ACIT, Trichy V. Shri R. Rajaram, Karur

ITA 148/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81204 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C V PAVANA KUMAR
• Assessee Lawyers: N QUADIR HOSEYN
• Keywords: Reasonable cause
• Section: 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , ! ' # $ %& , ' $(% $) BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER $! ./ ITA NO.148/MDS/2014 ' * +* / ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE II, 4, WILLIAMS ROAD, TRICHY. V. SHRI R. RAJARAM, PROP. SRI VENGARAIAMMAN YARN & DYEING WORKS, 20/2, VAIYAPURI NAGAR I CROSS, KARUR 639 001. PAN : AEHPR 8050 C (&-/ APPELLANT) (/0&-/ RESPONDENT) &- 1 $ / APPELLANT BY : SHRI C.V. PAVANA KUMAR, JCIT /0&- 1 $ / RESPONDENT BY : SHRI N. QUADIR HOSEYN, ADVOCAT E $ 2 1 34 / DATE OF HEARING : 11 TH SEPTEMBER, 2014 56+ 1 34 / DATE OF PRONOUNCEMENT : 9 TH OCTOBER, 2014 / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE REVENUE ASSAILI NG THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), TIRUCHIRAPPALLI, DATED 06.09.2013, FOR ASSESSMENT YEAR 2008-09 DELET ING DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 40A(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 2 I.T.A. NO. 148/MDS/14 2. THE ASSESSEE IS IN THE BUSINESS OF EXPORTING HAN DLOOM, YARN, ETC. HE FILED HIS RETURN OF INCOME FOR THE A SSESSMENT YEAR 2008-09 ON 23.02.2009 DECLARING TOTAL INCOME OF ` 5,22,650/- AND AGRICULTURAL INCOME OF ` 1,50,000/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143( 2) WAS ISSUED TO THE ASSESSEE ON 10.09.2009. DURING THE COURSE OF A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE HAD MADE CASH PAYMENTS EXCEEDING ` 20,000/- ON VARIOUS DATES IN THE MONTHS OF AUGUST, SEPTEMBER AND OCTOBER, 2007 TO M/ S INDIRA SPINNERS TOTAL AMOUNTING TO ` 16,78,500/- AND M/S SGV TEXTILES IN THE MONTH OF OCTOBER, 2007, AMOUNTING TO ` 5,15,650/-, FOR PURCHASE OF YARN. THE ASSESSEE WAS ASKED TO EXPLAIN THE REA SONS FOR CASH PAYMENTS MADE TO THE AFORESAID SUPPLIERS OF YARN. THE ASSESSEE, VIDE COMMUNICATION DATED 04.12.2010, GAVE REASONS F OR CASH PAYMENTS MADE TO THE AFORESAID PARTIES. NOT SATISF IED, THE ASSESSING OFFICER MADE ADDITION OF THE AFORESAID TW O AMOUNTS UNDER SECTION 40A(3) OF THE ACT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER D ATED 28.12.2010, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). BEFORE THE CIT(APPEALS), THE ASSESSE E REITERATED THE REASONS FOR MAKING CASH PAYMENTS TO THE AFORESAID T WO SUPPLIERS OF 3 I.T.A. NO. 148/MDS/14 THE YARN. THE CIT(APPEALS) ACCEPTED THE REASONS FU RNISHED BY THE ASSESSEE AND DELETED THE ADDITION. NOW THE REVENUE HAS COME IN APPEAL BEFORE THE TRI BUNAL ASSAILING THE FINDINGS OF THE CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE A.O. 3. SHRI C.V. PAVANA KUMAR, JCIT, REPRESENTING THE DEPARTMENT, RELIED ON THE GROUNDS RAISED IN THE APP EAL OF THE REVENUE. THE LD. D.R. PRAYED FOR RESTORING THE FIN DINGS OF THE A.O. 4. ON THE OTHER HAND, SHRI N. QUADIR HOSEYN, ADVOCA TE, APPEARING ON BEHALF OF THE ASSESSEE, VEHEMENTLY SUP PORTED THE IMPUGNED ORDER. THE LD. COUNSEL CONTENDED THAT THE ASSESSEE WAS DEALING WITH M/S INDIRA SPINNERS AND M/S SGV TEXTIL ES FOR THE FIRST TIME. THEREFORE, THERE WAS NOT MUCH OF TRUST BETWE EN THE PARTIES. THE SUPPLIERS OF YARN INSISTED FOR CASH PAYMENT. T HE CASH PAYMENTS WERE MADE THROUGH BANK ACCOUNTS OF THE SUP PLIERS. MOREOVER, IN THE CASE OF M/S INDIRA SPINNERS, THE C ASH PAYMENTS FOR PROCUREMENT OF MATERIAL REPRESENT LESS THAN 0.5% OF TOTAL YARN PURCHASED BY THE ASSESSEE DURING THE RELEVANT PERIO D. THE ASSESSEE HAD TO MAKE CASH PAYMENTS UNDER COMPELLING CIRCUMSTANCES. THE LD. COUNSEL PRAYED FOR SUSTAINI NG THE ORDER OF THE FIRST APPELLATE AUTHORITY. 4 I.T.A. NO. 148/MDS/14 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ADDITION HAS BEEN MADE BY T HE A.O. UNDER SECTION 40A(3) OF THE ACT FOR MAKING CASH PAYMENTS EXCEEDING ` 20,000/- FOR PURCHASE OF YARN DURING THE IMPUGNED A SSESSMENT YEAR BY THE ASSESSEE, FROM M/S INDIRA SPINNERS AND M/S SGV TEXTILES. THE ASSESSEE HAS GIVEN FOLLOWING REASONS FOR MAKING CASH PAYMENTS TO THE RESPECTIVE PARTIES:- THE FIRM, M/S INDIRA SPINNERS ( ` 16,78,500) WAS DEALING WITH THE ASSESSEE BY SUPPLYING YARN FOR THE FIRST T IME, THAT THE UNINTERRUPTED CONTINUANCE OF THE BUSINESS ACTIVITY WARRANTED IMMEDIATE PURCHASE OF RAW MATERI AL AND ALSO CASH PAYMENTS AND HENCE, THERE WAS NO JUSTIFICATION FOR DISALLOWANCE OF SUCH PAYMENTS. THE ASSESSEES CASE WAS OUTSIDE THE PURVIEW OF SEC TION 40A(3) AND HENCE, DISALLOWANCE WAS NOT WARRANTED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. SUCH PAYMENTS FOR PROCUREMENT OF RAW MATERIAL REPRESENTED ONLY LESS THAN 0.5% OF TOTAL YARN PURC HASE MADE DURING THE PREVIOUS YEAR AND THAT FACTOR PARSE CONSTITUTED REASONABLE CAUSE AND HENCE THERE WAS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SECTIO N 40A(3) TO WARRANT DISALLOWANCE. 5 I.T.A. NO. 148/MDS/14 SUCH PAYMENTS ARE DIRECTLY PAID INTO THE BANK ACCO UNT OF THE SAID PARTIES, HENCE EXEMPTION UNDER RULE 6DD (C) WILL APPLY AND HENCE SUCH DISALLOWANCE WAS OUTSIDE THE PURVIEW OF SECTION 40A(3). THE FIRM SGV TEXTILES ( ` 5,15,650). THE ASSESSING OFFICER FAILED TO APPRECIATE THAT SUCH PAYMENTS WER E MADE BY WAY OF SETTLEMENT OF PURCHASES MADE IN THE EARLIER YEARS, THAT SUCH PAYMENTS WERE MADE DIRECTL Y TO THE SUPPLIERS BANK ACCOUNT, AND HENCE THERE WAS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SECTIO N 40A(3). THE ASSESSING OFFICER FURTHER FAILED TO APPRECIATE THAT THE PAYMENTS MADE TO THE SAID SUPPLIERS BANK ACCOUN T DIRECTLY SATISFIED THE REQUIREMENTS OF SECTION 40A( 3) AND HENCE THERE WAS NO JUSTIFICATION FOR DISALLOWING TH E SAME. THE ASSESSING OFFICER FURTHER FAILED TO APPRECIATE THAT THE SUPPLIERS BANK ACTED AS ITS AGENT AND SUCH DISALLOWANCE WAS OUTSIDE THE SCOPE OF SECTION 40A(3 ). 6. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE A SSESSEE HAD PRODUCED YARN BILLS AND CONFIRMATION LETTERS FR OM THE SUPPLIERS OF THE YARN. BOTH THE PARTIES PRODUCED LEDGER ACCO UNT COPIES FROM THEIR RESPECTIVE BOOKS OF ACCOUNT WHICH DULY REFLEC T THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE SUPPLIERS. THUS, THE CASH TRANSACTIONS WERE DULY RECORDED IN THE BOOKS. THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING ALL THE FACTS, OBSERVE D AS FOLLOWS:- 6 I.T.A. NO. 148/MDS/14 6. KEEPING IN VIEW OF THE SUBMISSIONS MADE BY THE APPELLANT AS WELL AS THE APPLICATION OF RULE 6DD FO R THE ABOVE PAYMENTS MADE IN CASH EXCEEDING ` 20,000/- ARE COVERED UNDER RULE 6DD(C) OF THE I.T. RULES AND HEN CE THE SAME CAN BE CONSIDERED FOR EXEMPTION IN THE CASE OF THE APPELLANT. OVER AND ABOVE, THE APPELLANTS CASE IS COVERED BY THE JURISDICTIONAL ITAT DECISION HELD IN THE CASE OF A.T.M. VS DCIT AS MENTIONED SUPRA WHEREIN IT WAS HELD THE REASON FOR CASH PAYMENTS WAS STATED TO BE THE INSISTENCE OF THE PARTIES TO PAY IN CASH AND SUCH P AYMENTS WERE MADE UNDER EXTRAORDINARY CIRCUMSTANCES. THE CONTENTION OF THE APPELLANT THAT THE ABOVE PARTIES INSISTED ON CASH PAYMENTS EVEN THOUGH TECHNICALLY 40A(3) IS APPLICABLE, SINCE THE APPELLANT HAVING SUFFICIENT R EASONS FOR CASH PAYMENTS NO ADDITIONS WERE WARRANTED. SIMILAR LY IN THE CASE OF MADAN LAL MITTAR WHEREIN IT WAS HELD TH AT THE GENUINENESS OF CASH PAYMENTS MADE BY THE ASSESSEE W AS NOT DOUBTED OR DISPUTED BY THE ASSESSING OFFICER AN D ACCEPTED THE BOOKS OF ACCOUNTS. IN THE CASE OF THE APPELLANT ALSO BOTH SELLERS ARE INCOME TAX ASSESSEE S AND TRANSACTIONS ARE DULY REFLECTED IN THEIR BOOKS OF A CCOUNTS AND FILED THEIR RETURNS OF INCOME. FURTHER, IN THE CASE OF M/S M.R. SOAP P. LTD., THE HON'BLE ALLAHABAD HIGH C OURT HELD THAT PAYMENTS WERE COVERED BY RULE 6DD AND THE RE WERE EXCEPTIONAL CIRCUMSTANCES FOR MAKING PAYMENT I N CASH. 7. KEEPING IN VIEW OF THE JUDICIAL PRECEDENCE LAID DOWN IN THE DECISIONS THE CASE LAWS MENTIONED SUPRA AND RESPECTFULLY FOLLOWING THE RATIOS HELD IN THE ABOVE CASE LAWS WHICH ARE SQUARELY APPLICABLE TO THE APPELLANT S CASE, THE ADDITION MADE BY THE ASSESSING OFFICER TO THE T UNE OF 7 I.T.A. NO. 148/MDS/14 ` 21,93,500/- UNDER SECTION 40A(3) IS NOT WARRANTED A ND NOT JUSTIFIABLE AND THEREFORE ASSESSING OFFICER IS DIRE CTED TO DELETE THE ADDITION MADE. 7. THE ORDER OF THE CIT(APPEALS) IS WELL-REASONED. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. 8. IN RESULT, THE APPEAL OF REVENUE IS DISMISSED BE ING DEVOID OF MERITS. ORDER PRONOUNCED ON THURSDAY, THE 9 TH OF OCTOBER, 2014 AT CHENNAI. SD/- SD/- ( ... ) ( # $ %& ) (DR. O.K. NARAYANAN) (VIKAS AWASTHY) /VICE-PRESIDENT ' $(% /JUDICIAL MEMBER /CHENNAI, I(! /DATED, THE 9 TH OCTOBER, 2014. KRI. (J 1 /'3K# L#+3 /COPY TO: 1. &- /APPELLANT 2. /0&- /RESPONDENT 3. 2 M3 () /CIT(A), TIRUCHIRAPPALLI 4. 2 M3 /CIT-I, TIRUCHIRAPPALLI 5. # NO /'3' /DR 6. O* P /GF.