Punjab & Haryana H.C : Whether in the facts and circumstances of the case, the Tribunal was justified in sustaining the addition of Rs. 64,000 in view of the provisions of s. 40A(3) of the IT Act, 1961, and r. 6DD of the IT Rules, 1962 ?

High Court Of Punjab & Haryana

Aggarwal Steel Traders vs. CIT & Anr.

Sections 4, 40A(3)

Asst. Year 1981-82

N.K. Sodhi & N.K. Sud, JJ.

IT Appeal No. 1 of 1998 & Civil Misc. Nos. 5616, 13636, 13637 & 14229 of 1999

16th November, 1999

Counsel Appeared

Sanjay Kaushal, for the Appellant : R.P. Sawhney with Rajesh Bindal, for the Respondent

JUDGMENT

N.K. SUD, J. :

This appeal under s. 260A of the IT Act, 1961 (for short “the Act”) is directed against the order of the Tribunal, Chandigarh Bench, dt. 7th Oct., 1998. The following question of law had been formulated for consideration vide order dt. 4th March, 1999 :

“1. Whether in the facts and circumstances of the case, the Tribunal was justified in sustaining the addition of Rs. 64,000 in view of the provisions of s. 40A(3) of the IT Act, 1961, and r. 6DD of the IT Rules, 1962 ?

2. Whether, in the facts and circumstances of the case the Tribunal was right in sustaining the addition of Rs. 3,00,000 ?”

For resolving the controversy it is necessary to advert to the relevant facts. The assessee filed its return of income for asst. yr. 1981-82 on 8th May, 1981, declaring an income of Rs. 41,380. The assessment under s. 143(3) was framed by the AO on 27th March, 1986, and an addition of Rs. 6,06,578 was made on account of alleged bogus purchases. The AO had also raised another dispute about four payments totalling Rs. 1,42,749 having been made in contravention of s. 40A(3) of the Act. However, no separate addition on this score was made on the ground that the same stood covered in the addition of Rs. 6,08,578 on account of bogus purchases.

The assessee filed an appeal before the CIT(A) on 21st April, 1986, in which both the issues about the bogus purchases as well as payments in contravention of s. 40A(3) of the Act were agitated. During the pendency of the aforesaid appeal the assessee filed a revised return on 31st March, 1987, to take the benefit of the Amnesty Scheme, then in vogue, and offered an additional amount of Rs. 3 lacs for taxation. The assessee also submitted that the tax of Rs. 74,700 due on the additional income may be adjusted out of the excess amount already paid by it.

The CIT(A) disposed of the appeal of the assessee vide his order dt. 7th March, 1989. The addition of Rs. 6,08,578 on account of alleged bogus purchases was deleted. The other dispute about the four payments totalling Rs. 1,42,749 made in contravention of s. 40A(3) of the Act, was restored to the file of the AO for readjudication. Meanwhile to regularise the revised return filed by the assessee on 31st March, 1987, offering an additional income of Rs. 3 lacs for taxation under the Amnesty Scheme, the AO issued a notice under s. 148 on 16th Feb., 1990. In response to this notice the assessee furnished a letter on 9th July, 1990, in which the validity of the notice was questioned. However, it was also stated that the original return filed may be treated as having been filed in compliance to the said notice.

The AO thereafter proceeded to complete the reassessment initiated vide notice under s. 148 dt. 16th Feb., 1990, and also to give effect to the order of the CIT(A), dt. 7th March, 1989, for readjudicating the issue about payment made in contravention of s. 40A(3). He passed an order under s. 143(3) of the Act on 13th July, 1990, wherein he once again held that the four payments to the tune of Rs. 1,42,749 had been made in contravention of the provisions of s. 40A(3) of the Act and added the amount to the total income. He also made an addition of Rs. 3 lacs on the basis of the additional income offered in the return filed under the Amnesty Scheme.

4. Aggrieved by the said order the assessee filed an appeal before the CIT(A) on 27th May, 1991. The said appeal was disposed of vide order dt. 8th July, 1991. The addition of Rs. 1,42,749 consisted of the following four payments : Date Amount Name of the party Rs. 10th Feb., 1981 24,000 M/s Rajnish Trading Company. 28th March, 1981 61,795 M/s S&A Steel Industries, Mandi Gobindgarh. 26th June, 1980 17,000 -Do13th Nov., 1980 40,000 M/s Khurmi Steel Corporation, Mandi Gobindgarh The case put up by the assessee was that since the four parties were genuine and the payments had been made to them in cash on their insistence, the same fell within the exceptions provided in the Circular No. 220 (F. No. 206/17/176-ITA.II, dt. 31st May, 1977) issued by the CBDT and as such no disallowance under s. 40A(3) could be made. The CIT(A) accepted this explanation in respect of the first three payments of Rs. 24,000, Rs. 61,795 and Rs. 17,000. However, he upheld the disallowance of the 4th payment of Rs. 40,000 on the ground that the genuineness of the same had not been proved. Thus, out of the addition of Rs. 1,42,749 only an addition of Rs. 40,000 was sustained. The CIT(A) also deleted the addition of Rs. 3 lacs on the ground that the AO had exceeded his jurisdiction in making the said addition. According to him when the revised return was filed on 31st March, 1987, the appellate proceedings were pending before the CIT(A) and as the appellate proceedings were merely a continuation of the assessment proceedings, the CIT(A) while deciding the appeal on 7th March, 1989, could have himself taken note of the revised return and made the addition on its basis. Thus, according to the CIT(A), the AO could not reopen the assessment under s. 147 to rope in the amount of Rs. 3 lacs declared in the revised return and the only issue for consideration by the AO in the remand proceedings was in respect of addition of Rs. 1,42,749.

Against the order of the CIT(A), the Revenue filed an appeal before the Tribunal challenging the relief of Rs. 1,02,749 and Rs. 3 lacs granted by the CIT(A). The assessee filed cross-objections in which the addition of Rs. 40,000 sustained under s. 40A(3) of the Act was challenged. The Tribunal vide order dt. 7th Oct., 1998, not only confirmed the CIT(A)’s order in upholding the disallowance of Rs. 40,000 made under s. 40A(3) but also accepted the departmental appeal in respect of the payment of Rs. 24,000 which was also held to have been made in contravention of the said provision. The Tribunal found that the assessee had not fulfilled the requirements provided in the Board’s Circular itself and as such could not be said to be covered by the exceptions provided therein. The Tribunal also restored the addition of Rs. 3 lacs which had been deleted by the CIT(A) on the ground that the assessee had itself declared it in the return filed under the Amnesty Scheme.

It is in this background that the questions formulated by this Court have to be answered. Regarding the question No. 1, the counsel for the appellant has reiterated his stand as taken before the authorities below and relies on the Board’s Circular, dt. 31st May, 1977. Shri R.P. Sawhney, standing counsel for the Department, relies upon the order of the Tribunal is support of the disallowance.

We have heard the counsel for the parties and perused the records. The only defence of the assessee before the authorities below has been that the transactions fell within the exceptions provided in the Board’s Circular, dt. 31st May, 1977. No doubt the explanation rendered by the assessee in respect of the payments of Rs. 24,000 and Rs. 40,000 would be covered by the exceptional circumstances as provided in Board’s circular, yet that by itself will not entitle the assessee to claim the relief. There is a further requirement provided in the Board’s Circular itself for furnishing of a confirmatory letter from the concerned parties. The relevant extract from the said circular is being reproduced below for the sake of convenience : “It can be said that it would generally satisfy the requirements of r. 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from 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 ITO to satisfy himself about the genuineness of the transactions. The ITO will, however, record his satisfaction before allowing the benefit of r. 6DD(j).” Admittedly no such letter in the above terms had been furnished by the assessee. In this view of the matter, this question has to be decided against the assessee and in favour of the Revenue. We, therefore, hold that the Tribunal was justified in sustaining the addition of Rs. 64,000 in view of the provisions of s. 40A(3) of the Act r/w r. 6DD of the IT Rules. Coming to question No. 2, the learned counsel for the assessee has submitted that the

Tribunal has wrongly upheld the addition on the ground that the assessee itself had shown the income of Rs. 3 lacs in the revised return. It has been contended that the Tribunal seems to have referred to the return filed on 31st March ,1987 which was an invalid return and as such was non est in the eyes of law. In response to the notice under s. 148 of the Act, the assessee had requested that the original return filed by it be treated as return filed in compliance of the said notice. Thus, it was argued that there was no return before the AO during the reassessment proceedings in which a sum of Rs. 3 lacs had been offered for assessment. Shri R.P. Sawhney, Senior Advocate, on the other hand, supported the order of the Tribunal. It was contended by him that once the assessee had filed the return under the Amnesty Scheme offering an additional income of Rs. 3 lacs for taxation, the AO had to accept the same and bring the additional income to tax. No further onus lay on the AO to prove the existence of such an income.

We have heard the counsel for the parties and perused the records. It is an undisputed fact that the assessee had filed its return on 31st March, 1987, offering an additional income of Rs. 3 lacs to take the benefit of the Amnesty Scheme which was then in vogue. This scheme had been introduced in June, 1985 and was valid upto 31st March, 1987. It offered amnesty from penal consequences to all those persons who came forward to declare their undisclosed income voluntarily. Various circulars had been issued by the CBDT in this behalf explaining the scheme and also clarifying the doubts of the assessees. Vide Circular No. 451, dt. 17th Feb., 1986, the CBDT had answered various questions about the scheme. It would be relevant here to reproduce the question Nos. 1 and 2 and the answers thereto which would resolve the issue in hand.

“Question No. 1.—What will be the procedure required to be followed by the assessee who wants to declare income or wealth in respect of the past years? (a) in case where the assessments pertaining to those years are already completed: (b) in case where the assessments in respect of those years are pending. Answer : In cases were the assessments are already completed, the taxpayer should approach the concerned CIT with the full disclosure of the amounts of income and/or wealth concealed in various years and should also file returns for the relevant years. He should also produce evidence of payment of taxes before 31st March, 1986. The filing of the returns will be regularised by issue of formal notices under s. 148 of the IT Act/s. 17 of the WT Act. In cases where the assessments are pending, the taxpayer should file revised return before the ITO along with evidence of payment of taxes.

Question No. 2 : In respect of completed assessments, the question will arise whether the assessee should merely declare the income relevant to those years and pay the tax according to the rates prevalent in those years in such declared income or whether he is required to file the return of income showing the additional income ?

Answer : As mentioned above, he must file a fresh return of income including the additional income.”

10. Here it needs to be clarified that initially the Amnesty Scheme was valid upto 31st March, 1986, but later it was extended upto 31st March, 1987. Thus, the year in answer to question No. 1 has to be read as 1987 in place of 1986. The above clarifications clearly show that the scheme itself provided for a procedure to regularise the returns filed under the Amnesty Scheme in cases where the assessment for the relevant assessment year stood already completed. The assessees were required to file the return of income including the additional income and the said returns were to be regularised by issue of a notice under s. 148 of the Act. This is precisely what has been done in this case. The assessee had filed the return offering the additional income of Rs. 3 lacs under the Amnesty Scheme after the assessment for the asst. yr. 1981-82 had already been completed. The AO, therefore, had rightly issued the notice under s. 148 to regularise the said return and bring the amount of Rs. 3 lacs to tax. This action is clearly in accordance with the terms of the Amnesty Scheme and the assessee cannot possibly object to the additional income under the Amnesty Scheme being added to its total taxable income. In this view of the matter, we are satisfied that the Tribunal has correctly restored the addition of Rs. 3 lacs. Thus, this question is also to be answered against the assessee.

In this result, the appeal is dismissed.

[Citation : 250 ITR 738]

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