M/s. PIONEER ENGINEERING INDUSTRIES, Ujjain V. The ITO 2(1), Ujjain

ITA 619/IND/2014

• Counselvise Citation: 61922714 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 30-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: C P RAWKA
• Keywords: Principle of natural justice
• Section: 40A(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE (SINGLE MEMBER CASE) BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER I.T.A.NO.619/IND/2014 A.Y. : 2006-07 M/S.PIONEER ENGINEERING INDUSTRIES , VS. ITO, 2(1), UJJAIN APPELLANT RESPONDENT PAN NO.AABFP6418L A PPELLANT S BY : SHRI C.P.RAWKA, C. A. RESPONDENT BY : SHRI R. A. VERMA, DR O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A), UJJAIN, DATED 4.7.2014, FOR THE ASSESSME NT YEAR 2006-07. DATE OF HEARING : 15. 10 .2015 . DATE OF PRONOUNCEMENT : 02.11 .2015 M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 2 2 2. THE ASSESSEE FIRM IS DOING THE BUSINESS OF MANUFACTURING AND CASTING OF SEWING MACHINE STAND. THE ASSESSEE IS PURCHASING SCRAP AS RAW MATERIAL FROM T HE MARKET AND DOING THE CASTING WORK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE PAYMENT OF FRE IGHT MADE TO THE TRANSPORTER STATING THAT THE CLAIM OF EXPEND ITURE IS NOT DOUBTED BUT AS THE SAME IS IN CONTRAVENTION OF THE PROVISIONS OF LAW HENCE AO DISALLOWED RS. 1,23,575/- BEING 20 % OF RS. 5,91,144/-. THE AO OBJECTED TRUCK OWNERS WERE PAID IN CASH. THEREFORE, THE AO HAS DISALLOWED 20% OF THE CLAIM. 3. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER :- 4.2.1 THE APPELLANTS SUBMISSION THAT THE PAYMENT MADE WAS GENUINE IS NOT SUFFICIENT. IT IS IMPERATIVE ON THE PART OF THE APPELLANT TO FOLLOW T HE PROVISIONS OF SECTION 40A(3) WHICH THE APPELLANT FAILED TO DO. THE APPELLANT'S ARGUMENT IS MOSTLY BASED ON BUSINESS EXPEDIENCY. THIS ARGUMENT OF THE APPELLANT IS NOT ACCEPTABLE BECAUSE ALL TRANSPORTER S M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 3 3 TO WHOM PAYMENT IS MADE ARE HAVING BANK ACCOUNT. RULE 6DD UNDER CLAUSE 'J' BEFORE 1995 PROVIDED THE EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES OR IN THE CASE OF HAVING GENUINE DIFFICULTY TO THE PAYEE. HOWEVER, THIS CLAUSE HAS BEEN REMOVED FROM 1995 AND SUBSEQUENTLY CLAUSE 'J' PROVIDES EXCEPTION ONLY WHERE THE PAYMENT IS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE. THE APPELLANT'S CASE IS NOT FALL ING WITHIN THE AMENDED RULE OF 6DD. 4.2.2 HON'BLE SUPREME COURT FURTHER HELD IN THE CASE OF ATTAR SINGH GUNNUKH VS ITO (1991) 191 ITR 667 '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 SECTION 40A(3) AND RUL E 6DD THAT THEY ARE INTENDED TO REGULATE THE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 4 4 MONEY OR REDUCE THE CHANCES TO USE BLACK-MONEY FOR BUSINESS TRANSACTIONS. ANY RESTRAINT INTENDED TO CU RB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLAC K MONEY SHOULD NOT BE REGARDED AS CURTAILING THE FREEDOM OF TRADE OR BUSINESS '. 4.2.3 IN THIS CONTEXT, HON'BLE SUPREME COURT HELD IN THE CASE OF ATTAR SINGH GURRNUKH VS ITO (1991) 191 ITR 667 'THE WORD 'EXPENDITURE' HAS NOT BEEN DEFINED IN THE ACT. IT IS A WORD OF WIDE IMPOR T. SECTION 40A(3) REFERS TO THE EXPENDITURE INCURRED B Y THE ASSESSEE IN RESPECT OF WHICH PAYMENT IS MADE. I T MEANS ALL OUTGOINGS ARE BROUGHT UNDER THE WORD 'EXPENDITURE' FOR THE PURPOSE OF THE SECTION. THE EXPENDITURE FOR PURCHASING STOCK-IN-TRADE IS ONE OF SUCH OUTGOINGS. THE VALUE OF THE STOCK-IN-TRADE HAS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE GROSS PROFITS UNDER SECTION 28 ON PRINCIPLES OF COMMERCIAL ACCOUNTING. THE PAYMENTS MADE FOR PURCHASES WOULD ALSO BE COVERED BY THE WORD 'EXPENDITURE' AND SUCH M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 5 5 PAYMENTS CAN BE DISALLOWED IF THEY ARE MADE IN CASH IN THE SUMS EXCEEDING THE AMOUNT SPECIFIED UNDER SECTION 40A(3). AS STATED ABOVE RULE 6DD HAS TO BE READ ALONGWITH SECTION 40A(3). THE RULE ALSO CONTEMPLATES PAYMENTS MADE FOR STOCK-IN-TRADE AND IN RAW-MATERIALS. THIS RULE IS IN ACCORDANCE WITH T HE TERMS OF SECTION 40A(3). THE RULE PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENTS OF PAYMENT BY CROSSED CHEQUE OR A CROSSED BANK DRAFT WHERE THE PURCHASES ARE MADE ON CERTAIN AGRICULTURAL OR HORTICULTURAL COMMODITIES OR FROM A VILLAGE WHERE THERE IS NO BANKING FACILITY. SECTION 40A(3) IS, THEREFORE, ATTRACTED TO PAYMENTS MADE FO R ACQUIRING STOCK-IN-TRADE AND OTHER MATERIALS. ' IN THE CASE OF THE APPELLANT ALSO THE PAYMENT FOR FREIGHT WERE MADE AND THEREFORE, THE SAME FALLS WITHIN THE PURVIEW OF SECTION 40A(3). THE CASE LAWS CITED BY THE APPELLANT ARE DISTINGUISHABLE AND SO A RE MISPLACED. SO, THE ARGUMENTS OF THE APPELLANT ARE M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 6 6 REJECTED. 4.2.5 THE LANGUAGE U/S 40A(3) IS VERY CLEAR. THERE IS NO AMBIGUITY IN THE INTERPRETATION CAN BE MADE. AS PER LAW NO PAYMENT MORE THAN RS. 20,000/- CAN BE MADE OTHERWISE OTHER THAN AS PROVIDED IN INCOME-TAX ACT, 1961. THEREFORE, NO OTH ER INTERPRETATION IS ACCEPTABLE. THE APPELLANT HAS VIOLATED THE PROVISIONS OF THE ACT, THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS GROUND IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 4. I AM OF THE VIEW THAT THE LD. CIT(A) HAS RELIED UPO N THE DECISION OF ATTAR SINGH GURMUKH VS. ITO (1991) 191 ITR 667, AND NO CONTRARY DECISION IS SUBMITTED AGAINST THE F IND OF LD. CIT(A). THEREFORE, I CONFIRM THE SAME. 5. THE SECOND GROUND RELATES TO 1,18,400/- BEING CREDI T BALANCE OF SUPPLIER. M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 7 7 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THERE IS OUTSTANDING BALANCE AGAINST M/S . T. R. AGRAWAL & BROTHERS AT RS. 1,18,400/-. DURING THE AS SESSMENT PROCEEDINGS, THE AO HAS ASKED FOR CONFIRMATION OF T HE PARTY WHETHER BALANCE IS OUTSTANDING OR NOT AND THE ASSES SEE DID NOT FURNISH DETAILS OF LIABILITY ARISEN. THEREFORE, THE AO HAS TREATED THIS LIABILITY AS UNPROVED LIABILITY. 7. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS HELD THAT AS REGARDS THE LIABILITY IN THE NAME OF M/S. T. R. AGRAWAL & BROTHERS, THE AMOUNT IS OUTSTANDING SINCE LONG. THE ASSESSEE HAS NOT FURNISHED DETAILS OF LIABILITY ARISEN. THE PARTY DOES NOT CONFIRM THE LIABILITY AND IN ABSENCE OF CONFIRMATION, THE LIABILITY IS TREATED AS NOT PROVE D. THE LD. CIT(A) IN HIS ORDER HAS DISMISSED THE APPEAL. 8. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT SH RI AGRAWAL NOR THE ASSESSEE HAS WRITTEN OFF THIS AMOUN T IN THE BOOKS OF ACCOUNT MERELY BECAUSE THE ASSESSEE DID NO T OBTAIN THE CONFIRMATION FROM THE CREDITOR DOES NOT AMOUNT TO M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 8 8 CESSATION OF LIABILITY AND, THEREFORE, HE HAS REQUE STED TO CANCEL THE SAME. 9. I FIND THAT IT IS THE DUTY OF THE ASSESSEE TO PROV E THE CLAIM BEFORE THE AO AND IN ABSENCE OF CONFIRMATION, THE LD. CIT(A) IS JUSTIFIED IN TREATING THE SAME AS UNPROVE D LIABILITY AND MY INTERFERENCE IS NOT CALLED FOR. 10. THIRD GROUND RELATES TO MAKING THE ADDITION OF RS. 2,85,040/- BEING AMOUNT OF PURCHASES. 11. THE AO HAS CALLED FOR TO PROVE THE LIABILITY OF RS. 2,85,040/- IN THE NAME OF M/S. YESH STEELS, UJJAIN. THE ASSESSEE WAS ALSO ASSESSED TO TAX BY THE SAME AO. T HEREFORE, HE HAS VERIFIED THE AUDITED BALANCE SHEET FILED BY SHRI TIMIR JAIN AND IN THAT CASE SHRI TIMIR JAIN HAS NOTED ACC OUNTED THESE GOODS. THEREFORE, HIS STATEMENT WAS RECORDED. AFTER RECORDING THE STATEMENT, FROM PERUSAL AND ANALYSIS OF THE STATEMENT, THE ASSESSEES CLAIM WAS NOT SUPPORTED B Y ANY MATERIAL EVIDENCE. THEREFORE, WHEN SHRI TIMIR JAIN DISPUTED THE PURCHASE, THE AO ADDED THE AMOUNT OF RS. 2,85, 040/- TO THE TOTAL INCOME OF THE ASSESSEE AS INFLATED PURCHA SE. M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 9 9 12. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS CONFIRMED THE ADDITION. 13. I HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PART IES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, I FIND THAT THE AO HAS RECORDED THE STATEMENT OF SHRI TIMIR JAI N BEHIND THE BACK OF THE ASSESSEE IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THEREFORE, I REMAND THIS MATTER BACK TO TH E FILE OF AO FOR CROSS EXAMINATION OF SHRI TIMIR JAIN AND THEN T O DECIDE THE MATTER AFRESH. 14. GROUND NO. 4 IS NOT PRESSED. HENCE, IT IS DISMISSED . 15. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OP EN COURT ON 2 ND NOVEMBER, 2015. SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED :2 ND NOVEMBER, 2015. CPU* M/S.PIONEER ENGG. INDUSTRIES, UJJAIN VS. ITO, 2(1), UJJAIN, I.T.A.NO. 619/IND/2014 A. Y. 2006-09 10 10 1526