The Income Tax Officer, Srinagar V. M/s. Khazir Sons, Srinagar

ITA 159/ASR/2013

• Counselvise Citation: 15920914 RSA 2013
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.159(ASR)/2013 ASSESSMENT YEAR:2009-10 PAN :AADFK6412F INCOME TAX OFFICER, VS. M/S. KHAZIR SONS, WARD-3(1), SRINAGAR. NIGEEN, SRINAGAR. (APPELLANT) (RESPONDENT) C.O. NO.39(ASR)/2013 (ARISING OUT OF I.T.A. NO.159(ASR)/2013) ASSESSMENT YEAR:2009-10 PAN :AADFK6412F M/S. KHAZIR SONS, VS. INCOME TAX OFFICER, NIGEEN, SRINAGAR. WARD-3(1), SRINAGAR. (APPELLANT) (RESPONDENT) ASSESSEE BY: SH.MAHAVIR SINGH, DR RESPONDENT BY:SH. JOGINDER SINGH, CA DATE OF HEARING: 26/03/2014 DATE OF PRONOUNCEMENT:27/03/2014 ORDER PER BENCH ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER OF THE CIT(A), JAMMU, DATED 21.12.2012 FOR THE ASSESSMENT YEAR 2 009-10.THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO. 159(ASR)/2013 C.O.NO.39(ASR)/2013 2 1. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.11,15,495/- MA DE ON ACCOUNT OF DISALLOWANCE OF EXPENSES UNDER THE HEAD DYEING AND CHAPPING EXPENSES WHEN BOTH THE ACTIVITIES OF DYEI NG AND CHAPPING ARE PURELY MANUFACTURING EXPENSES AND THE ASSESSEE IS A REGISTERED MERCHANT EXPORTER AND IS NOT ALLOWE D MANUFACTURING GOODS OF ITS OWN FOR SALE. 2. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. C IT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.5,16,560/- ON ACCOUNT OF VIOLATIONS OF SECTION 40A(3) OF THE ACT WHEN THE AS SESSEE HAD MADE PURCHASES FROM ITS REGULAR SUPPLIERS RATHER TH AN THE HAWKERS AS CLAIMED BY THE ASSESSEE. 2. THE ASSESSEE HAS ALSO FILED C.O. NO.39(ASR)/2013 AND THE SOLE GROUND RAISED THEREIN READS AS UNDER: 1. THE LD. CIT(A) IS NOT JUSTIFIED IN REJECTING TH E CONTENTION OF THE ASSESSEE THAT THE DISALLOWANCE OF SECTION 40(A)(IA) OF THE ACT IS APPLICABLE ONLY OF AMOUNTS PAYABLE AS ON THE DATE O F BALANCE SHEET AND NOT AN AMOUNTS ALREADY PAID DURING THE YE AR. 3. THE LD. COUNSEL FOR THE ASSESSEE, MR. JOGINDER S INGH, CA AT THE OUTSET PRAYED TO WITHDRAW THE C.O. FILED BY THE ASSESSEE A ND ACCORDINGLY THE SAME IS DISMISSED AS WITHDRAWN. 4. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO. 159(ASR)/2013. IN GROUND NO.1 OF THE REVENUE, THE BRIEF FACTS ARE THA T AS PER TRADE CERTIFICATE ISSUED TO THE ASSESSEE BY THE DIRECTORATE OF HANDIC RAFTS J & K GOVT., THE ASSESSEE IS A REGISTERED MERCHANT EXPORTER ONLY WH ICH MEANS THAT THE ASSESSEE IS NOT ALLOWED MANUFACTURING GOODS OF ITS OWN FOR SALE. IT IS ALLOWED TO EXPORT GOODS MANUFACTURED BY OTHER CONCERNS. THE REFORE, THE ASSESSEE ITA NO. 159(ASR)/2013 C.O.NO.39(ASR)/2013 3 CANNOT CLAIM ANY EXPENDITURE RELATED TO MANUFACTURI NG ACTIVITY. HOWEVER, THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.11,15, 495/- AGAINST DYEING AND CHAP EXPENSES. BOTH THESE ACTIVITIES ARE PURE MANUF ACTURING ACTIVITIES IN HANDICRAFTS BUSINESS. THE EXPENDITURE IS CLEARLY BO GUS WHICH CANNOT BE ALLOWED IN THE CASE OF THE MERCHANT TRADER. MOREOVE R, THE ASSESSEE COULD NOT EXPLAIN THE REASONS BEHIND CLAIM OF THIS BOGUS EXP ENDITURE. ACCORDINGLY, THE AMOUNT OF RS.11,15,495/- IS DISALLOWED AS EXPEN DITURE AS BOGUS AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE LD. CIT(A) DELETED THE ADDITION SO MADE BY T HE A.O. AS PER PARA 4.1 OF HIS ORDER FOR THE REASON THAT THE AO HAS NOT MADE ANY ADVERSE FINDING ABOUT THE VERACITY OF THE PAYMENT NOR BROUGHT ANYT HING ON RECORD, WHICH CAN PROVE THAT THE PAYMENTS HAVE BEEN BOGUS. THE DY EING AND CHAPPING EXPENSES MAKE A VALUE ADDITION BUT NOT A MANUFACTU RING ACTIVITY AS PER SE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT THE ASSESSEE HAS MADE PAYMENTS THROUGH A/C PAYEE CHEQUES TO RESPECTIVE PA RTIES AND DEALERS. ALL THESE PAYMENTS DETAILS HAVE BEEN FURNISHED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO HAS NOT MADE ANY ADVERSE FINDING ABOUT VERACITY OF PAYMENT NOR BROUGHT ANYTHING ON RECORD WHICH CAN PROVE THAT PAYMENTS HAVE BEEN BOGUS. THE ADDITION HAS BEEN MAD E ON CONJECTURES AND ITA NO. 159(ASR)/2013 C.O.NO.39(ASR)/2013 4 SURMISES ON THE GROUND THAT THE ASSESSEE BEING MERC HANT EXPORTER IS EXPORTING THE GOODS MANUFACTURING BY OTHERS AND IT CANNOT CLAIM ANY EXPENDITURE RELATING TO MANUFACTURING ACTIVITY. TH E DYEING AND CHAPPING EXPENSES MAKE A VALUE ADDITION BUT NOT A MANUFACTU RING ACTIVITY AS PER SE. THUS, IN THE FACTS AND CIRCUMSTANCES, WE FIND NO IN FIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED THE ADDITION S O MADE BY THE AO. THE GROUND NO.1 OF THE REVENUE IS ACCORDINGLY DISMISSED . 7. AS REGARDS GROUND NO.2 OF THE REVENUE, THE BRIEF FACTS AS PER AOS ORDER ARE REPRODUCED FOR THE SAKE OF CONVENIENCE, A S UNDER: DURING PERUSAL OF PURCHASE ACCOUNT, IT IS SEEN THA T THE ASSESSEE HAS MADE FOLLOWING PAYMENTS IN CASH IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961. S.NO . NAME OF PERSON DATE OF PAYMENT AMOUNT 1. CARPET PURCHASE 02.03.2009 3,00,000 2. PAPER MACHIE 06.05.2008 37,300 3. KASHMIR FABRIC 29.07.2008 1,79,250 TOTAL 5,16,560 THEREFORE, AN EXPENDITURE OF RS.5,16,560/- HAS BEEN INCURRED IN CASH OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR DRAFT. SINCE ALL THESE PAYMENTS ARE IN EXCESS OF RS.20,000/-, PROVISIONS O F SEC. 40A(3) OF THE ACT ARE ATTRACTED AND ACCORDINGLY FOR VIOLATION OF SECTION 40A(3) OF THE ACT, THE PAYMENTS OF RS.5,16,560/- ARE DISAL LOWED AS EXPENDITURE AGAINST PURCHASES AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 7.1. THE LD. CIT(A) DELETED THE ADDITION AND RELEVA NT FINDINGS GIVEN IN PARA 4.3. OF HIS ORDER ARE REPRODUCED HEREUNDER: ITA NO. 159(ASR)/2013 C.O.NO.39(ASR)/2013 5 4.3. THE AO HAS INVOKED SEC. 40A(3) AND CERTAIN PURCHASE S MADE IN CASH WHICH HAS BEEN MENTION AT PAGE 3 OF THE ASSTT. ORDER HAVE BEEN DISALLOWED. THESE PURCHASES ARE RELATING TO PURCHAS E OF CARPETS, PAPER MASHIE AND KASHMIRI FABRIC. THE APPELLANT HAS MADE SUBMISSIONS BEFORE THE AO AS WELL AS BEFORE ME THAT MANY TIMES GOODS PURCHASED FROM HAWKERS ARE AVAILABLE AT VERY REASONABLE PRICE. DUE TO COMMERCIAL EXPEDIENCY, THE APPELLANT HAS TO PURCHASE THESE GOODS AGAINST CASH PAYMENTS THESE HAWKERS DO NOT MAINTAIN BANK ACCOUNT AND THUS PURCHASES ARE TO BE MADE IN C ASH. IT IS A COMMON KNOWLEDGE THAT HAWKERS ARE SELLING CARPETS, PAPER MASHIE AND KASHMIR FABRIC BY CARRYING GOODS ON SPOT AND TH EY REQUIRE THE PAYMENT IMMEDIATELY. THERE IS A FORCE IN THE ARGUME NT OF THE APPELLANT THAT BECAUSE OF BUSINESS EXPEDIENCY SUCH PURCHASES WERE REQUIRED TO BE MADE IN CASH. I AGREE WITH THE ARGU MENTS AND THE DISALLOWANCE IS NOT JUSTIFIED AND HENCE DELETED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LD. CIT(A) WERE THAT PURCHASES MANY TIMES ARE MADE FROM HAWKERS ARE AV AILABLE AT VERY REASONABLE PRICE, WHICH HAVE TO BE MADE AGAINST CAS H PAYMENTS, SINCE HAWKERS DO NOT MAINTAIN BANK ACCOUNT. THE LD. CIT(A ) CONSIDERING THE BUSINESS EXPEDIENCY HELD THAT PURCHASES ARE REQUIRE D TO BE MADE IN CASH AND ACCORDINGLY DELETED THE DISALLOWANCE SO MADE. THIS APPROACH OF THE LD. CIT(A) IS INCORRECT AND AGAINST THE PROVISIONS OF L AW, SINCE NOTHING HAS BEEN ESTABLISHED BY THE ASSESSEE THAT THESE PAYMENTS AR E COVERED UNDER RULE 6DD OF THE INCOME TAX RULES, 1962, WHICH CAN EXEMPT SUCH PAYMENTS AND SUCH PAYMENTS ARE NOT EXCEPTION TO THE PAYMENT U/S 40A(3) OF THE ACT. THEREFORE, THE LD. CIT(A) IS NOT JUSTIFIED IN DELE TING THE ADDITION AND THE ITA NO. 159(ASR)/2013 C.O.NO.39(ASR)/2013 6 ORDER OF THE LD. CIT(A) ON THIS ACCOUNT IS REVERSED AND THAT OF THE A.O. IS RESTORED. ACCORDINGLY, GROUND NO.2 OF THE REVENUE I S ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I N ITA NO.159(ASR)/2013 IS PARTLY ALLOWED AND C.O. NO.39( ASR)/2013 OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27T H MARCH, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27TH MARCH, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. KHAZIR SONS, SRINAGAR. 2. THE ITO WARD 3(2), SGR. 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR