Seemant Sahakari Sangh Ltd., Uttrakhand V. ACIT, Haridwar

ITA 3209/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58434 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 15-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: ASHWANI TANEJA; DR RAKESH GUPTA
• Keywords: Depreciation; Business expenditure
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE PRESIDE NT & SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 3209/DEL/2010 ASSESSMENT YEAR: 2006-07 SEEMANT SAHAKARI SANGH LTD., VS. ACIT, MAIN MARKET, CHAMOLI, CIRCLE, AYAKAR BHAWAN, UTTRAKHAND. INDUSTRIAL AREA, AAETS1112M HARIDWAR. (APPELLANT) (RESPONDENT) APPELLANT BY : DR. RAKESH GUPTA, ADV., & SH. A SHWANI TANEJA, CA RESPONDENT BY : SH. B.R.R. KUMAR, SR. DR ORDER PER A.D. JAIN, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2006-07 AG AINST THE ORDER DATED 07.04.2010 PASSED BY THE LD. CIT(A) -I, DEHRADUN, RAISING THE FOLLOWING GROUNDS: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN CONFIRMING THE ACTION OF LD. AO IN DISALLOWING O F RS. 27,47,516,80/- I.E. (20% OF 1,37,37,584/-) ON ACCOU NT OF CASH PAYMENT U/S 40A(3) THAT TOO WITHOUT CONSIDERING THE FACTS OF THE CASE. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER A CTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN DISALLOWING OF RS. 27,47,516.80/- IS ILLEGAL, CONTR ARY TO ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 2 LAW AND FACTS, BEYOND JURISDICTION AND THE SAME ARE ALSO NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS. 3. THAT THE ASSESSEE CRAVES THE LEAVE TO ADD, ALTER OR AMEND THE GROUNDS OF APPEAL AT ANY STAGE AND ALL TH E GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 2. THE FACTS ARE THAT THE AO OBSERVED THAT DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE COOPERATIVE SOCIE TY WAS CARRYING ON THE BUSINESS OF PLYING AND TRANSPORTATI ON OF CEMENT AND FOOD GRAINS; THAT THE ASSESSEE HAD MADE CASH PAYMENTS IN EXCESS OF THE LIMITS PRESCRIBED U/S 40A (3) OF THE I.T. ACT AND THE AGGREGATE OF SUCH EXCESS PAYMENTS WAS OF RS. 1,37,37,584/-. OBSERVING THAT SUCH PAYMENTS WE RE NOT COVERED BY RULE 6DD OF THE I.T. RULES, 1962, THE AO MADE DISALLOWANCE OF 20% OF SUCH PAYMENTS U/S 40A(3) OF THE ACT, AMOUNTING TO RS. 27,47,516/- 3. THE LD. CIT(A), BY VIRTUE OF THE IMPUGNED ORDER, CONFIRMED THIS DISALLOWANCE, BRINGING THE ASSESSEE IN FURTHER APPEAL BEFORE US. 4. CHALLENGING THE IMPUGNED ORDER, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS A COOPE RATIVE SOCIETY OF A TRANSPORTERS; THAT IT STARTED BUSINESS OF PLYING AND ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 3 TRANSPORTATION OF CEMENT AND FOOD GRAINS IN 1961; T HAT THE COOPERATIVE SOCIETY WAS ESTABLISHED TO GIVE HELP/SU PPORT TO THE TRUCK OWNERS OF THE NEARBY AREAS IN THEIR TRANS PORT BUSINESS; THAT THE SOCIETY OBTAINS TRANSPORT ORDERS FOR CARRIAGE OF CEMENT, FOOD GRAINS, ETC., FROM THE INDUSTRIES/G OVERNMENT OFFICES, THAT THIS WORK IS ALLOTTED TO TRUCK OWNERS , WHO ARE THE MEMBERS OF THE SOCIETY AND THEY TRANSPORT THE GOODS ; THAT WHATEVER BILL IS RECEIVED FROM THE TRUCK OWNERS, IS SENT TO THE CONSIGNEE; THAT AT THE TIME OF PAYMENT TO THE TRUCK OWNERS, THE SOCIETY CHARGES COMMISSION @ 3% FROM THE PAYMENT OF BILL TO THE TRUCK OWNERS; THAT AS SUCH, THE SOCIETY DOES NO T EARN ANY PROFIT FROM THE TRUCK HIRING CHARGES; THAT ALL THE RECEIPTS ARE ONLY ON BEHALF OF THE TRUCK OWNERS AND PAYMENTS ARE MADE AFTER THE RECEIPT, AS VERIFIABLE FROM THE BANK STAT EMENT; THAT AS SUCH, THE PAYMENTS MADE TO THE TRUCK OWNERS ARE NOT THE EXPENSES INCIDENTAL TO THE BUSINESS, AS IS ALSO EVI DENT FROM THE CLAUSE 11 OF THE MEMORANDUM OF THE SOCIETY AND FROM THE INCOME AND EXPENDITURE ACCOUNT FILED ALONG WITH THE RETURN; THAT THE ASSESSEE SOCIETY DOES NOT OWN ANY TRUCK; T HAT SOMETIMES, BEFORE THE START OF JOURNEY THE TRUCK DR IVERS REQUIRE FILING OF DIESEL IN THE TRUCK, FOR WHICH, PATROL PU MPS HAVE BEEN ASSIGNED TO SUPPLY THE DIESEL AND AT THE TIME OF FI NAL PAYMENT OF TRANSPORTATION, THE COST OF DIESEL IS ADJUSTED F ROM THEIR BILLS ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 4 AND PAID TO THE PATROL PUMPS; THAT AS SUCH, THE COS TS FOR FILING OF DIESEL IN THE TRUCKS ARE IN THE NATURE OF ADVANC E FOR TRANSPORTATION CHARGES; THAT THEREFORE, THE PAYMENT S MADE TO THE PATROL PUMP OWNERS ARE NOT INCIDENTAL TO THE BU SINESS BUT ARE MADE ON BEHALF OF THE TRUCK OWNERS; THAT SO, TH E SOCIETY DOES NOT EARN INCOME FROM TRANSPORTATION CHARGES, B UT EARNS FROM COMMISSION FROM TRUCK OWNERS FOR PROCURING TRANSPORTATION ORDERS FOR THEM, AS COMMISSION AGENT , AS DECIDED IN THE AGM HELD ON 15.12.2005; THAT THE TRU CK OWNERS HAVE GIVEN THE RESOLUTION FOR PAYMENT TO BE MADE IN CASH TO THE ASSESSEE SOCIETY AS THE TRUCK DRIVERS DO NOT WA IT FOR BANK CLEARING TIME; THAT THEREAFTER, IT WAS RESOLVED THA T WHEREVER NECESSARY, ESPECIALLY WHEN THEY REFUSE TO LOAD/UNLO AD GOODS, PAYMENT BE MADE IN CASH TO THE TRUCK OWNERS; THAT A T TIMES, THE TRUCK HAVING TO MOVE FURTHER FOR ITS JOB, THERE REMAINS NO TIME TO WAIT FOR BANK CLEARING; THAT IN SOME PLACES , BANK FACILITIES ARE NOT AVAILABLE; THAT ALL THESE FACTS WERE DULY BROUGHT TO THE NOTICE OF THE LD. CIT(A) VIDE WRITTE N SUBMISSIONS, AS ALSO NOTED IN THE IMPUGNED ORDER; T HAT HOWEVER, THE LD. CIT(A) ERRONEOUSLY DID NOT TAKE TH EM INTO CONSIDERATION AND CONFIRMED THE DISALLOWANCE; THAT FOR A.Y. 2004-05, THE AO HAD MADE A SIMILAR DISALLOWANCE VID E ORDER DATED 20.12.2006 (COPY PLACED ON RECORD), AMOUNTING TO RS. 2 ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 5 LACS; THAT HOWEVER, VIDE ORDER DATED S02.03.2010 (C OPY PLACED ON RECORD), THE LD. CIT(A) DELETED THIS DISALLOWANC E; AND THAT RULE 6DD OF THE RULES WOULD ONLY GET ATTRACTED IF S ECTION 40A(3) OF THE ACT IS APPLICABLE, WHICH IS NOT THE C ASE HERE. THE LD. COUNSEL HAS SOUGHT TO PLACE RELIANCE ON THE FOLLOWING CASE LAWS: - 1. COMMISSIONER OF INCOME TAX VS. SIRMOUR TRUCK OPERATORS UNION 236 CTR (HP) 550; 2. COMMISSIONER OF INCOME TAX VS. AMBUJA DARLA KASHLOG MANGU TRANSPORT COOPERATIVE SOCIETY 227 CTR (HP) 299 AND 3. GA ROAD CARRIERS VS. ITO, WARD-I, NIZAMABAD, 9 TAXMANN.COM 184 (HYD. ITAT). 5. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY RELI ED ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT THE DIS ALLOWANCE HAS RIGHTLY BEEN CONFIRMED BY THE LD. CIT(A); THAT BESIDES CREDITING THE AMOUNTS RECEIVED ON ACCOUNT OF HIRE C HARGES, THE ASSESSEE HAS ALSO CLAIMED OTHER EXPENSES, AS IN ANY OTHER BUSINESS, LIKE PAYMENT ON ACCOUNT OF DIESEL, RENT, DEPRECIATION, ETC.; THAT FURTHER, PAYMENTS WERE MAD E TO PATROL PUMPS OTHERWISE THAN BY ACCOUNT PAYEE CHEQUES, DISP ROVING THE THEORY OF UNAVOIDABLE CIRCUMSTANCES, AS PUT FOR WARD BY THE ASSESSEE; THAT MOREOVER, THE ASSESSEE REMAINED UNABLE TO EXPLAIN THE REASONS FOR MAKING PAYMENTS TO SOME PARTIES ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 6 EITHER THROUGH ACCOUNT PAYEE CHEQUES OR BY OTHER MO DES; THAT THE EXCEPTIONS CONTAINED IN RULE 6DD OF THE I.T. RU LES, 1962, ARE NOT AVAILABLE TO THE ASSESSEE, SINCE IT HAS NOT BEEN SHOWN THAT BANKING FACILITIES WERE NOT AVAILABLE; AND THA T THEREFORE, THE APPEAL OF THE ASSESSEE BE DISMISSED AS HAVING N O MERIT. 6. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. UNDOUBTEDLY, THE ASSESSEE SOCI ETY IS A COOPERATIVE SOCIETY ESTABLISH TO GIVE HELP/SUPPORT TO THE TRUCK OWNERS OF THE NEARBY AREA IN THEIR TRANSPORT BUSINE SS. IT OBTAINS TRANSPORT ORDERS FOR CARRIAGE OF CEMENT, FO OD GRAINS, ETC. FROM INDUSTRIES/GOVERNMENT OFFICES. THE WORK IS ALLOCATED TO TRUCK OWNERS FOR TRANSPORTATION OF THE GOODS. T HE TRUCK OWNERS ARE THE MEMBERS OF THE SOCIETY. THE ASSESSE E SOCIETY CHARGES COMMISSION @ 3% FROM THE PAYMENT OF BILL TO THE TRUCK OWNERS. THE ASSESSEE MADE CASH PAYMENTS AND THE AO MADE DISALLOWANCE U/S 40A(3) OF THE ACT. TH E LD. CIT(A) CONFIRMED THE DISALLOWANCE. THE ISSUE IS AS TO WHETHER THE DISALLOWANCE IS IN ACCORDANCE WITH LAW. 7. IT REMAINS UNDISPUTED THAT THE CASH PAYMENT IS U NDER A RESOLUTION OF THE SOCIETY THAT WHENEVER NECESSARY, LIKE IN THE INSTANCE OF REFUSAL TO LOAD/UNLOAD GOODS, PAYMENT B E MADE TO ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 7 THE TRUCK OWNERS IN CASH. CBDT CIRCULAR NO. 220 DA TED 31.05.1977, IT IS SEEN, CLARIFIES THAT NO DISALLOWA NCE U/S 40A(3) OF THE ACT SHALL BE MADE WHERE PAYMENT COULD NOT BE MADE BY WAY OF CROSS CHEQUE DRAWN ON A BANK OR BY A CROSS BANK DRAFT, DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCU MSTANCES OR BECAUSE PAYMENT IN SUCH MANNER WAS NOT PRACTICAB LE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE, HAVING REGARD TO THE NATURE OF THE TRANSACTION AND THE NEC ESSITY FOR EXPEDITIOUS SETTLEMENT THERE. BEFORE THE AUTHORITI ES BELOW, THE ASSESSEE RELIED ON NUMEROUS CASE LAWS TO CONTEN D THAT IT IS A GENERAL PRACTICE THAT THE TRANSPORTERS DO NOT ACCEPT PAYMENTS OTHER THAN IN CASH. THESE CASE LAWS ARE A S FOLLOWS: I) DEPUTY COMMISSIONER OF INCOME TAX VS. SHREE VALLABH GLASS WORKS LTD. IN (2002) 76 TTJ (AHD) 652; II) NUCHEM PLASTIC LTD. VS. DY. CIT (1992) 44 TTJ (DEL.) 261; III) NINAL LAL VS. DY. CIT (2000) 68 TTJ (DEL.) 52; IV) TIRUPATI TRADING CO. VS. CIT (2000) 158 CTR (CA L.) 167 AND (2000) 242 ITR 113 (CAL.); V) JSR ENTERPRISES VS. ASSTT. CIT (1994) 49 TTJ (DEL.) 363. THIS SITUATION HAS NOT BEEN REBUTTED. ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 8 8. IN SIRMOUR TRUCK OPERATORS UNION (SUPRA), WHER E THE SOCIETY ITSELF DID NOT DO THE WORK OF TRANSPORTATIO N, BUT WAS CREATED ONLY TO INSURE THAT WORK WAS PROVIDED TO AL L THE TRUCK OPERATORS ON AN EQUITABLE BASIS, RETAINING ONLY A N OMINAL AMOUNT AS PARCHI CHARGES AND NOT ANY PROFIT, IT W AS HELD THAT THE ASSESSEE SOCIETY WAS NOT LIABLE TO DEDUCT TAX A T SOURCE FROM THE PAYMENTS MADE TO THE TRUCK OWNERS WHO WERE ITS MEMBERS. 9. IN AMBUJA DARLA (SUPRA), UNDER SIMILAR CIRCUMS TANCES, A SIMILAR DECISION WAS RENDERED. 10. IN G.A. ROAD CARRIERS (SUPRA), THE ASSESSE FI RM WAS ENGAGED IN ARRANGING TRANSPORT VEHICLES FOR BEEDI MANUFACTURES. IT HIRED LORRIES FOR CARRYING ON THE WORK AND MADE CASH PAYMENT TO LORRY OWNERS FOR THE SERVICES. IT WAS HELD THAT THE ASSESSEE DID NOT CARRY ON ANY BUSINES S OF TRANSPORT OPERATOR, BUT ITS BUSINESS WAS PRIMARILY OF A COMMISSION AGENT OR BROKER AND IT ACTUALLY FACILITA TED PAYMENT OF TRANSPORT HIRE CHARGES BY USERS OF TRANSPORT VEH ICLES BEING BEEDI MANUFACTURES AND OTHER CUSTOMERS TO ACTUAL OW NERS OF THE VEHICLES AND, THEREFORE, THE PAYMENTS WERE NOT BUSINESS ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 9 EXPENSES OF THE ASSESSEE AND COULD NOT BE DISALLOWE D U/S 40A(3) OF THE I.T. ACT. 11. IN THE PRESENT CASE ALSO, TRANSPORTATION IS NOT THE BUSINESS OF THE ASSESSEE COMPANY. IT ACTS AS A COM MISSION AGENT FACILITATING PAYMENT TO THE TRUCK OWNERS, WHO ARE ITS MEMBERS. THEREFORE, THE PAYMENTS WERE NOT BUSINESS EXPENSES OF THE ASSESSEE, IN KEEPING WITH G.A. ROA D CARRIERS (SUPRA) AND NO DISALLOWANCE WITH REGARD T HERETO WAS CALLED FOR U/S 40A(3) OF THE ACT. 12. IN VIEW OF THE ABOVE, THE GRIEVANCE OF THE ASSE SSEE IS JUSTIFIED. ACCORDINGLY, THE GROUNDS TAKEN BY THE A SSESSEE ARE ACCEPTED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 06.01.20 12 SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN ) PRESIDENT JUDICIAL MEM BER DATED: 6.01.2012 *KAVITA ITA NOS. 3209/D/20010 SEEMANT SAHAKARI SANGH LTD. 10 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR