Ita/432/2010 Of Commissioner Of Income Tax Iii v. M/S Hassan Hajee & Co

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26 DAY OF FRBRUARY 2016 PRESENT THE HON’BLE MR.JUSTICE JAYANT PATEL AND THE HON’BLE MRS.JUSTICE S.SUJATHA ITA No.432/2010 BETWEEN 1.|COMMISSIONER OF INCOME TAX-III, | CR. BUILDING. QUEENS ROAD BANGALORE.| oD ASSISTANT COMMISSIONBR. OF INCOME-TAX, CIRCLE-2(1) MANGALORE. APPBLLANTS (BY SRI. E.LSANMATHI, ADVOCATE) AND M/S. HASSAN HAJEE & CO.|NKEAR OLD MUNICIPAL OFBFBIBUNDER, MANGALORE. _ RESPONDENT| (BY SMT.JINITA CHATTERJEE, ADVOCATEFOR SRI.S.PARTHASARATHI, ADVOCATE) THIS APPEAL IS FILED UNDER SECTION 260-AOF INCOME TAX ACT 1961, TO SET ASIDE THE)ORDER DATED 16.07.2010 PASSED BY THE ITAT, °B’)BENCH BANGALORE AS SOUGHT FOR, IN THE)RESPONDENT-ASSESSEB’SCASE,IN|APPEALPROCEEDINGS ITA NOs.67 & 68/BANG/2010, IN THEINTEREST OF JUSTICE AND EOUITY.— THIS APPEAL COMING ON FOR HEARING, THISDAY,JAYANTPATEL,J>DHILIVHBRETH EFOLLOWING: JUDGMENT The present appeal is directed against the Order dated 24.07.2009 passed by the Income Tax AppellateTribunal, Bangalore Bench ‘B’, Bangalore Bench ‘B’,Bangalore, |hereinaiter referred to as ‘Tribunal’, forshort] in ITA Nos.67 & 68/Bang/2010, by raising the following substantial questions of law. “1. Whetherunderthe|factsandcircumstances of the case, the tribunal wasright in law in restricting the addition to1.6% in respect of an expenditure which 1s ofsuch nature as covered by section 37(1) ofthe income tax Act, 1961? aWhetherunderthefactsandcircumstances of the case, the tribunal rightin law in restricting the addition to 1.6% in respect of wages instead of 10.3% and 6.6%adoptedbytheassessingauthorityrespectively for the Assessment Years 2002-O03 and 2003-04, when the onus to prove thegenuineness of expenditure claimed has notbeen discharged by the assessee’? a2We have heard Mr. E.I. Sanmathi, learnedCounsel for the Appellants — Revenue and Ms. JinitaChatterjee,learnedCounsel|appearingfor.theRespondent. 3.We may record that the Tribunal on theaspects of restriction of disallowance to the extent of 1.6% in the impugned order at paragraph-11.1, hasobserved thus:| “In the instant case, we find the restrictionof disallowance to 1.6% of the total wagespaid for asst. year 2002-053 (Rs.4,38,27,054)andforassessment|Year|IOQO03-O(Rs.4,62,71,697) 1s reasonable and correct.The Tribunal for assessment year 2004-05(ITA No.947/08 dated 30.04.2009) hadsustained the disallowance of Rs.15 lakhs,which works to 1.6% of the total wagesamounting to Rs.9,28,18,382/-. The totalwages as a percentage of gross turnoverwas lower in the concerned tivo assessment years as compared to assessment yearYIOO4-O5.Therefore,restrictingthedisallowance to 1.6% of the total wages isonly reasonable under the given facts andcircumstances of the case. Moreover, therevenue has not brought in any material todispel the finding of the learned CIT(A).Hence, we hold that the order of the CIT(A)1s correct and in accordance with law andtherefore, the grounds raised by the revenueare rejected.” 4We would have further considered the' matter. However, learned Counsel for the Appellants-Revenue has brought to our notice that the decision ofthe Tribunal itself in ITA No.947/Bang/2008 dated30.04.2009 was carried before this Court in ITA!No.450/2009 and this Court vide Judgment dated1.6.2015 has set aside the said Order of the Tribunal|and has remanded the matter to the Tribunal tor furtherconsideration in accordance with law. | 5.In view of the above, one of the vital basis forthe decision of the Tribunal in the impugned Order wasits earlier view in ITA No.94/7/Bang/2008 dated 30.04.2009 and when this Court has by the aforesaidJudgment in ITA No.490/2009 has set aside the saidorder of the Tribunal and has remanded the matter, wefind that similar course deserves to be adopted even inthe present matter. 6.We may record that this Court in the abovereferred decision in ITA No.4950/2009, had observedthus: 5.In view of the above, one of the vital basis forthe decision of the Tribunal in the impugned Order wasits earlier view in ITA No.94/7/Bang/2008 dated 30.04.2009 and when this Court has by the aforesaidJudgment in ITA No.490/2009 has set aside the saidorder of the Tribunal and has remanded the matter, wefind that similar course deserves to be adopted even inthe present matter. 6.We may record that this Court in the abovereferred decision in ITA No.4950/2009, had observedthus: “TRISappeal1S|filed by|the|Revenuequestioningthe|orderdated30.4.2009|passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ in ITA No.947/Bang/ 08|(Assessment year 2004-05). The appellants|have prayed for confirmation of the order|dated2D? 4. 29OpassedbytheCommissionerofIncomeTax(Appeals){‘Appellate Commissioner’ for short}. D2 TheaSsSSCS S1S involvedin.Stevedoringoperationsof|vessels.andcarrying on loading and unloading work at|the port; assessee has engaged labour force|from New Mangalore Port Trust (‘NMPTI” forShort), registered cargo Handling Workers|Administrative Wing (RCHWAW); the paymentto the labour so engaged would be made by|cheques to NMPT and in turn NMPT would|disburse the wages to the workers. Case of| the assessee 1s that as the registered labour|force at NMPT did not agree to work beyondthe limit fixed by them, the assessee had|engaged the services of the private workers|and had made payment in cash to the extentof Rs.1,17,59,931/- and through cheques to|Sub-contractorstOthe|extent.of|Rs.2,70,70,745/-; the payments were made.through self made vouchers. According to the|assessee, loading and unloading operations|were carried out by it by making the following|payments: | (a)Rs.2,53,29,660/- through cheque toNMPT Workers’ Union. | (b}Rs.2,70,70,745/- to sub-contractorswho brought the workers privately to the port|for the purpose of unloading the iron ore. The.payments were made through cheque to the.Sub-contractors. (c}Cash of Rs.1,17,59,931/- was paidby the assessee to the gang leaders who had|brought the workers privately as speed|ITLOTLE 3. The Assessing Officer allowed thecontention of the assesee insofar as it relates|to payment through cheque to the NMPT|Union and sub-contractors. However, theAssessing Officer has disallowed the claim ofthe assessee to the extent of 20% in respect ofcash payment to gang leaders as mentioned|supra, which means the Assessing Authority|allowed the claim of the assessee to the|extent of SO%. Questioning the order passed by theAssessingAuthority,theaSsSSCSSCfiledappeal No.ITA/174/ CIT(A)/ MNG/ 2006-before the Appellate Commissioner under|section 246 of the Income Tax Act (‘the Act’|for short). The Appellate Commissioner whileadjudicating the appeal issued show cause|notice under Section 251(2) of the Act forenhancement of tax liability. After hearing|both the parties, the Appellate Commissionerenhanced the tax liability by setting aside the|order passed by the Assessing Officer in|respect of payments made to sub-contractors|through cheque a sum of Rs.2,70,70,745/-. |However Appellate Commissioner affirmedthe order passed by the Assessing Officer|insofar as it relates to speed money paid to|various gang leaders in cash. Theorderof|theAppellateCommissioner 1s _ carried further by_ tassessee before the Income Tax Appellate|Tribunal,|BangaloreBench6A?|in|ITANo.947/Bang/O8 by filing the appeal. TheIncome Tax Appellate Tribunal by its orderdated 30.4.2009 allowed the appeal of the|assessee in part and restricted the additiontothe extent of Rs.15,00,000/- as against|Rs.2,94,00,000/- made by the AppellateCommissioner, 4. Sri Jeevan J. Neeralgi, learnedstanding counsel for the appellants as well assrt S. Parthasarathi, learned advocate for the|assessee have taken us through the entire|material on record, more particularly the| orders passed by the Appellate Commissioner|andIncomeTax|AppellateTribunal,Bangalore. © Theorderof|theAppellateCommissioner 1s _ carried further by_ tassessee before the Income Tax Appellate|Tribunal,|BangaloreBench6A?|in|ITANo.947/Bang/O8 by filing the appeal. TheIncome Tax Appellate Tribunal by its orderdated 30.4.2009 allowed the appeal of the|assessee in part and restricted the additiontothe extent of Rs.15,00,000/- as against|Rs.2,94,00,000/- made by the AppellateCommissioner, 4. Sri Jeevan J. Neeralgi, learnedstanding counsel for the appellants as well assrt S. Parthasarathi, learned advocate for the|assessee have taken us through the entire|material on record, more particularly the| orders passed by the Appellate Commissioner|andIncomeTax|AppellateTribunal,Bangalore. © oO. The Appellate Commissioner has in:his detailed order clarified as to how the|order passed by the Assessing Authority 1sunsustainable to the extent mentioned supra. |To verify the genuineness of the payments|made by the assessee to the sub-contractors|through cheques, summons under Section 131of the Income Tax Act issued to all the sub-contractors mentioned in the assessment|order and their statements recorded on oathby the Assessing Officer also came to be|examined. It came to be noticed by theAppellate Commissioner that all the sub-contractors have stated that they have carried|loading and unloading work at the port for the|assessee by engaging private labour and they|have further confirmed the bill. All these|labour contractors are assessed to tax and|they have filed returns belatedly declaring the|above labour contract proceeds and offered|income to tax under Section 44-AD of the Act. |However the Appellate Commissioner, on.facts has found that the vouchers issued to.the sub-contractors and payments made to|them are highly suspicious in nature. The|details collected from the assessee were|made available to the Financial Advisor and|Chief Accounts Officer, NMPT, Mangalore for|getting reports. The details received fromNMPT, Mangalore when compared with the.detailswhichtheaASSCSSCEhasmade.available before the Appellate Commissioner|fully tallied with each other in terms of date, item and quantity in metric tons. In other|words, the entire cargo was handled by the|assessee with the help of NMPT labour, for|whichaSsSSCS Shaspaid(OSUTTof|Rs.2,53,29,660/- by cheque. Hence, itappears a genuine doubt arose in the mind ofthe Appellate Commissioner as to whether the|actual payments were made to the sub-contractors or not in the matter of engaging|the workers and payment of money to them|as speed money. The letter written by the|assessee to the Appellate Commissioner|discloses that the total cargo handled during|the financial year 2003-04 was 8,000,000tons. On verification of the details obtained|from the NMPT, Mangalore vide letter dated17.10.2007, it was found that the details|furnished by the assessee tallied with thedetails furnished by NMPT and hence the|assessee was asked to explain as to whom |payment of Rs.2,70,70,745/- had been made.and for what service. It is also found by the|appellateCommissionerthatallthe|statements of sub-contractors recorded by theAssessing Officer are of stereo type and same.1& questions were asked by the Assessing|Officer to all the sub-contractors and all of|them have given identical replies. Virtually, it|means that stereo type statements are|repeated by the Assessing Officer while|considering the case on hand in respect of 18|sub-contractors. It is also borne outfrom the.records that the sub-contractors have notmaintained any list of accounts in respect of|labour contract works of the assessee.They have not maintained any_ recordsregarding the labourers engaged, the detatls| like names and addresses of the workers etc.,and the same are not available with the sub-contractors. Even the list of accounts andother details are not available to know the|total number of labourers engaged etc., It 1s|also admitted by the sub-contractors thatthey have not maintained any records to|Show as to how much payments were made.to the labourers. It is further admitted|before the Assessing Officer that they have|not maintained any evidence like vouchers,|receipts in respect of payments made to the|labourers etc., Regarding payment toindividuallabourers,TlLdetailsaremaintained. There is no written agreement|betweenthe|aSsSSCSSCandthe|Sub-contractors. The bills produced by the sub-contractorsbeforetheauthoritiesarecomputer generated bills which are identical|in respect of all the sub-contractors and they|did not have any service tax registration|number, cell phone number etc., Onperusal of their bank account records, it isobserved by the Appellate Commissioner that|when the payment by cheque was made, the|amount was withdrawn by cash on the same|day or on the next day. 6.|In addition to the same, _ thTribunal, on facts has found that the|AppellateCommissionerdidnot.findavailability of any big labour force which can|be engaged by assessee or any other cargo|handling concern for the business. It is|found that NMPT labour is so organized andstrong that they would not allow any privatesub-contractors to carry on the work and receive the huge payments as indicated by|the assessee in this case. Itis also found bythe appellate Commissioner that even the.nature of work and infrastructure available at|NMPT port does not require engagement ofhuge labour force of the nature indicated by assessee. Most of the cargo handling process|LUASmechanizedand|thereforethe|requirement of labour force was minimum. |On these amongst other grounds, as set out in|detailin|his.order,theappellate CommissionerdisallowedtheSUTTof|Rs.2, 70, 70,745/- which was allowed by thAssessing Officer. © 7.TheAppellateTribunalwhiuildeciding the appeal, has casually proceeded|to sustain the order passed by the Assessing|Officer. None of the major points decided by |the Appellate Commissioner are answered by the Tribunal while setting aside the order|passedbythe|AppellateCommissioner.Though the order passed by the Tribunal runs|to number of pages, the crux of the matter is|not adverted to by the Tribunal while arriving|at the conclusion. On careful perusal of the|order passed by the Tribunal, we are of the|opinion that the order of the Tribunal cannot|be sustained inasmuch as the Tribunal has|not applied its mind judiciously to the facts|and circumstances of the case. In view of|the same, interest of Justice requires that |the matter has to be re-dealt by the Income|Tax Appellate Tribunal, Bangalore. By the|said process, no prejudice would be caused toeither of the parties. | Accordingly, following order is passed: (1)The order dated 30[th]April 2009 passedbythe|IncomeTaxAppellateTribunal,Bangalore Bench ‘A’ in ITA No.947/Bang/O8(Assessment year 2004-05) stands set aside.(it)The matter in ITA No.947/Bang/O8 isrestored to the file of the Income Tax|Appellate Tribunal, Bangalore Bench ‘A’ forfresh disposal in accordance with law. This Court hopes that the Income TaxAppellateTribunalwill apply|itsmindjudiciously before arriving at the conclusion. _ In view of the remand order, thesubstantial questions of law raised in this.appeal are kept open. T As the issues involved are the same, we donot find that any different view deserves to be takenthan was taken in ITA No.450/2009. Hence, theimpugnedOrder.passedby theTribunaldated|16.07.2010 in ITA Nos.67/Bang/2010 is set aside withqa further direction that the matter shall stand restoredto the file of the Tribunal. The Tribunal shall examine|the matter and take appropriate decision in accordance with law aiter hearing both the sides as early aspossible. 8.The appeal is allowed to the aforesaid extent. Considering the facts and circumstances, no order as tocosts. AN / Sd/-JUDGE| Sd/-.JUDGE|