Income Tax Appellate Tribunal - Delhi
Shri Radhey Shyam Manchanda, Dehradun vs Ito, Dehradun on 17 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'SMC', NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
ITA No.5238/Del/2016
Assessment Year: 2012-13
RADHEY SHYAM MANCHANDA, VS. ITO, WARD 2(2),
7-A, HILL VIEW COLONY, DEHRADUN
INDIRA NAGAR,
DEHRADUN
(PAN: AKRPM1293Q)
(APPELLANT) (RESPONDENT)
Assessee by : SH. SOMIL AGGARWAL, ADV.
Department by : SH. T. VASANTHAN, SR. DR
ORDER
The Assessee has filed the Appeal against the impugned Order dated 29.7.2016 of Ld. CIT(A), Dehradun pertaining to assessment year 2012-13. The assessee has taken the following grounds:-
"1. That in facts and circumstance of the case, the Learned CIT(A) has wrongly read the provisions of section 40A(3) stating the word "business expediency" has been deleted.
2. That in facts and circumstances of the case, the authorities below has not denied the genuineness and bonafide transactions made by the appellant but authorities below has arbitrarily added the payment made 2 for the purchase of the land to the income of the appellant the same is unjustified.
3. That in facts and circumstances of the case, the authorities below have accepted the purchases as appearing in the balance sheet as a closing stock and on the other hand addition of payment made for purchase of land is bad at law.
4. That in facts and circumstances of the case, the appellant has shown the short term loss in the computation of income which has been carried forward in the subsequent year. The authorities below have failed to give the credit against income of the appellant neither they have carried forward the same in spite of full details on record and as well as the ITO called the information u/ s 131(6) from the respective companies, the act of the authorities below is erroneous and unwarranted.
5. That in facts and circumstances of the case, the credit of the short term loss against the income of the appellant may kindly be allowed.
6. That the addition to the returned income as sustained by the ld. CIT(A) may please be deleted.
7. That in fact and circumstance of the case, the appellant craves leave to add, amend, modify, delete and/ 3 or change all or any of the ground on or before the date of hearing."
2. The brief facts of the case are that assessee filed his return of income electronically on 30.9.2012 declaring income of Rs. 10,81,310/-. The case of the assessee was selected under scrutiny through CASS. Accordingly, Notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred the Act) dated 12.8.2013, notice u/s. 142(1) of the Act dated 27.8.2013 were issued by the AO and in compliance thereto the A.R. of the assessee attended and filed power of attorney. Further notice u/s. 142(1) of the Act dated 13.11.2014 and other subsequent notices were issued to the assessee, in compliance to which the Ld. Counsel of the assessee appeared and represented the assessee from time to time and filed written submissions alongwith its enclosures. The assessee is engaged in sale and purchase of property in the name and style of M/s Radhey Shyam Manchanda, 7-A, Hill View Colony, Indira Nagar, Dehradun. Necessary books of accounts alongwith bills and voucher were produced by Ld. Counsel of the assessee which have been verified on test check basis and returned back to him. During the course of assessment proceedings it was observed that the assessee had made total cash payment of Rs 6,00,000/- to purchase stock in trade of land which includes Rs. 5,00,000/- paid to Shri Harpreet Singh and Rs.1,00,000/- of Sh. Sagar Manchanda. The assessee was asked to show cause as to why the same may not be disallowed u/s 40A(3) of Income Tax Act 1961 and added back to the 4 income of assessee for the year under consideration. In response, it was submitted that the case was covered by the case of Attar Singh Gurmukh Singh Reported in 191 ITR 667 (SC) and Saral Motors & General Finance ltd Vs Assistant Commissioner of Income Tax, ITAT, Delhi 'B' Bench reported in (2009) 121 ITD 50 (Del) and therefore it was prayed that no addition be made in this regard. The AO did not find this submission to be acceptable (though he did not state why) and the cash payment of Rs 6 lacs was therefore disallowed u/s 40A(3) of Income Tax Act 1961 and added back to the income of the assessee. It was also observed that the assessee had claimed expenses of material purchase and labour at Rs.1,62,855/-. The AO observed during verification of bills and vouchers of the same, that bills pertaining to material purchase for Rs. 58,315/- were not produced for verification. Therefore he asked the assessee to show cause as to why the same should not be disallowed. No explanation for the same was furnished. Therefore, expenses of material purchase for Rs. 58,315/- were disallowed and added back to the income of the assessee for the year under consideration. Thereafter, the AO assessed the income of the assessee at Rs. 17,39,630/- against the return income of Rs. 10,81,310/- vide order dated 30.3.2015 passed u/s. 143(3) of the I.T. Act, 1961.
3. Against the aforesaid order of the AO, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 29.7.2016 has dismissed the appeal of the assessee.
5
4. Aggrieved with the impugned order, the Assessee is in appeal before the Tribunal.
5. At the time of hearing, Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 39 in which he has attached the copy of computation of income, acknowledgement of return for AY 2012-13; copy of balance sheet and profit and loss account and tax audit report for AY 2012-13; copy of assessee's reply dated 24.2.2015 together with details of opening stock, purchases, sales and closing stock; copy of assessee's letter dated 27.1.2015 filed to AO; copy of purchase deed of the property and copy of submissions dated 23.5.2016 filed before the Ld. CIT(A). He stated that Ld. CIT(A) has wrongly read the provisions of section 40A(3) stating the word "business expediency" has been deleted. He further stated that the authorities below has not denied the genuineness and bonafide transactions made by the assessee but authorities below has arbitrarily added the payment made for the purchase of the land to the income of the assessee the same is unjustified. He further stated that the authorities below have accepted the purchases as appearing in the balance sheet as a closing stock and on the other hand addition of payment made for purchase of land is bad at law. It was further submitted that the assessee has shown the short term loss in the computation of income which has been carried forward in the subsequent year. He further stated that authorities below have failed to give the credit against income of the assessee neither they have carried forward the same in spite of full details 6 on record and as well as the ITO called the information u/ s 131(6) from the respective companies, the act of the authorities below is erroneous and unwarranted. That in facts and circumstances of the case, the credit of the short term loss against the income of the assessee may kindly be allowed. In view of the above, he requested that the addition to the returned income as sustained by the ld. CIT(A) may please be deleted. In support of his contention, he filed the copy of the following decisions of the Tribunal and stated that the issue in dispute is squarely covered by the following decisions of the ITAT and by following the same in the present case the addition in dispute may be deleted and appeal of the assessee may be allowed.
i) ITAT, 'B' Bench, Kolkata Order dated 18.11.2015 passed in ITA No. 1448/Kol/2011 AY 2008-09 in the case of Sri Manoranjan Raha vs. ITO
ii) ITAT, 'C' Bench, Kolkata Order dated 11.12.2015 passed in ITA No. 391/Kol/2014 AY 2010-11 in the case of Shri Nirmal Kumar Das vs. ACIT.
iii) ITAT, Amritsar Bench, order dated 9.3.2016 passed in ITA No. 102(Asr)/2014 (AY 2010-11) in the case of Rakesh Kumar vs. ACIT.
iv) ITAT, Chandigarh Bench, order dated 09.10.2015 passed in ITA No. 1155/Cdh/2013 (AY 2010-11) & ors. in the case of Dhrui Wine vs. DCIT.7
6. On the contrary, Ld. DR relied upon the orders of the authorities below and stated that assessee had made total cash payment of Rs 6,00,000/- to purchase stock in trade of land which includes Rs. 5,00,000/- paid to Shri Harpreet Singh and Rs.1,00,000/- of Sh. Sagar Manchanda. The assessee was asked to show cause as to why the same may not be disallowed u/s 40A(3) of Income Tax Act 1961 and added back to the income of assessee for the year under consideration. In response it was submitted that the case was covered by the case of Attar Singh Gurmukh Singh Reported in 191 ITR 667 (SC) and Saral Motors & General Finance ltd Vs Assistant Commissioner of Income Tax, ITAT, Delhi 'B' Bench reported in (2009) 121 ITD 50 (Del) and therefore it was prayed that no addition be made in this regard. The AO did not find this submission to be acceptable and the cash payment of Rs 6 lacs was therefore disallowed u/s 40A(3) of Income Tax Act 1961 and rightly added back to the income of the assessee. It was also observed that the assessee had claimed expenses of material purchase and labour at Rs.1,62,855/-. The AO observed during verification of bills and vouchers of the same, that bills pertaining to material purchase for Rs. 58,315/- were not produced for verification. Therefore he asked the assessee to show cause as to why the same should not be disallowed. No explanation for the same was furnished. Therefore, expenses of material purchase for Rs. 58,315/- were rightly disallowed and added back to the income of the assessee for the year under consideration. In view of above, he stated that 8 the lower authorities have rightly made the addition and confirmed the addition, which does not need any interference.
7. I have heard both the parties and perused the records, especially the orders of the authorities below, submissions of both the parties and the case laws cited by the Ld. Counsel of the assessee. However, I find that Ld. DR did not file the copy of any decision of the higher Court to controvert the contentions raised by the Ld. Counsel of the assessee. I find that AO as well as Ld. CIT(A) has not denied the genuineness and bonafide transactions made by the assessee but has added the payment made for the purchase of the land to the income of the assessee which is not sustainable in the eyes of law. I further find that it was accepted by the authorities below that the purchases as appearing in the balance sheet as a closing stock and on the other hand addition of payment made for purchase of land is bad at law. The assessee has shown the short term loss in the computation of income which has been carried forward in the subsequent year. However authorities below failed to give the credit against income of the assessee neither they have carried forward the same in spite of full details on record and as well as the ITO called the information u/ s 131(6) from the respective companies, the act of the authorities below is erroneous and unwarranted and the credit of the short term loss against the income of the assessee need to be allowed. After carefully perusing the case laws cited by the Ld. Counsel of the assessee, as aforesaid, I am of the considered view that the issue in dispute is squarely covered by the said decisions. For the sake of convenience, I am reproducing the relevant finding of the ITAT, 'B' Bench, Kolkata vide Order dated 18.11.2015 passed in ITA No. 1448/Kol/2011 AY 2008-09 in the case of Sri Manoranjan Raha vs. ITO as under:-
"4.3 We have heard the rival submissions and perused the materials available on record. We find that the 9 payments made by cash in violation of Section 40A(3) of the Act have been duly acknowledged by the recipient Sh. Amit Dutta who had deposed before the Ld. 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 Ld. CIT(A) 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 assesseee was never disputed by the Ld. 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 10 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:-
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 11 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 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."
CIT vs CPL Tannery reported in (2009) 318ITR 179 (Cal) 12 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 13 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 beater 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."
Anupam Tete 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 14 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 Laxmi Satvanaravana Oil Mill vs CfT 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 15 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]"
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 payee.
4.5 It is pertinent to note that the primary object of enacting section 40A(3) was two fold, firstly, putting a check 16 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 CIT 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 while upholding the constitutional validity negated the existence of a mens rea 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 17 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 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 18 camouflage to evade tax by showing fictitious or false transaction. 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.
4.7. The assessee has also given the income tax assessment particulars of Amit Dutta before the Learned AO. Moreover, the Learned AO himself had taken deposition from Sri Amit Dutta u/s 131 of the Act wherein he had confirmed the receipt of monies in cash as well as by cheque / DD from the assessee. Hence the acknowledgement of the payments made by the assessee by the payee is proved beyond doubt. The assessee had also stated that the payee had duly included these payments as his receipts in his returns. 4.8. We are unable to buy the argument of the Learned AR that the assessee had made payment to his agent Mr.Arnit Dutta for purchase of sim cards and others and hence would 19 fall under the exception provided in Rule 6DD(k) of the IT Rules. For the sake of convenience, Rule 6DD(k) is reproduced herein below:-
"Rule 6DD(k) of the IT Rules 1962 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to the profits and gains of business or profession under sub-section (3A) of section 40A where 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 in the cases and circumstances specified hereunder, namely:-
*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***
(k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;"
The said rule says that if the payment is made by a person to his agent who is required to make payment in cash for goods and services on behalf of such person: Admittedly, Shri.Arnit Dutta is only the agent of Hutchison Essar Ltd and not the assessee as could be seen very clearly from the Associate Distributor Agreement entered into by the assessee which is 20 on records before us and before the lower authorities. Hence the payment made by the assessee to Shri.Arnit Dutta would not fall under the exception clause of Rule 6DD(k). 4.9. We find that one of the grounds raised by the assessee is violation of principles of natural justice on the part of the Learned CIT(A) to enhance the assessment without giving enhancement notice to the assessee. But from the order of the Learned CITA, it is specifically mentioned that the assessee was given due opportunity and show cause notice for enhancement of assessment by Rs. 54,01,473/- for making further additions on account of section 40A(3) of the Act. We find that the assessee had not come on any affidavit before us refuting this finding. Hence the enhancement made by the Learned AO cannot be faulted with on violation of principles of natural justice.
4.10. In view of the aforesaid facts and circumstances and respectfully following the judicial precedents relied upon hereinabove, we have no hesitation in deleting the addition made in the sum of Rs. 60,50,8901- and 54,01,473/- u/s 40A(3) of the Act. Accordingly, the grounds raised by the assesee in this regard are allowed.
5. In the result, the appeal of the assessee is allowed." 21
8. After perusing the aforesaid decision of the ITAT, Kolkata, I am of the considered view that the issue in dispute is squarely covered by the aforesaid decision, because the facts and circumstances of the present case are exactly similar and identical to the aforesaid case law Therefore, respectfully following the aforesaid decision dated 18.11.2015 of the ITAT, 'B' Bench, Kolkata passed in ITA No. 1448/Kol/2011 AY 2008-09 in the case of Sri Manoranjan Raha vs. ITO, addition in dispute are hereby deleted.
9. In the result, the appeal of the Assessee is allowed.
Order pronounced in the Open Court on 17/08/2017.
Sd/-
(H.S. SIDHU) JUDICIAL MEMBER Dated: 17/08/2017 *SR BHATNAGAR* Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITATTRUE COPY By Order, ASSISTANT REGISTRAR