TaxTMI 
TaxTMI 
2011 (8) TMI 1329
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....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 Rs. 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 company was s....
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....mation 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 of India v. Maxim A L....
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....ese 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 Rs. 79,52,500/- and balance addition of Rs. 4,95,82,259/- was deleted. It will be useful to reproduce the order of the ld. CIT(A) in reducing the addition to Rs. 79,52,500/-/ ''3.3.1 Coming to the merits of the addition, the first argument of the appellant is regarding A.O. taking so....
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....llant 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 Rs. 19 lakhs in cash from Sh. Ram Pal Yadav and Rs. 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 Rs. 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- Rs. 18,50,000/-, the A.O, in the remand report, has not found the evidences satisfactory and has commented that addition may be sustained. I have perused the details. The appellant has only furnished the affidavit without furnishing....
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....s. 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 Rs. 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 Rs. 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 Rs. 6,87,500/- 60 Shri M.S. Choudhary Rs. 15,000/- 34 Kissans Rs. 54,00,000/- 81 Shri Rakesh Kumar Gupta. Rs. 18,50,000/- Total Rs. 79,52,500/- While confirming the above additions, your honors would note that the ld. CIT (A) had not given his own findings in respect of such deposits and also did not assign any reason for rejecting the explanation of the appellant. He had simply referred to the remand report of the AO and concluded that the explanation furnished in respect of such deposits was not found satisfactory by t....
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....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 specific and categorical and did not deal with the points at issue in right perspective. Thus the conclusions so arrived at on the basis of such faulty remand report are bad in law. In the circumstances, the ld. CIT (A) had erroneously confirmed these additions on the basis of such faulty report which deserve to be deleted. ''' 2.10 Before us, the ld. DR has filed the written submissions which are reproduced as under:- ''.....The arguments taken by ld. A.R. against confirmation of these additions are not acceptable because of the following reasons. (i) First ....
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.... 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 Rs. 5.00 lacs be not added as undisclosed income because the assessee has not been able to give the source of the amount credited as share capital. The hearings were adjourned on 24-02-09. However, there is no entry on 24-0209. Fresh notice was issued on 27-10-09 and the assessee was required to file the sources of the funds for subscription of share capital which has been subscribed in cash by Shri Tikam Khandelwal, Smt. Guman Khandelwal and Shri Dilip Kumawat. Thereafter the order sheet entry is dated 28-11-09 and on that date certain details in respect of share application money were filed by the assessee. The case was adjourned to 9th Dec. 09. The assessment has b....
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.... 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 Rs. 70,000/-. Copy of ledgers are placed at P.B. (Page No. 213-216). Copy of Ledger account is placed at P.B. (Page No 215). During the year the assessee not received any amount from this party. The amount credited in a/c of party was on account of land purchased from this party. The purchases deed against purchases of land is at PB Page 466 to 477. Further the corresponding purchases summary is at PB Page 213. A.O's Comments: - I have gone through the submission and supporting documents filed by the assessee during appellate proceedings and the same is acceptable'' ''118. Yogesh Agarwal Rs. 70,000/- Copies of allotment letter, Registration form and PAN Card are placed at P.B. (Page No.401-405). The amount from this party....
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....t of Shri M.S. Choudhary amounting to Rs. 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 Rs. 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 Rs. 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 it has received Rs. 19.00 lacs in cash from Shri Ram Pal Yadav and Rs. 35.00 lacs in cash from Shri Suirja Ram. The assessee filed the affidavits of Shri Ram Pal Yadav and Shri Surja Ram. Shri Ram Pal Yadav has admitted to have given Rs. 19.00 lacs in cash on 7-12-07. He has explained that source of the funds was from the receipt of sale of land. It is not the case of the revenue that the address given in the affidavit is false. Shri Ram Pal Yadav belongs to village Chakwad. This village is having no bank facility and such evidence has been placed before the lower authorities while considering the addition u/s 40A(3) of the Act. Thus the onus stands discharged and therefore, the ld. CIT(A) was not ....
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....to Kailash, Tarachand Sangri on 20-10-2007 as against actual payment of Rs. 15.24 lacs. Thus the AO has made excess addition of Rs. 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 Rs. 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. We are summarizing below the findings of the ld. CIT(A). 1. The assessee claimed that the payments to the extent of Rs. 38,58,252/- were made towards purchase of stamp and registration charges. The ld. CIT(A) noticed that the payments include the payments made to the Advocate as his fees. The payment for stamp duty and registration charges were to the extent of Rs. 34,18,690/- and the ld. CIT(A) has deleted the addition of Rs. 34,18,690/- as against the claim of the assessee made to the extent of Rs. 38,58,252/-.. 2. The AO has wrongly taken the amount at Rs. 1,52,40,000/- as against Rs. 15,24,000/- made to Kailash, Tarachand etc. Hence, the ld. CIT(A) reduced the addition to the extent of Rs. 1,37,16,000/- 3. The ld. CIT(A) observed that the assessee has made the cash payme....
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....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 sale deed by Phulchand, Lalaram, Shanti Devi, Prabhu, vimla and Mota. Similarly, the sale deed with Tarachand showed that cash payment on 20-10-07 and the cheque is also of the same date. The cash has been made to Dhapu Devi on 20-1007 and 111-07 and the cheques have been given on 20-10-07. Similarly the cash has been paid on 11-03-07 and 20-10-07 in respect of land from Shri Sitaram, Dhannal Lal, Maya and Vimla. The cheques are dated 20-10-07. (8) From the remand report, the ld. CIT(A) observed that the assessee has issued the cheques to those very sellers to whom cash has been paid. The ld. CIT(A) further observed that the assessee has not produced these sellers for cross examination before the AO. The ld. CIT(A) observed that Rule 6DD is not applicable. (9) The decision of Hon'ble Jurisdictional High Court in the....
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....gment 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) was not called for- The object of section 40A (3) is that no fictitious amount should be allowed as revenue expenditure and not that cash payment can never be made". On the basis of such interpretation only, the honorable ITAT, Jaipur Bench Jaipur have taken the same view in the case of M/s PACL India Ltd vs ACIT Circle-3, Jaipur holding therein that business expenditure-disallowance u/s 40A (3)- applicability of Rule 6DD(h)- clause (h) of Rule 6DD takes out of the purview of section 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- In the instant case, admittedly the sellers of the land are villagers engaged in farming activities and residing at places which are not served by any bank...." The Authorities Bel....
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....levance. 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 when such property was sold? Despite of specific request on the point as made in the written submission, the Authorities Below did not decide this point. In absence of specific adjudication on the point, the order so passed is bad in law as per judicial discipline and deserves to be quashed. (iv) It is a settled law as opined by the judicial authorities in number of cases that for administering the law judiciously it is always desirable to take a practical and pragmatic view to the problem. Kindly refer to the judgment of Honorable Calcutta High Court in the case of Girdhari Lal Goenka vs CIT reported in 179 ITR 122 that ITO has to take a pragmatic view of the matter. The ITO should take a practical approach to problem and strike a balance between the direction of law and hardship to the assessee. He should not enmesh himself in technicalities. After ....
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....mp 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 basis of misinterpretation of these provisions needs to be deleted. (v) Lastly, on going through the appeal order, it would be noted that the ld. CIT (A) had himself observed that while purchasing these properties as listed at page no. 8 of assessment order, payments to the tune of Rs. 94,00,000/- were made through cheques only. The ld. CIT (A) had also mentioned cheque payments in the appeal order at page no. 64-65 mentioning therein total payments made by cheque for Rs. 94,00,000/- instead the actual payment made by the appellant company through cheques of Rs. 1,29,00,000/-. These payments did not attract the provisions of section 40A (3) of the Act. Accordingly no disallowance was warranted on account of such cheque payments. However while quantifying the amount of relief granted under this head at page no. 69 of the order, he had through an over-sight, ....
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....ions 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 assessee is not applicable. 2. The decision of ITAT Jaipur Bench in the case of PACL India Ltd. Vs. ACIT, Circle- 3, Jaipur is not applicable because in that case the sellers were not having the bank account. In the instant case, the assessee has made the payment by account payee cheque as well as by cash. (3) The argument of the assessee that it purchased the land as an investment is not based on any evidence. The books of accounts and the financial statement showed that the plots of land sold were as stock in trade of the assessee. Hence, the provisions of Section 40A(3) are not applicable (4) The ld. CIT(A) has mentioned that the expenditure incurred for purchasing of land as stock in trade is covered u/s 40A(3) irrespective of the fact as to whether stock was sold or remained in the closing stock. (5) The ld. DR supported the finding of the ld. CIT(A) that certain decisions a....
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....nts have been made. The circumstances under which the ld. CIT(A) has held that Rule 6DD(g) will not be applicable, are not contained in the rule and therefore, we hold that the ld. CIT(A) was not justified in deleting the addition on account of Rule 6DD(g). It is mentioned in proviso that no disallowance shall be made in case the payment is not made by cheque etc. in such cases and under such circumstances as may be prescribed having nature and extent of banking facilities available, consideration of business expediency and other relevant factors. Requirement in Rule 6DD(g) is that in case the payment is made at a place where there are no banking facility then disallowance is not be made. Requirement of Rule 6DD(g) are satisfied and hence disallowance cannot be made. 3.11 During the year, the assessee has not done any business. Under similar circumstances, the ITAT Jaipur Bench in the case of M/s. Ace India Abodes Ltd. Vs. ACIT (ITA No.79/JP/2001 dated 12-08-2011) has deleted the disallowance u/s 40A(3) after observing in para 18 to 20 which is reproduced as under:- ''18. Similar issue came up before the Tribunal in case of M/s. Rishabhdev Township & Developers P. Ltd. ....
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....appellant-company that all payments were made at the villages prior to registration of the sale. This submission cannot be outrightly rejected. Normally, illiterate poor farmers would insist on cash payments, especially when such payments involve huge amounts, at the place of their residence for the simple reason that they would like to avoid the risk of receiving cash at the town where the sale is to be registered and which may be far away from the village and such cash has to be carried back by them to the village. It is common knowledge that the seller has to confirm before the SubRegistrar that full payment has been received by him. At the same time, the Sub-Registrar satisfies himself about the identity of the seller to ensure that the payment has been made to the right person. For the sake of convenience, in the receipt the place is mentioned as the town where the document is registered. The AO has not made any effort to examine any of the sellers to verify as to whether the payments were received at the villages or at the town. Considering the entire facts the proposition that the payments were made at villages where banking facilities did not exist is accepted. Even if it i....
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....he ld. CIT (A) has taken into consideration the decision of Hon'ble Gujarat High Court in case of Hasanand Pinjomal (supra) and this very decision has been considered by the Tribunal in case of PACL India Ltd. (supra). In this case also it has been held that where payment has been made in villages, the provisions of section 40A(3) cannot be applied. While holding so, the Tribunal has taken into consideration the genuineness of the payment made by assessee that even on account of genuineness of the payment disallowance should not be made under section 40A(3). The ld. CIT (A) has rejected both the contentions of assessee that payments were made in villages and amount of payment was genuine. Since both these issues have already been decided by the Tribunal in above stated cases, therefore, on account of payment made to villagers in the villages, provisions of section 40A(3) are not applicable as held by the Tribunal above. Since we have allowed the issue toto in favour of the assessee by holding that no expenditure can be disallowed under section 40A(3) as assessee has not claimed any expenditure in its Profit & Loss account, therefore, we hold that even part disallowance cannot be ma....