M/S. GOENKA PAPERS AND SYNTHETICS PVT. LTD, MUMBAI V. SHRI VARGHESE JOSEPH ITO 6(3)(1), MUMBAI

ITA 223/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9065 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 10-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A K NAYAK
• Section: 40A(3); 143(3)

Judgement Text

I .T.A NO.223/ MUM/2008 GOENKA PAPERS AND SYNTHETICS P.LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. [ CORAM: PRAMOD KUMAR, AM AND V. DURGA RAO, JM ] I.T.A NO.223/ MUM/2008 ASSESSMENT YEAR: 2004-2005 GOENKA PAPERS AND SYNTHETICS P.LTD. .. APPELLAN T 307, POPATLAL CHAMBERS, 4 TH CROSS CLIVE ROAD, DANABUNDER, MUMBAI PA NO.AAACG 2141 B VS INCOME TAX OFFICER 6(3)(1), ,. RESPONDEN T MUMBAI SHRI M.SUBRAMANIAN, FOR THE APPELLANT SHRI A.K.NAYAK, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER OR NOT THE CIT (A) IS JUSTIFIED IN SUSTAINING THE DISALL OWANCE OF ` ` . 24,04,288 MADE UNDER SECTION 40A(3) OF THE INCOME TAX ACT, 1961. T HE ASSESSMENT YEAR INVOLVED IS 2004-05 AND THE IMPUGNED ASSESSMENT ORDER WAS FRAMED UND ER SECTION 143(3) OF THE ACT. 2. THE ISSUE IN APPEAL LIES IN A VERY NARROW COMPAS S OF MATERIAL FACTS. THE ASSESSEE BEFORE US IS ENGAGED, INTER ALIA, IN T HE BUSINESS OF TRADING IN RADDI/WASTE PAPERS. DURING THE COURSE OF SCRUTIN Y ASSESSMENT I .T.A NO.223/ MUM/2008 GOENKA PAPERS AND SYNTHETICS P.LTD 2 PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PURCHASED WASTE PAPERS AMOUNTING TO ` . 1,20,21,439 DURING THE RELEVANT PREVIOUS YEAR. IN RESPONSE TO ASSESSING OFFICERS REQUISITION FOR FURTHER DETAILS, IT WAS SUBMITTED BY THE ASSESSEE THAT INCL UDING THE PURCHASE OF WASTE PAPERS FROM M/S. AJANTA PAPER & GENERAL PRODU CTS LTD., THE ASSESSEE HAS ALSO MADE PURCHASES FROM OVER 750 UNREGISTERED DEALERS SCATTERED ALL OVER THE CITY. THE DETAILS OF THESE PURCHASES WERE DULY FURNISHED BUT THE DETAILS SO FILED DID NOT INCLUDE COMPLETE ADDRESSES OF THE PERSONS FROM WHOM PURCHASES WERE MADE. THE ASSESSING OFFICER FU RTHER NOTICED THAT MANY OF THESE TRANSACTIONS ARE OF AMOUNTS JUST BELO W ` . 20,000 AND ON THIS BASIS, INFERRED THAT THE AMOUNTS HAVE BEEN ART IFICIALLY KEPT UNDER ` . 20,000 SO AS TO AVOID DISALLOWANCE UNDER SECTION 40 A(3) OF THE ACT. IT APPEARS THAT THE ASSESSEE WAS ASKED TO ESTABLISH TH AT THE AMOUNTS PAID BY THE ASSESSEE TOWARDS THESE SMALL PURCHASES WHICH AR E ACTUALLY NOT ARRANGED/MANIPULATED THE ACCOUNTS TO CIRCUMVENT TH E PROVISIONS OF SECTION 40A(3) OF THE ACT. NOT SATISFIED WITH THE EXPLANATION BY THE ASSESSEE IN RESPONSE TO THIS REQUISITION AND AFTER ELABORATELY DISCUSSING THE NATURE OF BUSINESS AND NATURE OF, TRANSACTION T HAT THE ASSESSEE ENTERED INTO, THE ASSESSING OFFICER CONCLUDED AS FO LLOWS:- CONSIDERING ALL THE ABOVE FACTS AND CIRCUMSTANCES I T IS HELD THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE BONAF IDES OF TRANSACTIONS OF CASH PURCHASES HINGING ON THE BORDE RS OF LESS THAN ` . 20,000/- AND IT CLEARLY EMERGES THAT, IT ARRANGED/MANIPULATED THE ACCOUNTS WITH REGARD CASH PURCHASES BY DOCTORING ITS RECORDS IN SUCH A MANNER AS TO GIVE AN IMPRESSION THAT THE PURCHASES HAVE BEEN MADE FRO M GENUINE UNREGISTERED DEALERS FOR CASH PAYMENTS WHICH DO NOT TRANSGRESS LIMITS PRESCRIBED BY THE PROVISIONS OF SECTION 40A( 3) OF THE I.T.ACT. I, THEREFORE, HEREBY CONCLUDE THAT THE CASH PURCHASES OF RS.1,20,21,439/- I .T.A NO.223/ MUM/2008 GOENKA PAPERS AND SYNTHETICS P.LTD 3 WERE SO ARRANGED/MANIPULATED TO SHOW THE SAME AS BE LOW RS.20,000/- TO CIRCUMVENT THE MANDATE OF THE PROVISIONS OF SECT ION 40A(3). ACCORDINGLY, IT IS HELD, THAT, THE PROVISIONS OF SE CTION 40A(3) ARE ATTRACTED AND THUS AN ADDITION OF A SUM OF RS.24,04 ,288/- BEING 20% OF RS.1,20,21,439/- IS MADE TO THE TOTAL INCOME ON ACC OUNT OF DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE IN CASH AS PER THE PROVISIONS OF SECTION 40A(3). PENALTY PROCEEDINGS U/S.271(10(C) OF THE I.T.ACT ARE INITIATED ON THIS ISSUE FOR FURNISHING INACCURATE P ARTICULARS OF INCOME. 3. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFIC ER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. 4. RELYING UPON HIS PREDECESSORS ORDER FOR THE ASSESSMENT YEAR 2001-02, IN WHICH, THE DISALLOWANCE UNDER SECTION 40A(3) WAS UPHEL D ON MATERIALLY SIMILAR FACTS, THE CIT(A) REJECTED THE GRIEVANCE OF THE ASSESSEE . THE ASSESSEE IS NOT SATISFIED AND IN FURTHER APPEAL BEFORE US. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS, PERU SED THE MATERIAL ON RECORD AND TAKEN INTO ACCOUNT FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 6. A PLAIN READING OF SECTION 40A(3) OF THE ACT SH OWS THAT IN ORDER TO ATTRACT THE DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT, IT IS A CONDITION PRECEDENT THAT THE PAYMENTS TOWARDS THE EXPENDITURE IN RESPECT OF WHICH D EDUCTION IS CLAIMED EXCEEDS RS.20,000 AND SUCH PAYMENT IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT. IN OTHER WORDS, THEREFORE, UNL ESS THERE IS A CATEGORICAL FINDING THAT THE AMOUNTS PAID IN CASH EXCEEDS RS.20,000, THE DI SALLOWANCE UNDER SECTION 40A(3) CANNOT BE MADE. IN THE PRESENT CASE, HOWEVER, DISALLOWANCE UNDER SECTION 40A(3) HAS BEEN MADE ON THE BASIS OF AN INFERENCE DRAW N BY THE ASSESSING OFFICER AND NOT ON THE BASIS OF CATEGORICAL FINDING POINTING OUT THE PAYMENTS WHICH ARE IN I .T.A NO.223/ MUM/2008 GOENKA PAPERS AND SYNTHETICS P.LTD 4 EXCESS OF RS.20,000. THE VERY FOUNDATION OF THE DISALL OWANCE AND THE APPROACH THAT THE AO HAS ADOPTED IS, THEREFORE, VITIATED IN LAW. IT IS NOT THE CASE OF THE REVENUE THAT THE PURCHASES MADE BY THE ASSESSEE ARE BOGUS AND IT IS FOR THIS REASON THE PURCHASE OF BEING BOGUS THAT THE DISALLOWANCE IS BEING RESTRICTED. THE DISALLOWANCE HAS BEEN RESORTED TO IN THE PRESENT CASE IS AN ARTIFICIA L DISALLOWANCE AND IT WILL BE STRETCHING THE THINGS FAIR TO IMPORT A DEEMING FICT ION, IN THE UNFETTERED DISCRETION OF THE AO, TO BE READ INTO THE PROVISIONS FOR ARTIFICI AL DISALLOWANCE. IN OUR CONSIDERED VIEW, THEREFORE, THE CIT(A) OUGHT TO HAVE DELETED T HE IMPUGNED DISALLOWANCE. 7. IN ALL FAIRNESS , HOWEVER, WE MUST POINT OUT THAT SI MILAR DISALLOWANCE FOR THE ASSESSMENT YEAR 2001-02 HAS REACHED FINALITY VIDE ORDER DATED 4.3.2009 PASSED BY A CO-ORDINATE BENCH OF THIS TRIBUNAL. IT IS IN THIS CON TEXT NECESSARY TO APPRECIATE THAT THIS CONFIRMATION OF DISALLOWANCE HAS BEEN MADE IN A RATHER UNUSUAL CIRCUMSTANCES, IN WHICH, THE MATTER WAS, WITH THE CONSENT OF THE ASSESSE E, REMITTED TO THE FILE OF THE CIT (A) FOR FRESH ADJUDICATION AND THE ASSESSEE WAS DIRE CTED TO PRODUCE THE RADDI SELLERS FOR VERIFICATION BUT THE ASSESSEE COULD NOT DO SO. THE DISALLOWANCE WAS THEN CONFIRMED, AND ONCE AGAIN MATTER TRAVELED IN APPEAL BEFORE THE TRIBUNAL. WHEN THE MATTER TRAVELED IN APPEAL BEFORE THE TRIBUNAL, IN T HE SECOND ROUND OF PROCEEDINGS, IT IS NOTED THAT THE DIRECTION OF THE TRIBUNAL WHILE RE MITTING THE MATTER TO THE CIT (A) REMAINED UNCHALLENGED AND THE ONLY QUESTION BEFORE T HE TRIBUNAL WAS WHETHER THE EFFECT TO SUCH DIRECTION HAS BEEN PROPERLY GIVEN. TH E CO-ORDINATE BENCH WAS OF THE VIEW THAT THE EFFECT WAS PROPERLY GIVEN AND, THEREFO RE, THE MATTER WAS ALLOWED TO REST AND THE DISALLOWANCE WAS FINALLY CONFIRMED. HOWE VER, THE MATTER HAVING BEEN REMITTED TO THE CIT (A) ON A SHORT FACTUAL ASPECT, T HE TRIBUNAL HAD NO OCCASION TO DEAL WITH THE LEGAL PLEA REGARDING SCOPE OF SECTION 40A(3) . THERE IS NO FINDING IN THE I .T.A NO.223/ MUM/2008 GOENKA PAPERS AND SYNTHETICS P.LTD 5 ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2001-02 T O THE EFFECT THAT THE DISALLOWANCE UNDER SECTION 40A(3) CAN ALSO BE MADE EVE N IN THE ABSENCE OF CATEGORICAL FINDING TO THE EFFECT THAT THE PAYMENTS ARE IN EXCESS OF RS.20,000. IN SHARP CONTRAST TO THIS, THERE ARE SEVERAL JUDICIAL PREC EDENTS SUPPORTING THE PROPOSITION THAT THE DISALLOWANCE U/S.40A(3) CAN ONLY BE MADE WHEN IT IS NOTICED THAT THE PAYMENT IS INDEED OR AMOUNT EXCEEDING RS.20, 000/-. IT IS SO HELD BY THE CO- ORDINATE BENCH IN THE CASE OF HABIB AGRO INDUSTRIES V ACIT, 131 TTJ 468 AND BY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. RAT ANLAL VYPARILAL JAIN, 45 DTR 290. IN VIEW OF THESE DISCUSSIONS, THE DECISION OF THE CO-ORD INATE BENCH FOR THE ASSESSMENT YEAR 2001-02, IN OUR HUMBLE UNDERSTANDING, CA NNOT PREVENT THE ASSESSEE FROM RAISING THE LEGAL PLEA, WHICH HAS BEEN ADJU DICATED ABOVE. THE REVENUE THUS DOES NOT DERIVE ANY ADVANTAGE FROM THE TRIBUNAL DECISION FOR THE ASSESSMENT YEAR 2001-02 SO FAR AS OUR ADJUDICATION ON THE LEGAL QUESTION IS CONCERNED. 8. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 3 RD JANUARY, 2011. SD/- (V. DURGA RAO ) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 3 RD JANUARY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XXVI, MUMBAI 4. COMMISSIONER OF INCOME TAX,-6MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI I .T.A NO.223/ MUM/2008 GOENKA PAPERS AND SYNTHETICS P.LTD 6 I .T.A NO.223/ MUM/2008 GOENKA PAPERS AND SYNTHETICS P.LTD 7