2018 (8) TMI 128 - AT - Income Tax

Admission of additional evidence - estimate profit at the rate of 15% of the turnover - Held that - The rules of procedure are subservient to substantive law to serve justice and not to scuttle justice at threshold on technical nitty-gritties unless malafide is writ large on the part of tax-payer which is not so in the instant case. The mandate of the 1961 Act is to compute correct taxes as per provisions of the 1961 Act which is supported by mandate of Article 265 of the Constitution of India. CIT(A) ought to have admitted these additional evidences filed by the assessee and evaluated/verified on the touchstone of merits but instead learned CIT(A) proceeded to estimate profit at the rate of 15% of the turnover (before deducting partners remuneration) after discarding these evidences at threshold on technical grounds despite evidences filed by the assessee before learned CIT(A). CIT(A) ought to have forwarded the said additional evidences to the AO for submission of remand report on merits after their evaluation/verification by the AO as per Rule 46A(3) of the 1962 Rules. The learned CIT(A) erred in not admitting additional evidences and in estimating profits despite having all evidences before it to compute income as per provisions of the 1961 Act r.w.r. 46A of the 1962 Rules. In our considered view and in the interest of substantial justice to both the parties in exercise of our powers u/s 254(1) of the 1961 to pass such orders as deem fit, the matter is restored to the file of the AO for fresh/de-novo framing of assessment by AO on merits in accordance with law after admitting all the evidences filed by the assessee .

Issues Involved:
1. Estimation of Income and Acceptance of Book Results
2. Disallowance of Interest under Section 36(1)(iii)
3. Allowability of Loan Processing Charges
4. Allowability of Service Tax and Sales Tax Penalties
5. Admission of Additional Grounds of Appeal
6. Disallowance of Labour Charges (Mukadam) and Labour Charges
7. Applicability of Section 40(a)(ia) for Labour Charges
8. Delay in Filing Cross Objections by Revenue

Issue-wise Detailed Analysis:

1. Estimation of Income and Acceptance of Book Results:
The Assessee contended that the CIT(A) erred in estimating income at 15% of gross turnover before interest and remuneration payable to partners, arguing that the returned income at 9% of turnover should be accepted. The Assessee also raised additional grounds that the AO and CIT(A) should not have rejected the book results since the books were audited under Section 44AB and no defects were pointed out by the Tax Auditor or the AO. The Tribunal admitted this additional ground and directed a fresh assessment by the AO after considering all evidences.

2. Disallowance of Interest under Section 36(1)(iii):
The Assessee argued that the AO should not have disallowed interest amounting to ?1,21,064 under Section 36(1)(iii) as all trade advances were given wholly and exclusively for business purposes. However, this ground was not pressed by the Assessee during the hearing and was dismissed accordingly.

3. Allowability of Loan Processing Charges:
Similarly, the Assessee contended that loan processing charges of ?17,692 should be allowed as expenses. This ground was also not pressed and was dismissed.

4. Allowability of Service Tax and Sales Tax Penalties:
The Assessee argued that service tax penalty of ?12,000 and sales tax penalty of ?10,000 were compensatory in nature and should be allowed. This ground was not pressed and was dismissed.

5. Admission of Additional Grounds of Appeal:
The Tribunal admitted the additional ground raised by the Assessee regarding the rejection of book results despite the books being audited and supported by proper vouchers. The Tribunal directed the AO to consider these evidences in a fresh assessment.

6. Disallowance of Labour Charges (Mukadam) and Labour Charges:
The AO disallowed labour charges (Mukadam) of ?1,28,93,615 and labour charges of ?8,75,773 due to the Assessee's failure to provide details such as names, addresses, PAN, and services rendered. The CIT(A) upheld the disallowance but estimated profits at 15% of turnover instead of accepting the book results. The Tribunal found that the CIT(A) should have admitted additional evidences and forwarded them to the AO for a remand report. The Tribunal restored the matter to the AO for fresh assessment after admitting all evidences.

7. Applicability of Section 40(a)(ia) for Labour Charges:
The AO also disallowed the labour charges under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) held that Section 40(a)(ia) was not applicable. The Tribunal directed a fresh assessment by the AO to re-evaluate this issue after considering all evidences.

8. Delay in Filing Cross Objections by Revenue:
The Revenue's Cross Objections were delayed by 930 days without any application for condonation of delay or affidavit explaining the reasons. The Tribunal dismissed the Cross Objections due to the substantial delay and lack of justification.

Conclusion:
The Tribunal allowed the Assessee's appeal for statistical purposes, directing a de-novo assessment by the AO after admitting all evidences. The Cross Objections filed by the Revenue were dismissed. The order was pronounced in the open court on 31.07.2018.

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