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2021 (11) TMI 218 - AT - Income TaxEnhancement of total income by CIT-A - Procedure to be followed - HELD THAT - Enhancement for the assessment year in question was carried out by the CIT(A) without giving any formal intimation to the assessee in this regard and without communicating the basis for arriving at the said figure of enhancement to the assessee. Such approach of the CIT(A) is contrary to statutory protocol as well as law codified in S. 251(2). Power of enhancement conferred under s. 251(1) of the Act is restricted to the subject-matter of assessment or the source of income which have been considered expressly or by clear implication by the AO from the point of view of the taxability of the assessee. Besides, the enhancement proceedings are intrinsically a serious exercise undertaken independently by the CIT(A). Hence, for making any comments adverse to the assessee, it is bounden duty of the CIT(A) to follow due process of law before coming to his own conclusions on unverified facts and before making comments thereon. CIT(A) is bound to confront the assessee with material evidence, if any, in his possession. The statutory obligations in case of enhancement are far wider. As alleged, the impugned enhancement has apparently been made without giving notice to the assessee and without confronting him with his process of reasoning for doing so. The impugned enhancement is thus wholly unsustainable in law. The direction for enhancement is thus quashed and set aside. - Decided in favour of assessee. Enhancement of income to the AO for the earlier assessment years which are not in appeal before him - HELD THAT - Findings of the CIT(A) seeks to travel beyond the A.Y. 2012-13 in question and seeks to displace the completed assessment of the other years (some of which have already become time barred at the time of passing of original assessment order in appeal) by giving directions to the AO to take remedial actions towards service tax allowed in earlier assessment years. Such findings and directions are outside the scope of powers entrusted under S. 251 as well as S. 150(1) of the Act. To reiterate, Section 150(1) does not permit issue of such directions to the AO without showing as to how such findings/directions are necessary for the purposes of adjudicating the issue of allowability of service tax in the year in question. In the instant case, the issue of allowability of service tax was also examined by the AO under s. 143(3) of the Act for AY 2010-11. The appeal on the point was filed before the CIT(A). The order of the AO thus stood merged with the first appellate order. Such assessment already merged in the order of the higher authority cannot be distributed by the authority of equal rank. Hence, action of the CIT(A) can not be upheld from this perspective as well. As a sequel to such delineation, the directions to the AO to examine the service tax issue in relation to earlier assessment years require to be quashed and expunged. We do so accordingly. Ground No. 3 of the assessee's appeal is thus allowed. Enhanced claim of service tax on actual payment basis before the due date of return - HELD THAT - Mere admission on the part of the assessee with respect to an addition/disallowance in its original return or in revised return would not ipso facto bar an assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. It is thus well settled that if a particular income is not taxable under the Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Revenue authorities cannot enforce untenable actions of the assessee against it which led to declaration of income of higher amount incorrectly. It is thus open to assessee to show that it was over assessed under erroneous impression of law or facts even if it is attributable to the mistake of assessee. We do see potency in the argument laid on behalf of the assessee that both AO and CIT(A) committed error in denying the relief claimed. In our considered view, the action of the revenue authorities is in defiance of the judicial precedents on the issue and thus cannot be countenanced. In our view, the assessee can not be prevented from raising such additional claim merely because the ROI could not be revised. The factual matrix towards actual payments however does not appear to have been verified by the AO. It would thus be in fitness of things to remit the issue back to the file of AO. AO shall allow the higher claim of service tax in accordance with law on being satisfied with the actual payments. Ground no. 4 of the assessee is allowed for statistical purposes. Lump sum disallowances out of wages and 'transportation charges site expenses' - HELD THAT - As the assessee could not seriously dispute the rationale for indulging in estimations of disallowance in the facts of the case. A part relief has been granted by the CIT(A) out of estimations under the head 'wages'. No relief has been granted on 'transportation charges and site expenses'. In the absence of any attendant circumstances on record, some estimations cannot be entirely condemned. However, having regard to nature of business and totality of circumstances, a further relief of Rs. One lakh each from two expense heads in question appears just and benign and would meet the ends of justice.
Issues Involved:
1. Enhancement of total income without notice. 2. Directions for enhancement of income for assessment years not in appeal. 3. Rejection of enhanced claim of service tax paid before the due date of return. 4. Disallowance of wages. 5. Disallowance of transportation charges and site expenses. Issue-wise Detailed Analysis: 1. Enhancement of Total Income Without Notice: The assessee contended that the CIT(A) enhanced the total income by ?32,96,000 without giving notice, violating statutory protocol and the law codified in Section 251(2) of the Act. The Tribunal noted that the enhancement was made without formal intimation or communication of the basis for arriving at the enhancement figure, which is contrary to the law. The Tribunal referenced the Supreme Court's decision in CIT vs. Rai Bahadur Harduttroy Motilal Chamaria and other judicial precedents, emphasizing that enhancement can only be considered if an opportunity is given to the assessee. Consequently, the Tribunal quashed the enhancement, allowing Ground Nos. 1 and 2 of the appeal. 2. Directions for Enhancement of Income for Assessment Years Not in Appeal: The assessee argued that the CIT(A) had no jurisdiction to issue directions for enhancement of income for assessment years not pending before him. The Tribunal agreed, stating that Section 251 restricts the CIT(A)'s powers to the appeal before him, and Section 150(1) does not permit such directions without showing necessity for adjudicating the present dispute. The Tribunal also noted that the issue of service tax was already examined and merged with the first appellate order for AY 2010-11, and thus, the CIT(A) could not disturb the assessment. The Tribunal quashed the directions to the AO for earlier assessment years, allowing Ground No. 3 of the appeal. 3. Rejection of Enhanced Claim of Service Tax Paid Before the Due Date of Return: The assessee claimed an additional deduction for service tax on actual payment basis, which was rejected by the AO as it was not claimed in the return of income. The Tribunal highlighted that authorities under the Act must act in accordance with the law and ensure only legitimate tax dues are collected, referencing various judicial precedents. The Tribunal found merit in the assessee's argument that the claim should not be denied merely because the return was not revised. The issue was remitted back to the AO for verification of actual payments and proper determination of entitlement, allowing Ground No. 4 for statistical purposes. 4. Disallowance of Wages: The CIT(A) restricted the disallowance of wages to ?2,57,722. The Tribunal noted that the assessee could not seriously dispute the rationale for estimations of disallowance. Considering the nature of business and totality of circumstances, the Tribunal granted a further relief of ?1 lakh, partly allowing Ground No. 5. 5. Disallowance of Transportation Charges and Site Expenses: The CIT(A) sustained a lumpsum disallowance of ?2 lakhs on account of transportation charges and site expenses. The Tribunal, considering the nature of business and circumstances, granted a further relief of ?1 lakh, partly allowing Ground No. 6. For AY 2013-14: 1. Rejection of Enhanced Claim of Service Tax Paid Before the Due Date of Return: The CIT(A) followed the observations made for AY 2012-13 and dismissed the enhanced claim. The Tribunal applied the same reasoning as for AY 2012-13, remitting the issue back to the AO for proper determination, allowing Ground No. 1 for statistical purposes. 2. Disallowance of Wages and Transportation Charges and Site Expenses: The CIT(A) restricted the disallowance of wages and sustained disallowance of transportation charges and site expenses, each amounting to ?2 lakhs. The Tribunal granted a further relief of ?1 lakh for each head, partly allowing Ground Nos. 2 and 3. Conclusion: In the combined result, both appeals of the assessee were partly allowed. The Tribunal emphasized adherence to statutory protocols and judicial precedents, ensuring that only legitimate tax dues are collected and that the assessee is given a fair opportunity to present their case.
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