V. Kumar Dyeing & Printing Works (P) ... vs Department Of Income Tax

ITA No. 159/Del/2012 (Assessment Year: 2006-07) & ITA No. 5576/Del/2011(Assessment Year: 2006-07)

ACIT M/s V. Kumar Dyeing & Circle-2, Printing Works (P) Ltd. Meerut Vs. Meerut

(Appellant) (Respondent)

Appellant by : Sh. J.P Chandrakar, Sr. DR Respondent by : Sh. O.P. Sapra, Adv Sandeep Sapra, Adv

Date of Hearing 23.03.2015 Date of pronouncement 13.05.2015

ORDER

PER A. T. VARKEY, JUDICIAL MEMBER

These are the cross appeals filed by the Assessee and the Revenue emanate out of the Order dated 18.10.2011 passed by the Ld. CIT(A), Meerut pertaining to assessment year 2006-07. Since some of the issues involved in both the appeals are common and identical, hence, we are disposing of these appeals by passing a consolidated order for the sake of brevity.

2. The Assessee has raised the following grounds in its Appeal:-

" 1. That the Id CIT.(A) has erred in law as well as on the facts of the case by upholding the action of the Id. A.O. of completing the assessment under reference without affording reasonable opport unit y of being heard to the appellant and the Id. CIT(A), even t hough not finding proof of service of notice dat ed 15.10.2010 on record, which was the only notice u/s 143(2) issued during the course of re-assessment proceedings, has confirmed the action of the Id. A.O. only on the basis of service of notice u/s 142(1) dat ed 5.08.2010 thereby wrongly upholding the completion of re-assessment under reference even without service of any not ice u/s 143(2).

ITA NOS.5576/DEL/2011 & 159/DEL/2012

2. That the Id. CIT(A) has erred in law as well as on t he fact s of the case by desisting from annulling the assessment, even aft er observing that there was no evidence of service of the copy of reasons recorded before issuance of notice u/s 148 dat ed 12.03.2010 upon the appellant and the action of the Id. CIT (A) t o uphold t he proceedings u/s 148 and order u/s 147 under appeal only on t he basis of service of notice u/s 148 dat ed 12.03.2010 is unjust and unlawful.

3. That the Id. CIT (A) has erred in law as well as on the facts of the case by confirming the disallowance of Rs.2,40,350/- out of the finishing charges of Rs.8,33,795/- u/s 40(a)(ia) for alleged cont ravention of sec. 194C regarding deduction of TDS t here from."

3. The Revenue has raised the following grounds in its Appeal.

" 1.Whether in the fact s and circumstances of t he case t he Ld. Commissioner of Income Tax (Appeals) has erred in law and fact s in deleting the addition of Rs. 99,15,170/- made by A.O. u/s 40a(ia) of IT Act 1961 ignoring the fact that TDS was cert ainly deductable upon the expenses st yled as Printing & Dyeing charges. The claim of the assessee t hat these expenses cont ained the purchase of Print ed and Dyed clot hs therein was merely an aft erthought. In the P&L a/cs separat e expenses under t he head of purchases were already existing for Rs. 3,44,02,620/- .

2. Whether, in the facts & circumst ances of t he case, t he Ld. Commissioner of Income Tax (Appeals) was justified in law in circumstances of t he case by restricting the disallowances t o Rs 2,40,350/- as against Rs. 8,33,795/- on a/c of jobwork ignoring the facts that assessee has it self mentioned the same in the P&L a/c that the payment was in nat ure of jobwork and no TDS was deduct ed by the assessee on t he same violating the provisions cont ained in the sect ion 194C of the IT Act 1961.

3. Whether the Ld. CIT (Appeals) was justified in accepting the changed st and taken by t he assessee in t urning the jobwork payment s to the purchases t o avoid the penal provisions contained in the Income Tax Act , 1961.

4. In the fact and circumstances of the case the order of the Commissioner of Income Tax (Appeals) may be set asi de and that of the AO rest ored."

4. The facts in brief are that the assessee company in this case derived income from trading of bed sheets and fabrics return declaring loss of Rs. 4,94,552/- was filed on 30.11.2006, which was processed as such u/s. 143(1) of

2 ITA NOS.5576/DEL/2011 & 159/DEL/2012

the Income Tax Act, 1961 (herein after „the Act‟). Later on, the case was selected for scrutiny accordingly, st atutory notices u/s. 143(2) and 142(1) dated 1.10.2007 alongwith quest ionnaire dated 13.5.2008 were issued and served upon the assessee. In compliance thereto, ld. Counsel of the assessee appeared from time to time and filed details of the case and proceedings. Books of accounts, bills/ vouchers produced which were examined on test check basis. The Assessing Officer after considering all the facts and circumstances of the case submitted by the assessee and examination of books of account / other documents, after discussion an addition of Rs. 55,000/- were made out of expenses were not found vouched. Thereafter, the AO has completed the assessment by making various additions u/s. 143(3)/147/148 of the I.T. Act, 1961.

5. Against the aforesaid order of the Assessing Officer, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 18.11.2011 has partly allowed the appeal of the assessee.

6. Now both Assessee and Revenue are in cross appeal before the Tribunal.

7. We have heard both the parties and perused the records.

8. With regard to ground no. 1 raised in Assessee‟s Appeal is concerned, we find that Ld. Counsel of the assessee has stated that the Ld. CIT(A) while upholding the action of the Id. A.O. of completing the assessment under reference without affording reasonable opportunity of being heard to the appellant and the Id. CIT(A), even though not finding proof of service of notice dated 15.10.2010 on record, which was the only notice u/s 143(2) issued during the course of re-assessment proceedings, has confirmed the action of the Id. A.O. only on the basis of service of notice u/s 142(1) dated 5.08.2010 thereby wrongly upholding the completion of re-assessment under reference even without service of any notice u/s 143(2). In our considered view, in this case notice u/s. 143(2) was not served however, only notice u/s. 142(1) was served. It has come on record in the noting sheet of the AO that notice u/s. 143(2) was issued. In our view Section 292BB cures the defect if any, i.e. the non-service of notice after participating in the assessment proceedings cannot stand in the way to invalidate the assessment proceedings. Therefore, the Ground No. 1 is rejected.

3 ITA NOS.5576/DEL/2011 & 159/DEL/2012

9. With regard to ground no. 2 of Assessee‟s Appeal is concerned, we find that Ld. Counsel of the assessee has submitted that Ld. CIT(A) has erred in law by desisting from annulling the assessment, even after observing that there was no evidence of service of the copy of reasons recorded before issuance of notice u/s 148 dated 12.03.2010 upon the assessee and the action of the Id. CIT (A) to uphold the proceedings u/s 148 and order u/s 147 under appeal only on the basis of service of notice u/s 148 dated 12.03.2010 is unjust and unlawful. The assessee has requested the AO to provide it the copy of t he reasons vide communication dated 17.3.2010 filed on 22.3.2010 in the office of the AO. The assessee has claimed that the principle of natural justice has not been complied with and, therefore, the order under reference deserves to be annulled. The assessee has submitted that alongwith the copy of the notice dated 12.3.2010 u/s. 148 there was no copy of the reasons recorded before issuance of the said notice was there. The AO in his Remand Report has stated that as per the normal practice the reasons recorded u/s. 147 are sent to the assessee at the time of issuing notice u/s. 148. He has further stated that on going through the records, it is found that while issuing notice u/s. 148 on 12.3.2010, his predecessor has issued notice u/s. 148 alongwith the copy of the reasons recorded. According to the AO the documents are available on record so that the assessee‟s plea that reasons were not provided is not correct. We find that the Ld. CIT(A) has gone through the assessment records and the assessee has admitted having received the notice u/s. 148 dated 12.3.2010 and in the remand report the AO has reiterated that the reason for reopening has been send alongwith the said notice need not be disbelieved and so we do not disturb the impugned order on this account ; hence, we uphold the same and reject the Ground No. 2 accordingly.

10. With regard to Ground No. 1 in Revenue‟s Appeal is concerned, we find that the AO has made disallowance of Rs.1,09,61,165/- u/s. 40(a)(ia) holding that TDS was required to be deducted and since the assessee did not deduct tax at source, the same was disallowable u/s. 40(a)(ia). The AO held that the assessee has failed to avail the opportunity to be present and being heard ; and no reply whatsoever has been filed before him , so he made the disallowance. The

4 ITA NOS.5576/DEL/2011 & 159/DEL/2012

submissions alongwith supporting evidences was filed by the assessee during the appellate proceedings were confronted to the AO for consideration thereof. The AO in his remand report has stated that the detailed copy of account of expenses, photocopy of specimen bills as filed by the assessee were incorrect because according to the AO it was totally an afterthought. The AO did not choose to comment on the details submitted by the assessee. We find that the Ld. CIT(A) has observed that the details of printing and dying charges of Rs. 99,15,170/- as filed contain particulars of purchases of printed and dyed cloth from various parties through their bills. Photocopies of some bills as filed as specimen copies have also been considered. We also note that Ld. CIT(A) found that accounting head though termed as "Print ing & Dyeing Charges" contains the purchases of printed and dyed cloth therein. It has been rightly noted by the ld CIT (A) that the nomenclature of an account cannot be taken so as to reject the contention of the assessee that the said account contains the purchase of printed and dyed cloth. We find that the ld. CIT(A) has rightly held that the account being the account of purchases did not require any TDS deduction and the AO has rightly directed to delete the disallowance of Rs.99,15,170/- as made on this account, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on this and reject the Ground No. 1 raised by t he Revenue.

11. With regard to Ground No. 2 raised in Revenue‟s Appeal and Ground No.3 raised in Assessee‟s appeal we will deal with the same together, since both the said grounds are common therefore, taken up together. We find that Ld. DR has stated that Ld. CIT(A) was not justified in restricting the disallowances to Rs.2,40,350/- as against Rs.8,33,795/- on account of jobwork ignoring the facts that assessee has itself mentioned the same in the P&L a/c that the payment was in nature of jobwork and no TDS was deducted by the assessee on the same violating the provisions contained in the section 194C of the Act . We find from the details it is apparent that the finishing charges except a sum of Rs.2,40,350/- paid to Ms. Sonia Agarwal were paid to different persons in the denominations of less than rupees twenty thousand each. Payment to Smt. Sonia Agarwal, though

5 ITA NOS.5576/DEL/2011 & 159/DEL/2012

the amount of finishing charges at times credited on various occasions was less than Rs. 20,000/- but the total payment / credits exceeded Rs. 75,000/- during the year and, therefore, TDS from her should have been deducted. In this view, the assessee has committed contravention of section 194C and as such the said amount has rightly been disallowed in terms of section 40(a)(ia). We also find that the alternative contention of the assessee that the payment of finishing charges is allowable u/s. 28 and is not an expense allowable u/s. 30 to 38, therefore, the provisions of section 40(a)(ia) cannot be invoked to make disallowance of that amount cannot be accepted. If such contention is accepted, the provisions of section 40(a)(ia) shall become meaningless. In view of the above, the Ld. CIT(A) has rightly confirmed the disallowance of Rs. 2,40,350/- out of the finishing charges of Rs. 8,33,795/-by granting relief of Rs. 5,93,445/- on this account, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on this issue, and thus reject the Ground No. 2 raised by the Revenue & Ground No. 3 raised by the Assessee in their respective appeals.

12. In the result, both the Assessee‟s and Revenue appeals are dismissed.

Order pronounced in the open court on 13.05.2015.

-Sd/- -Sd/- (B.C.MEENA) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:13/05/2015 A K Keot

Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

6