Itta/81/2000 Of The Commissioner Of Income Tax v. Shrisingamsetty Subba Rao

THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKURAND THE HON’BLE SHRI JUSTICE SANJAY KUMAR ITTA No. 81 OF 2000 DATED:23-12-2011 Between:Commissioner of Income Tax, Vijayawada. … Appellant And Sri Singamsetty Subba Rao … Respondent THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKURANDTHE HON’BLE SHRI JUSTICE SANJAY KUMAR ITTA No.81 OF 2000 JUDGMENT:(per the Hon’ble the Chief Justice Shri Madan B. Lokur) 1. This appeal under Section 260A of the Income Tax Act, 1961(hereinafter referred to as “the Act’) is with reference to an order dated5.6.2000 passed by the Income Tax Appellate Tribunal, HyderabadBench-A, Hyderabad in I.T.A. No. 293/Vizag/99, relevant for theassessment year 1995-96. 2. Although the appeal was admitted on 6.2.2001, no substantialquestion 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 thecircumstances of the case, the Income TaxAppellate Tribunal was correct in law in holdingthat the circumstances contemplated by Rule6DD(j) of the Income Tax Rules, 1962 existedas far as the assessee is concerned ?Appellate Tribunal was correct in law in holdingthat the circumstances contemplated by Rule6DD(j) of the Income Tax Rules, 1962 existedas far as the assessee is concerned ? 2. Whether on the facts and in thecircumstances of the case, the order of theIncome Tax Appellate Tribunal is perverse inlaw ?Income Tax Appellate Tribunal is perverse inlaw ? 4. The assessee is a trader located in Vijayawada. He carries on thebusiness of purchase and sale of suit cases. Most of his supplies arereceived from vendors in Hyderabad. 5. According to the assessee, he used to make payment for thepurchases by cash. According to the Revenue, this was in violation ofpurchases by cash. According to the Revenue, this was in violation of Section 40A(3) of the Act. In response, the contention of the assesseewas that he was entitled to the benefit of Rule 6DD(j) of the Income TaxRules, 1962 (hereinafter referred to as “the Rules”). This provisionreads as follows: “6-DD: No disallowance under sub-section (3) of Section 40A shall bemade where otherwise than by a crossed cheque drawn on a bank or by acrossed bank draft in the cases and circumstances specified hereunder,namely:- ..... ....... ...... (j)in any other case, where the assessee satisfies the AssessingOfficer that the payment could not be made by a crossed chequeOfficer 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 notpracticable, or would have caused genuine difficulty to thepayee, having regard to the nature of the transaction and thenecessity for expeditious settlement thereof,(2) because payment in the manner aforesaid was notpracticable, or would have caused genuine difficulty to thepayee, having regard to the nature of the transaction and thenecessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the AssessingOfficer as to the guidelines of the payment and the identity of thepayee.” 6. The assessee relies upon Clause (1) of Rule 6 DD(j) and says that the payments were made by the assessee in cash due to theexceptional or unavoidable circumstances. 7. During the assessment proceedings, the assessee stated in his letter dated 23.3.1998 before the Assessing Officer as follows: and also furnishes evidence to the satisfaction of the AssessingOfficer as to the guidelines of the payment and the identity of thepayee.” 6. The assessee relies upon Clause (1) of Rule 6 DD(j) and says that the payments were made by the assessee in cash due to theexceptional or unavoidable circumstances. 7. During the assessment proceedings, the assessee stated in his letter dated 23.3.1998 before the Assessing Officer as follows: “With regard to payments in excess of Rs.10,000/- in cash I submit that Iam an uneducated person and do not know much about Income-tax andSales tax rules and regulations and as such I did not maintain any bankaccount. As I am uneducated do not much about Income-tax rules andhaving no bank account I have made all the purchases in cash only. Ienclose herewith a statement showing the details of cash payments inexcess of Rs.10,000/- for purchases made during the year 1994-95. Therefore, you are requested to take into consideration the above factsand not to disallow the same u/s 40A(3).” 8. The Assessing Officer did not accept the explanation given by the assessee for the reason that even though the assessee may beuneducated, he had the services of a Chartered Accountant to look afterhis tax matters and that he was carrying on the business since theassessment 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 Section40A(3) of the Act. It was also noticed by the Assessing Officer that theassessee had made payments in cash on 31 occasions and there wereonly a few parties with whom the assessee apparently had regularbusiness. On the issue whether the assessee had a bank account ornot, no view was expressed by the Assessing Officer. On the basis ofthe above facts, the Assessing Officer held against the assessee andtaxed the receipts. 9. Feeling aggrieved, the assessee preferred an appeal, which wasrejected by the Commissioner of Income Tax (Appeals), by his orderdated 30.11.1999. 10. On the issue as to whether the assessee had any bank account ornot, the appellate authority came to the conclusion that the assesseehad a savings bank account in Andhra Bank in Vijayawada. 11. In the appeal, the assessee took up a new ground which was notagitated before the Assessing Officer and that ground was based onCircular No. 220, dated 31.5.1971 issued by the Central Board of DirectTaxes. The portion on which the assesee relied upon reads as follows: “The transactions are made at a place whereeither the purchaser or the seller does not havea bank account.” 12. A plain reading of the sentence relied upon by the assesseeshows that the transaction should be at a place where either the seller ofthe goods or the assessee did not have a bank account. 13. It has come on record that the assessee receives his goods bylorry delivered from Hyderabad to Vijayawada. As mentioned above, theAppellate Authority found that the assesssee has a bank account inVijayawada. That being the position, the Circular relied upon by theassessee does not come to his aid. 14. It may be noticed that the stand taken by the assessee before theAppellate Authority was quite different from the stand taken before theAssessing Officer. 15. Feeling aggrieved by the view expressed by the AppellateAuthority, the assessee preferred an appeal which was allowed by theTribunal by the order under appeal. 13. It has come on record that the assessee receives his goods bylorry delivered from Hyderabad to Vijayawada. As mentioned above, theAppellate Authority found that the assesssee has a bank account inVijayawada. That being the position, the Circular relied upon by theassessee does not come to his aid. 14. It may be noticed that the stand taken by the assessee before theAppellate Authority was quite different from the stand taken before theAssessing Officer. 15. Feeling aggrieved by the view expressed by the AppellateAuthority, the assessee preferred an appeal which was allowed by theTribunal by the order under appeal. 16. The Tribunal decided in favour of the assessee on a ground whichwas not urged either before the Assessing Officer or before theAppellate Authority. The Tribunal noted that the suppliers of theassessee, who were delivering the goods to him invariably insisted onspot payment of cash to the lorry drivers. There is absolutely noevidence for this. The Tribunal went on to hold that since the suppliersdo not have bank account in Vijayawada and because they could notrely upon the credit worthiness of the assessee, they did not extend anycredit facilities to him. There was an insistence on payment for thesupply of goods in cash. In this regard also, there is absolutely nomaterial on record. The Tribunal has further come to the conclusion thataccording to the assessee, he used to be ridiculed by the suppliers withregard 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 theTribunal has proceeded entirely on conjectures and surmises, which arenot warranted from any material on record. 18. Learned counsel for the assessee has pointed out that theTribunal noted that in real life, things of this kind are not uncommon. 19. We are unable to appreciate how the Tribunal has made such abald and general statement to justify payment by the assessee in cashfor the supply of the goods delivered to him from Hyderabad. 20. We may note that in Late Smt. Jyothi Chellaram vs. [[1]]Commissioner of Income Tax, a Division Bench of this Court heldthat there must be some evidence to corroborate the explanationfurnished by the assessee. As we have noted above, the explanationsubmitted by the assessee both before the Assessing Officer as well asbefore the Appellate Authority were found to be false and in so far as theview expressed by the Tribunal is concerned, that was based only onCommissioner of Income Tax, a Division Bench of this Court heldthat there must be some evidence to corroborate the explanationfurnished by the assessee. As we have noted above, the explanationsubmitted by the assessee both before the Assessing Officer as well asbefore the Appellate Authority were found to be false and in so far as theview expressed by the Tribunal is concerned, that was based only on material which was not on record and purely on surmises andconjectures. In our opinion, the assessee has not made out any caseof exceptional or unavoidable circumstances as postulated by Rule6DD(j) of the Rules. 21. Under the circumstances, we have no doubt that the substantialquestions of law referred to above have to be answered in the followingmanner:- Question No. 1:- The answer to this question is in the negative, infavour of the Revenue and against the assesssee. Question No.2: The answer to this question is in the affirmative, infavour of the Revenue and against the assessee. 22. The appeal is disposed on the above terms. MADAN B. LOKUR, CJ 23-12-2011LR copy to be marked.pnb SANJAY KUMAR, J [1]1988 173 ITR 358