Safeway Dredging Enterprises, Nagapattinam V. DCIT, Thanjavur

CO 125/CHNY/2014

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4067 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 22-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2014
• Court: TRIBUNAL
• Department Lawyers: T BANUSEKARC A
• Assessee Lawyers: DURAI PANDIAN ADDITIONAL
• Keywords: Unexplained cash credit; Business expenditure; Principle of natural justice; Source of fund; Reasonable cause; Corroborative evidences; TDS
• Section: 40A(3); 40(a)(ia); 201; 274; 251; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , . ! '# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1447/MDS./2014 & C.O. NO.125/MDS./2014 / ASSESSMENT YEAR : 2010-11 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1,THANJAVUR. VS. M/S.SAFEWAY DREDGING ENTERPRISES , NO.7,SATTAIAPPAR EAST STREET, NAGAPATTINAM 611 001. [PAN ABHFS 8145 A ] ( $% / APPELLANT) ( &'$% /RESPONDENT/ CROSS OBJECTOR) / APPELLANT BY : MR.DURAI PANDIAN, ADDITIONAL CIT DR /RESPONDENT BY : MR.T.BANUSEKAR,C.A / DATE OF HEARING : 22 - 06 - 201 6 !' / DATE OF PRONOUNCEMENT : 15 - 07 - 2016 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE AND THE CROSS OBJECTI ONS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 2 -: INCOME-TAX (APPEALS), TIRUCHIRAPALLI DATED 30.01.20 14 PERTAINING TO ASSESSMENT YEAR 2010-11. 2.1 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS. 1. THE ORDER OF THE LEARNED CIT(A), IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE ID. CIT(A) ERRED IN HOLDING THAT THE EXPENDI TURES INCURRED ON CRANE HIRE CHARGES, DREDGER TRANSPORT EXPENSES A ND SUB- CONTRACTOR CHARGES ARE ALLOWABLE U/S.28 OF THE IT A CT AND DELETING THE DISALLOWANCE OF ` 49,69,800/-MADE U/S.40(A)(IA), OVERLOOKING THE PROVISIONS OF SECTION 37 OF THE ACT WHICH COVERS THESE PAYMENTS. 3. THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` 75,95,349/- MADE U/S.40A(3) WITHOUT APPRECIATING TH E FACT THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE RE GARDING NAME AND ADDRESS OF THE PERSONS TO WHOM WAGES WERE PAID, DETAILS OF SITE WHERE THE WORK WAS DONE, AND NON AV AILABILITY OF BANK FACILITIES AT THE SITE. THE GENUINENESS OF THE CLAIM UNDER RULE 6DD WAS NOT PROVED BY THE ASSESSEE. 4. THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF ` 20,95,600/- AND ` 21,40,000 MADE TOWARDS UNEXPLAINED CASH CREDITS AS APPEARED IN THE NAME OF SRI L.CHANDRASEKAR AND SRI A.PARTHIBAN WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE EXPLAINING SOURCE OF FUNDS FO R THESE CASH CREDITS. 2.2 IN CROSS OBJECTION, THE ASSESSEE HAS RAISING T HE FOLLOWING GROUNDS. 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW FACTS AND CIRCUMSTANCE S OF THE ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 3 -: CASE TO THE EXTENT PREJUDICIAL TO THE INTEREST OF T HE RESPONDENT AND AT ANY RATE IS OPPOSED TO THE PRINCIPLES OF EQU ITY, NATURAL JUSTICE AND FAIR PLAY. 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE DISALLOWANCE OF 10% OF EXPENDIT URE, CLAIMED BASED ON SELF MADE VOUCHERS, IS NOT WARRANT ED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ADDITION OF CREDITS IN THE CURR ENT ACCOUNT OF PARTNER TO THE EXTENT OF ` 15,80,000/- IS NOT WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1 THERE WAS A DELAY OF 109 DAYS IN FILING THE CR OSS OBJECTION BY THE ASSESSEE. THE ASSESSEE FILED A CONDONATION PETI TION STATING THAT THE ASSESSEE RECEIVED A NOTICE OF HEARING OF DEPART MENT APPEAL ON 21.06.2014 AND THE SAID NOTICE WAS HANDED OVER TO S HRI V.SAMATH KUMAR, MANAGER OF THE ASSESSEES FIRM SO AS TO HAND OVER MR.V.VISWANATHAN,C.A ON 15.07.2014. HOWEVER, SHRI V .SAMATH KUMAR HAS RESIGNED THE POST OF MANAGER ON 10.08.2014. DU RING THAT PERIOD, HE HAD FORGOTTEN TO INFORM THE RECEIPT OF NOTICE OF HEARING TO MR.V.VISWANATHAN. LATER, MR.V.VISWANATHAN CAME TO K NOW ABOUT THIS LAPSE. HE APPROACHED THE PRESENT COUNSEL MR.T.BANUS EKAR.C.A ON 11.08.2014 AND ACCORDINGLY HE HANDED OVER THE PAPER TO MR.T.BANUSEKAR. ACCORDINGLY MR.T.BANUSEKAR, THE PR ESENT COUNSEL OF ASSESSEE PEPARED THE C.O AND HANDED OVER TO MR.V.VI SWANATHAN,C.A ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 4 -: FOR SIGNATURE OF THE ASSESSEE ON 04.11.2014. AFTER GETTING DUE SIGNATURE, IT WAS ABLE TO FILE THE SAME ON 07.11.20 14. MR.T.BANUSEKAR,C.A PRAYED THAT THE DELAY CAUSED IN FILLING OF C.O WAS BONA FIDE AND THERE EXISTS REASONABLE CAUSE AND PRA YED FOR CONDONATION OF DELAY. CONSIDERING, THE REASONS ADV ANCED BY THE LD.A.R AND ALSO AFFIDAVIT FILED BY THE ASSESSEE, IN OUR OPINION, THERE IS A GOOD AND SUFFICIENT REASONS TO CONDONE THE DELAY OF 109 DAYS. ACCORDINGLY, THE DELAY IS CONDONED AND THE CROSS OB JECTION IS ADMITTED FOR ADJUDICATION. 3.2 THERE IS ALSO DELAY OF 22 DAYS IN FILING THE AP PEAL BY THE DEPARTMENT. THE AO FILED CONDONATION PETITION STAT ING THAT THE ORDER IS MISSED UP WITH OTHER FILES AND IT TOOK TIME TO L OCATE THE SAME AND PRAYED THAT THE DELAY OF 22 DAYS MAY BE CONDONED. W E HAVE GONE THROUGH THE CONDONATION PETITION FILED BY AO. IN OU R OPINION, THERE IS REASONABLE CAUSE TO CONDONE THE DELAYL OF 22 DAYS. ACCORDINGLY, THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR AD JUDICATION. 4. THE FIRST GROUND IN REVENUES APPEAL IS THAT TH E ID. CIT(A) ERRED IN HOLDING THAT THE EXPENDITURES INCURRED ON CRANE HIRE CHARGES, DREDGER TRANSPORT EXPENSES AND SUB-CONTRACTOR CHARG ES ARE ALLOWABLE U/S.28 OF THE IT ACT AND DELETING THE DISALLOWANCE OF ` 49,69,800/- ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 5 -: MADE U/S.40(A)(IA), OVERLOOKING THE PROVISIONS OF S ECTION 37 OF THE ACT WHICH COVERS THESE PAYMENTS 5. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM, ENGAGED IN THE BUSES OF DREGDING AND CONTRACT. THE ASSESSEE F IRM FILED ITS RETURN OF INCOME ON 24.09.2010 ADMITTING AN INCOME OF ` 67,18,020/-. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UN DER CASS TO EXAMINE THE VARIOUS ASPECTS OF CONTACTORS BUSINESS AND ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 28.03.2013. 5.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUN D THAT SOME OF THE VOUCHERS/BILLS ARE SELF-MADE AND FEW OF THEM WE RE NOT PRODUCED, AND TDS WAS NOT DEDUCTED FOR THE FOLLOWING EXPENSES . ` HIRE CHARGES PAID, BUT TDS NOT DEDUCTED 2,00,000 PAYMENT MADE FOR DREDGER TRANSPORT 3,96,000 EXPENSES PAYMENTS MADE TO VARIOUS SUB CONTACTORS 43,73,800 TOTAL 49,69,800 AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, TH E ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD. CIT(A), DELETED THE ADDITION ON THE REASON THAT THESE PAYMENTS ARE ALRE ADY MADE BEFORE THE END OF THE CLOSE OF THE FINANCIAL YEAR. NOTHING WAS OUTSTANDING AT THE END OF THE CLOSE OF THE FINANCIAL YEAR. FURTHE R, IT WAS OBSERVED THAT ALL THE PAYMENTS WERE MADE U/S.28 OF THE ACT, CONSEQUENT TO DISALLOWANCE U/S.40(A)(IA) OF THE ACT COULD NOT ARI SE. ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 6 -: 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE CIT(A) HAD GIVEN A REL IEF TO THE ASSESSEE ON THE REASON THAT NO PAYMENT IS OUTSTANDING AT THE END OF THE COST OF FINANCIAL YEAR AND IT IS NOT TO BE SHOWN AS PAYABLE IN THE FINANCIAL STATEMENT OF THE ASSESSEE. HENCE, THE PROVISIONS O F THE SECTION 40(A)(IA) OF THE ACT IS NOT APPLICABLE. HOWEVER, TH E DEPARTMENT IS NOT CHALLENGING THESE FINDINGS OF THE CIT(A). THE DEPAR TMENT CHALLENGING ONLY ANOTHER FINDINGS OF THE CIT(A) IN REGARD TO TH E EXPENDITURE ON CRANE HIRE CHARGES, DREDGER TRANSPORT EXPENSES AND SUB-CONTRACTOR XPX ALLOWABLE U/S.28 OF THE ACT AND CIT(A) DELETED THE DISALLOWANCE OF ` 49,69,800/- BY OVERLOOKING THE PROVISIONS OF THE SE CTION 37 OF THE ACT WHICH COVERS THESE PAYMENTS. HENCE, THE GROUND OF REVENUE IS INAPPROPRIATE. IN OUR OPINION, PROVISIONS OF THE S ECTION 40(A)(IA) OF THE ACT CANNOT BE APPLIED IN VIEW OF THE JUDGMENT OF T HE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TR ANSPORTS V. ADDL. CIT [2012] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB]. TH E SIMILAR ISSUE CAME BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF SHRI N.PALANIVELU VS. ITO REPORTED IN [2015] 40 ITR (TRI B) 325 [CHENNAI] VIDE ORDER DATED 29.04.2015 WHEREIN HELD THAT:- 4. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERI AL ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TR IBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. A DDL. CIT [2012] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] AND ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 7 -: JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF C IT V. VECTOR SHIPPING SERVICES (P.) LTD. IN I. T. A. NOS. 122 OF 2013 DATED JULY 9, 2013 [2013] 357 ITR 642 (ALL) HE LD THAT SECTION 40(A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YEAR IN RESPECT OF THESE PAYMENTS. HOWEVER, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING EXPENSES OR SCHE DULE OF SUNDRY CREDITORS SHOWING WHETHER THE IMPUGNED AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR EITHE R IN THE NAME OF THE PARTY OR OUTSTANDING EXPENSES. HENC E, IN THE INTEREST OF JUSTICE, WE ARE REMITTING THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND THE ASSESSEE SHALL PL ACE NECESSARY EVIDENCE IN SUPPORT OF HIS CLAIM. 5. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED A MOUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE ASSESSMENT YEAR IN RESPECT OF THE EXPENSES EITHER A S OUTSTANDING EXPENSES OR AS SUNDRY CREDITORS, THIS A MOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. ACCORDINGLY, THIS GROUND IS DISMISSED. 7. THE NEXT GROUND IS WITH REGARD TO DELETING THE DISALLOWANCE OF ` 75,95,349/- MADE U/S.40A(3) OF THE ACT. ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 8 -: 7.1 THE FACTS OF THE ISSUE ARE THAT THE AO MADE AN ADDITION OF ` 75,95,349/- U/S.40A(3) OF THE ACT IN RESPECT OF THE FOLLOWING EXPENDITURES FOR THE REASON THAT THE SAID PAYMENTS WERE MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE/DRAFT, IN EXCESS OF ` 20,000/-. MATERIALS FOR CONTRACT WORKS 13,56,596 WIP CSD(VISHUPRIYA II) FOR GPL 1,23,266 MACHINERY FUEL EXPENSES 1,91,150 FEES AND CHARGES PAID 28,500 LABOUR AND WAGE EXPENSES 58,95,837 THE PAYMENTS UNDER VARIOUS HEAD WHICH HAS BEEN DIS ALLOWED BY THE AO U/S.40A(3) IS MADE BY WAY OF CASH FOR THE FOLLOWING REASONS. MATERIAL FOR CONTRACT WORKS: THE APPELLANT HAS PAID A SUM OF RS.13,56,596/- BY W AY OF CASH TOWARDS MATERIALS FOR CONTRACT WORK. THESE EXPENSES WERE IN CURRED AT THE WORK SITE FOR PURCHASE OF CONSTRUCTION MATERIALS, SPARE PARTS , BUNKERING VESSELS FOR CARRYING WATER / FUEL TO THE SHIP ETC. IT MAY BE NO TED THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR THE APPELLANT HAD TAKEN A SUB-CONTRACT FOR CONSTRUCTION OF COMPLEX NEAR THE PORT AT KARAIK KAL WHICH COMPLEX WAS BUILT BY THE GOVERNMENT FOR PROVIDING MARKETING FAC ILITY TO THE FISHERMEN. THE CONTRACTS ARE TIME BOUND AND IF THERE ARE ANY D ELAYS IN COMPLETING THE WORK, PENALTY WOULD BE LEVIED. THEREFORE IN ORDER T O COMPLETE THE WORK IN TIME, TO PROCURE MATERIALS FOR EMERGENCY NEEDS, AMO UNT WOULD BE PAID IN CASH. FOR EXAMPLE, WHEN CONSTRUCTION MATERIAL IS RE QUIRED IT WOULD TAKE TWO OR THREE DAYS TO PLACE THE ORDER AND BRING THE MATE RIAL TO THE WORK SITE. HOWEVER IF IT IS AVAILABLE IN THE NEARBY WORK SITES OF SOME OTHER CONTRACTOR, FOR THE EMERGENCY NEEDS THE MATERIAL WOULD BE PROCU RED BY PAYING CASH. ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 9 -: FURTHER WHENEVER THE DREDGERS GET INTO THE SEA, THE APPELLANT HAS TO FINISH THE WORK WITHIN THE TIME LIMIT. THE DREDGERS HAVE T O WORK ROUND THE CLOCK AT TIMES TO MEET THE TARGET. FURTHER THE WIND BLOW OR THE CHANGE OF CLIMATIC CONDITIONS MAY FORCE THE APPELLANT TO EXTEND THE WO RKING HOURS OR SOMETIMES EXTEND THE WORK SCHEDULE BEYOND THE ALLOT TED TIME THEREBY LEADING TO COST OVERRUNS. THEREFORE WHENEVER THE DR EDGERS GET STUCK OR BREAK DOWN IN THE MID WATERS, THE APPELLANT HAS TO REVIVE THE ACTIVITIES WITHIN THE SHORTEST SPAN OF TIME BY GETTING MATERIA LS FOR REPLACEMENT LIKE SPARE PARTS ETC. AT ANY COST BY PAYING CASH. THE BUNKERING VESSEL WHICH ARE USED FOR CARRYING WA TER / FUEL TO THE SHIP IN THE SEA WOULD ALSO HAVE TO BE TAKEN BY MAKING PAYME NT TO THE LOCAL FISHERMEN HEAD AND HENCE THE PAYMENTS HAVE TO BE MA DE IN CASH. THE AUTHORISED REPRESENTATIVE SUBMITTED THAT ONLY T O MEET THE BUSINESS COMPULSIONS THE APPELLANT HAD TO PAY CASH AND PROCU RE THE MATERIAL FOR THE CONTRACT WORKS. HENCE IT IS MOST HUMBLY PRAYED THAT THIS RESPECTED AUTHORITY MAY BE PLEASED TO DELETE THE DISALLOWANCE MADE U/S. 40A(3) OF RS.13,56,596/- PAID IN CASH TOWARDS PROCUREMENT OF MATERIAL FOR CONTRACT WORKS. WIP CSD (VISHUPRIVA II) FOR GPL: THE APPELLANT PURCHASED AN OLD BOAT FOR ITS BUSINES S PURPOSES AND NAMED IT AS VISHNUPRIYA II. THE APPELLANT HAD TO INCUR AN EX PENDITURE OF ` 1,23,266/- FOR THE REPAIR AND MAINTENANCE OF THE SAID BOAT WHI CH WAS PAID IN CASH. THE APPELLANT HAD TO INCUR EXPENDITURE FOR BUYING WOOD, FOR LATHE WORK AND FOR BUYING SECOND HAND MOTOR AND SOME SPARE PARTS ETC. THESE PAYMENTS WERE ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 10 - : MADE TO PEOPLE LIKE SELLER OF WOOD, MECHANICS WHO D EAL IN SELLING SECOND HAND SPARE PARTS ETC AND HENCE THE PAYMENTS WERE MA DE IN CASH. AS THE BOAT WHICH IS AN OLD ONE WAS PURCHASED FOR T HE BUSINESS PURPOSE OF THE APPELLANT AND SINCE THE EXPENDITURE IN CASH WAS INCURRED TO MAKE THE BOAT FIT FOR WORKING CONDITIONS, AND SINCE ONLY CAS H PAYMENTS CAN BE MADE TO BUY SECOND HAND SPARE PARTS, IT IS MOST HUMBLY P RAYED THAT THIS RESPECTED AUTHORITY MAY BE PLEASED TO DELETE THE DISALLOWANCE MADE U/S.40A(3) OF ` 1,23,266/-. MACHINERY FUEL EXPENSES: THE APPELLANT HAD TO CARRY OUT DREDGING WORK IN THR EE OR FOUR SITES AT THE SAME TIME AND THE SITES WERE LOCATED WITHIN 20 TO 3 0 KMS. THE APPELLANT PROCURES FUEL FROM ONE COMMON BUNK FOR ALL THE WORK SITES WITHIN THAT AREA. THE APPELLANT HAD BEEN ALLOWED CREDIT FACILITY BY T HAT BUNK AND HENCE FUEL WAS PROCURED WHENEVER THERE IS A NEED BY THE WORKER S OF THE APPELLANT AND THE BILLS WERE FINALLY SETTLED IN CASH. SINCE ONLY OUT OF BUSINESS COMPULSIONS THE PAYMENT WAS MADE IN CASH IT IS MOST HUMBLY PRAY ED THAT THIS RESPECTED AUTHORITY MAY BE PLEASED TO DELETE THE DISALLOWANCE OF ` 1,91,150/- U/S.40A(3). LABOUR & WAGE EXPENSES: THE NATURE OF THE APPELLANTS BUSINESS INVOLVES LAR GE VOLUME OF LABOUR ORIENTED ACTIVITIES. THE DREDGING ACTIVITIES ARE BE ING CARRIED OUT IN THE SEA COAST AND PORT AREAS WHICH ARE PREDOMINANTLY OCCUPI ED BY THE FISHERMEN COMMUNITY. WHEREVER THE APPELLANT GO AND INTEND TAK ING UP THE BUSINESS, THEY HAVE TO TAKE INTO CONFIDENCE THE LOCAL FISHERM EN LIVING IN GROUPS. ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 11 - : MANAGING THE GROUP RIVALRY IS THE FIRST AND FOREMOS T TASK OF THE APPELLANT TO GET INTO THE WORK PLACE. THEREAFTER THE APPELLANT H AS TO KEEP ON MOVING WITH THEM IN A COOL AND CORDIAL ATMOSPHERE SO AS TO ENSU RE THE SMOOTH AVAILABILITY OF LABOUR FORCE. SINCE THE APPELLANTS ACTIVITIES ARE TO BE CARRIED OUT ONLY ON WATER SURFACE, THEY HAVE TO DEPEND ON T HE SERVICES OF THE ILLITERATE FISHERMEN WHO ALONE CAN GET INTO THE DEE P WATERS TO ATTEND TO AY MECHANICAL AND TECHNICAL PROBLEMS. WHILE MANAGING T HE WORK FORCE THE APPELLANT HAS TO FACE THE WRATH OF GROUPISM IN THE FISHERMAN KUPPAMS OR SLUMS IN AND AROUND THE WORKPLACE. AT TIMES THE APP ELLANT WILL ALSO HAVE TO SPEND MONEY ON THESE PEOPLE TO ENSURE THAT THEY DON T INTERFERE WITH THEIR WORKS. FURTHER THE NATURE OF EXPENDITURE INCURRED B Y THE APPELLANT IS PURELY DRIVEN BY CASH. THE APPELLANT HAS TO SETTLE ALL THE LABOUR ISSUES ONLY BY CASH. THE SUB-CONTRACTORS AT VILLAGE LEVELS ARE THE LOCAL HEADMAN OF THE KUPPAMS TO WHOM THE APPELLANT HAS TO MAKE THE PAYMENT AND H E WILL DISTRIBUTE THE SAME TO THE WORKERS. IN THE INSTANT CASE THE BUSINESS OF THE APPELLANT I S SUCH THAT FOR THE BROAD REASONS STATED ABOVE, IT HAS TO DEPEND ON THE LOCAL FISHERMAN AND GROUP HEADS FOR SMOOTH AVAILABILITY OF LABOUR FORCE. AGAINST THIS, THE ASSESSEE CARRIED THE APPEAL BEFOR E THE LD.CIT(A). 7.2 ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION MADE U /S.40A(3) OF THE ACT WITH REFERENCE TO PURCHASE OF MATERIAL FOR CON TRACT WORK AT ` 13,56,596/- BY WAY OF CASH INCURRED AT THE WORK SITE IN THE FOR M OF CONSTRUCTION MATERIAL, SPARE PARTS, BUNKERING VESSELS FOR CARRYING WATER O R FUEL TO THE SHIPS, ETC. ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 12 - : THESE PAYMENTS HAVE BEEN MADE IN CASH TO PROCURE MA TERIALS FOR EMERGENCY NEEDS FOR COMPLETION OF THE WORKS IN TIME WHICH REQUIRES ON THE SPOT PAYMENTS. IN ORDER TO FULFILL THE DREDGING WO RK AT ODD HOURS IN THE INCLEMENT WEATHER MAY FORCE THE APPELLANT TO WORK O VE NIGHT SHIFTS FOR WHICH THE WORKERS NEED TO BE PAID IN CASH. ALL THESE PAY MENTS HAVE BEEN MADE OUT OF BUSINESS COMPULSIONS FOR OBTAINING MATERIAL FOR CONTRACT WORKS AMOUNTING TO ` 13,56,596/-. SIMILARLY, THE APPELLANT HAD TO INCUR RS. 1,23,266/- FOR THE REPAIR AND MAINTENANCE OF A OLD BOAT BY NAME VISHNUPRIYA II THEREBY INCURRING EXPENDITURE ON PURCHASING OF W OOD, LATHE WORK, SECOND HAND MOTOR AND SOME SPARE PARTS. SIMILARLY, MACHINE AND FUEL EXPENSES FOR CARRYING OUT DREDGING WORK AT 3, 4 SITES LOCATED NE AR SEA COAST ANOTHER AMOUNT OF 1,91,150/- HAD TO BE PAID IN CASH. OVER A ND ABOVE, AROUND 50 TO 60 WORKERS HAVE BEEN INDULGED IN LABOUR WORKS WHOSE PAYMENT DID NOT EXCEED RS. 20,000/- IN A DAY. HENCE DISALLOWANCE U/ S 40A(3) ON LABOUR AND WAGE EXPENSES OF RS.58,95,837/- IS ALSO NOT JUSTIFI ED. THE APPELLANT PLACED HIS RELIANCE ON T1IE JURISDICTIONAL ITAT DECISION I N THE CASE OF TRIDENT MOVIES IN ITA NO. 184/MDS DATED 17.01.2013 WHEREIN IT WAS HELD NO DISALLOWANCE U/S 40A(3) CAN BE MADE TAKING INTO CONSIDERATION TH E BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. IN THE INSTANT CASE THE ASSESSEE AND ITS WORKERS CARRYING ON WORKS RELATING TO DREDGING AND OTHER CO NTRACT WORKS AND PAYMENTS HAVE TO BE MADE TO VARIOUS WORKERS AND MAT ERIALS PURCHASED OUT OF BUSINESS EXPEDIENCY AND THEREFORE THE DISALLOWAN CE U/S 40A(3) ARE NOT WARRANTED. THE PAYMENTS MADE FOR PURCHASE OF MATERI AL AS WELL AS WORKERS IN A PLACE WHERE BANKING FACILITIES ARE NOT AVAILAB LE IN A REMOTE SEA COASTAL ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 13 - : AREAS WHERE NO BANKING FACILITIES ARE AVAILABLE OUT OF BUSINESS EXPEDIENCY THE PAYMENTS CAN BE MADE UNDER THE EXCEPTIONABLE 6D D AND SUCH PAYMENTS ONCE PROVED GENUINE CANNOT BE DISALLOWED U/S 40A(3) OF THE I.T. ACT. THE APPELLANT ALSO BROUGHT TO NOTICE OF CIT(A), THE VARIOUS CASE LAWS IN SUPPORT OF THE APPELLANTS CASE SUCH AS PACL VS. AC IT (2010) 38 DTR (JP)(TRIBUNAL), KKSK LEATHER PROCESSORS P.LTD. (200 7) 292 ITR 669/(2008) 169 TAXMAN 251 (MAD), CHOWDRY & CO. 217 ITR 43 1/84 TAXMAN 495(ALL) AS WELL AS P.PRAVEEN & CO. (2005) 274 ITR 534/ 144 TAXMAN 210(GUJ). 7.3 KEEPING IN VIEW OF THE VARIOUS JUDICIAL PRECED ENTS, THE CIT(A) OBSERVED THAT ONCE THE GENUINENESS OF THE PAYMENTS ARE NOT DOUBTED AND THE PAYMENTS HAVE BEEN MADE OUT OF BUSINESS EXIGENC IES NO DISALLOWANCE U/S 40A(3) IS REQUIRED TO BE MADE EVEN IF THE PAYME NTS EXCEED RS. 20,000/- WHICH ARE COVERED UNDER THE EXCEPTIONAL RULE 6DD AS THE PAYMENTS MADE TO MOSTLY ON DAILY BASIS IN THE FORM OF WAGES AND PURC HASE OF MATERIALS FOR UNDERTAKING GOVT. CONTRACT WORKS IN REMOTE PLACES L IKE SEA COAST AND SEA WATERS THE PAYMENTS HAVE TO BE INVARIABLY MADE IN C ASH, THEREFORE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING T HE CLAIM OF THE APPELLANT. THEREFORE, HE DIRECTED THE ASSESSING OFFICER IS DIR ECTED TO ALLOW THE CLAIM OF THE APPELLANT FOR THE PAYMENTS MADE AT RS.75,95,349 /-. HENCE, LD.CIT(A) ALLOWED THIS GROUND OF APPEAL. AGGRIEVED, THE REVEN UE IS IN APPEAL BEFORE US. 7.4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. WE HAVE GONE THROUGH THE ORDER OF LD.CIT(A) ON THIS ISSUE. WE FIND THAT ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 14 - : THOUGH THE PAYMENTS WERE MADE IN CASH IN EXCESS OF ` 20,000/- ON ACCOUNT OF BUSINESS EXPENDITURE, AS THE ASSESSEE MADE THE PAYMENTS AT THE WORK PLACE FOR THE PURPOSE OF PURCHASE OF MATERIALS AND LABOURERS. FURTHER, THE DRUDGING WORK WAS CARRIED ON AT ODD HOURS AT SEA CO AST AND IT CANNOT BE ACCEPTED THAT THE MATERIAL SUPPLIERS OR LABOURERS W OULD TAKE THE CHEQUES FROM THE ASSESSEE. THE PROVISIONS OF THE SECTION 4 0A(3) OF THE ACT WHICH ITSELF PROVIDES FOR EXCEPTION CIRCUMSTANCES HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE AND BUSINESS EXPENDITURE AND OTHER RELEVANT FACTORS. IN THE PRESENT CASE, THE FACTS A ND CIRCUMSTANCES SHOW THAT THE ASSESSEE HAS BONA FIDE REASONS TO MAKE CASH PAY MENTS IN RESPECT OF ABOVE EXPENDITURE. FURTHER, THE FOLLOWING DECISION S WERE RELIED BY THE ASSESSEES COUNSEL AND ALSO IN SUPPORT OF ASSESSEE S CASE. 1. IN THE CASE OF ANUPAM TELE SERVICES VS. ITO REP ORTED IN (2014) 366 ITR 122(GUJ.) WHEREIN HELD THAT SECTION 40A(3) DOES NOT ELIMINATE CONSIDERATIONS OF BUSINESS EXPEDIENCIES, THUS WHERE ASSESSEE WAS COMPELLED TO MAKE CASH PAYMENTS, DISALLOWANCE MADE BY INVOKIN G S.40A(3) WAS NOT JUSTIFIED. 2. IN THE CASE OF M/S.TRIDENT MOVIES VS. ACIT IN ITA NO.184/MDS./2012 VIDE ORDER DATED 17.01.2013 WHEREIN HELD THAT AS PE R THE PROVISO TO SEC.40A(3), NO DISALLOWANCE CAN BE MADE U/S.40A(3) TAKING INTO CONSIDERATION THE BUSINESS EXPEDIENCY AND OTHER REL EVANT FACTORS. IN THE PRESENT CASE, THE ASSESSEE AND ITS TEAM WENT TO A F AR AWAY PLACE FOR THE PURPOSE OF TV SERIAL SHOOTING. THE ASSESSEE HAD MAD E CASHPAYMENTS TO VARIOUS PARTIES, TECHNICIANS, ARTISTS ETC. FOR THE PERIOD OF 2 TO 6 DAYS UNDER ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 15 - : BUSINESS COMPULSIONS. WE FIND THAT THE ABOVE PAYME NT WAS MADE UNDER BUSINESS COMPULSIONS AND THEREFORE, BY CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO TAKING INTO CONS IDERATION OF THE BUSINESS EXPEDIENCY, WE ARE OF THE OPINION THAT SEC.40A(3) H AS NO APPLICATION TO THE FACTS OF THE ASSESSEES CASE. BEING SO, IN OUR OPINION, THE DELETION OF ADDITION MADE BY THE CIT(A) IN RESPECT OF SEC.40A(3) IS JUSTIFIED. 8. THE NEXT GROUND IS DELETION OF ` 20,95,600/- AND ` 21,40,000 MADE TOWARDS UNEXPLAINED CASH CREDITS U/S.68 OF THE ACT AS APPEARED IN THE NAME OF SRI L.CHANDRASEKAR AND SRI A.PARTHIBAN. 8.1 IN CROSS OBJECTIONS, THE ASSESSEE HAS RAISED T HE GROUND IS WITH REGARD TO SUSTAINING THE ADDITION OF ` 15,80,000/- TOWARDS UNEXPLAINED CASH CREDITS U/S.68 OF THE ACT AS APPEARED IN THE NAME OF K.ALAG APPA VANDAYAR. 8.2 THE FACTS OF THE ISSUE ARE THAT ON VERIFICATIO N OF PARTNERS CURRENT ACCOUNT, AO FOUND THAT THERE WAS CASH CREDIT IN THE PARTNERS CURRENT ACCOUNT AS DETAILED BELOW: SHRI R.CHANDRA SEKAR 20,95,600 SHRI ALGAPPA VANDAYAR 15,80,000 SHRI A.PARTHBAN 21,40,000 TOTAL 58,15,000 DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THA T AS IN THE INDIVIDUAL ACCOUNT OF THE PARTNERS AS WELL AS CURRENT ACCOUNT OF THE PARTNERS CASH WAS NOT DEBITED FOR TAXATION, THE AO MADE AN ADDITION O F ` 58,15,000/-. AGAINST THIS, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD .CIT(A). 8.3 ON APPEAL, THE LD.CIT(A) OBSERVED THAT SHRI.R. CHANDRASEKAR AND SHRI.A.PARTHIBAN ARE INCOME TAX ASSESSEES AND THEY HAVE SHOWN THE ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 16 - : INVESTMENT MADE IN THE APPELLANT FIRM IN THEIR CAPI TAL ACCOUNT AND FILED THEIR RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11. A COPY OF THE ACKNOWLEDGEMENT FOR FILING THE RETURN OF INCOME ALO NG WITH THE COMPUTATION OF INCOME, CAPITAL ACCOUNT AND BALANCE SHEET OF BOT H THESE PARTNERS ARE ENCLOSED FOR THE PERUSAL OF THIS RESPECTED AUTHORIT Y. IT MAY BE NOTED THAT THESE WERE FILED BEFORE THE ASSESSING OFFICER DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS. HOWEVER THE ASSESSING OFFIC ER WITHOUT VERIFYING THE SAME CONCLUDED THAT THE PARTNERS HAVE NOT SHOWN THESE AMOUNTS IN THEIR ACCOUNTS. 8.4 AS FAR AS THE CONTRIBUTION FROM SHRI.ALAGAPPA VANDAYAR IS CONCERNED, IT IS SUBMITTED THAT HE HAS PASSED AWAY ON 10.02.20 12 AND WAS 89 YEARS OLD WHEN HE PASSED AWAY. HE WAS NOT AN ASSESSEE AND HAS NOT FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11, BUT STIL L THE SUMS WERE CONTRIBUTED BY HIM FROM OUT OF HIS INCOME. IN THE LIGHT OF THE ABOVE SUBMISSIONS THE AUTHORISE D REPRESENTATIVE PRAYED TO DELETE THE ADDITION OF CONTRIBUTION BY THE PARTN ERS AS THESE CREDITS ARE GENUINE AND ARE ACCOUNTED IN THE BOOKS OF THE PARTN ERS. AS FAR AS THE DISALLOWANCE MADE BY THE ASSESSING OF FICER ON ACCOUNT OF CREDITS IN THE PARTNERS CURRENT ACCOUNT IS CONCERNE D, THE AUTHORISED REPRESENTATIVE OF THE APPELLANT HAS FILED DETAILS O F INCOME TAX PARTICULARS OF SHRI R.CHANDRASEKAR AND A.PARTHIBAN AND THE INVESTM ENTS MADE BY BOTH THE PARTNERS IN THE APPELLANT FIRM AND SHOWN IN THEIR C APITAL ACCOUNTS REFLECTED IN THE RETURNS OF INCOME FILED FOR THE AY 2010-11 I.E. , THE YEAR UNDER CONSIDERATION. ON VERIFYING THE DETAILS FILED SUCH AS COPY OF THE ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 17 - : ACKNOWLEDGEMENT FOR FILING THE RETURN OF INCOME ALO NG WITH COMPUTATION OF INCOME, CAPITAL ACCOUNT AND BALANCE SHEET OF THESE PARTNERS, THEIR INVESTMENTS HAVE BEEN PROPERLY REFLECTED IN THE CAP ITAL AND HENCE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIONS MADE IN THE CASE OF R.CHANDRASEKAR AND A.PARTHIBAN. IN THE CASE OF SHRI ALAGAPPA VANDAYAR AGED 89 YEARS WHO PASSED AWAY ON 10.02.2012 IS NOT AN ASSESSEE AND NOT FILED HIS RETURN OF INCOME. EVEN THOUGH THE AUTHORI SED REPRESENTATIVE OF THE APPELLANT DEFENDED THE CONTRIBUTION MADE BY SHRI AL AGAPPA VANDAYAR AT RS. 15,18,000/- AS HIS CONTRIBUTION IN THE FIRMS ACCOU NTS THERE IS NO SUPPORTING EVIDENCE FILED APART FROM STATING THAT THE SUMS WER E CONTRIBUTED BY HIM OUT OF HIS INCOME. IN THE ABSENCE OF ANY DOCUMENTARY EV IDENCE, OR MATERIAL ON RECORD, THE EXPLANATIONS FILED BY THE LD.A.R CANNOT BE ACCEPTED. HENCE, THE LD.CIT(A) CONFIRMED ADDITIONS MADE BY THE AO. 8.5 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THE CASE OF SHRI R.CHANDRASEKAR, THIS AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE FOR CAPITAL CONTRIBUTION. SHRI R.CHANDRASE KAR HAS BEEN ASSESSED TO INCOME TAX, NAGAPATTINAM, TAMILNADU AND HE HAS FIL ED THE RETURN OF INCOME BEFORE THE ITO WARD-1(1), (PAN AEKPC 6706 M) AND TH E AMOUNT HAS BEEN DISCLOSED IN HIS FINANCIAL STATEMENT AS CAPITAL INT RODUCED IN SAFEWAY DREDGING AT ` 20,95,600/-. BEING SO, THE DEPARTMENT CANNOT BE DO UBTED THE IDENTITY AND GENUINENESS OF THE TRANSACTION U/S.68 OF THE ACT. THE DELETIONOF ADDITION MADE BY THE CIT(A) IS JUSTIFIED. 8.6 REGARDING MR.A.PARTHIBAN, HE HAS ALSO FILED TH E RETURN OF INCOME BEFORE THE ITO WARD-1(3), THANJAVUR (PAN AALPP 7701 Q) AND THE AMOUNT ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 18 - : OF ` 38,80,000/- HAS SHOWN AS CLOSING BALANCE IN THE BAL ANCE SHEET OF THE A.PARTHIBAN AS ON 31.03.2010 AND IT WAS THE CLOSING BALANCE OF ` 30,80,000/- AND OPENING BALANCE WAS ` 9,40,000/- AS ON 31.03.2009. BEING SO, IT CANNOT BE DOUBTED BY THE AO U/S.68 OF THE ACT AND THE DELE TION OF ADDITION IS JUSTIFIED. WE CONFIRM THE ORDER OF THE CIT(A). 8.7 REGARDING SUSTAINING THE ADDITION OF ` 15,80,000/- U/S.68 OF THE ACT IN RESPECT OF CURRENT ACCOUNT BALANCE IN THE NAME OF S HRI ALAGAPPA VANDAYAR, THE ASSESSEE IS NOT ABLE TO SHOW ANY PROOF THAT SHR I ALAGAPPA VANDAYAR HAS CONTRIBUTED THIS AMOUNT. IN VIEW OF THE INSUFFICIEN CY OF EVIDENCE, THE ADDITION IS TO BE CONSIDERED U/S.68 OF THE ACT. THE SAME IS CONFIRMED. THIS GROUND IN CROSS OBJECTION IS DISMISSED. 9. THE ASSESSEE HAS RAISED ONE MORE GROUND IN C.O IS WITH REGARD TO SUSTAINING THE DISALLOWANCE OF EXPENDITURE AT 10% I N RESPECT OF SELF-MADE VOUCHERS. 9.1 IN THIS ISSUE, CERTAIN PAYMENTS AMOUNTING AT 2 0% OF ` 2,49,55,733/- SUPPORTED BY SELF-MADE VOUCHERS. THE AO DISALLOWED 20% OF THESE PAYMENTS, WORKED OUT AT ` 49,91,146/-. ON APPEAL, THE CIT(A) OBSERVED THAT SIMILAR DISALLOWANCE WAS MADE IN EARLIER YEAR I.E. ASSESSMENT YEAR 2009-10 AND HE WAS OF THE OPINION THAT THERE IS EVERY CHANC E OF BIFURCATING EXPENDITURE IN SELF-MADE VOUCHERS AND HAS SUSTAINED 10% OF THA EXPENDITURE. AGAINST THIS, THE ASSESSEE IS IN APPE AL BEFORE US. 9.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE TOTAL EXPENDITURE WAS CLAIMED AT ` 2,49,55,733/-. THESE PAYMENTS WERE ITA NO.1447/MDS./2014 CO NO.125/MDS./2014 :- 19 - : SELF-MADE VOUCHERS. THERE IS EVERY CHANCE OF BIFURC ATING EXPENDITURE IN SELF- MADE VOUCHERS AS IT IS NOT SUPPORTED BY THIRD PARTY EVIDENCE AND SELF-MADE VOUCHERS IS NOT 100% FULL PROOF. HENCE, CERTAIN A DHOC DISALLOWANCE IS MADE. BEING SO, THE CIT(A) IS VERY REASONABLE IN RE STRICTING THE DISALLOWANCE FROM 20% TO 10% WITH REGARD TO EXPENDITURE COVERED BY SELF-MADE VOUCHERS. WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD.CIT(A) AND THE SAME IS CONFIRMED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS CROSS OBJECTIONS BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 15 TH JULY, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) ! / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 15 TH JULY, 2016 K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF