M/S. TIRAT C.S. SHOP,ASANSOL vs. ITO, WARD-1(3), ASANSOL, ASANSOL

The solitary common issue involved in these appeals relates to the addition of Rs.7,19,450/- and Rs.28,49,058/- made by the Assessing Officer under section 40A(3) and confirmed by the ld. CIT(Appeals). & 163/KOL./2015 Assessment years: 2007-2008 & 2010-2011 Page 2 of 4

The assessee in the present case is a partnership firm, which is engaged in the business of retail sale of Country Spirit and Pachai. The returns of income for both the years under consideration were filed by the assesese on 06.03.2008 and 30.03.2011 declaring total income of Rs.7,317/- and Rs.14,084/- for A.Y. 2007-08 and 2010-11 respectively. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has made payments against purchases of country spirit in cash in the sum exceeding Rs.20,000/- aggregating to Rs.35,97,252/- and Rs.28,49,058/- in A.Y. 2007-08 and 2010-11 respectively. Since the said payments were made by the assessee in violation of the provisions of section 40A(3) and there was no case made out by the assessee to show that the said payments in cash were made in the exceptional circumstances as prescribed in Rule 6DD, the Assessing Officer invoked the provisions of section 40A(3) and made a disallowance of Rs.7,19,450/- being 20% of the total cash payments of Rs.35,97,252/- and Rs.28,49,058/- for A.Y. 2007-08 and 2010-11 respectively.

The disallowance made by the Assessing Officer under section 40A(3) in both the years under consideration was challenged by the assessee in the appeals filed before the ld. CIT(Appeals) and keeping in view that the case of the assessee was not covered by the exceptional circumstances prescribed in Rule 6DD, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer under section 40A(3) for both the years under consideration. Aggrieved by the orders of the ld. CIT(Appeals), the assessee has preferred these appeals before the Tribunal.

I have heard the arguments of both the sides and also perused the relevant material available on record. As pointed out by the ld. counsel for the assessee from the relevant portion of the assessment order, it was specifically submitted by the assessee before the Assessing Officer that & 163/KOL./2015 Assessment years: 2007-2008 & 2010-2011 Page 3 of 4 the amounts in question were not paid in cash directly to the concerned party against the purchases, but the same were deposited in the Bank account of the said party. In this regard, he has relied on the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT –vs.- Smt. Shelly Passi reported in 350 ITR 227, wherein it was held that the amount in cash having been deposited by the assessee directly in the Bank account of the seller, the same could not be disallowed under section 40A(3). The ld. D.R. has not disputed this proposition by citing decision of any other Hon’ble High Court or Hon’ble Supreme Court taking a contrary view. He, however, has contended that the submission made by the assessee during the course of assessment proceedings of having deposited directly, the amount in question in the Bank account of the concerned supplier was not verified by the Assessing Officer and since no finding thereon has been given either by the Assessing Officer or by the ld. CIT(Appeals), the matter may be restored to the file of the Assessing Officer for such verification. I find merit in the contention of the ld. D.R. and since the ld. counsel for the assessee has not also raised any objection in this regard, I set aside the impugned orders of the ld. CIT(Appeals) on the issue under consideration and restore the matter to the file of the Assessing Officer for deciding the same afresh in the light of the decision of the Hon’ble Punjab & Haryana High Court in the case of Smt. Shelly Passi (supra) after verifying the claim of the assessee of having deposited the amounts in question in cash directly in the Bank account of the concerned supplier/seller.

In the result, both the appeals of the assessee are treated as allowed for statistical purposes. Order pronounced in the open Court on July 14, 2016.