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TMI Blog2017 (5) TMI 1531X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to examine the claim of the assessee. The AO shall verify whether payees have filed their return of income and whether such return of income includes the amount paid/credited by the assessee without deduction of tax at source and whether due taxes have been paid thereon. In the result, ground of appeal is allowed for statistical purposes. Addition of excess payment of salary - salary payment for the month of January and March 2011 claimed by the assessee company - Held that:- There is not enough material available on record to decide the subject matter. In the interest of justice, it would be appropriate to set aside the matter to the file of the AO to examine the same afresh. Needless to say, the assessee will provide all relevant information and documents as called for by the AO. In the result, ground taken by the assessee is allowed for statistical purposes. - ITA No.175/JP/16 - - - Dated:- 12-5-2017 - Smt. Diva Singh, JM SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri S. L. Poddar (Ad.) For The Respondent : Shri O.P. Bhateja (Addl.CIT) ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO observed that there was no compelling reason or any unavoidable circumstances which has been brought to his notice by the assessee to make payment in cash. Accordingly, cash payment of ₹ 2,45,570/- was held to be in violation of section 40A(3) of the I.T. Act and the same was disallowed and added to the total income of the assessee. 3.1. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). The ld CIT(A) also observed that the assessee has a contractual arrangement with M/s Bikaner Detective Security Service to provide security services to the assessee and the assessee was under the obligation to pay to the agency, M/s Bikaner Detective Security Service from whom the services has been availed and not directly to the guards to whom the payments have been made in cash. The ld CIT(A) also confirmed the AO s findings that the payments so made are not covered under any exceptional or unavoidable circumstances under Rule 6DD and the disallowance made by the Assessing Officer was confirmed. 3.2. During the course of hearing, the Ld AR submitted that the payment was genuine and was paid to individual guards at the behest of M/s Bikaner Detect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP). If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft, then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute, the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. 3.3. The ld. DR is heard who has relied upon the order of the lower authorities. 3.4. We have heard the rival contentions and pursued the material available on record. It is not in dispute that the assessee is having contractual arrangement with M/s Bikaner Detective Security Service for provision of security guards. In terms of the said arrangement, M/s Bikaner Detective Security Service has raised invoices on the assessee from time to time and which have been accounted for in the assessee s books of account in the name and account of M/s Bikaner Detective Security Service. The assessee has also deducted TDS under section 194C of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r unavoidable circumstances to the notice of the Assessing Officer nor the Assessing Officer has recorded any satisfaction in this regard in terms of rule 6DD of the Act. In light of above we are unable to agree to the contention of the Ld. AR. The ground taken by the assessee is thus dismissed. 4. Now coming to ground No. 2, where the assessee has challenged the addition of ₹ 86,76,512/- u/s 40(a)(ia) of the Act. During the course of assessment proceedings the Assessing Officer noticed that the assessee has paid an amount of ₹ 86,76,512/- to various non-banking finance companies without deduction of tax u/s 194A of the Act and which was disallowed by the AO in terms of section u/s 40(a)(ia) of the Act and later on, confirmed by the ld CIT(A). 4.1. During the course of hearing, the ld. AR drawn our reference to the second proviso to section 40(a)(ia) of the Act which was introduced by the Finance Act 2012 and submitted that Hon ble Delhi High Court in case of CIT Ansal Landmark Township Pvt. Ltd. 234 Taxman 825 has held that second proviso to section 40(a)(ia) of the Act is declaratory and curative and it has retrospective effect from 01.04.2005, and in compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a fair, just and equitable interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an intended consequence to disallow the expenditure, due to nondeduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransports (supra). Therefore, this contention raised also cannot be accepted. 4.6 Admittedly, there is no jurisdictional High Court decision that has been rendered in the context of applicability of the second provisio to section 40(a)(ia) of the Act. The question that arises for consideration is that in absence of the Jurisdictional High Court decision and in view of contrary decision taken by two High Courts, which decision will prevail and apply in the instant case. In this regard, we refer to the decision of Hon ble Supreme Court in case of CIT Vs. Indian Vegetable Products Ltd. (88 ITR 192) wherein the Hon ble Supreme Court has held that where two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. In light of that, respectfully following the Delhi High Court decision in case Ansal Lankmark Township Pvt. Ltd. (supra), the second proviso to section 40(a)(ia) of the Act is read as retrospective in nature and will thus be applicable in the instant case. In light of the above discussion, we set aside the matter to the file of the Assessing Officer to examine the claim of the assessee. The AO shall verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishka Morani for ₹ 1,56,000/- and Ms. Simmy Morani for ₹ 1,56,000/-) in cash. Moreover, the assessee company could not furnish the address, designation, educational qualification and copy of appointment letter of the employees to whom payment of salary has been said to be made. As such, the expenditure of salary is not open to verification. It would not be out of place to mention here that to keep the aforesaid record is an essential element of any establishment. Nevertheless to say that salary payment to maximum employees have been paid in cash. 17.4 It is noticed that the average salary paid for the months excluding the salary for the months of January, 2011 and March, 2011 comes to ₹ 10,70,842/-. Considering the average salary paid by the assessee company, the excess salary paid by the assessee company for the months of January, 2011 and March, 2011 comes to ₹ 15,20,391/- [(21,39,285+ 15,22,790)- (10,70,842x2)]. Therefore, in view of above facts excess salary being ₹ 15,20,391/- is hereby disallowed and added to the total income of the assessee. 6.1. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Therefore such a petty amount paid to Simmy and Kaniskha Morani did not require any adverse remarks. 4. Disallowance wrongly made on the basis of averaging :- It is further submitted that disallowance of salary has been made purely on estimate basis. The salary has been disallowed which the excess after averaging the salary from April to December. The learned Assessing Officer has only observed that payment of salary January, February and March was excessive. It is submitted that it is towards the close of the finance year that more adhoc employees are employ for meeting the targets of sales and for effecting the outstanding recovery. In view of this no disallowance of salary was required. The addition sustained by the Learned CIT(A) for ₹ 10,00,000/- deserves to be deleted. The entire payment of salary was genuine and for the purpose of business. It is submitted that during the year the sales of the assessee have increased from ₹ 56.40 Crore in Assessment year 2010-11 to ₹ 83.85 Crore. The increase is around 50%. In view of this higher payment of salary was fully justified. 6.3 The ld. DR is heard who has relied on the order of the lower authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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