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Income Tax Appellate Tribunal, ‘ C ’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
In this appeal filed by the assessee, it is aggrieved on disallowance made by the ld. Assessing Officer u/s.40A(3) of the Income Tax Act, 1961 (in short ‘’the Act’’) to the extent sustained by the ld. Commissioner of Income Tax (Appeals).
ITA No. 1996/Mds/2016 :- 2 -:
Ld. Counsel for the assessee submitted that out of the total disallowance of �20,81,018/- u/s.40A(3) of the Act, ld. Commissioner of Income Tax (Appeals) had sustained an addition of �18,21,018/-, As per ld. Authorised Representative out of the above amount �13,00,000/- was not charged to the profit and loss account since it represented payment to one Shree Venkateswara Engineering Works which was a proprietorship of assessee’s wife. As per ld. Authorised Representative, the amount was only a loan given and never charged to profit and loss account. Similarly according to ld. Authorised Representative �40,000/- was paid to M/s. Shakthi Engineering for acquiring plant and machinery and not charged to profit and loss account. Again, as per ld. Authorised Representative a sum of �1,75,000/- was paid by the assessee for construction of shed which also was not charged to profit and loss account. Further as per ld. Authorised Representative a sum of �1,68,225/- was paid to small time contractors at various work sites and due to commercial expediency such payments had to be made in cash. According to the ld. Authorised Representative assessee was a small time fabricator and doing construction of small building and had no undisclosed income.
Similarly as per ld. Authorised Representative there were purchase of material worth �1,37,793/- which also required payments in cash. Ld. Authorised Representative submitted that once the payments were ITA No. 1996/Mds/2016 :- 3 -: genuine and made for commercial expediency, rigours of Sec. 40A(3) of the Act would not apply. Contention of the ld. Authorised Representative was that Rule 6DD was not exhaustive of the circumstances under which application of Sec. 40A(3) of the Act could be excused. Reliance was placed on the decision of Kolkata Bench of the Tribunal in the case of Sri Manoranjan Raha vs. ITO ( in dated 18.11.2015) and that of Hon’ble Punjab and Haryana High Court in the case of Gurdas Garg vs. CIT (in ITA No.413 of 2014, dated 16.07.2015).
Per contra, ld. Departmental Representative strongly 3.
supporting the orders of the authorities below submitted that assessee had never argued before any of the lower authorities that �13,00,000/- paid to Shree Venkateshwara Engineering Works, �1,75,000/- paid for construction of shed and �40,000/- paid for acquiring machinery works were not claimed by it as expenditure in profit and loss account. In so far as other payments are concerned, ld. Departmental Representative submitted that assessee could not show business expediency of making such payments in cash. According to him, the payments were admittedly made in cash in excess of the amounts stipulated u/s. 40A(3) of the Act and hence the disallowances were rightly done.
ITA No. 1996/Mds/2016 :- 4 -:
I have considered the rival contentions and perused the orders of the authorities below. Claim of the assessee before me is that a sum of �13,00,000/- paid on the following dates to Shree Venkaeshwara Engineering Works were actually a loans/drawings of the assessee and not charged to profit and loss account.
Date Particulars Amount (�)
30.09.2010 Shree Venkaeshwara 5,00,000/- 28.02.2011 Shree Venkaeshwara 3,00,000/- 02.03.2011 Shree Venkaeshwara 5,00,000/-
Sub Total 13,00,000/- Similarly as per the assessee, the following payments were capitalized since these represented acquisition of assets.
12.04.2010 Ganesan 75,000/- 12.05.2010 Ganesan 1,00,000/-
Sub Total 1,75,000/- 12.04.2010 Shakthi Engineering 40,000/- It may be true that such claims were not made before lower authorities. Nevertheless, the disallowance u/s. 40A(3) of the Act can be made only where deductions are claimed by the assessee against its business income. When there is no deduction from the profit by way of charges by debits in profit and loss account there can be no disallowance u/s.40A(3) of the Act. However, whether any of the ITA No. 1996/Mds/2016 :- 5 -: above amounts were actually charged to the profit and loss account or not, have not been verified by the lower authorities. Therefore, claim of the assessee that �13,00,000/- paid to Shree Venkateshwara Engineering Works, �1,75,000/- paid to Ganesan and �40,000/- paid to Shakthi Engineering, were never charged in the profit and loss accounts and hence not liable for disallowance u/s.40A(3) of the Act is remitted back to the ld. Assessing Officer for consideration afresh in accordance with law.
The balance amounts it seems were paid to the following purposes.
12.04.2010 Mohan Contract 70,000/- 12.05.2010 Mohan Contract 37,000/- 12.04.2010 Sekar Contract 40,000/- 30.11.2010 Palani -Painter 21,225/- Sub Total 1,68,225/-
12.05.2010 Lakshmi paints 37,793/- 31.12.2010 CSK Agency Private Ltd 1,00,000/-
Sub Total 1,37,793/- Claim of the assessee is that the above payments were made under circumstances which compelled it to give the money in cash on account of business expediency. Alleviating circumstances whereby application of Sec. 40A(3) of the Act is excluded is laid down in Rule
ITA No. 1996/Mds/2016 :- 6 -:
6DD. Kolkata Bench of the Tribunal following the judgment of Hon’ble Punjab and Haryana High Court in the case of Gurdas Garg (supra) had held that if genuineness of the payments is not disbelieved a disallowance u/s.40A(3) of the Act could not be made. Their Lordship took a view that alleviating circumstances mentioned in Rule 6DD need not be considered as exhaustive. There is considerable strength in the argument of the ld. Authorised Representative that payments could only be effected in cash at various work sites of the assessee, due to business exigency. I am therefore of the opinion that the sum of �1,68,225/- paid on account of commercial expediency could not be disallowed u/s.40A(3) of the Act. I delete such disallowance. However for the sum of �1,37,793/- paid for purchase of materials assessee was unable to show what where the compelling circumstances of business expediency which required it make the payment in cash. Hence Sec.
40A(3) of the Act was in our opinion correctly applied to this amount. I sustain the disallowance of �1,37,793/-.
To summarize the results, I remit back to the ld. Assessing Officer for verification of the payment claimed by the assessee as not charged to profit and loss account for consideration afresh in accordance with law and I delete the disallowance of �1,68,225/- paid
ITA No. 1996/Mds/2016 :- 7 -: by the assessee to his employees at various work sites. I sustain the disallowance of �1,37,793/- paid for purchase of materials.
In the result, appeal of the assessee is treated as partly allowed for statistical purpose.
Order pronounced on Wednesday, the 29th day of March, 2017, at Chennai.