2017 (8) TMI 1180 - AT - Income Tax

Reopening of assessment - reasons to believe - addition u/s 40A - belief arrived at by the A.O inextricably linked with the material available - Held that - A bare perusal of the reasons to believe reveals that the A.O in the course of assessment proceedings in the case of one Sh. Jayantilal M. Thandeshwar for A.Y. 2008-09 had gathered information that the assessee had made cash purchases of gold ornaments aggregating to 6, 06, 386/-(supra). We are of the considered view that now when the belief arrived at by the A.O is found to be inextricably linked with the material available before him therefore no infirmity as regards the validity of assumption of jurisdiction by the A.O does emerge from the record. We find that the A.O in the body of the reasons to believe after making a clear mention of the cash purchases of 6, 06, 386/- alongwith the bifurcated details as regards the same had thereafter clearly observed that the income of the assessee in excess of 1 lac had escaped assessment. Unable to persuade ourselves to subscribe to the contention that the A.O had invalidly assumed jurisdiction u/s 147. The Ground of appeal No.1 raised by the assessee before us is dismissed. Disallowance under Sec. 40A(3) of the cash purchase of jewellery - Held that - unable to persuade ourselves to subscribe to the contentions of the ld. A.R and being of the considered view that the case of the assessee does not fall within either of the exceptions carved out under Rule 6DD of the Income Tax Rule 1963 therefore are of the considered view that the CIT(A) had rightly upheld the disallowance under Sec. 40A(3) of the cash purchases of gold jewellery of 6, 06, 386/-. A.R had also tried to impress upon us that the disallowance contemplated under Sec. 40A(3) would not extend to the Purchases made by an assessee in the course of his business. We find that such a view was way back favourably taken by the Hon ble High Court of Gauhati in the case of CIT Vs. Hardware Exchange (1991 (4) TMI 114 - GAUHATI High Court) wherein it was observed by the Hon ble High Court that payments made for purchasing of stock-in-trade cannot be disallowed under Sec. 40A(3). We however find that the said judgment of the Hon ble High Court had thereafter been set aside by the Hon ble Supreme Court in the case of Attar Singh Gurmukh Singh (1991 (8) TMI 5 - SUPREME Court ). Thus in the backdrop of our aforesaid observations - Decided against assessee. Addition under Sec. 69C - unexplained credit card expenses - Held that - A.R had not been able to substantiate his claim that the transactions through the credit cards were relatable to his undisclosed business of trading in cloth material. We find ourselves to be in agreement with the CIT(A) that the assessee on being cornered with the undisclosed transactions carried out through his credit cards had thus on the basis of an afterthought and a concocted story tried to wriggle out of the same on the basis of an unsubstantiated and a frivolous explanation. We are of the considered view that in the absence of any material which could go to support the claim of the assessee that the transactions carried out through credit cards pertained to his undisclosed business of trading in cloth material it could safely and rather inescapably be concluded that the assessee had failed to explain both the nature of the transactions and the source of money deposited by him in the bank accounts connected with the credit cards. - Decided against assessee.

Issues Involved:

1. Validity of assessment orders under Section 143(3) read with Section 147 of the Income Tax Act.
2. Disallowance under Section 40A(3) of the Income Tax Act.
3. Addition under Section 69C of the Income Tax Act.
4. Non-adjudication of certain grounds by the CIT(A).

Issue-wise Detailed Analysis:

1. Validity of Assessment Orders under Section 143(3) read with Section 147:

The assessee challenged the validity of the assessment order passed under Section 143(3) read with Section 147, arguing that the "reasons to believe" did not indicate any satisfaction by the Assessing Officer (A.O.) that income chargeable to tax had escaped assessment. The tribunal, after reviewing the "reasons to believe," found that the A.O. had gathered information during the assessment proceedings of another individual, which indicated that the assessee had made cash purchases of gold ornaments in contravention of Section 40A(3). The tribunal concluded that the A.O. had a bona fide belief based on material information and thus validly assumed jurisdiction under Section 147. Consequently, the tribunal dismissed the ground challenging the validity of the assessment order.

2. Disallowance under Section 40A(3):

The A.O. disallowed cash purchases of gold ornaments amounting to ?6,06,386 under Section 40A(3), which was upheld by the CIT(A). The assessee argued that cash purchases were normal in their line of business and that Section 40A(3) should not apply to purchases made in the normal course of business. The tribunal noted that Section 40A(3) is an overriding provision that requires strict compliance, with exceptions specified in Rule 6DD. Since the assessee's case did not fall under any exceptions in Rule 6DD, the tribunal upheld the disallowance, stating that genuine transactions cannot be taken out of the sweep of Section 40A(3) merely because they are genuine. The tribunal dismissed the ground of appeal regarding the disallowance under Section 40A(3).

3. Addition under Section 69C:

The A.O. added unexplained expenditure under Section 69C for credit card payments made by the assessee, amounting to ?4,71,965 for A.Y. 2008-09 and ?18,07,855 for A.Y. 2009-10. The assessee claimed that these payments were related to an undisclosed business of trading in cloth material and offered 10% of the amounts as income. The tribunal found that the assessee failed to substantiate the claim with documentary evidence and that the explanation was an afterthought. Consequently, the tribunal upheld the additions under Section 69C, agreeing with the CIT(A) that the assessee had not discharged the onus of explaining the nature and source of the transactions.

4. Non-adjudication of Certain Grounds by the CIT(A):

The assessee contended that the CIT(A) did not address certain grounds of appeal. However, since no specific arguments were raised before the tribunal regarding these grounds, the tribunal dismissed this issue as not pressed.

Conclusion:

The tribunal dismissed the appeals for both A.Y. 2008-09 and A.Y. 2009-10, upholding the validity of the assessment orders, the disallowance under Section 40A(3), and the additions under Section 69C. The tribunal found no merit in the assessee's arguments and confirmed the decisions of the lower authorities.

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