DCIT, Circle - 8, Kolkata, Kolkata V. M/s. OTS Limited, Kolkata

ITA 186/KOL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2518 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2010
• Court: TRIBUNAL
• Department Lawyers: V N VERMA
• Assessee Lawyers: ARVIND AGARWAL
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SRI D. K. TYAGI, JM & HONBLE SRI C. D. RAO , AM] I.T.A. NO.186/KOL/2010 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, -VS- M/S. OTS LTD. CIRCLE-8, KOLKATA. (PA NO.AAACO 3002 B) (APPELLANT) (RESPONDENT) APPELLANT BY : SRI V. N. VERMA RESPONDENT BY : SRI ARVIND AGARWAL O R D E R PER D. K. TYAGI, JM: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE LD. CIT(A), KOLKATA DATED 24.11.2009 FOR ASSESSMENT YEA R 2006-07 ON THE SOLE GROUND OF HOLDING THAT LORRY HIRE CHARGES PAYMENTS OF RS.5,89 ,61,636/- IN CASH IN EXCESS OF RS.20,000/- IS NOT IN VIOLATION OF PROVISION OF SEC TION 40A(3) OF THE I. T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRANSPORTER. IT MAINLY TAKES TRUCKS ON HIRE AND MEETS ITS OBLIGATION TO ITS CUSTOMERS. IT HAS A WIDE NET WORK OF BRANCHES IN THE COUNTRY AND ALSO SMALLER TOWNS AND CITIES APART FROM MAJOR METROS. THE ASSESSEE AT THE STAGE OF ASSESSMENT CLAIMED THAT ITS EXPENSES W ERE IN THE NATURE OF ADVANCE TO THE TRUCK OWNERS BEFORE THE GOODS WERE LIFTED AND BALAN CE PAYMENT AFTER DELIVERY OF THE SAME. IT WAS FURTHER CONTENDED THAT DUE TO SPECIAL CIRCUMSTANCES PREVALENT IN THE TRANSPORT SECTOR CASH PAYMENT ARE NECESSARY. THER EFORE, IT WAS ARGUED THAT PAYMENTS SHOULD NOT COME UNDER THE DISALLOWANCE ENVISAGED IN SECTION 40A(3) OF THE ACT. THIS ARGUMENT DID NOT FIND FAVOUR WITH THE AO AND HE MAD E DISALLOWANCE U/S. 40A(3) OF THE I. T. ACT. AGGRIEVED BY THIS DISALLOWANCE THE ASSE SSEE WENT IN APPEAL BEFORE THE LD. CIT(A) AND BEFORE HIM SUBMITTED A DETAILED EXPLANAT ION SEGREGATING ITS PAYMENT AND CLAIMING SPECIFIC RELIEF UNDER THE RELEVANT CLAUSE OF RULE 6DD OF THE I. T. RULES. THE ASSESSEE SEGREGATED ITS PAYMENT IN THE FOLLOWING CA TEGORIES. : I) AMOUNTS WHERE INDIVIDUAL TRANSACTIONS ARE LESS THAN RS.20,000/-, II) AMOUNT PAID BY CHEQUE, III) AMOUNT PAID ON SUNDAYS, IV) AMOUNT PAID ON BANK HOLIDAYS AND 2 V) PAYMENTS THROUGH AGENTS. 3. THE SUBMISSIONS OF THE ASSESSEE ALONG WITH ANNEX URES WERE FORWARDED TO THE AO BY THE LD. CIT(A) FOR HIS COMMENTS AND AFTER OBTAIN ING THE AOS COMMENTS THE LD. CIT(A) DELETED THE ENTIRE DISALLOWANCE MADE BY THE AO U/S. 40A(3) OF THE ACT. REVENUE HAS COME IN APPEAL ONLY AGAINST THE DISALLO WANCE DELETED BY THE LD. CIT(A) IN RESPECT OF PAYMENTS MADE BY THE ASSESSEE THROUGH AG ENTS. WE FIND THAT THE LD. CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE IN RESPECT OF PAYMENTS THROUGH AGENT HAS OBSERVED AS UNDER : APART FROM THESE PAYMENTS A SUM OF RS.5,89,61,636/ - IS CLAIMED BY THE APPELLANT TO HAVE BEEN PAID THROUGH AGENTS. THIS CLAIM IS SEEN T O BE COVERED BY R-6DD(L) OF THE INCOME TAX RULES. THIS CLAIM HAD BEEN MADE AT THE A SSESSMENT STAGE ALSO. IN ADJUDICATING THE MATTER, A.O. HAS POSITED A TWO-FOL D REQUIREMENT FOR THIS CLAUSE TO BE FULFILLED. FIRST, THAT THE PAYMENT IS MADE BY THE A PPELLANT TO ITS AGENT AND SECONDLY THAT THE PAYMENT IS MADE BY SUCH AGENT TO A PERSON IN A MANNER AND IN A CIRCUMSTANCE WHICH IS PERMISSIBLE BY R 6DD ITSELF. WITH RESPECT TO THE FIRST REQUIREMENT, IT IS NOT A MATTER OF DISPUTE THAT THE APPELLANT OPERATES THROUGH AGENTS IN FACT, THIS CLAIM HAS BEE N MADE AT THE ASSESSRNENT STAGE ITSELF AND NO DOUBTS HAS BEEN RAISED BY THE A.O. ON THIS I SSUE EITHER AT THE ASSESSMENT STAGE OR AT THE APPELLATE STAGE WHEN REMAND REPORT HAS BE EN CALLED FOR. LOGICALLY ALSO, GIVEN THE NATURE OF THE BUSINESS AN THE FAR-FLUNG NATURE OF THE APPELLANTS OPERATION IT WOULD BE ENTIRELY REASONABLE TO PRESUPPOSE THAT AGENTS PL AY A MAJOR ROLE IN THE BUSINESS. ONCE IT IS ACCEPTED THAT AGENTS PLAY A ROLE IN THE BUSINESS, IT IS A NATURAL CORROLLARY THAT THEY HAVE TO BE PAID. CASH PAYMENTS IN THE TRANSPOR TATION BUSINESS IS A KNOWN FACT AND HAS BEEN ACCEPTED AS SUCH BY THE HONBLE CALCUTTA H IGH COURT IN THE CASE OF TIRUPATI TRADING CO. [242 ITR13 (CAL)]. THE SAID DECISION HA S BEEN PERUSED. IT IS SEEN THAT, IN THE SAID CASE, CASH WAS COLLECTED FROM THE ASSESSEE IN KOLKATA BY AN AGENT AND DISBURSED SUBSEQUENTLY TO LORRY DRIVERS. THE HONBL E JURISDICTIONAL HIGH COURT DELETED THE SAID DISALLOWANCE. I DO NOT FIND ANY MERIT IN THE A.OS INTERPRETATION THAT R-6DD(L) WILL BE APPLICABLE ONLY WHEN THE PAYMENT IS MADE BY SUCH AGENT TO A PE RSON IN A MANNER AND IN A CIRCUMSTANCE WHICH IS PERMISSIBLE BY R-6DD ITSELF. NO SUCH CLAUSE IS VISIBLE IN THE SAID RULE. WHILE INTERPRETING LEGAL STATUES CONSTRUCTION WOULD BE DEPENDENT ON WHAT IS EVIDENT IN THE WORDS OF THE STATUE ITSELF. NO JUDIC IAL DECISION HAS BEEN RELIED UPON BY THE A.O. IN SUPPORT OF HIS INTERPRETATION. FURTHERMORE, IN THE CASE OF TIRUPATI TRADING CO. (SUPRA.) NO SUCH REQUIREMENT HAS BEEN POSITED BY TH E HONBLE CALCUTTA HIGH COURT. NO SUCH REQUIREMENT IS ALSO SEEN TO BE POSITED IN THE DECISION OF THE SPECIAL BENCH OF THE HONBLE ITAT IN THE CASE OF KENARAM SAHA & SUBHASH SAHA (116 TTJ (KOL) (SB)289]. A REQUIREMENT IS THERE AS PER THE RULE THAT THE AGE NT IS REQUIRED TO MAKE PAYMENT IN CASH. BUT THIS ASPECT, THAT THE AGENT WAS REQUIRED TO MAKE PAYMENT IN CASH IS NOT BEING QUESTIONED BY THE A.O. EITHER AT THE STAGE OF ASSES SMENT OR AT THE APPELLATE STAGE WHEN REMAND REPORT WAS SUBMITTED. IT IS PRESUMED THEREFO RE THAT THE EXISTENCE OF SUCH A REQUIREMENT IS NOT IN DOUBT BY THE A.O. UNDER THE C IRCUMSTANCES, I CANNOT AGREE WITH THE A.OS DECISION. REFERENCE IN THE MATTER OF SEC. 40A(3) OF THE INCOM E TAX ACT CAN ALSO BE MADE TO THE DECISION OF THE HONBLE MADRAS HIGH COURT IN TH E CASE OF KKSK LEATHER PROCESSOR 3 (P) LTD. [292 ITR 669]. IN THIS DECISION, WHILE RUL ING IN FAVOUR OF THE ASSESSEE AND ORDERING DELETION OF THE DISALLOWANCE MADE UNDER SE C. 40A(3) OF THE ACT THERE LORDSHIP OBSERVED IN THE ABOVE CIRCUMSTANCES, THE TRIBUNAL RIGHTLY CAME TO THE CONCLUSION, GIVING RELIEF TO THE ASSESSEE. THIS COURT, IN THE D ECISION IN CIT VS. CHROME LEATHER CO. (P) LTD. REPORTED IN (1999] 235 ITR 708 HELD THAT R ULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE PAYMENT BY A CROSSED CHEQU E OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED IN THE RULE. THE CENTRAL BO ARD OF DIRECT TAXES HAS ISSUED CERTAIN GUIDELINES GIVING CERTAIN CIRCUMSTANCES, AN D THOSE CIRCUMSTANCES ARE ILLUSTRATIVE AND NOT EXHAUSTIVE AND THE UNDERLYING IDEA OF THE CIRCULAR IS THAT IF THE IDENTITY OF THE PAYEE IS KNOWN, IT WOULD BE POSSIBL E FOR THE ITO TO CROSS-CHECK, WHETHER THE TRANSACTION HAD IN FACT TAKEN PLACE. THE IDENTITY OF THE PAYEE IS NOT BEING QUESTIONED B Y THE A.O. IN FACT, THERE IS NO SUCH DISPUTE REGARDING THE GENUINENESS OF THE PAYMENTS. KEEPING IN VIEW, THE ABOVE DISCUSSION, THE. PAYMENT S CLAIMED TO HAVE BEEN MADE THROUGH AGENTS IS DIRECTED TO BE TAKEN OUT OF THE A MBIT OF SEC. 40A(3) OF THE INCOME TAX ACT. THESE GROUNDS OF APPEAL ARE ACCORDINGLY ALLOWE D. 4. AT THE TIME OF HEARING BEFORE US, THE OBJECTION OF THE LD. DR WAS THAT ASSESEE HAS FOR THE FIRST TIME TAKEN THE PLEA THAT PAYMENTS WERE NOT MADE BY HIM TO THE TRUCK OWNERS BUT THE SAME HAS BEEN MADE THROUGH AGENTS. THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN GIVING RELIEF TO THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE TOOK US THROUGH THE ASSESSMENT ORDER TO SHOW THAT THE CONTENTION OF THE LD. DR IS FACTUALLY WRONG AS AT SEVERAL PLACES THE AO HIMSELF IN HIS ORDER HAS MENT IONED THAT THIS PLEA WAS TAKEN BY THE ASSESSEE DURING ASSESSMENT STAGE. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND NO MERIT IN THE ARGUMENTS ADVANCED BY THE LD. DR THAT THE ASSESSEE TOOK THE PLEA OF PAYMENTS MADE TO TRUCK OWNERS THROUGH AGENTS FOR TH E FIRST TIME AT THE APPELLATE STAGE AND NOT DURING ASSESSMENT PROCEEDINGS. AS IS EVIDEN T FROM THE ASSESSMENT ORDER PAGE 3 WHERE IN RESPONSE TO THE QUERY OF THE AO THE ASSESS EE REPLIED AS UNDER : WE DO THE JOB OF TRANSPORTATION BY HIRING THE TRUC KS FROM OPEN MARKET THROUGH AGENTS LOCATED AT ALL THE REMOTE AREAS OF THE COUNTRY. MO STLY, THE TRANSPORT DEPOTS ARE SITUATED OUTSIDE THE CITY LIMITS. AT OTHER PLACES ALSO SIMILAR OBSERVATIONS ARE THERE IN THE ASSESSMENT ORDER. NOT ONLY THIS, THE LD.CIT(A ) INVITED COMMENTS OF THE AO ON THE SUBMISSIONS OF THE ASSESSEE BEFORE GIVING RELIEF TO THE ASSESSEE SINCE NO OTHER CONTROVERTING MATERIAL HAS BEEN PRODUCED BEFORE US IN RESPECT OF THIS FINDING OF FA CT BY THE L D.CIT(A) REPRODUCED BY US 4 AT PARA 3 OF THIS ORDER, WE FIND NO INFIRMITY IN HI S ORDER AND THE SAME IS HEREBY UPHELD. THEREFORE, THE REVENUE APPEAL IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 7. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30. 6.2010 SD/- SD/- (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30TH JUNE, 2010 COPY TO : 1. DCIT, CIRCLE-8, KOLKATA. 2. M/S. OTS LTD., 18A, PARK STREET, KOLKATA-71. 3. CIT(A), KOLKATA. 4. CIT, KOLKATA. 5. D.R., ITAT, KOLKATA. TRUE COPY BY ORDER DEPUTY REGISTRAR JD.(SR.P.S.) I.T.AT., KOLKATA