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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL
Per contra, if such expenditure of Rs.50,000/- is found to
be bogus, the entire amount will be disallowed without
even entering into the realm of section 40A(3) of the
Act.
Both the rival sides have relied on certain
decisions fortifying their respective points of view. Por
una parte, certain High Courts including the Hon’ble
Gujarat High Court in Anupam Tele Services Vs. ITO (2014)
366 ITR 122 (Guj.) and the Hon’ble Rajasthan High Court in
11 ITA No. 1883/PUN/2018 Suresh Chunnilal Sharma
Harshila Chordia Vs. ITO (2008) 298 ITR 349 (Raj.) have
deleted the disallowance in the cases of genuine business
transactions, por otra parte, certain other High Courts
including the Hon’ble Bombay High Court in Madhav
Govind Dulshete Vs. ITO (2018) 259 Taxman 949 (Bom.), the
Hon’ble Madras High Court in Vaduganathan Talkies and
others Vs. ITO (2020) 428 ITR 224 (Mad.), the Hon’ble
Karnataka High Court in Nam Estates Pvt. Ltd. Vs. ITO (2020)
428 ITR 186 (Kar.) and the Hon’ble Calcutta High Court in
Bagmari Tea Company Ltd. Vs. CIT (2001) 251 ITR 640 (Cal.)
have confirmed the disallowance where the payment was
made in cash exceeding the stipulated amount
notwithstanding the genuineness of the transaction.
Let me consider the judgment of the Hon’ble
jurisdictional High Court in Madhav Govind Dulshete (supra) a
little more elaborately. The assessee therein was engaged in the
business of sale of Kerosene which was purchased from
notified dealers. The assessee made purchases of Kerosene
from certain companies. Some of the payments were made in
cash while others were in cheque. The AO made disallowance
by invoking section 40A(3) in respect of cash payments
12 ITA No. 1883/PUN/2018 Suresh Chunnilal Sharma
exceeding the limit by noticing that both the assessee and seller
had banking facilities. The CIT(A) affirmed the assessment
order. The Tribunal echoed the AO’s view by finding that both
the buyer and sellers had bank accounts. The Hon’ble High
Court countenanced the view of the Tribunal sustaining the
disallowance thereby repelling the assessee’s contention of a
genuine business transaction as a ground for not making
disallowance u/s 40A(3) of the Act.
Turning to the facts of the instant case, it is found as an
admitted position that the assessee as well as the seller of the
plots had bank accounts at the material time and still the
transaction was carried out in violation of section 40A(3)
without bringing the case in any of the specific clauses of Rule
6DD.
On an overview of the view canvassed by various Hon’ble
High Courts on the point - some deleting the disallowance on
the basis of the genuineness of the transactions while others
sustaining the disallowance - what matters for the Tribunal is to
follow the binding precedent, being, the judgment of Hon’ble
jurisdictional High Court. That being the position, the Pune
Tribunal is bound by the judgment of the Hon’ble jurisdictional
13 ITA No. 1883/PUN/2018 Suresh Chunnilal Sharma
High Court in Madhav Govind Dulshete (supra) sustaining the
disallowance in case of cash payments exceeding the stipulated
limit notwithstanding the fact that the transactions were genuine
and the parties were identifiable. Respectfully following the
judgment, I uphold the disallowance sustained in the first
appeal. This ground fails.
The only other ground in this appeal is against the
confirmation of disallowance of Rs.7,36,934/- made u/s.14A
read with Rule 8D.
The factual matrix of the ground is that the assessee
earned exempt income of Rs.9,23,194/- as his share of profit
from various firms and also dividend of Rs.69,179/- which was
claimed as exempt u/s.10(2A) and 10(34) respectively. In the
absence of the assessee offering any disallowance u/s.14A, the
AO called for the reasons. The assessee furnished explanation.
The AO, by means of elaborate reasoning running into 4 pages,
held that the disallowance u/s.14A read with Rule 8D was
called for. The amount of disallowance was computed at
Rs.7,36,934/- comprising of interest of Rs.6,45,536/- and half
percent of average investments at Rs.91,398/-. The ld. CIT(A)
sustained the disallowance.
14 ITA No. 1883/PUN/2018 Suresh Chunnilal Sharma
I have heard the rival submissions and gone through the
relevant material on record. The only issue raised by the ld. AR
is qua the interest disallowance of Rs.6,45,536/-and not the
other part. The ld. AR contended that the assessee had
sufficient interest free capital for the purpose of making
investment in the firms and companies yielding exempt income
and hence, no disallowance should be made. In support of such
contention, he invited my attention towards page 28 of the
paper book on which some calculation has been made showing
interest bearing funds and interest free funds available with the
assessee. It is observed that the authorities below did not
accept the contention, in principle, by opining that interest free
funds available with the assessee could not be deemed to have
been utilised for making investments in sources yielding
exempt income. In this regard, it is noticed that the Hon’ble
Supreme Court in CIT (LTU) Vs. Reliance Industries Limited
(2019) 410 ITR 466 (SC) has approved the view that where
interest free funds available with the assessee were sufficient to
meet its investment and at the same time loan was raised, it can
be presumed that the investments were made from interest free
funds and hence, no disallowance of interest should be made to
15 ITA No. 1883/PUN/2018 Suresh Chunnilal Sharma
that extent. In view of the above decision, I deem it appropriate
to send the matter back to the file of AO for examining the
assessee’s contention about the availability of interest free
funds available with him and then decide the amount of interest
disallowable u/s.14A. Insofar as the remaining amount of
Rs.91,398/-, being, one half percent of average value of
investment is concerned, the same is held to be properly
disallowed.
In the result, the appeal is partly allowed for statistical
purposes.
Order pronounced in the Open Court on 16th February,
2021.
Sd/- (R.S.SYAL) उपा�य� उपा�य�/ VICE PRESIDENT उपा�य� उपा�य�
पुणे Pune; �दनांक Dated : 16th February, 2021 Satish
16 ITA No. 1883/PUN/2018 Suresh Chunnilal Sharma
आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत / Copy of the Order is forwarded to : अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / 3. The CIT (Appeals)-1, Aurangabad 4. The Pr. CIT-1, Aurangabad िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
Date 1. Draft dictated on 12-02-2021 Sr.PS 2. Draft placed before author 16-02-2021 Sr.PS 3. Draft proposed & placed -- JM before the second member 4. Draft discussed/approved -- JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement Sr.PS on 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *