ITO, Trivandrum V. M/s Matha Paultry Farm, Trivandrum

ITA 749/COCH/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4429 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 23-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 19-06-2008
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: C B M WARRIER
• Keywords: Onus to prove
• Section: 40A(3); 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE T RIBUNAL COCHIN BENCH, COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AROR A, AM I.T.A. NO. 749/COCH./2008 ASSESSMENT YEAR : 2005-06 THE INCOME-TAX OFFICER, WARD- 1(2), TRIVANDRUM. VS. M/S. MATHA POULTRY FARM, NALANCHIRA, TRIVANDRUM. [PAN: AAJFM 7117M] (APPELLANT-REVENUE) (RESPONDENT-ASSESSEE ) REVENUE BY SHRI T.J.VINCENT, DR ASSESSEE BY SHRI C.B.M. WARRIER, CA O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIVANDRUM (CIT(A) FOR SH ORT) DATED 25.2.2008 AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2005-06. 2. EVEN AS THE APPEAL RAISES SEVERAL GROUNDS (9), I T AGITATES TWO ISSUES, I.E., THE DELETION OF DISALLOWANCE U/S. 40A(3) OF THE INCOME- TAX ACT, 1961 ('THE ACT' HEREINAFTER) AND THE ADDITION FOR RS. 2,40,130/- ON ACCOUNT OF NON-EXISTENCE OF A TRADING LIABILITY. 3.1 THE FACTS OF THE CASE, WHICH ARE COMMON FOR BOT H THE ISSUES, ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, IS ENGAGED IN THE TRADING OF BR OILER CHICKENS. FOR THE YEAR UNDER REFERENCE, IT WAS FOUND, DURING THE COURSE OF ASSES SMENT PROCEEDINGS U/S. 143(3) OF THE ACT, TO HAVE MADE TOTAL PURCHASES FOR RS. 1,20,51,2 40/-, OF WHICH FOR RS. 1,08,18,051/- WERE FROM M/S. BISMI AGENCIES, IN WHOSE NAME A SUM OF RS. 2,40,130/- STOOD REFLECTED IN THE ASSESSEES BALANCE-SHEET AS AT THE YEAR-END AS PAYABLE. TO VERIFY THE SAME, THE ASSESSING OFFICER (A.O.), OBTAINING ITS ADDRESS FRO M THE ASSESSEE, MADE A DIRECT INQUIRY FROM THE SAID FIRM, A PROPRIETORY CONCERN OF ONE, S HRI N.SALIM, WHO, VIDE ITS LETTER DATED 10.12.2007 CONVEYED THAT THEIR ENTIRE SALES TO THE ASSESSEE-FIRM WERE IN CASH AND, AS SUCH, IT DID NOT MAINTAIN ANY ACCOUNT OF THE ASSESSEE-FIR M. THE SUPPLIER WAS FURTHER SUMMONED ITA. NO. 749/COCH./2008 2 BY THE AO ON 13.12.2007 AND HIS SWORN STATEMENT U/S . 131 OF THE ACT RECORDED, WHEREIN HE CONFIRMED THE FACTS IN THE MATTER AS EARLIER CON VEYED (VIDE LETTER DATED 10/12/2007), CATEGORICALLY DENYING ANY DUE FROM THE ASSESSEE AS ON 31/3/2005. IT WAS FURTHER STATED THAT HE WAS A TRADER IN BROILER CHICKENS, MAKING IT S PURCHASES FROM A POULTRY FARM IN KANYA KUMARI DISTRICT, TAMIL NADU. THERE WAS, AS SU CH, APPARENTLY A VIOLATION BY THE ASSESSEE OF THE PROVISION OF SECTION 40A(3) OF THE ACT, AND FOR WHICH IT WAS ACCORDINGLY SHOW-CAUSED VIDE LETTER DATED 18.12.2007. THE ASSE SSEE, IN REPLY, EXPLAINED OF HAVING ENGAGED AGENTS FOR PROCUREMENT FROM THE POULTRY FAR MS, AND WHICH HAD TO BE NECESSARILY PAID IN CASH. FURTHER, IT WAS ALSO SUBMITTED THAT T HE CASH PAYMENTS WERE NECESSITATED IN THE ABSENCE OF THE BANKING FACILITIES. THE AO REJEC TED THE ASSESSEES CONTENTION IN THE ABSENCE OF ANY SUBSTANTIATION OF ITS CLAIMS, WHICH WERE INCONSISTENT WITH THE MATERIAL ON RECORD, INCLUDING THE DEPOSITION BY THE PROPRIETOR OF M/S. BISMI AGENCIES DATED 13.12.2007; THE AO ALSO EXAMINING THE FINAL ACCOUNT S OF THE SAID FIRM FOR THE PURPOSE. IN FACT, IT WAS FOR THE FIRST TIME THAT SUCH A PLEA HA D BEEN ADVANCED BY THE ASSESSEE, AND ONLY WITH A VIEW TO ACCORD THE STATUS OF AN AGENT TO THE SAID FIRM. THE PLEA OF THE ABSENCE OF BANKING FACILITIES WAS ALSO CONSIDERED BY HIM AS WI THOUT BASIS, WITH BOTH THE ASSESSEE AS WELL AS THE SAID SUPPLIER MAINTAINING BANK ACCOUNTS ; THEIR TURNOVER RUNNING INTO CRORES. IN FACT, IT WAS OBSERVED THAT BASIC BANKING FACILIT IES, NAY, EVEN THE FACILITIES AS 24 HR. ATM AND HOLIDAY BANKING WERE AVAILABLE IN THE RURAL AREAS. FURTHER, THE EXEMPTION PROVIDED BY RULE 6DD(F) WOULD APPLY ONLY WHERE THE PAYMENT TOWARD POULTRY PRODUCE IS MADE TO THE PURCHASER OF SUCH PRODUCE OR PRODUCTS, WHILE IN THE INSTANT CASE, THE PAYMENT IS CLEARLY TO ANOTHER TRADER, AS CONFIRMED BY THE S UPPLIER BY HIS DEPOSITION, BESIDES BEING SUPPORTED BY ITS ACCOUNTS. 3.2 AS REGARDS THE ADDITION OF RS. 2,40,130/-, THE SAME WAS DISCLOSED AS A LIABILITY OUTSTANDING IN THE NAME OF M/S. BISMI AGENCIES, WHI CH STOOD DENIED BY THE SAID PARTY ON ENQUIRY BY THE AO, FURTHER AFFIRMING THE SAME PER T HE SWORN STATEMENT DATED 13.12.2007. THE ASSESSEE, THOUGH DID NOT OFFER ANY EXPLANATION INITIALLY, LATER SUBMITTED THAT THE DIFFERENCE WAS ON ACCOUNT OF AN ACCOUNTING MISTAKE COMMITTED BY THE SUPPLIER-FIRM, AND FOR WHICH CLEARLY IT COULD NOT BE HELD RESPONSIBLE OR BROUGHT TO BOOK. HOWEVER, THE SAME ITA. NO. 749/COCH./2008 3 WAS FOUND UNSATISFACTORY BY THE AO IN THE ABSENCE O F ANY SUBSTANTIATION OF THE EXPLANATION OR AN ATTEMPT TO RECONCILE THE DIFFEREN CE. 3.3 IN APPEAL, THE ASSESSEE FOUND FAVOUR WITH TH E LD. CIT(A) ON BOTH COUNTS. THE PURCHASES WERE EFFECTED AT NIGHT TIME AND THE VEHIC LE DRIVERS WHO GO TO PROCURE THE DELIVERY OF GOODS ARE ILLITERATE, UNABLE TO WRITE C HEQUES. NO DISCREPANCY IN THE ASSESSEES ACCOUNTS STAND OBSERVED BY THE AO, SO THAT CLEARLY THE PURCHASES STAND NOT DOUBTED. FURTHER STILL, THE LOCATION OF THE PLACE OF BUSINES S OF THE SUPPLIER IS A VILLAGE AREA, NOT COMING WITHIN THE CLEARING HOUSE OPERATIONS OF BANK S. REFERENCE WAS ALSO MADE TO CASE LAW, AND WITH REFERENCE TO ALL OF WHICH, THE DISALL OWANCE U/S. 40A(3), IN THE FACTS AND CIRCUMSTANCES OF THE CASE, STOOD DELETED. AS REGAR DS ADDITION OF RS. 2,40,130/-, THE SAME WAS NOT SUSTAINABLE AS THE COPY OF THE STATEMENT OF THE PARTY STOOD NOT CONFRONTED TO THE ASSESSEE BY THE AO. AGGRIEVED, THE REVENUE IS IN A PPEAL. 4. BEFORE US, LIKE CONTENTIONS STOOD RAISED BY EITH ER SIDE. RELIANCE WAS PLACED BY THE LD. DR ON CBDT CIRCULAR NO. 717 DATED 14.8.1995, IS SUED BY THE CBDT EXPLAINING THE AMENDMENT EFFECTED BY THE FINANCE ACT, 1995, INTER ALIA , TO SECTION 40A(3) OF THE ACT WITH EFFECT FROM 1.4.1996. SECTION 40A(3), AS IT S TOOD PRIOR TO THE AMENDMENT, IT STANDS EXPLAINED THEREIN, LEAD TO SUBSTANTIAL LITIGATION A RISING OUT OF THE INTERPRETATION AND SCOPE OF SECTION 40A(3) READ WITH RULE 6DD(J). IN VIEW TH EREOF, THE BANKING FACILITIES HAVING TAKEN ROOTS EVEN IN RURAL AREAS, SO THAT THE MITIGA TING CIRCUMSTANCES OF RULE 6DD(J), PROVIDED WITH A VIEW TO RELAX THE RIGOUR OF SECTION 40A(3) IN GENUINE AND BONA FIDE CASES, WAS REQUIRED TO BE RE-VISITED. ACCORDINGLY, SUCH MI TIGATING CIRCUMSTANCES, POSTULATED EARLIER, STOOD WITHDRAWN, WITH A SIMULTANEOUS REDUC TION IN THE QUANTUM OF THE DISALLOWANCE, I.E., FROM THE ERSTWHILE 100% TO 20%. THE FACTS IN THE PRESENT CASE ARE NOT IN DISPUTE AND THERE HAS BEEN A CLEAR VIOLATION OF SECTION 40A(3). SIMILARLY, THE ASSESSEE HAS NOT BEEN ABLE TO REBUT WITH ANY MATERIAL THE BA SIS ON WHICH THE AO HAD RELIED FOR MAKING THE ADDITION ON ACCOUNT OF BOGUS OR NON-EXIS TING LIABILITY. THE LD. AR, IN DEFENCE, RELIED ON THE DECISIONS IN THE CASE OF CIT VS. RAJA PAL AUTOMOBILES , 320 ITR 185 (ALL.) AND PRAKASH CHAND NAHTA VS. CIT , 301 ITR 134 (M.P.) IN SUPPORT OF THE ASSESSEES C ASE. ITA. NO. 749/COCH./2008 4 5. WE HAVE HEARD BOTH THE PARTIES, AND PERUSED THE MAT ERIAL ON RECORD, INCLUDING THE CASE LAW CITED. 5.1 WE SHALL TAKE UP FIRST THE LAW IN THE MATTE R. AT THIS STAGE, IT WOULD BE RELEVANT TO POINT OUT THAT SECTION 40A (3) HAS UNDERGONE MATERI AL CHANGES VIDE AMENDMENTS PER THE FINANCE ACT, 1995 W.E.F. 1/4/1996 AND FINANCE ACT ( NO. 2), 1996 W.E.F. 1/4/1997. VIDE THE SAID AMENDMENTS, FIRSTLY, THE THRESHOLD LIMIT QUA EACH INDIVIDUAL PAYMENT, I.E., FOR THE APPLICABILITY OF THE SECTION, STOOD ENHANCED FROM R UPEES TEN THOUSAND TO TWENTY THOUSAND. SECONDLY, THE EXTENT OF DISALLOWANCE UNDER THE SECT ION, WHICH WAS EARLIER MANDATED AT 100% OR THE WHOLE OF THE IMPUGNED EXPENDITURE, STOO D RESTRICTED TO A FRACTION (20%) THEREOF. RULE 6DD OF THE RULES, SPECIFYING THE SAVI NG CIRCUMSTANCES, THE EXISTENCE OF WHICH WOULD ESCHEW APPLICATION OF THE SECTION, STOO D ALSO AMENDED; THE EXTANT CLAUSE (J) CONCERNING ITSELF WITH THE PAYMENT OF SALARY TO AN EMPLOYEE WORKING ON A SHIP UNDER CERTAIN DEFINED CIRCUMSTANCES. THE SAME, CLEARLY, H AS NO BEARING TO THE EARLIER CLAUSE (J), OR ANY RELEVANCE TO THE ASSESSEES CASE. CIRCULAR ( # 717 DATED 14/8/1995) ISSUED BY THE CBDT, EXPLAINING THE AMENDMENTS EFFECTED VIDE FINAN CE ACT, 1995, INCLUDING TO S. 40A(3) OF THE ACT, CLARIFIED THAT WITH THE BANKING SERVICES HAVING TAKEN ROOT EVEN IN RURAL AREAS, THE ACCENTUATING CIRCUMSTANCES PROVIDING EXC EPTION TO THE RIGOUR OF S. 40A(3) IN GENUINE AND BONA FIDE CASES PER R. 6DD(J) WAS NO LONGER CONSIDERED UTILI TARIAN OR NECESSARY. BESIDES, THE PROVISION R/W R. 6DD(J) HAD GIVEN RISE TO SUBSTANTIAL LITIGATION ARISING OUT OF THE INTERPRETATION AND SCOPE OF THES E PROVISIONS. PERHAPS, THE LEGISLATURE WAS OF THE VIEW THAT IT WAS DIFFICULT TO ESTABLISH THE MITIGATING CIRCUMSTANCES OF THE PAYMENTS, SO THAT WHERE THE GENUINENESS IS NOT IN D OUBT, IT WOULD SUFFICE IF A FRACTION THEREOF IS DEEMED AS AN INFLATION IN THE CLAIMED EX PENDITURE WITH REFERENCE TO THE MODE OF ITS PAYMENT, AND DISALLOWANCE EFFECTED ON THAT BASI S. THE SAME THUS IMPACTS THE CHARACTER OF THE DISALLOWANCE OR OF THE PROSCRIPTION MANDATED THEREBY INASMUCH AS THE GENUINENESS OF THE PAYMENT WAS NO LONGER IN ISSUE OR RELEVANT F OR THE PURPOSE OF THE DISALLOWANCE, WHICH, AS AGAINST THE ENTIRE PAYMENT EARLIER, STOOD RESTRICTED TO A FRACTION THEREOF. THE AMENDED EXTANT LAW, THUS, IS CAST MORE AS AN ABSOLU TE RULE; THE EXCEPTIONAL CIRCUMSTANCES HAVING BEEN ENLISTED UNDER RULE 6DD, AND IS IN THE NATURE OF A DEEMING SECTION, WITH THE LAW PRESCRIBING DISALLOWANCE WITH REFERENCE TO THE MODE OF PAYMENT OF THE CONCERNED ITA. NO. 749/COCH./2008 5 EXPENDITURE RATHER THAN WITH REFERENCE TO THE EXPEN DITURE ITSELF, DEEMING AN INFLATION THEREIN WHERE THE PAYMENT IS NOT AFFECTED PER THE P RESCRIBED MODE, WHILE THE GENUINENESS OF THE PAYMENT, WHERE IMPUGNED, WOULD WARRANT DISAL LOWANCE OF THE ENTIRE EXPENDITURE. IN FACT, PER A SUBSEQUENT AMENDMENT TO THE SECTION, THE PRESCRIBED MODE GETS FURTHER NARROWED DOWN TO ACCOUNT PAYEE BANKING INSTRUMENTS ONLY, WHICH WOULD FACILITATE TRACKING OF THE PAYMENT TO ANY EXTENT. REFERENCE IN THIS CONTEXT MAY BE PROFITABLY MADE TO THE ORDER BY THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF ITO VS. KENARAM SAHA & SUBHASH SAHA , 301 ITR (AT) 171 (KOL.) (SB) WHEREIN IT WAS HELD AS UNDER: HELD, THAT ONCE THERE IS PAYMENT OF ANY EXPENDITUR E IN VIOLATION OF SECTION 40A(3), THE ASSESSEE CAN ESCAPE THE DISALLOWANCE U NDER THE SAID SECTION ONLY IF THE ASSESSEES CASE FALLS WITHIN THE AMBIT OF ANY OF TH E CLAUSES OF RULE 6DD. THE MATTER WAS REQUIRED TO BE EXAMINED WHETHER THE ASSESSEES CASE FELL UNDER ANY SPECIFIC CLAUSE. NEITHER HAD THE ASSESSEE PROPERLY CLAIMED NOR HAD T HE ASSESSING OFFICER EXAMINED THE CASE WITH REFERENCE TO THE RELEVANT RULE. THE ORDE RS OF THE AUTHORITIES BELOW WERE TO BE SET ASIDE AND THE MATTER RESTORED TO THE ASSESSING OFFICER TO ALLOW ADEQUATE OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM AND READJUDICATE THE MATTER IN ACCORDANCE WITH LAW. THE ASSESSMENT YEAR UNDER REFERENCE IN THE CASE OF RAJA PAL AUTOMOBILES (SUPRA) RELIED UPON BY THE ASSESSEE WAS 1987-88 AND, THUS, THE HON BLE COURT WAS DEALING WITH THE PROVISION AS IT STOOD PRIOR TO THE SAID AMENDMENTS. IN THE CITED CASE, THE ASSESSEE FOUND FAVOUR WITH THE HONBLE COURT ON THE GROUND OF GENU INENESS OF PAYMENT AND THE PECULIAR CIRCUMSTANCES OF THE TRADE, WHICH STOOD ESTABLISHED WITH REFERENCE TO THE SAVING CLAUSE (J) OF RULE 6DD. 5.2 COMING TO THE FACTS OF THE PRESENT CASE, WE OBSERVE THE ASSESSEES CASE AS BEING TOTALLY UNSUBSTANTIATED, COMPRISING BALD STATEMENTS , ADVANCED TO MEET THE EXIGENCIES OF THE SITUATION WITH A VIEW TO ALIGN ITS CASE WITH RE FERENCE TO THE PROVISIONS OF THE STATUTE. BISMI AGENCIES IS CLEARLY A TRADER IN BROILER CHICK EN AND AN INDEPENDENT PARTY, EVEN AS BORNE OUT BY THE REFERENCE TO ITS, AS WELL AS THE ASSESSEES OWN, ACCOUNTS. AS SUCH, THERE IS NO QUESTION OF AN AGENCY, WHICH COULD, UNDER CER TAIN CIRCUMSTANCES, STAND TO BE COVERED UNDER CLAUSE (L) OF R. 6DD. FOR THE SAME RE ASON, THE RULE 6DD(F) WOULD NOT APPLY; THE PAYEE BEING NOT A CULTIVATOR OR PRODUCER OF POULTRY PRODUCE BUT ONLY A TRADER AS THE ASSESSEE. CLAUSE (J), PROVIDING A WINDOW FOR NO N-ACCESS TO THE BANKING FACILITIES, ITA. NO. 749/COCH./2008 6 CAUSING HARDSHIP TO THE PAYEE OR THE BUSINESS EXIGE NCIES, ARE RENDERED OF LITTLE CONSEQUENCE, WITH ITS OMISSION W.E.F. 25/7/1995. E VEN AS NO EXTENUATING CIRCUMSTANCES NECESSITATING THE PAYMENTS IN CASH HAVE BEEN STATED , MUCH LESS PROVEN, THE OMISSION OF THE ERSTWHILE CLAUSE (J) OF RULE 6DD EXCLUDES THE G ROUND OF HARDSHIP TO THE PAYEE FROM THE MITIGATING CIRCUMSTANCES, AND THE ASSESSEES CA SE, AS HELD BY THE SPECIAL BENCH (SUPRA), COULD SUCCEED ONLY ON IT ESTABLISHING THE SAME TO FALL WITHIN THE SPECIFIED CLAUSES OF RULE 6DD. IN FACT, BOTH THE ASSESSEE AND THE SUP PLIER-FIRM, M/S. BISMI AGENCIES, HAVE BEEN FOUND TO BE MAINTAINING ACCOUNTS AND HAVING TU RNOVER WORTH CRORES, SO THAT THERE IS NO QUESTION OF THE BANKING FACILITIES NOT BEING AVA ILABLE TO THE TWO. NONE OF THE PAYMENTS HAVE BEEN SHOWN BEFORE ANY AUTHORITY TO HAVE BEEN M ADE ON A BANKING HOLIDAY OR ON ACCOUNT OF DISLOCATION OF WORK IN THE SAID INDUSTRY , FOR CLAUSE (K) OF R. 6DD TO BE APPLICABLE. THE PAYMENTS IN CASH, AS IT APPEARS, HA VE BEEN MADE MORE AS A MATTER OF CONVENIENCE OF TRADE OR EVEN TERMS OF THE TRADE, WH ICH THOUGH CAN BE OF NO IMPORT. THE ASSESSEE HAS, THUS, CLEARLY, NOT B EEN ABLE TO MAKE OUT ANY CASE WITH REFERENCE TO ANY OF THE EXTANT CLAUSES OF RULE 6DD, WITH REFE RENCE TO WHICH ONLY, ON ESTABLISHING THE SPECIFIC CIRCUMSTANCES LISTED THEREIN, COULD TH E ASSESSEE SAVE ITSELF FROM THE STATUTORY MANDATE OF THE NON OBSTANTE PROVISION OF SECTION 40A(3). 5.3 IN VIEW OF THE FOREGOING, WE FIND THE AOS ACTI ON AS IN CONFORMITY WITH THE LAW AND ITS REVERSAL BY THE LD. CIT(A) AS NOT MAINTAINA BLE IN LAW. WE ALSO DRAW SUPPORT AND PLACE RELIANCE ON THE DECISION BY THIS BENCH IN THE CASE OF S. RAHUMATHULLA V. ACIT (IN ITA 479/COCH/2009 DATED 20/4/2010) WHEREIN AFTER DI SCUSSING THE LAW IN THE MATTER, AS HEREINBEFORE, IT STANDS HELD AS UNDER: `4.3 IT IS, THUS, ABUNDANTLY CLEAR FROM THE FOREGOING, T HAT THE ASSESSEES CASE DOES NOT FALL WITHIN THE SPECIFIC CLAUSE OF RULE 6DD. THE PR OVISION OF SECTION 40A (3), WHICH IS A NON-OBSTANTE PROVISION, WOULD THUS HOLD, AND OPERAT E TO DEEM TWENTY PER CENT. OF THE IMPUGNED EXPENDITURE AS THE ASSESSEES PROFIT FROM ITS BUSINESS AND LIABLE TO BE DISALLOWED THERE-UNDER. AGAIN, THE PLEADING OR THE ARGUMENT THAT THE ASSESSEE OPERATES AT A NOMINAL COMMISSION OR TRADE MARGIN, WHICH IS LARG ELY FIXED, EVEN IF TRUE, WOULD BE OF NO CONSEQUENCE IN VIEW OF THE STATUTORY MANDATE OF SECTION 40A(3) . WE, ACCORDINGLY, SET ASIDE THE IMPUGNED APPELLATE O RDER, RESTORING THAT OF THE AO. WE DECIDE ACCORDINGLY. ITA. NO. 749/COCH./2008 7 6. COMING TO THE SECOND ADDITION, WE AGAIN FIND LIT TLE MERIT IN THE ASSESSEES CASE. THE ASSESSEE HAS NOWHERE DENIED THAT IT IS NOT MAK ING PAYMENTS TO THE SAID SUPPLIER CONCERN AGAINST PURCHASES IN CASH; IN FACT, SEEKING TO EXPLAIN THE ACCENTUATING CIRCUMSTANCES UNDER WHICH IT WAS SO DONE, WHICH, TH OUGH, WE HAVE FOUND OF NO MOMENT INSOFAR AS THE APPLICABILITY OF S. 40A(3) IS CONCER NED. THIS LENDS CONSIDERABLE CREDENCE TO THE DEPONENTS STATEMENT THAT ITS ENTIRE SALES TO T HE ASSESSEE, THE QUANTUM AND THE MODE OF PAYMENT OF WHICH IS NOT IN DISPUTE, AS CAN BE SEEN FROM THE FACTS AND EXPLANATIONS AS FORTHCOMING IN THE ASSESSEES CASE WITH REFERENCE T O THE DISALLOWANCE U/S. 40A(3). UNDER THE CIRCUMSTANCES, IT BECOMES INCUMBENT ON IT TO EX PLAIN AS HOW A CREDIT BALANCE APPEARS IN ITS BOOKS QUA AN OUTSTANDING PURCHASE LIABILITY, AND TOWARD WHIC H WE FIND NO COGENT OR DEFINITE EXPLANATION BY THE ASSESSEE. WE SHALL, NEV ERTHELESS, ALSO DISCUSS THE OBJECTIONS RAISED BY THE ASSESSEE ON MERITS. 6.1 THE BASIS FOR THE DELETION BY THE LD. CIT(A) IS THA T THE ASSESSEE WAS NOT PROVIDED WITH THE COPY OF THE SUPPLIERS STATEMENT, AND TOWA RD WHICH THE ASSESSEE PLACES RELIANCE ON THE DECISION IN THE CASE OF PRAKASH CHAND NAHTA (SUPRA). THE SAME WOULD BE OF NO CONSEQUENCE WITHOUT IT BEING SHOWN THAT THE ASSESSE E HAD IN FACT REQUESTED FOR ITS COPY, OR FOR CROSS-EXAMINATION. FIRSTLY, IT NEEDS TO BE A PPRECIATED THAT THE TECHNICAL RULES OF EVIDENCE LAW ARE NOT APPLICABLE TO THE PROCEEDINGS UNDER THE ACT, AND THERE IS NO CLAIM OF DENIAL OF PROPER OPPORTUNITY TO EXPLAIN ITS CASE BY THE ASSESSEE, AND WHICH, IF SO, WOULD, AGAIN, LEAD TO A RESTORATION BACK TO THE FILE OF TH E AO FOR THE SAME; THE PROCEEDINGS BEING RENDERED IRREGULAR, AND NOT VOID, ON THAT COUNT, FO R THE ADJUSTMENT(S) AS EFFECTED TO BE STRUCK DOWN. THOUGH THIS IS TRITE LAW, THE TRIBUNAL RECENTLY HAD AN OCCASION TO CONSIDER THE SAME, AND HELD LIKE-WISE, IN THE CASE OF CENTURION INVESTMENT & INTERNATIONAL TRADING CO. (P.) LTD. V. ITO , 305 ITR (AT) 24 (DEL.), FOLLOWING TWO DECISIONS B Y THE APEX COURT, BEING TIN BOX CO. V. CIT , 249 ITR 216 (SC) & DHAKESHWARI COTTON MILLS LTD. V. CIT , 26 ITR 775 (SC). FURTHER, THIS IS AGAIN ONLY TO S HOW THAT THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION ON THIS SCORE IS BA D IN LAW; THE PLEA ITSELF BEING, AS ALSO NOTED EARLIER, OF NO MERIT IN THE FACTS AND CIRCUMS TANCES OF THE CASE ( REFER 3.1 OF THE ORDER ). THE ASSESSEES STAND IS CORROBORATIVE TO THAT OF THE SUPPLIER-FIRM, WITH IT RATHER ITA. NO. 749/COCH./2008 8 SEEKING TO EXPLAIN THE PECULIAR CIRCUMSTANCES IN WH ICH PAYMENTS WERE MADE IN CASH, ONLY IMPLYING AN ADMISSION OF THE DIFFERENCE. IT IS THUS NOT A CASE OF ACCORDING PREFERENCE TO THE STATEMENT BY ONE VIS--VIS THE OTHER. THE RELIA NCE ON THE DECISION IN THE CASE OF PRAKASH CHAND NAHTA (SUPRA), THE FACTS OF WHICH ARE EVEN OTHERWISE DIS TINGUISHABLE, IS, THUS, MISPLACED. IN THE FACTS OF THAT CASE, THE STA TEMENT OF THE PARTY STOOD RETRACTED PER AFFIDAVIT, WHICH IS NOT SO IN THE PRESENT CASE; THE SUPPLIER VIDE ITS DEPOSITION VIDE (SWORN STATEMENT U/S. 131) RATHER CONFIRMING ITS EARLIER S TATEMENT IN WRITING VIDE LETTER DATED 10.12.2007. 6.2 THE ASSESSEE HAS FURTHER SOUGHT TO EXPLAIN THE ADMITTED DIFFERENCE AS ON ACCOUNT OF AN ACCOUNTING MISTAKE AT THE END OF THE SUPPLIER-FI RM. CLEARLY, IF THAT BE SO, NO ADDITION IN THE ASSESSEES CASE WOULD BE CALLED FOR, IRRESPECTI VE OF WHETHER A CORRESPONDING ACTION AT THE END OF THE SELLER STANDS TAKEN BY THE REVENUE O R NOT. HOWEVER, WITH REGARD TO THIS EXPLANATION ALSO, WE FIND THE ASSESSEES CASE TO BE NO MORE THAN AN ALIBI. WHAT IS THE NATURE OF THE MISTAKE, WITH BOTH THE PARTIES MAINTA INING THEIR ACCOUNTS ON MERCANTILE BASIS, WITH NO DIFFERENCE BETWEEN THE TWO IN RESPEC T OF THE TOTAL AMOUNT OF PURCHASES MADE OR GOODS SUPPLIED (RS. 108.18 LACS). THE SAME WOULD OPERATE TO VALIDATE THE ACCOUNTS OF BOTH. FURTHER, THAT THE PAYMENTS ARE BE ING MADE IN CASH IS NOT DENIED BY THE ASSESSEE ( LEADING TO THE APPLICATION OF S. 40A(3) IN ITS CASE ON THE SAID AMOUNT ), SO THAT THE VERSIONS OF THE TWO ARE IN AGREEMENT. THE ONLY DIFFERENCE IS THAT WHILE THE SUPPLIER CLAIMS TO BE SELLING GOODS AGAINST CASH PAYMENT, SO THAT NOTHING IS DUE FROM THE ASSESSEE, THE SAME IN FACT OBVIATING THE NEED TO MAINTAIN THE ASSESSEES LEDGER ACCOUNT IN ITS BOOKS, THE ASSESSEES STAND, THOUGH NOT BROUGHT OUT EXPLIC ITLY, WOULD BE THAT THOUGH DISCHARGED IN CASH, THE SAME IS TENDERED AT A LATER DATE, SO T HAT SOME PURCHASES ARE OUTSTANDING FOR PAYMENT AS AT THE YEAR END. THE EXPLANATION, WHICH STANDS ONLY ARTICULATED BY US, IN AN ATTEMPT TO UNDERSTAND AND EXAMINE THE ASSESSEES CA SE, IS TOTALLY UNSUBSTANTIATED. THE ASSESSEE COULD HAVE EASILY FURNISHED THE COPIES OF THE INVOICES RAISED BY THE SUPPLIER, TO EXHIBIT THAT THE PURCHASES ARE ON CREDIT, WHICH STA NDS DISCHARGED ONLY SUBSEQUENTLY. AGAIN, IN THAT CASE, THE ASSESSEE WOULD INSIST ON A RECEIPT FROM THE SUPPLIER, WHICH WOULD, APART FROM THE CREDIT INVOICE (BILL), AS AGAINST A CASH MEMO, SUBSTANTIATE THE ASSESSEES CASE. IN FACT, HOW WOULD THE ASSESSEE, IN THE ABSENCE OF THE SAME, ONE MAY ASK, MAINTAIN ITA. NO. 749/COCH./2008 9 OR IS MAINTAINING THE LEDGER ACCOUNT OF THE SUPPLIE R ?, THE SAME ONLY CONSTITUTING THE PRIMARY MATERIAL ON THE BASIS OF WHICH ITS BOOKS OF ACCOUNT WOULD BE WRITTEN. THE ASSESSEES EXPLANATION, THUS, APART FRO M BEING TOTALLY UNSUBSTANTIATED, EVEN AS THE SAME WOULD ONLY REQUIRE MATERIALS THAT GO TO FO RM ITS ACCOUNTS, SO THAT THE SAME ARE READILY AVAILABLE WITH IT, AND THUS, COULD BE EASIL Y FURNISHED IN SUPPORT, DOES NOT THROW ANY LIGHT ON THE `MISTAKE AT THE END OF THE SUPP LIER - THAT COULD EXPLAIN THE ADMITTED DIFFERENCE. 6.3 THE REVENUES CASE, ON THE OTHER HAND, WE F IND, AS SUPPORTED BY THE DECISION IN THE CASE OF SUDHAKARAN (C.K.) V. ITO , 279 ITR 533 (KER.), WHEREIN IT STANDS HELD THAT T HE REVENUES BURDEN OF PROOF UNDER SECTIONS 69, 69A, E TC., GETS DISCHARGED WHERE IT IS ABLE TO ESTABLISH FACTS AND CIRCUMSTANCES FROM WHICH A R EASONABLE INFERENCE CAN BE DRAWN THAT THE ASSESSEE HAD NOT CORRECTLY DECLARED OR DISCLOSE D THE CONSIDERATION RECEIVED BY HIM AND THERE IS UNDERSTATEMENT OR CONCEALMENT OF CONSI DERATION. THE WORD `CONSIDERATION IS EMPLOYED BY THE HONBLE COURT IN THE CONTEXT OF THE FACTS OF THE CASE BEING DECIDED BY IT, AND THE PRINCIPLE LAID IS UNEQUIVOCALLY CLEAR, I.E. , THAT IT WOULD BE SUFFICIENT IF THE REVENUE IS ABLE TO EXHIBIT, ON THE STRENGTH OF THE ALL RELEVANT MATERIALS, INCLUDING THE CIRCUMSTANCIAL EVIDENCES, OF THE ASSESSEE HAVING MA DE THE IMPUGNED PAYMENTS; THAT BEING THE ONLY UNMISTAKABLE INFERENCE THAT IS FORME D IN THE INSTANT CASE ON A CONSPECTUS OF THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, RATHER, THE SAME BEING ADMITTED. 6.4 IN VIEW OF THE FOREGOING, WE FIND THE AOS ACTI ON AS IN CONFORMITY WITH THE LAW AND ITS REVERSAL BY THE LD. CIT(A) AS NOT MAINTAINA BLE THERE-UNDER. WE DECIDE ACCORDINGLY. ALSO, WE MAY CLARIFY THAT THERE IS NO OVERLAP BETWEEN THE TWO ADJUSTMENTS MADE BY THE AO; WHILE THE DISALLOWANCE U/S. 40A(3) IS TOWARD THE PROSCRIBED (ADMITTED) MODE OF PAYMENT AGAINST ADMITTED PURCHASES (EXPENDI TURE), THE LATTER IS IN RESPECT OF THE UNEXPLAINED SOURCE OF A PART OF THOSE ADMITTED PAYM ENTS, BEING NOT REFLECTED IN THE BOOKS OF ACCOUNT. ITA. NO. 749/COCH./2008 10 7. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 28TH APRIL 2010 GJ COPY TO: 1. M/S. MATHA POULTRY FARM, NALANCHIRA, TRIVANDRUM. 2. THE I.T.O., WARD-1(2), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDE R (ASSISTANT REGISTRA R)