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Before: SHRI V. DURGA RAO & DR. MANISH BORAD
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 18, Chennai, dated 31.08.2021 relevant to the assessment year 2015-16.
Brief facts of the case are that the assessee is a construction company, a firm engaged in the business of executing civil contract work for PWD department and Railways. The partners of the assessee firm were Shri K. Don Alex Raja, Shri P. Janakar and Shri S. Senthilkumar with profit sharing ratio of 10:80:10 respectively. A search under section 132 of the Income Tax Act, 1961 [“Act” in short] was conducted on 22.04.2016 at the residence of Shri C.P. Anbunathan, Karur. Based on the analysis of seized materials from the residence of Shri C.P. Anbunathan, action under section 132 of the Act was initiated in the case of Shri P. Janakar on 10.05.2016. After examination of the information/documents filed, the Assessing Officer has completed the assessment under section 153C r.w.s. 143(3) of the Act dated 31.12.2018 by disallowing cash payment of ₹.10,00,000/- made under section 40A(3) of the Act and an amount of ₹.3,06,72,350/- towards sundry credit for want of evidence and confirmations under section 115BBE of the Act. On appeal, while deleting the addition of ₹.3,06,72,350/-, the ld. CIT(A) confirmed the disallowance made under section 40A(3) of ₹.10,00,000/-.
On being aggrieved, the assessee carried the matter in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the intention of the Legislature is to curb black money and non-genuine transaction, whereas, in the present case, the Assessing Officer was able to identify the payee as well as payer and the transaction is genuine since the payment was made for the purpose of business. It was further submission that the payments made by the assessee was for business expediency and therefore, the provisions of section 40A(3) of the Act invoked by the Assessing Officer was not correct and prayed for deleting the addition made under section 40A(3) of the Act. The ld. Counsel for the assessee has relied on the following case law:
1. 1. Attar Singh Gurmukh Singh v. ITO [1991] 59 Taxman 11(SC) 2. Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Rajasthan) 3. A. Daga Royal Arts v. ITO [2018] 94 taxmann.com 401 (Jaipur – Trib) 4. Om Balaji Stores v. ITO in dated 15.06.2022.
4. On the other hand, the ld. DR has submitted that the payment was made to a construction company, which is being unaccounted and the assessee has not brought on record any evidence that the cash payment of ₹.10.00 lakhs fall under exemption as enumerated in Rule 6DD of the Income Tax Rules. Therefore, the Assessing Officer has rightly invoked the provisions of section 40A(3) of the Act.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee. With regard to the addition of ₹.10,00,000/- towards disallowance of cash payment to third parties under section 40A(3) of the Act, during the course of assessment proceedings, the Assessing Officer has observed that incriminating materials were seized in the case of Shri P. Janakar and M/s. K.P. Constructions, operating in the premises of No. 52, Spencer Compound, Dindigul in the form of loose sheets with statements (page Nos. 19 to 25 of folder vida ANN/RB/KPC/LS/S-2 dated 10.05.2016) containing various entries of bills/payments in the name of ‘Sri Sakthi Murugan Crushers, Dindigul’ made by the assessee company during the period from 05.01.2015 to 26.01.2015 (relevant to A.Y.2015- 16) for a total sum of Rs. 10,95,400/-. Accordingly, the assessee was required to explain about the details of the above stated document, for which he had filed a reply on 12.12.2018. Upon analysing the reply of the assessee, the Assessing Officer has observed that the assessee had filed few ledger account copies and explanations, however, there had been no corresponding evidences along with vouchers, details of sundry creditors with confirmation and sources for cash introduced were produced by the assessee. The assessee’s partner had himself admitted that the books were not properly maintained by the firm.
The Assessing Officer further observed that the transaction with Sakthi Murugan Crushers, Dindigul, vide seized document Ann/RB/KPC/L.C/S-2 dated 10.05.2018, there had been a bill dated 27.01.2015 for ₹. 10,95,400/- indicating payment made to M/s. Sakthi Murugan Crushers by M/s. Giant Construction on a single day (12.01.2015) otherwise than by bank. When the same was shown to the 5 Partner of the assessee concern Shri P. Janakar, during the course of post search proceeding, the partner had not provided any satisfactory explanation/corresponding evidences. However during the course of search assessment proceeding, when the partner was required to explain about it, he had submitted in the reply dated 12.12.2018 as follows. “I wish to state that M/s. Giant Construction company erected Hot Mix Plant in the Premise of Sri Sakthi Murugan Cruser, Dindigul. For Government Road work, contract. We purchase some portion of raw material requirements such as 1/2” Blue metal stone, 1/4” Blue metal stone, powder etc. During the said period they supplied materials to our plant by operating more than TEN LORRIES for which they raised advance payment for PONGAL FESTIVAL, Accordingly M/s. Giant Construction Company (base on Festival & Bank/Government holiday reasons) paid advance by 12.01.2015 and same has been deducted in full from all the parties on submission of bill dated 27.01.2015. I also wish to state that the Ld A.O. may observe "No Supply” (DUE TO PONGAL FESTIVAL HOLIDAY) on dates from 14th – 20th of Jan.2015 from the statement pages 19-25."
From the above reply, the Assessing Officer opined that the assessee had confirmed that there was cash payment to the third party and also stated to have claimed it back on subsequent days. The transaction was accepted to be a payment towards an outstanding bill, in cash mode, though for stated conditions and other circumstances there had been no other evidence. Even otherwise the cash payment made was booked only for the corresponding services availed which attracts provisions of section 40A(3) of the Act and accordingly, the sum of ₹.10,00,000/- was disallowed and brought to tax. On appeal, since the assessee has not brought on record any evidence that the cash payment of ₹.10,00,000/- falls under one of the categories of situations as 6 I.T.A. No. 435/Chny/21 enumerated in Rule 6DD of Income Tax Rules, 1962 and not demonstrated that the impugned expenditure was wholly and exclusively incurred for the purpose of its business, the ld. CIT(A) confirmed the addition made towards disallowance under section 40A(3) of the Act.
Before the Tribunal also, though the assessee has filed ledger extract of Sakthi Murugan Crusher in the books of the assessee for the period from 01.01.2015 to 26.01.2015, as was filed before the Assessing Officer, the assessee could not demonstrate that the impugned expenditure was wholly and exclusively incurred for the purpose of its business or filed any corresponding evidences along with vouchers, details of sundry creditors with confirmation and sources for cash introduced were produced by the assessee.
8.1 So far as case law relied on by the ld. Counsel for the assessee in the case of Attar Singh Gurmukh Singh v. ITO (supra) has no application to the facts of the present case for the reason that the assessee has not produced any evidence for the purchase in cash mode with third party or furnished any satisfactory explanation either before the Assessing Officer or before the ld. CIT(A) or even before the Tribunal and thus, the Assessing Officer has rightly invoked the provisions of section 40A(3) of the Act in the present case.
8.2 Similarly, the decision in the case of Smt. Harshila Chordia v. ITO has also no application to the facts of the present case for the reason that the genuineness of the transaction was not at all explained by the assessee either before the Assessing Officer or ld. CIT(A) or even before the Tribunal.
8.3 We have also carefully gone through all other case law relied on by the ld. Counsel for the assessee and find that the facts and circumstances in those cases are entirely different from the facts of the present case and thus, the case relied on by the ld. Counsel stands rejected. Under the above facts and circumstances, we find no infirmity in the order passed by the ld. CIT(A) on this issue and thus, the ground raised by the assessee is dismissed.
In the result, the appeal filed by the assessee is dismissed.