TMI Blog2011 (8) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... share application money or loans or credits. The assessee did not furnish the full particulars of the parties from whom the amounts were received during the year. The PAN and source of funds advanced to the assessee were not explained. The AO accordingly at pages 4 to 7 of the assessment order has given the names of 118 parties from whom the assessee has received the advance during the year. The total money received during the year is ₹ 7,16,02,224/-. The AO treated the sums so credited as unexplained and added to the income of the assessee u/s 68 of the Act. 2.4 Before the ld. CIT(A), the assessee filed the evidence. The assessee gave the following reasons for accepting the additional evidence. 1.Submission regarding acceptability of additional Evidence The assessee has filed confirmation letters, proof of identity, affidavits, bank statements and other documents as additional evidence in previous hearings. The assessee has made detailed submission in his application for admission of additional evidence. Further to it, we submit that:- a) The main director of company Shri Shankar Khandelwal who was looking day to day affairs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o furnish the confirmation letter of cash creditors advances. In this notice the query was raised in respect of disallowance to be made u/s 40A(3) of Income Tax Act, 1961 and to produce books of accounts. The assessee filed the reply of query and produced books of account before the AO which includes the cash books and bank book, which satisfies the query of the AO. Therefore, all the queries raised by the AO have been replied/complied by the assessee. The Ld. AO never asked the assessee to file confirmation letter of the cash creditors and advances in any notice either issued u/s 142(1) and 143(2) of Income Tax Act. c) In view of the above submission, we submit that the ld AO assessed the income of the assessee without providing the reasonable opportunity. The Assessing Officer is not absolved of the obligation to comply with the fundamental rules of justice, which have come to be known in administrative law as the principles of jurisprudence. Compliance with the audi alteram partem rule of natural justice is an indispensable requirement of a valid assessment order. kindly see, Jagadambika Pratap Narain Singh (Raja) v. CBDT (1975) 100 ITR 698 (SC), Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... booking advance. Considering these facts and also the fact that the furnishing of additional evidence goes to the root of the matter in as far as the actual determination of income of the appellant is concerned and in view of the decisions of the Courts, the additional evidence is allowed to be admitted. 2.6 From pages 5 to 49 of the appellate order, the ld. CIT(A) has mentioned the additional evidence filed before him and have also mentioned the comments of the AO in respect of additional evidence. Before the ld. CIT(A), the assessee relied upon the following case laws:- 1. CIT Vs. Smt. P.K. Noorjahan, 237 ITR 570 (SC) 2. CIT Vs. Bharat Engg. Construction Co.83 ITR 187 (SC) 3. CIT Vs. Orissa Corporation (P) Ltd., 159 ITR 79 (SC) 4. Aravali Trading Co. Vs. ITO, 8 DTR 199 (Raj.) 2.7 The ld. CIT(A) after considering the submissions of the assessee reduced the addition to ₹ 79,52,500/- and balance addition of ₹ 4,95,82,259/- was deleted. It will be useful to reproduce the order of the ld. CIT(A) in reducing the addition to ₹ 79,52,500/-/ 3.3.1 Coming to the merits of the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies at sr. no. 34 shown in the name of Kissans ₹ 54 lakhs, the A.O. has observed that appellant has failed to prove the creditworthiness and genuineness of the parties and accordingly the addition may be sustained. I have also perused the details. It is noticed that the appellant has claimed to have received ₹ 19 lakhs in cash from Sh. Ram Pal Yadav and ₹ 35 lakhs in cash from one Sh. Surja Ram. Regarding source, it was claimed that same was out of sale proceeds of their agricultural land. However, no any documentary evidence in this regard was furnished. No any specific details as to which land was sold and how much amount was stated to be received from contended sale of the land and the reasons and explanation as to how such heavy amount was advanced to the appellant in cash, was not furnished. Accordingly, I agree with the finding of A.O. that amount of ₹ 54 lakhs is unexplained and held to be income of the appellant from undisclosed sources. 3.3.5 Similarly regarding entry at sr. no. 81 namely Sh. Rakesh Kuamr Gupta- ₹ 18,50,000/-, the A.O, in the remand report, has not found the evidences satisfactory and has commented that addition may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) with a request to consider these details and evidences under rule 46A of the I.T. Rules, 1962. There was also pointed out totaling mistake of ₹ 1,40,67,465/- in making such additions. After affording due opportunity to the AO and after obtaining remand report from him on all these points, the learned CIT (A) had acknowledged the totaling mistake of ₹ 1,40,67,465/- straight away and deleted the same. He had also admitted the additional evidences and accepted credits in respect of 114 creditors for ₹ 4,95,82,259/- However, in respect of the following four creditors, he was not willing to accept the same on the plea that these deposits remained un-verifiable: S.No. of AO s Ord. Name of the creditor. Amount. 2 Shri Anil Dhandhia ₹ 6,87,500/- 60 Shri M.S. Choudhary ₹ 15,000/- 34 Kissans ₹ 54,00,000/- 81 Shri R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so for the correctness or genuineness of these deposits is concerned. (iv) Lastly, the deposit of ₹ 18,50,000/- appearing in the name of Shri Rakesh Kumar Gupta, it was reported that on the basis of affidavit alone, such deposit could not be accepted. The AO did not comment on the fact that the creditor under consideration was benamidar of one of the directors of the Co. and both the deposits were received through cheques only duly routed through the cash flow statement only. Further the first deposit of ₹ 9,50,000/- was not a deposit as reported but was a re-payment of the loan taken two days earlier. In remand report, all these facts were not dwelt upon for arriving at such finding. More-over the creditor under consideration had been taken as benamidhar of one of the directors of the Co. Shri Shankarlal Khandelwal and all the investments etc. had owned by him so there was no question at all to make further addition on account of the deposits shown in the name of such benanidhar. From the reading of above remand report of the AO, your honors would appreciate that the remand report as relied upon by the ld. CIT (A) for arriving at such findings was not specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt In view of the above discussion, there is no doubt that the addition of ₹ 79,52,500/- has been rightly confirmed by the ld. CIT(A) . 2.11 The ld. DR also contended that the ld. CIT(A) was not justified in accepting the additional evidence. It was stated by the ld. DR that the ld. CIT(A) has erred in giving the relief of ₹ 4,95,82,259/-. 2.12 We have heard both the parties. First we will take up the issue as to whether the ld. CIT(A) was justified in admitting the additional evidences. As per order sheet entry, it is clear that the assessee filed the return on 2811-09. The AO issued the notice u/s 143(2) and the case was fixed for hearing on 10-02-2009. On 10-02-09, the representative of the assessee appeared and stated that there were no business activities during the assessment year 2008-09. The AO required the assessee to give the following details. 1. Paid up capital 2. Details of preliminary expenses 3. bank statement 4. to produce cash book, ledger and other documents The AO vide order sheet entry dated 20-02-09 mentioned that the sum of ₹ 5.00 lacs be not added as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the addition. We are reproducing in respect of cash credits at serial no. 1, 59 and 118 as under: 1. Shri Amjad Khan. ₹ 5,00,000/- Copies of confirmation letter, Registration form, PAN Card are at PB (Page 45 to 48). The amount from this party was received as advance against sales of plot and the same refunded back to party. The advance for plot booking is verifiable from registration form submitted by the party. Since by filling the above documents the Identity, creditworthiness and genuineness of transaction proved, hence, all the ingredients of section 68 stand satisfied, therefore, no addition deserves to be made. A.O s Comments: - I have gone through the submission and supporting documents filed by the assessee during appellate proceedings. Assessee has now given evidence regarding receipt of money from party and genuineness of transactions, including bank statement of party. During assessment proceedings assessee has failed to furnish source of fund inspite of number of opportunities given. 59. Maya d/o Hanuman Yadav ₹ 70,000/-. Copy of ledgers are placed at P.B. (Page No. 213-216). Copy of Ledger account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved through cheque no. 523878 and has been deposited in UCO Bank on 19-10-2007. Shri Anil Dhandhia booked the plot by issuing cheque drawn on Bank of Rajasthan Ltd.. Since the transaction did not materialize therefore, the amount was paid back the same to Shri Anil Dhandhia on 30-10-07 through draft drawn on UCO Bank. Thus the evidences which were available with the assessee were sufficient for it to discharge the onus. The address of Shri Anil Dhandhia is available in the form for booking of the plot. We therefore, feel that the assessee has discharged the onus and therefore, there was no case of making addition u/s 68 of the Act. 2.16 The second addition is in respect of Shri M.S. Choudhary amounting to ₹ 15,000/-. The assessee has filed the confirmation of Shri M.S. Choudhary. The amount has been paid as share capital. The amount is only ₹ 15,000/-. Once the confirmation has been filed then the addition could not have been made u/s 68 of the Act without collecting any further evidence. 2.17 A sum of ₹ 54.00 lacs credited in the name of Kissan has been confirmed by the ld. CIT(A). Before the ld. CIT(A), it was submitted by the assessee that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments is duly acknowledged by the payee. It was therefore, submitted that no disallowance is required to be made and for this proposition, the assessee has relied upon the decision of Hon'ble Jurisdictional High Court in the case of Kanti Lal Purshottam Co. Vs. CIT, 155 ITR 519. The AO was not convinced with the reply of the assessee. The AO referred to the decision of Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh etc. Vs. ITO, 191 ITR 667. The AO also mentioned that payments are not covered under Rule 6DD of I.T. Rules. The AO accordingly made the addition of ₹ 5,13,95,252/- u/s 40A(3) of the Act. 3.3 Before the ld. CIT(A), it was submitted that the AO has considered the addition of ₹ 1,52,40,000/- in respect of payment made to Kailash, Tarachand Sangri on 20-10-2007 as against actual payment of ₹ 15.24 lacs. Thus the AO has made excess addition of ₹ 1,37,16,000/-. 3.4 The ld. CIT(A) after considering the submissions of the ld. AR confirmed the addition to the extent of ₹ 3,24,60,562/- u/s 40A(3) of the Act and the findings of the ld. CIT(A) are available at pages 58 to 69 of the appellate order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to Second proviso to Section 40A(3) of the Act. The ld. CIT(A) observed that Second proviso to Section 40A(3) is to be read as a whole. The payment will not be governed u/s 40A(3) of the Act in such cases and under such circumstances as may be prescribed. Hence, consideration of business expediency and other relevant factors have to be considered by the authorities which is required to prescribe the circumstances under which provisions of Section 40A(3) are not applicable. Before the ld. CIT(A), it was submitted that there were no bank facilities in the village of sellers. The ld. CIT(A) has reproduced the relevant portion of the remand report of the AO at pages 62 to 65 of the appellate order, The AO in his remand report has stated that the sellers have made false declaration in their affidavits that they were not having any bank account at the time of entering into the sale transaction with the assessee. These parties have received sale consideration partly in cash and partly by account payee cheque. From the sale deed, it is noticed that the sellers have been given cheques of dated 20-10-07, 19-01-08, 25-03-08 and 10-06-08. The cash has been paid on 31-10-07 in respect of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments for acquiring the stocks in trade attracted these provisions and confirmed addition of ₹ 3,42,60,252/- on account of such violation u/s 40A(3) of the Act. (Kindly refer to page no. 69 of the appeal order). The honorable CIT (A) had summarily turned down our other arguments as listed at S.NO. 27 to 28. In the written submissions citing therein number of judicial citations on the point (PB 28 to 31) and also the interpretation of the observations of honorable Supreme Court in the case of Attar Singh Gurumukh Singh etc. vs. ITO (1991) 191 ITR 667 (SC). It appeared that the learned Authorities Below did not appreciate the decision of the honorable Supreme Court in right perspective. The said judgment has been elaborately dealt with and interpreted by honorable High Court of Allahabad in the case of CIT vs Chaudhary Co. While interpreting the above judgment of honorable Supreme Court, the honorable High Court of Allahabad (1995) 129 CTR (All) 101 opined Business expenditure-Disallowance u/s 40A (3)- Assessee produced evidence that the payee insisted on cash payment- identity of payee was disclosed and genuineness of payment also established- Disallowance u/s 40 A (3) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere that initially, the appellant made payment for purchase of the said with the intention of making an investment only. However, subsequently when it was found economically viable to convert such investment as business stock, the said plot was put as stock in trade. Such intention of the appellant is evident from the fact that the plot under consideration was not sold during the year under consideration. This fact was brought to the notice of the Authorities Below to show his real intention of making investment in the said plot. However they were not willing to consider this fact and rubbished the same without any reason or without bringing any material on record to rebut such claim of the appellant. (ii) On going through the relevant provisions of the Act, it would be noted that the words such expenditure shall not be allowed as a deduction are of relevance. In the instant case, the appellant had not claimed the impugned payments as deduction. Therefore no addition can be made against such cash payment. (iii) Again it was also relevant to see as to when these provisions would be attracted i.e. in the year when the investment was made or in the year wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business Expenditure- Disallowance u/s 40A(3)- Exceptional or unavoidable circumstances- circumstances in which the conditions laid down in Rule 6DD(j) could be applicable can not be spelt out and the circumstances provided in CBDT circular are not exhaustive but illustrative- As per circular No. 220 dated 31.05-77 clearly states that Rule 6DD(j) has to be liberally construed, and ordinarily where the genuineness of the transaction and the identity of the payee is established, the requirement of Rule 6DD(j) must be deemed to has been satisfied- Genuineness of the transactions and the identity of the payee is not disputed In the present case also, your honors would appreciate that identity of the payee is proved, the genuineness of the transaction is duly documented by the sale deed instruments and the amount of the transaction is also certified by the Stamp Registration Authorities by way of DLC rates etc. Thus all the three ingredients of the genuineness correctness of the transaction and also the identity of the payee is established in the present case. In the circumstances, provisions of section 40A (3) are not attracted in the present case and addition made on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of registration, the balance amount of the sale consideration was paid through account payee cheques only. This fact is evident from these instruments itself, copy of which are submitted herewith for your kind perusal and record. For ready reference the relevant extract from such instruments indicating this fact is reproduced hereunder: The copy of the affidavits and Certificate from Sarpanch to this effect along-with the relevant sale deeds were submitted before the ld. CIT (A) in support of our above contentions. However, the learned CIT (A) did not take note of these facts and confirmed the additions in respect of the cash payments made at the time of agreements to sale, ignoring our above contentions. Obviously the addition so confirmed is contrary to the spirit of these provisions. 3.8 Before us, the ld. DR has also filed the written submission. The written submissions in brief are as under:- 1. The decision of The Hon'ble Allahabad High Court in the case of CIT Vs. Choudhary Co. 129 CTR 101 is not applicable as that decision is based on Rule 6DD(j). Rule 6DD(j) stand omitted and the reliance on this decision by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 15,24,000/- ₹ 3,39,21,000 It has been stated before the lower authorities that such payments have been made in the village and the village was not served by any bank as per the certificate of the Sarpanch. Rule 6DD(g) is as under:- Where payment is made in village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town. 3.10 The copies of the sale deeds clearly show that the sellers are resident of the village Chakwad. If the circumstances mentioned in Rule 6DD(g) are satisfied then the provisions of Section 40A(3) will not be applicable. Rule 6DD(g) never specifies that a person who is resident of a village and where banking facilities are not available then the amounts received by him will be governed u/s 40A(3) of the Act, in case he is having the bank account at that relevant time. One has to consider the conditions and circumstances as mentioned in the rule and in case any condition is not mentioned then it will not be applied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel of the assessee has made statement at Bar that there is no bank branch in village Ballupura at the time of purchase of the land from various sellers. It was also submitted by ld. A/R that normally the villagers paid in cash at the time of entering into agreement and sale deed is completed at a later stage wherein they have agreed to receive the amount from the assessee either in cash or cheque as the case may be. This contention of the ld. Counsel of the assessee remained uncontroverted, therefore, we see no reason to interfere with the finding of ld. CIT (A) and held that ld. CIT (A) was right in deleting the disallowance made by AO under section 40A(3). 19. Similar view has been expressed by the Tribunal in case of PACL India Ltd., 38 DTR 1 (JP) also wherein it has been held as under :- Clause (h) of r. 6DD takes out of the purview of s. 40A(3) such cash payment which is made in a village or town which is not served by any bank to any person who ordinarily resides or is carrying on any business in such village or town. There is no dispute that the sellers of the land are villagers engaged in farming activities and are residing at places and are carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity at such town. It would be too much to expect that the appellant company would be able to compel the villagers to open bank accounts at the town which ultimately they will not be able to operate as they do not reside at such town. If such a myopic view is taken regarding the interpretation of r. 6DD(h), the very object of the legislature would be frustrated. There is no dispute regarding the identity of the payees and the genuineness of the land transactions in respect of which payments have been made. It is notable that r. 6DD(k) provides an exception in respect of cash payment which is made on a day on which the banks were closed. This proves that the object of the legislature is to provide exception in respect of such payment which is required to be made in cash or absence of banking facilities. Rule 6DD(h) must be interpreted keeping in view this object and purpose. Therefore, the cash payments re covered under section proviso to s. 40A(3) and r. 6DD(h). The AO is directed to delete the addition of ₹ 1,60,69,350/- sustained by the CIT (A). While holding so, the Tribunal has taken into consideration cases of M/s. P. Pravin Co., 274 ITR 534 (Guj.), Hasan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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