Shri Prabir Kumar Mullick, Burdwan V. ITO, Ward - 3(1), Asansol, Asansol

ITA 1603/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4674 (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; Income from undisclosed sources
• Section: 40A(3); 143(3); 5(2); 260A; 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. 1603 / KOL / 2011 ASSESSMENT YEAR :2008-09 PRABIR KUMAR MULLICK SEARSOL C.S.SHOP, SHISUBAGAN (KALALI GALI) RANIGUNJ (BURDWAN) [ PAN NO.AJEPM 7142 G ] 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 0106-2016 / 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 10.0 9.2010 FOR ASSESSMENT YEAR 2008-09. GROUNDS RAISED BY ASSESSEE ARE AS UNDER:- 1(A) FOR THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE / ADDITION US 40A(3) FOR PURCHASES MADE RS.2,15,47,820/- FROM ASANSOL BOTTLI NG & 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 & UNJ USTIFIED. ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK 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 AC T. 2. AT THE OUTSET IT WAS OBSERVED THAT THE LD. DR HA S FILED AN APPLICATION ON DATED 12.11.2014 VIDE NO. CIT(ITAT)/KOL/C/2014-15/2 577 TO THE HONBLE PRESIDENT OF ITAT FOR CONSTITUTING THE SPECIAL BENC H IN CONNECTION WITH THE AFORESAID APPEAL. THE REASON IN THE APPLICATION WAS MENTIONED THAT THERE ARE SEVERAL CONFLICTING JUDGMENTS PASSED BY THE HONBLE ITATS AND DIFFERENT HONBLE HIGH COURTS ON THE ISSUE RAISED IN APPEAL. THE CONSTITUTIONAL VALIDITY OF SECTION 40A(3) IS NOT AN ISSUE AFTER SEVERAL JUDICI AL DECISIONS UPHOLDING THE SAME. HOWEVER, THERE IS CONFLICT IN THE DECISIONS O F ITAT, KOLKATA BENCH IN THE CASE OF SMT.PUSPALATA MONDAL VS. ITO WD.2(2), ASANSOL (ITA NO.965/KOL/2010, AY 2007-08 DATED28.07.2011 AND M/S AMRAI PACHWAI & CS SHOP VS. DCIT CIRL.1 DURGAPUR (ITA NO.1251/KOL/2011 AY 2008-09 DA TED 15.01.2014). ORIGINAL APPEALS WERE HEARD AND ORDERS WERE PASSED BY ACCOUN TANT MEMBER, SRI C.D.RAO AND JUDICIAL MEMBER SHRI B.R.MITTAL AND ACC OUNTANT MEMBER, SRI P.K.BANSAL AND JUDICIAL MEMBER SRI GEORGE MATHAN RE SPECTIVELY. IN THE CASE OF SMT. PUSPALATA MONDAL THE DECISION GIVEN BY THE TRI BUNAL KOLKATA BENCH IS IN FAVOUR OF REVENUE BUT IN THE OTHER CASE OF M/S AMRA I PACHWAI & CS SHOP THE DECISION IS IN FAVOUR OF THE ASSESSEE THOUGH THE IS SUE WAS THE SAME. SIMILARLY, THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CA SE OF CIT, MADURAI VS. VENKATADHRI CONSTRUCTIONS AND THE JUDGMENT OF HONB LE KERALA HIGH CURT IN THE CASE OF K. ABDU & CO. VS. ITO WD.3, CABBABIRE WERE GIVEN IN FAVOUR OF REVENUE WHEREAS, THE JUDGMENT OF HONBLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF CIT VS. SMT. SHELLY PASSI WAS GIVEN IN FAVOUR OF AS SESSEE ON THE SAME ISSUE. SINCE THE DECISIONS GIVEN BY THE ITAT, KOLKATA BENC HES AND DIFFERENT HIGH COURTS ARE IN CONFLICT AND THE ISSUE INVOLVED HAS H UGE RAMIFICATIONS IN TERMS OF REVENUE INVOLVED AS WELL AS IT MAY ALSO BE A SUBJEC T-MATTER BEFORE ITATS AT OTHER PLACES, THEREFORE IT WAS REQUESTED FOR THE CO NSTITUTION OF SPECIAL BENCH AT ITAT KOLKATA U/S 255(3) OF ACT SUBJECT TO APPROVAL. ACCORDINGLY THE HONBLE PRESIDENT VIDE LETTER DATED 11.12.2014 REF: U.O. NO . F-1.-JD/(ATK)/2014 DATED 18.11.2014 DIRECTED THE REGISTRY OF ITAT KOLKATA BE NCHES TO PLACE THE MATTER ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 3 BEFORE HONBLE KOLKATA BENCH TO CONSIDER THE JUSTIF ICATION OF CONSTITUTING A SPECIAL BENCH AND IF SO FOUND FIT, THEN REFER THE M ATTER ACCORDINGLY THROUGH PROPER CHANNEL. ACCORDINGLY THE MATTER WAS FIXED BE FORE THE BENCH FOR THE AFORESAID PURPOSE. 3. BEFORE US THE LD. DR VEHEMENTLY SUPPORTED THE VI EW TAKEN IN THE APPLICATION FOR CONSTITUTING THE SPECIAL BENCH. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE FACTS IN WHICH ITAT DECIDED THE ISSUE ARE NOT SIMILAR TO THE FACTS / ARGUMENTS OF THIS CASE FOR FOLLOWING REASON S:- (A) IN PUSPALATA MONDAL CASE, THERE WAS NO VERIFICA TION OF TRANSACTIONS MADE WHEREIN IN THIS CASE VERIFICATION WAS MADE AND THE PARTY (PAYEE) CONFIRMED THE RECEIPT BY WAY OF DIRECTLY DE POSITS MADE IN THEIR BANK ACCOUNT. FURTHERMORE, THE HONBLE CALCUTTA HIG H COURT HAD ADMITTED THAT ASSESSEES PETITION U/S. 260A ON 17.0 1.2012 UNDER ITAT NO. 3/2012 (GA NO.43/2012 & GA NO.4/2012) AND IS PE NDING ITS DISPOSAL BEFORE THE HONBLE COURT. (B) (I) THE FACTS AND EXISTENCE OF CALCUTTA GAZETTE NOTIFICATION NO. 188- EX/O/R-4/2000 DATED 23.02.2000 WAS NOT PRODUCED AND DISCUSSED AND ADJUDICATED UPON BY THE TRIBUNAL IN PUSPALAT MO NDAL CASE. HENCE THE ISSUE OF PAYMENT TO STATE GOVERNMENT OR ITS AUT HORIZED AGENT AS PER RULE 6DD(B) READ WITH 6DD(K) WAS NOT CONSIDERED AS ADJUDICATED UPON BY ITAT. (II) IN SIMILAR TYPE OF CASE, THE RAJASTHAN HIGH CO URT IN CIT VS. KALYAN PD. GUPTA (REPORTED IN 239 CTR-(RAJ) 447 WAS NOT AV AILABLE BEFORE ITAT IN RUSPALATAS CASE. (COPY AT PAGE 19 OF LAST PAPER BOOK.) (C) THE INTERPRETATION OF LAW & EFFECT OF COMMA I N SEC. 40A(3) WAS NOT A SUBJECT-MATTER OF ADJUDICATION BY THE ITAT. (D) (I) THE DECISION OF ITAT BANGALORE BENCH IN SRI RENUKESWARA RICE MILLS VS. ITO (93-TTI(BANG) 912 WAS NOT PROPERTY UN DERSTOOD AND ADJUDICATED BY HONBLE ITAT & THE DECISION OF SUNDU R SALES & SERVICES PVT. LTD. (BANGALORE ITAT) WAS NOT CONSIDE RED THERE. ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 4 (II) SIMILAR TYPE OF THE CASE WAS DECIDED BY HONBL E PUNJAB & HARYANA HIGH COURT IN ASSESSEES FAVOUR REPORTED IN CIT VS. SHELLY PASSI (350 ITR 227) (P&H) COPY AT PAGE 225 TO 257 OF SUPPLEMEN TARY PAPER BOOK. AS WELL AS DECISION OF GUJARAT HIGH COURT IN ANUPUM TELE SERVICES VS. ITO (COPY AT 20 TO 36 OF LAST PAPER BO OK) NOT CONSIDERED BY ITAT (E) THE DECISION OF HONBLE KERALA HIGH COURT IN K . ABDU & CO. VS. ITO (2008) 170 TAXMANN 297, WHICH HAS BEEN RELIED UPON BY HONBLE ITAT, IS ALSO NOT FACTUALLY APPLICABLE, AS IN ABDU CASE , THE AMOUNTS WERE IN FACT HANDED OVER TO TRUCK DRIVERS & NOT DE POSITED IN THE BANK ACCOUNT OF PAYEE DIRECTLY. THE COURT WAS N OT SATISFIED WITH THE PAYMENTS MADE TO TRUCK DRIVERS. IN THIS CASE, T HE ENTIRE AMOUNTS WERE DEPOSITED WITH BANK ACCOUNT OF PAYEE A ND WHO ACKNOWLEDGED THE RECEIPT OF THE AMOUNT. HENCE THE F ACTS IN KERALA CASE WITH THIS CASE ARE DIFFERENT. (F) ITAT IS SILENT IN THE ORDER ABOUT IDENTIFICATIO N AND ADMISSION OF RECEIPT OF PAYMENT BY THE PAYEE IN ITS BANK ACCOUNT. (G) ITAT DID NOT CONSIDER THE FACT OF TCS DEDUCTED BY THE SELLER AND THE FACT THAT CREDIT OF SUCH TCS HAD BEEN ALLOWED BY TH E ITO HIMSELF. 4. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. IT IS BEYOND DOUBT THAT THERE ARE CONFLICT DECISIONS ON THE AFORESAID GROUNDS OF APPEAL . HOWEVER IF WE READ THE RIGOROUS PROVISIONS OF THE AFORESAID SECTION IN THE CONTEXT OF THE OBJECT OF THE SECTION WE FIND THAT ITS OBJECT IS OF CURBING EXPENDITURE IN CASH AND TO COUNTER TAX EVAS ION. 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 EXPENDI TURE 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 . IN THE INSTANT THE POSITION IS VERY CLEAR THAT THE PAYEE IS DULY I DENTIFIED AND HAS CONFIRMED THE ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 5 TRANSACTION IN COMPLIANCE OF THE NOTICE ISSUED UNDE R SECTION 133(6) OF THE ACT. 4.1 WE ALSO FIND SUPPORT FROM THE DECISIONS OF THE APEX COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 ( SC) WHERE IT WAS HELD THAT INTERPRETATION OF STATUTESTAXING PROVISION TWO REASONABLE CONSTRUCTIONSCONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED IF THE LANGUAGE IS PLAIN, ABSURD CONSEQUENCE IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPRETING A PROVISION HELD : IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQU ENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPR ETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN A ND REMOVE THE ABSURDITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TA XING PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THIS IS A WELL ACCEPTED RULE OF CONSTRUCTION. CONCLUSION : IF IN CASE OF A TAXING PROVISION TWO REASONABLE CON STRUCTIONS ARE POSSIBLE, CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. AS THERE ARE TWO DIFFERENT ORDERS ON THE GROUNDS OF APPEAL FAVOURING AND AGAINST THE ASSESSEE. THE HONBLE APEX COURT DIRECT S TO TAKE THE VIEW FAVOURABLE TO THE ASSESSEE. THEREFORE CONSIDERING T HE FACTS OF THE CASE IN TOTALITY AND OBJECT OF THE SECTION 40A(3) OF THE AC T, WE ARE OF THE CONSIDERED VIEW THAT THIS CASE DOES NOT REQUIRE THE REFERENCE TO THE SPECIAL BENCH. HENCE IN OUR CONSIDERED VIEW THIS CASE DOES NOT REQUIRE T O BE REFERRED TO THE SPECIAL BENCH. 6. 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. ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 6 7. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF COUNTRY LIQUOR. DURING THE YEAR, AS SESSEE HAS MADE THE PURCHASE FROM TWO PARTIES MAINLY - ASANSOL BOTTLING AND PACKAGING COMPANY PRIVATE LTD AND SOME PURCHASES WERE ALSO MADE FROM IFB AGRO INDUSTRIES LTD. AGAINST THE AFORESAID PURCHASES ASSESSEE HAS MADE T HE PAYMENT IN CASH BY DEPOSITING MONEY DIRECTLY TO THE BANK ACCOUNT OF TH E AFORESAID COMPANIES. ALMOST, IN ALL THE CASES, THE PAYMENT FOR THE PURCH ASES WERE EXCEEDING RS. 20,000/- WHICH WAS THE CLEAR VIOLATION OF THE PROVI SIONS OF SECTION 40(A)(3) OF THE ACT. DURING THE ASSESSMENT PROCEEDING, AO HELD THAT THE PAYMENT MADE BY THE ASSESSEE IN CASH HAS CLEARLY VIOLATED THE PROVI SIONS OF SECTION 40(A)(3) OF THE ACT. THE AO ALSO OBSERVED THAT THE CASE OF ASSE SSEE DOES NOT FALL UNDER THE EXCEPTIONS PROVIDED IN CLAUSE 6 DD OF INCOME TAX RU LES OF THE IT RULES 1962. THEREFORE, HE HAS DISALLOWED A SUM OF 2,15,47,820/- AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 8. 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 THE ORDER OF LD CIT(A) THE ASSES SEE 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. DEPARTMENT AL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 9. BEFORE US LD. AR FILED PAPER BOOK WHICH IS RUNNI NG INTO PAGES FROM 1 TO 196 AND SUBMITTED THAT THE ASSESSEE IS AUTHORIZED R ETAILER AGENT (FRANCHISE) OF COUNTRY SPRIT OF WEST BENGAL GOVERNMENT UNDER BENGA L EXCISE ACT & RULES. THE PAYMENTS WERE MADE BY WAY OF DEPOSIT OF CASH DI RECTLY 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, T HE ENTIRE PAYMENT IS ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 7 THEREFORE TO WEST BENGAL GOVERNMENT (THROUGH AUTHOR IZED WHOLESALER AGENT) WHO IS ' PRINCIPAL ' IN THIS CASE. THE ASSESSEE WAS REQUIRED AND FORCED TO PAY THE COST OF MATERIAL (WI NE) ONLY BY WAY OF DEPOSIT OF MONEY IN CASH TO THE BANKER OF AUTHORIZED WHOLESALE R AGENT OF WB. GOVERNMENT, IFB AGRO INDUSTRIES LTD CITY CENTRE, DU RGAPUR - 713216 AND ASANSOL BOTTLING & PACKAGING PVT LTD. P.O. KALLACH - 713340, BURDWAN. THE WHOLESALER AGENT OF WB GOVT. SUPPLIED PRINTED PAYIN G SLIPS OF HIS BANK, WHEREIN HIS NAME AND BANK A/C NO. WAS PRINTED IN SO ME PAYING SLIP EVEN QUANTITIES SUPPLIES WITH RATE HAS BEEN MENTIONED ON THE BACK OF THE PAYING SLIP. IN THE INVOICE ISSUED THE SUPPLIER HAS SPECIFICALLY MENTIONED THE AMOUNT OF BANK DEPOSIT AND CASH RECEIVED COLUMN WAS REMAINED BLANK (SEE COPIES PAPER BOOK PAGE 14 TO 196. THE ITO HAS VERIFIED THE ENTIR E PURCHASE FROM THE WHOLESALER AGENT AND THE SUPPLIER HAS CONFIRMED THE TOTAL SALES MADE BY THEM TO THE ASSESSEE, IFB AGRO INDUSTRIES LTD. HAVING PA N. AAACI6487L BANK A/E. NO. 10306876975, SBI, CITY CENTRE DURGAPUR AND AXIS BANK, DURGAPUR A/E. NO. 21301020001645 EXCISE NO. 19200052155, CST NO. 1920 0052252, VAT NO. 19200052058, TAN NO. CALL01584C. AND ASANSOL BOTTLI NG & PACKAGING PVT. LTD HAVING PAN. AAECA2535R BANK A/E. - SBI, ASANSOL CST NO. 6940 (B.A)C, VAT NO. BA/13650, TAN NO. CALA05758E. THE ENTIRE M ATERIAL PURCHASED AND SOLD AS AN AGENT & FRANCHISE OF WB. GOVERNMENT SUBJ ECT 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 COLLECTED BY THE WHOL ESALE AGENT AND PAID TO CENTRAL GOVT. WHICH HAS BEEN FILED BEFORE THE ITO F OR CLAIMING TAX CREDIT. (TAN NO: OF THE PARTY CALL0L584G / 59(2)) AND CALA05758E /59(2) THE WHOLESALER AGENT OF W.B. GOVT. IS CLEAR FROM TCS CE RTIFICATE ISSUED. THE PROVISION OF SECTION 40A(3) WAS INTRODUCED IN T HE ACT 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 INCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATIO N BY THE DEPARTMENT AS TO THE ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 8 IDENTITY OF THE PAYEE AND THE REASONABLENESS OF THE PAYMENT. EARLIER ALSO RULE 6DD WAS ENACTED WHICH READS AS UNDER:- 'IN ANY OTHER CASE WHERE THE ASSESSEE SATISFIED THE INCOME TAX OFFICER THAT THE PAYMENT COULD NOT BE MADE BY A CROSS CHEQUE DRA WN ON A BANK OR BY A CROSS CHEQUE BANK DRAFT- A) DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES, FOR 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 EXPEDITIOU S SETTLEMENT THEREOF AND ALSO FURNISHES EVIDENCE TO THE SATISFACTION OF THE INCOME TAX OFFICER AS TO THE GENUINENESS OF THE PAYMENT AND THE IDENTI TY OF THE PAYEE' 2. THE LAW AMENDED AND FOLLOWING PROVISIONS WERE IN TRODUCED BY THE FINANCE ACT 2007 W.E.F. 1.4.2008 AND EXPLANATORY NOTES THERE UN DER PROVIDES 'PROVIDED THAT NO DISALLOWANCES SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER THIS SUB- SECTION WHERE ANY PAYMENT IN A SUM EXCEEDING 20000- RUPEES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR 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, CONSIDERATIONS OF BUS INESS EXPEDIENCY AND OTHER RELEVANT FACTORS'. INTEREPRETATIN 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 PHARASES OR CLAUSES FROM THE REST OF SENTENCE. 16. USE A COMMA AFTER TERMS THAT INTRODUCE A SERIE S OR AN EXAMPLE. FIRSTLY 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 ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 9 (C) CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS (D) THE ACT AS INTRODUCED IN 1968 READ WITH RULES 6 DD 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 EXPENDIENCY 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 CONDITION S 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 CONDITION. IN THIS CASE THE CONDITION' CONSIDERATION OF BUSINESS EXPEDIENCY & O THER 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, CIT Y CENTRE, DURGAPUR, EXCISE REGN. NO: 19200052155, VAT NO: 19200052058, CST NO: 19200052252, TAN NO: CALL01584C AND ASANSOL BOTTLING & 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 REASONABLENESS OF THE PAYMENT. (B) AS PRICE IS DETERMINED BY THE WEST BENGAL GOVT. AND IS SUBJECT TO CHECK BY THE EXCISE AUTHORITIES. (C) PAYMENT HAS BEEN MADE BY TH E ASSESSEE DIRECTLY TO THE SUPPLIERS BANK A/E. ON THE PRINTED STATIONERY SUPPL IED BY THE WHOLESALER AGENT OF W.B. GOVT. IFB AGRO INDUSTRIES LTD. AND ASANSOL BOT TLING & PACKAGING PVT. LTD., WHICH IS THE PROOF THE CONSIDERATION OF THE BUSINES S 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 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: ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 10 '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 WHOLESALE 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 FRAMED BY IT' SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TE NDER. 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 JURE, IS ONE OF ' PRINCIPAL ' AND ' AGENT '. THE RETAILER AT ALL TIMES ACTING ONLY FOR AND ALL B EHALF OF THE SUPPLIER (WB. GOVERNMENT) AS LINK ONLY IN THE SUPPLY CHAIN AND, T HUS, THE PAYMENTS BY IT TO THE PRINCIPAL - SUPPLIER ARE ONLY IN TERMS OF AND IN PU RSUANCE OF GAZETTE NOTIFICATION. THE QUESTION OF NO SEPARATE PAYMENT BEING MADE BY T HE PAYEE - PRINCIPAL (WB, GOVERNMENT) TO THE PAYER - RETAILERS I.E. TOWARDS R EMUNERATION OR COMMISSION, ETC, ARISES. PROVISIONS OF SEC. 40A(3), THEREFORE, ARE NOT APPLICABLE TO THIS CASE UNDER RULE 6DD(B) ALSO. 10. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORT ED THE ORDER OF THE LOWER AUTHORITIES. 11. 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 DISALLOWED THE PURCHASES WHERE THE PAYMENT WAS EXCEEDING MORE THAN RS. 20,000/- IN ACCORDANCE WITH THE PROVISION OF SECTION 40A(3). IN OUR VIEW THIS ISSUE NEEDS TO BE ADJUDICATED FROM DIFFERENT DIMENSIONS AS ENUMERA TED 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. ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 11 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 ALL OWED IN RESPECT 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 AS SESSEE FOR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS YE AR ( 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 SH ALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF THE SUBSEQUEN T 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. AFTER READING THE PROVISIONS OF SECTION 40A(3) WE F IND THAT CERTAIN EXCEPTIONS HAVE BEEN PROVIDED WHICH WERE THEN APPLICABLE FOR T HE ASSESSMENT YEAR 2008- 09 AND ONE OF THEM IS WITH REGARD TO THE BUSINESS E XPEDIENCY OF THE ASSESSEE. FROM THE SUBMISSION OF THE ASSESSEE WE FIND THAT TH E ASSESSEE WAS THE ONLY AUTHORIZED DEALER IN ASANSOL FOR THE SUPPLY OF COUN TRY LIQUOR AND AUTHORIZED EXCISE VENDORS. THE ASSESSEE CAN TAKE THE DELIVERY OF THE GOODS ONLY AFTER DEPOSITING THE PAYMENT WITH THE COMPANY. THE ASSESS EE WAS TO KEEP SUFFICIENT STOCK OF COUNTRY LIQUOR AS PRESCRIBED BY THE EXCISE DEPARTMENT AND IN CASE STOCK FALLS SHORT OF THE PRESCRIBED LIMIT OTHERWISE THE DEPARTMENT USED TO IMPOSE PENALTY. THEREFORE THE ASSESSEE AVOIDED THE PROCESS OF DEPOSITING THE ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 12 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 P RESCRIBED LIMIT AT ALL THE TIMES. IT IS ALSO IMPORTANT TO NOTE THAT THE COMPAN Y WAS ALSO NOT ACCEPTING THE ACCOUNT PAYEE CHEQUE OF THE ASSESSEE AS IT WILL TAK E COUPLE OF DAY TIME IN CLEARANCE. SO IN OUR CONSIDERED VIEW THE EXCEPTION PROVIDED IN THE PROVISIONS OF SECTION 40A(3) WITH REGARD TO THE BUSINESS EXPEDIEN CY THEN APPLICABLE FOR THE ASSESSMENT YEAR 2008-09 IS MET BY THE ASSESSEE. 11.1 THE PROVISION OF SECTION 40A(3) WAS INSERTED B Y THE FINANCE ACT 1968. THE PURPOSE FOR BRINGING THE SECTION WAS MENTIONED IN THE 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 FIND THAT THE SAID PROVISION WAS INSERTED BY FINANCE ACT 1968 WITH THE OBJECT OF CURBING EXPENDITURE IN CASH AND TO COUNTER TAX EVASION. TH E 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 EXPE NDITURE SHOWN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATING PR OPER INVESTIGATION BY THE DEPARTMENT AS TO THE IDENTITY OF THE PAYEE AND REAS ONABLENESS OF THE PAYMENT . 11.2 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 RIGHT TO CARRY ON BUSINESS. IF READ TOGETHER WITH RULE 6DD OF THE INCOME-TAX RULES , 1962, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT BU SINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIV ITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDU CTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MAD E BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE O R CROSSED BANK DRAFT IS INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLU TE. 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 ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 13 IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACT ION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT I N 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 THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PA YMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES S PECIFIED 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 USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLAC K 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 H AD TO MAKE CASH PAYMENT FOR PURCHASE OF GOODS SO ESSENTIAL FOR CARR YING ON OF HIS 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 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 J USTIFIED 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 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 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 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 OR DER 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) 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 ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 14 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 CO-OPE RATIVE BANK WOULD NOT DO, SINCE REALIZATION TOOK LONGER TIME AND SUCH PAY MENTS SHOULD BE MADE ONLY IN CASH IN THEIR BANK ACCOUNT IF ASSESSEE WO ULD NOT MAKE CASH PAYMENT AND MAKE CHEQUE PAYMENTS ALONE, IT WOULD HA VE 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 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 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 ULTIMAT ELY, SUCH AMOUNTS WERE DEPOSITED IN THE BANK BY THE PAYEE. 11.3 IT IS PERTINENT TO NOTE THAT THE PRIMARY OBJ ECT OF ENACTING SECTION 40A(3) WERE TWO FOLDS, FIRSTLY, PUTTING A CHECK ON TRADIN G TRANSACTIONS WITH A MIND TO EVADE THE LIABILITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTION AND, SECONDLY, TO INCULCATE THE BANKING HABITS AMONGST T HE BUSINESS COMMUNITY. APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABITS. THEREFORE, THE CONS EQUENCE, WHICH WERE TO BE FALLEN ON ACCOUNT OF NON-OBSERVATION OF SECTION 40A (3) MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THEREFORE, THE GENUINENESS OF THE TRANSACTIONS BEING FREE ITA NO.1603.KOL/2011 A.Y. 2008-09 PRABIR KR. MULLICK V. ITO WD-3(1), ASL. PAGE 15 FROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVA NT CONSIDERATION. WITH REGARD TO THE PURPOSE OF BRINGING THE PROVISIONS OF SECTIO N THERE IS NO DOUBT ABOUT THE IDENTITY OF THE PARTY. THE LD. AR HAS DIRECTLY DEPO SITED THE CASH IN THE ACCOUNT OF THE COMPANIES AND HAS PRODUCED THE SALES BILLS OF T HE COMPANY. THE AO HAS ALSO VERIFIED THE TRANSACTIONS FROM THE COMPANIES B Y 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. 12. 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. 13. 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-PRABIR KR. MULLICK, SEARSOL C.S.SHOP, SH ISUBAGAN (KALALI GALI) RANIGUNJ BURDWA N 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/ / , *+ ,