HIGH
COURT OF
Commissioner
of Income-tax
v.
K.
K. S. K. Leather Processor (P). Ltd.
P.D.
DINAKARAN AND MRS. CHITRA VENTEATARAMAN, JJ.
TAX
CASE (APPEALS) NOS. 18 AND 19 OF 2007
February
5, 2007
Section 143, read with section 145 of Income tax Act, 1961 - Assessment - Additions to income - Assessment year 2001-2002 - Assessing Officer made certain addition to income of assessee on ground that there was under valuation of closing stock of wet blue - However, Commissioner (Appeals), came to a finding that there was no case for enhancing value of closing stock and Tribunal deleted addition confirming action of Commissioner (Appeals) - Whether Tribunal was justified in its action - Held, yes
Section 40A(3) of Income-tax Act, 1961, read with rule 6DD of the
Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding
prescribed limits - Assessment year 2001-02 - Assessing Officer disallowed
payments made by assessee in cash to shandy persons who sold hides and skin to
assessee - Commissioner (Appeals) as well as Tribunal noted that payments were
made in cash as same were made on sundays and holidays to persons who did not
belong to organised sectors - Tribunal allowed those payments as same were in
accordance with rule 6DD - Whether Tribunal was justified in its action - Held,
yes
The Assessing Officer made certain additions to the income of the assessee on the ground that there was undervaluation of the closing stock of wet blue and that the unexplained money utilized for the payment to shandy persons was disallowable under section 40A(3). On appeal, the Commissioner (Appeals) found that there was no case for enhancing the value of the closing stock on wet blue. Referring to the claim of section 40A(3), the Commissioner (Appeals) held that the shandies were held on Sundays and holidays and payments had to be made on these days too and the persons who brought the hides and skins after processing did not belong to an organized sector so cash payments were indispensable in those cases, and, thus identity of the payee was established and the payments were in tune with the nature of the assessee’s business and were made in accordance with rule 6DD.
On appeal, the Tribunal rejected the revenue’s plea relating to the under valuation of closing stock holding that the Commissioner (Appeals) had given a factual finding, taking into account the materials, linking the details on the closing stock and there was no violation of rule 46A, as the data was emanating from regular books of accounts, produced before the assessing authority. As regards the necessity of paying the shandies in cash, the Tribunal confirmed the order of the Commissioner (Appeals).
On revenue’s appeal under section 260A.
As a matter of fact, the Tribunal noted that a large quantity of sale of
wet blue was stated to be out of previous years closing stock and current years
purchases. Further, verification of the regular accounts could not be
considered as additional evidence to be called as violation under rule 46A(3).
Considering the finding of fact by the Tribunal, there was no question of law
for interference. On the question of addition made in respect of payment at
shandies to be held as violative of section 40A(3), read with rule 6DD, the
assessee had produced necessary grounds for making cash payment, considering
the nature of trade carried on by the assessee, the Tribunal noted that those
payments were made to small time vendors, who came from surrounding villages to
sell the skin and the process of dressing the skin was done without the aid of
power. The Tribunal also noted from the order of the
Commissioner, that considering the fact that the purchases were made from the
unorganized sector, cash payments were indispensable. Therefore, the Tribunal
rightly came to the conclusion, giving the relief to the assessee. In CIT v. Chrome Leather Co. (P.) Ltd. [1999] 235 ITR 708 it was held that
rule 6DD provides that an assessee can be exempted from the payment by a
crossed cheque or crossed bank draft in the circumstances specified in the
rule. The CBDT has issued certain guidelines giving certain circumstances, and
those circumstances are illustrative and not exhaustive and the underlying idea
of the circular is that if the identity of the payee is known, it would be
possible for the ITO to cross-check, whether the transaction had in fact taken
place. Taking note of the fact that under similar circumstances, the Court had
accepted the plea of the assessee, having regard to the nature of trade, there
was no justification interfere. [