Kabra Services, Hyderabad, Hyderabad V. ITO, Ward-5(3), Hyderabad, Hyderabad

ITA 346/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2409 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 27-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: L R AMJI RAO
• Assessee Lawyers: HARIKISHAN ASAWA
• Keywords: Commercial expediency
• Section: 40A(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B-SMC, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA NO. 346/HYD/2017 ASSESSMENT YEAR: 2006-07 M/S KABRA SERVICES, HYDERABAD. PAN AADFK9513B VS. ITO, WARD 5(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HARIKISHAN ASAWA REVENUE BY : SHRI L. RAMJI RAO DATE OF HEARING : 29-09-2017 DATE OF PRONOUNCEMENT : 10-11-2017 ORDER PER D. MANMOHAN, VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE FIRM IS DIRECTED AGAINST ORDER PASSED BY CIT(A)-4, HYDERABAD AND IT PERTAINS TO A.Y 2006-07. DISALLOWANCE MADE BY A.O, BY INVOKING THE PROVISIONS OF SEC. 40A(3) OF THE IT ACT, HAVING BEEN CONFIRMED BY LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL CONTENDING, INTER-ALIA, THAT GENUINE HARDSHIP AND BUSINESS EXPEDIENCY FACTOR, WHILE MAKING PAYMENT IN CASH, WAS NOT TAKEN INTO CONSIDERATION BY A.O AS WELL AS CIT(A). 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FIRM IS A C & F AGENT OF M/S. BIRLA WHITE CEMENT COMPANY AND M/S. GRASIM GRAY CEMENT COMPANY. IN THE PROCESS, IT EARNS COMMISSION INCOME. THE ASSESSEE INCURRED HAMALI EXPENDITURE, WHICH IS REIMBURSED BY THE AFOREMENTIONED COMPANIES AND THEREFORE, THE NET OF INCOME IS ALWAYS TAKEN INTO CONSIDERATION. THOUGH ASSESSEE IS IN BUSINESS FOR MANY YEARS, ONLY IN THE YEAR UNDER CONSIDERATION A.O MADE AN ADDITION OF RS. 20,68,865/-, REFERABLE TO DIFFERENCE IN GROSS PROFIT, BY OBSERVING THAT THE EXPENDITURE INCURRED CANNOT BE SET OFF AGAINST INCOME AT THE THRESHOLD. 2 ITA NO. 346/HYD/2017 M/S KABRA SERVICES, HYD . 3. ON AN APPEAL FILED BY ASSESSEE, THE ITAT RESTORED THE MATTER TO THE FILE OF A.O FOR FRESH EXAMINATION. ACCORDINGLY, THE DETAILS WERE VERIFIED AND IT WAS NOTICED THAT THE RECEIPTS IN QUESTION WERE HAMALI CHARGES AND COMMISSION RECEIVED, WHICH WERE SET OFF AND ONLY NET EXPENDITURE WAS DEBITED TO PROFIT AND LOSS ACCOUNT IN WHICH EVENT NO ADDITION IS CALLED FOR ON THE GROUND OF MIS- MATCH OF THE GROSS RECEIPTS. 4. HOWEVER, HE NOTICED THAT SUBSTANTIAL PAYMENTS TO THE TUNE OF RS. 19,23,320/- WAS PAID IN CASH, IN EXCESS OF PAYMENT RS. 20,000/- PER DAY, IN WHICH EVENT PROVISIONS OF SEC. 40A(3) OF THE IT ACT COME INTO PLAY. ACCORDINGLY, AN ADDITION OF RS. 3,84,664/-, BEING 20% OF RS.19,23,320/-, WAS MADE BY A.O. 5. AGGRIEVED, ASSESSEE CONTENDED THAT THE A.O HAVING ADMITTED THE GENUINENESS OF EXPENDITURE, ADDITION MADE U/S 40A(3) OF THE IT ACT IS UNCALLED FOR. IT WAS ALSO CONTENDED THAT HAMALI CHARGES HAVE TO BE PAID IN CASH AS OTHERWISE THE LOADING AND UNLOADING IS IMPOSSIBLE, SINCE HAMALIES DO NOT MAINTAIN BANK ACCOUNTS AND PAYMENTS HAVE TO BE MADE BY THE ASSESSEE AFTER 6 PM I.E., AFTER THE BANKING HOURS. IT WAS ALSO SUBMITTED THAT THE HAMALIES ARE TOTALLY ILLITERATES AND THEY INSIST ONLY CASH PAYMENTS. FOR BUSINESS PROMOTION THE PAYMENTS HAVE TO BE MADE IN CASH AND, HAVING REGARD TO CIRCUMSTANCES, IT FALLS WITHIN THE EXCEPTION PROVIDED U/S 40A(3) OF THE IT ACT. 6. THE LD. CIT(A) REPRODUCED THE WRITTEN SUBMISSIONS FILED BY THE REPRESENTATIVE OF THE ASSESSEE AND NOTICED THAT THE ASSESSEE HAS PAID THE AMOUNT IN EXCESS OF RS. 20,000/- PER DAY TO SHRI RANGAIAH, FOR M/S BIRLA WHITE CEMENT COMPANY AND SHRI RAMARAO, FOR M/S GRASIM GRAY CEMENT COMPANY. BOTH OF THEM ARE HEADS OF THE HAMALI GROUP I.E DAILY WAGE EARNERS. SINCE SUBSTANTIAL AMOUNTS HAVE BEEN PAID IN CASH TO EACH OF THEM, LD. CIT(A) UPHELD THE DISALLOWANCE MADE BY A.O. 3 ITA NO. 346/HYD/2017 M/S KABRA SERVICES, HYD . 7. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. IT WAS CONTENDED THAT ASSESSEE HAS BEEN INCURRING SIMILAR EXPENDITURE IN THE PAST BUT, NO SUCH DISALLOWANCE WAS MADE HAVING REGARD TO THE FACT THAT THIS IS A USUAL PRACTICE IN THIS LINE OF BUSINESS SINCE HAMALIES INSIST UPON CASH PAYMENTS AND THE PAYMENTS HAVE TO BE MADE AFTER THE BANKING HOURS WHICH FALLS WITHIN EXCEPTION PROVIDED UNDER RULE 6DD R.W.S 40A(3) OF THE IT ACT. 8. LD. DR, ON THE OTHER HAND, SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION THE TOTAL TURNOVER OF THE ASSESSEE IS ABOUT RS. 35 LAKHS. SINCE THERE WERE DIFFERENCES IN TURNOVER AND IN PROFIT AND LOSS ACCOUNT, A SHORT FALL OF RS AROUND 20,00,000/- WAS ADDED BY THE A.O, WHICH WAS APPEALED AGAINST AND IT WAS CONTENDED BEFORE THE TRIBUNAL THAT THERE IS REIMBURSEMENT OF EXPENDITURE INCURRED BY THE ASSESSEE. AT THIS STAGE, THE A.O NOTICED THAT THE PAYMENTS WERE MADE IN EXCESS OF RS. 20,000/- PER DAY WHICH ATTRACTS THE PROVISIONS OF SEC. 40A(3) OF THE IT ACT. IT WAS ALSO NOTICED THAT PAYMENTS WERE NOT TO THE HAMALIES DIRECTLY AND, THUS, MERE FACT THAT THE HAMALIES ARE ILLITERATE, IT CANNOT BE A REASON TO CONTEND THAT PAYMENTS HAD TO BE MADE IN CASH. IN OTHER WORDS, PAYMENTS TO SHRI RANGAIAH AND SHRI RAMARAO COULD HAVE BEEN MADE BY CHEQUE OR CROSSED DDS, PARTICULARLY, WHEN SUBSTANTIAL AMOUNTS ARE TO BE PAID TO THEM, BUT, ASSESSEE HAVING PAID TO THEM BY CASH, PROVISIONS OF SEC. 40A(3) OF THE IT ACT WERE INVOKED BY A.O. 9. IT WAS CONTENDED THAT LD. COUNSEL FOR THE ASSESSEE WAS NOT CORRECT IN STATING THAT THE EXPENDITURE HAVING BEEN ADMITTED AS GENUINE, DISALLOWANCE CANNOT BE MADE U/S 40A(3) OF THE IT ACT OVERLOOKING THE FACT THAT SECTION 40A(3) COMES INTO PLAY ONLY WITH REGARD TO GENUINE EXPENDITURE, AS OTHERWISE, IT COULD HAVE BEEN DISALLOWED U/S 37 OF THE IT ACT. DEEMED PROVISIONS HAVE TO BE APPLIED TAKING INTO ACCOUNT THE INTENTION BEHIND ENACTING THE DEEMING PROVISION AND IN THE CASE OF THIS NATURE IT WILL BE DIFFICULT 4 ITA NO. 346/HYD/2017 M/S KABRA SERVICES, HYD . FOR THE A.O TO VERIFY THE QUANTUM OF CASH PAYMENTS. THUS THE INITIAL BURDEN IS UPON THE ASSESSEE TO PROVE THAT THERE WERE EXTRAORDINARY / EXCEPTIONAL CIRCUMSTANCES FOR MAKING PAYMENT IN CASH. 10. SINCE LD. COUNSEL RELIED UPON THE STATEMENTS AND VOUCHERS IN PROOF OF PAYMENTS TO SHRI RANGAIAH AND SHRI RAMARAO, A REFERENCE WAS MADE TO PAGES 15 TO 17 OF THE PAPER BOOK TO HIGHLIGHT THAT THE SIGNATURES OF SHRI RAMARAO DID NOT MATCH. 11. IT WAS CONTENDED BY LD. COUNSEL THAT DIRECT PAYMENTS WERE MADE TO HAMALIES AFTER BANKING HOURS AND HENCE EXCEPTION PROVIDED UNDER RULE 6DD COMES INTO PLAY. LD. DR SUBMITS THAT IN ORDER TO BRING THE CASE WITHIN THE SAID EXCEPTION, THE OBLIGATION IS ON THE PART OF ASSESSEE TO PRODUCE THE HAMALIES. SINCE NO SUCH EVIDENCE IS BROUGHT ON RECORD, THE DISALLOWANCE MADE BY A.O IS JUSTIFIED. IN THIS REGARD HE RELIED UPON A DECISION OF THE ITAT, KOLKATA SPECIAL BENCH IN ITA NO. 116 ITJ WHEREIN THE BENCH OBSERVED THAT IF THERE IS ANY PAYMENT MADE BY THE ASSESSEE IN VIOLATION OF SEC. 40A(3) OF THE IT ACT, ASSESSEE CANNOT ESCAPE DISALLOWANCE UNLESS IT IS SHOWN THAT THE PAYMENT FALLS WITHIN THE AMBIT OF ANY OF THE CLAUSES OF RULE 6DD. 12. IT WAS ALSO SUBMITTED THAT THE DISALLOWANCE U/S 40A(3) OF THE IT ACT WORKS OUT TO ABOUT 10% OF THE TOTAL TURNOVER AND THUS IT IS OTHERWISE REASONABLE. 13. JOINING THE ISSUE, LD. COUNSEL SUBMITTED THAT THE PAYMENTS WERE MADE ONLY THROUGH THE CONTRACTORS AND THEY HAVE SIGNED VOUCHERS AND THUS THE IDENTITY OF THE PAYMENTS CANNOT BE DOUBTED. HE REITERATED THE FACT THAT PAYMENTS WERE MADE TO HAMALIES, WHO ARE ILLITERATE, AND HENCE, EXCEPTION PROVIDED UNDER RULE 6DD COMES INTO PLAY. HE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (191 ITR 667). HE HAS ALSO RELIED UPON THE FOLLOWING DECISIONS, THOUGH, HE HAS NOT REFERRED TO THOSE DECISIONS DURING THE 5 ITA NO. 346/HYD/2017 M/S KABRA SERVICES, HYD . COURSE OF ARGUMENT. (1) CIT VS RHYDBURG PHARMACEUTICALS LTD., 269 ITR 561 (DEL) (2) CIT VS. NIKKO AUTO LTD., 256 ITR 476 (P & H) . 14. AFOREMENTIONED JUDGMENTS INDICATE THAT ANY PAYMENT IN EXCESS OF RS. 20,000/- PER DAY ATTRACTS THE PROVISIONS OF SEC. 40A(3) OF THE IT ACT AND THEREAFTER IT IS FOR THE ASSESSEE TO PROVE COMMERCIAL EXPEDIENCY OR OTHER RELEVANT FACTORS. IT IS NOT COMPULSORY TO MAKE THE PAYMENT BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DD BUT IF THE ASSESSEE IS ABLE TO PROVE THAT THE PAYEE INSISTED ON CASH PAYMENT IT FALLS WITHIN THE EXCEPTIONS PROVIDED UNDER RULE 6DD. 15. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. AS RIGHTLY OBSERVED BY THE HONBLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH (SUPRA), GENUINE AND BONAFIDE TRANSACTIONS DO NOT FALL OUTSIDE THE AMBIT OF THE SEC. 40A(3) OF THE IT ACT, AND THE ONLY EXCEPTION IS TO PROVE THAT THE PAYMENT FALLS WITHIN THE EXCEPTION OF RULE 6DD OF THE ACT, WHICH INCLUDES INSISTENCE OF PAYMENT BY CASH BY THE RECIPIENT AND IT ALSO HAD TO BE PROVED THAT THE RECIPIENTS DO NOT HAVE BANK ACCOUNT AND THE PAYMENTS HAVE BEEN MADE AFTER THE BANKING HOURS. 16. IN THE INSTANT CASE, THE ASSESSEE IS DEALING, ON A REGULAR BASIS, WITH THE HEADS OF HAMALIES AND NO WHERE IT IS STATED THAT THOSE TWO PERSONS DO NOT HAVE BANK ACCOUNTS. WHEN THERE ARE REGULAR TRANSACTIONS, THE ASSESSEE COULD HAVE MADE THE PAYMENT BY CROSSED DD TO THOSE TWO PERSONS, SINCE THE TRANSACTIONS BETWEEN THEM IS NOT A ONE DAY AFFAIR AND THE HEADS OF THE HAMALIES COULD HAVE ARRANGED THEIR AFFAIRS IN SUCH A WAY THAT DAILY PAYMENTS ARE MADE BY THEM TO THE HAMALIES BY ACCEPTING DD FROM THE ASSESSEE. IN FACT THERE IS NO CONFIRMATION LETTER FROM SHRI RANGAIAH OR SHRI RAMARAO TO SHOW THAT THEY HAVE INSISTED UPON CASH PAYMENT. 6 ITA NO. 346/HYD/2017 M/S KABRA SERVICES, HYD . 17. HAVING REGARD TO THE CIRCUMSTANCES, I AM OF THE VIEW THAT THE ASSESSEE HAS NOT MADE OUT A CASE TO SHOW THAT IT FALLS WITHIN THE AMBIT OF RULE 6DD OF THE ACT. UNDER THESE CIRCUMSTANCES THE ORDER PASSED BY CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. 18. IN THE RESULT, APPEAL FILED BY ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2017. SD/- (D. MANMOHAN) VICE PRESIDENT HYDERABAD, DATED: 10 TH NOVEMBER,2017. KRK 1 M/S KABRA SERVICES C/O HARIKISHAN ASAWA, ADV, 4- 10,13/4, TILAK ROAD , HYDERABAD. 2 ITO, WARD 5(3), HYDERABAD. 3 CIT(A)-4, HYDERABAD. 4 THE PR. CIT-4, HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE