Shoukat Ahamed Makhubhai, Ratnagiri V. Additional Commissioner of Income-tax,

ITA 508/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9415 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-10-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGARWAL
• Assessee Lawyers: KHIRE S V DESHPANDE
• Section: 40A(3); 143(3)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.508/PUN/2015 / ASSESSMENT YEAR : 2011-12 SHRI SHOUKAT AHAMED MAKHUBHAI, 103, PARVEJ APARTMENT, GUHAGAR NAKA, MAPARI MOHALLA, CHIPLUN, RATNAGARI 415 605. PAN : ABCPM6168Q. . / APPELLANT V/S ADDL.COMMISSIONER OF INCOME-TAX, RATNAGIRI RANGE, RATNAGIRI. . / RESPONDENT ASSESSEE BY : SHRI M.S. KHIRE / S.V. DESHPANDE. REVENUE BY : SHRI VIVEK AGGARWAL. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A)-1 & 2, KOLHAPUR DT.20.02.201 5 FOR THE ASSESSMENT YEAR 2011-12. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAGED IN THE BUSINESS AS CONTRACTOR CARRYING OUT INDUSTRIAL PROJECT WORKS AND MA INTENANCE OF CIVIL CONTRACTS. ASSESSEE ELECTRONICALLY FIELD HIS RETURN OF I NCOME FOR A.Y. 2011-12 ON 29.09.2011 DECLARING TOTAL INCOME AT RS.14, 12,980/-. / DATE OF HEARING : 24.10.2017 / DATE OF PRONOUNCEMENT: 18.01.2018 2 THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSES SMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DT.17.01.2014 AND T HE TOTAL INCOME WAS DETERMINED AT RS.57,67,420/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.20.02.2015 (IN APPEAL NO.RTN/541/13-14) GRANTED PARTI AL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIR MING THE ADDITION OF RS.5,82,703/- WITHOUT PROPERLY APPRECIATING THE EXPLANATION FILED AND THE REASONABLE EXPLAINED THEREIN. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIR MING THE ADDITION OF RS.89,000/- WITHOUT PROPERLY APPRECIATING THE EX PLANATION FILED. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIR MING THE ADDITION OF RS.3,50,000/- WITHOUT PROPERLY APPRECIATING THE EXPLANATION FILED AND BY IGNORING THE FACT THAT ASSESSEE HAD IDENTIFI ED THE DONOR AND HAD FURTHER AGREED TO PRODUCE HIM BEFORE THE CIT FOR FU RTHER VERIFICATION OF HIS CREDIT WORTHINESS WHEN CALLED FOR. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIR MING THE ADDITION OF RS.95,550/- WHEN IN FACT XEROX COPIES OF THE MU STER BOOK IN QUESTION WERE FILED AT PAGE NO.18 AND 19 OF THE PAPER BOOK F ILED. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIR MING THE ADDITION OF RS.16,36,566/- WITHOUT PROPERLY APPRECIATING TH E EXPLANATION FILED WHILE CONFIRMING THE ADDITION THE LD.CIT(A) ERRED I N IGNORING THE FACT THAT PAYMENTS WERE TO SUB-CONTRACTORS AND THAT NO SINGLE TRANSACTION OF DEFAULT WAS EVER POINTED OUT BY THE AO AS IS ENVISA GED IN SECTION 40A(3). 3. BEFORE US, LD.A.R. SUBMITTED THAT HE DOES NOT WISH TO PR ESS GROUND NOS. 2 TO 4. THEREFORE, THESE GROUNDS ARE DISMIS SED AS NOT PRESSED. HE SUBMITTED THAT GROUND NOS.1 AND 5 ARE INTE R-CONNECTED. IN VIEW OF THE AFORESAID SUBMISSION OF LD.A.R. BOTH THE GROUN DS ARE CONSIDERED TOGETHER. 3 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICE D THAT ASSESSEE HAD MADE CASH PURCHASES FROM VARIOUS PARTIES AND THE DETAILS OF WHICH ARE LISTED AT PAGES 7 TO 9 OF THE ASSESS MENT ORDER. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PAYMENTS EXCEED ING RS.20,000/- WERE MADE IN CASH AND WHY THE PAYMENTS SHO ULD NOT BE DISALLOWED U/S 40A(3) OF THE ACT. THE SUBMISSIONS OF THE AS SESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO NOTED THAT THE TOTAL PURCHASES MADE IN CASH PAYMENT WHICH EXCEEDS RS.20,00 0/- AGGREGATED TO RS.5,82,703/-. HE ACCORDINGLY BY INVOKING T HE PROVISIONS OF SEC.40A(3) OF THE ACT DISALLOWED THE PAYMENT S AGGREGATING TO RS.5,82,703/-. 5. AO ALSO NOTICED THAT ASSESSEE HAD MADE PAYMENT TOWARDS LABOU R CHARGES TO VARIOUS PARTIES IN CASH AND THE AGGREGATE O F SUCH PAYMENT WAS RS.16,36,566/-. HE ALSO NOTED THAT ASSESSEE HAD SPLIT TED THE AMOUNT TO BELOW RS.20,000/- AND SUCH PAYMENTS WERE M ADE ON EACH DAY. HE ALSO NOTED THAT MOST OF THE PAYMENTS OF LABO UR CHARGES WERE THROUGH SELF MADE VOUCHERS AND HENCE, NOT FULLY VERIFIABLE. AO AFTER VERIFYING THE DETAILS FURNISHED BY THE ASSESSEE NOTICED TH AT THE CASH PAYMENTS TO THE EXTENT OF RS.16,36,566/- WERE PAID TO SH RI K.A. MAKUBHAI IN CASH. HE CONCLUDED THAT THESE PAYMENTS WER E MADE BY SPLITTING THE PAYMENTS TO LESS THAN RS.20,000/- TO GET RID OF THE LEGAL PROVISION OF SEC.40A(3) OF THE ACT. HE ACCORDINGLY DISALLOWED THE PAYMENTS AGGREGATING TO RS.16,36,566/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A). WITH RE SPECT TO THE IMPUGNED ADDITION OF RS.5,82,703/- (RAISED IN GROUND NO.1 BEFOR E US), LD.CIT(A) UPHELD THE ADDITION MADE BY AO BY OBSERVING AS UNDER : 4 6 . F R O M T H E A B OVE F AC T S IT I S UND E NI E D T H A T PAYME N T OF AMOUNTS EXCEE D I N G TH E LIMIT O F RS. 2 0 , 000 / - W AS M A D E IN SEVERA L IN STANCES . I N ORD E R TO B Y- P A S S TH E PRO V I S IONS OF S EC TI O N 40A( 3 ) B I LL A M O UNT WAS S PLIT INTO SEVE R A L P A RTS TO M AKE PA Y M E NTS BELOW RS. 2 0 , 000 / - . A PP EL L A NT DID NOT H AVE A N Y E X P L A NATION B E FOR E TH E A S SES SIN G O F F I CER I N SPI T E O F SEVE R A L O PP O RTUNITI E S . TH E A PP E LLANT NOW W A NTS EXE MPTI ON TO PAY I N CAS H A N Y A MOUNT WI T HOUT A N Y LIMIT DU E TO THE R EA S O N OF PR ACT I CAL D IFFI C UL TY AN D BUSIN E SS E XPEDI E N C Y . HE W A NTS TH A T SINC E DE A L E RS I N S I S T T H A T P AY M E NT SHOULD B E MADE IN CASH , TH E REFORE, HE SHOULD B E A LLOW ED TO M AKE P A YMENT IN CAS H . SUCH REASON FOR BUSINESS EXPEDIEN CY A ND PR AC TI CA L DIFFICULTY CANNOT BE ENTE R TAINED . SECTION 40A(3) HAS B E EN B RO U G HT ON STATUTE TO PLUG EXACTLY THESE KINDS OF LEAKAGES IN TAX COMPLI A NCE . CA SH R E CEIPT BY A P ER SON IS ALWAYS LIKELY TO REM A IN OUTSID E TH E T A X A TION . IF SIMIL A R CASH P AY M E NTS ARE A LLOWED ON TH E GR O UND O F BU S IN ESS E X P E DI E N CY, TH E PRO V ISIONS OF SECTION 40A( 3 ) W O ULD BE R ED UND A N T AN D CAS H P AY M E NT WOULD BECOME THE NORM . APP E LL A NT 'S EX PL A N A TI ON I S D EVOI D OF ANY M E RI T A ND , TH E R E FOR E , TH E G ROUND T A K E N B Y T H E A PP E LL ANT I S R E J EC T E D. TH E ADD ITI ON I S S U STA I NED . 6. WITH RESPECT TO THE IMPUGNED ADDITION OF RS.16,36,566/- (RAISED IN GROUND NO.5 BEFORE US) LD.CIT(A) UPHELD THE ORDER OF AO B Y OBSERVING AS UNDER : 19. GR O UN D NO. 6 R E L A T E S T O AD D I TI ON O F RS. 1 6,3 6 , 5 66 / - U N D E R SECT I ON 40A (3) . TH E A S SESS IN G O FF I CE R H A S NO T E D T H A T PAY M EN T OF RS. 1 6,36,566 / - W A S M A D E T O A S S ES S EE ' S RELA T IV E, S HRI K A M A KUBH A I AS LA BOUR C H ARGE S W H O W O RK E D AS S U B- C O N TR AC T O R . T H E A M O UNT S H AVE B EE N P A ID I N C A SH B Y SPLITTIN G TH E P AY M E NT S IN A M OUN T S B E L OW RS. 2 0 , 000 / -. P AY M E NT S W ERE M O STL Y MAD E IN D E BIT V OUC H E R S W HI C H WER E N O T F U LL Y VE RIFIABLE A S F A R A S TH E IR BU S IN ESS N EX U S W A S C O N C E RN E D . TH E A S S E S S IN G OFFI CE R HAS A L S O O B SE RV E D TH A T N ET P R O F I T R A TI O O F A SSE S SEE ' S B U S IN E S S HA S B E EN DECLIN I N G FOR THE LAST THR EE YEA R S. TH E ABOV E P AY M E NT OF CAS H TO SHR I K A M A KUBH A I WAS M A DE IN A DDITI O N T O C H E QU E P A YMENT OF RS. 1 , 5 3, 000/-. N OTHIN G PREV E NTED T H E A PPELL A NT FR O M M A K ING ALL PAYMENTS IN CHEQUE, PARTICULARL Y WHEN TH E P AYEE WAS C OV E RED UND E R SECTION 40A(2)(B). IN VIEW OF THIS, THE A MOUNT WAS DI SA LLOW E D B Y TH E A SSESSIN G OF FI CE R UND E R SECTION 40A(3) . 20. IN APPEAL THE ASSESSEE HAS ARGUED TH A T ASSESSING OFFICER HAS NOT PO I NTED OUT ANY VIOLATION OF SECTION 40A(3) . WHEN THE LEARNED ASSESSING OFFICER HAS CATEGORICALLY AC CEPTED THAT THE PA Y MENTS ARE MADE TO SUB- C ONTRACTOR THEN THERE IS NO QUE S TION OF COMPL Y ING WITH T HE PROVISIONS OF SE C TION 40A(3). WHEN TH E P AY M E NTS A RE UNDISPUTEDL Y M A D E T O SUB- 5 C ONTRACTOR TH E N THESE A R E A ND CA N A LWAY S B E IN THE FORM O F A D VA N C E. PA Y MENT OF AD V AN C E B Y S E LF-M A D E VO U C HER CA NNOT B E R EAS ON TO D I S A LL OW THE IMPUGN E D P AY M E N TS. 21. FROM TH E ABOV E F AC TS IT I S N O T D E NI E D TH A T TH E A M O UNT S H AVE B E E N SPLIT IN THE SUMS BELOW RS. 2 0 , 000 / - . ALSO , IT IS NOT DENIED TH AT P AY M E NTS HAVE BEEN MADE TO FAMIL Y MEMB E R WORKIN G AS SUB- C ONTRACTOR . JUS T BECAUS E HE IS WORKIN G AS SUB-CONTRA C TOR , H E I S N O T EX E M PTE D OPERATION OF SECTION 40A(3) . ' MOST O F TH E L ABO U R P AY M E NTS A R E S UPP O RT ED B Y SELF - MADE VOUCH E R WHI C H AR E N O T A M ENA BL E T O VER IFIC AT ION . T H E R E F ORE , TH E ADDITION MAD E B Y TH E A SS E SSING O FFI C E R I S S UST AI NED A ND GROUND T A K E N B Y TH E APPELLANT I S REJE C TED. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US. 7. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE PARTIES TO W HOM THE PAYMENTS HAVE BEEN MADE BELOW RS.20,000/- HAD INSISTED FOR MAKING THE PAYMENT IN CASH AND THEREFORE THE ASSESSEE WAS FOR CED TO MAKE PAYMENT IN CASH AND IN SUPPORT OF HIS CONTENTION THAT TH E PAYMENTS WERE DEMANDED IN CASH, HE POINTED OUT TO THE COPIES OF CERTIFICATES OF THREE PARTIES PLACED AT PAGES 13 TO 17 OF THE PAPER BO OK. HE FURTHER SUBMITTED THAT THE PAYMENTS WERE MADE TO BENEFIT THEIR BUSINESS EXPEDIENCY AND IT IS NOT THE CASE OF REVENUE THAT THE PAYMENTS ARE NOT GENUINE OR THE PAYEES ARE NOT IDENTIFIABLE. HE ALSO PLACED RELIANCE ON THE DECISION OF THE PUNE ITAT IN THE CASE OF DHANASHRI IS PAT (ITA NO.794/PUN/2013 ORDER DT.31.05.2017). HE ALSO PLACED ON RE CORD THE COPY OF THE AFORESAID DECISION. LD.D.R. ON THE OTHER HAND , SUPPORTED THE ORDER OF LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUNDS IS WITH RES PECT TO DISALLOWANCE U/S 40A(3) FOR THE PAYMENTS BEING IN CASH. IN THE 6 PRESENT CASE THE PAYMENT MADE BY CASH BY THE ASSESS EE IS NOT IN DISPUTED. IT IS ONE OF THE CONTENTION OF THE ASSESSEE TH AT THE PARTIES TO WHOM THE ASSESSEE HAD MADE THE PAYMENTS IN CASH, HAD INSISTED FOR CASH PAYMENTS AND IN SUPPORT OF HIS CONTENTION, ASSESSEE HAD FILED ON SAMPLE BASIS THE CERTIFICATES FROM THE PARTIES TO WHOM THE PAYMENT HAS BEEN MADE. THE AFORESAID CERTIFICATES FILED BY THE ASS ESSEE HAVE NOT BEEN FOUND TO BE UNTRUE / BOGUS OR AFTERTHOUGHT. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE PARTIES TO WHOM THE PAYM ENTS HAVE BEEN MADE ARE NON-EXISTENT / BOGUS OR THE GENUINENESS OF TH E PAYMENT IS IN DOUBT. WE FIND THAT HONBLE APEX COURT IN THE CASE OF A TTAR SINGH GURMUKH SINGH VS. ITO 191 ITR 667 (SC) HAS HELD THAT T HE TERMS OF SEC.40A(3) OF THE ACT ARE NOT ABSOLUTE AND THAT CONSIDERA TIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. IT HAS FURTHER HELD THAT GENUINE AND BONAFIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION AND IT IS OPEN TO ASSESS EE TO FURNISH TO THE SATISFACTION OF THE AO THE CIRCUMSTANCES UNDER WHICH THE PAYMENTS IN THE MANNER PRESCRIBED IN SEC.40A(3) OF THE ACT WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO PAYEE. IT FURTH ER OBSERVED THAT PROVISIONS OF SEC.40A(3) OF THE ACT AND RULE 66DD ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVE NT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. WE FURTHER FIND THAT HONBLE GUJAR AT HIGH COURT IN THE CASE OF ANUPAM TELESERVICES (2014) 366 ITR 1 22 (GUJ) AFTER RELYING ON THE AFORESAID DECISION OF APEX COURT IN TH E CASE OF ATTAR SINGH (SUPRA) HELD THAT WHEN TRANSACTIONS ARE GENU INE AND THERE WAS REASONABLE EXPLANATION FOR PAYMENT IN CASH, NO DISALLOWA NCE U/S 40A(3) OF THE ACT WAS WARRANTED. IN THE PRESENT CASE, W E ARE OF THE 7 VIEW THAT THE RATIO OF AFORESAID DECISION OF HONBLE APEX CO URT AND HONBLE GUJARAT HIGH COURT ARE APPLICABLE TO THE PRESENT FACTS. WE THEREFORE HOLD THAT DISALLOWANCE U/S 40A(3) OF THE ACT WAS NOT WARRANTED IN THE PRESENT CASE. WE THEREFORE ALLOW THE GROUNDS OF ASSESSEE. 9. I N THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 18 TH DAY OF JANUARY, 2018. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 18 TH JANUARY, 2018. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-1 & 2, KOLHAPUR. CIT-I/II, KOLHAPUR, CIT(CENTRAL), PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $+,-/ GUARD FILE. / BY ORDER // TRUE COPY // ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.