Shri.natesan Krishnamurthy v. The Income Tax Officernon-Corporate Ward 9(2),Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR Tax Case (Appeal) No.946 of 2018 Shri.Natesan Krishnamurthy ... Appellant -vs- The Income Tax OfficerNon-Corporate Ward 9(2),Chennai - 600 034. ... Respondent Tax Case (Appeal) filed under Section 260-A of the IncomeTax Act, 1961 against the order of the Income-tax AppellateTribunal, “B” Bench, Chennai, dated 20.06.2018, passed inI.T.A.No.1672/CHNY/2017 for the assessment year 2013-14, againstthe order dated 23/05/2017 passed by the Commissioner of IncomeTax (Appeals)-10, Chennai in ITA No.23/CIT(A)-10/2016-17 againstthe Assessment order passed by the Income Tax Officer, NonCorporate Ward 9(2), Chennai for the Assessment Year 2013-14dated 30.03.2016 in PAN/GA No.ANCPK263AB. This appeal by the appellant filed under Section 260A ofthe Income Act, 1961 (the Act for brevity) is directed againstthe order of the Income-tax Appellate Tribunal, “B” Bench,Chennai, dated 20.06.2018, passed in I.T.A.No.1672/CHNY/2017 forthe assessment year 2013-14. https://hcservices.ecourts.gov.in/hcservices/ 2.The appeal has been filed raising the followingsubstantial questions of law:- “1) Whether on the facts and circumstances ofthe case, the Tribunal was right in law in holdingthat the cash transactions amounting toRs.34,68,15,452/- were not allowable under Section40A(3) of the Act? 2) Whether the Appellate Tribunal was rightin disallowing the expenditure even though boththe payee and payer are identified and the TCS hasbeen collected by the seller? 3.The asseessee, an individual, filed his return of incomefor the assessment year under consideration (2013-14) on30.11.2014 admitting a total income of Rs.9,23,600/-. The casewas selected for scrutiny and notice under Section 143(2) of theAct was issued on 02.09.2014. On 31.03.2015, the assessee fileda revised return of income without any change in the totalincome admitted in his original return dated 30.11.2014. Theassessee was called upon to furnish a copy of return of income,financial statements, books of accounts, etc. In response tothe same, the assessee through his authorized representativefiled the copy of the return, financial statements, auditreport, bank statement and a copy of 26AS statement. TheAssessing Officer observed that the assessee had purchased goldjewellery worth Rs.34.68 Crores by way of cash in the auctionconducted by M/s.Manapuram Finance Ltd. In the original e-return filed by the assessee, he had admitted Rs.6,66,134/- assales/gross receipts in the P&L Account, whereas in the revisede-return filed by the assessee, he had admittedRs.34,74,81,586/- as sales/gross receipts in the P & L Accountfor the financial year 2012-13 relevant to the assessment year2013-14 (year under consideration). The assessee was asked toclarify as to how such huge purchase could be done when thesource admitted in the return of income, i.e. capital of theassessee and sundry creditors were at Rs.22,67,797/- andRs.20,00,000/-. The assessess stated that a group of biddersformed a syndicate and participated in the auction and aftersuccessful bidding, money from the prospective purchasers arecollected and the same is remitted to M/s.Manapuram Finance Ltd.and on this transaction, the Finance Company collected 1% tax atsource. The assessee further submitted that the Company hadreceived only a document in support of his claim. 4.The Assessing Officer referred to Section 40A(3) of theAct stated that the assessee had made cash payments in excess ofRs.20,000/- towards purchase of old gold ornaments throughbidding process from the said Finance Company and the saidprovision is squarely attracted to the assessee's case andaccordingly issued show cause notice dated 18.03.2016. Theassessee submitted a reply stating about the nature oftransaction done by him, how a syndicate of bidders ranging from10 to 25 persons would be formed and after successful bidding bythe assessee, he will collect from each of the members of thesyndicate and will distribute the gold according to the paymentscollected from them and will be taken as sales in the assessee'saccount as the Finance Company has raised invoice in the name ofthe assessee and accordingly tax was deducted at source whichwas shown as purchase in the assessee's account. Further theassessee would stated that the Finance Company insisted paymentby cash only and that is why payments were made as cashconsidering the business expediency. The assessee furtherstated that the provisions of Section 40A(3) of the Act are notapplicable in respect of the transactions covered by theprovisions of Rule 6DD of the Income Tax Rules, 1962(hereinafter referred to as "the Rules"). The Assessing Officerheld that the assessee is not covered by any of the clause ofRule 6DD of the Rules and hence, the cash purchase made by theassessee to the tune of Rs.34,68,15,452/- was disallowed as perthe provisions of SEction 40A(3) of the Act and added to thetotal income admitted by the assessee. Accordingly, theAssessing Officer by order dated 30.03.2016 completed theassessment under Section 143(3) of the Act and computed the taxpayable at Rs.16,15,29,170/-. 5.The assessee filed an appeal before the Commissioner ofIncome Tax (Appeals)-10, Chennai (CITA). The assesseereiterated the stand taken before the Assessing Officer andcontended that the Assessing Officer did not look into thesurrounding circumstances, consideration of business expediency,exceptional and unavoidable circumstances while making cashpayments by the assessee at the insistence of the payee. Theassessee further stated that when the payee and payer areidentified and the genuineness of the payments were established,the amount paid by cash could not be disallowed. In support ofsuch claim, the assessee placed reliance on the decision of thisCourt in the case of Commissioner of Income Tax vs. ChromeLeather Co. Pvt Ltd. reported in 235 ITR 708. The assessee alsoreferred to the other decisions of the other High Courts ad theHon'ble Supreme Court to justify his stand. The CITA by orderdated 28.11.2016 dismissed the appeal and in doing so held thatSection 40A(3) of the Act is applicable to the facts andcircumstances of teh assessee's case and teh assessee could not establish that he comes under the exempted categories listedunder Rule 6DD of the Rules. As against the said order, theassessee preferred an appeal to the Tribunal contending that theterms of auction normally required the highest bidder to deposita part of the bid amount immediately on announcement of thesuccessful bidder and the assessee was compelled to make thepayment in cash. The contention advanced before the AssessingOfficer and the CITA regarding the formation of syndicate wasonce again reiterated before the Tribunal. Further, it wascontended that the various contingencies mentioned in Rule 6DDof the Rules are not exhaustive but only illustrative. Furtherit was contended that if the assessee was able to establish thatthere existed circumstances to show requirements of paying incase, Section 40(3) of the Act could not be applied. TheTribunal by the impugned order dated 26.05.2017 dismissed theassessee's appeal. This is how the assessee is before us by wayof this tax case appeal raising the substantial questions of lawmentioned above. 6.Mr.R.Sivaraman, learned counsel for the appellant/assesseewhile reiterating the stand taken by the assessee before theTribunal contended that the Tribunal erred in law holding thatthe expenditure incurred by the assessee does not fall under theambit of business expediency under Section 40A(3) of the Act,especially, when the transaction entered into by the assesseewas genuine and the parties are identifiable. Further, theother factual aspects which were pointed out by the assesseebefore the Assessing Officer, the CITA and the Tribunal werehighlights by the learned counsel. The method of transactionwas explained and as to how the highest bidder shouldimmediately deposit part of the auctioned amount with theauctioneer and since the assessee wuld not know as to how muchamount has to be deposited, no bank draft could be obtained bythe assessee. Therefore, it is contended that Section 40A(3) ofthe Act would not be attracted. 7.Mr.Karthik Ranganathan, learned Standing Counsel for therevenue sought to sustain the orders passed by the AssessingOfficer as confirmed by the CITA and the Tribunal by referringto the findings recorded by the authorities and the Tribunal andpointed out that there is no substantial questions of lawarising for consideration in this appeal and prayed fordismissal of the appeal. 8.We have heard the learned counsels for the parties andcarefully perused the materials placed on record. 7.Mr.Karthik Ranganathan, learned Standing Counsel for therevenue sought to sustain the orders passed by the AssessingOfficer as confirmed by the CITA and the Tribunal by referringto the findings recorded by the authorities and the Tribunal andpointed out that there is no substantial questions of lawarising for consideration in this appeal and prayed fordismissal of the appeal. 8.We have heard the learned counsels for the parties andcarefully perused the materials placed on record. 9.Firstly we may point out that the dispute in the instantcase revolves entirely on facts. The nature of transaction aspropounded by the assessee before the Assessing Officer is thatseveral persons joined together and formed a syndicate and onbehalf of the syndicate, the assessee bids in the auctionconducted by the Finance Company which sells the old goldornaments. It is the further case of the assessee that as soonas the auction is confirmed, the highest bidder has to remitpart of the amount in cash and the amount which has to be paidis not known to the assessee earlier and therefore, the paymentscannot be made through banking channel. In our considered view,the Assessing Officer rightly examined the nature of transactiondone by the assessee and on facts was not convinced that theassessee would fall under any one of the exceptional clausesunder Rule 6DD of the Rules. The assessee reiterated the samestand before the CITA. The CITA examined the nature oftransaction considered, various decisions cited by the assesseeand found that Section 40A(3) of the Act applies with full forceto the facts of the assessee's case. Once again before theTribunal, the facts were re-examined and the Tribunal pointedout that the assessee failed to demonstrate that the conditionsof the bid required the assessee to effect payments in cash thenand there and payments could not have been made by cheque orDemand Draft or any other mode. The Tribunal pointed out thatthere is no explanation as to what stopped the assessee fromeffecting payments through banking channel. Further, theTribunal found that the agreement with syndicate members, ifany, was not produced by the assessee before the lowerauthorities or before the Tribunal. Further the Tribunal heldthat the assessee could not demonstrate that he was representingany syndicate nor he could demonstrate that he was collectingcash from such syndicate members for making payments to theFinance Company. The decisions of the Tribunal cited by theassessee were distinguished by analysing the facts of thosecases. The Tribunal held that the assessee was unable todemonstrate a situation which compelled him to make payment incash which would have exempted him from application of recourseof Section 40A(3) of the Act. 10.Thus, we find that the authorities below and the Tribunalappreciated and re-appreciated the factual position and took adecision against the assessee. In this appeal, we cannot be called upon to once again re-appreciate the facts as if we arethe third appellate authority over the decision of the Tribunal.Thus, we find that there are no questions of law, much lesssubstantial questions of law arising for consideration in thisappeal. Accordingly, the tax case appeal fails and hence,dismissed. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant RegistrarTo1.The Income-tax Appellate Tribunal, “B” Bench, Chennai.2.The Income Tax Officer, Non-Corporate Ward 9(2), Chennai-34.3.The Commissioner of Income Tax, Appeals (10), Chennai.Tax Case (Appeal) No.946 of 2018ss[co]srg 06/03/2019