M/S MILK SPECIALITIES LTD vs. COMMISSIONER OF IT

To be referred to the Reporter or not ? 2. Whether the judgement should be reported in the Digest ? M.M.KUMAR,J.

This order shall dispose of two appeal Nos. ITA 374 of 2011 and 366 of 2011 which have been filed by the assessee under section 260A of the Income Tax Act, 1961 (for brevity 'the Act') claiming that following substantial questions of law would arise from the order of the Tribunal dated 22.10.2010 in respect of the assessment year 2005-06 and 12.10.2010 in respect of the assessment year 2006-07 while deciding ITA No. 755/ Chd./2009 and 789/Chd./2009 respectively. “1. Whether, on the facts and circumstances of the case, the Tribunal was justified in concurring with the order of authorities below in disallowing expenditure of Rs.33,97,674/- u/s 40(a)(ia) by holding the appellant as liable to deduct tax u/s 194 C which amounts to expansion of provisions contained in the Income Tax Act,1961 and thus the findings being illegal and perverse to the facts and circumstances of the present case; and ii) Whether, on the facts and circumstances of the case, the Tribunal was justified in setting aside the legal issue of disallowance u/s 40A(3) of the Income Tax Act,1961 to the file of the A.O. for fresh action and thereby directing him to go through its order once again and thereby allowing him to play a second inning which is against the established principles of law in view of judgement of this Hon'ble Court in the case of CIT v. Kanti Kumar Sharma as reported in 179 ITR 114 (P&H).?”

It is appropriate to mention that the Assessing Officer while invoking the provisions of Section 40a(ia) of the Act has made addition of Rs.33,97,674/-. During the assessment proceedings, the assessee was asked to furnish the details of payment on which tax was required to be deducted and the date of deposit of tax. No tax was found to have been deducted at source on amount of Rs. 1,33,000/- or on account of legal and profession charges. The tax was also found to be deposited late on 26.6.2005 as against the due date of 31.5.2005 on payment of commission on sales of Rs.7,18,435/- and payment of Audit fee of Rs.50,000/-.

The Assessing Officer further found that cash payments were made in violation of the provisions of Section 40A(3) of the Act both in respect of amount exceeding Rs. 20,000/- paid in cash as well as in relation to payments exceeding Rs. 20,000/- made in cash as shown in the books of accounts by breaking it into smaller amounts each below Rs.20,000/-. In the order of the Assessing Officer a sample of various such payments have been given e.g. on 6.4.2004 a sum of Rs. 19,000/- is shown to have been made to one party and the total payment of Rs. 3,50,000/- made on 6.4.2004 vide 19 vouchers has also been highlighted because 18 vouchers are for a sum of Rs. 19,000/- and one voucher is for a sum of Rs.8,000/-. Various other irregularities were noticed resulting in conclusion that exception as per Rule 6DD (f)(ii) was not available in respect of any cash payment for various reasons recorded in para 5 of the order of the Tribunal.

The CIT(A) upheld the additions on all counts. When the assessee filed an appeal and on the first question of law, the Tribunal held that once the assessee- appellant was held to be in default of non deduction of tax at source, the provisions of Section 40a(ia) of the Act were attracted. In the absence of deduction of tax and deposit of the same thereafter a sum of Rs. 33,97,674/- was not allowable as expenditure in view of the aforesaid provisions. The Tribunal then proceeded to uphold the order of the Assessing Officer as well as that of the CIT(A).

Likewise on the second question, the additions have been made by invoking the provisions of Section 40A(3) of the Act amounting to Rs. 39,06,069/-. The Tribunal has noticed that the payments made in cash as tabulated by the assessee-appellant were considered for computing the violation of the provisions of Section 40A(3) of the Act and accordingly the matter has been remanded back to the Assessing Officer with a direction to him to examine the claim of the assessee in line with the directions issued by the Tribunal in ITA No. 714/Chd.2008 in respect of the assessment year 2001-02 decided on 27.2.2009. The Tribunal has further held that a reasonable opportunity of hearing was to be afforded to the assessee- appellant.

We have heard learned counsel for the assesee-appellant at a considerable length.

After hearing learned counsel for the assessee-appellant, we are of the considered view that findings of fact recorded by the Tribunal on question no.1 cannot be interfered with particularly when it has made cash payment exceeding Rs. 20,000/- in violation of the provisions of Section 40A(3) of the Act. There is ample evidence on record to support the aforesaid finding and accordingly a sum of Rs. 33,97,674/- were not allowable as expenditure. We approve the aforesaid findings. No question of law much less a substantial question of law would arise for determination in this appeal as these are pure findings of fact. The appeal on the aforesaid question is hereby dismissed.

In respect of the second issue, the matter has been remanded back to the Assessing Officer and the assessee-appellant would be at liberty to adduce evidence and full opportunity of hearing is to be afforded to the assessee-appellant.

The appeal filed by the Director Jagjeet Singh would follow the suit and is disposed of the same terms.

As a sequel to the above discussion, both the appeals are dismissed and the orders passed by the Tribunal are upheld.

A copy of this order be placed on the file of the connected appeal. (M.M.Kumar)