The ITO Ward-1(1) Guntur, Guntur V. Sri Movva Nagi Reddy, Satthenapalli

ITA 322/VIZ/2011

• Counselvise Citation: 32225314 RSA 2011
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 21-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B BABA RAO
• Keywords: Opportunity of being heard
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BEFORE S/SHRI B. RAMAKOTAIAH (AM) & SAKTIJIT DEY (JM) I.T.A. NO.322/VIZ/2011 ASSESSMENT YEAR : 2008 - 09 ITO, WARD - 1(1), GUNTUR VS. SRI MOVA NAGI REDDY, PROP. BALAJI MEDICAL & AROMATIC PRODUCTS, 8 - 6 - 98/8, GOLLAMUDIVARI STREET, SATTENAPALI PAN/GIR NO. : AKOPN 1107 A ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI B BABA RAO RESPONDENT BY : SHRI C.SUBRAHMANYAM DATE OF HEARING : 10/12/2013 DATE OF PRONOUNCEMENT : 13 /12/2013 O R D E R PER SAKTIJIT DEY, JM THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST THE ORDER DATED13.7.2011 OF THE CIT(A) - GUNTUR FOR THE ASSESSMENT YEAR 2008 - 09 ON THE FOLLOWING GROUNDS: 1. THE LD CIT(A) ERRED IN FACTS OR LAW OR BOTH. 2. THE LD CIT(A) ERRED IN ALLOWING ASSESSEES APPEAL IN RESPECT OF DISALLOWANCE MADE BY THE AO OF CASH PAYMENTS TO THE PARTIES U/S.40A(3) AGAINST THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER. 3. THE LD CIT(A) IS ALSO ERRED IN ALLOWING THE ASSESSEES APPEAL IN RESPECT OF DISALLOWANCE U/S.40A(3) BY THE AO, BASING ON THE SUBMISSIONS MADE DURING THE HEARING OF APPEAL WITHOUT MAKING THEM VERIFIED BY THE AO AFRESH OF SUCH EVIDENCES NECESSARY AS PER RULE 6DD FOR ALLOWING THE APPEAL. 4. ANY OTHER GROUND TH A T MAY BE URGED AT THE TIME OF HEARING. 2. THE REVENUE HAS ALSO RAISED AN ADDITIONAL GROUND, WHICH READS AS UNDER: THE LD CIT(A) OUGHT TO HAVE OBSERVED THAT THE DISALLOWANCE MADE U/S.40A(3) IN THE ASSESSMENT ORDER AT 2 0% OF THE EXPENDITURE IN RESPECT OF WHICH CASH PAYMENT IN EXCESS OF RS.20,000/ - WERE MADE IS CONTRARY TO THE REQUIREMENT TO MAKE 100% DISALLOWANCE AS PER THE PROVISIONS OF THE SAID SECTION AND OUGHT TO HAVE ENHANCE D THE DISALLOWANCE ACCORDINGLY. 2 3. GROUND NOS.1 & 4 BEING GENERAL IN NATURE, HENCE, DO NOT REQUIRE ANY ADJUDICATION. 4. NOW , WE WILL TAKE UP THE ISSUE RAISED IN GROUND NO. 2 & 3. 5. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF AROMATIC PRODUCTS LIKE L EMON GROSS OIL, PA LMROSA OIL AND DAVANAM OIL. HE IS ALSO RUNNING BUSINESS IN WINES IN THE TRADE NAME OF SRI LAKSHMI WINES. IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.3,05,110/ - . DURING THE COUR SE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE AO WHILE GOING THRO UGH THE ACCOUNTS OF THE ASSESSEE, NOTICED THAT WHILE PURCHASING GOODS, ASSESSEE HAD MADE PAYMENTS TO SUPPLIERS OF THE PRODUCTS IN CASH ON SEVERAL DATES EXCEEDING THE LIMIT OF RS.20,000/ - AND THE NET AMOUNT PAID IN CASH AMOUNTED TO RS.2,10,04,334/ - . THE ASSESSING OFFICER, THEREFORE, INVOKING THE PROVISIONS CONTAINED IN SECTION 40A(3) OF THE ACT, DISALLOWED AN AMOUNT OF RS.42,00,867/ - BEING 20% OF RS.2,10,04334/ - AND ADDED THE SAME TO THE INCOME O F THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. BEING AGGRIEVED OF SUCH ADDITION, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT, GONE THROUGH THE ORDER OF THE AO. HERE THE APPELLANT WAS DEALING WITH FARMERS IN RURAL AREAS. MOREOVER, THE PROCESSES INVOLVED HAVE TO BE CARRIED OUT WITHIN 24 HOURS OF CUTTING THE AGRICULTURAL PLANTS OR PLANT PARTS TO HAVE MAXIMUM EFFICIENCY OF OUTCOME. THE RE WAS ALSO NO FINDING BY THE AO THAT THE PAYMENTS WERE BOGUS AND SOME FRAUD OCCURRED. BUSINESS EXPEDIENCY ALSO SUGGESTS THA T IF ON THE SPOT PAYMENT IS MADE THEN IT PAVES THE WAY FOR BETTER BUSINESS RELATIONS ADVANCING THE OBJECTS OF THE APPELLANT. NO DO UBT BANKING FACILITIES WERE NOT AVAILABLE AT THE PLACES WHERE PAYMENTS HAVE BEEN RENDERED BY THE APPELLANT TO FARMERS AND FARM MEN. THUS, IF AT ALL CALLED, IT MAY BE A TECHNICAL BREACH WHICH COULD BE IGNORED IN CASE NO FRAUD OCCURRED IN COURSE OF PAYMENTS BEING IN CASH. THUS, IN VIEW O F THE FACTUAL MATRIX INVOLVED, THE AO IS DIRECTED NO T TO MAKE ANY DISALLOWANCE IN TERMS OF THE PROVISIONS OF S ECTION 40A(3) OF THE I.T.ACT. I N THE CIRCUMSTANCES, THIS GROUND OF APPEAL IS ALLOWED. 6. WE HAVE HEARD THE PART IES AND PERUSED THE MATERIALS ON RECORD AS WELL AS ORDERS OF THE AUTHORITIES BELOW. AS IT APPEARS FROM THE FINDINGS OF THE CIT(A), EXTRACTED HEREINABOVE, THE ADDITION HAS BEEN DELETED MAINLY CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT NO BANKING FACI LITIES ARE AVAILABLE AT PLACES WHERE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE TO THE FARMERS AND FARM MEN. HOWEVER, IT IS NOT KNOWN WHETHER THE CIT(A) HAS ACTUALLY VERIFIED THE FACT WHETHER SAID STATEMENT OF THE ASSESSEE IS CORRECT OR NOT. THE CIT (A) HAS ALSO NOT GIVEN AN OPPORTUNITY TO THE AO TO VERIFY THE AFORESAID FACTS SINCE THE CONTENTION WITH REGARD TO NON - 3 AVAILABILITY OF BANKING FACILITIES WAS NOT TAKEN BY THE ASSESSEE BEFORE THE AO. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCE S OF THE CASE, WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF THE AO, WHO SHALL VERIFY THE CONTENTION OF THE ASSESSEE WITH REGARD TO NON - AVAILABILITY OF BANKING FACILITIES AT RELEVANT TIME WHEN THE PAYMENTS WERE MADE TO THE FARMERS AND FARM MEN. T HE AO OF COURSE SHALL AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE ADDITIONAL GROUND, THE DEPARTMENT HAS RAISED THE ISSUE OF 100% DISALLOWANCE U/S 40A(3) OF THE ACT INSTEAD OF 20% AS MADE BY THE AO. HOWEVER, WE CANNOT ENTERTAIN SUCH GROUND AT THIS STAGE AS IT HAS AN EFFECT OF ENHANCING THE INCOME ASSESSED BY THE AO AND AS IT IS NOT A SUBJECT MATTER OF APPEAL BEFORE US. ACCORDINGLY, WE DISMISS THE ADDITIONAL GROUND. 8 . IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13/ 12/2013 . SD/ - S D/ - (B.RAMAKOTAIAH ) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER VISHAKHAPATNAM DATED 13 / 12/2013 PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT : ITO, WARD - 1(1),GUNTUR 2. THE RESPONDENT. : SRI MOVA NAGI REDDY, PROP. BALAJI MEDICAL & AROMATIC PRODUCTS, 8 - 6 - 98/8, GOLLAMUDIVARI STREET, SATTENAPALI 3. THE CIT(A) - GUNTUR 4. CIT , GUNTUR 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE. BY ORDER SR.PS, ITAT, VISHAKHAPATNAM //TRUE COPY//