M/S Nangal Spun Pipe Co. Pvt. Ltd., Chandigarh v. Commissioner Of Income Tax, Chandigarh

ITA-112-2019 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-112-2019 (O&M)Date of Decision: 25.2.2019 M/s Nangal Spun Pipe Co. Pvt. Ltd., Chandigarh Versus ....Appellant. Commissioner of Income Tax, Chandigarh ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. S.K. Mukhi, Advocate for the appellant. *** AJAY KUMAR MITTAL, J. 1.Delay of 158 days' in refiling the appeal is condoned.2.This appeal has been filed by the assessee under Section 260Aof the Income Tax Act, 1961 (in short “the Act”) against the order dated27.3.2018 (Annexure A-3) passed by the Income Tax Appellate Tribunal,'SMC' Bench, Chandigarh (hereinafter referred to as “the Tribunal”) in ITANo. 1243/Chd/2016, for the assessment year 2012-13, claiming thefollowing substantial questions of law:- I.Whether under the facts and circumstances of thecase, the ITAT was justified in concurring with theorder of authorities below in making addition of` 24,77,000/- by erroneously invoking theprovisions of Section 40A(3) which are not at allcase, the ITAT was justified in concurring with theorder of authorities below in making addition of` 24,77,000/- by erroneously invoking theprovisions of Section 40A(3) which are not at all II. III. applicable to the present case there being no claimof expenditure exceeding ` 20,000/- which is thebasic requirement of invoking the impugnedprovisions and the account being a runningaccount with its sister concern in view of judgmentof CIT v. Moti Lal Khatri 7 DTR (RAJ) 139?Whether the ITAT being the last fact finding bodyalso failed to appreciate the correct facts andprovisions of law and thereby confirming theaddition of ` 24,77,000/- without any authority oflaw and in view of the trite law that nodisallowance u/s 40A(3) could be made unlessprima facie the amount has been claimed asexpenditure above ` 20,000/- even though theauthorities below and assessee had faltered on thefacts and legal provisions?Whether the ITAT and the authorities below failedto appreciate the correct facts and provisions oflaw and making addition of the same without anyauthority of law and in view of the trite law that nodisallowance u/s 40A(3) could be made unlessprima facie the genuineness or the identity of thepayee is disputed which is also missing in thepresent case and the transactions being in therunning account with the sister concern for whichthe books of accounts along with confirmed copy -3- of accounts having been produced before the ld.A.O., itself the very invoking of the provisions ofSection 40A(3) and the impugned addition of` 24,77,000/- to the income of the appellant is badin law as so held in the judgment of CIT v. NikkoAuto Ltd. 256 ITR 476 (P&H) by this Hon'bleHigh Court? IV.Whether, on the facts and circumstances of thecase, the findings of the ITAT are perverse andagainst the evidences on record thus unsustainablein law?case, the findings of the ITAT are perverse andagainst the evidences on record thus unsustainablein law? -3- of accounts having been produced before the ld.A.O., itself the very invoking of the provisions ofSection 40A(3) and the impugned addition of` 24,77,000/- to the income of the appellant is badin law as so held in the judgment of CIT v. NikkoAuto Ltd. 256 ITR 476 (P&H) by this Hon'bleHigh Court? IV.Whether, on the facts and circumstances of thecase, the findings of the ITAT are perverse andagainst the evidences on record thus unsustainablein law?case, the findings of the ITAT are perverse andagainst the evidences on record thus unsustainablein law? 3.Put shortly, the facts necessary for adjudication of the instantappeal as narrated therein may be noticed. The assessee is engaged in thebusiness of manufacturing and trading of RCC pipes and allied products.The assessee filed its return of income on 26.9.2012 for the assessment year2012-13 declaring income at ` 10,16,670/-. During the course of assessmentproceedings, the assessee was asked to explain certain cash paymentsamounting to ` 24,77,000/- made to M/s Chandigarh Spun Pipe Company, asister concern of the assessee. The assessee submitted that due to mistake ofthe Accountant the details filed were erroneously entered and later on thecorrect details as per the books of account by way of reply along with theaffidavit dated 20.2.2015 (Annexure A-4) of the Accountant was filed. TheAssessing Officer vide order dated 17.3.2015 (Annexure A-1) framed theassessment at ` 34,93,670/- by making addition of ` 24,77,000/- on accountof disallowance of expenditure under Section 40A(3) of the Act. Theassessee vide letter dated 20.12.2014 (Annexure A-5) explained the nature ITA-112-2019 -4- of the running account with the sister concern to the Assessing Officer.Feeling aggrieved by the assessment order, Annexure A-1, the assessee filedan appeal before the Commissioner of Income Tax (Appeals) [for brevity“the CIT(A)”]. The CIT(A) vide order dated 14.10.2016 (Annexure A-2)upheld the addition of ` 24,77,000/- made under Section 40A(3) of the Actby the Assessing Officer and dismissed the appeal. Still dissatisfied, theassessee filed an appeal before the Tribunal. The Tribunal vide order dated27.3.2018 (Annexure A-3) affirmed the order passed by the CIT(A) anddismissed the appeal. Hence, the present appeal by the assessee. 4.We have heard learned counsel for the appellant and do notfind any merit in the appeal. 5.The primary issue that arises in this appeal relates to whetherthe addition of ` 24,77,000/- made on account of disallowance ofexpenditure under Section 40A(3) of the Act is justified. 6.During the course of assessment proceedings, the assesseeproduced copy of account of its customer, namely, M/s Chandigarh SpunPipes Co. (P) Ltd., wherein instances of cash payments to the said customerexceeding ` 20,000/- totalling ` 24,77,000/- were made. Thereafter, revisedcopy of the account qua the said transactions showing all the payments to bebelow ` 20,000/- was submitted by the assessee. The Assessing Officerwhile rejecting the plea of the assessee made addition of ` 24,77,000/- onaccount of expenditure under Section 40A(3) of the Act. 7.It was, inter alia, concluded that the revised statement ofaccount of M/s Chandigarh Spun Pipe Co. was not genuine and had beensubmitted with the attempt to fall outside the ambit of Section 40A(3) of theAct. The relevant findings recorded by the Assessing officer read thus:- 7.It was, inter alia, concluded that the revised statement ofaccount of M/s Chandigarh Spun Pipe Co. was not genuine and had beensubmitted with the attempt to fall outside the ambit of Section 40A(3) of theAct. The relevant findings recorded by the Assessing officer read thus:- “When both the copies of accounts in discussion areperused with reference to each other, it is found that onlythe entries relating to the cash payments made incontravention of section 40A(3) as confronted vide thisoffice letter dated 01.01.2015 and letter dated 13.02.2015were different and splitted into small amounts upto thelimits of ` 20,000/- referring them to the different dates.No change in the entries involving particulars oftransactions by cheque, transaction by transfer andtransaction through bills was made and these stands to bethe same in both the copies of accounts. As such thecontention of the assessee of presenting the earliersubmitted copy of account to be wrongly prepared andthe later submitted copy of account of the party M/sChandigarh Spun Pipe Co. Pvt. Ltd. to be correctlyprepared is not correct and not befitting to the legacy ofthe matter as the entries of cash payments made incontravention of section 40A(3) only been changed/amended/splitted in to the amount up to ` 20,000/- forescaping the liability of making violation of section 40A(3) of the Act. The fact that assessee took time of twomonths and nine adjournments to change the ledgeraccount of M/s Chandigarh Spun Pipe Co. Ltd. and itseffect in the cash book as well comes to be thecircumstantial evidence on record of the file to prove thatassessee has made an attempt to escape the liability under which it was put vide this office letter dated 01.01.2015and 13.02.2015. Had, there been existing any truth in thecontentions of the assessee that earlier account waswrongly prepared, response to this effect would havecome on the next date of hearing, i.e. 01.01.2015 andnine adjournments might not have been sought for andthe period of about almost two months should have notelapsed. Submission of affidavit from Sh. KanwaljitSingh S/o Late Sh. Surinder Singh dated 20.02.2015 thealleged accountant is also found false to prove in letterand spirit that the entries of cash payments (confronted tothe assessee to be in contravention of section 40A(3) ofthe Act) were wrongly entered. It only contends thatearlier account was wrongly typed by taking the figuresin summarized form and mentioning the figures inconsolidated manner whereas there is no wrong in doingso. The figures are to be taken in summarized way andconsolidated manner for the cash payments &transactions of single party in a single day in view ofprovisions of Section 40A(3) of the Act. Hence the replyof the assessee dated 20.02.2015 on the issue ofcontravention of provisions of section 40A(3) of the Actin respect of the cash payments made as per copy ofaccount of M/s Chandigarh Spun Pipe Co. Pvt. Ltd.submitted vide reply dated 23.12.2014 as confronted tothe assessee number of times vide noting sheet entries -7- -7- from 23.12.2014 to 16.02.2015 and letter dated01.01.2015 and dated 13.02.2015 is not accepted and isheld to be an attempt to misrepresent the facts bychanging the ledger account of M/s Chandigarh SpunPipe Co. Pvt. Ltd. and giving effect to this tempering inthe cash book as well and to submit the changed copy ofaccount of M/s Chandigarh Spun Pipe Co. Pvt. Ltd. on20.02.2015 only to escape the liability of default ofviolating the provisions of section 40A(3) of the Act towhich the assessee is held liable for making the cashpayments to the total of ` 24,77,000/- (as per detailsgiven in letter dated 01.01.2015 and show cause givenvide letter dated 13.02.2015) to M/s Chandigarh SpunPipe Co. Pvt. Ltd. in contravention of section 40A(3) ofthe Act and this cash payment of ` 24,77,000/- is notallowed to be deducted as expenses while computing thebusiness income and added back to the income of theassessee. Accordingly, addition of ` 24,77,000/- is madeto the income of the assessee on this issue.” 8.In appeal, the CIT(A) affirmed the said addition by observingthat the said addition had been correctly made by the Assessing Officer andit was a case of splitting of entries which had been done to avoid theprovisions of Section 40A(3) of the Act. The CIT(A) had elaboratelydiscussed the issue and appreciated the material/evidence while confirmingthe order of the Assessing Officer which is in following terms:- “5.On going through the entire set of facts of the case,the arguments put forth by the Assessing Officer and thatof the appellant, I am of the opinion that addition hasbeen correctly made by the Assessing Officer. Theappellant produced one set of copy of accounts before theAssessing Officer and on being pointed out the defectswhich could lead to an addition u/s 40A(3) submitted asecond set of accounts. The arguments put forth by theAssessing Officer have considerable merits. It would beworthwhile to read through the verbose arguments of theAssessing Officer and hit the crux of the matter and toattempt a summary of Assessing Officer's arguments asbelow: (i)When the original and the revised copy of accountsare compared than it is observed that only the daily cashpayments above ` 20,000/- in the original copy havebeen split in the revised copy to make sure that daily cashentries come below ` 20,000/-. All other entries otherthan these have not been altered as they do not affect thecase of the appellant. (ii)On page Nos.3 & 14 of the order, the AssessingOfficer has discussed these entries. In the accountstatements (original and revised), the following entry iswritten: It is seen from the above entry that it is not a simple caseof mistake by an accountant. It is not that the accountanthas simply consolidated the entries as explained by theappellant. The dates, and the voucher number have beenaltered. Earlier the amount of ` 30,000/- was shown tohave been paid on 09.04.2011 vide voucher No.9 in theoriginal account statement. But now the amount isshown to have been paid on two dates i.e. 09.04.2011and 11.04.2011 vide voucher Nos. 9 and 11. In the next entry in the original statement is as under:- The voucher number has been changed from 11 to 12.It would be worthwhile to examine another entry toillustrate the fact that it is not a simple case ofconsolidation of entries by mistake. It is rather a case ofsplitting of entries which has been willfully done to entry in the original statement is as under:- The voucher number has been changed from 11 to 12.It would be worthwhile to examine another entry toillustrate the fact that it is not a simple case ofconsolidation of entries by mistake. It is rather a case ofsplitting of entries which has been willfully done to avoid the provisions of section 40A(3) of the Act. Theoriginal entry on 27.04.2011 is cash payment of` 2,70,000/- and on 02.05.2011 & 07.05.2011 are cashpayments of ` 50,000/-. In the revised account statemententry corresponding to 27.04.2011 has been split into 15entries of denominations smaller than ` 20,000/- from27.04.2011 to 13.05.2011 i.e. over a span of 17 days.But in between these were two more so called“consolidated” entries of ` 50,000/- each on 02.05.2011and 07.05.2011 which have been split and moved to14.05.2011 to 17.05.2011 and 18.05.2011 respectively.This argument of the appellant that the accountantconsolidated these entries cannot be believed. If anyprudent man would add up smaller figures to make aconsolidated figure of ` 2,70,000/- then the nextconsolidated entry should appear after the lastunconsolidated entry which was part of the firstconsolidated entry.For example, if unconsolidated entries are in the order` 1, ` 2, ` 3 and ` 4 and they are consolidated into twogroups then consolidated entries would appear as ` 3(1+2) ` 7 (3+4) in that order. While consolidating theorder of entry would not be disturbed. In this case it isnot consolidation but splitting. The account statementswould clearly illustrate this: ITA-112-2019 -11- The entry of ` 2,70,000/- had to be split into 15 entriesall below ` 20,000/- spread over a period of 15 days and last entry is on 13.05.2011 as a result the amounts whichadded upto 50,000/- moved to 14.05.2011 and18.05.2011 from their earlier date of 02.05.2011 and07.05.2011. It is also not normal for an accountantconsolidate entries to make an odd figure of ` 2,70,000/-.This conclusion is highly improbable and does not appealto a logical mind. It is easier to pay cash of ` 2,70,000/-on one day then to pay denominations varying from` 16,500/- to ` 19,500/- on 15 consecutive days to thesame party. (iii)The Assessing Officer on page 32 of the order hasmade an observation that voucher numbers were notmentioned on the vouchers, while they were there in theaccount copies. The appellant has claimed that the TallyAccount Software itself generates the voucher numbers.This part of the plea of the appellant is correct. In Tallythe primary document is the voucher in which vouchernumber is auto generated and once the voucher is filled,the ledger accounts gets automatically updated. It is notthe other way round. In the case of the appellant, manualvouchers have been made and then ledger account hasbeen generated, which is not a normal procedure ofmaintaining account in Tally software. The website ofTally Solutions,www.tallysolutions.com/products/tallyerpa/functions – features – accounting (accessed on12.09.2016), makes the following description of their produce on its home page, “with the entry of a voucher all books of accounts, allreports, all totals and sub totals are updated instantly.There is nothing more that needs to be done – whetheryou are inserting a forgotten entry or correcting one.” (iv)The Assessing Officer rejected the affidavit of theaccountant on pages 33-35 of the assessment order. Theaccountant had asserted that original copy of accountsubmitted before the Assessing Officer were consolidatedfigures instead of actual book entries. But discussionabove clearly shows that it was not a mere consolidationof entries but there is change in voucher numbers &dates. The Assessing Officer has argued that theaffidavit is an after though. produce on its home page, “with the entry of a voucher all books of accounts, allreports, all totals and sub totals are updated instantly.There is nothing more that needs to be done – whetheryou are inserting a forgotten entry or correcting one.” (iv)The Assessing Officer rejected the affidavit of theaccountant on pages 33-35 of the assessment order. Theaccountant had asserted that original copy of accountsubmitted before the Assessing Officer were consolidatedfigures instead of actual book entries. But discussionabove clearly shows that it was not a mere consolidationof entries but there is change in voucher numbers &dates. The Assessing Officer has argued that theaffidavit is an after though. (v)The delay in making reply after confronting theissue to the appellant's counsel. The Assessing Officeron pages 30 & 31 has drawn a table bringing out thenumber of opportunities given to the appellant and drawna conclusion that the appellant took two months, andtook 9 dates and various adjournments to arrive at arevised copy of account. If the revised entries wereavailable to the appellant it could have been produced onthe very first or at best second hearing. 5.1.The appellant arguments do not carry weight inview of the detailed discussion of facts brought about bythe Assessing Officer. The plea of the appellant is ITA-112-2019-14- rejected and addition made on this account by theAssessing Officer is therefore upheld. Ground of appealtaken by the appellant is dismissed.” 9.The Tribunal while affirming the aforesaid findings hadrecorded that in the facts and circumstances of the case, the submissions ofthe assessee cannot be accepted as no attempt had been made to demolishthe conclusions drawn on facts. The plea of the assessee that there wasmistake by an Accountant remained unsubstantiated and was not supportedeven in the explanation furnished by the assessee. 10.We refer to the decisions relied upon by the appellant. Learnedcounsel for the appellant cited decision of the Rajasthan High Court inCommissioner of Income Tax v. Moti Lal Khatri 7 DTR (RAJ) 139 andunder question No.3, reference has been made to decision of this Court inCIT v. Nikko Auto Ltd. 256 ITR 476. Suffice it to notice that theprinciples of law enunciated therein, are well recognized, however, beingbased on individual fact situation involved therein and in view of concurrentfindings of fact recorded by the Assessing Officer, the CIT(A) and theTribunal, they do not advance the case of the assessee.11.An effort was made by learned counsel for the appellant todemonstrate that the conclusions and the concurrent finding of factsrecorded by the Assessing Officer, the CIT(A) and the Tribunal waserroneous and perverse by referring to the copy of evidence produced beforeus, but the appeal under Section 260A of the Act lies only on a substantialquestion of law. The appreciation of evidence to arrive at differentconclusion on the same evidence does not fall within the ambit ofGURBACHAN SINGHsubstantial question under Section 260A of the Act. The aforesaid findings2019.04.06 16:07I attest to the accuracy andintegrity of this document ITA-112-2019 of fact recorded by the Assessing Officer, the CIT(A) and the Tribunal, thus,cannot be held to be perverse based on non-appreciation of material onrecord or based on misreading of any evidence on record which may warrantinterference by this Court. No question of law, much less, substantialquestion of law arise in the appeal. 12.Accordingly, finding no merit in the present appeal, the same is hereby dismissed.