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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
order of the Commissioner of Income Tax (Appeals)-1, Chennai dated 29.06.2018 and pertains to assessment year 2015-16.
The assessee has raised following grounds of appeal:-
“a. The Appellant submits that they were preferred an appeal against the order passed by the Commissioner of Income Tax Appeals which is totally against the fact and law and liable to be set aside on the following among other grounds. b. The Appellant submits that they were assessed u/s. 143 (3) of Income Tax Act by the assessing officer for the Assessment
Year 2015-16 and determined total income Rs. 23,72,065/-. The assessing officer failed to consider the contentions raised by the appellant and confirmed his proposal u/s 143(3) of IT Act. Aggrieved by that order the Appellant preferred an appeal before the commissioner of Income Tax (Appeal). The 1st Appellate Authority confirmed the assessment order in dated 29.06.18. Aggrieved by that order the appellant filed the present appeal before this Honorable Court. c. The appellant submits that the Assessing Officer as well as the 1st Appellate authority admitted that the assessee is a tour operator. The Assessing officer admitted that the passengers made cash payments to the appellant to arrange the pilgrimage to including hotel expenses. The assessing officer stated that the cash expenses meet by the appellant is in violation of Section 40A(3) of the Act. It is relevant to note that the cash payments made by the appellant for ticket expenses Rs. 7,72,300/- and hotel bill settlement in SAUDI. Currency of (riyals) Rs. 14,96,975)-. The Assessing Officer as well as the Appellate Authority declared that the appellant is a principal and the passenger is an Agent. In that way they confirmed and assessed the expenses is an income. It is relevant to note the provisions of Clause (K) in Rule 6DD of IT Rules. ‘Where the payment is made by any person to this agent, who is required to make payment in cash for goods or services on behalf of such person.’
The appellant contented that they were settled the hotel bills and Air ticket expenses covered under exception clause. The assessee produced relevant records before revenue authorities. But the 1st appellate authority in his order stated that the appellant didn’t produce any evidence or substantiate their contentions either before the assessing officer or by 1st
Appellate Authority. But it is an admitted fact that the appellant produced the records before the respective authority and hence the impugned order is liable to be set aside. d. The appellant submits that the assessing officer as well as the 1st Appellate Authority ought to have considered the appellant case with the nature of their business. The tour operators are called as an agent and they are the agents for the customers. The customers who are all wanted the assistants of the Agents paid the commissions for the services rendered to the customers. Therefore, the customers are the principles in the circumstances of the case. The appellant received the commissions for the work done on behalf of the customer passengers. Therefore the interpretation by the assessing officer confirmed by the 1st Appellate authority is totally erroneous in the law and against the spirit of Income Tax Act and Rules. Therefore, the impugned order as well as the assessment order is liable to be set aside. e. The appellant submits that the assessing officer as well as the 1st appellate authority failed to consider that assessee is an authorized forex dealers and having, an RBI license to buy and sell forex. Under this capacity the assessee has sold the forex to the passengers who travel abroad on tour. On behalf of the principal, the assessee being an agent pays the hotel bill in forex i.e. riyals to settle the hotel bills of the principal. However, the assessee being a forex dealer and also being the agent on behalf of principal, comes under the exemption clauses (K) and (1) under Rule 6D0. Hence the determination of total income is totally against the facts and law and liable to be set aside. f. The Appellant submits that they may be permitted to file additional grounds at the time of hearing and that ground also taken as part and parcel of the appeal grounds before deciding the present appeal and thereby render justice.”
Brief facts of the case are that the assessee company is engaged in the business of tours and travels operator and also works as authorized foreign exchange dealer. The assessee has filed its return of income for the assessment year 2015-16 on 30.10.2015 declaring total income of Rs.1,02,790/-. During the course of assessment proceedings, it was noticed that the assessee has incurred expenses towards air ticket and hotel expenses in cash in excess of prescribed limit u/s.40A(3) of the Income Tax Act, 1961, and accordingly, the Assessing Officer has called upon the assessee to explain why disallowances cannot be made towards expenses incurred in cash by violation of provisions of section 40A(3) of the Act. In response, the assessee submitted that it has engaged in the business of tour and travels operator has booked air ticket on behalf of its customers and such air ticket needs to be booked by paying cash to the airlines and thus, its case comes under exception as per clause (k) of Rule 6DD of the I.T. Rules, 1962, and hence, disallowance cannot be made u/s.40A(3) of the Act. The assessee has also justified cash payment incurred
for hotel expenses and argued that it has purchased foreign exchange currency to be paid to its customers, who were travelling abroad as per tour itinerary of tour and such currency has been used to settle hotel bills. Therefore, it cannot be said that cash expenditure was incurred which comes under the provision of section 40A(3) of the Act. The Assessing Officer however, was not convinced with the explanation furnished by the assessee and according to him, case of the assessee does not come under any of the exception as provided under Rule 6DD of the I.T.Rules, 1962 and thus, disallowed total expenses incurred towards air ticket and hotel expenses amounting to Rs.22,69,275/- u/s.40A(3) of the Income Tax Act, 1961. The assessee carried the matter in appeal before the first appellate authority but could not succeed. The learned CIT(A) for the reasons stated in his appellate order sustained additions made by the Assessing Officer by holding that case of the assessee does not come under exception as provided under Rule 6DD of I.T.Rules, 1962. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.
The learned A.R for the assessee submitted that the learned CIT(A) erred in not appreciating fact that the assessee,
being a tour operator is required to make payment in cash while booking air tickets for its customers and thus, case of the assessee is squarely covered under exception as provided under clause (k) of Rule 6DD of I.T.Rules, 1962, because the assessee acts as an agent between customer and airlines. The learned A.R further submitted that the assessee does not incur expenditure in cash, however, it has purchased foreign currency and handed over to its customers who travel abroad as per tour itinerary and said foreign currency has been utilized to settle hotel bills in places where they stay during their journey. The Assessing Officer, without appreciating above facts, has simply made additions.
The learned D.R., on the other hand, submitted that there is no dispute with regard to fact that the assessee has incurred expenditure in cash for purchase of air tickets. The assessee had also incurred cash expenses for hotel accommodation. Therefore, case of the assessee comes under section 40A(3) of the Act. As regards arguments of the assessee in light of clause (k) & (j) of Income Tax Rules, 1962, there is no merit, because the assessee as a principal paid cash to airlines and hotel, but not as an agent, who is required to incur expenditure in cash. Therefore, arguments of the assessee that its case is covered under exception is devoid of merit.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee has incurred a sum of Rs.7,72,300/- towards air ticket booking and such expenditure has been incurred in cash. There is no dispute with regard to fact that the assessee has made cash expenditure in excess of prescribed limit as per provisions of section 40A(3) of the Act. Therefore, applicability of provisions of section 40A(3) is not in dispute.
But, it was arguments of the assessee before the Assessing Officer as well as learned CIT(A) that its case comes under exception as provided under clause (k) of Rule 6DD of I.T Rules, 1962, and as per said Rule, where payment is made by any person to his agent, who is required to make any payment in cash for goods or services on behalf of such person, then cash payments in excess of prescribed limit cannot be disallowed u/s.40A(3) of the Act. In this case, if you examine facts of the assessee’s case in light of clause (k) of Rule 6DD of I.T. Rules, 1962, we find that the assessee has not made cash payment to his agent, who is required to make payment in cash for goods or services on behalf of the assessee, but the assessee has made direct cash payment to airlines for booking air ticket. Therefore, the assessee’s case does not cover under Clause (k) of Rule 6DD of I.T. Rules, 1962. However, there is merit in arguments of the assessee that it has acted only as agent for his customers and has booked air ticket on behalf of its customers, because it is general practice in this kind of industry that tour operators will collect money from its customers and in turn, make cash payments for booking air ticket, because airlines generally does not accept cheque payments, other than cash payment or on line payment.
Therefore, this fact needs to be verified from the Assessing Officer to ascertain fact with regard to arguments of the assessee that it has made cash payment to airlines on behalf of its customers as their agent and thus, same needs to be outside scope of section 40A(3) of the Income Tax Act, 1961.
As regards cash payments made for hotel expenses, although, the Assessing Officer stated that the assessee has incurred expenses in cash, but it was the argument of the assessee that it has purchased foreign currency (Saudi Riyal)
Hajj pilgrimage as
per itinerary and customers paid hotel bills in foreign currency.
The assessee had also filed license issued by the Reserve Bank of India to deal with foreign currency in light of provisions of clause (l) of Rule 6DD of I.T Rules, 1962, and argued that it needs to make payment in cash for buying foreign currency.
The facts are contradictory. The Assessing Officer observed that the assessee has paid cash for hotel expenses, whereas the assessee claims that it has paid cash for purchase of foreign currency and expenditure has been incurred in foreign currency by its customers. If at all, claim of the assessee is correct, then case of the assessee comes under clause (l) of Rule 6DD of I.T.Rules, 1962, which says where payment is made by authorized dealer or money changer against purchase of foreign currency or traveler cheque in the normal course of business, then cash payment cannot be disallowed u/s.40A(3) of the Income Tax Act, 1961. This fact needs verification from the Assessing Officer. If the Assessing Officer finds that the assessee being a forex dealer paid cash for purchase of foreign currency, then its case comes under exception as provided under clause (l) of 6DD of I.T. Rules, 1962, and thus, the Assessing Officer shall delete additions made towards disallowance of cash payment u/s.40A(3) of the Act. Hence, we set aside the issue to the file of the Assessing Officer and direct the A.O to reconsider the issue in light of our findings given hereinabove and decide the issue in accordance with law, after giving an opportunity of hearing to the assessee.