Satya Narayan Karnani, Balasore V. ACIT, Balasore

ITA 482/CTK/2011

• Counselvise Citation: 48222114 RSA 2011
• Duration Of Justice: 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 15-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 28-11-2011
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: SIDHARTHA RAY
• Section: 40A(3)

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 482/CTK/2011 (ASSESSMENT YEAR 2005 - 06) SHRI SATYANARAYAN KARNANI, AT/.O.BASTA, DIST.BALASORE PAN: ABRPK 4673 VERSUS ASST.C OMMISSIONER OF INCOME - TAX , BALASORE CIRCLE, BALASORE. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SIDHARTHA RAY, AR FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR DATE OF HEARING : 15.12.2011 DATE OF PRONOUNCEMENT : 22.12.2011 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSESSEE IS ON THE SOLITARY ISSUE THAT THE LEARNED CIT(A) WAS TOTALLY UNJUSTIFIED IN IGNORING THE PROVISIONS CONTAINED IN RULE 6DD(K) OF THE INCOME - TAX RULES, 1962 SUSTAINING THE DISALLOWANCE OF 45,67,170 PAID TO THE A GENTS FOR PURCHASE OF SUN - DRIED SAL LEAVES. 2. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A WHOLESELLER OF SAL LEAVES AND PLAT E S AND FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR AT 12,26,480. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER NOTICED THAT THE TOTAL PAYMENT FOR PURCHASE OF SUN - DRIED SAL LEAVES AMOUNTING TO 2,31,17,32 4 . HE VERIFIED THAT A SUM OF 2,28,80,846 VIOLATED THE PROVISIONS OF SECTION 40A(3) AS IT WAS MADE TO SUPPLIERS NEAR THE ASSESSEES GODOWN . IT WAS EXPLAINED BY THE ASSESSEE THAT THE SAL LEAVES ARE PURCHASED DIRECTLY FROM ADIVASIS THROUGH AGENTS WHO WERE TO LOAD THESE IN THE TRUCKS WHEN THE PURCHASES WERE MADE IN ACCORDANCE WITH THE REQUIREMENT OF THE ASSESSEE. THE TOTAL PURCHASES WERE OF 5.98 CRORES, OUT OF WHICH THE ASSESSING OFFICER THEREFORE HELD THAT THE ASSESSEE COULD HAVE ALSO PURCHASE D THE SAME THROUGH THE BANKING CHANNELS WITHOUT DISPUTING THAT THE PURCHASES OF SAL LEAVES WERE MADE FROM THE AGENTS WHOM HE ITA NO.482/CTK/2011 2 CONSIDERED AS MIDDL EMAN WITHOUT IDENTIFYING WHETHER THEY HAD PURCHASED AND SOLD THE SAME TO THE ASSESSEE. AFTER INTERPRETING THE SCOPE OF DISALLOWANCE U/S.40A(3), HE ADDED 45,76,170 BEING 20% OF 2,28,80,846 IN VIOLATION TO THE PROVISIONS OF SECTION 40A(3). 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE ISSUE BY OBSERVING THAT THE ASSESSEE COULD NOT HAVE CLAIMED THE BENEFIT OF SUB - CLAUSE (F) AND (H) OF RULE 6DD OF THE INCOME - TAX RULES, 1962 WHEN THE ACTUAL CLAIM WAS UNDER RULE 6 DD(K) IN VIEW OF THE FACT THAT THE LEARNED CIT(A) DIVERTED FROM THE ISSUE BY DERIVING THE MEANING TO THE PURCHASE FROM CULTIVATORS, GROWERS OR PRODUCERS AS FROM MIDDLEMEN/AGENTS . HE CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 4. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE LEARNED CIT(A) MISDIRECTED HIMSELF TO CONSIDER THE CASE OF THE ASSESSEE APPELLANT BEFORE HIM WHEN THE UNDISPUTED FACTS AS NOTED BY THE ASSESSING OFFICER WAS WITH RESPECT TO PURCHASE OF SUN - DRIED LE AVES WHICH ARE USED FOR MAKING PLATES B Y THE ASSESSEE THROUGH THE AGENTS WH OM HE N AMED AS MIDDLEMAN WHICH MIDDLEME N UNDER NO CIRCUMSTANCES CAN BE CALLED TRADERS OF THE SAL LEAVES WHO ARE BASICALLY CULTIVATORS, HARVESTERS OF PRODUCES IN FOREST AND IS THE LV ILIHOOD OF THE ADIVASIS WHICH WAS INFORMED TO THE ASSESSING OFFICER AND WHO HAS ACCEPTED THE SAME. THE ASSESSING OFFICER HAD THEREFORE THE ONLY REASON THAT AS BANKING CHANNELS WERE AVAILABLE IN THE DISTRICT IN WHICH THE ASSESSEE OPERATED WHICH HE COULD PAY BY WAY OF CHEQUES/DRAFTS , THE BULK OF THE TOTAL PURCHASES AMOUNTING TO 5.98 CRORES IN CASH HAD ONLY TO IDENTIFY THE PAYMENTS MADE TO THE AGENTS AMOUNTING TO 2.29 CRORES HAVING VIOLATED THE PROVISIONS OF SECTION 40A(3). THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT SUB - CLAUS E (K) OF RULE 6DD IDENTIFIES SUCH PAYMENTS WHEN HAVING ACCEPTED THE BULK OF THE PURCHASES IN CASH ITA NO.482/CTK/2011 3 DIRECTLY TO THE ADIVASIS CANNOT BE DISALLOWED IN VIOLATION TO RULE 40A(3) WHEN SUB - CLAUSE (K) INDICATES THAT WHEN THE PAYMENT IS MADE BY THE ASSESSEE TO HIS AGENTS WHO REQUIRED CASH PAYMENT FOR GOODS AND SERVICE ON BEHALF OF THE SAID PERSONS IS THE EXCLUSIVE CASE AND CIRC UMSTANCE IN WHICH THE PAYMENTS EXCEEDING 20,000 MADE BY A PERSON IN A DAY OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE DRAWN IN THE BANK OR ACCOUNT PAYEE BAN K DRAFT WAS EXEMPT UNDER THE PR OVISIONS OF RULE 6DD. THE LEARNED CIT(A) MISDIRECTED HIMSELF TO GIVE A MEANING TO THE FINDING OF FACT THAT THE A SSESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF RULE 6DD(F) AND (H) WHICH WAS NOT THE CASE OF THE ASSESSING OFFICER AT ALL. THE ASSESSING OFFICER HAS VERY CATEGORICALLY NOTED THAT THESE PAYMENTS WERE MADE TO THE AGENTS WHO ARE NOT THE PRODUCER OF SAL DRIED LEAVES AND THE PAYMENTS WERE TO BE MADE TO THE CULTIVATORS, PRODUCERS OR GROWERS OF SAL DRIED LEAVES WERE MADE BY THE ASSESSEE THROUGH THEM. THIS INDICATED THAT THE LAW RECOGNIZED NON - VIOLATION TO THE PROVISIONS OF SECTION 40A(3) AS PER RULE 6DD FOR CONSI DERATION IN SUB - CLAUSE (K) INSOFAR AS THE ASSESSING OFFICER OR THE LEARNED CIT(A) DID NOT CONTROVERT SUCH PAYMENTS AS MADE TO THE AGENTS OR MIDDLEMEN FOR THE PURCHASE OF FOREST PRODUCE . THE RESIDUAL PAYMENTS WHICH THE LEARNED ASSESSING OFFICER ALLOWED NOT VIOLATING THE PROVISIONS OF SECTION 40A(3) THEREFORE CLINCHES THE ISSUES IN FAVOUR OF THE ASSESSEE THAT THE LEARNED CIT(A) HIMSELF MISDIRECTED TO CONFIRM THE DISALLOWANCE AT THE THRESHOLD DEFINING MIDDLEMEN/AGENTS WHICH WAS NOT THE CASE OF THE ASSESSEE OR THE ASSESSING OFFICER. 5. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW WHEN THE PROVISIONS FOR CLAIMING EXPENDITURE IN VIOLATION TO THE PROVISIONS OF SECTION 40A(3) HAS BEEN CLARIFIED BY THE CBDT. IT WAS SUBMITTED THAT THE PAYMENTS WERE M ADE TO MIDDLEMEN FOR PURCHASE OF AGRICULTURAL PRODUCE DO NOT AS SUCH COME UNDER EXCEPTION ENUMERATED IN RULE 6DD. HE THEREFORE, SUBMITTED THAT ITA NO.482/CTK/2011 4 THE RESIDUAL EXCEPTION IN CLAUSE (J) OF NEW RULE 6DD DID NOT HAVE ANY ROLE TO P L AY ON THE FACTS AS NOTED BY THE A O WAS RIGHTLY THEREFORE CONFIRMED BY THE LEARNED CIT(A). 6. . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . WE FIND FORCE IN THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE INTERPRETATION OF THE FACTS HAVE B EEN LEFT LOOSELY CONNECTED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) IN HIS OWN UNDERSTANDING OF THE SUB - CLAUSE (K) OF RULE 6DD IS BEING APPEALED AGAINST BEFORE THE TRIBUNAL. THE ASSESSING OFFICER ACCEPTS THAT THE PURCHASES ARE MADE FOR FOREST PRODUC ES SOLD BY ADIVASIS ARE TO BE ALLOWED AS THE PAYMENT S ARE IN CASH. THE LEARNED CIT(A) THEREFORE WAS NOT TO DEFINE CULTIVATORS, GROWER S OR PRODUCERS AS EITHER AGENT OR MIDDLEMEN THERETO. HE OPINED THAT AS PER CBDT LETTER NO.122/69/TPL/PT DT.18.4.1969 THIS D ID NOT APPLY TO SUCH PAYMENTS AS WERE TO MIDDLEMEN. WE ARE UNABLE TO UPHOLD THIS PROPOSITION BY THE LEARNED CIT(A) INSOFAR AS THE ASSESSING OFFICER HAS CLEARLY NOTED THAT THE PURCHASES WORTH 5.98 CRORES MADE IN CASH WERE FOR THE PRODUCE WHICH THE ASSESSEE DEALT WITH WERE AN ALLOWABLE EXPENDITURE IN CASH UNDER THE PROVISIONS OF SECTION 40A(3). HE COMPUTED THE AMOUNT TO BE DISALLOWED AMOUNTING TO 2.29 CRORES HAVING BEEN PAID THROUGH A GENTS TO ADIVASIS IN CASH WHICH IS DIRECTLY COVERED BY SUB - CLAUSE (K) OF RULE 6DD. IT WAS NOT THE CASE OF THE ASSESSEE THAT THE EXPENDITURE HAS BEEN INCURRED ON THE BASIS OF BILLS RAISED BY THE AGENTS ON THE ASSESSEE. IT WAS ALSO NOT THE CASE OF THE ASSESSING OFFICER TO DISALLOW CASH PAYMENT VIOLATING THE PROVISIONS OF SECTION 40A(3) WHEN BULK OF CASH PURCHASES TOTALLING TO 5.98 CRORES WAS CONSIDERED ALLOWABLE BY HIM. THIS CLEARLY INDICATES THAT THE LEARNED CIT(A) WAS NOT TO ASSUME JURISDICTION FOR FINDING THE NATURE OF PURCHASES FROM PURPORTED MIDDLEMEN WHEN HE SOUGHT TO RELY ON THE CBDT INSTRUCTION HAVING RESIDUARY ITA NO.482/CTK/2011 5 EXCEPTION CLAUSE (J) OF RULE 6DD WHICH RATHER CLARIFIES THAT PURCHASE FOREST PRODUCE BE IN CA SH. SUB - CLAUSE (K) RECOGNIZES ALLOWABILITY FOR PAYMENT TO AGENTS IN CASH FOR PURCHASES OF FOREST PRODUCE AS PER CLAUSES (E)(I) . FOR THE IMPUGNED ASSESSMENT YEAR, THE LEAR NED COUNSEL FOR THE ASSESSEE HAD IDENTIFIED THE SUB - CLAUSE (K) FOR THE PURPOSE OF INDI CATING THAT THE NATURE OF PURCHASE REMAIN ING THE SAME WHICH WAS N OT THE CASE OF THE ASSESSEE OF PURCHASES FROM MIDDLEMEN OR AGENTS WHEN THE PRODUCE HAS BEEN IDENTIFIED BY THE AUTHORITIES BELOW AS ENTITLED FOR PURCHASE IN CASH. THEREFORE, THE EFFORTS TO MAK E PAYMENT THROUGH BANKING CHANNELS WERE NOT TO BE EXPLAINED. T HIS ACTION MANIFESTS DOWN TO THE UNDISPUTED FACT THAT THE CASH EXPENDITURE CLAIMED BY THE ASSESSEE IS FOR THE PURCHASE OF SAL LEAVES WHEN THE MONEY HAS BEEN PAID TO THE AGENTS WHO PROCURE THE LE AVES FROM ADIVASIS WHICH PRACTICE IS BEING FOLLOWED FOR THE PAST TEN YEARS AS WAS EXPLAINED BY THE ASSESSEE TO THE ASSESSING OFFICER AND ON HAVING ACCEPTED THE SAME HAD APPLIED THE PROVISIONS OF SECTION 40A(3) TO THE BULK OF PURCHASES AMOUNTING TO 5.98 C RORES . IN THIS VIEW OF THE MATTER, THE SUSTENANCE OF DISALLOW ANCE OF PAYMENT OF 2.29 CRORES UNDER THE PROVISIONS OF SECTION 40A(3) DOES NOT HAVE ANY BASIS TO BE PAID THROUGH BANKING CHANNELS FOR TO BEAPID THROUGH BANKING CHANNELS FOR MIDDLEMEN OR AGENTS . THE SAID DISALLOWANCE IS THEREFORE DIRECTED TO BE DELETED. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 22.12.2011 H.K.PADHEE, SENIOR PR IVATE SECRETARY. ITA NO.482/CTK/2011 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: SHRI SATYANARAYAN KARNANI, AT/.O.BASTA, DIST.BALASORE 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX , BALASORE CIRCLE, BALASORE. 3. THE CIT, 4. THE CI T(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.