Mamatha Silk Centre, Hyderabad V. Income Tax Officer, Suryapet

ITA 1380/HYD/2013

• Counselvise Citation: 138022514 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 04-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 24-10-2013
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: S RAMA RAO
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1380/HYD/2013 ASSESSMENT YEAR: 2005-06 MAMATHA SILK CENTRE, SURYAPET [PAN: AADFM4129G] VS INCOME TAX OFFICER, SURYAPET (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO, AR FOR REVENUE : SHRI RAMA KRISHNA BANDI, DR DATE OF HEARING : 04-09-2015 DATE OF PRONOUNCEMENT : 09-09-2015 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-18, MUMBAI DATED 29-08-2013 HA VING CONCURRENT JURISDICTION OVER HYDERABAD. THE ONLY ISSUE CONTES TED IS WITH REFERENCE TO AN AMOUNT OF RS. 1,85,712/- MADE BY THE ASSESSIN G OFFICER (AO) AS A DISALLOWANCE INVOKING THE PROVISIONS OF SECTION 40A (3) OF THE INCOME TAX ACT [ACT]. 2. ASSESSEE IS IN THE BUSINESS OF TRADING OF CL OTH AND HAS FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 35,911/-. CONSEQUENT TO SURVEY OPERATIONS U/S. 133A, THE CASE WAS SELECTED FOR SCR UTINY AS PER THE GUIDELINES. AMONGST VARIOUS DISALLOWANCES WHICH WER E DELETED BY THE CIT(A), ONE DISALLOWANCE PERTAIN TO THE DISALLOWANC E U/S. 40A(3) TO AN I.T.A. NO. 1380/HYD/2013 MAMATHA SILK CENTRE :- 2 -: EXTENT OF RS. 1,85,712/-. AO NOTICED THAT ASSESSEE HAS ISSUED BEARER CHEQUES TO VARIOUS PERSONS INSTEAD OF ACCOUNT PAYEE CHEQUES EXCEEDING MANDATORY LIMIT OF RS. 20,000/- AND HE LISTED 17 IN STANCES WHERE THE BEARER CHEQUES WERE ISSUED DURING THE YEAR. THE TO TAL OF AMOUNT HAS COME TO AN AMOUNT OF RS. 9,28,560/-. STATING THAT A SSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40A(3), 20% OF THE AMOUNT AT RS. 1,85,712/- WAS DISALLOWED. 3. ASSESSEE CONTESTED BEFORE THE LD. CIT(A) AND SUB MITTED THAT ASSESSEE-FIRM HAD THE PRACTICE OF WITHDRAWAL OF CAS H BY ISSUING CHEQUES IN THE NAMES OF EMPLOYEES AND THEN ENTERING THE SAM E IN ITS CASH BOOK AS PER THE DATES OF WITHDRAWAL AND WITHOUT APPRECI ATING THIS BASIC FACT, AO TREATED ALL SUCH CASH WITHDRAWALS AGGREGATING TO RS. 9,28,560/- AS EXPENSES INCURRED IN CASH FALLING WITHIN THE MISCHI EF OF SECTION 40A(3). IT WAS SUBMITTED THAT THE DISALLOWANCE IS TOTALLY B ASELESS. LD. CIT(A) VIDE HIS ORDER IN PARA 3.3 HOWEVER, DID NOT AGREE W ITH ASSESSEES CONTENTIONS AND UPHELD THE DISALLOWANCE. I DO NOT INTEND TO EXTRACT HIS REASONING IN THIS ORDER. SUFFICE TO SAY THAT HE DI D NOT EXAMINE WHETHER THE AMOUNT IS CASH WITHDRAWALS BY THE FIRM OR CHEQU ES ISSUED FOR EXPENDITURE PURPOSES. 4. LD. COUNSEL AND LD. DR REITERATED THEIR SUBMISSI ONS. IN ORDER TO EXAMINE WHETHER THE CHEQUES WERE ISSUED FOR CASH WI THDRAWALS OR FOR EXPENDITURE PURPOSES, BOTH THE PARTIES WERE ASKED T O FURNISH THE RELEVANT CASH BOOK AND DETAILS OF EXPENDITURE. ASS ESSEE HAS FURNISHED COPY OF THE CASH BOOK IN THE FORM OF PAPER BOOK WHE REAS LD. DR BROUGHT THE IMPOUNDED CASH BOOK ALONG WITH ASSESSME NT RECORD. LD. DR FAIRLY ADMITTED THAT THE CHEQUES ISSUED WERE FOR THE PURPOSE OF CASH WITHDRAWALS ONLY AND THE CASH SO DRAWN WAS ENTERED IN THE CASH BOOK AND NOT FOR EXPENDITURE PURPOSES. I.T.A. NO. 1380/HYD/2013 MAMATHA SILK CENTRE :- 3 -: 5. PROVISIONS OF SECTION 40A(3) CAN BE INVOKED ONLY IN THE INSTANCE WHERE ASSESSEE INCURS ANY EXPENDITURE, IN RESPECT O F WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY OTH ERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAY EE BANK DRAFT EXCEEDS RS. 20,000/-, NO DEDUCTION AS PRESCRIBED SH ALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. IN THE RELEVANT YEAR, AN AMOUNT OF 20% OF THE EXPENDITURE WAS PRESCRIBED FOR DISALLOWANCE. L ATER YEARS, 100% OF SUCH EXPENDITURE WAS PRESCRIBED TO BE DISALLOWED. THE BASIC PRESUMPTION IS THAT ASSESSEE MAY INCUR EXPENDITURE WHICH IS NOT VERIFIABLE. HOWEVER THE PROVISION CAN BE INVOKED ON LY WHEN THE PAYMENT IS WITH REFERENCE TO ANY EXPENDITURE. SELF-WITHDRAW AL OF CASH CAN NEVER BE CONSIDERED AS EXPENDITURE. IN THIS CASE, ALL TH E CHEQUES WERE ISSUED IN THE NAME OF ITS EMPLOYEES FOR WITHDRAWAL FROM BA NK AND THE AMOUNT WHICH WAS WITHDRAWN FROM THE BANK HAS BEEN ACCOUNTE D BY THE FIRM IN THE BOOKS OF ACCOUNT ON THE RESPECTIVE DATES. THER EFORE, SELF-WITHDRAWAL OF MONEY FROM THE BANK BY BEARER CHEQUES CAN NEVER BE CONSIDERED AS EXPENDITURE BY ASSESSEE. SINCE THIS ASPECT HAS BEE N VERIFIED AND ASSESSEES CONTENTIONS ARE FOUND TO BE CORRECT, QUE STION OF INVOKING THE PROVISIONS OF SECTION 40A(3) DOES NOT ARISE ON THE FACTS OF THIS CASE. THEREFORE, THE ORDER OF AO AND CIT(A) ON THIS ISSUE ARE SET ASIDE AND THE ADDITION OF RS. 1,85,712/- IS DELETED. 6. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER, 2015 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 9 TH SEPTEMBER, 2015 TNMM I.T.A. NO. 1380/HYD/2013 MAMATHA SILK CENTRE :- 4 -: COPY TO : 1. MAMATHA SILK CENTRE, SURYAPET. C/O. S. RAMA RAO , ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, ROAD NO. 9, HIMAYATHNAGAR, HYDERABAD. 2. INCOME TAX OFFICER, SURYAPET. 3. CIT(APPEALS)-18, MUMBAI. 4. CIT(APPEALS)-VI, HYDERABAD. 5. CIT-5 / 6, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.