GLOBAL ENTERPRISES,KOLKATA vs. JCIT, R-34, KOLKATA, KARNATAKA
What did the Tribunal hold?
The tribunal remanded the issue of cash expenses exceeding Rs. 20,000 to the AO for fresh consideration with additional evidence. It also remanded the disallowance for non-deduction of TDS to the AO to verify if the payee had offered income in their return. The addition sustained by the CIT(A) regarding wages was directed to be deleted.
What were the facts?
The assessee incurred cash expenses exceeding Rs. 20,000, leading to disallowances under Section 40A(3) and Section 40(a)(ia) of the Income Tax Act. The assessee also faced disallowance of wages due to cash payments and alleged unverifiable vouchers.
What were the issues?
Whether cash payments exceeding Rs. 20,000 are disallowable under Section 40A(3) and whether disallowance under Section 40(a)(ia) applies if the payee has offered income in their return.
Which sections of the Income-tax Act were involved?
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- CIT v. Ansal Landmark Township (P.) Ltd.177 citing61 Taxmann.com 45 · 2015 · HC
Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
Global Enterprises -vs.- J.C.I.T., Range-34, Pvt. Ltd., Kolkata Kolkata [PAN : AAFFG 0012 M] (Respondent) (Appellant) For the Appellant : Shri Soumitra Choudhury, Advocate For the Respondent : Smt. Ranu Biswas, Addl DIT Date of Hearing : 24.01.2018. Date of Pronouncement : 02.02.2018. ORDER This is an appeal by the assessee against the order dated 03.02.2016 of CIT(A)- 10, Kolkata relating to A.Y.2010-11.
Ground Nos. 1 and 6 raised by the assessee are general in nature and calls for no adjudication.
Ground No.2 raised by the assessee reads as follows :- “2. For that on the facts and in the circumstances of the case the learned C.I.T (A) as well as the Assessing Officer has erred in assuming expenses incurred in cash in excess of Rs.20000/- u/s 40A(3) for Rs.444527/- is added to the income of the assessee which is untoward & liable to be deleted. “ 4. The Assessee is a partnership firm. The assessee acts as Del Credre agent in supplying cement of M/s. J.K.Lakshmi Cement Limited. In the course of assessment proceedings the AO noticed that the assessee had made several cash payments in excess of Rs..20,000/-. As per the provision of section 40A(3) of the Income Tax Act, 1961 (Act) where the assessee incurs any expenditure in respect of which a payment or aggregate of payment made to a person in a day otherwise then by way of account payee cheque is in excess of rupees twenty thousand, no deduction shall be allowed in respect
Before the AO the assessee submitted that each of the payments in a day did not exceed Rs.20,000/- and that each payments were below Rs.20,000/- evidenced by cash memos. The assessee also submitted that the reciepients did not have banking facilities and hence payments were made by cash. Another stand taken by the assessee was that the payments also include cost of petrol and diesel and such payments in any event will be outside the purview of section 40A(3) of the Act.
The AO noticed that the lorry expenses were incurred by the assessee for purchase of spare parts of truck from a single person M/s Khalsa Motor Stores, Jaipur. The remaining expenses were on acocunt of purchase of fuel for trucks which was again incurred by making payments made to a single person M/s Kalra Bus Service, Jaipur. The AO found that none of the circumstances mentioned by the assessee for making payment in cash will fall within the ambit of exception from the application of the provision of seciton 40A(3) of the Act. The AO accordingly disallowed a sum of Rs.4,44,525/- . On appeal by the assessee the CIT(A) confirmed the order of AO.
Before me the ld. Counsel for the assessee filed copy of the confirmaiton from M/s. Kalra Bus Service, Jaipur with regard to supply of diesel. This confirmation states that diesel were supplied in drums. As per this confirmatiuon none of the paymnts in a day exceed Rs.20,000/-. The confirmaiton filed by the assessee is admitted as an additional evidence for the purpose of adjudicating the issue involved in the appeal. The AO did not have the benefit of looking at the additioanl evidence. The addition confirmed by the CIT(A) is set aside and the issue is remanded to the AO for fresh consideration. We may also add that before the AO and CIT(A) the expenditure of Rs.4,44,527/- was stated to be for purchase of spare parts of the truck. Now a different 2
3 Global Enterprises A.Yr.2010-11 stand is taken by the assessee. This aspect may also be taken note of by the AO in the set aside proceedings. 8. Grounds No.3 raised by the assessee reads as follows :-
“3. For that on the fact and in the circumstance of the case Rs.l1 0000/- was paid for wages was disallowed and added-to-the total income ofthe assessee is liable to be deleted.”
The AO disallowed a sum of Rs.1,10,000/- being payments made to M/s. Kathat Freight Services towards supply of labour on the ground that the assessee failed to deduct tax at source on the payment u/s 194C of the Act. The AO made disallwoance as per the provision of section 40(a)(ia) of the Act which lays down that if TDS is not made on an expenditure claimed as a deduction, then the expenditure cannot be allowed as dedcuiton in computing income from business. The CIT(A) confirmed the order of the AO.
Before me the limited prayer of the ld. Counsel for the assesse was to set aside the order of CIT(A) and remand the issue to the AO to enable the assessee to show before the AO that M/s. Kathat Freight Services had shown receipts from the assessee in the return of income filed for the relevant assessment year. The prayer of the ld. Counsel for the assesee is based on the second proviso to section 40(a)(ia) of the Act which provides that if the payee has shown the receipts from the assessee in his return of income and paid tax on such receipts and has furnished in the return of income then no disallowance can be made u/s 40(a)(ia) of the Ac should be made. This proviso was inserted by the Finance Act, 2012 w.e.f. 01.04.2013. This amendment was held to be applicable retrospectivley by the Hon’ble Delhi Curt in the case of Anasal Land mark Township (P)Ltd (2016) 61 Taxmann.com 45 (Delhi). I am of the view that in the light of the aforesaid submissio, the additon confirmed by the CIT(A) should be set aside and the issue remanded to the AO for fresh consideration in the light of the submisisons made by the assessee before me. 3
Ground No.5 raised by the assessee reads as follows :-
“5. For that on the fact and in the circumstance of the case Rs.l00000/- was disallowed of wages is liable to be deleted. “
The AO made an addition of Rs.2,50,000/- by way of disallowance of wages on the following grounds :- “7.1. On verification of relevant documents produced by the Authorised Representative of the assessee, it was observed that all the expenses relating to wages were paid in cash through self made vouchers, which are beyond the scope of verification. Furhter, payments to transporters have also been made in cash. Therefore a lump sum of Rs.2,50,000/- is disallowed and added back to the total income of the assessee for the assessment year 2010-11. Similar additons have been made in earlier years for which the assessee has not preferred any appeal. [ Addition : Rs.2.,50,000/-]
14. On appeal by the asessee the CIT(A) was of the view that non verifiability of vouchers does not call for disallwoance of a sum of Rs.2,50,000/-. He was of the view that such quantum of disallowance is excessive. He also found that no specific instances of unverifiable nature of vouchers was pointed out by the AO and no show cause notice was issued to the assessee in this regard. The CIT(A) therefore restricted the addton to a sum of Rs.1,00,000/-.
15. Before me the submisisons of the ld. Counsel for the assessee was that the addition is based on estimation and therefore should be deleted. I am of the view that the additon sustained by the CIT(A) deserves to be deleted because the books of acocunts have been produced along with the vouchers by the assessee before the AO. Specific instances of unverifable vouchers was not pointed out by the AO . Thirdly, the AO did not even call upon the assessee to show casue as to why disallowance should
In the result the appeal of the assessee is partly allowed.
Order pronounced in the Court02.02.2018.
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