Asst.CIT., Circle-3(2), Hyderabad V. M/s Sri Lakshmi Gayatri Hotels Private Limited, Hyderabad

ITA 625/HYD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69748 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 01-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K A SAI PRASAD
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 625/HYD/2013 A.Y. 2009-10 THE ACIT CIRCLE-3(2), HYDERABAD VS. M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. HYDERABAD PAN: AAFCS4671P APPELLANT RESPONDENT C.O. NO. 37/HYD/2013 IN ITA NO. 625/HYD/2013 A.Y. 2009-10 M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. HYDERABAD VS. THE ACIT CIRCLE-3(2), HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SMT. T.H. VIJAYA LAKSHMI RESPONDENT BY: SRI K.A. SAI PRASAD DATE OF HEARING: 19.08.2013 DATE OF PRONOUNCEMENT: 19.08.2013 O R D E R PER CHANDRA POOJARI, AM: THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION (CO) OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF T HE CIT(A)-IV, HYDERABAD DATED 21.2.2013 FOR ASSESSMENT YEAR 2009- 10. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS: (1) THE LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS OF THE CASE. (2) THE LD. CIT(A) OUGHT TO HAVE NOTICED THAT AMENDMENT MADE TO SECTION 40(A)(IA) BY THE FINANCE ACT, 2010 IS APPLICABLE TO A.Y. 2010-11 AND SUBSEQUENT YEARS AND IS NOT RETROSPECTIVE IN NATURE. AS SUCH, THE LEARNED CIT(A) ERRED IN DIRECTING NOT TO DISALLOW THE EXPENDITURE SINCE THE PAYMENTS WERE MADE BEFORE THE DUE DATE FOR FILING RETURN OF INCOME. (3) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE'S CONTRIBUTION TOWARDS PF AND ESI ARE PAID WITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME OBLIVIOUS OF THE FACT THAT 36(1)(VA) FOR ITA NO. 625/HYD/2013 M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. ================================ 2 REMITTANCE OF EMPLOYEE'S CONTRIBUTIONS IS THE 'DUE DATE' IN THE RELEVANT FUND AND IS NOT GOVERNED BY THE PROVISIONS OF SECTION 43 SO AS TO EQUATE EMPLOYEE'S CONTRIBUTION WITH EMPLOYER'S CONTRIBUTION. (4) THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S. 40A(3) TO RS. 50,00,000 WHEN THE FACTS BROUGHT ON RECORD CLEARLY SHOWED THAT THERE WERE SAME ITEMS EACH DAY, WITH EACH ENTRY BEING KEPT BELOW RS. 20,000 THUS VIOLATING THE PROVISIONS OF SECTION 40A(3). 3. THE ASSESSEE RAISED THE FOLLOWING GROUNDS IN ITS CO : (1) THE LD. CIT(A) HAVING OBSERVED THAT INVOCATION OF PROVISIONS OF SECTION 40A(3) IN THE FACTS OF THE CASE IS INAPPROPRIATE, SHOULD NOT HAVE SUSTAINED THE DISALLOWANCE OF RS. 50,00,000 ON AN ESTIMATE BASIS. (2) THE DISALLOWANCE OF EXPENDITURE @ 20% OF RS. 2,48,42,505 IS ON HIGHER SIDE, UNREASONABLE, AND UNJUSTIFIED, ESPECIALLY WHEN THE GENUINENESS OF THE EXPENDITURE IS NOT DOUBTED. 4. BRIEF FACTS WITH REGARD TO THE FIRST ISSUE (GROUND NO. 2) RAISED BY THE REVENUE ARE THAT THE ASSESSING OFFICE R (AO) DISALLOWED AN AMOUNT OF RS. 58,12,016 U/S. 40(A)(IA ) OF THE INCOME-TAX ACT, 1961. AS PER COLUMN 17(F) OF THE F ORM 3CD ENCLOSES TO THE RETURN OF INCOME, THE ASSESSEE HAD REMITTED TDS ON THESE PAYMENTS AFTER 31.3.2009. THOUGH THE ASSE SSEE CLAIMED THAT THE TAX HAD BEEN REMITTED BEFORE THE D UE DATE FOR FILING THE RETURN U/S. 139(1) OF THE ACT, THE AO DI D NOT ACCEPT THIS CLAIM IN VIEW OF THE FACT THAT THE AMENDMENT T O SECTION 40(A)(IA) HAD BEEN MADE BY THE FINANCE ACT, 2010 AN D THE AMENDMENTS WERE PROSPECTIVE IN NATURE. 5. ON APPEAL THE CIT(A) ALLOWED BY THE CLAIM OF THE AS SESSEE BY OBSERVING AS UNDER: ITA NO. 625/HYD/2013 M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. ================================ 3 '6.3 I FIND THAT THIS ISSUE HAS BEEN EXAMINED BY TH E CALCUTTA HIGH COURT IN CIT VS. VIRGIN CREATIONS (GA NO. 3200/2011 DATED 23.11.2011) WHERE IT WAS HELD THAT THE AMENDMENT TO THE PROVISION WAS RETROSPECTIVE IN NATURE. THIS DECISION WAS ALSO FOLLOWED BY THE ITAT, AHMEDABAD BENCH IN THE CASE OF M/S. ALPHA PROJECTS SOCIETY P. LTD. VS. DCIT (IT A NO. 2869/AHD/2011, DATED 23.3.2012). RESPECT- FULLY FOLLOWING THESE DECISIONS, IT IS HELD THAT TH E AMENDMENT TO SEC. 40(A)(IA) PERMITTING THE DEDUCTOR TO REMIT THE TDS TO GOVERNMENT ACCOUNT ON OR BEFORE THE DUE UNDER SEC. 139(1) IS RETROSPECTIVE, AND THEREFORE, APPLICABLE TO THE APPELLANT FOR THE A.Y. 2009-10. CONSEQUENTLY, THE DISALLOWANCE UNDER SEC. 40(A)(IA) IS SET ASIDE AND THE FOURTH GROUND OF APP EAL IS ALLOWED.' 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. AS HELD BY THE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJINDER KUMAR IN INCOME TAX APPEAL NO. 65/2013 DATED 1 ST JULY, 2013, THE IMPUGNED AMENDMENT TO SECTION 40(A) (IA) PERMITS REMITTANCE OF TDS TO THE CENTRAL GOVERNMENT ACCOUNT ON OR BEFORE THE DUE DATE OF FILING RETURN OF INCOM E U/S. 139(1) OF THE ACT IS RETROSPECTIVE IN NATURE AND THE PRESE NT ASSESSEE PAID THE TDS TO THE CENTRAL GOVERNMENT ACCOUNT BEFO RE FILING THE RETURN OF INCOME AND THE IS TO BE ALLOWED AS HE LD BY THE ABOVE JUDGEMENT. SAME VIEW HAS BEEN TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PE C ELECTRICALS PVT. LTD., IN ITTA NO. 263 OF 2013 DATED 12.7.2013. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE AC TION OF THE CIT(A) AND THE SAME IS CONFIRMED. THIS GROUND OF T HE REVENUE IS DISMISSED. 7. BRIEF FACTS WITH REGARD TO THE SECOND ISSUE ARE THA T THERE WAS DELAY IN REMITTING OF ESI AND PF CONTRIBUTIONS OF EMPLOYEES TO THE ACCOUNT OF CENTRAL GOVERNMENT BEYOND THE DUE DATE. THE ASSESSING OFFICER DISALLOWED THE SAME U/S. 2(24)(X) OF THE ACT. HOWEVER, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESS EE BY PLACING ITA NO. 625/HYD/2013 M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. ================================ 4 RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE O F CIT VS. AIMIL LTD. (321 ITR 508). AGAINST THIS, THE REVENUE IS I N APPEAL BEFORE US. 8. THE LEARNED DR SUBMITTED THAT THE ASSESSEE DELAYED IN DEPOSITING THESE PAYMENTS IN THE ACCOUNT OF CENTRAL GOVERNMENT, THE DETAILS OF WHICH ARE AS FOLLOWS: MONTH DUE DATE PF (RS.) DATE OF PAYMENT ESI (RS.) DATE OF PAYMENT MAY, 2008 20.06.2008 34,829 27.06.2008 9,889 27.06. 2008 JUN, 2008 20.07.2008 32,950 25.07.2008 9,095 25.07. 2008 AUG, 2008 20.09.2008 27,599 23.10.2008 7,963 23.10. 2008 SEP, 2008 20.10.2008 24,753 SEP, 2008 7,254 23.10.2 008 TOTAL 1,20,131 34,201 ADDITION 1,54,332 9. THE AR RELIED ON THE ORDER OF THE CIT(A) AND ALSO O N THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF AIMIL LTD. (SUPRA) AND ALSO ON THE JUDGEMENT OF HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS. NIPSO POLYFABRIKS LTD.(350 ITR 327). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE THERE IS NO DISPUTE THAT T HE EMPLOYEES' CONTRIBUTIONS OF PF AND ESI ARE DEPOSITED IN THE AC COUNT OF CENTRAL GOVERNMENT BEFORE THE DUE DATE OF FILING RE TURN OF INCOME. BEING SO, IN OUR OPINION, THE JUDICIAL PRE CEDENTS RELIED ON BY THE ASSESSEE SUPPORT THE VIEW OF THE CIT(A). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE C IT(A) AND THE SAME IS CONFIRMED. THIS GROUND OF THE REVENUE IS D ISMISSED. 11. THE THIRD ISSUE (GROUND NO. 4) RAISED BY THE REVENU E AND THE GROUND RAISED BY THE ASSESSEE IN ITS CO ARE WIT H REGARD TO SUSTAINING 20% OF THE DISALLOWANCE ON THE AMOUNT OF RS. 2,48,42,505. 12. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE HA D INCURRED AN EXPENSE OF RS. 2,48,42,505 IN CASH ON PURCHASE O F ITA NO. 625/HYD/2013 M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. ================================ 5 PROVISIONS. THE ASSESSEE EXPLAINED BEFORE THE AO TH AT THE SUM WAS ACTUALLY AN ADVANCE GIVEN TO EMPLOYEES FOR PURC HASE OF GROCERIES, THAT THE NARRATION IN THE CASHBOOK ALSO REFERRED TO THESE PAYMENTS AS ADVANCE AND THAT THE AMOUNT ACTUA LLY SPENT ON EACH OCCASION WAS LESS THAN RS. 20,000. THE ASSE SSEE ALSO PRODUCED A DETAILED CASH BOOK SHOWING THAT EACH IND IVIDUAL CASH EXPENDITURE WAS LESS THAN RS. 20,000 AND ALSO PRODUCED SAMPLE BILLS IN SUPPORT OF THE CLAIM. ON VERIFICATI ON OF THESE BILLS, THE AO FOUND THAT MOST OF THESE BILLS WERE S ELF-MADE, THAT SOME OF THE EXPENSES WERE SUPPORTED ONLY BY DEBIT V OUCHERS AND THAT THEY WERE NOT AMENABLE TO VERIFICATION. TH E AO OBSERVED THAT A COMPANY OF THE ASSESSEE'S STATURE W OULD NORMALLY BE EXPECTED TO HAVE REGULAR SUPPLIERS OF G ROCERIES LIKE VEGETABLE, MEAT, MILK AND SUCH OTHER PRODUCTS AND I T WAS NOT LIKELY THAT THE EMPLOYEES WOULD GO AROUND BUYING TH ESE ITEMS FROM THE ROADSIDE MARKETS. THE AO ALSO OBSERVED THA T THERE WERE MORE THAN ONE ENTRY OF PURCHASES OF SAME ITEMS ON A SINGLE DAY WITH EACH ENTRY BEING LESS THAN RS. 20,0 00. THE AO HELD THAT SINCE THE ASSESSEE HAD INCURRED EXPENDITU RE OF RS. 2,48,42,505 TO MEET THE DAY TO DAY NEEDS OF THE BUS INESS, A DISALLOWANCE OF 35% OF THIS EXPENDITURE WOULD MEET THE ENDS OF JUSTICE. 13. ON APPEAL THE CIT(A) OBSERVED AS UNDER: 'HOWEVER, THERE ARE CERTAIN ASPECTS OF THE CASE THA T NEED TO BE CONSIDERED. THE ASSESSEE IS A COMPANY RUNNING STARRED HOTELS IN HYDERABAD. FOR A HOTEL OF THIS S TATURE, THE NORMAL PRACTICE IS TO HAVE COMMITTED TIE-UPS WI TH VENDORS FOR SUPPLY OF GROCERIES AND PROVISIONS. IT IS DEFINITELY NOT THE NORMAL PRACTICE FOR EMPLOYEES OF THE HOTEL, HOWSOEVER TRUSTED THEY MAY BE, TO SET FORTH EVERY MORNING TO SCOUT AROUND ALL OVER THE CITY FOR PURCH ASE OF THESE ITEMS FROM ROADSIDE VENDORS. INDEED, THE ASS ESSEE WOULD BE EXPECTED TO BE BETTER ABLE TO PROCURE ECON OMICS OF SCALE IF IT WERE TO ENTER INTO CONTRACTS WITH VE NDORS FOR A LONG PERIOD OF TIME, SAY, A MONTH OR EVEN A YEAR TH AN IF THE EMPLOYEE WERE TO GO OUT AND MAKE PURCHASES ON D AY- ITA NO. 625/HYD/2013 M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. ================================ 6 TO-DAY BASIS. HOTELS ALSO ROUTINELY ENTER INTO SUCH CONTRACTS WITH VENDORS TO ENSURE ASSURED SUPPLY AND TO AVOID ERRATIC QUALITY. THEREFORE, THE ASSESSEE'S C LAIM THAT IT HAD MADE PURCHASES ON DAY TO DAY BASIS THROUGH I TS EMPLOYEES DOES NOT CARRY MUCH PERSUASION. THE AO HA S ALSO REFERRED TO THE FACT THAT THE BILLS SUBMITTED BY THE ASSESSEE FOR THESE PURCHASES WERE SELF-MADE AND THA T SOME OF THE EXPENSES WERE SUPPORTED ONLY BY DEBIT VOUCHERS. THE AR HAS NOT CONTROVERTED THIS FACTUAL POSITION. I AM, THEREFORE, INCLINED TO AGREE WITH T HE AO'S CONCLUSION THAT THE EXPENSES WERE NOT AMENABLE TO VERIFICATION. CONSIDERING THE TOTALITY OF THESE CIRCUMSTANCES, THE CLAIM OF THE ASSESSEE WITH REGAR D TO THE EXPENSES OF RS. 2,48,42,505 CANNOT BE ACCEPTED IN FULL. I DIRECT THAT A SUM OF RS. 50,00,000, APPROXI MATELY EQUIVALENT TO 20% OF THE CLAIM, BE DISALLOWED ON RO UND- SUM BASIS. THESE TWO GROUNDS ARE, ACCORDINGLY, PART LY ALLOWED.' 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THE PRESENT CASE THE ASSESSEE INCURR ED CASH EXPENDITURE OF RS. 2,48,42,505 AND THE ASSESSEE REC ORDED MOST OF THE PAYMENTS AS LESS THAN RS. 20,000 IN ITS BOOK S OF ACCOUNT WHICH ARE SUPPORTED BY SELF-MADE VOUCHERS AND NOT V ERIFIABLE. SO THERE IS EVERY CHANCE OF INFLATING THE EXPENDITU RE. CONSIDERING THESE FACTS, AS HELD BY THE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. TRANSPORT CORPORATION OF IND IA (256 ITR 7012), WE ARE INCLINED TO DISALLOW 15% OF THE AMOUN T RS. 2,48,42,505 WORKED OUT AT RS. 37,26,375 TOWARDS DIS ALLOWANCE. THIS GROUND IN REVENUE APPEAL IS DISMISSED AND THE GROUND BY THE ASSESSEE IN ITS CO IS PARTLY ALLOWED. 15. IN THE RESULT, REVENUE APPEAL IS DISMISSED AND ASSE SSEE'S CO IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST, 2013. SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 19 TH AUGUST, 2013 TPRAO ITA NO. 625/HYD/2013 M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD. ================================ 7 COPY FORWARDED TO: 1 . THE ACIT, CIRCLE - 3(2), 7 TH FLOOR, 'B' BLOCK, IT TOWERS, AC GUARDS, HYDERABAD-500 004. 2. M/S. SRI LAKSHMI GAYATRI HOTELS PVT. LTD., NO. 8, RAJBHAVAN ROAD, SOMAJIGUDA, HYDERABAD-500 034. 3 . THE CIT(A) - IV, HYDERABAD 4. THE CIT - III, HYDERABAD. 5 . THE DR ' B ' BENCH, ITAT, HYDERABAD .