2016-VIL-985-ITAT-JAI

Income Tax Appellate Tribunal JAIPUR

ITA No. 625/JP/14

Date: 28.09.2016

M/s AJMER FOOD PRODUCTS PVT. LTD. C/O R.N. AGARWAL

Vs

THE JCIT, RANGE-2, AJMER

BENCH

Shri Kul Bharat, JM And Shri Vikram Singh Yadav, AM

JUDGMENT

Per Shri Vikram Singh Yadav, A. M.

This is an appeal filed by the assessee against the order of Ld. CIT(A), Ajmer dated 31.07.2914 wherein the assessee has taken following grounds of appeal:

(1) That on the facts and in law the Ld. CIT(A) has wrongly confirmed the addition of Rs. 45,12,111/- of Project expenses written off.

(2) That the ld. CIT(A) has erred in confirming the addition of Rs. 45,738/- u/s 40A(3).

2. In respect of ground no. 1, the brief facts of the case are that the assessee has claimed Rs. 45,12,111/- as “new project expenses written off”. The AO stated that there was an agricultural land at village Ganera, Pushkar in the name of Shri Manoj Kumar Sharda, MD of the assessee company which was taken on lease by the assessee company from the year 2007 for developing a resort and lease rent was being regularly paid. For constructing the resort, change of land was approved by Municipal Council, Pushkar and by the Senior Town Planner, Ajmer and hence work was started. However, in the year 2010, new rules were made effective and were received from the Senior Town Planner stating that a new s. 90A for change of land use and regarding the road width for a resort by the Government Authorities. Due to this all, the assessee again applied for change of land use as per the new s. 90A. Accordingly, the expenses incurred of Rs. 45,12,111/- on this project were written off as revenue expenditure. The claim of the assessee however did not find favour with the Assessing officer as well as with the ld CIT(A). Hence, the present appeal before us.

2.1 We now refer to the findings of the ld. CIT(A) which is reproduced as under:

“I have considered the contentions of the appellant as well as assessment order. It is seen that the assessee has claimed to have invested 45,l2,111/- on the leased land of the director of the assessee company for establishing a all together new project i.e. a Resort. The expenses were incurred between the years 2006-07 to 2010-11. During all these years, the said expenses were being capitalized by the assessee and no depreciation etc. was claimed. Due to introduction of new rules for land use and road width for the resort by the Government Authorities, assessee had to scrap the earlier project and applied for the change of land use as per the new rule i.e. 90A. However, it is apparent that the expenses incurred were shown and accepted all along as capital expenses by the assessee and in none of the years they were claimed as revenue expenses. The nature of expenses cannot change in the year when the said project was scraped. The nature of expenses remains the same as earlier claimed by the assessee from A.Y. 2007-08 to 2011-12. As such, this is the capital loss incurred by the assessee and said loss is not allowable to set off against the income from job work business of the assessee.

Also, it is not the case of assessee that assessee has incurred the above expenses as revenue expenses for the current business of manufacturing of biscuits of Parle biscuits on job work basis. Accordingly, the claim of the assessee is not liable to be set off as revenue expenses against above business.”

2.2 The Ld. AR argued the matter at length and has submitted through its written submissions as under:

1. Firstly, we strongly rely upon the written submissions filed before the ld. CIT (A) as under:

“Your honour here I would like to submit that the learned Assistant Commissioner has disallowed the expenses on two grounds:

1. That the expenses are capital in nature and same were kept in work-in- progress in schedule of assets. and

2. These expenses pertain to various preceding financial year.

That the Capital expenses are those expenses which were incurred with a view to bringing into existence as new asset and for the enduring benefit of a trade whereas, in the case of appellant no new asset came into existence and moreover the expenditure incurred previously was of no use due to change of government policy and the appellant has to demolish the ground work it is revenue expenses or may be taken as business loss which is allowable.

I rely on the following rulings:

CIT vs Priya Village Road Shows Ltd. 332 ITR 594 CIT vs Monnet Industries Ltd. 332 ITR 627

DCIT vs. Assam Asbestos Ltd. 263 ITR 357

Indo Rama Synthetics India Ltd. vs. CIT 333 ITR18

Lake Palace Hotels and Motels Pvt. Ltd. vs. CIT 213 ITR 735 (Raj)

Your honour in the aforesaid judgment the Rajasthan High Court held that the dismantling charges incurred by the assessee are capital in nature particularly when the new construction was done either in the year or in the succeeding years whereas, the appellant has already started the new project with amended rules of Rajasthan Govt. Hence this ruling is in favour of the appellant. Copies of sanctioned letter and copy of receipt of charges are attached herewith.

That without prejudice to above the total expenses includes expense of Rs. 15,00,000/- are of lease rent which was paid year to year and the rent was duly taxed in the hands of owner of the land year to year.

That the lease rent paid are revenue expenditure and there is no enduring benefit. I rely on the following ruling:

Band & Plantations and Ind. Ltd. vs CIT 242 ITR 22. Cit VS BPL Systems and Project Ltd. 227 ITR 779.

That as regards the second ground I have to submit that although the expenses incurred in previous year but due to Government orders which were received this year hence these expenses became bad this year only. Hence are allowable this year. Copy of sanctioned order is attached”

2. Expenditure was of revenue nature and not capital:

2.1 At the outset it is submitted that the entire subjected expenditure, the details of which was submitted before the authorities below and available at (PB 93), was clearly of revenue nature. The basic consideration of deciding whether a particular expenditure was capital expenditure, the test is that by incurring such expenditure a new asset must came into existence or it should result into an advantage of enduring nature. However, the authorities below have not applied their mind on this aspect. The bifurcation of the subjected expenditure clearly show that all the expenditures like design fees, travelling, garden exp., and misc. exp. were of revenue nature and they did not at all brought any asset into existence nor any advantage of enduring nature. Even the civil construction exp. related to the construction of a boundary wall and some other minor civil construction, which ultimately had to be demolished. Hence, the labor & wages incurred were a revenue expenditure. This is because of the peculiar facts that ultimately because of the changed rules and regulations/building bye laws, more particularly relating to the resort stood changed which fact has not been denied. The assessee feeling compelled had to demolish the earlier construction which was no use.

2.2 Under these circumstances the subjected expenditure was incurred for the purpose of business only. It was neither claimed nor allowed earlier as business expenditure. But since it didn't reached to completion stage, no asset having come into existence – the capital-work-in-progress had to be written off as such. by incurring such expenditure neither any new asset came  into existence nor any advantage of enduring nature resulted to the assessee nor it was so established.

3. This view finds support from following decision:

3.1 The factual matrix involved in the case of Binani Cement Ltd. vs. CIT (2016) 380 ITR 0116 (Cal)/(2015) 118 DTR 0061 (Cal) (DPB 1-6), is exactly similar as in our case in as much as in the cited case, the Tribunal reversed the disallowance made by the assessing officer holding that when construction/acquisition of new facility is abandoned at the stage of work in progress, the expenditure does not result in advantage of enduring nature and such expenditure, when written off, has to be allowed u/s 37 of the Income Tax Act, 1961 and therefore, our case is directly covered by the said decision, wherein, it was held that

“Business expenditure-Allowability-Tribunal disallowed expenditure allegedly incurred by assessee for preparation of feasibility study report and capital-work-in-progress in earlier years, which written off during previous year corresponding to assessment year 2002-03 since proposed project was abandoned-Held, facts of present case were covered in case of CIT vs. Graphite India Ltd. (1996) 221 ITR 420 (Cal) wherein it was held that expenditure made for construction/acquisition of new facility subsequently abandoned at work-in-progress stage was allowable as incurred wholly or exclusively for purpose of assessee’s business-Further there would have been no occasion to claim deduction if work-in-progress had completed its course- Because project was abandoned work-in-progress did not proceed any further-Decision to abandon project was cause for claiming deduction-Said decision was taken in relevant year-It can therefore be concluded that expenditure arose in relevant year-Assessee’s appeal allowed

Conclusion: Expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage is allowable as incurred wholly or exclusively for the purpose of assessee’s business.”

3.2 Similarly, in CIT Vs. Graphite India Ltd. (1996) 221 ITR 420) (Cal) (DPB 7-11), when the dispute was that whether the Tribunal was justified in holding that the expenditure incurred for the assessee’s proposed petro-chemical project was revenue expenditure and to be allowed as a deduction, it was held that:

“So far as question no.4 is concerned, the Tribunal recorded the finding that the assessee spent an amount of Rs. 56,665 as project expenditure. The expenditure represented fees paid to Engineering India Ltd. in connection with the petro- chemical project report. The amount was    paid by the assessee in order to explore the possibility of setting up of a petro-chemical project which could provide a captive plant for manufacture of raw material at the assessee’s own factory which would help the assessee in getting continuous supply of raw material even during periods of acute shortage. In fact, the project did not materialize. The Income-tax Officer as well as the Commissioner of Income-tax (Appeals), therefore, held that the expenditure was capital in nature. However, the Tribunal found that the expenditure did not result in bringing into existence any capital asset of enduring in nature. The Tribunal further found that the decision of the Calcutta High Court in the case of Hindusthan Aluminium Corporation Ltd. v. CIT [1986] 159 ITR 673 was applicable and following that decision held that the expenditure was allowable as incurred wholly and exclusively for the purpose of the assessee’s business. Therefore, the Tribunal deleted the disallowance. The case relied upon by the Tribunal was subsequently followed in the case of Asiatic Oxygen Ltd. v. CIT [1991] 190 ITR 328 (Cal). This court in the said case reiterated the view taken in Hindusthan Aluminium Corporation Ltd.’s case [1986] 159 ITR 673 (Cal). According to us, question no. 4 in this reference stands concluded by the aforementioned two decisions. We, accordingly, answer question no.4 in the affirmative and in favour of the assessee and against the Revenue.”

3.3 In Dalmia Jain & Co. vs. CIT (1971) 81 ITR 754 (SC) it was held that

“In deciding whether a particular expenditure is capital or revenue in nature, what the courts have to see is whether the expenditure in question was in curred to create any new asset or was incurred for maintaining the business of the company. If it is the former, it is capital expenditure. If it is the latter, it is revenue expenditure.”

3.4 In CIT vs. Pioneer Engg. Syndicate (1988) 38 Taxman 151 (Mad) it was held that

“It would not be enough to merely ascertain whether a particular expenditure has resulted in any advantage of an enduring character. The advantage must be in a commercial sense and, further, it must be in capital field. If there is a payment made on the ground of commercial expediency and if such payment does not result in the acquisition of any capital asset or an enduring benefit, merely because such payment is made to get rid of the liability which is much larger, the outgoing amount cannot be considered as capital in nature.”

4. Past history distinguishable and not binding:

4.1 In the earlier years the expenditure incurred was kept under the head work in progress, which is neither of revenue nature nor of capital nature but it was awaiting completion and thereafter was to be allocated. It was not the case of revenue that the assessee has shown such expenditure to be Capital-Work In Progress. Therefore, their allegation that in the past the assessee had been showing such expenses to be of capital nature and no depreciation was claimed, is nothing but was a misconception on their part. On the completion, when a new asset could be brought in to existence, all these expenses would have been allocated under the proper heads. Otherwise also, there is no estoppel against statue.

4.2 Case law which support that there is no estoppels, are as under:

4.2.1 In CIT vs. Escorts Auto Components Ltd. (2010) 323 ITR 0011/34 DTR 0280 (P&H) wherein it was held that

“Business expenditure-Capital or revenue expenditure-Expenditure on expansion of existing business-Assessee had incurred expenditure on diversification and expansion of new product range including acquisition of machinery to aid such expansion-Merely because the assessee has declared by giving a note in its original return that it was an expenditure pertaining to new project and is of capital in nature, the AO could not have treated the same as the capital expenditure-Moreover, the finding of the Tribunal that the expenditure incurred was revenue expenditure and/or for business purpose, has not been challenged, nor there is any challenge to the finding that no capital asset has come into existence-Expenditure was therefore allowable as revenue expenditure”

4.2.2 In CIT vs. Usha Iron & Ferro Metal Corpn. Ltd. (2008) 296 ITR 0140 (Del) wherein it was held that

“Business expenditure-Capital or revenue expenditure-Expenditure on establishment of unit for manufacturing raw material-Assessee engaged in manufacture of CTD bars, incurring expenditure on establishment of steel melting shop for manufacture of billets used as raw material for manufacturing CTD bars, same was for expansion of existing business, hence revenue expenditure-Fact that assessee had treated the amount as capital expenditure in its books would not bind it-No substantial question of law arise.

4.2.3 In Avery India Ltd. vs. CIT (1993) 199 ITR 745 (Cal) it was held that

“Whether or not an expenditure is revenue expenditure or capital expenditure does not depend on the admission of the assessee”

5. The expenses incurred for the purpose of same business:

5.1 The authorities below have also raised an objection that the subjected expenditure was not incurred for the purpose of business. The ld. CIT(A) has held that such expenditure could not have been given the benefit of set off against the income from job work business of the assessee. However, the authorities below have not appreciated the settled legal position in as much as it was a case of complete interconnection, interlacing and interdependence between the old business biscuit division and the new business of Resort.

The law is well settled that if there exist the interconnection, interlacing and interdependence the AO has not made out that the Biscuit division was entirely separate from the Resort. Infact, both these divisions are under the same management-control (there was a common board of directors) both the divisions. Further, there were common funds and both are financially interconnected. The accounting was common. All these facts are clearly evident from the Audited Balance Sheet.

5.2.1 Further the Hon’ble Rajasthan High Court in the case of Maharaja Shri Umaid Mills Ltd. vs. CIT (1989) 175 ITR 72 (Raj)/(1988) 68 CTR (Raj) 187 had an occasion to deal with this issue. There also the expenditure incurred in obtaining survey and feasibility report for setting up polyethylene plant for manufacturing packing material was treated as revenue expenditure as the new venture was interconnected and formed part of existing business.

5.2.2 In ACIT vs. Gravis Foods Pvt. Ltd. (2015) 44 CCH 0560 (Mum Trib) in para 12 it was held

“Interlacing of the accounts, management and control: It was a settled proposition in law that so long as there exists the interlacing of the control & management, interlacing of the accounts etc, no new business is said to have been set up. In the instant case, none of these tests are cleared. AO has not made out that the Mawa division was entirely separate from the points of the above and it is unconnected to the ‘ice-cream divisions. Actually, both these divisions are under the same management-control and are financially interconnected. In that sense, the CIT(A) had not applied his mind to the said settled legal propositions.”

5.2.3 In CIT vs. Monnet Industries Ltd. (2011) 332 ITR 0627/(2008) 16 DTR 0307 it was held that:

“Business expenditure-Interest on borrowed capital-Amount borrowed for setting up a new plant-Tribunal found as a fact that there was a common board of directors of the assessee company controlling the ferro alloys plant as well as the newly set up sugar plant, funds for the two plants were common and marketing of the final products of both divisions was carried out under the supervision and control of the same set of executives at the head office-Thus, the ferro alloys plant and the sugar plant were in the same fold of business- The fact that the loan or capital borrowed has been used for purchase or in connection with bringing into existence a capital asset or not, has no impact in determining whether the interest paid on borrowed capital ought to be allowed under s. 36(1)(iii)-As long as a loan is taken or capital is borrowed for the purposes of the business which has already commenced, assessee is entitled to claim deduction of interest paid thereon-In view of the finding of the Tribunal, it cannot be said that the assessee had not commenced its business and hence, interest has to be capitalized-Therefore, the interest was paid by the assessee on borrowed capital for the purposes of business and was rightly allowed as deduction under s. 36(1)(iii)

Held: The Tribunal found as a fact that there was a common board of directors controlling the ferro alloys plant as well as the sugar plant which operated from the head office located at Delhi, funds for the two plants were common and hence, there was intermingling and interlacing of funds as also the fact that even though the two divisions were geographically located at different sites, marketing of the final products was carried out under the supervision and control of the same set of executives at the head office. Thus, there is no difficulty in holding that the sugar plant and the ferro alloys plant were in the same fold of business.

5.2.4 In Jay Engineering Works Ltd. vs. CIT (Del) (2009) 311 ITR 0405/ (2008) 166 Taxman 0115 it was held that

“The nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be distinct. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity. However, the funds utilised for the management of both the concerns must be common as reflected in the balance sheet of the company. The control over the two units is in the hands of the same management and administration. There is no doubt on this score and in fact, the annual report of the assessee makes a reference to the project at Hyderabad. There can be no dispute from the facts that have been placed on record that the new venture was managed from common funds and there is the necessary unity of control leading to an interconnection, interdependence and interlacing of the two ventures such that it can be said that the fuel injection equipment project is only an extension of the existing business of the assessee and, therefore, the expenditure incurred by the assessee on this project is a revenue expenditure.

5.2.5 In Indo Rama Synthetics (I) Ltd. vs. CIT (2011) 333 ITR 0018/(2009) 32 DTR 0322 (Del), wherein exactly on similar facts and circumstances it was held that

“The expenditure incurred was in the nature of salary, wages, repairs, maintenance, design and engineering fee, travelling and other expenses of administrative nature. Indubitably, in normal course, these expenses would be treated as revenue expenditure. The unit, which the appellant proposed to set up, had inextricable linkage with the existing business of the appellant. The proposed business was not an individual business but vertical expansion of the present business. Thus, test of existing business with common administration and common fund is clearly met. Since the project was abandoned, no new asset also came to be created. The authorities below adopted a wrong approach by not treating the expenditure as revenue expenditure only because the unit was to be set up in Karnataka, which was geographically at a distance from the existing unit.-Indo Rama Synthetics (I) Ltd. vs. Dy. CIT (2009) 31 DTR (Del)(Trib) 42 set aside; CIT vs. Priya Village Roadshows Ltd. (2010) 228 CTR (Del) 271 and CIT vs. Monnet Industries Ltd. (2009) 221 CTR (Del) 266 :  (2008) 16 DTR (Del) 307 followed; Veecumsees vs. CIT (1996) 133 CTR (SC) 500 : (1996) 220 ITR 185 (SC) relied on.”

6. The subjected expenditure was rightly claimed as revenue exp in this year in the facts of the present case and this aspect is also directly covered by the case of Graphite (Supra) wherein, it was held:

“11. Following the judgment in the case of Gajapathi Naidu (supra) the question to be asked is when did the expenditure claimed by way of deduction arise? There would have been no occasion to claim the deduction if the work- in-progress had completed its course. Because the project was abandoned the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year.”

7. Lease paid is revenue expenditure:

7.1 Further there can be a least doubt that annual lease paid totaling to Rs. 15,00,000/- by the assessee this year and in the past, is a revenue expenditure. Such expenditure does not bring into any new asst into existence nor any advantage of enduring nature and hence fully allowable u/s 37(1) of the Act. Even where, the assessee made an attempt to claim depreciation on expenditure incurred on leasehold land by taking help of Explanation 1 to s. 32(1), the same was denied in the case of CIT vs. TVS Lean Logistics Ltd (2007) 293 ITR 0432/212 CTR 0536 (Mad).

3. The ld DR is heard who has relied on the order of the lower authorities.

4. We have heard the rival contentions and perused the material available on record. During the year under consideration, the assessee has claimed an amount of Rs. 45,12,111/- as new project expense written off in its profit and loss account. The expenses relates to development of a resort on a piece of land taken on lease at village Ganera, Pushkar. The work of constructing the resort was started in the year 2007 after seeking necessary change in land use and other approvals by Municipal Council Pushkar and by the Senior Town Planner, Ajmer. During the year under consideration, there were policy changes introduced by the Govt. authorities in terms of ‘change of land use’ and the width of the road etc. Consequent to such changes in the govt. Policy, the appellant had to abandoned the existing project. Therefore, the decision was taken during the year to write off the expenses of Rs. 45,12,111/- which have been incurred right from the year 2007 onwards and reflected in the books of accounts under the head “work in progress”. The said expenditure relates to lease rent, design fees, travelling expenses, garden expenses as well as expenses relating to construction of boundary wall and some other minor civil construction works. In the above factual matrix, the question that arises for consideration is whether the assessee is eligible to claim the said expenditure in respect of a resort being developed which is being abandoned at the stage of work in progress due to the change in the govt. policy regulating the developments of such resort. Given that the resort has been abandoned at the stage of work in progress, the expenditure incurred has not resulted in creation of any new asset(s) or has not resulted into an advantage of enduring nature in the hands of the assessee. Even looking at the nature of expenditure except for the expenditure relating to construction of boundary wall and some other minor civil construction work, all the expense are in the nature of revenue expenditure. Even in respect of expenditure relating to construction of boundary wall, it is more in the nature of temporary construction which has been done by the assessee and which ultimately had to be demolished. The decision of Hon’ble Kolkata High Court in the case of Benani Cement Ltd. (supra) and Graphite India Ltd. (supra) directly supports the case of the assessee. Further, in respect of whether there is complete inter connection, interlacing and interdependence between the biscuit division and the new business relating to development of resort, the ld. AR has submitted that both these divisions are under the same management control, having common funds and financially and economically are interconnected. The said facts remain uncontroverted before us. The decision of Hon’ble Delhi High Court in case of Jay Engineering Works Ltd. (supra) directly supports the case of the assessee wherein it was held that “the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be distinct. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity. However, the funds utilized for the management of both the concerns must be common as reflected in the balance sheet of the company. The control over the two units is in the hands of the same management and administration.” Further, the decision of Hon’ble Rajasthan High court in the case of Maharaja Shri Umaid Mills (supra) also supports the case of the assessee.

In light of above and given the facts that the decision to abandon the project was taken during the year due to the change in govt. Policy, the expenses relating to the resort which have been written off in the books of accounts have been rightly been claimed by the assessee as revenue expenditure. In light of above, the  ground taken by the assessee is allowed.

4. Now, coming to ground no 2, the AO observed that the assessee had made cash payment of Rs. 25,328/- to shri Dattar Singh on account of wrapper cutting charges and Rs. 20,410 for purchase of spare parts to Techmech Electricals and disallowed the same u/s 40A (3) of the Act.

4.1 In the first appeal, the ld. CIT(A) confirmed the addition holding that “assessee has made the payment of Rs. 25,328/- and Rs. 20,410/- on 15.11.2010 and 18.05.2010 in cash in violation of provisions of S. 40A (3) of the I.T. Act. The assessee has not shown how the assessee’s case is covered under Rule 6DD as per which in excess of 20,000/- can be allowed. The circumstances cited by the assessee do not fall under the exceptions mentioned in rule 6DD I.T. Rules. Accordingly, the addition made by the AO is confirmed.”

4.2 The ld AR submitted that he strongly rely upon the written submissions filed before the ld. CIT (A) (PB 144-148) which is reproduced as under:

“Here I would like to submit that the appellant paid Rs. 25,328/- in cash to Shri Datar Singh because the party insisted to give the amount in cash hence the appellant paid in cash in the ordinary course of business and for the purpose of business. That similarly the appellant purchased spare parts from M/s Techmech Electrical, Delhi for Rs. 20,410/- in cash. That the appellant don’t have any bank account in Delhi and the out stationed parties do not accept the cheques. That in view of above mentioned facts the addition of Rs. 45,738/- is uncalled for and requires to be debited.”

4.3 The ld AR further submitted that in the case of Anupam Tele Services vs. ITO (2014) 88 CCH 035 (Guj)(DPB 12-20) the Hon’ble Gujarat HC, followed the decisions in case of Attar Singh Gurumukh Singh vs. ITO (1991) 191 ITR 667 (SC) holding that the said decision did not eliminate consideration of business expediencies. It was held that where there were peculiar facts wherein the payee insisted upon cash payment only, and following the decision in the case of Harshila Chordia vs. ITO (2008) 298 ITR 349 (Raj)(DPB 21-28), it was held that in such case rigors of Sec.40A(3) of the Act must be lifted and the ITAT erred in solely relying upon the rule 6DD(r) by which they founded the subjected payment was not covered. In the case of Harshila Chordia (Supra), it was observed that the exceptions contained in rule 6DD are not exhaustive and that the said rule must be interpreted liberally.

In the present case also, the admitted facts are that the identity and existence of the payees and genuineness of the transactions, are not at all disputed, however it was only because of the insistence of the seller, the assessee has to pay in cash to Datar Singh, whereas in the second case the appellant didn't have any bank account at Delhi, the place where payment was made and the payee insisted on cash payments. These facts are not denied. Though contended before CIT(A) but was not judiciously appreciated.

4.5 The genuineness of the transaction as well as the identity of the payee  are not disputed. Further, the appellant has explained the business expediency of making the cash payments to both the parties which has not been controverted by the Revenue. Following the decision of Gujarat High Court in case of Anupam Tele Services (supra) and Rajasthan High Court in case of Harshila Chordia (supra), the addition of Rs. 45,738 under section 40A(3) is deleted.

In the result the appeal filed by the assessee is allowed.

Order pronounced in the open court on 28/09/2016.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.