2004 (12) TMI 77 - HC - Income Tax

Contractee is a co-operative sugar factory and not a Government Department/establishment and the clause of the contract had provided an option to the contractor/assessee to procure the material in case the contractee failed to do so and also the debit notes for an amount of Rs. 1, 03, 61, 602 were made available - Assessing Officer on considering the record passed the assessment order and held that the understatement of contract receipts came to Rs. 70, 82, 160 and the disallowance under section 40A(3) was worked out at Rs. 1, 48, 957 thus making a total additional income of Rs. 75, 29, 700 for additional tax as well as interest etc. Assessing Officer had taken into consideration that for the balance amount of Rs. 1, 02, 000 the debit notes were available and for the balance amount of Rs. 70, 82, 000 they could not be made available. He therefore rejected the contentions of the assessee and treated the said differential amount as income liable to tax - Held that the debit notes which are placed before us for the first time cannot be subjected to verification in this tax appeal and the said verification is required to be undertaken by the Assessing Officer. matter remanded

Summary

Issues:
Assessment of additional income based on understatement of contract receipts and disallowance under section 40A(3) of the Income-tax Act, 1961.

Analysis:
The case involved an appeal by the Revenue against the order passed by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, Panaji Bench, Goa. The main issue was whether the lower appellate forums erred in applying the decision of the Supreme Court in a specific case to the current scenario. The contract in question involved a co-operative sugar factory as the contractee, not a Government Department, and included provisions for the contractor to procure material if the contractee failed to do so. The Revenue contended that the contractee's confirmation of purchasing construction material did not absolve the contractor from tax liability, especially considering the absence of debit notes for a significant amount.

The assessee initially filed a return of income, which was later revised due to discrepancies in contract receipts. The Assessing Officer reopened the assessment under section 147 of the Act, leading to a determination of additional income. The Commissioner of Income-tax (Appeals) partly allowed the appeal, confirming the disallowance under section 40A(3) but setting aside the understatement of contract receipts. The Income-tax Appellate Tribunal upheld the Commissioner's decision, citing the Supreme Court's precedent but faced opposition from the Revenue due to differences in the nature of the contractee compared to the referenced case.

During the proceedings, the assessee provided additional information, including debit notes, to support the material received and consumed. The court emphasized that the verification of these documents should be undertaken by the Assessing Officer, highlighting the importance of thorough examination and consideration of all relevant records. The case distinguished from the Supreme Court precedent involving a Government Department, emphasizing the need for the assessee to substantiate purchases based on documented evidence.

The court acknowledged the distinction between turnover and net income, directing the Assessing Officer to investigate this aspect further. Ultimately, the court allowed the appeal partially, remanding the assessment to the Assessing Officer for fresh investigation. The orders of the lower appellate authorities were set aside, with instructions for the assessee to provide necessary documents for the inquiry to proceed promptly and conclude within a specified timeframe.