Kajora Pachai & C.S. Shop, Burdwan V. ITO, Ward - 1(3), Durgapur, Burdwan

ITA 1198/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4632 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 16-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT KR KUREEL JCIT SRDR
• Assessee Lawyers: K K KHEMKA
• Keywords: Business income
• Section: 40A(3); 143(3); 5(2); 133(6); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 1198 / KOL / 201 1 ASSESSMENT YEAR :2008-09 KAJORA PACHAI & C.S.SHOP KAJORA GRAM, KAJORA, DIST. BURDWAN, PIN-713333 [ PAN NO.AAGFK 2341 E ] V/S . ITO WARD-1(3), DURGAPUR, WEST BENGAL /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI K.K.KHEMKA, ADVOCATE /BY RESPONDENT SHRI RAJAT KR. KUREEL, JCIT-SR-DR /DATE OF HEARING 16-06-2016 /DATE OF PRONOUNCEMENT 22-06-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS)-DURGAPUR DATED 21.07.2011. ASSESSMENT WAS FRAMED BY ITO WARD-1(3), DURGAPUR U/ S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 09.11.2010 FOR ASSESSMENT YEAR 2008-09. THE GROUNDS RAISED BY THE ASSESSEE PER ITS APPEAL ARE AS UNDER: - 1(A) FOR THAT THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE / ADDITION US 40A(3) FOR PURCHASES MADE RS.73,48,251/- FROM IFB AGRO IND USTRIES LTD. 1(B) FOR THAT THE CONFIRMATION BY LD. CIT(A) OF DIS ALLOWANCE / ADDITION U/S 40A(3) IS LEGALLY & FACTUALLY WRONG, ILLEGAL & UNJUSTIFIED. ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 2 2. FOR THAT THE LD. CIT(A) ERRED IN LAW & ON FACTS IN NOT PROPERLY CONSIDERING PROVISIONS OF SEC. 144/145 OF THE IT AC T. 2. THE INTER-CONNECTED ISSUES ARE THAT LD CIT(A) ER RED IN CONFIRMING THE ORDER OF AO BY DISALLOWING OF THE PURCHASES OF RS. 73,48,251/- U/S 40(A)(3) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF COUNTRY LIQUOR. DURING T HE YEAR, ASSESSEE HAS MADE THE PURCHASE FROM IFB AGRO INDUSTRIES LTD. AGA INST THE AFORESAID PURCHASES ASSESSEE HAS MADE THE PAYMENT IN CASH BY DEPOSITING MONEY DIRECTLY TO THE BANK ACCOUNT OF THE AFORESAID COMPA NIES. THE AO OBSERVED THAT THE PAYMENT FOR THE PURCHASE WAS EXCEEDING RS. 20,000/- WHICH WAS THE CLEAR VIOLATION OF THE PROVISIONS OF SECTION 40 (A)(3) OF THE ACT. DURING THE ASSESSMENT PROCEEDING, AO HELD THAT THE PAYMENT MADE BY THE ASSESSEE IN CASH HAS CLEARLY VIOLATED THE PROVISION S OF SECTION 40(A)(3) OF THE ACT. THE AO ALSO OBSERVED THAT THE CASE OF ASSE SSEE DOES NOT FALL UNDER THE EXCEPTIONS PROVIDED IN CLAUSE 6DD OF INCO ME TAX RULES OF THE IT RULES 1962. THEREFORE, HE HAS DISALLOWED A SUM OF 73,48,251/- AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 4. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF THE AS SESSEE AND HAVING CONSIDERED THE SAME THE LD CIT(A) CONFIRMED THE ACT ION OF AO. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) THE ASSE SSEE IS IN SECOND APPEAL BEFORE US. SHRI K.K.KHEMKA, LD. AUTHORIZED REPRESENTATIVE APPE ARING ON BEHALF OF ASSESSEE AND SHRI RAJT KUMAR KUREEL, LD. DEPARTMENT AL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 3 5. BEFORE US LD. AR FILED A PAPER BOOK WHICH IS RUN NING PAGES FROM 1 TO 196 AND SUBMITTED THAT ASSESSEE IS AUTHORISED RETAI LER AGENT (FRANCHISE) OF COUNTRY SPRIT OF WEST BENGAL GOVERNMENT UNDER BE NGAL EXCISE ACT & RULES. THE PAYMENTS WERE MADE BY WAY OF DEPOSIT OF CASH DIRECTLY IN THE BANK A/C OF WHOLESALER AGENT OF WEST BENGAL GOVERNM ENT IN TERMS OF CALCUTTA GAZETTE NOTIFICATION NO, 188-EX/0/R-4/2000 DT. 23/02/2000, THE ENTIRE PAYMENT IS THEREFORE TO WEST BENGAL GOVERNME NT (THROUGH AUTHORISED WHOLESALER AGENT) WHO IS 'PRINC IPAL' IN THIS CASE. THE ASSESSEE WAS REQUIRED AND FORCED TO PAY THE COS T OF MATERIAL (WINE) ONLY BY WAY OF DEPOSIT OF MONEY IN CASH TO THE BANK ER OF AUTHORISED WHOLESALER AGENT OF WB. GOVERNMENT, IFB AGRO INDUST RIES LTD CITY CENTRE, DURGAPUR - 713216 AND ASANSOL BOTTLING & PACKAGING PVT LTD. P.O. KALLACH - 713340, BURDWAN. THE WHOLESALER AGENT OF WB GOVT. SUPPLIED PRINTED PAYING SLIPS OF HIS BANK, WHEREIN NAME AND BANK A/C NO. WAS PRINTED IN SOME PAYING SLIP EVEN QUANTITIES SUPPLIE S WITH RATE HAS BEEN MENTIONED ON THE BACK OF THE PAYING SLIP. IN THE I NVOICE ISSUED THE SUPPLIER HAS SPECIFICALLY MENTIONED THE AMOUNT OF BANK DEPOS IT AND CASH RECEIVED COLUMN WAS REMAINED BLANK (SEE COPIES PAPER BOOK PA GE 44 TO 90. THE ITO HAS VERIFIED THE ENTIRE PURCHASE FROM THE WHOLE SALER AGENT AND THE SUPPLIER HAS CONFIRMED THE TOTAL SALES MADE BY THEM TO THE ASSESSEE, IFB AGRO INDUSTRIES LTD. HAVING PAN. AAACI6487L BANK A/ C. NO. 10306876975, SBI, CITY CENTRE DURGAPUR AND AXIS BAN K, DURGAPUR A/E. NO. 21301020001645 EXCISE NO. 19200052155, CST NO. 19200052252, VAT NO. 19200052058, TAN NO. CALL01584C. THE ENTIRE MATERIAL PURCHASED AND SOLD AS AN AGENT & FRANCHISE OF WB. G OVERNMENT SUBJECT TO STRICT CHECKING BY THE STATE EXCISE AUTHORITY, WHO PUT THEIR STAMP AND SEAL ON STOCK REGISTER MAINTAINED ( SEE COPIES AT PAGE NO: 184. TO 196 PAPER BOOK ). EVEN TCS U/S. 206C OF THE I. T. ACT HAS BEEN COL LECTED BY THE WHOLESALE AGENT AND PAID TO CENTRAL GOVT. WHICH HAS BEEN FILED BEFORE THE ITO FOR CLAIMING TAX CREDIT. (TAN NO: OF THE PARTY CALL0L584G / 59(2) THE WHOLESALER AGENT OF W.B. GOVT. IS CLEAR FROM TCS CE RTIFICATE ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 4 ISSUED. THE PROVISION OF SECTION 40A(3) WAS INTRODU CED IN THE ACT BY FINANCE ACT, 1968. AS PER THE EXPLANATORY NOTE PARA -73 THE PROVISION IS DESIGNED TO COUNTER EVASION OF TAX THROUGH CLAIMS F OR EXPENDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATI NG PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE A ND THE REASONABLENESS OF THE PAYMENT. EARLIER ALSO RULE 6DD WAS ENACTED WHICH READ AS UNDER :- ' IN ANY OTHER CASE WHERE THE ASSESSEE SATISFIED TH E INCOME TAX OFFICER THAT THE PAYMENT COULD NOT BE MADE BY A CROSS CHEQUE DRA WN ON A BANK OR BY A CROSS CHEQUE BANK DRAFT- A) DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES, B) BECAUSE PAYMENT IN THE MANNER IN AFORESAID WAS N OT PRACTICABLE, WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE, HAVING REGARD TO THE NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXP EDITIOUS SETTLEMENT THEREOF AND ALSO FURNISHES EVIDENCE TO THE SATISFAC TION OF THE INCOME TAX OFFICER AS TO THE GENUINENESS OF THE PAYMENT AND TH E IDENTITY OF THE PAYEE'. THE LAW AMENDED AND FOLLOWING PROVISIONS WA S INTRODUCED BY THE FINANCE ACT 2007 W.E.F. 1.4.2008 AND EXPLANATORY NO TES THERE UNDER PROVIDES 'PROVIDED THAT NO DISALLOWANCES SHALL BE M ADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSI NESS OR PROFESSION UNDER THIS SUB-SECTION WHERE ANY PAYMENT IN A SUM E XCEEDING 20000.00 RUPEES IS MADE OTHERWISE THEN BY AN A/C PAYEE CHEQU E DRAWN ON A BANK OR A/C PAYEE BANK DRAFT, IN SUCH CASES AND UNDER SU CH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EX PEDIENCY AND OTHER RELEVANT FACTORS'. INTEREPRETATI~N OF LAW' ....................... THE COMMA - WEBSTERS NEW W ORLD DICTIONARY - OXFORD (SEE PAPER BOOK PAGE NO 251 (1) THE USE OF 'COMMA' 1. USE A COMMA TO SEPARATE AND INTRODUCTORY CLAUSE OR PHASE FROM A MAIN CLAUSE. 9. USE A COMMA TO SEPARATE, WORDS, PHRASES AND CLAU SES IN THE SERIES. 10. USED A COMMA TO SET OFF ABSOLUTE AND PARENTHETI CAL ELEMENTS IN THE SENTENCE. ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 5 12. USE A COMMA OR COMMAS TO SET OFF NON-RESTRICTIV E PHRASES OR CLAUSES FROM THE REST OF SENTENCE. 16. USE A COMMA AFTER TERMS THAT INTRODUCE A SERIE S OR AN EXAMPLE. FIRSTLY 3. AFTER READING THE ORIGINAL ENACTMENT AND SUBSEQU ENT AMENDMENT AND AFTER READING THE FINANCE MINISTER'S EXPLANATORY NO TE THE FOLLOWINGS SHOULD BE REQUIREMENT TO ALLOW - CASH PAYMENT WITHI N MEANING OF SECTION 40A(3). (A) IDENTITY OF THE PAYEE (B) REASONABLENESS OF THE PAYMENT (C) CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS (D) THE ACT AS INTRODUCED IN 1968 READ WITH RULES 6 DDJ REQUIRES TO EXEMPT THE PROVISION OF SECTION 40A(3) IF CASH PAYM ENT IS DUE TO GENUINE DIFFICULTY AND THE EVIDENCE THEREOF IS PROD UCED AT THE TIME OF ASSESSMENT. THIS RULE 6DDJ WAS INCORPORATED IN ACT ITSELF BY FINANCE ACT 2007 BY USING THE WORD CONSIDERATIONS OF BUSIN ESS EXPEDIENCY AND OTHER RELEVANT FACTORS. (A) CIRCUMSTANCES AS PRESCRIBED IN THE RULE. (B) EXTENT OF BANKING FACILITY AVAILABLE. (C) CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THE INTENTION OF THE ACT IS VERY CLEAR BY THE FACT THAT THE ACT HAS NOT USED THE WORD ' AND ' WHICH DENOTES THAT CUMULATIVE CONDITIONS ARE NOT REQUIRED TO BE FULL FILLED. THE ABSENCE OF THE WORD ' AND ' IMPLIES THAT THE ACT HAS GIVEN' ALTERNATIVE INDEPENDENT CONDITIONS ( (I.E. ANYONE OF THE CONDITION GIVEN IN THE ACT NEEDS TO B E FULFILLED TO CLAIM EXEMPTION FROM OPERATION OF SEE. 40A(3) OF THE ACT. AND NOT THE CUMULATIVE CONDITION. IN THIS CASE THE CONDITION' CONSIDERATION OF BUSINESS EXPEDIENCY & OTHER RELEVA NT FACTORS' HAS BEEN FULLY SATISFIED WHICH ENTITLE THE ASSESSEE TO CLAIM EXEMPTION OF OPERATION OF SEE. 40A(3) OF THE I. T. ACT. SECONDLY 4A. IN THIS CASE THE ASSESSEE HAS BEEN ABLE TO PROO F (A) IDENTITY OF THE PAYEE WHOLESALER AGENT OF WB. GOVT. HAVING IFB AGR O INDUSTRIES LTD HAVING PAN NO: AAACI6487L BANK A/E. NO: 10306876975 WITH SBI, CITY CENTRE, DURGAPUR, EXCISE REGN. NO: 19200052155 , VAT NO: 19200052058, CST NO: 19200052252, TAN NO: CALL01584 C AND ALSO REASONABLENESS OF THE PAYMENT. (B) AS PRICE IS DETE RMINED BY THE WEST BENGAL GOVT. AND IS SUBJECT TO CHECK BY THE EXCISE AUTHORITIES. (C) PAYMENT HAS BEEN MADE BY THE ASSESSEE DIRECTLY TO T HE SUPPLIERS BANK A/E. ON THE PRINTED STATIONERY SUPPLIED BY THE WHOL ESALER AGENT OF W.B. GOVT. IFB AGRO INDUSTRIES LTD. AND WHICH IS THE PRO OF THE CONSIDERATION OF THE BUSINESS EXPEDIENCY. ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 6 4B. THE ITO HAS VERIFIED THE TOTAL TRANSACTION FROM THE SUPPLIERS BY ISSUE OF NOTICE U/S. 133(6) OF THE ACT AND GOT REPL Y THERETO, CONFIRMING THE ENTIRE TRANSACTION AND ALSO THE FACT OF BANK DE POSIT THROUGH ITS BILL. THIRDLY 5A. THE PAYMENTS BY WAY OF DEPOSIT OF CASH DIRECTLY IN THE BANK A/C OF THE WHOLESALER AGENT OF WEST BENGAL GOVERNMENT IN T ERMS OF CALCUTTA GAZETTE NOTIFICATION NO. 188-EX/0/R-4/2000 DT. 23/0 2/2000. THE PAYMENTS MADE IS THEREFORE, OTHERWISE COVERED UNDER RULE 6DD(B) OF THE I. T. RULES TO WHICH PROVISIONS OF SEC. 40A(3) ARE INAPPLICABLE. 5. IN THIS CONNECTION, ATTENTION IS DRAWN TO CALCUT TA GAZETTE AS UNDER: '5(1) - THE RETAIL VENDER OR SHALL SUBMIT TO THE WH OLESALE LICENSEE THROUGH EXCISE OFFICER IN CHARGE OF THE WAREHOUSE A DEMAND FOR ISSUE OF COUNTY SPRIT ', 5(2) NO RETAIL VENDER OF COUNTRY SPRIT SHALL DEPOSI T DUTY DIRECT INTO THE LOCAL TREASURY FOR ISSUE OF COUNTRY SPIRIT R DU TY COST PRICE, BOTTLING CHARGE SHALL BE PAID BY THE RETAIL VENDER TO THE CR EDIT OF THE WHOLESALE LICENSEE CONCERNED. 5(3) THE WHOLESALE LICENSEE SHALL REALIZE THE NECES SARY AMOUNT TO DUTY, COST PRICE AND BOTTLING CHARGE AND SHALL DEBI T THE AMOUNT OF DUTY FOR THE ISSUE FROM THE PERSONAL LEDGER ACCOUN T . THE AUTHORIZED REPRESENTATIVE SHALL THEN SUBMIT REQUISI TION TO THE EXCISE OFFICER IN CHARGE OF A WAREHOUSE. 5B RULE 6DD(B) OF I. T. RULES WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND UND ER THE RULES FAMED BY IT' SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER. 5D. THE ENTIRE PAYMENT, IS THEREFORE, TO PRINCIPAL, WEST BENGAL GOVERNMENT THROUGH ITS WHOLESALE AGENT. THE RELATIONSHIP, BETWEEN THE ASSESSEE (FRANCHISE AUTHO RISED RETAILER) AND W.B. GOVERNMENT (THE SUPPLIER) ACTING UNDER BEN GAL EXCISE RULES THROUGH ITS AUTHORISED WHOLESALER LICENSEE (A GENT), BOTH DE FACTO AND DE JURE, IS ONE OF 'PRINCIPAL' AND 'AGENT '. THE RETAILER AT ALL TIMES ACTING ONLY FOR AND ALL BEHALF OF THE SUPPLIE R (WB. GOVERNMENT) AS LINK ONLY IN THE SUPPLY CHAIN AND, THUS, THE PAY MENTS BY IT TO THE PRINCIPAL - SUPPLIER ARE ONLY IN TERMS OF AND IN PU RSUANCE OF GAZETTE NOTIFICATION. THE QUESTION OF NO SEPARATE PAYMENT B EING MADE BY THE PAYEE - PRINCIPAL (WB, GOVERNMENT) TO THE PAYER - R ETAILERS I.E. TOWARDS REMUNERATION OR COMMISSION, ETC, ARISES. PR OVISIONS OF SEC. ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 7 40A(3), THEREFORE, ARE NOT APPLICABLE TO THIS CASE UNDER RULE 6DD(B) ALSO. 6. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTE D THE ORDER OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AFTER EXAMINING ON THE FACTS O F THE CASE AND HEARING THE RIVAL CONTENTIONS OF BOTH THE PARTIES WE FIND T HAT THE AO HAS DISALLOWED THE PURCHASES WHERE THE PAYMENT WAS EXCEEDING MORE THAN RS. 20,000/- IN ACCORDANCE WITH THE PROVISION OF SECTION 40A(3). IN OUR VIEW THIS ISSUE NEEDS TO BE ADJUDICATED FROM DIFFERENT DIMENSIONS A S ENUMERATED BELOW : 1) WHAT WERE THE PROVISIONS OF SECTION 40A(3) THEN APPLICABLE FOR THE ASSESSMENT YEAR 2008-09. 2) THE PURPOSE OF INTRODUCTION OF THE SECTION 40A(3 ) IN THE INCOME TAX ACT. 3) CASE LAWS OF VARIOUS COURTS. THE PROVISIONS OF THE SECTION 40A(3) OF THE ACT THE N APPLICABLE FOR THE ASSESSMENT YEAR 2008-09 READS AS UNDER : 40A.(1) (2). (3)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING TWENTY TH OUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DR AWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, NO DEDUCTION SHAL L BE ALLOWED IN RESPECT OF SUCH EXPENDITURE; (3)(B)WHERE AN ALLOWANCE HAS BEEN MADE IN THE ASSES SMENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY TH E ASSESSEE FOR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS YE AR ( HEREINAFTER REFERRED TO AS SUBSEQUENT YEAR ) THE ASSESSEE MAKES PAYMENT IN RESPECT THEREOF, OTHERWISE THAN ANY AN ACCOUNT PAYE E CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, THE PA YMENT SO MADE SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF THE SUBSEQUENT YEAR IF THE AMOUNT OF PAYMENT EXCEED S TWENTY THOUSAND RUPEES: ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 8 PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS O R PROFESSION UNDER THIS SUB-SECTION WHERE ANY PAYMENT IN A SUM E XCEEDING TWENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE P RESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING F ACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AN D OTHER RELEVANT FACTORS. FROM THE PLAIN READING OF THE PROVISIONS OF SECTION 40A(3), WE FIND THAT CERTAIN EXCEPTIONS HAVE BEEN PROVIDED THEN APPLICAB LE FOR THE ASSESSMENT YEAR 2008-09 AND ONE OF THEM IS WITH REGARD TO THE BUSINESS EXPEDIENCY OF THE ASSESSEE. FROM THE SUBMISSION OF THE ASSESSEE W E FIND THAT THE ASSESSEE WAS THE ONLY AUTHORIZED DEALER IN FOR THE SUPPLY OF COUNTRY LIQUOR TO THE AUTHORIZED EXCISE VENDORS. THE ASSESSEE CAN TAKE THE DELIVERY OF THE GOODS ONLY AFTER DEPOSITING THE PAYMENT WITH TH E COMPANY. THE ASSESSEE WAS TO KEEP SUFFICIENT STOCK OF COUNTRY LI QUOR AS PRESCRIBED BY THE EXCISE DEPARTMENT AND IN CASE STOCK FALLS SHORT OF THE PRESCRIBED LIMIT THEN THE DEPARTMENT USED TO IMPOSE PENALTY. THEREFO RE THE ASSESSEE AVOIDED THE PROCESS OF DEPOSITING THE CASH IN HIS B ANK ACCOUNT AND THEREAFTER GETTING THE DEMAND DRAFT IN THE NAME OF THE COMPANY IN ORDER TO KEEP THE STOCK WITHIN THE PRESCRIBED LIMIT AT ALL T HE TIMES. IT IS ALSO IMPORTANT TO NOTE THAT THE COMPANY WAS ALSO NOT ACC EPTING THE ACCOUNT PAYEE CHEQUE OF THE ASSESSEE AS IT WILL TAKE COUPLE OF DAYS TIME IN CLEARANCE. SO IN OUR CONSIDERED VIEW THE EXCEPTION PROVIDED IN THE PROVISIONS OF SECTION 40A(3) WITH REGARD OF THE BUS INESS EXPEDIENCY THEN APPLICABLE FOR THE ASSESSMENT YEAR 2008-09 IS MET B Y THE ASSESSEE. 7.1 THE PROVISION OF SECTION 40A(3) WAS INSERTED BY THE FINANCE ACT 1968. THE PURPOSE FOR BRINGING THE SECTION WAS MENT IONED IN THE EXPLANATORY NOTE PARA 73 WHICH READ AS UNDER : IT WILL BE PERTINENT TO GO INTO THE INTENTION BEHIN D INTRODUCTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AT THIS JUN CTURE. WE FIND THAT THE SAID PROVISION WAS INSERTED BY FINANCE ACT 1968 WITH THE OBJECT ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 9 OF CURBING EXPENDITURE IN CASH AND TO COUNTER TAX E VASION. THE CBDT CIRCULAR NO. 6P DATED 06.07.1968 REITERATES THIS VIEW THAT THIS PROVISION IS DESIGNED TO COUNTER EVASION OF A TAX THROUGH CLAIMS FOR EXPENDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE AND REASONABLENESS OF THE PAYMENT . 7.2 IN THIS REGARD, IT IS PERTINENT TO GET INTO T HE FOLLOWING DECISIONS ON THE IMPUGNED SUBJECT:- ATTAR SINGH GURMUKH SINGH VS ITO REPORTED IN (1991) 191 ITR 667 (SC) SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, WHICH PROVIDES THAT EXPENDITURE IN EXCESS OF RS.2,500 (RS.10,000 AFTER THE 1987 AMENDMENT) WOULD BE ALLOWED TO BE DEDUCTED ONLY IF MADE BY A CROSSED CHEQUE OR CROSSED BANK DRAFT (EXCEPT IN SPE CIFIED CASES) IS NOT ARBITRARY AND DOES NOT AMOUNT TO A RESTRICTION ON THE FUNDAMENTAL RIGHT TO CARRY ON BUSINESS. IF READ TOGETHER WITH R ULE 6DD OF THE INCOME-TAX RULES, 1962, IT WILL BE CLEAR THAT THE P ROVISIONS ARE NOT INTENDED TO RESTRICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CH EQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSE D BANK DRAFT IS INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF IN COME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) AR E NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS AR E NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSE E TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTA NCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WH O HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CA N BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO P REVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLAC K MONEY FOR BUSINESS TRANSACTIONS. CIT VS CPL TANNERY REPORTED IN (2009) 318 ITR 179 ( CAL) THE SECOND CONTENTION OF THE ASSESSEE THAT OWING T O BUSINESS EXPEDIENCY, OBLIGATION AND EXIGENCY, THE ASSESSEE H AD TO MAKE CASH PAYMENT FOR PURCHASE OF GOODS SO ESSENTIAL FOR CARR YING ON OF HIS ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 10 BUSINESS, WAS ALSO NOT DISPUTED BY THE AO. THE GEN UINITY OF TRANSACTIONS, RATE OF GROSS PROFIT OR THE FACT THAT THE BONA FIDE OF THE ASSESSEE THAT PAYMENTS ARE MADE TO PRODUCERS OF HID ES AND SKIN ARE ALSO NEITHER DOUBTED NOR DISPUTED BY THE AO. ON TH E BASIS OF THESE FACTS IT IS NOT JUSTIFIED ON THE PART OF THE AO TO DISALLOW 20% OF THE PAYMENTS MADE U/S 40A(3) IN THE PROCESS OF ASSESSME NT. WE, THEREFORE, DELETE THE ADDITION OF RS. 17,90,571/- A ND GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. CIT VS CRESCENT EXPORT SYNDICATE IN ITA NO. 202 OF 2008 DATED 30.7.2008 JURISDICTIONAL HIGH COURT DECISION IT ALSO APPEARS THAT THE PURCHASES HAVE BEEN HELD TO BE GENUINE BY THE LEARNED CIT(APPEAL) BUT THE LEARNED CIT(APPEAL) HAS INVOKED SECTION 40A(3) FOR PAYMENT EXCEEDING RS.20,000/- SI NCE IT IS NOT MADE BY CROSSED CHEQUE OR BANK DRAFT BUT BY HEARER CHEQU ES AND HAS COMPUTED THE PAYMENTS FALLING UNDER PROVISIONS TO S ECTION 40A(3) FOR RS.78,45,580/- AND DISALLOWED @ 20% THEREON RS.15,69,116/-. IT IS ALSO MADE CLEAR THAT WITHOUT THE PAYMENT BEING MADE BY BEARER CHEQUE THESE GOODS COULD NOT HAVE BEEN PROCURED AND IT WOULD HAVE HAMPERED THE SUPPLY OF GOODS WITHIN THE STIPULATED TIME. THEREFORE, THE GENUINENESS OF THE PURCHASE HAS BEEN ACCEPTED B Y THE LD. CIT(APPEAL) WHICH HAS ALSO NOT BEEN DISPUTED BY THE DEPARTMENT AS IT APPEARS FROM THE ORDER SO PASSED BY THE LEARNED TRI BUNAL. IT FURTHER APPEARS FROM THE ASSESSMENT ORDER THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(APPEAL) HAS DISBELIEVED THE GENUINENESS OF THE TRANSACTION. THERE WAS NO DISPUTE THAT THE PURCHASE S WERE GENUINE. ANUPAM TELE SERVICES VS ITO IN (2014) 43 TAXMANN.CO M 199 (GUJ) SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ W ITH RULE 6DD OF THE INCOME-TAX RULES, 1962 BUSINESS DISALLOWANCE CA SH PAYMENT EXCEEDING PRESCRIBED LIMITS (RULE 6DD(J)-ASSESSMENT YEAR 2006-07 ASSESSEE WAS WORKING AS AN AGENT OF TATA TELE SERVI CES LIMITED FOR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS P RINCIPAL COMPANY TATA INSISTED THAT CHEQUE PAYMENT FROM ASSESSEES C O-OPERATIVE BANK WOULD NOT DO, SINCE REALIZATION TOOK LONGER TIME AN D SUCH PAYMENTS SHOULD BE MADE ONLY IN CASH IN THEIR BANK ACCOUNT IF ASSESSEE WOULD NOT MAKE CASH PAYMENT AND MAKE CHEQUE PAYMENTS ALON E, IT WOULD HAVE RECEIVED RECHARGE VOUCHERS DELAYED BY 4/5 DAYS WHICH WOULD SEVERELY AFFECT ITS BUSINESS OPERATION ASSESSEE, THEREFORE, MADE CASH PAYMENT WHETHER IN VIEW OF ABOVE, NO DISALLO WANCE UNDER SECTION 40A (3) WAS TO BE MADE IN RESPECT OF PAYMEN T MADE TO PRINCIPAL - HELD, YES [PARAS 21 TO 23] [ IN FAVOUR OF THE ASSESSEE ] SRI LAXMI SATYANARAYANA OIL MILL VS CIT REPORTED IN (2014) 49 TAXMANN.COM 363 (ANDHRA PRADESH HIGH COURT) ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 11 SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ W ITH RULE 6DD OF THE INCOME-TAX RULES, 1962 BUSINESS DISALLOWANCE CASH PAYMENT EXCEEDING PRESCRIBED LIMIT (RULE 6DD) ASSESSEE MA DE CERTAIN PAYMENT OF PURCHASE OF GROUND NUT IN CASH EXCEEDING PRESCRIBED LIMIT ASSESSEE SUBMITTED THAT HER MADE PAYMENT IN CASH BECAUSE SELLER INSISTED ON THAT AND ALSO GAVE INCENTIVES AND DISCO UNTS FURTHER, SELLER ALSO ISSUED CERTIFICATE IN SUPPORT OF THIS WHETHER SINCE ASSESSEE HAD PLACED PROOF OF PAYMENT OF CONSIDERATI ON FOR ITS TRANSACTION TO SELLER, AND LATER ADMITTED PAYMENT A ND THERE WAS NO DOUBT ABOUT GENUINENESS OF PAYMENT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A(3) HELD, YES [PARA 23] [ IN FAVOUR OF THE ASSESSEE] CIT VS SMT. SHELLY PASSI REPORTED IN (2013) 350 ITR 227 (P&H) IN THIS CASE THE COURT UPHELD THE VIEW OF THE TRIBU NAL IN NOT APPLYING SECTION 40A(3) OF THE ACT TO THE CASH PAYMENTS WHEN ULTIMATELY, SUCH AMOUNTS WERE DEPOSITED IN THE BANK BY THE PAYEE. 7.3 IT IS PERTINENT TO NOTE THAT THE PRIMARY OBJE CT OF ENACTING SECTION 40A(3) WERE TWO FOLDS, FIRSTLY, PUTTING A CHECK ON TRADING TRANSACTIONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARN ED OUT OF SUCH TRANSACTION AND, SECONDLY, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABI TS. THEREFORE, THE CONSEQUENCE, WHICH WERE TO BE FALLEN ON ACCOUNT OF NON-OBSERVATION OF SECTION 40A(3) MUST HAVE NEXUS TO THE FAILURE OF SU CH OBJECT. THEREFORE, THE GENUINENESS OF THE TRANSACTIONS BEING FREE FROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVANT CONSIDERATION. WITH REGA RD TO THE PURPOSE OF BRINGING THE PROVISIONS OF SECTION THERE IS NO DOUB T ABOUT THE IDENTITY OF THE PARTY. THE LD. AR HAS DIRECTLY DEPOSITED THE CASH I N THE ACCOUNT OF THE COMPANIES AND HAS PRODUCED THE SALES BILLS OF THE C OMPANY. THE AO HAS ALSO VERIFIED THE TRANSACTIONS FROM THE COMPANIES B Y ISSUING NOTICE UNDER SECTION 133(6) OF THE ACT. SO IN THE INSTANT CASE T HERE IS NO EVASION OF TAX BY CLAIMING THE BOGUS EXPENDITURE IN CASH. ITA NO.1198/KOL/2011 A.Y.2008 -09 KAJORA PACHAI & C S SHOP V. ITO WD-1(30 DDGP PAGE 12 8. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND RELIED ON THE VARIOUS CASE LAWS CITED ABOVE, WE ARE INCLINED TO REVERSE THE ORDER OF LOWER AUTHORITIES. THE GROUNDS RAISED BY THE ASSESS EE ARE LIABLE TO BE ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 22/ 06/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 22 / 06 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-KAJORA PACHAI & C.S SHOP, KAJORA GRAM, K AJORA, DIST. BURDWAN PIN. 71 3 333, WEST BENGAL 2. /RESPONDENT-ITO WARD-1(3), DURGAPUR, WEST BENGAL 3. ) *+, , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5.01233*+, , *+ , / DR, ITAT, KOLKATA 6.26789 / GUARD FILE. BY ORDER/ ,, / , *+ ,