Income Tax Appellate Tribunal - Ahmedabad
Bhupendrasingh Hakamsingh Luhar, ... vs Assessee on 13 June, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B" BENCH, AHMEDABAD
BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER And
SHRI S.S. GODARA, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.2083/Ahd/2011
( नधा रण वष / Assessment Year : 2008-09)
Bhupendrasingh बनाम/ DCIT
Hakamsingh Luhar Vs. Mehsana Circle
Prop.Bhupendra Housing Mehsana
Crane Service
Opp.ONGC Nagar
HighWay, Palavasana
Mehsana-384 002
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAIPL 0486 F
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से /Appellant by : Shri S.N. Divatia, AR
यथ क ओर से/Respondent by : Shri Jagdish, CIT-DR
ु वाई क तार ख /
सन Date of Hearing 05/05/2016
घोषणा क तार ख /Date of Pronounce ment 13/06/2016
आदे श / O R D E R
PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER :
This appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-Gandhinagar dated 16/05/2011 for the assessment year 2008-09.
ITA No.2083/Ahd/2011Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -2-
2. The relevant facts as culled out from the materials on record are as under:-
2.1. Assessee is an individual and proprietor of Bhupendra House Crane Service. He filed his return of income for AY 2008-09 on 29/09/2008 declaring total income of Rs.13,85,570/-. The case was selected for scrutiny and thereafter assessment was framed vide order dated 28/11/2010 and the total income was determined at Rs.59,53,540/-.
Aggrieved by the order of the AO, assessee carried the matter before the ld.CIT(A), who vide order dated 16/05/2011 (in Appeal No.CIT(A)GNR/315/2010-11) granted partial relief to the assessee. Aggrieved by the order of the ld.CIT(A), assessee is now in appeal before us and has raised the following grounds:-
"1. Learned CIT(A) has wrongly making different disallowance amounting to Rs.15,97,999/- u/s.40A(3).
2. Learned CIT(A) has wrongly disallowed different expenses made of Rs.25,58,026/- u/s.40(a)(ia) as TDS was not deducted."
3. The Registry has pointed out that there is delay of one day in filing the appeal. Assessee has filed an Affidavit dated 13/02/2015, wherein inter alia it is submitted that the delay was caused due to error in counting the period of sixty days and that the delay in filing the appeal was neither intentional nor deliberate. It was, therefore, prayed that that the delay of filing of appeal by one day be condoned.
ITA No.2083/Ahd/2011Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -3-
4. The ld.CIT-DR did not seriously object to the prayer of condonation of the delay. We therefore condone the delay and admit the appeal for hearing.
4.1. First ground is with respect to disallowance u/s.40A(3) of the Act.
4.2. During the course of assessment proceedings and on perusing the cash book and ledger, AO noticed that assessee on various occasions and under various heads of expenses had paid cash for expenses in excess of Rs.20,000/- which according to AO was in violation of provisions of section 40A(3) of the Act. ( The details of such payments are listed on page Nos.2 to 4 in the assessment order). Assessee was asked to show- cause notice as to why the disallowance be not made u/s.40A(3) to which assessee submitted the reasons for making the cash payments. The submissions of the assessee were not found acceptable to the AO. He thereafter proceeded to make disallowance aggregating to Rs.15,97,999/- being the payments in cash exceeding Rs.20,000/- (the details of which are listed on page No.11 of the assessment order). Aggrieved by the order of the AO, assessee carried the matter to CIT(A), who confirmed the disallowance made by the AO by holding as under:-
"3. The first ground of appeal is on different disallowances u/s.40A(3). The facts and submissions of the assessee on different type of payments are considered and decided separately as follows:
3.1. Cash payment to Umiya Trailor & Transport Rs.4,60,300/-. ITA No.2083/Ahd/2011
Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -4- Payments have been made in cash on different days to the party each above Rs.20,000/- and totaling Rs.4,60,300/- which has been disallowed by the AO. The assessee's submissions can be summarized as follows:-
"we have paid Umiya Trailer & transport by way of account payee cheque but in some case there is need of driver to take money for fuel or any other reason at site of transportation, where neither Umiya trailer & Transport nor our assessee maintaining bank accounts, our employee or our agent has paid cash to the driver with the instruction of Umiya Trailer & Transport from petty cash maintained by our employee at site."
Having considered the submissions, I hold that the payments are not covered in any of the exceptions as provided in Rule 6DD. The assessee has tried to say that the payment could not be made by crossed bank cheque or draft due to exceptional or unavoidable circumstances. The assessee and the AR have failed to appreciate that the residuary clause as was available under the erstwhile Rule 6DD (j) is no longer available. The decisions cited by the AR were under that clause. Now the assessee has to claim and prove that circumstances in one of the present clauses as applicable to the assessment year under question were existing. Rule 6DD(g) allows the payment in a village or town which is not served by the bank to a person residing or carrying on business etc in that village or town. The circumstances have not even been claimed. Further, the assessee himself has made payment to the same party by cheques also which have been allowed also. In these circumstances the payments made in cash are covered u/s. 40A(3) and are therefore not allowable. The disallowance made by the A.O. is confirmed.
3.2 Cash payment to MGT International of Rs. 52.964/- The assessee's submissions can be summarized as follows:
"The Learned DCIT has disallowed the Rs. 52964/-u/s 40A (3) for payment made to MGT International. Actual we have Paid only 23140/- to MGT International for advances to fuel exps. During the work at site to the employee of MGT International, If Instruction given by transportation supplier for his need we have to give cash in transit in normal business condition, According to law of natural justice we have not breach of section 40A(3). The Learned DCIT forget in facts ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -5- and he is shown Rs. 52,964 paid to MGT International instead of Rs.23140/-. We pray to you honour delete the addition made u/s 40A (3) cash payment made to MGT international."
As far as the dispute regarding the amount paid in cash is concerned the A.O. is directed to verify the amount while giving the appeal effect and decide the issue accordingly. An opportunity of being heard shall also be given to the assessee in this respect. Having considered the submissions, I hold that the payments are not covered in any of the exceptions as provided in Rule 6DD. The assessee has tried to say that the payment could not be made by crossed bank cheque or draft due to exceptional or unavoidable circumstances. The assessee and the AR have failed to appreciate that the residuary clause as was available under the erstwhile Rule 6DD (j) is no longer available. The decisions cited by the AR were under that clause. Now the assessee has to claim and prove that circumstances in one of the present clauses as applicable to the assessment year under question were existing. The circumstances have not even been claimed. In these circumstances the payments made in cash are covered u/s. 40A(3) and are therefore not allowable. The disallowance made by the A.O. is confirmed subject to verification of amount as directed above.
3.3 Cash payment for Foreign Travel expenses of Rs. 5,97,538/- The assessee's submissions can be summarized as follows:
"The Learned DCIT has added of Rs. 597538/- for foreign travel exps. paid in cash for ticket charges u/s,40A (3). In respect to it we say that we have paid cash to travel corporation of India for ticket charges in various dates. In normal course Air ticket is issued only when payment reach to party. The rate of Air Ticket is fluctuating every day, If we paid by account payee cheque it cleared after five to six days and air ticket charges are change from the date of booking to the date of payment in the account of travel corporation of India and if we issue cheque in advance and payment reach late we have to make payment of 20% interest for late payment, So we have no option to take air ticket other than cash, The office of Travel Corporation of India in Ahmedabad and they are not issued Air ticket on Credit basis. We have to buy ticket before two or three days before traveling because it is not predecided to go to foreign for buying cranes from various party. There are number of hurdles for us to give cheque for Ticket ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -6- Charges So, During Course of Business we have paid cash for ticket charges. This exps. Is exclusively for business purpose. We have not made any breach of S.40A (3) of the I. T.Act and it is our humble request to you honour delete the addition made of Rs. 597538/- for foreign Travel Exps paid in cash."
Having considered the submissions, I hold that the payments are not covered in any of the exceptions as provided in Rule 6DD. The assessee has tried to say that the payment could not be made by crossed bank cheque or draft due to exceptional or unavoidable circumstances. No such clause is now available. Now the assessee has to claim and prove that circumstances in one of the present clauses as applicable to the assessment year under question were existing. Payments are definitely taken in cheque by travel agents. The assessee itself says that if payment by cheque are made and they are delayed than only interest is payable. These could be conditions for any payments but does not entitle the assessee to infringe the law. Such conditions can be applied by any supplier of goods and services. In these circumstances the payments made in cash are covered u/s. 40A(3) and are therefore not allowable. The disallowance made by the A.O. is confirmed.
3.4 Cash payment for Out of repairs and maintenance expense of Rs. 2,70.739/-
The assessee's submissions can be summarized as follows:
"The Learned DCIT has disallowed Rs. 270739/- by alleging that repair maintenance expenses paid in cash on various dates. But actually we have paid repair & maintenance expenses not more than 20000/- to various labour at site for Grain repairing. We are giving cash to our employee for various site work as a petty cash and he is giving us Vouchers for expenses at site and we are cleared petty cash given to him on particular date. We are account repair & maintenance charges on particular date. We have not paid any exps. Above 20000/- we are provide to you all the vouchers of repair & maintenance charges given by repairer. So, we pray to you honour delete the addition made u/s 40A (3) for cash payment for repair & maintenance."
I have examined the contentions and the vouchers produced. The story is clearly an afterthought and not believable. For a moment let as assume that ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -7- Harpreet Singh etc., are employees of the assessee in different states and they got the work done through various people. But, it is seen that all the so called sub-vouchers are signed by same cashier as the payment giver. How can the same cashier be in Maharashtra, Andhra Pradesh, Rajashtan etc. at the same time? Further, all the sub-vouchers prepared for different states are in the same handwriting. How can the same person make vouchers in different states? Further, curiously the main voucher and claimed sub-vouchers for April are for one state, June for different states, September for yet another different state etc. Is it possible that cranes are got repaired in one state in a particular month only that also through different persons. All these shows that the vouchers are self serving documents made and are not believable. The addition is therefore, confirmed.
3.5 Payment to Travel Corporation of India-Rs.24.457/-
No submission has been given, whatsoever regarding this payment. The payment is above Rs.20,000/- and is made in contravention of Sec. 40A(3) and therefore the addition on account of disallowance is confirmed.
3.6 Payment made to K.K.Transport in cash Rs. 192000/-
The assessee's submissions can be summarized as follows:
"The Learned DCIT has disallowed Rs.192000/- by considering that payment made to K,K. Transport in cash. In respect to it we say that we have paid to K.K. Transport for transportation work carried out at sites of our Grain work. Our Employee has made payment to the party at site of work we have to no option other than payment of cash if he demand charges in cash and we want to complete our work without interruption or delayed in work in adverse condition we have to compulsion to make payment in cash. According to Natural Justice we have no breach of section 40A(3), You honour able to understand our business of transportation. We are request to delete the addition made of Rs. 192000/- payment made to K.K. Transport for transportation exps."
Having considered the submissions, I hold that the payments are not covered in any of the exceptions as provided in Rule 6DD. The assessee has tried to say that the payment could not be made by crossed bank cheque or draft due to exceptional or unavoidable circumstances. No such clause is now ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -8- available. Now the assesses has to claim and prove that circumstances in one of the present clauses as applicable to the assessment year under question were existing. In these circumstances the payments made in cash are covered u/s. 40A(3) and are therefore not allowable. The disallowance made by the A.O. is confirmed.
In the result all the disallowances, as made by the AO u/s. 40A(3) are confirmed and the ground of appeal is dismissed."
4.3. Aggrieved by the order of the AO, assessee is now in appeal before.
4.4. Before us, ld.AR reiterated the submissions made before the AO and ld.CIT(A) and further submitted that each of the cash payment did not exceed Rs.20,000/- and, therefore, no disallowance could have been made u/s.40A(3) of the Act. He further submitted that amendment to section 40A(3), whereby the stipulation of aggregation of payment made to a person in a day otherwise by than 'A/c. Payee Cheque' or 'A/c. Payee Draft' in excess of Rs.20,000/- is liable for disallowance is not applicable to the year under consideration because the amendment to section has been made w.e.f. 01/04/2009 and, therefore, not applicable to the year under consideration. He further submitted that while upholding the disallowance u/s.40A(3), there is no finding of ld.CIT(A) as to whether each payment in a day made by the assessee exceeded Rs.20,000/-. He further submitted that provisions of section 40A(3) was intended with the objective of avoiding tax evasion and when the payments are genuine and are made out of income from disclosed sources, no disallowance u/s.40A(3) can be made and the aforesaid ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09 -9- proposition, he placed reliance on the judgemnt of Hon'ble Gujrat High Court in the case of Anupam Tele Services vs. ITO reported at (2014) 366 ITR 122 (Guj.). He therefore submitted that the matter may be remitted to the file of ld.CIT(A) to decide the issue afresh. On the other hand, ld.CIT-DR supported the orders of AO and ld.CIT(A).
5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgement relied upon by the ld.counsel for the assessee. The issue in the present ground is with respect to disallowance u/s.40A(3) of the Act. It is an undisputed fact that assessee has made cash payments for expenses. Before us, one of the ld.AR's submission is that during relevant assessment year, the provisions of the Act were only attracted when each payment exceeded a sum of Rs.20,000/- and the Act did not stipulate about the clubbing of payments made in the entire day for determining the disallowance and that the amendment to the provision with respect to the aggregate payment to a person during the day has to be considered as disallowance is made w.e.f. 01/04/2009. Before us, Revenue has not placed any material on record to demonstrate that the amendment made to sub-section(3) to section 40A by Finance Act, 2008, would be applicable to AY 2008-09. Further, there is no finding of lower authorities as to whether each of the payment made by the assessee exceeded Rs.20,000/- or the aggregate payment in the year ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09
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exceeded Rs.20,000/-. Apart from aforesaid, we find that the Hon'ble Jurisdictional High Court in the case of Anupam Tele Services vs. ITO reported at (2014) 366 ITR 122 (Guj.) has held that the paramount consideration of section 40A(3) is to curb and reduce the possibilities of black money transactions and section does not eliminate considerations of business expediencies. In view of the aforesaid facts, we are of the view that the issue needs to be reexamined at the end of ld.CIT(A). We, therefore, restore the issue back to the file of ld.CIT(A) to decide the issue afresh in the light of our observations made hereinabove, the decision of Hon'ble Gujarat High Court cited hereinabove, and in accordance with law. Needless to state that the ld.CIT(A) shall grant adequate opportunities of hearing to both the parties. Assessee is also directed to co-operate by promptly furnishing all the details called for by the lower authorities. Thus, this ground of assessee's appeal is allowed for statistical purposes.
6. Ground No.2 is with respect to disallowance u/s.40(a)(ia) of the Act.
6.1. On perusing the ledger account of parties, AO noticed that the assessee made payment of labour expenses, crane hire charges, interest payment and audit fees, the expenses aggregated to Rs.25,58,026/-, but on expenses the assessee had not deducted TDS (the details of expenses are listed at page Nos.12 & 13 of the assessment order). AO was ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09
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therefore of the view that the expenses was required to be disallowed u/s.40(a)(ia) of the Act. He accordingly disallowed the expenses of Rs.25,58,026/-. Aggrieved by the order of AO, assessee carried the matter before the ld.CIT(A), who upheld the disallowance made by the AO by holding as under:-
"4. The second ground is against disallowance of various expenses of Rs.25,58,026/- u/s. 40(a)(ia) as TDS was not deducted.
The submissions of the assessee are summed up as follows:
(a) The Learned DCIT has disallowed various expenses made of Rs.
25,58,026/-u/s. 40(a)(ia) as TDS was not deducted. We are ready to deduct the TDS in the current year and there is no mens rea, and therefore the disallowance be deleted.
(b) It cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the transport owners. In that case the assessee is not liable to deduct-tax at source, as per the provision of section 194C(2), on the payments made to the Transport owners for vehicle hire. Consequently, the provisions of section 40(a)(ia) shall not apply to such payments. Assessee relied on ITAT Visakhapatnam in the case of Mythri Transport Corporation Vs. Assistant Commissioner of Income Tax 124 TTJ 970.
I have gone through the submissions and the assessment order. Even in the grounds of appeal assessee is pleading ignorance and no mens rea and states that they would deduct the TDS in future. The ground of appeal deserves to be dismissed on the face of it as 40(a) (ia) is not a penalty provision but a provision where an expense is not to be allowed under certain circumstances. It does not require or presupposes that mens rea should be there for an expense to be disallowed."
ITA No.2083/Ahd/2011Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09
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6.1. Aggrieved by the order of the ld.CIT(A), assessee is now in appeal before us.
6.2. Before us, ld.AR reiterated the submissions made before the AO and ld.CIT(A) and further submitted that no disallowance can be made u/s.40(a)(ia) of the Act, if the person to whom the amount has been paid has already considered the amount as its income in view of the fact that the second proviso to section 40(a)(ia) introduced w.e.f. 01/04/2013 is declaratory and curative in nature and has retrospective effect and for this proposition, he relied on the decision of Agra Tribunal in the case of Rajeev Kumar Agarwal vs. Addl.CIT reported in (2014) 149 ITD 363 (Agra). He further submitted that since there is no finding on fact that whether the payees have considered the payments received by the assessee as their income, matter may be remitted back to the file of ld.CIT(A). The ld.CIT-DR, on the other hand, supported the orders of the AO and ld.CIT(A).
7. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present ground is with respect to disallowance u/s.40(a)(ia) of the Act on account of non-deduction of tax from the payments made by the assessee. Before us, one of the plea raised by the ld.AR is the amount that have been paid by the assessee have already been considered as income by the respective payees and, therefore, no disallowance u/s.40(a)(ia) could be made in view of second proviso to ITA No.2083/Ahd/2011 Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09
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section 40(ia)(a) of the Act which is held to be retrospective in nature as held by the Co-ordinate Bench of Tribunal in the case of Rajeev Kumar Agarwal(supra). The relevant observations of the Coordinate Bench at para-4 are as under:-
"The unambiguous underlying principle seems to be that in the situations in which the assessee's tax withholding lapse have not resulted in any loss to the exchequer, and this fact can be reasonably demonstrated, the assessee cannot be treated as an assessee in default. The net effect of these amendments is that the disallowance under section 40(a)(ia) shall not be attracted in the situations in which even if the assessee has not deducted tax at source from the related payments for expenditure but the recipient of the monies has taken into account these receipts in computation of his income, paid due taxes, if any, on the income so computed and has filed his income tax return under section 139(1)."
After considering various decision cited therein, the Coordinate Bench of Tribunal further held at para-9 as under:-
"When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable"
interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same.
.......
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ITA No.2083/Ahd/2011Bhupendrasingh Hakamsingh Luhar vs. DCIT Asst.Year - 2008-09
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Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause(ia) of section 40(a) was inserted by the Finance (No.2) Act, 2004."
7.2. We further find that there is no finding of the lower authorities on the issue as to whether the payments made by the assessee to the payees have been being considered by them as their income. In view of the aforesaid facts, we are of the view that the issue needs to be restored back to the file of ld.CIT(A) to decide the issue afresh in the light of our aforesaid discussion, the decision of the Coordinate Bench in the case of Rajeev Agarwal (supra) and in accordance with law. Needless to state that the ld.CIT(A) shall grant adequate opportunity of hearing to both the parties. The assessee is also directed to co-operate by promptly furnishing all the required details called for by the Authorities. Thus, second ground of assessee's appeal is also allowed for statistical purposes.
8. In the result, assessee's appeal is allowed for statistical purposes.
This Order pronounced in Open Court on 13/06/2016
Sd/- Sd/
( S.S. GODARA ) ( ANIL CHATURVEDI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 13/ 06 /2016
ट .सी.नायर, व.(न.स./T.C. NAIR, Sr. PS
ITA No.2083/Ahd/2011
Bhupendrasingh Hakamsingh Luhar vs. DCIT
Asst.Year - 2008-09
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आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आयु,त(अपील) / The CIT(A)-Gandhinagar
5. /वभागीय (त(न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड5 फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या/पत (त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 9.5.16 (dictation-pad 20+pages attached at the end of this File)
2. Date on which the typed draft is placed before the Dictating Member ...16.5.16/13.6.16.
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......13.6.16
7. Date on which the file goes to the Bench Clerk.....................13.6.16
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................