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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-10, Ahmedabad dated 31.01.2017 pertaining to A.Y. 2012-013 and following grounds have been taken:
ITA No. 775/Ahd/2017 2 . A.Y. 2012-13 1 . (a) The CIT(A) has erred both in Law and in Fact in confirming invoking of Section 40A(3) by the Assessing Officer and also has erred in confirming payment of Rs.2,33,863/- in cash to Employee of the Appellant Shri Gaurang Makadincash which was by way of Reimbursement of his medical treatment. It is submitted that the cash payment being reimbursement of expenses does not attract u/s.40A(3) and disallowance is not called for. (b) Your Appellant further submits that the Reimbursement of Expenses was towards Hospital charges paid by the employee and as per practice the Hospital does not accept cheques and therefore cash payment was necessitated which have been Reimbursed and therefore Sec.40A(3) does not apply. (c) Without prejudice to above your Appellant submits that the said expenditure is in the nature of Welfare Expenses/good employer employee relations and it being business expenditure its disallowance is not called for. 2. The CIT(A) has erred both in Law and in Fact in confirming applicability of Sec. 68 as invoked by the Assessing Officer and also thereby confirming the following addition. (a) Rs.5,75,000/-in the name of Falguni Transport. (b) Rs.3,50,000/- in the name H. Patel & Sons. Rs. 9,25,000/- Your Appellant submits that the parties referred above are identified their creditworthiness is proved and the transaction being genuine Section 68 does not apply and the CIT(A) ought to have deleted the said addition.
Disallowance u/s. 40A(3) : Rs. 2,33,863/- The AO has made disallowance of Rs. 2,33,863/- u/s. 40A(3) of the Income tax Act, 1961, in respect of payment made by the appellant to Shalby Hospital. The AO has stated that no circumstances was existing while making such payment so as to allow the benefit of rule 6DD to the assessee. He has also stated that the payment made by the appellant does not appear to have been incurred for the purpose of business. 2.1 In this context, it may be noted that an employee of the appellant was admitted to the said hospital and his condition was so critical that he expired subsequently. It is well-known fact that the private hospitals do not continue with the treatment in absence of payment of sum asked by them. Further;
ITA No. 775/Ahd/2017 3 . A.Y. 2012-13 considering the condition of the said employee, it would have been difficult to wait for treatment till the time the appellant would have paid the amount by cheque and the said cheque is deposited by the said hospital and amount is reached to the hospital. Therefore, said circumstance demanded the payment by cash and therefore, the said payment was so made. 2.2 The A.O. has made of Rs. 12,50,000/- u/s. 68 of the Act in respect of unsecured loans received by the appellant from the following parties:
Sr. No. Name of the Party Amount (Rs.) 1 Falguni Transport 5,75,000 2 H. Patel & Sons 3,50,000 3 Rajendra S. Patel 50,000 4 Sahjanand Corporation 2,75,000 Total 12,50,000
The A.O. has made addition for the reason that identity, creditworthiness and genuineness of the above parties are not proved.
2.2. In this regards, it may be noted that the appellant had submitted the confirmation and complete address of the parties at sr, no. 1 and 2 above. Since the said parties did not provide their PAN No., it could not be submitted to the AO. However, in case of the said parties, it undisputed fact that payment has been received by the appellant through bank and in present times, no bank accounts are opened or allowed to be operated by the banks without compliance to the KYC norms. Therefore, under the circumstances, the identity and genuineness of the parties are beyond any doubt. Since the confirmation obtained by the appellant did not contain address and PANo, of the said parties, the AO concluded that the said parties are not
ITA No. 775/Ahd/2017 4 . A.Y. 2012-13 assessed to tax. However, considering the nature of information, as the appellant could not obtain the copies of their PANo. and return of income, the AO could have inquired about the same on the basis of the detailed address separately provided by the appellant. 2.3 As regards the parties at s. no. 3 and 4 above, the appellant had submitted complete address, PAN No. and confirmation of the parties. However, the AO has stated that the confirmation of the parties does not contain detailed address and PAN No. of the parties and therefore, he has concluded that the identity and creditworthiness and genuineness of the depositors is not proved. However, he has completely ignored the details submitted by the appellant other than the confirmation. 2.4 On the basis of the above, it is submitted that the appellant had provided the requisite details which can prove or which can help in verification of identity, genuineness and creditworthiness. And A.O. made an addition of Rs. 1483868/-.
Against the said addition, assessee preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal of the assessee.
Now assessee has come before us.
So far ground no. 1 is concerned that assessee made cash payment of Rs. 2,33,863/- to one Shri Gaurang Makad for reimbursement of medical expenses. The A.O asked the assessee to give justification for such payment by way of cash in contravention to Section 40A(3) of the Act. The assessee contended that the expenses were incurred to carry out treatment of Shri Gaurang Makad. The contention of the assessee was not accepted by the A.O and an addition of
ITA No. 775/Ahd/2017 5 . A.Y. 2012-13 Rs. 2,33,863/- was made for whom was an employee of the appellant and admitted to the said hospital and his condition was so critical that he expired subsequently. It is well-known fact that the private hospitals do not continue with the treatment in absence of payment of sum asked by them. Further, considering the condition of the said employee, it would have been difficult to wait for treatment till the time the appellant would have paid the amount by cheque and the said cheque is deposited by the said hospital and amount is reached to the hospital.
And further stated that rule 6DD does no contain exhaustive list of circumstances under which the payment by cash s permissible. It is only an indicative list and therefore, the payments made under the above exceptional and unavoidable circumstances should not have been disallowed.
And further stated Clause (J) of rule 6DD provides that no disallowance under section 40A(3) shall be made where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft- a. due to exceptional or unavoidable circumstances: or b. because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. 9 Therefore, in our considered opinion, that this case was part of exceptional or unavoidable circumstances and employee of the appellant was critical and above to die and finally he died. Therefore, in our considered opinion, in this case, relief should be granted to the assessee and we allow this ground of appeal.
ITA No. 775/Ahd/2017 6 . A.Y. 2012-13 10 Now we come to next ground relating to applicability of section 68 as invoked by the Assessing Officer and also thereby confirming the following addition. (a) Rs.5,75,000/-in the name of Falguni Transport. (b) Rs.3,50,000/- in the name H. Patel & Sons. Rs. 9,25,000/.
In this case, ld. A.R. stated that he has made the repayment of the above said amount from whom this money was received but he has not filed complete detail before us. Therefore, we remand this issue to the file of the ld. A.O. who will decide the matter afresh and assessee will make all the submissions with regard to repayment of the above said amount to the A.O. It will be open to A.O. to take cognizance of all relevant evidences and thereafter decide the matter in accordance with law. Thus, this ground of appeal is allowed for statistical purpose.
In the result, appeal filed by the Assessee is allowed. Order pronounced in Open Court on 26- 04- 2019 Sd/- Sd/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 26 /04/2019 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad