M/s Super Enterprise, Burdwan V. ITO, Wd-2(3), Durgapur, Durgapur

ITA 1495/KOL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4875 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 12-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-10-2012
• Court: TRIBUNAL
• Department Lawyers: RAJAT KR KUREEL JCIT LD
• Assessee Lawyers: SUBHO CHAKRA BORTY LD
• Keywords: Income from undisclosed sources; Question of law
• Section: 40A(3); 143(3); 11; 139

Judgement Text

ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 1 IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, K OLKATA BEFORE : SHRI M. BALAGANESH, ACCOU NTANT MEMBER, AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 1495/KOL/2012 A.Y 2009-10 M/S. SUPER ENTERPRISE VS. I.T.O WARD 2(3), DURGA PUR PAN: AAXFS 7550G (APPELLANT) (RESPONDEN T) FOR THE APPELLANT: SHRI SUBHO CHAKRA BORTY, ADVOCATE, LD.AR FOR THE RESPONDENT: SHRI RAJAT KR. KUREEL, JCIT, LD.SR.DR DATE OF HEARING: 29-03-2016 DATE OF PRONOUNCEMENT: 31-03 -20 16 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDE R OF THE LEARNED CIT(A), DURGAPUR IN APPEAL NO. 134/CIT(A)-DGP/2011-12 DATE D 01-08-2012 AGAINST THE ORDER OF ASSESSMENT FRAMED FOR THE ASST YEAR 2009-10 U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LEARNED AO IS JUSTIFIED IN MAKING DISALLOWANCE U/S 40A(3) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN RETAIL TRADING OF C.S.SHOP. THE LEARNED AO OBSERV ED THAT THE ASSESSEE HAS PURCHASED COUNTRY SPIRIT FROM M/S IFB AGRO INDUSTRIES LIMIT ED, CITY CENTRE, DURGAPUR FOR RS. 64,36,222/-. ON ENQUIRY FROM M/S IFB AGRO INDUSTRI ES LIMITED, THE LEARNED AO FOUND THAT THE ENTIRE PURCHASES OF RS. 64,36,222/- FOR WH ICH PAYMENT HAS BEEN MADE IN CASH BY ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 2 THE ASSESSEE . M/S IFB AGRO INDUSTRIES LIMITED VIDE ITS COMPLIANCE DATED 19.8.2011, CATEGORICALLY CONFIRMED THAT THE PAYMENT HAS BEEN R ECEIVED BY THEM IN CASH FROM THE ASSESSEE AND ALSO STATED THAT THE ASSESSEE HAD DIRE CTLY DEPOSITED CASH INTO THEIR BANK ACCOUNT TOWARDS THEIR SALE TO M/S SUPER ENTERPRISE (ASSESSEE HEREIN). ACCORDINGLY, THE LEARNED AO INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND DISALLOWED THE ENTIRE PURCHASE OF COUNTRY SPIRIT TO THE TUNE OF RS . 64,36,222/-, WHICH WAS ALSO UPHELD BY THE LEARNED CITA . AGGRIEVED, THE ASSESSEE IS IN A PPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. FOR THAT BOTH AO AND LD APPELLATE AUTHORITY ERRE D ON FACT AND LAW WHILE CONFIRMING ADDITION U/S 40A(3), THAT PAYM ENTS MADE BY APPELLANT TO THE SUPPLIER WERE WITHIN THE PRESCRIBE D LIMIT BUT SUCH MISNOMER AROUSE DUE TO SHOWING OF SUCH PAYMENTS IN CONSOLIDATED MANNER BY THE SUPPLIER. HENCE SUCH NON CONSIDERATIO N OF VITAL MATERIAL FACT BY LD CIT(A) IS BAD IN LAW AND SUCH A PPELLATE ORDER IS LIABLE TO BE QUASHED. 2 FOR THAT APPELLANT'S PURCHASE FIGURE ON CASH IN A DAY WAS INCLUSIVE OF EXCISE DUTY, VAT ETCWHICH ARE STATUTOR Y REVENUES PAID TO GOVERNMENT IF SUCH TAXES ARE DEDUCTED FROM PURCH ASE FIGURES THEN THE AMOUNT OF CASH PURCHASE WILL BE BELOW THE PRESCRIBED LIMIT U/S 40A(3) AND SUCH STATUTORY PAYMENTS ARE EXEMPTED FROM RIGOUR OF 40A(3), U/R 6DD (B) OF INCOME TAX. HENCE NON CONSIDERATION OF SUCH VITAL QUESTION OF L AW BY BOTH ASSESSING AS WELL AS APPELLATE AUTHORITY IS ILLEGAL AND PERVERSE. 3 FOR THAT APPELLANT MADE ALL PAYMENTS THOUGH IN CASH BUT DEPOSITED AND PAID THROUGH BANKING CHANNELS. ANY PA YMENTS MADE THROUGH BANKING SYSTEM IS EXEMPTED FROM U/S 40A(3), U/R 6DD( C ) OF INCOME TAX, SO LD APPELLATE AUTHORITY SHOULD H AVE CONSIDERED SUCH QUESTION OF LAW. 4 FOR THAT APPELLANT WAS REQUIRED TO MAKE ALL THOS E CASH PAYMENTS THROUGH THE BANK, WHICH WAS ACTING AS AN AGENT OF A PPELLANT ON PAYMENTS FOR PURCHASES. NO PAYMENTS WERE MADE DIREC TLY BY APPELLANT TO ITS SUPPLIES SO APPELLANT'S TRANSACTIO N FALLS UNDER RULE 6DD(K) OF INCOME TAX. BOTH AO. AND LD. CIT(A) SHOUL D HAVE CONSIDERED SUCH RULE. ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 3 3.1. THE ASSESSEE HAS ALSO RAISED THE FOLLOWING AD DITIONAL GROUND BEFORE US :- FOR THAT APART FROM STATUTORY DEDUCTION & TAXES FRO M PURCHASE PRICES, THERE ARE ALSO DEDUCTION ON ACCOUNT OF BOTTLING CHARGES WHICH ARE MERE SERVICE CHARGES NOT PURCHASE PRICES. HENCE AFTER SUCH DEDUCTION ACTUAL PURCHASE PRICE WILL BE FAR BELOW RS. 20,000 LIMIT. HENCE 40A(3) IS NOT APPLIC ABLE. 3.2. THE LEARNED AR PRAYED FOR ADMISSION OF ADDITI ONAL GROUND AS IT GOES TO THE ROOT OF THE MATTER AND DOES NOT REQUIRE ANY FRESH INVESTIGA TION ON FACTS IN THAT REGARD. HE ALSO ARGUED THAT THE GENUINENESS OF CASH PAYMENTS MADE T O M/S IFB AGRO INDUSTRIES LTD IS PROVED BEYOND DOUBT AS THE ASSESSEE HAS ONLY DEPOSI TED CASH INTO THE BANK ACCOUNT OF M/S IFB AGRO INDUSTRIES LTD TOWARDS PURCHASE OF COU NTRY SPIRIT. HE REFERRED TO THE RELEVANT PAGES OF THE PAPER BOOK FILED BY HIM CONTA INING BANK DEPOSIT CHALLANS WHEREIN IT IS CLEARLY EVIDENT THAT THE ASSESSEE HAD FREQUENTLY DEPOSITED CASH TO THE BANK ACCOUNT OF M/S IFB AGRO INDUSTRIES LTD. HE STATED THAT THE PA YMENT HAS BEEN MADE BY THE ASSESSEE IN LEGAL TENDER AND HENCE THE CASE FALLS UNDER EXCE PTION PROVIDED IN RULE 6DD(B) OF THE IT RULES. HE PLACED RELIANCE ON THE FOLLOWING DECI SIONS :- (A) DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF RAMPADA PANDA VS ITO REPORTED IN (2016) 65 TAXMANN.COM 213 (KOLKATA- TRIB.) DATED 7.10.2015. (B) DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF ASHOK MONDAL VS ITO IN ITA NO. 873/KOL/2012 FOR ASST YEAR 2009-10 D ATED 6.2.2014. 3.3. IN RESPONSE TO THIS, THE LEARNED DR ARGUED TH AT THE ASSESSEES CASE DOES NOT FALL UNDER THE EXCEPTION PROVIDED IN RULE 6DD(B) OF IT R ULES AS THE PAYMENT IS NOT MADE BY THE ASSESSEE TO GOVERNMENT IN LEGAL TENDER. PAYMEN T IS MADE HEREIN BY THE ASSESSEE TO A PRIVATE PARTY. ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 4 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY THE ASSE SSEE COMPRISING OF TAX AUDIT REPORT FOR 31.3.2009 TOGETHER WITH THE AUDITED ACCOUNTS (PAGES 1 14 OF PAPER BOOK), PURCHASE LEDGER (PAGES 15-19 OF PAPER BOOK) , PURCHASE BILLS (PAGES 20-41 OF PAPER BOOK) AND BANK DEPOSITS CHALLANS ( PAGES 42-65 OF PAPER BOOK). W E ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AS IT GOES TO THE ROOT OF THE MATTE R AND DOES NOT REQUIRE ANY FRESH INVESTIGATION OF FACTS. FROM THE PURCHASE BILLS PR ODUCED IN THE PAPER BOOK (SUPRA) , THE INDIVIDUAL PAYMENT FOR PURCHASE PRICE OF COUNTRY SP IRIT EXCLUDING ALL STATUTORY LEVIES IS LESS THAN RS. 20,000/-. IT WAS SUBMITTED THAT THE ASSESSEE SUPER ENTERPRISE IS APPOINTED BY THE GOVERNMENT OF WEST BENGAL AS A RET AILER OF COUNTRY-SPIRIT. THE ASSESSEE HAS A BANK ACCOUNT IN BURDWAN CENTRAL CO-O PERATIVE BANK (A/C NO. CA -186) ON VILL + P.O.-PANDAVESWAR, DIST BURDWAN. IT WA S FURTHER SUBMITTED THAT THE ASSESSEE OPENED THIS BANK ACCOUNT WITH AN INTENTION TO PURCH ASE THROUGH CHEQUE, BUT M/S IFB AGRO INDUSTRIES LIMITED SPECIFICALLY SAID THAT THEY WILL NOT TAKE CHEQUE OF A CO-OPERATIVE BANK. SO ALL THE PAYMENT IS MADE BY DEPOSITING CAS H IN THE CURRENT ACCOUNT VIDE ACCOUNT NO. 213010200010645 OF M/S IFB AGRO INDUSTRIES LIMI TED MAINTAINED WITH AXIS BANK. THE FOLLOWING POINTS ARE UNDISPUTED AND INDISPUTABL E:- (A) THE TRANSACTIONS MADE BY THE ASSESSEE IS GENUINE. (B) THE IDENTITY OF THE RECEIVER IS ESTABLISHED BEYOND DOUBT. (C) THE PAYMENT IS MADE ON THE BANK ACCOUNT OF THE SELL ER. 4.1. WE HOLD THAT SINCE THE GENUINITY OF THE PAYME NTS MADE TO THE PARTY IS NOT DOUBTED BY THE REVENUE, THE PROVISIONS OF SECTION 40A(3) C OULD NOT BE MADE APPLICABLE TO THE FACTS OF THE INSTANT CASE. IT IS OBSERVED THAT THE ASSESSEE HAD TAKEN ENOUGH PRECAUTIONS FROM HIS SIDE TO ENSURE THAT THE PAYEE ALSO DONT E SCAPE FROM THE AMBIT OF TAXATION ON THESE RECEIPTS BY DIRECTLY DEPOSITING THE CASH IN T HE BANK ACCOUNT OF THE PAYEE. THIS FACT IS ALSO NOT DISPUTED BY THE REVENUE. MOREOVER , T HIS ASPECT HAS ALSO BEEN ESTABLISHED BEYOND DOUBT IN THE ASSESSMENT ORDER ITSELF BY THE LEARNED AO BY CROSS VERIFICATION FROM ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 5 M/S IFB AGRO INDUSTRIES LIMITED. IT WILL BE PERTIN ENT TO GO INTO THE INTENTION BEHIND INTRODUCTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AT THIS JUNCTURE. 4.2. WE FIND THAT THE SAID PROVISION WAS INSERTED B Y FINANCE ACT 1968 WITH THE OBJECT OF CURBING EXPENDITURE IN CASH AND TO COUNTER TAX EVAS ION. 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 EXPENDITURE SHOWN TO HAVE BE EN 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 . 4.3. IN THIS REGARD, IT IS PERTINENT TO GET INTO T HE FOLLOWING DECISIONS ON THE IMPUGNED SUBJECT:- ATTAR SINGH GURMUKH SINGH VS ITO REPORTED IN (1991) 191 ITR 667 (SC) ' 3.3.4 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 CHEQUE OR CROSSED BANK DRAFT (EXCEPT IN SPECIFIED C ASES) IS NOT ARBITRARY AND DOES NOT AMOUNT TO A RESTRICTION ON THE FUNDAME NTAL RIGHT TO CARRY ON BUSINESS. IF READ TOGETHER WITH RULE 6DD OF THEINCO ME-TAX RULES, 1962, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHIC H PAYMENT IS NOT MADE BY CROSSED-CHEQUE OR CROSSED-BANK DRAFT. THE PAYMEN T BY CROSSED-CHEQUE OR CROSSED BANK-DRAFT IS INSISTED UPON TO ENABLE TH E ASSESSING 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 OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYE E. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED TH E CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 6 PAYMENT BY A CROSSED-CHEQUE OR CROSSED-BANK DRAFT I N 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 REGUL ATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTION S.' CIT VS CPL TANNERY REPORTED IN (2009) 318 ITR 179 ( CAL ) THE CONTENTION OF THE ASSESSEE THAT HE PURCHASED GO ODS FROM SUPPLIERS WHO ARE PRODUCERS OF HIDES AND SKINS, HAS NOT BEEN REFUTED EITHER BY THE AO OR BY THE CITA. THE SECOND CONTENT ION OF THE ASSESSEE THAT OWING TO BUSINESS EXPEDIENCY, OBLIGATION AND E XIGENCY, THE ASSESSEE HAD TO MAKE CASH PAYMENT FOR PURCHASE OF GOODS SO E SSENTIAL FOR CARRYING ON OF HIS BUSINESS, WAS ALSO NOT DISPUTED BY THE AO . THE GENUINITY OF TRANSACTIONS, RATE OF GROSS PROFIT OR THE FACT THAT THE BONAFIDE OF THE ASSESSEE THAT PAYMENTS ARE MADE TO M/S IFB AGRO IND USTRIES LTD FOR PURCHASE OF COUNTRY SPIRIT ARE ALSO NEITHER DOUBTED NOR DISPUTED BY THE AO. ON THE BASIS OF THESE FACTS IT IS NOT JUSTIFIE D 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 ADDITION 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 HEL D TO BE GENUINE BY THE LEARNED CIT(APPEAL) BUT THE LEARNED CIT(APPE AL) HAS INVOKED SECTION 40A(3) FOR PAYMENT EXCEEDING RS.20,000/- SI NCE IT IS NOT MADE BY CROSSED-CHEQUE OR BANK DRAFT BUT BY BEARER 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 ALSO 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 ID. CIT (APPEAL) WHICH HAS ALS O 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 OR DER THAT NEITHER THE ASSESSING OFFICER NOR THE CIT (APPEAL) HAS DISBELIE VED THE GENUINENESS OF THE TRANSACTION. THERE WAS NO DISPUTE THAT THE PURC HASES WERE GENUINE.' ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 7 ANUPAM TELE SERVICES VS ITO IN (2014) 43 TAXMANN.CO M 199 (GUJ) SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WITH RULE 6DD OF THE INCOME-TAX RULES, 1962 - BUSINESS DISALLOWAN CE - CASH 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 ASSESSEE'S CO-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 ASS ESSEE WOULD NOT MAKE CASH PAYMENT AND MAKE CHEQUE PAYMENTS ALONE, IT WOU LD HAVE RECEIVED RECHARGE VOUCHERS DELAYED BY 4/5 DAYS WHICH WOULD S EVERELY AFFECT ITS BUSINESS OPERATION - ASSESSEE, THEREFORE, MADE CASH PAYMENT - WHETHER IN VIEW OF ABOVE, NO DISALLOWANCE UNDER SECTION 40A (3 ) WAS TO BE MADE IN RESPECT OF PAYMENT MADE TO PRINCIPAL - HELD, YES [P ARAS 21 TO 23] [IN FAVOUR OF THE ASSESSEE]' SRI LAXMI SATYANARAYANA OIL MILL V. CIT [2014] 49 T AXMANN.COM 363/226 TAXMAN 139 (AP) 'SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WITH RULE 6DD OF THE INCOME-TAX RULES, 1962- BUSINESS DISALLOWANC E - CASH PAYMENT EXCEEDING PRESCRIBED LIMIT (RULE 6DD) - ASSESSEE MA DE CERTAIN PAYMENT OF PURCHASE OF GROUNDNUT IN CASH EXCEEDING PRESCRIB ED LIMIT - ASSESSEE SUBMITTED THAT HE MADE PAYMENT IN CASH BECAUSE SELL ER 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. ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 8 4.4. IT IS PERTINENT TO NOTE THAT THE PRIMARY OBJE CT OF ENACTING SECTION 40A(3) WAS TWO FOLD, FIRSTLY, PUTTING A CHECK ON TRADING TRANSACT IONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTION AND, S ECONDLY, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANK ING HABITS. THEREFORE, THE CONSEQUENCE, WHICH WERE TO BEFALL ON ACCOUNT OF NON-OBSERVATION OF SECTION 40A(3) MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THEREFORE, THE GENUINE NESS OF THE TRANSACTIONS IT BEING FREE FROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVA NT CONSIDERATION. IN THE INSTANT CASE, THE CASH HAS BEEN DEPOSITED DIRECTLY IN THE BANK AC COUNT OF THE SUPPLIER I.E M/S IFB AGRO INDUSTRIES LIMITED BY THE ASSESSEE. 4.5. THE HONBLE APEX COURT IN THE CASE OF CTO VS SWASTIK RO ADWAYS REPORTED IN (2004) 3 SCC 640 HAD HELD THAT THE CONSEQUENCES OF NON-COMPLIANCE O F MADHYAPRADESH SALES TAX ACT , WHICH WERE INTENDED TO CHECK THE EV ASION AND AVOIDANCE OF SALES TAX WERE SIGNIFICANTLY HARSH. THE COURT WHILE UPHOLDIN G THE CONSTITUTIONAL VALIDITY NEGATED THE EXISTENCE OF A MENS REA AS A CONDITION NECESSAR Y FOR LEVY OF PENALTY FOR NON- COMPLIANCE WITH SUCH TECHNICAL PROVISIONS REQUIRED HELD THAT IN THE CONSEQUENCE TO FOLLOW THERE MUST BE NEXUS BETWEEN THE CONSEQUENCE THAT BEFALL FOR NON-COMPLIANCE WITH SUCH PROVISIONS INTENDED FOR PREVENTING THE TAX EVA SION WITH THE OBJECT OF PROVISION BEFORE THE CONSEQUENCE CAN BE INFLICTED UPON THE DE FAULTER. THE SUPREME COURT HAS OPINED THAT THE EXISTENCE OF NEXUS BETWEEN THE TAX EVASION BY THE OWNER OF THE GOODS AND THE FAILURE OF C & F AGENT TO FURNISH INFORMATION R EQUIRED BY THE COMMISSIONER IS IMPLICIT IN SECTION 57(2) AND THE ASSESSING AUTHORI TY CONCERNED HAS TO NECESSARILY RECORD A FINDING TO THIS EFFECT BEFORE LEVYING PENALTY U/S 5 7(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 AS SESSEE WAS OF AS TECHNICAL NATURE AS WAS IN THE CASE OF SWASTIK ROADWAYS (3 SCC 640) AND THE CONSEQUENCE TO FALL FOR FAILURE TO OBSERVE SUCH NORMS IN THE PRESENT CASE ARE MUCH HIGHER THAN WHICH WERE PRESCRIBED ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 9 UNDER THE MADHYA PRADESH SALES TAX ACT. APPARENTLY, IT IS A RELEVANT CONSIDERATION FOR THE ASSESSING AUTHORITY UNDER THE INCOME TAX ACT TH AT BEFORE INVOKING THE PROVISIONS OF SECTION 40A(3) IN THE LIGHT OF RULE 6DD AS CLARIFIE D BY THE CIRCULAR OF THE CBDT THAT 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 PROVISION 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 EVA DE TAX BY SHOWING FICTITIOUS OR FALSE TRANSACTIONS. ADMITTEDLY, THIS IS NOT THE CASE IN THE FACTS OF THE ASSESSEE HEREIN. THE ASSESSEE HAD DIRECTLY DEPOSITED CASH IN THE BANK AC COUNT OF THE SUPPLIER M/S IFB AGRO INDUSTRIES LIMITED WHICH FACT IS ALSO ACKNOWLEDGED BY THE CONCERNED SUPPLIER BEFORE THE LEARNED AO IN THE ASSESSMENT ORDER ITSELF. IT IS ALSO PERTINENT TO NOTE THAT THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SMT.HARSHILA CH ORDIA 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 MUS T BE INTERPRETED LIBERALLY. 4.6. WE ALSO FIND THAT THE IMPUGNED ISSUE IS SQUA RELY COVERED BY THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ASHO K MONDAL VS ITO IN ITA NO. 873/KOL/2012 FOR ASST YEAR 2009-10 DATED 6.2.2014, WHEREIN IT WAS HELD THAT :- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT T HE OUTSET A PERUSAL OF THE DECISION IN THE CASE OF SMT.PUSHPALATA MONDAL SHOWS THAT THE TRIBUNAL HAD DECIDED THE CASE BY FOLLOWING THE DECISION OF HON'B LE KERALA HIGH COURT IN THE CASE OF K.ABDU & CO. REFERRED TO SUPRA WHEREIN THE ISSUE WAS IN RELATION TO RULE 6DD(A) OF IT RULES. THE ISSUE IN THE ASESSE C'S CASE IS IN RESPECT OF THE PAYMENTS MADE UNDER THE RULES FRAMED BY THE GOV ERNMENT AND SUCH PAYMENT WAS REQUIRED TO BE MADE IN LEGAL TENDER. A PERUSAL OF THE GOVERNMENT NOTIFICATION ISSUED BY THE GOVT. OF WEST BENGAL CLEARLY SHOWS THAT THE DEALERS ARE AGENTS OF THE GOVERNMENT AND T HE PAYMENTS MADE ARE TO THE GOVERNMENT. IT ALSO MAKES IT CATEGORICALLY REQU IRED THAT THE PAYMENT IS TO BE MADE BEFORE LIFTING OF THE COUNTRY SPIRIT. CO NSEQUENTLY WE ARE OF THE VIEW THAT THE ISSUE IS SQUARELY COVERED BY THE DECI SION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.AMRAI PAC HWAI & C.S.SHOP REFERRED TO SUPRA WHEREIN IT HAS BEEN HELD AS FOLLO WS :- ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 10 '6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE AO H AS RECOGNIZED THE ASSESSEE'S BUSINESS IN TRADING OF COUNTRY SPIRIT AN D COUNTRY LIQUOR. COPY OF FORM OF LICENCE ISSUED BY DURGAPUR MUNICIPA L CORPORATION AND COPY OF FORM III ISSUED BY DEPARTMENT OF EXCISE , GOVT. OF W.B. WERE ALSO FOUND AT PAGES 177 AND 179 OF THE ASSESSE E'S PAPER BOOK. IN ANY CASE THE VALIDITY OF LICENCE OF THE ASSESSEE TO TRADE IN COUNTRY SPIRIT AND COUNTRY LIQUOR IS NOT THE ISSUE BEFORE U S. THE ISSUE IS WHETHER THE PAYMENTS MADE BY THE ASSESSEE FOR THE P URCHASE OF COUNTRY SPIRIT FROM THE TERRITORIAL LICENSEE BOTTLI NG PLANT, IFB AGRO INDUSTRIES LTD., CITY CENTRE, DURGAPUR FALLS WITHIN THE EXEMPTION PROVIDED UNDER RULE 6DD(B) OF THE I.T.RULES, 1962. ADMITTEDLY, THE AO HAS RECOGNIZED THAT THE PROVISION OF RULE 6DD(B) OF THE I.T RULES, 1962 IS APPLICABLE IN CASE OF PAYMENTS MADE TO GOVE RNMENT DIRECTLY. THIS IS FOUND IN PAGE 2 OF THE ASSESSMENT ORDER. A PERUSAL OF THE KOLKATA GAZETTE TUESDAY 20 TH SEPT 2005 SHOWS THAT THE GOVERNMENT OF WEST BENGAL, DEPARTMENT OF EXCISE HAS ISSUED A N OTIFICATION, WHEREIN THE WAREHOUSE HAS BEEN IDENTIFIED TO MEAN T HE WAREHOUSE FOR SUPPLY OF COUNTRY SPIRIT TO THE RETAIL VENDORS, EST ABLISHED AT CONVENIENT PLACES BY THE COMMISSIONER AT THE EXPENSE OF THE ST ATE GOVERNMENT, OR AT THE EXPENSE OF A PERSON TO WHOM THE EXCLUSIVE PRIVILEGE OF SUPPLYING OR SELLING COUNTRY SPIRIT BY WHOLESALE HA S BEEN GRANTED U/S 22 OF THE ACT OF A LICENSED WHOLESALE VENDOR OF COU NTRY SPIRIT. FURTHER, IT HAS BEEN SPECIFICALLY IDENTIFIED THAT THE AUTHOR ISED REPRESENTATIVE OF THE WHOLESALE LICENSEE SHALL REALIZE THE NECESSARY AMOUNT OF DUTY, COST PRICE AND BOTTLING CHARGE, IF THERE BE ANY, AT THE PRESCRIBED RATE AND SUCH OTHER IMPOSITION, AS MAY BE PRESCRIBED BY LAW, FROM THE RETAIL VENDOR TO WHOM THE COUNTRY SPIRIT IS TO BE ISSUED F ROM THE CONCERNED WAREHOUSE. IT IS ALSO SPECIFICALLY MENTIONED IN SEC TION (2) OF THE SAID NOTIFICATION THAT NO RETAIL VENDOR OF COUNTRY SPIRI T SHALL DEPOSIT DUTY DIRECT INTO THE LOCAL TREASURY FOR ISSUE OF COUNTRY SPIRIT TO BE TAKEN BY HIM FROM THE WAREHOUSE CONCERNED WHICH CLEARLY SHOW S THAT THE WAREHOUSE IS FOR THE SUPPLY OF THE COUNTRY LIQUOR, SPECIFICALLY, THE WAREHOUSE IS UNDER THE DIRECT CONTROL AND CUSTODY O F THE STATE GOVT. THE STATE GOVERNMENT HAS CLOSED ITS DOORS IN SO FAR AS THE LOCAL TREASURY IS CONCERNED AND THE PAYMENT FOR THE PURCH ASE OF COUNTRY SPIRIT OR COUNTRY LIQUOR HAS TO BE MADE TO THE WARE HOUSE, RUN BY THE GOVERNMENT. THIS SHOWS THAT ANY PAYMENT MADE TO THE WAREHOUSE, WHICH IS UNDER THE DIRECT CONTROL OF THE STATE GOVE RNMENT, IS A PAYMENT MADE DIRECTLY TO THE GOVERNMENT. ONCE, THIS IS ACCE PTED THEN THE PROVISIONS OF RULE 6DD(B) OF THE I.T RULES, 1962 WH ICH CLEARLY SPELLS OUT THAT THE PAYMENT MADE TO THE GOVERNMENT IN LEGA L TENDER UNDER THE RULES FRAMED BY THE GOVERNMENT, IS EXEMPTED FROM TH E RIGOURS OF ITA NO. 1495/KOL/202 -B-AM M/S. SUPER ENTERPRISES 11 SECTION 40A(3) OF THE ACT. HERE, IT IS NOTICED THAT THE PAYMENTS MADE BY THE ASSESEE FOR PURCHASE OF COUNTRY SPIRIT AND C OUNTRY LIQUOR IS TO THE GOVERNMENT AS PER THE NOTIFICATION ISSUED BY TH E GOVERNMENT AND IS IN LEGAL TENDER SPECIFIED BY THE NOTIFICATION. I N THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PAYMENT MADE BY THE ASS ESSEE FOR THE PURCHASE OF COUNTRY LIQUOR AND COUNTRY SPIRIT FROM THE TERRITORIAL LICENSEE BOTTLING PLANT, IFB AGRO INDUSTRIES LTD., CITY CENTRE, DURGAPUR IS PROTECTED BY THE EXEMPTION IN TERMS OF RULE 6DD(B) OF THE 1.T.RULES 1962. IN THE CIRCUMSTANCES, THE ADDIT ION AS MADE BY THE AO AND AS CONFIRMED BY THE ID. CIT(A) BY INVOKING T HE PROVISIONS OF SECTION 40A(3) OF THE I. T.ACT 1961 STANDS DELETED. 8. IN THE RESULT THE ADDITION AS CONFIRMED BY THE I D. CIT(A) STANDS DELETED. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AN D RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HAVE NO HESI TATION IN DELETING THE ADDITION MADE IN THE SUM OF RS. 64,36,222/- U/S 40A(3) OF THE ACT . ACCORDINGLY, THE GROUNDS AND THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ARE ALLOWE D. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 31 - 03 - 2016 1. . THE APPELLANT/M/S. SUPER ENTERPRISE C/O ARABINDA G HOSH, KHOTADIHI, BURDWAN 713346. 2 THE RESPONDENT/I T O WARD 2(3), DURGAPUR, AAUKAR BH AVAN, AAYKAR BITHI, CITY CENTRE, DURGAPUR 713216. 3 / THE CIT, 4.THE CIT(A) 5 . DR, KOLKATA BENCH 6 . GUARD FILE . TRUE COPY, BY ORDER, ASSTT REGISTRAR SD/- ( S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 31 -03-2016 COPY OF THE ORDER FORWARDED TO:- *PP/SPS