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TMI Blog2017 (11) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order u/s 153A/143(3) without assuming jurisdiction as per law and without obtaining requisite approval as per law and without complying with the other mandatory condition envisaged under the Act, more so when no incriminating material have been found as a result of search. 2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of ₹ 23,62,700/- u/s 40A(3) and that too without considering the submissions/evidences of the assessee, more so when such disallowance could not have been made in the proceedings u/s 153A of the Act. 3. That in any case and in any view of the matter, impugned disallowance and impugned assessment order are bad in law, illegal, unjustified, barred by limitation, contrary to facts law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 448/Kol/2011 - Mr. Nirmal Kumar Das vs. ACIT in ITA No. 391/Kol/2014 6. The learned AR also relied upon the Circular of the CBDT No. 6-P (LXXVI-66) of 1968 dated 06.07.1968 in support of his proposition. Per-contra, Ld. CIT-DR. vehemently opposed the arguments of the Ld. Counsel of the assessee. It was submitted by him that addition can be made even in absence of incriminating material and he drew our attention to the paper book filed by the department on 22.11.216 wherein it was shown that various documents such as purchase deeds were seized during the time of search and he relied upon the following judgments of Hon ble Delhi High Court for the proposition that addition can be made in absence of incriminating material :- - CIT vs. Smt. Dayawanti in 75 taxmann.com 308 (Delhi) - CIT vs. Sh. Anil Bhatia in 352 ITR 493 (Delhi) - CIT vs. Chetan Das Lachman Das in 25 taxmann.com 227 (Delhi). 7. Further, with regard to the other arguments of the learned Counsel for the assessee, it was submitted by the learned CIT-DR that disallowance under section 40A(3) can be made even when genuineness of payment is not doubted. Finally, he relied upon detailed fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years does not satisfy the requirement of law that there must be incriminating material. In any event, the aforementioned documents i.e., A1, A3, A4 and A5 pertain to only some of the AYs with which we are concerned i.e., assessment years 2003-04, and 2004-05. The Court is unable to accept the submissions of Mr. Manchanda that there was incriminating material other than what has been discussed in the orders of the Assessing Officer, CIT (Appeals) and the ITAT for the assessment years in question. 10. In the above said judgment, Hon ble Delhi High Court has given these observations after considering law in detail in this regard and judgments relied upon by the learned CIT-DR have also been considered. 11. No contrary judgment has been placed before us by the revenue. Thus, we are bound by the decision of the Hon ble jurisdictional High Court. Thus, the law that emerges before us is that no disallowance could have been made u/s 40A(3) in absence of any incriminating material discovered during the course of search. In the facts of the case before us, as is also clear from the perusal of the order passed by Assessing Officer as well as the learned CIT (Appeals), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the genuinity of the payments made to the parties is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment. 4.4. In this regard, it is pertinent to get into the following decisions on the impugned subject :- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC ) Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of ₹ 2,500 (Rs.10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Jurisdictional High Court decision It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding ₹ 20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for ₹ 78,45,580/- and disallowed @20% thereon ₹ 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT (Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anupam Tele Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of nonobservation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. 4.6. The Hon'ble Apex Court in the case of CTO vs Swastik Roadways reported in (2004) 3 SCC 640 had held that the consequences of non-compliance of Madhyapradesh Sales Tax Act, which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court whileupholding the constitutional validity negated the existence of a mensrea as a condition necessary for levy of penalty for non-compliance with such technical provisions required held that in the consequence to follow there must be nexus between the consequence that befall for non-compliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter. The Supreme Court has opined that the existence of nexus between the tax evasion by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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