The Commissioner Of Income Tax-Ii, Chandigarh v. Narender Kumar Gupta

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITAa208;2013 Pronounced on: 8!"January, 2015..- Appellant The Commissioner of Income Tax-II, Chandigarh VERSUS Narender Kumar Gupta .. Respondent CORAMHON4BLE MR. JUSTICE RAJTVE BHALLAHON4BLE MR. JUSTICE B.S. WALIA PresentMs.Urvashi Dhugga, Advocate, for the appellant. Mr.Ravi Shankar, Advocate, andMr.B.M.Monga, Advocate, for the respondent. KK OK K RAJIVE BHALLA, J. (ORAL) The revenue is before us impugning correctness of orderdated 23.01.2013, passed by the Income Tax Appellate Tribunal(hereinafter referred to as the ‘Iribunal'), Chandigarh Bench ‘'B’Chandigarh, by seeking answer to the following substantial questionsof law: - “1.Whether the order of the ITAT is perverse, in the factsand circumstances of the case, in not deciding the issue ofbogus purchases amounting to Rs.23,37,352/- (Le,Rs.18,12,777/- plus Rs.5,24,575/-) on merits in a case of theassessee claiming audited books of accounts and in directingthe assessing officer to work out the income of the assessee byapplying net profit rates of 6% compared to 5.48% declared bythe assessee itself without controverting the categoricalfindings of the AO supported with concrete evidence brought On record |Whether on the facts and circumstances of the case, theHon'ble ITAT erred in law in deleting the additions made onaccount of unsubstantiated expenses amounting toRs.15,87,181/- as the assessee was not able to justify thepayments made for alleged purchases as clearly brought out bythe AQ in his order? onWhether on the facts and circumstances of the case, theHon'ble ITAT erred in law in first directing the assessingofficer to determine the Net Profit of the assessee at 6%compared to 5.48% declared by the assessee itself and thendeleting the addition made on account of disallowance madeu/s 40(a)(ia) amounting to Rs.3,59,424/- on this issue on meritinspite of the tact that the AO had given ample evidence insupport of its finding> 4 Whether on the facts and circumstances of the case, theHon'ble ITAT erred in law in first directing the assessingofficer to determine the Net Profit of the assessee at 6%compared to 5.48% declared by the assessee itself and thendeleting the disallowance of Rs.1,98,900/- out of machineryrepair & maintenance rather than deciding the grounds ofappeal on this issue on merit after taking into account theevidence and findings of the AO?” The assessee is a contractor engaged in construction ofroads. The assessee filed his return of income for assessment year2009-10 declaring an income of Rs.44,89,030/- which includedincome from salary amounting to Rs.2,64,115/- and profits and gainsfrom business and profession amounting to Rs.42,34,916/-respectively. The assessing officer made an addition ofRs.3,59,424/- under Section 40(a)(ia) read with Section 194C of the Income Tax Act, 1961 (hereinaiter referred to as the 'Act’) for failureto deduct tax on freight and cartage payments made to one M/sV.R.Enterprises. The assessing officer made an addition ofRs.6,88,326/- on account of payments exceeding Rs.20,000/- made incash to Sh.Desraj, M/s Sangam Stone Dust Supplier, M/s DahiaStone Crusher, M/s V.K.Contractors and M/s Shamsher Singh GridSupplier. An addition of Rs.15,87,181/- was made by holding thatthese purchases were bogus by referring to variation in the name ofthe party on the voucher and on the corresponding bill etc. Theassessing officer added Rs.18,12,777/- on account of purchases tromM/s V.K.Contractor, Sh.Shamsher Singh Grid Supplier, M/s SangamStone Dust Supplier and M/s Dahia Stone Crusher by holding thatthese are bogus transactions. A sum of Rs.3,97,3800/- claimed onaccount of repairs and running of machinery was disallowed to theextent of 50% and Rs.1,98,900/- was added. An addition of Rs.5|lacs was made under Section 69C of the Act by deleting all theadditions and directing the assessing officer to assess income at a netprotit rate of 6%. Aggrieved by this order, the assessee filed an appeal. TheCIT(A), vide order dated 12.09.2012, deleted the addition of Rs.5lacs under Section 69C. of the Act but affirmed the other additionand dismissed the appeal. The appeal filed by the assessee before theTribunal was allowed. Counsel for the revenue submits that the Tribunal had nojurisdiction to direct the assessing officer to assess income at 6% andthereafter delete all additions made by the assessing officer withoutconsidering the issue of bogus purchases amounting toRs.23,37,352/- unsubstantiated expenses of Rs.15,87,181/-Rs.3,59,424/- added under Section 4O(a)(ia) of the Act andRs.1,98,900/- disallowed on account of machinery repair andmaintenance. It is further submitted that as the assessing officer as|well as the Commissioner of Income Tax (Appeals), Chandigarh(hereinaiter referred to as the 'CIT(A)' have recorded findings of factthat purchases were made from bogus firms and these facts wereverified by the inspector, the onus to prove otherwise lay upon theassessee. A peruSal of the record reveals that the assessee wasunable to adduce any evidence much less prove the existence of thefirms from whom he had allegedly purchased material. The Tribunalhas rejected the addition made on account of bogus purchaseswithout assigning any reason and while referring to the amount ofRs.5,24,575/-, which it deleted, abruptly directed the assessing!officer to compute the income of the assessee at a net profit rate of6%. The Tribunal ignored the absence of any explanation relating tothe bogus purchases, non-deduction of tax on freight and cartagepayments, the fact that payment exceeding Rs.20,000/- had beenmade to one party on a single day, rendering its order illegal and VOI. Counsel for the assessee submits that the impugned orderis legal and valid. The assessing officer having doubted the accountsof the assessee, in essence, rejected the accounts and, therefore, hadno jurisdiction to make further additions. The Tribunal has merelyrectified this error and directed the assessing officer to assess incomeof the assessee at a net profit rate of 6% and deleted all otheradditions by relying upon a judgment of this Court in.Commissioner of [Income Tax Vs. Smt.Santosh Jai?(2008) 296ITR 324 P&H*. Counsel for the assessee also relies upon thejudgment of this Court in “The Commissioner of Income Tax,Patiala Vs. Shri Ajay Kumar Singla?recorded in ITA1812014,decided on 07.10.2014 We have heard counsel for the parties and perused theimpugned order. A perusal of the order passed by the Tribunal reveals thatit has directed the assessing officer to assess income at a net profitrate of 6% and thereafter deleted all additions. The Tribunal, whileconsidering the question of disallowance under Section 40A(3) of theAct held in paragraph 7 of its order, that payments made by theassessee to different persons on different dates were less thanRs.20,000/- and the CIT(A) had accepted this fact but still proceededto confirm the assessment by adding Rs.18,12,777/- which included Rs.5,24,574/-. Aiter holding as above, the Tribunal proceeded todeal with the matter regarding the bogus bills and held that theassessing officer did not make any inquiries as to the status of theassessee aS at best he made general inquiries regarding the non-registration of the supplier with the Sales Tax Authorities and thePollution Control Board and thereafter abruptly and withoutassigning any tangible reason, directed the assessing officer to applya net profit rate of 6% to workout the income of the assessee anddeleted all additions. Rs.5,24,574/-. Aiter holding as above, the Tribunal proceeded todeal with the matter regarding the bogus bills and held that theassessing officer did not make any inquiries as to the status of theassessee aS at best he made general inquiries regarding the non-registration of the supplier with the Sales Tax Authorities and thePollution Control Board and thereafter abruptly and withoutassigning any tangible reason, directed the assessing officer to applya net profit rate of 6% to workout the income of the assessee anddeleted all additions. We are of the considered opinion that the impugned ordersuffers from a fundamental flaw. The Tribunal ignored the evidencerelied by the assessing officer particularly the reference to variationin the name of the party on the voucher and the corresponding bill,variation in description of purchases on the voucher and thecorresponding bill, variation in rates of the same item of purchaseetc. The assessing officer also referred to failure of the assessee toprove the existence of these parties and while doing so did notmerely rely upon absence of a sales tax registration number/ orabsence of registration with the Pollution Control Board (as held bythe Tribunal) but also sought a report from an inspector who foundthat these parties did not exist at the addresses mentioned in the bills.A relevant extract from the order passed by the assessing officer,referring to the report received from the inspector, reads as follows: - “C)On the spot verification was also conducted by theInspector and it was found that no such parties existed at theaddresses mentioned on the bills. The report of the inspector isplaced on record and an extract from the same is producedbelow: - “As directed, today i.e. 09-12-2011 I went toChandigarh Crusher Zone Chandimandir Road, Distt.Panchkula to collect the information u/s 133(6) of theI-Tax Act, 1961 from M/s Dahiya Stone Crusher, M/sV.K. Contractor & Supplier, Samsher Singh GritSupplier and M/s Sangam Stone Dust Supplier. Icould not find the above parties on the mentionedaddresses. Then I contacted Mr. Tarsem, who 1sworking in M/s R.K. Trading Co. since 2005. He toldme that he had not heard any of the above mentionednames Of these firms. Then I contacted Mr. Jai RamOf M/s Rekhi Stone Crusher, Burj Kotian,Chandimandir, he told me that he is working asforeman for the last 6 or 7 years and he had also notheard any of these firms. I also contacted Mr.VinodKumar who is working as Munshifor the last 10 yrs inM/s Hargobind Stone Crusher, Burj Kotian,Chandimanatir, Distt. Panchkula (Haryana), Mr.Rajuwho is working as Chowkidar in M/s Janta WoshingPlant and Mr.Suresh, who is working for the last &years in Bhiwani Stone Crusher, Chandimandir. Whoalso told me that these firms are not in existence hereas they have never heard these names. At the last Iwent to Sangam Stone Crusher, where I met Mr.Ashish Kumar who is working as a helper (Mobile No. ), he gave me the telephone no. of Mr.Deepak, owner of M/s Sangam Stone Crusher, whotold me that no such firm was in existence in thearea.” A perusal of the report reveals that the inspector could not find these firms/entities. Upon receipt of the report and asrecorded in the order passed by the assessing officer, the assesseewas aftorded an opportunity to produce the concerned persons so asto prove the genuineness of the bills. The assessee filed replies|which were primarily rejected on the ground that the assessee could not prove the existence of these parties. A relevant extract from the assessment order reads as follows: - A perusal of the report reveals that the inspector could not find these firms/entities. Upon receipt of the report and asrecorded in the order passed by the assessing officer, the assesseewas aftorded an opportunity to produce the concerned persons so asto prove the genuineness of the bills. The assessee filed replies|which were primarily rejected on the ground that the assessee could not prove the existence of these parties. A relevant extract from the assessment order reads as follows: - “The reply submitted by the assessee has beenconsidered and is not acceptable. The assessee not only failedto produce the said persons but was also not able to provide thePAN No /Sales Tax No. or Pollution Clearance certificate ofthese parties from which he has claimed to have madesubstantial purchase which have been made in cash. Further,the suppliers mentioned have addresses which are clearlymentioned on their respective bills. Spot verification carriedout has clearly shown that no such parties existed at thoseaddresses even in the year under consideration. Thus thecontention of the assessee that they were present on-site is notalso acceptable. It is also worth mentioning that notices u/s 133(6) of theIncome Tax Act, 1961 for furnishing of information were alsosent to the above mentioned concerns requiring them toprovide a copy of the ledger of M/s Harsoria Construction Co.These letters returned to the office undelivered.” The Tribunal, however, has not dealt with this aspect norhas it chosen to record any opinion on the failure of the assessee toproduce these parties or to prove their existence or to rebut the reportprepared by the inspector but abruptly directed the assessing officerto apply a net profit rate of 6%, without assigning any ostensiblereason. he Tribunal having ignored relevant facts, in ourconsidered opinion, has committed an error of jurisdiction. Wewould like to clarify that we are not recording any opinion as to thelegality or otherwise of the bills, the vouchers and the expenses etc,particularly as the assessee who is a contractor must have purchasedsome material but as the Tribunal has directed assessment at a netprofit rate without examining the material on record, referred to in detail by the assessing officer particularly the paragraphs extractedhereinbefore, the questions of law have to be answered in favour ofthe revenue by holding that the Tribunal has erred in applying a netprofit rate without considering the material collected by the assessingofficer and by ignoring relevant facts and factors referred to by theassessing officer, thereby leading to miscarriage of justice and anerror ofjurisdiction that must necessarily be rectified by the Tribunalitself. Consequently, we allow the appeal, set aside order dated23.01.2013, passed by the Tribunal insofar as it relates to thequestions of law raised before us and restore the appeal to theTribunal for adjudication afresh and in accordance with law. Parties are directed to appear before the Income TaxAppellate Tribunal, Chandigarh Bench 'B’, Chandigarh, on03.03.2015, | RAJIVE BHALLA |JUDGE r[th]January, 2015 |1 B.S. WALIA |Shamsher S.SabharwalJUDGE JUDGE