Case Law Details
Heera Mani Devi Vs ITO (ITAT Patna)
ITAT Patna held that in absence of any evidence of tax evasion by showing fictitious or false transactions, addition by invoking provisions of section 40A(3) of the Income Tax Act unsustainable.
Facts-
The assessee is engaged in the business of trading of medicine and is the stockist of H. L. Medicines. The assessee filed his return of income on 28.09.20 12 reporting total income of Rs.6,67,340/-. Statutory notices were issued and served on the assessee which were complied by furnishing all the details including production of cash book, bank book, purchase ledger, sales ledger etc., which were examined on test check basis by the Ld. AO. In the course of assessment proceedings, Ld. AO noted that assessee has made payments in cash for purchases from M/s. Trishul Agency which exceeded Rs.20,000/- in a single day which is contrary to the provisions of section 40A(3) of the Act. It was noted by the Ld. AO that total payment of Rs. 17,43,683/- were made for purchase of medicine in cash for which he proceeded to disallow the said business expenditure by applying provisions of section 40A(3) of the Act and added it back to the total income of the assessee. Aggrieved, the assessee went in appeal before the Ld. CIT(A) who also sustained the addition.
Aggrieved, the assessee is now in appeal before the Tribunal.
Conclusion-
Co-ordinate bench of ITAT Patna in the case of Ambika Prasad Gupta has held that we note that the purpose of section 40A(3) is only preventive and to check evasion of tax and flow of unaccounted money or to check transaction which are not genuine and may be put up as camouflage to evade tax by showing fictitious or false transactions.
Considering the aforesaid facts and circumstances of the case and respectfully following the judicial precedents relied on hereinabove, we direct the AO to delete the addition of Rs. 17,43,683/- made by invoking section 40A(3) of the Act. Accordingly, this appeal of the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT PATANA
This appeal by the assessee is directed against the order of ld. CIT(A), Hazaribagh vide order No. ITBA/APL/S/250/2019- 20/1026823282(1) dated 20.03.2020 for A.Y. 2012-13 passed against the assessment order u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by ITO, Ward-4(1), Patna, dated 18.03.2015.
2. There is a delay of 41 days in filing the instant appeal, for which a petition for condonation of delay along with affidavit which is placed on record. We note that the order of Ld. CIT(A) is dated 30.03.2020 which falls during the period of lockdown owing to pandemic of Covid-2019. The present appeal has been filed on 29.06.2020. We have heard both the sides and find that vide order dated 10.01.2022, Hon’ble Supreme Court has directed that the period from 15.03.2020 to 28.02.2022 is to be excluded for the purpose of computing the limitation period during the COVID-19 pandemic. Further, a period of 90 days is allowed after 28.02.2022 vide same order. Considering the facts and the explanation of the assessee, we condone the delay in filing the appeal and admit it for adjudication.
3. Further, we note that the assessee Late Ashok Kumar expired on 12.2019, fact of which was brought on record before the Ld. CIT(A) in the course of appellate proceeding before him. His wife Smt. Hira Mani Devi was brought on record as the legal heir.
4. Assessee has raised solitary issue in this appeal relating to disallowance of Rs. 17,43,683/- made by the Ld. AO on account of payment made in cash by invoking the provisions of section 40A(3) of the Act which has been confirmed by the Ld. CIT(A). Before us Shri Ashish Agarwal, CA represented the assessee and Shri Rupesh Agrawal, Sr. DR represented the department.
5. Brief facts of the case are that the assessee is engaged in the business of trading of medicine and is the stockist of H. L. Medicines. The assessee filed his return of income on 28.09.20 12 reporting total income of Rs.6,67,340/-. Statutory notices were issued and served on the assessee which were complied by furnishing all the details including production of cash book, bank book, purchase ledger, sales ledger etc., which were examined on test check basis by the Ld. AO. In the course of assessment proceedings, Ld. AO noted that assessee has made payments in cash for purchases from M/s. Trishul Agency which exceeded Rs.20,000/- in a single day which is contrary to the provisions of section 40A(3) of the Act. It was noted by the Ld. AO that total payment of Rs. 17,43,683/- were made for purchase of medicine in cash for which he proceeded to disallow the said business expenditure by applying provisions of section 40A(3) of the Act and added it back to the total income of the assessee. Aggrieved, the assessee went in appeal before the Ld. CIT(A) who also sustained the addition. Aggrieved, the assessee is now in appeal before the Tribunal.
6. Before us, Ld. Counsel for the assessee placed on record a written submission along with relevant documentary evidence in the paper book containing 37 pages. Ld. Counsel submitted that invoices of M/s. Trishul Agency were raised on different dates, all of which are below Rs.20,000/- and for which a ledger confirmation from M/s. Trishul Agency was referred to, placed in the paper book at pages 1-3. He pointed out that the purchases were made against different bills and none of such bills exceeded Rs.20,000/-.
6.1 He also placed reliance on the CBDT Circular no.1/2009 dated 27.03.2009 to clarify on applicability of section 40A(3) of the Act which pertains to high value payments. It was submitted by him that the term ‘high value payment’ ought to be considered in respect of payments where the concerned bill or invoice is of high value. He emphasized on the fact that where in the present case all the bills/invoices per se are of value less than Rs.20,000/-, payments made against such invoices cannot be considered as high value transactions to invoke the provisions of section 40A(3) of the Act. He further emphasized on the fact that the value of each invoice would not be hit by the provisions of section 40A(3) of the Act as each invoice has to be considered as a separate contract.
6.2 He also pointed out to the amendment made in section 40A(3) of the Act by the Finance Act, 2008 w.e.f. 01.04.2009 whereby the aggregate of payment against any expenditure in cash exceeding Rs.20,000/- is covered by the said section. Ld. Counsel referred to the intent and purpose of bringing out this amendment which is an anti tax evasion measure. In the present case of the assessee, ld. Counsel submitted that there is no occasion of any tax evasion measure adopted by the assessee.
6.3 Ld. Counsel referred to the factual findings noted by the Ld. CIT(A) in para 2.7 of his order wherein he noted that “it is a fact that each bill is less than R.20,000/- “and also a fact that identity of the person from whom purchases have been made, is established.” Ld. Counsel, thus, strongly submitted that there is no dispute on the identity of person from whom the purchases have been made. The purchases so made from M/s. Trishul Agency are not in dispute which are duly recorded in the regular books of account which have been subjected to tax audit.
6.4 Further, he submitted that the sales made by the assessee are not in dispute, books of accounts have not been rejected by the ld. AO, the purchase ledger and sales ledger as well as cash book was furnished during the course of assessment proceedings all of which were examined on test check basis by the Ld. AO. Fact of all these submissions is on record. He thus, strongly submitted that authorities below have wrongly made the disallowance of genuine purchases made by the assessee from M/s. Trishul Agency which ought to be deleted.
6.5 To buttress his contentions, Ld. Counsel relied on the decisions of Coordinate bench of ITAT, Patna in the case of Infotica vs. ITO in ITA No. 51/Pat/2013 dated 02.12.2016 and Ambica Prasad Gupta vs. ITO in ITA No. 66-67/Pat/2012 dated 25.11.2016 on the aspect of consideration of business expediency. Ld. Counsel also placed reliance on the decision of Hon’ble jurisdictional High Court, Patna in the case of ACIT vs. Sunil Kumar in Misc. Appeal No. 30 of 2012, dated 17.02.2016, all of which are placed in the paper book.
7. Per contra, Ld. Sr. DR submitted that Ld. CIT(A) has rightly upheld the disallowance made by the ld. AO by noting that even though identity of the person from whom purchases having been made is established but the source of cash payment have not been established. He further submitted that Ld. CIT(A) noted that test of business expediency has also not been proved by the assessee and he thus supported and relied on the orders of the authorities below.
8. We have heard rival submissions and perused the material on The issue for our consideration is in respect of disallowance made u/s. 40A(3) of the Act for the payments made in cash in excess of Rs.20,000/- for the purchases made by the assessee from M/s. Trishul Agency. From the perusal of the material placed on record and submissions made before us, it is an admitted fact that the genuineness of the party has not been doubted. Furthermore, it is an undisputed fact that all the payments of purchases made by the assessee from M/s. Trishul Agency pertains to invoices having value less than Rs.20,000/- each. It is also an admitted fact on record from the perusal of ledger account of both the parties i.e. the purchaser (assessee) and seller (M/s. Trishul Agency) that the purchases and corresponding sales are duly recorded in their respective books of accounts. Further, the purchases and sales registers were examined by the Ld. AO and from the perusal of the impugned order, there is no defect which has been pointed out, both for purchases and sales made by the assessee. Also it is important to note that the books of account were subjected to audit u/s. 44AB of the Act and have not been rejected by the Ld. AO in the course of assessment proceeding.
8.1 From the order of Ld. CIT(A), we note that the basis for sustaining the addition are twofold, wherein the Ld. CIT(A) noted that source of cash payment and the test of business expediency have not been established. In respect of source of cash payment made by the assessee, it is noted that the cash book and purchase ledger were examined by the Ld. AO and it was submitted by the Ld. Counsel that the cash as available on the date of payment was out of the sale proceeds of the business which has been duly reflected in the cash book, more particularly when the books of accounts including the cash book have been subjected to tax audit and examination by the Ld. AO.
8.2 On the aspect of considerations of business expediency, we note that the bills raised for the purchases made are all below the value of Rs.20,000/- each, though the payments have been made in excess of Rs.20,000/- in aggregate on a single day. For this, we note from the orders of the authorities below that genuineness of the expenses have not been doubted.
8.3 The provisions of section 40A(3) of the Act cannot be made applicable to the facts of the instant case. If we look into the intention behind the introduction of provisions of section 40A(3) of the Act, we find that the said provision was inserted by Finance Act, 1968 with the object of curbing expenditure in cash and to counter tax evasion. We note that the purpose of section 40A(3) is only preventive and to check evasion of tax and flow of unaccounted money or to check transaction which are not genuine and may be put up as camouflage to evade tax by showing fictitious or false transactions. Admittedly, it is not the case in the facts of the assessee before us.
8.4 We draw force from the decision of the coordinate bench of ITAT, Patna Bench in the case of Infotica (supra) relevant portion of which is
8.5 We also note that the Coordinate bench of ITAT Patna in the case of Ambika Prasad Gupta (supra) has dealt with the similar issue on the objects of the provisions of section 40A(3), relevant extract of which is reproduced for ease of reference:
9. Considering the aforesaid facts and circumstances of the case and respectfully following the judicial precedents relied on hereinabove, we direct the AO to delete the addition of Rs. 17,43,683/- made by invoking section 40A(3) of the Act. Accordingly, this appeal of the assessee is allowed.
10. In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 18th July, 2022
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