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Income Tax Appellate Tribunal, ‘A’ BENCH : CHENNAI (CAMP: MADURAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
These are appeals and cross objections filed by the Revenue and assessee respectively for assessment years 2008-09 and 2009- 2010. & 1156/15 :- 2 -: & CO No.69 & 70/2015
2. Appeal and cross objection for assessment year 2008-09 are taken up first for disposal. Revenue in its appeal has raised the following grounds:-
The order of the learned CIT(Appeals) is contrary to the law, facts and circumstances of the case.
2(i) CIT(A) erred in deleting the addition made by the AD u/s 40A(3) without appreciating that the assessee failed to prove any business expediency or other facts for making staggered payments in cash.
(ii) CIT(A) failed to observe the decision in the case of CIT vs. Tirupati Trading Co, Kolkata High Court in which case the Tribunal confirmed the addition made by the Assessing Officer holding that the assessee was not able to explain the genuiness of cash payment and was also unable to explain whether any unavoidable exceptional circumstances covered under Rule 6DD of the IT Rules.
(iii) CIT(A) failed to observe that the Assessee was also unable to explain before the AO whether any unavoidable/ exceptional circumstances covered under Rule 6DD of the I.T'Rules, 1961.
(iv) The CIT(A) erred in deleting the addition referring rule 6DD(j) which exempts the purview of sec. 40A(3) where the payment was required to be made on a day on which the banks were close, but the assessee has not sought any exemption stating that the cash payments were made on the day on which banks are closed.
(v) CIT(A) erred in accepting the contention of the assessee relying on theerstwhile exemption clause (j) of Rule 6DD by which exemption from disallowance uls 40A(3) is available to tax payer once it is established that the payment could not be made by cross cheque or draft due to exceptional or unavoidable circumstances, since the clause (j) of rule 6DD has been omitted by the IT (fourteenth amendment) Rules 1995 w.ef. 27.5.1995 and therefore provisions of the said rule is not applicable in the assessee's case in the year under consideration. (vi) CIT(A) failed to observe the decision of Hon'ble Andhra Pradesh High Court in the case of Smt. Ch. Mangayamma Vs. Union of India and others (239 ITR 687), wherein considering the constitutional validity of the provisions of S.40A(3) of & 1156/15 :- 3 -: & CO No.69 & 70/2015 the Act in the light of the above amendment made to Rule 6DD of the IT Rules, the Hon'ble High Court observed and held at page 693 of the Reports (239 ITR) as follows: "In view of the aforesaid principles as laid down and the object as sought to be achieved u/s 40A(3) of the Act, any changes made in the subordinate legislation would not in any way affect the substantive provision. Moreover, by deleting the circumstances as contemplated earlier, viz., sub clauses (1) and (2) of rule 6DD(j) the objects of curbing the circulation of black money and regulating the business transactions become more strengthened and it avoids any undue advantage being taken by unscrupulous assessees or litigation being multiplied." [vii] CIT(A) failed to observe that in the above decision the court further opined that "One cannot plead ignorance of law and make cash payments contrary to law. It is too late in the day to accept any such proposition and that in the present day banking scenario, the mode of payment by way of crossed cheques or demand drafts cannot be said to be onerous duty case on an assessee which can be made a foundation for attacking the validity of the said section." (viii) CIT(A) failed in allowing the appeal without considering the fact that the assessee has not mentioned impracticability or impossibility of payment by cheque and other compelling reasons which enable it to make payment in cash.
(ix) CIT(A) erred in allowing the appeal without appreciating the fact that none of the clauses under Rule 6DD of Income Tax Rules apply in the assessee's case.
3(i) CIT(A) erred in partly deleting disallowance of exemption of dividend income attributable to expenditure for earning of dividend income.
(ii) CIT(A) has failed to note that the assessee has not proved his contention that that the investments were made on his own fetched the dividend income without involving any incurring of expenditure.
4 (i) CIT(A) has failed to note that the assessee has not substantiated with necessary proof to the satisfaction of the AD to prove his claim that the credits in the current account are fixed deposits of earlier years.
(ii) CIT(A) failed to appreciate that the onus of proving the source of credit in the current account in bank lies with the assessee and same has not been discharged by the assessee and hence treating the entire amount in the bank account was treated as unexplained in the hands of the assessee under Section 68 of the Act is justified. & 1156/15 :- 4 -: & CO No.69 & 70/2015
Brief facts leading to this appeal are that assessee running a lodge and real estate business had file his return of income for the impugned assessment year disclosing income of �87,05,011/- The assessment was completed on 26.03.2013 u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘’the Act’’) assessing the income at �1,81,40,652/- inter-alia making the following disallowance.
1 Land purchase under the head business 42,94,062 income 2 Cash payment for land purchase under the 21,75,000 head business income 3 Travelling expenses under the head business 17,46,034 income 4 Expenses in respect of exempt income under 10,00,000 the head other sources
5 Loan taken from Karur KCP Packaging Ltd 2,20,545 under the head other sources.
The said order was set aside by the ld. Commissioner of Income Tax- I, Trichy invoking powers vested on him u/s.263 of the Act. Ld. Assessing Officer was directed to verify the claim made by the assessee that it had received �18,74,70,100/- from one M/s. Pacifica Infrastructure (Chennai) Private Limited. During the course of the fresh proceedings, ld. Assessing Officer verified books of accounts of the assessee with ledger copy of M/s. Pacifica Infrastructure (Chennai)
Private Limited and found this to be satisfactory. However, as per ld. & 1156/15 :- 5 -: & CO No.69 & 70/2015 Assessing Officer assessee had acquired a land for �1,02,71,500/- on 03.10.2007, out of which �36,500/- was paid in cash. Ld. Assessing Officer applied Sec. 40A(3) of the Act and disallowed �36,500/-.
Further, as per ld. Assessing Officer there was a credit of �10,77,178/- in assessee’s current account and assessee could not prove the source. So, in the fresh assessment framed u/s.143(3) r.w.s 263 of the Act in addition to the originally assessed income of �1,81,40,652/-, two more additions were made, one being �36,500/- for cash payments against land purchases and the other being �10,77,188/- for unexplained deposits in assessee’s current account with Karur
Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Ld. CIT(A) was of the opinion that original assessment having been set aside by the ld. Commissioner of Income Tax u/s.263 of the Act, ld. Assessing Officer was obliged to redo the assessment in toto. Therefore, according to him, ld. Assessing Officer made a mistake in beginning his computation considering income as originally assessed. As per the ld. CIT(A), the ld. Assessing Officer ought to have started from the income of �87,05,011/- originally returned by the assessee and made required additions/disallowances. Further as per ld. Commissioner of Income & 1156/15 :- 6 -: & CO No.69 & 70/2015 Tax (Appeals) it was not feasible to adjudicate on the additions made by the ld. Assessing Officer in the original assessment since it was set aside by the ld. CIT u/s.263 of the Act. Nevertheless, assessee having raised various grounds relating to additions made in the original assessment, ld. Commissioner of Income Tax dealt with such grounds.
Ld. Commissioner of Income Tax (Appeals) deleted the additions made by the ld. Assessing Officer u/s.40A(3) of the Act as well as the disallowance of expenditure attributable to exempt dividend income claimed by the assessee which were made by the ld. Assessing Officer in the original assessment. He also deleted the further disallowance of �36,500/- under section 40A(3) of the Act and additions for credits in the current account made by the ld. Assessing Officer in the fresh assessment.
Now before us, ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that aggregate cash payment of �22,11,500/- (�21,75,000/- made in the original assessment and �36,500/- made in the fresh assessment) for land purchase disallowed by the ld. Assessing Officer u/s.40A(3) of the Act was deleted by the ld. Commissioner of Income Tax (Appeals) citing a reason that the payments were genuine and made due to business expediency. As per & 1156/15 :- 7 -: & CO No.69 & 70/2015 ld. Departmental Representative ld. Commissioner of Income Tax (Appeals) had relied on clause (j) of 6DD of Income Tax Rules, which was not applicable, since assessee could not show that the payments were effected on a bank holiday. Further, as per ld. Departmental Representative ld. Commissioner of Income Tax (Appeals) had also deleted disallowance u/s.14A of the Act ignoring dividend income of �13,01,054/- claimed by the assessee as exempt. In so far as, credit of �10,77,188/- in the current account of the assessee was concerned, ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) had allowed the claim without verifying the facts. Further, according to him, whether credits represented maturity of fixed deposits made by the assessee in the financial 2005-06 was not verified by the ld. Commissioner of Income Tax (Appeals), before giving relief to the assessee.
Contra, ld. Authorised Representative submitted that the only additions made by the ld. Assessing Officer during the impugned assessment were �36,500/- being cash payment for land purchase and �10,77,188/- for unexplained credits the current account with Karur Vysa Bank Limited. As per ld. Authorised Representative ld. Assessing Officer had started the computation from the income assessed u/s.143 (3) r.w.s. 147 on 26.03.2013, which assessment was set aside & 1156/15 :- 8 -: & CO No.69 & 70/2015 by the ld. Commissioner of Income Tax in a proceeding u/s.263 of the Act. As per ld. Authorised Representative ld. CIT himself had noted that computation of income had to start from the income returned by the assessee and not from income assessed u/s.143(3) r.w.s. 147 of the Act. In so far as cash payment made for land purchase is concerned, ld. Authorised Representative submitted that proviso to Sec.40A(3) of the Act clearly allowed such cash payments for business expediency and Rule 6DD was not exhaustive. In so far as cash deposits made in the current account was concerned, submission of the ld. Authorised Representative was that these were proceeds of the fixed deposits placed by the assessee in the very same bank in an earlier year.
We have considered the rival contentions and perused the orders of the authorities below. In the order dated 28.11.2014 which has been assailed before us, ld. Assessing Officer computed income of the assessee as under:-
Assessed income u/s.143(3) r.w.s147, dated 1,81,40,652 26.03.2013 Additions made: 1. Cash payments for land purchase under the head Business income. 36,500
2. Cash deposits made in KVB Ltd 10,77,188
1,92,54,340/- & 1156/15 :- 9 -: & CO No.69 & 70/2015 Ld. Assessing Officer also mentions that assessment was originally completed on 26.03.2013 u/s.143(3) r.w.s.147 of the Act with total assessed income of �1,81,40,652/-. It has also been noted by the ld. Assessing Officer that the said order was set aside by the ld. Commissioner of Income Tax -1, Trichy invoking powers vested on him u/s.263 of the Act on 08.08.2014. However, ld. Assessing Officer started from the income of �1,81,40,652/- as originally assessed and made two further additions in the fresh assessment pursuant to the order u/s.263 of the Act. As mentioned by the ld. Authorised Representative the original assessment order was no more there when the fresh assessment pursuant to proceedings u/s.263 of the Act was taken up by the ld. Assessing Officer. Therefore, the ld. Assessing Officer could not have started from the income of �1,81,40,652/- originally assessed on 26.03.2013. He ought have started from the returned income of �87,05,011/-. Ld. Commissioner of Income Tax in our opinion having given a clear finding on these lines, ought not have adjudicated on the additions assailed by the assessee, which additions emanated from the original assessment. He should have confined himself to the additions made by the ld. Assessing Officer in his order dated 28.11.2014 which were �36,500/- u/s.40A(3) of the Act and �10,77,188/- for deposits made in Karur Vysa Bank Ltd. Grounds raised by the Revenue in its appeal before us on issues other than & 1156/15 :- 10 -: & CO No.69 & 70/2015 above two additions do not arise from the assessment order, and hence stand dismissed. 7. Coming to the addition of �36,500/- made under section 40A(3) of the Act for cash payments claim of the assessee was that it was on account of business expediency that such payments were made. Ld. Commissioner of Income Tax (Appeals) had relied on sub rule (j) of 6DD of the Income Tax Rules for deleting disallowance.
However, we find that the said rule apply for payments made on a day on which banks are closed. Nevertheless there is much strength in the contention of the ld. Authorised Representative that exceptional situations mentioned in Rule 6DD are not exhaustive. Hon’ble Delhi High Court in the case of Basu Distributor vs. ITO 292 ITR 29 has held that there could be exceptional and unavoidable circumstances that may not find a place in Rule 6DD which would still be a reasonable ground for not applying the rigours of Sec. 40A(3) of the Act. Ld. Commissioner of Income Tax (Appeals) had given a clear finding that assessee could demonstrate business expediency which justified the payments being made in cash. We cannot find any lacuna in this finding of the ld. Commissioner of Income Tax (Appeals).
Coming to the ground relating to deposits of 10,77,188/- made in Karur Vysa Bank Ltd, a clear finding has been given by the ld. Commissioner of Income Tax (A) that it was proceeds of the deposits & 1156/15 :- 11 -: & CO No.69 & 70/2015 made by the assessee in the year 2005-06. Ld. Commissioner of Income Tax (Appeals) has also noted that assessee had accounted accrued interest of �77,188/-. Revenue has also not raised ground citing violation of Rule 6DD. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in deleting both the additions.
Now, we take cross appeal of the assessee. Assessee in its cross appeal has raised seven grounds. Adverting to its grounds 2 & 3, ld. Authorised Representative submitted that the adjudication by the ld. Commissioner of Income Tax (Appeals) on the additions made in the original assessment was only academic and had no relevance.
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below.
We have perused the orders and heard the rival contentions.
We had already held in relation to Revenue’s appeal that original assessment having being set aside by the ld. CIT u/s.263 of the Act adjudication done by the ld. CIT(A) on the additions made by the ld. Assessing Officer in the original assessment were irrelevant. Hence, we are of the opinion that assessee has to succeed in its ground No. 2 & 3 of its cross appeal. & 1156/15 :- 12 -: & CO No.69 & 70/2015
Ld. Authorised Representative did not advance any argument on his grounds 4 to 7. Grounds 4 to 7 of the cross appeal are dismissed.
In the result, the appeal of the Revenue for assessment year 2008-2009 is dismissed whereas cross appeal of the assessee is partly allowed.
Now we take up the appeal and cross objection for assessment year 2009-10.
For this assessment year also, facts are very similar to that for the preceding assessment year 2008-09. Original assessment done by the ld. Assessing Officer on 26.03.2013 was set aside by the ld. CIT invoking powers vested on him u/s.263 of the Act on 08.08.2014. In the subsequent assessment done by the ld. Assessing Officer pursuant to the order u/s.263 of the Act, he computed income of the assessee starting from the income assessed originally on 26.03.2013. The only fresh additions made by the ld. Assessing Officer was a sum of �76,32,000/- under section 40A(3) of the Act being cash payments for land purchase. Ld. Commissioner of Income Tax (Appeals) on assessee’s appeal held that ld. Assessing Officer had made a similar mistake as done for assessment year 2008-09, in computing income of & 1156/15 :- 13 -: & CO No.69 & 70/2015 the assessee starting from income assessed originally u/s.143(3) of the Act instead of the income returned by the assessee. As per ld. Commissioner of Income Tax (Appeals) original assessment having being set aside there was no question of adjudicating on any of the grounds raised by the assessee relating to the original assessment.
Nevertheless he proceeded to deal with such grounds. He also held that disallowance of �76,32,000/- u/s.40A(3) of the Act made in the fresh assessment could not have been done since there was genuine payments done due to business expediency.
The facts and circumstances being the same, for the reasons mentioned by us at 6 and 7 above, while dismissing the appeal of the Revenue for the assessment year 2008-2009, we dismiss the appeal for the impugned assessment year also.
Coming to the cross objection of the assessee, it has raised only one effective ground which assails the adjudication done by ld. Commissioner of Income Tax (Appeals) on issues arising out of addition made by the ld. Assessing Officer in the original assessment.
For the same reasons as mentioned by us at para 11, we are of the opinion that assessee has to succeed in this ground. & 1156/15 :- 14 -: & CO No.69 & 70/2015
In the result, we dismiss the appeal of the Revenue for assessment year 2009-2010 and allow cross objection of the assessee.
To summarize the result, the appeals of the Revenue for both the years are dismissed, Cross objection of the assessee for assessment year 2008-2009 is partly allowed whereas that for assessment year 2009-2010 is allowed.
Order pronounced on Thursday, the 20th day of April, 2017, at Chennai.