Commissioner Of Income Tax, Faridabad v. Shri Brij Pal Sharma

ITA No. 685 of 2008. IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 685 of 2008.Date of Decision : 17.2.2009. Commissioner of Income Tax, Faridabad Versus ....Appellant Shri Brij Pal Sharma ....Respondent CORAM:Hon'ble Mr. Justice J.S. KheharHon'ble Mr. Justice Nawab Singh Present :Mr. Yogesh Putney, Advocate,for the appellant. J.S. Khehar. J. (Oral) Through the instant appeal, the appellant has raised thefollowing questions of law:- i)“Whether on the facts and in thecircumstances of the case, the ITAT is right in law inconfirming the order of Ld. CIT(A) deleting theaddition of Rs.1,29,316/- made on account of bogusliability, disregarding the fact that cash payments belowRs.20,000/- were made on different dates and theassessee failed to produce the creditor, who was statedto have left from his place?” ii)“Whether on the facts and in thecircumstances of the case, the Hon'ble Tribunal is rightin law in affirming the decision of the Ld. CIT(A) indeleting the addition of Rs.4,00,000/- made by theAssessing Officer u/s 40A(2) on account of truck hire charges, holding that the AO had not demonstrated in what manner the charges were excessive, disregardingthe fact that the charges were paid to the assessee's sonthe fact that the charges were paid to the assessee's son at rate per trip instead of normal practice of monthlyrent?”rent?” iii)Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal is right in law inaffirming the decision of the Ld. CIT(A) in deleting theaddition of Rs.17,70,339/- made by the AssessingOfficer on account of bogus liability in the account ofaffirming the decision of the Ld. CIT(A) in deleting theaddition of Rs.17,70,339/- made by the AssessingOfficer on account of bogus liability in the account of M/s. Anuj Construction, disregarding the fact that theliability was created in a period of last three months offinancial year, and the assessee failed to produce thecreditor for verification?”liability was created in a period of last three months offinancial year, and the assessee failed to produce thecreditor for verification?” On the first question, it would be pertinent to mention that a sum of Rs.1,29,316/- paid by cash by the respondent-assessee astractor charges was ordered to be deleted by the Assessing Officer onaccount of the fact that the assessee had failed to produce either the creditoror any other material to establish that the aforesaid cash payment was madeby the respondent-assessee towards tractor charges. The aforestateddetermination of the Assessing Officer was set-aside by the Commissionerof Income Tax (Appeals) vide his order dated 14.9.2004 and affirmed by theIncome Tax Appellate Tribunal vide its impugned order dated 23.11.2007.On the second question, the Assessing Officer ordered a deletion from outof the machinery hire charges paid to M/s Satyen Enterprises by assertingthat the same were on the higher side by invoking Section 40A(2)(b) of the ITA No. 685 of 2008. Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The instantdeduction was also set-aside by the Commissioner of Income Tax (Appeals)vide his order dated 14.9.2004, which was affirmed by the impugned orderpassed by the Income Tax Appellate Tribunal dated 23.11.2007. In so far asthe third question is concerned, the Assessing Officer arrived at theconclusion, that a sum of Rs.17,70,339/- paid to M/s Anuj Construction wasa bogus liability created by the respondent-assessee at the end of thefinancial year. The aforesaid amount was deleted from the expense incurredby the respondent-assessee as the respondent-assessee had failed to producethe creditor or verifiable material to establish the aforesaid liability. ITA No. 685 of 2008. Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The instantdeduction was also set-aside by the Commissioner of Income Tax (Appeals)vide his order dated 14.9.2004, which was affirmed by the impugned orderpassed by the Income Tax Appellate Tribunal dated 23.11.2007. In so far asthe third question is concerned, the Assessing Officer arrived at theconclusion, that a sum of Rs.17,70,339/- paid to M/s Anuj Construction wasa bogus liability created by the respondent-assessee at the end of thefinancial year. The aforesaid amount was deleted from the expense incurredby the respondent-assessee as the respondent-assessee had failed to producethe creditor or verifiable material to establish the aforesaid liability. In so far as the first question is concerned, it would notbe out of place to mention that a sum of Rs.5,96,220/- was alleged to havebeen paid as tractor charges to Sh. Dharminder. The aforesaid paymentswere made through normal banking channels except a sum of Rs.1,29,316/-which was paid by way of cash. The cash payment was not accepted as agenuine transaction, and as such, a sum of Rs.1,29,316/- shown as havingbeen incurred by the respondent-assessee towards tractor charges wereordered to be deleted. The Income Tax Appellate Tribunal while dealingwith the issue in hand arrived at the conclusion, that the onus to establishthat the aforesaid payment of Rs.1,29,316/- had not been paid by therespondent-assessee to Dharminder, was entirely on the shoulders of theRevenue and that, the Revenue had collected no evidence to establish thatthe aforestated payment was not genuine. When the same matter wasagitated before the Income Tax Appellate Tribunal, the Tribunal noticed theassertion at the hands of the assessee based on a communication dated26.3.2004. Through the aforesaid communication, the respondent-assessee ITA No. 685 of 2008. asserted his inability to produce the aforestated Dharminder but requestedthe Assessing Officer to issue summons to him so as to enable the AssessingOfficer to determine for himself the veracity of the claim of the respondent-assessee. Since the Assessing Officer did not take cudgels of collecting anymaterial to ascertain the genuineness of the payment of Rs.1,29,316/-, andfurther more also, did not consider it just and appropriate to summon theaforestated Dharminder in exercise of the authority vested in him underSection 131 of the Act, the Income Tax Appellate Tribunal concluded thatthere was no material with the Assessing Officer to conclude that thepayment of a sum of Rs.1,29,316/- made by way of cash by the respondent-assessee to the aforestated Dharminder was bogus. We have also considered the issue pertaining to thededuction of Rs.1,29,316/-. The solitary contention of the learned counselfor the appellant before us has been, that the non-production of theaforestated Dharminder at the hands of the respondent-assessee was vital tothe issue in hand. It was also submitted by the learned counsel for theappellant that there was no reason for the Assessing Officer to summon theaforesaid Dharminder on account of the fact that the respondent-assesseehad himself expressed in his letter dated 26.3.2004, that Dharminder wasnot available. Having considered the totality of the facts andcircumstances of the present case, we are first and foremost of the view, thatthe submission made by the learned counsel for the appellant is only adisputed question of fact. The Commissioner of Income Tax (Appeals), aswell as, the Income Tax Appellate Tribunal have concurred in concludingthat the Assessing Officer recorded a finding on the issue in hand without ITA No. 685 of 2008. Having considered the totality of the facts andcircumstances of the present case, we are first and foremost of the view, thatthe submission made by the learned counsel for the appellant is only adisputed question of fact. The Commissioner of Income Tax (Appeals), aswell as, the Income Tax Appellate Tribunal have concurred in concludingthat the Assessing Officer recorded a finding on the issue in hand without ITA No. 685 of 2008. any material whatsoever. While confirming the concurrent findings recordedby the Appellate Authority, we are also of the view that it was ardentobligation of the Assessing Officer to at least summon the aforestatedDharminder in furtherance of the communication dated 26.3.2004 addressedby the respondent-assessee. Having failed to discharge the aforesaidobligation, it does not lie in the mouth of the Revenue to press the instantclaim of deduction of Rs.1,29,316/- which the respondent-assessee claims tohave incurred as tractor charges. It is not possible for us to accept, that theAssessing Officer could not have enforced the presence of Dharminder inthe background of the fact that, a substantial amount of the payment ofRs.5,96,220/- as tractor charges was made by the respondent-assessee to theaforestated Dharminder by way of normal banking channel. There shouldtherefore have been no difficulty either to ascertain his address or tosummon him. The second question raised by the appellant-Revenuepertains to the payment of Rs.18,75,875/- to M/s Satyen Enterprises. Out ofthis amount, the Assessing Officer ordered the deduction of Rs.4 lacsalleging that excessive payments were made to M/s Satyen Enterprises. Inthis behalf, the Assessing Officer placed reliance on Section 40A(2)(b) ofthe Act. Undoubtedly, the Assessing Officer had the authority, as well as,the jurisdiction to evaluate the excessive or unreasonable expenses incurredat the hands of the respondent-assessee in favour of a relative of theassessee. The expense of Rs.18,75,875/- is stated to have been incurredtowards truck charges by the respondent-assessee in favour of M/s SatyenEnterprises. It is not a matter of dispute that the proprietorship of M/sSatyen Enterprises is in the hands of the son of the respondent-assessee, ITA No. 685 of 2008. namely, Satyen Sharma. While exercising the authority vested in theAssessing Officer under Section 40A(2)(b) of the Act, the Assessing Officeracknowledged, that payments were made to M/s Satyen Enterprises at therate of Rs.70/- per truck. The Commissioner of Income Tax (Appeals)accepted the appeal of the respondent-assessee and set-aside thedetermination of the Assessing Officer vide order dated 14.9.2004. TheIncome Tax Appellate Tribunal upheld the determination rendered by theCommissioner of Income Tax (Appeals) vide its order dated 23.11.2007. In order to canvass the second question, learnedcounsel for the appellant has vehemently contended, that the charges shouldhave been paid to M/s Satyen Enterprises on a monthly basis, and not ontruck basis. This, according to the learned counsel for the appellant, is asufficient basis to conclude, that favour was shown by the respondent-assessee to his son, namely, Satyen Sharma, who was the sole proprietor ofM/s Satyen Enterprises. We have considered the second submission advanced In order to canvass the second question, learnedcounsel for the appellant has vehemently contended, that the charges shouldhave been paid to M/s Satyen Enterprises on a monthly basis, and not ontruck basis. This, according to the learned counsel for the appellant, is asufficient basis to conclude, that favour was shown by the respondent-assessee to his son, namely, Satyen Sharma, who was the sole proprietor ofM/s Satyen Enterprises. We have considered the second submission advanced by the learned counsel for the appellant on the issue of truck charges. It isnot possible for us to accept the contention of the learned counsel for theappellant. A perusal of the order passed by the Income Tax AppellateTribunal reveals that truck charges were also paid by the respondent-assessee to M/s Mehta Construction Company. Truck charges were paid toM/s Mehta Construction Company at the rate of Rs.80/- and Rs.70/- pertruck. The payment made by the respondent-assessee to M/s MehtaConstruction Company has been accepted by the Assessing Officer as avalid and genuine payment on tractor basis and not on monthly basis. In thebackground of the aforesaid factual position, it is also apparent that the ITA No. 685 of 2008. respondent-assessee paid charges less than the charges paid to M/s MehtaConstruction Company for the same work to M/s Satyen Enterprises. Asnoticed hereinabove, M/s Satyen Enterprises was paid at the rate of Rs.70/-per truck. Thus viewed, it is not possible for us to accept that the AssessingOfficer could have invoked Section 40A(2)(b) of the Act. The aforesaidprovision can be invoked in case, an assessee incurs “...excessive andunreasonable charges...” favouring a relative of the assessee. Since thecharges paid to M/s Satyen Enterprises were admittedly less than thecharges paid to M/s Mehta Construction Company. We are of the view thatthe Assessing Officer could not have validly invoked Section 40A(2)(b) ofthe Act to order a deduction of a sum of Rs.4 lacs out of the truckcharges/expenses incurred by the respondent-assessee favouring M/s SatyenEnterprises. The third question raised by the appellant pertains todeduction of machinery charges quantified as Rs.20,91,369/- allegedlyhaving been paid to the account of M/s Anuj Construction for a period ofthree months from January 2001 to March 2001 at the rate of Rs.1500/- perhour. The claim of the Assessing Officer, in this behalf, was that the cost ofthe excavator engaged in the work under reference was Rs.40 lacs and assuch, payment of Rs.20 lacs, and that too, for work to be executed over aperiod of three months was highly excessive. The Assessing Officer alsoarrived at the conclusion that at the same rate as was charged by M/s AnujConstruction if the excavator had been used for the whole year, therespondent-assessee could have purchased a new excavator, which costedonly a sum of Rs.40 lacs. In the appeal preferred by the assessee against the order ITA No. 685 of 2008. passed by the Assessing Officer on the issue of the aforesaid deductionordered by the Assessing Officer, the Commissioner of Income Tax(Appeals) vide his order dated 14.9.2004, upheld the order of assessment. Itis therefore that the respondent-assessee preferred a further appeal beforethe Income Tax Appellate Tribunal. The Income Tax Appellate Tribunalaccepted the appeal of the respondent-assessee on the third question vide itsorder dated 23.11.2007. It is the vehement contention of the learned counselfor the appellant, that the onus to establish that the aforesaid expenditurehad actually been incurred by the respondent-assessee rested on theshoulders of the respondent-assessee himself, and that, despite beingrequired, the respondent-assessee had failed to produce the party with whichthe contract for execution of excavation work had been executed, and assuch, it was inevitable for the Assessing Officer to treat the aforesaidpayment as bogus. Having considered the totality of the facts andcircumstances pertaining to the third question raised at the hands of thelearned counsel for the appellant, we are of the view, that yet again theIncome Tax Appellate Tribunal was fully justified in its determination. In sofar as the instant issue is concerned, it was wholly unreasonable for theAssessing Officer to determine the veracity of the transaction on the basis ofthe cost of the excavator. There are other added costs including man powerand fuel etc. which are liable to be taken into consideration whiledetermining the expenses incurred in operating an excavator. The purchaseof an excavator and to engage staff for its use and maintenance may or maynot be a profitable/conceivable business venture. This would depend on thenature of contracts executed by an individual. The purchase of an excavator ITA No. 685 of 2008. by itself is, in our view, an irrelevant consideration to determine thegenuineness of the expenses incurred by the respondent-assessee. In anycase, in so far as the present issue is concerned, it is apparent that theassessee had filed signed confirmation of the expenses to M/s AnujConstruction by the Manager/Accountant of the said firm, confirming thatthe aforesaid expense had been incurred by the respondent-assessee forexcavation work executed by M/s Anuj Construction. The respondent-assessee had additionally also produced its account book which establishedthat a sum of Rs.20,91,369/- was shown to have been credited in theaccount of M/s Anuj Construction with a closing balance of Rs.17,70,339/-as on 31.3.2001. The Assessing Officer did not accept the material producedby the respondent-assessee merely on account of the fact that theconfirmation in question produced by the respondent-assessee did not bear adate and further on account of the fact that the said confirmation had beensigned merely by the Manager/Accountant of M/s Anuj Construction. In ourview, it was not open to the Assessing Officer to determine the matterwithout any further investigation so as to be able to repudiate the materialrelied upon by the assessee. It was open to the Assessing Officer to exerciseauthority vested in him under Section 131 of the Act, so as to summonpersonnel from M/s Anuj Construction, in order to determine the veracity ofthe material relied upon by the respondent-assessee. Having not taken theaforesaid imperative procedural requirement, it was not open to theAssessing Officer to reject the material produced by the respondent-assessee. The instant rejection must definitely be treated to be an arbitrarydetermination of authority at the hands of Assessing Officer. It is thereforenot possible to accept the third contention canvassed on behalf of the ITA No. 685 of 2008. appellant. No other submission besides those referred to hereinabove was advanced on behalf of the appellant-Revenue. For the reasons recorded here-in-above, we find no merit in this appeal and the same is accordingly dismissed. (J.S. Khehar) Judge 17.2.2009.SN (Nawab Singh) Judge