M/s Anand Construction, V. ACIT,

ITA 71/PAT/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1173 (ITAT-PATNA)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 17-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM BABU
• Keywords: Principle of natural justice; Reasonable cause
• Section: 40A(3)

Judgement Text

1 ITA NO. 71/PAT/2013. IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 71/PAT/2013. ASSESSMENT YEAR : 200 3 - 04 . M/S ANAND CONSTRUCTION, ASSTT. COMMISSIONER OF INCOME - TAX, PATNA. VS. CIRCLE - 4, PATNA. APPELLANT. RESPONDENT. APPELLANT BY : NONE. RESPONDENT BY : SHRI R AM BABU. DATE OF HEARING : 0 4 - 08 - 2016 DATE OF PRONOUNCEMENT : 28 TH SEPT., 2016 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 05 - 11 - 2012 AND PERTAINS TO ASSESSMENT YEAR 200 3 - 04 . THE GROUNDS OF APPEAL READ AS UNDER : 1. FOR THAT, THE ORDER OF LOWER AUTHORITY IS BAD AND AGAINST THE PROVISIONS OF LAW BECAUSE THE ASSESSING OFFICER AND THE CIT(A) HAS NOT CONSIDERED THE EVIDENCE AND THE MATERIAL AVAILABLE ON RECORD AS SUCH THE ORDER IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 2. FOR THAT THE CONFIRMATION OF ADDITION ON ACCOUNT OF VIOLATION OF SECTION 40A(3) IS ERRONEOUS AND AGAINST THE LAW BECAUSE THE ASSESSEE HAD CARRIED OUT CONTRACT WORK IN REMOTE AREAS WH ERE NEITHER THE ASSESSEE HAD BANK ACCOUNT NOR THE SUPPLIER HAD ANY BANK ACCOUNT THEREFORE THE PAYMENT IN BEAR CHEQUE WAS MADE DUE TO THE CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSESSEE. 3. FOR THAT THE A.O. HAS NOT CONSIDERED THE CASE OF THE ASSESSEE IN THE LIGHT OF THE SECOND PROVISO OF 40A(3) THEREFORE THE ORDER IN QUESTION IS BAD IN LAW ALSO IN FACT. 4. FOR HA THE ADDITION MADE FOR RS.60,060/ - ON ACCOUNT OF UNEXPLAINED OUTSTANDING LIABILITIES IS BAD AND UNJUSTIFIED BECAUSE THE ASSESSEE HAS 2 ITA NO. 71/PAT/2013. ALREADY PRODUCED THE PERSON AND ALSO PRODUCED THE CONFIRMATION IN SUPPORT OF OUTSTANDING LIABILITIES. 5. THE CIT ERRED IN MAKING ADDITION OF RS.60,060/ - U/S 40A(3) BECAUSE NO EVIDENCE WAS AVAILABLE WITH HIM THAT THE EXPENDITURE WAS EARNED DURING THE YEAR OR TH E PAYMENT WAS M ADE TO THE CREDITORS EXCEEDING RS.20,000/ - . 6. FOR THAT THE CIT(A) ERRED IN SUSTAINING THE ADDITION ON ADHOC DISALLOWANCE IN LABOUR MATERIAL AND FREIGHT AND CARTAGE BECA USE SEPARATE ADDITION CAN NOT BE MADE WITHOUT BRINGING ANY DOCUMENT ON RECORD PARTICULARL Y WITH A VIEW THAT THE ASSESSEE HAS SUBMITTED MASTER ROLL IN SUPPORT OF LABOUR AND EVIDENCE IN SHAPE OF RECEIPT FROM TRANSPORTER ETC. 7. FOR TH A T ADDITION ON ACCOUNT OF PURCHASE OF MATERIAL FOR RS.1,25,642/ - IS OTHER WISE BAD AND UNJUSTIFIED BECAUSE THE ASSESSEE HAS PRODUCED BILLS AND VOUCHERS IN SUPPORT OF SUCH EXPENSES AND THE SAID BILL WAS DEMANDED BACK TO THE ASSESSING OFFICER WHICH WAS NOT DISPUTED THEREFORE ADDITION OUGHT TO HAVE BEEN DELETED BY CIT(A). 2. AT THE OUTSET IT IS NOTED THAT NONE APPEAR ED ON BEHALF OF THE ASSESSEE. THE ASSESSEES COUNSEL HAS FILED ADJOURNMENT PETITION. HOWEVER, IN MY CONSIDERED OPINION THE ISSUE CAN BE ADJUDICATED UPON AFTER HEARING THE LEARNED D.R. AND PERUSING THE RECORDS. HENCE ADJOURNMENT PETITION HAS BEEN REJECTED. 3 . AT THE OUTSET IT IS NOTED THAT THERE IS A DELAY OF 28 DAYS IN FILING THE APPEAL. IN THE REASONABLE CAUSE FOR DELAY IT HAS BEEN STATED THAT AFTER RECEIVING THE ORDER ON 19 - 01 - 2013 THE ASSESSEE DEPOSITED CHALLAN FOR RS.10,000/ - ON 10/11 - 02 - 2013. IN THE MEANTIME THE ASSESSEE SUFFERED FOR ILLNESS DUE TO CANCER. THIS LED TO A SMALL DELAY IN FILING THE APPEAL. 4 . UPON HEARING THE LEARNED D.R. AND PERUSING THE RECORDS I CONDONE THE DELAY. 5. APROPOS THE ISSUE ON ACCOUNT OF DISALLOWANCE IN TERMS OF SECTION 4 0A(3). IN THIS CASE THE AO NOTED THAT THE ASSESSEE HAS MADE VARIOUS PAYMENTS EXCEEDING RS.20,000/ - THROUGH BEARER CHEQUES. A TOTAL OF THIS PAYMENT WAS 3 ITA NO. 71/PAT/2013. RS.29,75,161/ - . THE ASSESSEE REPLIED THAT THE PAYMENTS WERE IN RURAL AREAS. THAT SELLERS DID NOT ACCEP T CHEQUE. THAT THESE WERE CONSOLIDATED PAYMENTS FOR EXPENSES BELOW RS.20,000/ - . HOWEVER, THE AO WAS NOT CONVINCED. HE HELD AS UNDER : IT IS AGAIN EMPHASIZED HERE THAT RULE 6DD IS EXHAUSTIVE IN ITS SCOPE AND THE FIRST TWO CONDITIONS ARE NOT COVERED BY IT . THROUGH, THE PAYMENTS WERE IN RURAL AREA, BUT THE RURAL AREA (FATUHA ISLAMPUR) IN QUESTION IS WELL - SERVED BY BANKING FACILITIES. AS REGARDS THIRD CONTENTION, IT HAS ALREADY BEEN DISCUSSED THAT THE BILLS FOR EXPENSES ALSO EXCEEDED RS.20,000/ - . IT MEANS THAT THERE WERE NOT CONSOLIDATED PAYMENTS, AND EVEN SINGLE TRANSACTIONS EXCEEDED RS.20,000/ - . 6. BEFORE THE LEARNED CIT(APPEALS) IT WAS SUBMITTED THAT THE COMPUTATION OF DISALLOWANCE WAS COMPUTED IN EXCESS BY RS.1 , 34 , 900/ - AS SOME PAYMENTS HAD BEEN CONSIDERED TWICE. FURTHER IT WAS SUBMITTED THAT THE PAYMENTS WERE MADE FOR BOULDER, STONE CHIPS, SAND ETC. THROUGH TRACTORS AND TRUCKS AND AMOUNT PAYABLE IN RESPECT OF ANY ONE OF SUCH TRIPS DID NOT EXCEED RS. 20,000/ - . FURTHER, IT WAS SUBMITTED THAT THE APPELLANT WAS WORKING ON PHATUA - ISLAMPUR RA IL LINK WHICH WAS FALLING IN A REMOTE AREA. THE CONTRACT WAS TO BE COMPLETED IN THE PRESCRIBED TIME LIMIT. THEREFORE, DUE TO BUSINESS EXPEDIENCY AND PECULIAR CIRCUMSTANCES, THE PAYMENTS WERE MADE BY BEARER CHEQUES . 7. LEARNED CIT(APPEALS) UPON REMAND REPORT ACCEPTED THAT THE ACTUAL DISALLOWANCE SHOULD BE REDUCED BY RS.1,34,900/ - . HOWEVER, HE DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.4,60,132/ - . 8. AGAINST T HE ABOVE ORDER THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 9. UPON CAREFUL CONSIDERATION I FIND THAT IT IS UNDISPUTED THAT THE ASSESSEE WAS WORKING IN A REMOTE AREA AND THE PURCHASES WERE MADE FOR BOULDER , STONE CHIPS, SAND ETC. THROUGH TRACTORS AND TRUCKS . IN THESE CIRCUMSTANCES THE 4 ITA NO. 71/PAT/2013. ASSESSEES CONTENTION THAT SINCE THE ASSESSEE HAD TO COMPLETE THE PROJECT IN PRESCRIBED TIME AND THE AREA WAS NO T PROPERLY SERVED BY BANK ING FACILITIES AND THE PAYEES INSISTED FOR CASH PAYMENTS CANNOT BE BRUSHED ASIDE. IN MY CONSIDERED OPINION THE ABOVE CONSTITUTES A REASONABLE CAUSE FALLING WITHIN THE KEN OF EXCEPTIONS PROVIDED IN RULE 6DD. HENCE I SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 10. APROPOS THE ISSU E OF ADDITION OF RS.60,060/ - ON ACCOUNT OF UNEXPLAINED OUTSTANDING LIABILITIES. ON THIS ISSUE THE ASSESSEE HAD MADE PAYMENTS TOWARDS OUTSTANDING LIABILITIES THROUGH BEARER CHEQUES. THE AO WAS OF T HE OPINION THAT THE EXISTENCE OF THE LIABILITIES AS ON 01 - 04 - 2002 WAS NOT ESTABLISHED. HENCE THE AO ADDED THE SAME AS PAYMENT FOR UNEXPLAINED OUTSTANDING LIABILITIES. 11. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) HELD THAT THESE PAYMENTS WERE ALSO SIMILAR TO PAYMENTS WHERE DISALLOWANCE U/S 40A(3) HAS BEEN MADE. HENCE LEARNED CIT(APPEALS) HELD AS UNDER : REPAYMENT OF EXPENDITURE OF AN EARLIER ASSESSMEN T YEAR IN EXCESS OF THE SPECIFIED LIMIT IS ALSO SUBJECT TO DISALLOWANCE UNDER CLAUSE (B) OF SECTION 40A(3) OF THE INCOME - TAX ACT, 1961. THEREFORE, IT WOULD BE APPROPRIATE IF A DISALLOWANCE OF RS.60,060/ - @ 20% OUT OF THESE PAYMENTS IS SUSTAINED AND THE BALANCE ADDITION IS DELETED. THE AO IS DIRECTED ACCORDINGLY. 12. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 13. I HAVE HEARD THE LEA RNED D.R. AND PERUSED THE RECORDS. I FIND THAT THE AO HAD MADE THE DISALLOWANCE WITH REGARD TO PAYMENT OF OUTSTANDING LIABILITIES BY THE ASSESSEE ON THE GROUND THAT EXISTENCE OF THE LIABILITIES AS ON 01 - 04 - 2002 WAS NOT ESTABLISHED. HOWEVER, LEARNED CIT(APP EALS) HAS DISALLOWED 20% OF THESE PAYMENTS AS DISALLOWANCE U/S 40A(3). I FIND THAT THE ABOVE ACTION OF THE AO AND THE LEARNED CIT(APPEALS) ARE NOT BASED UPON PROPER APPRECIATION OF FACTS AND 5 ITA NO. 71/PAT/2013. LAW. IN MY CONSIDERED OPINION, EARLIER YEAR OUTSTANDING LIABILI TY HAS TO BE DEALT WITH , I F THEY RELATE TO TRADING ACTIVITY U/S 41(1) OF I.T. ACT. T HE ABOVE REQUIRES PROPER ENQUIRY WHICH HAS NOT AT ALL BEEN DONE IN THIS CASE. LEARNED CIT(APPEALS) ACTION IS ALSO BEYOND THE MANDATE OF SECTI ON 40A(3) AS THE PAYMENT IS OF OUTSTANDING LIABILITY. HENCE T HE ACTI ON OF THE AUTHORITIES BELOW IS NOT SUSTAINABLE. HENCE I HAVE NO HESITATION IN SETTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW. 14. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF SEPT., 2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. DATED: 28 TH SEPT. , 2016. COPY FORWARDED TO : 1. M/S ANAND CONSTRUCTION ANAND MARKET, DALUCHAK, KHAGAUL, PATNA. 2. A.C.I.T., CIRCLE - 4 PATNA. 3. C.I.T. - PATNA. 4. CIT(APPEALS) - , PATNA. 5. D.R., ITAT, PATNA. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. WAKODE.