Ajai Kumar Singh Khaldelial v. Principal Commissioner of Income-tax And Anr
[Citation -2020-LL-0118-1]

Citation 2020-LL-0118-1
Appellant Name Ajai Kumar Singh Khaldelial
Respondent Name Principal Commissioner of Income-tax And Anr.
Court HIGH COURT OF ALLAHABAD
Relevant Act Income-tax
Date of Order 18/01/2020
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags electronic clearing system • reassessment proceedings • benefit of exemption • change of opinion • transfer of funds • reason to believe • letter of credit • business income • crossed cheque • no deduction • cash payment
Bot Summary: The petitioner received a notice dated 30.03.2013, issued under Section 148 of the Act, 1961, stating therein that the authorities had reason to believe that cash payment of Rs.3,40,000/- had been made by the petitioner to M/s Jalan Synthetics for the assessment year 2008-09, in violation to the provisions of Section 40A(3) of the Act, 1961, which is other than by making payment through crossed account payee cheque or crossed bank draft, as such the same is liable to be disallowed and added back to the income of the petitioner. The assessing authority not being satisfied by the reply submitted by the petitioner proceeded to make addition of Rs.3,40,000/- in the income of the petitioner and disallowed the benefit/exemption under Section 40A(3) of 3 the Act, 1961 for the reason that payment exceeding Rs.20,000/- was made other than crossed cheque or bank draft. Assailing the order of the Principal Commissioner, Income Tax, Gorakhpur, the petitioner has urged that the revenue has misinterpreted the provisions of Section 40A(3) of the Act and Rule 6DD of the Rules, 1962 and that the amount of Rs.3,40,000/-, deposited on various dates in the bank account of M/s Jalan Synthetics, would be covered under Rule 6DD(c)(v) of the Rules, 1962 as the same has been done by use of electronic clearing system through the Bank. Power under Section 264 of the Act, 1961 cannot be equated with the power of appeal which lies to the appeal under Section 246 of the Act and in this regard he has submitted that the Principal Commissioner, Income Tax has duly enquired into the allegations made by the assessee and has rejected the application after due consideration of the same and therefore there was no infirmity in order rejecting the application preferred by the assessee and concluded that the writ petition be dismissed. On merits Sri Praveen Kumar, learned counsel for the respondents submits 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 in the audit report under Section 44AB of the Act, 1961. In para 22 of the writ petition the petitioner has stated that he is aggrieved by the re-assessment order passed under Section 148/143(3) of the Act, 1961 and the notice under Section 147 of the Act was not challenged. The assessing authority has duly considered the application of the assessee and after considering the same has recorded a finding that the assessee has clearly misrepresented in his return as well as audit report with respect to Section 40A(3) of the Act and Rule 6DD of the Rules, 1962 and therefore the case of the petitioner is not covered by any of the exceptions.


AFR Reserved on 13.01.2020 Delivered on 18.01.2020 Court No. - 42 Case :- WRIT TAX No. - 318 of 2016 Petitioner :- Ajai Kumar Singh Khaldelial Respondent :- Principal Commissioner Of Income Tax And Anr. Counsel for Petitioner :- Suyash Agarwal Counsel for Respondent :- C.S.C.,Praveen Kumar,S.C. Hon'ble Alok Mathur,J. 1. Heard Sri Suyash Agarwal, learned counsel for petitioner as well as Sri Praveen Kumar, learned counsel for respondents. 2. petitioner by means of this writ petition has challenged order passed by Principal Commissioner, Income Tax, Gorakhpur thereby he has rejected application preferred by petitioner under Section 264 of Income Tax Act, 1961 (hereinafter referred to as Act, 1961 ). 3. Learned counsel for petitioner submits that petitioner is proprietor of M/s Purushottam Das Ajai Kumar, Asif Ganj, Azamgarh and is engaged in business of retail trading of ready made and other clothes in name of proprietary concern. For assessment year 2008-09, petitioner s firm filed income tax return which included income of Rs.34,912/- earned from house property besides business income of Rs.1,70,304/-. petitioner got his firm s accounts audited with net profit of Rs.1,61,012/- showing @ 2.00% and gross profit of Rs.8,67,837/- being 44.33% of gross receipt. 4. It has been further submitted on behalf of petitioner that he disclosed about advance given to supplier s account as well as copy of account of M/s Jalan Synthetics, Varanasi before 2 assessing authority which clearly demonstrated that on various dates amount of payment has been deposited by petitioner in UBI, Varanasi bank on their instructions. It has further been contended that assessing authority while passing assessment order for assessment year 2008- 09, did not raise any objection relating to aggregate amount of Rs.3,40,000/- deposited on various dates in bank account of M/s Jalan Synthetics. 5. assessment proceedings were completed in exercise of power under Section 143(3) of Act, 1961 on income of Rs.2,80,004/- by order dated 10.11.2010 and giving appeal effect it was revised at Rs.1,99,804/-. 6. petitioner received notice dated 30.03.2013, issued under Section 148 of Act, 1961, stating therein that authorities had reason to believe that cash payment of Rs.3,40,000/- had been made by petitioner to M/s Jalan Synthetics for assessment year 2008-09, in violation to provisions of Section 40A(3) of Act, 1961, which is other than by making payment through crossed account payee cheque or crossed bank draft, as such same is liable to be disallowed and added back to income of petitioner. 7. petitioner objected to notice issued under Section 148 of Act, 1961 and submitted that he had truly and faithfully disclosed all facts necessary. He further stated that payment of Rs.3,40,000/- was genuine and that there is no violation of Section 40(3) of Act, 1961 read with Rule 6DD of Income Tax Rules, 1962 (hereinafter referred to as Rules, 1962 ) and further that payment of Rs.3,40,000/- in cash to M/s Jalan Synthetics is also reflected in their ledger accounts and therefore, there was no basis for reopening of assessment proceedings. 8. assessing authority not being satisfied by reply submitted by petitioner proceeded to make addition of Rs.3,40,000/- in income of petitioner and disallowed benefit/exemption under Section 40A(3) of 3 Act, 1961 for reason that payment exceeding Rs.20,000/- was made other than crossed cheque or bank draft. 9. petitioner being aggrieved by order dated 14.03.2014, preferred application under Section 264 of Act, 1961 before Principal Commissioner, Income Tax, Gorakhpur on 07.04.2014. 10. By means of impugned order dated 19.01.2016, Principal Commissioner, Income Tax, Gorakhpur has considered application of petitioner and has rejected same holding that petitioner had clearly misrepresented in his return as well as audit report with respect to application of Section 40A(3) of Act, 1961 read with Rule 6DD of Rules, 1962 and concluded that payment made to M/s Jalan Synthetics Ltd. is not covered by any exemption. assessing authority had carried out only limited examination in good faith with respect to genuineness of party and believed assessee and auditor. He has further stated that there is difference between document and information and despite documents being on record it was on basis of fresh information that petitioner has concealed his income in violation of Section 40A(3) of Act, 1961. It was within competence and jurisdiction of authority to reopen assessment under Section 148 of Act, 1961 and therefore up held order passed by assessing authority. 11. Assailing order of Principal Commissioner, Income Tax, Gorakhpur, petitioner has urged that revenue has misinterpreted provisions of Section 40A(3) of Act and Rule 6DD of Rules, 1962 and that amount of Rs.3,40,000/-, deposited on various dates in bank account of M/s Jalan Synthetics, would be covered under Rule 6DD(c)(v) of Rules, 1962 as same has been done by use of electronic clearing system through Bank. It is further submitted that there was no new information in possession of respondent no. 2 for invoking reassessment under Section 147 of Act, 1961, as documents on basis of which re-assessment has taken place, were already on record at time of original 4 assessment and same can not be converted as fresh information in course of examination by audit party. 12. Sri Praveen Kumar, learned counsel for respondents on other hand has submitted that scope of Section 264 of Act, 1961 is very limited and in exercise of powers Principal Commissioner, Income Tax, Gorakhpur is empowered to hold limited enquiry into grounds raised by assessee and thereupon examining and passing appropriate orders. Power under Section 264 of Act, 1961 cannot be equated with power of appeal which lies to appeal under Section 246 of Act and in this regard he has submitted that Principal Commissioner, Income Tax has duly enquired into allegations made by assessee and has rejected application after due consideration of same and therefore there was no infirmity in order rejecting application preferred by assessee and concluded that writ petition be dismissed. 13. On merits Sri Praveen Kumar, learned counsel for respondents submits that assessee had made misrepresentation in his returns, declaring that no amount was admissible or it is liable under Section 40A(3) of Act and Rule 6DD of Rules, 1962 and same was also mentioned in audit report under Section 44AB of Act, 1961. he also submitted that only account number of M/s Jalan Synthetics was submitted by assessee and no proof that amount of payment had been deposited on their instructions. He further vehemently urged that assessee had failed to prove that payment to M/s Jalan Synthetics was not made by cheque or bank draft on account of some business exigency, as cash payment made by petitioner was in contravention to provisions of Section 40A(3) of Act, 1961. 14. With regard to issue regarding reopening of assessment under Section 147 of Act, 1961, he has submitted that assessing authority had recorded sufficient reasons with regard to fact that certain items of income though taxable had escaped notice of assessing authority and 5 therefore same did not amount to change of opinion and therefore there was no infirmity in same. 15. Heard learned counsel for parties and perused record. 16. petitioner who carries on business of retail trade in ready made and other clothes had given advance to suppliers bank account i.e. M/s Jalan Synthetics while depositing total amount of Rs.3,40,000/- on various dates between 12.06.2007 to 01.12.2007, in UBI Bank, Varanasi in account no. 303505040010515. 17. In return filed by assessee he had declared that inadmissible expenses under Section 40A(3) of Act read with Rule 6DD of Rules, 1962 were nil and same was also mentioned in audit report. assessing authority having no reason to disbelieve aforesaid declaration made by assessee, which was subsequently reopened in exercise of powers contained in Section 148 of Act, 1947. assessing authority, after giving opportunity of hearing to assessee has made re-assessment by means of order dated 14.03.2014 and added Rs.3,40,000/- in income of assessee. 18. application was preferred by petitioner under Section 264 of Act, 1961, against re-assessment proceedings and impugned order passed by Principal Commissioner, Income Tax also mentions that assessee has filed application only against order of assessment. 19. It seems that issue pertaining to validity of order under Section 147 of Act, 1961 was not raised by assesseee in his application and his only grievance was with regard to re-assessment order. In para 22 of writ petition petitioner has stated that he is aggrieved by re-assessment order passed under Section 148/143(3) of Act, 1961 and notice under Section 147 of Act was not challenged. 20. main question which falls for consideration of this Court is as to Whether deposit of amount in cash in bank account of M/s Jalan Synthetics can be held to be covered under provisions of Rule 6DD(c)(v) 6 of Rules, 1962? and for which purpose it can be said to be payment by use of electronic clearing system through bank account. 21. It is relevant to reproduce provisions of Section 40A(3) of Act, 1961 and Rule 6DD of Rules, 1962, which are reproduced herein below : Section 40A(3) Where assessee incurs any expenditure in respect of which payment or aggregate of payment made to person in day, otherwise than by account payee cheque drawn on bank or account payee bank draft, or use of electronic clearing system through bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure. Rule 6DD No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be profits and gains of business or profession under sub-section (3A) of section 40A where payment or aggregate of payments made to person in day, otherwise than by account payee cheque drawn on bank or account payee bank draft, exceeds twenty thousand rupees in cases and circumstances specified hereunder, namely :- (a) where payment is made to- (i) Reserve Bank of India or any banking company as defined in clause (c) of section 5 of banking Regulation Act, 1949 (10 of 1949); (ii) State bank of India or any subsidiary bank as defined in section 2 of 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 primary credit society as defined under section 56 of Banking Regulation Act, 1949 (10 of 1949); 7 (v) Life Insurance Corporation of India established under Section 3 of Life Insurance Corporation Act, 1956 (31 of 1956); (b) where payment is made to Government and, under rules framed by it, such payment is required to be made in legal tender; (c) where payment is made by - (i) any letter of credit arrangements through bank; (ii) mail or telegraphic transfer through bank; (iii) book adjustment from any account in bank to any other account in that or any other bank; (iv) bill of exchange made payable only to bank; (v) use of electronic clearing system through bank account; (vi) credit card; (vii) debit card. 22. Initially Section 40A(3) of Act, 1961 which requires payment in respect of expenses which exceed Rs.2500/- to be made by means of crossed cheque or crossed bank draft, on failure to do so, payment made were disallowed in computation of income. In order to remove hardship to smaller assessees ceiling limit was increased to Rs.10,000/- and later on it was increased to Rs.20,000/- by means of Finance Act, 2017 which was made effective on 01.04.2018. Section 40A(3) of Act, 1961, has non obstantive clause which has over riding provision. It operates inspite of any thing to contrary contained in any other provision of Act, 1961 relating to computation of income under head profits and gains of business or profession , Legislature as thus made it clear that provisions 8 of Section 40A of Act, 1961 will apply in place of other contrary provisions of this Act relating to computation of income. Sub Section 3 empowers assessing authority to disallow deducting any expenditure in respect 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 Rules, 1962 refers to cases and circumstances in which payment of sum exceeding Rs.20,000/- made by mode otherwise than by crossed cheque or by crossed bank draft. 24. combined reading of Section 40A(3) of Act alongwith Rule 6DD of Rules, 1962 would indicate that provisions have been inserted by Legislature to prevent transactions of above Rs.20,000/-. It is also necessary to mention here that validity of Section 40A of Act, 1961 has been up held by Hon ble Apex Court in case of Attar Singh Gurmush Singh Vs. Income Tax Officer, 1991 SCR (3) 405, holding that onus is on assessee to show that he is covered by any of exception provided or in Rule 6DD of Rules, 1962 and in present case amount was directly deposited in account of seller i.e. M/s Jalan Synthetics. 25. term use of electronic clearing system through bank account would necessarily include transaction of funds by electronic mode through clearing system. Any transfer of funds through use of electronic clearing system through bank account would mean transfer of funds through electronic mode of transfer i.e. RTGS, IMPS, NEFT etc., where funds are transferred through bank account of one individual into bank account of beneficiary through electronic means. When funds are transferred through electronic clearing system then at least two banks or two branches of same bank have to be involved then only money is transferred through electronic clearing system between them. 26. In present case, question which arises for consideration is that in case, cash is deposited directly in bank account of beneficiary, can 9 benefit of Rule 6DD(c)(v) of Rules, 1962, can be given to assessee. Such transaction by depositing cash directly in bank account of beneficiary is not routed through any clearing house nor is money send through electronic mode and therefore such transaction in my considered opinion cannot be covered by Rue 6DD(c)(v) of Rules, 1962, and therefore benefit of provision cannot be given to petitioner. petitioner also could not lead any evidence to show that he had deposited amount on instructions of M/s Jalan Synthetics or due to any business exigency. In absence of such evidence, assessing authority rightly denied benefit of exemption to petitioner. 27. impugned order dated 19.01.2016, passed by Principal Commissioner, Income Tax has considered reply given by petitioner and has concluded that in respect to transfer of funds made by petitioner, benefit of Rule 6DD of Rules, 1962 is not attracted and therefore computation made by assessing authority has been up held. 28. jurisdiction of writ Court in exercise of jurisdiction under Article 226 of Constitution of India is limited to examining decision making process and not decision itself. This position of law has been constantly reiterated by Hon ble Apex Court in its various pronouncements. Apex Court in its recent judgment in case of Municipal Council, Neemuch v. Mahadeo Real Estate, (2019) 10 SCC 738, has observed as under : 13. In present case, learned Judges of Division Bench have arrived at finding that such sanction was, in fact, granted. We will examine correctness of said finding of fact at subsequent stage. However, before doing that, we propose to examine scope of powers of High Court of judicial review of administrative action. Though, there are catena of judgments of this Court on said issue, law laid down by this Court in Tata Cellular v. Union of India [Tata Cellular v. Union of India, (1994) 6 SCC 651] lays down basic principles which still hold field. Para 77 of said judgment reads thus: 10 77. duty of court is to confine itself to question of legality. Its concern should be: 1. Whether decision-making authority exceeded its powers? 2. Committed error of law, 3. committed breach of rules of natural justice, 4. reached decision which no reasonable tribunal would have reached or, 5. abused its powers. Therefore, it is not for court to determine whether particular policy or particular decision taken in fulfilment of that policy is fair. It is only concerned with manner in which those decisions have been taken. extent of duty to act fairly will vary from case to case. Shortly put, grounds upon which administrative action is subject to control by judicial review can be classified as under: (i) Illegality : This means decision-maker must understand correctly law that regulates his decision- making power and must give effect to it. (ii) Irrationality, namely, Wednesbury unreasonableness. (iii) Procedural impropriety. above are only broad grounds but it does not rule out addition of further grounds in course of time. As matter of fact, in R. v. Secy. of State for Home Department, ex p Brind [R. v. Secy. of State for Home Department, ex p Brind, (1991) 1 AC 696 : (1991) 2 WLR 588 (HL)] , Lord Diplock refers specifically to one development, namely, possible recognition of principle of proportionality. In all these cases, test to be adopted is that court should, consider whether something has gone wrong of nature and degree which requires its intervention . 14. It could thus be seen that scope of judicial review of administrative action is very limited. Unless Court comes to conclusion that decision-maker has not understood law correctly that regulates his decision-making power or when it is found that decision of decision-maker is vitiated by irrationality and that too on principle of Wednesbury unreasonableness or unless it is found that there has been procedural impropriety in decision-making process, it would not be permissible for High Court to interfere in decision-making process. It is also equally well settled that it is not permissible for Court to examine validity of decision but this Court can examine only correctness of decision-making process. 11 29. Applying above principles to facts of present case, it is seen that reassessment proceedings were initiated on account of fact that it was discovered that assessee had misrepresented in his return with regard to payments made to M/s Jalan Synthetics of Rs.3,40,000/- in cash which were deposited in their bank account and such transfer was not admissible in light of provisions of Section 40A(3) of Act and Rule 6DD of Rules, 1962, and therefore, in reassessment proceedings said amount was added to income of assessee. 30. reassessment order was assailed by moving application under Section 264 of Act, 1961. assessing authority has duly considered application of assessee and after considering same has recorded finding that assessee has clearly misrepresented in his return as well as audit report with respect to Section 40A(3) of Act and Rule 6DD of Rules, 1962 and therefore case of petitioner is not covered by any of exceptions. No evidence was led by assessee to demonstrate that cash was deposited at instance of M/s Jalan Synthetics, so as to give benefit of Rule 6DD of Rules, 1962, to petitioner. 31. Learned counsel for petitioner-assessee also could not demonstrate that impugned order is bereft of reasons or that it is perverse or that it has failed to consider relevant material or document and therefore in absence of any of such infirmity contention of learned counsel for petitioner cannot be accepted and writ petition is liable to be dismissed. 32. In light of discussion made above, this Court does not find any merit in contentions raised by petitioner. writ petition is accordingly dismissed. Order Date :- 18.01.2020 A. Verma (Alok Mathur, J.) Ajai Kumar Singh Khaldelial v. Principal Commissioner of Income-tax And Anr
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