2013 (9) TMI 128 - HC - Income Tax

Disallowance u/s 40A(3) - Payment in cash in excess of Rs. 20,0000 - exception under rule 6DD - emergency purchase - Held that - A perusal of findings recorded by the Assessing Officer as well as the CIT(Appeals) reveals that cash payment to M/s Munak International Private Limited was sought to be justified on the ground that it was an emergency purchase. The explanation was concurrently rejected by the Assessing Officer and the CIT(Appeals) by holding that such purchases cannot be held to be emergency purchases and even otherwise Mr. R.K.Garg, Managing Director of the assessee is a Promtoer/Director of M/s Munak International Private Limited and the office of these companies is housed in the same building. The Income Tax Appellate Tribunal has not reversed findings that purchase of marble chips and alluminium are not emergency purchases by merely recorded a sentence that the fact that one of the Directors of the company was the same, does not mean that parties were known to the assessee. We do not propose to delve into this reason but as the Tribunal has not referred to or reversed the finding recorded by the Assessing Officer, that purchase of marble chips and alluminium product cannot be said to be an emergency purchase justifying payment in cash. The order passed by the Tribunal suffers from an error of jurisdiction, as it has reversed a pure finding of fact without reversing the reasons assigned by the Assessing Officer and the CIT(Appeals), for rejecting the assessee s explanation - Decided against the assessee.

Issues Involved:
1. Whether the amount retained by authorities from contract payments could be treated as assessee's income for the year.
2. Whether cash payments exceeding Rs.10,000/- were made under exceptional circumstances as listed in Rule 6DD(j) and hence were not disallowable under Section 40A(3).
3. Whether the ITAT was right in reversing findings recorded by the Assessing Officer on facts that were neither pleaded nor raised before the Assessing Officer or the CIT(Appeals).
4. Whether the ITAT could have reversed the order passed by the Assessing Officer and the CIT(Appeals) regarding cash payments without reversing the findings that purchases of Marble Chips and Aluminium products cannot be considered emergency purchases justifying payment in cash.

Issue-wise Detailed Analysis:

1. Treatment of Retained Amount as Income:
Counsel for both the revenue and the respondent agreed that the first question of law was covered against the revenue by a previous judgment dated 06.05.2013, in ITA No.720 of 2008. Consequently, the first question was answered against the revenue in terms of the aforesaid judgment.

2. Cash Payments Exceeding Rs.10,000/-:
The Assessing Officer disallowed Rs.1,27,979/- under Section 40A(3) of the Income Tax Act, 1961, for payments made in cash exceeding Rs.10,000/-. The appellant's explanation that parties insisted on cash payments was rejected due to lack of supporting evidence. The Tribunal reversed this finding, accepting a new plea that the respondent did not have a bank account at Calcutta. The Tribunal's decision was based on the CBDT's circular No.220, which lists exceptional circumstances under Rule 6DD(j).

3. Reversal of Findings by ITAT:
The Tribunal entertained a new plea that the respondent did not have a bank account at Calcutta, which was not raised before the Assessing Officer or the CIT(Appeals). The Tribunal's power under Section 254 of the Act allows it to entertain new grounds only if the factual foundation was laid before the lower authorities. The Tribunal, however, cannot permit a party to raise entirely new facts not previously pleaded. The Tribunal's acceptance of the new plea without a factual foundation being laid before the lower authorities was deemed erroneous.

4. Reversal of Orders Regarding Emergency Purchases:
The Tribunal reversed the orders of the Assessing Officer and the CIT(Appeals) regarding cash payments to M/s Munak International Private Limited without addressing the findings that purchases of Marble Chips and Aluminium products were not emergency purchases. The Tribunal's failure to reverse these findings while allowing the appeal was considered an error of jurisdiction. The Tribunal's order was reversed, and the orders of the Assessing Officer and the CIT(Appeals) were restored.

Conclusion:
The appeal filed by the revenue was dismissed on the first question of law but allowed on the second and third substantial questions of law. The order passed by the ITAT reversing the CIT(Appeals) concerning cash payments made to parties at Calcutta and to M/s Munak International Private Limited was reversed, and the orders of the Assessing Officer and the CIT(Appeals) were restored to that extent.

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