Commissioner of Income Tax vs Rajinder Parshad Jain

Rajive Bhalla, J.�The Revenue is before us challenging the order dated August 28, 2012, passed by the Income-tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh (hereinafter referred to as "the Tribunal"), on the following substantial questions of law:

"(i) Whether, on the facts and in the circumstances of the case, the hon''ble Income-tax Appellate Tribunal was right in law in directing the Assessing Officer to apply the net profit rate of 6 per cent against 12 per cent whereas the hon''ble Punjab and Haryana High Court itself in different set of facts had applied the net profit rate of 10 per cent.?

(ii) Whether, on the facts and in the circumstances of the case, the hon''ble Income-tax Appellate Tribunal was right in law in accepting the interpretation adopted by the Visakhapatnam Special Bench of the Income-tax Appellate Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]; [2012] 136 ITD 23 (SB) (Visakhapatnam) that the disallowance under section 40(a)(ia) is to be made only in respect of payments which are outstanding at the end of the financial year and payment of which is without deduction of tax (after the end of the financial year)?

(iii) Whether, on the facts and in the circumstances of the case, the hon''ble Income-tax Appellate Tribunal was right in law in deleting the addition of Rs. 8,04,948, though the same had been shown by the assessee under the sub-head ''work-in-progress'' and has not been reflected in the trading account?"

Before dealing with the submissions made by counsel for the Revenue, it would be appropriate to delimit the facts in brief.

The assessee is a civil contractor and during assessment year 2008-09, filed a return of income. The return was selected for scrutiny and, vide order dated November 10, 2010, the Assessing Officer, while rejecting the account books, assessed the income by applying a net profit rate of 12 per cent, on the gross receipts. The Assessing Officer also made additions under section 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for failure to deduct tax at source regarding the payment to sub-contractors. The Assessing Officer also made an addition on account of work-in-progress.

Aggrieved by this order, the assessee filed an appeal. The Commissioner of Income-tax (Appeals), Rohtak, (hereinafter referred to as "the CIT(A)) vide order dated March 18, 2011, deleted the net profit rate of 12 per cent by holding that no reason has been assigned for rejecting account books, confirmed additions on account of non-deduction of tax at source and held that as the deletion on account of work-in-progress is already reflected in the accounts, the addition has been rendered infructuous.

Both the Revenue as well as the assessee filed separate appeals. The Tribunal by way of the impugned order, affirmed the order passed by the Assessing Officer rejecting the account books but reduced the net profit rate to 6 per cent. As regards the additions made on account of deduction of tax at source, the Tribunal directed the Assessing Officer to examine the genuineness of payments. As regards the work-in-progress, the Tribunal affirmed the order passed by the Commissioner of Income-tax (Appeals).

Counsel for the appellant submits that the Tribunal has not assigned any reason for applying a net profit rate of 6 per cent particularly when the Assessing Officer has after due consideration of the facts given reasons for applying a net profit rate of 12 per cent. As regards the addition on account of failure to deduct tax at source, it is contended that as section 40(a)(ia) of the Act is mandatory and does not admit to any exception, the opinion recorded by the Tribunal to the contrary is against the statute and must, therefore, be set aside. As regards question No. 3, it is submitted that neither the Commissioner of Income-tax (Appeals) nor the Tribunal have assigned any reason for deleting the addition made on account of work-in-progress.

We have heard counsel for the appellant, perused the impugned order as well as the orders passed by the Commissioner of Income-tax (Appeals) and the Assessing Officer and are not inclined to entertain the appeal much less to hold that any substantial question of law arises for adjudication.

The Tribunal has applied a net profit rate of 6 per cent as it was in consonance with the past history of the assessee. At the time of initial hearing, we had called upon counsel for the appellant-Revenue to apprise the court about the net profit rate applied to the assessee in years previous and subsequent to the assessment year in dispute. Counsel for the appellant fairly concedes, on instructions that in the preceding as well as the following year a net profit rate of 6.75 per cent and 5 per cent, respectively, was applied by the Assessing Officer and has also placed on record the order for the assessment year 2009-10 where a net profit rate of 5 per cent, has been applied to the assessee. We, therefore, find no error in the discretion exercised by the Tribunal in applying a net profit rate of 6 per cent

As regards the question relating to deduction of tax at source, suffice it to state that the Tribunal has merely restored the matter to the Assessing Officer by asking him to verify the transactions and if found to be correct, pass orders accordingly by holding as follows:

"8. On a perusal of the record we find that the issue in this appeal is in relation to the disallowance made out of payments of labour charges paid for non-deduction of tax at source under the provisions of section 194C of the Act. The said disallowance was made by invoking the provisions of section 40(a)(ia) of the Act. The Special Bench of Visakhapatnam reported in Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]; [2012] 136 ITD 23 (SB) (Visakhapatnam) had laid down the principle that where the amounts have been paid during the year under consideration itself and nothing is payable at the close of the year, no disallowance was warranted under section 40(a)(ia) of the Act for non-deduction of tax at source out of such amount paid during the year. Following the abovesaid parity of reasoning, we direct the Assessing Officer to verify the stand of the assessee and in case the said amounts have been paid by the assessee during the year under consideration, no disallowance is warranted out of the said payments in line with the provisions of section 40(a)(ia) of the Act. Reasonable opportunity of hearing shall be afforded to the assessee by the Assessing Officer for adjudicating the issue. The ground of appeal raised by the assessee is allowed for statistical purposes."

We find no reason whether in fact or in law to interfere with the above finding as the Tribunal has left it on the Assessing Officer to determine whether payments were made by the assessee during the year under consideration. The third point need not detain us for long as a perusal of the order passed by the Commissioner of Income-tax (Appeals) as well as the Tribunal reveals that Rs. 8,04,948 added on account of work-in-progress, had already been taken into account in the total costs of the works and, therefore, the addition made by the Assessing Officer was not warranted. The Tribunal has recorded that the representative from the Department was unable to controvert findings recorded by the Commissioner of Income-tax (Appeals) in respect thereof. We are rather mystified as to why question No. 3 has been framed as a question of law. Consequently, we answer the questions of law against the Revenue and dispose of the appeal accordingly.