TMI Blog1984 (7) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the ITO are as under : The original assessment was finalised on 6-12-1979 on a total income of Rs. 1,16,096. This total income included an addition made of Rs. 79,753 on account of bogus purchases from Jitender Kumar Vinod Kumar of Delhi after holding that the assessee had not made any purchases from this party and it was the unaccounted stock of the assessee which was introduced as purchases in the name of the party. Against this order of the ITO, the Commissioner (Appeals) confirmed the addition made by the ITO. The assessee preferred appeal to the Tribunal, who, vide their order dated 12-9-1980, considered various facts and set aside the assessment and restored the same to the file of the ITO to consider the additional evidence and to pass a fresh order providing the assessee an opportunity in the matter before reframing the assessment. The directions of the Tribunal also contained that the ITO should look into the point raised by the assessee, that the stock against the purchases made from the Delhi party are duly reflected in the trading account as well as the stock register of the assessee and the effect of such availability of stock with the assessee. The present asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee-firm and his address is not known to the firm. The ITO, however, noted that Shri Joshi appeared before the ITO and made a statement before the ADI, Jaipur, on 11-2-1976. The statement as recorded by the ADI, reproduced by the ITO in his order, is as under : " I was in the employment of the above two concerns at Ajmer for about three years. The last pay drawn by me was Rs. 365 plus free boarding and lodging. I was relieved from the service by both these concerns on 30th December, 1975. My duties were that of general type. I was not dealing with account of either of these two concerns. The immediate cause of my being relieved from service was the resentment that I showed against the illegal act in which Madhoram Bhagwandas had involved me. The facts concerning this illegal act were as under : (i) Madhoram Bhagwandas has accumulated certain unaccounted stocks of iron and steel. These unaccounted stocks were put through by them in the books of account near about in January 1975 at a value of about Rs. 80,000. The corresponding credit for the sum of Rs. 80,000 was given to Jitender Kumar Vinod Kumar of Delhi. The credit so given to the account of Jitender Kumar Vinod Kumar of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll these ingots were sold to Bansiwala Iron Steel Rolling Mills, but in the sale memos it was seldom that ingots were shown as sold. Generally, the material shown as sold was re-rolling material. This was to avoid excise duty of Rs. 130 per ton on the sale of ingots to an iron and steel rolling mills. That way Madhoram Bhagwandas must have avoided excise duty of about Rs. 70,000 to Rs. 80,000 during my stay. " Shri Joshi was cross-examined by the assessee's counsel on 29-4-1981 and Shri Joshi reiterated that there exists no firm by the name of Jitender Kumar Vinod Kumar and that the purchases shown in its name were bogus. Shri Joshi further emphatically stated that the payments in the name of Jitender Kumar Vinod Kumar were bogus and that he was made to sign on the blank cheques, Shri Joshi further emphasised that according to him the purchases stocks was lying with the assessee which was unaccounted and the same was introduced as purchases from this party. Shri Joshi also deposed and admitted that he had opened the account with the New Bank of India signing as Gopinath and this was done at the instance of the assessee. 3.3 The ITO further observed that the party which is sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 144B of the Act, the AAC gave direction placing reliance on the ITO's finding such as non-existence of the party, non-existence of the transporter and came to the conclusion that the entire purchases were all fake and, therefore, found the addition of Rs. 79,753 as income from undisclosed sources. He similarly hold that the purchases of Rs. 79,753 was made by making cash payments from unaccounted funds and the same is, therefore, disallowable under section 40A(3). 3.6 The objection was raised in regard to the addition made under section 40A(3). The objection that was raised was that section 40A(3) would come into play only when there is income from profits and gains of business. The AAC, however, relied on a Board's circular, wherein it was held that even the income is assessable under section 57 of the Act, items that are deductible under section 58(2) of the Act and payments under section 40A would also be covered. Accordingly, two additions were made by the ITO, one on account of treating the purchases as fake and another for contravention of section 40A(3) and the additions made were of the like amount of Rs. 79,753 each. 3.7 Aggrieved by this finding of the ITO, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced reliance on the statement of Shri Joshi as well as Shri S.K. Mittal, the special assistant of New Bank of India. Since he had observed earlier that the payments must have been made in cash near about the time of purchase, he applied provisions of section 40A(3). 4. Before us, the learned departmental representative, Shri Ruhela, laid emphasis on the dates of purchases as well as the dates of payments alleged to have been made. Shri Ruhela drew our attention to this fact that out of total payment of Rs. 79,753, Rs. 1,252.78 only was made by cash on 28-6-1975, i.e., almost, four months after the date of last purchase as shown by the assessee. Shri Ruhela was of the view that the date of 28-6-1975 is very important and in fact it seems that all the purchases were made on or around June 1975, though it has been shown as purchases made in January and February 1975. Shri Ruhela, therefore, argues that it is a clear case that section 69A of the Act would apply to this kind of situation and that he had established that the purchases had been made during the period ending March 1976 and, therefore, the ITO's action of treating the same as income from undisclosed sources for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing but presumption. The facts, as are in record of the department, show that out of total of Rs. 79,753, only Rs. 1,253 were made by cash on 28-6-1975 and the balances were all payments by cheque which were made in December 1975 only. He, therefore, submitted that the Commissioner (Appeals)'s findings that to the extent of the goods having been found recorded in the books of account in January and February 1975, the provisions of section 69A would apply, is correct which is subject to, of course, the assessee's argument whether the addition could be made at all in that assessment year. 6. Dr. R.C. Vaish, regarding the attraction of section 40A(3), argued thus : (a) the accounting year of the assessee is 30-6-1975 and in this accounting year, only one payment in cash of Rs. 1,253 has been made. All the balance payments have been made by cheque in December 1975 which is not disputed by the department, (b) in order to attract the provisions of section 40A(3), the requirements are : (i) the assessee must have incurred any expenditure and (ii) the payment of such expenditure must have been made by cash. In the instant case, before coming to the conclusion of applying section 40A(3), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 11 months. Thus, it is a clear case of camouflage by the assessee. He added that the important date of 28-6-1975 cannot be overlooked when out of total of Rs. 79,753 payable, only Rs. 1,253 has been paid by cash. The other payments must have also been made by cash on or around that date and, therefore, the only conclusion that could be drawn is that the cash payments have been made by 30-6-1975. 8. We have heard both the parties. We will deal with the departmental appeal first. In this case the question for consideration is, whether the assessee-firm at all made any purchases or has brought into record the unaccounted stock. The entire proceedings in the assessee's case revolve around the statement of Shri Joshi which gets support from the non-production of the party from whom the goods have been purchased as well as the non-existence of the transport company. Shri Joshi's statement of 1-2-1976 reads as under : " Madhoram Bhagwandas had accumulated certain unaccounted stock of iron and steel ; these unaccounted stocks were put through by them in the books of account near about January 1975 at a value of Rs. 80,000. The corresponding credit for the sum of Rs. 80,000 was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the facts as per Shri Joshi's statement, according to which the goods were brought into account in January and February 1975. If the goods had surfaced in January and February 1975, then the only proviso that could be attracted by the assessee is the proviso to section 69A. This is so because (a) in the financial year ending March 1975, the assessee was found to be the owner of the stocks, and (b) the explanation so offered by him was in the opinion of the ITO not satisfactory. 9.1 Section 69C cannot be applied to the assessee's case as for that purpose, the necessary requirement is that the expenditure must have been found to have been incurred and the explanation offered is satisfactory, which is not the case. The assessee, no doubt, as regards these goods, has not established that these were purchases made in the period January and February 1975, and it has also not been able to establish to the satisfaction of the ITO by either producing the party concerned or by producing the transporter company. We are in total agreement with the departmental representative in this connection that the party from whom the purchases had been made, were never known to the assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the case of the revenue that no such purchase was in fact made. We are unable to appreciate the argument of the learned departmental representative that the only cash payment, as shown by the assessee, of 28-6-1975 goes to indicate that all payments in cash must have been made on or around that date. We are unable to accept this contention because there is no such finding by the ITO and which is a precondition for making any disallowance under section 40A(3). Section 40A(3) disallows such expenditure, which has been incurred in the year in which cash exceeding Rs. 2,500. In the instant case, that the payment for the alleged purchases made in January and February 1975 have all been made by cheques in December 1975. This fact is stated by the ITO in his own order. We are, therefore, of the view that the learned Commissioner (Appeals) was wrong in coming to the conclusion that the provisions of section 40A(3) apply to the assessee's case. We are of the view that as we have already observed earlier that an addition under section 40A(3) could be made in respect of that expenditure which has been made in cash and not on the basis of any presumption that cash might have been paid fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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