M/S KHANDELWAL STEEL & PIPES,BHUBANESWAR vs. ACIT, CUTTACK

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM आयकर अपीऱ सं./ITA No.138/CTK/2019 (नििाारण वषा / Assessment Year :2012-2013) M/s Khandelwal Steel & Pipes, Vs. DCIT, Circle-4(1), 614, Bomikhal, Cuttack Puri Rd Bhubaneswar Bhubanewswar-751010 स्थायी लेखा सं./PANNo. : AAGFK 7718 R (अऩीलाथी /Appellant) (प्रत्यथी / Respondent) .. ननधाारिती की ओर से /Assessee by : Shri Shadiram Sharma, Advocate िाजस्व की ओर से /Revenue by : Shri J.K.Lenka, DR

सुनवाई की तािीख / Date of Hearing : 23/12/2019 घोषणा की तािीख/Date of Pronouncement : 20/01/2020 आदेश / O R D E R Per L.P.Sahu, AM: This appeal filed by the assessee against the order of CIT(A)-2, Bhubaneswar, dated 20.03.2019 for assessment year 2012-2013 on the following grounds :- 1. For that the learned Commissioner of Income Tax (Appeals), in short CIT (Appeals), is wholly unjustified and wrong in not considering the genuine contentions, the details and documents furnished by the appellant before him in view of the order/ direction of this Hon'ble Tribunal vide ITA No. 232/CTK/2017 dated 30/31-01-2018 which is against the norms of the Tribunal order and principles of natural justice in the facts and circumstances of the case. 2. For that the learned CIT (Appeals) is unjustified and wrong in sustaining the addition of Rs. 4,78,213/- made by the learned Assessing Officer (in short A.O.) u/s. 40(a) (ia) of the Income Tax Act, in as much as, the appellant has furnished an affidavit before the Learned. CIT(A) stating the reason, for non-submission or late submission of declaration Form 15-G/15-H, that it was a technical mistake and never a wilful default and, moreover, the appellant has already furnished the declarations before the Id. Principal CIT during the proceeding initiated u/s 263 of the I.T. Act wherein the

2 ITA No.138/CTK/2019 genuineness, creditworthiness of the loan creditors has been established and the interest paid to them have been fully allowed in the facts and circumstances of the case, hence the addition of Rs.4,78,213/-, being the interest paid to the loan creditors, needs to be deleted. 3. For that the Learned CIT(A) is further unjustified and wrong in confirming the addition of Rs. 9,33,855/-, made u/s. 40A (3) of the I.T. Act by the Learned AO, on the alleged ground that the payments made in cash in the Coolies and Cartage account is in excess of Rs.20,000/- and the payments made to the transporters in a day is above Rs. 35,000/- when the Banks were open on those days, which is completely illegal and arbitrary and without any material on record for sustaining the addition, in as much as, the appellant has filed documents of the transport carriers claiming the payment in cash and such payments are allowable in view of clause - i and k of Rule - 6 DP of the l.T. Rules, 1962, as such the same should have been considered by the Ld. CIT (A) in a proper perspective in the facts and circumstances of the case as the Transport carriers unload the goods in the early morning or in the evening after the traffic hours, hence no ulterior motive should be drawn. 4. For that the Learned CIT (A) should have deleted the entire addition of Rs. 3,96,365/-, which is the expenses made under the head Coolie and Cartage out ward / inward, instead of 10% being Rs. 1,87,253/-, in as much as, the expenses are genuine in nature and the vouchers duly signed by the daily labourers like Coollies and Trawlywallas by affixing the Revenue Stamp and, moreover, the Ld. AO has not rejected the books of accounts in view of section 145/145A of the IT Act, as such the expenses claimed needs to be allowed in full in the facts and circumstances of the case. 5. For that the Learned A.O., as well as the Ld. CIT (A), should have allowed the payments made under clause- j and k of Rule 6-DD of the l.T. Rules and also the genuine expenses claimed under the head Coolie and Cartage inward / outward since the books of accounts are audited under section 44-AB of the IT. Act and the same are not rejected in the facts and circumstances of the case. For that other grounds, if any, shall be urged at the time of hearing of the appeal.

from wholesale trading in steel tubes & pipes and iron and steel

materials and filed its return of income for A.Y.2012-2013

electronically on 30.09.2012 showing total income of Rs.27,20,290/-,

which was processed u/s.143(1) of Act. Thereafter case of the assessee

3 ITA No.138/CTK/2019 was selected for scrutiny under CASS and statutory notices u/s.143(2)

& 142(1) of the Act were issued to the assessee. Accordingly, the AO

completed the assessment u/s.143(3) of the Act making addition

u/s.40(a)(ia) of the Act, addition on account of gross profit,

disallowance u/s.40A(3) of the Act, disallowance of service tax and

interest on VAT, disallowance out of coolie and cartage outward

expenses and coolie and cartage outward expenses.

preferred appeal before the CIT(A) and the CIT(A) partially deleted the

addition made on account of coolie and cartage expenses and

confirmed the rest of additions made by the AO.

is in appeal before the Income Tax Appellate Tribunal.

dismiss the ground No.1 as not pressed. Ground No.6 is general in

nature, which requires no adjudication.

made u/s.40(a)(ia) by the AO is wholly unjustified and wrong on the

alleged ground that the no TDS has been deducted on interest paid to

the unsecured loan creditors where interest paid is above Rs.5,000/-,

in as much as, the fact is that the AO did not raise such point at the

assessment stage. It was also contended by ld. AR that the assessee has

4 ITA No.138/CTK/2019 furnished an affidavit before the CIT(A) stating the reason for non-

submission or late submission of declaration Form 15-G/15-H, that it

was a technical mistake and never a willful default and, moreover, the

assessee has already furnished the declarations before the Pr. CIT

during the proceeding initiated u/s 263 of the I.T. Act wherein the

genuineness, creditworthiness of the loan creditors has been

established and the interest paid to them have been fully allowed in the

facts and circumstances of the case, hence the addition of Rs.4,78,213/-

being the interest paid to the loan creditors deserves to be deleted.

and submitted that the assessee was required to furnish the details of

interest paid and copies of ledger account in respect of unsecured loan

creditors and as per the provisions of Section 194A of the Act, the

assessee is required to deduct TDS on account of payment of interest

exceeding Rs.5000/- in each case, however, the assessee has failed to

deduct TDS as per Section 194A of the Act, therefore, ld.DR prayed for

dismissal of the appeal.

perusing the entire material available on record, we find that during

the course of assessment proceedings, the AO found that the assessee

has debited Rs.15,04,541/- on account of interest on unsecured loan in

the profit and loss account and as the assessee has failed to deduct TDS

5 ITA No.138/CTK/2019 on payment of interest as per the provision of Section 194A of the Act,

the AO made addition u/s.40(a)(ia) of the Act. However, the assessee

before CIT(A) has furnished an affidavit stating the reason for non-

submission or late submission of declaration Form 15-G/15-H, that it

was a technical mistake and never a willful default and, moreover, the

assessee has already furnished the declarations before the Pr. CIT

during the proceeding initiated u/s 263 of the I.T. Act wherein the

genuineness, creditworthiness of the loan creditors has been

established and the interest paid to them have been fully allowed in the

facts and circumstances of the case. Therefore, no disallowance on

account of non-deduction of TDS can be made. However, the CIT(A)

disregarded the contention of the assessee on the ground that the

assessee was liable to deduct the TDS u/s 194A r.w.s. 40(a)(ia) of the

Act. Further the CIT(A) relying its order dated 16.02.2017 has upheld

the action of AO and dismiss the ground raised by the assessee. As per

ld. AR the assessee has already furnished the declarations before the

Pr. CIT during the proceeding initiated u/s 263 of the I.T. Act wherein

the genuineness, creditworthiness of the loan creditors has been

established and the interest paid to them have been fully allowed in the

facts and circumstances of the case. As per the amendment brought to

the Finance Act, 2014 in Section 40(a)(ia) of the Act w.e.f. 01.04.2015, if

100% disallowance made u/s.40(a)(ia) of the Act, that would be

6 ITA No.138/CTK/2019 restricted to 30% only and the proviso inserted in the Act to be a

curative one having retrospective effect and the assessee is entitled the

benefit of 30% disallowance as against 100% disallowance made by

the AO. This issue has already been decided by this Bench of the

Tribunal in case of Om Sri Nilamadhab Builders Pvt. Ltd, in ITA

No.296/CTK/2018, order dated 26.11.2019, wherein the Tribunal has

held that if a statute is curative of the previous law, retrospective

operation is generally intended. The relevant observations of the

Tribunal are as under :-

“8. From the above observations of the different benches of the Tribunal, we find that the 100% disallowance made u/s.40(a)(ia) of the Act has been directed to be restricted to the extent of 30% only giving retrospective effect. Ld. DR before us submitted that there is no mention in the amendment that the same shall be applied retrospectively, however, in our considered opinion, if a statute is curative of the previous law, retrospective operation is generally intended. The Hon’ble Supreme Court in the case of CIT vs. Calcutta Export Company, [2018] 93 taxmann.com 51 (SC), while deciding the issue as to whether amendment made by Finance Act, 2010, to provisions of section 40(a)(ia) is curative in nature and it should be given retrospective operation from date of insertion of said provision i.e. with effect from assessment year 2005-06, has held as under :- “The purpose for bringing said amendment is to ensure tax compliance. The fact that the intention of the legislature was not to punish the assessee is further reflected from a bare reading of the provisions of section 40(a)(ia). It only results in shifting of the year in which the expenditure can be claimed as deduction. In a case where the tax deducted at source was duly deposited with the Government within the prescribed time, the said amount can be claimed as a deduction from the income in the previous year in which the TDS was deducted. However, when the amount deducted in the form of TDS was deposited with the Government after the expiry of period allowed for such deposit then the deductions can be claimed for such deposited TDS amount only in the previous year in which such payment was made to the government. [Para 16]” 9. On careful perusal of the amendment brought to the Section 40(a)(ia) of the Act by the Finance Act, 2014 w.e.f. 01.04.2015, it is clear that the intent of legislature to reduce the hardship, it is proposed that

7 ITA No.138/CTK/2019

in case of non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed. The Hon’ble Supreme Court in the case of Allied Motors (P) Ltd. [1997] 224 ITR 677 (SC) has held that amendment was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. Finally, after considering various case laws, the Hon’ble Supreme Court held that the purpose of amendment would not serve its object in such a situation unless, it is construed as retrospective after observing as under :- 10. Therefore, in the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 , this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 11. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand [1994] 209 ITR 7/ 73 Taxman 349 , the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with the assessment year 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. [1991] 191 ITR 676 , has taken a similar view holding that the statutory liability for sales-tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70/ 54 Taxman 521. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, Fourth edn., page 291, "It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is

8 ITA No.138/CTK/2019 generally intended". In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained. 10. Respectfully following the above decisions of the Tribunal as well as Hon’ble Supreme Court, we direct the AO to restrict the 100% disallowance confirmed by the CIT(A) to the extent of 30% only taking into account the actual claim of the assessee in its profit and loss account. We order accordingly. Thus, the sole ground of appeal of the assessee is partly allowed. 9. Respectfully following the observations of the Tribunal in the

above said case, we direct the AO to restrict the disallowance to 30%

made u/s.40(a)(ia) of the Act on account of non-deduction of TDS.

Accordingly, ground No.2 of appeal of the assessee is partly allowed.

that the AO is not justified in disallowing sum of Rs.9,33,858/-

u/s.40A(3) of the Act alleging that the payments under the head coolie

& cartage inward i.e. to transporters towards freight, loading &

unloading charges to coolie & trollywala and travelling expenses to

partner Vijay Khandelwal are made in cash above Rs.20000/- and

Rs.35,000/-in a day, in as much as, the AO has not examined as to in

which circumstances the alleged cash payment was made. It was also

contended by the ld. AR that the lorry drivers/truck drivers enter the

business premises after the traffic hours i.e. early morning or in the

night and soon after they unload the goods ask for cash payment as

they have to incur the cash expenses like fuel, fooding, khalasi,

repairing/maintenance of the vehicle, etc. as per the instructions of the

9 ITA No.138/CTK/2019 lorry owners as such the payment is made to them in cash before or

after the bank hours and, moreover, the drivers or such other persons

are the agents of the lorry owners/transporters who provide services

on behalf of such person. The ld. AR further submitted that sub-rule

(j)&(k) of Rule 6DD of I.T.Rules, 1962 facilitates the assessee for such

contingencies and payments, therefore, the same needs to be allowed.

It was also submitted by the ld. AR that payment Rs.25,335/- made

towards unloading and trollywalas, labourers as they are daily wages

labourers. Further a sum of Rs.84,000/- was incurred under the head

coolie & cartage outward, hence, the same are allowable because the

assessee has collected the freight charges in the sale bills of the

respective parties and has partly paid cash to meet the destination

expenses to the drivers. Accordingly, ld. AR submitted that the addition

made u/s.40A(3) deserves to be deleted.

perusing the entire material available on record, we find that the AO

made disallowance u/s.40A(3) of the Act as the assessee has incurred

the expenditure in cash above Rs.35,000/-, to which the CIT(A) has

confirmed the same. Before us, ld. AR drew our attention to the bills

and vouchers of the recipient filed in the paper book at pages 200 to

270 and submitted that the freight received by them from the assessee

10 ITA No.138/CTK/2019

might have been shown by the recipients as their income. And in the

scenario of disallowance of payments u/s. 40A(3) of this magnitude,

may result in double taxation, which was held many a courts, is not

permissible under the taxations laws of the land. Therefore, it was

submitted that it is established beyond doubt that the concerned

payments were made by the assessee to its agents/brokers. While

going through the disallowance made u/s.40A(3) of the Act by the AO

of Rs.9,35,855/-, the details of payment as under :-

Sl.No Date Amount Name of the party to whom the Day Paid payment is made 01 11.04.2014 36,689 National Goods Carriers Monday 02 22.03.2012 35,225 National Goods Carriers Thursday 03 26.03.2012 49,730 National Goods Carriers Monday 04 21.04.2011 53,436 Harminder Roadlines Thursday 05 13.05.2011 47,000 Gamesh Freight Carrier Friday 06 31.05.2011 52,100 Gamesh Freight Carrier Tuesday 07 23.07.2012 51,050 Gamesh Freight Carrier Saturday 08 23.11.2011 54,840 Gamesh Freight Carrier Wednesday 09 27.06.2011 55,000 Shruti Road Carriers Friday 10 17.08.2011 46,138 J R Cargo Movers Wednesday 11 02.09.2011 44,300 Truck Operators Union Friday 12 08.10.2011 65,020 Libra Aligarh Transport Co. Saturday 13 22.10.2011 52,020 Libra Aligarh Transport Co. Saturday 14 05.11.2011 65,020 Gobindgarh Kolkata Transport Saturday Company 15 31.12.2011 56,000 Akal Goods Carriers Saturday 16 24.12.2011 25,335 Unloading and trolly charges debited in the account coolie and cartage inward expenses 17 27.07.2011 21,000 Paid to freight charges to Talcher Agro debited in the account coolie and cartage outward expenses 18 10.11.2011 21,000 Freight charges to kaliapani (NB Coal) debited in the account coolie and cartage outward expenses 19 15.11.2011 21,000 Freight to chandikhol debited in the account coolie and cartage outward expenses 20 21.11.2011 21,000 Freight charges to kaliapani (NB Coal) debited in the account coolie and cartage outward expenses 21 14.12.2011 27,177 Travelling expenses to Vijaya Khandelwal 22 14.02.2012 33,778 Travelling expenses to Vijaya Khandelwal Total 9,33,858

11 ITA No.138/CTK/2019 13. On perusal of the above table it is noticed that in Sl. No.1, the date

noted by the AO is outside the purview of the impugned assessment

year. Therefore, we send the same to the file of AO for verification as to

what was the correct date of payment. If the AO finds that the payment

has been made on a day on which the banks were closed either on

account of holiday or strike, then the claim of the assessee deserves to

be considered as per the Rule 6DD(J) of I.T.Rules, 1962. Further from

Sl.No.2 to 15, the assessee has made payments which are more than the

prescribed limit as per Section 40A(3) of the Act for the allowability of

payment in cash and on perusal of the payments made by the assessee,

it is seen that all the payments have been made in working days. The

assessee could not bring any positive material on record to

substantiate its claim that the payments were made on a day on which

the banks were closed either on account of holiday or strike, therefore,

the contention of ld. AR for benefit of clause (j) of the Rule 6DD of

I.T.Rules, 1962, is not acceptable. Further the contention of ld. AR that

the assessee is entitled the benefit of clause (k) of Rule 6DD of the

I.T.Rules, 1962 because the payments have been made by the assessee

to the drivers or the agents for supply of goods, is also not acceptable

as the drivers or agents have accepted the payments on behalf of the

truck owners and the ld. AR of the assessee also unable to prove as to

whether these receipts have been offered for taxation in the hands of

12 ITA No.138/CTK/2019 the truck owners. Considering the facts as noted above in respect of

Sl.No.2 to 15, we confirm the disallowance made by the AO.

to have been made which are more than Rs.20,000/- towards

narrations noted in the table above, in this respect, it cannot be ignored

that the payments have been made for coolies and cartage charges. It is

also a fact that the coolies work together but it is not clear from the

order of both the authorities below as to whether the payments have

been made to individual coolie or to the group leader of the coolies or

on daily basis or after the expiry of certain times. This facts has also not

been disputed by the AO that the payments have been made towards

coolies/cartage outward expenses. Therefore, we are of the considered

opinion that the expenses claimed by the assessee in Sl.No.16 to 20

towards coolies/cartage outward expenses deserve to be allowed and

we direct the AO to delete the addition of Rs.1,09,335/- out of the total

disallowance made by the AO.

of the assessee that Shri Vijay Khandelwal is a partner and the

expenses has been incurred by the assessee towards travelling

expenses of the partner. The contention of the ld. AR of the assessee is

that the travelling expenses have been paid for the reimbursement of

the expenses incurred by the partners, which are supported by the bills

13 ITA No.138/CTK/2019 and vouchers filed in the paper book, cannot be disallowed under the

provisions of Section 40A(3) of the Act. We have also gone through the

bills and vouchers filed in the paper book containing the travelling

expenses incurred by the partner Vijaya Khandelwal. It is also a fact

that the travelling expenses of the partner is reimbursable, therefore,

the same cannot be disallowed. It is also not clear from the

observations of both the authorities below as to whether the payments

made to the partners on account of travelling expenses in one time

exceeding Rs.20,000/- or on piecemeal basis. Therefore, considering

the submissions of both the sides and carefully perusing the

observations of both the authorities below, we direct the AO to allow

the claim of Rs.60,955/- towards travelling expenses to the partner of

the assessee. Thus, ground No.2 is partly allowed for statistical

purposes.

coolie and cartage outward expenses and coolie and cartage outward

expenses, we find that the AO has disallowed 20% of such expenses. In

this regard, the AO has observed that all these expenses have been

supported by the internal vouchers paid in cash, therefore,

genuineness of the expenses have been doubted by both the authorities

below. Due to the internal vouchers and cash payments made by the

assessee, leakage of Revenue cannot be denied in such case. Therefore,

14 ITA No.138/CTK/2019 the CIT(A) has considered the issue and reduced the disallowance to

10% as against 20% made by the AO. We are in agreement with the

observations of the CIT(A) in this regard. Accordingly, we uphold the

findings recorded by the CIT(A) with regard to the disallowance made

by the AO on account of coolie and cartage outward expenses.

Accordingly, ground No.3 of appeal of the assessee is dismissed.

Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 20/01/2020 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीलाथी / The Appellant- 1. M/s Khandelwal Steel & Pipes, 614, Bomikhal, Cuttack Puri Rd Bhubanewswar-751010 प्रत्यथी / The Respondent- 2. DCIT, Circle-4(1), Bhubaneswar आयकि आयुक्त(अऩील) / The CIT(A), 3. आयकि आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, 5. Cuttack गार्ा पाईल / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रनत //True Copy// (Senior Private Secretary) ITAT Cuttack Bench, Cuttack