ACIT Circle 2, V. Shiv Nandan Prasad Jai Prakash,

ITA 195/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9951 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 14-07-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 21-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R INDERJIT SINGH
• Section: 40A(3); 195; 143(2)

Judgement Text

ITA NO. 195/DEL/2008 (AY: 2003-04) 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BECHES : G NEW DELHI BEFORE HONBLE SR. VICE PRESIDENT, SHRI R.P. GARG AND HONBLE JUDICIAL MEMBER, SHRI RAJ PAL YADAV ITA NO. 195 / DEL/ 2008 ASSESSMENT YEAR : 2003-04 ASSTT. COMMISSIONER OF INCOME TAX VS. M/S SHIV N ANDAN PRASAD JAI CIRCLE-2, GHAZIABAD UP PRAKASH, TIMBER NAGAR, GARH ROAD, HAPUR-UP (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. INDERJIT SINGH, SR. DR RESPONDENT BY : SHRI R.K. GARG, ADVOCATE PER RAJ PAL YADAV, JUDICIAL MEMBER THE REVENUE IS AN APPEAL BEFORE US AGAINST THE ORDE R OF THE CIT(A) DATED 25.10.2007 PASSED FOR ASSESSMENT YEAR 2003-04. THE SOLITARY GRIEVANCE OF REVENUE IS THAT THE CIT(A) HAS ERRED IN DELETING T HE ADDITION OF RS. 27,15,302/- WHICH WAS ADDED BY THE ASSESSING OFFICER BY MAKING A DISALLOWANCE UNDER SECTION 40A(3) OF THE INCOME TAX ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING OF TIMBER. IT H AS FILED ITS RETURN OF INCOME ON 27.11.2003 DECLARING THE INCOME OF RS. 12,40,595/- . THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND CONSEQUENTLY A NOTICE UNDER SECTION 143(2) WAS SERVED UPON THE ASSESSEE ON 27.11.2004. ON SCRUTINY OF TH E ACCOUNTS THE LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD MADE PAYMENTS A MOUNTING TO ITA NO. 195/DEL/2008 (AY: 2003-04) 2 RS. 1,35,76,510/- IN VIOLATION TO SECTION 40A(3) OF THE ACT. THE DETAILS OF PAYMENTS HAVE BEEN NOTICED ON PAGES 2 AND 3 OF THE ASSESSMENT ORDER. THE EXPLANATION OF ASSESSEE WAS SOUGHT AS TO WHY THE DI SALLOWANCE UNDER SECTION 40A(3) AT 20% OF THE AMOUNT OF RS. 1,35,76,510/- MA Y NOT BE MADE BECAUSE THE ASSESSEE HAD MADE THE PAYMENT OF MORE THAN RS. 20,0 00/- IN CASH. 3. IN RESPONSE TO THE QUERY OF THE ASSESSING OFFICE R, IT WAS SUBMITTED BY THE ASSESSEE THAT PARTIES MENTIONED IN COLUMN NO. 1 OF THE DETAILS FORMING PART OF THE SHOW CAUSE NOTICE AND REPRODUCED ON PAGE 2 AND 3 OF THE ASSESSMENT ORDER ARE CREDITORS FROM WHOM IT HAS PURCHASED THE GOODS. P ARTIES MENTIONED IN COLUMN NO. 2 ARE THE PARTIES TO WHOM GOODS HAVE BEEN SOLD BY THE ASSESSEE ON CREDIT. THE DEBTORS AS PER THE INSTRUCTION OF THE ASSESSEE MADE THE PAYMENTS THROUGH CROSSED DRAFT TO THE CREDITORS OF THE ASSESSEE I.E . THE PARTIES TO WHOM GOODS WERE SOLD ON CREDIT WERE ASKED TO MAKE THE PAYMENT DIREC TLY TO THE PARTIES FROM WHOM GOODS HAVE BEEN PURCHASED BY THE ASSESSEE. THE ASS ESSEE HAD CREDITED THE ACCOUNT OF THE DEBTORS AND DEBITED THE ACCOUNTS OF THE CREDITORS AND TOOK COGNIZANCE OF THE DETAILS OF CROSSED DEMAND DRAFTS THROUGH WHICH PAYMENTS HAS BEEN MADE BY THE DEBTORS TO THE CREDITORS OF THE AS SESSEE. IT WAS CONTENDED BY THE ASSESSEE THAT HE HAS NOT VIOLATED THE PROVISION S OF SECTION 40A(3). THE PAYMENTS WERE MADE THROUGH CROSSED DRAFT OR CROSSED CHEQUE. THE PAYMENTS ARE VERIFIABLE AND RE-CONCEIVABLE IN THE LEDGER ACC OUNT OF THE ASSESSEE I.E. ASSESSEE WAS ABLE TO DEMONSTRATE AS TO WHICH PAYMEN T WENT FROM WHICH ACCOUNT. IT WAS ALSO CONTENDED THAT PRIOR TO 13.7.2006 REQ UIREMENT OF SECTION 40A(3) WAS THAT PAYMENT HAS TO BE MADE BY CROSSED CHEQUE DRAW N ON A BANK OR BY A CROSSED BANK DRAFT. THE SECTION DID NOT REQUIRE TO MAKE THE PAYMENT THROUGH ACCOUNT ITA NO. 195/DEL/2008 (AY: 2003-04) 3 PAYEES DRAFT. IT ONLY REQUIRED THE PAYMENTS THRO UGH CROSSED CHEQUE OR CROSSED DRAFTS. THE ASSESSEE HAD ENDORSED CROSSED CHEQUES AND CROSSED DRAFTS WHICH WERE RECEIVED BY IT FROM ITS DEBTORS AND SENT TO TH E CREDITORS. THE LD. ASSESSING OFFICER DID NOT FIND FORCE IN THE CONTENTION OF TH E ASSESSEE. HE MADE A REFERENCE TO THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT RENDERED IN THE CASE OF JYOTI CHALLARAAM VS. CIT (1988) 173 ITR 358 AS WELL AS THE DECISION OF THE HONBLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF GIRDHAR I LAL GOENKA VS. CIT (1989) 179 ITR 122 AND MADE OBSERVATION WITH REGARD TO THE OBJE CT FOR INTRODUCTION OF SECTION 40A(3) OF THE ACT. HE REJECTED THE CONTENTI ONS OF THE ASSESSEE AND MADE A DISALLOWANCE UNDER SECTION 40A(3) OF RS. 27,15,30 2/- WHICH IS 20% OF RS. 1,35,76,510/-. 4. DISAGREED WITH THE ACTION OF THE ASSESSING OFFIC ER THE ASSESSEE CARRIED THE MATTER IN THE APPEAL BEFORE THE CIT(A). IT DID NOT DISPUTE WITH THE OBSERVATION OF ASSESSING OFFICER AS TO WHY SECTION 40A(3) IN THE P RESENT FORM WAS BROUGHT TO THE STATUE BOOK. BUT IT CONTENDED THAT PRIOR TO 13.7. 2006, THERE WAS A VAST DIFFERENCE BETWEEN THE LANGUAGE OF SECTION 40A(3) A ND IT IS AVAILABLE AFTER 13.7.2006. THE EMPHASIS OF THE ASSESSEE WAS THAT BEFORE 13.7.2006 PAYMENT WAS TO BE MADE THROUGH CROSSED CHEQUE OR CROSSED DR AFT WHEREAS AFTER 13.7.2006 THE REQUIREMENT OF THE SECTION IS TO MAKE THE PAYME NT THROUGH ACCOUNT PAYEES CHEQUE OR ACCOUNTS PAYEES DRAFT. THE ASSESSEE AL SO APPRISED THE LD. CIT(A) ABOUT THE MEANING OF EXPRESSION CROSSED CHEQUE AND CROSSED DRAFT. IT WAS ALSO POINTED THAT BOTH THESE TERMS HAVE NOT BEEN DEFINE D IN THE ACT, BUT THEIR MEANINGS ARE AVAILABLE IN THE NEGOTIABLE INSTRUMENT ACT, 1981. REFERRING TO SECTION 123 OF THE NEGOTIABLE INSTRUMENT ACT, 1981, THE ASSESSEE HAS EXPLAINED ITA NO. 195/DEL/2008 (AY: 2003-04) 4 THE MEANING OF CROSSED CHEQUE AND CROSSED DRAFT W HICH HAVE DULY BEEN NOTICED BY THE LD. FIRST APPELLATE AUTHORITY ON PAGE 5 AND 6 OF THE IMPUGNED ORDER WHILE TAKING COGNIZANCE OF THE ASSESSEES WRITTEN SUBMISS ION. THE LD. CIT(A) ULTIMATELY ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD TH AT PRIOR TO 13.7.2006, IF THE PAYMENT WAS MADE THROUGH CROSSED CHEQUE OR CROSSED DRAFT THEN THERE WOULD BE NO BREACH OF CONDITION PROVIDED IN SECTION 40A (3) FOR MAKING A DISALLOWANCE OF THE PAYMENT AT 20%. 5. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND CONTENDED THAT THE LD. ASSESSING OFFICER HAS EXPLAINED THE ME ANING OF SECTION ELABORATELY ON PAGE 4 AND 5 OF THE ASSESSMENT ORDER AND ONLY THERE AFTER HE MADE THE DISALLOWANCE. THE ASSESSEE ITSELF ADMITTED THAT ON ITS ORAL INSTRUCTION, ITS DEBTORS HAS MADE PAYMENT TO ITS CREDITORS. IT IN DICATE THAT IN THE BOOKS OF THE ASSESSEE THE ACCOUNTS OF ITS CREDITOR IS BEING DEBI TED, BUT PAYMENT HAS NOT BEEN MADE FROM THE ASSESSEES BANK ACCOUNT. IT WAS MER E AN ACCOMMODATION ENTRY WHICH IS PASSED IN THESE TRANSACTIONS, ACTUALLY THE RE IS NO OUTFLOW OF FUNDS FROM THE ASSESSEES BANK ACCOUNT. 6. ON THE OTHER HAND, THE LD. AR FOR THE ASSESSEE R ELIED UPON THE ORDER OF THE CIT(A) AND THE SUBMISSIONS MADE BY THE ASSESSEE BEF ORE THE FIRST APPELLATE AUTHORITY. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE RECORDS CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT OBJECT OF SECTION 40A(3) IS TO CHECK EVASION OF TAX SO THAT THE PAYME NT IS MADE AND RECEIVED THROUGH BANKING CHANNEL. THE PROVISION IS APPARENT LY AIMED AT ENSURING THE TRANSACTIONS TRAVELS THROUGH DISCLOSED CHANNELS. IT IS PERTINENT TO MENTION HERE ITA NO. 195/DEL/2008 (AY: 2003-04) 5 THAT BEFORE INTRODUCTION OF SECTION 40A(3), IT WAS QUITE DIFFICULT TO TRACK CASH PAYMENT AND FOR THIS REASON THIS SECTION WAS BROUG HT TO THE STATUE BOOK, WHEREBY THE LEGISLATURE HAS TRIED TO PUT A PROHIBIT ION ON CASH TRANSACTION. THE GENERAL INTENT AND MEANING OF THE PROVISION IS TO ENSURE THAT PAYMENTS ARE MADE BY THE ASSESSEE OUT OF DISCLOSED SOURCES AND T HAT A TRIAL IS LEFT THROUGH BANKING CHANNEL. TO OUR MIND, THE CONSTRUCTION O F THE SECTION TO THIS EXTENT BY THE LD. ASSESSING OFFICER IS CORRECT. THE ONLY AR EA OF DISPUTE BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER IS THE ASSIGNME NT OF DRAFTS TO ITS CREDITOR I.E. THE ULTIMATE SUPPLIER OF TIMBER. THE GRIEVANCE OF THE ASSESSING OFFICER IS THAT FIRST PAYMENT OUGHT TO HAVE BEEN DEPOSITED IN THE B ANK ACCOUNTS OF THE ASSESSEE AND THEN IT SHOULD TRAVEL TO THE ACCOUNT OF THE ALL EGED CREDITOR/SUPPLIER. ACCORDING TO THE ASSESSEE, IT WAS NOT SUPPOSED TO M AKE THE PAYMENT THROUGH ACCOUNT PAYEES CHEQUE PRIOR TO 13.7.2006. ON DUE CONSIDERATION OF THE ORDER OF THE LD. CIT(A) WE ARE OF THE OPINION THAT LD. FIRST APPELLATE AUTHORITY HAS APPRECIATED THE FACTS AND CIRCUMSTANCES IN RIGHT P ROSPECTIVE. HAD THE CONTENTIONS OF MAKING THE PAYMENT THROUGH ACCOUNT PAYEES CHEQUE WAS EXISTING IN SECTION 40A(3) THEN THERE WOULD BE NO REQUIREMEN T OF CARRYING OUT AN AMENDMENT BY TAXATION LAW AMENDMENT ACT, 2006 W.E. F. 13.7.2006. THE PAYMENTS ARE IDENTIFIABLE. BANKS DRAFTS DETAILS AR E ALSO DISCERNIBLE FROM THE LEDGER ACCOUNT OF THE ASSESSEE. THERE IS NO DOUB T WITH REGARD TO THE GENUINENESS OF THE TRANSACTION THOUGH NOT RELEVANT IN THIS ASSESSMENT YEAR. RULE 6DD(E) PROVIDE THAT WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMENT AGAINST THE AMOUNT OF ANY LIABILITY INCURRED BY THE PAYEE FOR ANY GOODS SUPPLIED OR SERVICES RENDERED BY THE ASSESSEE TO SUCH PAYEE THEN THERE WOULD NOT BE ANY DISALLOWANCE. IN THE PRESENT CASE, ALSO THE PAYM ENTS HAVE BEEN MADE THROUGH ITA NO. 195/DEL/2008 (AY: 2003-04) 6 CROSSED CHEQUE AND CROSSED DRAFT AND THE THREE PA RTIES ADJUSTED THEIR BOOKS IN ACCORDANCE WITH TRANSACTION CARRIED OUT WITH THE B ANKING CHANNEL. THUS, TAKING INTO CONSIDERATION THE REASONED ORDER OF THE CIT(A) , WE DO NOT FIND ANY MERIT IN THIS GROUND OF REVENUES APPEAL. ACCORDINGLY, IT IS REJECTED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. THE ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST, 2009 SD/- SD/- (R.P. GARG) (RAJ PAL YADAV) SR. VICE PRESIDENT JUDICIAL MEMBER DATE:-5 TH AUGUST, 2009 SRB COPY OF THE ORDER IS FORWARDED TO:- 1. APPELLANT. 2. RESPONDENT. 3. CIT(A) -I, NEW DELHI 4. CIT 5. THE DR, ITAT, NEW DELHI BY ORDER DY. REGISTRAR,ITAT // T RUE COPY //