Syed Nusrathulla Quadri, Hyderabad V. Asst. Commissioner of Income Tax, Circle-4(1), Hyderabad

ITA 537/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8127 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 16-02-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 16-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: D V ANJANEYULU
• Keywords: Principle of natural justice; Commercial expediency; Set aside
• Section: 40A(3); 143(3); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT A NO . 537 /H/201 9 ASSESSMENT YEAR: 20 1 3 - 1 4 SYED NUSRATHULLA QUADRI, HYDERABAD. PAN AABPQ 2677 E VS. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 4(1), HYDERABAD. (APPELLANT S ) (RESPONDENT) ASSESSEE BY : SHRI D.V. ANJANEYULU REVENUE BY : SHRI ROHIT MUJUMDAR DATE OF HEARING: 16 /0 2 /2021 DATE OF PRONOUNCEMENT: 19 / 0 3 /2021 O R D E R PER LAXMI PRASAD SAHU, A.M. : TH IS ASSESSEES APPEAL FOR AY 20 1 3 - 1 4 IS DIRECTED AGAINST THE C I T(A) - 1 , HYDERABAD S ORDER , DATED 14 / 0 2 /201 9 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT , ON THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF LD. CIT(A) IN SO FAR AS C ONFIRMING THE ADDITION OF RS. 26,17,225/ - MADE BY AO U/S 40A(3) IS ERRONEOUS IN LAW, CONTRARY TO FACTS, PROBABILITIES OF THE I TA NO. 537/ HYD/1 9 SYED NUSRATHULLA QUADRI, HYD. : - 2 - : CASE AND AGAINST THE PRINCIPLES OF EQUITY AND NATURAL JUSTICE. 2. LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT CASH PAYMENTS ARE MAD E TOWARDS PURCHASE OF IRON SCRAP AGAINST THE SUPPLIES MADE BY THE IRON SCRAP DEALERS WHICH IS A HIGHLY UNORGANIZED SECTOR AND WHICH IS TOWARDS OPENING BALANCE OF SUNDRY CREDITORS AND AS SUCH PROVISIONS OF SECTION 40A(3) IS NOT AT ALL APPLICABLE IN THE INST ANT CASE AND ADDITION MADE SHALL BE DELETED. 3. _ SUBJECT TO ABOVE, LD, CIT(A) FAILED TO APPRECIATE THAT THE CASH PAYMENTS ARE MADE TO THE AGENTS WHO WILL IN TURN MAKE TO PAYMENTS TO INDIVIDUAL IRON SCRAP GATHERERS LOCATED IN REMOTE PLACES NOT COVERED WI TH BANKING CHANNELS AND THUS COVERED UNDER EXCEPTIONS MENTIONED IN RULE 6DD OF THE IT RULES, 1962. 4. FOR THESE AND OTHER REASONS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THE HONORABLE TRIBUNAL TO KINDLY DELETE THE ADDITION MADE BY A O AND SUSTAINED BY CIT(A). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN TRADING OF IRON STEEL SCRAP IN THE NAME OF M/S RELIANCE TRADERS, FILED HIS RETURN OF INCOME FOR THE AY 2013 - 14 ON 28/09/2013 DECLARING TOTAL INCOME AT RS. 27,04,300/ - . THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE, AGAINST WHICH, THE AR OF THE ASSESSEE FURNISHED THE REQUIRED INFORMATION. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ON EXAMINATION OF ACCOUN TS, NOTICED THAT THE ASSESSEE HAD I TA NO. 537/ HYD/1 9 SYED NUSRATHULLA QUADRI, HYD. : - 3 - : MADE PAYMENTS IN EXCESS OF RS. 20,000/ - OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A ( 3) OF IT ACT. THE AO OBSERVED THAT THE ASSESSE E HAD MADE CASH PAYMENTS TO THE EXTENT OF RS. 54,06,357/ - TO VARIOUS PERSONS (THE NAMES WERE MENTIONED AT PAGE 3 OF HIS ORDER) FROM WHOM IRON SCRAP WAS PURCHASED. WHEN ASKED TO FURNISH THE REASONS AS TO WHY THE CASH PAYMENTS OF RS. 26,17,225/ - MADE TO THE PERSONS SHOULD NOT BE DISALLOWED U/S 40A(3) OF THE ACT, THE ASSESSEE STATED THAT THE CASH PAYMENTS IN BUSINESS OF IRON SCRAP ARE COMMON AND COULD NOT FURNISH SATISFACTORY EXPLANATION IN RESPECT OF CASH PAYMENTS. THE AO THEREFORE DISALLOWED THE CASH PAYMENT S MADE IN EXCESS OF RS. 20,000/ - IN CONTRAVENTION OF PROVISIONS OF SECTION 40A ( 3) TO THE EXTENT OF RS. 26,17,225/ - AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. 3. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE ORDE R OF THE AO. 4. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT DISALLOWANCE U/S 40A(3) REPRESENTING CASH PAYMENTS MADE I TA NO. 537/ HYD/1 9 SYED NUSRATHULLA QUADRI, HYD. : - 4 - : TO SUNDRY CREDITORS AS ON 31/03/2012 TOWARDS PURCHASE OF IRON SCRAP AGAINST THE SUPPLIES MADE BY THE IRON SCRAP DEALERS WHICH IS HIGHLY UNORGANIZED SECTOR WHO COLLECTS SCRAP MATERIAL FROM DIFFERENT PLACES. HE FURTHER SUBMITTED THAT THE CASH PAYMENTS REPRESENT THE PAYMENT MADE TOWARDS OPENING BALANCE OF SUNDRY CREDITORS AND DOES NOT REPRESENT ANY EXPENDITURE INCURRED AS ENVISAGED UNDER PROVISIONS OF SECTION 40A(3). HE SUBMITTED THAT THE ASSESSEE IS LIABLE FOR TAX AUDIT U/S 44AB, THE TAX AUDITOR HAS NOT REPORTED ANY SUCH CASH PAYMENTS U/S 40 A( 3) IN FOR M 3CD AND ALSO SUBMITTED FINANCIAL STATEMENTS FOR AY 2012 - 13 & 2013 - 14, WHICH PROVES THAT PAYMENTS ARE MADE TOWARDS OPENING BALANCES. HE SUBMITTED THAT SINCE DEALERS INSISTED ON CASH SETTLEMENT IMMEDIATELY, ASSESSEE UNDER UNAVOIDABLE CIRCUMSTANCES HAD TO S ETTLE THE ACCOUNTS OF CREDITORS IN CASH DUE TO COMMERCIAL EXPEDIENCY AS ALL SUCH DEALERS ARE FROM NEARBY VILLAGES WHICH ARE NOT COVERED BY PROPER BANKING CHANNELS WHICH IS DULY COVERED UNDER RULE 6DD OF THE IT RULES AND THEREFORE, THE DISALLOWANCE MADE U/S 40A(3) BE DELETED. 6. ON OTHER HAND, THE SR. DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND FURTHER SUBMITTED THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40A(3), HENCE, THE AO HAS RIGHTLY MADE THE DISALLOWANCE AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. I TA NO. 537/ HYD/1 9 SYED NUSRATHULLA QUADRI, HYD. : - 5 - : 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACT ORS ARE NOT EXCLUDED. THE GENUINE AND BONA FIDE TRANSACTIONS 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 CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBE D IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON S WHO HA VE RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE R ULE. IN THE INSTANT CASE, A S SUBMITTED BY THE ASSESSEE, PURCHASE OF IRON SCRAP AGAINST THE SUPPLIES MADE BY THE IRON SCRAP DEALERS WHICH IS HIGHLY UNORGANIZED SECTOR WHO COLLECTS THE SCRAP MATERIAL FROM DIFFERENT PLACES. AS THE DEALERS INSIST ON CASH SETTL EMENT, ASSESSEE UNDER UNAVOIDABLE CIRCUMSTANCES HAD TO SETTLE THE ACCOUNTS OF THE CREDITORS IN CASH DUE TO COMMERCIAL EXPEDIENCY. THE DEALERS ARE NEARBY VILLAGES WHICH ARE NOT COVERED BY PROPER BANKING CHANNELS, WHICH IS DULY COVERED UNDER RULE 6DD. THERE FORE, THE CASE OF THE ASSESSEE IS COVERED BY RULE 6DD AND HENCE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT I TA NO. 537/ HYD/1 9 SYED NUSRATHULLA QUADRI, HYD. : - 6 - : THE AO TO DELETE THE ADDITION OF RS. 26,17,225/ - MADE U/S 40A(3). ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH , 2021 . SD/ - SD/ - ( S.S. GODARA ) (LAXMI PRASAD SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 19 TH MARCH , 20 2 1 . K V C OPY TO : 1 SHRI SYED NUSURATHULLA QUADRI, M/S ANJANEYULU & CO., CAS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYD 500 080 2 AC IT , CIRCLE 4 , HYDERABAD 3 C I T(A) - 1 , HYDERABAD 4 PR. CIT - 1 HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.