M/S M. K. AMBER WEAR,KOLKATA vs. ITO, WD-53(3), KOLKATA, KOLKATA

Grounds No. 1 & 2 raised by the assessee in this appeal involve a common issue relating to the disallowing of Rs.2,80,230/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40A(3) on account of electricity charges paid in cash.

The assessee in the present case is a partnership firm, which is engaged in the business of manufacturing of readymade garments. The return of income for the year under consideration was filed by it on 21.09.2010 declaring total income of Rs.6,12,230/-. During the course of ./2015 Assessment year: 2010-2011 Page 2 of 6 assessment proceedings, it was noticed by the Assessing Officer that the assessee has paid the following amounts towards electricity charges in cash in excess of Rs.20,000/-:- Date Payments made to CESC Ltd. Amount 30.04.2009 -Do- Rs. 51,240/- 30.05.2009 -Do- Rs. 46,540/- 30.06.2009 -Do- Rs. 40,520/- 31.07.2009 -Do- Rs. 87,360/- 28.08.2009 -Do- Rs. 54,530/- TOTAL Rs.2,80,230/- The assessee, therefore, was called upon by the Assessing Officer to explain as to why the above payments made in cash towards electricity charges should not be disallowed under section 40A(3) of the Act read with Rule 6DD of the Income Tax Rules. The assessee, however, did not offer any explanation in this matter and, therefore, the Assessing Officer proceeded to make a disallowance of Rs.2,80,230/- under section 40A(3) of the Act.

The disallowance made by the Assessing Officer under section 40A(3) was challenged by the assessee in appeal filed before the ld. CIT(Appeals) and the following submission was made by the assessee in writing in support of its case that the disallowance made by the Assessing Officer under section 40A(3) was not made sustainable:- “Ground No. 4challenges the action of the A. 0. in making disallowance of Rs.2,80,230/- which is part of the total electricity expenses claimed by the appellant. These payments have been made in cash to the Calcutta Electric Supply Corporation. These are some payments in cash out of the total electricity expenses amounting to Rs.6,,63,140/- and it was necessitated because of the urgency in payments of the dues in time which was made in cash as otherwise it would have resulted in non-supply of the electricity which would result installing manufacturing process of the appellant. The appellant is in the business of manufacturing of garments having sales of Rs.2.15 crores. Payment of electricity is made in cash which is on the last date of payment to CESC and was thus necessitated. Further, ./2015 Assessment year: 2010-2011 Page 3 of 6

The ld. CIT(Appeals) did not find merit in the above submission made by the assessee. According to him, there was a failure on the part of the assessee to explain as to how the impugned payments in cash on account of electricity charges were made in the exceptional circumstances specified in the Rule 6DD. He, therefore, confirmed the disallowance made by the Assessing Officer under section 40A(3) of the Act.

I have heard the arguments of both the sides and also perused the relevant material available on record. As per the specific provisions of sub-section (3) of Section 40A, where the assessee incurs an 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 cheque or account payee Bank Draft exceeds Rs.20,000/-, no deduction shall be allowed in respect of such expenditure. As per the first proviso to section 40A(3), no such disallowance, however, shall be made in such cases and under such circumstances, as may be prescribed, having regard to the nature and extent of available facilities, available conditions of business expediency and other relevant factors. Such cases and circumstances are prescribed in Rule 6DD of Income Tax Rules, 1962 and the assessee in the present case has failed to establish that the impugned payments made by it in cash towards electricity charges are covered by such circumstances as prescribed in Rule 6DD either before the authorities below or even before me. I, therefore, find no justifiable reason to interfere with the ./2015 Assessment year: 2010-2011 Page 4 of 6 impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer under section 40A(3). The same is, therefore, upheld on this issue dismissing Grounds No. 1 & 2 of the assessee’s appeal.

The issue involved in Ground No. 3 relates to the disallowance of Rs.72,172/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of foreign travel expenses claimed by the assessee.

In the Profit & Loss Account filed along with its return of income, a sum of Rs.2,25,413/- was debited by the assessee on account of foreign travel expenses. On scrutiny of the foreign travel expenses, the Assessing Officer found that a sum of Rs.72,172/- claimed by the assessee on account of foreign travel expenses was in relation to the foreign travel undertaken by one Shri Imran Hussain Laskar, who was neither a partner nor an employee of the assessee-firm. He, therefore, disallowed the claim of the assessee for foreign travel expenses to the extent of Rs.72,172/-.

On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue on the ground that there was failure on the part of the assessee to produce any evidence to establish that the expenses on the foreign travel undertaken by Shri Imran Hussain Laskar were incurred in connection with its business.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that Shri Imran Hussain Laskar is neither a partner nor the employee of the assessee-firm. Although the ld. Counsel for the assessee has submitted that he is a member of the partner’s family and, therefore, is involved in the family business, there is nothing brought on record to support and substantiate this claim. Moreover, as rightly observed by the ld. CIT(Appeals) in his impugned order, there is no evidence whatsoever ./2015 Assessment year: 2010-2011 Page 5 of 6 furnished by the assessee to establish that the foreign travel expenses incurred on the tour undertaken by Shri Imran Hussain Laskar are wholly and exclusively for the purpose of its business. I, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on this issue and upholding the same, I dismiss Ground No. 3 of the assessee’s appeal.

As regards the issue involved in Ground No. 4 relating to the disallowance of Rs.18,803/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of repairs and maintenance expenses, it is observed that this disallowance is made for involvement of unverifiable element in the expenses incurred by the assessee on repairs and maintenance. A perusal of the order of the Assessing Officer as well as that of the ld. CIT(Appeals), however, shows that not a single instance has been pointed out by them to show unverifiable element involved in the expenses claimed by the assessee on repairs and maintenance. In my opinion, the disallowance made out of repairs and maintenance expenses on ad hoc basis without pointing out any instance of unverifiable element is not sustainable and deleting the same, I allow Ground No. 4 of the assessee’s appeal.