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Income Tax Appellate Tribunal, “SMC-C” BENCH : BANGALORE
Before: SHRI JASON P BOAZ
This appeal is directed against the order of CIT(Appeals)-3, Bengaluru, dated 07.12.2018 for assessment years 2015-16.
Briefly stated, the facts of the case are as under:-
2.1 The assessee company, engaged in the business of development and construction of flats, filed its return of income for Assessment Year 2015-16 on 27.09.2015 declaring income of Rs.15,96,560/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short ‘the Act’) and the case was subsequently taken up for scrutiny for this Assessment Year. The assessment was concluded under section 143(3) of the Act vide order dated 26.12.2017 wherein the assessee’s income was determined at Rs.49,44,395/-; in view of disallowance of Rs.33,47,835/- under section 37 and alternately under section 40A(3) of the Act. The assessee’s appeal was dismissed by CIT(A) vide the impugned order dated 07.12.2018.
Aggrieved by the order of CIT(A)-3, Bengaluru, dated 07.12.2018 for Assessment Year 2015-16, the assessee has preferred this appeal before the Tribunal, raising the following grounds:
The orders of the authorities below in so far as they are 1. against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. The learned CIT[A] is not justified in upholding the 2. disallowance of a sum of Rs. 33,47,835/- u/s 40A[3] of the Act in respect of the cash payments made in excess of Rs.20,000/- to various parties for purchase of Sand, Jelly and brick under the facts and in the circumstances of the appellant's case. Without prejudice to the right to seek waiver with the 3. Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. For the above and other grounds that may be urged at the 4. time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
Ground Nos. 1 and 4, being general in nature and not urged, are dismissed as infructuous.
Ground No.3 – Charging of interest under section 234B and 234C of the Act 5.1 In this ground (supra), the assessee denies himself liable to be charged interest u/s 234B and 234C of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I, therefore, uphold the action of the AO in charging the assessee the aforesaid interest u/s 234B and 234C of the Act. The AO is, however, directed to re-compute the interest chargeable u/s 234B and 234C of the Act, if any, while giving effect of this order.
Ground No.2 – Disallowance under section 40A(3) of the Act 6.1 In support of the ground raised (supra), the learned AR submitted that the AO had made a disallowance of Rs.33,47,835/-; on account of cash purchases of jelly, sand and bricks, after observing that the vouchers were self- made. The learned AR drew attention to the details furnished before the AO with regard to the purchase of jelly, sand and bricks during the earlier financial years 2011-12 to 2013-14 in the form of a chart to show that the assessee has paid amounts for purchases of these materials; both in the form of cash as well as by cheques (copies at pages 42 to 47 of Paper Book). It was submitted that in the said chart, the assessee has given the PAN numbers of all the suppliers wherever available, along with their addresses and there was no verification attempted by the Assessing Officer (AO) to discredit the aforesaid claim made by the assessee. The learned AR submitted that the AO has disbelieved the entire purchases made in cash and has also invoked the provisions of section 40A(3) of the Act, in the alternate. Reference was also made to the ledger account of project expenses to point out that not all cash payments are made in excess of Rs.20,000/-. According to the learned AR, having regard to the nature of the business carried out by the assessee, i.e., civil construction and the urgent requirement of materials on certain occasions, cash purchases are made and the same cannot be doubted since the purchases are also made from the same persons to whom larger payments are made in the form of cheque. It was prayed that the entire disallowance of Rs.33,47,835/- ought to be deleted.
6.1.2 With regard to the payments made in excess of Rs.20,000/- by way of cash, the learned AR submitted that the said expenses cannot be disallowed, since they had to be incurred on account of urgent business requirements.
6.2 Per contra, the learned DR supported the orders of the CIT(A) and submitted that no material was brought on record by the assessee to evidence urgent business necessity in respect of cash payments in excess of Rs.20,000/-.
6.3.1 I have considered the rival contentions / submissions and perused the material on record. From an appraisal of the record, it is seen that the assessee has undertaken a project for construction of residential apartments in the name of Griha Shrishti and has incurred expenditure on the project from Financial Year 2011-12 onwards. As per Percentage Completion Method, the assessee had offered income from this project from Assessment Year 2012-13 onwards. In the year under consideration i.e., 2015-16, the assessee has completed the project and recognized the entire revenue from the project. In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had incurred construction expenditure amounting to Rs.1,18,13,554/-; that consisted of Rs.48,75,785/-; Rs.22,50,656/- and Rs.46,87,112/- respectively for purchase of sand, jelly and bricks and called upon the assessee to furnish further details. In response thereto, the assessee furnished the vouchers for purchase of the materials; many of these vouchers were self-made and further; payments were made in cash to the extent of Rs.33,47,835/- and the balance were paid to the suppliers by way of cheque. The AO concluded that the cash payments were not genuine and disallowed them under section 37 of the Act and also alternately invoked the provisions of section 40A(3) of the Act.
6.3.2 Before the CIT(A), the assessee had contended that the aforesaid cash expenditure of Rs.33,47,835/- was incurred for construction activity in the periods relevant to Assessment Years 2012-13 to 2014-15 (i.e., in Financial Years 2011-12, 2012-13 and 2013-14) and therefore the same could have been disallowed only in those years and not in the year under consideration i.e., Financial Year 2014-15 relevant to Assessment Year 2015-16. In my view, the CIT(A) had rightly rejected this contention raised by the assessee; taking the view that the entire project expenses was debited to the profit and loss account for the year under consideration / appeal and therefore the same could be examined by the AO. In this view of the matter, no infirmity is found in the order of the CIT(A) on this score.
6.3.3 Before me, it was also contended by the assessee that the AO has disallowed the entire cash purchases in respect of jelly, sand and bricks and that these cash purchases cannot be disbelieved merely because it was supported by self vouchers. I find that this contention of the assessee is quite justified and cannot be brushed aside merely on suspicion and surmise. The accounts of the assessee have been subjected to tax audit under section 44AB of the Act and neither has any adverse material been pointed out by the Auditors nor has the AO made out any case to show that the accounts are not reliable. The explanation put forth by the assessee that small quantities of materials are purchased as and when the need arises on a day-to-day basis for construction purposes cannot be ignored outright. However, from an examination of the ledger account of project Griha Srishti, expenses from Assessment Year 2011- 12 on wards that has been filed at pages 158 to 191 of paper book, it is seen that there are instances of cash payments made by the assessee in excess of Rs.20,000/- on various days which are extracted hereunder: Date Particulars Amount (Rs) 28.04.2012 Cash 20,000/- 18.08.2012 Cash 35,000/- 18.08.2012 Cash 23,500/- 21.08.2012 Cash 23,400/- 06.09.2012 Cash 40,000/- 22.09.2012 Cash 20,850/- 05.10.2012 Cash 30,000/- 05.10.2012 Cash 22,075/- 05.10.2012 Cash 25,000/- 20.10.2012 Cash 21,450/- 15.12.2012 Cash 20,000/- 15.12.2012 Cash 20,000/- 15.12.2012 Cash 20,000/- 31.12.2012 Cash 32,500/- 05.01.2013 Cash 20,000/- 05.01.2013 Cash 22,100/- 26.01.2013 Cash 30,000/- 02.02.2013 Cash 22,500/- 06.02.2013 Cash 20,000/- 12.03.2013 Cash 95,000/- 13.03.2013 Cash 60,000/- 20.03.2013 Cash 20,850/- Total 6,24,225/- 6.6 The explanation put forth by the assessee with regard to the aforesaid cash payments in excess of Rs.20,000/- is not acceptable as it does not come within the exceptional circumstances provided in terms of Rule 6DD of the Income Rules, 1962. Therefore, the disallowance in respect of cash payments has to be upheld to the above extent of Rs.6,24,225/- and consequently the balance of Rs.27,23,610/- is deleted. It is accordingly ordered.
In the result, the assessee’s appeal for Assessment Year 2015-16 is partly allowed.
Order pronounced in the open court on this 3rd day of April, 2019.