M/s PRJ Traders, Shimla V. ITO, Shimla

ITA 566/CHANDI/2012

• Counselvise Citation: 56621514 RSA 2012
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 26-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SURINDER MEENA
• Keywords: Assessment record
• Section: 40A(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 566/CHD/2012 ASSESSMENT YEAR: 2007-08 M/S PRJ TRADERS, VS THE ITO, WARD-3, SHIMLA SHIMLA PAN NO. AAIFP9712E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VISHAL MOHAN RESPONDENT BY : SHRI SURINDER MEENA DATE OF HEARING : 26.06.2012 DATE OF PRONOUNCEMENT : 28.06.2012 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), SHIMLA DATED 30.4.2012 RELATING TO ASSESSM ENT YEAR 2007-08. 2. THE ONLY GROUND RAISED BY THE ASSESSEE READS AS UNDER:- THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION MADE BY LD. INCOME TAX OFFICER OF RS. 3,28,071/- U/S 40A (3) OF THE INCOME TAX ACT, 1961. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FIRM IS IN THE BUSINESS OF COMMISSION AGENCY AND TRADING OF VEGETA BLES AND FOODS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE 2 ASSESSEE HAD MADE CERTAIN PURCHASES IN CASH EXCEEDI NG RS. 20,000/-. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO JUSTIFY THE SAID PAYMENT IN VIEW OF PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). IN RESPONSE TO THE QUERY, THE ASSESSEE SUBMITTED TH AT IT DEALS IN THE PURCHASE AND SALE OF VEGETABLES AND FRUITS WHICH ARE EXCLUDE D BY RULE 6DD OF THE INCOME-TAX RULE, 1962 (IN SHORT THE RULE). IT WA S ALSO EXPLAINED BY THE ASSESSEE THAT IN MANY CASES, IT HAD MADE PAYMENTS T O THE COMMISSION AGENTS WHO PAID THE SAME AS CASH TO THE GROWERS AND, THERE FORE, ITS CASE IS EXCLUDED FROM THE RIGOURS OF SECTION 40A(3) OF THE ACT. TH E ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND HELD THAT THE SUB-RULE (F) OF RULE 6DD EXCLUDES THE PAYMENTS MADE IN CASH FOR THE PURCHASE OF AGRICULTURAL PRODUCE PROVIDED THE SAME IS MADE TO T HE CULTIVATOR, GROWER OR PRODUCER OF THE AGRICULTURAL PRODUCE. THE ASSESSING OFFICER ALSO OBSERVED THAT THE TRADERS WHO SOLD THE AGRICULTURAL PRODUCE TO THE ASSESSEE AFTER PURCHASING FROM THE GROWERS CANNOT BE SAID TO BE AC TING AS THE AGENTS OF THE ASSESSEE. THE ASSESSING OFFICER ALSO REFERRED TO C IRCULAR NO. 34 DATED 5.3.1970 WHICH CLARIFIES THAT THE EXPLANATION OF RU LE 6DD WILL NOT APPLY TO THE PAYMENTS MADE TO ARHATIYAS. ACCORDINGLY, HE D ISALLOWED RS. 3,28,071/- BEING 20% OF THE TOTAL EXPENDITURE IN CASH U/S 40A (3) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE PRIMARY PURCHASES ARE IN RESPECT OF AGRICULTURAL PRODUCE AND THE TRANSACTIONS ARE GENUINE. THE ASSESSEE RELI ED UPON THE DECISION OF CIT V KOTHARI SANITATION AND TILES P. LTD (2006) 28 2 ITR 117 (MAD). RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE MADHYA PRADESH HIGH 3 COURT IN THE CASE OF CIT VS TRIVENIPRASAD PANNALAL (1997 228 ITR 680 (MP). THE ASSESSEE ALSO SUBMITTED BEFORE THE CIT(A) THAT PROVISIONS OF SECTION 40A(3) SHOULD NOT BE INVOKED IF THE PAYMENTS ARE MA DE TO MEET THE NECESSITY OF THE BUSINESS. RELIANCE IN THIS REGARD WAS PLACE D ON THE CASE OF CIT VS ASHOKA STEEL INDUSTRIES & FLOUR MILLS (2007) 293 IT R 192 (P&H). IT WAS ALSO ARGUED ON BEHALF OF THE ASSESSEE BEFORE THE CI T(A) THAT THE CASE OF ASSESSEE IS COVERED UNDER RULE 6DD(K) OF THE INCOME -TAX RULES, 1962. 5. THE CIT(A) UPHELD THE DISALLOWANCE MADE BY THE A SSESSING OFFICER AMOUNTING TO RS. 3,28,071/- OBSERVING AS UNDER:- 3.3 THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONSI DERED WITH REFERENCE TO THE FACTS OF THE CASE, THE RELEVANT AS SESSMENT RECORDS AND THE CASE LAWS RELIED UPON. A PERUSAL OF THE ASSESSMENT RECORDS REVEALS THAT THE ASSESSING OFFICER HAD CALLED FOR THE COPY OF ACCOUN T OF THE APPELLANT FROM ONLY FIVE BUSINESS CONCERNS, NAMELY M/S RAKESH KUMA R NARESH KUMAR, DELHI, M/S KRISHNA TRADING CO., SHIMLA, M/S KAROL B ROS., M/S NIRMLA FRUIT AGENCIES, SHIMLA AND M/S SHIMLA VEGETABLE CO. SHIMLA. OUT OF THE SAID FIVE CONCERNS, THE ASSESSEE HAD MADE PURCHASES IN C ASH EXCEEDING RS.20,000/- FROM THREE CONCERNS, NAMELY M/S KRISHNA TRADING CO. , M/S NIRMLA FRUIT AGENCY AND M/S SHIMLA VEGETABLE CO. OUT OF THE SAID THREE CONCERNS, ONLY ONE, NAMELY M/S NIRMLA FRUIT AGENCY RESPONDED TO TH E QUERY LETTER OF THE A O U/S 133(6) OF THE I.T. ACT. THERE WAS NO RESPON SE FROM THE REMAINING TWO. ALSO THERE WERE NO ENQUIRIES CONDUCTED FROM TH E REMAINING SEVEN PARTIES FROM WHICH THE ASSESSEE HAD MADE CASH PURCHASES ABO VE RS.20,000/- AS PER THE DETAILS GIVEN IN THE ASSESSMENT ORDER. 3.3. 1 A PERUSAL OF THE COPY OF ACCOUNT SENT BY M/S NIRMLA FRUIT AGENCY SHOWS THAT MANY PAYMENTS WERE MADE BY THE ASSESSEE TO THE SAID PARTY THROUGH CHEQUES DURING THE YEAR. THUS IT IS NOT THE ASSESSEE'S CASE THAT IT WAS NOT POSSIBLE TO MAKE THE PAYMENT THROUGH CHEQUE TO THE GIVEN CONCERN FOR 4 CERTAIN PRACTICAL DIFFICULTIES. IT IS FURTHER NOTED THAT SMALL ENTRIES OF CASH PAYMENTS HAVE BEEN MADE ON CONSECUTIVE DATES, APPAR ENTLY TO CIRCUMVENT THE PROVISIONS OF SECTION 40A (3) OF THE ACT. FOR E XAMPLE, CASH PAYMENT OF RS.20,000/- HAS BEEN RECORDED ON 10/8/2006 AND O N THE VERY NEXT DAY I.E. 11/8/2006 CASH PAYMENT OF RS. 10,000/- HAS BEEN REC ORDED. THUS THE COPY OF ACCOUNT RECEIVED FROM THE SOLE BUSINESS CONCERN ALS O INDICATES A MANIPULATION OF CASH ENTRIES AND OFFERS NO JUSTIFIC ATION FOR CASH PAYMENTS. THEREFORE THE APPELLANT'S RELIANCE ON THE CASE OF C IT VS ASHOKA STEEL INDUSTRIES AND FLOUR MILLS SUPRA IS MISPLACED. WITH DUE RESPECT TO THE HON'BLE HIGH COURT, THE JUDGMENT IN THE GIVEN CASE WAS DELIVERED IN THE WISDOM OF THE COURT ON ITS OWN FACTS. BUT IN VIEW O F THE FACTS OF THE APPELLANT'S CASE AND ALSO THE CATEGORICAL PROVISIONS OF SECTION 40A (3) READ WITH RULE 6DD, THE SAID-CASE IS FOUND TO HAVE NO APPLICATION HERE. 3.3.2 THE APPELLANT'S ARGUMENT THAT IT WAS DEALING IN THE PURCHASE AND SALE OF FRUIT AND VEGETABLE, AND, THEREFORE, ITS CA SE WAS EXCLUDED UNDER RULE 6DD (F) IS ALSO MISCONCEIVED. A PLAIN READING OF THE SAID RULE MAKES IT CLEAR THAT THE SAME IS APPLICABLE ONLY IN THE CASES WHEN THE PAYMENTS ARE MADE IN CASH FOR THE PURCHASE OF THE AGRICULTURAL PRODUCE DIRECTLY TO THE CULTIVATOR S, GROWERS OR PRODUCERS OF THE AGRICULTURAL PRODUCE. THE APPELLAN T HAS MADE NO SUCH PAYMENTS TO THE CULTIVATORS, GROWERS OR PRODUCERS O F THE AGRICULTURAL PRODUCE. 3.3.3 ANOTHER ARGUMENT TAKEN BY THE APPELLANT, IN C ONTRADICTION TO THE ONE ABOVE, THAT ITS CASE IS COVERED UNDER RULE 6DD( K) IS ALSO TOTALLY MISLEADING. A READING OF THE SAID RULE MAKES IT CLE AR THAT IT IS APPLICABLE ONLY TO THE PAYMENTS MADE BY A PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE THE FURTHER PAYMENT IN CASH ON BEHALF OF SUCH PERSON, IN THE INSTANT CASE, THE APPELLANT HAS MADE FINAL P URCHASES FROM THE ARHATIYAS (COMMISSION AGENTS/TRADERS) TRAD ERS LOCATED AT DELHI AND SHIMLA AND THE SAID PURCHASES, IN TURN, HAVE NO T BEEN MADE BY THE SAID COMMISSION AGENTS/TRADERS ON BEHALF OF THE APPELLAN T FROM THE PRODUCERS OR 5 GROWERS. FURTHER, EVEN THE SOURCE OF PURCHASES MADE BY THE SAID COMMISSION AGENTS/TRADERS IS NOT KNOWN. THEY ALSO MIGHT HAVE MADE THE PURCHASES FROM OTHER COMMISSION AGENT S/TRADERS. THEREFORE THE ID. A.O. HAS RIGHTLY CONCLUDED THAT THE SAID COMMIS SION AGENTS CANNOT BE TREATED AS THE AGENTS OF THE APPELLANT FIRM WITHIN THE MEANING OF RULE 6DD (K). CIRCULAR NO. 34 DATED 5/3/1970 A/SO MAKES IT A BSOLUTELY CLEAR THAT THE PAYMENTS TO ARHTIYAS DO NOT FALL FOR EXCLUSION UNDE R THIS SUB-CLAUSE. FURTHER, LETTER F. NO.1/ 22/69-TPL (PT.), DATED 18/ 4/1969 ALSO CLARIFIES THAT PAYMENTS TO MIDDLEMEN FOR THE PURCHA SE OF AGRICULTURAL PRODUCE ARE NOT COVERED UNDER THIS SUB-CLAUSE. 3.3.4 THE APPELLANT'S BALD ARGUMENT, WITHOUT SPECIF YING ANY DETAILS, THAT THE AMOUNTS OF MANY PURCHASE BILLS WERE SMALL AND THEREFORE THE INDIVIDUAL TRANSACTIONS SHOULD BE KEPT OUT OF THE R IGOURS OF RULE 6DD, IS ALSO FOUND DEVOID OF ANY FORCE. THE FACT OF THE MAT TER IS THAT PAYMENTS HAVE BEEN MADE IN CASH IN SUMS EXCEEDING RS.20,000/ - TO THE SAME PARTY IN ONE GO. IT IS NOT THE APPELLANT'S CASE THAT SEPARAT E PAYMENTS LESS THAN RS.20,000/- EACH WERE MADE. IN FACT, AS ALREADY MEN TIONED ABOVE, SUCH PAYMENTS NOT EXCEEDING RS.20,000/- IN CASH RECORDED ON CONSECUTIVE DATES HAVE ALREADY BEEN ACCEPTED BY THE ID. A.O. IN THE C ASE OF M/S NIRMLA FRUIT AGENCY. THUS THE APPELLANT HAS MADE THE PAYMENTS IN SUMS EXCEEDING RS.20,000/-, WHICH IS IN CLEAR VIOLATION OF PROVISI ONS OF SECTION 40A(3) AS IT STOOD EVEN IN THE ASSESSMENT YEAR UNDER CONSIDERATI ON. THE CASE LAWS RELIED UPON BY THE APPELLANT ARE NOT FOUND TO BE : ACCEPTABLE ON THE GIVEN FACTS OF THE APPELLANT'S CASE. 3.3.5 IN VIEW OF THE DISCUSSION ABOVE THE DISAL LOWANCE MADE BY THE ID. A.O. AMOUNTING TO RS. 3,29,071/- IS FOUND TO BE IN ORDER AND IS UPHELD. 6. SHRI VISHAL MOHAN, ADVOCATE, APPEARED FOR THE A SSESSEE AND SHRI SURINDER MEENA, APPEARED FOR THE REVENUE. 6 7. SHRI VISHAL MOHAN, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE HAS ALSO RELIED ON THE DECISIONS CITED BEFORE THE CIT(A). SHRI VISHAL MOH AN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE OF THE ASSESSEE IS COVERED BY RULE 6DD(K) OF THE INCOME-TAX RULES, 1962, WHICH READS AS UNDER:- WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGE NT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS O R SERVICES ON BEHALF OF SUCH PERSON SHRI VISHAL MOHAN, LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT IN VIEW OF RULE 6DD(K) (SUPRA), NO ADDITION COULD HAVE BEEN MA DE BY THE ASSESSING OFFICER. THEREFORE, THE DISALLOWANCE MADE BY THE A SSESSING OFFICER AND CONFIRMED BY THE CIT(A) MAY BE DELETED. 8. ON THE OTHER HAND, SHRI SURINDER MEENA, LD. DR S TRONGLY SUPPORTED THE ORDERS OF LOWER AUTHORITIES. HE FURTHER SUBMITTED THAT NONE OF THE DECISIONS RELIED UPON BY SHRI VISHAL MOHAN LD. COUNSEL FOR TH E ASSESSEE ARE APPLICABLE TO THE FACTS OF THE PRESENT CASE. 9. I HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTICED THAT CASH PURC HASES ABOVE RS. 20,000/- WERE MADE IN CONTRAVENTION TO SECTION 40A(3) OF THE INCOME TAX ACT FROM THE FOLLOWING PARTIES. S.N O . NAME OF THE PARTIES AMOUNT I. M/S VIKAS FRUITS AGENCY DALLI RS.53,284/-7- 2. M/S SHIMLA,VEGETABE CO. (SVCI) RS. 5,50, 000/- 7 3. M/S SHIMLA VEGETABE CO. (SVC) RS. 1,43,612/-- 4, M/S SHARMA BRO. DALLI RS.32,836/- 5. M/S NIRMALA FRUIT AGENCY RS.2, 15,654/- 6. M/S NARESH KUMAR KAILASH CHANDER RS.29,733/- 7. M/S KRISHNA TRADING CO. RS. 1,77,408/- 8. M/S GAURAV FRUIT AGENCY RS. 30,000/-, 9. M/S GIAN SHINGH & SONS DALLI RS. 75,000/- 10. M/S B.K. SHOP. NO.9, DALLI RS. 3,32,830/- TOTAL RS.16,40,357/- IN THE INSTANT CASE, THE CIT(A) HAS CORRECTLY HELD THAT THE CASE OF THE ASSESSEE IS NOT COVERED EITHER UNDER RULE 6DD(F) OR RULE 6DD (K) OF INCOME-TAX RULES, 1962. RULE 6DD(F) MAKES IT CLEAR THAT THE SAME IS APPLICABLE ONLY IN THE CASES WHEN THE PAYMENTS ARE MADE IN CASH FOR THE PU RCHASE OF THE AGRICULTURAL PRODUCE DIRECTLY TO THE CULTIVATORS, GROWERS OR PRO DUCERS OF THE AGRICULTURAL PRODUCE. I AM ALSO IN AGREEMENT WITH THE VIEW TAK EN BY LD. CIT(A) THAT ASSESSEES CASE IS ALSO NOT COVERED UNDER RULE 6DD( K) OF I.T. RULES, 1962. THEREFORE, I ENDORSE THE FINDINGS OF CIT(A) GIVEN I N PARA 3.3.3 OF THE IMPUGNED ORDER. THE CIT(A) HAS CORRECTLY OBSERVED THAT THE COMMISSION AGENTS / TRADERS CANNOT BE TREATED AS AGENTS OF TH E ASSESSEE FIRM WITHIN THE MEANING OF RULE 6DD(K). THE CIT(A) HAS ALSO REFERR ED TO CIRCULAR NO. 34 DATED 5.3.1970 WHICH MAKES IT CLEAR THAT THE PAYMEN T TO ARHATIYAS DO NOT FALL FOR EXCLUSION UNDER ABOVE SUB CLAUSE. IN THE INST ANT CASE, THERE IS NO MATERIAL ON RECORD TO SHOW THAT THERE WAS EXCEPTION OR UNAVOIDABLE CIRCUMSTANCES FOR MAKING PAYMENTS IN CASH. THEREFO RE, INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT WAS JUSTIFI ED. SHRI VISHAL MOHAN, LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT TH E AUTHORITIES BELOW HAVE NOT DOUBTED THE GENUINENESS OF THE PAYMENTS MADE IN CASH. IN MY CONSIDERED 8 OPINION, THOSE GENUINE AND BONAFIDE PAYMENTS COULD NOT BE TAKEN OUT OF PURVIEW OF SECTION 40A(3) AFTER AMENDMENT OF THE RU LES BY THE FINANCE ACT, (1995) WHICH WAS CLARIFIED VIDE BOARDS CIRCULAR NO . 117 DATED 14.8.1995. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, I HOLD THAT IN THE INSTANT CASE, THE ASSESSEE COULD NOT BRING H IS CASE UNDER ANY OF THE CLAUSE OR RESIDUARY CLAUSE TO RULE 6DD OF INCOME-TA X RULES, 1962, THEREFORE, THE CASE OF THE ASSESSEE IS SQUARELY COVERED U/S 40 A(3) OF THE ACT AND, HENCE, THE CLAIM OF THE ASSESSEE CAN NOT BE ALLOWED. THE ORDER PASSED BY CIT(A) DESERVES TO BE UPHELD. 10. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH JUNE, 2012. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 28 TH JUNE, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR