Judgment:
Income Tax Appeal No.19 of 2003 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income Tax Appeal No.19 of 2003 Date of Order:
21. t August, 2013 Commissioner of Income Tax (Central).Ludhiana ...Appellant Versus M/s S.A.Builders Limited, Sector-26, Chandigarh ..Respondent CORAM: HON'BLE Mr.JUSTICE RAJIVE BHALLA HON'BLE Mr.JUSTICE DR.
BHARAT BHUSHAN PARSOON Present: Ms.Urvashi Dhugga, Advocate for the appellant Mr.Alok Mittal, Advocate, for the respondent.
RAJIVE BHALLA, J.
The revenue, impugns order dated 20.06.2002, passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A' (hereinafter referred to as 'the Tribunal').on the following substantial questions of law:- “(i) Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the amount of Rs.44,80,490/- retained by the authorities from contract payments receivable by the assessee on accrued basis could not be treated as assessee's income for Kumar Naresh N 2013.09.02 15:20 the year inspite of the fact that income was I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -2- being assessed on accrual basis?.
(ii) Whether, on the facts and in the circumstances of the case, the ITAT was right in holding that the cash payments exceeding in amount of Rs.10,000/- at a time amounting to Rs.1,27,989/- were made under exceptional circumstances as listed in Rule 6DD(j) and hence were not disallowable u/s 40A(3)?.”.
Counsel for the revenue as well as counsel for the respondent, agree that the fiRs.question of law is covered against the revenue, vide judgment dated 06.05.2013, passed in ITA No.720 of 2008 (“Commissioner of Income Tax Chandigarh-II v.
M/s SAB Industries Limited, Sector-26, Chandigarh”.).The fiRs.question of law is, therefore, answered against the revenue in terms of the aforesaid judgment.
Counsel for the revenue submits that the second question of law may be re-framed and a third question of law also arises for consideration in the following terms:- “(ii) Whether the Income Tax Appellate Tribunal, exercising powers of an Appellate Authority was right in reversing findings recorded by the Assessing Officer on facts that were neither pleaded not raised before the Assessing Officer or the CIT(Appeals)?.
Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -3- (iii) Whether the Income Tax Appellate Tribunal could have reversed the order passed by the Assessing Officer and the CIT(Appeals).with respect to cash payment to M/s Munak International Private Limited, without reversing the findings recorded by the Assessing Officer as well as the CIT(Appeals) that purchases of Marble Chips and Alluminium products cannot be said to be an emergency purchases, justifying payment in cash?.”.
Counsel for the appellant submits that the Assessing Officer disallowed Rs.1,27,979/- under Section 40A(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the 1961 Act').with respect to payments, made in cash to different parties, in excess of Rs.10,000/-.
The payments disallowed pertain to payment of Rs.40,000/- and Rs.12,684/- made to parties at Calcutta.
The appellant's defence was that parties insisted on cash payments and their letters are appended.
The defence was rejected on the ground that it does not satisfy requirements of Rule 6DDJ of the Rules, or CBDT's circular No.220, dated 31.05.1997 and as letters demanding cash payments are not appended.
The finding was affirmed by the CIT(Appeals) but has been reversed by the Tribunal, on a fact that was neither raised before the Assessing Officer not before the CIT(Appeals).Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -4- namely, that the respondent did not have a bank account at Calcutta.
The payment of Rs.75295/- to M/s Munak International Private Limited was disallowed as the explanation that payment was made for emergency purchase of marble chips and alluminium products was rejected.
The finding was affirmed by the CIT(Appeals) but has been reversed, by the Tribunal, without assigning any clear and cogent reason and without reversing the finding rejecting the explanation of emergency purchases.
It is argued that as impugned findings raise substantial questions of law they may be answered in favour of the revenue.
Counsel for the respondent submits that findings recorded by the Tribunal do not call for interference much less raise a substantial question of law as they are pure findings of facts.
It is also argued that the respondent has not raised any fresh plea before the Tribunal as the plea with respect to absence of a bank account, at Calcutta could be raised at any stage and even otherwise flows from the explanation proferred by the appellant.
With regard to the other submissions, it is argued that the fact that Shri R.K.Garg is the Promoter/Director of M/s Munak International Private limited or that the latter company is housed in the same building was rightly held to be irrelevant by the Tribunal.
We have heard counsel for the parties, perused the impugned order, order passed by the CIT(Appeals) as well as Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -5- the order passed by the Assessing Officer.
The Assessing Officer disallowed Rs.1,27,979/- paid in cash in excess of Rs.10,000/- as there was no plausible explanation, for these payments.
The particulars of these payments and reasons assigned by the Assessing Officer, for rejecting the explanation proferred by the assessee are as follows:- (1) A sum of Rs.40,000/- was paid to M/s Jain Suppliers Syndicate Calcutta and Rs.12,684/- to M/s Lala Jogi Dass Prem Sagar, both of Calcutta.
The explanation offered by the assessee was that parties at Calcutta insisted on cash payment and their request letters are enclosed with the reply.
The explanation was rejected by holding that the assessee has not enclosed the request letters and has not adduced any other independent evidence.
(2) The payment of Rs.75,295/- to M/s Munak International Private Limited was disallowed on the ground that the explanation that payment was made for emergency purchases was false as purchase of marble chips and aluminum products could not be held to be an emergency purchase and even otherwise Shri R.K.Garg, Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -6- Director of the assessee is a Promoter of M/s Munak International Private Limited, which is housed in the same building as the assessee.
As referred to before these findings, were affirmed by the CIT(Appeals).The Tribunal has, however, reversed these findings by holding as follows:- “10.
We have heard both the parties and given our utmost consideration to the rival submissions.
We have also examined the facts, evidence and material on record.
From the facts detailed above, it is obvious that the only plea taken by the assessee before the lower authorities was that such cash payments had been made at Calcutta because the parties from whom such purchases were made insisted on cash payments.
However, no evidence in the form of confirmatory letter from those parties that they insisted on such cash payments was produced.
The assessee had not taken the plea before the lower authorities that cash payments were made to the above mentioned parties because the assessee did not any bank a/c.
The Hon'ble Punjab & Haryana High Court in the case of CIT v.
Brij Mohan Singh & co., supra, has held that Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -7- cash payments made to the party at a place where the seller or purchaser does not have bank account would not call for disallowance u/s 40A(3).The Hon'ble High Court has referred to the Board's circulate No.220, dated 31.5.1977, where the CBDT has mentioned that all the circumstances in which the condition laid down in rule 6DD(j) would be applicable cannot be spelt out.
However, some of them, which would seem to meet the requirements of the said rule are as under: “a) The purchaser is new to the seller; or b) The transactions are made at place where either the purchaser or the seller does not have a bank account; or c) the transactions and payments are made on a bank holiday; or d) the seller is refusing to accept the payment by way of cross cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller; or Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -8- e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or f) specific discount is given by the seller for payment to be made by way of cash.”
From the above it is obvious that payments made in violation of provisions of section 40A(3) at a place where neither the purchaser not the seller does have the bank account would fall in the exceptional circumstances mentioned therein.
But the above mentioned circular of the Board also mentions that all the circumstances spelt our therein are not exhaustive.
These are only some of the exceptional circumstances where it could be said that such payments are covered under rule 6DD(j).However, in response to specific query from the Bench, the ld.
Counsel submitted that the registered office of the assessee is located at Chandigarh.
The contract work for which such purchases were made from Calcutta was being carried out at Port Blair.
There is no material placed on record Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -9- to show that the assessee had his branch office at Calcutta.
These facts show that material purchased at Calcutta was to be transported to Port Blair where one has also to see the availability of the transport.
No material has been placed on record to show that the parties from whom the assessee made purchases were known to the assessee or the assessee had regular transactions with them even in the past.
The mere fact that one of the directos of the Company was the same from whom it made the purchases of Rs.75,000/- or so does not mean that party was known to the assessee.
One has to see the urgency and the circumstances under which such payments were made.
Therefore, under these facts and circumstances, it could be said that the impugned payments were covered under exceptional circumstances mentioned in rule 6DD(j) and the CIT(A) was not justified in sustaining the disallowance of the same.
As regards the various judgments relied on by the ld.
D.R., those have been rendered with reference to the fact of individual cases and could not be applied to the facts of the present Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -10- case.
We, therefore, set aside the order of the CIT(A) on this issue and delete the impugned disallowance.
This ground of appeals is allowed.”
A perusal of order passed by the learned Tribunal, reveals that as regards payments in cash made to parties in Calcutta, the assessee's original explanation that parties insisted on cash payment was noticed and rejected.
The Tribunal, thereafter, proceeded to consider a plea raised that as the assessee did not have a bank account at Calcutta, it was justified in making payment in cash.
The Tribunal has specifically recorded that this plea was not raised before the Assessing Officer or the CIT(Appeals).but entertained and accepted the explanation.
The explanation proferred by the assessee, before the Assessing Officer and the CIT(Appeals).was that parties at Calcutta had insisted upon payment in cash and their letteRs.in this regard, are appended.
The Tribunal, has while allowing the appeal accepted a new factual explanation that was neither proferred not raised whether before the Assessing Officer or the CIT(Appeals) as it was raised for the fiRs.time before the Tribunal.
The question that, therefore, arises in terms of these facts and the second question of law, as modified, at request of counsel for the revenue, is whether the Income Tax Appellate Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -11- Tribunal can entertain a new plea based upon facts that have neither been pleaded not urged, before the Assessing Officer or CIT(Appeals)?.
An answer to this question would necessarily require appraisal of provisions of Section 254 of the Act.
Section 254 of the Act reads as follows:- Orders of Appellate Tribunal.”
254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.
Section 254 of the Act is couched in the widest possible terms and takes within its ambit a duty to ensure that an assessment order is passed in accordance with provisions of the Act and while appraising an order to rectify an erroneous imposition of tax or an erroneous escape of revenue.
The Tribunal may, therefore, allow parties to raise fresh pleas and grounds but only if the factual foundation for the fresh plea or ground has already been laid before the Assessing Officer or the CIT(Appeals).The power, in our considered opinion, cannot be construed to confer a power so wide and unbridled, as to enable a Tribunal to disregard basic principles that govern exercise of appellate power, namely, the power to appraise orders and discern whether subordinate authorities have committed any Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -12- error of law or of fact.
A reference in this regard may be made to a judgment of the Hon'ble Supreme Court in National Thermal Power Co.Ltd.v.Commissioner of Income Tax, 1997(7) SCC 489.which reads as follows:- 5.
Under Section 254 of the Income tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.
The power of the Tribunal in dealing with appeals is thus expressed in the widest possible term.
The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law.
If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the fiRs.time, so long as the relevant facts are on record in respect of that item.
We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -13- which arises from the order of the Commissioner of Income-tax (Appeals).Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal.
We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.”
A perusal of the above extract reveals that a Tribunal may allow a party to raise a fresh plea for the fiRs.time, so long as relevant facts are already on record.
The Tribunal, thus, cannot permit a party to raise an entirely new plea for the fiRs.time for which no factual foundation has been laid before the Assessing Officer or CIT(Appeals).A perusal of findings recorded by the Assessing Officer as well as by the CIT(Appeals).while rejecting the explanation offered by the appellant with respect to cash payments made at Calcutta, is that the appellant has not been able to establish his explanation that parties insisted upon cash payment.
The Tribunal has allowed the assessee to raise a new plea that the assessee did not have bank account at Calcutta.
A perusal of the record reveals that such a plea was not raised at any stage of the proceedings whether before the Assessing Officer or CIT (Appeals) and, therefore, could not be raised for Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -14- fiRs.time before the Income Tax Appellate Tribunal.
We would, at this stage, reiterate that , though, the Tribunal is entitled to permit parties to raise fresh and new grounds but can only entertain such fresh or new grounds as are founded on facts already pleaded before the Assessing Officer or the CIT (Appeals).The Income Tax Appellate Tribunal, in our considered opinion, cannot allow a party to change its stance by reference to new facts that were not pleaded or asserted before the Assessing Officer or the CIT(Appeals).The modified second question of law is answered accordingly.
As a consequence of our answer to the second question of law(as modified) it is held that the Income Tax Appellate Tribunal has erred in reversing findings of fact on the basis of facts that were neither pleaded not raised before the Assessing officer or the CIT(Appeals) The third question of law framed by counsel for the revenue is whether the Income Tax Appellate Tribunal could have reversed orders passed by the Assessing Officer and the CIT(Appeals).with respect to cash payment to M/s Munak International Private Limited, without reversing the findings that purchase of Marble Chips and Alluminium products cannot be held to be an emergency purchase, justifying payment in cash?.
A perusal of findings recorded by the Assessing Officer as well as the CIT(Appeals) reveals that cash payment to Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -15- M/s Munak International Private Limited was sought to be justified on the ground that it was an emergency purchase.
The explanation was concurrently rejected by the Assessing Officer and the CIT(Appeals) by holding that such purchases cannot be held to be emergency purchases and even otherwise Mr.R.K.Garg, Managing Director of the assessee is a Promtoer/Director of M/s Munak International Private Limited and the office of these companies is housed in the same building.
The Income Tax Appellate Tribunal has not reversed findings that purchase of “marble chips and alluminium”.
are not emergency purchases by merely recorded a sentence that the fact that one of the Directors of the company was the same, does not mean that parties were known to the assessee.
We do not propose to delve into this reason but as the Tribunal has not referred to or reversed the finding recorded by the Assessing Officer, that purchase of marble chips and alluminium product cannot be said to be an emergency purchase justifying payment in cash have no hesitation in holding that the order passed by the Tribunal suffers from an error of jurisdiction, as it has reversed a pure finding of fact without reversing the reasons assigned by the Assessing Officer and the CIT(Appeals).for rejecting the assessee's explanation.
The third question of law is answered accordingly.
Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.19 of 2003 -16- In view of what has been stated hereinabove, the appeal filed by the revenue is dismissed on the fiRs.question of law but is allowed on the second and third substantial questions of law.
The order passed by the Income Tax Appellate Tribunal reversing the order passed by the CIT(Appeals) with respect to payment in cash made to parties at Calcutta and to M/s Munak International Private Limited, is reversed and order passed by the Assessing Officer and the CIT (Appeals) are restored, to that extent.
(RAJIVE BHALLA) JUDGE August 21st , 2013 (DR.
BHARAT BHUSHAN PARSOON) nt JUDGE Kumar Naresh N 2013.09.02 15:20 I attest to the accuracy and integrity of this document High Court Chandigarh