High Court Of Andhra Pradesh
CIT Vs. Singamsetty Subba Rao
Section : 40A(3)
Madan B. Lokur, Cj. And Sanjay Kumar, J.
IT Tribunal Appeal No. 81 Of 2000
December  23, 2011
JUDGMENT
Madan B. Lokur, CJ.-This appeal under section 260A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) is with reference to an order dated June 5, 2000, passed by the Income-tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad, in I. T. A. No. 293/Vizag/99, relevant for the assessment year 1995-96.
2. Although the appeal was admitted on February 6, 2001, no substantial question of law was framed at that time.
3. In our opinion, the following two substantial questions of law arise :
| “1. | Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the circumstances contemplated by rule 6DD(j) of the Income-tax Rules, 1962, existed as far as the assessee is concerned ? |
| 2. | Whether, on the facts and in the circumstances of the case, the order of the Income-tax Appellate Tribunal is perverse in law ?” |
4. The assessee is a trader located in Vijayawada. He carries on the business of purchase and sale of suit cases. Most of his supplies are received from the vendors in Hyderabad.
5. According to the assessee, he used to make payment for the purchases by cash. According to the Revenue, this was in violation of section 40A(3) of the Act. In response, the contention of the assessee was that he was entitled to the benefit of rule 6DD(j) of the Income-tax Rules, 1962 (hereinafter referred to as “the Rules”). This provision reads as follows :
“6DD. No disallowance under sub-section (3) of section 40A shall be made where (any payment in a sum exceeding 10,000 rupees is made) otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :- . . .
(j) in any other case, where the assessee satisfies the Assessing Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft—
| (1) | due to exceptional or unavoidable circumstances, or |
| (2) | because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, |
and also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and the identity of the payee.”
6. The assessee relies upon clause (1) of rule 6DD(j) and says that the payments were made by the assessee in cash due to the exceptional or unavoidable circumstances.
7. During the assessment proceedings, the assessee stated in his letter dated March 23, 1998, before the Assessing Officer as follows :
“With regard to payments in excess of Rs. 10,000 in cash, I submit that I am an uneducated person and do not know much about income-tax and sales tax rules and regulations and as such I did not maintain any bank account. As I am uneducated do not much about the income-tax rules and having no bank account, I have made all the purchases in cash only. I enclose herewith a statement showing the details of cash payments in excess of Rs. 10,000 for purchases made during the year 1994-95. Therefore, you are requested to take into consideration the above facts and not to disallow the same under section 40A(3).”
8. The Assessing Officer did not accept the explanation given by the assessee for the reason that even though the assessee may be uneducated, he had the services of a chartered accountant to look after his tax matters and that he was carrying on the business since the assessment year 1979-80. It was, therefore, held that the assessee was fully aware of the law and could not get out of the provisions of section 40A(3) of the Act. It was also noticed by the Assessing Officer that the assessee had made payments in cash on 31 occasions and there were only a few parties with whom the assessee apparently had regular business. On the issue whether the assessee had a bank account or not, no view was expressed by the Assessing Officer. On the basis of the above facts, the Assessing Officer held against the assessee and taxed the receipts.
9. Feeling aggrieved, the assessee preferred an appeal, which was rejected by the Commissioner of Income-tax (Appeals), by his order dated November 30, 1999.
10. On the issue as to whether the assessee had any bank account or not, the appellate authority came to the conclusion that the assessee had a savings bank account in Andhra Bank in Vijayawada.
11. In the appeal, the assessee took up a new ground which was not agitated before the Assessing Officer and that ground was based on Circular No. 220, dated May 31, 1977, issued by the Central Board of Direct Taxes. The portion on which the assessee relied upon reads as follows (see [1977] 108 ITR (St.) 8) :
“The transactions are made at a place where either the purchaser or the seller does not have a bank account.”
12. A plain reading of the sentence relied upon by the assessee shows that the transaction should be at a place where either the seller of the goods or the assessee did not have a bank account.
13. It has come on record that the assessee receives his goods by lorry delivered from Hyderabad to Vijayawada. As mentioned above, the appellate authority found that the assessee has a bank account in Vijayawada. That being the position, the Circular relied upon by the assessee does not come to his aid.
14. It may be noticed that the stand taken by the assessee before the appellate authority was quite different from the stand taken before the Assessing Officer.
15. Feeling aggrieved by the view expressed by the appellate authority, the assessee preferred an appeal which was allowed by the Tribunal by the order under appeal.
16. The Tribunal decided in favour of the assessee on a ground which was not urged either before the Assessing Officer or before the appellate authority. The Tribunal noted that the suppliers of the assessee, who were delivering the goods to him invariably insisted on spot payment of cash to the lorry drivers. There is absolutely no evidence for this. The Tribunal went on to hold that since the suppliers do not have bank account in Vijayawada and because they could not rely upon the creditworthiness of the assessee, they did not extend any credit facilities to him. There was an insistence on payment for the supply of goods in cash. In this regard also, there is absolutely no material on record. The Tribunal has further come to the conclusion that, according to the assessee, he used to be ridiculed by the suppliers with regard to obtaining confirmations concerning the transactions. Again, there is absolutely no evidence in this regard.
17. The sum and substance of what we have noted above is that the Tribunal has proceeded entirely on conjectures and surmises, which are not warranted from any material on record.
18. Learned counsel for the assessee has pointed out that the Tribunal noted that in real life, things of this kind are not uncommon.
19. We are unable to appreciate how the Tribunal has made such a bald and general statement to justify payment by the assessee in cash for the supply of the goods delivered to him from Hyderabad.
20. We may note that in Smt. Jyothi Challaram v. CIT [1988] 173 ITR 358/39 Taxman 1 (AP), a Division Bench of this court held that there must be some evidence to corroborate the explanation furnished by the assessee. As we have noted above, the explanation submitted by the assessee both before the Assessing Officer as well as before the appellate authority were found to be false and in so far as the view expressed by the Tribunal is concerned, that was based only on material which was not on record and purely on surmises and conjectures. In our opinion, the assessee has not made out any case of exceptional or unavoidable circumstances as postulated by rule 6DD(j) of the Rules.
21. Under the circumstances, we have no doubt that the substantial questions of law referred to above have to be answered in the following manner :
Question No. 1 : The answer to this question is in the negative, in favour of the Revenue and against the assessee.
Question No. 2 : The answer to this question is in the affirmative, in favour of the Revenue and against the assessee.
22. The appeal is disposed on the above terms.
[Citation :Â 357 ITR 529]
