Suresh Chunnilal Sharma, Parbhani V. Income-tax Officer, Ward - Parbhani, Parbhani

ITA 1883/PUN/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 1735 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-11-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 11-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: IS DIRECTED AGAINS T PASSED
• Keywords: Business income; Business expenditure; Earning of tax free income; Additional evidence; Rule 8D
• Section: 40A(3); 251; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT . / ITA NO.1883/PUN/2018 / ASSESSMENT YEAR : 2013-14 SURESH CHUNNILAL SHARMA, PRAYAG KUNJ, OPP. BALAJI MANDIR, SUBHASH ROAD, PARBHANI-431401 MAHARASHTRA PAN : ABIPS2977B VS. ITO, WARD-PARBHANI, PARBHANI (APPELLANT) (RESPONDENT) / ORDER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-1, AURANGABAD ON 14-09-2018 IN R ELATION TO THE ASSESSMENT YEAR 2013-14. 2. THE FIRST ISSUE RAISED IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.9,52,000/- MADE BY THE ASSESSING OFFIC ER (AO) U/S.40A(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT). 3. SUCCINCTLY, THE FACTUAL PANORAMA OF THE CASE IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LAND PLOTTING IN ADDITION APPELLANT BY SHRI PRAMOD SHINGTE RESPONDENT BY SHRI SUDHENDU DAS DATE OF HEARING 12-02-2021 DATE OF PRONOUNCEMENT 16-02-2021 ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 2 TO EARNING INCOME FROM HOUSE PROPERTY AND DIVIDEND. A RE TURN WAS FILED DECLARING TOTAL INCOME OF RS.9,17,560/-. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE PURCHASED PLOT NOS. 164 AND 165 ADMEASURING 37 0.20 SQ. MTRS FOR A CONSIDERATION OF RS.9,52,000/-. OUT OF TH IS, AN AREA OF 183.17 SQ. MTRS. WAS SOLD FOR A CONSIDERATION OF RS.6,24,000/- GIVING GROSS PROFIT OF RS.1,19,664/-. O N A PERUSAL OF THE PURCHASE DEED OF PLOT NOS. 164 AND 165, THE AO OBSERVED THAT THE PLOTS WERE PURCHASED FROM ONE MR. DEVIKINANDAN HARIPRASAD AGRAWAL FOR A CONSIDERATION OF RS.9,52,000/- IN CASH. THE PLOTS WERE ADMITTEDLY STOCK IN TRADE OF THE ASSESSEE. ON BEING CALLED UPON TO EXPLAIN AS TO WHY DISALLOWANCE U/S.40A(3) OF THE ACT BE NOT MADE FOR EQUAL S UM, THE ASSESSEE FAILED TO FURNISH ANY SATISFACTORY EXPLANATION. CONSIDERING THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE LAND PLOTTING BUSINESS AND HAD PURCHASED THE PLOTS AS STOCK-IN-TR ADE, THE AO MADE DISALLOWANCE OF RS.9,52,000/- U/S.40A(3) OF THE ACT. DURING THE COURSE OF THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE CONTENDED THAT MR. DEVIKINANDAN HARIPRASAD AGRAW AL, THE SELLER OF THE PLOTS, WAS A SENIOR CITIZEN AND IT WAS AT HIS INSISTENCE THAT THE PAYMENT WAS MADE IN CASH. IN SUPPORT OF ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 3 THIS CONTENTION, AN AFFIDAVIT FROM MR. DEVIKINANDAN HARIPRASA D AGRAWAL WAS ALSO FILED. THIS ADDITIONAL EVIDENCE WAS SENT BAC K TO THE AO, WHO SUBMITTED A REMAND REPORT DATED 08-03-2015 WHICH HAS BEEN REPRODUCED AT PAGE 5 ONWARDS OF THE IM PUGNED ORDER. IN THE REMAND PROCEEDINGS, THE AO REQUIRED THE A SSESSEE TO PROVE THAT HIS CASE WAS COVERED UNDER RULE 6DD OF THE INCOME-TAX RULES, 1962 (HEREINAFTER CALLED `THE RULES). IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE CASH PAYMENT WAS MADE DUE TO URGENT REQUIREMENTS OF THE SELLER, WHO WAS A SENIOR CITIZEN AND IT WAS NOT POSSIBLE FOR HIM TO GO FREQUENTLY TO THE BANK. IT WAS ALSO EMPHASIZED THAT THE TRANSACTIONS WERE GENUINE. THE AO ISSUED SUMMONS TO THE SELLER AND RECORDE D HIS STATEMENT ON 07-03-2018. IN RESPONSE TO QUERY NO.7, MR. DEVIKINANDAN HARIPRASAD AGRAWAL ADMITTED OF HAVING FOUR ACCOUNTS IN THREE BANKS, NAMELY, BANK OF BARODA, MAHESH URBAN COOPERATIVE BANK, PARBHANI, PEOPLES COOPERATIVE BANK, HINGOLI (CC ACCOUNT AND CA ACCOUNT). HE, HOWEVER MAINTAIN ED THAT HE INSISTED FOR CASH PAYMENT. THE AO ALSO EXAMINED TH E BANK STATEMENT OF MR. DEVIKINANDAN HARIPRASAD AGRAWAL AND FOUND THAT THERE WERE SEVERAL TRANSACTIONS OF CASH PAYMEN TS AND CASH WITHDRAWALS ALONG WITH TRANSACTIONS THROUGH CHEQUES. HE , ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 4 THEREFORE, REFUSED TO ACCEPT THE ASSESSEES CONTENTION OF THE CASE FALLING UNDER RULE 6DD. THE LD. CIT(A) ECHOED THE VIEW TAK EN BY THE AO ON THIS SCORE. 4. I HAVE HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE ASSES SEE PURCHASED TWO PLOTS, ADMITTEDLY AS STOCK IN TRADE, WORTH RS.9,52,000/- IN CASH. EVEN SOME AREA OUT OF SUCH PLO TS WAS SOLD DURING THE YEAR GENERATING BUSINESS INCOME THEREFROM. THE CASH PURCHASES, EX-FACIE, VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE WHOLE CASE OF THE ASSESSEE IS F OUNDED ON THE PREMISE THAT IT WAS A GENUINE BUSINESS TRANSACTION BETWEEN TWO BONA FIDE PARTIES, WHO HAD PROMPTLY DEPICTED THE TRANSACTION IN THEIR RESPECTIVE INCOME-TAX RETURNS AND HENCE N O DISALLOWANCE U/S. 40A(3) OF THE ACT WAS WARRANTED. 5. IN ORDER TO APPRECIATE THE CONTENTION, IT WOULD BE WORTHWHILE TO HAVE A GLANCE AT SECTION 40A(3) OF THE ACT, WHICH, AT THE MATERIAL TIME, PROVIDED THAT: WHERE THE ASSESSE E INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWIS E THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR . , EXCEEDS TEN THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 5 RESPECT OF SUCH EXPENDITURE. THE ASSESSEE PATENTLY VIOLATED THE PRESCRIPTION OF SECTION 40A(3) BY INCURRING EXPENDITURE OF RS.9,52,000/- ON PURCHASE OF STOCK IN TRADE OTHERWISE THA N BY A ACCOUNT PAYEE CHEQUE ETC. GOING WITH THE MANDATE OF THE S UB- SECTION (3) OF SECTION 40A, DISALLOWANCE IS REQUIRED IN RESP ECT OF SUCH EXPENDITURE. 6. NOW I NEED TO ASCERTAIN IF THE ASSESSEE CAN GET A NY SUCCOUR UNDER THE FIRST PROVISO TO SECTION 40A(3A), WHICH CARVES OU T EXCEPTIONS TO THE MAIN PROVISION OF SUB-SECTION (3) AS WELL AN D MANDATES: `THAT NO DISALLOWANCE SHALL BE MADE WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A D AY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE . EXCEEDS TEN THOUSAND RUPEES, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND E XTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. ON GOING THROUGH THE LANGUAGE OF THE PROVISO, IT BECOMES EXPLICITLY CLEAR THAT A WINDOW HAS BEEN GIVEN FOR NON-DISALLOWANCE EVEN WHEN THE PAYMENT EXCEEDING RS.10,000/- IS MADE OTHERWISE THAN THROU GH ACCOUNT PAYEE CHEQUE ETC. IN THE CASES AND CIRCUMSTANCES AS MAY BE PRESCRIBED HAVING REGARD TO THE NATURE AND EXTENT OF ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 6 BANK FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. PURSUANT TO SECTION 295 OF THE A CT, THE CBDT HAS PRESCRIBED THE `CASES AND CIRCUMSTANCES IN WHICH A PAYMENT OR AGGREGATE OF PAYMENTS EXCEEDING TEN THOUSAND RUPEES MAY BE MADE TO A PERSON IN A DAY, OTHER WISE THAN BY AN ACCOUNT PAYEE CHEQUE ETC. UNDER RULE 6DD WITHO UT INVITING WRATH OF SECTION 40A(3). THIS RULE OPENS BY STATING THAT: `NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTION 40A SHALL BE MADE. WHERE A PAYMENT OR AGGREGATE OF PAYME NTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR , EXCEEDS TEN THOUSAND RU PEES IN THE CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY :-. THEREAFTER CLAUSES (A) TO (L) PROVIDE FOR SUCH CASES AND CIRCUMSTANCES. THE CASE OF THE ASSESSEE ADMITTEDLY DOES N OT FALL IN ANY OF THE CLAUSES. 7. THE LD. AR HAS CANVASSED A VIEW THAT EVEN THOUGH TH E CASE DOES NOT FALL UNDER ANY OF THE SPECIFIC CLAUSES OF RULE 6 DD, THE DISALLOWANCE SHOULD BE DELETED AS IT WAS A GENUINE BUSINESS TRANSACTION COVERED WITHIN THE WORDS `BUSINESS EXPEDIENCY AS USED IN THE PROVISO TO SECTION 40A(3A). ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 7 8. ON A CONJOINT READING OF SECTION 40A(3) READ WITH THE FIRST PROVISO TO SECTION 40A(3A) ON ONE HAND AND RULE 6DD ON THE OTHER, IT IS MANIFEST THAT THE PROVISO PROVIDES FOR THE CUSHION FROM DISALLOWANCE IN THE CASES AND THE CIRCUMSTANCES AS MAY BE PRESCRIBED HAVING REGARD TO THE NATURE AND EXTENT OF BA NKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THE BOARD HAS ENLISTED SUCH CASES AND CIRCUMSTANCES IN DIFFERENT CLAUSES OF RULE 6DD HAVING REGA RD, INTER ALIA, TO THE `BUSINESS EXPEDIENCY IN AN EXHAUSTIVE MANNER, WHICH OBVIOUSLY DOES NOT COVER A CASE OF PER SE GENUINE BUSINESS TRANSACTION. IF THE PARLIAMENT HAD INT ENDED TO BRING ALL THE GENUINE BUSINESS TRANSACTIONS OUT OF THE PURVIEW OF DISALLOWANCE, THEN IT WOULD NOT HAVE USE D THE WORDS IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED. THE WORDS ` HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE IN THE NATURE OF GUIDE TO THE RULE MAKING AUTHORITY FOR PRESCRIBING THE CASES AND CIRCUMSTANCES NOT WARRANTING DISALLOWANCE . ONCE THE CASES AND CIRCUMSTANCES HAVE BEEN EXHAUSTIVELY PRESCRIBED IN RULE 6DD, ONE CANNOT GO BACK ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 8 TO SECTION 40A(3) FOR SEEKING SHELTER UNDER THE WOR DS `BUSINESS EXPEDIENCY USED IN IT AND SUO MOTU INVENT ANY OTHER CASE OR CIRCUMSTANCE REQUIRING EXCLUSION FROM THE RIGOUR OF SECTION 40A(3). THE SITUATION WOULD HAVE BEEN DIFFERENT IF THE PROVISO TO SECTION 40A(3A) HAD MAN DATED EXCLUSION ITSELF, INTER ALIA, ON THE GROUND OF BUSINESS EXPEDIENCY RATHER THAN REQUIRING THE RULE MAKING AUTHORITY TO PRESCRIBE CASES AND CIRCUMSTANCES FALL ING WITHIN THE EXCEPTION CLAUSE. 9. AT THIS JUNCTURE, IT IS RELEVANT TO NOTE THAT THE CBDT CANNO T TRANSGRESS THE CORRESPONDING SECTION WHILE FORMULATING THE RELEVANT RULES. IN OTHER WORDS, THE RULES CANNOT PROVIDE FOR FRESH OR ADDITIONAL OBLIGATIONS, WHICH ARE ABSENT I N THE ENABLING PROVISION UNDER THE ACT. AT THE SAME TIME, IT IS EQUALLY ESSENTIAL TO COMPREHEND THAT THERE IS A DIF FERENCE BETWEEN TWO SITUATIONS, VIZ., ONE WHERE THE RULES P ROVIDE CERTAIN FRESH AND ADDITIONAL DISABILITIES FOR WHICH THERE IS NO SANCTION IN THE PARENT SECTION AND TWO, WHERE TH E RULES PROVIDE THE DISABILITIES WHICH ARE WITHIN THE SCOPE OF THE CORRESPONDING ENABLING SECTION AND NOT DE HORS THE SAME. WHAT IS CRUCIAL TO NOTE IS THAT PRESCRIPTION OF RUL E 6DD ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 9 FALLS UNDER THE SECOND SITUATION, WHICH CANNOT BE EXPANDED OR DILUTED BY THE TRIBUNAL. THE SUM AND SUBSTANCE OF THE ABOVE IS THAT ONLY WHEN A CASE FALLS WITHIN A NY OF THE SPECIFIC CLAUSES OF RULE 6DD, THAT IT WOULD QUALIFY FO R IMMUNITY FROM THE DISALLOWANCE. 10. THE LD. AR TRIED TO INVOKE CLAUSE (J) FOR SEEKING R ELIEF, WHICH, AT THE MATERIAL TIME, PROVIDED: WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DATE ON WHICH BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE. THE ASSESSEE, H AS NEITHER DEMONSTRATED NOR WAS IT A CASE BEFORE THE AUTHORITIES BELOW THAT THERE WAS A BANK HOLIDAY OR THE BANK WAS CLOSED BECAUSE OF STRIKE ON THE DATE ON WHICH THE TRANSACTION TOOK PLACE. 11. THE LD. AR HEAVILY ACCENTUATED ON THE GENUINENESS OF TRANSACTION TOWARDS PITCHING A CASE OF NON-DISALLOWANCE. IN M Y VIEW, THIS ARGUMENT DOES NOT HOLD WATER. SECTION 40A(3) OF THE ACT HAS BEEN INSERTED TO REGULATE GENUINE BUSIN ESS TRANSACTIONS THROUGH BANKING CHANNEL RATHER THAN PERMITTING THEM IN CASH. IF A TRANSACTION ITSELF IS NOT GENUINE, THE SAME WILL NOT FALL FOR CONSIDERATION U NDER THIS PROVISION AND WILL WARRANT FULL DISALLOWANCE A T THE ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 10 THRESHOLD RATHER THAN CALLING FOR DISALLOWANCE UNDE R SECTION 40A(3) OF THE ACT ONLY TO THE EXTENT OF CAS H PAYMENT IN EXCESS OF RS.10,000/- ON A DAY. IT IS ONLY WHERE A GENUINE TRANSACTION HAS BEEN RECORDED BUT IN VIOLA TION OF SECTION 40A(3) BY MAKING CASH PAYMENTS ETC. THAT THE RIGO UR OF THE SECTION IS TRIGGERED TO MAKE DISALLOWANCE U/S.40A(3). THIS CAN BE UNDERSTOOD WITH THE HELP OF AN EXAMPLE. IF A GENUINE BUSINESS EXPENDITURE OF RS.50,000/- IS INCU RRED, OUT OF WHICH RS.10,000/- EACH HAS BEEN PAID IN CASH ON TWO DIFFERENT DATES AND RS.30,000/- IN CASH ON A TH IRD DAY. SECTION 40A(3) WILL BE ATTRACTED TO MAKE DISALLOWANCE OF RS.30,000/- ONLY ON THE THIRD OCCAS ION. PER CONTRA, IF SUCH EXPENDITURE OF RS.50,000/- IS F OUND TO BE BOGUS, THE ENTIRE AMOUNT WILL BE DISALLOWED WITH OUT EVEN ENTERING INTO THE REALM OF SECTION 40A(3) OF T HE ACT. 12. BOTH THE RIVAL SIDES HAVE RELIED ON CERTAIN DECISIONS FORTIFYING THEIR RESPECTIVE POINTS OF VIE W. POR UNA PARTE , CERTAIN HIGH COURTS INCLUDING THE HONBLE GUJARAT HIGH COURT IN ANUPAM TELE SERVICES VS. ITO (2014) 366 ITR 122 (GUJ.) AND THE HONBLE RAJASTHAN HIGH COURT IN ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 11 HARSHILA CHORDIA VS. ITO (2008) 298 ITR 349 (RAJ.) HAVE DELETED THE DISALLOWANCE IN THE CASES OF GENUINE BUSINESS TRANSACTIONS, POR OTRA PARTE , CERTAIN OTHER HIGH COURTS INCLUDING THE HONBLE BOMBAY HIGH COURT IN MADHAV GOVIND DULSHETE VS. ITO (2018) 259 TAXMAN 949 (BOM.) , THE HONBLE MADRAS HIGH COURT IN VADUGANATHAN TALKIES AND OTHERS VS. ITO (2020) 428 ITR 224 (MAD.), THE HONBLE KARNATAKA HIGH COURT IN NAM ESTATES PVT. LTD. VS. ITO (2020) 428 ITR 186 (KAR.) AND THE HONBLE CALCUTTA HIGH COURT IN BAGMARI TEA COMPANY LTD. VS. CIT (2001) 251 ITR 640 (CAL .) HAVE CONFIRMED THE DISALLOWANCE WHERE THE PAYMENT W AS MADE IN CASH EXCEEDING THE STIPULATED AMOUNT NOTWITHSTANDING THE GENUINENESS OF THE TRANSACTION. 13. LET ME CONSIDER THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN MADHAV GOVIND DULSHETE (SUPRA) A LITTLE MORE ELABORATELY. THE ASSESSEE THEREIN WAS ENGAGED IN TH E BUSINESS OF SALE OF KEROSENE WHICH WAS PURCHASED FROM NOTIFIED DEALERS. THE ASSESSEE MADE PURCHASES OF KEROS ENE FROM CERTAIN COMPANIES. SOME OF THE PAYMENTS WERE MADE IN CASH WHILE OTHERS WERE IN CHEQUE. THE AO MADE DISALLOWAN CE BY INVOKING SECTION 40A(3) IN RESPECT OF CASH PAYMENTS ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 12 EXCEEDING THE LIMIT BY NOTICING THAT BOTH THE ASSESSEE AND SELLE R HAD BANKING FACILITIES. THE CIT(A) AFFIRMED THE ASSESSMENT ORDER. THE TRIBUNAL ECHOED THE AOS VIEW BY FINDING THAT BOTH THE BUYER AND SELLERS HAD BANK ACCOUNTS. THE HONBLE HIG H COURT COUNTENANCED THE VIEW OF THE TRIBUNAL SUSTAINING THE DISALLOWANCE THEREBY REPELLING THE ASSESSEES CONTENTION OF A GENUINE BUSINESS TRANSACTION AS A GROUND FOR NOT MAKING DISALLOWANCE U/S 40A(3) OF THE ACT. 14. TURNING TO THE FACTS OF THE INSTANT CASE, IT IS FOUND AS AN ADMITTED POSITION THAT THE ASSESSEE AS WELL AS THE SELLER OF THE PLOTS HAD BANK ACCOUNTS AT THE MATERIAL TIME AND STILL THE TRANSACTION WAS CARRIED OUT IN VIOLATION OF SECTION 40A(3) WITHOUT BRINGING THE CASE IN ANY OF THE SPECIFIC CLAUSES OF RU LE 6DD. 15. ON AN OVERVIEW OF THE VIEW CANVASSED BY VARIOUS HO NBLE HIGH COURTS ON THE POINT - SOME DELETING THE DISALLOWANCE ON THE BASIS OF THE GENUINENESS OF THE TRANSACTIONS WHILE OTHER S SUSTAINING THE DISALLOWANCE - WHAT MATTERS FOR THE TRIBUNAL IS TO FOLLOW THE BINDING PRECEDENT, BEING, THE JUDGMENT OF HONB LE JURISDICTIONAL HIGH COURT. THAT BEING THE POSITION, THE PUNE TRIBUNAL IS BOUND BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 13 HIGH COURT IN MADHAV GOVIND DULSHETE (SUPRA) SUSTAINING THE DISALLOWANCE IN CASE OF CASH PAYMENTS EXCEEDING THE STIPULATE D LIMIT NOTWITHSTANDING THE FACT THAT THE TRANSACTIONS WERE GENUINE AND THE PARTIES WERE IDENTIFIABLE. RESPECTFULLY FOLLOWING THE JUDGMENT, I UPHOLD THE DISALLOWANCE SUSTAINED IN THE FIRST APPEAL. THIS GROUND FAILS. 16. THE ONLY OTHER GROUND IN THIS APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.7,36,934/- MADE U/S.14 A READ WITH RULE 8D. 17. THE FACTUAL MATRIX OF THE GROUND IS THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS.9,23,194/- AS HIS SHARE OF PROFIT FROM VARIOUS FIRMS AND ALSO DIVIDEND OF RS.69,179/- WHICH WAS CLAIMED AS EXEMPT U/S.10(2A) AND 10(34) RESPECTIVELY. I N THE ABSENCE OF THE ASSESSEE OFFERING ANY DISALLOWANCE U/S.14A , THE AO CALLED FOR THE REASONS. THE ASSESSEE FURNISHED EXPLA NATION. THE AO, BY MEANS OF ELABORATE REASONING RUNNING INTO 4 PA GES, HELD THAT THE DISALLOWANCE U/S.14A READ WITH RULE 8D WAS CALLED FOR. THE AMOUNT OF DISALLOWANCE WAS COMPUTED AT RS.7,36,934/- COMPRISING OF INTEREST OF RS.6,45,536/- AN D HALF PERCENT OF AVERAGE INVESTMENTS AT RS.91,398/-. THE LD. CIT(A) SUSTAINED THE DISALLOWANCE. ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 14 18. I HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. THE ONLY ISSUE RAISED BY THE LD. AR IS QUA THE INTEREST DISALLOWANCE OF RS.6,45,536/-AND NOT THE OTHER PART. THE LD. AR CONTENDED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE CAPITAL FOR THE PURPOSE OF MAKING INVESTMENT IN THE FIRMS AND COMPANIES YIELDING EXEMPT INCOME AND HENCE, NO DISALLOWANCE SHOULD BE MADE. IN SUPPORT O F SUCH CONTENTION, HE INVITED MY ATTENTION TOWARDS PAGE 28 OF THE PAPER BOOK ON WHICH SOME CALCULATION HAS BEEN MADE SHO WING INTEREST BEARING FUNDS AND INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE. IT IS OBSERVED THAT THE AUTHORITIES BELOW DID NOT ACCEPT THE CONTENTION, IN PRINCIPLE, BY OPINING THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COULD NOT BE DEEMED TO HAV E BEEN UTILISED FOR MAKING INVESTMENTS IN SOURCES YIELDING EXEMPT INCOME. IN THIS REGARD, IT IS NOTICED THAT THE HONBLE SUPREME COURT IN CIT (LTU) VS. RELIANCE INDUSTRIES LIMITED (2019) 410 ITR 466 (SC) HAS APPROVED THE VIEW THAT WHERE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE SUFFICIE NT TO MEET ITS INVESTMENT AND AT THE SAME TIME LOAN WAS RAISED, IT CA N BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM INTEREST F REE FUNDS AND HENCE, NO DISALLOWANCE OF INTEREST SHOULD BE MAD E TO ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 15 THAT EXTENT. IN VIEW OF THE ABOVE DECISION, I DEEM IT APPRO PRIATE TO SEND THE MATTER BACK TO THE FILE OF AO FOR EXAMINING THE ASSESSEES CONTENTION ABOUT THE AVAILABILITY OF INTEREST FREE FUNDS AVAILABLE WITH HIM AND THEN DECIDE THE AMOUNT OF INTERE ST DISALLOWABLE U/S.14A. INSOFAR AS THE REMAINING AMOUNT OF RS.91,398/-, BEING, ONE HALF PERCENT OF AVERAGE VALUE O F INVESTMENT IS CONCERNED, THE SAME IS HELD TO BE PROPERLY DISALLOWED. 19. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEBRUARY, 2021. SD/- (R.S.SYAL) / VICE PRESIDENT PUNE; DATED : 16 TH FEBRUARY, 2021 SATISH ITA NO. 1883/PUN/2018 SURESH CHUNNILAL SHARMA 16 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-1, AURANGABAD 4. THE PR. CIT-1, AURANGABAD 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 12-02-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 16-02-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -- JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -- JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *