ACIT, CIRCLE - 1, ASANSOL, ASANSOL vs. ASHIRBAD REAL ESTATE & TRANSPORT PVT. LTD., ASANSOL

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “C”, KOLKATA [Before Shri Mahavir Singh, JM & Shri M.Balaganesh, AM] ITA No.1591/Kol/2011 Assessment Year : 2008-09 (APPELLANT ) (RESPONDENT) A.C.I.T., Circle-1, -versus- Ashirbad Real Estate & Asansol Transport Pvt.Ltd. Burdwan (PAN:AAECA 8075 C) C.O.No.1/Kol/2012 A/o ITA No.1591/Kol/2011 Assessment Year : 2008-09 Ashirbad Real Estate & -versus- A.C.I.T., Circle-1, Transport Pvt.Ltd., Burdwan Asansol (PAN AAECA 8075 C) (CROSS OBJECTOR) (RESPONDENT) For the Appellant : Shri S.S.Alam, CIT (DR) For the Respondent : Shri Aravind Agarwal, Advocate Date of Hearing : 10.09.2015. Date of Pronouncement : 18.09.2015. ORDER Per Shri M.Balaganesh, AM 1. This appeal of the revenue and cross objection of the assessee arises out of the order of the Learned CIT(A) in Appeal No142/CIT(A)/Asl/Range-1/Asl/10-11 dated 27.09.2011 for the Asst Year 2008-09 arising out of the order of the Learned Assessing officer framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 The only issue to be decided in the cross objection of the assessee is as to whether the Learned CIT(A) is justified in confirming the disallowance of machinery hire charges u/s 40(a)(ia) of the Act amounting to Rs. 15,68,000/- paid to L & T Finance Ltd.

3.1. The Learned AR stated that the assessee is engaged in the business of carrying out transportation of coal handling and unloading and excavation job on contract basis. He informed that during the course of hearing, an addition u/s 40(a)(ia) of the act was made by the Learned AO towards non deduction of tax at source for payment of machinery hire charges to L & T Finance Ltd. He further argued that the entire sums have been paid before the end of the previous year. He prayed before us that the second proviso introduced in section 40(a)(ia) of the Act is to be construed as retrospective in operation and accordingly prayed for setting aside of this issue to the file of the Learned AO for verification of the facts whether the payee had shown the said payment as his income in its return of income and paid taxes thereon. In support of his contentions, he placed reliance on the latest decision of the Hon’ble Delhi High Court in the case of CIT vs Ansal Land Mark Township P Ltd in ITA No. 160 / 2015 & 161 / 2015 dated 26.8.2015. In response to this, the Learned DR fairly conceded to the decision quoted by the Learned AR and agreed for set aside to Learned AO.

3.2. We have heard the rival submissions and we find that the Hon’ble Delhi High Court in the case of CIT vs Ansal Land Mark Township P Ltd had held that the second proviso to section 40(a)(ia) of the Act has to be construed retrospective in operation. The relevant operative portion of the said judgment is reproduced here in below:- “4.22. Without prejudice to the main Ground No. 2.1 and alternative Ground No. 2.2, the Learned AR argued that the second proviso to section 40(a)(ia) inserted with effect from 1.4.2013 should be construed as curative in nature and hence has to be given retrospective effect. This issue has been recently decided by the Hon’ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd wherein it was held as follows:- “Whether the second proviso to Section 40(a)(ia) (inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not?

3 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 The High Court held as under- Section 40(a)(ia) was introduced by the Finance (No. 2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn't deducted TDS on amount paid to deductee and, in turn, deductee also hasn't offered to tax income embedded in such amount. The penalty for tax withholding lapse per se is separately provided under section 271C. and, therefore, section 40(a)(ia) isn't attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue. The Agra Tribunal in the case of Rajiv Kumar Agarwal-vs.- ACIT [2014] 45 axmann.com 555 (Agra - Trib.) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(8) was inserted by the Finance No. 2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature. The High Court affirmed the ratio laid down by The Agra Tribunal and held that said proviso is declaratory and curative in nature and has retrospective effect from 1st April, 2005. Respectfully following the said decision, the ground no. 2.2 is allowed in favour of the assessee. However, this ground becomes infructuous in view of our decision rendered for Ground No. 2.1.”

Accordingly, we deem it fit and appropriate , in the interest of justice and fair play, to set aside this issue to the file of the Learned AO to examine the issue in the light of the decision rendered by the Hon’ble Delhi High Court as stated supra and decide the issue in accordance with law. The assessee is also directed to provide necessary evidences and documents to prove that the payee had duly disclosed the subject mentioned receipt of machinery hire charges in its return and paid the due taxes thereon. If the same is proved, the assessee should be given relief.

Hence the cross objection raised by the assessee is allowed for statistical purposes.

Revenue Appeal in ITA No. 1591 / Kol /2011

4 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 4.1 The Brief facts of this issue is that the Learned AO allowed only 15% depreciation on Dumper and PayLoader as against the higher rate of depreciation claimed @ 30% by the assessee on the ground that the assessee is not giving its dumpers on hire to another operator and rather it is used in its own business of loading / unloading and transporting for various organizations. On first appeal, the Learned CITA held that the assessee is disclosing income from transportation by dumpers and pay loaders from M/s Panem Coal Mines Ltd and showing it as income from loading and transportation. He further held that it is therefore clear that the assessee is using these vehicles for transportation of goods of other persons. Aggrieved, the revenue is in appeal before us on the following ground:-

“1. That on the facts and in the circumstances of the case, the Learned CIT(Appeal) erred in deleting the addition of Rs.47,07,779/- as a result of disallowances made on account of excess depreciation claimed on Dumper & Payloader.”

4.2. The Learned DR vehemently supported the order of the Learned AO. In response to this, the Learned AR stated that the Learned CITA’s order requires no interference and also relied on the decision of this tribunal in the case of JCIT vs Avinash Transport in ITA No. 1909/Kol/2012 dated 13.8.2015.

4.3. We have heard the rival submissions and perused the materials available on record. We find that the Learned DR did not refute the findings given by the Learned CITA with regard to the nature of business carried on by the assessee and income disclosed thereon. It is seen that the assessee has disclosed income from transportation by dumpers and pay loaders in its profit and loss account and therefore we hold that the assessee is using these vehicles for transportation of goods of other persons. It is pertinent to note that CBDT Circular No. 652 dated 14.6.1993 on this subject states that assessee is entitled to higher rate of depreciation when the vehicles are used by the assessee in his own business of transportation of goods on hire.

5 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 We also find that this issue is covered by the decision of the coordinate bench of this tribunal in the case of JCIT vs Avinash Transport in ITA No. 1909/Kol/2012 dated 13.8.2015 in favour of the assessee, wherein it was held that :-

“The assessing officer concluded that when the dumpers are given on hire, the assessee would be entitled for depreciation at the rate of 30% . However, that is not the correct interpretation of law, because if the assessee is transporting the goods of other pesons , then also the dumper is given on hire and under such circumstances, in view of the decision of the Hon’ble Madhyapradesh High Court in the case of Anup Chand & Co. reported in 239 ITR 466 the assessee was entitled for higher rate of depreciation as the vehicles are to be considered as being given on hire for transportation of goods of other persons. The assessee was not transporting its own goods but the goods of other persons and deriving hire charges. By considering the totality of the facts and circumstances, we do not find any infirmity in the order of Ld.CIT(Appeals) on this count. Resultantly, Ground No. 1 of Revenue’s appeal is dismissed.”

In view of the aforesaid facts and circumstances and respectfully following the coordinate bench decision in the case of Avinash Transport as cited supra, we hold that the assessee is entitled for depreciation on dumpers and pay loaders at the higher rate and accordingly we are not inclined to interfere with the order of the Learned CITA on this issue. The Ground No.1 raised by the revenue is dismissed.

5.1. The brief facts of this issue is that the assessee purchased some goods from M/s Bijay Hardware Stores and the balance outstanding to the account of the said creditor as on 31.3.2008 was Rs. 7,96,400/-. The assessee provided the complete details of the said creditor together with the bills in support of the purchases made by it. The Learned AO sought to seek information u/s 133(6) from the said creditor . Since no reply was received from the said creditor, the Learned AO concluded that the creditworthiness of the said sundry creditor has not been established by the assessee and accordingly added the closing balance as on 31.3.2008 of Rs. 7,96,400/- as unexplained cash credit u/s 68 of the Act. On first appeal, the Learned CIT(A) deleted the addition as below:-

6 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 “5. In these grounds the appellant is disputing the addition of balance due to a sundry creditor from which it had made purchases. The A.O.’s case is that no reply in response to notice u/s 133(6) had been received and, therefore, the creditworthiness of the sundry creditor has not been established. The A.O. has relied on the case of Baishnab Charan Mohanty [212 ITR 199 (Orissa)] and Precision Finance (P) Ltd. [208 ITR 465 (Cal.)] in support of his stand. The appellant’s case is that bills in support of its purchases were duly submitted before the A.O. and he has not doubted that these purchases have been actually made. It has also disputed the application of the case laws relied on by the A.O. on the facts of its case. I find that the existence of the creditor and its identity has not ultimately been doubted by the A.O. The case laws relied on by the A.O. are not seen to be applicable to the facts of this case. The case of Baishnab Charan Mohanty [212 ITR 199 (Orissa)] and Precision Finance (P)Ltd. [208 ITR 465 (Cal.)] concerns cash credits and these cannot be equated with the facts of the appellant’s case where purchases had been made. It is also noted that the A.O. was in possession of the address of the trade creditor but no enquiries are seen to have been conducted by him in that regard. Merely because reply to a query under Section 133(6) has not been received it cannot be presume that a trade creditor has no creditworthiness. As stated above I do not find the facts of the cases cited by the A.O. to be applicable to the facts of the appellant’s case. On the other hand reference can be made here to the decision of the Hon’ble Allahabad High Court in the case of Pancham Das Jain [205 CTR 444] wherein, on similar facts, addition of trade creditors has been directed to be deleted. Accordingly, the addition made by the A.O. is directed to be deleted. This ground of appeal is allowed.”

Aggrieved, the revenue is in appeal before us on the following ground:- “ 2. That on the facts and in the circumstances of the case, the Learned CIT(Appeal), erred in deleting the addition of Rs.7,96,400/- as a result of disallowances made on account of Closing credit balance in respect of Bijay Hardware Stores.”

5.2. The Learned DR vehemently supported the order of the Learned AO. In response to this, the Learned AR stated that the Learned CITA’s order requires no interference as the assessee had only purchased certain goods from Bijay Hardware Stores and trade creditors could not be taxed u/s 68 of the Act.

5.3. We have heard the rival submissions and perused the materials available on record. We find that the Learned DR did not refute the findings given by the Learned CITA with regard to the fact that the assessee had fully discharged its onus by giving the name and address of the Sundry Trade Creditor M/s Bijay Hardware Stores before the Learned AO. We find that the provisions of section 68 of the Act could not be invoked for the trade creditors. We hold that the assessee had duly discharged its onus by placing all the details of the sundry creditor before the Learned AO and just

7 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 because no reply has been furnished by the said creditor to the Learned AO u/s 133(6) of the Act , that cannot automatically lead to a situation that the said creditor is not having any creditworthiness. We also find that the Learned AO had not disputed the genuinity of the purchases, sales and trading results of the assessee. We find that the case law relied on by the Learned CITA on the decision of Hon’ble Allahabad High Court in the case of CIT vs Pancham Dass Jain reported in 205 CTR 444 is well placed. In that case, their Lordships had held as under:-

“The tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by respondent asessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and , therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, in as much as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent assessee on credit and the purchases and sales having been accepted by the department, the question of addition of the aforesaid two amounts u/s 68 of the Act did not arise in as much as the provisions of section 68 of the Act would not be attracted on the purchases made on credit.”

In view of the aforesaid facts and circumstances and respectfully following the judicial precedents as stated supra, we are not inclined to interfere with the findings of the Learned CITA on this ground. Accordingly, the Ground No. 2 raised by the revenue is dismissed.

6.1. The brief facts of this issue is that the Learned AO found that the net income from transporting by dumper and payloader, loading and unloading charges of the assessee had increased from Rs. 591 crores to Rs. 13.32 crores resulting in an increase of 125.39% , whereas the expenditure towards salaries and wages have increased by 275.37% ; repairs and maintenance had increased by 143.07% and dumper payloader hire charges had increased by 702%. The Learned AO also found that during the

8 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 assessment year under appeal, a sum of Rs. 1.12 crores was paid to Mr.Arbind Singh who is a related party in terms of section 40A(2)(b) of the Act which admittedly constitutes 11.89% of total payment of dumper and payloader hire charges. Accordingly, he proceeded to disallow a sum of Rs. 13,37,234/- (computed at 11.89% of Rs. 1,12,45,998) and a sum of Rs. 1,00,000/- on an adhoc basis to take care of the unjustified increase in other expenditure during the assessment year under appeal u/s 40A(2)(b) of the Act. On first appeal, the Learned CITA deleted the additions in the sum of Rs. 14,37,234/- on the ground that the provisions of section 40A(2)(b) of the Act could be made applicable only when the Learned AO forms an opinion that the expenditure is excessive or unreasonable having regard to the fair market value of the goods. The Learned CITA held that admittedly, no comparison of fair market value of payment of hire charges was brought on record by the Learned AO and deleted the entire addition as the same was only made on an estimated basis. Aggrieved, the revenue is in appeal before us on the following ground:- “3. That on the facts and in the circumstances of the case, the Learned CIT(Appeal), erred in deleting the addition of Rs.14,37,234/- as a result of disallowances made on account of unjustified increase on expenses under the head Dumper & Payloader hire charges, Salary & wages, Repairs & maintenance.”

6.2. The Learned DR vehemently supported the order of the Learned AO. In response to this , the Learned AR argued that during the assessment year under appeal that the hire charges has increased due to increased dependence on hired vehicles and the turnover has increased by more than two times . He further argued that the Learned AO has also not brought out any comparable data for comparing the fair market value of hire charges and no finding is given as to how the expenditure is excessive or unreasonable and in any case the provisions of section 40A(2)(b) would not come into operation in the facts of the case. He further argued that in any event no addition could be made on an estimated basis.

6.3. We have heard the rival submissions and perused the materials available on record. We find that the entire addition has been made only on an estimated basis and the provisions of section 40(A)(2)(b) of the Act could not be invoked without bringing

9 ITA No.1591/Kol/2011 & CO.No.1/Kol/2012 Ashirbad Real Estate & Transprot Pvt. Ltd.. A.Yr.2008-09 any comparative data for ascertaining the fair market value of goods and charges. Hence we are not inclined to interfere with the order of the Learned CITA on this ground. Accordingly, the Ground No. 3 raised by the revenue is dismissed.

In the result, the cross objection of the assessee in CO 1/2012 is dismissed and revenue appeal in ITA No. 1591 / 2011 is dismissed.

Order pronounced in the court on 18.09.2015.

Sd/- Sd/- [Mahavir Singh] [M.Balaganesh] Judicial Member Accountant Member Date: 18.09.2015. R.G.(.P.S.) Copy of the order forwarded to: 1. Ashirbad Real Estate & Transport Pvt. Ltd., Bye Pass, Chattapathr, P.O. Kalipahari, Asansol, Distt. Burdwan. 2 The A.C.I.T., Circle-I, Asansol. 3. The CIT-Asansol, 4. The CIT(A)-Asansol. 5. DR, Kolkata Benches, Kolkata True Copy, By order,

Deputy /Asst. Registrar, ITAT, Kolkata Benches