Shri Santosh M. Bhandari, Prop. Ostwal Clothing V. The Income Tax Officer, Ward-2(1), Hubballi

ITA/100005/2020

AI Insights

The case involves Shri Santosh M. Bhandari, the proprietor of Ostwal Clothing, who appealed against the orders of the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals), which disallowed deductions for cash payments totaling Rs. 3,47,717 made on the last day of the assessment year 2013-14. The appellant argued that the payments were made in cash due to the unavailability of banking services on that day, being a Sunday and a bank holiday. However, the authorities found no compelling evidence or justification for the necessity of cash payments over cheques, leading to the dismissal of the appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 683369 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 20-03-2024
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: THIRUMALESH; ROOPA ANVEKAR
• Assessee Lawyers: ASHOK KULKARNI
• Keywords: Assessment Year 2013-14; Cash payments; Expenditure deduction; Income tax appeal; Rule 6DD(j); Section 40A(3A)
• Section: 40A(3); 260A; 40A(3A); 6DD(j)

Judgement Text

" - 1 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE 20TH DAY OF MARCH, 2024 PRESENT THE HON'BLE MR JUSTICE M.I.ARUN AND THE HON'BLE MR JUSTICE UMESH M ADIGA INCOME TAX APPEAL NO.100005 OF 2020 BETWEEN: SHRI SANTOSH M.BHANDARI, PROP. OSTWAL CLOTHING, OSTWAL TOWERS, JUBILEE CIRCLE, DHARWAD-580001. …APPELLANT (BY SRI ASHOK A.KULKARNI, ADVOCATE) AND: THE INCOME TAX OFFICER, WARD-2 (1), HUBBALLI. PRESENTLY AT: THE INCOME TAX OFFICER, WARD-2(1), CENTRAL REVENUE BUILDING, NAVANAGAR, HUBBALLI-580025. …RESPONDENT (BY SRI THIRUMALESH M., ADVOCATE AND SMT. ROOPA ANVEKAR, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260A OF THE INCOME-TAX ACT, 1961, PRAYING TO, FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND SET ASIDE THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL IN ITA NO.1812/BANG/2019 DATED 20.12.2019 IN ANNEXURE-“A”, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), HUBBALLI, NO.CIT(A),HUBLI/10380/2015-16 DATED 25.3.2019 IN ANNEXURE-“C” AND THE ASSESSMENT ORDER PAN-AHRPB0819N DATED 29.01.2016 AND ALLOW THE DEDUCTION AS CLAIMED, IN THE INTEREST OF JUSTICE AND EQUITY. THIS INCOME TAX APPEAL, COMING ON FOR ADMISSION, THIS DAY, M.I.ARUN, J., DELIVERED THE FOLLOWING: R Digitally signed by SAMREEN AYUB DESHNUR Location: HIGH COURT OF KARNATAKA - 2 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 JUDGMENT Aggrieved by the order dated 25.03.2019 passed in No.CIT(A),HUBLI/10380/2015-16 by the Commissioner of Income Tax (Appeals), Hubballi vide Annexure-C to the writ petition and the order dated 20.12.2019 passed in ITA No.1812/Bang/2019, dated 20.12.2019 by the Income Tax Appellate Tribunal, SMC-C Bench, Bengaluru vide Annexure-A to the writ petition, the assessee has preferred this appeal. 2. The dispute pertains to non-acceptance of the statement of the assessee, that he has incurred an expenditure of a sum of Rs.3,47,717/- for the assessment year 2013-14. 3. The case of the assessee is that on the last day of the assessment year 2013-14 i.e., on 31.03.2013, he made the following payments in cash as follows : Sl. No. Name of party Date of payment Inv. No. Amount 01 Vimal Plastics 31.03.2013 2702 Rs.2,11,363/- 02 Radhey Shyam Hosiery 31.03.2013 1479,2704 Rs.90,454/- 03 A2A Clothing Co. Pvt. Ltd. 31.03.2013 889,2707 Rs.45,900/- TOTAL Rs.3,47,717/- - 3 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 4. It is his contention that he was constrained to make the said payments in cash as the same had to be made on the last date of the assessment year and it was a Sunday and Bank holiday. It is contended that the appellant is exempted under Section 40A(3A) proviso read with Rule 6DD(j) of the Income Tax Rules, 1962. 5. Section 40A(3A) first proviso of the Income Tax Act, 1961 reads as under : “Expenses or payments not deductible in certain circumstances. X X X X X (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. - 4 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 (3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, 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, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income- tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds ten thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section 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, or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, exceeds ten thousand rupees, in such cases and under such circumstances as may be prescribed, having - 5 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors:]” 6. Rule 6DD(j) of the Income Tax Rules, 1962 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 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) XXXXX (b) XXXXX (c) XXXXX (d) XXXXX (e) XXXXX (f) XXXXX (g) XXXXX (h) XXXXX (i) XXXXX (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;” - 6 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 7. Restriction is imposed on the amount of transaction that a person can make in cash for business expenditure because any attempt by the assessee to show his income falsely as expenditure in business is thwarted and that the transaction made is traceable. However, under such circumstances exemptions are made to cater to special exigencies where it is not possible for the transaction to be made through Bank and a person is forced to pay money by way of cash. The onus of proving that such a circumstance existed and indeed payment has been done in cash and the income has not escaped assessment is on the assessee. In the instant case, the assessee is in the business of cloth. He has not produced any believable document before the Assessing Officer to show that there was an exigency and he had to necessarily make payments on 31st March, 2013 itself to the tune of Rs.3,47,717/- to the persons as contended by him and he has also failed to show that he could not have made payment by way of cheque. He has also not produced any believable document to show that the said persons have - 7 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 infact received the said consideration and have declared the same in their income. Except the oral submission to that effect, no document has been produced. The Commissioner of Income Tax (A) of Hubballi in paragraph No.4.1 has recorded as follows : “4.1. In the submissions, the assessee stated that payment of Rs.3,47,717/- made in cash was on Sunday when banks were closed on account of holiday. The assessee however failed to submit reason as to why payment had to be made on Sunday, and as to why cheque payment could not be made even if it was a holiday. Thus, the disallowance made by the AO U/s.40A(3) of the I.T.Act, 1961, is upheld.” 8. For the aforementioned reasons, we do not see any reason as to why the well reasoned order of the Commissioner of Income Tax (A), Hubballi and the order passed in ITA No.1812/Bang/2019, dated 20.12.2019 by the Income Tax Appellate Tribunal has to be interfered. The appellant has failed to make out any substantial question of law to be required to be decided by this Court. - 8 - NC: 2024:KHC-D:5505-DB ITA No. 100005 of 2020 9. For the aforementioned reasons, the writ petition is hereby dismissed. Sd/- JUDGE Sd/- JUDGE CKK List No.: 1 Sl No.: 19 "