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TMI Blog2014 (2) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... was no choice for the assessee except to make the payments in cash due to exceptional or unavoidable circumstances as provided under Rule 6DD – thus, the order of CIT(A) set aside and the addition made u/s 40A(3) of the Act set aside. Addition made u/s 68 of the Act – Unexplained credits – Held that:- Mere guess work is not possible while framing assessment without any proper material - The Assessing Officer shall have the basis for assuming the unexplained credit in the case of the assessee and it is not possible to assess the income of the assessee in the absence of any evidence on arbitrary basis - The unsubstantiated material found in the pendrive cannot be considered in the hands of the assessee as a conclusive evidence so as to make additions towards unexplained credit – Relying upon CBI Vs. V.C. Shukla [1998 (3) TMI 675 - SUPREME COURT] - file containing loose sheets of paper are not books and entries therein are not admissible u/s 34 of the Evidence Act, 1872 - this is not substantiated by any corroborative evidence to establish that the assessee is involved in this transaction, so as to make addition in the hands of the assessee - in the absence of any corroborative ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llages and that they were not served by banks. 3. However, the Assessing Officer on random verification of the banking networks of Andhra Bank and State Bank of Hyderabad observed that these banks have their branches, either in the same area or in the vicinity. The Assessing Officer had also enclosed evidence regarding the existence of branches at these places in the form of down loaded statements from the web sites of Andhra Bank and State Bank of Hyderabad. Besides, he also noted that the claim of the assessee that the payees concerned carried on the business profession or vocation in any such village or town was also not correct, as Sri S. Shankar Prasad, to whom Rs. 6,42,000/- was paid in cash in respect of Aditya Residency, was the resident of Rajahmundry Town, which is well served by banking facilities. Similarly, Sri N. Suresh Prasad Reddy, to whom cash payment of Rs. 4,82,55,000/- was made, also was the resident of Kamalapuri Colony of Hyderabad City. Accordingly, rejecting the claim of exception of cash payments under Rule 6DD of clause (h), 20% of cash payments of Rs. 20,49,90,525/- amounting to Rs. 4,09,98,105/- was disallowed u/s 40A(3) of the Act. On appeal, the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing facility. Another payment of Rs. 67,60,000/- was made to Sri K. Chandramma and two others, whose properties were situated at Mekaguda Village, Kothur Mandal, which is not covered by banking facility. Another payment of Rs. 31,36,000/- was paid to Sri K. Krishna Reddy, whose property was situated at Mekaguda Village, Kothur Mandal, which is not covered by banking facility. As regards the payment of Rs. 7,39,85,250/- was made to Sri K. Narasimha Reddy and five others, whose properties were situated at Mekaguda Village, Kothur Mandal, which is not covered by banking facility. 9. As regards the Pearl City-II property, the learned AR submitted that the payment of Rs. 1,45,00,000/- was made to Sri CH Malla Reddy and 9 others, whose properties were situated at at Mekaguda Village, Kothur Mandal, which is not covered by banking facility. Another payment of Rs. 16,00,000/- was made to Sri Mahammad Saab Sons, whose property was situated at Mekaguda Village, Kothur Mandal, which is not covered by banking facility. 10. As regards Pearl City (OL) property, the AR submitted that an amount of Rs. 55,50,000/- paid to Sri Y. Sattaiah, whose property was situated at Mekaguda Village, Kothu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfies the Assessing Officer that the payment could not be made by a cross cheque draw on a bank or by a drawn on a bank or by a crossed bank draft...... (1) due to exceptional or unavoidable circumstances or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. And also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and identity of the payee . The above clause (j) of Rule 6DD has been omitted by the IT (fourteenth amendment) Rules 1995 w.e.f. 27.5.1995. It is pertinent to refer at this juncture, to the decision of Hon ble Andhra Pradesh High Court in the case of Smt. Ch. Mangayamma Vs. Union of India and others (239 ITR 687), wherein considering the constitutional validity of the provisions of S.40A(3) of the Act in the light of the above amendment made to Rule 6DD of the IT Rules, the Hon ble High Court observed and held at page 693 of the Reports (239 ITR) as follows: In view of the aforesaid principles as laid down and the object as sought to be achi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uade transactions by cash. 16. Sec 40A(3) itself provides that the exceptions will have to be prescribed having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. Taking all these factors, considering the nature of activity of the Assessee and the necessity for them to pay cash to the land owners we are of the opinion that the condition under Rule 6DD for exemption viz., transactions should have taken place on Bank Holidays should be read down in the case of the Assessee. 17. In the case under consideration, no banking facility is available where the properties were purchased by Assessee, therefore, there was no choice for the assessee except to make the payments in cash due to exceptional or unavoidable circumstances as provided under Rule 6DD. In view of the above discussion, we set aside the order of CIT(A) and delete the addition of Rs. 4,09,98,105/- made u/s 40A(3) of the Act. 18. As regards ground No. 3 pertaining to addition of Rs. 1,30,00,000/-, the Assessing officer observed that during the course of survey proceedings, while recording the statement of Sri T. Veeraiah Chowdary, MD of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of Rs. 1,05,00,000/- was considered as unexplained in his hands. 9.1 From the said Assessment order, however, it is seen that during the course of survey in the case of the appellant company, a Pen Drive had been found with the accountant of the company. On verification thereof, certain transactions relating to 'TVR' were found, which stood for Sri T. Veeraiah Chowdary., The transactions in the said Pen Drive showed that the following amounts and interest had been paid to one individual, Sri R. T. V.Prasad. Sr. Date Name Amount Due Interest FebNo (Rs) date 1 01.01.06 RTV Prasad 1,05,00,000 1 780000 Paid 2 24.12.07 Ref REF 24 467500 22.02.08 3 29.10.07 Ref 1,00,00,000 29 450000 22.02.08 4 01.02.08 Ref 1,65,00,000 1 930000 29.02.08 TOTAL 2,70,00000 2627500 9.2 It was stated by Sri Chowdary that the land pertained to Pearl City - 11 venture, and had been purchased in the name of Sri R. T. V. Prasad. In the reply dated 19.12.2008, the authorized representative of the appellant had stated before the Assessing officer that he was not in a position to establish the funds to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18/12/2008 Shri T. Veeraiah Chowdhary through his auditor brought to the notice of the DCIT, Circle 3(1) that the actual amount as per the impounded material was only Rs. 1.05 crores and not Rs. 1.30 crores and the said amount was offered for taxation in the hands of Shri T. Veeraiah Choudhary in AY 2006-07. A copy of the said letter was kept on record vide page 34 of the paper book. The assessment order for AY 2006-07 also suggests that the addition of Rs. 1.05 crores was only made in the assessment of Shri T. Veeraiah Chowdhary. This same entry pertaining to the amount of Rs. 1,30,00,000/- was considered in the hands of Assessee, though there is no positive material found in the course of survey to suggest that this entry pertains to Assessee. Being so, in our opinion, mere guess work is not possible while framing assessment without any proper material. The Assessing Officer shall have the basis for assuming the unexplained credit in the case of the assessee and it is not possible to assess the income of the assessee in the absence of any evidence on arbitrary basis. The unsubstantiated material found in the pendrive cannot be considered in the hands of the assessee as a c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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