M/s S.R. Builders & Developers ITA No. 304/Ind/2015 IN INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER I.T.A. No. 304/Ind/2015 Assessment Year: 2006-07 M/s. S.R. Builders & DCIT 3(1) Developers V Indore Indore s Appellant Respondent Appellant by Shri S.N. Agrawal & Shri Pankaj Mogra Respondent by Shri Mohd. Javed Date of hearing 23.8.2016 Date of 14.9.2016 pronouncement ORDER PER O.P. MEENA ACCOUNTANT MEMBER. This appeal is filed by assessee against order of ld. Commissioner of Income-tax (Appeals)-I, Indore [hereinafter referred to as CIT(A)] dated 29.12.2014 and pertains to assessment year 2006-07 as against appeal decided in assessment order u/s. 254 r.w.s. 143(3) of Income Tax Act,1961( herein after referred to as "the 1 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 Act) dated 20.3.2013 of ACIT 3(1), Indore [hereinafter referred to as AO]. 2. sum and substance of grounds of appeal taken by assessee is that CIT(A) was not justified in confirming addition of Rs.24,71,668/- as also enhancing same to Rs.32,95,556/- by invoking provisions of section 40A(3) of Act. 3. facts, in nutshell, are that during course of assessment proceedings u/s 143(3) of Act, addition of Rs.24,71,668/- was made by AO under section 40A(3) of Act on account of payment made in cash exceeding Rs. 20,000/- to associated concern, M/s S.R. Traders. This addition was enhanced in appeal by ld. CIT(A) against which assessee preferred appeal before I.T.A.T. and I.T.A.T. in its turn directed AO to examine claim of assessee as per provisions of Act. Accordingly, AO issued notice u/s 142(1) of Act in response to which learned counsel for assessee appeared and filed detailed reply and documents. After examining same in detail, AO observed that assessee was specifically asked to produce 2 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 material evidence to establish that no payment in cash exceeding Rs. 20,000/- in violation to provisions of section 40A(3) of Act was made to associated concern M/s S.R. Traders, but assessee could not produce any relevant document in support of its claim. AO, therefore, held that transactions of purchases of of Rs1,64,77,778/- were made in cash from M/s S.R. Traders and since such transactions were exceeding Rs.20,000/-, provisions of section 40A(3) of Act were clearly applicable. AO, therefore, restricted disallowance to Rs.24,74,668/- at rate of 15% of total of such amount of Rs.1.64 crore. 4. Being aggrieved with addition so made, assessee preferred first appeal before CIT(A) but again assessee met with same fate. However, learned CIT(A) after considering issue at length, enhanced disallowance to Rs.32,95,556/- on ground that u/s 40A(3) of Act, disallowance of 20% is provided and not 15% as made by AO. detailed findings of learned CIT(A) are reproduced below :- 3 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 2. relevant paras from AO s order are reproduced hereunder:- assessee filed its return of on 31-10-2006 declaring total income of Rs.13,561/-. case was selected for scrutiny and scrutiny assessment u/s 143(3) was completed on 31-12-2008 by making addition u/s 40(A)(3) of I.T. Act amount to Rs.32,95,556/- and disallowance of depreciation amounting to Rs.27,694/-. Thereby at total assessed income of Rs.33,36,810/-. Aggrieved with order, passed by AO, assessee preferred appeal before Ld CIT(A) and same was decided by Ld CIT(A) on 25-3-2010. assesse preferred appeal before Hon'ble ITAT. Hon'ble ITAT vide its order ITA No. 322/Ind/2010 dated: 10-10-2011 has decided appeal and set- asi.de matter to file of assessing officer. relevant part of order passed by Hon'ble 1TAT, Dated: 10-10-2011, is being reproduced as under: "on perusal of record and alter hearing rival submissions, we restore both these grounds to file of Assessing Officer who will examine claim of assessee and also whether payments claimed to be made in respect of expenditure and decide as per provisions of Act for which due opportunity of being heard be provided to assesse." Thereafter in continuation of proceedings so started, further notice u/s 142(1) dated: 11-05-2012 was issued to assessee. Again due to change in incumbent, notice u/s 142(1) dated: 30-01-2013 was issued to assessee. In response to aforementioned notices, AR of assessee Shri S.N. Agrawal CA appeared and submitted detailed reply and documents as filed which is perused and placed on record. Disallowances U/s 40(A) (3): During course of scrutiny assessment u/s 143(3) dated: 30-12-2008 for A. Y. 2006-07 addition for Rs.32,95,556/- being 20% of total, payment amounting to Rs.1,64,77,778/-, on account of payment made in cash exceeding Rs.20,000/- to associated concern M/s S. R. Traders. And now when AR of assessee was asked to produced material evidence to establish that no any payment in cash exceeding Rs.20,000/- has been made by assessee Finn and provision of section 40A (3) of Income Tax act has not been violated at all. In response to that assessee, vide letter 08-02-2013 produced detailed submission which is perused and placed on record along with its reply and urged regarding non applicability of provision of section 40(A) (3) of I.T. Act in this case. relevant para of same reply is being reproduced as under: Copy of Ledger of M/s S.R Traders as maintained in book of assessee is enclosed. That as explained M/s S R Traders is nothing but considered as proprietorship concern of Shri Rajesh Choukse, partner of assessee firm. assessee had not purchased any material from that firm but material were supplied by some other suppliers. However, in books of assessee instead of maintaining individual ledger of different suppliers, entire material shown as purchased through M/s S R Traders. That individual payment to suppliers were not in excess of Rs.20,000/-. Hence, provision of section 40A (3) of Income Tax Act is not applicable. assessee firm has not made any payment in excess of Rs.20,000/- to its suppliers. Hence, provision of section 40A(3) is not being applied on facts of present case. amount as paid in cash shown in excess of Rs.20,000/- to M/s S R 4 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 Traders represents amount actually paid to different suppliers through its partner Shri Rajesh Choukse. Hence, for purpose of provision of section 40A(3), when we consider actual payment to suppliers, in that case, no payment was made to any supplier in excess of Rs.20,000/. fact can also be verified from Individual bills of suppliers. " In this connection, detail produced by assessee is duly perused and here it is worth mentioning that assessee has also filed copy of affidavit wherein Mr. Rajesh Choukse has solemnly affirmed that he is not having any proprietary concern in his name, called M/s S.R. Traders. In Income Tax proceedings such solemn affirmation has no any value. Now as far as copy of bills furnished in this regard, on minutely observation of said bills, it is observed that many of bills are written in similar handwriting. Here it is also important to mention that F.Y. 2005-06 is under consideration. Therefore it is not possible to verify each and every transaction. Furthermore, on observation of said bill, it is also worth mentioning that some of bills produced by assessee, such as; Bill dawn by RADHEKRISHNA SAW MILL Dated: 22-03-2006. Bill No. 454 of Rs.18,317/- at page No. 989 (in submission made by assessee) handwriting therein is completely similar to that of in Bill drawn by INDERSINGH ARJUN SINGH Dated: 20-03-2006. Bill No. 461 of Rs.19,499/- at Page No. 986. Furthermore Bill in name of S.R. Builders & Developers, drawn by SIDDHARTH ENTERPRISES on 21-06-2006 of Rs.37,507/- at page No. 855 and Bill drawn by TIWARIS STEELS on 04-01-2006 of Rs.12,600/- at page No. 842, both bills are written in same handwriting. How is it possible that at two different business concern, two bills drawn in name S. R. Builders & Developers by person whose handwriting is same? Furthermore it is also evident that, bill at page no. 842 drawn by TIWARI STEELS appears to be dubious at first glance, as on this bill there is no any TIN No. Phone no of business enterprise etc. Furthermore Bill in name of S.R Builders & Developers, drawn by OMPRAKASH TRADERS on 18-11-2005 of Rs.11,080/- at page No. 761 and Bill drawn by KUMAWAT MATERIAL SUPPLIERS on 18-11-2005 of Rs.12,315/- at page No. 760, both bills are written in hindi and in same handwriting. How is it possible that at two different business concern, two bills drawn in name S. R. Builders & Developers and even by person whose handwriting is same? Furthermore it is also evident that format of both bills are exactly same. It is not possible at all that two bills drawn in name of S.R. Builders & Developers on same day and format of both bills are exactly same. Even appearance of some of bills produced by assesses, does not look like that these bills have been drawn almost five to six year before as condition of such hill are that as if it has been drawn recently. Therefore in view of facts discussed above, it is not possible to verify each and every transaction now, although contention of assessee may be genuine but in cases of most of bills, which appear to be doubtful, claim of assessee cannot be accepted in toto. Therefore, in light of aforementioned facts veracity of bills produced by assessee is doubtful. Therefore addition made by then AO while passing order us 143(3) dated: 30-12-2008 is being restricted to 15% in respect of 5 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 payments which were made in cash in excess of Rs.20,000;- and added in total income u/s 40A (3) of I. T. Act. Therefore in view of above discussion Rs.24,71,668/- is being added in total income of assessee. Addition: Rs.24,71,668/- 3. During appeal proceedings appellant filed written submission, relevant para are reproduced. This appeal is filed against order U/s 254 r.w.s 143[3] of Income Tax Act for Assessment Year 2006-07. With regard to said appeal, we have been directed by assessee to submit as under:- 1] GROUND No 1 1.1] assessee in this ground of appeal has challenged addition of Rs.24,71,668/- as maintained by assessing officer U/s 40A[3] of Income Tax Act. 1.2.1] assessing officer while passing original assessment order U/s 143[3] disallowed amount of Rs.32,95,556/- by invoking provision of section 40A[3] in respect of purchases made through M/s S R Traders. 1.2.2] That M/s S R Traders is nothing but proprietorship concern of one of partner who act as agent on behalf of assessee firm and purchase building construction material for and on behalf of assessee. That entire bills were received in name of assessee firm and small payment made through partners of firm. 1.2.3] That copies of all bills were filed before Hon ble ITAT and same sets were also filed before Assessing officer in set- aside proceeding. 1.2.4] That from bills it is clear that most of bills are less than Rs.20,000/- and therefore stand of assessing officer was not correct while passing original assessment proceeding. 1.3.1] That during course of set- aside proceeding Assessing officer doubted genuineness of bills as submitted by assessing by linking hand writing of few bills with others. basis of doubting bills as submitted by assessee was not correct simply for reason that handwriting of different bills are same. Since, in building material supply, one family having one and more firms and at same time, one person worked with one and more firms. Hence, this is not basis for doubting genuineness of expenses in set0 aside proceeding more so when in original assessment proceeding disallowances was made by invoking provision of section 40A[3] of Act. 1.3.2] assessing officer at time of passing of original assessment disallowed amount of Rs.32,95,556/- by invoking provision of section 40A[3] of Act. That in set- aside proceeding, assessee has provided complete bills before Assessing officer and on perusal of these bills it was also clear that most of payments were made by assessee for less than Rs.20,000/-. Hence, there was no justification for making any disallowance u/s 40A[3] of Act. 1.4.1] assessing officer himself in concluding para on Page No 5 has stated that:- 6 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 Therefore in view of facts discussed above, it is not possible to verify each and every transaction now, although contention of assessee may be genuine but in cases of most of bills, which appear to be doubtful, claim of assessee cannot be accepted in toto. Therefore, in light of aforementioned facts veracity of bills produced by assessee is doubtful. Therefore addition made by then AO while passing order U/s 143[3] dated 30-12-2008 is being restricted to 15% in respect of payment which were made in cash in excess of Rs.20,000/- and added in total income u/s 40A[3] of I. T. Act. Therefore, in view of above discussion Rs.24,71,668/- is being added in total income of assessee. 1.4.2] assessing officer was grossly erred in maintaining addition of Rs.24,71,668/- even when no payment was made to supplier in excess of Rs.20,000/-. 1.4.3] reason as mentioned by assessing officer was also not sounded reason for making disallowances by invoking provision of section 40A[3] of Act. assessing officer also not right in maintaining disallowances by doubting genuineness of expenses as claimed by assessee. 1.5.1] That in original assessment proceeding disallowance was made by invoking provision of section 40A[3] of Act. However, it was clarified before Ld CIT[A], that no material was purchased from M/s S R Traders but M/s S R Traders is proprietorship concern of one of partner of assessee firm and act as agent for purchasing of building material. That entire bills were obtained in name of assessee firm and amount of bills was less than Rs 20,000/-. Hence, there was no reason for invoking provision of section 40A[3] of Act. 1.5.2] assessing officer while passing this assessment order reached to conclusion that expenses as claimed by assessee was not genuine. basis of addition as adopted by assessing officer was not proper and beyond scope of set- aside assessment. If assessing officer has any doubt about genuineness of expenses. He cannot sit with folded hand and simply disallowed amount of Rs.24,71,668/- by invoking provision of section 40A[3] of Act. 1.6] That following documents are enclosed for your ready reference:- S. Particulars Page No Nos 1 Copy of Acknowledgement and Computation of income as filed 5-6 for Asst Year 2006-07 2 Copy of Audited final account for year ended on 31.03.06 7-20 3 Copy of Partnership deed 21-24 4 Copy of letter dt 08-02-2013 as filed before Assessing 25-27 Officer 5 Copy of affidavit of partner Shri Rajesh Choukse 28-29 6 Copy of original assessment order passed U/s 143[3] of Act 30-37 7 Copy of letter dt 19-12-2009 as filed before Ld CIT[A] in 38-41 original appeal proceeding 8 Copy of Building Material purchase account in book of 42-44 7 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 assessee for year ended on 31.03.2006 9 Copy of account of M/s S R Traders in book of assessee 45-55 for year ended on 31.03.2006 10 Copy of few bills towards purchase of Building Material as filed 56-89 before Ld CIT[A] in original appeal proceeding. 11 Copy of letter dt 18-03-2010 as filed before Ld CIT[A] in 90-94 original appeal proceeding 12 Copy of order of Ld CIT[A] dt 25-03-2010 as filed during 95-106 original appeal proceeding 13 Copy of order of Hon ble ITAT dt 10-10-2011 as passed in 107-111 case of above assessee setting aside order of Ld CIT[A] and re-store to file of assessing officer 14 Copy of bills as filed before Hon ble ITAT and also before 114-983 Assessing officer during set- aside proceeding 1.7] That in view of above when assessee has not paid any amount in excess of Rs.20,000/-. Hence, assessing officer was not justified in maintaining addition of Rs.24,71,668/-. addition so made now requires to be deleted in full. 2] GROUND No 2 2.1] assessee in this ground of appeal has challenged non- allowance of proper credit of taxes as paid by assessee. 2.2] assessing officer while passing present assessment order not allowed proper credit of taxes of Rs.3,50,000/- as paid by assessee. Copy of both challans are enclosed. 2.3] That in view of above, assessing officer is hereby directed to allow proper credit of taxes of Rs.3,50,000/- as paid by assessee and reduced amount of outstanding demand accordingly. 3] GROUND No 3 3.1] That in this ground of appeal, assessee has challenged chargeability of Interest U/s 234B of Act. 3.2] assessing officer is hereby directed to charge interest U/s 234B of Act on amount of Income that may be finally assessed. 3.3] That in view of above it is submitted that assessing officer is hereby directed to charge interest U/s 234B of Act on amount of total income that may be finally assessed. 4. I have seen assessment order, ground of appeal and submission of appellant. 5. Gr. No.1 is against addition of Rs.24,71,668/- to income of appellant u/s 40A(3) of I.T. Act made by AO by holding that transactions of purchases of Rs.1,64,77,778/- were made in cash from M/s. S.R. 8 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 Traders and since such transaction were exceeding Rs.20,000/-, hence AO invoked provision of Section 40A(3) of I.T. Act and restricted disallowance to Rs.24,74,668/- at rate of 15% of total of such amount of Rs.1.64 crore. However in original assessment order such amount was disallowed to extent of Rs.32,95,556/- at rate of 20% of Rs.1.64 crore and that assessment was set aside by Hon ble member, ITAT, Indore to file of AO with direction to examine claim of assessee. AO after such examination again made similar addition though of lesser amount by observing that such transaction of purchases were in cash in excess of Rs.20,000/- & he even doubted genuineness of some of these transaction. appellant on other hand argued that though cash was given by appellant to M/s S.R. Traders, of Rs.1.64 crore in excess of Rs.20,000/-, but that is proprietary concern of one of partners of appellant and such amount was given to them just in order to facilitate purchases of construction material and they further argued that in fact each of such material purchases made by M/s S.R. Traders in well below Rs.20,000/-. 5(i) Both arguments taken by appellant are rather na ve, illogical & remained unsubstantiated. Firstly since as per admitted position proprietor of M/s S.R. Traders is partner in appellant firm and therefore as partner of firm he is duty bound to overlook any activity of firm including purchases of material for which there is no compulsion to engage his proprietary concern. In such circumstances, question arises as to why proprietary concern of one partner namely M/s S.R. Traders was engaged by appellant, for making purchases of materials of Rs.3,01,20,550/- which is paid both through cheque & cash. Reason for same is not far to seek. If one examines profit & loss a/c of appellant for AY 2006-07, it can be seen that on total receipts from construction of Rs.4,69,23,187/-, appellant has shown very small net profit of Rs.2,85,425/-, which was mainly due to claim of building 9 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 material purchases of Rs.3,01,20,550/- & entire of such purchase is shown as made from M/s S.R. Traders. Out of such purchases of Rs.3.01 crores, purchases of Rs.1.64 crores are cash purchases where each purchase exceeds Rs.20,000/- and in fact each purchase bill as shown in ledger a/c is in lakhs of rupees. Entire of this modus operandi is adopted with view to obviate mischief of provisions of Sec. 40A(3), which is being described by AO as various discrepancies in such purchase bills like no mention of phone nos. no, mention of transport vehicle no., bills of different parties being in same handwriting etc. 5(ii) I have seen bills of material purchase submitted by appellant and from appearance of cash bills they appear as created by appellant as there is no probability in normal business that most of such cash purchase bills will be in range of Rs.18,000/- to Rs.19,999/-, as in normal course bills will be of all amounts ranging from Rs.100/- to Rs.8.05 lakh (highest amount). amount of bills show that they have been created to make it just less than Rs.20,000/-. Secondly bills are repeatedly from same 7 to 8 parties which is possible only when they are created because in reality purchases are made from several different parties. But what is most catching point here is that most of these bills from 7 to 8 different parties are in same handwriting which is not possible unless bills are being created. Furthermore such bills are created just for sake of producing before AO/CIT(A), which is quite obvious from fact that they are not tallying with ledger a/c of M/s S.R. Traders. For example appellant has furnished bill no.434of Radhekrishna saw mill dated 13-03-2006 of Rs.19,203/-, but in ledger a/c of M/s S.R. Traders, there is no purchase bill on 13-03-2006, but there are purchase bills of Rs.6,50,000/- on 12-03-2006 and of Rs.71,250/- on 15-03-2006. Similarly there is bill of Rs.15,365/- on 13-03-2006 from Tiwari Steel 10 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 (without any TIN no. or Phone no.). Same is problem with bills of Mishra Brothers dt. 13-03-2006 of Rs.15,700/- and of Kushwaha Traders of Rs.12,290/- dt. 13-03-2006. Therefore for all such bills dated 13-03- 2006, there is no corresponding entry dated 13-03-2006 in ledger a/c of M/s S.R. Traders. appellant has failed to provide breakup of various bills mentioned in ledger a/c of M/s S.R. Traders like for example no breakup of various bills is furnished which are part of purchase of Rs.6,50,000/- on 12-03-2006 etc. Clearly intention was to overcome mischief of provisions of Section 40A(3) of I.T. Act by putting concern of one s own partner namely M/s S.R. Traders in between and by creating various cash bills as described above. It is also strange to observe that with such 7-8 parties appellant has not made single cheque transaction. All these items like sand/ grit/ concrete/steel/wood etc are normally purchased as truckload or cartload and not purchased several times in small quantities because in that case transport expense goes up sharply & no wholeseller is ready to deliver such small quantities. Besides none of these purchase bill shows any vehicle no. of truck/tempo for transportation of such goods. Most of such bills also do not have TIN/Sale tax no./telephone no. 5(iii) These are all signs of manipulated/created bills with purpose to create fa ade of bills just below Rs.20,000/- when actual cash purchases were much higher in amounts than statutory limits of Rs.20,000/-. In view of same, I am of considered opinion that appellant is hit by provisions of Section 40A(3) of I.T. Act as purchases of material shown to have been made in cash through M/s S.R. Traders of total of Rs.1,64,77,778/-, were made in cash wherein each purchase as per ledger a/c of M/s S.R. Traders as reproduced in original assessment order at page 2,3,4 was of Rs.20,000/- or more. Hence addition of 11 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 Rs.32,95,556/- at rate of 20% of such purchases made in original assessment was quite justified and while passing set aside order, AO made mistake apparent from record, by calculating such addition u/s 40A(3) of I.T. Act, at rate of 15%, since I.T. Act has provided fixed rate of disallowance at 20% and legislature has not provided any discretion to AO in this regard, to either reduce or enhance it. Hence that being merely mistake apparent from record, it is being rectified here by using coterminous powers of CIT (A). Therefore addition is confirmed u/s 40A(3) of I.T. Act to extent of Rs.32,95,556/-. Reliance is placed on decision in cases of Ramesh Chand (HUF) [2013] 217 Taxmann 75 (P&H), Raman Mahajan (HUF) [2013] 141 ITD 485 (Amritsar- Trib.), Vaishali Builders & colonizers [2012] 38 ITD 227 (Jodhpur), Smt. Chanchal Dogra [2013] 247 CTR 616 (H.P.) and Raja & Co. [2010] 335 ITR 381 (Kerala). Gr. No. 1 of appeal is dismissed. Against above finding of learned CIT(A), assessee is in appeal before Tribunal. 5. Before us, learned counsel for assessee reiterated submissions made before authorities below. learned counsel for assessee further submitted that assessee has filed copies of all bills before authorities below but they have not examined same and reached conclusion without any basis. He further submitted that learned CIT(A) has grossly erred in 12 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 confirming action of Assessing Officer as also enhancing disallowance to 20% in place of 15% as made by Assessing Officer. On other hand, learned DR supported order of learned CIT(A). 6. We have considered rival submissions of parties in view of facts obtaining in this case. We find that Assessing Officer has made disallowance at 15% whereas learned CIT(A) has enhanced same to 20%. Before us, it is contention of assessee that learned CIT(A) was not justified in confirming addition as also in enhancing same, without bringing any material on record in support thereof. learned counsel for assessee claimed that some of payments are below Rs. 20,000/- which are not hit by provisions of section 40A(3) of Act. We, therefore, in interest of justice and equity, set aside orders of authorities below and restore issue to file of learned CIT(A) to decide same in view of submissions furnished by assessee which are already on record, after providing assessee reasonable opportunity of being heard. 13 M/s S.R. Builders & Developers ITA No. 304/Ind/2015 7. In result, appeal of assessee is allowed for statistical purposes. This order has been pronounced in open Court on 14th September, 2016. Sd/- Sd/- (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated :_14th September, 2016. Dn/- Copy forwarded to:- 1. Assessee/2. AO concerned/3. ld. PCIT Concerned 4. ld. CIT(A)/5. ld. DR, Indore/6. Guard File By Order A.R. ITAT, INDORE 14 M/s. S.R. Builders & Developers v. DCIT-3(1), Indore