Income Tax Appellate Tribunal - AhmedabadShiv Krupa Tin Containers, vs Assessee on 9 June, 2016आयकर अपील
य अ धकरण, अहमदाबाद  यायपीठ 'सी', अहमदाबाद ।
       IN THE INCOME TAX APPELLATE TRIBUNAL
               " C " BENCH, AHMEDABAD

   सव  ी राजपाल यादव,  या यक सद य एवं अ नल चतव
                                             ु  द , लेखा सद य के सम ।
    BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
   And SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER

                आयकर अपील सं./I.T.A.No.136/Ahd/2016
           (  नधा रण वष  / Assessment Year : 2010-11)
M/s. Shiv Krupa Tin              बनाम/ The ITO
Containers                        Vs.  SK Ward-1
At Boriya Becharaji                    Himatnagar
Modasa Road
Taluka Talod - 383 215

 थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. :            ABPFS 9958 P
     (अपीलाथ& /Appellant)                ..           ('(यथ& / Respondent)
     अपीलाथ& ओर से /   Appellant by :         Shri N.C. Amin, AR
     '(यथ& क* ओर से/Respondent    by :        Shri B.P.K. Panda, Sr.DR

      ु वाई क* तार ख /
     सन                Date of Hearing                   31/05/2016
     घोषणा क* तार ख /Date of Pronounce ment              09/06/2016

                                आदे श / O R D E R

PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER :This appeal by the Assessee is directed against the order of the
Commissioner of Income Tax(Appeals)-2, Ahmedabad                         dated
03/12/2015 for the assessment year 2010-11.ITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                        Asst.Year - 2010-11-2-2.    The relevant facts as culled out from the materials on record are as
under:-2.1.   Assessee is a partnership-firm stated to be engaged in the business
of manufacturing and trading of Tins and its job-work.              Assessee
electronically filed its return of income for AY 2010-11 on 24/09/2010
declaring total income of Rs.95,980/-. The case was selected for scrutiny
and thereafter assessment was framedu/s.143(3)of the Income Tax Act,
1961 (hereinafter referred to as "the Act) on 07/03/2013 and the total
income was determined at Rs.7,95,620/-.        Aggrieved by the order of
Assessing Officer (AO), assessee carried the matter before ld.CIT(A)
who vide order dated 03/12/2015 (in Appeal No.CIT(A)-VIII/49/SK
Wd.1 HMT/2013-14 and now CIT(A)-2/20/SK Wd.1, HMT/2013-14)
dismissed the appeal of the assessee.        Aggrieved by the order of
ld.CIT(A), assessee is now in appeal before us and has raised following
effective grounds:-1.     That the CIT(A)-2 Ahmedabad has erred both in law and on the
             facts of the case in confirming an addition of Disallowance of
             Expensesu/s.40(A)(3)of Rs.2,49,497/-.2.    That the learned CIT(A)-2 has further erred and confirming of
             an addition of Rs.4,45,625/- made by learned A.O. u/s.40(a)(ia)
             of theIncome Tax Act, 1961. Even though Amendment was made
             byFinance Act, 2012under Second proviso tosection 40(a)(ia)is retrospective and considering the same this ground. Please be
             decide on merits.ITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                         Asst.Year - 2010-11-3-2.2.   First ground is with respect to disallowance of expensesu/s.40A(3)of the Act.2.3.   During the course of assessment proceedings, on the basis of
details furnished by the assessee, AO noticed that the assessee had made
several cash payments to Gujarat Electricity Board (GEB) in respect of
electricity expenses. (the details of which are listed at page Nos.7 & 8 of
the assessment order), the aggregate of such cash payments aggregated
to Rs.2,49,497/-. The assessee was asked to explain as to why expenses
not be disallowedu/s.40A(3)to which assessee inter alia submitted that
the payments were made to GEB, a Government Organization and there
was no facility for acceptance of cheque in the village in which its
factory of the assessee is located. The submission of the assessee was
not found acceptable to the AO, in view of the fact that the assessee had
not placed any material on record to demonstrate that there was no
facility in the village to accept the cheques, assessee had not made out
case of unavoidable circumstances so as to claim the benefit Rule 6DD of
the Act.      He accordingly disallowed the payments in excess of
Rs.20,000/- which aggregated to Rs.2,49,497/- u/s.40A(3) of the Act.
Aggrieved by the order of the AO, the assessee carried the matter before
ld.CIT(A) who upheld the order of the AO by holding as under:-"5.3. Decision:I have carefully considered the facts of the case, the assessment
       order and the written submission of the appellant. The AO has made
       disallowance undersection 40A(3)of the Act, as the appellant has madeITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                  Asst.Year - 2010-11-4-payment of part of the electricity expenses in cash. As per AO, the
appellant had made the payment of Rs.2,49,497/- to UGVCL / GEB for
electric expenses in cash which includes the payment of Rs.33,595/- to
M/s.Tanveer Enterprises for purchase of the old use cables. The AO
concluded that the appellant's plea that there was no facility in
accepting cheques in Boriya - Becharji Village for which the appellant
has not placed any evidence in support. The AO also observed that the
appellant has not been able to make out a case of unavoidable
circumstances so as to claim the benefit of Rule 6DD. Further held that
the payment made to GEB was not a payment to the government and
also did not submit that GEB did not accept the payments through
cheques and it was the compulsion to make the payments in cash.5.4. On the other side, the appellant submitted that these payments
were made to the GEB / UGVCL and their genuineness has not been
doubted. Thus, the liberal interpretation of the Rule 6DD has to be
construed. It also submitted that there was no facility in accepting
cheques in the village and in absence of the same, the appellant was
unable to run the factory.5.5. On a careful consideration of entire facts related to the issue, it
is noted that though the UGVCL is a Government company, it does not
mandatorily asks its customers to make payment by cash. The rule 6DD
provides an exception in cases where the payment has been made to a
government organization and the Rules prescribed in this behalf
requires payment in cash compulsorily. The appellant has failed to
establish such circumstance. It has not given any reasonable cause as
to why the payment was made in cash in spite of the fact that appellant
has a bank account from which all other expenses have been incurred.The Provisions ofsection 40A(3)are very clear and it provides specific
exception to the Provisions under Rule 6DD. The case of the appellant
is not covered under any of the exceptions provided in Rule 6DD. The
appellant is running a big business establishment and it also has bank
account at the place nearby. It could have obtained demand draft for
payment of electricity dues and accordingly made the payment in
compliance of the Provisions of Income tax Act. In the case of theITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                          Asst.Year - 2010-11-5-appellant, it has not furnished any documentary evidence in support of
       its claim that it could not make the payment by local cheque.5.6.      The appellant has relied upon the decision of Hon'ble ITAT,
       Ahmedabad in the case of Navjivan Synthetics wherein the cash
       payments to labours were made on Sunday i.e. Bank Holiday to avoid
       labour problems. Further, the appellant also relied upon the judgment
       of Hon'ble Cochin ITAT in the case of P.M. Abdul Razak, wherein the
       payments to the small cultivators were made in cash who refused to get
       payments by cross cheques. The facts and circumstances under which
       payment made in the aforesaid cases are totally different from the facts
       of the case, and hence, reliance is misplaced and accordingly the
       decision of the honourable ITAT would not be applicable. It is also
       mentioned that the aforesaid disallowance includes the cash payment to
       M/s.Tanveer Enterprises of Rs.33,595/- which is also exceeding to
       Rs.20,000/- and hence the same also attracts the disallowance.
       Further, two bills of UGVCL amounting to Rs.17,975/- and Rs.2,077/-
       were paid by the appellant on the same date i.e. 20/06/2009 to the
       UGVCL which is the same party, hence, disallowance of two bills at a
       time to the same party also attracts the provisions ofsection 40(a)(3)of
       the I.T. Act. Accordingly, the case of the appellant is not covered by
       any of the exceptions provided in Rule 6DD. The disallowance made by
       the AO is accordingly upheld."2.3.   Aggrieved by the order of ld.CIT(A), assessee is now in appeal
before us.3.     Before us, ld.AR reiterated the submissions made before the AO
and ld.CIT(A) and further submitted that the AO has not disputed that the
payments made by the assessee is not for the purpose of business.               He
further submitted that the payment was made to Electricity Company in
cash as there was no facility made by them to accept the payment inITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                      Asst.Year - 2010-11-6-cheque or draft. He further submitted that the primary object of enactingsection 40A(3)of the Act was to put a check on trading transactions to
avoid the liability to tax on income earned on such transactions. The
ld.AR submitted that while upholding the disallowanceu/s.40A(3),
there is no finding of ld.CIT(A) that as to whether each payment in a day
made by the assessee exceeded Rs.20,000/-. He further submitted that
provisions ofsection 40A(3)was intended with the objective of avoiding
tax evasion. He submitted that when the payments are genuine and are
made out of income from disclosed sources, no disallowanceu/s.40A(3)can be made.He further placed reliance on the judgement of Hon'ble
Gujarat High Court in the case ofAnupam Tele Services vs. ITOreported at (2014) 366 ITR 122 (Guj.).He also placed reliance on the
decision of Hon'ble Allahabad High Court in the case ofCIT vs.
Choudhary and Co.reported at (1996) 216 ITR (All).      Ld.Sr.DR, on the
other hand, supported the orders of the AO and ld.CIT(A).4.    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 disallowanceu/s.40A(3)of the Act.   It is an undisputed fact that assessee has made
cash payments for expenses and these payments have been made to
Electricity Company for the supply of Electricity.       The payment of
Electricity was the purpose of business, the payee to whom the assesseeITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                       Asst.Year - 2010-11-7-has made the payment has not been doubted by the AO; meaning thereby
that the genuineness of payment and identity of the payee are not in
doubt.In such a situation, we find that the Hon'ble Jurisdictional High
Court in the case ofAnupam Tele Services vs. ITOreported at (2014)
366 ITR 122 (Guj.) has held that the paramount consideration ofsection
40A(3)is to curb and reduce the possibilities of black money transactions
and section does not eliminate considerations of business expediencies.
Before us, Revenue has not placed any contrary binding decision. In
view of the aforesaid facts and after placing reliance on the aforesaid
decision of Hon'ble Gujarat High Court, we are of the view that in the
present case the expenditure cannot be disallowed. Thus, this ground of
assessee is allowed.5.     Second ground is in respect of disallowance madeu/s.40(a)(ia)of
the Act.5.1.   During the course of assessment proceedings, the AO noticed that
the assessee made payment of interest to four parties listed at page Nos.2
and 3 of the assessment order, the aggregate interest payment being of
Rs.4,45,625/- on which the assessee had not deducted TDS. AO was of
the view that the expenditure is not allowableu/s.40(a)(ia)of the Act on
account of non-deduction of TDS.        He accordingly disallowed the
aggregate payment of Rs.4,45,625/-. Aggrieved by the order of the AO,ITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                          Asst.Year - 2010-11-8-assessee carried the matter before the ld.CIT(A), who upheld the order
of the AO by holding as under:-"3.6. Decision:I have carefully considered the facts and submission of the
      appellant. The AO has made the disallowance of the claim of interest
      expenses of RS.4,45,625/- being in the nature of interest on loans taken
      from different parties of which details are as under:-(i)      Bajaj Finance                           Rs. 88,272/-
      (ii)    India Bulls Financial Services Ltd.      Rs 65,135/-
      (iii)   Reliance Capital                         Rs.2,34,415/-
      (iv)    Reliance Finvest Ltd.                    Rs. 57,803/-Those are NBFCs from whom finance has been taken by the
      appellant. There was the liability on the part of the appellant to make
      the TDSu/s. 194Aof the I. T. Act on the interest payments, as the
      interest payment was exceeding to the limits prescribedu/s. 194Aof the
      I. T. Act, 1961. The AO observed that the reliance of the appellant on
      the decision of Hon'ble Vishakhapatnam, ITAT in the case of Merylyn
      Shipping and Transports, Vishkhapatnam, is not relevant due to
      suspension of the said decision by the Hon'ble High Court of Andhra
      Pradesh and thereafter, reversed the order of the ITAT vide Appeal in
      ITTA No. 384 of 2012 dated 09/10/2012. Therefore, the decision of
      Hon'ble ITAT was not applicable on the facts of the this case. Since, the
      appellant had failed to make the TDS in respect of the liabilityu/s. 194Aof the I. T. Act, 1961 on the interest payment to NBFC and hence the
      disallowance was made.3.7. On the other side, the appellant submitted that it has paid the
      cheques in advance of the amounts included of principal and interest
      thereupon, hence it was difficult for him to make the TDS. Further, the
      interest to the finance companies were actually paid and there was no
      outstanding amount payable at the end of the year. Thus provisions of
      section 40a)(ia) were not applicable. It was also submitted that these
      companies were having the PAN Numbers and addresses wereITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                    Asst.Year - 2010-11-9-available. The payees have already shown the interest income as their
income in their Income Tax Return filed for the year under
consideration. It also relied upon certain judgments including the
decision of Hon'ble ITAT, Agra in the case of Rajeev Kumar Agrawal inITA No. 337/Agra/2013 & others.3.8. Having considered the facts and submission, there is no doubt
about the statutory liability cast upon the appellant to make the TDS on
the interest payment to the NBFCs for the finance taken by the
appellant. In view of the provisions ofsection 194Aof the I. T. Act, it
was immaterial whether the cheques were given in advance for the
consolidated figures consists of principal and interest thereupon. Since
the interest amount was segregated and identifiable in respect of the
installment amounts that is why the P & L Account has been debited for
the interest amount. So, the AOs observation for not making the IDS on
the interest payment to NBFC is correct and justified.3.9. Now, with regard to the appellant's contention vide its letter
enclosing therewith the copies of certain letters from the respective
NBFCs, the same is dealt hereunder.3.9.1. Along with the written submission, the appellant has submitted
copies of the letters issued by the aforesaid parties and their ledger
account in appellant's books of accounts. The copies of these letters
were submitted first time before this office as additional evidences for
which the appellant has not completed the procedure laid down by way
of making a written request specifying the reasons of non - submission
of them before the AO in the assessment proceedings. So there was
nothing on record to see about furnishing of these additional evidences
due to good and sufficient reasons for admission as per the Rule 46A. In
absence of the same, these additional evidences are not admitted, and
hence, the same are not considered while taking the decision over the
issue.3.9.2. Without prejudice to non - admission of the additional evidences,
even on merits also, these documents are not entertainable for two
reasons; firstly in the letters given by these parties, nowhere it has beenITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                    Asst.Year - 2010-11- 10 -committed by each of the parties that they have included the interest
income in their books of accounts and the same has been offered for
taxation in the income tax return filed by each of such parties. Secondly,
as per the first proviso tosection 201 (1), the certificates from the
recipient parties should have been in the prescribed formal i.e. Form
No. 26A as per Rule 31ACB i.e. the certificate from a Chartered'
Accountant of the recipient parties. Thus, the appellant has not
submitted the Form No. 26A from the recipient parties wherein the
certificate has to be issued by the Chartered Accountant of the recipient
parties that the recipient company has included the interest income in
its return of income and paid the taxes. In absence of such certificates
in Form No. 26A, the appellant is not entitled to get the benefit granted
under second proviso tosection 40(a)(ia)r.w. first proviso tosection
201 (1)of the I. T. Act. In view of this, the case laws relied upon by the
appellant are not applicable and hence, they are not relevant.3.10. In view of the aforesaid discussion, the appellant has committed
the default for not making the TDS upon the interest payment to NBFCs,
and therefore, disallowance made by the AO is found correct and
justified and hence the same is confirmed. This view is further
supported by the judgment in the case of CIT Vs. Sikander Khan N.
Tunwar [(2013) 357 ITR 312 (Guj.)]. Relevant portion of the judgment
is reproduced hereunder:-"37. In our opinion, the Tribunal committed an error in applying
       the principle of conscious omission in the present case. Firstly,
       as already observed, we have serious doubt whether such
       principle can be applied by comparing the draft presented in
       Parliament and ultimate legislation which may be passed.
       Secondly, the statutory provision is amply clear.38. In the result, we are of the opinion thatSection 40(a)(ia)would cover not only to the amounts which are payable as on
       31st March of a particular year but also which are payable at any
       time during the year. Of course, as long as the other
       requirements of the said provision exist. In that context, in our
       opinion the decision of the Special Bench of the Tribunal in theITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                        Asst.Year - 2010-11- 11 -case of M/s. Merilyn Shipping & Transports vs. ACIT (supra),
             does not lay down correct law.39.   We answer the question as under:-Question (1) in the negative i.e. in favour of the Revenue and
             against the assessees.Question (2) also in the negative i.e. in favour of the Revenue
             and against the assessees."3.11. The ground of appeal is accordingly dismissed."5.2.   Aggrieved by the order of the ld.CIT(A), assessee is now in appeal
before us.5.3. Before us, ld.AR reiterated the submissions made before the AO and
ld.CIT(A) and further submitted that the parties to whom the assessee
made the payment of interest have already considered the payments
received from the assessee as their income and in such a situation, the
assessee cannot be considered to be an "assessee in default" and,
therefore, no disallowance can be made. He further relying on the
decision of Hon'ble Agra Tribunal in the case of Rajeev Kumar Agarwal
vs. Addl.CIT reported in (2014) 149 ITD 363 (Agra) submitted that the
assessee could not be punished for non-deduction of Tax at source when
the corresponding income was duly brought to tax. He also pointed out
to the table placed at page No.2 of the paper-book, wherein the details of
the payments are tabulated. He therefore submitted that in the present
case no disallowanceu/s.40(a)(ia)of the Act is called for. Ld.Sr.DR, onITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                        Asst.Year - 2010-11- 12 -the other hand, supported the orders of the authorities below and
submitted that there is no material on record to demonstrate that the
parties to whom the assessee had made the payment towards interest have
offered the amount to tax. In the alternate, he submitted that the matter
be remitted to AO for verification. He thus supported the order of the
AO & ld.CIT(A).6.    We have heard the rival submissions, perused the material
available on record and gone through the orders of the authorities below
as well as the decision relied upon by the ld.AR. The issue in the present
case is with respect to disallowance of expensesu/s.40(a)(ia)of the Act
on account of non-deduction of TDS.         Before us also, apart from the
oral submissions, assessee has also not placed any material on record to
demonstrate that the recipients of the amounts have considered the
amounts received from the assessee as their income. We find that there
is no finding of the lower authorities to the effect that the payment made
by the assessee have been considered by the respective payees as their
income.   We further find that the Coordinate Bench of Tribunal in the
case of Agra Tribunal in the case of Rajeev Kumar Agarwal vs.
Addl.CIT[supra] has held at para-4 as under:-"The unambiguous underlying principle seems to be that in the
      situations in which the assessee's tax withholding lapse 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.ITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                          Asst.Year - 2010-11- 13 -The net effect of these amendments is that the disallowance undersection 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, if any, on
      the income so computed and has filed his income tax return undersection 139(1)."After considering various decision cited therein, the Coordinate
Bench of Tribunal further held at para-9 as under:-"When we appreciate the object of scheme ofsection 40(a)(ia), as on
      the statute, and to examine whether or not, on a "fair, just and
      equitable" interpretation of law- as is the guidance from Hon'ble Delhi
      High Court on interpretation of this legal provision, in our humble
      understanding, 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 ofSection 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 assessee. It is not, in our considered view, 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 penalty
      for tax withholding lapse per se is separately provided for inSection
      271C, and,section 40(a)(ia)does not add to the same.
      ..............Accordingly, we hold that the insertion of second proviso toSection
      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) ofsection 40(a)was inserted by theFinance (No.2) Act, 2004."ITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                                  Asst.Year - 2010-11- 14 -6.1.    In view of the aforesaid facts, wherein it has been held that second
proviso tosection 40(a)(ia)has retrospective effect from 1st April-2005
and in the absence of any material on record which could show that the
payees have already offered the amounts received from assessee as their
income, we are of the view that the issue needs to be restored back to the
file of ld.CIT(A) to decide the issue afresh in the light of our aforesaid
discussion and decide the issue afresh in accordance with law. Needless
to state that the ld.CIT(A) shall grant adequate opportunity of hearing to
both the parties. The assessee is also directed to co-operate by promptly
furnishing all the required details called for by the Authorities. Thus,
second ground of assessee's appeal is also allowed for statistical
purposes.7.      In the result, assessee's appeal is allowed for statistical purposes.This Order pronounced in Open Court on                             09/06/2016


                Sd/-                                             Sd/-
          राजपाल यादव                                           अ नल चतव
                                                                       ु  द 
         ( या यक सद य)                                          (लेख ा सद य)
  (RAJPAL YADAV)                                       ( ANIL CHATURVEDI )
JUDICIAL MEMBER                                        ACCOUNTANT MEMBER

Ahmedabad;             Dated            09/ 06 /2016

ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PSITA No.136/Ahd/2016M/s. Shiv Krupa Tin Containers vs. ITO
                                                                      Asst.Year - 2010-11
                                                - 15 -आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :1.        अपीलाथ& / The Appellant2.        '(यथ& / The Respondent.3.        संबं5धत आयकर आयु7त / Concerned CIT4.        आयकर आयु7त(अपील) / The CIT(A)-2, Ahmedabad5.        8वभागीय ' त न5ध, आयकर अपील य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad6.        गाड  फाईल / Guard file.आदे शानुसार/ BY ORDER,

                    स(या8पत ' त //True Copy//
                                                              उप/सहायक पंजीकार (Dy./Asstt.Registrar)
                                                    आयकर अपील
य अ धकरण, अहमदाबाद / ITAT, Ahmedabad1.  Date of dictation .. 31.5.16 (dictation-pad 16+ pages attached at the end of this appeal-file)2.  Date on which the typed draft is placed before the Dictating Member ...6.6.16/8.6.163.  Other Member...4.  Date on which the approved draft comes to the Sr.P.S./P.S.................5.  Date on which the fair order is placed before the Dictating Member for
         pronouncement......6. Date on which the fair order comes back to the Sr.P.S./P.S.......9.6.167. Date on which the file goes to the Bench Clerk.....................9.6.168. Date on which the file goes to the Head Clerk..........................................9. The date on which the file goes to the Assistant Registrar for signature
         on the order..........................10. Date of Despatch of the Order..................