ITO, Madikeri V. M/s Kodagu Academy for Education and Culture, Gonikoppa

CO 51/BANG/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7321 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SATYA SAI RATH
• Keywords: Opportunity of being heard; Principle of natural justice; Question of law
• Section: 40A(3); 80C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.688/BANG/2011 (ASSESSMENT YEAR : 2008-09) SHRI N.R. SHETTY PRASHANT BALAJI ELECTRICAL, B.H. ROAD, NITTUR POST, GUBBI, TUMKUR DISTRICT. . APPELLANT. PAN AJKPP 1166F VS. INCOME TAX OFFICER, WARD 2, TUMKUR. .. RESPONDENT. APPELLANT BY : SHRI GURUSWAMY H. RESPONDENT BY : DR. SATYA SAI RATH. DATE OF HEARING : 05.06.2012. DATE OF PRONOUNCEMENT : 12.06.2012. O R D E R PER SHRI JASON P. BOAZ, A.M . : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE DATED 21.2.2011 FOR ASS ESSMENT YEAR 2008-09. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE, AN INDIVIDUAL, IN THE RETAIL BUSI NESS OF CEMENT AND ELECTRICAL GOODS, FILED HIS RETURN OF INCOME FOR ASSESSMENT YEAR 2008 -09 ON 29.8.2008 DECLARING A TOTAL INCOME OF RS. 2,28,890. THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECTION 143(2) ON 25.8.2009. THE ASSESSING OFFICER AFTER EXAMINING THE CASE, COMPLETED THE ASSESSMENT BY AN ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREIN 2 ITA NO.688/BANG/11 AFTER REFERRED AS 'THE ACT') ON 29.10.2010 DETERMIN ING THE TOTAL INCOME OF THE ASSESSEE AT RS. 12,95,807. IN DOING SO THE ASSESSING OFFICE R MADE THE FOLLOWING DISALLOWANCES : I) UNDER SECTION 40A(3) RS. 10,31,977 AND II) DISALLOWANCE OF CLAIM FOR DEDUCTION UNDER SECTI ON 80C RS. 35,000 2.2 THE ASSESSEE CARRIED THESE ISSUES IN APPEAL BEFORE THE CIT(A) WHO BY ORDER DT.21.2.2011 ALLOWED THE ASSESSEES CLAIM PARTIALLY AS UNDER : I) THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 80C OF THE ACT OF RS. 50,000 WAS ALLOWED IN FULL. II) THE DISALLOWANCE UNDER SECTION 40A(3) WAS CONFI RMED TO THE EXTENT OF RS. 9,20,569. 3.1 AGGRIEVED THE ASSESSEE IS NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER : 1. THE APPELLATE ORDER DATED 21-02-2011 IS OPPOSE D TO LAW AND FACTS OF THE CASE IN SO FAR AS IT IS OPPOSED TO THE INTEREST OF THE APPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II , BANGALORE OUGHT TO HAVE PROVIDED SUFFICIENT OPPORTUNITY TO TH E APPELLANT OF BEING HEARD BEFORE PASSING THE APPELLANT ORDER TO MEET THE ENDS OF NATURAL JUSTICE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II , BANGALORE OUGHT TO HAVE NOT HELD THAT THE DECISIONS RELIED UP ON BY THE APPELLATE WERE NOT APPLICABLE IN VIEW OF THE AMENDED PROVISIONS OF SEC TION 40A(3) OF THE ACT AND RULE 6DD OF THE I.T. RULES 1962 WITHOUT APPRECIATIN G THE PROVISO PROVIDED THERE UNDER. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S)-II, BANGALORE OUGHT TO HAVE APPRECIATED THE FACTS AND CIRCUMSTANCES OF THE CASE SUCH AS BUSINESS EXPEDIENCY, IDENTITY OF THE PAYEE AND OTHER RELEVAN T FACTORS, WHICH HAVE NECESSITATED THE CASH PAYMENTS IN EXCESS OF THE CEI LING LIMIT OF RS. 20,000/- PRESCRIBED U/S. 40A(3) OF THE ACT. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND AND DELETE ANY OF THE GROUNDS AT THE TIME OF HEARING. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS RESPECTFULLY PRAYED THAT YOUR HON'BLE AUTHORITY MAY BE PLEASED TO DELETE THE 3 ITA NO.688/BANG/11 ADDITIONS OF RS. 9,20,569 CONFIRMED BY THE APPELLAT E AUTHORITY AND FURTHER BE PLEASED TO PASS SUCH OTHER ORDERS GRANTING SUCH OTH ER RELIEF THAT YOUR HON'BLE AUTHORITY MAY DEEM FIT IN THE INTEREST OF EQUITY AN D JUSTICE. 4. THE GROUNDS OF APPEAL AT S.NOS.1 AND 5 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUNDS OF APPEAL AT S.NOS.2, 3 AND 4 DEAL WITH AND ARE IN RELATION TO CHALLENGING THE ORDER OF LEARNED CIT(A) IN CONFIRMING THE DISAL LOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(3) OF THE ACT TO THE EXTENT OF RS .9,20,569. 5.2 SPECIFICALLY IN RESPECT OF GROUNDS OF APPEA L RAISED AT S.NO.2, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) HAD NOT PROVIDED ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD BEFORE P ASSING THE APPELLATE ORDER DT.21.2.2011 WHICH IS IN DISPUTE BEFORE US. IT IS CONTENDED THA T THE LEARNED CIT(A) POSTED THE CASE FOR HEARING ON 8.2.2011 AND ON THE SAID DATE THE LEARNE D COUNSEL FOR THE ASSESSEE APPEARED BEFORE HIM AND FILED WRITTEN SUBMISSIONS AND CITED JUDICIAL DECISIONS OF VARIOUS HIGH COURTS AND THE HON'BLE APEX COURT. IT IS THE CONTE NTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ON THAT DAY, THE ASSESSEES CASE WAS ADJOURNED BY THE LEARNED CIT(A) TO CALL FOR A REMAND REPORT ON THE WRITTEN SUBMISSIONS FURNISHED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REAFTER THE THE CASE WAS NOT POSTED FOR HEARING AS CAN BE SEEN FORM THE LEARNED CIT(A) S ORDER. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE WAS NOT AWARE WHETHER THE ASSESSING OFFICER HAD SUBMITTED ANY REMAND REPORT. IN THE ME ANWHILE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS, THE LEARNED CIT(A) PASSED THE APP ELLATE ORDER DT.21.2.2011 WITHOUT GIVING THE ASSESSEE PROPER OR ADEQUATE OPPORTUNITY FOR MAKING ANY EFFECTIVE REPRESENTATION OF HIS CASE. IT IS CONTENDED THAT T HE ORDER OF THE LEARNED CIT(A) DT.21.2.2011 WAS PASSED IN VIOLATION OF THE PRINCIP LES OF NATURAL JUSTICE, WAS NOT JUSTIFIABLE IN LAW AND IS LIABLE TO BE SET ASIDE. 5.3 IN RESPECT OF GROUNDS OF APPEAL AT S.NOS. 3 AND 4, TI WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE LEARNED CIT(A) IN PARA 3.2 OF HIS ORDER HAS HELD THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE RELATE TO THE PERIOD PRIOR TO THE AMENDMENT OF 4 ITA NO.688/BANG/11 SECTION 40A(3) OF THE ACT AND RULE 6DD OF THE IT RU LES, 1962 AND THEREFORE THOSE CASES ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR 2008-09. IT IS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT SECTION 40A(3) WAS AM ENDED ONLY TO A LIMITED EXTENT AS REGARDS THE PERCENTAGE OF DEDUCTION TO BE ALLOWED. PRIOR TO THE AMENDMENT APPLICABLE FOR ASSESSMENT YEAR 2008-09, THE QUANTUM OF DISALLOWANC E WAS AT THE RATE OF 20% OF THE TOTAL EXPENDITURE INCURRED FOR PAYMENTS IN CASH WH ICH WAS IN EXCESS OF RS. 20,000 OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR AN ACCOUNT PAYEE DEMAND DRAFT. THE AMENDED PROVISIONS AS APPLICABLE FOR AS SESSMENT YEAR 2008-09 AND ONWARDS PROVIDE FOR DISALLOWANCE OF 100% OF EXPENDITURE INC URRED OF WHICH PAYMENTS WERE MADE OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE DRAWN ON A B ANK OR ACCOUNT PAYEE DRAFT. THE LEARNED COUNSEL FOR THE ASSESSEE IN WRITTEN SUBMISS ION DT.5.6.2012 FILED FURTHER SUBMITTED AS UNDER : FOR THE SAKE OF CONVENIENCE AND IMMEDIATE REFERE NCE THE APPELLANT SUBMITS HEREWITH THE PROVISIONS OF SECTION 40A(3) OF THE AC T AS APPLICABLE FOR THE ASST YEAR 2008-09 AND EARLIER YEARS AS UNDER:- PROVISIONS OF SECTION 40A(3) APPLICABLE UPTO THE ASSESSMENT YEAR 2007-08 AMENDED PROVISIONS OF SECTION 40A(3) APPLICABLE FOR THE ASST YEAR 2008-09 AND ONWARDS 40A(3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENTS IS MADE, AFTER SUCH DATE (NOT BEING LATER THAN THE 31 ST DAY OF MARCH, 1969) AS MAY BE SPECIFIED IN THIS BEHALF BY THE CENTRAL GOVERNMENT BY NOTIFICATION IN THE OFFICIAL GAZETTE, IN A SUM EXCEEDING [TWENTY THOUSAND] RUPEES OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT, [TWENTY PER CENT OF SUCH EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION]: 40A(3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING TWENTY THOUSAND RUPEES OTHER-WISE 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. THE APPELLANT SUBMITS THAT THE AMENDED PROVISIO N WITH EFFECT FROM THE ASST YEAR 2008-09 DEALS WITH ONLY THE PERCENTAGE OF EXPENDITURE TO BE DISALLOWED. THEREFORE, THE AMENDED PROVISION HAS N OT ALTERED THE MITIGATING 5 ITA NO.688/BANG/11 CIRCUMSTANCES DEALT WITH THE JUDICIAL DECISIONS OF THE VARIOUS HIGH COURTS AND HONBLE SUPREME COURT. THEREFORE, THE LEARNED CIT( A)-II, BANGALORE WAS NOT JUSTIFIED TO HOLD THAT THE CASE LAWS RELIED UPON BY THE APPELLANT WERE NOT APPLICABLE IN VIEW OF THE AMENDMENT OF THE SECTION 40A(3) OF THE ACT. THE LEARNED CIT(A)-II, BANGALORE HAS NOT APPRECIATED TH E GENUINENESS OF THE TRANSACTION IDENTITY OF THE RECEIVERS OF THE AMOUNT PAID IN CASH EXCEEDING RUPEES TWENTY THOUSAND. THE APPELLANT IS A SMALL TRADER CARRYING ON THE BU SINESS IN NITTUR, TUMKUR DISTRICT. HE HAS MADE THE PAYMENTS IN CASH EXCEEDI NG RUPEES TWENTY THOUSAND TO THE FOLLOWING CONCERNS:- 1. M/S. SATISH AGENCIES NO. 5, GOWRI MANSION, M.R.R. ROAD, BANGALORE. RS. 5,01,177/ - 2. M/S. SUJALA PIPES PVT LTD BH ROAD, GOWRIBIDANUR, RS. 54,885/ - 3. M/S. NATARAJA FERTIZERS 2 ND MAIN ROAD, MANDIPET,TUMKUR RS. 4,03,380/ - 4. OTHERS RS. 72,555/ - TOTAL : RS. 10,31,997/ - THE LEARNED CIT(A)-II, BANGALORE HAS DELETED THE ADDITION OF RS. 1,11,428/-, OUT OF THE TOTAL CASH PAYMENT OF RS. 10 ,31,997/- AND CONFIRMED THE BALANCE OF RS. 9,20,569/-. THE LEARNED CIT(A)-II, BANGALORE HAS NOT ADDUCED ANY REASONS EXCEPT HOLDING THAT THE CASE LAWS RELIE D UPON BY THE APPELLANT RELATE PRIOR TO THE AMENDMENT OF SECTION 40A(3 ) OF THE ACT AND RULE 6DD OF THE I.T. RULES, 1962 AND HENCE, THOSE CASES ARE NOT APPLICABLE FOR THE ASST YEAR 2008-09. THE APPELLANT SUBMITS THAT THE AMEND MENT OF SECTION 40A(3) OF THE ACT IS ONLY RELATED TO THE PERCENTAGE OF QUA NTUM DISALLOWANCE AND IT HAS NOT ALTERED THE SITUATIONS CONSIDERED IN THE FOLLOW ING CASES. 1. SMT. HARSHILA CHORDIA V/S. ITO (2008) 298 ITR 3 49 (RAJ) 2. CIT V.S, RHYDBURG PHARMACEUTICALS LTD (2004) 26 9 ITR 561 (DEL) 3. GOENKA AGENCIES V/S. CIT (2003) 263 ITR 145 (CAL ) 4. CIT V/S. NIKKO AUTO LTD (2002) 256 ITR 476 (P&H) 5. RAMADITYA INVESTMENTS V/S. CIT (2003) 262 ITR 49 1 (DEL) 6. CIT V/S. EASTERN CONDIMENTS PVT LTD (2003) 261 I TR 76 (KER) 7. SHRI MAHABIR INDUSTRIES V/S. CIT (1996) 220 ITR 459 (GAU) 8. AGGARWAL STEEL TRADERS V/S. CIT (2001) 250 ITR 7 38 (P&H) 6 ITA NO.688/BANG/11 9. CIT V/S. SURESH KUMAR AGARWAL (2001) 249 ITR 113 (ALL) 10. WALFORD TRANSPORT (EASTERN INDIA) LTD V/S. CIT (1999) 240 ITR 902 (GAU). 11. CIT V/S. CHROME LEATHER CO. PVT LTD (1999) 235 ITR 708 (MAD) 12. CIT V/S. RAJENDRA RICE MILL (1998) 232 ITR 217 (MP) 13. CIT V/S. MAHAVIR STORES (1998) 232 ITR 300 (MP) 14. JANAMBHUMI V/S. CIT (1997) 225 ITR 517 (GAU) 15. ATTAR SINGH GURMUKH SINGH V/S. ITO (1991) 191 I TR 667 (SC) 1. SMT. HARSHILA CHORDIA V/S. ITO (2008) 298 ITR 349 ( RAJ) :- THE HONBLE HIGH COURT OF RAJASTHAN HAS HELD T HAT THE LIST GIVEN IN RULE 6DD NOT EXHAUSTIVE RULE 6DD MUST BE INTERPRETED LIBER ALLY GENUINENESS OF THE TRANSACTION AND IDENTITY OF THE RECEIVER ESTABLISHE D PAYMENT COULD NOT BE DISALLOWED. 2. CIT V.S, RHYDBURG PHARMACEUTICALS LTD (2004) 26 9 ITR 561 (DEL) :- THE HONBLE DELHI HIGH COURT IN THE ABOVE CASE HAS HELD THAT TRANSACTION WAS GENUINE AND PAYEE HAS INSISTED ON CASH PAYMENTS T RIBUNAL JUSTIFIED IN ALLOWING EXPENDITURE. 3. GOENKA AGENCIES V/S. CIT (2003) 263 ITR 145 (CAL ) :- THE HONBLE CALCUTTA HIGH COURT IN THE ABOVE CASE HAS HELD THAT IT IS SUFFICIENT IF ONE OF THE CONDITIONS IS SATISFIED FINING THAT TRANSACTIONS GENUINE AND PAYMENTS WERE MADE IN EXCEPTIONAL CIRC UMSTANCES PAYMENTS NOT BE DISALLOWED U/S. 40A(3) OF THE I.T. ACT AND INCOM E-TAX RULES, 1962. 4. CIT V/S. NIKKO AUTO LTD (2002) 256 ITR 476 (P&H) :- THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE AB OVE CASE HAS HELD THAT THE ASSESSING OFFICER HAD NOT DOUBTED THE REQUIREME NT OF CASH BY THE PAYEE FOR MAKING PAYMENTS TO VARIOUS GOVERNMENT DEPARTMEN TS AND TO THE LABOUR. INSISTENCE ON PAYMENTS BY ACCOUNT PAYEE CHEQUE OR A CCOUNT PAYEE DRAFT WOULD HAVE INVOLVED HAZARDOUS AND CUMBERSOME PROCEDURE. T HE CASE OF THE ASSESSEE WAS FULLY COVERED BY THE EXCEPTIONS PROVIDED IN SEC TION 40A(3) R.W. RULE 6DD(J) AND THE BOARD CIRCULAR. THEREFORE, NO REFERABLE QU ESTION OF LAW ACROSS OUT OF THE ORDER OF THE TRIBUNAL. 7 ITA NO.688/BANG/11 5. RAMADITYA INVESTMENTS V/S. CIT (2003) 262 ITR 49 1 (DEL) :- THE HONBLE DELHI HIGH COURT IN THE ABOVE CASE HAS HELD THAT THE GENUINENESS OF THESE TRANSACTIONS WAS NOT DOUBTED OR CALLED IN QUESTION. THE AMOUNTS COULD NOT BE DISALLOWED. 6. CIT V/S. EASTERN CONDIMENTS PVT LTD (2003) 261 I TR 76 (KER) :- THE HONBLE KERALA HIGH COURT IN THE ABOVE CASE HAS HELD THAT THE ASSESSEE HAS CLEARLY STATED THAT THE SUPPLIERS WERE NOT INCL INED TO RECEIVED PAYMENTS BY CHEQUE AND THE FURTHER FACT THAT THE ASSESSING OFFI CER HAD OBSERVED THAT ALL THE PURCHASES WERE GENUINE, THE TWO APPELLANT AUTHO RITIES WERE JUSTIFIED IN HOLDING THAT THE ASSESSEE HAD SATISFIED THE PROVISI ON OF RULE 6DD(J) OF THE RULES AND IN ALLOWING THE CLAIM FOR DEDUCTION OF EX PENDITURE. 7. SHRI MAHABIR INDUSTRIES V/S. CIT (1996) 220 ITR 459 (GAU) :- THE HONBLE GAUHATI HIGH COURT IN THE ABOVE CASE HA S HELD THAT THE INCOME- TAX OFFICER AND THE COMMISSIONER OF INCOME-TAX (APP EALS) HAD NOT TAKEN INTO CONSIDERATION THE CIRCULAR NO. 220, DATED MAY 31 19 77. THE TRIBUNAL REACHED THE CONCLUSION WITHOUT GIVING ANY REASON WHATSOEVER AS TO THE NON-EXISTENCE OF EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES. THE TRI BUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE DISALLOWANCES BY THE INCOME-TAX OF FICER IN RESPECT OF CASH PAYMENTS OF RS. 61,200/- MADE ON VARIOUS DATES TO S WAS PROPER. 8. AGGARWAL STEEL TRADERS V/S. CIT (2001) 250 ITR 7 38 (P&H) :- THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE A BOVE CASE HAS HELD THAT THE ASSESSEE MUST FURNISH THE CONFIRMATORY LETTERS IN SUPPORT OF THE CASH PAYMENTS ( THE APPELLANT IN THIS CASE HAS PRODUCED THE CONFIRMATORY LETTERS OF THE CONCERNED PARTIES TO WHOM CASH PAYMENTS EXCEEDI NG RUPEES TWENTY THOUSAND WERE MADE, BUT THE AO HAS NOT APPRECIATED THE CONFIRMATORY LETTERS. 9. CIT V/S. SURESH KUMAR AGARWAL (2001) 249 ITR 113 (ALL) :- THE HONBLE ALLAHABAD HIGH COURT IN THE ABOVE CASE HAS HELD THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE CASE OF THE ASSESSEE FELL WITHIN THE SECOND PROVISIONS OF SECTION 40A(3) AND IN DELETING THE DI SALLOWANCE OF RS. 4,58,691/- NO SUBSTANTIAL QUESTION OF LAW. 10. WALFORD TRANSPORT (EASTERN INDIA) LTD V/S. CIT (1999) 240 ITR 902 (GAU) :- THE HONBLE GAUHATI HIGH COURT IN THE ABOVE CASE HA S HELD THAT THE TRANSACTIONS FOUND TO BE GENUINE AND IDENTITY OF TH E PAYEES ESTABLISH CASH 8 ITA NO.688/BANG/11 PAYMENTS EXCEEDING RUPEES TWO THOUSAND FIVE HUNDRED COULD NOT BE DISALLOWED U/S. 40A(3) OF THE ACT. 11. CIT V/S. CHROME LEATHER CO. PVT LTD (1999) 235 ITR 708 (MAD) :- THE HONBLE MADRAS HIGH COURT IN THE ABOVE CASE HAS HELD THAT THE IDENTITY OF THE PAYEE AND GENUINENESS OF THE PAYMENT WERE ESTAB LISHED AMOUNTS PAID IN CASH COULD NOT BE DISALLOWED INCOME-TAX ACT, 1961 , SECTION 40A(3) OF THE ACT, INCOME-TAX RULES, 1962, R 6DD. 12. CIT V/S. RAJENDRA RICE MILL (1998) 232 ITR 217 (MP) :- THE HONBLE MADHYA PRADESH HIGH COURT IN THE ABOVE CASE HAS HELD THAT THE CASH PAYMENTS IN UNAVOIDABLE CIRCUMSTANCES TRIBUN AL CONSIDERING EVIDENCE AND FINING THAT CASH PAYMENTS WERE COVERED BY RULE 6DD AND CBDT CIRCULAR FINDING OF FACT CASH PAYMENTS COULD NOT BE DISALL OWED INCOME-TAX ACT, 1961, S.40A(3) INCOME-TAX RULES, 1962, R . 6DD D.B.D.T CIRCULAR NO. 220, DATED 31-05-1977. 13. CIT V/S. MAHAVIR STORES (1998) 232 ITR 300 (MP) :- THE HONBLE MADHYA PRADESH HIGH COURT IN THE ABOVE CASE HAS HELD THAT THE STOCK-IN-TRADE ON CREDIT ADDITION UNDER SECTION 4 0A(3) CIT (APPEALS) AND TRIBUNAL FINDING JUSTIFICATION FOR CASH PAYMENTS ADDITION DELETED QUESTION OF FACT JUSTIFIED INCOME-TAX ACT, 1961, S. 40A(3). 14. JANAMBHUMI V/S. CIT (1997) 225 ITR 517 (GAU) :- THE HONBLE GAUHATI HIGH COURT IN THE ABOVE CASE HA S HELD THAT THE GENUINENESS OF PAYEE NOT DOUBTED EXCEPTIONAL CIRC UMSTANCES DEDUCTION TO BE ALLOWED INCOME-TAX ACT, 1961, S. 40A(3) INCO ME-TAX RULES 1962, R. 6DD(J) CBDT CIRCULAR NO. 220 DATED 31-05-1977. 15. ATTAR SINGH GURMUKH SINGH V/S. ITO (1991) 191 I TR 667 (SC) :- THE HONBLE SUPREME COURT IN THE ABOVE CASE HAS HE LD THAT THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF B USINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE A ND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUR OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICE RS THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTI ON 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 I N THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM TH E PROVISIONS OF SECTION 40A(3) 9 ITA NO.688/BANG/11 AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BUS INESS TRANSACTION AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BACK MONEY FOR BUSINESS TRANSACTIONS. 5.4 THE LEARNED COUNSEL FOR THE ASSESSEE FURTH ER CONTENDED THAT THE HON'BLE APEX COURT AND ALSO THE OTHER HIGH COURTS IN THE ABOVE C ASES HAVE HELD THAT DISALLOWANCE UNDER SECTION 40A(3) R.W. RULE 6DD OF THE IT RULES WAS NO T JUSTIFIABLE IN CIRCUMSTANCES WHERE THE TRANSACTIONS WERE GENUINE, THE PAYEES WERE IDEN TIFIABLE AND CONFIRMATION LETTERS IN SUPPORT OF THE INSISTENCE OF CASH PAYMENTS WERE PRO DUCED. IT IS THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES OF THE C ASES CITED ABOVE. IT IS CONTENDED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOW ING THE CASH PAYMENTS IN EXCESS OF RS. 20,000 WITHOUT CONSIDERING THE TOTALITY OF THE CIRC UMSTANCES OF THE CASE AND THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT TH E ABOVE CITED JUDICIAL DECISIONS RELIED UPON ARE NOT RELATABLE TO THE FACTS OF THE ASSESSEE S CASE ON THE GROUND THAT SECTION 40A(3) AND RULE 6DD OF THE IT RULES WERE AMENDED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER VEHEMENTLY ARGUED THAT THE AMENDMENT TO SEC TION 40A(3) AND RULE 6DD HAVE NOT ALTERED THE SITUATION AS REGARDS THE ALLOWABILITY O F DEDUCTION UNDER SECTION 40A(3) OF THE ACT IN VIEW OF BUSINESS EXPEDIENCY, IDENTITY OF THE PAYEE AND GENUINENESS OF THE TRANSACTION. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE MITIGATING CIRCUMSTANCES AS PROVIDED UNDER THE PROVISO TO SECTION 40A(3) OF THE ACT EXCEPT REGARDING BANK FACILITIES AVAILABLE AT THE PLACE OF BUSINESS AND HENCE, SUBMITS THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF THE CASH PAYMENTS IN EXCESS OF RS. 20,000 UNDER SEC TION 40A(3) R.W. RULE 6DD OF THE IT RULES WITHOUT CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PRAYED THAT THE DISALLOWANCE MADE BE DELETED. 5.5 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5.6 WE HAVE HEARD BOTH PARTIES AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE ORDER OF ASSESSMENT THAT THE ASSESSING OFFICER HAS NOT 10 ITA NO.688/BANG/11 EXHAUSTIVELY CONSIDERED THE MITIGATING CIRCUMSTANCE S AS PER THE PROVISO TO SECTION 40A(3) OF THE ACT BEFORE MAKING THE DISALLOWANCE OF CASH P AYMENTS. WE ALSO FIND THAT THE LEARNED CIT(A) HAS NOT ADDRESSED THE ISSUE IN PROPE R PERSPECTIVE AND IN PROVIDING THE ASSESSEE ADEQUATE OPPORTUNITY IN THE MATTER IN ACCO RDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. WE, THEREFORE, DEEM IT FIT TO REMIT THE MA TTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CONSIDER THE ISSUE RELA TING TO THE DISALLOWANCE OF CASH PAYMENTS UNDER SECTION 40A(3) IN ACCORDANCE WITH TH E PROVISO TO SECTION 40A(3) AND ALSO TO CONSIDER AND EXAMINE THE JUDICIAL DECISIONS RELI ED UPON BY THE ASSESSEE, AFTER PROVIDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE THE NECESSARY EVIDENCE BEFORE T HE ASSESSING OFFICER IN SUPPORT OF HIS CONTENTIONS AS TO THE DISALLOWANCE / NON-DISALL OWANCE OF THE CASH PAYMENTS IN EXCESS OF THE PRESCRIBED LIMITS UNDER SECTION 40A(3) OF TH E ACT. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE, 2012. SD/- SD/- (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED:12.06.2012. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - A BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, IT AT, BANGALORE