Srinivasan Balaji, CHENNAI V. ACIT, Vellore

ITA 1996/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7380 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 01-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Commercial expediency
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 40A(3); 271(1)(b); 139; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.1996/MDS/2016 / ASSESSMENT YEAR : 2011-2012. SHRI. SRINIVASAN BALAJI, 11/53, PVP KOIL STREET, AGARAMEL, NAZARATHPER, CHENNAI 600 123. [PAN AEBPB 5187N] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I, VELLORE. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI. JHARNA B. HARILAL, C.A /RESPONDENT BY : SHRI. CLEMENT RAMESH KUMAR, IRS, JCIT. /DATE OF HEARING : 01-03-2017 ! /DATE OF PRONOUNCEMENT : 29-03-2017 % / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE, IT IS AGGRIE VED ON DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER U/S. 40A(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) TO THE EXTENT SUSTAINED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ITA NO. 1996/MDS/2016 :- 2 -: 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT OUT OF THE TOTAL DISALLOWANCE OF D20,81,018/- U/S.40A(3) OF THE ACT, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD SUSTAINED AN ADDITION O F D18,21,018/-, AS PER LD. AUTHORISED REPRESENTATIVE OUT OF THE ABO VE AMOUNT D13,00,000/- WAS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT SINCE IT REPRESENTED PAYMENT TO ONE SHREE VENKATESWARA ENGIN EERING WORKS WHICH WAS A PROPRIETORSHIP OF ASSESSEES WIFE. AS PER LD. AUTHORISED REPRESENTATIVE, THE AMOUNT WAS ONLY A LOAN GIVEN A ND NEVER CHARGED TO PROFIT AND LOSS ACCOUNT. SIMILARLY ACCORDING TO LD. AUTHORISED REPRESENTATIVE D40,000/- WAS PAID TO M/S. SHAKTHI E NGINEERING FOR ACQUIRING PLANT AND MACHINERY AND NOT CHARGED TO PR OFIT AND LOSS ACCOUNT. AGAIN, AS PER LD. AUTHORISED REPRESENTATI VE A SUM OF D1,75,000/- WAS PAID BY THE ASSESSEE FOR CONSTRUCT ION OF SHED WHICH ALSO WAS NOT CHARGED TO PROFIT AND LOSS ACCOUNT. F URTHER AS PER LD. AUTHORISED REPRESENTATIVE A SUM OF D1,68,225/- WAS PAID TO SMALL TIME CONTRACTORS AT VARIOUS WORK SITES AND DUE TO COMME RCIAL EXPEDIENCY SUCH PAYMENTS HAD TO BE MADE IN CASH. ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE ASSESSEE WAS A SMALL TIME FABRICATOR AND DOING CONSTRUCTION OF SMALL BUILDING AND HAD NO UND ISCLOSED INCOME. SIMILARLY AS PER LD. AUTHORISED REPRESENTATIVE THER E WERE PURCHASE OF MATERIAL WORTH D1,37,793/- WHICH ALSO REQUIRED PAY MENTS IN CASH. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ONCE THE P AYMENTS WERE ITA NO. 1996/MDS/2016 :- 3 -: GENUINE AND MADE FOR COMMERCIAL EXPEDIENCY, RIGOUR S OF SEC. 40A(3) OF THE ACT WOULD NOT APPLY. CONTENTION OF THE LD. A UTHORISED REPRESENTATIVE WAS THAT RULE 6DD WAS NOT EXHAUSTIVE OF THE CIRCUMSTANCES UNDER WHICH APPLICATION OF SEC. 40A( 3) OF THE ACT COULD BE EXCUSED. RELIANCE WAS PLACED ON THE DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF SRI MANORANJAN RAHA VS. ITO ( IN ITA NO.1448/KOL/2011, DATED 18.11.2015) AND THAT OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF GURDAS GARG VS. CIT (IN ITA NO.413 OF 2014, DATED 16.07.2015 ). 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBM ITTED THAT ASSESSEE HAD NEVER ARGUED BEFORE ANY OF THE LOWER AUTHORITIE S THAT D13,00,000/- PAID TO SHREE VENKATESHWARA ENGINEERING WORKS, D1,7 5,000/- PAID FOR CONSTRUCTION OF SHED AND D40,000/- PAID FOR ACQUIR ING MACHINERY WORKS WERE NOT CLAIMED BY IT AS EXPENDITURE IN PRO FIT AND LOSS ACCOUNT. IN SO FAR AS OTHER PAYMENTS ARE CONCERNED , LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE COULD NOT S HOW BUSINESS EXPEDIENCY OF MAKING SUCH PAYMENTS IN CASH. ACCORD ING TO HIM, THE PAYMENTS WERE ADMITTEDLY MADE IN CASH IN EXCESS OF THE AMOUNTS STIPULATED U/S. 40A(3) OF THE ACT AND HENCE THE DIS ALLOWANCES WERE RIGHTLY DONE. ITA NO. 1996/MDS/2016 :- 4 -: 4. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. CLAIM OF THE ASSES SEE BEFORE ME IS THAT A SUM OF D13,00,000/- PAID ON THE FOLLOWING DA TES TO SHREE VENKAESHWARA ENGINEERING WORKS WERE ACTUALLY A LOAN S/DRAWINGS OF THE ASSESSEE AND NOT CHARGED TO PROFIT AND LOSS ACC OUNT. DATE PARTICULARS AMOUNT (D) 30.09.2010 SHREE VENKAESHWARA 5,00,000/- 28.02.2011 SHREE VENKAESHWARA 3,00,000/- 02.03.2011 SHREE VENKAESHWARA 5,00,000/- SUB TOTAL 13,00,000/- SIMILARLY AS PER THE ASSESSEE, THE FOLLOWING PAYMEN TS WERE CAPITALIZED SINCE THESE REPRESENTED ACQUISITION OF ASSETS. 12.04.2010 GANESAN 75,000/- 12.05.2010 GANESAN 1,00,000/- SUB TOTAL 1,75,000/- 12.04.2010 SHAKTHI ENGINEERING 40,000/- IT MAY BE TRUE THAT SUCH CLAIMS WERE NOT MADE BEFO RE LOWER AUTHORITIES. NEVERTHELESS, THE DISALLOWANCE U/S. 4 0A(3) OF THE ACT CAN BE MADE ONLY WHERE DEDUCTIONS ARE CLAIMED BY THE AS SESSEE AGAINST ITS BUSINESS INCOME. WHEN THERE IS NO DEDUCTION FR OM THE PROFIT BY WAY OF CHARGES BY DEBITS IN PROFIT AND LOSS ACCOUNT THERE CAN BE NO DISALLOWANCE U/S.40A(3) OF THE ACT. HOWEVER, WHET HER ANY OF THE ITA NO. 1996/MDS/2016 :- 5 -: ABOVE AMOUNTS WERE ACTUALLY CHARGED TO THE PROFIT AND LOSS ACCOUNT OR NOT, HAVE NOT BEEN VERIFIED BY THE LOWER AUTHORI TIES. THEREFORE, CLAIM OF THE ASSESSEE THAT D13,00,000/- PAID TO SH REE VENKATESHWARA ENGINEERING WORKS, D1,75,000/- PAID TO GANESAN AND D40,000/- PAID TO SHAKTHI ENGINEERING, WERE NEVER CHARGED IN THE PROF IT AND LOSS ACCOUNTS AND HENCE NOT LIABLE FOR DISALLOWANCE U/S. 40A(3) OF THE ACT IS REMITTED BACK TO THE LD. ASSESSING OFFICER FOR C ONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 5. THE BALANCE AMOUNTS IT SEEMS WERE PAID TO THE FO LLOWING PURPOSES. 12.04.2010 MOHAN CONTRACT 70,000/- 12.05.2010 MOHAN CONTRACT 37,000/- 12.04.2010 SEKAR CONTRACT 40,000/- 30.11.2010 PALANI -PAINTER 21,225/- SUB TOTAL 1,68,225/- 12.05.2010 LAKSHMI PAINTS 37,793/- 31.12.2010 CSK AGENCY PRIVATE LTD 1,00,000/- SUB TOTAL 1,37,793/- CLAIM OF THE ASSESSEE IS THAT THE ABOVE PAYMENTS W ERE MADE UNDER CIRCUMSTANCES WHICH COMPELLED IT TO GIVE THE MONEY IN CASH ON ACCOUNT OF BUSINESS EXPEDIENCY. ALLEVIATING CIRCU MSTANCES WHEREBY APPLICATION OF SEC. 40A(3) OF THE ACT IS EXCLUDED IS LAID DOWN IN RULE ITA NO. 1996/MDS/2016 :- 6 -: 6DD. KOLKATA BENCH OF THE TRIBUNAL FOLLOWING THE JUDGMENT OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF GURDAS GARG (SUPRA ) HAD HELD THAT IF GENUINENESS OF THE PAYMENTS IS N OT DISBELIEVED A DISALLOWANCE U/S.40A(3) OF THE ACT COULD NOT BE MAD E. THEIR LORDSHIP TOOK A VIEW THAT ALLEVIATING CIRCUMSTANCES MENTIONE D IN RULE 6DD NEED NOT BE CONSIDERED AS EXHAUSTIVE. THERE IS CONSIDE RABLE STRENGTH IN THE ARGUMENT OF THE LD. AUTHORISED REPRESENTATIVE T HAT PAYMENTS COULD ONLY BE EFFECTED IN CASH AT VARIOUS WORK SITES OF T HE ASSESSEE, DUE TO BUSINESS EXIGENCY. I AM THEREFORE OF THE OPINION T HAT THE SUM OF D1,68,225/- PAID ON ACCOUNT OF COMMERCIAL EXPEDIENC Y COULD NOT BE DISALLOWED U/S.40A(3) OF THE ACT. I DELETE SUCH DI SALLOWANCE. HOWEVER FOR THE SUM OF D1,37,793/- PAID FOR PURCHASE OF MAT ERIALS ASSESSEE WAS UNABLE TO SHOW WHAT WHERE THE COMPELLING CIRCUMSTAN CES OF BUSINESS EXPEDIENCY WHICH REQUIRED IT MAKE THE PAYMENT IN C ASH. HENCE SEC. 40A(3) OF THE ACT WAS IN OUR OPINION CORRECTLY APPL IED TO THIS AMOUNT. I SUSTAIN THE DISALLOWANCE OF D1,37,793/-. 6. TO SUMMARIZE THE RESULTS, I REMIT BACK TO THE LD. A SSESSING OFFICER FOR VERIFICATION OF THE PAYMENT CLAIMED BY THE ASSESSEE AS NOT CHARGED TO PROFIT AND LOSS ACCOUNT FOR CONSIDERATIO N AFRESH IN ACCORDANCE WITH LAW AND I DELETE THE DISALLOWANCE O F D1,68,225/- PAID ITA NO. 1996/MDS/2016 :- 7 -: BY THE ASSESSEE TO HIS EMPLOYEES AT VARIOUS WORK SITES. I SUSTAIN THE DISALLOWANCE OF D1,37,793/- PAID FOR PURCHASE OF M ATERIALS. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 29TH DAY OF MARCH, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 29TH MARCH, 2017 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF