Enterprising Enterprises, Chennai vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, CHENNAI ी ए. मोहन अलंकामणी, लेखा सद य एवं ी वी. दग ु ा# राव, या$यक सद य केसम%

BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER

आयकर अपील सं./ITA No.338/Mds/2013 $नधा#रण वष# /Assessment Year : 2008-09 & आयकर अपील सं./ITA No.98/Mds/2013 $नधा#रण वष# /Assessment Year : 2009-10

The Income Tax Officer, M/s Enterprising Enterprises, Business Ward - III(3), v. No.9, 50th Street, Ashok Nagar, Chennai - 600 034. Chennai - 600 083.

PAN : AAAFE 0195 N (अपीलाथ*/Appellant) (+,यथ*/Respondent)

अपीलाथ* क- ओर से/Appellant by : Shri A.V. Sreekanth, JCIT +,यथ* क- ओर से/Respondent by : Shri Philip George, Advocate

सन ु वाई क- तार ख/Date of Hearing : 13.01.2015 घोषणा क- तार ख/Date of Pronouncement: 20.02.2015

आदे श /O R D E R

PER V. DURGA RAO, JUDICIAL MEMBER:

These appeals filed by the Revenue are directed against the

orders of the Commissioner of Income Tax (Appeals)-VIII, Chennai,

dated 27.11.2012 and 16.10.2012 for the assessment years 2008- 2 I.T.A. No. 338/Mds/2013 I.T.A. No. 98/Mds/2013

09 and 2009-10 respectively. The assessee has raised common

grounds in both these appeals.

I.T.A. No. 338/Mds/2013 (assessment year 2008-09)

2. Facts are in brief that the assessee is in the business of

manufacturing and exporting of granite dimensional blocks and

cutting and polishing monuments. The assessee had filed a return

of income by declaring a total income of ` 5,52,020/- . The case of

the assessee was selected for scrutiny. After due process,

assessment was completed under Section 143(3) of the Income-tax

Act, 1961 (in short 'the Act') by determining the total income at

`1,33,34,124/-.

3. In the assessment order, the A.O. has observed that the

assessee made substantial purchases of granite blocks from its

sister concerns and part of the payments are made through cash. It

is also seen from the ledge account of one of the sister concerns

(M/s Magnum Inc) that the assessee has made payment of `

19,500/- everyday including holidays. On enquiry by the A.O., the

assessee explained by stating that the granite quarries owned by

the sister concerns were situated in remote places where there is no

banks are situated nearby and that was the reason the cash

payments had to be made. The A.O. was not satisfied with the 3 I.T.A. No. 338/Mds/2013 I.T.A. No. 98/Mds/2013

explanation given by the assessee. He invoked the provisions of

Section 40A(3) of the Act and disallowed the entire amount of cash

expenditures totalling to `1,25,19,000/-.

4. The assessee carried the matter in appeal before the Ld.

CIT(Appeals). The Ld. CIT(Appeals) by following the decision of

Hon'ble jurisdictional High Court in the case of CIT v. Kathari

Sanitation & Tiles P. Ltd. (2006) 282 ITR 117 (Mad) and also

following the decision of the ITAT in assessee's own case for the

assessment year 2007-08 in I.T.A. No. 1090/Mds/2010 dated

16.3.2012, deleted the addition made by the A.O. The relevant

portion of the order of the Ld. CIT(Appeals) is extracted as under:-

"3.3 On verifying the material on record as well as the submissions made by the AR of the appellant, as per un- amended provisions of Section 40A(3), it only specifies the limit of `20,000/- per transaction and does not put any restriction with regard to number of transactions in a day. We find as none of the transactions exceed ` 20,000/- therefore, the provisions of Section 40A(3) are not attracted in this case. We find that the case of the assessee is squarely covered by the Division Bench Judgment of the Hon'ble Madras High Court in the case of CIT v. Kathari Sanitation & Tiles P. Ltd. reported as (2006) 282 ITR 117 (Mad), wherein the Hon'ble High Court came to the conclusion that "Section 40A(3) of the Income-tax Act, 1961, only says that the amount exceeding the prescribed limit should not be paid except by way of cheque drawn on a bank of by a cross bank draft and, if it exceeds that amount, then 20 percent of the expenditure shall not be allowed as deduction. It does not say that the aggregate of the amounts should not exceed the limit.

The words used are "in a sum" i.e. a single sum. Therefore irrespective of any number of transactions, where the amount does not exceed the limit, the rigour of section 40A(3) will not apply. The amount should not exceed ` 20,000/-. That apart practicability of the payment has also to be judged from the point of view of businessman". Respectfully following the decision of 4 I.T.A. No. 338/Mds/2013 I.T.A. No. 98/Mds/2013

the Hon'ble Madras High Court, irrespective of the number of transactions where the amount does not exceed ` 20,000/- the application of sec. 40A(3) will not arise. Apart from that practicability of the payment is also to be judged from the point of view of a business man and one has to see the genuineness of transaction since the Assessing Officer has not doubted the genuinity and also respectably following ratios held in the case of CIT v. Ashok Iron and Steel Rolling Mills 320 ITR 101 (All) 2010 which followed the Madras High Court decision referred above as well as the ratio held in the case of Mohammed Dharuamudeen (Tax case No.885 of 2007) Madras High Court wherein it was held that the disallowance u/s 40A(3) should not be applied mechanically.

The AR of the appellant has submitted the ITAT Order in his own case for the AY 2007-08 in ITA No.1090/Mds/2010 dated 16.3.2012 wherein the addition made by the A.O. at ` 37,12,800/- u/s 40A(3) has been deleted by the Hon'ble ITAT, D- Bench, Chennai.

As per the ledger account produced by the appellant it is observed that the appellant firm has not exceeded any payment above ` 20,000/- in cash therefore keeping in view of the decisions of higher judicial authorities as mentioned above Sec. 40A(3) is not applicable to the facts of the appellant's case and therefore, the A.O. is directed to delete the addition of ` 1,25,19,000/-. The appellant gets relief of ` 1,25,19,000/-. This ground of the appellant is allowed."

5. On being aggrieved, the Revenue carried the matter before

the Tribunal. At the time of hearing, the Ld.counsel for the

assessee has submitted that the issue involved in this appeal is

squarely covered by the order of the Tribunal in assessee's own

case for assessment year 2007-08 and the same may be followed.

6. On the other hand, the Ld. D.R. supported the order passed

by the A.O. 5 I.T.A. No. 338/Mds/2013 I.T.A. No. 98/Mds/2013

7. We have heard both sides and perused the records and

gone through the orders of the authorities below. The issue

involved in this appeal is disallowance under Section 40A(3) of the

Act. The very same issue had come for consideration for

assessment year 2007-08 and the Tribunal has considered the

issue and deleted the addition made by the A.O. The relevant

portion of the order of the Tribunal is extracted as under:-

"13. We do not find any infirmity in the order of the learned CIT(A) in deleting the addition of ` 37,12,800/-. As per unamended provisions of section 40A(3), it only specifies the limit of ` 20,000/- per transaction and does not put any restriction with regard to number of transactions in a day. We find as none of the transactions exceed ` 20,000/-, therefore, the provisions of section 40A(3) are not attracted in this case. We find that the case of the assessee is squarely covered by the Division Bench judgement of the Hon'ble Madras High Court in the case of CIT Vs. Kothari Sanitation & Tiles P.ltd., reported as (2006) 282 ITR 117(Mad), wherein the Hon'ble High Court came to the conclusion that "section 40A(3) of the Income Tax Act, 1961, only says that the amount exceeding the prescribed limit should not be paid except by way of cheque drawn on a bank or by a cross bank draft and, if it exceeds that amount, then 20 percent of the expenditure shall not be allowed as deduction. It does not say that the aggregate of the amounts should not exceed the limit. The words used are "in a sum"

i.e., a single sum. Therefore, irrespective of any number of transactions, where the amount does not exceed the limit, the rigour of section 40A(3) will not apply. The amount should not exceed `20,000/-. That apart, practicality of the payment has also to be judged from the point of view of a businessman." Respectfully following the decision of the Hon'ble Madras High Court cited above, We uphold the decision of the learned CIT(A) on this issue and dismiss the ground raised by the Revenue."

6 I.T.A. No. 338/Mds/2013

I.T.A. No. 98/Mds/2013

8. By keeping in view the decision of the co-ordinate Bench of

this Tribunal in assessee's own case, we uphold the order passed

by the Ld. CIT(Appeals). The Ld. D.R. has not brought any material

to show that the order passed by the Tribunal has been modified or

reversed by any higher forum. Under these circumstances, we find

no infirmity in the order passed by the Ld. CIT(Appeals).

9. In the result, this appeal filed by the Revenue is dismissed.

I.T.A. No. 98/Mds/2013 (assessment year 2009-10)

10. In this appeal the facts are similar to those narrated for

assessment year 2008-09. Therefore, we decide the matter in

favour of assessee and dismiss the Revenue's appeal.

11. In the result, this appeal filed by the Revenue is also

dismissed.

Order pronounced on Friday the 20th of February, 2015 at

Chennai.

Sd/- sd/- (ए. मोहन अलंकामणी) (वी. दग ु ा# राव) (A. Mohan Alankamony) (V. Durga Rao) लेखा सद य/Accountant Member या$यक सद य/Judicial Member चे नई/Chennai, =दनांक/Dated, the 20th February, 2015. Kri. 7 I.T.A. No. 338/Mds/2013 I.T.A. No. 98/Mds/2013

आदे श क- +$त?ल@प अAे@षत/Copy to: 1. अपीलाथ*/Appellant 2. +,यथ*/Respondent

3. आयकर आयुBत (अपील)/CIT(A)-VIII, Chennai

4. आयकर आयुBत/CIT-VI, Chennai-34

5. @वभागीय +$त$न ध/DR

6. गाड# फाईल/GF.