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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
PER V. DURGA RAO, JUDICIAL MEMBER
This appeal by the Revenue and the cross objection by the assessee are directed against the order of Commissioner of Income Tax (Appeals)-1, Visakhapatnam, dated 05/08/2019 for the Assessment Year 2009-10. 2. The Revenue has raised the following grounds of appeal:- “1) The order of the ld. CIT(A)-1, Visakhapatnam is erroneous both on facts and in law. 2) The ld. CIT(A) has erred in holding that since the assessee has not incurred expenditure and hence the provisions of sec.40A(3) can‟t be invoked in this case, when the AO noted that the assessee has made entries of these transactions in its books as [„payment‟ in cash and the assessee has not substantiated the nature of these transactions as against the findings of the AO in the assessment order. 3) The appellant craves leave to add or delete or amend or substitute any ground of appeal before and/or at the time of hearing of appeal. Besides the merit in facts and in law, it is also submitted that there is an RAP audit objection in this case. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that disallowance of Rs. 27,90,841/- u/s. 40A(3) of the Income Tax Act made by the AO be reversed.”
3. The only issue involved in this appeal relates to Rs.27,90,841/- u/sec. 40A(3) of the Act. The assessee is an individual and a small time trader in rice, oil & dall etc., filed his return of income declaring total income of Rs. 4,32,178/- which was processed u/sec. 143(3) and determined total taxable income at Rs. 5,44,053/-. Subsequently, the case of the assessee was reopened by serving a notice u/sec. 148 and assessment was completed u/sec. 143(3) r.w.s. 147 of the Act by disallowing an amount of Rs. 27,90,841/- by invoking the provisions of section 40A(3) of the Act. In the assessment, the Assessing Officer has noted as under:- 5. The assessee's AR filed a letter on 18.11.2016 stating that the payments in respect of the following 3 items were made through cheques only and furnished details thereof and requested to consider the same. The assessee furnished copies of bank account statements of Karuru Vysya Bank A/c No.1432 1350 0000 0053 and 1432 2800 000 1001 wherein the payments were reflected through cheques. S.No. Paid to Amount Passed (Rs.) Date 1 Ravi Krishna Traders 600,000 24.01.2009 27.01.2009 2 Seethalakshmi DalI Mill 223,590 11.09.2008 11.09.2008 3 Seethalakshmi Dali Mill 20.12.2008 1 604,800 1 20.12.2008 6. Regarding other payments to M/s.Ravi Krishna Traders and M/s.Subrahmanyeswara Traders, the assessee stated that there are no expenditure entries, it is only inter-firm transactions between the two concerns and hence Section 40A(3) is not applicable. The assessee also furnished ledger copies of the following parties in the books of M/s.Sri Vigneswara Enterprises - (I) Ravi Krishna Traders (ii) Subrahmanyeswara Traders along with ledger copy of M/s.Sri Vigneswara Traders account in the above mentioned two parties books of accounts.
7. The assessee's contention is not acceptable as the entries were shown in the ledgers relating to purchase, sale and their respective payments are reflected in the Trading, P&L Account of as assessee. Furthermore, the said payments are made in cash only, which contravene the provisions of Sec.40A(3) of the IT Act. After discussion with the AR of the Assessee, the payments made in cash as detailed hereunder amounting to Rs.27,90,841/are disallowed and added to his income determined vide assessment order dated 18-11-2011. Sl.No. Paid to Amount Date (Rs.) 1. Ravi Krishna Traders 500,000 20/10/2008 500,000 20/12/2008
382,189 29/03/2009 2 Subrahmanyeswara 408,652 31/03/2009 Traders 500,000 15/10/2008 500,000 18/11/2008 Total 27,90,841
On appeal before the ld. CIT(A), the assessee has produced copies of ledger accounts of M/s. Ravi Krishna Traders of Rs.13,82,189 & M/s. Subrahmanyeswara Traders of Rs.14,08,652/- and submitted that they are sister concerns of the assessee and there are no purchases and sales. The ld. CIT(A) after examining the ledger accounts of the above two sister concerns, deleted the addition made by the Assessing Officer.
On appeal before us, ld.DR has submitted that payments were made in cash by the assessee and the case does not cover under Rule 6DD of the Act. It is further submitted that the payments made by the assessee to his sister concerns are not reflected in the balance sheet, therefore order passed by the Assessing Officer may be upheld. 6. On the other hand, ld. counsel for the assessee has strongly supported the order passed by the ld. CIT(A). 7. We have heard both the sides, perused the material available on record and orders of the authorities below.
In this case, the assessee has made cash payments to M/s.Ravi Krishna Traders of Rs.13,82,189/- and M/s.Subrahmanyeswara Traders of Rs.14,08,652/-, both are sister concerns to the assessee. The case of the assessee is that there are no purchases from the sister concerns, therefore section 40A(3) has no application. The case of the Assessing Officer is that the payments made by the assessee to the above two sister concerns are relate to purchases, therefore section 40A(3) applies. The ld. CIT(A) has examined the copies of the ledgers of both the concerns i.e. M/s. Ravi Krishna Traders & M/s. Subrahmanyeswara Traders and gave a finding that it is not correct to say that the payments represent purchases without any adverse material. For the sake of convenience, the relevant portion of the ld. CIT(A)’s order is extracted as under:- “4.6 I have carefully considered the facts of the case, written submissions and the findings of the Assessing Officer in the order. During the appellate proceedings the AR of the appellant produced the copies of ledger account of M/s. Ravi Krishna Traders (Rs.13,82,189/-) and M/s. Subrahmanyeswara Traders (Rs. 14,08,652/-) were filed. I have perused the accounts and found that entries are cash payments by appellant to the sister concerns without any sales. Therefore, it is not correct to say that the payments represent purchases without any adverse material facts. It is seen that the appellant had not claimed any purchases in P&L account with reference to the two parties. In view of the above, it can reasonably be concluded that the appellant is correct and the Assessing Officer is not having enough ground to invoke section 40A(3). Thus there is no expenditure incurred. Therefore, the provisions of section 40A(3) can't be invoked in this case. Accordingly, the Assessing Officer is directed to delete the addition.”
Even before us, no material is placed with regard to payments made by the assessee relates to purchases. In view of the above specific finding given by the ld. CIT(A), we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this appeal filed by the department is dismissed.
The cross objection filed by the assessee is in support of the order of the ld. CIT(A). As no grievance against the order of the ld. CIT(A), this cross objection filed by the assessee is dismissed as infructuous. 11. In the result, appeal filed by the Revenue and the cross objection filed by the assessee are dismissed. Order Pronounced in open Court on this 11th day of August, 2020.