Saha Tractors, Uttar Dinajpur V. ITO, Wd-2(4), Raiganj, Uttar Dinajpur

ITA 1784/KOL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1879 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 03-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHUR Y
• Section: 40A(3)

Judgement Text

ITA NO.1784/KOL/2017-SAHA TRACTORS A.Y.2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENC H : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM] I.T.A NO.1784/KOL/2017 ASSESSMENT YEAR : 2014-15 SAHA TRACTORS . -VS.- I.T.O., WARD-2(4), RAIGANJ UTTAR DINAJPUR [PAN : ACEFS 9786 R] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SUBASH AGARWA L, ADVOCATE FOR THE RESPONDENT : SHRI ROBIN CHOUDHUR Y, ADDL. CIT DATE OF HEARING : 11.12.2017. DATE OF PRONOUNCEMENT : 03.01.2018. ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 12.06.2017 OF CIT- (A)-JALPAIGURI RELATING TO A.Y.2014-15. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND IT CARRIE S ON THE BUSINESS OF SALE OF TRACTORS AND ITS PARTS UNDER THE NAME AND STYLE OF M/S. SAHA TRACTORS. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y.2014-15 THE AO NOTIC ED THAT THE ASSESSEE HAD MADE CASH PAYMENTS TOWARDS SALES PROMOTION EXPENSES TO 5 OF ITS EMPLOYEES. THE DETAILS OF WHICH WERE AS FOLLOWS :- ITA NO.1784/KOL/2017-SAHA TRACTORS A.Y.2014-15 2 ITA NO.1784/KOL/2017-SAHA TRACTORS A.Y.2014-15 3 3. ACCORDING TO THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961 (ACT) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OT HERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK EXCEEDS RUPEES TWENTY THOUSA ND, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. THE AO MAKI NG A REFERENCE TO THE AFORESAID PAYMENTS CAME TO THE CONCLUSION THAT A SUM OF RS.17 ,06,000/- CANNOT BE ALLOWED AS A DEDUCTION FOR VIOLATION OF SECTION 40A(3) OF THE AC T. 4. THE AO ALSO NOTICED THAT THE ASSESSEE HAD PAID T HE FOLLOWING SUMS BY CASH AS SALES COMMISSION TO THE AFORESAID 5 PERSONS WHO WER E ITS OWN EMPLOYEES AS FOLLOWS: (THESE PAYMENTS DID NOT VIOLATE SEC.40A(3) OF THE A CT ) ITA NO.1784/KOL/2017-SAHA TRACTORS A.Y.2014-15 4 1.ANIL PAUL TOTAL AMOUNT PAYMENT IN CASH RS.7,35,00 0/- - 3,89,000 = 3,46,000 2. ANUP SARKAR TOTAL AMOUNT PAYMENT IN CASH RS. 7,3 5,000/- - 4,19,000 = 3,16,000 3. JOY SINGH TOTAL AMOUNT PAYMENT IN CASH RS.2,06,4 30/- - 30,000 = 2,76,430 4. RAMJAN ALI TOTAL AMOUNT PAYMENT IN CASH RS.7,35, 000/- - 4,49,000 = 2,86,000 5. UTTAM DEB TOTAL AMOUNT PAYMENT IN CASH RS. 7,35, 000/- - 4,19,000 = 3,16,000 5. HE WAS OF THE VIEW THAT SINCE THE AFORESAID PERS ONS WERE SALARIED EMPLOYEES OF THE ASSESSEE THERE IS NO NEED TO HAVE PAID SALES CO MMISSION SEPARATELY. THE AO WAS OF THE VIEW THAT THE SUM IN QUESTION WAS IN THE NATURE OF COMMISSION AND THEREFORE THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AT TH E TIME OF MAKING THE PAYMENT. SINCE THE ASSESSEE FAILED TO DO SO THE AO WAS OF T HE VIEW THAT THE AFORESAID AMOUNT SHOULD BE DISALLOWED U/S 40(A)(IA) OF THE ACT. 6. THE ASSESSEE HAD CLAIMED BEFORE THE AO THAT THER E IS NO PROHIBITION FOR MAKING PAYMENT TO SALARIED EMPLOYEES OF SALES COMMISSION. THE ASSESSEE REITERATED THAT THERE IS NO VIOLATION OF SECTION 40A(3) OF THE ACT BECAUS E INDIVIDUAL PAYMENTS UNDER A SINGLE VOUCHER WAS RS.20,000/- OR LESS AND THEREFOR E THERE IS NO VIOLATION OF THE PROVISION OF SECTION 40A(3) OF THE ACT. WITH REGARD TO VIOLATION OF SECTION 40(A)(IA) OF THE ACT THE ASSESSEE PRODUCED THE EMPLOYEES BEFORE THE AO AND ALL THE EMPLOYEES ACCEPTED THAT THEY HAVE RECEIVED THE COMMISSION AND HAVE ALSO OFFERED TO TAX THE COMMISSION RECEIVED FROM THE ASSESEE IN THEIR RETUR N OF INCOME. THE ASSESSEE THEREFORE CLAIMED THAT NO DISALLOWANCE U/S 40(A)(IA ) OF THE ACT CAN BE MADE. 7. THE AO HOWEVER DID NOT ACCEPT THE CLAIM OF THE A SSESSEE AND HE ADDED A SUM OF RS.17,06,000/- TO THE TOTAL INCOME OF THE ASSESS EE AS DISALLOWANCE U/S 40A(3) OF THE ACT AND FURTHER DISALLOWED A SUM OF RS.14,40,430/- U/S 40(A)(IA) OF THE ACT AND IN ALL A SUM OF RS.31,46,430/- WHICH WAS COMMISSION PAID TO THE AFORESAID FIVE EMPLOYEES OF THE ASSESSEE WAS ADDED TO THE TOTAL INCOME OF THE A SSESSEE. 8. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE PREFER RED APPEAL BEFORE CIT(A). THE CIT(A) AGREED WITH THE SUBMISSIONS OF THE ASSE SSEE THAT THE PROVISION OF SECTION 40A(3) OF THE ACT WAS NOT APPLICABLE IN THE CASE O F THE ASSESSEE BECAUSE PAYMENTS IN ITA NO.1784/KOL/2017-SAHA TRACTORS A.Y.2014-15 5 A DAY IN RESPECT OF EACH ONE OF THE BILL/VOUCHER DI D NOT EXCEED RS.20,000/- AND THEREFORE THERE WAS NO VIOLATION OF THE PROVISION O F SECTION 40A(3) OF THE ACT. THE CIT(A) HELD THAT SECTION 40A(3) OF THE ACT WOULD NO T BE APPLICABLE EVEN IF PAYMENT TO A PERSON IS MORE THAN RS.20,000/- IN A DAY IF AS PER THE INVOICE FOR INDIVIDUAL TRANSACTION THE PAYMENT IS RS.20,000/- OR LESS. WIT H REGARD TO THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT THE CIT(A) HELD THAT SINCE THE PAYEE HAD DECLARED THE SUM RECEIVED IN THEIR RETURN OF INCOME THERE IS NO LOSS TO THE REVENUE AND THEREFORE NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT. 9. THE CIT(A) HOWEVER SUSTAINED THE ADDITION OF DIS ALLOWANCE OF 25% OF THE SALES PROMOTION EXPENSES ON THE GROUND THAT IT WAS NOT SU PPORTED BY PROPER VOUCHERS AND PAYMENTS WERE MADE IN CASH. THE FOLLOWING WERE THE OBSERVATIONS OF CIT(A) IN THIS REGARD :- DURING THE COURSE OF HEARING THE A/R WAS ASKED TO SHOW THE BILLS AND VOUCHERS IN SUPPORT OF PAYMENT MADE BY THESE FIVE PERSONS. H OWEVER, THE A/R STATED THAT ONLY SELF-MADE VOUCHERS ARE THERE. IN THE ABSENCE O F PROPER VOUCHERS IT WAS PROPOSED TO DISALLOW 25% OF THE SALES PROMOTION EXP ENSES. THE A/R DID NOT OBJECT TO THIS PROPOSAL. RELEVANT ORDER SHEET NOTIN G IS REPRODUCED BELOW : SHRI SUDIP DUTTA ATTENDED, FURNISHED LETTER. CASE D ISCUSSED, IT IS PROPOSED TO DISALLOW 25% OF SALES PROMOTION EXPENSES DUE TO LAC K OF PROPER VOUCHER AND FOR MAKING PAYMENT IN CASH. CASE DISCUSSED. A/R DID NOT SUBMIT OR MADE ANY OBJECTION TO THE PROPOSED ADDITION. IN VIEW OF THE ABOVE THE A.O. IS DIRECTED TO DISALL OW 25% OF THE SALES PROMOTION EXPENSES. 10. AGGRIEVED BY THE AFORESAID ACTION OF CIT(A) IN SUSTAINING ADDITION OF 25% OF THE SALES PROMOTION EXPENSES, THE ASSESSEE HAS PREF ERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO SUCH ACCEPTANCE TO THE ADDITION MADE BY CIT(A)AS STATED IN THE IMPUGNE D ORDER AND THEREFORE THE ASSESSEE IS ENTITLED TO CHALLENGE THE ADDITION SUST AINED BY THE CIT(A) BEFORE THE TRIBUNAL. HE SUBMITTED THAT THE GENUINENESS OF EXPE NSES WERE NEVER DOUBTED BY THE ITA NO.1784/KOL/2017-SAHA TRACTORS A.Y.2014-15 6 AO AND ALL THE FIVE PERSONS APPEARING BEFORE THE AO HAD ACCEPTED THAT THEY HAD RENDERED SERVICES TO THE ASSESSEE FOR WHICH SALES C OMMISSION WAS PAID. IN THESE CIRCUMSTANCES IT WAS SUBMITTED THAT THE DISALLOWANC E MADE BY CIT(A) ON THE GROUND THAT THE PAYMENTS OF SALES PROMOTION EXPENSES WERE SUPPORTED BY SELF MADE VOUCHERS CANNOT BE SUSTAINED. THE LD. DR RELIED ON THE ORDER OF CIT(A). 12. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE F INDINGS OF THE CIT(A) REGARDING APPLICABILITY OF SEC.40A(3) OF THE ACT AND SEC. 40( A)(IA) OF THE ACT HAVE NOT BEEN CHALLENGED BY THE REVENUE. THEREFORE THE ONLY ISSUE TO BE DECIDED IS AS TO WHETHER THE CIT(A) WAS JUSTIFIED IN SUSTAINING ADDITION OF 25% OF SALES PROMOTION EXPENSES ON THE GROUND THAT THE EXPENSES WERE SUPPORTED ONLY BY SEL F MADE VOUCHERS AND PAYMENTS WERE MADE IN CASH. IT IS CLEAR FROM THE ORDER OF A O THAT ALL THE FIVE PERSONS TO WHOM THE SALES COMMISSION IN QUESTION WAS PAID HAD APPEA RED BEFORE THE AO AND CONFIRMED THAT THEY HAVE RECEIVED SALES COMMISSION FROM THE ASSESSEE. IN THESE CIRCUMSTANCES THE GENUINENESS OF THE PAYMENT OF COMMISSION CANNO T BE DOUBTED. THE FACT THAT THE EXPENSES WERE PAID IN CASH CANNOT ALSO BE THE BASIS TO SUSTAIN DISALLOWANCE MADE BY THE AO SO LONG AS THERE IS NO VIOLATION OF THE PROV ISION OF SECTION 40A(3) OF THE ACT. IN THIS REGARD WE FIND THAT THE ITAT KOLKATA A BE NCH IN THE CASE OF M/S EXCEL ENGINEERS VS JCIT VIDE ITA NO.1588/KOL/2013 ORDER D ATED 25.11.2016 CONSIDERED THE PROVISION OF APPLICABILITY OF SECTION 40A(3) OF THE ACT AND CAME TO THE CONCLUSION THAT IF THE VALUE OF EACH BILL/INVOICE WAS RS.20,000/- O R LESS AND IF PAYMENTS MADE TO A SINGLE PERSON TOWARD SEVERAL BILLS OR INVOICES WHER E THE VALUE OF EACH SUCH BILLS AND INVOICES WAS RS.20,000/- OR LESS THEN THE PAYMENT M ADE TO SETTLE EACH BILL/INVOICE CANNOT BE HIT BY THE PROVISION OF SECTION 40A(3) OF THE ACT AS EACH BILL/INVOICE HAS TO BE CONSIDERED AS A SEPARATE CONTRACT. IN THESE CIRC UMSTANCES I AM OF THE VIEW THAT THE ADDITION SUSTAINED BY CIT(A) IS WITHOUT ANY BASIS A ND THE SAME IS DIRECTED TO BE DELETED. ITA NO.1784/KOL/2017-SAHA TRACTORS A.Y.2014-15 7 13. IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COUR T ON 03.01.2018. SD/- [ N.V.VASUDEVAN ] JUDICIAL MEMBER DATED : 03.01.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1. SAHA TRACTORS, COLLEGE MORE, P.O.ISLAMPUR, DIST . UTTAR DINAJPUR,WB 733202. 2. I.T.O., WARD-2(4), RAIGANJ. 3. C.I.T.(A), JALPAIGURI 4. C.I.T.-JALPAIGUR I. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE / D.D.O., ITAT KOLKATA BENCHES