Vimal Microns Ltd., Mehsana V. The ACIT.,Cent.Circle-1(2), Ahmedabad

ITA 1887/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0357 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 1887/AHD/2013 (ASSESSMENT YEAR: 2009-10) VIMAL MICRONS LTD. 19, G.I.D.C., ESTATE, PHASE-II, DEDIYASAN, MEHSANA- 384002 V/S ACIT, CENTRAL CIRCLE-1(2), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACV6289M APPELLANT BY : SHRI S.N. SOPARKAR WITH MS. UKTI S HAH RESPONDENT BY : SHRI PRASOON KABRA, SR. D.R. ( )/ ORDER DATE OF HEARING : 05-10-201 6 DATE OF PRONOUNCEMENT : 17 -10-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE LD. CIT(A)-I, AHMEDABAD DATED 02.05.2013 PER TAINING TO A.Y. 2009- 10. ITA NO. 1887 /AHD/2013 . A.Y.2009-10 2 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN UPHOLDING DISALLOWANCE U/S 40A(3) FOR FREIGHT OUTWARD EXPENSE FOR RS. 1,00,72,769/- AND FOR FREIGHT INWARD EXPENSE FOR RS. 27,18,197/-. 3. THE ASSESSEE FILED E-RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 26/09/2009 DECLARING TOTAL INCOME AT RS. 44,98,960/ -. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY ST ATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS IN CASH EXCEEDI NG RS. 20,000/- IN CONTRAVENTION TO THE PROVISIONS OF SECTION 40A(3) O F THE ACT WHICH CAN BE UNDERSTOOD BY THE FOLLOWING CHART:- FREIGHT (OUTWARD) S. NO. NAME OF THE PARTY AGGREGATE OF CASH PAYMENT DISALLOWABLE U/S 40A(3) OF THE ACT 1 ASIAN PAINTS RS. 2,21,40,205/- 2 AVI ADDI RS. 36,266/- 3 BERGER RS. 45,26,729/- 4 CHEMPLAST SENMAR RS. 4,37,782/- 5 GARWARE RS. 3,83,487/- 6 SUJALA RS. 3,58,511/- TOTAL RS. 2,78,82,980/- FREIGHT(R.M.) S. NO NAME OF THE PARTY AGGREGATE OF CASH PAYMENT DISALLOWABLE U/S 40A(3) OF THE ACT 1 M/S CUDDAPAH SUPER FAST RS. 5,96,025 ITA NO. 1887 /AHD/2013 . A.Y.2009-10 3 ROADLINES 2 SREE NEW BALAJI ROADLINES RS. 8,72,500/- 3 SRI SUBRAMANYA SWAMI TRANSPORT RS. 9,10,560 4 SUNIL KUMAR LORRY SERVICE RS. 1,05,678 TOTAL RS. 24,84,763 5. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY DISA LLOWANCE SHOULD NOT BE MADE U/S. 40A(3) OF THE ACT. 6. THE ASSESSEE EXPLAINED THAT IT IS ENGAGED IN THE BU SINESS OF MANUFACTURING OF MICRONISED MINERAL POWDER AND FOR THE SUPPLY OF ITS FINISHED GOODS, IT ENGAGES VARIOUS TRANSPORTERS AND, THEREFORE, THE AS SESSEE HAS TO MAKE CASH PAYMENT TO THE DRIVERS OF THE TRANSPORT COMPANY AS PER TERMS & CONDITIONS OF SUCH TRANSPORTERS. IT WAS FURTHER EXPLAINED THAT ALL THE PAYMENTS ARE SUPPORTED BY BILLS, CASH VOUCHER DULY SIGNED BY DRI VERS. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE HAS DEDUCTED TAX AT SOU RCE ON SUCH PAYMENT AT APPLICABLE RATES AND SUCH TDS HAS BEEN DEPOSITED IN GOVERNMENT ACCOUNT. IT WAS STRONGLY CONTENDED THAT THE ENTIRE FREIGHT P AYMENT HAS DIRECT NEXUS WITH BUSINESS CARRIED OUT BY THE ASSESSEE. 7. THE EXPLANATION/DETAILED SUBMISSIONS OF THE ASSESSE E DID NOT FIND FAVOUR WITH THE A.O. WHO HEAVILY RELYING UPON THE PROVISIO NS OF SECTION 40A(3) MADE ADDITIONS OF RS. 2,25,30,984/- AND 1,30,10,312 /-. ITA NO. 1887 /AHD/2013 . A.Y.2009-10 4 8. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED WHAT HAS BEEN STATED DURING THE COURSE OF THE ASSESSMENT PRO CEEDINGS. 9. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) ADMITTED THAT THE A.O. HAS NOT DOUBTED THE GENUINENESS OF THE EXP ENDITURE INCURRED BY THE ASSESSEE BUT AT THE SAME TIME OBSERVED THAT IT DOES NOT MEAN THAT DISALLOWANCE U/S. 40A(3) CANNOT BE MADE. THE LD. CI T(A) ACCORDINGLY CONFIRMED THE ASSESSMENT. 10. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AU THORITIES. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTH ORITIES. 11. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS AN UNDISPUTED FACT THAT THE GENUINENESS OF THE PAYMENT S HAVE NOT BEEN DOUBTED BY THE REVENUE AUTHORITIES. IT IS ALSO AN A DMITTED FACT THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE FROM THE APPLIC ABLE RATES AND THE TDS HAS BEEN DEPOSITED IN THE GOVERNMENT ACCOUNT. IT IS ALSO AN ADMITTED FACT THAT THE NATURE OF BUSINESS OF THE ASSESSEE IS SUCH THAT IT HAS TO HIRE TRANSPORT OPERATORS FOR THE MOVEMENT OF ITS GOODS, RAW MATERIAL AS WELL AS FINISHED. IT WOULD NOT BE OUT OF PLACE TO REFER TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF ANUPAM TELE SERVICES 366 ITR 122 WHEREIN THE HONBLE HIGH COURT HAD THE OCCA SION TO CONSIDER THE FOLLOWING FACTS:- ITA NO. 1887 /AHD/2013 . A.Y.2009-10 5 THE ASSESSEE WAS WORKING AS AN AGENT OF TATA TELE S ERVICES LIMITED FOR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS. TH E ASSESSEE USED TO MAKE PAYMENT BY ACCOUNT PAYEE CHEQUES. HOWEVER, A CIRCULAR WAS ISSUED BY TATA TELE SERVICE S LIMITED REQUIRING THE ASSESSEE TO DEPOSIT CASH AT THE COMPANY'S OFFICE. T HEREAFTER, IF THE ASSESSEE CONTINUED TO MAKE PAYMENT THROUGH CHEQUES OR DEMAND DRAFT, IT WOULD GET THE RECHARGE VOUCHERS ONLY AFTER 4-5 DAYS WHICH WOULD AFFECT ITS BUSINESS. THE ASSESSEE, THEREAFTER, MADE CASH PAYMENT. THE ASSESSING OFFICER MADE ADDITION OF IT ON GROUND THAT THE PAYMENT IN CASH EXCEEDING RS. 20,000 VIOLATE THE PROVISIONS OF SECT ION 40A(3) AND DISALLOWED 20 PER CENT OF THE IMPUGNED AMOUNT. ON APPEAL, THE COMMISSIONER (APPEALS) DIRECTED TO D ELETE THE ADDITION ON GROUND THAT TRANSACTION WERE GENUINE AND PAYMENTS WERE ALSO MAD E. ON APPEAL BY THE REVENUE, THE TRIBUNAL ALLOWED SAME . 12. ON THE ABOVE GIVEN FACTS, THE HONBLE JURISDICTIONA L HIGH COURT HELD AS UNDER:- IN THE PRESENT CASE, NEITHER THE GENUINENESS OF THE PAYMENT NOR THE IDENTITY OF THE PAYEE WERE IN ANY CASE DOUBTED. THESE WERE THE CONC LUSIONS ON FACTS DRAWN BY THE APPELLATE COMMISSIONER. THE TRIBUNAL ALSO DID N OT DISTURB SUCH FACTS BUT RELIED SOLELY ON RULE 6DD (J) OF THE RULES TO HOLD THAT SINCE THE CASE OF THE ASSESSEE DID NOT FALL UNDER THE SAID EXCLUSION CLAU SE NOR WAS COVERED UNDER ANY OF THE CLAUSES OF RULE 6DD, CONSEQUENCES ENVISAGED IN SECTION 40A(3) MUST FOLLOW. THUS, THE TRIBUNAL COMMITTED AN ERROR IN COMING TO SUCH A CONCLUSION FOR THE FOLLOWING REASONS: (A) ) THE PARAMOUNT CONSIDERATION OF SECTION 40A(3) I S TO CURB AND REDUCE THE POSSIBILITIES OF BLACK MONEY TRANSACTIONS. AS HELD BY THE SUPREME COURT IN ATTAR SINGH GURMUKH SINGH V. ITO [19911 191 ITR 667/59 TA XMAN 11. SECTION 40A(3) DOES NOT ELIMINATE CONSIDERATIONS OF BUSINESS EXPED IENCIES. ITA NO. 1887 /AHD/2013 . A.Y.2009-10 6 (B) IN THE PRESENT CASE, THE APPELLANT ASSESSEE WAS COM PELLED TO MAKE CASH PAYMENTS ON ACCOUNT OF PECULIAR SITUATION. SUCH SITUATION WA S AS FOLLOW (I) THE PRINCIPAL COMPANY, TO WHICH THE ASSESSEE WAS A DISTRIBUTOR, INSISTED THAT CHEQUE PAYMENT FROM A CO-OPERATIVE BANK WOULD NOT DO, SINCE THE REALIZATION TAKES A LONGER TIME; (II) THE ASSESSEE WAS, THEREFORE, REQUIRED TO MAKE CASH PAYMENTS ONLY; (III) TATA TELE SERVICES LIMITED ASSURED THE ASSESSEE THA T SUCH AMOUNT SHALL BE DEPOSITED IN THEIR BANK ACCOUNT ON BEHALF OF THE AS SESSEE; (IV) IT IS NOT DISPUTED THAT THE TATA TELE SERVICES LIM ITED DID NOT ACT ON SUCH PROMISE; (V) IF THE ASSESSEE HAD NOT MADE CASH PAYMENT AND RELI ED ON CHEQUE PAYMENTS ALONE, IT WOULD HAVE RECEIVED THE RECHARGE VOUCHERS DELAYED BY 4/5 DAYS AND THEREBY SEVERELY AFFECTING ITS BUSINES S OPERATIONS. THE PAYMENTS BETWEEN THE ASSESSEE AND THE TATA TELE SERVICES LIMITED WERE GENUINE. THE TATA TELE SERVICES LIMITED HAD INSISTE D THAT SUCH PAYMENTS BE MADE IN CASH, WHICH TATA TELESERVICES LIMITED IN TURN AS SURED AND DEPOSITED THE AMOUNT IN A BANK ACCOUNT. IN THE FACTS OF THE PRESE NT CASE, RIGORS OF SECTION 40A(3) MUST BE LIFTED. THE DIVISION BENCH OF THE RAJASTHAN HIGH COURT IN C ASE OF SMT. HARSHILA CHORDIA V. INCOME TAX OFFICER [20081 298 ITR 349 HAD OBSERVED THAT THE EXCEPTIONS CONTAINED IN RULE 6DD ARE NOT EXHAUSTIVE AND THAT T HE SAID RULE MUST BE INTERPRETED LIBERALLY. IN THE RESULT, THE QUESTION IS ANSWERED IN FAVOUR OF THE APPELLANT ASSESSEE. 13. IT WOULD ALSO BE PERTINENT TO REFER TO THE RELEVANT OBSERVATIONS MADE BY THE HONBLE JURISDICTIONAL HIGH COURT WHICH READS AS UN DER:- 18. IT COULD BE APPRECIATED THAT SECTION 40A AND IN PARTICULAR SUB-CLAUSE (3) THEREOF AIMS AT CURBING THE POSSIBILITY OF ON-MONEY TRANSACTIONS BY INSISTING THAT ALL PAYMENTS WHERE EXPENDITURE IN EXCESS OF A CERTA IN SUM [IN THE PRESENT CASE ITA NO. 1887 /AHD/2013 . A.Y.2009-10 7 TWENTY THOUSAND RUPEES] MUST BE MADE BY WAY OF ACCO UNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. AS HELD BY THE APEX COURT IN CASE OF ATTAR SINGH GU RMUKH SINGH (SUPRA), '..IN OUR OPINION, THERE IS LITTLE MERIT IN THIS CONTENTI ON. SECTION 40A(3) MUST NOT BE READ IN ISOLATION OR TO ME EXCLUSION OF RULE 6DD. T HE SECTION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR T HAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RE STRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS TH E ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING A UTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE IN COME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLU TE. CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. GENUINE AND BONA TIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSE SSING OFFICER THE CIRCUMSTANCES 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 RECE IVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CI RCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF S ECTION 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.' 19. IT WAS BECAUSE OF THESE CONSIDERATIONS THAT THIS CO URT IN CASE OF HYNOUP FOODS (P.) LTD. (SUPRA) OBSERVED THAT THE GENUINENE SS OF THE PAYMENT AND THE IDENTITY OF THE PAYEE ARE THE FIRST AND FOREMOST RE QUIREMENTS TO INVOKE THE EXCEPTIONS CARVED OUT IN RULE 6DD(J) OF THE INCOME- TAX RULES, 1962. ITA NO. 1887 /AHD/2013 . A.Y.2009-10 8 20. IN THE PRESENT CASE, NEITHER THE GENUINENESS OF THE PAYMENT NOR THE IDENTITY OF THE PAYEE WERE IN ANY CASE DOUBTED. THESE WERE THE CONCLUSIONS ON FACTS DRAWN BY THE APPELLATE COMMISSIONER. THE TRIBUNAL ALSO DI D NOT DISTURB SUCH FACTS BUT RELIED SOLELY ON RULE 6DD (J) OF THE RULES TO HOLD THAT SINCE THE CASE OF THE ASSESSEE DID NOT FALL UNDER THE SAID EXCLUSION CLAU SE NOR WAS COVERED UNDER ANY OF THE CLAUSES OF RULE 6DD, CONSEQUENCES ENVISAGED IN SECTION 40A(3) OF THE ACT MUST FOLLOW. 21. IN OUR OPINION, THE TRIBUNAL COMMITTED AN ERROR IN COMING TO SUCH A CONCLUSION. WE WOULD BASE OUR CONCLUSIONS ON THE FO LLOWING REASONS : (A) THE PARAMOUNT CONSIDERATION OF SECTION 40A(3) I S TO CURB AND REDUCE THE POSSIBILITIES OF BLACK MONEY TRANSACTIONS. AS HELD BY THE SUPREME COURT IN ATTAR SINGH GURMUKH SINGH (SUPRA), SECTION 40A(3) OF THE ACT DOES NOT ELIMINATE CONSIDERATIONS OF BUSINESS EXPEDIENCIES. (B) IN THE PRESENT CASE, THE APPELLANT ASSESSEE WAS COMPELLED TO MAKE CASH PAYMENTS ON ACCOUNT OF PECULIAR SITUATION. SUCH SIT UATION WAS AS FOLLOW (I) THE PRINCIPAL COMPANY, TO WHICH THE ASSESSEE WA S A DISTRIBUTOR, INSISTED THAT CHEQUE PAYMENT FROM A COOPERATIVE BANK WOULD NOT DO , SINCE THE REALIZATION TAKES A LONGER TIME; (II) THE ASSESSEE WAS, THEREFORE, REQUIRED TO MAKE CASH PAYMENTS ONLY; (III) TATA TELESERVICES LIMITED ASSURED THE ASSESSE E THAT SUCH AMOUNT SHALL BE DEPOSITED IN THEIR BANK ACCOUNT ON BEHALF OF THE AS SESSEE; (IV) IT IS NOT DISPUTED THAT THE TATA TELESERVICES LIMITED DID NOT ACT ON SUCH PROMISE; (V) IF THE ASSESSEE HAD NOT MADE CASH PAYMENT AND RELIED ON CHEQUE PAYMENTS ALONE, IT WOULD HAVE RECEIVED THE RECHARGE VOUCHERS DELAYED BY 4/5 DAYS AND THEREBY SEVERELY AFFECTING ITS BUSINESS OPERATIONS. 22. WE WOULD FIND THAT THE PAYMENTS BETWEEN THE ASS ESSEE AND THE TATA TELESERVICES LIMITED WERE GENUINE. THE TATA TELESER VICES LIMITED HAD INSISTED THAT SUCH PAYMENTS BE MADE IN CASH, WHICH TATA TELE SERVICES LIMITED IN TURN ITA NO. 1887 /AHD/2013 . A.Y.2009-10 9 ASSURED AND DEPOSITED THE AMOUNT IN A BANK ACCOUNT. IN THE FACTS OF THE PRESENT CASE, RIGORS OF SECTION 40A(3) OF THE ACT MUST BE L IFTED. 23. WE NOTICE THAT THE DIVISION BENCH OF THE RAJAST HAN HIGH COURT IN CASE OF SMT. HARSHILA CHORDIA V. ITO [2008] 298 ITR 349 (RAJ) HA D OBSERVED THAT THE EXCEPTIONS CONTAINED IN RULE 6DD ARE NOT EXHAUSTIVE AND THAT THE SAID RULE MUST BE INTERPRETED LIBERALLY. 14. CONSIDERING THE FACTS OF THE CASE IN HAND IN THE LIGHT OF THE AFOREMENTIONED DECISION OF THE HONBLE JURISDICTION AL HIGH COURT, WE HAVE NO HESITATION TO HOLD THAT IN THE PRESENT CASE ALSO NEITHER THE GENUINENESS OF THE PAYMENT NOR THE IDENTITIES OF THE PAYEE WERE IN ANY CASE DOUBTED. CONSIDERING THE TOTALITY OF THE FACTS QUA THE BUSIN ESS OF THE ASSESSEE, WE DO NOT FIND ANY MERIT IN THE ADDITIONS MADE U/S. 40A(3 ) OF THE ACT. WE, ACCORDINGLY, SET ASIDE THE FINDINGS OF THE LD. CIT( A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED ADDITIONS. 15. APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 17 - 10- 20 16 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED.