TMI Blog1997 (6) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, cash payments exceeded Rs.2500 were made and the assessee came within the benevolence of Rule 6DD(i) and the Board's Circular No. 220 dated 31st May, 1997. The Assessing Officer added the said sum of Rs.1,22,077. The addition of Rs.10,000 was made by the Assessing Officer because from out of total labour payments of Rs.2,04,078 most of the payments were not verifiable with supporting vouchers. He, therefore, made an addition of Rs.10,000. The assessee was unsuccessful before the A/C who confirmed both additions. 2. The assessee has filed written submissions have been placed on record along with some connected papers and copies of the Judgments of various Courts rendered on the addition under section 40A(3) of the Act. 3. We have given due consideration to the written submissions in respect of both the grievances and the various case laws, citations of which are given therein. We have also heard the DR who relied upon the orders of both the lower authorities. 4. We shall deal with the second grievance first. Admittedly the Assessing Officer has not doubted the genuiness of the payments made to M/s. STP Ltd. which is assessed to income-tax as is evident from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .75,000 in labour payment account as against Rs.10,000 made by the Assessing Officer and confirmed by the A/C. 6. In the result, the appeal is partly allowed. ITA No. 348 (Pat.)/1992 A.Y. 1990-91 I have read carefully the order proposed by my ld. brother. I agree with his decision regarding upholding of an addition of Rs.7,500 as against Rs.10,000 upheld by the CIT(A) in Labour Payment Account. However, with respect, I am unable to come to the same conclusion as my learned brother with regard to a disallowance of Rs.1,22,077 made by the Assessing Officer under section 40A(3) of the Act, and upheld by the CIT(A). 2. In para 4 of the proposed order my ld. Brother has given weight to the assessee's contention on the ground that the Assessing Officer has not doubted the genuineness of the payments made to M/s. STP Limited. However, the ld. counsel for the assessee, in his second written submissions before the Tribunal, has referred to the decision of the Supreme Court in case of Attar Singh Gurmukh Singh v.ITO [1991] 191 ITR 667 and has given an extract also where it has been observed by the Hon'ble Supreme Court that "genuine and bona fide transactions are not taken out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------- DN/CB/90/0077 8-12-1989 10,982.60 DN/CB/90/0086 3-1-1990 17,35.92 DN/CB/90/0087 4-1-1990 23,124.96 DN/CB/90/0104 28-2-1990 12,245.05 DN/CB/90/0120 16-3-1990 16,941.71 DN/CB/90/0131 31-3-1990 41,647.18 ---------------- 1,22,077.42" ---------------------------------------------------------------------------- 6. The assessee was asked to explain the reasons for making the above payments other than by crossed cheque or crossed demand draft and a written reply was given by the assessee, giving a copy of letter from M/s. STP Ltd. to the assessee regarding supply of material. The following extract has been reproduced in the assessment order: "Further to our discussion in connection with the above is to inform you that our terms of payment is full value of the material in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iday; or (d) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from the particular seller; or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (f) specific discount is given by the seller for payment to be made by way of cash. (g) It can be said that it would, generally, satisfy the requirements of rule 6DD(1), if a letter to the above effect is produced in respect of each transaction falling within the categories fisted above from the seller giving full particulars of his address, sales tax numbers/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j)." 11. A copy of the Certificate dated 25-7-1991 has also been placed in the paper book, according to which, M/s. STP Ltd. did not have a bank account at Dhanbad. The CIT(A) has mentioned that a certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EMBER ORDER This is an appeal by the assessee for the assessment year 1990-91. The assessee is a registered firm situated at Dhanbad. The assessment year is 1990-91, for which the previous year ended by 31-3-1990. The assessee derives income from contract work. 2. The total contractual receipts obtained by the assessee-company in the accounting year in question were Rs.8,03,373. The income shown from out of those receipts was Rs.1,05,671 which works out to more than 13 per cent. M/s. STP Ltd. is a public limited company having its headquarters at Calcutta and its Branch at Dhanbad. Admittedly, the assessee purchased material from the Branch Office of M/s. STP Ltd. at Dhanbad for the purpose of using the said material in its construction work. It made cash payments of more than Rs.10,000 each time on the following dates and under the following bills obtained from M/s. STP Ltd.: ---------------------------------------------------------------------------- Bill No. Date of cash payment Amount Rs. ---------------------------------------------------------------------------- DN/CB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions regarding terms of payment are totally wrong. Since the payment had been made in cash each time exceeding Rs.10,000, the case called for disallowance under section 40A(3) and hence he added a sum of Rs.1,22,077 to the total income of the assessee. Thus, as against the returned income of Rs.50,230, he completed the assessment on an income of Rs.1,50,168 after deduction of firm's tax. 3. Inter alia aggrieved by the addition of Rs.1,22,077, the assessee went in appeal before the CIT(A) but to no avail. The learned CIT(A), by his impugned order dated 22-1-1992, dismissed the appeal saying that the ITO proved beyond doubt that M/s. STP Ltd. was ready to receive the payments through demand drafts. 4. Against the CIT(A)'s order, the assessee went in second appeal before the Tribunal. The learned Judicial Member deleted the addition in his proposed order for the reasons stated below. Admittedly, the Assessing Officer has not doubted the genuineness of the payments made to M/s. STP Ltd. which is assessed to income-tax. He followed the Gujarat High Court decision in Hasanand Pinjomal's case and held that section 40A(3) was intended to serve the objective of checking tax eva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itting such evidence. The above conditions are not satisfied and the additional evidence is not admissible, and if it is excluded, there is nothing on record to show that M/s. STP Ltd. is an income-tax assessee. The ld. Accountant Member stated that facts are to be thrashed out and fully discussed before coming to the conclusion whether the assessee is entitled to benevolent provisions of Rule 6DD(1). Afterwards, he had surveyed the reasons given by the Assessing Officer in his assessment order and the reasons given by the CIT(A) in his impugned order. Thereafter, the learned Accountant Member stated that in the grounds before the Tribunal it is stated that M/s. STP Ltd. did not have bank account at Dhanbad so also the assessee and hence the case is covered under Rule 6DD(1). It is stated that on 3-1-1990, which was a holiday on account of Guru Govind Singh's Birthday, and on 31-3-1990 also, no bank draft is issued from the Bank and the sum of Rs.41,647 paid on 31-3-1990 and the sum of Rs.17,136 paid on 3-1-1990 were thus covered under Rule 6DD(1). The learned Accountant Member stated that the Board's Circular No. 220 deals with the case where payment by crossed cheque or crossed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all. Further, the actual purchase price would be known only after the purchases are made and not before hand. Therefore, it is not possible for the assessee to go with a crossed demand draft in its hands towards purchases it is going to make at Dhanbad. As far as the assessee is concerned, it has no bank account either at Dhanbad or at Calcutta where M/s. STP Ltd. has got its registered office. M/s. STP Ltd. is assessed to sales-tax as well as income-tax. The assessee is new to M/s. STP Ltd. inasmuch as it has no running account with M/s. STP Ltd. The certificate of M/s. STP Ltd. dated 25-7-1991, a copy of which is furnished at page 10 of the paper book, is as follows: TO WHOM IT MAY CONCERN "This is to certify that we have received the cash payment against the following bills from M/s. Arun Kumar Shrivastava, Balkrishna Bhawan, Manohartand, Sindri. ---------------------------------------------------------------------------- Our Bill No. Date Amount *D/D. No. Date ---------------------------------------------------------------------------- DHN/CB/90/0077 8-12-1989 10,982.60 MOL/A/2-822359 9-12-1989 DHN/CB/90/0086 3-1-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 instances are the following: 1. The purchaser is new to the seller; 2. The transactions are made at a place where either the purchaser or the seller does not have a bank account; 3. The transactions and payments are made on a bank holiday. The ld. Accountant Member did not controvert the fact that 3-1-1990 or 31-3-1990 were not bank holidays. In fact, 3-1-1990 was a bank holiday due to Guru Govind Singh's Birthday and 31-3-1990 was the yearly closing day of the Bank. On those two days, the sums of Rs.17,136 and Rs.41,647 were purported to have been paid in cash. The ld. Accountant Member stated that they could have been paid on the next day when the bank was working. According to me, this is not at all relevant. The payment was made on the day of transaction. The question would be whether on the day of the transaction, there was justification for cash payment or not. Further, at page 11 of the paper book, the balance-sheet of the assessee-firm was provided only to show that the assessee had no bank account at Dhanbad. If it had any bank account, it would have been certainly disclosed in the said balance-sheet. The very fact that no such account was mentioned in the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions are at a place where either the purchaser or the seller does not have a bank account; or (iii) the transactions and payments are made on a bank holiday; or (iv) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller; or (v) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (vi) specific discount is given by the seller for payment to be made by way of cash. In paragraph 6, it was further observed that the above circumstances were not exhaustive but were illustrative and there could be cases other than those falling within the above categories, which would also meet the requirements of rule 6DD(1). Held, on the facts, that the Tribunal found that the assessee did not have any bank account at the place where the purchases were made. A similar finding was recorded with respect to the seller. One of the conditions of the circular dated May 31, 1977, thus, stood complied with to enable the assessee to claim deduction of the expenditure. Further, the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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