BHANWAR LAL CHOUDHARY, Sikar V. ACIT, Sikar

ITA 1073/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2025 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 06-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L CHANDEL DHK
• Keywords: Depreciation; Retrospective amendment
• Section: 40A(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 1073/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 SH. BHANWAR LAL CHOUDHARY, PROP. NEW CHOUDHARY ENTERPRISES,SIKAR CUKE VS. ACIT CIRCLE-SIKAR, SIKAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO.: ABWPC4187H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL JKTLO DH VKSJ LS@ REVENUE BY : SHRI S. L. CHANDEL LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04/07/2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 07/07/2017. VKNS'K@ ORDER PER:SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- 03, JAIPUR DATED 26.09.2016 WHEREIN THE ASSESSEE HA S TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 17,61,272/- AND RS. 1,15,000/- U/S 40(A)(IA) ON ACCOUNT OF NON DEDU CTION OF TAX AT SOURCE ON INTEREST PAID TO FINANCIAL INSTITUTIONS A ND LEGAL EXPENSES PAID TO SH. GAURAV AGARWAL. 1.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN CONFIRMING THE ABOVE DISALLOWANCE EVE N WHEN THE ASSESSEE HAS PAID THE ENTIRE AMOUNT AND NO AMOUNT R EMAINS PAYABLE AT THE END OF THE YEAR. ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 2 1.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN CONFIRMING THE ABOVE DISALLOWAN CE EVEN WHEN THE RECIPIENT HAS INCLUDED THE INCOME IN ITS RETURN AND HAS PAID THE TAX THEREON. 1.3 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN CONFIRMING THE ENTIRE DISALLOWA NCE OF INTEREST U/S 40(A)(IA) IGNORING THAT IN VIEW OF AMENDMENT MADE I N THIS SECTION W.E.F. 01.04.2015 WHICH IS TO REMOVE UNINTENDED HAR DSHIP, ONLY 30% OF SUCH AMOUNT CAN BE DISALLOWED BY GIVING THE EFFECT OF THIS AMENDMENT RETROSPECTIVELY. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 5,35,335/- U/S 40A(3) OF THE IT ACT. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 12 ,68,312/-, BEING 5% OF THE EXPENSES OF RS. 2,53,66,240/- CLAIMED BY THE ASSESSEE IN THE P&L A/C. 2. REGARDING GROUND NO. 1, BRIEFLY THE FACTS OF THE CA SE ARE THAT THE AO ON VERIFICATION OF THE PROFIT & LOSS ACCOUNT OF THE AS SESSEE OBSERVED THAT RS. 20,15,929/- HAVE BEEN DEBITED TO INTEREST ON OTHER FINANCIAL INSTITUTIONS. AFTER EXCLUDING THE INTEREST PAID TO ADARSH COOPERA TIVE BANK, BANK OF INDIA AND KOTAK MAHINDRA BANK, HE WORKED OUT THE INTEREST AMOUNT PAID TO OTHER FINANCIAL INSTITUTIONS AT RS. 17,61,272/- ON WHICH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE U/S 194A. FURTHER, ON LEGAL EXP ENSES OF RS. 1,15,000/- PAID TO SHRI GAURAV AGRAWAL, NO TAX WAS DEDUCTED AT SOURCE U/S 194J. ACCORDINGLY, THE AO DISALLOWED RS. 18,76,272/- BY A PPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) UPHELD THE DISALLOWANC E MADE BY THE AO. THE RELEVANT FINDING OF THE LD. CIT(A) WHICH ARE UN DER CHALLENGE BEFORE US ARE REPRODUCED AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, FINDINGS OF THE AO AND SUBMISSION OF THE APPELLANT. REGARDING DISAL LOWANCE OF RS. ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 3 18,76,272/- U/S 40(A)(IA) AO MADE DISALLOWANCE FOR REASON THAT ASSESSEE HAS NOT DEDUCTED TDS ON INTEREST OF RS. 17 61272/- PAID TO FINANCIAL INSTITUTES AND ON LEGAL EXPENSES OF RS. 1 ,15,000/- PAID TO GAURAV AGARWAL. AR ARGUED THAT CASE OF THE ASSESSEE IS COVERED BY 2 ND PROVISO TO THIS SECTION WHICH GIVES EXEMPTION FROM TDS AS ASSESSEE CANNOT BE DEEMED TO BE ASSESSEE IN DEFAULT ON FILING OF RETUR N U/S 139. BUT NO SUCH RETURN FILED BY RESPECTIVE PERSONS WAS SUBMITT ED. NOR ANY CERTIFICATE FROM THE RECIPIENT CONFIRMING THAT THE AMOUNT PAID BY THE ASSESSEE IS INCLUDED IN THEIR INCOME WAS FILED BEFO RE AO OR BEFORE ME DURING APPEAL PROCEEDINGS. ON PERUSAL OF ORDER/SUBMISSIONS ITS SEEN THAT THERE IS NO DISPUTE THAT ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. LD. AR REL IED UPON 2 ND PROVISO TO SECTION 40(A)(IA) WHICH IS APPLICABLE FROM A.Y 2 013-14 WHEREAS YEAR UNDER CONSIDERATION IS AY 2011-12. MOREOVER LD AR H AS NOT FILED ANY EVIDENCE TO PROVE THAT THESE PERSONS INCLUDED THE P AYMENT MADE BY ASSESSEE IN THEIR RETURN OF INCOME AND PAID TAX THE REON. ACCORDINGLY DISALLOWANCE MADE BY AO IS UPHELD. 4. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE ASSESSEE HAS MADE PAYMENT OF INTEREST TO THE FOLLOWING FINAN CIAL INSTITUTIONS WITHOUT DEDUCTING TAX AT SOURCE:- A) RELIANCE CAPITAL LIMITED RS. 10,26,172/- B) FULLERTRON INDIA LIMITED RS. 2,05,588/- C) RELIGARE FINVEST LIMITED RS. 5,29,512/- 4.1 IN CASE OF RELIANCE CAPITAL LIMITED, THE ASSESS EE HAS FILED A CERTIFICATE FROM CHARTERED ACCOUNTANT CERTIFYING THAT THE INTER EST PAID BY THE ASSESSEE HAS BEEN INCLUDED BY THE RECIPIENT OF INCOME IN THE IR RETURN OF INCOME AND TAX IS PAID THEREON. THEREFORE, IN VIEW OF SECTION PROV ISO TO SECTION 40(A)(IA) INSERTED BY F.A, 2012 W.E.F. 01.04.2013, NO DISALLO WANCE OF THIS AMOUNT IS CALLED FOR IN AS MUCH AS THIS PROVISO HAS A RETROSP ECTIVE EFFECT AS HELD THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. ANSAL L AND MARK TOWNSHIP PVT. LTD., (2015) 377 ITR 635. ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 4 4.2 IN RESPECT OF THE INTEREST PAID TO FULLERTRON I NDIA LIMITED AND RELIGARE FINVEST LIMITED, IT IS SUBMITTED THAT THOUGH THE AS SESSEE HAS NOT DEDUCTED TAX AT SOURCE BUT CONSIDERING THE FACT THAT ALL THESE F INANCE COMPANIES TO WHICH ASSESSEE HAVE PAID INTEREST ARE LARGE COMPANIES AND ASSESSED TO TAX, THEREFORE, THE PRESUMPTION IS THAT THESE COMPANIES HAVE INCLUDED THE INTEREST PAID BY THE ASSESSEE TO THEM IN THEIR INCOME AND PA ID TAX THEREON. THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. TRANS B HARAT AVIATION PVT. LTD. 320 ITR 671 HAS HELD THAT SINCE DEDUCTEE IS A GOVERNMEN T UNDERTAKINGS, THE TAXES MAY BE PRESUMED TO HAVE BEEN PAID LASTLY BY T HE DUE DATE OF FILING OF THE RETURN OF INCOME AND, THEREFORE, THE LIABILITY OF THE ASSESSEE TO PAY INTEREST ON THE AMOUNT WHICH WAS TO BE DEDUCTED AS TDS ENDS WITH THE DUE DATE OF FILING OF THE RETURN BY THE DEDUCTEE. THIS VIEW IS ALSO APPROVED BY HONBLE ITAT JAIPUR BENCH IN CASE OF ACIT VS. GIRDH ARI LAL BARGOTI IN ITA NO. 757/JP/12 A.Y. 09-10 ORDER DATED 10.04.2015. HENCE, NO DISALLOWANCE IN RESPECT OF INTEREST PAID TO THESE COMPANIES SHOULD BE MADE. 4.3 IT IS ALSO SUBMITTED THAT THE ASSESSEE HAS PAID THE INTEREST TO THESE FINANCIAL INSTITUTIONS REGULARLY. NO INTEREST IS OU TSTANDING AT THE END OF THE YEAR. THIS IS EVIDENT FROM COPY OF THEIR ACCOUNT PL ACED. THUS, WHEN NO INTEREST REMAINS PAYABLE, NO DISALLOWANCE U/S 40(A) (IA) CAN BE MADE. IN THIS CONNECTION RELIANCE IS PLACED ON THE ITAT, JAIPUR B ENCH DECISIONS IN CASE OF ACIT VS. GIRDHARI LAL BARGOTI IN ITA NO. 757/JP/12 A.Y. 09-10 ORDER DATED 10.04.2015 AND CHOUDHARY YATRA COMPANY PVT. LTD. VS . ACIT IN ITA NO. 177/JP/16 A.Y 10-11 ORDER DATED 06.09.2016 4.4 WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED THA T THE AMENDMENT TO SECTION 40(A)(IA) MADE BY FA, 2014 W.E.F. 01.04.201 5 PROVIDES THAT 30% OF ANY PAYABLE TO A RESIDENT SHALL BE DISALLOWED IF TA X IS NOT DEDUCTED AT SOURCE ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 5 UNDER CH. XVIIB AS AGAINST THE 100% PRESENTLY MADE. THE PURPOSE OF THIS AMENDMENT WAS EXPLAINED IN THE MEMORANDUM AS UNDER: - THE DISALLOWANCE OF WHOLE OF THE AMOUNT OF EXPENDI TURE RESULTS INTO UNDUE HARDSHIP AND THEREFORE IN ORDER TO REDUCE THE HARDS HIP, IT IS PROPOSED THAT IN CASE OF NON-DEDUCTION OR NON-PAYMENT OF TDS ON PAYM ENTS MADE TO RESIDENTS AS SPECIFIED IN SECTION 40(A)(IA) OF THE ACT, THE D ISALLOWANCE SHALL BE RESTRICTED TO 30% OF THE AMOUNT OF EXPENDITURE CLAIMED. THE FINANCE MINISTER WHILE INTRODUCING THE AMENDMEN T IN PARA 207 OF THE BUDGET SPEECH HAS STATED AS UNDER:- 207. CURRENTLY, WHERE AS ASSESSEE FAILS TO DEDUCT AND PAY TAX ON SPECIFIED PAYMENTS TO RESIDENTS, 100 PERCENT OF SUCH PAYMENTS ARE NOT ALLOWED AS DEDUCTION WHILE COMPUTING HIS INCOME. THIS HAS CAUS ED UNDUE HARDSHIP TO TAXPAYERS, PARTICULARLY WHERE THE RATE OF TAX IS ON LY 1 TO 10% HENCE, I PROPOSE TO PROVIDE THAT INSTEAD OF 100 PERCENT, ONL Y 30% OF SUCH PAYMENTS WILL BE DISALLOWED. FROM THE ABOVE IT CAN BE NOTED THAT THE AMENDMENT M ADE BY FA (NO. 2) ACT, 2014 W.E.F. 01.04.2015 IS TO REMOVE UNINTENDED AND UNDUE HARDSHIP AND THEREFORE THIS AMENDMENT SHOULD BE GIVE RETROSPECTI VE EFFECT AS PER THE VARIOUS DECISIONS STATED ABOVE. IT IS ALSO SUBMITTE D THAT THE SUPREME COURT IN CASE OF CIT VS. VATIKA TOWNSHIP PVT. LTD. 109 DTR 3 3 HAS HELD THAT LEGISLATIONS WHICH MODIFY ACCRUED RIGHTS OR WHICH I MPOSE OBLIGATIONS OR IMPOSE NEW DUTIES OR ATTACH A NEW DISABILITY HAVE T O BE TREATED AS PROSPECTIVE UNLESS THE LEGISLATIVE INTENT IS CLEARLY TO GIVE TH E ENACTMENT A RETROSPECTIVE EFFECT. HOWEVER, IF LEGISLATION CONFERS A BENEFIT O N SOME PERSONS BUT WITHOUT INFLICTING A CORRESPONDING DETRIMENT ON SOME OTHER PERSON OR ON THE PUBLIC GENERALLY AND WHERE TO CONFER SUCH BENEFIT APPEARS TO HAVE BEEN THE LEGISLATORS OBJECT, THEN THE PRESUMPTION WOULD BE T HAT SUCH LEGISLATION, GIVING ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 6 IT A PURPOSIVE CONSTRUCTION, WOULD WARRANT IT TO BE GIVEN A RETROSPECTIVE EFFECT. THEREFORE EVEN IN A CASE IT IS HELD THAT THE DISALL OWANCE U/S 40(A)(IA) IS WARRANTED, SAME SHOULD BE RESTRICTED TO ONLY 30% OF THE AMOUNT OF INTEREST PAID. RELIANCE IS PLACED ON THE FOLLOWING CASES WHERE IT IS HELD THAT ANY AMENDMENT MADE IN THE ACT, WHICH IS INTENDED TO REMOVE UNINTE NDED AND UNDUE HARDSHIP SHOULD BE GIVEN RETROSPECTIVE EFFECT:- - SHRI RAJENDRA YADAV VS. ITO (JAIPUR TRIB) ITA NO. 895/JP/2012 PRONOUNCED ON 29.01.2016 - ALLIED MOTORS PVT. LTD. VS. CIT 224 ITR 677 (SC) - CIT VS. ALOM EXTRUSIONS LTD. 319 ITR 306 (SC) IN VIEW OF THE ABOVE, EVEN IF IT IS HELD THAT SECTI ON 40(A)(IA) IS ATTRACTED, THE DISALLOWANCE OF INTEREST PAYMENTS TO RELIGARE FINVE ST LIMITED AND FULLERTRON INDIA LIMITED BE RESTRICTED TO 30% OF THE INTEREST PAID. 4.5 IN RESPECT OF THE PAYMENTS MADE TO SHRI GAURAV AGRAWAL, IT IS SUBMITTED THAT THE PAYMENT IS MADE TOWARDS PROCESSI NG CHARGES OF BANK LOAN AS PER THE STANDING INSTRUCTIONS OF THE BANK. THIS PAYMENT IS NOT A PAYMENT OF LEGAL EXPENSE AND THEREFORE, SECTION 194J IS NOT APPLICABLE. THIS IS ALSO EVIDENT FROM THE LEDGER ACCOUNT. THUS, THE DISALLOW ANCE CONFIRMED BY THE LD. CIT(A) BE DIRECTED TO BE DELETED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF HONBLE DELHI HIGH COURT DECISI ON IN CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP PVT. LTD (SUPRA) WHEREIN THE SEC OND PROVISO TO SECTION 40(A)(IA) HAS BEEN HELD TO HAVE A RETROSPECTIVE EFF ECT, THE SAME WILL BE APPLICABLE IN THE INSTANT CASE. ACCORDINGLY, IN CA SE OF RELIANCE CAPITAL LIMITED, ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 7 WHERE THE ASSESSEE CONTENDS THAT IT HAS FILED A CER TIFICATE FROM CHARTERED ACCOUNTANT CERTIFYING THAT THE INTEREST PAID BY THE ASSESSEE HAS BEEN INCLUDED BY THE RECIPIENT OF INCOME IN THEIR RETURN OF INCOM E AND TAX IS PAID THEREON, WE SET-ASIDE THE MATTER TO THE FILE OF THE AO TO VE RIFY THE SAID CERTIFICATE AND WHERE THE SAME IS FOUND TO BE IN ORDER, ALLOW THE N ECESSARY RELIEF TO THE ASSESSEE. 5.1 FURTHER, IN RESPECT OF PAYMENT TO OTHER TWO FIN ANCIAL INSTITUTIONS NAMELY FULLERTON INDIA LIMITED AND RELIGARE FINVEST LIMITE D, WE ARE UNABLE TO ACCEDE TO THE VARIOUS CONTENTIONS RAISED BY THE LD AR. FI RSTLY, THERE CANNOT BE ANY PRESUMPTION REGARDING INCLUSION OF INCOME AND PAYME NT OF TAXES JUST BECAUSE THE PAYEES ARE LARGE COMPANIES. THE ASSESSEE HAS T O DEMONSTRATE THROUGH VERIFIABLE EVIDENCE THAT THE PAYEES HAVE REPORTED T HE AMOUNT PAID IN THEIR RETURN AND PAID TAXES THEREON. SECONDLY, THE ISSUE REGARDING NO AMOUNT OUTSTANDING AT THE END OF THE YEAR AND THE SAME BEE N FULLY PAID DURING THE YEAR AND PROVISIONS OF SECTION 40(A)(IA), THE ISSUE IS NO MORE RES INTEGRA IN LIGHT OF HONBLE SUPREME COURT DECISION IN CASE OF PALAM GAS SERVICE. THIRDLY, THE CONTENTION REGARDING THE AMENDMENT TO SECTION 4 0(A)(IA) MADE BY FA, 2014 W.E.F. 01.04.2015 WHICH PROVIDES THAT 30% OF A NY PAYABLE TO A RESIDENT SHALL BE DISALLOWED IF TAX IS NOT DEDUCTED AT SOURC E UNDER CH. XVIIB AS AGAINST THE 100% PRESENTLY MADE, SHOULD BE READ RETROSPECTI VE AND APPLY IN THE INSTANT CASE. WE HAVE GONE THROUGH THE SAID PROVIS IONS AND THERE IS NOTHING IN THE LEGISLATURE WHICH SUGGEST THE SAID AMENDMENT HAS TO BE READ RETROSPECTIVELY. THE DECISION OF THE COORDINATE BE NCH IN CASE OF RAJENDRA YADAV IS NOT A SPEAKING ORDER AND WE ARE NOT INCLIN ED TO FOLLOW THE SAME IN ABSENCE OF APPROPRIATE REASONING OF THE COORDINATE BENCH WHICH IS NOT DISCERNABLE FROM THE SAID ORDER. ACCORDINGLY, DISA LLOWANCE OF PAYMENTS TO THESE TWO INSTITUTIONS IS CONFIRMED. ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 8 5.2 REGARDING PAYMENT TO GUARAV AGRAWAL, THE LD AR HAS CONTENDED THAT THIS PAYMENT IS MADE TOWARDS BANK PROCESSING CHARGE S AND NOT A LEGAL EXPENSE AS EVIDENCED FROM THE LEDGER ACCOUNT. WE S ET-ASIDE THIS MATTER TO THE FILE OF THE AO TO EXAMINE THE SAME AFRESH AS PE R LAW. 5.3 IN THE RESULT, GROUND NO. 1 OF ASSESSEES APPEA L IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. NOW COMING TO GROUND NO. 2 OF THE ASSESSEES APPEAL WHEREIN THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF RS. 535335/- U/S 40A (3). THE AO OBSERVED THAT ASSESSEE PAID A SUM OF RS. 535335/- TO VARIOUS PERSONS (AS PER PAGE 6 OF ORDER) IN CASH IN EXCESS OF RS. 20,000/-. ON APPEAL , THE LD CIT(A) HELD THAT ASSESSEE DID NOT FILE ANY EVIDENCES IN SUPPORT OF T HE CONTENTION MADE EITHER BEFORE AO OR DURING THE APPELLATE PROCEEDINGS BEFOR E HER. SHE FURTHER OBSERVED THAT IT IS SEEN THAT ASSESSEE HAS NOT FIL ED ANY EVIDENCE IN SUPPORT OF HIS CONTENTION EXCEPT FILING THE COPY OF SUBMISS ION MADE BEFORE AO AND REITERATED THE SAME ARGUMENTS WHICH WAS ALREADY BEE N CONSIDERED AND DISCUSSED BY AO WHILE MAKING DISALLOWANCE. THEREFOR E IN ABSENCE OF ANY PLAUSIBLE EXPLANATION OF EXCEPTIONAL CIRCUMSTANCES, THE DISALLOWANCE MADE BY AO IS UPHELD. 7. BEFORE US, THE LD AR SUBMITTED THAT THE ASSESSEE VI DE LETTER DATED 03.03.2014 REPLIED THAT THE PAYMENT MADE TO THE VAR IOUS PERSONS IN CASH IS BELOW RS. 20,000/- AS IS EVIDENT FROM THE COPY OF T HEIR LEDGER ACCOUNTS. THE AO, HOWEVER, PASSED THE ASSESSMENT ORDER ON THE SAM E DATE WITHOUT CONSIDERING THE SAID REPLY BY HOLDING THAT ASSESSEE HAS MADE PAYMENTS IN CASH EXCEEDING RS. 20,000/- AMOUNTING TO RS. 5,35,3 35/- AS DETAILED ON PAGE 6 OF THE ASSESSMENT ORDER. ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 9 7.1 IT WAS FURTHER SUBMITTED THAT BEFORE THE LD. CI T(A) THE ASSESSEE AGAIN EXPLAINED THE FACTS REGARDING THE PAYMENTS MADE. BU T THE LD. CIT(A) STATED THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCES IN SU PPORT OF THE CONTENTION MADE BEFORE AO OR DURING THE APPELLATE PROCEEDINGS AND HAS REITERATED THE SAME ARGUMENTS MADE BEFORE THE AO WHICH HAVE ALREAD Y BEEN CONSIDERED WHILE MAKING THE DISALLOWANCE. HE THUS, UPHELD THE DISALLOWANCE MADE BY THE AO BY STATING THAT IT IS DUE TO ABSENCE OF ANY PLAU SIBLE EXPLANATION OF EXCEPTIONAL CIRCUMSTANCES. 7.2 IN RESPECT OF THE DISALLOWANCE MADE BY THE LOWE R AUTHORITIES U/S 40A(3), IT WAS FURTHER SUBMITTED AS UNDER:- A) PAYMENT TOWARDS ERECTION COMMISSION AND INSTALL ATION EXPENSES I) THE AO NOTICED THAT THE ASSESSEE PAID RS. 24,010 /- IN CASH ON 30.04.2010 IN RESPECT OF THE EXPENSE INCURRED FO R ERECTION, COMMISSION AND INSTALLATION. II) IT IS SUBMITTED THAT FROM THE LEDGER ACCOUNT IT IS EVIDENT THAT THE ENTRY DATED 30.04.2010 IS A JOURNAL ENTRY AND NO AN ENTRY OF CASH PAYMENT. IN THE JOURNAL ENTRY, IT IS CLEARLY STATED THAT THIS PAYMENT IS MADE ON 3 DIFFERENT DAT ES AGAINST 3 CASH MEMOS OF DIFFERENT DATES BY SHRI RAJ ENDRA MALHOTRA. THEREFORE, SECTION 40A(3) IS WRONGLY INVO KED BY THE LOWER AUTHORITIES. B) PAYMENT TO S.R. SETH & SONS I) THE AO NOTICED THAT THE ASSESSEE PAID RS. 20,825 /- IN CASH TO S.R. SETH & SONS ON 19.05.2010. II) IT IS SUBMITTED THAT FROM THE LEDGER ACCOUNT OF THE PARTY IT IS EVIDENT THAT THE ENTRY DATED 19.05.2010 IS A JOU RNAL ENTRY AND NOT AN ENTRY OF CASH PAYMENT. THE NARRATI ON OF THE SAME MAKES IT CLEAR THAT THE AMOUNT IS DEBITED BY ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 10 CREDITING THE ACCOUNT OF THE EMPLOYEES OF THE ASSES SEE SHRI RAJENDRA MALHOTRA. THEREFORE, SECTION 40A(3) IS WRO NGLY INVOKED BY THE LOWER AUTHORITIES. C) PAYMENT TO SUSI ENGINEERING I) THE AO NOTICED THAT THE ASSESSEE PAID IN CASH RS . 25,000/- , RS. 40,000/- AND RS. 1,20,000/- TO SUSI ENGINEERI NG ON 09.09.2010 AND 14.10.2010 RESPECTIVELY. II) IT IS SUBMITTED THAT FROM THE LEDGER ACCOUNT OF SUSI ENGINEERING, IT IS EVIDENT THAT AN AMOUNT OF RS. 18 ,000/- HAS BEEN PAID IN CASH TO THE PARTY ON 09.09.2010 AN D NOT RS. 25,000/-. THIS IS ALSO VERIFIABLE FROM THE CASH BOOK AS ON THAT DATE. THEREFORE, DISALLOWANCE OF THIS AMOUN T U/S 40A(3) IS WRONGLY MADE. III) SIMILARLY, FROM THE LEDGER ACCOUNT OF THE PART Y, IT IS EVIDENT THAT ON 14.10.2010 CASH PAYMENT OF RS. 19,000/- IS MADE TO THE PARTY AND NOT RS. 40,000/- AS MENTIONED BY T HE AO. THIS IS ALSO VERIFIABLE FROM THE CASH BOOK. FURTHER , THE PAYMENT OF RS. 1,20,000/- IS THROUGH JOURNAL ENTRY BY CREDITING THE ACCOUNT OF MR. JAMES P. GOMES. COPY O F LEDGER ACCOUNT OF MR. JAMES P. GOMES SHOWS THAT ALL PAYMENTS MADE TO HIM IS LESS THAN RS. 20,000/-. HEN CE, NO DISALLOWANCE OF THESE TWO AMOUNT U/S 40A(3) CAN BE MADE. D) PAYMENT TO MR. JAMES P. GOMES I) THE AO HAS STATED THAT AN AMOUNT OF RS. 28,500/- HAS BEEN PAID IN CASH TO MR. JAMES P. GOMES ON 28.08.20 10. II) IT IS SUBMITTED THAT FROM THE LEDGER ACCOUNT OF MR. JAMES P. GOMES, IT IS EVIDENT THAT THE ASSESSEE HAS MADE CASH PAYMENT OF RS. 18,500/- ON 28.08.2010 AND RS. 10,00 0/- ON 29.08.2010. THIS IS ALSO VERIFIABLE FROM THE CAS H BOOK AS ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 11 ON 28.08.2010 AND 29.08.2010. THEREFORE, THE DISALLOWANCE U/S 40A(3) IS WRONGLY MADE. E) PAYMENT TO M/S PREM MOTORS I) THE AO NOTICED THAT THE ASSESSEE HAS PAID RS. 30 ,000/- IN CASH ON 29.01.2011 TO M/S PREM MOTORS. II) IT IS SUBMITTED THAT THE PAYMENT OF RS. 30,000/ - IN CASH TO M/S PREM MOTORS IS TOWARDS PURCHASE OF DESIRE SWIFT CAR. THUS, WHEN ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE , NO DISALLOWANCE U/S 40A(3) CAN BE MADE. F) PAYMENT TO RAM & RAM I) THE AO NOTICED THAT THE ASSESSEE HAS PAID RS. 2, 47,000/- TO RAM & RAM. II) IT CAN BE NOTED THAT FROM THE LEDGER ACCOUNT OF RAM & RAM AND THE CASH BOOK OF THE RESPECTIVE DATES THAT NO CASH PAYMENT HAS BEEN MADE TO THE PARTY EXCEEDING R S. 20,000/- IN A DAY. THE DEBIT OF RS. 1 LAKH ON 02.11 .2010 IS THROUGH JOURNAL ENTRY BY CREDITING THE ACCOUNT OF KALAGARSAMI, MADURAI, WHO WAS PAID AMOUNT LESS THAN RS. 20,000/- ON A DAY WHICH IS ADJUSTED IN THIS ACCOUNT . HENCE, NO DISALLOWANCE U/S 40A(3) IS CALLED FOR. 8. IN ABSENCE OF RELEVANT FINDING OF EITHER AO OR C IT(A) IN THIS MATTER, WE ARE SETTING ASIDE THIS MATTER AS WELL AS TO THE FILE OF THE AO TO EXAMINE THE CONTENTION OF THE ASSESSEE AND DECIDE AS PER LAW. THE ASSESSEE IS ALSO DIRECTED TO COOPERATE IN THE PROCEEDINGS SO THAT TH E SAME CAN BE COMPLETED IN A TIMELY MANNER. IN THE RESULT, THE GROUND IS A LLOWED FOR STATISTICAL PURPOSES. ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 12 9. NOW COMING TO GROUND NO. 3 OF THE ASSESSEES APPEAL , THE AO DISALLOWED 10% OF THE TOTAL EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT RESULTING IN A DISALLOWANCE OF RS. 25,36,624/- (RS. 2,53,66,240/- *10%). 10. NOW WE REFER TO THE RELEVANT FINDING OF THE LD. CIT(A) WHICH ARE UNDER CHALLENGE BEFORE US. THE SAME ARE REPRODUCED IS AS UNDER:- 7.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, FINDINGS OF THE AO AND SUBMISSION OF THE APPELLANT. REGARDING DISAL LOWANCE MADE OF RS. 25,36,624/- BEING 10% OUT OF ALL TOTAL EXPENSES CLAIMED, THE AO OBSERVED CERTAIN DEFICIENCIES IN BOOKS OF ACCOUNT ( PAGE 7-10 OF AOS ORDER) AND LOOKING TO THESE DEFECTS HE DISALLOWED 1 0% OF TOTAL EXPENSES DEBITED IN P&L ACCOUNT. AR ARGUED THAT DISALLOWANCE IS ARBITRARY SINCE AO H AD DOUBTED ONLY FEW EXPENSES AND MADE DISALLOWANCES @ 10% OUT OF ALL EX PENSES CLAIMED IN THE ACCOUNT I FIND SOME MERITS IN THE ARGUMENT O F AR, HOWEVER, CONSIDERING THE FACT THAT DESPITE PROVIDING SPECIFI C OPPORTUNITIES, PROPER EXPLANATION AND EVIDENCES WERE NOT FILED BEFORE AO OR ME IN SUPPORT OF THE REASONABLENESS AND GENUINENESS OF EXPENSES NOR THE DEFICIENCIES POINTED OUT BY AO WERE PROPERLY ANSWERED. TAKING AL L THESE FACTS INTO CONSIDERATION, I FIND IT REASONABLE TO RESTRICT THE DISALLOWANCE TO 5% OF TOTAL EXPENSES CLAIMED. AS A RESULT THIS GROUND IS PARTLY ALLOWED. 11. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE IS REGISTERED WITH THE GOVERNMENT OF INDIA AND GOVT. O F RAJASTHAN AS AN ELECTRICAL CONTRACTOR. HE HAS SITES ALL OVER INDIA. FOR THE SMOOTH FUNCTIONING OF HIS WORK, THE ASSESSEE HAS TO ENGAGE/COME IN CONTAC T WITH THE JTO, SD, JE, AR, WIREMAN, ETC. THUS, THE PAYMENT MADE TO THESE P ERSONS IS IN RESPECT OF THE BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS NEIT HER DIVERTED HIS PERSONAL EXPENSES NOR HAS MANIPULATED THE TRUE PICTURE OF PR OFIT. ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 13 11.1 FROM THE PROFIT & LOSS ACCOUNT (COPY ENCLOSED) , IT CAN BE NOTED THAT THE EXPENSES UNDER THE BROAD HEAD IS AS UNDER: DEPRECIATION RS. 9,63,846/- BANK CHARGES, BANK INTEREST AND OTHER INTEREST R S. 90,15,790/- SALARY, WAGES, PF, CESS, WELFARE & MEDICAL EXP. R S. 56,57,548/- RENT, REPAIRS AND MAINTENANCE EXPENSES RS. 5,57, 199/- ELECTRICITY AND WATER EXPENSES RS. 87,358/- ERECTION, FOUNDATION AND FREIGHT EXPENSES RS. 27 ,58,283/- DIESEL EXPENSES RS. 37,09,310/- SERVICE TAX AND INSURANCE EXPENSES RS. 2,15,971 /- ADVERTISEMENT, AUDIT FEES AND LEGAL EXPENSES RS. 3,10,961/- TRAVELLING CONVEYANCE, VEHICLE RUNNING, OFFICE, PRINTING & STATIONARY, TELEPHONE & OTHER EXPENSES RS. 20,89,974/- TOTAL RS. 2,53,66,240/- FROM THE COPY OF THE VOUCHER OF THE EXPENSES REFERR ED IN THE ASSESSMENT ORDER, IT CAN BE NOTED ALL EXPENSES ARE FULLY VOUCH ED AND DETAILED. FURTHER, FROM THE COPY OF ACCOUNT OF ERECTION, COMMISSION AN D INSTALLATION EXPENSES, IT CAN BE NOTED THAT THESE EXPENSES ARE FULLY VOUCHED AND DETAILED. IN RESPECT OF THE CLAIM OF DEPRECIATION, INTEREST EXPENSES, EL ECTRICITY AND WATER EXPENSES, DIESEL EXPENSES, SERVICE TAX AND INSURANCE EXPENSES , ADVERTISEMENT, AUDIT FEES AND LEGAL EXPENSES, SALARY, WAGES, PF, CESS, W ELFARE & MEDICAL EXP. AND RENT, REPAIRS AND MAINTENANCE EXPENSES, THERE CANNO T BE ANY ALLEGATION OF INFLATION OF EXPENSES OR NON-VERIFIABILITY OF THE E XPENSES. ONLY IN RESPECT OF TRAVELLING, CONVEYANCE, VEHICLE RUNNING, OFFICE, PR INTING & STATIONARY, TELEPHONE & OTHER EXPENSES, THERE CAN BE PERSONAL U SE OF EXPENSES. THEREFORE, AT THE MOST 5% OF SUCH EXPENSES SHOULD B E DISALLOWED. IN VIEW OF ABOVE, THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) BE SUITABLY REDUCED. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS INCUMBENT UPON THE ASSESSEE TO PRO DUCE RELEVANT DOCUMENTS ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 14 AND BOOKS OF ACCOUNTS FOR NECESSARY VERIFICATION BY THE AO AND PROVIDE THE NECESSARY EXPLANATION AS CALLED FOR BY THE AO. THE ASSESSEE DOESNT COOPERATE IN THE ASSESSMENT PROCEEDINGS OR DOESNT P ROVIDE ANY EXPLANATION AND THEN COME IN APPEAL CRAVING FOR RELIEF. IN OUR VIEW, SUCH PRACTICE IS REQUIRED TO BE DISCOURAGED UNLESS THE ASSESSEE PROV ES HIS BONAFIDE BEFORE US. HAVING SAID THAT IN THE PECULIAR FACT PATTERN OF TH E PRESENT CASE, IT WOULD BE REASONABLE TO HOLD THAT REGARDING DEPRECIATION ALLO WANCE AND OTHER EXPENSES UNDER THE HEAD BANK CHARGES, BANK INTEREST AND OTHE R INTEREST, SERVICE TAX, INSURANCE EXPENSES, AUDIT FEES, THE PROBABILITY OF PERSONAL ELEMENT IS VERY LOW. IN LIGHT OF THAT, IN THE INTEREST OF JUSTICE, IT WOULD BE REASONABLE IF THE DISALLOWANCE OF 5% OF TOTAL EXPENSES AS CONFIRMED B Y THE LD CIT(A) IS RESTRICTED TO EXPENSES OTHER THAN DEPRECIATION ALLO WANCE, OTHER EXPENSES SUCH AS BANK CHARGES, BANK INTEREST AND OTHER INTEREST, SERVICE TAX, INSURANCE EXPENSES, AND AUDIT FEES. IN THE RESULT, THIS GROU ND IS PARTLY ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07/07/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV ) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 07/07/2017 *GANESH VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT - SH. BHANWAR LAL CHOUDHARY, SIKAR 2. IZR;FKHZ@ THE RESPONDENT - ACIT, SIKAR 3. VK;DJ VK;QDR@ CIT ITA NO. 1073/JP/2016 SH. BHANWAR LAL CHOUDHARY, SIKAR VS ACIT, SIKAR 15 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 1073/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.