The compnay has entered into ORAL contract with a contractor(for supply of labour at factory premises).
but after few days the contractor left the city and the company directly made payment to all the labourers (nearly 200 individuals) and payment was made in cash as it was below 20000 per head.
But when entry was made in the books, it was booked in the name of the ORIGINAL CONTRACTOR and the amout was nearly 15,00,000/-.
Now the AO is disallowing the amount under section 40A(3).
06 February 2013
1. Payments have been made to the Individuals within permissible limit. To substantiate your contention, the vouchers or Wages register showing receipts by the workers will play a crucial role. Produce the same before the AO. . 2. The substance over form will prevail at the appeal stage only. (AO may not agree with you.) . 3. If you can prove that - the payment has been merely recorded in the name of the contractor but actually was not made to him then on the basis of facts the expenditure will be allowed. . 4. Right now- I can not mention the case law- but revert back soon with the same. .
Please suggest, whether the following case law would help:
Disallowance u/s. 40A(3) for consolidated entry of cash payment in excess of Rs. 20000/- at year end? A.O. In his assessment order has stated that the impounded disc. containing the books of accounts under JR-I & JR-2 from where the cash payments on 31.03.2008 were found, were not manually entered as apparent from the printout. The entries were computerized, not manual. Furthermore, as stated in the submissions dated 24.12.2010, it is not tenable as during the survey, no corroborative evidence and documents were found in support of assessee’s claim from business premises. The same has been repeated by the AO in the Remand Report also. But to that contrary it is observed from the ledger account filed by assessee as reported in the preceding paragraphs and the assessee’s contentions also is that the ld. CIT(A) should have considered that all the parties from whom the assessee purchased goods, were old and regular parties with whom assessee maintains current account regularly. The Ld. CIT (A) should have also considered the Tax Audit Report which shows that” the assessee firm has maintained Cash BookBank Book, General Ledger, Party Ledger, Sales / Purchase Register, Journal & Stock BookManual & Computer System”. Therefore, we set aside the order of the revenue authorities on this issue and direct AO to verify the entries made in the ledger account of 14 parties as mentioned in the paper book and if it is found that the payments as recorded in the ledger account are tallying with the cash book, then in our considered opinion, no addition is required to be made by placing reliance on the computer statements which are not having any corroborative evidences. INCOME TAX APPELLATE TRIBUNAL, KOLKATA ITA No.145/Kol/2012 – Assessment Year: 2008-09 M/s. Shalimar Floors Kolkata -Versus- I.T.O. Date of Pronouncement: 16.05.2012. ORDER
07 February 2013
For deriving contention in your submission, you may take help of the case law up to some extent. Point of business expediency must be raised. Also go through other case laws, quoted in this case.
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