ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, MIRZAPUR vs. M/S. J.P.YADAV , SONEBHADRA

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal, filed by Revenue, being ITA No.319/Alld./2018, is directed against an appellate order dated 11.06.2018 in Appeal No. CIT(A), Allahabad/ 10138 /2017-18 passed by learned Commissioner of Income Tax (Appeals), Allahabad (hereinafter called "the CIT(A)"), for assessment year(ay):2011-12, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 22nd November, 2017 passed by learned Assessing Officer (hereinafter called "the AO") under Section 147 read with Section 144 of the Income-tax Act,1961(hereinafter called “ the Act”) .We have heard both the parties through physical hearing mode in Open Court. 1

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. 2. The grounds of appeal raised by Revenue in ITA No. 319/Alld./2018, in memo of appeal filed with Income-Tax Appellate Tribunal, Allahabad Bench , Allahabad(hereinafter called “ the tribunal”) , reads as under:- “1. That the Ld. CIT(A), Allahabad has erred on facts in deleting the addition of Rs. 8,58,317/- made on account of suppression of interest income which was based on facts emanated from the audit report filed by assessee as Part-B of Annexure-1 of the audit report in 3CD reflected Rs. 17,12,601/- as interest received. Whereas, the profit and loss account the said audit report showed interest income to be Rs. 8,54,284/- and the assessee could not reconcile the discrepancy with documentary evidences in any proceedings. 2. That the Ld. CIT(A), Allahabad has erred on facts in deleting the addition of Rs. 11,37,000/- on account of three payments to contractors on which TDS had not been deducted and paid into the Central Government Accounts and the assessee could not substantiate his statement with documentary evidences in any proceedings. Prayer:-It is most humbly prayed that order of Ld. CIT(A) may be set-aside and the assessment order of the Assessing officer may kindly be restored considering the facts of the case. It is most humbly mentioned that though the quantum of tax effect is below the prescribed limit of Rs. 20,00,000/- for filing of appeal before Hon’ble ITAT as per CBDT Circular No. 03/2018 dated 11.07.2018, however, the same is covered under exceptions clause 10(c) of the above circular. “ 3. The brief facts of the case are that the assessee is a partnership firm, and filed its return of income originally on 30th Sep, 2011 u/s 139(1) of the 1961 Act, declaring total income of Rs. 4,24,420/- . The aforesaid return of income was processed by Revenue u/s 143(1) of the 1961 Act. Later, the return of income was selected for framing scrutiny assessment u/s 143(3) read with Section 143(2) of 2

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. the 1961 Act ,and vide assessment order dated 29.03.2014 passed by AO u/s 143(3), income of the assessee was assessed at the total income of Rs. 10,29,460/-. Later ,it was noticed by Department that the assessee’s income to the tune of Rs. 19,95,317/- chargeable to income-tax had escaped assessment. Accordingly, after recording of the reasons for reopening of the concluded assessment, and getting it approved by Ld. Principal Commissioner of Income Tax, Allahabad, the case of the assessee was reopened u/s. 147/148 of the 1961 Act, as claimed by the AO in the assessment order. The grounds for reopening of the concluded assessment by invoking provisions of Section 147/148 of the 1961 Act, are as under: “On going through the record, it is found that during the year, the assessee has shown Rs. 17,12,601/- as income from interest in the Part B of Annexure-1 in audit report in 3CD. However, he offered Rs. 8,54,284/- income from interest in his P/L account only. In view of the above facts, interest income of Rs. 8,58,317/- is escaped assessment.

II. As per ledger account of labour charges, it is found that the assessee has paid Rs. 5,25,000/-, Rs. 4,00,000/- and 2,12,000/- through cheque Nos. 007428, 007427 & 007470 respectively to labour contractors. The assessee had not deducted TDS on above payment u/s 194C of the I.T. Act, which was liable to be deducted under the provision of I.T. Act to as sub-contractor payment. The above sum of Rs. 11,37,000/- is liable to be added as per provision of 40(a)(ia). In view of the above facts, I have reason to believe that income of Rs. 11,37,000/- chargeable to tax escaped assessment.

Sd/- DCIT,C-3,Mzp.”

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. The assessee submitted before the AO that return of income originally filed u/s 139(1) of the 1961 Act, be treated as return of income filed in pursuance to the notice issued by AO u/s 148 of the 1961 Act. Thereafter, the AO issued notice dated 18.11.2016 u/s 143(2) of the 1961 Act, for compliance for 25.1.2016. The AO also issued notices u/s 142(1) of the 1961 Act. The assessee initially participated in the reassessment proceedings, and filed written submissions along with acknowledgment of return of income, Balance Sheet, ledger Account, Bank Statement, Computation of income, Form 3CB and Form 3CD etc. which are placed by AO on assessment record. The explanation submitted by the assessee’s counsel were considered by the AO , but the AO observed that these replies are not tenable , and hence a Show Cause Notice (SCN), dated 5th October, 2017 was issued by the AO to the assessee, which is reproduced as hereunder: “PAN: AAHFM7714J Dated: 05.10.2017 To, The Principal Officer, M/s J.P. Yadav, VIP Road, Obra, Sonebhadra (UP)- 231219 Sub: Show cause u/s 144 of the I.T. Act, 1961 for the A.Y. 2011-12 Please refer to your written submission filed at the time of hearing on 10.08.2017 regarding difference of interest amount as reflected in the Part B of Annexure-1 of Form 3CD report of Chartered Accountant amounting to Rs. 17,12,601/- and in the Profit & Loss Account, Rs. 8,54,284/- is credited. The submission as filed by you cannot be accepted as it is not authenticated by the Auditor who has audited your accounts. Hence, the undersigned proposes to add back the difference amount of Rs. 8,58,317/- to your total income.

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. You may file your written submission on or before 16.10.2017 failing which it shall be deemed that you have no objections to the above addition. Sd/- seal (SUSHIL RAJESH KERKETTA) Assistant Commissioner of Income Tax Circle-3, Mirzapur Seal” 4.2. The assessee did not comply with the aforesaid Show Cause Notice(SCN) on the date fixed for hearing on 16.10.2017 , nor any adjournment application was filed by the assessee. The AO was pleased to complete reassessment proceedings , wherein the AO passed an reassessment order dated 22.11.2017, u/s 144 read with Section 147 of the 1961 Act, by holding as under: “ 4. The one of the reasons of reopening of case is that the assessee had shown Rs. 17,12,601/- as income from interest in the Part B of Annexure-I in audit report in 3CD. However, he offered Rs. 8,54,284/- as income from interest in his P/L account only. The difference of the above comes to Rs. 8,58,317/- (1712601- 854284) which is added to the total income of the assessee for lack of supporting evidence and documents. Addition of Rs. 8,58,317/- 5. As per ledger account of labour charges, it is found that the assessee had paid Rs. 5,25,000/-, Rs. 4,00,000/- and Rs. 2,12,000/- through cheque Nos. 007428, 007427 & 007470 respectively to labour contractors. The assessee had not deducted TDS on the above payment u/s 194C which was liable to be deducted. The assessee vide Notice u/s 142(1) dated 24.07.2017 was asked to explain this issue. But, the assessee failed to file satisfactory papers and documents. However, the assessee submitted some replies, but the same cannot be accepted for lack of supporting papers and documents. Therefore, 5

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. Rs. 11,37,000/- (525000+400000+212000) is added to the total income of the assessee as no TDS has been deducted on the payments made to labour contractors u/s 40(a)(ia) of the Income Tax Act, 1961. Addition of Rs. 11,37,000/-“ 5. Aggrieved by reassessment order dated 22.11.2017 passed by AO u/s 147 read with Section 144 of the 1961 Act, the assessee filed first appeal before Ld. CIT(A) . During the course of appellate proceedings, the Ld. Counsel for the assessee submitted that the assessee had filed all necessary details before the AO during the course of reassessment proceedings. It was submitted by the assessee before ld. CIT(A) that it was only the last notice issued by AO u/s 142(1) of the 1961 Act, which could not be complied with by the assessee, and the AO did not give any further opportunity to the assessee and passed an ex-parte reassessment order under Section 144 read with Section 147 of the 1961 Act. During the course of appellate proceedings before ld. CIT(A), the assessee submitted that since the reassessment order was passed by the AO based on the details furnished by the assessee during the course of reassessment proceedings , the AO was not justified in framing assessment u/s 144 of the 1961 Act. The ld. CIT(A) observed that the assessee filed written submissions, ledger accounts, bank statements along with other documents , during the course of reassessment proceedings, and thus, the AO was not justified in framing assessment u/s 144 of the 1961 Act, as the reassessment order was framed by the AO on the basis of material submitted during the course of reassessment proceedings. 5.2 The ld. CIT(A) observed that reopening of the concluded assessment by the AO by invoking provisions of Section 147/148 was valid, as on perusal of the record reveals that the AO has issued notice u/s. 148 of the 1961 Act, after recording proper reasons and after obtaining prior approval of the ld. Pr. CIT, Allahabad.

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. Thus, the ld. CIT(A) held that the reopening of the concluded assessment by the AO by invoking provisions of Section 147/148 of the 1961 Act, to be valid. 5.311 So far as additions on the merits , the assessee submitted before ld. CIT(A) during the course of appellate proceedings, that there is no suppression of interest income with regard to the interest income disclosed in the Profit and Loss Account and Part-B of Annexure-1 in the Audit Report in Form No. 3CD. The details of amount of interest income of Rs. 17,12,601/- as shown in the Part-B of Audit Report consists of the following: S. No. PARTICUALRS AMOUNT 1 Interest on NSC 41878.00 2 Hire charges 1419980.00 3 Intt. On I.T. Refund 250743.00 Total 1712601.00 5.312 The assessee further submitted that the interest income as shown in the Profit and Loss account of Rs. 8,54,284/- consists of the following: S. No. PARTICUALRS AMOUNT 1 Accrued FDR Interest 561663.00 2 Interest on NSC 41878.00 3 Interest on IT Refund 250743.00 Total 854284.00

5.313 The assessee further submitted that total interest income of Rs. 8,54,284/- has been disclosed in the Profit and Loss account and the hire charges of Rs. 14,19,980/- was also shown in the Profit and Loss account, and the total of interest income and hire charges of Rs. 22,74,264/- consists of the following ,as under:

S. No. PARTICUALRS AMOUNT 1 Accrued FDR Interest 561663.00 2 Interest on NSC 41878.00 3 Interest on IT Refund 250743.00 4 Hire Charges 1419980.00 Total 2274264.00

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. 5.314 The assessee further submitted that the auditor has noticed the interest income as per Profit and Loss account of Rs. 8,54,284/-. However, in Part B of Form 3CD, the interest income does not include accrued interest on FDR of Rs. 5,61,683/-, but it includes hire charges of Rs. 14,19,980/-. The assessee submitted before ld. CIT(A) that the figure reported by the Auditor in Part-B of Form-3CD is not correct. The ld. CIT(A) called for comments from the AO , who submitted his report on 24.05.2018, and the relevant portion of the remand report submitted by the AO to ld. CIT(A) is reproduced as hereunder: “The explanation and claim of the assessee at the assessment stage and now at the appeal stage, cannot be accepted as the Authorized representative of the assessee fails to understand the true implication of various reports audited and signed by an Accountant. The AR of the assessee who is not a technical person is merely putting forward his own explanations and understanding of the accounts of the assessee. The AR of the assessee was appraised of the above fact and was asked to furnish a revised report from the Accountant who had audited the accounts of the assessee instead of putting forward his own explanations. The same was not furnished and hence, addition was made on the difference of Rs. 8,58,317/- being the interest income understated by the assessee.” 5.315 The Ld. CIT(A) forwarded the comments of the AO to the assessee for rebuttal , and the assessee reiterated its submission as were earlier made by the assessee before ld. CIT(A). 5.316 The ld. CIT(A) deleted the additions on account of interest income as were made by the AO, by holding as under: “I have considered the submissions of the appellant, the remand report as well as gone through the facts of the case. The details submitted clearly indicate that interest income of Rs. 8,54,284/- credited in the P/L account is the correct amount and it consists of accrued interest on FDR, interest on NSC and interest on IT Refund. 8

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. However, in Part-B of Form-3CD, the auditor has not included the accrued interest on FDR but has included the amount of hire charges in the statement. It is clear that hire charges have been separately shown as income in the Profit and Loss account. Thus no income has escaped assessment and the addition made by the A.O. cannot be sustained merely because of some technical mistakes in Part-B of Form 3CD. In view of these facts, the addition of Rs. 8,58,317/- made by the A.O. is hereby deleted. “ 5.321 On the second issue on merit of which the additions were made by the AO to the tune of Rs. 11,37,000/- on the grounds that payment made to labour contractors were not subjected to TDS u/s 194C , and hence the amount of payment is not allowable u/s 40(a)(ia) of the 1961 Act, the assessee submitted before ld. CIT(A) that the payment of Rs. 11,37,000/- was not made by assessee to any labour contractors , but was paid to the employee’s of the assessee. It was submitted by assessee before ld. CIT(A) that the said amount was withdrawn by Sri Awadh Bihari Yadav and Nakchedi Yadav , who are site incharge and employee’s of the assessee firm during the relevant period. It was further submitted that these person’s were salaried employees of the firm and have withdrawn monthly salary of Rs. 16,000/- and Rs. 13,000/- respectively. The assessee enclosed the salary account evidencing payment of salary to these persons. The ld. CIT(A) called for remand report from the AO, who submitted that the contentions of the assessee cannot be accepted being merely an afterthought which was not brought to the knowledge of the AO during the assessment proceedings. The ld. CIT(A) observed that the AO has not given any material to disprove the salary account showing payment of salary to these two persons. Keeping in view these facts, the ld. CIT(A) deleted the additions made by the AO by holding that the payment has been made to the employees of the assessee for the purposes of the assessee’s business and these payments were not made by the assessee to the contractors attracting provisions of TDS u/s 194C of the 1961 Act. 9

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. Thus, the ld. CIT(A) held that the disallowance made by the AO u/s 40a(ia) of the 1961 Act of Rs. 11,37,000/- cannot be sustained and was , thus, deleted by ld. CIT(A). 6. Aggrieved by appellate order passed by ld. CIT(A), Revenue has now filed second appeal before the tribunal. This appeal filed by Revenue was dismissed by Allahabad-tribunal, keeping in view low tax effect and being covered by CBDT Circular No. 17/2019 , dated 08th August , 2019 F.No. 270/Misc. 14/2007-ITJ(Pt.) , the tax effect being less than Rs. 50,00,000/- , vide appellate order dated 20th Nov, 2019 , in ITA no. 319/Alld/2018, for ay:2011-12. The Revenue filed MA before tribunal which was listed as MA no. 01/Alld/2020(arising out of ITA no. 319/Alld/2018) for ay: 2011-12 , praying for recall of the appellate order dated 20th November, 2019 passed by tribunal on the grounds that the appeal filed by Revenue is not covered by aforesaid CBDT circular, dated 08.08.2019 , and is governed by an exception clause/para 10(c) to the said circular , as the appeal was filed by Revenue based on Revenue Audit objections , which MA was allowed by tribunal ,vide order dated 17th Sep., 2021, and consequently the appellate order dated 20th November, 2019 was recalled by tribunal , vide orders dated 17.09.2021 passed in MA No. 01/Alld/2020. 6.2 Now , the appeal in ITA no. 319/Alld/2018 filed by Revenue for ay: 2011-12 , was listed for hearing before the Division Bench of the tribunal , and the matter was heard by Division Bench by hearing arguments of both the parties in physical hearing mode in Open Court proceedings. 6.3 The Ld. SR. DR opened the arguments before the Division Bench and submitted that there were two additions made by the AO , firstly on account of interest income to the tune of Rs. 8.58 lacs which was not offered for taxation by the assessee wherein this income had escaped assessment , and secondly there were labour payments aggregating to Rs. 11,37,000/- made by the assessee to 10

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. contractors on which no income tax was deducted at source u/s 194C and hence consequently additions were made by the AO u/s 40(a)(ia) of the 1961 Act. It was submitted by ld. Sr. DR that reassessment proceedings were initiated by AO by invoking provisions of Section 147/148 of the 1961 Act. The ld. Sr. DR submitted that the assessee did not submitted details/explanations called for by the AO and hence the reassessment order was passed by the AO u/s 144 read with Section 147 of the 1961 Act, which is a best judgment reassessment order passed by the AO. Our attention was drawn by ld. Sr. DR to page number 46, 59 , 63 and 68 of the paper book filed by the assessee . The ld. Sr. DR would submit that ld. CIT(A) erred in deleting the additions as were made by the AO , and prayers were made to upheld the additions as were made by the AO and set aside the appellate order passed by ld. CIT(A). 6.4 The Ld. Counsel for the assessee, on the other hand, submitted that the interest income of Rs. 8.58 lacs was duly credited to the Profit and Loss account, and no income had escaped assessment and it was merely a technical mistake committed by Auditors in tax-audit report. The ld. Counsel for the assessee submitted that the payment of Rs.11.37 lacs were made for work executed for the assessee, and it was submitted that Rs. 2.12 lacs , out of Rs. 11.37 lacs was utilized for payment of income-tax /TDS. Thus , it was prayed that the additions made by AO , were rightly deleted by ld. CIT(A).The ld. AR drew our attentions to the bank statements of its employees and clarified that these bank statements were duly filed by the assessee before ld. CIT(A), and no additional evidences are now filed by the assessee before tribunal. The ld. Counsel for the assessee would submit that ld. CIT(A) has rightly deleted the additions as were made by the AO, and prayers were made to uphold the additions as were made by the AO. 6.5 The ld. Sr. DR submitted in rejoinder that the assessee has filed bank statement of the so called employees, and it can be seen from the bank statements that they

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. have withdrawn the amounts in small denomination . Our attention was drawn to page 46 of paper book to contend that there are huge amount outstanding to be payable to labour, which is not possible as labour is to be paid on time. The ld. Sr. DR submitted that these are contractors of the assessee , and disallowance were rightly made by the AO, and prayers were made by the ld. SR. DR to uphold the additions as were made by the AO and it was submitted that ld. CIT(A) erred in deleting the additions as were made by the AO. 7. We have considered rival contentions and perused the material on record. We have observed that the assessee is a partnership firm, engaged in the business of civil contract. The assessee originally filed its return of income with Revenue, on 30.09.2021 u/s 139(1) of the 1961 Act, declaring total income of Rs. 4,24,420/-. The aforesaid return of income filed by the assessee was processed by Revenue u/s 143(1) of the 1961 Act. Later, the AO framed scrutiny assessment u/s 143(3) of the 1961 Act, vide assessment order dated 29.03.2014, wherein income assessed was Rs. 10,29,460/- as against returned income of Rs. 4,24,420/- . There was a Revenue audit objection . It was noticed that the assessee’s income to the tune of Rs. 19,95,317/- chargeable to income-tax has escaped assessment. This led to reopening of the concluded assessment by the AO u/s 147/148 of the 1961 Act. The AO framed reassessment order dated 22.11.2017 passed u/s 147/144 of the 1961 Act, wherein two additions were made by the AO, firstly on account of interest income escaping assessment to the tune of Rs. 8,58,317/- , because as per AO the auditors had shown Rs. 17,12,601/- as income from interest in the Part B of Annexure-I in tax-audit report in Form No. 3CD, while the interest income reflected in Profit and Loss Account by the assessee was Rs. 8,54,284/- , which led to the additions being made by the AO of the differential amount of interest income , to the tune of Rs. 8,58,317/- in the hands of the assessee , on the grounds that interest income to the tune of Rs. 8,58,317/- had escaped assessment. The second addition made by the AO was with respect to payment of Rs. 11,37,000/- ( 12

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. Rs. 5,25,000/- + Rs. 4,00,000/- + Rs. 2,12,000/- ) being made by the assessee to labour contractor vide cheque number’s 007428, 007427 and 007470, without deducting income tax at source u/s 194C, which led to the additions being made by the AO u/s 40(a)(ia) of the 1961 Act. The reassessment order was a best judgment assessment order u/s 144/147, as the assessee failed to give replies to SCN dated 05.10.2017. The assessee being aggrieved filed first appeal with ld. CIT(A) who was pleased to stood partly allow the appeal filed by the assessee. The ld. CIT(A) dismissed the legal ground raised by assessee, wherein the assessee challenged the legality and validity of re-opening of concluded assessment by invoking provisions of Section 147/148 of the 1961 Act, by holding that reopening was validly done by the AO under the provisions of Section 147/148 of the 1961 Act. There is no challenge by the assessee to the aforesaid legal ground adjudicated by ld. CIT(A), as the assessee chose not to file any appeal / Cross Objections (C.O.) against such adjudication by ld. CIT(A), which has now reached finality. While deleting first addition of interest income to the tune of Rs. 8,58,317on merits , the ld. CIT(A) observed that the aforesaid differential interest income stood declared by assessee in the Profit and Loss Account, and no interest income has escaped assessment, and merely because there is some technical mistakes in Part-B of Form No. 3CD wherein hire charges were merged with interest income by tax- auditor, would not call for additions being made in the hands of the assessee. On the second issue, the ld. CIT(A) while deleting the addition of Rs. 11,37,000/- as was made by the AO, was of the view that the assessee made payments to its employees , and these payments of Rs. 11,37,000/- were not made to the Contractors attracting TDS provisions u/s 194C of the 1961 Act. Now, it was the turn of Revenue to be aggrieved by appellate order passed by ld. CIT(A) deleting both the additions on merits as were made by the AO in the reassessment order, wherein Revenue has come in second appeal before tribunal agitating deletion of both the additions by ld. CIT(A) on merits . The short question(s) which has arisen 13

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. in this appeal filed by Revenue with tribunal concerns itself, firstly with escapement of interest income to the tune of Rs. 8,58,317/- from assessment as alleged by Revenue, and second question which requires our adjudication is as to the payments of Rs. 11,37,000/- made by the assessee to labour contractors without deduction of income-tax at source u/s 194C, leading to additions being made by AO by invoking provisions of Section 40(a)(ia) of the 1961 Act, as alleged by Revenue, which later stood deleted by ld. CIT(A). So far as first issue is concerned, the Revenue has observed from Part B of Annexure-1 in the Tax Audit Report ( under the provisions of Section 44AB) in Form No. 3CD , wherein interest income earned by assessee during the impugned assessment year, to the tune of Rs. 17,12,601/- were reported by Tax-Auditor namely Smt. Jamuna Shukla( M.No. 46038) , Partner, Jamuna Shukla & Associates, Chartered Accountant, vide tax audit report dated 24.09.2011, in Part B of Annexure - I. This is a consolidated figure declared by tax-auditor to be the interest income earned by the assessee for the year under consideration and no separate break up is given by the tax-auditor of the aforesaid interest income . The aforesaid tax-audit report dated 24.09.2011 contains certification in para 5 of Form No. 3CB duly certified by tax-auditor, as under: “5. In our opinion and to the best of our information and according to the explanation given to us, the particulars given in the said Form No. 3CD and the Annexure thereto are true and correct.”

The assessee has sought to explain the break-up of the aforesaid amount of Rs. 17,12,601/- as certified by the tax-auditor , as under:

S. No. PARTICUALRS AMOUNT 1 Interest on NSC 41878.00 2 Hire charges 1419980.00 14

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. 3 Intt. On I.T. Refund 250743.00 Total 1712601.00

The assessee , in nutshell, is contending that the tax-auditor committed two mistakes while certifying tax-audit report dated 24.09.2011 , while certifying the interest income earned by the assessee , aggregating to Rs. 17,12,601/- as declared by tax-auditor , the first mistake being that the tax-auditor included hire charges of Rs. 14,19,980/- in the interest income which should not have been included by the tax-auditor , and second mistake committed by tax-auditor in the aforesaid tax- audit report was that the accrued interest on FDR amounting to Rs. 5,61,663/- was not included in the interest income. The assessee has sought to explain that the correct interest income credited to its Profit and Loss Account for the year under consideration, is as under

S. No. PARTICUALRS AMOUNT 1 Accrued FDR Interest 561663.00 2 Interest on NSC 41878.00 3 Interest on IT Refund 250743.00 Total 854284.00

The assessee has produced copy of Profit and Loss Account for the year under consideration , which is placed at paper book at page 21. The assessee has further submitted that total interest income of Rs. 8,54,284/- has been disclosed in the credit side of Profit and Loss account and the hire charges of Rs. 14,19,980/- was also shown/disclosed in the credit side of Profit and Loss account, and , thus, the total of interest income and hire charges aggregating to Rs. 22,74,264/- consists of the following ,as detailed hereunder:

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. S. No. PARTICUALRS AMOUNT 1 Accrued FDR Interest 561663.00 2 Interest on NSC 41878.00 3 Interest on IT Refund 250743.00 4 Hire Charges 1419980.00 Total 2274264.00

The AO asked for the explanation from the assessee as to higher interest income of Rs. 17,12,601/- disclosed by tax-auditor in tax audit report as against interest income of Rs.8,54,284/- claimed by the assessee , during reassessment proceedings, but the assessee did not filed any reply to SCN dated 05th October, 2017, which led AO to make additions to the tune of Rs. 8,58,317/- being interest income having escaped assessment, vide reassessment order passed by the AO. During Appellate proceedings, the ld. CIT(A) asked for remand report from the AO. The assessee gave aforesaid explanations, but did not submit any revised audit report from tax-auditor , wherein the tax-auditor could have clarified/certified the correct position of the interest income and hire charges , as per records/evidences/ books of accounts available as part of tax-audit record. The tax-audit report dated 24.09.2011 issued by tax-auditor contained certification in para 5 of Form No. 3CB duly certified by tax-auditor, as under:- “5. In our opinion and to the best of our information and according to the explanation given to us, the particulars given in the said Form No. 3CD and the Annexure thereto are true and correct.”

Thus, if there was any inadvertent error on the part of tax-auditor in their tax- audit report , they could have always issued addendum/revised tax-audit report to rectify and clarify the correct positions after due verifications/checkings from their audit records. The AO in remand proceedings specifically asked for the said revised tax-audit report, but the assessee chose not to bring on record addendum/revised tax-audit report from the tax-auditors. The 1961 Act has made

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. provisions of tax-audit under Section 44AB of the 1961 Act, wherein the onus is now put on the tax-auditors who are qualified Chartered Accountants to certify financial details/data’s of the tax-payers in the prescribed form no. 3CB and 3CD as part of tax-audit under the provisions of Section 44AB, with a view that such certification by a qualified Chartered Accountant would assist the Revenue in framing assessments/processing of returns and computing the correct income chargeable to tax as well as at the same time easing the burden on the Revenue officials , that is why the certification called from tax auditor’s in Form No. 3CB/Form No. 3CD under the aegis of Section 44AB is that the financial data’s as contained therein is certified to be true and correct which is an onerous/heavy burden cast on tax-auditors, and the said certification does not merely called the tax auditor to certify that the affairs are ‘true and fair’ as is envisaged while auditing under Companies Act. Thus, certainly the burden/duty on tax-auditor is very heavy/onerous under the 1961 Act to certify contents of tax-audit report to be ‘true and correct’ and not merely ‘true and fair’. Thus, if there was an inadvertent error committed by tax-auditor as is averred by the assessee , the assessee could have always approached tax-auditor to issue addendum/revised tax-audit report to certify correct figures after due checking’s /verifications by the tax-auditors , as the qualified Chartered Accountants who are appointed as tax- auditors being responsible officer/qualified professional , are expected to issue any addendum/revised tax-audit report with due care and caution with full responsibility , after thorough checking/verifications, otherwise it would call for disciplinary action from the ICAI and other consequences as provided under law. The assessee never produced the aforesaid addendum/revised tax-audit report from tax-auditor. The ld. CIT(A) deleted the additions without calling for such information from the tax-auditors and then reconciling/verifying from the books of accounts, but merely deleted the additions .Needless to say that powers of ld. CIT(A) are co-terminus with powers of the AO. It is further observed that in same 17

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. Part B- Annexure-I (Page 17/PB) of tax-audit report, there is a cutting/overwriting in the figure of Net Profit/(Loss) before tax which is shown at Rs.3,78,565/- (with over-writings) , and such overwriting/cutting is not countersigned / authenticated by tax-auditor, and authenticity of such overwritten figure cannot be ascertained/relied upon , which also is required to be brought on record by the tax-auditor. Thus, keeping in view of our above discussions and totality of facts and circumstances, It will be just , fair and in the interest of justice that the appellate order of ld. CIT(A) be set aside and the matter be restored to the file of the AO for fresh determination of the issue . The assessee be directed to file revised tax-audit report/addendum to the tax-audit report and the AO to verify the same with books of accounts and other relevant evidences, to arrive at the correct income chargeable to tax. We clarify that we have not commented on the merits of the issue and all the contentions are kept open. Needless to say that the AO will give proper and adequate opportunity of hearing to the assessee in set aside remand proceeding, in accordance with the principle of natural justice and in accordance with law. The AO is directed to pass reasoned and speaking order. The evidences /explanations submitted by the assessee shall be admitted by the AO in accordance with law and be decided on merits in accordance with law.We order accordingly. So far as second issue is concerned, it is observed that the assessee has made in aggregate payment of Rs. 11,37,000/- ( Rs. 5,25,000/- + Rs. 4,00,000/- and Rs.2,12,000/- ) , by cheque’s , which stood debited to its bank account. The bank statement is produced by the assessee, reflecting these debits. The assessee has produced Labour Charges Payable Account as it stood in its books of accounts as claimed by the assessee(PB/page 41-59) , and claim is made that all these three debits aggregating to Rs. 11,37,000/- are debited from the above labour charges payable account. A claim is made that payment of Rs. 5,25,000/- was made to 18

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. Shri Nakchhedi Ram Yadav , on 24.09.2010 vide cheque number 7428 , and also that payment of Rs. 4,00,000/- is made Mr. Avadh Bihari Yadav on 24.09.2020 , vide cheque number 7427. The bank statements of both the said persons are produced for 2-3 days , wherein the amount(s) are reflected as appearing on the credit side. A claim is made that both these persons are employees of the assessee, and have utilized the proceeds of the aforesaid sums to pay for labour charges.It is claimed that these two persons are not labour contractors and TDS provisions u/s 194C are not attracted. The bank statements of the above two persons namely Shri Nakchhedi Ram Yadav and Mr. Avadh Bihari Yadav, are furnished for 2-3 days period, and there is no evidence on record that these persons have utilized the proceeds of these aforesaid payments to make payment to labour charges. Further, no wage register, ESI/PF record , wage payment receipts and other evidences are produced to substantiate the contentions of the assessee. These are solitary payments made to these two persons during the year under consideration. The Revenue is alleging that these two persons are labour contractors. The assessee has submitted that these two persons are its employees , who were handling site for civil construction , and they have used the proceeds of these two payments for making labour payments and other charges for civil construction on behalf of the assessee, but evidences to substantiate are not filed, even their income tax returns along with computation, balance sheet, profit and loss account are not filed to substantiate its contentions. Further, it is observed that labour charges outstanding to be payable as is reflected in the ledger account was as high as Rs. 25.10 lacs at the beginning of the year , and it rose to Rs.38.70 lacs at the end of the year, while average monthly wages payable to labourer credited are to the tune of Rs. 5.5 to Rs. 6 lacs , as high as there are outstanding of wages payable for 7 months, which is against preponderance of probabilities

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P. that the labourer are not paid for 7 months. The ld. CIT(A) deleted additions without any evidences on record. So, far as payment of Rs. 2,12,000/- is concerned , the said sum is paid through bank on 30.03.2011 , which is debited to the labour charges payable, and the assessee made the claim that these are tax payments and paid to Mr. O.P.Shukla,Client Account, no bank statement of Shri O.P.Shukla is filed and reasons / justification for debiting to Labour Charges Payable is not furnished. Thus, keeping in view of our above discussions and totality of facts and circumstances, It will be just , fair and in the interest of justice that the appellate order passed by ld. CIT(A) be set aside and the matter be restored to the file of the AO for fresh determination of the issue . We clarify that we have not commented on the merits of the issue and all the contentions are kept open. Needless to say that the AO will give proper and adequate opportunity of hearing to the assessee in set aside remand proceeding, in accordance with the principle of natural justice and in accordance with law.The AO is directed to pass reasoned and speaking order . The evidences /explanations submitted by the assessee shall be admitted by the AO in accordance with law and be decided on merits in accordance with law. We order accordingly. 8. In the result, appeal filed by the Revenue in ITA no. 319/Alld/2018 for ay: 2011-12 is allowed for statistical purposes. Order pronounced on 11/05/2022at Allahabad in open Court.

Sd/- dSd/- Sd/- SdSd/- [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11/05/2022 20

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P.

Kdazmi Copy forwarded to:

By Order Assistant Registrar

ITA No.319/ALLD/2018 Assessment Year: 2011-12 ACIT Circle-3, Mirzapur, U.P. v. M/s J.P. Yadav Sonebhadra,U.P.