DCIT, Kasargode V. Associated Cashew Industries, Kollam

ITA 391/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64964 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 08-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2010
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE
• Assessee Lawyers: IYPE MATHEW
• Section: 40A(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 391/COCH/2010 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. VS. M/S. ASSOCIATED CASHEW INDUSTRIES, CHANDANATHOPE, KOLLAM. [PAN: AABFA 8657N] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY SMT. SUSAN GEORGE, SR. DR ASSESSEE BY SHRI IYPE MATHEW, CA DATE OF HEARING 08/10/2012 DATE OF PRONOUNCEMENT 16/11/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 23.3.2010 PASSED BY LD CIT(A)-1, TRIVANDRUM AND IT RELATES TO THE ASSESSMENT YEAR 2006- 07. 2. THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) IN DELETING THE FOLLOWING DISALLOWANCES:- (A) ADVANCES REPAID IN CASH RS.41,23,951/- (B) ADDITION U/S 40A(3) -- RS.17,74,500/- 3. THE FACTS RELATING TO THESE TWO ISSUES ARE S TATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING AND EXPORT OF CASHEW KERNELS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED TH AT THE ASSESSEE HAS REPAID A SUM OF RS.41,23,951/- TO VARIOUS PARTIES BY WAY OF CASH ON VARIOUS DATES. THE I.T.A. NO. 391/COCH/2010 2 DETAILS OF PARTIES AND THE AMOUNT REPAID ARE STATED AS UNDER IN THE ASSESSMENT ORDER:- 22.05.2005 RS. 4,00,000/- M/S RADHA GOVIND BHANDA R 22.05.2005 RS. 27,607/- M/S GOYAL 22.05.2005 RS.10,00,000/- M/S LALITH TRADING 17.07.2005 RS. 1,00,000/- M/S LALITH TRADING 28.08.2005 RS.10,00,000/- M/S PICA DAILY COMPLEX 18.12.2005 RS. 3,72,944/- M/S MUKTHA ENTERPRISES 08.01.2006 RS. 35,400/- M/S BHANSI INTERNATIO NAL 30.03.2006 RS.11,88,000/- M/S BHUPENDRA EXPORTS. -------------------- RS.41,23,951/- ========== ACCORDING TO THE AO, THERE WAS NO EVIDENCE TO SHOW THAT THE AMOUNT WITHDRAWN FROM THE BOOKS BY DEBITING THE ABOVE SAID PARTIES A CCOUNT WERE ACTUALLY RETURNED TO THEM. THE ASSESSEE FURNISHED ADDRESSES OF THE A BOVE PARTIES AND THE AO ISSUED SUMMONS TO THEM. ALL THE SUMMONS, EXCEPT TH E ONE ISSUED TO M/S RADHA GOVIND BHANDAR, WERE RETURNED UN-SERVED EITHER WITH THE NOTING CONCERN DOES NOT EXIST OR ADDRESS UNKNOWN. M/S RADHA GOVIND BHANDAR ALSO DID NOT APPEAR BEFORE THE AO, BUT IT FILED A LETTER SEEKING FURTHER CLARIFICATIONS. IN VIEW OF THE ABOVE SAID FACTS, THE AO REJECTED THE CLAIM THAT THE AMOUNTS WITHDRAWN FROM THE BOOK WERE PAID TO THE ABOVE PARTIES THROUG H THEIR AGENT. ACCORDINGLY, THE AO ASSESSED THE SUM OF RS.41,23,951/- WITH THE NARRATION ADVANCE TREATED AS INCOME. THE LD CIT(A) DELETED THIS ADDITION. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. WE NOTICE THAT THE AO DID NOT SUSPECT THE RECEIPT OF ADVANCES FROM THE PARTIES CITED ABOVE TO THE TUNE OF RS.41,23,951/-. IT IS STATED IN THE ASSESSMENT ORDER THAT THE ADVANCES WERE RECEIVED BY WAY OF DEMAND DRAFTS. TH E AO HAS, HOWEVER, SUSPECTED THE CLAIM OF REFUND OF THE ADVANCES, SINC E THEY HAVE BEEN REPAID BY WAY OF CASH. ACCORDING TO THE ASSESSEE, CASH WERE GIVEN TO THE AGENT OF THESE PARTIES, AS IT COULD NOT SUPPLY THE REQUIRED QUALIT Y OF PRODUCT TO THESE PARTIES. I.T.A. NO. 391/COCH/2010 3 5. NOW, THE ACTUAL QUESTION THAT ARISES IS WHET HER THE AMOUNT WITHDRAWN FROM THE BOOKS CAN BE TREATED AS THE INCOME OF THE ASSES SEE?. IN OUR VIEW, THERE IS NO PROVISION IN THE INCOME TAX ACT THAT ENABLES ASS ESSMENT OF THE AMOUNT WITHDRAWN FROM THE BOOKS OF ACCOUNT. HENCE, WE ARE UNABLE TO UNDERSTAND AS TO HOW THE AO COULD ASSESS SUCH WITHDRAWALS MADE FR OM THE BOOKS OF ACCOUNT, THAT TOO, THE AMOUNTS CLAIMED TO HAVE BEEN GIVEN TO TRADING PARTIES A/C BY DEBITING THEIR RESPECTIVE ACCOUNTS. IT IS NOT THE CASE OF THE AO THAT HE IS SUSPECTING THE GENUINENESS OF THE ADVANCES RECEIVED FROM THE ABOVE SAID PARTIES, WHICH IS LIABLE TO BE TAXED U/S 68 OF THE ACT. ACCORDINGLY, WE ARE OF THE VIEW THE AMOUNTS REPAID TO THE TRADING PARTIES BY W AY OF CASH CANNOT BE CONSIDERED AS INCOME IN THE HANDS OF THE ASSESSEE H EREIN. ACCORDINGLY, WE UPHOLD THE DECISION REACHED BY THE LD CIT(A) ON THI S ISSUE. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE M ADE U/S 40A(3) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS BY W AY OF CASH IN VIOLATION OF THE PROVISIONS OF SEC.40A(3) OF THE ACT TO A SINGLE PARTY NAMED M/S RAJ TRADERS TO THE TUNE OF RS.88,72,500/-. THE ASSESSEE SUBMIT TED THAT THE PAYMENTS WERE MADE THROUGH AN AGENT NAMED SHRI SHABEER FOR PURCHA SE OF RAW CASHEW NUTS FROM M/S RAJ TRADERS. IT WAS CONTENDED THAT THE PA YMENTS MADE THROUGH THE AGENTS ARE EXEMPTED FROM THE PROVISIONS OF SEC. 40A (3), UNDER RULE 6DD(K) OF THE INCOME TAX RULES. HOWEVER, THE AO REJECTED THE SAID CONTENTIONS WITH THE FOLLOWING OBSERVATIONS:- THE ASSESSEES CONTENTION IS REJECTED. THE ENTIRE PURCHASES IS SEEN MADE FROM A SINGLE CONCERN NAMED RAJ TRADERS. AS P ER RULE 6DD THE EXEMPTION IS ALLOWABLE ONLY IF THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR G OODS OR SERVICES ON BEHALF OF SUCH PERSON. IN THE FIRST PLACE THE ASSE SSEE COULD NOT ESTABLISH THE IDENTITY OF THE AGENT SHRI SHABEER. SECONDLY A LL THE PAYMENTS WERE MADE TO A SINGLE PARTY BY NAME RAJ TRADERS, THE ADD RESS OF WHICH WAS ALSO NOT FURNISHED BY THE ASSESSEE. IT WAS ALSO NO T CLARIFIED WHETHER MR. SHABEER IS AN EMPLOYEE OR NOT OF THE ASSESSEE. AS S UCH IT CANNOT BE SAID THAT THE ASSESSEE HAS SATISFIED THE CONDITIONS STIP ULATED UNDER RULE 6DD. I.T.A. NO. 391/COCH/2010 4 THEREFORE AN AMOUNT OF RS.17,74,500/- REPRESENTING 20% OF THE ABOVE AMOUNT IS DISALLOWED U/S 40A(3). 7. BEFORE THE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE AO DID ASK THREE QUERIES IN THE NOTICE DATED 1.12.2008, INCLUDING TH E QUERY RAISED ON SEC.40A(3). THE ASSESSEE FURNISHED ITS REPLY ON 4.12.2008. THE REAFTER, THE AO ISSUED A NOTICE ON 4..12.2008 SEEKING FURTHER CLARIFICATION ONLY IN ONE OF THE THREE QUERIES, I.E., THE AO DID NOT ASK ANY FURTHER QUERY ON THE I SSUE OF SEC. 40A(3). ACCORDINGLY, IT WAS SUBMITTED THAT THE ASSESSEE WAS UNDER THE IMPRESSION THAT THE EXPLANATIONS GIVEN BY IT ON THE QUERY RELATING TO SEC. 40A(3) WERE ACCEPTED BY THE AO. ACCORDINGLY, IT WAS SUBMITTED THAT THE AO WAS WRONG IN OBSERVING THAT THE ASSESSEE HAS FAILED TO FURNISH THE REQUIRE D DETAILS. THE LD CIT(A) ALSO ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE A O DID NOT SEEK ANY FURTHER CLARIFICATION ON THIS MATTER. THE LD CIT(A) DELETED THE ADDITION MADE U/S 40A(3) BY ACCEPTING THE CONTENTION OF THE ASSESSEE THAT TH E IMPUGNED PAYMENTS ARE COVERED BY THE EXEMPTION PROVIDED IN RULE 6DD(K) OF THE INCOME TAX RULES. 8. IN OUR VIEW, IT IS NOT CORRECT ON THE PART O F THE AO TO MAKE THE ADDITION WITHOUT SEEKING CLARIFICATIONS ON THE POINTS CONSID ERED BY HIM TO BE RELEVANT. WE NOTICE THAT THE AO DID ASK EXPLANATIONS IN RESPE CT OF CASH PAYMENTS NOTICED IN THE BOOKS OF ACCOUNT BY ISSUING NOTICE DATED 1.1 2.2008. THE ASSESSEE HAS FURNISHED REPLIES IN RESPECT OF VARIOUS TYPES OF CA SH PAYMENTS MADE, WHICH INCLUDES THE PAYMENT OF RS.88,72,500/- MADE TO M/S RAJ TRADERS. THE ASSESSEE HAD EXPLAINED IN THAT LETTER THAT THE PAYMENTS WERE MADE TO AN AGENT FOR EFFECTING PURCHASES AND SUCH PAYMENTS WERE NOT HIT BY THE PROVISIONS OF SEC. 40A(3) AS PER RULE 6DD OF INCOME TAX RULES. THERE AFTER, THE AO DID NOT RAISE ANY FURTHER QUERY ON THIS POINT. HOWEVER, THE AO HA S OBSERVED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS NOT SATISFIE D THE CONDITIONS STIPULATED IN RULE 6DD. WE ARE UNABLE TO UNDERSTAND AS TO HOW TH E AO COULD COME TO SUCH A CONCLUSION WITHOUT SEEKING CLARIFICATIONS FROM THE ASSESSEE, SINCE THE ASSESSEE HAS SUBMITTED THAT THE EXEMPTION PROVIDED UNDER RUL E 6DD SHALL APPLY TO THESE I.T.A. NO. 391/COCH/2010 5 PAYMENTS. FURTHER THE AO HAS DOUBTED THE CLAIM THA T SHRI SHABEER IS AN AGENT OF THE ASSESSEE, WITHOUT SEEKING REQUIRED INFORMATI ON FROM THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO HAS MAD E THIS ADDITION U/S 40A(3) OF THE ACT, WITHOUT MAKING PROPER ENQUIRIES. HENCE, I N OUR VIEW, THIS ISSUE NEEDS RE-EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE DETAILS TH AT MAY BE CALLED FOR BY THE AO. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 16-11-2012. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 16TH NOVEMBER, 2012 GJ COPY TO: 1. M/S. ASSOCIATED CASHEW INDUSTRIES, CHANDANATHOPE , KOLLAM. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-, K OLLAM. 3.THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIVA NDRUM. 4.THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN