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.
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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
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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
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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:-
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"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
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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
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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').
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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
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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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