M/s. Ved Constructions, Nandurbar V. Deputy Commissioner of Income-tax,

ITA 87/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1068 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V L JAIN
• Assessee Lawyers: V L JAIN SHRI P L KUREEL
• Section: 40A(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO. 87 /PN/201 6 / ASSESSMEN T YEAR : 20 1 1 - 1 2 M/S. VED CONSTRUCTION, NEAR DADAWADI, DONGARGAON ROAD, SHAHADA, NANDURBAR 4254 09 . / APPELLANT PAN: A A MPB3939K VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 3(1), DHULE . / RESPONDENT / APPELLANT BY : SHRI V.L. JAIN / APPELLANT BY : SHRI V.L. JAIN / RESPONDENT BY : SHRI P.L. KUREEL / DATE OF HEARING : 22 . 0 8 .201 6 / DATE OF PRONOUNCEMENT: 26 . 0 8 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL F ILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 1 , NASHIK , DATED 06 . 1 1 .20 1 5 RELATING TO ASSESSMENT YEAR 20 1 1 - 1 2 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL : - 1] ON THE FACTS AND IN THE PREVAILING CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDITION OF ITA NO. 87 /PN/20 1 6 M/S. VED CONSTRUCTION 2 RS.8,49,745/ - INVOKING PROVISION OF SECTION 40A(3) OF THE IT ACT, WITHOUT CONSIDERING THE GENUINENE SS OF THE SALARY PAYMENT AND WRITTEN SUBMISSION OF THE APPELLANT AND DECISIONS OF HONBLE SUPREME COURT IN THE CASE ATTAR SINGH GURMUKH SINGH ETC VS. INCOME TAX OFFICER (1991) 97 CTR (SC) RELIED BY THE APPELLANT. THEREFORE, ADDITION MAY PLEASE BE DELETE.D 2. IN THE FACTS AND IN THE PREVAILING CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE INTEREST LEVIED U/S.234B OF THE IT ACT, MERELY SAYING IT IS CONSEQUENTIAL IN NATURE AND NEEDS NO ADJUDICATION, EVEN THOUGH, APPELLANT WAS NOT LIABLE TO PAY ADVANCE TAX U/S.208 OF THE IT ACT AND DENIED ITS LIABILITY AS ITS ENTIRE RECEIPT S ARE SUBJECTED TO TDS. THEREFORE, IT MAY PLEASE BE HELD THAT THE APPELLANT IS NOT LIABLE TO PAY INTEREST U/S.234B OF THE IT ACT, 1961 AND HEN CE, INTEREST LEVIED U/S.234B OF THE IT ACT, MAY PLEASE BE DELETED. 3. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 4. THE ISSUE RAISED IN THE PRESENT APPEAL BY WAY OF GROUND OF APPEAL NO .1 IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT AT RS. 8,49,745/ - . RS. 8,49,745/ - . 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN CONSTRUCTION BUSINESS UNDER THE NAME AND STYLE VED CONSTRUCTION AT SHAHADA. DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE HAD CLAIMED SALARY EXPENDITURE OF RS.2 LAKHS PAID TO SAU. MEENABAI PATIL. THE ASSESSING OFFICER NOTED THAT THE SAID PERSON WAS RELATED PARTY AND THE SALARY PAID TO HER FOR SUPERVISION WORK OF ELECTRICAL NATURE ON VARIOUS SITES DI D NOT JUSTIFY THE QUANTUM OF SALARY PAYMENT. THE ASSESSING OFFICER THUS, DISALLOWED RS.60,000/ - OUT OF SAID SALARY PAYMENT BY INVOKING THE PROVISIONS OF SECTION 40A(2)( A ) OF THE ACT SINCE THE PAYMENT WAS MADE TO RELATED PARTY AS DEFINED UNDER SECTION 40A( 2)(B) OF THE ACT. THE ASSESSING OFFICER FURTHER NOTED THAT SUM OF RS. 8,29,745/ - WAS DUE TO BE PAID TO SAU. MEENABAI B. PATIL AND DURING ITA NO. 87 /PN/20 1 6 M/S. VED CONSTRUCTION 3 THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE PAYMENTS ON DIFFERENT DATES TO THE SAID PARTY. THE SAID PAYMENTS W ERE MADE BY WAY OF CHEQUES DRAWN ON HASTI BANK. HOWEVER, ON VERIFICATION OF SAID CURRENT ACCOUNT, IT TRANSPIRED THAT THE ASSESSEE HAD MADE THE SAID PAYMENTS IN CONTRAVENTION OF SECTION 40A(3) OF THE ACT I.E. BY WAY OF BEARER CHEQUES AND NOT AS PER STATUTO RY REQUIREMENT LAID DOWN UNDER SECTION 40A(3) OF THE ACT. IN VIEW THEREOF, THE ASSESSING OFFICER DISALLOWED SUM OF RS. 8,49,745/ - UNDER SECTION 40A(3) OF THE ACT, WHICH INCLUDED RS.20,000/ - AS PAYMENT FOR SALARY DUE FOR THE YEAR UNDER APPEAL. 6. THE CIT(A ) IN THE FIRST INSTANCE DELETED THE ADDITION MADE UNDER SECTION 40A(2)( A ) OF THE ACT I.E. ON ACCOUNT OF SALARY PAID TO RELATED PARTY. SECONDLY, IN RESPECT OF SAME PAYMENT, WHEREIN THE ASSESSEE HAD MADE PAYMENTS TO THE EXTENT OF RS. 8,49,745/ - BY WAY OF BEA RER CHEQUES AND NOT BY CROSSED CHEQUES TO THE SAID PARTY, THE CIT(A) UPHELD THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN THIS REGARD. 8. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE PAYEE IN THE CASE IS IDENTIFIED AS THE ASSESSING OFFICER HIMSELF HAD DISALLOWED PART OF SALARY UNDER SECTION 40A(2)( A ) OF THE ACT. THOUGH THE CIT(A) HAD DELETED THE SAID ADDITION, HOWEVER, THE CIT(A) UPHELD THE OTHER ADDITION UNDER SECTION 40A(3) OF THE ACT. HE FURTHER STRESSED THAT THE PROVISIONS OF SECTION 40A(3) OF THE ACT WERE BROUGHT IN STATUTE TO CHECK TAX EVASION, WHERE THE IDENTITY OF PAYEE WAS NOT KNOWN. HOWEVER, IN THE INSTANT CASE, THE PAYEE ITA NO. 87 /PN/20 1 6 M/S. VED CONSTRUCTION 4 WAS IDENTIFIED AND WAS A RELATED PARTY. THE PAYMENTS WERE MADE NOT IN CASH BUT THROUGH BEARER CHEQUES. HE FURTHER STRESSED THAT THE PROVISIONS OF SECTION 40A(3) OF THE ACT PROVIDED THAT NO DEDUCTION IN RESPECT OF SUCH EXPENDITURE WOULD BE ALLOWED WHERE THE PAYMENT TO A PERSON IN A DAY EXCEEDS RS.20,000/ - WHETHER BY WAY OF ONE PAYMENT OR AGGREGATE OF PAYMENTS. HOWEVER, THE PROVISO UNDER SECTION 40A(3 A ) OF THE ACT NOT ONLY REFERS TO THE EXEMPTIONS PROVIDED UNDER RULE 6DD OF THE INCOME TAX RULES, 1962 (THE RULES) BUT ALSO TO OT HER EXEMPTIONS ON ACCOUNT OF BANKING TRANSACTIONS OR BUSINESS CONSIDERATION. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, STRESSED THAT THE PROVISIONS OF SECTION 40A(3) OF THE ACT DOES NOT ELABORATE ON REASONABLENESS FOR N OT INCURRING EXPENDITURE WITHIN REQUISITE LIMITS IN CASH. HE FURTHER STRESSED THAT CIRCUMSTANCES OF THE CASE HAD TO BE EXPLAINED, WHICH THE ASSESSEE HAD FAILED TO EXPLAIN AND HENCE, THE ORDER OF ASSESSING OFFICER MERITS TO BE UPHELD. 10. ON PERUSAL OF RE CORD AND AFTER HEARING BOTH THE LEARNED AUTHORIZED REPRESENTATIVES, THE ISSUE WHICH ARISES FOR ADJUDICATION IN THE PRESENT APPEAL IS AGAINST INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE SAID SECTION REQUIRES ANY PERSON INCURRING ANY EXPENDITU RE AND WHERE THE PAYMENT FOR SUCH EXPENDITURE OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, EXCEEDS RS.20,000/ - , THEN THE SAME SHOULD BE MADE BY WAY OF ACCOUNT PAYEE CHEQUE OR BANK DRAFT AND IN CASE THE SAID REQUIREMENT IS NOT COMPLIED WITH, THEN NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. THE PROVISIONS OF SECTION 40A(3 A ) OF THE ACT PROVIDES THAT WHERE ALLOWANCE HAS BEEN MADE IN THE ITA NO. 87 /PN/20 1 6 M/S. VED CONSTRUCTION 5 ASSESSMENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY THE ASSESSEE FOR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, THE ASSESSEE MAKES PAYMENT IN RESPECT THEREOF, EXCEEDING RS.20,000/ - , OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR BANK DRAFT, THEN THE PAYMENT SO MADE SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSI ON AND WOULD BE CHARGEABLE TO TAX AS INCOME OF SUBSEQUENT YEAR. WHERE THE PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY EXCEEDS RS.20,000/ - , THE PROVISO THEREAFTER PROVIDES THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB - SECTION (3) AND / OR UNDER SUB - SECTION (3A) OF SECTION 40A OF THE ACT, WHERE THE PAYMENT OR AGGREGATE OF PAYMENTS MADE OTHERWISE THAN ACCOUNT PAYEE CHEQUE OR ANY DRAFT EXCEEDS RS.20,000/ - , IN SUC H CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATION OF BUSINESS EXIGENCY AND OTHER RELEVANT FACTORS. IT MAY BE POINTED OUT THAT THE PROVISIONS OF SECTION 40A(3) A ND (3 A ) OF THE ACT WERE SUBSTITUTED FOR EARLIER SUB - SECTION (3) BY THE FINANCE ACT, 2008 W.E.F. 01.04.2009. IN VIEW OF AMENDED PROVISIONS OF THE ACT, WHICH ARE APPLICABLE TO THE INSTANT ASSESSMENT YEAR IN APPEAL BEFORE THE TRIBUNAL, THE PROVISO UNDER SECT ION 40A(3A) OF THE ACT IS TO BE READ AND UNDERSTOOD. AS PER THE PROVISO, IT IS PROVIDED THAT IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES WHICH ARE PRESCRIBED I.E. BY WAY OF RULE 6DD OF THE RULES AND ALSO HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FA CILITIES AVAILABLE, CONSIDERATION OF BUSINESS EXIGENCY AND OTHER RELEVANT FACTORS, EXEMPTION IS PROVIDED TO A PERSON WHO HAS MADE CASH PAYMENTS IN RESPECT OF ANY EXPENDITURE TO A PERSON , EXCEEDING RS.20,000/ - IN A DAY, THEN NO SUCH DISALLOWANCE IS TO BE MA DE UNDER SECTION 40A(3) OR 40A(3A) OF THE ACT. HENCE, THE CONSIDERATION OF ITA NO. 87 /PN/20 1 6 M/S. VED CONSTRUCTION 6 BUSINESS EXIGENCY IS ONE OF THE ITEMS PRESCRIBED WHICH CAN PREVAIL UPON THE APPLICATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. 11. IN THE FACTS OF THE PRESENT CASE, WHERE THE PAYEE IS IDENTIFIED I.E. RELATED PARTY TO WHOM THE PAYMENT HAS BEEN MADE BY THE ASSESSEE FROM YEAR TO YEAR. THE OPENING BALANCE DUE TO THE SAID PAYEE WAS RS.8,29,745/ - FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD DEBITED SALARY OF RS. 2 LAKHS, OUT OF WHICH SUM OF RS.20,000/ - WAS PAID BY BEARER CHEQUES . SINCE THE AMOUNTS WERE PAID BY WAY OF BEARER CHEQUES, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE CONDITIONS LAID DOWN IN SECTION 40A(3) OF THE ACT HAVE BEEN VIOLATED AND THE PAYMENTS MADE IN RESP ECT OF OPENING BALANCE AND ALSO FOR THE YEAR UNDER CONSIDERATION, TOTALING RS.8,49,745/ - MERITS TO BE DISALLOWED UNDER SECTION 40A(3) OF THE ACT. THERE IS NO MERIT IN THE STAND OF ASSESSING OFFICER, IN VIEW OF PROVISO INSERTED BY THE FINANCE ACT, 2008 UND ER SECTION 40A(3) OF THE ACT. THE PROVISO NOT ONLY RECOGNIZES THE CONDITIONS LAID DOWN IN RULE 6DD OF THE RULES AND FURTHER PROVIDES THAT WHERE THE ASSESSEE EXPLAINS THE BUSINESS EXIGENCY OR BANKING FACILITIES NOT BEING AVAILABLE, THEN ALSO THE CASH PAYME NTS MADE OVER AND ABOVE RS.20,000/ - CAN BE ALLOWED AS EXPENDITURE WHERE THE ASSESSEE HAS FAILED TO JUSTIFY ITS NECESSITY FOR MAKING THE CASH PAYMENTS. THE ASSESSEE IN THE PRESENT CASE HAS MADE THE PAYMENTS BY WAY OF CHEQUES WHICH ARE THOUGH BEARER CHEQUES BUT MERELY BECAUSE THE AMOUNT WAS PAID ON ACCOUNT OF BEARER CHEQUES, WHERE THE PAYEE IS RELATED PARTY AND THE TRANSACTION IS NOT DOUBTED, THERE IS NO MERIT IN MAKING ANY DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. ACCORDINGLY, IT IS SO HELD. THE ADDIT ION MADE BY THE ASSESSING OFFICER IN THIS REGARD IS THUS, DELETED TO THE EXTENT OF RS.8,49,745/ - . THE GROUND OF APPEAL ITA NO. 87 /PN/20 1 6 M/S. VED CONSTRUCTION 7 NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 1 2 . IN THE RESULT , THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 26 TH DAY OF AUGUST , 201 6 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 26 TH AUGUST , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 1 , NASHIK ; ( ) 4. / THE PR. CIT 1 , NASHIK ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE