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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN,AM AND LALIT KUMAR, JM
./I.T.A. No.3309/M/2012
( / Assessment Year: 2008-09)
Mr.Deepak Chandulal Lohana, / Dy. Commissioner of Income Tax
503-504, 5th Wing. Golf Scappa, 22(2),
Vs.
Behind Hotel Celegration, Mumbai.
S T Road, Chembur,
Mumbai-400071
( /Appellant) .. ( / Respondent)
./ ./PAN : AACPL2178E
/ Appellant by Shri K Gopal
/Rspondent by Ms.Anu Aggarwal
/ Date of Hearing : 18.8.2015
/Date of Pronouncement: 2.9.2015
/ O R D E R
Per B.R.BASKARAN:
The assessee has filed this appeal challenging the order dated
29.2.2012 passed by the ld. CIT(A)-33, Mumbai and it relates to the
assessment year 2008-09.
2. The grounds urged by the assessee giving rise to the following
issues:
a) Disallowance made under section 40A(3) of the Act;
b) Disallowance on purchase of land from M/s Laxman Mhatre and
others;
c) Disallowance made under section 14A of the Act; and
d) Adhoc Disallowance made out of expenses.
2 I T A N o . 3 3 0 9 / M/ 2 0 1 2
3. The facts relating to the case are that the assessee is engaged in
the business of purchase and sale of Gaothan Plots in Navi Mumbai area.
The assessing officer completed the assessment by making the additions
listed above. With regard to the disallowance of Rs.22.00 lakhs made out
of purchase of land, the AO did not make separate disallowance, since the
very same amount had already been disallowed u/s 40A(3) of the Act. The
assessee was not successful in the appeal filed before Ld CIT(A) and
hence he has filed this appeal before us.
4. The first issue relates to the disallowance made u/s 40A(3) of the
Act. During the course of assessment proceedings, the AO noticed that
the assessee has purchased plots worth Rs.1.40 crores, out of which a
sum of Rs.74.39 lakhs was paid by way of cash. The AO took the view
that the assessee has violated the provisions of section 40A(3) of the Act
by making payments by way of cash and accordingly asked the assessee
to clarify the same. It is pertinent to note that the provisions of sec.
40A(3) provide for disallowance of expenditure, if payment is made in a
sum exceeding Rs.20,000/- otherwise than by account payee cheque or
account payee bank draft. In reply, the assessee submitted that the cash
payment made to any individual person on any given date did not exceed
Rs.20,000/- and hence there is no violation of provisions of section 40A(3)
of the Act. However, the AO took the view that the assessee could not
substantiate the said claim. Accordingly, the AO disallowed the sum of
Rs.74.39 lakhs cited above under section 40A(3) of the Act.
5. In the appellate proceedings, the ld. CIT(A) took the view that the
Memorandum of Understanding entered by the assessee with the sellers of
plots did not specify the manner of payment of the consideration and
further the MOU was entered into by the assessee much prior to the date
of allotment of plots under 12.5% scheme drawn by the CIDCO.
3 I T A N o . 3 3 0 9 / M/ 2 0 1 2
Accordingly, the ld. CIT(A) took the view that the claim of payment of cash
was not confirmed by the assessee. When questioned, the assessee filed
details of payment paid to the sellers and also filed an affidavit given by
the Manager of the assessee who deposed that he did not pay any sum
exceeding Rs.20,000/- on a single day. Further the assessee also filed
copies of confirmation letters obtained from the sellers of the land,
wherein they confirmed that they did not receive any amount exceeding
Rs.20,000/- in a day. However, the ld. CIT(A) took the view that the
confirmation letters filed by the assessee did not furnish the details of
dates and payments received by them. Accordingly, the ld. CIT(A) took
view that the claim of the assessee remained unsupported and accordingly
confirmed the action of the AO in making disallowance u/s 40A(3).
6. We heard the parties on this issue and perused the record. We
notice that the assessee has furnished ledger account copies of the sellers
of plot and a perusal of the same would show that the payment made to
each of the seller was less than Rs.20,000/- in a day and hence the said
payments did not exceed the limit prescribed under the provisions of
section 40A(3) of the Act. There is no dispute with regard to the legal
position of law that the disallowance u/s 40A(3) of the Act is not attracted
during the year under consideration, if the single payment made to a
person does not exceed Rs.20,000/-. We notice that the assessee has
also furnished an affidavit obtained from the employee of the assessee,
wherein he has confirmed that he did not disburse any sum exceeding
Rs.20,000/- in a day to any single person. The said affidavit is in
conformity with the entries made in the books of account. In addition to
the above, recipients of the cash have also furnished confirmation letters,
wherein they have confirmed that they did not receive cash exceeding
Rs.20,000/-. Thus, we notice that the employee of the assessee who
made disbursements have confirmed about the factual aspects and the
4 I T A N o . 3 3 0 9 / M/ 2 0 1 2
same is also corroborated with the entries made in the books of account.
Further, the recipients of the cash have also confirmed the said position.
Thus, it is seen that all the parties to the transactions have confirmed the
factual aspects and the same is also corroborated by the entries made in
the books of account. It is pertinent to note that the assessing officer has
accepted the books of account. Further, he has also not brought on
record any other material to show that the submissions so made by the
assessee as well as the entries made in the books of account were false.
Under these set of facts, we are of the view that the tax authorities are
not justified in rejecting the submissions of the assessee without bringing
any other contrary materials on record. The said action of the assessing
officer would show that he has made the disallowance u/s 40A(3) of the
Act on surmises and conjectures. It is well settled proposition of law that
the suspicion, how so ever be strong, cannot replace the evidences
available on record. The Ld CIT(A) has observed that the confirmation
letters filed by the sellers of the plot did not give the details of payments
received by them and hence he rejected the same. However, the details
are available in the books of accounts of the assessee and hence, we are
of the view it is not correct to reject the confirmation letters. Further, in
our view, the observations made by the Ld CIT(A) with regard to the date
of entering into MOU are not material to the issue under consideration,
since the sale of plots so purchased by the assessee has been accepted
and the assessee is showing the same as his business income. Further,
the question of disallowance u/s 40A(3) would arise only, if the purchases
are accepted, i.e., with regard to the expenses with are otherwise
allowable under the Act. Further, we notice that the assessing officer did
not examine the recipients of the cash in order to disprove the claim of the
assessee as well as the confirmation letters given by them. Hence, we are
of the view that the disallowance made u/s 40A(3) of the Act is not
5 I T A N o . 3 3 0 9 / M/ 2 0 1 2
justified. Accordingly, we set aside the order of Ld CIT(A) on this issue
and direct the assessing officer to delete the impugned addition.
7. The next issue relates to the disallowance of Rs.22 lakhs out or
purchases of land. The AO noticed that the assessee has purchased plots
from M/s Laxman Mhatre and others and also paid Rs.22 .00 lakhs by way
of cash. The AO was of the view that the assessee has not entered into a
MOU with the above said parties and accordingly took the view that the
genuineness of the above said payment is not substantiated. Accordingly,
he disallowed the sum of Rs.22 lakhs, referred above. However, since the
very same amount was disallowed by him u/s 40A(3) of the Act, the AO
gave telescoping benefit to the same and accordingly did not make
separate addition. The ld. CIT(A) also confirmed the disallowance so
made by the AO.
8. We have heard the parties on this issue and perused the record.
We notice that the AO has taken the view that there is no MOU between
the assessee and Laxman Mhatre and others. Accordingly, he has
proceeded to disallow the cash payment of Rs.22.00 lakhs by holding that
the genuineness of payments was not proved. Before us, the ld. AR
submitted that the assessee has already furnished copies of MOU entered
between the assessee and M/s Laxman Mhatre and others. He also
submitted that the copies of the MOU are placed at pages 21 to 27 of the
assessee's paper book. We notice that the AO has proceeded to examine
this issue with the misconceived notion that there is no MOU between the
assessee and M/s Laxman Mhatre and others. We notice that the AO
himself has disallowed the very same amount of Rs.22 lakhs u/s 40A(3) of
the Act, meaning thereby, the AO himself has accepted the genuineness of
purchases as well as the payments, since the question of disallowance u/s
40A(3) would arise only in respect of genuine expenditure only. We further
6 I T A N o . 3 3 0 9 / M/ 2 0 1 2
notice that the assessee has entered into a MOU with M/s Laxman Mhatre
and others for purchasing the land for a sum of Rs.28.65 lakhs, out of
which a sum of Rs.22 lakhs was paid by way of cash and the balance
amount was paid by way of cheque. We notice that the AO has accepted
the cheque payment of Rs.6.65 lakhs, which means that the assessing
officer believes a portion of purchases and hence, in our view, he is not
justified in disbelieving the remaining part. We may state here that the AO
could have examined the said claim of purchases, by ascertaining the
market value and accordingly proved that the payment of Rs.22.00 lakhs
made by way of cash is in excess of the prevailing market value, in which
case, there could have been some justification. We notice that the AO did
not make any such enquiries. In fact, as stated earlier, the AO has
proceeded with the misconceived notion that there is no MOU, which was
factually incorrect. It is well settled that the AO cannot be given a chance
for mistake committed by him. Accordingly, we are of the view that the AO
has made the disallowance of Rs.22 lakhs on misconceived notions,
without properly examining the documents. We also notice that the Ld
CIT(A) has also committed error in confirming this disallowance.
Accordingly, we set aside the order of Ld CIT(A) on this issue and direct
the assessing officer to delete this addition.
9. The next issue relates to disallowance made under section 14A of
the Act. The assessee received dividend income of Rs.32,819/- and
claimed the same as exempt. The AO worked out the disallowance under
section 14A r.w.r.8D at Rs.82,367/- and added the same to the total
income of the assessee. The ld. CIT(A) also confirmed the same.
10. We heard the parties on this issue. The Ld A.R submitted that the
disallowance worked out by the AO is exceeding the amount of dividend
and accordingly pleaded that the disallowance made by the AO may be
restricted to the amount of dividend. He further submitted that the
7 I T A N o . 3 3 0 9 / M/ 2 0 1 2
dividend of Rs.11,239/- received from the mutual funds were not claimed
as exempt and accordingly it has been offered to tax. However, the AO
has worked out the disallowance by considering the investments made in
the mutual funds also. He submitted that the investments have drastically
come down during the year under consideration. Accordingly he submitted
that the disallowance worked out by the AO is on the higher side. On the
contrary, the Ld D.R submitted that the AO has worked out the
disallowance as per Rule 8D only.
11. Thus, according to the assessee, the dividend received from mutual
funds has not been claimed to be exempt, but offered to tax. The AO has
worked out the disallowance by considering the investments made in
mutual funds also. Since, the disputed disallowance is only about
Rs.82,000/-, considering the smallness of the amount and also considering
the various submissions made, we are of the view that this issue may be
put at rest by sustaining the addition to the extent of Rs.50,000/-.
Accordingly, we set aside the order of Ld CIT(A) on this issue and direct
the AO to restrict the disallowance to Rs.50,000/-.
12. The next issue relates to disallowance made out of expenses. The
assessee had claimed expenses towards car, telephone and business
promotion. The AO took the view that the disallowance of 1/5 of the
expenditure by holding that the personal element involved in these
expenses cannot be ruled out for these expenses. The Ld CIT(A) also
confirmed the same. We notice that the AO disallowed 1/5th of following
expenses:-
Car Expenses 75,488
Telephone expenses 1,20,473
Business Promotion expenses 2,59,439
-----------------
4,55,400
=========
8 I T A N o . 3 3 0 9 / M/ 2 0 1 2
With regard to car and telephone expenses, we also agree with the view of
the AO that the involvement of personal element cannot be ruled out.
However, with regard to the Business promotion expenses, we are of the
view that the AO should have analysed the nature of expenses before
coming to such a conclusion. We notice that the Ld CIT(A) also did not
examine this aspect. Accordingly, we set aside the order of Ld CIT(A) and
direct the AO to make disallowance out of Car and Telephone expenses
only.
13. In the result, the appeal of the assessee is partly allowed.
Pronounced accordingly on 2nd September, 2015.
2nd September, 2015
Sd sd
(LALIT KUMAR) ( B.R. BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai: 2nd
Sep, 2015.
.../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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