Sh. Gopal Krishna Wattal, Agra V. Dy. C.I.T., Agra

CO 35/AGR/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6284 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCHA, AGRA BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO.59/AGR/2010 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME TAX, VS. SHRI GOPAL KRI SHNA WATTAL, CIRCLE -1, AGRA. C/O. GOPAL WATTAL & CO., D-13, LAWYERS COLONY, AGRA. (PAN: AAFPW 0988 G). C.O. NO.35/AGR/2010 (IN ITA NO.59/AGR/2010) ASSESSMENT YEAR: 2006-07 SHRI GOPAL KRISHNA WATTAL, VS. DY. COMMISSION ER OF INCOME TAX, C/O. GOPAL WATTAL & CO., CIRCLE -1, AGRA. D-13, LAWYERS COLONY, AGRA. (PAN: AAFPW 0988 G). (APPELLANTS) (RESPONDENTS) REVENUE BY: SHRI A.K. SHARMA, JR. D.R. ASSESSEE BY: SHRI ARVIND KUMAR BANSAL, ADVOCATE ORDER PER BENCH: THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION B Y THE ASSESSEE HAVE BEEN FILED AGAINST THE IMPUGNED ORDER DATED 30.12.2 009 PASSED BY THE LD. CIT(A)- I, AGRA ON THE FOLLOWING GROUNDS :- GROUNDS IN ITA NO.59/AGR/2010 :- 1(A) THAT THE CIT(A)-1, AGRA HAS ERRED IN LAW AND O N THE FACTS OF THE CASE IN DELETING THE ADDITION OF ` 21,84,667/- MADE ON ACCOUNT OF 2 VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE IN COME TAX ACT, 1961 EVEN WHEN THE ASSESSEE FAILED TO SUBSTANTIATE THE F ACT THAT THE PAYMENTS WERE MADE TO THE PRODUCER OF SUCH PRODUCTS ; 1(B) IN DOING SO, THE CIT(A)-1, AGRA HAS ERRED IN L AW AND ON THE FACTS IGNORING THE RATIONALE LAID DOWN BY HONBLE S UPREME COURT IN THE CASES OF CIT VS. CALCUTTA AGENCY LTD., 19 ITR 1 91 (SC), LAXMIRATAN COTTON MILLS CO. LTD. VS. CIT 73 ITR 634 (SC), AND L.H. SUGAR FACTORY & OIL MILLS PVT. LTD., VS. CIT, 125 I TR 293 (SC) WHEREIN IT HAS BEEN HELD THAT ONUS OF PROVING THE C LAIM OF ANY EXPENDITURE LIES ON THE ASSESSEE; 1(C) IN DELETING THE AFORESAID ADDITION, THE LD. CI T(A)-1, AGRA HAS ERRED IN LAW AND ON THE FACTS EVEN WHEN THE ASSESSE E FAILED TO EXPLAIN WITH EVIDENCES ABOUT APPLICABILITY OF RULES 6DD(G) IN HIS CASE BY NOT PROVIDING COMPLETE LIST WITH COMPLETE ADDRESSES OF SUCH PERSONS TO WHOM PAYMENTS WERE MADE BY HIM. IT WAS PRIMARY ONU S ON THE ASSESSEE TO EXPLAIN WITH EVIDENCES ABOUT APPLICABIL ITY OF 6DD(G) IN HIS CASE ; 2. THAT THE ORDER OF THE CIT(A)-1, AGRA IS ERRONEOU S IN LAW AND ON THE FACTS OF THE CASE AND THAT THE ORDER OF THE A.O . BE RESTORED; 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR DELETE OR ALTER OR MODIFY ANY GROUND DURING APPEAL PROCEEDINGS. GROUNDS IN C.O. NO.35/AGR/2010 :- 1. THAT SINCE THE RESPONDENT HAS PROVED THAT THE PR OVISO TO RULE 6DD(G) I.E. EXCEPTIONS OF PROVISIONS OF SECTION 40A (3) ARE APPLICABLE TO THE CASE BY PRODUCING THE SOME OF THE PRODUCERS OF THE HANDICRAFT I.E. CARPETS WITHOUT THE AID OF POWER AS SUCH FINDI NG OF THE LD. CIT(A) AS PER PARA 2.14 IN WHICH SHE HAS HELD THAT THE CASE OF THE ASSESSEE IS COVERED WITH RULE 6DD(G) SHOULD BE ACCE PTED AND HENCE GROUNDS NO.1(A), 1(B), 1(C) AND 2 OF THE APPEAL FIL ED BY THE DEPARTMENT IS LIABLE TO BE DISMISSED. 2. THAT THE DISALLOWANCE OF ` 5,00,000/- MADE BY THE LD. CIT(A) ON THE GROUND THAT THE PRODUCERS WHO ARE ILLITERATE PERSONS HAVE NOT MAINTAINED THE ACCOUNTS OF INVESTMENT AND PROCUREME NT OF PAYMENTS 3 ETC IS WRONG, ILLEGAL AND AGAINST THE FACTS OF THE CASE SPECIALLY WHEN THE A.O. HAS NOT MADE ANY ADDITION ON THE GROUND. 3. THAT THE ORDERS OF THE AUTHORITIES BELOW ARE WRO NG ON FACTS AND IN LAW. 4. THAT THE APPELLANT RESERVES RIGHT TO ADD, AMEND AND OR MODIFY ANY GROUND TILL THE LAST DATE OF HEARING WHICH MAY PLEASE BE PERMITTED. 2. THE ASSESSEE IS AN INDIVIDUAL FILED HIS RETURN O F INCOME ON 30.10.2006 AT ` 66,76,480/- AND THE SAME WAS PROCESSED UNDER SECTIO N 143(1) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) ON 31.07.2007. T HE ASSESSING OFFICER SELECTED THE CASE OF THE ASSESSEE FOR SCRUTINY BY ISSUING NO TICE UNDER SECTION 143(2) OF THE ACT ON 25.10.2007 WHICH WAS SERVED UPON THE ASSESSE E. IN RESPONSE TO THE SAME, THE LD. AUTHORISED REPRESENTATIVE APPEARED AND FILE D REPLY. THE ASSESSEE HAS SHOWN HIS INCOME FROM BUSINESS, PROFESSION, OTHER S OURCES AND CAPITAL GAINS. IN COMPLIANCE OF THE QUESTIONNAIRE, THE ASSESSEE FILED ITS BOOKS OF ACCOUNTS AND OTHER DOCUMENTARY EVIDENCES WHICH WERE EXAMINED BY THE AS SESSING OFFICER. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MAD E PURCHASES OF CARPETS IN CASH IN EXCESS OF ` 20,000/- ON SEVERAL OCCASIONS. IN RESPONSE TO THE SAME, THE ASSESSEE SUBMITTED THAT THE ASSESSEE PURCHASED CARPETS DIREC TLY FROM THE WEAVERS AGAINST PURCHASE BILLS. AS PER EXEMPTION GRANTED IN CLAUSE (G) OF RULE 6DD OF INCOME TAX RULES TO COTTAGE INDUSTRY FOR DISALLOWANCE UNDER SE CTION 40A(3) FOR PAYMENTS EXCEEDING RS.20,000/- FOR PURCHASES, THE ASSESSEE I S EXEMPTED FROM THIS CLAUSE. 4 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE ADDRESSES PROVIDED WERE NOT COMPLETE. ANY ISSUANCE OF NOTICES/SUMMONS TO THESE PERSONS WOULD HAVE BEEN A FUTILE EXERCISE COSTING TIME AND MANY OF THE GOVERNMENT. AT THE END, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT. ALL T HE TRANSACTIONS SHOWN IN CASH IN EXCESS OF ` 20,000/- HAS BEEN SUMMARIZED WHICH IS AMOUNTING TO ` 1,34,23,337/- X 20% = ` 26,84,667/- IS NOT ALLOWABLE AS DEDUCTION AS PER S ECTION 40A(3) OF THE ACT AND HE COMPLETED THE ASSESSMENT VIDE ASSESSMENT ORD ER DATED 29.12.2008 BY MAKING VARIOUS ADDITIONS INCLUDING THE ADDITION IN DISPUTE. AGGRIEVED BY THE SAME, THE ASSESSEE FILED APPEAL BEFORE THE LD. FIRS T APPELLATE AUTHORITY WHO, VIDE THE IMPUGNED ORDER DATED 30.12.2009, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE, DELETING THE ADDITION IN DISPUTE, BUT DISALLOWED ` 5,00,000/- OUT OF THE EXPENDITURE BEING NON-VERIFIABLE AFTER GIVING OPPORTUNITY TO TH E ASSESSEE. NOW THE REVENUE HAS FIELD THE PRESENT APPEAL AGAINST THE IMPUGNED O RDER DATED 30.12.2009 AND THE ASSESSEE HAS ALSO FILED CROSS OBJECTION, CHALLENGIN G ADDITION OF ` 5,00,000/- AS MENTIONED IN THE AFORESAID GROUNDS OF CROSS OBJECTI ON. 3. AT THE TIME OF HEARING, THE LD. DEPARTMENTAL REP RESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND, ON THE CONTRARY , THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE LD. FIRST APPEL LATE AUTHORITY. HE STATED THAT THE CASE OF THE ASSESSEE IS COVERED UNDER THE EXCEP TIONS OF THE PROVISIONS OF SECTION 5 40A(3) AS ALSO UNDER RULE 6DD(G) OF THE INCOME TAX RULES. THEREFORE, THE LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY PASSED THE IM PUGNED ORDER WHICH DESERVES TO BE UPHELD. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS AVAILABLE WITH US, ESPECIALLY THE IMPUGNED ORDER PASSED BY THE LD. FIR ST APPELLATE AUTHORITY. IT WOULD BE APPROPRIATE TO REPRODUCE THE RELEVANT FIND INGS GIVEN BY THE LD. CIT(A) WHICH IS AS UNDER :- 2.10 THE RELEVANT REPORT DATED 22.12.2009 SUBMITTE D BY THE ASSESSING OFFICER IS REPRODUCED BELOW:- IN THIS CONNECTION, THE STATEMENTS OF 5 PERSONS WH O HAVE FILED AFFIDAVITS WERE RECORDED AT THEIR PLACES. IT HAS BEEN GATHERED FROM THE STATEMENTS RECORDED FROM SRI RAKE SH S/O. SHRI SHOBHA RAM, VILLAGE RAMGARH, POST IMILIYA , FIROZABAD, SRI BUNTU S/O. SHRI POORAN SINGH, VILLAG E AMGARH, POST IMILIYA, DISTT. FIROZABAD, SHRI MUNNA LAL S/O. SHRI BEDU RAM R/O GARI MOHANLAL, POST TEHRAI, DISTT. AGRA, SHRI SHOBHA RAM S/O. SHRI MOOL CHAND, VILLAGE HARPLAL KI THAR, POST DAUKI, DISTT. AGRA AN D SHRI RAJ KUMAR, S/O. SHRI MUNSHI LAL R/O VILLAGE DAUKI, DISTT. AGRA THAT LOOMS WERE FOUND AT THEIR PLACES AND THEY MANUFACTURE CARPETS AND SUPPLIED THEM TO VARIOUS VENDORS INCLUDING SHRI GOPAL KRISHNA WATTAL, D-13, LAWYERS COLONY, AGRA FOR ASSESSMENT YEAR 2006-07. THEY HAVE ALSO STATED THAT FOR MANUFACTURING OF CAR PETS, THEY PURCHASE WOOL FROM THE ASSESSEE AS WELL AS FRO M OTHER PARTIES IN THE MARKET AND THEY TAKE THE MONEY WHENEVER THEY ARE IN NEED AND THE SAME HAS BEEN ADJUSTED AT THE TIME OF DELIVERY OF CARPETS AND THE Y RECEIVE THE BALANCE AMOUNT. THE TOTAL PAYMENT IS RECEIVED IN CASH IN ONE GO ON VOUCHERS PREPARED BY THE ASSESSEE. THESE PERSONS SIMPLY SIGN OR PUT THEIR T HUMB 6 IMPRESSION ON SUCH VOUCHERS. HOWEVER, THESE PERSON S DO NOT REMEMBER HOW MUCH AMOUNT THEY HAD RECEIVED DURING THE YEAR UNDER CONSIDERATION. HOWEVER, SHRI SHOBHA RAM HAS STATED IN HIS STATEMENT THAT THE COS T OF ONE CARPET RANGES BETWEEN ` 30,000 ` 35,000 IN WHICH EXPENDITURE ON ACCOUNT OF WOOL AND COTTON AMOUNTS T O ` 18,000 20,000 APPROXIMATELY ` 2,000/- FOR LACHA AND APPROX. 3000 4000 FOR WAGES PAID TO OTHER WORKERS . THE BALANCE AMOUNT IS THE PROFIT OF THE PERSON CONCERNED. THE SUM AND SUBSTANCE OF ALL THE STATEM ENTS ARE MORE OR LESS THE SAME. HOWEVER, IT IS NOTICED THAT THERE IS NO RECORD/BILL /VOUCHER IN RESPECT OF WOOL SALE TO CARPET WEAVERS, INTERMED IATE ADVANCES. ALL TRANSACTIONS WITH CARPET WEAVERS ARE IN CASH. FURTHER, THERE ARE FACTUAL DISCREPANCIES IN THE BILLS/VOUCHERS PRODUCED AT THE TIME OF ASSESSMENT W ITH THE STATEMENTS GIVEN BY THE WEAVERS. THE COMPLETE TRANSACTIONS WITH THE WEAVERS ARE IN CASH AND VERAC ITY OF WOOL SALE AND PURCHASE OF CARPETS BY ASSESSEE FROM THEM ARE NOT FULLY VERIFIABLE. 2.11 ON THE BASIS OF THE ABOVE OBSERVATIONS OF THE ASSESSING OFFICER, I FIND THAT THOUGH THE IMPUGNED PAYMENTS EXCEED THE LIMIT OF ` 20,000/- PRESCRIBED IN SECTION 40A(3) OF THE ACT, T HEY ARE COVERED WITHIN THE EXCEPTION OF RULE 6DD(G) OF THE I.T. RUL ES AS THE IMPUGNED PAYMENTS WERE MADE TO ACTUAL MANUFACTURERS/PRODUCER S OF THE CARPETS. CONSEQUENTLY, THE DISALLOWANCE OF ` 26,84,667/- U/S. 40A(3) IS NOT SUSTAINABLE AND ACCORDINGLY, DELETED. 5. WE HAVE THOROUGHLY GONE THOUGHT THE AFORESAID RE LEVANT PORTION OF THE IMPUGNED ORDER. WE HAVE ALSO PERUSED THE RELEVANT PROVISIONS, I.E. RULE 6DD(G), WHICH READS AS UNDER :- RULE 6DD NO DISALLOWANCE UNDER SUB-SECTION (3) O F SECTION 40A SHALL BE MADE WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND 7 RUPEES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE C HEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT IN THE CASES & C IRCUMSTANCES SPECIFIED HEREUNDER, NAMELY :- (G) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF T HE PRODUCTS MANUFACTURED OR PROCESSED WITHOUT THE AID OF POWER IN A COTTAGE INDUSTRY, TO THE PRODUCE OF SUCH PRODUCTS. 6. KEEPING IN VIEW OF THE FINDING GIVEN BY THE LD. FIRST APPELLATE AUTHORITY AS WELL AS THE PROVISIONS OF SECTION 40A(3) READ WITH RULE 6DD(G), WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. FIRST APPE LLATE AUTHORITY. WE UPHOLD THE SAME BY DISMISSING THE APPEAL FILED BY THE REVENUE. C.O. NO.35/AGR/2010 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE ORDER PASSED BY THE REVENUE AUTHORITIES, WE ARE OF THE VIEW THAT THE LD. FIRST APPELLATE AUTHORITY HAS SUSTAINED THE DISALLOWANCE OF ` 5,00,000/- AFTER MAKING THE SPOT ENQUIRIES AND EXA MINATION OF THE WEAVERS/PAYEES. WE ALSO FIND THAT THE PAYEE S HAVE NO RECORDS AS TO WHETHER THE PAYMENTS WERE RECEIVED IN ADVANCE OR ON DELIVER Y OF THE CARPETS, THE SOURCE, DETAILS, COST AND MODE OF PROCUREMENT OF RAW MATERI AL ETC. EVEN THE ASSESSEE HAS NOT PRODUCED ANY FULLY VERIFIABLE EVIDENCE BEFORE T HE LD. CIT(A). THEREFORE, THE LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY SUSTAINED THE ADDITION OF ` 5,00,000/- OUT OF CASH PAYMENT OF ` 1,34,23,337/-. THEREFORE, THE LD. FIRST APPELLATE AUTHORITY 8 HAS REASONABLY JUSTIFIED THE ADDITION OF ` 5,00,000/-. WE AGREE WITH THE SAME AND DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE AS WE LL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 11.08.2011). SD/- SD/- (K.G. BANSAL) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: AGRA DATE: 11 TH AUGUST, 2011 PBN/* COPY OF THE ORDER FORWARDED TO: APPELLANT/RESPONDENT/CIT CONCERNED/CIT(APPEALS) CO NCERNED/D.R., ITAT, AGRA BENCH, AGRA/GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY