Commissioner Of Income Tax, ... vs Shri Anand Swarup Khandelwal
2008 Latest Caselaw 1579 Del

+*           THE HIGH COURT OF DELHI AT NEW DELHI

                               Judgment reserved on : 27.08.2008
%                              Judgment delivered on : 08.09.2008

+                                 ITA 596/2006

THE COMMISSIONER OF INCOME TAX                                  ..... Revenue
DELHI-X
                     versus

SHRI ANAND SWARUP KHANDELWAL                                    ..... Respondent

Advocates who appeared in this case:

For the Appellant          :      Ms.Prem Lata Bansal
For the Respondent         :      Mr Prakul Khurana

CORAM :-

HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether the Reporters of local papers may be allowed to see the judgment ?

2. To be referred to Reporters or not?

3. Whether the judgment should be reported in the Digest ?

RAJIV SHAKDHER, J

1. This is an Appeal by the Revenue under Section 260A of

the Income Tax Act, 1961 (hereinafter referred to as the „Act‟)

preferred against the judgment of the Income Tax Appellate

Tribunal (hereinafter referred to as the Tribunal) passed in

IT(SS) No. 331/Del/2002 for the block period 1.4.88 to

15.10.98.

2. The only issue raised by the Revenue in the present

Appeal is with regard to the deletion by the Tribunal of a sum

of Rs.21,61,67,368/- which had been added by the Assessing

Officer under Section 40A(3) of the Act on account of

purported cash transaction in the sum of Rs.108,08,36,839/-.

3. In order to dispose of the Appeal, the following facts

relevant to the issue require to be noted. These are as follows:-

3.1 A search and seizure operation was carried out in the

premises of the Assessee i.e, Shri A.S.Khandelwal, on

15.10.1998. Consequently, a notice dated 11.11.99 under

Section 158BC of the Act was issued, which was served on the

Assessee on 22.11.99. By virtue of this notice the Assessee

was required to furnish a return for the block period 1.4.88 to

15.10.98 within a period of 16 days from the receipt of notice.

On 7.7.2000 a return of income was filed by the Assessee

declaring total undisclosed income for the block period in the

sum of Rs.3,47,000/-.

3.2 The Assessing Officer after taking into account the

documents (i.e Annexures A-2 to A-8) seized from the

premises of the Assessee, framed an assessment vide order

dated 29.12.2000 including therein undisclosed income of the

Assessee, to the tune of Rs.22,86,89,132/-. The said

assessment included several additions including the addition

under consideration in the present appeal in the sum of

Rs.21,61,67,368/- with respect to assessment year 1999-2000

by taking resort to the provisions of Section 40A(3), in respect

of, cash purchases amounting to Rs.108,08,36,839/-.

3.3 Aggrieved by the aforesaid order dated 29.12.2000

passed by the Assessing Officer, the Assessee preferred an

appeal with the Commissioner of Income Tax (Appeals)

(hereinafter referred to as the CIT). By an order dated

19.2.2002 the CIT upheld the addition of a sum of

Rs.21,61,67,368/- made by the Assessing Officer under Section

40A(3) of the Act.

3.4 Being aggrieved by the order of the CIT, the Assessee

preferred an appeal to the Tribunal. In the appeal before the

Tribunal, the Assessee had raised several grounds. However,

the grounds pertaining to the issue under consideration were

Ground Nos.2 and 8 which are extracted hereinbelow:-

"2. Under the facts and circumstances of the case, the Ld CIT(A) has erred in confirming action of the AO in holding that the various loose papers found from the assessee belongs to him. He has further erred in confirming the action of the AO by holding that various transactions/jottings on these papers represent trading of the assessee."

"8. Under the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming action of the AO in invoking the provisions of section 40A(3) in respect of alleged purchases of Rs.1,08,08,36,839/- on the basis of seized papers and thereby confirming the addition of Rs.21,61,67,368/- for Asstt. Year 1999- 2000 u/s 40A(3)."

3.5 The Tribunal while dealing with Ground No.2 noted that

even while the Assessing Officer made observations on the

basis of the seized documents that the Assessee was carrying

on trading activity which could not be associated with his

activity as a broker, it had accepted the commission income

with reference to transactions declared as undisclosed income

of the block period of the Assessee. The Tribunal also noted

that the stock of bullion to which reference has been made by

the Assessing Officer based on the seized documents was not

physically found with the Assessee. The Tribunal also

observed that the Assessing Officer had not brought on record

any positive material to show that the transactions on which he

had accepted the Assessee as having earned commission were

bilateral transactions where both buyers and sellers could be

termed as two different persons. It observed that the Assessing

Officer was not able to show that the Assessee had entered into

the said transactions as an agent or that the commission

received by the Assessee represented profits from activity of

sale or purchase of goods undertaken by the Assessee himself.

The Tribunal, thus concluded, that it appeared to it that, the

Assessee acted as a bailee of goods and, at no point of time,

the property in the bullion passed to the Assessee. This

conclusion, the Tribunal arrived at based on the fact that the

Assessing Officer had not been able to bring any material on

record to establish that the Assessee had received possession of

the bullion as an actual buyer or that the property in the bullion

had passed to the Assessee. The Tribunal noted that after the

Assessing Officer had accepted the agency commission it was

not permissible for the Assessing Officer to presume that such

transactions were from purchase or sale made by the Assessee

in his own right. In view of the above, the Tribunal concluded

that the appellant herein could not bring on record any material

to prove that the transactions referred to in the documents

seized represented the purchase and sale of goods in which the

Assessee had proprietary rights.

3.6 In these circumstances, the Tribunal allowed Ground

No.2 raised in the appeal filed by the Assessee before it.

3.7 With reference to Ground No.8 the Tribunal noted the

contention of the Revenue that the transactions reflected in the

seized documents (Annexures A-2 to A-8) were trading

transactions made in cash by the Assessee and hence, in terms

of Section 40A(3) a disallowance @ 20% of the amount of

total transactions amounting to Rs.108,08,36,839/- had been

made, which were, as stated above, quantified as

Rs.21,61,67,368. Briefly, the Tribunal also recorded amongst

others, the following submissions of the Assessee:-

(i) the provisions of Section 40A(3) could not be

taken resort to in a block assessment proceedings

conducted under Chapter XIV-B of the Act;

(ii) no claim in respect of cash purchases amounting to

Rs.108,08,36,839/- had either been made or

allowed in the block assessment and, therefore, the

question of disallowance did not arise;

(iii) the resort to the provisions of Section 40A(3) could

only be taken in the course of regular assessment;

(iv) there were no purchases made as alleged or at all.

Being a broker the assessee only received a

commission, therefore, the provisions of Section

40A(3) did not apply.

3.8 The Tribunal, after noting the submissions of both

the Revenue and the Appellant, held that in view of the

findings returned in respect of Ground No.2 of the appeal

that the seized documents, being Annexures A-2 to A-8, did

not reflect purchases in which Assessee had proprietary

rights and it being undisputed that, in respect of, such

transactions Assessee had declared commission from

agency business, which had been accepted as undisclosed

income of the block period without any adverse comments

thereon, there was no factual or legal justification in

making disallowance under Section 40A(3) of the Act. The

Tribunal categorically stated that it was unable to accept that

the seized documents Annexures A-2 to A-8 represented

purchases made by the Assessee in cash.

4. Having heard the learned counsel for the Revenue as well

as the Assessee and perused the record of the case below, we

are of the view that the addition made by the Assessing Officer

by taking resort to Section 40A(3) of the Act on the ground that

the Assessee had made cash purchases to the tune of Rs.

108,08,36,839/- is untenable. It is quite evident that the said

section is set into motion only if an Assessee incurs an

„expenditure‟ in cash of a sum exceeding Rs.20,000/-. In other

words, the section prohibits making payments towards

expenditure in cash for a sum exceeding Rs.20,000/-. In the

event of an Assessee undertaking a payment of an expenditure

for a sum exceeding Rs.20,000/- in cash, 20% of such

expenditure can be disallowed. In view of the finding returned

by the Tribunal that the Assessing Officer could not place any

material on record to show that the documents so seized

represented purchases made by the Assessee in cash, the

provisions of Section 40A(3) will not come into play. If that

be so, then there was no question of the Assessing Officer

making an addition of 20% of the alleged expenditure involved

i.e., a sum of Rs.21,61,67,368/-.

5. In view of the findings returned by the authorities below

which involved appreciation of the evidence placed before

them, we do not find that the appeal involves any substantial

question of law which would require our consideration.

6. In view of the discussion above, the appeal is dismissed.

RAJIV SHAKDHER, J

BADAR DURREZ AHMED, J

September 08, 2008 mb