Gour Hari Maity And Shri Netai Maity, ... vs Department Of Income Tax

आयकर अपील य अधीकरण, यायपीठ - "C" कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA (सम )Before ी महावीर संह, यायीक सद य एवं/and ी शामीम याहया, लेखा सद य) [Before Shri Mahavir Singh, JM & Shri Shamim Yahya, AM]

आयकर अपील सं या / I.T.A No.857/Kol/2012 नधॉरण वषॅ/Assessment Year: 2008-09

Assistant Commissioner of Income-tax, Vs. Shri Gour Hari Maity & Shri Netai Maity Circle-Haldia (PAN:ADVPM7437M, GVPM4030H) (अपीलाथ /Appellant) ( यथ /Respondent)

Date of hearing: 13.01.2015 Date of pronouncement: 29.01.2015

For the Appellant: Shri Alok Nag, JCIT For the Respondent: Shri Subhas Agarwal, Advocate

आदेश /ORDER

Per Shri Mahavir Singh, JM :

This appeal by assessees is arising out of order of CIT(A)-XXXIII, Kolkata in Appeal No. 262/CIT(A)-XXXIII/Cir/ITO,Wd-Hal/10-11 dated 27.03.2011. Assessment was framed by ACIT, Circle Haldia u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2008-09 vide his order dated 31.12.2010.

2. The first issue of appeal of revenue is against the order of CIT(A) deleting the addition made by AO amounting to Rs.8,26,610/-. We find that the revenue has raised the entirely different ground which is not the issue before us in respect to the addition of Rs.14,35,220/-. The revenue has raised following ground no.1:

"1. The Ld. CIT(A) is not justified in reducing the addition of Rs.14,35,220/- after allowing the wrong claim of expenditure made by the assessee which was purely capital in nature."

3. We have heard rival submissions and gone through facts and circumstances of the case. Brief facts are that the assessee has purchased land for a sum of Rs.14,35,220/-. During the course of survey by the revenue u/s. 133A of the Act 2 ITA No.857/K/2012 Gour Hari Maity & Netai MaityAY 2008-09

conducted at the business premises of the assessee on 04.02.2008, the department found two deeds of conveyance in relation to purchase of land by the assessee during the year under consideration. These were impounded. From the aforesaid two deeds the revenue came to know that the total investment in the purchase of land was to the tune of Rs.14,35,220/-. Before the AO assessee could not explain the source of the above investment but before CIT(A) it was explained that the assessee has recorded the purchase price in their books of account at Rs.8,26,610/- and balance sum of Rs.6,08,610/- is invested out of books of account. Therefore, the CIT(A) deleted the addition of Rs.8,26,610/- and restricted the addition at Rs.6,08,610/- by observing in para 3.3 as under:

"3.3 However, it is seen that the accounts of the appellant show the total value of land at Rs. 12,26,610/- out of which payment recorded is of Rs. 8,26,610/- and the balance is shown as outstanding. However, from perusal of the deeds of conveyance It is seen that the total consideration was Rs. 14,35,220/-. Further, it is mentioned in the deeds that the entire consideration was already paid, whereas in the books of the appellant payment shown was of Rs. 8,26,610/- only. Thus, it follows that out of actual payment of Rs. 14,35,220/- payment of Rs. 8,26,610/- was accounted and the balance of Rs. 6,08,610/- was unaccounted. During the course of hearing, the authorized representative of the appellant could give no explanation regarding source for the unaccounted component of the consideration. In view of the foregoing discussion, the, addition of Rs. 14,35,220/- is reduced to Rs. 6,08,610/-."

4. We find that the assessee is able to explain the source of investment of Rs.8,26,610/- which is recorded in the books of account but failed to explain the source of balance investment of Rs.6,08,610/-. We find no infirmity in the order of CIT(A) and even now revenue could not point out how the deletion of Rs.8,26,610/- is without any basis. As the order of CIT(A) is based on substance, we need not to interfere in the same. This issue of revenue's appeal is dismissed.

5. The next issue in this appeal of revenue is against the order of CIT(A) deleting the addition of Rs.32,49,496/- by invoking the provisions of section 40A(3) of the Act for cash payment. For this, revenue has raised following ground no.2:

"2. The Ld. CIT(A) is not justified in taking inconsistent view while deleting addition of Rs.32,49,496/- for the AY 2008-09 when the same issue involved was confirmed by him in earlier assessment year."

3 ITA No.857/K/2012 Gour Hari Maity & Netai MaityAY 2008-09

6. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO made addition by invoking the provisions of section 40A(3) of the Act for the reason that purchases are made in cash to the extent of Rs.32,49,496/-. The AO divided the payment in three following categories:

(a) The first category relates to cash payment of Rs.22,81,892/- where the payments to a person exceeds Rs.20,000/- on a single day but splitted the payments and made the payments than the lower amount of Rs.20,000/- each i.e. each payment.

(b) The second category relates to payment totaling to Rs.5,41,751/- which was stated to be made after banking hours.

(c) The third category relates to payment amounting to Rs.3,85,853/-, wherein payments made on several occasion in amount less than Rs.20,000/-

but entry was made on the last day."

7. The CIT(A) dealt with all the three categories and restricted the disallowance at Rs.4,25,853/- out of the total disallowance of Rs.32,49,496/- by observing in para 4.2, 4.3 and 4.4 as under:

"4.2. I have considered the submission. So far as the decision of Calcutta High court in the case of Crescent Export Syndicate (supra) is concerned, it is observed that the Hon'ble High Court has confirmed the order of the tribunal on the facts of the case, stating that no substantial question of law arises. On going through the tribunal's order, it is seen the tribunal had, apart from genuineness of payment, also stressed that there existed exceptional and unavoidable circumstances and had accordingly deleted the addition on considering facts and circumstances of the case. Thus, from combined reading of the orders, it follows that no general principle, that disallowance u/s 40A(3) is not to be made in respect of genuine payments, has been laid down, as argued by the appellant. If the appellant's interpretation is accepted, section 40A(3) would become totally redundant, as non-genuine payments would even otherwise not be allowed. The provisions of section 40A(3) are applicable on payments, which are otherwise allowable and validity of the provisions has been upheld in a number of decisions, including by the decision of Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO 191 ITR 667 (SC). Therefore, the general proposition made by the appellant that disallowance u/s. 40A(3) is not to be made in case of genuine payments is rejected.

4.3. Taking up the first category, it is noted that there is no evidence that the payments shown on different points of time in a day were actually made at one go and just shown as several payments. So far as question as to whether payments made to same person during the single day are to be clubbed has been decided by the Jurisdictional Third Member Bench of ITAT in the case of Shanti Ram Mehta vs. ACIT (supra). Respectfully following its ratio, I hold that such payments do not attract provisions of section 40A(3), Similarly, respectively following decision of Jurisdictional Bench of ITAT in the case of 4 ITA No.857/K/2012 Gour Hari Maity & Netai MaityAY 2008-09

M/s. Charu Sales Agency (supra), the payments made on Saturdays are also held to be not liable to section 40A(3),

4.4. So far as the payments of Rs. 3,85,853/- are concerned, the explanation given in that they were actually on different dates but entered on the last day in computer for sake of convenience, As pointed out of the assessing officer no supporting evidence has been produced. Normally, the date of payment shown in the books is presumed to be correct, unless some evidence to the contrary is brought on record. Therefore, the assertion remains a bald statement not backed by any evidence. In respect of the payment of Rs. 40,000/- to M/s Mulchand Bansilal also, no specific submission has been made other than stating that the payment was genuine. Nor any material has been given to justify that these payments were covered under the expenses provided under rule 6DD of I T Rules, 1964. Therefore, in my opinion the payments of Rs.3,85,853/- and Rs.40,000/- are liable for disallowance."

8. We find from the above findings in the first category that the CIT(A) has found that the assessee has made payments on different point of time in a day but none of the payments exceeds Rs.20,000/-. As per Section 40A(3) the word "sum" denotes the payment at hand one time and not the sum total of payment made to a particular person during the course of any one day. This was subsequently amended under section 40A(3) so as to cover aggregate of payment made to a person in a day. This amendment by the Finance Act, 2008 comes with effect from 01.04.2009 applicable for and from AY 2009-10, whereas assessment year under appeal is 2008- 09, that amendment is not retrospective and it is prospective. Earlier, the decision as held by the Hon'ble Orissa High Court in the case of CIT vs. Aloo Supply Company (1980) 121 ITR 680 (Orissa) and the SLP dismissed in 1983, 143 ITR (st.) 67- 68(Supreme Court). Hence, for the relevant assessment year, it is not the aggregate of payment and each transaction only to be taken. That being the case, has rightly been held by the CIT(A) that section 40A(3) is applicable only when the payment exceeds Rs.20,000/- otherwise than by Account Payee Cheque or Draft. This position has been explained in CBDT Circular No. 5 dated 03.06.2010 reported in (2010) 324 ITR (St.) 293 and the relevant para 1 of the circular reads as under:

"13. Amendment to the provisions of sub-section (3) of section 40A of the Income- tax Act 13.1 Clause (a ) of sub-section (3) of section 40A of the Income-tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs. 20,000 otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. Clause (b) of sub-

5 ITA No.857/K/2012 Gour Hari Maity & Netai MaityAY 2008-09

section (3) of section 40A also provides for deeming a payment as profits and gains of business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000 otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.

13.2 Sub-section (3) of section 40A is an anti-tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction. Thereby the risk of evasion is substantially mitigated. Field formations have reported that assessees tend to circumvent the provisions of sub-section (3) of section 40A by splitting a particular high value payment to one person into several cash payments, each below Rs. 20,000. This splitting is also resorted to for payments made in the course of a single day. The courts have approved such splitting by interpreting the words 'in a sum' used in the section to mean a single sum thereby applying the limit to each transaction. This interpretation is against the legislative intent and has, consequently, adversely affected the efficacy of this anti- abuse provision.

13.3 Therefore, the provisions of sub-section (3) of section 40A have been amended providing that the provisions of sub-section (3) of section 40A shall also be attracted where the aggregate of payments made to a single party otherwise than by an account payee cheque, drawn on a bank or account payee bank draft exceeds twenty thousand rupees in a day.

13.4 Applicability - This amendment has been made applicable with effect from 1st April, 2009 and shall, accordingly, apply for assessment year 2009-10 and subsequent assessment years."

According to us, prior to amendment the word 'sum' has no statutory definition and must have the common parlance meaning. The Parliament tries to convey its intention through express words while legislating an enactment. The word 'sum' in Sec. 40A(3) of the Act, 2nd proviso is used only to indicate an amount of money and does not refer to the totality of the expenditure. Therefore, if an assessee makes payment at different times during the day and he has no idea that he has to pay to the same person on more than one occasion, he cannot be subjected to the statutory provision contained in section 40A(3) of the Act unless any payment is above Rs.20,000/- in the relevant FY 2007-08 relevant to AY 2008-09. In view of the above, we are of the view that the CIT(A) in respect to first aspect has rightly deleted the addition of Rs.22,81,892/- and we confirm the same.

9. In respect to the second category of payment of Rs.5,41,751/- was stated to be made after banking hours. We find that there is no adjudication by CIT(A) on the above issue and since there is no adjudication by CIT(A), the facts are not crystalised 6 ITA No.857/K/2012 Gour Hari Maity & Netai MaityAY 2008-09

and the issue needs consideration at the level of CIT(A). Hence, this issue of revenue's appeal is set aside to the file of the CIT(A) for adjudication.

10. In respect to the third category payment of Rs.3,85,853/- and another cash payment of Rs.40,000/- to M/s. Mulchand Banshilal, has already been confirmed by CIT(A) and assessee is not in appeal before us and hence, we need not to adjudicate the same.

11. In the result, appeal of revenue is partly allowed for statistical purposes.

12. Order is pronounced in the open court on 29.01.2015.

Sd/- Sd/- शामीम याहया, लेखा सद य महावीर संह, यायीक सद य (Shamim Yahya) (Mahavir Singh) Accountant Member Judicial Member

Dated : 29th January, 2015

व र ठ निज स चव Jd.(Sr.P.S.)

आदेश क त ल प अ े षतः- Copy of the order forwarded to:

1. अपीलाथ /APPELLANT - Shri Gour Hari Maity & Shri Netai Maity, At Murarikalua, Radhamoni, PO Kelomal, Purba Medinipur, Pin721627 2 यथ /Respondent - ACIT, Circle Haldia

3. आयकर क मशनर (अपील)/ The CIT(A), Kolkata

4. आयकर क मशनर/ CIT Kolkata

5. वभा गय तनीधी / DR, Kolkata Benches, Kolkata स या पत त/True Copy, आदेशानुसार/ By order,

सहायक पंजीकार/Asstt. Registrar.