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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri, Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by assessee is against the order passed by Ld. Commissioner of Income Tax-12, Kolkata No. M.No.cit-12/KOL /Tech/ 263/ 2014-15/2021-24 dated 22.01.2015. Assessment was framed by ACIT, Circle- 34, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 26.12.2012 for assessment year 2010-11.
Facts of the case are that the assessee is a partnership firm and engaged in the business of trading and services. The Ld. CIT(A) found the A.Y. 2010-11 Das Enterprise v. CIT-12 Kol. Page 2 order of AO is erroneous in so far it is as prejudicial to the interest of revenue on account of the following :
The ld. CIT observed the discrepancy between the financial statements submitted to the bank and submitted to the income tax office. The assessee declared the debtors in its balance-sheet submitted to the bank for an amount of Rs. 30,48,968.00 whereas the same amount of labour charges was not reflecting in its profit and loss account and balance sheet submitted to the income tax office. The ld. CIT also observed that the assessee is following mercantile system of accounting. Accordingly, Ld. CIT issued show cause notice under section 263 of the Act for the clarification of discrepancy as stated above. 1.1 In compliance to the notice, the assessee submitted that it follows the cash system of accounting. The said income for the amount of Rs. 30,48,968/- has been duly recognized in the subsequent A.Ys. 2011-12 and 2012-13. Assessee also submitted that the receipt of labour charge was subject to TDS which was deducted in the subsequent year only. So it was perfectly legal to account for the labour charges in the year of receipt in which the TDS was also deducted. Therefore, assessee has not concealed its income for the relevant A.Y 2010-11. Therefore, the order of AO cannot be held as erroneous and prejudicial to the interest of revenue. 1.2 However, Ld. CIT has disregarded the claim of assessee by holding that the assessee is not following cash system of accounting, therefore labour charges cannot be accounted on cash basis. Accordingly the ld. CIT also observed that there is clear violation of section 145 of the Act with regard to the method of accounting adopted for working out the total income of the assessee.
A.Y. 2010-11 Das Enterprise v. CIT-12 Kol. Page 3 2. The assessee for the year under consideration has claimed commission expense in the profit and loss account in the name of six parties in connection with the project awarded by The West Bengal Government for an amount of Rs.20,28,930/-. The ld. CIT observed that all the agreements for the commission payment have been made in the month of March 2009 only and that too on the letter head of the assessee. The language and wordings of all the agreements were same. All the six parties have raised the bills to the assessee in the month of March 2010 only. The AO has allowed the commission expenses without cross verifying the same from the Government of West Bengal as to whether there was the involvement of any middle person in relation to the award of the contract and settling the transaction for the same. There was also a need to establish whether the commission expenses have been incurred wholly and exclusively for the purpose of the business. 2.1 In response to the notice issued under section 263 of the Act, the assessee submitted that the AO has made detailed enquiry by issuing notice under section 133(6) of the Act to the commission agent. In fact the commission payment was duly supported with the agreement and same was confirmed from the parties. Besides the above the commission agents were working in the capacity of the subcontractors but the transaction has just been termed as commission. The genuine services were provided by the agents in connection with the business of the assessee. Besides the above the assessee submitted that order of the AO on the issue of commission has been merged with the order of the ld. CIT(A). The issue of the commission has been duly considered by the ld. CIT(A) during the appellate proceedings. 2.2 However the ld. CIT has disregarded the plea of the assessee by observing as under : A.Y. 2010-11 Das Enterprise v. CIT-12 Kol. Page 4 1) That the assessee failed to produce any document for the services rendered by the commission agent in connection with the contract of the assessee with the Govt. of West Bengal.
2) The AO has also not verified whether the commission expenses were incurred wholly and exclusively for the purpose of the business.
3) The AO made no enquiry from the Govt. of West Bengal as to whether there was involvement of any commission agent.
4) The issue before the ld. CIT(A) at the time of appellate proceedings on the very same commission expenses was on a different footing. It was with regard to the addition made by the AO on account of disallowance of commission expenses pertaining to prior period for an amount of Rs. 4,87,115.00. The issue of commission expense whether it was incurred wholly and exclusively for the purpose of the business was never before the ld. CIT(A).
Accordingly, Ld. CIT held that order passed by AO is erroneous and prejudicial to the interest of revenue.
Now, being aggrieved by this order of Ld. CIT assessee came in appeal before us.
Shri K.M.Ray, Ld. Authorized Representative appearing on behalf of assessee and Shri S.Srivastava, Ld Departmental Representative appearing on behalf of Revenue. A.Y. 2010-11 Das Enterprise v. CIT-12 Kol. Page 5 4. At the outset the ld. DR objected that the grounds raised by the assessee are not clear and they are non-speaking ground of appeal. We find that it is a valid point raised by Ld. DR as the grounds raised in appeal are not speaking grounds. However we admitted the grounds as submitted before us by Ld. AR in the interest justice and fair play. So we decided to hear the appeal on merit.
4.1 We have heard rival contentions of both the parties and perused the materials available on record. Ld. AR submitted before us that labour charges income was duly recognized in the subsequent year along with the TDS certificates. The bills for labour charges were also raised only in the subsequent year. However, the reason for the mismatch between the details submitted before Department and submitted in its bank was to show higher amount of recoverable in order to avail the bank loan facilities in connection with the business of the assessee. The ld. AR also relied in support of his claim in the order of Hon’ble High Court of Bombay in the case of CIT Vs. Aditya Builders 378 ITR 75 (Bom) stating that the assessee can follow the cash accounting system for the labour charges. On the other hand the ld. DR vehemently supported the order of the ld. CIT.
4.2 Regarding the commission issue Ld. AR submitted that the commission was disallowed by AO in his assessment order and matter was travelled before Ld. CIT(A) who decided this appeal in favour of assessee. It was further submitted by Ld. AR that once the order of Ld. CIT(A) has passed on the issue raised by assessee in its appeal then the order of the AO gets merged with the order of ld. CIT(A) and in that event Ld. CIT cannot reopen the case u/s 263 of the Act. The ld. AR in support of his claim relied in the order of Hon’ble Gujrat High Court in the case of Bilag Industries Pvt. Ltd. Vs CIT, special Civil Application No. 24128 of 2005 where it was held that the order of the AO was merged with the order of the ld. CIT(A). Ld. AR relied on the order of AO. On the other hand the Ld. DR submitted that Ld. CIT(A) A.Y. 2010-11 Das Enterprise v. CIT-12 Kol. Page 6 granted relief to assessee on a different footing on the ground of genuineness of expenses. There is no doubt about the payment made and about genuineness of the parties. However, AO has not verified whether the expenses were incurred wholly and exclusively for the purpose and in connection with the business of the assessee. Therefore, the order of Ld. CIT passed u/s. 263 for holding the order of AO erroneous and prejudicial to the interest of revenue is correct. Ld. DR vehemently relied on the order of Ld. CIT.
4.3 From the aforesaid discussion, we find that AO could not make the verification for the amount of ₹30,48,968/- towards the income of labour charges which was not disclosed by assessee in his return of income. Therefore, Ld. CIT held that order of AO is erroneous and prejudicial to the interest of revenue. However before us the ld. AR submitted that the same income has been declared in subsequent years and this fact was brought to the notice of Ld. CIT while framing the order u/s 263 of the Act. Besides the Ld. AR submitted that assessee has been following the system of cash accounting system consistently. The fact has also been crossed verified from the deduction of TDS in the subsequent year i.e. AY 2011-12 and 2012-13 respectively. However we find that the ld. AR had not brought anything on record that the disputed income was declared by the assessee in the subsequent year and the TDS was also deducted in the subsequent year. The case cited by the ld. AR above regarding the labour charges income is different from the facts of the instant case. The case law was on the issue of project completion method and percentage completion method for working out the profit of the assessee engaged in the construction of commercial and residential premises. Accordingly we are not inclined to interfere in the order of the ld. CIT. In view of this matter, this ground of appeal of the assessee is dismissed.
ITA No.160/Kol/2015 A.Y. 2010-11 Das Enterprise v. CIT-12 Kol. Page 7 4.4 Regarding the issue of the commission expenses we find from the aforesaid discussion that commission expenses were claimed by assessee for an amount of ₹ 20,28,930/- but AO has not verified whether the commission was incurred wholly and exclusively for the purpose of the business. The assessee failed to produce the necessary details for the actual services provided by the parties in connection with the business of the assessee. This matter was also examined by the AO and travelled up to ld. CIT(A) but the issue was altogether different. Here the ld. CIT held the issue has not been examined by the AO so as to ascertain whether the expenses were incurred wholly and exclusively for the business of the assessee. The AO has also not confirmed from the Government of West Bengal which awarded the contract to the assessee by issuing notice u/s 133(6) of the Act to ascertain what services were rendered by the commission agent. Accordingly the ld. CIT held the order of the AO erroneous in so far as prejudicial to the interest of Revenue. In the case on hand the genuineness of the commission payment and confirmation from the parties have not been doubted but the issue relates whether such expenses were incurred wholly and exclusively for the purposes of the business. We also find from the submission of the assessee and the order of the AO that this issue has not been adjudicated in the line of the direction of the ld. CIT. However, we find from decision of Hon’ble Allahabad High Court in the case of Principal Commissioner of Income Tax vs. M/s Ashok Handloom Factory Pvt. Ltd. in of 2016 dated 01.02.2016 wherein the Hon’ble High Court has held that it is settled law that the commissioner of income tax can exercise his jurisdiction u/s 263 of the Act only in cases where no enquiry is made by the Assessing Officer. In the instant case, it is admitted by the Income Tax Department that the Assessing Officer had made some enquiries though according to them it was not a proper enquiry. In our view of the fat that some enquiry was made is sufficient to debar the authorities from exercising the powers u/s 263 of the Act. The Tribunal was accordingly justified in setting aside the order passed u/s 263 of the Act. We do not find any substantial question of law arising for A.Y. 2010-11 Das Enterprise v. CIT-12 Kol. Page 8 consideration the appeal is accordingly dismissed. In the case one hand, the AO has made an addition by disallowing the commission expenses after making the necessary enquiry. The instant case is duly covered with the decision of Hon’ble Allahabad High Court M/s Ashok Handloom Factory Pvt. Ltd. (supra) as discussed above, therefore relying on the same, we reverse the order of Ld. CIT for u/s 263 of the Act.