M/s Koottummel Groups, Chaganacherry V. ITO, Thiruvalla

ITA 153/COCH/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81396 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 24-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2011
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: K I JOHN
• Keywords: Cost of acquisition; Reasonable cause; Ignorance of law
• Section: 40A(3); 10

Judgement Text

ITA NO. 153/COCH/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S. GANESAN, JM & CHANDRA POOJARI, AM ITA NO.153/COCH/2011 (ASST YEAR 2007-08 ) M/S KOOTTUMMEL GROUPS CHENGANACHERRY THE INCOME TAX OFFICER WARD 3, THIRUVALLA ( APPELLANT) VS (RESPONDENT) PAN NO. AAFFK7535D ASSESSEE BY SHRI K I. JOHN REVENUE BY SHRI K K JOHN, SR DR DATE OF HEARING 24 TH SEP 2014 DATE OF PRONOUNCEMENT 21ST NOV 2014 ORDER PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 22.12.2010 OF THE CIT(A)-I, TRIVANDRUM AND ITS RELA TES TO THE AY 2007-08. 2 ON EARLIER OCCASION THIS APPEAL WAS DECIDED BY TH IS TRIBUNAL VIDE ORDER DATED 30 TH JUNE 2011 AGAINST WHICH THE DEPARTMENT WENT IN APP EAL BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT OF KE RALA REMANDED THE ISSUE BACK TO THE FILE OF THE TRIBUNAL WITH A DIRECTION T O DECIDE THE ISSUE AFTER EXAMINING WHETHER THERE EXISTED AN AGENCY AGREEMENT BETWEEN THE ASSESSEE AND RELIANCE COMMUNICATION. BEING SO, THE CASE CAME UP FOR FRESH HEARING. ITA NO. 153/COCH/2011 2 3 THE ISSUE FOR OUR CONSIDERATION IN THIS APPEAL IS GROUND NO.2 WHICH RELATES TO DISALLOWANCE OF RS. 46,38,806/- BY INVOKING PROV ISIONS OF SEC. 40A(3) OF THE I T ACT. 3.1 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ACTING AS AN AGENT OF M/S. RELIANCE COMMUNICATION INFRASTRUCTURE LTD. THE ASS ESSEE E - FILED THE RETURN OF INCOME FOR AY 2007 - 08 AND THE FIL E WAS SELECTED FOR SCRUTINY BY THE AO, WARD 3, THIRUVALLA. THE ASSESSEE IS AN AGENT/DISTR IBUTOR OF RELIANCE COMMUNICATION INFRASTRUCTURE LTD. THE ASSESSEE IS DEALING EXCLUSIVELY WITH RELIANCE AND SELLING PRODUCTS ONLY OF M/S. RELIANCE. ALL THE SALES WERE MADE TO DEALERS LIKE PETTY SHOPS, BAKERIES, STATIONERY SHOP S ETC. MOBILE RECHARGE COUPONS , ELECTRONIC CHARGE VOUCHERS AND MOBILE HAND SETS OF M/S. RELIANCE ARE DISTRIBUTED BY THE ASSESSEE . NO PURCHASES WERE MADE BY THE ASSESSEE FROM ANY OUTSIDERS . THE C OMMISSION FOR SALES IS FIXED BY THE PRINCIPAL , M/S. RELIANCE COMMUNICATION INFRASTRUCTURE LTD. THE PURCHASE PRI CE AND SALE PRICE ARE FIXED BY M/S. RELIANCE. THE ASSESSEE WAS ONLY RECEIVING THE COMMISSION FIXED BY M/S. RELIANCE . THE ASSESSEE HAS NO CONTROL OF SELLING PRICE AND THE ASSESSEE M ADE SALES TO SMALL DEALERS / SALES OUTLETS LIKE PETTY SHOPS , SMALL VENDORS , STATIONERY SHOPS , BAKERIES ETC . ACCORDING TO THE PRICE FIXED B Y RELIANCE . THE ASSESSEE RECEIVES THE SALE PRICE IN CASH THROUGH THE SALES R EPRESENTATIVE OR ROUTE BOYS. THE ASSESSEE REMITS THE AMOUNT TO THE BANK ACCOUNT OF M/S. RELIANCE FOR REC E IVING GOODS . SINCE THE COMMISSION AGENTS ARE ALSO TREATED AS TRADER UNDER THE KERALA VALUE ADDED TAX ACT; THEREFORE M/S. RELIANCE ARE MAKING INVOICES IN ITA NO. 153/COCH/2011 3 FAVOUR OF THE ASSESSEE FOR ALL TRANSFER OF GOODS AN D THE PERCENTAGE OF COMMISSION ON SALES WAS FIXED BY M/S. RELIANCE , (SELLER). ANY PRICE CHANGE MADE BY THE SELLER (M/S. RELIANCE) HAS TO BE IMPLEMENTED BY THE ASSESSEE (PURCHASER). ANY LOSS ON STOCK OF GOODS TO THE AGE NT DUE TO PRICE CHANGE WILL BE COMPENSATED BY THE SELLER. THE ASSESSING OFFICE R, WHO TOOK THE CASE FOR SCRUTINY CONSIDERED THE REMITTANCE MADE BY THE ASSE SSEE TO THE BANK ACCOUNT OF ITS PRINCIPAL M/S. RELIANCE AS CASH PAYMENTS AND DECIDED TO BE DISALLO WED U/S 40A(3) OF THE IT ACT AND ACCORDINGLY, 20% OF TH E TOTAL PURCHASE PRICE OF RS. 23,22,99,811- WAS TREATED AS INCOME OF THE ASSE SSEE . 4 THE LD AR SUBMITTED THAT A S PER PARA 7 OF THE JUDGMENT, THE MAIN ISSUE THAT A R I S ES FOR C ONS IDE R A T ION I S WHETHER THE TRIBUNAL WAS JUS TI FIED I N ACCE PTING TH E CONTENTION THAT THERE EXISTED AN A G ENC Y BETWEEN THE A SSESSEE AND M/S. RELIA N CE COMMUNICATION TO JUSTIFY ITS C ON C LUSION THAT SECTION 40A(3) WAS INAPPLI CABLE. IT WAS SUBMITTED THAT AS PER PARA 3.6 OF THE ORDER OF T HE T RIBUN A L , THE BUSI N ESS IS IDENTI C AL TO THAT IN THE C ASE OF S. RAHUMATHULLA VS ASSISTANT COMMISSIONER OF INCOME-TA X REPORTED IN 127 ITD 440 AND THE RELATIONSHIP IS THAT OF THE PRIN C IP A L AND AGENT AND TH E CONCLUSION OF THE TRIBUNAL WAS NOT BASED ON AN Y MATERIAL THAT W AS AVA IL ABLE BEFORE IT. IT WAS FURTHER SUBMITTED THAT AS PER PARA 8 OF THE JUDGMENT THE HON ' B L E HIGH COURT HAS SET ASIDE THE ORDE R OF THE T R IBU N AL IN RAHUMATHULLA'S CASE, BY J UDGM E NT DATED 06-03-2012 IN ITA NO. 315 OF ITA NO. 153/COCH/2011 4 2010. FURTHER, IT WAS SUBMITTED THAT A S PER PARA 9 OF THE JUDGMENT, BASED ON THE COURSE ADOPTED IN THE CA S E OF R A HUM A THU L L A'S CA S E, IF THERE EX I STED A N A G ENCY BETWEEN TH E A SSESS E E AND M/ S . RELIAN C E COMMUNIC A T I ON L TD. , THE ASSESSEE SHOULD BE GIVEN OPP O RTUNITY TO PRODUCE MATERIALS DISCLOSING AGENC Y AND ALSO FO R M 16A TO RE CO NSI DER TH E CLAIM BY THE TRIBUNAL. FURTHER, IT WAS SUBMITTED THAT A S PER PARA 11 OF THE JUDGMENT THE ORDER OF THE TRIBUNAL WAS S ET A S I D E A N D REMITTED BACK TO RE - CONSIDER THE MATTE R BY GI V IN G OPPORTUNITY TO PRODUCE ADDITIONAL MATERIAL TO PROVE AGENC Y . 4.1 IT WAS SUBMITTED THAT RA H UMATHULLA ' S CASE CITED SUPRA WAS DE C IDED B Y THE HON'BLE HIGH COURT B Y JU D GM ENT DATED 06-03-2012, COPY OF WHICH IS PLACED ON RECORD. IT WAS SUBMITTE D THAT AS PER PARA 2 O F TH E JUD G MENT, THE A SSESSE E RAISED TH E ALTERNATE C O N TE N T I O N THAT TDS WAS C OLLECTED AND FORM 16 A WAS ISSUED TO THE DISTRIBUTO RS . FURTHER, A S P E R P A R A 3 OF THE J UD G MENT BA S ED ON THE A LTERN A T E CON T ENTION OF TDS AND FORM 16A , THE SAID ALTERNATE C ONTENTION RAISED C ALLS F O R DETAILED CONSIDERATION BY THE TRIBUNAL. ACCO R DI N GLY, IT WAS SUBMITTED THAT OPPORTUNITY WAS DIR ECTED TO BE GIVEN TO THE ASSESSEE BY T HE TRIBUNAL TO RAISE THE ABOVE CONTENTION OF TDS AND FORM 16A BASE D ON DOCUMENTS, FORM 16A AND OTHER DOCUMENTS. 4.2 THE LD AR SUBMITTED THAT IN THE LIGHT OF THE DI RECTION OF THE HON'BLE ITA NO. 153/COCH/2011 5 HIGH COURT, THE ASSESSEE FILED FORM 16A ISSUED BY R ELIANCE COMMUNICATIONS LTD. IN RESPECT OF THE COMMISSION WH ICH COMES U /S 194H. IT WAS CONTENDED THAT SECTION 194H PROVIDES F OR DEDUCTION OF TAX FROM COMMI S SION OR BROKERAGE. THE LD AR REFERRED EXPLANATION (I) TO THE SECTION GIVES THE INCLUSIVE DEFINITION AS FOLLOWS: (I) 'COMMISSION OR BROKERAGE IN C LUDES ANY PAYMENT RECEIVED OR RECEIVABLES, DIRECTL Y OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF A NOTH ER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR A NY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOOD S OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSETS, VALUABLE ARTICLE OR THING , NOT BEING SECURITIES' . 4.3 BY REFERRING PARA 3.6 OF THE TRIBUNAL DATED 30. 6.2011, IT WAS SUBMITTED THAT THE TRIBUNAL HAS ENTERED IN TO THE F OLLOWING FINDINGS: I)BOTH DEFACTO AND DEJURE THE RELATIONSHIP IS THA T OF 'PRINCIPAL' AND AGENT' FOLLOWING THE JUDGMENTS RELI ED ON. II)THE FRANCHISE DISTRIBUTOR WAS ACTING ONLY FOR AN D ON BEHALF OF THE SERVICE PROVIDER. (III) THE PRODUCTS ARE NOT PHYSICAL PRODUCTS OR GO ODS BUT ONLY 'SERVICE PRODUCTS' (IV) THE PAYMENTS MADE BY THE FRANCHISE DISTRIBUTO R TO THE PRINCIPAL ARE ONLY ON HIS BEHALF BEING ONLY ENTITLE D TO COMMISSION. 4.4 THE LD AR FILED A COPY OF THE DISTRIBUTION AGRE EMENT DATED 26- 08 - 2003 AND CONTENDED THAT FROM THE AGREEMENT, THE ASS ESSEE IS ONLY A DI S TRIBUTOR AND THE DISTRIBUTION IS OF THE SERVICE OF RELIANCE ITA NO. 153/COCH/2011 6 COMMUNICATION LTD. BY REFERRING PARA 1.9 OF THE AGR EEMENT, HE SUBMITTED THAT ' SERVICE' MEANS TELECOMMUNICATION SERVICE PROVIDED B Y RIC. FURTHER, AS PER PARA 5.1 WHAT IS P RO V ID ED IN SERVICE AND AS PER PARA 8.1 ALL MARKS, BRAND NAMES AND LOGOS ARE THE EXCLUS IVE PROPERTY OF THE RELIANCE. ACCORDINGLY, IT WAS SUBMITTED THAT THERE IS NO QUESTION OF SALE OR PURCHASE AND WHAT WAS PAID WAS ONLY COMMISSION C OVERED BY SECTION 194H AND SECTION 40A(3) HAS NO RELEVANCE. I T WAS CONTENDED THAT TO ATTRACT THE SECTION INCOME HAS TO BE RECEIV ED B Y WAY OF COMMISSION OR BROKERAGE AND IN SUPPORT OF HIS CONTE NTION, HE RELIED THE DECISION OF THE TRIBUNAL IN THE CASE OF SKOL BREWERIES LTD. VS ASSISTANT COMMISSIONER OF INCOME-TAX, REPORTED IN 142 ITD 49, COPY OF WHICH IS PLACED ON RECORD. IT WAS FURTHER CONTENDED THAT DIS COUNT GIVEN TO DISTRIBUTOR FOR SERVICES RENDERED FOR MOBILE PHONES AMOUNTS TO COMMISSION WITHIN THE MEANING OF SECTION 194H. IN S UPPORT OF HIS CONTENTION, HE RELIED THE DECISION OF T H E KERALA HIGH COURT IN THE CASE OF VODAFONE ESSAR CELLULAR LTD VS ACIT REPORTED IN 20 10 (4) KLT SN 22, COPY OF WHICH IS PLACED ON RECORD. THE LD. AR ALSO RELI ED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. CHROME LEATHER CO. PVT. LTD. (1999) (235 ITR 708). THE LD. AR ALSO RELIED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SI NGH VS. ITO (1991) (191 ITR 667) AND THE DECISION OF THE BANGALORE BEN CH OF THE TRIBUNAL IN THE CASE OF SHRI RENUKESWARA RICE MILLS LTD. VS. IT O (93 ITD 263). ITA NO. 153/COCH/2011 7 5. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE PAYMENTS MADE BY THE COMMISSION AGENT, I.E., THE ASSESSEE TO THE PRINCIPAL I.E., M/S. RELIANCE COMMUNICATION INFRASTRUCTURE LTD. IN CASH ON PURCHASE OF CHARGE COUPONS AND MOBILE HAND SET AND OTHER COMMUNICATION PRODUCTS ARE LIABLE FOR DISALLOWANCE U/S. 40A(3) BE ING CASH PURCHASE. THE LD. DR SUBMITTED THAT SINCE ALL THE PURCHASES A RE IN CASH AND ALL THE PAYMENTS WERE MADE IN CASH, THE ASSESSEE IS LIABLE FOR DISALLOWANCE U/S. 40A(3). 5.1 THE LD. DR SUBMITTED THAT THOUGH THE ASSESSEE W AS MAKING SALES TO SMALL PARTIES AND RECEIVING SALE CONSIDERATION IN S MALL DENOMINATIONS, NOTHING AS PER LAW PREVENTS THE ASSESSEE FROM DEPOS ITING THE SAID SALE RECEIPTS IN THEIR ACCOUNT AND MAKING PAYMENTS THROU GH BANK TO THE PRINCIPAL COMPANY FOR PURCHASE OF THEIR PRODUCTS. FURTHER, ACCORDING TO THE LD. DR, AS THERE IS ONLY ONE PURCHASE PARTY, IT IS VERY EASY FOR THE ASSESSEE TO MAKE CROSSED CHEQUE PAYMENTS AND CROSSE D BANK DRAFT AND THERE IS NO EXIGENCY TO MAKE CASH PAYMENTS TO T HE PRINCIPAL COMPANY. 5.3 THE LD. DR SUBMITTED THAT THE PROVISIONS OF R ULE 6DD OF THE I.T. RULES HAVE NO RELEVANCE TO THE ASSESSEES CASE. FURTHER, THE CASE LAW RELIED UPON BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS O F THE CASE. HENCE, ACCORDING TO THE LD. DR, THE LOWER AUTHORITIES WERE JUSTIFIED IN INVOKING ITA NO. 153/COCH/2011 8 THE PROVISIONS OF SEC. 40A(3) OF THE I.T. ACT. 5.4 FURTHER, THE LD. DR SUBMITTED THAT AS PER CLAUS E 6.1 OF THE DISTRIBUTOR AGREEMENT, THE DISTRIBUTOR SHALL BE ENTITLED TO RET AIN THE MARGIN BETWEEN THE RETAIL PRICE OF THE VOUCHER AND THE PRICE AT WH ICH M/S. RELIANCE INDUSTRIES LTD. SELLS THE VOUCHER TO THE DISTRIBUTO R. THE CONDITION SPECIFICALLY CLARIFIED THAT THE COMPANY IS SELLING THE PRODUCT TO THE DISTRIBUTOR WITH THE RETAIL PRICE OF THE PRODUCT FI XED. THAT IMPLIES THAT THE PROFIT ON THE SALE OF THE PRODUCT IS FIXED BY THE C OMPANY BASED ON THE PURCHASE COST. IN THE DISTRIBUTOR AGREEMENT, IT IS NOWHERE MENTIONED THAT THE COMPANY IS GIVING COMMISSION TO THE DISTRI BUTOR. IT IS WORTH TO NOTE THAT ALL THE BRANDED PRODUCTS HAVE FIXED MAXIM UM RETAIL PRICE AND THE PROFIT IS DERIVED BY THE SELLER OUT OF THE DIFF ERENCE BETWEEN THE PURCHASE COST AND SELLING PRICE. SUCH BUSINESS PRA CTICE IS ALSO FOLLOWED BY THE DEALERS OF PETROLEUM PRODUCTS ALL OVER INDIA . IN GENERAL, THE DISTRIBUTOR AGREEMENT DOESNT SAYS THAT THE COMPANY IS GIVING ANY SUCH COMMISSION TO THE DISTRIBUTOR AS CLAIMED BY THE ASS ESSEE. 5.5 THE LD. DR SUBMITTED THAT IN THE PROFIT AND LOS S ACCOUNT ATTACHED WITH THE RETURN OF INCOME, THE ASSESSEE HAD SHOWN T HE SALES DURING THE PREVIOUS YEAR AT RS.2,32,29,981.82/- AGAINST A PURC HASE OF RS.2,31,69,032.14/- WITHOUT WORKING OUT ANY GROSS P ROFIT. THE ASSESSEE HAS DETERMINED THE NET LOSS OF THE BUSINESS AT RS.81,16 0.14/- IN THE PROFIT AND ITA NO. 153/COCH/2011 9 LOSS ACCOUNT. IN THE RECEIPT SIDE OF TRADING, PROFI T & LOSS ACCOUNT, THE ASSESSEE HAS CREDITED BROKERAGE RECEIVED TO THE TUN E OF RS.3,26,303.66/- AND HANDLING CHARGES RECEIVED FROM M/S. RELIANCE IN DUSTRIES LTD. TO THE TUNE OF RS.16,36,175,92/-. THE TDS CERTIFICATE ATT ACHED WITH THE RETURN OF INCOME REFLECTS ONLY AN AMOUNT OF RS.16,36,175.92/- AS COMMISSION OR BROKERAGE. THE COMPANY HAS ALSO DEDUCTED THE TAX A T THE RATE APPLICABLE U/S. 194H OF THE I.T. ACT FROM THE ABOVE ACCOUNT. HAD THE ASSESSEE RECEIVED ONLY THE COMMISSION FROM M/S. REL IANCE INDUSTRIES LTD., PROFIT AND LOSS ACCOUNT WOULD HAVE SHOWN ONLY A REC EIPT TO THAT EXTENT. BUT IN THIS CASE THE ASSESSEE HAD ALSO DERIVED A PR OFIT ELEMENT OF RS.3,26,303,66/- AS BROKERAGE OTHER THAN WHAT THE C OMPANY HAS PAID TO THE ASSESSEE. THUS THE ASSESSEE WAS IN RECEIPT OF FUND OTHER THAN WHAT M/S. RELIANCE INDUSTRIES LTD. HAD PAID AS BROKERAG E AND COMMISSION. THE BOOKS OF ACCOUNT HAD BEEN AUDITED BY A CHARTERE D ACCOUNTANT WHICH REFLECTS THE ACTIVITIES OF THE ASSESSEE AS SI MILAR TO THAT OF A NORMAL TRADING CONCERN. HENCE, THE ASSESSEES CLAIM OF RE CEIPTS AS COMMISSION AGENT MAY DULY BE REJECTED. 5.6 THE LD. DR SUBMITTED THAT IT IS PERTINENT TO NO TE THE JURISPRUDENCE OF THE ENACTMENT OF SECTION 40A(3) IN THE I.T. ACT. T HE OBJECT OF SECTION 40A(3) IS TO CURB THE CIRCULATION OF BLACK MONEY AN D REGULATING THE COMMERCIAL TRANSACTIONS IN A STRENGTHENED WAY TO AV OID ANY UNDUE ADVANTAGE BEING TAKEN BY UNSCRUPULOUS ELEMENTS. ON E CANT PLEAD ITA NO. 153/COCH/2011 10 IGNORANCE OF LAW AND MAKE CASH PAYMENTS CONTRARY TO THE LAW. IN THE PRESENT SCENARIO, THE MODE OF PAYMENT BY WAY OF CRO SS CHEQUE OR DEMAND DRAFT CANT BE SAID TO BE AN ONEROUS DUTY CA ST ON THE ASSESSEE. THE ORDER WAS FRAMED KEEPING IN MIND PROVISIONS OF SEC. 40A(3) TO CURB THE FLOW OF BLACK MONEY. THEREFORE, IT IS HUMBLY R EQUESTED THAT THE FINAL ORDER MAY PLEASE BE PRONOUNCED IN FAVOUR OF THE REV ENUE AND THE ASSESSING OFFICERS ORDER MAY BE REINSTATED. 6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORD. IN THIS CASE, THE ASSESSEE HAS BEEN APPOINTED AS A DISTRIBU TOR BY M/S. RELIANCE INDUSTRIES LTD. VIDE AGREEMENT DATED 26 TH AUGUST, 2003. AS PER THIS DISTRIBUTOR AGREEMENT, THE ASSESSEE GOT DISTRIBUTIO N RIGHT TO MARKET AND DISTRIBUTE/SELL THE RECHARGE VOUCHERS PROVIDED BY M /S. RELIANCE INDUSTRIES LTD. IN THE TERRITORY THROUGH DISTRIBUTORS OWN RET AIL NETWORK SUBJECT TO THE TERMS AND CONDITIONS MENTIONED IN THE DISTRIBUTOR A GREEMENT. AS PER THIS AGREEMENT, THE ASSESSEE PURCHASED VOUCHERS FROM M/S . RELIANCE INDUSTRIES LTD. AND SOLD THEM IN RETAIL. THE ASSES SEE IS ENTITLED TO RETAIN THE MARGIN BETWEEN THE RETAIL PRICE OF THE VOUCHERS AND THE PRICE AT WHICH M/S. RELIANCE INDUSTRIES LTD. SOLD THE VOUCHE RS TO THE ASSESSEE. THUS, THE ASSESSEES PROFIT PERCENTAGE OR COMMISSIO N IS NOT FIXED AS THE SPECIFIC PERCENTAGE OF THE SALE VALUE. IT IS NOWHER E MENTIONED IN THE DISTRIBUTOR AGREEMENT THAT THE ASSESSEE IS ENTITLED FOR ANY COMMISSION. HOWEVER, THE ASSESSEE HAS TO PAY FULL PURCHASE PRIC E OF THE PRODUCTS ITA NO. 153/COCH/2011 11 PURCHASED BY THE ASSESSEE FROM M/S. RELIANCE INDUST RIES LIMITED. THE ASSESSEE IS THE OWNER OF THE PRODUCT ITSELF AND IT IS NOT HELD AS AN AGENT OF M/S. RELIANCE INDUSTRIES LTD. 7. IT IS ALSO BROUGHT ON RECORD VIDE REMAND REPORT THAT IN THE PROFIT AND LOSS ACCOUNT ATTACHED WITH THE RETURN OF INCOME, TH E ASSESSEE HAD SHOWN THE SALES DURING THE PREVIOUS YEAR AT RS.2,32 ,29,981.82/- AGAINST A PURCHASE OF RS.2,31,69,032.14/- WITHOUT WORKING OUT ANY GROSS PROFIT. THE ASSESSEE HAS DETERMINED THE NET LOSS OF THE BUSINES S AT RS.81,160.14/- IN THE PROFIT AND LOSS ACCOUNT. IN THE RECEIPT SIDE OF TRADING, PROFIT & LOSS ACCOUNT, THE ASSESSEE HAS CREDITED BROKERAGE RECEIV ED TO THE TUNE OF RS.3,26,303.66/- AND HANDLING CHARGES RECEIVED FROM M/S. RELIANCE INDUSTRIES LIMITED TO THE TUNE OF RS.16,36,175,92/- . THE TDS CERTIFICATE ATTACHED WITH THE RETURN OF INCOME REFLECTS ONLY AN AMOUNT OF RS.16,36,175.92/- AS COMMISSION OR BROKERAGE. THE COMPANY HAS ALSO DEDUCTED THE TAX AT THE RATE APPLICABLE U/S. 194H O F THE I.T. ACT FROM THE ABOVE ACCOUNT. HAD THE ASSESSEE RECEIVED ONLY THE COMMISSION FROM M/S. RELIANCE INDUSTRIES LIMITED, PROFIT AND LOSS A CCOUNT WOULD HAVE SHOWN ONLY A RECEIPT TO THAT EXTENT. BUT IN THIS C ASE THE ASSESSEE HAD ALSO DERIVED A PROFIT ELEMENT OF RS.3,26,303,66/- A S BROKERAGE OTHER THAN WHAT THE COMPANY HAS PAID TO THE ASSESSEE. THUS TH E ASSESSEE WAS IN RECEIPT OF FUND OTHER THAN WHAT M/S. RELIANCE INDUS TRIES LTD. HAD PAID AS BROKERAGE AND COMMISSION. THE BOOKS OF ACCOUNT HAD BEEN AUDITED BY ITA NO. 153/COCH/2011 12 A CHARTERED ACCOUNTANT WHICH REFLECTS THE ACTIVITIE S OF THE ASSESSEE AS SIMILAR TO THAT OF A NORMAL TRADING CONCERN. 8. FURTHER, THE PAYMENT MADE FOR PURCHASE OF PRODUC TS FROM M/S. RELIANCE INDUSTRIES IS AN EXPENDITURE IN THE HANDS OF THE ASSESSEE AND ATTRACT THE PROVISIONS OF SEC. 40A(3) OF THE I.T. A CT. AS SEEN FROM THE FACTS BROUGHT ON RECORD, THE ASSESSEE HAS PURCHASED PRODU CTS FROM M/S. RELIANCE INDUSTRIES LTD. AS MENTIONED ABOVE AND IT IS ONLY THE PAYMENT FOR PURCHASES MADE BY THE ASSESSEE IN CASH. THE STO CK OF RECHARGE VOUCHERS IS THE STOCK-IN-TRADE OF THE ASSESSEES BU SINESS AND THE PURCHASES WERE DEBITED AS EXPENDITURE IN THE PROFIT & LOSS ACCOUNT. THE PLEA OF THE ASSESSEE THAT IT HAS RECEIVED ONLY THE AMOUNT FROM M/S. RELIANCE INDUSTRIES LTD. AND ACTED AS AN AGENT OF M /S. RELIANCE INDUSTRIES LTD., IS NOT BORNE OUT OF RECORDS AND MATERIALS BRO UGHT ON RECORD HAVE ESTABLISHED THIS FACT. THE ASSESSEE HAS CREDITED T HE WHOLE AMOUNT OF THE PURCHASE TO M/S. RELIANCE INDUSTRIES LTD. AND MADE INDIVIDUAL PAYMENT IN CASH IN VIOLATION OF THE PROVISIONS OF SEC. 40A( 3) OF THE I.T. ACT. THE ASSESSEE HAS FAILED TO PROVE ANY REASONABLE CAUSE F OR SUCH PAYMENT AND NO EXPLANATION HAS ALSO BEEN PROVIDED BY THE AS SESSEE AS TO WHY CASH PAYMENT IS MADE IN EXCESS OF RS.20,000/- OTHER WISE THAN BY CROSSED ACCOUNT PAYEE CHEQUE OR BY ACCOUNT PAYEE DEMAND DRA FT. THUS, THE ASSESSEE HAS DELIBERATELY MADE THE PAYMENT IN VIOLA TION OF THE PROVISIONS OF SEC. 40A(3) OF THE I.T. ACT. THE EXP LANATION OF THE ASSESSEE IS ITA NO. 153/COCH/2011 13 THAT THE ASSESSEE BEING AN AGENT OF M/S. RELIANCE I NDUSTRIES LTD., PROVISIONS OF SEC. 40A(3) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. FURTHER, THE FACTS BROUGHT ON RECORD SUGGES T THAT THE ASSESSEE IS NOT AN AGENT OF M/S. RELIANCE INDUSTRIES LTD. BUT O NLY A DISTRIBUTOR WHO HAS PURCHASED PRODUCTS IN ITS NAME FROM M/S. RELIAN CE INDUSTRIES LTD. AND ENTITLED ONLY FOR THE DIFFERENCE OF PRICE CHARG ED BY M/S. RELIANCE INDUSTRIES LTD. AND SUPPLIED BY THE ASSESSEE TO ITS CUSTOMERS. BEING SO, IN OUR OPINION, THE PROVISIONS OF SEC. 40A(3) IS DIREC TLY APPLICABLE IN THE ABSENCE OF ANY REASONABLE CAUSE FOR MAKING SUCH CAS H PAYMENT. 9. WE HAVE ALSO GONE THROUGH RULE 6DD OF THE I.T. R ULES. THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY EXPLANATION FOR MA KING PAYMENT IN CASH FOR PURCHASE OF PRODUCTS FROM M/S. RELIANCE IN DUSTRIES LTD. IN OUR OPINION, THE DECISION OF THE COCHIN BENCH OF THE TR IBUNAL IN THE CASE OF S. RAHUMATHULLA VS. CIT (ASST.) (127 ITD 440) RELIED U PON BY THE LD. AR CANNOT BE APPLIED TO THE FACTS OF THE ASSESSEES CA SE. ACCORDINGLY, WE ARE OF THE OPINION THAT THE LOWER AUTHORITIES ARE J USTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. ITA NO. 153/COCH/2011 14 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21ST D AY OF NOV 2014. SD/- SD/- (N.R.S. GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 21ST NOV 2014 RAJ* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT, 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN 1 DATE OF DICTATION 28 OCT 2014 2 DT ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 29 OCT 2014 3 DT ON WHICH THE APPROVED DRAFT COMES TO THE SR P S/PS 4 DT ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER 5 DICTATION PAID PLACED IN THE ORIGINAL FILE (NO.OF PAGES) 6 DT OF PRONOUNCEMENT 7 DT ON WHICH THE FILE GOES TO THE BENCH CLERK 8 DT ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DT ON WHICH THE FILE GOES TO AR 10 DT OF DISPATCH OF THE ORDER