Seikh Nizamuddin, Purba Medinipur V. ACIT, Circle-27,Haldia, Haldia

ITA 1887/KOL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6319 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 23-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHUR Y
• Assessee Lawyers: S K TULSIYAN
• Keywords: Commercial expediency; Ignorance of law
• Section: 40A(3); 133(6); 147; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM ./ITA NO.1887/KOL/2017 ( / ASSESSMENT YEAR:2010-11) SEIKH NIZAMUDDIN P.O. RAMBAG, MAHISHADAL DIST. PURBA MEDINIPUR-721628 VS. ACIT, CIRCLE-27, HALDIA ./ ./PAN/GIR NO.: ABKPN 1798 H (ASSESSEE) .. (REVENUE) ASSESSEE BY :SHRI S.K. TULSIYAN, ADV. RESPONDENT BY : SHRI ROBIN CHOUDHURY, ADDL. CIT SR. DR / DATE OF HEARING : 19/06/2019 /DATE OF PRONOUNCEMENT : 02/08/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERT AINING TO ASSESSMENT YEAR 2010-11, IS DIRECTED AGAINST THE ORDER PASSED BY TH E COMMISSIONER OF INCOME TAX (APPEAL)-7, KOLKATA, WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 144 R.W.S 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 15/12/2015. 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS )-7, KOLKATA GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS. 5,00,000/- MADE BY LD. A.O. INVOKING SECTION 40A(3) OF THE ACT, WHEN THE FACTS DOES NOT WARRANTED THE SAME. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS )-7, KOLKATA ERRED IN NOT FOLLOWING THE JURISDICTIONAL HIGH COURT AS WELL AS ITAT IN CONFIRMING THE ADDITION OF RS. 5,00,000/- U/S 40A(3) OF THE AC T. 3. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS)-7, KOLKATA ERRED IN CONFIRMING ESTIMATED ADDITIONS OF RS. 2,58,086/- MA DE BY LD. A.O. OUT OF PURCHASES FROM THE 13 PARTIES. SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 2 22 2 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS )-7, KOLKATA, ERRED IN CONFIRMING THE ADDITION OF RS. 46,972/- AND RS. 62, 284/- MADE BY LD. A.O. BEING ESTIMATED 5% OF THE AMOUNT SPENT ON CARRIAGE AND WAGES. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS )-7, KOLKATA ERRED IN CONFIRMING THE ADDITION OF RS. 3,56,114/- MADE BY L D. A.O. BEING ESTIMATED 5% OF THE AMOUNT SPENT ON TRANSPORTATION CHARGES. 6. I CRAVE LEAVE TO ADD, ALTER, AMEND OR WITHDRAW A NY GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 3. GROUND NO.1 AND 2 RAISED BY THE ASSESSEE RELATE TO ADDITION MADE BY LD. A.O. U/S 40A(3) OF THE ACT ON ACCOUNT OF PAYMENT IN CASH RS. 5,00,000/-. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MAD E CASH PAYMENT OF RS. 5,00,000/- TO M/S MAHIMA ALEKHA COAL TRADERS ON 30. 04.2009. THE INFORMATION WAS CALLED FOR U/S 133(6) OF THE ACT BY THE ASSESSI NG OFFICER FROM VARIOUS CREDITORS. THE AO ISSUED LETTER TO M/S MAHIMA ALEKHA COAL TRAD ERS TO CONFIRM THE TRANSACTIONS WITH THE ASSESSEE. ACCORDINGLY, THE SA ID PARTY (M/S MAHIMA ALEKHA COAL TRADERS) FURNISHED THE DETAILS BEFORE THE ASSE SSING OFFICER BY LETTER DATED 04.12.2015. ON PERUSAL OF THE REPLY VIS--VIS, THE DETAILS SUBMITTED BY THE ASSESSEE, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD MADE CASH PAYMENT OF RS.5,00,000/-TO M/S MAHIMA ALEKHA COAL T RADERS. SINCE THE ASSESSEE HAS CARRIED OUT EXPENDITURE IN CONTRAVENTION OF PRO VISION OF SECTION 40A(3) OF THE ACT, THEREFORE,THE ENTIRE PAYMENT OF RS. 5,00,000/ - HAD BEEN DISALLOWED BY THE ASSESSING OFFICER AND ADDED BACK TO THE TOTAL INCOM E OF THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED T HE ADDITION MADE BY THE ASSESSING OFFICER.AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL. 6. SHRI S.K. TULSIYAN, LD. COUNSEL FOR THE ASSESSEE , BEGINS BY POINTING OUT THAT THE ASSESSEE HAS MADE PAYMENT IN CASH TO M/S MAHIMA ALE KHA COAL TRADERSIN CONSIDERATION OF BUSINESS EXPEDIENCY. M/S MAHIMA AL EKHA COAL TRADERS HAS SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 3 33 3 DEMANDED FROM THE ASSESSEE TO MAKE PAYMENT IN CASH AS IT WAS NECESSARY FOR BUSINESS PURPOSE TO DISCHARGE CERTAIN BUSINESS OBLI GATIONS IMMEDIATE. THE LD. COUNSEL POINTED OUT THAT SECTION 40A(3) OF THE ACT MUST NOT TO BE READ IN ISOLATION OR TO THE EXCLUSION OF RULE 6DD OF THE RULES. THE S ECTION MUST BE READ ALONG WITH RULE. IF READ TOGETHER, IT MAY BE CLEAR THAT THE PR OVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITY OF THE ASSESSEE. THE RE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITY. SECTION 40(3) ONLY EMPOWER S THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RE SPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE, CROSSED BANK DRAFT. HOWEVER , IN GENUINE BUSINESS CIRCUMSTANCES, PAYMENT IN CASH MAY BE MADE AND THE SAME SHOULD NOT BE DISALLOWED. THE MAIN INTENTION OF PROVISIONS OF SEC TION 40A(3) IS TO CHECK THE BLACK MONEY AND NOT TO RESTRICT THE BUSINESS ACTIV ITY OF THE ASSESSEE. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED TO ENABLE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHE R IT WAS OUT OF THE INCOME FROM DISCLOSED SOURCES. SECTION 40A(3) ARE NOT ABSO LUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. THE GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. THE LD. COUNSEL FURTHER POINTED OUT THAT ON THE DAT E OF PAYMENT,THE PARTY, NAMELY M/S MAHIMA ALEKHA COAL TRADERS INSISTED THE ASSESSE E TO MAKE THE PAYMENT IN CASH. IN ORDER TO RUN THE BUSINESS, THE ASSESSEE DI D NOT HAVE ANY OTHER OPTION BUT TO MAKE CASH PAYMENT.AT THE FIRST INSTANCE, THE ASSESS EE MADE DEMAND DRAFT OF THE BANK TO MAKE THE PAYMENT THROUGH BANKING CHANNEL ON LY, HOWEVER, M/S MAHIMA ALEKHA COAL TRADERS REFUSED TO TAKE THE BANK DRAFT (VIDE PB-13). THEREFORE, THE LD. COUNSEL SUBMITTED THAT AT THE REQUEST OF THE PARTY THE ASSESSEE HAS CANCELLED THE DEMAND DRAFT OF RS. 5,00,000/- AND MADE THE CASH PA YMENT OF RS. 5,00,000/- (PB- 13,VIDE BANK STATEMENT AND LEDGER ACCOUNT), HENCE I T IS A GENUINE BUSINESS PAYMENT AND SHOULD BE ALLOWED. 7.ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUB MITTED BEFORE US THAT IGNORANCE OF LAW IS NO EXCUSE, AND THEREFORE PROVISIONS OF SE CTION 40A(3) SHOULD BE FOLLOWED STRICTLY. THE LD DR HAS PRIMARILY REITERATED THE ST AND TAKEN BY THE ASSESSING OFFICER AND PRAYED THE BENCH THAT ADDITION MADE BY AO SHOUL D BE UPHELD. SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 4 44 4 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE DISALLOWANCE WAS MADE BY THE LOWER AUTHORITIES ONLY FOR THE REASON THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH THE PRESSING CIRCUMSTANCES WHICH WARRANTED THE ASSESSEE TO MAKE PAYMENTS IN CASH. T HERE WAS EVIDENCE THAT THE PAYEE HAD INSISTED THE ASSESSEE TO MAKE PAYMENTS IN CASH. WE NOTE THAT AT THE FIRST INSTANCE, THE ASSESSEE MADE DEMAND DRAFT OF THE BA NK TO MAKE THE PAYMENT, HOWEVER, M/S MAHIMA ALEKHA COAL TRADERS REFUSED TO TAKE THE BANK DRAFT, (VIDE PB-13). IN ORDER TO RUN THE BUSINESS, THE ASSESSEE DID NOT HAVE ANY OPTION BUT TO MAKE PAYMENT IN CASH. THE LD COUNSEL DEMONSTRATED W ITH HELP OF LEDGER ACCOUNT AND BANK STATEMENT THAT ASSESSEE HAD CANCELLED THE DEMAND DRAFT OF RS. 5,00,000/- AND MADE THE CASH PAYMENT OF RS. 5,00,000/- (PB-13) , DUE TO BUSINESS CIRCUMSTANCES PREVAILING AT THAT POINT OF TIME, HEN CE IT IS A GENUINE BUSINESS PAYMENT. WE NOTE THAT IDENTITY OF THE PAYEE, M/S MA HIMA ALEKHA COAL TRADERS IS NOT IN DOUBT AND AO HAS NOT DISPUTED THE GENUINENES S OF THE TRANSACTION. 9. WE NOTE THAT SINCE THE GENUINITY OF THE PAYMENTS MADE TO THE PARTY IS NOT DOUBTED BY THE REVENUE, THE PROVISIONS OF SECTION 4 0A(3) COULD NOT BE MADE APPLICABLE TO THE FACTS OF THE INSTANT CASE. IT IS OBSERVED THAT THE ASSESSEE HAD TAKEN ENOUGH PRECAUTIONS FROM HIS SIDE TO ENSURE THAT THE PAYEE ALSO DON'T ESCAPE FROM THE AMBIT OF TAXATION ON THESE RECEIPTS BY PAYING C ASH. THIS FACT IS ALSO NOT DISPUTED BY THE REVENUE. IT WILL BE PERTINENT TO GO INTO THE INTENTION BEHIND INTRODUCTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AT THIS JUNCTURE. IT IS PERTINENT TO NOTICE THAT THE PRIMARY OBJECT OF ENAC TING SECTION 40A(3) WAS TWO FOLD, FIRSTLY, PUTTING A CHECK ON TRADING TRANSACTIONS WI TH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTION AND, S ECONDLY, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. APPA RENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INC ULCATING THE BANKING HABITS. THEREFORE, THE CONSEQUENCE, WHICH WERE TO BEFALL ON ACCOUNT OF NON-OBSERVATION OF SECTION 40A(3) MUST HAVE NEXUS TO THE FAILURE OF SU CH OBJECT. THEREFORE, THE GENUINENESS OF THETRANSACTIONS IT BEING FREE FROM V ICE OF ANY DEVICE OF EVASION OF TAX IS RELEVANT CONSIDERATION. IN THE INSTANT CASE, THE ASSESSEE MADE BANK DRAFT OF SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 5 55 5 RS.5,00,000/- TO PAY TO M/S MAHIMA ALEKHA COAL TRAD ERS, BUT HE REFUSED TO TAKE BANK DRAFT THEREFORE IN ORDER TO RUN THE BUSINESS T HE ASSESSEE DID NOT HAVE ANY OPTION BUT TO MAKE PAYMENT IN CASH. HAD THE ASSESSE E NOT BEEN PAID CASH TO M/S MAHIMA ALEKHA COAL TRADERS, HIS BUSINESS WOULD HAVE BEEN STOPPED OR RESTRICTED TO THAT EXTENT. THE PURPOSE OF SECTION 40A (3) IS N OT TO RESTRICT THE ASSESSEE`S GENUINE BUSINESS ACTIVITY. 10. AT THIS JUNCTURE, IT IS APPROPRIATE TO GO THROU GH THE CBDT CIRCULAR NO. 6-P DATED 6.7.1968 EXPLAINING THE PURPOSE BEHIND INTROD UCTION OF SECTION 40A(3) OF THE ACT WHICH READS AS UNDER:- EXPENDITURE INCURRED IN BUSINESSES AND PROFESSIONS FOR WHICH PAYMENT IS MADE IN AN AMOUNT EXCEEDING RS 2,500/- , OTHERWI SE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DRAFT 76. SUB-SECTION (3) OF NEW SECTION 40A MAKES A PROV ISION FOR THE DISALLOWANCE OF EXPENDITURE INCURRED IN BUSINESSES AND PROFESSIONS FOR WHICH PAYMENT IS MADE IN AN AMOUNT EXCEEDING RS 2,5 00/- , OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED B ANK DRAFT. THIS PROVISION WILL APPLY IN RESPECT OF PAYMENTS MADE AF TER A DATE TO BE NOTIFIED BY GOVERNMENT, BEING A DATE NOT LATER THAN 31-3-196 9. THIS PROVISION IS DESIGNED TO COUNTER EVASION OF TAX THROUGH CLAIMS F OR EXPENDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATI NG PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE A ND THE REASONABLENESS OF THE PAYMENT. WE NOTE THAT ON GENUINENESS OF THE TRANSACTIONS AND FOR ACCOUNTING OF THE SUBJECT MENTIONED PAYMENTS IN THE HANDS OF THE PAYEE, THERE IS ABSOLUTELY NO DISPUTE. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY ARGUED THAT ASSESSEE HAD NOT PROVED THE COMMERCIAL EXPEDIENCY IN THE INSTANT CASE FOR MAKIN G PAYMENTS IN CASH. THE LD COUNSEL IN REJOINDER ARGUED BEFORE US THAT THE TEST OF COMMERCIAL EXPEDIENCY SHOULD BE JUDGED FROM THE VIEW POINT OF THE BUSINES SMAN AND NOT FROM THE VIEW POINT OF THE REVENUE. WE FIND IN THE INSTANT CASE, THE GENUINITY OF THE PAYEE IS NOT DISPUTED BY THE REVENUE. THE ASSESSEE ACTED WITH BO NA FIDE INTENTION, AS HE MADE DEMAND DRAFT OF THE BANK, BUT LATER ON IT WAS CANCE LLED ON THE REQUEST OF THE PAYEE THEREFORE, INTENTION OF THE ASSESSEE WAS TO MAKE PA YMENT THROUGH BANKING CHANNEL ONLY. WE FIND THAT IN THE CASE LAWS RELIED UPON BY THE LD COUNSEL, IN THOSE CASES, SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 6 66 6 THE PRESSING CIRCUMSTANCES UNDER WHICH THE PAYMENTS WERE SOUGHT TO BE MADE IN CASH WERE PROVED. 11. WE NOTE THAT SECTION 40A(3) WAS INSERTED BY FIN ANCE ACT, 1968. THE PROVISIONS OF SEC 40A(3) ARE DESIGNED TO CURB CLAND ESTINE TRANSACTIONS ENTERED INTO WITH A VIEW TO AVOIDING TAX AND TO ENSURING THAT PA YMENTS IN RESPECT OF WHICH DEDUCTIONS ARE CLAIMED BY THE ASSESSES ARE GENUINEL Y MADE AND ACCOMMODATION PAYMENTS ARE NOT CLAIMED AS DEDUCTION.FOR THIS,WE R ELY ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF ATTAR SINGH GURMUK H SINGH V. I.T.O. 191 ITR 667 (SC), WHEREIN IT WAS HELD AS FOLLOWS: 'IN OUR OPINION, THERE IS LITTLE MERIT IN THIS CONT ENTION. SECTION 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION OF RULE 6DD. THE SECT ION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHE QUE OR CROSSED BANK DRAT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENU INE OR WHETHER IT WAS OUT OF THE INCOME FROM DISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION 6R BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS ARE NOT EXCLUDED. THE GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OU T OF THE SWEEP OF THE SECTION. ITIS OPEN TO THE ASSESSEE TO FURNISH TO' THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYE E. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYME NT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PA YMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED U NDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE THE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. - MUDIAM OIL CO. V. ITO [1973] 92 ITR 519 (AP). IF THE PAYMENT IS MADE BY A CROSSED CHEQUE ON A BAN K OR A CROSSED BANK DRAFT, THEN IT WILL BE EASIER TO ASCERTAIN, WHEN DEDUCTION IS CLAIMED, WHETHER THE PAYMENT WAS GENUINE AND WHETHER IT WAS OUT OF THE INCOME FROM DISCLOSED SOU RCES. IN INTERPRETING A TAXING STATUTE THE COURT CANNOT BE OBLIVIOUS OF THE PROLIFERATION OF BLACK-MONEY WHICH IS UNDER CIRCULATION IN OUR COUNTRY. ANY RESTRAINT INTENDED TO CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK- MONEY SHOULD NOT BE REGARDE D AS CURTAILING THE FREEDOM OF TRADE OR BUSINESS.' WE FURTHER RELY ON THE DECISION OF HON`BLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. CPL TANNERY (2009) 318 ITR 179 (CAL) WHICH WAS F OR ASST YEAR 2003-04, WHEREIN IT WAS HELD AS FOLLOWS: 'THE SECOND CONTENTION OF THE ASSESSEE THAT OWING T O BUSINESS EXPEDIENCY, OBLIGATION AND EXIGENCY, THE ASSESSEE HAD TO MAKE C ASH PAYMENT FOR SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 7 77 7 PURCHASE OF GOODS SO ESSENTIAL FOR CARRYING ON OF H IS BUSINESS, WAS ALSO NOT DISPUTED BY THE A.O. THE GENUINITY OF TRANSACTIONS, RATE OF GROSS PROFIT OR THE FACT THAT THE BONA FIDE OF THE ASSESSEE THAT PA YMENTS ARE MADE TO PRODUCERS OF HIDES AND SKINS ARE ALSO NEITHER DOUBT ED NOR DISPUTED BY THE AO. ON THE BASISOF THESE FACTS IT IS NOT JUSTIFIED ON THE PART OF THE AO TO DISALLOW 20 PER CENT OF THE PAYMENTS UNDER S. 40A(3 )'. AT THE COST OF REPETITION, WE STATE THAT THE GENUIN ENESS OF THE TRANSACTIONS AND IDENTITY OF THE PAYEE IS ESTABLISHED. ASSESSEE HAS PROVED THE PRESSING CIRCUMSTANCES. THE ASSESSEE ACTED WITH BONA FIDE IN TENTION, AS HE MADE DEMAND DRAFT OF THE BANK TO MAKE THE PAYMENT TO PAYEE BUT LATER ON IT WAS CANCELLED ON THE REQUEST OF THE PAYEE THEREFORE, INTENTION OF THE AS SESSEE WAS TO MAKE PAYMENT THROUGH BANKING CHANNEL ONLY. THIS IS EXCEPTIONAL C IRCUMSTANCES WHERE THE ASSESSEE MADE PAYMENT IN CASH. IT IS OBSERVED THAT THE ASSESSEE HAD TAKEN ENOUGH PRECAUTIONS FROM HIS SIDE.HENCE, IN THE FACTS AND C IRCUMSTANCES AS DISCUSSED ABOVE, THE PAYMENT SHOULD NOT BE DISALLOWED AS HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF GIRDHARILAL SONI VS. CIT REPOR TED IN [1989] 179 ITR 111 (CAL). THEREFORE, WE DELETE THE ADDITION OF RS. 5,00,000/- . 10. GROUND NOS. 3 TO 4 RAISED BY THE ASSESSEE RELAT E TO ESTIMATED AND AD HOC ADDITIONS MADE BY THE ASSESSING OFFICER AND CONFIRM ED BY THE LD. CIT(A), THE DETAILS OF WHICH ARE GIVEN BELOW: (A). ESTIMATED ADDITION RS.2.58,086/- OUT OF PURCHA SES FROM 13 PARTIES. (B).ESTIMATED 5% SPENT OF CARRIAGE AND WAGES RS. 46 ,972 AND RS.62,284/- RESPECTIVELY (C ).ESTIMATED 5% SPENT ON TRANSPORT CHARGES RS.3,5 6,114/- 11. AT THE OUTSET ITSELF THE LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE ASSESSEES BOOKS OF ACCOUNTS WERE NOT REJECTED BY T HE AO. ALTHOUGH, THEREASSESSMENT WAS FRAMED U/S 147/144 OF THE ACT A ND THE ASSESSEE SUBMITTED THE BOOKS OF ACCOUNTS AND DETAILS, THEREFORE WITHOUT RE JECTING THE BOOKS OF ACCOUNTS THE AD HOC DISALLOWANCE SHOULD NOT BE MADE. HOWEVER , PER CONTRA THE LD. D.R. FOR THE REVENUE SUBMITTED BEFORE US THAT SINCE THE ASSE SSEE HAS NOT SUBMITTED EXPLANATION FOR VARIOUS EXPENSES AND THERE IS ALWAY S PERSONAL ELEMENT IN THESE SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 8 88 8 EXPENSES THEREFORE THE ASSESSING OFFICER DID NOT HA VE ANY OPTION BUT TO MAKE ESTIMATED DISALLOWANCE. THEREFORE, THE ORDER OF ASS ESSING OFFICER SHOULD BE UPHELD. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSING OFFICER DID NOT FIND AN Y MISTAKE IN THE BOOKS OF ACCOUNTS AND HE DID NOT EXAMINE THE EXPENDITURE ITE M WISE THEREFORE WITHOUT REJECTING THE BOOKS OF ACCOUNTS, THE AD HOC DISALLO WANCE IS NOT WARRANTED. WE NOTE THAT THE AO COULD HAVE VENTURED INTO ESTIMATION ONL Y AFTER REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3). HERE IN THIS C ASE,ASSESSEE SUBMITTED BOOKS OF ACCOUNTS AND DETAILS DURING THE ASSESSMENT PROCEEDI NGS, HOWEVER, THE AO HAS PASSED ORDER U/S 144/147 OF THE ACT. THE AO THUS W ITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS GONE FOR ESTIMATION ON SUSPICION AND CONJECTURES THAT THE ASSESSEE MAY BE INFLATING ITS VARIOUS EXPENSES. WHILE SCRUTINIZING THE EXPENDITURE IF THE EXPENSES CLAIMED ARE NOT HAVING ANY NEXUS TO THE BUSINESS OF THE ASSESSEE OR IF THERE IS DEFICIENCY IN THE VOUCH ERS OR THERE IS NO BILLS SUPPORTING THE INCURRENCE OF AN EXPENDITURE, AT THE MOST EXPEN SES TO THE EXTENT THAT ARE NOT SUPPORTED BY THE VOUCHERS CAN BE HELD TO BE NON-GEN UINE AND CAN BE DISALLOWED BY THE AO; AND ITEM-WISE THE AO COULD HAVE DISALLOWED THE EXPENDITURE RATHER THAN GOING FOR AD HOC DISALLOWANCE OF PERCENTAGE BASIS OF THE EXPENSES CLAIMED BY THE ASSESSEE WHICH ACTION OF THE AO IS ARBITRARY IN NAT URE AND CANNOT BE SUSTAINED. THEREFORE, THE VARIOUS AD HOC ADDITIONS MADE BY AO IN GROUND NOS. 3 TO 4, ARE DIRECTED TO BE DELETED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 02.08.2019 SD/- ( A.T. VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 02/08/2019 ( SB, SR.PS ) SEIKH NIZAMUDDIN ITA NO.1887/KOL/2017 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 9 99 9 COPY OF THE ORDER FORWARDED TO: 1. SEIKH NIZAMUDDIN 2. ACIT, CIRCLE-27, HALDIA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES