2016 (6) TMI 1371 - AT - Income Tax

Disallowance u/s 40A(3) - cash payment exceeding or ₹ 20,000/- - whether payment made to the labourers in the instant case is in violation of provision of Sec.40A(3) ? - HELD THAT - In the instant case, the genuineness of the payments has not been doubted. Besides the above we also find that from the submission made by AR that none of the case, the payment has exceeded more than ₹20,000/- and where the payment was exceeding more than ₹20,000/- it was paid to the sardars who further paid to individual labourers. DR has also failed to bring anything contrary to the argument placed by Ld. AR before us. Therefore in our considered view in none of case the payment in the instant case is inconsistent to the provision of section 40A(3) of the Act and taking a consistent view of the Co-ordinate Bench of this Tribunal in the case of Sri Manoranjan Raha 2016 (1) TMI 359 - ITAT KOLKATA we are inclined to reverse the orders of Authorities Below. This ground of assessee s appeal is allowed. Bogus purchases - HELD THAT - AO disallowed the purchases from Mr Samiran Dutta on the ground that notice for verification was not served u/s. 133(6) of the Act but Ld. AR has produced the same before appellate stage for AY 2010-11. So the identity of the party (Mr. Samairan Dutta) cannot be doubted for instant case and for the year under consideration. The copy of the order of Ld. CIT(A) is placed at page 68 of the paper book. In this view of the matter and after considering assessment order for AY 2010-11, we are of the considered view that the party is not identifiable and so the purchase cannot be held bogus. Therefore we are inclined to reverse the orders of Authorities Below. This ground of assessee s appeal is allowed. Remission and/or cessation of several accounts comprised u/s 41(1) - HELD THAT - Certain old creditors are reflecting in the balance sheet of assessee and none of the sundry creditors was written off in the books of account of assessee. In our considered view the income cannot be brought to tax us/ 41(1) of the Act until and unless the trading liability ceased to exist in the books of account. In the instant case the liability of the sundry creditors is very much appearing. Therefore, the question of treating the same as income u/s 41(1) of the Act does not arise. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of ?4,14,003/- under Section 40A(3) of the Income Tax Act.
2. Addition of ?1,24,108/- on account of bogus purchases.
3. Addition of ?31,59,970/- under Section 41(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of ?4,14,003/- under Section 40A(3) of the Income Tax Act:
The first issue pertains to the disallowance of ?4,14,003/- by the Assessing Officer (AO) due to cash payments exceeding ?20,000/-, violating Section 40A(3) of the Income Tax Act. The assessee, engaged in the business of decoration and hiring goods, claimed labor charges amounting to ?27,85,984/-. The AO observed that payments exceeding ?20,000/- were made in cash, leading to the disallowance. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the assessee's case did not fall under any exceptions in Rule 6DD of the IT Rules. The assessee argued that payments were made to labor Sardars who further distributed the amounts to individual laborers, thus not violating Section 40A(3). The Tribunal found that the genuineness of the expenses was not doubted and cited the case of Sri Manoranjan Raha vs. ITO, where similar payments were allowed. Consequently, the Tribunal reversed the orders of the lower authorities, allowing the assessee's appeal on this ground.

2. Addition of ?1,24,108/- on account of bogus purchases:
The second issue involves the addition of ?1,24,108/- for alleged bogus purchases from Mr. Samiran Dutta. The AO disallowed the purchase as the notice sent for verification was returned with the remark "not known." The CIT(A) upheld the AO's decision, stating that the assessee failed to produce the seller for verification. The assessee contended that similar purchases from Mr. Samiran Dutta were accepted in the subsequent assessment year (2010-11) and that the seller was filing income tax returns under Section 44F, which does not require maintaining books of accounts. The Tribunal found that the identity of Mr. Samiran Dutta was established in the subsequent year, and thus, the purchases could not be considered bogus. The Tribunal reversed the orders of the lower authorities, allowing the assessee's appeal on this ground.

3. Addition of ?31,59,970/- under Section 41(1) of the Income Tax Act:
The third issue concerns the addition of ?31,59,970/- under Section 41(1) for cessation of liability. The AO noted that the assessee had 19 creditors listed in the balance sheet but failed to provide their addresses and PAN details. The AO treated the amount as income, stating that the liabilities had ceased to exist. The CIT(A) upheld the AO's decision, citing that the liabilities were no longer claimable. The assessee argued that these were old creditors and had been scrutinized in earlier assessments. The Tribunal found that the liabilities were still reflected in the books and had not been written off. Citing various case laws, including CIT vs. Bhogilal Ramjibhai Atara and Recon Valves Co. vs. DCIT, the Tribunal held that the mere non-existence of the parties does not warrant treating the liabilities as income under Section 41(1). The Tribunal reversed the orders of the lower authorities, allowing the assessee's appeal on this ground.

Conclusion:
In summary, the Tribunal allowed the assessee's appeal on all three grounds, reversing the disallowances and additions made by the lower authorities. The Tribunal emphasized the genuineness of the expenses, the established identity of the seller, and the continued existence of liabilities in the books of accounts.