Calcutta High Court
Commissioner Of Income-Tax vs Himachal Terepene Products Pvt. Ltd. on 8 March, 2004
Equivalent citations: (2004)192CTR(CAL)344, [2004]269ITR538(CAL)
Author: Soumitra Pal
Bench: Soumitra Pal
JUDGMENT
1. The instant reference is at the instance of the Revenue under Section 256(1) of the Income-tax Act, 1961, whereby the following question of law arising out of the order dated September 6, 1993, of the Tribunal in I. T. A. No. 783/Cal of 1990 has been referred for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 2,42,342 made under Section 40A(3) of the Income-tax Act, 1961 ?"
2. The brief facts of the case are that the Assessing Officer (AO) found that the aforesaid sum of Rs. 2,42,342, break up of which according to the assessee, is as under :
Rs.
Coal account (freight) 31,860
Sales and forwarding 23,750
Stores purchase 23,374
Raw materials account (freight) 45,547
Miscellaneous 40,866
Freight 76,945
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2,42,342"
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was paid in cash and, therefore, the Assessing Officer held that the said payments were hit by the provisions of Section 40A(3) of the Income-tax Act, 1961. It was pointed out in his order that the assessee only produced the names of persons and vouchers in certain cases and did not give full particulars and addresses of the persons or any particulars such as sales tax number, permanent account number, etc., were produced by the assessee. Relying upon the Central Board of Direct Taxes No. 220 dated May 13, 1977 (see [1977] 108 ITR (St.) 8), the Assessing Officer held that the provisions of Rule 6DD(j) could not be applied. The Assessing Officer, therefore, disallowed the aforesaid sum and added the same to the income of the assessee. The assessee being aggrieved by the said order filed an appeal before the Commissioner of Income-tax (Appeals) who confirmed the action of the Assessing Officer. Aggrieved thereby an appeal was preferred and the Tribunal allowed the appeal of the assessee.
3. Mr. R.K. Chowdhury, learned counsel for the Revenue, contended that admittedly various payments have been made by the assessee during the assessment year in question (1985-86) in cash in excess of Rs. 2,500. In the light of the evidence produced by the assessee the same do not qualify for allowance under Rule 6DD or the Board circular and, therefore, the requirements of the rule and circular having not been met, the Tribunal ought not to have interfered with the orders of the Assessing Officer as confirmed by the Commissioner of Income-tax (Appeals).
4. On behalf of the assessee, Mr. J. P. Khaitan, sought to sustain the order of the Tribunal. It was submitted that disallowance made by the Assessing Officer as confirmed by the Commissioner (Appeals) is wholly unjustified in the instant case. It was further urged that there are exceptional circumstances for making the payments in cash. The circumstances enumerated in the Central Board of Direct Taxes circulars are not exhaustive but only illustrative, it was urged.
5. Heard learned counsel for the respective parties.
6. The Supreme Court in Attar Singh Gurmukh Singh v. ITO , while upholding the validity of Section 40A(3) of the Act, also held that the Section 40A(3) must not be read in isolation or to the exclusion of Rule 6DD. If read together it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. With respect of Rule 6DD, it was observed that it provides that an assessee can be exempted from the requirement of payment by a crossed cheque in the circumstances specified under the rule. It was further held that payments made in purchasing stock-in-trade or raw materials should also be regarded as expenditure for the purpose of Section 40A(3).
7. The judgment of this High Court in Giridharilal Goenka v. CIT [1989] 179 ITR 122 is of no assistance to the assessee in the case on hand as that judgment was rendered prior to the judgment of the Supreme Court in Attar Singh Gurmukh Singh's case , wherein the Supreme Court observed, as already noticed, that genuine and bona fide transactions are not taken out of the sweep of Section 40A(3).
8. The Commissioner of Income-tax (Appeals) in his order has considered the evidence on record also in the light of Rule 6DD and the guidelines laid down by the Central Board of Direct Taxes in their Circular No. 220 dated May 31, 1977 (see [1977] 108 ITR (St.) 8).
9. The Assessing Officer as also the Commissioner of Income-tax in his order confirming the order of the Assessing Officer held that no evidence has been produced to show that there were exceptional or unavoidable circumstances justifying the payments in cash. The Tribunal as a final fact-finding authority has not arrived at any findings of fact to the contra, instead it proceeded on the basis that what is to be seen is whether the claim was excessive or fictitious. It took the view that where the turnover is more than Rs. 1 crore, the expenditure in question does not appear to be excessive or unjustified. We cannot sustain the said view in the light of the provisions contained in Rule 6DD or the Central Board of Direct Taxes circular.
10. Unless the Tribunal had arrived at a finding of fact that exceptional circumstances existed to warrant payments in cash or that the payment by crossed cheque was not practicable or would have caused genuine difficulty to the payee, the order ought not to have been interfered with by the Tribunal. The consideration which weighed with the Tribunal, as noticed supra, does not fall within the exceptional or unavoidable circumstances.
11. Without prejudice to his aforesaid contentions and in the alternative it was contended by Mr. Khaitan that as the Tribunal has not properly appreciated the facts, the matter may be remanded for fresh disposal. Reliance was placed upon several judgments.
12. Mr. Chowdhury, learned counsel for the Revenue, submitted that the judgments relied upon by Mr. Khaitan are distinguishable and the case on hand is not one which warrants remand for fresh disposal by the Tribunal.
13. We are in agreement with the submissions made by Mr. Chowdhury. The instant case is not one where the Tribunal has not properly appreciated the facts as was found in Jeessop's case . It is also not a case where the relevant facts have not been noticed or stated by the Tribunal as in Bengal Potteries's case . Unlike the matter in CIT v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474 (SC) the case on hand is not one where the Tribunal gave no finding on the issue raised before it. A distinction has to be drawn between a case of no finding and the one on hand where a wrong conclusion is arrived at without arriving at a finding to the contra based on record before it. It is also not a case, in our view, that the Tribunal did not consider the relevant evidence. As already noticed supra, the finding of the Commissioner of Income-tax subject matter of appeal before the Tribunal was to the effect that no evidence has been produced to show that there were exceptional or unavoidable circumstances justifying the payments. The judgment in Jiwanram Sheoduttrai v. CIT , therefore, is also not applicable.
14. Unlike the case before the Supreme Court in Salem Co-operative Central Bank Ltd. v. CIT , the Tribunal has not in the case on hand proceeded on an assumption which was erroneous in law. The case on hand is one where it is the conclusion arrived at by the Tribunal, which is erroneous in law. It is also not a case as in Sarda Plywood Industries Ltd. v. CIT , where the Tribunal had failed to take into consideration the relevant fact and/or relevant provision of law to warrant the remand of the matter back to the Tribunal.
15. We accordingly decline the said request of learned counsel for the assessee in the facts and circumstances of the case and for the reasons aforestated we answer the question referred for our opinion in the negative and in favour of the Revenue and against the assessee.
16. Reference is accordingly disposed of.
17. Urgent certified copy of this judgment and order is to be supplied to the parties, if applied for, on priority basis.
18. All parties are to act on a signed copy of the operative portion of the judgment on the usual undertaking.