M/S Mahendra Prasad Singh & Bros Mahalla- Dalluchak, Khagaul, District-Patna v. Commissioner Of Income Tax-Ii, Patna

IN THE HIGH COURT OF JUDICATURE AT PATNAMiscellaneous Appeal No.51 of 2010 ====================================================== M/S Mahendra Prasad Singh & Bros Mahalla- Dalluchak, Khagaul, District-Patna through its working partner Rakesh Kumar, S/O Late Mahendra PrasadSingh R/O- Dalluchak, P.O. & P.S.- Khagaul, Distt.- Patna ... ... Appellant/s Versus 1.Commissioner of Income Tax-II, Patna 2.Asstt. Commissioner of Income Tax, Circle-5, Patna ... ... Respondent/s ====================================================== Appearance :For the Appellant/s: Mr.Krishna Mohan Mishra, Advocate For the Respondent/s: Mrs. Archana Sinha, Sr. Standing Counsel ====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE PARTHA SARTHYORAL JUDGMENT(Per: HONOURABLE THE CHIEF JUSTICE) Date : 04-12-2023 At the time of argument, learned counsel for theappellant had pointed out that the only question of law raised iswith respect to the disallowance made based on Section 40A(3)of the Income Tax Act, 1961, which is re-framed as below:- “Whether the provision under Section 40A(3) as itexisted for the relevant Assessment Year being 2004-05 permitted disallowance of deduction ofexpenditure incurred beyond Rs.20,000/-, on the factscoming out, if the same has not been made by anAccount Payee Cheque/Draft drawn at a Bank,especially since the words ‘to a person in a day’ wasincorporated only from 01.04.2009?” 2. The assessee, who is the appellant, is a government contractor and filed returns for the relevant Assessment Year 2004-05. As per the Assessment Order produced at Annexure-3the perusal of the Books of Account showed paymentsexceeding Rs. 20,000/- in cash on various dates for materialspurchased, the total of which came to Rs. 1,22,33,656/-. TheAssessing Officer noticed Section 40A(3) which mandated thatno expenditure shall be allowed as a deduction if a sumexceeding Rs. 20,000/- is paid otherwise than by a crossedcheque drawn on a bank or by a crossed bank draft. Twenty percent of such expenditure shall not be allowed as a deduction wasthe rigor of the provision. Rule 6DD was also noticed whichpermitted absolution from the prohibition as provided underSection 40A(3), none of which applied in the case of theassessee. 3. It was noticed that the Cash Book of the firmindicated amounts beyond Rs. 20,000/- having been paid formaterial purchases and the assessee was to explain why 20 percent of it should not be disallowed. The assessee’s contentionwas that the Books of Account itself shows that the amountspaid on a single day were for payment of material brought indifferent trucks clearly indicating that they were bifurcatedpayments. The Assessing Officer, however, found that none ofthe bills or vouchers were produced, which the assessee admitted they did not have in their possession; for having notobtained such bills or vouchers. It was asserted that thepayments were made to the individual truck drivers whobrought the material. The assessee before us also pointed outthat though the Cash Book showed payments on a single day,the Day Book clearly bifurcated the same based on the truckloads of material received, which indicates the payment havingbeen made individually to the truck drivers; none of whichsingle payment exceeded Rs. 20,000/-. The Assessing Officerrefused to accept the contention of the assessee especiallyrelying on the entries made in the Books of Account withoutproducing any substantiating bills or vouchers. admitted they did not have in their possession; for having notobtained such bills or vouchers. It was asserted that thepayments were made to the individual truck drivers whobrought the material. The assessee before us also pointed outthat though the Cash Book showed payments on a single day,the Day Book clearly bifurcated the same based on the truckloads of material received, which indicates the payment havingbeen made individually to the truck drivers; none of whichsingle payment exceeded Rs. 20,000/-. The Assessing Officerrefused to accept the contention of the assessee especiallyrelying on the entries made in the Books of Account withoutproducing any substantiating bills or vouchers. 4. The first Appellate Authority found that theassessee was disallowed an amount of Rs. 1,50,000/- on anestimate, out of the expenses claimed on account of non-furnishing of any supporting evidence with regard to the claim.The disallowance was found to be excessive and it wasrestricted to Rs. 1,00,000/. The Tribunal by its impugned orderheld that despite specific order by the Bench the authorizedrepresentative was not able to show any evidence that cashpayments on a particular day, which was admitted to beexceeding Rs. 20,000/- were separate transactions. 5. Learned counsel for the assessee before us alsorelied on the Day Book and the bifurcation made therein. Theassessee further pointed out that the disallowance of thepayments made other than by an account payee cheque/draft “toa person in a day” was brought in by an amendment to Section40A(3) of the Income Tax Act with effect from 01.04.2009.Hence, the same would not be applicable in so far as therelevant assessment year especially in the context of the DayBook having shown the bifurcated payments made. The learnedcounsel also relied on the decision of a Division Bench of thisCourt in M.A. No. 30 of 2012; Asstt. CIT v. Sunil Kumar dated17.02.2016. 6. Learned Senior Standing Counsel for the IncomeTax Department, however, supported the assessment order asconfirmed by the Appellate Authorities. It was pointed out thatthe only exception allowed from a disallowance under Section40A(3) was under Rule 6DD of the Income Tax Rules, which isnot applicable in the present case. 7. The appellant relied on CIT, Orissa v. Aloo SupplyCo.; (1980) 121 ITR 680 (Ori-HC), CIT v. TriveniprasadPannalal; (1997) 228 ITR 680 (MP-HC), CIT v. Ashok Iron &Steel Rolling Mills; (2010) 320 ITR 101 (All-HC) to further challenge the disallowance of expenses made in the presentcase. In so far as the reliance to be placed on Books of Accountsare concerned, learned counsel placed reliance on IndoreMalwa United Mills Limited v. State of Madhya Pradesh &Others; (1966) 60 ITR 41 (SC). The assessee also relied onD.R. Rathna Murthy v. Ramappa; (2011) 1 SCC 158, ManickaPoosali (Dead) by LRS. and others v. Anjalai Ammal andanother; (2005) 10 SCC 38 and Sabitri Chatterjee v. Debi DasRoy; (2005) 10 SCC 402 to urge that an erroneous finding offact bordering on perversity would be a substantial question oflaw which can be considered by the High Court. Reliance wasplaced on CIT v. Rajinder Prasad Jain; (2015) 374 ITR 545 (P& H-HC) and Prasad Construction & Co. v. CIT & others;(2016) 388 ITR 597 (Pat-HC) to urge the non-sustainability ofestimates of income in civil contract businesses. 8. Aloo Supply Co. (supra) considered the thenexisting provision under Section 40A(3) which had the statutorylimit of Rs. 2500/-. Therein, the Tribunal had accepted thecontention of the assessee that the entry made in the cash bookat the end of the day, relating to all the payments made to a partyduring the day, would not run contrary to the explanation of theassessee that the payee had accepted the money in different 8. Aloo Supply Co. (supra) considered the thenexisting provision under Section 40A(3) which had the statutorylimit of Rs. 2500/-. Therein, the Tribunal had accepted thecontention of the assessee that the entry made in the cash bookat the end of the day, relating to all the payments made to a partyduring the day, would not run contrary to the explanation of theassessee that the payee had accepted the money in different installments. We are unable to accept the aforesaid principle inthe present case especially since the Assessing Officer hadspecifically found that in the present case though there was acontention raised of the assessee having paid the amounts to thetruck drivers on the delivery of goods at different work sites; itis not supported by any bills or vouchers. TriveniprasadPannalal (supra) and Ashok Iron & Steel Rolling Mills (supra)also are High Court decisions which accepted the Tribunal’sfinding on facts that though the payment of a day exceededRs.2,500/-, there was a break up of three or four transactions.We cannot but notice that the decisions at best are on facts andare only persuasive in nature being that of the different HighCourts. 9. Indore Malwa United Mills Limited (supra) was acase in which estimate was made of sale beyond that shown inthe books of accounts, relying on the Sale Contract Register andthe Daily Yarn Production Register. The assessee contended thatthe Sale Contract Register recorded only the estimate of qualityand quantity required by the buyer and the Daily YarnProduction Register indicated the actual production made;which alone was subjected to sale. The Hon’ble Supreme Courtfound favour with the above contention especially noting that there are many imponderables entering into the process ofspinning yarn and weaving cloth which reduce the weight of theyarn that finally enters into the making of the cloth. It was alsofound that there are other registers maintained by the assesseefrom which the actual sale of yarn could be discerned and thatthe Assessing Officer was not correct in having ignored suchregisters and merely relied on the Sale Contract Register whichtargeted only the requirement of the buyer and not the actualsale. The said decision has no application to the present casesince there is no such imponderable, discernible from thetransaction of supply of building materials at work sites indifferent trucks. The cash book indicated the amounts paid on aparticular day which exceeded Rs.20,000/-. The assessee has notshown as to whether the supplies were sourced from differentpersons and has not produced any supporting bills or vouchers,which leads to only a reasonable inference that the amountswere paid to the supplier in lump sum for the materialsdelivered on a date. 10. We need not refer to the decisions relied on by theassessee to urge the trite principle that perversity on facts woulddefinitely come within the ambit of a question of law. There isno such perversity coming out from the order of the Tribunal which confirmed the order of the Assessing Officer and the FirstAppellate Authority. Insofar as the estimates on civil contractbusiness, we are not convinced that the modification made bythe First Appellate Authority on the premise that thedisallowance made by the Assessing Officer was on an estimateis correct especially since the specific provision under which thedisallowance was made, mandates such disallowance to thepercentage indicated therein on there being no evidence toindicate payments exceeding Rs.20,000/- by account payeedrawn cheques/drafts. However, the State having not filed anyappeal from the estimate made, we do not think it proper tointerfere in the modification made by the First AppellateAuthority. which confirmed the order of the Assessing Officer and the FirstAppellate Authority. Insofar as the estimates on civil contractbusiness, we are not convinced that the modification made bythe First Appellate Authority on the premise that thedisallowance made by the Assessing Officer was on an estimateis correct especially since the specific provision under which thedisallowance was made, mandates such disallowance to thepercentage indicated therein on there being no evidence toindicate payments exceeding Rs.20,000/- by account payeedrawn cheques/drafts. However, the State having not filed anyappeal from the estimate made, we do not think it proper tointerfere in the modification made by the First AppellateAuthority. 11. The decision in Sunil Kumar (supra) especiallyreckoned the amendment brought about to the provision witheffect from 01.04.2009. It was noticed that the disallowance ofan expenditure was possible prior to the amendment only if asingle payment exceeded Rs. 20,000/-. Payments made to asingle person on a single day would qualify for disallowance, ifit exceeds Rs. 20,000/- only after the amendment made on01.04.2009. We cannot doubt the above proposition as comingout from the amended provision as declared by another Division Bench of this Court. However, it has to be noticed that thereliance placed by the assessee is on the Day Book of theassessee which is provided as Annexure-1/A. We look at theDay Book of the assessee as distinguished from the Cash Book,the details of which are reproduced in Annexure-1/A. Havingperused Annexure-1/A it is seen that the assessee had contractsfor carrying out construction work at different places, as evidentfrom Annexure-1/A at six different sites. The contention of theassessee is that there were different truck loads delivered at thedifferent work sites for which payments were made to the truckdrivers at the work site. We see from the Cash Book, that at theright-hand corner of Annexure1/A, that the payments exceededRs. 20,000/- on a single day. We keep in mind the fact thatpayments made to a single person on a single day would becapable of disallowance only after the amendment on01.04.2009; if it exceeds Rs. 20,000/-. However, in the presentcase, there is nothing to indicate that the payments were notmade as is indicated in the Cash Book. It is true that in the DayBook, as pointed out by the assessee, the payments arebifurcated to the points at which the goods were delivered. 12. We look at one of the above transactions on04.04.2003 wherein Rs. 16,400/- is indicated at Rajendra Nagar Railway Station, Rs. 8200/- at Patna Junction Railway Station,Rs. 8200/- at Patna-Gaya Railway Line and Rs. 8200/- at BuxarRailway Station, totaling Rs. 41,000/-. As we understand it, thebifurcation made in the Day Book is only to indicate theexpenditure at each work point, for ease of business andconvenience of accounting; which does not necessarily indicatethat the payments were also made to the truck drivers. Thespecific ground on which the disallowance was made by theAssessing Officer is with respect to no substantiating bills orvouchers having been produced. The supplies admittedly havebeen obtained from a third party and it was delivered at thework site in trucks. If the payments are made to the differenttruck drivers, definitely there would have been vouchersobtained evidencing the receipt of such payments by the truckdrivers. The Books of Accounts does not show the paymentshaving been made by the appellant separately and not togetheras indicated in the Cash Book. If the payments were made atdifferent points, definitely the Cash Book also would haveindicated such payments having been made at the different sitesin the registers maintained by the contractor at such differentsites. It is the consolidated Day Book and Cash Book of theassessee which is produced before the Assessing Officer which does not indicate such payments having not been made on aconsolidated basis; which is the only inference available fromthe Cash Book of the assessee, which has been entered on adaily basis. We find that the Accounts Book cannot be relied onto challenge the disallowance made and the amendment madewith effect from 01.04.2009 is not at all applicable in the abovecase. 13. We specifically notice that Sunil Kumar (supra)was a case in which the Assessing Officer had disallowed theaggregate payments made on a single day by several vouchers toa single person which aggregate amounts exceeded Rs. 20,000/-.It was specifically noticed by the Division Bench that in thepresent case not a single payment has been made through anyvoucher exceeding Rs. 20,000/- and hence it was not open to theAssessing Officer to have aggregated the said payments. Suchaggregation of payments would have been possible after01.04.2009 is the corollary to the declaration made in thedecision. We bow to the proposition as laid down by theDivision Bench and notice specifically that there are novouchers produced to substantiate the claim of separatepayments having been made on a single day at the work spotswhere the delivery of the goods supplied were made. We find absolutely no reason to entertain the appeal and the question oflaw is decided against the assessee and in favour of theRevenue. The disallowance made by the Assessing Officer onthe ground of no substantiating documents having beenfurnished to the Assessing Officer by way of bills/vouchers isfound to be perfectly in order, on the facts available in theinstant case, which is in accordance with the provision even as itexisted prior to the amendment of 01.04.2009. 14. We dismiss the appeal. 15. Interlocutory Application(s), if any, shall stand closed. (K. Vinod Chandran, CJ) (Partha Sarthy, J) P.K.P./-. AFR/NAFRCAV DATEUploading Date12.12.2023Transmission Date