M/s Karu Kanchan, Kolkata V. DCIT, CIR-44, KOLKATA, Kolkata

ITA 1291/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1270 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 08-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: S S GUPTA F
• Keywords: Commercial expediency
• Section: 40A(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & HONBLE S HRI S.S.VISWANETHRA RAVI, JM] I.T.A NO. 1291/KOL/20 16 ASSESSMENT YEAR : 2008-0 9 M/S KARU KANCHAN -VS- DCIT, CIRCLE-44, KOLKA TA [PAN: AAEFK 0644 G] (APPELLANT) (RESPONDEN T) FOR THE APPELLANT : SHRI S.S. GUPTA, F CA FOR THE RESPONDENT : SHRI S. DASGUPTA, ADDL. CIT(DR) DATE OF HEARING : 08.03.2018 DATE OF PRONOUNCEMENT : 21 .03.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-13, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO.222/CIT(A)- 13/KOL/CIR-45/2014-15 DATED 23.02.2016 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE- 44, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 29.12.2010 FOR THE ASSESSME NT YEAR 2008-09. 2. THE GROUND NOS. 1 & 4 OF THE REVISED GROUNDS OF APPEAL FILED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 2 ITA NO.1291/KOL/2016 M/S KARU KANCHAN A.YR. 2008-09 2 3. THE GROUND NO. 2 OF THE REVISED GROUNDS OF APPEA L WAS STATED TO BE NOT PRESSED BY THE LD AR AT THE TIME OF HEARING BEFORE US FOR WHIC H NECESSARY ENDORSEMENT HAS BEEN MADE BY HIM IN OUR FILE. ACCORDINGLY, THE GROUND NO . 2 IS DISMISSED AS NOT PRESSED. 4. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE U/S 40A(3) OF TH E ACT IN THE SUM OF RS 16,12,738/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF JEWELLERY. THE PRIMARY BUSINESS ACTIVI TIES INCLUDE BUYING OF RAW GOLD, MAKING ORNAMENTS FROM THE RAW GOLD WITH THE HELP OF VARIOUS JOB WORKERS, SELLING THE ORNAMENTS TO THE CUSTOMERS. IN THE COURSE OF CONDU CTING THESE ACTIVITIES, IT ALSO REPAIRS THE ORNAMENTS RECEIVED FROM ITS CUSTOMERS. THE RET URN OF INCOME FOR THE ASST YEAR 2008-09 WAS FILED BY THE ASSESSEE FIRM ON 30.1.2009 DECLARING TOTAL INCOME OF RS 49,30,630/-. A SURVEY U/S 133A OF THE ACT WAS CARR IED OUT IN THE PREMISES OF THE ASSESSEE FIRM ON 14.9.2007 AND ACCORDINGLY AS PER T HE CENTRAL ACTION PLAN OF THE CENTRAL BOARD OF DIRECT TAXES, THIS CASE WAS SELECT ED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S 143(2) OF THE ACT WAS ISSUED AND SERVED ON THE ASSESSEE IN TIME. THE LD AO OBSERVED THAT THE ASSESSEE HAD REPORTED GROSS TURNO VER OF RS 4,77,68,165/- AND NET PROFIT OF RS 78,30,630.77 AT THE RATE OF 16.39%. THE LD AO OBSERVED THAT ASSESSEE FIRM HAD MADE CASH PAYMENTS ABOVE RS 20,000/- TO THE FOL LOWING PARTIES :- A) M/S ORIENTAL GEMS PVT LTD - RS 2,45,073/- B) G.K.GEMS AND JEWELLERY - RS 2,88,554/- C) BEHARI LAL SHAH & CO. - RS 8,12,686/- D) RAJIV MALPANI - RS 2,00,329/- E) SHREE PAWAN ORNAMENTS PVT LTD - RS 66,096/- ---------------------- 16,12,738/- 3 ITA NO.1291/KOL/2016 M/S KARU KANCHAN A.YR. 2008-09 3 THE LD AO SHOWCAUSED THE ASSESSEE AS TO WHY THE AFO RESAID PAYMENT OF RS 16,12,738/- WHICH WERE MADE IN VIOLATION OF PROVISIONS OF SECTI ON 40A(3) OF THE ACT SHOULD NOT BE DISALLOWED IN THE ASSESSMENT. IN RESPONSE , THE AS SESSEE PRODUCED ALL THE PURCHASE BILLS, CASH MEMOS AND THE MONEY RECEIPTS OBTAINED FROM TH E AFORESAID PARTIES TO PROVE THE GENUINENESS OF THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THE ASSESSEE REPLIED THAT THE TERMS OF SECTION 40A(3) OF THE ACT ARE NOT ABSO LUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. GENUINE AND BONAFIDE TRANSACTIONS ARE TAKEN OUT OF THE SWEEP OF THE SECT ION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE LD AO THE CIRCUM STANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRA CTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. THE LD AO HOWEVER OBSERVED THAT THE ASSESSEE HAD NOT PROVED THE PRESSING CIRCUMSTANCES WHICH WARRANTED I T TO PAY THE AFORESAID PARTIES OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT P AYEE DRAFT. MOROEVER, THE TRANSACTIONS OF THE ASSESSEE DOES NOT FALL UNDER AN Y OF THE EXCEPTIONS PROVIDED IN RULE 6DD OF THE RULES. ACCORDINGLY, HE PROCEEDED TO MAK E DISALLOWANCE OF RS 16,12,738/- U/S 40A(3) OF THE ACT IN THE ASSESSMENT. 6. THE ASSESSEE PLEADED BEFORE THE LD CITA THAT THE TERMS OF SECTION 40A(3) OF THE ACT ARE NOT ABSOLUTE AND CONSIDERATION OF BUSINESS EXPE DIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONAFIDE TRANSACTIONS AR E NOT TAKEN OUT OF THE SWEEP OF SECTION. IT WAS ARGUED THAT THE GENUINENESS OF THE TRANSACTIONS AND ACCOUNTING BY THE PAYEE IN THE INSTANT CASE HAD NOT BEEN DISPUTED. THE IDENTITY OF THE RECIPIENTS STAND VERY CLEARLY ESTABLISHED. THE COPY OF MONEY RECEI PTS WERE ALSO PRODUCED FROM THE PAYEES IN THIS REGARD. IT WAS PLEADED THAT THE CA SH PURCHASES AGAINST CASH MEMOS ATTACHED WITH THE STATEMENT AMOUNTING TO RS 2,56,03 0/- OUGHT TO HAVE BEEN EXCLUDED DIRECTLY AS THE INSISTENCE OF THE SUPPLIERS IS EVID ENT FROM THE FACT THAT HE HAD ISSUED CASH MEMOS TO THE ASSESSEE. SIMILARLY THE LD AO ERRED I N DISALLOWING THE PAYMENT MADE BY CHEQUE IN THE SUM OF RS 10,371/- TO ONE PARTY WHICH WAS ALSO INCLUDED IN THE 4 ITA NO.1291/KOL/2016 M/S KARU KANCHAN A.YR. 2008-09 4 DISALLOWANCE FIGURE OF RS 16,12,738/-. THE LD CITA OBSERVED THAT THE SERIAL NUMBERS OF THE CASH MEMOS NUMBERING 314, 315 , 312, 317 , 324, 325 , 326 & 327 WHEREIN EACH MEMO CONTAINS AMOUNT LESS THAN RS 20,000/- GOES TO PROVE THAT THE PURCHASES ARE MADE AT ONE GO BUT THE ASSESSEE HAD TRIED TO SPLIT THE S AME. THE LD CITA DELETED THE PAYMENT OF RS 10,371/- MADE BY CHEQUE AND SUSTAINED THE OTH ER DISALLOWANCE MADE U/S 40A(3) OF THE ACT FOR THE VERY SAME REASONING GIVEN IN THE ASSESSMENT ORDER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUND:- 3. FOR THAT THE ASSESSING OFFICER ERRED IN ADDING BACK RS. 16,12,738/- U/S 40A(3) OF THE INCOME TAX ACT, 1961 INASMUCH AS THE APPELLANT PRODUCED ALL SUPPORTING IN THIS REGARD I.E. BILLS, CASH MEMOS, M ONEY RECEIPTS, ETC. AND ALSO NARRATED THE CIRCUMSTANCED UNDER WHICH THESE PAYMEN TS HAD TO BE MADE. IN FACT SINCE ALL THESE TRANSACTIONS ARE GENUINE AND FREE F ROM VICE OF ANY DEVICE OF EVASION OF TAX, THE SAID ADDITION IS LIABLE TO BE D ELETED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD AR BEFORE US NARRATED THE ENTIRE FACTS OF THE CASE FOR DISALLOWANCE MADE ON MERITS AND THEREA FTER REFERRED TO PLETHORA OF DECISIONS IN SUPPORT OF THE ASSESSEE. HE STATED THAT THE DIS ALLOWANCE WAS MADE BY THE LOWER AUTHORITIES ONLY FOR THE REASON THAT THE ASSESSEE W AS NOT ABLE TO ESTABLISH THE PRESSING CIRCUMSTANCES WHICH WARRANTED THE ASSESSEE TO MAKE PAYMENTS IN CASH. THERE WAS NO EVIDENCE THAT THE PAYEES HAD INSISTED THE ASSESSEE TO MAKE PAYMENTS IN CASH. IN THIS REGARD, IT WAS ONLY A VERBAL REQUEST OF THE PAYEES WHICH ENABLED ASSESSEE TO MAKE PAYMENTS IN CASH. IN SUPPORT OF THIS VERBAL REQUES T, THE LD AR FILED AN AFFIDAVIT DULY SWORN BEFORE THE NOTARY PUBLIC DATED 3.3.2018 FROM THE PARTNER OF THE ASSESSEE FIRM WHEREIN AT POINT 4, IT WAS MENTIONED THAT THE CASH PAYMENTS HAD TO BE MADE ON THE INSISTENCE OF THE SUPPLIERS AND THEIR REFUSAL TO AC CEPT CHEQUES. HE ALSO DREW OUR ATTENTION TO THE CBDT CIRCULAR NO. 6-P DATED 6.7.19 68 EXPLAINING THE PURPOSE BEHIND INTRODUCTION OF SECTION 40A(3) OF THE ACT WHICH REA DS AS UNDER:- 5 ITA NO.1291/KOL/2016 M/S KARU KANCHAN A.YR. 2008-09 5 EXPENDITURE INCURRED IN BUSINESSES AND PROFESSIONS FOR WHICH PAYMENT IS MADE IN AN AMOUNT EXCEEDING RS 2,500/- , OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DRAFT 76. SUB-SECTION (3) OF NEW SECTION 40A MAKES A PROV ISION FOR THE DISALLOWANCE OF EXPENDITURE INCURRED IN BUSINESSES AND PROFESSIONS FOR WHICH PAYMENT IS MADE IN AN AMOUNT EXCEEDING RS 2,500/- , OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DRAFT. THIS PROVISION WIL L APPLY IN RESPECT OF PAYMENTS MADE AFTER A DATE TO BE NOTIFIED BY GOVERNMENT, BEI NG A DATE NOT LATER THAN 31-3- 1969. THIS PROVISION IS DESIGNED TO COUNTER EVASIO N OF TAX THROUGH CLAIMS FOR EXPENDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WIT H A VIEW TO FRUSTRATING PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE ID ENTITY OF THE PAYEE AND THE REASONABLENESS OF THE PAYMENT. HE ARGUED THAT ON GENUINENESS OF THE TRANSACTIONS A ND FOR ACCOUNTING OF THE SUBJECT MENTIONED PAYMENTS IN THE HANDS OF THE PAYEES, THER E IS ABSOLUTELY NO DISPUTE. HE FURTHER ARGUED THAT THE ASSESSEE HAD DECLARED GROSS PROFIT OF 21.20% AND NET PROFIT RATE OF 16.39% IN THE RETURN. THE NET PROFIT IN THE EAR LIER YEAR WAS ONLY 2% AND THE ASSESSEE HAD REPORTED A VERY DECENT NET PROFIT OF 16.39% DUR ING THE YEAR UNDER APPEAL AND DISALLOWANCE U/S 40A(3) OF THE ACT WOULD RESULT IN ABNORMAL NET PROFITS WHICH IS NOT PRACTICABLE TO EARN IN THE BUSINESS OPERATED BY THE ASSESSEE. HE FURTHER ARGUED THAT THE GP RATE AND NP RATE DISCLOSED BY THE ASSESSEE ARE A CCEPTED BY THE LD AO . HE ALSO ARGUED THAT DURING THE YEAR UNDER APPEAL, A SURVEY U/S 133A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE AND THE LD AO HAD EVEN CROSS VERIFIED THE TRANSACTIONS OF THE ASSESSEE WITH THE CONCERNED SUP PLIERS AND HAD NOT FOUND ANY ADVERSE REMARKS ON THE SAME. ALL THE SUPPLIERS ARE REGIST ERED WITH SALES TAX AUTHORITIES AND ARE ASSESSED TO INCOME TAX. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY ARGUED THAT ASSESSEE HAD NOT PROVED THE COMMERCIAL EXPEDIENCY IN THE INS TANT CASE FOR MAKING PAYMENTS FOR PURCHASES IN CASH . THERE IS NO REASON ADDUCED BY THE ASSESSEE TO PAY THE SUPPLIERS IN CASH IN VIOLATION OF PROVISIONS OF SECTION 40A(3) O F THE ACT. THE AFFIDAVIT GIVEN BY THE 6 ITA NO.1291/KOL/2016 M/S KARU KANCHAN A.YR. 2008-09 6 ASSESSEE CANNOT BE BELIEVED AND RAISED AN ALLEGATIO N THAT THE ASSESSEE MIGHT HAVE PAID PAYMENTS TO THESE SUPPLIERS IN CHEQUE IN EARLIER YE ARS AS WELL AS IN SUBSEQUENT YEARS AND WHILE THAT IS SO, WHY THE ASSESSEE DECIDED TO PAY T HESE CONCERNED SUPPLIERS IN CASH DURING THE YEAR. THE LD AR IN REJOINDER ARGUED THA T THE TEST OF COMMERCIAL EXPEDIENCY SHOULD BE JUDGED FROM THE VIEW POINT OF THE BUSINES SMAN AND NOT FROM THE VIEW POINT OF THE REVENUE. WE FIND IN THE INSTANT CASE , THE GE NUINITY OF THE PURCHASE TRANSACTIONS IN CASH ARE NOT DISPUTED BY THE REVENUE. WE FIND THAT IN THE CASE LAWS RELIED UPON BY THE LD AR , IN THOSE CASES, THE PRESSING CIRCUMSTANCES UND ER WHICH THE PAYMENTS WERE SOUGHT TO BE MADE IN CASH WERE PROVED. BUT IN THE INSTANT CASE, THE SAME IS NOT PROVED BY THE ASSESSEE. WE FIND THAT THE ASSESSEE HAD PRODUCED A LL THE BILLS, CASH MEMOS AND MONEY RECEIPTS OF THE PAYEES BEFORE THE LOWER AUTHORITIES . THOUGH THE ASSESSEE HAD NOT ESTABLISHED THE CIRCUMSTANCES WHICH WARRANTED IT TO PAY THE SUPPLIERS IN CASH BY ANY COGENT EVIDENCE, IT HAD FILED AN AFFIDAVIT DULY NOT ARIZED AND SIGNED BY THE PARTNER OF THE ASSESSEE FIRM CLEARLY DEPOSING THAT THE CASH PAYMEN TS HAD TO BE MADE ON THE INSISTENCE OF THE SUPPLIERS AND THEIR REFUSAL TO ACCEPT THE CH EQUES. IT WAS ALSO PLEADED THAT ALL THE SUPPLIERS ARE DULY REGISTERED WITH SALES TAX AUTHOR ITIES AND HAVING PAN. THIS AFFIDAVIT HAS BEEN FILED BY THE ASSESSEE ONLY BEFORE US FOR T HE FIRST TIME. THE CONTENTS OF THE AFFIDAVIT REQUIRES EXAMINATION BY THE LOWER AUTHORI TIES AND HENCE IN THE INTEREST OF JUSTICE AND FAIRPLAY, WE DEEM IT FIT AND APPROPRIAT E, TO REMAND THIS ISSUE TO THE FILE OF THE LD AO , TO DECIDE THE SAME IN THE LIGHT OF THE FOLL OWING DIRECTION THAT THE SUPPLIERS HAD TO BE EXAMINED BY THE LD AO TO ASCERTAIN WHETHER TH EY HAD INSISTED ON THE CASH PAYMENTS TO BE MADE AND THAT THEY HAD REFUSED TO AC CEPT PAYMENTS THROUGH CHEQUES AS MENTIONED IN THE AFFIDAVIT. IF ON EXAMINATION, IT I S FOUND , THAT THE SUPPLIERS INDEED HAD DONE SO, THEN NO DISALLOWANCE U/S 40A(3) OF THE ACT IS TO BE MADE IN THE HANDS OF THE ASSESSEE TAKING INTO ACCOUNT THE SPIRIT OF THE SECT ION AND THE VARIOUS JUDICIAL PRECEDENTS RELIED UPON BY THE LD AR BEFORE US. THE EXAMINATIO N OF THE SUPPLIERS IN THIS REGARD IS TO BE CARRIED OUT BY THE LD AO IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THAT THE ASSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING H EARD, IF FOUND NECESSARY TO REBUT THE 7 ITA NO.1291/KOL/2016 M/S KARU KANCHAN A.YR. 2008-09 7 FINDINGS OF THE EXAMINATION AS STATED SUPRA. ACCOR DINGLY, THE REVISED GROUND NO. 3 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 21.03.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BAL AGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 21.03.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. M/S KARU KANCHAN, 83/1, BIDHAN SARANI, KOLKATA-7 00004. 2. DCIT, CIRCLE-44, KOLKATA, 3, GOVT. PLACE(EAST), KOLKATA-700001. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S