Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, RAIPURBENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER PER RAVISH SOOD, JM The captioned appeals filed by the assessee are directed against the respective orders passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 17.11.2021, which in turn arises from the intimations issued by the A.O under Sec. 143(1) of the Income-tax Act, 1961 (in short ‘the Act’) dated 17.06.2019 & 21.02.2020 for the assessment year 2018-19 & 2019-20, respectively. As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order.
I shall take up the appeal in ITA No.10/RPR/2022 for the assessment year 2018-19 as the lead matter, and the order therein passed shall apply mutatis-mutandis to the other appeal. The assessee has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal before us: “1. On the facts and in the circumstances of the case the CIT(A) has erred in sustaining the order of the A.O , wherein the Central Processing Unit of Income Tax , Bangalore has erred in issuing Intimation u/s.143(1) without providing proper opportunity being heard and by not transfer the case to Jurisdictional assessing officer for further verification, which is against the principle of natural justice and against the procedure laid down under Income Tax Act, 1961. Thus the order passed by the CPC, Bangalore and sustained by the CIT- A is unjustified, unwarranted and uncalled for and deserves to be deleted.
3 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
On the facts and circumstances of the case the CIT(A) has erred in sustaining the order of the A.O, wherein the Central Processing Unit of Income Tax, Bangalore has erred in issuing Intimation u/s 143(1) of the I.T.Act, 1961 by making addition of Rs.5,15,610/-on account of Purchases of Gold by considering the payment made in cash exceeding 20000/- and disallowed the same u/s 40A(3) of the I.T.Act, 1961. Thus, the disallowances made by the CPC and sustained by the CIT-A, is unjustified, unwarranted and uncalled for. 3. The assessee reserves the right to add, amend or alter any grounds of appeal at any time of hearing.”
Controversy involved in the present appeal lies in a narrow compass i.e., sustainability of the disallowance made by the A.O u/s.40A(3) of the Act of the purchase of gold of Rs.5,15,610/- made by the assessee who is engaged in the business of retail dealing in gold and silver.
Succinctly stated, the assessee had filed his return of income for the assessment year 2018-19 on 05.10.2018, declaring an income of Rs.11,51,880/-. The return of income filed by the assessee was processed as such u/s.143(1) of the Act, wherein, the A.O acting upon the qualification in the audit report in “Form No. 3CD” disallowed purchases of gold of Rs.5,15,610/- u/s. 40A(3) of the Act.
Aggrieved, the assesee carried the matter in appeal before the CIT(Appeals) but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
4 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
I have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
At the very outset of hearing of the appeal, it was submitted by the Ld. Authorized Representative (for short ‘AR’) for the assessee that both the lower authorities had grossly erred in law and the facts of the case in making/sustaining disallowance of Rs.5,15,610/- (supra) u/s.40A(3) of the Act. It was submitted by the Ld. AR that the assessee in the normal course of his business of a jeweler would adjust as against the gross sale value of the new jewelry sold by him by the value of the old gold jewellery of the customer. It was submitted by him that as exchange of old gold jewelry against new jewelry was by no means in violation of Section 40A(3) of the Act, therefore, the assessee despite qualification by the auditor had not offered any disallowance to the said effect in his return of income. Elaborating on his aforesaid contention, the Ld. AR took us through a chart showing the breakup of the disallowance of Rs. 5,15,610/- that was made by the A.O u/s.40A(3) of the Act, Page 30 of APB. In order to demonstrate the nature of adjustment exercise that was carried out by the assessee, the ld. A.R had drawn my towards a Sale Bill
5 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
No.1821 of the assessee, which revealed adjustment of old gold value of Rs.1,50,900/- on sale of new jewelry of Rs.1,75,430/-, as a result whereof the net realization of the assessee from the customer was reduced to an amount of Rs.24,530/-. It was averred by the Ld. AR that as per Rule 6DD(d) of the Income Tax Rules, 1962, the adjustment of the old gold value against the amount of liability incurred by the customer for the new gold jewelry that was purchased by him from the assessee thus, fell within the realm of exception that was carved out to the rigors of Section 40A(3) of the Act. On the basis of his aforesaid contention, it was submitted by the Ld. AR that the disallowance u/s. 40A(3) of Rs.5,15,610/- could not be sustained and was liable to be struck down.
Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.
I have given a thoughtful consideration to the issue in hand in the backdrop of the contentions advanced by the ld. Authorized Representatives of both the parties. Before proceeding any further, I deem it fit to cull out the provision of Section 40A(3) of the Act which reads as under:
"40A(3) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous
6 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, 46 [or use of electronic clearing system through a bank account], the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds [ten] thousand rupees."
Admittedly, the chartered Accountant of the assessee had in his audit report in “Form No. 3CD” at Sr. No.21(d) stated that the assessee had incurred expenditure towards URD purchases of Rs.5,15,610/- in violation of Section 40A(3) r.w.r.6DD(d). However, the assessee had while filing of his return of income not offered the aforesaid amount for disallowance u/s.40A(3) of the Act. On a perusal of the details to which, my attention was drawn by the Ld. AR, I find that the bifurcated details of the impugned disallowance of purchase of god by the assessee u/s.40A(3) of the Act reads as under:
7 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
Considering the aforesaid facts, it stands established beyond doubt that the assessee who is engaged in the business of a jeweler had in the normal course of his business adjusted against the sale value of new jewelry the value of the old gold jewelry of the customer. As stated by the Ld. AR, and, rightly so, the adjustment by the assessee against the value of the new jewelry sold to a customer the value of the old gold jewelry of the said customer, would not partake the character as that of making of payment by the assessee to the customer, but would be merely in the nature of an adjustment in lieu of exchange of old jewelry with the new jewelry. In fact, no payment to the customer is involved in the aforesaid transaction. Ostensibly,
8 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
the aforesaid transaction of adjustment of the value of old gold jewelry against the value of new jewelry would clearly fall within the realm of Rule 6DD(d) i.e an exception that had been carved out by the legislature to tone down the rigors of Section 40A(3) of the Act. For the sake of clarity, Rule 6DD(d) is culled out as under:
“ 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or in the cases and circumstances specified hereunder, namely:- (a)…………… (b)………………… (c)……………….. (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee;
My aforesaid view that the aforesaid adjustment of the value of old gold jewelry as against the value of new jewelry would not be hit by Section 40A(3) of the Act is supported by the orders of the ITAT, Chennai in the case of Deputy Commissioner of Income Tax Vs. Kirtilal Kalidas Jewellers (2012) 33 CCH 0543 (Chen. Trib) and ACIT, Company Circle-11(4) Vs. M/s. Kanishk Gold Pvt. Ltd., ITA No.1323/Mds/2012,dated 05.05.2014. It was observed by the Tribunal that where the payments get effected to a customer on account of adjustment resulting out of an exchange of old jewelery
9 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
with new jewellery, then it does get covered under the exception clause (d) of Rule 6DD. Also, the same view had been taken by the Hon’ble High Court of Punjab & Haryana High Court in the case of CIT Vs. Kishan Chand Mahjeshwari Dass (1980) 121 ITR 232 (P & H). It was observed by the Hon’ble High Court that where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee then, such situation would fall within the exception contemplated in clause (e) of Rule 6DD of the Income Tax Rules, 1962.
On the basis of my aforesaid observations, I am of the considered view that as the impugned transactions that have been brought within the realm of disallowance u/s. 40A(3) by the A.O are simplicitor adjustments of the value of old gold jewelry against the value of new jewelry sold by the assessee, therefore, the same as per concession contemplated in Rule 6DD(d) would not be subjected to the rigors of Section 40A(3) of the Act. I, thus, in terms of the aforesaid observations set-aside the order of the CIT(Appeals) and direct the A.O to vacate the disallowance of Rs.5,15,610/-.
10 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
In the result, appeal of the assessee in ITA No.10/RPR/2022 for the assessment year 2018-19 is allowed in terms of the aforesaid observations.
ITA No.11/RPR/2022 A.Y.2019-20
As the facts and the issue involved in the present appeal i.e. ITA No.11/RPR/2022 for the assessment year 2019-20 remains the same as were there before me in the aforementioned appeal of the assessee in ITA No.10/RPR/2022 for assessment year 2018-19, therefore, my order therein passed while disposing off the said appeal shall apply mutatis-mutandis for disposing off the present appeal in ITA No.11/RPR/2022 for the assessment year 2019-20. Accordingly, I allow the present appeal on the same terms and observations as were recorded by me while adjudicating the assessee’s appeal in ITA No.10/RPR/2022 for assessment year 2018-19. In this case also, I, set-aside the order of the CIT(Appeals) and direct the A.O to vacate the disallowance of Rs.3,00,245/-.
In the result, appeal of the assessee in ITA No.11/RPR/2022 for the assessment year 2019-20 is allowed in terms of the aforesaid observations.
11 Sampat Lal Dewangan Vs. ACIT, CPC, Bangalore ITA Nos. 10 & 11/RPR/2022
In the result, both the appeals of the assessee are allowed in terms of the aforesaid observations.
Order pronounced in open court on 28th day of November, 2022. Sd/- (रवीश सूद/RAVISH SOOD) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 28th November, 2022 ***SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT-1, Raipur (C.G.) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, रायपुर / DR, ITAT, “SMC” Bench, Raipur. गाड� फ़ाइल / Guard File. 6.
आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, रायपुर/ ITAT, Raipur