TMI Blog2017 (8) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention that the A.O had invalidly assumed jurisdiction u/s 147. The Ground of appeal No.1 raised by the assessee before us is dismissed. Disallowance under Sec. 40A(3) of the cash purchase of jewellery - Held that:- unable to persuade ourselves to subscribe to the contentions of the ld. A.R, and being of the considered view that the case of the assessee does not fall within either of the exceptions carved out under Rule 6DD of the Income Tax Rule 1963, therefore, are of the considered view that the CIT(A) had rightly upheld the disallowance under Sec. 40A(3) of the cash purchases of gold jewellery of ₹ 6,06,386/-. A.R had also tried to impress upon us that the disallowance contemplated under Sec. 40A(3) would not extend to the „Purchases‟ made by an assessee in the course of his business. We find that such a view was way back favourably taken by the Hon’ble High Court of Gauhati in the case of CIT Vs. Hardware Exchange (1991 (4) TMI 114 - GAUHATI High Court) wherein it was observed by the Hon‟ble High Court that payments made for purchasing of stock-in-trade cannot be disallowed under Sec. 40A(3). We however find that the said judgment of the Hon‟b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and bad in law. 2. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in upholding the action of the A.O. in adding an amount of ₹ 6,06,386/- as disallowance u/s 40A(3)of the Act. 3. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in upholding the action of the A.O. in adding an amount of ₹ 4,71,965/- as unexplained expenditure u/s 69C of the Act. 4. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in not dealing with ground Nos. 1,2,3,6,7 8 of the grounds of appeal raised before him. The appellant crave leave to add, alter, amend or delete any or all of the grounds of appeal at any time. 2. Briefly stated, the facts of the case are that the assessee who is a proprietor of a concern M/s. Jayantilal M. Jewellers had filed his return of income for A.Y. 2008-09 on 05.12.2008, declaring total income of ₹ 1,51,194/-. The A.O on the basis of information received that the assessee had during the period relevant to A.Y. 2008-09 made cash purchases of gold ornaments aggregating to ₹ 6,06,386/- in contravention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding twenty thousand rupees otherwise than by an account payee cheque. Therefore, I have reason to believe that income more than of the ₹ 1,00,000/- has escaped the assessment within the meaning of section 147 of the I.T Act and accordingly, the case of the assessee is required to be reopened by Issue of notice u/s. 148 of the Act so as to reassess the assessee c correct Income for the A. Y.2008- 09. 3. The A.O during the course of the reassessment proceedings deliberating on the fact that the assessee had made cash purchases of gold ornaments aggregating to ₹ 6,06,386/- from Shri Jagdish L. Nandu, as under:- Date of Purchase Amount Mode of payment 05.04.2007 103152 Cash 18.05.2007 101915 Cash 11.08.2007 122144 Cash 11.09.2007 81709 Cash 22.01.2008 99411 Cash 28.01.2008 98685 Cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71,965/- as the payments made towards purchases made in the course of his aforesaid undisclosed business, and offered for tax 10% of the same, viz. an amount of ₹ 47,000/- as his income arising there from. 5. The A.O after deliberating on the submissions of the assessee, being of the considered view that the same were not supported by any documentary evidence, thus did not find favour with the same. The A.O holding a conviction that the claim of the assessee that the credit card transactions were relatable to his undisclosed business of trading in cloth material was merely an afterthought, therefore, declined to accept the same. The A.O thus, being of the view that not only the assessee had failed to submit any documentary evidence which could go to substantiate his contention that the credit card transactions were relatable to his undisclosed business of trading in cloth material, but rather observing that the said claim of the assessee clearly militated against the facts available on record, therefore, rejected the same, and made an addition of ₹ 4,71,965/- under Sec. 69C in the hands of the assessee. 6. The assessee being aggrieved with the order of the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out certain exceptions in respect of applicability of the provisions of Section 40A(3) did not lay down an exclusive list of the circumstances where the disallowances contemplated under the said statutory provision would not be applicable, but rather, the same was flexible enough to take within its sweep genuine transactions entered into by an assessee in contravention of the aforesaid statutory provision. The ld. A.R. thus on the basis of his aforesaid averment had tried to impress upon us, that now when the genuineness and veracity of the aforesaid purchase transactions of the assessee was not in doubt, therefore, no disallowance under the aforesaid statutory provision, viz. Sec. 40A(3) r.w. Rule 6DD was liable to be made in the hands of the assessee. Per contra, the ld. D.R relied on the orders of the lower authorities, and therein averred that as the assessee had clearly incurred a cash expenditure of ₹ 6,06,386/- towards purchase of gold ornaments from Sh. Jagdish L. Nandu (supra), therefore, the same clearly being in contravention of the mandate of Sec. 40A(3), had thus rightly been disallowed by the A.O and thereafter upheld by the CIT(A). 9. The ld. A.R lastly as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a bonafide belief that the cash purchases made by the assessee in the course of his jewellery business contravened the mandate of Sec. 40A(3), therefore, reopened the case of the assessee. We are of the considered view, that now when the belief arrived at by the A.O is found to be inextricably linked with the material‟ available before him, therefore, no infirmity as regards the validity of assumption of jurisdiction by the A.O does emerge from the record. We find that the A.O in the body of the reasons to believe‟, after making a clear mention of the cash purchases of ₹ 6,06,386/-, alongwith the bifurcated details as regards the same, had thereafter clearly observed that the income of the assessee in excess of ₹ 1 lac had escaped assessment. We thus, in light of our aforesaid observations, are unable to persuade ourselves to subscribe to the contention that the A.O had invalidly assumed jurisdiction u/s 147 of the Act‟. The Ground of appeal No.1 raised by the assessee before us is dismissed. 11. We now take up the disallowance under Sec. 40A(3) of the cash purchase of jewellery of ₹ 6,06,386/-, which we find had been upheld by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(3) is warranted, is a proposition which did hold the ground under the preamended provisions of Sec. 40A(3) r.w Rule 6DD, as the same was specifically taken care of by Rule 6DD(j) as was available on the statute upto A.Y. 1995-96, and read as under:- 6DD. Cases and circumstances in which payment in a sum exceeding ten thousand rupees may be made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft: - No disallowance under subsection ( 3) of section 40A shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely:- . . Assessing Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft- ( 1) due to exceptional or unavoidable circumstances ; or ( 2) because payment in the manner aforesaid was not practicable or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof.and, also furnishes evidence to the satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. 14. We are of the considered view that though the Hon'ble Apex Court had held that the terms of Section 40A(3) are not absolute, but thereafter, it had categorically stated that genuine and bonafide transactions are not taken out of the sweep of the section . We are of the considered view that the observations of the Hon'ble Supreme Court that for invoking section 40A(3), the consideration of business exigencies and other relevant factors are not excluded, and it is open to the assessee to furnish to the satisfaction of the A.O the circumstances under which the payment in the manner prescribed under section 40A(3) was not practicable or would have caused genuine difficulty to the payee, were rendered in context of and in the course of interpreting the scope of the aforesaid pre-amended Rule 6DD(j) as had specifically been referred to and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions were made for purchase of cloth materials from one M/s. Neha Enterprises and Nimesh Collection. But the appellant has not declared the existence of such business during the filing of return and his later submission that these payments pertain to trading in cloth def initely appears to be an af terthought. It is also important to note that the statement of the credi t card entries has been done in cash. During the course of appeal, while the appellant has submitted conf irmation letter from M/s. Neha Enterprises and Nimesh Col lection, however no systemat ic maintenance of books of accounts has been produced. There is no evidence of any sales being made of the cloth that has been allegedly brought from the abovementioned enterprises. The onus of explaining the nature of these transactions and the, source of money deposited into both the accounts from where credit cards ar e be ing operated remains on the appe l lant and in my considered opinion, the appellant has not discharged this onus. T he addi t i o n made o f Rs .4,71,96 5/ - as une xp l ain ed expenditure u/s. 69C of the I.T. Act, 1961 is upheld. That before us the ld. A.R had not been able to substantiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of ₹ 1,53,281/-, which was processed as such u/s. 143(1) of the Act‟. The case of the assessee was thereafter taken up for scrutiny proceeding u/s. 143(2). That during the course of the assessment proceedings the A.O received AIR‟ information that the assessee had made the following payments against credit card bills during the year under consideration:- Name of the Credit Cards Bank Mode of payment Amount of payments ABN AMRO BANK N.V. Credit Card 7,08,800/- DEUTSCHE BANK A.G Credit Card 1 0,89,055/- Total : 18,07,855/- The A.O in the backdrop of the aforesaid information called upon the assessee to furnish details of credit cards held by him, amount of payments made through credit cards, nature of transaction for which payments have been made, sources of payments made to credit card banks with documentary evidences, name and address of the parties to whom payments were made through credit cards and the nature of said transact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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