Pawar Wine Shop, Patan V. ITO, Ward 1, Satara

ITA 355/PUN/2013

• Counselvise Citation: 35524514 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B D SINGH
• Section: 40A(3); 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS.354 & 355/PN/2013 ASSESSMENT YEARS: 2009-10 & 2008-09 PAWAR WINE SHOP HOUSE NO.899, KARAD-CHIPLUN ROAD, PATAN 415206 . APPELLANT PAN: AABFP7637H VS. THE TAX RECOVERY OFFICER, SATARA . RESPONDENT APPELLANT BY : C.H. NANIWADEKAR RESPONDENT BY : B.D. SINGH DATE OF HEARING : 14-01-2015 DATE OF PRONOUNCEMENT : 21-01-2015 ORDER PER SUSHMA CHOWLA, JM: THE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINST THE S EPARATE ORDERS OF CIT(A)-III, PUNE, DATED 16.11.2012 AND 12.12.2011 RELATING TO ASSESSMENT YEARS 2009-10 AND 2008-09 RESPECTIVELY , AGAINST ORDERS PASSED UNDER SECTIONS 144 AND 143(3) OF THE INCOME-TAX ACT, 1961, RESPECTIVELY. 2. BOTH THE APPEALS RELATING TO THE SAME ASSESSEE ON SIMILAR ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.354/PN/2013 HAS RAISED THE FO LLOWING GROUNDS OF APPEAL, WHICH ARE SIMILAR IN OTHER APPEAL ALSO, EX CEPT AMOUNTS:- ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 2 1) THE ASSESSMENT MADE ON 28-12-2011 IS BAD IN LAW, IN-AS - MUCH AS IT AMOUNTS TO RE-ASSESSMENT AS THE NOTICE U /S 143(2) WAS FIRST ISSUED AND THEN A SO-CALLED INTIMATION WAS IS SUED, WHICH SHOULD BE ACTUALLY TAKEN TO BE AS ASSESSMENT U/ S 143 (3) READ WITH SECTION 292B OF THE IT ACT, 1961 SINCE THER E CAN BE ONLY ONE ASSESSMENT U/S 143(3) ON THE NOTICE ISSUED U/S 1 43(2) OF THE IT ACT, 1961. 2) WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, THE LEARNED CIT (APPEALS) ERRED IN UPHOLDING AND CONFIRMING THE ADDITIO N OF RS.2,27,60,738/- BY WAY OF DISALLOWANCE U/S 40A(3) OF THE ACT, 1961. 3) WITHOUT PREJUDICE TO GROUND NO.1 & 2, THE ADDITION U /S 40A(3) SHOULD NOT HAVE BEEN TO THE EXTENT THE PAYMENTS WERE MADE ON BANK HOLIDAYS AND SUNDAYS. 4) THE ASSESSEE PRAYS TO AMEND/MODIFY AND OR THE AB OVE GROUNDS AND OR TO TAKE ANY ADDITIONAL GROUNDS, IF FOUN D NECESSARY. 4. THE GROUND OF APPEAL NO.1 RAISED IN BOTH THE APPEALS IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 5. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY THE ASSES SEE IS AGAINST THE MERITS OF THE ADDITION MADE IN THE HANDS OF T HE ASSESSEE ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. 6. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE WA S ENGAGED IN THE SALE OF LIQUOR AND WINE ON RETAIL BASIS FROM HIS SHOP A T PATAN. THE TOTAL TURNOVER OF ASSESSEE FOR THE YEAR UNDER CONSIDERA TION WAS RS.2.91 CRORES. THE ASSESSEE HAD MADE PAYMENTS TO ITS SUPPLIERS BY BEARER CHEQUES DURING THE PERIOD UNDER CONSIDERATION. THE AUDITOR IN ITS AUDIT REPORT HAD REPORTED THAT IT WAS NOT POSSIBLE T O VERIFY WHETHER THE PAYMENTS MADE BY THE CHEQUES / DRAFTS HAD BEEN M ADE OTHERWISE THAN BY CROSS CHEQUE OR BANK DRAFT AS THE NECESSARY EVIDENCE WAS NOT IN POSSESSION OF THE ASSESSEE. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSEE WAS CONFRONTED WITH THE LIST OF VARIOUS SUCH PAYMENTS MADE THROUGH BEARER CHEQUES TO VARIOUS SUPP LIERS AND ALSO ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 3 LEDGER EXTRACTS OF ACCOUNTS OF THE ASSESSEE IN THE BOO KS OF ACCOUNT OF THE SUPPLIERS WERE SHOWN TO HIM AND HE WAS ASKED TO EX PLAIN AS TO WHY THE ENTIRE EXPENDITURE SHOULD NOT BE DISALLOWED UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE ASSESSING OFFICER ALSO CALLED FOR THE CASH CREDIT ACCOUNTS OF THE ASSESSEE WITH KARAD JANATA SAHAKARI BANK LTD., PATAN BRANCH AND EXAMINED THAT THE ASSESSEE HAD MADE PAYMENTS EXCEEDING RS.20,000/- BY BEARER CHE QUES TO VARIOUS PARTIES. THE TABULATED DETAILS OF THE SAID PAYMENT S ARE REPRODUCED BY THE ASSESSING OFFICER AT PAGES 3 TO 6 OF THE ASSESSMENT ORDER RELATING TO ASSESSMENT YEAR 2008-09. IN THE SAID LIST, IT ALSO CERTIFIED BY THE CONCERNED BANK VIDE ITS CERTIFICATE DATED 11.12.2010 THAT THE TRANSACTIONS WERE MADE BY THE ASSESSEE THRO UGH BEARER CHEQUES, WHICH IN TURN, WERE AS PER THE DIRECTIONS OF THE DIRECTORS OF THE TRADE CREDITORS FROM WHOM THE PURCHASES WERE MADE . THE ASSESSEE FURTHER CLAIMED THAT THIS WAS THE PRACTICE OBSERVED I N THE LINE OF THE BUSINESS OF COUNTRY FOREIGN LIQUOR. THE PLEA OF THE ASSESSEE WAS THAT THE PAYMENT FOR PURCHASE OF GOODS WAS AN ALLOWABLE DEDUCT ION. IT WAS FURTHER CONTENDED BY THE ASSESSEE THAT THE OBJEC T OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT WAS TO CURB FLOW OF BLACK MONE Y AND NOT TO PUT IMPEDIMENTS TO THE TRADE AND BUSINESS. THE ASSESSE E HAD MADE THE SAID PAYMENTS AGAINST CREDIT PURCHASES AND ALL THE P AYMENTS WERE RECORDED IN THE RESPECTIVE CREDITORS ACCOUNTS AND FUR THER, THE PLEA OF THE ASSESSEE WAS THAT THE PURCHASES WERE SUPPORTED BY PURCHASE VOUCHERS AND ALSO T.P. OF EXCISE DEPARTMENT. IN VIEW OF TH E ABOVE, THE PLEA OF ASSESSEE WAS THAT THE PROVISIONS OF SECTION 40A(3) OF THE ACT WERE NOT ATTRACTED. THE ASSESSING OFFICER REJECTED THE SUBMISSIONS OF THE ASSESSEE AND POINTED OUT THAT THE PROVISIONS OF SEC TION 40A(3) OF THE ACT WERE CLEAR AND WHERE THE ASSESSEE HAD ACCEPT ED THAT THE ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 4 PAYMENTS WERE MADE THROUGH BEARER CHEQUES AND SINCE THE CAS E OF THE ASSESSEE DID NOT FALL UNDER ANY OF THE EXCEPTIONS TO SEC TION 40A(3) OF THE ACT, A SUM OF RS.1,59,34,943/- WAS ADDED BACK TO THE INCOME OF ASSESSEE ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. 7. BEFORE THE CIT(A), THE CLAIM OF THE ASSESSEE WAS THAT IT HAD MAINTAINED BOOKS OF ACCOUNT WHICH WERE AUDITED AND ALL THE SALES AND PURCHASES WERE SUPPORTED BY PROPER VOUCHERS AND QUA NTITATIVE STOCK WAS SUPPORTED BY THE EXCISE REGISTER MAINTAINED BY THE ASSESSEE, WHICH WAS VERIFIED BY THE EXCISE AUTHORITIES FROM TIME TO T IME. IT WAS ALSO POINTED OUT BY THE ASSESSEE THAT THE ASSESSING OFFIC ER HAD NOT DISPUTED THE PURCHASES & SALES AND THE BOOK RESULTS SH OWN BY THE ASSESSEE. IT WAS FURTHER POINTED OUT THAT, THOUGH THE BOOK RESULTS WERE ACCEPTED BY THE ASSESSING OFFICER, PURCHASES TO THE EXTENT OF RS.1.59 CRORES OUT OF TOTAL PURCHASE EXPENDITURE OF RS.2.2 0 CRORES WHICH WORKS OUT TO 72.30% OF TOTAL PURCHASES, WERE DISALLOW ED BY THE ASSESSING OFFICER. ANOTHER CLAIM OF THE ASSESSEE WAS THAT IN VIEW OF GENUINENESS OF THE TRANSACTION AND THE IDENTITY OF THE PA YEE BEING ESTABLISHED, THERE WAS NO MERIT IN THE DISALLOWANCE MADE BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. ANOTHER ISSUE RAISED BY THE ASSESSEE BEFORE THE CIT(A) WAS THAT ITS PLACE OF BUSINESS WAS AT PATAN, TALUKA KOLHAPUR, DISTRICT SATARA, WHEREAS THE CREDITORS WERE ALL BASED AT KOLHAPUR OR SATARA. THE PAYMENTS WERE MADE AT PAT AN BY BEARER CHEQUES ISSUED WITH BANK ACCOUNT AT PATAN, WHEREAS THE SELLERS HAD NO BANK ACCOUNTS AT PATAN AND THE ASSESSEE HAD NO B ANK ACCOUNT AT SATARA OR KOLHAPUR, WHERE THE CREDITORS WERE CARRYING O N THEIR BUSINESS. FURTHER, CERTAIN PAYMENTS WERE MADE AT BANK HOLIDAYS. ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 5 8. THE CIT(A) HOWEVER, REJECTED THE PLEA OF THE ASSESSE E IN VIEW OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND OBSERVED T HAT NO EXCEPTION BEING ENLISTED UNDER RULE 6DD OF THE INCOME TA X RULES, 1962. IN RESPECT OF THE PLEA OF THE ASSESSEE THAT TH E PAYMENTS WERE MADE AT A PLACE OTHER THAN THE PLACE WHERE THE ASSESS EE WAS CARRYING ON ITS BUSINESS, IT WAS NOTED BY THE CIT(A) THAT UNDER SU B-RULE (J) OF RULE 6DD OF THE RULES, ONLY EXCEPTION WAS PROVIDED IN RES PECT OF CASES WHERE THE PAYMENT WAS MADE IN A VILLAGE OR TOWN, WHICH ON THE DATE OF PAYMENT WAS NOT SERVED BY ANY BANK, TO ANY PERSON W HO ORDINARILY RESIDES OR CARRIES ITS BUSINESS FROM SUCH VILLAGE OR TOWN. HOWEVER, IN THE CASE OF THE ASSESSEE, THE PLACE FROM WHICH HE WAS OP ERATING WAS SERVED BY BANKS AS THE PAYMENTS WERE MADE BY BEARER CHEQUES, WHICH CLEARLY PROVE THAT THE PLACE OF THE ASSESSEE AND THE PAYEES WE RE SERVED BY THE BANKS. FURTHER, IT WAS POINTED OUT BY THE CIT(A) THAT THE SAID RESIDUARY CLAUSE (J) OF RULE 6DD OF THE RULES, WAS DELETED BY THE FINANCE ACT, 1995. IN RESPECT OF THE OTHER CLAIM OF THE ASSESSEE THAT THE SUPPLIERS / CREDITORS WERE RELUCTANT TO ACCEPT ACCO UNT PAYEE CHEQUES / DRAFTS FOR SUPPLY OF GOODS AND THEY INSISTED U PON CASH PAYMENT OR PAYMENT BY BEARER CHEQUES IN ADVANCE AGAIN ST THE PURCHASES, WAS ALSO NOT ACCEPTED BY THE CIT(A). IN THE ABSENCE OF ANY EVIDENCE HAVING BEEN FILED BY THE ASSESSEE, THE CIT(A) THUS , UPHELD THE ORDER OF ASSESSING OFFICER IN MAKING THE IMPUGNED ADDITION U NDER SECTION 40A(3) OF THE ACT. 9. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN BOTH ASSESSMENT YEARS 2008-09 AND 2009-10. 10. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE TOOK US THROUGH THE FACTS OF THE CASE AND POINTED OUT THAT THO UGH THE ASSESSEE ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 6 GAVE BEARER CHEQUES TO SUPPLIERS, BUT ALL THE TRANSACTION S WERE RECORDED IN THE BOOKS OF ACCOUNT. OUR ATTENTION WAS DR AWN TO THE LIST OF SUPPLIERS PLACED AT PAGES 139 OF THE PAPER BOOK AND IT WAS POINTED OUT THAT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE THAT SIMILAR ISSUE OF PAYMENT BY WAY OF BEARER CHEQUES TO THE SAID SUPPLIERS AND INVOKING THE PROVISIONS OF SECTION 40A(3) OF TH E ACT, AROSE BEFORE THE TRIBUNAL IN SHRI SHANKAR KRISHNA PANASK AR VS. ITO IN ITA NO.376/PN/2013 RELATING TO ASSESSMENT YEAR 2009- 10 ORDER DATED 25.08.2014. THE LEARNED AUTHORIZED REPRESENTATIV E FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IN THE PRESENT APP EAL IS SQUARELY COVERED WITH THE ISSUE BEFORE THE TRIBUNAL IN SHRI SHANKAR KRISHNA PANASKAR VS. ITO (SUPRA), WHO WAS ENGAGED IN SAME BUSINE SS AND WAS OPERATING FROM SAME AREA. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE IN REPLY, STATED THAT THE ASSESSEE WAS MAKING REGULAR PU RCHASES FROM THE SAME PARTIES AND IN CASE OF REGULAR CARRYING ON OF BUSINES S, ADVANCE PAYMENTS SHOULD HAVE BEEN MADE BY THE ASSESSEE, WHICH WERE NOT DONE SO. OUR ATTENTION WAS DRAWN TO THE FINDING OF CIT(A ) IN PARAS 3.3 TO 3.4 OF THE APPELLATE ORDER. FURTHER, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE HIGH COURT OF GUJARAT IN ASSOCIAT ED ENGINEERING ENTERPRISE VS. CIT (1995) 216 ITR 366 (GUJ). 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE ASSESSEE WAS ENGAGED IN THE RETAIL SALE OF WINE AND LIQUOR AND WAS BASED IN THE PATAN. THE ASSESSEE WAS MAKING PURCHASE S FROM CERTAIN SUPPLIERS IN KOLHAPUR AND SATARA, WHICH IS AT ABOUT 80 KILOM ETRES OF DISTANCE AWAY FROM THE PLACE OF BUSINESS OF THE ASSESSEE. IN ORDER TO PURCHASE THE LIQUOR, THE REQUIREMENT IS THAT THE ADVANC E PAYMENTS ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 7 HAVE TO BE MADE TO THE SUPPLIERS BEFORE SUPPLY OF GOODS . IN ORDER TO MEET THE DEMANDS OF ITS SUPPLIERS / CREDITORS, THE ASSESS EE WAS ISSUING BEARER CHEQUES TO THE SAID PARTIES WHO WERE BAS ED IN KOLHAPUR AND SATARA AND WAS PURCHASING THE GOODS ON A DAILY BA SIS FROM THEM. IN VIEW OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT WHICH PROVIDES THAT NO DEDUCTION WOULD BE ALLOWED WHERE ANY EXPENDITURE IS INCURRED OVER AND ABOVE RS.20,000/- IN CASH AND NOT THROUGH CR OSSED CHEQUE OR BANK DRAFT, ADDITION IS TO BE MADE IN THE HANDS OF THE ASSESSEE FOR VIOLATING THE SAID PROVISIONS OF THE ACT. HOWEVER, THE PLEA OF THE ASSESSEE WAS THAT THE PAYMENTS WERE FULLY RECORDED IN ITS BOOKS OF ACCOUNT AND WERE ALSO RECORDED IN THE BOOKS OF ACCOUN T OF SUPPLIERS, WHO IN TURN, HAD CONFIRMED THE SAME. FURTHER, THE BANK H AD ALSO CERTIFIED THAT THE PAYMENTS WERE MADE THROUGH BEARER C HEQUES TO THE SAID PARTIES. 13. THE ISSUE ARISING BEFORE US WAS THAT WHETHER THE SA ID PAYMENTS WHICH HAVE BEEN MADE IN CASH OVER AND ABOVE THE SUM O F RS.20,000/- WHICH HAS BEEN STIPULATED IN SECTION 40A(3) OF THE ACT, WHET HER THE SAME IS ALLOWABLE AS A DEDUCTION IN THE HANDS OF THE ASSES SEE. THE ASSESSEE HAD MADE TOTAL PURCHASES OF RS.2.20 CRORES IN ASSESSMENT YEAR 2008-09, OUT OF WHICH, PURCHASES TO THE EXTENT OF RS.1.59 CRORES BEING 72.30% OF THE TOTAL PURCHASES WERE DISALLOWED BY THE ASSESSING OFFICER, IN VIEW OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE CONTENTION OF THE ASSESSEE BEFORE US AND EVEN BEFORE TH E AUTHORITIES BELOW WAS THAT, THE ASSESSEE WAS OPERATING ITS BUSINESS FROM PATAN AND HAD NO BANK ACCOUNT AT THE PLACE OF OPERATION OF CR EDITORS / SUPPLIERS I.E. AT KOLHAPUR OR SATARA. FURTHER, THE SAID CR EDITORS / SUPPLIERS HAVE NO BANK ACCOUNT AT PATAN. THE ASSESSEE WAS OPERATING THROUGH KARAD JANATA SAHAKARI BANK LTD., PATAN AND WAS REGULARLY ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 8 ISSUING BEARER CHEQUES TO THE SUPPLIERS, WHICH ADMITTEDLY WERE DE BITED FROM THE ACCOUNT OF THE ASSESSEE. 14. IN THE ENTIRETY OF THE ABOVE FACTS AND CIRCUMSTANC ES, WHERE THE IDENTITY OF THE PAYER AND THE PAYEE WAS ESTABLISHED AND WHERE THE PAYMENTS WERE MADE IN CASH IN EXCESS OF RS.20,000/-, WHET HER THE PROVISIONS OF SECTION 40A(3) OF THE ACT WERE ATTRACTED OR NOT, HAS BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN SHRI SHAN KAR KRISHNA PANASKAR VS. ITO (SUPRA). IT MAY BE POINTED OUT THAT THE SAID PARTY WAS ALSO OPERATING FROM PATAN AND WAS MAKING PURC HASES FROM THE SAME SUPPLIERS AS THAT OF THE ASSESSEE. THE BANK A CCOUNT OF THE SAID PARTY WAS THE SAME AS THAT OF THE ASSESSEE I.E. KA RAD JANATA SAHAKARI BANK LTD., PATAN. THE TRIBUNAL IN THE ABOVE SAID FACTS AND CIRCUMSTANCES, IN TURN, RELYING ON THE RATIO LAID DOWN BY T HE HONBLE DELHI HIGH COURT IN R.C. GOEL VS. CIT, 259 CTR (DEL) 15 AND ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF GUJARAT IN AN UPAM TELE SERVICES VS. ITO, TAX APPEALL NO.556 OF 2013, JUDGMENT DATE D 22.01.2014, HELD AS UNDER:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE RECORD. IN THIS CASE, THERE IS NO DISPUTE ABO UT THE FACT THAT THE PAYMENTS SHOWN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ARE FOR THE AMOUNTS MORE THAN RS.20 ,000/- AND COVERED UNDER THE PROVISIONS OF SEC. 40A(3) R.W. RULE 6DD. IF WE CONSIDER THE BUSINESS MODEL OF THE ASSESSEE, HE IS N OT GETTING CREDIT FACILITY FROM THE BANK AND THE SUPPLIERS ARE NOT GIVING THE CREDIT ALSO. THE ASSESSEES LIQUOR SHOP IS LOCATED IN THE SMALL VILLAGE TALUKA PATAN AND HIS BANK I.E. KARAD URBAN CO-OP . BANK LTD. IS AT THE DISTANCE OF 10- 20 KMS. FROM HIS SHOP. THE PLEA OF THE ASSESSEE IS THAT WITHOUT TAKING THE ADVANCE PAYM ENT BY BEARER CHEQUES, THE SUPPLIERS ARE NOT GIVING THE GOO DS TO THE ASSESSEE. 7. IN THE CASE OF R.C. GOEL (SUPRA) THE HON'BLE HIGH COU RT OF DELHI HAS HELD AS UNDER: 9. IN THE PRESENT CASE, THE PREVIOUSLY NOTED DISCUSSI ON WOULD REVEAL THAT THE ASSESSEE ENGAGES ITSELF IN EXEC UTING CATERING CONTRACTS FOR RAILWAYS IN RESPECT OF TWO T RAINS. IN THOSE TRAINS, ITS PERSONNEL ARE DEPLOYED FOR SALE OF SMA LL ARTICLES OF DAILY NECESSITY AND USE TO THE PASSENGER S. PER ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 9 FORCE, THE PAYMENTS RECEIVED BY THEM ARE NECESSARIL Y IN CASH. THESE AMOUNTS ARE COLLECTED AND IN TURN HANDED O VER TO THE ASSESSEE. THE ASSESSEE IN TERMS OF ITS CONTRA CT IS BOUND TO MAINTAIN CONSTANT SUPPLIES IN THE TRAINS A ND ENSURE THAT AT NO POINT IN TIME CAN THE PASSENGERS B E DEPRIVED OF THESE ARTICLES (WHICH ARE FOOD ARTICLES, S OFT DRINKS AND OTHER ITEMS NECESSARY FOR TRAVEL). IN THE COURSE OF SUCH TRANSACTIONS, IT SOURCES THESE ARTICLES FROM M/S SHRUTI ENTERPRISES. APPARENTLY, THAT CONCERN IS ALSO A SMALL TIME ONE AND INSISTS ON CASH PAYMENTS FOR ENSURING CONTINUITY AND TIMELY SUPPLIES. WHILST, THE COURT IS CONSCIOUS AND DOES NOT IN ANY MANNER WISH TO COMMEN T ADVERSELY ON THE LARGER PUBLIC INTEREST ELEMENT EMBE DDED IN SECTION 40A AND THE UNDERLYING PRINCIPLE, AT THE SAME TIME, THE COURT ALSO NOTES THAT THE PROVISO SEEKS TO RELIE VE TO A CERTAIN EXTENT, THE MEASURE OF HARDSHIP WHICH MIGHT BE IMPOSED UPON SMALL BUSINESSES AND PROFESSIONALS WHO ARE ENGAGED IN ACTIVITIES AND ARE DEPENDENT ENTIRELY ON TIMELY CASH FLOW. IT IS IN SUCH CASES THAT RULE 6DD - WHICH WA S FORMULATED AS A PROVISO TO SECTION 40A (3) - STEPS IN TO AID SUCH ASSESSEES AND CONCERNS. IN THIS CONTEXT, THE STA TUTORY MANDATE IN SECTION 6DD (K), AT LEAST IN THE CIRCUMSTAN CES OF THE CASE, HAS TO BE SO CONSTRUED AS TO MEAN THAT BUT FOR THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPRIVED T HE BENEFIT OF SUPPLIES ITSELF. THIS COURT CLARIFIES THAT THE INTERPRETATION OF THE EXPRESSION WHO IS REQUIRED T O MAKE PAYMENT IN CASH HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE IS FACT DEPENDENT, AT LEAST IN THE PRESENT CASE. THE CONSEQUENCE OF INSTANCES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES IN SMALL BUSINESS WHICH ARE DEPENDENT ON SUCH SUPPLIES WOULD BE TO COMPLETELY STIFLE, IF NOT STO P, THE BUSINESS ACTIVITIES. IT IS IN THAT SENSE THAT THE EXPR ESSION REQUIRED WOULD HAVE TO BE CONSTRUED. 8. IN THE CASE OF ANUPAM TELE SERVICES (SUPRA) INTER PRETING SEC. 40A(3) R.W. RULE 6DD THEIR LORDSHIPS HAVE HELD AS UNDER: THE APPELLANT-ASSESSEE ACTED AS AN AGENT OF TATA TELESERVICES LIMITED FOR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS. FOR GETTING SUCH MOBILE CARDS AND RECHARGE VOUCHERS, THE ASSESSEE WOULD MAKE PAYMENT TO TATA TELESERVICES LIMITED. TILL A POINT OF TIME, IN THE MON TH OF AUGUST 2005, SUCH PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. THE TATA TELESERVICES LIMITED, HOWEVER, ISSUED A CIRCULAR NOT ONLY TO THE ASSESSEE BUT TO ALL OTHER DISTRIBUTORS IN THE STATE STATING THAT THE DISTRIBU TORS WILL PAY ONLY THROUGH DEMAND DRAFT DRAWN ON NATIONALIZED BANK OR THROUGH BANK DEPOSIT SLIPS AND WHERE THE DISTRIBUTOR HAD A BANK ACCOUNT WITH COOPERATIVE BANK , THE PAYMENT SHOULD BE MADE IN CASH., IN CONSONANCE WITH SUC H CIRCULAR, TATA TELESERVICES LIMITED WROTE A LETTER TO TH E ASSESSEE AND STATED AS UNDER:- 'WE FURTHER INTIMATE YOU THAT YOUR BANK IS 'THE SARASWAT COOPERATIVE BANK LIMITED. WE TREAT D.D/PAY ORDER FROM YOUR BANK AS A CHEQUE AND YOUR ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 10 INVOICE PROCESSES DONE AFTER CREDIT BALANCE IN COMPANY'S ACCOUNT. IT WILL TAKE 4/5 DAYS. IT WILL SUFFER OUR BUSINESS. SO PLEASE DEPOSIT CASH AT PUBLIC OFFICE OF COMPANY IN SURAT AND GET IMMEDIATE DELIVERY TO AVOID SUFFERING OF MARKET. WE WILL DEPOSIT YOUR CASH IN OUR BANK ON BEHALF OF YOU. YOU ARE VERY WELL KNOWN THAT WE CANNOT SUFFER OUR BUSINESS AT ANY COST.' IN TERMS OF SUCH CIRCULAR AND LETTER, THE ASSESSEE THEREAFTER MADE CASH PAYMENTS TO TATA TELESERVICES LIMITED. ABOUT THE GENUINENESS OF PAYMENTS MADE, THERE IS NO DISPUTE. THE FULL ACCOUNT OF THE ASSESSEE AS WELL AS TATA TELESERVICES LIMITED WERE PLACED ON RECORD. THE ASSERTION OF THE ASSESSEE THAT SUCH MONIES WERE TO BE DEPOSITED B Y TATA TELESERVICES LIMITED IN THEIR BANK ACCOUNT AND W ERE EVENTUALLY SO DEPOSITED WERE NOT DISPUTED. IT IS PRECI SELY ON THIS PREMISE THAT THE APPELLATE COMMISSIONER OBSERVED THAT THE FACTUM OF PAYMENT TO TATA TELESERVICES LIMITED IS NOT DISPUTED AND THE TRANSACTIONS WERE GENUINE. THE ASSE SSEE HAD IN FACT FILED A COPY OF THE ACCOUNTS WITH TATA TELESERVICES LIMITED INDICATING THAT SUCH PAYMENTS WER E MADE. SECTION 40A (3) OF THE ACT PERTAINS TO EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES. THE SAID SECTION, AS PREVALENT AT THE RELEVANT TIME, READ THUS:- '(3)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE IN SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE; (B) WHERE AN ALLOWANCE HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY THE ASSESSEE FOR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR (HEREINAFTER REFERRED TO AS SUBSEQUENT YEAR) THE ASSESSEE MAKES PAYMENT IN RESPECT THEREOF, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, THE PAYMENT SO MADE SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR .PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF THE SUBSEQUENT YEAR IF THE AMOUNT OF PAYMENT EXCEEDS TWENTY THOUSAND RUPEES : PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER THIS SUB- SECTION WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 11 REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIE S AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS.' RULE 6DD OF THE INCOME TAX RULES, 1962 PROVIDES FOR SITUATIONS UNDER WHICH DISALLOWANCE UNDER SECTION 40A (3) SHALL NOT BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UND ER THE SAID SECTION. AMONGST THE VARIOUS CLAUSES, CLAUSE (J ) WHICH IS RELEVANT, READ AS UNDER:- (J) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE; IT COULD BE APPRECIATED THAT SECTION 40A AND IN PARTICULAR SUB-CLAUSE (3) THEREOF AIMS AT CURBING THE POSSIBILITY OF ON-MONEY TRANSACTIONS BY INSISTING TH AT ALL PAYMENTS WHERE EXPENDITURE IN EXCESS OF A CERTAIN S UM [IN THE PRESENT CASE TWENTY THOUSAND RUPEES] MUST BE MA DE BY WAY OF ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCO UNT PAYEE BANK DRAFT. AS HELD BY THE APEX COURT IN CASE OF ATTAR SINGH GURMUKH SINGH [SUPRA], '..IN OUR OPINION, THERE IS LITT LE MERIT IN THIS CONTENTION. SECTION 40A(3) MUST NOT BE READ I N ISOLATION OR TO THE EXCLUSION OF RULE 6DD. THE SECTIO N MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT TH E BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE I N HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT B Y CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER T HE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE INCO ME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE ARE NOT ABSOLUTE. CONSIDERATIONS OF BUSINESS EXPEDIEN CY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE A ND BONAFIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEE P OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTA NCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A (3) WAS NOT PRACTICABLE OR WOULD HAVE CAUS ED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO TH E ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED TH E CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROS SED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES S PECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULAT E BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLAC K MONEY FOR BUSINESS TRANSACTIONS.' ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 12 IT WAS BECAUSE OF THESE CONSIDERATIONS THAT THIS COURT IN CASE OF HYNOUP FOODS PRIVATE LIMITED [SUPRA] OBSER VED THAT THE GENUINENESS OF THE PAYMENT AND THE IDENTIF Y OF THE PAYEE ARE THE FIRST AND FOREMOST REQUIREMENTS TO IN VOKE THE EXCEPTIONS CARVED OUT IN RULE 6DD(J) OF THE INCOME-T AX RULES, 1962. IN THE PRESENT CASE, NEITHER THE GENUINENESS OF THE PAYMENT NOR THE IDENTITY OF THE PAYEE WERE IN ANY CA SE DOUBTED. THESE WERE THE CONCLUSIONS ON FACTS DRAWN BY THE APPELLATE COMMISSIONER. THE TRIBUNAL ALSO DID NOT DIST URB SUCH FACTS BUT RELIED SOLELY ON RULE 6DD (J) OF THE RU LES TO HOLD THAT SINCE THE CASE OF THE ASSESSEE DID NOT FALL UNDER THE SAID EXCLUSION CLAUSE NOR WAS COVERED UNDER ANY O F THE CLAUSES OF RULE 6DD, CONSEQUENCES ENVISAGED IN SECTIO N 40A(3) OF THE ACT MUST FOLLOW. IN OUR OPINION, THE TRIBUNAL COMMITTED AN ERROR IN COMING TO SUCH A CONCLUSION. WE WOULD BASE OUR CONCLUSIONS ON THE FOLLOWING REASONS:- [A] THE PARAMOUNT CONSIDERATION OF SECTION 40A(3) IS TO CURB AND REDUCE THE POSSIBILITIES OF BLACK MONEY TRANSACTIONS. AS HELD BY THE SUPREME COURT IN ATTAR SINGH GURMUKH SINGH [SUPRA], SECTION 40A(3) OF THE ACT DOES NOT ELIMINATE CONSIDERATIONS OF BUSINESS EXPEDIENCIES. [B] IN THE PRESENT CASE, THE APPELLANT ASSESSEE WAS COMPELLED TO MAKE CASH PAYMENTS ON ACCOUNT OF PECULIA R SITUATION. SUCH SITUATION WAS AS FOLLOW [I] THE PRINCIPAL COMPANY, TO WHICH THE ASSESSEE WAS A DISTRIBUTOR, INSISTED THAT CHEQUE PAYMENT FROM A COOPERATIVE BANK WOULD NOT DO, SINCE THE REALIZATION TAKES A LONGER TIME; [II] THE ASSESSEE WAS, THEREFORE, REQUIRED TO MAKE CASH PAYMENTS ONLY; [III] TATA TELESERVICES LIMITED ASSURED THE ASSESSEE THAT SUCH AMOUNT SHALL BE DEPOSITED IN THEIR BANK ACCOUNT ON BEHALF OF THE ASSESSEE; [IV] IT IS NOT DISPUTED THAT THE TATA TELESERVICES LIMITED DID NOT ACT ON SUCH PROMISE; [V] IF THE ASSESSEE HAD NOT MADE CASH PAYMENT AND RELIED ON CHEQUE PAYMENTS ALONE, IT WOULD HAVE RECEIVED THE RECHARGE VOUCHERS DELAYED BY 4/5 DAYS AND THEREBY SEVERELY AFFECTING ITS BUSINESS OPERATIONS. WE WOULD FIND THAT THE PAYMENTS BETWEEN THE ASSESSEE AND THE TATA TELESERVICES LIMITED WERE GENUIN E. THE TATA TELESERVICES LIMITED HAD INSISTED THAT SUCH PAYMENTS BE MADE IN CASH, WHICH TATA TELESERVICES ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 13 LIMITED IN TURN ASSURED AND DEPOSITED THE AMOUNT IN A BANK ACCOUNT. IN THE FACTS OF THE PRESENT CASE, RIGOR S OF SECTION 40A(3) OF THE ACT MUST BE LIFTED. WE NOTICE THAT THE DIVISION BENCH OF THE RAJASTHAN HIGH COURT IN CASE OF SMT. HARSHILA CHORDIA VS. INCOME -TAX OFFICER, REPORTED IN [2008] 298 ITR 349 (RAJ) HAD O BSERVED THAT THE EXCEPTIONS CONTAINED IN RULE 6DD ARE NOT EXHAUSTIVE AND THAT THE SAID RULE MUST BE INTERPRETE D LIBERALLY. 9. THE FACTS OF THE ASSESSEES CASE ARE SOMEWHAT SIMI LAR TO THE CASES OF ANUPAM TELE SERVICES (SUPRA) AND R.C. GOEL (SUPRA) AS IN THOSE CASES ALSO THE ASSESSEE WAS REQUIRED TO KEEP HIS CONSTANT SUPPLIER. WE ARE AWARE OF THE FACTS THAT C LAUSE-(J) TO RULE 6DD HAS BEEN DELETED BUT IN ABOVE BOTH DECISIONS , THE HON'BLE HIGH COURTS HAVE TAKEN THE LIBERAL VIEW CONSI DERING THE FACTS THAT FOR MAINTAINING THE CONSTANT SUPPLIERS IF THE ASSESSEE IS COMPEL TO MAKE THE PAYMENT IN CASH THEN THE HARSH PR OVISIONS LIKE SEC. 40A(3) SHOULD NOT BE EVOKED. IN THE PRESENT CASE, THE ASSESSEE FILED THE CONFIRMATIONS FROM THE SUPPLIERS THAT WITHOUT GETTING THE ADVANCE PAYMENT THE ORDER IS NOT BOOKED AND HENCE, IN OUR OPINION THE PRINCIPLES LAID DOWN IN THE ABOVE TWO DECISIONS ARE APPLICABLE TO THE ASSESSEES CASE. WE, THEREFORE, A LLOW THE GROUNDS TAKEN BY THE ASSESSEE FOLLOWING THE PRINCIPLES LAID DOWN IN THE ABOVE TWO DECISIONS AND DELETE THE ADDITION. 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE ON THE OTHER HAND, HAD PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF GUJARAT IN ENGINEERING ENTERPRISE VS. CIT (SUPRA) FOR TH E PROPOSITION THAT WHERE THERE WERE CASH PAYMENTS EXCEE DING LIMITS LAID DOWN IN SECTION 40A(3) OF THE ACT, THE GENUINENESS OF THE P AYMENTS WAS NOT SUFFICIENT. HOWEVER, FOR CIRCUMSTANCES WARRANTING CASH PAYMENT, MUST BE PROVED IN THE FACTS OF THE CASE. IN TH E PRESENT CASE, HOWEVER, THE ASSESSEE HAS PROVED THE CIRCUMSTANCES UN DER WHICH, IT WAS CONSTRAINED TO MAKE THE SAID PAYMENTS AND ONCE TH E SAID PLEA OF THE ASSESSEE HAS BEEN ESTABLISHED, THERE IS NO MERIT IN M AKING ANY DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. 16. THE FACTS OF THE PRESENT CASE BEFORE US ARE IDENTICAL TO THE FACTS OF THE CASE BEFORE PUNE BENCH OF THE TRIBUNAL IN SHRI SHAN KAR KRISHNA PANASKAR VS. ITO (SUPRA) AND FOLLOWING THE SAME PARITY OF RE ASONING, ITA NOS.354 AND 355/PN/2013 PAWAR WINE SHOP 14 WHERE BOTH THE ASSESSEES WERE SIMILARLY PLACED AND WERE CARRYING ON FROM SIMILAR PLACE AND WERE MAKING PURCHASES FROM SAME PAR TY, WE HOLD THAT THERE IS NO MERIT IN THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT ON ACCOUNT OF THE PURCHASES MADE BY T HE ASSESSEE THROUGH BEARER CHEQUES FROM ITS CREDITORS DURING THE CO URSE OF CARRYING ON ITS BUSINESS. IN VIEW THEREOF, WE DIRECT THE A SSESSING OFFICER TO DELETE THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT IN BOTH THE CAPTIONED APPEALS I.E. ASSESSMENT YEARS 2008- 09 AND 2009-10. 17. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JANUARY, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 21 ST JANUARY, 2015. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE