Commissioner Of Income Tax, Jaipur -Iii, Jaipur v. M/S Jai Praksh Agarwal

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 212 / 2010 Commissioner of Income Tax, Jaipur -III, Jaipur ----Appellant Versus M/s Jai Praksh Agarwal C/o Ram Avtar Agarwal, Opp., Police Line,Civil Lines, Sikar ----Respondent Connected With D.B. Income Tax Appeal No. 222 / 2010 Commissioner of Income Tax, Jaipur-iii, Jaipur ----Appellant Versus M/s Jai Praksh Agarwal C/o Ram Avtar Agarwal, Opp., Police Line, Civil Lines, Sikar ----Respondent _____________________________________________________ For Appellant(s) : Mr. Daksh Pareek for Mr. Sameer Jain For Respondent(s) : Mr. Aditya Bohra & Ms. Ishita Rawat for Mr. Gunjan Pathak _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 28/08/2017 1. In both these appeals, common question of law and facts areinvolved and they are decided by this common judgment. 2.By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby Tribunal has allowedthe appeal of the assessee and dismissed the appeal of the department and modified the order of the CIT(A) which has partlyallowed the appeal of the assessee. 3.This court while admitting the appeals framed followingsubstantial question of law:- Appeals No.212/2010 & 222/2010 admitted on20.2.2013 “1. Whether the Tribunal was right in law inoverlookingthestatutoryvoluntarystatements of sub-contractors under Section131 of IT Act, 1961 whereby the authenticityof paper documents and evidences was held tobe sham and bogus, therefore whether theorder passed by last fact finding body can besaid to be legal, just and proper and notviolative of principle of natural justice? 2. Whether the order passed by Tribunal isperverse and violative of natural justice whenit is non-speaking in nature and no applicationof mind as applied and the material pieces ofevidences having statutory force like Section131 statements are ignored?” 4.The facts of the case are that the assessee is a ‘AA’ ClassContractor of PWD, Rajasthan and is working as proprietor of M/s.Agarwal Construction Co. The assessee mainly derived income byundertaking contracts of civil construction works of roads. He hadalso earned income from interest on KVPs, NSC, IDBI Bonds andNabard Capital Gain Bonds. 4.1The declaring income of Rs.26,14,340/- was filed by theassessee on 28.11.2003 declaring total contract received to beRs.5,56,19,376/- out of which contract work of Rs.4,27,19,397/-were shown to have given on self contract on which 2% of commission was disclosed. During the course of assessmentproceedings the assessing officer asked the assessee to furnishcomplete details of sub-contractor and produce them forverification. On failing to produce the details by the assessee theassessing officer thereby issued summon u/s 131 of the IncomeTax Act, 1961 to the sub-contractors. The sub-contract shown bythe assessee were sham transactions which were only appearingin the books of accounts but were executed by assessee himself. 4.2The AO has rejected the books of accounts u/s 145 of theIncome Tax Act and applied 8% N.P. rate on total contractreceived subject to allowability of depreciation claim, therebymaking addition of Rs.26,71,068/-. 5.Counsel for the appellant has taken us to the order of the AOwhere AO while considering the matter on page no.3 in para no.5and page no.10 A to H observed as under:- 4.2The AO has rejected the books of accounts u/s 145 of theIncome Tax Act and applied 8% N.P. rate on total contractreceived subject to allowability of depreciation claim, therebymaking addition of Rs.26,71,068/-. 5.Counsel for the appellant has taken us to the order of the AOwhere AO while considering the matter on page no.3 in para no.5and page no.10 A to H observed as under:- “5. In the previous year too i.e., A.Y.2003-04,the case of the assesee, M/s AgarwalConstruction Company had been taken up forscrutiny of the assessee had been required toproduce all such witnesses in person alongwiththe relevant copies of agreements, their copiesof accounts and other relevant documents andevidences in support of such sub-contracts asshown by him in response, it had beenclarified by the assessee that all the paymentswere made to them through account payeecheque, required TDS was also made andForms No. 16A were also issued to them.Thus, he had discharged all the legalobligations to prove the genuineness of suchsub-contracts. From the copies of accounts, as furnished bythe assessee, it appeared that the assesseehad been finding all the contract expensesshown incurred for earning such contractreceipts through the alleged sub-contractors.Directly or indirectly the assessee had beenmeeting out these expenses by showingadjustment entries in the respective accountsof sub-contractors. In some cases, theassessee had even shown direct payment tothird parties. Apparently such explanation is non-specificand general in nature. The same is rejectedfor the following reasons:- (a) Some of the sub contractors were shownto be ladies. These ladies had no experience,expertise and infrastructure facilities to carryout such sub contracts as is evident from theexample of Smt. Anju Shekhawat and Smt.Anita Kanwar. (b) None of the sub contractors maintainedbooks of accounts or any other documentaryevidences showing therein the genuineness ofthe sub contracts under consideration. (c) Some of these sub contracts also failed todisclose such contract receipts in their returnof income and among those who had shownsuch sub contracts, some had not got theiraccounts audited as was statutorily required intheir cases. (d) Most of such sub contacts were notfinancially capable of undertaking such subcontracts. (e) The payments were made directly by theassessee to third parties. (f) Payments shown through A/c payeecheques, TDS and issuance of Form No. 16were only colourful devices to create evidencein support of such claim of such claim of suchpaper works. (g) Filing of the returns by some of thewitnesses also appeared to be a colorful deviceto divert the real income and therefore, the assessee'scase is directly hit by the popularjudicial pronouncements of Hon'ble SupremeCourt in the case of McDowels. (h) The credit balances shown in their namesas per chart given hereunder could not besatisfactory explained.” S.No. Name of the ContractorOBCBDifference1.Amar Singh Shekhawat9676411686402012.Anita Kanwar5022455022453.Anju Shekhawat93554616211156855694.Bagdiya & Company593809259437720005685.Bhagwan Ram Chaudhary057434574346.Brij Lal Jangid202149184430116421527.DeependraSingh390582390582Shekhawat8.Indoria Construction2550492550499.Jai Construction Company30727030727010.Kishan Pal Singh28704028704011.Mula Ram Yadav1520923152092312.Rajendra Singh Shekhawat 2727561368074109531813.Seema Shekhawat54291654291614.Sita Ram Chaudhary58775058775015.Vishnu Kumar Saraswat3965281526775115724716.Yadav Construction17235391723539Total 23747551577055813395803 5.1He further contended that in view of the observations made by AO which reads as under:- S.No. Name of the ContractorOBCBDifference1.Amar Singh Shekhawat9676411686402012.Anita Kanwar5022455022453.Anju Shekhawat93554616211156855694.Bagdiya & Company593809259437720005685.Bhagwan Ram Chaudhary057434574346.Brij Lal Jangid202149184430116421527.DeependraSingh390582390582Shekhawat8.Indoria Construction2550492550499.Jai Construction Company30727030727010.Kishan Pal Singh28704028704011.Mula Ram Yadav1520923152092312.Rajendra Singh Shekhawat 2727561368074109531813.Seema Shekhawat54291654291614.Sita Ram Chaudhary58775058775015.Vishnu Kumar Saraswat3965281526775115724716.Yadav Construction17235391723539Total 23747551577055813395803 5.1He further contended that in view of the observations made by AO which reads as under:- “In view of the discussions in the foregoingparas, and as the books of accounts were notproperly maintained, it would be fair andreasonable to reject the book results u/s 145of the Act and determine the assessee'sincome by applying NP @ 8% on total contractreceiptsofRs.7,38,44,468/-(Rs.12,79,13,373/- + Rs. 20,82,435/-), as thesewere contracts that he had himself executed,subject to depreciation as claimed. Income asdeclared by the assessee on contracts of Rs.5,61,51,340/-. which had been given on sub-contract, has been accepted.” 5.2The view taken by the AO is required to be accepted. 5.3He also taken us to the para no.3.3 of the CIT(A) which reads as under:- “3.3 eSaus nksuksa ikfVZ;ksa ds rdkZsa dk voyksdu fd;k ,oa ik;k fd fo-v- ds rdZ mfpr ugha gSA eS fu-v- ds fu.kZ; ls iwjh rjg lger gwaAmijksDr lHkh mi Bsdsnkjksa dh vkfFkZd {kerk ,oa iwoZ bfrgkl blizdkj dk ugha gSa] ftlls fd os flfoy Bsdsnkjh dk dk;Z dj ldsaAblds vfrfjDr dsoy vk;dj fooj.kh is'k djus ,oa izkfIr;ksa ijVhMh,l fd, tkus ls mi Bsdsnkjh fl) ugha gks ldrhA blds fy,fu-v- }kjk lanfHkZr ekuuh; mPpre U;k;ky; dk fu.kZ;eSdMksoy ,aM daiuh] 154 vkbZVhvkj 148 dk lgkjk mfpr :i esafy;k gSA ;gka ;g Hkh Li"V fd;k tkuk le;ksfpr gS fd fu-v- usvihykFkhZ ds dj fu-o- 2003&04 esa Hkh bu ikfVZ;ksa dks cksxl ekukFkk] ftldh iqf"V vihy la- 25@t;iqj@2005&06 vkns'k fnukad04-02-2008 }kjk dh tk pqdh gSA vr% eSa dj fu-o- 2003&04 esa fn,x, fu.kZ; ds vuqlkj gh fu-v- }kjk /kkjk 145 dj voyacu ysrs gq,cgh[kkrs fujLr fd, tkus dh iqf"V djrk gwa rFkk vihykFkhZ }kjkn'kkZ, x, mijksDr 19 mi Bsdsnkjksa dks cksxl ekudj fu-v- }kjkmuls lacaf/kr izkfIr;ksa ,oa fu/kkZfjrh {kjk fd, x, lhdj&dksViqryhdk;Z ls lacaf/kr izkfIr;ksa ds ;ksx :- 7]38]44]468¼7]17]62]033+20]82]435½ ij 8 izfr'kr 'kq) ykHknj vkjksfir djrs gq,:- 59]07]557 dk 'kq) ykHk fu/kkZfjr fd, tkus dh iqf"V djrk gwarFkk vihykFkhZ dh vihy bl eqn~ns ij fujLr djrk gwaA” 5.4He contended that tribunal has committed serious error in observing as under:- “3. We have perused the facts of the case. Asobserved by the AO in para 3 of his order thatthe assessee executed contracts partly himself 5.4He contended that tribunal has committed serious error in observing as under:- “3. We have perused the facts of the case. Asobserved by the AO in para 3 of his order thatthe assessee executed contracts partly himself and most of the contracts were shown to havebeen given to third parties on sub contractbasis. On Sub contract the assessee hasdeclared the commission of 2%. The allegationof the AO mainly is that the sub contractorswere ladies having no experience, expertise,infrastructure facilities and financial capacityand some of the persons appear to be smalltimers and do not appear to be income taxpayers as per PAN directory. The assessee hasproduced the copies of agreement with all thesub contractors, copies of account of all thesub contractors and other relevant documentsand evidences in support of the sub contract,as observed in para 4 of AO's order. As perpara 5 of AO's order, all the payments havebeen made to the sub contractors throughaccount payee cheques and required Tax atSource has been deducted and Form No. 16Aissued to them. The ld. Counsel for theassessee argued that the assessee hasdischarged his onus of proving the genuinessof the claim of expenditure/payment made tothe sub contractors. As per the statementsrecorded by the AO as available in the order,none of the sub contractors has denied of notexecuting the contract for the assessee. Noneof the sub contractors has denied of havingreceived the payment from the assessee. Ifany of the sub contractor has not declared thesub contract receipts in his or her return orthe sub contractor has not filed the income-taxreturn or the sub contractor has not appeardin response to notice u/s 131 by the AO, thenthe expenditure claimed and the paymentmade to the said sub contractor cannot beheld to be bogus. The payment having beenmade through account payee cheques is notunder dispute. There is nothing on record thatthe assessee has received the cash back fromthe said sub contractors against the paymentsmade through account payee cheques to thesaid sub contractors. In the circumstances andfacts of the case and in the absence of anycogent material or record, the claim of theassessee being the payment to the subcontractor cannot be held to be bogus andAO's is directed to delete the addition somade. The AO in the absence of any cogentmaterial is not justified to reject the books ofaccount and he is not justified to make anyaddition on account of estimation of income As regards the sustenance of addition by the ld.CIT(A) and holding the sub contractors asbogus, in view of our decision hereinbefore,the decision of the ld. CIT(A) is reversed andclaim of the assessee is directed to be allowed.Thus ground no.1 to 5 of the assessee areallowed and solitary ground of the revenue isdismissed. Ground no.6: That charging of interest u/s234B and 234D is illegal unjustified.” 5.5He also emphasized on the statement recorded by thedifferent contractors which are produced by way of an applicationand has taken us to the statement of the different contractors. 6.Counsel for the respondent Mr. Aditya Bohra has contendedthat the view taken by the tribunal is just and proper in view offact that the payment was made by the account payee cheque andTDS was deducted and even books of accounts which are rejectedwithout any basis and the tribunal has rightly allowed the appealof the assessee. 7.Taking into consideration the law prevailing of the subject,we have heard counsel for the parties. Ground no.6: That charging of interest u/s234B and 234D is illegal unjustified.” 5.5He also emphasized on the statement recorded by thedifferent contractors which are produced by way of an applicationand has taken us to the statement of the different contractors. 6.Counsel for the respondent Mr. Aditya Bohra has contendedthat the view taken by the tribunal is just and proper in view offact that the payment was made by the account payee cheque andTDS was deducted and even books of accounts which are rejectedwithout any basis and the tribunal has rightly allowed the appealof the assessee. 7.Taking into consideration the law prevailing of the subject,we have heard counsel for the parties. 7.1Taking into account the fact that the assessee has paid theamount by account payee cheque and TDS as required isdeducted, in that view of the matter, even if the contentions raisedby the counsel for the appellant is assumed to be correct thatthere was no such sub contract, the assessee cannot be penalisedfor the same, therefore, the observations made by the tribunal isjust and proper. The other contention raised by the counsel for theappellant will not apply. 7.2In that view of the matter, the issue is answered in favour of the assessee and against the department. 8.The appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 71-72.