ACIT, Circle-1(2), Hyderabad V. M/s Dodla Dairy Limited, Hyderabad

ITA 969/HYD/2013

• Counselvise Citation: 96922514 RSA 2013
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARITHA
• Assessee Lawyers: S RAMA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.969/HYD/13 : ASSTT. YEAR 2008 - 09 ASST COMMISSIONER OF INCOME - TAX CIRCLE 1(2), HYDERABAD V/S. M/S. DODLA DAIRY LTD, HYDERABAD ( PAN - AABCD 5077 E) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. HARITHA, DR RESPONDENT BY : SHRI S.RAMA RAO DATE OF HEARING 2.1.2014 DATE OF PRONOUNCEMENT 10.1.2014 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) V, HYDERABAD, DATED 21.2.2013 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE ONLY GRIEVANCE OF THE REVENUE IN THIS APPEAL RELATES TO THE ACTION OF THE CIT(A) IN DELETING THE ADDITION BY WAY OF DISALLOWANCE MADE BY THE ASSESSING OFFICER IN TERMS OF S.40(3) OF THE ACT, IN RESPECT OF PAYMENTS MADE TO THE MANAGING DIRECTOR, S HRI D. SUNIL REDDY. 3. FACTS OF THE CASE IN BRIEF LEADING TO THE FILING OF THE PRESENT APPEAL BEFORE US ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING AND SALE OF MILK AND MILK PRODUCTS. FOR THE ASSESSMENT YEAR 20 0 8 - 09, ASSESSEE FIL E D RETURN ON 28.9.2008, ADMITTING AN INCOME OF RS.6,25,70,736. AS AGAINST THIS, THE ASSESSING OFFICER COMPL E TED THE ASSESSMENT UNDER S.143(3) OF THE ACT ON 31.1.22009, DETERMINING THE TOTAL INCOME AT RS.8,45,83,198, AFTER MAKING VARIOUS ADDITIONS AND DISAL LOWANCES. ONE SUCH ITEM OF DISALLOWANCE MADE BY THE ASSESSING OFFICER, WHICH IS THE SUBJECT MATTER OF PRESENT APPEAL BEF OR E US, IS OF I TA NO. 969 / HYD/201 3 M/S. DODLA DAIRY LTD., H YDERABAD. 2 AN AMOUNT OF R S .79,67,910, REPRESENTING THE PAYMENT S MADE TO SHRI D.SUNIL REDDY, M.D. OF THE ASSESSEE COMPANY. FACTUAL BACKGROUND RELATING TO DISALLOWANCE IS THAT THE ASSESSEE MADE PAYMENT S AGGREGATING TO R S .79,67,910 TO SHRI D.SUNIL REDDY, WHICH COMPRISE D OF R S .57,91,111 BEING AMOUNT S P AID TO HIM FOR CONVERSION OF CURRENCY IN SMALL ER DENOMINATION S TO CURRENCY OF H I GHER D E N O M I N ATIONS; AND RS. 21,76,799 , REPRESENTING ADVANCE PAID FOR INCURRING EXPENSES FOR THE PURPOSE OF THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SE AMOUNTS PAID TO SHRI SUNIL REDDY WERE IN CASH AND AS SUCH THE PROVISIONS OF S.40(A) (3) ARE AT TRACTED, AND ACCORDINGLY DISALLOWED THE SAME. 4. ON APPEAL BEFORE THE CIT(A), IT W A S SUBMITTED THAT THE AMOUNTS PAID TO SU NI L RE D DY REPR E SENTED EITHER AD V ANCES PAID F OR TH E CURRENCY OF SMALLER DENOMINATION S PAID TO HIM FOR C ONVERSION INTO CURRENCY OF HIGHER DENOMINATION S . IN SUPPORT OF THI S C O N T ENTION, A CONSOL I DATED ACCOUNT O F SUNIL REDDY AND SEPARATE ACCOUNT FOR THE AMOUNTS P A I D FOR THE PU R POSE O F CONVERSION OF TH E CURRENCY OF SMALL DENOMINATIONS AND ADVANCES AGAINST EXPENSES WERE SUBMIT TED. WITH REGARD TO CURRENCY OF SMALLER DENOMINATIONS GIVEN TO HIM FOR C ONVERSION INTO HIGHER DENOMINATIONS, IT WAS SUBMITTED BEFORE THE CIT(A) THAT MOST O F THE AMOUNTS COLL E CTED BY IT FROM TH E CUSTOM E RS WOULD B E IN THE SMALLER DENOMI N ATIONS. WHEN SUCH CURRENCY OF DENOMINATIONS ARE PRESENTED TO THE BANK FOR DEPOSIT, THEY ARE NOT INCLINED TO ACCEPT SUCH SMALLER DENOMINATIONS, DUE TO HUGE QUANTITY AND TIME - CON S UMING PROCESS. THEREFORE, CURRENCY WITH SMALLER DENOMINATIONS IS COLL E CTED BY SHRI SUNIL REDDY FO R CONVERTING AND RETURNING THE SAME IN CURRENCY OF HIGHER DENOMINATIONS. THIS AMOUNT P A ID TO SUNIL REDDY, ACCORDING TO THE ASSESSEE, DID NO T REPRESENT THE EXPENDITURE, AND THE SAME SHOULD NO T HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER FOR DISALLOWANCE UNDER S.40A(3) OF THE ACT . AS FOR THE BALANCE AMOUNT PAID TO SUNIL REDDY, IT WAS SUBMITTED THAT THE SAME REPR E SEN T ED AD V ANCE FOR EXPENSES, WHICH HE MUST HAVE SPENT EITHER FOR INCURRING EXPENDITURE ON BEHALF OF THE ASSESSEE COMPANY. HE EITHER INCURRED TH E EXPENDITURE ON HIS OWN OR INCURRED SUCH EXPENDITURE THROUGH OTHERS. BALANCE OF UNSPENT AMOUNTS HAVE BEEN DEPOSITED WITH THE BANK. FURNISHING A CCOUN T COPY O F SUCH AMOUNTS , IT WAS SUBMITTED THE EXPENDITURE I TA NO. 969 / HYD/201 3 M/S. DODLA DAIRY LTD., H YDERABAD. 3 INCURRED BY HIM WAS CREDITED TO HIS ACCOUNT AND THE AMOUNT RECEIVED WAS DEBITED. OUT OF THE AMOUNTS PAID BY THE COMPANY TO W ARDS ADVANCES, VARIOUS AMOUNTS AGGREGATING TO R S .11,90,000 WERE RETURNED BY HIM ON VARIOUS DATES THROUGH CEHQUES. HENCE, IT WAS PLEADED THAT THE AMOUNT OF R S .11,90,000 CANNOT BE CO NSIDERED AS HIT BY THE PROVISION S O F S.40A(3) OF THE ACT. EVEN WITH R EGARD TO THE OTHER AMOUNTS, IT WAS SUBMI T TED THAT THE AMOUNTS SPENT WERE SMALLER SUMS. IT WAS FURTHER SUBMI T TED THAT THE ACTIVITY OF THE ASSESSEE COMPANY IS SCATTERED T O VARIOUS PL AC ES ACROSS THE STATE OF ANDHRA PRADESH AND EVEN OUTSIDE THE STA TE. WHEN THE MANAGING D IRECTOR PROCE E DS ON TOUR TO VARIOUS PLACES OF ITS BUSINESS ACTIVITY, IN CONNECTION WITH THE BUSINESS OF TH E ASSESSEE , A CERTAIN AMOUNT I S CARRIED IN CASH, AS IT WOULD B E CO NVE N I E NT TO MEET THE EXPENDITURE OR DISBURSE THE AMOUNT TO THE LOCAL IN CHARGE FOR INCURRING TH E EXPENDITURE. THIS IS ALSO NECESSITATED AS AT SOME O F THE PLACES, BANKING FACILITIES WERE NO T AVAILABLE FOR THE ASSESSEE. IT IS , THEREFORE , SUBMITTED THAT T HE EXPENDITURE WAS INCURRED BY THE MD ON BEHALF O F THE ASSESSEE COMPANY, AND THE UNSPENT AMOUNT NOT REQUIRED AT THE UNI T WOULD BE RETURNED TO THE COMPANY BY HIM, AND SOMETIMES, HE PASSES ON SUCH UNSPENT AMOUNT OF ADVANCE TO P E RSONS IN CHARGE OF THE RESPE CTIVE PL A CES, WHO WOULD ULTIMATELY RETURN THE AMO U NT , AFTER INCURRING THE EXPENSES OF THE UNIT IF ANY, TILL THE TIME OF SUCH RETURN . THE AMOUNTS SO RETURNED, ARE MENTION E D AS RETURNED IN CASH. AS S UCH , LARGE AMOUNTS OF ADVANCES GIVEN BY THE ASSESSEE, THEMSELVES, DO NOT REPRESENT THE EXPENDITURE INCURRED BY THE ASSESSEE , BUT THEY REPRESENT ONLY THE AGGREGATE OF EXPENSES INCURRED BY THEM AND THE BALANCES RETURNED BY THEM. THE BALANCE AMOUNTS IN THE PROCESS WERE ALL IN CURRED BY VARIOUS PERSONS IN CHARGE OF THE UNITS, TO WHOM IT WAS PASSED ON BY SUNIL REDDY, AND ARE DEBITED TO THE RESPECTIVE ACCOUNTS. THUS, THE P R OVI SI ON S OF S.40A(3) ARE TO B E CONSIDERED AT THE TIM E OF INCURRING THE EXPENDITURE. IN SO FAR AS PAYMENTS ARE CONCERNED, THEY ARE LESS THAN 20,000 AND THEREFORE, P R OVI SI ON S OF S.40 A (3) WERE NOT APPLI E D TO ANY O F THE EXPENDITURE INCURRED BY THE ASSESSEE AND CONSEQUENTLY THE ASSESSING OFFICER WAS NO T JU S TIFIED IN APPLYING THE P R O V I SI ON S O F S.40A(3) OF THE ACT, TO THE AMOUNTS PAID TO SUNIL REDDY. I TA NO. 969 / HYD/201 3 M/S. DODLA DAIRY LTD., H YDERABAD. 4 5. THE CIT(A), CONVINCED WITH THE ARGUMENTS OF THE ASSESSEE DELETED THE ADDITION OF RS. 79 , 67 , 910 MADE BY THE ASSESSING OFFICER IN TERMS OF S.40 A(3) OF THE ACT, INSOFAR AS BOTH THE TYPES OF PAYMENTS MADE TO SUNIL REDDY , VIZ. AMOUNTS PAID FOR CONVERSION OF CURRENCY IN SMALLER DENOMINATIONS INTO CURRENCY OF HIGHER DENOMINATIONS AND ADVANCES GIVEN FOR INCURRING VARIOUS EXPENSES EITHER BY HIMSELF OR THROUGH OTHERS IN CHARGE OF UNITS, ETC. , ARE CONCERNED. 6. A GGRIEVED BY THE O R DER OF THE CIT(A) IN RELATION TO THE ABOVE ISSUE OF DISALLOWANCE UNDER S.40A(3) IN RESPECT OF PAYM E N T S MADE TO SUN I L REDDY, REVENUE IS IN APPEAL BEFORE US. 7. WE HE A RD BOTH SIDES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHE R MATERIAL AVAILABLE ON RECORD. THE ISSUE TO BE CONSIDERED IS WHETH ER THE PROVI S ION S O F S .40A(3) ARE ATTRACTED IN R E SPECT OF PAYMENT OF RS.78,6 7 , 910 MADE BY THE ASSESSEE TO ITS MANAGING DI R ECTOR, SUNIL REDDY, WHICH COMPRISES OF RS.57,91,111 BEING THE AMOU NT PAID TO HIM FOR C ON V ERSION FROM CURRENCY OF SMALL DENO M INATION INTO CURRENCY OF HIGHER DENOMINATION S , AND THE BALANCE AMOUNT REPRESENTING THE ADVANCE GIVEN TO HIM FOR INCURRING EXPENDITURE ON BEHALF OF THE COMPANY. AS FOR THE FIRST COMPONENT OF CONVERS ION OF THE MONIES GIVEN TO HIM IN SMALLER DENOMINATION INTO MONIES OF HIGHER DENOMINATION, IT CANNOT BE DISPUTED THAT THERE IS NO ELEMENT OF EXPENDITURE INVOLVED AND THERE IS NO OUTGO OF FUNDS O F THE ASSESSEE, INASMUCH AS WHATEVER AMOUNT IS PAID TO THE MD, SUNIL REDDY , IS RETURNED BY HIM, WITH THE ONLY DIFFERENCE BEING IN THE SIZE OF DE N O M I N ATION OF THE CURRENCY GIVEN AND RETURNED. THE PAYMENT MADE WAS FOR A DEFINITE PURPOSE, VIZ. RETURN AFTER DUE CONVERSION INTO CURRENCY OF HIGHER DENOMINATION, SO AS TO FACILITATE DEPOSITING OF THE S AME INTO BANK ACCOUNT. THAT BEIN G SO, THE P R OVI SI ON S OF S .40A(3) ARE NOT ATTRACTED TO THIS AMOUNT OF RS.57,91,111. 8. AS FOR THE SECOND COMPONENT OF BALANCE AMOUNT OF RS. 20,70140 IS CONCERNED, IT IS , AGAIN, IN THE FORM OF AN ADVANCE TO FACILITATE THE EXPENDITURE TO BE INCURRED ON BEHALF OF THE ASSESSEE COMPANY EITHER BY SUNIL REDDY HIMSELF I TA NO. 969 / HYD/201 3 M/S. DODLA DAIRY LTD., H YDERABAD. 5 OR THROUGH OTHERS. AT THE POINT OF MAKING THE ADVANCE, ADVANCE ACCOUNT IS DEBITED AND CASH ACCOUNT IS CREDITED, AND WHENEVER E XPENDITURE IS INCURRED, ADVANCE ACCOUNT IS CREDITED BY SUCH AMOUNT OF EXPENDITURE. THAT BEING SO, AT THE POINT OF TIME, WHEN AN ADVANCE IS GIVEN FOR INCURRING THE EXPENDITURE, THERE IS NO OUT GO OF FUNDS OF THE COMPANY, AND THE ACTUAL OUTGO TAKES PLACE O NLY WHEN EXPENDITURE IS ACTUALLY INCURRED BY SUNIL REDDY OR SUCH OTHER PERSON TO WHOM HE PASSES ON SUCH SUMS FOR INCURRING EXPENDITURE ON BEHALF OF THE ASSESSEE. CONSIDERING THE NATURE OF THE ADVANCE AND THE PU R POSE F OR W H IC H IT IS GIVEN, AND THE ACCOUNT ING TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT, WE FIND THAT THE P R OVI S ION S OF S.40A(3) ARE NOT APPLICABLE EVEN TO THE AMOUNTS OF ADVANCE GIVEN BY THE ASSESSEE TO SUNIL REDDY OR BY SUNIL REDDY TO OTHER EMPLOYEES FOR INCURRING EXPENDITURE ON BE HALF OF THE ASSESSEE COMPANY . 9. FURTHER, A COMPANY BEING AN ARTIFICIAL PERSON, IT CANNOT INCUR EXPENDITURE OR DO ANYTHING ON ITS OWN, AND ANY EXPENDITURE HAS TO BE INCURRED OR ANY ACT OR TRANSACTION HAS TO BE DONE ONLY THROUGH ITS DIRECTORS OR EMPLO YEES . IN THE INSTANT CASE, THE PROCESS PRIOR TO ACTUAL INCURRING OF EXPENDITURE OR DOING ANY ACT THROUGH THE MANAGING DIRECTOR OR OTHER EMPLOYEES IS ALSO RECORDED IN THE FORM OF ADVANCES GIVEN, ETC. UNLESS AND UNTIL THE AMOUNT OF SUCH ADVANCE IS IN FACT SPENT TOWARDS ANY EXPENDITURE INCURRED ON BEHALF OF THE ASSESSEE COMPANY, THE MONEY EFFECTIVELY DO NOT GO OUT OF THE COFFERS OF THE ASSESSEE COMPANY, AND IT IS ONLY THE OUTGO OF FUNDS IN THE FORM OF EXPENDITURE EXCEEDING RS.20,000 IN CASH AT A TIME, OUT O F THE COFFERS OF THE COMPANY, THAT ATTRACTS THE PROVISIONS OF S.40A(3) OF THE ACT. IT IS NOT DISPUTED THAT THE AMOUNT IN QUESTION HAS NOT BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT. THAT BEING SO, WE ARE OF THE VIEW THAT THE CIT(A) IS JUSTIFIED IN DELET ING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN TERMS OF S.40A(3) OF THE ACT. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A), AND REJECT THE GROUNDS OF THE REVENUE IN THIS APPEAL. 10 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. I TA NO. 969 / HYD/201 3 M/S. DODLA DAIRY LTD., H YDERABAD. 6 ORDER PRONOUNCED IN THE COURT ON 10.1.2014 SD/ - SD/ - (B.RAMAKOTAIAH ) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 10 TH JANUARY, 2014 COPY FORWARDED TO: 1. M/S. DODLA DAIRY LTD, 8 - 2 - 696, WINDSOR PLAZA APARTMENTS, ROAD NO.12, BANJARA HILLS, HYDERABAD 2 . ASST . COMMISSIONER OF INCOME - TAX, CIRCLE 1(2) , HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V, HYDERABAD 4. COMMISSIONER OF INCOME - TAX IV HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S