Kabadi Chicknagusa ans Sons, Bangalore V. DCIT, Bangalore

ITA 431/BANG/2011

• Counselvise Citation: 43121114 RSA 2011
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDAR RAJAN
• Assessee Lawyers: VISHNU BHARAT
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.4 31/BANG/2011 (ASST. YEAR - 2008-09) SHRI KABADI CHICKNAGUSA & SONS, . BANGALORE. . APPELLANT PAN AABFK 6976 A. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-5(1), BANGALORE. . RESPONDENT APPELLANT BY : SHRI VISHNU BHARAT, C.A RESPONDENT BY : SHRI A SUNDAR RAJAN, JCIT DATE OF HEARING : 11-10-2012 DATE OF PRONOUNCEMENT : 31-10-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2008-09. THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX - (APPEALS) I AT BANGALO RE DATED ITA NO.431/B/11 2 2.3.2011. THE APPEAL ARISES OUT OF THE ASSESSMENT C OMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING CONCISE GR OUNDS OF APPEAL: :I. THE AO AND THE CIT(A) HAVE ERRED AND THEIR ORDERS ARE DETER MENTAL TO THE INTEREST OF THE APPE LLANT. THE GENUINE EXPENDITURE TOTALING TO RS.8,65,844/- INCURRED IN CASH EXCEEDING RS.20,000/- AT A TIME IS DISALLOWED EVEN AFTER PROVING THAT TDS IS DEDUCTED AND THE RECIPIENTS ARE ASSESSED TO TAX AND THEIR IDENTI TY ESTABLISHED. THE ADDITION MADE RESULTS IN DOUBLE TAXATION IN THE HANDS OF APPELLANT AND IN THE HANDS OF RECIPIENT AND HENCE TO BE DELETED. II. THE SECOND GROUND IS THAT THE EXPENDITURE INCURRED TO PURCHASE THE COMPUTER SOFTWARE FOR THE SPECIFIC ORDER, EXECUTED DURING THE ASSESSMENT YEAR WHICH WAS CHARGED TO THE REVENUE IS DISALLOWED AS CAPITAL EXPENDITURE AND NOT EVEN THE DEPRECIATION DISALLOWED. THE SOFTWARE PURCHASED IS OF NOT ANY U SE FOR THE OTHER ORDERS AND IT WAS FOR THE SPECIFIC OR DER. ITA NO.431/B/11 3 3. REGARDING THE FIRST GRIEVANCE, THE BRIEF FACTS O F THE CASE ARE THAT THE ASSESSEE, WHICH IS A PARTNERSHIP FIRM, IS ENGA GED IN THE MANUFACTURE OF SILK FABRICS AND EXPORT OF THE SAME. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE HAD FILED ITS RETURN ON 26.9.2009 DECLARING THE TOTAL INCOME OF RS.1,11,40, 280/- DURING THE ASSESSMENT PROCEEDING U/S 143(3) OF THE INCOME-TAX ACT, THE AO OBSERVED THAT THE ASSESSEE HAS MADE PAYMENTS IN CAS H EXCEEDING RS.20,000/-. HE, THEREFORE, DISALLOWED A SUM OF RS .3,23,55,504/-U/S 40A(3) OF THE INCOME-TAX ACT. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) STATING THAT THE CASH PAYMENTS ARE MADE TO THE JOB WORKERS WHO INSISTED FOR PAYMENT BY CASH AND DUE TO THE EXIGENC Y OF THE WORK, THE PAYMENT MADE IN CASH ARE JUSTIFIED. 5. THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. V KOTHARI SANITATION & TILES P. LTD., REPORTED IN 282 ITR 117 AND CIT VS. TRIVENI PRASAD PANNALAL REPORTED IN 228 ITR 680. A FTER CONSIDERING THE SAME, THE CIT(A) HELD THAT PRACTICABILITY OF TH E PAYMENT HAS TO BE JUDGED FROM THE POINT OF VIEW OF BUSINESS AND THAT THE PAYMENTS ITA NO.431/B/11 4 EXCEEDING RS.20,000/- IN A SINGLE TRANSACTION ONLY SHOULD BE CONSIDERED FOR THE DISALLOWANCE U/S 40A(3) OF THE I NCOME-TAX ACT. HE, THEREFORE, DELETED THE DISALLOWANCE OF RS.3,14, 89,660/- AND RESTRICTED THE DISALLOWANCE TO RS.8,65,844/-. 6. AGGRIEVED BY THE SAID CONFIRMATION OF THE DISALL OWANCE OF RS.8,65,844/-, THE ASSESSEE IS IN FURTHER APPEAL B EFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESEE SUBMITTED TH AT THE ASSESSEE BEING MANUFACTURER AND EXPORTER OF SILK FABRICS, IS SUPPOSED TO COMPLETE HIS WORK BY TIME BOUND CONTRACTS. FOR THIS PURPOSE, THE ASSESEE HAD TO OUTSOURCE WEAVING AND PROCESSING WO RK TO WEAVERS MOSTLY IN MOFUSSIL AREAS. HE SUBMITTED THAT IT IS ON THE REQUEST OF THESE JOB WORKERS THAT THE ASSESSEE HAS BEEN CONSTR AINED TO MAKE THE PAYMENTS EXCEEDING RS.20,000/- BY CASH. HE SUBMITT ED THAT THE RECIPIENTS HAVE BEEN IDENTIFIED AND HAVE ALSO CONFI RMED BEFORE THE AO THAT THE PAYMENTS HAVE BEEN MADE IN CASH ACCORDING TO THEIR OWN DEMAND. ACCORDING TO THE LEARNED COUNSEL FOR THE AS SESSEE, WHEN THE IDENTITY OF THE PARTIES AND GENUINENESS OF THE TRAN SACTIONS HAVE BEEN PROVED, THERE IS NO CAUSE FOR THE DISALLOWANCE U/S 40A(3) OF THE INCOME-TAX ACT. HE FURTHER SUBMITTED THAT ALL THE RECIPIENTS ARE ITA NO.431/B/11 5 INCOME-TAX ASSESSEES AND THE TDS HAS ALSO BEEN DEDU CTED AND THE RECIPIENTS HAVE OFFERED INCOME IN THEIR RETURNS OF INCOME. THEREFORE, THE DISALLOWANCE U/S 40A(3) AMOUNTS TO DOUBLE TAXAT ION OF THE SAME AMOUNT. IN SUPPORT OF HIS CONTENTION THAT THE PAYM ENTS IN CASH EXCEEDING RS.20,000/- IS JUSTIFIED IN THE COMMERCIA L EXIGENCIES, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANC E UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ATTAR S INGH GURUMUKH SINGH VS. ITO [1991] 59 TM 11 (SC), WHEREIN IT WAS HELD THAT SEC. 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXC LUSION OF RULE 6DD AND IF READ TOGETHER, IT WILL BE CLEAR THAT THE PR OVISIONS ARE NOT ENACTED TO RESTRICT THE BUSINESS ACTIVITY BUT THAT THE PAY MENT BY CROSSED CHEQUE OR CROSSED BANK DD HAS BEEN INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMEN T WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FROM UNDISCLOSED S OURCES AND THE GENUINE AND CONFIRMED TRANSACTIONS ARE NOT TAKEN OU T OF THE SWEEP OF THE SECTION. IT WAS ALSO HELD THAT IT IS OPEN TO T HE ASSESSEE TO IDENTIFY THE PERSONNEL WHO HAS RECEIVED THE CASH PAYMENTS AN D RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPT FROM THE RE QUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DD IN T HE CIRCUMSTANCES SPECIFIED UNDER THIS RULE. THUS, ACC ORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, SINCE THE GENUINE NESS OF THE PAYMENT ITA NO.431/B/11 6 AND THE IDENTITY OF THE RECIPIENTS IS ESTABLISHED, THE DISALLOWANCE IS NOT CALLED FOR. 8. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE GENUINENES S OF THE TRANSACTION AND THE IDENTITY THE RECIPIENTS ALONE I S NOT SUFFICIENT COMPLIANCE OF SEC. 40A(3) OF THE INCOME-TAX ACT. H E SUBMITTED THAT AS LONG AS THE ASSESSEE HAS NOT BEEN ABLE TO ESTABL ISH THE COMMERCIAL REQUIREMENT TO MAKE SUCH PAYMENT IN CASH, THE DISAL LOWANCE U/S 40A(3) IS JUSTIFIED. IN SUPPORT OF THIS CONTENTION HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS : 1) CIT VS. PADMAVATI RAJE COTTON MILLS, 239 ITR 355 2) T.G MUTHA VS. ITO , 54 ITD 460 3) AGGARWAL STEEL TRADERS VS. CIT AND ANOTHER, 250 ITR 738, P & H 4) CIT VS ARAWALI CONSTRUCTIONS CO. PVT. LTD., 259 IT R 30, (RAJ) 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS, WE FIND THAT THE ONLY QUESTION TO BE C ONSIDERED IN THIS ITA NO.431/B/11 7 CASE IS WHETHER UNDER THE ABOVE CIRCUMSTANCES THE D ISALLOWANCE U/S 40A(3) IS CALLED FOR WHERE THE PAYMENTS EXCEEDING RS.20,000/- HAVE BEEN MADE BY THE ASSESSEE IN CASH. THE PROVISION O F SEC. 40A(3) AND RULE 6DD PROVIDES THAT NO PAYMENT EXCEEDING RS.20, 000/- SHALL BE MADE EXCEPT BY WAY OF CROSSED CHEQUE OR CROSSED DD . THE ONLY EXCEPTION IS THAT THE ASSESSEE HAS TO JUSTIFY THE P AYMENT IN CASH BY DEMONSTRATING THE UNAVOIDABLE CIRCUMSTANCES AND TH E COMMERCIAL EXIGENCY FOR MAKING SUCH PAYMENTS. THE EXPLANATION OF THE ASSESSEE IS THAT THE WEAVERS OR JOB WORKERS MOSTLY RESIDE I N MOFUSSIL AREAS AND THE PAYMENTS ARE MADE TO THEM IN CASH ON THEIR DEMAND. WE HAVE ALSO GONE THROUGH THE DETAILS OF THE RECIPIENT S WHO ARE PAID IN EXCESS OF RS.20,000/- AND WE FIND THAT ALL THESE PA RTIES HAVE BEEN PAID A SUM OF AROUND RS.20,000/- FOR A GROUP OF CONSIGNM ENTS. THE LEARNED AR HAD ALSO PLACED BEFORE US THE DETAILS OF PAYMENTS TO DEMONSTRATE THAT THE SUM OF PAYMENTS EXCEEDING OF R S.20,000/- IS NOT FOR SINGLE TRANSACTION BUT IS FOR A GROUP OF TRANSA CTIONS PUT TOGETHER. HOWEVER, WE FIND THAT THE REVENUE HAS NOT DOUBTED T HE GENUINENESS OF THE TRANSACTIONS AS IT HAS NOT CONTRADICTED THE ASSESSEES SUBMISSIONS THAT THE RECIPIENTS HAVE ADMITTED THAT THE PAYMENTS ARE MADE IN CASH AS PER THEIR DEMAND. THE ASSESSEE HAS THUS ESTABLISHED THE COMMERCIAL REQUIREMENT OR EXIGENCY FOR MAKING T HE PAYMENT IN ITA NO.431/B/11 8 CASH. IN VIEW OF THE SAME, WE ARE OF THE OPINION T HAT THE DISALLOWANCE U/S 40A(3) OF THE INCOME-TAX ACT IS NOT CALLED FOR AND THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 10. COMING TO THE SECOND GROUND OF APPEAL, THE LEAR NED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD CLAIME D THE EXPENDITURE FOR THE PURCHASE OF COMPUTER SOFTWARE AS REVENUE E XPENDITURE AS IT WAS FOR SPECIFIC PURPOSE ONLY. BUT THE ASSESSING A UTHORITY HAS TREATED THE SAME AS CAPITAL EXPENDITURE BUT HAS FAILED TO ALLOW DEPRECIATION ON THE SAME.\ 11. HE SUBMITTED THAT THE ASSESSEE WOULD HAVE NO GR IEVANCE IF THE ASSESSEE IS ALLOWED DEPRECIATION ON THE SAID CAPITA L EXPENDITURE. 12. THE LEARNED DR HOWEVER, SUBMITTED THAT THE ASSE SSEE HAS NOT RAISED THIS GROUND OF APPEAL BEFORE THE CIT(A) AS O BSERVED BY THE CIT(A) IN HIS ORDER. 13. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE CIT(A) IN HIS ORDER HAS OBSERVED THAT THE ASSESSEE HAS RAISED ONE GROUND OF APPEAL ONLY RELATING TO THE DISALLOWANCE U/S 40A(3) OF THE INCOME-TAX ACT. ITA NO.431/B/11 9 HOWEVER ON GOING THROUGH THE GROUNDS OF APPEAL FILE D BEFORE THE CIT(A), WE FIND THAT THE ASSESSEE HAS RAISED THE GR OUNDS RELATING TO THE DISALLOWANCE OF THE REVENUE EXPENDITURE ON ACC OUNT OF PURCHASE OF SOFTWARE. THEREFORE, WE ARE OF THE OPINION THAT THE ASSESSEE HAS AGITATED THE ISSUE BEFORE THE CIT(A) BUT BY INADVER TENCE THE SAME WAS NOT ADJUDICATED BY THE CIT(A). HOWEVER WITHOUT GOING INTO THE MERITS OF THE ISSUE AS TO WHETHER THE SAID EXPENDIT URE IS REVENUE OR CAPITAL IN NATURE, AS THE ASSESEE HAS ALSO AGREED THAT THE ISSUE MAY BE CONSIDERED AS CLOSED AS FAR AS THE TREATMENT GIVEN TO SUCH TRANSACTION, WE DEEM IT FIT AND PROPER TO DIRECT THE AO TO ALLOW DEPRECIATION AT THE APPLICABLE RATES TO THE SAID CAPITAL EXPENDITURE. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST OCT, 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE, DATED : 31/10/2012 ITA NO.431/B/11 10 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETA RY, ITAT, BANGALORE.