ITO, Jaipur V. S. .K. AGARWAL HUF, Jaipur

ITA 749/JPR/2012

• Counselvise Citation: 74923114 RSA 2012
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH
• Section: 40A(3); 133(6)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 749/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 THE I.T.O. WARD 5(1), JAIPUR. CUKE VS. M/S S.K. AGARWAL HUF, PROP. M/S S.S. MARKETING, 126, KANWAR NAGAR, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AAGHS 5668 J VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : MRS. NEENA JEPH. FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.C. PARWAL LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 15/12/2014 ?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 13/02/2015 VKNS'K @ ORDER PER: R.P. TOLANI, J.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 20/06/2012 BY THE LEARNED CIT(A)-II, JAIPUR FOR A.Y. 2009-10. THE SOLE GROUND OF APPEAL IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS), JAIPUR HAS ERRED IN DELETI NG THE ADDITION OF 46,30,144/- MADE BY THE ASSESSING OFFIC ER U/S 40A(3) WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DE ALS IN THE WHOLESALE TRADING OF M/S GODFREY PHILLIPS INDIA LTD. (FOR SHORT GPI) BRANDS OF CIGARETTES, TEA AND CANDY. IN RESPECT OF BOOK ENTRIES IN RESPECT OF INCENTIVES OF RS. 46,30,144/-, THE ASSES SING OFFICER WAS OF THE VIEW THAT THEY AMOUNTED TO CASH PAYMENTS IN CONT RAVENTION OF PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ACCORDINGLY, THE ASSESSEE WAS CALLED ON TO SHO W CAUSE AS TO WHY THE CORRESPONDING DISALLOWANCE SHOULD NOT BE MADE. 2.1 THE ASSESSEE REPLIED THAT THE DISALLOWANCE IS NO T CALLED FOR INASMUCH AS (A) THESE ARE ONLY BOOK ENTRIES BESIDES AMOUNTS HAV E NOT BEEN CLAIMED AS EXPENDITURE TO ATTRACT SEC. 40A(3). (B) ONLY DEBIT NOTES WERE ISSUED BY GPI QUA WHICH CR EDIT NOTES WERE RECEIVED BY THE ASSESSEE, WHICH ARE DULY ENTERED IN THE BOOKS OF ACCOUNT ALBEIT THROUGH CASH BOOK. (C) THE ASSESSEE SALES THE CIGARETTE CARTOONS TO TH E SALE REPRESENTATIVES OF THE GPI WHO DISTRIBUTED IT TO TH E VARIOUS SHOP KEEPERS/DEALERS/PANWALAS, QUA WHICH THE INCENTIVES/PR OMOTIONAL SCHEMES ARE DECLARED BY THE GPI. CONSEQUENT TO SUCH DISTRIBUTION, THE ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 3 DETAILS OF THE SALES AS INCENTIVES IS PROVIDED TO T HE ASSESSEE ON THE BASIS WHEREOF THE RELEVANT DEBIT NOTES ARE RAISED B Y THE ASSESSEE ON GPI, WHICH ARE DULY COMPENSATED BY GPI BY CORRESPOND ING CREDIT NOTES. (D) THE ASSESSING OFFICER TOOK AN ADVERSE INFERENCE IGNORING THE REAL NATURE OF THE TRANSACTIONS THROUGH DEBIT A ND CREDIT NOTES IN ACCORDANCE WITH THE DISTRIBUTION POLICY/INCENTIVES S CHEMES DECLARED BY THE GPI. MERELY BECAUSE THESE ENTRIES WERE ROUTED BY THE ASSESSEE THROUGH ITS CASH BOOK, LD. ASSESSING OFFICER ARBITR ARILY APPLIED SECTION 40A(3) OF THE ACT WITHOUT APPRECIATING THE REAL NATU RE OF THE BOOK ENTRIES. THUS ASSESSING OFFICER, WILY NILY MADE THE ABOVE DISALLOWANCE HOLDING THE BOOK ENTRIES TO BE CASH PAYMENTS IN VIO LATION OF SECTION 40A(3) OF THE ACT. 3. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL B EFORE THE LEARNED CIT(A), WHO HAD DELETED THE DISALLOWANCE BY FOLLOWING O BSERVATIONS:- I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPE LLANT. THE ONLY ISSUE IN THE PRESENT CASE IS WHETHER AMOUNT OF RS.46,30,144/- DEBITED TO THE ACCOUNT OF GPI BY THE ASSESSEE WHICH WAS INCURRED ON PROMOTIONAL SCHEMES O F GPI AND SUBSEQUENTLY REIMBURSED BY THE GPI BY WAY OF CRE DIT NOTE COULD BE DISALLOWED U/S 40A(3) OR NOT. IT IS, H OWEVER, NOTICED THAT THE AMOUNT OF RS. 46,30,144/- WAS NOT P AID TO THE GPI IN CASH AS SUCH. FOR EXAMPLE, THE AO HAD AL LEGED ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 4 THAT CASH OF RS. 9,66,806/-WAS PAID TO M/S GODFREY P HILIPS INDIA LTD. ON 28.05.2008. HOWEVER THE AO HAD ISSUED NOTICE U/S 133(6) TO M/S GODFREY PHILIPS INDIA LTD. AND CO PY OF ACCOUNT OF THE ASSESSEE FIRM IN THEIR BOOKS OF ACCO UNT WAS ALSO OBTAINED. IT WAS CLEAR ON THE PERUSAL OF SAID LEDGER ACCOUNT THAT THE ASSESSEE HAD ONLY ISSUED DEBIT NOT E NO. 46 DATED 12.05.2008 WHICH WAS RECEIVED BY THEM ON 17.05.2008. SIMILARLY THE AO HAD ALLEGED THAT CASH OF RS 2,15,296/- WAS PAID TO M/S GODFREY PHILIPS INDIA LTD . ON 27.06.2008 HOWEVER IT WAS CLEAR FROM THE SAID LEDGER ACCOUNT SUBMITTED IN RESPONSE TO NOTICE U/S 133(6) THAT THE ASSESSEE FIRM HAD ONLY RAISED DEBIT NOTES NO. 3 &.4 DATED 13.06.2008 AND 14.06.2008 WHICH WERE RECEIVED BY THE M ON 25.06.2008. THUS THE VERIFICATION CARRIED OUT BY TH E AO ITSELF SHOWED THAT M/S GODFREY PHILIPS INDIA LTD. HAD NOT S HOWN ANY CASH RECEIPT FROM THE ASSESSEE FIRM IN THEIR BO OKS OF ACCOUNT. IT IS A FACT ON RECORD THAT THE ASSESSEE WA S A DISTRIBUTOR OF GPI. THE GPI CARRIED OUT VARIOUS SALE S PROMOTION ACTIVITIES THROUGH VARIOUS RETAILERS LIKE PANWALA SHOPS, RETAILS SHOPS, KIRANA SHOPS ETC. FOR DISPLAY OF ITS PRODUCTS BY WAY OF HOARDINGS, GLOW SIGN BOARDS, DISPL AY COUNTERS, BRAND SHOPS ETC. FOR INDUCING THESE SHOPS KEEPERS FOR DISPLAYING THE PRODUCTS OF THE COMPANY, IT PROV IDED THEM INCENTIVE OF A PARTICULAR VALUE DEPENDING UPON THE LOCATION OF THE SHOPS, PERIODICITY OF THE DISPLAY ETC. THIS WAS D ISTRIBUTED THROUGH THE SALESMEN. THE SALESMEN AFTER DISTRIBUTIO N OF THE INCENTIVES PROVIDED THE COMPLETE DETAILS CONTAINING THE NAME ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 5 OF THE OUTLET, LOCATION, AMOUNT OF INCENTIVE, DATE OF INCENTIVE GIVEN AND THE SIGNATURE OF THE RECIPIENT. ON THE BA SIS OF THE INFORMATION, A DEBIT NOTE WAS RAISED BY THE ASSESSEE FIRM ON GPI WHICH REIMBURSED SUCH AMOUNT TO THE ASSESSEE BY WAY OF CREDIT NOTE. THOUGH IT WAS CONTENDED THAT THE AMO UNT OF INCENTIVE WAS PAID BY WAY OF THE FREE DISTRIBUTION OF THE CIGARETTE PACKETS BUT THE SAME WAS NOT BORNE OUT FRO M THE DOCUMENTS/EVIDENCES FILED BY THE ASSESSEE. I HAVE A LSO PERUSED THE PAYMENT/RECEIVERS LIST SUBMITTED BY THE COUNSEL OF APPELLANT WHEREIN IT WAS MERELY MENTIONED THAT THE INCENTIVES RANGING FROM RS 300/- TO RS 3500/- WERE P AID TO VARIOUS RETAILERS AND NOTHING WAS MENTIONED THAT THE CIGARETTE PACKETS WERE DISTRIBUTED. AT THE SAME TIME , HOWEVER IT IS NOTICED BY UNDERSIGNED THAT THE AMOUNT PAID TO VARIOUS RETAILERS/PANWALAS/SHOPKEEPERS WAS OF VARIOUS SMALL AMOUNTS EACH BEING LESS THAN RS. 20,000/-. THESE PAY MENTS WERE MADE NOT TO THE GPI BUT TO THESE SMALL SHOPKEEPERS/RETAILERS/PANWALAS THROUGH THE SALES PER SONS. THE GPI HAD NOT SHOWN ANY RECEIPT OF THE CASH FROM TH E ASSESSEE. IT HAD ONLY ISSUED THE CREDIT NOTE IN RES PECT OF THE AMOUNT PAID BY THE ASSESSEE ON ACCOUNT OF THE GPI T OWARDS REIMBURSEMENT. EVEN THE AO IN PARA 5 (IV) OF HIS OR DER HAD STATED THAT GPI EXECUTED VARIOUS SALES PROMOTION SC HEMES FOR WHICH IT HAD TO INCUR EXPENDITURE WHICH WERE INC URRED THROUGH PANWALA/PAINTERS/PETTY SALES PERSONS WHO ACCE PTED THE PAYMENTS IN CASH ONLY. THE AO ALLEGED THAT AS PE R THE INSTRUCTION OF THE GPI, THE CASH WAS MADE AVAILABLE BY THE ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 6 ASSESSEE WHICH WAS UTILIZED BY THE SALES PERSONS OF THE COMPANY. THEREAFTER THE ASSESSEE RAISED THE DEBIT NO TE ON THE COMPANY WHICH IN TURN ISSUED CREDIT NOTE TO THE ASSESSEE. HOWEVER, THERE WAS NO EVIDENCE ON RECORD TH AT CASH WAS MADE AVAILABLE BY THE ASSESSEE TO THE SALES PERSON ON INSTRUCTIONS OF THE GPI. IN FACT FROM THE RECORD , IT WAS EVIDENT THAT ASSESSEE, THROUGH THE SALES PERSON, PR OVIDED THE INCENTIVES TO SHOP KEEPERS/PANWALAS/RETAILERS ET C. AND ON GETTING THE COMPLETE DETAILS, IT RAISED THE DEBI T NOTE AGAINST WHICH THE COMPANY ISSUED THE CREDIT NOTE. SE CTION 40A(3) APPLIES WHEN THE PAYMENT OR THE AGGREGATE OF THE PAYMENT MADE TO A PERSON IN A DAY OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE EXCEEDS RS.20,000L-. IN THIS C ASE, PAYMENT OR THE AGGREGATE OF THE PAYMENTS MADE TO A PERSON IN A DAY DID NOT EXCEED RS.20,000/- AS EVIDENT FROM THE DOCUMENTS SUBMITTED BY THE APPELLANT AND THAT COLLE CTED BY THE AO FROM THE GPI. THE GPI HAD ALSO NOT SHOWN ANY CASH RECEIPT FROM THE ASSESSEE AGAINST THE SALES MADE TO THE ASSESSEE. ONLY BECAUSE THE ENTRY WAS ROUTED THROUGH THE CASH BOOK, IT COULD NOT BE TAKEN THAT CASH WAS PAID TO THE GPI IGNORING THE EVIDENCE OF PAYMENT TO THE INDIVID UAL PERSONS OF LESS THAN RS. 20,000/-. THE HONBLE SUPRE ME COURT IN CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (199 ITR 667) HAS HELD THAT ITO SHOULD TAKE A PRACTICAL AP PROACH TO THE PROBLEM AND STRIKE A BALANCE BETWEEN THE DIRE CTION OF THE LAW AND THE HARDSHIP TO THE ASSESSEE. HE SHOULD NOT ENMESH HIMSELF IN THE TECHNICALITIES. THE OBJECT OF SECTION ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 7 404(3) WAS NOT TO DEPRIVE THE ASSESSEE OF THE DEDUCT ION WHICH HE WAS OTHERWISE ENTITLED TO CLAIM. MOREOVER, TH E ENTRIES IN THE BOOKS OF ACCOUNT WERE NOT CONCLUSIVE FOR DETERMINING THE NATURE OF TRANSACTIONS. WHAT WAS MOR E RELEVANT WAS THE SUBSTANCE OF THE TRANSACTIONS. IT WA S HELD BY THE HONBLE SUPREME COURT IN THE CASE OF SUTLEZ COTTON MILLS LTD. VS CIT (116 ITR 001) THAT THE WAY IN WHICH E NTRIES WERE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT WAS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAD EARNED ANY PROFIT OR SUFFERED ANY LOSS. THE ASSESSE E MIGHT, BY MAKING ENTRIES WHICH WERE NOT IN CONFORMITY WITH TH E PROPER PRINCIPLES OF ACCOUNTANCY, CONCEAL PROFIT OR SHOW LOSS AND THE ENTRIES MADE BY HIM COULD NOT, THEREFORE, B E REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT WAS NECESSARY TO BE CONSIDERED WAS THE TRUE NATURE OF TH E TRANSACTION AND WHETHER IN FACT, IT HAD RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. ON THE CONTRARY, THE AO HAD CATEGORICALLY MENTIONED IN PARA (III) ON PAGE 4 OF THE ASSESSMENT ORDER THAT NONE OF THE AMOUNT ALLEGED TO BE PAID IN CASH, WAS FOUND ENTERED IN THE CASH BOOK. IF THAT WAS THE CASE, THE IMPUGNED DISALLOWANCE U/S 40A(3) MADE BY T HE AO HAD NO BASIS. UNDER THESE CIRCUMSTANCES, THE DISALL OWANCE MADE BY THE AO HAS NO LEGS TO STAND AND CAN'T BE SU STAINED. I THEREFORE DIRECT THE AO TO DELETE THE ADDITION OF RS.46,30,144/-. THIS GROUND OF APPEAL IS ALLOWED. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 8 5. THE LEARNED SR.D.R. VEHEMENTLY SUPPORTED THE ORDE R OF THE LEARNED ASSESSING OFFICER. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED T HE FACTS, SUBMISSIONS AND CONTENTIONS AS FILED IN THE WRITTEN SUBMISSIONS AND FURNISHED BEFORE THE LEARNED CIT(A). IT IS PLEADED T HAT MERELY BECAUSE SOME BOOK ENTRIES ARE ROUTED THROUGH THE ASSESSEES CASH BOOK THE LEARNED ASSESSING OFFICER CANNOT IGNORE THE REAL NA TURE OF THE TRANSACTIONS AND ARBITRARILY HOLD THEM AS CASH PAYM ENTS. THEY ARE NEITHER CASH PAYMENTS NOR CLAIMED AS EXPENDITURE BY THE ASSESSEE TO BE HELD AS VIOLATION OF SECTION 40A(3) OF THE ACT. THE LEARNED CIT(A) HAS RELIED ON THE ORDER OF THE HON'BLE SUPREME COUR T ATTAR SINGH GURMUKH SINGH VS. ITO AND SUTLEZ COTTON MILLS LTD. V S CIT (SUPRA) AND GIVEN THE FINDING OF FACTS THAT THEY ARE BOOK ENTRI ES AND NONE OF THE AMOUNT WAS PAID IN CASH, THEREFORE, PROVISIONS OF SE CTION 40A(3) OF THE ACT WAS NOT APPLICABLE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE FA CTS HAVE BEEN NARRATED ABOVE. THE FACT THAT THESE WERE BOOK ENTRIES BASED ON CREDIT AND DEBIT NOTES HAVE NOT BEEN DISPUTED. SIMILARLY, THE AMOUNTS TRANSACTED WERE NOT CLAIMED AS EXPENDITURE AND REPRE SENTED ONLY ITA 749/JP/2012_ ITO VS. M/S S.K. AGARWAL HUF 9 QUANTIFIED AMOUNTS OF INCENTIVES PROVIDED AS PER SA LES AND DISTRIBUTION POLICY OF THE GPI, THEY CANNOT BE HELD AS CASH PAYM ENTS BY ANY STRETCH OF IMAGINATION. THESE GLARING FACTS COULD NOT BE CON TROVERTED BY THE LEARNED SR.D.R. IN VIEW OF THE FOREGOING, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A), WHICH ARE BASED ON PROP ER APPRECIATION OF FACTS AND LAW AND ARE UPHELD. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/02/2015. SD/- SD/- VH-VKJ-EHUK VKJ-IH-RKSYKUH (T.R. MEENA) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 13 TH FEBRUARY, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ITO, WARD 5(1), JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT-M/S S.K. AGARWAL HUF, JAIPUR. 3. VK;DJ VK;QDRVIHY @ THE CIT(A)-II, JAIPUR. 4. VK;DJ VK;QDR @ CIT, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 749/JP/2012) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR