Shyam Sunder Soni, BIKANER V. ACIT, BIKANER

ITA 411/JODH/2013

• Counselvise Citation: 41123314 RSA 2013
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 19-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Assessee Lawyers: VIRENDRA JAIN
• Keywords: Business income; Business expenditure; Principle of natural justice; Notional interest
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 411/JODH/2013 (A.Y. 2009-10) SHYAM SUNDER SONI VS ACIT, CENTRAL CIRCLE, PROP. S.S. AND SONS BIKANER. C/O. JAI KUMAR PUGALIA, SETHIA MAROTHI GUWAD, BIKANER. PAN NO. AETPS0786C (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VIRENDRA JAIN. DEPARTMENT BY : SH. G.R. KOKANI- DR. DATE OF HEARING : 19/08/2013. DATE OF PRONOUNCEMENT : 30/08/2013. O R D E R PER HARI OM MARATHA, J.M. : THIS APPEAL OF THE ASSESSEE FOR A.Y. 2009-10 IS DIR ECTED AGAINST THE ORDER OF LD. CIT(A), CENTRAL, JAIPUR DATED 29/05/20 13. 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE, AS INDIVIDUAL, FILED HIS RETURN OF INCOME (ROI) FOR A. Y. 2009-10, ON 08/06/2009 DECLARING TOTAL INCOME OF RS. 618 (SIC. RS. 1,43,851/-) THE BUSINESS INCOME OF RS. 1,43,851/- BECAME NIL AFTER ADJUSTING CARRY FORWARD LOSS. SUBSEQUENTLY, THE A.O. ASSESSED TOTAL INCOME OF RS. 17,24,951/- WHEN REGULAR ASSESSMENT U/S 143(3) OF T HE INCOME TAX ACT, 1961 (THE ACT FOR SHORT) WAS MADE. IN DOING SO, THE A.O. HAS MADE THE FOLLOWING ADDITIONS TO THE DECLARED INCOME :- (I) ON ACCOUNT OF INTEREST : RS. 60,000/- (II) ON ACCOUNT OF CASH PURCHASE : RS. 15,00,000/ - (III) ON ACCOUNT OF LAW HOUSEHOLD : RS. 21,100/-. WITHDRAWALS THE ASSESSEE DERIVED HIS INCOME FROM TRADING OF BUL LION AND FROM INTEREST ON DEPOSITS. 2.1 AGGRIEVED, THE ASSESSEE WENT BEFORE LD. CIT(A), WHO HAS GIVEN PART RELIEF AND IN RESPECT OF SUSTAINED ADDITIONS O F RS. 60,000/- AND 15 LAKHS, THE ASSESSEE HAS FILED THIS APPEAL BY RAISIN G THE FOLLOWING GROUNDS :- 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF INTEREST ACCOUNT RS. 60000/-. T HE ADDITION WAS MADE BY THE A.O. FOR NOT CHARGING INTE REST ON LOAN AND ADVANCES GIVEN TO NEPHEWS OF THE ASSESSEE. THE ADDITION MADE MAY PLEASE BE DELETED BECAUSE THE ADD ITION SO MADE UNDER THIS ACCOUNT IS BASELESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE A.O. U/S 40A(3) OF THE ACT ON ACCOUNT OF CASH PURCHASES OF GOOD OF RS. 15,00,000/-. ALL NECESSARY EVIDENCES WERE SUBMITTED BEFORE THE LD. CIT(A) AS W ELL AS BEFORE THE A.O. BUT THEY BOTH DID NOT CONSIDER IT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN CHARGING INTEREST U/S 2 34B OF THE ACT. 4. THE APPELLANT MAY PLEASE BE PERMITTED TO RAISE A NY ADDITIONAL OR ALTERNATIVE GROUNDS AT OR BEFORE HEAR ING. 2.2 THE CHARGING OF INTEREST US/ 234 OF THE ACT BEI NG MANDATORY THIS GROUND CANNOT BE ALLOWED IN THIS FORM HENCE IT IS D ISMISSED. GROUND NO. (4) BEING GENERAL IN NATURE DOES NOT REQUIRE SP ECIFIC ADJUDICATION. 4 2.3 THE FACTS APROPOS GROUND NO. (1) ARE THAT THE A SSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 3,95,213/- IN THE P&L ACCOUNT ON THE BORROWALS. HOWEVER, NO INTEREST CHARGED ON THE LOAN S ADVANCED TO SHRI TARA CHAND AND SHRI TRILOK CHAND OF RS. 2.5 LAKHS, EACH. TO THAT EXTENT, THE A.O. HAS CALCULATED NOTIONAL INTEREST @ 12% PER ANNUM AT RS. 60,000/- AND HAS DISALLOWED THE SAME OUT OF THE INTEREST AMOUNT CLAIMED AT RS. 395214/- AND HAS ADDED IT TO HIS INC OME. THE LD. CIT(A) HAS ALSO TAKEN A SIMILAR VIEW MAINLY BECAUSE THOSE TWO PERSONS ARE RELATED TO THE ASSESSEE AND THIS ADVANCE IS NOT IN THE INTEREST OF HIS BUSINESS. NOW THE ASSESSEE HAS COME IN SECOND APPEA L. 2.3 ALMOST SIMILAR ARGUMENTS HAVE BEEN REITERATED B Y BOTH THE PARTIES. WE HAVE FOUND THAT THE A.O. HAS NOT FOUND ANY NEXUS BETWEEN THE FUNDS BORROWED AND FUNDS ADVANCED TO RELATIVES. THIS AMOUNT WAS ADVANCED IN THE F.Y. 2007-08 FOR A SHORT PERIOD. TH EREFORE, WITHOUT MAKING ANY FURTHER INQUIRIES, THIS ADDITION IS NOT CALLED FOR AND DESERVES TO BE DELETED. WE DELETE THIS ADDITION OF RS. 60,000/- AND ALLOW GROUND NO. (1) OF THIS APPEAL. 5 3. THE FACTS APROPOS GROUND NO. (2) ARE THAT THE AS SESSEE MADE CASH PURCHASES OF GOLD WEIGHING 1000 GRAMS AS PER INVOIC E NO. 4939 DATED 20/03/2009 FOR A PRICE OF RS. 15 LAKHS FROM M/S. DW ARIKA JEWELLERS PVT. LTD., JODHPUR. THE ASSESSEE STATED THAT CASH P AYMENTS WERE MADE UNDER UNAVOIDABLE CIRCUMSTANCES. BUT, THE A.O. DID NOT ACCEPT THE CONTENTION THAT THERE WAS ANY BUSINESS EXIGENCY IN CONTRAVENING THE PROVISIONS OF SECTION 40A(3), THEREFORE, HE HAS DIS ALLOWED AND HAS ADDED THE ENTIRE AMOUNT OF RS. 15 LAKHS. THE LD. CI (A) HAS ALSO CONFIRMED THIS ADDITION. 3.1 BEFORE US BOTH PARTIES HAVE REITERATED THEIR OR IGINAL ARGUMENTS. AFTER CONSIDERING THE RIVAL SUBMISSIONS. THE LD. A. R. HAS FURTHER SUBMITTED THROUGH WRITTEN SUBMISSIONS (W.S.) AS UND ER :- THE ADDITION MADE UNDER THIS ACCOUNT DESERVE TO BE DELETED BECAUSE OF REASONS :- IF WE READ BARE SECTION OF 40 A(3) WE WILL FIND THA T IT COVERS THE WORD PAYMENT OF EXPENDITURE NOT THE WORD PURCHASE, HERE IS THE BARE READING OF THIS SECTION :- ' WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN 6 ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE.' SO HERE IS THE WORD EXPENDITURE NOT PURCHASE. NO AD DITION UNDER THIS SECTION MAY BE MADE BECAUSE CLAUSE (/) O F RULE 6DD PROVIDES THAT NO DISALLOWANCE UNDER SECTION 40A (3) SHALL BE MADE WHERE THE ASSESSEE SATISFIES THE INCO ME-TAX OFFICER THAT THE PAYMENT COULD NOT BE MADE BY WAY O F A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT- CIRCULAR : NO. 220 [F. NO. 206/17/76-IT (ML)], DATE D 31-5- 1977. A. DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES ; OR B. 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, A ND ALSO FURNISHES EVIDENCE TO THE SATISFACTION OF THE INCOM E-TAX OFFICER AS TO THE GENUINENESS OF THE PAYMENT AND TH E IDENTITY OF THE PAYEE. 2. IT WOULD BE SEEN THAT WHERE PAYMENT OF A SUM EXCEEDING RS. 20,000 IS MADE, OTHERWISE THAN BY A C ROSSED CHEQUE/DRAFT, THE ASSESSEE BESIDES FURNISHING EVIDE NCE AS TO THE GENUINENESS OF THE PAYMENT AND THE IDENTITY OF THE 7 PAYEE, IS REQUIRED TO SATISFY THE INCOME-TAX OFFICE R THAT HIS CASE FALLS UNDER ANY ONE OF THE CIRCUMSTANCES MENTIONED IN (A) AND (B) ABOVE, IF HE CLAIMS THAT N O DISALLOWANCE SHOULD BE MADE UNDER SECTION 40A(3). 3. VARIOUS REPRESENTATIONS HAVE BEEN RECEIVED BY T HE BOARD REGARDING THE DIFFICULTIES THAT ARE BEING EXP ERIENCED BY THE TAXPAYERS DUE TO LACK OF UNIFORMITY IN THE INTERPRETATION OF THE PROVISIONS OF RULE 6DD(J) BY THE INCOME-TAX OFFICERS. THE BOARD HAVE CONSIDERED THES E REPRESENTATIONS AND HAVE DECIDED TO LAY DOWN CERTAI N GUIDELINES TO ENSURE UNIFORMITY OF APPROACH AMONG T HE INCOME-TAX OFFICERS IN THIS BEHALF. 4. ALL THE CIRCUMSTANCES IN WHICH THE CONDITIONS L AID DOWN IN RULE 6DD(J) WOULD BE APPLICABLE CANNOT BE SPELT OUT. HOWEVER, SOME OF THEM, WHICH WOULD SEEM TO MEET THE REQUIREMENTS OF THE SAID RULE ARE: A. THE PURCHASER IS NEW TO THE SELLER, OR B. THE TRANSACTIONS ARE MADE AT A PLACE WHERE EITHE R THE PURCHASER OR THE SELLER DOES NOT HAVE A BANK ACCOUN T; OR C. THE TRANSACTIONS AND PAYMENTS ARE MADE ON A BANK HOLIDAY; OR 8 D. THE SELLER IS REFUSING TO ACCEPT THE PAYMENT BY WAY OF CROSSED CHEQUE/DRAFT AND THE PURCHASER'S BUSINESS I NTEREST WOULD SUFFER DUE TO NON-AVAILABILITY OF GOODS OTHER WISE THAN FROM THIS PARTICULAR SELLER; OR E. THE SELLER, ACTING AS A COMMISSION AGENT, IS RE QUIRED TO PAY CASH IN TURN TO PERSONS FROM WHOM HE HAS PURCHA SED THE GOODS; OR F. SPECIFIC DISCOUNT IS GIVEN BY THE SELLER FOR PA YMENT TO BE MADE BY WAY OF CASH. 5. IT CAN BE SAID THAT IT WOULD, GENERALLY, SATISFY THE REQUIREMENTS OF RULE 6DD(J), IF A LETTER TO THE ABO VE EFFECT IS PRODUCED IN RESPECT OF EACH TRANSACTION FALLING WITHIN THE CATEGORIES LISTED ABOVE FROM THE SELLER GIVING FULL PARTICULARS OF HIS ADDRESS, SALES TAX NUMBER/PERMAN ENT ACCOUNT NUMBER, IF ANY, FOR THE PURPOSES OF PROPER IDENTIFICATION TO ENABLE THE INCOME-TAX OFFICER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE TRANSACTION. T HE INCOME-TAX OFFICER WILL, HOWEVER, RECORD HIS SATISF ACTION BEFORE ALLOWING THE BENEFIT OF 6. IT IS FURTHER CLARIFIED THAT THE ABOVE CIRCUMSTA NCES ARE NOT EXHAUSTIVE BUT ILLUSTRATIVE. THERE COULD BE CAS ES OTHER THAN THOSE FALLING WITHIN THE ABOVE CATEGORIES WHIC H WOULD ALSO MEET THE REQUIREMENTS OF RULE 6DD(J). 9 CIRCULAR: NO. 220 [F. NO. 206/17/76-IT (A-II)], DAT ED 31-5- 1977. IN MY CASE ALL PURCHASE [SIC PURCHASES WERE] WAS MA DE VIDE CHEQUE EXCEPT TO THIS ABOVE BILL WHICH SHOWS THAT I HAVE NEVER VIOLATED THIS SECTION. THE SAID CASH PURCHASE WAS MADE DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCE S WHICH IS GIVEN HERE :- 7. DUE TO HEAVY VARIATION IN PRICES OF GOLD AND S ILVER BUSINESS IN MARCH 2009 MONTH WAS VERY LESSER YOUR H ONOR WILL APPRECIATE THE FACT THAT MY LAST PURCHASE BEFO RE THIS BILL WAS IN MONTH OF FEB 7 2009 SO NO PARTY WANTS T O TAKE RISK IN PURCHASING GOLD. THAT'S THE REASON I WITHDR AW MONEY CASH FROM MY BANK ACCOUNT ICICI RS. 800000/-ON DATE D 02/03/2009 AND RS. 700000/- FROM INDUSBANK ON DATED 07/03/2009. 8. I HAVE MADE MY ALL PURCHASES FROM PARTIES OF J AIPUR BUT THIS WAS THE FIRST CHANCE FOR ME TO PURCHASE GO ODS FROM JODHPUR BECAUSE IN THOSE DAYS JAIPUR GOLD TRAD ER WERE NOT DOING BUSINESS ANYHOW SO AFTER A PERIOD OF 45 DAYS WHERE I WAS HAVING NO BUSINESS I DECIDED TO PU RCHASER GOLD FROM JODHPUR FROM M/S DWARIKA JEWELLERS JODHPU R WHICH PARTY WAS VERY NEW TO ME AND I WAS ALSO VERY NEW BUYER FOR HIM. I PROPOSED THE PARTY TO ACCEPT THE CHEQUE OR DD BUT THE PARTY IGNORED TO DO SO BECAUSE THE PA RTY WAS HAVING THEIR ACCOUNT IN SBBJ BANK AND IN CLEARING T HE 10 INSTRUMENT IT WILL TAKE 3 DAYS AND MORE NEXT DAY WA S ALSO SATURDAY AND SUNDAY AND ON THE OTHER HAND THE PRICE S WERE GOING UPS AND DOWN QUICKLY, IN THOSE DAYS SERVICE O F RTGS WAS ALSO NOT AVAILABLE. THE PARTY WAS NOT VERY KNOW N TO US. THE PARTY DID NOT LET US TO CUT THE RATE OF GOL D AND IN THIS LINE OF TRADE OF GOLD WE CAN'T WAIT FOR ONE SE COND THEREFORE WE HAVE TO PAY CASH TO THE PARTY BY SENDI NG OUR EMPLOYEE BECAUSE EXCEPT TO THIS WAY THERE WAS NO OP TION FOR ME. THE PARTY CLEARLY IGNORE TO DELIVER US GOLD BY TAKING THE DD OR CHEQUE. THIS MATTER MAY BE VERIFIE D FROM THE PARTY M/S DWARIKA JEWELLERS, JODHPUR (BILL HAS BEEN SUBMITTED EARLIER). 9. BUSINESS IN GOLD IS QUITE DIFFERENT FROM OTHER BUSINESS BECAUSE IT'S FULLY DEPEND ON PRICE OF MCX/NCDEX. PR ICES ARE GOING UPS AND DOWN IN A SECOND OR TWO THEREFORE CIRCUMSTANCES OF THIS BUSINESS CANNOT BE COMPARED F ROM ANY OTHER BUSINESS. A CHEQUE OR DD TAKES MUCH TIME IN CLEARING AND IN TIME OF A HOUR OR HALF HOUR PRICES OF GOLD CAN GO UP AND DOWN THEREFORE NO ONE WANTS TO BIND H IMSELF IN THAT OLD RATE OF BEFORE AN HOUR, 10. VARIATING BUSINESS DUE TO HEAVY VARIATION I N PRICES OF GOLD AND SILVER BUSINESS IN MARCH 2009 MONTH WAS VE RY LESSER YOUR HONOR WILL APPRECIATE THE FACT THAT MY LAST PURCHASE BEFORE THIS BILL WAS IN MONTH OF FEB 7 200 9 SO NO PARTY WANTS TO TAKE RISK IN PURCHASING GOLD. THAT'S THE REASON I WITHDRAW MONEY CASH FROM MY BANK ACCOUNT I CICI 11 RS. 800000/- ON DATED 02/03/2009 AND RS. 700000/- FROM INDUSBANK ON DATED 07/03/2009. 11. THE PARTY REFUSED TO ACCEPT THE PAYMENT BY WAY OF CROSSED CHEQUE/DRAFT AND OUR BUSINESS WAS BADLY SUF FERING DUE TO NON-AVAILABILITY OF GOODS THAN WE HAVE TO PU RCHASED GOODS IN CASH FROM THAT PARTY. SO ALL ABOVE REASON CLARIFIES THAT THERE WAS SUCH A EXCEPTIONAL CIRCUMSTANCES TO AVOID THAT TRANSACTION AND RULE 6 DD ITSELF SAYS THAT CIRCUMSTANCES GIVEN IN S ECTION 40A(3) ARE NOT EXHAUSTIVE BUT ILLUSTRATIVE. THERE C OULD BE CASES OTHER THAN THOSE FALLING WITHIN THE ABOVE CAT EGORIES WHICH WOULD ALSO MEET THE REQUIREMENTS OF RULE 6DD( J). THIS VIEW IS ALSO SUPPORTED IN THE CASE OF CIT V. A VTAR SINGH & SONS [1992] 194ITR 80 (PUNJ. & HAR.) WITH THE FOL LOWING OBSERVATIONS: 'THE SAID CIRCULAR WAS NOTICED AND CONSIDERED IN NAVSARI WASTE COTTON PRODUCTS V, CIT [1987] 163 ITR 378 (GUJ.), WHERE IT WAS HELD THAT IT WOULD APPEAR FROM CLAUSES (/) TO (V) OF PARAGRAPH 4 OF THE SAID CIRCULAR THAT IF THE IDENTITY OF THE SELLER IS KNOW N, IT WOULD BE POSSIBLE FOR THE DEPARTMENT TO CROSS-CHECK IF THE PAYMENT IN QUESTION WAS ACTUALLY MADE IN CAS H TO THE SELLER FROM WHOM GOODS WERE PURCHASED AND THE REQUIREMENTS OF RULE 6DD(/) WOULD STAND SATISFI ED IF A LETTER IS PRODUCED FROM THE SELLER IN RESPECT OF 12 EACH TRANSACTION FALLING WITHIN THE CATEGORIES ILLUSTRATED IN PARAGRAPH 4 GIVING FULL PARTICULARS OF HIS ADDRESS, SALES TAX REGISTRATION NUMBER, IF ANY, FOR THE PURPOSES OF PROPER IDENTIFICATION TO ENABLE THE INCOME-TAX OFFICER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE TRANSACTION. IT WAS FURTHER ADDE D THAT THE CIRCUMSTANCES INDICATED IN PARAGRAPH 4 OF THE CIRCULAR WERE MERELY ILLUSTRATIVE AND NOT EXHAUSTIVE, BUT THE UNDERLYING IDEA WAS THAT IF THE SELLER'S IDENTITY CAN BE ESTABLISHED, IT WOULD BE POSSIBLE FOR THE INCOME-TAX OFFICER TO CROSS-CHECK WHETHER THE TRANSACTION HAD, IN FACT, TAKEN PLACE A S STATED AND WAS OF A GENUINE NATURE. A SIMILAR VIEW IS EXPRESSED BY THE HIGH COURT OF CA LCUTTA IN GIRDHARILAL GOENKA V. CIT [1989] 179 ITR122, WHERE IT WAS OBSERVED THAT (AT P. 128):'THE CIRCULAR OF THE BOAR D IS NOT EXHAUSTIVE, IT IS ONLY ILLUSTRATIVE AND THE ASSESSI NG OFFICER HAS TO TAKE INTO ACCOUNT THE SURROUNDING CIRCUMSTAN CES, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND THE FACTS OF EACH PARTICULAR CASE IN EXERCISING HIS DISCRETION EITHER IN FAVOUR OR AGAINST THE ASSESSEE'. IT WAS ALSO HELD THAT THE INCOME- TAX OFFICER SHOULD TAKE A PRACTICAL APPROACH TO THE PROBLEM AND STRIKE A BALANCE BETWEEN THE DIRECTION OF LAW AND HARDSHIP TO THE ASSESSEE.' (P. 83) EXPLAINED IN - CIT V. G.S. AUTO INDUSTRIES (P.) LTD . [1999] 106 TAXMAN 473 (PUNJ. & HAR.) IN FOLLOWING WORDS : 13 '. . . [ACCORDING TO CIRCULAR NO. 220, THE SELLER'S REFUSAL TO ACCEPT THE PAYMENT BY CROSSED CHEQUE OR DRAFT] MAY PERMIT THE ASSESSEE TO MAKE PAYMENT IN CASH. BUT, A T THE SAME TIME, IT SHOULD ALSO BE SHOWN THAT THE ASSESSE E'S BUSINESS INTEREST WOULD HAVE SUFFERED DUE TO NON- AVAILABILITY OF GOODS OTHERWISE THAN FROM THAT PART ICULAR SELLER. SUB-CLAUSE (/V) OF CLAUSE 4 OF THE CIRCULAR REQUIRES THE FULFILLMENT OF BOTH THE CONDITIONS AS AFORESAID . IN THIS LIGHT, THE FACTUM OF INSISTENCE BY THE RECIPIENTS M AY NOT ALONE BE SUFFICIENT TO ATTRACT CLAUSE 4(/V) OF THE CIRCULAR.' (PP. 475-476) THE ABOVE CIRCULAR WAS ALSO EXPLAINED IN NAVSARI WA STE COTTON PRODUCTS V. C/T[1987] 163 ITR 378 (GUJ.) WIT H THE FOLLOWING OBSERVATIONS: '... THE CASES INDICATED IN PARAGRAPH 4 ARE MERELY ILLUSTRATIVE AND NOT EXHAUSTIVE BUT THE UNDERLYING IDEA IS THAT IF THE SELLER'S IDENTITY CAN BE ESTABLISHED, I T WOULD BE POSSIBLE FOR THE INCOME-TAX OFFICER TO CROSS-CHECK WHETHER THE TRANSACTION IN FACT HAD TAKEN PLACE AS STATED A ND WAS OF A GENUINE NATURE. EVEN THOUGH THIS CIRCULAR CAME TO BE ISSUED IN MAY, 1977, THE ASSESSEE IS JUSTIFIED IN P RESSING IT INTO AID AS THE CIRCULAR MERELY INDICATES THE CIRCU MSTANCES IN WHICH RULE 6DD(/) WOULD BE ATTRACTED.' (P. 380). 14 THIS VIEW WAS ALSO MADE IN THE CASE OF VENKATA SATYANARAYANA TIMBER DEPOT V. CIT 165 ITR 253 (AP) AND GIRDHARILAL GOENKA V. CIT [1989] 179 ITR 122 (CAL). - THE ABOVE CIRCULAR WAS EXPLAINED IN PAUL BROS. V. CIT [1990] 186 ITR 356 (GAUHATI), WITH THE FOLLOWING OBSERVATIONS: 'PURSUANT TO THE PROVISION IN SUB-SECTION (3) OF SE CTION 40A, RULE 6DD WAS PROMULGATED AND CIRCULAR NO. 220 WAS I SSUED BY THE CENTRAL BOARD OF DIRECT TAXES ON MAY 31,1977 . SECTION 40A, RULE 6DD AND THE CIRCULAR NO. 220 RECI TE THAT AFTER MARCH 31,1969, ANY PAYMENTS ON ACCOUNT OF EXPENDITURE OF MORE THAN RS. 2,500 WILL HAVE TO BE MADE BY A CROSSED CHEQUE OR BY A CROSSED BANK DRAFT UNLE SS EXEMPTED BY THE REVENUE AUTHORITIES.... THE INDIAN PARLIAMENT INCORPORATED THE ABOVE PROVIS IONS TO CHECK EVASION OF TAXES. EVEN IN GENUINE CASES WHERE PAYMENTS ARE SHOWN TO HAVE BEEN MADE IN CASH, THE ASSESSEE IS PUT TO THE NECESSITY TO PROVE THAT IN T HE AREA OF BUSINESS, BANKING FACILITIES ARE NOT ADEQUATE. THER EFORE, IMPELLED BY GENUINE DIFFICULTY, THE ASSESSEE HAD TO MAKE PAYMENT IN CASH. THE SAME IDEA IS WRIT LARGE IN THE RULES. THE ASSESSEE WILL HAVE TO SHOW THAT THERE WAS NO WA Y LEFT FOR THE ASSESSEE EXCEPT TO PAY IN CASH. IN THE NATU RE OF THINGS WHETHER IN THE STATUTE, RULES OR CIRCULARS, ALL THE CONTINGENCIES CANNOT BE ENUMERATED EXHAUSTIVELY. 15 PARLIAMENT REFERRED TO THE INADEQUACY OF FACILITIES IN SECTION 40A. THE RULE-MAKING AUTHORITIES ILLUSTRATE D SOME OF THE CIRCUMSTANCES IN THE RULES. THE REVENUE SUPPLEMENTED THE FURTHER CIRCUMSTANCES WHEN EXEMPTI ON CAN BE CLAIMED AND ALLOWED, (PP. 357-358) RELIED ON IN - THE ABOVE CIRCULAR WAS RELIED ON IN ITO V. NEW CARD BOARD INDUSTRIES [1992] TAX LR 80 (CAL. - TRIB.), AND THE TRIBUNAL REMITTED THE MATTER TO THE ASSESSI NG OFFICER FOR EXAMINING THE DOCUMENTS PRODUCED FOR TH E FIRST TIME BY THE ASSESSEE BEFORE THE TRIBUNAL. RELIED ON IN - THE ABOVE CIRCULAR WAS RELIED ON IN C/7 V. MEGHDOOT SALES [1993] 200 ITR 490 (DELHI), WITH THE FOLLOWING OBSERVATIONS : 'IN OUR OPINION, THE ANSWER TO THE SAID QUESTION WH ICH HAS BEEN REFERRED IS SELF-EVIDENT. THE INCOME-TAX TRIBU NAL HAS FOUND AS A FACT THAT CASH PAYMENTS WERE MADE ONLY U NDER EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES. THIS CON CLUSION HAS BEEN ARRIVED AT BY THE TRIBUNAL AFTER EXAMINING THE ENTIRE MATERIAL WHICH WAS PLACED BEFORE IT. IT HAS FURTHER OBSERVED THAT THE GENUINENESS OF THE TRANSACTION WA S NOT IN DISPUTE. THIS BEING SO, ON THE FACTS FOUND BY TH E TRIBUNAL, THE CASE NOT ONLY FELL WITHIN THE PROVISI ONS OF RULE 6DD(/), BUT THE ASSESSEE WAS ALSO ENTITLED TO CLAIM THE BENEFIT OF CIRCULAR NO. 220, DATED MAY 31,1997, ISS UED BY THE CENTRAL BOARD OF DIRECT TAXES. IN THE SAID CIRC ULAR, IT 16 IS, INTER ALIA, STATED THAT, IF A SELLER REFUSES TO ACCEPT PAYMENT BY WAY OF CROSSED CHEQUE OR CROSSED DRAFT A ND THE PURCHASER'S BUSINESS INTEREST WOULD SUFFER DUE TO N ON- AVAILABILITY OF GOODS OTHERWISE THAN FROM THE PARTI CULAR SELLER, THEN EVEN IF THE PAYMENT IS MADE BY CASH, T HE SAME WOULD BE ALLOWABLE AS A DEDUCTION.' (PP. 492-493) EXPLAINED IN - THE ABOVE CIRCULAR WAS EXPLAINED IN ITO V. PATIDAR GINNING & PRESSING CO. LTD. [1994] 51ITD 7 (AHD. TRIB.), WITH THE FOLLOWING OBSERVATIONS : '6.1 IN CIRCULAR NO. 220 DATED 31-5-1977, IT HAS BE EN CLARIFIED THAT IT WOULD GENERALLY SATISFY THE REQUI REMENTS OF RULE 6DD(/) IF A LETTER EXPLAINING THE EXCEPTION AL AND UNAVOIDABLE CIRCUMSTANCES SUCH AS MENTIONED IN PARA 4 OF THE SAID CIRCULAR IS PRODUCED IN RESPECT OF EACH TR ANSACTION FALLING WITHIN THE CATEGORIES LISTED IN PARA 4 OF T HE SAID CIRCULAR FROM THE SELLER GIVING FULL PARTICULARS OF HIS ADDRESS, SALES-TAX NUMBER, PERMANENT ACCOUNT NUMBER , IF ANY, FOR THE PURPOSE OF PROPER IDENTIFICATION TO EN ABLE THE ITO TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE TRANSACTION. ONE OF THE ILLUSTRATION OF EXCEPTIONAL CIRCUMSTANCE GIVEN IN PARA 4 OF THE SAID CIRCULAR I S THAT IF THE SELLER IS REFUSING TO ACCEPT PAYMENT BY WAY OF CROSSED CHEQUE/DRAFT AND THE PURCHASERS BUSINESS INTEREST W OULD SUFFER DUE TO NON-AVAILABILITY OF GOODS OTHERWISE T HAN FROM THIS PARTICULAR SELLER. THE OTHER ILLUSTRATION IS T HAT THE SELLER, ACTING AS A COMMISSION AGENT, IS REQUIRED T O PAY 17 CASH IN TURN TO PERSONS FROM WHOM HE HAD PURCHASED THE GOODS. FEW MORE INSTANCES OF EXCEPTIONAL CIRCUMSTAN CES HAVE BEEN GIVEN IN THE SAID CIRCULAR. THE HON'BLE G UJARAT HIGH COURT IN THE CASE OF NAVSARI WASTE COTTON PROD UCTS V. C/T [1987] 163 ITR 378 HAS HELD THAT THE SAID CIRCU LAR MERELY INDICATE THE CIRCUMSTANCES IN WHICH RULE 6DD (/) WOULD BE ATTRACTED. THE UNDERLYING IDEA IS THAT IF THE SELLER'S IDENTITY CAN BE ESTABLISHED, IT WOULD BE P OSSIBLE. FOR THE ITO TO CROSS-CHECK WHETHER THE TRANSACTIONS IN FACT HAD TAKEN PLACE AS STATED AND WAS OF A GENUINE NATU RE. THE INSTANCES GIVEN IN THE SAID CIRCULAR ARE MERELY ILL USTRATIVE AND NOT EXHAUSTIVE,...' (PP. 13-14) EXPLAINED IN - C/T V. G.S. AUTO INDUSTRIES (P.) LTD . [1998] 144 CTR (PUNJ. & HAR.) 464 WITH THE FOLLOWING OBSERVATIONS: 'IT WOULD APPEAR FROM THE PERUSAL OF THE BOARD'S CI RCULAR REFERRED TO ABOVE THAT THE SELLER'S REFUSAL TO ACCE PT THE PAYMENT BY CROSSED CHEQUE OR DRAFT MAY PERMIT THE ASSESSEE TO MAKE PAYMENT IN CASH. BUT, AT THE SAME TIME, IT SHOULD ALSO BE SHOWN THAT THE ASSESSEE'S BUSINES S INTEREST WOULD HAVE SUFFERED DUE TO NON-AVAILABILIT Y OF GOODS OTHERWISE THAN FROM THAT PARTICULAR SELLER. S UB- CLAUSE (/V) OF CLAUSE 4 OF THE CIRCULAR REQUIRES TH E FULFILLMENT OF BOTH THE CONDITIONS AS AFORESAID. IN THIS LIGHT, THE FACTUM OF INSISTENCE BY THE RECIPIENTS M AY NOT ALONE BE SUFFICIENT TO ATTRACT CLAUSE 4(/V) OF THE CIRCULAR.' 18 EXPLAINED IN - CIT V. G.S. AUTO INDUSTRIES (P.) LTD . [1999] 106 TAXMAN 473 (PUNJ. & HAR.) IN FOLLOWING WORDS : ' .. [ACCORDING TO CIRCULAR NO. 220, THE SELLER'S R EFUSAL TO ACCEPT THE PAYMENT BY CROSSED CHEQUE OR DRAFT] MAY PERMIT THE ASSESSEE TO MAKE PAYMENT IN CASH. BUT, A T THE SAME TIME, IT SHOULD ALSO BE SHOWN THAT THE ASSESSE E'S BUSINESS INTEREST WOULD HAVE SUFFERED DUE TO NON- AVAILABILITY OF GOODS OTHERWISE THAN FROM THAT PART ICULAR SELLER. SUB-CLAUSE (/V) OF CLAUSE 4 OF THE CIRCULAR REQUIRES THE FULFILLMENT OF BOTH THE CONDITIONS AS AFORESAID . IN THIS LIGHT, THE FACTUM OF INSISTENCE BY THE RECIPIENTS M AY NOT ALONE BE SUFFICIENT TO ATTRACT CLAUSE 4(/V) OF THE CIRCULAR.' (PP. 475-476). SINCE THE ASSESSEE SUCCESSFULLY EXPLAINED THE DETAI LS OF PAYMENT MADE IN CASH THAT THE PAYMENT WAS MADE UNDE R UNAVOIDABLE AND EXCEPTIONAL CIRCUMSTANCES AND THAT THE GENUINENESS OF THE TRANSACTIONS AND THE IDENTITY OF THE PERSONS TO WHOM THE PAYMENT WERE MADE WAS NOT DOUBTED, THE SAID PAYMENT MADE IN CASH IS ALLOW ABLE AS BUSINESS EXPENDITURE CIT VS. RAJA PAL AUTOMOBILES. [2010] 320 ITR 185 (A LL) WHEN THE ASSESSEE HAD EXPLAINED THE CIRCUMSTANCES U NDER WHICH IT WAS CONSTRAINED TO MAKE CASH PAYMENTS AGAI NST PURCHASE OF GOLD FROM UNREGISTERED DEALERS AND THE CIT(A) 19 HAD NO MATERIALS TO MAKE ANY ADDITION TO THE ASSESS EE ON GROUND OF INFLATED PURCHASE, THEREFORE, THE CHANGE OF HEAD OF ADDITION FROM S. 40A(3) TO INFLATED PURCHASE WAS INTRIGUING. SINCE THERE WAS NO PRIMARY CASE OF INFL ATION OF PURCHASES, THERE WAS NO JUSTIFICATION TO SUSTAIN AN Y PART OF THE ADDITION SONA BAZAAR VS. ACIT. [2010] 6 ITR [TRIB] 492 (BANG ALORE). IN THE RELEVANT CASE THE ASSESSEE WAS HAVING NO WAY EXCEPT TO PAY IN CASH FOR PURCHASING GOLD. ALL ABOVE SUBMI SSION WERE MADE BEFORE AO AND CIT(A) BUT THEY IGNORED WHO LE SUBMISSION AND MADE ADDITION OF WHOLE AMOUNT. THERE FORE ADDITION ON THE SAME IS AGAINST THE NATURAL JUSTICE HENCE ADDITION MADE BY ID. AO MAY PLEASE BE DELETED. SO IN VIEW OF THE LEGAL AS WELL AS FACTUAL POSITION I REQUEST YOUR GOOD SELF TO KINDLY ALLOW THE APPEAL AND DELET E WHOLE ADDITIONS. 3.2 AFTER CONSIDERING THE ABOVE, WE HAVE FOUND THAT THE ASSESSEE WAS CONSTRAINED TO MAKE CASH PAYMENTS IN THE GIVEN FACT S AND UNCONTROVERTED CIRCUMSTANCES MENTIONED IN PARAS 6 T O 11 OF THE WRITTEN SUBMISSIONS OF THE ASSESSEE INCORPORATED AT PAGES 8 TO 11 OF THE ORDER. THERE IS NO DISPUTE REGARDING IDENTIFIC ATION OF THE PAYEES. THE PAYMENTS IN CASH BY THE ASSESSEE ARE ON THE INS ISTENCE OF THE 20 PAYEE. THEREFORE, WE ARE SATISFIED ABOUT THE REASO NS FOR CASH PAYMENTS AND WE ACCEPT THE ABOVE EXPLANATION TO BE CORRECT AND CANNOT SUSTAIN THE IMPUGNED ADDITION AND DELETE THE SAME. THUS, GROUND NO. (2) IS ALLOWED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH AUGUST, 2013. VL/ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT BY ORDER 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR