Ita/216/2014 Of Commissioner Of Income Tax Faridabad v. M/S Ram Gopal And Sons

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 216 of 2014 (O&M)Date of decision: 16.9.2015 The Commissioner of Income Tax, Faridabad .....- Appe M/s Ram Gopal & Sons ....mesponden CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’ BLE MR. JUSTICE RAMENDRA JAIN 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not?3. Whether the judgment should be reported 1n the Digest? Present: Mr. Teyinder K.Joshi, Advocate for the appellant. Mr. Jagmohan Bansal, Advocate for the assessee.Ajay Kumar Mittal,J, inDelay in refiling the appeal 1s condoned.2The revenue has preferred this appeal under Section 260A ofthe Income Tax Act, 1961 (in short, “the Act’) against the order dated8.6.2012, Annexure A.III passed by the Income Tax Appellate TribunalDelhi Bench 'F’, New Delhi (in short, “the Tribunal’) in ITANo.20/DEL/2009 for the assessment year 2005-06, claiming followingsubstantial question of law:- 1) Whether on the facts and 1n the circumstances of the case, theHon'ble ITAT was right in law in deleting the addition of|=13,04,528/- made by the Assessing Officer on account of labour charges simply relying on the decision in assessee's own case 1nthe assessment year 2001-02, without appreciating the factsbrought on record by the Assessing Officer? 11) Whether on the facts and in the circumstances of the case, theHon'ble ITAT was right in law in deleting the addition of|L20,97,572/- made on account of shortage in production evenwhen the assessee has not been able to justify the shortage infinished product? 111) Whether on the facts and in the circumstances of the case,the Hon'ble [TAT was right in law in deleting the addition of|=8,29,481/- made by the Assessing Officer on account ofdisallowance under section 40(a)(1a) of the Income Tax Act,1961 ignoring the legal position that the tax was required to bededucted on the payment of =a8,59,481/- under section 194Cand the assessee's non deduction of tax on the basis of KForNo.15-I was against the provision of law?” 3.|A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. Assessment was framedby the Assessing Officer at an income ofLy6,15,69,300/- under Section 143(3) of the Act vide order dated 26.12.2007, Annexure A.! whereby inter aliathe following additions were made:- 1) Addition ofL13,04,528/- on account of labour charges; 11)Addition of Lv20,97,572/- on account of shortage inproduction; 111)Disallowance ofL8,29,481/- under section 40(a)(1a); The assessee had claimed labour charges ofLT3,71,208/- andLT27,69,108/-on account of packing labour charges under the head consumption of goods.The Assessing Officer mentioned instances of two manufacturers ofmehandiin Faridabad viz. M/s Kurrya Mal & Sons, Faridabad and M/s Ishar ITA No.216 of 2014. 3.|A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. Assessment was framedby the Assessing Officer at an income ofLy6,15,69,300/- under Section 143(3) of the Act vide order dated 26.12.2007, Annexure A.! whereby inter aliathe following additions were made:- 1) Addition ofL13,04,528/- on account of labour charges; 11)Addition of Lv20,97,572/- on account of shortage inproduction; 111)Disallowance ofL8,29,481/- under section 40(a)(1a); The assessee had claimed labour charges ofLT3,71,208/- andLT27,69,108/-on account of packing labour charges under the head consumption of goods.The Assessing Officer mentioned instances of two manufacturers ofmehandiin Faridabad viz. M/s Kurrya Mal & Sons, Faridabad and M/s Ishar ITA No.216 of 2014. Dass Amir Chand, Faridabad claiming labour charges at 1.13% and 1.52%respectively. The Assessing Officer was of the opinion that the assessee hadinflated the labour charges just to reduce its taxable income. The AssessingOfficer thus allowed labour charges to the assessee on the basis of the sameas claimed by the other two leading manufacturers ofmehandiby adoptingthe figure of 1.52% 1.e. the higher of the two figures, as allowable expenses,Thus, the Assessing Officer disallowed a sum ofa13,04,528/- by taking thefigure of 1.52% of the gross turnover of the assessee out of the totalexpenditure ofTL31,40,316/- claimed by it under these heads. On appeal, theCIT(A) relying upon the decision of the Tribunal in assessee's own case forthe assessment year 2001-02 deciding similar issue 1n favour of the assesseedeleted the disallowance of.v13,04,528/-. The revenue went in appealbefore the Tribunal. The Tribunal following its own decision in theassessee's case for the earlier year, dismissed the appeal filed by the revenueand deleted the addition made by the Assessing Officer. The second issuewas with regard to addition of=a20,97,572/- under the head shortage inproduction. The Assessee had claimed shortage 1n production at 80,995 kgs.which corresponded to 7.19% of the production. In view of claim ofabnormal high losses by the assessee, the Assessing Officer did not relyupon the book version of the assessee and rejected the same in view ofprovisions of section 145(3) of the Act and applied loss at the rate of 3.7%,Thus, the Assessing Officer disallowed a sum ofLy20,97,572/- as againstthe loss claimed at 7.19%. Not satisfied, the assessee went in appeal beforethe CIT(A). Vide order dated 4.11.2008, Annexure A.II, the CIT(A) deletedthe addition. The Tribunal relying upon its own decision in the case of the ITA No.216 of 2014. assessee for the assessment year 1995-96 upheld the order of the CIT(A).The third issue was with regard to addition of“a8,59,48 1/- under section 4(a)(ia) of the Act. The assessee had debited a sum of|a9,41 ,982/- under thhead ‘freight inwards’. Out of these expenses, the assessee had madepayment in excess ofa50,000/- totalling=a8,59,48 1/- to three transportersThe Assessing Officer was of the opinion that the assessee was liable todeduct tax at source under section 194C of the Act. The assessee submittedthat no TDS was made on payments to these transporters because they hadgiven Form No.15-I. The Assessing Officer observed that the said Formwas meant for sub contractor to the contractor and not by the contractor tothe contractee as was the case here. Thus, the assessee had violated theprovisions of section 194C of the Act and made disallowance in view of theprovisions of Section 40(a)(1a) of the Act. The CIT(A) deleted the additionotv8,29,481/- inter alia holding that the assessee was not required todeduct tax at source in view of Circular No./15 dated 8.8.1995. TheTribunal dismissed the appeal filed by the revenue. Hence the instant appealby the revenue. 4Learned counsel for the parties are agreed that question No.(1)is covered by the decision of this Court dated 29.7.2015 in ITA No. 215 of2014(Commissioner of Income Tax, Faridabad vs. M/s Ram Gopal &Sons),in favour of the assessee and against the revenue,wherein it wasrecorded as under:- ~The first question also does not arise as a substantial questionof law. The assessee claimed deduction in respect of labourcharges paid to about 50 labourers. The Assessing Officerreduced this amount having come to the conclusion that only a few labourers were traceable at the given addresses and someof the addresses were not even confirmed. The Tribunal kept 1nmind the ground realities in such cases. There were comparablresults in expenses of labour charges in earlier years. Thedeductions were allowed to the assessee. The quantum ofexpenditure can be compared to the production done by thelabour. The labour was engaged on piece rate bases. It wasfound that there was a co-relation between the production aswell as the number of labour engaged. The issue really is aquestion of fact and appreciation of facts. We are unable to saythat this analysis and the findings of the CIT(A) and of theTribunal are perverse or absurd.” 5 As regards, question No.(ii), learned counsel for the parties aread-idem that the same 1s also concluded in favour of the assessee andagainst the revenue by orders of this Court dated 29.7.2015 passed in ITANos.214 and 215 of 2014 (Commissioner ofIncome Tax, Faridabad vs.M/s Ram Gopal & Sons). In ITA No.214 of 2014, it was recorded asunder:- “5. The second question raised by the appellant does not raise aquestion of law at all. It 1s only a question of fact. TheAssessing Officer made an addition to the assessee's incomehaving rejected the assessee's case that there was a shortage inproduction. The CIT(A) found, as a matter of fact, that theassessee had been maintaining the complete details/particularsof opening stock, purchase, consumption, production and sales,which were in fact verified and accepted by the AssessingOfficer. The finding is that the addition was made purely onimagination and assumptions without bringing anydocumentary material on record. The finding is neither absurdNOT Perverse. 6. The second question is also answered against the appellantand in favour of the assessee.” ITA No.216 of 2014. 6With regard to question No.(iii), qua addition of<a859,48 1/-made by the Assessing Officer on account of disallowance under Section 40(a)(ia) of the Act on the ground that the tax was required to be deductedunder Section 194C of the Act, the CIT(A) recorded that the assessee hadino contract for transport with any transporter. Each GR note became aseparate contract and since the value of such contract did not exceed |=20,000/-, the assessee was not required to deduct tax at source from the saidpayments. Reliance was placed on Board Circular No.715 dated 8.8.1995. Itwas further recorded as under:- “The assessee has made payments to the three transportersmentioned in the assessment order for each order of transportexecuted by them. The assessee has no contract for transportwith any transporter. Thus each GR Note becomes a separatecontract and since the value of such contract does not exceed Ly20,000/- the assessee was not required to deduct tax atsource from the said payments. This is also borne out by theBoard Circular No.715 dated 8.8.1995 wherein the followingwas stated: Question 9: In the case of payments to transporters, can eachGR be said to be a separate contract even though payments forseveral GRS are made under one bill? Answer: Normally, each GR can be said to be a Separatecontract, if the goods are transported at one time. But if thegoods are transported continuously in pursuance of a contractfor a specific period or quantity, each GR will not be aSeparate contract and all GRs relating to that period orquantity will be aggregated for the purpose of the TDS. Ly20,000/- the assessee was not required to deduct tax atsource from the said payments. This is also borne out by theBoard Circular No.715 dated 8.8.1995 wherein the followingwas stated: Question 9: In the case of payments to transporters, can eachGR be said to be a separate contract even though payments forseveral GRS are made under one bill? Answer: Normally, each GR can be said to be a Separatecontract, if the goods are transported at one time. But if thegoods are transported continuously in pursuance of a contractfor a specific period or quantity, each GR will not be aSeparate contract and all GRs relating to that period orquantity will be aggregated for the purpose of the TDS. It is not the case of the Assessing Officer that each GR isahove|=a20,000/- and thus the assessee was required to deducttax at source. This is a legal ground which can be taken up atany point of time in the appropriate proceedings, 3.2 The Assessing Officer has not brought on record any document to show that the assessee had a contract with anytransporter and thus just because the payments exceeded=50,000/- there was no implicit reason to hold that thepayments were made in pursuance to a contract. You arerequested to delete the disallowance. 13. I have carefully considered the submissions of the learnedAR and tend to agree with them. The facts of the case areclearly established by the learned AR as above andconsidering those facts and Board's Circular No.715 dated8.8.1995, the claim of the appellant is quite justified andcorrect. Thus the disallowance made by the AO is prematureand without any solid finding or evidences. Rather the factsgO in favour of the appellant. Hence the disallowance of=8,59,481/- stands deleted.” va The Tribunal while upholding the findings recorded by the CIT (A) held as under:- “The AO made this disallowance as no TDS was made as perprovisions of section 194C from the payments which were inexcess ofaa50,000/- in respect of the following threetransporters:- 1) Shri Babu Lal s/o TikamjTL6,27,858/- 11) Shri Narpat Raj s/o Shri Bhagar LalLT98 ,256/ 111)Shri Ram Lal s/o Shri Teekam RamsTL1,33,367/- LT8,59, 481/ The AO examined From No.15-I of these transportersand concluded that tax was required to be deducted on theSaid payments ofL8,59,481/- under section 194C which theassessee had failed to do. Hence he made the abovedisallowance. 16. Before the learned CIT(A) it was submitted that theassessee has made payments to the three transportersmentioned in the assessment order for each order of transportexecuted by them. The assessee has no contract for transportwith any transporter. Thus each GR Note becomes a separate contract and since the value of such contract does not exceedVC20,000/- the assessee was not required to deduct tax atsource from the said payments. It was further submitted thatthis is also borne out by the Board Circular No.715 dated8.8.1995 wherein the following was stated:- Question 9: In the case of payments to transporters, caneach GR be said to be separate contract, even thoughpayments for several GRs are made under one bill? Answer: Normally, each GR can be said to be a Separatecontract, if the goods are transported at one time. But if thegoods are transported continuously in pursuance of a contractfor a specific period or quantity, each GR will not be aseparate contract and all GkKs relating to that period oquantity will be aggregated for the purpose of the TDS.It is not the case of the AQ that each GR is above v20,000/-and thus the assessee was not required to deduct tax atsource. This is a legal ground which can be taken up at anypoint in time in the appellate proceedings. It was further submitted that the AO has not brought onrecord any document to show that the assessee had contractwith any transporter and thus just because the paymentsexceeded“a50,000/- there was no implicit reason to hold thatthe payments were made in pursuance to a contract, It was further submitted that the AO has not brought onrecord any document to show that the assessee had contractwith any transporter and thus just because the paymentsexceeded“a50,000/- there was no implicit reason to hold thatthe payments were made in pursuance to a contract, 17. Considering the above, the learned CIT(A) held that theclaim of the assessee was justified and correct in light of theaforesaid Board Circular No./715 dated 88.1995. Hence heheld that the disallowance made by the AO is premature andwithout any solid finding or evidence. Hence thedisallowance ofzy8,599,481/- stands deleted. 18. Against the above order, the Revenue is in appeal beforeUS. 19. We have heard the rival contentions in the light of thematerial produced and precedents relied upon. We findconsiderable cogency in the submissions of the assessee.Furthermore,the Board Circular No.715 as aforesaid comes to the rescue of the assessee. Under the circumstances, we donot find any infirmity in the order of the learned CIT(A) andaccordingly we uphold the same.” 8 Learned counsel for the appellant-revenue was not able todemonstrate that the approach and the findings recorded by the CIT(A) aswell as the Tribunal with regard to question No.(iii) are illegal or perverse inany manner warranting interference by this Court. Consequently, in view ofthe above, the appeal stands dismissed. (Ajay Kumar Mittal)Judge September 16, 2015 (Ramendra Jain)Judge