ITO, Ward 12 (1),, New Delhi v. Balbir Singh,, New Delhi

ITA 2329/DEL/2008 | 2005-2006
Pronouncement Date: 09-04-2010 | Result: Dismissed

Appeal Details

RSA Number 232920114 RSA 2008
Assessee PAN AATPS7115D
Bench Delhi
Appeal Number ITA 2329/DEL/2008
Duration Of Justice 1 year(s) 9 month(s) 23 day(s)
Appellant ITO, Ward 12 (1),, New Delhi
Respondent Balbir Singh,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 09-04-2010
Date Of Final Hearing 15-12-2009
Next Hearing Date 15-12-2009
Assessment Year 2005-2006
Appeal Filed On 16-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER ITA NO.2329/DEL./2008 (ASSESSMENT YEAR : 2005-06) ITO WARD 12 (1) VS. SHRI BALBIR SINGH NEW DELHI. (PROP. M/S. PRO-TECH ENTERPRISES 73A HAUZ KHAS VILLAGE NEW DELHI 110 016. (PAN : AATPS7115D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GOPAL NATHANI CA REVENUE BY : MS. PRATIMA KAUSHIK SENIOR DR ORDER PER R.P. TOLANI JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT (APPEALS) FOR THE ASSESSMENT YEAR 2005-06. FOLLOWING EFFECTI VE GROUNDS OF APPEAL ARE RAISED BY THE REVENUE : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN FACTS AND IN LAW IN DELETING THE A DDITION OF RS.7.00 LAKHS MADE ON ACCOUNT OF COMMUNICATION SERV ICES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT (A) HAS ERRED IN FACTS AND IN LAW IN DELETING THE ADDIT ION OF RS.44 24 355/- MADE ON ACCOUNT OF LABOUR CHARGES. ITA NO.2329/DEL./2008 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT (A) HAS ERRED IN FACTS AND IN LAW IN DELETING THE ADDIT ION OF RS.52440/- MADE ON ACCOUNT OF WORKERS MESS EXPENSES . 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW IN DELETING THE ADDI TION OF RS.10 35 858/- MADE UNDER SECTION 40A (3) OF THE I. T. ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E LD. CIT (A) HAS ERRED IN INVOKING THE PROVISIONS OF RUL E 6DD OF THE I.T. RULES DESPITE THE FACT THAT ASSESSEE HAS ISSUED CHEQUE NOS.1730344 & 1730349 DATED 26.4.2005 AND 8.5.2005 (IMPREST ACCOUNT) RESPECTIVELY DRAWN ON BANK OF BHU TAN BHUTAN FROM ACCOUNT NO.7981 TO THE SUB-CONTRACTORS. 2. BRIEF FACTS ARE THAT DURING THE COURSE OF ASSESS MENT IT WAS FOUND BY THE AO THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 7 00 000/- ON ACCOUNT OF COMMUNICATION SERVICES TO RADIO LINK AGENCY PVT. L TD. (RLA)(PAN NO.AAACR4051M). THE ASSESSEE SUBMITTED THAT COMMUN ICATION CHARGES WERE PAID TO RLA. ASSESSEE EXPLAINED THAT IT WAS F OR A GOOD COMMUNICATION SYSTEM BETWEEN OFFICE BHUTAN AND DELH I HEAD OFFICE REQUIRED FOR PROJECT TECHNICALITIES. 3. ON EXAMINATION OF THE BALANCE SHEET / PROFIT & L OSS ACCOUNT OF RLA IT WAS GATHERED BY THE AO THAT DURING THE YEAR AS WELL IN THE PRECEDING YEAR THE COMPANY HAS SHOWN GROSS RECEIPT OF RS. 7.00 LAC S ONLY WHICH WAS STATED TO HAVE BEEN RECEIVED FROM THE ASSESSEE AND NO OTHE R CONSULTANCY / BUSINESS ITA NO.2329/DEL./2008 3 RECEIPT WAS REFLECTED. SIMILARLY ON PERUSAL OF THE DETAILS OF EXPENSES DEBITED TO P & L ACCOUNT IT WAS OBSERVED THAT RLA HAS NOT DEBITED ANY EXPENDITURE INCURRED ON THE PURCHASE OF AFORESAID CONSUMABLE CL AIMED TO HAVE SUPPLIED / PROVIDED TO THE ASSESSEE DURING THE PREVIOUS YEAR R ELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. IN THE IMMEDIATELY PRECEDING Y EAR ALSO NO SUCH EXPENDITURE WERE DEBITED UNDER THE HEAD. MOREOVER RLA COULD NOT GIVE THE NAMES/CLIENT TO WHOM SIMILAR TYPE OF SERVICES WERE PROVIDED BY IT. ACCORDING TO AO NEITHER THE ASSESSEE NOR THE SERVI CE PROVIDER COULD PRODUCE THE PURCHASE BILLS / DOCUMENTARY EVIDENCE O F THE CONSUMABLE ITEMS RELATING TO COMMUNICATION DEVICES MENTIONED ABOVE. 4. IN VIEW OF THE ABOVE FACTS AO CONCLUDED THAT NO DOCUMENTARY EVIDENCE HAD BEEN FURNISHED TO JUSTIFY THE SERVICES PROVIDED BY RLA EXCEPT OBTAINING A BILL OF RS. 7.00 LACS TO INFLATE THE EX PENDITURE AND REDUCE THE TAX LIABILITY. IN ADDITION TO ABOVE THE ASSESSEE HAS A LREADY DEBITED HUGE EXPENSES ON TELEPHONE INTERNET SERVICES. THEREFORE THE CLAIM OF THE ASSESSEE IN RESPECT OF COMMUNICATION CHARGES IN NOTHING BUT A SHAM TRANSACTION TO INFLATE THE EXPENSES AND DEBITED TO P & L ACCOUNT T O REDUCE TAX LIABILITY. IN VIEW OF THE TOTALITY OF THE FACTS THE EXPENSES CLAI MED OF RS. 7.00 LACS WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE BY THE AO. CIT (A) DELETED THE ADDITION IN FIRST APPEAL. ITA NO.2329/DEL./2008 4 5. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT HAD MADE A PAYMENT OF RS. 7 00 000/- TO M/S RADIO LINK COMMUNI CATION PVT. LTD. DURING THE YEAR UNDER REFERENCE ON ACCOUNT OF CREAT ING HOTLINE AND EFFECTIVE COMMUNICATION SYSTEM BETWEEN INDIA AND BHUTAN FROM LAST YEAR. AS THE PROJECT SITE IN BHUTAN WAS IN REMOTE AREA IT WAS B USINESS NEED TO HAVE A GOOD AND EFFECTIVE COMMUNICATION SYSTEM BETWEEN IND IA AND BHUTAN. THE ASSESSEE GOT THIS COMMUNICATION SYSTEM HAVING INTER NET NETWORK AND GATEWAY BETWEEN INDIA AND BHUTAN THROUGH RLA DURING THE PRECEDING YEAR TO THE YEAR UNDER REFERENCE AND A SIMILAR AMOUNT OF RS. 7 00 000/- WAS PAID IN EARLIER YEAR THERE WAS NO WRITTEN AGREEMENT TH IS YEARLY FIXED AMOUNT OF RS.7 00 000/- WAS ALSO CONTINUED TO BE PAID IN THE NEXT YEAR AS WELL. THE COPY OF THE INVOICE/DEBIT NOTE FOR RS. 7 LACS WAS S UBMITTED TO THE ASSESSING OFFICER VIDE LETTER DATED 22/1012007. 6. ASSESSING OFFICE ALLOWED THESE EXPENSES IN THE P RECEDING YEAR WHEREAS DISALLOWED IN THE YEAR UNDER REFERENCE. THE A.O. CALLED INFORMATION/DETAILS U/S 133(6) FROM RLA WHICH WERE SUBMITTED BY THE PARTY. NO FURTHER DOCUMENTS/DETAIL IN THIS REGARD WERE ASK ED BY A.O. RLA CONFIRMED HAVING CHARGED RS. 7 LACS WHICH WAS ALSO REFLECTED IN ITS BOOKS OF ACCOUNTS AND P&L ACCOUNT. THE COMMUNICATION SYSTEM BEING FOR BUSINESS ITA NO.2329/DEL./2008 5 NECESSITY I.E. TO ESTABLISH GOOD AND EFFECTIVE COM MUNICATION SYSTEM WAS ALLOWABLE U/S 37(1) BEING BUSINESS EXPENDITURE. 7. APROPOS SECOND GROUND BRIEF FACTS ARE THAT DURI NG THE ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAS D EBITED A SUM OF RS.29495705/- ON ACCOUNT OF LABOUR CHARGES PAID TO LABOUR CONTRACTORS AND WORKERS MESS EXPENSES OF RS. 349598/-. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE REASONS WHY THE LABOUR BILLS WERE DEBIT ED AFTER THE COMPLETION OF THE WORK AND WAS REQUIRED TO FURNISH DETAILS AND DO CUMENTS TO SUPPORT. 8. ON RECEIPT OF THE INFORMATION / DETAILS AO NOTI CED THAT ALL THE CHEQUES BARRING ONE OR TWO WERE ISSUED ON SELF AND ARE DEBI TED ON ACCOUNT OF CASH WITHDRAWAL. ALL THE CHEQUES WERE ENCASHED BY SH. A MIT KHURANA ACCOUNTANT OF THE ASSESSEE. THE ADDRESS GIVEN ON TH E BACKSIDE OF THE CHEQUES ARE AS UNDER WHILE WITHDRAWING CASH FROM LABOUR CON TRACTOR'S ACCOUNT. 1. 73A HAUZ KHAS VILLAGE NEW DELHI ASSESSEE'S AD DRESS 2. E-2/30 UTTAM NAGAR NEW DELHI CONTRACTORS ADD RESS 3. A-769 SHASTRI NAGAR NEW DELHI CONTRACTORS AD DRESS 4. 123 MAUSAM APPT. PITAM PURA ACCOUNTANT'S ADDRE SS NEW DELHI 9. ON FURTHER EXAMINATION OF THE DETAILS FURNISHED IN RESPECT OF PROTECH ENTERPRISES BHUTAN IT WAS OBSERVED THAT ONE OF TH E CONTRACTOR SH. NAND LAL ITA NO.2329/DEL./2008 6 BHARDWAJ PROP. M/S. SURYA ENTERPRISES WAS MAINTAIN ING IMPREST ACCOUNT ON BEHALF OF THE ASSESSEE WHEREAS THE ASSESSEE HAD HI S OWN STAFF ON ROLL AT BHUTAN PROJECT. IN VIEW OF THE ABOVE AO ASSUMED TH AT ALL THE LABOUR CONTRACTORS AS STATED BY THE ASSESSEE ARE EMPLOYEES OF THE ASSESSEE INFLATE THE EXPENDITURE OF LABOUR CHARGES EMPLOYEES WERE S HOWN AS SUB- CONTRACTORS. A.O. FURTHER FOUND THAT IN PRECEDING YEAR LABOUR EXPENSES WERE 38% AND IN THIS YEAR IT WAS 60%. 10. AO HELD THAT THE ELEMENT OF INFLATED EXPENSES W ERE INFLATED 15% OF LABOUR EXPENSES AMOUNTING TO RS.4424355/- WERE DISA LLOWED. 11. CIT (A) IN FIRST APPEAL DELETED THE ADDITION. 12. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE OBTAINED WORK ORDER FROM HINDUSTAN CONSTRUCTION CO. LTD. (HC C) FOR FABRICATION AND ERECTION OF SLUICE LINER AT TALA CI PROJECT BHUTAN FOR AN ESTIMATED QUANTITY OF 3250 MT @ RS.41 2601- PER MT AGGREGATING TO RS.1 3 40 95 000/- WHICH WAS TOTALLY LABOUR INTENSIVE JOB. THE ASSESSEE HAD TAKEN SERVICES OF THREE LABOUR CONTRACTORS TO EXECUTE THE PROJECT WHO DEPL OYED THEIR LABOURS AT THE PROJECT SITE IN BHUTAN. THE ASSESSEE MADE PAYMENT O F LABOUR CHARGES TO THESE CONTRACTORS AMOUNTING TO RS.2 94 95 705/- DURING TH E YEAR UNDER REFERENCE. THE WORK ORDER CONTINUED FROM LAST YEAR WHICH WAS S TARTED IN THE YEAR 2002 ITA NO.2329/DEL./2008 7 AND THE FINAL BILLING WAS APPROVED BY HCC IN THE YE AR 2006. THE ASSESSEE HAD APPROVED BILLING OF CONTRACTORS BASED ON QUANTI TY WORK DONE RATES AS PER. AGREEMENT WHICH MATCHED THE QUANTITY APPROVED BY HC C FOR WORK EXECUTED. BESIDES THE ASSESSEE GOT EXTRA WORK ORDER FROM HCC OF TOTAL VALUE OF RS.3 50 50 000/- WHICH WAS STARTED IN THE BEGINNING OF THE YEAR AND FINISHED IN THE MID OF THE YEAR. THE HCC APPROVED THIS WORK ORDER FOR RS.2 32 66 818/- DURING THE YEAR FOR BILLING QUANTI TY DONE BY THE ASSESSEE. THE CONFIRMATION OF STATEMENT OF ACCOUNT FROM ALL T HE CONTRACTORS WITH ADDRESS AND PAN WERE SUBMITTED TO THE LD. ASSESSING OFFICER. THESE LABOUR CONTRACTORS APPEARED BEFORE THE ASSESSING OFFICER I N EARLIER ASSESSMENT YEAR HENCE THEIR IDENTITY STANDS ESTABLISHED. ASSESSEE WAS NEVER INFORMED BY THE LD. ASSESSING OFFICER THAT LETTERS/NOTICE SENT TO T HEM WERE RETURNED BACK. 13. THE LABOUR CONTRACTORS ARE WORKING WITH THE ASS ESSEE SINCE LONG TIME AND HAVE GOOD RELATIONSHIP WITH THE ASSESSEE. THE T WO LABOUR CONTRACTORS HAD OPENED THE BANK ACCOUNT IN THE SAME BANK IN WHI CH THE ASSESSEE HAD THE BANK ACCOUNT ONLY FOR THE CONVENIENCE OF FAST TRANS FER OF MONEY IN THE ACCOUNT. ON SOME OCCASIONS THE CHEQUES WERE GIVEN TO THE ACCOUNTANT OF THE ASSESSEE-MR. AMIT KHURANA FOR WITHDRAWAL/DEPOSI T OF CHEQUES WHILE HE WAS GOING TO BANK FOR HIS WORK. THE MERE WITHDRAWAL OF THE MONEY FROM BANK BY ONE PERSON FOR SOME OTHER PERSON CANNOT NO T MEAN THAT THE MONEY ITA NO.2329/DEL./2008 8 BELONGS TO OTHER PERSON. HENCE THE ASSUMPTION OF A O THAT WITHDRAWAL OF MONEY BY THE ACCOUNTANT OF THE ASSESSEE WAS PROOF O F INFLATED EXPENDITURE IS PURELY BASED ON SURMISES. 14. ALL THE LABOUR CONTRACTORS HAVE REFLECTED THE CONTR ACT RECEIPTS AS INCOME IN THEIR TAX RETURNS COPIES WERE FILED WITH THE A.O.. THE ASSESSMENT OF SH. NAND LAL BHADWAJ PROP. OF M/S. SURYA ENTERP RISES FOR A.Y. 2005-06 WAS COMPLETED U/S 143(3) AND THE CONTRACT RECEIPTS FROM THE ASSESSEE AS SHOWN IN INCOME HAS BEEN ACCEPTED. 15. THE WORK ORDER PROJECT RATES WERE QUANTITY BASE D AND THE ASSESSEE HAD MADE BILLING TO THE HCC FOR JOB QUANTITY COMPLETED. SIMILARLY LABOUR CONTRACTORS PAYMENTS WERE MADE TO THEM LATER TO WIT HHOLD THE LABOUR IN BHUTAN TO CARRY OUT REPAIRS AND OTHER MISCELLANEOUS WORK RELATING EXECUTION. 16. SIMILAR EXPENSES WERE FULLY ALLOWED IN THE PREC EDING YEAR DISALLOWANCE OF 15% ON ESTIMATED BASIS IN THIS YEAR IS ON SURMISES. 17. APROPOS THIRD GROUND OF THE APPEAL THE AO DISA LLOWED 15% OF WORKERS MESS EXPENSES AMOUNTING TO RS.52 440/- ON E STIMATE. ASSESSEE CONTENDS THAT THESE PAYMENTS WERE MADE TO THE LABOU R CONTRACTORS FOR LABOUR FOODING WORKING AT SITE AS PER AGREEMENT TERMS. THE Y ARE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE AND ALLOWABLE EXPE NSES. ITA NO.2329/DEL./2008 9 18. APROPOS FOURTH GROUND A.O. FOUND THAT DURING T HE YEAR ASSESSEE HAS MADE FOLLOWING CASH PAYMENTS EXCEEDING RS.20 000/- TO CONTRACTORS. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R UNDER CONSIDERATION THE ASSESSEE MADE CASH PAYMENT OF RS.5179290/- TO C ONTRACTORS WHICH ATTRACTS THE PROVISIONS OF SUB-SECTION 3 OF SECTION 40A OF THE ACT. ASSESSEE EXPLAINED THAT THESE PAYMENTS WERE MADE IN CASH IN BHUTAN AT THE WORK SITES TO THE LABOUR CONTRACTORS. SIMILAR PAYMENTS WERE A LSO MADE IN THE LAST ASSESSMENT YEAR AND DISALLOWANCES MADE BY A.O. ON T HE ISSUES WERE DELETED BY THE LD. CIT(A). 19. THOUGH ASSESSEE HAD BANK ACCOUNT IN BHUTAN BUT THE SUB-CONTRACTOR WHO HAD SUPPLIED LABOURS AT THE SITE WERE NOT HAVIN G BANKING FACILITIES IN BHUTAN AND THESE CONTRACTORS WERE REQUIRED TO MAKE CASH PAYMENTS TO THE LABOURERS. A.O. HOWEVER DISALLOWED THIS AMOUNT INV OKING SECTION 40A(3). 20. IN FIRST APPEAL ASSESSEE SUBMITTED THAT THE CA SH PAYMENTS WERE MADE TO ITS LABOUR CONTRACTORS WHO WERE ENGAGED IN WORK PROJECT IN BHUTAN AT WORK SITE. DURING THE YEAR UNDER REFERENCE FOLLOWIN G CASH PAYMENTS (ABOVE RS. 20000/- EACH) WERE MADE TO THREE SUBCONTRACTORS :- ITA NO.2329/DEL./2008 10 S.NO. NAME & ADDRESS OF THE PAN TOTAL CASH CONTRACTORS PAYMENTS 1 M/S YADAV BROS. AANPY4415E 26 00 000/- (PROP. MR. KULBHUSAN YADAV) E-2/30 CHANKYA PALACE PART-I UTTAM NAGAR NEW DELHI-59 2 M/S SURYA ENTERPRISES AFZPB9902L 20 50 000/- (PROP. MR. NAND LAL BHARDWAJ) BHABHA NAGAR DISTT. KINNAUR HIMACHAL PRADESH 3 M/S DEV INDIA CONSTRUCTION CO.AGRPD2416L 10 29 2901- (PROP. LATE DEV RAJ DHIMAN) A-769 SHASTRI NAGAR NEW DELHI ALL THE THREE ABOVE SUB-CONTRACTORS HAD THEIR PERMA NENT BUSINESS ESTABLISHMENT IN INDIA. THEY SENT THEIR LABOUR FROM INDIA TO BHUTAN ON THE CONDITION TO PAY IN CASH TO MEET OUT THEIR ROUTINE NEEDS. THE SUB-CONTRACTORS WERE NOT HAVING BANK ACCOUNT AT WORK SITE AS OPENIN G OF THE BANK ACCOUNT REQUIRED APPROVAL OF RESERVE BANK OF INDIA AND IT W AS NOT FEASIBLE FOR THEM TO OPEN A BANK ACCOUNT IN BHUTAN BEING A SUB-CONTRA CTOR TO AN INDIAN SUB- CONTRACTOR. THESE PAYMENTS WERE MADE IN CONSIDERATI ON OF BUSINESS EXPEDIENCY HENCE ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT. 21. SECTION 40 A (3) STATES :- PROVIDED FURTHER THAT NO DISALLOWANCE UNDER THIS S UB-SECTION SHALL BE MADE WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY CROSSED C HEQUE DRAWN ON A BANK OR A CROSSED BANK DRAT IN SUCH CAS ES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED HAVING REG ARD TO THE ITA NO.2329/DEL./2008 11 NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. ' THE ASSESSING OFFICER HAS STATED IN HIS ASSESSMENT ORDER THAT ONE LABOUR CONTRACTOR- MR. N.L. BHARDWAJ WAS HAVING HIS BANK A CCOUNT AT BHUTAN AND THE ASSESSEE MADE SOME PAYMENTS TO HIM. IN THIS REG ARD IT IS SUBMITTED THAT MR. N.L. BHARDWAJ WAS HAVING SAVING BANK ACCOUNT IN HIS PERSONAL NAME AND THERE WAS NO ACCOUNT IN THE NAME OF HIS FIRM NA MELY M/S SURYA ENTERPRISES. FURTHER THE PAYMENT MADE TO HIM IN THE BANK ACCOUNT WAS ONLY TOWARDS IMPREST ACCOUNT. AS THIS BANK WAS NOT THE B USINESS ACCOUNT AND MERE PERSONAL SAVING BANKING ACCOUNT HENCE THE CONT ENTION OF THE LD. ASSESSING OFFICER THE LABOUR CONTRACTOR WAS HAVING BANKING FACILITY IS NOT FACTUALLY CORRECT. THE SUB-CONTRACTORS ARE NOT ALLO WED TO OPEN THE BUSINESS BANKING ACCOUNT IN THE NAME OF FIRM IN THE BHUTAN W ITHOUT PERMISSION OF THE RESERVE BANK OF INDIA FOR OPENING THE PROJECT OFFIC E. 22. A.O. DID NOT CONSIDER THESE CIRCUMSTANCES THAT THE BANKING FACILITIES WERE NOT AVAILABLE TO THE SUB-CONTRACTORS TO WHOM C ASH PAYMENTS WERE MADE AND THEY WERE NOT COVERED U/S 40A(3). 23. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE FACTS AND ARGUMENTS AND RELIED ON THE FOLLOWING CASE LAWS : ITA NO.2329/DEL./2008 12 (I) CIT VS. J RAJMOHAN PILLAI 267 ITR 0561 (KERALA ) IN THIS CASE THE ASSESSEE WAS ASKED TO PRODUCE THE CONFIRMATORY LETTERS FROM THE PAYEE THAT THEY HAD RECEIVED THE C HARGES FROM THE ASSESSEE IN CASH FOR ALLOWABILITY OF THE PAYMEN TS U/S 40A(3). (II) CIT VS. RHYDBURG PHARMACEUTICALS LTD. (269 IT R 0561)(DELHI) IT WAS POINTED OUT IN THE CASE THAT THE TERMS OF SE CTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATIONS OF BUSINESS EXPEDI ENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AN D BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. (III) GOENKA AGENCIES VS. CIT 263 ITR 0145 (CALCU TTA) IT WAS HELD THAT THE TRANSACTIONS WERE GENUINE AND PAYMENTS WERE MADE IN EXCEPTIONAL CIRCUMSTANCES COULD NOT BE DISALLOWED U/S 40A(3) OF THE INCOME TAX ACT. (IV) RAMADITYA INVESTMENTS VS. CIT 262 ITR 0491 (D ELHI) IT WAS HELD THAT THE GENUINENESS OF THESE TRANSACTI ONS WAS NOT DOUBTED OR CALLED IN QUESTION. THE AMOUNTS COULD NO T BE DISALLOWED. IT WAS POINTED OUT THAT THE ASSESSEE HAD REFLECTED THESE IN THE CASH BOOK SUBMITTED TO THE INCOME TAX OFFICER. HE H AD ALSO PROVIDED LETTERS FROM THE CONCERNED PARTIES CONFIRM ING THE ITA NO.2329/DEL./2008 13 TRANSACTIONS. THOSE PARTIES WERE ALSO IDENTIFIABLE AND THEIR LETTERS OF CONFIRMATION WERE ALSO ON RECORD. (V) ATTAR SINGH GURMUKH SINGH VS. INCOME TAX OFFICE R 191 ITR 0667 (SC) SIMILAR ADDITIONS WERE MADE IN ASSESSMENT YEAR 2004 -05 WHICH WERE DELETED BY ITAT IN ITA NO.112/DEL/2008 UPHOLDING THE ORDER OF CIT (A) BY FOLLOWING OBSERVATIONS : 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. UNDER SECTION 40A(3) WHERE THE ASSESSEE INCURS ANY EXP IN RESPECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING RS.20 000/- OTHERWISE THAN BY AN AC COUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT 20% OF SUCH EXP SHALL NOT BE DISALLOWED AS DEDUCTIO N. RULE 6DD PROVIDES CERTAIN EXCEPTIONS UNDER WHICH THE PAY MENT OF SUM EXCEEDING RS.20 000 SHALL NOT BE DISALLOWED. R ULE 6DD(H) PROVIDES THAT WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVE D BY ANY BANK TO ANY PERSON ORDINARILY RESIDES OR IS CARRY ING ON ANY BUSINESS OR PROFESSION OR VACATION IN ANY SUCH PLAC E OR TOWN SHALL NOT BE DISALLOWED U/S 40A(3) OF THE ACT. ACC ORDING TO THE ASSESSEE AT THE CONSTRUCTION SITE OF CHUKHA THERE WAS NO BANKING FACILITY AT THE RELEVANT TIME. THE SUB-CON TRACTORS WERE INSISTING UPON THE ASSESSEE FOR MAKING PAYMENT IN C ASH. SINCE THE CONSTRUCTION SITE AT CHUKHA DID NOT HAVE BANKIN G FACILITIES THE PROVISION OF SECTION 40A(3) WILL NOT BE APPLICA BLE AS PROVIDED UNDER RULE 6DD(H) OF I.T. RULES 1962. TH E CONTENTION OF THE REVENUE THAT ASSESSEE HAD MADE CE RTAIN PAYMENTS THROUGH CHEQUES TO THE SUB-CONTRACTORS IN OUR CONSIDERED OPINION IN VIEW OF PROVISIONS OF RULES 6DD(H) WILL NOT BE OF ANY HELP. IT WAS PLEADED THAT IN TERMS OF SECTION 40 A (3) C ONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. GENUINE AND BONA ITA NO.2329/DEL./2008 14 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 GEN UINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. IT IS A MATTER OF RECORD THAT CO MMERCIAL BANKING FACILITIES WERE NOT AVAILABLE TO SUB-CONTRACTORS IN THIS MANNE R AND CASH PAYMENTS WERE NOT COVERED BY SECTION 40A(3). IT WAS PLEADED THAT DISALLOWANCE OF EXPENSES U/S 40A (3) BE DELETED. 24. LEARNED DR SUPPORTED THE ORDER OF A.O. AND CONT ENDS THAT THE RELIEF WAS GIVEN BY CIT (A) WITHOUT PROPER JUSTIFICATION. 25. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD AND GONE THROUGH THE CASE LAWS RELIED UPON. THE AO HAD OBSERVED THAT RLA WHOM THE AMOUNT OF RS.7.00 LAKH HAD BEEN PAID BY TH E ASSESSEE DURING THE YEAR HAD GROSS RECEIPT OF RS. 7.00 LAKH ONLY DURIN G THE YEAR AND NO OTHER BUSINESS RECEIPT HAS BEEN REFLECTED. THE COPY OF T HE INVOICE WAS SUBMITTED TO THE AO AND THE PARTY CONFIRMED THE SAME WHICH I S REFLECTED IT IN ITS ACCOUNTS AND INCOME TAX RETURN. SIMILAR EXPENSES HA VE BEEN ALLOWED IN THE EARLIER YEAR. IN OUR OPINION THE ASSESSEE WORK SI TE BEING IN REMOTE AREA OF ITA NO.2329/DEL./2008 15 BHUTAN HAS NOT BEEN DISPUTED. THE PAYMENTS HAVE BE EN CONFIRMED THE INVOICE IS PRODUCED BEFORE THE AO AND THE PAYEE IS IDENTIFIABLE WHO HAD CONFIRMED THE RECEIPT OF THE PAYMENT AND DULY REFLE CTED IN THE RETURN FILED TO THE DEPARTMENT. SIMILAR PAYMENT HAS BEEN ALLOWED I N EARLIER YEAR. IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE CIT (A) ON THIS ISSUE AND THE SAME IS UPHELD ON THIS GROUND. 26. LABOUR CONTRACTORS ARE KNOWN AND IDENTIFIABLE W ERE PAID AS PER TERMS IN THE PRECEDING YEAR WHICH WAS ALLOWED BY THE DEP ARTMENT. THE LABOUR CHARGES ARE PAID BASED ON QUANTITY OF WORK DONE AND THEREFORE THE AO'S OBSERVATION REGARDING THE TIMING OF DOING THE PROJE CT WAS NOT RELEVANT BESIDES ASSESSEE CONTENDS THAT THEY WERE PAID LATE TO SEE THE QUALITY. THE LABOUR CONTRACTORS HAD FILED THEIR INCOME TAX RETUR NS INDEPENDENTLY SHOWING THE LABOUR CHARGES RECEIVED AND PAID DUE TAXES THER EON WHICH IS NOT DISPUTED. THESE EXPENSES ARE PAID WHOLLY AND EXCLUS IVELY FOR BUSINESS PURPOSE AND HENCE ALLOWABLE U/S 37(1) OF THE ACT. LABOUR CONTRACTORS WERE WORKING WITH THE ASSESSEE FOR LONG AND HAVE A GOOD WORKING RELATIONS. NO ADVERSE INFERENCE CAN BE DRAWN FROM THE FACT THAT C ONTRACTORS SOMETIMES GIVE THEIR CHEQUES TO THE ACCOUNTANT OF THE ASSESSE E FOR WITHDRAWAL. AO'S FINDING IS BASED ON ASSUMPTION WHICH AT THE MOST M AY CREATE SUSPICION. MOREOVER WHENEVER THE PROPRIETOR OF THE FIRM IS NOT IN BHUTAN MR. N.L. ITA NO.2329/DEL./2008 16 BHARDWAJ WITH WHOM THE ASSESSEE HAD A GOOD RELATIO N HELPED KEEPING IMPREST ACCOUNT ON BEHALF OF THE ASSESSEE FOR MEETI NG INCIDENTAL EXPENSES. THE PAYEE HAVE CONFIRMED THE RECEIPT OF THE AMOUNTS AND REFLECTED IN RESPECTIVE RETURNS OF INCOME. IN OUR VIEW DISALLOW ANCE OF LABOUR EXPENSES ON ESTIMATED BASIS OF 15% IS ONLY ON SUSPICIONS AND CIT (A) RIGHTLY DELETED THE SAME AND HIS ORDER IS UPHELD ON THIS GROUND. 27. APROPOS THIRD GROUND DISALLOWANCE OF WORKERS MESS EXPENSES WE SEE NO REASON TO INTERFERE WITH THE ORDER OF CIT (A ) WHICH IS UPHELD. OUR VIEW IS FORTIFIED BY THE ITAT ORDER IN ASSESSEES O WN CASE. 28. APROPOS FOURTH GROUND I.E. DISALLOWANCE U/S 40 A(3) FOR CASH PAYMENTS EXCEEDING RS.20 000/- TO CONTRACTORS THES E PAYMENTS WERE MADE AT THE REMOTE PLACE IN BHUTAN FOR LABOUR PAYMENT DU E TO BUSINESS EXIGENCY AND NECESSITY. THESE ARE GENUINE PAYMENTS TO LABOUR CHARGES WHICH IS NOT DISPUTED BY THE AO. THE LABOUR CONTRACTORS ARE NOT HAVING BUSINESS BANKING ACCOUNT IN BHUTAN EXCEPT PERSONAL SAVING BANK ACCOU NTS ARE THERE IN ONE OF THE NAME OF LABOR CONTRACTOR. THEY HAD NO BANK ACC OUNT NEAR THE PROJECT SITE. ONLY IN SOME CASES FOR PAYMENT OF LABOUR AT SITE ETC THESE CASH PAYMENTS WERE MADE IN BUSINESS EXIGENCY. SINCE THE BANKING FACILITIES WERE NOT AVAILABLE TO THESE LABOUR CONTRACTOR IN ABOVE M ANNER THESE PAYMENTS ARE ITA NO.2329/DEL./2008 17 COVERED UNDER SECTION 40A(3) READ WITH RULE 6DD. ACCORDING CIT (A)S ORDER ON THIS ISSUE IS UPHELD. REVENUES GROUND IS DISMISSED. 30. IN THE RESULT WE UPHOLD THE ORDER OF THE CIT ( A) AND ACCORDING THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF APRIL 2010. SD/- SD/- (A.K. GARODIA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 9 TH DAY OF APRIL 2010 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XVIII NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.