Facts :
In the course of the assessment proceedings for the assessment year 2007-08, the Assessing Officer noticed that the assessee had shown creditors’ outstanding at Rs. 1,95,17,664 as on 31-03-2007. He asked the assessee to give details of payments made to the said outstanding creditors in the subsequent years. Upon receiving the details from the assessee, the AO made enquiries with the concerned banks where the cheques issued by the assessee were presented for clearance. From the replies furnished by the bank, the AO noticed that the cheques issued in the name of the creditors M/s. Bhavi Enterprises, M/s. Patel Traders and M/s. Jayraj Traders were deposited in some other persons accounts. Cheques of amounts aggregating to Rs. 62,10,000 issued in favour of M/s. Bhavi Enterprises were deposited in accounts of another person. Cheques of amounts aggregating to Rs. 12,10,000 issued in favour of Patel Traders were deposited in accounts of other persons. The AO called upon the assessee to give details as to in which assessment year expenses have been claimed on account of the above creditors. The assessee expressed inability to furnish the reply. The AO concluded that the payments were made otherwise than by account payee cheques and accordingly Rs. 62,10,000 is required to be treated as income in the assessment year 2008-09 and Rs. 12,10,000 is required to be treated as income in the assessment year 2010-11. He reopened the assessment for the assessment year 2008-09 u/s. 147 of the Act. The assessee vide its reply informed the AO that the above mentioned parties were mediators who were entitled only to commission which is evident from the sample copy of the bill. Without prejudice, it was submitted that the purchases were made in the year 2004 and as the transactions related to the said year only 20% of the disallowance should be made of the amounts paid otherwise, than by account payee cheques or drafts as per provisions applicable in that assessment year. The AO added Rs. 62,10,000 to the total income of the assessee for assessment year 2008-09. Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.
Held :
The Tribunal found that there is no dispute about the facts. It noted that the expenses were incurred in the assessment year 2004-05 and the payment was made in the assessment year 2008- 09 by crossed cheques. It then noted the provisions of section 40A(3) as applicable in assessment year 2004-05 and also as applicable in assessment year 2008-09. It held as under: When we go through the provisions applicable in assessment year 2004-05 and assessment year 2008-09, we find that there are three major differences;
(i) The first difference is that, as per the provisions of the assessment year 2004-05, the assessee is required to make payment by way of crossed cheque/crossed bank draft whereas as per the provisions of assessment year 2008-09, the assessee is required to make payment by way of a/c. payee cheque/a/c payee bank draft;
(ii) The second difference is this, that as per the provisions applicable in assessment year 2004-05, the disallowance was to be made to the extent of 20% of payments made in contravention to the prescribed mode whereas, as per the provisions applicable in the assessment year 2008-09, such disallowance is to the extent of 100% of such payment in contravention to the prescribed mode;
(iii) The third difference is with regard to payment in a subsequent year in contravention to the prescribed mode. As per the provisions applicable in the assessment year 2004- 05, the disallowance was to be made in the relevant year in which the expenditure was incurred whereas as per the provisions of assessment year 2008-09, addition is to be made in the year in which payment in contravention to the prescribed mode was made by the assessee irrespective of the fact as to whether the expenditure was incurred in an earlier year. Now, the question to be decided by us, is as to whether if an expenditure incurred in the assessment year 2004-05 for which payment is made in the assessment year 2008-09, provision of section 40A(3) applicable in assessment year 2004-05 is required to be applied or the provisions in assessment year 2008-09 being the year of payment, are to be applied. The A O has applied the provisions of section 40A(3) as amended w.e.f. 01-04-2008, because the payments were made by the assessee in the assessment year 2008-09 and the claim of the assessee before us is this, that since the expenses were incurred in the assessment year 2004-05, such expenses are to be subjected to the provisions applicable in assessment year 2004-05.
The Tribunal noted that the decision of the Tribunal in the case of Anand Kumar Rawatram Joshi (supra) is under similar facts with small difference that in that case, the expenses were incurred in assessment year 2007-08 and the payments were made in assessment year 2008-09. It noted that in the said case the Tribunal has in para 8 held that if the liability is incurred up to 2007-08 but the payment made is in a subsequent year i.e., in the assessment year 2008-09 or any subsequent year, the provisions of section 40A(3) as applicable in that year in which the liability was incurred should be applied, as per which, if the assessee does not make payment for such a liability in a sum exceeding Rs. 20,000/- by an a/c payee cheque drawn on a bank or by an a/c payee bank draft, the allowances originally made shall be deemed having wrongly been made and the assessment order of that year in which liability was incurred should be rectified as per the provisions of section 154 and for the purpose of reckoning the limitation period of four years, it shall be reckoned from the end of the assessment year following the previous year in which the payment was so made.
The Tribunal held that the present issue is squarely covered in favour of the assessee by this Tribunal decision rendered in the case of Anand Kumar Rawatram Joshi (supra). Applying the ratio of the said decision, if the provisions of section 40A(3) as applicable in the assessment year 2004-05 are applied, no addition in the present year is justified and no disallowance can be made in the assessment year 2004-05 also because as per the provision of section 40A(3) as applicable in the assessment year 2004-05, the payments are required to be made by a crossed cheque/crossed bank draft and the assessee has made the payment by way of crossed cheque and, therefore, no disallowance is called for in the present case as per the provisions of section 40A(3) applicable for the assessment year 2004-05. The Tribunal allowed the appeal filed by the assessee.
