TaxTMI 
TaxTMI 
2017 (1) TMI 1216
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment proceedings, the ld AO observed that the assessee had made payment to subcontractor amounting to Rs. 21,45,387/- and labour charges payment amounting to Rs. 47,04,008/- without deduction of tax at source. The ld AO directed the assessee to produce the labour register and stated that the representative of the assessee informed that the same was not maintained. Accordingly, the ld AO proceeded to make disallowance u/s 40(a)(ia) of the Act in the sum of Rs. 68,49,395/- in the assessment. 2.2. Before the ld CITA, the assessee submitted various details as additional evidences in respect of the aforesaid two expenditures. It was stated that these documents were produced before the ld AO in the form of site wise chart, nature of work etc but the ld AO did not take cognizance of the same since the same were in loose leaf form and the ld AO demanded in bound book register form. In respect of labour payments of Rs. 47,04,008/- , the assessee remitted payments to his staff (site in charge / supervisors) of different sites who in turn made payments to labourers and weekly workmen sheets were prepared at each site in a proper form containing relevant details viz. nature of job done, day....
X X X X Extracts X X X X
X X X X Extracts X X X X
....work sheets were submitted. 2.2.2. Based on these submissions, the ld CITA called for a second remand report from the ld AO which was submitted by the ld AO on 8.10.2012. The ld AO recorded a categorical assertion that the labour payment sheets and sub contract expense sheets were examined by him. In the original proceedings, the assessee was called upon to produce labour register which was not produced. The labour sheets were not filed then nor were their existence referred to. However, the assessee submitted the group summary of labour expenses at the sites. The workman sheets have been planned in post assessment period just to serve own purpose. The assertion by assessee's AR Shri P.C.Soni, FCA that the sheets produced during the assessment were not taken cognizance of by the ld AO since they were not in bound form is a lie since the AR could not show the said finding from the records. 2.2.3. The assessee filed the rebuttal in respect of the second remand report that the aspersion cast on the AR by the ld AO was strongly objected to. It was reiterated that when he produced the worksheet during the assessment proceedings, he refused to accept the same. The ld AO should have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Rs. 20,000/-. This itself goes to prove that they were not employees of the assessee. 2.6. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee comprising of Group summary of labour payments (area wise) vide page 13 of the PB Volume I, ledger of labour payments vide pages 14 to 33 of PB Volume I, details of payments made through persons in charges vide pages 34 to 40 of PB Volume I, sample workman sheet vide pages 41 to 76 of PB Volume I, details of payments made to staff (permanent and casual0 vide pages 77 to 81 of PB Volume I, ledger of subcontract expenses vide pages 82 to 92 of PB Volume I, details of sub contract expenses (project site wise) vide pages 93 to 95 of PB Volume I and sample workman sheets vide pages 96 to 132 of PB Volume I and copies of various written submissions filed before the lower authorities vide pages 212 to 232 of PB Volume II. We find in the remand report, the ld AO had recorded the fact that the sheets filed by the assessee contain all the relevant details viz. date, project site, name of the person in charge, name of the labourer, working days, day wise charge, total....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the labourers through the medium of site in charge. Hence we are not inclined to accept the arguments of the ld DR. We also find that the ld CITA had made bald statement that the signatures in the sheets were not matching. It is not known from which document he was able to reach such conclusion for comparison of the signatures. Accordingly we hold that there is no violation of provisions of section 194C of the Act warranting disallowance u/s 40(a)(ia) of the Act. The ld AO is directed to delete this disallowance u/s 40(a)(ia) of the Act in the sum of Rs. 68,49,395/-. Accordingly, the Ground No. 1 raised by the assessee is allowed. 3. The ld AR during the course of hearing stated that he is not pressing Ground No.2 raised by the assessee on the estimated disallowance of expenses. The same is reckoned as a statement from the Bar and accordingly the Ground No. 2 raised by the assessee is dismissed as not pressed. 4. The last ground to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowance made u/s 40A(3) of the Act to the tune of Rs. 41,05,364/- and further enhancing the disallowance thereon to Rs. 66,44,453/- in the facts and circu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the above parties. Accordingly it was argued that the material purchased from the above mentioned parties have been made by the site in charge / supervisors of different sites without having knowledge of the fact that whether the site in charge / supervisors of any other site had purchased the material from the above parties. The cash debit vouchers were supported by the proper purchase bills of different sites. With regard to purchases made from Shanti Trading Company to the tune of Rs. 13,61,208/- it was submitted that no payment was made in the year under appeal and hence in any case, the disallowance made thereon u/s 40A(3) of the Act is to be deleted as the said party is shown as sundry creditor in the balance sheet of the assessee. The said party was settled in the subsequent year. It was also submitted that the payments to the tune of Rs. 2,53,629/- were made to Mr Prasanna Baishya who was the employee of the assessee. The assessee had remitted cash to the said employee for meeting site expenses and accordingly the said employee had made purchase out of that amount, purchase bills of the purchase made by the employee has been supported by proper bills were attached to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... no disallowance u/s 40A(3) of the Act could be made. He further argued the provisions of section 40A(3) of the Act states as under:- "Where the assessee incurs any expenditure in respect of which 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, no deduction shall be allowed in respect of such expenditure." He argued that the above provisions clearly states that if aggregate payment made in cash to the same person in a single day exceeds Rs. 20,000/- the provisions of section 40A(3) of the Act will be attracted and entire expenditure will be disallowed, but section 40A(3) of the Act is silent regarding the cash payments made with respect to each bill in a day which are below Rs. 20,000/-. In support of this proposition, he placed reliance on the decision of the Cochin Tribunal in the case of Raja & Co vs DCIT in ITA No. 534/Coch/2011 dated 22.3.2013. He also placed reliance on the following high court decisions in support of various propositions made out in his arguments :- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransferred to the employees by the assessee and those employees inturn make payment for purchase of materials as and when needed by making cash payments. It is not in dispute that the individual purchase bill for which payment was made was much below Rs. 20,000/- for which expenditure was incurred. All the purchase bills were also produced by the ld AR in his paper book filed. 4.6.1. We find that the Hon'ble Supreme Court had held in the case of Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) had held as below:- It will be clear from the provisions of section 40A(3) and Rule 6DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in the country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. It is not in dispute before us that the said suppliers of materials had disclosed these sums in their ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e u/s 40A(3) in the process of assessment. We, therefore, delete the addition of Rs. 17,90,571/- and ground no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Calcutta High Court "It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding 20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for 78,45,580/- and disallowed @20% thereon 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the Id. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of the Act w.e.f. 1.4.2009 together with the purpose of the said amendment as explained by CBDT was duly considered as under:- "The purpose of amendment was explained by the CBDT as under:- "13.1 Clause Ca) of sub-section (3) of section 40A of the Income tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. Clause (b) of sub-section (3) of section 40A also provides for deeming a payment as profits and gains of business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in rule 600 of the Income tax Rules, 1962. 13.2 Sub-section (3) of section 40A is an anti tax evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction. Thereby the ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hit by the provisions of sec. 40A(3) as applicable to the year under consideration. However, under the amended provisions, they would be hit. However, if an assessee makes payment of Rs. 20,000/- in a day and he so makes payments in five days, then such splitting up of payments would not be hit even by amended provisions. (b) The rate of disallowance was 20% as per the provisions applicable to the year under consideration and the rate of disallowance is 100% as per the amended provisions. The question that arises is whether the amendment brought out by Finance Act, 2008 w.e.f. 1.4.2009 can be considered as clarificatory in nature so that it shall have retrospective operation? As discussed earlier, the amendment only debars making several payments of less than or equal to Rs. 20,000/- in a day to a single person, but does not debar making several payments of less than or equal to Rs. 20,000/- on different dates to a single person, meaning thereby, the splitting up of payments during the course of a day to a single person is only debarred. Further, as stated earlier, there is significant variance in the quantum of disallowance to be made for violation of sec. 40A(3....