Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI ANIL CHATURVEDI, AM & SHRI PARTHA SARATHI CHAUDHURY, JM
आयकर अपीलीय अधधकरण न्यायपीठ रायपुर में । IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM आयकर अपील सं. / ITA No. 45/RPR/2016 धनधाारण वषा / Assessment Year : 2011-12 Shri Siddhi Vinayak Shikshan Sansthan B.S. Complex, Manav Mandir Chowk, Rajnandgaon (C.G) Pin-491 441 PAN : AACAS1038H …....अपीलाथी / Appellant बनाम / V/s. The Deputy Commissioner of Income Tax 1(1), Civil Lines, Raipur (C.G) ……प्रत्यथी / Respondent Assessee by : Shri S.R. Rao Revenue by : Shri R.P Namdeo
सुनवाई की तारीख / Date of Hearing : 16.01.2019 घोषणा की तारीख / Date of Pronouncement : 17.01.2019 आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the assessee emanates from the order of the Ld. CIT(Appeals)-II, Raipur (C.G) dated 12.01.2016 for the assessment year 2011-12 as per following grounds of appeal on record:
2 ITA No.45 /RPR/2016 A.Y.2011-12
“1. In the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the additions made u/s.40A(3) of the Income Tax Act, 1961 of (a) Rs.22,72,820/- out of salary payment and (b) Rs.78,000/- out of Advertisement Expenses on account of cash account. 2. In the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs.2,36,527/- made u/s.40(a)(ia) of the Income Tax Actr, 1961. 3. In the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition made by way of disallowance of Rs.4,44,600/- out of interest Expenses as attributable to interest free loans to relatives and members of the society. 4. The order of the Ld. Commissioner of Income Tax (Appeals) is bad in law and on facts. 5. The appellant reserves the right to add, amend, alter and omit all or any of the grounds of appeal with permission of the Hon’ble Appellate Authority.
The brief facts in this case are that the assessee derives income from the business and profession of running and maintaining an engineering college including the hostel and mess. The assessment was completed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) assessing total income at Rs.71,90,910/- against the returned income at Rs.30,16,550/-.
The first ground of appeal pertains to the confirmation of addition made u/s.40A(3) of the Act of Rs.22,72,820/- out of salary payment and Rs.78,000/- out of Advertisement Expenses on account of cash payment.
3 ITA No.45 /RPR/2016 A.Y.2011-12
The Ld. CIT(Appeals) after considering the facts of the case, assessment order and submissions of the assessee held as follows: “The Ld. AO has disallowed the above expenses as they were made in cash in violation of the provisions of section 40A(3) of the Act. During the appeal hearings the counsel submitted that ledger account of payments made under the head salaries were produced during the assessment proceedings wherein no single payment exceeding Rs.20,000/- was made on a single day. Similarly the payments made under the head advertisement expenses was not in excess of Rs.20,000/- per payment and hence the disallowances made by the AO is not justified. 2.1 On perusal of the details submitted during the assessment proceedings the AO has reproduced the schedule of salaries paid for various months to each employee working in the appellant’s organization. From the chart appearing on page No. 3 of the assessment order it is seen that in every month the payments made to the employees are in cash and each payment is in excess of Rs.20,000/-. During the assessment proceedings no material was brought on record evidencing that payments have been made below Rs.20,000/- to each employee month wise. It is also important to note that salary payments to employees are made month wise and the contention of the appellant that payments have been made below Rs.20,000/- is not supported by facts. The contention of the appellant that no payment in excess of Rs.20,000/- has been made on a single day to any person is not borne out by facts on record. The table furnished by the Ld. AO in the assessment order is a clear indication that all payments under the head salaries was being made in cash and for every month the payment exceeds Rs.20,000/-. From the table it is noticed that the lowest salary payments pertains to Mr. Navin Surana amounting to Rs.22,356/- per month. The salary payments to others are upwards of Rs.25,920/- and hence, the submissions of the Ld. Counsel are not acceptable regarding the payments being below Rs.20,000/-. 2.2. Similarly under the head advertisement expenses the AO has brought on record two bills whose amounts were more than Rs.20,000/- in disallowing the said expenses u/s.40A(3) of the Act. The addition of Rs.78,000/- pertains to two bills of Rs.40,000/- dated 16.08.2010 and Rs.38,000/- dated 04.02.2011 and hence the AO has clearly established that the payments were in violation of the impugned provisions of the Act. 2.3 The Ld. Counsel appearing on behalf of the appellant has not made out any reasonable case for having made the said cash
4 ITA No.45 /RPR/2016 A.Y.2011-12
payments. Under Rule 6DD of the IT Rules, 1962 the mitigating circumstances are elaborated and under the circumstances specified therein it is open to the assessee to explain to the Assessing Officer the circumstances which compelled payment in cash of an amount exceeding the stipulated limit. Under the said provisions the genuineness of the transactions can also be explained. From the submissions of the counsel it is seen that no such explanation has been furnished that would give satisfaction regarding the exceptional conditions under which the payments were made. In a number of judicial pronouncements the Hon’ble Courts have held that it not merely the genuineness of the transactions but also the existence of the circumstances warranting payment by cash must exist for availing benefit under the rule 6DD. In the case of the appellant payments under the head salaries and under the head advertisement expenses have been made in cash which does not show any exceptional circumstances forcing the appellant to make payment in cash in violation of the provisions of section 40A(3). The Hon’ble Guawati High Court in the case of Associated Engineering Enterprises Vs. CIT reported in 216 ITR 366 and the decision of the Hon’ble MP High Court in the case of Brijlal Rupchand Sanwara Vs. CIT reported in 135 Taxation 688 supports the above view. In view of the above discussion the disallowances of Rs.22,72,820/- on account of salary payments and Rs.78,000/- on account of advertisement expenses made in cash are hereby confirmed.”
The Ld. AR of the assessee at the time of hearing vehemently argued that the assessee has not violated of section 40A(3) of the Act. More so, the payments were made in accordance with the compliance with the provisions and cash payments were made since the practical circumstances and scenario demand such course of action. The Ld. AR has placed reliance on the decision in the case of ACIT Vs. R.P Real Estate Pvt. Ltd. (2016) 95 CCH 0086 ChattHC wherein on the issue it was opined by the Hon’ble Chhattisgarh High Court that no disallowance under sub section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub section (3A)
5 ITA No.45 /RPR/2016 A.Y.2011-12
of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft exceeds twenty thousand rupees in the cases and circumstances specified hereunder. Payment in cash was out of business compulsion and not optional reference may also be made to Rule 6DD permitting cash payments for reasons specified in Rule 6DD. The practicability of the transaction has to be taken into consideration by taxing Authority in case where the payments are made by villagers and does not have any bank account and therefore insisted on cash payment. Then the payment in cash was out of business compulsion and not optional. On this issue, the Ld. AR relied on the decision of Co-ordinate Bench of the Tribunal, Jaipur in the case of Brothers Pharma Pvt. Ltd. Vs. ITO, in ITA No.635/JP/2012 for assessment year 2008-09.
On the other hand, the Ld. DR has placed reliance on the orders of the Sub ordinate Authorities.
We have perused the case record and considered the judicial pronouncements placed before us. The settled view of law so far as the payment covered u/s.40A(3) of the Act is concerned, it is to be looked into on the basis of practicability and in a way by which business can be conducted. In the case of ACIT Vs. R.P Real Estate Pvt. Ltd. (supra.), the Hon’ble Jurisdictional High Court has observed that there are certain
6 ITA No.45 /RPR/2016 A.Y.2011-12
conditions which provides compulsion in order to continue business by way of which payments have to be made to people in cash.
In the case of the assessee, the genuineness of the payments have not been doubted. The assessee paid cash to the employees only to maintain good relation with them. The assessee paid cash salary for various months. This was the business expediency of the company to pay in cash and therefore, this payment do not attract the provisions of section 40A(3) of the Act. The Rule 6DD, exceptional conditions are exclusive in nature. It all depends on the facts and circumstances of the case for running business and business expediency has to be taken into consideration. Thus, we set aside the order of the Ld. CIT(Appeals) on this issue and allow the ground No.1 of the assessee. Hence, ground No.1 raised in appeal by assessee is allowed.
With regard to ground No.2 of appeal, it is confirming of disallowance of Rs.2,36,527/- u/s. 40(a)(ia) of the Act.
The Ld. CIT(Appeals) on this issue has held as under :
“2.4 The second ground of appeal is directed against the disallowance of Rs.2,36,527/- u/s. 40(a)(ia) on account of failure to deduct TDS u/s.194A of the Act,. It was submitted by the counsel that these amounts were paid through postdated cheques payable on their respective bank accounts along with the principal amount of finance included in the installment. It was further submitted that the appellant has no occasion to make TDS because the payments were
7 ITA No.45 /RPR/2016 A.Y.2011-12
made through post dated cheques. It was further submitted that there prevailed perceptible ambiguity in the matter of applicability of provisions of section 40(a)(ia) in respect of payments made through post dated cheques to companies registered under the Companies Act as NBFCs and it also strengthened his bonafide belief that these provisions would not be applicable to his case. I have considered the submissions and explanation offered by the Ld. Counsel. I am not in agreement with the views of the ld. Counsel. The payments made to these companies are not exempt under the Act as they do not fall under the exempt clauses. The impugned payments are TDS deductible payments and hence the disallowance made by the AO is an conformity with the law. The contentions of the appellant that due tax on the interest income of the recipients has been duly paid by them is not supported by any documentary evidence either during the assessment or the appeal proceedings. The Assessing Officer has also made a reference to the CBDT circular on this issue which has been reproduced in the assessment order at page No.7 that reads as under: “The CBDT has also issued a Circular No. 10/DV/2013 dated 15.12.2013 which it has analysed the controversy created by recent judgments on the question whether the term “ payable” in section 40(a)(ia) includes the amounts that have already been paid during the year or it referrers only to the amounts outstanding as at the year end. It has been made clear that the provision of section 40 (a)(ia) of the Act would cover only the amounts which are payable as on 31st March of a previous year but also amounts which are payable at any time during the year.” 2.5. I am in agreement with the view of the Assessing Officer that interest paid to Cholamandalam and Magma Finance are attracted by the provisions of sections 40(a)(ia) of the Act and hence the same is not an allowable deduction. Accordingly, the addition of Rs.2,36,527/- is confirmed.
The Ld. AR of the assessee on this issue has placed reliance on the decision of Co-ordinate Bench of the Tribunal, Raipur in ITA No.106/RPR/2016 in the case of RKP & Co. Vs. ITO, Ward 1 wherein on the issue, the Co-oridnate Bench has restored the matter back to the file of
8 ITA No.45 /RPR/2016 A.Y.2011-12
Assessing Officer. The Ld. AR of the assessee has prayed that this issue may be restored to the file of the Assessing Officer.
We have perused the case record and heard the rival contentions. We find that the Co-ordinate Bench of the Tribunal , Raipur with regard to the issue u/s.40(a)(ia) of the Act has held as under:
“10. In view of the above discussion, as also bearing in mind entirely of the case, we deem it fit and proper to remit the matter to the file of the Assessing Officer for limited verification on the aspect as to whether recipient of payment has included the same in his computation of business income offered to tax, and , if found to be so, delete the disallowances in question. With these directions, the matter stands restored to the file of the Assessing Officer.”
The Ld. AR of the assessee has prayed before us in placing reliance on the aforesaid Co-ordinate Bench decision to restore the issue to the file of Assessing Officer for verification to which the Ld. DR conceded. In the interest of justice, we are of the considered opinion and following the decision of the Co-ordinate Bench of the Tribunal, Raipur on this issue, we set aside the order of the Ld. CIT(Appeals) and restore the matter to the file of Assessing Officer for fresh adjudication after providing reasonable opportunity of hearing to the assessee. Hence, ground No. 2 raised in appeal by assessee is allowed for statistical purposes.
With regard to ground No.3, the Ld. CIT(Appeals) has held as under:
9 ITA No.45 /RPR/2016 A.Y.2011-12
“2.6. Coming to the third ground of appeal pertaining to disallowance of Rs.4,44,600/- being interest free advances to various persons it is seen that the appellant has given such advances to various individuals wherein the commercial expediency or justification for the purpose of business has not been established. The contentions of the appellant that it has interest free loans to the extent of Rs.29,25,090/- from relatives and members of the society and hence such interest free loans are justified for the purpose of the business is not an acceptable proposition from the material facts of the case. On this issue during the assessment proceedings and also during the appellate proceedings the counsel has not been able to substantiate that the loans given were from funds did not have any interest component. No instance of commercial expediency was brought on record or substantiated. The identity of the persons to whom the loans have been given, their business connection with the appellant, or any such commercial relation with the appellant has not been explained or brought on record. I have also seen the case laws relied upon by the Ld. Counsel pertaining to the grounds of appeal and find therein that the facts are not the same as appearing in the instant case. In view of the above discussion I do not find infirmity in the order of the Ld. AO and hence addition of Rs.4,44,600/- is confirmed.”
The Ld. AR of the assessee at the time of hearing vehemently argued that the assessee had interest free funds in huge quantity. In this respect the Ld. AR of the assessee invited our attention to page 256 of the paper book wherein Balance Sheet of the assessee is placed and corpus fund shown at an amount of Rs.1,99,85,544/-. It is the argument of the Ld. AR of the assessee that out of this own funds, the assessee has given advances to various individuals. The Ld. AR further stated that once it is shown that the assessee is having sufficient interest free funds in its own possession then the presumption is that advances have been given from its own funds.
10 ITA No.45 /RPR/2016 A.Y.2011-12
On the other hand, the Ld. DR placed reliance on the orders of Sub- ordinate Authorities and at the same time submitted that there was no business expediency involved in the action of the assessee for advancing amounts to various individuals.
We have perused the case records and heard the rival contentions. We find that the presumption of law asserted through various judicial pronouncements is that when the assesse is having sufficient interest free funds in its own possession then the advances must have been given from its own source itself. However, the submission of the Ld. DR is also to be considered that in the case of the assessee whether there was any business expediency involved in relation to granting of advances to various individuals. This requires detailed factual verification and specific enquiry.
In view of the matter, we set aside the order of the Ld. CIT(Appeals) on this issue and restore the matter to the file of Assessing Officer for detailed verification of facts and adjudicating the matter deciding the business expediency of such advances being given to various individuals and also whether such advances have been given from assessee’s own corpus funds. The Assessing Officer shall grant reasonable opportunity of hearing to the assessee. Hence ground No. 3 raised in appeal by assessee is allowed for statistical purposes.
11 ITA No.45 /RPR/2016 A.Y.2011-12
The ground Nos. 4 and 5 are general in nature and hence, require no adjudication.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 17th day of January, 2019.
Sd/- Sd/- ANIL CHATURVEDI PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER रायपुर/ RAIPUR ; ददनांक / Dated : 17th January, 2019. SB आदेश की प्रधतधलधप अग्रेधषत / Copy of the Order forwarded to : 1. अपीलाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT(Appeals)-2, Raipur (C.G) 4. The CIT-2, Raipur (CG) 5. धवभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, रायपुर बेंच, रायपुर / DR, ITAT, Raipur Bench, Raipur. गार्ा फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
धनजी सधचव / Private Secretary आयकर अपीलीय अधधकरण, रायपुर / ITAT, Raipur.
12 ITA No.45 /RPR/2016 A.Y.2011-12
Date 1 Draft dictated on 16.01.2019 Sr.PS/PS 2 Draft placed before author 17.01.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order
13 ITA No.45 /RPR/2016 A.Y.2011-12