AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 1531
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....stances of the case, the Learned Assessing Officer has erred in sustaining the addition of Rs. 87,887/- disallowance out of conveyance expenses and travelling expenses. 5. Under the facts and circumstances of the case, the Learned Assessing Officer has erred in sustaining the addition of Rs. 1,50,000/- u/s 40(a)(ia) of the Income Tax Act, 1961. 6. Under the facts and circumstances of the case the learned Assessing Officer has erred in sustaining the addition of Rs. 4,62,014/- u/s 40(a)(ia) of the Income Tax Act, 1961. 7. Under the facts and circumstances of the case, the learned Assessing Officer has erred in sustaining the addition of Rs. 10,00,000/- on account of excess payment of salary. 2. Firstly in respect of ground No. 3, 4 and 6, the ld AR at the outset submitted that he didn't wish to press these grounds of appeal. Hence, the same are dismissed as not pressed. 3. Now coming to ground No. 1 where the assessee has challenged the addition of Rs. 2,45,570/- made by the AO u/s 40A(3) of the I.T. Act. During the course of assessment proceedings, the Assessing Officer, from perusal of the ledger of account of M/s Bikaner Detective Security Service in the books of the ass....
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....ether, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed source. The terms of Section 40A(3) are not absolute. Consideration of business expediency 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 Assessing Officer the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or....
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....y guards were hired and engaged by the assessee. Hence, the assessee was under an obligation to make payment to the security agency and not to the individual guards as claimed by it. The assessee could have made payment to the security agency through cheque or bank draft and thereafter, it is for the security agency to arrange for payment to the security guards. There could be occasions where the security guards were in need of cash and there is delay on part of security agency to make the payment and in such circumstances, one can understand that the assessee company might have been approached by the security agency to make payment to the guards on its behalf. But in the instant case, nothing has been brought on record to this effect. Rather, in the instant case, throughout the financial year, the payments have been made in cash exceeding Rs. 20,000 and the same will therefore be covered by the provisions of section 40A(3) of the Act. As held by the Hon'ble Supreme Court in case of Atar Singh (Supra), it is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practi....
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....ucted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso" 4.4 Hon'ble Delhi High Court in case of Ansal Landmark Township Pvt. Ltd. has held as under:- "13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal's case (supra ), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40(a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: 'On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source when such tax deductions are due, but, so far as the legal framework is concerned, ....
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....on of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004.' 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance." 4.5 Hon'ble Kerala High Court in case of Thomas George Muthoot has held as under:- "A statutory provision, unless otherwise expressly stated to be retrospective or by intendment shown to be retrospective, is always prospective in operation. Finance Act, 2012 shows that the second proviso to Section 40(a)(ia) has been introduced with effect from 01.04.2013. Reading of the second provis....
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....payment of salary. During the course of assessment proceedings, the Assessing Officer carried out the monthly analysis of salary paid by the assessee and noticed that during the month of November, 2010, January, 2011 and March, 2011, the assessee has claimed excess salary expenditure as compared to other months. Regarding the excess salary paid in the month of November, 2010, the plea of the assessee was accepted that the salary expenditure includes payment of bonus which has resulted in increase salary expenditure in that month. However in respect of January and March, 2011, the plea of assessee was not accepted. The Assessing Officer observed that maximum amount of salary has been paid in cash and the assessee company is having permament establishment and has therefore to employ staff on a regular basis and as such there is least possibility for temporary deployment of staff during these two months. Further, Assessing Officer observed that the salary sheets furnished by the assessee are incomplete and has finally taken his findings as under: "17.3 Thus, on the basis of above facts & circumstances and the discussions conclusion is arrived that the expenditure booked by the assess....
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....rned only regarding the genuineness of the payment of salary and that the same was incurred for business purposes. While making the disallowance the learned Assessing officer has nowhere observed that payment of salary to any employee was bogus or that it was for purposes other than business. Further during the course of assessment proceedings the salary sheets were produced before the learned Assessing officer. However the learned Assessing Officer rejected the sheets observing that addresses were not complete. However the learned Assessing Officer never insisted for production of any employee for finding out the genuineness of payment. The Learned Assessing Officer was on the mode of rejecting the salary sheets and in finding an excuse for making the addition. 3. Payment of salary to Simmy Morani and Kanishka Morani is below the level of reasonableness:- Payment of salary to Simmy Morani and Kanishka Morani has been observed by the Learned Assessing is very petty which is Rs. 1,60,000/- each for the whole year. The salary comes to Rs. 13,000/- per month. It is submitted that even a peon in the Govt. draws more salary than this. Both Simmy and Kanishka Morani are educated and qua....