Ragova Cargo Express Private Ltd, Kurnool V. DCIT, Central Circle, Tirupathi

ITA 1793/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61877 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 19-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: E PHALGUNA KUMAR
• Keywords: Business expenditure; Opportunity of being heard
• Section: 40A(3); 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI SKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 1792 TO 1794/H YD/2011 ASSTT. YEARS: 2007-08 TO 2009-10. M/S. RAGOVA CARGO EXPRESS VS. DCIT, CENTRAL CIRCLE, PVT. LTD.,YEMMIGANUR. TIRUPATHI . (PAN:AACCR 6699H) [APPELLANT] [RESPONDENT] APPELLANT BY : SHRI E.PHALGUNA KUMAR RESPONDENT BY : SMT. NIVEDITA BISWAS DATE OF HEARING : 04-04-2012 DATE OF PRONOUNCEMENT : 04-05-2012. ORDER PER SAKTIJIT DEY, AM: THESE ARE THREE APPEALS BY THE ASSESSEE DIRECTED AG AINST SEPARATE ORDERS OF CIT (A) DATED 29-8-2011 PERTAINI NG TO THE ASSESSMENT YEARS 2007-08 TO 2009-10. THE ASSESSEE IS COMMON IN ALL THESE APPEALS. HENCE, THESE ARE CLUB BED, HEARD TOGETHER AND DISPOSED OF BY THIS COMBINED ORD ER FOR THE SAKE OF CONVENIENCE. ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 2 ITA NO.1792/HYD/2011- ASST. YEAR 2007-08 :- 2. THE SOLE ISSUE ARISING IN THIS APPEAL IS DISAL LOWANCE OF RS.2,56,221/- TOWARDS RENT PAID. BRIEFLY THE FAC TS ARE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BOOKIN G AND DELIVERY OF GOODS AND PARCELS. IN CONSEQUENCE OF S EARCH AND SEIZURE OPERATION CONDUCTED IN THE CASE OF M/S M.G. BROTHERS AUTOMOBILES PRIVATE LIMITED AND GROUP ON 25 -7- 2008, A NOTICE WAS ISSUED UNDER SECTION 153C READ W ITH SECTION 153A OF THE ACT. IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED RETURN DECLARING NIL INCOME. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND FROM THE P & L A/C THAT AN AMOUNT OF RS.2,56,221/- WAS DEBITED TOWARDS RENT UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPEN SES. WHEN ASKED TO EXPLAIN BY THE AO AS TO WHY TDS HAS N OT BEEN DEDUCTED ON THE RENT PAID SINCE IT EXCEEDS RS.1,20,000/-, THE ASSESSEE REPLIED THAT THE AMOUN T WAS PAID TO THREE OWNERS AND HENCE TDS PROVISION IS NO T ATTRACTED. AFTER EXAMINING THE LEDGER ACCOUNT, THE AO FOUND THAT RS.2,39,510/- WAS SHOWN AS GO DOWN ADVA NCE AND RS.16,711/- WAS SHOWN AS RENT ADVANCE. THE AO WHILE COMPLETING HE ASSESSMENT HELD THAT RENT CLAIM ED TO HAVE BEEN PAID BEING IN THE NATURE OF AN ADVANCE, CANNOT BE ALLOWED AS EXPENDITURE AND ADDED THE SAME TO THE INCOME. THE ASSESSEE CHALLENGED THE ADDITION B EFORE THE CIT (A) AND THE CIT (A) ALSO HOLDING THAT THE R ENT ADVANCES CAN NOT BE ALLOWED AS EXPENDITURE DISMISSE D ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 3 THE APPEAL OF THE ASSESSEE. IN COURSE OF HEARING BEFORE US, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE CLOSED ITS TRANSPORT BUSINESS BY THE END O F FINANCIAL YEAR 2006-07. FOR THE PURPOSE OF ITS TRAN SPORT BUSINESS, THE ASSESSEE HAD TAKEN GO DOWNS ON RENT A T SEVERAL PLACES IN THE STATE. ADVANCE RENT WAS ALSO PAID TO THE GO DOWN OWNERS. WHEN THE ASSESSEE CLOSED IT S TRANSPORT BUSINESS, MANY GODOWN OWNERS DID NOT RETU RN THE ADVANCES PAID TO THEM. THE LEARNED AR TOOK US THROUGH THE DETAILS OF RENT WHICH IS AT PAGE-9 OF T HE PAPER BOOK. SINCE THERE WAS NO CHANCE FOR RECOVERY OF TH E ADVANCE RENT PAID, THE ASSESSEE HAD WRITTEN OFF THE SAME IN THE BOOKS OF ACCOUNTS AND DEBITED THE SAME TO TH E P & L A/C. THE LEARNED AR FURTHER SUBMITTED THAT SINCE PAYMENT OF RENT TO EACH PERSON IS BELOW RS.1,20,000 /-, THERE WAS NO NEED TO DEDUCT TAX AT SOURCE. 3. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT (A). 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. EVEN AFTER CONSIDERING THE CONTENTION OF THE LEARNED AR, THE ADVANCE RENTS PAI D TO THE GODOWN OWNERS ARE NOT RECOVERABLE AND THE SAME CANNOT BE TREATED AS BUSINESS EXPENDITURE BUT, IT I S IN THE NATURE OF CAPITAL LOSS. WE THEREFORE UPHOLD FINDIN GS OF THE CIT (A) IN DISALLOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE IN THIS REGARD. ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 4 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ITA NO.1793/HYD/2011- ASST. YEAR 2008-09 6. THIS APPEAL RELATES TO THE ASSESSMENT YEAR 2008- 09. IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.3,20,000/- PAID IN CASH FOR PURCHASE OF LAND BY APPLYING SECTION 40A(3) OF THE ACT. BRIEFLY THE FACTS ARE IN COURSE OF ASSESSMENT PROCEEDING UNDER SECTION 143(3) READ WITH SECTION 153C OF THE ACT, SHE FOUND THAT THE ASSESSEE HAD PURCHASED LAND MEASURING 6.11 ACRES ON 6-8-2007 FO R A CONSIDERATION OF RS.3,12,000/- FOR ITS REAL ESTAT E BUSINESS. THE ENTIRE AMOUNT OF RS.3,12,000/- WAS PAID IN CASH. THE AO BY OBSERVING THAT THE PERSONS FROM WHOM THE LAND WAS PURCHASED WERE HAVING BANK ACCOUNT AND THE MONEY RECEIVED FROM THE ASSESSEE W AS DEPOSITED IN THE BANK ACCOUNT ADDED THE AMOUNT OF RS.3,12,000/- BY APPLYING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE ASSESSEE CHALLENGED THE ADD ITION BY FILING AN APPEAL BEFORE THE CIT (A). ON APPEAL, THE CIT (A) HOLDING THAT EXEMPTION UNDER RULE 6DD WILL APPLY WHEN AGRICULTURAL OR HORTICULTURAL COMMODITIE S ARE PURCHASED FROM THE AGRICULTURISTS AND IT WILL N OT APPLY TO IMMOVABLE PROPERTIES PURCHASED FROM THE FARMERS, DISMISSED THE APPEAL FILED BY THE ASSESSE E. ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 5 7. THE LEARNED AR SUBMITTED BEFORE US THAT THE ASSESSEE PURCHASED LAND FROM THE FARMERS OF KAYAM VILLAGE WHICH ON THE DATE OF PURCHASE WAS NOT SERVE D BY ANY BANK. THE FARMERS FROM WHOM THE LAND WAS PURCHASED WERE ALSO NOT HAVING ANY BANK ACCOUNT WHEN PAYMENT WAS MADE TO THEM. THE LD. AR SERIOUSLY DISPUTED THE FINDING OF THE AO THAT THE SELLERS WER E HAVING BANK ACCOUNTS ON THE DATE OF PURCHASE OF LAN D. THE LEARNED AR SUBMITTED THAT THE ASSESSMENT WAS COMPLETED BY THE AO WITHOUT AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE LEARNED AR FURTHER SUBMITTED THAT THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS NOT PURCHASED ANY AGRICULTURAL OR HORTICULTURAL PRODUCE FROM THE FARMERS. THE LEARNED AR SUBMITTED THAT THE ASSESSEE FROM THE VERY BEGINNING HAS CLAIMED THAT ITS CASE IS COVERED UNDER CLAUSE ( G) OF RULE 6DD. 8. THE LEARNED DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDERS OF THE REVENUE AUTHORITIES SUBMITTED THAT THE PAYMENTS HAVE NOT BEEN MADE THROUGH ACCOUNT PAYEE CROSSED CHEQUES OR DDS AND THEREFORE DISALLOWANCE HAS RIGHTLY BEEN MADE UNDER SECTION 40A(3) OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. IT ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 6 IS AN ADMITTED FACT THAT THE ASSESSEE HAS PURCHASED 6.11 ACRES OF LAND DURING THE PREVIOUS YEAR ON PAYM ENT OF RS.3,12,000/- TO THE SELLERS. SECTION 40A(3) OF THE ACT WHICH HAS OVER-RIDING EFFECT PROVIDES THAT THE EXPENDITURE INCURRED IN CASH EXCEEDING RS.20,000/- SHALL NOT BE ALLOWED UNLESS IT IS PAID BY ACCOUNT P AYEE CHEQUE OR ACCOUNT PAYEE DD. UNDER SUB-RULE (G) OF RULE 6DD, IT IS PROVIDED THAT IN CASE OF PAYMENT M ADE TO A PERSON ORDINARILY RESIDING IN A VILLAGE WHERE THERE IS NO BANKING FACILITY, NO DISALLOWANCE CAN BE MADE UNDER SECTION 40A(3) OF THE ACT. THE SPECIFIC PLE A OF THE LEARNED AR OF THE ASSESSEE IS THAT KAYAM IS A REMOTE VILLAGE AND ON THE DATE OF PAYMENT MADE TO T HE FARMERS, NEITHER THE VILLAGE WAS SERVED BY A BANK N OR THE SELLERS WERE HAVING BANK ACCOUNTS. FROM THE ORDERS OF THE REVENUE AUTHORITIES, NO CLEAR CUT FIN DING IS FORTHCOMING WITH REGARD TO THE FACT AS TO WHETHER ON THE DATE PAYMENT WAS MADE BY THE ASSESSEE, THE VILLAGE WAS SERVED BY A BANK OR NOT. IN THE AFORES AID VIEW OF THE MATTER, WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSMENT ONLY FOR THE LIMITED PURPOSE OF FIND ING OUT WHETHER ON THE DATE OF PAYMENT MADE BY THE ASSESSEE, THE CONCERNED VILLAGE WAS SERVED BY A BAN K AND THE PERSON TO WHOM THE PAYMENT WAS MADE WAS ORDINARILY RESIDING IN THAT VILLAGE OR NOT. THE AO SHALL COMPLETE THE ASSESSMENT AFTER PROVIDING A REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 7 ITA NO.1794/HYD/2011- ASST. YEAR 2009-10 10. IN THIS APPEAL, THE ASSESSEE HAD CHALLENGED DISALLOWANCE OF EXPENDITURE MADE OF AN AMOUNT OF RS.45,34,000/- BY APPLYING THE PROVISIONS OF SECTIO N 40A(3) OF THE ACT. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE HAD PURCHASED 22.67 ACRES O F LAND ON 31-5-2008 FOR A TOTAL CONSIDERATION OF RS.45,34,000/- FOR ITS REAL ESTATE BUSINESS. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 153C OF THE ACT, THE AO DISALLOWED THE EXPENDITURE CLAIMED OF THE AFORESAID AMOUNT BY APPLYING THE PROVISIONS OF SECTION 40A(3) OF THE AC T ON THE GROUND THAT THE ENTIRE PAYMENT WAS MADE IN CAS H. THE ASSESSEE CHALLENGED THE ADDITION BY FILING AN APPEAL BEFORE THE CIT (A). THE CIT (A) ALSO FOLLOW ING THE FINDING OF THE AO DISALLOWED THE CLAIM OF EXPENDITU RE ON THE GROUND THAT THE PAYMENT WAS MADE IN CASH. FOR READY REFERENCE, THE FINDING OF THE CIT (A) IS QUOTED BELOW:- THEREFORE, IN VIEW OF THE ABOVE OBSERVATION OF THE AO AND ALSO IN VIEW OF THE FACT THAT THE APPELLANT HAD MADE PAYMENTS TOWARDS PURCHASE OF LAND WHICH IS STOCK IN TRADE FOR THE APPELLANT. HENCE, THE EXEMPTION CLAIMED BY THE APPELLANT UNDER RULE 6DD R.W.S. 40A(3) OF THE IT ACT, 1961 ARE NOT APPLICABLE. IT MAY BE SEEN THAT IN THE EXEMPTION ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 8 OF RULE 6DD IS ALLOWED ONLY WHEN ANY AGRICULTURAL OR HORTICULTURAL COMMODITIES ARE SOLD TO THE APPELLANT. IN THIS CASE, SINCE THE APPELLANT IS PURCHASING IMMOVABLE PROPERTY FROM THE FARMERS, THE EXEMPTION UNDER RULE 6DD R.W.S. 40A(3) IS NOT APPLICABLE. HENCE, THE ADDITION MADE BY THE AO IS CONFIRMED. THEREFORE, THIS GROUND OF APPEAL IS TREATED AS DISMISSED. 11. THE LEARNED AR SUBMITTED THAT THE CIT (A) AS WE LL AS THE AO HAVE PROCEEDED COMPLETELY ON THE WRONG FOOTING BY ASSUMING THAT THE PAYMENTS FOR PURCHASE OF LAND HAVE BEEN MADE IN CASH. THE LEARNED AR INVITI NG THE ATTENTION OF THE BENCH FROM PAGES-27 TO 29 OF P APER BOOK SUBMITTED THAT THE ENTIRE PAYMENT WAS MADE TO THE SELLERS OF THE LAND BY ACCOUNT PAYEE DEMAND DRA FT WHICH WAS ALSO PRODUCED BEFORE THE CIT (A). THE LEARNED AR SUBMITTED THAT THERE BEING NO VIOLATION OF SECTION 40A(3) OF THE ACT, NO DISALLOWANCE SHOULD H AVE BEEN MADE OF THE AFORESAID AMOUNT. AFTER GOING THROUGH THE DOCUMENTS PRODUCED BEFORE US, WE FIND THE CONTENTION OF THE LEARNED AR FOR THE ASSESSEE T O BE CORRECT. IT IS SEEN FROM PAGES 27 TO 29 OF THE PAP ER BOOK WHICH CONTAINS COPIES OF THE ACCOUNT PAYEE DDS THAT THE ASSESSEE HAS PAID AN AMOUNT OF RSW.45 LAKH S TOWARDS PURCHASE OF LAND. WHEN THE ASSESSEE HAS MADE THE PAYMENT THROUGH ACCOUNT PAYEE DD, NO DISALLOWANCE COULD HAVE BEEN MADE BY APPLYING THE ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 9 PROVISIONS OF SECTION 40A(3) OF THE ACT. SINCE THE CIT (A) AND THE AO HAVE NOT PROPERLY APPLIED THEIR MIND AND CONSIDERED THE MATERIALS PRODUCED BEFORE THEM, WE DEEM IT PROPER TO SET ASIDE THE MATTER TO THE FILE OF THE AO WHO SHALL EXAMINE THE CLAIM OF THE ASSESSEE AND IF IT IS FOUND THAT THE ASSESSEE HAS MADE PAYMENT TO T HE PERSONS CONCERNED TOWARDS PURCHASE OF LAND THROUGH ACCOUNT PAYEE DD THEN THE EXPENDITURE CLAIMED SHOUL D BE ALLOWED. NEEDLESS TO MENTION HERE THE AO SHALL AFFORD AN OPPORTUNITY OF BEING HEARD TO THE ASSESSE E BEFORE COMPLETING THE ASSESSMENT. 12. IN THE RESULT, ITA NO.1792/HYD/2011 IS DISMISSE D AND OTHER APPEAL NOS. 1793 AND 1794/HYD/2011 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER WAS PRONOUNCED IN THE COURT ON 4 -5-2012 . SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER DATED THE 4 TH MAY, 2012 COPY FORWARDED TO: 1. M/S RAGOPVA CARGO EXPRESS PVT. LTD., D.NO.1/683, CO-OP. HOUSE BUILDING, YEMMIGANUR, KURNOOL, DISTRICT. 2. DCIT, CENTRAL CIRCLE, TIRUPATI. 3. THE CIT(A)-VII, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD *JMR* ITA NOS.1792 TO 1794 OF 2011 M/S RAGOVA CARGO EXPRESS PVT. LTD. 10