ITO, PHULBANI WARD, PHULBANI vs. P. BRAJA KISHORE PATRO, GANJAM

Per C.M.Garg, JM This is an appeal filed by the revenue against the

order of the CIT(A)-1, Bhubaneswar dated 28.3.2018 for the

assessment year 2012-13.

“1. The order of the Ld. CIT(A) is erroneous on facts and in law.

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adjudication by us.

the copies of purchase bills, the AO noticed that the assessee has made

cash purchases totaling Rs.64,92,823/-. The Assessing officer required the

assessee to show cause as to why the above cash purchase should not be

disallowed u/s.40A(3) of the Act. The assessee submitted that no payments

were made to any person/seller in contravention of the provisions of section

40A(3). However, the AO rejected the explanation of the assessee on the

ground that the assessee did not produce any documentary evidence to

prove his assertion. The AO also observed that since the assessee had not

maintained any cash book or ledger or bank statements, it was not possible

to verify the payments against purchases. Hence, the AO made a

disallowance of Rs.64,92,823/-u/s.40A(3).

submitted that the disallowance made by the AO based on the purchase

bills and without examining the party ledger from which it would be clear that

the assessee had not made any payment exceeding Rs.20,000/- in cash

warranting disallowance u/s.40A(3) of the Act and the assessee had

P a g e 2 | 8 maintained books of account. It was in this backdrop that the CIT(A) called

for a remand report from the Assessing officer. The Assessing officer

submitted three remand reports and the final report is reproduced

hereunder:

“"In continuation to my earlier report vide No.ITO/PLB/250(4)/2017-18/413 dated 3rd August 2017 and ITO/PLB/250(4)/2017-18/906 dated 27-09-2017, I am submitting the further report u/s. 250(4) of the l.T. Act, 1961 as desired by your honour in the case of Sri P. Braja Kishore Patio having PAN: AECPP3139F for the A.Y. 2012-13 in ITA No. 0025/2015-16 for your kind perusal.

In this case a survey operation u/s. 133A of the l.T. Act, 1961 was conducted on 23-03-2012 and during the course of survey operation purchase invoices were found in the business premises of the assessee and on verification of copies of purchase invoices of gold and silver ornaments and also the bill books produced during the course of assessment proceedings, it was found that the assessee had made cash purchases exceeding Rs. 20,000/- which the assessee was confronted during the course of assessment proceedings but the assessee could not proved with documentary evidences. It was the responsibility of the assessee to prove with documentary evidences that payments were made by account payee cheque drawn on banks or account payee bank drafts. Further the assessee has not produced any cash book or Bank book during the course of assessment proceedings from which the payments could have been verified. Hence the disallowance of Rs. 64,92,823/-u/s. 40A(3) has been made and added back to the total income of the assessee.

Now as directed I have written a letter requesting to the assessee to produce the cash book, ledger and all other documents to verify assessee's that he has not violated the provisions of section u/s.40A(3) of l.T. Act, 1961. The case was fixed for compliance on 08-12-2017 but the A/R of the assessee, Sri J.T. Prusty, Advocate appeared on 11-12-2017 and produced cash book, purchases register, sale's register, stock register, general ledger, party ledger etc. The same are verified and found that no cash purchases were made more than Rs.20,000/-.

But it is contradictory to the facts found in the books of accounts produced by the assessee before me during the course of remand proceedings wherein the assessee's purchases were not more

P a g e 3 | 8 than Rs. 20,000/- during the financial year under consideration and assessee's books of accounts like purchase register, purchase invoices etc. produced and verified during the course of assessment proceedings and the materials like purchase register, purchase invoices etc. impounded during the course of survey u/s. 133A of l.T. Act, 1961 on 23-03-2012, where the assessee had made cash purchases more than Rs. 20,000/- on the basis of which the A.O. had completed the assessment u/s. 143(3) by disallowing the expenses towards purchases u/s: 40A(3) of l.T. Act, 1961 which was discussed in, details in the body of the assessment order.

Thus, this is nothing but after thought of the assessee to avoid addition u/s. 40A(3) and prepared the books of accounts accordingly.

Under the above circumstances, the CIT(A) consider the appeal filed by the assessee on the basis of merit of the case.”

rejoinder. In response to the remand report, the assessee, inter alia,

submitted that the Assessing Officer has duly verified the entries in the

cash book and has been satisfied that no cash payments were made in

excess of Rs.20,000/-.

assessee, the CIT(A), relying on various judicial pronouncements on

this, deleted the addition, inter alia, by observing as under:

“ 3.6 I have considered the facts of the case and the materials on record. Though in the course of assessment proceeding the assessee had not produced the books of account to prove his contention that there were no payments attracting the provisions of section 40A(3), in the course of remand proceeding, the assessee has been able to produce cash book, ledger, purchase register, sale register, stock register, general ledger, party ledger and all other documents in support of his contention. On examination of the same, the AO has found that no cash payments were made during the relevant previous year in excess of Rs.20,000/- per day calling for

P a g e 4 | 8 disallowance u/s.40A(3). Of course, the AO's objection is that these books of account having not been produced at the time of assessment proceeding might be believed to have been prepared subsequently and, therefore, the same should be considered to be an afterthought. It is true that the books of account produced during the remand proceeding before the AO were not produced at the time of assessment. The assessee's contention in this respect is that the AO had not given adequate opportunity to produce the books of account at the time of assessment. The fact remains that the assessee has maintained books of account which have been produced at the time of remand proceeding and the AO has not been able to find out any flaw or defect in the same. Even otherwise the AO has made verifications directly with some of the sellers who have confirmed to have received cash payments not in excess of Rs.20,000/- per day. I do not find any convincing reason to brush aside and ignore the books of account produced in the course of remand proceeding on the suspicion that the same might have been prepared later. Moreover, the AO has not found out any purchases as not genuine. All the purchases against which the payments were made in cash are found to be genuine. As per books of account produced before the AO, there is not a single cash payment in excess of Rs.20,000/- per day.”

Ld D.R. relied on the order of the Assessing Officer whereas 6.

ld A.R. of the assessee supported the order of the CIT(A).

materials available on the record of the Tribunal and also the

impugned order, we find that ld D.R. could not controvert the

findings of the CIT(A) to the effect that as per the books of

account produced before the AO at the time of remand report, not

a single payment in cash excess of Rs.20,000/- per day is found to

have been made against purchases. Therefore, we find no good

reason to interfere with the order of the CIT(A), which is hereby

confirmed the ground No.2 of appeal is dismissed.

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Assessing Officer noticed that during the course of survey

operation, an amount of Rs.8,74,960/- was found in the business

premises of the assessee. The assessee submitted that the cash

found at the business premises represented the sale proceeds of

his business. The Assessing officer disbelieved the contention of

the assessee and treated the entire cash found at the time of

survey as unaccounted sales and added the same to the income of

the assessee.

under:

“ 4.2 I have considered the matter with reference to the facts on record. Looking at the turnover of the assessee, it is quite reasonable to presume that the cash found at the time of survey would have come from the disclosed sales. The assessee has produced the cash book, sales register and sale bills in support of his contention that the cash in question cannot be treated as proceeds from unaccounted sales. The AO has also not found out any evidence to show that the assessee was involved in sales outside books of account and the cash found at the time of survey was generated from out of such unaccounted sales. On the facts of the case, it is apparent that there is no. basis for the AO to treat the cash of Rs.8,74,960/- as unaccounted sales. In view of this, the addition of Rs.8,74,960/- is deleted.”

CIT(A) that the AO has also not found out any evidence to show that the

assessee was involved in sales outside books of account and the cash

found at the time of survey was generated from out of such unaccounted

sales. Hence, we do not find any good reason to interfere with the order of

P a g e 6 | 8 the CIT(A), which is hereby upheld and ground No.3 of the revenue is

dismissed.

the assessee has received gifts of Rs.3,00,000/- from his wife Smt. P.

Sandhyarani Patro. The Assessing officer required the assessee to furnish

the documentary proof regarding the gifts received by him. The assessee

filed copies of income tax return of his wife for the assessment years 2010-

11, 2011-12, 2012-13 alongwith statement of total income, capital account

balance sheet and a letter from the wife of the assessee confirming the gifts

made to her husband, the assessee. The explanation of the assessee did

not find favour by the AO and taking into account the ratio of decision of the

Hon’ble Supreme Court in the case of CIT vs. P. Mohanakala, 291 ITR 278

(SC), the amount of Rs.3,00,000/- towards gift from the assessee was

added to the income of the assessee.

the wife of the assessee is assessed to tax and gift given to her husband is

reflected in her capital account enclosed with return of income.

the assessee is assessed to tax and the gift given to her husband

is reflected in the capital account enclosed with the return of

income. This fact is not controverted by ld D.R. Hence, we affirm

the order of the CIT(A) and reject the ground of appeal of the

revenue.

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Order pronounced on 14/06/2019.

Sd/- sd/- (Laxmi Prasad Sahu) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIALMEMBER Cuttack; Dated 14 /06/209 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : ITO, Phulbani Ward, Phulbani

Sr.Pvt.secretary ITAT, Cuttack

Date Initial 1. Draft dictated on 14.6.19 Sr.PS 2. Draft placed before author 14.6.19 (dictation pad has been Sr.PS enclosed along with original file) 3. Draft proposed & placed before the AM second member 4. Draft discussed/approved by Second AM Member. 5. Approved Draft comes to the Sr.PS/P Sr.PS/PS S 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the OS 9. Date on which file goes to the SPS 10. Date of dispatch of Order.

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