2023 (5) TMI 24 - AT - Income Tax

Addition of cash deposited during demonetization - assessee demonstrated from the documents placed in the paper book that assessee had adequate cash in hand on the date of announcement of demonetization and deposit of amount is a miniscule amount in comparison to the total turnover which is adequately substantiated by books of accounts and corroborative documents - HELD THAT - D/R, nothing was brought on record to controvert the same. We, considering the facts and material on record, find force in submissions made by ld. Counsel for assessee and accordingly delete addition made in this respect. Disallowance u/s 40A(3) on account of payments made stockist of drugs and medicine by depositing cash in bank account of supplier - HELD THAT - Consequence which were to befall on account of non-observation of Section 40A(3) must have nexus to failure of such objective. Accordingly, the genuineness of the transaction, it being free from vice of any device of evasion of tax, is a relevant consideration. In the present case, assessee has deposited cash directly in the bank account of the supplier i.e., M/s. K D Enterprises, against supply of certain medicines. We hold that the purpose of Section 40A(3) of the Act, is only preventive and to check tax evasions 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, this is not so in the present case of the assessee, as ld. AO also has accepted the fact that assessee directly deposited cash in the bank account of the supplier M/s. K D Enterprises. As decided in Smt. Shelly Passi 2013 (3) TMI 219 - PUNJAB AND HARYANA HIGH COURT cash payment in the bank account of payee is sufficient to get exemptions in terms of Rule 6DD inasmuch as it is ensured that payee alone receives the payment and to ensure that the payment is routed through bank channel so as to trace the origin and conclusion of the transactions is traceable thereby fulfilling the criterion of introduction of Section 40A(3) of the Act. Thus we allow the ground of appeal and direct for deletion of addition made u/s 40A(3). Addition u/s 69C - suppressed purchases - AO has treated this amount as unexplained expenditure by holding that there is difference of creditors balance as on 31/03/2017 - HELD THAT - As in respect of addition on account of alleged suppressed credit note from M/s. Aditya Medisales Ltd., it was pointed out that it related to the sales return which has been duly reduced from the purchases made by the assessee and does not have any bearing on the profit reported by the assessee. Both the issues are purely questions of fact and having reference to the material on records as well as the discussion above, we are of the considered view to allow both the grounds and direct the deletion of addition on both these issues. Disallowance of Sales commission paid by the assessee and claimed as expenditure - assessee referred to the list of sales commission agents,which contained sales made by each of the salesmen and their respective PAN - HELD THAT - Assessee also referred to the chart giving comparison of sales and commission made by the assessee with all the salesmen, in the preceding three assessment years as well as the subsequent assessment year, to demonstrate that assessee has been consistently conducting its business through these salesmen and incurring expenditure towards sales commission. Ld. Counsel also referred to some of the confirmation which were obtained against notice u/s 133(6) on some of the salesmen and their income tax returns in which they have offered the earning of sales commission in their return. D/R, nothing was brought on record to controvert the factual position - we find it proper to allow these two grounds taken by the assessee and direct for deletion of addition made by ld. AO towards sales commission expense. Appeal of assessee allowed.

Summary

Issues Involved:
The judgment involves five issues, namely:
1. Addition of cash deposited in the Axis Bank account.
2. Disallowance made under section 40A(3) of the Act.
3. Addition under section 69C of the Act on account of suppressed purchases.
4. Addition on account of suppressed credit note.
5. Disallowance of sales commission paid by the assessee.

Issue 1: Cash Deposited in Axis Bank Account
The assessee contested the addition of cash deposited in the Axis Bank account, arguing that the deposits were from legitimate sale proceeds during the demonetization period. The Tribunal found in favor of the assessee, noting the adequacy of cash in hand and the proportionality of the deposit to the total turnover, leading to the deletion of the addition.

Issue 2: Disallowance under Section 40A(3) of the Act
The disallowance under section 40A(3) was challenged by the assessee, who demonstrated that payments to M/s. K D Enterprises were genuine and made for business expediency. The Tribunal accepted the evidence presented, including a certificate from the supplier confirming the necessity of cash payments, and ruled in favor of the assessee, directing the deletion of the disallowance.

Issue 3: Addition under Section 69C of the Act
Regarding the addition under section 69C for suppressed purchases from M/s. Aditya Medisales Ltd., the assessee clarified that the discrepancy arose due to a dishonored cheque, which did not affect the actual purchases. The Tribunal, after reviewing the evidence, ordered the deletion of the addition, finding the accounts to be reconciled.

Issue 4: Suppressed Credit Note
The addition on account of a suppressed credit note from M/s. Aditya Medisales Ltd. was also contested by the assessee, who explained that it related to sales return and did not impact the reported profit. The Tribunal, considering the factual aspects, directed the deletion of this addition as well.

Issue 5: Disallowance of Sales Commission
The disallowance of sales commission paid by the assessee was challenged, with detailed explanations provided on the nature of business operations and the legitimacy of the expenses. The Tribunal, after reviewing the sales commission agents' details and confirming the genuineness of the expenses, ruled in favor of the assessee, ordering the deletion of the disallowance.

In conclusion, the Tribunal allowed the appeal of the assessee, providing detailed reasoning and analysis for each issue raised, resulting in the deletion of various additions and disallowances made by the Assessing Officer.