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Income Tax Appellate Tribunal, SMC, CHANDIGARH
Before: MS. DIVA SINGH
PER DIVA SINGH, J.M.
The present appeal has been filed by the assessee assailing the correctness of the order dated 14.10.2016 of CIT-(A)-1, Chandigarh pertaining to 2012-13 assessment year on the following grounds :
That the Learned Commissioner of Income Tax(A)-l has filed to appreciate the facts and circumstances of the case and has thereby erred in Confirming addition of Rs. 24,77,000/- u/s 40(A)(3) of the Income Tax Act, 1961.
That the order of the Learned Commissioner of Income Tax(A)-l is devoid of any merits as there was no violation of the provisions of section 40(A)(3) of the Income Tax Act, 1961. There was a mistake on the part of the account of the company in submitting the copy of account who prepared the same in a summarized manner. The books of accounts and vouchers produced before the Assessing Officer recorded the correct facts and figures and were contrary to the earlier wrong statement furnished by the accountant.
There being no violation of the provisions of section/40(A)(3) it is prayed that the addition made may kindly be deleted.
The relevant facts in this case are that the assessee's return was picked up for scrutiny assessment through CASS wherein addition of Rs. 24,77,000/- was made u/s 40A(3). The addition was challenged in appeal before the CIT(A) unsuccessfully. Aggrieved by the order, the assessee is in appeal before the ITAT.
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The ld. AR inviting attention to the assessment order submitted that the AO in the course of assessment proceedings required the assessee to explain payments made in cash stated to be in contravention of Rule 40A(3). The assessee in his reply at the first instance stated that there was an error on the part of the Accountant who while submitting the details had submitted wrong figures in the copy of account of M/s Spun Pipe Co. Pvt. Ltd. and in support of the said claim, copy of the account of the assessee in the company of M/s Chandigarh Spun Pipe in the name of M/s Nangal Spun Pipe Company were relied upon. Inviting attention to page 12-13 of the assessment order, it was submitted that no cash payments exceeding Rs. 20,000/- have been paid by the assessee. The information was wrongly prepared by the Accountant while typing the same. The affidavit of the Accountant in support of the said assertions, it was submitted, was made available to the AO. Relying upon the reply of the assessee extracted in page 12-13 of the assessment order, it was submitted, that the Accountant had wrongly summarized the payments and typed a consolidated figure. It was submitted that the said submissions were not accepted and assailing the conclusions drawn by the AO and the CIT(A), it was his submission that the addition in the facts of the present case has wrongly been made and sustained. Inviting attention to the impugned order, it was submitted, that the CIT(A) had carried out his own inquiry into the issues and has incorrectly upheld the order of the AO. Accordingly, it was his prayer that the addition may be deleted.
The ld. Sr.DR Mr. Kiran Deshpande appearing on behalf of the Revenue heavily relied upon the assessment order and the CIT(A)’s order.
I have heard the submissions and perused the material on record. In the facts of the present case, it is seen that the assessee is engaged in the business of manufacturing and trading of RCC pipes and allied products and has shown its income from sale of RCC pipes, hiring charges of generator set and fabrication work. The assessee's reply dated 22.12.2014 is found extracted from page 2 onwards in the assessment order.
5.1 Considering the said reply, the AO confronted the assessee of the specific details of payments made in cash in contravention of Section 40A(3) in the copy of account of Chandigarh Spun Pipe Pvt. Ltd. The
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following extract from the assessment order page 11 is reproduced hereunder :
Sr.no. Date Cash Amount 1. 09.04.2011 Cash 30,000/- 2. 15.4.2011 cash 30,000/- 3, 22.04.2011 cash 25000/- 4, 25.04.2014 cash 30,000/- 5. 27.04,2011 cash 2,70,000/- 6 02.05,2011 cash 50,000/- 7. 07.05,2014 cash 50,000/- 8. 21.05.2011 cash 93,000/- 9. 22.06.2011 cash 1,00,000/- 10. 03.08.2011 cash 50,000/- 11. 04.08.2011 cash 70,000/- 12. 01.09.2011 cash 50,000/- 13. 30.09,2011 cash 40,000/- 14. 05,10.2011 cash 70,000/- 15 26.10.2011 cash 1,00,000/- 16. 04,11.2011 cash 60,000/- 17. 18.11.2011 cash 60.WO/- 18. 01.12.2011 cash 64,000/- 19. 04.01,2012 cash 25,000/- 20.. 12.01.2012 cash 1,60,000/- 21. 01.02.2012 Cash 1,50,000/- 22. 14.02.2012 cash 4,50,000/- 23. 02.03.2012 cash 2,00,000/- 24. 07.03.2012 cash 2,00,000/- 25. 26.03.2012 Cash 50,000/- Total Rs. 24,77,000/-
5.2 This fact was confronted to the assessee and, though the assessee was represented through counsel, frequently time was sought on various dates. These specific details are noted in page 11-12 of the assessment order. Finally on 20.03.2015 the reply of the assessee which is extracted in page 12-13 of the assessment order was made available. A perusal of the same shows that the assessee primarily stated that there was some mistake committed by the Accountant and the copy of the assessee's account in the books of M/s Chandigarh Spun Pipe alongwith the affidavit of the Accountant were relied upon. The ld. AR in the course of his arguments has primarily relied upon this reply. A perusal of the assessment order shows that the said reply supported by an affidavit was not accepted in view of the fact that there were discrepancies in the averments of the assessee. The details of the cash payments relatable to Chandigarh Spun Pipe have been extracted from pages 3 to 11 of the assessment order and has been reproduced in the earlier part of this
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order. When the same are read alongwith the explanation of the assessee submitted that there were typing mistakes which arguments have been extracted in pages 9 to 27 of the assessment order, the AO in very speaking terms from pages 27 to 36 has demolished the arguments of the assessee on facts. As an illustration, the following chart at pages 31- 32 of the assessment order demonstrates that as per the assessee's original claim on 09.04.2011 by voucher Nos. 9, Rs. 30,000/- was paid and in the corrected version, the amount of Rs. 18,500/- is shown to have been paid by voucher No. 9 on 29.04.2011 and an amount of Rs. 11,500/- is shown to be for Voucher No. 10 paid on 11.042011. The relevant extract from the assessment order is reproduced hereunder :
Amount paid in contravention of section 40 A(3) and its Entries with voucher numbers in which vouchers no, in the copy of account submitted on entry has been split-up in the changed the 23.12.2014 of account of Chandigarh Spun Pipe Co. submitted on 20.02.2015 Sr.No. Date Amount Voucher No. Date Amount Voucher No. 09.04.2011 18500/- 9 1 09.04.2011 30000/- 9
11.042011 11500/- 10
2 25.04.2011 30000/- 18 25.04.2011 17,500/- 21 26.04.2011 12,500/- 22 3 30.09.2011 40000/- 63 30.09.2011 16000/- 103 01.10.2011 14000/- 104 03.10.2011 10000 105
5.3 This is just an illustration from the assessment order however, as in the words of the CIT(A), the reasoning of the AO is verbose which has been drawn by him in para 5. On going through the same, I find that in the peculiar facts and circumstances of the present case, the submissions of the ld. AR on facts cannot be accepted. No attempt has been made to demolish the conclusions drawn on facts. The argument that there was mistake by an Accountant remains un-substantiated and infact is shown to be not supported even in the explanation offered by the assessee in the facts of the present case. The explanation de-hors facts does not inspire any confidence what-so-ever. Accordingly, finding myself in agreement with the conclusion drawn by the CIT(A) in para 5 to appeal of the assessee is dismissed. For ready reference, relevant finding
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of the CIT(A) upholding addition made in the assessment order upheld in the present proceedings is reproduced hereunder :
On going through the entire set of facts of the case, the arguments put forth by the Assessing Officer and that of the appellant, I am of the opinion that addition has been correctly made by the Assessing Officer. The appellant produced one set of copy of accounts before the Assessing Officer and on being pointed out the defects which could lead to an addition u/s 40(A)(3) submitted a second set of accounts. The arguments put forth by the Assessing Officer have considerable merits. It would be worthwhile to read through the verbose arguments of the Assessing Officer and hit the crux of the matter and to attempt a summary of Assessing Officer's arguments as below:
(i) When the original and the revised copy of accounts are compared than it is observed that only the daily cash payments above Rs. 20,000/- in the original copy have been split in the revised copy to make sure that daily cash entries come below Rs. 20,000/-. All other entries other than these have not been altered as they do not affect the case of the appellant. (ii) On page Nos. 3 8s 14 of the order, the Assessing Officer has discussed these entries. In the account statements (original and revised), the following entry is written: Date Particulars Vch Vch Debit Credit No. Type Original 09.04.2011 Cr Cash Payment 9 30,000.00
Revised 09.04.2011 Cr Cash Payment 9 18,500.00 Revised 11.04.2011 Cr Cash Payment 10 11,500.00
It is seen from the above entry that it is not a simple case of mistake by an accountant. It is not that the accountant has simply consolidated the entries as explained by the appellant. The dates, and the voucher number have been altered. Earlier the amount of Rs. 30,000/- was shown to have been paid on 09.04.2011 vide voucher No. 9 in the original account statement. But now the amount is shown to have been paid on two dates i.e. 09.04.2011 and U.04.2011 vide voucher Nos. 9 and 11. In the next entry in the original statement is as under:- Date Particulars Vch Vch Debit Credit Type No. 12.04.2011 | Cr Cash Payment 11 20,000.00 But in the revised statement, the same entry has become-
Date Particulars Vch Vch Debit Credit Type No. 12.04.2011 Cr Cash Payment 12 20,000.00 The voucher number has been changed from 11 to 12. It would be worthwhile to examine another entry to illustrate the fact that it is not a simple case of consolidation of entries by mistake. It is rather a case of splitting of entries which has been willfully done to avoid the provisions of section 40A(3) of the Act. The original entry on 27.04.2011 is cash payment of Rs. 2,70,000/- and on 02.05.2011 & 07.05.2011 are cash payments of Rs. 50.000/-. In the revised account statement entry corresponding to 27.04.2011 has been split into 15 entries of denominations smaller than Rs. 20,000/- from 27.04.2011 to 13.05.2011 i.e. over a span of 17 days. But in between these were two more so called "consolidated" entries of Rs. 50,000/- each on 02.05.2011 and 07.05.2011 which have been split and moved to 14.05.2011 to17.05.2011 and 18.05.2011 to 20.05.2011 respectively. This argument of the appellant
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that the accountant consolidated these entries cannot be believed. If any prudent man would add up smaller figures to make a consolidated figure of Rs. 2,70,QOO/- then the next consolidated entry should appeared after the last unconsolidated entry which was part of the first consolidated entry. For example, if unconsolidated entries are in the order Rsl, Rs 2, Rs 3 and Rs 4 and they are consolidated into two groups then consolidated entries would appear as Rs 3 (1+2) Rs 7 {3+4) in that order. While consolidating the order of entry would not be disturbed. In this case it is not consolidation but splitting. The account statements would clearly illustrate this. Original Entry Revised Entry Cumulat ive Entry 27.04.2011 Cash Payment 19 Rs 2,70,000 12.04.2011 - Rs. 19,000 1 Rs. 19,000 28.04.2011 - Rs. 17,000 2 Rs. 36,000 29.04.2011 - Rs. 18,500 3 Rs. 54,500 30.04.2011 - Rs, 17,500 4 Rs. 72,000 32.05.20 1 1 Cash Payment 21 Rs. 50,000 02.05,2011 - Rs. 16,500 5 Rs. 88,500 03,05.2011 - Rs. 19,000 6 Rs, 1,07,500 04.05.2011 - Rs, 17,000 7 Rs. 1,24,500 05.05.2011 - Rs. 17,500 8 Rs. 1,42,000 06.05.2011 - Rs. 18,500 9 Rs. 1,60,500 37.05.2011 Cash Pavment 27 Rs. 50,000 07.05.2011 - Rs, 18,500 10 Rs. 1,79,500 09.05.2011 Rs. 16,500 11 Rs. 1,95,500 10.05.2011 Rs. 19,500 12 Rs. 2,15,000 11.05.2011 - Rs. 16,500 13 Rs, 2,31,500 12.05,2011 Rs. 19,500 14 Rs. 2,51,000 13.05.2011 - Rs. 19,000 15 Rs. 2,70,000 14.05.2011 - Rs. 14,500 16 Rs. 14,500 16.05,2011 - Rs. 19,500 17 Rs. 34,000 17.05,2011 - Rs. 16,000 18 Rs. 50,000 18.05,201 1 . Rs. 18,000 19 Rs. 18,000 19.05.2011 - Rs, 17,000 20 Rs. 35,000 20.05,2011 Rs. 15,000 21 Rs. 50,000 The entry of Rs. 2,70,000/- had to be split in to 15 entries all below Rs. 20,000/- spread over a period of 15 days and last entry is on 13.05.2011 as a result the amounts which added up to 50000/- moved to 14.05.2011 and 18.05.2011 from their earlier date of 02.05.2011 and 07.05.2011. It is also not normal for an accountant consolidate entries to make an odd figure of Rs. 2,70,000/-. This conclusion is highly improbable and does not appeal to a logical mind. It is easier to pay cash of Rs. 2,70,000/- on one day then to pay denominations varying from Rs. 16,500/- to Rs, 19,500/- on 15 consecutive days to the same party. (iii) The Assessing Officer on page 32 of the order has made an observation that voucher numbers were not mentioned on the vouchers, while they were there in the account copies. The appellant has claimed that the Tally Account Software itself generates the voucher numbers. This part of the plea of appellant is correct. In Tally the primary document is the voucher in which voucher number is auto generated and once the voucher is filled, the ledger accounts gets automatically updated. It is not the other way- round. In the case of the appellant, manual vouchers have been made and then ledger account has been generated, which is not a normal procedure of maintaining account in Tally software. The website of Tally Solutions, www.tallvsolutions.com/ products /tallyerpa/functions features - accounting (accessed on 12.09,2016}, makes the following description of their product on its home page,"with the entry of a voucher all books of accounts, all reports, all totals and sub totals are updated instantly. There is nothing more that needs to be done -whether you are inserting a forgotten entry or correcting one." iv) The Assessing Officer rejected the affidavit of the accountant on pages 33-35 of the assessment order. The accountant had asserted that original copy
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of account submitted before the Assessing Officer were consolidated figures instead of actual book entries. But discussion above clearly shows that it was not a mere consolidation of entries but there is change in voucher numbers & dates. The Assessing Officer has argued that the affidavit is an after thought. (v) The delay in making reply after confronting the issue to the appellant's Counsel. The Assessing Officer on pages 30 & 31 has drawn a table bringing out the number of opportunities given to the appellant and drawn a conclusion that the appellant took two months, and took 9 dates and various adjournments to arrive at a revised copy of account. If the revised entries were available to the appellant it could have been produced on the very first or at best second hearing. 5.1 The appellant arguments do not carry weight in view of the detailed discussion of facts brought about by the Assessing Officer. The plea of the appellant is rejected and addition made on this account by the Assessing Officer is therefore upheld. Ground of appeal taken by the appellant is dismissed.” 6. Considering the facts, submissions and record, I find no good reason to vary the conclusion drawn. Accordingly, the appeal of the assessee is dismissed.
Order pronounced in the Open Court on 27.03. 2018.
Sd/- (DIVA SINGH) JUDICIAL MEMBER Dated : 27.03.2018 Poonam Copy to: The Appellant The Respondent The CIT The CIT(A) The DR
Asstt. Registrar ITAT Chandigarh