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TMI Blog2017 (8) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... ad 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case and in law, the learned C.I.T. (A) erred in upholding the action of the A.O. in adding an amount of ₹ 6,06,386/- as disallowance u/s 40A(3)of the Act. 3. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in upholding the action of the A.O. in adding an amount of ₹ 4,71,965/- as unexplained expenditure u/s 69C of the Act. 4. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in not dealing with ground Nos. 1,2,3,6,7 & 8 of the grounds of appeal raised before him. The appellant crave leave to add, alter, amend or delete any or all of the grounds of appeal at any time." 2. Briefly stated, the facts of the case are that the assessee who is a proprietor of a concern M/s. Jayantilal M. Jewellers had filed his return of income for A.Y. 2008-09 on 05.12.2008, declaring total income of ₹ 1,51,194/-. The A.O on the basis of information received that the assessee had during the period relevant to A.Y. 2008-09 made cash purchases of gold ornaments aggregating to ₹ 6,06,386/- in contravention of the provisions of Sec. 40A(3), initiated reassessment proceedings u/s 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as the provisions of Section 40A(3) did not take within its sweep the „Purchases‟ made by an assessee in the course of his business, therefore, no disallowance under the said deeming provision was called for in his hands. The A.O however being of the view that the exceptions to the applicability of Section 40A(3) were exclusively carved out in Rule 6DD of the Income tax Rules, 1962, and the case of the assessee was not found to be covered by the either of the exceptions contemplated therein, therefore, disallowed the purchase of ₹ 6,06,386/- u/s. 40A(3) in the hands of the assessee. 4. The A.O. further on the basis of the „AIR‟ information received by him in the case of the assessee therein observed that the assessee had during the year made payments against credit card bills, as under:- Name of the Credit Card Bank Mode of Payment Amount of Payments HSBC LTD. Credit Card 2,13,945/- ABN AMRO BANK N.V. Credit Card 2,58,020/- Total: 4,71,965/- The A.O on the basis of the aforesaid information called upon the assessee to furnish details of credit cards held by him, amount of payments made through credit cards, nature of transaction for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the same in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee had at the very outset of the hearing of the appeal assailed the validity of the assessment order passed u/s. 143(3) r.w.s. 147, and therein claimed that the same was invalid and bad in law. That it was averred by the ld. A.R that a perusal of the „reasons to believe‟ did not reveal any satisfaction on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment. It was thus submitted by the ld. A.R that despite absence of valid jurisdiction, the A.O had proceeded with and reopened the case of the assessee. Per contra, it was submitted by the ld. Departmental representative (for short „D.R‟) that the A.O after duly recording the „reasons to believe‟ had validly assumed jurisdiction u/s. 147 and initiated reassessment proceedings in the hands of the assessee. 8. The ld. A.R further adverting to the disallowance of ₹ 6,06,836/-(supra) made by the A.O u/s 40A(3), which thereafter had been upheld by the CIT(A), therein submitted that the assessee being prompted by business prudence had during the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed business, therefore, the A.O instead of restricting the addition to the profit earned by the assessee from the said business, which was fairly offered by the assessee at ₹ 47,200/-, viz. @10% of the aggregate of the aforesaid payments, had however erred in assessing the entire amount as the income of the assessee. Per contra, the ld. D.R. relied on the orders of the lower authorities and submitted that in the absence of any evidence in respect of any business of trading in cloth material having been carried out by the assessee, the lower authorities had thus rightly made an addition of ₹ 4,71,965/- u/s. 69C in the hands of the assessee. 10. We have heard the Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. We first take up the challenge thrown by the assessee to the validity of the reassessment proceedings. We have given a thoughtful consideration to the contention of the ld. A.R that the „reasons to believe‟ do not reveal any satisfaction on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment, failing which the very assumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards its applicability having been carved out by the legislature in Rule 6DD. We find that in the present case there is no denying of the fact that the assessee had carried out cash purchases aggregating to ₹ 6,06,386/-, which as held by the A.O are found to be in contravention of the statutory provisions contemplated u/s 40A(3). The assessee had not been able to demonstrate either before the lower authorities, nor before us, that its case is covered by either of the exceptions contemplated U/rule 6DD. Rather, the only contention of the ld. A.R is that as the genuineness and veracity of the purchase transactions under consideration are not in doubt, coupled with the fact that the same were prompted on account of business exigencies, therefore, no disallowance u/s 40A(3) of the „Act‟ was warranted in the hands of the assessee. We find the contention of the Ld. A.R at the first blush to be very logical and convincing, and though are one with him as regards the fact that the genuineness of the purchase transactions had not been doubted by the lower authorities, but then after giving a thoughtful consideration to the mandate of law, are unable to persuade ourselves to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in all its wisdom, vide the Finance Act, 1995, w.e.f 01.04.1996. The scope and effect of the aforesaid amendment is found elaborated in Circular No. 717, dated 14th August, 1995, which reads as under:- "27.1 ………………….Sub-rule (j) of rule 6DD prescribes the mitigating circumstances with a view to relax the rigors of section 40A(3) in genuine and bonafide cases. Sub-rule (j) was introduced at a time when banking facilities had yet to take roots in rural areas. Now that the banks have established themselves in rural areas and a vast branch network is available, it is felt that sub-rule (j) has outlived its utility." 13. We are of the considered view that pursuant to omission of the aforesaid Rule 6DD(j) from the statute, and absence of any such pari materia rule or exception being thereafter made available, the concession or benefit which was earlier available to an assessee as per pre-amended Rule 6DD(j), cannot be transposed from the preamended provisions and read into the post-amended provisions, and thus would in no way come to the rescue of the assessee, whose case we find is squarely covered by the post-amended Sec. 40A(3) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 6,06,386/-(supra) is not under any doubt, coupled with the fact that the same was prompted by business prudence, would thus not come to the rescue of the assessee. We thus in light of our aforesaid observations are thus 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/-. That before parting on the issue under consideration, we may further observe that the ld. 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) 190 ITR 61, wherein it was observed by the Hon‟ble High Court that payments made for purchasing of stock-in-trade cannot be disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. We thus finding no infirmity in the order of the CIT(A), thus, uphold the addition of ₹ 4,71,965/-. The Ground of appeal no. 3 raised by the assessee before us is dismissed. 16. That as no averments had been raised before us by the ld. A.R in context of Ground of appeal No. 4, therefore, the same is dismissed as not pressed. The appeal of the assessee is dismissed. ITA No. 7133/Mum/2013 A.Y. 2009-10 17. We shall now take up the appeal of the assessee for the A.Y. 2009-10, marked as ITA No. 7133/Mum/2013. The assessee had assailed the order of the CIT(A) by raising the following grounds of appeal:- "1. On the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iz. an amount of ₹ 1,80,800/- as his income arising there from. 19. The A.O after deliberating on the submissions of the assessee, being of the considered view that the same were not supported by any documentary evidence, thus did not find favour with the same. The A.O holding a conviction that the claim of the assessee that the credit card transactions were relatable to his undisclosed business of trading in cloth material was merely an afterthought, therefore declined to accept the same. The A.O thus, being of the view that not only the assessee had failed to submit any documentary evidence which could go to substantiate his contention that the credit card transactions were relatable to his undisclosed business of trading in cloth material, but rather observing that the said claim of the assessee clearly militated against the facts available on record, therefore, rejected the same, and made an addition of ₹ 18,07,855/- under Sec. 69C in the hands of the assessee. 20. The assessee by way of raising Ground of appeal no. 1 had therein assailed before us the validity of the assessment order passed under Section 143(3) of the „Act‟. However, during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X
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