DCIT, Bangalore V. Sandur Sales & Services Pvt. Ltd., Bangalore

ITA 872/BANG/2011

• Counselvise Citation: 87221114 RSA 2011
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 07-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR PA NDA ACIT
• Assessee Lawyers: A SHANKAR
• Keywords: Additional evidence
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRI BNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI. N. BARATHVAJA SANKAR, VICE PRESIDENT AND SMT P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.872(BNG.)/2011 (ASSESSMENT YEAR : 2005-06) THE DY. COMMISSIONER OF INCOME-TAX M/S SANDUR SA LES & SERVICES PVT.LTD., CIRCLE-12(3), 210, B BLOCK, BOCHS RESIDENCY, BANGALORE II FLOOR, 80 FT. ROAD, ASHWATHNAGAR, BANGALORE-560 011. PAN NO.AAACM 2531L VS APPELLANT RESPONDENT REVENUE BY : SHRI BIJOY KUMAR PANDA, ACIT ASSESSEE BY : SHRI A. SHANKAR, ADVOCATE DATE OF HEARING : 29-10-2012 DATE OF PRONOUNCEMENT : 02- 11-2012 O R D E R PER SMT P. MADHAVI DEVI, JM: THIS IS REVENUES APPEAL FOR THE ASSESSMENT YEAR 20 05-06 AGAINST THE ORDER OF THE CIT(A)-III, BANGALORE. 2. THE ONLY GRIEVANCE OF THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO U/S 40A(3) OF PAYMENTS MADE IN CASH TOWARDS CERTAIN EXPENDITURE MADE BY ACCEPTING THE ASSESSEES CLAIM THAT THE CASH WAS DIRECTLY DEPOSITED INTO THE BANK ACCOUNT OF THE SUPPLIERS ITA NO.872(B)/2011 2 WITHOUT OBTAINING ANY CONFIRMATION FROM THE PAYEES AND WITHOUT VERIFICATION OF THE VARACITY OF THE ASSESSEES CONT ENTIONS. 3. THE GRIEVANCE OF THE REVENUE IS ALSO THAT THE CI T(A) HAS ERRONEOUSLY RELIED UPON THE DECISION OF THE ITAT IN THE CASE OF SRI RENUKESHWARA RICE MILLS REPORTED IN 93 ITD 263 WITH OUT SATISFYING HIMSELF AS TO WHETHER THE FACTS IN BOTH THE CASES ARE IDENT ICAL. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY WHICH IS IN THE BUSINESS OF HIRING AND TRANSPORTATION FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 28-10-2005 DECLARING AN INCOME OF RS.15,84,933/-. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE IT ACT, 1961 THE AO OBSERVED FROM THE ANNEXURE-3 TO TH E TAX AUDIT REPORT FILED BY THE ASSESSEE, THAT THERE WERE AS MANY AS 76 PAYM ENTS MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED BY IT ON VARIOUS DATES IN EXCESS OF RS.20,000/-IN CASH. HE OBSERVED THAT TH E TOTAL OF SUCH PAYMENTS COMES TO RS.56,10,026/- AND AS THESE PAYMENTS WERE MADE IN CASH IN VIOLATION OF SEC.269SS, HE PROPOSED TO DISALLOW 20% OF SUCH EXPENDITURE AS PER SEC.40A(3) OF THE IT ACT. THE ASSESSEE VIDE ITS REPLY SUBMITTED THAT THE SAID PAYMENTS WERE DIRECTLY CREDITED IN TO THE BANK ACCOUNTS OF THE RESPECTIVE PARTIES INSTEAD OF PAYING THE SAME BY WA Y OF ACCOUNT PAYEE CHEQUES IN VIEW OF THEIR URGENT REQUIREMENTS AND TH EREFORE, THE PROVISIONS OF SEC.40A(3) ARE NOT APPLICABLE. THE ASSESSEE PLA CED RELIANCE UPON THE DECISION OF THE ITAT IN THE CASE OF M/S RENUKESHWAR A RICE MILLS REPORTED IN ITA NO.872(B)/2011 3 93 TTJ 912 FOR THE PROPOSITION THAT SUCH EXPENDITUR E IS ALLOWABLE AND NO DISALLOWANCE IS CALLED FOR SINCE THE TRANSACTION IS TRACEABLE FROM ORIGIN TO CONCLUSION AND THEREFORE, THERE IS NO VIOLATION OF SEC.40A(3) OF THE IT ACT. THE AO HOWEVER, OBSERVED THAT THE EXCEPTIONS TO APP LICATION OF THE PROVISIONS OF SEC.40A(3) HAVE BEEN PROVIDED IN RULE 6DD OF THE IT RULES AND AS THE ASSESSEES CASE DOES NOT FALL IN ANY OF THE EXCEPTIONS ENUMERATED IN RULE 6DD IT WOULD ATTRACT THE PROVISI ON OF SEC.40A(3) OF THE IT ACT AND DISALLOWANCE OF 20% OF THE CASH PAYMENT IS CALLED FOR. HE ACCORDINGLY, DISALLOWED 20% OF THE CASH PAYMENTS AN D ADDED TO THE TOTAL INCOME OF THE ASSEESSEE. 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WHO AFTER CONSIDERING THE DECISIONS OF THE ITAT IN THE CASE OF M/S RENUKESHWARA RICE MILLS (CITED SUPRA), HELD THAT TH E CASH PAYMENTS DIRECTLY INTO BANK ACCOUNT OF THE SUPPLIERS ENABLES VERIFICATION OF THE TRANSACTION FROM ORIGIN TO THE CONCLUSION AND ENSUR ES THAT THE PAYEE ALONE RECEIVES THE PAYMENT AND ALSO AS THERE IS NO CASE O F ANY UNACCOUNTED MONEY THAT COULD BE SAID TO HAVE BEEN EMPLOYED TO M AKE THE PAYMENTS, THERE IS NO VIOLATION OF SEC.40A(3) OF THE IT ACT. HE THUS, ALLOWED THE ASSESSEES APPEAL. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 7. THE LEARNED DR, WHILE SUPPORTING THE ORDER OF TH E AO, SUBMITTED THAT THE FACTS OF THE CASE BEFORE US ARE DISTINGUIS HABLE FROM THE FACTS OF THE ITA NO.872(B)/2011 4 CASE OF M/S RENUKESHWARA RICE MILLS (CITED SUPRA) A S IN THAT CASE THE PAYMENTS WERE MADE FOR PURCHASE OF AGRICULTURAL PRO DUCE IN THE MARKET YARD AND IT WAS MANDATORY TO MAKE PAYMENTS INTO THE BANK ACCOUNTS OF THE PAYEES WHEREAS IN THE CASE BEFORE US THERE IS N O SUCH COMPULSION. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS ITSELF ADMI TTED THAT THE DEPOSITS ARE MADE INTO THE BANK ACCOUNTS OF THE SUPPLIERS TH ROUGH ITS EMPLOYEES AND AS HELD BY THE BENCH OF THE TRIBUNAL AT PUNE IN THE CASE OF DCIT VS VIJAYAKUMAR RAMESHCHAND & CO.,REPORTED IN 108 ITD 6 26(PUNE) EMPLOYEES CANNOT BE SAID TO BE THE AGENTS OF THE ASSESSEE COM PANY AND THEREFORE, DO NOT FALL WITH IN THE EXCEPTIONAL CIRCUMSTANCES ENUM ERATED BY RULE 6DD OF THE IT RULES. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED ITS SUBMISSION MADE BY THE ASSESEEE BEFORE THE AUTHORITIES BELOW A ND HAS FILED A PAPER BOOK BEFORE US CONSISTING OF PAGES-1 TO 173 TO DEMO NSTRATE THAT THE ASSESEEE HAS MADE THE DEPOSITS OF ALL PAYMENTS DIRE CTLY INTO THE BANK ACCOUNTS OF THE RESPECTIVE PARTIES. HE ALSO FILED A N AFFIDAVIT OF THE ASSESSEE SEEKING ADMISSION OF THE ADDITIONAL EVIDENCE I.E. P AGES 40 -173 WHICH ARE COPIES OF THE VOUCHERS AND BANK PAY-IN-SLIPS AS PRO OF OF DEPOSITS MADE DIRECTLY TO THE BANK ACCOUNTS OF THE PAYEES. HE TH US, PRAYED THAT THE ADDITIONAL EVIDENCE MAY BE ADMITTED. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE DIRECT PAYMENT OF THE AMOUNTS INT O THE BANK ACCOUNTS OF THE PAYEES WILL NOT ATTRACT THE PROVISIONS OF SEC.4 0A(3) OF THE IT ACT AS HELD ITA NO.872(B)/2011 5 BY THE TRIBUNAL IN THE CASE OF M/S RENUKESHWARA RIC E MILLS. HE SUBMITTED THAT THE ASSESSEE BEING A COMPANY HAS TO ACT THROUG H ITS EMPLOYEES AND THE EMPLOYEES HAVE ONLY DEPOSITED THE AMOUNT IN THE BANK ACCOUNT OF PAYEES ON BEHALF OF THE ASSESSEE. THEREFORE, THE E MPLOYEES CANNOT BE SAID TO BE ACTING AS AGENTS OF THE ASSESSEE COMPANY. HE SUBMITTED THAT IT IS NOT THE CASE OF THE ASSESSEE THAT THE TRANSACTION FALLS WITH IN ANY OF THE EXCEPTIONS ENUMERATED UNDER RULE 6DD OF THE IT RULE S, BUT IT IS THE CASE OF THE ASSESSEE THAT THE DEPOSITS OF THE PAYMENT DIREC TLY IN TO THE BANK ACCOUNTS OF THE PAYEES DO NOT ATTRACT THE PROVISION S OF SEC.40A(3) OF THE IT ACT. 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THE ISSUE TO BE CONSIDERE D IS WHETHER THE DIRECT DEPOSITS OF CASH INTO THE BANK ACCOUNTS OF THE PAYE ES INSTEAD OF ISSUING ACCOUNTS PAYEE CHEQUES OR DRAFTS WOULD ATTRACT THE PROVISIONS OF SEC.40A(3). IN THE CASE OF M/S RENUKESHWARA RICE M ILLS (CITE SUPRA) THE TRIBUNAL CONSIDERED THE FACTUAL MATRIX OF CASE IN T HE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ATTAR S INGH GURMUKH SINGH VS ITO REPORTED IN 191 ITR 667 TO HOLD AS UNDER; THE HONBLE SUPREME COURT NOTED THAT THE INTENTIO N TO MAKE PAYMENT BY CROSSED CHEQUE OR CROSSED DD IS TO ENABL E THE ASSESSING AUTHORITY TO ASCERTAIN THAT THE PAYMENT I S GENUINE AND NOT OUT OF THE UNDISCLOSED SOURCE. IT IS ALSO NOTE D THAT SEC.40A(3) IS INTENDED TO REGULATE BUSINESS TRANSACTIONS AND T O PREVENT THE ITA NO.872(B)/2011 6 USE OF UNACCOUNTED MONIES OR TO REDUCE THE CHANCES OF USE OF BLACK MONEY FOR BUSINESS TRANSACTIONS. IN THE PRES ENT CASE IT IS SEEN THAT THE ASSESSEE FOR PURCHASE OF RICE, PAID T HE AMOUNT DIRECTLY TO THE BANK ACCOUNT OF THE PAYEE. THE EFF ECT OF ISSUE OF CROSSED CHEQUE/DD IS THAT THE PAYEE NAMED THEREIN R ECEIVES THE PAYMENT THROUGH BANKING CHANNELS. THE PURPOSE IS D UAL. IN THE FIRST INSTANCE IT IS TO SEE THAT THE PAYEE AND PAYE E ALONE RECEIVES THE PAYMENT AND TO ENSURE THAT THE PAYMENT IS ROUTE D THROUGH BANK CHANNEL SO AS TO TRACE THE ORIGIN AND CONCLUSI ON OF THE TRANSACTION. IN THE CASE BEFORE US, IT IS SEEN HAT INSTEAD OF ISSUING CHEQUE/DD THE ASSESSEE PREPARED A CHALLAN AND ALONG WITH THE CASH THE CHALLAN WAS PRESENTED TO THE BANK OF THE P AYEE FOR THE CREDIT OF THE SAME IN THE ACCOUNT OF PAYEE. IN THE RESULT, IT IS ENSURED THAT THE PAYEE ALONE RECEIVES THE PAYMENT A ND THE ORIGIN AND CONCLUSION OF TRANSACTION IS TRACEABLE. THUS, P AYMENT OF SUM DIRECTLY IN THE BANK ACCOUNT OF PAYEE FULFILS THE C RITERIA FOR ENSURING THE OBJECT OF INTRODUCTION OF SEC.40A(3). THIS IS NOT A DIRECT PAYMENT TO THE PAYEE BUT ONLY TO THE CREDIT OF THIS BANK ACCOUNT WITHOUT THE PAYEE ACTUALLY RECEIVING THE CA SH. WE ACCORDINGLY, HOLD THAT SUCH PAYMENT IS NOT IN VIOLA TION OF PROVISIONS OF SEC.40A(3) AND HENCE NO DISALLOWANCE IS CALLED FOR. THEREFORE, THE TRIBUNAL IN THE CASE OF M/S RENUKES HWARA RICE MILLS HAS CONSIDERED THE LEGAL POSITION ON THE ISSUE AND HAS COME TO THE CONCLUSION THAT WHERE THE PAYMENTS ARE MADE BY DIRE CT DEPOSITS INTO THE ITA NO.872(B)/2011 7 BANK ACCOUNTS, IT WILL NOT ATTRACT THE PROVISIONS O F SEC.40A(3) OF THE IT ACT AND HENCE, NO DISALLOWANCE IS CALLED FOR. THOUGH, THE FACTS MAY DIFFER FROM THE CASE BEFORE US, THE LEGAL PRINCIPLE IS THE SAME . THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE ABOVE CASE, WE UPHOLD THE FINDING OF THE CIT(A) THAT THE PAYMENTS ARE NOT IN VIOLATION OF PROVISIONS OF SEC.40A(3) OF THE IT ACT. 10. AS REGARDS THE CONTENTION OF THE LEARNED DR THA T THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE HAS TO BE REMANDED B ACK TO THE FILE OF AO FOR VERIFICATION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS FILED THE AUDIT REPORT WHICH VOUCHES T HE FACT THAT THE INDEPENDENT AUDITOR HAS VERIFIED THE PAYMENTS AND H AS CERTIFIED THAT THE PAYMENTS HAVE BEEN MADE BY DEPOSITS INTO THE BANK A CCOUNT OF THE PAYEES AND THEREFORE, NO FURTHER VERIFICATION IS REQUIRED. 11. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THE ASSESSEES CLAIM OF P AYMENTS EXCEEDING RS.20,000/-BEING MADE BY DIRECT DEPOSITS INTO THE B ANK ACCOUNT OF THE SUPPLIERS WOULD BE PROVED ONLY AFTER VERIFICATION O F THE ADDITIONAL EVIDENCE WHICH HAS BEEN FILED BEFORE US. AS THESE EVIDENCES ARE VERY ESSENTIAL FOR ADJUDICATION OF THE ISSUE, WE DEEM IT FIT AND PROPE R TO REMAND THE SAME TO THE FILE OF THE AO ONLY FOR THE PURPOSE FOR VERIFIC ATION OF THE FACT AS TO WHETHER THE PAYMENTS ARE MADE BY WAY OF DIRECT DEPO SITS INTO THE BANK ITA NO.872(B)/2011 8 ACCOUNTS OF THE RECIPIENTS AND IF IT IS FOUND TO BE SO, THEN NO DISALLOWANCE IS CALLED FOR. 12. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 2 ND NOVEMBER, 2012. SD/- SD/- (N. BARATHVAJA SANKAR ) (P . MADHAVI DEVI) VICE PRESIDENT JUDICIA L MEMBER BANGALORE: D A T E D : 02-11-2012 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-IV, BANGALORE. 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) BY ORDER SR. PRIVATE SECRETARY ITAT, BANGALORE