2015 (7) TMI 1404 - AT - Income Tax

Revision u/s 263 - disallowance u/s. 40(a)(ia) - HELD THAT - Whether the assessment is made u/s. 143(3) or u/s. 144, where therefore it is shown that a particular aspect of assessment has escaped his attention or consideration, the matter can be required to be examined by him in accordance with the law after allowing the assessee a reasonable opportunity of being heard by the CIT as the revisionary authority in exercise of his revisionary power u/s. 263 of the Act. In the facts of the present case this aspect of the matter, i.e., the exigibility of the impugned sums to tax deduction at source and, consequently, disallowance u/s. 40(a)(ia) on the failure to do so, was not at all considered during the assessment proceedings. With regard to the disallowance u/s. 40(a)(ia) being not permissible, even where applicable, i.e., where the assessment is framed on estimation basis, we have found the argument as not legally tenable. This is as the assessment of income even under the estimation regime is of the total income under the Act and not of the business profit alone, and which could only be upon considering the applicability or otherwise in the facts of the case of all the relevant provisions of law, to which section 40(a)(ia) is or cannot be any exception. The same in fact is a statutory disallowance, artificially inflating the assessee-payer's income for the time being, which is liable to be allowed as deduction upon complying with the condition prescribed for its non applicability, i.e., of the deposit of TDS to the credit of the payee, in the year in which it stands complied with, introducing thus a timing effect. Not so considering; rather, leads to an anomalous, unacceptable situation. Our reasons in support of our decision stand listed in the foregoing paragraphs of this order. The premise, or the underlying concern, it needs to be appreciated, is to arrive at the best estimate of the total income after considering all the relevant provisions of law, be it qua an allowance or disallowance in-as-much as the assessment is to be only in accordance with the law. The assessee's argument thus is not valid and, accordingly, we find no infirmity in the direction of the ld. CIT in restoring the assessment for the consideration of the relevant issues to the file of the assessing authority. We decide accordingly. Addition u/s 68 on unexplained cash credit - The confirmation, if at all, only establishes the identity of the creditor. The ld. CIT has in fact also stated that the confirmations do not bear the particulars of the transactions, i.e., the date and the mode of the payment, and even as much as the PAN of the creditor/s, so that the same cannot be regarded as complete. How, we wonder, could his inference of the A.O.'s acceptance of the cash credit as proven, or of the assessee having discharged the burden of proof u/s. 68, as erroneous and prejudicial to the interest of the Revenue, be contested under such circumstances. This is in view of a clear lack of inquiry and application of mind by the assessing authority while framing the assessment qua this aspect thereof. The assessee has relied on case law, as in the case of CIT v. Jaiswal Motors Finance 1983 (2) TMI 47 - ALLAHABAD HIGH COURT ; India Rice Mills 1995 (12) TMI 55 - ALLAHABAD HIGH COURT , holding that a credit to the account of the partners in a firm could only be added u/s. 68 in their hands. There is nothing to show that the credit is from the partners. The matter, in our view, is factual, with the decisions being rendered with reference to the facts of the case, as by a partner on his introduction as such in a firm, or by the partners on the commencement of the business by the firm, etc. On the legal aspect, how one wonders would s. 68 not apply in-as-much as the 'firm' and 'partner' are different persons under the Act, with the credit/s appearing in the books of the firm? Reference in this context be made to the decision in the case of CIT v. Kishorilal Santoshilal 1995 (2) TMI 14 - RAJASTHAN HIGH COURT , explaining the law in the matter, based on first legal principles - we, accordingly, uphold the impugned order on this ground. Assessee appeal dismissed.

Summary

Issues Involved:
1. Maintainability of revision under Section 263 of the Income Tax Act, 1961.
2. Non-consideration of disallowance under Section 40(a)(ia) for hire charges.
3. Non-consideration of disallowance under Section 40(a)(ia) for labor charges.
4. Non-consideration of cash credits as income under Section 68.

Detailed Analysis:

1. Maintainability of Revision under Section 263:
The primary issue is whether the Commissioner of Income Tax (CIT) was justified in invoking Section 263 of the Income Tax Act, 1961. The CIT assumed jurisdiction under Section 263 due to the lack of enquiry or due application of mind by the Assessing Officer (A.O.). The Supreme Court in Malabar Industrial Co. Ltd. v. CIT laid down a four-way test for the invocation of Section 263, including incorrect assumption of facts, incorrect application of law, lack of natural justice, and lack of application of mind. In this case, the CIT's order was based on the last category, lack of application of mind, which is a valid basis for revision. The CIT's direction for the A.O. to reframe the assessment after necessary enquiry is consistent with the objection for assuming revision.

2. Non-consideration of Disallowance under Section 40(a)(ia) for Hire Charges:
The CIT noted that the A.O. did not enquire about the compliance with TDS provisions concerning hire charges for JCB machines, which were subject to TDS at 10%. The assessee argued that payments were made to twenty parties, and thus, TDS provisions should not apply. However, there was no evidence that the A.O. considered or examined the issue. The Tribunal emphasized that the estimation of income should consider all relevant provisions, including Section 40(a)(ia), which mandates disallowance for non-deduction of TDS. The Tribunal found no record suggesting that the A.O. factored in the disallowance under Section 40(a)(ia) while estimating the income.

3. Non-consideration of Disallowance under Section 40(a)(ia) for Labor Charges:
Similar to the hire charges, the CIT noted the A.O.'s failure to consider disallowance under Section 40(a)(ia) for labor charges paid to labor contractors, which were liable to TDS at 1%. The assessee contended that payments were made to 100 contractors, not 10 as shown, and thus, TDS provisions should not apply. However, there was no evidence that the A.O. examined this issue. The Tribunal reiterated that the estimation of income should consider all relevant provisions, including Section 40(a)(ia), and found no record suggesting that the A.O. considered the disallowance under Section 40(a)(ia).

4. Non-consideration of Cash Credits as Income under Section 68:
The CIT noted that the A.O. did not enquire about the cash credits by way of unsecured loans from two parties, totaling Rs. 25,35,500/-. The assessee argued that confirmations from creditors were provided, establishing their identity. However, the CIT stated that confirmations did not bear particulars of transactions, such as the date, mode of payment, and PAN of creditors, and thus, could not be regarded as complete. The Tribunal emphasized that confirmations only establish the identity of creditors and not their capacity or the genuineness of transactions. The CIT's inference of the A.O.'s acceptance of cash credits as proven was found to be erroneous and prejudicial to the interest of the Revenue due to a clear lack of inquiry and application of mind by the A.O.

Conclusion:
The Tribunal upheld the CIT's order, finding no infirmity in the direction to restore the assessment for the consideration of relevant issues by the A.O. The assessee's appeal was dismissed, and the Tribunal emphasized the need for transparency in the estimation of income, considering all relevant provisions of law. The Tribunal's decision was supported by legal principles and case law, including decisions by the jurisdictional High Court and the Supreme Court.