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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM
आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK श्री सी.एम.गगग, न्याययक सदस्य एवं श्री एऱ.ऩी.साहु,ऱेखा सदस्य के समऺ BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM आयकर अपीऱ सं./ITA No.53/CTK/2018 (नििाारण वषा / Assessment Year : 2012 - 2013) Mr. Rajendra Kumar Sahoo, Vs. ACIT, Circle-1(1), Cuttack Prop. of New Kanak Jewellery & Kanak Transport, At/Po: New Market, Keonjhar-758001 स्थायी ऱेखा सं./PAN No. : ARKPS 2114 G (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. यनधागररती की ओर से /Assessee by Shri B.R.Panda/Satyajit Nanda, Advs. : राजस्व की ओर से /Revenue by : Shri Subhendu Dutta, DR सुनवाई की तारीख / Date of Hearing : 22/01/2020 घोषणा की तारीख/Date of Pronouncement : 16/03/2020 आदेश / O R D E R Per L.P.Sahu, AM : This is an appeal filed by the assessee against order of CIT(A), Cuttack, dated 18.10.2017 for the assessment year 2012-2013. 2. As per the office note/order sheet entry, the appeal of the assessee is barred by 48 days. In this regard, the ld. AR of the assessee has filed an application for condonation of delay along with an affidavit. Considering the application along with the affidavit of the assessee for condonation of delay, to which ld. DR did not object to the same, we condone the delay in filing the appeal and the appeal is heard finally.
2 ITA No.53/CTK/2018
The assessee has raised following grounds of appeal :-
I. For that the addition of Rs.21,46,046/- for alleged violation Sec.40A(3) of the IT. Act, without considering the exceptional or unavoidable circumstances involved for purchasing the gold and silver and when the genuineness of the payments and the identity of the payee had not been doubted then such payments cannot be disallowed in mechanical manner, hence entire addition should be deleted.
II. For that the nature of the gold business and the necessity for expeditious settlement thereof should have been looked into and the evidence also furnished to the satisfaction of the Revenue as the genuineness of the payment and the identity of the payee, it can not be said that the payments violating the provision of Sec.40A(3) of the IT. Act. Hence the addition made ought to have been quashed.
III. For that, both the payer and the payee are known and the transactions are genuine even the payment exceed to the statutory limit that should not be treated as violating the Sec.40A(3) of the I.T. Act, hence the addition of Rs.21,46,046/- should have been deleted.
IV. For that, in this case since the transaction is relating to purchases and not for the expenditure and the persons are identified, then the payment should not be considered as the expenditure incurred for recurring. Hence the addition sustained U/s.40A(3) of the I.T. Act by the Id. CIT(Appeals) is bad in law.
V. For that, the very concept of Sec.40A(3) and Rule 6DD(j) have been incorporated in the Act in order to check the incurring of bogus and fictitious expenses to non-existing parties. But where the genuineness of the payment has not been doubted such addition U/s.40A(3) of the IT Act can not be made in mechanical manner. Thus the orders of the forum below are erred in law.
VI. For that the disallowance/addition of expenses applying the percentage rate by the Id. Assessing Officer and thereafter the Id.CIT(A) reduced the percentage rate from 25% and 10% to 10% and 5% respectively and sustain the addition of Rs.8,22,175/- under the heads Travelling expenses and Business promotion expenses and Rs.2,47,507/- under the heads repair and maintenance, printing and stationary etc. alleging failed to produce the documents and the proposition taken for arriving such method of computation is totally prejudice to the facts of the case.
VII. For that since expenses are made extensively for business purposes to facilitating and functioning of the business in good and positive manner to achieve the business objects and were recorded in the
3 ITA No.53/CTK/2018 books of accounts on day to day basis, the percentage rate cannot be applied in this case. Hence the additions made on presumption basis are illegal and liable to be deleted.
The other grounds will be urged at the time of hearing.
Brief facts of the case are that the assessee filed return of income
on 02.03.2013 declaring total income of Rs.37,75,199/-. The assessee
derives income from retail sale of gold & silver and transport contract.
The case was selected for scrutiny and statutory notices were issued to
the assessee. Due to change of incumbency the case was transferred to
other AO. On perusal of the profit and loss account and ledger
furnished by the assessee, it was noticed by the AO that the assessee
has purchased ornaments from various dealers, among these dealers
he has made purchase from M/s Lily Alankar, Cuttack and M/s Maa
Santhosi Jewellers, Cuttack. On verification of ledger of purchases made
from these two jewellers, the AO found that the assessee has made
purchase by cash exceeding Rs.20,000/- on various dates in one bill in
violation of section 40A(3) of the Act. Therefore, the AO invoked the
provisions of Section 40A(3) of the Act against the cash payments made
by the assessee. For proper understanding, the details of cash
payments as incorporated by the AO in the assessment order, are as
under :-
S.No Date Mode of Amount S.No Date Mode of Amount Payment Payment 1 1.4.2011 Cash Rs.23,955 13 18.7.2011 Cash Rs.21,685 2 5.4.2011 -do- Rs.24,644 14 2.8.2011 -do- Rs.23,190
4 ITA No.53/CTK/2018
3 9.4.2011 -do- Rs.26,788 15 16.8.2011 -do- Rs.30,542 4 19.4.2011 -do- Rs.25,897 16 22.8.2011 -do- Rs.27,714 5 2.5.2011 -do- Rs.21,761 17 7.9.2011 -do- Rs.23,409 6 7.5.2011 -do- Rs.21,665 18 17.10.2011 -do- Rs.24,725 7 23.5.2011 -do- Rs.23,735 19 24.10.2011 -do- Rs.22,304 8 1.6.2011 -do- Rs.22,691 20 29.10.2011 -do- Rs.22,666 9 4.6.2011 -do- Rs.21,409 21 3.11.2011 -do- Rs.43,178 10 14.6.2011 -do- Rs.22,786 22 5.12.2011 -do- Rs.23,230 11 20.6.2011 -do- Rs.22,167 23 13.12.2011 -do- Rs.21,680 12 12.7.2011 -do- Rs.24,813 Total: Rs. 5,66,634/-
Purchase: M/s Maa Santhosi Jewellers, Cuttack.
S.No Date Mode of Amount S.No Date Mode of Amount payment Payment 1 3.4.2011 Cash Rs.24,570 17 10.9.2011 Cash Rs.25,805 2 10.4.2011 -do- Rs.25,482 18 15.9.2011 -do- Rs.25,209 3 16.4.2011 -do- Rs.27,869 19 20.9.2011 -do- Rs.37,725 4 3.5.2011 -do- Rs.20,412 20 26.9.2011 -do- Rs.41,492 5 9.5.2011 -do- Rs.21,331 21 30.9.2011 -do- Rs.40,389 6 18.5.2011 -do- Rs.22,192 22 29.10.2011 -do- Rs.33,596 7 2.6.2011 -do- Rs.20,846 23 30.10.2011 -do- Rs.65,318 8 9.6.2011 -do- Rs.24,002 24 31.10.2011 -do- Rs.98,809 9 21.6.2011 -do- Rs.20,705 25 15.11.2011 -do- Rs.21,548 10 20.7.2011 -do- Rs.22,369 26 20.11.2011 -do- Rs.25,189 11 24.7.2011 -do- Rs.32,137 27 26.11.2011 -do- Rs.36,085 12 26.7.2011 -do- Rs.24,240 28 30.11.2011 -do- Rs.37,723 13 31.7.2011 -do- Rs.33,986 29 13.12.2011 -do- Rs.24,179 14 12.8.2011 -do- Rs.24,371 30 21.12.2011 -do- Rs.31,120 15 19.8.2011 -do- Rs.24,497 31 27.12.2011 -do- Rs.73,284 16 26.8.2011 -do- Rs.27,145 Total: Rs.10,13,625/-
Purchase Register:
S.No Date Mode of Amount S.No Date Mode of Amount Payment Payment 1 13.04.2011 Cash Rs.27,000 10 27.09.2011 Cash Rs.35,620 2 18.06.2011 -do- Rs.35,525 11 01.10.2011 -do- Rs.22,176 3 14.08.2011 -do- Rs.64,000 12 12.10.2011 -do- Rs.22,688 4 20.08.2011 -do- Rs.54,210 13 07.02.2012 -do- Rs.45,336 5 24.08.2011 -do- Rs.27,030 14 11.02.2012 -do- Rs.30,618
5 ITA No.53/CTK/2018
6 25.08.2011 -do- Rs.20,655 15 16.02.2012 -do- Rs.44,469 7 04.09.2011 -do- Rs.36,947 16 18.02.2012 -do- Rs.25,840 8 16.09.2011 -do- Rs.23,543 17 19.02.2012 -do- Rs.27,702 9 18.09.2011 -do- Rs.22,428 18 Total : Rs.5,65,787/-
Further, the assessee was asked to explain as to why the cash
payments made more than Rs.20,000/- should not be added to the total
income of the assessee. In this regard, the assessee submitted his
written submissions as under :-
"Those bills are paid to M/s Lily Alankar, CTC and M/s Maa Santoshi Works who act as agent to the petitioner who procures gold and silver for the petitioner from the market , so in this case section 40A$3) will not be applicable as per rule 6DD(k) and cited the case law of Sri Shanmuga Ginning Factory (2013)218, Taxman 76"
The AO observed that the case law relied on the by the assessee is not
applicable in the present case in hand because in this case the factory
has engaged agent for the purchase of cotton where all the agents have
charged 1% commission from the assessee which means that such
persons were acting on behalf of the assessee in the process of cotton.
This is not same in the present case as the assessee was not charged
any commission by the agents and without any commission payment
assessee cannot claim that they acted as agent and distinguished the
case law relied on by the assessee. Accordingly, the AO made addition
of Rs.21,.46,046/-.
Further, on scrutiny of accounts, the AO noted that the assessee
has debited an amount of Rs.42,65,200/- and Rs.39,56,550/- towards
business promotion expenses and travelling expenses, respectively. In
6 ITA No.53/CTK/2018
this regard, the assessee was asked to produce the details of such
expenses and evidence to substantiate the claim of expenses. In
response to this, the assessee produced ledger for these expenses and
some handmade vouchers in support of the claim. The AO further
noticed that the assessee claiming same expenditure in both the heads
i.e. business promotion expenses and travelling expenses and for better
understanding the chart incorporated by the AO in the assessment
order is reproduced as under :-
Travelling Expenses:
Date Particulars Mode of Amount payment 28.4.2011 Amount paid for hiring 4 Cash Rs.35,800/- bolero 29.4.2011 -do- -do- Rs.36,800/- 5.5.3011 -do- -do- Rs.35,000/- 9.5.2011 -do- -do- Rs.35,600/- 30.6.2011 -do- -do- Rs.36,500/-
Business Promotion Expenses:
Date Particulars Mode of Amount payment 28.4.2011 Amount paid for hiring 4 Cash Rs.45,835/- bolero 29.4.2011 Amount paid for hiring 1 -do- Rs.9,000/- bolero 5.5.3011 -do- -do- Rs.9,000/- 9.5.2011 -do- -do- Rs.9,000/- 30.6.2011 -do- -do- Rs.9,000/-
The AO further noticed that under the business promotion the assessee
has made payments for purchase of blankets for truck drivers to
promote the transporting business and the payments have been made
through cash. The assessee was confronted and then the assessee
7 ITA No.53/CTK/2018 produced self-made vouchers and claimed purchases were made from
different places which is not fully verifiable. The AO noticed that the
nature of the business is not changed from the earlier years and the
assessee has also not claimed these expenses in the previous year.
Accordingly, the AO disallowed 25% of the total expenses claimed i.e.
Rs.20,55,438/- and added to the total income of the assessee.
Further on scrutiny of profit and loss account, the AO found that
the assessee has claimed expenses under the different heads which
reads as under :-
Heads of Expenses Amount Repair & Maintenance Rs. 4,93,325/- Printing & Stationary Rs. 2,49,231/- Fuel & Lubricant Rs. 14,70,500/- Telephone Charges Rs. 2,62,010/- Rs. 24,75,066/- In regard to the above expenses debited into the profit and loss
account, the assessee was asked to produce the details of such
expenses and substantiated the claim of expenditure. In support of this,
the assessee furnished the ledger copies of some expenses booked
under the above heads and could not produce all the bills and vouchers
for verification. The assessee submitted that all these expenses were
incurred dully for the purpose of business, therefore, the AO in
absence the details, like bills and vouchers and most of the expenses
were paid in cash, concluded that the leakage of revenue cannot be
denied in such circumstances, therefore, he disallowed lumpsum 10%
8 ITA No.53/CTK/2018 of the above expenses and added to the total income of the assessee at
Rs.2,47,507/-.
Feeling aggrieved from the order of AO, the assessee appealed
before the CIT(A) and the CIT(A) after considering the submissions of
the assessee, upheld the disallowance made by the AO u/s.40A(3) of
the Act and in respect of adhoc addition, the CIT(A) reduced to 10% of
the above addition in case of business promotion expenses and
travelling expenses, and in case of disallowance of Rs.2,47,507/- the AO
restricted to 5% of the total addition made by the AO i.e. Rs.1,23,753/-.
Accordingly, the CIT(A) partly allowed the appeal of the assessee.
Aggrieved from the above order of CIT(A), the assessee is in
further appeal before the Income Tax Appellate Tribunal.
Ld. AR before us reiterated the submissions made before the
lower authorities and filed written submissions as under :-
That the assessee filed his I.T. Return disclosing total income at Rs.37,75,199/- derives from retail sale of gold and Silver Ornaments and the Transporting Contract works. The return was processed U/s. 143(1) of the I.T. Act and thereafter it was taken up for scrutiny under compulsory scrutiny and the appellant appeared in the assessment proceedings and produced the books of account and other information as was called for time to time. 2. That, the Id. Assessing Officer passed the Assessment order U/s. 143(3) of the IT Act and inflated the income to Rs.82,24,190/- by way of additions/ disallowance made as under:- (i) Additions made at Rs.21,46,046/- U/s.40A(3) of the I.T. Act on account of Cash Payment for purchase of gold ornaments.
9 ITA No.53/CTK/2018
(ii) Disallowance of Rs.20,55,438/- i.e. 25% of Rs.82,21,750/- towards the expenses claimed under head Travelling & Business promotion expenses. (iii) Disallowance of Rs.2,47,507/- i.e. 10% of Rs. 24,75,066/- towards the expenses claimed under heads Repair and maintenance, Printing & Stationary, Fuel & Lubricants, etc. Thus the assessed income determined at Rs.82,24,190/- as against the returned income shown at Rs.37,75,190/-. 3. That the addition made at Rs.21,55,438/- U/s.40A(3) of the IT. Act for violation of provision towards purchase of gold ornaments and old gold in cash payment. It was submitted that generally in gold business market price stability are not always in constant rate. So it has waited to procure * the gold from market to get good profit in such stiff market competition. Further the assessee who is staying far away from the supplier establishment, it was not preferable for payment in cheques or drafts due to fluctuation of price rate. Further non-availability of specified design of ornaments in the markets, the seller demanded for cash payment instead of demand draft or cheques, and the assessee for protection of business so also non-available of specific items agreed for cash transactions in compulsion. Therefore considering the exigency of business and genuineness of payment and identity of both payer and payees, the addition made for violation of Sec.40A(3) of the IT. Act should not have been applied and in the case of Attar Singh Gurmukh Singh v. Income Tax Officer (1991) 191 ITR 667, the Supreme Court considering sub-rule (j) of rule 6DD observed that where the assessee furnishes evidence to the satisfaction of the assessing officer as to the genuineness of the payments and the identity of the payee, such payments cannot be disallowed. 4. That so far the disallowance of Rs.20,55,438/- i.e. 25% of Rs.82,21,750/- claimed towards the expenses under heads of travelling and business promotion expenses, and Rs.2,47,507/- i.e. 10% of Rs.24,75,066/- claimed the expenses under the different heads such as Repair and Maintenance, printings and stationary, etc. and thereafter it has reduced to 10% and 5% by the 1st Appellate Authority and reworked the addition of Rs.8,22,175/- and Rs.2,47,507/- alleging non-production documentary evidence in support of such claims hold very much confusion and the proposition taken for arriving such computation is totally inconvenience and citing the facts also have no basis for disallowance of expenses. Hence the additions made are required to be deleted entirely. 5. That the assessee despite of explaining the facts vis-a-vis the documents/information filed, the Id. CIT(A) although considering the matter reduced the percentage rate applied for disallowance of the expenses, but not agreed fully with the explanation filed by the appellant.
10 ITA No.53/CTK/2018 Further in support of his arguments, ld. AR relied on the decision of the
SMC Bench of this Tribunal in the case of M/s Laxmi Narayan Jewellery
in ITA No.250/CTK/2018, order dated 13.05.2019. He also submitted
that the payments to whom have been made are genuine persons,
therefore, the AO should not disallow the payments made by cash
exceeding Rs.20,000/-. The parties are genuine and the purchase have
also not been doubted by the AO. In support of this, he also relied on
the judgment relied on by the counsel of the assessee in the case of
decision of the SMC bench of the Tribunal as cited supra.
Further in respect of adhoc disallowance, ld. AR submitted that
the authorities below were not justified to make lumpsum
disallowance without pointing out any specific bills and vouchers
which are not genuine. All the books of accounts were produced by the
assessee and the books of accounts have also been audited by the
Chartered Accountant which has not been formed any mistake in this
regard. Therefore, the order of the CIT(A) deserves to be dismissed.
On the other hand, ld. DR relied on the order of CIT(A) and in
respect of ground No.1, submitted that the AO has discussed the issue
in details and the assessee could not substantiate that there was any
business exigency and he was also unable to substantiate that under
which rule of Rule 6DD of I.T.Rules, 1962, the assessee was compelled
to make payment in cash. Both the creditors are belonged to Cuttack
11 ITA No.53/CTK/2018 where there are ample banking facilities available. The CIT(A) has also
discussed the issue in very judicial manner. The case laws relied on by
the ld. AR of the assessee are not applicable in the present case in hand.
Ld.AR of the assessee also unable to substantiate that these payments
have been incorporated in the ledger account of the creditors and has
paid due taxes thereon. Further in respect of ground Nos.2&3, ld. DR
relied on the order of CIT(A) and submitted that the assessee could not
produce external vouchers and some of the entries were supported in
the books of accounts of the assessee by way of internal vouchers,
which cannot be relied on fully that genuine expenses have been
incurred by the assessee for smooth running of the business. Therefore,
the CIT(A) has rightly restricted the addition made by the AO.
After hearing both the sides and perusing the entire material
available on record and the orders of authorities below, in respect of
ground No.1, the AR of the assessee has tried to justify that he may get
the benefit of rule 6DD of Income Tax Rules, 1962, but he was unable to
justify before us that under which clause of rule 6DD of I.T.Rules, the
assessee wanted to get benefits. The cash payments have been made
towards purchase of gold ornaments, parties are belonged to Cuttack
where banking facilities are available. Further on perusal of the details
of payments made as narrated above, as per chart, it is clear that the
assessee has made payment in cash in different dates. We also observe
12 ITA No.53/CTK/2018 from the order of the AO as well as submissions made before the
CIT(A), he has taken different view before the AO and submitted that
the assessee has purchased goods with the help of commission agent
but he has not debited any commission in his profit and loss account as
observed by the AO in his order. Therefore, in these circumstances, the
case law relied on by the ld. AR is not applicable in the present case and
he has also relied on the decision of SMC Bench of the Tribunal as cited
supra in ITA No.250/CTK/2018, order dated 13.05.2019, wherein it is
held as under :-
“9. I have heard the rival submissions, perused the materials available on the record of the Tribunal and orders of lower authorities. From the chart as reproduced above, it is clear that the payments were made to parties i.e. Epari Sadashiv Pvt Ltd., and M/s. Alankar Jewellery, Balasore. The assessee is in business of jewellery. It is not disputed that if an assessee incurs any expenditure in respect of which payment in excess of Rs.20,000/- is made in a day to a single person, other than by an account payee cheque or an account payee bank draft, 100% of such expenditure will not be allowed as deduction and in such a situation provisions of section 40A(3) will be applicable. I find that assessee’s claim is not covered by any of the exceptions provided under Rule 6DD. However, the first proviso below Section 40A(3) clearly takes into consideration the nature of expenses, banking facilities, consideration of business expediency and other relevant factors. Rule 6DD in intent and purpose takes into consideration all these aspects for prescribing various exceptional circumstances. Therefore, Rule 6DD cannot be mechanically applied and I have to consider the overall explanation of the assessee having regard to the business consideration. The assessee’s explanation is that assessee had to make payment in business exigency as during the month of February, 2012, generally marriages takes place and during odd hours, the assessee made transactions and in some cases seller was insisting for cash payments. The payments had been made to the seller because of that reason. The genuineness of purchases had not been doubted by the Assessing Officer. I find that in this case, there is no dispute to the fact that the genuineness of the transaction and the payment and identity of the receiver are established. This view is supported by the decision of Hon’ble P&H High Court in the case of Gurdas Garg (supra) and also the decision of Hon’ble Supreme Court in the case of Attar Singh Gurmukh
13 ITA No.53/CTK/2018 Singh (supra). Under such circumstances, I am of the opinion that the disallowance of these expenses by applying to section 40A(3) would not be justified. I, accordingly, set aside the order of ld CIT(A) on this count and allow the grounds of appeal of the assessee. In the result, appeal of the assessee is allowed.” From the above observations of the Tribunal, it is clear that the
decision cited by the ld. AR is a decision rendered by the SMC Bench of
this Tribunal, which is not bound to follow by the Division Bench.
Further we notice that in the above case the assessee has proved that
there was business exigency which is clear from the above findings
recorded by the Tribunal. But in the present case in hand, the assessee
has made payment from April, 2011 to September, 2011 on different
dates. Further the case laws relied on by the ld. AR of the assessee is
also not applicable in the present case in hand because merely
accepting the purchase by the AO, it was duty of the assessee to prove
as to whether particular payees have incorporated in their books for
computing their profits on the respective sales or not and we also
noted from the submission of the assessee that there are contradictory
submissions before the authorities below. Considering to the totality of
facts and circumstances of the case, the CIT(A) has rightly dismissed
the appeal of the assessee.
In respect to ground Nos.2&3, on perusal of the orders of
authorities below, it is clear that the assessee has inserted some entries
in books of accounts with the support of some internal vouchers and
14 ITA No.53/CTK/2018 complete bills and vouchers were not produced by the assessee before the revenue authorities. Therefore, we are in agreement with the findings recorded by the CIT(A). In view of this, the grounds raised by the assessee in respect of adhoc additions i.e. ground No.2 & 3 are dismissed. 14. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 16/03/2020. Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 16/03/2020 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीऱाथी / The Appellant- 1. Mr. Rajendra Kumar Sahoo, Prop. of New Kanak Jewellery & Kanak Transport, At/Po: New Market, Keonjhar-758001 प्रत्यथी / The Respondent- 2. ACIT, Circle-1(1), Cuttack आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, 5. Cuttack गार्ग पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रयत //True Copy//
(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack