Sri krishnasa Bhute , Harihar V. Income Tax Officer Ward-2(1), Davangere

ITA 2444/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4544 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 28-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Keywords: Business income; Principle of natural justice; Source of fund; Question of law; Speculation loss; Speculative transactions
• Section: 40A(3); 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.2444 & 2445/BANG/2018 ASSESSMENT YEAR : 2013-14 & 2014-15 SRI KRISHNASA BHUTE, POOJA NILAYA, 60 FEET ROAD, A BLOCK, VIDYANAGAR, HARIHAR-577 601. PAN AEBPB 5686G. VS. THE INCOME TAX OFFICER, WA5RD-2(1), DAVANGERE. APPELLANT RESPONDENT APPELLANT BY : SHRI PRANAV KRISHNA, ADVOCATE RESPONDENT BY : DR. P.V PRADEEP KUMAR, ADDL. CIT (DR) DATE OF HEARING : 21.08.2019 DATE OF PRONOUNCEMENT : 28.08.2019 O R D E R PER BENCH : THESE ARE APPEALS BY THE ASSESSEE AGAINST TWO ORDER S BOTH DATED 18.6.2016 OF CIT(A), DAVANGERE, RELATING TO A Y 2013-14 & 2014-15. 2. ONE OF THE ISSUE TO BE DECIDED IN THESE APPEALS IS COMMON IN AY 2013-14 & 2014-15. THESE APPEALS WERE HEARD TOGETHE R. WE DEEM IT CONVENIENT TO PASS A COMMON ORDER. 3. THE COMMON ISSUE INVOLVED IN THESE TWO APPEALS ARE AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN M AKING A ITA NOS.2444 & 2445/BANG/2018 PAGE 2 OF 18 DISALLOWANCE OF A SUM OF RS.1,59,63,655 AND RS.1,38 ,75,714 BY INVOKING THE PROVISIONS OF SEC.40A(3) OF THE INCOME TAX ACT, 1961 (ACT) IN AY 2013-14 & 2014-15 RESPECTIVELY. 4. THE ASSESSEE IS AN INDIVIDUAL. HE CARRIES ON BUSINESS OF DISTRIBUTING ALCOHOLIC BEVERAGES OF KARNATAKA STATE BEVERAGES CORPORATION LTD. (KSBCL) AND ALSO DOES THE BUSINESS OF TRADING IN MAIZE AS PROPRIETOR M/S. MANDARA TRADERS. IN AY 20 13-14, THE ASSESSEE PURCHASED MAIZE (AN AGRICULTURAL PRODUCE) FROM THE FOLLOWING PARTIES (UNREGISTERED DEALERS) OF THE VAL UE OF RS.1,59,63,655/- FOR WHICH THE PAYMENTS WERE MADE I N CASH IN EXCESS OF RS.20,000/-: ITA NOS.2444 & 2445/BANG/2018 PAGE 3 OF 18 5. UNDER THE PROVISIONS OF SEC.40A(3) OF THE ACT, IF EXPENDITURE IS CLAIMED AS A DEDUCTION IN COMPUTING INCOME FROM BUS INESS AND IF SUCH EXPENDITURE IN EXCESS OF RS.20,000/- ARE PAID IN CASH THEN THE SAID EXPENDITURE WILL NOT BE ALLOWED AS DEDUCTION I N COMPUTING INCOME FROM BUSINESS. THE RELEVANT PROVISIONS OF S EC.40A(3) OF THE ACT READS AS FOLLOWS: ITA NOS.2444 & 2445/BANG/2018 PAGE 4 OF 18 SECTION 40A: EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES. (1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFFEC T NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THIS ACT RELATING TO THE COMPUTA TION OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RE SPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEEE BANK DRAFT, EXCEEDS TWE NTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN R ESPECT OF SUCH EXPENDITURE. PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3) AND TH IS SUB- SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MA DE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEEE BANK DRAFT, EXCEE DS TWENTY THOUSAND RUPEES, IN SUCH CASES AND UNDER SUC H CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD T O THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER REL EVANT FACTORS. 6. HOWEVER, INCOME TAX RULES, 1962 (RULES) PROVIDE S IN RULE 6DD OF THE RULES, CERTAIN CIRCUMSTANCES UNDER WHICH SEC .40A(3) OF THE ACT WILL NOT BE ATTRACTED. THE CLAUSE RELEVANT FOR THE PRESENT CASE IS AS FOLLOWS: 6DD. CASES AND CIRCUMSTANCES IN WHICH PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE OTHERW ISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT.-NO DISALLOWANCE UNDER CLAUSE (A) OF SUB- SECTION (3) OF SECTION 40A SHALL BE MADE AND NO PAY MENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS O R PROFESSION UNDER CLAUSE (B) OF SUB-SECTION (3) OF S ECTION 40A WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAN D RUPEES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE C HEQUE ITA NOS.2444 & 2445/BANG/2018 PAGE 5 OF 18 DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT IN THE CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY: (A) TO (D) (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF- (I) AGRICULTURAL OR FOREST PRODUCE; OR (II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIVESTOCK, MEAT, HIDES AND SKINS) OR DAIRY OR POULT RY FARMING; OR (III) FISH OR FISH PRODUCTS; OR (IV) THE PRODUCTS OF HORTICULTURE OR APICULTURE, TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTIC LES, PRODUCE OR PRODUCTS. 7. IT CAN BE SEEN FROM THE AFORESAID RULE 6DD(E) O F THE RULES THAT IF THE PAYMENT IS MADE FOR PURCHASE OF AGRICULTURAL PR ODUCE TO A PRODUCER OF SUCH PRODUCE, THEN NO DISALLOWANCE CAN BE MADE U/S.40A(3) OF THE ACT. THE AO PROPOSED TO DISALLOW THE EXPENDITURE INCURRED IN CASH IN EXCESS OF RS.20,000/- IN CASH U /S.40A(3) OF THE ACT. THE ASSESSEE PLEADED THAT THE PAYMENT IN QUES TION WAS MADE FOR PURCHASE OF MAIZE AGRICULTURAL PRODUCE TO THE C ULTIVATOR OF THE PRODUCE AND HENCE NO DISALLOWANCE CAN BE MADE U/S.4 0A(3) OF THE ACT READ WITH RULE 6DD(E) OF THE RULES. THE ASSESS EE ALSO FILED THE NAMES AND VILLAGE OF EACH OF THE PERSONS TO WHOM PA YMENTS WERE MADE AND THE BILLS EVIDENCING SALE OF THE PRODUCE T O EACH OF THE AGRICULTURIST. THE ASSESSEE POINTED OUT THAT UNDER SECTION 65(2A) OF THE KARNATAKA APMC (REGULATION)ACT, 1966, AGRICULTU RAL PRODUCE CANNOT BE MOVED UNLESS MARKET FEE ON SUCH PRODUCE I S PAID. THE SAID REGULATION READS THUS: ITA NOS.2444 & 2445/BANG/2018 PAGE 6 OF 18 [(2A) THE MARKET FEE PAYABLE UNDER THIS SECTION SH ALL BE REALIZED AS FOLLOWS, NAMELY:- (I) IF THE PRODUCE IS SOLD THROUGH A COMMISSION AGE NT, THE COMMISSION AGENT [SHALL] REALIZE THE MARKET FEE FRO M THE PURCHASER AND SHALL BE LIABLE TO PAY THE SAME TO TH E COMMITTEE; [(IA) IF THE PRODUCE IS SOLD BY AN IMPORTER TO THE PURCHASER, THE IMPORTER SHALL REALIZE THE MARKET FEE FROM THE PURC HASER AND SHALL BE LIABLE TO PAY THE SAME TO THE COMMITTEE; ] (II) IF THE PRODUCE IS PURCHASED DIRECTLY BY A TRAD ER FROM A PRODUCER, THE TRADER SHALL BE LIABLE TO PAY THE M ARKET FEE TO THE COMMITTEE; (III) IF THE PRODUCE IS PURCHASED BY A TRADER FROM ANOTHER TRADER, THE TRADER SELLING THE PRODUCE [SHALL] REALIST IT F ROM THE AND SHALL BE LIABLE TO PAY THE MARKET FEE TO THE COMMIT TEE; AND (IV) IN ANY OTHER CASE OF SALE OF SUCH PRODUCE, THE PURCHASER SHALL BE LIABLE TO PAY THE MARKET FEE TO THE COMMIT TEE.]' 8. THE ASSESSEE CLAIMED THAT AS PURCHASER IT HAD PA ID MARKET FEE FALLING WITHIN THE AMBIT OF CLAUSE (II) AND THE REFORE THE PAYMENT IN QUESTION WAS FOR PURCHASE OF AN AGRICULTURAL PRO DUCE TO A PRODUCER OF SUCH PRODUCE AND THEREFORE CANNOT BE DI SALLOWED U/S.40A(3) AS THE PAYMENT FELL WITHIN THE EXCEPTION OF CLAUSE (E) TO RULE 6DD OF THE RULES. 9. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NO T PRODUCED DETAILS LIKE ADDRESS AND IDENTITY OF THE PERSONS TO WHOM CASH PAYMENTS WERE MADE EXCEPT PRODUCING BILLS AND THEIR NAMES AND THE NAME OF THEIR VILLAGE TO WHICH THEY BELONG. TH E AO WAS ALSO OF THE VIEW THAT THE EXTENT OF THEIR LAND HOLDING AND THE FACT THAT THEY ITA NOS.2444 & 2445/BANG/2018 PAGE 7 OF 18 RAISED THE PRODUCE I.E., THE MAIZE THAT WAS SOLD TO THE ASSESSEE HAS NOT BEEN ESTABLISHED. WITH REGARD TO PAYMENT OF MA RKET FEE, THE AO HELD THAT THE ASSESSEE GIVES A SELF DECLARATION THA T PRODUCE WAS PROCURED FROM FARMERS TO THE APMC AND SUCH DECLARAT ION IS NOT ENOUGH TO PROVE THE CASE OF THE ASSESSEE. HE THERE FORE ADDED A SUM OF RS.1,59,63,655 TO THE TOTAL INCOME OF THE ASSESS EE. THE CIT(A) CONFIRMED THE ACTION OF THE AO. 10. IN AY 2014-15, THE FACTS ARE IDENTICAL, EXCEPT THAT THE ASSESSEE IN THAT YEAR CLAIMED THAT EACH OF THE PAYMENT MADE IN CASH WAS LESS THAN RS.20,000 AND THEREFORE PROVISIONS OF SEC.40A( 3) OF THE ACT ARE NOT ATTRACTED. THIS CLAIM WAS REJECTED BY THE AO FOR THE FOLLOWING REASONS. THE ASSESSEE WAS ASKED TO EXPLAIN THE LOGIC AND REASON BEHIND THE AFORESAID PATTERN, WHERE IN THE S UPPLIER, RESIDING ABOUT 6 TO 7 KMS AWAY FROM THE ASSESSEE'S BUSINESS PREMISE, BE IT A FARMER OR A DEALER OF COMMODITIES, HAS TO MAKE ABOUT 38 VISITS TO THE ASSESSEE'S PREMISES, LI TERALLY ON A DAILY BASIS TO COLLECT THE MONEY DUE TO HIM IN SMAL L AMOUNTS OVER A PERIOD OF -FULL NINE MONTHS. THE ASSESSEE WA S ALSO ASKED TO EITHER PRODUCE A FEW SUPPLIERS WITH WHOM H E HAS CARRIED ON SUCH TRANSACTION FOR CROSS VERIFICATION AND ALSO FURNISH INDIVIDUAL ACCOUNTS STATEMENTS/ CONTROL STA TEMENTS IN THIS REGARD. THE SAME HAS NOT BEEN FURNISHED. IT IS VERY DIFFICULT TO BELIEVE, IN FACT IMPOSSIBLE TO BELIEVE THAT ALL HIS SUPPLIERS HAVE THE PATIENCE AND THE PE RSISTENCE TO MAKE MULTIPLE VISITS TO THE ASSESSEE'S PREMISES ON A DAY TO DAY BASIS TO COLLECT SMALL AMOUNTS WHICH IS DUE TO THEM, DESPITE THEIR PERSONAL AND BUSINESS RELATED PRE-OC CUPATIONS. THE ASSESSEE IS PORTRAYING A VERY UNUSUAL SCENARIO AND BUSINESS PRACTICE JUST TO COVER UP SOME ACTUAL TRAN SACTIONS WHICH HAVE HAPPENED AND HAVE A DIRECT BEARING ON TH E ASSESSEE BY WAY OF A ADDITIONAL TAX. ITA NOS.2444 & 2445/BANG/2018 PAGE 8 OF 18 AS DISCUSSED ABOVE HEREIN, IN REALITY, IT APPEARS T HAT THE ASSESSEE HAS MADE CASH PAYMENTS TO THESE SUPPLIERS IN EXCESS OF THE AMOUNT PRESCRIBED AND HAS ATTRACTED T HE .. PROVISION OF SECTION 40A(3) OF THE ACT. AS AN AFTER THOUGHT, AND WITH A VIEW TO AVOID DISALLOWANCES AND INCIDENCE OF TAXATION UNDER THE AFORESAID PROVISIONS, THE ASSESSEE HAS CR EATED AND PLANTED THIS ALIBI. 11. IT IS PERTINENT TO BRING ON RECORDS, HEREIN, TH AT FOR THE AN 2013-14, ASSESSMENT U/S 143(3) IN THE CASE HAD RESU LTED IN FINDINGS WHICH LEAD TO DISALLOWANCES UNDER THE PROV ISIONS OF SECTION 40A(3). THE ASSESSMENT HAS RESULTED IN DISA LLOWANCES OF PURCHASES AS THE PAYMENTS WERE MADE IN EXCESS OF THE LIMITS ALLOWED UNDER THE ACT. TO AVOID A REPETITION OF SUCH DISALLOWANCES, THE ASSESSEE HAS COME UP WITH A MASTER PLAN, WHICH IS D ISCUSSED ABOVE HEREIN. AFTER GIVING DUE CONSIDERATION TO THE CLAIMS AND CO UNTER CLAIMS OF THE ASSESSEE ON THE ONE HAND AND THE FACT S AND CIRCUMSTANCES OF THE CASE ON THE OTHER HAND, AND IN THE INTEREST OF NATURAL JUSTICE, IT IS HELD THAT, IF NO T THE ENTIRE PAYMENTS, AT LEAST PART OF THE PAYMENTS TOWARDS PUR CHASES HAVE DEFINITELY EXCEEDED THE THRESHOLD LIMIT PRESCR IBED UNDER THE ACT AND NEED TO BE BROUGHT UNDER THE PURVIEW OF THE PROVISIONS OF THE SECTION 40A(3) OF THE ACT. 12. ACCORDINGLY A SUM OF RS 1,38,75,714, BEING 25% OF THE TOTAL PAYMENTS (TOTAL U RD PURCHASES REFLECTED ARE RS.5,55,02,856.) CLAIMED TO HAVE BEEN MADE TOWARDS PURCHASES IS HELD TO BE PAYMENTS MADE IN EXCESS OF THE LIMIT PRESCRIBED UNDER THE ACT, (BUT CAMOUFLAGED AS PAYMENTS BELOW THE LIMIT) AND HENCE BROUGHT UNDER T HE PURVIEW OF THE PROVISIONS OF THE SECTION 40A(3) OF THE I.T.ACT AND ARE RESULTANTLY DISALLOWED INVOKING THE AFORESAID PROVISIONS. ITA NOS.2444 & 2445/BANG/2018 PAGE 9 OF 18 11. THE ACTION OF THE AO WAS CONFIRMED BY THE CIT( A). HENCE THESE APPEALS BY THE ASSESSEE BEFORE THE TRIBUNAL. 12. BEFORE THE TRIBUNAL, THE ASSESSEE REITERATED S UBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND FURTHER RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PRL.CIT V S. KESHAVALA MANGALDAS (2018) 96 TAXMANN.COM 83 (GUJARAT) WHEREI N THE FACTS WERE THAT T HE ASSESSEE, WAS A COMMISSION AGENT FOR PURCHASE/SA LE OF FOOD-GRAIN AND HELD LICENCE ISSUED BY THE AGRICU LTURAL PRODUCE MARKET COMMITTEE. IN THE ASSESSMENT, THE AO NOTICED THAT THE ASSESSEE PURCHASED GOODS OF RS. 2,83,55,337/-WHEREI N PAYMENTS EXCEEDING RS. 20,000/- WERE MADE IN CASH TO VARIOUS PARTIES. IN THE BOOKS OF ACCOUNT, THE AFORESAID AMOUNT WAS SHOWN TO HAVE BEEN PAID TO VARIOUS FARMERS AND EVEN THE RECEIPTS WERE ALSO PRODUCED. HOWEVER, THE ASSESSEE COULD NOT FURNISH/PRODUCE THO SE PERSONS/FARMERS AND THE ASSESSEE EXPLAINED THAT IT COULD NOT PRODUCE FURNISH THE NAMES AND ADDRESSES OF THE PERS ONS TO WHOM CASH PAYMENT WAS MADE BECAUSE FARMERS ARE KNOWN BY VILLAGE NAME THEY COME FROM AND IT IS DIFFICULT AND RATHER IMPOSSIBLE TO TRACK THEM NOW. THE A.O. MADE DISALLOWANCE OF RS.2 ,83,55,377/- UNDER SECTION 40A(3) OF THE I.T. ACT. ON AN APPEAL BEFORE THE LEARNED CIT (A), THE LEARNED CIT (A), RELYING UPON AND/OR C ONSIDERING RULE 6DD(E)(I) OF THE INCOME TAX RULES, 1962, DELETED TH E DISALLOWANCE UNDER SECTION 40A(3) BY OBSERVING THAT AS THE PAYME NT WAS MADE FOR AGRICULTURAL PRODUCES, AS PER THE AFORESAID PRO VISION, IT WAS OPEN FOR THE ASSESSEE TO MAKE THE PAYMENT IN CASH ABOVE RS. 20,000/. THE TRIBUNAL CONFIRMED THE ORDER OF THE CI T(A). ON FURTHER ITA NOS.2444 & 2445/BANG/2018 PAGE 10 OF 18 APPEAL BY THE REVENUE, THE HONBLE GUJARAT HIGH COU RT HELD AS FOLLOWS: 4. IT IS REQUIRED TO BE NOTED AND IT IS NOT IN DISPUT E THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS AS A COMMISSION AGENT FOR PURCHASE/SALE OF FOOD-GRAIN/AGRICULTURAL PRODUC ES AND IS ALSO HOLDING LICENCE ISSUED BY THE AGRICULTURAL PRO DUCE MARKET COMMITTEE. IN THE BOOKS OF ACCOUNTS, THE ASSESSEE H AS SHOWN THE AMOUNT OF RS. 2,83,55,337/- PAID TO VARIOUS FAR MERS. HOWEVER, AS THE PAYMENTS WERE EXCEEDING RS. 20,000/ - IN CASH, THE A.O. MADE THE DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. HOWEVER, CONSIDERING RULE 6DD(E)(I) OF THE INCOME TAX RULES, 1962, AND WHEN THE PAYMENT WAS MADE BY CASH EXCEEDING RS. 20,000/-, IT WAS PERMISSIBLE IF THE S AME WAS PAID FOR PURCHASE OF AGRICULTURAL PRODUCES. IT IS REQUIRED TO BE NOTED THAT IN THE PRESENT CASE, IN THE BOOKS OF ACCOUNTS, THE SAID PAYMENT WAS SHOWN TO BE PAID TO VARIOUS FARMERS AND EVEN THE RECEIPTS WERE ALSO PRO DUCED BUT THE ASSESSEE COULD NOT PRODUCE THE FARMERS/LIST OF FARMERS FOR WHICH A REASONABLE EXPLANATION WAS ALSO GIVEN. HOWEVER, WITHOUT REJECTING THE BOOKS OF ACCOUNTS, T HE LEARNED A.O. MADE THE ADDITION UNDER SECTION 40A(3) OF THE ACT WHICH IS RIGHTLY DELETED BY THE CIT (A) AND RIGHTLY CONFI RMED BY THE LEARNED ITAT. IN THE PRESENT CASE, RULE 6DD(E)(I) S HALL BE APPLICABLE AND THE SAME IS RIGHTLY APPLIED BY THE L EARNED CIT (A) AS WELL AS THE LEARNED ITAT. IT CANNOT BE DISPU TED AND IT IS NOT DISPUTED THAT AS SUCH, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF COMMISSION AGENT FOR PURCHASE/SALE OF F OOD-GRAIN AND IS ALSO HOLDING LICENCE ISSUED BY THE AGRICULTU RAL PRODUCE MARKET COMMITTEE. 5. CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE DISALLOWANCE MADE BY THE LEARNED A.O . UNDER SECTION 40A(3) OF THE INCOME TAX ACT HAS BEEN DELET ED BY THE LEARNED CIT (A) AND THE SAME HAS BEEN CONFIRMED BY THE LEARNED ITAT, IT CANNOT BE SAID THAT THE SAME IS CO NTRARY TO THE PROVISIONS OF THE ACT AND/OR ERRONEOUS. NO SUBS TANTIAL QUESTION OF LAW ARISES. HENCE, THE PRESENT APPEAL D ESERVES TO BE DISMISSED. ACCORDINGLY, IT IS DISMISSED. ITA NOS.2444 & 2445/BANG/2018 PAGE 11 OF 18 13. THE LEARNED DR RELIED ON THE ORDER OF THE REVE NUE AUTHORITIES AND FURTHER RELIED ON THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (1991 ) 59 TAXMAN 11 (SC) WHEREIN THE HONBLE APEX COURT UPHELD THE C ONSTITUTIONAL VALIDITY OF SEC.40A(3) AND FURTHER OBSERVED THAT GE NUINE AND BONAFIDE TRANSACTIONS WILL NOT BE AFFECTED BY THE A FORESAID PROVISIONS BY QUOTING THE ERSTWHILE RULE 6DDJ OF THE RULES. T HE LEARNED DR SUBMITTED THAT IN THE PRESENT CASE THE GENUINENESS OF THE TRANSACTION HAS NOT BEEN ESTABLISHED BY THE ASSESSE E BY PRODUCING THE FARMERS AND THEREFORE THE ADDITION SHOULD BE SU STAINED. HE ALSO RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIG H COURT IN THE CASE OF ACIT VS. SARASWATHI IRON FOUNDARY (2006) 15 7 TAXMAN 368 (KARNATAKA) WHEREIN EXCEPTION WAS CLAIMED BY AN ASS ESSEE UNDER THE ERSTWHILE RULE 6DDJ BUT COULD NOT PROVE THE ING REDIENTS NECESSARY TO SATISFY THE SAID CLAUSE AND HENCE THE ADDITION WAS SUSTAINED. 14. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. THE HONBLE SUPREME COURT UPHELD THE CONSTITUTIONAL VALIDITY OF SEC.40A(3) IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO 191 ITR 667 (SC). THE HONBLE SUPREME COURT OBSERVED T HAT THE PROVISION HAS BEEN ENACTED AS ONE OF THE MEASURES F OR COUNTERING EVASION OF TAX. IT WAS FOUND FROM EXPERIENCE, THAT DEDUCTIONS WERE BEING CLAIMED FOR PAYMENT MADE FROM UNACCOUNTED MON EY IN THE COMPUTATION OF BUSINESS OR PROFESSIONAL INCOME. THI S PROVISION WAS ENACTED TO ENABLE THE ASSESSING AUTHORITY TO ASCERT AIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE IN COME FROM UNDISCLOSED SOURCES. THE HONBLE SUPREME COURT REFE RRED TO RULE ITA NOS.2444 & 2445/BANG/2018 PAGE 12 OF 18 6DD(J) OF THE RULES AS IT EXISTED PRIOR TO ITS MODI FICATION WITH EFFECT FROM ASSESSMENT YEAR 1996-97, WHICH CONTAINED, IN C LAUSE (J), A GENERAL EXCEPTION WHICH INVOLVED A SCRUTINY OF THE UNAVOIDABLE CIRCUMSTANCES AND THE IMPRACTICABILITY OF PAYMENT B Y CROSSED CHEQUE OR BANK DRAFT. CLAUSE (J) BEFORE THE AMENDME NT STOOD AS UNDER : CLAUSE (J) : IN ANY OTHER CASE WHERE THE ASSESSEE SATISFIES THE ASSESSING OFFICER THAT THE PAYMENT COULD NOT BE MAD E BY CROSSED CHEQUE ON A BANK OR BY A CROSSED BANK DRAFT (1) DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES , OR (2) BECAUSE PAYMENT IN THE MANNER AFORESAID WAS NOT PRACTICABLE, OR WOULD HAVE CAUSED GENUINE DIFFICULT Y TO THE PAYEE, HAVING REGARD TO THE NATURE OF THE TRANSACTI ON AND THE NECESSITY FOR EXPEDITIOUS SETTLEMENT THEREOF, AND ALSO FURNISHES EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER AS TO THE GENUINENESS OF THE PAYM ENT AND THE IDENTITY OF THE PAYEE. AND OBSERVED THAT GENUINE AND BONA FIDE TRANSACTION S ARE TAKEN OUT OF THE SWEEP OF THE SUB- SECTION. THE HONBLE SUPRE ME COURT HELD THAT IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE S ATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SUB-SECTION (3) WAS NOT PR ACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVE D CASH PAYMENT. THE PROVISIONS OF SUB-SECTION (3) AND RULE 6DD ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE U SE OF UNACCOUNTED MONEY OR TO REDUCE THE CHANCES TO USE B LACK MONEY FOR BUSINESS TRANSACTIONS. THE RESTRAINT THAT HAS B EEN IMPOSED IS TO CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY AND THE SAME SHOULD NOT BE REGARDED AS CURTAILING T HE FREEDOM OF TRADE OR BUSINESS. ITA NOS.2444 & 2445/BANG/2018 PAGE 13 OF 18 15. THE ABOVE OBSERVATIONS OF THE HONBLE SUPREME COURT ARE IN THE CONTEXT OF RULE 6DDJ OF THE RULES WHICH HAVE BEEN D ELETED FROM AY 1996-97 THE ERSTWHILE RULE 6DD(J) OF THE RULES, IS NO LONGER AVAILABLE FOR AN ASSESSEE AS A DEFENCE TO A DISALLO WANCE U/S.40A(3) OF THE ACT. THE DECISION OF THE HONBLE KARNATAKA H IGH COURT IN THE CASE OF SRI SARASWATHI IRON FOUNDARY (SURA) IS ALSO ON THE BASIS OF ERSTWHILE RULE 6DDJ OF THE RULES. IT IS BECAUSE OF THE REQUIREMENTS OF ERSTWHILE RULE 6DDJ THAT THE AFORESAID OBSERVATI ONS HAVE BEEN MADE BY THE HONBLE SUPREME COURT. IN THE PRESENT APPEAL, WE ARE CONCERNED WITH RULE 6DD (E) AND THERE IS NO REQUIRE MENT OF PRODUCTION OF THE PAYEE. 16. THE FACTS OF THE DECISION OF THE HONBLE GUJAR AT HIGH COURT AND THE FACTS OF THE CASE OF THE ASSESSEE ARE IDENTICAL AND THEREFORE THE SAID DECISION AND THE RATIO LAID DOWN THEREIN IS SQ UARELY APPLICABLE TO THE PRESENT CASE. AS HELD THEREIN WHEN CONSIDERING RULE 6DD(E)(I) OF THE INCOME TAX RULES, 1962, AND WHEN THE PAYMENT WAS MADE BY CASH EXCEEDING RS. 20,000/-, IT WAS PERMISSIBLE IF THE SAME WAS PAID FOR PURCHASE OF AGRICULTURAL PRODUCES. IF THER E ARE ENTRIES IN THE BOOKS OF ACCOUNTS AND PAYMENT IS SHOWN TO HAVE BEEN MADE TO FARMERS AND WHEN RECEIPTS WERE ALSO PRODUCED BUT TH E ASSESSEE COULD NOT PRODUCE THE FARMERS/LIST OF FARMERS FOR W HICH A REASONABLE EXPLANATION WAS ALSO GIVEN, NO ADDITION COULD BE MA DE U/S.40A(3) OF THE ACT. RESPECTFULLY FOLLOWING THE AFORESAID DECI SION, WE HOLD THAT THE DISALLOWANCE MADE U/S.40A(3) OF THE ACT DESERVE S TO BE DELETED AND THE SAME IS HEREBY DELETED. 17. THERE IS ONE ADDITIONAL ISSUE TO BE DECIDED IN ASSESSEES APPEAL FOR AY 2014-15 VIZ., DISALLOWANCE OF INTEREST EXPEN SES U/S.36(1)(III) ITA NOS.2444 & 2445/BANG/2018 PAGE 14 OF 18 OF THE ACT. THE FACTS IN THIS REGARD ARE THAT THE ASSESSEE ALSO INDULGED IN PURCHASE AND SALE OF SHARES DURING THE RELEVANT PREVIOUS YEAR AND THOSE PURCHASE AND SALE OF SHARES AND COMMODITIES AND RESULTANT GAIN WERE ADMITTEDLY TO B E REGARDED AS SPECULATIVE TRANSACTIONS AND SPECULATION INCOME . THE ASSESSEE HAD IN FACT EARNED SPECULATIVE INCOME AND HAD CLAIM ED SET OFF OF THIS YEAR'S SPECULATIVE BUSINESS INCOME AGAINST THE BROU GHT FORWARD SPECULATIVE LOSS OF THE PREVIOUS YEARS. THE AO ALSO NOTICED THAT THE SOURCE OF FUNDS FOR THE SPECULATIVE BUSINESS WAS F ROM THE LOAN A/C OF THE ASSESSEE WITH DHUC BANK. THE INTEREST ON AC COUNT OF THIS LOAN DEBITED TO THE PROFIT & LOSS ACCOUNT WAS RS. 2 7,14,720. THE AO WAS OF THE VIEW THAT SINCE THE BORROWED LOANS ON WH ICH INTEREST WAS PAID WERE USED IN SPECULATIVE BUSINESS, TO THE EXTE NT IT IS SO USED, THE ASSESSEE SHOULD NOT GET DEDUCTION OF INTEREST E XPENSES U/S.36(1)(III) OF THE ACT IN RESPECT OF NON-SPECULA TIVE BUSINESS INCOME DECLARED IN THE PROFIT AND LOSS ACCOUNT. TH ESE FINDING WERE PUT ACROSS TO THE ASSESSEE BY THE AO AND HE CALLED UPON THE ASSESSEE TO JUSTIFY THE DEBITS ON ACCOUNT OF INTERE ST AT RS.27,14,720/- ON AN OUTSTANDING LOAN LIABILITY OF RS. 33,81,008 AS AT 31-03-2014. THE ASSESSEE SUBMITTED THAT HE HAS UTILISED PART OF THE LOAN AMOUNTS FOR SPECULATIVE AND SHARE TRADING BUSINESS BUT A MAJOR PART IS USED FOR HIS OTHER BUSINESS PARTICULA RS LIKE MAIZE TRADING, AND LIQUOR RETAILS. THE AO HOWEVER DISALL OWED A SUM OF RS 6,78,680 BEING 25% OF THE INTEREST EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT OF RS.27,14,720. 18. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE WAS EXCESSIVE AND MADE THE FOLLOWING SUBMISSIONS: ITA NOS.2444 & 2445/BANG/2018 PAGE 15 OF 18 DISALLOWANCE OF INTEREST U/S 14A AS SUBMITTED IN THE STATEMENT OF FACTS AND GROUNDS OF APPEAL, THE APPELLANT DEALS IN SHARES AND COMMODITI ES, WHICH IS A SPECULATIVE BUSINESS. THE DETAILS OF SUCH TRAN SACTIONS WERE FURNISHED DURING T1 COURSE OF ASSESSMENT PROCE EDINGS. THE DETAILS OF PAYMENTS MADE AND RECEIVED FROM THE TWO ACCOUNTS OF DESTIMONY SECURITIES AND ANAND RATHI SH ARES AND STOCK BROKER LTD WERE ALSO FURNISHED. THESE PAY MENTS FOR PURCHASE OF SHARES WERE MADE FROM THE BOOKS OF HEAD OFFICE MANORANJAN WINE SHOP. OUT OF THE TOTAL INTER EST DEBITED AT RS 2714720 - TO THE P & L A/C, THE AMOUNT DEBITE D IN HEAD OFFICE BOOKS IS RS 244956/- AND IN THE BOOKS OF BRA NCH, MANDARA TRADERS, IS RS 2469764/-. THE DETAILS OF W HICH WERE FURNISHED IN THE FINANCIAL STATEMENTS FILED WI TH THE RETURN OF INCOME AND DURING THE COURSE OF ASSESSMEN T PROCEEDINGS. HOWEVER THE LEARNED ASSESSING OFFICER, ARBITRARILY WITHOUT EVIDENCE. HAS DISALLOWED A SUM OF RS 678680/- BEING 25% OUT OF THE TOTAL INTEREST DEBITED AT RS. 2714720/-, STATING THAT 'THIS DISALLOWANCE IS DONE ON PRO RATA BASIS ON THE PROPORTION OF LOAN AMOUNT UTILISED FOR THE PURPOSE OF DEALING IN SHARES AND OTHER SPECULATIVE 'TRANSACTIONS, FROM WHICH NO TAXABLE INCOME'. THIS FINDING OF THE ASSESSING OFFICER IS U NWARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. AS PER THE BOOKS OF ACCOUNTS, WHICH ARE GOT AUDITED U/S 44AB, ACCOUNTS ARE SEPARATELY MAINTAINED IN RESPECT OF DEALING IN SHAR ES AND COMMODITIES AND THE AMOUNT OF INTEREST DEBITED IS A T RS.2,44,956. IT IS ALSO NOT CORRECT TO SAY THAT THE SAID INTEREST EXPENDITURE WAS INCURRED FOR EARNING NON TAXABLE IN COME. INCOME DERIVED FROM DEALING IN SUCH SHARES IS LIABL E TO TAX AS SPECULATIVE INCOME AND FOR THIS YEAR RS 1181506/- I S DECLARED IN THE RETURN OF INCOME AS SPECULATIVE INC OME. HENCE THE SAID INTEREST IS AN ITA NOS.2444 & 2445/BANG/2018 PAGE 16 OF 18 ADMISSIBLE EXPENDITURE AND PROVISIONS OF SECTION 14 A ARE NOT APPLICABLE. 19. THE CIT(A) DID NOT CONSIDER ANY OF THE ABOVE P LEAS BUT PROCEEDED TO UPHOLD THE ORDER OF THE AO, OBSERVING AS FOLLOWS: 5B. I HAVE PERUSED THE SUBMISSIONS AND CASE LAWS RE LIED UPON BY THE APPELLANT. THE APPELLANT IS ONLY DIVERT ING ATTENTION. AS CAN BE SEED FROM THE EXTRACT OF HIS W RITTEN SUBMISSION, HE IS REFERRING TO SECTION 14A WHEREAS THE AO - HAS NOT USED THAT SECTION THEREFORE, HIS SUBMISSION S ARE MISPLACED. THE AO HAS ONLY DISALLOWED A PORTION OF INTEREST CLAIMED STATING THAT THE SAME IS USED-FOR NON-BUSIN ESS PURPOSE. THE APPELLANT HAS CHOSEN TO MAKE USE OF TH E OPPORTUNITY PROVIDED AND HAS NOT CARED TO FILE DETA ILS. IN THE ABSENCE OF THE SAME, THE ORDER OF THE AO IS CONFIRM ED. IN VIEW OF THE ABOVE, I AM CONSTRAINED TO UPHOLD THE ORDER OF THE AO WHICH CALLS FOR NO INTERFERENCE. THUS, THE GROUND FAILS. 20. BOTH THE PARTIES AGREED THAT SINCE, THE ISSUE RAISED BY THE ASSESSEE WITH REGARD TO BORROWED FUNDS NOT HAVING B EEN USED FOR SPECULATIVE BUSINESS AND THE FACT THAT THERE WAS IN COME FROM SPECULATIVE BUSINESS AND THEREFORE EVEN OTHERWISE T HE DEDUCTION SHOULD HAVE BEEN ALLOWED WHILE COMPUTING INCOME FRO M SPECULATION BUSINESS, HAS NOT BEEN CONSIDERED BY CIT(A) AND SIN CE FACTS NEED TO BE EXAMINED IN THIS REGARD, THE MATTER SHOULD BE RE MANDED TO THE AO. WE DIRECT ACCORDINGLY. ITA NOS.2444 & 2445/BANG/2018 PAGE 17 OF 18 21. IN THE RESULT, ITA NO. 2444/BANG/18 IS ALLOWED , WHILE ITA NO.2445/BANG/2018 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2019. SD/- SD/- ( JASON P BOAZ ) ( N.V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED, THE 28 TH AUGUST, 2019. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ASSISTANT R EGISTRAR, ITAT, BANGALORE ITA NOS.2444 & 2445/BANG/2018 PAGE 18 OF 18 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. DICTATION NOTE ENCLOSED . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER .