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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:
These are appeals filed by the assessee directed against an order dated 31.03.2017 of ld. Commissioner of Income Tax (Appeals)-3, Chennai, for the impugned assessment years. to 1376/Mds/17. :- 2 -:
Common ground raised by the assessee in all these appeals 2. is on denial of deduction claimed by it u/s. 10B of the Income Tax Act, 1961 (in short ‘’the Act’’). Apart from this, for assessment year 2011- 2012, assessee has raised two other grounds, which assail disallowance of �1,30,32,500/- made u/s.40A(3) of the Act and disallowance of �5,38,109/- made for certain purchases.
Taking up the common issue raised by the assessee for all 3. the assessment years which is on disallowance u/s.10B of the Act, ld. Counsel for the assessee submitted that this issue had travelled to this Tribunal in an earlier round of proceedings in 898, 899 & 900/Mds/2016. As per the ld. Authorised Representative, this Tribunal had remitted the issue back to the file of the ld. Assessing Officer vide its order dated 22.07.2016 for verifying whether ‘’Board of approval for Export Oriented Unit (herein after referred as ”EOU’’) schemes’’ had ratified assessee’s approval for the purpose of availing deduction u/s.10B of the Act. As per the ld. Authorised Representative, in the second round of proceedings also assessee had submitted the minutes of the meeting of the Board of approval for EOU scheme, held on 25th March, 2011. Contention of the ld. Authorised Representative was that the said Board had ratified the approval given to the assessee by the Development Commissioner. As per the ld. Authorised Representative, to 1376/Mds/17. :- 3 -:
Development Commissioner had vide its order dated 19.03.2007 recognized the assessee as 100% EOU. Contention of the ld. Authorised Representative was that this was reaffirmed through an order dated 10.06.2012. As per the ld. Authorised Representative in the letter dated 27.03.2014 from Development Commissioner of MEPZ, Chennai, it was clearly stated that approval given by the Development Commissioner of MEPZ/SEZ on 09.03.2007, stood ratified by the Board of Approval of EOU scheme, in its meeting held on 25.03.2011.
Contention of the ld.AR was that CBDT Instruction No.2/2009, dated 09.03.2009 read alongwith Corrigendum to the said instruction issued on 08.05.2009 clearly validated approvals given by the Development Commissioner as 100% EOU, once it was ratified by Board of Approval for EOU scheme, for the purpose of claiming exemption u/s.10B of the Act. Despite this as per the ld. Authorised Representative, ld. Assessing Officer in the fresh assessment, pursuant to the directions of the Tribunal, held the assessee as not eligible for claiming deduction u/s.10B of the Act. As per the ld. Authorised Representative, ld. Assessing Officer had relied on a judgment of Hon’ble Delhi High Court in the case of CIT vs. Regency Creations Ltd, 353 ITR 326 for taking a view that there was no official document authorizing any officer or agency to perform the duties of the Board constituted u/s.14 of the Industries (Development and Regulation) Act, 1951. to 1376/Mds/17. :- 4 -:
Continuing his submissions, ld. Authorised Representative 4. argued that ld.CIT(A) upheld the order of the ld. Assessing Officer for reasons which were entirely wrong and irrelevant. As per the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) gave a finding that assessee was having business in domestic tariff area also. Contention of the ld. Authorised Representative was that sale in domestic tariff area would not disentitle the assessee from claiming deduction u/s.10B of the Act. According to him, the formula prescribed in the said Section for working out the quantum of such deduction contemplated presence of local sales. Again as per the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) took an erroneous view that assessee had created evidence for claiming approval from the board. For taking this view, as per the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) relied on certain other cases where similar approvals were furnished, which approvals were worded in a different manner. Contention of the ld. Authorised Representative was that if Revenue had any doubt regarding authenticity of the clam, it could have addressed a letter to the concerned Board and obtained confirmation. Having not done so, as per the ld. Authorised Representative, lower authorities were not justified in denying the claim made by the assessee u/s.10B of the Act. to 1376/Mds/17. :- 5 -:
Per contra, ld. Departmental Representative strongly 5.
supporting the orders of the lower authorities submitted that assessee could not produce the Board approval which was a prerequisite under Explanation 2(iv) to Sec.10B of the Act.
We have considered the rival contentions and perused the orders of the authorities below. Directions given by the Tribunal in the earlier round of proceedings through its order dated 22.07.2016 in to 900/Mds/2016. Para 7 of the said order were as under:-
7.We heard the rival submissions, perused the material on record and judicial decisions cited. The Arguments of the ld. Authorised Representative that the ld. Assessing Officer has rejected the claim of deduction u/s. 10B of the Act relying on the findings of the ld. Assessing Officer in subsequent assessment year in his assessment order. The ld. Assessing Officer is of the opinion that ratification of Board of approval for EOU scheme is not the same and irrespective of the fact that the assessee has complied the conditions for eligibility of deduction u/s.10B of the Act. The ld. Authorised Representative drew our attention to the page no.2 to 5of paper book were a letter dated 27.03.2014 addressed to the assessee and Office Memorandum dated 28.03.2011 and part -II was filed as under: Government of India, Ministry of Commerce and Industry, Department of Commerce, Office of the Development Commissioner, MEPZ SPECIAL ECONOMIC ZONE & HEOUs in Tamil Nadu, Poodicherry, & Andaman Nicobar Island Administrative Office Building, National Highway-45, T ambaram, Chennai - 600 045.
F. No.A/2007/08/EOU-TN, to 1376/Mds/17. :- 6 -:
Dated 27.03.2014 M/s.RC Golden Granites P\lt I td., MC5fN()fl,Type 11, Dr.VSI Estate, Thiruvanmiyur, Chennai 600 041. Sub: MEPZ 100% EOU - claiming of Income Tax Exemption - reg. Ref:
1. 1. Your letter dated 17.3.2014.
2. LOP No. A/2007/008/EOU-TN dated 9.3.2007. ************
Please refer to your letter cited above. It is informed that M/s. RC Golden Granites Pvt Ltd., were issued LOP By the Development Commissioner, MEPZ - SEZ vide this office letter No. A/2007 /008/EOU- TN dated 9.3.2007 issued to your unit for setting up a new 100% EOU for manufacture and export of your licensed product at, RS No. 124, Mangalam Village, Uthiramerur, Mathuranthagam Taluk, Kancheepuram District - 603 107, Tamilnadu, under the provisions of Exim Policy 2004-09. The said approval was subsequently ratified by the Board of Approval in its 2nd meeting (2011 series) held on 25.3.2011 ( copy enclosed).
Yours faithfully,
(UMA RAGHUNATHAN) Asst. Development Commissioner Encl: Copy of the minutes of the BOA for Development Commissioner
MOST /IMMEDIATE BY FAX/SPEED POST No.F14/2/2011-EOU Government of India Ministry of Commerce and Industry, Department of Commerce. Udyog Bhawan, New Delhi The 28th March, 2011
003170 OFFICE MEMORANDUM to 1376/Mds/17. :- 7 -:
Subject:- Minutes of the 2nd meeting (2011 series) of the Board of Approval for the EOU scheme held on 25th March, 2011.
The undersigned is directed to forward herewith a copy of the 'minutes of the, 2nd Meeting (2011 series] of the Board of Approval for EOU Scheme held on 25.03.2011 for necessary action. 1. Implementation report on the decisions taken by the Board of approval may please for forwarded to this Department on priority basis. Encl: As above.
(G. Muthuraja) Under Secretary to the Govt. of India. Tel23061762 Email:g.muthuraja@nic.in 1.Shri Shyamal Mishra, 'Director, % Industrial Policy & Promotion 2. CBEC (Member (customs) M/o. Finance. 3.CBDT (Member(Income Tax) M/so. Finance 4. DGFT.
The Joint Secretary, M/o. Environment & Forest.
6. The Joint Secretary, M/o Science & Technology.
The Additional Development Commis sioner, MSME, M/o. Micro, Small and Medium Enterprises.
The Development Commissioner, SEEPZ-SEZ, FSEZ, MSEZ, VSEZ, KASEZ, CSEZ, NSEZ & ISEZ.
9. The Director General, EPCES.
10. All concerned Administrative Ministries. Copy to PPS to PPS to SS(PKC)/PS to JS(TS)/PS to JS(AW) PS to Dir (SS)
PART II Approval granted by Development Commissioner under Delegated Powers for ratification of BOA as per Press Note No.3 of 1995
(i) The Board ratified the approvals granted by Unit Approval Committee (except ISEZ and NSEZ from which no such proposal was received) as below: to 1376/Mds/17. :- 8 -:
A Approval granted under delegated powers for CSEZ the month of December,2010 and January, 2011 B Approval granted under delegated powers MEEZ for the month of and January, 2011 C Approval granted under delegated powers for FASEZ the month of December,2010 and January, 2011 D Approval granted under delegated powers for SEEPZ the month of January, and February 2011 E Approval granted under delegated powers VSEZ for the month of December, 2010 January, and February 2011 F Approval granted under delegated powers KASEZ for the month of October 2010 to December, 2010. G Approvals not received ISEZ H Approvals not received NSEZ
(ii) The Board also ratified the approvals given by SEZs(Old cases) as below:-
1 Ratification of project approvals under KASEZ automatic approval scheme Year 2001 to 2002 (19LOPS) Year 2002 to 2003 (20LOPS) Year 2003 to 2004 (20LOPS) Year 2004 to 2005 (13LOPS) Year 2005 to 2006 (38LOPS) Year 2006 to 2007 (23LOPS) Year 2007 to 2008 (4 LOPS)
2 Year 2005 to 2006 (52LOPS) MSEZ Year 2006 to 2007 (52LOPS) Year 2007 to 2008 (41 LOPS) Year 2008 to 2009 (33LOPS) Year 2009 to 2010 (19 LOPS) Year 2010 to Jan, 2011 (28 LOPS) 3 March to May, 2010 SEEPZ June to July, 2010 August to Sept 2010
Lop 2006-07
44 RC Golden Grantiies Pvt. Ltd A/2007/008/EOU- PY 09.3.2007 45 SOWRAG Agro Exports A/2007/008/EOU- T 19.02.2007 46 Nachoris Enterprises A/2006/024/EOU- 12.04.2006 to 1376/Mds/17. :- 9 -:
47 K.M.B. Granites (P) Ltd A/2007/006/EOU 29.01.2007 48 Photon Infortech Pvt. Ltd A/2006/80/EOU-TN 08.01.2007 49 Avathar International A/2007/50/EOU-TN 10.10.2007 50 Amrita Chemicals (India) A/2007/17/EOU-TN 19.04.2007 51 Arasan Technology P. Ltd A/2006/002/EOU-TN 31.03.2006 52 Bala Murugan A/2006/067/EOU-TN 26.06.2006 Company 53 Standard Granities A/2006/36/EOU-TN 19.05.2006 A/2006/30/EOU-TN 54 Stetlite Industries (I) Ltd 27.04.2006
On perusal of the letter dated 27.03.2014, the Development Commissioner informed that the Board has subsequently ratified its approval in second meeting held on 25.03.2011. Further, on perusal of the document dated 28.03.2011 from Government of India, Ministry of Commerce and Industries, Department of Commerce were the minutes of the 2nd meeting of the Board of Approval for EOU scheme held on 25.03.2011 and was endorsed to the Development Commissioners at Sl. No.8. The ld. Authorised Representative drew our attention to the CBDT instructions dated 09.03.2009 on the subject of Section 10B clarifications regarding validity of approvals given by Development Commissioner has been examined by the Board. It has been decided that an approval granted by the Development Commissioner in the case of an export oriented unit set up in an Export Processing Zone will be considered valid, once such an approval is ratified by the Board of approval for EOU scheme and in subsequent corrigendum dated 08.05.2009 it was mentioend that as under:- ‘’CBDT has issued an instruction no.02/2009, dated 9th March, 2009. The second para of that instur4itron may be substituted with the following para:’’
‘’The matter regarding validity of approvals given by Development Commissioners has been examined in the Board it has been decided that an approval granted by the Development Commissioner in the case of an hundred percent export oriented unit will be considered to 1376/Mds/17. :- 10 -: valid once such an approval is ratified by the Board of Approval for EOU Scheme.
This may kindly be brought into the notice of all officer under your charge’’.
The ld. Authorised Representative relied on the judicial decisions and we on perusal of decision of Gujarat High Court in the case of Principal Commissioner of Income Tax vs. ECI Technologies Pvt. Ltd (2015) 375 ITR 0595 (Guj) were similar issue on Sec. 10B was dealt were it was held as under: ‘’It is an admitted position that there was already a permission/ approval granted by the Development Commissioner declaring /approving the assessee as 100% EOU. However, on considering the word, approved by the Board of Approval as mentioned in Sec. 10 of the Act and at the relevant time there was no ratification of the decision of the Development Commissioner by the Board of Approval, the Assessing Officer denied the deduction under Section 10B of the Act. However, it is required to be noted and it is not in dispute that vide Circular / instruction of the CBDT dated 09/03/2009 it was clarified that the approval granted by the Development Commissioner in the case of Export Oriented Unit set up in an Export Processing Zone will be considered valid, once such an approval is ratified by the Board of Approval for EOU Scheme. In the present case, it is not in dispute that the permission / approval granted by the Development Commissioner has been ratified by the Board of Approval, may be subsequently. The moment the decision / approval of the Development Commissioner is ratified by the Board of Approval it will relate back to the date on which the approval was granted by the Development Commissioner. If that be so, it cannot be said that the assessee was not a Export Oriented Unit, which was entitled to the deduction under Section 10B of the Act. Incidentally it is to be noted that in the subsequent circular NO.68 issued by the Export Promotion Council for Eous & SEZS dated 14/05/2009 it mentions that from 1990 onwards to 1376/Mds/17. :- 11 -:
Board of Approval had delegated the power of approval of 100% to the Development Commissioner and, therefore, it can be very well argued and said that the Development Commissioner while granting the approval of 100% EOU exercises delegated powers. In any case and apart from the above when it is found that at the relevant time the Development Commissioner granted the approval of 100% EOU in favour of the assessee-Company, which came to be subsequently ratified by the Board of Approval and as observed hereinabove as such the ratification shall be from the date on which the Development Commissioner granted the approval, both the learned CIT(A) as well as the learned Tribunal have rightly held that the assessee was entitled to deduction under Section10B of the Act as claimed. HIGH COURT confirm the view taken by both the authorities below holding that the assessee was entitled to 100% EOU as claimed. No substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed. The ld. Authorised Representative supported the case with the facts and law with High Court decisions and find the Co-ordinate Bench of the Tribunal in the case of ACIT vs. M/s. Severn Glocon (India) Pvt. Ltd in dated 19.06.2014 held in para 9, page 6 in respect of claim of Sec. 10B and alternative claim u/s.10A of the Act held as under:- ‘’9. We have considered the rival submissions on either side and perused the relevant material on record. Explanation 2(iv) to Section 10B clearly says that approval by the Board appointed by Government of India under Section 14 of the Industries (Development & Regulation) Act, 1951 is an essential condition. In this case, though the assessee claims that the approval initially granted by Development Commissioner, Special Economic Zone was ratified by the Board, it is not clear from the material available on record whether ratification was accorded by the Board constituted by Government of India under Section 14 of the Industries (Development & Regulation) Act, 1951. In the absence of any material to show that whether the approval was accorded by the Board constituted under Industries (Development & Regulation) Act, 1951, this Tribunal is of the considered opinion that the matter needs to be re- examined. Moreover, Section 10A also gives to 1376/Mds/17. :- 12 -: exemption to 100% export oriented unit. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer in the light of the provisions of Section 10A of the Act, in case the assessee is not eligible under Section 10B of the Act. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue afresh and find out whether the Board constituted by Government of India under Section 14 of the Industries (Development & Regulation) Act, 1951 has approved the assessee as 100% export oriented unit. In case such approval was not granted, the Assessing Officer shall also examine the claim of the assessee under Section 10A of the Act on merit, in accordance with law, after giving a reasonable opportunity to the assessee’’.
So, we are of the opinion that Board has ratified the approval of 100% EOU which is not disputed by the Revenue. The decision of ECI Technologies Pvt. Ltd (cited supra) has dealt on the issue were the approval of Development Commissioner was ratified by the Board of Approval shall relate back to the approval of Development Commissioner. In the present case, the ld. Assessing Officer is of the opinion that the assessee has not fulfilled the conditions stipulated under the Act and the assessee company is 100% EOU doing business of manufacture and export of marbles and granites. The ld. Assessing Officer has also interpreted the explanation that the approval should be 100% EOU by the Board appointed on behalf of Central Government and is of the view that Development Commissioner letter of the MEPZ SEZ dated 27.03.2014 regarding ratification is not prescribed one as per provisions of Sec. 10B of the Act. The ld. Assessing Officer has not made any independent investigation or adduce any evidence with authentic proof that the assessee is not eligible for deduction u/s.10B of the Act. Further, the ld. Commissioner of Income Tax (Appeals) has rejected the additional evidence produced under provisions of Rule 46A in the appellate proceedings irrespective of the fact that sufficient cause was explained for not filing in assessment proceedings. Now the question arise, the ld. Assessing Officer or ld. Commissioner of Income Tax (Appeals) had never verified the credible evidence and documents which are vital for claim of the assessee company. We respectfully following the Co-ordinate Bench decision in the case of M/s. Severn Glocon (India) Pvt. Ltd (cited supra) remit the disputed issue to the file of Assessing Officer to re-examine the issue afresh considering approval of the board and pass the order and the assessee to 1376/Mds/17. :- 13 -: should be provided adequate opportunity of being heard and also alternative claim on Sec. 10A of the Act. The ground of the assessee is allowed for statistical purpose.
Only reason why the matter was remitted back to the ld. Assessing Officer was for verifying the evidence and documents produced by the assessee with regard to the claim under section 10B of the Act preferred by the assessee. Ld. Assessing Officer in the fresh assessment passed on 29.12.2016 made the following observations:-
‘’The assessee was provided with an opportunity to represent the case vide this office letter dt. 21.10.2016. In response to the same, Shri K. R. Prasanna Bhaskaran, FCA appeared and filed the necessary particulars and details called for. The same were examined and the case was discussed. As per explanation 2(iv) to Sec. 10B, "100% Export Oriented Undertaking means an Undertaking which has been approved as a 100% EOU by the Board appointed in this behalf by the Central Govt. in exercise of powers conferred by section 14 of the Industries Development and Regulation Act, 1951". From the above explanation, it is very clear and unambiguous that approval by the competent authority is necessary for grant of benefit under section 10B
The authorised representative has submitted copy of the Green Card as an 100% EOU and a letter of the Development Commissioner of MEPZ(SEZ) dated 27.03.2014 wherein it was stated that the approval for setting up a 100% EOU has been ratified by the Board of approval in its 2nd meeting (2.011 series) held on 25.03.2011 along with the copy of minutes of the meeting which is not the prescribed one as per provisions of Section 10B of the I.T.Act,1961. to 1376/Mds/17. :- 14 -:
It has been held in the case of Regency Creations Ltd. and Valiant Communications Ltd. as under:
"There is no notification or official document suggesting that either the Inter-Ministerial committee or any other officer or agency was nominated to perform the duties of the Board (constituted under section 14 of the IOR Act) for the purposes of approvals u/s10B. Though the consideration which apply for granting approval uls 10A and 10B may, to an extent overlap, yet the deliberate segregation of these two benefits by the Statute reflect the Parliamentary intention that the specific procedure enacted for the purpose under either has to be followed to qualify for benefit. There is nothing in any of the circulars or instruction implying that approval for purpose for purposes of an STPIEOUIEPZ also entitled Q unit to benefit u/s 10B." Further, the assessee has not submitted any additional evidence during the course of assessment proceedings Since, the assessee has failed to get the approval from the Board appointed on this behalf, the claim of deduction u/s. 10B is disallowed’’.
A reading of the above clearly indicate that the ld. Assessing Officer had not followed the directions of the Tribunal. Ld. Assessing Officer was required to verify the evidence produced by the assessee and come to a conclusion whether assessee’s claim under Section 10B of the Act could be allowed in the light of instruction No.F.No.178/19/2008-ITA-I, dated 09.03.2009 alongwith corrigendum dated 08.05.2009 and approvals placed by the assessee. As against this, a reading of the order of the ld. Commissioner of Income Tax (Appeals) show that ld. Commissioner of Income Tax (Appeals) to 1376/Mds/17. :- 15 -: entertained some doubt regarding assessee’s eligibility for claiming exemption u/s.10B of the Act, since it was having sales in local tariff area. In our opinion, this was not an essential criteria for adjudication the eligibility of the assessee for deduction u/s.10B of the Act. What is required under the Act is an approval as 100% EOU. The formula prescribed in Sub Section (4) of Section 10B of the Act clearly restricts such deduction based on the proportion of export turnover to the total turnover. This clearly implies that there could be local turnover also.
7. Only other reason cited by the ld. Commissioner of Income Tax (Appeals) for confirming the disallowance of the assessee was his doubt on the wording of the approval given by the Board of EOU Scheme. As per the ld. Commissioner of Income Tax (Appeals) approval should have been worded in the following format, as done in certain other cases. Minutes of 4th BOA (2013) for EOUs Dated 30.08.2013. Minutes of the 4th Meeting (2013 series) of Board of Approval for EOU SCHEME held under the Chairmanship of Commerce Secretary on 30.08.2013 AT 1000 Hours in Room No.47, Udyog Bhawan, New Delhi. The 4th meeting (2013) Series of the Board of Approval for EOU was held on 30.8.2013 under the Chairmanship of Shri S.R. Rao, Commerce Secretary in Room No.47, Udyog Bhawan, New Delhi. The Chairman welcomed all the members of the BOA The Chairman appreciated and placed on record the good work done by Shri Manoj Arora Addl. to 1376/Mds/17. :- 16 -:
DGEP in assisting the efforts of the committee of DCs SEZ.
In our opinion, this also was not a good reason for denying deduction claimed by the assessee. Assessee has no control over the authorities granting the approvals, for dictating the manner in which such approval was to be granted. If ld. Assessing Officer/ld. Commissioner of Income Tax (Appeals) had any doubt regarding the authenticity of the documents submitted by the assessee they should have addressed a letter to the competent authority of the Board of Approval and obtained a confirmation. Ld. Commissioner of Income Tax (Appeals) should not have insisted on the assessee to produce minutes of the Board of Approval in a manner that he desired. Nevertheless, considering the facts and circumstances of the case, we are inclined to set aside the issue back to the file of the ld. Assessing Officer for carrying out necessary enquiry with the appropriate authority, seeking confirmation for the claim of the assessee that it was an approved 100% EOU for the purpose of Sec. 10B of the Act. If such enquiry show that assessee was approved as 100% EOU, then it shall be granted the deduction claimed u/s.10B of the Act. Since the assessee has produced all documents with it, the onus will be on the ld. Assessing Officer to obtain such confirmation from the concerned authorities. If such confirmation is not forthcoming, despite efforts put to 1376/Mds/17. :- 17 -: by the Department, then assessee’s claim will have to be allowed. We set aside the orders of the lower authorities on this issue for this limited purpose and remit it back to the ld. Assessing Officer for consideration afresh in accordance with the directions given above.
8. This leaves us with two other grounds raised by the assessee in its appeal for assessment year 2011-2012. First is on a disallowance of Rs.1,30,32,500/- made u/s.40A(3) of the Act.
Ld. Counsel for the assessee submitted that this was also an issue set aside by this Tribunal in its earlier order dated 22.07.2016.
As per the ld. Authorised Representative, ld. Assessing Officer in the fresh proceedings had cited the following reasons for making such disallowance once again. ‘’1. No date wise reconciliation was done and none of the expenses was matched with the cash book.
The assessee failed to submit proper explanation for having incurred expenses on salary, diesel, purchase of raw material, repairs and maintenance, payment made to small vendors etc. 3.No fresh submissions have been made by the assessee to prove his claim. Therefore, payments exceeding Rs. 20,000/ - otherwise than by Account payee cheque or crossed cheque, totalling to ₹1,30,32,500/- is disallowed and added to the total Income of the assessee as per the provisions of sec. 40A(3) of the Income tax Act, 1961’’. to 1376/Mds/17. :- 18 -:
Contention of the ld. Authorised Representative was that the amounts which were aggregated for disallowance, included cash withdrawal made by the assessee from its bank account, for its business purposes which were properly accounted in its cash book.
Reliance was placed on the copy of the cash book for the period 01.04.2010 to 31.03.2011 placed at paper book at pages 16 to 93. Ld. Authorised Representative submitted that the self cheques drawn by Shri. Ramachandran, a full time employee of the assessee were shown in the cashbook, as cash inflow from the bank. According to the ld. Authorised Representative, Sec.40A(3) of the Act could not be applied on cash withdrawals made by the assessee for its business purposes, which was properly accounted in the cash book.
Contention of the ld. Authorised Representative was that the only instance where expenditure of the assessee exceeded Rs.20,000/- in cash, during the entire period, was on 15.02.2011. According to him, there were payments totaling �6,62,898/- which exceeded Rs.20,000/- on the said date. Contention of the ld. Authorised Representative was that, the 15th February,2011 was a bank holiday and assessee was constrained to effect payments in cash. In none of the other days, as for the ld. Authorised Representative there were any cash expenditure exceeding Rs.20,000/-. Thus, according to him, the disallowance was not warranted. to 1376/Mds/17. :- 19 -:
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below.
We have considered the rival contentions and perused the orders of the authorities below. What was held by this Tribunal in earlier round of proceedings vide its order dated 22.07.2016 is reproduced hereunder:-
‘’9.3 We heard the rival submissions, perused the material on record and material evidence filed. The crux of the issue lies on the disallowance u/s.40A(3) of the Act were the payments in cash exceeded more than �20,000/-. The ld. Authorised Representative explained that the assessee is a manufacturer and also has trading unit and shall pay wages and salaries to the casual labours and also statutory payments. The money is withdrawn from the Bank is reflected in the cash book and corresponding expenditure was incurred by cash which is below the admissible limits u/s. 40A(3) of the Act. Further, the ld. Authorised Representative drew our attention to the cash book and reconciliation statement of salary with cash book and salary statements of office employee and casual labours. We found that there are no findings by the ld. Assessing Officer in assessment order regarding submissions filed before us which need to checked and examined. So, we are of the opinion that the ld. Assessing Officer has to verify the voluminous documents submitted before us on the claim u/s.40A(3) of the Act and we remit the disputed issue to the file of the ld. Assessing Officer. Further if any disallowance is confirmed u/s.40A(3) of the Act, the same shall considered in computing alternative claim u/s. 10A of the Act. Hence, we set aside the order of Commissioner of Income Tax (Appeals) and remit the entire issue to the file of the ld. Assessing Officer for re- examination. The ld. Assessing Officer shall provide to 1376/Mds/17. :- 20 -: adequate opportunity of being heard to the assessee and decide the issue on merits. The ground of the assessee is allowed for statistical purpose’’.
Ld. Assessing Officer in the fresh proceedings, took a view that cash expenditure did not match with the books and no reconciliation was produced by the assessee. Ld. Commissioner of Income Tax (Appeals) confirmed the view taken by the ld. Assessing Officer without giving any specific reason for doing so. What we find from the copy of the cash book filed by the assessee at paper book at pages 16 to 93, is that the only payments which exceeded Rs.20,000/- per day appeared on 15.02.2011. The list reads as under:-
Selvam V. Polishing Contractor 1,00,000 Dr Medavan M. Polish Contract 1,00,000 Dr Ramesh D Polish Contract 1,00,000 Dr Sundramoorthy. Polish Contract 1,00,000 Dr Janikiraman.K. Polish Contract 41,272 Dr Palani, Polish Contract 60,000 Dr Arumugam J. Factory – canteen 1,10,950 Dr RAVI. G. Packing 21,948 Dr Suresh Polishing 28,728 Dr Aggregate of such amounts come to �6,62,898/-. The ld. Assessing Officer had disallowed all cash withdrawals made by the assessee from its own bank account, which were accounted by the assessee in to 1376/Mds/17. :- 21 -: its cashbook as withdrawals from bank. Sec.40A(3) of the Act is reproduced hereunder:-
‘’(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure’’.
The said Sub-Section can be applied only where assessee incurs any expenditure of a sum exceeding Rs.20,000/- other than by account payee cheques or drafts. Where the assessee withdraws the money from his own bank account, it is not a payment to a third person.
Hence, in our opinion, the disallowance for aggregate withdrawals from bank, could not have been u/s.40A(3) of the Act. However, admittedly, assessee had expenditure of �6,62,898/- made in cash on 15.02.2011 exceeding the limit set out in Section 40A(3) of the Act.
Except for stating that it was a bank holiday, no reason whatsoever was given by the ld. Authorised Representative as to why these payments could not have been effected by account payee cheques. In the circumstances, we restrict the disallowance made u/s.40A(3) of the Act to �6,62,898/-. Assessee is given relief of �1,23,69,602/-. to 1376/Mds/17. :- 22 -:
Ld. Authorised Representative submitted that he was not pressing the ground relating to disallowance of �5,38,109/- against purchases for assessment year 2011-2012. According this ground is dismissed as not pressed.
In the result, appeals of the assessee for assessment years 2008-09 to 2010-2011 are allowed for statistical purposes whereas its appeal for assessment year 2011-2012 is partly allowed for statistical purpose.
Order pronounced on Thursday, the 18th day of January, 2018, at Chennai.