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TMI Blog2004 (11) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... - - Dated:- 30-11-2004 - Judge(s) : D. A. MEHTA., MS. H. N. DEVANI. JUDGMENT The judgment of the court was delivered by D.A. Mehta J.- The Commissioner of Income-tax, Gujarat-IV, Ahmedabad, the applicant herein, has sought the opinion of this court on the following five questions of law under section 256(2) of the Income-tax Act, 1961 ("the Act"), stated to arise out of the Tribunal's order dated February 21, 1986, in I.T.A. No. 1576/Ahd/1984: "(1) Whether, on the facts and in the circumstances of the case, both the Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal are right in view in deleting the addition of Rs. 1,11,015 as made by the Income-tax Officer on account of suppression of stock of steel rounds? (2) Whether, when the Income-tax Officer with due approval of the Inspecting Assistant Commissioner had made the addition of Rs. 1,11,015 as unaccounted value of closing stock, the said amount of Rs. 1,11,015 was required to be deleted? (3) Whether, the finding of the Appellate Tribunal that the addition of Rs. 1,11,015 as made by the Income-tax Officer is not justified is correct in law and sustainable from material on record? (4) Whether, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee and deleted the addition. The Assessing Officer had further made addition to the tune of Rs. 4,55,420 by invoking the provisions of section 40A(3) of the Act. The case of the Assessing Officer was that out of the total purchase of Rs. 12,72,863 from Lucky Trading Co., the assessee had made payment in cash to M/s. Lucky Trading Co. on various dates, as stated hereunder, of respective amounts mentioned against each of the dates: Date of payment Amount paid (Rs.) 15-10-1977 1,50,000 24-11-1977 1,50,000 11-1-1978 1,10,000 30-6-1978 6,932 4,16,932 The letter filed by the assessee from M/s. Lucky Trading Co. that the said party had to urgently procure materials from the market, and hence, had insisted for payment in cash was not accepted by the Assessing Officer on the ground that the said concern was a sister concern closely connected with the assessee-firm, as there were common partners in both the firms. Additional reason assigned by the Assessing Officer is that until November 24, 1977, though Rs. 3,00,000 had been paid in cash by the assessee to M/s. Lucky Trading Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rules"). That the case of the assessee did not fall within any of the exceptions specified in the rules and in the circumstances, the provisions of section 40A(3) of the Act have to be strictly applied to the facts of the case and the disallowance should be upheld by reversing the orders of the Tribunal and the Commissioner of Income-tax (Appeals). It was further submitted that both the appellate authorities have failed to appreciate the reasoning adopted by the Assessing Officer for making the disallowance, and had been swayed by irrelevant considerations like agreement between the assessee and M/s. Lucky Trading Co. Elaborating on the submission, it was contended that an agreement between the parties cannot be permitted to override statutory provisions, and such an agreement would, even otherwise, be a self-serving document and cannot be taken into consideration. She expressed apprehension that in case such an agreement is permitted to prevail, it would be simple for all assessees to enter into such agreements so as to frustrate statutory provisions, and in the circumstances, it be held that the orders of the appellate authorities suffered from the vice of perversity and were b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s around 16 per cent. only. That, in fact, the Assessing Officer has made addition to the book results by adding a sum of Rs. 24,000 by adopting a gross profit rate of 16 per cent. Thus, according to the Commissioner of Income-tax (Appeals), even on this ground, no separate addition for alleged, undisclosed closing stock is warranted. The aforesaid findings on record by the Commissioner of Income-tax (Appeals) have been upheld by the Tribunal. In the light of the facts which have come on record, there is no infirmity in the concurrent findings of fact recorded by the appellate authorities in deleting the addition on account of alleged undisclosed closing stock and no interference is called for. Even otherwise, as noted hereinbefore, the findings recorded by the appellate authorities are findings of fact after appreciating the evidence on record, and there is no question of law involved in relation to the addition regarding addition of undisclosed closing stock. So far as the addition on account of disallowance under section 40A(3) of the Act is concerned, the position in law is well settled by a decision of this court in the case of Hasanand Pinjomal v. CIT [1978] 112 ITR 134. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the purposes of rule 6DD(j)(2), regard will have to be had to the facts and circumstances of each case. Practicability for the purposes of rule 6DD(j)(2) must be judged from the point of view of the businessman and not of the Revenue. For the purposes of carrying on his business, a businessman may have to make payment otherwise than by crossed cheque or draft in certain circumstances voluntarily and not out of sheer necessity. The Legislature, therefore, prescribed in the second proviso to section 40A(3) business expediency as one of the relevant factors. Therefore, practicability has to be judged from the angle of the businessman and not of the Revenue." Applying the aforesaid principles, the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal may be appreciated and tested. It has been concurrently found by both the authorities that the agreement between the parties, i.e., the assessee and M/s. Lucky Trading Co. has not been doubted; in other words, the existence or the genuineness of the agreement is not in dispute. That, as per the terms of the agreement, M/s. Lucky Trading Co. was required to keep sufficient materials in stock so as to suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the purpose of payment in cash was to frustrate proper investigation by the Department. In the light of the aforesaid findings of fact recorded after appreciating the evidence on record, the appellate authorities have deleted the disallowance made by the Assessing Officer. As held by this court, the requirement under rule 6DD(j) regarding practicability of payment otherwise than in cash and consideration of business expediency has to be judged from the point of view of the businessman and not of the revenue authorities. It becomes apparent that the Tribunal has applied the correct tests on the facts found concurrently by the appellate authorities. The Revenue has not been able to point out any relevant factors which have been omitted from consideration by the appellate authorities; nor has it been able to point out any irrelevant factors which have gone into the decision making process. In the circumstances, it is not possible to state that the orders of the Tribunal or the Commissioner of Income-tax (Appeals), for that matter, suffer from the vice of perversity as suggested by the learned advocate appearing on behalf of the Revenue. In the circumstances, there being no e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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