Dhirubhai Naranbhai Patel, J@mdashThis appeal has been preferred against the judgment and order delivered by Income Tax Appellate Tribunal, Circuit Bench Ranchi, camp at Jamshedpur in Income Tax Appeal No. 355/Pat/96 & 138-140/Pat/05 order dated 14th December, 2005.
2. Counsel for the appellant has raised the following substantial questions of law:--
1) Whether, on the facts and in circumstances of the case the ITAT are justified in allowing the insurance claim written off by the assessee, even though it related to an earlier year and not the assessment year in question as also since the claim was related to the loss of a capital asset?
2) Whether, on the facts and in circumstances of the case the ITAT are justified in upholding the order of the CIT (A) in restricting the additions made u/s. 40A(3) of the Income Tax Act, 1961 to 20% of the cash purchases in excess of Rs. 10,000/-, by taking recourse to a prospective amendment made in Section 40A(3) of the IT Act, 1916 w.e.f. 01/04/1996?"
3. Counsel for the appellant submitted that the respondent-assessee had declared total loss of Rs. 15,03,098/- in the return of Income filed on 29th of October, 1993 for the assessment year 1993-94. Thereafter, notices were issued by the appellant upon the assessee; statement of P.N. Malhotra and other persons were also recorded on oath under Section 131 of the Income Tax Act. Thereafter, assessment order was passed by the A.O. on 26.09.1995 in which there were two major additions because of disallowance of insurance claim written off which was amounting to Rs. 1,17,775.00. This insurance claim which was written off for the assessment year 1993-94 for non-payment of the insurance amount for the theft committed at the premises of the assessee on 10th September, 1989 and second important addition was of Rs. 14,58,354/- because of cash transaction which was in violation of Section 40A(3) of the Income Tax Act, 1961. These cash transactions were on 175 occasions. It is submitted by the counsel for the appellant that against the order passed by the A.O., appeal was preferred by the assessee before the Commissioner (Appeals) who partly allowed the appeal of the assessee. So far as cash transactions are concerned and so far as insurance amount is concerned, the same was decided in favour of the Department and to that extent, the appeal was not allowed. The Commissioner (Appeals) passed an order on 20th March, 1996 against which an appeal was preferred. Counsel for the appellant further submitted that against the order passed by the Commissioner (Appeals), both the assessee as well as the appellant preferred appeals before the Income Tax Appellate Tribunal, Circuit Bench, Ranchi, Camp at Jamshedpur. Assessee''s Income Tax Appeal No. is 355/Pat/96 which was pertaining to insurance claim which was written off by the assessee in the assessment year 1993-94. Department''s appeal is bearing No. ITA/393/Pat/96 mainly for the reason that the Commissioner (Appeals) allowed against the restriction put by the Commissioner (Appeals) upto 20% of the total cash transactions. ITAT vide order dated 14th December, 2005 dismissed the appeal preferred by the appellant and allowed the appeal preferred by the assessee. Counsel for the appellant submitted that the so-called theft was committed at the premises of the assessee on 10th September, 1989 for which insurance amount was claimed which was also rejected by the insurance company in the very next year. This amount was written off by the assessee in the assessment year 1993-94 which is not permissible. In the year 1993-94, no theft was committed at all, nor the insurance claim was denied by the insurance company in the year 1993-94 and, hence, dis-allowance of insurance claim written off as per the decision of the A.O. as well as the Commissioner (Appeals) was absolutely true and correct. The main reason for dis-allowance of the insurance claim written off was that the machinery parts, trolley machines, etc were stolen but they were not the spare parts and other items (not being plant and machinery or raw materials). This aspect of the matter has not been properly appreciated by the Income Tax Appellate Tribunal. It is also submitted by the counsel for the appellant that both the Commissioner (Appeals) as well as ITAT has failed to appreciate Section 40A(3) of the Income Tax Act, 1961 which puts a restriction of 20% dis-allowance of the total cash transaction which has been brought into effect from 1st April, 1996, whereas, the present case is for the assessment year 1993-94 and, therefore, the whole cash transaction of Rs. 14,58,354/- is an addition by A.O.. Moreover, the conditions of Rule 6DD of Income Tax Rules, 1962 have not been substantiated by any evidence by the assessee, hence, no benefit under Rule 6DD of the Income Tax Rules, 1962 can also be given to the assessee. These aspects of the matter have not been properly appreciated by the Commissioner (Appeals), nor by the ITAT. Hence, the aforesaid substantial questions of law have been raised by the appellant.
4. Counsel for the assessee submitted that because of the theft committed at the premises of assessee, insurance claim was made which was not granted by the insurance company and ultimately, the said amount of Rs. 1,17,775/- was written off in the assessment year 1993-94. Once, the factum of theft is proved, the disallowance of insurance claim written off by the A.O. has been rightly quashed and set aside by the ITAT. So far as cash transactions are concerned, it is submitted by the counsel for the assessee that as the bank account of the assessee was declared as Non-Performing Assets (NPA), they had entered into cash transactions. This aspect of the matter has been properly appreciated by the Commissioner (Appeals) as well as the ITAT and as per Section 40A(3) of the Income Tax Act, 1961, 20% of the total cash transaction was added to the income of the assessee and no error has been committed by the Commissioner (Appeals) as well as the ITAT in deciding this issue. Hence, this appeal may not be entertained by this Court and the two substantial questions of law which are raised are in fact no substantial question of law at all and, hence, this Tax Appeal may kindly be dismissed.
Reasons:--
5. Having heard learned counsels for both sides and looking to the facts and circumstances of the case, it appears that the respondent-assessee had declared total loss of Rs. 15,03,098/- in the return of income filed for the assessment year 1993-94. While processing the income return under Section 143(1)(a), several defects were found out and therefore, notices were issued under Section 142(1)(2), statements were also recorded of several persons including Proprietor of the assessee and ultimately, A.O. passed an order on 26th of September, 1995 whereby there were two dis-allowance about the insurance claim written off at Rs. 1,17,775/- and about the cash transaction at Rs. 14,58,354/-. So far as dis-allowance of insurance claim written off for the assessment year 1993-94 is concerned, it appears that theft was committed on 10th of September, 1989. Insurance was claimed by the assessee which was rejected by the insurance company in the next year mainly for the reason that there was no theft of plant and machinery or the raw materials. This amount was written off in the year 1993-94. Thus, in the assessment year 1993-94 no theft was committed, but, it was in the year 1989 and, therefore, rightly A.O. as well as the Commissioner (Appeals) have dis-allowed the insurance claim written off. ITAT has failed to appreciate that the theft was committed in the year 1989, whereas, the claim was written off in the assessment year 1993-94, despite the claim was rejected by the insurance company in the very next year of the theft and, therefore, such amount of insurance claim ought to be added in the income of the assessee.
6. So far as cash transaction is concerned, it appears that there are several cash transactions in violation of Section 40A(3) of the Income Tax Act, 1961. They are 175 in numbers. There is a cash payment of Rs. 9000/- to 9900/- on 175 occasions and there are other cash transactions also. There are no vouchers which were signed for the receipts of such cash. Moreover, to one M/s. Puja Industries, on 22 occasions more than Rs. 10000/- has been paid in cash and on 05 different occasions, the assessee has paid more than Rs. 50000/- by way of cash. These all transactions are in violation of Section 40A(3) of the Income Tax Act. It appears that A.O. has correctly appreciated this aspect of the matter, whereas, the Commissioner (Appeals) as well as ITAT have failed to appreciate the limit of 20% which has been amended with effect from 1st April, 1996, whereas, they are concerned with the assessment year 1993-94 and, therefore, the dis-allowance of 20% of the total cash transaction as decided by the Commissioner (Appeals) as well as ITAT are absolutely against the provisions of the Income Tax Act, especially, Section 40A(3) thereof.
7. Rule 6DD of the Income Tax Rule, 1962 carves out exception to this cash transaction. Whenever any assessee is claiming or relying upon exception, then burden of proof is upon the assessee to prove the existence of circumstances or conditions imposed under Rule 6DD. Assessee has failed to prove the existence of any of the circumstances or conditions, referred to by Rule 6DD. Hence, cash transaction as narrated by the A.O. in his order dated 26th of September, 1995 were in violation of Section 40A(3) of the Income Tax Act, 1961 and, hence, this amount of Rs. 14,58,354/- is to be added in the income of the assessee.
8. Counsel for the respondent has relied upon a decision rendered by the Hon''ble High Court of Delhi in the case of
9. Looking to the aforesaid decision, it appears that very few were the cash transactions, whereas, in the facts of the present case, as stated herein above, on 175 occasions, cash payments of Rs. 9000 to 9900/- were made. On 22 occasions, cash payments were made of more than Rs. 10000/- to M/s. Puja Industries, on 05 occasions, cash transactions were made of more than Rs. 50000/- to M/s. Puja Industries.
10. In the facts of the present case, 175 vouchers were also fabricated, because no vouchers were signed for the receipts of such cash. These facts make the present case different from the facts of the aforesaid reported decision. Moreover, Section 40A(3) of the Income Tax Act, 1961 imposes a limit of 20% of disallowance of the total cash transaction which was brought into effect from 1st of April, 1996, whereas, prior thereto, there were no such limit of 20%. The present matter is pertaining to assessment year 1993-94 and, hence, the 20% limit which was brought into force from 1st of April, 1996 is not applicable. These aspects of the matter have not been properly appreciated by the Commissioner (Appeals), nor by ITAT, nor even exception/conditions referred to in Rule 6DD of the Income Tax Rules 1962 have been proved by the respondent-assessee. Hence, the aforesaid decision is not helpful to the respondent-assessee.
11. Thus, both the substantial questions of law have been answered as stated herein above. This appeal is allowed and disposed of accordingly.
