ITO WD 19(3)(4), MUMBAI vs. SHABBIR AHMED SHAIKH, MUMBAI

During hearing of this appeal, the ld. DR, Shri Vishwas Mundhe, defended the addition made in the assessment order by advancing arguments, which is identical to the ground raised by contending that the assessee is not covered under exception to Rule-6DD of the rules in respect of payment made in cash. On the other hand, the ld. counsel for the assessee, Shri K. Gopal, along with Ms. Neha Paranjape, defended the addition deleted by the Ld. Commissioner of Income Tax (Appeal) by inviting our attention to pages-36 and 37 of the paper book. It was contended that the assessee was not having any banking facility/account abroad. It was also asserted that no expenses were incurred in rupees in Saudi Arab/abroad and only foreign currency was used. It was also brought to our notice that in earlier year, identically, the Tribunal remanded the matter back to the file of the Assessing Officer vide order dated 12/02/2014 (ITA No.556/Mum/2012) and the Ld. Assessing Officer examined the factual matrix and finally decided the issue in favour of the assessee. This assertion of the ld. counsel was not controverted by the Revenue.

2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion of the aforesaid order of the Tribunal dated 21/02/2014 for Assessment Year 2007-08 for ready reference and analysis:-

Briefly stated relevant facts of the case are that the assessee is engaged in the business of conducting „Haj Tours‟. Assessee filed the return of income declaring the total income of Rs. 2,15,064/-. Assessment was completed u/s 143(3) of the Act and the assessed income was determined at Rs. 13,72,820/-. During the assessment proceedings, AO invoked the provisions of section 40A(3) of the Act in respect of amounts debited of Rs. 7,30,800/- as „purchases‟ and Rs. 48.33 lakhs ac„accommodation expenses‟. AO made disallowance @ 20% of the above sum i.e., Rs. 55,63,800/-. AO made addition of Rs. 11,12,760/- being 20% of the said expenditure. Before the Revenue Authorities, it was submitted that the assessee collects likely expenditure on account of tours to „Haj‟ from the clients and spends the same on their behalf. When they are taken on tour to abroad, buying and selling of foreign exchange is done by the assessee on behalf of the clients in accordance with the rules of RBI. The assessee has done these things in the capacity of an „agent‟ or „an authorized dealer‟ and he is not covered under the provisions of section 6DD(l) which provides that “where the payment is made by a authorized dealer or a money changer against purchase of foreign currency or travelers cheques in the normal in the normal course of his business”. There is an Explanation for the expression “authorized dealer” and “money changer”. He has also mentioned that the Soudi Arabian hotels do not accept the payments in cheques. The assessee, being an agent, he collects the tour charges and convert them into foreign exchange to meet the expenses of the clients. Therefore, the said clients of the assessee are not required to make payment by a/c payee cheques or draft in view of Rule 6DD(1) of the Act which provides that “where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person”. It was also contended before the lower authorities that the provisions of section 1 of the Income Tax Act, 1961 is applicable to whole of India and not outside India. It is the claim of the assessee that since, the payments are made outside India and such payments are made for day-to-day food and materials, the provisions of section 40A(3) are not applicable. Not satisfied with the submissions of the assessee, AO came to the conclusion that the assessee could not substantiate that the clients were insisted on cash payments and in the absence of any corroborative evidence and relatable books of accounts to verify the same, the AO invoked the provisions of section 40A(3). Accordingly, AO made addition of Rs. 11,12,760/- being 20% of the total cash expenditure under the head „accommodation‟ and „purchases‟. Relevant discussion is given in para 4 and its sub- paras of the assessment order. Aggrieved with the decision of the AO, assessee carried the matter in appeal before the first appellate authority.

During proceedings before the first appellate authority, assessee reiterated the submissions made before the AO. After considering the submissions of the assessee, CIT (A) dismissed the appeal of the assessee and confirmed the addition of Rs. 11,12,760/- made by the AO by holding that the AO is quite justified in invoking the provisions of section 40A(3) of the Act and making an addition of Rs. 11,12,760/- being 20% of cash expenses exceeding Rs. 20,000/-. Further, CIT (A) has also concluded that the assessee‟s case is not covered under the provisions of Rule 6DD(1) of the Income Tax Rule, 1962. Aggrieved with the decision of the CIT (A), assessee filed an appeal before the Tribunal by raising the above mentioned grounds.

During the proceedings before us, Dr. Rajendra Kumar Jain, Ld Counsel for the assessee reiterated the submissions made before the lower authorities. Further, Ld Counsel submitted that the assessee has incurred the said expenses in the capacity of an operator and the receipts consist of reimbursement of expenses incurred by the assessee on behalf of the clients and the assessee collects fees for that purpose. The hotels in Soudi country do not accept payments in cheque. As such, the assessee is not having any banking facility in that country neither he is required to have such facility. It is also submitted by the Ld Counsel that the entire payment of accommodation expenses has been made in Saudi Riyal and not in cash. Therefore, assessee, being an Indian citizen, is liable to be complied with all the provisions of IT Act, 1961 whether in India or outside India accordingly, the provisions of Rule 6DD(1) are applicable.

On the other hand, Ld DR relied on the orders of the Revenue Authorities. Further, Ld DR submitted that the in order to fall within the exception clause of Rule 6DD, the onus is on the assessee to prove that the such payments through cheques or demand drafts were not practicable and would have caused genuine difficulty to the payee having regard to the nature of transaction along with supportive evidences. But, the same was not discharged by the assessee, therefore, the decision taken by the lower authorities is proper by invoking the provisions of section 40A(3) of the Act.

We have heard both the parties and perused the orders of the Revenue Authorities as well as the Relevant material placed before us. On hearing both the parties and perusing the facts placed before us, it appears that the assessee has incurred the said expenditure in the capacity of an operator and in that case, it may constitute a case of reimbursement. Therefore, we are of the considered opinion that for the purpose of examining the same the matter should be remanded to the files of the AO. Accordingly, we remand the issue to the files of the AO and directed him to examine the same afresh after granting a reasonable opportunity of being heard to the assessee. Accordingly, grounds raised by the assessee are allowed for statistical purposes.

In the result, appeal of the assessee is allowed for statistical purposes.”