention of the assesee insofar as it relates to payment through cheque to the NMPT Union and sub-contractors. However, the Assessing Officer has disallowed the claim of the assessee to the extent of 20% in respect of cash payment to gang leaders as mentioned supra, which means the Assessing Authority allowed the claim of the assessee to the extent of 80%.
Questioning the order passed by the Assessing Authority, the assessee filed appeal No.ITA/174/ CIT(A)/MNG/2006-07 before the Appellate Commissioner under Section 246 of the Income Tax Act (‘the Act’ for short). The Appellate Commissioner while adjudicating the appeal issued show cause notice under Section 251(2) of the Act for enhancement of tax liability. After hearing both the parties, the Appellate Commissioner enhanced the tax liability by setting aside the order passed by the Assessing Officer in respect of payments made to sub-contractors through cheque a sum of Rs.2,70,70,745/-. However Appellate Commissioner affirmed the order passed by the Assessing Officer insofar as it relates to speed money paid to various gang leaders in cash.
The order of the Appellate Commissioner is carried further by the assessee before the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ in ITA No.947/Bang/08 by filing the appeal. The Income Tax Appellate Tribunal by its order dated 30.4.2009 allowed the appeal of the assessee in part and restricted the addition to the extent of Rs.15,00,000/- as against Rs.2,94,00,000/- made by the Appellate Commissioner.
Sri Jeevan J. Neeralgi, learned standing counsel for the appellants as well as Sri S. Parthasarathi, learned advocate for the assessee have taken us through the entire material on record, more particularly the
8 orders passed by the Appellate Commissioner and Income Tax Appellate Tribunal, Bangalore.
The Appellate Commissioner has in his detailed order clarified as to how the order passed by the Assessing Authority is unsustainable to the extent mentioned supra. To verify the genuineness of the payments made by the assessee to the sub-contractors through cheques, summons under Section 131 of the Income Tax Act issued to all the sub- contractors mentioned in the assessment order and their statements recorded on oath by the Assessing Officer also came to be examined. It came to be noticed by the Appellate Commissioner that all the sub- contractors have stated that they have carried loading and unloading work at the port for the assessee by engaging private labour and they have further confirmed the bill. All these labour contractors are assessed to tax and they have filed returns belatedly declaring the above labour contract proceeds and offered income to tax under Section 44-AD of the Act. However the Appellate Commissioner, on facts has found that the vouchers issued to the sub-contractors and payments made to them are highly suspicious in nature. The details collected from the assessee were made available to the Financial Advisor and Chief Accounts Officer, NMPT, Mangalore for getting reports. The details received from NMPT, Mangalore when compared with the details which the assessee has made available before the Appellate Commissioner fully tallied with each other in terms of date,
9 item and quantity in metric tons. In other words, the entire cargo was handled by the assessee with the help of NMPT labour, for which assessee has paid a sum of Rs.2,53,29,660/- by cheque. Hence, it appears a genuine doubt arose in the mind of the Appellate Commissioner as to whether the actual payments were made to the sub- contractors or not in the matter of engaging the workers and payment of money to them as speed money. The letter written by the assessee to the Appellate Commissioner discloses that the total cargo handled during the financial year 2003-04 was 8,00,000 tons. On verification of the details obtained from the NMPT, Mangalore vide letter dated 17.10.2007, it was found that the details furnished by the assessee tallied with the details furnished by NMPT and hence the assessee was asked to explain as to whom payment of Rs.2,70,70,745/- had been made and for what service. It is also found by the appellate Commissioner that all the statements of sub-contractors recorded by the Assessing Officer are of stereo type and same 18 questions were asked by the Assessing Officer to all the sub-contractors and all of them have given identical replies. Virtually, it means that stereo type statements are repeated by the Assessing Officer while considering the case on hand in respect of 18 sub-contractors. It is also borne out from the records that the sub-contractors have not maintained any list of accounts in respect of labour contract works of the assessee. They have not maintained any records regarding the labourers engaged, the details
10 like names and addresses of the workers etc., and the same are not available with the sub- contractors. Even the list of accounts and other details are not available to know the total number of labourers engaged etc., It is also admitted by the sub-contractors that they have not maintained any records to show as to how much payments were made to the labourers. It is further admitted before the Assessing Officer that they have not maintained any evidence like vouchers, receipts in respect of payments made to the labourers etc., Regarding payment to individual labourers, no details are maintained. There is no written agreement between the assessee and the sub- contractors. The bills produced by the sub- contractors before the authorities are computer generated bills which are identical in respect of all the sub-contractors and they did not have any service tax registration number, cell phone number etc., On perusal of their bank account records, it is observed by the Appellate Commissioner that when the payment by cheque was made, the amount was withdrawn by cash on the same day or on the next day.
In addition to the same, the Tribunal, on facts has found that the Appellate Commissioner did not find availability of any big labour force which can be engaged by assessee or any other cargo handling concern for the business. It is found that NMPT labour is so organized and strong that they would not allow any private sub-contractors to carry on the work and
11 receive the huge payments as indicated by the assessee in this case. It is also found by the appellate Commissioner that even the nature of work and infrastructure available at NMPT port does not require engagement of huge labour force of the nature indicated by assessee. Most of the cargo handling process was mechanized and therefore the requirement of labour force was minimum. On these amongst other grounds, as set out in detail in his order, the appellate Commissioner disallowed the sum of Rs.2,70,70,745/- which was allowed by the Assessing Officer.
The Appellate Tribunal while deciding the appeal, has casually proceeded to sustain the order passed by the Assessing Officer. None of the major points decided by the Appellate Commissioner are answered by the Tribunal while setting aside the order passed by the Appellate Commissioner. Though the order passed by the Tribunal runs to number of pages, the crux of the matter is not adverted to by the Tribunal while arriving at the conclusion. On careful perusal of the order passed by the Tribunal, we are of the opinion that the order of the Tribunal cannot be sustained inasmuch as the Tribunal has not applied its mind judiciously to the facts and circumstances of the case. In view of the same, interest of justice requires that the matter has to be re-dealt by the Income Tax Appellate Tribunal, Bangalore. By the said process, no prejudice would be caused to either of the parties.
12 Accordingly, following order is passed:
(i) The order dated 30th April 2009 passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ in ITA No.947/Bang/08 (Assessment year 2004-05) stands set aside. (ii) The matter in ITA No.947/Bang/08 is restored to the file of the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ for fresh disposal in accordance with law.
This Court hopes that the Income Tax Appellate Tribunal will apply its mind judiciously before arriving at the conclusion.
In view of the remand order, the substantial questions of law raised in this appeal are kept open.
As the issues involved are the same, we do not find that any different view deserves to be taken than was taken in ITA No.450/2009. Hence, the impugned Order passed by the Tribunal dated 16.07.2010 in ITA Nos.67/Bang/2010 is set aside with a further direction that the matter shall stand restored to the file of the Tribunal. The Tribunal shall examine the matter and take appropriate decision in accordance
13 with law after hearing both the sides as early as possible.
The appeal is allowed to the aforesaid extent. Considering the facts and circumstances, no order as to costs.
Sd/- JUDGE
Sd/- JUDGE
AN/-