M/s. D.S. Realtors Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5989/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4061 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 29-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 05-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RACHANA SINGH
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Income from undisclosed sources; Search and seizure; Document seized; Wholly owned subsidiary; Documents seized
• Section: 40A(3); 143(3); 153A; 234B; 132

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO.5989/DEL/2014 A.Y. : 2008-09 M/S D.S. REALTORS PVT. LTD., C/O RRA TAXINDIA, D-28, SOUTH EXTENSION, PART-I, NEW DELHI 49 (PANAACCD2839F) VS. DCIT, CENTRAL CIRCLE-04, NEW DELHI (ASSESSEE) (RESPONDENT) ASSESSEE BY : SH. ASHWANI TANEJA, ADV. & SH. SHANTANU JAIN, ADV. REVENUE BY : MS. RACHANA SINGH, CIT(DR) ORDER PER H.S. SIDHU : JM THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE IMPUG NED ORDER DATED 02.7.2014 OF THE LD. CIT(A)-XXXIII, NEW DELHI R ELEVANT TO ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER: - 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN NOT DELETING THE ADDITION MADE DESPITE THERE BEING NO INCRIMINATING MATERIAL FOUND DURING SEARCH U/S. 132 OF THE INCOME TAX ACT, 1961. 2 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN MAKING DISALLOWANCE OF A SUM OF RS. 32,87,330/- UNDER PROVISIONS OF SECTION 40A(3) THAT TOO BY TREATING THE SAME AS INVENTORY AND FURTHER ERRED IN REDUCING THE COST OF LAND TO THE EXTENT OF DISALLOWANCE U/S. 40A(3). 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF A SUM OF RS. 28,29,600/- BEING FINANCE CHARGES ON LOAN TAKEN FROM PARENT COMPANY. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING THE IMPUGNED DISALLOWANCES AND FRAMING THE IMPUGNED ASSESSMENT ORDER WHICH IS CONTRARY TO LAW AND FACTS, VOID AB INITIO, BEYOND JURISDICTION, AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING, BY RECORDING INCORRECT FACTS AND FINDINGS AND THE SAME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSING THE 3 ACTION OF AO IN CHARGING INTEREST U/S. 234B OF THE I.T. ACT, 1961. 6. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, MODIFY, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING AND ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 2. THE BRIEF FACTS OF THE CASE ARE THAT A SEARCH OPERA TION U/S. 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED A S THE ACT) WAS CARRIED OUT ON 21.1.2011 IN DS GROUP OF CASES. M/S DHARAMPAL SATYAPAL GROUP IS ENGAGED IN MANUFACTURING AND TRAD ING OF CHEWING TOBACCO AND PREMIUM PAN MASALA BESIDES OTHER BUSINESS. THE GROUP IS ALSO INVOLVED IN FOOD PRODUCTS, PACKI NG, HOSPITALITY, RUBBER, STEEL AND EDUCATION BUSINESS. IN RESPONSE TO THE STATUTORY NOTICE U/S. 153A OF THE ACT ISSUED ON 09.1.2012, THE A SSESSEE COMPANY FILED ITS RETURN OF INCOME ON 25.1.2012 DEC LARING LOSS OF RS. 32,26,696/-. IN RESPONSE TO THE SAME, THE AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS AND FILED THE DETAILS. THE ASSESSEE BELONGED TO DS GROUP OF CASES, VARIOUS OTHER COMPAN IES WERE SEARCHED. THE ASSESSEE COMPANY IS 100% SUBSIDIARY OF M/S DHARAMPAL SATYAPAL LTD. FROM WHOSE PREMISE DURING THE SEARCH AT N-2, A-85, SECTOR-2, NOIDA, COPY OF PURCHASE DEEDS OF VARIOUS AGRICULTURAL LAND WAS SEIZED WHICH EVIDENCES CASH P AYMENT WHERE 4 DISALLOWANCE U/S. 40A(3) WAS ATTRACTED AND ACCORDING LY, THE AO COMPLETED THE ASSESSMENT AT RS. 28,90,230/- US. 153A OF THE ACT VIDE ORDER DATED 10.3.2013 AND MADE THE ADDITION OF R S. 32,87,330/- U/S. 40A(3) OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER DATED 10.3.2013, ASSESSEE FILED APPEAL BEFORE THE LD. FIRST APPELLATE A UTHORITY WHO HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE VIDE O RDER DATED 02.7.2014. 4. DURING THE HEARING, LD. COUNSEL OF THE ASSESSEE C HALLENGED THE DISALLOWANCE MADE BY THE AO FOR RS. 32,87,330/- UNDE R SECTION 40A(3) OF THE ACT, MAINLY ON THE GROUND THAT NO INCRIMI NATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH, THER EFORE, IMPUGNED DISALLOWANCE WAS BEYOND THE JURISDICTION OF AO. IN SUPPORT OF HIS ARGUMENT, HE RELIED UPON THE FOLLOWIN G CASE LAWS ESPECIALLY THE ITAT, C BENCH, NEW DELHI DECISION DATED 15.09.2017 PASSED IN ITA NO. 5293/DEL/2013 & 3029/DEL/2014 (AY RS. 2006-07 & 2007-08) IN THE CASE OF M/S GALAXY DWELLERS (P) LTD . VS. DCIT WHERE THE FACTS AND CIRCUMSTANCES OF THE CASE ARE SIMI LAR AND IDENTICAL TO THE PRESENT CASE:- 5 - ITAT, JAIPUR A BENCH DECISION DATED 12.08.2011 PASSED IN ITA NO. 79/JP/2011 (AY 2007-08) IN THE CASE OF M/S ACE INDIA ABODES LTD. VS. ACIT. - ITAT, SMC, DELHI BENCH DECISION DATED 17.8.2017 PASSED IN ITA NO. 5238/DEL/2016 (AY 2012-13) IN THE CASE OF RADHEY SHYAM MANCHANDA VS. ITO - ITAT, C BENCH, NEW DELHI DECISION DATED 11.9.2017 PASSED IN ITA NO. 5170/DEL/2014 (AY 2006-07) IN THE MATTER OF ACIT VS. MARIGOLD MERCHANDISE (P) LTD. - ITAT, C BENCH, NEW DELHI DECISION DATED 15.09.2017 PASSED IN ITA NO. 5293/DEL/2013 & 3029/DEL/2014 (AYRS. 2006-07 & 2007-08) IN THE CASE OF M/S GALAXY DWELLERS (P) LTD. VS. DCIT. 5. ON THE CONTRARY, LD. CIT(DR) IN SUPPORT OF HER C ONTENTION HAS FILED A PAPER BOOK CONTAINING PAGES 1 TO 26, 1A TO 8A ATTACHING THEREWITH THE COPY OF WRITTEN SUBMISSION OF REVENUE; C OPY OF PANCHNAMA; WARRANT OF AUTHORISATION U/S. 132 (ANNEXURE -A) AND SHORT NOTE ON GROUNDS OF APPEAL OF AO (ANNEXURE B AN D STATED THAT ADDITION CAN BE MADE EVEN IN THE ABSENCE OF INCR IMINATING 6 MATERIAL. SHE RELIED UPON DETAILED FINDINGS OF THE LD . CIT(A) AND REQUESTED FOR UPHOLDING THE SAME. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECO RDS ESPECIALLY THE CASE LAWS CITED BY LD. COUNSEL OF THE ASSESSEE AND THE PAPER BOOK FILED BY THE LD. CIT(DR) AS WELL AS IM PUGNED ORDER. WE FIND THAT LD. CIT(DR) HAS FILED THE PAPER BOOK, A S AFORESAID AND DISCUSSED THE WHOLE MATTER ON THE ASSUMPTION OF JURI SDICTION U/S. 153A OF THE ACT AND NO CONTRARY DECISION HAS BEEN PLA CED BEFORE US ON THE MERIT OF THE CASE BY THE LD. CIT(DR). HOWEVE R, WE FIND THAT ASSESSEES COUNSEL HAS RELIED UPON THE DECISION OF THE ITAT C BENCH, NEW DELHI DATED 15.09.2017 PASSED IN ITA NO. 5293/DEL/2013 & 3029/DEL/2014 (AYRS. 2006-07 & 2007 -08) IN THE CASE OF M/S GALAXY DWELLERS (P) LTD. VS. DCIT WHERE IN EXACTLY SIMILAR AND IDENTICAL FACTS AND CIRCUMSTANCES OF THE C ASE ARE INVOLVED AND THE SIMILAR ISSUE HAS BEEN ADJUDICATED VIDE PARA NO. 9 TO 16, WHICH READS AS UNDER:- 9. THE BRIEF FACTS AS CULLED OUT FROM THE ORDER OF THE AUTHORITIES BELOW ARE THAT SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT ON 21.01.2011 IN DHARAMPAL SATYAPAL GROUP OF CASES AND IN PURSUANCE TO THE SAME, ASSESSMENT 7 PROCEEDINGS WERE CARRIED OUT UNDER SECTION 153A OF THE ACT UPON THE ASSESSEE COMPANY. IT IS NOTED THAT ORIGINAL ASSESSMENT ORDER U/S 143(3) WAS PASSED FOR ASSESSMENT YEAR 2006-07 IN THE CASE OF ASSESSEE-COMPANY ON 16.09.2008 WHEREIN BOOKS OF ACCOUNTS WERE ALSO PRODUCED BY THE ASSESSEE AND DETAILS OF LAND PURCHASED BY THE ASSESSEE WERE GIVEN. THUS, WHEN SEARCH TOOK PLACE, ASSESSMENT OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 ALREADY STOOD CONCLUDED AND DID NOT ABATE AND THEREFORE NO ADDITION COULD HAVE BEEN MADE IN THE IMPUGNED ASSESSMENT YEAR IN ABSENCE OF ANY INCRIMINATING MATERIAL. IT IS BROUGHT TO OUR NOTICE THAT LEGAL POSITION IN THIS REGARD IS WELL SETTLED IN VIEW OF RECENT JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. MEETA GUTGUTIYA 82 TAXMANN.COM 287 (DELHI), WHEREIN IT WAS OBSERVED, INTER-AL IA, AS UNDER :- 38. IT APPEARS THAT THE SEIZED CASH WAS ADDED TO THE INCOME DURING THE YEAR OF SEARCH AND NOT IN RELATION TO ANY OF THE OTHER AYS I.E., AYS 2000-01 TO 2004-05. THE DOCUMENTS AS STATED BY THE REVENUE 8 IN ITS MEMORANDUM OF APPEAL IN ITA NO. 306/2017 VIZ., ANNEXURES A1, A3 TO A5 STATED TO PERTAIN TO AY 2003-04, 2005-06, 2004-05, AND 2006-07 RESPECTIVELY HAVE NEITHER BEEN DESCRIBED AS SUCH OR IN ANY DETAIL BY THE REVENUE EITHER IN THESE APPEALS. THEY HAVE NOT BEEN REFERRED TO OR DISCUSSED IN ANY OF THE ORDERS OF THE AO OR THE CIT (A). ALTHOUGH IT WAS REPEATEDLY URGED BY MR. MANCHANDA THAT THERE WERE 'HUNDREDS OF SEIZED DOCUMENTS', WHAT IS NECESSARY TO EXAMINE IS WHETHER THEY WERE IN FACT 'INCRIMINATING DOCUMENTS'. ANY AND EVERY DOCUMENT CANNOT BE AND IS IN FACT NOT AN INCRIMINATING DOCUMENT. THE LEGAL POSITION, AS WILL BE DISCUSSED SHORTLY, IS THAT THERE CAN BE NO ADDITION MADE FOR A PARTICULAR ASSESSMENT YEAR WITHOUT THERE BEING AN INCRIMINATING MATERIAL QUA THAT ASSESSMENT YEAR WHICH WOULD JUSTIFY SUCH AN ADDITION. THEREFORE, THE MERE FACT THERE MAY HAVE BEEN DOCUMENTS PERTAINING TO THE ABOVE ASSESSMENT YEARS DOES NOT SATISFY THE REQUIREMENT OF LAW THAT THERE MUST BE INCRIMINATING MATERIAL. IN ANY EVENT, THE 9 AFOREMENTIONED DOCUMENTS I.E., A1, A3, A4 AND A5 PERTAIN TO ONLY SOME OF THE AYS WITH WHICH WE ARE CONCERNED I.E., ASSESSMENT YEARS 2003-04, AND 2004-05. THE COURT IS UNABLE TO ACCEPT THE SUBMISSIONS OF MR. MANCHANDA THAT THERE WAS INCRIMINATING MATERIAL OTHER THAN WHAT HAS BEEN DISCUSSED IN THE ORDERS OF THE ASSESSING OFFICER, C IT (APPEALS) AND THE ITAT FOR THE ASSESSMENT YEARS IN QUESTION. 10. IN THE ABOVE SAID JUDGMENT, HONBLE DELHI HIGH COURT HAS GIVEN THESE OBSERVATIONS AFTER CONSIDERING LAW IN DETAIL IN THIS REGARD AND JUDGMENTS RELIED UPON BY THE LEARNED CIT-DR HAVE ALSO BEEN CONSIDERED. 11. NO CONTRARY JUDGMENT HAS BEEN PLACED BEFORE US BY THE REVENUE. THUS, WE ARE BOUND BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. THUS, THE LAW THAT EMERGES BEFORE US IS THAT NO DISALLOWANCE COULD HAVE BEEN MADE U/S 40A(3) IN ABSENCE OF ANY INCRIMINATING MATERIAL DISCOVERED DURING THE COURSE OF SEARCH. IN T HE 10 FACTS OF THE CASE BEFORE US, AS IS ALSO CLEAR FROM THE PERUSAL OF THE ORDER PASSED BY ASSESSING OFFICER AS WELL AS THE LEARNED CIT (APPEALS), THE IMPUGNED DISALLOWANCE HAS BEEN MADE ONLY ON THE BASIS O F INQUIRES MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT HAS ALSO BEEN CONTENDED BY THE REVENUE THAT SOME PURCHASE DEEDS WERE ALSO SEIZED DURING THE COURSE OF SEARCH INDICATING PURCHASE OF LAND BY THE ASSESSEE. WE HAVE CONSIDERED THIS ARGUMENT ALSO. THE PERUSAL OF ABOVE SAID ORDER OF HONBLE DELHI HIGH COURT WOULD MAKE IT CLEAR THAT THE REGISTERED PURCHASE DEEDS WOULD NOT BY THEMSELVES BECOME INCRIMINATING MATERIAL. THUS, TAKING INTO ACCOUNT ALL THE FACTS OF THIS CASE AND POSITION OF LAW AS H AS BEEN SETTLED BY HONBLE DELHI HIGH COURT, IT IS CLEAR THAT DISALLOWANCE MADE U/S 40A(3) BY ASSESSING OFFICER IS WITHOUT JURISDICTION IN AS MUCH AS THE SAME IS MADE IN ABSENCE OF ANY INCRIMINATING MATERIAL AND THEREFORE THE SAME DESERVES TO BE DELETED ON THIS GROUND ITSELF. 11 12. FURTHER, IT IS NOTED THAT THE IMPUGNED TRANSACTION HAS BEEN DULY RECORDED IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. IT WAS ALSO SHOWN THAT THE PARTICULARS OF PAYMENT MADE IN CASH ON ACCOUNT OF PURCHASE OF LAND HAVE BEEN PICKED UP FROM THE PURCHASE DEEDS WHICH ARE DULY REGISTERED AND ALL THE PAYEES ARE DULY IDENTIFIED. IN FACT, NO DOUBT HAS BEEN EXPRESSED WITH REGARD TO GENUINENESS OF THE PAYMENT IN THE ORDERS PASSED BY THE LOWER AUTHORITIES. IN THIS REGARD, LEARNED COUNSEL PLACED RELIANCE ON VARIOUS JUDGMENTS IN SUPPORT OF THE PROPOSITION THAT NO DISALLOWANCE SHOULD BE MADE UNDER SECTION 40A(3) WHEN PAYEES ARE IDENTIFIED AND GENUINENESS OF PAYMENT IS NOT DOUBTED. 13. WE NOTICED IN THIS REGARD THAT KOLKATA BENCH OF TRIBUNAL IN THE CASE OF SRI MANORANJAN RAHA VS. ITO (SUPRA) HAS DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER :- 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND 12 THAT THE PAYMENTS MADE BY CASH IN VIOLATION OF SECTION 40A(3) OF THE ACT HAVE BEEN DULY ACKNOWLEDGED BY THE RECIPIENT SHRI AMITDUTTA WHO HAD DEPOSED BEFORE THE LEARNED AO AND CONFIRMED THE FACT OF RECEIPT OF MONIES IN CASH. HENCE THE GENUINITY OF PAYMENTS MADE BY THE ASSESSEE STANDS CLEARLY ESTABLISHED BEYOND DOUBT. EVEN FOR THE AMOUNTS ENHANCED BY LEARNED CITA IN THE SUM OF RS. 54,01,473/-, THE GENUINENESS OF THE PAYMENTS AND THE NECESSITY TO INCUR THE SAID EXPENDITURE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE WAS NEVER DISPUTED BY THE LEARNED CIT(A). WE HOLD THAT SINCE THE GENUINITY OF THE PAYMENTS MADE TO THE PARTIES IS NOT DOUBTED BY THE REVENUE, THE PROVISIONS OF SECTION 40A(3) COULD NOT BE MADE APPLICABLE TO THE FACTS OF THE INSTANT CASE. IT WILL BE PERTINENT TO GO INTO THE INTENTION BEHIND INTRODUCTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AT THIS JUNCTURE. WE FIND THAT THE SAID PROVISION WAS INSERTED BY FINANCE ACT 1968 WITH THE OBJECT OF CURBING EXPENDITURE IN CASH AND TO COUNTER TAX EVASION. THE CBDT CIRCULAR NO. 6P DATED 6.7.1968 REITERATES THIS VIEW THAT 'THIS 13 PROVISION IS DESIGNED TO COUNTER EVASION OF A TAX THROUGH CLAIMS FOR EXPENDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE AND REASONABLENESS OF THE PAYMENT.' 4.4. IN THIS REGARD, IT IS PERTINENT TO GET INTO THE FOLLOWING DECISIONS ON THE IMPUGNED SUBJECT :- ATTAR SINGH GURMUKH SINGH VS ITO REPORTED IN (1991) 191 ITR 667 (SC) 'SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, WHICH PROVIDES THAT EXPENDITURE IN EXCESS OF RS.2,500 (RS.10,000 AFTER THE 1987 AMENDMENT) WOULD BE ALLOWED TO BE DEDUCTED ONLY IF MADE BY A CROSSED CHEQUE OR CROSSED BANK DRAFT (EXCEPT IN SPECIFIED CASES) IS NOT ARBITRARY AND DOES NOT AMOUNT TO A RESTRICTION ON THE FUNDAMENTAL RIGHT TO CARRY ON BUSINESS. IF READ TOGETHER WITH RULE 6DD OF THE INCOME-TAX RULES, 1962, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES . 14 SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. 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 PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE SHRIMANORAJANRAHA OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK 15 DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A( 3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. ' CIT VS CPL TANNERY REPORTED IN (2009) 318 ITR 179 (CAL) THE SECOND CONTENTION OF THE ASSESSEE THAT OWING TO BUSINESS EXPEDIENCY, OBLIGATION AND EXIGENCY, THE ASSESSEE HAD TO MAKE CASH PAYMENT FOR PURCHASE OF GOODS SO ESSENTIAL FOR CARRYING ON O F HIS BUSINESS, WAS ALSO NOT DISPUTED BY THE AO. THE GENUINITY OF TRANSACTIONS, RATE OF GROSS PROFIT OR TH E FACT THAT THE BONAFIDE OF THE ASSESSEE THAT PAYMENTS ARE MADE TO PRODUCERS OF HIDES AND SKIN ARE ALSO NEITHER DOUBTED NOR DISPUTED BY THE AO. ON THE BASIS OF THESE FACTS IT IS NOT JUSTIFIED ON TH E PART OF THE AO TO DISALLOW 20% OF THE PAYMENTS MADE U/S 40A(3) IN THE PROCESS OF ASSESSMENT. WE, THEREFORE, DELETE THE ADDITION OF RS. 17,90,571/AND GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 16 CIT VS CRESCENT EXPORT SYNDICATE IN ITA NO. 202 OF 2008 DATED 30.7.2008 - JURISDICTIONAL HIGH COURT DECISION 'IT ALSO APPEARS THAT THE PURCHASES HAVE BEEN HELD TO BE GENUINE BY THE LEARNED CIT(APPEAL) BUT THE LEARNED CIT(APPEAL) HAS INVOKED SECTION 40A(3) FOR PAYMENT EXCEEDING RS.20,000/- SINCE IT IS NOT MADE BY CROSSED CHEQUE OR BANK DRAFT BUT BY HEARER CHEQUES AND HAS COMPUTED THE PAYMENTS FALLING UNDER PROVISIONS TO SECTION 40A(3) FOR RS.78,45,580/- AND DISALLOWED @20% THEREON RS.15,69,116/-. IT IS ALSO MADE CLEAR THAT WITHOUT THE PAYMENT BEING MADE BY BEARER CHEQUE THESE GOODS COULD NOT HAVE BEEN PROCURED AND IT WOULD HAVE HAMPERED THE SUPPLY OF GOODS WITHIN THE STIPULATED TIME. THEREFORE, THE GENUINENESS OF THE PURCHASE HAS BEEN ACCEPTED BY THE LD. CIT (APPEAL) WHICH HAS ALSO NOT BEEN DISPUTED BY THE DEPARTMENT AS IT APPEARS FROM THE ORDER SO PASSED BY THE LEARNED TRIBUNAL. IT FURTHER APPEARS FROM THE ASSESSMENT ORDER THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(APPEAL) HAS DISBELIEVED THE 17 GENUINENESS OF THE TRANSACTION. THERE WAS NO DISPUTE THAT THE PURCHASES WERE GENUINE. ' ANUPAM TELE SERVICES VS ITO IN (2014) 43 TAXMANN.COM 199 (GUJ) 'SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WITH RULE 6DD OF THE INCOME-TAX RULES, 1962 - BUSINESS DISALLOWANCE - CASH PAYMENT EXCEEDING PRESCRIBED LIMITS (RULE 6DD(J)-ASSESSMENT YEAR 2006-07 ASSESSEE WAS WORKING AS AN AGENT OF TATA TELE SERVICES LIMITED FOR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS - PRINCIPAL COMPANY TATA INSISTED THAT CHEQUE PAYMENT FROM ASSESSEE'S CO-OPERATIVE BANK WOULD NOT DO, SINCE REALIZATION TOOK LONGER TIME AND SUCH PAYMENTS SHOULD BE MADE ONLY IN CASH IN THEIR BANK ACCOUNT - IF ASSESSEE WOULD NOT MAKE CASH PAYMENT AND MAKE CHEQUE PAYMENTS ALONE, IT WOULD HAVE RECEIVED RECHARGE VOUCHERS DELAYED BY 4/5 DAYS WHICH WOULD SEVERELY AFFECT ITS BUSINESS OPERATION - ASSESSEE, THEREFORE, MADE CASH PAYMENT - WHETHER IN VIEW OF ABOVE, NO DISALLOWANCE UNDER SECTION 40A (3) WAS TO BE MADE 18 IN RESPECT OF PAYMENT MADE TO PRINCIPAL - HELD, YES [ PARAS 21 TO 23] [ IN FAVOUR OF THE ASSESSE] ' SRI LAXMISATYANARAYANA OIL MILL VS CIT REPORTED IN (2014) 49 TAXMANN.COM 363 (ANDHRAPRADESH HIGH COURT) 'SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WITH RULE 6DD OF THE INCOME-TAX RULES, 1962 - BUSINESS DISALLOWANCE - CASH PAYMENT EXCEEDING PRESCRIBED LIMIT (RULE 6DD) ASSESSEE MADE CERTAIN PAYMENT OF PURCHASE OF GROUND NUT IN CASH EXCEEDING PRESCRIBED LIMIT ASSESSEE SUBMITTED THAT HER MADE PAYMENT IN CASH BECAUSE SELLER INSISTED ON THAT AND ALSO GAVE INCENTIVES AND DISCOUNTS - FURTHER, SELLER ALSO ISSUED CERTIFICATE I N SUPPORT OF THIS - WHETHER SINCE ASSESSEE HAD PLACED PROOF OF PAYMENT OF CONSIDERATION FOR ITS TRANSACTION TO SELLER, AND LATER ADMITTED PAYMENT AND THERE WAS NO DOUBT ABOUT GENUINENESS OF PAYMENT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A(3) - HELD, YES [ PARA 23] [IN FAVOUR OF THE ASSESSEE] ' CIT VS SMT. SHELLY PASSI REPORTED IN (2013) 350 ITR 227 (P&H) IN THIS CASE THE COURT UPHELD THE VIEW OF 19 THE TRIBUNAL IN NOT APPLYING SECTION 40A(3) OF THE ACT TO THE CASH PAYMENTS WHEN ULTIMATELY, SUCH AMOUNTS WERE DEPOSITED IN THE BANK BY THE PAYEE4.5. IT IS PERTINENT TO NOTE THAT THE PRIMARY OBJECT OF ENACTING SECTION 40A(3) WAS TWO FOLD, FIRSTLY, PUTTING A CHECK ON TRADING TRANSACTIONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTION AND, SECONDLY, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABITS. THEREFORE, THE CONSEQUENCE, WHICH WERE TO BEFALL ON ACCOUNT OF NON- OBSERVATION OF SECTION 40A(3) MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THEREFORE, THE GENUINENESS OF THE TRANSACTIONS IT BEING FREE FROM VICE OF ANY DEVICE O F EVASION OF TAX IS RELEVANT CONSIDERATION. 4.6. THE HON'BLE APEX COURT IN THE CASE OF CTO VS SWASTIK ROADWAYS REPORTED IN (2004) 3 SCC 640 HAD HELD THAT THE CONSEQUENCES OF NON-COMPLIANCE OF MADHYAPRADESH SALES TAX ACT , WHICH WERE INTENDED TO CHECK THE EVASION AND AVOIDANCE OF 20 SALES TAX WERE SIGNIFICANTLY HARSH. THE COURT WHILEUPHOLDING THE CONSTITUTIONAL VALIDITY NEGATED THE EXISTENCE OF A MENSREA AS A CONDITION NECESSARY FOR LEVY OF PENALTY FOR NON-COMPLIANCE WITH SUCH TECHNICAL PROVISIONS REQUIRED HELD THAT 'IN THE CONSEQUENCE TO FOLLOW THERE MUST BE NEXUS BETWEEN THE CONSEQUENCE THAT BEFALL FOR NON- COMPLIANCE WITH SUCH PROVISIONS INTENDED FOR PREVENTING THE TAX EVASION WITH THE OBJECT OF PROVISION BEFORE THE CONSEQUENCE CAN BE INFLICTED UPON THE DEFAULTER.' THE SUPREME COURT HAS OPINED THAT THE EXISTENCE OF NEXUS BETWEEN THE TAX EVASION BY THE OWNER OF THE GOODS AND THE FAILURE OF C & F AGENT TO FURNISH INFORMATION REQUIRED BY THE COMMISSIONER IS IMPLICIT IN SECTION 57(2) AND THE ASSESSING AUTHORITY CONCERNED HAS TO NECESSARILY RECORD A FINDING TO THIS EFFECT BEFORE LEVYING PENA LTY U/S. 57(2). THOUGH IN THE INSTANT CASE, THE ISSUE INVOLVED IS NOT WITH REGARD TO THE LEVY OF PENALTY, BUT THE 21 REQUIREMENT OF LAW TO BE FOLLOWED BY THE ASSESSEE WAS OF AS TECHNICAL NATURE AS WAS IN THE CASE OF SWASTIK ROADWAYS (3 SCC 640) AND THE CONSEQUENCE TO FALL FOR FAILURE TO OBSERVE SUCH NORMS IN THE PRESENT CASE ARE MUCH HIGHER THAN WHICH WERE PRESCRIBED UNDER THE MADHYA PRADESH SALES TAX ACT. APPARENTLY, IT IS A RELEVANT CONSIDERATION FOR THE ASSESSING AUTHORITY UNDER THE INCOME TAX ACT THAT BEFORE INVOKING THE PROVISIONS OF SECTION 40A(3) IN THE LIGHT OF RULE 6DD AS CLARIFIED BY THE CIRCULAR OF THE CBDT THAT WHETHER THE FAILURE ON THE PART OF THE ASSESSEE IN ADHERING TO REQUIREMENT OF PROVISIONS OF SECTION 40A(3) HAS ANY SUCH NEXUS WHICH DEFEATS THE OBJECT OF PROVISION SO AS TO INVITE SUCH A CONSEQUENCE. WE HOLD THAT THE PURPOSE OF SECTION 40A(3) IS ONLY PREVENTIVE AND TO CHECK EVASION OF TAX AND FLOW OF UNACCOUNTED MONEY OR TO CHECK TRANSACTIONS WHICH ARE NOT GENUINE AND MAY BE PUT AS CAMOUFLAGE TO EVADE TAX BY SHOWING FICTITIOUS OR FALSE TRANSACTIONS. ADMITTEDLY, THIS IS NOT THE CASE IN THE FACTS OF THE ASSESSEE HEREIN. THE PAYMENTS MADE IN 22 CASH TO SHRI. AMIT DUTTA HAD BEEN DULY ACKNOWLEDGED BY HIM IN AN INDEPENDENT DEPOSITION GIVEN BY HIM BEFORE THE LEARNED AO WHICH WAS ADMITTEDLY TAKEN BEHIND THE BACK OF THE ASSESSEE. IT IS ALSO PERTINENT TO NOTE THAT THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF SMT. HARSHILA CHORDIA VS ITO REPORTED IN (2008) 298 ITR 349 (RAJ) HAD HELD THAT THE EXCEPTIONS CONTAINED IN RULE 6DD OF INCOME TAX RULES ARE NOT EXHAUSTIVE AND THAT THE SAID RULE MUST BE INTERPRETED LIBERALLY. 14. THE ABOVE JUDGMENT HAS BEEN FOLLOWED BY KOLKATA BENCH IN THE CASE OF MR. NIRMAL KUMAR DAS VS. ACIT (SUPRA). SIMILAR VIEW IS TAKEN BY HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SMT. HARSHILA CHORDIA VS. ITO (SUPRA). SIMILARLY, HONB LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF GURDAS GARG VS. CIT (SUPRA), HAS HELD THAT WHERE GENUINENESS OF TRANSACTIONS MADE IN CASH IN EXCESS OF RS.20,000 WAS NOT DISBELIEVED BY AUTHORITIES, SAME CANNOT BE DISALLOWED UNDER SECTION 40A(3). 23 THUS, ON THIS GROUND ALSO, WE FIND THAT DISALLOWANCE MADE BY ASSESSING OFFICER UNDER SECTION 40A(3) IS NOT SUSTAINABLE. 15. THEREFORE, KEEPING IN VIEW BOTH THE ASPECTS AS DISCUSSED ABOVE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE AND WRONGLY CONFIRMED BY THE LEARNED CIT (APPEALS) AND, THEREFORE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE SAME. 16. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 6.1 WE FURTHER NOTE THAT ITAT, JAIPUR A BENCH VIDE ITS DECISION DATED 12.08.2011 PASSED IN ITA NO. 79/JP/2011 (AY 2 007-08) IN THE CASE OF M/S ACE INDIA ABODES LTD. VS. ACIT HAS HE LD IN PARA NO. 15 & 16 AT PAGE NO. 12 & 13 AS UNDER- 15. WE FURTHER NOTED THAT THE BOARD HAD OCCASION TO DEAL WITH SEVERAL REPRESENTATIONS FROM VARIOUS CHAMBERS OF COMMERCE, TRADE ASSOCIATIONS AND BUSINESSMEN REGARDING THE SCOPE OF PROVISIONS OF SECTION 40A(3) OF THE IT ACT, 1961, AND RULE 6DD OF IT RULES, 1962. 24 SINCE MANY OF THE POINTS RAISED THEREIN WERE OF AN IMPORTANT NATURE, THE CLARIFICATIONS THEREON WAS ISSUED BY THE BOARD BY CIRCULAR NO. 33 DATED 29.12.1969 WHEREIN IT WAS CLARIFIED THAT THE PROVISIONS OF SECTION 40A(3) WOULD APPLY IN COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, WHERE ANY EXPENDITURE HAS BEEN INCURRED. THE BOARD CIRCULAR SUPPORTS THE CASE OF THE ASSESSEE AS ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE ON ACCOUNT OF PURCHASE OF AGRICULTURAL LAND FROM FARMERS UNDER THE HEADS PROFITS AND GAINS OF BUSINESS OR PROFESSION. 16. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE HOLD THAT SINCE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE, THEREFORE, NO DISALLOWANCE CAN BE MADE DURING THE YEAR UNDER CONSIDERATION. 6.2 AFTER PERUSING THE AFORESAID DECISIONS OF THE VARI OUS COURTS INCLUDING THE TRIBUNAL DECISIONS, WE ARE OF THE CONSI DERED VIEW THAT THE ISSUE OF DISALLOWANCE U/S. 40A(3) AMOUNTING TO RS . 32,87,330/- 25 IS SQUARELY COVERED BY THE DECISIONS AS DISCUSSED AB OVE, HENCE, DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) U/S. 40A(3) IS NOT SUSTAINABLE, THEREFORE, RESPECTFULLY FOL LOWING THE AFORESAID PRECEDENTS, WE DELETE THE ADDITION IN DISPU TE AND ALLOW THE GROUND NO. 2 RAISED BY THE ASSESSEE. 7. AS REGARDS GROUND NO. 3 RELATING TO CONFIRMATION O F DISALLOWANCE OF RS. 28,29,600/- BEING FINANCE CHARG ES ON LOAN TAKEN FROM PARENT COMPANY IS CONCERNED, WE FIND THAT THIS AD DITION IS NOT TENABLE BECAUSE IN THIS CASE NO INCRIMINATING MATERIA L WAS FOUND DURING THE COURSE OF SEARCH, HENCE, THIS GROUND IS AL SO ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE ST ANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/01/2018. SD/- SD/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 22/01/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. ASSESSEE - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHE S