M/s Patriot Marketing Ltd, Bhubaneswar V. ACIT(OSD), Bhubaneswar

ITA 294/CTK/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4385 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 18-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 17-12-2009
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Section: 40A(3)

Judgement Text

`` IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 294/CTK/2009 (ASSESSMENT YEAR 2006 - 07) M/S.PATRIOT MARKETINGLTD., 15, BAPU JI NAGAR, BHUBANESWAR 751 009 PAN: AABCP98508Q VERSUS ASST.COMMISSIONER OF INCOME - TAX (OSD), RANGE I, BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SANJAY MODI, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR ORDER SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DT.8.10.2009 FOR THE ASSESSMENT YEAR 2006 - 07 IN THE CASE OF THE ASSESSEE. 2. THE SOLE ISSUE RAISED BY THE ASSESSEE IN TH IS APPEAL IS AGAINST THE CONFIRMATION OF THE ADDITION OF RS.25,12,100 , BEING 20% OF THE AMOUNT PAID BY THE ASSESSEE IN CONTRAVENTION OF THE PROVISIONS CONTAINED IN SECTION 40A(3) OF THE INCOME - TAX ACT,1961 3. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUE RAISED BY THE ASSESSEE AND ITS LEGAL IMPLICATIONS. 4. DURING THE COURSE OF HEARING THE LEARNED AR OF THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS PAID THE AMOUNT IN QUESTION TO THE SISTER CONCERNS, TOWARDS PURCHASES MADE BY IT FROM THEM OF TRADED ITEM S SUCH AS , AIR - COOLERS, GEYSERS AND PLASTIC FURNITURE ETC. THE ASSESSEE MAINTAINS ACCOUNT OF THE SISTER CONCERNS WHEREIN THE PURCHASES MADE FROM THEM ARE DEBITED AND THE PAYMENTS MADE TO THEM ARE CREDITED, THUS MAINTAINS RUNNING ACCOUNTS OF THE SISTER C ONCERNS FROM WHOM IT PURCHASED THE TRADED GOODS. UNDER SUCH ITA NO.294/CTK/2009 2 CIRCUMSTANCE, THE PAYMENTS WERE MADE, WAS EXPLAINED BY THE ASSESSEE STATING THAT THE SISTER CONCERNS ARE NOT ABLE TO OPERATE THEIR BANK ACCOUNTS, THEREFORE, THE DAILY REQUIREMENTS OF THEM NAMELY , PAYMENTS FOR DAILY EXPENDITURES COULD NOT BE MADE THROUGH BANK CHEQUES OR DRAFTS AS THEY ARE NOT ABLE TO MAKE THEM ENCASHED DUE TO STOPPAGE OF THEIR BANK ACCOUNTS WITH THE BANKERS. UNDER SUCH DIFFICULTY, THE ASSESSEE MADE THE IMPUGNED PAYMENTS IN CASH TO THEM ON THEIR REQUEST. BUT THOSE PAYMENTS NEVER CROSSED THE PRESCRIBED LIMIT PROVIDED IN THE I.T.ACT FOR THE PERIOD UNDER CONSIDERATION AND THE SISTER CONCERNS HAVE ALSO CONFIRMED THE RECEIPTS FROM THE ASSESSEE ON VARIOUS DATES DURING THE PERIOD UNDER CONS IDERATION. BUT THE DEPARTMENT IS OF TECHNICAL VIEW THAT THE PAYMENTS HAVING BEEN MADE IN CASH OVER AND ABOVE THE PRESCRIBED LIMIT FOR THE PERIOD UNDER CONSIDERATION, THE ASSESSING OFFICER DISALLOWED 20% OF SUCH PAYMENTS U/S.40A(3) OF THE I.T.ACT AND THE LE ARNED CIT(A) HAS CONFIRMED THE SAME AS CORRECT. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT TAKING INTO CONSIDERATION OF THE TOTAL FACTS AND CIRCUMSTANCES OF THE CASE, SUCH AS THE SISTER CONCERNS HAD NOT BEEN ABLE TO OPERATE BANK ACCOUNTS DUE TO UNAVOIDA BLE CIRCUMSTANCES AND AT THE SAME TIME THEY HAD TO MEET THE NEED OF DAILY EXPENDITURES FOR WHICH THE REQUIRED CASH PAYMENTS WERE RECEIVED FROM THE ASSESSE AND THE FACT THAT THEY HAVE ACKNOWLEDGED SUCH PAYMENTS TO HAVE BEEN RECEIVED BY THEM BEFORE THE DEPA RTMENTAL AUTHORITIES, THE DISALLOWANCE MADE BY THE DEPARTMENTAL AUTHORITIES IS NOT JUSTIFIED. THUS CONTENDING THE LEARNED AR OF THE ASSESSEE SOUGHT FOR DELETION OF THE SAID DISALLOWANCE MADE BY THE DEPARTMENTAL AUTHORITIES BY ALLOWING THE APPEAL OF THE ASS ESSEE. ITA NO.294/CTK/2009 3 5. CONTRARY TO THIS, THE LEARNED DR HAS VEHEMENTLY ARGUED SUPPORTING THE ORDERS PASSED BY THE LOWER AUTHORITIES AND SOUGHT FOR DISMISSING THE APPEAL OF THE ASSESSEE BY UPHOLDING THE SAME. 6. ON CAREFUL CONSIDERATION OF THE IMPUGNED ORDERS OF THE AUT HORITIES BELOW AND THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL, IN THE LIGHT OF RIVAL SUBMISSIONS OF THE PARTIES , IT IS FOUND THAT UNDISPUTEDLY THE ASSESSEE IS MAKING PURCHASES OF TRADE GOODS FROM THE SISTER CONCERNS AND MAKING PAYMENTS TO THEM BY MAINTAIN ING A RUNNING ACCOUNT OF SISTER CONCERNS IN ITS BOOKS OF ACCOUNT. DUE TO REASONS THAT THE BANK ACCOUNTS OF THE SISTER CONCERNS WERE NOT OPERATED BY THEM AND AS THEY ARE IN NEED OF CASH FOR MEETING THE DAILY EXPENDITURES, ON THEIR REQUEST THE ASSESSEE MADE THE PAYMENTS IN CASH TO THE SISTER CONCERNS AS PER RUNNING ACCOUNTS. IT IS PERTINENT TO NOTE THAT THE SISTER CONCERNS ARE ALSO INCOME - TAX ASSESSEES AND CORRESPONDING ENTRIES IN THEIR ACCOUNTS WERE MADE REGARDING THE PAYMENTS MADE BY THE ASSESSEE TO THEM. THOUGH THE RULE 6DD IS OMITTED IN THE PERIOD UNDER CONSIDERATION, IT CANNOT BE SAID THAT IF FOUND NECESSARY THERE IS RESTRICTION IN PAYMENT OF CASH IN EXCESS OF PRESCRIBED LIMIT UNDER THE I.T.ACT. THE DEPARTMENT HAS NOT BEEN ABLE TO MAKE OUT ANY INFORMATI ON AS TO THE PAYMENTS IN QUESTION RELATE TO NON - EXPENDITURE. SECTION 40A(3) STATES THAT WHERE THE ASSESSEE INCURS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE TO A PERSON IN A DAY OTHERWISE THAN BY WAY OF ACCOUNT PAYEE CHEQUE DRAWN IN BANK OR ACCOUNT PA YEES BANK DRAFTS EXCEEDS RS.20,000, NO DEDUCTION SHALL BE ALLOWED FOR SUCH EXPENDITURE. FROM THE LANGUAGE USED IN THIS PROVISION, IT IS CLEAR THAT THE PAYMENTS MUST BE RELATING TO ANY EXPENDITURE AND SUCH EXPENDITURE MUST BE AN ALLOWABLE EXPENDITURE DURING THE COURSE OF BUSINESS OF THE ASSESSEE. ON ANALYSIS OF THE SAID PROVISIONS IN THE LIGHT OF THE UNDISPUTED FACTS IN THIS CASE THAT ITA NO.294/CTK/2009 4 THE PAYMENTS WERE MADE TOWARDS THE PURCHASES OF TRADE ITEMS SUCH AS AIR - COOLER, GEYSERS AND PLASTIC FURNITURE ETC., WHICH ARE TO BE TRADED BY THE ASSESSEE AND NOT TOWARDS ANY EXPENDITURE THAT WAS CLAIMED AS ALLOWABLE EXPENDITURE BY THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT FOR PAYMENTS TOWARDS PURCHASE OF TRADE ITEMS , THE PROVISIONS CONTAINED IN SECTION 40A(3) WILL NOT BE APPLICABLE. HENCE, WE ARE OF THE FIRM OPINION THAT THE DISALLOWANCE OF 20% OF SUCH PAYMENTS INVOKING PROVISIONS OF SECTION 40A(3) OF THE I.T.ACT IS NOT JUSTIFIED AND AS SUCH, WE HEREBY DIRECT DELETION OF THE SAID DISALLOWANCE MADE BY THE DEPARTMENTAL AUT HORITIES BY ALLOWING THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 17.06.2011 S D/ - S D/ - (K.K.GUPTA) ACCOUNTANT MEMBER (K.S.S.PRASAD RAO) JUD ICIAL MEMBER DATE: 17.06.2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.PATRIOT MARKETINGLTD., 15, BAPUJI NAGAR, BHUBANESWAR 751 009 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - T AX (OSD), RANGE I, BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.