9911796707
TMI Blog1986 (9) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... of s. 40A(3). as against the returned income stated above, the assessment was completed on a total income of Rs. 4,98,800 by his assessment order dt. 25th Nov., 1985. 3. Aggrieved against the assessment order the assessee went in appeal before the CIT(A). The CIT(A) knocked of the disallowance made by the ITO under s. 40A(3) to an extent of Rs. 1,78,466 and confirmed the disallowances with regard to the following five parties totalling to Rs. 2,74,239. Rs. (a) M/s. Krishna Co. : 2,51,571 (b) M/s. B.S. Co. : 5,110 (c) M/s. Lakshmi Ganpati : paper and General Stores 3,456 (d) Kesava Agancies, Nellore 8,933 (e) Swastik Coaters : 5,169 2,74, 239 Now we are concerned in this appeal with the correctness, propriety and legality of this allowance amounting to Rs. 2,74,239. 4. We have heared Shri M.J. Swamy, the ld. Advocate for the assessee and Shri N. Jayakar, the ld. Departmental representative. On behalf of the assessee, a paper book containing 40 pages was filed. Now let us take up the purchases namely from M/s. Sri Krishna C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not know to whom it was paid. Page 6 is the letter dt. 16th June, 1982. Page 9 is the letter dt. 26th July, 1982. Page 11 is the letter dt. 23rd Aug., 1982. Page 13 is the letter dt. 23rd Sept., 1982. Page 15 is the letter dt. 30th Nov., 1982. Page 17 is the letter dt. 7th Feb., 1983. Page 19 is the letter dt. 18th Feb., 1983. Page 21 is the letter dt. 1st March, 1983. Page 23 is the letter dt. 2nd March, 1983. Page 26 is the letter dt. 28th March, 1983. All these letters are either in English or in Telugu. These letters were addressed by the Managing Partner of M/s. Sri Krishan Co., Tadepalligudem, demanding the assessee to pay the outstanding amount due to them (noted in khata) in cash. The request is to make such of the payments as is possible to the assessee and obtained receipt from the bearer of the letter which is no other then clerk, Shri Veeraghvalu. In each of the letter it was requested that for each of the payment made they may obtain receipt from (Gumasta) Veeraghvalu. In pursuance of the requests made in the above letters the assessee seems to have paid the amounts in cash on the dates mentioned here-under: Sl. No. Date Amount paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain alleged admission in the said letter. For instance, it is stated in the said letter that they do not insist any party to pay in cash, but they also used to accept cheques or drafts from parties. They received such payments from another customer belonging to Vijayawada, and they never showed nay discount or commission to their customers when they paid in Cash. It is the contention of the assessee that this letter was secured behind the back of the assessee and the contents of the letter was never put to the assessee and his explanation elicited. In these circumstances, Shri M.J. Swami, the ld. Advocate for the assessee urged that the contents of the said letter may not be read against the assessee, as it would be against he principle of natural justice to do so. In respect of this contention, he invited our attention to the commentary of Chaturvedi Pithisaria's IT Law. Third addition, where it is held as follows. All that is required that if they want to use any material collected by them which is adverse to the assessee, then the assessee must by given a chance to make submissions thereon. The principle of natural justice are violated if an adverse order is made on an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cability of s. 40A(3) of the IT Act so far as the payment sot M/s. Sri Krishan Co., Tadepalligudem are concerned is vitiated by error of law. Shri M.J. Swamy, the ld. Advocate for the assessee. Further contended that the provisions of s. 40A(3) are not mandatory in view of the decisions of the Rajasthan High Court (1986) 53 CTR (Raj) 19 : (1985) 155 ITR 519 (Raj.) in the case of Kanti Lal Purshotiam Co. vs. CIT was following is held as per the head note (quote from the head noted). He, further, invited our attention to the CBDT Circular clarifying r. 6DD(j) in Circular No. 220, dt. 31st May, 1977. He again invited our attention to r. 4 in the said Circular quoted at page 1515 in Chaturvedi Pithisaria', Third Edition, the material portion of which read as follows: "All the circumstances in which the conditions laid down in r. 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are; (i) the purchaser is new to the seller;or (ii) The transactions are made at place where either the purchaser or the seller does not have a bank account." He argues that admittedly M/s. Sri Krishna Co., Tadepalligu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said payment. 5. Now let us take up the payment made to M/s. B.S. Company, Guntur, The amounts paid was Rs. 5,110 on 25th May, 1982. That the assessee filed confirmatory letter from the party stating the seller refused to accept the payment by cheque draft and it was contended on behalf of the assessee that purchaser's interest would suffer due to non-availability of goods if cash was not paid as demanded. The account copy of B.S.N. Company, Guntur, was provided at page 29 of the paper compilation. The letter addressed by the M/s. B.S.N. Company, Guntur is provided at page 30 of the paper compilation. At para 4 of the letter it is stated that the sellers refused to accept the payment by way crossed cheque or demand draft and in para 5 it is stated that the sellers require the purchaser to pay in cash and in para 6 of the letter it is stated that the specific discount is given by the seller for payment to be made by way of cash. Para 4 of this letter gives an impression that the seller refused to accept cheques and insisted on cash payment. Neither identity of the party nor the fact of the payment were in dispute. The ITO dismissed the plea of the assessee that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is evident that is was not the consistent practice of the creditor or insist on cheques. On the other hand it is the general practice of this creditor to insist cash payment in preference to cheques. When such an important material piece of evidence is present before them, it is unfortunate the ld. Advocate, Shri M.J. Swamy argued that the Lower Authorities ignored the said material and freshly commented that the assessee did not adduce any evidence. We accept the criticism made against the lower authorities as clearly justified and we hold that the payment of 3,456 is made to Shri Lakshmi Ganapathi Paper Agency on its insistence, and, therefore, it comes under one of the exception enumerated in r. 6DD(j) and the disallowance is unwarranted. 7. The next disallowance which falls for our consideration is an amount of Rs.5,160 paid to M/s. Swastic Coaters and an amount of Rs. 8,933 paid to M/s. Kesava Agencies. Both the lower authorities held that no evidence was adduced by the assessee in order to show that these payments come under r. 6DD(j). It is stated that several opportunities were given to the ITO for this purpose. Both these parties, are now parties to the assessee. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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