9911796707
TMI Blog1986 (9) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITO made an addition by applying the provisions of s. 40A(3). as against the returned income stated above, the assessment was completed on a total income of Rs. 4,98,800 by his assessment order dt. 25th Nov., 1985. 3. Aggrieved against the assessment order the assessee went in appeal before the CIT(A). The CIT(A) knocked of the disallowance made by the ITO under s. 40A(3) to an extent of Rs. 1,78,466 and confirmed the disallowances with regard to the following five parties totalling to Rs. 2,74,239. Rs. (a) M/s. Krishna & Co. : 2,51,571 (b) M/s. B.S. & Co. : 5,110 (c) M/s. Lakshmi Ganpati : paper and General Stores 3,456 (d) Kesava Agancies, Nellore 8,933 (e) Swastik Coaters : 5,169 2,74, 239 Now we are concerned in this appeal with the correctness, propriety and legality of this allowance amounting to Rs. 2,74,239. 4. We have heared Shri M.J. Swamy, the ld. Advocate for the assessee and Shri N. Jayakar, the ld. Departmental representative. On behalf of the assessee, a paper book containing 40 pages was filed. Now let us take up the purchases namely from M/s. Sri Krishna & Co., Tadepalligudem. As per letter furnished pages 2 of the paper book, inter alia, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dt. 26th July, 1982. Page 11 is the letter dt. 23rd Aug., 1982. Page 13 is the letter dt. 23rd Sept., 1982. Page 15 is the letter dt. 30th Nov., 1982. Page 17 is the letter dt. 7th Feb., 1983. Page 19 is the letter dt. 18th Feb., 1983. Page 21 is the letter dt. 1st March, 1983. Page 23 is the letter dt. 2nd March, 1983. Page 26 is the letter dt. 28th March, 1983. All these letters are either in English or in Telugu. These letters were addressed by the Managing Partner of M/s. Sri Krishan & Co., Tadepalligudem, demanding the assessee to pay the outstanding amount due to them (noted in khata) in cash. The request is to make such of the payments as is possible to the assessee and obtained receipt from the bearer of the letter which is no other then clerk, Shri Veeraghvalu. In each of the letter it was requested that for each of the payment made they may obtain receipt from (Gumasta) Veeraghvalu. In pursuance of the requests made in the above letters the assessee seems to have paid the amounts in cash on the dates mentioned here-under: Sl. No. Date Amount paid The Person from whom the Receipt was obtained 1 2 3 4 1. 17-6-1982 Rs. 20,000.00 Veerabhatuaa Veeraghavalu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was never put to the assessee and his explanation elicited. In these circumstances, Shri M.J. Swami, the ld. Advocate for the assessee urged that the contents of the said letter may not be read against the assessee, as it would be against he principle of natural justice to do so. In respect of this contention, he invited our attention to the commentary of Chaturvedi & Pithisaria's IT Law. Third addition, where it is held as follows. All that is required that if they want to use any material collected by them which is adverse to the assessee, then the assessee must by given a chance to make submissions thereon. The principle of natural justice are violated if an adverse order is made on an assessee on the basis of the material not brought to his notice." Several High Court and Supreme Court decisions were cited in support of the above submissions of law amongst which we can state the two Supreme Court decisions namely, CIT vs. East Coast Commercial Co. Ltd., (1987) 63 ITR 449 (SC) and Kishin Chand Chellaram vs. CIT (1980) 19 CTR (SC) 360 : (1980) 125 ITR 713 at 720 (SC). Therefore, the ld. Advocate for the assessee urged tha both the Lower Authorities has taken into considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, invited our attention to the CBDT Circular clarifying r. 6DD(j) in Circular No. 220, dt. 31st May, 1977. He again invited our attention to r. 4 in the said Circular quoted at page 1515 in Chaturvedi & Pithisaria', Third Edition, the material portion of which read as follows: "All the circumstances in which the conditions laid down in r. 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are; (i) the purchaser is new to the seller;or (ii) The transactions are made at place where either the purchaser or the seller does not have a bank account." He argues that admittedly M/s. Sri Krishna & Co., Tadepalligudem, does not have any Bank Account in Vijayawada. Therefore, firstly, for the reason that the seller insisted for payment of cash as evidenced by several letters brought on record and secondly, as the seller had no Bank Account in Vijayawada, where the cash payments were made, the requirements of r. 6DD(j) were met with and the cash payment cannot be disallowed under the provisions of s. 40A(3) as the said payments were made vide exceptional circumstances. The ld. Departmental representative arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilation. The letter addressed by the M/s. B.S.N. Company, Guntur is provided at page 30 of the paper compilation. At para 4 of the letter it is stated that the sellers refused to accept the payment by way crossed cheque or demand draft and in para 5 it is stated that the sellers require the purchaser to pay in cash and in para 6 of the letter it is stated that the specific discount is given by the seller for payment to be made by way of cash. Para 4 of this letter gives an impression that the seller refused to accept cheques and insisted on cash payment. Neither identity of the party nor the fact of the payment were in dispute. The ITO dismissed the plea of the assessee that the payment in cash was made in exceptional circumstances and it was exempt under r. 6DD(j) on the ground that the assessee did not adduce any evidence except filing a confirmatory letter, whereas, inquiry revealed that the seller is an old customer to the assessee and accept cheque payments also. This clearly indicated that there was no insistence as such from the seller for payment of cash and there are no circumstances to justify the claim to be brought within the exception to s. 40A(3). Hence, the sum Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities as clearly justified and we hold that the payment of 3,456 is made to Shri Lakshmi Ganapathi Paper Agency on its insistence, and, therefore, it comes under one of the exception enumerated in r. 6DD(j) and the disallowance is unwarranted. 7. The next disallowance which falls for our consideration is an amount of Rs.5,160 paid to M/s. Swastic Coaters and an amount of Rs. 8,933 paid to M/s. Kesava Agencies. Both the lower authorities held that no evidence was adduced by the assessee in order to show that these payments come under r. 6DD(j). It is stated that several opportunities were given to the ITO for this purpose. Both these parties, are now parties to the assessee. There is only one single transaction entered into by the assessee with each of these parties. The CBDT whose Circular was already quoted above wanted to explain the circumstances under which r. 6DD(j) provisions can be extended. Firstly, it is stated that all the circumstances cannot be exhausted or cannot be contemplated. However, in para 4 of the said Circular No. 220 dt. 31st May, 1977. It has listed out certain circumstances and one of circumstances was stated to be where the purchaser was new to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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