RAMLORD APPARELS, MUMBAI V. ACIT 33 (3), MUMBAI

ITA 7349/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7176 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 21-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAMAL MANGAL; KAVITA P KAUSHIK
• Assessee Lawyers: S C TIWARI AW MS RUTUJA PAWAR
• Keywords: Corroborative evidences
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI G. MANJUNATHA , ACCOUNTANT MEMBER ITA NO. 7349 / MUM . /2018 ( ASSESSMENT YEAR : 20 14 15 ) RAMLORD APPARELS 9A, AKURLI INDUSTRIAL ESTATE AKURLI ROAD, KANDIVALI (EAST) MUMBAI 400 101 PAN AAAFR3183M . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 33(3), MUMBAI . RESPONDENT REVENUE BY : SHRI KAMAL MANGAL & KAVITA P. KAUSHIK AS SESSEE BY : SHRI S.C. TIWARI A/W MS. RUTUJA PAWAR DATE OF HEARING 07.08 .2020 DATE OF ORDER 03.09.2020 O R D E R PER SAKTIJIT DEY. J.M. T HE CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 30 TH OCTOBER 2018, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 45, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2014 15. BEFORE WE PROCEED TO DECIDE THE APPEAL, IT IS NECESSARY TO OBSERVE, THE APPEAL WA S EARLIER FIXED FOR HEARING ON 16.01.2020. 2 RAMLORD APPARELS LEARNED COUNSELS APPEARING FOR THE PARTIES WERE HEARD AT LENGTH AND THE HEARING WAS CLOSED. HOWEVER, DUE TO THE EXTRAORDINARY SITUATION ARISING OUT OF THE PANDEMIC COVID 19 LEADING TO NATIONWIDE LOCKDOWN, THE ORDE R COULD NOT BE FINALIZED AND PRONOUNCED. BY THE TIME LITTLE BIT OF NORMALCY RETURNED AND THE INSTITUTION STARTED FUNCTIONING IN A LIMITED SCALE , CONSIDERABLE TIME HAS ELAPSED. THER EFORE, IT WAS FELT NECESSARY TO PUT THE APPEAL FOR CLARIFICATION SO THAT LEA RNED COUNSELS APPEARING FOR PARTIES WOULD GET A FAIR CHANCE TO MAKE FURTHER SUBMISSIONS, IF ANY, FOR ENABLING THE BENCH TO DECIDE THE APPEAL. ACCORDINGLY, APPEAL WAS HEARD AGAIN ON 07.08.2020 AND IN COURSE OF HEARING LEARNED COUNSELS APPEARING FOR THE PART IES REITERATED THE SUBMISSIONS MADE BY THEM EARLIER. 2. IN GROUND N O1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF EXPENDITURE INCURRED IN CASH AMOUNTING TO ` 31,53,902 MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE INC OME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) . 3. BRIEF FACTS ARE, THE ASSESSEE , A PARTNERSHIP FIRM , IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GARMENT S . FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 24 TH NOVEMBER 2014, DECLARING TOTAL INCOME OF ` 1,66,11,740. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE VERIFYING THE DETAILS FOUND THAT THE ASSESSEE HAS CLAIMED FOREIGN TRAVEL 3 RAMLORD APPARELS EXPENSES OF ` 60,07,464, INCLUDING AN AMOUNT OF ` 31,53,902, TO WARDS EXHIBITION CHARGES. AFTER CALLING FOR THE DETAILS OF EXPENDITURE INCURRED AND VERIFYING THEM, HE FOUND THAT THE EXHIBITION CHARGES OF ` 31,53,902, WAS INCURRED IN CASH IN FOREIGN CURRENCY ABROAD. FURTHER, HE OBSERVED THAT THE ASSESSEE COULD NOT FURNI SH ANY DETAILS OR SUPPORTING EVIDENCE IN SUPPORT OF ACTUAL EXHIBITION EXPENSE EXCEPT CAS H MEMOS OBTAINED FROM THE COMMISSION AGENT S TO WHOM THE ASSESSEE HAD ALSO PAID COMMISSION. REFERRING TO THE PROVISIONS OF SECTION 40A(3) OF THE ACT, THE ASSESSING OFFIC ER OBSERVED , SINCE THE ASSESSEE HAS INCURRED EXPENSES IN CASH EXCEEDING THE AMOUNT OF ` 20,000 IN A DAY , SUCH EXPENSE HAS TO BE DISALLOWED. AFTER CALLING FOR AN EXPLANATION FROM THE ASSESSEE REGARDING THE PROPOSED DISALLOWANCE AND EXAMINING IT, THE ASSESSI NG OFFICER ULTIMATELY DISALLOWED THE AMOUNT OF ` 31,53,902, UNDER SECTION 40A(3) OF THE ACT. THOUGH, THE ASSESSEE CONTESTED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CONFIRM ED. 4. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE PROVISIONS OF SECTION 40A(3) OF THE ACT WOULD NOT BE APPLICABLE TO THE EXPENDITURE INCURR ED IN CASH IN FOREIGN CURRENCY AS IT REFERS TO EXPENDITURE INCURRED IN RUPEES AND NOT IN FOREIGN CURRENCY. HE SUBMITTED , EVEN OTHERWISE ALSO, INCOME TAX ACT HAS JURISDICTION OVER INDIA AND CANNOT BE APPLIED 4 RAMLORD APPARELS OUTSIDE TERRITORY OF INDIA. HE SUBMITTED , SINCE THE ASSESSEE HAS INCURRED THE EXPENDITURE IN FOREIGN CURRENCY AND THAT TOO IN FOREIGN COUNTRY, IT WILL NOT COM E WIT HIN THE PURVIEW OF SECTION 40A(3 ) OF THE ACT. WITHOUT PREJUDICE, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , EVEN IF THE PROVISIONS OF SECTION 40A(3) OF THE ACT WOULD BE APPLICABLE, THE EXPENDITURE INCURRED WOULD COME WITHIN THE EXCEPTIONS PROVIDED UNDER RULE 6DD. HE S UBMITTED , SINCE THE EXPENDITURE WAS INCURRED IN FOREIGN CURRENCY, THE ASSESSEE COULD NOT HAVE I SSUED CHEQUE TO THE CONCERNED PARTIES , AS , FOR ISSUANCE OF CHEQUE THE ASSESSEE MUST HAVE B ANK ACCOUNT S IN THE RESPECTIVE COUNTRIES. THUS, HE SUBMITTED , IN THE ABSENCE OF PROPER B ANKING FACILITIES, IT WOULD HAVE BEEN AN IMPOSSIBLE ACT ON THE PART OF THE ASS ESSEE TO INCUR THE EXPENDITURE THROUGH CHEQUE, HENCE, THE ASSESSEE WOULD BE COVERED UNDER RULE 6DD. IN SUPPORT OF HIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I) VODAFONE INDIA SERVICES PVT. LTD. V/S UNION OF IN DIA & ANR., W.P. NO.871 OF 2014; AND II) UNION OF INDIA V/S AZADI BACHAO ANDOLAN, 263 ITR 706 (SC). 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS) SUBMITTED , MERE LY BECAUSE IN SECTION 40A(3) OF THE ACT, RESTRICTION REGARDING CASH EXPENDITURE IS MENTIONED IN RUPEE TERM IT 5 RAMLORD APPARELS CANNOT BE CONSTRUED THAT THE PROVISIONS WOULD APPLY ONLY IN RESPECT OF CAS H EXPENDITURE INCURRED IN INDIAN CURRENCY AND NOT IN ANY OTHER FOREIGN CUR RENCY. HE SUBMITTED , WHAT IS MEANT BY NOT EXCEEDING AN AMOUNT OF ` 20,000 IS CASH EXPENDITURE EQUIVALENT TO RS. 20,000 . HE SUBMITTED , IF THE ASSESSEES CONTENTION IS ACCEPTED, THEN IT WOULD HAVE BEEN IMPOSSIBLE TO MENTION THE CURRENCIES OF ALL THE COUNTRIE S IN THE PROVISION. THEREFORE, THE PROVISION OF SECTION 40A(3) OF THE ACT CANNOT BE INTERPRETED IN A PURELY LITERAL SENSE. HE SUBMITTED , THE CONTENTION OF THE ASSESSEE THAT PROVISIONS OF SECTION 40A(3) OF THE ACT IS NOT APPLICABLE TO EXPENDITURE INCURRED IN CASH IN FOREIGN COUNTRIES IS ACTUALLY MISPLACED AS THERE IS NO SUCH RESTRICTION IN THE SAID PROVISION. FURTHER, HE SUBMITTED , THE PROVISION OF RULE 6DD WOULD ALSO NOT BE APPLICABLE TO THE ASSESSEE AS NONE OF THE E XCEPTIONS MENTIONED THEREIN APPLY. HE SUBMITTED , THOUGH IT MAY NOT HAVE BEEN POSSIBLE FOR THE ASSESSEE TO ISSUE CHEQUE, HOWEVER, THE ASSESSEE COULD HAVE PAID THE MONEY IN VARIOUS OTHER MODES THROUGH BANKING CHANNEL INSTEAD OF PAYING IN CASH. THUS, HE SUBMI TTED , DISALLOWANCE OF EXPENDITURE UNDER SECTION 40A(3) IS JUSTIFIED. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIGHT OF DECISIONS RELIED UPON AND PERUSED THE MATERIAL ON RECORD. AS FAR AS THE FACTUAL ASPECT OF THE ISSUE IS CONCERNED, THERE IS NO DISPUTE THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE IN DISPUTE IN CASH , THOUGH , IN FOREIGN 6 RAMLORD APPARELS CURRENCY AND ABROAD. IT IS THE CASE OF THE AS SESSEE THAT SINCE THE PROVISION CONTAINED UNDER SECTION 40A(3) OF THE ACT SPEAKS OF INCURRING OF CASH EXPENDITURE EXCEEDING ` 20,000, IN A DAY, THE PROVISION WOULD APPLY ONLY IN A CASE WHERE THE EXPENDITURE IN CASH HAS BEEN INCURRED IN INDIA N CURRENCY. FURTHER, IT IS THE CONTENTION OF THE ASSESSEE THAT INCOME TAX ACT BEING APPLICABLE TO TERRITORIAL JURIS DICTION OF INDIA, THE PR OVISION OF SECTION 40A(3) OF THE ACT WOULD NOT BE APPLICABLE TO CASH EXPENDITURE INCURRED IN FOREIGN CURRENCY ABROAD. WE ARE UNABLE TO ACCEPT THE AFORESAID CONTENTION S OF THE ASSESSEE FOR THE REASON SET OUT BELOW. 7. A READING OF SECTION 40A(3) OF THE ACT M AKES IT CLEAR THAT IN CASE THE ASSESSEE INCURS ANY EXPENDITURE FOR WHICH PAYMENT TO A PERSON IN A DAY EXCEEDS THE AMOUNT OF ` 20,000, (AS IT EXISTED DURING THE RELEVANT PE RIOD) IT WOULD NOT BE ALLOWABLE, U NLESS , IT IS PAID THROUGH ACCOUNT PAYEE CHEQUE OR A CCOUNT PAYEE BANK DRAFT. T HE MENTION OF THE WORD RUPEE IN SECTION 40A(3) CANNOT BE INTERPRETED IN A LIMITED OR NARROW SENSE TO MEAN ONLY CASH EXPENDITURE INCURRED IN RUPEE. WHAT THE EXPRESSION MEAN S IS EXPENDITURE INCURRED EXCEEDING THE PARTICULAR AMOUNT IN RUPEE TERMS. THEREFORE, EVEN IF THE EXPENDITURE IS INCURRED IN CASH AND IN FOREIGN CURRENCY, STILL THE PROVISION OF SECTION 40A(3) WOULD BE APPLICABLE IF IT EXCEEDS THE SPECIFIED QUANTUM IN RUPEE TERM. THEREFORE, MERELY BECAUSE THE EXPRESSION RUPEE H AS 7 RAMLORD APPARELS BEEN MENTIONED IN SECTION 40A(3) OF THE ACT, IT WOULD NOT DEBAR APPLICABILITY OF THE PROVISION TO THE EXPENDITURE INCURRED IN CASH IN FOREIGN CURRENCY. 8. IT WOULD BE FALLACIOUS TO SAY THAT IN CASE THE LEGISLATURE WANTED TO TAX EXPENDITURE INCURRED IN FOREIGN CURRENCY, THEY W OULD HAVE DRAFTED THE PROVISION IN A DIFFERENT WAY MENTIONING FOREIGN CURRENCIES ALSO . IN OUR VIEW, A READING OF THE PROVISION OF SECTION 40A(3) OF THE ACT MAKES THE INTENTION OF THE LEGISLATURE QUITE CLEAR TO DISALLOW ANY EXPENDITU RE INCURRED IN CASH WHETHER IN INDIAN CURRENCY OR IN FOREIGN CURRENCY, IF IT EXCEED S THE AMOUNT OF RS. 20,000 IN RUPEE TERM. CONSIDERING THE FACT THAT CASH EXPENDITURE MAY BE INCURRED IN VARIOUS COUNTRIES HAVING DIFFERENT CURRENCIES , IT WOULD NOT HAVE BEEN POSSIBLE FOR THE LEGISLATURE TO MENTION THE CURRENCY OF ALL THE COUNTRIES IN THE WORLD IN SECTION 40A(3) OF THE ACT. THEREFORE, THE PROVISION HAS TO BE INTERPRETED IN A MANNER TO MEAN CASH EXPENDITURE EQUIVALENT TO MORE THAN RS. 20,000 IN A DAY. IN ANY CA SE OF THE MATTER, THE ASSESSEE HAS DEBITED SUCH EXPENDITURE TO THE PROFIT & LOSS ACCOUNT IN RUPEE TERMS . THEREFORE, FOR AVOIDING APPLICABILITY OF SECTION 40A(3) THE ASSESSEE CANNOT TURN AROUND AND CLAIM THAT SUCH EXPENDITURE HAVING BEEN INCURRED IN FOREIGN CURRENCY IS OUTSIDE THE PURVIEW OF THE AFORESAID PROVISION. IF THE AFORESAID CONTENTION OF THE ASSESSEE IS ACCEPTED, IT WILL CREATE AN ANOMALOUS SITUATION, AS, AN ASSESSEE INCURRING CASH 8 RAMLORD APPARELS EXPENDITURE IN INDIA EXCEEDING ` 20,000 WILL FACE THE RIGORS OF SECT ION 40A(3), WHEREAS, ANOTHER ASSESSEE INCURRING UNLIMITED CASH EXPENDITURE ABROAD IN FOREIGN CURRENCY WOULD GO SCOT FREE. THIS, IN OUR HUMBLE VIEW, COULD NOT HAVE BE EN THE INTENTION OF THE LEGISLATURE WHILE ENA CTING SECTION 40A(3) OF THE ACT, AS, THE PROVI SION WOULD OTHERWISE SUFFER FROM THE VICE OF DISCRIMINATION 9. INSOFAR AS THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE PROVISIONS OF THE ACT WOULD BE APPLICABLE ONLY TO TH E TERRITORY OF INDIA AND NOT TO THE EXPENDITURE INCURRED ABROAD, WE ARE UNABLE TO ACCEPT THE SAME. UNDISPUTEDLY, THE EXPENDITURE INCURRED IN CASH HAS BEEN BOOKED IN INDIA BY DEBITING TO THE PROFIT AND LOSS ACCOUNT, THAT TOO, IN RUPEE TERMS . THEREFORE, THE ASSESSING OFFICER HAS ALL THE POWERS TO EXAMINE THE ALLOWABILITY OF SUCH EXPENDITURE UNDER THE PROVISIONS OF THE ACT WHILE MAKING ASSESSMENT OF THE ASSESSEE. THAT BEING THE CASE, IT CANNOT BE SAID THAT THE PROVISIONS OF SECTION 40A(3) WOULD NOT BE APPLICABLE. 10. AS REGARDS THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE REGARDING THE APPLICABILITY OF RULE 6DD, WE FIND THE SAME TO BE TOTALLY MISP LACED. ON A READING OF RULE 6DD WE DO NOT FIND ANY SPECIFIC CLAUSE THEREIN WHICH CAN COME TO THE AID OF THE ASSESSEE. EVEN , ACCEPTING THAT THE ASSESSEE COULD NOT HAV E ISSUED A CHEQUE TO THE PAYEE, HOWEVER, THERE ARE MANY OTHER WAYS OPEN TO THE ASSESSEE 9 RAMLORD APPARELS FOR MAKING THE PAYMENT THROUGH PROPER BANKING CHANNEL. SINCE , THE ASSESSEE HAS FAILED TO DO SO, THE PROVISIONS OF SECTION 40A(3) OF THE ACT IS CLEARLY ATTRACTED AND THE EXPENDITURE INCURRED IN CASH DESERVES TO BE DISALLOWED. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, ON CAREFUL EXAMINATION, WERE FOUND TO BE OF NO HELP TO THE ASSESSEE. ACCORDI NGLY, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (AP PEALS) ON THE ISSUE WHILE DISMISSING THE GROUND RAISED BY THE ASSESSEE. 11. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED PART DISALLOWANCE OF VEHICLE, CONVEYANCE AND TELEPHONE EXPENSES. 12. BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 17,33,647, TOWARDS EXPENDITURE INCURRED ON VEHICLE, CONVEYANCE AND TELEPHONE EXPENSES . H OLDING THAT INVOLVEMENT OF PERSONAL ELEME NT IN THE AFORESAID EXPENDITURE CANNOT BE RULED OUT, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF ` 1,73,365, BEING 10% OF THE TOTAL EXPENDITURE CLAIMED. THOUGH, THE ASSESSEE CONTESTED THE AFORESAID DISALLOWANCE BEFORE THE FIRST AP PELLATE AUTHORITY, HOWEV ER, LEARNED COMMISSIONER (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10 RAMLORD APPARELS 13. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE DISALLOWANCE HAS BEEN MADE PURELY ON AD HOC BASIS WITHOUT ANY SOUND REASONING. THUS, HE SUBMITTED , THE EXPEND ITURE CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED IN FULL. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS). 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE ASSESSING OFFICER HAS DISALLOWED 10% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE PURELY ON AD HOC BASIS ASSUMING PERSONAL USE. HOWEVER, WHAT IS THE NATURE OF ENQUIRY CONDUCTED BY THE ASSESSING OFFIC ER TO ESTABLISH PERSONAL USE IS NOT FORTHCOMING FROM THE ASSESSMENT ORDER. IT IS ALSO NOT CLEAR WHETHER THE ASSESSING OFFICER HAS CALLED UPON THE ASSESSEE TO FURNISH EVIDENCE THAT THERE IS NO PERSONAL ELEMENT INVOLVED IN THE EXPENDITURE. L EARNED COMMISSION ER (APPEALS) HAS ALSO CONFIRMED THE ADDITION PURELY ON THE BASIS OF THE OBSERVATIONS MADE BY THE ASSESSING OFFICER. IN OUR VIEW, WITHOUT ESTABLISHING THE FACT THAT A PART OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS TOWARDS PERSONAL USE, NO DISALLOWANCE CAN BE MADE PURELY ON PRESUMPTION AND SURMISES. ACCORDINGLY, WE DELETE THE DISALLOWANCE OF ` 1,73,365. GROUND RAISED BY THE ASSESSEE IS ALLOWED. 11 RAMLORD APPARELS 16. GROUNDS NO.3 AND 4, RAISED BY THE ASSESSEE BEING GENERAL IN NATURE DO NOT REQUIRE ADJUDICATION, HENCE, DISMISS ED. 17. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED THROUGH NOTICE BOARD UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963, ON 03.09.2020 SD/ - G. MANJUNATHA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 03.09. 2 020 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI