Wtax/318/2016 Of Ajai Kumar Singh Khaldelial v. Principal Commissioner Of Income Tax And Anr

Court No. - 42 AFR Reserved on 13.01.2020 Delivered on 18.01.2020 Case :- WRIT TAX No. - 318 of 2016 Petitioner :- Ajai Kumar Singh KhaldelialRespondent :- Principal Commissioner Of Income Tax And Anr.Counsel for Petitioner :- Suyash AgarwalCounsel for Respondent :- C.S.C.,Praveen Kumar,S.C. Hon'ble Alok Mathur,J. 1.Heard Sri Suyash Agarwal, learned counsel for the petitioner aswell as Sri Praveen Kumar, learned counsel for the respondents. 2.The petitioner by means of this writ petition has challenged theorder passed by the Principal Commissioner, Income Tax, Gorakhpurthereby he has rejected the application preferred by the petitionerunder Section 264 of the Income Tax Act, 1961 (hereinafter referredto as “the Act, 1961”). 3.Learned counsel for the petitioner submits that petitioner isproprietor of M/s Purushottam Das Ajai Kumar, Asif Ganj, Azamgarhand is engaged in the business of retail trading of ready made andother clothes in the name of the proprietary concern. For theassessment year 2008-09, the petitioner’s firm filed income tax returnwhich included income of Rs.34,912/- earned from the house propertybesides business income of Rs.1,70,304/-. The petitioner got his firm’saccounts audited with net profit of Rs.1,61,012/- showing @ 2.00%and gross profit of Rs.8,67,837/- being 44.33% of the gross receipt. 4.It has been further submitted on behalf of petitioner that hedisclosed about the advance given to supplier’s account as well ascopy of the account of M/s Jalan Synthetics, Varanasi before the assessing authority which clearly demonstrated that on various dates theamount of payment has been deposited by the petitioner in UBI, Varanasibank on their instructions. It has further been contended that the assessingauthority while passing the assessment order for the assessment year 2008-09, did not raise any objection relating to the aggregate amount ofRs.3,40,000/- deposited on various dates in the bank account of M/s JalanSynthetics. 5.The assessment proceedings were completed in exercise of powerunder Section 143(3) of the Act, 1961 on the income of Rs.2,80,004/- byorder dated 10.11.2010 and giving appeal effect it was revised atRs.1,99,804/-. 6.The petitioner received a notice dated 30.03.2013, issued underSection 148 of the Act, 1961, stating therein that the authorities had reasonto believe that cash payment of Rs.3,40,000/- had been made by thepetitioner to M/s Jalan Synthetics for the assessment year 2008-09, inviolation to the provisions of Section 40A(3) of the Act, 1961, which is otherthan by making payment through crossed account payee cheque or crossedbank draft, as such the same is liable to be disallowed and added back to theincome of the petitioner. 7.The petitioner objected to the notice issued under Section 148 of theAct, 1961 and submitted that he had truly and faithfully disclosed all thefacts necessary. He further stated that payment of Rs.3,40,000/- was genuineand that there is no violation of Section 40(3) of the Act, 1961 read withRule 6DD of the Income Tax Rules, 1962 (hereinafter referred to as “theRules, 1962”) and further that payment of Rs.3,40,000/- in cash to M/s JalanSynthetics is also reflected in their ledger accounts and therefore, there wasno basis for reopening of the assessment proceedings. 8.The assessing authority not being satisfied by the reply submitted bythe petitioner proceeded to make addition of Rs.3,40,000/- in the income ofthe petitioner and disallowed the benefit/exemption under Section 40A(3) of the Act, 1961 for the reason that payment exceeding Rs.20,000/- was madeother than crossed cheque or bank draft. 9.The petitioner being aggrieved by the order dated 14.03.2014,preferred an application under Section 264 of the Act, 1961 before thePrincipal Commissioner, Income Tax, Gorakhpur on 07.04.2014. 8.The assessing authority not being satisfied by the reply submitted bythe petitioner proceeded to make addition of Rs.3,40,000/- in the income ofthe petitioner and disallowed the benefit/exemption under Section 40A(3) of the Act, 1961 for the reason that payment exceeding Rs.20,000/- was madeother than crossed cheque or bank draft. 9.The petitioner being aggrieved by the order dated 14.03.2014,preferred an application under Section 264 of the Act, 1961 before thePrincipal Commissioner, Income Tax, Gorakhpur on 07.04.2014. 10.By means of impugned order dated 19.01.2016, the PrincipalCommissioner, Income Tax, Gorakhpur has considered the application of thepetitioner and has rejected the same holding that the petitioner had clearlymisrepresented in his return as well as audit report with respect toapplication of Section 40A(3) of the Act, 1961 read with Rule 6DD of theRules, 1962 and concluded that the payment made to M/s Jalan SyntheticsLtd. is not covered by any exemption. The assessing authority had carriedout only limited examination in good faith with respect to the genuineness ofthe party and believed the assessee and auditor. He has further stated thatthere is difference between a document and information and despitedocuments being on record it was on the basis of the fresh information thatthe petitioner has concealed his income in violation of Section 40A(3) of theAct, 1961. It was within the competence and jurisdiction of the authority toreopen the assessment under Section 148 of the Act, 1961 and therefore upheld the order passed by the assessing authority. 11.Assailing the order of the Principal Commissioner, Income Tax,Gorakhpur, the petitioner has urged that the revenue has misinterpreted theprovisions of Section 40A(3) of the Act and Rule 6DD of the Rules, 1962and that the amount of Rs.3,40,000/-, deposited on various dates in the bankaccount of M/s Jalan Synthetics, would be covered under Rule 6DD(c)(v) ofthe Rules, 1962 as the same has been done by use of “electronic clearingsystem” through the Bank. It is further submitted that there was no newinformation in possession of respondent no. 2 for invoking reassessmentunder Section 147 of the Act, 1961, as the documents on the basis of whichre-assessment has taken place, were already on record at the time of original assessment and same can not be converted as fresh information in the courseof examination by the audit party. 12.Sri Praveen Kumar, learned counsel for the respondents on the otherhand has submitted that scope of Section 264 of the Act, 1961 is very limitedand in exercise of powers the Principal Commissioner, Income Tax,Gorakhpur is empowered to hold limited enquiry into the grounds raised bythe assessee and thereupon examining and passing appropriate orders. Powerunder Section 264 of the Act, 1961 cannot be equated with the power ofappeal which lies to the appeal under Section 246 of the Act and in thisregard he has submitted that the Principal Commissioner, Income Tax hasduly enquired into the allegations made by the assessee and has rejected theapplication after due consideration of the same and therefore there was noinfirmity in order rejecting the application preferred by the assessee andconcluded that the writ petition be dismissed. 13.On merits Sri Praveen Kumar, learned counsel for the respondentssubmits that the assessee had made misrepresentation in his returns,declaring that no amount was admissible or it is liable under Section 40A(3)of the Act and Rule 6DD of the Rules, 1962 and same was also mentioned inthe audit report under Section 44AB of the Act, 1961. he also submitted thatonly account number of M/s Jalan Synthetics was submitted by the assesseeand no proof that the amount of payment had been deposited on theirinstructions. He further vehemently urged that the assessee had failed toprove that payment to M/s Jalan Synthetics was not made by cheque or bankdraft on account of some business exigency, as the cash payment made bythe petitioner was in contravention to the provisions of Section 40A(3) of theAct, 1961. 14.With regard to the issue regarding reopening of the assessment underSection 147 of the Act, 1961, he has submitted that the assessing authorityhad recorded sufficient reasons with regard to the fact that certain items ofincome though taxable had escaped notice of the assessing authority and therefore the same did not amount to change of opinion and therefore therewas no infirmity in the same. 15.Heard learned counsel for the parties and perused the record. 16.The petitioner who carries on the business of retail trade in readymade and other clothes had given advance to the suppliers bank account i.e.M/s Jalan Synthetics while depositing total amount of Rs.3,40,000/- onvarious dates between 12.06.2007 to 01.12.2007, in the UBI Bank, Varanasiin account no. 303505040010515. 17.In the return filed by the assessee he had declared that inadmissibleexpenses under Section 40A(3) of the Act read with Rule 6DD of the Rules,1962 were nil and the same was also mentioned in the audit report. Theassessing authority having no reason to disbelieve the aforesaid declarationmade by the assessee, which was subsequently reopened in exercise ofpowers contained in Section 148 of the Act, 1947. The assessing authority,after giving opportunity of hearing to the assessee has made re-assessmentby means of order dated 14.03.2014 and added Rs.3,40,000/- in the incomeof the assessee. 18.The application was preferred by the petitioner under Section 264 ofthe Act, 1961, against re-assessment proceedings and the impugned orderpassed by the Principal Commissioner, Income Tax also mentions that theassessee has filed application only against the order of assessment. 19.It seems that the issue pertaining to the validity of the order underSection 147 of the Act, 1961 was not raised by the assesseee in hisapplication and his only grievance was with regard to the re-assessmentorder. In para 22 of the writ petition the petitioner has stated that he isaggrieved by the re-assessment order passed under Section 148/143(3) of theAct, 1961 and the notice under Section 147 of the Act was not challenged. 20.The main question which falls for consideration of this Court is as toWhether the deposit of amount in cash in the bank account of M/s JalanSynthetics can be held to be covered under the provisions of Rule 6DD(c)(v) of the Rules, 1962? and for which purpose it can be said to be a payment byuse of “electronic clearing system” through bank account. 21.It is relevant to reproduce the provisions of Section 40A(3) of the Act,1961 and Rule 6DD of the Rules, 1962, which are reproduced herein below : “Section 40A(3) – Where the assessee incurs any expenditure inrespect of which a payment or aggregate of payment made to a personin a day, otherwise than by an account payee cheque drawn on a bankor account payee bank draft, or use of electronic clearing systemthrough a bank account, exceeds ten thousand rupees, no deductionshall be allowed in respect of such expenditure.” of the Rules, 1962? and for which purpose it can be said to be a payment byuse of “electronic clearing system” through bank account. 21.It is relevant to reproduce the provisions of Section 40A(3) of the Act,1961 and Rule 6DD of the Rules, 1962, which are reproduced herein below : “Section 40A(3) – Where the assessee incurs any expenditure inrespect of which a payment or aggregate of payment made to a personin a day, otherwise than by an account payee cheque drawn on a bankor account payee bank draft, or use of electronic clearing systemthrough a bank account, exceeds ten thousand rupees, no deductionshall be allowed in respect of such expenditure.” “Rule 6DD – No disallowance under sub-section (3) of section 40Ashall be made and no payment shall be deemed to be the profits andgains of business or profession under sub-section (3A) of section 40Awhere a payment or aggregate of payments made to a person in a day,otherwise than by an account payee cheque drawn on a bank oraccount payee bank draft, exceeds twenty thousand rupees in thecases and circumstances specified hereunder, namely :- (a) where the payment is made to- (i) the Reserve Bank of India or any banking company asdefined in clause (c) of section 5 of the banking Regulation Act,1949 (10 of 1949);defined in clause (c) of section 5 of the banking Regulation Act,1949 (10 of 1949); (ii) the State bank of India or any subsidiary bank as defined insection 2 of the State Bank of India (Subsidiary Banks) Act,1959 (38 of 1959);section 2 of the State Bank of India (Subsidiary Banks) Act,1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society or any primarycredit society as defined under section 56 of the BankingRegulation Act, 1949 (10 of 1949); (v) the Life Insurance Corporation of India established underSection 3 of the Life Insurance Corporation Act, 1956 (31 of1956); (b) where the payment is made to the Government and, under therules framed by it, such payment is required to be made in legaltender; (c) where the payment is made by - (i) any letter of credit arrangements through a bank; (ii) a mail or telegraphic transfer through a bank; (iii) a book adjustment from any account in a bank to any otheraccount in that or any other bank; (iv) a bill of exchange made payable only to a bank; (v) the use of electronic clearing system through a bankaccount; (vi) a credit card; (vii) a debit card. ……………...” 22.Initially Section 40A(3) of the Act, 1961 which requires payment inrespect of expenses which exceed Rs.2500/- to be made by means of crossedcheque or crossed bank draft, on failure to do so, payment made weredisallowed in computation of income. In order to remove hardship to smallerassessees the ceiling limit was increased to Rs.10,000/- and later on it wasincreased to Rs.20,000/- by means of Finance Act, 2017 which was madeeffective on 01.04.2018. Section 40A(3) of the Act, 1961, has a nonobstantive clause which has over riding provision. It operates inspite of anything to the contrary contained in any other provision of the Act, 1961relating to computation of income under the head “profits and gains ofbusiness or profession”, the Legislature as thus made it clear that provisions of Section 40A of the Act, 1961 will apply in place of other contraryprovisions of this Act relating to computation of income. Sub Section 3empowers the assessing authority to disallow deducting any expenditure inrespect of which payment is made of any sum exceeding Rs.20,000/-otherwise than by crossed cheque or crossed bank draft. 23.Rule 6DD of the Rules, 1962 refers to cases and circumstances inwhich payment of sum exceeding Rs.20,000/- made by a mode otherwisethan by crossed cheque or by crossed bank draft. of Section 40A of the Act, 1961 will apply in place of other contraryprovisions of this Act relating to computation of income. Sub Section 3empowers the assessing authority to disallow deducting any expenditure inrespect of which payment is made of any sum exceeding Rs.20,000/-otherwise than by crossed cheque or crossed bank draft. 23.Rule 6DD of the Rules, 1962 refers to cases and circumstances inwhich payment of sum exceeding Rs.20,000/- made by a mode otherwisethan by crossed cheque or by crossed bank draft. 24.A combined reading of Section 40A(3) of the Act alongwith Rule6DD of the Rules, 1962 would indicate that the provisions have beeninserted by Legislature to prevent transactions of above Rs.20,000/-. It isalso necessary to mention here that validity of Section 40A of the Act, 1961has been up held by the Hon’ble Apex Court in the case of Attar SinghGurmush Singh Vs. Income Tax Officer, 1991 SCR (3) 405, holding thatonus is on the assessee to show that he is covered by any of the exceptionprovided or in Rule 6DD of the Rules, 1962 and in the present case theamount was directly deposited in the account of the seller i.e. M/s JalanSynthetics. 25.The term “use of electronic clearing system through bank account”would necessarily include the transaction of funds by electronic modethrough clearing system. Any transfer of funds through use of electronicclearing system through a bank account would mean a transfer of fundsthrough electronic mode of transfer i.e. RTGS, IMPS, NEFT etc., where thefunds are transferred through the bank account of one individual into thebank account of beneficiary through electronic means. When the funds aretransferred through electronic clearing system then at least two banks or twobranches of the same bank have to be involved then only the money istransferred through electronic clearing system between them. 26.In the present case, the question which arises for consideration is thatin case, cash is deposited directly in the bank account of the beneficiary, can the benefit of Rule 6DD(c)(v) of the Rules, 1962, can be given to theassessee. Such transaction by depositing cash directly in the bank account ofthe beneficiary is not routed through any clearing house nor is the moneysend through electronic mode and therefore such a transaction in myconsidered opinion cannot be covered by Rue 6DD(c)(v) of the Rules, 1962,and therefore benefit of the provision cannot be given to the petitioner. Thepetitioner also could not lead any evidence to show that he had deposited theamount on the instructions of M/s Jalan Synthetics or due to any businessexigency. In absence of such evidence, the assessing authority rightly deniedthe benefit of exemption to the petitioner. 27.The impugned order dated 19.01.2016, passed by the PrincipalCommissioner, Income Tax has considered the reply given by the petitionerand has concluded that in respect to the transfer of funds made by thepetitioner, benefit of Rule 6DD of the Rules, 1962 is not attracted andtherefore computation made by the assessing authority has been up held. 28.The jurisdiction of writ Court in exercise of jurisdiction under Article226 of the Constitution of India is limited to examining the decision makingprocess and not the decision itself. This position of law has been constantlyreiterated by the Hon’ble Apex Court in its various pronouncements. TheApex Court in its recent judgment in the case of Municipal Council,Neemuch v. Mahadeo Real Estate, (2019) 10 SCC 738, has observed asunder : 27.The impugned order dated 19.01.2016, passed by the PrincipalCommissioner, Income Tax has considered the reply given by the petitionerand has concluded that in respect to the transfer of funds made by thepetitioner, benefit of Rule 6DD of the Rules, 1962 is not attracted andtherefore computation made by the assessing authority has been up held. 28.The jurisdiction of writ Court in exercise of jurisdiction under Article226 of the Constitution of India is limited to examining the decision makingprocess and not the decision itself. This position of law has been constantlyreiterated by the Hon’ble Apex Court in its various pronouncements. TheApex Court in its recent judgment in the case of Municipal Council,Neemuch v. Mahadeo Real Estate, (2019) 10 SCC 738, has observed asunder : “13. In the present case, the learned Judges of the DivisionBench have arrived at a finding that such a sanction was, infact, granted. We will examine the correctness of the saidfinding of fact at a subsequent stage. However, before doingthat, we propose to examine the scope of the powers of the HighCourt of judicial review of an administrative action. Though,there are a catena of judgments of this Court on the said issue,the law laid down by this Court in Tata Cellular v. Union ofIndia [Tata Cellular v. Union of India, (1994) 6 SCC 651] laysdown the basic principles which still hold the field. Para 77 ofthe said judgment reads thus:Bench have arrived at a finding that such a sanction was, infact, granted. We will examine the correctness of the saidfinding of fact at a subsequent stage. However, before doingthat, we propose to examine the scope of the powers of the HighCourt of judicial review of an administrative action. Though,there are a catena of judgments of this Court on the said issue,the law laid down by this Court in Tata Cellular v. Union ofIndia [Tata Cellular v. Union of India, (1994) 6 SCC 651] laysdown the basic principles which still hold the field. Para 77 ofthe said judgment reads thus: “77. The duty of the court is to confine itself to thequestion of legality. Its concern should be: 1. Whether a decision-making authority exceeded itspowers? 2. Committed an error of law, 3. committed a breach of the rules of natural justice, 4. reached a decision which no reasonable tribunalwould have reached or, 5. abused its powers. Therefore, it is not for the court to determine whether aparticular policy or particular decision taken in thefulfilment of that policy is fair. It is only concerned withthe manner in which those decisions have been taken.The extent of the duty to act fairly will vary from case tocase. Shortly put, the grounds upon which anadministrative action is subject to control by judicialreview can be classified as under: (i) Illegality : This means the decision-maker mustunderstand correctly the law that regulates his decision-making power and must give effect to it. (ii) Irrationality, namely, Wednesbury unreasonableness. (iii) Procedural impropriety. The above are only the broad grounds but it does not rule outaddition of further grounds in course of time. As a matter offact, in R. v. Secy. of State for Home Department, ex pBrind [R. v. Secy. of State for Home Department, ex p Brind,(1991) 1 AC 696 : (1991) 2 WLR 588 (HL)] , Lord Diplockrefers specifically to one development, namely, the possiblerecognition of the principle of proportionality. In all thesecases, the test to be adopted is that the court should, ‘considerwhether something has gone wrong of a nature and degreewhich requires its intervention’.” (ii) Irrationality, namely, Wednesbury unreasonableness. (iii) Procedural impropriety. The above are only the broad grounds but it does not rule outaddition of further grounds in course of time. As a matter offact, in R. v. Secy. of State for Home Department, ex pBrind [R. v. Secy. of State for Home Department, ex p Brind,(1991) 1 AC 696 : (1991) 2 WLR 588 (HL)] , Lord Diplockrefers specifically to one development, namely, the possiblerecognition of the principle of proportionality. In all thesecases, the test to be adopted is that the court should, ‘considerwhether something has gone wrong of a nature and degreewhich requires its intervention’.” 14. It could thus be seen that the scope of judicial review of anadministrative action is very limited. Unless the Court comes toa conclusion that the decision-maker has not understood thelaw correctly that regulates his decision-making power or whenit is found that the decision of the decision-maker is vitiated byirrationality and that too on the principle of “Wednesburyunreasonableness” or unless it is found that there has been aprocedural impropriety in the decision-making process, itwould not be permissible for the High Court to interfere in thedecision-making process. It is also equally well settled that it isnot permissible for the Court to examine the validity of thedecision but this Court can examine only the correctness of thedecision-making process.” 29.Applying the above principles to the facts of the present case, it isseen that the reassessment proceedings were initiated on account of the factthat it was discovered that the assessee had misrepresented in his return withregard to the payments made to M/s Jalan Synthetics of Rs.3,40,000/- incash which were deposited in their bank account and such a transfer was notadmissible in the light of provisions of Section 40A(3) of the Act and Rule6DD of the Rules, 1962, and therefore, in the reassessment proceedings thesaid amount was added to the income of the assessee. 30.The reassessment order was assailed by moving an application underSection 264 of the Act, 1961. The assessing authority has duly consideredthe application of the assessee and after considering the same has recorded afinding that the assessee has clearly misrepresented in his return as well asaudit report with respect to Section 40A(3) of the Act and Rule 6DD of theRules, 1962 and therefore the case of the petitioner is not covered by any ofthe exceptions. No evidence was led by the assessee to demonstrate that thecash was deposited at the instance of M/s Jalan Synthetics, so as to givebenefit of Rule 6DD of the Rules, 1962, to the petitioner. 31.Learned counsel for the petitioner-assessee also could not demonstratethat the impugned order is bereft of reasons or that it is perverse or that it hasfailed to consider the relevant material or document and therefore in absenceof any of such infirmity the contention of learned counsel for the petitionercannot be accepted and the writ petition is liable to be dismissed. 32.In the light of discussion made above, this Court does not find anymerit in the contentions raised by the petitioner. The writ petition isaccordingly dismissed. Order Date :- 18.01.2020 A. Verma (Alok Mathur, J.)