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TMI Blog2012 (6) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance is to the extent of 100% of such payment in contravention to the prescribed mode - disallowance made by the A.O. cannot be sustained (iii) As per the provisions applicable in assessment year 2004-05, the disallowance was to be made in the relevant year in which the expenditure was incurred whereas as per the provisions of assessment year 2008-09, addition is to be made in the year in which payment in contravention to prescribed mode was made by the assessee irrespective of the fact as to whether the expenditure was incurred in an earlier year. if we apply the provisions of Section 40A(3) as applicable in assessment year 2004-05, we find that no addition in the present year is justified and no disallowance can be made in assessment year 2004-05 also because as per the provision of Section 40A(3) as applicable in assessment year 2004-05, the payments are required to be made by a crossed cheque/crossed bank draft and the assessee has made the payment by way of crossed cheque and, therefore, no disallowance is called for in the present case as per the provisions of Section 40A(3) as applicable in the assessment year 2004-05 - in favour of assessee. - IT APPEAL NO. 1901 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Traders and M/s Bhavi Enterprise which have been credited in the above persons' a/cs are to the extent of ₹ 62,10,0007-. In respect of cheques issued in favour of Jayraj Traders, it was found that the same have been credited in the a/cs. of Kirti Corporation and B.K. Corporation. The total of the cheques issued in favour of Patel Traders, but deposited in other a/cs is ₹ 12,10,000/-. The Assessing Officer, accordingly, issued notice u/s 142(1) of the Act, during the course of assessment proceedings and asked the appellant to give details as to in which asst. year, expenses have been claimed on account of the above creditors, viz. M/s Patel Enterprise, M/s Bhavi Enterprise and M/s Jairaj Traders, and also to submit copies of a/cs. for the years in which expenses were claimed in the names of the above three parties and their copies of a/cs in the subsequent years. The Assessing Officer has recorded that as per the entry notings dated 22.12.2009 of the order sheet, the appellant showed his inability to submit any reply on the above issue. He, therefore, concluded that since the sums aggregating to ₹ 62,10,000/- have been paid other than by a/c. payee cheques to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He, further observed that in the books of a/c., the appellant has shown purchases from M/s Patel Traders, M/s Bhavi Enterprise and M/s Jayraj Traders, and the outstanding amount payable to them has been shown as liability under the head 'sundry creditors', as on 31.3.2007, and the nature of transactions is of 'purchases' and not 'commission' in the concerned year, as claimed by the appellant. The Assessing Officer, therefore, held that the amended provisions of section 40A(3) w.e.f. 13.7.2006 are applicable from 01.4.2008, that is where an allowance has been made in the assessment year for any year in respect of any liability incurred by an assessee for any expenditure and, subsequently, during any previous year, the assessee makes payment in respect thereof, otherwise than by an a/c. payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and chargeable to tax as income of the subsequent year, if such amount paid exceeds ₹ 20,000/-. The Assessing Officer, therefore, concluded that since the cheques issued by the appellant in the name of the creditors, viz. M /s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the expense are incurred, addition will be made in the year in which the payment is made by the assessee otherwise than by prescribed mode. It was his submission that in the present case, there is no dispute that the expenses were incurred in assessment year 2004-05 and the payment was made in the assessment year 2008-09. It is submitted that as per the provisions applicable in assessment year 2004-05, the assessee was require to make payment by crossed cheque/crossed bank draft and even if the assessee make payment in contravention to the prescribed mode, as per the provision to Section 40A(3), addition was required to be made in the year in which expenses were incurred. It is his submission that this factual position in the present case, the amended provisions of Section 40A(3) cannot be made applicable because the expenses were incurred in assessment year 2004-05 and hence, the provisions applicable during that year has to be applied and as per the same, disallowance can be made in the year of incurring the expenditure if the payment is made by the assessee in any subsequent year otherwise than by way of crossed cheque/crossed bank draft and that too to the extent of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking facilities and e-payment from assessment year 2008-09, credit cards and debit cards payments have been included in the permissible modes. He submitted that in such a scenario, payments made in assessment year 2008-09 by credit card and debit card cannot be brought within the ambit of Section 40A(3) even when liability for the payment have been made related to past year and, therefore the interpretation suggested by the assessee will lead to absurd results. He placed reliance on the judgement of Hon'ble Apex Court rendered in the case of CIT v. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254/179 Taxman 326. He also placed reliance on another judgment of Hon'ble Apex Court rendered in the case of CIT v. Isthmian Steamship Lines [1951] 20 ITR 572 and also on the judgment rendered in the case of Reliance Jute Industries Ltd. v. CIT [1979] 120 ITR 921/2 Taxman 417 (SC). Reliance was placed by him on the tribunal decision rendered in the case of Manan Corpn. [I.T.A. No. 2424/Ahd/2009 and C.O. 204/Ahd/2009] and it was pointed out that in that decision, it is held by the Tribunal that clause (d) of Section 80-IB(10) inserted w.e.f. 01.04.2005 has to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , apply thereto, the period of four years specified in subsection (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made : Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. 7. The amended provisions w.e.f. 01.04.2008 are as under: (3)( a ) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure; ( b ) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2004-05 for which payment is made in assessment year 2008-09, provision of section 40A(3) applicable in assessment year 2004-05 is required to be applied or the provisions in assessment year 2008-09 being the year of payment, are to be applied. The A.O. has applied the provisions of Section 40A(3) as amended w.e.f. 1.4.2008 because the payments were made by the assessee in the assessment year 2008-09 and the claim of the assessee before us is this that since the expenses were incurred in assessment year 2004-05, such expenses are to be subjected to the previsions applicable in assessment year 2004-05. We find that the tribunal decision in the case of Anand Kumar Rawat Ram Joshi ( supra ) is under similar facts with small difference that in that case, the expenses were incurred in assessment year 2007-08 and the payments were made in assessment year 2008-09. This aspect has been decided by the tribunal as per para 8 of this tribunal order which is reproduced below for the sake of ready reference: 8. From the current year, sub-section (3A) has been inserted in section 40A, as per which, if an allowance has been made in the assessment for any year and the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening balance and the addition in this regard shall be made in that year in which the liability was incurred by applying the provisions of Section 40A(3) which was applicable till the assessment year 2007-08. The A.O. should pass necessary order as per law as per above discussion after providing adequate opportunity of being heard to the assessee. 9. We find that the present issue is squarely covered in favour of the assessee by this tribunal decision rendered in the case of Anand Kumar Rawatram Joshi ( supra ) because it was held by the tribunal in that case that if the liability is incurred up to assessment year 2007-08 and the payment is made in a subsequent year i.e. 2008-09 or any subsequent year, the provisions of Section 40A(3) as applicable in the year in which liability was incurred should be applied and if we apply the provisions of Section 40A(3) as applicable in assessment year 2004-05, we find that no addition in the present year is justified and no disallowance can be made in assessment year 2004-05 also because as per the provision of Section 40A(3) as applicable in assessment year 2004-05, the payments are required to be made by a crossed cheque/crosse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso to Section 40A(3) as applicable in that year and such rectification can be carried out by the A.O. within a period of four years from the end of the assessment year in which the payment was made by the assessee in contravention to the prescribed mode. These provisions suggest by implication that the incurring of liability on account of expenditure and making of payment against such liability in any subsequent year in contravention to the prescribed mode of payment as prescribed in the year of assessment in which liability was incurred is required to be rectified by the A.O. u/s 154 and because of this, in our humble opinion, the amended provisions of Section 40A(3) cannot be made applicable to those expenses which were incurred prior to 01.04.2008 but payments of which were made on or after 01.04.2008 in contravention to the provisions of Section 40A(3). This can be understood from one more angle. If in the present year, the limit of such payment otherwise than by a/c payee cheque / a/c payee bank draft is increased to ₹ 1 lac then whether the assessee will be permitted to make payment against the liability incurred in assessment year 2004-05 in cash in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the amended provisions in assessment year 2008-09 cannot be made applicable to the expenses for which liability was incurred prior to 01.04.2008 and the same has to be dealt with as per the provisions of Section 40A(3) as applicable in the relevant year in which the liability was incurred. 12. Regarding the judgement cited by the Ld. D.R. of the revenue, which is the judgment rendered in the case of Reliance Jute Industries Ltd. ( supra ), we find that in that case, Hon'ble Apex Court has simply followed the earlier judgment rendered in the case of Isthmian Steamship Lines ( supra ) and we have already seen that this judgment is not applicable in the present case and for the same reasons, this judgment of Hon'ble Apex Court rendered in the case of Reliance Jute Industries Ltd. ( supra ) is also not applicable in the present case. The next judgment cited by the Ld. D.R. is the judgement of Hon'ble Gujarat High Court rendered in the case of Hynoup Food Oil Ind. (P) Ltd. ( supra ). This judgment is not applicable in the present case because the question before the Hon'ble Gujarat High Court was entirely different. The question before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with drawn, the same has to be effected in the year in which investment allowance was granted. In view of this, in our considered opinion, this tribunal decision rather supports the case of the assessee and it does not support the case of the revenue. - The next decision cited by the Ld. D.R. is the judgment of Hon'ble Allahabad High court rendered in the case of Ranjit Narang ( supra ). In that case, the issue in dispute before Hon'ble Allahabad High Court was that the capital gain can be taxed on withdrawal of deduction u/s 54F in the year of actual capital gain or in the year in which the prescribed period of 3 years expires. It is noted by the Hon'ble Allahabad High court that as per plain reading of Section 54F, the amount of capital gain which has not been utilized u/s 54F, has to be charged u/s 45 as the income of the previous year after the expiry of three years from the date of sale of the asset. In that case, the asset was sold in assessment year 1990-91 and since the period of three years expired in assessment year 1993-94, it was held that the capital gain has to be taxed in assessment year 1993-94. Hence, it is seen that this judgment of Allahabad Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) get triggered and, therefore, the provisions of the year of payment cannot be made applicable simultaneously because it will result into double disallowance once in the year of incurring the expenditure and again in the year of payment. Under this legal position, this tribunal decision is also not applicable in the present case. 13. We have seen as per above discussion that none of the judgments cited by the Ld. D.R. of the revenue is of any help to the revenue in the present case. One more contention was raised by the Ld. D.R. that if this view is taken that the amended provisions to Section 40A(3) as amended from 2008-09 cannot be made applicable to the liability incurred prior to 01.04.2008 then, these provisions will become redundant and that cannot be the intention of the legislature. We do not find any merit in this contention of the Ld. D.R. because these amended provisions are very much applicable in respect of those expenses for which the liability is incurred by the assessee in assessment year 2008-09 or in any subsequent year and it is not applicable only in respect of those expenses for which liability was incurred prior to 01.04.2008 because as per the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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