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Income Tax Appellate Tribunal, DELHI BENCHES : SMC-2 : NEW DELHI
Before: SHRI RAJPAL YADAV
The Revenue is in appeal before the Tribunal against the order of the ld. CIT(A) dated 20th August, 2015. The grounds of appeal taken by the Revenue read as under:-
“1. The Ld OT(A) has erred in law as well on facts in deleting the addition of Rs.14,29,235/- made by the A.O. on account of unverifiable sundry creditors.
2. The Ld CIT(A) has erred in law as well as on facts in deleting the addition of Rs.32,38,796/- in respect of cash payments made to the parties splitting the amount to below Rs.20,000/- in violation of provisions of section 40A(3) of the Act, inspite of the fact that it was having sufficient cash balance.
3. The Ld C!T(A) has erred in law as well as on facts in deleting the addition of Rs.2,70,460/- made by the A.O. on account of interest corresponding to the amounts outstanding against debtors.
Therefore, the order of Ld CIT(A) may be set aside and that of the A.O be restored.”
With the assistance of the ld. Representatives, I have gone through the record carefully. The assessment order is a very brief order running into two pages only. In order to appreciate the facts on all these issues, I would like to take note of the discussion made by the Assessing Officer which reads as under:-
“ASSESSMENT ORDER Assessee Firm e-filed its return of income on 29/09/2010 declaring total income ofRs.20,680/-. Return was processed u/s 143(1) by CPC. Case selected for scrutiny. Notice u/s 143(2) was issued on 28/09/2011 and duly served. Further notice u/s 142(1) was issued on 29/05/2012 & 01/10/2012. In compliance to these notices, Shri R.K Garg, Advocate, attended, filed reply and produced books of account. Case discussed and books of accounts put to test check. .
Assessee is engaged in the business of trading of timber/glass under the name & style of M/s Jai Mata Timbers, Hapur. Assessee firm has shown qross profit of Rs.16,35,102/- against gross sales of Rs.2,30,09,860/- @ 7.10 %. Details furnished by the assessee firm through counsel reveal that there are two parties namely M/s Jai Mata Timber & Plywood, Gzb and M/s Sonu Sports Industries, Meerut. Credit amount against these stands Rs.7,33,115/- and Rs.6,96,120/- respectively. Confirmation letters sent on the address given by the assessee were sent in the case of M/s Jai timbers & plywood, GZB, it was received unserved with remarks of empty plot. In the case of M/s Sonu Sports Industries, Meerut, letter was served but reply not received. Vide order sheet entry dated 27/02/2013, assessee was required to show cause alonqwith other unconfirmed creditors. Reply filed on 13/03/2013 that reasons for service are not known. In the case of M/s Sona Sport Industries, Meerut reply stated that therequest has been made to comply with the notice by your honour. When the burden of proof lied with assessee, the same was not complied. Thus credit amount of Rs.7,33,115/- and Rs, 6,96,120/- against Jai Timber & Plywood Gzb. & Sonu Sports Ind. Meerut remained unexplained. Records of the assessee produced in support but in the absence of stock register neither quantity of purchases could be verified nor correct G.P. could be verified. In view of these facts, sundry credit amount of Rs.7,33,115/- and Rs. 6,96,120/- total at Rs.14,29,235/- is treated as unexplained liability and added to the income of the assessee. . [Addition: Rs.14,29,23S/-] Further there is purchase of Rs. 23,66,713/- from M/s Jai Timber & Plywood, Gzb and Rs.49,51,320/- from M/s Sonu Sports Ind. Meerut. Both these so called sellers are outstationed at Ghaziabad and Meerut. Payment reflects as per copy of accounts furnished, in cash being Rs.20,000/- or less on a single day. In this case of M/s Sonu Sports Ind. Meerut payment of Rs.4,50,000/- on 29/03/2010, Rs.10,00,000/- on 30/03/2010 and RS.70,000/- on 30/03/2010 and the remaining payment has been made by cash which, comes at Rs.16,33,596/- to M/s Jai Timber & Plywood Gzb and Rs.16,05,200/- to M/s Sona Sports Ind. Meerut. In these cases neither any expenses for daily or alternate day collection shown, nor payment of interest. When there are balance available with the assessee on the day mere payment of Rs.20,000/- or less is not acceptable. In view of the fact that assessee has made cash payment of Rs.16,33,596/- to M/s Jai Timber &. Plywood Gzb. and Rs.16,05,200/- to M/s Sona Sports Ind. Meerut in violation of the provisions u/s 40A(3) of the LT.Act,1961 the total expenditure of Rs. 32,38,796/- is disallowed to the assessee. For purchaser, sample of purchase bills produced but not stock register. Thus without stock tally in case of timber trading business purchases are not verifiable. [Addition: Rs. 32,38,796/-] Further old debtors of Rs.22,53,852/- could not be confirmed. Counsel furnished there is no processing started nor pending for recovery. In view of these facts, interest payment expenses @ 12% are disallowed equal to the old debtors of Rs.22,53,582/- which comes to Rs.2,70,460/-. [Addition: Rs. 2,70,460/-] Penalty proceedings u/s 271(1) (C) of I.T. Act; 1961 for the concealment of income are being initiated separately The income of the assessee is computed as under: Income Returned Rs. 20,680/- Add: Towards unexplained liability Rs. 14,29,532/- discussed as above.
Add: Towards unexplained expenditure Rs. 32,38,796/- discussed as above.
Add: Towards unverifiable old debtors Rs. 2,70,460/- discussed as above. Total Income Rs. 49,59,468/- Rounded off Rs. 49,59,470/- Assessment order is passed u/s 143(3) of the IT.Act,1961 on the total income of Rs.49,59,470/-. Credit of pre-paid taxes is being allowed while computing tax liability. Interest as per applicable provisions of section 234A/234B/234C is being charged and mentioned in notice of demand issued alongwith challan. Penalty proceedings u/s 271(1)(c) of I.T. Act, 1961 for the concealment of income are being initiated separately.”
As far as the first issue is concerned, the Assessing Officer was of the view that since sundry creditors did not respond to his notices, therefore, these are not genuine and he made the addition. On appeal, the ld. First appellate authority has considered this aspect and observed that the assessee has made repayment of these loans by a/c payee cheque in the next year and they cannot be doubted. The brief findings recorded by the first appellate authority in this connection read as under:-
“Further, the action of the AO in making trading addition at Rs.14,29.235/- is self contradictory in the sense that the AO on one hand, by not rejecting the books of account in other words is accepting the trading results but on the other hand, by making trading addition at Rs.14,29,235/- is disturbing the trading results which have already been accepted by him.
Merely because. notice u/s 133(6) of the Act was not served or no Compliance was made the aforesaid sundry creditor cannot be a ground for making addition of Rs.14,29,235/-. The AO has not brought any adverse material evidence on record to suggest that the aforesaid sundry creditors were bogus. Rather, the fact on record is that the outstanding closing balance in respect of M /s Jai Timber Plywood, Ghaziabad at Rs.7,33,115/- and in respect of M/s Sonu 5
Sports, Meerut at Rs.6,96,120/- have been paid in the subsequent years through cheues.
Thus, in the light or the above facts, it is held that the AO was not justified to make addition totaling to Rs.14,29 235/-, The same is directed to be deleted Ground of appeal No.2 is allowed.”
After going through the record, I do not find any merit in ground No.1 of the Revenue’s appeal. The ld. first appellate authority has recorded a finding of fact that sundry creditors doubted by the AO are genuine. The assessee has produced evidence exhibiting repayment of alleged amounts to these concerns. The findings of the AO is not based on any concrete evidence. Therefore, the first ground of appeal is rejected.
5. As far as the second issue is concerned, a perusal of the assessment order would indicate that it is specifically not discernible as to how the ld. AO has made the disallowance. He made a discussion of the purchases. In the opening line of third para on page 3, he observed that the assessee has not made payment of more than Rs.20,000/- in cash on a single day. In spite thereof, he made the disallowance of total purchases, which, according to his understanding, were made in cash. Contrary to this finding, the 6 ld.CIT(A) has observed that the assessee has not made any violation of section 40A(3). The brief finding recorded by the CIT(A) in this regard read as under:-
“ On the other hand the appellant has contended that the AO was not Justified to make addition of Rs.32,38,796/- on the ground that no payment was made exceeding Rs.20,000/- on a single day. To decide the impugned issue, let us go through the relevant provisions of the Act.Section 40A(3) of the Act says – “Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.” Thus, section 40A(3) is applicable where the payment for any expenditure or aggregate payment is made to a person in a day otherwise than account payee cheque or bank draft exceeded Rs.20,000/-. Therefore, for applicability of section 40A(3), it is essential that the aggregate payment made to a person on any day should exceed Rs.20,000/- That if the assessee makes the payments not exceeding Rs.20,000/- every day, it cannot be said that the payment has been made to circumvent the provisions of section 40A(3) of the Act. Section 40A(3) would be applicable when the assessee makes payment exceeding Rs.20,000/- in a day. If there is no payment exceeding Rs.20,000/- in a day, there is no violation of section 40A(3) of the Act, so there is no question of any circumvention of the provisions.
It is observed that the appellant has copy of accounts of M/s Jai Timber & Plywood, Ghaziabad and M/s Sonu Sports Industries, Meerut. From the perusal of such copies of account it is gathered that no payment exceeding Rs.20,000/- in a day has been made by the appellant. The fact on record is that no payment exceeding Rs.20,000/- has been made in violation of provisions of section 40A(3) of the Act. Thus the addition made by the AO is based on presumption and surmises and is thus untenable in the eyes of law. Reliance is placed on the decision of the Hon’ble ITAT, New Delhi in the case of M/s Maa Jagdambay Enterprises, Purkazi, Muzaffarnagar vs. ITO, Ward 2(1), Muzaffarnagar in dated 30.09.2014 for AY 2009-10. The AO’s case is that no travelling expenses for making cash payments on day to day basis and on alternate day. Further, according to the AO when there was cash balance available with the appellant on the day, the payment of Rs.20,000/- or less was not acceptable. However, such inference is not backed by any adverse material evidence on record to establish that the appellant had made cash payments exceeding Rs.20,000/- in a day in violation of provisions of section 40A(3) of the Act. The appellant has debited the amount of Rs.99,165/- under the head ‘motor cycle expenses, travelling expenses and car running and maintenance expenses.’”
The Revenue has not produced any evidence which can rebut this finding of fact recorded by the CIT(A). The disallowance u/s 40A(3) could be made if the assessee has made payment to a person in a day otherwise than account payee cheque or bank draft exceeding Rs.20,000/-. The ld.CIT(A) has recorded a specific finding that no such payment was made by the assessee. I have gone through the finding of the AO also which has been extracted above, but, there is no clear-cut finding discernible from the order of the AO. Therefore, I do not see any reason to interfere in the finding of the ld.CIT(A).
As far as the third ground of appeal is concerned, the brief facts are that there were old debtors. According to the AO, the assessee should have shown interest on such debtors. The assessee has contended that he is pursuing the remedy and filed suit for recovery.
These were old debts. It has not accounted interest income in earlier year and, therefore, there should not be any notional interest income in the hands of the assessee. The first appellate authority has accepted the contention and deleted the addition.
After going through the finding of the CIT(A), I do not find any merit in this ground of appeal because there is no decision at the end of the AO to assume notional interest income and, thereafter, assume that interest expenses claimed by the assessee to be disallowed. He has not demonstrated any nexus as to how interest bearing funds were diverted for the non-business purposes. The ld.CIT(A) has rightly deleted the addition. This ground of appeal is rejected.
In the result, the appeal of the Revenue is dismissed.
The order pronounced in the open court on 06.01.2017.