SRI TRIDIP ROY,HOWRAH vs. ITO, WD-46(4), KOLKATA, KOLKATA

ORDER Per M.Balaganesh, AM

2 Tridip Roy A.Yr. 2008-09 3. The first issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the addition made in the sum of Rs 41,63,300/- towards cash deposits made in two savings bank accounts which were undisclosed, in the facts and circumstances of the case.

3.1. The brief facts of this issue are that the assessee is engaged in the manufacturing of electrical overhead materials and other components. The assessee is a proprietor of M/s Power India. This business had one current account with Federal Bank, Howrah Branch and as per audited accounts, this unit had sales of Rs 1,19,42,517/- and after adjustment of debtors receivable, it comes to Rs 1,00,26,931/-. The bank account reveals that Rs 89,01,076/- was deposited into the bank and out of which, Rs 85,43,776/- by cheque and Rs 3,57,300/- by cash. Certain business expenditure were incurred in cash. To meet these cash expenses, Rs 90,15,536/- was withdrawn from this current account and expenses were incurred by the assessee. The ld AO also found that the assessee was also having two savings bank accounts wherein a sum of Rs 41,63,300/- was deposited in cash during the year under consideration. The assessee stated that the cash in question was withdrawn from the current account maintained with Federal Bank and deposited into the savings bank accounts maintained in his individual capacity with Indian Overseas Bank and Axis Bank. The assessee filed a cash statement in this regard showing the withdrawals , deposits in savings bank accounts, expenses incurred theroen etc. The ld AO observed that it is a fact that there was huge cash withdrawal from the current account of the proprietary concern , but it is not established that the same cash was taken out by the assessee and deposited into his savings bank accounts. On the contrary, the capital account of the assessee with the proprietary concern does not reflect any such transaction between the assessee and the proprietary concern. There was no such reflection of the said outflow of cash in the books of accounts of the assessee vis-a-vis the Balance Sheet of the proprietary concern of the assessee. The ld AO accordingly proceeded to add the credits in the bank accounts as undisclosed 2

3 Tridip Roy A.Yr. 2008-09 income of the assessee. The action of the ld AO was upheld by the ld CITA after obtaining the remand report from the ld AO. Aggrieved, the assessee is in appeal before us.

3.2. We have heard the rival submissions. We find that the ld AO had accepted the fact that the assessee had indeed made huge cash withdrawals from his current account maintained for his proprietory concern M/s Power India which was a disclosed bank account. These cash withdrawals would be available as a source for explaining the cash deposits made in undisclosed savings bank accounts maintained with IOB and Axis Bank by the assessee. But it cannot be brushed aside that the assessee had also incurred certain expenditure in cash out of withdrawals made from the current account. We find that the ld AR had submitted the cash statement enclosed in pages 45 to 51 of the paper book filed before us containing the cash withdrawals from current account, cash deposits made in various bank accounts and incurrence of certain expenses in cash. There is no factual finding given by the lower authorities with regard to this cash statement. We find that the ld CITA had also recorded a finding that assessee had used the savings bank accounts for making payments /advances to workers etc. Hence the savings bank accounts being used for business of the assessee is also proved beyond doubt. In these facts and circumstances, it would be just and fair , if all the three bank accounts are considered together and the consolidated cash account is prepared containing date wise withdrawals, date wise deposits, date wise incurrence of cash expenditure, date wise cash receipts if any towards sale and other receipts . It is not the case of the revenue that the cash withdrawn from current account of M/s Power India by the assessee was utilized for making some other investments or spent for personal purposes by the assessee. Hence we deem it fit and appropriate , in the interest of justice and fair play, to remand this issue to the file of the ld AO for de novo adjudication of the issue in the light of directions issued hereinabove. Accordingly, the Ground No. 2 raised by the assessee is allowed for statistical purposes. 3

4 Tridip Roy A.Yr. 2008-09 4. The last issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance made u/s 40A(3) of the Act in the facts and circumstances of the case.

4.1. The brief facts of this issue are that the ld AO observed that the assessee had made the payments to the following parties otherwise than by way of account payee cheque / draft which was in violation of provisions of section 40A(3) of the Act :- 31.3.08 Ankita Steel Rs 1,04,091 31.3.08 Anand Iron & Steel Rs 31,480 31.3.08 Bharat Die Casting Rs 4,98,576 31.3.08 Super Steel Rs 52,008 31.3.08 Global Industries Rs 3,57,066 31.3.08 Industrial Enterprises Rs 1,73,472 31.3.08 Ma Durga Iron Works Rs 99,442 31.3.08 Maha Lakshmi Trading Co. Rs 52,076 31.3.08 Maha Lakshmi Hardware Rs 47,840 -------------------- Rs 14,16,051 The ld AO disallowed the sum of Rs 14,16,051/- u/s 40A(3) of the Act in the assessment. The action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us.

4.2. We have heard the rival submissions. We find that the ld CITA had sought for a remand report from the ld AO to make enquiries with regard to each of the aforesaid parties. The ld AO in the remand report stated that from the ledger accounts of those parties, there is no single payment exceeding Rs 20,000/- made by the assessee in a single day in violation of provisions of section 40A(3) of the Act. However, he stated in his remand report that the confirmation of accounts submitted by those parties were not genuine and is an afterthought. Same observations were made by the ld AO in respect of all the parties in the remand report. We find that the ld AO had issued summons to all these parties u/s 131 of the Act and all the parties appeared before the ld AO and 5 Tridip Roy A.Yr. 2008-09 confirmed the fact of receiving cash from the assessee in respect of supplies made by them to the assessee. We find that the ld AO in page 3 para 8 of his order had recorded that books of accounts were not properly maintained by the assessee ; that most of the expenses were accounted for on the last day of the accounting year i.e 31.3.2008 ; that most of the purchases were made in cash and most of the payments were made keeping the single payment below Rs 20,000/- so that the payments do not violate the provisions of section 40A(3) of the Act ; that the discrepancies and irregularities were pointed out to the ld AR who could not put forward and cogent reason for such discrepancies and irregularities ; that the books of accounts were impounded u/s 131(3) of the Act ; that the accounts do not reflect the true statement of affairs of the assessee and the assessee had generated huge unaccounted incomes which were invested out of the books. Since the undisclosed investments were already added back to the total income of the assessee, no further adverse financial inference is drawn on this count. The ld AO having recorded the aforesaid alleged irregularities in the books of accounts of the assessee, ought to have straight away rejected the same and resorted to estimation of profits u/s 145(3) of the Act, which was not done in the instant case. Hence no separate disallowance could be made u/s 40A(3) of the Act when the ld AO himself had admitted in his order that the payments reflected in the books of accounts reflect payments made less than Rs 20,000/-. Even on merits, the assessee had explained the circumstances leading to the business expediency under which the payments were made to those 9 parties in cash. All the 9 parties were supplying the products to the assessee on an emergency basis in order to maintain quick flow of raw materials, the assessee had to make payments in cash. Further all the 9 parties to whom payments were made had also appeared before the ld AO in response to the summons issued u/s 131 of the Act and had confirmed the transactions before the ld AO. Hence the genuinity of the transaction stand established. Hence there cannot be any disallowance on this count also. Reliance in this regard was rightly placed by the ld AR on the decision of this tribunal in the case

6 Tridip Roy A.Yr. 2008-09 of Nirmal Kumar Das vs ACIT in ITA No. 391/Kol/2014 for Asst Year 2010-11 dated 11.12.2015 . Accordingly, the grounds 3 to 5 raised by the assessee are allowed.

Order pronounced in the Court on 24.08.2018