SELVA GANESH CONSTRUCTIONS PVT LTD,CHENNAI vs. ITO CORPORATE WARD-6(2), CHENNAI

आदेश आदेश /O R D E R आदेश आदेश

PER MAHAVIR SINGH, VP:

Out of these five appeals of the Assessee, two appeals

are arising out of two different orders of the Commissioner

of Income Tax (Appeals) – 15, Chennai for the Assessment

Years 2012 – 2013 and 2013 – 2014 in ITA No.218 &

219/2018-19/CIT(A)-15; dated 29.03.2019. For these two

assessment years, assessments were framed by the

Income Tax Officer, Corporate Ward – 6(2), Chennai

u/s.143(3) r.w.s.147 of the Income Tax Act, 1961

:: 2 :: I.T.A Nos.:1654 to 1658/CHNY/2019

(hereinafter “the Act”) vide orders dated 28.12.2018. The

other three appeals for the Assessment Years 2014 – 2015,

2015 – 2016 and 2016 – 2017 are arising out of the order

of the Commissioner of Income Tax (Appeals) – 15,

Chennai in ITA No.220, 213 & 222/2018-19/CIT(A)-15;

dated 29.03.2019. Assessments for these three

Assessment Years are made by the Income Tax Officer,

Corporate Ward – 6(2), Chennai u/s.143(3) r.w.s.147 of

the Act vide orders of different dates, i.e. 31.12.2018 and

26.12.2018.

regards to the order of the Commissioner of Income Tax

(Appeals) in confirming the action of the Assessing Officer

in disallowing the expenses claimed by the Assessee

without deduction of Tax Deducted at Source [TDS] and

thereby the Assessing Officer invoked the provision of

Section 40(a)(ia) of the Act and made a disallowance for

the office rent paid to the Directors, payments made to

Hypercube Architect, Directors remunerations, interest paid

:: 3 :: I.T.A Nos.:1654 to 1658/CHNY/2019

to Directors and salaries paid to employees, etc. The

Assessing Officer made the following disallowance by

invoking the provisions of Section 40(a)(ia) of the Act for

non-deduction of TDS and in the following Assessment

Years.

Assessment Years 2012 – 2013:

Sl. Particulars Amount No. [1] Office rent paid to Directors 12,00,000.00 [2] Payment made to Hypercube Architect 2,28,970.00 [3] Director remuneration – Mr. Ganesh 6,00,000.00 [4] Director remuneration – 6,00,000.00 Mr. Rathinavel [5] Interest paid to Shri Ganesh 14,27,080.00 (Director)

Assessment Years 2013 – 2014:

Sl. Particulars Amount No. [1] Brokerage paid to Shri Madhavan 10,90,000.00 [2] Director remuneration – Mr. Ganesh 9,00,000.00 [3] Director remuneration – 9,00,000.00 Mr. Rathinavel [4] Interest paid to Shri Ganesh 14,97,135.00 (Director)

Assessment Years 2014 – 2015:

Sl. Particulars Amount No. [1] Salary Ms. Selvi 3,04,600.00 [2] Director remuneration – Mr. Ganesh 6,00,000.00 [3] Director remuneration – 6,00,000.00 Mr. Rathinavel

:: 4 :: I.T.A Nos.:1654 to 1658/CHNY/2019

Assessment Years 2015 – 2016:

Sl. Particulars Amount No. [1] Director remuneration – Mr. Ganesh 3,00,000.00 [2] Director remuneration – 3,00,000.00 Mr. Rathinavel [3] Salary Mr. Giri 3,71,960.00 [4] Salary Ms. Selvi 3,59,000.00 Assessment Years 2016 – 2017:

Sl. Particulars Amount No. [1] Director remuneration – Mr. Ganesh 3,00,000.00 [2] Director remuneration – 3,00,000.00 Mr. Rathinavel [3] Salary Mr. Sathish 5,58,700.00 [4] Salary Ms. Selvi 3,84,000.00

The Commissioner of Income Tax (Appeals) also

confirmed the action of the Assessing Officer. Aggrieved,

the Assessee is now on appeal before the Tribunal.

building contractor and is also engaged in the business of

Joint Venture Agreements for developing buildings. A

survey u/s.133A of the Act was conducted at the business

premises of the Assessee on 02.08.2017 and accordingly a

notice u/s.148 of the Act was issued to the Assessee.

Consequent to the issuance of a notice u/s.148 of the Act,

the Assessment was completed u/s.147 r.w.s.143(3) of the

:: 5 :: I.T.A Nos.:1654 to 1658/CHNY/2019

Act in all these assessment years and the Assessing Officer

had made a disallowance of expenses claimed by the

Assessee for non-deduction of TDS by invoking the

provisions of Section 40(a)(ia) of the Act.

learned Counsel for the Assessee had requested that in the

Assessment Year 2012 – 2013 only, there are two

disallowances, i.e. he challenged regarding the Director’s

remuneration paid to Mr. Ganesh amounting to

Rs.6,00,000/- and to Mr. Rathinavel amounting to

Rs.6,00,000/- and for the rest of the disallowance, i.e.

office rent paid to the Directors amounting to

Rs.12,00,000/- and the payment made to the Hypercube

Architect amounting to Rs.2,28,970/- and interest paid to

Shri Ganesh (Director) amounting to Rs.14,27,080/-, he

has instructions from the assessee not to press these

disallowances. Accordingly, the Assessee is not interested

to prosecute these disallowances for the reason that these

are debatable issues and hence he is ready to pay the taxes

:: 6 :: I.T.A Nos.:1654 to 1658/CHNY/2019

on the same. The learned Counsel for the Assessee before

us stated that the payments of remunerations to the

Directors are not subject to TDS and consequentially the

same are not subject to rigors of Section 201 of the Act for

the reason that the Assessee had disclosed the income with

respect to these two amounts received and included the

same in the return of income filed by these two recipients

and paid the taxes due thereon. The learned Counsel for

the Assessee further stated that these two Directors, Mr.

Ganesh and Mr. Rathinavel had disclosed the remuneration

received from the Assessee in their individual income tax

returns and discharged the taxes payable there under,

except for the Assessment Year 2014 – 2015 in the case of

Mr. S. Ganesh who has not filed the return of income for

that particular year.

Senior Departmental Representative, he in principle had

agreed that in case the recipient Directors have included

these remuneration in their respective returns of income

:: 7 :: I.T.A Nos.:1654 to 1658/CHNY/2019

and paid taxes thereon, then in terms of the second proviso

to Section 40(a)(ia) of the Act, the disallowance can be

deleted by the Assessing Officer. For this, the learned

Senior Departmental Representative stated that this issue

can be remitted back to the file of the Assessing Officer for

verification of the facts only.

stated that the Assessee now in his paper-book has filed

copies of the returns filed by the said Directors that are

enclosed herewith with his proof of discharging of the tax

liability and the payment of proof are also enclosed. The

learned Counsel for the Assessee stated that once the

recipients have disclosed the remunerations in their

respective returns of income and discharged the payments

and complies with the filing of the return of income having

been completed, no disallowance can be made for the non-

deduction of TDS by invoking the provisions of Section

40(a)(ia) if the Act. In view of the second proviso to this

Section, we are in full agreement with the arguments of the

:: 8 :: I.T.A Nos.:1654 to 1658/CHNY/2019

learned Counsel for the Assessee, as well as the learned

Senior Departmental Representative that, in case the

recipients have disclosed the remunerations received from

the Assessee in their individual tax returns and discharged

the taxes payable there under, in those case, the

disallowance should not be made in terms of the second

proviso of Section 40(a)(ia) of the Act.

This will also apply to the salaries paid to the employees,

namely, salary for the Assessment Years 2014 – 2015,

2015 – 2016 and 2016 – 2017 and salaries paid to Shri

Sathish and Shri Giri for the Assessment Years 2016 – 2017

and 2015 – 2016 respectively. In terms of the above, in all

these years, i.e. 20-12 – 2013, 2013 – 2014, 2014 – 2015,

2015 – 2016 and 2016 – 2017, the directions will apply

accordingly. Thus, in principle we have decided the issue in

favour of the Assessee, but subject to the verification of the

facts by the Assessing Officer. Hence, this matter is

restored back to the file of the Assessing Officer for limited

purpose of verification of facts, as to whether the recipients

have disclosed the remunerations received on the salaries

:: 9 :: I.T.A Nos.:1654 to 1658/CHNY/2019

received from the Assessee in their individual tax returns

and discharged the taxes payable there under in terms of

the second proviso to Section 40(a)(ia) of the Act or not?

The Assessing Officer will accordingly allow the claim after

verifying the same. Thus, this common issue in all these

years is allowed partly as indicated above.

the Assessee is as regards to the order of the Commissioner

of Income Tax (Appeals) confirming the action of the

Assessing Officer in disallowing the claim of depreciation

and expenses on motor vehicles, i.e insurance, interest on

vehicle loan, vehicle maintenance and other repairs, etc. for

the reason that the aforesaid motor vehicles are registered

in the name of individual Directors of the Assessee

Company.

disallowed the following motor vehicle expenses in the

following Assessment Year’s-:

:: 10 :: I.T.A Nos.:1654 to 1658/CHNY/2019

Particulars A.Y A.Y A.Y A.Y A.Y 2012-13 2013-14 2014-15 2015-16 2016-17

Depreciation 5,22,069 5,56,100 4,72,685 4,01,782 1,61,515

Insurance 14,980 36,570 1,44,533 56,688 53,943

Interest on 3,02,234 3,00,929 2,11,327 1,14,715 89,791 Vehicle Loan

Vehicle 2,56,623 3,33,391 4,93,178 5,07,096 4,54,705 Maintenance

Other Repair 64,946 97,482 70,296 34,670 0

Total 11,60,852 13,24,472 13,92,019 11,14,951 7,59,954

The Assessing Officer had disallowed the depreciation

and the related expenses of the aforesaid motor vehicle on

the ground that the registration certificate of the motor cars

are held in the name of the individual Directors. The

learned Counsel for the Assessee submitted that although

the motor vehicle are registered in the name of the

Directors, but the said motor vehicles are shown in the

books of the Assessee Company and are appearing in the

balance sheet as assets of the Assessee Company. It was

claimed that the said motor cars are used for the purpose

of the business of the Assessee Company and the payment

:: 11 :: I.T.A Nos.:1654 to 1658/CHNY/2019

towards the purchase of the said cars are made by the

Assessee Company. The Assessee has now contended

before us that, the entire invoices and bills although are in

the name of the Directors individually, but the entire

expenses, i.e. interest expenses, repair expenses and petrol

expenses are borne by the Assessee Company.

Representative supported the orders of the lower

authorities.

through the facts and circumstances of the case, we noted

that the cars are registered in the name of the Directors but

the vehicles are used for the purpose of business of the

Assessee Company and even the funds towards the

purchase of the vehicles were provided by the Assessee

Company and they have been shown as assets of the

Assessee Company in the balance sheet and in the fixed

asset chart for claiming depreciation.

:: 12 :: I.T.A Nos.:1654 to 1658/CHNY/2019

In view of these facts, we are of the view that the

Assessee is entitled for the claim of depreciation and other

related expenses, but subject to the verification of the

Assessing Officer. This issue has been considered by the

Co-ordinate Bench of this Tribunal in the case of Edwise

Consultants Private Limited Vs. The Deputy Commissioner

of Income Tax, [2015] 44 ITR (Trib.) 236 (ITAT [Mum]),

wherein it is held as under:

“32. We have heard the parties on this issue and perused the record. We noticed that the Hon’ble Gujarat High Court has considered identical issue in the case of the Commissioner of Income Tax Vs. Aravali Finlease Limited [2012] 341 ITR 282 (Guj) and has taken the decision that the depreciation is allowable in the hands of the company, even if it is registered in the name of its Director provided that the vehicle is used for the purpose of business of the company and income derived there from was shown as income of the company. In the instant case there is no dispute with regard to the fact that the vehicles are used for the purpose of business of the Assessee Company. In the case of the Commissioner of Income Tax Vs. Basti Sugar Mills Company Limited [2002] 257 ITR 88 (Delhi), the Hon’ble Delhi High Court approved the decision of the Tribunal in holding that since the vehicle is a movable asset, the registration as required in the case of transfer of immovable property is not a condition precedent for legal ownership. In the instant case, the funds for purchase of vehicles have been provided by the Assessee Company and they have been shown as assets of the Assessee Company. Hence, in our view, the Assessee Company should be considered as owner for all practical purposes and hence it is entitled for depreciation. In view of the direct decision

:: 13 :: I.T.A Nos.:1654 to 1658/CHNY/2019

of the Hon’ble Gujarat High Court is available on this issue, we prefer to follow the same to that rendered by the Tribunal in the Assessee’s own case for the Assessment Year 2007 – 2008. Accordingly, we set aside the order of the learned Commissioner of Income Tax (Appeals) on this issue and direct the Assessing Officer to allow depreciation on vehicles.”

Respectfully following the Co-ordinate Bench’s decision,

we direct the Assessing Officer to allow depreciation and

other related expenses claimed by the Assessee. Thus, we

allow this issue accordingly. Hence, this issue in the

Assessee’s appeal in all the Assessment Years is allowed.

2014 – 2015 and 2015 – 2016 is as regards to the orders of

the Commissioner of Income Tax (Appeals) in confirming

the action of the Assessing Officer in making dual

disallowance u/s.40(a)(ia) as well as 40A(3) of the Act.

The Assessing Officer during the course of the

assessment proceedings made the following disallowance in

these two Assessment Years:

A.Y Particulars Section 40(a)(ia) Section 40A(3) of the Act of the Act 2014 – 2015 Salary to employees 3,04,600 2,85,400 2015 – 2016 Salary to employees 7,30,960 4,61,610 Total 10,35,560 7,47,010

:: 14 :: I.T.A Nos.:1654 to 1658/CHNY/2019

The Commissioner of Income Tax (Appeals) also had

confirmed both the disallowances.

Assessee stated that the revenue has committed double

jeopardy in respect of these disallowances made on the

same set of expenses, i.e. both 40(a)(ia) of the Act for non-

deduction of TDS and 40A(3) of the Act for exceeding cash

payment of Rs.20,000/-. The learned Counsel for the

Assessee stated that the Tribunal in the earlier ground, i.e.

first issue, has already considered the disallowance

u/s.40(a)(ia) of the Act and had directed to be deleted, and

thus the provisions of 40A(3) of the Act cannot be invoked.

We are in agreement with the learned Counsel for the

Assessee that the disallowance can be made only by

invoking one provision, i.e. 40(a)(ia) of the Act, but since

we have deleted the addition, no disallowance can be made

on this count. Hence, this ground of the Assessee is

decided in favour of the Assessee in both the Assessment

Years. Thus, this issue in the Assessee’s appeal is allowed.

:: 15 :: I.T.A Nos.:1654 to 1658/CHNY/2019

2017 is as regards to the disallowance u/s.37(1) of the Act,

confirmed by the Commissioner of Income Tax (Appeals)

that is made by the Assessing Officer amounting to

Rs.60.00 lakhs in respect of the payment titled “Pannallur

Minister Expenses”.

verification of the impounded books of accounts noticed

that on 03.11.2015, the Assessee has made a payment of

Rs.60.00 lakhs which is entered as cash paid towards the

“Pannallur Minister Expenses”. The Assessing Officer had

brought out this in his assessment order as under:

Date Particulars Vch. Type Vch. No. Debit

Ganesh Imprest: Cr. 03.11.2015 Cash paid towards Panallur Journal 1060 60,00,000 Minister Expenses details overleaf through Ganesh un- offi total 1,74,00,000/- already 4,00,000/- add Rs.60,00,000/- balance Rs.1,10,00,000/- (50.00 Lakhs singing of Minister and Rs.60.00 Lakh go singing tharanum)

The Assessing Officer has then treated the Rs.60.00

lakhs as hit by Explanation 1 to Section 37(1) of the Act

and stated that this expenditure incurred is clearly

:: 16 :: I.T.A Nos.:1654 to 1658/CHNY/2019

prohibited by law, because no payment can be made to

Minister’s expenses. There are no such expenses for the

purpose of business and therefore he disallowed the

payment of Rs.60.00 lakhs that was claimed as business

expenses.

The Commissioner of Income Tax (Appeals) also had

confirmed the same by observing in paragraph nos.6.3.1

and 6.3.2, as under:

“6.3.1. The Assessing Officer has disallowed certain payments claimed u/s.37 of the Act by referring to Explanation 1. The Assessing Officer has observed that the cash payment to the Government officials for approvals, building corrections, etc., are not allowable as legal expenses. The Assessing Officer has further observed that there was no proof of payment and any payment prohibited by law is not an allowable expenditure u/s.37 of the Act. Before the Commissioner of Income Tax (Appeals), the Appellant’s Authorized Representative has reiterated that the expenditure incurred was in line with the Appellant’s business and no proof can be submitted for the said payment. The Authorized Representative has submitted that a partial disallowance may be considered.

:: 17 :: I.T.A Nos.:1654 to 1658/CHNY/2019

6.3.2 I have considered both the point of view. It is admitted that there was no proof for any legal payment to the Government officials in connection with the Appellant’s business. If it was paid to the Government officials without any legal obligation, it is not an allowable expenditure as per the provisions of Section 37 of the Act. Therefore, the Assessing Officer’s disallowance is confirmed and the Appellant’s ground is dismissed.”

Aggrieved, the Assessee is now in appeal before the

Tribunal.

lakhs pertains to Rs.60.00 lakhs on account of the

“Pannallur Minister Expenses” but Rs.4.00 lakhs is a cash

payment made on 23.09.2015 which forms a part of

Rs.18,04,800/- that is already been disallowed as illegal

payment by the Assessing Officer and this double addition

of Rs.4.00 lakhs should be deleted.

vehemently opposed the arguments of the learned Counsel

for the Assessee.

:: 18 :: I.T.A Nos.:1654 to 1658/CHNY/2019

the facts and circumstances of the case, we noted that the

addition that was made of Rs.64.00 lakhs should be

restricted to Rs.60.00 lakhs only for the reason that the

payment of Rs.60.00 lakhs made to the Minister on

03.11.2015, i.e. “Pannallur Minister Expenses” is clearly hit

by the Explanation 1 of Section 37(1) of the Act. We affirm

the findings of the lower authorities and this issue in the

Assessee’s appeal is dismissed.

As regards to the addition of Rs.4.00 lakhs, the

Assessing Officer will verify as to whether this Rs.4.00 lakhs

is already considered in the payments disallowed of

Rs.18,04,800/- and accordingly he will decide the claim of

the Assessee after verification. Thus, this issue in the

Assessee’s appeal is partly allowed.

Years 2015 – 2016 and 2016 – 2017 is as regards to the

disallowance in respect of the interest payment u/s.40A(3)

of the Act.

:: 19 :: I.T.A Nos.:1654 to 1658/CHNY/2019

the course of the assessment proceedings has made the

following disallowance by invoking the provisions of Section

40A(3) of the Act being payment exceeding Rs.20,000/- as

mandated under the said Section, as under:

A.Y. 2015 – 2016 : Rs.1,15,99,772/-

A.Y. 2016 – 2017 : Rs.8,17,500/-

Assessee stated that the Assessing Officer while culling out

the alleged cash payments made from the data seized

classified amounts entrusted for payment to the workers in

the construction sites besides other legitimate expenses

classified the imprest amount given in lumpsum to be

disbursed in smaller fractions to the workers and others.

Hence, these payments on any given day, which perse were

below the threshold limits as prescribed u/s.40A(3) of the

Act, if individual disbursals are considered.

:: 20 :: I.T.A Nos.:1654 to 1658/CHNY/2019

filed copies of the legitimate accounts of the Assessee

Company that are at page nos.66 to 82 of the Assessee’s

paper-book; wherein various payments are made. He only

requested that the matter be remitted back to the file of

the Assessing Officer for verification, as to whether if the

payment for imprest amount payments are proved by the

Assessee and that the payments to individual workers are

below the threshold limit as prescribed by the provisions of

Section 40A(3) of the Act, then the Assessing Officer may

accordingly decide the claim. In case, the payments

exceed the threshold limit, he will disallow.

the orders of the lower authorities.

through the facts and circumstances of the case, we are

inclined to remit the matter back to the file of the Assessing

Officer who will verify individually the payments which are

disbursed to the workers at the construction site besides

:: 21 :: I.T.A Nos.:1654 to 1658/CHNY/2019

other legitimate expenses classified as the imprest amount

given in lumpsum to be disbursed in smaller fractions to the

workers. Accordingly, this issue in the Assessee’s appeal is

remitted back to the file of the Assessing Officer and is

allowed partly.

Nos.:1654 to 1658/CHNY/2019 are partly allowed.

Order pronounced in the court on 7th September, 2022 at Chennai. Sd/- Sd/- (महावीर िसंह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER

चे�ई/Chennai, �दनांक/Dated, the 7th September, 2022 IA, Sr. PS आदेशकी�ितिलिपअ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु�/CIT 5. िवभागीय�ितिनिध/DR 6. गाड"फाईल/GF