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Bhupendrasingh Hakamsingh Luhar Prop. Bhupendra Housing Crane Service Versus DCIT, Mehsana

2016 (8) TMI 693 - ITAT AHMEDABAD

Disallowance u/s.40A(3) - AR’s submission that as during relevant assessment year, the provisions of the Act were only attracted when each payment exceeded a sum of ₹ 20,000/- and the Act did not stipulate about the clubbing of payments made in the entire day for determining the disallowance - Held that:- fore 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. Fur .....

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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 - Decided in favour of assessee for statistical purposes. - Disallowance u/s.40(a)(ia) - non deduction of tds on payment of labour expenses, crane hire charges, interest payment and audit fee - Held that:- here is no finding of the .....

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tical purposes. - I.T.A. No. 2083/Ahd/2011 - Dated:- 13-6-2016 - Shri Anil Chaturvedi, Accountant Member And Shri S. S. Godara, Judicial Member Appellant by : Shri S.N. Divatia, AR Respondent by : Shri Jagdish, CIT-DR ORDER 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. 2. The relevant facts as culled out from the materials on record are .....

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/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 ₹ 15,97,999/- u/s.40A(3). 2. Learned CIT(A) has wrongly disallowed different expenses made of ₹ 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 file .....

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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 ₹ 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 showcause notice as to why the disallowan .....

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g 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 ₹ 4,60,300/-. Payments have been made in cash on different days to the party each above ₹ 20,000/- and totaling ₹ 4,60,300/- which has been disallowed by the AO. The assessee s submissions can be summarized as follows:- &quo .....

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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 cl .....

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sallowance made by the A.O. is confirmed. 3.2 Cash payment to MGT International of ₹ 52.964/- The assessee's submissions can be summarized as follows: "The Learned DCIT has disallowed the ₹ 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 tra .....

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dingly. 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 longe .....

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ign Travel expenses of ₹ 5,97,538/- The assessee's submissions can be summarized as follows: "The Learned DCIT has added of ₹ 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 .....

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g 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 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 ₹ 597538/- for foreign Travel Exps paid in cash." Having considered the submissions, I hol .....

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ays 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 ₹ 2,70.739/- The a .....

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. 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 Harpreet Singh etc., are employ .....

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ril 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 ₹ 20,00 .....

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ment 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 ₹ 192000/- payment made to K.K. Transport for transportation exps.&q .....

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s 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 ₹ 20,000/- and, therefore, no di .....

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hat 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 ₹ 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 proposition, he placed reliance on the judgemnt of Hon ble Gujrat High Court in t .....

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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 ₹ 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 paym .....

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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 .....

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ct 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 ₹ 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 therefore of the view that the expenses was required to be disallowed u/s.40(a)(ia) of the Act. He ac .....

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educted. 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) .....

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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. 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 .....

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e 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 alr .....

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pse 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, .....

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rstanding, 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 a .....

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