TMI Blog2017 (1) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... ld AO is directed to delete this disallowance u/s 40(a)(ia) of the Act - Decided in favour of assessee Disallowance made u/s 40A(3) - Held that:- It is not in dispute that the supply of materials had happened through out the year at different sites but at each site, the job allotted to the assessee was supposed to be executed within a short duration of 3 to 4 weeks. These facts have not been controverted by the revenue before us. Accordingly the payments were made to the parties in cash by the assessee through his employees who were site in charge / supervisors at various sites and it is not in dispute that the bulk payments were transferred to the employees by the assessee and those employees inturn make payment for purchase of materials as and when needed by making cash payments. It is not in dispute that the individual purchase bill for which payment was made was much below ₹ 20,000/- for which expenditure was incurred. All the purchase bills were also produced by the ld AR in his paper book filed. It is not in dispute that the employees of the assessee who were site in charge / supervisors situated at different site locations had approached these suppliers who do not k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remitted payments to his staff (site in charge / supervisors) of different sites who in turn made payments to labourers and weekly workmen sheets were prepared at each site in a proper form containing relevant details viz. nature of job done, days of working and payments made. The payments made to individual labourers were too low and outside the ambit of section 40(a)(ia) of the Act. In respect of contractor payment of ₹ 21,45,387/- , remittance was made to site in charge / supervisors who appointed local contractors to perform petty works at different sites. Individual payments made to the contractors were below the threshold limit prescribed u/s 194C of the Act. The ld CITA obtained remand report from the ld AO in respect of these evidences. The ld AO in his remand report dated 15.6.2012 stated as below:- Labour payments of ₹ 47,04,008/- Assessee only produced copy of ledger account from each side. No evidence was adduced that money was actually remitted to the site supervisors / staff in charge. As per ledger accounts, regular payments to sundry parties exceeding ₹ 50,000/- were made. So assessee was liable to TDS u/s 194C of the Act. Sub-contractor p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rebuttal in respect of the second remand report that the aspersion cast on the AR by the ld AO was strongly objected to. It was reiterated that when he produced the worksheet during the assessment proceedings, he refused to accept the same. The ld AO should have avoided the harsh remarks on the AR. The payments made to labour or worker were duly recorded in the cash book. Hence the said sheets produced in the appellate proceedings were not additional evidence. 2.2.4. The ld CITA observed that from the details filed, it was found that the signature of the labourers were not matching and their addresses were not given in the worksheets. He shifted his observations to violation of section 40A(3) of the Act and ultimately upheld the disallowance of ₹ 68,49,395/- made u/s 40(a)(ia) of the Act. 2.3. Aggrieved, the assessee is in appeal before us on the following ground:- 1. The order of the Ld. CIT(A)-XXXII, confirming the addition of ₹ 68,49,395/- u/s. 40(a)(ia) of the I. T. Act, 1961 made by the Ld. AO is contrary to the law and facts of the case. 2.4. The ld AR argued that the ld AO wrongly cast aspersions on a senior AR who is a qualified professiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PB Volume II. We find in the remand report, the ld AO had recorded the fact that the sheets filed by the assessee contain all the relevant details viz. date, project site, name of the person in charge, name of the labourer, working days, day wise charge, total charge, net paid and signature or finger impression of the labourer. The ld AO also recorded that similar sheets for subcontract expenses were also submitted. We find that the ld AO in the remand report apart from hurling wild allegation upon the senior AR who appeared before him and alleging without any basis that these sheets have been planned in post assessment period, have not found any infirmity in the said sheets. The assessment and remand proceedings, being enquiry based proceedings, the ld AO on opportunity being duly given to him, had failed to bring any adverse material on record. Thus the assertion of the assessee that the assessee remitted payments to the site in charge / supervisors who in turn made payments to the labourers or contractors and payments to individual labourers were below the limit prescribed for tax deduction u/s 194C of the act remains unrebutted. Hence it could be safely concluded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast ground to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowance made u/s 40A(3) of the Act to the tune of ₹ 41,05,364/- and further enhancing the disallowance thereon to ₹ 66,44,453/- in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed from the cash book of the assessee that the payments made to following parties were made in cash :- Zazmaliana Sons 13,50,790 Shanti Trading Company 13,61,208 New Stores, Silchar 4,85,588 Prasanna Baishya 2,53,629 Maa Durga Stores 9,99,490 Jai Bhavani 10,15,867 54,66,572 The ld AO observed that the purchases were made from these parties by the assesese from different dates throughout the year. The assessee replied that these expenses were incurred in purchase of cement, sand, stones, iron, concrete, etc, which are constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as the said party is shown as sundry creditor in the balance sheet of the assessee. The said party was settled in the subsequent year. It was also submitted that the payments to the tune of ₹ 2,53,629/- were made to Mr Prasanna Baishya who was the employee of the assessee. The assessee had remitted cash to the said employee for meeting site expenses and accordingly the said employee had made purchase out of that amount, purchase bills of the purchase made by the employee has been supported by proper bills were attached to the cash debit vouchers. It was submitted that the ld AO had wrongly assumed this person to be supplier of materials to assessee. It was submitted that the individual purchase invoice for which payment was made was below ₹ 20,000/- which is not disputed. 4.3. The ld CITA granted relief in respect of purchases from Shanti Trading Company as the said party is reflected as sundry creditor in the balance sheet and no payments have been made during the year under appeal in cash warranting disallowance u/s 40A(3) of the Act and accordingly directed the ld AO to delete the sum of ₹ 13,61,208/-. However, he did not appreciate the various contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act will be attracted and entire expenditure will be disallowed, but section 40A(3) of the Act is silent regarding the cash payments made with respect to each bill in a day which are below ₹ 20,000/-. In support of this proposition, he placed reliance on the decision of the Cochin Tribunal in the case of Raja Co vs DCIT in ITA No. 534/Coch/2011 dated 22.3.2013. He also placed reliance on the following high court decisions in support of various propositions made out in his arguments :- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 Calcutta High Court Anupam Teleservices vs ITO reported in (2014) 43 taxmann.com 199 (Guj) Sri Laxmi Satyanarayana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (AP) 4.5. In response to this, the ld DR argued that the case laws relied upon by the ld AR were prior to the amendment brought from 1.4.2009 and hence not applicable. He vehemently relied on the orders of the lower authorities. 4.6. We have heard the rival submissions and perused the materials avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in the country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. It is not in dispute before us that the said suppliers of materials had disclosed these sums in their accounts and assessee had not induced those parties for generation of any black money or unaccounted money. In the instant case, the ld AR argued that the suppliers insisted for payments in cash and not by cheques for supply of materials at distant village destinations where projects were executed by the assessee. It is not in dispute that the employees of the assessee who were site in charge / supervisors situated at different site locations had approached these suppliers who do not know each other and hence the suppliers insisting on cash payments thereon has to be accepted and cannot be doubted / faulted with. It has already been stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the Id. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anupam Teleservices vs ITO reported in (2014) 43 taxmann.com 199 (Guj) Section 40A(3) of the Income-tax Act, 1961, read with rule 600 of the Income-tax Rules, 1962-Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)- Assessment year 2006-07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account - If assessee would not make cash payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment is made in any subsequent year in a sum exceeding ₹ 20,000/- otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in rule 600 of the Income tax Rules, 1962. 13.2 Sub-section (3) of section 40A is an anti tax evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction. Thereby the risk of evasion is substantially mitigated. Field formations have reported that assessees tend to circumvent the provisions of sub-section (3) of section 40A by splitting a particular high value payment to one person into several cash payments, each below ₹ 20,000/-. This splitting is also resorted to for payments made in the course of a single day. The courts have approved such splitting by interpreting the words in a sum used in the section to mean a single sum thereby applying the limit to each transaction. This interpretation is against the legislative intent and has, consequently, adversely affected the efficacy of this anti-abuse provision. 13.3 Therefore, the provisions of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed earlier, the amendment only debars making several payments of less than or equal to ₹ 20,000/- in a day to a single person, but does not debar making several payments of less than or equal to ₹ 20,000/- on different dates to a single person, meaning thereby, the splitting up of payments during the course of a day to a single person is only debarred. Further, as stated earlier, there is significant variance in the quantum of disallowance to be made for violation of sec. 40A(3) of the Act. We notice that the Ld CIT(A) , though held that the amendment is retrospective in operation, however, has restricted to disallowance only to 20% of the expenditure as per the old provisions., i.e., the Ld CIT(A) has applied the amended provisions only in part. In our view, an amendment cannot have retrospective operation in part. Since the amendment only debars splitting up of payments made to a person during the course of a day and did not debar splitting up in toto and since there is significant variance in the rate of disallowance, in our view, the amendment brought out by Finance Act, 2008 can only be considered as substantive in nature and shall have prospective operation onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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