TaxTMI 
TaxTMI 
2019 (1) TMI 397
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....response to notice u/s. 153A. The assessment was completed u/s 143 (3)/153 A vide order dated 22.07.2011 determining the total income at Rs. 3,15,20,512/-. The assessment order was set aside by the CIT (Central), Kanpur u/s 263 of the IT Act vide order of 28.3.2014. Accordingly fresh notice u/s 143 (2) was issued. On the basis of various details 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 Rs. 3,51,82,390/- wherein the Assessing Officer apart from other additions made addition of Rs. 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 whic....
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....the case, Ld. CIT(A)-IV, Kanpur erred in confirming the addition u/s 40 A (3) of the Income Tax Act 1961 ('the act') without appreciating that disallowance cannot be made under section 40A (3) of the expenses recorded in the material seized during the course of search and seizure 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 Rs. 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. Afte....
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....ses and disallowances are as under:- 2006-07 2007-08 2008-09 2009-10 Total Cash Expenditure in excess of Rs. 20,000 2,72,63,485 2,51,04,985 2,88,10,156 2,02,09,000 10,13,87,626 Initial Addition u/s 40A(3) by the Ld. AO (20% for AY 2006-07 & 2007-08 and 100% for AY 2008-09 2009-10) 54,52,697 50,20,997 2,88,10,156 2,02,09,000 5,94,92,850 Relief by AO u/s 154 of Rule 6DD(b) 1,33,34,160 Othetr Relief by the LD. AO 20,93,067 12,40,143 1,07,26,664 37,64,991 1,78,24,865 /Balance Disputed Cash expenditure in excess of Rs. 20,000 2,51,70,418 1,05,30,682 1,80,83,492 1,64,44,009 7,02,28,601 Final Addition u/s 40A(3) (20% for A Y 2006-07 & 2007-08 and 00% for AY 2008-09 2009-10) 50,34,084 21,06,136 1,80,83,492 1,64,44,009 4,16,67,721 Expenses covered under Rule 6DD(j) (Payment on National /Bank Holidays) (Payments made on public holiday was duly verified by the Ld. AO vide Remand Report dated 24.01.2013 available at page 26 & 27 of PB) 39,12,033 : 1,26,24,000 84,60,000 2,49,96,033 Expenses covered under Rule 6DD(k) (Payment to Surya Marbles i.e. agent of the....
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....s, therefore, payments were made to the suppliers on holidays for procurement of the materials. Therefore, in view of the availability of cash majorly on holidays, the assessee was bound to make cash payments of pending dues of the suppliers on the holidays itself. 12. He further submitted that the assessee did not make any payment whether on holidays or working days through account payee cheques / demand drafts as the assessee made the payments out of unaccounted "on money". Therefore, the question of making the payment by crossed account payee cheques/ bank drafts does not arise. He accordingly submitted that the payments made on national/ bank holidays are covered by rule 6DD(J) of the IT Act and therefore the provision of section 40A(3) is not applicable to such payments. 13. So far as the second category of payments are concerned he submitted that these relate to payment to one party namely M/s. Surya Marbles i.e. agent of the assessee. He submitted that provisions of section 40A(3) are not applicable in view of Rule 6DD(K) which provides that where the payment is made by any person to his agent who is required to make the payment in cash for goods and services on behalf of ....
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....arch and seizure operation. He submitted that these payments could not be made otherwise than in cash as the income and expenses both were not recorded in regular books of accounts but these were recorded in materials seized during the course of search proceedings. Referring to the decision of Hon'ble Supreme Court in the case of Revenue Presidential Poll AIR 1975 1682, he submitted that the Hon'ble Supreme Court in the said decision has held that there is no obligation to do impossible things. The law does not compel one to do that which one cannot possibly perform. Further, the payments of cash expenses of Rs. 20,000 were made from "on money". Relying on various decisions he submitted that provision of section 40A(3) are not applicable if the payments are unaccounted and not recorded in the regular books of accounts. The Ld. Counsel for the assessee also relied upon the following decisions :- 1. Western India Bakers (P) Ltd. Vs. Dy. CIT (2004) 84 TTJ (Mumbai) 223 (2003) 87 ITD 607 (Mumbai) 2. Asstt. CIT Vs. Dr. Mohan Lal Swarnkar 92005) 95 TTJ (Jp) 969 3. Janta Tiles Vs. Asstt. CIT (2000) 66 TTJ (Pune) 695 4. Smt. Bommana Swarna Rekha Vs. Asstt. CIT (2005) 94 TTJ (Visakh)....
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....holidays. However, it is the case of the revenue that there was no compulsion on the part of the assessee to make such payments on bank holidays. It is the submission of the Ld. Counsel for the assessee that assessee being a developer of commercial/ residential projects is bound to complete the work in a time bound manner and construction activities are carried out continuously even during holidays. Therefore, when the assessee receives cash from the customers during holidays and purchases materials on the same day or makes the payments to the suppliers the same should not be disallowed under section 40A(3) of the IT Act. We find some force in the above arguments advanced by the Ld. Counsel for the assessee. There is no dispute to the fact that the above amounts were paid in cash in excess of Rs. 20,000/- on bank holidays/ national holidays. Although there is no compulsion on the part of the assessee, however, it is an admitted fact that the construction activities of the assessee were carried on during holidays also. Therefore, we 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....
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....ble to the payments made in excess of Rs. 20,000/- on bank holidays which are as under :- 1. 2007-08 Rs.39,12,033/- 2. 2008-09 Rs.1,26,24000/- 3. 2009-10 Rs.84,60,000/- We, therefore, 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. 22. Now, coming to the second category of payments i.e. the 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. Further Surya Marbles vide confirmations dated 19.02.2013 have certified that they were appointed as 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 th....