AI Structured Summary
Not yet generated for this judgment
Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of Ld.CIT(A), National Faceless Appeal Centre, Delhi dated 17.10.2023 arising from the assessment order dated 27.11.2017 passed under section 147 r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') by the AO for the Assessment Year 2010-11.
The Assessee has raised the following grounds of appeal:
1.That in the facts and circumstances of the case and in law, the impugned order passed by the CIT (Appeals) is bad in law, hence liable to be set aside.
2.That on the facts and circumstances of the case the CIT has erred in upholding the additions made by the Ld. ITO by disallowing INR 63,95,000/-, on account of withdrawals from Bank deeming it as cash paid for expenditure and disallowance under Section 40A (3) of the Income Tax Act, 1961 ("Act") read with Rule 6DD. The learned Assessing Officer assumed that all the withdrawals were being done for expenses which are non-compliant with Section 40A(3) of the Act. Ignoring the facts of cash in hand as at close of the year and cash redeposit in the bank. Further, no weightage was given by the learned Assessing officer to the fact that the nature of business of the appellant is such that high amount of cash withdrawals and deposits are necessary to effectively carry on the business.
The reason for heavy cash withdrawals from bank has duly been explained to learned AO. In this regard we wish to submit that appellant was in the business of money changer ("FFMC") of foreign currency ("FC") and cash traveler's in cheques ("TC"), and for this purpose, appellant need to keep hand for exchanging the foreign currency/traveler's cheque at its exchange counter. The appellant had "FFMC" License No. FE.DEL.FFMC(UNIFIED)/0003/1999 from 'Reserve Bank of India', copy enclosed (Annexure -1).
Also, as per the past business practices and accepted business practices, the appellant had to exchange Indian Currency in exchange of foreign currency/traveller's cheque and for this reason it has to withdraw cash from its bank accounts. Whatever Cash has been withdrawn have been used for business purposes and rest was kept as Cash in Hand.
The Company has a money exchange counter for walk in clients at "M" Block, Connaught Place New Delhi. The walk-in clients used to exchange foreign currency ("FC") and traveller's cheque ("TC") from this clearly counter/office of the company. The address of the company has also been mentioned in RBI License.
3.Also, Section 40A (3) read with rule 6DD of the Income Tax specifies the circumstances in which cash payments or aggregate of payments exceeding of Rs.20,000/- may be made. As per this rule a full-fledged India money can changer company who has been given license by Reserve Bank of foreign make cash payments of more than Rs. 20,000 for purchase of currency/Traveler's ASSOCIATED cheques in the normal course of business. As FOREX SERVICES LTD. is a full-fledged money changer License which from Reserve has been given license by Reserve Bank of India, (Copy of Bank of India enclosed - Annexure - 1) therefore company can buy foreign currencies/Traveler's course Cheques in the normal of business by making cash payments exceeding Rs. 20,000/-. The cash account withdrawal amounting to Rs. 63,95,000/- during the year from business of the company has been used in the normal course of for buying foreign currency/ traveller's cheque from customers during the financial year.
Therefore, the cash payment for purchase of foreign currency/ Traveler's Cheques fledged in normal course of business by the company (being a full- money changer under license by Reserve Bank of India) cannot rule be disallowed 6DD of by the Ld. AO. This is bad in the eyes of law and against the income tax act and against the Income Tax law.
The CIT has erred in upholding the order of Ld. ITO.
4.The Ld. the A.O did not rely on the facts & circumstances of case and documents/audited at the time financial statements of accounts submitted of assessment. Without prejudice to our main contention no issued to explain was provided to the appellant and no-show cause notice was against the cash withdrawals from banks. The addition was the facts and circumstances of the case. The addition is made on grossly assumptions unjustified and surmises and without any merits or finding and is and shall be deleted.
The CIT has erred in upholding the order of Ld. ITO.
5.Without prejudice to our main contention the assessing officer has erred by, commenting that we have not complied various notices where as we have attended all the dates except few and learned AO verbally discussed the issues and verbally agreed on our request to file the documents on next date. As the assessee closed down it's business and currently not in operation, so he frequently could not visits it's email box. The assessee complied the notice of AO from time to time and there was no malafide intention on part of appellant to not to comply with the notices/details asked by AO.
The CIT has erred in upholding the order of Ld. ITO.
6.That in the facts and circumstances of the case and in law, the CIT (Appeals) has erred in upholding the addition made by the Ld. Assessing Officer. The order of the CIT (A) is made merely on assumptions and surmises without any merits and findings and is grossly unjustified and is against the principles of natural justice and is bad in the eyes of law and shall be deleted.
7.That in the facts and circumstances of the case and in law, the CIT (Appeals) has erred in upholding the penalty imposed by the Ld. Assessing Officer. The order of the CIT (A) is made merely on assumptions and surmises without any merits and findings and is grossly unjustified and is against the principles of natural justice and is bad in the eyes of law and shall be deleted.
8.The applicant craves, leave to add, alter or modify any grounds of appeal at the time of hearing before the Income Tax Appellate Tribunal.”
At the outset, it is noticed from the appeal record that there is a delay of 445 days in filing the appeal before the Appellate Tribunal. The delay is hereby condoned in view of the reasons submitted before the Tribunal by the assessee.
Brief facts of the case are that the assessee is a domestic company engaged in the business of "Full Fledge Money Changer" ("FFMC"). It holds the License of "FFMC" issued by Reserve Bank of India ("RBI) since long. The assessee filed its return of income on 13.10.2010 under Section 139(1) of the Act for the A.Y. 2010-11 declaring income of INR 21,89,384/-. The ITO, Ward 3(3), New Delhi, issued notices u/s 148 of the Act dated 29.03.2017 in response to which original return of income has been treated as return filed in response of notice u/s 148 issued. Further, notice under Section 143(2) was issued on 06.11.2017 & notice, under section 142(1) was issued on 23.05.2017 sent by email. The assessee submitted copy of income tax return along with audited financial statements with tax audit report in Form 3CD. A copy of the license issued by RBI, list of directors and shareholders and the bank statements of the assessee were also submitted from time to time. The learned assessing officer computed the total income of INR 85,84,348/-by adding INR 63,95,000/- on account of utilisation of cash withdrawals from Bank deeming it as cash paid for expenditure and disallowances under Section 40A(3) of the Act read with Rule 6DD.
Aggrieved by the order of the AO, assessee was in appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee.
Aggrieved by the order of the ld. CIT(A), assessee is now in appeal before us.
Before us, ld. Counsel for the assessee submitted that the additions made by AO under section 40A(3) is on surmise and conjecture basis. The ld. Counsel for the assessee explained that as per the past and accepted business practices, the assessee purchased foreign exchange, as currency notes and traveller's cheques, against payment in Indian rupees in cash, and sold foreign exchange in currency notes in exchange of Indian rupees, and for this reason it has to withdraw cash from its bank accounts. Whatever Cash has been withdrawn have been used for business purpose and rest was kept as Cash in Hand. The Company has a money exchange counter for walk-in clients at "M" Block, Connaught Place New Delhi. The walk-in clients used to exchange foreign currency ("FC") and traveller's cheque ("TC") from this counter/office of the company. The address of the company has also been clearly mentioned in RBI License. To cater to the business requirement for walk in clients the company used to withdraw cash from bank. This is normal accepted business practise for "FFMC" having License from RBI. The PSU Banks and other money changers such as Thomas Cook, Cox & Kings, and others also follow this practice regularly.
The ld AR explained that it was submitted before the Learned AO that the total sales during the FY 2009-10 was 9,327.66 lakh (93.27 Crores) as is evident from the audited Balance Sheet. This has been duly noted that the average sale p.m. comes to 777.31 lakh while the cash withdrawal during the entire year from bank accounts of the company amounted to only 63,95.000/- (63.95 lakhs) and therefore argued that in accordance with sub-rule (1) of Rule 6DD of the Income Tax Rules, 1962, no disallowance shall be made for cash payments against purchase of foreign currency or traveller's cheques made by an authorised dealer or money changer.
Per contra, ld. DR relied on the order’s of the CIT(A)/AO.
We have heard the rival submissions and perused the material available on record. We find that the assessee is in the business of exchange of foreign currency/traveller’s cheque and is duly licensed by the RBI. We find that funds withdrawn from the bank is utilized for exchange of foreign currency / traveller’s chaeque from counter/office of the assessee. The assessee being a license holder from the RBI, which enables him to make cash payment of more than of Rs.20,000/-for purchase of foreign currency/traveller’s cheque, in the normal course of business. The cash payment and cash withdrawal, therefore, would not fall within the mischief of the provision of Section 40A(3) of the Act. We are of the considered view, therefore, that the disallowance under section 40A(3) of the Act is uncalled for and accordingly, we delete the addition so made.
In the result, appeal filed by the assessee in ITA No. 1699/Del/2025 is allowed.