The Principal Commissioner Of Income Tax-3, Ludhiana v. R.b. Knit Export, Ludhiana

ITA-238-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-238-2018 (O&M) Date of Decision: 25.3.2019 The Principal Commissioner of Income Tax-3, Ludhiana Versus ....Appellant. R.B. Knit Export, Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Rajesh Katoch, Sr. Standing Counsel for the appellant.*** AJAY KUMAR MITTAL, J. 1.This order shall dispose of bunch of six appeals bearing ITANos.238, 239, 244, 245, 246 and 299 of 2018 as according to learnedcounsel for the revenue, identical issues are involved therein. For brevity,the facts are being extracted from ITA-238-2018. 2.ITA-238-2018 has been preferred by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 3.11.2017 (Annexure-3) passed by the Income Tax AppellateTribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as “theTribunal”) in ITA No. 267/CHD/2017, for the assessment year 2012-13,claiming the following substantial questions of law:- (i)Whether on the facts and in the circumstances ofthe case, the learned ITAT was correct in law in -2- upholding the erroneous order of CIT(A) on theissue of cash payments to the job workers resultingin deletion of disallowance of ` 3,52,14,833/-without taking into consideration the results ofinquiries by the Assessing Officer, the surroundingcircumstances, preponderance of probabilities andground realities? ii)Whether on the facts and in the circumstances ofthe case, the ITAT was justified in law inupholding the erroneous order of CIT(A) on theissue of cash payments to the job workers byfollowing its own decision in the assessee's casewithout appreciating the material gathered inrespect of A.Y. 2012-13 during the course ofsurvey u/s 133A of the Act carried out at thebusiness premises of the assessee on06/07.01.2014 and the results of the inquiriescarried out by the Assessing Officer based on thismaterial? 3.Briefly stated, the facts necessary for adjudication of the instantappeal as narrated therein may be noticed. The assessee filed its return ofincome on 28.9.2012 declaring the income at ` 34,70,914/-. The case wasselected for scrutiny and notice under Section 143(2) of the Act was issuedto the assessee. The Assessing Officer vide order dated 31.3.2015(Annexure-1) completed the assessment at ` 4,37,21,600/- against theGURBACHAN SINGHreturned income of ` 34,70,914/- under Section 143(3) of the Act by making2019.04.30 12:32I attest to the accuracy andintegrity of this document ITA-238-2018 the following additions:- 4.Feeling aggrieved by the order, Annexure-1, the assessee filedan appeal before the Commissioner of Income Tax (Appeals) [in short “theCIT(A)”]. The CIT(A) vide order dated 23.11.2016 (Annexure-2) whilepartly allowing the appeal, deleted the addition made on account ofdisallowance under Section 14A read with Rule 8D of the Income TaxRules, 1962 whereas reduced the disallowance of fabrication charges paid incash to ` 15,00,000/- and affirmed the addition made on account ofdisallowance of 1/5[th] of telephone and car expenses etc. Against the order,Annexure-2, the revenue as well as the assessee filed appeals before theTribunal. The Tribunal vide order dated 3.11.2017 (Annexure-3) dismissedthe appeal of the revenue and partly allowed the appeal of the assessee.Hence, the present appeals by the revenue. 5.We have heard learned counsel for the revenue. 5.We have heard learned counsel for the revenue. 6.During the course of assessment proceedings, the assessee wasasked to file details of fabrication charges party-wise specifying the natureof work, TDS made and deposited in Government account along withcomplete addresses of the parties. The Assessing Officer observed that outof total list of 1977 persons provided to whom fabrication charges haveGURBACHAN SINGH2019.04.30 12:32been paid only 46 parties were such to whom payments had been made afterI attest to the accuracy andintegrity of this document ITA-238-2018 -4- deducting TDS and out of remaining 1931 persons, payments had beenmade in cash below ` 50,000/- without deducting TDS. On the directions ofthe Assessing Officer, the Inspector submitted report stating that despitemaking of all efforts, none of the addresses submitted by the assessee couldbe located. Thereafter, the assessee was provided opportunity to substantiatethe fabrication charges. The assessee produced 66 job workers but failed tosubstantiate the payment of job charges even in a single case. Accordingly,the Assessing Officer disallowed ` 3,67,14,833/- on account of fabricationcharges holding that the genuineness of the expenditure could not beproved. On appeal, the CIT(A) restricted the said addition to ` 15 lakhs byholding that the Assessing Officer had failed to apply the logic behind therejection of an entire disallowance of 50% cash paid fabrication charges andhad not given any logic as to how the assessee carried out his regular workto meet out such huge turnover demand. Further, the Assessing Officer hadnot rejected the books of account before making such huge addition. TheCIT(A) deleted the addition of ` 28,14,749/- levied by the Assessing Officerunder Section 14A of the Act read with Rule 8D of the Rules by observingthat Section 14A of the Act cannot be invoked if earning of exempt incomeis based on certain uncertainties and contingencies. Even if the investmenthas the potential of generating taxable income like short term capital gain,disallowance under Section 14A of the Act could not be enforced. Since theassessee had not earned any exempt income during the year in question, nodisallowance could be made and, therefore, the CIT(A) had rightly deletedthe said addition. Further, the CIT(A) affirmed the disallowance of` 7,21,104/- made by the Assessing Officer on account of personal use of -5- 7.On appeal by the revenue relating to disallowance underfabrication charges, the Tribunal upheld the order of the CIT(A) anddismissed the appeal. The cross appeal filed by the assessee was alsodismissed. While affirming the addition of ` 15 lakhs made by the CIT(A),the Tribunal had recorded as under:- “24.On perusal of the order of the CIT(A) we foundthat the order has been dealt in detail about the reasonsfor non production of parties before the AssessingOfficer owing to migration by taking into the wages paidat different months. The Ld. CIT(A) also dealt in detailabout the vouchers taking into consideration the surveyfindings wherein even the survey findings did not lead toany cogent evidence for inflation of fabrication charges.Similarly, the reasons were fall in GP have beenexamined and found that the fall in GP percentage rangedfrom 25.56 to 26.07 which is in the average range offluctuation over the period of seven years period. TheGP rate with the addition of the fabrication chargesdisallowed shoots to 38.3%, 41.75%, 43.35% which isalso very high GP even on estimate basis keeping in viewthe industry averages. 25.The total fabrication charges paid on a turnover of2279 Lacs for which fabrication charges are to the tuneof 799.57 Lacs out of which the TDS was not deductedon ` 394.75 Lacs. Out of this 394.65 Lacs, the AssessingOfficer disallowed ` 197.32 Lacs which is 50% of thefabrication charges paid. Based on the above discussionsthe reasons for such disallowance are found to be notjustified. The Ld. CIT(A) considered the disallowance of` 15 Lacs to take care of the deficiencies worked outafter taking into consideration the entire facts andcircumstances. Hence, we decline to interfere in theorder of the Ld. CIT(A) and the grounds of Revenue and -6- Cross Appeal of the assessee are dismissed. Similarlythe rationale of the Ld. CIT(A) is also accepted for theAY 2011-12.” 8.Further, in the case of the assessee for the assessment year2009-10, ITA-308-2014 decided on 30.4.2015 filed by the revenue has alsobeen dismissed by this Court claiming identical question of sustaining thedisallowance to the extent of only ` 15 lakhs on account of fabricationcharges. 9.Still further, the Tribunal while upholding the order of the CIT(A) regarding deletion of addition of ` 28,14,749/- made under Section 14Aof the Act read with Rule 8D of the Rules had held the assessee had notearned any exempt income during the relevant assessment year.10.No illegality or perversity could be pointed out by the learnedcounsel for the revenue in the aforesaid findings recorded by the Tribunal inall the three appeals which may warrant interference by this Court. Noquestion of law muchless a substantial of law arises in these appeals.Consequently, finding no merit in the appeals, the same are herebydismissed. (AJAY KUMAR MITTAL) JUDGE March 25, 2019gbs (MANJARI NEHRU KAUL)JUDGE Whether Speaking/ReasonedYesWhether ReportableYes