Income Tax Appellate Tribunal - Delhi
M/S Galaxy Dwellers (P) Ltd.,, New Delhi vs Dcit, New Delhi on 15 September, 2017
1
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
IN THE INCOME TAX APPELLATE TRIBUNAL
[ DELHI BENCHES : "C" NEW DELHI ]
BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER
AND SHRI O. P. KANT, ACCOUNTANT MEMBER
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
M/s. Galaxy Dwellers (P) Ltd., Dy. Commissioner
C/o. M/s. RRA TAXINDIA, Vs. of Income Tax,
D-28, South Extension, Part-I, Central Circle : 4,
N e w D e l h I - 110 049. New Delhi.
PAN : AACCG 3782 C
(Appellant) (Respondent)
Assessee by : Shri Ashwani Taneja, Adv.; &
Shri Somil Agarwal, C. A.;
Department by : Shri A. K. Saroha, CIT [DR];
Date of Hearing : 22.06.2017
Date of Pronouncement : 15.09.2017
O R D E R.
PER I. C. SUDHIR, J. M. :
These are two appeals of different assessment years of same
assessee.
First, we shall take appeal for AY 2006-07 in ITA No.5293/Del/2013:
2
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
2. This appeal has been preferred by the assessee against the
order dated 28.06.2013 passed by the learned CIT (Appeals) against
the assessment order under section 153A dated 22.01.2013 for
assessment year 2006-07 by the DCIT Central Circle-4, New Delhi on
the following grounds :-
1. That having regard to the facts and circumstances of the
case, Ld. CIT(A) has erred in law and on facts in confirming the
action of Ld. AO in framing the impugned assessment order
u/s 153A/143(3) without assuming jurisdiction as per law and
without obtaining requisite approval as per law and without
complying with the other mandatory condition envisaged under
the Act, more so when no incriminating material have been
found as a result of search.
2. That having regard to the facts and circumstances of the
case, Ld. CIT(A) has erred in law and on facts in confirming the
action of Ld. AO in making disallowance of Rs.23,62,700/- u/s
40A(3) and that too without considering the
submissions/evidences of the assessee, more so when such
disallowance could not have been made in the proceedings u/s
153A of the Act.
3. That in any case and in any view of the matter,
impugned disallowance and impugned assessment order are
bad in law, illegal, unjustified, barred by limitation, contrary to
facts & law and based upon recording of incorrect facts and
finding, without giving adequate opportunity of hearing, in
violation of principles of natural justice and the same deserves
to be quashed.
4. That in any case and in any view of the matte action of
Ld. CIT(A) in confirming the action of Ld. AO in framing the
3
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
impugned assessment order is contrary to law and facts, void
ab initio, beyond jurisdiction and the same is not sustainable
on various legal and factual grounds.
5. Without prejudice to the above grounds, no disallowance
could have been made in the present appeal because
no incriminating material has been found as a result of
search.
6. That having regard to the facts and circumstances of the
case, Ld. CIT(A) has erred in law and on facts in not reversing
the action of Ld. AO in charging interest 234B of the Income
Tax Act, 1961.
7. That the appellant craves the leave to add, modify,
amend or delete any of the grounds of appeal at the time of
hearing and all the above grounds are without prejudice to
each other. "
3. During the course of hearing, detailed arguments were advanced
by Shri Ashwani Taneja, learned Advocate on behalf of the appellant-
assessee and by Shri Ashok Siroha, learned CIT-DR. on behalf of
Revenue.
4. Ld. Counsel of the assessee vehemently challenged the
disallowance made by the Assessing Officer for Rs.23,26,700/- under
section 40A(3) of the Act, mainly on the following two grounds. His
first argument is that no incriminating material was found during
the course of search, therefore impugned disallowance was beyond
the jurisdiction of Assessing Officer. In support of his argument, he
4
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
drew our attention on the original assessment order passed u/s 143(3)
dated 16.09.2008 for assessment year 2006-07, wherein full facts
about purchase of land and details of payments were furnished and
books of account were also produced. He also relied upon following
judgments in support of this proposition :-
-PCIT vs. Meeta Gutgutiya in 82 taxmann.com 287 (Delhi)
- CIT vs. Kabul Chawla in 380 ITR 573 (Delhi)
- M/s Lotus Buildtech Ltd. vs. DCIT in ITA 5836 &
5837/Del/2013
5. His second argument was that, in this case genuineness of
payment made in cash is not doubted and payees are duly identified.
Under these circumstances, disallowance u/s 40A(3) should not have
been made in view of the following judgments :-
- Smt. Harshila Chordia vs. ITO in 298 ITR 0349 (Raj)
- Gurdas Garg vs. CIT in 63 taxmann.com 289 (P&H)
- Sri ManoranjanRaha vs. ITO in ITA No. 1448/Kol/2011
- Mr. Nirmal Kumar Das vs. ACIT in ITA No. 391/Kol/2014
6. The learned AR also relied upon the Circular of the CBDT No.
6-P (LXXVI-66) of 1968 dated 06.07.1968 in support of his proposition.
Per-contra, Ld. CIT-DR. vehemently opposed the arguments of the Ld.
5
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
Counsel of the assessee. It was submitted by him that addition can be
made even in absence of incriminating material and he drew our
attention to the paper book filed by the department on 22.11.216
wherein it was shown that various documents such as purchase deeds
were seized during the time of search and he relied upon the following
judgments of Hon'ble Delhi High Court for the proposition that addition
can be made in absence of incriminating material :-
-CIT vs. Smt. Dayawanti in 75 taxmann.com 308 (Delhi)
-CIT vs. Sh. Anil Bhatia in 352 ITR 493 (Delhi)
-CIT vs. Chetan Das Lachman Das in 25 taxmann.com
227 (Delhi).
7. Further, with regard to the other arguments of the learned
Counsel for the assessee, it was submitted by the learned CIT-DR
that disallowance under section 40A(3) can be made even when
genuineness of payment is not doubted. Finally, he relied upon
detailed findings of learned CIT (Appeals) and requested for upholding
the same.
8. We have gone through the orders of the authorities below as
well as the submissions made by both the sides before us.
9. The brief facts as culled out from the order of the authorities
below are that search and seizure operation u/s 132 of the Act was
6
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
carried out on 21.01.2011 in Dharampal Satyapal group of cases and
in pursuance to the same, assessment proceedings were carried out
under section 153A of the Act upon the assessee company. It is noted
that original assessment order u/s 143(3) was passed for assessment
year 2006-07 in the case of assessee-company on 16.09.2008 wherein
books of accounts were also produced by the assessee and details of
land purchased by the assessee were given. Thus, when search took
place, assessment of the assessee for assessment year 2006-07 already
stood concluded and did not abate and therefore no addition could
have been made in the impugned assessment year in absence of any
incriminating material. It is brought to our notice that legal position
in this regard is well settled in view of recent judgment of Hon'ble Delhi
High Court in the case of PCIT vs. Meeta Gutgutiya 82 taxmann.com
287 (Delhi), wherein it was observed, inter-alia, as under :-
" 38. It appears that the seized cash was added to the income
during the year of search and not in relation to any of the other
AYs i.e., AYs 2000-01 to 2004-05. The documents as stated by
the Revenue in its Memorandum of Appeal in ITA No.
306/2017 viz., Annexures A1, A3 to A5 stated to pertain to AY
2003-04, 2005-06, 2004-05, and 2006-07 respectively have
neither been described as such or in any detail by the Revenue
either in these appeals. They have not been referred to or
discussed in any of the orders of the AO or the CIT (A).
Although it was repeatedly urged by Mr. Manchanda that there
were "hundreds of seized documents", what is necessary to
examine is whether they were in fact 'incriminating
documents'. Any and every document cannot be and is in fact
not an incriminating document. The legal position, as will be
7
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
discussed shortly, is that there can be no addition made for a
particular assessment year without there being an
incriminating material qua that assessment year which would
justify such an addition. Therefore, the mere fact there may
have been documents pertaining to the above assessment
years does not satisfy the requirement of law that there must
be incriminating material. In any event, the aforementioned
documents i.e., A1, A3, A4 and A5 pertain to only some of
the AYs with which we are concerned i.e., assessment years
2003-04, and 2004-05. The Court is unable to accept the
submissions of Mr. Manchanda that there was incriminating
material other than what has been discussed in the orders of
the Assessing Officer, CIT (Appeals) and the ITAT for the
assessment years in question. "
10. In the above said judgment, Hon'ble Delhi High Court has
given these observations after considering law in detail in this regard
and judgments relied upon by the learned CIT-DR have also
been considered.
11. No contrary judgment has been placed before us by the
revenue. Thus, we are bound by the decision of the Hon'ble
jurisdictional High Court. Thus, the law that emerges before us is
that no disallowance could have been made u/s 40A(3) in absence of
any incriminating material discovered during the course of search.
In the facts of the case before us, as is also clear from the perusal of
the order passed by Assessing Officer as well as the learned CIT
(Appeals), the impugned disallowance has been made only on the
basis of inquires made during the course of assessment proceedings.
8
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
It has also been contended by the Revenue that some purchase deeds
were also seized during the course of search indicating purchase of
land by the assessee. We have considered this argument also. The
perusal of above said order of Hon'ble Delhi High Court would make
it clear that the registered purchase deeds would not by themselves
become incriminating material. Thus, taking into account all the
facts of this case and position of law as has been settled by Hon'ble
Delhi High Court, it is clear that disallowance made u/s 40A(3) by
Assessing Officer is without jurisdiction in as much as the same is
made in absence of any incriminating material and therefore the same
deserves to be deleted on this ground itself.
12. Further, it is noted that the impugned transaction has been
duly recorded in the books of accounts maintained by the assessee.
It was also shown that the particulars of payment made in cash on
account of purchase of land have been picked up from the purchase
deeds which are duly registered and all the payees are duly identified.
In fact, no doubt has been expressed with regard to genuineness of
the payment in the orders passed by the lower authorities. In this
regard, learned Counsel placed reliance on various judgments in
support of the proposition that no disallowance should be made
under section 40A(3) when payees are identified and genuineness
of payment is not doubted.
9
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
13. We noticed in this regard that Kolkata bench of Tribunal in the
case of Sri Manoranjan Raha vs. ITO (supra) has decided this issue in
favour of assessee by observing as under :-
" 4.3. We have heard the rival submissions and perused the
materials available on record. We find that the payments made
by cash in violation of section 40A(3) of the Act have been duly
acknowledged by the recipient Shri AmitDutta who had
deposed before the learned AO and confirmed the fact of
receipt of monies in cash. Hence the genuinity of payments
made by the assessee stands clearly established beyond
doubt. Even for the amounts enhanced by Learned CITA in the
sum of Rs. 54,01,473/-, the genuineness of the payments and
the necessity to incur the said expenditure for the purpose of
business of the assessee was never disputed by the Learned
CIT(A). We hold that since the genuinity of the payments made
to the parties is not doubted by the revenue, the provisions of
section 40A(3) could not be made applicable to the facts of the
instant case. It will be pertinent to go into the intention behind
introduction of provisions of section 40A(3) of the Act at this
juncture. We find that the said provision was inserted by
Finance Act 1968 with the object of curbing expenditure in cash
and to counter tax evasion. The CBDT Circular No. 6P dated
6.7.1968 reiterates this view that "this provision is designed to
counter evasion of a tax through claims for expenditure shown
to have been incurred in cash with a view to frustrating proper
investigation by the department as to the identity of the payee
and reasonableness of the payment."
4.4. In this regard, it is pertinent to get into the following
decisions on the impugned subject :-
10
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
Attar Singh Gurmukh Singh vs ITO reported in (1991)
191 ITR 667 (SC) "Section 40A(3) of the Income-tax Act, 1961,
which provides that expenditure in excess of Rs.2,500
(Rs.10,000 after the 1987 amendment) would be allowed to be
deducted only if made by a crossed cheque or crossed bank
draft (except in specified cases) is not arbitrary and does not
amount to a restriction on the fundamental right to carry on
business. If read together with Rule 6DD of the Income-tax
Rules, 1962, it will be clear that the provisions are not intended
to restrict 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. The payment
by crossed cheque or crossed bank draft is insisted upon to
enable the assessing authority to ascertain whether the
payment was genuine or whether it was out of income from
undisclosed sources. The terms of section 40A(3) are not
absolute. Consideration 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. It is
open to the assessee to furnish to the satisfaction of the
Assessing officer the circumstances under which the payment
in the manner prescribed in section 40A(3) was not practicable
ShriManorajanRaha or would have caused genuine difficulty to
the payee. It is also open to the assessee to identify the person
who has received the cash payment. Rule 6DD provides that
an assessee can be exempted from the requirement of payment
by a crossed cheque or crossed bank draft in the
circumstances specified under the rule. It will be clear from the
provisions of section 40A(3) and rule 6DD that they are
intended to regulate business transactions and to prevent the
use of unaccounted money or reduce the chances to use black
money for business transactions. "
11
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal)
The second contention of the assessee that owing to business
expediency, obligation and exigency, the assessee had to make
cash payment for purchase of goods so essential for carrying
on of his business, was also not disputed by the AO. The
genuinity of transactions, rate of gross profit or the fact that the
bonafide of the assessee that payments are made to producers
of hides and skin are also neither doubted nor disputed by the
AO. On the basis of these facts it is not justified on the part of
the AO to disallow 20% of the payments made u/s 40A(3) in
the process of assessment. We, therefore, delete the addition of
Rs. 17,90,571/and ground no.1 is decided in favour of the
assessee.
CIT vs Crescent Export Syndicate in ITA No. 202 of 2008
dated 30.7.2008 - Jurisdictional High Court decision "It also
appears that the purchases have been held to be genuine by
the learned CIT(Appeal) but the learned CIT(Appeal) has
invoked Section 40A(3) for payment exceeding Rs.20,000/-
since it is not made by crossed cheque or bank draft but by
hearer cheques and has computed the payments falling under
provisions to Section 40A(3) for Rs.78,45,580/- and disallowed
@20% thereon Rs.15,69,116/-. It is also made clear that
without the payment being made by bearer cheque these goods
could not have been procured and it would have hampered the
supply of goods within the stipulated time. Therefore, the
genuineness of the purchase has been accepted by the ld. CIT
(Appeal) which has also not been disputed by the department
as it appears from the order so passed by the learned Tribunal.
It further appears from the assessment order that neither the
Assessing Officer nor the CIT(Appeal) has disbelieved the
genuineness of the transaction. There was no dispute that the
purchases were genuine. "
12
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
Anupam Tele Services vs ITO in (2014) 43 taxmann.com
199 (Guj) "Section 40A(3) of the Income-tax Act, 1961, read
with rule 6DD of the Income-tax Rules, 1962 - Business
disallowance - Cash payment exceeding prescribed limits (Rule
6DD(j)-Assessment year 2006-07 Assessee was working as an
agent of Tata Tele Services Limited for distributing mobile
cards and recharge vouchers - Principal company Tata insisted
that cheque payment from assessee's co-operative bank would
not do, since realization took longer time and such payments
should be made only in cash in their bank account - If assessee
would not make cash payment and make cheque payments
alone, it would have received recharge vouchers delayed by
4/5 days which would severely affect its business operation -
Assessee, therefore, made cash payment - Whether in view of
above, no disallowance under section 40A (3) was to be made
in respect of payment made to principal - Held, yes [ Paras 21
to 23] [ in favour of the assesse] "
Sri LaxmiSatyanarayana Oil Mill vs CIT reported in
(2014) 49 taxmann.com 363 (Andhrapradesh High Court)
"Section 40A(3) of the Income-tax Act, 1961, read with Rule
6DD of the Income-tax Rules, 1962 - Business disallowance -
Cash payment exceeding prescribed limit (Rule 6DD) Assessee
made certain payment of purchase of ground nut in cash
exceeding prescribed limit Assessee submitted that her made
payment in cash because seller insisted on that and also gave
incentives and discounts - Further, seller also issued certificate
in support of this - Whether since assessee had placed proof of
payment of consideration for its transaction to seller, and later
admitted payment and there was no doubt about genuineness
of payment, no disallowance could be made under section
40A(3) - Held, yes [ Para 23] [In favour of the assessee] "
13
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227
(P&H) In this case the court upheld the view of the tribunal in
not applying section 40A(3) of the Act to the cash payments
when ultimately, such amounts were deposited in the bank by
the payee4.5. It is pertinent to note that the primary object of
enacting section 40A(3) was two fold, firstly, putting a check on
trading transactions with a mind to evade the liability to tax on
income earned out of such transaction and, secondly, to
inculcate the banking habits amongst the business community.
Apparently, this provision was directly related to curb the
evasion of tax and inculcating the banking habits. Therefore,
the consequence, which were to befall on account of non-
observation of section 40A(3) must have nexus to the failure of
such object. Therefore, the genuineness of the transactions it
being free from vice of any device of evasion of tax is relevant
consideration.
4.6. The Hon'ble Apex Court in the case of CTO vs Swastik
Roadways reported in (2004) 3 SCC 640 had held that the
consequences of non-compliance of Madhyapradesh Sales Tax
Act , which were intended to check the evasion and avoidance
of sales tax were significantly harsh. The court whileupholding
the constitutional validity negated the existence of a mensrea
as a condition necessary for levy of penalty for non-compliance
with such technical provisions required held that "in the
consequence to follow there must be nexus between the
consequence that befall for non-compliance with such
provisions intended for preventing the tax evasion with the
object of provision before the consequence can be inflicted upon
the defaulter." The Supreme Court has opined that the
existence of nexus between the tax evasion by the owner of the
goods and the failure of C & F agent to furnish information
required by the Commissioner is implicit in section 57(2) and
14
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
the assessing authority concerned has to necessarily record a
finding to this effect before levying penalty u/s. 57(2).
Though in the instant case, the issue involved is not with
regard to the levy of penalty, but the requirement of law to be
followed by the assessee was of as technical nature as was in
the case of Swastik Roadways (3 SCC 640) and the
consequence to fall for failure to observe such norms in the
present case are much higher than which were prescribed
under the Madhya Pradesh Sales Tax Act. Apparently, it is a
relevant consideration for the assessing authority under the
Income Tax Act that before invoking the provisions of section
40A(3) in the light of Rule 6DD as clarified by the Circular of
the CBDT that whether the failure on the part of the assessee
in adhering to requirement of provisions of section 40A(3) has
any such nexus which defeats the object of provision so as to
invite such a consequence. We hold that the purpose of section
40A(3) is only preventive and to check evasion of tax and flow
of unaccounted money or to check transactions which are not
genuine and may be put as camouflage to evade tax by
showing fictitious or false transactions. Admittedly, this is not
the case in the facts of the assessee herein. The payments
made in cash to Shri. Amit Dutta had been duly acknowledged
by him in an independent deposition given by him before the
Learned AO which was admittedly taken behind the back of
the assessee. It is also pertinent to note that the Hon'ble
Rajasthan High Court in the case of Smt. Harshila Chordia vs
ITO reported in (2008) 298 ITR 349 (Raj) had held that the
exceptions contained in Rule 6DD of Income Tax Rules are not
exhaustive and that the said rule must be interpreted
liberally."
14. The above judgment has been followed by Kolkata bench in
the case of Mr. Nirmal Kumar Das vs. ACIT (supra). Similar view is
15
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
taken by Hon'ble Rajasthan High Court in the case of Smt. Harshila
Chordia vs. ITO (supra). Similarly, Hon'ble Punjab & Haryana High
Court in the case of Gurdas Garg vs. CIT (supra), has held that
where genuineness of transactions made in cash in excess of Rs.20,000
was not disbelieved by authorities, same cannot be disallowed under
Section 40A(3).
Thus, on this ground also, we find that disallowance made by
Assessing Officer under section 40A(3) is not sustainable.
15. Therefore, keeping in view both the aspects as discussed
above, the disallowance made by the Assessing Officer is not sustainable
and wrongly confirmed by the learned CIT (Appeals) and, therefore,
we direct the Assessing Officer to delete the same.
16. As a result, appeal of the assessee is allowed.
17. Now we shall take up appeal for assessment year 2007-08
in ITA. No. 3029/D/2014 :
17.1 It has been unanimously stated before us by both the parties
that facts and issues involved in this year are identical to assessment
year 2006-07. Therefore, following our order of assessment year
16
I.T. Appeal No. 5293/Del/2013
AND I.T. Appeal No.3029/Del/2014
Assessment Years : 2006-2007 & 2007-08.
2006-07, the disallowance made in this year also under section 40A(3)
is directed to be deleted.
18. As a result, both the appeals filed by the assessee, are
allowed.
19. The order is pronounced in the Open Court on : 15th September,
2017.
Sd/- Sd/-
( O. P. KANT ) ( I. C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : the 15th September, 2017.
*MEHTA*
Copy of the Order forwarded to :-
1. Appellant;
2. Respondent;
3. CIT;
4. CIT (Appeals);
5. DR, ITAT, ND.
BY ORDER
17 I.T. Appeal No. 5293/Del/2013 AND I.T. Appeal No.3029/Del/2014 Assessment Years : 2006-2007 & 2007-08.
ASSISTANT REGISTRAR Date Draft dictated on 15.09.2017 Draft placed before author 15.09.2017 Draft proposed & placed before the second member Draft discussed/approved by Second Member.
Approved Draft comes to the Sr.PS/PS Kept for pronouncement on File sent to the Bench Clerk Date on which file goes to the AR Date on which file goes to the Head Clerk.
Date of dispatch of Order.
18I.T. Appeal No. 5293/Del/2013 AND I.T. Appeal No.3029/Del/2014 Assessment Years : 2006-2007 & 2007-08.