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TMI Blog2017 (12) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... eak up of stock found included an amount of ₹ 12750/- which is on account of empty drums and which the assessee had claimed at the time of survey itself that these do not belong to it and these are to be returned. This fact is verifiable from P.B. page 34 where the details of drums mentioned as returnable is placed, therefore the addition of ₹ 12750/- is not justified as this item of stock did not belong to the assessee. As regards the addition on account of consumable stock amount to ₹ 111740/- as per the details as P.B. 35, we find that the amount of consumable stores were actually lying at the premises and which the assessee had not declared in the stock statement. Therefore the addition is justified as the assessee was bound to pass entry in the profit and loss account relating to expenses of consumable stores after reducing the closing stock left over on account of consumable stores and therefore this grievance is not justified and we uphold the action of Ld. CIT(A) as regards addition on account of valuation of consumable stores. As regards the difference in valuation of finished goods The assessee vide this letter had explained the total difference in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee which is already with deptt. 6. Ld. Commissioner of Income Tax (Appeals) contention about the valuation of closing stock is not correct not based as facts as the closing stock is always to be valued at cost and not selling price. 7. Ld. Commissioner of Income Tax is not correct in saying that no objections were raised while framing the valuation of damaged stocks and consumables. 8. Ld. Commissioner of Income Tax (Appeals) has not appreciated the fact that the addition of ₹ 5,27,503/- represents cut pieces of finished goods, damaged stock and consumable stock which have been valued at selling price, but actually don t have any value. 3. At the outset, the Ld. AR submitted that the payments amounting to ₹ 64,726/- were made on 26.04.2008, 12.05.2008 and 14.07.2008 amounting to ₹ 21730/-, 21590/- and ₹ 21406/- respectively to drivers for transportation of goods. It was submitted that drivers of trucks were not known to assessee and they always insist on cash payments. It was submitted that genuineness of the payment has not been doubted as the purchases made by assessee has been accepted with the help of books of accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock. The Ld. submitted that similarly the plys of 12mm and 9mm has been valued by the survey team at ₹ 135 per sq. mm. whereas its price as per the stock statement was from ₹ 70 to 95. The Ld. AR further submitted that stock of finished goods placed at P.B. page 25 included damaged and cut pieces which was not saleable and its valuation was not taken into account in the opening stock as well as in the closing stock. Our attention was invited to P.B. 1 and 2 where copy of letter written to Assessing Officer explaining the difference in valuation of stock was placed. In view of the above, it was argued that if the correct calculation based upon purchase prices as per the stock statement as on 31.03.2009 after exclusion of damaged/obsolete stock is made, there will not be any difference in the valuation of stock. 4. The Ld. DR on the other hand heavily placed his reliance on the order of authorities below. 5. We have heard the rival parties and have gone though the material placed on record. We find that as regards the disallowance u/s 40A(3), the assessee had made payments exceeding ₹ 20,000/- on three occasions on 26.04.2008, 12.05.2008 and 14.07.2008 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO 191 ITR 667 while dealing with the violation of provisions of section 40A(3) has held as under: In our opinion, there is little merit in this contention. Sec. 40A(3) must not be read in isolation or to the exclusion of r. 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Sec. 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of s. 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such cases that Rule 6DD - which was formulated as a proviso to Section 40A (3) - steps in to aid such assessees and concerns. In this context, the statutory mandate in Section 6DD (k), at least in the circumstances of the case, has to be so construed as to mean that bur for the cash payment, the assessee would have been deprived the benefit of supplies itself. This Court clarifies that the interpretation of the expression who is required to make payment in cash having regard to the circumstances of the case is fact dependent, at least in the present case. The consequence of instances of payment through account payee cheques in small business which are dependent on such supplies would be to completely stifle, if not stop, the business activities. It is in that sense that the expression required would have to be construed. In the other case laws relied on by the assessee including the decisions of Amritsar Bench in the case of Sh. Rakesh Kumar Vs. ACIT, Circle02, Bathinda. The Amritsar Bench while allowing the appeal of assessee has also followed the decision of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO (supra). The relevant part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 18. It appears that fulfillment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction about the fulfillment of the conditions for allowing the benefit of Rule 6DD(j). Apparently, Section 40A(3)was intended to penalize the tax evader and not the honest transactions and that is why after framing of Rule 6DD (j), the Board stepped in by issuing the aforesaid circular. 19. This clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadways as noticed above. 20. In this case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 10. In the circumstances, the order of the Tribunal in this regard is set aside. The payments cannot be disallowed under Section 40A(3) of the Act. 9. In view of the above, facts and circumstances and in view of the judicial precedents, we do not find any infirmity in the order of Ld. CIT(A). Therefore, the appeal filed by Revenue is dismissed. In view of the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egory of 4mm/3mm, 12mm/9mm and 18mm has been mentioned by adding separately on lump sum basis the quantity of 2000 sq. ft., 500 sq. ft., 1000 sq. ft. and 500 sq. ft. under various categories. The assessee had explained these facts vide letter addressed to Assessing Officer placed at P.B. page 1 to 3. The Assessing Officer in his order has noted down these contentions. The Assessing Officer has also noted down the contentions of assessee that there was difference in valuation of stock as the same has to be valued on cost price basis but still he did not verify the claim of assessee and made the additions. In this respect the contentions of assessee as noted by Assessing Officer are quite relevant which for the sake of completeness are reproduced below: ( C). The valuation of ply, board, finished stock for the valuation of finished goods it has been observed that ply cut pieces / damage pieces of 4000 sq.m have been valued at the billing price. The 4000 sq. m damaged ply cannot be valued at the selling price as it does not fatch any amount and is lying for the past 4 to 5 years. If we reduce the sale price of 4000 sq.m. @ 51.66, ₹ 135 and ₹ 55.00. The difference wil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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