Praveen Roadlines Pvt. Ltd., New Delhi vs Assessee

order of the Commissioner of Income Tax (Appeals) XVII, New Delhi

dated 8.2.2011 in the appeal no. 56 / CIT (A) XVII/ Del/ 2010 / 2010-

11 for Assessment Year 2006-07.

2 ITA NO. 1933/ Del/2011

2. The assessee has raised following grounds in this appeal :-

"1. That the order of the Ld. Assessing Officer is arbitrary, beyond the facts and replete with prejudicial observation which are either unfounded or are not susceptible of giving rise to any adverse conclusion.

2. That the Ld. Assessing Officer erred in law and on facts in making the addition of Rs. 93,731/- u/s 40A(3) of the Income Tax Act and the Ld. CIT(A) erred in law and on facts in confirming the addition of Rs. 93,731/-.

3. That the Ld. Assessing Officer misrepresented himself in invoking the provisions of section 40A(3) of the Income Tax Act.

4. That the Ld. Assessing Officer misrepresented himself in not allowing the exemption available under rule 6DDof the Income Tax Rules.

5. That the Ld. Assessing Officer as well as the Ld. CIT(A) omitted to analyse the individual transactions."

3. Briefly, stated the facts giving rights to this appeal during the

assessment proceedings. The Assessing Officer noted that the

expenses incurred by the assessee above prescribed limit in view of

Section 40A (3) of the Income Tax Act, 1961 (for short Act) , 20% of

the same have to be disallowed and added to the income of the

assesse and the AO made addition of Rs. 93,731/- being 20% of Rs.

4,68,655/-. Aggrieved assessee preferred an appeal before CIT(A) 3 ITA NO. 1933/ Del/2011

which was also dismissed vide order dated 23.12.2009 and the

addition made by the AO was confirmed.

The assessee carried the matter to the ITAT in ITA No.

308/Del/2010 which was allowed for statistical purposes restoring the

matter to the file of CIT(A) for de novo adjudication by passing

speaking order. As per directions of the Tribunal in order dated

22.06.2010 (Supra) CIT(A) again dismissed the appeal of the

assessee by passing the impugned order dated 08.02.2011 (Supra).

Now the assessee is before this Tribunal with the grounds as

reproduced here in above.

4. Application of the assessee for additional grounds :-

Appeal of the assessee under Rule 11 of the Income Tax (Appellate

Tribunal) Rules, 1963 dated 28.2.2012 we have heard argument of

both the sides and carefully perused the relevant material placed on

the record to support application of the assessee for admission of

additional grounds. The Ld. Assessee's Representative (AR)

submitted that the additional grounds pertaining to the position of law

in favour of the assessee may kindly be admitted as these are 4 ITA NO. 1933/ Del/2011

necessary for proper adjudication of the issue in addition to the

grounds raised by the assessee in the memorandum of appeal filed

on 19.4.2011. The Ld. Departmental Representative replied that this

is a 2nd round on litigation before Tribunal and the assessee did not

bother to raise this ground during earlier round of proceedings neither

before authorities below nor before the Tribunal. Therefore, the same

cannot be admitted for adjudication. However, the Ld. DR

alternatively submitted that if it is found just and proper then the legal

objection of the assessee may be considered.

On careful consideration of above submissions, we are of the view

that the assessee wish to raise additional grounds in addition to

grounds submitted raised by the assessee in the mem-

orandum of appeal filed on dated 19.04.2011 by way of application in

hand.The assessee has sought to raise following additional grounds

:-

"Additional Ground :

1. That the Ld. AO completed the assessment without affording the assessee sufficient opportunity of being heard.

2. That the Ld. CIT(A) erred on facts in concluding that the case of the assessee was not covered under Rule 6DD of the Income Tax Rules."

5 ITA NO. 1933/ Del/2011 On careful consideration on above submissions of both the

parties and perusal of the relevant material placed on record, inter

alia, orders of the authorities below & order of the Tribunal during first

round of litigation, impugned order the CIT(A) and the grounds raised

by the assessee in the memorandum appeal filed on 19.04.2011 and

additional grounds as reproduced on above. We are of the view that

the additional grounds raised by the assessee are related to the main

issue of law and facts which are already on record and without

expressing any view on merits we deem it proper to admit these

additional grounds for consideration and hence, additional ground

raised by the assessee are admitted for consideration and

adjudication. Accordingly, application of the assessee in this regard

is allowed.

5. Additional ground no. 1 of the assessee :- The Ld. AR

submitted that the Assessing Officer completed the assessment

proceedings without affording the assessee sufficient opportunity of

being heard. The Ld. AR submitted that the relevant material to

support the contention of the assessee was placed before the 6 ITA NO. 1933/ Del/2011

authorities below which was not considered properly and the

assessee was deprived of opportunities of being heard. The Ld.

Departmental Representative (DR) drawn our attention towards

assessment order dated 15.12.2008 and submitted that the

Assessing Officer granted due opportunity of hearing for the

assessee and after due consideration of the explanation and

submission of the assessee, the issue has been adjudicated as per

provisions of the Act and therefore, it cannot be said that the

assessing officer completed the assessment without affording the

assessee due or sufficient opportunity of being heard to the

assessee.

6. On careful consideration on above and vigilant perusal of the

assessment order dated 15.12.2008, we note that as per order sheet

entry dated 12.12.2008. The assessing officer asked the assessee

that by the cash payments exceeding Rs. 20,000/- made to Keshav

Motors may not be added. And in compliance to this letter the

assessee filed reply vide letter dated 8.12.2008 and submitted

explanation which was considered and the assessing officer recorded 7 ITA NO. 1933/ Del/2011

his conclusion on the issue after mentioning explanation and

submission of the assessee and the relevant provisions of the Act.

Therefore, under these facts and circumstances, it cannot be held

that the assessing officer complete assessment proceedings without

affording the assessee sufficient opportunity of being heard.

Accordingly additional ground no. 1 of the assessee is dismissed.

7. Additional ground no. 2 & ground no. 1 to 5 of the

assessee :- Having heard argument of both the sides and careful

perusal of the relevant material placed on the record, inter alia, ratio

of the decision relied by both the parties. At the very outset, we find it

necessary relevant to reproduced provision of section 40A(3) of the

Act and Rule 6DD of the (g), (j) & (k) Income Tax Rules, 1962 which

read as under :-

"Section 40A(3) :- Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure."

8 ITA NO. 1933/ Del/2011 "6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub- section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely :

(g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;

(j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;

(k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;"

8. The Ld. AR submitted that the Assessing Officer went beyond

the facts and circumstances of the case and acted arbitrarily with

prejudicially observation which were error unfounded or were not

sustainable of giving rise to any adverse conclusion against the

assessee in making the addition of Rs. 93,731/- u/s 40A(3) of the

act. The Ld. AR, further, contended that the Assessing officer

misrepresented himself invoking the provisions of Section 40A(3) of

the Act and in not allowing exemption available for the assessee 9 ITA NO. 1933/ Del/2011

under Rule 6 DD (g), (j) & (k) of the Income Tax Rules, 1962. The

Ld. AR vehemently contended that the assessing officer as well as

the CIT(A) omitted to analyse the individual transactions and the

plausible and acceptable explanation of the assessee that since

cheques issued the Keshav Motors has bounced, the said supplier

M/s Keshav Motors on certain occasions refused to provide diesel to

out going vehicles and insisted for cash payment in lieu of the

bounced cheques and therefore, the assessee made impugned cash

payments. The Ld. AR, further, contended that the case of the

assessee is covered under Rule 6DD (g), (j) & (k) of the IT Rules

1962 which stipulates the certain circumstances in which a payment

or aggregate of payments exceeding Rs. 20,000/- was made by the

assessee, otherwise then by an account payee cheque drawn on a

bank or account payee bank draft has been made then no

disallowance can be made u/s 6 DD of the Rules as the

circumstances specified in Sub Rule (g), (j) and (k) are squarely

applicable to the case of assessee and therefore, addition made by

the authorities below is not sustainable.

10 ITA NO. 1933/ Del/2011

9. The Ld. AR, further, reiterating its submissions before CIT(A)

( available on page no. 1 to 6 of the paper book) submitted that the

payments were made generally after 9.00 p.m as it is notified that the

plying of heavy vehicles on most of the roads in Delhi is not

permitted between 7.30 A.M. to 9.30 P.M. and as per prevailing rates

of the diesel during financial year 2005-06 the average purchase of

diesel for vehicle was not more than Rs. 20,000/- and the payment

was always made for more than one vehicle. The Ld. AR submitted

that the assessee used to pay cash to the drivers of vehicles to make

payments to supplier i.e. Keshav Motors, therefore, payment made to

the agent is within the ambit of sub rule (k) of Rule 8DD of the IT

Rules, 1962 and therefore, the assessee was also entitled for the

exemption available under sub rule (g) & (j) of said Rule.

10. Replying to the above, the Ld. Departmental Representative

(DR) placing reliance on the decision of ITAT, Pune Bench "A" in the

case of DCIT Vs. Vijay Kumar Ramesh Chand & Co. (2007) 108 ITD

626 (Pune Trib.) Submitted that sub rule (j) of Rule 6 DD of the IT

Rules, providing the exception to section 40A(3) of the Act, has a 11 ITA NO. 1933/ Del/2011

limited scope and prescribed exception only in respect of agent and

does not covered an employee for such an exception and therefore,

payment by the assessee company through its drivers of the vehicles

to the supplier i.e. Keshav Motors does not fall under said exception.

11. The Ld. DR, further, placing reliance on the decision of Hon'ble

Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO

(1991) 191 ITR 667 (SC) submitted that the cash payments made by

the assessee exceeding prior prescribed limit in contravention of

terms of Section 40A(3) of the Act read with Rule 6DD of the Rules is

not permissible until and unless assessee is able to substantiate that

the payments so made falls under exceptions as stipulated in Rule 6

DD of IT Rules, 1962. The Ld. DR, further, contended that the

payments made by the assessee company in cash exceeding the

prescribed limit through its drivers of vehicles to the supplier i.e.

Keshav Motors does not fall any exceptions as mentioned in Rule 6

DD of the Rules and therefore, action of the authorities below making

addition of 20% of said payment is quite justified and deserve to be

upheld. The Ld. DR also contended that the benefit of the ratio of the 12 ITA NO. 1933/ Del/2011

decision of Hon'ble Gujarat High Court in the case of Anupam Tele

Services Vs. ITO, (2014) 366 ITR, 122 (Gujarat), as relied by the

assessee, is not available for the assessee as in that cash payment

was made by the agent of the assessee in the bank account of the

principal was allowed which not the fact of the present case.

12. On careful consideration on above submissions, we note that

the CIT(A) upheld the order of the AO with following observations and

conclusions :-

"4.1 I have carefully considered the submissions of the Ld. AR and perused the assessment order passed by the AO. It is an admitted fact that the appellant has made payment of Rs. 4,68,655/- in cash in violation of provision of section 40A(3). Rule 6DD of the I.T. Rules, 1962, provides certain circumstances under which the payment can be made in cash. The words used in Rule 6DD are "in the cases and circumstances specified hereunder". Thus, the cases and circumstances specified in the Rule are exhaustive. No case or circumstance can be implied or interpreted, which is not specifically provided in Rule 6DD. Admittedly, the appellant's case does not fall in any of the clauses specified in Rule 6DD. The appellant and M/s. Keshav Motors both are located in Delhi, both are having bank accounts in Delhi, there was regular cheque transaction between the two throughout the year. Therefore, it cannot be said that there were any circumstances which are covered by Rule 6DD. The words used in Rule 6DD are very clear and unambiguous. If the legislature intended to provide for any other 13 ITA NO. 1933/ Del/2011

circumstances than those mentioned in Rule 6DD, they would have provided for the same. But the legislature in their wisdom have not provided for any other circumstances.

4.1.1. In the case of Narayan Bijoy Kumar Vs. CIT(Pat) 163 ITR, 695, it was held that even where the assessee showed a certificate from the other party insisting for cash payment, the same was not sufficient to justify cash payment. Similarly, in the case of Jai Talkies Steel Traders Vs. CIT (P & H) 250 ITR 738, it was held that the assessee must produce confirmatory letter from other party as proof for insisting cash payment. The jurisdictional ITAT in the case of Jai Talkies Vs. Income Tax Officer (ITAT, Delhi) 57 TTJ 745 has held that making payment on bank holiday do not ipso facto permit assessee to make cash payments.

In view of the facts and circumstances of the case, legal provisions and judicial pronouncements on the issue, I hold that the AO was fully justified in making the disallowance u/s 40A(3) of the Act, 1961. Therefore, the addition made by the AO is confirmed. The grounds of appeal are rejected."

13. Under facts and circumstances of rival submissions of both

the sides, we note that the assessee has raised two contentions to

the action of the authorities below first, the payment was made in

cash exceeding the prescribed limit because the cheques issued to

M/s Keshav Motors by the assessee had bounced and the said

supplier on certain occasions refused to provide diesel to out gone

vehicles and insisted for cash payment in lieu of the bounced 14 ITA NO. 1933/ Del/2011

cheques and under these exceptional circumstances driver/person as

accompanying the vehicle on some occasions had to make payment

in cash. The 2nd contention of the assessee company is that the

payment so made by the assessee exceeding prescribed limit

prescribed by the Act falls under exception (g), (j) & (k) of Rule 6 DD

of the Rules.

14. At the juncture, first of all, we respectfully consider the ratio of

the decision of Hon'ble High Court of Gujarat in the case of Anupam

Tele Services Vs. ITO (Supra) wherein it was held that where the

principal company insisted that on the payment made by cheque

supply would be deleted, then the cash payment made by the agent

directly in the bank account on the principal had to be allowed. But

we respectfully note that the benefit of the ratio of this decision is not

available for the assessee as the facts and circumstances of the

present case are clearly distinguishable as in the present case the

assessee company is related to the impugned payments made to the

supplier of diesel etc. through its driver / person accompanying on the 15 ITA NO. 1933/ Del/2011

vehicle. Therefore, decision of Hon'ble Gujarat High Court does not

support the contention of the assessee.

15. Coming to the issue of payment against bounced cheques

is concerned, we note that the copy of the bank statement available

on page no. 12 to 19 of the paper book of the assessee. We note that

as many as five cheques has been returned / bounced and the

assessee has made payment of Rs. 4,68,655/- in cash in violation of

provisions of the Act on number of occasions and the payment made

in cash does not match with the amount of cheques bounced. Be

that as it may, we also note that the payment made by the assessee

does not fall any circumstances prescribed in Rule 6 DD of the IT

Rules, 1962. We may note that the words used Rule 6DD are

specified the cases on circumstances and no case or circumstance

can be employed or interpreted which is not specifically provided in

Rule 6DD. On the basis of foregoing discussion, we are of the

considered view that the assessee's case does not fall in any of the

clauses specified in Rule 8 Rule 6DD of the Act Rule which of

provides that an assessee can be exempted from the requirement of

payment by cross-cheque or a cross bank draft beyond prescribed 16 ITA NO. 1933/ Del/2011

limit where the circumstances in which such payment has been made

falls under exceptions as mentioned in Rule 6 DD of the Act.

16. On the basis of foregoing discussion, we reach the conclusion

that in view of the facts and circumstances of the case, legal

provisions and jurisdictional pronounce of the issue the AO as well as

the CIT(A) were fully justified in making disallowance u/s 40A(3) of

the Act and we are unable to see any perversity or any other valid

reason to interfere with the same. Accordingly additional ground no. 2

and ground no. 1 to 5 of the assessee being devoid of merits are

dismissed.

20. In the result, appeal of the assessee is dismissed.

Order pronounced in open court on 24th February, 2015.

Sd/- Sd/- (R.S.Syal) (C.M.Garg) Accountant Member Judicial Member Dated 24th Feb. 2015 B.Rukhaiyar Copy forwarded to 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), New Delhi.

AR,ITAT NEW DELHI. 17 ITA NO. 1933/ Del/2011