ITO Ward 12 (1), V. Balbir Singh,

ITA 112/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9715 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 11-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIKSR
• Assessee Lawyers: GOPAL NATHANI
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `A : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.112/DEL./2008 (ASSESSMENT YEAR : 2004-05) ITO, WARD 12(1), VS. SHRI BALBIR SINGH, PROP. NEW DELHI. M/S PRO TECH ENTERPRISES, 73-A, HAUZ KHAS VILLAGE, NEW DELHI. (PAN/GIR NO.AATPS7115D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GOPAL NATHANI, CA REVENUE BY : MS. PRATIMA KAUSHIK,SR.DR ORDER PER K.D. RANJAN: AM THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2004-05 ARISES OUT OF SEPARATE ORDER OF CIT(A)-XVIII, NEW DELHI. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.8,18,560 MADE U/S 40A(3) OF THE I.T. ACT. 3. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF FABRICATION OF IRON AND STEEL STRUCTURE . THE ASSESSEE PROCURED WORK ORDER FROM M/S HINDUSTAN CONSTRUCTION CO. LTD. THE ASSES SEE CARRIED OUT THE FABRICATION WORK IN BHUTAN. THE ASSESSEE MADE TOTAL CASH PAYMENT OF RS.40,92,800 PAID TO LABOUR CONTRACTORS FOR PAYMENTS TO WORKERS IN BHUTAN AND RS.1,32,800 TOWARDS PURCHASE OF CONSUMABLE ITEMS. THE ASSESSEE HAD WITHDRAWN CASH AMOUNT FOR ABOVE EXPENSES FROM BANK ACCOUNT MAINTAINED IN BHUTAN. THE ASSESSING O FFICER DISALLOWED 20% OF RS.40,92,800 AMOUNTING TO RS.8,18,560 U/S 40A(3) OF THE I.T. ACT.. 3. BEFORE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS SUBMITTED ASSESSEE MADE PAYMENT OF RS.21,50,000 TO M/S YADAV BROTHERS, RS.4 0,50,000 TO M/S SURYA ENTERPRISES AND RS.3,60,000 TO M/S DEV INDIA CONSTRUCTION CO. IT WAS FURTHER SUBMITTED THAT THESE I.T.A. NO.112/DEL./2008 (A.Y. : 2004-05) 2 THREE SUB-CONTRACTORS HAD THEIR PERMANENT BUSINESS ESTABLISHMENT IN INDIA. THEY SENT THEIR LABOURS FROM INDIA TO BHUTAN TO EXECUTE THE W ORK IN BHUTAN. THE CONTRACTORS HAD TO MAKE CASH PAYMENTS TO THE WORKERS IN BHUTAN TO MEET OUT THEIR ROUTINE NEEDS. THE SUB- CONTRACTORS WERE NOT HAVING ANY BANK ACCOUNT IN BHU TAN AS OPENING OF THE BANK ACCOUNT REQUIRED APPROVAL OF RBI AND IT WAS NOT FEASIBLE FO R THEM TO OPEN BANK ACCOUNT IN BHUTAN BEING A SUB-CONTRACTOR TO AN INDIAN SUB-CONTRACTOR. THE ASSESSEE HAD WITHDRAWN CASH FROM ITS BANK IN BHUTAN IN BHUTANI IN CURRENCY AND MADE PAYMENT TO SUB-CONTRACTORS FOR FURTHER DISBURSEMENT BY THEM TO LABOUR FOR ROUTINE EXPENSES. IT WAS ALSO SUBMITTED THAT ASSESSEE HAD MADE CASH PAYMENT FOR PURCHASES EXCEED ING RS.20,000 WHICH AGGREGATED TO RS.1,32,800. THE PARTIES WERE NOT ACCEPTING PAYME NT THROUGH CHEQUES FROM THE ASSESSEE. THEREFORE, THE PAYMENTS TO SUB-CONTRACTO RS AND THE OTHER PARTIES WAS MADE IN CONSIDERATION OF BUSINESS EXPEDIENCY. IT WAS ALSO SUBMITTED THAT ASSESSEE HAD BANK ACCOUNT IN BHUTAN, BUT THE SUB-CONTRACTORS WHO HAD SUPPLIED LABOURS AT THE PROJECT SITE WERE NOT HAVING ANY BANKING FACILITIES IN BHUTAN AN D THESE CONTRACTORS WERE REQUIRED TO MAKE CASH PAYMENT TO THESE WORKERS AND, THEREFORE, THE ASSESSEE HAD TO MAKE CASH PAYMENT TO THE SUB-CONTRACTORS. 4. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) AFT ER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, OBSERVED THAT PROVISIONS OF S ECTION 40A(3) WERE MANDATORY, IF THE PAYMENTS EXCEEDING RS.20,000 WAS MADE IN CASH. THE ASSESSING OFFICER HAD NO DISCRETION TO DISALLOW 20% OF SUCH PAYMENTS U/S 40A (3). HOWEVER, THERE WERE SOME EXCEPTIONS TO THIS RULE AND THESE CIRCUMSTANCES ARE PRESCRIBED IN RULE 6DD OF THE I.T. RULES, 1962 THE SECOND PROVISO TO SECTION 40A(3) C ARVES OUT AN EXPLANATION TO THE APPLICABILITY OF THE PROVISION. ACCORDINGLY, THE P AYMENTS MADE EXCEEDING RS.20,000, OTHER THAN CROSS CHEQUES OR DRAFT SHALL NOT BE DISA LLOWED IN CERTAIN CASES AND CERTAIN CIRCUMSTANCES FOR CONSIDERATION OF BUSINESS EXPEDIE NCY. HE FURTHER NOTED THAT THE OBJECT OF RULE 6DD WAS TO RELAX THE RIGOURS OF SECTION 40A (3) IN GENUINE AND BONFIDE CASES TO AVOID THE HARDSHIP AND HARASSMENT. HE PLACED RELIA NCE ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF GIRDHARILAL GOEN KA VS. CIT, 179 ITR 122 (CAL.). SINCE, THE SUB-CONTRACTORS WERE NOT HAVING ANY BANK ACCOUNT IN BHUTAN, THE ASSESSEE WAS ASKED TO MAKE CASH PAYMENT TO THE SUB-CONTRACTORS F OR FURTHER DISBURSEMENT BY THEM TO THE LABOURS. THE COMMISSIONER OF INCOME-TAX (APPEA LS), THEREFORE, CAME TO CONCLUSION I.T.A. NO.112/DEL./2008 (A.Y. : 2004-05) 3 THAT THE PAYMENTS WERE MADE BECAUSE OF BUSINESS EXP EDIENCY AND DUE TO EXISTENCE OF EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES. HE ACCO RDINGLY DELETED THE ADDITION. 5. BEFORE US, SR.DR SUBMITTED THAT THE ASSESSEE HAD MADE PAYMENTS TO SUB- CONTRACTORS THROUGH ACCOUNT PAYEE CHEQUES DRAWN ON BANK TO BHUTAN FROM ACCOUNT NO.7981. THEREFORE, THE ASSESSEE SHOULD HAVE MADE OTHER PAYMENTS ALSO THROUGH ACCOUNT PAYEE CHEQUES. SINCE THE ASSESSEE HAD NOT MADE PAY MENT THROUGH ACCOUNT PAYEE CHEQUE, THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING 20% OF THE PAYMENTS MADE IN CASH EXCEEDING RS.20,000. HE PLACED RELIANCE ON THE FOL LOWING DECISIONS: (1) EVERSHINE PLATERS VS. CIT, 295 ITR 349; (2) CIT VS. MANDSAUR FERRO ALOYS LTD., 296 ITR 176 (MP); AND (3) ITO VS. KENARAM SAHA & SUBHASH SAHA, ITAT(SB)(K OL.) 301 ITR (AT)(171). ON THE BASIS OF THE ABOVE DECISIONS, IT HAS BEEN SU BMITTED THAT IN ORDER TO CLAIM EXEMPTION UNDER RULE 6DD, ASSESSEE HAD TO PROVE THE CLAIM UNDER SPECIFIC CLAUSE. THEREFORE, SINCE THE PAYMENT HAD BEEN MADE IN CONTR AVENTION OF PROVISIONS OF SECTION 40A(3), THE ASSESSING OFFICER WAS JUSTIFIED IN MAKI NG THE ADDITION. 6. ON THE OTHER HAND, LD.AR OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE WAS AWARDED SUB-CONTRACT FOR ERECTION OF CERTAIN STRUCT URE IN CONNECTION WITH HYDROELECTRIC PROJECT. THE ASSESSEE WAS HAVING BANK ACCOUNT AT P HUENTSHOLING, WHICH IS ABOUT 80 KMS. FROM THE DAM SITE. THE CONSTRUCTION WORK WAS CARRI ED OUT AT CHUKHA WHERE BANKING FACILITIES WERE NOT AVAILABLE. ANOTHER PLACE WHERE BANKING FACILITIES WERE AVAILABLE WAS GEDU, 45 KMS. FROM DAM SITE. THE ASSESSEE IN ORDER TO CARRY OUT THE WORK HAD TO ACCEDE TO THE REQUEST TO THE SUB-CONTRACTOR FOR MAKING THE PAYMENT IN CASH AND, THEREFORE, THE PAYMENT WAS MADE UNDER BUSINESS EXPEDIENCY. IN REP LY TO ARGUMENTS MADE BY THE LD.AR OF THE ASSESSEE, LD.SR.DR SUBMITTED THAT THE CONTRACT WITH THE SUB-CONTRACTOR WAS EXECUTED IN INDIA AND PAYMENTS WERE MADE IN JAIGAON WHICH FALLS IN INDIA. THEREFORE, LD. COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JU STIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. UNDER SECTION 40A(3), WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH I.T.A. NO.112/DEL./2008 (A.Y. : 2004-05) 4 PAYMENT IS MADE IN A SUM EXCEEDING RS.20,000 OTHERW ISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, 20% OF SUCH EXPENDITURE SHALL NOT BE DISALLOWED AS DEDUCTION. RULE 6DD PROVIDES CERT AIN EXCEPTIONS UNDER WHICH THE PAYMENT OF SUM EXCEEDING RS.20,000 SHALL NOT BE DIS ALLOWED. RULE 6DD(H) PROVIDES THAT WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN WHIC H ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON, ORDINARILY RESID ES OR IS CARRYING ON ANY BUSINESS OR PROFESSION OR VACATION IN ANY SUCH PLACE OR TOWN SH ALL NOT BE DISALLOWED U/S 40A(3) OF THE ACT. ACCORDING TO THE ASSESSEE, AT THE CONSTRUCTIO N SITE OF CHUKHA, THERE WAS NO BANKING FACILITY AT THE RELEVANT TIME. THE SUB-CONTRACTORS WERE INSISTING UPON THE ASSESSEE FOR MAKING PAYMENT IN CASH. SINCE, THE CONSTRUCTION SI TE AT CHUKHA DID NOT HAVE BANKING FACILITIES, THE PROVISION OF SECTION 40A(3) WILL NO T BE APPLICABLE AS PROVIDED UNDER RULE 6DD(H) OF I.T. RULES, 1962. THE CONTENTION OF THE R EVENUE THAT ASSESSEE HAD MADE CERTAIN PAYMENTS THROUGH CHEQUES TO THE SUB-CONTRAC TORS, IN OUR CONSIDERED OPINION, IN VIEW OF PROVISIONS OF RULES 6 DD(H) WILL NOT BE OF ANY HELP. 8. NOW, WE WILL EXAMINE THE DECISIONS RELIED ON BY THE REVENUE IN THE CASE OF EVERSHINE PLATERS (SUPRA). IN THIS CASE, THE PAYME NTS IN CASH WERE MADE FOR MORE THAN 15 YEARS IN THE CITY OF MATHURA WHERE BANKING FACILITI ES WERE AVAILABLE. THEREFORE, THE DECISION IN THE CASE OF EVERSHINE PLATERS (SUPRA) W ILL NOT BE APPLICABLE TO THE FACTS OF THE CASE BEFORE US. IN THE CASE OF KENARAM SAHA AND SU BHASH SAHA, THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT IF THE PLACE WHERE THE RECIP IENT RESIDES OR CARRIES ON BUSINESS, HAS BANKING FACILITIES THE CONDITION OF RULE 6DD(H) WOU LD NOT BE SATISFIED MERELY BECAUSE THE RECIPIENT HAD NOT OPENED THE BANK ACCOUNT. THIS D ECISION OF SPECIAL BENCH OF THE TRIBUNAL IS NOT APPLICABLE TO THE FACTS OF THE CASE THAT THE SUB-CONTRACTORS THOUGH RESIDENT IN INDIA AND HAVING BANK ACCOUNT IN INDIA WERE CARR YING OUT WORK AT CHUKHA WHERE NO BANKING FACILITIES WERE AVAILABLE. THEREFORE, TH IS DECISION OF THE SPECIAL BENCH IS ALSO NOT APPLICABLE TO THE FACTS OF THE CASE. IN THE CA SE OF MANDSAUR FERRO ALLOYS PVT. LTD. (SUPRA), THERE WAS NO CATEGORICAL FINDING AS TO HOW AND ON WHAT BASIS THE CASE OF THE ASSESSEE FELL IN THE EXCEPTION CATEGORIES OF SECTIO N 40A(3) READ WITH RULE 6DD. IN THE INSTANT CASE, THE ASSESSEES CASE FALLS UNDER CLAUS E (H) OF RULE 6DD OF THE RULES AND, THEREFORE, THE FACTS OF THE CASE IN THE MANDSAUR FE RRO ALLOYS PVT. LTD. ARE DISTINGUISHABLE. I.T.A. NO.112/DEL./2008 (A.Y. : 2004-05) 5 THEREFORE, THE DECISIONS RELIED UPON BY THE LD.SR.D R OF THE REVENUE IS OF NO HELP. HENCE, THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF BUSINESS EXPEDIENCY AND DUE TO E XISTENCE OF EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN DELETING THE ADDITION. 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9. ORDER PRONOUNCED IN OPEN COURT ON 18.09.2009. (RAJPAL YADAV) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: SEP. 18, 2009. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-XIII, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT