N.K. Paper & Board Ltd., Surat V. The ACIT., Vapi Circle, Vapi

ITA 4371/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0118 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-08-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 10-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PAREKH
• Assessee Lawyers: BHUBNESH KULSHRESTHA
• Keywords: Set aside
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.4371/AHD/2007 A. Y.: 2003-04 N. R. PAPER & BOARD LRD., PLOT NO.902, III RD PHASE, GIDC, VAPI VS THE A. C. I. T., SHIVAM COMPLEX, GUNJAN CHAR RASTA, VALSAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI A. K. PAREKH, AR ASSESSEE BY SHRI BHUBNESH KULSHRESTHA, DR O R D E R PER BHAVNESH SAINI: THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A), VALSAD DATED 2 4-08-2006 FOR ASSESSMENT YEAR 2003-04. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL ON RECORD. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE COMPANY HAS MADE PAYMENT OF ST EAM COAL FREIGHT TO VARIOUS PARTIES OF NAGPUR AND MUMBAI BY CIRCUMVE NTING THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT. THE AO HAS WORKED OUT SUCH PAYMENTS MADE IN CONTRAVENTION OF PROVISIONS OF SEC TION 40A (3) TO THE TUNE OF RS.10,46,849/- AS PER ANNEXURE A ATTACHED WITH THE ASSESSMENT ORDER. 20% OUT OF THE SAME WAS DISALLOWED IN A SUM OF RS.2,09,370/-. THE AO ALSO NOTED THAT SEQUENCE OF PAYMENT CLEARLY INDICATED THAT THE PAYMENTS WERE SHOWN IN SIMILAR AMOUNT JUST TO CIRCU MVENT THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT AND THAT THE ASSESSEE HAS FAILED ITA NO.4371/AHD/2007 N. R. PAPER & BOARD LTD. VS ACIT, VALSAD 2 TO ESTABLISH ANY CIRCUMSTANCES ENTITLING HIM TO GET THE BENEFIT UNDER RULE 6 DD OF THE IT RULES. 4. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND SAME SUBMISSIONS WERE REITERATED AND IT WAS SUBMITTED TH AT THE ASSESSEE COMPANY HAS NOT MADE ANY PAYMENT IN CASH FOR A SING LE TRANSACTION IN A SUM EXCEEDING RS.20,000/-. IT WAS SUBMITTED THAT SI NCE THE SINGULAR PAYMENT DID NOT EXCEED RS.20,000/-, THEREFORE, THE ADDITION IS CLEARLY UNJUSTIFIED. THE LEARNED CIT(A) HOWEVER, CONFIRMED THE ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 4.3 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 4.3 I HAVE CAREFULLY GONE THROUGH THE FACTS OF TH E CASE, THE ASSESSMENT ORDER AND THE SUBMISSION OF TH E AR OF THE APPELLANT COMPANY ALONG WITH THE CASE LAWS RELI ED UPON BY HIM. THE HONBLE MADHYA PRADESH HIGH COURT IN TH E CASE OF CIT VS. TRIVENI PRASAD IN 228 ITR 680 HAS HELD T HAT IRRESPECTIVE OF NUMBER OF TRANSACTIONS, WHERE THE A MOUNT DOES NOT EXCEED RS.2,500/- IN EACH TRANSACTION, THE RECO URSE OF SECTION 40A(3) DOES NOT APPLY. THIS VIEW HAS ALSO B EEN TAKEN IN THE CASE OF CIT VS. ALOO SUPPLY CO. 121 ITR 680 (ORI.) I HAD GONE THROUGH THE ANNEXURE ATTACHED BY THE ASSESSING OFFICER WITH THE ASSESSMENT ORDER. I AGREE WITH THE ASSESSI NG OFFICER THAT THE APPELLANT COMPANY HAD REPRESENTED THAT EAC H PAYMENT OF COAL FREIGHT IS BELOW THE LIMIT PRESCRIB ED U/S 40 A(3) OF THE ACT I.E. RS.20,000/- JUST TO CIRCUMVENT THE LAW. THE AR OF THE APPELLANT COMPANY HAS NOT SUBMITTED ANY D ETAILS OR PROOF THAT THE RECIPIENT PARTIES INSISTED ON CASH P AYMENT OR FOR THAT MATTER THE APPELLANT COMPANYS BUSINESS WOULD HAVE BEEN ADVERSELY AFFECTED IF THE PAYMENTS WOULD NOT H AVE BEEN MADE IN CASH, EITHER AT THE STAGE OF ASSESSMENT OR BEFORE ME DURING APPEAL PROCEEDINGS. IT IS NOTICED THAT IN CA SE OF CERTAIN PAYMENTS, THERE HAD BEEN AN ABNORMAL DELAY IN THE D ELIVERY OF MATERIAL AND MAKING THE PAYMENT THEREOF. SECONDL Y, IT IS ALSO NOTICED THAT IN CASE OF CERTAIN PAYMENTS, THE AMOUNT OF BILL IS PARTLY PAID IN CASH JUST TO CIRCUMVENT THE PROVISIONS OF SECTION 40A (3) OF THE ACT, AS THE PROOF OF THE BAL ANCE PAYMENT OF THE BILL IS NOT FURNISHED BY THE AR OF THE APPEL LANT. THIRDLY, IT IS ALSO NOTICED THAT THE PAYMENT OF TRANSPORTATI ON CHARGES IS NOT EFFECTED OF THE SAME DAY OF DELIVERY OF MATERIA L. THE AFORESAID FACTS CLEARLY DEFEAT THE VERY PLEA OF THE AR OF THE ITA NO.4371/AHD/2007 N. R. PAPER & BOARD LTD. VS ACIT, VALSAD 3 APPELLANT THAT THERE IS A CONDITION OF MAKING THE P AYMENTS OF TRANSPORTATION CHARGES IN CASH AND THAT TOO, TO THE DRIVERS. THIS CLEARLY INDICATES THE MALA-FIDE INTENTION OF T HE APPELLANT TO GET AWAY FROM THE PROVISIONS OF SECTION 40A(3) O F THE ACT. I AM OF THE CONSIDERED OPINION THAT THE SEQUENCE OF P AYMENTS CLEARLY INDICATES THAT THE PAYMENTS WERE SHOWN IN S MALLER AMOUNTS JUST TO CIRCUMVENT THE PROVISION OF SECTION 40A (3) OF THE ACT. IN THE CASE OF THE APPELLANT COMPANY, THE PAYMENTS WERE SHOWN TO HAVE BEEN MADE BY BREAKING THE PAYMEN T OF A SINGLE BILL TO A PARTICULAR PARTY. THE AR OF THE AP PELLANT COMPANY FAILED TO SATISFY THAT IT IS ENTITLED FOR R ELIEF AND THAT THE PAYMENTS SO MADE FALL WITHIN THE PURVIEW OF RUL E 6DD EITHER AT THE STAGE OF ASSESSMENT OR BEFORE ME DURI NG TH4E COURSE OF APPELLATE PROCEEDINGS. THE FACTS OF THE C ASE ARE DIFFERENT FROM THAT GIVEN IN THE JUDICIAL DECISIONS CITED BY THE AR AND HAS BEEN DISTINGUISHED BY THE ASSESSING OFFI CER IN THE ORDER. KEEPING IN VIEW THE ABOVE AND SAID FACTS OF THE CASE, THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS GROUND IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED . 5. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AS WER E RAISED BEFORE THE AUTHORITIES BELOW, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE FINDINGS OF THE AUTHORITIES BELOW. THE HONBLE ORISSA HIGH C OURT IN THE CASE OF CIT VS ALOO SUPPLY CO. 121 ITR 680 HELD AS UNDER: THE WORD SUM IN S. 40A (3) IS USED ONLY TO INDIC ATE AN AMOUNT OF MONEY AND DOES NOT REFER TO THE TOTALITY OF EXPENDITURE. THERE IS CONSIDERABLE FORCE IN THE STA ND ACCEPTED BY THE TRIBUNAL THAT IF PAYMENTS ARE MADE AT DIFFER ENT TIMES DURING THE DAY AND THE ASSESSEE HAS NO IDEA THAT HE HAS TO PAY THE SAME PERSON ON MORE THAN ONE OCCASION, HE C ANNOT BE SUBJECTED TO THE STATUTORY RESTRICTION CONTAINED IN THE PROVISION IN QUESTION UNLESS ANY ONE PAYMENT IS ABOVE RS.2,50 0. SEC. 40A APPEARS IN CHAP. IV OF THE ACT DEALING WITH COM PUTATION OF TOTAL INCOME AND IS CLASSIFIED UNDER THE SUB-HEA DING IN GROUP D PROFITS AND GAINS OF BUSINESS OR PROFESSIO N. PARLIAMENT MUST HAVE INTENDED A WORKING RULE AND UN LESS BY CLEAR MEANING OF THE WORDS A DIFFERENT INTENTION AP PEARS, ONE MUST GIVE THE PROVISION A CONSTRUCTION WHICH WOULD MAKE THE PROVISION WORKABLE. THE STATUTORY LIMIT OF RS.2,500 UNDER S. 40A (3) APPLIES TO PAYMENTS MADE TO A PARTY AT A TI ME AND NOT TO THE AGGREGATE OF PAYMENTS MADE TO A PARTY IN THE COURSE OF THE DAY AS RECORDED IN THE CASH BOOK. ITA NO.4371/AHD/2007 N. R. PAPER & BOARD LTD. VS ACIT, VALSAD 4 5.1 THE HONBLE M. P. HIGH COURT IN THE CASE OF CIT VS TRIVENIPRASAD PANNALAL 228 ITR 680 HELD AS UNDER: COUNSEL FOR THE REVENUE SUBMITTED THAT IF 10 TRANS ACTIONS IN A SUM OF RS.2,500 ARE PERMITTED ON THE SAME DAY WIT H THE SAME PARTY, THEN IT WOULD AMOUNT TO DEFEATING THE P URPOSE OF T4HE PROVISION AND ITS OBJECT OF CHECK ON TRANSACT IONS IN SUMS EXCEEDING RS.2,500. IF IT IS PERMITTED, THEN VIRTUA LLY IT WILL FRUSTRATE THE VERY PURPOSE OF THE ENACTMENT. THAT I S TRUE, BUT AT THE SAME TIME, ONE CANNOT CAUSE VIOLENCE TO THE LANGUAGE WHICH HAS BEEN USED IN THE STATUTE. IT DOES NOT SAY THAT THE AGGREGATE OF THE AMOUNT SHOULD NOT EXCEED RS.2,500. THE WORDS USED ARE IN A SUM I. E. SINGLE SUM HAS BEEN USED. THEREFORE, IRRESPECTIVE OF ANY NUMBER OF TRANSACTIO NS, WHERE THE AMOUNT DOES NOT EXCEED RS.2,500 IN EACH TRANSAC TION, THE RIGOURS OF S. 40A(3) WILL NOT APPLY. THIS IS A TECH NICAL LACUNA IN THE PROVISION FOR WHICH THE COURT CANNOT SUPPLY THE OMISSION AND PUT THE PROVISION IN A PROPER FORM SO THAT THIS KING OF LOOP HOLE MAY NOT BE LEFT. CIT VS. ALOO SUPPLY CO. (19 80) 121 ITR 680 (ORI) : TC 18R. 509 FOLLOWED . 5.2 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF ASH OK IRON & STEEL ROLLING MILLS REPORTED IN 321 ITR 101 DISMISSED THE DEPARTMENTAL APPEAL ON THE IDENTICAL FACTS BY FOLLOWING THE ABOVE DECIS IONS OF THE HONBLE ORISSA HIGH COURT AND THE DECISION OF THE HONBLE M ADHYA PRADESH HIGH COURT. 5.3 IN THE LIGHT OF THE ABOVE DECISIONS, WE MAY NOT E THAT THE AO HAS ATTACHED THE LIST OF THE PAYMENT IN THE ASSESSMENT ORDER IN ANNEXURE A AND THE SAME WOULD REVEAL THAT NONE OF THE SINGULAR PAYMENTS HAS EXCEEDED RS.20,000/-. THE AO INSTEAD OF CONSIDERING EACH SINGULAR TRANSACTION HAS CONSIDERED THE AGGREGATE OF VARIOUS PAYMENTS MADE TO THE SAME PARTY. THEREFORE, THE AUTHORITIES BELOW HA VE NOT APPRECIATED THE CORRECT LEGAL POSITION IN THE MATTER. SINCE, THE SE QUENCE OF PAYMENT HAS NOT EXCEEDED THE AMOUNT OF RS.20,000/-, THEREFORE, THE PROVISIONS OF SECTION 40A(3) WILL NOT APPLY IN THE MATTER. WE ACC ORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTI RE ADDITION. ITA NO.4371/AHD/2007 N. R. PAPER & BOARD LTD. VS ACIT, VALSAD 5 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1-09-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 1-09-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD