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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH: KOLKATA [Before Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
I.T.A No.650/Kol/2014 Assessment Year: 2006-07 Income-tax Officer, Wd-41(2), Kolkata. Vs. M/s. Image Sign (PAN: AABFI6986L) (Appellant) (Respondent)
Date of hearing: 27.01.2017 Date of pronouncement: 03.02.2017
For the Appellant: Md. Ghayas Uddin, JCIT For the Respondent: Shri D. K. Bandyopadhyay, FCA
ORDER Per Shri M. Balaganesh, AM: This appeal by revenue is arising out of order of CIT(A)-XIX, Kolkata vide appeal No. 349/CIT(A)-XIX/Ward-41(2)/Kol/12-13 dated 10.01.2014. Assessment was framed by ITO, Wd-41(2), Kolkata u/s. 143(3) r.w.s. 154(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2006-07 vide his order dated 26.05.2011. 2. The first primary issue to be decided in this appeal is as to whether the Ld. CIT(A) is justified in deleting the disallowance made u/s. 40(a)(ia) of the Act in the proceedings u/s. 154 of the Act in the facts and circumstances of the case.
Brief facts of this issue is that the assessee is a partnership firm filed its return of income for AY 2006-07 and assessment was completed u/s. 143(3) of the Act on 24.12.2008 determining the total income at Rs.2,57,100/-. The AO subsequent to the framing of assessment on perusal of the TDS record noticed that the assessee had made certain payments towards printing charges in the sum of Rs.26,52,754/- without deducting tax at source and hence, the provisions of section 40(a)(ia) of the Act get attracted thereon. Similarly, the AO also noted that the assessee had reflected a sum of Rs.7,39,511/- in its closing stock as on 31.03.2006 in the stock statement submitted to the bank in respect of cash credit limits availed from the bank, whereas there was no closing stock as on 31.03.2006 reflected in the P&L Account and in the Balance Sheet
2 ITA No.650/K/2014 M/s. Image Sign, AY 2006-07 of the assessee which was filed along with the return of income. The AO thought these two items not being considered in the assessment to be framed u/s. 143(3) of the Act, would become mistakes apparent from record warranting rectification u/s. 154 of the Act and accordingly, issued notice thereon to the assessee. During the proceedings u/s 154 of the Act, the assessee filed the details of printing charges paid to five parties as below: Roy Printing House Rs. 9,73,462/- Shree Krishna Plastics Rs. 2,75,252/- Golden Computer Forms Pvt. Ltd. Rs. 2,66,090/- Sign-N-Graph Rs. 5,57,112/- V-Tech Work Pvt. Ltd. Rs. 63,060/- Rs.21,34,976/-
The assessee also filed details of payment of Vinyle printing charges to B. K. Enterprise amounting to Rs.5,17,778/-. The total of these two sums i.e. Rs.21,34,976/- and Rs.5,17,778/- works out to Rs.26,52,754/- which the AO thought was paid without deduction of tax at source. In response, the assessee replied that payment made under the head printing charges and vinyle printing charges are actually purchases i.e. contract for sale and not labour charges or job work. The assessee also pleaded that in the said bill VAT was also charged by the concerned supplier which goes to prove that the subject mentioned payments were made only towards purchases and not attributable to any labour charges or job work. Accordingly, it pleaded that no tax deduction at source would need to be made on the said payment. The AO, however, by placing reliance on the CBDT Circular No. 715 dated 08.08.2995 proceeded to hold that the printed material was done as per the prescribed specification of the assessee and to suit the requirement of the assessee and accordingly, concluded that the same would fall under the ambit of provisions of section 194C of the Act and consequently disallowance u/s. 40(a)(ia) of the Act is to be made thereon.
The Ld. CIT(A), however, went into the preliminary issue of adjudicating the subject mentioned disallowance u/s. 40(a)(ia) of the Act in the proceedings u/s. 154 of the Act, in accordance with the ground raised by the assessee thereon. He concluded that whether the payment made under the abovementioned parties by the assessee was towards purchase of printing materials or job work carried out by the said parties in tune
3 ITA No.650/K/2014 M/s. Image Sign, AY 2006-07 with the specification of the assessee would fall within the ambit of definition of work as defined u/s. 194C of the Act itself is a debatable issue and also requires detailed investigation of facts. Accordingly, he concluded that the same cannot be construed as a mistake apparent from the face of the record which would warrant initiation of rectification proceedings u/s. 154 of the Act. In support of this, the Ld. CIT(A) adjudicated various decisions of High courts and Supreme court in that regard. Similarly, in respect of closing stock filed by the assessee in the stock statement submitted to the bank in connection with the cash credit limits availed of by the assessee from the bank, the Ld. CIT(A) concluded that the same cannot be brought to tax as the AO did not find any difference in the stock of physical verification vis-à-vis the stock found recorded in the books of account. In support of this, he placed reliance on various High Court decisions. Accordingly, he concluded that this item is also a debatable issue and annulled the order passed u/s. 154 of the Act stating that these two items could not be adjudicated in the proceedings u/s. 154 of the Act. Aggrieved, the revenue is in appeal before us on the following grounds: “1. That on the fact and in the circumstances of the case the Ld. CIT(A) erred both in law and facts in holding that the rectification order passed by the A.O. as ultra vires order ignoring the facts that a glaring mistake occurred in the assessment order made u/s. 143(3) of the Income tax Act. 2. That on the facts and circumstances of the case the Ld. CIT(A) erred in holding that the issues regarding applicability of section 40(a)(ia) of the Income Tax Act is debatable while materials on record clearly show that payments were made for sub-contractors to get work done and therefore assessee was liable to deduct tax at source. 3. That on the facts and circumstances of the case Ld. CIT(A) ignored the facts that a glaring mistake has occurred in the assessment order inasmuch as assessment order was passed without applying the provision of section 40(a)(ia) of the Income Tax Act, 1961. 4. That on the facts and circumstances of the case Ld. CIT(A) erred in law in not dealing in the issue regarding addition on account of difference in closing stock on the ground that the order u/s. 154 was ultra vires order and therefore the ground become infructuous.” 5. The Ld. DR reiterated the findings of the AO and vehemently argued that there were apparent mistake on the face of the record and accordingly, the order of the AO by making these two additions in 154 proceedings is valid as per law. He also argued on merits that these two additions were definitely required to be made as assessee is engaged in reprographic business wherein he gets contract and prepares advertisement materials for big companies in tune with their specification, for which purpose, printing charges were incurred by the assessee by getting the specific job done in the field of
4 ITA No.650/K/2014 M/s. Image Sign, AY 2006-07 photo shopping, vinyle printing, computer designing and computer graphics, which involves specialized skills to be carried out by the independent parties and any payment made pursuant to such execution of work would fall within the ambit of works contract as defined in section 194C of the Act. Accordingly, disallowance u/s. 40(a)(ia) of the Act made thereon is justified. With regard to closing stock addition in the sum of Rs.7,39,511/- he argued that the assessee has shown closing stock in its Balance Sheet as Rs. Nil whereas he has reflected a sum of Rs.7,39,511/- as closing stock submitted to the bank. Hence, it was a mistake apparent from record which requires to be rectified in the instant case. In response to this, the Ld. AR argued that whether what was done by the assessee in respect of printing charges was either towards material purchase thereon or job work thereon itself is a debatable issue which could be decided only based on detail investigation of facts and hence, it would not fall within the purview of section 154 proceedings. He also argued that the AO placing reliance on the Circular No. 715 is not applicable as the same is binding only on the tax authorities and not on the assessee. With regard to the addition made towards closing stock, he stated that the ld. CIT(A) had rightly relied on various decisions of the Hon’ble High Courts wherein no addition could be based on stock statement submitted to the bank without finding any defects in the books of account. He argued that this again cannot fall within the purview of section 154 of the Act and accordingly, vehemently relied on the order of the CIT(A).
We have heard rival submissions and gone through the materials available on record and the orders of the lower authorities. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the AO had merely sought to investigate in detail the basic facts as to whether the assessee had indulged in making purchase of printing material for the purpose of its business or had engaged contractors and have the printing job done in tune with its requirements in the proceedings initiated u/s. 154 of the Act. We hold that the same ought to have been carried out by the AO only in the assessment proceedings u/s. 143(3) of the Act or if necessary, avenues open to the revenue are by either resorting to section 263 of the Act (revision proceedings) by the Ld. CIT or by reopening the assessment u/s. 147 of the Act. We hold that the issue being squarely debatable cannot be carried out u/s. 154 of the Act. In this regard, we place reliance on the decision of the Hon’ble
5 ITA No.650/K/2014 M/s. Image Sign, AY 2006-07 Supreme Court in the case of T. S. Balaram, ITO Vs. Volkart Bros. (1971) 82 ITR 50 (SC) wherein it has been held as under: “It is not open to the ITO to go into the true scope of relevant provisions of the Act in proceeding u/s 154 of the Act. A mistake apparent on the record must be an bvious and patent mistake and not something which can be established by a long drawn process of reasoning of points on which there may, conceivably be two opinions.” A decision on a debatable point of law is not a mistake apparent from record. The power of rectification u/s 154 of the Act cannot be understood to review, revise or re-consider the substantial decisions, taken after due consideration of law and facts. In a nut-shell, mistake apparent from record, u/s. 154 of the Act must be self evident, obvious and patent mistake of facts or law which is floating on the surface of the record and not the mistake which can be discovered or discerned or established by way of discussions, debate and investigation into the issue.” 7. We also hold that what could be rectified u/s. 154 of the Act are mistakes that are patent, glaring and apparent from record. Mistake, if any, which has to be discovered by a long drawn process or reasoning or examination of arguments on points where there may conceivably be two opinions cannot be said to be mistake or error apparent from record. Reliance in this regard is placed on the decision of Hon’ble Bombay High Court in the case of Arvind N. Mafatlal Vs. T. A. Balakrishnan (1968) 67 ITR 449 (Bom). We also appreciate the circular of CBDT No. 715 is binding only on the tax authorities and not on the assessee as admittedly the circular cannot detract from the provisions of the Act. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of State Bank of Travancore Vs. CIT (1986) 158 ITR 102 (SC).
With regard to issue of addition made on account of closing stock in the sum of Rs.7,35,911/-, we find that the necessity of making such addition had been understood and accepted as a dispute and the said dispute has reached the corridors of the following High Courts in the following cases and hence, the same would make the issue debatable: i) CIT Vs. Pioneer Breeding Farms 295 ITR 78 (Mad), ii) CIT Vs. Udaipur Chemicals & Fertilizers (P) Ltd. 211 CTR 191, iii) Coimbatore Spinning & Weaving Co. Ltd. Vs. CIT 95 ITR 375 (Mad), iv) Dhansiram Agarwalla Vs. CIT 111 CTR 39 (Gau), v) Century Foams (P) Ltd. Vs. CIT 123 CTR 342 (All) and vi) V. Rajan Vs. CIT 96 ITR 64 (Mad). Since the subject mentioned issue also is debatable the same cannot be adjudicated in section 154 proceedings. Hence, the grounds raised by the revenue are dismissed and
6 ITA No.650/K/2014 M/s. Image Sign, AY 2006-07 the order of the Ld. CIT(A) does not require any interference and the same is hereby upheld. Hence the grounds raised by the revenue are dismissed. 9. Since the appeal of the revenue is dismissed on preliminary ground of section 154 proceedings itself, we refrain to give our opinion on merits of the case. 10. In the result, appeal of revenue is dismissed. 11. Order is pronounced in the open court 03.02.2017 Sd/- Sd/- (N. V. Vasudevan) (M. Balaganesh) Judicial Member Accountant Member Dated : 3rd February, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to:
APPELLANT – ITO, Ward-41(2), Kolkata. 1. Respondent –M/s. Image Sign, 24B, Harish Neogy Road, Kolkata-700 2 067 The CIT(A), Kolkata 3. 4. ACIT , Kolkata. 5. DR, Kolkata Benches, Kolkata
/True Copy, By order,
Asstt. Registrar.