Smt. Sapna Sanjay Raisoni, Pune V. Income-tax Officer,

ITA 1268/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2575 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASEEM SHARMA
• Assessee Lawyers: SUNIL PATHAK
• Section: 40A(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.1267 TO 1269/PN/2014 #& & / ASSESSMENT YEARS : 2006-07 TO 2008-09 SMT. SAPNA SANJAY RAISONI, A-301, SHRI SHANTINAGAR SOCIETY, S.NO.63/1/3, KONDHWA, PUNE 411037 PAN NO.ACDPR0459D . / APPELLANT V/S ITO, WARD-2(1), PUNE . / RESPONDENT . / ITA NOS.1270 TO 1272/PN/2014 #& & / ASSESSMENT YEARS : 2006-07 TO 2008-09 SHRI MANIKCHAND GANESHMAL RAISONI, FLAT NO.2, GREENLEAF APARTMENT, BEHIND TRENDZ FURNITURE, LULLANAGAR, PUNE 411040 MAHARASHTRA PAN NO.AARPR3937J . / APPELLANT V/S ITO, WARD-2(1), PUNE . / RESPONDENT . / ITA NOS.1273 TO 1275/PN/2014 #& & / ASSESSMENT YEARS : 2006-07 TO 2008-09 SHRI SANJAY MANIKCHAND RAISONI, A-301, SHRI SHANTINAGAR SOCIETY, S.NO.63/1/3, KONDHWA, PUNE 411037 PAN NO.AASPR4766Q . / APPELLANT V/S ITO, WARD-2(1), PUNE . / RESPONDENT 2 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP . / ITA NOS.1276 TO 1278/PN/2014 #& & / ASSESSMENT YEARS : 2006-07 TO 2008-09 SHRI SANTOSH MANIKCHAND RAISONI, A-301, SHRI SHANTINAGAR SOCIETY, S.NO.63/1/3, KONDHWA, PUNE 411037 PAN NO.ACDPR0459D . / APPELLANT V/S ITO, WARD-2(1), PUNE . / RESPONDENT / ASSESSEES BY : SHRI SUNIL PATHAK / REVENUE BY : SHRI ASEEM SHARMA / ORDER PER VIKAS AWASTHY, JM : THESE BUNCH OF 11 APPEALS ARE FILED BY THE ASSESSEES. SIN CE COMMON ISSUES ARISING FROM SAME SET OF FACTS ARE INVOLVED IN THESE APPEALS, THESE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION. 2. IN THE PRESENT SET OF APPEALS, THE ASSESSES HAVE RA ISED NINE GROUNDS. HOWEVER, A PERUSAL OF GROUNDS OF APPEAL WOULD SH OW THAT THESE ELABORATE GROUNDS INVOLVE TWO ISSUES ONLY. GROUND NO.1 TO 5 RELATE TO DISALLOWANCE U/S.40A(3) IN RESPECT OF CASH PAYMENT S MADE TO MAHARASHTRA STATE ROAD TRANSPORT CORPORATION (IN SH ORT MSRTC) AND OTHER GOVT. ORGANISATIONS. IN GROUND NOS. 6 TO 8 THE ASSESSEES HAVE ASSAILED THE FINDINGS OF CIT(A) IN DISALLOWING INT EREST U/S.36(1)(III), ON INTEREST FREE ADVANCES MADE TO RELATED PART IES FROM INTEREST BEARING BORROWED FUNDS. THE GROUND NO.9 IS GENE RAL IN NATURE. / DATE OF HEARING :05.01.2016 / DATE OF PRONOUNCEMENT:29.02.2016 3 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP THE LD. AUTHORISED REPRESENTATIVE SUBMITTED AT THE OUT SET THAT HE WOULD NOT BE PRESSING GROUNDS RELATING TO DISALLOW ANCE OF INTEREST U/S.36(1)(III) OF THE ACT. IN VIEW OF THE STATEMENT MA DE AT BAR BY THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSE ES, GROUND NOS. 6 TO 8 IN THE APPEALS ARE DISMISSED AS NOT PRESSED. 3. THE FACTS IN BRIEF AS EMANATING FROM RECORDS IN THESE APPEALS ARE : THE ASSESSEES ARE ENGAGED IN THE BUSINESS OF PURC HASE AND SALE OF SCRAP FROM VARIOUS GOVERNMENT ORGANIZATIONS. DURIN G THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE AO MADE ADDITION/DISALLOWANCE IN THE INCOME RETURNED BY THE ASSESS EES INTER-ALIA ON THE GROUND THAT THE ASSESSEES HAVE MADE CASH PAYMENTS EXCEEDING RS.20,000/- FOR THE PURCHASE OF SCRAP FROM MSRTC. THESE CASH PAYMENTS ARE IN VIOLATION OF THE PROV ISIONS OF SECTION 40A(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDERS IN THE IMPUGNED ASSESSMENT YEARS, THE ASSESSEES FILED APPEALS IN THE RES PECTIVE CASES BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE CIT(A ) UPHELD THE FINDINGS OF THE AO ON THE ISSUE. AGAINST THE FINDINGS OF CIT(A), THE ASSESSEES FILED SECOND APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 2 0-05- 2013 HELD THAT MSRTC IS A STATE WITHIN THE MEANING OF ARTICLE 12 OF THE CONSTITUTION OF INDIA, AND REMITTED THE MATTER BAC K TO CIT(A) FOR DECIDING THE ISSUE AFRESH IN THE LIGHT OF OBSERVATIONS MA DE. THE CIT(A) IN SECOND ROUND OF LITIGATION AGAIN DECIDED THE ISSUE A GAINST THE ASSESSEES BY PLACING RELIANCE ON VARIOUS DECISIONS. H ENCE, THE PRESENT APPEALS. 4 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP 5. SHRI SUNIL PATHAK APPEARING ON BEHALF OF THE ASSESSEES SUBMITTED THAT THE CIT(A) HAS ERRED IN HOLDING THAT THE A SSESSEES HAVE VIOLATED THE PROVISIONS OF SECTION 40A(3) AND THE PAYM ENTS MADE BY THE ASSESSEES DO NOT FALL IN THE EXCEPTIONS PROV IDED UNDER RULE 6DD OF THE INCOME TAX RULES. IN THE PRESENT CASE , THE ASSESSEES HAVE MADE CASH PAYMENTS ON ACCOUNT OF PURC HASE OF SCRAP FROM MSRTC, MAHARASHTRA STATE ELECTRICITY BOARD (IN SHORT MSEB) AND OTHER GOVERNMENT ORGANIZATIONS. MAINLY THE PU RCHASE OF SCRAP IS FROM MSRTC. ALL THESE STATE CORPORATIONS FALL WI THIN THE MEANING OF STATE UNDER ARTICLE 12 OF THE CONSTITUTION OF INDIA. MSRTC WAS ESTABLISHED BY THE STATE GOVERNMENT, AS PER THE PROVISIONS OF SECTION 3 OF THE ROAD TRANSPORT ACT, 1950. IT IS A STATE OWNED TRANSPORT CORPORATION. THE ENTIRE SHARE CAPITAL OF MSRTC IS FUNDED BY THE STATE GOVERNMENT AND CENTRAL GOVERNMENT . THERE IS NO PUBLIC PARTICIPATION. THE STATE GOVERNMENT HAS FULL CONT ROL OVER THE POLICY DECISIONS AND THE MANAGEMENT OF MSRTC. AS PE R THE DEFINITION OF STATE GIVEN IN THE CONSTITUTION, IT IS CLEAR THA T ANY AUTHORITY WHICH IS UNDER THE CONTROL OF THE GOVERNMENT C AN ALSO BE CONSIDERED AS PART OF THE STATE. THE WORDS AND PHRASE S ARE TO BE INTERPRETED IN THE MANNER WHICH ARE WIDELY ACCEPTED. SIN CE MSRTC IS A STATE OWNED TRANSPORT CORPORATION, FOR INTENTS AND PURPOSES IT IS CONSIDERED AN INSEPARABLE LIMB OF THE STATE GOVERNMENT AND IS A STATE AS PER ARTICLE 12 OF THE CONSTITUTION OF INDIA. IN SUPPORT OF HIS SUBMISSIONS THE LD. AUTHORISED REPRESENTATIVE PLACED R ELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF SALES TAX VS. JASWANT SINGH CHARAN SINGH REPORTED AS 1967 AIR 1454 SC. THE LD. AUTHORISED REPR ESENTATIVE SUBMITTED THAT THE TRIBUNAL IN THE FIRST ROUND OF LITIGATION H AS HELD 5 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP THAT MSRTC IS A STATE WITHIN THE MEANING OF ARTICLE 12 A ND THEREFORE THE PROVISIONS OF SECTION 40A(3) WILL NOT APPLY ON THE CASH PAYMENTS MADE BY THE ASSESSEE TO MSRTC. 6. THE LD. AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE DEPARTMENT, HAS NOT RAISED ANY DOUBT OVER THE GENUINE NESS OF THE PAYMENTS. THE ONLY OBJECTION RAISED BY THE DEPARTMENT IS THAT THERE IS VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE A CT. THE GENUINENESS OF THE PAYMENTS ARE NOT DOUBTED BY THE DE PARTMENT, THEREFORE, NO DISALLOWANCE COULD BE MADE. IN SUPPORT OF H IS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : 1. ITO AND ANOTHER VS. K.N. PRAMOD REPORTED AS 328 ITR 6 69 (KAR.) 2. SRI LAXMINARAYANAN OIL MILL VS. CIT REPORTED AS 367 I TR 200 (AP) 3. GURUDAS GARG VS. CIT REPORTED AS 63 TAXMANN.COM 289 (P &H) 7. ON THE OTHER HAND SHRI ASEEM SHARMA REPRESENTING TH E DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE CI T(A). THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CIT(A ) IN A DETAILED AND WELL REASONED ORDER AFTER CONSIDERING VARIOUS JUDGEMENTS ON THE ISSUE, HAS RIGHTLY COME TO THE CONCLU SION THAT MSRTC IS NOT A STATE AND THUS THE PAYMENTS MADE IN CASH TO MSRTC BY THE ASSESSEES WILL FALL WITHIN THE PURVIEW OF SECTION 40A(3) OF THE ACT. THE LD. DEPARTMENTAL REPRESENTATIVE VE HEMENTLY DEFENDED THE ORDER OF CIT(A) AND PRAYED FOR DISMISSING THE APPEALS OF THE ASSESSEES. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY ISSUE BEFORE US FOR ADJUDICATION IN THESE APPEA LS IS; WHETHER THE PAYMENTS MADE IN CASH BY THE ASSESSEES T O MSRTC FOR 6 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP PURCHASE OF SCRAP IN AUCTION WOULD ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE ACT ? 9. IN THE FIRST ROUND OF LITIGATION, SAME QUESTION WAS RAISED BEFORE THE TRIBUNAL IN ITA NO.845 & 1471/PN/2010, ITA NO.836/PN/2010 & ITA NO.1241/PN/2011, ITA NO.834/PN/201 0 & ITA NO.1242/PN/2011, ITA NO.1472/PN/2010. THE TRIBUNAL VIDE CONSOLIDATED ORDER DATED 20-05-2013 HAD REMITTED THE IS SUE BACK TO THE FILE OF CIT(A) FOR DECIDING IT AFRESH IN THE LIGHT OF THE OBSE RVATIONS MADE. THE RELEVANT EXTRACT OF THE OBSERVATIONS MADE BY THE TRIBUNAL ARE AS UNDER : 10. WE ARE UNABLE TO ACCEPT THE ARGUMENT CANVASSED BY THE LD. DR. THE ARTICLE 12 OF THE CONSTITUTION READS AS UNDER: THE STATE INCLUDES THE GOVERNMENT AND PARLIAMENT OF INDIA AND GOVERNMENT AND THE LEGISLATURE OF THE STATES AND ALL L OCAL OR OTHER AUTHORITIES WITHIN THE TERRITORY OF INDIA OR UNDER T HE CONTROL OF THE GOVERNMENT OF INDIA. 11. THE DEFINITION OF THE STATE UNDER ARTICLE 12 HA S COME FOR THE CONSIDERATION ON NUMBER OF OCCASIONS BEFORE THE HONBL E SUPREME COURT. THE STATE CONSISTS OF THREE DEPARTMENTS, THE LEG ISLATURE, THE EXECUTIVE AND THE JUDICIARY. WE NEED NOT GO INTO AL L THE LIMBS OF THE STATE AS ONLY THE LIMITED ISSUE BEFORE US IS WHETHER THE TERM GOVERNMENT USED IN CLAUSE (B) TO RULE 6DD INCLUDES EVE N THE AUTONOMOUS BODIES WHICH PARTAKES THE CHARACTER OF INSTR UMENTALITIES OF THE GOVERNMENT. THE CORE TEST TO BE APPLIED WHETHER A PARTICULAR CORPORATION WHICH IS AUTONOMOUS BODY IS A PART OF GOVE RNMENT, TO BE SEEN IN THE CONTEXT OF DEGREE OF CONTROL OVER MANAGE MENT AND POLICY DECISIONS. WE FIND THAT IN THE CASE OF MSRTC AS PER TH E CERTIFICATE OF THE SHARE CAPITAL FILED BEFORE US, THE ENTIRE SHARE CAPITA L IS CONTRIBUTED BY THE STATE GOVERNMENT AND THE CENTRAL GOVERNMENT AND THERE IS NO PRIVATE PARTICIPATION. WE FURTHER FIND THAT MSRTC I S INCORPORATED UNDER SPECIAL LEGISLATION I.E., ROAD TRANSPORT CORPORATION A CT, 1950. WE HAVE EXAMINED THE PROVISIONS OF THE SAID ENACTMENT. AS PER SE CTION 5 OF THE SAID ACT, THE STATE GOVERNMENT IS ONLY HAVING POWER T O APPOINT THE CHAIRMAN AND OTHER MEMBERS IN THE MANAGING BODY. THE RE IS A FULL CONTROL OF THE STATE GOVERNMENT ON THE POLICY DECISI ONS AS WELL AS MANAGEMENT. IN OUR OPINION, IF WE APPLY THE TEST OF THE CONTROL AND MANAGEMENT AS WELL AS THE EQUITY PARTICIPATION, MSRTC IS A STATE WITHIN ARTICLE 12 OF THE CONSTITUTION. APPLYING THE ABOVE TEST, THE HONBLE SUPREME COURT HAS HELD, AS DISCUSSED HEREINABOVE, THAT T HE AUTONOMOUS BODIES LIKE STATE ROAD TRANSPORT CORPORATIO N OR WAREHOUSING CORPORATION WHERE THERE IS A FULL CONTROL BY THE 7 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP GOVERNMENT, EITHER CENTRAL OR STATE, THESE ARE THE I NSTRUMENTALITIES OF THE GOVERNMENT ONLY. 12. THE TERM GOVERNMENT IS VERY MUCH WIDE UNDER THE CONSTITUTIONAL SET UP. GOVERNMENT MAY BE CENTRAL OR STATE, OR IT MA Y BE LOCAL GOVERNMENT WHICH IS ENVISAGED BY OUR CONSTITUTION, LIK E ZILLA PARISHAD, MUNICIPAL CORPORATIONS, MUNICIPAL COUNCILS, PANCHAYAT SAMITHIS, ETC. THE PUBLIC WORKS DEPARTMENT IS PART OF THE GOVERNMEN T. IN OUR OPINION, THIS ASPECT HAS NOT BEEN CONSIDERED BY THE AU THORITIES BELOW AND THEY HAVE CLOSED DOOR TO THE ASSESSEES TO MAKE OUT TH E CASE FOR EXAMINATION UNDER RULE 6DD. WE ARE, THEREFORE, OF T HE OPINION THAT IN THE LIGHT OF OUR ABOVE DISCUSSION, THE PLEA OF THE ASSESSE ES NEED RECONSIDERATION BY THE LD. CIT(APPEALS). WE, THEREFOR E, SET ASIDE THE ISSUE IN RESPECT OF THE DISALLOWANCE MADE U/S.40A(3) TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME DE NOVO IN THE LIGHT O F OUR ABOVE OBSERVATIONS AND DISCUSSION. ACCORDINGLY, THE RELEVANT G ROUNDS TAKEN BY THE ASSESSEES IN ALL THESE APPEALS ARE ALLOWED FOR STAT ISTICAL PURPOSES. NEEDLESS TO SAY THE CIT(A) IS DIRECTED TO GIVE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEES AS PER THE PRINCIPLES OF NATURAL JU STICE. 10. A BARE PERUSAL OF ARTICLE 12 SHOWS THAT THE DEFINITION O F THE STATE GIVEN IN ARTICLE IS INCLUSIVE AND NOT EXHAUSTIVE. TH E STATE INCLUDES : (A) THE GOVERNMENT AND PARLIAMENT OF INDIA; (B) THE GOVERNMENT AND THE LEGISLATURE OF EACH OF THE STATES; (C) ALL LOCAL AND OTHER AUTHORITIES WITHIN THE TERRITORY OF IND IA; AND (D) ALL LOCAL AND OTHER AUTHORITIES UNDER THE CONTROL OF THE GOVERNMENT OF INDIA. 11. THE EXPRESSION OTHER AUTHORITIES USED IN ARTICLE 12 IS NEITHER DEFINED IN THE CONSTITUTION OF INDIA NOR IN ANY OTHER STATU TE. THEREFORE, THE HONBLE SUPREME COURT OF INDIA AND THE HONBLE HIGH COURT HAVE INTERPRETED THIS EXPRESSION IN VARIOUS JUDGEM ENTS. THE HONBLE SUPREME COURT OF INDIA WHILE INTERPRETING THE EXPR ESSION OTHER AUTHORITIES IN THE CASE OF SOM PRAKASH REKHI VS. UNION OF INDIA REPORTED AS AIR 1981 SC 212 HAVE CULLED OUT CERT AIN TESTS TO DETERMINE AS TO WHEN A CORPORATION SHOULD BE SAID TO BE AN 8 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. THE TESTS LAID DOWN BY THE HONBLE APEX COURT ARE SUMMARIZED AS UNDER : 1. IF THE ENTIRE SHARE CAPITAL OF THE CORPORATION I S HELD BY THE GOVERNMENT, IT WOULD GO A LONG WAY TOWARDS INDICATIN G THAT THE CORPORATION IS AN INSTRUMENTALITY OR AGENCY OF THE GO VERNMENT. 2. EXISTENCE OF DEEP AND PERVASIVE STATE CONTROL MAY AFFORD AN INDICATION THAT THE CORPORATION IS A STATE AGENCY OR INSTRUMENTALITY. 3. WHETHER THE CORPORATION ENJOYS MONOPOLY STATUS WHIC H IS STATE CONFERRED OR STATE PROTECTED. 4. IF THE FUNCTIONS OF THE CORPORATION ARE OF PUBLIC IMPORTANCE AND CLOSELY RELATED TO GOVERNMENTAL FUNCTIONS. IT WOULD BE A RELEVANT FACTOR IN CLASSIFYING THE CORPORATION AS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. 5. IF A DEPARTMENT OF A GOVERNMENT IS TRANSFERRED TO A CORPORATION, IT WOULD BE A STRONG FACTOR SUPPORTING THIS INFERENCE OF THE CORPORATION BEING AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT . AFTER APPLYING THE CUMULATIVE EFFECT OF ALL THE RELEVANT FACTO RS MENTIONED ABOVE, IF THE BODY IS FOUND TO BE AN INSTRUMEN TALITY OF THE AGENCY OF THE GOVERNMENT, IT WOULD BE AN AUTHORITY INCLUDE D IN TERM STATE UNDER ARTICLE 12 OF THE CONSTITUTION OF INDIA. HOW EVER, THE TESTS INDICATED BY THE HONBLE APEX COURT IN THE CASE O F SOM PRAKASH REKHI ARE MERELY INDICATIVE AND NOT ABSOLUTE AND THUS, HAVE TO BE APPLIED DISCRETELY. IF ANY BODY OR ORGANISATION FALLS WITHIN THE CRITERIA AS LAID DOWN BY THE HONBLE APEX COURT IT CA N BE CONSIDERED THAT IT FALLS WITHIN THE TERM STATE. 12. IF THESE TESTS ARE APPLIED ON THE MSRTC, WE OBSERVE THAT THE CORPORATION SATISFIES MAJORITY OF THE CONDITIONS. THE ENTIRE SHARE CAPITAL OF MSRTC IS OWNED BY STATE AND CENTRAL GOVERNMEN T. THE STATE HAS FULL CONTROL OVER THE WORKING, POLICIES AND THE FR AMEWORK OF THE CORPORATION. THE CORPORATION IS PROVIDING PUBLIC TRA NSPORT FACILITY TO THE SUBJECTS OF THE STATE, EVEN IN FOR REMOTE A REAS, WHERE 9 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP SOMETIMES IT IS NOT ECONOMICALLY VIABLE TO PROVIDE TRANSPOR T SERVICE. THUS, IT IS PROVIDING VITAL FUNCTION OF PUBLIC IMPORTANCE. 13. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHARA SHTRA STATE ROAD TRANSPORT CORPORATION VS. DIWAKAR MADHUKAR RAO MALKAPURE AND OTHERS IN WRIT PETITION NO.2762/2012 DECIDED ON 12-11-2013 WHILE DEALING WITH AN ISSUE RELATING TO PAYMENT OF COMPENSATION TO ONE OF THE EMPLOYEE OF MSRTC HAS OBSERV ED AS UNDER : THE PETITIONER EMPLOYER IS A BODY CORPORATE AND IS S TATE WITHIN THE MEANING OF ARTICLE 12 OF THE CONSTITUTION OF INDIA A ND THEREFORE IT HAS TO ACT AS A MODEL EMPLOYER. 14. THUS, IN VIEW OF THE FACTS OF THE CASE AND IN THE LIGHT O F OBSERVATIONS OF THE HONBLE BOMBAY HIGH COURT, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) HAS ERRED IN HOLDING THA T MSRTC IS NOT A STATE AND CASH PAYMENTS MADE TO MSRTC ARE HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 15. IN SO FAR AS GENUINENESS OF THE PAYMENTS TO MSRTC B Y THE ASSESSEES, THEY ARE NOT DISPUTED BY THE DEPARTMENT. O NCE IT HAS BEEN HELD THAT MSRTC IS A STATE WITHIN THE MEANING OF ARTICLE 12 OF THE CONSTITUTION OF INDIA, THE PAYMENTS CANNOT BE DISALLO WED U/S.40A(3). THE PROVISIONS OF RULE 6DD WOULD PROTECT THE AS SESSEE FROM SUCH DISALLOWANCE. THE ASSESSEES HAVE EXPLAINED THAT CASH PAYMENTS HAVE BEEN MADE TO MSRTC ON SUCCESSFUL BID OF S CRAP AUCTION. THE PAYMENTS ARE MADE IN CASH IMMEDIATELY TO G UARD AGAINST THE PILFERAGE OF SCRAP. THUS, CASH PAYMENTS ARE A LSO MADE OUT OF BUSINESS EXPEDIENCY. THEREFORE, IN OUR CONSIDERED VIEW, NO 10 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP DISALLOWANCE CAN BE MADE U/S.40A(3) IN THE FACTS OF THE PRE SENT CASE. 16. OUR VIEW IS FORTIFIED BY THE DECISION RENDERED IN THE CA SE OF SRI LAXMI SATYANARAYAN OIL MILL VS. CIT (SUPRA). THE HONBLE H IGH COURT HAS HELD THAT NO DISALLOWANCE CAN BE MADE U/S.40A(3 ) WHERE GENUINENESS OF PAYMENT IS NOT DOUBTED. THE RELEVANT EXT RACT OF THE OBSERVATION OF THE HONBLE COURT ARE AS UNDER : 18. . . . . . . . . . . SECTION 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION OF RULE 6DD. THE SECTION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS A RE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTIO N ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWE RS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDIT URE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE 0N CROSSED B ANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS I NSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FROM UND ISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDER ATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NO TAKEN OUT O F THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISF ACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYME NT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABL E OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OP EN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUI REMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN TH E CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLE AR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THEY AR E INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BU SINESS TRANSACTIONS. 17. IN THE CASE OF GURUDEV GARG VS. CIT THE HONBLE P UNJAB & HARYANA HIGH COURT HAS HELD THAT WHERE GENUINENESS OF T RANSACTION MADE IN CASH IN EXCESS OF RS.20,000/- WAS NOT DISBELIEVED B Y THE AUTHORITIES, THE SAME CANNOT BE DISALLOWED U/S.40A(3) OF THE ACT. 18. IN VIEW OF THE FACTS OF THE CASE AND THE CASE LAWS DIS CUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 40A(3) ARE NOT ATTRACTED ON THE CASH PAYMENTS MADE BY THE 11 ITA NOS.1270 TO 1272PN/2014 AND OTHERS OF RAISONI GROUP ASSESSEES TO MSRTC. THE PROVISIONS OF RULE 6DD (B) PROVIDE EXCEPTION TO SECTION 40A(3) WHERE CASH PAYMENTS ARE MAD E TO GOVERNMENT. THE AFORESAID EXCEPTION WILL OPERATE IN THE CA SE OF THE ASSESSEE. THUS, THE CIT(A) HAS ERRED IN HOLDING THAT DISA LLOWANCE U/S.40A(3) IS TO BE MADE IN RESPECT OF CASH PAYMENTS MADE BY ASSESSEES TO MSRTC. THE IMPUGNED ORDERS ARE SET ASIDE AND THE AO IS DIRECTED TO DELETE THE DISALLOWING MADE U/S.40A(3) IN THE IMPUGNED ASSESSMENT YEARS. ACCORDINGLY, GROUND NOS. 1 T O 5 RAISED IN THE APPEALS ARE ALLOWED. 19. IN THE RESULT, THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWE D. ORDER PRONOUNCED ON MONDAY THE 29TH DAY OF FEBRUARY, 2016. SD/- SD/- ( R.K. PANDA ) ( VIKAS AWASTHY ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE ; DATED : 29 TH FEBRUARY, 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A ) - II , PUNE 4. 5. 6. THE CIT-II, PUNE $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // $ ' //TRUE COPY// / // $ ' //TRUE C // /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE