Commissioner Of Income Tax(Central), Ludhiana v. M/S S.a.builders Limited, Sector-26, Chandigarh

Income Tax Appeal No.19 of 2003 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income Tax Appeal No.19 of 2003 Date of Order: 21[st] August, 2013 Commissioner of Income Tax(Central), Ludhiana ...Appellant Versus M/s S.A.Builders Limited, Sector-26, Chandigarh ..Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Ms. Urvashi Dhugga, Advocatefor the appellant Mr. Alok Mittal, Advocate,for the respondent. RAJIVE BHALLA, J. The revenue, impugns order dated 20.06.2002, passed by the Income Tax Appellate Tribunal, ChandigarhBench 'A' (hereinafter referred to as 'the Tribunal'), on thefollowing substantial questions of law:- “(i) Whether, on the facts and in the circumstancesof the case, the ITAT was right in law in holdingthat the amount of Rs.44,80,490/- retained byof the case, the ITAT was right in law in holdingthat the amount of Rs.44,80,490/- retained by the authorities from contract paymentsreceivable by the assessee on accrued basiscould not be treated as assessee's income forthe year inspite of the fact that income wasreceivable by the assessee on accrued basiscould not be treated as assessee's income forthe year inspite of the fact that income was being assessed on accrual basis? (ii) Whether, on the facts and in the circumstancesof the case, the ITAT was right in holding that thecash payments exceeding in amount ofRs.10,000/- at a time amounting toRs.1,27,989/- were made under exceptionalcircumstances as listed in Rule 6DD(j) andhence were not disallowable u/s 40A(3)?”of the case, the ITAT was right in holding that thecash payments exceeding in amount ofRs.10,000/- at a time amounting toRs.1,27,989/- were made under exceptionalcircumstances as listed in Rule 6DD(j) andhence were not disallowable u/s 40A(3)?” Counsel for the revenue as well as counsel for therespondent, agree that the first question of law is coveredagainst the revenue, vide judgment dated 06.05.2013, passed inITA No.720 of 2008 (“Commissioner of Income Tax Chandigarh-IIv. M/s SAB Industries Limited, Sector-26, Chandigarh”). The firstquestion of law is, therefore, answered against the revenue interms of the aforesaid judgment. Counsel for the revenue submits that the secondquestion of law may be re-framed and a third question of lawalso arises for consideration in the following terms:- “(ii)Whether the Income Tax Appellate Tribunal,exercising powers of an Appellate Authority wasright in reversing findings recorded by theAssessing Officer on facts that were neitherpleaded nor raised before the Assessing Officeror the CIT(Appeals)?exercising powers of an Appellate Authority wasright in reversing findings recorded by theAssessing Officer on facts that were neitherpleaded nor raised before the Assessing Officeror the CIT(Appeals)? (iii) Whether the Income Tax Appellate Tribunalcould have reversed the order passed by theAssessing Officer and the CIT(Appeals), withrespect to cash payment to M/s MunakInternational Private Limited, without reversingthe findings recorded by the Assessing Officeras well as the CIT(Appeals) that purchases ofMarble Chips and Alluminium products cannotbe said to be an emergency purchases,justifying payment in cash?” (iii) Whether the Income Tax Appellate Tribunalcould have reversed the order passed by theAssessing Officer and the CIT(Appeals), withrespect to cash payment to M/s MunakInternational Private Limited, without reversingthe findings recorded by the Assessing Officeras well as the CIT(Appeals) that purchases ofMarble Chips and Alluminium products cannotbe said to be an emergency purchases,justifying payment in cash?” Counsel for the appellant submits that the AssessingOfficer disallowed Rs.1,27,979/- under Section 40A(3) of theIncome Tax Act, 1961 (hereinafter referred to as 'the 1961 Act'),with respect to payments, made in cash to different parties, inexcess of Rs.10,000/-. The payments disallowed pertain topayment of Rs.40,000/- and Rs.12,684/- made to parties atCalcutta. The appellant's defence was that parties insisted oncash payments and their letters are appended. The defencewas rejected on the ground that it does not satisfy requirementsof Rule 6DDJ of the Rules, or CBDT's circular No.220, dated31.05.1997 and as letters demanding cash payments are notappended. The finding was affirmed by the CIT(Appeals) buthas been reversed by the Tribunal, on a fact that was neitherraised before the Assessing Officer nor before the CIT(Appeals), -4- namely, that the respondent did not have a bank account atCalcutta. The payment of Rs.75295/- to M/s Munak InternationalPrivate Limited was disallowed as the explanation that paymentwas made for emergency purchase of marble chips andalluminium products was rejected. The finding was affirmed bythe CIT(Appeals) but has been reversed, by the Tribunal, withoutassigning any clear and cogent reason and without reversingthe finding rejecting the explanation of emergency purchases. Itis argued that as impugned findings raise substantial questionsof law they may be answered in favour of the revenue. Counsel for the respondent submits that findingsrecorded by the Tribunal do not call for interference much lessraise a substantial question of law as they are pure findings offacts. It is also argued that the respondent has not raised anyfresh plea before the Tribunal as the plea with respect toabsence of a bank account, at Calcutta could be raised at anystage and even otherwise flows from the explanation proferredby the appellant. With regard to the other submissions, it isargued that the fact that Shri R.K.Garg is the Promoter/Directorof M/s Munak International Private limited or that the lattercompany is housed in the same building was rightly held to beirrelevant by the Tribunal. We have heard counsel for the parties, perused theimpugned order, order passed by the CIT(Appeals) as well as the order passed by the Assessing Officer. The Assessing Officer disallowed Rs.1,27,979/- paidin cash in excess of Rs.10,000/- as there was no plausibleexplanation, for these payments. The particulars of thesepayments and reasons assigned by the Assessing Officer, forrejecting the explanation proferred by the assessee are asfollows:- (1) A sum of Rs.40,000/- was paid to M/s JainSuppliers Syndicate Calcutta and Rs.12,684/- toM/s Lala Jogi Dass Prem Sagar, both ofCalcutta. The explanation offered by theassessee was that parties at Calcutta insistedon cash payment and their request letters areenclosed with the reply. The explanation wasrejected by holding that the assessee has notenclosed the request letters and has notadduced any other independent evidence.Suppliers Syndicate Calcutta and Rs.12,684/- toM/s Lala Jogi Dass Prem Sagar, both ofCalcutta. The explanation offered by theassessee was that parties at Calcutta insistedon cash payment and their request letters areenclosed with the reply. The explanation wasrejected by holding that the assessee has notenclosed the request letters and has notadduced any other independent evidence. (2) The payment of Rs.75,295/- to M/s MunakInternational Private Limited was disallowed onthe ground that the explanation that paymentwas made for emergency purchases was falseas purchase of marble chips and aluminumproducts could not be held to be an emergencypurchase and even otherwise Shri R.K.Garg,International Private Limited was disallowed onthe ground that the explanation that paymentwas made for emergency purchases was falseas purchase of marble chips and aluminumproducts could not be held to be an emergencypurchase and even otherwise Shri R.K.Garg, -6- Director of the assessee is a Promoter of M/sMunak International Private Limited, which ishoused in the same building as the assessee. As referred to before these findings, were affirmed bythe CIT(Appeals). The Tribunal has, however, reversed thesefindings by holding as follows:- “10. We have heard both the parties and given ourutmost consideration to the rival submissions.We have also examined the facts, evidence andmaterial on record. From the facts detailedabove, it is obvious that the only plea taken bythe assessee before the lower authorities wasthat such cash payments had been made atCalcutta because the parties from whom suchpurchases were made insisted on cashpayments. However, no evidence in the form ofconfirmatory letter from those parties that theyinsisted on such cash payments was produced.The assessee had not taken the plea before thelower authorities that cash payments were madeto the above mentioned parties because theassessee did not any bank a/c. The Hon'blePunjab & Haryana High Court in the case of CITv. Brij Mohan Singh & co., supra, has held that cash payments made to the party at a placewhere the seller or purchaser does not havebank account would not call for disallowance u/s40A(3). The Hon'ble High Court has referred tothe Board's circulate No.220, dated 31.5.1977,where the CBDT has mentioned that all thecircumstances in which the condition laid downin rule 6DD(j) would be applicable cannot bespelt out. However, some of them, which wouldseem to meet the requirements of the said ruleare as under: “a) The purchaser is new to the seller; or b) The transactions are made at placewhere either the purchaser or theseller does not have a bank account;where either the purchaser or theseller does not have a bank account; or c) the transactions and payments aremade on a bank holiday; ormade on a bank holiday; or d) the seller is refusing to accept the payment by way of crosscheque/draft and the purchaser'sbusiness interest would suffer due tonon-availability of goods otherwisethan from this particular seller; orcheque/draft and the purchaser'sbusiness interest would suffer due tonon-availability of goods otherwisethan from this particular seller; or -8- e) the seller, acting as a commissionagent, is required to pay cash in turnagent, is required to pay cash in turn to persons from whom he has purchased the goods; or f) specific discount is given by theseller for payment to be made by wayof cash.”seller for payment to be made by wayof cash.” From the above it is obvious that paymentsmade in violation of provisions of section 40A(3)at a place where neither the purchaser nor theseller does have the bank account would fall inthe exceptional circumstances mentionedtherein. But the above mentioned circular of theBoard also mentions that all the circumstancesspelt our therein are not exhaustive. These areonly some of the exceptional circumstanceswhere it could be said that such payments arecovered under rule 6DD(j). However, inresponse to specific query from the Bench, theld. Counsel submitted that the registered officeof the assessee is located at Chandigarh. Thecontract work for which such purchases weremade from Calcutta was being carried out atPort Blair. There is no material placed on record From the above it is obvious that paymentsmade in violation of provisions of section 40A(3)at a place where neither the purchaser nor theseller does have the bank account would fall inthe exceptional circumstances mentionedtherein. But the above mentioned circular of theBoard also mentions that all the circumstancesspelt our therein are not exhaustive. These areonly some of the exceptional circumstanceswhere it could be said that such payments arecovered under rule 6DD(j). However, inresponse to specific query from the Bench, theld. Counsel submitted that the registered officeof the assessee is located at Chandigarh. Thecontract work for which such purchases weremade from Calcutta was being carried out atPort Blair. There is no material placed on record to show that the assessee had his branch officeat Calcutta. These facts show that materialpurchased at Calcutta was to be transported toPort Blair where one has also to see theavailability of the transport. No material hasbeen placed on record to show that the partiesfrom whom the assessee made purchases wereknown to the assessee or the assessee hadregular transactions with them even in the past.The mere fact that one of the directos of theCompany was the same from whom it made thepurchases of Rs.75,000/- or so does not meanthat party was known to the assessee. One hasto see the urgency and the circumstances underwhich such payments were made. Therefore,under these facts and circumstances, it could besaid that the impugned payments were coveredunder exceptional circumstances mentioned inrule 6DD(j) and the CIT(A) was not justified insustaining the disallowance of the same. Asregards the various judgments relied on by theld. D.R., those have been rendered withreference to the fact of individual cases andcould not be applied to the facts of the present case. We, therefore, set aside the order of theCIT(A) on this issue and delete the impugneddisallowance. This ground of appeals isallowed.” A perusal of order passed by the learned Tribunal,reveals that as regards payments in cash made to parties inCalcutta, the assessee's original explanation that partiesinsisted on cash payment was noticed and rejected. TheTribunal, thereafter, proceeded to consider a plea raised that asthe assessee did not have a bank account at Calcutta, it wasjustified in making payment in cash. The Tribunal hasspecifically recorded that this plea was not raised before theAssessing Officer or the CIT(Appeals), but entertained andaccepted the explanation. The explanation proferred by theassessee, before the Assessing Officer and the CIT(Appeals),was that parties at Calcutta had insisted upon payment in cashand their letters, in this regard, are appended. The Tribunal, haswhile allowing the appeal accepted a new factual explanationthat was neither proferred nor raised whether before theAssessing Officer or the CIT(Appeals) as it was raised for thefirst time before the Tribunal. The question that, therefore, arises in terms of thesefacts and the second question of law, as modified, at request ofcounsel for the revenue, is whether the Income Tax Appellate Income Tax Appeal No.19 of 2003 -11- Tribunal can entertain a new plea based upon facts that haveneither been pleaded nor urged, before the Assessing Officer orCIT(Appeals)? An answer to this question would necessarily requireappraisal of provisions of Section 254 of the Act. Section 254 ofthe Act reads as follows:- Orders of Appellate Tribunal. 254. (1) The Appellate Tribunal may, after givingboth the parties to the appeal an opportunity ofbeing heard, pass such orders thereon as itthinks fit. The question that, therefore, arises in terms of thesefacts and the second question of law, as modified, at request ofcounsel for the revenue, is whether the Income Tax Appellate Income Tax Appeal No.19 of 2003 -11- Tribunal can entertain a new plea based upon facts that haveneither been pleaded nor urged, before the Assessing Officer orCIT(Appeals)? An answer to this question would necessarily requireappraisal of provisions of Section 254 of the Act. Section 254 ofthe Act reads as follows:- Orders of Appellate Tribunal. 254. (1) The Appellate Tribunal may, after givingboth the parties to the appeal an opportunity ofbeing heard, pass such orders thereon as itthinks fit. Section 254 of the Act is couched in the widestpossible terms and takes within its ambit a duty to ensure thatan assessment order is passed in accordance with provisions ofthe Act and while appraising an order to rectify an erroneousimposition of tax or an erroneous escape of revenue. TheTribunal may, therefore, allow parties to raise fresh pleas andgrounds but only if the factual foundation for the fresh plea orground has already been laid before the Assessing Officer or theCIT(Appeals). The power, in our considered opinion, cannot beconstrued to confer a power so wide and unbridled, as to enablea Tribunal to disregard basic principles that govern exercise ofappellate power, namely, the power to appraise orders anddiscern whether subordinate authorities have committed any error of law or of fact. A reference in this regard may be madeto a judgment of the Hon'ble Supreme Court in NationalThermal Power Co. Ltd.v. Commissioner of Income Tax, 1997(7) SCC 489, which reads as follows:- 5. Under Section 254 of the Income tax Act, theAppellate Tribunal may, after giving both theparties to the appeal an opportunity of beingheard, pass such orders thereon as it thinks fit.The power of the Tribunal in dealing withappeals is thus expressed in the widest possibleterm. The purpose of the assessmentproceedings before the taxing authorities is toassess correctly the tax liability of an assesseein accordance with law. If, for example, as aresult of a judicial decision given while theappeal is pending before the Tribunal, it is foundthat a non-taxable item is taxed or a permissiblededuction is denied, we do not see any reasonwhy the assessee should be prevented fromraising that question before the Tribunal for thefirst time, so long as the relevant facts are onrecord in respect of that item. We do not seeany reason to restrict the power of the Tribunalunder Section 254 only to decide the grounds -13- which arises from the order of theCommissioner of Income-tax (Appeals). Boththe assessee as well as the Department have aright to file an appeal/cross-objections beforethe Tribunal. We fail to see why the Tribunalshould be prevented from considering questionsof law arising in assessment proceedingsalthough not raised earlier.” A perusal of the above extract reveals that a Tribunalmay allow a party to raise a fresh plea for the first time, so longas relevant facts are already on record. The Tribunal, thus,cannot permit a party to raise an entirely new plea for the firsttime for which no factual foundation has been laid before theAssessing Officer or CIT(Appeals). A perusal of findings recorded by the AssessingOfficer as well as by the CIT(Appeals), while rejecting theexplanation offered by the appellant with respect to cashpayments made at Calcutta, is that the appellant has not beenable to establish his explanation that parties insisted upon cashpayment. The Tribunal has allowed the assessee to raise a newplea that the assessee did not have bank account at Calcutta. Aperusal of the record reveals that such a plea was not raised atany stage of the proceedings whether before the AssessingOfficer or CIT (Appeals) and, therefore, could not be raised for A perusal of findings recorded by the AssessingOfficer as well as by the CIT(Appeals), while rejecting theexplanation offered by the appellant with respect to cashpayments made at Calcutta, is that the appellant has not beenable to establish his explanation that parties insisted upon cashpayment. The Tribunal has allowed the assessee to raise a newplea that the assessee did not have bank account at Calcutta. Aperusal of the record reveals that such a plea was not raised atany stage of the proceedings whether before the AssessingOfficer or CIT (Appeals) and, therefore, could not be raised for first time before the Income Tax Appellate Tribunal. We would, atthis stage, reiterate that , though, the Tribunal is entitled topermit parties to raise fresh and new grounds but can onlyentertain such fresh or new grounds as are founded on factsalready pleaded before the Assessing Officer or the CIT(Appeals). The Income Tax Appellate Tribunal, in ourconsidered opinion, cannot allow a party to change its stance byreference to new facts that were not pleaded or asserted beforethe Assessing Officer or the CIT(Appeals). The modified secondquestion of law is answered accordingly. As a consequence of our answer to the secondquestion of law(as modified) it is held that the Income TaxAppellate Tribunal has erred in reversing findings of fact on thebasis of facts that were neither pleaded nor raised before theAssessing officer or the CIT(Appeals) The third question of law framed by counsel for the revenue is whether the Income Tax Appellate Tribunal couldhave reversed orders passed by the Assessing Officer and theCIT(Appeals), with respect to cash payment to M/s MunakInternational Private Limited, without reversing the findings thatpurchase of Marble Chips and Alluminium products cannot beheld to be an emergency purchase, justifying payment in cash? A perusal of findings recorded by the AssessingOfficer as well as the CIT(Appeals) reveals that cash payment to -15- M/s Munak International Private Limited was sought to bejustified on the ground that it was an emergency purchase. Theexplanation was concurrently rejected by the Assessing Officerand the CIT(Appeals) by holding that such purchases cannot beheld to be emergency purchases and even otherwise Mr.R.K.Garg, Managing Director of the assessee is aPromtoer/Director of M/s Munak International Private Limitedand the office of these companies is housed in the samebuilding. The Income Tax Appellate Tribunal has not reversedfindings that purchase of “marble chips and alluminium” are notemergency purchases by merely recorded a sentence that thefact that one of the Directors of the company was the same,does not mean that parties were known to the assessee. We donot propose to delve into this reason but as the Tribunal has notreferred to or reversed the finding recorded by the AssessingOfficer, that purchase of marble chips and alluminium productcannot be said to be an emergency purchase justifying paymentin cash have no hesitation in holding that the order passed bythe Tribunal suffers from an error of jurisdiction, as it hasreversed a pure finding of fact without reversing the reasonsassigned by the Assessing Officer and the CIT(Appeals), forrejecting the assessee's explanation. The third question of lawis answered accordingly. In view of what has been stated hereinabove, theappeal filed by the revenue is dismissed on the first question oflaw but is allowed on the second and third substantial questionsof law. The order passed by the Income Tax Appellate Tribunalreversing the order passed by the CIT(Appeals) with respect topayment in cash made to parties at Calcutta and to M/s MunakInternational Private Limited, is reversed and order passed bythe Assessing Officer and the CIT (Appeals) are restored, to thatextent. (RAJIVE BHALLA) JUDGE August 21[st] , 2013 (DR. BHARAT BHUSHAN PARSOON)nt JUDGE