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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG
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.
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.
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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.
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.
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.
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.”
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.
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
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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/-
The Assessing Officer observed that the payments were
made in clear violation of section 40A(3) of the Act and, therefore,
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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.
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.
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
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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).
On the other hand, ld D.R. supported the orders of lower
authorities.
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
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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
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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
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
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