ITO, V. Sri. Mohammed Rafiq A Muchale,

ITA 1297/BANG/2013

• Counselvise Citation: 129721114 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 29-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Assessee Lawyers: B R SUDHEENDRA F
• Keywords: Income from undisclosed sources
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.1297/BANG/2013 ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, WARD 2(2), HUBLI. VS. SRI MOHAMMED RAFIQ A MUCHALE, PROP. M/S. INDIAN STEEL CENTRE, KARWAR ROAD, HUBLI 580 030. PAN : AGHPM 4826D APPELLANT RESPONDENT APPELLANT BY : SHRI P. DHIVAHAR, JT. CIT(DR) RESPONDENT BY : SHRI B.R. SUDHEENDRA, F.C.A. DATE OF HEARING : 26.11.2014 DATE OF PRONOUNCEMENT : 22.01.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT CIT(APPEALS) DELETED A DISALLOWANCE OF RS.28,60,907 MADE BY THE AO UNDER SECTION 40A(3) OF THE ACT. ITA NO.1297/BANG/2013 PAGE 2 OF 7 2. AO HAD, IN THE ASSESSMENT OF THE ASSESSEE, A SC RAP DEALER, DISALLOWED PAYMENT EFFECTED BY HIM IN CASH TO RAILW AYS FOR PURCHASING SCRAP IRON FROM THEM, TAKING A VIEW THAT SUCH PAYME NTS WERE HIT BY SECTION 40A(3) AND NOT COVERED BY ANY OF THE EXCEPTIONS PRO VIDED IN RULE 6DD OF THE INCOME-TAX RULES, 1962. 3. WHEN THE MATTER WAS CARRIED IN APPEAL, LD. CIT( APPEALS) DELETED THE DISALLOWANCE TAKING A VIEW THAT EXCEPTION LAID DOWN IN RULE 6DD(B) WOULD APPLY TO SUCH PAYMENTS. 4. NOW WHEN THE MATTER CAME UP BEFORE US, LD. DR S UBMITTED THAT RULE 6DD DID NOT COVER PAYMENTS EFFECTED TO RAILWAY S. PER CONTRA , LD. AR FILED A COPY OF THE ORDER DATED 30.3.2012 OF THIS T RIBUNAL IN THE CASE OF SRI DEVENDRAPPA M. KALAL V. ITO (ITA NO.220/BANG/2012) AND SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THI S DECISION. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. WITH REGARD TO APPLICABILITY OF SECTION 40A(3) ON PAYMEN TS EFFECTED TO RAILWAYS, THIS TRIBUNAL HAD IN THE CASE (SUPRA) HELD AS UNDER AT PARAS 11 TO 18 OF ITS ORDER:- 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE PURCHA SED THE SCRAP IN THE AUCTION THROUGH BID BY THE SOUTH WESTERN RAILWA Y AND THE PAYMENT WAS MADE IN CASH. THE AO MADE THE ADDITION OF RS.73,91,380/- BY INVOKING THE PROVISION OF SEC. 40 A(3) OF THE INCOME-TAX ACT, IT WAS CONFIRMED BY THE LEARNED CIT (A) BY ITA NO.1297/BANG/2013 PAGE 3 OF 7 STATING THAT THE PAYMENT MADE IN LEGAL TENDER ONL Y COMES UNDER THE EXCEPTIONS PRESCRIBED IN RULE 6DD(B) OF THE INC OME-TAX RULES 1962. NOW, WE HAVE TO ANALYZE THE VARIOUS PRO VISIONS OF SEC. 40A(3) AND EXCEPTIONS LAID DOWN IN RULE 6DD(B) OF THE INCOME-TAX RULES 1962. THE PROVISION CONTAINED IN S EC. 40A(3) OF THE INCOME-TAX ACT READS AS UNDER : WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPE CT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENT MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUES DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT , EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. 12. FROM THE ABOVE PROVISIONS, IT IS CLEAR THAT TH E DEDUCTIONS FOR THE EXPENDITURE INCURRED IN CASH EXCEEDING RS.2 0,000/- COULD NOT BE ALLOWED AGAINST THE INCOME UNDER THE HEAD P ROFIT AND GAINS OF BUSINESS OR PROFESSION. HOWEVER, CERTAIN EXCEPTIONS ARE LAID DOWN IN RULE 6DD OF THE INCOME-TAX RULES 1962, WHICH PROVIDES THE CASES AND CIRCUMSTANCES IN WHICH A PAY MENT OR AGGREGATE OF PAYMENTS EXCEEDING TWENTY THOUSAND RUP EES MAY BE MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACC OUNT PAYEE CHEQUES DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT . 13. THE EXCEPTION LAID DOWN IN CLAUSE (B) OF RULE 6DD OF THE INCOME-TAX RULES 1962 RELATES TO THE PAYMENT MADE T O THE GOVERNMENT AND READS AS UNDER:- WHERE THE PAYMENT IS MADE TO GOVERNMENT AND, UNDER THE RULES FRAMED BY IT, SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER; 14. FROM THE ABOVE PROVISIONS, IT IS CLEAR THAT IF THE PAYMENT EXCEEDING RS.20,000/- IS MADE TO THE GOVERNMENT, IT IS NOT HIT BY THE PROVISIONS OF SEC. 40A(3) OF THE INCOME-TAX ACT IF IT IS MADE IN LEGAL TENDER. THE MEANING OF LEGAL TENDER HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT. HOWEVER, THE DICTION ARY MEANING OF LEGAL TENDER AS MENTIONED IN AIYERS LAW TERM S AND PHRASES, IS THE COINAGE OF A COUNTY IN WHICH THE DEBTS MAY BE PAID AND WHICH THE CREDITOR IS BOUND TO ACCEPT. TH E DICTIONARY MEANING OF THE COIN IS; METAL USED FOR THE TIME BE ING AS MONEY AND STAMPED AND ISSUED BY THE AUTHORITIES OF THE ST ATE IN ORDER TO BE USED. THEREFORE, IT CAN BE SAID THAT LEGAL TEN DER MEANS THE CURRENCY OF A STATE WHICH IS TO BE USED AS MONEY. I N THE PRESENT ITA NO.1297/BANG/2013 PAGE 4 OF 7 CASE, THE ASSESSEE MADE THE PAYMENT IN CASH I.E IN INDIAN CURRENCY BECAUSE IT IS NOT THE CASE OF THE DEPARTME NT THAT THE PAYMENT WAS MADE IN FOREIGN CURRENCY TO THE SOUTH WESTERN RAILWAY TOWARDS PURCHASE OF SCRAP BY THE ASSESSEE. WE, THEREFORE, ARE OF THE CONFIRMED VIEW THAT THE PAYME NT MADE IN CASH BY THE ASSESSEE WAS ACTUALLY MADE IN LEGAL TEN DER. THEREFORE, IT CAN SAFELY BE HELD THAT THE CASH PAYMENT MADE BY THE ASSESSEE TO THE SOUTH WESTERN RAILWAY WHICH IS A PART OF T HE GOVERNMENT WAS COVERED IN THE EXCEPTIONS PROVIDED I N CLAUSE (B) OF RULE 6DD OF THE INCOME-TAX RULES 1962. THEREFORE THE PROVISIONS OF SEC. 40A(3) AS INVOKED BY THE AO WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ON A S IMILAR ISSUE THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT(A) VS. KALYAN PRASAD GUPTA (CITED SUPRA) HAS HELD THAT THE PAYMEN T MADE IN CASH BY THE ASSESSEE TO THE GOVERNMENT CANNOT BE DI SALLOWED U/S 40A(3) OF THE ACT, IN VIEW OF RULE 6DD(B) OF THE IN COME-TAX RULES 1962. IN THE PRESENT CASE ALSO THE ASSESSEE M ADE THE PAYMENT TO THE SOUTH WESTERN RAILWAY, WHICH IS A PA RT OF THE GOVERNMENT OF INDIA, THEREFORE, NO DISALLOWANCE WAS CALLED FOR. ON SIMILAR ISSUE, THE HONBLE DELHI HIGH COURT IN T HE CASE OF CIT VS. RHYDBURG PHARMACEUTICALS LTD., 269 ITR 561(CITE D SUPRA) HAS HELD THAT THE PAYEE INSISTED ON CASH PAYMENT AN D THE TRANSACTIONS WERE FOUND TO BE GENUINE AND BONAFIDE, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE EXPENDITURE. 15. IN THE PRESENT CASE ALSO, THE SOUTH WESTERN RA ILWAY FOR ITS PUBLIC AUCTION SALE PUT THE GENERAL CONDITION THAT THE PAYMENT OF BALANCE OF SALE VALUE AND DELIVERY OF LOTS SHOULD B E PAID IN CASH ONLY. THIS FACT HAS ALSO BEEN ACCEPTED BY THE AO AS HAS BEEN MENTIONED AT PAGE NO.3 OF THE ASSESSMENT ORDER DATE D 27.12.2010. ON A SIMILAR ISSUE, THE HONBLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH (CITED SUPRA) HEL D AS UNDER : 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 CHEQUES OR CROSSED BANK DRAFT (EXCEPT IN SPECIFIED CASES) IS NOT ARBITRARY AND DOES NOT AMOUNT TO A RESTRICTION ON THE FUNDAMENTAL RIGHT TO CARRY ON BUSINESS. IF READ TOGETHER WITH RULE 6DD OF THE INC OME- TAX RULES, 1962, IT WILL BE CLEAR THAT THE PROVISIO NS ARE NOT INTENDED TO RESTRICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITI ES. ITA NO.1297/BANG/2013 PAGE 5 OF 7 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 CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSE D CHEQUE OR CROSSED BANK DRAFT IS INSISTED UPON TO EN ABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A( 3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIE NCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUIN E AND BONAFIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICE R THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. T IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSS CHEQUES OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RUL E 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. 16. FROM THE RATIO LAID DOWN IN THE AFORESAID REFE RRED CASE, IT IS CLEAR THAT THE ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSS CHEQUE OR BANK DRAFT IN THE C IRCUMSTANCES SPECIFIED UNDER THE RULE. IN THE PRESENT CASE, THE PAYMENT MADE BY THE ASSESSEE IS COVERED UNDER CLAUSE (B) OF RULE 6DD OF THE INCOME-TAX RULES 1962, THEREFORE, WE ARE OF THE CON FIRMED VIEW THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIR MING THE ADDITION MADE BY THE AO. 17. BEFORE PARTING, IT IS RELEVANT TO POINT OUT TH AT THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MUNGI BROTHERS VS. ACIT (CITED SUPRA) RELIED ON BY THE LE ARNED DR IS DISTINGUISHABLE ON FACTS BECAUSE IN THE SAID CASE, NONE OF THE EXCEPTIONAL CIRCUMSTANCES UNDER RULE 6DD(J)(I) & (I I) OF THE INCOME-TAX RULES 1962 WERE AVAILABLE. HOWEVER, IN T HE PRESENT CASE, THE EXCEPTIONS LAID DOWN IN RULE 6DD(B) OF TH E INCOME-TAX ITA NO.1297/BANG/2013 PAGE 6 OF 7 RULES 1962 ARE APPLICABLE TO THE ASSESSEES CASE, T HEREFORE, THE CASE RELIED ON BY THE LEARNED DR IS DISTINGUISHABLE . 18. IN VIEW OF THE ABOVE DISCUSSION AND BY CONSIDE RING THE TOTALITY OF THE FACTS OF THE PRESENT CASE, WE HOLD THAT THE PAYMENT MADE BY THE ASSESSEE IN CASH TO THE SOUTH WESTERN R AILWAY, WHO INSISTED FOR CASH PAYMENT WERE COVERED BY THE EXCEP TION LAID DOWN IN RULE 6DD(B) OF THE INCOME-TAX RULES 1962, A S SUCH, IT WAS OUTSIDE THE PURVIEW OF THE PROVISION CONTAINED IN SEC.40A(3) OF THE INCOME-TAX ACT, THEREFORE, THE LEARNED CIT(A ) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO . WE, THEREFORE DELETE THE SAME. 6. WE ARE THEREFORE OF THE OPINION THAT LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S.40A(3). 7. APPEAL OF THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JANUARY, 2015. SD/- SD/- ( N.V. VASUDEVAN ) ( ABRAHAM P. G EORGE ) JUDICIAL MEMBER ACCOUNTA NT MEMBER BANGALORE, DATED, THE 22 ND JANUARY, 2015. /D S/ ITA NO.1297/BANG/2013 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.