Fima Properties Pvt.Ltd., Hyd, Hyderabad V. ITO, Ward-1(2), Hyd, Hyderabad

ITA 860/HYD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2676 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 24-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L R AMJI RAO
• Assessee Lawyers: D SATYANARAYANA
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 860/HYD/2015 ASSESSMENT YEAR: 2011-12 FIMA PROPERTIES PVT. LTD., HYDERABAD. PAN AABCF 1681 Q VS. INCOME-TAX OFFICER, WARD 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D. SATYANARAYANA REVENUE BY : SHRI L. RAMJI RAO DATE OF HEARING : 08-08-2017 DATE OF PRONOUNCEMENT : 23-08-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 5, H YDERABAD, DATED 04-02-2015 FOR AY 2011-12. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION, FI LED ITS RETURN OF INCOME ON 11/02/2013, ADMITTING LOSS OF RS. 7,69,12 4/- FOR THE AY 2011-12. WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT, THE AO DISALLOWED EXPENSES ON ACCOUNT OF PAYMENT MADE ( RS. 3,85,000/- ) TO THE ADVOCATE AND RS. 4,04,200/- PAID AS RENT, INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT STATING THAT THE ASSESSEE HAD NOT MADE TDS WHILE MAKING SUCH PAYMENTS. FURTHE R, THE AO ALSO MADE DISALLOWANCE OF SITE EXPENSES AMOUNTING TO RS. 39,97,000/- U/S 40A(3) OF THE ACT STATING THAT SUCH PAYMENTS HAD BE EN MADE IN CASH. 2 ITA NO. 860/H/15 FIMA PROPERTIES PVT. LTD. 3. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE THE CIT(A), THE CIT(A) DELETED THE DISALLOWANCE MADE U/ S 40(A)(IA) AND CONFIRMED THE DISALLOWANCE MADE U/S 40A(3) OF THE A CT. ACCORDINGLY, THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE DIS ALLOWANCE U/S 40A(3) OF THE ACT. 4. THE FACTS RELATING TO THE DISALLOWANCE U/S 40A(3 ) ARE THAT WHILE FINALISING THE ASSESSMENT, THE AO MADE DISALLOWANCE OF EXPENDITURE OF RS. 39,97,000/-, STATED AS SITE EXPENSES, ON THE GROUND THAT THE PAYMENT OF THE SAID AMOUNTS HAVE BEEN MADE IN CASH AND ANYTHING PAID IN CASH ABOVE RS. 20,000/- IS DISALLOWABLE U/S 40A(3) OF THE IT ACT. 5. BEFORE THE CIT(A), THE ASSESSEE OBJECTED FOR SUC H ADDITION STATING THAT SUCH PAYMENTS PERTAIN TO LABOUR CHARGE S. THE ASSESSEE SUBMITTED THAT THE LABOUR HAVE BEEN ENGAGED IN GROU PS AND THE CHARGES FOR THE ENTIRE GROUP WERE PAID TO LABOUR MA ISTRY WHO DISBURSES THE AMOUNT TO THE INDIVIDUAL LABOURERS. HE SUBMITTED THAT THE PAYMENT TO EACH LABOURER DOES NOT EXCEED RS. 20 ,000/- AND, THEREFORE, PROVISIONS OF SECTION 40A(3) ARE NOT APP LICABLE TO THE CASE OF THE ASSESSEE. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) CONFIRMED THE DISALLOWANCE OF RS. 39,97,000/- MADE BY THE AO U/S 40A(3) BY OBSERVING AS UNDER: 6.3. PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIO NS OF THE APPELLANT. AS COULD BE SEEN FROM THE FACTS OF THE C ASE, THE APPELLANT COMPANY SHOWN TO HAVE ENGAGED IN THE BUSI NESS OF CONSTRUCTION AND FOR THE YEAR UNDER REFERENCE, NO S ALES WERE SHOWN TO BE REPORTED AND MOST OF THE CONSTRUCTION E XPENSES WERE SHOWN TO HAVE BEEN TAKEN INTO WORK-IN-PROGRESS OR STOCK- IN-TRADE, AS CLAIMED BY THE APPELLANT. THE EXPENSES INCURRED INCLUDED THE AMOUNT OF RS.39,97,000/- INCURRED AS S ITE EXPENSES, AND ALL SUCH EXPENSES WERE SHOWN TO HAVE BEEN MADE IN CASH. ACCORDINGLY, THE ASSESSING OFFICER AP PLIED THE PROVISIONS OF SECTION 40A(3) AND MADE DISALLOWANCE OF 3 ITA NO. 860/H/15 FIMA PROPERTIES PVT. LTD. RS.39,97,000/-, WITHOUT MUCH OF DISCUSSION ON THE S UBJECT MATTER IN THE ASSESSMENT ORDER. HOWEVER, DURING THE COURSE OF APPEAL PROCEEDINGS, THE APPELLANT SUBMITTED THAT NO SALES HAVE TAKEN PLACE DURING THE YEAR AND ALL SUCH EXPENSES W ERE TAKEN TO WORK-IN-PROGRESS. IT WAS ALSO SUBMITTED THAT, TH OUGH THE AMOUNTS ARE CLAIMED AS LUMPSUM AMOUNTS AS SITE EXPE NSES, THE AMOUNTS WERE PAID TO LABOUR THROUGH MAISTRYS OR LEADING MASON, AND EACH INDIVIDUAL PAYMENTS ARE BELOW THE L IMITS PRESCRIBED U/S 40A(3) OF THE ACT. HOWEVER, THERE WE RE NO ELABORATION ON THE SUBJECT MATTER AND NO DETAILS O F SUCH EXPENSES WERE QUANTIFIED WITH REFERENCE TO EACH OF THE PAYMENTS AS CLAIMED BY APPELLANT, WHICH WERE SHOWN AS THE AMOUNTS PAID TO THE LABOUR WITH EACH AMOUNT NOT EXC EEDING THE LIMITS PRESCRIBED BY SECTION 40A(3) OF THE ACT. FUR THER, ON BEING INSISTED, THE AR FURNISHED THE CASH BOOK OF THE APP ELLANT COMPANY FOR THE YEAR UNDER REFERENCE, WHICH IS NOT COMPREHENSIVE IN ALL ASPECTS WITH SPECIAL REFERENCE TO THE DETAILS OF EXPENSES AND VOUCHERS MAINTAINED FOR THE PURPOSE OF SITE EXPENSES. FURTHER, THERE ARE LUMPSUM PAYMENTS IN CASH ON VARIOUS DATES FOR EXPENSES, INCLUDING THE SITE E XPENSES, WITHOUT INDICATING THE DETAILS OF PAYMENTS, WITH RE ASONABLE CLARITY. UNDER THE CIRCUMSTANCES, I AM OF THE CONSI DERED OPINION THAT PAYMENTS IN CASH MADE FOR THE DEVELOPMENT EXPE NSES ARE DESERVED TO BE VISITED WITH PROVISIONS OF SECTION 4 0A(3) AND ALL SUCH EXPENSES REQUIRED TO BE DISALLOWED. THE ARGUME NT OF THE APPELLANT THAT ALL EXPENSES ARE TAKEN INTO WORK-IN -PROGRESS, WITH NO SALES TAKEN PLACE DURING THE YEAR, IS NO EX PLANATION ON THE ISSUE. FOR THE SAID REASONS AND BASED ON FACTS OF THE CASE, THE AMOUNTS INCURRED TOWARDS SITE, SITE EXPENSES IN CASH, IN EXCESS OF THE LIMITS PRESCRIBED U/S 40A(3), ARE HEL D TO BE DISALLOWABLE AND AS SUCH THE DISALLOWANCE OF RS.39, 97,000/- MADE BY THE A.O. IN ASSESSMENT ORDER, ARE HELD TO B E SUSTAINABLE. ACCORDINGLY, THIS GROUND OF APPEAL TRE ATED AS DISMISSED. 7. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS. 39,97,000/- MADE BY THE AO BY APPLYING THE PROVISIO NS U/S 40A(3) OF THE IT ACT. 8. BEFORE US, LD. AR SUBMITTED THAT DURING THIS YEA R THERE WAS ONLY EXPENDITURE AND NO INCOME WAS DERIVED FROM THE PROJ ECT, AS IT CAN BE SEEN FROM THE PROFIT AND LOSS ACCOUNT (PAGE NO.4 OF THE PAPER BOOK) 4 ITA NO. 860/H/15 FIMA PROPERTIES PVT. LTD. THAT THE SALES AMOUNTED TO RS. NIL AND THERE WAS ON LY WORK IN PROGRESS. HE SUBMITTED THAT THE OPERATING EXPENDITU RE WAS CLAIMED AS THE LOSS FOR THE YEAR UNDER CONSIDERATION. FROM THE DETAILS IT IS CLEAR THAT THE PAYMENTS MADE FOR CONSTRUCTION ARE NOT CLA IMED AS DEDUCTION AS THE ENTIRE AMOUNT OF EXPENDITURE IS CARRIED TO T HE CLOSING WORK-IN- PROGRESS. THE LD. AR SUBMITTED THAT THE PROVISIONS OF SEC. 40A(3) HAVE NO APPLICATION AS THE ASSESSEE DID NOT COMMENC E SALE AND DID NOT DERIVE ANY INCOME THERE FROM. HE ALSO SUBMITTED THAT THE PAYMENTS WERE MADE TO THE HEAD OF THE LABOURERS FOR DISTRIBUTION AMONG THE LABOURERS TOWARDS THEIR WAGES. THE AMOUNT REPRESENT LABOUR PAYMENTS AND SUCH PAYMENT TO EACH LABOURER I S LESS THAN RS.20,000/- PER DAY. HE, THEREFORE, SUBMITTED THAT THAT THE PROVISIONS OF SEC. 40A(3) HAVE NO APPLICATION. 9. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE ASSESSEE HAS SUBMITTED PAPER BOOK IN WHICH CASH PAYMENTS WERE RECORDED IN THE SITE EXPENSES LEDGER ACCOUNT. THE PAYMENTS WERE MADE IN DIFFERENT DATES AND PAYMENTS WERE IN FACT ABOVE THE LIMIT PRESCRIBED U/S 40A(3) OF THE ACT. T HE ASSESSEE HAS SUBMITTED THAT THE PAYMENTS WERE MADE TO LABOURERS THROUGH MAISTRYS OR LEADING MASON. THE INDIVIDUAL PAYMENTS TO EACH L ABOURERS ARE BELOW RS. 20,000/- AS PER THE PROVISIONS OF SECTION 40A(3). THE ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE ABOVE CLAIM BEFORE ANY AUTHORITIES BELOW AS WELL AS BEFORE US. HOWEVER, AS PER PROVISIONS OF SECTION 40A(3), ANY E XPENDITURE INCURRED BY THE ASSESSEE WHICH IS MORE THAN RS. 20, 000/- BY CASH, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPEN DITURE. FOR THE SAKE OF CLARITY, PROVISIONS OF SECTION 40A(3) ARE R EPRODUCED BELOW: WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPEC T OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR 5 ITA NO. 860/H/15 FIMA PROPERTIES PVT. LTD. ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND R UPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPEN DITURE. IN THE GIVEN CASE, EVEN THOUGH THE ASSESSEE HAS INC URRED EXPENDITURE ABOVE RS. 20,000/-, ASSESSEE HAS NOT CLAIMED ANY EX PENDITURE DURING THIS AY UNDER I.T. ACT. WHEN THE ASSESSEE HAS NOT C LAIMED ANY EXPENDITURE UNDER THE I.T. ACT, AO CANNOT DISALLOW ANY EXPENDITURE DURING THIS AY UNDER CONSIDERATION. AO MAY RESORT T O DISALLOW IN THE YEAR IN WHICH SUCH EXPENDITURE IS BEING CLAIMED BY THE ASSESSEE. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOW ED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN ) VICE PRESIDENT AC COUNTANT MEMBER HYDERABAD, DATED: 23 RD AUGUST, 2017. KV COPY TO:- 1) FIMA PROPERTIES PVT. LTD., C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREE T NO. 9, HIMAYAT NAGAR, HYDERABAD 500 029. 2) ITO, WARD - 1(2), HYDERABAD. 3) CIT(A) - 5, HYDERABAD 4 CIT - 5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE