YATI ENTERPRISES, MUMBAI V. ACIT, CIRCLE- 2 , KALYAN

ITA 2665/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3323 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 01-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 40A(3); 143(3); 40(a)(ia); 40a(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.2665/M/2018 ASSESSMENT YEAR: 2012-13 M/S. YATI ENTERPRISES, C/O LED WORLD, SHOP NO.1 & 2, TRIMURTY DHAM APARTMENT, GANDHI CHOWK, OPP. HANUMAN MANDIR, BADLAPUR (E), DIST. THANE-421 503 PAN: AAAFY8314R VS. ACIT, CIRCLE-2, 2 ND FLOOR, MOHAN PLAZA, WAYALE NAGAR, KHADAKPADA, KALYAN, DIST. THANE-421 301 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NEELKANTH KHANDELWAL, A.R. REVENUE BY : SHRI SURABHI SHARMA, D.R. DATE OF HEARING : 10.12.2019 DATE OF PRONOUNCEMENT : 14.02.2020 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 17.01.2018 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.1,76,83,146/- BY LD. CIT(A) AS MADE BY THE AO BY DISALLOWING THE EXPENSES UNDER TH E PROVISIONS OF SECTION 40A(3) OF THE ACT. ITA NO.2665/M/2018 M/S. YATI ENTERPRISES 2 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS IN T HE BUSINESS OF BUILDING CONSTRUCTION AND IS FOLLOWING PERCENTAGE COMPLETION METHOD TO RECOGNIZE THE INCOME. DURING THE YEAR THE WORK IN PROGRESS WAS RS.7,26,36,202/- AND ACCORDINGLY DISC LOSED NET PROFIT AFTER INTEREST AND REMUNERATION TO PARTNERS AT RS.21,55,592/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS MADE PAYMENTS TO VARIOUS PARTIES THROUGH BEARER CHEQUES EXCEEDING RS.20,000/ - IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE AC T. THE DETAILS OF SAID PAYMENTS ARE GIVEN ON PAGE NO.2 & 3 OF THE ASS ESSMENT ORDER. THE AO CAME TO THE CONCLUSION THAT THESE EX PENSES WERE NOT ALLOWABLE AS THE SAME WERE INCURRED IN VIOLATIO N OF SECTION 40A(3) OF THE ACT AND CONSEQUENTLY, REJECTING THE R EPLY OF THE ASSESSEE THAT THESE PAYMENTS WERE OUT OF BUSINESS E XIGENCIES AND ALSO THE AFFIDAVIT FURNISHED BY THE ASSESSEE FR OM SOME OF THE RECIPIENTS. THUS THE AO ADDED THE ENTIRE SUCH PAYME NTS TO THE INCOME TO THE INCOME OF THE ASSESSEE IN THE ASSESSM ENT FRAMED U/S 143(3) OF THE ACT DATED 18.03.2015. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE AFTER CALLING FOR A REMAND R EPORT FROM THE AO AND AFTER TAKING INTO ACCOUNT THE SUBMISSIONS O F THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: (II) CONCLUSION AFTER CONSIDERING THE ABOVE STATED FACTS OF THE CAS E, I AM OF THE OPINION THAT THE AO HAS RIGHTLY DISALLOWED RS.L,78,83.146/-U/S.40A(3] O F THE ACT AND THE ADDITION MADE BY THE AO HAS BEEN FURTHER SUBSTANTIATED AS FOLLOWS : A) ON PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT THE APPELLANT HAS FAILED TO GIVE A REASONABLE EXPLANATION AS TO WHY THE CASH PAYMENT S EXCEEDING RS.20,000/- HAS BEEN MADE AND THE EXPLANATION GIVEN BY THE APPELLAN T IS NOT COVERED BY THE EXCEPTION RULE 6DD OF THE IT RULES AND AS SUCH DISA LLOWANCE U/S.40A(3) IS JUSTIFIED, B) EVEN IN THE REMAND PROCEEDINGS ALSO, THE APPELLANT HAS FAILED TO SUBSTANTIATE AND THEREFORE, IT CANNOT BE COVERED BY THE EXCEPTIO N UNDER RULE 6DD OF THE IT ITA NO.2665/M/2018 M/S. YATI ENTERPRISES 3 RULES. THE BENEFIT TO BE ALLOWED FOR THE EXCEPTIONA L CIRCUMSTANCES AS MENTIONED IN THE PROVISIONS CONTAINED IN RULE 6DD ARE NOT AUTOMA TIC BUT THE CONDITIONS PRECEDENT ARE TO BE PROVED BY THE APPELLANT BY FURN ISHING DOCUMENTARY EVIDENCE, C) IT IS NOT THAT, THE CASH PAYMENTS WERE MADE BECAUSE THERE WERE NO BANK ACCOUNTS AND THEREFORE, IN THE NEED OF BUSINESS THE PAYMENTS WERE NECESSARY TO BE GIVEN IN CASH, D) THE PRIMARY OBJECT OF ENACTING SECTION 40A(3) IS TW OFOLD, FIRSTLY, PUTTING A CHECK ON TRADING TRANSACTIONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTIONS AND, SECONDL Y, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. WITHOUT PREJ UDICE OF THE ABOVE DISCUSSION IN A), B) AND C), THE APPELLANT HAS NOT PROVED IN T HE ASSESSMENT AS WELL AS REMAND PROCEEDINGS, THAT THE CASH RECIPIENTS HAVE PAID THE TAXES DUE ON THE CASH RECEIPTS. IN VIEW OF THE ABOVE STATED FACTS, THE ADDITION MAD E BY THE AO IS SUSTAINED AND THE APPEAL OF THE APPELLANT ON THIS GROUND IS DISMISSED . 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDING CONSTRUCTION AND RECOGNIZE THE REVENUE ON PERCENTAGE COMPLETION METHOD MEANING THEREBY THAT A CERTAIN PERCENTAGE IS APPLIED TO THE WORK DONE DEPENDING UP ON THE COMPLETION OF WORK AND THUS THE REVENUE IS RECOGNIZ ED ON ESTIMATED BASIS. THERE IS NO DISPUTE TO THIS EFFEC T. WE FURTHER NOTE THAT DURING THE YEAR THE ASSESSEE HAS MADE PAY MENTS TO VARIOUS PARTIES IN CASH EXCEEDING RS.20,000/- THE G ENUINENESS WHEREOF HAVE NOT BEEN DISPUTED BY BOTH THE AUTHORIT IES BELOW. THEREFORE, WE ARE OF THE VIEW THAT WHERE THE GENUIN ENESS OF THE TRANSACTION IS NOT DISPUTED, THE PROVISIONS OF SECT ION 40A(3) CAN NOT BE APPLIED. THE CASE OF THE ASSESSEE IS SUPPOR TED BY THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF GURDAS GARG VS. CIT(A), BATHINDA (2015) 63 TAXMAN.COM 289( P&H) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT WHERE THE GENUINENESS OF THE TRANSACTION IS NOT DISBELIEVED B Y THE AUTHORITIES BELOW AND A CASE OF BUSINESS EXPEDIENCY IS MADE OUT, NO DISALLOWANCE UNDER SECTION 40A(3) COULD BE MADE. WE NOTE THAT CASE OF BUSINESS EXPEDIENCY MAY BE NO T SPECIFICALLY ITA NO.2665/M/2018 M/S. YATI ENTERPRISES 4 COVERED BY RULE 6D OF THE I.T. RULES AS THE EXCEPTI ONS PROVIDED THEREIN ARE NOT EXHAUSTIVE AS HAS BEEN HELD IN THE CASE OF SMT. HARSHILA CHORDIA VS. ITO (2008) 298 ITR 349 RAJASTA N. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE CONCLUS ION DRAWN BY THE AUTHORITIES BELOW. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. LAVENS CONSTRUCTIONS PVT. LTD. VS. ACIT 128 AND 909 /MDS/2010 A.Y. 2005-06 & 2006-07 ORDER DATED 30.04.2013 WHERE IN UNDER SIMILAR SET OF FACTS IT WAS HELD THAT WHERE THE ASS ESSEE WAS FOLLOWING A PERCENTAGE COMPLETION METHOD , NO DISAL LOWANCE CAN BE MADE UNDER SECTION 40A(3) AND 40A(IA) OF THE ACT. RELEVANT PARA IS REPRODUCED AS UNDER: 11. AS REGARDS THE DISALLOWANCES U/S 40A(3) AND 40 (A)(IA) OF THE ACT ARE CONCERNED, THE CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISA LLOWANCES. AS THE PROFITS ARE ASSESSED ON ESTIMATE BASIS, NO DISALLOWANCE OF EXPE NSES SHOULD BE MADE. WE, THEREFORE, DELETE THE DISALLOWANCES MADE BY THE ASS ESSING OFFICER U/S 40A(3) AND 40(A)(IA) OF THE ACT. 6. WE HAVE ALSO CONSIDERED THE WRITTEN SUBMISSIONS FILED BY THE LD. D.R. DATED 10.12.2019 AND FOUND THAT THE DE FENCE TAKEN BY THE LD. D.R. AND VARIOUS CASE LAWS RELIED DO NOT COME TO RESCUE OF THE DEPARTMENT AS SAME ARE DISTINGUISHABL E ON FACTS. ACCORDINGLY, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE . 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.02.2020. SD/- SD/- ( AMARJIT SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14.02.2020. * KISHORE, SR. P.S. ITA NO.2665/M/2018 M/S. YATI ENTERPRISES 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.