Mahendra Singh & Party, V. DCIT, N.A. Circle-20(1),

ITA 712/DEL/2003

• Counselvise Citation: 71220114 RSA 2003
• Duration Of Justice: 8 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-08-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 17-02-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG
• Assessee Lawyers: S K SHARMA; K P SABH ARWAL
• Keywords: Business income
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO. 712/DEL/2003 ASSESSMENT YEAR: 1997-98 M/S MAHENDRA SINGH & PARTY, VS. DCIT, J-3/316, KALKAJI, DELHI. N.A. CIRCLE 20(1), M-1029. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K. SHARMA, CA & K.P. SABH ARWAL, ADV. RESPONDENT BY : ROHIT GARG, DR ORDER PER C.L. SETHI, J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 6.11.2002 PASSED BY LD. CIT(A) IN THE MATTER OF AN ASSESSMENT MADE BY THE AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR THE A.Y. 1997-98. 2. THE ONLY GROUND RAISED BY THE ASSESSEE IS AS UND ER: - 1. THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS. 9,45,398/- U/S 40A(3). ITA NO. 712/D/2003 2 2. THE ASSESSEE RESERVES THE RIGHT TO ADD, ALTER, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL BEFORE HEARING. 3. THE ASSESSEE, AN AOP, FILED ITS RETURN DECLARING AN INCOME OF RS. 22,33,780/- ON 31.10.1997. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISS UED AND SERVED UPON THE ASSESSEE. THE ASSESSEES AUTHORIZE D REPRESENTATIVE APPEARED FROM TIME TO TIME BEFORE TH E AO AND THE CASE WAS DISCUSSED WITH HIM. BOOKS OF ACCOUNTS WERE PRODUCED AND EXAMINED ON TEST CHECK BASIS. THE ASS ESSEE, AN AOP WAS CARRYING THE BUSINESS OF SALE OF COUNTRY LIQUOR, BEER AND INDIAN MANUFACTURED FOREIGN LIQUOR IN AND AROUND DISTT. JODHPUR AFTER OBTAINING A LICENSE TO CARRY O N THIS TRADE. THE SALE WAS CONDUCTED THROUGH COUNTRY LIQUOR SHOPS AND IMFL SHOPS. THE TOTAL SALES OF COUNTRY LIQUOR WAS SHOWN AT RS. 1.92 CRORE AND FOR IMFL AND BEER AT RS. 95,22,5 07/-. IT WAS FOUND BY THE AO THAT THE ASSESSEE DID NOT MAINT AIN ANY BANK ACCOUNT. THE PURCHASES OF COUNTRY LIQUOR WAS MADE FROM RAJASTHAN STATE GANGANAGAR SUGAR MILLS, AN UND ERTAKING OF RAJASTHAN STATE GOVERNMENT, AFTER DEPOSITING CAS H AND OTHER LEVIES LIKE ISSUE PRICE, PERMIT FEES, BARDANA CHARGES, PACKING AND WASHING CHARGES ETC. THE IMFL AND BEER WERE ITA NO. 712/D/2003 3 PURCHASED FROM M/S JAI SANTOSHI MAA WINES, JODHPUR AMOUNTING TO RS. 72,21,479/-. THE ASSESSEE HAD SHO WN PURCHASE REBATE AMOUNTING TO RS. 1,56,491/-. THERE FORE, THE NET PURCHASES OF IMFL AND BEER FROM THE ABOVE PARTY WAS RS. 70,59,218/-. THE AO EXAMINED THE PURCHASE VOUCHERS AND FOUND THAT THE PAYMENTS WERE NOT MADE BY WAY OF CRO SS BANK DRAFT OR CROSS CHEQUE BUT PAID BY WAY OF AN ADJUSTM ENT AGAINST EXCISE DUTY CHALLANS. IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD DEPOSITED EXCISE DUT Y ON BEHALF OF THE SUPPLIER AS A PART OF MUTUAL UNDERSTA NDING. THE ASSESSEE HAD SHOWN PAYMENT TO EXCISE COMMISSIONER AMOUNTING TO RS. 39,80,100/- ADJUSTED AGAINST OUTST ANDING AMOUNTS OF GOODS PURCHASED. BY INVOKING THE PROVIS IONS OF SEC. 40A(3), THE AO MADE AN ADDITION OF RS. 9,45,39 8/- TO THE TOTAL INCOME OF THE ASSESSEE. THE RELEVANT OBSERVA TION OF THE AO REGARDING WORKING OUT THE SUM OF RS. 9,45,398/- IS AS UNDER: - KEEPING IN VIEW THE ABOVE DISCUSSION AND THE FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE VIEW THAT THE CASE OF THE ASSESSEE IS NOT COVERED BY EITHER SEC. 40A(3) OR THE EXEMPTION PROVIDED UNDER RULE 6DD WHICH HAVE BEEN DISCUSSED ABOVE. THEREFORE, I ITA NO. 712/D/2003 4 HAVE NO OPTION BUT TO DISALLOW THE EXPENDITURE OF THE ASSESSEE AS ENUMERATED IN THE PROVISIONS OF SEC. 40A(3). DURING THE YEAR, THE ASSESSEE HAS SHOWN NET PURCHASES FROM M/S JAI SANTOSHI MAA WINES AT RS. 70,65,000/- (AFTER PURCHASE REBATE). FROM THE PURCHASE LEDGER ACCOUNT FILED BY THE ASSESSEE READ WITH PURCHASE VOUCHERS IT IS SEEN THAT THERE ARE 17 ENTRIES OF WHICH THE PURCHASE VOUCHERS ARE FOR AN AMOUNT LESS THAN RS. 20,000/- WHICH TOTALS UPTO RS. 1,78,010/- AND THE BALANCE AMOUNT OF RS. 68,86,990/- REPRESENTS CASH PURCHASE OF 108 ENTRIES EACH OF MORE THAN RS. 20,000/-. AFTER DEDUCTING RS. 21,60,000/- (20,000 X 108) BEING THE BASIC EXEMPTION FOR THE DISALLOWANCE U/S 40A(3), THE NET QUALIFYING AMOUNT FOR DISALLOWANCE U/S 40A(3) WORKS OUT TO RS. 47,26,990/- AND 20% OF WHICH IS RS. 9,45,398/- DISALLOWED U/S 40A(3) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR THE FINANCIAL YEAR 1996-97. PENALTY PROCEEDINGS U/S 271(1)(C) HAVE SEPARATELY BEEN INITIATED. 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). ITA NO. 712/D/2003 5 5. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVI NG AS UNDER: - 6. IT IS INTERESTING TO NOTE THAT NOT A SINGLE PAYMENT FOR PURCHASE WAS MADE DIRECTLY TO THE SUPPLIER PARTIES INSTEAD ITS CLAIM THAT ALL THE PAYMENTS FOR SUCH PURCHASES WERE MADE TO THE EXCISE DEPARTMENT WHICH IS A LIABILITY OF THE SUPPLIER OR THE DISTILLERIES. THE APPELLANT HAD NOT BORNE EVEN THE DEMAND DRAFT CHARGES. ITS CLAIM IS THAT SUCH DEMAND DRAFT CHARGES ARE BORNE BY THE PAYEES OR THE AOP MEMBERS. 7. SINCE THE TURNOVER OF THE APPELLANT EXCEEDED RS. 40 LAKHS (2.9 CRORES) THE STATUTORY AUDIT REPOT FILED BY THE AUDITORS IN REGARD TO THE APPELLANTS COMPLIANCE TO THE PROVISIONS OF SECTION 40A(3) STATED THAT IT IS NOT POSSIBLE FOR OR TO VERIFY WHETHER PAYMENTS IN EXCESS OF RS. 20,000/- WERE MADE THROUGH ACCOUNT PAYEE DEMAND DRAFT OR CROSSED CHEQUES AND IT WAS STATED THAT THE NECESSARY EVIDENCE IN THIS REGARD WAS NOT IN THE POSSESSION OF THE APPELLANT. 8. ON WEIGHING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE PAYMENTS UNDER REFERENCE I AM CONVINCED THAT HAD THE ITA NO. 712/D/2003 6 APPELLANT WISHED TO COMPLY WITH THE PROVISIONS OF SECTION 40A(3) AND IT COULD HAVE EASILY DONE THROUGH AN ACCOUNT PAYEE CHEQUE OR DRAWN BY OPENING EVEN ONE BANK ACCOUNT. FURTHER THE APPELLANTS CASE IS CLEARLY NOT GOVERNED BY THE EXCEPTIONS PROVIDED IN RULE 6DD OR CIRCULAR NO. 34 DATED 5.3.1970. ON CAREFUL CONSIDERATION I AM CONVINCED THAT THE FINDING OF THE LD. AO THAT THE PAYMENTS IN QUESTION WERE HIT BY SECTION 40A(3) WAS JUSTIFIED IN MAKING THE ADDITION OF RS. 9,45,398/- U/S 40A(3) OF THE ACT. ACCORDINGLY, THE ADDITION OF RS. 9,45,398/- U/S 40A(3) IS SUSTAINED. 6. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE MATERIAL ON RECORD. 8. THE TOTAL PAYMENT MADE TO M/S JAI SANTOSHI MAA W INES AFTER DEDUCTING PURCHASE REBATE WAS OF RS. 70,65,00 0/-. IT WAS FOUND BY THE AO THAT 17 ENTRIES OF PAYMENT WERE FOR LESS THAN RS. 20,000/-. THE AO, THEREFORE, DEDUCTED THE SUM OF ITA NO. 712/D/2003 7 RS. 1,78,010/- THE BALANCE PAYMENT WAS WORKED OUT B Y THE AO AT RS. 68,86,990/- COVERING 108 ENTRIES OF PAYME NT IN EXCESS OF RS. 20,000/-. AFTER DEDUCTING RS. 21,60, 000/- I.E. (20,000/- X 108) BEING THE BASIC EXEMPTION, THE NET QUALIFYING AMOUNT FOR DISALLOWANCE U/S 40A(3) HAS BEEN WORKED OUT BY THE AO AT RS. 47,26,990/-. THE AO THEN DISALLOWED 20% OF RS. 47,26,990/- U/S 40A(3) OF THE ACT. 9. IN THE COURSE OF HEARING OF THIS APPEAL THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT PAYMENT OF RS. 7,86,8 78/- WAS MADE TO DISTILLERIES DIRECTLY ON BEHALF OF THE SUPP LIER BY DEMAND DRAFTS. THE ASSESSEE HAS GIVEN THE DETAILS O F DEMAND DRAFT NUMBER, DATE AND THE BANK FROM WHICH THE DEMA ND DRAFT WAS DRAWN. THESE DETAILS ARE AS UNDER: - S.NO. DD NO. DATE DRAWN BY NAME OF DISTILLERIES AMT. COMMISSION TOTAL 1. D60005 14.4.96 SBI SMART BOTTLERS P. LTD. 129740 260 130000/- 2. 654288 18.4.96 SBI KHODAY INDIA LTD. 61650 124 61774/- 3. 068014 18.4.96 SBI KHODAY INDIA LTD. 264400 400 264800/- 4. 068021 20.4.96 SBI JAGATJIT INDIA LTD. 229959 345 230304/- 5. 651100 25.4.96 SBI HARYANA BREW. 99800 200 100000/- TOTAL 786878/- ITA NO. 712/D/2003 8 10. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT SUM OF RS. 39,80,100/- WAS MADE ON 31.3.1997 THROUG H VARIOUS DEMAND DRAFTS IN FAVOUR OF THE EXCISE COMMISSIONER/RAJASTHAN ON BEHALF OF THE SUPPLIER. THE DETAILS OF PAYMENT OF RS. 39,80,100/- IS AS UNDER: - NAME OF AOP MEMBER D.D. NO. AMOUNT ASHU SINGH 957831 500000/- ASHU SINGH 957841 20000/- BHIM SINGH 957832 300000/- JASWINDER SINGH 957833 200000/- BISHAN SINGH 957834 100000/- CHENDRA LEKHA MATHUR 957835 100000/- DILIP KUMAR SHARMA 957836/37 200000/- GHYANSHYAM SARDA 957838/40 250000/- KAMAL KANWAR 957851 130100/- MANGAL SINGH 957852 100000/- STAITAN SINGH 957853 200000/- MEGHRAJ SINGH HUF 957858 200000/- LAXMAN SINGH 957859 500000/- MADHU KANWAR 957863 400000/- KIRTI MADHOK 957865 150000/- HEMANT SHARMA 958866 150000/- HANUMAN SINGH 957867 45000/- GAURAV K.SHARMA 603560-68 435000/- TOTAL 3980100/- 11. IT WAS THUS, SUBMITTED THAT THE FOLLOWING PAYME NTS WERE MADE BY DEMAND DRAFTS: - I) RS. 7,86,878/- - PAID TO DISTILLERIES DIRECTL Y ON BEHALF OF THE SU PPLIER. II) RS. 39,80,100/- - PAID TO EXCISE COMMISSION ER RAJASTHAN BY DE MAND DRAFTS. TOTAL: RS. 47,66,978/- ITA NO. 712/D/2003 9 12. THE ASSESSEE HAS PRODUCED BEFORE US THE COPY OF ACCOUNT PAYEE DEMAND DRAFTS PAID DIRECTLY TO DISTIL LERIES. THE ASSESSEE HAS ALSO PAID THE AMOUNT DIRECTLY TO EXCIS E COMMISSIONER FOR AND ON BEHALF OF THE SUPPLIER. IT IS, THUS, CLEAR THAT THE ASSESSEE MADE THE PAYMENT TO DISTILL ERIES OR TO THE EXCISE COMMISSIONER BY DRAFT FOR AND ON BEHALF OF THE SUPPLIER AND ADJUSTED THE SAME AGAINST THE AMOUNT P AYABLE TO SUPPLIER. THIS IS NOT A CASE WHERE ASSESSEE HAD AD JUSTED HIS LIABILITY PAYABLE TO SUPPLIER AGAINST SOME OTHER LI ABILITY. THE ADJUSTMENT HAS BEEN MADE BY WAY OF MAKING PAYMENT. INSTEAD OF MAKING THE PAYMENT DIRECTLY TO SUPPLIER, THE ASSESSEE PAID THE AMOUNT TO THE DISTILLERIES OR TO THE EXCISE DEPARTMENT OF GOVERNMENT OF RAJASTHAN BY DRAFT. TH E FACT THAT PAYMENTS WERE MADE BY WAY OF AN ADJUSTMENT AGA INST EXCISE DUTY CHALLANS IS NOT IN DISPUTE AS SO OBSERV ED BY THE AO IN HIS ORDER ITSELF. THE ADJUSTMENT HAS BEEN MA DE AGAINST THE PAYMENT MADE BY DRAFT TO DISTILLERIES OR TO EXC ISE DEPARTMENT OF GOVERNMENT OF RAJASTHAN. IN THE LIGH T OF THESE FACTS, WE ARE OF THE VIEW THAT ASSESSEE HAS NOT CON TRAVENED THE PROVISIONS OF SEC. 40A(3) OF THE ACT. WE, THER EFORE, DELETE THE ADDITION OF RS. 9,45,398/- MADE U/S 40A(3) OF T HE ACT. ITA NO. 712/D/2003 10 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 14. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 12 TH AUGUST, 2011. SD/- SD/- (B.C. MEENA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12.8.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR