TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 1308
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....es of the case, the Ld. CIT(A) has grossly erred in upholding the disallowance of Rs. 28,84,313/- made by Ld. AO u/s 40(a)(ia) by holding that the appellant did not deduct Income Tax at Source (TDS) on the interest paid to NBFC(s) without appreciating that the entire amount stood "paid" during the year itself and no amount remained outstanding as on 31.03.2012. Thus, the provisions of section 40(a)(ia) are not attracted in the facts & circumstances of the case, and hence the addition of Rs. 28,84,313/- deserves to be deleted. 1.1 That, the Ld. CIT(A) has further erred in ignoring the binding order of Hon'ble Jurisdictional Bench of ITAT, Jaipur in the case of ACIT Vs. Girdharilal Bargoti ITA No. 757/JP/2012 which was binding upon the Ld. AO as well as Ld. CIT(A), particularly when the ITAT has after taking into consideration all the relevant and contradictory judgments rendered by various High Courts, has decided to follow the judgment of Hon'ble Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd. [357 ITR 642] (affirmed by Supreme Court) by following the Hon'ble Supreme Court's direction rendered in CIT Vs. Vegetable Produc....
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....income declaring total income at Rs. NIL was filed by the assessee on 29/09/2012 (after claiming set off of brought forwarded losses of Rs. 18,41,151/-). The assessee is a Private Limited Company, engaged in the business of real estate, selling plots of land for residential as well as farm house purposes and also providing common facilities like club house, swimming pool, road etc. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act) at a total income of Rs. 2,65,62,990/- by making certain additions / disallowances. The ld. CIT(A) partly allowed the appeal of the assessee. Now the revenue and the assessee are in appeals before the ITAT 4. Ground No.1.1 of the assessee's appeal is not pressed, therefore, the same stands dismissed as not pressed. 5. The ground No. 1, 1.2 and 1.3 of the assessee's appeal are against upholding the disallowance of Rs. 28,84,313/- made by the Assessing Officer U/s 40(a)(ia) of the Act. The ld. CIT(A) has sustained the addition by holding as under: (i) I have duly considered the submissions of the appellant, assessment order and the material placed on record. During the year under consideration, the appellant paid int....
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....'ble Calcutta High Court in the case of CIT vs. Crescent Export Syndicate, (2013) 216 Taxman 258 (Calcutta) wherein it was held that: "It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term 'payable' legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both in the situation of actual payment as well of the credit of the amount. It becomes very clear from the fact that the phrase, 'on which tax is deductible at source under Chapter XVIIB', was not there in the Bill but incorporated in the Act. This was not without any purpose.'' (v) The Hon'ble High Court of Himachal Pradesh in the case of Palam Gas Service Vs CIT, (2014) 89 CCH 0123 HPHC / (2015) 370 ITR 0740 (HP) held that: "Lastly, insofar as the plea taken by th....
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....ollow the ratio order laid down in the case of Merilyn Shipping & Transports (supra), as it was overruled by the other High Court. (Para8)" (vii) It was another contention of the appellant that 2nd proviso to section 40(a) (ia) though inserted on the statute w.e.f. 01.04.2013, the same being curative is to be treated as applicable from 01.04.2005. The above contention deserves to be rejected because if the intention of the legislature was to make the said proviso applicable from 01.04.2005, it could said so while inserting the second proviso. Further, even if it is presumed for the time being that it was retrospective in nature, still no benefit can be given to the appellant as it failed to produce the required certificate from the chartered accountant as stipulated in 1st proviso to section 201 of the Act. Here it may be mentioned that as per the proviso to section 201 inserted w.e.f. 01.07.2012, the appellant would not be treated as assessee in default if the concerned NBFC (i) has furnished its return of income u/s 139; (ii) has taken into account such sums for computing income in such return of income; and (iii) has paid the tax due on the income declared by it in such ....
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....e amendment in section 40(a)(ia) inserting the second proviso has taken place w.e.f. 01.04.2013 i.e. from AY 2013-14 however, it is a beneficial provision and insertion of the same in the statute clearly shows the intention of the legislature to give relief in the case where the payee has paid due taxes, further disallowance in the hands of the payer caused to the serious hardship. The intention behind the insertion of provision of section 40(a)(ia) was to brought those persons in the tax net in whose case no TDS is deducted though they are enjoying the taxable income, thus where the payee has already paid the due taxes on the payments on which no TDS is deducted by payer, there remained no reason to make disallowance in the hands of the payer. The Hon'ble Apex court in the case of CIT (Central-1) Delhi Vs. Vatika Township Pvt. Ltd. reported in 367 ITR 466 (relevant para 30-37) (APB 161-192) has held that the beneficial amendment which effect the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given retrospective effe....
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....have heard both the sides on this issue. The ld. CIT(A)'s observation that no certificate as prescribed under proviso to Section 201(1) r.w. Rule 31ACB of the Rules certifying that the taxes in respect of interest income were duly paid by NBFCs was filed. The record shows that the assessee has submitted certificate from a Chartered Accountant namely M/s Dua Manral & Associates placed at page No. 20 to 21 of the paper book, as per the proviso to Section 201(1) r.w. Rule 31ACB of the Rules certifying that the taxes in respect of interest income of Rs. 20,42,045 were duly paid by NBFCs Religare Finvest Ltd. The Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. has held as under: Section 40(a)(ia) of the Income-tax Act, 1961, 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 assessee. It is not a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The insertion of the second proviso to sect....
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....was observed by the AO that the appellant made cash payments exceeding Rs. 20,000/- in violation of provisions of section 40A(3) of the Act as per the following details: Name of party Total amount paid Registry/ agreement Date of payment as per registry Date of payment as per cash book Ramesh Chand Agrawal 23,13,324/- 15.09.2011 (Thursday) No mention of specific date 15.09.2011 (Thursday) Hira Lal Khetan 9,62,658/- -do- -do- -do- Hira Lal Khetan 4,00,000/- -do- -do- -do- Smt. Shanta Devi 11,75,000/- -do- -do- -do- Shiv Pal Singh 4,50,000/- 20.07.2011 (Wednesday) 20.07.2009 (Wednesday) (through the date mentioned is 20.07.2011 but that appears to be typographical error) 20.07.2011 (Wednesday) Total 53,00,982/- Ashok Agarwal (POA holder of Anshita) 43,60,000/- 29.03.2012 (Thursday) 25.03.212 (Sunday) 25.03.212 (Sunday) -do- 48,40,000/- -do- -do- -do- -do- 44,50,000/- -do- -do- -do- -do- 45 90 000/- -do- -do- -do- Total 1,82,40,000/- (ii) It was further noted by the AO that some of the payments to the conce....
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....nd to check evasion of tax and flow of unaccounted money or to check the transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transaction. (iv) It was the contention of the appellant that in the case of Shri Ashok Agarwal, POA holder of his daughter Ms. Anshita Agarwal, the transaction for purchase of land was entered during the financial year 2009-10 against which the advance payment was made during that year itself and the balance payment was to be made within a year's time, but in the mean time certain issues regarding the papers / title of the land came in to knowledge of the appellant company which were required to be sorted out by the owner, to the satisfaction of the buyer i.e. the appellant company, therefore payment could be made against the said deal in next two and half year. In spite of the repetitive reminders from the seller the appellant company does not made the balance payment because the owner had not produced the desired documents. Shri Ashok Agarwal send a notice on 01/03/2012 mentioning therein that in case the balance payment is not made by the appellant company on or before 25/03/2012, they will can....
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....s issued certain guidelines giving certain circumstances and those circumstances are illustrative and not exhaustive and the underlying idea of the circular is that if the identity of the payee is known, it would be possible for the ITO to cross check whether the transaction had in fact taken place. In the present case of the appellant company, the AO never try to cross examine the transaction done by the company, otherwise the things would have got clear up to his satisfaction that the transaction had in fact taken place. The mitigating circumstances referred to in the second proviso to section 40A (3) are detailed in rule 6DD of the Income-Tax Rules, 1962. The object of that rule 6DD is to relax the rigours of section 40A(3) in genuine and bonafide cases to avoid hardship and harassment. (vii) It was further submitted that it is clear that under rule 6DD, it is open to the appellant to explain to the assessing authority the circumstances which compelled payment in cash of an amount exceeding the stipulated limit. The genuineness of the transaction can also be explained. Such expenditure shall not be disallowed under section 40A(3). In the matter of the appellant, the source of ....
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....s twenty thousand rupees in the cases and circumstances specified hereunder, namely:- (xi) It is evident from the above that the Rule 6DD has specified the circumstances in which payments exceeding the prescribed limits can be made in cash. In is noted from the letter of Shri Ashok Agarwal dated 01.03.2012 placed on record that in the said letter, Shri Ashok Agarwal stated that if the balance payments were not made on or before 25.03.2012, the deal would be cancelled and the advance amount would be forfeited. It was submitted by the appellant that the seller could satisfy the appellant about the clear possession of the property under consideration only on 22.03.2012 and finally the payments were made in cash on 25.03.2012 i.e. on Sunday as the bank was closed on Sundays. It was further submitted that the genuineness of the transaction was not denied by the AO and the cash payments are duly recorded in its books of accounts. It is noted from the above discussion that the cash payments of Rs. 1,82,40,000/- made to Shri Ashok Agarwal is covered under clause (j) of Rule 6DD according to which where the payment was required to be made on a day on which the banks were close....
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....er following details: Name of the Seller Amount in Rs. Whether agreement to sell registered Date and time of sale deed presentation before sub registrar Shri Heera Lai Khetan 4,00,000/- Yes 15.09.2011 at 5.30PM Smt. Shanta Devi Mittal 11,75,000/- Yes 15.09.2011 at 5.23 PM Shri Ramesh Chandra Agarwal 23,13,324/- No Shri Heera Lai Khetan 9,62,658/- No Shiv Pal Singh 4,50,000/- 20.07.2001 (Wednesday Copy of sale deed not furnished Total 53,00,982/- (xiv) It was the contention of the appellant that these payments were made in cash out of circumstances arising out of unavoidable business scenario. The appellant company had made the arrangement with these sellers to purchase the land after negotiating the price at the lowest possible rate and ensured to make the payment at the earliest possible date, but due to non availability of funds in the bank, it kept on prolonging the payment and was under constant pressure of sellers to make the payment immediately, otherwise they will cancel the deal or revise the selling price. On 15/09/2011, the appellant company received the cash payment of Rs. 2.09 Cror....
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....lieved and rejected in the absence of any documentary evidence to support its contention and in view of the above discussion. The appellant has not stated anything about the cash payment of Rs. 4.50 Lac made to Shri Shiv Pal Singh on 20.07.2001 (Wednesday), for purchase of land. It is, therefore, held that the appellant has no reason to explain why cash payment of Rs. 4.5 Lac was paid for purchase of land in violation of provision of section 40A(3) of the Act and thus the said payment is not covered by Rule 6DD. (xvi) The appellant has drawn my attention to the language of section 40A (3) which reads as " Provided no disallowances shall be made and no payment shall be deemed to be the profit and gain of business or profession under section (3) and this sub section where a payment or aggregate of payment made to a person in a day, otherwise than by a account payee cheque drawn on a bank or account payee bank draft , exceeds Rs. 20,000/-, in such case and under such circumstances as may be prescribed , having regard to the nature and extent of banking facilities available, considerations of business expediencies and other relevant factors. (xvii) It may be mentioned here that Rul....
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....d the advance money would be forfeited, the assessee met with the seller to resolve the issue and during such meeting, the seller handed over the copies of title document of the subject property. Assessee after taking legal opinion and verification decided to make the payment within the time frame allowed by seller which was going to expire on 25.03.2012. Later it was realized that, 25th March was a Sunday and therefore the assessee was left with no other option but to make payment in cash on 25th March or else the seller would have cancelled the deal and forfeited the advance amount. Thus, under such exceptional circumstances, the payment of Rs. 1,82,40,000/- was made to Shri Ashok Agarwal, and hence was squarely covered under the clause (j) of rule 6DD. Regarding payment of Rs. 53,00,982/- made to the remaining four persons, it is submitted that, the assessee had negotiated the price for purchase of land with the above sellers at the lowest rate possible, and promised to pay the sale consideration at the earliest. But due to unavailability of required bank balance, the assessee was not able to pay them, and was under constant pressure of losing on the deals, a....
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.... M/s Ocean Buildtech (P) Ltd. on the same date] is duly appearing on 15.09.2011 [APB 89] and neither Ld. AO nor Ld. CIT(A) has disbelieved such entries. It is also a fact on record that the books of accounts maintained were not doubted nor rejected. The Ld. CIT(A) disregarded the explanation given by the assessee in a very summary manner, by alleging that, the cash book shows only a receipt of Rs. 2.09 Cr. on 15.09.2011, whereas the sale consideration was Rs. 2.44 Cr. as per the sale deed and nothing was mentioned as pending, in the deed. In this regard it is submitted that the balance Rs. 35 lacs was received in cash on 17.09.2011 [APB 28], and this being a very small portion of the entire sale consideration, the assessee readily agreed to take the balance amount a day after the registry, as it was in immediate need of funds, in order to make the payments against the purchases of above lands. Thus, all the payments as above are duly made under business exigencies, and hence covered under the sub-rule (j) to rule 6DD of IT Rules, 1962. It is humbly submitted that undoubtedly, provisions of section 40A(3) calls for a disallowance whenever there is any cash payment exceeding Rs. 20....
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....f sec 40A(3) are not absolute. Consideration of business exigencies and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in sec 40A(3) was not practicable or would have caused genuine hardships to the payee. Based on above submissions, it is evident that parties to the transactions are not disputed, payment made is evident, source of payment is clearly identified and the genuineness of payment made is amply substantiated coupled with the unavoidable circumstances attached with such payments which compelled the assessee to make payment in cash, thus all the above payments, made in contravention of provisions of sec 40A(3), are squarely covered in the exemption provided for u/r 6DD of the Income Tax Rules, 1962, and hence the entire disallowance of Rs. 2,35,40982/- made u/s 40A(3) deserves to be deleted and the assessee prays accordingly. Reliance is further placed on the following judicial pronouncements: 1. DCIT Vs. M/s Shree Salasar Overseas (P) ltd [ITAT JPR bench in I....