Royal wood Industries, Jammu V. The Joint Commissioner of Income Tax, Jammu

ITA 53/ASR/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7721 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 20-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KANWAL
• Assessee Lawyers: P N ARORA
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 53/(ASR)/2015 ASSESSMENT YEAR: 2009-10 PAN: AABFR1996F M/S. ROYAL WOOD INDUSTRIES, 26/3, PHASE-III, INDUSTRIAL AREA, GANGYAL, JAMMU. VS. J. C. I. T., RANGE -1, JAMMU. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P. N. ARORA (ADV. ) RESPONDENT BY: SH. S. S. KANWAL (D. R.) DATE OF HEARING: 05.10.2017 DATE OF PRONOUNCEMENT: 04.12.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A), JAMMU, DATED 10.11.2014 FOR ASST. YEAR: 2009-10. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) W AS NOT JUSTIFIED IN SUSTAINING ADDITION OF RS. 64,726/- ON ACCOUNT OF P AYMENTS MADE FOR FREIGHT OF GOODS TO DIFFERENT DRIVERS OF TRUCKS. 2. THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS N OT APPRECIATED THE FACT THAT FREIGHT PAYMENTS OF RS. 64,726/- WERE GEN UINE PAYMENTS AND ARE BEING MADE TO INDIVIDUAL DRIVERS OF TRUCK. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) WAS NOT JUSTIFIED IN RETAINING ADDITION OF RS. 5,27,503/- ON ACCOUNT OF INVESTMENT IN BUILDING, DISCREPANCIES IN STOCK AND OTHER DEFICIENCIES FOUND AT THE TIME OF SURVEY. 4. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) W AS NOT JUSTIFIED IN NOT DELETING ADDITION OF RS. 5,27,503/- WHICH WAS NOT B ASED ON FACTS & NOT SUPPORTED BY DOCUMENTARY EVIDENCE. ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 2 5. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS NOT LOOKED INTO FACTS OF THE CASE AND HAS NEVER CALLED FOR THE STAT EMENT RECORDED BY THE ASSESSEE WHICH IS ALREADY WITH DEPTT. 6. LD. COMMISSIONER OF INCOME TAX (APPEALS) CONTEN TION ABOUT THE VALUATION OF CLOSING STOCK IS NOT CORRECT & NOT BAS ED AS FACTS AS THE CLOSING STOCK IS ALWAYS TO BE VALUED AT COST AND NOT SELLIN G PRICE. 7. LD. COMMISSIONER OF INCOME TAX IS NOT CORRECT I N SAYING THAT NO OBJECTIONS WERE RAISED WHILE FRAMING THE VALUATION OF DAMAGED STOCKS AND CONSUMABLES. 8. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NO T APPRECIATED THE FACT THAT THE ADDITION OF RS. 5,27,503/- REPRESENTS CUT PIECES OF FINISHED GOODS, DAMAGED STOCK AND CONSUMABLE STOCK WHICH HAVE BEEN VALUED AT SELLING PRICE, BUT ACTUALLY DONT HAVE ANY VALUE. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE PAY MENTS AMOUNTING TO RS.64,726/- WERE MADE ON 26.04.2008, 12.05.2008 AND 14.07.2008 AMOUNTING TO RS.21730/-, 21590/- AND RS.21406/- RES PECTIVELY TO DRIVERS FOR TRANSPORTATION OF GOODS. IT WAS SUBMITT ED THAT DRIVERS OF TRUCKS WERE NOT KNOWN TO ASSESSEE AND THEY ALWAYS I NSIST ON CASH PAYMENTS. IT WAS SUBMITTED THAT GENUINENESS OF THE PAYMENT HAS NOT BEEN DOUBTED AS THE PURCHASES MADE BY ASSESSEE HAS BEEN ACCEPTED WITH THE HELP OF BOOKS OF ACCOUNTS. THE LD. AR SUBM ITTED THAT IT HAS BEEN HELD BY SEVERAL COURTS THAT WHERE THE PAYMENTS ARE GENUINE AND IDENTITY OF THE PAYEES IS ESTABLISHED, IN THAT CASE THE PRACTICABILITY HAS TO BE SEEN FROM THE POINT OF VIEW OF BUSINESSMAN AND N OT FROM THE POINT OF VIEW OF TAX COLLECTOR AND RELIANCE IN THIS RESPECT WAS PLACED THE DECISION OF ITAT, AMRITSAR BENCH, IN THE CASE OF ITO, JAMMU VS. SH. ATUL GUPTA RAJOURI IN ITA NO. 465/ASR/2016. IN VIEW OF ABOVE, IT WAS ARGUED THAT THE ADDITION CONFIRMED BY THE LD. CIT(A) MAY BE DEL ETED. ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 3 AS REGARDS THE SECOND ADDITION OF RS.5,27,503/-, I T WAS SUBMITTED THAT THE SURVEY WAS CONDUCTED ON 15.02.2009 AND THE ASSESSING OFFICER FOUND THAT THERE WAS A DIFFERENCE OF RS.527503/- ON ACCOUNT OF STOCK. IT WAS EXPLAINED THAT THERE WAS NO SUCH DIFFERENCE AND THE REASONS WERE EXPLAINED BEFORE THE JCIT, JAMMU IN WHICH IT WAS SU BMITTED THAT STOCK IN HAND INCLUDED INVENTORY OF CONSUMABLE STOCK OF R S.111740/- WHCH WAS DIRECTLY BOOKED IN PROFIT AND LOSS ACCOUNT AND THIS WAS DONE AS PER PAST PRACTICE FOLLOWED BY THE ASSESSEE YEAR TO YEAR . AS REGARDS THE OTHER DIFFERENCE OF RS.12750/- ON A CCOUNT EMPTY DRUMS, THE LD. AR SUBMITTED THAT THESE DRUMS WERE A T THE PREMISES OF THE ASSESSEE BUT THESE DRUMS DID NOT BELONG TO ASSE SSEE AS THESE WERE RETURNABLE BASIS AND HAD BEEN RECEIVED BY ASSESSEE ALONGWITH THE CHEMICALS AND THEREFORE NO ADDITION SHOULD HAVE BEE N MADE ON ACCOUNT OF THIS DIFFERENCE. AS REGARDS THE OTHER ADDITION ON ACCOUNT OF DIFFER ENCE IN STOCK OF FINISHED GOODS, THE LD. AR FURTHER SUBMITTED THAT A SSESSING OFFICER AT THE TIME OF SURVEY HAD VALUED THE STOCK LAYING AT THE P REMISES ON THE BASIS OF SELLING PRICES WHICH IS NOT JUSTIFIED AS THE CLOSIN G STOCK HAS TO BE CALCULATED ON THE BASIS OF COST PRICE. THE LD. AR I NVITED OUR ATTENTION TO THE INVENTORY OF STOCK OF FINISHED GOODS LYING AT P AGE 25 AND SUBMITTED THAT THE PLY OF 4 MM/3 MM WAS VALUED AT RS.51.56 PE R SQ. M. WHEREAS ITS COST PRICE WAS RS. 40 AND RS.35 RESPECTIVELY AS IS APPARENT FROM THE STOCK STATEMENT OF FINISHED GOODS PLACED AT P.B. PA GE 39. THE LD. AR ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 4 SUBMITTED THAT THE STOCK AS ON 31.03.2009 AS PER TH E STATEMENT AT PAGE 39 HAS BEEN ACCEPTED BY THE ASSESSING OFFICER DURIN G ASSESSMENT PROCEEDINGS. THEREFORE WHILE FINALIZING THE ASSESSM ENT, THE ASSESSING OFFICER WAS BOUND TO TAKE THESE RATES FOR THE PURPO SE OF ARRIVING AT THE DIFFERENCE IN STOCK. THE LD. SUBMITTED THAT SIMILAR LY THE PLYS OF 12MM AND 9MM HAS BEEN VALUED BY THE SURVEY TEAM AT RS.13 5 PER SQ. MM. WHEREAS ITS PRICE AS PER THE STOCK STATEMENT WAS FR OM RS. 70 TO 95. THE LD. AR FURTHER SUBMITTED THAT STOCK OF FINISHED GOO DS PLACED AT P.B. PAGE 25 INCLUDED DAMAGED AND CUT PIECES WHICH WAS NOT SA LEABLE AND ITS VALUATION WAS NOT TAKEN INTO ACCOUNT IN THE OPENING STOCK AS WELL AS IN THE CLOSING STOCK. OUR ATTENTION WAS INVITED TO P.B . 1 AND 2 WHERE COPY OF LETTER WRITTEN TO ASSESSING OFFICER EXPLAINING THE DIFFERENCE IN VALUATION OF STOCK WAS PLACED. IN VIEW OF THE ABOVE, IT WAS ARGUED THAT IF THE CO RRECT CALCULATION BASED UPON PURCHASE PRICES AS PER THE STOCK STATEME NT AS ON 31.03.2009 AFTER EXCLUSION OF DAMAGED/OBSOLETE STOC K IS MADE, THERE WILL NOT BE ANY DIFFERENCE IN THE VALUATION OF STOCK. 4. THE LD. DR ON THE OTHER HAND HEAVILY PLACED HIS RELIANCE ON THE ORDER OF AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT AS REGARDS THE DISAL LOWANCE U/S 40A(3), THE ASSESSEE HAD MADE PAYMENTS EXCEEDING RS.20,000/ - ON THREE OCCASIONS ON 26.04.2008, 12.05.2008 AND 14.07.2008 AND THE VIOLATION ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 5 IS ONLY ON ACCOUNT OF NOMINAL INCREASE AGAINST THE AMOUNT OF RS.20,000/-. WE FURTHER FIND THAT THESE PAYMENTS HA D BEEN MADE TO THE TRUCK DRIVERS WHO GENERALLY INSIST ON CASH PAYMENTS . THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THESE PA YMENTS AND HAS DISALLOWED THE AMOUNT HOLDING THAT ASSESSEE WAS BOU ND TO MAKE THE PAYMENTS THROUGH BANKING CHANNELS. HOWEVER, WE FIND THAT WHERE THE GENUINENESS OF PAYMENTS IS NOT DOUBTED THE DISALLOW ANCE U/S 40A(3) SHOULD NOT BE MADE. THE CENTRAL BOARD OF DIRECT TAX ES VIDE CIRCULAR NO. 220 DATED 31.05.1977 HAS CLARIFIED THAT NO DISALLOW ANCE U/S 40A(3) OF THE I. T. ACT SHALL BE MADE WHERE THE ASSESSEE SATI SFIES THE ITO THAT THE PAYMENT COULD NOT BE MADE BY WAY OF A CROSSED CHEQU ES DRAWN ON A BANK OR BY A CROSSED BANK DRAFT DUE TO CERTAIN EXCE PTIONAL CIRCUMSTANCES. THE AMRITSAR BENCH IN THE CASE OF SH . ATUL GUPTA IN ITA NO. 465/ASR/2016 VIDE ORDER DATED 24.08.2017 HAS DE CIDED THE ISSUE REGARDING VIOLATIONS U/S 40A(3) IN FAVOUR OF ASSESS EE BY HOLDING AS UNDER: 11. THE CENTRAL BOARD OF DIRECT TAXES VIDE CIRCULA R NO. 220 DATED 31.05.1977 HAS ISSUED INSTRUCTIONS REGARDING DISALL OWANCE U/S 40A(3) READ WITH RULE 6DD(J) OF THE IT RULES, AND WHEREIN THE BOARD HAS CLARIFIED THAT NO DISALLOWANCE U/S 40A(3) OF THE I.T. ACT SHA LL BE MADE WHERE THE ASSESSEE SATISFIES THE ITO THAT THE PAYMENT COULD N OT BE MADE BY WAY OF A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BA NK DRAFT DUE TO CERTAIN EXCEPTIONAL CIRCUMSTANCES. IN THE CIRCULAR THE BOARD HAS ALSO GIVEN CERTAIN ILLUSTRATIONS AND HAS FURTHER STATED THAT T HE SAID ILLUSTRATIONS ARE ONLY ILLUSTRATIVE NOT EXHAUSTIVE AND THERE COULD BE OTHER CIRCUMSTANCES ALSO. 12. IN THE PRESENT CASE, THE ASSESSEE IS WORKING FR OM AN AREA IN RAJOURI WHICH UNDISPUTEDLY IS A DISTURBED AREA. MOREOVER CA SH PAYMENTS HAS BEEN CERTIFIED BY PAYEE TO HAVE BEEN RECEIVED BY IT . THE ASSESSING OFFICER HAD NO DOUBT ABOUT THE GENUINENESS OF THESE TRANSAC TIONS. CASH TRANSACTION CONSTITUTED ONLY ABOUT 15% OF THE TOTAL PAYMENTS. UNDER THESE ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 6 CIRCUMSTANCES IT CAN SAFELY BE SAID THAT SUCH CASH PAYMENTS WERE MADE UNDER EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES. IN VIEW OF THE DISTURBED CONDITIONS DUE TO TERRORISM NO ONE WOULD LIKE TO KE EP CASH WITH HIMSELF AND THEREFORE IT IS PRUDENT ON THE PART OF ANY PERS ON TO HAND OVER THE CASH TO SUPPLIER INSTEAD OF KEEPING WITH HIMSELF. THE H ON'BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO 191 I TR 667 WHILE DEALING WITH THE VIOLATION OF PROVISIONS OF SECTION 40A(3) HAS HELD AS UNDER: IN OUR OPINION, THERE IS LITTLE MERIT IN THIS CONT ENTION. SEC. 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION O F R. 6DD. THE SECTION MUST BE READ ALONG WITH THE RULE. IF READ T OGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTR ICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SEC. 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RE SPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BA NK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FRO M UNDISCLOSED SOURCES. THE TERMS OF S. 40A(3) ARE NOT ABSOLUTE. C ONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OU T OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNI SH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WH ICH THE PAYMENT IN THE MANNER PRESCRIBED IN S. 40A(3) WAS N OT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYE E. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECE IVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF S. 40A(3) AND R. 6DD T HAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO P REVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLAC K MONEY FOR BUSINESS TRANSACTIONS. [SEE MUDIAM OIL CO. VS. ITO (1973) 92 ITR 519 (AP) : TC18R.450]. IF THE PAYMENT IS MADE BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DRAFT, THEN IT WI LL BE EASIER TO ASCERTAIN, WHEN DEDUCTION IS CLAIMED, WHETHER THE P AYMENT WAS GENUINE AND WHETHER IT WAS OUT OF THE INCOME FROM D ISCLOSED SOURCES. IN INTERPRETING A TAXING STATUTE, THE COUR T CANNOT BE OBLIVIOUS OF THE PROLIFERATION OF BLACK MONEY WHICH IS UNDER CIRCULATION IN OUR COUNTRY. ANY RESTRAINT INTENDED TO CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MO NEY SHOULD NOT BE REGARDED AS CURTAILING FREEDOM OF TRADE OR BUSIN ESS. THE HON'BLE DELHI HIGH COURT IN THE CASE OF R. C. G OEL VS. COMMISSIONER OF INCOME TAX HAS ALSO CONSIDERED THE APPLICATION OF PROVISIONS OF U/S 40A(3) UNDER EXCEPTIONAL CIRCUMST ANCES AND HAS ALLOWED THE APPEAL OF ASSESSEE BY HOLDING AS UNDER:- IN THE PRESENT CASE, THE ASSESSEE IN TERMS OF ITS CONTRACT IS BOUND TO MAINTAIN CONSTANT SUPPLIES IN THE TRAINS AND ENS URE THAT AT NO ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 7 POINT IN TIME CAN THE PASSENGERS BE DEPRIVED OF THE SE ARTICLES. IN THE COURSE OF SUCH TRANSACTIONS, IT SOURCES THESE ARTIC LES FROM M/S SHRUTI ENTERPRISES, MUMBAI BASED CONCERN. APPARENTL Y, THAT CONCERN IS ALSO A SMALL TIME ONE AND INSISTS ON CAS H PAYMENTS FOR ENSURING CONTINUITY AND TIMELY SUPPLIES. WHILST, TH E COURT IS CONSCIOUS AND DOES NOT IN ANY MANNER WISH TO COMMEN T' ADVERSELY ON THE LARGER PUBLIC INTEREST ELEMENT EMBEDDED IN S ECTION 40A AND THE UNDERLYING PRINCIPLE, AT THE SAME TIME, THE COU RT ALSO NOTES THAT THE PROVISO SEEKS TO RELIEVE TO A CERTAIN EXTENT, T HE MEASURE OF HARDSHIP WHICH MIGHT BE IMPOSED UPON SMALL BUSINESS ES AND PROFESSIONALS WHO ARE ENGAGED IN ACTIVITIES AND ARE DEPENDENT ENTIRELY ON TIMELY CASH FLOW. IT IS IN SUCH CASES T HAT RULE 6DD - WHICH WAS FORMULATED AS A PROVISO TO SECTION 40A (3 ) - STEPS IN TO AID SUCH ASSESSEES AND CONCERNS. IN THIS CONTEXT, THE STATUT ORY MANDATE IN SECTION 6DD (K), AT LEAST IN THE CIRCUMSTANCES OF THE CASE, HAS TO BE SO CONSTRUED AS TO MEAN THAT BUR FO R THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPRIVED THE BENEFIT OF SUPPLIES ITSELF. THIS COURT CLARIFIES THAT THE INTE RPRETATION OF THE EXPRESSION WHO IS REQUIRED TO MAKE PAYMENT IN CASH HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE IS FACT DEP ENDENT, AT LEAST IN THE PRESENT CASE. THE CONSEQUENCE OF INSTANCES OF P AYMENT THROUGH ACCOUNT PAYEE CHEQUES IN SMALL BUSINESS WHICH ARE D EPENDENT ON SUCH SUPPLIES WOULD BE TO COMPLETELY STIFLE, IF NOT STOP, THE BUSINESS ACTIVITIES. IT IS IN THAT SENSE THAT THE EXPRESSION REQUIRED WOULD HAVE TO BE CONSTRUED. IN THE OTHER CASE LAWS RELIED ON BY THE ASSESSEE IN CLUDING THE DECISIONS OF AMRITSAR BENCH IN THE CASE OF SH. RAKE SH KUMAR VS. ACIT, CIRCLE02, BATHINDA. THE AMRITSAR BENCH WHILE ALLOWI NG THE APPEAL OF ASSESSEE HAS ALSO FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (SUPRA). THE RELEVANT PART OF THE ORDER OF AMRITSAR BENCH I N THE CASE OF SH. RAKESH KUMAR VS. ACIT CIRCLE-II BATHINDA, IS REPROD UCED BELOW:- '14. ABOUT THIS CLAUSE, MANY DOUBTS WERE RAISED AND ENQUIRIES WERE DIRECTED TO THE BOARD AS TO WHAT SHALL CONSTIT UTE EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES WITHIN THE MEANING OF CLAUSE (J). THAT LED TO ISSUANCE OF CIRCULAR BY THE BOARD ON MA Y 31, 1977 ([1977] 108 ITR (ST.) 8), WHICH IS PUBLISHED IN TAX MANN, VOL. 1, 1988 EDITION. SIGNIFICANTLY PARAGRAPH 4 OF THE AFORESAID CIRCULAR OWS VERY CLEARLY THAT ALL THE CIRCUMSTANCES IN WHICH TH E CONDITIONS LAID DOWN IN RULE 6DD(J) COULD BE APPLICABLE CANNOT BE S PELT OUT. HOWEVER, SOME OF THEM WHICH WILL SEEM TO MEET THE R EQUIREMENTS OF THE SAID RULE ARE AS FOLLOWS: 1. THE PURCHASER IS NEW TO THE SELLER; OR 2. THE TRANSACTIONS ARE MADE AT A PLACE WHETHER EITHER THE PURCHASER OR THE SELLER DOES NOT HAVE A BANK ACCOUN T; OR 3. THE TRANSACTIONS AND PAYMENTS ARE MADE ON A BANK HO LIDAY; OR ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 8 4. 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 5. THE SELLER, ACTING AS A COMMISSION AGENT, IS REQUI RED TO PAY CASH IN TURN TO PERSONS FROM WHOM HE HAS PURCHASE T HE GOODS; OR 6. SPECIFIC DISCOUNT IS GIVEN BY THE SELLER FOR PAYME NT TO BE MADE BY WAY OF CASH. 15. IT WAS FURTHER CLARIFIED IN PARAGRAPH 6 THAT TH E ABOVE CIRCUMSTANCES ARE NOT EXHAUSTIVE BUT ILLUSTRATIVE. 16. .THEREFORE, IN OUR OPINION, THE TRIBUNAL WAS CL EARLY IN ERROR IN NOT TRAVELING BEYOND THE CIRCUMSTANCES REFERRED TO IN PARAGRAPH 4 OF THE CIRCULAR AND TO CONSIDER THE EXPLANATION SUBMIT TED BY THE ASSESSEE ON ITS OWN MERIT. 17 . SIGNIFICANTLY PARAGRAPH 5 REPRODUCED HEREIN BELOW G IVES A CLEAR INDICATION THAT RULE 6DD(J) HAS TO BE LIBERAL LY CONSTRUED AND ORDINARILY WHERE THE GENUINENESS OF THE TRANSACTION AND THE PAYMENT AND IDENTITY OF THE RECEIVER IS ESTABLISHED , THE REQUIREMENT OF RULE 6DD(I) MUST BE DEEMED TO HAVE BEEN SATISFIE D. PARAGRAPH 5 OF THE CIRCULAR READS AS UNDER [1977] 108 ITR (ST.) 8, 9: 5. IT CAN BE SAID THAT IT WOULD, GENERALLY, SATISFY THE REQUIREMENTS OF RULE 6DD(J), IF A LETTER TO THE ABOVE EFFECT IS PRO DUCED IN RESPECT OF EACH TRANSACTION FALLING WITHIN THE CATEGORIES LIST ED ABOVE FROM THE SELLER GIVING FULL PARTICULARS OF HIS ADDRESS, SALE S TAX NUMBER/PERMANENT ACCOUNT NUMBER, IF ANY, FOR THE PU RPOSES OF PROPER IDENTIFICATION TO ENABLE THE INCOME-TAX OFFI CER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE TRANSACTION. T HE INCOME-TAX OFFICER WILL, HOWEVER, RECORD HIS SATISFACTION BEFO RE ALLOWING THE BENEFIT OF RULE 6DD(J). 18. IT APPEARS THAT FULFILLMENT OF THE CONDITIONS OF PA RAGRAPH 5 OF THE CIRCULAR HAS CLEARLY ESCAPED THE ATTENTION OF T HE TRIBUNAL. THE CIRCULAR CLEARLY INDICATES THAT ORDINARILY WHERE TH E INCOME-TAX OFFICER IS SATISFIED ABOUT THE GENUINENESS OF THE TRANSACTION AND PAYMENT AND IDENTIFICATION OF THE CASH PAYMENT IS E STABLISHED, THE INCOME-TAX OFFICER SHALL RECORD HIS SATISFACTION AB OUT THE FULFILLMENT OF THE CONDITIONS FOR ALLOWING THE BENEFIT OF RULE 6DD(J). APPARENTLY, SECTION 40A(3)WAS INTENDED TO PENALIZE THE TAX EVAD ER AND NOT THE HONEST TRANSACTIONS AND THAT IS WHY AFTER FRAMING O F RULE 6DD (J), THE BOARD STEPPED IN BY ISSUING THE AFORESAID CIRCU LAR. 19. THIS CLARIFICATION, IN OUR OPINION, IS IN CONFO RMITY WITH THE PRINCIPLE ENUNCIATED BY THE SUPREME COURT IN CTO V. SWASTIK ROADWAYS AS NOTICED ABOVE. 20. IN THIS CASE, THERE IS NO DISPUTE ABOUT THE GEN UINENESS OF THE TRANSACTIONS AND THE PAYMENT AND IDENTITY OF THE RE CEIVER ARE ESTABLISHED. THEREFORE, THE CASE CLEARLY FELL WITHI N THE PARAMETERS OF PARAGRAPHS 4 AND 5 OF THE AFORESAID CIRCULAR READ T OGETHER.' ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 9 8. THE RESPONDENT'S CASE IS ALSO SUPPORTED BY THE J UDGMENT OF THE SUPREME COURT IN ATTAR SINGH GURMUKH SINGH V. I SO [19911 191 1TR 667/59 TAXMAN 11 . AFTER REFERRING TO RULE 6DD, THE SUPREME COURT HELD:- '7. IN OUR OPINION, THERE IS LITTLE MERIT IN THIS C ONTENTION. SECTION 40- A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUS ION OF RULE 6-DD. THE SECTION MUST BE READ ALONG WITH THE RULE. IF RE AD TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RE STRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40-A (3) ONLY EMPOWERS THE ASSE SSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RE SPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BA NK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FRO M DISCLOSED SOURCES. THE TERMS OF SECTION 40-A(3) ARC NOT ABSOL UTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS ARE NOT EXCLUDED. THE GENUINE AND BONA FIDE TRANSACTION S ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CI RCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTI ON 40-A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFIC ULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6-DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES S PECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF S ECTION 40-A(3) AND RULE 6-DD THAT THEY ARC INTENDED TO REGULATE THE BU SINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. [SEE: MIIDIAM OIL COMPANY V. ITO [(1973) 92 ITR 519 (API1 ]. IF THE PAYMENT IS MADE BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DRAFT THEN IT WILL BE EASIER TO ASCERT AIN, WHEN DEDUCTION IS CLAIMED, WHETHER THE PAYMENT WAS GENUI NE AND WHETHER IT WAS OUT OF THE INCOME FROM DISCLOSED SOU RCES. IN INTERPRETING A TAXING STATUTE THE COURT CANNOT BE O BLIVIOUS OF THE PROLIFERATION OF BLACK MONEY WHICH IS UNDER CIRCULA TION IN OUR COUNTRY. ANY RESTRAINT INTENDED TO CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY SHOULD N OT BE REGARDED AS CURTAILING THE FREEDOM OF TRADE OR BUSINESS.' 9. AT THE COST OF REPETITION, THE TRIBUNAL HAS NOT DISBELIEVED THE TRANSACTIONS OR THE GENUINENESS THEREOF. NOR HAS IT DISBELIEVED THE FACT OF PAYMENTS HAVING BEEN MADE. MORE IMPORTANT, THE REASONS FURNISHED BY THE APPELLANT FOR HAVING MADE THE CASH PAYMENTS, WHICH WE HAVE ALREADY ADVERTED TO, HAVE NOT BEEN DI SBELIEVED. IN OUR VIEW, ASSUMING THESE REASONS TO BE CORRECT, THE Y CLEARLY MAKE OUT A CASE OF BUSINESS EXPEDIENCY. 10. IN THE CIRCUMSTANCES, THE ORDER OF THE TRIBUNAL IN THIS REGARD IS SET ASIDE. THE PAYMENTS CANNOT BE DISALLOWED UND ER SECTION 40A(3) OF THE ACT. ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 10 9. IN VIEW OF THE ABOVE, FACTS AND CIRCUMSTANCES AN D IN VIEW OF THE JUDICIAL PRECEDENTS, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF LD. CIT(A). THEREFORE, THE APPEAL FILED BY REVENUE IS DISMISSED . IN VIEW OF THE ABOVE, KEEPING IN VIEW THE EXCEPTIO NAL CIRCUMSTANCES AND IN VIEW OF THE AMOUNT INVOLVED, WE DELETE THE D ISALLOWANCES U/S 40A(3) SUSTAINED BY LD. CIT(A). AS REGARDS THE VALUATION OF THE STOCK AT THE TIME OF SURVEY, WE FIND THAT THE BREAK UP OF STOCK FOUND INCLUDED AN AMOUNT OF RS.12750/- WHICH IS ON ACCOUNT OF EMPTY DRUMS AND WHICH THE AS SESSEE HAD CLAIMED AT THE TIME OF SURVEY ITSELF THAT THESE DO NOT BELO NG TO IT AND THESE ARE TO BE RETURNED. THIS FACT IS VERIFIABLE FROM P.B. PAGE 34 WHERE THE DETAILS OF DRUMS MENTIONED AS RETURNABLE IS PLACED, THEREFORE THE ADDITION OF RS.12750/- IS NOT JUSTIFIED AS THIS ITEM OF STOCK D ID NOT BELONG TO THE ASSESSEE. AS REGARDS THE ADDITION ON ACCOUNT OF CONSUMABLE S TOCK AMOUNT TO RS.111740/- AS PER THE DETAILS AS P.B. 35, WE FIND THAT THE AMOUNT OF CONSUMABLE STORES WERE ACTUALLY LYING AT THE PREMIS ES AND WHICH THE ASSESSEE HAD NOT DECLARED IN THE STOCK STATEMENT. T HEREFORE THE ADDITION IS JUSTIFIED AS THE ASSESSEE WAS BOUND TO PASS ENTR Y IN THE PROFIT AND LOSS ACCOUNT RELATING TO EXPENSES OF CONSUMABLE STORES A FTER REDUCING THE CLOSING STOCK LEFT OVER ON ACCOUNT OF CONSUMABLE ST ORES AND THEREFORE THIS GRIEVANCE IS NOT JUSTIFIED AND WE UPHOLD THE ACTION OF LD. CIT(A) AS REGARDS ADDITION ON ACCOUNT OF VALUATION OF CONSUMA BLE STORES. ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 11 AS REGARDS THE DIFFERENCE IN VALUATION OF FINISHED GOODS AS PLACED AT P.B. PAGE 25, WE FIND THAT AT THE TIME OF SURVEY TH E PLY RELATING TO SIZES 4 MM AND 3 MM WERE VALUED AT THE RATE OF RS. 51.66 PE R SQ. M. WHEREAS THE COST OF THE PLYS MEASURING 4 MM AND 3MM AS PER STOCK STATEMENT AS ON 31.03.2009 WAS RS. 40 AND 45 RESPECTIVELY. THE V ALUATION OF STOCK AS ON 31.03.2009 HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER AND THEREFORE THE ASSESSING OFFICER SHOULD HAVE APPLIED THIS RATE FOR ARRIVING AT THE VALUE ON ACCOUNT OF THESE PLYS SPECIFICALLY IN VIEW OF THE FACT THAT ASSESSEE HAD EXPLAINED THE DIFFERENCE TO ASSESSING OFFICER VIDE UNDATED LETTER PLACED AT P.B. 1, 2 AND 3. THE ASSESSEE VIDE THIS LETTER HAD EXPLAINED THE TOTAL DIFFERENCE IN RESPECT OF VARIOU S SIZES AND THE AUTHORITIES BELOW SHOULD HAVE CONSIDERED THE SAME. WE FURTHER FIND THAT THE CLOSING STOCK FOUND AT THE TIME OF SURVEY INCLU DED DAMAGED/CUT PIECES AND OBSOLETE STOCK. THIS FACT IS VERIFIABLE FROM THE INVENTORY OF STOCK ITSELF PLACED AT P.B. PAGE 25 WHERE THE OBSOL ETE STOCKS/DAMAGED STOCKS FALLING IN THE CATEGORY OF 4MM/3MM, 12MM/9MM AND 18MM HAS BEEN MENTIONED BY ADDING SEPARATELY ON LUMP SUM BAS IS THE QUANTITY OF 2000 SQ. FT., 500 SQ. FT., 1000 SQ. FT. AND 500 SQ. FT. UNDER VARIOUS CATEGORIES. THE ASSESSEE HAD EXPLAINED THESE FACTS VIDE LETTER ADDRESSED TO ASSESSING OFFICER PLACED AT P.B. PAGE 1 TO 3. TH E ASSESSING OFFICER IN HIS ORDER HAS NOTED DOWN THESE CONTENTIONS. THE ASS ESSING OFFICER HAS ALSO NOTED DOWN THE CONTENTIONS OF ASSESSEE THAT TH ERE WAS DIFFERENCE IN VALUATION OF STOCK AS THE SAME HAS TO BE VALUED ON COST PRICE BASIS BUT STILL HE DID NOT VERIFY THE CLAIM OF ASSESSEE AND M ADE THE ADDITIONS. IN ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 12 THIS RESPECT THE CONTENTIONS OF ASSESSEE AS NOTED B Y ASSESSING OFFICER ARE QUITE RELEVANT WHICH FOR THE SAKE OF COMPLETENESS A RE REPRODUCED BELOW: (C). THE VALUATION OF PLY, BOARD, FINISHED STOCK F OR THE VALUATION OF FINISHED GOODS IT HAS BEEN OBSERVED THAT PLY CUT PIECES / DA MAGE PIECES OF 4000 SQ.M HAVE BEEN VALUED AT THE BILLING PRICE. THE 400 0 SQ. M DAMAGED PLY CANNOT BE VALUED AT THE SELLING PRICE AS IT DOES NO T FATCH ANY AMOUNT AND IS LYING FOR THE PAST 4 TO 5 YEARS. IF WE REDUCE TH E SALE PRICE OF 4000 SQ.M. @ 51.66, RS 135 AND RS 55.00. THE DIFFERENCE WILL R EDUCE BY RS 300820/-. FURTHER THEY HAVE ALSO APPLIED THE AVERAGE RATE 51. 66 TO 4MM PF AND 3MM COMM WHICH COMES TO RS 2,21,414/- BY ACTUALLY M ULTIPLYING THE QUANTITY WITH THE ASSESSABLE VALUE THE AMOUNT COMES TO RS 2,26,175/-. THERE IS APP. NO DIFFERENCE IN THE AMOUNT CALCULATE D BY US. 12MM,9MM & 12MM PF THE VALUATION TEAM HAS CALCULATED VALUE AT RS 9,84,420/- WHERE AS PER ACTUAL CALCULATION IT COMES TO RS '7,04,047/ - SO THE DIFFERENCE OF RS 2,12,783/- EXISTS WHICH HAS BEEN OVER VALUED BY THE SURVEY TEAM. IN 18MM THE STOCK HAS BEEN AS 515 SQ. M AND AFTER EXCL UDING 500 ON ACCOUNT OF DEFECTIVE / DAMAGE. THE SQ. M COMES TO 15 SQ. M AND BY APPLYING THE RATE OF 140 IT COMES TO RS.2,250/- ONLY SO THERE IS NO DIFFERENCE ON HIS ACCOUNT. THE TOTAL DIFFERENCE OF RS.111740/- 12750/ - 300820/-, 212873/- COMES TO RS.6,33,423/- IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES WE DE LETE THE ADDITIONS IN THE VALUATION OF STOCK CONSISTING OF F OLLOWING ITEMS: OBSOLETE/DAMAGED STOCK RS.3,00820=00 OVER VALUATION OF STOCK RS.212873=00 VALUATION OF DRUMS RS.12750=00 TOTAL RS.5,26,443=00 THE AMOUNT OF DELETION OUT OF ADDITION IN STOCK IS ALMOST EQUAL TO THE ADDITION OF RS.527503/- AND THE DIFFERENCE IS I NSIGNIFICANT AND THEREFORE WE DELETE THE WHOLE OF ADDITION ON ACCOUN T OF DIFFERENCE IN STOCK. ITA NO. 53(ASR)/2015 ASSESSMENT YEAR: 2009-10 13 7. IN VIEW OF THE ABOVE, THE APPEAL FILED BY ASSESS EE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.12.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04.12.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER