M/s Vrajlal Chhaganlal Dholakia, Bhavnagar V. The ACIT,Cir-2, Bhavnagar

ITA 15/RJT/2005

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7324 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2001-2002
• Appeal Filed On: 07-01-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: SAMIR DIVETIA
• Keywords: Bogus purchase; Income from undisclosed sources; Reasonable cause; Corroborative evidences
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.15/RJT/2006 (ASSESSMENT YEAR 2002-03) HARISHBHAI V GADHIA VS ITO, WD.2(4) PEROP OF M/S VEER TRADERS RAJKOT RAIYA ROAD, RAJKOT PAN : ADSPG6689C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAMIR DIVETIA RESPONDENT BY : SHRI AVINASH KUMAR O R D E R PER AL GEHLOT, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-III, RAJKOT DATED 21-10-2005 FOR THE ASSESSMENT YEAR 200 2-03. THE FOLLOWING EFFECTIVE GROUNDS ARE RAISED IN THE APPEAL: 1.0 LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I II, RAJKOT HAS ERRED IN LAW AND ON FACTS IN SUSTAINING DISALLOWANC E U/S 40A(3) OF THE ACT OF RS.1,25,209/-. 1.1 LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II I, RAJKOT HAS ERRED IN LAW AND ON FACTS IN ENHANCING THE DISALLOW ANCE U/S 40A(3)O OF THE ACT TO THE TUNE OF RS.54,000/-. 1.2 LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II I, RAJKOT OUGHT TO HAVE CONSIDERED THE FACT THAT THERE WAS NO CONTR AVENTION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 2.0 LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II I, RAJKOT HAS ERRED IN LAW AND ON FACTS IN SUSTAINING DISALLOWANC E OF RS.5,65,837/- AS PURCHASE EXPENSES NOT SUPPORTED BY ANY BILLS; VOUCHERS OR RELIABLE EVIDENCES. 3.0 LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II I, RAJKOT HAS ERRED IN LAW AND ON FACTS IN SUSTAINING DISALLOWANC E OF RS.80,200/- AS NON-GENUINE EXPENDITURE TOWARDS PURCHASE OF BAG MATERIALS. 2. THE LEARNED AR ARGUED ALL GROUNDS OF APPEAL TO GETHER, THEREFORE THE GROUNDS OF APPEALS ARE DECIDED ACCORDINGLY AFTER RECORDING BRI EF FACTS OF ALL THE GROUNDS OF APPEAL ITA NO.15/RJT/2006 2 FIRST. THE BRIEF FACTS OF GROUNDS 1.0, 1.1 & 1.2 A RE THAT, THE ASSESSEE, PROPRIETOR OF M/S VEER TRADERS IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF PLASTIC AND CANVASS BAGS AGAINST WHICH THE ASSESSEE SHOWN TO HAVE MADE TOTAL PURCHASES OF RS.9,37,048 FROM M/S RAJ KAMAL TRADERS, RAJKOT. DURING THE YEAR, PA YMENT OF RS.8,96,046 WERE MADE. THE ASSESSING OFFICER FOUND THAT OUT OF THE TOTAL P AYMENTS, AN AMOUNT OF RS..6,26,046 WAS PAID IN CASH. THE SUBMISSIONS OF THE ASSESSEE BEFORE ASSESSING OFFICER IS NOTED BY THE ASSESSING OFFICER ON PAGE 4 PARAGRAPH 7 OF ASSE SSMENT ORDER. AFTER CONSIDERING ASSESSEES REPLY A DISALLOWANCE OF RS.1,25,209 BEIN G 20% OF SUCH CASH PAYMENTS , RS..6,26,046 WAS MADE BY THE ASSESSING OFFICER. ON APPEAL, THE CIT (A) NOT ONLY CONFIRMED THE DISALLOWANCE, BUT ALSO ENHANCED SUCH DISALLOWANCE TO RS. 1,79,209 FROM RS. 1,25,209 MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS APPENDED IN HIS ORDER: 2.2 I HAVE EXAMINED THE FACTS OF HE CASE. THE FAC TS OF THE CASE SHOW THAT TOTAL PAYMENTS OF RS.8,96,046/- HAS BEEN MADE IN CASH. THE DETAILS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFI CER SHOWS THAT THE PAYMENTS WERE MADE ON 14 DIFFERENT DATES FROM 11/10 /2001 TO 17/3/2002. OUT OF THESE, THE 3 PAYMENTS WERE SHOWN TO BE MADE BY CHEQUE. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS CLAIME D THAT THE PAYMENTS SHOWN TO HAVE BEEN MADE BY CHEQUE ARE INDEED MADE I N CASH. IT IS EXPLAINED THAT AFTER ISSUING CHEQUES, THE CHEQUES W ERE GOT ENCASHED AND PAYMENTS WERE MADE IN CASH. THE FACTS OF THE CASE SHOW THAT MANY PURCHASES ARE MADE FROM M/S RAJ KAMAL TRADERS. THE PAYMENTS ARE MADE ON 14 DIFFERENT DATES IN A SPAN OF MORE THAN 5 MONTHS. IN VIEW OF THIS FACT, THE APPELLANTS PLEA THAT THE ASSESSEE W AS NOT HAVING BUSINESS CONTACT WITH THE SUPPLIER IS FOUND TO BE FACTUALLY WRONG. BOTH THE PURCHASER AND SELLER ARE HAVING OFFICES IN CITY OF RAJKOT WHICH HAS AMPLE FACILITY OF BANKING. THE FACTS OF THE CASE DID NOT SHOW EXISTENCE OF ANY BUSINESS COMPULSION FOR MAKING PAYMENTS IN CASH. T HE FACTS OF THE APPELLANTS CASE AND THE CIRCUMSTANCES IN WHICH PAY MENTS ARE MADE IN CASH BY THE APPELLANT ARE NOT COVERED BY RULE 6DD. THE APPELLANT HAS CLAIMED THAT THE APPELLANTS SONS GAURAV H GADHIA A ND NELESH H. GADHIA HAS MANAGED BUSINESS OF THE APPELLANT HENCE PAYMENT S MADE BY THEM ON BEHALF OF THE APPELLANT SHOULD BE TREATED UNDER RULE 6DD(I). THIS EXPLANATION IS NOT PLAUSIBLE FOR THE REASON THAT TH E APPELLANTS BUSINESS IS A PROPRIETARY BUSINESS. IF HIS SONS HAVE HELPED HI M IN CONDUCTS HIS BUSINESS, THEIR STATUS IS ONLY THAT OF MANAGERS. T HEY CANNOT BE TREATED AS INDEPENDENT AGENTS. SINCE THEY RE NOT INDEPENDE NT AGENTS, THE PAYMENTS MADE BY THE APPELLANT IN CASH, EVEN IF, MA DE THROUGH THEIR HANDS, CANNOT BE TREATED AS PAYMENTS MADE THROUGH A GENTS. IN VIEW OF THE FACTS OF THE CASE AND IN LAW, IT IS HELD THAT T HE ASSESSING OFFICER HAS RIGHTLY HELD THAT THE PAYMENTS MADE IN CASH TO M/S RAJ KAMAL TRADERS ARE DISALLOWABLE U/S 40A (3). DURING THE APPELLATE PRO CEEDINGS, IT HAS BEEN CLARIFIED BY THE APPELLANTS REPRESENTATIVE THAT TO TAL AMOUNT OF ITA NO.15/RJT/2006 3 RS.8,96,046/- HAS BEEN PAID IN CASH. IN VIEW OF TH IS FACT, THE TOTAL AMOUNT DISALLOWABLE U/S 40A (3) COMES TO RS. 1,79,209/-. DURING THE HEARING, THE APPELLANTS REPRESENTATIVE WAS ASKED AS TO WHY DISA LLOWANCE U/S 40A (3) SHOULD NOT BE ACCORDINGLY ENHANCED. IN REPLY, HE P LEADED THAT TOTAL AMOUNT OF CASH PAYMENT WAS ALLOWABLE UNDER RULE 6DD (I). REASON AS TO WHY THE PAYMENTS ARE NOT COVERED BY RULE 6DD HAS AL READY DISCUSSED IN THIS ORDER HENCE THIS PLEA OF THE APPELLANT DOES NO T DESERVE TO BE GRANTED. IN VIEW OF THE ABOVE, THE DISALLOWANCE U/S 40A(3) I S ENHANCED FROM RS.1,25,209/- TO RS.1,79,209/- 2.1 AS ALL GROUNDS OF APPEAL ARE TO DECIDE TOGETHER , THEREFORE, NOW COMING TO THE FACTS OF THE SECOND GROUND OF APPEAL. GROUND 2.0 PE RTAINING TO CONFIRMATION OF DISALLOWANCE OF RS.5,65,837 AS PURCHASE EXPENSES NO T SUPPORTED BY ANY BILLS, VOUCHERS OR RELIABLE EVIDENCE THE BRIEF FACTS ARE THAT DURIN G THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE FOLLOWING PAYMENTS ARE SHOWN AS CASH PAYMENTS FOR PURCHASES OF GOODS FROM SOME OTHER PERSONS: DATE OF PAYMENT AMOUNT NATURE OF PAYMENT NAME OF TH E PARTY TO TO WHOM MADE 10-09-2001 36,634 BY CASH NO SELLERS NAME 05-10-2001 3,440 BY CASH NO SELLERS NAME 13-10-2001 14,440 BY CASH NO SELLERS NAME 20-10-2001 77,354 BY CASH NO SELLERS NAME 25-10-2001 75,274 BY CASH NO SELLERS NAME 25-10-2001 18,030 BY CASH NO SELLERS NAME 23-01-2002 83,391 BY CASH NO SELLERS NAME 28-01-2002 93,931 BY CASH NO SELLERS NAME 26-09-2001 94,000 BY CASH NO DETAILS FURNISHED 23-01-2002 69,343 BY CASH NO DETAILS FURNISHED 5,65,837 THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT BILL-BOOK AND NAME OF OTHER PARTIES FROM WHOM PURCHASES WERE CLAIMED TO BE MADE. ON VE RIFICATION OF COPY OF BILLS, THE ASSESSING OFFICER FOUND THAT DATE OF PURCHASES, NAM E OF THE SUPPLIER AND ADDRESS WERE NOT MENTIONED. NO SUPPORTING EVIDENCES WERE SUBMIT TED BEFORE THE ASSESSING OFFICER IN SUPPORT OF THE CLAIM OF THESE PURCHASES. AFTER CON SIDERING THE EXPLANATION OFFERED BY THE ASSESSEE, THE ASSESSING OFFICER HELD THAT THE CLAIM OF PURCHASES OF RS.5,65,837 WERE NOT SUPPORTED BY EVIDENCES AND THE ASSESSEE HAS FAILED TO ESTABLISH THE UTILIZATION OF GOODS CLAIMED TO HAVE BEEN PURCHASED. AFTER GIVING THESE FINDINGS, HE HELD THAT THIS CLAIM OF PURCHASES OF RS.5,65,837/- WERE NON-GENUINE AND DIS ALLOWED THE SAME. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE. ITA NO.15/RJT/2006 4 3. THE BRIEF FACTS OF THE CASE OF THIRD GROUND OF A PPEAL IS THAT THE ASSESSEE CLAIMED EXPENSES RS 80200/-, THE VOUCHER WERE NOT PRODUCED BEFORE THE AO THEREFORE HE MADE THE ADDITION, WHICH HAS BEEN CONFIRMED BY THE CIT(A ) 4 THE LD.AR SUBMITTED THAT THE ASSESSING OFFICER MA DE ADDITION U/S 40A(3) OF THE ACT ON ACCOUNT OF CASH PAYMENT EXCEEDING RS.20,000 AND ON ACCOUNT OF BOGUS PURCHASES. THE LD.AR SUBMITTED THAT THESE ARE THE FACTS BASED ON WHICH THE ASSESSING OFFICER OUGHT TO HAVE REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE TOTAL INCOME OF THE ASSESSEE INSTEAD OF INDIVIDUALLY MAKING DISALLOWANC E U/S 40A(3) AND ADDING 100% OF THE TOTAL PURCHASES MADE IN CASH, WHERE THE ASSESSEE FA ILED TO PRODUCE SELLERS NAME AND OTHER DETAILS. THE LD.AR SUBMITTED THAT IN THE CAS E UNDER CONSIDERATION THE BOOKS OF ACCOUNT OF THE ASSESSEE IMPLIEDLY REJECTED BY THE A SSESSING OFFICER AND UNDER THAT CIRCUMSTANCES, ADDITION U/S 40A(3) CANNOT BE MADE. THE LD.AR SUBMITTED THAT THE TOTAL PURCHASES MADE BY THE ASSESSEE FOR THE YEAR WAS RS. 16,77,072. THE BIFURCATION OF PURCHASES FROM REGISTERED DEALERS AND UNREGISTERED DEALERS POINTED OUT BY THE LDF.AR IS REPRODUCED AS BELOW: PARTICULARS PURCHASE SALES G.P. CCF (URD) 3,95,260 CCF(RD) 11,98,300 15,93,560 16,41,097 9.62% BEG MATERIALS (RD) 80,200 52,480 14.99% RESALE (RD): 3,312 3,640 20% TOTAL 16,77,072 16,97,217 4.1 THE LD.AR SUBMITTED THAT THE DISALLOWANCE OUT OF PURCHASES MADE BY THE ASSESSING OFFICER CONFIRMED BY THE CIT(A) AT RS.5,6 5,837 AND ADDITION OF RS.80,200/- WHICH MEANS THAT (A) THE SALE FINISHED GOODS / BA GS WERE MADE WITHOUT ANY PURCHASES, SINCE ENTIRE PURCHASE IS DISALLOWED, (B ) AFTER DISALLOWANCE OF RS.5,65,837, THE GROSS PROFIT RATE WORK OUT TO 44.10% WHICH IS N OT POSSIBLE IN THIS LINE OF BUSINESS. THE LD.AR SUBMITTED THAT THE ASSESSING OFFICER IS N OT CORRECT IN MAKING DISALLOWANCE OF THE PURCHASES WHICH WAS DONE FROM REGISTERED DEALER S. THE ALTERNATIVE SUBMISSION OF ITA NO.15/RJT/2006 5 THE LD.AR IS THAT ENTIRE PURCHASES AMOUNT CANNOT BE DISALLOWED, BUT A LUMP SUM DISALLOWANCE CAN BE MADE AFTER REJECTING THE BOOKS OF ACCOUNT. THE LD.AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE DECISION OF AHMADABA D BENCH IN THE CASE OF SUN STEEL IN ITA NO.2641/AHD/1997 92 ATTJ (AHD) 126. THE LD.AR FURTHER SUBMITTED THAT NO FURTHER DISALLOWANCE SHOULD BE MADE ONCE THE BOOKS ARE REJE CTED AND INCOME IS ESTIMATED ON THE BASIS OF GROSS PROFIT RATE. THE LD.AR IN SUPPO RT OF HIS CONTENTION RELIED UPON THE ORDER OF THE ITAT, CHENNAI BENCH IN THE CASE OF ACI T VS LAXMI INDUSTRIES 48 DTR (CHENNAI)(TRIBUNAL) 54 AND THE JUDGMENT OF THE ALLA HABAD HIGH COURT IN THE CASE OF BANWARILAL BANSIDHAR 229 ITR 229 (ALL). 5. THE L D. DR, ON THE OTHER HAND, RELIE D UPON THE ORDER OF THE ASSESSING OFFICER AND CIT (A). 6. WE HAVE HEARD THE LEARNED REPRESENTATIVE S OF THE PARTIES, RECORD PERUSED. THE ADMITTED FACTS IN FIRST EFFECTIVE GROUND OF THE APPEAL ARE THAT THE ASSESSEE MADE CASH PAYMENT FOR PURCHASES EXCEEDING RS.20,000/-. THEREFORE, THE ASSESSING OFFICER DISALLOWED 20% OF THE PURCHASES MADE IN CASH AND CA LCULATED AMOUNT OF ADDITION OF RS.1,25,209 WHICH HAS BEEN ENHANCED BY THE CIT(A) B Y RS.54,000. ADDITION OF RS.5,65,837 BEING GROSS PURCHASES AND RS 80200/- AS PER ASSESSING OFFICER WHICH IS NOT SUPPORTED BY PROPER BILLS. 6.1 THE FIRST ISSUE FOR CONSIDERATION IN THE CASE U NDER CONSIDERATION IS DISALLOWANCE U/S 40A (3) OF THE ACT . THE SAID SECTION PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IN A SUM EX CEEDING RS.20,000/- OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT 20% OF SUCH EXPENDITURE SHALL NOT BE ALLOWED AS DEDUCTION. THE SAID SECTION 40A (3) ITSELF PROVIDES CERTAIN EXCEPTIONAL CIRCUMSTANCES IN SECOND PROVISO WHICH READS AS UNDER: (APPLICABLE FOR AY 2002-03) PROVIDED FURTHER THAT NO DISALLOWANCE UNDER THIS SUB-SECTION SHALL BE MADE WHERE ANY PAYMENT IN A SUM EXCEEDING (TWENTY T HOUSAND) RUPEES IS MADE OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT, IN SUCH CASES AND UNDER SUCH CI RCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTE NT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AN D OTHER RELEVANT FACTORS. ITA NO.15/RJT/2006 6 6.2 THE APEX COURT WHILE DECIDING THE CONSTITUTIONA L VALIDITY OF THE SAID SECTION 40A(3) OF THE ACT IN THE CASE OF ATTARSINGH GURUMUK HSINGH VS ITO 191 ITR 667 (SC) HAS OBSERVED THAT THE SAID PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRAD ING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS ASSESSING OFFICER TO DISALLOW THE DEDUCTIO N CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR C ROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHE THER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) A RE NOT ABSOLUTE. THE APEX COURT ALSO OBSERVED THAT GENUINENESS AND BONA FIDE TRANSA CTIONS, CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE ALSO RE QUIRED TO BE CONSIDERED BEFORE MAKING DISALLOWANCE UNDER THIS SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTA NCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A (3) WAS NOT PRACTI CABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE AS SESSEE 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 C ROSSED 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 REGUL ATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. 6.3 IN THE LIGHT OF THE ABOVE DISCUSSION, IF WE CON SIDER THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THE FOLLOWING EXPLANATION OF THE ASSESSEE AND FINDING THEREON BY THE ASSESSING OFFICER, REPRODUCED FROM PAGE 4 PARAG RAPHS 7 OF AOS ORDER: 7. BEFORE, TAKING UP THESE ISSUES, AND IN WHICH CI RCUMSTANCES, THE ASSESSEE HAD MADE THESE PAYMENTS AND ON NATURAL JUS TICE, THE ASSESSEE WAS SUMMONED. IN RESPONSE TO THE SUMMONS, THE ASSE SSEES SON NILESHBHAI H. GADHIA HAD ATTENDED. HIS STATEMENT O N OATH WAS RECORDED. HE WAS ASKED IN WHICH CAPACITY HE HAD APPEARED. HE IN HIS STATEMENT STATED SINCE HIS FATHER IS NOT WELL AND DUE TO ILL- HEALTH OF HIS FATHER, HE HAD TO ATTEND THE ACTIVITIES OF BUSINESS. HE WAS ALSO ASKED TO FURNISH AUTHORITY LETTER OF HIS FATHER IN THIS REGARD. HE UNDERTOOK TO FURNISH THE SAME ON THE VERY NEXT DAY, BUT THE SAME HAS NOT BEE N FILED, TILL DATE. THE TRANSACTIONS OF CASH PAYMENTS WAS SHOWN TO HIM AND WAS ALSO ASKED IN WHICH CIRCUMSTANCES THE CASH PAYMENT FOR PURCHASE O F GOODS WAS MADE. IN HIS REPLY, IT WAS STATED THAT DUE TO ILL-HEALTH OF HIS FATHER, HIS FATHER ITA NO.15/RJT/2006 7 COULD NOT REGULARLY ATTEND THE BUSINESS AFFAIRS AND AT THE RELEVANT PERIOD OF TIME, TO MAINTAIN THE GOODWILL, THE CASH PAYMENT WAS MADE. THE ASSESSEES REPLY WAS CONSIDERED. HOWEVER, THE SAME IS NOT ACCORDED DUE WEIGHTAGE, BECAUSE, IT CAN BE SEEN FROM THE EAR LIER PART OF THIS ORDER THAT THE ASSESSEE HAS MADE SUBSTANTIAL [PURCHASES F ROM RAJ KAMAL TRADERS ON CREDIT, AND THE PAYMENTS ARE ALSO MADE T HROUGH CHEQUES AND BY CASH. IN THIS CASE, THE ASSESSEE DID NOT MAKE T HE PAYMENTS IN CASH. HOWEVER, AS FAR AS OTHER TRADERS ARE CONCERNED, HE HAS MADE PAYMENTS IN CASH, FOR WHICH NO SATISFACTORY EXPLANATION HAS BEEN OFFERED BY THE ASSESSE, SO FAR, ESPECIALLY; IN REGARD TO THE NECES SITY OF MAKING PAYMENTS IN CASH. THE SAME IS NOT CAPABLE OF BEING JUSTIFIE D IN THE EYES OF LAW ALSO. MOREOVER, THE ASSESSEE DID NOT HAVE ANY OF T HE REASONABLE CAUSE, OR CIRCUMSTANCES, AS PRESCRIBED IN RULE 6DD, WHICH COULD HAVE EXEMPTED HIM FOR MAKING PAYMENTS IN CASH. 6.4 THE EXCEPTIONAL CIRCUMSTANCES PROVIDED IN THE SECOND PROVISO TO SECTION 40A(3) FOR THE RELEVANT ASSESSMENT YEAR. THE EXCEPT IONAL CIRCUMSTANCES WHICH MAY BE PRESCRIBED UNDER RULE 6DD(J) AND IN ADDITION TO TH AT, THE EXCEPTIONAL CIRCUMSTANCES ARE IN RESPECT OF NATURE AND EXTENT OF BANKING FACILITI ES AND CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS . THE ASSESSEE EXPLAINED IN DETAIL THAT HE MADE THE PAYMENT IN CASH EXCEEDING RS.20,000, UNDER THE CIRCUMSTANCES, THAT HIS FATHER WAS NOT WELL AND DUE TO ILL HEALTH OF HIS FA THER, HE HAD TO ATTEND THE ACTIVITIES OF BUSINESS. THE CASH PAYMENT WAS MADE TO MAINTAIN TH E GOODWILL OF ASSESSEES BUSINESS. WHAT THE INCOME-TAX ACT PURPORTS TO TAX IS BUSINESS PROFIT AND BUSINESS PROFITS ARE THE TRUE PROFITS OF THE BUSINESS AS ASC ERTAINED ACCORDING TO THE COMMERCIAL PRINCIPLES? IT IS THE DUTY OF EVERYONE WHO HAS ANY THING TO DO WITH TAXING BUSINESS PEOPLE TO UNDERSTAND WHAT THE PRINCIPLE OF COMMERCI AL EXPEDIENCY IS. UNLESS ONE UNDERSTAND THIS PRINCIPLE IT IS DIFFICULT TO MAKE A PROPER ASSESSMENT ON A BUSINESSMAN. WHEN THE ASSESSEES SON LOOKED AFTER THE BUSINESS O F HIS FATHER ON ACCOUNT OF FATHERS ILL HEALTH AND MADE THE CASH PAYMENT TO SAVE THE PRESTI GE AND GOODWILL OF THE BUSINESS, SUCH ACTION IS THE ACTION IN ACCORDANCE WITH COMMER CIAL EXPEDIENCY AND CONSIDERATION OF BUSINESS WHICH FALLS UNDER THE EXCEPTIONAL CIRCUMS TANCES PROVIDED IN THE SECOND PROVISO TO THE SECTION 40A(3) OF THE ACT ITSELF AND IN ACCORDING TO THE JUDGMENT OF THE APEX COURT IN THE CASE OF ATTARSINGH GURUMUKHSINGH VS ITO (SUPRA), UNDER THE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT T HE CASH PAYMENT MADE BY THE ASSESSEE EXCEEDING RS.20,000 FALLS UNDER THE EXCEPT IONAL CIRCUMSTANCES OF SECTION 40A(3) OF THE ACT. THEREFORE, NO DISALLOWANCE FOR SUCH EXPENSES IS WARRANTED. WE, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER AND ALSO DELETE THE ENHANCEMENT MADE BY THE CIT (A). ITA NO.15/RJT/2006 8 7. WITH REGARD TO THE ADDITION ON ACCOUNT OF CASH P URCHASES AMOUNTING TO RS.5,65,837. WE FIND THAT THE ASSESSING OFFICER MAD E ADDITION OF 100% OF PURCHASES WHERE THE ASSESSEE MADE CASH PURCHASES AND WAS NOT ABLE TO GIVE THE NAME OF SELLER AND OTHER DETAILS. THE ASSESSING OFFICER MADE ADDI TION OF THE GROSS AMOUNT WHICH HAS BEEN CONFIRMED BY THE CIT(A). THE ASSESSING OFFICE R WAS ALSO OF THE VIEW THAT 20% OF THE CASH PAYMENT EXCEEDING RS.20,000 IS ALSO DISALL OWABLE. WE FIND FORCE IN THE SUBMISSION OF THE LD.AR THAT IN SUCH CASES, MERELY ON THE FACT THAT THE ASSESSEE FAILED TO FURNISH THE RELEVANT DETAILS OF THE PURCHASES WITHO UT RECORDING FACT THAT IN FACT NO PURCHASES WERE MADE, 100% DISALLOWANCE OF THE ENTIR E CASH PURCHASES CANNOT BE MADE. HOWEVER, FOR THE PURPOSE OF REASONABLE ESTIM ATION WE, FOLLOWING THE RATIO LAID DOWN IN THE ORDER OF THE ITAT, AHMEDABAD BENCH IN T HE CASE OF SUN STEEL CITED SUPRA AND AFTER CONSIDERING THE INCOME DECLARED BY THE AS SESSEE AT RS.99,820 WE FIND THAT IT WILL BE FAIR AND JUST IF AN ADDITION TO THE EXTENT OF RS.20,000 IS SUSTAINED TO COVER UP ALL THE DEFICIENCIES. IN THE LIGHT OF THE ABOVE DISCUS SION, WE DELETE THE ADDITION OF RS.5,65,837 AND RS.80,200. IN SUMMARY, THE ADDITIO N TO THE EXTENT OF RS.20,000 IS SUSTAINED INSTEAD OF ADDITION MADE BY ASSESSING OFF ICER FOR RS.7,71,246 (1,25,246 + 5,65,837 + 80,200) AND ENHANCED BY THE CIT(A) TO RS . 1,79,209 FROM RS.1,25,209. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31-03-2011. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 31 ST MARCH, 2011 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-III, RAJKOT 4. THE CIT-II, RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT