KISHAN MOTORS,BHUBANESWAR vs. ITO, WARD-4(3), BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

ITA Nos.169 & 371/CTK/2018 Assessment Year : 2014-2015

Kishan Motors, Plot No.56/A, Vs. ITO, Ward 4(3), Bhubaneswar. Sahara Complex, Rasulgarh, Bhubaneswar. PAN/GIR No.AAGFK 7438 J (Appellant) .. ( Respondent)

Assessee by : Shri S.K.Agarwal, AR Revenue by : Shri J.K.Lenka, DR

Date of Hearing : 06/12/ 2019 Date of Pronouncement : 28/01/2020

O R D E R Per C.M.Garg,JM ITA No.169/CTK/2018 is filed by the assessee against the order of the

CIT(A),2, Bhubaneswar dated 31.01.2018 for the assessment year 2014-15 in the

matter of assessment under section 143(3) of the Act.

“ 1. That, the Ld. Commissioner of Income Tax (appeals) is wrong in holding that the appellant had not submitted the confirmations of the sundry creditors whereas all the confirmations were enclosed in the Paper Book filed at the time of appeal hearing and therefore the confirmations of additions of Rs. 21,85,448 is wrong and liable to be deleted.

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3.That, the Ld. Commissioner of Income Tax (appeals) is wrong in confirming the additions of Rs. 4,28,100 with regard to the rent paid for show room u/s 40(a)(ia) of the Act in view of the fact that the recipients of the rent had disclosed the rental income in their return of income and duly discharged the tax liabilities. Therefore, the additions of Rs. 4,28,100 is liable to be deleted.

assessment proceedings, the Assessing Officer noticed that the assessee has

shown sundry creditors to the tune of Rs.1,08,95,040/-. The Assessing Officer

required the assessee to furnish the details of name and address of the sundry

creditors with opening closing balance as on 31.3.2013 and as on 31.3.2014 with

confirmations therefrom. In response thereto, the assessee furnished the ledger

confirmation copies of Rs.86,87,746/- as against total sundry creditors of

Rs.1,08,95, 040/- from the following concerns/persons:

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Sl. No. Name of the sundry creditor Closing balance as on 31.3.2014 1. John Deer India Ltd. 54,24,419.00 2. Bagheswari Tractors 5,36,732.00 3. Maa Santoshi Agro Co. 5,44,595.70 4. Laxmipriya Subudhi 8,75,000.00 5. Dinabadnhu Behura 8,76,000.00 6. Babaji Samal 4,31,000.00 Total : Rs.86,87,746

(Rs.12,08,95,040/- - Rs.86,87,746/-), the assessee failed to produce the

confirmations. Therefore, the AO treated the said amount of Rs.22,07,294/- as

income of the assessee.

from three parties pertaining to credit balance aggregating to Rs.21,846/-.

Therefore, the ld CIT(A) restricted the disallowance to Rs.21,85,448/-.

assessee has filed ledger account and the confirmations from 13 sundry creditors

amounting to Rs.21,42,479.05 in the paper book at pages 11 to 45 at the time of

appeal hearing as under:

Sl. Name of the sundry creditor Closing balance No. as on 31.3.2014 1. Hindustan Trading Co. 19,807.00 2. K.S.Agrotech 700.00 3. Madani Nut & Bold Centre 1,339.00 4. Mini Engineering 84,408.05 5. Paneswar Agriculture Industries 15,000.00 6. Panju Machinery Store 26,572.00 7. Sarbeswar Jena 18,000.00 8. S.JK.Rahman & S.F.Rahman 18,441.00 9. Virat Enterprises 49,743.00 10. Girijanandini Parida 870,000.00 11. Giridhari Senapati 852,000.00

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confirmations in the ledger account and the purchases are accepted by the AO,

the addition of Rs.21,42,479.05 be deleted. Ld A.R. referred to the decision of

Hon’ble Allahabad High Court in the case of CIT vs. Panchan Dass Jain, 205 CTR

444 (All) for this proposition.

out that the ld CIT(A) did not accept the evidence filed by the assessee. But, on

perusal of confirmations of the creditors placed in the paper book, we observe that

the creditors have given confirmation of Rs.21,42,479.00. Ld D.R. could not

disprove the purchases and payment made by the assessee and in the absence of

purchase, sales could not have been effected. In view of above, we direct the AO

to delete the addition of Rs.21,42,479/- considering the confirmations filed by the

sundry creditors as noted above out of addition of Rs.21,85,448/- confirmed by the

ld CIT(A). We find that Hon’ble Allahabad High Court in the case of Panchan Dass

Jain (supra) held that when the purchases and sales as also the trading result

disclosed by the assessee have been accepted by the department, no addition can

be made. Hence, addition of Rs. 42,969/- (Rs.21,85,448 – Rs.21,42,479) is

confirmed. Ground No.1 of appeal is partly allowed.

the identity, genuineness and creditworthiness of the loan creditors namely;

Narayan Sahoo of Rs.5,00,000/- and Pervez Jamal of Rs.3,00,000/- and all the

documents were filed in the paper book at pages 46 to 56 of PB, viz; Form No.16,

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confirmation and Adhar Card in respect of Ashraf Jamal and bank statement of

State Bank of India,PAN No. etc. in the case of the assessee. From the above, it is

clearly discernible that the identity, genuineness and creditworthiness of the loan

creditors have been established. Hence, the addition made by the authorities

below on the above ground deserves to be deleted.

below, therefore, the additions were rightly made.

addition of Rs.5,00,000/- in respect of Narayan Sahoo and Rs.3,00,000/- in respect

of Pervezjamal was made and confirmed on the ground that the identity,

genuineness of the transaction and creditworthiness of the loan creditors were not

established by the assessee. On perusal of the details filed in the paper book by

the assessee, we observe that the assessee has furnished the Form No.16, Adhar

No. in respect of Pervez Jamal which could prove the identity, genuineness of

the transaction. Hence, the addition of Rs.3,00,000/- is directed to be deleted. As

regards to loan creditor of Shri Narayan Sahoo, we find that the assessee has filed

only bank statement of the assessee in which cash amount of Rs.5,00,000/- has

been received from Shri Narayan Sahoo. Nothing is placed on record to prove the

identity and creditworthiness of the loan creditor Shri Narayan Sahoo. In view of

above, we confirm the addition of Rs.5,00,000/- and partly allow Ground No.2 of

appeal.

the amendment to Section 40(a)(ia) made by Finance Act, 2014 w.e.f. 01.04.2015

provides that 30% of any payable to a resident shall be disallowed if tax is not

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deducted at source under Chapter XVIIB as against the 100% presently made. The

purpose of this amendment was explained in the memorandum as under:-

"the disallowance of whole of the amount of expenditure results into undue hardship and therefore, in order to reduce the hardship, it is proposed that in case of non-deduction or non- payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed." He submitted that the amendment made by Finance Act (No. 2) Act, 2014 w.e.f.

01.04.2015 is to remove unintended and undue hardship and therefore this

amendment should be given retrospective effect. For this proposition, he relied on

the decision of ITAT, Cuttack in the case of Om Sri Nilamadhab Builders Pvt Ltd.

vs ITO in ITA No.296/CTK/2018 for A.Y. 2014-15.

Assessing Officer has disallowed Rs.4,28,100/- & Rs.47,753/- for non-deduction of

tax under section 40(a)(ia) of the Act. As per the amended provision to section

40(a)(ia) by the Finance Act, 2015 w.e.f. 1.4.2015, the disallowance is restricted to

30% as against 100% made by the Assessing Officer. We find that similar issue

had come up for consideration in the case of Om Sri Nilamadhab Builders Pvt Ltd

(supra) by this Bench of the Tribunal, wherein, it is held as under:

“ 9. On careful perusal of the amendment brought to the Section 40(a)(ia) of the Act by the Finance Act, 2014 w.e.f. 01.04.2015, it is clear that the intent of legislature to reduce the hardship, it is proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed. The Hon’ble Supreme Court in the case of Allied Motors (P) Ltd. [1997] 224 ITR 677 (SC) has held that amendment was remedial in nature, designed to eliminate unintended

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consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. Finally, after considering various case laws, the Hon’ble Supreme Court held that the purpose of amendment would not serve its object in such a situation unless, it is construed as retrospective after observing as under :- 10. Therefore, in the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 , this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 11. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand [1994] 209 ITR 7/ 73 Taxman 349 , the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with the assessment year 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. [1991] 191 ITR 676 , has taken a similar view holding that the statutory liability for sales-tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70/ 54 Taxman 521. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, Fourth edn., page 291, "It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended". In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.

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30% as against 100% made under section 40(a)(ia) of the Act. Hence, Ground

Nos,.3 & 4 are partly allowed.

that when the assessment has been framed u/s.143(3) of the Act and the books of

account has been rejected, the adhoc disallowance made by the AO and confirmed

by the ld CIT(A) is not justified.

support of the claim of expenses. Since, the assessee has failed to provide the

primary evidence, the AO has made only 10% adhoc disallowance, which is

justified considering the nature of expenses incurred by the assessee.

Assessing Officer has not doubted the expenses incurred in connection with staff

tiffin, fuel, direct labour and direct expenses. However, since no evidence was

filed, he made adhoc disallowance. We find that in this case, the assessment has

been completed u/s.143(3) of the Act and the books of account are not rejected.

We find that the nature of expenses have not been doubted or disbelieved by the

Assessing Officer. We observe that the adhoc disallowance has been made on the

basis of suspicion alone and no basis has been given by the AO. Hence, we direct

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the AO to delete the addition made on adhoc basis. Ground No.5 of appeal is

allowed.

furnish evidence of the payment of sales tax of Rs.7,575/- and payment of entry

tax of Rs.15,970/- within the due date of filing of return u/s.139(1) of the Act, the

addition was made by the AO and confirmed by the ld CIT(A). Before us also, no

details were furnished by the assessee. Hence, we confirm the addition of

Rs.23,545/- u/s.43B of the Act. Ground No.6 is dismissed.

the assessee is engaged in the tractor business and spare parts. The amount

incurred in connection with RTO expenses have been accounted for in the gross

receipts. Therefore, the addition made on this count be deleted.

confirmed the addition of Rs.62,250/- being RTO expenses on the ground that the

assessee has not filed the ledger copy of the above expenses and no other

evidence has been furnished to support the claim. The contention of ld counsel for

the assessee is that RTO expenses have been accounted in the gross receipts of

the assessee, which has not been disputed by ld DR. Hence, we delete the same

and allow this ground of appeal of the assessee.

30.8.2018 of the ld CIT(A)-2, Bhubaneswar for the assessment year 2014-15 in the

matter of penalty levied under section 271D of the Income Tax,

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confirming the penalty u/s.271D of the Act of Rs.6,18,840/-.

proceedings, the AO found that the assessee has obtained cash of Rs.3,18,840/-

from Samsul Rahaman, Rs.3,00,000/- from Asraf Jamal and Rs.3,00,000/- from

Parvez Jamal. The AO noted that there was violation of the provisions of section

269SS of the Act by the assessee . The AO after getting permission from JCIT,

Range-4, Bhubaneswar initiated penalty proceedings u/s.271D of the Act and

issued show cause notice u/s.274 read with 271D to the assessee. The assessee

made detailed submission, which were considered by the AO, but somehow the AO

did not convince with the contention of the assessee and imposed penalty of

Rs.9,18,840/- under section 271D of the Act.

of the addition of Rs.3,00,000/- made under section 68 of the Act considering the

same as income of the assessee. However, the ld CIT(A) confirmed the penalty of

balance amount of Rs.6,18,840/-.

Ld counsel for the assessee submitted that the assessee has accepted the cash

loan of Rs.3,18,840/- from Samsul Rahaman and Rs.3,00,000/- from Parvez Jamal

. Ld counsel submitted that the genuineness of loans received in cash from both

the persons is not in doubt and as there was business exigency, the assessee had

accepted the cash loans. He submitted that the loan is genuine and there was no

intention of tax evasion and violation of provisions of section 269SS of the Act and,

accordingly, prayed for deletion of penalty. Ld counsel for the assessee relied on

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the decision of Cuttack Bench of ITAT in the case of Mamata Patra vs JCIT in ITA

No.136/CTK/2017 for assessment year 2015-16 order dated 11.4.2018 and

submitted in similar situation, the penalty levied under section 271D has been

deleted.

Act, whenever a person takes or accepts a loan of Rs.20,000/- or more otherwise

than by account payee cheque or draft or by use of electronic clearing system, the

penalty provisions under section 271D of the Act are attracted. In this case, the

assessee has taken loan in cash of Rs.6,18,840/- and, therefore, penalty

provisions u/s.271D are visited. He submitted that in this case, the assessee has

not shown reasonable cause for accepting the loan in cash. Hence, he prayed that

the order of the ld CIT(A) be confirmed.

the assessee and due to business exigency, at the request of the assessee, the

amount was given by the loan creditor in cash. The money deposited in cash was

duly reflected in the books of account of the assessee, which shows the bonafides

of the assessee. As is evident from the assessment order, it reveals that the

persons who have given money given to the assessee are the brother and nephew

of the Managing Director of the assessee. The assessee has also filed Adhar Card

of Shaikh Samsur Rahman and Ayesha Ahmad, mother of Asraf Jamal, who is

nephew of the Managing partner of the assessee. The assessee has also filed

passport copy of Rahman Shiak Hifzur, who is the father of Samsul Rajhaman and

Ayesha Ahmad. The contention of the ld counsel for the assessee is that since the

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assessee has taken cash loan from the relatives, therefore, the penalty u/s.271D is

not exigible.

accepted in contravention of the provisions of section 269SS then a penalty

equivalent to the amount of such loan or deposit may be levied by the Joint

commissioner. A bare reading of section 269SS would indicate that it was

introduced by the Finance Act, 1984 w.e.f. 1-4-1984. It provides that after

30.6.1984 no person shall accept any loans or deposits from any other person of

Rs.10,000/- or more (which has been enhanced to Rs.20,000/- w.e.f. 1-4-1989)

except by account payee cheque or account payee bank draft. Thus, it prohibits

acceptance of any loan or deposits from any other person of more than

Rs.20,000/- except by account payee cheque or draft. However, while making

amendment in section 269SS by Finance Act, 1987 section 276DD was omitted

and new section 271D was brought into the statute book which provides for

visiting assessee with penalty by equal amount. The contravention

to section 269SS would not automatically authorise the AO to visit the assessee

with penalty under section 271D because sections 273B provided that in case

assessee demonstrate "reasonable cause" for violating this provision, then he could

be absolved from visiting with penalty.

order to ascertain that whether the assessee has demonstrated "reasonable

cause" for absolving itself from levy of penalty under section 271D , we deem it

appropriate to appraise ourselves with proposition laid down in various

authoritative pronouncements referred to by the ld. counsel for the assessee in

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analyzing various fact situation, wherein reasonable cause demonstrated by the

assessee were accepted. The ITAT Cuttack Bench in the case of Mamata Patra

(supra), in similar situation, has deleted the penalty in respect of cash loan

received. Ld A.R. also relied on various judicial pronouncements before us to

contend that the present case is covered by the said decisions as follows:

i) CIT vs. Saini Medical Store, 276 ITR 79 (P&H) ii) Chamundi Granites (P) ltd vs DCIT, 239 ITR 694 (Kar) III) CIT vs Smt Dimpal Yadva, 379 ITR 177(All) iv) CIT vs M Yesoda, 351 ITR 265 (Mad)

may point out that from the copies of documents available at pages 18 to 25 of

paper book, we note that both the persons who have given cash loan to the

assessee are relatives i.e. one brother and other is nephew. Therefore, the

decisions relied upon by ld counsel for the assessee support the case of the

assessee. We, therefore, are of the opinion that there existed a reasonable cause

for accepting the cash loans. As such, the assessee may be exonerated from the

rigour of Section 271D of the Act. Accordingly, we set aside the order of the ld

CIT(A) and delete the penalty imposed under section 271D of the Act.

Order pronounced on 28/01/2020.

Sd/- sd/- (Laxmi Prasad Sahu) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 28 /01/2020

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B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Kishan Motors, Plot No.56/A, Sahara Complex, Rasulgarh, Bhubaneswar.

By order

Sr.Pvt.secretary ITAT, Cuttack

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