TMI Blog2019 (1) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made in excess of ₹ 20,000/- on bank holidays. Thus set aside the order of the CIT(A) and direct the Assessing Officer to remove the above expenses from the purview of provision of section 40A(3) as these expenses are covered under Rule 6DD(J) of the IT Rules. Payments made to the agent of the assessee M/s. Surya Marbles is concerned, we find from the copy of the agreement dated 01.04.2004 that there is an agreement between the assessee and Surya Marbles wherein Surya Marbles was appointed as agent for the assessee company. CIT(A) rejected the same on the basis of remand report of the AO who had stated that rule 6DD(K) is applicable in exceptional or unavoidable circumstances. Further he had reported that M/s. Surya Marbles was supplier of the assessee company and not an agent. At no point of time either the agreement dated 01.04.2004 or the certificate dated 19.02.2013 are found to be false or untrue. The assessee in the instant case has demonstrated by documentary evidence that M/s. Surya Marbles was the agent of the assessee company. Under these circumstances when the payment was made to the agent of the assessee for the purchases of materials on behalf of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee the Assessing Officer in the order dated 31.03.2015 passed u/s 143 (3)/263/254/153A of the IT Act determined the total income at ₹ 3,51,82,390/- wherein the Assessing Officer apart from other additions made addition of ₹ 54,52,697/- u/s 40A(3) of the I. T. Act, 1961 which is subject matter of appeal before the Tribunal. 3. In appeal Ld. CIT(A) upheld the action of the Assessing Officer by observing as under :- I have carefully considered the written submission filed and finding of the Assessing Officer in the assessment order. The appellant has argued that cash payments made by him should be allowed because his case falls under rule 6J of I. T. rules for all the years and 6J and 6K both for A. Y. 2005-06. During this appeal proceeding, the appellant could not fulfill the necessary ingredients of rule 6J in which use of word required suggest that the appellant has no choice but to make payment on holidays. Moreover, for the applicability of rule 6K, there is also condition precedent that appellant was requisite to have made payment on the given date. The appellant could not prove as to how he was required to make payment on given da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as section 40 A 93) is not applicable on the search cases. 6. That without prejudice to ground No.1, 2 3 on the facts and in the circumstances of the case, Ld. CIT(A)-IV, Kanpur erred in confirming the addition u/s 40A(3) of the Income Tax Act 1961 ( the Act ) of ₹ 19,67,536/- without appreciating that all the cash expenses were incurred as a decision of business expediency thus disallowance cannot be made under section 40A(3). Rule 6DD is not exhaustive but illustrative. 6. The Ld. Counsel for the assessee referring to the decision of Hon ble Supreme Court in the case of Jute Corporation of India Limited Vs. CIT reported in 187 ITR 688 and NTPC Vs. CIT reported in 229 ITR 383 submitted that the above additional grounds being purely legal in nature should be admitted. He submitted that assessee did not take these grounds earlier due to improper legal advice by the counsel of the assessee. 7. After hearing both the sides and considering the fact that the above grounds by the assessee are purely legal in nature and no fresh facts are required to be investigated, therefore, these are admitted for adjudication. 8. The Ld. Counsel for the assessee at the outset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,572 5,39,83,904 9,02,77,377 5,40,35,840 Relief given by CIT (A) Deduction of section 80IB(10) 1,48,25,557 2,08,68,168 1,56,90,832 1,26,50,697 Rule 6DD (b) 26,66,832 1,79,66,600 Relief given by Assessing Officer after order u/s 263 Deduction u/s 80IB (10) 20,93,067 12,40,143 1,07,26,664 37,64,991 Total Relief 1,69,64,374 2,47,75,143 4,43,84,096 1,64,15,688 Revised Taxable Income 1,45,56,198 2,92,08,761 4,58,93,281 3,76,20,152 9. The Ld. Counsel for the assessee submitted that all the expense computed on the basis of seize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65,69,053 52,27,498 74,50,000 2,62,07,020 Balance Expenses (Not covered directly under Rule 6DD) 1,82,09,949 49,596 2,31,994 5,34,009 1,90,25,548 Total disputed Cash expense in excess of ₹ 20,000 2,51,70,418 1,05,30,682 1,80,83,492 1,64,44,009 7,02,28,601 10. Referring to the above table the Ld. Counsel for the assessee submitted that the addition made u/s 40A(3) can be divided under three categories i.e. (a) when the payments were made on bank holidays (b) when the payments were made to agent of the assessee namely M/s. Surya Marbles and (c) other payments. 11. So far as payments made on national holidays and bank holidays are concerned, the Ld. Counsel for the assessee drew the attention of the bench to the submissions made before the CIT(A) on various dates, copies of which are placed at page 13 to 24 of the paper book and submitted that when the same was brought to the notice of the CIT(A), the Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his agent who is required to make the payment in cash for goods and services on behalf of such person. Referring to the submissions filed before the CIT(A) on various dates, copies of which are available at page 13 to 24 of the paper book he submitted that it was submitted before CIT(A) that M/s. Surya Marbles having its office at Ghaziabad was appointed as agent for the procurement of various types of marbles on behalf of the assessee from Makrana and Rajgarh vide MOU dated 01.04.2004. Copy of the said MOU was filed before the CIT(A). He submitted that the reasons for making the payment in cash to Surya (agent) was that most of the suppliers were new. a) One supplier did not have the required quantity. b) the required quality not necessarily available with the old ones c) the rate variations among the suppliers d) Apart from it the material had to be loaded by the agent in his presence on the date of purchase itself avoiding any chance for changing the selected material. Therefore, the agent always used to carry cash with him for further payment to suppliers situated at Markrnana and Rajgarh. 14. He submitted that the Assessing Officer in his remand report dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Vs. Asstt. CIT (2000) 66 TTJ (Pune) 695 4. Smt. Bommana Swarna Rekha Vs. Asstt. CIT (2005) 94 TTJ (Visakh) 885. 5. Kirti Foods limited 60 DTR 96 17. He accordingly submitted that the provision of section 40A(3) are not applicable to the facts of the present case. 18. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the CIT(A). He submitted that the assessee has violated the provisions of section 40A(3) by making cash payments in excess of ₹ 20,000/- otherwise than by account payee cheques or account payee demand drafts. He submitted that the payments made on bank holidays and made to agents are after thought and there was no compulsion on the part of the assessee to make such payments in cash. He submitted that the Assessing Officer in the remand report has clearly brought out the facts that there was no compulsion on part of the assessee for making such payments in violation of provisions of section 40A(3). He accordingly submitted that the order of the Ld. CIT(A) being in accordance with law should be upheld. 19. We have considered the rival arguments made by both the sides and perused the material available on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find merit in the arguments advanced by the Ld. Counsel for the assessee that the assessee had to procure materials on Sundays/ public holidays to avoid any break in the process of construction. It is also an admitted fact that the payments, were made in cash during holidays as well as working days. Therefore, it cannot be said that the assessee has made cash payments only on bank holidays to avoid the provision of section 40A(3) of the I. T. Act. We find, the Tribunal vide order dated 18.02.2015 had restored the matter to the file of the Assessing Officer to find out whether the payments were made on bank holidays or not. The relevant observations of the Tribunal in ITA No.4309to 4313/Del/2013 read as under:- 19. As regard to the first issue raised vide Ground No.1, the ld. AR for the assessee submitted that the payments in excess of ₹ 20,000/- amounting to ₹ 69,60,469/0 in total were made on the dates when banks were closed due to holiday. Therefore, the payment were covered under Rule 6DD (K) of the Income Tax Rules, 1962 (herein after the Rules) and CBDT Circular No. In his rival submission the Ld. CIT DR strongly supported the orders of the authorities bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s agent by M/s. Surya Merchants Limited for supplying marbles vide agreement dated 01.04.2004. They have further certified that they have taken the cash from M/s. Surya Merchants Limited for further payments to the suppliers of Markrnana and Rajgarh. The agreement copy and the certificate were filed before the CIT(A). We find the CIT(A) rejected the same on the basis of remand report of the Assessing Officer who had stated that rule 6DD(K) is applicable in exceptional or unavoidable circumstances. Further he had reported that M/s. Surya Marbles was supplier of the assessee company and not an agent. However at no point of time either the agreement dated 01.04.2004 or the certificate dated 19.02.2013 are found to be false or untrue. The assessee in the instant case has demonstrated by documentary evidence that M/s. Surya Marbles was the agent of the assessee company. Under these circumstances when the payment was made to the agent of the assessee for the purchases of materials on behalf of the assessee, therefore, we are of the considered opinion that the provisions of section 40A(3) are not applicable, in view of Rule 6DD(K) which provides that where the payment is made by any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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