Indrajit Paul, Kolkata V. Income Tax Officer, Ward - 2(3), Kolkata, Asansol

ITA 2477/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4460 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 24-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K
• Assessee Lawyers: D K DE SARKAR
• Section: 40A(3); 133(6)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI WASEEM AHMED, AM & SHRI S.S.VISWANETHRA RAVI, JM ./ ITA NO.2477/KOL/2013 ( / ASSESSMENT YEAR :2008-2009) INDRAJIT PAUL, C/O.D.K.DE SARKAR & CO., 167/4, LENIN SARANI, SECOND FLOOR, KOLKATA-700072 VS. INCOME TAX OFFICE, ASANSOL WARD-2(3), 54 G.T.ROAD, APPEAR GARDEN, ASANSOL-713304 ./ ./PAN/GIR NO. : AIJPP 9229 M ( /APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI D.K.DE SARKAR, FCA /REVENUE BY : SHRI A.K.PANDE, JCIT-DR / DATE OF HEARING : 23/05/2016 /DATE OF PRONOUNCEMENT 15/07/2016 / O R D E R PER WASEEM AHMED (A.M) : THE ASSESSEE HAS PREFERRED THIS APPEAL AGAINST THE ORDER DATED 26- 08-20013, PASSED BY LD. COMMISSIONER OF INCOME TAX( APPEALS), ASANSOL, RELATING TO ASSESSMENT YEAR 2008-2009 ON THE FOLLOW ING GROUNDS :- 1. FOR THAT THE ORDER OF LD. CIT(A) IS BAD IN LAW A S WELL AS ON FACTS. 2. FOR THAT THE PAYMENT OF THE RETAILERS TO THE ORG ANIZER BY CASH CANNOT BE TREATED AS PAYMENT BY YOUR APPELLANT AND ADDITION OF RS.26,05,178.00 ON ACCOUNT OF CASH PAYMENT IS BAD I N LAW AS WELL AS ON FACT. 3. FOR THAT ADDITION OF RS.60,000.00 ON ACCOUNT OF SHORT DRAWINGS IS BAD IN LAW AS WELL AS ON FACT. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUND OF APPEAL IS THAT THE LD. CIT(A), ERRED IN CONFIRMING THE ORDER OF AO BY DISALLOWING THE CASH ITA NO.2477/KOL/13 INDRAJIT PAUL 2 PAYMENT OF RS.26,05,178.00 UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE P RESENT CASE IS AN INDIVIDUAL/PROPRIETOR AND ENGAGED IN LOTTERY BUSINE SS OF THE STATE GOVERNMENT UNDER THE NAME AND STYLE OF M/S GEE I PA UL TA. THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING BUSIN ESS INCOME OF RS.3,67,497/-. THEREAFTER NOTICES U/S.143(2) AND 14 2(1) OF THE ACT ALONG WITH QUESTIONNAIRE WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS SUBMITTE D AUDITED REPORT, PROFIT AND LOSS ACCOUNT, BALANCE SHEET, BANK STATEM ENT, FAMILY TREE, COPY OF PURCHASE AND SALE LEDGER, PARTY LEDGER, BOOKS OF ACCOUNT COMPRISING CASH BOOK, LEDGER ETC. THE AO DURING ASSESSMENT PRO CEEDINGS FOUND THAT THE PAYMENT EXCEEDING RS.20,000/- IN CASH FOR THE P URCHASES OF TICKETS HAS BEEN MADE TO M/S VIRA ENTERPRISES AND M/S BEST & CO. THE AO GATHERED THIS INFORMATION AFTER ISSUING NOTICE U/S. 133(6) OF THE ACT TO THE ABOVE STATED PARTIES. ON QUERY FOR THE VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT, READ WITH RULE 6DD OF IN COME TAX RULES, IT WAS SUBMITTED THAT THE ASSESSEE WAS ACTING AS A SUB-DIS TRIBUTOR OF THE AFORESAID COMPANIES. THE ASSESSEE USED TO BUY LOTTE RY TICKETS FROM THESE COMPANIES AND USED TO SELL TO ITS RETAILERS WHICH W ERE LOCATED AT DIFFERENT PARTS OF WEST BENGAL. THE SUPPLIERS I.E. M/S VIRA E NTERPRISES AND M/S BEST & CO., OF THE TICKETS USED TO COLLECT PAYMENT FROM THE RETAILERS ON BEHALF OF THE ASSESSEE WHICH WERE ADJUSTED IN THE LEDGER ACCO UNT OF THE RESPECTIVE PARTIES MAINTAINED BY THE ASSESSEE. THE SUPPLIERS U SED TO GIVE STATEMENT ITA NO.2477/KOL/13 INDRAJIT PAUL 3 OF COLLECTIONS TO THE ASSESSEE AND ACCORDINGLY THE ASSESSEE USED TO RECORD IN HIS BOOKS OF ACCOUNT AS THE CASH COLLECTE D AND SIMULTANEOUSLY USED TO SHOW THE PAYMENT TO THE SUPPLIERS. HOWEVER, FACTUALLY THERE WAS NO MOVEMENT OF CASH AT ALL. IT WAS AN ADJUSTMENT EN TRY WHICH IS ALLOWED AS PER CLAUSE D OF RULE 6DD OF THE INCOME TAX RULES. HOWEVER, THE AO HAS REJECTED THE PLEA OF THE ASSESSEE BY HOLDING TH AT THERE WAS NO ADJUSTMENT ENTRIES PASSED IN THE BOOKS OF ACCOUNTS. THE PAYMENT ACKNOWLEDGEMENT RECEIPTS ISSUED BY THE SUPPLIERS CL EARLY ESTABLISH THAT PAYMENT WAS MADE ONLY IN CASH. THE AO ALSO OBSERVED THAT ASSESSEE FAILED TO FURNISH THE NAME AND ADDRESS OF THE AGENT S, WHO USED TO COLLECT MONEY ON BEHALF OF THE DISTRIBUTORS. IN VIEW OF THE ABOVE, THE AO DISALLOWED A SUM OF RS.26,05,178/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A), WHERE THE ASSESSEE SUBMITTED THAT THE SUPPLIERS NAM ELY M/S BEST & CO. AND VIRA ENTERPRISES WERE COLLECTING MONEY FROM THE RETAILERS ON BEHALF OF THE ASSESSEE. THEREAFTER THE AMOUNT WHICH WAS PAYAB LE BY THE ASSESSEE TO THE SUPPLIERS ON ACCOUNT OF PURCHASES OF LOTTERY TICKETS USED TO BE ADJUSTED WITH THE COLLECTIONS MADE BY THE SUPPLIER. HOWEVER, LD. CIT(A) DISREGARDED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER :- 10. THE APPELLANT CLAIMED THAT RULE 6DD(D) APPLIES IN HIS CASE. RULE 6DD(D) READS AS UNDER :- (D) WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMEN T AGAINST THE AMOUNT OF ANY LIABILITY INCURRED BY THE PAYEE FOR ANY ITA NO.2477/KOL/13 INDRAJIT PAUL 4 GOODS SUPPLIED OR SERVICES RENDERED BY THE ASSESSEE TO SUCH PAYEE. THE INTERPRETATION OF SAME IS MUTUAL ADJUSTMENT ON BILATERAL BASIS AND NOT ADJUSTMENT ON MULTILATERAL BASIS. IN THIS CASE, AS SPELT OUT WITH REFERENCE TO AN EXAMPLE IN PARAGRAPH 8 OF THIS ORDER, IT CAN BE SEEN THAT THE FIGURE DISALLOWED BY ASSESSING OFF ICER IS THE RESIDUAL SUM AFTER AL ADJUSTMENTS MADE BY ASSESSING OFFICER. IN NO WAY RULE 6DD(D) APPLIES IN THE CONTEXT OF THE CASE. 11. CONSIDERING ALL ASPECTS DISCUSSED IN PARAGRAPH 7 TO 10, I HOLD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN IN VOKING SECTION 40A(3) IN THE INSTANT CASE. ACCORDINGLY, I DISMISS THE GROUND . BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 5. THE LD. AR BEFORE US SUBMITTED THAT THE RETAILER S APPOINTED BY THE ASSESSEE USED TO SELL THE TICKETS ON A PARTICULAR L IMITED LOCAL AREA ON CASH BASIS. TO INCREASE SALES AND QUICK DEBT REALISATION , THE SUPPLIERS OF THE TICKETS USED TO SEND HIS PERSONNEL TO THESE RETAILE RS FOR AND ON BEHALF OF THE ASSESSEE FOR THE COLLECTION OF MONEY RECEIVED F ROM THE SALE OF THE TICKETS. MANY OF THE RETAILERS WERE NOT HAVING BANK ACCOUNT. THE SUPPLIERS USED TO SEND THE STATEMENT OF SUCH COLLECTIONS FROM THE RETAILERS TO THE ASSESSEE FOR RECORDING THE TRANSACTIONS IN THE BOOK S OF ACCOUNT AS ENTIRE COLLECTION FROM THE DEBTOR AND ALSO CASH PAYMENT TO THE SUPPLIERS. AS PER ACCOUNTING PRINCIPLES, THE ACCOUNTING ENTRY IS CORR ECT BUT THE SO-CALLED FACT I.E. CASH PAYMENT BY THE ASSESSEE IS NOT CORRECT. L D. AR FURTHER SUBMITTED THAT THE CASE OF THE ASSESSEE IS DULY COVERED UNDER THE RULE 6DD(K) OF INCOME TAX RULES, 1962. THIS PAYMENT MADE IN CASH S HOULD ALSO BE ALLOWED AFTER CONSIDERING THE BUSINESS EXPEDIENCY A ND OTHER RELEVANT FACTORS. AS MANY RETAILERS WERE NOT HAVING BANK ACC OUNT THEN IT WAS ITA NO.2477/KOL/13 INDRAJIT PAUL 5 NECESSARY TO COLLECT THE CASH FROM THEM AND ACCORDI NGLY PAYMENT WAS REALISED IN CASH. LD. AR ALSO SUBMITTED THAT THE PA YMENT WERE MADE TO THE GENUINE PARTIES AND IT SHOULD BE ALLOWED IN TER MS OF HONBLE SUPREME COURT JUDGMENT IN THE CASE OF ATTAR SINGH GURMUKH S INGH VS. INCOME TAX OFFICER, 191 ITR 667. AT THE END LD. AR PRAYED FOR THE DELETION OF THE ADDITION MADE BY THE AO. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED T HE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD RIVAL PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. FROM THE FOREGOING DISCUSSION, WE FIND THAT THE AO HAS DISALLOWED CASH PAYMENT UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND THE SAME WAS CONFIRMED BY THE LD. CIT(A). AT THE OUTSET , WE FIND THAT GENUINENESS OF THE PAYMENT HAS NOT BEEN DOUBTED BY THE LOWER AUTHORITIES AND VARIOUS COURTS HAVE HELD THE SAME I SSUE IN FAVOUR OF THE ASSESSEE, WHERE GENUINENESS OF THE PARTIES TO WHOM PAYMENT IN CASH WAS NOT SUBJECT MATTER OF THE DISPUTE. WE FIND IN T HE SIMILAR FACTS AND CIRCUMSTANCES WHERE THE GENUINENESS HAS NOT BEEN DO UBTED, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GIRDHARILA L GOENKA VS. COMMISSIONER OF INCOME TAX (1989) 80 CTR 0140 : (19 89) 179 ITR 0122 HAS HELD AS UNDER : THE GROUND OF DISALLOWANCE OF THE PAYMENTS IS THAT THERE WAS A TIME-LAG BETWEEN THE DATE OF THE BILL AND THE PAYMENT MADE. THE OBJECT OF THE PROVISION OF S. 40A(3) IS TO CHECK EVASION OF TAXES SO THAT THE PAYMENT IS MADE FROM THE DISCLOSED SOURCES. BOTH THE PAYER AND THE PAYEE WOULD BE SHOWING IN THE RESPECTIVE ACCOUNT THE PAYMENTS MADE AND RECEIVED. IT PRESUPPOSES THAT THE TRANSACTION MUST BE GENUINE TR ANSACTION. IN THIS CASE, ITA NO.2477/KOL/13 INDRAJIT PAUL 6 GENUINENESS OF THE TRANSACTIONS HAS NOT BEEN DISPUT ED BY THE REVENUE AUTHORITIES. THE ONLY GROUND IS THE DELAY IN MAKING PAYMENT. IT IS NOT IN DISPUTE THAT IT IS THE FIRST YEAR OF THE BUSINESS O F THE ASSESSEE WHICH WAS STARTED IN DECEMBER, 1973, AND THE ACCOUNTING YEAR ENDED ON 22ND OCTOBER, 1974, AND THIS WAS THE FIRST YEAR OF ASSESSMENT. TH E PAYMENTS WERE MADE ALMOST BEFORE THE CLOSE OF THE ACCOUNTING YEAR BEFO RE DEWALI. A CERTIFICATE WAS PRODUCED FROM THE SELLER, M, WHO STATED IN THE CERTIFICATE THAT THEY 'ASKED THE PURCHASER TO MAKE PAYMENT OF DIFFERENT B ILLS IN CASH AS THERE WAS NECESSITY OF LIQUID FUNDS FOR THE EXPEDIENCY OF THE BUSINESS'. DATES OF THE BILLS AND PERMANENT ACCOUNT NUMBER WERE ALSO MENTIO NED IN THE CERTIFICATE. THUS, THE SELLER INSISTED UPON THE ASSESSEE'S PAYIN G THE BILLS IN CASH. THE IDENTITY OF THE PAYEE WHO WAS AN INCOME-TAX ASSESSE E WAS ESTABLISHED AND THE GENUINENESS OF THE TRANSACTIONS WAS NOT DOUBTED OR DISPUTED. THE ITO HAS TO TAKE A PRAGMATIC VIEW OF THE MATTER. THE ITO SHOULD TAKE A PRACTICAL APPROACH TO PROBLEMS AND STRIKE A BALANCE BETWEEN T HE DIRECTION OF LAW AND HARDSHIP TO THE ASSESSEE. HE SHOULD NOT ENMESH HIMS ELF IN TECHNICALITIES. AFTER ALL, THE OBJECT IS NOT TO DEPRIVE THE ASSESSE E OF THE DEDUCTION WHICH HE IS OTHERWISE ENTITLED TO CLAIM. WHERE THE AMOUNT WA S PAID IN CASH OR RECEIVED IN CASH, THE ASSESSING OFFICER HAS TO FIND OUT WHETHER THE TRANSACTION IS GENUINE OR NOT AND IF HE FINDS THAT THE TRANSACTION IS GENUINE, HE SHOULD ALLOW THE DEDUCTION. THE CBDT CIRCULAR NO . 220 DT. 31ST MAY, 1977 IS NOT EXHAUSTIVE; IT IS ONLY ILLUSTRATIVE AND THE ASSESSING OFFICER HAS TO TAKE INTO ACCOUNT THE SURROUNDING CIRCUMSTANCES, CONSIDE RATIONS OF BUSINESS EXPEDIENCY AND THE FACTS OF EACH PARTICULAR CASE IN EXERCISING HIS DISCRETION EITHER IN FAVOUR OR AGAINST THE ASSESSEE. THERE MAY BE AN ORAL AGREEMENT BETWEEN THE ASSESSEE AND THE SELLER FOR PAYMENT IN CASH. A SELLER MAY NOT BE WILLING TO ACCEPT CHEQUES; CASH PAYMENT MAY BE M ADE AT THE REQUEST OF THE PAYEE WHO IS ALSO AN ASSESSEE AND A CERTIFICATE TO THAT EFFECT FILED; ABSENCE OF BANKING FACILITIES IN PLACES WHERE CASH PAYMENTS ARE MADE. ALL SUCH CASES WOULD COME WITHIN THE PURVIEW OF EXCEPTI ONAL OR UNAVOIDABLE CIRCUMSTANCES. ON THE FACTS OF THIS CASE, WHERE THE ASSESSEE HAS SATISFIED THE ASSESSING OFFICER AS TO THE GENUINENESS OF THE PAYMENT AND THE IDENTITY OF THE PAYEE, THE CIRCUMSTANCE THAT THERE WAS A DEL AY IN MAKING PAYMENT OF THE BILLS BY ITSELF WOULD NOT TAKE THE CASE OUT OF THE AMBIT OF EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES REFERRED TO IN R. 6DD(J) AND DEDUCTION OF THE EXPENDITURE WHICH IS OTHERWISE ALLOWABLE TO HIM CAN NOT BE DENIED. WHERE THE ASSESSEE HAS SATISFIED THE ASSESSING OFFI CER AS TO THE GENUINENESS OF THE PAYMENT AND THE IDENTITY OF THE PAYEE, AND T HAT PAYEE INSISTED ON CASH PAYMENT THE CIRCUMSTANCE THAT THERE WAS A DELA Y IN MAKING PAYMENT OF THE BILLS BY ITSELF WOULD NOT TAKE THE CASE OUT OF THE AMBIT OF EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES REFERRED TO IN R. 6DD(J). FURTHER LD. AR IN SUPPORT THE CLAIM OF ASSESSEE THA T HAS SUBMITTED THE CONFIRMATION FROM M/S VIRA ENTERPRISES STATING THAT THERE WAS AN AGENCY BETWEEN THE ASSESSEE AND VIRA ENTERPRISES WHICH IS PLACED ON RECORD. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, WE ARE INCLINED TO SET ASIDE THE ORDERS OF LOWER AUTHORITIES. AO IS DIRECTED ACC ORDINGLY, HENCE, THIS GROUND RAISED BY ASSESSEE IS ALLOWED. ITA NO.2477/KOL/13 INDRAJIT PAUL 7 7. SECOND ISSUE RAISED BY THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE ORDER OF AO IN DISALLOWING A SUM OF RS.60,000/- ON ACCOUNT OF SHORT DRAWINGS. 8. THE ASSESSEE, FOR THE YEAR UNDER CONSIDERATION, HAS SHOWN THE DRAWINGS OF RS.30,000/-, WHICH WAS VERY LOW IN THE OPINION OF THE AO. IT WAS OBSERVED THAT ASSESSEES FAMILY COMPRISING OF H IMSELF, WIFE AND SCHOOL GOING DAUGHTER. THE ASSESSEE ALONG WITH HIS WIFE, WHO IS SEPARATE ASSESSEE HAS SHOWN DRAWINGS TOGETHER FOR RS.30,000/ - PER ANNUM INDIVIDUALLY. THE AO OBSERVED THAT THE DRAWINGS IS VERY LAW COMPARING TO THE STATUS OF THE ASSESSEE AS HE WAS OWING A MULTI- STOREY BUILDING, CAR ETC. THE DRAWINGS WERE UTILISED TOWARDS MUNICIPAL T AX LIABILITY, THE ELECTRICITY EXPENSES, HOUSEHOLD EXPENSES, USING MOT OR CAR RUNNING EXPENSES, ROAD TAX, CAR INSURANCE AND MAINTENANCE, EXPENSES TOWARDS SOCIAL OBLIGATION, DAUGHTERS EDUCATION EXPENSES. A CCORDINGLY, THE AO MADE ADDITION OF RS.60,000/- TOWARDS DRAWINGS OF TH E ASSESSEE AND THE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9. AGGRIEVED, ASSESSEE PREFERRED APPEAL TO THE LD. CIT(A), WHO HAS CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER :- 13. I HAD GONE THROUGH THE FACTS OF THE ADDITION. I FIND THAT THE ASSESSING OFFICER IS MODERATE IN THE ADDITION MADE ON ACCOUNT OF LOW DRAWINGS. EVEN THE ENHANCED FIGURE IS MODERATE SINCE WE ARE DEALING WITH F.Y.2007-08. HENCE, I DISMISS THE GROU ND. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASS ESSEE IS IN SECOND APPEAL BEFORE US. ITA NO.2477/KOL/13 INDRAJIT PAUL 8 10. AT THE OUTSET AND AFTER CONSIDERING THE REASONI NG GIVEN BY THE AO FOR MAKING DISALLOWANCE OF RS.60,000/-, WE FIND THA T NO REASONS TO INTERFERE IN THE ORDER OF LD. CIT(A). BESIDES THE A BOVE THE LD. AR ALSO FAILED TO BRING ANYTHING CONTRARY TO THE FINDINGS O F LOWER AUTHORITIES. HENCE, WE UPHOLD THE ORDERS OF LOWER AUTHORITIES AN D GROUND BY ASSESSEE IS DISMISSED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15/07/ 2016. SD/ - (S.S.VISWANETHRA RAVI) SD/ - (WASEEM AHMED) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER KOLKATA ; %& DATED 15/07/2016 . .()/PKM , . / PS #$% &% / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, KOLKATA 1. / THE APPELLANT 2. / THE RESPONDENT. 3. . ( ) / THE CIT(A), KOLKATA 4. . / CIT 5. /01 2 , 2 , / DR, ITAT, KOLKATA 6. 13 / GUARD FILE. / //TRUE COPY//