M/S BARNALA STEEL INDUSTRIES LTD.,,MUZAFFARNAGAR vs. JCIT, MUZAFFARNAGAR

This appeal filed by the assessee is directed against the order dated 23rd November, 2015 of the CIT(A)-Muzaffarnagar, relating to assessment year 2010- 11.

The first issue raised by the assessee in the grounds of appeal relates to the addition of Rs.3,52,799/- made by the AO u/s 40A(3) of the IT Act.

Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of MS bar and TMT. It filed its return of income on 13th October, 2010 declaring the total income at Rs.1,48,33,980/- and an amount of Rs.2,22,85,162/- as book profit u/s 115JB of the Act. During the course of assessment proceedings, the AO observed from the various details filed by the assessee that the assessee has violated the provisions of section 40A(3) of the Act for the purchases from the above parties:- Date of Payment Name of Supplier Amount 03.11.2009 Mishra Coal Traders 76107/- 05.11.2009 Khan Coal Traders 92950/- 10.11.2009 Khan Coal Traders 91182/- 10.11.2009 Vikas Distributors 92560/-

He, therefore, asked the assessee to explain as to why the same should not be added u/s 40A(3) of the Act. It was explained by the assessee that the grade of coal supplied by the above named parties was not readily available with the other suppliers. Since the assessee was in urgent need of the above narrated quality of coal to mix with the other quality of coal in order to save losses/quality losses/production losses and since the suppliers expressed their inability to supply without cash payments, therefore, it had no option, but, to purchase in cash. The AO was not satisfied with the explanations given by the assessee and made an addition u/s 40A(3) of the Act.

In appeal, the ld.CIT(A) upheld the action of the AO. While doing to, he observed that the assessee, during the assessment proceedings, had admitted making cash payments exceeding Rs.20,000/- on a single day to one person. However, during the appeal proceedings, the assessee has taken an altogether different stand and submitted that none of the payments exceeded Rs.20,000/- on a single day. He observed from the cash book that the payments were made in cash exceeding Rs.20,000/-. So far as the business exigency is concerned, the ld.CIT(A) noted that the assessee could not prove the business exigency as covered under Rule 6DD of IT Rules. He accordingly upheld the action of the AO.

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.

We have considered the rival arguments made by both the sides and perused the record. It is an admitted fact that the assessee has made payment in cash exceeding Rs.20,000/- to the three parties mentioned at para 3 above. The assessee has taken different stands before the AO and the CIT(A). Nothing was produced before us to substantiate that the suppliers had demanded cash and refused to accept DD/pay order or account payee cheque for selling the goods to the assessee. The assessee has only made a general remark that due to business exigencies he has to purchase the coal from the above suppliers. Since the same is not backed by any documentary evidence to prove the commercial exigency and demand from the said suppliers to supply coal only in cash and since the assessee has violated the 3 provisions of section 40A(3), we do not find any infirmity in the order of the CIT(A) on this issue. Accordingly, the order of the CIT(A) is upheld and the ground raised by the assessee is dismissed.

The second issue raised by the assessee in the grounds of appeal relates to the addition of Rs.1,37,052/- on account of interest paid to financial institutions on hire purchase u/s 40(a)(ia).

The next issue raised in the grounds of appeal relates to the disallowance of Rs.1 lakh on account of weight and rate difference.

In the result, the appeal filed by the assessees is partly allowed for statistical purposes. The decision was pronounced in the open court on 17.02.2020.