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TMI Blog2012 (6) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-08, it was found that the appellant had shown trade creditors outstanding at Rs. 1,95,17,664/-, as on 31.3.2007. The appellant was, therefore, asked by the Assessing Officer to give details of payment made to the said outstanding creditors in the subsequent years, and, on the basis of details of payments, alongwith copies of a/cs submitted by the appellant, in respect of the above creditors, the Assessing Officer conducted enquiries from the concerned banks, where the cheques issued by the appellant were presented for clearance and, as per the reply received from the bank, it was found that though the cheques were issued in the name of the creditors, viz., M/s Bhavi Enterprises, M/s Patel Traders and M/s Jayraj Traders, the same have been deposited in some other persons' accounts, particulars of which are given in pages 2 to 4 of the assessment order, viz. cheques issued in favour of Patel Traders were deposited in the a/c. of Kirti Corporation, Manthan Traders, Shah Corporation (HUF), Mayank Corporation, Nilesh Corporation, Yash Traders, and B.K. Corporation. Similarly, cheques issued in favour of M/s Bhavi Enterprises were deposited in the a/c. of Yash Traders, B.K. Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal to the appellant, and all the above parties were only mediators, which is established from the sample copy of bills enclosed, wherein commission has been separately shown under back to back amount of the goods sold to the appellant, and the terms of payment were that it had to be made directly to the principal, however, for the sake of convenience, the appellant issued cross cheques through the agents and, since the payments were outstanding for a very long time, any further delay in banking channel was not desired by the principal, therefore, the agents have transferred the cheques to the principal from whom they have purchased the goods. Without prejudice to the above submission, the appellant stated that the purchases were made in year 2004, and as the transactions related to that year, only 20% of disallowance should be made of the amounts paid otherwise than by a/c. payee cheques or drafts, as per provisions of section 40A(3) of the Act, applicable in that year. The Assessing Officer, after duly considering the above submission of the appellant, has recorded that consequent to the notices issued u/s 142(1) of the Act, on 02.02.2010, 09.7.2010, 03.9.2010, 15.10.2010 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that w.e.f. 01.04.1996, there was one major amendment as per which, instead of 100% disallowance, disallowance was restricted to the extent of 20% of such payment made otherwise than by prescribed mode. It is further submitted that there was again an amendment by Taxation Law (Amendment) Act 2006 w.e.f. 13.07.2006 as per which, instead of crossed cheque/crossed bank draft, the payment was required to be made by a/c payee cheque/a/c payee bank draft. It is further submitted that again there is an amendment w.e.f. 01.04.2008 as per which, again it is prescribed that instead of 20% disallowance, 100% disallowance be made in case of the payment otherwise than by prescribed mode. It is further submitted that there is one more amendment as per which if the payment is made in a subsequent year and not in the year of incurring the expenditure, then as per the said provision, disallowance was to be made in the year in which the expenditure was incurred by invoking the provisions of Section 154 and the time limit of four years was to be counted from the end of the assessment year in which such payment for expenditure was made. But however, w.e.f. 01.04.2008, it was prescribed that inste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 1833/Ahd/2011 dated 18.11.2011], a copy of which was submitted. It was suited that in that case, identical issue was decided by the tribunal in favour of the assessee and it was held that if the liability is incurred up to assessment year 2007-08, the payment made in the subsequent year i.e. assessment year 2008-09 or any subsequent year, the provisions of Section 40A(3) as applicable in the year in which liability was incurred, should be applied. 5. As against this, it was submitted by the Ld. D.R. of the revenue that undisputedly, the payment by way of crossed cheques were made in the present year i.e. in assessment year 2008-09 and, therefore, the provisions of Section 40A(3) as applicable in the assessment year 2008-09, should be applied and hence, the addition was rightly made by the A.O. and confirmed by the Ld. CIT(A) and no interference is called for in the order of Ld. CIT(A). He submitted that it is admitted position of law by now that the provisions applicable in the relevant assessment year are to be applied. He also submitted that the courts must adopt such construction which will suppress the mischief and advance the remedy. He also submitted that in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which payment is made, after such date (not being later than 31st day of March, 1969), as may be specified in this behalf by the Central Government by notification in the Official Gazette; in a sum exceeding twenty thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, * [twenty per cent of such expenditure shall not be allowed as a deduction]: ; Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding twenty thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the Assessing Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in subsection (7) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to make payment by way of a/c payee cheque / a/c payee bank draft. (ii) The second difference is this that as per the provisions applicable in assessment year 2004-05, the disallowance was to be made to the extent of 20% of payments made in contravention to the prescribed mode whereas, as per the provisions applicable in assessment year 2008-09, such disallowance is to the extent of 100% of such payment in contravention to the prescribed mode. (iii) The third difference is with regard to payment in a subsequent year in contravention to the prescribed mode. As per the provisions applicable in assessment year 2004-05, the disallowance was to be made in the relevant year in which the expenditure was incurred whereas as per the provisions of assessment year 2008-09, addition is to be made in the year in which payment in contravention to prescribed mode was made by the assessee irrespective of the fact as to whether the expenditure was incurred in an earlier year. Now, the question to be decided by us is as to whether if an expenditure incurred in assessment year 2004-05 for which payment is made in assessment year 2008-09, provision of section 40A(3) applicable in assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 154 and for the purpose of reckoning the limitation period of four years, it shall be reckoned from the end of the assessment year following the previous year in which the payment was so made. Hence, regarding the disallowance made by the A.O. of Rs. 2,68,66,115/- being payment out of opening balance, even if it is found that Rule 6DD(k) is not applicable then also, no disallowance or addition is called for in the present year in respect of these payments and the same has to be dealt with in the assessment year in which the liability was incurred as per the provisions of Section 40A(3) applicable up to the assessment year 2007-08. The A.O. shall first decide the applicability of Rule 6DD(k) with regard to these payments also and if it is found that Rule 6DD(k) is applicable, then obviously, no addition is called for in any of the year but if it is found that Rule 6DD(k) is not applicable then also no disallowance is called for in the present year in respect of this payment of Rs. 2,68,66,115/- in the present year out of opening balance and the addition in this regard shall be made in that year in which the liability was incurred by applying the provisions of Section 40A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has no relevance in the present case because in that case, the amendment was effective form 01.04.2003 and were sought to be applied by the revenue w.e.f. 1998-99 on this plea that the same are clarificatory whereas in the present case, the amendments are applicable from assessment year 2008-09 and the revenue has sought the approval for applying the amended provisions in assessment year 2008-09 and the objection of the assessee is this that since liability in question was incurred in assessment year 2004-05, the amended provision are not applicable and hence, this judgment of the Hon'ble Apex Court is not applicable in the present case because the facts are different. As per the provisions of Section 40A(3) as applicable in assessment year 2004-05, the assessee was required to make the payment by way of crossed cheque/crossed bank draft and if the assessee makes payment in contravention to this mode, the assessment of the year in which the liability was incurred was required to be rectified as per the proviso to Section 40A(3) as applicable in that year and such rectification can be carried out by the A.O. within a period of four years from the end of the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, it was held by the Hon'ble Apex Court that before April 1940 amendment to Section 10(2)(vi) took place and the date 01.04.1939 mentioned in the amended proviso, must be held to apply to the assessment year and not to the accounting year because in the income tax matters, the law to be applied is the law in force in the assessment year unless otherwise stated or implied and consequently the old law applied to every assessment year up to and including the assessment year 1939-40. Here also, it is a decision of Hon'ble Apex Court that the law in force in the relevant assessment year is to be applied unless otherwise stated or implied. We have already seen in the above para that in the present case, it is implied in view of the proviso to Section 40A(3) as applicable in assessment year 2004-05 that whenever any payment is made in a subsequent year in contravention to the prescribed mode, disallowance has to be made in the year in which the liability is incurred and, therefore, the amended provisions in assessment year 2008-09 cannot be made applicable to the expenses for which liability was incurred prior to 01.04.2008 and the same has to be dealt with as per the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provision in the rules which can be applied by way of precedence over the amended Act and amended Rules. Whereas, in the present case, the proviso to Section 40A(3) in the year of incurring liability for expenditure has to be applied in respect of the subsequent payment for the expenses incurred in that year and under these facts, the Tribunal decision is also of no help to the revenue in the present case. The next decision cited by the Ld. D.R. is the decision of 3rd member tribunal decision rendered in the case of Mahindra & Mahindra Ltd. (supra). On this Tribunal decision, reliance was placed by the Ld. D.R. but we feel that several issues are involved in this tribunal decision and it was not pointed out by the Ld. D.R. as to which part of this tribunal decision is applicable in the present case. Still, we find that there was one of the issues in that case that when there is sale of assets and concurrently investment allowed has to be with drawn, the same has to be effected in the year in which investment allowance was granted. In view of this, in our considered opinion, this tribunal decision rather supports the case of the assessee and it does not support the case of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income from house property as per the provisions of Section 32(2) as applicable w.e.f. 01.04.2002. Under these facts, it was held by the tribunal that as per the provisions of Section 32(2), unabsorbed depreciation of the previous year is to be treated as current year depreciation and hence, the law applicable in the current year's has to be applied for set off of unabsorbed depreciation brought forward which are considered as part of the current year depreciation. In the present case, the proviso to Section 40A(3) up to assessment year 2007-08 is to the effect that if an expenditure is incurred and payment for the same is made in a subsequent year in contravention to the prescribed mode of payment then, the disallowance is to be made in the year in which the liability for expenditure was incurred and, therefore, whenever the payment is made in contravention to the prescribed mode of payment, the proviso to secants 40A(3) get triggered and, therefore, the provisions of the year of payment cannot be made applicable simultaneously because it will result into double disallowance once in the year of incurring the expenditure and again in the year of payment. Under this legal pos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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