M/s. S.G. Enterprises, New Delhi V. ACIT, New Delhi

ITA 275/DEL/2012

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8968 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 25-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 18-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K BANSAL SENIOR
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Bogus purchase; Unexplained expenditure; Set aside
• Section: 40A(3); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.275/DEL./2012 (ASSESSMENT YEAR : 2008-09) M/S. S.G. ENTERPRISES, VS. ACIT, CIRCLE 20 (1), 1/2687, RAM LAL CHANDHOK MARG, NEW DELHI. KASHMERE GATE, NEW DELHI 110 006. (PAN : AAPFS5959M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAKESH GUPTA, ADVOCATE REVENUE BY : SHRI N.K. BANSAL, SENIOR DR DATE OF HEARING : 02.09.2019 DATE OF ORDER : 01.10.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. S.G. ENTERPRISES (HEREINAFTER REFE RRED TO AS THE ASSESSEE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 01.12.2011 PASSED BY THE COMMISSIONER O F INCOME - TAX (APPEALS)-XXII, NEW DELHI QUA THE ASSESSMENT YEAR 2 008-09 ON THE GROUND THAT :- WHETHER THE LD. CIT (A) WAS JUSTIFIED IN DISALLOWI NG PURCHASES AMOUNTING TO RS.19,30,605/- FROM M/S. SUMIT ENTERPR ISES AND RS.16,27,004/- FROM M/S. PARAS ENTERPRISES. ITA NO.275/DEL./2012 2 2. AT THE VERY OUTSET, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT HE DOES NOT WANT TO PRESS THE ADDITIONAL GROUNDS, HENC E THE SAME ARE DISMISSED AS NOT PRESSED. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : ASSESSEE IS A CIVIL CONTRACTOR ENGAGED I N THE SUPPLY OF LABOUR AND MATERIAL TO THE MUNICIPAL CORPORATION OF DELHI. ASSESSEE DISCLOSED THE SALE AT RS.1,30,66,921/- AND LABOUR CHARGES REC EIVED AT RS.60,56,537/- AND SHOWN THE GROSS PROFIT RATE OF 1 7.93% I.E. RS.34,28,369/-. FROM THE PERUSAL OF BILLS, ASSESSI NG OFFICER (AO) NOTICED THAT THE ASSESSEE HAS PREPARED COMPUTERISED BILL IN THE NAME OF M/S. SUMIT ENTERPRISES AND M/S. PARAS ENTERPRISES A ND TO GIVE THEM THE COLOUR OF GENUINENESS, VAT @ 12% HAS BEEN SHOWN FOR WHICH PAYMENT IN BOTH THE ACCOUNTS WERE SHOWN BY CHEQUE AND IN CA SE OF M/S. SUMIT ENTERPRISES, THE PAYMENT SHOWN BY CHEQUE WAS AT RS. 19,10,000/- IN ADVANCE AS AGAINST OPENING BALANCE ACCOUNT OF RS.1, 52,070/- AND AS SUCH SHOWN A SUM OF RS.17,97,930/- ON 11.10.2007 AS RECEIVABLE FROM M/S. SUMIT ENTERPRISES. ON FAILURE OF THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES, THE AO PROCEEDED TO H OLD THAT THE ASSESSEE DID NOT MAKE ANY PURCHASES OF GOODS FORM T HESE PARTIES NOR SUCH PARTIES ARE IN EXISTENCE, THUS SHOWN THE BOGUS PURCHASES & VOUCHERS AND THEREBY MADE AN ADDITION OF RS.39,04,8 09/- AS UNEXPLAINED EXPENDITURE UNDER SECTION 69 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). ITA NO.275/DEL./2012 3 4. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS RELIED UP ON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF TH E FACTS AND CIRCUMSTANCES OF THE CASE. 6. UNDISPUTEDLY, THE ASSESSEE HAS SUCCESSFULLY PROV ED THE GENUINENESS OF THE PARTIES AND BONAFIDE NATURE OF T HE PAYMENT BEFORE THE LD. CIT (A), WHO HAS HOWEVER MADE ADDITION U/S 40A( 3) ON THE GROUND THAT THE PAYMENT OF RS.19,30,605/- AND RS.16,27,004 /- TO M/S. SUMIT ENTERPRISES AND M/S. PARAS ENTERPRISES RESPECTIVELY WERE MADE BY SELF CHEQUE AND NOT THROUGH ACCOUNT PAYEE CHEQUE. IT IS ALSO NOT IN DISPUTE THAT SECTION 40A(3) HAS COME INTO EXISTENCE W.E.F. APRIL 1, 1968. 7. THE LD. AR FOR THE ASSESSEE CONTENDED THAT WHEN IDENTITY OF THE PARTIES AND GENUINENESS OF THE TRANSACTION WAS DULY PROVED BEFORE LD. CIT (A), THE PROVISIONS CONTAINED U/S 40A(3) ARE NO T ATTRACTED AND RELIED UPON THE CBDT CIRCULAR NO.6-P DATED 06.07.1968 AND CIRCULAR NO.1/2009 DATED 27.03.2009. ASSESSEE ALSO RELIED U PON THE DECISIONS RENDERED BY THE HONBLE HIGH COURT OF GUJARAT IN ANUPAM TELE SERVICES VS. ITO (2014) 43 TAXMANN.COM 199, COORDIN ATE BENCH OF THE TRIBUNAL IN NIRMAL KUMAR DAS, MIDNAPORE VS. ACIT - ITA ITA NO.275/DEL./2012 4 NO.391/KOL/2014 ORDER DATED 11.12.2015, MANORANJAN RAHA NADIA VS. ACIT IN ITA NO.1448/KOL/2011 AND HONBLE RAJASTHAN HIGH COURT IN SMT. HARSHILA CHORDIA VS. ITO (2008) 298 ITR 349 (R AJASTHAN). 8. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVEN UE IN ORDER TO REPLY THE ARGUMENTS ADDRESSED BY THE LD. AR FOR THE ASSESSEE CONTENDED THAT WHEN THE ASSESSEE HAS FAILED TO DEMONSTRATE TH E FACTS WHICH COMPELLED HIM TO MAKE PAYMENT IN CASH, DISALLOWANCE U/S 40A (3) IS SUSTAINABLE AND RELIED UPON THE JUDGMENTS OF HONBLE HIGH COURT OF MADRAS IN NATESAN KRISHNAMURTHY VS. ITO (2019) 103 TAXMANN.COM 342 (MADRAS), HONBLE HIGH COURT OF BOMBAY IN MADHA V GOVIND DHULSHETE VS. ITO (2018) 99 TAXMANN.COM 56 (BOMBAY) & HONBLE HIGH COURT OF KERALA IN MRS ROADWAYS VS. CIT (2014) 367 ITR 62 AND DECISIONS OF COORDINATE BENCHES OF THE TRIBUNAL IN PRATHAMIK KRISHI PATTIN SAHAKARI BANK LTD. VS. ITO (2015) 55 TAXMANN.COM 412 (PANAJI-TRIB.) & INTERNATIONAL SHIPS STORES SUPPLIE S VS. JCIT (2017) 162 ITD 73 (MUMBAI TRIB.). 9. HONBLE HIGH COURT OF RAJASTHAN IN CASE OF SMT. HARSHILA CHORDIA (SUPRA) RELIED UPON BY THE LD. AR FOR THE ASSESSEE DECIDED THE IDENTICAL ISSUE BY RETURNING FOLLOWING FINDINGS :- HELD THAT THERE WAS NO DISPUTE ABOUT THE GENUINENE SS OF THE TRANSACTIONS AND THE PAYMENT AND IDENTITY OF THE RE CEIVER WERE ESTABLISHED. FURTHER THE ASSESSEE WAS RECEIVING PAY MENTS IN CASH FROM HER CUSTOMERS AT KANKROLI AND WAS TO GET DELIV ERY OF VEHICLES FROM UDAIPUR AND SHE HAD OPENED A BANK ACC OUNT TO FACILITATE QUICK TRANSFERS OF MONEY FROM BANK TO IT S DEALER TO SATISFY THE CONDITIONS OF SECTION 40A(3). SHE HAD L EFT THE SIGNED CHEQUE. BOOK ALSO IN POSSESSION OF THE DEALER SO TH AT THE CASH WAS TRANSMITTED IN THE ASSESSEE'S BANK ACCOUNT AND HE C OULD RECEIVE ITA NO.275/DEL./2012 5 THE PAYMENTS THROUGH CHEQUES. IT WAS APPARENT THAT THE ASSESSEE HAD DONE ALL THAT SHE WAS REQUIRED TO DO. THE MODUS OPERANDI OF THE ASSESSEE WAS ACCEPTED BY THE TRIBUNAL WHILE CON SIDERING THE QUESTION OF THE CASH CREDIT THAT DEPOSIT OF EACH RE CEIPT OF THE CASH MONEY FROM ITS CUSTOMERS SEPARATELY WAS NOT CONDUCI VE TO THE TYPE OF THE BUSINESS WHICH THE ASSESSEE WAS RUNNING . MOREOVER, THE ASSESSEE AND THE PRINCIPAL DEALER HAD STRUCK A WAY OUT BY OPENING A BANK ACCOUNT AT UDAIPUR SO THAT NEITHER T HE PAYMENT TO PRINCIPAL DEALER WAS DELAYED BECAUSE OF THE BANK MIDDLEMAN NOR THE ASSESSEE WAS REQUIRED TO DEPOSIT EVERY RECE IPT FROM HIS CUSTOMERS AND THEN DRAW A CHEQUE AND SEND IT TO THE PRINCIPAL DEALER. THE ONE SIGNIFICANT FACTOR WHICH WAS NOT DI SPUTED AND WHICH WAS FOUND TO BE CORRECT WAS THAT THE ASSESSEE WAS TO RECEIVE HIS SUPPLIES FROM THE PRINCIPAL DEALER WHO WAS SITUATED AT UDAIPUR AND THE DEALING WAS FROM BUYER TO BUYER. TH EREFORE, MAKING THE PROMPT PAYMENTS TO DEALER, THE CASH CONS IDERATION RECEIVED FROM END PURCHASER AND GETTING DELIVERY OF VEHICLES FOR SUCH PURCHASER BY PAYMENT OF CONSIDERATION RECEIVED FROM HIM TO PRINCIPAL DEALER, WAS A MODUS OPERANDI. ADDITION S SHOULD NOT BE SUSTAINED ON TECHNICAL GROUND IF THE PRINCIPAL D EALER HAD RETAINED CASH PAYMENT WITH HIM WITHOUT ROUTING IT T HROUGH ASSESSEE'S BANK ACCOUNT AT UDAIPUR, WHENEVER SUCH S ITUATION HAD ARISEN. IN THESE CIRCUMSTANCES THE PAYMENT IN QUEST ION WAS COVERED BY CLAUSE (J) OF RULE 6DD AND THE TRIBUNAL WAS NOT JUSTIFIED IN DISALLOWING THE SAME. 10. LD. AR ALSO RELIED UPON THE DECISION RENDERED B Y THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF LORD KRISHNA DWELLERS (P) LTD. VS. DCIT IN ITA NO.5294/DEL/2013 ORDER DATED 17.12.2018 WHEREIN IDENTICAL ISSUE HAS BEEN DECIDED BY RETURNING FOLLO WING FINDINGS :- 19. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ST ATED THAT THE TRANSACTIONS FOUND IN THE SALE DEEDS ARE DULY RECOR DED IN THE REGULAR BOOKS OF ACCOUNT OF THE ASSESSEE AND THE AS SESSING OFFICER HAS NOT POINTED OUT ANY DEFECT IN THE SAID TRANSACTIONS. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAS NEITHER DOUBTED THE GENUINENESS OF THE TRANSACTION NOR HE HAS DOUBTED THE IDENTITY OF THE PAYEES. THER EFORE, MECHANICAL INVOCATION OF PROVISIONS OF SECTION 40A( 3) OF THE ACT IS UNCALLED FOR AND THE ADDITIONS SHOULD BE DELETED . 20. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE REVENUE AUTHORITIES. IT IS THE SAY OF THE LD. D R THAT APPLICATION OF SECTION 40A(3) IS MANDATORY AND IF T HERE IS A ITA NO.275/DEL./2012 6 VIOLATION OF THE SAID PROVISION, THEN, THE ASSESSIN G OFFICER IS BOUND TO MAKE ADDITIONS AS PER LAW. 21. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE PURCHASES OF LAND ARE DULY RECORDED IN THE BOOKS OF ACCOUNT OF T HE ASSESSEE. THERE IS ALSO NO DISPUTE THAT THE PAYEES WERE IDENT IFIED FROM THE SALE DEEDS ITSELF AND THE TRANSACTIONS HAVE BEEN HE LD TO BE GENUINE. IN OUR UNDERSTANDING, SINCE THE GENUINENES S OF THE PAYMENTS AND IDENTITY OF THE PAYEES IS NOT DOUBTED BY THE REVENUE, THE PROVISIONS OF SECTION 40A(3) OF THE AC T COULD NOT BE MADE MECHANICALLY. IN OUR CONSIDERED OPINION, THE I NTENTION BEHIND INTRODUCTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT HAS TO BE LOOKED INTO. 22. THIS PROVISION WAS INSERTED BY THE FINANCE ACT, 1968 WITH THE OBJECT OF CURBING THE EXPENDITURE IN CASH AND T O COUNTER TAX EVASION. THE CBDT CIRCULAR NO 6P DATED 6.7.1968 REI TERATES THIS VIEW THAT THIS PROVISION IS DESIGNED TO COUNTER EVA SION OF A TAX THROUGH CLAIMS FOR EXPENDITURE SHOWN TO HAVE BEEN I NCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATIO N BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE AND REAS ONABLENESS OF THE PAYMENT. 11. WHEN WE EXAMINE THE ISSUE IN CONTROVERSY IN THE LIGHT OF THE CBDT CIRCULAR NO. 6-P DATED 06.07.1968 AND CIRCU LAR NO.1/2009 DATED 27.03.2009, IT IS APPARENTLY CLEAR THAT THIS PROVISION HAS BEEN INCORPORATED TO COUNTER EVASION OF TAX FOR CLAIM OF EXPENDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATE PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE A ND THE REASONABLENESS OF THE PAYMENT. IN THE INSTANT CASE, WHEN THE IDEN TITY OF THE PARTIES WHO HAVE MADE THE PAYMENT HAVE BEEN PROVED AND GENUINEN ESS OF THE TRANSACTION IS ALSO NOT IN DISPUTE, MECHANICALLY IN VOKING THE PROVISIONS CONTAINED U/S 40A(3) IS NOT PERMISSIBLE. MOREOVER, ALL THE PAYMENTS IN QUESTION HAVE BEEN DULY RECORDED IN THE BOOKS OF AC COUNT AND THERE IS NO QUESTION OF CLAIMING FOR ANY EXPENDITURE. SO, FOLL OWING THE DECISION ITA NO.275/DEL./2012 7 RENDERED BY THE HONBLE RAJASTHAN HIGH COURT IN SMT. HARSHILA CHORDIA (SUPRA) AND COORDINATE BENCH OF THE TRIBUNAL IN LORD KRISHNA DWELLERS (P) LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS ERRED IN DISALLOWING THE PURCHASES TO THE TUNE OF RS.19,30,605/- AND RS.16,27,004/- FROM M/S. SUMIT ENTERPRISES AND M/S. PARAS ENTERPRISES RESPECTIVELY AND AS SUCH, THE DISALLOWANCE MADE IS NOT SUSTAINABLE, HENCE ORDERED TO BE DELETED. THE CONTENTION RAISED BY THE LD. DR AND THE DECISIONS RELIED UPON ARE NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. CONSEQUENTLY, THE APPEA L FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 1 ST DAY OF OCTOBER, 2019. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 1 ST DAY OF OCTOBER, 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)- XXII , NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.