Pranab Kumar Moulik, Kolkata V. ITO, Ward - 41(3), Kolkata, Kolkata

ITA 847/KOL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9180 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 29-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V A RAJU
• Assessee Lawyers: A K BANERJEE
• Keywords: Income from undisclosed sources; Question of law
• Section: 40A(3); 143(3); 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE , /AND , . . !' ) [BEFORE HONBLE SRI MAHAVIR SINGH, JM & HONBLE SHR I C. D. RAO, AM] # # # # / I.T.A NO. 847/KOL/2010 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEAR: 2004-05 PRANAB KUMAR MOULIK VS INCOME-TAX OFFICER, WD-4 1(3), KOLKATA (PAN-AEZPM 7256 B) ()* /APPELLANT ) (+,)*/ RESPONDENT ) FOR THE APPELLANT: SHRI A. K. BANERJEE FOR THE RESPONDENT: SHRI V. A. RAJU !- / ORDER PER MAHAVIR SINGH, JM ( , , , , ) THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDER OF CIT(A)-XXIV, KOLKATA IN APPEAL NO.536/CIT(A)-XXIV/41(3)/08-09 DATED 18.02.2010. TH E ASSESSMENT WAS FRAMED BY ITO, WD- 41(3), KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2004-05 VIDE HIS ORDER DATED 26 .12.2006. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF ASSESSING OFFICER IN UPHOLDING THE DI SALLOWANCE MADE U/S. 40A(3) OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING 2 GROUN DS: 1. FOR THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.3,94,958/- TO TOTAL I NCOME MADE BY THE LEARNED ASSESSING OFFICER IN APPLICATION OF SECTION 40A(3) OF THE INC OME-TAX ACT, 1961 WITHOUT TAKING INTO CONSIDERATION THE ARGUMENTS PLACED BEFORE HIM AND T HE FACTS INVOLVED IN THIS CASE. 2. FOR THAT HAVING REGARD TO THE FACTS THAT THE PAY MENTS OF RS.19,74,789/- MADE IN CASE TO M/S. BARTAMAN PVT. LTD. WAS NOT RELATED TO THE E XPENDITURE WHICH WOULD BE BROUGHT FOR THE PURPOSE OF THE COMPUTATION OF THE INCOME UN DER THE HEAD, PROFITS AND GAINS OF BUSINESS OR PROFESSION, THE LEARNED COMMISSIONER O F INCOME-TAX (APPEALS) AND THE LEARNED ASSESSING OFFICER WERE ERRONEOUS IN HOLDING THAT SUCH PAYMENTS WERE COVERED BY THE PROVISIONS OF SECTION 40A(3) OF THE SAID ACT . 3. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 29.10.2004 DECLARING TOTAL INCOME AT RS.6,61,400/- FOR ASSESSMENT YEAR 2004-05. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS FOUND THAT ASSESSEE HAS MADE PAYMENTS TO M/S. BARTAMAN PVT. LTD. (HEREINAFTER RE FERRED TO AS BPL) IN CASH IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT AMOU NTING TO RS.19,74,789/-. THE ASSESSING 2 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 OFFICER HAS NOTED THE ENTIRE PAYMENT DATE WISE IN H IS ASSESSMENT ORDER AND THE SAME NEED NOT BE REPEATED. IT IS ALSO ADMITTED BY THE ASSESSEE THAT THESE PAYMENTS ARE MADE IN CASH. HENCE, THERE IS NO DISPUTE ON THIS FACT. ASSESSING OFFICER REQU IRED THE ASSESSEE BY SHOW CAUSE AS TO WHY 20% OF THE CASH PAYMENTS SHOULD NOT BE DISALLOWED BY IN VOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE ASSESSEE BEFORE THE ASSESSING OFFICER VIDE WRITTEN PETITION DATED 11.12.2006 STATING THAT BPL REFUSED TO ACCEPT CHEQUE/BANK DR AFT FROM THE ASSESSEE AND FURTHER EXPLAINED THAT ASSESSEE DERIVES 5% EXTRA BENEFIT OF DISCOUNT ON CASH PAYMENTS MADE TO BPL. ACCORDING TO THE ASSESSEE, THESE PAYMENTS WERE MADE FOR BUSIN ESS EXPEDIENCY. THE ASSESSEE ALSO RELIED ON THE CASE LAW OF HONBLE APEX COURT IN THE CASE OF A TTAR SINGH GURMUKH SINGH VS ITO (1991) 191 ITR 667 (SC) AND ALSO HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS NIKKO AUTO LTD (2002) 256 ITR 476 (P&H). THE ASSESSING O FFICER NOTED THAT NO DOUBT THE ASSESSEE HAS GOT BENEFIT OF 5% OF DISCOUNT ON TOTAL TRANSACT IONS OF CASH PAYMENT OF RS.19,74,789/-, AND ACCORDING TO HIM, THUS THE ASSESSEE KNOWINGLY MADE CASH PAYMENT IN VIOLATION OF SECTION 40A(3) OF THE ACT. THE ASSESSING OFFICER NOTED THA T ASSESSEE HAS MADE MERE SUBMISSIONS BUT COULD NOT PRODUCE ANY EVIDENCE REGARDING REFUSAL OF ACCEPTANCE OF CHEQUE/BANK DRAFT FROM THE ASSESSEE BY BPL. ACCORDING TO ASSESSING OFFICER, THE CERTIFICATE ISSUED BY BPL DATED 21.11.2006 REVEALED THAT ASSESSEE MADE CASH PAYMENT S TO CLAIM DISCOUNT OF 5% ON TRANSACTIONS. ACCORDINGLY, ASSESSING OFFICER NOTED THAT ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND, THEREFORE, HE DISALLOWED 20% OF THE TRANSACTION MADE IN CASH BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE AC T. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A)AND HE CONFIRMED THE ACTION OF ASSESSI NG OFFICER. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE BEFORE US STATED THAT HE IS AN INDIVID UAL AND HE HAS BEEN CARRYING ON THE BUSINESS UNDER THE NAME AND STYLE OF SOLAR ADVERTISING ENTE RPRISE AS AN AGENT IN THE LINE OF ADVERTISING AND PUBLICITY AND WAS RESPONSIBLE TO COLLECT ORDERS FROM THE ADVERTISERS AND TO PAY THE SUMS TO THE PUBLISHERS OF NEWSPAPERS AS AGAINST THEIR BILLS OR ON REQUISITIONS OF FUND. THE MODE OF PAYMENT TO THE PUBLISHERS DEPENDS UPON CIRCUMSTANCE S, TIME AND OBLIGATION IMPOSED ON ASSESSEE. ACCORDING TO ASSESSEE HE DERIVED BENEFIT BY WAY OF DISCOUNT FROM NEWSPAPERS BY MAKING CASH PAYMENTS, SINCE PROCEDURE LAID DOWN BY NEWSPAPERS FOR DELIVERY OF MATTERS AND MAKING MODE OF PAYMENTS, THE ASSESSEE HAD TO FOLLOW SUCH PROCEDURE IN ORDER TO GIVE EFFECT TO THE ORDERS OF THE PRINCIPALS WHO SOUGHT FOR ADVERTI SEMENT. ACCORDING TO HIM, MOST OF THE ORDERS WERE RECEIVED FROM PRINCIPALS DURING DAY TIME AND M ATTERS WERE DELIVERED TO THE OFFICE OF NEWSPAPER AT THE FAG END OF THE DAY OR EVENING WHEN BANKING SERVICES WERE NOT AVAILABLE. AND 3 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 FURTHER, HE STATED THAT ADVERTISEMENTS OF PRINCIPAL S WOULD NOT APPEAR ON THE FOLLOWING DAY UNLESS THE PAYMENTS WERE NOT MADE TO THE NEWSPAPERS ON THE EARLIER DAY AND IN CASE, ANY CHEQUE IS TENDERED, MATTERS WOULD NOT BE PUBLISHED BY THE NEW SPAPER, UNLESS SUCH CHEQUE IS ENCASHED IN ROUTINE MANNER AND FOR THAT AT LEAST 3 DAYS ARE USU ALLY REQUIRED TO GET THE CHEQUE CLEARED BY THE BANK. FURTHERMORE, THE ASSESSEE WILL DERIVE EXTRA B ENEFIT OF COMMISSION AT THE RATE OF 5% FOR PAYMENTS MADE IN CASH TO THE NEWSPAPERS. WE FIND FR OM ABOVE ARGUMENTS THAT PAYMENTS IN CASH WERE MADE ON FOLLOWING CONSIDERATION: (A) THE ASSESSEE REIMBURSED THE EXPENDITURE AS AN AGENT ON BEHALF OF THE PRINCIPALS. IN OTHER WORDS, IT MAY BE STATED THAT THE ASSESSEE REI MBURSED THE SUM WHICH WAS RECEIVED FROM THE PRINCIPAL; (B) THE PAYMENTS WERE NOT MADE FOR GOODS PURCHASES OR SERVICES; (C) AT THE TIME OF PAYMENT THERE WERE NO BANKING FA CILITIES AVAILABLE TO THE ASSESSEE; (D) SPECIFIC DISCOUNT WAS GIVEN TO THE ASSESSEE BY THE RECIPIENT; (E) CASH PAYMENTS WERE MADE ONLY UNDER EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES. THE RECIPIENT REFUSED TO ACCEPT CHEQUE. THE ASSESSEE ALSO CONTENDED THAT THE ASSESSING OFFI CER HAS NOT DOUBTED GENUINENESS OF PAYMENTS MADE TO THE SAID NEWSPAPER. 5. WE FIND THAT THE CIT(A) HAS CONSIDERED SUBMISSIO NS OF ASSESSEE AND NEGATED THE CLAIM BY GIVING FOLLOWING FINDINGS:- 2.3. FROM THE ABOVE SUBMISSIONS OF THE APPELLANT I T IS SEEN THAT THE APPELLANT HAD CLAIMED THAT IT ACTED AS AN AGENT ON BEHALF OF HIS PRINCIPAL AND SO THE PAYMENTS MADE TO BARTAMAN (P) LTD., WERE THE PAYMENTS MADE NOT FO R GOODS PURCHASED OR SERVICES. THEY WERE DULY REIMBURSED BY THE PRINCIPAL. IT WAS ALSO CLAIMED THAT THE PAYMENTS WERE MADE LATE IN THE EVENING OR NIGHT FOR INSERTIO N IN THE NEXT DAYS PAPER AND THEREFORE THERE WAS NO BANKING FACILITY AVAILABLE A T THE TIME OF PAYMENT. APPELLANT ALSO CLAIMED THAT RECIPIENT REFUSED TO ACCEPT CHEQUES. I N SUPPORT OF ABOVE CLAIMS THE APPELLANT FILED COPIES OF 2 CERTIFICATES FROM M/S B ARTAMAN (P) LTD. PERUSAL OF THE ABOVE CERTIFICATES DOES NOT ESTABLIS H THAT M/S. BARTAMAN REFUSED TO ACCEPT CHEQUE/DRAFT AS IS EVIDENT FROM THE CONTENTS OF THE CERTIFICATES REPRODUCED BELOW: SOLAR ADVERTISING ENTERPRISE, 35 C.R. AVENUE, 5TH FLOOR, KOLKATA -12 HAD RELEASED ADVERTISEMENTS OF THEIR VARIOUS CLIENT S IN OUR GROUP OF PUBLICATION DURING 2003-04 AGAINST CASH PAYMENT FOR WHICH WE HAD ALLOWED CASH DISCOUNT AS PER OUR SYSTEM. THIS IS TO CERTIFY THAT WE GENERALLY RECEIVE ALL P AYMENTS IN ADVANCE FROM SOLAR ADVERTISING ENTERPRISES, KOLKATA TOWARDS PUBLICATION OF THEIR VARIOUS CLIENTS ADVERTISEMENTS IN OUR GROUP OF PUBL ICATIONS AND DO NOT ALLOW THEM TO PAY ANY AMOUNT AFTER THE PUBLICATION OF THE ADVERTISEMENT. THE CLAIM OF THE APPELLANT THAT THE PAYMENTS WERE N OT FOR PURCHASE OF GOODS/ SERVICES, BUT ONLY PAYMENT ON BEHALF OF PRINCIPAL, IS ALSO NO T ESTABLISHED AS THE PAYMENTS HAVE 4 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 BEEN ROUTED THROUGH ITS P&L ACCOUNT AS EXPENSES. TH EREFORE IT CANNOT BE SAID THAT THE APPELLANT MERELY ACTED AS AGENT. THE CLAIM OF THE A PPELLANT THAT THESE WERE MADE AT THE TIME WHEN THERE WAS NO BANKING FACILITY AVAILABLE A S PAYMENTS WERE MADE AT NIGHT FOR ENSURING THAT INSERTIONS APPEARED IN THE NEXT DAYS NEWSPAPER HAS ALSO NOT BEEN SUBSTANTIATED BY PRODUCING ANY DETAILS TO SHOW WHEN THE MATTER WAS SUBMITTED BEFORE BARTAMAN AND ON WHAT DATE THE INSERTION WAS REQUIRE D TO BE MADE. THE CLAIM OF BUSINESS EXPEDIENCY WAS THEREFORE NOT ESTABLISHED. FROM THE CERTIFICATE OF BARTAMAN (P) LTD IT IS SEEN THAT IT SAYS THAT PAYMENTS WERE REQUIRED TO BE MADE IN ADVANCE. SUCH ADVANCE PAYMENTS COULD HAVE BEEN VERY WELL MADE BY CHEQUES/DRAFTS. THE PROVISION OF SECTION 40A(3) RULE 6DD HAVE BEEN AMENDED AND THE A MENDED PROVISIONS READ AS UNDER: S 40A(3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE, AFTER SUCH DATE (NOT BEING LATER T HAN THE 31ST DAY OF MARCH 1969) AS MAY BE SPECIFIED IN THIS BEHALF BY T HE CENTRAL GOVERNMENT BY NOTIFICATION IN THE OFFICIAL GAZETTE, IN A SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT, TWENTY PER CENT, O F SUCH EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION: PROVIDED THAT WHERE AN ALLOWANCE HAS BEEN MADE IN T HE ASSESSMENT FOR ANY YEAR NOT BEING AN ASSESSMENT YEAR COMMENCING PR IOR TO THE 1ST DAY OF APRIL, 1969, IN RESPECT OF ANY LIABILITY INCURRED B Y THE ASSESSEE FOR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS YE AR THE ASSESSEE MAKES ANY PAYMENT IN RESPECT THEREOF IN A SUM EXCEE DING TWENTY THOUSAND RUPEES OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT, THE ALLOWANCE ORIGINALLY MADE S HALL BE DEEMED TO HAVE BEEN WRONGLY MADE AND THE ASSESSING OFFICER MA Y RE COMPUTE THE TOTAL INCOME OF THE ASSESSEE FOR THE PREVIOUS YEAR IN WHICH SUCH LIABILITY WAS INCURRED AND MAKE THE NECESSARY AMENDMENT, AND THE PROVISIONS OF SECTION 154 SHALL, SO FAR AS MAY BE, APPLY THERETO, THE PERIOD OF FOUR YEARS SPECIFIED IN SUB SECTION (7) OF THAT SECTION BEING RECKONED FROM THE END OF THE ASSESSMENT YEAR NEXT FOLLOWING THE PREVIOUS YEA R IN WHICH THE PAYMENT WAS SO MADE: PROVIDED FURTHER THAT NO DISALLOWANCE UNDER THIS SU B-SECTION SHALL BE MADE WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY TH OUSAND RUPEES IS MADE OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT, IN SUCH CASES AND UNDER SUCH CI RCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTE NT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AN D OTHER RELEVANT FACTORS. THE CASES AND CIRCUMSTANCES WHERE AN EXCEPTION HAS TO BE MADE BY VIRTUE OF THE SECOND PROVISO TO THE SAID SECTION HAVE BEEN ENUMERATED IN RULE 6DD AND THE CASE OF THE APPELLANT IS NOT COVERED BY ANY OF THE CASES AND CI RCUMSTANCES ENUMERATED THEREIN. THE APPELLANT HAS MADE A REFERENCE TO THE FACT THAT IT ONLY ACTED AS AN AGENT AND MADE THE PAYMENTS ON BEHALF OF HIS PRINCIPALS HOWEVER THE RU LE 6DD DOES NOT COVER THE CASE OF THE APPELLANT AS IN RULE 6DD IT HAS BEEN STATED AS UNDE R: 6DD (K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVI CES ON BEHALF OF SUCH PERSON; THE APPELLANT HAS NOT FILED ANY EVIDENCES TO SHOW T HAT IT RECEIVED CASH FROM HIS PRINCIPALS WHICH WAS THEN PAID TO M/S BARTAMAN PVT. LTD. THE ABOVE C ONTENTION OF THE APPELLANT IS THEREFORE NOT ACCEPTABLE. THE APPELLANT HAS PLACED RELIANCE ON THE JUDGMENTS AS NOTED BELOW WHEREIN THE FINDINGS OF THE COURTS HAVE ALSO BEEN REPRODUCED. 5 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 1. GIRDHARILAL GOENKA VS. CIT 179 ITR 122 (CAL) ON THE FACTS OF THIS CASE, WHERE THE ASSESSEE HAS S ATISFIED THE ASSESSING OFFICER AS TO THE GENUINENESS OF THE PAYMENT AND THE IDENTITY OF THE PAYEE, THE CIRCUMSTANCE THAT THERE WAS A DELAY IN MAKING PAYMENT OF THE BILLS BY ITSELF WOUL D NOT TAKE THE CASE OUT OF THE AMBIT OF EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES REFERRED T O IN RULE 6DD(J) AND DEDUCTION OF THE EXPENDITURE WHICH IS OTHERWISE ALLOWABLE TO HIM CAN NOT BE DENIED. FOR THE REASONS AFORESAID, WE ANSWER THIS QUESTION IN THE NEGATIVE AND IN FAVO UR OF THE ASSESSEE. 2. CIT VS. SURESH KR. AGARWAL 249 ITR 113 THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENU INE OR WHETHER IT WAS OUT OF THE INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A( 3) ARE NOT ABSOLUTE. CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCU MSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTIC ABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASS ESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CA N BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT I N THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTI ON 40A(3) AND RULE 6DD THAT THEY ARE INTENDED T O REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTION S. IN VIEW OF THE SAID DECISION, WE DO NOT FIND THAT ANY SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL. THE APPEAL IS ACCORDINGLY DISMISSED. 3. CIT V. CHROME LEATHER CO. LTD. PVT. LTD. 235 ITR 708 (MAD) THE ISSUE BEFORE THE COURT WAS- WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THERE WAS NO CASE FOR ANY DISALLOWA NCE UNDER SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 1974-75? AND THE COURT HELD AS UNDER: THE FINDING RECORDED BY THE APPELLATE TRIBUNAL IS A FINDING ARRIVED AT ON THE FACTS OF THE CASE. THE TRIBUNAL HAS ACCEPTED THE MATERIALS PRODUCED BE FORE IT IN SUPPORT OF ITS FINDING THAT ONLY AT THE TIME OF PURCHASE, THE ACTUAL AMOUNT WOULD BE KN OWN AND THE IDENTITY OF THE PARTY WAS SUCCESSFULLY ESTABLISHED AND THE DECISION OF THE TR IBUNAL IS BASED ENTIRELY ON THE FACTS OF THE CASE. 4. ITO VS. PETIDAR GINNING & BEARING CO. 51 ITD 7 ( AHD.) CIT (APPEALS) HAS RIGHTLY COME TO THE CONCLUSION TH AT THE PROVISIONS OF SECTION 40A(3) DO NOT APPLY TO PAYMENTS MADE TO THESE TWO PARTIES. EVEN O THERWISE THE IDENTITY OF THESE TWO PARTIES IS NOT IN DISPUTE. THE GENUINENESS OF THE TRANSACTION HAS ALSO BEEN WELL PROVED AND THE CONFIRMATION LETTERS OF THESE TWO PARTIES CLEARLY P ROVE THAT CASH PAYMENTS WERE MADE TO THEM PURSUANT TO INSISTENCE FOR CASH PAYMENTS AND BOTH T HE PARTIES HAVE ALSO CONFIRMED THAT THEY REFUSED TO ACCEPT PAYMENTS ON THE RESPECTIVE DATES BY CROSSED CHEQUES/DRAFTS. THE MATTER WOULD EVEN OTHERWISE BE COVERED BY THE EXCEPTIONS IN RULE 6DD(J) READ WITH BOARD CIRCULAR DATED 31- 5-1977. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATIO N IN INTERFERING WITH THE ORDER OF THE LEARNED CIT (APPEALS). 5. CIT VS. MRINALINI V. SARABHAI 265 ITR 64 (GUJ) THE ASSESSEE HAD ADOPTED A PECULIAR METHOD OF MAIN TAINING HER BOOKS OF ACCOUNT AND HAVING HER BUSINESS TRANSACTIONS, AND ACCORDING TO HER MET HOD, THE ENTIRE WORK WITH REGARD TO PAYMENT AND COLLECTION OF MONEY WAS ENTRUSTED TO THE FIRM. IF IN SUCH A SET OF CIRCUMSTANCES, THE FIRM MAKES PAYMENT ON BEHALF OF THE ASSESSEE BY ACCOUNT PAYEE CHEQUES, BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THERE WAS ANY CASH TRANSACTION OR THERE WAS ANY POSSIBILITY OF HAVING CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK M ONEY. WHEN THE ASSESSEE FOUND IT PRACTICABLE AND EXPEDIENT TO ENTRUST ALL HER BUSINE SS TRANSACTIONS TO THE FIRM AS HER AGENT, AND 6 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 AS THE FIRM HAD MADE PAYMENTS BY ACCOUNT PAYEE CHEQ UES TO THE CONCERNED PERSONS, AND WHEN IDENTITY OF ALL PERSONS TO WHOM PAYMENTS WERE MADE WAS REVEALED FROM THE BOOKS OF ACCOUNT. IT MAY BE NOTED THAT ALL THE ABOVE CASES ARE GIVEN IN THE LIGHT THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD(J) AS THEY STOOD PRIOR THE AMENDMENT. EARLIER RULE 6DD(J) READ AS UNDER: I) IN ANY OTHER CASE, WHERE THE ASSESSEE SATISFIES THE INCOME-TAX OFFICER THAT THE PAYMENT COULD NOT BE MADE BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT (1) DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES, OR (2) BECAUSE PAYMENT IN THE MANNER AFORESAID WAS NOT PRACTICABLE, OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE, HAVING REGARD TO T HE NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXPEDITIOUS SETTLEMENT THEREOF AND ALSO FURNISH ES EVIDENCE TO THE SATISFACTION OF THE INCOME- TAX OFFICER AS TO THE GENUINENESS OF THE PAYMENT AN D THE IDENTITY OF THE PAYEE. THE BOARD, THEREFORE, ISSUED A CIRCULAR ON MAY 31, 1977, BEING CIRCULAR NO. 220, CLARIFYING THE PROVISIONS OF SECTION 40A(3) AS WELL AS RULE 6DD(J) . IT HAS BEEN PROVIDED AS FOLLOWS: 4. ALL THE CIRCUMSTANCES IN WHICH THE CONDITIONS L AID DOWN IN RULE 6DD(J) WOULD BE APPLICABLE CANNOT BE SPELT OUT. HOWEVER, SOME OF THEM WHICH WO ULD SEEM TO MEET THE REQUIREMENTS OF THE SAID RULE ARE: (1) THE PURCHASER IS NEW TO THE SELL ER; OR (II) THE TRANSACTIONS ARE MADE AT A PLACE WHERE EITHER THE PURCHASER OR THE SELLER DOES NOT H AVE A BANK ACCOUNT; OR (III) THE TRANSACTIONS AND PAYMENTS ARE MADE ON A BANK HOLIDAY; OR (IV) TH E SELLER IS REFUSING TO ACCEPT THE PAYMENT BY WAY OF CROSSED CHEQUE/DRAFT AND THE PURCHASERS BUSINESS INTEREST WOULD SUFFER DUE TO NON AVAILABILITY OF GOODS OTHERWISE THAN FROM THIS PART ICULAR SELLER; OR (V) THE SELLER, ACTING AS A COMMISSION AGENT, IS REQUIRED TO PAY CASH IN TURN T O PERSONS FROM WHOM HE HAS PURCHASED THE GOOD; OR (VI) SPECIFIC DISCOUNT IS GIVEN BY THE SEL LER FOR PAYMENT TO BE MADE BY WAY OF CASH. 5. IT CAN BE SAID THAT IT WOULD GENERALLY SATISFY T HE REQUIREMENTS OF RULE 6DD(J), IF A LETTER TO THE ABOVE EFFECT IS PRODUCED IN RESPECT OF EACH TRANSAC TION FALLING WITHIN THE CATEGORIES LISTED ABOVE FROM THE SELLER GIVING FULL PARTICULARS OF HIS ADDR ESS, SALES TAX NUMBER/PERMANENT ACCOUNT NUMBER, IF ANY, FOR THE PURPOSES OF PROPER IDENTIFI CATION TO ENABLE THE INCOME-TAX OFFICER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE TRANSA CTION. THE INCOME-TAX OFFICER WILL, HOWEVER, RECORD HIS SATISFACTION BEFORE ALLOWING THE BENEFIT OF RULE 6DD(J). 6. IT IS FURTHER CLARIFIED THAT THE ABOVE CIRCUMSTA NCES ARE NOT EXHAUSTIVE BUT ILLUSTRATIVE. THERE COULD BE CASES OTHER THAN THOSE FALLING WITHIN THE ABOVE CATEGORIES WHICH WOULD ALSO MEET THE REQUIREMENTS OF RULE 6DD(J). (EMPHASIS SUPPLIED) HOWEVER RULE 6DD(J) HAS BEEN AMENDED AND READS AS U NDER: I) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE; SECTION 40A(3) WAS AMENDED BY THE FINANCE ACT, 1995 THE SCOPE AND EFFECT OF THE ABOVE AMENDMENT HAVE BEEN ELABORATED IN FOLLOWING PORTION OF THE DEPARTMENTAL CIRCULAR NO: 117, DATED 14TH AUGUST, 1995, AS UNDER AMENDMENT OF SECTION 40A(3) OF THE INCOME TAX ACT, TO PROVIDE FOR DISALLOWANCE OF 20 PER CENT OF CASH EXPENDITURE 27.1 SECTION 40A(3) PR OVIDES FOR DISALLOWANCE OF AN EXPENDITURE, INCURRED FOR BUSINESS OR PROFESSION, I N RESPECT OF WHICH PAYMENT EXCEEDING RS. 10,000/- IS MADE OTHERWISE THAN BY A CROSSED CHEQUE OR A CROSSED BANK DRAFT. CERTAIN CASH PAYMENTS HAVE, HOWEVER, BEEN EX CLUDED UNDER RULE 6DD FROM THE PROHIBITION CONTAINED IN THIS SECTION. SUB-RULE (I) OF RULE 6DD PRESCRIBES THE MITIGATING CIRCUMSTANCES WITH A VIEW TO RELAX THE RIGORS OF SE CTION 40A(3) IN GENUINE AND BONA FIDE CASES. SUB-RULE (I) WAS INTRODUCED AT A TIME W HEN BANKING FACILITIES HAD YET TO TAKE ROOTS IN RURAL AREAS. NOW THAT BANKS HAVE ESTABLISH ED THEMSELVES IN RURAL AREAS AND A VAST BRANCH NETWORK IS AVAILABLE, IT IS FELT THAT S UB-RULE (I) HAS OUTLIVED ITS UTILITY. 7 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 27.2 THESE PROVISIONS HOVE ALSO GIVEN RISE TO SUBST ANTIAL LITIGATION ARISING OUT OF THE INTERPRETATION AND SCOPE OF SECTION 40A(3) READ WIT H RULE 6DD(J). 27.3 SECTION 40A(3) HAS BEEN AMENDED TO PROVIDE THA T IN CASE ANY PAYMENT IS MADE IN CONTRAVENTION OF SECTION 40A(3), THEN 20 PER CENT O F SUCH EXPENDITURE WOULD BE DISALLOWED AND TAKEN INTO ACCOUNT FOR COMPUTATION O F INCOME. NECESSARY AMENDMENTS IN THE INCOME-TAX RULES WILL CONSEQUENTLY BE MADE S O AS TO DELETE CLAUSE (I) OF RULE 6DD. IN VIEW OF THE ABOVE THE CONTENTION THAT PAYMENTS W ERE ON A/C OF BUSINESS EXPEDIENCY IS NO MORE A RELEVANT FACTOR. THE PHRASE HAVING REGAR D TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUS INESS EXPEDIENCY AND OTHER RELEVANT FACTORS. USED IN THE SECOND PROVISO TO SECTION 40A (3), IS USED TO QUALIFY THE PHRASE IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE P RESCRIBED, IMMEDIATELY PRECEDING IT, TO INDICATE THAT THE CASES AND CIRCUM STANCES WHICH ARE PRESCRIBED HAVE BEEN PRESCRIBED TAKING INTO CONSIDERATION THE NATUR E AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AN D OTHER RELEVANT FACTORS AND NO OTHER EXCEPTIONS ARE ENVISAGED OTHER THAN THOSE ALR EADY PRESCRIBED. THE CASE LAWS CITED ARE THEREFORE DISTINGUISHABLE. IN THIS CONTEXT REFERENCE MAY ALSO BE MADE TO THE D ECISION OF THE HONBLE KOLKATA HIGH COURT IN THE CASE OF BAGMAN TEA CO. LTD VS CIT 251 ITR 640. IN THIS CASE, THE HONBLE COURT HELD AS UNDER: WITH RESPECT WE ARE OF THE VIEW THAT WHEN THE PAYM ENT IS MADE IN CONTRAVENTION OF SECTION 40A(3) THOUGH THE PAYMENT IS GENUINE THAT C ANNOT BE ALLOWED, BECAUSE THE GENUINENESS OF PAYMENT IS REQUIRED IN ALL CASES BUT PAYMENT BY ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT IS ADDITIONAL REQUIREMENT UNDER SEC TION 40A(3). IF WE FOLLOW THE VIEW THAT THE PAYMENT IS GENUINE, THEN THAT SHOULD NOT B E DISALLOWED. IN THAT CASE THE PROVISION OF SECTION 40A(3) WILL BECOME REDUNDANT. THEREFORE, UNLESS THERE ARE UNAVOIDABLE CIRCUMSTANCES FOR PAYMENT IN CASH THAT PAYMENT WILL BE HIT BY THE PROVISION OF SECTION 40A(3). AS HAS BEEN DISCUSSED ABOVE APPELLANT HAS NOT BROUG HT ANY MATERIAL ON RECORD TO SHOW THAT THE PAYMENTS WERE MADE IN CASH DUE TO UNAVOIDABLE C IRCUMSTANCES. THE CERTIFICATES FROM M/S BARTAMAN PVT. LTD AND THE AFFIDAVIT FILED BY THE AP PELLANT DO NOT SHOW THAT THERE WAS ANY INSISTENCE FOR CASH PAYMENT. THEY ONLY ASKED FOR AD VANCE PAYMENTS. THESE DOCUMENTS ALSO DO NOT ESTABLISH THAT PAYMENTS WERE MADE AFTER BANKING HOURS OR THAT THE PAYMENTS WERE TO BE MADE IMMEDIATELY TO FULFILL BUSINESS OBLIGATION. IN VIEW OF THE ABOVE DISCUSSION THE DISALLOWANCE IS CONFIRMED IN APPEAL. GROUND NOS. 1& 2 OF THE APPELLANT ARE THEREFORE DISMISSED. 6. WE FIND FROM THE CLAIM OF THE ASSESSEE THAT THE PAYMENTS WERE NOT MADE FOR GOODS PURCHASES OR SERVICES. IN THIS CONNECTION, WE ARE OF THE VIEW THAT NO DOUBT THE PAYMENTS ARE NOT FOR PURCHASES OF GOODS BUT THESE ARE FOR SERVICES A ND PAYMENT ON BEHALF OF PRINCIPAL BUT THE PAYMENTS ARE COVERED U/S. 40A(3) OF THE ACT AS THES E HAVE BEEN ROUTED FROM P&L ACCOUNT AND CLAIMED AS EXPENSES. THEREFORE, WE ARE OF THE VIEW THAT THOUGH THE ASSESSEE ACTED AS AN AGENT BUT CLAIMED THIS PAYMENT AS EXPENSES AND THESE PAYM ENTS ARE SURELY COVERED U/S. 40A(3) OF THE ACT, AS EXPENSES CLAIMED BY THE ASSESSEE. THE CLAIM OF THE ASSESSEE THAT THERE WERE NO BANKING FACILITIES AVAILABLE, AS PAYMENTS WERE MADE AT MIDN IGHT, THIS CLAIM IS NOT AT ALL SUPPORTED BY ANY EVIDENCE AND EVEN THOUGH THE ASSESSEE CANNOT MAKE C ASH PAYMENTS IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. FURTHER, T HE CLAIM OF THE ASSESSEE, AS IS EVIDENT FROM THE 8 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 CERTIFICATE OF BPL CLEARLY ESTABLISHES THAT IN CASE THE PAYMENT IS MADE IN CASH AND IN ADVANCE, THE DISCOUNT IS ALLOWED AS PER THEIR POLICY. HERE THE DISCOUNT WILL BE AVAILABLE IN CASE THE PAYMENT IS MADE IN ADVANCE. THERE IS NO MENTION THA T THE PAYMENT IS TO BE MADE IN CASH AND THERE IS NO DENIAL THAT BPL WILL NOT RECEIVE CHEQUE PAYMENTS. IT IS ALSO A FACT THAT THE ASSESSEE AS WELL AS BPL IS FULLY COVERED BY BANKING FACILITI ES AND DURING THE COURSE OF HEARING THIS FACT HAS NOT BEEN DENIED BY THE ASSESSEE DESPITE A QUERY RAISED BY THE BENCH. AS CLAIMED BY THE ASSESSEE, THERE WAS NON EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCE FOR MAKING CASH PAYMENT AND EVEN NOW BEFORE US, ASSESSEE COULD NOT SHOW ANY EXC EPTIONAL AND UNAVOIDABLE CIRCUMSTANCES OR THE EXCEPTION AS PROVIDED UNDER RULE 6DD OF THE INC OME-TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). WE ARE OF THE VIEW THAT THE AS SESSEE HIMSELF IN HIS WRITTEN SUBMISSION BEFORE CIT(A) CLEARLY NARRATED THAT THE GENUINE AND BONAFI DE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF SECTION 40A(3)OF THE ACT. WE ARE IN FULL AGREEMENT WITH THIS ARGUMENT THAT THESE ARE GENUINE AND BONAFIDE PAYMENTS BUT THE GENUINE AND B ONAFIDE PAYMENTS CANNOT BE TAKEN OUT OF THE PURVIEW OF SECTION 40A(3) OF THE ACT BECAUSE AF TER AMENDMENT OF THE RULES BY THE FINANCE ACT, 1995, WHICH WAS CLARIFIED VIDE BOARD CIRCULAR NO. 117 DATED 14.8.1995. THE ASSESSEE IS UNABLE TO SHOW THAT THESE PAYMENTS WERE MADE IN CAS H AT THE INSISTENCE OF BPL, THERE IS NO EXCEPTION PROVIDED IN THE RULES, THAT IN CASE THE P AYMENTS ARE MADE EVEN DURING EVENING HOURS THAT WILL TAKE THIS PAYMENT OUT OF THE PURVIEW OF S ECTION 40A(3) OF THE ACT ON REGULARLY BASIS I.E. ON DAILY BASIS. AS A RESULT OF AMENDMENT W.E.F. 1.4 .1996 OF SECTION 40A(3)OF THE ACT, BY THE FINANCE ACT, 1995, FOR AND FROM ASSESSMENT YEAR 199 6-97, ONLY 20% OF THE VULNERABLE EXPENDITURE I.E. AND EXPENDITURE INVOLVING CASH PAY MENT IN EXCESS OF RS.20,000/-, IN THE RELEVANT ASSESSMENT YEAR IN THE PRESENT CASE, NOT F ALLING WITHIN ANY OF THE MITIGATING CIRCUMSTANCES OR THE EXCEPTIONS AS PROVIDED IN THE RULES WILL BE DISALLOWED WHILE COMPUTING BUSINESS OR PROFESSIONAL INCOME. HERE, THE CLAIM O F THE ASSESSEE THAT THESE PAYMENTS ARE REIMBURSEMENT, THE ANSWER IS THAT THE WORD EXPENDI TURE IN SECTION 40A(3) OF THE ACT CANNOT BE RESTRICTED ONLY TO EXPENDITURE, WHICH IS ALLOWED AS DEDUCTION U/S. 30 TO 38 OF THE ACT, BEING OVERHEAD EXPENSES SUCH AS RENT, TAXES, REPAIRS, INS URANCE, SALARY, ETC., DEDUCTIBLE FROM GROSS PROFIT IN ORDER TO ARRIVE AT A NET PROFIT LIABLE TO TAX. THE WORD EXPENDITURE IN SECTION 40A(3) OF THE ACT IS OF WIDE IMPORT AND INCLUDES EXPENSES WHI CH ARE TAKEN INTO ACCOUNT WHILE DETERMINING THE GROSS PROFIT. EVEN THE CASE LAWS REFERRED BY LD . COUNSEL FOR THE ASSESSEE OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF GIRIDHARILAL GOENKIA VS C IT (1989) 179 ITR 122 AT PAGE 127, HONBLE HIGH COURT HAS CLEARLY HELD THAT THE MITIGA TING CIRCUMSTANCES REFERRED TO IN THE SECOND PROVISO TO SECTION 40A(3) OF THE ACT ARE DETAILED I N THE RULES. THE OBJECT OF THE RULES IS TO RELAX THE RIGOURS OF SECTION 40A(3) OF THE ACT IN G ENUINE AND BONAFIDE CASES TO AVOID HARDSHIP AND HARASSMENT. IN THE PRESENT CASE, THE ASSESSEE COULD NOT BRING HIS CASE UNDER ANY OF THE 9 ITA 847/K/201 0 PRANAB KR. MOULIK. A.Y. 04-05 CLAUSES OR RESIDUARY CLAUSE OF THE RULES. IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND THE CASE LAWS AS DISTINGUISHED BY CIT(A), WE ARE OF THE VIEW THAT THE ASSESSEES CASE DOES NOT FALL IN ANY OF THE EXCEPTIONS AS PROVIDED UNDER THE RULES. ADM ITTEDLY, HERE, ASSESSEES CASE SQUARELY FALLS U/S. 40A(3) OF THE ACT AND HE COULD NOT BRING ANY E XCEPTION AS PROVIDED UNDER THE RULES. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE. ACCORDINGLY, WE CONFIRM THE ORDERS OF THE LOWER AUTHORITIES AND THE APPEAL OF THE ASSESSEE FAILS. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 31.3.20 11 SD/- SD/- . . !' , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( ' ' ' ') )) ) DATED 31ST DAY OF MARCH, 2011 ./ $01 2 JD.(SR.P.S.) !- 3 +4 5!4&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT ITO, WARD-7(1), KOLKATA. 2 +,)* / RESPONDENT SHRI PRANAB KUMAR MOULIK, 35/D, GUPT A LANE, KOLKATA-50. 3 . -$ ( )/ THE CIT(A), KOLKATA 4. 5. -$ / CIT KOLKATA 4<= +$ / DR, KOLKATA BENCHES, KOLKATA ,4 +/ TRUE COPY, !-$>/ BY ORDER, 1 /ASSTT. REGISTRAR .