M/S. LAXMI NARAYAN JEWELLERY,BALASORE vs. ITO, WARD-2, BALASORE

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ITA 250/CTK/2018Status: DisposedITAT Cuttack13 May 2019AY 2012-137 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that while the payments were in violation of Section 40A(3), the genuineness of the transactions and the identity of the payees were not disputed. Considering business exigencies, such as marriage season and urgent cash needs, the disallowance was deemed unjustified.

What were the facts?

The assessee, a jewellery firm, made cash payments exceeding Rs. 20,000 to certain parties for trading goods. The Assessing Officer disallowed these payments under Section 40A(3) of the Income Tax Act, as they were not made through banking channels and did not fall under the exceptions in Rule 6DD.

What were the issues?

Whether cash payments exceeding Rs. 20,000, made due to business exigency and where genuineness is not disputed, can be disallowed under Section 40A(3) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 40A(3)

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Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK

Before: SHRI CHANDRA MOHAN GARG

For Appellant: Shri P.K.Mishra, AR
For Respondent: Shri Subhendu Dutta, DR
Hearing: 25/04

This is an appeal filed by the assessee against the order of

the Commissioner of Income Tax(Appeals)- Cuttack dated

26.3.2018 in I.T.Appeal No.0072/2015-16 for the assessment

year 2012-13.

2.

Grounds of appeal raised by the assessee are under:

“ 1. For that, the impugned order so passed by the Forums below are not just and proper under the facts and in the circumstances of the case and as such the impugned additions made therein are liable to be deleted in the interest of justice.

P a g e 1 | 7

2.

For that, the learned C.I.T.(A) should not have confirmed the addition of Rs.3,33,700.00 made by the learned A.O by applying section 40A(3) of the Act, ignoring the explanation and evidences of the Assessee which are self explanatory. The impugned addition being not sustainable in the eye of law, needs to be deleted in the interest of justice.

3.

For that, the learned C.I.T.(A) has committed gross error of law as well as fact in confirming the addition of Rs.3,33,700.00 U/s.40A(3) made by the learned A.O., particularly when, the cash payments were made due to business exigency under the exceptional circumstances. Therefore, the impugned addition being not correct, needs to be deleted in the interest of justice.

4.

For that, the learned C.I.T.(A) should have deleted the addition made by the learned A.O by applying section 40A(3) of the Act, particularly when the impugned addition is not sustainable in the eye of law and the provision has no application under the facts and in the circumstances of the case.

5.

For that, the findings given by the learned C.I.T.(A) are contrary to the facts on record and to the explanation offered by the Appellant, as such the same being not sustainable in the eye of law is liable to be quashed in the interest of justice.”

3.

The sole issue involved in these grounds of appeal is that

the Commissioner of Income Tax(Appeals), Cuttack was not

justified in confirming the addition of Rs.3,33,700/- made by the

Assessing Officer by applying section 40A(3) of the Act.

4.

The brief facts of the case are that the assessee derives

income from trading in jewellery and enjoys the status of a firm.

During the course of assessment proceedings, the Assessing

Officer observed that certain payments exceeding Rs. 20,000/-

were made in cash to certain parties from whom the assessee

P a g e 2 | 7 purchased his trading goods. The details of payments made are as

under:

Name of Party Date of Vouch Amount Paid Total in(Rs.) Payment er by Cash

M/s. Epari Sadashiv 16.04.2011 74 Rs.34,750/- Rs.34,750/- Pvt. Ltd. 02.01.2012 1382 Rs.82,000/- Rs.82,000/-

M/s. Alankar 09.05.2011 73 Rs.17,992/- Rs.27,992/- Jewellers, Motiganj, Balasore. 71 10,000/-

Do- 06.02.2012 475 17,489/- Rs.34,978/- 448 17,489/-

Do- 08.02.2012 453 17,000/- Rs.34,000/-

455 17,000/-

Do- 09.02.2012 456 15,000 Rs.30,000/-

458 15,00/

Do- 10.02.2012 459 15,000- Rs.30,000/- 461 15,000

Do- 11.02.2012 463 15,000 Rs.30,000/- 464 15,000-

Do- 13.02.2012 466 15,000/ 30,000/- 468 15,000/

Total: Rs.3,33,720/-

5.

The Assessing Officer observed that the payments were

made in clear violation of section 40A(3) of the Act and, therefore,

P a g e 3 | 7 disallowed Rs.3,33,720/- u/s. 40A(3) of the l.T Act, as the

assessee's case did not fall under any of the circumstances

prescribed under Rule 6DD of the l.T Rule,1962.

6.

On appeal, the CIT(A) observed that the most of the

payments made to parties falls on working day and not on Sunday

or banking holidays, which could have prevented the assessee to

route the transactions in banking channels. Therefore, he

confirmed the action of the Assessing officer.

7.

Ld counsel for the assessee submitted that the payments

were made due to business exigencies and under exceptional

circumstances. Ld A.R. submitted that most of the payments

were made in the month of February, 2012, when maximum

marriages were held and, therefore, the assessee had to make

urgent payments in cash on the spot. Therefore, considering the

business expediency and compelling business demand, the

disallowance made by the authorities below should be deleted. Ld

A.R. also relied on the decision of Cuttack Bench of the Tribunal in

the case of Subham Estcon Pvt Ltd vs JCIT in ITA

No.183/CTK/2016 for A.Y.2011-12 order dated 12.10.2017,

wherein, the Tribunal after considering the decision of Hon’ble P&H

High Court in the case of Gurdas Garg vs CIT, 63 taxman 289 has

held that where genuineness of transactions in excess of P a g e 4 | 7 Rs.20,000/- was not disbelieved by authorities, then the payments

in excess of Rs.20,000/- cannot be disallowed u/s.40A(3) of the

Act. While taking this view, the Hon’ble High Court has also taken

support of the decision of Hon’ble Supreme Court in the case of

Attar Singh Gurmukh Singh vs ITO, 191 ITR 667 (SC).

8.

On the other hand, ld D.R. supported the orders of lower

authorities.

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 P a g e 5 | 7 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 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. P a g e 6 | 7

10.

In the result, appeal of the assessee is allowed.

Order pronounced on 13 /05/2019.

Sd/- (Chandra Mohan Garg) JUDICIALMEMBER Cuttack; Dated 13/05/209 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : M/s. Laxmi Narayan Jewellery, Vivekananda Marg, Dist: Balasore

2.

The Respondent. ITO, Ward-2, Balasore 3. The CIT(A)- Cuttack 4. Pr.CIT- Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//

By order

Sr. Pvt. Secretary, ITAT, Cuttack

P a g e 7 | 7

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