ITO 8(1)-3, MUMBAI V. DELTA SCRAPS PROCESSORS & AGRICULTURAL PRODUCTS P. LTD, MUMBAI

ITA 5771/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55545 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 16-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUBAL
• Assessee Lawyers: H N MOTIWALLA
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI T.R.SOOD (A. M) ITA NO.5771/MUM/2010(A.Y. 2005-06) THE INCOME TAX OFFICER 8(1)-3 ROOM NO.206/260A, 2 ND FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. (APPELLANT) VS. M/S. DELTA SCRAPS PROCESSORS & AGRICULTURAL PRODUCTS PVT. LTD., 29/225, DELTA COTTAGE, ANAND NAGAR, VAKOLA, SANTACRUZ (E), MUMBAI 55. PAN:AAACD 1699P) (RESPONDENT) APPELLANT BY : SHRI M.R.KUBAL RESPONDENT BY : SHRI H.N.MOTIWALLA DATE OF HEARING : 22/09/2011 DATE OF PRONOUNCEMENT : 28/09 /2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 6/5/2010 OF CIT(A)-16, MUMBAI RELATING TO A.Y 2005-06L THE GRO UND OF APPEAL RAISED BY THE ASSESSEE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE U/S. 40A (3) OF THE I.T. ACT, 1961, BY THE ASSESSING OFFICER ON ACCOUNT OF CASH P URCHASES OF RS. 15,30,607/-, WITHOUT APPRECIATING THE FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF TRADING IN SCRAP. IN THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ASSESSEE HAD MADE PURCHASES TOTALING RS. 76,53,031/ - IN CASH. THE ASSESSEE COULD NOT FURNISH BILLS, THE NAMES AND ADD RESSES OF THE PARTIES FROM WHOM THE PURCHASES WERE MADE. THE AO WAS OF T HE VIEW THAT 20% OF ITA NO.5771/MUM/2010(A.Y. 2005-06) 2 THE PURCHASES SHOULD BE DISALLOWED IN VIEW OF THE P ROVISIONS OF SECTION 40A(3) WHICH PROVIDES THAT IF AN ASSESSEE INCURS AN Y EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING RS. 20 ,000/- OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE, THEN 20% OF SUCH EXPEND ITURE SHOULD BE DISALLOWED AND NOT TAKEN INTO ACCOUNT FOR COMPUTING INCOME. ONE OF THE EXCEPTIONS TO THE ABOVE PROVISIONS WOULD BE A CASE WHERE PAYMENT IS MADE OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE BECAUSE OF T HE ABSENCE OF PROPER BANKING FACILITIES BEING AVAILABLE AT THE PLACE WHE RE PAYMENT IS MADE. 3. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE N ATURE OF THE ASSESSEES BUSINESS NAMELY DEALING IN FERROUS AND NON-FERROUS SCRAP IS ITSELF A CASH TRADE. FURTHER THE ASSESSEE SUBMITTED THAT EVERY CASH PURCHASE TRANSACTION IS BELOW RS.20, 000/-. AS SUCH THE IND IVIDUAL TRANSACTIONS DO NOT COME WITHIN THE AMBIT OF SECTION 40A(3). IN SUP PORT THEREOF THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS: 1. CIT V/S BALKRISHANJAGDISH CHAND (164 TAXRNAN 459 (P&H)). 2. CIT V/S ALOO SUPPLY CO. (121 ITR 480 (ORISSA)). THE ASSESSEE ALSO SUBMITTED THAT CASH PURCHASES ARE MADE FROM REMOTE/BACKWARD AREA GINIGERA VILLAGE, KOPPAL TALUK , RAICHUR DIST., BELLARY AND SOLD TO KALYANI STEELS LTD. GINIGERA VILLAGE, K OPPAL TALUK, RAICHUR DIST., BELLARY TO WHOM THE CERTIFICATE IS GRANTED BY THE D IRECTOR OF INDUSTRIES AND COMMERCE BEING A NEWLY ESTABLISHED FOR THE BENEFIT OF DEFERMENT OF TAX IN TERMS OF GOVERNMENT ORDER NO. CL 125 SPC 95, DATED 3FH JANUARY, 1997. IT WAS ALSO SUBMITTED THAT THE PURCHASE OF SCRAP WAS M ADE IN A BACKWARD AREA WHERE BANKING FACILITIES WERE POOR AND SMALL SCRAP DEALERS DO NOT HAVE BANK ACCOUNTS. IN VIEW THE ABOVE, THE ASSESSEE SUBMITTE D THAT 20% OF THE CASH PURCHASES SHOULD NOT BE DISALLOWED INVOKING SEC.40- A(3) OF THE ACT. ITA NO.5771/MUM/2010(A.Y. 2005-06) 3 4. THE AO CALLED UPON THE ASSESSEE TO PRODUCE THE STOCK REGISTER FOR VERIFICATION. THE ASSESSEE DID NOT MAINTAIN ANY ST OCK REGISTER. THE ASSESSEE HOWEVER GAVE THE NAMES OF THE PERSONS FROM WHOM THE SCRAP WAS PURCHASED. ON PERUSAL OF THE LIST THE AO NOTICED T HAT INDIVIDUAL ITEMS OF PURCHASES WERE JUST BELOW RS. 20,000/- AND THIS WAS DONE DELIBERATELY TO AVOID PROVISIONS OF SECTION 40A(3) OF THE INCOME T AX ACT, 1961 (THE ACT). THE AO FOR ALL THE ABOVE REASONS INVOKED THE PROVIS IONS OF SECTION 40A(3) OF THE ACT AND DISALLOWED 20% OF THE CASH OF RS.76,53, 031/- AND ADDED A SUM OF RS. 15,30,607/- TO THE TOTAL INCOME DECLARED BY THE ASSESSEE. 5. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD AS FOL LOWS: 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND THE ORDER OF THE ASSESSING OFFICER CAREFULLY. THE FACTS OF THE C ASE ARE THAT THE APPELLANT COMPANY HAS MADE PAYMENTS IN CASH TO VAR IOUS SCRAP SUPPLIERS AT GINIGERA TALUKA, TAICHUR DISTRICT, BEL LARY. IT WAS FURTHER NOTICED THAT THE APPELLANT COMPANY HAS MADE THE CAS H PAYMENT JUST BELOW RS.20,000/-. THE APPELLANT COMPANY CLAIMED T O HAVE FILED ALL THE DETAILS IN RESPECT OF SCRAPS PURCHASED TO THE A SSESSING OFFICER AT THE TIME OF ASSESSMENT AS WELL AS PRODUCED THE BOOK S OF ACCOUNTS AND ITEM REGISTER I.E. STOCK REGISTER. ALL THESE DETAI LS WERE PRODUCED BEFORE ME. THE APPELLANT HAS ALSO FILED QUANTITY-WISE DETA ILS AS STATED IN THE SCHEDULE VI OF THE COMPANIES ACT AS WELL AS TAX AUD IT REPORT. ON GOING THROUGH THESE DETAILS, IT IS FOUND THAT THE A PPELLANT PURCHASES THE SCRAPS FROM VARIOUS SMALL SCRAPS VENDORS FROM T IME TO TIME AND THE PAYMENTS TO THESE SMALL TIME SCRAP DEALERS HAVE TO BE MADE IN CASH SINCE THERE WERE NO PROPER BANKING FACILITY AV AILABLE IN THE VILLAGE GINIGERA, EVEN AS ON TO-DAY WHERE THE APPELLANT IS CARRYING ON BUSINESS AND THEREFORE, RULE 6DD OF I.T. RULES 1962 IS APPLICABLE, WHICH MITIGATES THE RIGOR OF SECTION 40A(3) OF THE ACT. SUB RULE (H) OF THE SAID RULE PROVIDES THAT NO DISALLOWANCE U/S. 40 A(3) OF THE ACT SHALL BE MADE. THE SAID RULE READS AS UNDER :- WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WH ICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINARILY RESIDES OR IS CARRYING ON ANY BUSINE SS, PROFESSION OR VOCATION, IN ANY SUCH VILLAGE OR TOWN. ITA NO.5771/MUM/2010(A.Y. 2005-06) 4 7. KEEPING IN VIEW ALL THESE FACTS AND CIRCUMSTANCE S OF THE CASE, I AM OF THE VIEW THAT THE THIS CASE DOES NOT FALL U/S. 4 0A(3), SINCE, ALL THE PAYMENTS ARE BELOW RS.20,000/- AND THE PAYMENTS ARE MADE IN A REMOTE VILLAGE WHERE NO BANKING FACILITIES ARE EASI LY AVAILABLE. THEREFORE, THE ADDITION OF RS. 15,30,607/ - CANNOT BE SUSTAINED AND HENCE DELETED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. D.R, WH O RELIED ON THE ORDER OF THE AO. WE HAVE CONSIDERED HIS SUBMISSIONS AND ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) HAS TO BE UPHELD. ADMITTEDLY I NDIVIDUAL ITEMS OF PURCHASES FOR WHICH THE ASSESSEE MADE CASH PAYMENTS WERE LESS THAN RS.20,000/-. PRIOR TO THE AMENDMENT OF SECTION 40A (3) OF THE ACT BY THE TAXATION LAWS(AMENDMENT) ACT 2006 W.E.F. 13/7/2006, ONE HAS TO GO BY THE INDIVIDUAL PAYMENTS FOR EACH PURCHASE IN A DAY. FO R EXAMPLE IF THE ASSESSEE MAKES FIVE PURCHASES OF RS. 19,000/- ON ONE DAY EVE N THEN ONE HAS TO GO BY THE INDIVIDUAL ITEMS OF PURCHASES AND CANNOT AGGREG ATE THE PURCHASES MADE ON SINGLE DAY TO APPLY THE PROVISIONS OF 40A(3) OF THE ACT. IT WAS SO HELD BY THE HONBLE ORISSA HIGH COURT IN THE CASE OF CIT VS . ALOO SUPPLY COMPANY (SUPRA). THE LAW HAS HOWEVER BEEN AMENDED W.E.F. 1 3/7/2006, WHEREBY IT WAS PROVIDED THAT IF THE PAYMENT OR AGGREGATE OF PA YMENT MADE BY THE PERSON IN A DAY BY CASH EXCEEDS RS. 20,000/- THEN T HE PROVISIONS OF SECTION 40A(3) WOULD BE ATTRACTED. IN THE PRESENT CASE WE ARE CONCERNED WITH A.Y 2005-06 AND THE AMENDMENT DOES NOT APPLY TO THE CAS E OF THE ASSESSEE. ADMITTEDLY EACH INDIVIDUAL PURCHASES WAS LESS THAN RS. 20,000/- FOR WHICH PAYMENT WAS MADE IN CASH. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION M ADE BY THE AO. IT IS ALSO SEEN THAT THE ASSESSEE SATISFIES EXCEPTIONS TO THE SECTION NAMELY ABSENCE OF PROPER BANKING FACILITIES IN THE PLACE FROM WHERE T HE ASSESSEE MADE ITA NO.5771/MUM/2010(A.Y. 2005-06) 5 PURCHASE. FOR THE REASONS STATED ABOVE WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL BY THE REVENUE. 8. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 28 TH DAY OF SEPT., 2011. SD/- SD/- (T.R.SOOD ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 28TH SEPT.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RD BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.5771/MUM/2010(A.Y. 2005-06) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 22/9/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 23/9/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER