2016 (9) TMI 401 - AT - Income Tax

Expenditures incurred on Crane hire charges, Dredger Transport expenses and Sub-contractor charges - whether are allowable u/s.28 ? - disallowance made u/s.40(a)(ia) - Held that - CIT(A) had given a relief to the assessee on the reason that no payment is outstanding at the end of the cost of financial year and it is not to be shown as payable in the financial statement of the assessee. Hence, the provisions of the section 40(a)(ia) of the Act is not applicable. However, the Department is not challenging these findings of the CIT(A). The Department challenging only another findings of the CIT(A) in regard to the expenditure on Crane hire charges, Dredger Transport expenses and Sub-contractor allowable u/s.28 of the Act and CIT(A) deleted the disallowance of ₹ 49,69,800/- by overlooking the provisions of the section 37 of the Act which covers these payments. Hence, the ground of Revenue is inappropriate. In our opinion, provisions of the section 40(a)(ia) of the Act cannot be applied in view of the judgment of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT 2012 (4) TMI 290 - ITAT VISAKHAPATNAM . Disallowance made u/s.40A(3) - Held that - We find that though the payments were made in cash in excess of ₹ 20,000/- on account of business expenditure, as the assessee made the payments at the work place for the purpose of purchase of materials and labourers. Further, the drudging work was carried on at odd hours at sea coast and it cannot be accepted that the material suppliers or labourers would take the cheques from the assessee. The provisions of the section 40A(3) of the Act which itself provides for exception circumstances having regard to the nature and extent of banking facilities available and business expenditure and other relevant factors. In the present case, the facts and circumstances show that the assessee has bona fide reasons to make cash payments in respect of above expenditure. In the present case, the assessee and its team went to a far away place for the purpose of TV serial shooting. The assessee had made cash payments to various parties, technicians, artists etc. for the period of 2 to 6 days under business compulsions. We find that the above payment was made under business compulsions and Therefore, by considering all the facts and circumstances of the case and also taking into consideration of the business expediency, we are of the opinion that sec.40A(3) has no application to the facts of the assessee s case. Unexplained cash credits u/s.68 - Held that - Regarding sustaining the addition u/s.68 of the Act in respect of current account balance in the name of Shri Alagappa Vandayar, the assessee is not able to show any proof that Shri Alagappa Vandayar has contributed this amount. In view of the insufficiency of evidence, the addition is to be considered u/s.68 of the Act. The same is confirmed. This ground in Cross objection is dismissed. Disallowance of expenditure at 10% in respect of self-made vouchers - Held that - The total expenditure was claimed at ₹ 2,49,55,733/-. These payments were self-made vouchers. There is every chance of bifurcating expenditure in selfmade vouchers as it is not supported by third party evidence and self-made vouchers is not 100% full proof. Hence, certain adhoc disallowance is made. Being so, the CIT(A) is very reasonable in restricting the disallowance from 20% to 10% with regard to expenditure covered by self-made vouchers. We do not find any infirmity in the order of the Ld.CIT(A) and the same is confirmed.

Summary

Issues Involved:
1. Allowability of expenditures on Crane hire charges, Dredger Transport expenses, and Sub-contractor charges under Section 28 of the IT Act.
2. Deletion of disallowance of ?75,95,349/- made under Section 40A(3) of the IT Act.
3. Deletion of additions towards unexplained cash credits under Section 68 of the IT Act.
4. Condonation of delay in filing the cross-objection by the assessee and the appeal by the Department.
5. Sustaining the disallowance of expenditure at 10% in respect of self-made vouchers.

Detailed Analysis:

1. Allowability of Expenditures Under Section 28:
The Revenue contended that the CIT(A) erred in holding that expenditures on Crane hire charges, Dredger Transport expenses, and Sub-contractor charges are allowable under Section 28, thus deleting the disallowance of ?49,69,800/- made under Section 40(a)(ia). The CIT(A) had observed that these payments were made before the end of the financial year, and nothing was outstanding, thus Section 40(a)(ia) was not applicable. The Tribunal upheld this view, citing the Special Bench decision in Merilyn Shipping and Transports v. Addl. CIT, which held that Section 40(a)(ia) is not applicable when no amount is outstanding at the end of the financial year.

2. Deletion of Disallowance Under Section 40A(3):
The AO had disallowed ?75,95,349/- under Section 40A(3) for payments made in cash exceeding ?20,000/-. The CIT(A) deleted this disallowance, noting that the payments were made out of business compulsion in remote areas without banking facilities. The Tribunal supported this decision, referencing cases like Anupam Tele Services Vs. ITO and M/s. Trident Movies Vs. ACIT, which emphasized business expediency and the non-applicability of Section 40A(3) in such circumstances.

3. Deletion of Additions Under Section 68:
The AO had added ?58,15,000/- as unexplained cash credits in partners' current accounts. The CIT(A) deleted the additions for two partners, finding that they were income tax assessees who had declared these amounts in their returns. However, the addition for Shri Alagappa Vandayar was sustained due to a lack of evidence. The Tribunal upheld the CIT(A)'s decision, confirming the deletion for the two partners and sustaining the addition for Shri Alagappa Vandayar due to insufficient evidence.

4. Condonation of Delay:
The cross-objection by the assessee was delayed by 109 days, and the Department’s appeal was delayed by 22 days. Both delays were condoned by the Tribunal, considering the reasons provided as bona fide and reasonable.

5. Disallowance of Expenditure on Self-Made Vouchers:
The AO had disallowed 20% of expenditures supported by self-made vouchers, amounting to ?49,91,146/-. The CIT(A) reduced this disallowance to 10%, citing the potential for bifurcation in such vouchers. The Tribunal found the CIT(A)'s decision reasonable and upheld the 10% disallowance.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objections, upholding the CIT(A)'s decisions on all issues. The judgments emphasized the importance of business expediency, proper documentation, and the non-applicability of certain sections under specific circumstances, ensuring that the decisions were in line with legal precedents and the facts of the case.