2011 (3) TMI 15 - HC - Income Tax

Demand - fictitious claim - assessee was given full opportunity but none of the parties were traceable at the given address and the assessee also could not produce them for verification. Regarding payment through Cheque - The transaction having taken place through account payee cheques, we are unable to accept the contention that the transaction was a nonexistent one. If an assessee took care to purchase materials for his business by way of account payee cheques from a third party and subsequently, three years after the purchase, the said third party does not appear before the Assessing Officer pursuant to the notice or even has stopped business, the claim of the assessee on that account cannot be discarded as non-existent. In the case before us, the Revenue has not put forward any other ground, such as, it was not a genuine transaction for other reasons but has simply rejected the claim on the ground as if there was no such transaction. Expenditure allowed. Regarding payment in cash - the alleged payments being made in cash and the amount involved being Rs. 50,675/- and Rs. 1,00,737/- respectively during the relevant Assessment Year and at the same time, the appellant having failed to produce any of the aforesaid parties except the bills alleged to be raised by those two concerns, the Tribunal below was justified in disbelieving those transactions and we do not find any reason to interfere with such finding which is basically a finding of fact based on appreciation of material evidence. - Expenditure disallowed

Issues Involved:
Assessment of genuine purchases from different parties, validity of transactions made by cash and account payee cheques, justification of Tribunal's findings, reversal of Commissioner of Income-tax (Appeal) order, determination of business expenditure, setting aside Tribunal's order for specific payment, disposal of appeal without costs.

Analysis:
1. Assessment of Genuine Purchases:
The appellant disclosed a loss in the return of income for the assessment year 1998-99. The Assessing Officer processed the return and raised a demand, alleging fictitious claims regarding payments made to three different parties. The Commissioner of Income-tax Appeal accepted the claim, but the Tribunal reversed this decision, deeming the transactions as bogus. The Tribunal found the purchases to be unverifiable and concluded they were fictitious. The appellant challenged this decision, questioning the genuineness of the purchases and the Tribunal's rejection of relevant documents and evidence.

2. Validity of Transactions Made by Cash and Account Payee Cheques:
The Tribunal justified its decision regarding purchases made in cash to two parties, as the appellant failed to produce the parties for verification. However, payments made by account payee cheques to another party were considered genuine. The appellant argued that the transaction with this party was legitimate, supported by the cheques being encashed. The Tribunal erred in rejecting this transaction solely based on the party's non-cooperation, as the payment method indicated a valid business transaction.

3. Justification of Tribunal's Findings and Reversal of Commissioner's Order:
The High Court agreed with the Tribunal's findings on cash transactions but disagreed on the account payee cheque transaction. The Tribunal's decision to disbelieve the cash transactions was upheld, while the order regarding the account payee cheque transaction was set aside. The Tribunal's reversal of the Commissioner's order on the account payee cheque transaction was deemed erroneous, and the High Court directed the Assessing Officer to consider the amount as business expenditure.

4. Determination of Business Expenditure:
The High Court determined that the payment made by account payee cheques was a valid business expenditure, despite the party's non-cooperation during assessment. The Court emphasized that the payment method through cheques indicated a genuine transaction, and the Revenue's rejection of the claim solely on non-appearance of the party was unfounded.

5. Setting Aside Tribunal's Order for Specific Payment:
The High Court set aside the Tribunal's decision only in respect of the payment made by account payee cheques to a specific party, directing the Assessing Officer to treat the amount as business expenditure. The Court affirmed the Tribunal's decision on the other two payments made in cash to different parties.

6. Disposal of Appeal without Costs:
The appeal was disposed of without any costs imposed, considering the facts and circumstances of the case. The High Court's decision clarified the genuineness of transactions based on payment methods and parties' cooperation during assessment.

This comprehensive analysis of the judgment addresses the issues involved in the case, highlighting the key legal arguments and decisions made by the High Court.

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