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TMI Blog2019 (12) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... o borrowed funds not having been used for speculative business and the fact that there was income from speculative business and therefore even otherwise the deduction should have been allowed while computing income from speculation business, has not been considered by CIT(A) and since facts need to be examined in this regard, the matter should be remanded to the AO. We direct accordingly. - ITA No.2444 & 2445/Bang/2018 - - - Dated:- 28-8-2019 - Shri N.V. Vasudevan, Vice President And Shri Jason P Boaz, Accountant Member Appellant by : Shri Pranav Krishna, Advocate Respondent by : Dr. P.V Pradeep Kumar, Addl. CIT (DR) ORDER Per Bench : These are appeals by the Assessee against two orders both dated 18.6.2016 of CIT(A), Davangere, relating to AY 2013-14 2014-15. 2. One of the issue to be decided in these appeals is common in AY 2013-14 2014-15. These appeals were heard together. We deem it convenient to pass a common order. 3. The common issue involved in these two appeals are as to whether the revenue authorities were justified in making a disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act will not be attracted. The clause relevant for the present case is as follows: 6DD. Cases and circumstances in which payment in a sum exceeding twenty thousand rupees may be made otherwise than by an account payee cheque drawn on a bank or account payee bank draft.-No disallowance under clause (a) of subsection (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely: (a) to (d) (e) where the payment is made for the purchase of- (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products. 7. It can be seen from the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and their names and the name of their village to which they belong. The AO was also of the view that the extent of their land holding and the fact that they raised the produce i.e., the maize that was sold to the Assessee has not been established. With regard to payment of Market fee, the AO held that the Assessee gives a self declaration that produce was procured from farmers to the APMC and such declaration is not enough to prove the case of the Assessee. He therefore added a sum of ₹ 1,59,63,655 to the total income of the Assessee. The CIT(A) confirmed the action of the AO. 10. In AY 2014-15, the facts are identical, except that the Assessee in that year claimed that each of the payment made in cash was less than ₹ 20,000 and therefore provisions of Sec.40A(3) of the Act are not attracted. This claim was rejected by the AO for the following reasons. The assessee was asked to explain the logic and reason behind the aforesaid pattern, where in the supplier, residing about 6 to 7 Kms away from the assessee's business premise, be it a farmer or a dealer of commodities, has to make about 38 visits to the assessee's premises, literally on a dail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of the limit prescribed under the Act, (but camouflaged as payments below the limit) and hence brought under the purview of the provisions of the section 40A(3) of the I.T.Act and are resultantly disallowed invoking the aforesaid provisions. 11. The action of the AO was confirmed by the CIT(A). Hence these appeals by the Assessee before the Tribunal. 12. Before the Tribunal, the Assessee reiterated submissions made before the lower authorities and further relied on the decision of the Hon ble Gujarat High Court in the case of Prl.CIT Vs. Keshavala Mangaldas (2018) 96 taxmann.com 83 (Gujarat) wherein the facts were that the assessee, was a Commission Agent for purchase/sale of food-grain and held licence issued by the Agricultural Produce Market Committee. In the Assessment, the AO noticed that the assessee purchased goods of ₹ 2,83,55,337/-wherein payments exceeding ₹ 20,000/- were made in cash to various parties. In the Books of Account, the aforesaid amount was shown to have been paid to various farmers and even the receipts were also produced. However, the assessee could not furnish/produce those persons/farmers and the assessee explained tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Considering the aforesaid facts and circumstances of the case, when the disallowance made by the learned A.O. under Section 40A(3) of the Income Tax Act has been deleted by the learned CIT (A) and the same has been confirmed by the learned ITAT, it cannot be said that the same is contrary to the provisions of the Act and/or erroneous. No substantial question of law arises. Hence, the present appeal deserves to be dismissed. Accordingly, it is dismissed. 13. The learned DR relied on the order of the revenue authorities and further relied on the decision of the Hon ble supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO (1991) 59 taxman 11 (SC) wherein the Hon ble Apex Court upheld the constitutional validity of Sec.40A(3) and further observed that genuine and bonafide transactions will not be affected by the aforesaid provisions by quoting the erstwhile Rule 6DDj of the Rules. The learned DR submitted that in the present case the genuineness of the transaction has not been established by the Assessee by producing the farmers and therefore the addition should be sustained. He also relied on the decision of the Hon ble Karnataka High Court in the case of ACIT V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 6DD are intended to regulate business transactions and to prevent the use of unaccounted money or to reduce the chances to use black money for business transactions. The restraint that has been imposed is to curb the chances and opportunities to use or create black money and the same should not be regarded as curtailing the freedom of trade or business. 15. The above observations of the Hon ble Supreme Court are in the context of Rule 6DDj of the Rules which have been deleted from AY 1996-97 the erstwhile Rule 6DD(j) of the Rules, is no longer available for an Assessee as a defence to a disallowance u/s.40A(3) of the Act. The decision of the Hon ble Karnataka High Court in the case of Sri Saraswathi Iron Foundary (sura) is also on the basis of erstwhile Rule 6DDj of the rules. It is because of the requirements of erstwhile rule 6DDj that the aforesaid observations have been made by the Hon ble Supreme Court. In the present appeal, we are concerned with Rule 6DD (e) and there is no requirement of production of the payee. 16. The facts of the decision of the Hon ble Gujarat High Court and the facts of the case of the Assessee are identical and therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r disallowed a sum of ₹ 6,78,680 being 25% of the interest expenses claimed in the profit and loss account of ₹ 27,14,720. 18. Before CIT(A) the Assessee submitted that the disallowance was excessive and made the following submissions: Disallowance of interest u/s 14A As submitted in the Statement of Facts and Grounds of Appeal, the Appellant deals in shares and commodities, which is a speculative business. The details of such transactions were furnished during t1 course of assessment proceedings. The details of payments made and received from the two accounts of Destimony Securities and Anand Rathi Shares and Stock Broker Ltd were also furnished. These payments for purchase of shares were made from the books of head office Manoranjan Wine Shop. Out of the total interest debited at ₹ 2714720 - to the P L A/c, the amount debited in head office books is ₹ 244956/- and in the books of branch, Mandara Traders, is ₹ 2469764/-. The details of which were furnished in the financial statements filed with the return of income and during the course of assessment proceedings. However the learned Assessing Officer, arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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