SH. BAWA PASRICHA,KULLU vs. DCIT, MANDI

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ITA 714/CHANDI/2017Status: DisposedITAT Chandigarh29 November 2018AY 2012-136 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the assessee's arguments regarding prompt payment to laborers and the applicability of Rule 6DD exceptions (f), (g), and (k) were not acceptable. The matter was restored to the Assessing Officer for a fresh determination after providing the assessee an opportunity to prove the genuineness of the purchases and utilization of materials.

What were the facts?

The assessee made payments of Rs. 13,58,490/- to stone suppliers via bearer cheques, which were withdrawn by his accountant. The Assessing Officer disallowed these purchases as bogus, leading to an addition of Rs. 25,99,935/- including outstanding creditors. The assessee contended the payments were for cut stones for a contract and were made to laborers via the accountant for convenience, falling under Rule 6DD exceptions.

What were the issues?

Whether payments made via bearer cheques to stone suppliers for contract work were genuine and if exceptions under Rule 6DD applied to disallowance under Section 40A(3).

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH

For Appellant: Shri. Gaurav Sharma
For Respondent: Smt. Chandrakanta
Hearing: 04/09/2018Pronounced: 29/11/2018

आदेश/Order

PER DR. B.R.R. KUMAR, A.M

The present appeal has been filed by the Assessee against the order of

the Ld. CIT(A) Palampur dt. 31/01/2017.

2.

In the present appeal Assessee has raised following grounds:

1.

The Ld. CIT (Appeals) failed to appreciate the fact that the addition of Rs.2599935/- being amount paid to stone suppliers is unjustified, illegal and arbitrary. 2. The Ld. CIT (Appeals) failed to appreciate the original vouchers and affidavits from suppliers which were ignored by the Ld. Assessing officer at the time of assessment proceedings. 3. The Ld. CIT (Appeals) failed to appreciate the fact that the contract was executed to construct base stations of transmission line towers. 4. The Ld. CIT (Appeals) failed to appreciate the fact that the manufacturing of cut stone comes within definition of cottage industry as specified in clause (f) of Rule 6DD of the Income Tax Rules, 1962. 5. The Ld. CIT (Appeals) failed to appreciate the written submissions and various case laws relied upon. 6. Without prejudice to the above the learned Ld. CIT(Appeals) ought to have considered the fact that the amount paid to stone suppliers comes within the definition forest produce as specified in clause (e ) (i) of Rule 6DD of the Income Tax Rules, 1962. 7. Without prejudice to the above the learned Ld. CIT(Appeals) ought to have considered-the fact that the amount paid to stone suppliers through bearer cheques by 'Vicky" acting on behalf appellant falls under clause (k) of Rule 6DD of the Income Tax Rules, 1962. 8. Without prejudice to the above the learned Ld. CIT (Appeals) ought to have considered the fact that the amount paid to stone suppliers falls under clause (g) of Rule 6DD of the Income Tax Rules, 1962.

9.

Without prejudice to the above the learned Ld. CIT (Appeals) ought to have considered the fact that all other expenses and purchase from stone suppliers throughout the year relating to execution of contract were allowed and only the amount paid to the stone suppliers on 16.03.2012 and 17.03.2012 were considered as bogus.

3.

During assessment proceedings, while verifying the purchases, it was

noticed that the assessee had made payments to various Stone Crushers

namely M/s Amit Stone Crusher and 30 other persons, but no purchase

bills/vouchers could be produced in respect of these purchases. The payments

had been made through cheques drawn on his J&K Bank Ltd. Kullu. Information

was called by the authorities from the bank u/s 133(6) of the Act as to how these

payments had been made. In compliance, the bank furnished information

vide letter dated 29.01.2015 and confirmed that these payments made on

16.03.2012 & 17.03.2012 amounting to Rs. 13,58,490/- were by way of bearer

cheques. The bank also supplied copies of both sides of the cheques from which

it was seen that all the above payments have been withdrawn by one person

namely 'Vicky'. In view of the above facts, the A.O. held that the purchases

shown to have been made from the above 31 persons were bogus, that is why

the assessee had not produced any bills/ vouchers in respect of the above

purchases, The purchases were therefore held as unexplained.

4.

Extending the same conclusion and reasoning, the A.O. further held that

the amount shown as payable to the above persons in the Balance Sheet as

sundry creditors was also to be treated as unexplained and on account of

bogus purchases. Accordingly, the outstanding credit balances in the name of

six out of the above 31 persons amounting to Rs. 12,41,445/- was also disallowed.

In total an addition of Rs. 25,99,935/- was made to the income of the assessee.

5.

During appeal, the assessee filed written submissions stating that the

payments in question were made to the cut-stones suppliers. During the year,

the assessee had a contract with M/s A.D. Hydro, Manali, for construction of

base stations for transmission line towers. The work sites were in extreme interior

with no road connectivity. It was stated that ‘Vicky’ is an accountant working

with the assessee. Cut stone manufacturing, is a manual and labour work

involving hammering and chiseling. Each one of the suppliers (Mates) deployed

15-20 labourers (mostly Nepali and migrant) to cut stone. In order to avoid un-

necessary labour unrest, cheques were made in the name of Mate (Supplier)

and along with him appellant's accountant (Vicky) was sent to bank for

withdrawal. Amount was withdrawn from bank and distributed to the labourers

in front of our accountant. In some of the cases, the accountant signed on the

back of the cheques as bank refused to pay the Mates who were strangers to it

and also did not have necessary Id proofs. It was argued that even if the bearer

cheques are treated as cash payments, the payments are covered under Rule

6DD, clause (f), which provides that no disallowance shall be made under

section 40A(3) where the payment is made for the purchase of products

manufactured or processed without the aid of power in a cottage industry.

6.

The Ld. CIT(A) held that the assessee has not made the payments in

question to a cottage industry or for a product manufactured or processed in a

cottage industry and it is not the case of the assessee that the payments were

made in cash at site under a circumstance falling under Rule 6DD. The assessee

duly made the payments by cheques drawn on his bank which were upon

investigation found to be bearer cheques. All the above amounts were

withdrawn by one 'Vicky' acting on behalf of the assessee whom the assessee

had given the bearer cheques. Rule 6D it would have come into play if the

payments had been made in cash at sites of work, there is further no evidence

or material on record that the cash withdrawn by 'Vicky' was given to any of the

31 persons in whose names the cheques had been issued. Thus the Ld. CIT(A)

confirmed the addition on both the grounds of not proving the payment as

genuine as well as on non applicability of Rule 8DD.

7.

Before us, Ld. AR argued and filed written submission in support of his

grounds. The brief synopsis of the arguments taken by the Ld. AR are as under:

Assessing Officer has never asked to produce books of account where as in the

assessment order the Assessing Officer wrongly mentions that books of account

were not produced.

7.1 All the purchase bills have been produced before the Assessing Officer.

7.2 Vicky Thakur the Accountant attended the proceedings before the

Assessing Officer on 07/01/2015 as per the order sheet noting hence the

Assessing Officer is well aware of the Accountant.

7.3 The bearer cheques were issued for convenience to facilitate the prompt

payment to the labourers. The addition was made based on the evidences

collected from the third party which is the J&K Bank .

7.4 The Affidavits of the various stone suppliers were furnished before the

Assessing Officer whose genuineness was not questioned by the Assessing

Officer during the proceedings.

7.5 It was strongly contended that the payment made only on 16/03/2012

and 17/03/2012 were disallowed whereas the practice of the assessee

throughout the year and in the subsequent year is also same and no reasons has

been brought on record to establish that payment made on 16/03/2012 and

17/03/2012 is bogus keeping in mind the fact that the other payments

throughout the year has been accepted as genuine though through bearer

cheques.

8.

The Ld. DR on the other hand has argued that the genuinity of the

assessment proceedings can be gauzed from the assessment order that not all

the payments made by bearer cheques have been disallowed because they

have been found to be genuine transactions.

9.

We have gone through the facts of the case. The Assessing Officer is

disallowed the amounts paid to the following suppliers.

S.No. Name of the person/ Date of issue Total Parties whose Affidavits filed party to Amount before the Assessing Officer whom bearer cheque issued 1 Amit Stone Supplier 16-03-2012 32310/- Bhikam Ram 2 Ashu Stone Supplier 16-03-2012 49500/- Chaman 3 Bhag Singh Stone Supplier 17-03-2012 48210/- Dawa Lamba 4 Bunty Stone Supplier 17-03-2012 48120/- Dola Ram Thakur 5 Des Raj Stone Supplier 16-03-2012 42100/- Dot Ram 6 Guddu Stone Supplier 16-03-2012 45640/- Karam Chand 7 Hari Chand Stone Supplier 16-03-2012 49500/- Khekh Ram 8 Hira Lai Stone Supplier 16-03-2012 25900/- Mani Ram 9 Kaku Stone Supplier 17-03-2012 43910/- Pravin Kumar 10 Kararn Chand Stone 17-03-2012 46220/- Purkh Chand Supplier 11 Mani Ram Sione Supplier 16-03-2012 49210/- Ramesh Kumar 12 Nokhu Ram Stone 16-03-2012 48210/- Tota Ram Supplier 13 Om Dutt Stone Supplier 16-03-2012 47800/- 14 Pawan Stone Supplier 16-03-2012 48400/- 15 Preetam Stone Supplier 16-03-2012 47900/- 16 Prem Chand Stone 16-03-2012 35600/- Supplier 17 Rahui Stone Supplier 16-03-2012 47210/- 18 Raj Kumar 16-03-2012 34000/- 19 Rajesh 16-03-2012 43000/- 20 Rajness Stone Supplier 17-03-2012 39110/- 21 Raku Stone Supplier 16-03-2012 48210/- 22 Ram Singh Stone Supplier 17-03-2012 38700/- 23 Ram Singh Stone Supplier 17-03-2012 45410/- 24 Ravinder Kumar Stone 16-03-2012 36400/- Supplier 25 Sanjay Stone Supplier 16-03-2012 42520/- 26 Sanjay Stone Supplier 17-03-2012 40800/- 27 Shiv Ram 17-03-2012 40900/- 28 Tek Rom 17 03-2012 47800/- 29 Tikkarn Stone Supplier 17-03-2012 49100/- 30 Tule Ram 16-03-2012 48210/- 31 Vijay Stone Supplier 16-03-2012 48500/- 1358490/-

10.

On going through the facts of the case we are unable to accept with the

arguments of the Ld. AR that the Assessing Officer has not asked for production

of books of Accounts hence not produced and also the main argument that

the amounts have been paid by bearer cheques so that the prompt wages can

be paid to the labourers cannot be accepted as we find that all the purchases

were ledgered in the months of January and February where as the payments

have been made only on 16th & 17th March 2012. It is also cannot be accepted

that all the payments have been made to suppliers only on two days with whom

hardly one or two transactions have been entered. The Assessing Officer was

well justified in accepting the payments made to other suppliers from whom the

stone was purchased throughout the year on a regular basis. Similarly the

argument of the Ld. AR that the enquiries conducted from the Bank amounts to

third party enquiries cannot be accepted as the Assessing Officer has only

obtained the copies of the Cheques issued by the Assessee himself and

determined that the payments have been made by the assessee through a

bearer cheque and en cashed by his Accountant namely Vicky. However,

keeping in view the circumstances that the Assessing Officer has not

conclusively enquired into the genuinity of the transactions and the assessee

has also not proved the genuineness of the purchase and utilization of the

material before the Assessing Officer, in order to have a fair view pertaining to

allowability of this expenditure the matter is restored back to the file of Assessing

Officer to give due opportunity to the Assessee and determine the taxability as

per the provisions of the Income Tax Act,1961. We hereby also hold that the Rule

6DD(f), 6DD(g) and 6DD(k) cannot be applied to the payments made to stone

suppliers. Hence, the alternate plea taken by the assessee at Ground No. 7 and

8 are treated as dismissed.

11.

In the result, appeal of the Assessee is partly allowed for statistical

purposes.

Order pronounced in the Open Court.

Sd/- Sd/- संजय गग� डा. बी.आर.आर, कुमार, (SANJAY GARG ) ( DR. B.R.R. KUMAR, AM) �या�यक सद�य/ Judicial Member लेखा सद�य/ Accountant Member AG Date: 29/11/2018

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant ,2. ��यथ�/ The Respondent , 3.आयकर आयु�त/ CIT, 4. आयकर आयु�त (अपील)/ The CIT(A), 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH, 6. गाड� फाईल/ Guard File

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