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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R Per A. Mohan Alankamony, AM:-
The appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-12, Chennai, dated 17.08.2017 in for the assessment year 2012-13 passed U/s.250(6) r.w.s. 143(3) of the Act.
The assessee has raised several grounds in its appeal however the cruxes of the issues are that:-
(i) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had made addition of Rs.56,548/- invoking the provisions of Section 40(A)(3) of the Act for having paid M/s. Balamurugan Transport in cash on a single day more than Rs.20,000/- towards transport charges for transporting blue metal. (ii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed provision for overtime wages amounting to Rs.3,35,905/-.
The brief facts of the case are that the assessee is a firm engaged in the business of manufacturing PSC sleepers, filed its return of income for the assessment year 2012-13 on 28.09.2012 declaring loss of Rs.17,90,046/-. The case was selected for scrutiny and notice U/s.143(2) of the Act was issued on 07.03.2013. Finally assessment order was passed U/s.143(3) of the Act on 15.03.2015 wherein the Ld.AO made several additions.
Ground No.2(i) : Disallowance U/s.40A(3) of the Act:- During the course of scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had made cash payments more than Rs.20,000/- on a single day to M/s.
Balamurugan Transport i.e., on 02.07.2011 Rs.33,368/- and on 06.08.2011 Rs.23,180/- was paid in cash. On query, it was explained by the assessee, that though cash payments were made above Rs.20,000/- in a single day, the payment were made at different times on the day for supply of blue metal. The assessee had also explained that several invoices were raised in a day towards supply of blue metal and on each occasion cash payment was made below Rs.20,000/-. However the Ld.AO rejecting the explanation made by the assessee, added the aggregate amount of Rs.56,548/- to the income of the assessee by disallowing the expenditure invoking Section 40A(3) of the Act. On appeal, the Ld.CIT(A) taking into consideration of the consolidated entry passed by the assessee in its books of accounts upheld the order of the Ld.AO.
4.1 Before us the Ld.AR reiterated the submissions made before the Ld.Revenue Authorities on the earlier occasions and the Ld.DR argued in support of the orders of the Ld.Revenue Authorities.
4.2 We have heard the rival submissions and carefully perused the materials on record. Provisions of Section 40A(3) of the Act, stipulates that where an assessee incurs any expenditure in respect of which payment or aggregate of payments, made to a person in a single day by cash, no deduction shall be allowed in respect of such expenditure. In the case of the assessee, it is evident that it had made payment above Rs.20,000/- in a single day viz., on 02.07.2011 and 06.08.2011, therefore the provisions of Section 40A(3) of the Act squarely attracts in the case of the assessee. Hence we do not find any infirmity in the orders of the Ld.Revenue Authorities on this issue. Accordingly we hereby confirm the order of the Ld.CIT(A) on this issue for having made addition of Rs.56,548/- invoking the provisions of Section 40A(3) of the Act.
Ground No.2(ii) : Disallowance of provision for overtime wages amounting to Rs.3,35,905/-:- During the course of scrutiny assessment proceedings it was observed by the LD.AO that the assessee had made provision for overtime wages amounting to Rs.3,35,905/-. On query, it was explained by the assessee that the expenditure was incurred by the assessee for the relevant assessment year though actual payment was made during the subsequent assessment year and accordingly in the subsequent assessment year the provision account was reversed. However, the Ld.AO opined that the provision made for the relevant assessment year cannot be allowed as deduction because it was not an ascertained liability but only a contingent liability. On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO by holding that “provisions” made cannot be allowed as deduction even under mercantile system of accounting.
5.1 At the outset, we defer from the view of the Ld.Revenue Authorities. According to the assessee, the expenditure towards wages was incurred during the relevant assessment year as the workers had executed the work during the relevant assessment year however payment was made in the subsequent year. In such situation the Ld.Revenue Authorities has no reason to hold that the wage expense was not an ascertained liability when there are no materials to establish the fact otherwise. In mercantile system of accounting, the actual expense incurred during the relevant assessment year is recognized as revenue expenditure though the payments are made during the subsequent assessment years. Therefore we do not find any merit in the orders of the Ld.Revenue Authorities on this issue. Since the overtime wage expense is incurred during the relevant assessment year as the work was rendered during the relevant assessment year, we hereby hold that it is an allowable expenditure for the relevant assessment year though the actual payment is made in the subsequent assessment year keeping in view of the principles of the “Mercantile System” of accounting. Accordingly we hereby direct the Ld.AO to delete the addition of Rs.3,35,905/- made in the hands of the assessee.
In the result the appeal of the assessee is partly allowed.
Order pronounced on the 05th June, 2018 at Chennai.