2020 (3) TMI 945

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....r unavoidable circumstances involved for purchasing the gold and silver and when the genuineness of the payments and the identity of the payee had not been doubted then such payments cannot be disallowed in mechanical manner, hence entire addition should be deleted. II. For that the nature of the gold business and the necessity for expeditious settlement thereof should have been looked into and the evidence also furnished to the satisfaction of the Revenue as the genuineness of the payment and the identity of the payee, it can not be said that the payments violating the provision of Sec.40A(3) of the IT. Act. Hence the addition made ought to have been quashed. III. For that, both the payer and the payee are known and the transactions are genuine even the payment exceed to the statutory limit that should not be treated as violating the Sec.40A(3) of the I.T. Act, hence the addition of Rs. 21,46,046/- should have been deleted. IV. For that, in this case since the transaction is relating to purchases and not for the expenditure and the persons are identified, then the payment should not be considered as the expenditure incurred for recurring. Hence the addit....

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....isions of Section 40A(3) of the Act against the cash payments made by the assessee. For proper understanding, the details of cash payments as incorporated by the AO in the assessment order, are as under :- S.No Date Mode of Payment Amount S.No Date Mode of Payment Amount 1 1.4.2011 Cash Rs. 23,955 13 18.7.2011 Cash Rs. 21,685 2 5.4.2011 -do- Rs. 24,644 14 2.8.2011 -do- Rs. 23,190 3 9.4.2011 -do- Rs. 26,788 15 16.8.2011 -do- Rs. 30,542 4 19.4.2011 -do- Rs. 25,897 16 22.8.2011 -do- Rs. 27,714 5 2.5.2011 -do- Rs. 21,761 17 7.9.2011 -do- Rs. 23,409 6 7.5.2011 -do- Rs. 21,665 18 17.10.2011 -do- Rs. 24,725 7 23.5.2011 -do- Rs. 23,735 19 24.10.2011 -do- Rs. 22,304 8 1.6.2011 -do- Rs. 22,691 20 29.10.2011 -do- Rs. 22,666 9 4.6.2011 -do- Rs. 21,409 21 3.11.2011 -do- Rs. 43,178 10 14.6.2011 -do- Rs. 22,786 22 5.12.2011 -do- Rs. 23,230 11 20.6.2011 -do- Rs. 22,167 23 13.12.2011 -do- Rs. 21,680 12 12.7.20....

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....hy the cash payments made more than Rs. 20,000/- should not be added to the total income of the assessee. In this regard, the assessee submitted his written submissions as under :- "Those bills are paid to M/s Lily Alankar, CTC and M/s Maa Santoshi Works who act as agent to the petitioner who procures gold and silver for the petitioner from the market , so in this case section 40A$3) will not be applicable as per rule 6DD(k) and cited the case law of Sri Shanmuga Ginning Factory (2013)218, Taxman 76" The AO observed that the case law relied on the by the assessee is not applicable in the present case in hand because in this case the factory has engaged agent for the purchase of cotton where all the agents have charged 1% commission from the assessee which means that such persons were acting on behalf of the assessee in the process of cotton. This is not same in the present case as the assessee was not charged any commission by the agents and without any commission payment assessee cannot claim that they acted as agent and distinguished the case law relied on by the assessee. Accordingly, the AO made addition of Rs. 21,.46,046/-. 6. Further, on scrutiny of accounts....

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..... 14,70,500/- Telephone Charges Rs. 2,62,010/-   Rs. 24,75,066/- In regard to the above expenses debited into the profit and loss account, the assessee was asked to produce the details of such expenses and substantiated the claim of expenditure. In support of this, the assessee furnished the ledger copies of some expenses booked under the above heads and could not produce all the bills and vouchers for verification. The assessee submitted that all these expenses were incurred dully for the purpose of business, therefore, the AO in absence the details, like bills and vouchers and most of the expenses were paid in cash, concluded that the leakage of revenue cannot be denied in such circumstances, therefore, he disallowed lumpsum 10% of the above expenses and added to the total income of the assessee at Rs. 2,47,507/-. 8. Feeling aggrieved from the order of AO, the assessee appealed before the CIT(A) and the CIT(A) after considering the submissions of the assessee, upheld the disallowance made by the AO u/s.40A(3) of the Act and in respect of adhoc addition, the CIT(A) reduced to 10% of the above addition in case of business promotion expenses and travelling exp....

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.... protection of business so also non-available of specific items agreed for cash transactions in compulsion. Therefore considering the exigency of business and genuineness of payment and identity of both payer and payees, the addition made for violation of Sec.40A(3) of the IT. Act should not have been applied and in the case of Attar Singh Gurmukh Singh v. Income Tax Officer (1991) 191 ITR 667, the Supreme Court considering sub-rule (j) of rule 6DD observed that where the assessee furnishes evidence to the satisfaction of the assessing officer as to the genuineness of the payments and the identity of the payee, such payments cannot be disallowed. 4. That so far the disallowance of Rs. 20,55,438/- i.e. 25% of Rs. 82,21,750/- claimed towards the expenses under heads of travelling and business promotion expenses, and Rs. 2,47,507/- i.e. 10% of Rs. 24,75,066/- claimed the expenses under the different heads such as Repair and Maintenance, printings and stationary, etc. and thereafter it has reduced to 10% and 5% by the 1st Appellate Authority and reworked the addition of Rs. 8,22,175/- and Rs. 2,47,507/- alleging non-production documentary evidence in support of such claims hol....

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....r in respect of ground Nos.2&3, ld. DR relied on the order of CIT(A) and submitted that the assessee could not produce external vouchers and some of the entries were supported in the books of accounts of the assessee by way of internal vouchers, which cannot be relied on fully that genuine expenses have been incurred by the assessee for smooth running of the business. Therefore, the CIT(A) has rightly restricted the addition made by the AO. 12. After hearing both the sides and perusing the entire material available on record and the orders of authorities below, in respect of ground No.1, the AR of the assessee has tried to justify that he may get the benefit of rule 6DD of Income Tax Rules, 1962, but he was unable to justify before us that under which clause of rule 6DD of I.T.Rules, the assessee wanted to get benefits. The cash payments have been made towards purchase of gold ornaments, parties are belonged to Cuttack where banking facilities are available. Further on perusal of the details of payments made as narrated above, as per chart, it is clear that the assessee has made payment in cash in different dates. We also observe from the order of the AO as well as submissions m....