Bhagya Lakhi Roy (Prop), Bijoy Narayan Roy (Decd), Burdwan V. ITO, Ward - 3(1), Asansol, Asansol

ITA 1602/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4672 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SSITAL CHANDRA DAS J
• Assessee Lawyers: K K KHEMKA
• Keywords: Business income
• Section: 40A(3); 143(3); 5(2); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 160 2 / KOL / 2011 ASSESSMENT YEAR :2008-09 BIJOY NARAYAN ROY (PROP) (DEAD) RAGHUNATH CHAK C.S. SHOP, BALLAVPUR, DIST. BURDWAN [ PAN NO.ACRPR 6596 R ] V/S INCOME TAX OFFICER, WARD 3(1), G.T. ROAD (WEST), ASANSOL /APPELLANT .. / RESPONDENT / /BY APPELLANT SHRI K.K.KHEMKA, ADVOCATE /BY RESPONDENT SHRI SSITAL CHANDRA DAS, JCIT-DR /DATE OF HEARING 06-05-2016 /DATE OF PRONOUNCEMENT 01-06-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS) ASANSOL DATED 21.09.2011. ASSE SSMENT WAS FRAMED BY ITO WARD-3(2), ASANSOL U/S 143(3) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 10.09.2010 FOR A SSESSMENT YEAR 2008-09. GROUNDS RAISED BY ASSESSEE AS UNDER:- 1(A) FOR THAT THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE / ADDITION U S 40A(3) FOR PURCHASES MADE RS.2,15,47,820/- FROM ASANSOL BOTTLING & PACKAGING CO. PVT. LTD. AND IFB AGRO INDUSTRIES LTD. 1(B) FOR THAT THE CONFIRMATION BY LD. CIT(A) OF DIS ALLOWANCE / ADDITION U/S 40A(3) IS LEGALLY & FACTUALLY WRONG, ILLEGAL & UNJUSTIFIED. ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 2 2. FOR THAT THE LD. CIT(A) ERRED IN LAW & ON FACTS IN NOT PROPERLY CONSIDERING PROVISIONS OF SEC. 144/145 OF THE IT ACT. 2. THE INTER-CONNECTED ISSUES LD CIT(A) ERRED IN CO NFIRMING THE ORDER OF AO BY DISALLOWING OF THE PURCHASES OF RS. 2,15,47,820/- U /S 40(A)(3) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF COUNTRY LIQUOR. DURING THE YEAR, ASSESS EE HAS MADE THE PURCHASE FROM TWO PARTIES MAINLY - ASANSOL BOTTLING AND PACKAGING COMPANY PRIVATE LTD AND SOME PURCHASES WERE ALSO MADE FROM IFB AGRO INDUSTR IES LTD. AGAINST THE AFORESAID PURCHASES ASSESSEE HAS MADE THE PAYMENT I N CASH BY DEPOSITING MONEY DIRECTLY TO THE BANK ACCOUNT OF THE AFORESAID COMPANIES. ALMOST IN ALL THE CASES, THE PAYMENT FOR THE PURCHASE WAS EXCEEDING R S. 20,000/- WHICH WAS THE CLEAR VIOLATION OF THE PROVISIONS OF SECTION 40(A)( 3) OF THE ACT. DURING THE ASSESSMENT PROCEEDING, AO HELD THAT THE PAYMENT MAD E BY THE ASSESSEE IN CASH HAS CLEARLY VIOLATED THE PROVISIONS OF SECTION 40(A )(3) OF THE ACT. THE AO ALSO OBSERVED THAT THE CASE OF ASSESSEE DOES NOT FALL UN DER THE EXCEPTIONS PROVIDED IN CLAUSE 6DD OF INCOME TAX RULES OF THE IT RULES 1962 . THEREFORE, HE HAS DISALLOWED A SUM OF 2,15,47,820/- AND ADDED IT TO THE TOTAL INCOME OF T HE ASSESSEE. 4. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF THE ASSESSEE A ND HAVING CONSIDERED THE SAME THE LD CIT(A) CONFIRMED THE ACTION OF AO. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) THE ASSE SSEE IS IN SECOND APPEAL BEFORE US. SHRI K.K.KHEMKA, LD. AUTHORIZED REPRESENTATIVE APPE ARING ON BEHALF OF ASSESSEE AND SHRI SITAL CHANDRA DAS, LD. DEPARTMENTAL REPRES ENTATIVE APPEARING ON BEHALF OF REVENUE. ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 3 5. BEFORE US LD. AR FILED A PAPER BOOK WHICH IS RUN NING PAGES FROM 1 TO 196 AND SUBMITTED THAT ASSESSEE IS AUTHORISED RETAILER AGENT (FRANCHISE) OF COUNTRY SPRIT OF WEST BENGAL GOVERNMENT UNDER BENGAL EXCISE ACT & RULES. THE PAYMENTS WERE MADE BY WAY OF DEPOSIT OF CASH DIRECT LY IN THE BANK A/C OF WHOLESALER AGENT OF WEST BENGAL GOVERNMENT IN TERMS OF CALCUTTA GAZETTE NOTIFICATION NO, 188-EX/0/R-4/2000 DT. 23/02/2000, THE ENTIRE PAYMENT IS THEREFORE TO WEST BENGAL GOVERNMENT (THROUGH AUTHOR ISED WHOLESALER AGENT) WHO IS 'PRINCIPAL' IN THIS CASE. THE ASSESSEE WAS REQUIRED AND FORCED TO PAY THE COST OF MATERIAL (WINE) ONLY BY WAY OF DEPOSIT OF MONEY IN CASH TO THE BANKER OF AUTHORISED WHOLESALER AGENT O F WB. GOVERNMENT, IFB AGRO INDUSTRIES LTD CITY CENTRE, DURGAPUR - 713216 AND ASANSOL BOTTLING & PACKAGING PVT LTD. P.O. KALLACH - 713340, BURDWAN. THE WHOL ESALER AGENT OF WB GOVT. SUPPLIED PRINTED PAYING SLIPS OF HIS BANK, WHEREIN NAME AND BANK A/C NO. WAS PRINTED IN SOME PAYING SLIP EVEN QUANTITIES SUPPLIE S WITH RATE HAS BEEN MENTIONED ON THE BACK OF THE PAYING SLIP. IN THE INVOICE ISS UED THE SUPPLIER HAS SPECIFICALLY MENTIONED THE AMOUNT OF BANK DEPOSIT AND CASH RECEI VED COLUMN WAS REMAINED BLANK (SEE COPIES PAPER BOOK PAGE 14 TO 196. THE I TO HAS VERIFIED THE ENTIRE PURCHASE FROM THE WHOLESALER AGENT AND THE SUPPLIER HAS CONFIRMED THE TOTAL SALES MADE BY THEM TO THE ASSESSEE, IFB AGRO INDUSTRIES L TD. HAVING PAN. AAACI6487L BANK A/E. NO. 10306876975, SBI, CITY CEN TRE DURGAPUR AND AXIS BANK, DURGAPUR A/E. NO. 21301020001645 EXCISE NO. 1 9200052155, CST NO. 19200052252, VAT NO. 19200052058, TAN NO. CALL01584 C. AND ASANSOL BOTTLING & PACKAGING PVT. LTD HAVING PAN. AAECA2535R BANK A/ E. - SBI, ASANSOL CST NO. 6940 (B.A)C, VAT NO. BA/13650, TAN NO. CALA0575 8E. THE ENTIRE MATERIAL PURCHASED AND SOLD 18 AS AN AGENT & FRANCHISE OF WB . GOVERNMENT SUBJECT TO STRICT CHECKING BY THE STATE EXCISE AUTHORITY, WHO PUT THEIR STAMP AND SEAL ON STOCK REGISTER MAINTAINED ( SEE COPIES AT PAGE NO: 14. TO 196 PAPER BOOK ). EVEN TCS U/S. 206C OF THE I. T. ACT HAS BEEN COLLEC TED BY THE WHOLESALE AGENT AND PAID TO CENTRAL GOVT. WHICH HAS BEEN FILED BEFO RE THE ITO FOR CLAIMING TAX CREDIT. (TAN NO: OF THE PARTY CALL0L584G / 59(2)) A ND CALA05758E/59(2) THE WHOLESALER AGENT OF W.B. GOVT. IS CLEAR FROM TCS CE RTIFICATE ISSUED. THE ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 4 PROVISION OF SECTION 40A(3) WAS INTRODUCED IN THE A CT BY FINANCE ACT, 1968. AS PER THE EXPLANATORY NOTE PARA-73 THE PROVISION IS DESIGNED TO COUNTER EVASION OF TAX THROUGH CLAIMS FOR EXPENDITURE SHOWN TO HAVE BEEN I NCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE AND THE REASONABLENESS OF THE PAYMENT. EARLIER ALSO RULE 6DD WAS ENACTED WHICH READ AS UNDER :- ' IN ANY OTHER CASE WHERE TH E ASSESSEE SATISFIED THE INCOME TAX OFFICER THAT THE PAYMENT COULD NOT BE MA DE BY A CROSS CHEQUE DRAWN ON A BANK OR BY A CROSS CHEQUE BANK DRAFT- A) DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES, B) BECAUSE PAYMENT IN THE MANNER IN AFORESAID WAS N OT PRACTICABLE, WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE, HAVING REGARD TO THE NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXPEDITIOUS SETTL EMENT THEREOF AND ALSO FURNISHES EVIDENCE TO THE SATISFACTION OF THE INCOME TAX OFFI CER AS TO THE GENUINENESS OF THE PAYMENT AND THE IDENTITY OF THE PAYEE'. THE LAW AM ENDED AND FOLLOWING PROVISIONS WAS INTRODUCED BY THE FINANCE ACT 2007 W .E.F. 1.4.2008 AND EXPLANATORY NOTES THERE UNDER PROVIDES 'PROVIDED THAT NO DISALL OWANCES SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GA INS OF BUSINESS OR PROFESSION UNDER THIS SUB-SECTION WHERE ANY PAYMENT IN A SUM E XCEEDING 20000.00 RUPEES IS MADE OTHERWISE THEN BY AN A/C PAYEE CHEQUE DRAWN ON A BANK OR A/C PAYEE BANK DRAFT, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES A S MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITI ES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS'. INTEREPRETATI~N OF LAW' ....................... THE COMMA - WEBSTERS NEW W ORLD DICTIONARY - OXFORD (SEE PAPER BOOK PAGE NO 251 (1) THE USE OF 'COMMA' 1. USE A COMMA TO SEPARATE AND INTRODUCTORY CLAUSE OR PHASE FROM A MAIN CLAUSE. 9. USE A COMMA TO SEPARATE, WORDS, PHRASES AND CLAU SES IN THE SERIES. 10. USED A COMMA TO SET OFF ABSOLUTE AND PARENTHETI CAL ELEMENTS IN THE SENTENCE. 12. USE A COMMA OR COMMAS TO SET OFF NON-RESTRICTIV E PHRASES OR CLAUSES FROM THE REST OF SENTENCE. 16. USE A COMMA AFTER TERMS THAT INTRODUCE A SERIE S OR AN EXAMPLE. FIRSTLY ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 5 3. AFTER READING THE ORIGINAL ENACTMENT AND SUBSEQU ENT AMENDMENT AND AFTER READING THE FINANCE MINISTER'S EXPLANATORY NOTE THE FOLLOWINGS SHOULD BE REQUIREMENT TO ALLOW - CASH PAYMENT WITHIN MEANING OF SECTION 40A(3). (A) IDENTITY OF THE PAYEE (B) REASONABLENESS OF THE PAYMENT (C) CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS (D) THE ACT AS INTRODUCED IN 1968 READ WITH RULES 6 DDJ REQUIRES TO EXEMPT THE PROVISION OF SECTION 40A(3) IF CASH PAYMENT IS DUE TO GENUINE DIFFICULTY AND THE EVIDENCE THEREOF IS PRODUCED AT THE TIME OF ASSESSM ENT. THIS RULE 6DDJ WAS INCORPORATED IN ACT ITSELF BY FINANCE ACT 2007 BY U SING THE WORD CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. (A) CIRCUMSTANCES AS PRESCRIBED IN THE RULE. (B) EXTENT OF BANKING FACILITY AVAILABLE. (C) CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THE INTENTION OF THE ACT IS VERY CLEAR BY THE FACT THAT THE ACT HAS NOT USED THE WORD ' AND ' WHICH DENOTES THAT CUMULATIVE CONDITIONS ARE NOT REQUIRED TO BE FULL FILLED. THE ABSENCE OF THE WORD ' AND ' IMPLIES THAT THE ACT HAS GIVEN' ALTERNATIVE INDEPENDENT CONDITIONS ((I.E. ANYONE OF THE CONDITION GIVEN IN THE ACT NEEDS TO BE FULFILLED TO CLAIM EXE MPTION FROM OPERATION OF SEE. 40A(3) OF THE ACT. AND NOT THE CUMULATIVE COND ITION. IN THIS CASE THE CONDITION' CONSIDERATION OF BUSINESS EXPED IENCY & OTHER RELEVANT FACTORS' HAS BEEN FULLY SATISFIED WHICH ENTITLE THE ASSESSEE TO CLAIM EXEMPTION OF OPERATION OF SEE. 40A(3) OF THE I. T. ACT. SECONDLY 4A. IN THIS CASE THE ASSESSEE HAS BEEN ABLE TO PROO F (A) IDENTITY OF THE PAYEE WHOLESALER AGENT OF WB. GOVT. HAVING IFB AGRO INDU STRIES LTD HAVING PAN NO: AAACI6487L BANK A/E. NO: 10306876975 WITH SBI, CITY CENTRE, DURGAPUR, EXCISE REGN. NO: 19200052155, VAT NO: 192 00052058, CST NO: 19200052252, TAN NO: CALL01584C AND ASANSOL BOTTLIN G & PACKAGING PVT LTD. PAN NO. AAECA2535R BANK A/C. WITH SBI, ASANSOL , VAT NO. BA/13650, CST NO. 6940 (BA)C, TAN NO. CALA0578E AND ALSO REAS ONABLENESS OF THE PAYMENT. (B) AS PRICE IS DETERMINED BY THE WEST BEN GAL GOVT. AND IS SUBJECT TO CHECK BY THE EXCISE AUTHORITIES. (C) PAYMENT HAS BE EN MADE BY THE ASSESSEE DIRECTLY TO THE SUPPLIERS BANK A/E. ON THE PRINTED STATIONERY SUPPLIED BY THE WHOLESALER AGENT OF W.B. GOVT. IFB AGRO INDUSTRIES LTD. AND ASANSOL BOTTLING & PACKAGING PVT. LTD., WHICH IS THE PROOF THE CONSIDE RATION OF THE BUSINESS EXPEDIENCY. 4B. THE ITO HAS VERIFIED THE TOTAL TRANSACTION FROM THE SUPPLIERS BY ISSUE OF NOTICE U/S. 133(6) OF THE ACT AND GOT REPLY THERETO , CONFIRMING THE ENTIRE TRANSACTION AND ALSO THE FACT OF BANK DEPOSIT THROU GH ITS BILL. THIRDLY 5A. THE PAYMENTS BY WAY OF DEPOSIT OF CASH DIRECTLY IN THE BANK A/C OF THE WHOLESALER AGENT OF WEST BENGAL GOVERNMENT IN TERMS OF CALCUTTA GAZETTE NOTIFICATION NO. 188-EX/0/R-4/2000 DT. 23/02/2000. THE PAYMENTS MADE IS ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 6 THEREFORE, OTHERWISE COVERED UNDER RULE 6DD(B) OF T HE I. T. RULES TO WHICH PROVISIONS OF SEC. 40A(3) ARE INAPPLICABLE. 5. IN THIS CONNECTION, ATTENTION IS DRAWN TO CALCUT TA GAZETTE AS UNDER: '5(1) - THE RETAIL VENDER OR SHALL SUBMIT TO THE WH OLESALE LICENSEE THROUGH EXCISE OFFICER IN CHARGE OF THE WAREHOUSE A DEMAND FOR ISSUE OF COUNTY SPRIT ', 5(2) NO RETAIL VENDER OF COUNTRY SPRIT SHALL DEPOSI T DUTY DIRECT INTO THE LOCAL TREASURY FOR ISSUE OF COUNTRY SPIRIT R DUTY COST PR ICE, BOTTLING CHARGE SHALL BE PAID BY THE RETAIL VENDER TO THE CREDIT OF THE WHOL ESALE LICENSEE CONCERNED. 5(3) THE WHOLESALE LICENSEE SHALL REALISE THE NECES SARY AMOUNT TO DUTY, COST PRICE AND BOTTLING CHARGE AND SHALL DEBIT THE AMOUN T OF DUTY FOR THE ISSUE FROM THE PERSONAL LEDGER ACCOUNT . THE AUTHORIZED RE PRESENTATIVE SHALL THEN SUBMIT REQUISITION TO THE EXCISE OFFICER IN CHAR GE OF A WAREHOUSE. 5B RULE 6DD(B) OF I. T. RULES WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND UND ER THE RULES FAMED BY IT' SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER. 5D. THE ENTIRE PAYMENT, IS THEREFORE, TO PRINCIPAL, WEST BENGAL GOVERNMENT THROUGH ITS WHOLESALE AGENT. THE RELATIO NSHIP, BETWEEN THE ASSESSEE (FRANCHISE AUTHORISED RETAILER) AND W.B. G OVERNMENT (THE SUPPLIER) ACTING UNDER BENGAL EXCISE RULES THROUGH ITS AUTHORISED WHOLESALER LICENSEE (AGENT), BOTH DE FACTO AND DE J URE, IS ONE OF 'PRINCIPAL' AND 'AGENT'. THE RETAILER AT ALL TIMES ACTING ONLY FOR AND ALL BEHALF OF THE SUPPLIER (WB. GOVERNMENT) AS LINK ONLY IN THE SUPPL Y CHAIN AND, THUS, THE PAYMENTS BY IT TO THE PRINCIPAL - SUPPLIER ARE ONLY IN TERMS OF AND IN PURSUANCE OF GAZETTE NOTIFICATION. THE QUESTION OF NO SEPARATE PAYMENT BEING MADE BY THE PAYEE - PRINCIPAL (WB, GOVERNMENT ) TO THE PAYER - RETAILERS I.E. TOWARDS REMUNERATION OR COMMISSION, ETC, ARISES. PROVISIONS OF SEC. 40A(3), THEREFORE, ARE NOT APPLICABLE TO THIS CASE UNDER RULE 6DD(B) ALSO. 6. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTE D THE ORDER OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AFTER EXAMINING ON THE FACTS OF THE CASE AN D HEARING THE RIVAL CONTENTIONS OF BOTH THE PARTIES WE FIND THAT THE AO HAS DISALLO WED THE PURCHASES WHERE THE PAYMENT WAS EXCEEDING MORE THAN RS. 20,000/- IN ACC ORDANCE WITH THE PROVISION ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 7 OF SECTION 40A(3). IN OUR VIEW THIS ISSUE NEEDS TO BE ADJUDICATED FROM DIFFERENT DIMENSIONS AS ENUMERATED BELOW : 1) WHAT WERE THE PROVISIONS OF SECTION 40A(3) THEN APPLICABLE FOR THE ASSESSMENT YEAR 2008-09. 2) THE PURPOSE OF INTRODUCTION OF THE SECTION 40A(3 ) IN THE INCOME TAX ACT. 3) CASE LAWS OF VARIOUS COURTS. THE PROVISIONS OF THE SECTION 40A(3) OF THE ACT THE N APPLICABLE FOR THE ASSESSMENT YEAR 2008-09 READS AS UNDER : 40A.(1) (2). (3)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, NO DEDUCTION SHALL BE ALLOWED IN RESPEC T OF SUCH EXPENDITURE; (3)(B)WHERE AN ALLOWANCE HAS BEEN MADE IN THE ASSES SMENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY THE ASSESSE E FOR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR ( HEREINAFTER REFERRED TO AS SUBSEQUENT YEAR ) THE ASSESSEE MAKES PAYMENT IN RESPECT THEREOF, OTHERWISE THAN ANY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, THE PAYMENT SO MADE SHALL BE DEEM ED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF THE SUBSEQUENT YEAR IF THE AMOUNT OF PAYMENT EXCEEDS TWENTY THOUSAND RUPEES: PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR P ROFESSION UNDER THIS SUB-SECTION WHERE ANY PAYMENT IN A SUM EXCEEDING TW ENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE C HEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD T O THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATI ONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. FROM THE PLAIN READING OF THE PROVISIONS OF SECTION 40A(3) WE FIND THAT CERTAIN EXCEPTIONS HAVE BEEN PROVIDED THEN APPLICABLE FOR T HE ASSESSMENT YEAR 2008-09 AND ONE OF THEM IS WITH REGARD TO THE BUSINESS EXPE DIENCY OF THE ASSESSEE. FROM THE SUBMISSION OF THE ASSESSEE WE FIND THAT THE ASS ESSEE WAS THE ONLY AUTHORIZED DEALER IN ASANSOL FOR THE SUPPLY OF COUNTRY LIQUOR TO THE AUTHORIZED EXCISE ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 8 VENDORS. THE ASSESSEE CAN TAKE THE DELIVERY OF THE GOODS ONLY AFTER DEPOSITING THE PAYMENT WITH THE COMPANY. THE ASSESSEE WAS TO K EEP SUFFICIENT STOCK OF COUNTRY LIQUOR AS PRESCRIBED BY THE EXCISE DEPARTME NT AND IN CASE STOCK FALLS SHORT OF THE PRESCRIBED LIMIT THEN THE DEPARTMENT U SED TO IMPOSE PENALTY. THEREFORE THE ASSESSEE AVOIDED THE PROCESS OF DEPOS ITING THE CASH IN HIS BANK ACCOUNT AND THEREAFTER GETTING THE DEMAND DRAFT IN THE NAME OF THE COMPANY IN ORDER TO KEEP THE STOCK WITHIN THE PRESCRIBED LIMIT AT ALL THE TIMES. IT IS ALSO IMPORTANT TO NOTE THAT THE COMPANY WAS ALSO NOT ACC EPTING THE ACCOUNT PAYEE CHEQUE OF THE ASSESSEE AS IT WILL TAKE COUPLE OF DA YS TIME IN CLEARANCE. SO IN OUR CONSIDERED VIEW THE EXCEPTION PROVIDED IN THE PROVI SIONS OF SECTION 40A(3) WITH REGARD OF THE BUSINESS EXPEDIENCY THEN APPLICABLE F OR THE ASSESSMENT YEAR 2008- 09 IS MET BY THE ASSESSEE. 7.1 THE PROVISION OF SECTION 40A(3) WAS INSERTED BY THE FINANCE ACT 1968. THE PURPOSE FOR BRINGING THE SECTION WAS MENTIONED IN T HE EXPLANATORY NOTE PARA 73 WHICH READ AS UNDER : IT WILL BE PERTINENT TO GO INTO THE INTENTION BEHIN D INTRODUCTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AT THIS JUNCTURE. WE FI ND THAT THE SAID PROVISION WAS INSERTED BY FINANCE ACT 1968 WITH THE OBJECT OF CURBING EXPENDITURE IN CASH AND TO COUNTER TAX EVASION. THE CBDT CIRCULAR NO. 6P DATED 06.07.1968 REITERATES THIS VIEW THAT THIS PROVISION IS DESIGNED TO COUNTER EVASION OF A TAX THROUGH CLAIMS FOR EXPENDITURE SHO WN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE AND REAS ONABLENESS OF THE PAYMENT . 7.2 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) 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 AME NDMENT) WOULD BE ALLOWED TO BE DEDUCTED ONLY IF MADE BY A CROSSED CH EQUE 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 BU SINESS. IF READ TOGETHER WITH RULE 6DD OF THE INCOME-TAX RULES, 1962, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT BUSINESS ACTIVITIES. T HERE 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 ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 9 OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PA YMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURC ES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN T O THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCU MSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. 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 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 REGULATE BUS INESS TRANSACTIONS AND TO PREVENT THE USE 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 T O 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 TRANSACTIONS, RATE OF GROSS PROFIT OR THE FACT THAT THE BONA FIDE OF THE ASSESSEE THAT PAYMEN TS ARE MADE TO PRODUCERS OF HIDES AND SKIN ARE ALSO NEITHER DOUBTED NOR DISP UTED BY THE AO. ON THE BASIS OF THESE FACTS IT IS NOT JUSTIFIED ON THE PAR T OF THE AO TO DISALLOW 20% OF THE PAYMENTS MADE U/S 40A(3) IN THE PROCESS OF ASSE SSMENT. WE, THEREFORE, DELETE THE ADDITION OF RS. 17,90,571/- AND GROUND N O.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 IS NOT M ADE BY CROSSED CHEQUE OR BANK DRAFT BUT BY HEARER CHEQUES AND HAS COMPUTED T HE 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 THESE GOODS COULD NOT HAVE BE EN PROCURED AND IT WOULD HAVE HAMPERED THE SUPPLY OF GOODS WITHIN THE STIPULATED TIME. THEREFORE, THE GENUINENESS 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 PASSED BY THE LEARNED TRI BUNAL. IT FURTHER APPEARS FROM THE ASSESSMENT ORDER THAT NEITHER THE ASSESSIN G OFFICER NOR THE CIT(APPEAL) HAS DISBELIEVED THE GENUINENESS OF THE TRANSACTION. THERE WAS NO DISPUTE THAT THE PURCHASES WERE GENUINE. ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 10 ANUPAM TELE SERVICES VS ITO IN (2014) 43 TAXMANN.CO M 199 (GUJ) 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 LIMITS (RULE 6DD(J)-ASSESSMENT YEAR 2006 -07 ASSESSEE WAS WORKING AS AN AGENT OF TATA TELE SERVICES LIMITED F OR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS PRINCIPAL COMPANY TAT A INSISTED THAT CHEQUE PAYMENT FROM ASSESSEES CO-OPERATIVE BANK WOULD NOT DO, SINCE REALIZATION TOOK LONGER TIME AND SUCH PAYMENTS SHOULD BE MADE O NLY IN CASH IN THEIR BANK ACCOUNT IF ASSESSEE WOULD NOT MAKE CASH PAYM ENT AND MAKE CHEQUE PAYMENTS ALONE, IT WOULD HAVE RECEIVED RECHARGE VOU CHERS DELAYED BY 4/5 DAYS WHICH WOULD SEVERELY AFFECT ITS BUSINESS OPERA TION ASSESSEE, THEREFORE, MADE CASH PAYMENT WHETHER IN VIEW OF A BOVE, NO DISALLOWANCE UNDER SECTION 40A (3) WAS TO BE MADE IN RESPECT OF PAYMENT MADE TO PRINCIPAL - HELD, YES [PARAS 21 TO 23] [ IN FAVOUR OF THE ASSESSEE ] SRI LAXMI SATYANARAYANA OIL MILL VS CIT REPORTED IN (2014) 49 TAXMANN.COM 363 (ANDHRA PRADESH 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 MADE CERTAIN PAYMENT OF PURCHASE OF GROUND NUT IN CASH EXCEEDING PRESCRIBED LIMIT ASS ESSEE SUBMITTED THAT HER MADE PAYMENT IN CASH BECAUSE SELLER INSISTED ON THA T AND ALSO GAVE INCENTIVES AND DISCOUNTS FURTHER, SELLER ALSO ISS UED CERTIFICATE IN SUPPORT OF THIS WHETHER SINCE ASSESSEE HAD PLACED PROOF OF P AYMENT OF CONSIDERATION FOR ITS TRANSACTION TO SELLER, AND LATER ADMITTED P AYMENT AND THERE WAS NO DOUBT ABOUT GENUINENESS OF PAYMENT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A(3) HELD, 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 ULTIMAT ELY, SUCH AMOUNTS WERE DEPOSITED IN THE BANK BY THE PAYEE. 7.3 IT IS PERTINENT TO NOTE THAT THE PRIMARY OBJE CT OF ENACTING SECTION 40A(3) WERE TWO FOLDS, FIRSTLY, PUTTING A CHECK ON TRADING TRA NSACTIONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANS ACTION AND, SECONDLY, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABITS. THEREFORE, THE CONSEQUENCE, WHICH WERE TO BE FALLEN ON ACCOUNT OF NON- OBSERVATION OF SECTION 40A(3) MUST HAVE NEXUS TO TH E FAILURE OF SUCH OBJECT. ITA NO.1602.KOL/2011 A.Y. 2008-09 BIJOY N ROY (DEAD) V. ITO WD-3(1), ASL. PAGE 11 THEREFORE, THE GENUINENESS OF THE TRANSACTIONS BEIN G FREE FROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVANT CONSIDERATION. WITH R EGARD TO THE PURPOSE OF BRINGING THE PROVISIONS OF SECTION THERE IS NO DOUBT ABOUT T HE IDENTITY OF THE PARTY. THE LD. AR HAS DIRECTLY DEPOSITED THE CASH IN THE ACCOUNT O F THE COMPANIES AND HAS PRODUCED THE SALES BILLS OF THE COMPANY. THE AO HAS ALSO VERIFIED THE TRANSACTIONS FROM THE COMPANIES BY ISSUING NOTICE UNDER SECTION 133(6) OF THE ACT. SO IN THE INSTANT CASE THERE IS NO EVASION OF TAX BY CLAIMING THE BOGUS EXPENDITURE IN CASH. 8. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND RELIED ON THE VARIOUS CASE LAWS CITED ABOVE, WE ARE INCLINED TO R EVERSE THE ORDER OF LOWER AUTHORITIES. HENCE THIS GROUND OF APPEAL OF THE ASS ESSEE IS ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 01/ 06/2016 SD/- SD/- (S.S.VISHWANETHRA RAVI) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 01 / 06 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-BIJOY NARAYAN ROY (PROP)DEAD) RAGHUNATH CHAK, C.S. SHOP BALLAVPUR, DIST . BURDWAN 2. /RESPONDENT- ITO, WARD-3(1), G.T.ROAD, (WEST), ASAN SOL 3. ) *+ , , - / CONCERNED CIT ASANSOL 4. , , -- / CIT (A) ASANSOL 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,