Commissioner of Income Tax Jabalpur vs Sitaram Anil kumar Raipur

Satish K. Agnihotri, J.—This is a reference u/s 256(1) of the Act, 1961 by the Revenue, on the following question:

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the payments totaling to Rs. 50,23,905.00 made in cash by the assessee were not hit by provisions of section 40A(3) and Rule 6 DD?

The facts, in brief, are that the assessee was a trader in grains. There was a complaint by the AIG. E.O.I.B. Raipur that Shri Sitaram, one of the partner of the assessee firm claimed to have purchased rice for the value of Rs. 32,29,160/- from one M/s. Sureshchandra Ashok Kumar of Raipur, against 131 bills. On enquiry by the E.O.I.B, the Raipur party denied these sales to the assessee. It was further stated in the complaint that the payments were made by 123 bearer chequest which were in fact encashed by Shri Sitaram and his men. Thus, no real payments were made by the assessee to M/s. Sureshchandra Ashok Kumar of Raipur (Seller). The Assessing Officer had called for the books of the assessee firm and impounded the same. As per the books and as verified by the AO, the total purchase from M/s. Sureshchandra Ashok Kumar, Raipur were found recorded at Rs. 50,29,725/- against which payments were shown in the books at Rs. 50,29,905/- . The AO examined the genuineness of the purchasee vis-i-vis genuineness of the payments. He found that the purchasee as claimed by the above assessee were not genuine. He issued summons u/s 131 of the Act, 1961 to M/s. Sureshchandra Ashok Kumar, Raipur which could not be served as the party was not traceable as per the report of the notice server. The AO, further observed that the original purchase bills were not produced before him for verification. It was further observed that the assessee issued 123 bearer cheques for the so called payments which were infact encashed by Shri Sitaram or his men. The sale of the goods as well as receipt of the payments were denied by M/s. Sureshchandra Ashok Kumar as reported by the AIG. In view of the above, the genuineness of the payment could not be established by the assessee. Since all the transactions related to the payments were of sums exceeding Rs. 2500/- , admittedly, they were not by cross cheque/drafts, it was held by the AO that the total payment of Rs. 50,23,905/- were not deductible u/s 40A(3) of the Act, 1961. The A.O. further held in his order that the payments were not covered by the circumstances mentioned in rule 6DD or circular No. 220 (F.No. 206/17/760ITA-II) dated 31st May, 1977. Therefore, the payments amounting to Rs. 50,23,905/- were disallowed u/s 40A(3) of the Act, 1961.

The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [for short `the CIT (A)'']. The CIT (A),has examined the facts at length and found that the assessee has filed a computation of income, copies of trading accounts, P/L account, balance sheet, partners accounts and details of shop expenses, salary, interest, dalali and rent. The CIT (A) further held that the books of accounts were regularly maintained and the purchase of rice from Sureshchandra Ashok Kumar, of Raipur, appeared in the books and have been duly accounted for. The AO has not disturbed nor has he disputed the opening or closing stock or the trading account much less the income returned by the assessee from this trade. The AO accepted the sales and profit shown by the assessee from this trade as correct but held the purchase as bogus. If the impugned purchase were bogus, there could not be any corresponding sales or closing stock which had been accepted by the AO as correct. It was also found that the Assistant Commissioner of Sales Tax has also found transactions genuine. The CIT (A) finally held that the disputed purchase made by the assessee from M/s. Sureshchandra Ashok Kumar, Ramsagarpara, Rapur, were genuine and the observations of the AO that the same were bogus, were without any basis on facts and evidence. The CIT (A) also held that since nothing was brought on record to disprove the asssessee''s claim, the disputed disallowance of Rs. 50,23,905/- made by the AO, was deleted.

In appeal filed by the Department, the Income Tax Appellate Tribunal (for short `the Tribunal'') held that the findings recorded by the CIT (A) was justified and deleting the addition of Rs. 50,23,905/- was also correct and legal. The Tribunal further held that the payment was made by cash after encashing the said bearer cheques, in unexceptional and unavoidable circumstances, which comes within the ambit of Rule 6DD of the Income Tax Rules.

The Supreme Court, in M/s. Attar Singh Gurumukh Singh & Others v. Income Tax Officer, Ludhiana & Others1 while interpreting section 40A(3)of the Act, 1961, held as under:

Section 40A(3) refers to the expenditure incurred by the assessee in respect of which payment is made. It means all outgoings are brought under the word `expenditure'' for the purpose of the section. The expenditure for purchasing the stock-in-trade is one of such outgoings. The value of the stock-in-trade has to be taken into account while determining the gross profits u/s 28 on principles of commercial accounting. The payments made for purchases would also be covered by the word `expenditure'' and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified u/s 40A(3). We have earlier observed that Rule 6-DD has to be read along with Section 40A(3). The rule also contemplates payments made for stock-in-trade and raw materials. This rule is in accordance with the terms of Section 40A(3). The rule provides that an assessee can be exempted from the requirements of payment by crossed cheque or a crossed bank draft where the purchases are made of certain agricultural or horticultural commodities or from a village where there is no banking facility. Section 40A(3) is, therefore, attracted to payments made for acquiring stock-in-trade and other materials.

The above stated question was referred to this Court on 29th November,1999. Before reference was made, the question with regard to asto if the genuineness of payments made by the assessee was doubted, whether the Tribunal was justified in setting aside the disallowance u/s 40A(3) of the Act, 1961, came up for consideration in Commissioner of Income Tax v. Achal Alloys Pvt. Ltd.2 before the High Court of Madhya Pradesh, wherein it was held that no question of law arises where the genuineness of the payment has not been doubted.

A Division Bench of this Court in Commissioner of Income Tax, Raipur v. Vijay Kumar Goyal3, relying on the decision of the Madhya Pradesh High Court in Achal Alloys Pvt. Ltd.1 took the similar view and held that no question of law much less any substantial question of law arose for adjudication of the appeal.

Subsequently, this Court, in the matter of Commissioner of Income Tax, Bilaspur v. M/s. Bukhari Enterprises4 also took the same view and held that the Tribunal has categorically held that the AO has not doubted the genuineness of the transaction. Thus, the question of law, as raised therein, was answered accordingly and as such, the question of law referred in this reference petition, has already been settled.

In view of the above, question of law raised herein is well settled and is answered the in affirmative.