2018 (9) TMI 865 - AT - Income Tax

Addition made u/s. 40A(3) - Payment in cash against purchase of liquor by the partner on behalf of the Firm - Held that - On perusal of order in Ramnagar Pachwai & C.S 2016 (11) TMI 1034 - ITAT KOLKATA we find that this Tribunal discussed the issue in detail analyzing with various case laws available in the said order and held that cash payments made by the assessee, who is retail vendor to the Principal, Govt. of West Bengal through its wholesale agent. The assessee i.e retail vendor had made payment to the said agent (wholesale licensee) would fall under the exception provided in Rule 6DD(k) of the IT Rules. The assessee s case falls under the exceptions provided in Rule 6DD(b) and Rule 6DD(k) of the Rules. No hesitation in deleting the disallowance made u/s 40A(3) of the Act in all the years under appeal. Accordingly, the grounds raised by the assessee for all the years under appeal are allowed. Addition on account of alleged purchase out of books of assessee - Held that - All payments made on behalf of assesse by cheques and TCS amount deducted thereon. It is also observed which is the details of payment made by assesse to said M/s. Bhattacharya Bottling plant Pvt. Ltd. It clearly shows that all the payments were made by cheque from the account of one partner, Shri Sudip Kr. Chatterjee. An amount of ₹ 2,09,070/- was transferred to M/s. Bhattacharya Bottling Plant Pvt. Ltd vide cheque no. 927174. Likewise vide cheque nos. 927175, 927176 & 927177, which are matching with cheque nos. as discussed above in respect of page-32 of the paper book. Therefore, we find force in the submissions of the ld. AR that one of his partner, Shri Sudip Kr. Chatterjee made the payments through his individual account. In our opinion, it cannot be doubted as out of books as viewed by the AO, which confirmed by the CIT-A. Thus, the CIT-A was not justified in confirming the addition made by the AO on this issue. The order of CIT-A is set aside and deleted the addition made by AO. Ground no. 5 raised by the assessee is allowed. Addition on account of undisclosed purchase - Held that - As contended that Sh. Sudip kr. Chatterjee is an authorized licencee to purchase liquor from IFB Agro Industries, which was not disputed by the AO. In view of above discussion, taking into consideration the submissions of assessee along with documentary evidences placed before us in the paper book from pages 19-27 relating to this issue the addition made by the AO in the hands of assessee does not stand and it is liable to be deleted. Therefore, the order of the CIT-A on this issue in confirming the same is not justified. Thus, the order of CIT-A on this issue is set aside by deleting the said addition made by the AO Disallowance of expenses @ 20% of expenditure - According to AO assessee could not produce any supporting evidence and as such disallowed the same at 20% and added the same to the total income of assessee - Held that - Before the CIT-A also no substantial evidence was filed by assessee and as such he confirmed the same as disallowed by the AO. Before us also except making submission that bills and vouchers were destroyed during the agitation of local females and as such no evidence or whatsoever proving the same filed before us. The reasons as stated by assessee before us for non submission of any substantial evidence in support of claim of expenditure is not acceptable, as we noted that no books of account were even produced before the AO. In such circumstances, we find no infirmity in confirming the order of AO. Ground of assessee s appeal is dismissed.

Summary

Issues Involved:
1. Confirmation of addition made under Section 40A(3) of the Income Tax Act.
2. Confirmation of addition on account of alleged purchase out of books.
3. Confirmation of addition on account of undisclosed purchase.
4. Confirmation of disallowance of expenses.

Issue-wise Detailed Analysis:

1. Confirmation of addition made under Section 40A(3) of the Income Tax Act:
The appeal by the assessee concerns the confirmation of additions made under Section 40A(3) of the Income Tax Act. The assessee argued that the case falls under the exceptions provided in Rule 6DD(b) & 6DD(k) of the IT Rules. The Tribunal found that the issue was in favor of the assessee, as the payments made by the assessee, a retail vendor, to the wholesale agent (Principal, Govt. of West Bengal) fell under the exception provided in Rule 6DD(k). The Tribunal cited various case laws and noted that the genuineness of the transactions was not in doubt. The Tribunal emphasized that the intention behind Section 40A(3) was to curb tax evasion and ensure genuine transactions. Since the payments were deposited directly into the bank account of the wholesale licensee, the provisions of Section 40A(3) could not be applied. The Tribunal concluded that the assessee's case fell under the exceptions provided in Rule 6DD(b) and Rule 6DD(k) and deleted the disallowance made under Section 40A(3).

2. Confirmation of addition on account of alleged purchase out of books:
The assessee contended that the amount of ?6,76,294/- paid to M/s. Bhattacharya Bottling Plant Pvt. Ltd. by one of the partners, Shri Sudip Kr. Chatterjee, was not out of books. The Tribunal found that the payments were made through the partner's individual account and were reflected in the bank statements. The Tribunal noted that the payments matched the cheque numbers and amounts as recorded in the ledger. It concluded that the payments were genuine and not out of books, thus setting aside the CIT-A's order and deleting the addition made by the AO.

3. Confirmation of addition on account of undisclosed purchase:
The assessee argued that the purchase amount of ?28,81,522/- was reflected in the partner's Profit & Loss account and that TCS was collected during the assessment year. The Tribunal found that the payments made under the partner's PAN were genuine and supported by documentary evidence. The Tribunal noted that the partner was an authorized licensee to purchase liquor, and the payments were made from his individual account. The Tribunal concluded that the addition made by the AO and confirmed by the CIT-A was not justified and deleted the said addition.

4. Confirmation of disallowance of expenses:
The assessee claimed an expenditure of ?68,522/- under various heads, which the AO disallowed at 20% (?13,704/-) for lack of supporting evidence. The CIT-A confirmed the disallowance. The Tribunal found that the assessee failed to produce any substantial evidence to support the claim of expenditure and noted that no books of account were produced before the AO. The Tribunal upheld the disallowance, finding no infirmity in the AO's order.

Conclusion:
The Tribunal partly allowed the appeal of the assessee. It deleted the additions made under Section 40A(3) and on account of alleged purchase out of books and undisclosed purchase, while confirming the disallowance of expenses due to lack of supporting evidence. The order was pronounced in the open court on 05-09-2018.