TaxTMI 
TaxTMI 
2017 (12) TMI 1329
X X X X Extracts X X X X
X X X X Extracts X X X X
....of survey. 4. That Ld. Commissioner of Income Tax (Appeals) was not justified in not deleting addition of Rs. 5,27,503/- which was not based on facts & not supported by documentary evidence. 5. That Ld. Commissioner of Income Tax (Appeals) has not looked into facts of the case and has never called for the statement recorded by the assessee which is already with deptt. 6. Ld. Commissioner of Income Tax (Appeals) contention about the valuation of closing stock is not correct & not based as facts as the closing stock is always to be valued at cost and not selling price. 7. Ld. Commissioner of Income Tax is not correct in saying that no objections were raised while framing the valuation of damaged stocks and consumables. 8. Ld. Commissioner of Income Tax (Appeals) has not appreciated the fact that the addition of Rs. 5,27,503/- represents cut pieces of finished goods, damaged stock and consumable stock which have been valued at selling price, but actually don't have any value." 3. At the outset, the Ld. AR submitted that the payments amounting to Rs. 64,726/- were made on 26.04.2008, 12.05.2008 and 14.07.2008 amounting to Rs. 21730/-, 21590/- and Rs. 21406/- respective....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tock as on 31.03.2009 as per the statement at page 39 has been accepted by the Assessing Officer during assessment proceedings. Therefore while finalizing the assessment, the Assessing Officer was bound to take these rates for the purpose of arriving at the difference in stock. The Ld. submitted that similarly the plys of 12mm and 9mm has been valued by the survey team at Rs. 135 per sq. mm. whereas its price as per the stock statement was from Rs. 70 to 95. The Ld. AR further submitted that stock of finished goods placed at P.B. page 25 included damaged and cut pieces which was not saleable and its valuation was not taken into account in the opening stock as well as in the closing stock. Our attention was invited to P.B. 1 and 2 where copy of letter written to Assessing Officer explaining the difference in valuation of stock was placed. In view of the above, it was argued that if the correct calculation based upon purchase prices as per the stock statement as on 31.03.2009 after exclusion of damaged/obsolete stock is made, there will not be any difference in the valuation of stock. 4. The Ld. DR on the other hand heavily placed his reliance on the order of authorities below. 5.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e circumstances. In view of the disturbed conditions due to terrorism no one would like to keep cash with himself and therefore it is prudent on the part of any person to hand over the cash to supplier instead of keeping with himself. The Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO 191 ITR 667 while dealing with the violation of provisions of section 40A(3) has held as under: "In our opinion, there is little merit in this contention. Sec. 40A(3) must not be read in isolation or to the exclusion of r. 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Sec. 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of s. 40A(3) are not absolute. Consid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tes that the proviso seeks to relieve to a certain extent, the measure of hardship which might be imposed upon small businesses and professionals who are engaged in activities and are dependent entirely on timely cash flow. It is in such cases that Rule 6DD - which was formulated as a proviso to Section 40A (3) - steps in to aid such assessees and concerns. In this context, the statutory mandate in Section 6DD (k), at least in the circumstances of the case, has to be so construed as to mean that bur for the cash payment, the assessee would have been deprived the benefit of supplies itself. This Court clarifies that the interpretation of the expression "who is required to make payment in cash" having regard to the circumstances of the case is fact dependent, at least in the present case. The consequence of instances of payment through account payee cheques in small business which are dependent on such supplies would be to completely stifle, if not stop, the business activities. It is in that sense that the expression "required" would have to be construed." In the other case laws relied on by the assessee including the decisions of Amritsar Bench in the case of Sh. Rakesh Kumar Vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atisfy the requirements of Rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/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). 18. It appears that fulfillment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction about the fulfillment of the conditions for allowing the benefit of Rule 6DD(j). Apparently, Section 40A(3)was intended to penalize the tax evader and not the honest transactions and that is why after framing of Rule 6DD (j), the Board stepped in by issuing the aforesaid circular. 19. This clarification,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business." 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 10. In the circumstances, the order of the Tribunal in this regard is set aside. The payments cannot be disallowed under Section 40A(3) of the Act." 9. In view of the above, facts and circumstances and in view of the judicial precedent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e inventory of stock itself placed at P.B. page 25 where the obsolete stocks/damaged stocks falling in the category of 4mm/3mm, 12mm/9mm and 18mm has been mentioned by adding separately on lump sum basis the quantity of 2000 sq. ft., 500 sq. ft., 1000 sq. ft. and 500 sq. ft. under various categories. The assessee had explained these facts vide letter addressed to Assessing Officer placed at P.B. page 1 to 3. The Assessing Officer in his order has noted down these contentions. The Assessing Officer has also noted down the contentions of assessee that there was difference in valuation of stock as the same has to be valued on cost price basis but still he did not verify the claim of assessee and made the additions. In this respect the contentions of assessee as noted by Assessing Officer are quite relevant which for the sake of completeness are reproduced below: "(C). The valuation of ply, board, finished stock for the valuation of finished goods it has been observed that ply cut pieces / damage pieces of 4000 sq.m have been valued at the billing price. The 4000 sq. m damaged ply cannot be valued at the selling price as it does not fatch any amount and is lying for the past 4 to 5 y....