SRI.R.P.NARAYANA RAO,MYSORE vs. INCOME TAX OFFICER, MYSORE

Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.30.03.2016 of

Commissioner of Income Tax (Appeals), Mysore for the Assessment Year 2008-

09.

2 ITA No.2176/Bang/2016

3 ITA No.2176/Bang/2016

adjudication.

of the Income Tax Act, 1961 (in short 'the Act') . The Assessing Officer noted

that the assessee has shown cash payments in excess of Rs.20,000 to 11 parties

for purchase of textiles. The details of the payments are reproduced by the

Assessing Officer in para 2 as under :

4 ITA No.2176/Bang/2016

Thus the Assessing Officer disallowed the said amount of Rs.4,49,969 by

invoking the provisions of Section 40A(3) of the Act. The assessee challenged

the action of the Assessing Officer before the CIT (Appeals) but could not

succeed.

has submitted that out of Rs.4,39,000, a sum of Rs.1,90,009 was paid through

DD and therefore the said amount was not hit by the provisions of Section

40A(3) of the Act. The learned Authorised Representative of the assessee has

further contended that as per the unamended provisions of section 40A(3)

which are applicable for the year under consideration if the individual payment

is less than Rs.20,000 then no disallowance can be made under this section by

clubbing together various payments made to the same party. The learned

5 ITA No.2176/Bang/2016 Authorised Representative has submitted that as per the unamended

provisions the individual payment of exceeding Rs.20,000 is the condition for

disallowance. The amendment in the provisions has been brought by Finance

Act, 2008 w.e.f. 1.4.2009 therefore the amended provisions of Section 40A(3)

are not applicable for the year under consideration. He has referred to the

payments made by the assessee through vouchers placed at pages 6 to 11 of

the paper book. Thus the learned Authorised Representative has submitted

that when the individual payment is less than Rs.20,000 to each party then no

disallowance is called for under Section 40A(3) of the Act.

assessee has splitting the amount into various small payments made to same

party in a single day with the motive and object to circumvent to Section 40A(3)

of the Act. Thus the learned Departmental Representative has contended that

splitting of payment is not a separate transaction but only to avoid the

provisions of section 40A(3) of the Act then the disallowance made by the

Assessing Officer is justified.

record, it is noted that the assessee has paid cash to same party in a single day

by splitting it to Rs.15,000 each. It is pertinent to note that the said payment is

6 ITA No.2176/Bang/2016 not representing separate individual transaction but the payment has been

made in respect of a single transaction. The numbering given on the cash

vouchers reflect that more than one payment of Rs.15,000 to each party has

been made under same manual number though the printed voucher number is

different. Thus when more than one payment has been made on a single day

to a single party in respect of single transaction then it is not a separate

payment but it is only splitting of the amount which is more than Rs.20,000 into

small amounts into Rs.15,000. Therefore when a payment in respect of a

single transaction has been made to a party on same date though it may be

shown by splitting in Rs.15,000 each then the total sum paid by the assessee in

respect of a single transaction will be counted for the purpose of provisions of

Section 40A(3) of the Act. Only when each payment represents a separate

transaction then as per the unamended provisions of section 40A(3), the same

will not attract the disallowance under the said section. Therefore I do not find

any substance or merits in the contention of the learned Authorised

Representative that as per the unamended provisions of the Act, the

transactions of the assessee do not attract the provisions of section 40A(3). As

regards the claim of the assessee that out of Rs.4,39,000, a sum of Rs.1,09,000

was paid through DD, this fact has not been examined by the authorities below

7 ITA No.2176/Bang/2016 and therefore it is set aside to the record of the Assessing Officer to verify the

same and then decide this issue as per law.

of unexplained loan credit. The Assessing Officer noted that the assessee has

shown the creditors in the name of 8 parties total amounting to Rs.1,40,000.

The Assessing Officer asked the assessee to furnish the names and addresses

and source of funds of 8 parties. Since the assessee did not respond to the

show cause notice therefore the Assessing Officer made an addition of

Rs.1,40,000 under Section 68 of the Act. The assessee challenged the action of

the Assessing Officer before the CIT (Appeals) and contended that all these

loans did not exceed Rs.20,000 each and addressed provided by the assessee

were found not verifiable for want of details such as Door Number, Pincode

number, etc. The CIT (Appeals) confirmed the addition made by the Assessing

Officer.

regarding the confirmation as well as address and ID proof. The learned

Authorised Representative of the assessee has submitted that the additional

evidence may be remitted to the Assessing Officer for verification.

8 ITA No.2176/Bang/2016 10. On the other hand, the learned Departmental Representative has

vehemently opposed to the additional evidence filed by the assessee at this

stage.

on record, it is noted that the addition under Section 68 of the Act was made by

the authorities below for want of the necessary details of address and

creditworthiness of the loan creditors. The assessee has now filed the

additional evidence in the shape of address and ID proof placed at page Nos.15

to 22 of the paper book. Having regard to the facts and circumstances of the

case, when the addition has been made for want of necessary details and

evidence, the additional evidence filed by the assessee is remitted to the record

of the Assessing Officer for verification and adjudication of the issue.

from the sales tax department regarding unaccounted sale of the assessee.

Accordingly, the CIT (Appeals) directed the Assessing Officer to enhance the

assessment by making an addition of Rs.83,601.

that the enhancement of assessment on account of suppressed sales of the

9 ITA No.2176/Bang/2016 total amount is not justified and only a gross profit addition can be made on

this amount.

upon the order of authorities below and submitted that when the assessee has

not claimed any expenditure against this suppressed sales, then the entire

amount has to be added to the income of the assessee.

on record, it is noted that on the basis of the information received from the

sales tax department, the CIT (Appeals) found that there is unaccounted sale of

Rs.83,601. The CIT (Appeals) has further noted that all relatable expenditure

were already claimed and allowed in the assessments and therefore the entire

amount was directed to be added to the income of the assessee.

Consequently, the CIT (Appeals) has enhanced the assessment. Since it is an

addition on account of unaccounted sales therefore, corresponding

expenditure towards purchase has to be allowed. There cannot be any sale

without corresponding purchase and therefore the entire amount of

suppressed sales cannot be treated as income of the assessee. Hence the

Assessing Officer is directed to consider only the gross profit on this sales as

income of the assessee.

10 ITA No.2176/Bang/2016 17. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 22.03.2017.

Sd/- (VIJAY PAL RAO) JUDICIAL MEMBER Bangalore, Dt.22.03.2017.

*Reddy gp

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

Assistant Registrar Income Tax Appellate Tribunal Bangalore.