The DCITBharuch Circle, Bharuch V. Shri Dineshchandra C.Modi, Ankleshwar

ITA 1981/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80358 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: J P SHAH
• Keywords: Income from undisclosed sources; Opportunity of being heard
• Section: 40A(3); 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 1981 / AHD/ 20 1 0 (A SSESSMENT YEAR: 2007 - 08) THE DCIT, BHARUCH CIRCLE, BHARUCH V/S SHRI DINESHCHANDRA C. MODI, PROP. OF MODI CHIMANLAL HARGOVINDAS, SHOP NO. 34, ADARSH MARK ET, BHARUCH (APPELLANT) (RESPONDENT) PAN: AEWPM 2686Q APPELLANT BY : SHRI ROOP CHAND, SR. D.R. RESPONDENT BY : SHRI J.P. SHAH, A.R. ( )/ ORDER DATE OF HEARING : 02 - 09 - 2014 DATE OF PRONO UNCEMENT : 12 - 0 9 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THI S APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - VI, BARODA DATED 31.03.2010 FOR A.Y. 2007 - 08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASS ESSE E IS AN INDIVIDUAL AND PROP R IE TOR OF MODI CHIMANLAL HARGOVAN DAS AND DOING BUSINESS OF TRADI NG OF GRAINS , PULSES , SPICES AND K APAS. ASSESSEE FILED THE RETURN OF INCOME F OR A.Y. 07 - 08 ON 24.09.07 DECLA R I NG T OTAL INCOME OF RS . 6,03,125/ - . THE CASE WAS SELECT ED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 23.12.2009 AND THE TOTAL ITA NO 1981/AHD/2010 . A.Y. 2007 - 08 2 INCOME WAS DETERMINED AT RS. 69,99,410 . AGGRIEVED BY THE A .O ASSESSEE CARRIED THE MATTER BEFORE CIT(A) . CIT(A) VIDE ORDER DATED 31. 0 3.2010 GRANTE D PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A) , REVENUE IS NOW IN APPEAL BEFORE US AN D HAS RAISED THE FOLLOWING GROUND. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) E RRED IN RESTRICTING THE DISALLOW ANCE U/S. 40A( 3) OF RS. 63,96,289/ - TO RS. 59,762/ - IN RESPECT OF PAYMENT MADE TO SUPPLIERS IN CONTRAVENTION TO THE PROVISIONS OF SECTION 40A(3) OF THE ACT . 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAD MADE PURCHASES FROM VARIOUS PARTIES . TO VERIFY THE GENUINENESS OF THE TRANSACTION S OF THE PURCHASES AND T HE PAYMENTS MADE LETTER U/S. 133(6) WAS ISSUE TO SOME OF THE PARTIES . O N THE BASIS OF REPLY RECEIVED , A.O NOTICED THAT MOST OF THE PARTIES HAD ENCHASED THE CHEQUES ISSUED TO THEM THROU GH A SHROFF AFTER PAYING COMMISSION TO THEM. HE THEREFORE CONCLUDED THAT ASSESSEE HAD MADE PAYMENT OF THE EXPENSES OF MORE THAN RS. 20,000 OTHERWISE THAN ACCOUNT PAYEE CHEQUES WHICH WAS IN CONTRAVENTION TO THE PROVISIONS OF SECTION 40A(3) OF THE ACT. FROM THE LIST OF TOTAL PAYMENTS REPRODUCED AT PAGE 7 TO 9 OF THE ORDER, HE NOTED THAT THE TOTAL PURCHASES MADE BY THE ASSESSEE FOR WHICH THE PAYMENT WAS MADE IN EXCESS OF RS. 20,000/ - O THER THAN BY ACCOUNT PAYEE CHEQUES WAS RS. 3,19,81,441/ - . HE ACCORDINGLY DIS ALLOWED 20% OF THE AFORESAID PAYMENTS AND DISALLOWED RS. 63,96,288/ - U/S. 40A(3) OF THE ACT. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE REMAND REPORT RECEIVED FR OM A.O GRANTED PAR TIAL RELIEF TO THE A SSESSEE BY HOLDING AS UNDER : - 4.3.1 I HAVE TRIED TO ANALYZE THE ADDITION MADE AT 20% OF PAYMENTS MADE OTHERWISE THAN ACCOUNT PAYEE CHEQUE / ACCOUNT PAYEE BANK DRAFT AS BELOW AFTER CONSIDERING THE TABLE AS SUBMITTED BY THE ID. AR. SR. NO PARTICULARS AMOUNT IN RS. 1 PAYMENT TO AGRICUTURISTS BY CASH 1,37,85,555/ - ITA NO 1981/AHD/2010 . A.Y. 2007 - 08 3 2 PAYMENT TO AGRICULTURISTS BY CHEQUE 66,49,115/ - 3 PAYMENT TO VENDORS ON OR BEFORE 09/11/2006 OTHER THAN BY ACCOUNT PAYEE CHEQUE 65,77,958 4 PAYMENT TO 4 PARTIES FOR LESS THAN RS. 20,000/ - ON EACH TRANSACTION 22,209/ - 5 EXPENSES WRONGLY TREATED AS PURCHASES 1,81,647/ - 6 PAYMENT TO VENDORS OTHER THAN BY ACCOUNT PAYEE CHEQUE AFTER 09/11/2006 47,60,621/ - 4.3.2AS REGARDS PAYMENTS OTHERWISE THAN BY WAY OF ACCOUNT PAYEE CHEQUE / ACCOUNT PAYEE BANK DRAFT IN RESPECT OF PAYMENTS TO PERSONS COVERED BY SR. NO. 1 AND 2 ABOVE TO THE AGRICULTURISTS, IT IS AMPLY CLEAR THAT THE APPELLANT WAS NOT PROVIDED SUFFICIENT OPPORTUNITY OF BEING HEARD AND TO PROVIDE NECESSARY EVIDENCES THAT THE PAYMENT WAS INDEED DONE TO THE AGRICULTURISTS. IN VIEW THEREOF, REMAND REPORT WAS ASKED FOR FROM THE DY. COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE BY WAY OF ALLOWING ADDITIONAL GROUND UND ER AS PER RULE 46A OF THE INCOME TAX RULES, 1962. 4.3.3 AFTER CONSIDERING THE REMAND REPORT AND SUBMISSION MADE BY THE ID AR IN RESPONSE TO THE REMAND REPORT CONSIDERING THE MERITS OF THE CASE AFTER CONSIDERING DETAILS SUBMITTED BY THE APPELLANT, I DIRECT THE ID AO TO RESTRICT ADDITION TO THE EXTENT OF 20% OF RS.2,98,809/ - BEING RS.59.762/ - AS SPECIFIED AT POINT NO. 4.1 OF THIS ORDER AND DELETE DISALLOWANCE T THE - EXTENT OF RS,26,97,349/ - BEING 20% OF RS.1,34,86,746/ - (RS.1,37,85,555/ - LESS RS.2,98,809/ - ) AS COVERED IN SR. NO. 1 ABO VE AND ALSO DIRECT THE AO TO DELETE ENTIRE ADDITION AT 20% OF THE AMOUNT MENTIONED AT SR. NO. 2 ABOVE IN FULL. AS REGARDS PAYMENT TO PERSONS COVERED AT SR. NO. 4 ABOVE, IT IS AMPLY CLEAR THAT PAYMENT MADE TO ONE PERSON AT A TIME IS LESS THAN RS.20,000/ - AN D HENCE, THERE IS NO VIOLATION OF SECTION 40A(3) OF THE ACT AND HENCE, ADDITION AT 20% OF THE AMOUNT MENTIONED IS DIRECTED TO BE DELETED. 4.3.4 AS REGARDS PAYMENT TO PERSONS COVERED AT SR. NO. 5 ABOVE, IT IS BROUGHT TO MY UNDERSTANDING THAT THE SAME IS IN THE NATURE OF DISCOUNT / MISCELLANEOUS EXPENDITURE WRITTEN OFF TOWARDS SUM DUE FROM DEBTORS OF THE APPELLANT AND NOT PAYMENTS MADE TO CREDITORS. EVEN OTHERWISE, AS THE PAYMENTS MADE TO VARIOUS PERSONS ON A SINGLE TRANSACTION ON A SINGLE DAY IS BELOW THE PR ESCRIBED LIMIT OF RS.20,000/ - , THE PAYMENT IS NOT HIT BY SECTION 40A(3) OF THE ACT AND HENCE DISALLOWANCE TO THAT EXTENT OF 20% MADE IS DIRECTED TO BE DELETED. 4.3.5 NOW COMING TO THE PAYMENTS TO PERSONS COVERED BY SR. NO. 3 AND 6 ABOVE, IT IS CLEAR THAT T HE PAYMENT IS MADE TO THE SAID PERSONS OTHERWISE THAN BY WAY OF ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFTS. IN THESE CASES, THE APPELLANT STRONGLY SUBMITTED THAT THE PAYMENTS WERE MADE TO THE SAID PERSONS AS A MATTER OF PREVAILING BUSINESS PRACTICE. THE MODUS OPERANDI IS SUCH THAT THE CROSSED CHEQUES ARE ISSUED TO THE CREDITORS OF THE APPELLANT, CREDITORS APPROACH TO THE SHROFF AND GET THEM DISCOUNTED AND REALIZE MONEY WELL BEFORE THE DUE DATE. THROUGH SUCH PROCESS, THEY GET LIQUIDITY AND HENCE, BUSI NESS FUNCTIONS IN SMOOTH WAY AT EARLY CYCLE. IT IS CLEAR THAT THE APPELLANT HAS IN A STRICT INTERPRETATION AND LITERAL MEANING OF SECTION 40A(3) OF THE ACT, VIOLATED PROVISIONS OF THE ACT AND THEREBY ADDITION WAS MADE TO THE RETURNED INCOME. HOWEVER, ONE A LSO NEEDS TO CONSIDER THE LOGIC BEHIND INSERTION OF SUCH A HARSH SECTION AND ALSO THE PREVAILING CIRCUMSTANCES AROUND SUCH TRANSACTION. IN THE APPELLANT'S CASE, IT IS VERY WELL CONCLUDED BY THE ID. AO THAT THE PAYMENT IS MADE TO THE CREDITORS BY WAY OF CRO SSED CHEQUES AND THE SAME ARE BEING DISCOUNTED THROUGH SHROFF. IN A WAY, THE MONEY HAS REACHED THE CREDITORS THROUGH THE INTERMEDIATE PERSON THOUGH NOT DIRECTLY FROM THE APPELLANT. IT IS ALSO INTERESTING TO NOTE THAT SUCH IS THE PREVAILING MARKET PRACTICE IN THE SAID NATURE OF BUSINESS. IT IS ALSO CLEAR THAT THE APPELLANT HAS FAIRLY ESTABLISHED IDENTITY OF THE CREDITORS, NATURE OF TRANSACTION AND MODE OF PAYMENT. IT IS JUST A FACT THAT THE MODE IS NOT AS PRESCRIBED AS PER THE LAW AND THERE IS A TECHNICAL BR EACH AND ON SUCH A TECHNICAL DISCREPANCY, ADDITION CAN NOT BE MADE INVOKING SECTION 40A(3) OF THE ACT AS HAS BEEN HELD BY SEVERAL DECISIONS AS RELIED UPON BY THE APPELLANT HEREIN BEFORE INCLUDING THAT OF JURISDICTIONAL AUTHORITY. ONE ALSO NEEDS TO CONSIDER THE DECISIONS IN THE CASE OF CIT V/S PIARA SINGH 17 CTR 111 AND ALSO THAT OF DR. T A QUERESHI V/S CIT 206 CTR 489 AS RELIED UPON BY THE ID AR THOUGH NOT DIRECTLY RELATED TO THE FACTS OF THE CASE BUT EXPLAINING ANALOGY AND LIBERAL VIEW TO BE ADOPTED AND RE LIEF HAS TO BE GIVEN TO ASSESSEE WHEN BONAFIDES OF THE CASE ARE AVAILABLE. IT IS ALSO INTERESTING TO NOTE THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF EITHER THE CREDITORS OR THE TRANSACTIONS. THE DISALLOWANCE IS MERELY DONE ON THE BASIS OF BREACH OF PRO VISIONS OF SECTION 40A(3) OF THE ACT. IT IS A WELL FOUNDED ARGUMENT OF THE ASSESSEE THAT WHEN ALL THE TRANSACTIONS AND PAYMENTS ARE FOUND TO BE GENUINE THEN AO SHOULD NOT HAVE MADE IMPUGNED DISALLOWANCE MERELY ON A TECHNICAL BREACH. THE ASSESSEE HAS CITED BEFORE ME VARIOUS DECISIONS ON THE SUBJECT. ITA NO 1981/AHD/2010 . A.Y. 2007 - 08 4 4.3.4 TO CONCLUDE, AFTER CONSIDERING THE FACTS OF THE CASE AS WELL AS DECISIONS RELIED UPON BY THE ASSESSEE, I CONFIRM DISALLOWANCE OF RS,59,762/ - BEING 20% OF RS.2,98,809/ - BEING TOTAL OF PAYMENTS TO 4 PERSONS AT SR. NO. 3 OF THE TABLE (EXCEPT FOR RS.3,200 - ) IN PARA 4.1 OF THIS ORDER AND DELETE THE BALANCE DISALLOWANCE WHICH IS WORKED OUT TO RS.63,36,527/ - IN TOTAL OUT OF TOTAL DISALLOWANCE OF RS.63,96,2897 - MADE U/S 40A(3) OF THE ACT BY THE AO. 5. AGGRIEVED BY TH E ORDER OF LD CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD D.R. TOOK US THROUGH THE ORDER OF A.O AND POINTED TO THE FINDING TO DEMONSTRATE THAT THE PAYMENTS WERE MADE BY BEARER CHEQUES. HE THEREFORE SUBMITTED THAT THE A.O WAS JUSTIFIED IN IN VOKING THE PROVISIONS OF SECTION 40A(3) AND THEREFORE SUBMITTED THAT THE ORDER OF A.O BE UPHELD. ON THE OTHER HAND LD A.R. REITER ATED THE SUBMISSIONS MADE BEFORE CIT(A) AND ALSO POINTED TO THE SUBMISSIONS MADE IN THE REMAND REPORT WHICH HAS BEEN REPRODUCED BY CIT(A). HE FURTHER SUBMITTED THAT THE GENUINENESS OF PAYMENTS HAS NOT BEEN DISPUTED BY A.O. HE ALSO RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ANUPAM TELE SERVICES VS. ITO 2014 366 ITR 122 (GUJ). HE THUS SUPPORTED THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT DISALLOWANCE U/S. 40A(3). WE FIND THAT CIT(A) WHILE RESTRICTING THE DISALLOWANCE HAS NOTED THAT PAYMENT WERE MADE TO AGRICULTURIST AND T HEREFORE WERE ALLOWABLE UNDER EXCEPTION ( E ) TO RULE 6DD OF THE RULES AND TO THE EXTENT THE PAYMENTS WERE NOT COVERED BY EXCEPTION , HE HAS UPHELD THE DISALLOWANCE. WITH RESPECT TO THE PAYMENT TO THE VENDORS OTHER T HAN BY ACCOUNT PAYEE CHEQUES HE HAS NOTED THA T THAT THE TRANSA CTIONS AND PAYMENTS WERE NOT DOUBTED AND WERE HELD TO BE GENUINE AND THE PAYMENT MADE BY THE ASSESSEES WERE AS PER THE PREVAILING BUSINESS PRACTICE. HE THEREFORE CONSIDERED THE PAYMENTS MADE BY ASSESSEE THROUGH CROSS CHEQUES TO BE A TECHN ICAL BREACH AND THEREFORE DELETED THE ADDITION ITA NO 1981/AHD/2010 . A.Y. 2007 - 08 5 MADE UNDER SECTION 40A(3) OF THE ACT . BEFORE US, REVENUE HAS NOT CONTROVERTED THE FINDINGS OF CIT(A) NOR HAS BROUGHT ANY BINDING DECISION IN ITS SUPPORT. . WE FURTHER FIND THAT HON BLE GUJARAT HIGH COURT IN T HE CASE OF ANUPAM TELE SERVICES VS. ITO 2014 366 ITR 122 (GUJ) HAS HELD AS UNDER : - IN ATTAR SINGH GURUMUKH SINGH VS. ITO (1991) 191 ITR 667 (SC), THE SUPREME COURT OBSERVED THAT SECTION 40A(3) OF THE INCOME - TAX ACT, 1961, MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION OF RULE 6DD OF THE INCOME - TAX RULES, 1962. THE SECTION MUST BE READ ALONG WITH THE RULE, AND IF READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESS EE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE 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 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 ABSOLUTE. CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER R E L EVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. 8. CONSIDERING THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF HON BLE GUJARAT HIGH COURT CITED HEREINABOVE, WE FIND NO REASO N TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED IN OPEN COURT ON 12 - 0 9 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT 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 CON CERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD