M/S COUNTRY CLUB (INDIA) LTD,HYDERABAD vs. ADDL. CIT, RANGE-1, HYDERABAD

That the Order of the learned CIT (A) is not only erroneous both on facts and in law but is perverse.

That on facts and in law, the CIT (A) erred in upholding the disallowances made u/s. 40A(3) of the LT. Act, 1961 of Rs.1,33,68,613. - without appreciating the fact that the cash payments made by the Appellant on different dates are below Rs. 20,000/- and hence to be allowed.

That on facts and in law, the learned CIT (A) ought to have given a clear finding in respect of disallowances made u/s. 40(a)(ia) of Rs. 5,21,75,632/- instead of directing the A.O to verify the claim of the Appellant in the light of the decision of the Hon'ble ITAT Spl. Bench, Visakhapatnam in the case of M/s. Merilyn Shipping and Transport, Visakhapatnam vs. ACIT vide ITA No. 477/Viz/2008.

That the provisions of S. 40(a)(ia) are extracted hereunder for your kind information:

That as per the above provisions, the expenditure has already been paid by the Appellant and hence the disallowance under the provisions of S. 40(a)(ia) of the Income Tax Act, 1961 are not applicable to the case of the Appellant and hence the same may please be allowed to the Appellant.

This view has been followed in the number of decisions of various Tribunals 1 Courts:

That on facts and in law, the CIT (A) erred in upholding the disallowance made u/s. 43B of Rs 25,35,314/- towards APGST, VAT, ESI, Professional Tax Payable without considering the facts of the case which is not correct and not justified. Hence, the disallowance may please be deleted.

That the Appellant craves leave to add, to alter, or amend any of the aforementioned Grounds of appeal”.

Further, vide letter dated 8.9.2017, the assessee has raised the following additional grounds of appeal and prayed for their admission and adjudication: “9. As per the ratio laid down by the Hon'ble Supreme Court of India in the case of National Thermal power Co. Ltd vs. CIT (1998) 229 ITR 383 (SC) the ITAT has jurisdiction to examine the question of law though not arisen before the CIT (A) but has arisen before the ITAT for the first time. 10. The Ld. CIT(A) ought to have allowed the grounds of appeal in respect of addition made u/s 40(a)(ia) of the Act without direction to the AO to verify, since the assessee has not been treated as an assessee in default u/s 201(1) of the Act and no proceedings have been initiated in this regard.

The Ld AO ought to have appreciated that the provisions of section 194C are not applicable to payments made of Rs. 34,79,005/- towards Contract salaries.

The Ld AO ought to have appreciated that the provisions of section 194C are not applicable to payments made of Rs. 6,04,7731- towards Building maintenance.

The Ld AO ought to have appreciated that the provisions of section 194C are not applicable to payments made of Rs. 89,03,975/- towards Repairs & maintenance.

The Ld AO ought to have appreciated that the provisions of section 194C are not "applicable to payments made of Rs. 24,75,179/- towards Computer maintenance.

The Ld AO ought to have appreciated that the provisions of section 1941 are not applicable to payments made of Rs, 96,19,2001- towards Lease rent.

The Ld AO ought to have appreciated that the provisions of section 194C are not i applicable to payments made of Rs.1,65,93,176/-towards Advertisement (others).

The Ld AO ought to have appreciated that the provisions of section 194C are not applicable to payments made of Rs. 15,81,965/- towards Vinyl Flooring Expenses. 18. The Ld AO ought to have appreciated that the provisions of section 194C are not applicable to payments made of Rs.9,04,228/- towards Video Photography.

The Ld AO ought to have appreciated that the provisions of section 194C are not applicable to payments made of Rs. 67,88,648/- towards Data Lead Connection Charges.

The Ld AO ought to have appreciated that the provisions of section 194H are not applicable to payments made of Rs.5,68,414/- towards Travel Agent Commission.

The Ld AO ought to have appreciated that the provisions of section 194C are not applicable to payments made of Rs. 3,57,069/- towards Programme Expenses Payable.

The Ld AO ought to have appreciated that the provisions of section 194J are not applicable to payments made of Rs. 3,00,000/ - towards Audit fee.

The Ld AO erred in provoking the provisions of section 40(a)(ia) without appreciating the fact that payments made are not covered by provisions of chapter XVII - B of the Act.

The AO ought to have appreciated the fact that the receiver of the interest i.e. payee, who is resident has offered the same as income in its return of income for the respective financial year and therefore, the assessee cannot be treated as assessee in default. 25. The AO ought to have appreciated the fact that second proviso to section 40(a)(ia) is curative in nature and has retrospective effect from 01.04.2005 from the date in which sub-clause i.e., 40(a) was inserted by Finance Act”.

However, at the time of hearing, the learned Counsel for the assessee submitted that the assessee does not wish to press the additional grounds of appeal No.11 to 25. They are accordingly not admitted. That leaves us only with Grounds 9 & 10 raised as additional grounds. Ground No.9 is an argument in favour of admission of additional grounds, while Ground No.10 is a legal ground and all the facts relating to this ground are on record. Therefore, this ground is admitted. Thus, we proceed to dispose of the appeal as under:

Brief facts of the case relating to Ground No.2 are that the assessee company, which is in the business of running clubs and hospitality, filed its return of income for the A.Y 2008-09 on 26.09.2008 declaring income of Rs.89,61,93,030. The return was processed on 9.2.2010 raising a demand of Rs.7,24,50,170/-. Subsequently, the assessment was picked up for scrutiny u/s 143(3) of the Act and various details were called for from the assessee. The details were filed on 30.12.2010. AO u/s 133(6) of the Act, obtained the copies of bank A/c statements of the assessee, which revealed that the assessee has made payments through bearer cheques in excess of Rs.20,000/- in violation of section 40A(3) of the Act. He arrived at the total sum of

The learned Counsel for the assessee has raised further an alternative argument before us that out of the total payments made in cash/bearer cheques, main payments are made to the employees of the assessee and therefore, they are not covered by the provisions of section 40A(3) of the Act. He also drew our attention to the details of the payments at Pages 8 to 12 of the paper book filed by him and submitted that all these details were filed before the authorities below, but they have not looked into and have not verified them. Thus, he requested that the AO may be directed to verify and allow the same.

The learned DR, on the other hand, supported the orders of the authorities below.

Having regard to the details of the payments made in cash, we find that some of the payments are to the employees of the assessee company. We find that any payment made by a company to its employees for incurring expenditure on its behalf for business of the company, cannot be disallowed u/s 40A(3) of

As regards Grounds of appeal Nos.3 to 6, brief facts are that on verification of the details filed by the assessee, the AO observed that the assessee has not made TDS from various payments totaling to Rs.5,21,75,632. He therefore, disallowed the same u/s 40(a)(ia) of the Act. On appeal, the CIT (A) has deleted the disallowance with a direction to the AO to verify whether the payment towards the expenditure, was actually paid or payable and to allow the same if it is found to have been actually paid, before 31st of March i.e. the end of the relevant accounting year. For giving such a direction, the CIT (A) followed the decision of the Special Bench of the ITAT, Visakhapatnam in the case of Merilyn Shipping & Tran sport vs. ACIT in ITA No.477/Viz/2008. The AO, while passing the consequential order, has verified the details and has allowed relief to the extent of Rs.5,01,61,399/-. In the grounds of appeal, the assessee’s argument is that the CIT (A) ought to have deleted the disallowance by himself, instead of directing the AO to verify the claim of the assessee. Further, in the additional ground of appeal No.10, the assessee is claiming that if the assessee has not been treated as an “assessee in default” u/s 201(1), no disallowance u/s 40a(ia) can be made.

We find that the Hon'ble Supreme Court in the case of Palam Gas Service vs. CIT reported in (2017) 81 Taxmann.com 43 (S.C) has held that irrespective of the amount being paid, the same is disallowable u/s 40a(ia) if no TDS has been made. Therefore, the decision of the CIT (A) on this point has to be set aside. In such circumstances, the alternate plea of the assessee assumes importance.

The learned Counsel for the assessee has placed reliance upon the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd vs. CIT, reported in (163 Taxmann.355) wherein the Hon'ble Supreme Court was considering the case of the assessee who was considered as an assessee in default u/s 201(1) and interest u/s 201(1A) was also made. The Hon'ble Supreme Court has held that the assessee therein, cannot be treated as “as assessee in default” u/s 201(1), if the recipient has offered the income and has paid the taxes thereon. However, with regard to the interest u/s 201(1A), the Hon'ble Supreme Court has held that the same is payable till the date of payment of taxes by the deductee assessee. He submitted that in the case of the assessee before us, the recipients of the payment, have already offered the income in their hands and therefore, the assessee cannot be treated as “as assessee in default”. Further, the learned Counsel for the assessee also argued that by virtue of the second proviso to section 40(a)(ia), where the assessee is not deemed to be “an assessee in default” under the provisions of sub-section 201 (1), then for the purpose of this sub-clause i.e. 40a(ia), it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of

The learned DR however, supported the order of the authorities below.

Having regard to the rival contentions and the material on record, we find that the Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (Supra) has considered the applicability of the second proviso to section 40a(ia) and has held to be declaratory and curative and to have retrospective effect from 1.4.2005. The assessment order before us is the A.Y 2008- 09. The relevant provision is reproduced hereunder for ready reference: “[Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, [thirty per cent of] such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] [Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the

As regards the grounds of appeal No.7 against the disallowance u/s 43B of the Act of the payments made towards APGST, VAT, ESI, Professional Tax Payable amounting to Rs.25,35,314 is concerned, brief facts are that the assessee had shown these amounts as outstanding at the end of the previous year and therefore, the AO made the disallowance. The CIT (A) also confirmed the said disallowance holding that the assessee has not substantiated the claim and has not brought out any evidence to prove that the payment, in question, were made within the time specified as per the provisions of section 43B of the Act. The learned Counsel for the assessee submitted that the assessee has not debited these amounts to the P&L A/c and has not claimed the same as expenditure and hence they cannot be disallowed u/s 43B of the Act. He has drawn our attention to the details of the outstanding liabilities at pages 6 to 7 of the Paper Book wherein these amounts are shown as payable and submitted that these details were also filed before the AO, who has not verified the same. He submitted that the opening

In the result, assessee’s appeal is treated as partly allowed for statistical purposes.

In this appeal, the Revenue is aggrieved by the order of the CIT (A) in directing the AO to verify if the assessee has paid the amounts as at the end of the financial year before making any disallowance u/s 40a(ia) of the Act. We have already decided this issue in the assessee’s additional grounds of appeal Nos. 3 to 6 and additional ground of appeal No.10. Therefore, this ground is also treated as allowed for statistical purposes.

In the result, both the assessee’s as well as the Revenue’s appeals are treated as partly allowed for statistical purposes.