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2016 (4) TMI 1000 - ITAT LUCKNOW

2016 (4) TMI 1000 - ITAT LUCKNOW - TMI - Disallowance u/s 40A(3) - Held that:- As per the proviso below sub section 3A of Section 40A, it is seen that no disallowance is called for under section 40A(3) if it is found that there is business expediency for making payment in violation to the mode of payment specified in Section 40A(3). We have seen above that in the facts of the present case, the assessee is able to establish that there was business expediency to make cash payment to these nine par .....

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of Rule 6DD as claimed although could not be substantiated, we are of the considered opinion that disallowances u/s 40A(3) is not justified - Decided in favour of assessee

Adhoc disallowance out of labour charges @ 10% - Held that:- Regarding the objection that there is only self made vouchers, we are of the considered opinion that this objection is not valid because for making payment to labourers, there cannot be independent bill. Regarding non maintenance of the register or Muster .....

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ssessee has got due payments from U.P. Nirman Nigam after verifying the number of persons employed at different places of the project supervised by them. Hence, it is seen that the assessee has made payment for the labourers engaged at different locations and the assessee was getting payment after verification of the number of persons employed at different places and the projects supervised by the U.P. Nirman Nigam. Sample vouchers for labour payments are available on pages 171 to 209 and in the .....

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Kapoor, CA For The Respondent : Shri Amit Nigam, DR ORDER PER A. K. GARODIA, A.M. This is an assessee s appeal directed against the order of Ld. CIT (A)-I, Lucknow dated 15.12.2013 for the AY 2010-11. 2. The ground no.1 raised by the assessee is as under: 1. Because, while upholding the validity of assessment order dated 10.01.2013, the CIT(A) has failed to consider and omitted to note that i) Jurisdiction in the case lied with ITO-3(1), Lucknow as is evident from the fact that first notice und .....

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nd, various contentions were raised by the Ld. AR of the assessee but when it was pointed out that since the first notice was issued by the ITO and the subsequent notices were issued by ACIT, who is senior to ITO and the assessment is framed by DCIT, the assessment order is valid as per several Tribunal s order of the same bench. In reply, Ld. AR of the assessee fairly conceded that the present issue is squarely covered against the assessee by these Tribunal s orders. Accordingly, Ground no.1 of .....

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llowed as per Rule 6DD of the Income Tax Rules 1962. He submitted that detailed submissions were made before the Ld. CIT(A) on this aspect which has been reproduced by the Ld. CIT(A) on pages 13 to 15 of his order. It was pointed out that payment to M/s H.L. Brick field of ₹ 4.70 lakh is covered by Clause-f of Rules 6DD because the bricks were reproduced by the brick supplier without the aid of power. Regarding the payment to M/s Shakti Enterprises ₹ 3.30 lakh for purchase of cement, .....

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e which was Sunday i.e. 20.12.2009 and therefore, this payment is covered by Clause j of Rule 6DD. He also submitted that in respect of payment of ₹ 2.60 lakh to M/s Neema Steel Works, ₹ 2.60 lakh to Om Shakti Enterprises and ₹ 2.35 lakh to H.L. Brick Field also, Clause j of Rule 6DD is applicable because payment to these three parties were also made on the same date i.e. 20.12.2009 being Sunday. Regarding payment of ₹ 6.00 lakh to Gomti Furniture also, it was submitted t .....

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the rival submissions. We find that on pages 169 to 170 of the paper book is copy of ledger account of all the parties to whom the cash payments were made. First party is M/s Bharat Brickfield and to this party, cash payment was made on 20.12.2009 of ₹ 2.35 lakh and the materials were received from this party as per the same account on 25.12.2009. Hence, it is seen that the cash payment was made first and the materials were received thereafter. Same is the case with the remaining eight pa .....

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ne the issue as per Section 40A(3) read with Rule 6DD. The proviso below sub Section 3A of Section 40A reads as under:- Proviso to section 40A(3A) provides that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection[Section 40A(3A)] 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 tw .....

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contended before the Ld. CIT(A) as per part reproduced by the Ld. CIT(A) in para 8.4 of his order that in some cases, the assessee s claim was that the supplier is producer of goods without the aid of power and therefore as per Clause f of Rule 6DD, there is exception from the operation of Section 40A(3). In some cases, the claim of the assessee was that the supplier was new to the assessee and therefore, he insisted that the payment to be made in cash prior to the supply. In some other cases, t .....

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re made on Sunday, this was the objection of the Ld. CIT(A) that the assessee could not establish that the payment was required to be made on that date i.e. Sunday. Hence, it is seen that the assessee could not establish it s claim by bringing cogent evidence in support of his contentions but this is a fact that the payments in cash were made prior to the receipt of supply of goods and hence, the business expediency of making cash payment gets supported. Because unless there is business expedien .....

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tion 40A (3). As per the proviso below sub section 3A of Section 40A, it is seen that no disallowance is called for under section 40A(3) if it is found that there is business expediency for making payment in violation to the mode of payment specified in Section 40A(3). We have seen above that in the facts of the present case, the assessee is able to establish that there was business expediency to make cash payment to these nine parties because the assessee is getting supply only after some days .....

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e of the considered opinion that disallowances u/s 40A(3) is not justified under these facts. We therefore, delete the same. 8. Now, we deal with the second issue i.e. regarding adhoc disallowance out of labour charges @ 10%. As per para 4 of the assessment order, this is the objection of the Assessing Officer that the assessee has debited ₹ 3,88,81,751/- under the head labour charges in his P&L account and from the verification of the books of accounts, it is found that only self made .....

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