Chit Chat Holdings Limited, CHENNAI V. ACIT, CHENNAI

ITA 988/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81241 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 11-09-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 15-05-2013
• Court: TRIBUNAL
• Department Lawyers: C V PAVANA KUMAR
• Assessee Lawyers: G BASKAR
• Keywords: Revenue expenditure
• Section: 40A(3); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHE NNAI . . . , !' , # $! % BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 988/MDS/2013 / ASSESSMENT YEAR : 2002-03 CHIT CHAT HOLDINGS LIMITED, NO.557, ANNA SALAI, TEYNAMPET, CHENNAI-18 [PAN: AAACC 3974 C] ( '& /APPELLANT) VS THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(3), CHENNAI ( '('& /RESPONDENT) / APPELLANT BY : SHRI G.BASKAR, ADVOCATE / RESPONDENT BY : SHRI C.V.PAVANA KUMAR, JCIT / DATE OF HEARING : 11-09-2014 ! / DATE OF PRONOUNCEMENT : 10-11-2014 $) / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IX, CHE NNAI, DATED 28-02-2013 FOR THE ASSESSMENT YEAR (AY) 2002-03. I N APPEAL, THE ASSESSEE HAS IMPUGNED THE FINDINGS OF CIT(APPEALS) IN CONFIRMING DIS-ALLOWANCE OF ` 20,53,000/- AND DIS-ALLOWANCE OF ` 9,90,000/- I.T.A. NO. 988/MDS/2013 2 U/S.40A(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTE R REFERRED TO AS THE ACT). 2. THE FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THIS IS SECOND ROUND OF LITIGATION BEFORE THE TRIB UNAL. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT I N REAL ESTATE. DURING THE AY.2002-03, THE ASSESSEE SOLD A PROPERTY MEASURING 9,000 SQ.FT., SITUATED AT NUNGAMBAKKAM FOR ` 1,03,00,000/-. ON THE AFORESAID SALE, THE ASSESSEE ALLEGEDLY SUFFERED LOSS OF ` 13,53,711/-. THE PROPERTY WAS PURCHASED BY THE ASS ESSEE FOR ` 30.00 LAKHS VIDE AGREEMENT DT.21-03-1996. AT THE T IME OF PURCHASE OF PROPERTY, THERE WERE SETTLEMENTS OF ILL EGAL OCCUPANTS ON THE LAND. THE ASSESSEE CLAIMED THAT DURING THE PREVIOUS YEARS RELEVANT TO AYS.1997-98, 1998-99 AND 2001-02, THE A SSESSEE MADE PAYMENTS TO THE TUNE OF ` 81,20,500/- IN CASH TO ILLEGAL OCCUPANTS FOR VACATING THE PROPERTY. IN TOTAL, THE RE WERE THIRTY SEVEN ILLEGAL OCCUPANTS. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCED DOC UMENTARY EVIDENCE IN SUPPORT OF THE PAYMENTS MADE TO THE ILL EGAL OCCUPANTS OF THE PROPERTY. THE ASSESSEE FURNISHED THIRTY SEV EN RECEIPTS ON ACCOUNT OF CASH PAYMENTS. THE PAYMENTS VARIED FROM ` 15,000/- TO ` 5.5 LAKHS. FURTHER, THE ASSESSEE COULD PRODUCE PRO OF OF I.T.A. NO. 988/MDS/2013 3 RESIDENCE IN RESPECT OF TWENTY SEVEN OCCUPANTS OUT OF THIRTY SEVEN. THE ASSESSEE HAD PAID ` 70,03,000/- TO THESE TWENTY SEVEN PERSONS. FOR THE REMAINING TEN PERSONS, THE ASSESS EE COULD NOT PRODUCE ANY EVIDENCE AT ALL. THE ASSESSING OFFICER IN ORIGINAL ASSESSMENT ORDER DT.31-12-2008 OUTRIGHTLY REJECTED THE CLAIM OF ` 11,15,000/- IN RESPECT OF PAYMENTS MADE TO TEN OCCU PANTS FOR WHICH NO EVIDENCE WAS PRODUCED. FOR THE REMAINING AMOUNT OF ` 70,03,000/-, 20% AMOUNT WAS DIS-ALLOWED UNDER THE P ROVISIONS OF SECTION 40A(3). THE ASSESSING OFFICER FURTHER HELD THAT THE ASSESSEE HAS FAILED TO PROVE GENUINENESS OF THE CLA IM. AGGRIEVED BY ASSESSMENT ORDER, THE ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(APPEALS). THE FIRST APPELLAT E AUTHORITY AFFORDED OPPORTUNITY TO THE ASSESSEE TO PROVE GENUI NENESS OF THE PAYMENTS MADE. AS A TEST CASE, THE ASSESSEE PRODUC ED THIRTEEN PERSONS WHO HAD ILLEGALLY OCCUPIED THE PROPERTY. A LL THE THIRTEEN PERSONS PRODUCED SUPPORTED THE CASE OF ASSESSEE. T HE CIT(APPEALS) VIDE ORDER DT.12-08-2005, ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION OF ` 14,06,000/- U/S.40A(3) AS WELL AS ADDITION OF ` 11,15,000/- MADE ON ACCOUNT OF SUSPICION OVER GENUINENESS OF THE PAYMENTS MADE. AGAINST THE ORDER OF CIT(APPEALS), THE REVENUE CARR IED APPEAL TO THE TRIBUNAL. THE CO-ORDINATE BENCH OF T HE TRIBUNAL IN I.T.A. NO. 988/MDS/2013 4 ITA NO.2615/MDS/2005 DECIDED ON 30-03-2007 CONFIRME D THE DIS- ALLOWANCE OF ` 11,15,000/- PERTAINING TO PAYMENTS MADE TO TEN PERSONS FOR WHOM NO PROOF WAS FURNISHED BY THE ASSE SSEE. AS REGARDS ADDITION U/S.40A(3), THE CO-ORDINATE BENCH REMITTED THE FILE BACK TO ASSESSING OFFICER WITH A DIRECTION TO FIRST DETERMINE THE APPLICABILITY OF SECTION 40A(3) AND THE GENUINENESS OF PAYMENTS SO MADE. 3. IN SECOND ROUND BEFORE THE ASSESSING OFFICER, TH E ASSESSEE COULD PRODUCE TWENTY PERSONS TO WHOM AGGREGATE PAYM ENT OF ` 49,50,000/- WAS MADE. THE ASSESSING OFFICER MADE D IS- ALLOWANCE OF ` 9,90,000/- ON SUCH PAYMENTS FOR VIOLATION OF PROVISIONS OF SECTION 40A(3). SO FAR AS PAYMENTS M ADE TO THE REMAINING SEVEN PERSONS AGGREGATING ` 20,53,000/-, THE ASSESSING OFFICER HELD THAT THE ASSESSEE COULD NOT SUBSTANTIA TE ITS CLAIM AND DIS-ALLOWED THE SAME. AGGRIEVED BY ASSESSMENT ORDER DT.31-12-2008, THE A SSESSEE FILED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(A PPEALS) VIDE IMPUGNED ORDER UPHELD THE FINDINGS OF ASSESSING OFF ICER AND DISMISSED THE APPEAL OF ASSESSEE. NOW THE ASSESSEE HAS COME IN SECOND APPEAL IMPUGNING THE FINDINGS OF CIT(APPE ALS). I.T.A. NO. 988/MDS/2013 5 4. SHRI G.BASKAR, ADVOCATE APPEARING ON BEHALF OF A SSESSEE, SUBMITTED THAT THE LAND PURCHASED BY THE ASSESSEE W AS ILLEGALLY OCCUPIED BY SLUM DWELLERS. CASH PAYMENTS WERE MADE TO THE ILLEGAL OCCUPANTS AS COMPENSATION FOR VACATING THE LAND. THE PAYMENTS WERE MADE TO THIRTY SEVEN PERSONS DURING T HE PERIOD RELEVANT TO AY BETWEEN 1997-98 TO 2001-02. THE ASS ESSEE HAD PRODUCED RECEIPTS FROM ALL THE THIRTY SEVEN OCCUPAN TS BEFORE THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMEN T. IT WAS NOT POSSIBLE TO ISSUE CHEQUES OR DEMAND DRAFTS TO THE I LLEGAL OCCUPANTS, AS IN THE FIRST INSTANCE, THEY DO NOT US UALLY HAVE BANK ACCOUNTS. SECONDLY, THE POSSESSION OF THE LAND WAS IMMEDIATELY TAKEN AFTER CASH PAYMENT OF COMPENSATION. IF CHEQU ES/DEMAND DRAFTS WOULD HAVE BEEN ISSUED, THE ILLEGAL OCCUPANT S WOULD HAVE WAITED FOR MINIMUM TWO DAYS FOR ENCASHMENT OF THE I NSTRUMENT AND IT WAS QUITE POSSIBLE THAT THEY WOULD NOT HAVE VACATED THE PREMISES EVEN AFTER ENCASHING OF THE CHEQUE OR DEMA ND DRAFTS. IT WAS, THEREFORE, NECESSARY FOR THE ASSESSEE TO PAY I N CASH AND REMOVING THEIR BELONGINGS FROM THE ILLEGAL HUTMENTS ON THE LAND. THE LD.COUNSEL SUBMITTED THAT SINCE THERE WAS TIME GAP OF MORE THAN EIGHT YEARS BETWEEN THE REMOVAL OF ILLEGAL OCC UPANTS FROM THE LAND AND THE SECOND ROUND OF PROCEEDINGS BEFORE THE ASSESSING OFFICER, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO TR ACE ALL SUCH I.T.A. NO. 988/MDS/2013 6 PERSONS TO WHOM THE PAYMENTS WERE MADE. HOWEVER, T HE ASSESSEE WAS ABLE TO PRODUCE SUBSTANTIAL NUMBER OF PERSONS TO SHOW THE GENUINENESS OF PAYMENTS MADE. THE ASSESSIN G OFFICER ACCEPTED THE GENUINENESS OF THE PAYMENTS MADE TO PE RSONS PRODUCED BEFORE HIM BUT INVOKED THE PROVISIONS OF S ECTION 40A(3) FOR CASH PAYMENTS MADE TO THEM. THE CASH PAYMENTS MADE BY THE ASSESSEE WERE OUT OF BUSINESS EXPEDIENCY. 5. ON THE OTHER HAND, SHRI C.V.PAVANA KUMAR, REPRES ENTING THE DEPARTMENT STRONGLY DEFENDED THE ORDER OF CIT(APPEA LS). THE LD.DR SUBMITTED THAT SUM OF ` 11,15,000/- WAS DIS-ALLOWED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE FIRST ROUN D OF LITIGATION. AGAINST THAT ORDER, THE ASSESSEE HAD NOT FILED ANY APPEAL. THEREFORE, THAT DIS-ALLOWANCE HAS ATTAINED FINALITY . AS REGARDS THE REMAINING AMOUNTS, IT IS A UN-DISPUTED FACT THAT TH E ASSESSEE HAS MADE CASH PAYMENTS AND THESE PAYMENTS HAVE BEEN CLA IMED BY THE ASSESSEE AS REVENUE EXPENDITURE IN THE AY UNDER CONSIDERATION. SINCE THE PAYMENTS HAVE BEEN MADE I N VIOLATION OF PROVISIONS OF SECTION 40A(3), THE AUTHORITIES BELOW HAVE RIGHTLY MADE DIS-ALLOWANCE OF ` 9,90,000/-. AS FAR AS PAYMENT OF ` 20,53,000/- IS CONCERNED, THE ASSESSEE WAS NOT ABLE TO PRODUCE PERSONS TO WHOM THESE PAYMENTS WERE MADE. THEREFOR E, THE FIRST I.T.A. NO. 988/MDS/2013 7 APPELLATE AUTHORITY HAS RIGHTLY CONFIRMED DIS-ALLOW ANCE MADE BY THE ASSESSING OFFICER. THE LD.DR PRAYED FOR DISMIS SING THE APPEAL OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS ADMITTED FACT THAT THE ASSESSEE HAS MADE CASH PAYMENTS TO THE SLUM DWELLERS WHO WERE IN ILLEGAL AND UN-AUTHORIZED POSSESSION OF THE LAND PURCHASED BY T HE ASSESSEE. THE ASSESSEE HAS ALLEGEDLY MADE PAYMENT OF ` 81,20,500/- TO THIRTY SEVEN SUCH ILLEGAL OCCUPANTS. OUT OF THESE THIRTY SEVEN PERSONS, PAYMENT MADE TO TEN PERSONS TOTAL AMOUNTIN G TO ` 11,15,000/- WAS NOT PROVED DURING THE FIRST ROUND O F LITIGATION, THEREFORE, THE SAID AMOUNT WAS DIS-ALLOWED BY THE C O-ORDINATE BENCH OF THE TRIBUNAL IN THE APPEAL OF REVENUE I.E. , ITA NO.2615/MDS/2005 DECIDED ON 30-03-2007. FOR THE RE MAINING AMOUNT, THE MATTER WAS REMITTED BACK TO THE ASSESSI NG OFFICER FOR FRESH ADJUDICATION. IN THE SECOND ROUND OF LITIGAT ION, THE ASSESSEE COULD PRODUCE TWENTY PERSONS TO WHOM AGGREGATE PAYM ENT OF ` 49,50,000/- IN CASH WERE MADE. THE ASSESSING OFFIC ER ACCORDINGLY MADE DIS-ALLOWANCE OF ` 20,53,000/- I.E., THE AMOUNT PAID TO THE REMAINING SEVEN PERSONS. I.T.A. NO. 988/MDS/2013 8 7. IT IS AN ADMITTED POSITION THAT THE ASSESSEE HAD MADE CASH PAYMENTS AS COMPENSATION TO THE SLUM DWELLERS FOR V ACATING THE PREMISES. IT IS ALSO AN UN-DISPUTED FACT THAT THE PAYMENTS WERE MADE DURING THE PERIOD RELEVANT TO THE AY BETWEEN 1 998-99 TO 2001-02. DURING THE SECOND INNINGS BEFORE THE ASSE SSING OFFICER IN THE YEAR 2007-08, THE ASSESSEE WAS ASKED TO PROD UCE SLUM DWELLERS TO WHOM SUCH PAYMENTS WERE MADE. THE ASSE SSEE WAS ABLE TO PRODUCE TWENTY PERSONS AND ALL THESE PERSON S ADMITTED THAT THEY HAVE RECEIVED THE PAYMENTS AS INDICATED A GAINST THEIR NAMES. THIS ITSELF SHOWS THE GENUINENESS OF THE CL AIM MADE BY THE ASSESSEE. IT IS A WELL KNOWN FACT THAT THE SLU M DWELLERS DO NOT HAVE ANY PERMANENT PLACE OF SETTLEMENT. IT WAS COM MENDABLE EFFORT ON THE PART OF THE ASSESSEE TO PRODUCE SUBST ANTIAL NUMBER OF SLUM DWELLERS TO WHOM CASH PAYMENTS WERE MADE ALMOS T TEN YEARS BACK. THE REVENUE HAS NOT QUESTIONED THE IDE NTITY OF THE PERSONS PRODUCED BY THE ASSESSEE. AS FAR AS APPLIC ABILITY OF PROVISIONS OF SECTION 40A(3) IS CONCERNED, THE ASSE SSEE HAS BEEN ABLE TO SHOW THAT THE CASH PAYMENTS TO UN-AUTHORISE D OCCUPANTS OF THE LAND WERE MADE OUT OF NECESSITY. THE SUBMISS IONS OF THE LD.COUNSEL FOR THE ASSESSEE THAT IT WAS NOT POSSIBL E TO MAKE CHEQUE OR DEMAND DRAFT PAYMENTS TO THE UN-AUTHORISE D OCCUPANTS HAS MERIT. THE ASSESSEE HAS BEEN ABLE TO SHOW THAT CASH I.T.A. NO. 988/MDS/2013 9 PAYMENTS WERE MADE AS CONSIDERATION OF BUSINESS EXP EDIENCY. THE CASH PAYMENTS WERE MADE TO THE SLUM DWELLERS AT THE TIME OF VACATING THE PREMISES AND IMMEDIATELY THEREAFTER TH EIR UN-AUTHORISED HUTMENTS WERE DEMOLISHED. IN VIEW OF PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE SATISFIED THA T THE CASH PAYMENT MADE BY THE ASSESSEE ARE NOT HIT BY THE PRO VISIONS OF SECTION 40A(3). ACCORDINGLY, THE DIS-ALLOWANCE OF ` 9,90,000/- U/S.40A(3) AND DIS-ALLOWANCE OF ` 20,53,000/- ON ACCOUNT OF UN-SUBSTANTIATED PAYMENTS IS DELETED. THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 10 TH NOVEMBER , 2014 AT CHENNAI. SD/- SD/- ( . . . ) ( !' ) (DR. O.K. NARAYANAN) (VIKAS AWAS THY) '#$ / VICE PRESIDENT % &' / JUDICIAL MEMBER (% /CHENNAI, )& /DATED: 10 TH NOVEMBER, 2014 TNMM &* +,-, /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ./0 /CIT(A) 4. . /CIT 5. ,12 3 /DR 6. 245 /GF