Ita/433/2010 Of Commissioner Of Income Tax-Iii v. M/S Hassan Hajee & Co

1 IN THE HIGH COURT OF KARNATAKA, BENGALURU| DATED THIS THE 28[th]DAY OF SEPIEMBER 2016) PRESENT THE HON’BLE MR.JUSTICE JAYANT PATEL AND. THE HON’BLE MR.JUSTICE ARAVIND KUMAR| ITA NO.433/2010 BETWEEN: 1.COMMISSIONER OF [INCOME TAX-IIT, C.R. BUILDING QUEENS ROAD, BANGALORE. |ASSISTANT COMMISSIONER, OF INCOME TAX, CIRCLE-2(1)_ MANGALORE. ... APPELLANT (BY SRI. E.I. SANMATHI, ADVOCATE) AND: M/S HASSAN HAJEE & CO.,.NEAR OLD MUNICIPAL OFFICEBUNDER, MANGALORE. ~ RESPONDENT (BY SRI.P.DINESH, ADVOCATE FOR | SRI. S.PARTHASARATHI, ADVOCATE) | 2 THIS APPEAL IS FILED UNDER SECTION 260A OF L.1.ACT, 1961 PRAYING TO MODIFY THE APPELLATE ORDERDATED 16.07.2010 PASSED BY THE ITAT, “‘B’ BENCH,BANGALORE AS SOUGHT FOR, IN THE RESPONDENT-ASSHKSSEKBBCASE,IN|APPEKBAPROCKBEDINGSITANO.68/BANG/ 2010. THIS APPEAL COMING ON FOR HEARING, THIS DAY,JAYANT PATEL J,DBLIVBRED THR FOLLOWING: JUDGMENT Present appeal is directed against the common.order passed by the Income Tax Appellate Tribunal, “B’|Bench, Bangalore dated 16.07.2010 by raising following|substantial questions of law:| (1)Whether under the tacts andscircumstances of the case, the|Tribunal was right in law in|restricting the addition to 1.6% in|respect of an expenditure which|is of such nature as covered by|section 37(1) of the Income Tax)Act, 19601? (2)Whether under the tacts andscircumstances of the case, the|Tribunalrightinlawinrestricting the addition to 1.6% in| O| respect of wages instead of 10.3%and6.0%adoptedbytheassessing authority respectively|for the assessment years 2002-03and 2003-04, when the onus to|PIOVEthegenuinenessotexpenditure claimed has not beendischarged by the assessee”? 2 |We have heard Mr. E.I.Sanmathi, learned|counsel appearing for appellant and Mr.P.Dinesh,|learned counsel appearing for respondent — assessee. 3.)Learned counsel appearing for appellant hasbrought to our notice that very common order of the|Tribunal is already considered by this Court in respect|of the same assessee for the assessment year 2002-03|in ITA No.432/2010 and this Court by order darted|26.02.2016 has set aside the order of the Tribunal and|the matter is remanded to the Tribunal. He further|submits that similar order may be passed in this| 4. appeal. Learned counsel appearing for respondent is | not in a position to dispute the aforesaid aspects. 4We may record that this Court in the above. referred order has observed thus: “6.We may record that this Court inthe above referred decision in ITANo.450/2009 had observed thus:| “This appeal is filed by _ thRevenue questioning the order dated30.4.2009 passed by the Income TaxAppellate Tribunal, Bangalore Bench ‘A’ |in ITA No.947/Bang/O8 (Assessmentyear 2004-05). The appellants haveprayed for confirmation of the orderdated29 4. YXOOpassedbythe.Commissioner of Income Tax (Appeals){‘Appellate Commissioner’ for short}. | 2 The assessee is involved inStevedoring operations of vessels and)carrying on loading and unloading workat the port; assessee has engagedlabour force from New Mangalore PortTrust (“NMPT” for short), registered cargo Handling Workers Administrative Wing(RCHWAW); the payment to the labourso engaged would be made by chequesto NMPT and in turn NMPT woulddisburse the wages to the workers. | 5 Case of the assessee is that as the.registered labour force at NMPT did not.agree to work beyond the limit fixed bythem, the assessee had engaged the.services of the private workers and hadmade payment in cash to the extent ofRs.1,17,59,931/- and through chequesto sub-contractors to the extent ofRs.2,70,70,745/-; the payments weremade through self made_ vouchers.|According to the assessee, loading andunloading 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 theiron ore. The payments were made.through cheque to the sub-contractors. 5 Case of the assessee is that as the.registered labour force at NMPT did not.agree to work beyond the limit fixed bythem, the assessee had engaged the.services of the private workers and hadmade payment in cash to the extent ofRs.1,17,59,931/- and through chequesto sub-contractors to the extent ofRs.2,70,70,745/-; the payments weremade through self made_ vouchers.|According to the assessee, loading andunloading 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 theiron ore. The payments were made.through cheque to the sub-contractors. (c)Cash of Rs.1,17,59,931/- was paid|by the assessee to the gang leaderswho had brought the workers privately|as speed money. 3. The Assessing Officer allowedthe contention of the assesee insofar as|it relates to payment through cheque to)the NMPT Union and sub-contractors.However, the Assessing Officer hasdisallowed the claim of the assessee to)the extent of 20% in respect of cash) payment to gang leaders as mentionedSupra, which means the AssessingAuthority allowed the claim of theassessee to the extent of 80%. Questioning the order passed bythe Assessing Authority, the assessee.filedappealNo.ITA/ 174/CIT(A)/ MNG/ 2006-0beforetheAppellate Commissioner under Section246 of the Income Tax Act (‘the Act’ forShort). The Appellate Commissioner|while adjudicating the appeal issuedShow cause notice under Section 251(2)of the Act for enhancement of taxliability. After hearing both the parties,|the Appellate Commissioner enhanced|the tax liability by setting aside theorder passed by the Assessing Officerin respect of payments made to sub-contractors through cheque a sum ofRs.2,70,70,745/-. However AppellateCommissioneraffirmedthe.orderpassed by the Assessing Officer insofaras it relates to speed money paid to.various gang leaders in cash. Theorder|oftheAppellate|Commissioner is carried further by the.aSsSSCSSCbeforetheIncomeTax|Appellate Tribunal, Bangalore Bench ‘A’in ITA No.947/Bang/O08 by filing theappeal. The Income Tax Appellate|Tribunal by its order dated 30.4.2009)allowed the appeal of the assessee in) part and restricted the addition to theextent of Rs.15,00,000/- as againstRs. 2,94,00,000/-made.by|the.Appellate Commissioner. 4. Sri Jeevan J. Neeralgi, learnedStanding counsel for the appellants aswell as Sri S. Parthasarathi, learnedadvocate for the assessee have taken)us through the entire material on record, more particularly the orders passed by)the Appellate Commissioner and Income|Tax Appellate Tribunal, Bangalore. 5S. The Appellate Commissionerhas in his detailed order clarified as to)how the order passed by the AssessingAuthority is unsustainable to the extentmentionedSUPFG.To|verifythegenuineness of the payments made bythe assessee to the sub-contractorsthroughcheques,SUMMONSundersection 131 of the Income Tax ActissuedTo.alltheSub-contractorsmentioned in the assessment order and|their statements recorded on oath by)the Assessing Officer also came to be.examined. It came to be noticed by theAppellate Commissioner that all thesub-contractors have stated that theyhave carried loading and unloadingwork at the port for the assessee by)engaging private labour and they have.further confirmed the bill. All theselabour contractors are assessed to tax 5S. The Appellate Commissionerhas in his detailed order clarified as to)how the order passed by the AssessingAuthority is unsustainable to the extentmentionedSUPFG.To|verifythegenuineness of the payments made bythe assessee to the sub-contractorsthroughcheques,SUMMONSundersection 131 of the Income Tax ActissuedTo.alltheSub-contractorsmentioned in the assessment order and|their statements recorded on oath by)the Assessing Officer also came to be.examined. It came to be noticed by theAppellate Commissioner that all thesub-contractors have stated that theyhave carried loading and unloadingwork at the port for the assessee by)engaging private labour and they have.further confirmed the bill. All theselabour contractors are assessed to tax and they have filed returns belatedlydeclaring the above labour contractproceeds and offered income to taxunderSection44-A ]oftheAct.However the Appellate Commissioner,on facts has found that the vouchersissuedTO the.Sub-contractorsand.payments made to them are highlySuspicious in nature. The details|collected from the assessee were madeavailable to the Financial Advisor andChief|AccountsOfficer, NMPT,Mangalore for getting reports. Thedetails received from NMPT, Mangalorewhen compared with the details which)the assessee has made available before|the Appellate Commissioner fully tallied|with each other in terms of date, item)and quantity in metric tons. In otherwords, the entire cargo was handled by|the assessee with the help of NMPTlabour, for which assessee has paid a.sum of Rs.2,53,29,660/- by cheque.|Hence, it appears a genuine doubtarose in the mind of the AppellateCommissioner as to whether the actualpayments were made to the sub,contractors or not in the matter ofengaging the workers and payment of,money to them as speed money. The.letter written by the assessee to theAppellate Commissioner discloses thatthe total cargo handled during thefinancial year 2003-04 was 8,00,000tons. On verification of the details, obtained from the NMPT, Mangalorevide letter dated 17.10.2007, it wasfound that the details furnished by theaSsSSCSSCtalliedwiththedetailsfurnished by NMPTI and hence theassessee 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 appellateCommissioner that all the statements of,sub-contractorsrecordedbytheAssessing Officer are of stereo type andsame 18 questions were asked by theAssessingOfficerToall thesub-contractors and all of them have givenidentical replies. Virtually, it means)that|StereotypeStatementsare|repeated by the Assessing Officer while|considering the case on hand in respectof 1&8 sub-contractors. It is also borneout from the records that the sub-contractors have not maintained any listof accounts in respect of labour contractworks of the assessee. They have notmaintained any records regarding the.labourers engaged, the details likenames and addresses of the workers.etc., and the same are not available|with the sub-contractors. Even the listof accounts and other details are notavailable to know the total number of,labourers engaged etc., It is alsoadmitted by the sub-contractors thatthey have not maintained any records,to show as to how much payments were made to the labourers. It is furtheradmitted before the Assessing Officerthat they have not maintained any.evidence like vouchers, receipts in)respect of payments made to _ thlabourers etc., Regarding payment to)individual labourers, no details aremaintained. There.1S TLowrittenagreement between the assessee andthe sub-contractors. The bills produced|bythe.sub-contractorsbeforetheauthorities are computer generated bills|which are identical in respect of all thesub-contractors and they did not haveany service tax registration number, |cell phone number etc., On perusal of|theirbank|account|records,It 1S”observedbytheAppellate|Commissioner that when the paymentby cheque was made, the amount was.withdrawn by cash on the same day oron the next day. made to the labourers. It is furtheradmitted before the Assessing Officerthat they have not maintained any.evidence like vouchers, receipts in)respect of payments made to _ thlabourers etc., Regarding payment to)individual labourers, no details aremaintained. There.1S TLowrittenagreement between the assessee andthe sub-contractors. The bills produced|bythe.sub-contractorsbeforetheauthorities are computer generated bills|which are identical in respect of all thesub-contractors and they did not haveany service tax registration number, |cell phone number etc., On perusal of|theirbank|account|records,It 1S”observedbytheAppellate|Commissioner that when the paymentby cheque was made, the amount was.withdrawn by cash on the same day oron the next day. 6.|In addition to the same, the|Tribunal, on facts has found that the.Appellate Commissioner did not findavailability of any big labour forcewhich can be engaged by assessee orany other cargo handling concern for the|business. It is found that NMPT labouris so organized and strong that theywould not allow any private sub-contractors to carry on the work andreceive the huge payments as indicated|by the assessee in this case. It is also’ found by the appellate Commissionerthat even the nature of work andinfrastructure available at NMPT portdoes not require engagement of huge.labour force of the nature indicated byassessee. Most of the cargo handlingprocess was mechanized and thereforethe requirement of labour force was)minimum. On these amongst othergrounds, as set out in detail in hisorder, theappellateCommissionerdisallowed the sum of Rs.2,70, 70, 745/which was allowed by the Assessing)Officer. 7.|The Appellate Tribunal while|decidingthe.appeal,has|casuallyproceeded to sustain the order passedby the Assessing Officer. None of the.major points decided by the Appellate|Commissioner are answered by the.Tribunal while setting aside the orderpassed by the Appellate Commissioner. |Though|theorder|passedbytheTribunal runs to number of pages, the.crux of the matter is not adverted to bythe Tribunal while arriving at theconclusion. On careful perusal of theorder passed by the Tribunal, we are ofthe opinion that the order of theTribunal cannot be sustained inasmuch|as the Tribunal has not applied its mindjudiciouslyTothefactsand.circumstances of the case. In view of,the same, interest of Justice requires | that the matter has to be re-dealt bythe Income Tax Appellate Tribunal,|Bangalore. By the said process, noprejudice would be caused to either ofthe parties. Accordingly, following order is passed:| (y)The order dated 30[th]_ April 2009passed by the Income Tax AppellateTribunal, Bangalore Bench ‘A’ in ITA)No.947/ Bang/ 0(Assessmentyear2004-05) stands set aside. (it)ThematterinITA|No.947/ Bang/O8 is restored to the fileof the Income Tax Appellate Tribunal,Bangalore Bench ‘A’ for fresh disposalin accordance with law. | This Court hopes that the IncomeTax Appellate Tribunal will apply its)mind judiciously before arriving at theconclusion. In view of the remand order, thesubstantial questions of law raised inthis appeal are kept open. similar direction is to be issued in the present case. | 5.Hence, impugned order of the Tribunal is set aside. The matter shall stand restored to the file of the| 10| Tribunal. The Tribunal shall examine the matter and|take appropriate decision in accordance with law after|hearing both the sides as early as possible. Appeal is allowed to the aforesaid extent. No order as To costs. SD/-| JUDGE. SD/- JUDGE