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Facts
The assessee's original assessment was completed u/s 143(3) with an addition of Rs. 1,00,000/- for unverifiable expenses. Subsequently, the PCIT set aside the assessment u/s 263, finding that cash transactions of Rs. 74,67,186/- for trade material violated Section 40A(3) read with Rule 6DD. In reassessment, this amount was added to the assessee's income, and the CIT(A) upheld the addition.
Held
The Tribunal noted the assessee's business as wholesale trading of raw meat and animal waste, where individual cash purchases were below Rs. 20,000 and vendors often lacked bank accounts. Relying on the Supreme Court's decision in Pr. CIT Vs. Gee Square Exports, the Tribunal held that CBDT circulars cannot impose additional conditions not stipulated in the Act or Rules. Consequently, the cash purchases were found to be fully covered under Rule 6DD(e)(ii) of the Income Tax Rules, and the disallowances were deleted.
Key Issues
Whether cash purchases, each below Rs. 20,000, for trade material in the business of raw meat and animal waste, are covered under Rule 6DD(e)(ii) and exempt from disallowance under Section 40A(3).
Sections Cited
Section 143(3), Section 263, Section 40A(3), Rule 6DD(e)(ii), Section 2(33)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘H’: NEW DELHI
ORDER PER YOGESH KUMAR U.S., JM: This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals), Ghaziabad [“Ld. CIT(A)”, for short], dated 28/02/2019 for Assessment Year 2012-13.
2. The Grounds taken in this appeal is as under:
“1. BECAUSE, assessee has made cash purchase from various seller and on various dates for amounting of rupees Page 1 of 9 Gyasuddin Qureshi, Bulandshahr 74,67,186/ out of total purchase rupees 2,69,92,101/ and every transaction is below 20000/ as mentioned in the assessment order dated 04/12/2017 it is to submitted respectfully that the counsel of the assessee has produced books of accounts along with bill and vouchers and the same was verified by the AO on test check basis and not found any discrepancies in this issue during the proceedings of assessment in first time scrutiny. However, the required details of cash purchase were furnished before AO during the case proceedings but AO not considered it is to relevant to mention here that all the cash purchase is fully covered under rule 6DD(e)(ii) of the income tax rule assessee had purchases in cash of rupees 74,67,186/ out of total purchase 2,69,92,101/ due to this some purchase have to be done in cash, then many vendors do not have the bank account and purchase is done away from a remote area. Also the assessee rely on the order of the Hon,ble Chandigarh Bench of Income Tax Appellate Tribunal in case of Nirmal Rani vs Assistant Commissioner of Income Tax Ambala (2016) 66 Taxman.com 40 (Chandigarh-Trib) wherein in similar trade i.e. raw hide the benefits of rule 6DD is given.
BECAUSE, assessing officer pass an assessment order under section 143(3)/263 of income tax act and make an addition of rupees 74,67,186/- but in the assessment order it is not mentioned that the addition in which section Page 2 of 9
Gyasuddin Qureshi, Bulandshahr of income tax act 1961 its clear that assessing officer pass an assessment order in improper manner. Therefore, this assessment order should be hence void. 03 BECAUSE, it is necessary that notice under section 263 of income tax act 1961 should be signed by the Hon’ble Pr. Commissioner of Income Tax himself and not by the ITO/ACIT/DCIT headquarters. But both show cause notices are signed by the Nisha Gupta (Income Tax Officer Tech.) (copy of both show cause notices dated 02/02/2017 and 20/02/2017 enclosed herewith for your kind perusal) Only Hon,ble CIT is empowered to issue notice under section 263 of the IT act. The power of Hon’ble CIT cannot be assumed by the ITO/ACIT/DCIT headquarters. Hence if the notice is not signed by the Hon’ble CIT the same is not valid and the proceedings on the basis of such invalid notice are also invalid these principles laid down by Hon’ble Allahabad High court in the cases of CIT vs Rajesh Kumar Pandey -25 taxman.com 242 (Allahabad) and Hon’ble Patna High Court in case of Satish Kumar Kashri vs ITO 104 ITD 382 (Patna) similar principles also laid down in case of Bardhaman Co-op. Milk Products Union Ltd. Vs C.l.T Burdwan) in l/Kol/2009 of “A” Bench, Kolkata, and Assam Bengal Carriers Vs CIT ITA No. 706/Kol/2013. Therefore, this assessment order should be hence void. Page 3 of 9
Gyasuddin Qureshi, Bulandshahr 03. BECAUSE, 'AO’ wrongly disallow the expenses of rupees 1,00,000/ and added to income of the assessee without discuss in the assessment order.”
Brief facts of the case are that, original assessment order u/s 143(3) of the Income Tax, 1961 (‘Act’ for short) was completed on total income of Rs. 4,91,500/- against the returned income of Rs. 3,91,500/- by making an addition of Rs. 1,00,000/- as unverifiable expenses. Later on, it was observed that the assessee had made cash transactions on trade material worth Rs. 74,67,186/- in violation of Section 40A(3) read with Rule 6DD of the Rules and further finding that the assessee has not followed the CBDT Instruction in Circular No. 4 dated 29/03/2006, the Ld. PCIT, Ghaziabad set aside the assessment vide order u/s 263 of the Act dated 24/03/2017. In compliance with the directions made in the order passed u/s 263 of the Act, the Ld. A.O. initiated assessment proceedings u/s 143(3)/263 of the Act. The Assessment Order came to be passed u/s 143(3)/263 of the Act by adding sum of Rs. 74,67,186/- to the income of the assessee
Gyasuddin Qureshi, Bulandshahr which being cash received during the relevant Assessment Year and also disallowed expense of Rs. 1,00,000/-.
Aggrieved by the Assessment Order dated 04/12/2017, the assessee preferred an Appeal before the CIT(A). The Ld. CIT(A) vide order dated 28/02/2019 dismissed the Appeal filed by the assessee.
The Ld. Counsel for the assessee vehemently submitted that the assessee had made cash purchase from various sellers on the various dates amounting to Rs. 74,67,186/- out of total purchase of Rs. 2,69,92,101/- and every cash transaction were below Rs. 20,000/-. The assessee has produced books of account along with bills and vouchers and the same has been verified by the A.O on the test check basis and not found any discrepancy in the books of account of the assessee during the proceedings of assessment in first time scrutiny. The entire details of cash purchase were furnished before the A.O. during the second round of assessment after the order passed u/s 263 of the Act, but A.O. has not considered it to be relevant and made addition in mechanical
Gyasuddin Qureshi, Bulandshahr manner. The Ld. Counsel further submitted that all the cash purchase are fully covered under Rule 6DD(e)(ii) of the Income Tax Rules. The Ld. Counsel for the Assessee relied on several judicial precedents.
Per contra, the Ld. Departmental Representative by relying on the orders of the Lower Authorities sought for dismissal of the Appeal filed by the assessee.
We have heard both the parties and perused the material available on record. The assessee was running wholesale trading business of raw meat and other wastes of animals and the cash purchases have been made by the assessee to the extent of Rs. 74,67,186/- out of the total purchase of Rs. 2,69,92,101/-. As per the Assessee during the assessment proceedings, the assessee had produced books of account along with the bill and vouchers before the A.O. which has not been considered. It is the case of the assessee that all the cash purchase are fully covered under Rule 6DD(e)(ii) of the Income Tax Rules, as many venders do not have Gyasuddin Qureshi, Bulandshahr bank account and the purchases were done away from remote areas. It is the case of the Department that the Assessee failed to substantiate his claim as per CBDT Circular 04/2006, but the Revenue Authorities have not taken into consideration of the nature of the business of the Assessee and not and have found fault with bills and vouchers produced by the Assessee. The question as to whether the authorities can imposed new condition for grant of benefit which are not provided either in the Act or in the Rules framed thereunder has been examined by the Hon’ble supreme Court in the case of Pr. Commissioner of Income Tax Vs. Gee Square Exports (2018) 100 Taxman.com 462 (S.C), wherein it is held as under:-
“We note that the basis of the Revenue seeking to deny the benefit of the proviso to Section 40A(3) of the Act and Rule 6DD(e) of the Rules is non satisfaction of the condition provided in CBDT Circular No.8 of 2016. In particular, non furnishing of a Certificate from a Veterinary Doctor. The proviso to Section 40A(3) of the Act seeks to exclude certain categories/classes of payments from its net in circumstances as prescribed. Section 2(33) of the Act defines "prescribed" means prescribed by the Rules. It does not include CBDT Circulars. It is a settled position in law that a Circular issued by the CBDT cannot impose additional condition to the Act and/or Rules adverse to an assessee. In UCO Bank v. CIT [1999] 237 ITR 889/104 Taxman 547 (SC), the Apex Court has observed "Also a Gyasuddin Qureshi, Bulandshahr circular cannot impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages". Thus, the view of the Tribunal that the CBDT Circular cannot put in new conditions for grant of benefit which are not provided either in the Act or in the Rules framed there under, cannot be faulted. More particularly so as to deprive the respondent assessee of the benefit to which it is otherwise entitled to under the statutory provisions. Needless to state it is beyond the powers of the CBDT to make a legislation so as to deprive the respondent assessee of the benefits available under the Act and the Rules. The respondent assessee having satisfied the requirements under Rule 6DD of the Rules, cannot, to that extent, be subjected to disallowance under Section 40A(3) of the Act. Besides, we may in passing point out that the impugned order of the Tribunal holds that a Certificate of Veterinary Doctor was rejected by the Authorities under the Act, only because it was not in proper form.
9. In the above facts, the question as proposed does not give rise to any substantial question of law. Thus, not entertained.”
Considering the fact that out of total purchase of 2,69,92,101/- the assessee had purchased in cash of Rs. 74,67,186/- and also by taking into consideration of the nature of the business of the assessee and by respectfully following the ratio laid down by the Hon'ble Supreme Court in the case of Gee Square Exports (supra), we find merit in the Grounds of appeal of the Gyasuddin Qureshi, Bulandshahr assessee, accordingly, the disallowances/additions made by the A.O. which has been upheld by the CIT(A) is hereby deleted.
In the result, the Appeal filed by the assessee is allowed.