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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: SRI RAJESH KUMAR & SONJOY SARMA
order : August 31st, 2023 ORDER Per Rajesh Kumar, Accountant Member: Both these appeals preferred by the assessee are against the order of Learned Commissioner of Income-tax (Appeals)- NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] dated 25.04.2023 for the Assessment Years (in short ‘AY’) 2011-12 & 2012-13. .: 596 & 597/KOL/2023 AYs: 2011-12 & 2012-13 Shyamapada Jana.
Ground no. 1 is against the confirmation of disallowance of Rs. 1,11,200/- by Ld. CIT(A), NFAC, Delhi thereby upholding the disallowance made by the Assessing Officer (in short ld. 'AO') u/s 40A(3) of the Act in respect of cash payments exceeding the ceiling of Rs. 20,000/-.
The facts in brief are that the assessee filed its return of income on 31.03.2012 which was selected for scrutiny under CASS. Statutory notices were issued and duly served upon the assessee. During the course of assessment proceedings Ld. AO observed that the assessee has made payments exceeding Rs. 20,000/- against purchase of goods from Visaka Industries Ltd. which was in violation of provisions of Section 40A(3) of the Act. Accordingly, Ld. AO issued show cause notice which was not complied with and consequently Ld. AO added the aggregate of Rs. 1,11,200/- to the total income of the assessee stating the sum as payments in violation of Section 40A(3) of the Act. In the appellate proceedings also Ld. CIT(A) uphold the order of the AO on the ground that the assessee has made payment exceeding Rs. 20,000/- in violation of provisions of Section 40A(3) of the Act.
After hearing rival contentions and perusing the material on record, we find that the assessee was regular purchaser of goods from Visaka Industries Ltd. and used to make payments in the ordinary course which were below Rs. 20,000/- and thus, there was no violation of provisions of Section 40A(3) of the Act. The assessee has also produced a confirmation certificate dated 29.03.2014 which is extracted below: .: 596 & 597/KOL/2023 AYs: 2011-12 & 2012-13 Shyamapada Jana. Certificate of Payment This is to certify that Sri Shyamapada Jana proprietor of Maa Kali Stone & Hardware of Kharagpur made payment in cash of Rs 111200/- to our collection personnel in following: Rs 15000/- on 18/05/2010, Rsl5000/- on 19/05/2010, Rs 14200/- on 21/05/2010, Rs 15000/- on 25/08/2010, Rsl5000/- on 26/08/2010, Rs 15000/- on 27/08/2010, Rs 15000/-on 30/12/2010, Rs7000/- on 31/12/2010. The above cash deposited by our collection personnel Rs 44200/- on 21/05/2010, Rs 45000/- on 27/08/2010 and Rs 22000/- on 31/12/2010 to our cashier of the company. The accounts section enters in the cash book on this day when collected cash deposited by our collection personnel to the cashier of the company. It is not possible to record in our cash book on this day party was made payment cash to our collection personnel.
A perusal of the above certificate of payment reveals that the payments made by the assessee on various dates were below Rs. 20,000/- and it was also stated that the assessee has made payments to the collection personnel of the company and the said personnel has made lumpsum deposit in the supplier’s account. In the present case the genuineness of the expenditure has not been doubted by the authorities below. In our opinion even were the payments exceeding Rs. 20,000/- are made and the genuineness of the expenses are not doubted, in that case the provisions of Section 40A(3) of the Act are not applicable. The case of the assessee is squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of Girdharilal Goenka Vs. CIT reported in [1986] 179 ITR 122 (Calcutta) wherein it has been held that where assessee had satisfied Assessing Officer as to genuineness of payment and identity of payee, mere fact that there was time-gap between dates of bills and dates of payment would Page 3 of 10 I.T.A. Nos.: 596 & 597/KOL/2023 AYs: 2011-12 & 2012-13 Shyamapada Jana. not take out assessee’s case out of ambit of exceptional or unavoidable circumstances referred to in rule 6DD(j) and deduction of expenditure which was otherwise allowable to him could not be denied. The Hon'ble High Court of held that the object of the provision of section 40A(3) is to check evasion of taxes so that the payment is made from the disclosed sources. Both the payer and the payee would be showing in the respective accounts the payments made and received. It presupposes that the transactions must be genuine transactions. The Hon'ble Court has further held as under:
The Income-tax Officer should take a practical approach to problems and strike a balance between the direction of law and hardship to the assessee. He should not enmesh himself in technicalities. After all the object of section 40A(3) is not to deprive the assessee of the deduction which he is otherwise entitled to claim. Where the amount was paid in cash or received in cash, the Assessing Officer has to find out whether the transaction is genuine or not and if he finds that the transaction is genuine, he should allow the deduction. The circular of the Board is not exhaustive; it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee. There may be an oral agreement between the assessee and the seller for payment in cash. A seller may not be willing to accept cheques; cash payment may be made at the request of the payee who is also an assessee and a certificate to that effect filed; absence of banking facilities in places where cash payments are made. All such cases would come within the purview of exceptional or unavoidable circumstances. On the facts of this case, where the assessee had satisfied the Assessing Officer as to the genuineness of the payment and the identity of the payee, the circumstance that there was a delay in making payment of the bills by itself would not take the case out of the ambit of exceptional or unavoidable circumstances referred to in rule 6DD(j) and deduction of the expenditure which was otherwise allowable to him could not be denied.
I.T.A. Nos.: 596 & 597/KOL/2023 AYs: 2011-12 & 2012-13 Shyamapada Jana. 6. Similarly, the Hon'ble Coordinate Bench in the case of Seikh Nizamuddin Vs. ACIT in for AY 2010-11 order dated 13.07.2017 has held and decided the issue in favour of the assessee by observing and holding as under:
9. We note that since the genuinity of the payments made to the party is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It is observed that the assessee had taken enough precautions from his side to ensure that the payee also don't escape from the ambit of taxation on these receipts by paying cash. This fact is also not disputed by the revenue. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. It is pertinent to notice that the primary object of enacting section 40A(3) was two fold, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. 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 it being free from vice of any device of evasion of tax is relevant consideration. In the instant case, the assessee made bank draft of Rs.5,00,000/- to pay to M/s Mahima Alekha Coal Traders, but he refused to take bank draft therefore in order to run the business the assessee did not have any option but to make payment in cash. Had the assessee not been paid cash to M/s Mahima Alekha Coal Traders, his business would have been stopped or restricted to that extent. The purpose of section 40A (3) is not to restrict the assessee's genuine business activity.
Thus, in view of the facts of the case and the ratio laid down in the above decisions, we are inclined to set aside the order of Ld. CIT(A) and direct Ld. AO to delete the disallowance.
The issue raised in ground no. 2 is against the confirmation of addition of Rs. 80,000/- by Ld. CIT(A) as made by Ld. AO on account of low withdrawal by the assessee. .: 596 & 597/KOL/2023 AYs: 2011-12 & 2012-13 Shyamapada Jana.
The facts in brief are that Ld. AO during the course of assessment proceedings observed that the assessee has shown drawings for personal expenses at Rs. 75,000/- whereas the premium paid for LIC was to the tune of Rs. 1,77,225/- and accordingly, Ld. AO added Rs. 80,000/- to the income of the assessee on account of low withdrawal. In the appellate proceedings Ld. CIT(A) upheld the order of Ld. AO by holding that the assessee has made sufficient withdrawal and also the fact that the assessee has made withdrawals for payment of LIC premium separately which were duly shown in the capital account of the assessee. 10. After hearing rival contentions and perusing the material on record, we find that though the assessee has made withdrawals of Rs. 75,000/- only and paid the LIC premium to the tune of Rs. 1,77,225/- however, we note that both the authorities below have failed to appreciate the facts in correct perspectives. We observe from the copy of balance sheet produced before us which was also furnished before the lower authorities that drawing for personal expenses were Rs. 75,000/- whereas the other drawings were mentioned separately namely repayment of house building loan of Rs. 76,354/-, LIC premium of Rs. 1,77,225/-. We also take note of the fact that the family is situated in Midnapore, West Bengal which a very remote place, where the expenses of the family are also that not much. We also note that the assessee’s wife also withdrawals from her capital account, a copy of which is filed at page no. 5 of the paper book, to the tune of Rs. 60,000/- for the backup of the family. Ld. CIT(A) confirmed the addition made by I.T.A. Nos.: 596 & 597/KOL/2023 AYs: 2011-12 & 2012-13 Shyamapada Jana. the AO without appreciating the facts on records. Accordingly, the appellate order is not sustainable as the first appellate authority has failed to appreciate the fact that withdrawals of Rs. 75,000/- is over and above the LIC premium paid of Rs. 1,77,225/- and that assessee’s wife has also withdrawn Rs. 60,000/- for family expenses. Therefore, in view of this factual mistakes committed by the authorities below, we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance. The ground no. 2 is allowed.
In the result, the appeal filed by the assessee is allowed.
The issue raised in ground no. 1 is against the confirmation of addition of Rs. 4,50,000/- by Ld. CIT(A) as made by the AO on account of non-genuine gift received.
The facts in brief are that during the year the assessee received Rs. 10,00,000/- from his wife Smt. Baisakhi Jana. During the course of assessment proceedings Ld. AO issued notice u/s 133(6) of the Act to Smt. Jana to furnish the details which were duly furnished. Ld. AO on the basis of balance sheet filed by the donor came to the conclusion that the wife of the assessee could have gifted maximum of Rs. 5,50,000/- and consequently added Rs. 4,50,000/- to the income of the assessee. In the appellate proceedings Ld. CIT(A) dismissed the appeal of the assessee by giving a very big finding. 14. After hearing rival contentions and perusing the material on record, balance sheet and profit and loss account for financial year Page 7 of 10 .: 596 & 597/KOL/2023 AYs: 2011-12 & 2012-13 Shyamapada Jana. 2011-12, declaration of gift by Smt. Jana, cash flow statement of Smt. Jana, we find that the donor has sufficient sources to explain the gift of Rs. 10,00,000/- made to her husband. We note that the donor in response to the notice issued u/s 133(6) of the Act has duly replied and also furnished the details of the gift with source, mode of gift and purpose for which the gift was made. We note that Smt. Baisakhi Jana was doing independent business and has made a gift out of her own income. We note that the total cash flow as per cash flow statement of Rs. 13,55,086/- and therefore, Mrs. Jana was having sufficient sources available for making the said gift. We have also perused the observations of Ld. AO given in the assessment order and observe that the AO simply took up the balance sheet to arrive at the conclusion that the donor had source only to the tune of Rs. 5,50,000/- whereas the enough sources were available with Mrs. Jana as apparent from cash flow statement. In view of these facts, we are in a position to accept the findings given by the ld. CIT(A). Accordingly, we set aside the order of Ld. CIT(A) and delete the addition made by Ld. AO. The ground no. 1 is allowed. 15. The second ground of appeal
is against the confirmation of addition of Rs. 90,000/- by Ld. CIT(A) as made by the AO on account of low withdrawal.
16. Ld. AO during the course of assessment proceedings observed that the assessee has made withdrawals of Rs. 56,000/- which are too low to make personal expenses and accordingly made addition of Rs. 90,000/- to the income of the assessee. In the appellate proceedings, Ld. CIT(A) simply upheld the order of