Ita v. Ita

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE MONDAY, THE 16TH DAY OF DECEMBER 2013/25TH AGRAHAYANA, 1935 ITA.No. 450 of 2009 ------------------- AGAINST THE ORDER IN ITA 272/COCH/2001 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 30-01-2004 ............... APPELLANT/APPELLANT :---------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT : --------------------------------- SRI.C.V.SEBASTIAN, CHATHAMKANDATHIL TRADERS, PROVISION DEALER MARKET P.O., MUVATTUPUZHA. BY ADVS. SRI.V.M.KURIAN SRI.MATHEW B. KURIAN SRI.K.T.THOMAS SRI.C.N.SREEKUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 16-12-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Manjula Chellur, C.J. & A.M. Shaffique, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A. No. 450 OF 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 16[th] day of December, 2013 Manjula Chellur, C.J. JUDGMENT The substantial question of law framed forconsideration in this appeal is as under: “Whether, on the facts and in thecircumstances of the case the Tribunal is right in lawand in fact in holding that the disallowance ofRs.5,86,437/- made by the Assessing Officer indetermining the total income does not come underthe purview of prima facie adjustment prescribedu/s.143(1) (a) of the I.T. Act ?” 2. This appeal is filed by revenue pertaining to the assessment year 1996-97. The assessment proceedings cameto be completed under Section 143 (1)(a) of the Income TaxAct. At that point of time the assessing officer made certainadjustments. He added 20% of the cash payments madeexceeding 10,000/- during the previous year relevant to the₹assessment year of 1996-97 as adjustment to the total incomewhile sending the intimation to the assessee under Section 143 ITA No. 450 of 2009 -:2:- (1)(a). This came to be challenged before the first appellateauthority which ended in Annexure B order. The appeal went infavour of the assessee. Therefore, the revenue challenged theorder of the appellate authority before the appellate Tribunalwhich resulted in Annexure C order confirming the order of thefirst appellate authority. Aggrieved by the same the revenue isbefore us in this appeal. 3. According to the learned Standing Counsel,Annexure A intimation issued under Section 143(1) (a) of theIncome Tax Act, clearly indicates that 20% of 29,32,184/- was₹disallowed under Section 40A(3) as per the audit report.Therefore, according to learned Standing Counsel, intimationunder Section 143(1)(a) was given giving the details as indicatedabove. On perusal of Section 40A (3) read with Rule 6DD of theIncome Tax Rules, it is clear that the assessing officer has tomake such disallowance as required under Section 40A(3) only ifthere is proper material available either in the returns or therecords accompanying the reports. ITA No. 450 of 2009 -:3:- 3. According to the learned Standing Counsel,Annexure A intimation issued under Section 143(1) (a) of theIncome Tax Act, clearly indicates that 20% of 29,32,184/- was₹disallowed under Section 40A(3) as per the audit report.Therefore, according to learned Standing Counsel, intimationunder Section 143(1)(a) was given giving the details as indicatedabove. On perusal of Section 40A (3) read with Rule 6DD of theIncome Tax Rules, it is clear that the assessing officer has tomake such disallowance as required under Section 40A(3) only ifthere is proper material available either in the returns or therecords accompanying the reports. ITA No. 450 of 2009 -:3:- 4. Rule 6DD enumerates several circumstances wherepayment of cash could be made by the assessee even if itexceeds 10,000/- at the relevant point of time. Admittedly the₹respondent/assessee was dealing with a provision shop and asper Rule 6DD certain clauses allows him to make payments incash exceeding 10,000/-. Before arriving at a conclusion that₹20% of 29 lakhs and odd has to be disallowed in terms of Section40A(3) of the Act, the assessing officer ought to have called forfurther details from the assessee in order to understand whethersuch claim could be made under Rule 6DD by the assessee.Apparently such exercise was not done by the assessing officerwhich is mandatory as laid down in the two decisions relied uponby the respondent assessee, i.e., Parikh Engineering and BodyBuilding Co. Ltd. and another v. Union of India and others[ITR 238 page 554] and S.R.F. Charitable Trust v. Union ofIndia and others[ITR 193 page 94]. These two decisions makeit clear that the assessing officer cannot unilaterally disallow theclaim made by the assessee unless and until he calls upon theassessee to prove the claim made by him. Only after giving such ITA No. 450 of 2009 opportunity, from the material placed on record, the assessingofficer can disallow the claim as required under Section 40A(3)read with Rule 6DD of the Act. In the present case, no suchexercise was undertaken. Hence, we are of the opinion, this deserves to beremitted back to the assessing officer to follow the procedure asprovided under Section 40A(3) read with Rule 6DD and passorders within three months from the date of receipt of a copy ofthis judgment. Assessing Officer is directed to issue requirednotice calling upon the assessee to produce material in support ofthe claim made by the assessee as indicated above. HenceIncome Tax Appeal is allowed. Annexure A is quashed andAnnexures B and C are set aside. Manjula Chellur, Chief Justice. A.M. Shaffique, Judge. ttb/17/12 ITA No. 450 of 2009