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TMI Blog2014 (4) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... y incurred by Sunil Reddy or such other person to whom he passes on such sums for incurring expenditure on behalf of the assessee - the provisions of S.40A(3) are not applicable even to the amounts of advance given by the assessee to Sunil Reddy or by Sunil Reddy to other employees for incurring expenditure on behalf of the assessee company. The process prior to actual incurring of expenditure or doing any act through the Managing Director or other employees is also recorded in the form of advances given, etc. - Unless and until the amount of advance is in fact spent towards any expenditure incurred on behalf of the assessee company, the money effectively do not go out of the coffers of the assessee company, and it is only the outgo of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowances. One such item of disallowance made by the Assessing Officer, which is the subject matter of present appeal before us, is of an amount of Rs. 79,67,910, representing the payments made to Shri D. Sunil Reddy, M.D. of the assessee company. Factual background relating to disallowance is that the assessee made payments aggregating to Rs.79,67,910 to Shri D. Sunil Reddy, which comprised of Rs. 57,91,111 being amounts paid to him for conversion of currency in smaller denominations to currency of higher denominations; and Rs. 21,76,799, representing advance paid for incurring expenses for the purpose of the assessee. The Assessing Officer was of the view that these amounts paid to Shri Sunil Reddy were in cash and as such the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company. He either incurred the expenditure on his own or incurred such expenditure through others. Balance of unspent amounts have been deposited with the bank. Furnishing account copy of such amounts, it was submitted the expenditure incurred by him was credited to his account and the amount received was debited. Out of the amounts paid by the company towards advances, various amounts aggregating to Rs. 11,90,000 were returned by him on various dates through cheques. Hence, it was pleaded that the amount of Rs. 11,90,000 cannot be considered as hit by the provisions of S. 40A(3) of the Act. Even with regard to the other amounts, it was submitted that the amounts spent were smaller sums. It was further submitted that the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure. In so far as payments are concerned, they are less than 20,000 and therefore, provisions of S.40A(3) were not applied to any of the expenditure incurred by the assessee and consequently the Assessing Officer was not justified in applying the provisions of S. 40A(3) of the Act, to the amounts paid to Sunil Reddy. 5. The CIT(A), convinced with the arguments of the assessee deleted the addition of Rs. 79,67,910 made by the Assessing Officer in terms of S. 40A(3) of the Act, insofar as both the types of payments made to Sunil Reddy, viz. amounts paid for conversion of currency in smaller denominations into currency of higher denominations and advances given for incurring various expenses either by himself or through others i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omponent of balance amount of Rs. 20,70140 is concerned, it is, again, in the form of an advance to facilitate the expenditure to be incurred on behalf of the assessee company either by Sunil Reddy himself or through others. At the point of making the advance, advance account is debited and cash account is credited, and whenever expenditure is incurred, advance account is credited by such amount of expenditure. That being so, at the point of time, when an advance is given for incurring the expenditure, there is no out go of funds of the company, and the actual outgo takes place only when expenditure is actually incurred by Sunil Reddy or such other person to whom he passes on such sums for incurring expenditure on behalf of the assessee. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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