Shri Manoranjan Raha, Nadia V. ITO, Ward - 4, Nadia, Nadia

ITA 1448/KOL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100112 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 25-10-2011
• Court: TRIBUNAL
• Department Lawyers: MD GHYAS UDDIN JCIT LD
• Assessee Lawyers: SIDDHARTHA PRATI M DATTA
• Keywords: Income from undisclosed sources; Principle of natural justice
• Section: 131; 6; 40A(3); 143(3); 133(6)

Judgement Text

ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 1 IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, K OLKATA BEFORE : SHRI M. BALAGANESH, ACCOUNTANT MEMBE R, AND SHRI S.S. VISWA NETHRA RAVI, JUDICIAL MEMBER I.T.A NO. 1448/KOL/2011 A.Y 2008-09 SRI MANORANJAN RAHA VS. INCOME TAX OFFICER PAN: AFYPR9224A WARD-4, NADIA (APPELLANT/ASSESSEE) (RESPONDEN T/DEPARTMENT) FOR THE APPELLANT/ASSESSEE: SHRI SIDDHARTHA PRATI M DATTA, ADVOCATE FOR THE RESPONDENT/DEPARTMENT: MD. GHYAS UDD IN, JCIT, LD.SR.DR DATE OF HEARING: 28-10-2015 DATE OF PRONOUNCEMENT: 18-11-201 5 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORD ER OF THE LEARNED CIT(A), XXXVI, KOLKATA IN APPEAL NO. 515/CIT(A)-XXVI/KOL/WD -4, NADIA/10-11/224 DATED 12/08/2011 FOR THE ASST YEAR 2008-09 PASSED AGAINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED AO U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. SHRI SIDDHARTHA PRATIM DATTA, ADVOCATE, LEARNED AR ARGUED ON BEHALF OF THE ASSESSEE AND MD.GHYASUDDIN,JCIT,LEARNEDSR.DR ARGUE D ON BEHALF OF THE REVENUE. ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 2 3. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE DISALLOWANCE U/S 40A(3) OF THE ACT COULD BE MADE IN THE FACTS AN D CIRCUMSTANCES OF THE CASE AMOUNTING TO RS. 1,14,52,363/- (60,50,890 + 54,01,4 73). 4. THE BRIEF FACTS OF THIS CASE IS THAT THE ASSES SEE IS A DISTRIBUTOR OF HUTCH SIM CARDS AND DERIVES INCOME FROM TRADING OF WHOLESALE AND RETAIL SALE OF MOBILE SETS AND TOP UP CHARGES APART FROM DISTRIBUTION COMMISSI ON FOR SIM CARDS UNDER THE NAME AND STYLE OF SHIBANI HUTCH COMMUNICATION, A PROPR IETARY CONCERN. THE ASSESSEE HAD ALSO SHOWN INTEREST INCOME ON FIXED DEPOSITS AN D KISAN VIKAS PATRAS. THE BOOKS OF ACCOUNT WERE NOT PRODUCED BY THE ASSESSEE BEFORE THE LEARNED AO INSPITE OF SEVERAL OPPORTUNITIES PROVIDED TO HIM. THE ASSS ESSEE HAD ENTERED INTO AN ASSOCIATED DISTRIBUTOR AGREEMENT WITH SHRI.AMIT DUT TA WHO IS THE DISTRIBUTOR OF HUTCH SIM CARDS HAD APPOINTED ASSESSEE AS THE ASSOC IATE DISTRIBUTOR. PURSUANT TO THIS AGREEMENT, THE ASSESEE WOULD PURCHASE SIM CARD S FROM SHRI.AMIT DUTTA AND SELL THE SAME TO CUSTOMERS AND ASSESEE WOULD DERIVE DIST RIBUTOR COMMISSION AT AN AGREED RATE. THE LEARNED AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THERE IS A VIOLATION OF SECTION 40A(3) OF THE ACT IN RESPECT OF PAYMENTS MADE BY THE ASSESSEE TO THE MAIN DISTRIBUTOR OF HUTCH SIM C ARDS MR.AMIT DUTTA. THE LEARNED AO OBTAINED INFORMATION U/S 133(6) OF THE A CT FROM MR.AMIT DUTTA AND OBTAINED THE LEDGER ACCOUNT OF THE ASSESSEE AS APPE ARING IN THE BOOKS OF MR.AMIT DUTTA. THE LEARNED AO OBSERVED THAT THE ASSESSEE HAD MADE TOTAL PURCHASES FROM MR.AMIT DUTTA TO THE TUNE OF RS. 1,51,94,459/- AND MADE CASH PAYMENTS EXCEEDING RS 20,000/-- IN A DAY IN VIOLATION OF SECTION 40A(3 ) OF THE ACT TO THE TUNE OF RS. 60,50,890/- DURING THE ASST YEAR UNDER APPEAL. A SHOW CAUSE NOTICE DATED 20.8.2010 WAS ISSUED BY THE LEARNED AO TO THE ASSES SEE IN THIS REGARD. DETAILED SUBMISSIONS WERE MADE BEFORE THE LEARNED AO BY THE ASSESSEE ON 19.10.2010 EXPLAINING THE FACTS AND THE LEGAL STAND TAKEN BY T HE ASSESSEE ON THE IMPUGNED ISSUE. SRI AMIT DUTTA HAD ALSO DEPOSED BEFORE THE LEARNED AO U/S 131 OF THE ACT CONFIRMING THE RECEIPT OF MONIES IN CASH FROM THE A SSESSEE AND FURTHER STATED THAT HE ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 3 HAD PERSUADED THE ASSESSEE TO PAY ONLY IN ACCOUNT P AYEE CHEQUES TO GET AWAY FROM THE RIGOURS OF SECTION 40A(3) OF THE ACT , BUT THE ASSESSEE CONTINUED TO MAKE CERTAIN PAYMENTS IN VIOLATION OF SECTION 40A(3) OF THE ACT. THE LEARNED AO RELYING ON ALL THESE FACTS SOUGHT TO DISALLOW A SUM OF RS. 60,50,8 90/- U/S 40A(3) OF THE ACT. 4.1. ON FIRST APPEAL, THE LEARNED CITA UPHELD THE ADDITION OF RS. 60,50,890/- MADE BY THE LEARNED AO AND FURTHER SOUGHT TO DISALL OW ANOTHER SUM OF RS. 54,01,473/- TOWARDS CASH PAYMENTS MADE FOR PURCHASE S THEREBY ENHANCING THE ASSESSMENT BY RS. 54,01,473/- AGGRIEVED, THE ASS ESSEE IS IN APPEAL BEFORE US BY RAISING THE SEVERAL GROUNDS. THOUGH THE ASSESSEE HAD RAISED SEVERAL GROUNDS IN HIS APPEAL, THE CENTRAL GROUND REVOLVES ONLY AROUND DIS ALLOWANCE U/S 40A(3) OF THE ACT. HENCE ALL THE GROUNDS ARE TAKEN UP TOGETHER FOR THE PURPOSE OF ADJUDICATION HEREIN. 4.2. THE LEARNED AR REITERATED THE FACTS STATED B EFORE THE LOWER AUTHORITIES. HE ARGUED THAT THE GENUINENESS OF THE CASH PAYMENTS MA DE BY THE ASSESSEE IS NOT DISPUTED BY THE REVENUE AND HENCE NO DISALLOWANCE U /S 40A(3) OF THE ACT COULD BE MADE. HE ARGUED THAT THE ASSESSEE HAS MADE PAYMENT TO HIS AGENT MR.AMIT DUTTA AND HENCE PAYMENTS WOULD FALL UNDER THE EXCEPTION P ROVIDED IN RULE 6DD(K) OF THE IT RULES. IN RESPONSE TO THIS, THE LEARNED DR VEHE MENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE PAYMENTS MADE BY CASH IN VIOLATION OF SECTION 40A(3) OF THE ACT HAVE BEEN DULY ACKNOWLEDGED BY THE RECIPIEN T SHRI.AMIT DUTTA WHO HAD DEPOSED BEFORE THE LEARNED AO AND CONFIRMED THE FA CT OF RECEIPT OF MONIES IN CASH. HENCE THE GENUINITY OF PAYMENTS MADE BY THE ASSESSE E STANDS CLEARLY ESTABLISHED BEYOND DOUBT. EVEN FOR THE AMOUNTS ENHANCED BY LEA RNED CITA IN THE SUM OF RS. 54,01,473/-, THE GENUINENESS OF THE PAYMENTS AND TH E NECESSITY TO INCUR THE SAID EXPENDITURE FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE WAS NEVER DISPUTED BY THE ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 4 LEARNED CITA. WE HOLD THAT SINCE THE GENUINITY O F THE PAYMENTS MADE TO THE PARTIES IS NOT DOUBTED BY THE REVENUE, THE PROVISI ONS OF SECTION 40A(3) COULD NOT BE MADE APPLICABLE TO THE FACTS OF THE INSTANT CASE . IT WILL BE PERTINENT TO GO INTO THE INTENTION BEHIND INTRODUCTION OF PROVISIONS OF SECT ION 40A(3) OF THE ACT AT THIS JUNCTURE. WE FIND THAT THE SAID PROVISION WAS INS ERTED BY FINANCE ACT 1968 WITH THE OBJECT OF CURBING EXPENDITURE IN CASH AND TO CO UNTER TAX EVASION. THE CBDT CIRCULAR NO. 6P DATED 6.7.1968 REITERATES THIS VIEW THAT THIS PROVISION IS DESIGNED TO COUNTER EVASION OF A TAX THROUGH CLAIMS FOR EXPE NDITURE 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 . 4.4. IN THIS REGARD, IT IS PERTINENT TO GET INTO THE 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 C ROSSED CHEQUE OR CROSSED BANK DRAFT (EXCEPT IN SPECIFIED CASES) IS N OT ARBITRARY AND DOES NOT AMOUNT TO A RESTRICTION ON THE FUNDAMENTAL RIGH T TO CARRY ON BUSINESS. IF READ TOGETHER WITH RULE 6DD OF THE INCOME-TAX RU LES, 1962, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTR ICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRAD ING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISAL LOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT B Y CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED UPON TO ENABLE THE A SSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHE R IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTI ON 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTION S ARE 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 ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 5 OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYE E. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVE D THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSS ED 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 PREVENT THE U SE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. CIT VS CPL TANNERY REPORTED IN (2009) 318 ITR 179 ( CAL) THE SECOND CONTENTION OF THE ASSESSEE THAT OWING TO BUSINESS EXPEDIENCY, OBLIGATION AND EXIGENCY, THE ASSESSEE HAD TO MAKE C ASH PAYMENT FOR PURCHASE OF GOODS SO ESSENTIAL FOR CARRYING ON OF H IS BUSINESS, WAS ALSO NOT DISPUTED BY THE AO. THE GENUINITY OF TRANSACTI ONS, RATE OF GROSS PROFIT OR THE FACT THAT THE BONAFIDE OF THE ASSESSE E THAT PAYMENTS ARE MADE TO PRODUCERS OF HIDES AND SKIN ARE ALSO NEITHE R DOUBTED NOR DISPUTED BY THE AO. ON THE 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 ASSESSMENT. WE, THEREFORE, DELETE THE A DDITION OF RS. 17,90,571/- AND 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/- SINCE IT I S NOT MADE BY CROSSED CHEQUE OR BANK DRAFT BUT BY HEARER CHEQUES AND HAS COMPUTED THE PAYMENTS FALLING UNDER PROVISIONS TO SECTION 40A(3) FOR RS.78,45,580/- AND DISALLOWED @20% THEREON RS.15,69,116/-. IT IS A LSO MADE CLEAR THAT WITHOUT THE PAYMENT BEING MADE BY BEARER CHEQUE THE SE GOODS COULD NOT HAVE BEEN PROCURED AND IT WOULD HAVE HAMPERED THE S UPPLY OF GOODS WITHIN THE STIPULATED TIME. THEREFORE, THE GENUINEN ESS OF THE PURCHASE HAS BEEN ACCEPTED BY THE LD. CIT(APPEAL) WHICH HAS ALSO NOT BEEN DISPUTED BY THE DEPARTMENT AS IT APPEARS FROM THE ORDER SO PASS ED BY THE LEARNED TRIBUNAL. IT FURTHER APPEARS FROM THE ASSESSMENT O RDER THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(APPEAL) HAS DISBELIEV ED THE GENUINENESS OF THE TRANSACTION. THERE WAS NO DISPUTE THAT THE PURC HASES WERE GENUINE. ANUPAM TELE SERVICES VS ITO IN (2014) 43 TAXMANN.CO M 199 (GUJ) ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 6 SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WITH 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 ALONE, I T WOULD HAVE RECEIVED RECHARGE VOUCHERS DELAYED BY 4/5 DAYS WHIC H WOULD SEVERELY AFFECT ITS BUSINESS OPERATION ASSESSEE, THEREFORE , MADE CASH PAYMENT WHETHER IN VIEW OF ABOVE, NO DISALLOWANCE UNDER SEC TION 40A (3) WAS TO BE MADE IN RESPECT OF PAYMENT MADE TO PRINCIPAL - H ELD, YES [ PARAS 21 TO 23] [ IN FAVOUR OF THE ASSESSE] SRI LAXMI SATYANARAYANA OIL MILL VS CIT REPORTED IN (2014) 49 TAXMANN.COM 363 (ANDHRAPRADESH HIGH COURT) 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 LIMIT (RULE 6DD) ASSESSEE MA DE CERTAIN PAYMENT OF PURCHASE OF GROUND NUT IN CASH EXCEEDING PRESCRI BED LIMIT ASSESSEE SUBMITTED THAT HER MADE PAYMENT IN CASH BECAUSE SEL LER INSISTED ON THAT AND ALSO GAVE INCENTIVES AND DISCOUNTS FURTHER, S ELLER ALSO ISSUED CERTIFICATE IN SUPPORT OF THIS WHETHER SINCE ASSE SSEE HAD PLACED PROOF OF PAYMENT OF CONSIDERATION FOR ITS TRANSACTION TO SEL LER, AND LATER ADMITTED PAYMENT AND THERE WAS NO DOUBT ABOUT GENUINENESS OF PAYMENT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A(3) H ELD, 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. 4.5. IT IS PERTINENT TO NOTE THAT THE PRIMARY OBJ ECT OF ENACTING SECTION 40A(3) WAS TWO FOLD, FIRSTLY, PUTTING A CHECK ON TRADING TRAN SACTIONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANS ACTION AND, SECONDLY, TO ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 7 INCULCATE THE BANKING HABITS AMONGST THE BUSINESS C OMMUNITY. APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABITS. THEREFORE, THE CONSEQUENCE, WHICH WERE TO B EFALL ON ACCOUNT OF NON- OBSERVATION OF SECTION 40A(3) MUST HAVE NEXUS TO TH E FAILURE OF SUCH OBJECT. THEREFORE, THE GENUINENESS OF THE TRANSACTIONS IT B EING FREE FROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVANT CONSIDERATION. 4.6. THE HONBLE APEX COURT IN THE CASE OF CTO VS SWASTI K ROADWAYS REPORTED IN (2004) 3 SCC 640 HAD HELD THAT THE CONSEQUENCES OF NON-COMPLIANCE OF MADHYAPRADESH SALES TAX ACT , WHICH WERE INTENDED T O CHECK THE EVASION AND AVOIDANCE OF SALES TAX WERE SIGNIFICANTLY HARSH. T HE COURT WHILE UPHOLDING THE CONSTITUTIONAL VALIDITY NEGATED THE EXISTENCE OF A MENS REA AS A CONDITION NECESSARY FOR LEVY OF PENALTY FOR NON-COMPLIANCE WITH SUCH TE CHNICAL PROVISIONS REQUIRED HELD THAT IN THE CONSEQUENCE TO FOLLOW THERE MUST BE NE XUS BETWEEN THE CONSEQUENCE THAT BEFALL FOR NON-COMPLIANCE WITH SUCH PROVISIONS INTENDED FOR PREVENTING THE TAX EVASION WITH THE OBJECT OF PROVISION BEFORE THE CON SEQUENCE CAN BE INFLICTED UPON THE DEFAULTER. THE SUPREME COURT HAS OPINED THAT THE EXISTENCE OF NEXUS BETWEEN THE TAX EVASION BY THE OWNER OF THE GOODS AND THE F AILURE OF C & F AGENT TO FURNISH INFORMATION REQUIRED BY THE COMMISSIONER IS IMPLICI T IN SECTION 57(2) AND THE ASSESSING AUTHORITY CONCERNED HAS TO NECESSARILY RE CORD A FINDING TO THIS EFFECT BEFORE LEVYING PENALTY U/S. 57(2). THOUGH IN THE INSTANT CASE, THE ISSUE INVOLVED IS N OT WITH REGARD TO THE LEVY OF PENALTY, BUT THE REQUIREMENT OF LAW TO BE FOLLOWED BY THE ASSESSEE WAS OF AS TECHNICAL NATURE AS WAS IN THE CASE OF SWASTIK ROAD WAYS (3 SCC 640) AND THE CONSEQUENCE TO FALL FOR FAILURE TO OBSERVE SUCH NOR MS IN THE PRESENT CASE ARE MUCH HIGHER THAN WHICH WERE PRESCRIBED UNDER THE MADHYA PRADESH SALES TAX ACT. APPARENTLY, IT IS A RELEVANT CONSIDERATION FOR THE ASSESSING AUTHORITY UNDER THE INCOME TAX ACT THAT BEFORE INVOKING THE PROVISIONS OF SECTION 40A(3) IN THE LIGHT OF ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 8 RULE 6DD AS CLARIFIED BY THE CIRCULAR OF THE CBDT T HAT WHETHER THE FAILURE ON THE PART OF THE ASSESSEE IN ADHERING TO REQUIREMENT OF PROVISIONS OF SECTION 40A(3) HAS ANY SUCH NEXUS WHICH DEFEATS THE OBJECT OF PROVISIO N SO AS TO INVITE SUCH A CONSEQUENCE. WE HOLD THAT THE PURPOSE OF SECTION 40A(3) IS ONLY PREVENTIVE AND TO CHECK EVASION OF TAX AND FLOW OF UNACCOUNTED MON EY OR TO CHECK TRANSACTIONS WHICH ARE NOT GENUINE AND MAY BE PUT AS CAMOUFLAGE TO EVADE TAX BY SHOWING FICTITIOUS OR FALSE TRANSACTIONS. ADMITTEDLY, THI S IS NOT THE CASE IN THE FACTS OF THE ASSESSEE HEREIN. THE PAYMENTS MADE IN CASH TO SHRI . AMIT DUTTA HAD BEEN DULY ACKNOWLEDGED BY HIM IN AN INDEPENDENT DEPOSITION GI VEN BY HIM BEFORE THE LEARNED AO WHICH WAS ADMITTEDLY TAKEN BEHIND THE BA CK OF THE ASSESSEE. IT IS ALSO PERTINENT TO NOTE THAT THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SMT.HARSHILA CHORDIA VS ITO REPORTED IN (2008) 298 ITR 349 (RAJ) HAD HELD THAT THE EXCEPTIONS CONTAINED IN RULE 6DD OF INCOME TAX RULES ARE NOT EXHAUSTIVE AND THAT THE SAID RULE MUST BE INTERPRETED LIBERALLY. 4.7. THE ASSESSEE HAS ALSO GIVEN THE INCOME TAX A SSESSMENT PARTICULARS OF AMIT DUTTA BEFORE THE LEARNED AO. MOREOVER, THE LEARNED AO HIMSELF HAD TAKEN DEPOSITION FROM SRI AMIT DUTTA U/S 131 OF THE ACT W HEREIN HE HAD CONFIRMED THE RECEIPT OF MONIES IN CASH AS WELL AS BY CHEQUE / DD FROM THE ASSESSEE. HENCE THE ACKNOWLEDGEMENT OF THE PAYMENTS MADE BY THE ASSESSE E BY THE PAYEE IS PROVED BEYOND DOUBT. THE ASSESSEE HAD ALSO STATED THAT THE PAYEE HAD DULY INCLUDED THESE PAYMENTS AS HIS RECEIPTS IN HIS RETURNS. 4.8. WE ARE UNABLE TO BUY THE ARGUMENT OF THE LEAR NED AR THAT THE ASSESSEE HAD MADE PAYMENT TO HIS AGENT MR.AMIT DUTTA FOR PURCHAS E OF SIM CARDS AND OTHERS AND HENCE WOULD FALL UNDER THE EXCEPTION PROVIDED IN RU LE 6DD(K) OF THE IT RULES. FOR THE SAKE OF CONVENIENCE , RULE 6DD(K) IS REPRODUCED HEREIN BELOW:- ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 9 RULE 6DD(K) OF THE I.T RULES 1962 6DD. NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTI ON 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO THE PROFITS AND G AINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3A) OF SECTION 40A WH ERE 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 PA YEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES IN THE CASES AND CIR CUMSTANCES SPECIFIED HEREUNDER, NAMELY:- *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** (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 BE HALF OF SUCH PERSON; THE SAID RULE SAYS THAT IF THE PAYMENT IS MADE BY A PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS AND SERV ICES ON BEHALF OF SUCH PERSON. ADMITTEDLY, SHRI.AMIT DUTTA IS ONLY THE AGENT OF HU TCHISON ESSAR LTD AND NOT THE ASSESSEE AS COULD BE SEEN VERY CLEARLY FROM THE ASS OCIATE DISTRIBUTOR AGREEMENT ENTERED INTO BY THE ASSESSEE WHICH IS ON RECORDS BE FORE US AND BEFORE THE LOWER AUTHORITIES. HENCE THE PAYMENT MADE BY THE ASSESSE E TO SHRI.AMIT DUTTA WOULD NOT FALL UNDER THE EXCEPTION CLAUSE OF RULE 6DD(K). 4.9. WE FIND THAT ONE OF THE GROUNDS RAISED BY TH E ASSESSEE IS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE ON THE PART OF THE LE ARNED CIT(A) TO ENHANCE THE ASSESSMENT WITHOUT GIVING ENHANCEMENT NOTICE TO THE ASSESSEE. BUT FROM THE ORDER OF THE LEARNED CITA, IT IS SPECIFICALLY MENTIONED T HAT THE ASSESSEE WAS GIVEN DUE OPPORTUNITY AND SHOW CAUSE NOTICE FOR ENHANCEMENT O F ASSESSMENT BY RS. 54,01,473/- FOR MAKING FURTHER ADDITIONS ON ACCOUNT OF SECTION 40A(3) OF THE ACT. WE FIND THAT THE ASSESSEE HAD NOT COME ON ANY AFFID AVIT BEFORE US REFUTING THIS FINDING. HENCE THE ENHANCEMENT MADE BY THE LEARNED AO CANNOT BE FAULTED WITH ON VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. ITA NO.1448/KOL/2011 -B-AM SHRI MANORAJAN RAHA 10 4.10. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTA NCES AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HAVE NO HESITATION IN DELETING THE ADDITION MADE IN THE SUM OF RS. 60,50,890/- AND 54,01,473/- U/S 40A(3) OF THE ACT. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESEE IN THIS REGARD ARE ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 18 / 11 /2015 COPY OF THE ORDER FORWARDED TO: 1.. THE APPELLANT : SHRI MANORANJAN RAHA PROP: M/S . SHIBANI HUTCH COMMUNICATION & M/S. SHIBANI TELECOM VILL RAMSITA PARA, P.O NABADWI P, DIST NADIA PIN 741302. 2 THE RESPONDENT- INCOME TAX OFFICER, WARD-4, NADI A, W.B. 3 4.. /THE CIT, / THE CIT(A) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS SD/- ( S.S VISWANETHRA RAVI, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 18 /11/2015