PRATAP UTTAM PUROHIT,MUMBAI vs. DCIT CIRCLE 41(1)(1), MUMBAI FORMALLY KNOWN AS ACIT 32(3), MUMBAI, MUMBAI

1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming disallowances of Rs. 17,21,297/- by invoking section Rule 6DD r.w.s. 40A(3).

2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming addition of Rs. 1,23,336/- on account of Interest Expenditure.

3. The assessee craves leave to add, alter or amend the existing grounds of appeal on or before the date of hearing.

5. In respect of ground no. 01 in respect of Disallowance of expenses u/s 40A(3) it is submitted that during the course of 3 Pratap Uttam Purohit., Mumbai scrutiny assessment proceedings necessary enquiries were conducted from Banks so as to verify the assessee's claim of payment of expenses through account payee cheques. As result of the investigation conducted it was noticed that in a number of cases the assessee has made payments towards expenses and purchases through bearer cheques.

6. Ld. Assessing officer recorded finding on same issue at page 10 and para 4.3 of Assessment order which is reproduced as under. The assessee has contended that the payments were made either on the holidays or when there was immediate need of payment to the laobur contractor. The assessee has claimed that his case falls in the Rule 6 DD (10) and as per the judgment of Hon'ble Supreme Court in the case of Shri Attar Singh Gurmukh Singh v/s ITO 191 ITR 667 (SC) the sec. 40 A (3) should not be read in isolation and the practical difficulties of the assessee should be accepted. The facts of the assessee's case are quite different. In the assessee's case the payments have been made through Bearer cheques (not in cash) in normal course of business as a routine practice. There is no evidence on record of emergency for making payment. In emergency payment is made in cash and not through Bearer Cheques. The 4 Pratap Uttam Purohit., Mumbai assessee was having Cash in hand as such in emergency he would have made payemtn in cash and it should have been reported in the Audit report but it has not done so. All the above persons are having Bank accounts and time to time payment has also been made to these persons through account payee cheques. The payment is not made to the labour but to the person who is capable of waiting for a day and moreover it is not the cash payment but payment was made through Bearer cheques as such if one can go to Bank to withdraw money than one can also deposit the cheque in his Bank account and the payment can be drawn on the very same day as all the above persons are having Bank account in the same Branch. Merely citing a judgment of HonTDle Supreme Court on distinguishable facts is of no help. The assessee has utterly failed in demonstrating the emergency of making payment through bearer cheques. Furthermore the assessee has not disclosed this fact to the Auditor and it has not been reported in the Tax Audit report filed u/s 44 AB in form 3 CD in relevant column as such it is a case of furnishing of inaccurate particulars which is not the intention of the law as well as of the Hon'ble Supreme Court. In view of these facts the it is held that the assessee has deliberately violated the provisions of sec. 40 A (3) and in the assessee's case a sum of Rs. 17,21,297/- pertaining to the year under consideration is disallowed u/s 40 A (3) and for the payments which pertain to other period remedial action will be taken in relevant year.

7. It is submitted that assesse engaged in such type of business whereas urgent payment require to pay laborer as they are coming from specific back ground. The unorganized sectors has own limitation. Section 40A(3), read with rule 6DD, can not to be said to be intended to restrict business activities. 8. We submit that during the year we have made following payment otherwise than account pay cheque 5 Pratap Uttam Purohit., Mumbai

8 Pratap Uttam Purohit., Mumbai

9. From the above details, we found that as per assessee Sumit and Ramesh Kumar are labour contractors and they have to make payments to the labourers employed with them on Saturdays and the labourers would not have been able to get payments immediately because cheque will not be cleared on the same day. Therefore, considering the convenience of the labourers, the contractors had made payments through bearer cheques. In this regard, reliance has been placed on the decision of Hon‟ble Apex Court in the case of Attar Singh Gurmukh Singh V/s Income-tax Officer reported [1991] 59 Taxman 11 (SC) whereas held as under. Pratap Uttam Purohit., Mumbai Section 40A(3) of the Income-tax Act, 1961 read with rule 6DD of the Income-tax Rules, 1962 Business disallowance Cash payments exceeding prescribed limit - Whether provisions of section 40A(3), read with rule 6DD, can be said to be intended to restrict business activities and are, thus, invalid - Held, no - Whether section 40A(3) is attracted to payments made for acquiring stock-in-trade and other materials - Held, yes Further we would like to refer the decision of Hon'ble Allahabad High Court in case of Smt. Sangeeta Verma V/s. Commissioner of Income-tax reported in [2021] 133 taxmann.com 97 (Allahabad) wherein it was held as under. INCOME TAX: Where Assessing Officer made disallowance under section 40A(3) in respect of cash payment for purchasing agricultural land, since affidavits filed by assessee during assessment proceeding contained clear recital that sellers insisted for cash payment, their identity was not in doubt, and sale deeds were also admitted to be registered document, no disallowance under section 40A(3) was called for Further Hon'ble Apex court in case of Lord Chloro Alkali Ltd. reported in [2018] 97 taxmann.com 514 (SC) held as under. II. Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-Tax Rules, 1962 Business disallowance Cashpayment exceeding prescribed limits (Exceptional Circumstances) Assessee made freight and cartage payments to drivers in excess of limits prescribed under section 40A(3) Assessing Officer, thus, disallowed said payments Tribunal noted that auditors had given their remarks stating that factory was situated in backward area and payments to transporters had to be made in cash because such persons were not having banking facility around factory area Tribunal further taking a view that genuineness of transactions had been proved, deleted Pratap Uttam Purohit., Mumbai disallowance made by Assessing Officer - High Court upheld order passed by Tribunal Whether, on facts, SLP filed against order of High Court was to be dismissed - Held, yes [Para 2] [In favour of assessee] 10. Therefore, considering the judicial pronouncements, we are also of the view that assessee has taken a specific stand that the payment were made on the weekends to the labourers as per their convenience and on their insistence. However, the identity of any of the person to whom payment was made is not in doubt. The Ld. AO has not recorded the statement of either labour contractor or labourer and has not brought anything on record to prove that the payments made by the assessee were bogus transactions or had not reached to respective labourers. Thus taking into consideration the fact that intent of section 40A(3) of the Act is not to restrict the business activities more particularly when the genuineness of the transaction has been proved. Therefore, in the circumstances in our view, no such allegation should have been made by the Ld.AO without there being any proof that in reality no payment has been made. Thus we allow this ground of appeal

filed by the assessee and delete the disallowance made by the AO.

11. Ground No. 2 raised by the assessee relates to challenging the disallowance made by the Ld.AO out of interest expenses. In this regard it is submitted that the assessee had claimed interest expenses of Pratap Uttam Purohit., Mumbai Rs.7,68,25,361/-. In the assesse's case a number of unsecured loans have been found bogus on which the assessee had claimed interest expenses.

12. In this regard we found that the disallowance of interest was made by taking the loan as bogus cash credits and since the issue of cash credits has been partly allowed therefore the proportionate interest has been allowed as genuine expenses however Ld. AR submitted that Ld. CIT(A) had the addition in respect of three parties whereas no interest was given to them. (Saumya Menon, Marudhan Roadways, Amit J. Purohit). Thus, these facts require factual verification by the Ld. AO. hence, we are of the view that this issue requires to be sent back to the Ld. AO for verification and in case, it is found that no interest has been paid to the above three parties then to delete the Pratap Uttam Purohit., Mumbai additions made on account of disallowance of interest expenditure. Thus, this issue is allowed for statistical purposes as indicated above. Needless to mention that the Ld. AO shall provide sufficient opportunity of hearing to the assessee before adjudicating this issue.