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Income Tax Appellate Tribunal, KOLKATA BENCH ‘A’, KOLKATA
Before: Shri P.M.Jagtap, AM & Shri S.S.Viswanethra Ravi, JM]
ORDER
Per Shri S.S.Viswanethra Ravi, JM
The appeal preferred by the Assessee is arising out of the order dated 29.10.2012 passed by the CIT(Appeals)-XXXVI, Kolkata for the assessment year 2008-09.
The only issue raised by the assessee in this appeal against action of CIT(A) in restricting the disallowance of cash payment amounting to Rs.7,21,350/- under section 40A(3) of the Act which, as per the assessee, is allowable under Rule 6DD of the I.T. Rules, 1962.
Brief facts of the case are that the assessee is engaged in the business of motor cycle dealership. The assessee filed return of 2 Pronab Nandy income declaring an income of Rs.1,73,466/-. Under scrutiny, notices under section 143(2) and 142(1) of the Act were issued and in response to the said notices, the A.R. of the assessee appeared and produced relevant documents.
During the year under consideration, the assessee has claimed a turnover of Rs.4,35,24,143/-. The letters were issued to the sundry creditors. It was observed by the AO from the confirmation of SMS Auto that the assessee has made voucher (cash) payments exceeding Rs.20,000/- in violation of the provisions of section 40A(3) of the I.T.Act. The details of cash payments are as under: Date Amount (Rs.) 17.7.2007 100000 31.8.2007 300000 3.09.2007 200000 25.9.2007 150000 1.10.2007 150000 12.10.2007 200000 15.10.2007 200000 09.11.2007 37572 30.11.2007 136000 30.11.2007 114000 5.12.2007 50000 11.12.2007 150000 28.12.2007 75000 28.12.2007 100000 18.1.2008 150000 22.1.2008 100000 4.2.2008 31350 8.2.2008 68500 8.2.2008 31500 9.2.2008 100000 27.2.2008 70000 3 Pronab Nandy 4.3.2008 70000 11.3.2008 100000 Total 26,83,922
The assessee furnished a statement before the AO to show that some of the payments were made by cheque in support of which he did not furnish any bank statements for verification as to whether the payments were made by account payee cheques or bank drafts. According to AO that the assessee has shown the other payments by breaking the same in a day which are also against the provisions of section 40A(3) of the Act Accordingly, the AO added the amounts totaling to Rs.26,83,922/- to the total income of the assessee as per the provisions of section 40A(3) of the I.T. Act.
4. Aggrieved by the above order of the AO, the assessee preferred an appeal before the CIT(A). That the assessee contended that it is engaged in retail business of sale /purchase of Honda Motor cycles, M/s. SMS Auto being wholeseller and principal collects payments from assessee on regular basis by cheques as well as by cash. Further contested by AR that an amount of Rs.7,21,350/- was paid in cash out of the total payment of Rs.26,83,922/- and the remaining of Rs.19,62,572/- was by cheque which was confirmed by AO in the remand report. The AR submitted that the said amount of Rs.7,21,350/- is not disallowable u/s. 40A(3) of Act and relied on various judicial pronouncements and the submissions are as under:. "Your honor is requested to please note that, the constitutional validity of scope and applicability of sec. 4 Pronab Nandy 40A(3) of the LT. Act, 1961 has been discussed widely by Hon'ble Supreme Court of India in Attar Singh Gurmukh Singh vs ITO [1991] 191 ITR 667/59 Taxman 11 (when the entire amount was disallowed prior to assessment year 1996- 97). It upheld validity of the provisions of the then Rule 6DD(J). It has been clearly opinionated that Sec. 40A(3) must not be read in isolation or to the exclusion of Rule 6Dd. The section 40A(3) must be read along with the rule 600. Hence, if both the sections are read together, it would be clearly seen that provisions are not intended to restrict business activities. It was further clarified by Hon'ble Supreme Court of India that payment was not made by crossed cheque or crossed bank draft. On the other hand, considering the business expediency and other relevant factors, the assessing officer is also required to furnish the satisfaction as under which circumstances the payment in the manner prescribed in sec. 40A(3) was not practicable or the same would have caused genuine difficulty to the payee. Hence, provisions of sec. 40A(3) is not absolute.
In this connection the Circular No.220 TF No. 206/17/76-IT (A-IDL dated 31-05-1977 is also mentioned as relevant here before your honour with JUDICIAL ANALYSIS: The above said circular was explained in CIT v. Avtar Singh & Sons [1992] 194 ITR 80 (Punj. & Har.) with the following observations: The said circular was noticed and considered in Navsari Waste Cotton Products v. CIT [1987] 163 ITR 378 (Guj.) where it was held that it would appear from clauses (i) to (v) of paragraph 4 of the said circular that if the identity of the seller is known, it would be possible for the Department to cross-check if the payment in question was actually made in cash to the seller from whom goods were purchased and the requirements of rule 6DD(j) would stand satisfied if a letter is produced from the seller in respect of each transaction falling within the categories illustrated in paragraph 4 giving full particulars of his address, sales tax registration number, if any, for the purpose of proper identification to enable the Income-Tax Officer to satisfy himself about the genuineness of the transaction. It was further added that the circumstances indicated in paragraph 5 Pronab Nandy 4 of the circular were merely illustrative are not exhaustive, but the underlying idea was that if the seller's identity can be established, it would be possible for the Income Tax Officer to cross check whether the transaction had, in fact, taken place as stated and was of a genuine nature.
A SIMILAR VIEW IS EXPRESSED BY THE HIGH COURT OF CALCUTTA IN GIRDHARILAL GOENKA v. CIT [1989] 179 ITR 122, where it was observed that (at p.128) : The circular of the Board is not exhaustive, it is only surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee. It was also held that the Income Tax Officer should take a practical approach to the problem and strike a balance between the directions of law.
In this connection a decision given by Tribunal in Sri Renukeswara Rice Mills v. ITO [2005] 93 ITD 263 (Bang.) can be referred. The relevant extracts for the purpose are reproduced below:
In this present case the appellant maintains a running account with distributor and makes payment by Cheque/in cash or takes delivery of goods even when payment is not readily made and the distributor make the delivery on credit."
5. The CIT-A considered the submissions made by the assessee and restricted the disallowances to Rs.7,21,350/- and observed as under: The submission of the A/R and grounds of appeal
were duly considered. The allowability and dis-allowability U/S 40A(3) will depend upon the circumstances which has necessitated such payment. Every payment made in excess of Rs.20,000/- is not disallowable u/s 40A(3) of Income Tax Act. But appellant case is entirely different. He maintains a regular
6. Pronab Nandy account with wholeseller. He had made maximum payments by cheques and few payments by cash in excess of Rs.20,OOOI-. The supplier has never insisted for cash payment or asked for payment on holidays. There is running account in which payment is sometimes late or sometimes on time. Appellant has made suo-motto cash payment, which could have been avoided. Even appellant case is not covered for the exemption available under rule -6DD. The case laws mentioned by the appellant in written submission are not applicable for the present case. Hence, cash payment of Rs.7,21,3501- is disallowed U/S 40A(3) of Income Tax Act. Appellant gets relief of Rs.19,62,572/-, for the payments made by cheques.
Being aggrieved by the order of CIT-A the assessee before us by way of this appeal. In support of grounds of appeal
Ld.AR advanced two fold arguments before us i.e one being that it is a principal-agent relationship between M/s SMS Auto and assessee respectively and the assessee is a dealer selling motor cycles. Another being that the supplier i.e M/s SMS Auto insisted for cash payments. We find that the assessee did not file any evidence before the AO or CIT-A supporting his contentions and the CIT-A found that the assessee maintained a regular account with whole seller i.e M/s SMS AUTO and the assessee made maximum payments by cheques and few payments by cash in excess of Rs.20,OOO/- which was confirmed by A.O. in the remand report. In this regard, We may refer to the provision contemplated U/s 40A(3) of the Act w.e.f 01-04-2008 relevant to the year under consideration.
7. Pronab Nandy The following sub-section (3) shall be substituted for the existing sub-section (3) of section 40A by the Finance Act, 2007, w.e.f. 1-4- 2008 : (3)(a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure
7. A bear reading of the above provision suggests that there shall not be any deduction in respect of any expenditure where payment is made exceeding Rs.20,000/- otherwise than by account payee cheque or account payee bank draft. In the present case, the AO found that all the payments which were paid in cash exceeding Rs.20,000/-. The assessee did not produce anything in evidence before the lower authorities supporting its claim that the impugned amount were paid through account payee cheques or account payee bank draft. The CIT-A held that all the payments were made in cash exceeding Rs.20,000/-. In view of the same, we reject the two fold arguments advanced by the ld.AR and do not find any merit in the appeal and the order of the ld.CIT(A) on this issue is justified. Accordingly, the ground raised
by the assessee is dismissed.
8. In the result, appeal of the assessee is dismissed. Order Pronounced in the Open Court on 10.08.2016