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Income Tax Appellate Tribunal, AMRITSAR BENCH; AMRITSAR.
Before: SH. SANJAY ARORA & SH. N. K. CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 514/(Asr)/2017 Assessment Year: 2014-15
Basant Kumar, Vs. Dy. Commissioner of Income Tax, Prop. Basant Petro Centre, Circle-II, Bathinda. Vill- Gumjal, Distt. Fazilka [PAN: ABLPK 5995L] (Appellant) (Respondent)
Appellant by : Sh. P. N. Arora (Adv.) Respondent by: Sh. Charan Dass (D.R.) Date of Hearing: 22.03.2018 Date of Pronouncement: 25.05.2018
ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals), Bathinda ('CIT(A)', for short) dated 01.06.2017, dismissing the assessee’s appeal contesting his assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 30.08.2016 for Assessment Year (AY) 2014-15.
The first ground of appeal is general in nature, warranting no adjudication. Per the second ground of appeal, the assessee agitates the disallowance for Rs.1,49,880/- u/s. 40A(3) of the Act, since confirmed by the appellate authority; the assessee having made payments in cash to that extent in contravention of the
2 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT said provision. The assessee’s explanation of the same falling under sub-clauses (g) and (k) of rule 6DD of the Income Tax Rules, 1962 (‘the Rules’ hereinafter) – which provides the excepting circumstances to the application of the section were found not covered thereby the Assessing Officer (AO). The same stood confirmed in first appeal as the impugned payments were not covered by any of the instances detailed in rule 6DD. Aggrieved, the assessee is in second appeal.
We have heard the parties, and perused the material on record. Section 40A(3) mandates a disallowance of any expenditure incurred by the assessee, i.e., in the computation of income assessable u/s. 28, where the payment or the aggregate of the payments made in its respect are otherwise than by account payee cheque drawn on a bank or an account payee bank draft, in excess of Rs. twenty thousand (Rs. 20,000/-) in a single day. The threshold limit also stands scaled down to Rs.10,000/- per day by Finance Act, 2017, w.e.f., 01.04.2018, i.e., the previous year relevant to AY 2018-19, onwards. This is of course subject to such cases and circumstances as may be prescribed. The prescription is per rule 6DD, to clauses (g) and (k) of which the assessee has made reference. Electronic mode payment also stands included from AY 2018-19, even as payments through credit/debit cards, by use of electronic clearing system through a bank account, or other arrangements with the bank are excluded u/r. 6DD(c). Impugned payments in the instant case are as under: Payee Amount (Rs.) Date For a) Dada Motors 49,000/- 31.01.2014 Truck repairs 17.02.2014 Advance for 2nd hand dash b) Malkiat singh 30,000/- board c) Malkiat Singh 49,000/- 21.02.2014 Balance payment for dash board d) United Motors 21,880/- 18.03.2018 Nature of expenditure not specified
3 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT Before us, it was contended by the ld. Authorized Representative (AR), the assessee’s counsel, that the assessee’s lorry had met a road accident and the payments to M/s. Dada Motors and Malkiat Singh had therefore to be made on an immediate basis. No such plea, we observe, stands raised at any stage. No material to evidence the accident has been placed on record. The ld. AR was, however, asked to furnish the date of the accident; the payments being spread over 22 days, so that the assessee was apparently not constrained for time. In fact, the repair – for which the first payment is made, would itself presumably have taken time, over which therefore the payment through the bank channel could be made, excluding section 40A(3). The ld. AR chose not to disclose the date of the accident, though would submit that the payment to both these parties was made by depositing cash in their respective bank accounts. There could thus be no doubt about the genuineness of the payment/s. Deposit of cash in the payees’ bank account implies that he is maintaining a bank account, as indeed is the assessee. Why, then, we wonder, the assessee chose to make the payment otherwise than through the banking channel? Deposit of cash in another’s bank account only implies deposit for and behalf of the account holder. There has been thus a constructive receipt of cash by the payee/s, on whose behalf, then, the cash stands deposited by the assessee. The same, therefore, cannot be regarded as payment through the banking channel, i.e., from one bank directly to another, or by one branch of a bank to another. Further, the very fact that cash stands deposited in a bank account implies the bank to be working on that day, so that rules 6DD(j), excepting a case where the bank is closed on account of holiday or strike, is not applicable. Rule 6DD(g) makes an exception where the place at which the payment is made is not served by a bank. Rule 6DD(k) refers to payments by a person to his agent, who is further required to make the payment (for and behalf of the payer) for goods/services in cash. Surely, the assessee’s bank is not his trade agent. The payment has in fact
4 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT been made by the assessee to a third party for services. The said Rules are thus not applicable. The genuineness of an expenditure or of payment made in its respect, as also argued by the ld. AR, is not a relevant consideration for invoking section 40A(3), which only seeks to regulate the mode of payment - nothing more and nothing less. Why, a non-genuine expenditure would stand to be ousted for allowance at the very threshold, i.e., under the section under which the deduction for the same in the computation of business income is being claimed, viz., s. 31 (for repair of machinery, etc.); section 37(1) (for any revenue expenditure generally), etc. The matter stands dealt with and explained at considerable length by the Tribunal per its special bench decision in ITO v. Kenaram Saha and Subhash Saha [2009] 116 ITD 1 (Kol)(SB); and more recently in Gurdas Garg v. Asst. CIT (in ITA No. 456/Asr/2013, dated 28/2/2014) (also referred to by the ld. CIT(A)) and Asst. CIT v. Darshan Kumar Mahajan (in ITA No. 566/Asr/2016, dated 18.04.2018). In fact, the matter stands squarely covered by the several decisions by the Hon'ble High Courts, including that by the Hon'ble jurisdictional High Court, as in Hari Chand Virender Paul v. CIT [1983] 140 ITR 148 (P&H) (also referred to by the special bench). In fact, even under the erstwhile rule 6DD(j) - which has undergone amendments from time to time (latest being its substitution w.e.f. AY 2009-10), it is not the genuineness of the expenditure or of the payment therefor – in which case there is no need to travel to s. 40A(3), that is relevant, but circumstances such as ‘impracticability of payment’; ‘exceptional and unavoidable circumstances’; or ‘genuine difficulty’ (that may arise), that were the saving or accentuating circumstances leading to the payment made in contravention of the provision being excluded for disallowance. The same, it may be noted, itself implies – if there is any doubt with regard thereto, that is, that the provision is only applicable to genuine expenditure which is otherwise allowable in computing business income.
5 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT None of the afore-stated circumstances, however, find a place in the extant rule 6DD. The decisions by the tribunal referred to by the assessee, being rendered relying on the decision by the Hon’ble High Court in Gurdas Garg v. CIT (in ITA No. 412 of 2014, dated 16/4/2014) would not be of any assistance as the said decision itself stands since recalled by the Hon’ble High Court on finding that the r. 6DD(j) as cited before it stands since substituted. This position was fairly conceded to by the ld. AR during hearing, in fact, furnishing a copy of the recall order (copy on record). Be that as it may, as explained in Darshan Kumar Mahajan (supra), the provision – which is essentially a tax evasion measure, enables the verification of the payment, i.e., from a particular payer to the particular payee, besides ensuring disclosure of income in-as-much as one man’s expenditure is another man’s income. The payment/s in the instant case is certainly by the assessee – that being the very basis for the disallowance. The payment/s having been made by depositing cash in the bank account of the payee/s, the identity of the latter would also stand established. Where, therefore, it can be shown that the payment, though in cash, as contended, stands made by depositing it in the bank account of the payee/s, i.e., the person/s who supplied/rendered the goods/services, as contended, in our opinion, the object of the provision stands met. Of course, the Revenue is at liberty to verify the same, or the purpose for which the receipt stands recorded or considered by the payee in its’ accounts. The assessee though can be said to have substantially discharged the onus thereon under law. No disallowance, in the absence of any adverse finding on such verification, should, in our opinion, arise. As explained CIT v. Baba Marine Exports [2007] 290 ITR 323 (SC), the legislative intent is the foundational basis of any interpretative exercise. We are fortified in our stand by the decision in CIT v. Shelly Passi [2013] 31 taxmann.com 173 (P&H). Though the Hon’ble Court in that case did not lay down any ratio or
6 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT interpreted s. 40A(3) per se, stating that no substantial question arose for being answered by it, the decision by the tribunal, challenged before it, in which one of the pleas was the deposit of cash in the payee’s bank account, was found by it as not perverse or erroneous. The disallowance in respect of expenditure incurred on account of Dada Motors and Malkiat Singh, to whom payments aggregating to Rs.1.28 lacs are stated to be made in this manner, is therefore deleted. The same, though not subject to specific findings by the Revenue, has been undisputed by it. Further, no such circumstance stands advanced qua the payment to United Motors, which in fact is made directly. Why, even the nature of the expenditure is not specified. Disallowance to that extent is confirmed. We decide accordingly.
The third ground of appeal relates to an addition in the sum of Rs.5,40,000/- as unexplained credit in the assessee’s books during relevant year in the name of one, Chaman Lal, r/o Sri Ganganagar, stated to be an employee of the assessee, as unexplained credit. On being called upon to prove the genuineness of the credit during the assessment proceedings, the assessee admitted Chaman Lal (creditor) to be not an assessee under the Act as his income was below the maximum amount not chargeable to tax; he drawing a salary of Rs.12,000/- per month. That apart, he was stated as earning tuition income in the range of Rs.50,000/- to Rs. 60,000/- per annum. The source of the credit was explained to be his past savings, i.e., for the past 5 to 6 years. The same, in the view of the AO, did not establish the capacity, being barely sufficient to enable his survival. In fact, as revealed on verification, the amount advanced, which was in three installments, was preceded by a cash deposit in equal sum in his bank account (with PNB, Meera Marg, Sri Ganganagar) on the same day (as the advance), as under:
Date of credit/ deposit of cash Amount (Rs.)
7 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT 24.05.2013 3,00,000/- 07.08.2013 40,000/- 14.08.2013 2,00,000/-
The assessee had clearly failed to prove the genuineness of the credit. Accordingly, relying on the decisions in Namdev Arora v. CIT [2016] 389 ITR 434 (P&H) (in ITA No. 159 of 2016, dated 20.07.2016); Kamal Motors v. CIT [2003] 131 Taxman 155 (Raj); and C. Kant and Co. v. CIT [1980] 126 ITR 63 (Cal), the said credits were added u/s. 68, and confirmed in appeal for the same reasons. Aggrieved, the assessee is in second appeal.
Before us, the ld. AR would rely on an affidavit (dated 23.08.2016) from the creditor as well as on the amount having been advanced through his bank account. The ld. DR, on the other hand, while relying on the orders by the Revenue authorities, would, referring to the creditors’ bank statement, further add that if this (credit) was not genuine, which, one may ask, would be?
We have heard the parties, and perused the material on record. The nature and the source of a credit is to be u/s.68 established by the assessee on the parameters of the identity and creditworthiness/capacity (of the creditor) and the genuineness (of the credit). The law in the matter is well-settled per a series of decisions by the Apex Court, as well as by the Hon'ble jurisdictional High Court – to one of which the AO has referred, viz. Govinda Rajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC) Sreelekha Banerjee & Othrs. v. CIT [1963] 49 ITR 112 (SC) Kalekhan Mohammed Hanif v. CIT [1963] 50 ITR 1(SC) CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) CIT v. Biju Patnaik [1986] 160 ITR 674 (SC)
8 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) CIT vs. P. Mohanakala &Others [2007] 291 ITR 278 (SC) Hari Chand Virender Paul v. CIT [1983] 140 ITR 148 (P&H) Dayal Singh & Sons v. CIT [2011] 335 ITR 90 (P&H) Namdev Arora v. CIT [2016] 389 ITR 434 (P&H)
A credit in the assessee’s books of account, as explained, is itself an evidence against him and, therefore, the same has to be proved as to its nature and source, on the parameters of, as afore-stated, identity, capacity and genuineness. In the instant case, the identity, in view of the creditor’s bank account as well as the affidavit confirming the credits, stands clearly proved. The creditor’s capacity, though, is equally unproved, if not disproved. The source is explained to be savings from past earnings, i.e., for the last 5 to 6 years, without giving any clue, much less evidence, as to what those earnings are. The income for the current year, in view of the stated source, i.e., savings from past earnings, is largely irrelevant. In fact, the advance/s commenced in the middle of the second month of the year, when even the salary for the said month – a measly sum of Rs.12,000/-, would not be disbursed. This was followed by two installments, within days of each other, in a little over 2 month’s time. The tuition income, again, is wholly unsubstantiated, and without reference to any details, viz. the subject/s being taught, and since when; the creditor’s proficiency therein, etc. Pursuing an economic activity along with full time employment is itself quite improbable, given the demands of employment on one’s time and energy. There is no reference to the past earnings, much less it being evidenced, in the assessee’s explanation before the Revenue authorities or even in the creditor’s affidavit. Where was he working, and at what salary? That is, assuming him to have been employed, which itself seems unlikely in-as-much as there is no reference thereto, even as saving from past earnings is the assessee’s explanation as to the source of the impugned credit/s. Further, even assuming him
9 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT to be having some source/s of income in the past, the same – unstated though, can only be regarded as barely sufficient for him to make his two ends meet – his income admittedly having not exceeded the maximum amount not chargeable to tax. In sum, by all available accounts, the creditor’s income only enabled him to lead a simple life, much less generate capital. Continuing further, why would anyone risk his entire savings, i.e., assuming the same to be, as stated, the creditor’s earnings, to another, even if a relative, even as the nature of their relationship has not been specified. This puts a big question mark on the genuineness of the creditor/s. Rather, it may well be, and as it appears, that the assessee, a relative, has been given employment – apparently for some menial tasks, to be able to provide him some financial support/means of livelihood. Finally, the bank account put pays all claims to genuineness of the impugned credits. The bank account was opened only on 16.05.2013, i.e., days before the first installment, suggesting it to be opened only for this purpose. The ld. AR, on being asked during hearing if the creditor has any other bank account, answered in the negative. In fact, where so, the deposits in his recently opened bank account would be through the banking channel, or could be justified with reference to the balance in that account. The impugned credits arise out of the deposits of cash in the said bank account on the very same day. Why would a person hold his savings, assuming so, in cash – a risky proposition, besides being bereft of any scope for income. The transaction/s is clearly a premeditated one. Coupled with there being no basis for the cash accumulation with the creditor, who barely earns enough to make his two ends meet, completely impugns the genuineness of the credit/s. In view of the foregoing, in our clear view, both the capacity and genuineness aspects of the impugned credits are clearly unproved, if not disproved, i.e., on the basis of the material on record. We, accordingly, have no hesitation in confirming the impugned addition. The ld. counsel for the assessee has placed a
10 ITA No. 514 (Asr)/2017 (AY 2014-15) Basant Kumar v. Dy. CIT compilation of case laws on the file without in any manner taking us through the facts of the case, exhibiting their relevance in the facts of the instant case. We have, however, perused them to find them as distinguishable on facts. We may though refer to the decision in CIT v. Ram Narain Goel [1997] 92 Taxman 259 (P&H), being by the Hon’ble jurisdictional High Court. The Hon'ble Court in that case returned the reference u/s. 256(1) in-as-much as the tribunal had decided the question of applicability or otherwise of section 68 in the facts and circumstances of the case, as indeed we have in the instant case, by issuing definite findings of fact. The Hon’ble Court found the findings by the tribunal as based on the material on record, and declined reference. No referable question of law, it held, therefore, arose for being answered. That, therefore, the matter; given law in the matter being well-settled, is purely factual, gets reiterated per the said decision. The questions as to capacity and genuineness are matters of fact, to be decided on the basis of evidence on record, which we have by issuing definite findings of fact in the conspectus of the case. We decide accordingly, upholding the addition u/s. 68.
In the result, the assessee’s appeal is partly allowed. Order pronounced in the open court on May 25, 2018
Sd/- Sd/- (N. K. Choudhry) (Sanjay Arora) Judicial Member Accountant Member Date: 25.05.2018 /GP/Sr. Ps. Copy of the order forwarded to: (1) The Appellant: Basant Kumar Prop. Basant Petro Centre, Vill- Gumjal, Distt. Fazilka (2) The Respondent: Dy. CIT, Circle-II, Bathinda (3) The CIT(A), Bathinda True Copy (4) The CIT concerned (5) The Sr. DR, I.T.A.T By Order