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Asst. Commissioner of Income-tax, Circle 1 (1) , Mangalore Versus M/s. Coastal Roadways

2016 (2) TMI 397 - ITAT BANGALORE

Disallowance u/s 40A - Held that:- The official proclamation that sub-section (3) of section 40A is being substituted to nullify the loophole created by the judicial decisions, the legal position remains the same even after the said substitution. The newly substituted subsection (3) contains the phrase "a payment or aggregate of payments made to a person in a day." .This expression is analogous to the phrase "in a sum" used in erstwhile Sec.40A(3) of the Act. The new provision contains "in a day .....

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e rightly given directions to the AO to verify if payment to one person on a single day exceeds ₹ 20,000/-. We do not find any infirmity in the order of the CIT(A).

Unexplained cash credits u/s. 68 - Held that:- Once the firm has satisfactorily explained that the credit entries in the name of its partners represent the amount invested by them the burden of proof stood discharged and the amount cannot be treated as income of the firm under s. 68. In the light of the legal positio .....

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t), we hold that where two views are possible on an issue, the view in favour of the assessee has to be preferred.

Disallowance of trick hire charges - Held that:- We are of the view that the disallowance is reasonable considering the quantum of expenditure for which there were no proper vouchers. The Assessee has not demonstrated that the quantum of expenditure on truck hire charges and receipts from plying trucks on hire in the present AY compares favourably with the expenditure on .....

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CIT(A), Mysore, relating to AY 2008-09. The Assessee has filed a Cross objection against the very same order of the CIT(A). 2. Grounds No.1, 2, 5 & 6 raised by the revenue is general in nature and calls for no specific adjudication. Ground No.3 raised by the revenue reads as follows: 3. The learned CIT(A) has erred in deleting the disallowance made u/s. 40A(3) of the I.T. Act since the vouchers contain cash payments in excess of ₹ 20,000 and thus fall within the ambit of section 40A(3) .....

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section 40A(3) of the I.T. Act. Therefore, the AO was correct in disallowing an amount of ₹ 1,51,11,864/-u/s. 40A(3) of the I.T. Act. 3. The Assessee is a partnership firm engaged in transportation business. In the course of assessment proceedings u/s.143(3) r.w.s.147 of the Act, the AO noticed that the Assessee had debited to the profit and loss accounts a sum of ₹ 8,47,45,928 towards truck hire charges. The AO verified the vouchers evidencing the payments made towards truck hire c .....

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twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. The Assessee in reply to the query of the AO in this regard pointed out that in transportation business the Assessee has to take the service of huge number of truck owners who are spread throughout the country. These truck drivers are illiterate and demand payment only in cash. The Assessee further pointed out that even though payment of more than ₹ 20,000 by cash is shown in the truck hire charges paid l .....

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t amounts, yet the vouchers were signed by only on recipient. According to the AO this fact indicated that the truck hire charges were paid as a single sum on the date of vouchers towards hire charges. Hence, the provisions of Sec.40A(3) of the Act were attracted. The AO accordingly disallowed a sum of ₹ 1,51,11,864 u/s.40A(3) of the Act and added the said sum to the total income of the Assessee. 5. On appeal by the Assessee the CIT(A) agreed with the submissions of the Assessee and held a .....

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e have considered the rival contentions carefully. As seen from the vouchers, the payments are made on account of various trips of lorries. It is argued by the appellant, that whenever a trip is made, the lorry driver has to be paid on delivery together with their driver Bata arid other charges. It is only while raising the voucher this individual supplies were clubbed together by the broker. However, the payment per se is made to individual lorry drivers and the respective amounts are also ment .....

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, the AO is directed to verify the vouchers and see if any particular payment is exceeding the limit prescribed u/s 40A(3) and tax it accordingly. While doing so, the AO should also examine if the payments are made on holidays and exclude the same. 6. Aggrieved by the order of the CIT(A), the revenue has raised ground No.3 before the Tribunal. The learned DR reiterated the stand of the revenue as reflected in the ground No.3 reproduced above. It is clear from ground No.3 that the revenue has not .....

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rson on a particular day if it was less than ₹ 20,000/- no disallowance can be made u/s.40A(3) of the Act, we are of the view that the said findings are justified. It was not the case of the AO that a single payment was made to a single person. According to the AO though the vouchers bears different registration numbers of different trucks with different amounts mentioned against those numbers, the vouchers are signed by only by one recipient indicating that the total amount of that vouche .....

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gains of business or profession of all classes of taxpayers. Earlier, the amount disallowable was 20 per cent of the expenses paid in cash. The reasons for the amended provisions as explained in CBDT Circular is owing to the fact that provisions of section 40A(3) were being circumvented by splitting a particular high value payment to a 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. Courts have a .....

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payments to the same person made during a day as referred above and to increase the efficacy of the provision, the amendment seeks to substitute the present provision to provide that where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deeme .....

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ment by cash exceeds ₹ 20,000/-, ₹ 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment. 9. In an earlier case of CIT vs. Triveniprasad Pannalal (1997) 142 CTR (MP) 562 : (1997) 228 ITR 680 (MP), a sum of ₹ 48,850 was disallowed by the Assessing Officer under section 40A(3). The sum was the aggregate of a number of payments made with respect to the various transactions. When the controversy came up b .....

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ould not exceed ₹ 2,500. The words used are "in a sum", i.e., single sum has been used. Therefore, irrespective of any number of transactions, where the amount does not exceed ₹ 2,500 in each transaction, the rigours of section 40A(3) will not apply". While holding so, the Court approvingly referred to the identical view of the Orissa High Court expressed in an earlier case of CIT vs. Aloo Supply Co. (1980) 121 ITR 680 (Ori). 10. Notwithstanding the official proclamati .....

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interpretation of the expression "in a sum", i.e., a single sum, would equally apply in interpreting the expression "in a day" to mean a single day. Therefore the new sub-section (3) of the Act also will not apply when a payment to one person on a single day in the aggregate does not exceeding twenty thousand rupees. In other words, in each day, an assessee can make cash payment upto twenty thousand rupees, without any statutory bar. The CIT(A) in our view has therefore right .....

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count of the partners as well as balance sheet of the assessee firm and the A.O. has correctly added difference amount as unexplained cash credits u/s. 68 of the I.T. Act. 12. The Partnership firm of the Assessee has three partners. In the capital account ledger of one of the partner Mr.H.Moidinabba, capital to the tune of ₹ 1,85,01,262 by way of cash and cash withdrawal of ₹ 1,47,94,799 was found. Thee was therefore net capital introduction in cash by Sri.H.Moidinabba of ₹ 37, .....

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closed with the return of income, the capital introduced by this partner was shown as ₹ 41,50,409. 13. Mr.Abdul Raheem Hussain explained before the AO that he introduced ₹ 41,50,409 as capital of the Assessee firm through his brother H.Moidinabba. He gave a gift of ₹ 5 lacs to his brother H.Moidinabba which was also introduced by him as capital in the Assessee firm. He explained that he was an Non-Resident Indian and was working abroad. He produced his NRI bank account which sh .....

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#8377; 41,50,409 was introduced by Mr.Abdul Raheem Hussain as capital through Mr.H.Moidinabba. The AO went by the capital as shown in the balance sheet in so far as it concerns Mr.Abdul Raheem Hussain which showed introduction of capital in cash of ₹ 41,50,409. He accepted that withdrawal from the bank account by Mr.Abdul Raheem Hussain would explain the introduction of capital to the tune of ₹ 41,50,409. As far as H.Moidinabba is concerned, the AO went by the capital account ledger .....

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accepted that the ledger account shows cash credits and withdraws as amounts received from and paid to M/S.Coastal Minerals. The AO also observed that the Assessee failed to explain the reasons as to why amounting totalling ₹ 1,85,01,262 was introduced and then a sum of ₹ 1,47,94,799 was withdrawn from the capital account of H.Moidinabba. The AO therefore held that the Assessee failed to satisfactorily explain capital introduction of ₹ 37,06,463/-. 14. Before CIT(A) the Assess .....

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om the above NRI funds. This fact has been clearly stated by Mr. Abdul Rahim Hussain (page 7, para 1). It was explained that capital was brought in only by Mr. Abdul Rahim Hussain. However, since the affairs were managed by Mr. Moidinabba, the accountant by mistake had treated capital introduced, as that of Mr. Moidinabba instead of Mr. Abdul Rahim Hussain. This was purely a clerical error and the said credits pertain to capital introduced by Mr. Abdul Rahim Hussain only. Hence, such additions a .....

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further pointed out that:, if these are 2 different transactions, there should be two different entries in the day book which is riot the case. Further, cash in hand as per audited balance sheet tallies with closing cash in hand as on .31.3.2008 in the day book. Therefore, I find that in the day books there is only one cash introduction and not two as rightly pointed out by the appellant. Hence, I find strength in the argument of the appellant that it is the same amount that was brought into th .....

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ord that the capital introduction in the ledger account of Abdul Raheem Hussain and Moidinabba was ₹ 5 lacs and ₹ 1,85,01,262 respectively and capital withdrawal was ₹ 1,47,94,799 (from the account of Moidinabba). The entire capital brought in was the funds of Mr.Abdul Raheem Hussain. The withdrawal from the NRI bank account of Mr.Abdul Raheem Hussain was of ₹ 1,21,27,000 and this was explained as the source of funds for introduction of capital in both the accounts. This .....

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as not made out any such case in the order of assessment. The CIT(A) has given a finding that the same amount that was withdrawn was brought into the books and this was done only once. once it is found as a fact that cash was received by the firm from its partners, then, the relevant cash credits could not be assessed under section 68 in the hands of the firm in the absence of evidence to indicate that the cash credits represents the firm's profits and the firm is not further required to exp .....

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e legal position stated above and in the light fact that the Assessee has satisfactorily shown receipt of cash from the partners the cash credit in question should be considered as satisfactorily explained. For the reasons given above, we do not find any grounds with the order of the CIT(A). Accordingly, ground No.4 raised by the revenue is dismissed. 19. In the result, appeal by the Revenue is dismissed. 20. C.O.No. 35/Bang/15: The Assessee has filed an application for condonation of delay in f .....

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t matter of ground No.3 in revenue s appeal. These grounds need not no specific adjudicatioin. As far as ground No.2 raised in CO is concerned, the same is in relation to disallowance u/s.40(a)(ia) of the Act for non- deduction of tax at source in respect of truck hire charges of ₹ 1,00,57,864 and commission and lease rent paid of ₹ 50,000 and ₹ 1,25,000 respectively, in all totalling a disallowance of ₹ 1,02,32,864. In respect of truck hire charges the total amount of tr .....

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0(a)(ia) of the Act was required to be made. However, the Assessee submitted before CIT(A) that the sums in question were not outstanding as on the last date of the previous year and had actually been paid. The Assessee submitted that the disallowance u/s.40(a)(ia) of the Act can be made only where the sum in question is Payable and not in a case where the sum in question has been paid by the Assessee. The Assessee placed reliance on the decision of the Special Bench of ITAT, Vishakapatnam in th .....

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ITA No.352 of 2014 order dated 24.6.2014 was pleased to hold that unless and until the decision of the Special Bench is upset by the High Court, the same is binding on smaller bench and co-ordinate bench of the Tribunal. 23. The ld. DR submitted that the decision of the Hon ble Special Bench ITAT in the case of Merilyn Shipping (supra) has been reversed by the Hon ble Gujarat and Calcutta High Courts in CIT Vs. Sikandarkhan N. Tunvar & Others in Tax Appeal No. 905 of 2012 & others dated .....

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Court. The ld. counsel submitted that where two views are possible, the view in favour of the assessee should be accepted and in this regard relied on the decision of the Hon ble Supreme Court in the case of CIT v. Vegetables Products 88 ITR 192 (SC). 25. We have considered the rival submissions. We find that the use of word Payable , in Section 40(a)(ia) of the Act has created controversy as to whether payable includes amounts paid during the year. There were conflicting decisions rendered by t .....

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cided the issue against the Revenue and has held that provisions of Section 40(a)(ia) of the Act are not applicable in respect of sums/amount paid during the year and which are not payable at end of the year on date of balance sheet, as it is applicable only in respect of Payable amount shown in balance sheet as outstanding expenses on which TDS has not been made. Similar laws were laid in various other cases.  To resolve the above issue Special Bench was constituted and the Hon ble Visa .....

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le as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS. 28. In CIT Vs. Sikandarkhan N.Tunvar & Others, TAX APPEAL NO. 905 of 2012 & others Dated02/05/2013, the Hon ble Gujarat High Court held that in Merilyn Shipping 146 TTJ 1 (Viz) (SB,) the majority held that as the Finance Bill proposed the words amount credited or paid and as the Finance Act used the words amounts paya .....

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is payable must remain so payable throughout during the year. If the assessee s interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in who .....

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Merilyn Shipping does not lay down correct law. The correct law is that s. 40(a)(ia) covers not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. The Hon ble Kolkatta High Court in CIT Vs. Md.Jakir Hossai Mondal (supra) did not agree with the view of the Special Bench in the case of Merilyn Shipping following its judgment on 3rd April, 2013 in ITAT No. 20 of 2013, G.A. No. 190 of 2013 (CIT, Kolkata-XI Vs. Crescent .....

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from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 lTD 23) (SB) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head Income from Business and P .....

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om business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does not arise for consideration in the appeal. The income tax appeal is dismissed. 30. SLP by the Revenue against the decision of the Hon ble Allahabad High Court h .....

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views are possible on an issue, the view in favour of the assessee has to be preferred. We accordingly, allow ground No.2 raised in the CO and direct the addition made u/s.40(a)(ia) of the Act be deleted. 31. Ground No.3 raised in the CO is with regard to the adhoc disallowance of a sum of ₹ 10 lacs from trick hire charges. We have already seen that the Assessee incurred trick hire charges of ₹ 8,47,45,928. Out of the above a sum of ₹ 1,51,11,864 was disallowed u/s.40A(3) of th .....

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