M/s Kuldeep Pratap Deo, Bhubaneswar V. ITO, Bhubaneswar

ITA 184/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4396 (ITAT-CUTTACK)
• Duration Of Justice: 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 24-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 06-04-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: D K SETH
• Keywords: Business expenditure
• Section: 40A(3)

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 184/CTK/2011 (ASSESSMENT YEAR 2001 - 02) M/S. KULDEEP PRATAP DEO, HOUSE NO.503/ A,KRISHNA TOWER, NAYAPALI, BHUBANESWAR 751 012 PAN: AAGFR 7804 E VERSUS INCOME - TAX OFFICER, WARD 2(1), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.SETH, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR ORDER SHRI K.K.GUPTA, ACCOUNT ANT MEMBER : THIS APPEAL BY THE ASSESSEE AGITATES THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) ON PARTIALLY ALLOWING THE DELETION OF DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER IN HIS ORDER U/S.143(3)/254. 2. THE BRIEF FACTS OF THE CASE ARE TH AT THE ASSESSEE IS A RETAIL SELLER OF INDIAN MADE FOREIGN LIQUOR (IMFL) AND SUPPLY OF DAL TO GOVERNMENT, FILED RETURN OF INCOME WHICH WAS SUBJECT TO ASSESSMENT U/S.144. THE ASSESSEE APPEALED AGAINST THE MERIT ADDITIONS IN THE SAID ORDER BEFORE THE FIRST AP PELLATE AUTHORITY WHO CONFIRMED THE SAME WHICH WAS APPEALED AGAINST BEFORE THE ITAT. THE ITAT, VIDE ORDER DT.17.5.2006 IN ITA NO.211/CTK/2005 SET ASIDE THE CASE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. DURING THE COURSE OF PROCEEDINGS U/S.143(3)/254, THE ASSESSING OFFICER CONFRONTED THE ASSESSEE FOR INCURRING ENTERTAINMENT EXPENSES AND TRAVELLING EXPENSES WHICH ARE DISALLOWABLE . THE DISALLOWANCE U/S.40A(3) WAS EARLIER MADE AMOUNTING TO RS.9,01,052 WHICH IN THE IMPUGNED APPEAL HAS BEEN R ETAINED AT RS.8,27,052 ON THE AO HAVING SATISFIED HIMSELF THAT ON CERTAIN DAYS ON THE AMOUNT PAID IN EXCESS OF RS.20,000 WAS PAID WHEN THE BANKS ARE EITHER CLOSED OR WAS A HOLIDAY. THE ASSESSING OFFICER IN THE REASSESSMENT, ON ITA NO.184/CTK/2011 2 THE DIRECTION OF THE TRIBUNA L , CONFIRMED THE DISALLOWANCE OF THE EXPENSES CLAIMED ON ENTERTAINMENT BY HOLDING THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH ASSUMING BUT NOT ACCEPTING THAT THE EXPENSES WERE INCURRED FOR THE BUSINESS OF THE ASSESSEE. HOWEVER, HE CONFIRMED ONLY RS.25, 000 OUT OF THE TOTAL CLAIM OF EXPENDITURE UNDER THE HEAD TRAVELLING AMOUNTING TO RS.2,51,421 FOR WANT OF PROPER DETAILS VIZ., PLACE OF JOURNEY, NAMES OF THE EMPLOYEE/PARTNER WHO UNDERWENT JOURNEY. AS MENTIONED EARLIER, THE DISALLOWANCE U/S.40A(3) WAS RESTR ICTED TO RS.8,27,052 WAS APPEALED AGAINST BEFORE THE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY HAS CONFIRMED THE SAME BY INCORPORATING THE AOS ACTION AS FAIR AND JUST IN DISALLOWING RS.1,15,789 UNDER THE HEAD ENTERTAINMENT EXPENSES AND HAS ALSO JUSTIFIED THE RS.25,000 TO BE DISALLOWED BEING 10% OF THE TRAVELLING EXPENSES CLAIMED KEEPING IN VIEW THAT HIS PREDECESSOR HAD UPHELD THE DISALLOWANCE OF RS.51,384 IN THE EARLIER INNINGS. ON THE DISALLOWANCE OF RS.8,27,052 U/S.40A(3), THE LEARNED CIT( A) AFTER INCORPORATING THE PREDECESSOR CIT(A)S OBSERVATIONS THERE ON , NOTED THAT THE ASSESSEE HAD CLAIMED EXPENSES ON PAYMENTS EXCEEDING RS.20,000 TO ONE SHRI G.M.ROUTRAY THEREFORE HAD NOTHING TO DO WITH THE ASSESSEES CLAIM THAT NO AMOUNT HAD BEEN PAID E XCEEDING RS.20,000 WHEN THE MONEY RECEIP T WAS OBTAINED FOR THE SAME OF R S.20,000 OR LESS MAY BE EXCEEDING RS.20,000 DURING A DAY. IN OTHER WORDS, THE ASSESSEES CLAIM IS THAT INITS BOOKS OF ACCOUNT IT MAINTAINED CLAIMING FOR EXPENSES WAS NOT THE REASON FOR INVOKING THE PROVISIONS OF SECTION 40A(3) INSOFAR AS THE ASSESSEE HAD CREDITED THE SAID SHRIG.M.ROUTRAY ON ACCOUNT OF BILLS RAISED BY HIM WHICH HE WAS PAID IN CASH AS AND WHEN SALE OF IMFL WAS MADE DURING THE DAY. 3. THE LEARNED COUNSEL FOR THE ASSESSEE B EFORE US HAS SUBMITTED THAT INSOFAR AS THE DISALLOWANCE OF ENTERTAINMENT EXPENSES IS CONCERNED, IT WAS ITA NO.184/CTK/2011 3 SUBMITTED TO THE AUTHORITIES BELOW THAT THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS WHO DEALS IN IMFL AND HA D BEEN NOTED WRONG LY BY THE ACCOUNTANT AS ENTERTAINMENT WAS NOT TO BE CONSIDERED FOR DISALLOWANCE FORREQUIRING EVIDENCE OF THE PURPOSE AND THE PAYEE TO BE INSCRIBED IN THE VOUCHERS. THE EXPENDITURE WAS IN THE NATURE OF CUSTOMARY TREATMENT TO CUSTOMERS WAS BUSINESS PROMOTI ON EXPENSES HA D TO BE ALLOWED IN FULL AS INCIDENTAL TO CARRYING ON THE BUSINESS. ON THE DISALLOWANCE OF RS.25,000 OUT OF TRAVELLING EXPENSES, HE SUBMITTED THAT FOR WANT OF DETAILS, THE AUTHORITIES BELOW REQUIRED THE ASSESSEE TO FURNISH THE TOUR PROGRAMS OF THE EMPLOYEES/PARTNERS FOR CLAIMING REIMBURSEMENT FROM THE ASSESSEE FIRM. HE POINTED OUT THAT NO CONTROVERTING MATERIAL HAS BEEN BROUGHT ON RECORD EITHER BY THE ASSESSING OFFICER OR THE LEARNED CIT(A) CONFIRMING THE DISALLOWANCE INSOFAR AS THE DIS ALLOWAN CE COULD NOT BE MADE THE PART OF THE JOURNEY PERFORMED. THE ADHOC DISALLOWANCE DOES NOT JUSTIFY THE NATURE OF EXPENDITURE CLAIMED WHICH HAS BEEN SOLELY INCURRED FOR THE BUSINESS MAY KINDLY BE DIRECTED TO BE ALLOWED IN FULL. 4. ON THE ISSUE OF DISALLOWANCE OF RS.8,27,052 U/S.40A(3), THE LEARNED AR OF THE ASSESSEE POINTED OUT THAT IT IS UNDISPUTED FACT AS OBSERVED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) THAT PAYMENTS EXCEEDING RS.20,000 IN A SINGLE DAY TO THE SAME PERSON BY DIFFERENT MONEY RECEIPTS WA S NOT TO BE CONSIDERED OTHERWISE BY OBSERVING THE LEDGER COPY OF THE RECIPIENT. THE AMOUNT WAS PAID TO THE AGENT OF THE RECIPIENT AS AND WHEN THE ASSESSEE WAS ABLE TO GENERATE SUFFICIENT CASH ON THE SALE OF IMFL. NO IN DI VIDUAL PAYMENT IN A SINGLE DAY HAS B EEN EXCEEDING RS.20,000 WAS METICULOUSLY CONSIDERED BY THE HONBLE MADHYA PRADESH HIGH COURT IN THEIR DECISION REPORTED IN 228 ITR 680, NAMELY CIT V. TRIVENIPRASAD PANNALAL. IDENTICAL FACTS WERE CONSIDERED BY THE HONBLE MADRAS HIGH COURT IN THEIR DECISION REPORTED IN ITA NO.184/CTK/2011 4 282 ITR 117 IN THE CASE OF CIT V. KOTHAM SANITATION AND TILES P. LTD. WHEN THEIR LORDSHIPS MOOTED THE PROPOSAL THAT THE PRACTICABILITY OF THE PAYMENT I S ALSO TO BE JUDGED ON THE POINT OF VIEW OF A BUSINESS M AN. FOR THIS PROPOSITION HE SUBMITTE D A COPY OF BILLS RAISED AGENT SHRI G.M.ROUTRAY WHO HAS BEEN PAID AGAINST THE SE BILLS RAISED BY WHOLESELLER AND HAVE BEEN CLAIMED AS EXPENSES NAMELY PURCHASES AND THE PAYMENT IN THE RUNNING ACCOUNT WHEN A SINGLE PAYMENT DOES NOT EXCEED RS.20,000. HOWEVER , AS AND WHEN THE REQUIREMENT OF THE PAYEE INCREASED THE ASSESSEE WAS ABLE TO COMPUTE A FEW PAYMENTS EXCEEDING RS.20,000 THAT TOTA L LED RS.10,20,442. THIS AT BEST ON THE BASIS OF THE JUDICIAL PRONOUNCEMENT COULD BE SUBJECTED TO DISALLOWANCE UNDER THE PROVIS IONS OF SECTION 40A(3) RESULTING IN ADDITION OF RS.2,04,488. 5. THE LEARNED DR OPPOSED THE CONTENTIONS OF THE LEARNED AR OF THE ASSESSEE INDICATING THAT THE ASSESSEE HAS NOT BEEN ABLE T O EVEN SUBSTANTIATE THE CLAIM FOR RS.1,15,789 EVEN IF ASSUMING AND NOT ACCEPTING THAT THE EXPENSES CLAIMED WERE FOR ENTERTAINMENT OF THE BUSINESS CUSTOMERS. THE LEARNED CIT(A) THEREFORE RIGHTLY NOTED THAT THE PROVISIONS OF SECTION 37(2) ARE NO LONGER APPLICA BLE FOR THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE WAS TO REQUIRE THE NATURE OF EXPENDITURE TO BE EXPLAINED IN ITS ENTIRETY WHEN HE OBSERVED THAT THE EXPENSES HAVE BEEN INCURRED FOR THE BUSINESS OF THE ASSESSEE. AS NO DETAILS WERE FURNISHED TO THE ASSESSING OFFICER OR THE LEARNED CIT(A) THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE AS OF NOW CANNOT BE ACCEPTED. WITH REGARD TO THE TRAVELLING EXPENSES DISALLOWED AMOUNTING TO RS.25,000, THE LEARNED CIT(A) RIGHTLY NOTED THAT THE ASSESSEE WAS REQUESTED TO PRODUCE THE VOUCHERS GIVING SAMPLE AS NOTED IN HIS ORDER TO DERIV E THE DETAILS OF PLACE OF TRAVEL AND NAMES OF THE EMPLOYEE WAS THEREFORE CONSTRAINT TO MAKE THE DISALLOWANCE OF 10% APPROXIMATELY FROM THE TOTAL CLAM OF RS.2,59,421. THE LEARNED CIT(A) UPHELD THE SAME IN FINDING ITA NO.184/CTK/2011 5 NO INFIRMITY IN THE 10% FOR DISALLOWANCE BY THE ASSESSING OFFICER. ON THE LAST GROUND RELATING TO DISALLOWANCE U/S.40A(3), HE POINTED OUT THAT THE TOTAL PAYMENT OF RS.45,05,260 TO THE AGENT ON THE BASIS OF BILLS RAISED BY HIM NAMELY, G.M.ROUTRAY INCLUDED PAYMENTS FOR THE PURCHASES WHICH WERE TO BE CLAIMED AS EXPENSES WAS TO EXCLUDE THE SUM OF RS.3,70,000 AS PER THE PROVISIONS OF RULE 6DD(K). HOWEVER, AT NO POINT OF TIME, THE ASSESSEE HAD CLAIMED IT AS THE BILLS ARE RAISED BY THE AGENT HIMSELF. THEREFORE, HE FULLY SUPPORTED TH E ORDERS OF THE AUTHORIT IES BEL OW FOR HIS PART SUBMISSIONS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO HOLD THAT THE ASSESSEE INSPITE OF SEVERAL OPPORTUNITIES HAS NOT BEEN ABLE TO ESTABLISH THE NATURE OF EXPENSES INCURRED UNDER THE HEAD ENTERTAI NMENT EXPENSES EVEN IF IT CLAIMS THAT THE EXPENSES WERE FOR THE PURPOSE OF BUSINESS. THIS CLEARLY INDICATE S THAT THE ASSESSEE HAS NOT IN ANY WAY NOTED OF THE PURPOSE FOR WHICH WAS INCURR ED WHEN THE VOUCHERS PRODUCED AS EVIDENCE WERE VERIFIED BY BOTH THE AUTHORITIES BELOW. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM IN ITS ENTIRETY EITHER TO BE CLAIMED AS BUSINESS EXPENDITURE OR FOR DISALLOWAN CE U/S.37(2) NAMELY ENTERTAINMENT EXPENSES WHICH IS NO MORE APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. WE DO NOT FIND ANY INFIRMITY IN THE CONFIRMATION OF THE DISALLOWANCE THEREOF BY THE LEARNED CIT(A) . 7. HOWEVER ON THE CONFIRMATION OF ADHOC DISALL OWANCE UNDER THE HEAD TRAVEL EXPENSES WE ARE UNABLE TO SATISFY OURSELVES TO THE CONTENTION OF THE LEARNED CIT(A) THAT ADHOC DISALLOWANCE OF 10% APPROXIMATELY WAS JUSTIFIED BY THE ASSESSING OFFICER WITHOUT BRING ING OUT ANY SPECIFIC REASON FOR SUCH DISALLO WANCE FOR WANT OF DETAIL ED VOUCHERS. WHEN THE BLOCK OF THE EXPENDITURE I.E., 90% HAS BEEN ALLOWED ON THE BASIS OF VOUCHERS, THE ITA NO.184/CTK/2011 6 AUTHORITIES BELOW OUGHT TO HAVE POINTED OUT SPEC IFIC LACUNA WHEN THE JOURNEY HAD BEEN PERFORMED COULD BE ALLOWED BUT THE RESIDUA L PORTION OF THE CLAIM AT 10% HAS TO BE DISALLOWED . WE FIND THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE JUSTIFIED THAT TRAVELLING EXPENSES WERE INCURRED FOR THE BUSINESS OF THE ASSESSEE. APART FROM ADHOC DISALLOWANCE, IT DILUTES THE VERY NATURE OF EXPENSES TO BE DISALLOWED WHEN TRAVELLING HAS TO BE UNDERTAKEN FROM ASSESSEES BUSINESS PREMISES AND RETURN TO ASSESSEES PREMISES ONLY. THE LEARNED CIT(A) HAS NOT SUBSTANTIATED THE REASONABLENESS OF THE FOR ADHOC DISALLOWANCE MADE BY THE ASSESSING OF FICER. WE DIRECT THE DELETION OF RS.25,000 DISALLOWED UNDER THE HEAD TRAVELLING EXPENSES. 8. ON THE LAST ISSUE AGITATED, THE LEARNED COUNSEL FOR THE ASSESSEE HIMSELF HAS PROPOSED THAT SINGLE SUM PAID RECEIVED IN EXCESS OF RS.20,000 AMOUNTED TO RS.10,22, 442 WHICH SHOULD RESULT IN DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40A(3) AT RS.2,04,488 ONLY. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF MADHYA PRADESH HIGH COURT (SUPRA), WHICH CLEARLY INDICATE THAT THE INTENTION OF THE LEGI SLATURE FOR DISALLOWANCE OF PAYMENT EXCEEDING RS.20,000 IN A SINGLE DAY WAS NOT THE CRITERIA INSOFAR AS IF IT IS PERMITTED THAN VIRTUALLY IT WILL FRUSTRATE THE VERY PURPOSE OF THE ENACTMENT. THE AGENT HAS BEEN PAID NOT MORE THAN RS .2 0,000 O N A SINGLE RECEI PT BUT HAS BEEN PAID THROUGH THE DAY AS AND WHEN THE ASSESSEE WAS ABLE TO GENERATE CASH ON THE SALE OF IMFL. THE ASSESSEE HIMSELF HAS COMPUTED THE ONE SINGLE PAYMENT S EXCEEDING RS.20,000 TOTALING RS.10,22,442 AGAINST WHICH THE MAXIMUM DISALLOWANCE OF RS.2, 04,488 CAN BE MADE. THE AMOUNT DELETED BY THE ASSESSING OFFICER HIMSELF WAS ON THE BASIS OF HIS FINDING THAT WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY WHEN THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE IS GOVERNED BY RULES 6DD(J). I T IS A MATTER OF FACT FINDING AND NOT LITERAL VIEW OF ITA NO.184/CTK/2011 7 THE CONSTRUCTION OF RULES FRAMED THERE UNDER W AS SOUGHT TO BE CLARIFIED BY THE LEARNED DR HERE. THE ASSESSE HAS BEEN CLAIMING DEDUCTION U/S.6DD(K) WHEN H E HIMSELF NOTED THAT THE AGENT W AS GIVEN CREDIT A GAINST THE PURCHASES MADE BY IT ON BEHALF OF THE DEALER WAS TO JUSTIFY CREDIT OUTSTANDING BY WAY OF PAYMENT TO THE WHOLESALER . A TRUST IS TO BE CREATED BETWEEN THE PURCHASER AND SELLER WHEN GOODS ARE PURCHASED AND TRADED WAS THEREFORE RIGHTLY CLAIMED AS DE DUCTION FOR EXPENSES INCURRED IN CASH WHEN THE ASSESSEE HIMSELF CLAIMS THE PAYMENT S EXCEEDING RS.20,000 BY WAY OF A SINGLE RECEIPT EXCEEDED THE AMOUNT TOTALING RS.10,22,442. RELYING ON THE DECISION OF THE CASE LAWS CITED AND THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE WE CONFIRM THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(3) AT RS.2,04,488 AND DELETE THE BALANCE DISALLOWANCE ON THIS COUNT. THIS GROUND IS THEREFORE PARTLY ALLOWED. 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED . PRONOUNCED IN OPEN COURT ON DT. 27 TH MAY, 2011 SD/ - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 27 TH MAY, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. 0P00009O COPY OF THE ORDE R FORWARDED TO : 1. THE APPELLANT: M/S. KULDEEP PRATAP DEO, HOUSE NO.503/A,KRISHNA TOWER, NAYAPALI, BHUBANESWAR 751 012 2. THE RESPONDENT: INCOME - TAX OFFICER, WARD 2(1), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DU PLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.