TMI Blog2017 (9) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Violating provisions u/s 40A(3) - payments were made otherwise than by crossed cheque or demand draft - Held that:- The facts of the case are similar to those in earlier year and the expenditure was incurred towards horticulture, then it falls under exceptions provided in Rule 6DD of IT Rules. There cannot be disallowance u/s. 40A(3) of the Act. On the other hand, the assessee has to prove thereafter that the expenditure was incurred wholly and exclusively for the purpose of business and falls under the purview of Section 37(1) of the Act. Accordingly, we direct the AO not to disallow any payments made by cross account payee cheque if the assessee is able to prove that it is incurred for the purpose of business of assessee. In case of expenses incurred in cash, the assessee is not only to prove the incurring of the expenditure for the purpose of business, it has to be proved that there is no inflation of expenditure. Since, it was held already on earlier occasion that there is a chance of inflating the expenditure by assessee by way of cash voucher, 10% of that cash expenditure is to be disallowed. - Decided partly for statistical purposes. Disallowance of interest - inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed the same in their return of income and paid taxes thereon. Accordingly, we remit this issue to the file of AO for fresh consideration. This ground is partly allowed for statistical purposes. Short deduction of tax - invoking provisions of section 40(a)(ia) - Held that:- As decided in assessee' own case for previous year as in the case of SK Tekriwal (Infra) [2012 (12) TMI 873 - CALCUTTA HIGH COURT] has held that the disallowance u/s 40a(ia) is not applicable in the case of short deduction of TDS. It was held that when there is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40a(ia).We are inclined to dismiss this ground of appeal taken by the Revenue. - ITA No. 1000/Hyd/16, 1001/Hyd/16, 991/Hyd/16, 992/Hyd/16 - - - Dated:- 7-8-2017 - Shri Chandra Poojari, Accountant Member And Smt. P. Madhavi Devi, Judicial Member For the Revenue : Shri Pathlavath Peerya, CIT-DR Shri L. Ramji Rao, DR For the Assessee : Shri S. Rama Rao, AR ORDER Per Chandra Poojari, A. M. These are cross-appeals directed against different orders of the Commissioner of Income Tax (Appeals)-11, Hyd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in ITA No. 1404/Hyd/2013 dt. 06-06-2014 for the AY. 2008-09. In the said case, the Co-ordinate Bench of the Tribunal, remitted the issue to the file of the AO with the following directions: 10. We have heard both the parties, perused the record as well as gone through the orders of the authorities. The assessee brought on record confirmation letter from Maytas Estate Pvt. Ltd. issued to the Maytas Properties Ltd. stating that Maytas Properties Ltd., whose name formerly was Maytas Estate Pvt. Ltd. wherein neither bills are raised for this expenditure nor accounted for the same in their books of account, which is placed on record at pages 125 126 of assessee s paper book. If there is no evidence with the department that there is a double claim of this expenditure one by Maytas Properties Pvt. Ltd. and another by Maytas Properties Ltd., the assessee company, the department cannot disallow the expenditure because the same is a clerical error in the bills produced by the assessee towards expenditure. If this expenditure is not claimed by Maytas Properties Pvt. Ltd., therefore, it is fair to grant deduction towards business expenditure in the hands of the present assessee M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s partly allowed for statistical purposes. 3. Next grounds for our consideration is as follows: 3. The ld. CIT(A) erred in directing the AO to allow the payments made by the assessee through banking channels especially when the payments were made by the assessee by bearer cheque which is in contra of the provisions of section 40A(3) of the I.T. Act. 4. The ld. CIT(A) erred in directing to disallow on 10% of the cash expenditure where as the provisions of section 40A(3) mandates for disallowance of 10% of such expenditure. 3.1. It is with regard to disallowance of expenditure u/s. 40A(3) amounting to ₹ 13,67,000/-. In the Special Audit Report, the Special Auditor has pointed out that the assessee had made payments to the tune of ₹ 67,17,000/- in excess of ₹ 20,000/- otherwise than by a crossed cheque or demand draft violating the provisions of Section 40A(3) of the Act. It was further stated by the Special Auditor that a sum of ₹ 53,50,000/- has already been disallowed by the assessee and added back to the total income. With regard to the balance of ₹ 13,67,000/-, the assessee has produced bills as evidence towards the payments made unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered by the assessee in this matter, however, was not found acceptable by the Assessing Officer. Accordingly, he proposed to disallow the expenditure of ₹ 1,03,32,278 by invoking the provisions of S.40A(3). He also observed that the said expenditure was not supported by any documentary evidence and the same was, therefore, liable to be disallowed alternatively as per the provisions of S.37(1). On the objection raised by the assessee, the Dispute Resolution Panel found that a similar issue was decided by the Tribunal in assessee s own case for assessment year 2008-09 vide order dated 6.6.2014 (supra) wherein similar disallowance made by the Assessing Officer by invoking the provisions of S.40A(3) was held to be not sustainable. As regards the disallowance of the said expenditure made by the Assessing Officer alternatively as per the provisions of S.37(1), it was held by the Tribunal that such expenditure claimed by the assessee, which was otherwise genuine, could not be disallowed entirely for want of vouchers. It was held by the Tribunal that it would be fair and reasonable in the facts of the case to disallow relevant expenditure to the extent of 10% for the unverifiable e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the AO to arrive at the Notional Interest chargeable @ 10.5% on the proportionate Interest Free Advances and disallowed an amount of ₹ 6,08,95,308/-. 4.2. The Ld.CIT(A) by following the earlier order of the Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014, deleted the addition. Against which, the Revenue is in appeal before us. 4.3. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee s own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014. In the said case, the Co-ordinate Bench of the Tribunal has decided the issue as under: 34. We have heard both the parties and perused the record. The revenue authorities disallowed the notional interest on the amounts advanced to sister concerns on the reason that interest bearing borrowed funds were used by the assessee for non-business purposes. However, the assessee made a plea before us that it is having enough own funds in the form of share capital, reserves and surplus, interest free advance from customers and deposits and the funds were diverted to the sister concern for business purpose whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said companies. Therefore, the advances were made for the purpose of business activity of the assessee. Assessee is in the business of real estate and the subsidiaries are also in the same business. Assessee was intending to promote the developmental activities with the subsidiaries who are also in the same line of business. Assessee also submitted that: a. The amounts are advanced from out of interest free funds and; b. The amounts were advanced for the purpose of carrying on the business activity; 4.5.ii. Further, it was submitted that Income Tax is chargeable only on real income. The assessee, while paying the advance, did not intend to collect interest from the recipient companies as advances are business advances. The said companies also did not undertake to pay interest on such advance and hence no right accrued to assessee to charge any interest. There is no obligation for the recipients to pay interest on the advances. Hence, the AO is not justified in assuming that income accrued to assessee. It is also submitted that all the subsidiaries except three are merged with assessee-company w.e.f. 01-04-2015. 4.6. We have heard the rival submissions. In our opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments have been made through regular banking channels of the assessee's bank accounts which can be verified from the bank statements including deduction of TDS applicable, if any. 5.2. The Ld.CIT(A) observed and gave a finding that the bills in respect of these expenses were either in the name of a sister concern or not available at all. The assessee argued that the expenses were paid for by cheque and assets in question are borne on the books of the assessee. The assessee further relied on para 38 of the ITAT's order in its case for AY 2008-09. Seen in the light of the assessee's submissions CIT(A) considered and held that the Tribunal in earlier year similar facts observed, that the mere fact of the bill being in the name of a sister concern will not go against the assessee unless there is a double claim or any adverse finding regarding the genuineness of the expenditure. In the matter of a depreciation claim the bill is only one of the documentary evidences possible to establish ownership. If the exclusive ownership of the impugned asset can be established by any other means in the present case by collection of a cheque payment by a party selling the item in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for assessment year 2008-9. Following the said decision, we uphold the impugned order of the DRP directing the Assessing Officer to verify the relevant expenses and if it is found on such verification that the payments are made by the assessee company by cheque and the same expenses are not claimed by the other group companies, in whose names the relevant bills are issued, the same may be allowed as deduction in the case of the assessee. Additional Ground No.1 of the Revenue s appeal is accordingly dismissed . 5.5. In view of this, we remit the issue to the file of the AO not to disallow the payments which are made by account payee crossed cheques and if it is proved that it is wholly and exclusively incurred for the purpose of business. However, in the case of cash payment, assessee has to prove the genuineness of the payments and also to prove that there is no inflation of any expenditure. If the AO finds that there is inflating expenditure, 10% of such cash payment is to be disallowed. In view of this we remit the issue to the file of AO for fresh consideration. 6. The next ground in Revenue s appeal is as follows: 7. The ld. CIT(A) erred in deleting the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us. 6.3. We have heard the rival contentions and perused the material available on record. The contention of the Ld.DR is that assessee is following the mercantile system of book keeping and as such prior period expenditure cannot be allowed. Ld.AR submitted that out of this, majority expenditure is relating to tax payments which is covered by Section 43B of the Act and it will be allowed on actual basis. He further submitted that expenditure is crystalised in the assessment year under consideration and accordingly it is to be allowed. In our opinion, if it is statutory payment covered by Section 43B, it is to be allowed on actual payment basis. In respect of other payments which are not covered by the provisions of Section 43B, it cannot be allowed in the assessment year under consideration which is not relating to the assessment year under consideration. More so, the assessee is following the mercantile system of book keeping which is on accrual basis. Accordingly, we remit the issue-in-dispute to the file of AO for fresh consideration. This ground is partly allowed for statistical purposes. 7. The next ground in Revenue s appeal is as follows: 8. The ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso inserted w.e.f. 01-04-2013 is declaratory and clarificatory in nature and therefore has retrospective effect from 01-04-2005. The assessee is also supported in the matter by the decision of the Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009] 319 ITR 306. Though this decision was rendered in the context of section 43B, it held that as a rule of interpretation a provision amended to remove unintended consequences is necessarily retrospective in operation. Against this, the Revenue is in appeal before us. 7.5. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee s own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014. In the said case, the Co-ordinate Bench of the Tribunal has decided the issue as under: 56.2 Following the decision of the coordinate bench of ITAT, Cochin in the case of Antony D. Mundackal Vs. ACIT(supra), we direct the Assessing Officer to see whether the recipient has paid tax or not on this payment and decide the issue in accordance with law. Further, short deduction of TDS and remittance of the same cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that similar disallowance made in AYs 2008-09 2009-10. In AY 2008- 09 the DRP's directions to delete the addition was upheld by the Tribunal to the extent that the payee had paid taxes on this amount. A similar view was taken by the DRP for AY. 2009-10 also. 8.3. The Ld.CIT(A) deleted addition by placing reliance on the earlier order of Tribunal, in assessee s own case in ITA No. 1404 and 1373/Hyd/2013, wherein it was held as under: 78. After hearing the parties, perusing the record as well as the orders of the revenue authorities, we find that the Hon'ble Kolkata Tribunal in the case of SK Tekriwal (Infra) has held that the disallowance u/s 40a(ia) is not applicable in the case of short deduction of TDS. It was held that if there is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40a(ia). In view of the above, we do not find any infirmity in the order of the DRP, hence, the same is hereby upheld dismissing the grounds raised by the revenue . Against the order of the CIT(A), Revenue is in appeal before us. 8.4. We have heard the rival contentions and perused the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate adjudication as the similar issues in Revenue appeal vide Ground Nos. 8 9, discussed in para Nos. 7 8 of this order, which have been remitted to the file of AO for fresh consideration. Accordingly these grounds are also dismissed as infructuous. 12. In the result appeal of assessee in ITA No. 991/Hyd/2016 (AY. 2010-11) is dismissed. ITA No. 1001/Hyd/2016 AY.2011-12 (Revenue s Appeal): 13. Ground-wise discussion is as under: 1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to verify that whether the company on whose name bills were there, has claimed the expenditure to the tune of ₹ 5,64,273/- which was disallowed u/s.37(1) as bills were not in the name of assessee company. 13.1. After hearing both the parties, we are of the opinion that as the similar issue was considered in Revenue appeal in ITA No. 1000/Hyd/2016, as discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is remitted to AO for fresh consideration. 14. Next ground by Revenue in as follows: 2. The learned CIT(A) erred in directing the AO to allow the payments made through banking cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2016 AY.2011-12 (Assessee s Appeal): 19. Ground-wise discussion is as under: 2. The learned Commissioner of Income-Tax (Appeals) ought to have directed the Assessing officer to delete the addition made of ₹ 5,64,273/- as such payments were made by the appellant through the banking channels for the purpose of appellant's business. 19.1. After hearing both the parties, we are of the opinion that this ground does not require any adjudication as the similar issue of Revenue appeal discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is dismissed as infructuous. 20. The next ground in assessee s appeal is as follows: 3. The learned Commissioner of Income-Tax (Appeals) ought to have directed the Assessing officer to delete the disallowance of expenditure ₹ 28,19,190/- without requiring any further verification as the payments do not attracts the provision of sec.194C of the Income Tax Act, 1961. 20.1. After hearing both the parties, we are of the opinion that this ground does not require any adjudication as the similar issue of Revenue appeal discussed above has been remitted to the file of AO for fres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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