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TMI Blog1986 (6) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... them. Shri K.M. Tewari is the son-in-law of Shri R.S. Sharma, who is the main partner of the assessee firm. For the services rendered M/s Faberect were paid a sum of Rs. 2,15,519, which was allowed. Vide assessment order dt. 29th March, 1982 for the asst. yr. 1979-80, the ITO observed as under: "The assessee firm is a contractor. Regular books of account have been maintained. The contract work was undertaken by the assessee in the Southern States of the country. The Head Office is probably located at Varanasi. Accordingly, assessment is being made here. Although the net rate with reference to the payment is satisfactory." Similar payment was claimed by the assessee in the asst. yr. 1980-81. The amount claimed to have been paid this year to M/s Faberect amounted to Rs. 3,88,023 (included in Rs. 7,03,685.92 claimed as sub-contract expenses) in the trading account filed alongwith the return. In the regular assessment order dt. 11th March, 1983 for the asst. yr. 1980-81, the claim was duly allowed. 4. At this stage, it would be pertinent to point out that in the asst. yr. 1981-82 when the work was still continuing at Kerala Newsprint Project the amount payable to M/s Faberect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax (Central), Kanpur." The CIT vide this notice required the assessee to show cause on four counts for the following reasons: Firstly, the firm M/s Faberect was owned by Shri K.M. Tewari, a close relative of partner of the assessee firm, Shri R.S. Sharma, secondly no services were rendered by this firm to the assessee, thirdly the sub-contractor did not have adequate resources to execute the work on account of which the payment of Rs. 3,88,024 was claimed and fourthly the disallowance was approved in the asst. yr. 1981-82 by the CIT(A). 6. The assessee submitted reply dt. 27th Feb., 1985 stating that the matter of allowing deductions for the payment to sub-contractor drew the attention of the ITO in 1979-80 and he after examining the books of account and the other relevant details with regard to the payment made to the sub-contractor allowed deduction. In regard to the reasonableness of the claim, it was urged that it was in conformity with the claim in the immediately preceeding year where there was no dispute. Further, it was stated that the assessee was maintaining books of account and the ITO made the assessment after examining them and accepted the book results. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of work done by M/s Faberect. It should be admitted that the sub-contractor did some work of the project site but it is open to verification as to how much? Further at no stage it was ascertained as to what would have been the commensurate compensation relatable to such work, and whether the compensation actually paid or payable was approximately the same or more. In view of the above, I set aside the assessment under s. 263 and direct the ITO to examine the nature and quantum of the work done by sub-contractor M/s Faberect and to ascertain the reasonableness of the compensation paid to it. The fresh assessment should be done after examining properly the details given and after giving a fair opportunity to the assessee." 7. Feeling aggrieved by the order of the CIT, the assessee has come up in appeal before us. The Authorised Representative for the assessee contended before us that the Tribunal in the case of the assessee for the asst. yr. 1981-82 had set aside the matter vide its order dt. 16th May, 1985 in ITA No. 2339 (Alld)/1984 with the direction that the CIT(A) shall decide whether the amount of Rs. 2,37,038 was commensurate to the services rendered by M/s Faberect. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paper Book, on the ground that the same did not form part of the record at the time of passing the order by the lower authorities. Shri Srivastava further placed reliance on the decision of Hon'ble Calcutta High Court in the case of Ganga Properties vs. ITO (1979) 118 ITR 447 (Cal) wherein their Lordships held that the record under s. 263(1) would mean the record as existing at the time of passing the assessment order i.e. on 11th March, 1983. On the other hand, Shri S.K. Garg, the ld. counsel for the assessee contended before us that all these papers had been filed before the CIT during the course of proceedings under s. 263 and this position had not been disputed by the Senior departmental representative before us. Thus, these papers can be looked into by us and can be referred whenever necessary. It was next pointed out that the papers appearing at pages 89 to 95 of the assessee's Paper Book represented the bills of M/s Faberect as submitted by them in the asst. yrs. 1979-80 and 1980-81 and they were very much in existence at the time of passing the assessment order by the ITO on 11th March 1983. The admission of the remaining papers was seriously objected to the Senior departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice in reference to the letter of the assessee dt. 12th Feb., 1985 which appears at page 9 of the assessee's Paper Book. 10. It was further contended by the authorised representative for the assessee that the CIT had half-heartedly recorded that finding that the compensation paid was excessive considering the nature and quantum of work done by M/s. Faberect. In this connection, our attention was specifically drawn towards the fact that no notice in this regard was given by the CIT and his finding is erroneous on this score. Proceeding further, it was contended by the authorised representative for the assessee that the CIT has based his finding on suspicion, conjecture and surmises. In this connection, he placed reliance on the cases of Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) and CIT vs. Shantilal Agarwalla (1983) 35 CTR (Pat) 304 : (1983) 142 ITR 778 (Pat). In the case of CIT. vs. Shantilal Agarwalla, their Lordships of Patan High Court has distinguished the decisions of the Supreme Court in Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 137 : (1973) 88 ITR 323 (SC). In the end, Shri Garg, authorised rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. vs. ITO (1985) 23 TTJ, (Cal) 520 : (1985) 14 ITD (Cal) 6, for the proposition that the requirement in the section that the Commissioner should spell-out the information before coming to the conclusion for forming the belief that the order sought to be revised was erroneous and prejudicial to the interests of revenue. It was next contended that the CIT, in fairness to the assessee had not expressed his opinion as to the reasonableness of the payment for the services rendered by M/s Faberect. He had left open this issue for being adjudicated upon by the ITO so that the case of the assessee might not be prejudiced. The Senior departmental representative further placed reliance on the decision in the case of Addl. CIT vs. Mukur Corporation (1978) 111 ITR 312 (Guj). It was next submitted by the Senior departmental representative that the CIT had rightly assumed jurisdiction and after applying his mind he has passed the impugned order. The Senior departmental representative further contended before us that the CIT gave a notice to the assessee regarding the services rendered by M/s Faberect and it is the natural corollary that the quantum of payment was not reasonable and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961. The CIT gave a notice to the assessee to show cause mainly on four counts referred to above. He firstly raised the ground that no services were rendered by this firm of sub-contractor to the assessee. The CIT had mentioned in its order that services were rendered. The circumstances has obviously not given a notice to the assessee that the payment was not commensurate with the work done. The CIT had observed that the interests of revenue had suffered as the ITO had not looked into the reasonableness of the payment made to M/s Faberect. The first reason given is that the ITO accepted the compensation as disclosed by the assessee. In this connection, it may be pointed out that the CIT gave notice dt. 21st Feb., 1985, which appears at page 9 of the assessee's paper book and we have referred it in the earlier part of this order. To the assessee and after considering the submissions made by the authorised representative, for the assessee recorded his findings, which we have quoted above to explain this point. It is quite clear that the CIT has not given any notice to the assessee in this regard. Therefore, the finding recorded by the CIT that the payment was not commensura ..... X X X X Extracts X X X X X X X X Extracts X X X X
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