Heard Sri Suyash Agarwal, learned counsel for the assessee/appellant and Sri Gaurav Mahajan, learned counsel for the department.
This appeal filed under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') against the order dated 28.2.2017 of the tribunal relates to the assessment year, 2001-2002.
The following two substantial questions of law arise for consideration in this appeal:
(i) Whether the tribunal was legally justified in confirming the addition of Rs. 1,28,400/- on account of payment made in cash even though cash payment only up-to the limit of Rs. 20,000/- alone was permissible under Section 40 A (3) of the Act?; and
(ii) Whether the tribunal was justified in disallowing the expenses on account of after sale services and advertisement under Section 37 (1) of the Act merely for the reason that there was no agreement for the reimbursement of the said expenses to the supplier or manufacturer?
Section 40 A (3) of the Act as it existed in the relevant assessment year 2001-2002 had two subclauses (a) and (b). The relevant clause (a) of it reads as under:
"Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure."
In view of the above provision, the assessee was not supposed to incur any expenditure and to make payment thereof in cash in excess of Rs. 20,000/- and in case any higher amount is paid in cash, he shall not be allowed any deduction in respect of such expenditure. In other words, transactions of expenditure exceeding a sum of Rs. 20,000/- were required to be made by means of an account payee cheque or account payee bank draft to enable the claim of deduction in respect of such expenditure.
A plain reading of aforesaid provision reveals that the aforesaid limit of Rs. 20,000/- of payment in cash was in respect of a single transaction and there was no bar in making multiple transactions of the same amount on the same day or in favour of the same party.
The aforesaid provision was amended by the Finance Act, 2008 w.e.f. 1.4.2009 and the amended provision reads as under:
"Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure."
The aforesaid amendment provided and restricted the payment in cash to a person in a particular day upto the limit of Rs. 20,000/- for the purposes of claiming deduction in respect of expenditure. This is evident from the use of phrase "payment or aggregate of payments made to a person in a day" contained in Section 40 A(3) of the Act as amended w.e.f. 1.4.2009.
It is settled in law that any amendment of substantive nature in the taxation law is prospective in nature unless it is given retrospectivity. The aforesaid amendment, in the absence of any retrospectivity given to it, is prospective in nature and cannot be applied to the transactions which had taken place prior to its enforcement on 1.4.2009 much less to the transaction for the assessment year, 2001-2002.
The chart of the payments in respect of expenditure incurred by the assessee/ appellant in the aforesaid relevant year as contained in the assessment order itself reveals that all cash transactions are either of Rs. 20,000/- or less though there may be multiple transactionsin favour of one and the same party in a single day the aggregate of which exceeds Rs. 20,000/-. However, as in the said assessment year or prior to 1.4.2009 there was no restriction in making cash payment to a single party on the same day of various amounts aggregating to more than Rs. 20,000/- in cash, the same were allowable as deduction towards expenditure under Section 40 A (3) of the Act.
Accordingly, the tribunal committed an error of law in confirming the additions of Rs. 1,28,400/- on account of payment made in cash by taking the aggregate of transactions made to one party in a single day to be over Rs. 20,000/-.
In view of the above, the first question of law is answered in favour of assessee/appellant and against the department.
Now, coming to the second question aforesaid.
The assessee/appellant is a distributor of the products supplied by the manufacturer M/s. B.S. Agriculture Industries (India) Ltd. The cost of the advertisement and after sale services to the customers are all incurred by the manufacturer/supplier.
The assessee/ appellant showed reimbursement of the cost of advertisement and after sale services to the manufacturer/supplier. This has been disallowed under Section 37 (1) of the Act for the reason that there is no evidence on record to establish that the manufacturer/supplier had actually incurred any such expenses on after sale services or advertisement and there is any agreement between the parties for its reimbursement.
In this regard, submission of Sri Suyash Agrawal, learned counsel for the assessee/appellant is that the assessing authority itself in the past had allowed the above expenses under Section 37 (1) of the Act and that even in the subsequent assessment period has accepted the same. Thus, there is no justification on part of the tribunal for not allowing the above expenses as business expenses for the assessment year, 2001-2002.
The assessee/appellant is only a distributor. The advertisement expenses and after sale services are generally provided to the customers by the manufacturer or supplier through service centres. The cost thereof is realized by the manufacturer/supplier from the distributor irrespective of the fact as to whether any after sale services are actually availed by the customer or provided by the service centre.The payment of charges for after sale services to the manufacturer/supplier is not linked with the actual after sale services. Therefore, the cost of after sale services in any case is payable to the supplier/manufacturer.
In Commissioner of Income-tax Vs. Excel Industries Ltd. (2013) 38 taxmann. Com 100 (SC), three Judge Bench of the Hon'ble Supreme Court has relied upon Radhasoami Satsang Saomi Bagh Vs. CIT (1992) 193 ITR 321/60 Taxman 248 (SC) and Parashuram Pottery Works Ltd. Vs. ITO (1977) 106 ITR 1 (SC) and has observed that a consistent view, which has been taken in favour of assessee on some of questions arising for the past assessment years ought not to be deviated in the absence of any strong reason to take a different view.
In view of above, we are of the view that the expenses for advertisement and after sale services alleged to have been reimbursed by the assessee/appellant to the manufacturer/distributor as has been allowed in the past by the tribunal were allowable under Section 37 (1) of the Act in the relevant year also.
Accordingly, question no. 2 is also answered in favour of the assessee and against the department.
The appeal is thus allowed.