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BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
May, 23rd 2012
              IN THE INCOME TAX APPELLATE TRIBUNAL
              CHANDIGARH BENCHES `B' CHANDIGARH

          BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT
           AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER

                             ITA No.47/Chd/2012
                           Assessment Year: 2004-05

The ITO,                       Vs    Shri Rakesh Jain
Ward-III, (3),                       Prop. M/s Shekar Chand Jain & Co,
Ludhiana                             Ludhiana

                                     PAN No. ADXPJ2919F


(Appellant)                                        (Respondent)

                   Appellant By             :   None
                   Respondent By            :   Shri Manjeet Singh

                   Date of hearing       : 17.05.2012
                   Date of Pronouncement :


                                    ORDER


PER H.L.KARWA, VP


      This appeal filed by the Revenue is directed against the order of

CIT(A)-II, Ludhiana dated 1.11.2011 relating to assess ment year 2004-05



2.    In this appeal, the Revenue has taken the following grounds:-

     1.    That the Ld. CIT(A) has erred in law in restricting the
           disallowance to Rs.1,00,000/- as against Rs.7,93,541/-
           made on account of labour expenses, whereas the assessee
           has claimed payment of wages for the financial year 2002-
           03 and not the year under consideration.
                                          2


     2.     That the Ld. CIT(A) has erred in law in restricting the
            disallowance to Rs.50,000/- as against Rs.1,90,532/- made
            on account of repair & maintenance           expenses, whereas
            the assessee failed to file any satisfactory explanation in
            this regard before the A.O.

     3.     That the Ld. CIT(A) has erred in law in restoring back the
            matter to the file of A.O regar ding disallowance of
            Rs.3,43,477/-   made   on     account   of   violation   of   the
            provisions of section 40A(3) whereas the CIT(A) is not
            empowered to restore back any matter to the file of
            A.O according to section 251(l)(a) of the Income Tax Act,
            1961.



3.    Vide ground No.1 of the appeal, the Revenue has challenged the action

of CIT(A) in restricting the disallowance to Rs. 1 lac as against Rs.

7,93,541/- made on account of labour expenses.



4.    The assessee is a contractor and derives income from civil construction

work and earth work etc. and is a Proprietor of M/s S.C. Jain & Co.,

Ludhiana.    During the year under consideration, the assessee has claimed

expenses amounting to Rs. 35,63,252/- under the head labour expenses. Out

of the above amount, the Assessing Officer disallowed Rs. 2,09,397/- plus

Rs. 5,88,144/- = Rs. 7,93,541/- stating as under:-


             "I have considered the above contentions of the assessee
             and after careful consideration thereof, the same are
             rejected in view of the following reasons:

             (a) As mentioned above, perusal of the complete vouchers
             pertaining to this A/c shows that the entire entries either
             relates to assess ment year 2003-04 or on which signatures
             of the receiver differs / no supporting evidence has been
             attached as per defect pointed out vide letter dated
                                        3


            8.11.2006. The assessee has no supporting bill on the self
            made vouchers and expenditure has been incurred in cash
            and I am of the confirmed view that these accounting
            entries are unreliable and incomplete and I am not s atisfied
            with the correctness & completeness of this account.

            Assessee is following mercantile system of account which is
            evidenced from the comments of the Auditor given in the
            audit report annexed with the return of income in column
            no. ll(a) of the statuary audit report in form 3CD duly
            signed by the Chartered Accountant Sh Rajesh Mehru for
            M/s Rajesh Mehru & Co. on 28.10.2004 duly attached with
            the return of income following comments are reported


            Method of accounting employed in the :         MERCANTILE
            previous year                                  ACCOUNTING

             Since the assessee is following mercantile system of
            account, therefore, the assessee is not principally supposed
            to claim deduction for wages either for February & March
            2003 in the books of accounts for financial year 2002-03
            relevant to assess ment year 2003-04. Hence there is
            apparent excess claim in this account.

            Since the assessee has failed to give any satisfactory
            explanation on this account an addiction of Rs. 7,93,541/-
            is made to the returned income."


5.    The Assessing Officer has given the details of disallowance of Rs.

7,93,541/- at pages 2, 3 & 4 of the assessment order.



6.    Aggrieved by the order of Assessing Of ficer, the assessee carried the

matter in appeal before the CIT(A).


7.    The CIT(A) reduced the addition to Rs. 1 lac observing as under:-


      "I   have   considered   the   submissions   of   appellant   and
      observations of the A.O that expenses genuinely spent and
      have been claimed once in the lifetime shall be allowed
      keeping in the view the nature of the business, overall
                                      4


      circumstances and proofs of payment submitted by the
      appellant. Fact that appellant has claimed far less expenses
      in ratio terms as compare to last year which was als o
      assessed by same A.O goes well with the appellant regarding
      the allowability of Labour   Expenses. Further the A.O did
      not challenge the non-payment and non incurrence of Labour
      expenses. However to prevent the loss of revenue lumpsum
      addition of Rs. 1,00,000/- shall be made and accordingly
      addition of Rs. 7,93,5417- made by A.O is hereby reduced to
      the level of Rs. 1,00,000/-. Keeping in the view of above this
      Ground of Appeal is partly allowed.






8.    Vide ground No.2 of the appeal the Revenue has challenged the action

of CIT(A) in restricting the disallowance to Rs. 50,000/- as against Rs.

1,90,532/- made on account of repair and maintenance expenses.



9.    During the year under consideration the assessee claimed expenses of

Rs. 11,01,956/- under the head repair and maintenance expenses. Out of the

above expenses, the Assessing Officer disallowed Rs. 1,90, 532/-.          The

Assessing Officer has given details of vouchers at pages 5 & 6 of the

assessment order.    As regards 13 vouchers amounting to Rs. 64,520/-

mentioned at page 5 of the assessment order, the As sessing Officer observed

as under:-

             "Perusal of the voucher reveals there is no supporting
             document attached with this voucher and also there are
             no signatures of recipient. No Revenue stamp affixed on
             the voucher."


At page 6 of the assessment order, the Assessing Officer has mentioned the

details of 27 vouchers amounting to Rs. 1,26,012/-, observing as under:-
                                      5



      "No evidence, only written slips are on which names of the
      persons appears but no signatures, no Revenue stamp affixed."



When the Assessing Officer asked the assessee to produce supporting

evidence, the as sessee came forward with self made vouchers having either

no name, no signatures of recipient, neither any revenue stamp was affixed of

payment not substantiated by any bill etc.   According to As sessing Officer,

the assessee could not give any satisfactory explanation, therefore, addition

of Rs. 64,520/- plus Rs. 1,26,012/- = Rs. 1,90,532/- was made.



10.   On appeal, the CIT(A) reduced the addition to Rs. 50,000/-, observing

as under:-

      "2.3   Keeping in the view the fact that A.O did not challenge
      the authenticity and genuinely of expenditure and also did not
      point out any particular discrepancy apart from the general
      deficiencies and more over did not deny the incurrence of
      expenditure. Even the additions in the Plant & Machinery have
      been ignored. Entries pointed out in the order are of petty
      nature and keeping in regard to the nature of business the same
      shall be considered.   Thus the addition made by the A.O is on
      the higher s ide and a lumpsum addition of Rs. 50,000/- shall be
      made to cover the leakage of revenue. Hence this Ground of
      appeal is partly allowed."



11.   The above appeal was fixed for hearing on 17.5.2012.         However,

nobody appeared on behalf of the assessee despite service of notice by

RAPD.    The assessee has also not filed any application for adjournment of

the case. Under these circumstances, we are constrained to dispose off the
                                       6


appeal of the Revenue, of course, after hearing the Ld. DR. We will dispose

off ground Nos.1 & 2 of the appeal in succeeding paragraphs.



12.   Shri Manjeet Singh, Ld. DR vehemently argued that the CIT(A) has not

given any cogent reasons while restricting the disallowance to Rs. 1 lac as

against Rs. 7,93,541/- made on account of labour expenses.           Similarly,

CIT(A) without assigning any reason has reduced the addition to Rs. 50,000/-

as against Rs. 1,90,532/- made on account of repair and maintenance

expenses.   He further submitted that the CIT(A) is enjoined and incumbent

upon it to appreciate the evidence, consider the reasoning of the Assessing

Officer and assign its own reasons as to why he disagrees with the reasons

and findings of the Assessing Officer.     Unless adequate reasons are given,

merely because it is an appellate authority, it cannot brush aside the

reasoning or findings recorded by the Assessing Officer. Shri Manjeet Singh,

Ld. DR heavily relied on the decision of Hon'ble Bombay High Court in the

case of Maneklal D. Shah Vs      P.K. Gupta and others (2004) 267 ITR 340

(Bom.) wherein Hon'ble High Court has held that it is incumbent upon the

appellate authority to give reasons as to why it disagrees with the reasons and

findings of the primary authority.   The relevant observation of the Hon'ble

High Court are as under:-


      " A right to reasons is, therefore, an indispensable part of a
      sound system of judicial review. A reasoned decision is not only
      for the purpose of showing that the citizen is receiving justice,
      but also a valid discipline    for the authority itself. Therefore,
      stating of reasons is one of the essentials of         justice. The
      appellate authority is enjoined and it is incumbent upon it to
      appreciate the evidence consider the reasoning of the primary
                                       7


      authority and assign its own reas ons as to why it disagrees with
      the reasons and findings of          the primary authority. Unless
      adequate reasons are given, merely because it is      an appellate
      authority, it cannot brush aside the reasoning or findings
      recorded by the primary authority. The order should be self-
      explanatory and should    not keep the higher court guessing for
      reasons. The reasons provide a live link between the conclusion
      and the evidence. That vital link is the safeguard          against
      arbitrarines s. It gives an opportunity to the higher court to see
      whether or not the subordinate court or authority or the Tribunal
      considered the relevant material. Since no reasons are found in
      the order, we are left with no other alternative but to quash and
      set aside the impugned order to the extent it is challenged and to
      remit the proceedings back to the Commissioner      of Income-tax,
      Central-II, Mumbai, for hearing and consideration afresh on the
      merits."



13.   Respectfully following the decision of the Hon'ble Bombay High Court

(supra), we set aside the order of CIT(A) and restore the issues to the file of

CIT(A) with a direction to decide the same afresh on merits in accordance

with law after affording   due and reasonable opportunity of being heard to

the assessee. Ground No. 1 & 2 of the appeal are allowed for statistical

purposes.



14.   Vide ground No.3 of the appeal the Revenue has challenged the action

of CIT(A) in restoring back the matter to the file of the Assessing Officer

regarding disallowance of Rs. 3,43,477/- made on account of violation of

provisions of section 40A(3) of the Income Tax Act, 1961 (in short 'the Act').
                                         8


15.   During the year under consideration, the assessee has incurred a total

amount of Rs. 17,18,886/- as an expenditure. In the assess ment order, the

Assessing Officer has pointed out some discrepancy regarding the payment of

such expenditure. The Assessing Officer disallowed 20% of the such

expenditure i.e. Rs. 3,43,777/-. On appeal, the CIT(A) restored the issue to

the file of Assessing Officer to examine the evidence of the assessee and to

decide the issue on merits.



16.   Before us the Ld. DR s ubmitted that u/s 251(1) (a) of the Act the

CIT(A) has no power to restore back any mater to the file of Assessing

Officer for taking a fresh decision on merits. He, therefore, submitted that

the CIT(A) may be directed to decide the issue on merits in accordance with

law after affording a due and reasonable opportunity of being heard to the

assessee.



17.   After hearing the Ld. DR, we set aside the order of CIT(A) on this

issue and direct him to decide the issue afresh in accordance with law after

affording due and reasonable opportunity of being heard to the assessee. For

statistical purposes, this ground of appeal is allowed.


18.   In the result, appeal is allowed for statis tical purposes .


      Order Pronounced in the Open Court on this 22 n d day of May, 2012

            Sd/-                                            Sd/-

   (MEHAR SINGH)                                        (H.L.KARWA)
ACCOUNTANT MEMBER                                     VI CE PRESIDENT
Dated : 22 n d May, 2012
Rkk
                                      9


Copy to:
  1.     The Appellant
  2.     The Respondent
  3.     The CIT
  4.     The CIT(A)
  5.     The DR

                          True Copy
                                              By Order

                                          Assistant Registrar
 
 
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