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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN, JM (SMC)
This appeal by the assessee is directed against the order of CIT(A), Mysore, dated 17-10-2014 for the assessment year 2008-09.
The issue in this appeal is regarding disallowance u/s 40A(3) of the IT Act, 1961. The AO in his assessment order, held as follows;
“2. On perusal of ledger accounts, assessee had shown cash payments to following party viz. Sri Someswara Fertilizers & Chemicals, Somanahalli Industrial Area, Maddur for purchase of fertilizers, but on each occasion cash payment shown in the books were less than Rs.20,000/-. The assessee was asked to produce either cash receipt of said concern for having received cash less than Rs.20,000/- as depicted in assessee’s books or to produce ledger accounts of said parties and produce ledger extract of above concern as appearing in books of assessee, which is duly certified by Sri Someshwara Fertilizers & Chemicals. In order to verify the genuineness of the ledger account produced summons was issued to Sri Someshwara Fertilizers & Chemicals on 26-07-20010 to produce their cash book and ledger. Since there was no response to summons, a letter was also issued to said company on 23.09.2010 to comply by 01.10.2010. There was no compliance to this letter also.
2.1 Survey action u/s 133A was conducted by ACIT, CIrle-2(1), Mysore in the case of Sri Someshwara Fertilizers & Chemicals on 08-10-2010 during the course of which books of accounts maintained by the said party was impounded from which ledger account of assessee as appearing in the said books was extracted. As could be seen from said ledger, assessee had made cash payment above Rs.20,000/- on each occasion and as per ledger extract, the company has also issued cash receipts. Further, it is shown that a cheque of Rs.50,000/- was shown as received from assessee on 31-03-2008 but not cleared. Thus, the ledger extract of said company as per books of accounts maintained by assessee was totally different from ledger maintained by Sri Someshwara Fertilizers & Chemicals found during the course of survey. As per ledger extract produced by assessee on each occasion cash payment made is less than Rs.20,000/- and there is no entry regarding payment of cheque but, as per ledger obtained from company during the survey, cash payments made exceeded Rs.20,000/-and also a cheque of Rs.50,000/- was stated to be received by the company”.
It was argued by the assessee before the AO that he made cash payment to sales representatives of the said concern on the dates shown in his books but the entries are made in their books on the date on which sales representatives handed over cash to them. It is also contended that the entries in their books are true and correct. The assessee produced the account copy of Sri Someshwara Fertilizers & Chemicals as appearing in the assessee’s books and certified by Sri Someshwara Fertilizers & Chemicals Ltd., on 05-07-2010 which is before the date of survey on 08-10- 2010.
The AO did not accept the contention of the assessee for the following reasons;
- Any business man would obtain receipts for any payments in cash from the supplier as and when it is paid.
- As per the books of Sri Someshwara Fertilizers & Chemicals found at the time of survey it was evident that the said company was issuing cash receipts which the assessee never produced during assessment proceedings before the AO. - The assessee could not produce any receipts issued by the company or by their representatives for having received lee than Rs.20,000/-
Accordingly, relying on the decision of the Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh 191 ITR 667 and Board’s Circular No.717 dated 14-08- 1995, it is observed by the AO that the assessee is not falling under rule 6DD since the rule 6DD(j) which provided for exclusion of payments made in exceptional circumstances when genuineness is proved, has been deleted w.e.f.1996. The CBDT’s Circular cited supra, explains the reasoning for deletion of Rule 6DD(j). With these observations the AO made the addition of Rs.3,04,100/- by disallowing this amount u/s 40A(3)”.
Aggrieved assessee preferred appeal before the CIT(A).
On appeal before the CIT(A), it was argued by the learned counsel for the assessee that the assessee had established identity of the payer and payee, genuineness of the payment and availability of cash balance in the books of accounts and also submitted that the factum of business expediency should also be considered. The CIT(A) held that what can be excluded is only that which are enumerated in Rule 6DD. Further, the CIT(A) observed that from the facts of the case, the aseessee case is distinguishable in as much as the assessee has clearly tried to avoid the rigorous of Sec.40A(3) by splitting the payments because on each day of the payments the assessee did have sufficient cash balance and this is admitted by the assessee also and the evidences clearly show that the recipient has received more than Rs.20,000/- on each occasion and issued cash receipts as such. According to CIT(A), this has surfaced on account of survey in the case of the recipient, but for which the assessee could have sailed through with the entries. The CIT(A) further noted that the assessee produced the ledger copy of the recipient signed by them but that was before the date of survey and the assessee did not file the account copy as appearing in the recipient’s books. The CIT(A) pointed out that the assessee also failed to produce the receipts issued by the recipients which were found at the time of survey and the whole issue came up only on account of survey in the case of the recipient and hence, he was of the view that the assessee’s case is clearly covered u/s 40A(3) and accordingly, the addition was confirmed.
Aggrieved, the assessee is in appeal before the Tribunal.
The assessee has filed at page-6 & 7 of the paper book, the opening cash balance, as per cash book and the payments made to M/s Someshwara Fertilizers & Chemicals which are tabulated as under; Date Opening Cash balance Rs. Amount paid Rs. 21/08/2007 478600 19500 23/08/2007 414405 19500 30/08/2007 495555 13050 05/02/2007 254922 19500 06/02/2008 235422 19000 07/02/2008 222047 19000 09/08/2008 208922 19000 11/02/2008 195402 19000 12/02/2008 176402 19500 04/03/2008 229782 10000 14/03/2008 283077 19500 15/03/2008 263577 19000 16/03/2008 249253 19500 17/03/2008 231673 19000 19/03/2008 216442 19500 20/03/2008 216557 18500 24/03/2008 214071 12650 Relying on the above, he argued that none of the payments were exceeding Rs.20,000/-. The assessee has also filed the ledger extract of M/s Someshwara Fertilizers & Chemicals Ltd., The learned counsel for the assessee further argued that the AO and the CIT(A) were not justified in rejecting the books of assessee u/s 143(3)of the Act, on the presumption that the entries in the books of assessee are not matching with the ledger extract of the said company i.e M/s Someshwara Fertilizers & Chemicals Ltd., The learned counsel for the assessee argued that the ledger extract of M/s Someshwara Fertilizerrs & Chemicals Ltd., is to be ignored as not sacrosanct. Under these circumstances, when there is lack of clarity the entries in the books of accounts of the assessee were not matching with the entries maintained by M/s Someshwara Fertilizers & Chemicals Ltd. we set aside the issue to the Assessing Officer to take appropriate steps such as issue of summons to M/s Someshwara Fertilizers & Chemicals for clarifying this mismatch and thereafter giving a reasonable opportunity to the assessee to decide the issue in accordance with law.
In the result, assessee’s appeal is allowed for statistical purposes.
Order pronounced in the open Court on the 26th August, 2015.