M/S GORSI CONSTRUCTIONS PVT. LTD,MANDI vs. DCIT, CIRCLE, MANDI

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ITA 1145/CHANDI/2017Status: DisposedITAT Chandigarh26 July 2018AY 2012-1310 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that if the genuineness of the transaction is not doubted and the assessee explains the business expediency for making cash payments, no disallowance under Section 40A(3) is warranted. The Tribunal also allowed expenses under Section 40(a)(ia) by admitting additional evidence showing payments were below TDS limits and deleted disallowances for canteen and vehicle expenses, finding them arbitrary and without basis.

What were the facts?

The assessee made cash payments exceeding Rs. 20,000 to various parties. The Assessing Officer disallowed these expenses under Section 40A(3) for violating cash payment limits. The assessee contended these were made under unavoidable circumstances, but failed to provide sufficient evidence initially.

What were the issues?

Whether disallowance under Section 40A(3) is justified when cash payments are made due to business expediency and genuineness is not doubted. Whether disallowance under Section 40(a)(ia) is justified when payments are below TDS limits and additional evidence is produced later.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 40(a)(ia),Section 194I,Section 194J

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DIVISION BENCH ‘A’, CHANDIGARH

Before: SHRI SANJAY GARG & MS. ANNAPURNA GUPTA

For Appellant: Shri Amitoz Kamboj, CA
For Respondent: Shri Akhilesh Gupta, JCIT
Hearing: 21.05.2018Pronounced: 26.07.2018

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘A’, CHANDIGARH

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.1145/Chd/2017 (Assessment Year : 2012-13) M/s Gorsi Constructions Vs. The D.C.I.T., Private Limited,, Village Takoli, Mandi P.O. Panarasa, Teh. Autt, (H.P.) Distt. Mandi (H.P.) PAN: AABCG4994K (Appellant) (Respondent)

Appellant by : Shri Amitoz Kamboj, CA Respondent by : Shri Akhilesh Gupta, JCIT Date of hearing : 21.05.2018 Date of Pronouncement : 26.07.2018

ORDER PER ANNAPURNA GUPTA, AM:

This appeal has been preferred by the assessee against

the order of learned Commissioner of Income Tax (Appeals),

Palampur (hereinafter referred to as CIT(Appeals)) dated

17.5.2017 ,relating to assessment year 2012-13.

2.

Ground No.1 raised by the assessee reads as under:

“1. That the Ld. Commissioner of Income Tax (Appeals) has wrongly confirmed the addition of Rs.1,55.000/- U/s 40 A(3) which is likely to be deleted.” 3. Brief facts relating to the issue are that the assessee

is a Pvt. Ltd. Company mainly engaged in the business of

civil construction as a contractor. During the course of

assessment proceedings, while verifying the books of

accounts, it was noticed that assessee had made cash

payments exceeding Rs.20.000/- to the following parties:-

S.No. Name of the party to Date of Amount paid whom cash payment made payment in cash

1.

M/s Chamunda Stone Crusher 25.02.2012 1,00,000/-

2.

M/s Shimla Automobiles 28.06.2011 25,000/-

3.

M/s Shimla Automobiles 12.03.2012 30,000/-

Total 1,55,000/-

4.

The assessee vide reply dated. 5.2.2015 submitted that

the payments had been made under unavoidable

circumstances, However, the assessee failed to submit any

evidence to substantiate his claim. Therefore, cash

payments aggregating to Rs.1,55,000/- were disallowed for

violation of the provisions of section 40A(3) of the IT Act,

1961.

5.

Before the Ld.CIT(Appeals) the assessee contended that

the payments had to be made in cash on account of exceptional circumstances existing. It was contended that

M/s Chamunda Stone Crusher, Village Ropa, Distt. Mandi

is situated at a place where there is no bank facility. As

regards payment of Rs.25,000/- on 28.6.2011 and of

Rs.30,000/- on 12.3.2012, it was submitted that a vehicle

of the assessee, Bolero SLX, registration No.HP 34-D 1200,

met with an accident in June, 2011 and as the authorized

dealer of Mahindra and Mohindra Ltd. was stationed at Ner

Chowk Teh. Sardar Mandi, the vehicle was to be carried to

Ner Chowk for repair. As there was no bank account of the

assessee at that station, the payment had to be made in

cash under the circumstances. The Ld.CIT(A) dismissed the

assessee’s contention for the reason that the assessee had

not shown that the payments had been made in

circumstances covered under rule 6DD of the Income Tax

Rules, 1962.

6.

Before us, the contention raised by the Ld. counsel

for assessee was that the genuineness of the payment

made having not been doubted and the assessee having

shown the existence of conditions prompting payment to

be made in cash, which was not disbelieved by the

Revenue, no disallowance could be made merely because

it was made in cash u/s 40A(3) of the Act. Reliance was

placed on the decision of the ITAT Chandigarh Bench in

the case of Income Tax Officer Vs. Smt. Shakun Jain

(2004) 82 TTJ 857 (Chd). Copy of the order was placed

before us.

7.

The Ld. DR relied upon the order of the CIT(Appeals).

8.

We have heard the contentions of both the parties.

The issue before us relates to disallowance of expenses

u/s 40A(3) on account of payments made in cash thereof

in excess of the limits prescribed. The fact that payment

was made in cash in violation of the limits prescribed u/s

40A(3) is not disputed. Further vis a vis the payments

made the assessee had pointed out the compelling

circumstances which prompted the payment to be made

in cash as there being no banking facility where M/s

Chamunda Stone Crushers was situated to whom payment

of Rs.1,00,000/- was made and there being no bank

account of the appellant where Shimla Automobiles was

situated to whom the rest of the payments was made

amounting to Rs.55,000/- in all. No infirmity has been

pointed out in the aforesaid explanation of the assessee

by the Revenue. Nor do we find that the genuineness of

the transactions has been doubted. In such

circumstances where the genuineness of the transaction

having not been doubted and the assessee having

explained the business expediency for making the

payment in cash, there is no reason at all to make any

disallowance under section 40A(3) of the Act. The issue is

squarely covered by the decision rendered by the Hon’ble

jurisdictional High Court in the case of Gurdas Garg vs

Commissioner of Income Tax Appeals, Bhatinda &

Another in ITA No.413 of 2014 dt.16 July 2015,

categorically holding that the genuineness of the

transaction not being disbelieved as also the reasons for

making the payment in cash, no disallowance was

warranted u/s 40A(3) of the Act.

9.

The action of the CIT(Appeals) in upholding the

disallowance made u/s 40A(3) of Rs.1,55,000/- is,

therefore, set aside.

Ground of appeal No.1 raised by the assessee is,

therefore, allowed.

10.

Ground of appeal No.2 raised by the assessee reads

as under:

“2. That the Ld. Commissioner of Income Tax (Appeals) has wrongly confirmed the addition of Rs.2,50,000/- paid as rent to agriculturist taking agricultural land on rent U/s 197- A/197 which is likely to be deleted.” 11. The above ground was not pressed before us by the

assessee. The same is, therefore, dismissed as not

pressed.

12.

Ground of appeal No.3 raised by the assessee reads

as under:

“3. That the Ld. Commissioner of Income Tax (Appeals) has wrongly confirmed the addition of Rs.35,000/- paid as professional charges for 2 persons u/s 40(a)(ia) which is likely to be deleted.” 13. Brief facts relevant to the issue are that the

Assessing Officer disallowed expenditure relating to

payment made to one Shri Sanjay Vaidya, Surveyor, at

Rs.35,000/-under section 40(a)(ia) since no tax had been

deducted at source on the same as per the provisions of

section 194I of the Act. The assessee vide reply dated 05-

02-2015 submitted that the payment of Rs.35,000/- had

actually been made to two persons Shri Sanjay Vaidya

(Surveyor) & to Shri Mohinder Sharma (Surveyor),each

below the limit prescribed for tax deduction at source u/s

194I of the Act, at Rs,23,000/- & Rs.12,000/- respectively

while in the ledger, only one entry was posted. However to

substantiate this claim, assessee failed to submit any

evidence. In the absence of any supporting evidence,

Rs.35,000/- were disallowed u/s 40(a)(ia) of the Act.

14.

During appeal, the assessee filed photocopy of the

receipts issued by Shri Sanjay Vaidya, Supervisor for

Rs.23,000/- and Shri Mahinder Sharma, Supervisor for

Rs.12,000/- and submitted that the addition of Rs.35,000/-

may be deleted. As the above receipts were not filed before

the Assessing Officer, the CIT(A) held that they constituted

additional evidence, and since the assessee had not shown

that it was prevented by any reasonable cause from

producing these receipts during assessment proceedings,

refused to admit the same. The addition made was therefore

upheld.

15.

Before us, the Ld. counsel for assessee reiterated the

contentions made before the CIT(Appeals).

16.

The Ld. DR relied upon the order of the CIT(Appeals).

17.

We have heard contentions of both the parties, perused

the orders of authorities below and also gone through the

documents placed before us. The issue relates to

disallowance of professional charges on account of non-

deduction of TDS. The contention of the Ld. counsel for

assessee is that no TDS was deductible since payment

related to professional charges paid to two persons which

was less than the limit prescribed for tax deduction at

source u/s 194J of the Act i.e. Rs.30,000/-. The

CIT(Appeals) upheld the addition, refusing to admit

additional evidence filed in this regard by the assessee,

since the assessee failed to show reasonable cause for not

adducing the same before the Assessing Officer.

18.

We are not in agreement with the Ld.CIT (Appeals). The

documents filed by the assessee being bills of the two

persons to whom payments were made below the prescribed

limit for TDS, they were patently relevant for adjudicating

the issue, going to the root of the matter and interest of

justice demanded that the CIT (Appeals) admit the same. The

same having now been filed before us, we admit the same as

evidence for the aforesaid reasons. Further we find that the

bills substantiate the assessee’s contention that the

payments on account of professional charges were below the

prescribed limit of the deduction at source. We, therefore,

are convinced that no TDS was required to be deducted at

source on the payments of the professional charges. The

disallowance, therefore, made under section 40(a)(ia) is

directed to be deleted. Ground of appeal No.3 raised by the

assessee is allowed.

19.

Ground No.4 raised by the assessee reads as under:

“4. That the Ld. Commissioner of Income Tax (Appeals) has wrongly confirmed the addition of Rs.41,064-for maintenance of canteen expenses Rs.1,84,414/- under the head repair and maintenance of cars and Rs.48685/- out of expenses of telephone and internet for personal use which are likely to be deleted.” 20. Brief facts relating to the issue are that the Assessing

Officer disallowed 1/6 t h of Office Maintenance and Canteen

Expenses incurred by the assessee, which came to

Rs.41,064/-, for want of proper vouchers. Further , l/6 t h of

depreciation claimed on car, repair & Maintenance of Car

expenses, and telephone & Internet Charges, which came to

Rs.1,84,414/- and Rs.48,685/- respectively, was

disallowed for the reason that personal use of the vehicles

and telephone by the Directors and their family could not

be ruled out.

21.

During appeal, it was submitted that the assessee had

kept all the vouchers in respect of canteen expenses,

vehicle expenses and for telephone and internet. All the

vehicles mentioned in the assessment order, it was

contended were kept at the work site, Takoli. It was also

contended that the family members of the directors did not

reside at the place of work and therefore the additions had

been wrongly made.

22.

The Ld.CIT(Appeals) rejected the contentions of the

assessee stating that no proper vouchers had been

produced by the assessee of office maintenance and canteen

expenses and further the business use of the vehicles and

telephone had not been established and therefore personal

use cannot be ruled out. He therefore upheld the

disallowance made.

23.

Before us, the Ld. counsel for assessee relied upon the

contentions made before the CIT(Appeals) and further

pleaded that the disallowance was excessive.

24.

The Ld. DR relied upon the order of the CIT(Appeals).

25.

We find merit in the contention of the Ld. counsel for

assessee. All the vouchers relating to the canteen expenses

were admittedly produced and verified by the Assessing

Officer. No specific defect has been pointed out in the same.

The disallowance made, therefore, for want of “proper”

vouchers, without pointing out the specific defect in the

vouchers making them “improper”, we hold, is entirely

arbitrary and without any basis and, therefore, wholly

unsustainable. Similarly, the disallowance of vehicle

expenses including depreciation, repair & maintenance and

telephone expenses on account of personal use is also, we

find, without any basis. The assessee had contended that

all vehicles were kept at the work site and no family

member resided there and therefore no personal use could

be attributed in such circumstances. Without controverting

the factual submissions made by the assessee, the

disallowance made attributing some personal usage to the

vehicles ,we find, is without any basis, adhoc and totally

unsustainable. The assessee has admittedly maintained

complete Books of Accounts and the same have been

verified also by the AO as is evident from the assessment

order where the AO has stated so at para 2. Without

pointing out any instance of personal use of vehicle, and

telephone and without controverting the factual

submissions of the assessee, the disallowance, we hold is

unsustainable and is, therefore, directed to be deleted.

Ground of appeal No.4 raised by the assessee is

therefore allowed.

26.

Ground No.5 raised by the assessee reads as under:

5.

That the Ld. Commissioner of Income Tax (Appeals) has wrongly confirmed the addition of Rs.55244;- on a/c of payment of interest on TDS which is likely to be deleted.”

27.

The above ground was not pressed before us by the

assessee and the same is dismissed as not pressed.

28.

In the result, the appeal of the assessee is partly

allowed.

Order pronounced in the Open Court.

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 26th July, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh

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