The Commissioner Of Income Tax Faridabad v. M/S Alpha Toyo Ltd

In the High Court for the States of Punjab and Haryana at Chandigarh… The Commissioner of Income Tax Faridabad Versus M/s Alpha Toyo Ltd. ITA No. 545 of 2007 Date of decision: 29.2.2008 .. Appellant .. Respondent Coram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar Garg Present:Mr.Yogesh Putney, Advocatefor the appellant-Revenue. Rakesh Kumar Garg,J 1.The Revenue has filed the present appeal under Section 260-A ofthe Income Tax Act (for short “the Act”)against the order dated 22.12.2006passed by the Income Tax Appellate Tribunal, Delhi Bench “E” New Delhi in ITANo.5496/DEL/04 for the Assessment Year 1990-91, raising the followingsubstantial questions of law for consideration of this Court:- (a) Whether on the facts and in the circumstances of the case,the Hon'ble ITAT was right in law in deleting the disallowance ofRs.19,31,000/- made by the Assessing Officer under Section40A(3) of Income Tax Act, 1961 particularly in view of the factthat Auditor had himself pointed out in Tax Audit Report filedwith the return that assessee had made cash payments ofRs.19.71 Lacs in contravention of Section 40A(3) of IncomeTax Act ? b) Whether on the facts and in the circumstances of the case,the Hon'ble ITAT erred in law in confirming the finding of Ld.CIT(A) that onus was on the Assessing Officer to prove that theentries originally made in the books were relating to payment on account of expenditure and not loans and advances ignoringthe fact reported by the Auditor in the Tax Audit Report and thefact that the assessee contended 1[st] time before ITAT only thatthese payments were of capital nature ? 2.The Assessee is a company. It manufactures switches. In theassessment order passed for the A.Y. 1990-91 u/s 143(3) of the Act, theAssessing Officer made an addition of Rs.19,71,000/- by invoking the provisionsof S. 40A(3) of the Act. The assessee had made cash payments to M/s AsahiAlfa Ltd., M/s Niko Auto Ltd. and M/s Toyo Mirrors (P) Ltd. The disallowancemade by the Assessing Officer was confirmed by the Commissioner of IncomeTax (A). On further appeal by the assessee to the Tribunal the issue wasremanded to the Assessing Officer for a fresh adjudication. Before the Tribunalthe assessee took a plea that the payment of Rs.19.71 lakhs made to threeparties which were disallowed by invoking S.40A(3) were expenditure of capitalnature and therefore was not covered under the provisions of S.40A(3) of theAct. On such submissions the Tribunal remanded the matter to the AssessingOfficer for fresh adjudication. 3.On such remand by the Tribunal the Assessing Officer again tookup the issue of disallowance u/s 40A(3) of the Act for consideration. Theassessee explained in the remand proceedings that the cash payments weremade to the parties in question in respect of amounts standing as due andpayable to them towards advances and that none of these payments was onaccount of revenue expenditure debited in the Profit and Loss account. Theassessee also explained that the recipients of these payments had to makepayment of dues to the government like excise duty, sales tax and payment toworkers. The necessary copies of the accounts of the recipient companies andthe books of accounts of the assessee were produced before the AssessingOfficer. According to the Assessing Officer there were several cuttings and overwritings and erasers in the accounts and vouchers. He therefore, concluded that the entries in the books of accounts were manipulated. He therefore, concludedthat the assessee failed to establish that the cash payments were made forcapital expenditure or for repayment of loans. He therefore upheld thedisallowances which were made in the original assessment proceedings. 4.On appeal by the assessee the Commissioner of Income Tax(A)deleted the addition made by the Assessing Officer for the reasons given inparagraph 2.2 to 2.4 of this order which reads as follows:- the entries in the books of accounts were manipulated. He therefore, concludedthat the assessee failed to establish that the cash payments were made forcapital expenditure or for repayment of loans. He therefore upheld thedisallowances which were made in the original assessment proceedings. 4.On appeal by the assessee the Commissioner of Income Tax(A)deleted the addition made by the Assessing Officer for the reasons given inparagraph 2.2 to 2.4 of this order which reads as follows:- “The issue has been examined and the stand of the AssessingOfficer cannot be accepted. The ld. Counsel for the assessee hasrelied upon the annual report for 1989-90 and on page 19 of thereport under the head “loans and advances” balances as on31.3.1989 and that of March of 1990 have clearly been shown andthese and others have been supported by the details of 'loans andadvances' as per P.B. 49. Reference has also been made to theapplication made to the Tribunal under Rule 10 (PB 10-15) and aperusal of these documents clearly supports the claim of theappellant that these payments were not in the nature of anyexpenditure but were to square of the outstanding balances onaccount of loan and advances. By pointing out to the various erasings and over-writings theAssessing Officer has not been able to show that the paymentswere indeed on account of any expenditure. The onus was entirelyon the Assessing Officer to bring concrete evidence on record toclearly show that the payments were indeed for an expenditureincurred by the assessee in relation to the three differentconcerns. By simply referring to the cuttings and over writings theAssessing Officer has not been able to prove that these paymentswere not in the nature of 'loans and advances' but were forexpenditure. It was on the Assessing Officer to establish that, a) the entries originally made in the books and vouchers wererelating to 'payment on account of expenditure' covered u/s 40A(3)(b) and then these entries were cut, erased over writtensubsequently to make them appear as entries of 'loans andadvances'. Thus taking them out of the purview of S.40A(3). TheAssessing Officer, as is apparent from the order, failed to evenaddress this crucial and relevant issue. On the contrary, the balance sheet, the annual report andthe various documents clearly show the outstanding balancesunder the head 'loans and advances' and this fact has not beennegatedbytheAssessingOfficer.Underthecircumstances,keeping in view the entire set of facts andcircumstances, the disallowance of Rs.19,31,000/- of I.T.Act isdeleted.” 5.Being aggrieved against the order of the Commissioner of IncomeTax (Appeals), the Revenue filed the appeal before the Tribunal. The saidappeal was dismissed by the Tribunal vide order dated 22.12.2006. Hence thisappeal. 6.We have heard learned counsel for the Revenue. The Tribunal hasfound as a fact that the annual reports for the Assessment year 1989-90 of theassessee clearly show the outstanding loans to the three parties as on 1.4.1989.Copies of the loan account of the three parties for the period comprising theprevious year are also available on the record. The plea of the assessee that thepayments were made in respect of the capital account have been rightlyaccepted by the Commissioner of Income Tax(Appeals). The Assessing Officerwithout giving any finding on the issue has merely gone on the presumption thatthe books of accounts have been manipulated. The Assessing Officer has alsonot given a finding that the sum in question was actually revenue expenditurewhich were claimed as deduction in profit and loss account. 7.In view of the above finding of facts, the Tribunal has rightlyconcluded that the payment in question were made on account of capitalaccount, therefore, provisions of Section 40A(3) of the Act were not attracted.Thus, we do not find any merit in this appeal and no substantial question of lawarises for determination of this Court. Hence this appeal is dismissed. RAKESH KUMAR GARG) JUDGE February 29,2008 nk (SATISH KUMAR MITTAL) JUDGE