ITO, Budaun V. M/s. Pranay Towers, Budaun

ITA 4087/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6756 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VED PRAKASH MISHRA
• Keywords: Income from undisclosed sources
• Section: 40A(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SMT. BEENA PILLAI , JM IT A NO . 4087 /DEL /2013 : ASSTT. YEAR : 2010 - 11 INCOME TAX OFFICER, BUDAU N (U.P.) VS M/S PRANAY TOWERS, ANEJA BHAWAN, BRAHAMPUR, BUDAUN (U.P.) - 243601 (APPELLANT) (RESPONDENT) PAN NO. A AHFP3590P ASSESSEE BY : SH. SALIL KAPOOR , ADV. REVENUE BY : SH. VED PRAKASH MISHRA , SR. DR DATE OF HEARING : 01 .12.2015 DATE OF PRONOUNCE MENT : 26 .02 .201 6 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 17 .0 4 .2013 OF LD. CIT(A) , BAREILLY . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ; THE LD. C.I.T. (APPEALS) HAS ERRED IN DIRECTING TO DELETE THE ADDITION OF RS. 1,20,00,000/ - MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF PURCHASES U/S 40(A)(3) OF I.T. ACT, 1961. LD.CIT(A) HAS GROSSLY IGNORED THE COPY OF CASH MEMO DATED 7/4/2009 EVIDENCING PURCHASES OF RS. 1,20,00,000/ - BETWEEN M/S R A TRADERS AND THE ASSESSEE, WHICH HAS BEEN CONFIRMED AND SIGNED BY ONE OF THE PARTNERS OF THE M/S PRANAY TOWERS, THE ASSESSEE. THIS CASH MEMO EVID ENCES THAT THE PAYMENT WAS RECEIVED FROM M/S ITA NO . 4087 /DEL/2013 PRANAY TOWERS 2 PRANAY TOWERS TO M/S R A TRADERS, AND IF AGENT WAS THERE AS CLAIMED BY THE ASSESSEE, HE MIGHT BE FACILITATING THE ASSESSEE FOR PAPERWORK AND EVIDENTLY NOT PART OF TRANSACTION. 2. LD. CIT(A) HAS ERRED IN IGNORIN G THE FACT THAT THERE WAS NO REQUIREMENT FOR THE ASSESSEE OR ITS AGENT TO MAKE PAYMENT IN CASH. THE ORDER OF LD. CIT(APPEALS) TELLS THAT M/S R A TRADERS HAD PUT A CONDITION THAT THE ASSESSEE HAD TO PAY 'IN CASH. LD. CIT(A) HAS FAILED TO APPRECIATE THAT THI S REQUIREMENT CANNOT BE SAID TO BE LEGAL OR FACTUAL AS GIVEN IN 6DD(K) AND CANNOT BE ACCEPTED AS GROUND TO CONTRAVENE THE PROVISIONS CONTAINED IN SECTION 40A(3) OF I. T ACT READ WITH 6DD. 3. LD. CIT (A) HAS ERRED TO APPRECIATE THE INTENTION OF THE PROV ISI ON CONTAINED IN 6DD (K) OF I. T RULES THAT IT IS ONLY TO FACILITATE TO THE ASSESSEE AND DOES NOT PROVIDE ANY IMMUNITY TO THE AGENTS. 4. THE LD. CIT (A) HAS GROSSLY MISUNDERSTOOD THE PROVISION AND THE ORDER OF THE LD. CIT (A) IS IN THE NATURE OF CREATING A BYPASS IN SPECIAL CIRCUMSTANCES, WHICH HAS NEVER BEEN INTENTION OF THE LAW. LD. C1T(A) HAS NOT TRIED TO FIND THOSE SPECIAL CIRCUMSTANCES . 5. THE LD. CIT HAS GROSSLY MISUNDERSTOOD THE LAW THAT EXCEPTION CANNOT BE MADE AVAILABLE ON THE PAYMENT IN CASH FOR THE PURCHASE OF POTATOES FROM A PERSON, WHO IS NOT PROVED TO BE THE PRODUCER OF POTATOES AND IS ONLY A TRADER, BROKER OR ANY OTHER MIDDLEMEN BY WHATEVER NAME CALLED. 6. THE LD. CIT HAS GROSSLY MISUNDERSTOOD THAT THE RULE 6DD(K) OF I.T. RULES 1962 WAS ONLY TO FACILITATE THE ASSESSEE THAT IF THE TRANSACTION BETWEEN THE ASSESSEE AND ITA NO . 4087 /DEL/2013 PRANAY TOWERS 3 THE OTHER PARTY IS WITHIN 6DD(K) OF I.T. RULES, SAME WILL HOLD TRUE AND IN NORMS BETWEEN THE AGENT OF THE ASSESSEE AND THE OTHER PARTY TOO AND IF THE SAME BETWEEN THE ASSESSEE AND THIRD PARTY IS IN CONTRAVENTION OF PROVISIONS OF SECTION 40(A)(3) OF I.T. ACT, SAME TRANSACTION CANNOT BE SAID TO BE WITHIN NORMS IF THE SAME IS DONE BETWEEN THE AGENT OF THE ASSESSEE AND THIRD PARTY, NOTWITHSTANDING WITH THE FACTS IN THIS CASE THAT AGENT WAS NOT AT ALL INVOLVED IN THE PROCESS OF TRANSACTION AS THE INVOICE HAS BEEN SIGNED BETWEEN PURCHASER AND SELLER. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 3. FROM THE ABOVE GROUNDS IT IS GATHERED THAT ONLY GRIEVANCE OF THE DEPART MENT IN THIS APPEAL RELATES TO THE DELETION OF ADDITION OF RS.1,20,00,000/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF CLAIM OF PURCHASES U/S 40A(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 4 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ELECTRONICALLY ON 14.10.2010 DECLARING AN INCOME OF RS.1,59,770/ - WHICH WAS PROCESSED U/S 143(1) OF THE ACT. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD MADE PURCHASES AMOUNTING TO RS.1,20,00,000/ - OF POTATOES IN CASH FROM SUNDRY PARTIES. ITA NO . 4087 /DEL/2013 PRANAY TOWERS 4 THE AO REQUISITIONED THE INFORMATION U/S 133(6) OF THE ACT FROM M/S R.A. TRADERS, C - 87, AVANTIKA, MORADABAD WHICH REVEALED THAT THE ASSESSEE WAS INV OLVED IN P URCHASE OF 12,200 BAGS OF POTATOES @ 960/ - PER BAG IN CASH FOR RS.1,17,12,000/ - . THE AO ALSO REQUISITIONED THE COPY OF LEDGER AND CASH BOOK ON THE DATES OF TRANSACTIONS FROM M/S R.A. TRADERS AND THEREAFTER ASKED THE ASSESSEE TO FURNISH THE REASON AS TO WHY THE PAYMENTS COULD NOT BE CONSIDERED AS PAYMENTS IN CONTRAVENTION CONTAINED U/S 40A(3) OF THE ACT. 5. THE ASSESSEE SUBMITTED THAT THE TRANSACTION WAS COVERED WITHIN THE NORMS OF RULE 6DD(K) OF THE I.T. RULES, 1962, AS THE PAYMENT WAS MADE THRO UGH AN AGENT. THE AO ASKED THE ASSESSEE TO PRODUCE THE BASIS O N WHICH THE AGENT WAS REQUI RED TO MAKE THE PAYMENT IN CASH. HOWEVER, THE ASSESSEE PREFERRED TO FILE AN APPLICATION U/S 144A OF THE ACT BEFOR E THE ADDL. CIT, RANGE - II, MORA DABAD WHO PASSED THE OR DER AS UNDER: I HAVE GONE THROUGH EACH MINUTE DETAIL OF THE CASE, THE COURT CASES CITED BY THE ASSESSEE AND HAVE GONE THROUGH EACH FACT OF BOTH THE PARTIES, W HO ARE INVOLVED IN TRANSACTION. AS PER SECTION 40(A)(3), NO DEDUCTION IS TO BE ALLOWED, IF AGGR EGATE PAYMENT TO A PERSON IN A DAY EXCEEDING RS. 20,000 OTHERWISE THAN BY AN A/C PAYEE BANK CHEQUE OR A/C PAYEE BANK DRAFT, BARRING CASES COVERED IN RULE 6DD WHICH PROVIDES FOR EXEMPTION IN CERTAIN CASES OR ITA NO . 4087 /DEL/2013 PRANAY TOWERS 5 CIRCUMSTANCES. HERE IN THIS CASE, THE ASSESSEE, M /S PRANAY TOWERS HAS MADE PURCHA SES FOR A SUM OF RS. 1,17,20,000 / - FROM M/S R.A. TRADERS IN CA SH IN A DAY EXCEEDING RS. 20,000 / - . THE ASSESSEE HAS STATED THAT THE PURCHASES HAVE BEEN MADE THROUGH AGENT THOUGH NO EVIDENCE OF THAT ALSO NOT BEEN PRODUCED EXCE PT AN ENTRY IN THE PROFIT AND LOSS ACCOUNT WHICH HALFHEARTEDLY TRIES TO EXPLAIN THAT ONE PAYMENT OF RS. 1,20,000 / - WAS MADE TO SOME AGENT. IT IS OBSERVED FROM THE AVAILABLE FACTS THAT: THE PAYMENTS MADE FOR PURCHASES ARE COVERED IN DEFINITION OF EXPEN DITURE AS CONTAINED IN SECTION 40A(3) OF L.T.ACT,1961 AS PER ATTAR SINGH GRUMUKH SINGH ETC. VS ITO (SC)191 LTR667(PP.673). BOTH THE TRANSACTING PARTIES HAVE BANK ACCOUNTS AND THERE WAS NO REASON TO PAY IN CASH AS THERE DID NOT EXIST ANY CIRCUMSTANCES WARRANTING CASH PAYMENT. DELIVERY OF GOODS WAS MADE MUCH AFTER TRANSACTION, SO NO EXIGENCY, COULD BE ESTABLISHED TO MAKE CASH PAYMENT. IN HIS APPLICATION U/S 144A, THE ASSESSEE HAS CLAIMED THAT AS THE PAYMENT WAS THROUGH AGENT, THE ASSESSEE WAS AUTHORIZED TO MAKE THE PAYMENT IN CASH. THIS CLAIM COULD NOT BE ACCEPTED AS THE ASSESSEE COULD NOT PROVE AS TO HOW IT WAS REQUIRED TO MAKE PAYMENT IN CASH. REQUIREMENT DOES NOT MEAN THE FACILITY OR WILLINGNESS, RATHER THERE MUST BE LEGAL REQUIREMENT. THE A SSESSEE COULD NOT ESTABLISH AS TO HOW AND IN WHAT CIRCUMSTANCES, THE PAYMENT WERE REQUIRED TO BE MADE IN CASH. THE ONLY FACT, THE ASSESSEE HAS PRODUCED IS THAT BY MAKING DEBIT ENTRY OF RS. 1,20,000/ - , PAYMENT MADE UNDER THE HEAD PURCHASES MAY BE ALLOWED. DIRECTIONS TO ITO, BUDAUN ITA NO . 4087 /DEL/2013 PRANAY TOWERS 6 IN VIEW OF THE ABOVE OBSERVATIONS, I AM OF THE VIEW THAT THE ASSESSEE HAS CONTRAVENED THE PROVISIONS CONTAINED IN SECTION 40A(3) OF I.T.ACT1961 READ WITH 6DD OF INCOME TAX RULES. RULE 6DD BASICALLY ALLOWS CASH PAYMENTS FOR CONSIDE RATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. HERE IN THIS CASE THE ASSESSEE HAS PURCHASED POTATOES IN CASH AND HAS INCURRED HEAVY LOSSES. HAD THE ASSESSEE FIRM EARNED HEAVY PROFITS ON SUCH CASH PURCHASES, IT MIGHT BE SAID TO HAVE BEEN COVERED UNDER THE PHRASE 'BUSINESS EXPEDIENCY' THE ASSESSEE CANNOT BE ALLOWED TO MAKE CASH PAYMENT ONLY ON THE BASIS OF THE FACT THAT IT HAS MADE CASH PAYMENT THROUGH HIS AGENT. IT IS HOWEVER APPARENT FROM THE CASH MEMO SUBMITTED FROM M/S R TRADERS THAT THE VOUCH ER HAS BEEN SIGNED BY SHRI JOGINDER SINGH ANEJA, PARTNER OF THE FIRM AND NOT BY ANY AGENT OF THE FIRM. FURTHER THE ASSESSEE COULD NOT SHOW THE LEGAL OR FACTUAL REQUIREMENT OF THE AGENT TO MAKE PAYMENTS IN CASH AND IN VIEW OF MY ABOVE FINDING, ITO, BUDAUN I S HEREBY DIRECTED TO COMPLETE HIS ASSESSMENT DISALLOWING SUCH CLAIM OF PURCHASES. ITO, BUDAUN IS FURTHER DIRECTED TO SEND THE COPY OF ASSESSMENT ORDER WITHIN 7 DAYS OF PASSING THE ASSESSMENT ORDER. CASE RECORDS ARE ALSO BEING RETURNED HEREWITH. ENCL: AS A BOVE SD/ - (AMIT NIGAM) ADDL. COMMISSIONER OF INCOME TAX, RANGE - II MORADABAD 6 . AFTER RECEIVING THE COPY OF DIRECTIONS U/S 144A OF THE ACT, THE AO OBSERVED THAT THERE WAS NO REQUIREMENT FOR THE ASSE SSEE OR ITS AGENT TO MAKE PAYMENT IN CASH AND THAT THE VERSION OF THE ASSESSEE THAT IT COULD CONTRAVENE THE ITA NO . 4087 /DEL/2013 PRANAY TOWERS 7 PROVISION OF SECTION 40A(3) OF THE ACT ONLY BY MAKING A DEBIT ENTRY OF RS.1,50,000/ - TOWARDS PAYMENT TO AGENT WAS FAR FROM TRUTH AND COULD NOT BE SA ID TO HAVE BEEN COVERED BY RULE 6DD OF I.T. RULES. HE FURTHER OBSERVED THAT THE CASH MEMO SIGNED BETWEEN THE ASSESSEE AND M/S R.A. TRADERS REVEALED THAT THE AGENT WAS USED ONLY FOR TECHNICAL PURPOSES AND THAT PAYMENT TO AGENT WOULD HAVE BEEN ALLOWED EVEN I F SUCH PAYMENT WAS COVERED WITHIN RULE 6DD OF THE I.T. RULES IF THE ASSESSEE HAD MADE IT. THE AO ALSO OBSERVED THAT THE RULE 6DD(K) OF THE I.T. RULES WAS TO FACILITATE THE ASSESSEE THAT IF THE TRANSACTION BETWEEN THE ASSESSEE AND THE OTHER PARTY WAS WITHIN RULE 6DD(K) OF I.T. RULES, SAME WOULD HOLD TRUE AND IN NORMS BETWEEN THE AGENT OF THE ASSESSEE AND THE OTHER PARTY TOO BUT, IF ANY, TRANSACTION BETWEEN THE ASSESSEE AND THE THIRD PARTY WAS IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT, T HE SAME TRANSACTION COULD NOT BE SAID TO BE WITHIN NORMS IF THE SAME WAS DONE BETWEEN THE AGENT OF THE ASSESSEE AND THE THIRD PARTY. HE ACCORDINGLY DISALLOWED THE PURCHASES OF RS.1,20,00,000/ - U/S 40A(3) OF THE ACT AND ADDED THE SAME TO THE INCOME OF THE A SSESSEE. 7 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE PURCHASED ITA NO . 4087 /DEL/2013 PRANAY TOWERS 8 POTATOES VALUING RS.1,17,12,000/ - FROM R.A. TRADERS, MORADABAD THROUGH ITS AGENT SH. S.K. TIWARI IN THE MONTH OF APRIL 2009 AND THE PAY MENTS WERE MADE THROUGH THE SAID AGENT WHO WAS ASSIGNED THIS WORK OF DEALING WITH THE SAID FIRM FOR PROCURING THE POTATOES BUT THE SELLER FIRM M/S R.A. TRADERS WAS NOT COMFORTABLE WITH THE MARKET CREDIBILITY OF THE ASSESSEE AND HAD DEMANDED ADVANCE PAYMENT IN CASH. IT WAS FURTHER STATED THAT THE ASSESSEE COULD NOT FIND STORAGE SPACE IN COLD STORAGE F OR STORING THE PURCHASED STOCK AND A S POTATOES BEGAN TO ROT, THOSE WERE SOLD AT LOSS IN THE OPEN MARKET. HOWEVER, THE QUESTION OF QUANTUM OF SALE AND PURCHASES MADE BY THE ASSESSEE WAS NOT IN DISPUTE. IT WAS FURTHER STATED THAT M/S R.A. TRADERS FURNISHED THE CONFIRMED COPY OF ACCOUNT BEFORE THE AO CLEARLY SPECIFYING THE FACT THAT THE PAYMENTS HAD BEEN RECEIVED FROM THE ASSESSEE THROUGH ITS AGENT SH. S.K. TIWARI W HO HAD CHARGED COMMISSION ON THIS TRANSACTION, WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. IT WAS FURTHER SUBMITTED THAT THE HON BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SING VS ITO 191 ITR 667 RELIED BY THE AO, HELD THAT THE PAYMENT BY CROSSED CHEQUE WAS INSISTED TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES AND ITA NO . 4087 /DEL/2013 PRANAY TOWERS 9 THAT THE CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS WERE NOT EXCLUDED AND THAT THE GENUINE & BONAFIDE TRANSACTION WERE NOT TAKEN OUT OF THE SWEEP OF THIS SECTION 40A(3) OF THE ACT. THEREFORE, THE JUDGMENT OF THE HON BLE APEX COURT WAS NOT RIGHTLY APPRECIATED BY THE ADDL. CIT IN ITS CORRECT PERSPECTIVE. IT WAS FURTHER STATED THAT THE FIRM M/S R.A. TRADERS DEMANDED ALL THE PAYMENTS IN CASH IN ADVANCE, THEREFORE, THE ASSESSEE HAD TO PAY THE SAME. IT WAS FURTHER STATED THAT THE PURCHASES HAD NOT BEEN DOUBTED AND THE SOURCE OF PAYMENT OF THE FUNDS HAD DULY BEEN ESTABLISHED BY THE ASSE SSEE. IN SUCH AN EVENTUALITY, ADDITION U/S 40A(3) OF THE ACT WAS WHOLLY UNWARRANTED AND UNCALLED FOR. IT WAS ALSO STATED THAT THE VERY FACT OF REQUIREMENT OF ONLY CASH PAYMENT BY M/S R.A. TRADERS HAD BEEN PROVED BEYOND DOUBT BEFORE THE AO AND IT WAS THE BU SINESS NEEDS OF THE ASSESSEE WHO HAD CLEARLY STATED THE FACT BEFORE THE AO THAT THE PURCHASES WERE MADE THROUGH AGENTS AND THE CASH PAYMENT WAS MADE AS IT WAS A CONDITION LAID DOWN BY THE SELLER. IT WAS ACCORDINGLY SUBMITTED THAT THE ASSESSEE S CASE WAS SQ UARELY COVERED UNDER THE EXCEPTIONS LAID DOWN IN RULE 6DD(K) OF THE INCOME TAX RULES. AS REGARDS TO THE PURCHASES OF RS.2,88,000/ - , IT WAS SUBMITTED THAT THE SAME WERE PURCHASED FROM FARMERS ITA NO . 4087 /DEL/2013 PRANAY TOWERS 10 DIRECTLY IN THE SHAPE OF LOOSE POTATOES, THE PURCHASES HAD NOT BE EN DOUBTED BY THE AO. THEREFORE, NO ADDITION COULD HAVE BEEN MADE U/S 40A(3) OF THE ACT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: DCIT, CIRCLE - 12(1), NEW DELHI VS HIND INDUSTRIES LTD. SH. RENUKESHWARA RICE MILLS VS ITO, BANGALORE DCIT, HYD VS H ERITAGE FOODS (INDIA) LTD. 8 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD MADE PURCHASES OF RS.1,20,00,000/ - , OUT OF WHICH PURCHASES OF RS.1,17,12,000/ - HAD BEEN MADE FROM M/S R.A. TRADERS AND THE BALANC E AMOUNTING TO RS.2,88,000 HAD BEEN MADE FROM OTHER SMALL PARTIES. HE FURTHER OBSERVED THAT IN THE CASE OF PROVISIONS OF SECTION 40A(3) OF THE ACT , THERE IS RULE 6DD WHICH LAYS DOWN CERTAIN EXCEPTIONAL CIRCUMSTANCES UND ER WHICH PURCHASES IN CASH EXCEED ING A SPECIFIED LIMIT ARE ALLOWED TO BE MADE. THE LD. CIT(A) POINTED OUT THAT IN THE ASSESSEE S CASE , M/S R.A. TRADERS, THE SELLER HAD CONFIRMED TO THE AO IN RESPONSE TO NOTICE U/S 133(6) OF THE ACT, ON THE COPY OF ACCOUNT THAT THE PAYMENT S HAD BEEN MADE THROU GH ONE SH. S.K. TIWARI. THEREFORE, THE ENTIRE TRANSACTION OF PURCHASE BETWEEN THE PARTIES AMOUNTING TO RS.1,17,12,000/ - WERE EXECUTED BETWEEN THE ASSESSEE AND M/S R.A. TRADERS ITA NO . 4087 /DEL/2013 PRANAY TOWERS 11 THROUGH THE AGENT SH. S.K. TIWARI AND EVEN THE PAYMENTS WERE MADE THROUGH HIM. T HE LD. CIT(A) ALSO POINTED OUT THAT SH. S.K. TIWARI HAD FILED A CONFIRMATORY LETTER BEFORE THE A O THAT HE HAD ACTED AS AN AGENT AND HAD EARNED BROKERAGE IN THIS DEAL, WHICH HAD BEEN DEBITED BY THE ASSESSEE IN THE AUDITED PROFIT AND LOSS ACCOUNT WHICH HAD A LSO BEEN ACCEPTED BY THE AO . A S REGARDS TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH (SUPRA) RELIED BY THE JOINT COMMIS SIONER OF INCOME TAX, MORADABAD, T HE LD. CIT(A) POINTED OUT THAT IN THE SAID CASE IT HAS BEEN HE LD THAT GENUINE TRANSACTIONS ARE KEPT OUTSIDE THE PURVIEW OF SECTION 40A(3) OF THE ACT AND WHILE UPHOLDING CONSTITUTIONAL VALIDI TY OF SECTION 40A(3) OF THE ACT, T HE HON BLE COURT DISCUSSED THAT THIS SECTION WAS INTRODUCED TO CURB BLACK MONEY TRANSACTIONS A ND THAT THE CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED AND THE GENUINE/BONAFIDE TRANSACTION ARE NOT TAKEN OUT OF THE SWEEP OF THIS SECTION. THE LD. CIT(A) OBSERVED THAT IN THE PRESENT CASE, IT WAS NOT THE CASE OF THE A O THAT THE PAYMENT WAS NOT G ENUINE OR HAD BEEN MA DE OUT OF UNDISCLOSED SOURCES AND T HIS WAS ALSO NOT THE CLAIM OF THE AO THAT THE PURCHASES AND PAYMENT HAD NOT BEEN MADE BY THE ASSESSEE FIRM THROUGH THE AGENTS. HE ITA NO . 4087 /DEL/2013 PRANAY TOWERS 12 FURTHER OBSERVED THAT A MERE CONFIRMATION ON THE BILL OF M/S R.A. TRADERS BY THE PARTNER OF THE ASSESSEE FIRM DID NOT HELP THE CASE OF THE AO . ACCORDING TO THE LD. CIT(A), IT WAS THE DECISION OF THE ASSESSEE AND HIS PREROGATIVE AS TO HOW HE HAD TO CONDUCT THE BUSINESS AND THAT AS TO WHETHER THE PU RCHASE S SHOULD HAVE BEEN MADE DIRECTLY BY THE ASSESSEE OR THROUGH THE AGENTS WAS NOT TO BE GUIDED OR DIRECTED BY THE AO BECAUSE THE ASSESSEE IS THE BEST JUDGE TO UNDERSTAND THE NEEDS OF HIS BUSINESS AND HOW THE SAME HAS TO BE CONDUCTED. THE LD. CIT(A) ALSO OBSERVED THAT M/S R.A. TRADERS HAD SPECIFICALLY CONFIRMED BEFORE THE AO THAT THE ENTIRE DEAL WAS STRUCK THROUGH THE AGENTS AND N OT DIRECTLY BETWEEN THE PARTIES AND THAT M/S R.A. TRADERS HAD CONFIRMED THAT IT HAD DEMANDED PAYMENTS ONLY IN CASH FROM THE ASS ESSEE AS IT DOUBTED THE CREDIBILITY OF THE ASSESSEE. THE LD. CIT(A) FURTHER OBSERVED THAT SH. S.K. TIWARI HAD CONFIRMED THE FACT THAT HE HAD ACTED AS AN AGENT OF THE ENTIRE TRANSACTION OF PURCHASES AND PAYMENTS WERE DONE THROUGH HIM. THE LD. CIT(A) OPINED THAT THIS WAS A CASE OF A GENUINE TRANSACTION WHERE THE PURCHASES WERE MADE THROUGH SH. S.K. TIWARI IN CASH AS WAS REQUIRED BY THE SELLER , T HEREFORE, IT WAS SQUARELY COVERED BY THE EXCEPTION LAID DOWN IN RULE 6DD(K) OF THE I.T. RULES AND THUS THE ASSESSEE WAS NOT HIT BY THE ITA NO . 4087 /DEL/2013 PRANAY TOWERS 13 PROVISIONS OF SECTION 40A(3) OF THE ACT. ACCORDINGLY, ADDITION OF RS.1,17,12,000/ - WAS DIRECTED TO BE DELETED . R EGARDING THE BALANCE PAYMENT OF RS. 2,88,000/ - , T HE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD MADE THE PAYMENTS FOR THE PURCHA SE OF LOOSE POTATOES FROM FARMERS O N VARIOUS DATES AND THE A O HAD NOT DOUBTED THE SAID FACT, T HEREFORE, NO ADDITION WAS LIABLE TO BE MADE, I N VIEW OF THE ABOVE TRANSACTION BEING GENUINE AND THE PURCHASE BEING FROM AGRICULTURIST FARMERS. ACCORDINGLY, THE AD DITION OF RS.2,88,000/ - WAS ALSO DELETED. 9 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 26.03.2013 . HE FURTHER SUBMITTED THAT THE ASSESSEE MADE T HE PURCHASES IN CASH FROM M/S R.A. TRADERS AND THE PARTNER OF THE ASSESSEE FIRM SIGNED THE CASH VOUCHERS WHICH CLEARLY ESTABLISHED THAT THE P URCHASES WERE MADE IN CASH EXCEEDING RS.20,000/ - , SO IT WAS HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND THE AO RIGHTLY MADE THE ADDITION. THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. ITA NO . 4087 /DEL/2013 PRANAY TOWERS 14 10 . IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPO RTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A ) AND REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE PURCHASED THE POTATOES FROM M/S R.A. TRADERS THROUGH AGENT SH. S.K. TIWARI WHO CHARGED THE COMMISSION WHICH HAD BEEN ACCEPTED BY THE DEPARTMENT. THEREFORE, NO DISALLOWANCE COULD HAVE BEEN MADE U/S 40A(3) OF THE ACT AS THE TRANSACTION WAS COVERED UNDER THE EXCEPTION LAID DOWN IN RULE 6DD(K) OF THE I.T. RULES, 1962. 1 1 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE MADE THE PURCHASES OF POTATOES VALUING RS.1,17,12,000/ - FROM M/S R.A. TRADE RS, MORADABAD THROUGH THE AGENT SH. S.K. TIWARI. THE AO MADE THE INQUIRIES U/S 133(6) OF THE ACT AND EXAMINED THE STATEMENT OF ACCOUNTS AS WELL AS THE COPY OF LEDGER AND CASHBOOK FROM M/S R.A. TRADERS , WHICH REVEALED THAT THE CASH PAYMENTS WERE MADE THROUGH AGENT SH. S.K. TIWARI ONLY. IN THE PRESENT CASE, THE GENUINENESS OF THE TRANSACTION AND THE PURCHASES WERE N OT DOUBTED . T O RESOLVE THE PRESENT CONTROVERSY, IT IS NECESSARY TO DISCUSS THE PROVISIONS ITA NO . 4087 /DEL/2013 PRANAY TOWERS 15 CONTAINED IN RULE 6DD (K) OF THE I.T. RULES, 1962 UNDER WHICH EXCEPTION HAS BEEN LAID DOWN FOR MAKING THE PAYMENT IN CASH AND THE TRANSACTION IS NOT HIT BY THE PROVISI ONS CONTAINED IN SECTION 40A(3) OF THE ACT. THE SUB - CLAUSE (K) OF THE SAID RULE 6DD PROVIDES AS UNDER: WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE THE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF SUCH PERSON. 12 . IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT SH. S.K. TIWARI ACTED AS AN AGENT AND PROCURED THE POTATOES FROM M/S R.A. TRADERS, MORADABAD WHO DOUBTED THE CREDIBILITY OF THE ASSESSEE AND INSISTED ON CASH PAYMENT. THE AGENT MADE THE PAYMENT IN CASH TO T HE SELLER OF THE POTATOES I.E. M/S R.A. TRADERS AND IT IS NOWHERE ESTABLISHED THAT THE ASSESSEE DIRECTLY MADE THE CASH PAYMENT TO M/S R.A. TRADERS . E VEN IN RESPONSE TO THE NOTIC E U/S 133(6) OF THE ACT, T HE SELLER FIRM M/S R.A. TRADERS , ITSELF CONFIRMED THI S FACT TO THE AO THAT THE PAYMENTS WERE MADE THROUGH THE AGENT ONLY. THEREFORE, THE CASH PAYMENTS AMOUNTING TO RS.1,17,12,000/ - WAS CLEARLY COVERED BY THE EXCEPTION LAID DOWN IN CLAUSE (K) OF RULE 6DD OF THE I.T. RULES, 1962. IN THAT VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. AS ITA NO . 4087 /DEL/2013 PRANAY TOWERS 16 REGARDS TO THE JUDGMENT OF THE HON BLE APEX COURT RELIED BY THE AO IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS ITO, LUDHI ANA 191 ITR 667 (SUPRA) RELIED BY THE AO IS CONCERNED IN THE SAID CASE, IT HAS BEEN HELD AS UNDER: SECTION 40A(3) OF THE INCOME - TAX ACT, 1961, WHICH PROVIDES THAT EXPENDITURE IN EXCESS OF RS.2500 (RS.10,000 AFTER THE 1987 AMENDMENT) WOULD BE ALLOWED TO BE DEDUCTED ONLY IF MADE BY A CROSS ED CHEQUE OR CROSSED BANK DRAFT (EXCEPT IN SPECIFIED CASES) IS NOT ARBITRARY AND DOES NOT AMOUNT TO A RESTRICTION ON THE FUNDAMENTAL RIGHT TO CARRY ON BUSINESS. IF READ TOGETHER WITH RULE 6DD OF THE INCOME - TAX RULES, 1962, IT WILL BE CLEAR THAT THE PROVISI ONS ARE NOT INTENDED TO RESTRICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN 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 BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 4 0A(3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASS ESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED ITA NO . 4087 /DEL/2013 PRANAY TOWERS 17 GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH P AYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THE Y ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANGES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. 13 . FROM THE RATIO LAID DOWN IN THE AFORESAID CASE, IT IS CRYSTAL CLEAR THAT THE TERMS OF SE CTION 40A(3) OF THE ACT ARE NOT ABSOLUTE AND THAT THE GENUINE AND BONAFIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION 40A(3) OF THE ACT AND IT IS OPEN TO THE ASSESSEE TO FURNIS H TO THE SATISFACTION OF THE AO, T HE CIRCUMSTANCES UNDER WHICH T HE PAYMENT IN THE MANNER PRESCRIBED U/S 40A(3) OF THE ACT WAS NOT PRACTICABLE OR WOULD HAVE CAUSED TO THE GENUINE DIFFICULTY TO THE PAYEE. IN THE PRESENT CASE, THE SELLER OF THE POTATOES INSISTED FOR CASH PAYMENTS BECAUSE HE DOUBTED THE CREDIBILITY O F THE ASSESSEE WHO REQUIRED THE PURCHASES TO BE MADE FOR SMOOTH RUNNING OF ITS BUSINESS. THE PURCHASES WERE MADE THROUGH THE AGENT SH. S.K. TIWARI WHO PROCURED THE POTATOES FROM M/S R.A. TRADERS AND THIS FACT WAS NOT DOUBTED BY THE AO THAT THE PURCHASES WERE MAD E BY THE ITA NO . 4087 /DEL/2013 PRANAY TOWERS 18 ASSESSEE THROUGH ITS AGENT SH. S.K. TIWARI FROM M/S R.A. TRADERS, MORADABAD IN CASH. IN THE INSTANT CASE, THE CASH PAYMENT S WERE MADE BY THE ASSESSEE TO THE AGENT SH. S.K. TIWARI WHO IN TURN MADE THE PURCHASES IN CASH FOR THE ASSESSEE AND CHARGED THE COMMISSION FOR THE SAID TRANSACTION WHICH HAS BEEN ACCEPTED A S GENUINE AND ALLOWED TO BE SET OF F AGAINST THE INCOME IN THE PROFITS AND LOSS ACCOUNTS , BY THE AO. THEREFORE, THE TRANSACTION RELATING TO THE PURCHASES OF POTATOES AMOUNTING TO RS.1,17,12,00 0/ - WAS CLEARLY COVERED BY THE EXCEPTION LAID DOWN IN RULE 6DD(K) OF THE I.T. RULES, 1962 AND WAS OUTSIDE THE PURVIEW OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. WE, T HEREFORE, BY CONSIDERING THE TOTALITY OF THE FACT AS DISCUSSED HEREINABOVE, ARE OF TH E VIEW THAT THE LD. CIT(A) RIGHTLY DELETED THE ADDITION MADE BY THE AO AMOUNTING TO RS.1,17,12,000/ - . AS REGARDS TO THE REMAINING ADDITION OF RS.2,88,000/ - MADE BY THE AO AND DELETED BY THE LD. CIT(A) IS CONCERNED, THE CONTENTION OF THE ASSESSEE WAS THAT T HOSE PURCHASES WERE MADE DIRECTLY FROM THE SMALL FARMERS , THE SAID CONTENTION HAS NOT BEEN DOUBTED AT ANY STAGE . THEREFORE, THIS TRANSACTION IS COVERED UNDER RULE 6DD(E ) OF THE I.T. RULES, 1962 WHEREIN CASH PAYMENTS MADE FOR PURCHASE OF AGRICULTURAL PRODUC E IS KEPT OUTSIDE THE PURVIEW ITA NO . 4087 /DEL/2013 PRANAY TOWERS 19 OF SECTION 40A(3) OF THE ACT. THEREFORE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 14 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED . ( ORDER PRON OUNCED IN THE COURT ON 26 /02 / 2016 ) SD / - SD/ - ( BEENA PILLAI ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26 /02 /2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. 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