Income Tax Officer-1(1), Kanpur V. Smt. Asha Agarwal, Kanpur

ITA 92/LKW/2014

• Counselvise Citation: 9223714 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 18-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUNIT KUMAR
• Keywords: Unexplained cash credit; Depreciation; Business expenditure; Income from undisclosed sources; Commercial expediency
• Section: 40A(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.92/LKW/2014 ASSESSMENT YEAR:2010-11 INCOME TAX OFFICER-I(1) KANPUR V. SMT. ASHA AGARWAL 15/252, CIVIL LINES KANPUR TAN/PAN:AAOPA2749L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. PUNIT KUMAR, D.R. RESPONDENT BY: SHRI. RAKESH GARG, ADVOCATE DATE OF HEARING: 25 03 2015 DATE OF PRONOUNCEMENT: 16 04 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-LL, KANPUR HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.40,000,00/- MADE BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE'S CASE DOES NOT FALL UNDER ANY OF THE SUB RULES OF RULE 6DD OF THE INCOME TAX RULES AND THAT THE ASSESSEE HAS CLEARLY CONTRAVENED THE PROVISIONS OF SEC:40 A(3) OF THE INCOME TAX ACT,1961. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL'S)-!!, KANPUR HAS ERRED IN LAW AND FACTS IN RESTRICTING THE ADDITION OF RS.7,13,772/-, MADE BY THE ASSESSING OFFICER OUT OF WAGES EXPENSES, TO RS.3,00,000/- WITHOUT APPRECIATING THE FACT THAT THE :- 2 -: ASSESSEE HAS NOT PRODUCED THE WAGE REGISTER AND DEBIT VOUCHERS ETC. RELATING TO EXPENDITURE INCURRED UNDER THIS HEAD. 3. THAT THE LD. COMMISSIONER OF INCOME TAX. (APPEALS)-LL, KANPUR HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.44,860/-, MADE BY THE ASSESSING OFFICER OUT OF SITE EXPENSES, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT PRODUCED ANY BILLS AND VOUCHERS RELATING TO 'SITE EXPENSES' BEFORE THE ASSESSING OFFICER DESPITE OF BEING GIVEN NUMBER OF OPPORTUNITIES TO DO SO. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-LL, KANPUR HAS ERRED IN LAW AND FACTS IN RESTRICTING THE DISALLOWANCE OF RS.39,450/-, MADE BY THE ASSESSING OFFICER OUT OF DEPRECIATION TO RS.7,500/- WITHOUT-APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE OF PURCHASE OF PLANT & MACHINERY BEFORE THE ASSESSING OFFICER DESPITE OF BEING GIVEN NUMBER OF OPPORTUNITIES TO DO SO. 5. THAT THE LD. COMMISSIONER-OF INCOME TAX (APPEALS)-LL, KANPUR HAS ERRED IN LAW AND FACTS IN RESTRICTING THE ADDITION OF RS.26,8367- AND RS.8,842/-, MADE BY THE ASSESSING OFFICER OUT OF 'VARIOUS EXPENSES' AND 'STAFF WELFARE EXPENSES', TO RS. 10,000/- AND RS.2,500/- RESPECTIVELY WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORDS BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. 6. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-LL, KANPUR HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.24,057/-, MADE BY THE ASSESSING OFFICER UNDER THE HEAD ELECTRICITY EXPENSES, WITHOUT APPRECIATING THE FACT BROUGHT ON RECORDS BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. 7. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-LL, KANPUR HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.4,50,000/-, MADE BY THE ASSESSING OFFICER UNDER THE HEAD UNEXPLAINED CASH CREDITS WITHIN THE MEANING OF SEC. 68.OF THE INCOME TAX ACT, 1961, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE HOLDING OF OPENING CASH BALANCE. :- 3 -: 8. THAT THE ORDER OF LD. GIT (A)-LL, KANPUR-DATED 11.11.2013 NEEDS TO BE QUASHED AND THE ORDER PASSED BY THE ASSESSING OFFICER DATED 20.03.2013 BE RESTORED. 2. APROPOS GROUND NO.1, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF EXPENDITURE CLAIMED AT RS.40 LAKHS HAVING INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'), AS THE PAYMENTS EXCEEDED THE LIMIT OF RS.20,000/- IN CASH FOR PURCHASES FROM DIFFERENT PARTIES. THE DETAILS OF DISALLOWANCE OF VARIOUS PAYMENTS ARE GIVEN IN PARA 4.1 OF THE ORDER OF THE LD. CIT(A). 3. AGAINST THE DISALLOWANCE, AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE IS A CIVIL CONTRACTOR AND THE JOB CARRIED ON IS HIGHLY SPECIALIZED AND TECHNICAL. IT IS ALWAYS A TIME BOUND PROGRAMME AND TIME SCHEDULE IS TO BE STRICTLY ADHERED TO AS FRAMED AND SET OUT. THE ASSESSEE HAS FILED DETAILED SUBMISSIONS EXPLAINING THE NATURE OF JOB WORK UNDERTAKEN BY IT AND THE REQUIREMENT OF RAW MATERIALS AT DISTANT PLACES WHERE THE BANKING FACILITY IS NOT AVAILABLE. HE HAS ALSO EXPLAINED THE MODUS OPERANDI OF UNDERTAKING REPAIR AND REHABILITATION WORK AT VARIOUS STAGES AND THE REQUIREMENT OF DIFFERENT RAW MATERIALS IN ORDER TO EXECUTE THE WORK IN TIME. THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE ARE EXTRACTED BY THE LD. CIT(A) IN PARAS 4.2 TO 4.5 OF HIS ORDER. THE LD. CIT(A) HAS ALSO CALLED A REMAND REPORT FROM THE ASSESSING OFFICER ON THE WRITTEN SUBMISSIONS OF THE ASSESSEE. THE LD. CIT(A) HAS EXAMINED THE DETAILED SUBMISSIONS AND REPORT OF THE ASSESSING OFFICER AND WAS OF THE VIEW THAT UNDER THE COMPELLING CIRCUMSTANCES AS WELL AS THE NATURE OF EXPENDITURE; BANKING FACILITIES AVAILABLE; BUSINESS EXPEDIENCY AND DEMANDING FACTORS; THE ADDITION OF RS.40 LAKHS MADE UNDER SECTION 40A(3) OF THE ACT DESERVES TO BE DELETED. HE ACCORDINGLY DELETED THE SAID ADDITION. :- 4 -: THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER, THE WRITTEN SUBMISSIONS FILED AS WELL AS THE REMAND REPORT DATED 16.9.2013 RECEIVED FROM THE INCOME TAX OFFICER-1(1). THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS ENGAGED IN A HIGHLY SENSITIVE AND TIME BOUND CONTRACT WORK OF THE BUSINESS OF REPAIR AND REHABILITATION OF RAILWAY; BRIDGES. FOR THIS PURPOSE THE RAILWAY, FLOATS TENDER FROM TIME TO TIME AND ASSIGNS WORKS TO THE PROSPECTIVE BIDDERS. THE REPAIR WORK IS TO BE CARRIED OUT AS PER THE TERMS AND CONDITIONS LAID OUT BY THE RAILWAYS IN DIFFERENT REMOTE AREAS AS MAY BE ASSIGNED. THE A.R. OF THE ASSESSEE HAS EXPLAINED THAT THIS JOB OF REPAIR OF THE RAILWAY BRIDGES /CULVERTS IS TIME BOUND AND IS TO BE COMPLETED AS PER THE SCHEDULE PRESCRIBED IN THE TENDER FAILING WHICH THE CONTRACT IS LIABLE TO BE TERMINATED AND THE ASSESSEE IS LIABLE TO PAY DAMAGES BY THE WAY OF THE RAILWAY DEDUCTING SUM OF 10% OF THE ENTIRE CONTRACT VALUE FROM THE DEPOSITED SECURITIES OF THE CONTRACTOR OR HIS PENDING, RUNNING BILLS OR FROM ANY SECURITIES OR PENDING PAYMENTS OF ANY OTHER RUNNING CONTRACT IN THE SAME RAILWAY OR ANY OTHER RAILWAY ACROSS THE INDIAN SUBCONTINENT, CAUSING HEAVY LOSSES TO THE ASSESSEE BESIDE THE ASSESSEE PERMANENTLY LOSING THE CONTRACT ASSIGNMENT. THE A.R. HAS FURTHER REITERATED THAT DURING THE YEAR THE ASSESSEE PARTICIPATED IN THE BID AND PROCURED TENDERS FOR REPAIR AND REHABILITATION OF BRIDGES AT PALASHA SECTION, BERHAMPUR SECTION AND KHURDA (BHUBANESWAR) IN ORISSA, BURIDI- CHATTISGARH IN THE ARAVALLI HILLS MADHYA PRADESH AND THE SPREAD FROM SACHIN TO SAPHALE IN THE CLOSE VICINITY OF THE SEA AT DAMAN. IT IS THE CASE OF THE ASSESSEE THAT IN ORDER TO FULFILL THE CONTRACT THE ASSESSEE PURCHASES RAW MATERIAL LIKE CEMENT, EPOXY RESIN, HARDNER, STEEL, PAINTS, AND OTHER CONSTRUCTION CHEMICALS ETC TIME TO TIME FROM THE NEAREST DEALER/SUPPLIER HAVING PROXIMITY TO THE REPAIR SITE. SINCE :- 5 -: THE BRIDGES/CULVERTS ARE SITUATED IN THE JUNGLE AND REMOTE AREAS; AS SUCH THERE IS NO AVAILABILITY OF MATERIAL NEAR TO THE SITE. THE REQUIREMENT OF EXACT QUANTITY OF MATERIAL CANNOT BE ASCERTAINED IN THE FIRST GO. AT TIMES THE EXTENT OF DAMAGE IS SO EXTENSIVE AND INTENSIVE THAT AT FIRST SIGHT IT MAY NOT APPEAR SO, BUT WHEN THE REPAIR WORK STARTS GRADUALLY THE EXTENT AND INTENSITY OF THE DAMAGE SURFACES, ON SUCH OCCASION IT BECOMES EXTREMELY URGENT TO PROCURE THE RAW MATERIAL INSTANTLY. THE SUPPLIERS ARE VERY RELUCTANT TO SUPPLY RAW MATERIAL TO THESE REMOTE AREAS DUE TO SEVERAL REASONS; SUCH AS HEAVY TRANSPORT COST, PILFERAGE DURING TRANSPORT RESULTING IN REJECTION OF GOODS, RETURN OF THE UNUSED MATERIAL, SAFETY ISSUES AND THEFT. SURETY OF THE SUPPLIER TO SUPPLY MATERIAL AT SUCH REMOTE PLACES FAR FROM THE WORKING SITE OF THE ASSESSEE CANNOT BE ASCERTAINED TILL THE GOODS OR THE MATERIAL TURN UP AT THE SITE OR REACH THE SITE. IN SUCH CIRCUMSTANCES THE ASSESSEE IS LEFT WITH NO OPTION EXCEPT TO PURCHASE THE RAW MATERIAL IN CASH. RAW MATERIAL CANNOT BE BOUGHT IN BULK AND CANNOT BE KEPT AT THE RESPECTIVE SPOTS EARLIER FOR THE REASON OF LACK OF STORAGE FACILITIES, PILFERAGE AND OF FEAR OF THEIR BEING STOLEN. THE REQUISITE QUANTITY OF MATERIAL REQUIRED IS NOT ASCERTAINED TILL THE ON THE SPOT INSPECTION DONE, WORK TO BE DONE IS ASSESSED LAND JOB IS NOT COMMENCED, ESPECIALLY JOBS INVOLVING POLYMERIC, STRUCTURAL REPAIR OF PRESSURE INJECTION GROUTING OF INTERNAL CAVITIES. MAKING PAYMENTS TO SUPPLIERS BY CHEQUE IN SUCH CIRCUMSTANCES DELAYS THE SUPPLY OF MATERIAL, WHICH IN TURN CAUSES TIME OVERRUN OR SAFETY ISSUES OF A BRIDGE FAILURE. IN SUCH CIRCUMSTANCES, THE GOODS ARE PURCHASED /ARRANGED IMMEDIATELY AGAINST PAYMENT OF CASH AS REQUIRED. MORE OVER THERE ARE NO BANKING FACILITY IN THESE REMOTE AREAS NOR DOES THE ASSESSEE AS WELL AS THE SUPPLIERS HAVE THEIR BANK ACCOUNT. THE SUPPLIERS IN SUCH CIRCUMSTANCES ARE PREPARED TO SUPPLY THE GOODS ONLY AGAINST CASH PAYMENT. THE A.R. HAS FURTHER EXPLAINED THAT THERE ALWAYS EXISTS AN EXTREME URGENCY OF MATERIAL REQUIRED RESULTING IN BUSINESS EXPEDIENCY. IT HAS BEEN URGED THAT THE PAYMENTS HAVE BEEN MADE :- 6 -: PURELY OUT OF COMMERCIAL EXPEDIENCY AND BUSINESS NECESSITY TO AVOID FURTHER DAMAGE TO THE BRIDGE, AS WELL AS ANY BRIDGE FAILURE RELATED SAFETY, COMPLETE THE JOB IN TIME AND TO AVOID FORFEITURE OF SECURITIES. AT THE SAME TIME IF IS ALSO PERTINENT TO NOTE THAT THERE IS NO BANK ACCOUNT OF THE PAYER OR THE PAYEE AT THESE SITES AT WHICH THE MATERIAL IS REQUIRED AND PURCHASED, WHICH MAKES ALL THE MORE DIFFICULT TO GET THE MATERIAL ON TIME. I FIND THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF THE PAY MERITS MADE EITHER DURING DURING THE ORIGINAL ASSESSMENT PROCEEDINGS OR IN THE REMAND PROCEEDINGS, THUS THE PAYMENT MADE ARE GENUINE. THE ASSESSING OFFICER HAS ALSO NOT DISPUTED THE NATURE OF BUSINESS AND THE ACTIVITIES CARRIED OUT BY THE ASSESSEE. IN TH ENTIRE REMAND REPORT DATED 16.9.2013 ALSO THE ASSESSING OFFICER HAS NEITHER DOUBTED NOR EXPRESSED ANYTHING ADVERSE WITH REGARD TO THE NATURE AND EXTENT OF THE BUSINESS ACTIVITIES AND THE BUSINESS EXPEDIENCY. THE AO STANDS SATISFIED WITH THE CIRCUMSTANCES AND RELEVANT FACTORS NECESSITATING THE PAYMENTS MADE IN CASH. THE EXPLANATION GIVEN BY THE ASSESSEE EXPLAINING THE FACTS AND THE NECESSITY OF MAKING CASH PAYMENTS HAS NOT BEEN DOUBTED NOR COMMENTED UPON BY AO. INDIRECTLY IT IMPLIES THAT THE ASSESSING OFFICER TOO ACCEPTS THE URGENCY AND THE NEED TO MAKE THE PAYMENTS IN CASH. THE ONLY REASON FOR MAKING THE DISALLOWANCE OF THE EXPENDITURE INCURRED BY THE ASSESSEE BY THE AO IS THAT CASH PAYMENT HAS BEEN MADE TO THE SAME PARTIES/SUPPLIERS TO WHOM PAYMENT HAS BEEN MADE BY CHEQUES ALSO. THE CBDT VIDE ITS CIRCULAR NO 6-P(LXXVI-66) OF 1968 DATED JULY 06, 1968 HAS EXPLAINED THE PURPOSE, INTENT AND THE MAIN OBJECT OF BRING IN SECTION 40A(3) OF THE ACT AS 'THIS PROVISION IS DESIGNED TO COUNTER EVASION OF TAX THROUGH CLAIMS FOR EXPENDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATION BY THE DEPORTMENT AS TO THE IDENTITY OF THE PAYEE AND THE REASONABLENESS OF THE PAYMENT'. THUS THE PURPOSE TO INSERT SECTION 40A(3) IS TO REGULATE THE FINANCIAL TRANSACTIONS AND TO PREVENT THE MISUSE OF UNACCOUNTED MONEY AND REDUCE THE :- 7 -: CHANCES OF USE OF BLACK MONEY FOR BUSINESS TRANSACTIONS. AGAIN VIDE CIRCULAR NO. 220 DATED MAY 31,1977 IT HAS BEEN CLARIFIED THAT THE CIRCUMSTANCES AS MENTIONED IN RULE 6DD ARE NOT EXHAUSTIVE BUT ARE ILLUSTRATIVE. THERE COULD BE CASES OTHER THAN THOSE FALLING WITHIN THE ABOVE CATEGORIES WHICH COULD ALSO MEET THE REQUIREMENTS OF RULE 6DD(J). EVEN THOUGH THE RULE 6DD HAS BEEN AMENDED, THEREAFTER THE INTENT OF LAW IN THE SUBSTANTIVE PROVISIONS OF SECTION 40A(3) PROVISO IS CLEAR. THE INTENT IS TO ALLOW FOR BUSINESS EXPEDIENCY IN SPITE OF AMENDMENT IN RULE 6DD. THE ANDHRA PRADESH HIGH COURT IN 239 ITR 687 HAVE HELD AS UNDER: 'HOWEVER, IT IS TO BE NOTE D THAT THE MAIN SUBSTANTIVE PROVISION UNDER SECTION 40A (3) OF THE ACT MAKES A PROVISION FOR PRESCRIBING SUCH CASES AND CIRCUMSTANCES HAVING REGARD TO BANKING FACILITIES, BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THUS THE RULE MAKING AUTHORITY IS EMPOWERED TO SPECIFY RULES IN THIS REGARD. THE MAIN OBJECT UNDER SECTION 40A(3) OF THE ACT IS TO REGULATE THE FINANCIAL TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES OF USE OF BLACK MONEY FOR BUSINESS TRANSACTIONS. UNDER THE EARLIER RULE 6DD(J), PRIOR TO ITS AMENDMENT, THE RULE MAKING AUTHORITY BY VIRTUE OF THE POWER CONFERRED, MADE PROVISION FOR UNAVOIDABLE CIRCUMSTANCES AND GENUINE DIFFICULTIES AS THE PERMISSIBLE GROUNDS FOR WAIVING THE REQUIREMENT. THE SAID RULE WAS IN FORCE FOR QUITE SOME TIME AND IT WAS LEFT TO THE DISCRETION OF THE ASSESSING AUTHORITIES TO TEST SUCH TRANSACTIONS ON THE TOUCH-STONE OF THE SAID LIMITATIONS. THE RULE MAKING AUTHORITY, IN THE LIGHT OF THE EXPERIENCE AND IN ITS WISDOM, SOUGHT TO TAKE AWAY THE SAID PERMISSIBLE FACTORS, IT IS NOT AS IF THE SECTION ITSELF DOES NOT PROVIDE FOR EXCEPTIONS TO BE PRESCRIBED BY THE RULE MAKING AUTHORITY IN APPROPRIATE CASES HAVING DUE REGARDED TO THE FACTORS SET OUT IN THE PROVISO TO SUB-SECTION (3).' :- 8 -: THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS SURESH KUMAR AGARWAL REPORTED IN 249 ITR113 (2001) HAS HELD- '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 INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, ARE NOT ABSOLUTE. CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. 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 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 OF THE INCOME TAX RULES, 1962, 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. 11 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.' PAYMENT IN CASH DUE TO BUSINESS EXPEDIENCY WAS ACCEPTED, BY THE GUJARAT HIGH COURT IN THE CASE OF CIT VS PRAVIN & CO. 274 ITR 534, WHEREIN IT HAS BEEN HELD THAT IN ORDER TO URGENTLY PROCURE MATERIALS FROM THE MARKET PAYMENT IN CASH WAS JUSTIFIED. THIS VIEW HAS AGAIN BE REAFFIRMED BY THE DELHI HIGH COURT IN THE CASE OF CIT VS. RHYDBURG PHARMACEUTICALS LTD. REPORTED IN 269 ITR 561 AS UNDER: CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE HOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING :- 9 -: OFFICER THE CIRCUMSTANCES UNDER WHICH PAYMENT, IN THE MANNER PRESCRIBED 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 WHO HAS RECEIVED CASH PAYMENT'. IN VIEW OF THE FACT THAT THE TRIBUNAL HAS ARRIVED AT A CONCLUSION ON THE QUESTION OF FACT, WE ARE NOT INCLINED TO INTERFERE. HENCE, THE APPEAL IS DISMISSED. THE DELHI HIGH COURT IN THE CASE OF R.C. GOEL VS CIT 84 DTR 432 (DELHI) HAS HELD - 'BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3) - APPLICABILITY OF R. 6DD (K) - ASSESSEE IS ENGAGED IN EXECUTING CATERING CONTRACTS FOR RAILWAYS IN RESPECT OF TWO TRAINS. IN THOSE TRAINS, ITS PERSONNEL ARE DEPLOYED FOR SALE OF SMALL ARTICLES OF DAILY NECESSITY AND USE TO THE PASSENGERS - IN THE COURSE OF SUCH TRANSACTIONS, IT SOURCES THESE ARTICLES FROM SR - APPARENTLY, THAT CONCERN IS ALSO A SMALL TIME ONE AND INSISTS ON CASH PAYMENTS FOR ENSURING CONTINUITY AND TIMELY SUPPLIES - IN THIS CONTEXT, THE STATUTORY MANDATE IN R. 6DD(K), AT LEAST IN THE CIRCUMSTANCES OF THE CASE, HAS TO BE SO CONSTRUED AS TO MEAN THAT BUT FOR THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPRIVED THE BENEFIT OF SUPPLIES ITSELF - HAVING REGARD TO THE PECULIAR FACTS AND CIRCUMSTANCES, THE TRIBUNAL AND THE LOWER AUTHORITIES ADOPTED AN UNDULY NARROW AND TECHNICAL INTERPRETATION OF R. 6DD(K), THE BENEFIT OF WHICH THE ASSESSEE CLEARLY WAS ENTITLED TO. THE MADRAS HIGH COURT IN THE CASE OF CIT VS SRI SHANMUGA (SINNING FACTORY REPORTED IN [2013] 37 TAXMANN.COM 422 (MADRAS) HAS HELD - 'APART FROM THAT ASPECT, BY GOING THROUGH THE NATURE OF BUSINESS AND TRANSACTION BETWEEN THE PARTIES, AN ELEMENT OF COMMERCIAL EXPEDIENCY WAS ALSO INVOLVED IN THIS CASE, WHICH WE CAN TAKE JUDICIAL NOTICE. :- 10 -: THE ALLAHABAD TRIBUNAL IN THE CASE OF ITO VS MAHABIR PRASAD GULAB CHAND-ITA NO. 969 (ALLD) OF 2000 HAS HELD - 'HOWEVER UNDER THE PROVISO TO SECTION 4OA(3), NO DISALLOWANCE IS TO BE MADE IN CASE PAYMENTS ARE MADE IN CASH ON GROUND OF BUSINESS EXPEDIENCY. A GENUINE TRANSACTION HAS BEEN KEPT OUT OF THE PREVIEW OF SECTION 40A(3). IN THE CASE OF AN ASSESSEE THE TRANSACTION WAS GENUINE, THE PARTIES IDENTIFIABLE, WHICH FACT HAS NOT BEEN DISPUTED BY THE ITO, THE DISALLOWANCE WAS DELETED FOLLOWING THE DECISION IN THE CASE OF ASIA CONTACT LENS LABORATORY VS. ACIT 63 TTJ 657 (MAD). IN THE CASE OF ARUN KUMAR SRIVASTAVA V. ITO 144 TAXATION 169 (PATNA)(TM) WHEREIN THE ASSESSEE WAS A CONTRACTOR SPECIALIZING IN UNDERTAKING THE WORK OF ARRANGING THE ROOF MATERIALS HAD TO MAKE PURCHASES FROM DISTANT AND REMOTE PLACES WHERE HE DID NOT HAVE HIS BANK ACCOUNT AND TIME TO GET THE DRAFTS PREPARED WOULD DELAY THE JOB IT WAS HELD THAT NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A(3) IN RESPECT OF CASH PAYMENTS. THE REASONING ADOPTED BY THE AO THAT PAYMENTS HAVE BEEN MADE BY CHEQUES TO THE SAME PARTIES, HENCE THERE WAS NO NECESSITY OF MAKING PAYMENTS TO THE SAME PARTIES IN CASH DOES NOT STAND TO APPEAL IN VIEW OF THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AS EXPLAINED BY THE ASSESSEE; FOR EACH TRANSACTION OF PURCHASE OF THE RAW MATERIAL DEPENDS UPON THE FACTS AND CIRCUMSTANCES AND THE SITE WHERE THE MATERIAL IS REQUIRED. IT IS FOR THE SUPPLIER OF RAW MATERIAL TO LAY DOWN HIS TERMS AND CONDITIONS AND AT THE SAME TIME THE BUSINESS URGENCY OF THE ASSESSEE, WHICH IS OF UTMOST IMPORTANCE. EQUATIONS VARY DEPENDING UPON CIRCUMSTANCES FROM TIME TO TIME. THERE MAY BE UMPTEEN CIRCUMSTANCES WHERE THE SUPPLIER IN SPITE OF ACCEPTING THE PAYMENTS BY CHEQUE EARLIER MAY STILL URGE FOR CASH PAYMENT OR VICE VERSA. THE TWO PAYMENTS OF RS.5,28,100/- MADE ON 30.09.2009 (BANK HOLIDAY- HALF YEAR CLOSING) AND RS.2,00,307/- MADE ON 28.01.2010 (SUNDAY) WERE UNDISPUTEDLY MADE ON BANK HOLIDAYS. THE SAID PAYMENTS FALL SPECIFICALLY WITHIN THE EXCEPTION CLAUSE (J) OF RULE 6DD. :- 11 -: CONSIDERING THE ABOVE DISCUSSED CIRCUMSTANCES AND FACTS OF THE CASE ALONG WITH JUDICIAL PRONOUNCEMENTS (SUPRA) ESPECIALLY WHEN THE PAYMENT HAS BEEN FOUND TO BE GENUINE AND THE URGENCY HAS BEEN EXPLAINED, THERE SEEMS NO JUSTIFICATION IN SUSTAINING THE ADDITION MADE BY THE ASSESSING OFFICER. ONCE THE REQUISITE CONDITIONS I.E. THE GENUINENESS OF THE EXPENDITURE INCURRED AND PAYMENT MADE: THE BUSINESS URGENCY AND COMMERCIAL EXPEDIENCY AS WELL AS THE NEEDS HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER AND HAVE NOT BEEN DOUBTED OR DISPUTED/THEN SIMPLY THE PAYMENT HAS NOT BEEN MADE BY CHEQUE BUT HAS BEEN MADE IN CASH, WOULD BE NO GROUND TO DISALLOW THE SAME. KEEPING IN VIEW PECULIAR FACTS OF THE CASE THE NATURE OF BUSINESS, COMPELLING CIRCUMSTANCES, THE RATIO OF THE CASE LAWS AS MENTIONED BY THE AR (SUPRA) AS WELL AS THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATION OF BUSINESS EXPEDIENCY AND DEMANDING FACTORS RELEVANT WHICH CANNOT BE RULED OUT HERE, THE ADDITION OF RS.40 LAKHS MADE UNDER SECTION 40A(3) IS HEREBY DELETED. THE ASSESSEE GETS RELIEF OF RS.40 LAKHS. 4. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT THE DEDUCTION OF THESE PAYMENTS EXCEEDING RS.20,000/- CAN ONLY BE ALLOWED IF IT FALLS UNDER ANY OF THE CLAUSES OF RULE 6DD(J). SINCE THE PAYMENTS MADE BY THE ASSESSEE DO NOT FALL IN ANY OF THE CLAUSES, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAME. 5. SO FAR AS BUSINESS EXPEDIENCY AND PECULIAR CIRCUMSTANCES OF THE CASE ARE CONCERNED, THE LD. D.R. HAS SUBMITTED THAT THERE IS AN AMENDMENT IN THE PROVISIONS OF SECTION 40A(3) OF THE ACT BY THE FINANCE ACT, 2008 W.E.F. 1.4.2009, ACCORDING TO WHICH WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES NO DEDUCTION :- 12 -: SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. THE PROVISO INSERTED IN CLAUSE (3A) IS ONLY WITH RESPECT TO THE DISALLOWANCES MADE UNDER SUB- SECTION (3) OF SECTION 40A OF THE ACT AND NOT WITH REFERENCE TO SECTION 40A(3) OF THE ACT. THE LD. D.R. HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS INVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 40A(3) OF THE ACT WITH THE SUBMISSION THAT THERE IS NO MATERIAL CHANGE IN THE PROVISIONS OF THE ACT. AS PER THE AMENDED PROVISIONS, CLAUSE (3A) OF SECTION 40A OF THE ACT WAS INSERTED, ACCORDING TO WHICH THE TOTAL PAYMENT OF THE DAY IS TO BE SEEN AND NOT A PARTICULAR TRANSACTION DURING THE COURSE OF THE DAY. BUT IN THE PROVISO BELOW SUB-SECTION (3A), IT HAS BEEN CLARIFIED THAT IT WILL APPLY TO BOTH THE SUB- SECTIONS (3) AND (3A) OF SECTION 40A OF THE ACT. AS PER THIS PROVISO, THE PAYMENT MAY BE ALLOWED IN SUCH CASES AS MAY BE PRESCRIBED HAVING RECORD TO THE NATURE AND EXTENT OF BANKING FACILITY AVAILABLE CONSIDERING ALL THE BUSINESS EXPEDIENCY AND THE RELEVANT FACTORS. HE HAS ALSO REITERATED HIS CONTENTIONS AS RAISED BEFORE THE LD. CIT(A), BESIDES PLACING RELIANCE UPON THE ORDER OF THE LD. CIT(A). 7. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE DETAILED SUBMISSIONS OF THE ASSESSEE EXTRACTED IN THE ORDER OF THE LD. CIT(A), VARIOUS JUDICIAL PRONOUNCEMENTS REFERRED TO BY THE ASSESSEE AND THE RELEVANT PROVISIONS OF THE ACT AND WE FIND THAT THERE IS NO SUBSTANTIAL CHANGE IN SECTION 40A OF THE ACT. BY INSERTING SUB-SECTION (3A), IT HAS BEEN MADE CLEAR THAT FOR THE PURPOSE OF DISALLOWANCE, TOTAL PAYMENT TO A PARTICULAR PARTY IN A DAY IS TO BE SEEN AND NOT THE INDIVIDUAL TRANSACTION. IN THE INSTANT CASE, THE ASSESSEE HAS ALSO EXPLAINED THE PECULIAR CIRCUMSTANCES AND THE NATURE OF ACTIVITIES UNDERTAKEN BY IT AT DISTANT PLACES WHERE BANKING FACILITIES ARE NOT AVAILABLE AND ALSO THE TIME CONSTRAINT IN WHICH TENDER WORK IS TO BE COMPLETED AND THE LD. CIT(A) :- 13 -: HAVING TAKEN INTO ACCOUNT ALL THESE FACTS, CAME TO THE CONCLUSION THAT THE PAYMENTS WERE MADE UNDER THE COMPELLING CIRCUMSTANCES ON ACCOUNT OF BUSINESS EXPEDIENCY. THEREFORE, NO DISALLOWANCE OF THESE PAYMENTS IS CALLED FOR AND HE ACCORDINGLY DELETED THE ADDITION. DURING THE COURSE OF HEARING, EXCEPT PLACING RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER, NO DEFECT HAS BEEN POINTED OUT IN THE ORDER OF THE LD. CIT(A) BY THE REVENUE. MOREOVER, THE LD. CIT(A) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SURESH KUMAR AGARWAL, 249 ITR 113. SINCE THE LD. CIT(A) HAS ADJUDICATED THE ISSUE IN DETAIL IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, WE FIND NO INFIRMITY IN IT AND WE ACCORDINGLY CONFIRM THE SAME. 8. APROPOS GROUNDS NO.2 & 3, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.7,13,772/- OUT OF TOTAL WAGES OF RS.84,56,035/- AND RS.44,860/- OUT OF SITE EXPENSES OF RS.2,24,300/-, ON AD HOC BASIS. 9. ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS CALLED REMAND REPORT FROM THE ASSESSING OFFICER ON THE SUBMISSIONS FILED BY THE ASSESSEE. HAVING CAREFULLY EXAMINED THE REMAND REPORT AND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) WAS OF THE VIEW THAT THE ADDITIONS WERE MADE ON AD HOC BASIS ON THE PLEA THAT DESPITE REPEATED REQUEST, THE ASSESSEE DID NOT PRODUCE THE STOCK REGISTER, WAGE REGISTER AND DEBIT VOUCHERS DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. DURING THE REMAND PROCEEDINGS, ALL THESE RECORDS WERE PRODUCED BEFORE THE ASSESSING OFFICER, BUT THE ASSESSING OFFICER COULD NOT POINT OUT ANY DEFECT THEREIN, BUT THE LD. CIT(A), KEEPING IN VIEW THE EXPLANATIONS OF THE RESPECTIVE PARTIES, WAS OF THE VIEW THAT POSSIBILITY OF LEAKAGE CANNOT BE RULED OUT. HE ACCORDINGLY RESTRICTED THE DISALLOWANCE TO RS.3 LAKHS OUT OF TOTAL DISALLOWANCE OF RS.7,13,772/- MADE BY THE ASSESSING OFFICER. :- 14 -: 10. SO FAR AS THE DISALLOWANCE OF SITE EXPENSES OF RS.44,860/- IS CONCERNED, THE LD. CIT(A) WAS OF THE VIEW THAT SINCE THIS DISALLOWANCE WAS MADE ON AD HOC BASIS, IT DESERVES TO BE DELETED. HE ACCORDINGLY DELETED THE SAME. 11. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL, BUT COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE ORDER OF THE LD. CIT(A). DURING THE COURSE OF HEARING, THE LD. D.R. HAS, HOWEVER, AGREED THAT THE ADDITIONS WERE MADE ON AD HOC BASIS. 12. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT ONCE IT IS HELD THAT THE ADDITIONS ARE MADE ON AD HOC BASIS, NO DISALLOWANCE UNDER ANY HEAD IS CALLED FOR. BUT IN THIS REGARD, WE DO NOT FIND ANY FORCE IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE, AS NEITHER ANY APPEAL OF THE ASSESSEE NOR CROSS OBJECTION IS FILED TO CHALLENGE THE FINDINGS OF THE LD. CIT(A). THE LD. CIT(A), HOWEVER, HAS GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE BY RESTRICTING THE DISALLOWANCE FROM RS.7,13,772/- TO RS.3 LAKHS. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND WE ACCORDINGLY CONFIRM THE SAME. 13. APROPOS GROUND NO.4, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE OF RS.39,450/- OUT OF DEPRECIATION. DISALLOWANCE OF RS.31,950/- BEING DEPRECIATION ON PURCHASE ON MACHINERY AMOUNTING TO RS.2,13,000/- AND SECOND PART RELATING TO DEPRECIATION ON PURCHASE OF RS.25,000/- CLAIMED UNDER TWO HEADS, WHICH WAS NOT PRESSED BY THE ASSESSEE BEFORE THE LD. CIT(A). 14. WITH REGARD TO THE FORMER, THE DEPRECIATION WAS DISALLOWED BECAUSE THE BILL FOR PURCHASE OF MACHINERY WAS NOT SUBMITTED AND BEFORE THE LD. CIT(A) BILLS WERE SUBMITTED AND HAVING VERIFIED THE SAME, THE LD. CIT(A) HAS ALLOWED DEPRECIATION. :- 15 -: 15. BEFORE US, NO DEFECT WAS POINTED OUT IN THE ORDER OF THE LD. CIT(A) BY THE LD. D.R. WE, THEREFORE, FIND NO INFIRMITY IN HIS ORDER AND WE CONFIRM THE SAME. 16. APROPOS GROUND NO.5, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.26,836/- AND RS.8,842/- UNDER THE HEAD VEHICLE EXPENSES AND STAFF WELFARE EXPENSES RESPECTIVELY, ON AD HOC BASIS. 17. ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, HAS RESTRICTED THE DISALLOWANCE TO RS.10,000/- UNDER THE HEAD VEHICLE EXPENSES AND RS.2,500/- UNDER THE HEAD WELFARE EXPENSES. THESE DISALLOWANCES WERE MADE BY THE ASSESSING OFFICER ON AD HOC BASIS WHICH WERE RESTRICTED BY THE LD. CIT(A). THOUGH THESE ADDITIONS ARE NOT SUSTAINABLE, AS THEY WERE MADE ON AD HOC BASIS, BUT SINCE THE ASSESSEE HAS NEITHER PREFERRED ANY APPEAL NOR CROSS OBJECTION ON THIS ISSUE, WE HAVE TO CONFIRM THE ORDER OF THE LD. CIT(A). ACCORDINGLY WE CONFIRM THE SAME. 18. APROPOS GROUND NO.6, THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE OF RS.24,057/- WHICH WAS DELETED BY THE LD. CIT(A). SINCE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WE CONFIRM THE SAME. 19. APROPOS GROUND NO.7, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE ADDITION OF RS.4.50 LAKHS UNDER SECTION 68 OF THE ACT, AGAINST WHICH AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE AFORESAID AMOUNT WAS DEPOSITED OUT OF CASH BALANCE. IN SUPPORT OF HIS CONTENTION, THE ASSESSEE HAS FILED THE DETAILS OF CASH FLOW STATEMENT SUBMITTED BEFORE THE ASSESSING OFFICER FOR ASSESSMENT YEARS 2009-10 AND 2010-11, IN WHICH THE CLOSING BALANCE AS ON 31.3.2009 WAS SHOWN AT RS.5,14,704/- WHICH BECOMES THE OPENING BALANCE AS ON 1.4.2009. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS DELETED THE ADDITION. :- 16 -: 20. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL BUT HAS NOT BROUGHT OUT ANY DOCUMENTARY EVIDENCE TO DISLODGE THE FINDINGS OF THE LD. CIT(A). SINCE THE ASSESSEE HAD THE OPENING BALANCE OF RS.5,14,704/- OUT OF WHICH RS.4.50 LAKHS WAS DEPOSITED BY THE ASSESSEE, ACCORDING TO HIM, THE CONTENTION OF THE ASSESSEE IS TO BE ACCEPTED, AS THE REVENUE HAS NOT BROUGHT ANYTHING ON RECORD TO DISPUTE THESE FACTS. SINCE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WE CONFIRM THE SAME. 21. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:16 TH APRIL, 2015 JJ:0104 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR