M/s. Mayur Marketing, CHENNAI V. ITO, CHENNAI

ITA 376/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64303 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: R MEENAKSHISUNDARAM
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 376/MDS/2012 ASSESSMENT YEAR : 2008-09 M/S. MAYUR MARKETING, H.30/32, ASHTALAKSHMI GARDEN, BESANT NAGAR, CHENNAI 600 090. [PAN:AAAFM9612L] VS. THE INCOME TAX OFFICER, BUSINESS WARD IV (2), CHENNAI 600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.MEENAKSHISUNDARAM, ADVOCATE RESPONDENT BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL DATE OF HEARING : 28.08.2012 DATE OF PRONOUNCEMENT : 11.09.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) VIII, CHENNAI DATED 21.12.2011 FOR THE ASSESSMENT YEAR 2008-09 SHRI R. MEENAKSHISUNDAR AM, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI K.E. B. RENGARAJAN, JUNIOR STANDING COUNSEL REPRESENTED ON BEHALF OF THE REVEN UE. 2. THE ONLY ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTA INING THE DISALLOWANCE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.376 376376 376/M/ /M/ /M/ /M/12 1212 12 2 OF ` . 11.00 LAKHS MADE UNDER SECTION 40A(3) OF THE INCO ME TAX ACT BY THE ASSESSING OFFICER. 3. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF TRADING/MARKETING OF RUBBER PRODUCTS FILED RETURN OF INCOME FOR THE A SSESSMENT YEAR 2008-09 ON 27.07.2009 DECLARING INCOME OF ` .13,460/-. THE ASSESSMENT WAS COMPLETED ON 27.12.2010 UNDER SECTION 143(3) DETERM INING THE INCOME OF THE ASSESSEE AT ` .11,13,460/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER MADE THE ADDITION BY DISALLOWING THE CASH PAYMENTS MADE BY THE ASSESSEE INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE ASSESSING OFFICER DISALLOWED CASH PAYMENTS MADE IN EXCESS OF ` .20,000/- FOR THE PURCHASES MADE HOLDING THAT THE INGREDIENTS OF RULE 6DD OF INCOME TAX RULES READ WITH SECTION 40A(3) OF THE ACT HAVE NOT BEEN SATISFIED BY THE ASSESSEE. 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) SUSTAINED THE DISALLOWANCE HOLDING THAT THE ASSESSEE HAS FAILED T O ESTABLISH THE EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES UNDER WHI CH THE PAYMENTS HAD TO BE MADE IN CASH, THEREFORE THE DISALLOWANCE IS U PHELD. 5. THE COUNSEL FOR THE ASSESSEE SUBMITS BEFORE US THAT THE CASH PAYMENTS WERE MADE TO ITS ASSOCIATE CONCERN M/S. MU RUGAN ENTERPRISES FOR THE PURCHASE OF STOCK-IN-TRADE. THE SUPPLIER M/S. M URUGAN ENTERPRISES IS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.376 376376 376/M/ /M/ /M/ /M/12 1212 12 3 ASSESSED TO TAX. THE PURCHASES ACCOUNTED BY THE ASS ESSEE IN RESPECT OF SUPPLIES RECEIVED UNDER CREDIT INVOICE FROM M/S. MU RUGAN ENTERPRISES HAVE BEEN DULY ACCOUNTED AS SALES AND OFFERED TO TAX BY THEM. THE PAYMENTS EFFECTED BY THE ASSESSEE BOTH IN CHEQUE AND CASH ST ANDS DULY CONFIRMED WITH THE ASSESSEES ACCOUNT APPEARING IN THE BOOKS OF ACCOUNT OF M/S. MURUGAN ENTERPRISES WITH THEIR CLOSING BALANCES AS ON 31.03.2009 DULLY TALLIED WITH EACH OTHER. THE COUNSEL SUBMITS THAT O UT OF TOTAL PAYMENT OF ` .33,41,444/- TO M/S. MURUGAN ENTERPRISES DURING THE YEAR 2008-09, CASH PAYMENTS ACCOUNTED ONLY FOR ` .12,80,000/- AND REST OF THE PAYMENTS AMOUNTING TO ` .20,61,444/- WERE MADE ONLY BY ACCOUNT PAYEE CHEQUE S. THE PAYMENTS IN CASH WERE MADE ON CONSIDERATION OF BUSI NESS EXIGENCY AND EXCEPTIONAL CIRCUMSTANCES, COMPELLING NECESSITY TO THE ASSESSEE, ON INSISTING FOR CASH PAYMENTS BY THE SUPPLIER. THE CO UNSEL SUBMITS THAT ALL THE PAYMENTS ARE GENUINE AND THE ASSESSING OFFICER IS N OT DISPUTING THE GENUINENESS OF PAYMENT. THE COUNSEL FURTHER SUBMITS THAT FEW PAYMENTS WERE MADE ON BANK HOLIDAYS AND THEREFORE COVERED BY EXCEPTIONS UNDER RULE 6DD. THE COUNSEL FOR THE ASSESSEE RELIED ON TH E DECISION IN THE CASE OF CIT VS. CHROME LEATHERS CO. PVT. LTD. [235 ITR 708 (MAD)] AND SUBMITTED THAT DISALLOWANCE UNDER SECTION 40A(3) IS NOT WARRA NTED WHEN THE IDENTITY AND GENUINENESS OF THE PAYMENTS WERE ESTABLISHED. T HE COUNSEL THEREFORE SUBMITS THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) IS NOT JUSTIFIED IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.376 376376 376/M/ /M/ /M/ /M/12 1212 12 4 6. THE COUNSEL FOR THE REVENUE SUPPORTED THE ORDER S OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSING OFFICER APPLIED THE PROVISIONS OF SEC TION 40A(3) AND DISALLOWED THE CASH PAYMENT IN EXCESS OF ` .20,000/- MADE TO THE ASSOCIATE CONCERN BY THE ASSESSEE FOR THE PURCHASES MADE. THE ASSESSING OFFICER ALSO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT CASH PAYMENTS WERE MADE ON BANK HOLIDAYS AND THEREFORE, THEY FALL UNDE R THE EXCEPTION PROVIDED UNDER RULE 6DD(J) SINCE THE ASSESSEE COULD NOT ESTA BLISH THAT SUCH PAYMENTS WERE MADE ON BANK HOLIDAY. THE ASSESSING O FFICER IS NOT DISPUTING THE GENUINENESS OF THE PAYMENTS MADE BY T HE ASSESSEE. THE ASSESSING OFFICER IS ALSO NOT DISPUTING ABOUT THE I DENTITY OF THE PAYEE. THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS NOT ESTABLISHED THE EX CEPTIONAL AND UNAVOIDABLE CIRCUMSTANCE ON WHICH THE PAYMENTS IN C ASH WERE MADE EXCEEDING ` .20,000/-. IN OUR VIEW, WHEN THE ASSESSEE HAS MADE CASH PAYMENTS TO ITS ASSOCIATE CONCERN FOR PURCHASE OF M ATERIALS, WHICH IS NOT IN DISPUTE, WHEN THE PAYMENT IS ALSO NOT IN DISPUTE, T HE PAYEE IS IDENTIFIED AND WHEN THE PAYMENTS WERE MADE IN THE EXIGENCY OF BUSI NESS CONSIDERATION ON INSISTING FOR CASH PAYMENTS BY THE SUPPLIER AFTER T HE BANKING HOURS, ETC., NO I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.376 376376 376/M/ /M/ /M/ /M/12 1212 12 5 DISALLOWANCE UNDER SECTION 40A(3) IS WARRANTED. BOT H THE ASSESSEE AND ITS ASSOCIATE CONCERN, A REGISTERED SSI UNIT ARE ASSESS ED TO TAX UNDER THE SAME JURISDICTION OF BUSINESS RANGE, CHENNAI 34. THE PURCHASES ACCOUNTED BY THE ASSESSEE IN RESPECT OF THE SUPPLIE S RECEIVED FROM M/S. MURUGAN ENTERPRISES HAVE BEEN DULY ACCOUNTED AS SAL ES AND OFFERED TO TAX BY THEM. THE PAYMENTS EFFECTED BY THE ASSESSEE BOTH IN CHEQUE AND CASH STANDS DULY CONFIRMED WITH THE ASSESSEES ACCOUNT A PPEARING IN THE BOOKS OF ACCOUNT OF M/S. MURUGAN ENTERPRISES WITH THEIR CLOS ING BALANCE AS ON 31.03.2009 IS DULY TALLIED TO EACH OTHER. IN THE CA SE OF GIRIDHARLAL GOENKA VS. CIT [179 ITR 122 (CAL.)], THE HONBLE HIGH COURT HE LD THAT THE OBJECT OF THE PROVISION OF SECTION 40A(3) IS TO CHECK EVASION OF TAXES SO THAT PAYMENT IS MADE FROM THE DISCLOSED SOURCES AND BOTH THE PAYER AND PAYEE WOULD BE SHOWING IN THE RESPECTIVE ACCOUNT THE PAYMENTS MADE AND RECEIVED AND THE TRANSACTION SHOULD BE GENUINE TRANSACTION. IN THIS CASE, THE ASSESSING OFFICER DID NOT LOOK INTO THE SURROUNDING CIRCUMSTA NCES AND CONSIDERATION OF BUSINESS EXPEDIENCY, EXCEPTIONAL AND UNAVOIDABLE CI RCUMSTANCES WHILE MAKING CASH PAYMENTS BY THE ASSESSEE AT THE INSISTE NCE OF THE PAYEE. 8. WHILE HOLDING THAT THE PAYEE AND THE PAYER ARE IDENTIFIED AND GENUINENESS OF PAYMENTS WERE ESTABLISHED AND THE AM OUNT PAID IN CASH COULD NOT BE DISALLOWED, THE HONBLE MADRAS HIGH CO URT IN THE CASE OF CIT V. CHROME LEATHER CO. PVT. LTD. (SUPRA) HELD AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.376 376376 376/M/ /M/ /M/ /M/12 1212 12 6 THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF C IT V. AVTAR SINGH AND SONS [1992] 194 ITR 80 HELD THAT WHERE TH E IDENTITY OF THE PARTY TO WHOM PAYMENTS WERE MADE WAS KNOWN AND THE PAYMENTS WERE FOUND TO BE GENUINE, THE PAYMENTS COULD NOT BE DISA LLOWED ON THE GROUND THAT THE PAYMENTS WERE MADE BY CASH. THE PUNJAB AND HARYANA HIGH COURT ALSO NOTICED THAT WHERE MONEY WAS URGENTLY RE QUIRED AFTER THE BANKING HOURS AND THE RECEIPT OF THE CROSSED CHEQUE OR BANKING DRAFT WOULD DELAY THE PAYMENT AND WOULD CAUSE UNNECESSARY HURDLES IN THE PROPER CONDUCT OF THE BUSINESS, IT WOULD BE A RELEV ANT FACTOR IN CONSIDERING THE APPLICABILITY OF THE PROVISIONS OF SECTION 40A(3) OF THE INCOME-TAX ACT AND RULE 6DD OF THE INCOME-TAX RULES . THE INSISTENCE ON CASH PAYMENT BY THE PAYEE WHERE SUCH PAYEE IS IDENT IFIABLE AND THE PAYMENT IS GENUINE AND IS MADE ON BUSINESS EXPEDIEN CY WOULD BE SUFFICIENT ENOUGH NOT TO MAKE ANY DISALLOWANCE BECA USE THE PAYMENT WAS MADE IN CASH. THE ALLAHABAD HIGH COURT IN CIT V. RA M AGYA SHYAM NARAIN [1991] 189 ITR 470 HELD THAT SUCH A FINDING OF THE TRIBUNAL IS A FINDING OF FACT. THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF, CIT V. BRIJ MOHAN SINGH AND CO. [1994] 209 ITR 753, HEL D THAT THE FINDING ARRIVED AT BY THE TRIBUNAL ON THE FACTS OF THE CASE THAT THE PROVISIONS OF SECTION 40A(3) OF THE ACT WERE FULLY SATISFIED IS A FINDING OF FACT. WE HAVE NOTICED THAT THE TRIBUNAL HAS TAKEN NOTE OF THE REL EVANT FACTORS AND FOUND THAT THE PAYMENTS WERE DULY ACCOUNTED FOR IN THE AC COUNTS OF THE ASSESSEE AS WELL AS IN THE ACCOUNTS OF THE PAYEE. T HE TRIBUNAL HAS TAKEN INTO ACCOUNT THE TRADING PRACTICE AND NEED FOR KEEP ING CASH AND FOUND THAT THE IDENTITY OF THE PAYEE WAS ESTABLISHED AND GENUINENESS OF THE PAYEE WAS SUCCESSFULLY ESTABLISHED AND ISSUE OF CHE QUE WOULD HAVE DELAYED THE TRANSACTION. CONSIDERING ALL THESE MATE RIALS ON RECORD, THE TRIBUNAL CAME TO THE CONCLUSION THAT IT WAS NOT PRA CTICABLE TO ACCEPT THE PAYMENT BY CHEQUE. WE ARE OF THE VIEW THAT THE FIND ING ARRIVED AT BY THE APPELLATE TRIBUNAL IS A FINDING OF FACT AND SINCE T HE TRIBUNAL HAS CORRECTLY COME TO THE CONCLUSION ON THE MATERIALS A VAILABLE ON RECORD, WE ARE OF THE OPINION THAT NO REFERABLE QUESTION AR OSE OUT OF ITS ORDER. SINCE WE HAVE HELD THAT THE PAYMENTS MADE BY THE AS SESSEE IS NOT LIABLE TO BE DISALLOWED WHILE COMPUTING THE BUSINES S INCOME, ON THE FACTS OF THE CASE, IT IS UNNECESSARY TO CONSIDER THE APPL ICABILITY OF RULE 6DD(J) OF THE RULES. 9. IN THE CIRCUMSTANCES, WE HOLD THAT NO DISALLOWA NCE UNDER SECTION 40A(3) IS WARRANTED BY THE ASSESSING OFFICER IN THE ASSESSEES CASE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.376 376376 376/M/ /M/ /M/ /M/12 1212 12 7 THEREFORE, WE DELETE THE DISALLOWANCE MADE BY THE A SSESSING OFFICER UNDER SECTION 40A(3) OF THE ACT. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON TUESDAY, THE 11 TH OF SEPTEMBER, 2012 AT CHENNAI. SD/ - SD/ - (DR. O.K. NARAYANAN) VICE - PRESIDENT (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 11.09.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.