ITO, Hapur V. M/s. Jai Mata Timber, Hapur

ITA 6275/DEL/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7135 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC 2
• Next Hearing Date: 27-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 26-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: RK GARG
• Keywords: Unexplained expenditure; Notional interest; Onus to prove
• Section: 40A(3); 143(3); 142(1); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC-2 : NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO.6275/DEL/2015 ASSESSMENT YEAR : 2010-11 ITO, WARD-3(4), HAPUR. VS. JAI MATA TIMBER, GARH ROAD, HAPUR. PAN: AAEFJ0414H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K. GARG, ADVOCATE DEPARTMENT BY : SHRI S.K. JAIN, SR.DR DATE OF HEARING : 28.12.2016 DATE OF PRONOUNCEMENT : 06.01.2017 ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAIN ST THE ORDER OF THE LD. CIT(A) DATED 20 TH AUGUST, 2015. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER:- ITA NO.6275/DEL/2015 2 1. THE LD OT(A) HAS ERRED IN LAW AS WELL ON FACTS IN DELETING THE ADDITION OF RS.14,29,235/- MADE BY THE A.O. ON ACCO UNT OF UNVERIFIABLE SUNDRY CREDITORS. 2. THE LD CIT(A) HAS ERRED IN LAW AS WELL AS ON FAC TS IN DELETING THE ADDITION OF RS.32,38,796/- IN RESPECT OF CASH PAYMENTS MADE TO THE PARTIES SPLITTING THE AMOUNT TO BELOW RS.20,000 /- IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT, INSPITE OF THE FACT THAT IT WAS HAVING SUFFICIENT CASH BALANCE. 3. THE LD C!T(A) HAS ERRED IN LAW AS WELL AS ON FAC TS IN DELETING THE ADDITION OF RS.2,70,460/- MADE BY THE A.O. ON A CCOUNT OF INTEREST CORRESPONDING TO THE AMOUNTS OUTSTANDING A GAINST DEBTORS. 5. THEREFORE, THE ORDER OF LD CIT(A) MAY BE SET ASI DE AND THAT OF THE A.O BE RESTORED. 2. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSMENT ORDER IS A VERY BRIEF ORDER RUNNING INTO TWO PAGES ONLY. IN ORDER TO APP RECIATE THE FACTS ON ALL THESE ISSUES, I WOULD LIKE TO TAKE NOTE OF THE DISCUSSION MADE BY THE ASSESSING OFFICER WHICH READS AS UNDER:- ASSESSMENT ORDER ASSESSEE FIRM E-FILED ITS RETURN OF INCOME ON 29/ 09/2010 DECLARING TOTAL INCOME OFRS.20,680/-. RETURN WAS PR OCESSED U/S 143(1) BY CPC. CASE SELECTED FOR SCRUTINY. NOTICE U /S 143(2) WAS ISSUED ON 28/09/2011 AND DULY SERVED. FURTHER NOTIC E U/S 142(1) WAS ISSUED ON 29/05/2012 & 01/10/2012. IN COMPLIANCE TO THESE NOTICES, SHRI R.K GARG, ADVOCATE, ATTENDED, FILED REPLY AND PRODUCED BOOKS OF ACCOUNT. CASE DISCUSSED AND BOOKS OF ACCOUNTS PUT T O TEST CHECK. . ITA NO.6275/DEL/2015 3 ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF TIMBER/GLASS UNDER THE NAME & STYLE OF M/S JAI MATA TIMBERS, HAP UR. ASSESSEE FIRM HAS SHOWN QROSS PROFIT OF RS.16,35,102/- AGAIN ST GROSS SALES OF RS.2,30,09,860/- @ 7.10 %. DETAILS FURNISHED BY TH E ASSESSEE FIRM THROUGH COUNSEL REVEAL THAT THERE ARE TWO PARTIES N AMELY M/S JAI MATA TIMBER & PLYWOOD, GZB AND M/S SONU SPORTS INDUSTRIE S, MEERUT. CREDIT AMOUNT AGAINST THESE STANDS RS.7,33,115/- AN D RS.6,96,120/- RESPECTIVELY. CONFIRMATION LETTERS SENT ON THE ADDR ESS GIVEN BY THE ASSESSEE WERE SENT IN THE CASE OF M/S JAI TIMBERS & PLYWOOD, GZB, IT WAS RECEIVED UNSERVED WITH REMARKS OF EMPTY PLOT. I N THE CASE OF M/S SONU SPORTS INDUSTRIES, MEERUT, LETTER WAS SERVED B UT REPLY NOT RECEIVED. VIDE ORDER SHEET ENTRY DATED 27/02/2013, ASSESSEE WAS REQUIRED TO SHOW CAUSE ALONQWITH OTHER UNCONFIRMED CREDITORS. REPLY FILED ON 13/03/2013 THAT REASONS FOR SERVICE ARE NO T KNOWN. IN THE CASE OF M/S SONA SPORT INDUSTRIES, MEERUT REPLY STATED THAT THEREQUEST HAS BEEN MADE TO COMPLY WITH THE NOTICE BY YOUR HONOUR. WHEN THE BURDEN OF PROOF LIED WITH ASSESSEE, THE SAME WAS NO T COMPLIED. THUS CREDIT AMOUNT OF RS.7,33,115/- AND RS, 6,96,120/- A GAINST JAI TIMBER & PLYWOOD GZB. & SONU SPORTS IND. MEERUT REMAINED U NEXPLAINED. RECORDS OF THE ASSESSEE PRODUCED IN SUPPORT BUT IN THE ABSENCE OF STOCK REGISTER NEITHER QUANTITY OF PURCHASES COULD BE VERIFIED NOR CORRECT G.P. COULD BE VERIFIED. IN VIEW OF THESE FA CTS, SUNDRY CREDIT AMOUNT OF RS.7,33,115/- AND RS. 6,96,120/- TOTAL AT RS.14,29,235/- IS TREATED AS UNEXPLAINED LIABILITY AND ADDED TO THE I NCOME OF THE ASSESSEE. . [ADDITION: RS.14,29,23S/-] FURTHER THERE IS PURCHASE OF RS. 23,66,713/- FROM M/S JAI TIMBER & PLYWOOD, GZB AND RS.49,51,320/- FROM M/S S ONU SPORTS IND. MEERUT. BOTH THESE SO CALLED SELLERS ARE OUTST ATIONED AT GHAZIABAD AND MEERUT. PAYMENT REFLECTS AS PER COPY OF ACCOUNT S FURNISHED, IN CASH BEING RS.20,000/- OR LESS ON A SINGLE DAY. IN THIS CASE OF M/S SONU SPORTS IND. MEERUT PAYMENT OF RS.4,50,000/- ON 29/03/2010, RS.10,00,000/- ON 30/03/2010 AND RS.70,000/- ON 30/ 03/2010 AND THE REMAINING PAYMENT HAS BEEN MADE BY CASH WHICH, COME S AT RS.16,33,596/- TO M/S JAI TIMBER & PLYWOOD GZB AND RS.16,05,200/- TO M/S SONA SPORTS IND. MEERUT. IN THESE CASES NEIT HER ANY EXPENSES ITA NO.6275/DEL/2015 4 FOR DAILY OR ALTERNATE DAY COLLECTION SHOWN, NOR PA YMENT OF INTEREST. WHEN THERE ARE BALANCE AVAILABLE WITH THE ASSESSEE ON THE DAY MERE PAYMENT OF RS.20,000/- OR LESS IS NOT ACCEPTABLE. I N VIEW OF THE FACT THAT ASSESSEE HAS MADE CASH PAYMENT OF RS.16,33,596 /- TO M/S JAI TIMBER &. PLYWOOD GZB. AND RS.16,05,200/- TO M/S SO NA SPORTS IND. MEERUT IN VIOLATION OF THE PROVISIONS U/S 40A(3) OF THE LT.ACT,1961 THE TOTAL EXPENDITURE OF RS. 32,38,796/- IS DISALLO WED TO THE ASSESSEE. FOR PURCHASER, SAMPLE OF PURCHASE BILLS PRODUCED BU T NOT STOCK REGISTER. THUS WITHOUT STOCK TALLY IN CASE OF TIMBE R TRADING BUSINESS PURCHASES ARE NOT VERIFIABLE. [ADDITION: RS. 32,38,796/-] FURTHER OLD DEBTORS OF RS.22,53,852/- COULD NOT B E CONFIRMED. COUNSEL FURNISHED THERE IS NO PROCESSING STARTED NO R PENDING FOR RECOVERY. IN VIEW OF THESE FACTS, INTEREST PAYMENT EXPENSES @ 12% ARE DISALLOWED EQUAL TO THE OLD DEBTORS OF RS.22,53 ,582/- WHICH COMES TO RS.2,70,460/-. [ADDITION: RS. 2,70,460/-] PENALTY PROCEEDINGS U/S 271(1) (C) OF I.T. ACT; 1 961 FOR THE CONCEALMENT OF INCOME ARE BEING INITIATED SEPARATEL Y THE INCOME OF THE ASSESSEE IS COMPUTED AS UNDER: INCOME RETURNED RS. 20,680/- ADD: TOWARDS UNEXPLAINED LIABILITY RS. 14,29,53 2/- DISCUSSED AS ABOVE. ADD: TOWARDS UNEXPLAINED EXPENDITURE RS. 32,38,7 96/- DISCUSSED AS ABOVE. ADD: TOWARDS UNVERIFIABLE OLD DEBTORS RS. 2,70 ,460/- DISCUSSED AS ABOVE. TOTAL INCOME RS. 49,59,468/- ROUNDED OFF RS. 49,59,470/- ASSESSMENT ORDER IS PASSED U/S 143(3) OF THE IT.ACT ,1961 ON THE TOTAL INCOME OF RS.49,59,470/-. CREDIT OF PRE-PAID TAXES IS BEING ALLOWED ITA NO.6275/DEL/2015 5 WHILE COMPUTING TAX LIABILITY. INTEREST AS PER APPL ICABLE PROVISIONS OF SECTION 234A/234B/234C IS BEING CHARGED AND MENTION ED IN NOTICE OF DEMAND ISSUED ALONGWITH CHALLAN. PENALTY PROCEEDING S U/S 271(1)(C) OF I.T. ACT, 1961 FOR THE CONCEALMENT OF INCOME ARE BEING INITIATED SEPARATELY. 3. AS FAR AS THE FIRST ISSUE IS CONCERNED, THE ASSE SSING OFFICER WAS OF THE VIEW THAT SINCE SUNDRY CREDITORS DID NOT RES POND TO HIS NOTICES, THEREFORE, THESE ARE NOT GENUINE AND HE MADE THE AD DITION. ON APPEAL, THE LD. FIRST APPELLATE AUTHORITY HAS CONSIDERED TH IS ASPECT AND OBSERVED THAT THE ASSESSEE HAS MADE REPAYMENT OF TH ESE LOANS BY A/C PAYEE CHEQUE IN THE NEXT YEAR AND THEY CANNOT BE DO UBTED. THE BRIEF FINDINGS RECORDED BY THE FIRST APPELLATE AUTHORITY IN THIS CONNECTION READ AS UNDER:- FURTHER, THE ACTION OF THE AO IN MAKING TRADING AD DITION AT RS.14,29.235/- IS SELF CONTRADICTORY IN THE SENSE T HAT THE AO ON ONE HAND, BY NOT REJECTING THE BOOKS OF ACCOUNT IN OTHE R WORDS IS ACCEPTING THE TRADING RESULTS BUT ON THE OTHER HAND , BY MAKING TRADING ADDITION AT RS.14,29,235/- IS DISTURBING TH E TRADING RESULTS WHICH HAVE ALREADY BEEN ACCEPTED BY HIM. MERELY BECAUSE. NOTICE U/S 133(6) OF THE ACT WAS N OT SERVED OR NO COMPLIANCE WAS MADE THE AFORESAID SUNDRY CREDITOR C ANNOT BE A GROUND FOR MAKING ADDITION OF RS.14,29,235/-. THE A O HAS NOT BROUGHT ANY ADVERSE MATERIAL EVIDENCE ON RECORD TO SUGGEST THAT THE AFORESAID SUNDRY CREDITORS WERE BOGUS. RATHER, THE FACT ON RECORD IS THAT THE OUTSTANDING CLOSING BALANCE IN RESPECT OF M /S JAI TIMBER PLYWOOD, GHAZIABAD AT RS.7,33,115/- AND IN RESPECT OF M/S SONU ITA NO.6275/DEL/2015 6 SPORTS, MEERUT AT RS.6,96,120/- HAVE BEEN PAID IN T HE SUBSEQUENT YEARS THROUGH CHEUES. THUS, IN THE LIGHT OR THE ABOVE FACTS, IT IS HELD T HAT THE AO WAS NOT JUSTIFIED TO MAKE ADDITION TOTALING TO RS.14,29 235 /-, THE SAME IS DIRECTED TO BE DELETED GROUND OF APPEAL NO.2 IS ALL OWED. 4. AFTER GOING THROUGH THE RECORD, I DO NOT FIND AN Y MERIT IN GROUND NO.1 OF THE REVENUES APPEAL. THE LD. FIRST APPELLA TE AUTHORITY HAS RECORDED A FINDING OF FACT THAT SUNDRY CREDITORS DO UBTED BY THE AO ARE GENUINE. THE ASSESSEE HAS PRODUCED EVIDENCE EXHIBI TING REPAYMENT OF ALLEGED AMOUNTS TO THESE CONCERNS. THE FINDINGS OF THE AO IS NOT BASED ON ANY CONCRETE EVIDENCE. THEREFORE, THE FIR ST GROUND OF APPEAL IS REJECTED. 5. AS FAR AS THE SECOND ISSUE IS CONCERNED, A PERUS AL OF THE ASSESSMENT ORDER WOULD INDICATE THAT IT IS SPECIFIC ALLY NOT DISCERNIBLE AS TO HOW THE LD. AO HAS MADE THE DISALLOWANCE. HE MADE A DISCUSSION OF THE PURCHASES. IN THE OPENING LINE O F THIRD PARA ON PAGE 3, HE OBSERVED THAT THE ASSESSEE HAS NOT MADE PAYME NT OF MORE THAN RS.20,000/- IN CASH ON A SINGLE DAY. IN SPITE THERE OF, HE MADE THE DISALLOWANCE OF TOTAL PURCHASES, WHICH, ACCORDING T O HIS UNDERSTANDING, WERE MADE IN CASH. CONTRARY TO THIS FINDING, THE ITA NO.6275/DEL/2015 7 LD.CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS NOT MA DE ANY VIOLATION OF SECTION 40A(3). THE BRIEF FINDING RECORDED BY T HE CIT(A) IN THIS REGARD READ AS UNDER:- ON THE OTHER HAND THE APPELLANT HAS CONTENDED THA T THE AO WAS NOT JUSTIFIED TO MAKE ADDITION OF RS.32,38,796 /- ON THE GROUND THAT NO PAYMENT WAS MADE EXCEEDING RS.20,00 0/- ON A SINGLE DAY. TO DECIDE THE IMPUGNED ISSUE, LET US GO THROUGH TH E RELEVANT PROVISIONS OF THE ACT.SECTION 40A(3) OF THE ACT SAY S WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPE CT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON I N A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND R UPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPEN DITURE. THUS, SECTION 40A(3) IS APPLICABLE WHERE THE PAYME NT FOR ANY EXPENDITURE OR AGGREGATE PAYMENT IS MADE TO A PERSO N IN A DAY OTHERWISE THAN ACCOUNT PAYEE CHEQUE OR BANK DRAFT E XCEEDED RS.20,000/-. THEREFORE, FOR APPLICABILITY OF SECTIO N 40A(3), IT IS ESSENTIAL THAT THE AGGREGATE PAYMENT MADE TO A PERS ON ON ANY DAY SHOULD EXCEED RS.20,000/- THAT IF THE ASSESSEE MAKES THE PAYMENTS NOT EXCEED ING RS.20,000/- EVERY DAY, IT CANNOT BE SAID THAT THE P AYMENT HAS BEEN MADE TO CIRCUMVENT THE PROVISIONS OF SECTION 4 0A(3) OF THE ACT. SECTION 40A(3) WOULD BE APPLICABLE WHEN THE AS SESSEE MAKES PAYMENT EXCEEDING RS.20,000/- IN A DAY. IF THERE I S NO PAYMENT EXCEEDING RS.20,000/- IN A DAY, THERE IS NO VIOLATI ON OF SECTION 40A(3) OF THE ACT, SO THERE IS NO QUESTION OF ANY C IRCUMVENTION OF THE PROVISIONS. ITA NO.6275/DEL/2015 8 IT IS OBSERVED THAT THE APPELLANT HAS COPY OF ACCO UNTS OF M/S JAI TIMBER & PLYWOOD, GHAZIABAD AND M/S SONU SPORT S INDUSTRIES, MEERUT. FROM THE PERUSAL OF SUCH COPIES OF ACCOUNT IT IS GATHERED THAT NO PAYMENT EXCEEDING RS.20,000/- IN A DAY HAS BEEN MADE BY THE APPELLANT. THE FACT ON RECORD IS THAT NO PAYMENT EXCEEDING RS .20,000/- HAS BEEN MADE IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. THUS THE ADDITION MADE BY THE AO IS BASED ON PRESUMPTION AND SURMISES AND IS THUS UNTENABLE IN THE EYES OF L AW. RELIANCE IS PLACED ON THE DECISION OF THE HONBLE ITAT, NEW DEL HI IN THE CASE OF M/S MAA JAGDAMBAY ENTERPRISES, PURKAZI, MUZAFFAR NAGAR VS. ITO, WARD 2(1), MUZAFFARNAGAR IN ITA NO.2759/DEL/20 13 DATED 30.09.2014 FOR AY 2009-10. THE AOS CASE IS THAT NO TRAVELLING EXPENSES FOR M AKING CASH PAYMENTS ON DAY TO DAY BASIS AND ON ALTERNATE DAY. FURTHER, ACCORDING TO THE AO WHEN THERE WAS CASH BALANCE AVA ILABLE WITH THE APPELLANT ON THE DAY, THE PAYMENT OF RS.20,000/ - OR LESS WAS NOT ACCEPTABLE. HOWEVER, SUCH INFERENCE IS NOT BACKED BY ANY ADVER SE MATERIAL EVIDENCE ON RECORD TO ESTABLISH THAT THE A PPELLANT HAD MADE CASH PAYMENTS EXCEEDING RS.20,000/- IN A DAY I N VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. THE APPELL ANT HAS DEBITED THE AMOUNT OF RS.99,165/- UNDER THE HEAD MOTOR CYC LE EXPENSES, TRAVELLING EXPENSES AND CAR RUNNING AND MAINTENANCE EXPENSES. 6. THE REVENUE HAS NOT PRODUCED ANY EVIDENCE WHICH CAN REBUT THIS FINDING OF FACT RECORDED BY THE CIT(A). THE DI SALLOWANCE U/S 40A(3) COULD BE MADE IF THE ASSESSEE HAS MADE PAYME NT TO A PERSON IN A DAY OTHERWISE THAN ACCOUNT PAYEE CHEQUE OR BAN K DRAFT EXCEEDING ITA NO.6275/DEL/2015 9 RS.20,000/-. THE LD.CIT(A) HAS RECORDED A SPECIFIC FINDING THAT NO SUCH PAYMENT WAS MADE BY THE ASSESSEE. I HAVE GONE THROUGH THE FINDING OF THE AO ALSO WHICH HAS BEEN EXTRACTED ABO VE, BUT, THERE IS NO CLEAR-CUT FINDING DISCERNIBLE FROM THE ORDER OF THE AO. THEREFORE, I DO NOT SEE ANY REASON TO INTERFERE IN THE FINDING OF THE LD.CIT(A). 7. AS FAR AS THE THIRD GROUND OF APPEAL IS CONCERNE D, THE BRIEF FACTS ARE THAT THERE WERE OLD DEBTORS. ACCORDING TO THE AO, THE ASSESSEE SHOULD HAVE SHOWN INTEREST ON SUCH DEBTORS. THE AS SESSEE HAS CONTENDED THAT HE IS PURSUING THE REMEDY AND FILED SUIT FOR RECOVERY. THESE WERE OLD DEBTS. IT HAS NOT ACCOUNTED INTEREST INCOME IN EARLIER YEAR AND, THEREFORE, THERE SHOULD NOT BE ANY NOTION AL INTEREST INCOME IN THE HANDS OF THE ASSESSEE. THE FIRST APPELLATE AUTHORITY HAS ACCEPTED THE CONTENTION AND DELETED THE ADDITION. 8. AFTER GOING THROUGH THE FINDING OF THE CIT(A), I DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL BECAUSE THERE IS NO DECISION AT THE END OF THE AO TO ASSUME NOTIONAL INTEREST INCOME AND, T HEREAFTER, ASSUME THAT INTEREST EXPENSES CLAIMED BY THE ASSESSEE TO B E DISALLOWED. HE HAS NOT DEMONSTRATED ANY NEXUS AS TO HOW INTEREST B EARING FUNDS WERE ITA NO.6275/DEL/2015 10 DIVERTED FOR THE NON-BUSINESS PURPOSES. THE LD.CIT (A) HAS RIGHTLY DELETED THE ADDITION. THIS GROUND OF APPEAL IS REJ ECTED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 06.01.201 7. SD/- [RAJPAL YADAV] JUDICIAL MEMBER DATED, 6 TH JANUARY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.