Income Tax Appellate Tribunal - Chandigarh
M/S Metalman Auto Pvt. Ltd., Ludhiana vs Addl. Cit, Ludhiana on 14 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH 'B ', CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.935/Chd/2017 (Assessment Year : 2008-09) M/s Metalman Auto Pvt. Ltd., Vs. The Addl.C.I.T., E-127, Phase-V, Range-1, Focal Point, Ludhiana. Ludhiana.
PAN: AABCM5441M
(Appellant) (Respondent)
Appellant by : Shri Amarjit Kamboj, CA
Respondent by : Shri Gulshan Raj, CIT(DR) Date of hearing : 16.05.2018 Date of Pronouncement : 14.08.2018 O RDE R PER ANNA PURNA GUPTA, A M:
Th e p r e s e n t a p pe a l h a s b e e n p ref e r r e d b y t h e a s se s s e e a g a i n s t th e o r der o f l e a rn e d C om m i s s i o n er o f I n c o m e Ta x (Appeals)-1, Lu d h i a n a ( h e r ei n a f t e r r e f e rr e d to as C I T( A p p e al s ) ) d at e d 2 7 . 4 . 2 0 17 re l a t i n g t o a s se ss m e n t y e a r 2008-09.
2. G r o u n d N o. 1 ( a ) re a d s a s un d e r :
"1. Commissioner of Income Tax (Appeals)-l, Ludhiana has erred in law and on facts of the case:-
a) By arbitrarily and wrongly confirmed the disallowance of interest Rs.35131/- made u/s 36(1) (iii) of the Income Tax Act, 1961 w.r.t. the amount of capital work in progress and advance given for purchase of machinery."
3. B r i e f fa c t s r e l a ti n g t o t h e i s s u e r a i s e d i n t h e a b o ve ground r e g a r di ng d i s a l l o w a n ce of i nterest amounti ng to Rs.35,131/- u/s 36( l ) ( i i i ) of the I T Act, i s that duri ng the course of asses sment proceedi ngs, the Assessi ng Offi cer 2 noti ced that the assessee had made the fol l o w i ng capi tal advances:-
( a) Capi tal work i n progress amounti ng to Rs.31,22,096/-
( b) Advance for purchase of machi ner y to M/s Chakan Engi neeri ng Pvt. Ltd. amounti ng to Rs.6,25,000/-.
4. The as sessee w as asked to sh o w whether i nt erest pertai ni ng to the same had been capi tal i zed or no t and i f not why the sai d i nterest be not di sal l o wed and capi tali zed. I n response, the assessee submi tted that the capi tal work in progress pertai ned to pa yments/ e xpenses on i nstal lati on of Enterpri ses Resource Pl anni ng ( ERP) Navi si on, for whi ch the assessee had not avai l ed any term l oan i n any year. As for the advance of Rs.6,25,000/- gi ven to Chakan Engi neeri ng Co. Pvt. Ltd., i t was submi tted that the same had been gi ven for purchase of Boardi ng Machi ne whi ch was recei ved i n the ne xt year, on 17.05.2008, and that the sai d advances had been made out of current account of the Wal uj Uni t of the assessee at Aurangabad, where no i nterest was pai d on any worki ng capi tal faci l i t y or for maki ng the sai d advance. The Assessi ng Offi cer was not sati sfi ed wi th the r epl y of the assessee and hel d that si nce the enti re funds are from common ki tt y, the assessee had i ncurred i nterest e xpendi ture on the funds whi ch had been i nvested i n capi tal work i n progress and advances f or machi ner y, re l yi ng upon vari ous case l a ws especi al l y, the deci si on of the Hon'bl e Punjab & Har yana Hi gh Court i n the case of M/s Abhishek I ndustri es Ltd. 286 I TR 1.He t herefore computed i nterest 3 pertai ni ng to t he sai d i nvest ments at Rs.35 ,131/- and di sal l o wed the same u/s 36( l ) ( i i i ) of the I ncome Ta x Act, 1961 ( i n short 'the Act') .
5. D u r i n g a p p e l l a t e p r o c e e d i n g s b efo r e t h e L d . CI T( A) , t h e assessee ra i s e d various c on t e nt i o n s w h i ch i n cl u d e d t he s u f f i c i e nc y o f f un d s a v a i l ab l e w i t h i t b y w a y of p r o f i t s f or t h e y e a r b e i n g R s . 4 . 8 5 cr o r e s , s h a r e c ap i t a l o f R s . 1 . 30 c r o r e s a n d re s er v e s & s u r p l u s o f R s . 2 0 . 3 9 c r o re s , w h i c h w e r e s uf f i c i en t fo r m a k i n g i nv e st m e n t i n t he c ap i t a l wo r k - i n - p r o g r es s a mo u n t i n g to Rs .3 1 , 2 2 , 0 9 6/ - a nd for the a d v a n c e g i v e n f or p u r c h a s e o f b or i n g m a c h i n e a mo u n t i n g to R s . 6 , 2 5 , 00 0 / - . Th e s u b m i s si o n s o f t h e a s se s s e e di d n o t f i nd f a v o u r w i t h t h e C I T( A p p e al s ) w ho u p h e l d t h e d i sa l l o w a n c es m a d e b y ho l d i n g a t p a r a 2. 3 o f h i s o r d e r as u n d er:
"2. 3 T he appel l an t h as jus tif ied the cl ai m of in teres t as reven ue ex pense on th e ground th at i t is to be al l o we d as deduc tion. T he appel l an t h as pl aced rel i ance on a nu mber of jud ic i al dec is ion s wi th reg ard to the issue of d is al l o wan ce u/ s 36( l )( ii i) of the IT Ac t. H av in g cons idered th e mate r i al pl aced o n record, I f ind th at appel l an t h as f ail ed to apprec i ate the f ac t th at f unds have been adv anced f or purch ase of cap ital asse t an d theref ore pro porti on ate in teres t on those f unds has to be c ap i tal ized. T his is mand ato ry in v ie w of the s pec if ic prov is ion s as enunc i ated in Prov iso to sec 36( l )( ii i) of the IT Ac t. T he jud ic i al dec is ions rel ied upon by the app el l an t are d is ting u ish abl e on f ac ts as are f ound to be no t on th is s pec if ic issue o f in teres t ex pense to be c ap i tal ized or to be al l o we d as revenue. Accord ingl y, I conf ir m the d is al l o wan ce of Rs. 35, 131/- mad e b y the A ssess ing Of f icer under th is he ad. "
6. B e f o r e u s , t he L d . c o u n s e l f or a s s e s s e e r e i t e r a t ed h i s c o n t e n t i on s m a de b e f o r e t h e CI T( A p p e a l s ) t h at i n v i e w o f t he s u f f i c i e nc y o f fun d s a v a i l ab l e w i th h i m f o r ma k i n g i m p u g n e d 4 i n v e s t m e nt n o d i s a l l o w a n ce o f i n te r e s t w a s w a rr a nt e d a s p e r t h e p r o vi s i o n s o f s e c t i o n 3 6 ( 1) ( i i i ) o f t he A c t. Re l i a n c e w as p l a c e d o n t he de c i s i o n o f th e H o n ' b l e P u n j a b & H a r y an a H i g h C o u r t i n su p p o r t o f t h i s p r o p o s i t i o n i n th e c a s e o f G u r u d a s G a r g Vs . CI T( A ) , B at h i n d a ( 2 0 15 ) 6 3 Ta x m a n 2 89 a n d CI T V s . K a pso n s A s s o ci a t e s ( 2 0 1 6 ) 3 8 1 I TR 2 0 4 .
7. Th e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r o f t h e CI T( A p p eal s ) .
8. W e h a v e h e a r d th e r i v a l c o n t e n ti o n s a n d a f t e r p er u s i n g the order of th e L d . CI T( A p p e al s ) we find m er i t in the c o n t e n t i on s r a i se d b y L d . c o u n sel f o r a s se s s e e . Th e f a c t o f a v a i l a b i l i t y of o w n i n t e re s t fr e e f u n d s i n t h e f o rm o f p ro f i ts f o r t h e y e a r am o u n t i n g t o R s. 4 . 8 5 c r o re s , s ha r e c a p i t al amounting to Rs.1.3 c ro r e s and r e s e rv e s & surplus a m o u n t i n g to Rs . 2 0 . 3 9 c r or e s , h a s r e m a i n ed un d i s p u t e d and u n c o n t r ov er t e d by the R ev e n u e . Th e investment in capital w o r k - i n -p r o g r e s s and ad v a n c e f or m a ch i n e r y on a c c o u n t o f w h i ch i n t e r e s t h a s be e n d i s a l l o w e d ap p l y i n g t h e p r o v i s i o ns o f s ec t i o n 3 6 ( 1 ( i i i ) on a c c o u n t o f d i v e r s i o n o f i n t e r e s t b e a r i n g f u n d s f o r t h e p u r p o s e of m ak i n g t h e s e i n v e s t m e nt s a mo u n t s to R s . 3 7. 5 lacs ( R s . 3 1 .2 2 lacs + R s . 6 . 2 5 l a cs ) r es p e c t i v e l y . C l ea r l y t h e r e fo r e , th e r e w e r e e n o u g h o w n fu nd s a v a i l a b l e w i th t h e a s s e s se e fo r m a k i n g i m p u g n e d i n v e s tm e n t . F u rt h e r t he p r o p o s i t i o n l ai d d o w n by the Hon'ble J ur i s d i c t i o n a l H i gh Court in the case of Gurudas G ar g and M/s K a p son s A s s o c i at e s (supra), as pointed o ut by the lower aut h o r i t i e s, is t ha t where 5 s u f f i c i e nt o w n i n t e r e s t fr e e a dva n c e s a r e a v a i l ab l e , i t i s t o b e p r e su m e d t ha t t h e s a m e h av e b e e n u s e d fo r m a k i n g i n t e r e s t f r e e a d va n c e s o r n o n -b us i n e s s ad v a n c es . Th e L d . D R h a s n o t b r oug h t t o o u r n ot i ce a n y c o n t r ar y de c i s i o n o f t h e H o n ' b l e Ju r i s d i c t i o n al H i g h C o u r t o r t h e Hon ' b l e A p e x C o u r t i n t hi s re ga r d . I n v i e w o f th e s a m e, w e a g re e w i t h t h e L d . c o u n s el f o r a s s e s s e e t h a t n o i n t e r e s t b e a r i ng f u n d s c a n b e a t t r i b u te d t o h a v e b e e n u s e d f o r t h e p u r p o se o f m a k i ng impugned i n ve st m e n t in c a p i ta l w o r k - i n - pr o gr e s s and a d v a n c e f o r p u rc h a s e of m a ch i ne r y . Th e R e ve n ue , w e f i n d , has not p o i n te d o u t a n y ne x u s b e t w ee n th e i n t e r e st b e a r i n g fu n d s of t h e a s se s s e e a n d t h e i n v e s t me n t i n t he s a m e a n d t h e d i s a l l o w an c e has b e e n m a d e by g i v i n g a v a g u e / g e n e ra l st a t e m e n t t ha t t he f u n d s h a v e b e en f o u n d t o have been a d v an c e d for th e pu r c h a s e of capital asset w i t h o u t s p e ci f y i n g w h e t h e r / w hi c h i n t e r e s t b e ar i n g f u n ds have been so used. In the ab s e n c e of the same and c o n s i d e r i n g t h e t o t a l i t y of t h e fa c t s a n d c i r c u ms t a n c e s o f t h e p r e se n t c as e , w e h o l d t h a t n o d i s a l l o w an c e of in t e r e s t i s w a r r a n t e d i n t he p r e s e n t c a s e a s p e r t h e p r ov i s i o n s o f section 36(1)(iii) of the Act. Th e disallowance so made amounting to Rs . 3 5 , 1 3 1 /- is, t h e r e f o r e, d i r e cte d to be d e l e t e d . G r o u nd N o . 1 ( a ) r a i s ed by t h e a s se s s e e i s a l l o w e d.
9. G r o u n d N o. 1 ( b ) re a d s a s un d e r :
"b) By arbitrarily and wrongly conf irmed the disallo wance of expenses Rs.3,98,008/- u/s 14A of the Income tax Act, 1961."6
10. Th e f a c t s r e l a t i n g t o t hi s ground of appeal rela tes to di sal l o wance of R s.3,98,008/- u/s 14A of the Act. Duri ng the course of asses sment proceedi ngs, the Assessi ng Offi cer noti ced that the assessee company had made i nvestment i n mutual funds from whi ch e xempt i ncome was being earned. The assessee was asked to provide detai l s of the e xpenses i ncurred on maki ng these i nvestments and whether the y had been added back u/s 14A. I n response, i t was sub mi tted that the assessee h ad vol untari l y di sal l o wed the amount of Rs.1,36,000/- on account of secti on 14A di sal l o wance. Thereafter, not sati sfi ed wi th the repl y of the assessee, the Assessi ng Offi cer cal cul ated the di sal l o wance u/s 14A amounti ng to Rs .5,34,008/- and after gi vi ng cre di t for the amount al ready di sal l o wed by the assessee of Rs.1,36,000/-, the bal ance amount of Rs.3,98,008/- was di sal l o wed and added to the i ncome of the assessee.
11. B e f o r e t he L d . CI T( A p p e a l s ) , t h e as s e s s e e ra i s e d se v e r a l c o n t e n t i on s , as r e p r o d u c ed i n pa r a 3 . 1 o f th e or d e r , w hi c h b r i e f l y pu t w e re t o t h e e ff e c t th a t t h e a s s es s e e had s u o m o t o d i s a l l o we d a d m i n i s t r a t i ve e x p e ns e s o f R s .1 , 3 6 , 00 0 / - , b e i ng p a r t o f s a l ar y a nd t e l e p ho n e e x p en s e s o f o n e o f i t s e m p l o y ee f o r m a i n t a i ni n g p o r t f o l i o o f i t s i nv e s t m e n t s, t h a t n o i n t e r e st expense was disallowable s i n ce net i n t e r e st had been earned by the assessee, the interest pa i d in any c a se r e l a t e d t o t er m l o a n s a n d s p ec i f i c p u r p o s e l o a ns a n d n o part of b o r r o we d funds were used for m ak i n g the i n v e s t m e nt , t h a t t h e i n v e s tm e n t h a d b e e n m ad e o u t o f s a l e 7 of mutual funds and that t h e a s s e s s e e h a d s u f fi c i e n t o wn funds i n t h e f or m o f p r o f i t s f or t h e y e a r f or m a k i n g t h e i m p u g n e d i nv e s tm e n t s . Th e s u b m i s s i o n s of t he a s s e s s ee d i d n o t f i n d f a vou r w i t h t h e L d . CI T( A p p e a l s ) wh o h e l d t ha t the r e q u i si t e co n d i t i o n s for invoking t he p ro v i s i o n s of s e c t i o n 1 4 A w e re f o u n d a p p l i c a bl e i n t h e f a c t s of t h e c a s e a n d , t h e r ef o r e , th e d i s a l l o w a n c e w a s r i g h t l y w o r ke d o u t by i n v o k i n g t h e m ac h i n e r y p r o vi s i on s g i v e n i n R u l e 8 D o f t h e I n co m e Ta x Ru l e s . Th e r e l e v a n t f i n d i ng s of t h e CI T( A ) at p a r a 3 . 3 o f t h e or d e r i s as u n d er :
"3.3 Having considered the submissions made in this regard, I find that requisite conditions for invoking the provisions of sec 14A of the IT Act are found to be applicable in the facts of this case. The appellant has also not denied the same and the only difference of opinion is with regard to the computation of the amount of disallowance to be made u/s 14A of the IT Act. I find that for this purpose, machinery provision has been given in Rule 8D of the IT Rules. As regards the contention of recording the satisfaction of Assessing Officer is concerned, I find that it has been clearly complied with by the Assessing Officer on page 9-11 of the order. I do not find any infirmity in the computation made by the Assessing Officer and accordingly confirm the disallowance of Rs.3,98,008/- made u/s 14A of the IT Act."
12. B e f o r e u s , t h e Ld . A R r e i t e ra t e d t h e c o nt e n t i on s m a d e b e f o r e t h e CI T( Ap p e a l s ) r e ga r d i ng s u f f i c i e nc y o f o w n s u r p l u s f u n d s a v ai l a b l e w i t h t h e as s e s s ee f o r t h e p u r p o se o f m a k i ng i n v e s t m e nt w a rra n t i n g n o d i s al l o w a n c e of i n t er es t u / s 14 A o f t h e A c t . R el i a n c e w a s p l a ced o n t h e d e c i si o n o f t h e H o n ' b l e P u nj a b & H a r y a n a H i gh C o u r t i n t h e c ase o f CI T v s M a x I n di a L td . i n I TA n o . 1 8 6 0 f 2 0 1 3 d t . 0 6 -0 9 -1 6 a n d t he d e c i s i o n o f t he H o n ' b l e G u j a ra t High Court in the case of Principal C o mm i s s i o n e r of Income Ta x - 4 vs S i n te x I n du s t r i es L t d . ( 2 0 1 7 ) 8 2 t a x ma n n . c o m 1 7 1 ( Gu j ) .I t w as 8 p o i n t e d o ut t h at t h e S L P f i l e d a g a i n s t t he o rd e r o f t h e H o n ' b l e G u ja r a t H i g h C o u r t wa s d i s m i s s ed b y t h e A p e x court i n i t s j u dg e m e n t r e p o r te d i n ( 2 0 1 8 ) 9 3 t a x m a n n . c o m
24.
13. Th e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r o f t h e CI T( A p p eal s ) .
14. W e h a v e h e a r d th e r i v a l c o n te n t i o n s a n d g o n e t hr o u gh t h e o r d e r s of t he a u t h o r i ti e s b el o w . W e f i n d m er i t i n t h e c o n t e n t i on s o f th e L d . c o u n s el fo r a s s e s s e e. Th e f a c t t h a t the i n v e s t me n t i n r e l a t i on t o wh i c h d i s a l l o w a n ce u / s 1 4 A w a s m a d e a m o un t e d t o R s . 2 ,6 0, 7 5 , 0 5 1 / - w hi l e t h e o w n f u n d s a v a i l ab l e w i t h t h e a s s e s see a s s t a t e d i n th e e a r l i e r p a r t o f o u r o r d e r a m o u n t e d i n a l l t o R s . 2 6 . 5 4 c r o re s , i n t he f o r m o f p r o f i t s of R s . 4 . 8 5 c r o r es, s h a r e c a p i t al of R s . 1 . 3 0 c r o r e s a n d R e ser v e s & S u r p l u s o f R s 2 0 . 3 9 c r or e s , i s n o t disputed, nor has the same been c o n tr o v e r te d by t he R e v e n u e . F u rt h er w e f i n d t h a t t h e H o n ' b l e J u ri s d i c t i o na l H i g h C o ur t i n th e c a s e o f M a x I n du s t r i es ( s u pra ) a n d th e Hon'ble G u j ar at High Court in the case of Sintex I n du s t r i es ( s u p ra) h a s h e l d t h a t w h e r e su f f i c i e n t o w n f u nd s a r e a v a i l ab l e , no d i s a l l o wa n c e o n a c c o u n t o f i n t e r e s t i s w a r r a n t e d u / s 14 A o f t h e A c t. We h a v e a l s o no t ed t h a t S L P a g a i n s t t h e o r d e r o f t h e H o n ' b l e Gu j r a t H i g h Co u r t h a s b e e n d i s m i s s e d by t he a p e x c o u r t . I n v i e w o f t h e s am e , w e f i n d m e r i t i n t he c o n te n t i o n o f t he a s se s s e e t h a t no d i sa l l o w a n c e o f i n t e r e st , i n th e p r e s e n t c a s e , w a s w a r r a nt e d o n a c c o u n t o f s u f f i c i e n t o wn f u n d s a v a i l a b l e w i t h t h e a s s es s e e w h i ch 9 c o u l d b e at t r i b ut e d t o t he m a k i ng o f i m p ug n e d i nv e s t m e n ts i n t h e p r e s e nt c as e . F ur t h e r , w e f i n d t h at t h e a s se s s e e h ad c o n t e n d e d t h at t h e i n v e s t m e nt h a d b e e n m a d e o ut o f s a l e o f m u t u a l f un d s h el d i n t h e p r e c e di n g y e a r . I t w a s po i n t e d o ut b y t h e L d . c o u ns e l f o r a s s e s se e t h a t m u t u a l f und s h e l d i n t h e p r e c e di n g y ea r a m o u n t e d t o R s . 8 . 5 0 c r or e s w h i c h h a d b e e n s o l d a n d i n v e s t e d i n m u tua l f u n d s i n th e i m p u g n ed year to the e xt e n t of R s . 2 .6 0 crores. Th e sa m e was d e m o n s t r at e d t hr o u g h t h e s c he du l e o f i n v e s tm en t forming part of the ba l a n c e sheet sh o w i n g none of the old i n v e s t m e nt s of Rs . 8 . 5 c r o re s a pp e a r i n g i n t h e i n v e s t m e n ts o f t h e c u r r e n t yea r w h i c h s h o w ne w i n v e s t m en t s o f R s . 2 . 6 0 crores. Th u s we find that the a s s e s s ee ha d clearly d e m o n s t r at e d th e a t t r i b u ti o n of the s o u rc e of the i n v e s t m e nt i n t he m u t u al f u nd s t o b e o u t o f n on i n t e re st b e a r i n g s o u r c e s. I n v i e w o f t h e sa m e , t h er e w as no o c c a s i o n a t a l l to i n vo k e th e p r o v i s i o n s o f s e c t i o n 1 4 A o f th e A c t an d made d i s a l l o wan c e of i n t e re s t under the sa m e . Th e d i s a l l o w an c e , t he r e f o r e , m a de o f R s . 3 , 9 8 , 0 0 8 /- i s d i r e c t ed t o b e d e l e te d . G r o u n d N o .1 ( b ) r a i s e d b y th e as s e s s e e i s, t h e r e f o r e, a l l o w ed f o r s t at i s t i c a l p u r p o s e s .
15. G r o u n d N o. 1 ( c ) ra i s e d b y t h e a ss es s e e i s as u n d er :
"c) By arbitrarily and wrongly conf irmed the disallo wance of expenses for Rs.5,79,063/- paid for purchase of diesel u/s 40A(3) of the Income Tax Act, 1961."
16. Th i s g r o u n d r e l at e s t o t he d i s al l o w a n c e o f e x p e nse s o f R s . 5 , 7 9 , 06 3 / - u/ s 4 0 A ( 3 ) o f t h e A c t , o n a c c o u nt o f p a y m e nt made in cash exceeding the specified limit. Th e facts 10 leading to t he same are that during as s e s s m e n t p r o c e e d i ng s , t h e A s s e s s i n g O f f i cer n o t i c e d t h a t t he a s s e s s e e had made p a ym e n t s in c as h exceeding R s .2 0 , 0 0 0 / - fo r purchase of di e s e l a m o u nt i ng to Rs.5,79,063/-. The assessee was asked to sho w cause as to why thi s e xpendi ture be not di sal l o wed i n vi e w of the pr ovi si ons of secti on 40A( 3) . I n response, the a ssessee submi tted that the company was purchasi ng di esel from a regul ar retai l outl et, whi ch was accepti ng pa yments by cheque. Ho wever, i t was onl y i n the event of non avai l abi l it y of di esel at the sai d out l et that it purchased di esel from other outl et to whom pa yment had to be made i n cash onl y. The Assess i ng Offi cer was not sati sfi ed wi th the repl y o f the assessee st ati ng that the si tuati on ci te d by the assesse e di d not fal l wit hi n any of the si tuati ons referred to i n Rul e 6DD of the Income Ta x Rul es, 1962. Therefore, di sal l o wance was made of the amount pai d i n cash e xceedi ng the l i mi ts spe ci fi ed u/s 40A( 3) of the Act of Rs.5,79,063/- and added back to the i ncome of the assessee.
17. Before the Ld. CI T( A) the ass essee rei terated the contenti ons made before the AO stati ng that the cash pa yments were unavoi dabl e due to urgent need of di esel for runni ng the uni t i n case of po wer cuts. Copy of account of both the parti es from whom di esel was regul arl y purchased and from whom purchases were made due to ur genc y and pa yment made i n cash thereof, was fi l ed. I t was stated that the pa yments i n cash had been made due to urgenc y i n 11 busi ness and the genui neness an d i denti t y of the parti es not bei ng doubted ,no di sal l o wance u/s 40A( 3) was warranted. Rel i ance was pl aced on a numbe r of judi ci al de ci sions i n thi s regard. Ld.CI T( A) was not convi nced wi th the contenti on of the assessee and therefore up hel d the di sal l o w ance made stati ng that the assessee had fai l ed to substanti ate the e xpendi ture and the rel evant cl au se of Rul e 6DD w hereunder the same was per mi ssi bl e. The rel evant fi ndi ngs of the CI T( A) at para 4.2 of the order i s as under:
"4.2 I have carefully considered the facts of the case, the basis of the disallowance made by the Assessing Officer and arguments of the AR and find that a disallowance of Rs.5,79,063/- has been made by the Assessing Officer u/s 40A(3) of the IT Act. The disallowance was made on the ground that cash payments have been made exceeding Rs.20,000/- in contravention to the provisions of sec 40A(3) of the IT Act. The appellant has failed to furnish any evidence to prove that payments made are covered under which clause of Rule 6DD of the IT Rules. The appellant has reiterated the submissions filed before the Assessing Officer and stated that payments were made for purchase of diesel from a dealer other than the regular dealer from whom purchases were made by cheque. The appellant has also cited a number of judicial decisions to support its contentions but the same were found to be distinguishable on facts. Further, I find that appellant has failed to bring on record any evidence even in the course of present proceedings to substantiate the expenditure incurred and the relevant clause of Rule 6DD where under the same is permissible Thus, considering all these facts, I hold that the Assessing Officer was justified in making a disallowance of Rs.5,79,063/- u/s 40A(3) of the IT Act and accordingly confirm the same."
18. Before us Ld.Counsel for the assessee rei terated the contenti ons made before the l o wer authori ti es that the genui neness of t he e xpendi ture had not been do ubted and the urgenc y al s o had been es tabl i shed for m aki ng the pa yment i n cash, therefore, no di sal l o wance was p ermi ssi bl e 12 u/s 40A( 3) of the Act. Rel i ance was pl aced on the fol l o wi ng case l a ws i n support of i ts contenti on:
• Gurdas Garg vs CI T( A) ,Bhati nda ( 2015) 63 ta xmann.com 289 ( P&H) • Dhuri Wi ne vs DCI T,Ci rcl e-IV,Ludhi ana( 2017) 83 ta xmann.com 20( Chd)
19. Ld.DR on the other hand rel i ed on the order of the CI T( A) stati ng that the assessees si tuati on di d not fal l i n any of the condi ti ons prescri bed u/r 6DD of the Income Ta x Rul es, 1962 and therefore the di sal l o wance had been ri ghtl y made.
20. We have heard the ri val contenti ons and gone through the order of th e authori ti es bel o w. We fi nd m eri t in the contenti on of the Ld.Counsel for the assessee. No di sal l o wance u/s 40A( 3) i s warranted i f the genui neness of the e xpendi ture i s not doubted a nd the busi ness e xpedi enc y for maki ng the same i n cash i s dul y demonstrated, even i f it does not qual i f y under any of the si tuati ons enumerated i n Rul e 6DD of the I ncome Ta x Rul es, 1962, for the said purpose. The j uri sdi cti onal Hi gh Court in the case of Gurudas Garg ( supra) has l ai d do wn thi s proposi ti on, whi ch has been fol l o we d by the coordi n ate bench of the I TAT i n the case of Dhuri Wi nes ( supra) .I t has been hel d that the si tuati ons l i sted i n Rul e 6DD are not e xhausti ve b ut are onl y i l l ustrati ve and any si tuati on bri ngi ng out busi ness e xi genc y for maki ng the pa yment in cash wi l l therefore not be e xcl uded for th e purpose of gr ant of i mmuni t y from the ri gours of di sal l o wance u/s 40A ( 3) ,merel y because it fi nds 13 no pl ace in the l i st in Rul e 6DD of the Income Ta x Rul es,1962.
21. Havi ng sai d so, we fi nd that i n the present case the assessee has fi l ed evi dence to establ i sh the genui neness of the e xpendi ture and al so the busi ness e xpedi enc y for maki ng the pa yment i n cash, by fi l i ng copi es of accounts of both the parti es one from whom di esel was purchased i n regular course and the other in urgent si tuati ons onl y making pa yment to hi m i n cash on demand. The Reve nue has not controverted the sai d facts. There fore the genui neness of the e xpendi ture and al so the busi ness e xpedi enc y for maki ng the pa yment in cash stands establ i shed. In this factual background and i n vi e w of the proposi ti on of l a w l ai d do wn by courts as above, no di sal l o wance u/s 40A( 3) was warranted ,merel y for the re ason that the assessees si tuati on di d no t fal l i n that l i sted i n Rul e 6 DD of the I ncome Ta x Rul es,1962. The di sal l o wance so made of Rs.5,79,063/- i s therefore del ete d. Ground of ap peal No1© i s al l o wed.
22. G r o u n d N o. 1 ( d ) ra i s e d b y t h e a ss es s e e r e a ds a s und e r :
d) By arbitrarily and wrongly restricted the disallowance of foreign travelling expenses at Rs.87,000/-out of Rs.174966/- made by the Ld. A.O on adhoc basis."
23. Th e above g ro u n d r el a t e s to d i s al l o w a nce of R s . 1 , 7 4 , 96 6 / - ou t o f f o re i g n t ra v e l e x p en s e s . D u r i n g t he c o u r s e o f as s e ss m e n t pr o c e e di ng s , t h e A s se s s i n g O f f i c e r noticed that t he assessee had debited an amount of 14 R s . 8 , 7 4 , 83 2 / - on a c c o u n t o f f or e i g n t r a v el e x pe n s e s . Th e assessee was as k e d to provide the complete details of forei gn travel e xpenses wi th vouchers. In response, the assessee produc ed date wi se d etai l s of forei gn travel i ng e xpenses and al so stated that t he tour were un dertaken to e xpl ore ne w m arkets for e xp orts, ne w man ufacturi ng machi nes, to att end i nternati ona l auto e xpo's an d to study ne w products, desi gns etc. The Assessi ng Offi cer was not total l y sati sfi ed wi th the repl y of the assessee be cause the assessee di d not have proper evi d ence to establ i sh the cl ai m and rel evance of these e xpenses bei ng i ncurred for busi ness purpose. Therefo re, the Assessi ng Offi cer di sal l o wed 20% of these e xpenses, whi ch worked out at Rs.1,74,966/- and added back to the i ncome of the assessee.
24. Before the Ld.CI T( A) the assessee contended that no personal usage c oul d be attri bute d to the sai d e xp ense si nce al l e xpenses we re i ncurred on di rectors of the assessee company onl y. F urther i t was co ntended that the tours were undertaken to e xpl ore ne w markets, ne w manufacturi ng machi nes and to attend auto e xpo and that the assessee had e xported goods worth Rs.32 l acs & 1.42 crores in the succeedi ng years on account of the same. The Ld. CI T( A) found some meri t i n the contenti on of the assessee and further restri cted the di sal l o wance to Rs.87,000/-si nce compl ete ne xus coul d not be establ i shed bet ween the e xpenses i ncurred and the busi ness purpose of the t ravel . 15
25. Before us Ld.Counsel for the assessee rei terated the contenti on made before the CI T( A) and stated that the di sal l o wance was purel y adhoc whi ch was not permi ssi bl e in l a w. Rel i ance was pl aced on the fol l o wi ng case law in support of i ts contenti on:
• M/s Val l abh Yarns Pvt. Ltd. vs JCI T I TA No.1250/Chd/2017 dated 28-03-18
26. Ld.DR on the other hand strongl y supported the order of the CI T( A) stati ng that the restri cti on of di sall o wance to Rs.87,000/- out of total e xpense i ncurred of Rs.8,74,832/- was reasonabl e consi deri ng the fact that the assessee had fai l ed to establ i sh ne xus bet ween the e xpendi ture incurred and busi ness purpose of travel undertaken.
27. After consi deri ng the ri val contenti ons we fi nd meri t i n the contenti on o f the Ld.Counsel for the assesse e. The fact that the travel l i ng was undertak en by the di rect ors of the assessee company was establ i shed by the assessee fil i ng detai l s and cop y of account of travel l i ng e xpe nses. The revenue has not controverted the sai d fact. Further the fact that the assessee has made consi derabl e e xport sales i n the i mmedi atel y succeedi ng years of Rs.32 l acs and Rs.1.42 crores has al so remai ned uncontroverted. Therefor e there i s no reason for attri buti ng any personal /non busi ness usage in the sai d e xpenses when the enti re travel has been undertaken by t he di rectors of the company re sul ti ng i n vi si bl e i ncrease in sal es in the succeedi ng year. The di sal l o wance uphel d by the CI T( A) to the e xtent of Rs.87,000/- i s purel y adhoc wi thout any bas i s, and i s 16 therefore del eted. Ground of appe al No.1( d) therefore stands al l o wed.
28. I n t h e r es u l t , t h e a p p e a l of t h e a ss e s s e e i s a l l o w e d.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 14 t h August, 2018
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh