M/s. Sonex TV Appliances Pvt. Ltd., Kolkata V. ITO, Ward 8(4), Kolkata

ITA 390/KOL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6453 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 24-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: MANOJ KATARUKA
• Section: 40A(3); 143(3)

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 390 / KOL / 20 17 ASSESSMENT YEAR :2012-13 M/S SONEX TV APPLIANCES PVT. LTD.3C, CHOWRINGHEE LANE, KOLKATA-16 [ PAN NO.AAFCS 7583 Q ] V/S . INCOME TAX OFFICER, WARD-8(4), AAYAKAR BHAWAN,P-7, CHOWRINGHEE SQUARE,KOLKATA-69 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI MANOJ KATARUKA, ADVOCATE /BY RESPONDENT SHRI SAURABH KUMAR, ADDL. CIT-DR /DATE OF HEARING 01-03-2018 /DATE OF PRONOUNCEMENT 27-04-2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-17, KOLKATA DA TED 02.02.2017. ASSESSMENT WAS FRAMED BY ITO WARD-8(4), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 25.02.2015 FOR ASSESSMENT YEAR 2012-13. ASSESSEE HA S RAISED FOLLOWING GROUND:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE FACT, THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE ADDITION OF RS.54,3 2,333/- U/S 40A(3) OF THE ACT MADE BY THE AO IS ERRONEOUS AND BAD IN LAW. 2. THAT ON THE FATS AND IN RESPECT TO THE CIRCUMSTA NCES OF THE CASE THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE ACTION OF THE AO TO HOLD THE PAYMENTS OF RS.54,32,333/- MADE BY THE APPELLANT TO M/S NEOSA ELECTRONIC PVT. LTD. BY WAY OF ADJUSTMENT AGAINST L IABILITY ATTRACTS THE PROVISION OF SECTION 40A(3) OF THE ACT IS ARBITRARY , EXCESSIVE AND BAD IN LAW. ITA NO.390/KOL/2017 A.Y. 2012-13 M/S SONEX TV APPLIANCES PVT. LTD. VS. ITO WD-8( 4), KOL. P AGE 2 3. THAT THE ADDITIONS MADE BY THE AO AND UPHELD BY THE LD. CIT(A) IS ARBITRARY, EXCESSIVE AND ILLEGAL. 4. THAT THE ABOVE GROUNDS OF APPEAL SHALL BE ARGUED IN DETAIL AT THE TIME OF HEARING AND THE APPELLANT CRAVES LEAVE TO SUBMIT , ADD, ALTER, MODIFY, AMEND ANY GROUNDS OF APPEAL OR SUBMIT ANY ADDITIONA L GROUNDS OF APPEAL ON OR BEFORE THE TIME OF HEARING. SHRI MANOJ KATARUKA, LD. ADVOCATE APPEARED ON BEHAL F OF ASSESSEE AND SHRI SAURABH KUMAR, LD. DEPARTMENTAL REPRESENTATIVE APPE ARED ON BEHALF OF REVENUE. 2. GROUND NO.1 TO 4 ARE INTER-RELATED AND THEREFORE BEING TAKEN UP TOGETHER FOR THE PURPOSE OF ADJUDICATION AND FOR TH E SAKE OF BREVITY. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN CONFIRMING THE O RDER OF ASSESSING OFFICER BY SUSTAINING THE ADDITION OF 54,32,333/- U/S 40A(3) OF THE ACT. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND ENGAGED IN TRADING BUSINESS OF ELECTRONIC GOODS. TH E ASSESSEE IN ITS BOOKS OF ACCOUNT HAS SHOWN M/S NEOS ELECTRONICS PVT. LTD. (N EPL FOR SHORT) AS SUNDRY CREDITORS ON ACCOUNT OF PURCHASES OF GOODS. DURING THE YEAR, THERE WAS CREDIT BALANCE IN THE BOOKS OF ASSESSEE IN THE NAME OF NEP L WHICH WAS ADJUSTED BY WAY OF BOOK ENTRY. THE DETAILS OF THE BOOK ENTRY ST AND AS UNDER:- SL.NO DATE NAME OF PARTY ADJUSTED AMOUNT 1 20.12.11 PANASONIC INDIA PVT. LTD. 42,75,989.87 2 06.01.12 -DO- 11,56,343 THUS, THE LIABILITY AS STATED ABOVE SHOWN BY ASSESS EE IN THE NAME OF NEPL WAS ADJUSTED BY WAY OF BOOK ENTRY WITH M/S PANASONI C INDIA PVT. LTD. HOWEVER, THE AO WAS OF THE VIEW THAT THE ADJUSTMENT BY WAY OF BOOK ENTRY HAS VIOLATED THE PROVISION OF SECTION 40A(3) OF THE ACT. AS SUCH THE ADJUSTMENT BY WAY OF BOOK ENTRY ALSO DOES NOT FALL IN ANY OF EXCEPTION PROVIDED UNDER RULE 6DD OF THE INCOME TAX RULES, 19 62. THEREFORE, THE AO ITA NO.390/KOL/2017 A.Y. 2012-13 M/S SONEX TV APPLIANCES PVT. LTD. VS. ITO WD-8( 4), KOL. P AGE 3 DISALLOWED THE SUM BY HOLDING THAT THERE IS A VIOLA TION OF PROVISION OF SECTION 40A(3) OF THE ACT AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- DECISION: IT HAS BEEN SUBMITTED BY THE A/R OF THE A SSESSEE THAT THE ISSUE IS COVERED BY THE DECISION OF MY PREDECESSOR IN A. NO. 51/CIT(A)-VIII/2014-15, DATED 24.07.2014 WHEREIN IT HAS BEEN OBSERVED AS UN DER:- AS PER PROVISION OF SECTION 40A(3), NO DEDUCTION I S ALLOWED IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS EXCEEDI NG RUPEES TWENTY THOUSAND ARE MADE TO A PERSON IN A DAY OTHER WISE THAN BY AN ACCOUNT PAYEE CHEQUE OR BANK DRAFT DRAWN ON AC BANK . HOWEVER NO DISALLOWANCE IS MADE AS PER THIS SECTION UNDER CIRC UMSTANCES PRESCRIBED IN RULE 6DD. UNDER RULE 6DD THERE IS LIMITED AREA WITHIN WHICH P AYMENTS BY BOOK ADJUSTMENT CAN BE CONSIDERED TO FALL WITHIN THE EXC EPTION TO THE RULE OF PROHIBITION CONTAINED IN SECTION 40A(3). ACCORDING TO CLAUSE (E) OF RULE 6DD IT IS THE EXPENDITURE IN RESPECT OF WHICH THE P AYMENT BY WAY OF BOOK ADJUSTMENT IS MADE TO THE PAYEE WHO DIRECTLY S UPPLIED THE GOODS OR SERVICES TO THE ASSESSEE, THAT FALLS OUTSIDE THE MISCHIEF OF RULE OF PROHIBITION TO SECTION 40A(3). OTHER THAN THIS THER E IS NO EXCEPTION PROVIDE TO BOOK ADJUSTMENTS. THE CASE OF APPELLANT DOES NOT FALL WITHIN THE ABOV E EXCEPTION AND HENCE THERE IS NO NEED TO DISCUSS THE EXCEPTION ANY FURTHER. FURTHER THE QUESTION INVOLVED IN RESPECT IN THE CAS E OF THE APPELLANT HAS BEEN DEALT WITH IN CIT VS. KISHAN CHAND MAHESHW WRI DASS (1980 121 ITR 232 P&H) THE FOLLOWING ARE RELEVANT EXCERPT S OF THE JUDGMENT:- AT THE INSTANCE OF THE REVENUE, THE INCOME-TAX APP ELLATE TRIBUNAL, CHANDIGARH BENCH, HA REFERRED THE FOLLOWI NG TWO QUESTIONS OF LAW FOR THE OPINION OF THIS COURT: 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE W ORD EXPENDITURE USED IN SECTION 40A(3) DOES NOT COVER EXPENDITURE ON PURCHASES OF GOODS. 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE P ROHIBITION IN SECTION 40A(3) WAS ATTRACTED EVEN IN CASES OF PAYME NTS BY BOOK ADJUSTMENTS AND WHERE THE BOOK ADJUSTMENTS WER E NOT MADE BY THE ASSESSEE DIRECTLY IN THE ACCOUNTS OF TH E PARTY WHO SUPPLIED THE GOODS OR SERVICES TO THE ASSESSEE. IT WAS HELD THAT SECTION 40A(3) COVERS EXPENDITURE ON PURCHASE OF GOODS AND IN RESPECT OF QUESTION NO. 2 IT WAS HELD THAT IN VIEW OF OUR ANSWER TO QUESTION NO.1 AND BECAUSE OF CLAUSE (E) OF RULE 6DD, WHICH READS, WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMENT AGAINST THE AMOUNT OF ANY LIABILITY INCU RRED BY THE PAYEE FOR ANY GOODS SUPPLIED OR SERVICES RENDERED, BY THE ASS ESSEE TO SUCH PAYEE . IT IS CLEAR THAT THERE IS A LIMITED AREA WITHIN W HICH PAYMENTS BY ITA NO.390/KOL/2017 A.Y. 2012-13 M/S SONEX TV APPLIANCES PVT. LTD. VS. ITO WD-8( 4), KOL. P AGE 4 BOOK ADJUSTMENT CAN BE CONSIDERED TO FALL WITHIN TH E EXCEPTION TO THE RULE OF PROHIBITION CONTAINED IN THE SAID PROVISION OF LAW. ACCORDING TO CLAUSE (E) IT IS THE EXPENDITURE IN RESPECT OF WHIC H THE PAYMENT BY WAY OF BOOK ADJUSTMENT IS MADE TO THE PAYEE WHO DIRECTL Y SUPPLIED THE GOODS OR SERVICES TO THE ASSESSEE, THAT FALLS OUTSI DE THE MISCHIEF OF RULE OF PROHIBITION TO SECTION 40A(3). IN THIS VIEW OF T HE MATTER, WE ARE OF THE OPINION THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE PROHIBITION IN SECTION 40A(3) WAS ATTRACTED EVEN IN CASES OF PAYME NTS BY BOOK ADJUSTMENTS AND WHERE THE BOOK ADJUSTMENTS WERE NOT MADE BY THE ASSESSEE DIRECTLY IN THE ACCOUNTS OF THE PARTY WHO SUPPLIED THE GOODS OR SERVICES TO THE ASSESSEE. THUS, THE ANSWER TO TH IS QUESTION IN THE AFFIRMATIVE. BASED ON THE ABOVE ANALYSIS, INCLUDING THE JUDICIAL PRECEDENT CITED ABOVE, I UPHOLD THE ACTION OF THE AO IN INVOKING PROVISION O F SECTION 40A(3) ON THE BOOK ADJUSTMENT ENTRIES OF RS.603150/-. ACCORDINGLY , DISALLOWANCE OF RS.603150/- IS CONFIRMED. IN RESULT GROUND NO. 3 AN D 4 OF THE APPEAL ARE DISMISSED. AGGRIEVED BY THE ABOVE FINDING OF LD. CIT(A), THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE OUTSET, LD. AR BEFORE SUBMITTED THAT CO-O RDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1593/KOL/ 2014 PERTAINING TO AY 2011-12 VIDE ORDER DATE 04.08.2016 INVOLVING IDENTI CAL FACTS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. ON THE ORDER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FI ND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN IT A NO.1593/KOL/2014 HAVING IDENTICAL FACTS AND CIRCUMSTANCES HAS DECIDE D THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER IS REPR ODUCED BELOW:- 4.4 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS NO VIOLATI ON OF PROVISIONS OF SECTION 40A(3) OF THE ACT. AS IT IS ABUNDANTLY CLEAR FROM T HE FACTS THAT THE ASSESSEE HAS PAID RS.6,30L150/- TO SHIVAM ENTERPRISES ON THE INSTRUCTION OF ITS CREDITOR M/S CHARCO ELECTRONICS PVT. LTD. THROUGH ACCOUNT PA YEE CHEQUE. THERE IS NO CASH PAYMENT AT ALL. THEREFORE, WE ARE OF THE VIEW THAT ADDITION MADE BY ITA NO.390/KOL/2017 A.Y. 2012-13 M/S SONEX TV APPLIANCES PVT. LTD. VS. ITO WD-8( 4), KOL. P AGE 5 ASSESSING OFFICER AND CONFIRMED BY LD. CIT(A) NEEDS TO BE DELETED. ACCORDINGLY, WE DELETED THE ADDITION OF RS.6,03,150 /-. 4.5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE (IN ITA NO.1593/KOL/2014), IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE REVERSE THE ORD ER OF LD. CIT(A) AND DIRECT THE AO TO DELETE THE SAME. ACCORDINGLY, ASSESSEES APPEAL IS ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 27/ 04/2018 SD/- SD/- ($ &) ( &) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S (- 27 / 04 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S SONEX TV APPLIANCES PVT. LTD., 3C, C HOWRINGHEE LANE,KOLKATA-16 2. /RESPONDENT-ITO, WARD-8(4), AAYAKAR BHAWAN, P-7, CH OWRINGHEE SQ. KOLKATA-69 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5. 7 $$3, 3, / DR, ITAT, KOLKATA 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3,