GURVINDER SINGH HARBANSINGH JAGGI, Nagpur V. ITO, WARD- 6(2), Nagpur

ITA 346/NAG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1317 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 24-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Assessee Lawyers: S C THAKAR; C J THAKAR
• Keywords: Corroborative evidences
• Section: 40A(3)

Judgement Text

1 ITA NO. 346/NAG/2014. IN T HE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 346/NAG/2014 ASSESSMENT YEAR : 2006 - 07. GURVINDER SINGH HARBANSINGH JAGGI, THE INCOME - TAX OFFICER, NAGPUR. VS. WARD - 6(2), NAGPUR. PAN ADFPJ4433Q. APPELLANT. RESPONDENT. APPELLANT BY : S/SHRI C.J. THAKAR & S.C. THAKAR. RESPONDENT BY : S HRI A.R. NINAWE. DATE OF HEARING : 2 8 - 09 - 2016 DATE OF PRONOUNCEMENT : 24 TH OCT., 2016 O R D E R. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 04 - 03 - 2014 AND PERTAINS TO ASSESSMENT YEAR 2006 - 07. THE GROUNDS OF APPEAL READ AS UNDER : 1. THE LEARNED A.O. AS WELL AS CIT(A) ERRED IN LAW AS WELL AS ON FACT OF THE CASE IN DISALLOWANCE OF FREIGHT U/S 40A(3). 2. THE LEARNED A.O. AS WELL AS CIT(A) ERRED IN LAW AS WELL AS ON FACT OF THE CASE IN QUANTIFYING THE AMOUNT LIABLE FOR DISALLOWANCE U/S 40A(3) WITHOUT HAVING AN Y BASIS FOR CALCULATION. THE A SSESSEE HAS RAISED THE ADDITIONAL GROUND WHICH READS AS UNDER : THE LEARNED A.O. HAVING APPLIED 10% NET PROFIT RATE AND C.I.T.(A) HAVING APPLIED 3.58% OF NET PROFIT RATE IN RESPECT OF ALLEGED UNACCOUNTED TRANSPORT RECEIPT OF RS.76,61,756/ - , LEARNED C.I.T.(A) SHOULD HAVE APPLIED THE SAME PERCENTAGE OF NET PROFIT IN RESPECT OF DISCLOSED GROSS RECEIPT OF RS.39 LAKHS AND ODD AND COMPUTED THE INCOME ACCORDINGLY AND CONSEQUENTLY SHOULD NOT HAVE APPLIED THE PROVISIONS OF SEC. 40A (3). 2 ITA NO. 346/NAG/2014. 2. IN THIS CASE THE ASSESSEE DERIVES INCOME FROM PLYING OF TRUCKS. NO BOOKS OF ACCOUNTS AND VOUCHERS OF EXPENSES WERE PRODUCED DURING THE ASSESSMENT PROCEEDINGS. THE AO ALSO NOTED SOME UNACCOUNTED RECEIPTS AMOUNTING TO RS.76,61,756/ - . THE AO ESTIMATE D 10% OF INCOME ON THIS ADDITIONAL AMOUNT AND MADE AN ADDITION OF RS.7,66,175/ - . THE AO FURTHER MADE DISALLOWANCE OF SOME OF EXPENSES. FURTHER MORE THE BANK ACCOUNTS OF THE TWO PROPRIETORSHIP CONCERNS WERE SEEN TO HAVE SHOWN NEGLIGIBLE MOVEMENT OF MONIES. WHILE THE BANK ACCOUNT OF M/S HIMMAT LORRY SUPPLIERS HAD SHOWN TOTAL CREDITS DU R ING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION OF RS. 1,82,897/ - , THE TOTAL DEBITS DURING THE SAME PERIOD WERE RS. 1,81,565/ - . SIMILARLY, THE TOTAL CREDIT AS WELL AS DEBITS DURING THE SAME PERIOD AS SHOWN IN THE BANK ACCOUNT OF M/S HIMMAT ROADWAYS WERE RS.12,500/ - . A SHOW CAUSE NOTICE WAS THEN ISSUED TO THE APPELLANT REQUIRING HIM TO EXPLAIN AS TO WHY PROVISIONS OF SECTION 40A(3) OF INCOME - TAX ACT, 1 961 SHOULD NOT BE APPLIED IN HIS CASE. THE APPELLANT GAVE HIS EXPLANATION, THE GIST OF WHICH IS AS FOLLOWS. THE APPELLANT ARRANGES TRUCKS OWNED BY OTHERS ON COMMISSION BASIS. FREIGHT IS HENCE NEITHER RECEIVED NOR PAID BY HIM. THE SAME HAS ALWAYS BEEN PAID BY THE CONSIGNOR OR THE CONSIGNEE DIRECTLY TO THE DRIVER. THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 40A(3) OF THE ACT HENCE DOES NOT ARISE. THE EXPLANATION WAS NOT FOUND TO BE ACCEPTABLE BY THE AO SINCE CERTAIN TDS CERTIFICATES HAD INDEED BEEN E NCLOSED TO THE RETURN OF INCOME, TAX HAVING BEEN DEDUCED AT SOURCE IN THOSE CASES ON THE GROSS FREIGHT PAID TO THE APPELLANT. AFTER EXCLUDING THE AMOUNTS OF GROSS FREIGHT AS REFLECTED IN THE TDS CERTIFICATES, THE AO HAS QUANTIFIED THE AMOUNT OF TOTAL CASH PAYMENT AT RS.35,60,993/ - IN THE N A TURE FREIGHT PAID TO THE APPELLANTS PROPRIETORSHIP CONCERNS. THE DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT @ 20% WAS HENCE COMPUTED AT RS.7,12,198/ - . TO SUMMARIZE, APART FROM DISALLOWANCES ON ACCOUNT OF UNDISCLOSED IN COME AND 3 ITA NO. 346/NAG/2014. EXPENSES OF RS.7,66,175/ - AND RS.1,36,654/ - RESPECTIVELY AS ABOVE, THE AO HAS ALSO DISALLOWED RS.7,12,198/ - UNDER SECTION 40A(3) OF THE ACT, AS ABOVE. 3. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) CONSIDERED THE ISSUE AND CONCLUDED AS UNDER : THE AO IS ACCORDINGLY DIRECTED TO ASSESS THE SAME UNACCOUNTED RECEIPTS AS DETERMINED BY HIM DURING THE ASSESSMENT PROCEEDINGS AND QUANTIFIED AT RS.76,61.756/ - , THE NET PROFIT THEREON BEING WORKED OUT 3.58%. AS THE COMPUTATION OF NET PROFIT IS DONE AFTER T AKING INTO ACCOUNT ALL THE EXPENSES, NO SEPARATE ADDITION ON ACCOUNT OF EXPENSES IS WARRANTED. THE AO SHALL ACCORDINGLY DELETE THE ADDITION OF RS. 1,36,654/ - MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES. COMING TO THE ISSUE OF VIOLATION OF PROVISIONS OF SE CTION 40A(3) OF THE ACT, IT IS SEEN THAT THE APPELLANT GETS NO RELIEF EVEN AFTER CONSIDERING THE PROVISIONS OF RULE 6DD OF THE RULES SIMPLY BECAUSE THE APPELLANTS CASE DOES NOT FORM PART OF ANY OF THE EXCEPTIONS PROVIDED IN THE SAID RULE. THE QUANTIFICATI ON OF CASH PAYMENTS LIABLE TO BE SUBJECT TO THE PROVISIONS OF SECTION 40A(3) OF THE ACT HAS ALREADY BEEN DONE BY THE AO AT RS. 35,60,993/ - , IT HAVING NEVER DISPUTED BY THE APPELLANT. THE DISALLOWANCE @ 20% AMOUNTING TO RS.7,12,198/ - IS HENCE CONFIRMED. TO SUMMARIZE, WHILE THE ADDITION ON ACCOUNT OF EXPENSES OF RS.1,36,654/ - IS DELETED, THE DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT TO THE TUNE OF RS. 7,12,198/ - IS CONFIRMED, WHILE PART - RELIEF IS GIVEN TO THE APPELLANT IN THE CASE OF DETERMINATION OF NET PROFIT ON THE UNACCOUNTED RECEIPTS. THE AO IS FURTHER DIRECTED TO GIVE DUE CREDIT FOR THE TAXES PAID BY WAY OF THE TDS CERTIFICATES ALREADY FILED BY THE APPELLANT BEFORE COMPUTING THE DEMAND. 4. AGAINST THE ABOVE ORDER OF DISALLOWANCE OF FREIGHT U/S 40A(3), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 5. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS REGARDING THE MODUS OPERANDI : 1. PRINCIPAL TRANSPORTERS LIKE RAPID TRANSPORT, ASSO CIATED ROAD CARRIER, BARALIA ROADLINES ETC. ENTER INTO CONTRACT WITH THE MAIN PARTIES, MANUFACTURER OF GOODS ETC. FOR TRANSPORT OF THEIR GOODS TO VARIOUS PLACES. TO FULFILL THEIR 4 ITA NO. 346/NAG/2014. OBLIGATION THE PRINCIPAL TRANSPORTER HAS TO ARRANGE FOR TRUCKS. FOR THIS PURPOSE THEY APPROACH TRANSPORT COMMISSION AGENTS LIKE ASSESSEE. THE COMMISSION AGENT LIKE ASSESSEE ARRANGES FOR THE TRUCKS WITH TRUCK OWNERS WHO ARE WILLING TO CARRY THE GOODS TO THE REQUIRED DESTINATION AND THE RATE IS FIXED. AFTER FIXING THE TRUCK TH E ASSESSEE SENDS THE TRUCK TO THE PRINCIPAL TRANSPORTER. THE ASSESSEE PREPARES A SLIP ADDRESSED TO PRINCIPAL TRANSPORTER GIVING DETAILS OF TRUCK NUMBER, RATE PER TON, DESTINATION WHERE THE GOODS ARE TO BE CARRIED AND ADVANCE TO BE PAID TO THE TRUCK DRIV ER, OR TRUCK OWNER AND BALANCE TO BE PAID ON REACHING OF GOODS AT DESTINATION. SAMPLE COPY OF CURRENT TRANSACTION ANNEXED AS ANNEXURE - A . HE (ASSESSEE) SENDS THE SAID SLIP WITH THE TRUCK DRIVE WHO GOES TO THE PRINCIPAL TRANSPORTER, COLLECTS THE GOODS TO BE TRANSPORTED AND THE ADVANCE TO BE PAID TO HIM. PRINCIPAL TRANSPORTER PAYS THE AMOUNT OF FREIGHT TO THE TRUCK DRIVER AS PER THE SAID SLIP. TRUCK DRIVER THEN COMES TO THE ASSESSEE AND PAYS COMMISSIONER OUT OF THE SAID ADVANCE TO THE ASSESSEE. COMMISSI ON AMOUNT VARIES ON THE MARKET CONDITION OF DEMAND AND SUPPLY I.E. AVAILABILITY OF TRUCKS IN THE MARKET. IT VARIES FROM RS.300/ - TO RS.800/ - PER TRUCK OR SO. THE ASSESSEE THEN PREPARES A COMMISSION MEMO IN WHICH HE GIVES THE NAME OF PRINCIPAL TRANSPORTER , TRUCK NUMBER, RATE FIXED PER TON, DESTINATION, ADVANCE RECEIVED BY TRUCK DRIVER, BALANCE TO BE RECEIVED ETC. SAMPLE COPY OF SAID COMMISSION MEMO ANNEXED AS ANNEXURE - B . ON THIS BASIS THE PRINCIPAL TRANSPORTER PREPARES L.R. (LORRY RECEIPT). THE SAID LOR RY RECEIPTS ARE IN THE NAME OF PRINCIPAL TRANSPORTER ITSELF. IT CONTAINS THE DETAILS SUCH AS CONSIGNOR , CONSIGNEE, DESTINATION , TRUCK NUMBER , DETAILS OF GOODS LOADED , RATE PER KG OR PER TON , TOTAL FREIGHT , NAME OF COMMISSION AGENT (ASSESSEE), DETAILS OF ADVANCE PAID , BALANCE TO BE PAID BY CONSIGNEE OR BY CONSIGNOR AFTER SATISFACTORY DELIVERY OF GOODS TO THE CONSIGNEE ETC. SAMPLE COPY OF SAID LORRY RECEIPT OF CURRENT TRANSACTION ANNEXED AND MARKED AS ANNEXURE - C . FROM THE ABOVE FACTS IT WILL BE SEEN THAT THE ASSESSEE COMM I SSION AGENT DOES NOT EITHER RECEIVES TRANSPORT CHARGES FROM THE PERSONS LOADING THE 5 ITA NO. 346/NAG/2014. GOODS NOR THE PRINCIPAL TRANSPORTER NOR DOES HE PAY ANY TRANSPORT CHARGES TO THE TRUCK DRIVER/TRUCK OWNER. ASSESSEE MERELY RECEIVES COMMISSION FROM T HE TRUCK - DRIVER/TRUCK OWNER. PRINCIPAL TRANSPORTER HOWEVER DEDUCTS TDS FROM THE ASSESSEE COMMISSION AGENT ON THE TOTAL FREIGHT PAID! PAYABLE THROUGH HIS AGENCY AND NOT FROM THE TRUCK DRIVER. TRUCK DRIVER DEDUCTS THE AMOUNT OF TDS FROM THE COMMISSION AM OUNT PAYABLE BY HIM TO THE ASSESSEE; WHICH THE ASSESSEE GETS BACK BY WAY OF REFUND FROM LT. DEPARTMENT. PRINCIPAL TRANSPORTERS HAVE CERTIFIED THAT THEY HAVE MADE DIRECT PAYMENT TO LORRY DRIVERS / LORRY OWNERS. 6. LEARNED COUNSEL FURTHER PLACED RELIANCE UPON THE FOLLOWING CASE LAWS. (I) CIT VS. SMT. SANTOSH JAIN 296 ITR 324. (II) CIT VS. PURSHOTTAMLAL TAMRAKAR UCHEHRA 184 ITR 349. (III) CIT VS. ANKLESHWAR TALUKA ONGC LAND TRAVELLERS CO - OP. SOCIETY 362 ITR 92. (IV) ACIT VS. BLACK DIAMOND TRADING COMPAN Y (2014) TAXPUB (DT) 2951 (AHD.TRIB.). (V) ORDER OF ITAT, RAIPUR BENCH, RAIPUR IN THE CASE OF ACIT VS. M/S R.P. REAL ESTATE PVT. LTD., ORDER DATED 17 - 07 - 2015. 7. PER CONTRA LEARNED D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HE ALSO PLACED RELIA NCE UPON THE DECISION OF HONBLE HIGH COURT OF KERALA IN THE CASE OF MRS ROADWAYS VS. CIT IN I.T. APPEAL NO. 11 OF 2014 VIDE ORDER DATED FEBRUARY 10, 2014. 8 . I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. AT THE OUTSET I NOTE THAT ACTUALLY THE ASSESSEE HAS NOT RECEIVED THE IMPUGNED CREDIT AMOUNTS FOR THE FREIGHT PAYMENT. THE ADDITION ON ACCOUNT OF UNACCOUNTED FREIGHT RECEIPT HAD BEEN CHALLENGED BY THE ASSESSEE BUT HAS CONSENTED BEFORE THE LEARNED CIT(AP P EA LS) FOR THE ADDITION IN FOLLOWING CIRCUMSTANCES : 6 ITA NO. 346/NAG/2014. COMING TO THE THIRD ADDITION OF RS.7,66,175/ - ON ACCOUNT OF THE UNACCOUNTED RECEIPTS, THE APPELLANT HAS DISPUTED THE SAME STATING THAT THERE WAS NO BASIS FOR IT AS HE HAD ONLY RECEIVED COMMISSION AND NEVER THE GROSS RECEIPTS. THE AR, HOWEVER, STATED DURING THE APPELLATE PROCEEDINGS THAT THE APPELLANT HAD NO OBJECTION TO THE HOLDING IN HIS HANDS THE FREIGHT RECEIPTS R E P R ESENTED BY THE ADDITION OF RS.7,66,175/ - AS MADE BY THE AO, S O LONG THE NET PROFIT T HEREON WAS DETERMINED @ 3.5% AS HAD BEEN RETURNED IN THE TWO SUBSEQUENT ASSESSMENT YEARS VIZ. AYS 2007 - 2008 AND 2008 - 09. AN ENDORSEMENT TO THIS FAC T HAS ALSO BEEN MADE IN THE ORDER - SHEET BY THE AR ON 4 TH MARCH, 2014. FURTHER MORE AS FOUND BY THE AO IN TH E BANK ACCOUNT OF THE ASSESSEE, THERE IS NO CONSIDERABLE RECEIPT WHICH CAN BE SAID TO BE RECEIPT OR PAYMENT OF FREIGHT. 9 . IN THIS CONTEXT I NOTE THAT WHEN AN UNACCOUNTED FREIGHT RECEIPT HAS BEEN ADDED TO THE ASSESSEES INCOME AND NET PROFIT AT THE RATE O F 3.5% HAS BEEN ESTIMATED, THE QUESTION OF DISALLOWANCE U/S 40A(3) AGAIN HAS TO BE CONSIDERED IN THE LIGHT OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. SANTOSH JAIN (SUPRA). IN THE SAID DECISION THE HONBLE HIGH COURT HAS HELD THAT WHEN THE INCOME OF THE ASSESSEE IS COMPUTED BY APPLYING GP RATE, THERE IS NO NEED TO INVOKE THE PROVISIONS OF SECTION 40A(3) , AS APPLYING GP RATE TAKES CARE OF EXPENDITURE PAID OTHERWISE BY WAY OF CROSSED CHEQUE ALSO. SIMILAR VIEW WAS ALSO T AKEN BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR 148 CTR 533. THUS ON THE ANVIL OF AFORESAID HIGH COURT DECISIONS, WHEN INCOME OF THE ASSESSEE CONSTITUTING OF THE FREIGHT RECEIPT HAS BEEN ESTIMATED BY APPLYING THE RATE OF PROFIT, AGAIN THE ADDITION ON ACCOUNT OF PAYMENT BY WAY OF CASH TOWARDS FREIGHT PAYMENT BY INVOKING PROVISIONS OF SECTION 40A(3) IS NOT CALLED FOR. HENCE THE ASSESSEE SUCCEEDS ON THIS ACCOUNT. AS THE INCOME HAS BEEN ESTIMATED, THE DISALLOWANCE AGAIN BY I NVOKING PROVISIONS OF SECTION 40A(3) IS NOT SUSTAINABLE. 10 . AS REGARDS THE INVOCATION OF PROVISIONS OF SECTION 40A(3), IT WILL BE 7 ITA NO. 346/NAG/2014. WORTHWHILE TO REFER TO THE SUBMISSIONS BEFORE THE AO WHICH ARE AS UNDER : 1. ASSESSEE DERIVES COMMISSION FOR ARRANGING TRA NSPORTATION OF GOODS, ASSESSEE IS NOT OWNER OF ANY TRUCK (THE PROFIT OF WHICH HAS BEEN SEPARATELY MENTIONED U/S 44AE OF THE INCOME TAX ACT, 1961) BUT ARRANGES TRUCK OWNED BY OTHERS FOR COMMISSION. HENCE FREIGHT IS NEITHER RECEIVED NOR PAID BY HIM. HENCE T HE DETAILS OF FURNISHING FREIGHT PAID ALONG WITH SUPPORTING EVIDENCE DOES NOT ARISE. 2. AS WE HAVE ALREADY EXPLAINED, THE FREIGHT IS NEITHER RECEIVED NOR PAID BY US, FREIGHT IS NOT REFLECTING IN OUR BANK ACCOUNT. FREIGHT IS EITHER PAID BY CONSIGNOR OR BY CONSIGNEE DIRECTLY TO THE DRIVER. THE FREIGHT IS NEITHER THE INCOME NOR THE EXPENSES OF THE ASSESSEE. HENCE APPLICABILITY OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961 DOES NOT ARISE. HOWEVER, TH IS CONTENTION WAS NOT ACCEPTED BY THE AO FOR THE FOLLOWING REASONS : 5. T H E CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE AS PER THE TDS CERTIFICATES ENCLOSED WITH THE RETURN OF INCOME, TAX HAS BEEN DEDUCTED AT SOURCE ON THE GROSS FREIGHTS PAID TO THE ASSESSEE. AS PER THE TDS CERTIFICATES ENCLOSED WIT H THE RETURN OF INCOME, THE TOTAL AMOUNT (FREIGHT) PAID TO M/S. . HIMMAT LORRY SUPPLIERS IS RS.32,81.035 - WHICH CONFORMS TO THE AMOUNT OF FREIGHT RECEIVED AS SHOWN IN THE P&L ACCOUNT OF _ M/S . HIMMAT LORRY SUPPLIERS ENCLOSED WITH THE RETURN OF INCOME. S IMILARLY. AS PER THE TDS CERTIFICATES ENCLOSED WITH THE RETURN OF INCOME, THE TOTAL AMOUNT (FREIGHT) PAID TO M/S. HIMMAT ROADWAYS IS RS. 7 ,04, 777 ' - WHI C H CONFORMS TO THE AMOUNT OF FREIGHT RECEIVED AS 5H0 \ 'N IN THE P&L ACCOUNT OF M/S . HIMMAT ROADWAYS ENCLOSED WITH THE RETURN OF INCOME. IN THE ABSENCE OF BOOKS OF ACCOUNTS AND SUPPORTING EVIDENCE IN RESPECT OF FREIGHT PAID AS ALSO THE NEGLIGIBLE 'VOLUME OF TRANSACTION THROUGH BANK AS COMPARED TO THE VOLUME C:F BUSINESS. THE ONLY CONC LUSION THAT CAN BE DRAWN IS THAT THE FREIGHT IS RECEIVED AND P AID IN CASH . CONSEQUENTLY, THE TOTAL CASH PAYMENTS OF RS. 35 , 60 , 993 - IN THE NATURE OF FREIGHT PAID BY M/S . HIMMAT LORR, SUPPLIERS AND ., M/S HIMMA T ROADWAYS OF WHICH THE DETAILS ARE NOT AVAILABLE. IS HIT B Y THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT. 1961. ACCORDINGLY. 20 PERCENT OF R S. 35,60,993/ - - WHICH WORKS OUT TO R S. 7.1 2, 198 / - IS DISALLOWED AS DEDUCTION UNDER SECTION UNDER SECTION 40A(3) OF THE INCOME TAX ACT, 1961. 1 1 . IN THIS REGARD I NOTE THAT THE ASSESSEES CONTENTION IS THAT THE CONCERNED FREIGHT AMOUNTS HAD NEITHER BEEN RECEIVED BY THE ASSESSEE NOR THE FREIGHT AMOUNT HAS BEEN PAID. THE MODUS OPERANDI OF THE ASSESSEE AS REFLECTED IN THE SUBMISSIONS AS ABOVE CLEARLY INDICATE THAT THE ASSESSEE NEITHER RECEIVES THE FREIGHT AMOUNT NOR PAYS THE FREIGHT AMOUNT. SAME IS ACTUALLY PAID BY THE PRINCIPAL TRANSPORTER/CONSIGNOR. THE SAID PRINCIPAL TRANSPORTER/CONSIGNER 8 ITA NO. 346/NAG/2014. ACTUALLY MAKES PAYMENT TO THE TRUCK DRIVER. THE ASSESSEE ONLY RECEIVES A MARGINAL AMOUNT OF COMMISSION. THE ENTIRE SCHEME OF AFFAIRS IS DESIGNED TO OBSERVE THE PRINCIPAL TRANSPORTER/CONSIGNOR FROM THE AMBIT OF PROVISIONS OF SECTION 40A(3). THE PRINCIPAL TRANSPORTER/CONSIGNOR ACTUALLY MAKES THE CASH PAY MENT TO THE LORRY DRIVER BUT BOOKS THE SAME IN THE NAME OF ASSESSEE AND DEDUCTS TDS ALSO ON THE SAME. FROM THE ABOVE IT IS CLEAR THAT THE CASH PAYMENT HAS ACTUALLY NOT BEEN MADE BY THE ASSESSEE ALTHOUGH THE ASSESSEE HAS BEEN USED AS A CONDUIT BY THE PRINCI PAL TRANSPORTER/CONSIGNOR. IN THIS REGARD THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ANKLESHWAR TALUKA ONGC LAND TRAVELLERS CO - OP. SOCIETY 362 ITR 92 IS RELEVANT WHEREIN IT WAS HELD THAT THE VIEW OF THE CIT(A) AND TRIBUNAL THAT P AYMENTS IN QUESTION WERE NOT EXPENDED BY ASSESSEE AND THAT THEREFORE, WOULD NOT COME WITHIN THE MEANING OF EXPENDITURE BE IT BASES ON SECTION 40(A)(IA) OR SECTION 40A(3) WAS CONFIRMED. 1 2 . IN THIS REGARD THE DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF ACIT VS. BLACK DIAMOND TRADING COMPANY IN IT(SS)A NO.594 TO 599/AHD/2010 VIDE ORDER DATED 25 TH JULY, 2014 IS ALSO RELEVANT. THE TRIBUNAL HAD HELD AS UNDER : 11. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE PERUSED THE CASE LAWS AS CITED BY BOTH THE SIDES. IN THE LIGHT OF THE FACTS OF THE CASE AND THE COMPILATION FILED, THE ADMITTED FACTUAL POSITION WAS THAT A DIARY WAS SEIZED IN WHICH THE ASSESSEE HAS RECORDED THE TRADING ACTIVITY OF COAL WHICH WAS DULY RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND THE RETURN OF INCOME WAS DISCLOSED ON THE BASIS OF THE SAID BOOK RESULTS. BUT IT WAS ALSO FOUND IN THE SAID DIARY THAT THE ASSESSEE WAS HAVING CERTAIN OTHER T YPE OF TRANSACTIONS WHICH WAS NOT DISCLOSED TO THE REVENUE DEPARTMENT. THE CLAIM OF THE ASSESSEE WAS THAT THE WA G ONS LOA D OF COAL WHIC H WA S D IRECTLY TRANSFE RRED TO T H E P ARTIES HAS NOT B EEN SOL D B Y HIM AS A TRADI N G ACTIVIT Y BUT THE ASSESS EE HAS EARNE D ON LY COMMISSION. THIS F ACT WA S INFORM ED TO THE REVENUE DE P ARTMEN T , THEREFORE, WRITTEN SUBMISSION AN D RE L EVANT PORTION FROM PAGES 88 AND 89 OF THE WRITTEN SUBMISSION IS REPRODUCED BELOW TO UNDERSTAND THE MODUS OPERANDI OF THE ASSESSEE. '4. HOWEVER, THE APPELLANT IS MAINTAINING KACHCHA BOOKS FOR ANOTHER KIND OF ACTIVITY WHICH IN THE NATURE OF COMMISSION AGENT. IN SUCH KIND OF KACHCHA BOOKS THE APPELLANT MAINTAINS THE DETAILS ON BEHALF OF THE SAID PARTIES, FOR WHOM, THE COAL ARE SOLD, ON WHICH THE APPELLANT IS GETTING ONLY CERTAIN PERCENTAGE OF COMMISSION ON SALES. 5. THE A P PELLANT IS NEITHER REQUIRED TO MAKE COLLECTION FROM THE ARTIES TO WHOM COAL ARE SOLD ON 9 ITA NO. 346/NAG/2014. BEHALF OF OT H ER PART I ES NOR IS REQUIRE 0 MA E PAYMENT TO THE SAID OTHER PART IES, TRANSACTIONS ARE D IRECTLY SETTLED IN BETWEEN BOTH THE PARTIES. THE APPELLANT ONLY RECEIVES COMMISSION ON SUCH SALES. YOUR HONOURS WOULD APPRECIATE THAT DURING THE COURSE OF SEARCH CARRIED OUT THE AUTHORIZED PERSONS HAVE NOT FO UND AN CRE DIT ORS OR DE BTO RS FOR THE SA I D TRANSACTI ON IN KACHCHA BOOKS OF THE APPELLANT, W HICH IS ALSO EVIDENT THAT THE APPE LLANT IS ONL Y CONCERNE D WITH ITS COMMISSION ON SALES AND NOT WITH COLLECTION AND PAYMENT OF SUCH TRANSACTIONS. THE ONLY PURPOSE OF MAINTAINING SUCH KACH CHA BOOKS WAS TO ENSURE THAT THE APPELLANT CLAIMS ITS COMMISSION ON ALL SUCH KIND OF SALES OF COAL WHICH WERE EFFECTED THROUGH THE APPELLANT. THE NOTING IN KACHCHA BOOKS DOES NOT GIVE ANY PROFIT OR LOSS, PURCHASE OR SELL DATA IN PARTICULAR. DETAILS PROVI DED IN PARTICULAR FORMAT DURING THE SEARCH OPERATION WAS ONLY ON THE REQUEST OF THE AUTHORIZED PERSONS. THE LEARNED ASSESSING OFFICER HAD NEVER ISSUED A SHOW CAUSE NOTICE SEEKING ANY CLARIFICATION REGARDING DISALLOWANCES BEING MADE UNDER SECTION 40A(3) OF THE ACT, OTHERWISE DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF, BUSINESS MODUS OPERANDI COULD HAVE BEEN \ EXPLAINED. YOUR HONOURS WOULD ALSO APPRECIATE THAT EVEN IN APPRAISAL REPORT AT PARA 7(III) WHILE DISCUSSING ABOUT BUSINESS MODUS OPERANDI OF THE APPELLANT, IT HAS BEEN CATEGORICALLY MENTIONED THAT THE APPELLANT IS PROCURING / WAGONLOADS OF COALS AND THE WAGONLOADS ARE SOLD DIRECTLY TO MANY PARTIES AT A GOOD COMMISSION. COPY OF THE RELEVANT EXTRACT OF THE APPRAISAL REPORT IS ANNEXED HERETO A ND MARKED AS ANNEXURE A TO THIS ADDITIONAL SUBMISSION.' 11.1 IN THOSE CIRCUMSTANCES, WE HAVE EXAMINED THE CASE LAWS REFERRED BY BOTH THE SIDES. IN ONE OF THE DECISION CITED AS ANAND SWAROO KHANDEL TAXMAN 450 DEL IT AS FOUND THAT THE ASSESSEE HAD ACT ED AS A BAILEE AN OINT OF TIME FOUN D THE BU LLION WAS PASSED OVER TO THE ASSESSEE. I N THAT CASE, THE REVENUE DE P ARTMENT WAS NOT IN A P OSITION TO ESTABLISH THAT THE ASSESSEE HAD RECEIVE D T H E P OSSESSION OF THE BULLI ON AS AN ACTUAL BU Y ER SO IT WAS HELD THAT THE TRANSACTION QUESTION BEING NOT A PURCHASE AND SALE OF THE ASSESSEE IN HIS OWN RIGHTS, THEREFORE, THERE WAS NO QUESTION OF DISALLOWANCE OF ANY EXPENDITURE BECAUSE THE PROFIT WAS DECLARED ON ESTIMATION; HENCE, THE PROVISIONS OF SECTION 40A(3) WAS NOT TO BE ATTRACTED. WE HAVE CAREFULLY PERUSED THE CASE LAW OF HYNOUP FOOD AND OIL PVT. LTD. (SUPRA) PRONOUNCED BY THE HON'BLE HIGH COURT AND HAVE NOTED THAT AS PER THE QUESTION FRAMED BEFORE THE HON'BLE COURT IT WAS TO DECIDE THAT WHE THER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE UNDER SECTION40A(3) HOLDING THAT THE EXCEPTIONS TO THAT SECTION IN RULE 6DD (J ) CAN BE APPLIED FOR PAYMENTS WHICH WERE MADE IN THE COURSE OF A BUSINESS OUTSIDE THE BOOKS? THUS THE ISSUE BEFORE THE HON'BLE HIGH COURT WAS THAT IN CASE THE PAYMENTS MADE OUTSIDE THE BOOKS AN ASSESSEE CAN RESORT TO EXCEPTIONAL CLAUSES AS PROVIDED UNDER RULE 6DDU) OF INCOME TAX ACT. N ATURALLY, THE ANSWER SHOULD GO IN FAVOUR OF THE REVEN UE, HOWEVER, THE QUESTION AS TO WHETHER A DISALLOWANCE CAN BE MADE UNDER SECTION40A(3), WHEN THE INCOME IS BASED ON ESTIMATION, WAS NOT BEFORE THE HON'BLE COURT. SO THE QUESTION ITSELF WAS DISTINGUISHABLE; HENCE, THIS ISSUE OF THE APPLICABILITY OF THE PROV ISIONS OF SECTION 40A(3) IS TO BE DECIDED ON THE MERITS AND FACTS OF THIS CASE ONLY. FACTS OF THIS CASE HAVE REVEALED THAT EVEN AFTER THE SEARCH WAS CARRIED OUT THERE WERE NO EVIDENCE OF EXPENDITURE AND THE ASSESSING OFFICER WAS NOT ABLE TO LAY HANDS ON UN ACCOUNTED PURCHASES. BECAUSE THE EVIDENCE OF TOTAL EXPENDITURE OR PURCHASES WAS NOT AVAILABLE TO THE REVENUE DEPARTMENT, THEREFORE, THE ASSESSEE AS WELL AS THE ASSESSING OFFICER, BOTH HAVE DECIDED TO DETERMINE THE INCOME BY APPLYING A REASONABLE ESTIMATE O F PROFIT. THAT ESTIMATION WAS VERY CLOSE TO THE INCOME OFFERED BY THE ASSESSEE. RESULTANTLY, THE GROUN D S RAISED FOR ALL THE YEARS BY THE REVENUE ARE HEREBY DISMIS SED. 1 3 . THE DECISION RELIED UPON BY THE LEARNED D.R. IN THE CASE OF MRS ROADWAYS (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE CASE AS THE SAID DECISION 10 ITA NO. 346/NAG/2014. WAS RENDERED IN THE CONTEXT OF THE PLEA OF CASH PAYMENT BEING DONE OUT OF BUSINESS EXPEDIENCY. THIS IS EVIDENT FROM PARA 3 OF THE SAID JUDGMENT WHICH READS AS UNDER : 3. THE MAIN CONTENTION URGED BY THE APPELLANT IS THAT THE ASSESSEE WAS MAINTAINING ACCOUNTS PROPERLY. IT DOES NOT OWN SUFFICIENT NUMBER OF LORRIES FOR UNDERTAKING THE TRANSPORTATION CONTRACT AND, T HEREFORE, IT USUALLY HIRES LORRIES FROM THE MARKET AND THE FREIGHT AMOUNT IS DETERMINED THROUGH NEGOTIATIONS WITH LORRY DRIVERS AND THE PAYMENT IS MADE TO THE CONCERNED LORRY DRIVERS IN CASH. ACCORDING TO THEM, THIS WAS BEING DONE OUT OF THE BUSINESS EXPED IENCY AND ON ACCOUNT OF THE SPECIAL NATURE OF BUSINESS THEY HAVE UNDERTAKEN. 1 4 FROM THE ABOVE IT IS EVIDENT THAT THE ABOVE SAID DECISION WAS RENDERED IN DIFFERENT CONTEST AND IS NOT APPLICABLE ON THE FACTS OF THIS CASE. 15. THUS ASSESSEE SUCCEEDS ON BOTH COUNTS. FIRSTLY WHEN INCOME IS ESTIMATED, THE IMPUGNED DISALLOWANCE IS NOT SUSTAINABLE. SECONDLY WHEN THE ASSESSEE HAS ACTUALLY NOT MADE THE PAYMENT THE IMPUGNED DISALLOWANCE IS FURTHER NOT CALLED FOR. 16. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF OCT., 2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. NAGPUR, DATED: 24 TH OCT. , 2016. 11 ITA NO. 346/NAG/2014. COPY FORWARDED TO : 2. GURVINDER SINGH HARBANSINGH JAGGI, 49, BABA BUDHAJI NAGAR, TEKA NAKA, NAGPUR - 440017. 3. I.T.O., WARD - 6(2) , NAGPUR. 4. C.I.T. - , NAGPUR. 5. CIT(APPEALS), - , NAGPUR. 6. D.R., ITAT, NAGPUR. 7. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.