Commissioner Of Income Tax Itrichy v. Sri.t.arivunidhi

In the High Court of Judicature at Madras Dated: 08.04.2013 Coram The Honourable Mrs.JUSTICE R.BANUMATHIandThe Honourable Mr.JUSTICE K.RAVICHANDRABAABU Tax Case (Appeal) No.78 of 2010 Commissioner of Income Tax ITrichy. .... Appellant Vs. Sri.T.Arivunidhi .... Respondent APPEAL under Section 260A of the Income Tax Act against theorder dated 07.08.2009 made in I.T.A.No.590/Mds/2009 on the file ofthe Income Tax Appellate Tribunal, Chennai "B" Bench for theassessment year 2002-03 and against the order of the Commissioner ofIncome Tax (Appeals) Tiruchirapalli - 620 001 dated 25.03.2009 madein ITA.No.55/05-06 filed against the Assessment order of the DeputyCommissioner of Income Tax, Circle - III, Trichy dated 29.03.2005made in PAN GIR No.ACBPA66012 for the assessment year 2002-2003. For Appellant : Mr.J.Narayanasamy Standing counsel for Income TaxFor Respondent : Mr.V.S.Jayakumar K.RAVICHANDRABAABU,J. J U D G M E N T This Tax Case (Appeal) filed by the Revenue as against the orderof the Income Tax Appellate Tribunal relating to the assessment year2002-03 was admitted by this Court on the following substantialquestions of law:"1. Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal was rightin holding that the Assessing Officer was not justifiedin adding an amount of Rs.21,61,740/- out of the amountshown as "due to Maistries", even though the assesseecould not produce vouchers before the Commissioner of https://hcservices.ecourts.gov.in/hcservices/ Income Tax (Appeals) and before the Assessing Officer andby making incorrect assumptions of facts that theAssessing Officer accepted the books of accounts ascorrect and complete? 2. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was right inholding by the Assessing Officer was not justified inmaking the addition towards work-in-progress, when theassessee had claimed deduction for the expenditure andhad not shown the corresponding receipts? 2. The assessee is a civil contractor engaged in cable layingwork for BSNL. The assessment for the relevant assessment year wascompleted under Section 143 of the Income Tax Act on a total incomeof Rs.41,10,334/-. The assessee had shown an amount ofRs.57,98,265/- as "Maistries Due" in the balance sheet. It wasexplained by the assessee that this amount represented wagedisbursement to labourers through maistries. However, the AssessingOfficer, after examining the details, added a sum of Rs.21,61,740/-out of the amount shown as maistry's dues and added the same to theprofit shown. The assessee filed an appeal before the Commissionerof Income Tax (Appeals). The first Appellate Authority confirmed theaddition of Rs.21,61,740/-. Further appeal preferred by the assesseebefore the Income Tax Appellate Tribunal came to be allowed.Aggrieved against the said order of the Tribunal, the present appealhas been filed by the Revenue raising the above substantial questionsof law. 3. Mr.J.Narayanasamy, learned standing counsel appearing forthe Revenue submitted that the excess payment shown as expenditurewas not, in fact, shown as income in the Profit and Loss Account andtherefore in the absence of matching income shown in the Profit andLoss Account, the addition made by the Assessing Officer cannot bedisturbed. He also contended that even otherwise, the expenses saidto have been made, have not been proved by any vouchers, when thematter was remitted back to the Assessing Officer by the firstAppellate Authority. 3. Mr.J.Narayanasamy, learned standing counsel appearing forthe Revenue submitted that the excess payment shown as expenditurewas not, in fact, shown as income in the Profit and Loss Account andtherefore in the absence of matching income shown in the Profit andLoss Account, the addition made by the Assessing Officer cannot bedisturbed. He also contended that even otherwise, the expenses saidto have been made, have not been proved by any vouchers, when thematter was remitted back to the Assessing Officer by the firstAppellate Authority. 4. Per contra, Mr.V.S.Jayakumar, learned counsel appearing forthe assessee submitted that the assessee is following mercantilesystem of accounting and as such, valued the work-in-progress andshown in the balance sheet. Therefore, the contention of theRevenue in this aspect is not correct. He further submitted that whenthe books are not rejected by the Authorities, they are not entitledto make addition based on estimation. 5. In support of the submission, learned counsel relied thedecision of the Apex Court reported in (2010) 328 ITR 513 (SargamCinema V. Commissioner of Income Tax). He further submitted thatonly when the work is completed, the assessee can show the income in the books of account, especially when the assessee is following themercantile system of accounting. It is also his further contentionthat the Assessing Officer has not found anywhere that there are novouchers produced by the assessee in support of the disputedexpenses. Only when the matter was remitted back by the firstAppellate Authority, that too after some years, the assessee was notin a position to produce those vouchers, as the same were damagedduring 2005 due to floods. Therefore, learned counsel submitted thatit is not the case that there are no vouchers, but they could not beproduced only due to the reasons as stated supra. He also submittedthat the Tribunal, being a fact finding authority, has found that theassessee had been following mercantile system of accounting and theseamounts were duly debited to the Profit and Loss Account. When suchbeing a factual finding rendered by the Tribunal, the same need notbe interfered with by this Court, as there is no substantial questionof law involved in this case. It is also further submitted by himthat in any event, there is no revenue loss, as the receipt from BSNLwould be shown in the next assessment year as income. 6. Heard learned standing counsel appearing for the Revenue andthe learned counsel appearing for the assessee. 7. In this appeal, the Revenue raised two issues. In so far asthe first issue, namely, there is no matching income shown on theProfit and Loss Account is concerned, it is seen that the assessee isfollowing mercantile system of accounting and the said fact isevident from the assessment order itself. It is also not disputedthat the assessee has already valued the work-in-progress and shownin the balance sheet. According to the assessee, even though theypaid the amount to the Maistry before receipt of the payment fromBSNL, they would only show the receipt as income only when the workis completed. That is why they show it as work-in-progress. TheTribunal found that the assessee, by following the mercantile systemof accounting, had duly debited these amounts to the Profit and LossAccount. The said finding, being a factual finding rendered by theTribunal, the same cannot be interfered with by this Court as noother contra facts are placed before us. 8. Learned counsel appearing for the assessee relied on thedecision of the Apex Court reported in (2010) 328 ITR 513 (SargamCinema V. Commissioner of Income Tax) to contend that withoutrejecting the books of account, the Assessing Authority cannot makeany addition. 8. Learned counsel appearing for the assessee relied on thedecision of the Apex Court reported in (2010) 328 ITR 513 (SargamCinema V. Commissioner of Income Tax) to contend that withoutrejecting the books of account, the Assessing Authority cannot makeany addition. 9. A perusal of the order of the Assessing Officer would showthat he has not rejected the books of account and only made theaddition on the reason that there is no matching entry of income inthe said account with the corresponding expenses made by theassessee. As it is explained by the assessee that they have shownin the books of account as work-in-progress and especially under the https://hcservices.ecourts.gov.in/hcservices/ circumstances of following the mercantile system of accounting, wefind force in the submission made by the learned counsel appearingfor the assessee. Accordingly, the first issue is answered in favourof the assessee and against the Revenue. 10. As far as the next issue, namely, absence of materials toprove the expenses, is concerned, as rightly contended by the learnedcounsel appearing for the assessee, the Assessing Officer has notfound anywhere in the assessment order that the expenses made by theassessee towards the Maistry dues is not supported by any materialdocuments. It is only when the matter was remitted back from thefirst Appellate Authority to the Assessing Officer during thependency of the appeal, the assessee was not in a position to producethose vouchers, for which he has also given reason that the voucherswere damaged during 2005 floods. Such reason assigned by theassessee was not disproved or disputed by the Revenue. On the otherhand, the first Appellate Authority came to the conclusion that inthe absence of vouchers in respect of the expenditure claimed, thereis every possibility of wrong claim by the assessee in this regard.In our considered view, such finding of the first Appellate Authorityis based on presumption and assumption. It is not the case thatthere are no materials. If that is the fact, then the AssessingOfficer himself would have stated so in the assessment order. In theabsence of any such finding by the Assessing Officer, we find noforce in the submission of the learned standing counsel appearing forthe Revenue in this regard. 11. Consequently, we find the order passed by the Income TaxAppellate Tribunal does not warrant any interference and accordingly,the Tax Case (Appeal) stands dismissed by answering both thesubstantial questions of law against the Revenue and in favour of theassessee. No costs. Sd/ Asst.Registrar //True Copy// Sub.Asst.Registrar To1. The Assistant Registrar, The Income Tax Appellate Tribunal, Chennai "B" Bench 3rd Floor, Rajaji Bhavan, Besant Nagar, Chennai.2. The Commissioner of Income Tax (Appeals), Tiruchirapalli.3. The Deputy Commissioner of Income Tax, Circle-III, Trichy. 1 CC to Mr.J.Narayanaswamy, Advocate, S.R.No.204111 CC to Mr.V.S.Jayakumar, Advocate, S.R.No.20620 T.C.(A) No.78 of 2010 TRM(CO)JJM 03.05.2013 https://hcservices.ecourts.gov.in/hcservices/