SEEMA PARAKH,JODHPUR V. .DEPUTY COMMISSIONER, CENTRAL CIRCLE-1, JODHPUR, JODHPUR

ITA 720/JODH/2024

AI Insights

The case involves Seema Parakh, the proprietor of M/s Kushal Arts, who appealed against the order of the Commissioner of Income Tax (Appeals), Jaipur-5, which confirmed the assessment order passed by the Deputy Commissioner of Income Tax, Central Circle-1, Jodhpur. The original assessment for the year 2013-14 was reopened under section 147 read with section 144 of the Income Tax Act, 1961, due to alleged non-compliance with section 40A(3), which restricts cash payments exceeding Rs. 20,000 in a single day. The Tribunal's decision focused on the validity of the reopening of the assessment and the application of section 40A(3) in the context of payments made on a bank holiday.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 31832 (ITAT-JODHPUR)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 14-09-2024
• Other Referred Cases: GKN Driveshafts (India) Ltd. vs. ITO & ors, Nahgi lal vs. CIT, Associated Engineering Entps. CIT, ITO vs. Kena Ram Saha and Subhash Saha, Rajesh Kumar vs. CIT, Rati Ram Bambelwal vs. National Faceless Assessment Centre, Delhi, CIT v. Chetan Gupta, R.K. Upadhyaya v. Shanabhai P. Patel, Major Tikka Khushwant Singh vs. CIT, Mintu Kalita vs. CIT, Berger Paints India Ltd. vs. Asst CIT & ors, Sri Laxmi Satyanarayana Oil Mill vs. CIT, Harshila Chordia vs. ITO, CPL Tannery vs. CIT, Attar Singh Gurmukh Singh vs. ITO, Gehna vs. Union OF India &Anr
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR GEHLOT
• Assessee Lawyers: MAYANK TAPARIA; ISSUE OF NOTICE US DATED VIDE WHICH SHE WAS; ISSUE OF NOTICE US DATED VIDE WHICH
• Keywords: Set aside; Revised return; Corroborative evidences; Period of limitation; Principle of natural justice; Initiation of penalty proceedings; Reason to believe; Validity of assessment; Audi alteram partem; Tangible material; Borrowed satisfaction
• Section: 147; 148; 143(3); 142(1); 192; 271(1)(c); 56; 153; 139(1); 43; 133(6); 13; 139; 234B; 40A(3); 133A; 191

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR. BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER & SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER I.T.A. No. 720/Jodh/2024 Assessment Year: 2013-14 Seema Parakh Pro. M/s Kushal Arts, Plot No. 2A, 1048/1049, Balaji Industrial Area, 2nd Phase, Basni, Jodhpur. [PAN: APXPP3512Q] (Appellant) Vs. Deputy Commissioner Central Circle-1, Jodhpur. (Respondent) Appellant by Sh. Mayank Taparia, Adv. Respondent by Sh. Arvind Kumar Gehlot, JCIT Date of Hearing 24.10.2024 Date of Pronouncement 10.12.2024 ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM The assessee Ms. Seema Parakh challenges finding recorded in the order of the Learned Commissioner of Income Tax (Appeals), Jaipur- 5 dated 05.08.2024 [Here in after referred as “CIT(A)”] by way of the present appeal. The dispute in this appeal refer to the assessment year 2013-14. That order of the ld. CIT(A) arise because the assessee challenged the order of assessment dated 29.09.2021 passed under section 147 r.w.s. 144 of the Income Tax Act,1961 [ for short “Act” ] by the DC, Central Circle-1, Jodhpur [ for short AO]. ITA No. 720/Jodh/2024 Seema Parakh 2 2. In this appeal, the assessee has raised following grounds: - “1. That on the facts and circumstances of the case, the Id. CIT(A) erred in confirming the AO's order dated 29-09-2021 passed for the AY 2013-14 u/s. 147 r.w.s. 143(3) of the Act without appreciating true and correct facts of the case and documentary evidences brought on record by the assessee. 2. On the facts and in the circumstances of the case and in law, the assessment u/s 147/144 of the Income-tax Act, 1961 is invalid and illegal because the reopening of the assessment is not in conformity with the express legal provisions so as the appellate order dated 05-08-2024 passed in assessee's case in view of the following: a) That the AO erroneously passed the assessment by applying the provisions of 144 of the Act ignoring that all the details which are required to complete the assessment had already been furnished by the assessee. The Id. CIT(A) while confirming the AO's action in completing the assessment u/s. 144 of the Act simply overlooked the provisions of sec. 144 of the Act. b) That the AO failed to provide adequate opportunity to explain the assessee's case. The Id. CIT(A) in very concise manner rejected this plea of the assessee by stating the AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. c) That the AO failed to furnish copy of reasons recorded u/s 148 till the date of finalization of assessment which is clear violation of principle laid down by the Hon'ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs. ITO & ors 259 ITR 19 (SC). The Id. CIT(A) without examining the records held that the assessee did not ask for copy of reasons recorded. 3. That on the facts and circumstances of the case, the Id. CIT(A) erred in confirming the addition of Rs. 95,00,000/- by upholding the AO's action in making the disallowance u/s. 40A(3) of the Act without considering the assessee's submission in right perspective. The entire decision of the CIT(A) is just confirmation of AO's observations without there being any thoughtful consideration to the submissions of the appellant and case-laws relied on by the appellant. Hence, order passed by the CIT(A) deserves to be set aside. 4. That on the facts and circumstances of the case, the Id. CIT(A) erred in ignoring the fact that assessee's case was squarely covered within the exception as carved out under Rule 6DD and thus disallowance made u/s 40A(3) deserves to be quashed and set aside. 5. That on the facts and circumstances of the case, the CIT(A) erred in not issuing directions for allowing relief regarding charging of interest u/s. 234A, 234B and 234C of the Act. ITA No. 720/Jodh/2024 Seema Parakh 3 6. That on the facts and circumstances of the case, the CIT(A) erred in not issuing directions for dropping penalty proceedings u/s. 271(1)(c) and 271(1)(b) of the Act. 7. The appellant craves leave to add or to amend the foregoing ground of appeal, if it becomes necessary to do so in the interest of justice.” 3. Brief facts of the case are that the original return for AY 2013-14 was filed by the assessee u/s 139 on 27/09/2013 declaring total income of Rs. 3,84,320/-. A survey u/s 133A of the Act was conducted in the case of the assessee on 20/03/2020 wherein various incriminating books of accounts/ documents were impounded in physical form or in form of digital data. Certain hard disks containing data were also impounded as exhibit 27. Subsequently, it was seen that these hard disks contained data relating to the assessee's concern M/s Shri Kushal Arts. It also contained Cash book of the assessee for A. Yr. 2013- 14. On perusal of the cash book, it was noticed that the assessee paid huge cash payments to three parties namely - M/s Mahesh Handicraft, M/s Manu Trading, Indore and M/s Shubh Enterprises, Indore on 31/03/2013 of Rs. 25,00,000/-, Rs. 30,00,000/- and Rs. 40,00,000/- respectively. From the perusal of the cash book, ld. AO noted that the assessee made cash payments of more than Rs. 20,000/- to above referred three parties in single day i.e. ITA No. 720/Jodh/2024 Seema Parakh 4 31/03/2013 which is not allowable as per provisions of section 40A(3) of the Income Tax Act, 1961. 3.1 Thus, ld. AO after obtaining approval of the Pr. CIT-1, Jodhpur, notice u/s 148 dated 20/03/2020 was served upon the assessee by the DCIT, Circle-1, Jodhpur requiring the assessee to furnish ROI for AY 2013-14 with 30 days of receipt of notice u/s 148, i.e. on or before 19/04/2020. The assessee did not comply with notice u/s 148 within the stipulated time and hence on 30/09/2020, a notice u/s 142(1) was served upon the assessee by the DCIT Circle-1, Jodhpur stating that “148 issued return not filed Perusal of record show that even after reminder by way of notice u/s 142(1), the assessee has not furnished return in compliance to notice u/s 148 of the Act. Reminder was also issued to the assessee by the ld. AO on 08.03.2021 for filing of return for AY. 2013-14 in response to notice u/s 148. However, even after being provided with ample opportunity, assessee did not comply and no return of income was filed in compliance of notice u/s 148 for AY. 2013-14. 3.2 Subsequently, in compliance to the CBDT Instruction dated 17/09/2020 the Pr. CIT-1, Jodhpur passed order u/s 127 on 28/10/2020 and transferred / centralized the assessee's case from ITA No. 720/Jodh/2024 Seema Parakh 5 DCIT, Circle-1, Jodhpur to Central Circle -2, Jodhpur. Later on vide order dated 15/02/2021 the case was transferred / centralized to DCIT, CC-1, Jodhpur. 3.3 After receipt of case records on transfer from DCIT, Circle-1, Jodhpur, as there was change of incumbent AO, as provided u/s 129 of the Act, fresh opportunity was provided to the assessee by issue of notice u/s 142(1) dated 29/06/2021 vide which she was required to file return of A. Yr. 2013-14 in compliance to notice u/s 148. Again, assessee failed to file return in compliance to notice u/s 148. Looking to constant non-compliance of notice u/s 148, a show cause u/s 147 r.w.s. 144 issued vide No. 420 dated 24/09/2021 was also issued along with the notice u/s 142(1) clearly pointing out that since the assessee has not complied with the statutory notice served u/s 148, assessment proceedings are liable to be completed u/s 144 of the Act ex parte on the basis of material on record. 3.4 The assessee is an individual and is engaged in manufacturing and trading of handicraft items in the name and fashion of Shri Kushal Arts. During the course of survey u/s 133A Act conducted on 20/03/2020 wherein various incriminating books of accounts/ documents were impounded in physical form or in ITA No. 720/Jodh/2024 Seema Parakh 6 form of digital data. Certain hard disks containing data were also impounded as exhibit 27. Subsequently, it was seen that these hard disks contained data rating to the assessee's concern M/s Shri Kushal Arts. It also contained Cash book of the assessee for A. Yr. 2013-14. On perusal of the cash book it was noticed that the assessee paid huge cash payments to three parties, M/s Mahesh Handicraft, M/S NAU Trading, Indore and M/s Shubh Enterprises, Indore on 31.03.2013 of Rs. 25,00,000/-, Rs. 30,00,000/- and Rs. 40,00,000/- respectively. From the perusal of the cash book, ld.AO noted that the assessee made cash payments of more than Rs. 20,000/- to above referred three parties in single day i.e. 31/03/2013 which is not allowable as per provisions of section 40A(3) of the Income Tax Act, 1961. Thus, a show cause notice u/s 142(1) dated 24/09/2021 asking the assessee as to why the amount of Rs. 95,00,000/- being payment made in violation of provisions of section 40A(3) of the Act may not be disallowed and added to her income. 3.5 On 27/09/2021, assessee filed her reply which was received online. Assessee vehemently contested the proposed addition of Rs. 95,00,000/- in her case on account of disallowance u/s ITA No. 720/Jodh/2024 Seema Parakh 7 40A(3). Ld. AO considered the submission of the assessee but the same was not found to be tenable and acceptable. Cash book of the assessee maintained in Tally clearly shows that payments in cash above Rs. 20,000/- were made in a single day i.e. 31/03/2013 in cash in one go to the three parties as per extract of cash book appended in para 3.1 above. The submission made by the assessee in this regard that these entries are not in respect of cash paid but the same are relating to book adjustment entries for merging of multiple accounts is nothing but a falsified statement for the reason that the adjustment entries are always recorded by a business entity in Journal Books and not in Cash Book. But in the instant case, no mention of any journal entry is reflected and the said payments credited in the cash book are purely cash in nature and not of credit/adjustment entries. Thus, the plea given by the assessee in this regard was found to be baseless and obviously the assessee's cash payment to the tune of Rs. 95,00,000/-is caught by the mischief of provisions of section 40A(3) and addition on this account is imminent. Therefore, a disallowance of Rs. 95,00,000/- is made to the income of the assessee. ITA No. 720/Jodh/2024 Seema Parakh 8 4. Aggrieved, from the said order of assessment, assessee has filed an appeal before the ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee dismissed the appeal of the assessee by giving following findings on the issue:- “4.2. I have considered the facts of the case and written submission of the appellant as against the observations/ findings of the AO in the assessment order for the year under consideration. The appellant had alleged that the AO wrongly invoked the provisions of sec. 144 of the Act. It is important to mention here that notice u/s 148 dated 20/03/2020 was served upon the assessee by the DCIT, Circle-1, Jodhpur requiring her to furnish ROI for AY2013-14 with 30 days of receipt of notice u/s 148, i.e. on or before 19/04/2020. However, the assessee did not comply with notice u/s 148 within the stipulated time. Thereafter on 30/09/2020, a notice u/s 142(1) was served upon the assessee by the DCIT, Circle-1, Jodhpur stating that \"148 issued return not filed. Even after reminder by way of notice u/s 142(1), the assessee has not furnished return in compliance to notice u/s 148 of the Act. Reminder was also issued to the assessee by the AO on 08/03/2021 for filing of return for A. Yr. 2013-14 in compliance to notice u/s 148. However, even after being provided with ample opportunity, assessee did not comply and no return of income was filed in compliance of notice u/s 148 for A. Yr. 2013-14. Subsequently, in compliance to the CBDT Instruction F. No. 225/126/2020/ITA-II dated 17/09/2020 the Pr. CIT-1, Jodhpur passed order u/s 127 and transferred / centralized the assessee's case from DCIT, Circle-1, Jodhpur to Central Circle -2, Jodhpur. After receipt of case records on transfer from DCIT, Circle-1, Jodhpur, as there was change of AO, as provided u/s 129 of the Act, fresh opportunity was provided to the assessee by issue of notice u/s 142(1) dated 29/06/2021 vide which she was required to file return of A. Yr. 2013-14 in compliance to notice u/s 148. Again, assessee failed to file return in compliance to notice u/s 148. Looking to constant non-compliance of notice u/s 148, a show cause u/s 147 r.w.s. 144 issued vide No. 420 dated 24/09/2021 was also enclosed with the notice u/s 142(1) clearly pointing out that since the assessee has not complied with the statutory notice served u/s 148, assessment proceedings are liable to be completed u/s 144 of the Act ex parte on the basis of material on record. Thus, ample opportunities were given to the assessee to file the ROI. Further the appellant had not requested to provide copy of satisfaction recorded before issuing notice u/s 148. Thus, notice u/s 148 was issued but no return in response to notice u/s. 148 of the Act was filed by the assessee before the AO even after giving many opportunities. Thus, there is no infirmity is found in completing the ITA No. 720/Jodh/2024 Seema Parakh 9 assessment u/s. 144 of the Act. There is no evidence brought on record by the appellant from which it could be established that she requested the AO to provide copy of reasons recorded. Even otherwise, the AO duly addressed the issue for which the assessee's case was re-opened in the assessment order. The AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. The AO had duly analyzed and considered the submission of the appellant and had given finding on the same. Thus, considering the above facts and circumstances, ground no. 1 has no merit and accordingly it is hereby dismissed. Ground No. 2: 5.2 I have considered the facts of the case and written submission of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The facts of the case regarding this issue as narrated in the assessment order are as under:- 5.2.1 The assessee is an individual and is engaged in manufacturing and trading of handicraft items in the name and fashion of Shri Kushal Arts. A survey u/s 133A of the Income Tax Act, 1961 (the Act) was conducted in this case on20/03/2020 wherein various incriminating books of accounts/documents were impounded in physical form or in form of digital data. Certain hard disks containing data were also impounded as exhibit 27. Subsequently, it was seen that these hard disks contained data relating to the assessee's concern M/s Shri Kushal Arts. It also contained Cash book of the assessee for A. Yr. 2013-14. On perusal of the cash book, it was noticed that the assessee paid huge cash payments to three parties namely - M/s Mahesh Handicraft, M/s Manu Trading, Indore and M/s Shubh Enterprises, Indore on 31/03/2013 of Rs. 25,00,000/-, Rs.30,00,000/- and Rs. 40,00,000/-respectively Relevant portion of the cash book is appended below:----------------------- 5.2.2 From the perusal of the cash book, it was clear that the assessee had made cash payments of more than Rs. 20,000/- to above referred three parties in single day i.e. 31/03/2013 which is not allowable as per provisions of section 40A(3) of the Income Tax Act, 1961. The amount of Rs. 95,00,000/- was made in violation of provisions of section 40A(3) of the Act. Cash book of the assessee maintained in Tally clearly shows that payments in cash above Rs.20,000/- were made in a single day i.e. 31/03/2013 in cash in one go to the three parties as per extract of cash book above. The AO stated that during assessment stage the assessee had taken this plea that these entries are not in respect of cash paid but the same are relating to book adjustment entries for merging of multiple accounts for which the AO concluded that it is nothing but a falsified statement for ITA No. 720/Jodh/2024 Seema Parakh 10 the reason that the adjustment entries are always recorded by a business entity in Journal Books and not in Cash Book. The said payments credited in the cash book are purely cash in nature and not of credit/adjustment entries. Thus, the plea given by the assessee in this regard is found to be baseless and obviously the assessee's cash payment to the tune of Rs. 95,00,000/-is caught by the mischief of provisions of section 40A(3) and addition on this account is imminent. 5.2.3 In the written submissions furnished before me, the appellant reiterated that there were no cash payment to aforesaid parties and these entries are not in respect of cash paid but the same are relating to book adjustment entries for merging of multiple accounts. However, I find that the AO is already negated this claim of the assessee by stating that stating that adjustment entries are always recorded by a business entity in Journal Books and not in Cash Book but in assessee's case there is no mention of any journal entry and the said payments credited in the cash book were purely cash in nature and not of credit/adjustment entries. The appellant has not negated these findings/observations of the AO. In absence of any justification from the appellant's, I concur with the AO's findings that adjustment entries are always recorded by a business entity in Journal Books and not in Cash Book. The appellant's case is not covered by clause (d) of Rule 6DD as there is ample evidence on record that the assessee made cash payment to three parties namely - M/s Mahesh Handicraft, M/s Manu Trading Indore and M/s Shubh Enterprises, Indore on 31/03/2013 of Rs. 25,00,000/- Rs.30,00,000/- and Re. 40,00,000/- respectively and recorded the same in the cash book. The facts of the case-laws relied on by the appellant are differ from the facts of the appellant's case and not directly applicable. Thus, the appellant's contention in this regard is rejected. 5.2.4 Besides, the appellant has also argued that where genuineness of the transactions and identity of the payee/receiver of the payment is established, the payments should not be disallowed and where payment is made under business expediency, the same should not be disallowed. 5.2.5 At this juncture, it would be imperative to reproduce relevant provision of section 40A(3) which reads as under:- \"(3) 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 shall be allowed in respect of such % expenditure.......... From a plain reading of Section 40A(3), it is clear that any expenditure incurred in respect of which payment is made in a sum exceeding ITA No. 720/Jodh/2024 Seema Parakh 11 Rs.20,000/-otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. This section extends to single payments or aggregate of payments made to a single person in a day. Aggregate of payments means if a person makes more than one different purchases for cash from same person in excess of Rs 20,000/- in a single day even though on separate cash memos, such aggregate payment will be disallowed u/s 40A(3). In the present case, it is clearly evident and proved beyond doubt that the appellant had paid cash amounts exceeding the limit prescribed under section 40A(3) and the same were not covered in the exceptions enumerated in Rule-6DD 5.2.6 Considering the facts of the case and legal position, I find no force in arguments of the appellant that since recipient of payment is identifiable and payments were made under business expediency, therefore, no disallowance u/s. 40A(3) can be made. I may refer to the decision of Hon'ble Rajasthan High Court, in the case of Nahgi lal vs. CIT, reported in 167 ITR 139 (Raj) where on the issue of disallowance u/s 40A(3) under Rule 6DD(J), it is held that that it is not sufficient for the assessee merely to establish that the purchases were genuine and the payees were identifiable. The assessee is further required to prove that due to exception and unavoidable circumstances, or because payment by cheques was not practicable, cash payments were made. Further, the Hon'ble Gujarat High Court in the case of Associated Engineering Entps. CIT reported in 216 ITR 366 (Guj) held on the issue of disallowance u/s 40A(3) regarding exception and unavoidable circumstances that certificate given by the payee does not even remotely indicate any genuine difficulty faced by parties necessitating cash payments. It cannot be said that cash payments were made by the assessee due to any exceptional or unavoidable circumstances as envisaged by (1) of Rule 6DD. It is also held that it is not merely the genuineness of the transaction but also the the of the circumstances warranting payments cash which is Tribunal Special Bench in case of ITO existence, The Hon'ble Calcutta Tribunal Special bench in case of ITO vs. Kena Ram Saha and Subhash Saha, reported in 116 ITD 1(Kol) (SB) (Trib.) held that if place where recipient resides or carries on business is having banking facilities, conditions in of Rules 6DD(g) would not be satisfied merely because recipient has not opened his bank account. 5.2.7 Here I may refer to the decision of the Hon'ble Supreme Court in the caase of Rajesh Kumar vs. CIT [2024] 161 taxmann.com 125 (SC) wherein the Honb'le Apex Court affirmed the order of the High Court upholding the disallowance u/s. 40A(3) of the Act. The head note is reproduced as under:- \"Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payments ITA No. 720/Jodh/2024 Seema Parakh 12 exceeding prescribed limit (Purchases) - Assessment year 2013-14- Assessing Officer found that in respect of certain purchases payments to suppliers had been made by assessee otherwise than by account payee cheque and thus he denied deduction on said payments under section 40A(3) - High Court by impugned order held that since payments were not made through an account payee cheque drawn on a bank, account payee bank draft or through use of electronic clearing system through a bank account, and assessee could not establish genuineness of said transaction, disallowance made by Assessing Officer under section 40A(3) was justified - Whether SLP filed against impugned order of High Court was to be dismissed - Held, yes [Para 3] [In favour of revenue]\" 5.2.8 Regarding business expediency, the appellant has taken only argument but no supporting evidences have been furnished either before the Assessing Officer or before the undersigned. Further, the appellant failed to state any circumstances which compelled her to make payment on Sunday. Various case-laws relied on by the appellant are distinguishable and not directly applicable to the facts of the present case. 5.2.9 Considering the facts and circumstances of the case as discussed above and various judicial pronouncements, it is held that the AO was justified in making the disallowance u/s. 40A(3) of the Act, the addition made at Rs. 95,00,000/- on this account, is hereby sustained. Ground No. 2 raised by appellant regarding this issue is dismissed. 6. Ground Nos. 3 and 4 are related to initiation of penalty proceedings u/s 271(1)(b) and 271(1)(c) of the Act respectively. Since no appeal lies against initiation of penalty proceedings, therefore, these grounds are premature at this stage and hence, dismissed. 7. Ground No. 5:- This ground is related charging interest u/s 234A, 2348 & 234C of the Act. This issue is consequential in nature so no needing any specific adjudication and are accordingly treated as dispose off. 8. Ground No. 6:- In this ground, the appellant has submitted that the learned A.O. has also erred in creating an additional demand of Rs.6289627/- which in view of the facts and law is also illegal and bad in law. This ground is interconnected to other grounds of appeal which are already disposed of in preceding paras. Hence, this ground requires no specific adjudication. 9. The last Ground of Appeal (ground no. 7) is that the appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal during the course of appellate proceedings. The appellant has not added or altered, amend or withdraw any of the above mentioned ITA No. 720/Jodh/2024 Seema Parakh 13 grounds of appeal. Accordingly, such mention by the appellant in its ground is treated as general in nature, no needing any specific adjudication and is accordingly treated as dispose off. 10. In the result, the appeal is treated as dismissed.” 5. Feeling dissatisfied from the above order of the ld. CIT(A), the assessee has preferred the present appeal on the ground as stated hereinabove. Apropos to the grounds so raised the ld. AR of the assessee relied on the written submission which is reproduced here in below :- With your kind permission, before arguing the grounds of appeal and unwarranted additions sustained vide order u/s. 250(6) of the Act by the CIT(A), Jaipur-5, vide appellate order dated 05-08-2024, your humble appellant would like to narrate brief facts of the case as under:- The assessee individual is engaged in manufacturing and trading of handicraft items in the name and fashion of Shri Kushal Arts. The assessee filed original return for the AY 2013-14 on 27/09/2013 declaring total income of Rs. 3,84,320/-. Subsequently, a survey u/s 133A of the Act was conducted in this case on 20-03-2020 wherein various incriminating books of accounts/documents were impounded in physical form or in form of digital data. Certain hard disks containing data were also impounded as exhibit 27 which contained Cash book of the assessee for A.Y. 2013-14. The AO issued notice u/s. 148 of the Act was issued on 20/03/2020 but the same was never served upon the appellant as the same was uploaded on portal without any intimation to the appellant. So the appellant could not furnish return of income in response to notice u/s. 148 of the Act. During the course of assessment proceedings, assessee requested before Ld. AO to provide ‘reasons to believe’ for reopening of assessment, however, same was not provided, therefore, assessee vide letter dated 17.03.2021 requested ld AO to kindly treat the original return filed as return filed in response to Notice issued u/s 148 of the Act. During the course of assessment proceeding, the AO, on perusal of the cash book, noted that the assessee made cash payments of Rs. 25,00,000/-, Rs. 30,00,000/- and Rs. 40,00,000/- to three parties namely M/s Mahesh Handicraft, M/s Manu Trading, Indore and M/s Shubh Enterprises, Indore on 31/03/2013 respectively. The AO was of the opinion that the said payments were in contravention to section 40A(3) of the Act. During the course of assessment proceedings, the assessee duly stated before the AO that these entries are not in respect of ITA No. 720/Jodh/2024 Seema Parakh 14 cash paid but the same are relating to book adjustment entries for merging of multiple accounts and also submitted confirmation from parties vide letter dated 28.09.2021. However, the AO rejected the assessee’s genuine reply by making very irrelevant and irrational remarks. The AO completed the assessment u/s. 147 r.w.s 144 of the Act dated 29-09-2021 determining the assessee’s total income at Rs. 98,84,320/- by making an addition of Rs. 95,00,000/- on account of disallowance u/s. 40A(3) of the Act without giving any adverse remarks on genuineness of transactions with above referred parties/suppliers.The AO’s order dated 29-09-2021 was challenged before ld. CIT(A), Jaipur-5. The said order of the AO was confirmed by the ld. CIT(A), Jaipur-5, vide order dated 05- 08-2024. That the ld. ld. CIT(A), Jaipur-5 has grossly erred in confirming the addition and the assessee denies its liability towards the same. Aggrieved with the first appellate authority’s order, the appellant preferred the present appeal before your honour, raising following grounds of appeal:- 1. That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the AO’s order dated 29-09-2021 passed for the AY 2013-14 u/s. 147 r.w.s. 143(3) of the Act without appreciating true and correct facts of the case and documentary evidences brought on record by the assessee. 2. On the facts and in the circumstances of the case and in law, the assessment u/s 147/144 of the Income-tax Act, 1961 is invalid and illegal because the reopening of the assessment is not in conformity with the express legal provisions so as the appellate order dated 05-08-2024 passed in assessee’s case in view of the following: a) That the AO erroneously passed the assessment by applying the provisions of 144 of the Act ignoring that all the details which are required to complete the assessment had already been furnished by the assessee. The ld. CIT(A) while confirming the AO’s action in completing the assessment u/s. 144 of the Act simply overlooked the provisions of sec. 144 of the Act. b) That the AO failed to provide adequate opportunity to explain the assessee’s case. The ld. CIT(A) in very concise manner rejected this plea of the assessee by stating the AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. c) That the AO failed to furnish copy of reasons recorded u/s 148 till the date of finalization of assessment which is clear violation of principle laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs. ITO & ors 259 ITR 19 (SC). The ld. CIT(A) without examining the records held that the assessee did not ask for copy of reasons recorded. 3. That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs. 95,00,000/- by upholding the AO’s action in making the disallowance u/s. 40A(3) of the Act without considering the assessee’s submission in right perspective. The entire decision of the CIT(A) is just confirmation of AO’s observations without there being any thoughtful consideration to the submissions of the appellant and case-laws relied on by the appellant. Hence, order passed by the CIT(A) deserves to be set aside. ITA No. 720/Jodh/2024 Seema Parakh 15 4. That on the facts and circumstances of the case, the CIT(A) erred in not issuing directions for allowing relief regarding charging of interest u/s. 234A, 234B and 234C of the Act. 5. That on the facts and circumstances of the case, the CIT(A) erred in not issuing directions for dropping penalty proceedings u/s. 271(1)(c) and 271(1)(b) of the Act. 6. The appellant craves leave to add or to amend the foregoing ground of appeal, if it becomes necessary to do so in the interest of justice. (Ground wise submissions are as follows) After discussing the brief facts of the case and grounds of appeal, the appellant very humbly and respectfully begs to submit the following facts and submissions in support of the grounds of appeal raised in the present appeal before your honor for your kind consideration and allowing appropriate relief: (Ground No. 1) That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the AO’s order dated 29-09-2021 passed for the AY 2013-14 u/s. 147 r.w.s. 143(3) of the Act without appreciating true and correct facts of the case and documentary evidences brought on record by the assessee. Our submissions:- At the outset, the appellant humbly contends before your honour that the ld. CIT(A) erred in confirming the AO’s order dated 29-09-2021 passed for the AY 2013-14 u/s. 147 r.w.s. 143(3) of the Act without appreciating true and correct facts of the case and documentary evidences brought on record by the assessee. In the instant case, no notice u/s. 148 of the Act was served upon the assessee. The AO alleged that notice u/s. 148 of the Act was issued on 20- 03-2020. However, it appears that such notice was only uploaded to portal of the Department without any intimation to the appellant. It may be submitted here that due to Covid-19 pandemic, a complete lockdown was imposed by the State as well as Central Govt. w.e.f. 18-03-2020 onwards and as such nothing could be known to the appellant after this date of lockdown regarding issuance of notice. No efforts were made by the AO to serve notice u/s. 148 of the Act upon the assessee. Hon’ble Sir, it is a case of non-service of notice. Here we may invite your kind attention towards the decision of the Hon’ble Delhi High Court in the matter of CIT v. Chetan Gupta [2015] 62 taxmann.com 249/382 ITR 613 wherein it culled the principles relating to Section 148 of the IT Act as under:— \"46. To summarize the conclusions: (i) Under Section 148 of the Act, the issue of notice to the Assessee and service of such notice upon the Assessee are jurisdictional requirements that must be mandatorily complied with. They are not mere procedural requirements. ITA No. 720/Jodh/2024 Seema Parakh 16 (ii) For the AO to exercise jurisdiction to reopen an assessment, notice under Section 148 (1) has to be mandatorily issued to the Assessee. Further the AO cannot complete the reassessment without service of the notice so issued upon the Assessee in accordance with Section 282 (1) of the Act read with Order V Rule 12 CPC and Order III Rule 6 CPC. (iii) Although there is change in the scheme of Sections 147, 148 and 149 of the Act from the corresponding Section 34 of the 1922 Act, the legal requirement of service of notice upon the Assessee in terms of Section 148 read with Section 282 (1) and Section 153 (2) of the Act is a jurisdictional pre- condition to finalizing the reassessment. (iv) The onus is on the Revenue to show that proper service of notice has been effected under Section 148 of the Act on the Assessee or an agent duly empowered by him to accept notices on his behalf. In the present case, the Revenue has failed to discharge that onus.” The requirement of issue of notice is satisfied when a notice is actually issued within the period of limitation prescribed. Service of notice under the Act is not a condition precedent to conferment of jurisdiction on the Assessing Officer to deal with the matter but it is a condition precedent for making of the order of assessment. In the matter of R.K. Upadhyaya v. Shanabhai P. Patel [1987] 33 Taxman 229/166 ITR 163 (SC) the Supreme Court has held that the word 'issue' employed in Section 149 of the IT Act does not mean service of notice and observed as under:— \"... A clear distinction has been made out between 'issue of notice' and ‘service’ of notice' under the 1961 Act. Section 149 prescribes the period of limitation. It categorically prescribes that no notice under Section 148 shall be issued after the prescribed limitation has lapsed. Section 148(1) provides for ‘service’of notice as a condition precedent to making the order of assessment. Once a notice is issued within the period of limitations, jurisdiction becomes vested in the Income Tax Officer to proceed to reassess. The mandate of Section 148(1) is that reassessment shall not be made until there has been ‘service’. The requirement of issue of notice is satisfied when a notice is actually issued. ...\" The principle of law laid down in R.K. Upadhyaya (supra) has been followed by a three-Judge Bench of the Supreme Court in the matter of CIT v. Major Tikka Khushwant Singh . [1995] 80 Taxman 88/212 ITR 650 Similarly, the High Court of Gauhati in the matter of CIT v. Mintu Kalita , [2001] 117 Taxman 388/[2002] 253 ITR 334 placing reliance upon R.K. Upadhyaya (supra) has held in no uncertain terms that service of notice under Section 148 of the IT Act for the purpose of initiating proceedings for reassessment is not a mere procedural requirement but it is a condition precedent for initiation of proceedings for reassessment under Section 147. However, service of notice under Section 148 of the IT Act is an integral part of the cause of action arising out of initiation of a proceeding under Section 147 (see CESC Ltd. v. Dy. CIT [2003] 131 Taxman 751/263 ITR 402 (Cal.)). ITA No. 720/Jodh/2024 Seema Parakh 17 After careful consideration of the provisions of section 148 of the Act, which prescribes the service of a valid notice under section 148 on the assessee before making the assessment, reassessment or re-computation under section 147 of the Act, it is clear that a valid service of a valid notice under section 148 of the Act, is not a mere procedural requirement, but is a condition precedent to the validity of any assessment, reassessment or re- computation to be made under section 147 of the Act and it is so because of the use of words \"shall serve on the assessee\" and also the requirement to the effect \"before making the assessment, reassessment or re-computation under section 147\" in the section itself- meaning thereby that if no notice under section 148 is issued or if the notice so issued is shown to be invalid, or the service of notice so issued, is shown to be invalid, the learned Assessing officer cannot proceed with the subsequent proceedings for making assessment, reassessment or re-computation under section 147 of the Act. In other words, if the learned Assessing officer, in such circumstances, proceeds with the subsequent proceedings, the same will be illegal and void. This proposition of law has been held by the Hon'ble Court in the cases of Y. Narayana Chetty v. ITO [1959] 35 ITR 388 (SC), CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147 (SC), CIT v. Kurban Hussain IbrahimjiMithiborwala [1971] 82 ITR 821 (SC) by the Hon'ble High Courts in Lala Madan Lal Agarwal v. CIT [1983] 13 Taxman 120/144 ITR 745 (All.), Vijay Kumar Jain v. CIT [1975] 99 ITR 349 (Punj. & Har.), CIT v. Ishwar Singh & Sons [1980] 3 Taxman 63/[1981] 131 ITR 480 (All.) to mention few and many more. Thus, from the above judicial precedents ratio which emanates that in terms of section 148(1) of the Act, thus, before making reassessment under section 147, the Assessing Officer had to serve on the assessee the notice requiring him to furnish a return. Service of notice is necessary and not its mere issuance. Hon’ble Sir, this very fact of service was brought to kind knowledge of the ld. CIT(A) but he simply emphasizing and highlighting the date of issuance of notice u/s. 148 of the Act and various other notices, tried to nullify the appellant’s claim of non-service of notice u/s. 148 of the Act. As held in the various judicial precedents, a valid service is a mere procedural requirement, but is a condition precedent to the validity of any assessment, reassessment or re-computation to be made under section 147 of the Act but the CIT(A) did not give any thoughtful consideration to this legal aspect of the appellant’s case and thus, totally disregarded true and correct facts of the case. Similarly, the appellant explained before the AO and CIT(A) that in the cash book Dt. 31-03-2013, there were some contra entries made in the cases of 3 parties viz;- M/s Mahesh Handicrafts, M/s Manu Trading Co. Indore (M.P.) and M/s Subh Enterprises, Indore (M.P.), so as to ascertain the net business liability in these cases at the closure of year but survey party had treated the said contra entries as huge cash paid to these parties in violation of Section 40A(3). Theappellant also explained before the both the authoritiesthat alleged entries reflecting in cash book were not in respect of cash paid but the same are relating to book adjustment entries for merging of multiple accounts. However, ITA No. 720/Jodh/2024 Seema Parakh 18 both authorities simply emphasized data reflecting in hard disks which contained Cash book of the assessee for A. Yr. 2013-14 wherein entries regarding cashpayments to three parties namely – M/s Mahesh Handicraft, M/s Manu Trading,Indore and M/s Shubh Enterprises, Indore on 31/03/2013 of Rs. 25,00,000/-,Rs.30,00,000/- and Rs. 40,00,000/- respectively were reflected. The CIT(A) held that the said payments credited in the cash book are purely cash in nature and not of credit/adjustment entries without establishing the appellant’s explanation as incorrect or any justifiable reasoning for holding so. In this way, the CIT(A) totally disregarded the true and correct of the appellant’s case. Prayer:- Hon’ble Sir, in the light of this the ld. CIT(A)’s order findings recorded in order dated 05-08-2024 holding notice issued u/s. 148 as valid notice and confirming the addition of Rs. 95 lacs may be held as erroneous and the same needs to be reversed. (Ground No. 2) 2. On the facts and in the circumstances of the case and in law, the assessment u/s 147/144 of the Income-tax Act, 1961 is invalid and illegal because the reopening of the assessment is not in conformity with the express legal provisions so as the appellate order dated 05-08- 2024 passed in assessee’s case in view of the following: a) That the AO erroneously passed the assessment by applying the provisions of 144 of the Act ignoring that all the details which are required to complete the assessment had already been furnished by the assessee. The ld. CIT(A) while confirming the AO’s action in completing the assessment u/s. 144 of the Act simply overlooked the provisions of sec. 144 of the Act. b) That the AO failed to provide adequate opportunity to explain the assessee’s case. The ld. CIT(A) in very concise manner rejected this plea of the assessee by stating the AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. c) That the AO failed to furnish copy of reasons recorded u/s 148 till the date of finalization of assessment which is clear violation of principle laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs. ITO & ors 259 ITR 19 (SC). The ld. CIT(A) without examining the records held that the assessee did not ask for copy of reasons recorded. Our submissions:- a) That the AO erroneously passed the assessment by applying the provisions of 144 of the Act ignoring that all the details which are required to complete the assessment had already been furnished by the assessee and which are already available on record. The ld. CIT(A) while confirming the AO’s action in completing the assessment u/s. 144 of the Act simply overlooked the provisions of sec. 144 of the Act. ITA No. 720/Jodh/2024 Seema Parakh 19 Sir, your humble appellant contends that the AO was not justified in completing the assessment u/s. 144 of the Act as there no occasion / reason to complete the assessment ex-parte u/s. 144 of the Act. That the impugned order under section 144 of the Act dated 29-09-2021 is illegal ab-initio and hence the deserves to be quashed. Here, your humble appellate invite your kind attention towards provisions of sec. 144 of the Act which read as under:- “Best judgment assessment. 26144.27[(1)] If any person— (a) fails to make the return required 28[under sub-section (1) of section 139] and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-section (1) of section 14229[or fails to comply with a direction issued under sub-section (2A) of that section], or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the 30[Assessing] Officer, after taking into account all relevant material which the 30[Assessing] Officer has gathered, 31[shall, after giving the assessee an oppor-tunity of being heard, make the assessment32] of the total income or loss to the best of his judgment and determine the sum payable by the assessee 33[***] on the basis of such assessment : 34[Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment : Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.] 35[(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.]” Sir, from plain reading of section, it is clear that the AO can only complete the best judgment assessment if an assessee fails to comply with terms & conditions given clause (a), (b) and (c) of sub section of 1 section 144 of the Act. However, in the instant case, the assessee duly comply with terms & conditions given clause (a), (b) and (c) of sub section of 1 section 144 of the Act, which is evident from the facts mentioned below:- i. Filed his return of income u/s. 139(1) of the Act on 27-09-2013 ii. Furnished replies on in response to notice issued u/s. 142(1) of the Act iii. Furnished reply in response to show-cause notice dated 24-09-2021 ITA No. 720/Jodh/2024 Seema Parakh 20 Sir, from the above replies, it is clear that in our case, the AO has passed order u/s. 144, whereas we replied and submitted all the required details regularly before the AO. The AO mentioned that the assessee did not furnish reply of notice issued during the course of assessment proceedings. This is totally wrong observation of the AO as the assessee filed online reply along with all required details and documents to the show cause notice, which is available on ITD portal. Your humble appellant places his reliance on the decision of the Hon’ble Jurisdictional High Court (Rajasthan High Court) in the case of Rati Ram Bambelwal vs. National Faceless Assessment Centre, Delhi [2022] 138 taxmann.com 261 (Rajasthan) wherein the Hon’ble Court remanded the matter to the file of the AO after noticing that the AO failed to take into account assessee’s reply while completing the assessment u/s. 144 of the Act. The head note from this judgment is reproduced as under:- “Section 144, read with sections 143(3) and 148, of the Income-tax Act, 1961 - Best judgment assessment (Validity of assessment) - Assessment year 2013-14 - Assessee was engaged in business of trade of jewel commodities - Assessing Officer passed assessment order under section 143(3) accepting assessee's declared income - Thereafter he issued on assessee a notice under section 148 to reopen such assessment - This notice was followed by notices issued under section 142(1) - Since assessee did not reply to these notices, Assessing Officer issued a final notice on 3-9-2021 under section 144 stating that assessee should submit response by 10-9-2021 and in case assessee failed to make such a response assessment shall be finalized under section 144 - Assessee filed reply to notice issued on 3-9-2021 within time permitted - Despite this assessment which was carried out through faceless assessment system did not acknowledge such reply and contents thereof and Assessing Officer proceeded to complete assessment by making certain addition - Whether order of assessment suffered from violation of principles of natural justice - Held, yes - Whether Assessing Officer could not have ignored reply of assessee and proceeded to finalize assessment as if there was no response from assessee whatsoever - Held, yes - Whether impugned order of assessment deserved to be set aside - Held, yes - Whether Assessing Officer was to be directed to complete assessment after taking into account response of assessee to notice issued under section 144 - Held, yes [Paras 7, 8 and 9] [Matter remanded]” b) That the AO failed to provide adequate opportunity to explain the assessee’s case. The ld. CIT(A) in very concise manner rejected this plea of the assessee by stating the AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. Similarly, the CIT(A) failed to consider the assessee’s plea that the AO did not provide proper opportunity to his assessee before finalizing the assessment. The ld. CIT(A) in his appellate order dated 05-08-2024 simply rejected this plea of the assessee by stating that the AO had duly analyzed and considered the ITA No. 720/Jodh/2024 Seema Parakh 21 submission of the appellant and had given finding on the same. Sir, the ld. CIT(A) while recording such findings failed to consider the assessee about “reasonable opportunity”. In India, the principles of natural justice are firmly grounded in Article 14 and 21 of the Constitution. Principles of natural justice are attracted whenever a person suffers a civil consequence or a prejudice is caused to him in any administrative action. Mainly there are two principles: a) Nemo in propria causa judex, essedebet - no one should be made a judge in his own cause, or the rule against bias. b) Audi alteram partem - no one should be condemned unheard. The principle of audi alteram partem is the basic concept of the principle ofnatural justice. The omni potency inherent in the doctrine is that no one shouldbe condemned unheard. In the field of administrative action, this principle hasbeen applied to ensure fair play and justice to affected persons. In the case of Smt. Maneka Gandhi v. Union of India and another, AIR 1978SC 597, it has been observed that even where there is no specific provisionfor showing cause, yet in a proposed action which affects the rights of anindividual it is the duty of the authority to give “reasonable opportunity” tobe heard. The CIT(A) did not record any findings that “reasonable opportunity” was provided by the AO while completing the assessment order. c) That the AO failed to furnish copy of reasons recorded u/s 148 till the date of finalization of assessment which is clear violation of principle laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs. ITO & ors 259 ITR 19 (SC). The ld. CIT(A) without examining the records held that the assessee did not ask for copy of reasons recorded. Our submissions:- That on the facts and in the circumstances of the case, the notice issued u/s 148 of the I.T. Act, subsequent assessment proceedings and the impugned assessment order are bad in law and bad in facts particularly when copy of reasons recorded u/s 148 were not provided to the assessee till the date of finalization of assessment and further the so called reasons as appearing in the impugned order does not contain any finding that the income of the assessee has escaped assessment and without such specific finding no valid assessment can be made u/s 147 of the Act. The assessee through written letter requested to Ld. A.O. to provide copy of the reasons recorded before issuance of the notice u/s 148 but the Ld. A.O. did not consider it appropriate to provide a copy of the reasons recorded to the assessee till the date of the finalization of the assessment order and thus A.O. prevented the assessee to raise legal objection against the validity of notice u/s 148 and the Ld. A.O. proceeded to pass assessment order on violation of law laid down by Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO reported in 259 ITR at page 19. That when the assessee requested for the supply of the reasons recorded, it is mandatory on the part of the A.O. to supply the same to the assessee within a reasonable time failing which the entire proceeding become illegal and liable to be quash. Various legal pronounce by various ITA No. 720/Jodh/2024 Seema Parakh 22 court including Hon'ble Supreme Court and jurisdictional High Court can be summarised as under: a. GKN Driveshafts (India) Ltd. vs. ITO & ors 259 ITR 19 (SC) When a notice under s. 148 is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. b. Surat City Gymkhana vs. Dy CIT 254 ITR 733 (Guj) However, where reasons are demanded it would be better if they are supplied so as to enable the petitioner to make up its mind as to whether such reasons are germane to the belief as to escapement of income or otherwise. It has to be borne in mind that recording of reasons under s. 148(2) is a mandatory condition precedent and notice issued under s. 148 is a serious proceeding resulting in dislodgment of earlier assessment and no person should be compelled to face another innings of assessment without disclosure of reasons. When the initiation of reassessment proceeding is based on recording of reasons then it becomes all the more obligatory on the part of the authority concerned to disclose and communicate reasons, for appreciation and proper defense at least on demand after submission of the return in compliance with the notice. At that stage, refusal is unwarranted in law and citation of absence of provisions in the Act tantamount to closure of the eyes to realities. c. Gehna vs. Union OF India &Anr 267 ITR 782 (Raj) Since the petitioner has already sought reasons from the concerning authorities. It is expected from them to supply the reasons for issuing notice under s. 148 to the petitioner within a reasonable time and if any objections are submitted. thereafter it is the duty of the AO to decide the same. d. Berger Paints India Ltd. vs. Asst CIT & ors 266 ITR 462 (Cal) Recording reasons and divulging thereof to the assessee, if asked for, are also necessary as safeguard against arbitrary and improper exercise of jurisdiction. particularly because of the present provision of s. 147 which leaves enough room for arbitrary exercise of power. That the notice for u/s 148 was issued after the expiry of the four years from the end of the assessment year and no assessment u/s 143(3) or 148 for the year under consideration was made before issuance of the notice. In such situation, no notice can be issued unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer. That it is a fit case for the issue of such notice. The law has prescribed the necessity of prior approval by the Joint Commissioner of Income-tax with a view to protect the taxpayer from arbitrarily disturbing the sanctity of a completed assessment and peace to which the taxpayer is ordinarily entitled, unless he has consciously misled the Assessing Officer. In the absence of any positive finding regarding approval from the joint ITA No. 720/Jodh/2024 Seema Parakh 23 Commissioner anywhere in the assessment order or in the notice u/s 148, it is doubtful that the approval of the joint commissioner was in fact taken. Therefore your Honour kindly requested to enquire about the same and if approval of the joint commissioner wasnot found the assessment order may kindly be quashed. In light of above facts of and judicial precedents, it is clear that no assessment u/s 147 can be made where right procedure as per ratio laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd has not been followed. The appellant requests that the assessment order passed by the ld. A.O. may kindly be quashed. Humble Prayer:-In view of the above facts and submissions/ legal propositions, it can be seen that there is absence of any adverse tangible material or information directly gathered by the AO and the reasons are recorded for reopening the assessment are arbitrary, baseless, irrational without any material on record on borrowed satisfaction, without application of mind and is mere suspicion and factually incorrect reasons. The AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped assessment during the year and has not verified even basic facts before re -opening. Hence the consequent notice under section 148 issued in a casual and mechanical manner issued for AY 2013-14 is not in compliance with the legal provisions and is invalid, bad in law and void ab-intio. It is further humbly submitted in his appellate order dated 05-08-2024, the CIT(A) did not consider these technical / legal pleas raised by the appellant and he only summarily rejected our pleas and hence, his order cannot be said to be a speaking order and deserved to be reversed at your end. (Ground No. 3) That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs. 95,00,000/- by upholding the AO’s action in making the disallowance u/s. 40A(3) of the Act without considering the assessee’s submission in right perspective. The entire decision of the CIT(A) is just confirmation of AO’s observations without there being any thoughtful consideration to the submissions of the appellant and case-laws relied on by the appellant. Hence, order passed by the CIT(A) deserves to be set aside. Our submissions:- Hon’ble Sir, facts regarding this addition are stated in the assessment order dated 29-09-2021, therefore, the same are not repeated here. However, from the assessment order and CIT(A)’s findings, entire action of AO in making addition of Rs. 95,00,000/- by upholding the AO’s action intreating the same as violation u/s. 40A(3) of the Act and sustaining the addition by the CIT(A) is simply based on observations of the survey party. Your Honour, the appellant submits that she is engaged in manufacturing and trading of handicraft items in the name and fashion of Shri Kushal Arts. A ITA No. 720/Jodh/2024 Seema Parakh 24 survey u/s 133A of the Act was conducted assessee’s case on 20-03-2020 wherein various incriminating books of accounts/documents were impounded in physical form or in form of digital data. Certain hard disks containing data were also impounded as exhibit 27 which contained Cash book of the assessee for A. Yr. 2013-14. The AO, on perusal of the cash book, noted that the assessee made cash payments of Rs. 25,00,000/- Rs. 30,00,000/- and Rs. 40,00,000/- to three parties namely M/s Mahesh Handicraft, M/s Manu Trading, Indore and M/s Shubh Enterprises, Indore on 31/03/2013 respectively. The AO was of the opinion that the said payments were in contravention to section 40A(3) of the Act. During the course of assessment proceedings, the assessee duly stated before the AO that these entries are not in respect of cash paid but the same are relating to book adjustment entries for merging of multiple accounts. However, the AO rejected the assessee’s genuine reply by making very irrelevant and irrational remarks. The AO’s concluding remarks as recorded in para nos. 3 to 3.3 of the assessment order are reproduced as under:- “3. Disallowance u/s 40A (3) of the Act. 3.1 The assessee is an individual and is engaged in manufacturing and trading of handicraft items in the name and fashion of Shri Kushal Arts. A survey u/s 133A of the Income Tax Act, 1961 (the Act) was conducted in this case on 20/03/2020 wherein various incriminating books of accounts/ documents were impounded in physical form or in form of digital data. Certain hard disks containing data were also impounded as exhibit 27. Subsequently, it was seen that these hard disks contained data relating to the assessee’s concern M/s Shri Kushal Arts. It also contained Cash book of the assessee for A. Yr. 2013-14. On perusal of the cash book, it was noticed that the assessee paid huge cash payments to three parties namely – M/s Mahesh Handicraft, M/s Manu Trading, Indore and M/s Shubh Enterprises, Indore on 31/03/2013 of Rs. 25,00,000/-, Rs. 30,00,000/- and Rs. 40,00,000/- respectively. Relevant portion of the cash book is appended below: From the perusal of the cash book, it is clear that the assessee made cash payments of more than Rs. 20,000/- to above referred three parties in single day i.e. 31/03/2013 which is not allowable as per provisions of section 40A(3) of the Income Tax Act, 1961. Vide this office show cause notice u/s ITA No. 720/Jodh/2024 Seema Parakh 25 142(1) dated 24/09/2021, the assessee was categorically requested to show cause as to why the amount of Rs. 95,00,000/- being payment made in violation of provisions of section 40A(3) of the Act may not be disallowed and added to her income for A. Yr. 2013-14. Relevant portion of the notice is reproduced under: “…….. During survey proceedings at your premises on 28/01/2020, various incriminating books of accounts/documents were impounded in physical form or in form of digital data. Certain hard disks were also impounded name as exhibit-27. On analysis, it was seen that these hard disks contained data relating to your concern M/s Shri Kushal Arts for A. Yr. 2013- 14. It also contained Cash Book for A. Yr. 2013-14. On perusal of the cash book, it was noticed that you had paid huge cash payments to three parties namely - M/s Mahesh Handicraft, M/s Manu Trading, Indore and M/s Shubh Enterprises, Indore on 31/03/2013 of Rs. 25,00,000/-, Rs. 30,00,000/- and Rs. 40,00,000/- respectively. From the perusal of the cash book, it is clear that the assessee made cash payment of more than Rs. 20,000/- to above referred three parties on 31/03/2013 which is not an allowance expense as per provisions of section 40A(3) of the Income Tax Act, 1961. You are, therefore, hereby required to show cause as to why the amount of Rs. 95,00,000/-, being payment made in violation of provisions of section 40A(3) of the Act may not be disallowed and added to your income for A. Yr. 2013-14. ….” 3.2 On 27/09/2021, assessee filed her reply which was received online in the office of the undersigned. Assessee vehemently contested the proposed addition of Rs. 95,00,000/- in her case on account of disallowance u/s 40A (3).Relevant portion of the assessee’s submission is appended below: 3.3 Submission of the assessee was considered and after due consideration, the same was not found to be tenable and acceptable. Cash book of the assessee maintained in Tally clearly shows that payments in cash above Rs. 20,000/- were made in a single day i.e. 31/03/2013 in cash in one go to the three parties as per extract of cash book appended in para 3.1 above. The submission made by the assessee in this regard that these entries are not in respect of cash paid but the same are relating to book adjustment entries for merging of multiple accounts is nothing but a falsified statement for the reason that the adjustment entries are always recorded by a business entity in Journal Books and not in Cash Book. But in the instant case, no mention of any journal entry is reflected and the said payments credited in the cash book are purely cash in nature and not of credit/adjustment entries. Thus, the plea given by the assessee in this regard is found to be baseless and obviously the assessee’s cash payment to the tune of Rs. 95,00,000/-is caught by the mischief of provisions of section 40A(3) and addition on this account is imminent. Therefore, a disallowance of Rs. 95,00,000/- is made to the income of the assessee for Rs. 2013-14.” ITA No. 720/Jodh/2024 Seema Parakh 26 Your Honour, as can be seen from the above findings of the AO, the AO’s action in making the addition of RS. 95,00,000/- on account of disallowance u/s. 40A(3) is simply based on his opinion that adjustment entries cannot be made in Cash Book. The appellant, in her detailed submissions made before the AO, has objected this action of the AO before the CIT(A) that submitting that the same is based entirely on surmises and conjectures as well as personal presumptions of the Ld. A.O. It was claimed by the appellant before the ld. CIT(A) that there were no cash payment to aforesaid parties and these entries are not in respect of cash paid but the same are relating to book adjustment entries for merging of multiple accounts. To further fortify our claim, appellant even submitted confirmation of account before ld. CIT(A) which was also submitted before ld. AO vide letter dated 28.09.2021. However, the CIT(A) affirmed the AO’ view that adjustment entries are always recorded by a business entity in Journal Books and not in Cash Book. The appellant respectfully states that the observations, findings and/or allegations made by the assessing officer in his assessment order and sustaining the same by the CIT(A) is without any basis andcogent evidence on record, findings recorded by both the authorities are arbitrary, fictitious, and based on hypothetical grounds and unsustainable in law as well as on the facts and circumstances of the case and, therefore, the additions of Rs. 95,00,000/- made are liable to be deleted. Your Honour, for want of justice, your humble appellant wishes to make following submissions before your honour which were not considered by the ld. CIT(A). (1)WHERE GENUINENESS OF THE TRANSACTIONS AND IDENTITY OF THE PAYEE/RECEIVER OF THE PAYMENT IS ESTABLISHED, THE PAYMENTS SHOULD NOT BE DISALLOWED: Without prejudice to above, it is submitted that no disallowance u/s. 40A(3) can be made in respect of genuine transaction. In this regard, it is submitted that the primary object of enacting section 40A(3) was twofold, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transactions and, secondly, to inculcate the banking habit amongst the taxpayers. 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 is a relevant consideration while considering the applicability of the provisions of sec. 40A(3) of the Act.Sir, in our case, the AO has nowhere doubted the genuineness of the transaction nor made any efforts to check the genuineness of the transaction by issuing requisite notices u/s 133(6) or 131(1) of the Act. The parties to whom payment entries made are identifiable parties. These parties regularly deal with the assessee. Further, the Ld. AO had not in fact raised any doubt in respect of purchases made from these parties. ITA No. 720/Jodh/2024 Seema Parakh 27 Your humble appellant wishes to place reliance on the following judicial precedents: - The Hon'ble Apex Court in the case of CTO v. Swastik Roadways [2004] 3 SCC 640 had held that the consequences of non-compliance of Madhya Pradesh Sales Tax Act, which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea 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 penalty u/s 57(2).Though in the instant case, the issue involved is not with regard to the levy of penalty, but the requirement of law to be followed by the appellant is of as technical nature as was in the case of Swastik Roadways (3 SCC 640) (supra) 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 Circulars of the CBDT that whether the failure on the part of the assessee in adhering to the requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. 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 case of the instant appellant. It may kindly be noted that that the Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia v. ITO[2008] 298 ITR 349 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. This view was further endorsed and fortified in the judgement rendered by jurisdictional ITAT in the case of A Daga Royal Arts, Jaipur vs Ito, Jaipur on 15 May, 2018{ ITA No./1065/JP/2016}. In this regard, it is pertinent to refer to the decision of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO[1991] 191 ITR 667/59 Taxman 11 (SC) wherein the Hon'ble Court held as below: - \"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 ITA No. 720/Jodh/2024 Seema Parakh 28 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. 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 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 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.\" The Hon'ble Calcutta High Court in the case of CIT v. CPL Tannery[2009] 318 ITR 179/[2008] 175 Taxman 316 (Cal.) held as below:- \"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 of his business, was also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bona fide 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 the 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.\" The Hon'ble Gujarat High Court in the case of Anupam Tele Services v. ITO[2014] 43 taxmann.com 199/222 Taxman 318 (Guj.) held that where the identity of the payee has been established, there was no need to disallow the cash payments made u/s. 40A(3) of the Act, the head note is reproduced as below:- \"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 ITA No. 720/Jodh/2024 Seema Parakh 29 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 in respect of payment made to principal - Held, yes [Paras 21 to 23] [in favour of the assessee] \" Similarly, the Hon'ble AP High Court in the case of Sri Laxmi Satyanarayana Oil Mill v. CIT [2014] 49 taxmann.com 363/226 Taxman 139 (AP) held that when there was no doubt about the genuineness of payment, no disallowance could be made u/s. 40A(3) of the Act, the head note is reproduced as below:- \"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 groundnut in cash exceeding prescribed limit - Assessee submitted that he made payment in cash because seller insisted on that and also gave incentives and discounts - Further, seller also issued certificate in 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]\" (2)WHERE PAYMENT IS MADE ON SUNDAY, THE SAME SHOULD NOT BE DISALLOWED Without prejudice to above and in alternative, even if the department stand is taken to be true that in that case also, the alleged cash payments have been made on Sunday (31.03.2013) and therefore, the same is squarely covered within the exception carved out in Rule 6DD (clause J of Rule 6DD).It is humbly submitted that the appellant made cash payment on Bank Holiday and it was Sunday and the above disallowance does not occur when a taxpayer makes payments or an aggregate of payments in certain situations. Since, it was a bank holiday on the date of transaction, the parties/supplier requested the appellant to set off the said payments with the sister concern debtors. These circumstances and cases are described by Rule 6DD which was added via Notification No. SO2431(E) on 10/10/2008. Again for the sake of clarity, rule 6DD are reproduced as under: - Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft. 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or ITA No. 720/Jodh/2024 Seema Parakh 30 profession under sub-section (3A) of section 40A where 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 in the cases and circumstances specified hereunder, namely :— (a) where the payment is made to— (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949); (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender; (c) where the payment is made by— (i) any letter of credit arrangements through a bank; (ii) a mail or telegraphic transfer through a bank; (iii) a book adjustment from any account in a bank to any other account in that or any other bank; (iv) a bill of exchange made payable only to a bank; (v) the use of electronic clearing system through a bank account; (vi) a credit card; (vii) a debit card. Explanation. —For the purposes of this clause and clause (g), the term “bank” means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], ITA No. 720/Jodh/2024 Seema Parakh 31 whether incorporated or not, which is established outside India; (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; (e) where the payment is made for the purchase of— (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; (f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; (g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; (h) where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees; (i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee— (i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and (ii) does not maintain any account in any bank at such place or ship; (j) where the payment was required to be made on a day on which the banks were closed either on account of holiday ITA No. 720/Jodh/2024 Seema Parakh 32 or strike; (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; (l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Explanation. —For the purposes of this clause, the expressions “authorised dealer” or “money changer” means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.] It is very respectfully submitted that no disallowance under section 40A(3) of the Income Tax Act, 1961 can be made where the assessee proves that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft-(Rule 6DD(j)). The following is a list of exceptions to Section 40A (3) of the Income Tax Act: * If a taxpayer made payments on a day of bank holiday or a strike. *Payments via Book Adjustment Disallowances are exempted for payments made via adjusting the purchaser’s liability against goods/services rendered by the seller in the past. Sir, at this juncture, your humble appellant invite your kind attention towards Section 40A(3) and Section 40A(3A) which deals with Disallowance of 100% of expenditure if payment is made by any mode other than account-payee cheque or draft in the year of expense or in the subsequent year / Years. 1961. Sir, our case is duly covered by exception given in clause (j)/(d) of Rule 6DD, hence, hence, no disallowance is required to made u/s. 40A(3) of the Act as on these entries / payments were made on 31-03-2013 and there was Sunday on that date. Your humble appellant wishes to place reliance on the following judicial precedents: - a. CIT Vs. K.K.S K. Leather Processor P Ltd [2007] 292 ITR 669 (Mad) b. Harshila Chordia v. ITO f2008] 298 ITR 349 /Rail c. Laxmipathi Balaji Sugar AndDistilleriesPvt. Ltd V/s DCIT Case No : Income Tax Appeal No. 4008/DEL/2018 ITA No. 720/Jodh/2024 Seema Parakh 33 (3)WHEREPAYMENT IS MADE UNDER BUSINESS EXPEDIENCY, THE SAME SHOULD NOT BE DISALLOWED Without prejudice to above, it is submitted that the appellant under business expediency, was compelled to make such book entries and hence, her case is covered by rule 6DD as it stood before exclusion / amendment. I find that these contentions of the appellant gets support from the decision of the Hon'ble Rajasthan High Court in the case of Harishila Chordia ([2008] 298 ITR 349) wherein it was held as under: - “Business expenditure—Disallowance under s. 40A(3)—Exceptional or unavoidable circumstances—Circumstances in which the conditions laid down in r. 6DD(j) could be applicable cannot be spelt out and the circumstances provided in CBDT circular are not exhaustive but illustrative—As per Circular No. 220, dt. 31st May, 1977, clearly states that r. 6DD(j) has to be liberally construed, and ordinarily where the genuineness of the transaction and the identity of the payee is established, the requirement of r. 6DD(j) must be deemed to have been satisfied—Genuineness of the transactions and the identity of the payee is not disputed—Tribunal has accepted the explanation that the assessee was receiving payments in cash from her customers at Kankroli which was remitted to the dealer with the understanding that it is to be transmitted in the assessee’s bank account at Udaipur and that she had left signed cheque book in the possession of the dealer so that he could receive the payments through cheques—Modus operandi of the assessee is not disputed by the Tribunal—Therefore, no disallowance under s. 40A(3) could be made by taking a hypertechnical view It is a relevant consideration for the assessing authority under the IT Act that before invoking the provisions of s. 40A(3) in the light of r. 6DD as clarified by Circular No. 220 dt. 31st May, 1977 that whether the failure on the part of the assessee in adhering to requirement of provisions of s. 40A(3) has any such nexus so as to invite such a consequence. This is particularly so, because the consequence provided under s. 40A(3) for failure to make payments through bank is not absolute in terms nor automatic but exceptions have been provided and leverage has been left for little flexing by making a general provision in the form of cl. (j) in r. 6DD. Para 4 of the circular shows very clearly that all the circumstances in which the conditions laid down in r. 6DD(j) could be applicable cannot be spelt out. It was further clarified in para 6 that the above circumstances are not exhaustive but illustrative. Therefore, the Tribunal was clearly in error in not travelling beyond the circumstances referred to in para 4 of the circular and to consider the explanation submitted by the assessee on its own merit. Para 5 of Circular No. 220, dt. 31st May, 1977 gives a clear indication that r. 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and identity of the receiver is established, the requirement of r. 6DD(j) must be deemed to have been satisfied. Apparently, s. 40A(3) was intended to penalize the tax evader and not the honest transactions and that is why after framing of r. 6DD(j), the Board stepped into issuing the aforesaid circular. There is no dispute about genuineness of the transactions and the payment and identity of the receiver ITA No. 720/Jodh/2024 Seema Parakh 34 are established. Therefore, the case clearly fell within the parameters of paras 4 and 5 of the aforesaid circular read together.—CTO &Ors. vs. Swastik Roadways &Anr. (2004) 3 SCC 640 applied.” The appellant may submit that the terms of s. 40A(3) are not absolute. Considerations 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 AO the circumstances under which the payment in the manner prescribed in sec. 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 received the cash payment. The provisions of section 40A(3) and Rule 6DD are made to regulate the business transaction and curtail the flow of black money—Cannot be regarded curtailing freedom of trade or Business as held by the Hon’ble Apex court in the case of Attar Singh Gurmukh Singh, etc. vs. ITO (1991) 191 ITR 667 (SC). In the instant case, the AO totally ignored the fact that the payments (book entries passed) were made under business expediency. Hon’ble Sir, the above arguments were duly made before the CIT(A) but he rejected the same mainly by giving much emphasize nature of entries reflected in cash book. The CIT(A) in his appellate order failed to take note of the fact that such entries were relating to contra entries booked for ascertaining the actual liability at the closure of year and no cash payment in contravention to sec. 40A(3) was ever made. The AO as well as CIT(A) also failed to take note of the fact that the appellant obtained confirmations from these parties, which established genuine transaction took place amongst them and there were no violation of provisions of sec. 40A(3) of the Act. The CIT(A) further in his appellate order recorded that facts of the case-laws relied on by the appellant are differ from the facts of the appellant’s case and not directly applicable but failed to state how and why these case are not applicable to the facts of the appellant’s case. Sir, cases relied on by the CIT(A) in his appellate order are related to cash payment whereas in our case there is no cash payment and it is case of adjustment book entries so these decisions relied on by the CIT(A) are not at all applicable to the facts of the appellant’s case. Humble Prayer In view of facts discussed above, legal position and judicial precedents cited supra, the assessee very humbly submits that the AO failed to consider these entries / payments with provisions of section 40A(3). As section 40A(3) only comes into play where actual payment is made in violation of sec. 40A(3) but in case where no actual payment is made and only adjustment book entries made due to particular system of accounting followed by an assessee, the same cannot be hit by provisions of sec. 40A(3).Both the authorities below failed to take note that entries /payments were made on 31-03-2013 when bank was closed due to Sunday. The CIT(A) while sustaining the addition of Rs. 95,00,000/- failed to consider the assessee’s submissions in respect ITA No. 720/Jodh/2024 Seema Parakh 35 perspective and arbitrary confirmed the AO’s action in this regard which needs to be held as perverse and deserves to be reversed. (Ground Nos. 4 to 6) The appellant humbly requests that suitable relief as per law may kindly be provided in respect of ground nos. 4 to 6 above.” 6. The ld. AR of the assessee in addition to the above written submission vehemently argued that the lower authorities have not appreciated the fact that 31.03.2013 being the Sunday the assessee has received a sum of Rs. 75,00,000/- from the said cash book and have paid Rs. 95,00,000/- the revenue has not doubted the source of cash payment made and the parties to whom the same is paid. The revenue also did not appreciate the exception provided in rule 6DD(j) which give exception that if the payment made on a day on which the banks were closed either on account of holiday or strike. The payment date 31.03.2013 being Sunday the assessee be given the benefit of the exception. Knowing this amendment after the online payment being made available 24*7 and 365 days the same has been omitted from the rules w.e.f. 29.01.2020 but for the year under consideration the benefit of that rule be given to the assessee. 7. Per contra, ld. DR relied upon the orders of the lower authorities and submitted that the disallowance is in accordance with the provision ITA No. 720/Jodh/2024 Seema Parakh 36 of section 40A(3) of the Act and the same has been correctly sustained by the ld. CIT(A). 8. We have heard both the parties and perused the materials available on record. The bench noted that in this case the apple of discord is that whether the payment made by the assessee on 31.03.2013 is disallowable as per provision of section 40A(3) read with rule 6DD(j) or not. The brief fact of this case is that there was a survey u/s 133A of the Act conducted at the premises of the assessee on 20/03/2020 wherein various incriminating books of accounts/ documents were impounded in physical form or in form of digital data. Certain hard disks containing data were also impounded as exhibit 27. Subsequently, it was seen that these hard disks contained data relating to the assessee's concern M/s Shri Kushal Arts. It also contained Cash book of the assessee for A. Yr. 2013- 14. On perusal of the cash book, it was noticed that the assessee paid huge cash payments to three parties namely - M/s Mahesh Handicraft, M/s Manu Trading, Indore and M/s Shubh Enterprises, Indore on 31/03/2013 of Rs. 25,00,000/-, Rs. 30,00,000/- and Rs. 40,00,000/- respectively. From the perusal of the cash book, ld. AO noted that the assessee made cash payments of more than Rs. 20,000/- to above referred three parties in single day i.e. 31/03/2013 which is not allowable ITA No. 720/Jodh/2024 Seema Parakh 37 as per provisions of section 40A(3) of the Income Tax Act, 1961 and accordingly after undertaking the proceeding u/s.148 of the Act the assessment was completed on 20.09.2021 therein making the disallowance u/s. 40A(3) of the Act for an amount of Rs. 95,00,000/-. When the matter carried before the ld. CIT(A) he has justified the disallowance made by the ld. AO. Now the assessee is before this tribunal challenging the finding of the lower authority. As we note that the single issue in this case is where the lower authority were correct in making the disallowance and sustaining the same by the ld. CIT(A) or not. First of all we refer the provision of section 40A(3) of the Act, which reads as under : Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head \"Profits and gains of business or profession\". xxx xxx xxx (3) 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, or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure. Certain exception to the provision of section 40A(3) is prescribed in Rule 6DD which reads as under; 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or ITA No. 720/Jodh/2024 Seema Parakh 38 aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or 2[account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] in the cases and circumstances specified hereunder, namely:— xxx xxx xxx 4. Clause (j) omitted by the Income-tax (Third Amendment) Rules, 2020, w.e.f. 29-1-2020. Prior to its omission, said clause (j) read as under: \"(j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;\" Thus, if we read the above exception to the rule as provided in Rule 6DD(j) of the Act the payment made by the assessee being on Sunday covered by the above exceptions. The bench also take note of the fact from the cash book that the assessee has received the payment of Rs. 75,00,000/- and has made the payment of Rs. 95,00,000/-. Therefore, even for the balance amount paid for an amount of Rs. 20,00,000/- there was no question about the source of the same. Considering the provision of section read with relevant rules we do not find any reason to sustain the addition in the hands of the assessee and the same is directed to be deleted. Based on these observation ground no 3 & 4 raised by the assessee are allowed. Ground no. 1, 2 are technical ground on the assessment proceeding and its validity since we have considered the appeal of ITA No. 720/Jodh/2024 Seema Parakh 39 the assessee on merits we do not deem it fit adjudicate those grounds and the same become academic. Ground no. 5 and 6 being consequential in nature and 7 being general in nature the same are also not required to be adjudicated. In the result the appeal of the assessee is allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Dated 10/12/2024 * Ganesh Kumar, Sr. PS Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order "