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03-09-2019, S.D. Traders, Section 250, 251(1)(a), 31,34, HIGH COURT OF ALLAHABAD
1. This is an assessee's appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter called as 'Act') assailing the order of the Income Tax Appellate Tribunal, Lucknow Bench, 'A' Lucknow (hereinafter called as 'Tribunal') dated 24.02.2016, affirming the order of the CIT (A) as far as regarding addition out of sundry creditors to the extent of Rs.15 lacs and disallowance of 25% of the labour charges. The appeal was admitted on 05.07.2016 on the following question of law:-
“(i) Whether the Appellate Tribunal was legally justified in holding that CIT(A) in exercise of power of enhancement u/s 251 has power to consider new source of income which was not dealt by A.O. in assessment order ignoring the Full Bench decision of CIT vs. Sardari Lal & Co. 251 ITR 864 (Del) (FB)? (v) Whether the Appellate Tribunal was justified in not considering that after set-aside proceedings by Hon'ble high Court, the CIT(A) has not issued fresh notice of enhancement (although time barred) and followed the its earlier order without application of mind?”
2. However, vide order dated 02.05.2019, this Court allowed the application filed by the appellant for additional question of law proposed by him which are as under:-
“(iii) whether the ITAT was correct to disallow Rs.5.95 lacs, being 25% of labour charges ignoring the increasing trend in the G.P rate of 17.79% in this year as compared to 13.79% in A.y 2005-06, specially whenall the expenses were vouched and verifiable being the books of accounts are duly audited u/s 44AB of the Act, in the absence of its rejection and the books have not been rejected.
(iv) whether the ITAT has rightly sustained the addition of Rs.15 lacs out of Sundry Creditors for onus of discharge of verification after 7 years, on appellant while legal observation to preserve the books of Accounts and other documents for 6 years from the relevant assessment years and third party is under no obligation to provide confirmation or verification beyond 6 years from the relevant assessment years.”
3. On 03.05.2019, the above mentioned question of laws were incorporated by the appellant in the paper-book as question nos III and IV. Assessee/ appellant is in business of civil contract, and for assessment year 2006-07 disclosed his job work receipts amounting to Rs.90,35,009/- and declared gross profit of Rs.16,07,474/- whereas net profit was shown as Rs.3,62,113/-. Return of income was filed on 31.10.2006 and the same was processed under Section 143(1) of the Act on 14.09.2007. Case of the assessee was selected for scrutiny and notice under Section 143(2) was issued on 19.10.2007, as well as notice under Section 142(1) along with questionnaire was issued on 08.08.2008. According to assessee, he replied the queries raised by Assessing Officer. AO completed assessment and made three additions.
4. The order of assessment was challenged by assessee before Commissioner of Income Tax (Appeals), who on 13.09.2013 issued notice requiring appellant to produce labour register including bills, vouchers and ledger accounts as well as details of sundry creditors. On 14.11.2013, CIT (A) passed an order enhancing income of appellant by Rs.26.50 lacs which includes disallowances to the extent of 50% of wage expenses claimed by appellant in profit and loss account and 50% of sundry creditors appearing in balance sheet of the assessee.
5. Order of CIT(A) was challenged before the Tribunal by assessee, and on 14.04.2014, Tribunal dismissed the appeal of assessee. Aggrieved by this order assessee preferred an Income Tax Appeal Defective No. 145 of 2014 before this Court. On 10.12.2014 this Court set aside the order of CIT (A) and of the Tribunal, and restored the proceedings for reconsideration before CIT (A), with a direction that appellant shall file all required information and documentary material before CIT (A) by 31st December, 2014 and shall appear before CIT (A) for receiving directions as to hearing on 5th January, 2015. It was further held that in case assessee fails to file required information and documentary material, CIT (A) would be at liberty to pass orders on basis of available records after furnishing an opportunity of being heard to the assessee.
6. In compliance of the order of this Court, it appears that assessee filed an application along with copy of order before CIT (A) along with certain documents which have been enclosed along with this appeal and are part of record as Annexure-6. Further, notice under Section 250 was issued by the CIT (A) for hearing on 05.01.2015. Thereafter, appellant was given several opportunities on 31.12.2014, 18.02.2015, 27.02.2015, 09.03.2015, 17.03.2015 and 25.03.2015. From the order of the CIT (A), it appears that the authorised representative of the appellant appeared from time to time and furnished replies/ documents. On 31.03.2015, CIT (A) partly allowed appeal of the assessee and disallowance of Rs.36,019/- and Rs.20,000/- were deleted while additions of Rs.11.50 lacs and Rs.15.00 lacs were confirmed. Against this order an appeal was filed by the assessee/ appellant before the Tribunal which was also partly allowed on 24.02.2016 confirming the addition of amount of sundry creditors to extent of Rs.15.00 lacs, while disallowance on labour charges of Rs.5.95 lacs being made. It is against this order that the present appeal has been filed by the assessee.
7. Learned senior counsel appearing for the assessee submitted that Assessing Officer had made three additions which were deleted by the CIT (A) but had wrongly made addition of Rs.11.50 lacs and Rs.15.00 lacs towards labour expenditure and sundry creditors, as he did not had the jurisdiction to introduce a new source of income and assessment was to be confined to those items of income which was subject matter of original assessment, that is the three additions made by AO of Rs.76,019/-, Rs.20,000/- and Rs.54,375/- only.
8. It was submitted that Section 251(1)(a) of the Act only envisages for the appellate authority that is CIT (Appeal) to