ACIT, CHENNAI V. Shri G.Karunaianandan, CHENNAI

ITA 133/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61342 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 23-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: G BASKAR
• Section: 40A(3); 153A; 132; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 133/MDS/2012 (ASSESSMENT YEAR : 2004-05) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II(4), CHENNAI - 600 034 . (APPELLANT) V. SHRI G. KARUNAIANANDAN, NEW NO.43 (OLD NO.16), TELUGU CHETTY STREET, OLD WASHERMANPET, CHENNAI - 600 021. PAN : ACJPK0296P (RESPONDENT) APPELLANT BY : DR. S. MOHARANA, CIT-DR RESPONDENT BY : SHRI G. BASKAR, A DVOCATE DATE OF HEARING : 25.06.2012 DATE OF PRONOUNCEMENT : 11.07.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT THE CIT(APPEALS) DELETED AN ADDITION OF ` 29,02,509, MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(3) OF INCOME-TAX ACT, 196 1 (IN SHORT 'THE ACT'). AS PER THE REVENUE, HONBLE APEX COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH V. ITO [1991] 191 ITR 667(SC) HAD HEL D THAT THE WORD EXPENDITURE MENTIONED IN SECTION 40A(3) HAD WIDE IMPORT AND MEANT 2 I.T.A. NO. 133/MDS/12 ALL OUTGOINGS OF WHATSOEVER NATURE. FURTHER, AS PE R THE REVENUE, HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. A.D. JAYAVEERAPANDIA NADAR & SONS (2007) 207 CTR 428 HAD HELD PAYMENTS BEING EFFECTED TO ASSOCIATE CONCERN, WOULD NOT BE A JUSTIFIABLE REASON FOR DELETING A DISALLOWANCE MADE UNDER SECTI ON 40A(3) OF THE ACT. 2. FACTS APROPOS ARE THAT ASSESSEE, PROPRIETOR OF M /S ANANDA OIL CORPORATION, TRADING IN OIL AND ALSO A DIRECTOR OF A COMPANY CALLED KALEESUWARI REFINERY PRIVATE LIMITED, WAS SUBJECTED TO A SEARCH UNDER SECTION 132 OF THE ACT. NOTICE WAS ISSUED UNDER SE CTION 153A OF THE ACT FOR FILING A RETURN AND SUCH A RETURN WAS FILED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR ON 18.8.2010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BOOKS OF ACCOUNTS OF THE AS SESSEE WERE PRODUCED. ASSESSING OFFICER NOTED THAT ASSESSEE HA D MADE PAYMENTS OTHERWISE THAN BY ACCOUNT PAYEE CHEQUES OF SUMS EXC EEDING ` 20,000/- AND PROPOSED DISALLOWANCE UNDER SECTION 40A(3) OF T HE ACT. IT SEEMS NO EXPLANATION WAS FORTHCOMING FROM THE ASSESSEE ON THIS. HE, THEREFORE, MADE A DISALLOWANCE OF ` 29,02,509/- INVOKING SECTION 40A(3) OF THE ACT. 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT IT HAD MADE PURCHASES FROM ITS SISTER CONCERNS M/S KALEESWARI OIL STORES, M/S KALLEESUWARI REFINERY PVT. LTD. AND M/S GMS TRADERS. 3 I.T.A. NO. 133/MDS/12 ACCORDING TO ASSESSEE, IT HAD RUNNING ACCOUNTS WITH THESE CONCERNS AND THERE WERE PAYMENTS BY CHEQUES AS WELL AS CASH. AS SESSEE ALSO FILED COPIES OF ACCOUNTS OF THESE ENTITIES IN ITS BOOKS. CONTENTION OF THE ASSESSEE WAS THAT THE CASH PAYMENTS WERE MARGINAL W HEN COMPARED TO THE CHEQUE PAYMENTS. FURTHER, AS PER THE ASSESSEE, ALL THESE CONCERNS WERE ITS SISTER CONCERNS AND IT WAS HAVING BOTH SAL E AND PURCHASES OF GOODS / SERVICES, AS ALSO OTHER MONETARY TRANSACTIO NS WITH THEM. CIT(APPEALS), AFTER VERIFYING RUNNING ACCOUNTS, CAM E TO A CONCLUSION THAT APPLICATION OF SECTION 40A(3) WAS NOT WARRANTE D SINCE THE PAYMENTS COULD NOT BE LINKED TO ANY SPECIFIC EXPENDITURE. H E, THEREFORE, DELETED THE DISALLOWANCE MADE BY THE A.O. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT THE DISALLOWANCE WAS R IGHTLY DONE BY THE ASSESSING OFFICER RELYING ON SECTION 40A(3) OF THE ACT. AS PER LEARNED D.R., IT WAS NOT NECESSARY THAT PAYMENTS SHOULD BE LINKED TO ANY EXPENDITURE. LEARNED D.R. POINTED OUT THAT HONBLE APEX COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH (SUPRA) HAD CLEAR LY HELD THAT THE WORD EXPENDITURE HAD A WIDE IMPORT AND INCLUDED A LL OUTGOINGS WHATSOEVER. AS PER THE LEARNED D.R., ASSESSEE HAD MADE THE PAYMENTS FOR PURCHASES AND THE PAYMENTS WERE AGAINST SUCH PU RCHASES. AS FOR THE ARGUMENT THAT SECTION 40A(3) WOULD NOT BE ATTRA CTED TO TRANSACTIONS WITH SISTER CONCERN, LEARNED D.R. SUBMITTED THAT TH E DECISION OF 4 I.T.A. NO. 133/MDS/12 JURISDICTIONAL HIGH COURT IN THE CASE OF A.D. JAYAV EERAPANDIA NADAR & SONS (SUPRA) CLEARLY WENT AGAINST ASSESSEE. 5. PER CONTRA, LEARNED A.R. SUBMITTED THAT RUNNING ACCOUNTS OF THE ENTITIES, NAMELY, KALEESWARI OIL STORES, KALLEESUWA RI REFINERY PVT. LTD. AND GMS TRADERS WOULD CLEARLY SHOW THAT WHEN THE PA YMENTS WERE MADE IN CASH, THERE WAS NOTHING DUE TO THESE PARTIE S ON ANY PURCHASES. ALL PAYMENTS FOR PURCHASES WERE EFFECTED IN CHEQUES AND ONLY AFTER CLEARANCE OF THE CREDIT BALANCES, HAD THE ASSESSEE MADE ANY TRANSACTION IN CASH. THEREFORE, ACCORDING TO HIM, THE PAYMENTS WERE NOT IN RELATION TO ANY EXPENDITURE AND DISALLOWANCE UND ER SECTION 40A(3) WAS NOT CALLED FOR. LEARNED A.R. POINTED OUT THAT CIT(APPEALS) HIMSELF HAD VERIFIED THE COPIES OF RELEVANT LEDGER ACCOUNTS AND THESE WERE A PART OF HIS ORDER. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. NO DOUBT, CIT(APPEALS) HAS GIVEN AS ANNEXURES TO HIS O RDER COPIES OF THE ACCOUNTS OF M/S KALEESWARI OIL STORES, M/S KALLEESU WARI REFINERY PVT. LTD. AND M/S GMS TRADERS, IN THE BOOKS OF THE ASSES SEE. BUT, WHAT WE FIND IS THAT THESE ARE ALL SUMMARIZED SUMS AND DO N OT SHOW THE DETAILED TRANSACTIONS. ASSESSEE HAS FILED BEFORE US COPIES OF LEDGER PAGES OF ALL THE THREE PARTIES AS APPEARING IN ITS BOOKS. THOUG H IT HAS BEEN SIGNED BY ASSESSEES AUTHORIZED REPRESENTATIVE, THERE IS N O CERTIFICATE TO THE 5 I.T.A. NO. 133/MDS/12 EFFECT THAT THESE WERE PART OF RECORDS PRODUCED BEF ORE THE ASSESSING OFFICER IN THE COURSE OF ORIGINAL ASSESSMENT PROCEE DINGS. ASSESSING OFFICER HIMSELF HAS ANNEXED TO THE ASSESSMENT ORDER , COPIES OF THE LEDGER ACCOUNTS OF THESE THREE ENTITIES IN ASSESSEE S BOOKS. WE FIND THAT WHAT ASSESSEE HAS PRODUCED BEFORE US NOW IS IN SUBSTANTIAL VARIANCE WITH THE LEDGER ACCOUNT COPIES ANNEXED BY THE ASSESSING OFFICER TO THE ASSESSMENT ORDER. IN THE ABSENCE OF A CERTIFICATE BY THE ASSESSEE OR ITS AUTHORIZED REPRESENTATIVE THAT THES E LEDGER COPIES, WHICH ARE NOW PRODUCED BEFORE US, WERE THE SAME THA T WERE PRODUCED BEFORE THE ASSESSING OFFICER, COPIES OF LEDGER PAGE S OF THE THREE ENTITIES ANNEXED TO THE ASSESSMENT ORDER ALONE CAN BE RELIED UPON. ASSESSEE HAS NOT SUBMITTED AT ANY POINT OF TIME THAT THESE L EDGER PAGES, WHICH FORMED PART OF THE ASSESSMENT ORDER, WERE INCORRECT OR WERE NOT TAKEN FROM THE BOOKS PRODUCED BY THE ASSESSEE. ASSESSEE HAD MAINTAINED ITS BOOKS IN TALLY SOFTWARE AND THEREFORE, AT ANY POINT OF TIME, IT COULD READJUST ITS ENTRIES, SO AS TO SUIT ITS CASE. THER E IS NO CASE FOR THE ASSESSEE THAT IT WAS NOT MAKING ANY PURCHASES FROM THESE THREE ENTRIES. THEREFORE, PAYMENTS MADE TO SUCH ENTITIES CLEARLY W ITHIN THE AMBIT OF SECTION 40A(3) OF THE ACT. HONBLE APEX COURT IN T HE CASE OF ATTAR SINGH GURMUKH SINGH (SUPRA) HAS HELD AS UNDER:- 8. AS TO THE SECOND QUESTION, IT MAY BE STATED THAT THE WORD EXPENDITURE HAS NOT BEEN DEFINED IN THE ACT. IT I S A WORD OF WIDE IMPORT. SECTION 40A(3) REFERS TO THE EXPENDITURE INCUR RED BY THE 6 I.T.A. NO. 133/MDS/12 ASSESSEE IN RESPECT OF WHICH PAYMENT IS MADE. IT M EANS ALL OUTGOINGS ARE BROUGHT UNDER THE WORD EXPENDITURE FOR THE PUR POSE OF THE SECTION. THE EXPENDITURE FOR PURCHASING THE STOCK-I N-TRADE IS ONE OF SUCH OUTGOINGS. THE VALUE OF THE STOCK-IN-TRADE HA S TO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE GROSS PROFITS UNDER S ECTION 28 OF THE ACT ON PRINCIPLES OF COMMERCIAL ACCOUNTING. THE PA YMENTS MADE FOR PURCHASES WOULD ALSO BE COVERED BY THE WORD EXPENDI TURE AND SUCH PAYMENTS CAN BE DISALLOWED IF THEY ARE MADE IN CASH IN THE SUMS EXCEEDING THE AMOUNT SPECIFIED UNDER SECTION 40A(3). W E HAVE EARLIER OBSERVED THAT RULE 6DD HAS TO BE READ ALONG WITH SECTION 40A(3). THE RULE ALSO CONTEMPLATES PAYMENTS MADE FOR STOCK-IN- TRADE AND RAW MATERIALS. THIS RULE IS IN ACCORDANC E WITH THE TERMS OF SECTION 40A(3). THE RULE PROVIDES THAT AN ASSESSEE C AN BE EXEMPTED FROM THE REQUIREMENTS OF PAYMENT BY CROSSED CHEQUE OR A CROSSD BANK DRAFT WHERE THE PURCHASES ARE MADE OF CERTAIN AGRICULTURAL OR HORTICULTURAL COMMODITIES OR FROM A VILLAGE WHERE T HERE IS NO BANKING FACILITY. SECTION 40A(3) IS, THEREFORE, ATTRACTED T O PAYMENTS MADE FOR ACQUIRING STOCK-IN-TRADE AND OTHER MATERIALS. THIS IS ALSO THE VIEW TAKEN BY SEVERAL HIGH COURTS SAJOWANLAL JAIS WAL V. CIT [1976] 103 ITR 706 (ORI), U.P. HARDWARE STORE V. CIT [1976] 104 ITR 664 (ALL), RATON UDYOG V. ITO [1977] 109 ITR 1 (ALL), PH. TE XTILES V. CIT [1980] 121 ITR 237 (KER.), CIT V. KISHAN CHAND MAHESWARI D ASS [1980] 121 ITR 232 (PUNJ. & HAR.), KANTI LAL PURSHOTTAM & CO. V. CIT [1985] 155 ITR 519 (RAJ.), CIT V. NEW LIGHT TIN MFG. CO. [ 1980] 121 ITR 229 (PUNJ. & HAR.), FAKRI AUTOMOBILES V. CIT [1986] 1 60 ITR 504 (RAJ.), VENKATA SATYANARAYANA TIMBER DEPOT V. CIT [ 1987] 165 ITR 253 (AP), AND AKASH FILMS V. CIT [1991] 190 ITR 32 (KAR.). THE DECISIONS OF THE HIGH COURTS OF ANDHRA PRADESH, ORI SSA, ALLAHABAD, KERALA, KARNATAKA, PUNJAB & HARYANA, RAJASTHAN AND PATNA ARE TO THE EFFECT THAT THE PAYMENTS MADE FOR PURCHASING STOCK- IN-TRADE OR RAW MATERIALS SHOULD ALSO BE REGARDED AS EXPENDITURE FOR THE PURPOSE OF SECTION 40A(3). THE ONLY DISCORDANT NOTE STRUCK ON TH IS ASPECT IS BY THE GAUHATI HIGH COURT IN CIT V. HARDWARE EXCHANGE [ 1991] 190 ITR 61. THE GAUHATI HIGH COURT HAS OBSERVED THAT SECTIO N 40A(3) APPLIES ONLY TO PAYMENTS MADE ON ACCOUNT OF EXPENDITURE IN CURRED AND THE PAYMENT MADE FOR PURCHASE OF STOCK-IN-TRADE CANNOT BE TERMED AS EXPENDITURE INCURRED SINCE MONEY DOES NOT GO IRRET RIEVABLY IN SUCH CASES. WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY THE GAUHATI HIGH COURT. 7. HONBLE JURISDICTIONAL HIGH COURT HAS ALSO CLEAR LY HELD IN THE CASE OF A.D. JAYAVEERAPANDIA NADAR & SONS (SUPRA) THAT P AYMENTS BEING 7 I.T.A. NO. 133/MDS/12 MADE TO AN ASSOCIATE CONCERN WAS NOT A JUSTIFIABLE REASON FOR DELETING THE DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE CIT(A PPEALS) FELL IN ERROR IN DELETING THE DISALLOWANCE MERELY ON THE SUBMISSION OF THE ASSESSEE, IGNORING THE LEDGER COPIES ANNEXED TO THE ASSESSMEN T ORDER BY THE ASSESSING OFFICER HIMSELF. THE PAYMENTS WERE ALL E FFECTED IN CASH AND EACH OF SUCH PAYMENT EXCEEDED ` 20,000/-. WE ARE, THEREFORE, OF THE OPINION THAT THE ASSESSING OFFICER HAD RIGHTLY MADE DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. WE SET ASIDE THE ORDER OF CIT(APPEALS) AND REINSTATE THE ADDITION MADE BY THE A.O. UNDER SECTI ON 40A(3) OF THE ACT. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE STAND S ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON WEDNESDAY, THE 11 TH OF JULY, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH JULY, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, CHENNAI-34 (4) CIT, CENTRAL-II, CHENNAI (5) D.R. (6) GUARD FILE