2009 (2) TMI 487 - HC - Income Tax

Addition - The cash payment - tractor hire charges - summon to creditors - Held that It is not possible for us to accept that the Assessing Officer could not have enforced the presence of Dharminder in the background of the fact that a substantial amount of the payment of Rs.5,96,220 as tractor charges was made by the respondent-assessee to the aforestated Dharminder by way of normal banking channel. There should therefore have been no difficulty either to ascertain his address or to summon him. - Decided in favor of assessee Deduction u/s 40A(2)(b) - truck charges were also paid by the respondent-assessee to M/s. Mehta Construction Company. Truck charges were paid to M/s. Mehta Construction Company at the rate of Rs. 80 and Rs. 70 per truck. The payment made by the respondent-assessee to M/s. Mehta Construction Company has been accepted by the Assessing Officer as a valid and genuine payment on tractor basis and not on monthly basis. In the background of the aforesaid factual position, it is also apparent that the respondent-assessee paid charges less than the charges paid to M/s. Mehta Construction Company for the same work to M/s. Satyen Enterprises. As noticed hereinabove, M/s. Satyen Enterprises was paid at the rate of Rs. 70 per truck. Thus viewed, it is not possible for us to accept that the Assessing Officer could have invoked section 40A(2)(b) of the Act. - Decided in favor of assessee Machinery Charges - The purchase of an excavator and to engage staff for its use and maintenance may or may not be a profitable / conceivable business venture. This would depend on the nature of contracts executed by an individual. The purchase of an excavator by itself is, in our view, an irrelevant consideration to determine the genuineness of the expenses incurred by the respondent-assessee. - - Decided in favor of assessee

Issues Involved:

1. Addition of Rs. 1,29,316 on account of bogus liability.
2. Addition of Rs. 4,00,000 under section 40A(2) for truck hire charges.
3. Addition of Rs. 17,70,339 on account of bogus liability in the account of M/s. Anuj Construction.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,29,316 on account of bogus liability:

The first issue revolves around the deletion of Rs. 1,29,316, which was paid in cash by the respondent-assessee as tractor charges. The Assessing Officer initially deleted this sum due to the assessee's failure to produce the creditor or any material evidence proving the payment. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal both overturned this decision. The Tribunal concluded that the onus was on the Revenue to prove that the payment was not genuine, and since the Assessing Officer did not summon the creditor, Dharminder, or collect any evidence, the Tribunal found no basis to deem the payment as bogus. The High Court upheld this view, emphasizing that the Assessing Officer should have summoned Dharminder, especially since substantial payments were made through normal banking channels, making it feasible to ascertain his address.

2. Addition of Rs. 4,00,000 under section 40A(2) for truck hire charges:

The second issue concerns the deletion of Rs. 4,00,000 from the machinery hire charges paid to M/s. Satyen Enterprises. The Assessing Officer invoked section 40A(2)(b) of the Income-tax Act, 1961, arguing that the payments were excessive. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal both set aside this deduction. The Tribunal noted that similar payments were made to M/s. Mehta Construction Company at higher rates, which were accepted as genuine. Therefore, the payments to M/s. Satyen Enterprises, which were less than those made to M/s. Mehta Construction Company, could not be considered excessive or unreasonable. The High Court agreed, stating that the Assessing Officer could not validly invoke section 40A(2)(b) as the charges paid were not excessive compared to those paid to other contractors.

3. Addition of Rs. 17,70,339 on account of bogus liability in the account of M/s. Anuj Construction:

The third issue pertains to the deletion of Rs. 17,70,339, which was claimed to be a bogus liability created by the respondent-assessee towards M/s. Anuj Construction. The Assessing Officer argued that the payment was excessive, considering the cost of the excavator and the period of work. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, but the Income-tax Appellate Tribunal reversed it. The Tribunal found that the assessee had provided signed confirmations and account books showing the expenses. The Assessing Officer did not further investigate the veracity of these documents or summon personnel from M/s. Anuj Construction. The High Court concurred with the Tribunal, stating that the Assessing Officer's rejection of the material without further investigation was arbitrary and unjustified.

Conclusion:

The High Court dismissed the appeal, finding no merit in the Revenue's contentions on all three issues. The concurrent findings of the appellate authorities were upheld, emphasizing the need for the Assessing Officer to have conducted further investigations and summoned relevant parties before rejecting the claims made by the respondent-assessee.

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