Prathamik Krishi Pattin Sahakari Bank Ltd., Belgaum V. Income Tax Officer, Ward-1(3), Belgaum

ITA 129/PAN/2014

• Counselvise Citation: 12924114 RSA 2014
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT K LD
• Assessee Lawyers: S V HALBHAVI
• Keywords: Bonafide belief; Onus to prove
• Section: 40A(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO.129/PNJ/2014 (ASSESSMENT YEAR 2009-10) PRATHAMIK KRISHI PATTIN SAHAKARI BANK LTD. JUGUL, TAL:ATHANI, DIS: BELGAUM-591252. PAN: AAAAP1604N (APPELLANT) VS. THE INCOME TAX OFFICER, WARD 1(3), BELGAUM. (RESPONDENT) APPELLANT BY : S.V.HALBHAVI, CA RESPONDENT BY : NISHANT K. LD. DR. DATE OF HEARING : 13/10/2014 DATE OF PRONOUNCEMENT : 19/12/2014 O R D E R PER: D.T. GARASIA THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), BELGAUM DATED 6 TH FEBRUARY, 2014 FOR THE ASSESSMENT YEAR 2009-10 . 2. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE. 1) THE LEARNED CIT(A) AND ASSESSING OFFICER (AO) HAVE ERRED IN ASSESSING RS. 5,13,176/- AS DISALLOWANCE U/S 40A(3) OF IT ACT WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2) THE LEARNED CIT(A) AND ASSESSING OFFICER (AO) HAVE NOT APPRECIATED THE FACT THAT KEROSENE IS BOUGHT FOR SUPPLY UNDER PDS SYSTEM TO BPL FAMILIES, AND IT IS A NO PROFIT BUSINESS TO THE SOCIETY AS WELL AS TO SUPPLIERS WHO INSISTED ON CASH PAYMENT THE ASSESSEE IS RUNNING RATIONING BUSINESS UNDER CENTRAL GOVT. SCHEME. 3) THE PKPS BANK (SOCIETY) IS SITUATED IN A REMOTE VILLAGE AND THE KEROSENE SUPPLIERS HAVE TO COME FROM DISTANT PLACES AND CANNOT REACH DURING BANK HOURS, SINCE THEY COVER LOT OF OTHER PLACES. ALSO DUE TO NO PROFIT OR MEAGER PROFIT THEY INSIST ON SPOT PAYMENT IN CASH. THE CONFIRMATIONS TO THIS EFFECT FROM THE SUPPLIERS ARE ALSO NOT CONSIDERED BY THE A.O AND LEARNED CIT (A). 2. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) 4) THE LEARNED CIT (A) AND AO HAVE DELIBERATELY BROUGHT THE EXEMPTED ASSESSEE IN TO TAX NET WITHOUT CONSIDERING THE FACTS THAT : (I) CASH PAYMENTS ARE MADE UNDER UNAVOIDABLE CIRCUMSTANCES AND EXCEPTIONAL CIRCUMSTANCES (II) THE GENUINENESS OF THE TRANSACTIONS (I) THE IDENTITY OF THE PERSONS TO WHOM CASH PAYMENT IS MADE. RELIED: (201) 320 FTR 185 (ALL). 5) THE LEARNED CIT(A) AND AO HAVE NOT APPRECIATED THE INTENTION OF THE LEGISLATURE WHEN SECTION 40A (3) WAS INTRODUCED. 6) THE LEARNED CIT(A) AND A C HAVE ALSO NOT APPRECIATED THE FACT THAT THE LIST GIVEN IN RULE 6 DD IF 1 T RULE IS NOT EXHAUSTIVE, RULE 6 DD MUST BE INTERPRETED LIBERALLY AS PER THE CBDT CIRCULAR NO. 220 DATED 31-05-1997. RELIED: (2008) 298 ITR 349 (RAJ). 7)THE LEARNED CIT(A) AND AO HAVE ALSO MADE UNNECESSARY EFFORT BY CALCULATING PROPORTIONATE EXPENSES FOR TRADING BUSINESS AND BANKING BUSINESS ETC., THOUGH THE TRADING A/C IS ALREADY CHARGED WITH THE RELEVANT EXPENSES. 8) FURTHER THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE CASH PAYMENTS ARE MADE AGAINST GENUINE TRANSACTIONS AND THE PAYEE IS IDENTIFIED AND HENCE THIS WILL NOT AMOUNT TO CONTRAVENTION OF SECTION 40A (3) 9) THE LEARNED CIT (A) AND AO HAVE NOT CONSIDERED THE LAW WHICH STATES THAT THE ENTIRE INCOME (100%) IS DEDUCTIBLE U/S 80P 2 A (1) OF THE I T ACT AS THE APPELLANT IS A PRIMARY AGRICULTURE CO-OPERATIVE AND RURAL DEVELOPMENT SOCIETY. 3. GROUND NOS. 1 TO 8 :- THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIMARY CO-OPERATIVE AGRICULTURE AND RURAL DEVELOPMENT BANK REGISTERED UNDER THE KARNATAKA CO-OPERATIVE SOCIETY ACT. IT IS CARRYING ON THE BUSINESS OF ACCEPTING DEPOSITS FROM MEMBER AGRICULTURIST AND PROVIDING CREDIT FACILITIES TO MEMBERS FOR AGRICULTURE ACTIVITIES. THEY ALSO DISTRIBUTING FOOD GRAINS AND KEROSENE UNDER PDS SCHEME TO CARD HOLDERS. THE ASSESSEE HAS FILED THE RETURN OF INCOME FOR ASSESSMENT FOR ASSESSMENT YEAR 2009-10 DECLARING NIL INCOME CLAIMING THE DEDUCTION U/S. 80P(2)(A)(I) OF THE IT ACT. THE ASSESSING OFFICER HAS DISALLOWED THE CASH PAYMENTS OF RS.5,13,176/- U/S. 40A(3) THOUGH THE ASSESSEE HAS PROVED THE UNAVOIDABLE CIRCUMSTANCES UNDER WHICH THE CASH PAYMENTS ARE MADE AND THE GENUINENESS OF SUCH PAYMENTS. THEREFORE, ASSESSEE IS IN APPEAL BEFORE US. 4. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS CONFIRMED THE ADDITION. 3. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) 5. THE LEARNED AR HAS FILED THE WRITTEN SUBMISSION WHICH READ AS UNDER: 1. APPELLANT IS CARRYING ON THE ACTIVITY OF SUPPLY OF FOOD GRAINS, SUGAR & KEROSENE UNDER PUBLIC DISTRIBUTION SYSTEM. 2. PUBLIC DISTRIBUTION SYSTEM (PDS) IS AN INDIAN FOOD SECURITY SYSTEM. ESTABLISHED BY THE GOVERNMENT OF INDIA UNDER MINISTRY OF CONSUMER AFFAIRS, FOOD, AND PUBLIC DISTRIBUTION AND MANAGED JOINTLY WITH STATE GOVERNMENTS IN INDIA, IT DISTRIBUTES SUBSIDIZED FOOD AND NON- FOOD ITEMS TO INDIAS POOR. MAJOR COMMODITIES DISTRIBUTED INCLUDE STAPLE FOOD GRAINS, SUCH AS WHEAT, RICE, SUGAR, AND KEROSENE, THROUGH A NETWORK OF PUBLIC DISTRIBUTION SHOPS (ALSO KNOWN AS RATION SHOPS OR FAIR PRICE SHOPS) ESTABLISHED IN SEVERAL STATES ACROSS THE COUNTRY. FOOD CORPORATION OF INDIA, A GOVERNMENT OWNED CORPORATION, PROCURES AND MAINTAINS THE POS. THE CENTRAL AND STATE GOVERNMENTS SHARE THE RESPONSIBILITY OF REGULATING THE PDS. WHILE THE CENTRAL GOVERNMENT IS RESPONSIBLE FOR PROCUREMENT, STORAGE, TRANSPORTATION, AND BULK ALLOCATION OF FOOD GRAINS, STATE GOVERNMENTS HOLD THE RESPONSIBILITY FOR DISTRIBUTING THE SAME TO THE CONSUMERS THROUGH THE ESTABLISHED NETWORK OF FAIR PRICE SHOPS (FPS), APPELLANT IS ONE SUCH AUTHORIZED FPS. 3. A PUBLIC DISTRIBUTION SHOP, ALSO KNOWN AS FAIR PRICE SHOP (FPS), PART OF INDIAS PUBLIC DISTRIBUTION SYSTEM ESTABLISHED BY GOVERNMENT OF INDIA, IS A SHOP WHICH IS USED TO DISTRIBUTE RATIONS AT A SUBSIDIZED PRICE TO THE POOR. AS OF DATE THERE ARE ABOUT 4.99 LAKH FAIR PRICE SHOPS ACROSS INDIA. THESE SHOPS ARE OPERATED THROUGHOUT THE COUNTRY BY JOINT ASSISTANCE OF CENTRAL AND STATE GOVERNMENT. THE ITEM FROM THESE SHOPS ARE DISTRIBUTED TO THE POOR FAMILIES AT MUCH CHEAPER RATES. HENCE THERE IS NO ELEMENT OF PROFIT INVOLVED. 4. THE AGGREGATE AMOUNT OF RS.5,13,176/- WHICH HAS BEEN ADDED BACK AS INCOME UNDER SECTION 40A(3) RELATES TO PAYMENT MADE TO DISTRIBUTORS OF KEROSENE ON VARIOUS DATES. 5. KEROSENE DISTRIBUTORS DISTRIBUTE KEROSENE TO VARIOUS FAIR PRICE SHOPS AS PER THE ORDERS OF CHIEF EXECUTIVE OFFICER OF TALUKA PANCHAYAT. APPELLANT SOCIETY COMES UNDER THE JURISDICTION OF ATHANI TALUKA PANCHAYAT. AS PER THE ORDERS OF CEO, TALUKA PANCHAYAT ATHANI, THREE DISTRIBUTORS NAMELY, (I) M/S S. R. PATH, SANKESHWAR, (II) MIS KHIMAJIBAI & SONS, BELGAUM & (III) MIS S.C. MALAGI, B&GAUM, HAVE DISTRIBUTED KEROSENE TO THE APPELLANT SOCIETY ON VARIOUS DATES IN THE YEAR UNDER CONSIDERATION. 6. CONSIDERING THE CIRCUMSTANCES AND NATURE OF BUSINESS OF THE APPELLANT, THE ADDITION MADE UNDER SECTION 40A(3) OF THE INCOME TAX ACT, 1961 IS INCORRECT AND NOT LAWFUL ON THE FOLLOWING GROUNDS: 6.1. SUPPLY OF FOOD GRAINS, SUGAR & KEROSENE IS UNDER PUBLIC DISTRIBUTION SYSTEM -CENTRAL GOVERNMENT SCHEME. 4. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) 6.2. IT IS A NO PROFIT ACTIVITY CARRIED ON BY THE APPELLANT SOCIETY. APPELLANT IS ONLY SERVING THE PL FAMILIES UNDER THE SCHEME. 6.3. KEROSENE DISTRIBUTORS ARE APPOINTED BY THE GOVERNMENT UNDER THE P05 SCHEME I.E. THEY ARE REPRESENTATIVES/AGENTS OF GOVERNMENT. THESE DISTRIBUTORS ARE ALSO DISTRIBUTING THE PDS GOODS WITH NON-PROFIT OBJECTIVE. 6.4. AS NO PROFIT ELEMENT IS INVOLVED THESE DISTRIBUTORS INSIST ON SPOT PAYMENT IN CASH. 6.5. THESE DISTRIBUTORS COME FROM DIFFERENT PLACES AND HENCE IF PAYMENT IS MAKE BY CHEQUE THE CHEQUE COLLECTION TIME AND COST IN THE FORM OF COLLECTION CHARGES ARE INVOLVED. 6.6. IN CASE DEMAND DRAFTS ARE ISSUED THEN COST IN THE FORM OF COMMISSION HAS TO BORN BY APPELLANT SOCIETY, WHICH IS NOT AFFORDABLE. 6.7. GOODS ARE SUPPLIED NORMALLY AFTER 5O CLOCK I.E. AFTER BANKING HOURS. 7. SIR, WE ARE ATTACHING FOLLOWING DOCUMENTS IN SUPPORT OF OUR STAND: 7.1. COPY OF ORDER OF STATE GOVERNMENT THROUGH CEO, TALUKA PANCHAYAT, ATHANI TO KEROSENE DISTRIBUTORS (I) MIS KHIMAJIBAI & SONS, BELGAUM (II) MIS S. R. PATIL, SANKESHWAR TO DISTRIBUTE KEROSENE TO APPELLANT FPS. ENGLISH TRANSLATED COPY ALSO ATTACHED. REFER PAGE 34 OF THIS PAPER BOOK. 7.2. LETTERS ISSUED BY KEROSENE DISTRIBUTORS TO APPELLANT SOCIETY IN CONFIRMATION OF RECEIPT OF CASH ON VARIOUS DATES AGAINST SUPPLY OF KEROSENE AND STATING THEIR DISABILITY TO ACCEPT DEMAND DRAFT OR CHEQUE INSTEAD OF CASH. ENGLISH TRANSLATED COPY ALSO ATTACHED. REFER PAGE 41 OF THIS PAPER BOOK. 7.3 8. AS PER RULE 6DD: (B) WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND, UNDER THE RULES FRAMED BY IT, SUCH PAYMENT IS REQUIRED TO HE MADE IN LEGAL TENDER 8.1. AS PER PROVISO TO SUB SECTION 3A OF SECTION 40A: PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3,) AND THIS SUB-SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. 5. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) 8.2. WITH REFERENCE TO DISCUSSION IS ABOVE PARAGRAPHS, APPELLANT IS COVERED UNDER THE PROVISO TO SUB SECTION 3A OF SECTION 40A OF THE INCOME TAX ACT, 1961 AND HENCE DISALLOWANCE UNDER SECTION 40A(3) SHALL NOT BE ATTRACTED. 9. FURTHER LD. A.O. HAS APPORTIONED COMMON EXPENDITURE IN THE RATIO OF 73974 (TRADING):4896301 (CREDIT FACILITIES). ADOPTING SUCH RATIO IS TOTALLY ILLOGICAL AS IN CASE OF TRADING 73974 IS NET INCOME AFTER DEDUCTING DIRECT EXPENSES WHERE AS IN CASE OF CREDIT FACILITIES 4896301 IS THE GROSS AMOUNT WITHOUT DEDUCTING ANY EXPENSES. HENCE THE APPORTIONMENT OF COMMON EXPENSES HAS TO DONE BASED ON A LOGICAL RATIO. IT SHOULD BE EITHER BASED ON GROSS INCOME OR TIME INVOLVED IN EACH ACTIVITY OR ACTUAL AMOUNT OF EXPENDITURE INVOLVED IN EACH ACTIVITY HAS TO BE CONSIDERED. HENCE WE REQUEST YOU SIR TO PLEASE RECONSIDER THE BASIS OF APPORTIONMENT OF COMMON EXPENDITURE. PRAYER: THE APPEAL MAY KINDLY BE CONSIDERED IN FAVOR OF THE APPELLANT TO MEET THE ENDS OF JUSTICE, FOR THE KIND ACT OF YOUR HONOR THE APPELLANT REMAINS EVER GRATEFUL. 5. THE LEARNED DR RELIED UPON THE ORDER OF REVENUE AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. WE HAVE GONE THROUGH THE WRITTEN SUBMISSIONS MADE BY THE ASSESSEE AND ALSO PERUSED THE ASSESSMENT ORDER. WE FIND THAT THE DISALLOWANCE HAS BEEN MADE BY THE A.O U/S. 40A(3) OF THE IT ACT FOR A.Y.2009-10, IT MAY BE PERTINENT TO REPRODUCE THE AMENDED PROVISIONS OF SECTION 40A(3) AS AMENDED BY THE FINANCE ACT, 2008, W.E.F 1.4.2009, WHICH READ AS FOLLOWS. EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES. 40A(1)...... (2)..... (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. FURTHER, AS PER FIRST PROVISO TO SECTION 40A(3A), PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3) AND THIS SUB- SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. 6. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) 6.1 IT IS CLEAR FROM THE AFORESAID PROVISO THAT THE ONLY EXCEPTION MADE BY THE ACT AS PER WHICH NO DISALLOWANCE SHALL BE MADE, IS IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED WHICH HAVE BEEN SPECIFIED IN RULE 6DD OF THE I.T. RULES, 1962, THE PROVISIONS OF WHICH ARE REPRODUCED BELOW: CASES AND CIRCUMSTANCES IN WHICH A PAYMENT OR AGGREGATE OF PAYMENTS EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. 6DD. NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTION 40A SHALL BE MADE AND NO PAYMENTS SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3A) OF SECTION 40A WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES IN THE CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY: (A) WHERE THE PAYMENT IS MADE TO (I) THE RESERVE BANK OF INDIA OR ANY BANKING COMPANY....... (II) THE STATE BANK OF INDIA OR.... (III) ANY CO-OP BANK OR.. (IV) ANY PRIMARY AGRICULTURAL CREDIT SOCIETY OR.... (V) THE LIFE INSURANCE CORPORATION OF INDIA.,.. (B) WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND.... (C)WHERE THE PAYMENT IS MADE BY - (I) ANY FETTER OF CREDIT.. (II) A MAIL OR TELEGRAPHIC.. (III) A BOOK ADJUSTMENT FROM ANY ACCOUNT..... (IV) A BILL OF EXCHANGE....... (V) THE USE OF ELECTRONIC CLEARING SYSTEM... (VI) A CREDIT CARD; (VII) A DEBIT CARD; EXPLANATION - FOR THE.... (D) WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMENT AGAINST OF ANY LIABILITY INCURRED BY THE PAYEE..... (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF- (I) AGRICULTURAL OR..... (II) THE PRODUCE OF ANIMAL HUSBANDRY..... (III) FISH OR FISH PRODUCTS; OR (IV) THE PRODUCTS OF HORTICULTURE OR.... (F) WHERE THE PAYMENT IS MADE FOR THE PURPOSE OF THE PRODUCTS MANUFACTURED OR PROCESSED WITHOUT THE AID OF POWER IN A...... 7. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) (G) WHERE THE PAYMENT IS MADE IN VILLAGE OR TOWN, WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINARILY RESIDES, OR IS CARRYING ON ANY BUSINESS, PROFESSION OR VOCATION, IN ANY SUCH VILLAGE OR TOWN; (H) WHERE ANY PAYMENT IS MADE TO AN EMPLOYEE.... (I) WHERE THE PAYMENT IS MADE BY AN ASSESSEE BY WAY OF SALARY..... (J) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE; (K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF SUCH PERSON; (L) WHERE THE PAYMENT IS MADE BY AN AUTHORIZED DEALER OR A MONEY CHANGER....... EXPLANATION.........FOR THE PURPOSES OF THIS CLAUSE.... 6.2. IT IS AMPLY CLEAR THAT THE FIRST PROVISO TO SECTION 40A(3) MAKES IT CLEAR THAT THE ONLY EXCEPTIONS TO THE LAW CONTAINED IN SECTION 40A(3) ARE THOSE SPECIFICALLY MENTIONED IN RULE 6DD OF THE I.T. RULES . THE LANGUAGE EMPLOYED IN FIRST PROVISO TO SECTION 40A(3) MAKES IT AMPLY CLEAR WHICH READS AS FOLLOWS: .......IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. 6.3 IN THE INSTANT CASE, THE APPELLANT FAILED TO MAKE OUT A CASE BEFORE THE ASSESSING OFFICER THAT HIS CASE WAS COVERED BY ANY OF THE CIRCUMSTANCES MENTIONED IN RULE 6DD. IT HAS BEEN HELD BY THE APEX COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH V. ITO [1991] 191 ITR 667 (SC) THAT: SEC. 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION OF R. SDD. THE SECTION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. FURTHER, IN THE CASE OF S. VENKATA SUBBA RAO VS. COMMISSIONER OF INCOME-TAX, (1988) 173 ITR 340 AP, IT HAS BEEN HELD BY THE HONBLE COURT THAT: UNLESS A PAYMENT FALLS WITHIN ONE OR THE OTHER CLAUSES OF RULE 6DD, HE HAS NECESSARILY TO COMPLY WITH THE REQUIREMENTS OF SECTION 40A(3). FURTHER, IF AN ASSESSEE SAYS THAT HE IS ENTITLED TO TAKE ADVANTAGE OF A PARTICULAR CLAUSE IN RULE 6DD, HE MUST SATISFY THE REQUIREMENTS OF THAT CLAUSE, WHICH MEANS THAT, IN THIS CASE, THE ASSESSEE WHO IS SEEKING TO CLAIM THE BENEFIT CF CLAUSE (I) IN RULE 6DD, HAS NOT ONLY TO SATISFY THAT HAVING REGARD TO THE NATURE OF THE BUSINESS THERE WAS A GENUINE DIFFICULTY IN COMPLYING WITH THE REQUIREMENTS OF SECTION 40A(3), BUT HE MUST ALSO ESTABLISH THE 8. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) GENUINENESS OF THE PAYMENT AND THE IDENTITY OF THE PAYEE. UNLESS HE DOES THAT, HE CANNOT TAKE ADVANTAGE OF CLAUSE (J). IT IS NOT OPEN TO THE ASSESSEE TO SAY THAT HE WILL ONLY PARTLY SATISFY THE REQUIREMENTS OF CLAUSE (J) AND WOULD STILL BE ENTITLED TO THE BENEFIT OF THE SAID CLAUSE. WE MAY MAKE IT CLEAR THAT THE SATISFACTION THAT IS RELEVANT IN SUCH CASES IS THE SATISFACTION OF THE INCOME-TAX OFFICER. 6.4 IN THE APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED THAT SOME OF THE PAYMENTS WERE MADE ON SUNDAYS AND GENERAL HOLIDAYS AND THEREFORE, TO THAT EXTENT HIS CASE WAS COVERED BY THE PROVISIONS OF RULE 6DD(J). FURTHER, THE APPELLANT HAS FAILED TO ESTABLISH THE CIRCUMSTANCES WHICH COMPELLED THE APPELLANT TO MAKE PAYMENTS ON BANK HOLIDAYS AS HELD BY THE HONBLE DELHI BENCH OF THE ITAT IN THE CASE OF JAL TALKIES VS. ITO (ITAT,DELH) 57 TTJ 745 IN THE FOLLOWING WORDS: MAKING PAYMENTS ON BANK HOLIDAYS DO NOT IPSO FACTO PERMIT THE ASSESSEE TO MAKE PAYMENTS IN CASH. THE CIRCUMSTANCES WHICH COMPELLED THE ASSESSEE TO MAKE PAYMENT ON HOLIDAYS HAVE TO EXIST AND SHOWN TO THE ASSESSING AUTHORITIES. NO SUCH COMPELLING CIRCUMSTANCES HAVE BEEN SHOWN. 6.5 THOUGH THE BURDEN OF PROOF IS ON THE ASSESSEE TO PROVE THAT ITS CASE IS COVERED BY EXCEPTIONS CONTAINED IN RULE 6DD, THIS BURDEN HAS TO BE DISCHARGED TO SATISFACTION OF THE ASSESSING OFFICER AS HELD IN A NUMBER OF CASES. SOME OF THE DECISIONS AND RULING OF THE COURTS ARE AS FOLLOWS: (A) IN THE CASE OF ATTAR SINGH GURMUKH SINGH V. ITO (1991) 191 ITR 667 (SC), IT HAS BEEN HELD THAT: IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN S. 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. (B) IN THE CASE OF S. VENKATA SUBBA RAO VS. COMMISSIONER OF INCOME- TAX, (1988) 173 ITR 340 AP, IT HAS BEEN HELD THAT: UNLESS A PAYMENT FALLS WITHIN ONE OR THE OTHER CLAUSES OF RULE 6DD, HE HAS NECESSARILY TO COMPLY WITH THE REQUIREMENTS OF SECTION 40A(3). FURTHER, IF AN ASSESSEE SAYS THAT HE IS ENTITLED TO TAKE ADVANTAGE OF A PARTICULAR CLAUSE IN RULE 6DD, HE MUST SATISFY THE REQUIREMENTS OF THAT CLAUSE, WHICH MEANS THAT, IN THIS CASE, THE ASSESSEE WHO IS SEEKING TO CLAIM THE BENEFIT OF CLAUSE (J) IN RULE 6DD, HAS NOT ONLY TO SATISFY 9. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) THAT HAVING REGARD TO THE NATURE OF THE BUSINESS THERE WAS A GENUINE DIFFICULTY IN COMPLYING WITH THE REQUIREMENTS OF SECTION 40A(3), BUT HE MUST ALSO ESTABLISH THE GENUINENESS OF THE PAYMENTS AND THE IDENTITY OF THE PAYEE. UNLESS HE DOES THAT, HE CANNOT TAKE ADVANTAGE OF CLAUSE (J). IT IS NOT OPEN TO THE ASSESSES TO SAY THAT HE WILL ONLY PARTLY SATISFY THE REQUIREMENTS OF CLAUSE (J) AND WOULD STILL BE ENTITLED TO THE BENEFIT OF THE SAID CLAUSE. WE MAY MAKE IT CLEAR THAT THE SATISFACTION THAT IS RELEVANT IN SUCH CASES IS THE SATISFACTION OR THE INCOME-TAX OFFICER. 6.6 THE ASSESSEE IS NOT ONLY UNDER AN OBLIGATION TO ESTABLISH THAT ITS CASE FALLS UNDER ONE OR MORE OF THE EXCEPTIONS PROVIDED IN RULE 6DD, HE HAS ALSO TO ESTABLISH THE EXISTENCE OF EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES AS HELD IN A NUMBER OF CASES AND SOME OF THOSE CASES AND RULING ARE AS FOLLOWS: (A) IN THE CASE OF T.G. MUTHA VS. INCOME-TAX OFFICER (1995)54 ITD 460 PUNE IT HAS BEEN HELD THAT: SUMMING UP, WE HOLD THAT THERE WAS NO CASE OF EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES IN THE PRESENT CASE WHICH RENDERED MAKING OF PAYMENTS BY CROSSED CHEQUES/DEMAND DRAFTS IMPRACTICABLE OR RENDERED CASH PAYMENTS UNAVOIDABLE OR OUT OF SHEER NECESSITY. THE CASE DOES NOT FALL WITHIN THE AMBIT OF RULE 6DD(F) READ WITH THE CBDT CIRCULAR AND, THEREFORE, THE TWO REVENUE AUTHORITIES WERE JUSTIFIED IN MAKING AND SUSTAINING THE DISALLOWANCE UNDER SECTION 40A(3). THIS ISSUE SHALL, THEREFORE, STAND DECIDED AGAINST THE ASSESSEE. (B) IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. PADMAVATI RAJE COTTON MILLS LTD. (1999)239 ITR 355 CAL IT HAS BEEN HELD THAT: WHEN THE ASSESSEE HAS NOT ESTABLISHED HIS CASE THAT THERE WERE UNAVOIDABLE CIRCUMSTANCES IN THE LOCALITY, BANK FACILITIES WERE NOT AVAILABLE OR-THE PAYMENT OF CHEQUE WAS NOT ACCEPTED IN BUSINESS, THE CLAIM OF THE ASSESSEE IS HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. (C) IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. ASSAM TRIBUNE (1996) 221 ITR 488 GAUHATL, IT HAS BEEN HELD THAT: THE TRIBUNAL JUST DIRECTED THE COMMISSIONER OF INCOME-TAX (APPEALS) TO MAKE ENQUIRY WHETHER THE PAYMENTS WERE ENTERED IN THE BOOKS OF ACCOUNT. IN OUR OPINION, THIS WAS NOT ENOUGH. IT WAS ALSO NECESSARY TO ENQUIRE WHETHER THERE EXISTED EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES FOR MAKING SUCH PAYMENT. THE TRIBUNAL OUGHT TO HAVE DIRECTED ACCORDINGLY. 10. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) (D) IN THE CASE OF JAL TALKIES VS. ITO (ITAT, DELHI) 57 TTJ 745, IT HAS BEEN HELD IN THE FOLLOWING WORDS: MAKING PAYMENTS ON BANK HOLIDAYS DO NOT IPSO FACTO PERMIT THE ASSESSEE TO MAKE PAYMENTS IN CASH. THE CIRCUMSTANCES WHICH COMPELLED THE ASSESSEE TO MAKE PAYMENT ON BANK HOLIDAYS HAVE TO EXIST AND SHOWN TO THE ASSESSING AUTHORITIES. NO SUCH COMPELLING CIRCUMSTANCES HAVE BEEN SHOWN. (E) IN ASSOCIATED ENGINEERING ENTERPRISE VS. CIT(1995)216ITR366, THE GAUHATI HIGH COURT HAS RULED AS UNDER: THUS IT IS NOT MERELY THE GENUINENESS OF THE TRANSACTION BUT ALSO THE EXISTENCE OF THE CIRCUMSTANCES WARRANTING PAYMENT BY CASH. 6.7. IN THE PRESENT CASE THE APPELLANTS PLEA HAD BEEN THAT HE HAD MADE PAYMENT TO THE GOVT. WHICH IS PATENTLY WRONG AND DESERVES TO BE REJECTED OUT RIGHTLY AS THE PAYMENTS HAD BEEN MADE TO DEALERS AUTHORIZED BY THE GOVT. AND NOT TO THE GOVT. ITSELF. THIS ASPECT HAS BEEN DELIBERATED UPON BY THE A.O IN HIS ORDER IN DETAIL. 6.8. IN VIEW OF THE DISCUSSION CONTAINED ABOVE IN PARA 6 ONWARDS (INCLUDING VARIOUS CASE LAWS) AND REASONING GIVEN IN THE ASSESSMENT ORDER BY THE A.O., I AM INCLINED TO AGREE WITH THE VIEWS OF THE A.O THAT THE PROVISIONS OF SECTION 40A(3) ARE ATTRACTED AND THE CASE OF THE APPELLANT IS NOT COVERED BY ANY OF THE EXCEPTIONS PROVIDED IN RULE 6DD OF THE I.T. RULES. ACCORDINGLY, THE DISALLOWANCE RS.5,13,176/- UNDER SECTION 40A(3) MADE BY THE A.O. IS CONFIRMED. 6.9. THE LEARNED AR SUBMITTED BEFORE US THAT ASSESSEE HAS CARRYING ON THE ACTIVITY OF SUPPLY OF FOOD GRAINS, SUGAR & KEROSENE UNDER PUBLIC DISTRIBUTION SYSTEM. THE PUBLIC DISTRIBUTION SYSTEM (PDS) IS AN INDIAN FOOD SECURITY SYSTEM. ESTABLISHMENT BY THE GOVERNMENT OF INDIA UNDER MINISTRY OF CONSUMER AFFAIRS, FOOD, AND PUBLIC DISTRIBUTION AND MANAGED JOINTLY WITH STATE GOVERNMENTS IN INDIA, IT DISTRIBUTES SUBSIDIZED FOOD AND NON-FOOD ITEMS TO INDIAS POOR. THE MAJOR COMMODITIES DISTRIBUTED INCLUDE STAPLE FOOD GRAINS, SUCH AS WHEAT, RICE, SUGAR, AND KEROSENE, THROUGH A NETWORK OF PUBLIC DISTRIBUTION SHOP ESTABLISHED 11. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) IN SEVERAL STATES ACROSS THE COUNTRY. THE CENTRAL AND STATE GOVERNMENTS SHARE THE RESPONSIBILITY OF REGULATING THE PDS. THIS SHOP IS USED TO DISTRIBUTION RATIONS AT A SUBSIDIZED PRICE TO THE POOR. HENCE, THERE IS NO ELEMENT OF PROFIT. THE ASSESSEE HAS DISTRIBUTED KEROSENE TO VARIOUS FAIR PRICE SHOPS AS PER THE ORDERS OF CHIEF EXECUTIVE OFFICER OF TALUKA PANCHAYAT AND THE ASSESSEE AS PER THE ORDER THREE DISTRIBUTORS HAVE DISTRIBUTED KEROSENE TO THE APPELLANT SOCIETY. WE FIND THAT THE ASSESSEE HAS MADE PAYMENT TO THREE AGENCIES BUT THAT AGENCIES ARE NOMINATED BY GOVT BUT IT CANNOT BE SAID THAT THIS PAYMENT IS MADE TO GOVERNMENT. THEREFORE, WE ARE OF THE VIEW THAT A.O AND CIT(A) IS JUSTIFIED IN HOLDING THAT PAYMENTS HAS BEEN MADE TO DEALER AUTHORISED BY THE GOVT. AND NOT TO THE GOVERNMENT ITSELF. THEREFORE, AO AND CIT(A) IS JUSTIFIED IN THEIR ACTION AND OUR INTERFERENCE IS NOT REQUIRED. 7. IN THE RESULT, THE GROUND NOS. 1 TO 8 OF APPEAL ARE DISMISSED. 8. GROUND NO.9:- THE ASSESSEE IS A PRIMARY CO-OPERATIVE AGRICULTURE AND RURAL DEVELOPMENT BANK REGISTERED UNDER THE KARNATAKA CO-OPERATIVE SOCIETY ACT. THEREFORE, ENTIRE INCOME SHOULD BE DEDUCTIBLE U/S 80P(2)(A)(I) OF THE INCOME TAX ACT. WE FIND THAT ASSESSEE HAS TAKEN THIS GROUND FOR THE FIRST TIME BEFORE US AND THE CIT(A) HAS NOT EXECUTED THIS GROUND, THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF CIT(A) TO DECIDE THE ISSUE AS PER LAW AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2014. SD/- SD/- ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 19.12.2014. P.S.- *PK* 12. ITA NO. 129/PNJ/2014 (ASST. YEAR-2009-10) COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER