ACIT, CHENNAI v. M/s. Laxmi Jewellery, CHENNAI

ITA 2005/CHNY/2010 | 2007-2008
Pronouncement Date: 06-09-2011 | Result: Dismissed

Appeal Details

RSA Number 200521714 RSA 2010
Assessee PAN AAAFL0161F
Bench Chennai
Appeal Number ITA 2005/CHNY/2010
Duration Of Justice 9 month(s) 12 day(s)
Appellant ACIT, CHENNAI
Respondent M/s. Laxmi Jewellery, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 06-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 06-09-2011
Date Of Final Hearing 23-08-2011
Next Hearing Date 23-08-2011
Assessment Year 2007-2008
Appeal Filed On 24-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH CHENNAI [BEFORE DR. O.K. NARAYANAN VICE-PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER] I.T.A NO.2005/MDS/2010 (ASSESSMENT YEAR : 2007-08 ) THE ACIT BUSINESS CIRCLE XI CHENNAI VS M/S LAXMI JEWELLERY NO.65 N.S.C. BOSE ROAD SOWCARPET CHENNAI 600 079 [PAN AAAFL0161F] (APPELLANT) (RESPONDENT) C.O.173/MDS/2010 (ASSESSMENT YEAR : 2007-08 ) M/S LAXMI JEWELLERY NO.65 N.S.C. BOSE ROAD SOWCARPET CHENNAI 600 079 VS THE ACIT BUSINESS CIRCLE XI CHENNAI (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : DR.I.VIJAYAKUMAR CIT/DR ASSESSEE BY : SHRI T.BANUSEKAR CA DATE OF HEARING : 23.08.2011 DATE OF PRONOUNCEMENT : 06-09-2011 O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: THE APPEAL BY THE REVENUE AND THE CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DATED 30.8.2010 PERTAINING TO ASSESSMENT YEAR 2007-08. ITA 2005/10 & CO 173/10 :- 2 -: 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE- FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF G OLD JEWELLERY AND IS ALSO A WHOLESALER OF BULLION. THE FIRM FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 ON 31.10.2007 DECLARING A T OTAL INCOME OF ` 48 10 898/-. THE RETURN WAS PROCESSED U/S 143(1) O F THE ACT AND SUBSEQUENTLY REGULAR ASSESSMENT WAS MADE U/S 143( 3) ON 29.12.2009 AT A TOTAL INCOME OF ` 2 01 51 466/-. TO ARRIVE AT THAT INCOME THE ASSESSING OFFICER HAS MADE ADDITION BY DISALLOWING CLAIM OF ` 12 52 682/- OUT OF PAYMENT FOR MAKING CHARGES ON A CCOUNT OF NON-DEDUCTION OF TAX U/S 194C DISALLOWANCE OF A SU M OF ` 1 10 53 737/- CLAIMED AS BUSINESS LOSS ON ACCOUNT O F EMBEZZLEMENT BY ITS EMPLOYEES; AND ALSO ADDITION OF ` 30 34 147/- ON ACCOUNT OF INFLATION OF PURCHASES. AGGRIEVED THE ASSESSEE PR EFERRED APPEAL BEFORE THE LD. CIT(A) AND HE HAS GIVEN A PART RELIE F TO THE ASSESSEE BY DELETING THE ADDITION OF ` 1 10 53 737/- ADDED ON ACCOUNT OF DISALLOWANCE OF LOSS DUE TO EMBEZZLEMENT BUT SUSTAI NING THE ADDITION OF ` 12 52 682/- TREATING IT AS COVERED UNDER THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT. NOW BOTH THE PARTIES ARE AG GRIEVED REVENUE IS AGGRIEVED AGAINST THE DELETION OF ` 1 10 53 737/- ADDED AFTER DISALLOWING THE LOSS CLAIMED ON ACCOUNT OF EMBEZZLE MENT BY EMPLOYEES AND THE ASSESSEE HAS DISPUTED THE SUSTAIN ED ADDITION OF ` ITA 2005/10 & CO 173/10 :- 3 -: 12 52 682/- BEING IN VIOLATION OF THE PROVISIONS OF SECTION 194C OF THE ACT. 3. IN REVENUES APPEAL THE DISPUTE IS NOT REGARDING T HE FACTUM OF LOSS DUE TO EMBEZZLEMENT BY EMPLOYEES. THE REVENUE HAS ACCEPTED THIS FACT THAT THE EMPLOYEES DID COMMIT EMBEZZLEMEN T AND THERE IS NO DISPUTE WITH REGARD TO THE QUANTITY OF EMBEZZLEMENT . THE ONLY DISPUTE IS WITH REGARD TO THE YEAR OF ALLOWABILITY OF THIS LOSS. ACCORDING TO THE REVENUE THIS LOSS HAS TO BE ALLOWED IN ASSESSMENT YEAR 2006-07 BUT ACCORDING TO THE ASSESSEE THIS LOSS HAS TO BE ALLOW ED IN ASSESSMENT YEAR 2007-08. BOTH PARTIES HAVE PUT FORTH THEIR OW N LOGIC TO SUPPORT THEIR RIVAL CONTENTIONS. LET US EXAMINE THE FACTS TO DECIDE THE IMPUGNED ISSUE WHICH IS VERY LIMITED IN THE GIVEN F ACTS AND CIRCUMSTANCES OF THE CASE. WHEN THE ASSESSEE NOTIC ED THE LOSS OF 17 799.900 GMS OF GOLD DUE TO EMBEZZLEMENT BY THE E MPLOYEES A FIR WAS LODGED IN THE CONCERNED POLICE STATION ON 8.4.2 006. IN THIS FIR IT WAS MENTIONED THAT THE THEFT HAD TAKEN PLACE APPARE NTLY BETWEEN JANUARY 2006 AND MARCH 2006. SUBSEQUENTLY ANOTHER COMPLAINT WAS LODGED ON 11.4.2006. THE GOLD WAS RECOVERED BY THE POLICE AND THE COMMISSIONER OF POLICE HAS CONFIRMED THE LODGING OF FIR AS WELL AS THE LOSS AND RECOVERY THEREOF. THE ASSESSING OFFICER HA S OBSERVED THAT THE POLICE FILED FINAL REPORT BEFORE THE METROPOLITAN M AGISTRATE ON ITA 2005/10 & CO 173/10 :- 4 -: 23.5.2006 AND HAD DEPOSITED ALL JEWELLERY AND CASH RECOVERED BY THE POLICE. THE ASSESSEE HAS NOT WRITTEN ANY REQUISITI ONED TO THE POLICE REGARDING RECOVERY OF GOLD AFTER 11.4.2006. THE A SSESSEE HAS FINALIZED THE BALANCE SHEET AND PROFIT & LOSS ACCOU NT FOR FINANCIAL YEAR 2005-06 ON 12.6.2006 AND FILED RETURN OF INCOME ON 25.7.2006. SO ACCORDING TO THE ASSESSING OFFICER WHEN RECOVERY CH ANCES WERE VERY REMOTE THE FACT OF WHICH THE ASSESSEE WAS WELL AWAR E BEFORE FINALIZATION OF THE BALANCE SHEET FOR FINANCIAL YEA R 2005-06 IT SHOULD HAVE CLAIMED THIS LOSS IN FINANCIAL YEAR 2005-06 ON LY. THE MAIN CRUX OF ASSESSING OFFICERS FINDING THAT IN CASE THIS LOSS IS ALLOWED FOR FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08 T HEN IT WOULD AMOUNT TO DOUBLE CLAIM OF LOSS AND THUS HE HAS DISA LLOWED THE SAME. HOWEVER THE LD. CIT(A) HAS ACCEPTED THE VERSION OF THE ASSESSEE THAT THE ASSESSEE HAD COME TO KNOW ABOUT THIS EMBEZZLEME NT ONLY DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007- 08 I.E IN THE MONTH OF DECEMBER 2006. THEREFORE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF THIS LOSS DUE TO EMBEZZLEMENT AMOUNTIN G TO ` 1 10 53 737/- DURING THE YEAR UNDER APPEAL. THUS HE HAS DIRECTED THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. NOW THE REVENUE IS AGGRIEVED. ITA 2005/10 & CO 173/10 :- 5 -: 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND H AVE PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE MAIN CRUX OF THE SUBMISSION MADE BY THE LD. CIT/DR DR.I.VIJAYAKUMA R IN HIS ORAL SUBMISSION AS WELL AS IN THE GROUNDS IS THAT EVEN T HOUGH THE LOSS CLAIMED BY THE ASSESSEE WAS DURING THE FAG END OF F INANCIAL YEAR 2005- 06 IT CANNOT BE SAID THAT THE ASSESSEE WAS TOTALLY UNAWARE OF THE LOSS/THEFT AT THE TIME OF FINALIZING THE ACCOUNTS F OR THE SAID YEAR. HE HAS ALSO REFERRED TO THE BALANCE SHEET WHEREIN AS O N 31.3.2006 QUANTITY OF CLOSING STOCK HAS BEEN CERTIFIED TO BE 91-19.734 GMS MEANING THEREBY THE ASSESSEE-FIRM HAD SO MUCH OF GO LD JEWELLERY ON THAT DATE AND NON-MENTION HAS BEEN MADE ABOUT THE L OSS THEREIN. SO IN THESE CIRCUMSTANCES IT HAS BEEN ARGUED THAT THI S CLAIM OF THE ASSESSEE WOULD RESULT IN TOTAL CLAIM OF LOSS IF IT IS SO ALLOWED IN THE YEAR UNDER CONSIDERATION. WE CAN SUMMARIZE THE SUB MISSIONS MADE ON BEHALF OF THE ASSESSEE-FIRM BY THE LD.AR AS UND ER: (A) FOR THAT THE ASSESSING OFFICER ERRED IN DISAL LOWING A SUM OF ` 1 10 53 737/- BEING LOSS CLAIMED ON ACCOUNT OF EMBEZZLEMENT BY EMPLOYEE CITING REASONS THAT THE LO SS BELONGS TO THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND HENCE NOT ALLOWABLE IN THE ASSESSMENT Y EAR 2007-08. (B) THE ASSESSING OFFICER ALSO FAILED TO APPRECIATE THAT EVENTS OCCURRING AFTER THE BALANCE SHEET DATE TILL THE DAT E OF AUDIT REPORT CANNOT HAVE AN IMPACT ON THE BALANCE SHEET. THE ASSESSING OFFICER ALSO FAILED TO APPRECIATE T HE JEWELLERY STOLEN BY THE EMPLOYEE HAS COME TO THE KNOWLEDGE OF THE APPELLANT ONLY IN THE FINANCIAL YEAR 2006-07 AND H ENCE THE ITA 2005/10 & CO 173/10 :- 6 -: LOSS COULD NOT BE REFLECTED IN THE STOCK DETAIL FIL ED WITH THE BALANCE SHEET FOR THE ASSESSMENT YEAR 2006-07. (D)THE ASSESSING OFFICER IN THIS CONNECTION FAILED TO APPRECIATE THE DECISION OF THE MADHYA PRADESH HIGH COURT IN CI T V DURGA JEWLLERS (1988) 175 ITR 134 (MP) WHERE IT HAS BEEN HELD THAT LOSS DUE TO EMBEZZLEMENT SHALL BE ALLOWED IN THE YE AR IN WHICH RECOVERY BECOMES IMPOSSIBLE AND NOT IN THE YE AR OF EMBEZZLEMENT (PLEASE REFER TO ANN.II PAGE 6-9). (E) FOR THAT THE ASSESSING OFFICER FAILED TO APPREC IATED THAT THE CLOSING STOCK AS ON 31.03.2006 WAS ARRIVED AT ACCOR DING THE STOCK BOOK AND NOT BASED ON THE PHYSICAL STOCK THAT WAS AVAILABLE AS ON 31.03.2006. (F) FINAL RECOVERY WAS MADE IN DEC 06 HENCE FINDIN G OF THE LEARNED ASSESSING OFFICER THAT FINAL FIGURE OF LOSS WAS ARRIVED ON 25.05.2006 IS WRONG AS IF WAS ARRIVED ONLY IN DE C 06 (COPY OF PROOF OF FINAL RECOVERY IN DEC 06 IS ENCLOSED AS ANNEXURE III PAGE NO.10). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE HAVE F OUND THAT THERE IS NO DISPUTE REGARDING THE QUANTUM OF LOSS A ND THERE IS ALSO NO DISPUTE REGARDING THE ALLOWABILITY OF THIS LOSS AS HAS BEEN CLAIMED BY THE ASSESSEE. THE DISPUTE BETWEEN THE PARTIES HING ES AROUND THE YEAR IN WHICH THIS LOSS CAN BE CLAIMED AND ALLOWED. TO OUR MIND THE FINANCIAL YEAR IN WHICH THE ASSESSEE CAME TO KNOW A BOUT THIS LOSS IS THE RELEVANT PERIOD WITH REFERENCE TO WHICH THE ASS ESSMENT YEAR IN WHICH THE LOSS HAS TO BE ALLOWED. IT WAS ARGUED BY THE LD.AR THAT THE THEFT TOOK PLACE OVER THE YEARS. THE PERSON IN-CH ARGE AT THE GIVEN POINT OF TIME AND DURING THESE YEARS WAS ALSO IN-CH ARGE OF FRAMING RELEVANT DOCUMENTS FOR INCOME-TAX PURPOSES. AND B ECAUSE HE HIMSELF WAS BREACHING THE TRUST OF THE ASSESSEE-FIRM THE L OSS WAS DETECTED IN ITA 2005/10 & CO 173/10 :- 7 -: FINANCIAL YEAR 2006-07 ONLY. REGARDING LODGING OF FIR ON 8.4.2006 AND SUBSEQUENTLY ON 11.4.2006 FOR THE REASON THAT EARL IER SOME QUANTITY OF GOLD WAS FOUND MISSING AND THEREAFTER WHEN THE S TOCK WAS INVENTORIZED MORE QUANTITY OF GOLD WAS FOUND MISSI NG. THE RECOVERY OF GOLD WAS MADE AND POLICE FILED FINAL REPORT ON 2 3.5.2006 BEFORE THE COURT OF METROPOLITAN MAGISTRATE. THIS GOLD JEWELL ERY OR CASH SEIZED FROM THE ACCUSED BECAME THE GOVERNMENTS PROPERTY A ND WAS IN THE POSSESSION OF THE COURT. IN SUCH CIRCUMSTANCES ON E CANNOT COME TO A DEFINITE CONCLUSION AS TO WHEN THIS PROPERTY CAN BE RECOVERED BY A COURT ORDER BECAUSE THE CRIMINAL PROCEEDINGS MAY TA KE SOMETIME OR EVEN LONGER TIME IF THE ACCUSED FILE APPEAL WHICH HE IS ENTITLED TO AS PER LAW. THE ASSESSEE HAS CLAIMED THIS LOSS IN FIN ANCIAL YEAR 2006-07 BECAUSE IT WAS DETECTED DURING THAT PERIOD. IT IS THAT FINANCIAL YEAR IN WHICH IT HAS TO CLAIM THIS LOSS AND NO OTHER FINANC IAL YEAR AS HAS BEEN EXPRESSED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ACCEPTED THE GENUINENESS OF THE FIR AFTER GETTING I T CONFIRMED FROM THE COMMISSIONER OF POLICE THERE IS NO TWO OPINIO NS ABOUT THE FACT AS IS EVIDENT FROM THE AVAILABLE RECORDS THAT THE ASSESSEE-FIRM DISCOVERED THIS THEFT ONLY IN THE MONTH OF APRIL 20 06 WHICH PERTAINS TO ASSESSMENT YEAR 2007-08. THE ASSESSEE-FIRM HAS REC OVERED CERTAIN QUANTITY OF EMBEZZLED GOLD ORNAMENTS AND HAS FINALL Y DETERMINED THE LOSS OF 17 799.900 GMS . A AS PER THE CHARGE SHEET FILED IT BECAME ITA 2005/10 & CO 173/10 :- 8 -: EVIDENT THAT THE FINAL RECOVERY WAS MADE IN THE MON TH OF DECEMBER 2006 AND THE LOSS WAS CRYSTALLIZED ONLY IN THAT MON TH. THE STOCK SHOWN AS ON 31.3.2006 WAS BASED ON STOCK BOOK WHICH WAS PREPARED BY THE SAME PERSON WHO HAS COMMITTED EMBEZZLEMENT A ND NO PHYSICAL STOCK WAS TAKEN TO ASCERTAIN THE STOCK AS ON 31.3.2006. THAT IS THE PRECISE AND VALID REASON AS TO WHY THIS LOSS WAS NOT REFLECTED IN THE STOCK DETAILS FILED WITH THE BALANCE SHEET FOR ASSESSMENT YEAR 2006-07. AS THE LOSS IS SUFFERED BY THE ASSESSEE D URING THE COURSE OF ITS BUSINESS DUE TO EMBEZZLEMENT IT IS AN ALLOWABL E LOSS. INITIALLY THE LOSS CLAIMED WAS 12 KGS OF GOLD ORNAMENTS IN THE FI RST FIR FILED ON 8.4.2006 WHICH SWELLED TO 30.184 KGS IN THE NEXT FI R LODGED ON 11.4.2006. AFTER ACCOUNTING FOR THE RECOVERIES MAD E THE LOSS WAS FINALLY ASCERTAINED AT 17 799.900 GMS WHICH COULD N OT BE RECOVERED IN ANY CASE. IN THIS REGARD THE LD. CIT(A) HAS RELIE D ON THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF ASSO CIATED BANKING CORPORATION OF INDIA LTD VS CIT 56 ITR 1 IN WHICH IT HAS BEEN HELD THAT AS LONG AS REASONABLE CHANCE OF RESTITUTION EX ISTS LOSS MAY NOT IN A COMMERCIAL SENSE BE SAID TO HAVE RESULTED. THE H ON'BLE SUPREME COURT HAS FURTHER GONE A STEP OBSERVING THAT AS SOO N AS THE EMBEZZLEMENT TAKES PLACE OF THE EMPLOYERS FUND WH ETHER THE EMPLOYER IS AWARE OR NOT OF THE EMBEZZLEMENT THERE RESULTS A TRADING LOSS. WHEN THE LOSS HAS CRYSTALLIZED ONLY DURING THE PREVIOUS YEAR ITA 2005/10 & CO 173/10 :- 9 -: RELEVANT TO ASSESSMENT YEAR 2007-08 THE ASSESSEE B ECOMES ELIGIBLE FOR DEDUCTION OF LOSS AMOUNTING TO ` 1 10 53 737/- DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDING OF THE LD. CIT(A) IN THIS REGARD HENCE WE CONFIRM THE SAME. ACCORDINGLY APPEAL OF THE RE VENUE STANDS DISMISSED. 6. IN THE CROSS OBJECTION THE ASSESSEE HAS CHALLENGED THE SUSTAINED ADDITION OF ` 12 52 682/-. THE FACTS OF THIS ISSUE ARE THAT ON THE VERIFICATION OF PROFIT & LOSS ACCOUNT SUBMITTED BY THE ASSESSEE IT WAS NOTICED THAT THE ASSESSEE HAD DEBITED ` 19 74 687/- AND HAD ALSO CREDITED ` 58 01 792/- AS MAKING CHARGES PAID AND MAKING CHAR GES RECEIVED RESPECTIVELY. WITH A VIEW TO VERIFY THIS CLAIM OF THE ASSESSEE THE ASSESSING OFFICER CALLED FOR THE PARTYWISE PAYM ENT DETAILS AND PARTYWISE RECEIPT DETAILS. THE ASSESSEE COMPLIED W ITH THE SAME AND AFTER VERIFICATION IT WAS FOUND BY THE ASSESSING OF FICER THAT THE ASSESSEE HAD RECEIVED ` 1 09 55 492/- AS MAKING CHARGES. THE ASSESSEE HAS PAID ` 71 28 387/- AS MAKING CHARGES . ACCORDING TO THE ASSESSING OFFICER PROVISIONS OF SECTION 194C(1) OF THE ACT ARE ATTRACTED. THE ASSESSEE IS REQUIRED TO DEDUCT TAX AT SOURCE/PAYMENTS MADE TOWARDS MAKING CHARGES BUT THE ASSESSEE HAS NO T DEDUCTED TAX AT SOUCE FOR THIS PAYMENT. CONSEQUENTLY WITH REFE RENCE TO SECTION ITA 2005/10 & CO 173/10 :- 10 - : 40(A)(IA) THE ASSESSING OFFICER PROPOSED TO ADD TH E AMOUNT OF ` 12 52 682/- TO THE TOTAL INCOME WHICH THE ASSESSEE FIRM WAS REQUIRED TO DEDUCT TAX AT SOURCES TOWARDS MAKING CHARGES. THE ASSESSEE REPLIED VIDE LETTER DATED 23.12.2009 THAT IN RESPEC T OF PAYMENTS MADE FOR MAKING CHARGES OF GOLD JEWELLERY PROVISIONS OF SECTION 40(A)(IA) WOULD NOT BE ATTRACTED. THE REASON FOR THIS CONTEN TION IS GIVEN THAT IN A CASE WHERE THE JEWELER HAS FAILED TO DEDUCT TAX A T SOURCE ON THE CONTRACT PAYMENTS MADE TOWARDS MAKING CHARGES FOR T HE JEWELLERY WHICH WOULD BE PART OF HIS PURCHASE COST OR IN OTHE R WORDS PART OF ITS TRADING ACCOUNT OR AS THE CASE MAY BE MANUFACTURIN G ACCOUNT EVEN THOUGH NOT MAINTAINED SEPARATELY. IN THIS REGARD RELIANCE WAS PLACED ON THE PROVISIONS OF SECTION 40A(3) OF THE ACT STAT ING THAT WHEN ANY ASSESSEE INCUR ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY OT HERWISE 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. IT WAS STATED THA T PROVISIONS OF SECTION 40A HAVE AN OVERRIDING EFFECT RELATING TO T HE COMPUTATION OF INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. IN THIS WAY IT WAS ARGUED THAT THE PROVISIONS OF SECT ION 40A(3) WOULD APPLY TO ANY KIND OF EXPENDITURE INCURRED BY THE AS SESSEE. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HON' BLE SUPREME COURT ITA 2005/10 & CO 173/10 :- 11 - : RENDERED IN THE CASE OF ATTAR SINGH GURUMUKH SINGH VS ITO 191 ITR 667 IN WHICH IT HAS BEEN HELD THAT PAYMENT OF PURC HASE OF STOCK-IN- TRADE HAS TO BE REGARDED AS EXPENDITURE AND THEREFO RE SECTION 40A(3) IS ATTRACTED TO PAYMENTS MADE FOR ACQUIRING STOCK-I N-TRADE. BUT THE ASSESSING OFFICER HAS HELD THAT PROVISIONS OF SECTI ON 194C AND 40(A)(IA) WOULD APPLY AND HENCE AFTER DISALLOWING THIS CLAIM HE HAS ADDED ` 12 52 682/- TO THE INCOME OF THE ASSESSEE OF THE Y EAR SUNDER CONSIDERATION. THIS ADDITION HAS ALSO BEEN CONFIRM ED BY THE LD. CIT(A). NOW THE ASSESSEE IS AGGRIEVED. 7. IT WAS ARGUED BY THE LD.AR THAT NO TAX IS DEDUCTIB LE AT SOURCE U/S 194C TOWARDS MAKING CHARGES PAID. THE LD.AR HAS TRIED TO CANVASS THAT WHAT IS PURCHASE TO A TRADER IS LIK E A PAYMENT MADE BY WAY OF MAKING CHARGES FOR JEWELLERY BY JEWELER. TH EREFORE THIS PAYMENT WOULD FALL U/S 28 AND HENCE PROVISIONS OF SECTION 40(A)(IA) WILL NOT APPLY TO SUCH PAYMENTS. THE LD.AR FURTHER RELIED ON THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE C ASE OF ATTAR SINGH GURUMUKH SINGH VS ITO 191 ITR 667. IN FACT THE FACTS OF THIS CASE HAS ARRIVED AT A VERY DIFFICULT SITUATION BECAUSE I N CASE THE JEWELLERY TAKEN AS STOCK-IN-TRADE IT IS THE JEWELLERY WHICH THE ASSESSEE-FIRM SELLS AFTER GETTING IT MADE FROM CERTAIN KARIGARS OR ARTI SANS PAYING MAKING CHARGES AND IN THAT VIEW OF THE MATTER THE EXPENDI TURE INCURRED ITA 2005/10 & CO 173/10 :- 12 - : THEREON HAS TO BE TREATED AS AN EXPENDITURE U/S 28 OF THE ACT. IN THAT VIEW OF THE MATTER THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE ABOVE CITED CASE DEFINITELY APPLY AND THE ASSE SSEE WOULD BECOME ENTITLED TO THE DESIRED RELIEF. BUT AS PER SECTION 194C ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RECIPIENT CAR RYING OUT ANY SPECIFIC WORK IS RESPONSIBLE FOR DEDUCTING TAX AT S OURCE WHICH RESULTS IN DISALLOWANCE OF THE ENTIRE AMOUNT U/S 40(A)(IA) OF THE ACT STARTING FROM ASSESSMENT YEAR 2005-06. BUT SUCH PAYMENTS SH OULD BE TOWARDS CONTRACT FOR WORK. THE ASSESSEE GETS ORNAMENTS FRO M THE WORKMEN OR GOLDSMITH AS STATED ABOVE AS PER THE PREVALENT PRAC TICE GOLD AND PRECIOUS STONES ARE GIVEN TO THEM AND THEY MAKE JEW ELLERY AS PER THE SPECIFICATION OF THE JEWELER. FROM THAT POINT IF T HESE PAYMENTS ARE CONSIDERED THEN TDS BECOMES DEDUCTIBLE. ALTHOUGH T HERE IS NO DIRECT DECISION AVAILABLE ON THIS ISSUE BUT WHEN BOTH POIN TS OF VIEW ARE WEIGHED AND CERTAIN DECISIONS LIKE THE ONE IN THE C ASE OF ATTAR SINGH GURUMUKH SINGH VS ITO(SUPRA) PARTICULARLY PAGE 5 O F THE JUDGMENT AND ITS PARA 6 WHICH READS AS UNDER IS CONSIDERED THEN THIS EXPENDITURE BECOMES ALLOWABLE. 6. AS TO THE SECOND QUESTION IT MAY BE STATED THA T THE WORD 'EXPENDITURE' HAS NOT BEEN DEFINED IN THE ACT. IT IS A WORD OF WIDE IMPORT. SEC. 40A(3) REFERS TO THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF WHICH PAYMENT IS MADE. IT MEANS THAT ALL OUTGOINGS ARE BR OUGHT UNDER THE WORD 'EXPENDITURE' FOR THE PURPOSE OF THE ITA 2005/10 & CO 173/10 :- 13 - : SECTION. THE EXPENDITURE FOR PURCHASING STOCK-IN-TR ADE IS ONE OF SUCH OUTGOINGS. THE VALUE OF THE STOCK-IN-TR ADE HAS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE GROSS PROFITS UNDER S. 28 ON PRINCIPLES OF COMMERCIAL ACCOUNTING. THE PAYMENTS MADE FOR PURCHASES WOULD ALSO BE COVERED BY THE WORD 'EXPENDITURE' AND SUCH PAYMENTS CAN BE DISALLOWED IF THEY ARE MADE IN CASH IN THE SUMS EXCEEDING THE AMOUNT SPECIFIED UNDER S. 40A(3). WE HAVE EARLIER OBSERVED THAT R. 6DD HAS TO BE READ ALONG WITH S. 40A(3). THE RULE ALSO CONTEMPLAT ES PAYMENTS MADE FOR STOCK-IN-TRADE AND RAW MATERIALS. THIS RULE IS IN ACCORDANCE WITH THE TERMS OF S. 40A(3). THE RULE PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY CROSSED CHEQUE OR A CROSS ED BANK DRAFT WHERE PURCHASES ARE MADE OF CERTAIN AGRICULTURAL OR HORTICULTURAL COMMODITIES OR FROM A VILLAGE WHERE THERE IS NO BANKING FACILITY. SEC. 40A(3) IS THEREFORE ATTRACTED TO PAYMENTS MADE FOR ACQUIRING STOCK-IN-TRADE AND OTHER MATERIALS. THIS IS ALSO TH E VIEW TAKEN BY SEVERAL HIGH COURTS. [SEE: (1) SAJOWANLAL JAISWAL VS. CIT 1976 CTR (ORI) 204 : (1976) 103 ITR 706 (ORI) : TC18R.477; (2) U.P. HARDWARE STORE VS. CIT (1976) 104 ITR 664 (ALL) : TC18R.478; (3) RATAN UDY OG VS. ITO 1977 CTR (ALL) 134 : (1977) 109 ITR 1 (ALL) : TC18R.476; (4) P.R. TEXTILES VS. CIT (1980) 121 ITR 237 (KER) : TC18R.475; (5) CIT VS. KISHAN CHAND MAHESWARI DASS (1980) 14 CTR (P&H) 90 : (1980) 121 ITR 232 (P&H) : TC18R.456; (6) KANTI LAL PURSHOTTAM & CO. VS. CIT (1986) 53 CTR (RAJ) 19 : (1985) 155 ITR 519 (RAJ) : TC18R.534; (7) CIT VS. NEW LIGHT TIN MANUFACTURING. CO. (1980) 14 CTR (P&H) 143 : (1980) 121 ITR 229 (P&H) : TC18R.457; (8) FAKRI AUTOMOBILES VS. CIT (1986) 52 CTR (RAJ) 59 : (1986) 160 ITR 504 (RAJ) : TC18R.468; (9) VENKATA SATYANARAYANA TIMBER DEPOT VS. CIT (1987) 60 CTR (AP) 157 : (1987) 165 ITR 253 (AP) : TC18R.547 AND (10) AKASH FILMS VS. CIT (1991) 95 CTR (KAR) 56 : (1991) 190 ITR 32 (KAR) : TC18R.478]. THE DECISIONS OF THE HIGH COURTS OF ANDHRA PRADESH ORISSA ALLAHABAD KERALA KARNATAKA PUNJAB AND HARYANA RAJASTHAN AND PATNA ARE TO THE EFFECT THAT THE PAYMENTS MADE FOR PURCHASING STOCK-IN-TRADE OR RAW MATERIALS SHOULD ALSO BE REGARDED AS EXPENDITURE FOR THE PURPOSE OF S. 40A(3). THE ONLY DISCORDANT NOTE STRUCK ON THIS ASPECT IS BY THE GAUHATI HIGH COURT IN CIT VS. ITA 2005/10 & CO 173/10 :- 14 - : HARDWARE EXCHANGE (1991) 95 CTR (GAU) 183 : (1991) 190 ITR 61 (GAU) : TC18R.45L. THE GAUHATI HIGH COURT HAS OBSERVED THAT S. 40A(3) APPLIES ONLY TO PAYMENTS MADE ON ACCOUNT OF 'EXPENDITURE INCURRED' AND THAT THE PAYMENT MADE FOR PURCHASE OF STOCK-IN-TRADE CANNOT BE TERMED AS 'EXPENDITURE INCURRED' SINCE MONEY DOES NOT GO OUT IRRETRIEVABLY IN SUCH CASES. WE ARE ENABLE TO AGREE WITH THE VIEW TAKEN BY THE GAUHATI HIGH COURT. 2. THE ITAT HYDERABAD BENCH IN THE CASE OF TEJA CONS TRUCTIONS VS ACIT 129 TTJ(HYD)(UO)57 AND THE ITAT MUMBAI B ENCH IN THE CASE OF S.B.BUILDERS AND DEVELOPERS VS ITO 136 TTJ (MMBAI) 420 HAVE TAKEN VIEW FAVOURABLE TO THE ASSESSEE WITH RE GARD TO CONSULTANCY FEES ARCHITECTS FEES COMMISSION AND PROFESSIONAL CHARGES ETC. KEEPING IN VIEW THE PECULIAR CIRCUMST ANCES OF THIS CASE WE HOLD THAT NO TDS WAS DEDUCTIBLE IN SUCH PAYMENTS . OUR ABOVE VIEW IS MAINLY BASED ON THE FACT THAT SMALL AMOUNT OF TAX IS INVOLVED AND WHEN TWO POSSIBLE VIEWS ARE AVAILABLE ON ONE IS SUE THE VIEW FAVOURABLE TO THE ASSESSEE HAS BEEN TAKEN. THEREFO RE OUR DECISION SHOULD NOT BE TREATED AS A PRECEDENT ON SUCH TYPE O F PAYMENTS IN ALL CASES. WITH THE ABOVE OBSERVATION WE DELETE THE I MPUGNED ADDITION AND ALLOW THE CROSS OBJECTION OF THE ASSESSEE. 3. IN THE RESULT THE CROSS OBJECTION FILED BY THE AS SESSEE IS ALLOWED. ITA 2005/10 & CO 173/10 :- 15 - : 4. TO SUMMARIZE THE RESULT APPEAL OF THE REVENUE STANDS DISMISSED WHEREAS THE CROSS OBJECTION OF THE ASSESS EE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06-09-2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 6 TH SEPTEMBER 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR