M/s. Allied Earthmovers, Pune V. Deputy Commissioner of Income-tax,

ITA 915/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2650 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Question of law
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 915/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2009-10 M/S. ALLIED EARTHMOVERS, FLAT NO. 4, PATEL COMPLEX 98, BHUSARI COLONY, PAUD ROAD, KOTHRUD, PUNE-411038 PAN : AAGFA4056N ....... / APPELLANT ' / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2, PUNE / RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 05-01-2016 / DATE OF PRONOUNCEMENT : 04-03-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE DATED 30-01 -2014 FOR THE ASSESSMENT YEAR 2009-10. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSIN ESS OF 2 ITA NO. 915/PN/2014, A.Y. 2009-10 EXCAVATION WORK AND ALSO GIVES DUMPERS, TIPPERS AND POCLA IN MACHINES ON HIRE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 12-09-2009 DECLARING TOTAL INCOME OF ` 39,13,770/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR S CRUTINY UNDER CASS AND ACCORDINGLY NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE ON 21- 08-2010. DURING THE COURSE OF SCRUTINY ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS INCURRE D CASH EXPENSES TO THE TUNE OF ` 30,66,045/-. DURING THE YEAR SAID CASH PAYMENTS HAVE BEEN ALLEGEDLY MADE FOR THE PURCHASE OF D IESEL, PETROL AND OIL FOR THE VEHICLES. BEFORE THE ASSESSING OFFICER, THE CO NTENTION OF THE ASSESSEE WAS THAT THE CASH PAYMENTS MADE TOWARD S THE PURCHASE OF DIESEL, OIL ETC. FOR THE VEHICLES AND MACHINES USED FOR THE BUSINESS OF THE ASSESSEE. THE PAYMENTS WERE MADE THROUGH DRIVERS AND OPERATORS WORKING AT THE SITE, THEREFORE, FALLS WITHIN THE PURVIEW OF RULE 6DD(K) OF THE INCOME TAX RULES. THE ASSESSEE FURTHER CONTENDED THAT ON SOME OCCASIONS CASH PAYMENTS WERE MADE FOR PURCHASE OF DIESE L, OIL ETC. ON SATURDAY AND SUNDAY WHEN THE BANKS ARE CLOSED AND TH EREFORE, SUCH PAYMENTS FALL WITHIN THE PURVIEW OF RULE 6DD(J) OF THE INCOM E TAX RULES. THE ASSESSING OFFICER ACCEPTED THE CONTENTIONS OF T HE ASSESSEE ONLY TO THE EXTENT OF PAYMENTS MADE ON BANK HOLIDAYS A ND DISALLOWED THE EXPENDITURE TO THE TUNE OF ` 26,27,980/- U/S. 40A(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). AGGRIEVED BY THE ASSESSMENT ORDER DATED 26-12-2011, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE REITERATED THE STAND TAKEN BEFORE THE ASSESS ING OFFICER. IN ADDITION TO THAT THE ASSESSEE TOOK PLEA THAT THERE WER E O BANKING 3 ITA NO. 915/PN/2014, A.Y. 2009-10 FACILITIES IN THE VILLAGE WHERE THE ASSESSEE WAS CARRYING OUT EXCAVATION WORK. THEREFORE, THE CASH PAYMENTS MADE BY THE ASSESS EE DO NOT FALL WITHIN THE PURVIEW OF SECTION 40A(3) IN VIEW OF THE PROVISIONS OF RULE 6DD(G) OF THE INCOME TAX RULES. TO STRENGTHEN HIS SUBMISSIONS, THE LD. AR FILED CERTIFICATE ISSUED BY THE SARPANCH, GRAM PANCHAYA T OF VILLAGE BHILAREWADI STATING THAT THERE IS NO BANKING FACILITIES OR POS T OFFICE IN THE VILLAGE. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASS ESSEE THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF A SSESSING OFFICER AND DISMISSED THE APPEAL OF THE ASSESSEE. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 3. SHRI SUNIL GANOO APPEARING ON BEHALF OF THE ASSESSEE SU BMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN MAKING DISALLOWANC E U/S. 40A(3) ON THE CASH PAYMENTS MADE BY THE ASSESSEE FOR T HE PURCHASE OF DIESEL, FUEL, OIL ETC. WHICH WAS NECESSARY FOR THE BUSINESS ACT IVITIES OF THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE EXCAVAT ION WORK FOR WHICH IT EMPLOYS DUMPER, TIPPER AND POCLAIN MACHINES. THE ASSES SEE HAS MADE CASH PAYMENTS TO M/S. WESTERN TRANSPORT AGENCY, WHICH IS OPERATING PETROL PUMP AT VILLAGE BHILAREWADI. DURING THAT PE RIOD THE ASSESSEE WAS ENGAGED IN EXCAVATION WORK AT VILLAGE BHILARE WADI. THE SAID VILLAGE IS OUTSIDE THE MUNICIPAL LIMITS OF PUNE AND THERE ARE NO BANKING FACILITIES IN THE SAID VILLAGE. THE PAYMENTS WERE MADE IN CASH FOR THE PURCHASE OF DIESEL, FUEL, OIL ETC. TO ENSURE UNINTERRU PTED EXCAVATION WORK. AT TIMES HUGE QUANTITIES OF FUEL AND OIL A RE CARRIED IN DRUMS TO THE SITE. THE PETROL PUMP VENDOR INSISTED ON C ASH PAYMENTS, THE PAYMENTS WERE MADE BY THE DRIVERS OF THE TRUCKS, D UMPER OF THE ASSESSEE AND AS SUCH THEY WERE AGENT OF THE ASSESSE E. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASH PAYMENTS MAD E BY THE 4 ITA NO. 915/PN/2014, A.Y. 2009-10 ASSESSEE ARE COVERED BY THE EXCEPTIONS PROVIDED UNDER RULE 6DD(G) AND (K) OF THE INCOME TAX RULES. THE LD. COUNSEL FURTHER TO STR ENGTHEN HIS SUBMISSIONS, PLACED RELIANCE ON THE FOLLOWING DECISIONS: I. ATTAR SINGH GURMUKH SINGH VS. INCOME TAX OFFICER, 191 ITR 667 (SC); II. SMT. HARSHILA CHORDIA VS. INCOME TAX OFFICER, 298 ITR 349 (RAJ); III. R C GOEL VS. COMMISSIONER OF INCOME TAX IN ITA NO. 636/201 2 DECIDED ON 04-12-2012 BY THE HON'BLE HIGH COURT OF DELHI (2012- TIOL-1013-HC-DEL-IT). 4. ON THE OTHER HAND SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE ORDER OF COMMISS IONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT THE ASSES SEE HAS BEEN CHANGING HIS STAND BEFORE THE AUTHORITIES BELOW. DUR ING THE ASSESSMENT PROCEEDINGS THE ASSESSEE STATED THAT THE CASH PAYMENTS MADE BY THE ASSESSEE ARE COVERED BY THE PROVISIONS OF RULE 6DD(K) OF THE INCOME TAX RULES. WHEREAS, BEFORE THE FIRST APPELLATE AUTHORITIES THE ASSESSEE FILED CERTIFICATE FROM THE SARPANCH, GRAM PANC HAYAT OF VILLAGE BHILAREWADI RAISING AFRESH CONTENTION THAT SINCE THERE IS NO BANKING FACILITIES OR POST OFFICE IN THE VILLAGE, THE CASH PAYME NTS MADE BY THE ASSESSEE ARE COVERED BY THE PROVISIONS OF RULE 6 DD(G) OF THE INCOME TAX RULES. THE PHOTOCOPIES OF THE FUEL BILLS PRODUC ED BY THE ASSESSEE BEFORE THE TRIBUNAL WOULD SHOW THAT THEY ARE FA BRICATED AND AFTERTHOUGHT. THE BILLS HAVE BEEN PREPARED AT STRETCH. SOME OF THE BILLS HAVING CONTINUOUS SERIAL NUMBERS ARE HAVING PRIOR DATES. THUS, NO RELIANCE CAN BE PLACED ON THE FUEL BILLS WHICH HAVE BEEN PR ODUCED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 5 ITA NO. 915/PN/2014, A.Y. 2009-10 5. THE LD. COUNSEL FOR THE ASSESSEE CONTROVERTING THE S UBMISSIONS MADE ON BEHALF OF THE REVENUE SUBMITTED THAT THE BOOKS OF THE ASSESSEE ARE TO SUBJECT OF AUDIT. THE ASSESSEE HAS FILED AUDIT REPORT ALONG WITH THE RETURN OF INCOME, THE ASSESSING OFFICER HAS N EITHER REJECTED THE BOOKS OF ACCOUNT NOR THE PAYMENTS MADE BY THE ASSESSEE HAVE BEEN DISPUTED BY THE REVENUE. AS REGARDS THE CO PIES OF THE BILLS THE LD. COUNSEL SUBMITTED THAT AT THE PETROL REFILL STATION T HERE ARE SEVERAL ATTENDANTS THEY HAVE BEEN GIVEN DIFFERENT BILL BOOK S, WHOSOEVER IS REFILLING THE TANK WOULD ISSUE THE BILL FROM THE BILL BOOK ALLOT TED TO HIM. THEREFORE, THERE CAN BE INSTANCES WERE A BILL BEARING THE SUBSEQUENT SERIAL NUMBER IS HAVING A PRIOR DATE. THE LD. COUNSEL CONTENDED THAT ALL THE BILLS ARE GENUINE AND CAN BE VERIFIED. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE EXAMINED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO PERUSED THE DOCUMENTS FILED BY THE ASSESSEE IN THE FORM OF PAPER BOOK AS WELL AS THE DECISIONS ON WHICH THE LD. COUNS EL FOR THE ASSESSEE HAS PLACED RELIANCE. THE ONLY ISSUE RAISED IN TH E PRESENT APPEAL BY THE ASSESSEE IS DISALLOWANCE OF CASH EXPENDITURE ` 26,27,980/- U/S. 40A(3) OF THE ACT. THE CONTENTION OF THE A SSESSEE IS THAT THE AFORESAID CASH EXPENDITURE HAS BEEN INCURRED FO R THE PURCHASE OF FUEL, DIESEL AND OIL DURING THE COURSE OF BUSINESS OPERATI ONS AND IS COVERED BY THE EXCEPTIONS PROVIDED UNDER RULE 6DD(G) & (K) OF THE INCOME TAX RULES. 7. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF EXCAVATION FOR WHICH IT IS USING DUMPER, TIPPER AND PO CLAIN MACHINES. FOR THE UNINTERRUPTED RUNNING OF AFORESAID VEHIC LES AND MACHINES THE ASSESSEE REQUIRES DIESEL, FUEL AND OIL. THE ASS ESSEE IS 6 ITA NO. 915/PN/2014, A.Y. 2009-10 PURCHASING DIESEL, FUEL AND OIL ETC. FROM FUEL PUMP OWNED BY M /S. WESTERN TRANSPORT AGENCY AT VILLAGE BHILAREWADI. THE CON TENTION OF THE ASSESSEE IS THAT THE CASH PAYMENTS ARE MADE FOR THE P URCHASE OF DIESEL, FUEL ETC. SINCE, DIESEL ARE REQUIRED FOR RUNNING DUMPER, TIPPE R AND POCLAIN MACHINES WORKING AT THE SITE, THE FUEL IS SOMETIMES CARRIED TO THE SITE ITSELF FROM THE NEAREST FUEL STATION. THE CASH PA YMENTS ARE MADE AS PURPORTEDLY THERE WERE NO BANKING FACILITIES. IN SUPPORT OF HIS SUBMISSIONS THE ASSESSEE HAS FILED CERTIFICATE FROM THE SA RPANCH, GRAM PANCHAYAT OF VILLAGE BHILAREWADI. 8. THE PROVISIONS OF SECTION 40A(3) ENVISAGE THAT CASH PAY MENTS OVER AND ABOVE ` 20,000/- IN A DAY MADE TO A PERSON SHALL NOT BE ALLOWED. THE PROVISIONS OF SUB-SECTION (3) ARE DETERRENT FO R THE FLOW OF UNACCOUNTED MONEY. HOWEVER, WHERE THE CASH PAYMENTS MADE CAN BE VERIFIED AND THE COMPELLING CIRCUMSTANCES UNDER WHICH PAYME NTS IN CASH ARE MADE CAN BE EXPLAINED, THE PROVISIONS OF SECTION 40A(3) CANNOT BE APPLIED TO DISALLOW SUCH PAYMENTS. TO MITIGATE T HE RESTRICTIONS PUT BY SECTION 40A(3), EXCEPTIONS ARE PROVIDE D UNDER RULE 6DD. ONE OF THE EXCEPTIONS PROVIDED BY RULE 6DD(G) IS THAT WHERE PAYMENTS ARE MADE IN A VILLAGE OR TOWN AND ON THE DATE OF SUCH PAYMENT THERE ARE NO BANKING SERVICES AVAILABLE AND THE ASSESSEE IS CARRYING ON BUSINESS, PROFESSION OR VOCATION IN SUCH VILLAGE, NO DISALLOWANCE U/S. 40A(3) SHALL BE MADE. THE RELEVANT PROVISION S OF RULE 6DD(G) ARE REPRODUCED HERE-IN-UNDER: 6DD. NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECT ION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFI TS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3A) OF SE CTION 40A WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON I N A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES IN THE C ASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY: - 7 ITA NO. 915/PN/2014, A.Y. 2009-10 XXXXXXXXXXXXXXXXXX (G) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERS ON WHO ORDINARILY RESIDES, OR IS CARRYING ON ANY BUSINESS, PROFESSION OR VOCATION, IN ANY SUCH VILLAGE OR TOWN. IN OUR CONSIDERED OPINION THE CASE OF THE ASSESSEE IS CO VERED BY THE AFORESAID CLAUSE (G) OF RULE 6DD. THE ASSESSEE IN SUPPO RT OF HIS CLAIM HAS FILED CERTIFICATE FROM THE SARPANCH, GRAM PANCHAYA T OF VILLAGE BHILAREWADI WHICH CATEGORICALLY STATES THAT THERE IS NO BA NKING FACILITIES OR POST OFFICE IN THE VILLAGE. 9. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF AT TAR SINGH GURMUKH SINGH VS. INCOME TAX OFFICER (SUPRA) HAS HELD : ..SECTION 40A(3) MUST NOT BE READ IN ISOLATIO N OR TO THE EXCLUSION OF RULE 6DD. THE SECTION MUST BE READ ALO NG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTR ICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWER S THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED CHEQUE OR 'CROSSED B ANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FROM UN DISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSI DERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWE EP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT I N THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMS TANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISION S OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BUSINES S TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. ( MUDIAM OIL COMPANY V. ITO 8 ITA NO. 915/PN/2014, A.Y. 2009-10 [1973] 92 ITR 519 (AP)). IF THE PAYMENT IS MADE BY A CROSSED CHEQUE DRAWN ON A BANK OR CROSSED BANK DRAFT, THEN IT WILL BE EASIER TO ASCERTAIN, WHEN DEDUCTION IS CLAIMED, WHETHER THE P AYMENT WAS GENUINE AND WHETHER IT WAS OUT OF THE INCOME FROM DISCLOSED SOURCES. IN INTERPRETING A TAXING STATUTE, THE COURT CANNOT BE OBLIVIOUS OF THE PROLIFERATION OF BLACK MONEY WHICH IS UNDER CIRCULA TION IN OUR COUNTRY. ANY RESTRAINT INTENDED TO CURB THE CHANCES AND OPPO RTUNITIES TO USE OR CREATE BLACK MONEY SHOULD NOT BE REGARDED AS CURTAI LING THE FREEDOM OF TRADE OR BUSINESS. 10. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF SMT . HARSHILA CHORDIA VS. INCOME TAX OFFICER (SUPRA) HAS OBSERVED : 8. IT MAY BE PERTINENT TO NOTICE THAT PRIMARY OBJE CT OF ENACTING SECTION 40A(3) IN ITS ORIGINAL INCARNATION WAS TWO-FOLD, FI RSTLY, PUTTING A CHECK ON TRADING TRANSACTIONS WITH A MIND TO EVADE THE LIABI LITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTION AND, SECONDLY, TO IN CULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. THE CONSEQUE NCE WHICH WAS PROVIDED WAS TO DISALLOW OF DEDUCTION OF SUCH PAYME NTS/EXPENSES WHICH WERE NOT THROUGH BANK EITHER BY CROSSED CHEQU ES OR BY DEMAND DRAFT OR BY PAY ORDER. 9. THIS PROVISION HAS BEEN SUBSEQUENTLY AMENDED. AP PARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABITS. THEREFORE, THE CONSEQUENCE, WHI CH WERE TO BEFALL ON ACCOUNT OF NON-OBSERVATION OF SUB-SECTION (3) OF SE CTION 40A MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THEREFORE, THE GENUINENESS OF THE TRANSACTIONS AND IT BEING FREE FROM VICE OF ANY DEV ICE OF EVASION OF TAX IS RELEVANT CONSIDERATION WHICH HAS BEEN OVERLOOKED BY THE TRIBUNAL. THE HON'BLE RAJASTHAN HIGH COURT FURTHER OBSERVED : 13. 'CLAUSE (J) OF RULE 6DD OF THE INCOME-TAX RULE S, 1962, PROVIDES THAT NO DISALLOWANCE UNDERSECTION 40A(3) OF THE INCOME-T AX ACT, 1961, SHALL BE MADE WHERE THE ASSESSEE SATISFIES THE INCOME-TAX OFFICER THAT THE PAYMENT COULD NOT BE MADE BY WAY OF A CROSSED CHEQU E DRAWN ON A BANK OR BY A CROSSED BANK DRAFT- A. DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES; OR B. BECAUSE PAYMENT IN THE MANNER AFORESAID WAS NOT PRACTICABLE, OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE, HAVING REGARD TO THE 9 ITA NO. 915/PN/2014, A.Y. 2009-10 NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXP EDITIOUS SETTLEMENT THEREOF, AND ALSO FURNISHES EVIDENCE TO THE SATISFACTION OF THE INCOME-TAX OFFICER AS TO THE GENUINENESS OF THE PAYMENT AND THE IDENTI TY OF THE PAYEE. 14. ABOUT THIS CLAUSE, MANY DOUBTS WERE RAISED AND ENQUIRIES WERE DIRECTED TO THE BOARD AS TO WHAT SHALL CONSTITUTE E XCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES WITHIN THE MEANING OF CLA USE (J). THAT LED TO ISSUANCE OF CIRCULAR BY THE BOARD ON MAY 31, 1977 ( [1977] 108 ITR (ST.) 8), WHICH IS PUBLISHED IN TAXMANN, VOL. 1, 1988 EDI TION. SIGNIFICANTLY PARAGRAPH 4 OF THE AFORESAID CIRCULAR SHOWS VERY CL EARLY THAT ALL THE CIRCUMSTANCES IN WHICH THE CONDITIONS LAID DOWN IN RULE 6DD(J) COULD BE APPLICABLE CANNOT BE SPELT OUT. HOWEVER, SOME OF TH EM WHICH WILL SEEM TO MEET THE REQUIREMENTS OF THE SAID RULE ARE AS FO LLOWS: A. THE PURCHASER IS NEW TO THE SELLER; OR B. THE TRANSACTIONS ARE MADE AT A PLACE WHETHER EIT HER THE PURCHASER OR THE SELLER DOES NOT HAVE A BANK ACCOUNT; OR C. THE TRANSACTIONS AND PAYMENTS ARE MADE ON A BANK HOLIDAY; OR D. THE SELLER IS REFUSING TO ACCEPT THE PAYMENT BY WAY OF CROSSED CHEQUE/DRAFT AND THE PURCHASER'S BUSINESS INTEREST WOULD SUFFER DUE TO NON-AVAILABILITY OF GOODS OTHERWISE THAN FROM THIS PARTICULAR SELLER ; OR E. THE SELLER, ACTING AS A COMMISSION AGENT, IS REQ UIRED TO PAY CASH IN TURN TO PERSONS FROM WHOM HE HAS PURCHASE THE GOODS ; OR F. SPECIFIC DISCOUNT IS GIVEN BY THE SELLER FOR PAY MENT TO BE MADE BY WAY OF CASH. 15. IT WAS FURTHER CLARIFIED IN PARAGRAPH 6 THAT TH E ABOVE CIRCUMSTANCES ARE NOT EXHAUSTIVE BUT ILLUSTRATIVE. 16. THEREFORE, IN OUR OPINION, THE TRIBUNAL WAS CLE ARLY IN ERROR IN NOT TRAVELLING BEYOND THE CIRCUMSTANCES REFERRED TO IN PARAGRAPH 4 OF THE CIRCULAR AND TO CONSIDER THE EXPLANATION SUBMITTED BY THE ASSESSEE ON ITS OWN MERIT. 17. SIGNIFICANTLY PARAGRAPH 5 REPRODUCED HEREINBELO W GIVES A CLEAR INDICATION THAT RULE 6DD(J) HAS TO BE LIBERALLY CON STRUED AND ORDINARILY WHERE THE GENUINENESS OF THE TRANSACTION AND THE PA YMENT AND IDENTITY OF THE RECEIVER IS ESTABLISHED, THE REQUIREMENT OF RULE 6DD(J) MUST BE 10 ITA NO. 915/PN/2014, A.Y. 2009-10 DEEMED TO HAVE BEEN SATISFIED. PARAGRAPH 5 OF THE C IRCULAR READS AS UNDER [1977] 108 ITR (ST.) 8, 9: 5. IT CAN BE SAID THAT IT WOULD, GENERALLY, SATISFY THE REQUIREMENTS OF RULE 6DD(J), IF A LETTER TO THE ABOVE EFFECT IS PRODUCED IN RESPECT OF EACH TRANSACTION FALLING WITHIN THE CATEGORIES L ISTED ABOVE FROM THE SELLER GIVING FULL PARTICULARS OF HIS ADDRESS, SALES TAX NUMBER/PERMANENT ACCOUNT NUMBER, IF ANY, FOR THE PU RPOSES OF PROPER IDENTIFICATION TO ENABLE THE INCOME-TAX OFFI CER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE TRANSACTION. T HE INCOME-TAX OFFICER WILL, HOWEVER, RECORD HIS SATISFACTION BEFO RE ALLOWING THE BENEFIT OF RULE 6DD(J). 18. IT APPEARS THAT FULFILMENT OF THE CONDITIONS OF PARAGRAPH 5 OF THE CIRCULAR HAS CLEARLY ESCAPED THE ATTENTION OF THE T RIBUNAL. THE CIRCULAR CLEARLY INDICATES THAT ORDINARILY WHERE THE INCOME- TAX OFFICER IS SATISFIED ABOUT THE GENUINENESS OF THE TRANSACTION AND PAYMEN T AND IDENTIFICATION OF THE CASH PAYMENT IS ESTABLISHED, THE INCOME-TAX OFFICER SHALL RECORD HIS SATISFACTION ABOUT THE FULFILMENT OF THE CONDIT IONS FOR ALLOWING THE BENEFIT OF RULE 6DD(J). APPARENTLY, SECTION 40A(3)W AS INTENDED TO PENALIZE THE TAX EVADER AND NOT THE HONEST TRANSACT IONS AND THAT IS WHY AFTER FRAMING OF RULE 6DD(J), THE BOARD STEPPED IN BY ISSUING THE AFORESAID CIRCULAR. 19. THIS CLARIFICATION, IN OUR OPINION, IS IN CONFO RMITY WITH THE PRINCIPLE ENUNCIATED BY THE SUPREME COURT IN CTO V. SWASTIK R OADWAYS AS NOTICED ABOVE. 20. IN THIS CASE, THERE IS NO DISPUTE ABOUT THE GEN UINENESS OF THE TRANSACTIONS AND THE PAYMENT AND IDENTITY OF THE RE CEIVER ARE ESTABLISHED. THEREFORE, THE CASE CLEARLY FELL WITHI N THE PARAMETERS OF PARAGRAPHS 4 AND 5 OF THE AFORESAID CIRCULAR READ T OGETHER. 21. MOREOVER, THE LIST OF CIRCUMSTANCES STATED UNDE R PARAGRAPH 4 OF THE CIRCULAR BEING NOT EXHAUSTIVE, IN TERMS OF THE TRIB UNAL'S OWN FINDING THAT THE ASSESSEE WAS RECEIVING PAYMENTS IN CASH FROM HI S CUSTOMERS AT KANKROLI AND WAS TO GET DELIVERY OF VEHICLES FROM U DAIPUR AND SHE HAS OPENED A BANK ACCOUNT TO FACILITATE THE QUICK TRANS FER OF MONEY FROM BANK TO ITS DEALER TO SATISFY THE CONDITIONS OF SEC TION 40A(3) AND THAT SHE HAS LEFT THE SIGNED CHEQUE BOOK ALSO IN POSSESS ION OF THE DEALER SO THAT THE CASH IS TRANSMITTED IN THE ASSESSEE'S BANK ACCOUNT AND HE COULD RECEIVE THE PAYMENTS THROUGH CHEQUES, WHICH ARE NOT DISPUTED, IT IS APPARENT THAT THE ASSESSEE HAS DONE ALL WHICH SHE W AS REQUIRED TO DO 11 ITA NO. 915/PN/2014, A.Y. 2009-10 AND IT IS NOT THE FINDING OF THE TRIBUNAL THAT THE ASSESSEE WAS PURCHASING THE VEHICLES FROM UDAIPUR AND CARRYING THEM TO KANK ROLI FOR THE PURPOSES OF DELIVERING THEM TO HER BUYERS. ON THE CONTRARY, THE MODUS OPERANDI OF THE ASSESSEE WAS ACCEPTED BY THE TRIBUNAL WHILE CON SIDERING THE QUESTION OF THE CASH CREDIT THAT DEPOSIT OF EACH RE CEIPT OF THE CASH MONEY FROM ITS CUSTOMERS SEPARATELY WAS NOT CONDUCIVE TO THE TYPE OF THE BUSINESS WHICH THE ASSESSEE WAS RUNNING. MOREOVER, THE ASSESSEE AND THE PRINCIPAL DEALER HAD STUCK A WAY OUT BY OPENING A BANK ACCOUNT AT UDAIPUR SO THAT NEITHER THE PAYMENT TO THE PRINCIPA L DEALER IS DELAYED BECAUSE OF THE BANK MIDDLEMAN NOR WAS THE ASSESSEE REQUIRED TO DEPOSIT EVERY RECEIPT FROM HIS CUSTOMERS AT KANKROL I OR TO PERSONALLY GO TO UDAIPUR TO DEPOSIT IN BANK AND THEN DRAW A CHEQU E AND SEND IT TO THE PRINCIPAL DEALER. THE ONE SIGNIFICANT FACTOR WHICH IS NOT DISPUTED AND WHICH IS FOUND TO BE CORRECT THAT THE ASSESSEE WAS TO RECEIVE HIS SUPPLIES FROM THE PRINCIPAL DEALER WHO WAS SITUATED AT UDAIP UR AND THE DEALING WAS FROM BUYER TO BUYER. THEREFORE, MAKING THE PROM PT PAYMENTS TO DEALER, THE CASH CONSIDERATION RECEIVED FROM THE EN D PURCHASER AND GETTING DELIVERY OF VEHICLES FOR SUCH PURCHASER BY PAYMENT OF CONSIDERATION RECEIVED FROM HIM TO THE PRINCIPAL DE ALER WAS THE MODUS OPERANDI. 22. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION T HAT THE CONCLUSION REACHED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS CORRECT AND THE TRIBUNAL BY IGNORING THE SCOPE OF CLAUSE (J) OF RULE 6DD AS EXPLAINED BY THE BOARD'S CIRCULAR HAS ERRED IN REVERSING THE FINDING REACHED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON HYPER-TECHNI CAL VIEW. WE, THEREFORE, ALLOW THIS APPEAL AND SET ASIDE THE ORDE R OF THE TRIBUNAL TO THE EXTENT IT SUSTAINS THE ADDITIONS OF RS. 40,13,000 U NDER SECTION 40A(3). 11. THE HON'BLE DELHI HIGH COURT IN THE CASE OF R C GOEL VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS OBSERVED : 8. THE PROVISO WHICH WAS INTRODUCED IN THE YEAR 19 99 HAS REMAINED CONSTANT EXCEPT IN THE YEAR 2005 WHEN SUB-SECTION ( 3A) WAS INTRODUCED BY THE PARLIAMENT. HOWEVER, RULE 6DD WHICH WAS INTR ODUCED AND HAS BEEN EXISTING ON THE STATUTE FOR THE NEARLY TWO DEC ADES HAS BEEN AMENDED FROM TIME TO TIME. RULE 6DD (K) TO THE EXTE NT IT IS RELEVANT READS AS FOLLOWS: - 6DD. NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTI ON 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PR OFITS AND 12 ITA NO. 915/PN/2014, A.Y. 2009-10 GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION ( 3A) OF SECTION 40A WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE T O A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY TH OUSAND RUPEES IN THE CASES AND CIRCUMSTANCES SPECIFIED HER EUNDER, NAMELY: - XXX XXX XXX (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 PERSONS.' 9. IN THE PRESENT CASE, THE PREVIOUSLY NOTED DISCUS SION WOULD REVEAL THAT THE ASSESSEE ENGAGES ITSELF IN EXECUTING CATERING C ONTRACTS FOR RAILWAYS IN RESPECT OF TWO TRAINS. IN THOSE TRAINS, ITS PERS ONNEL ARE DEPLOYED FOR SALE OF SMALL ARTICLES OF DAILY NECESSITY AND USE T O THE PASSENGERS. PER FORCE, THE PAYMENTS RECEIVED BY THEM ARE NECESSARIL Y IN CASH. THESE AMOUNTS ARE ITA-636/2012 PAGE 5 COLLECTED AND IN TU RN HANDED OVER TO THE ASSESSEE. THE ASSESSEE IN TERMS OF ITS CONTRACT IS BOUND TO MAINTAIN CONSTANT SUPPLIES IN THE TRAINS AND ENSURE THAT AT NO POINT IN TIME CAN THE PASSENGERS BE DEPRIVED OF THESE ARTICLES (WHICH ARE FOOD ARTICLES, SOFT DRINKS AND OTHER ITEMS NECESSARY FOR TRAVEL). IN TH E COURSE OF SUCH TRANSACTIONS, IT SOURCES THESE ARTICLES FROM M/S SH RUTI ENTERPRISES. APPARENTLY, THAT CONCERN IS ALSO A SMALL TIME ONE AN D INSISTS ON CASH PAYMENTS FOR ENSURING CONTINUITY AND TIMELY SUPPLIE S. WHILST, THE COURT IS CONSCIOUS AND DOES NOT IN ANY MANNER WISH TO COM MENT ADVERSELY ON THE LARGER PUBLIC INTEREST ELEMENT EMBEDDED IN SECT ION 40A AND THE UNDERLYING PRINCIPLE, AT THE SAME TIME, THE COURT A LSO NOTES THAT THE PROVISO SEEKS TO RELIEVE TO A CERTAIN EXTENT, THE M EASURE OF HARDSHIP WHICH MIGHT BE IMPOSED UPON SMALL BUSINESSES AND PR OFESSIONALS WHO ARE ENGAGED IN ACTIVITIES AND ARE DEPENDENT ENTIREL Y ON TIMELY CASH FLOW. IT IS IN SUCH CASES THAT RULE 6DD - WHICH WAS FORMU LATED AS A PROVISO TO SECTION 40A (3) - STEPS IN TO AID SUCH ASSESSEES AN D CONCERNS. IN THIS CONTEXT, THE STATUTORY MANDATE IN SECTION 6DD (K), AT LEAST IN THE CIRCUMSTANCES OF THE CASE, HAS TO BE SO CONSTRUED A S TO MEAN THAT BUT FOR THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPR IVED THE BENEFIT OF SUPPLIES ITSELF. THIS COURT CLARIFIES THAT THE INTE RPRETATION OF THE EXPRESSION 'WHO IS REQUIRED TO MAKE PAYMENT IN CASH ' HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE IS FACT DEPENDENT, AT LEAST IN THE PRESENT CASE. THE CONSEQUENCE OF INSTANCES OF PAYMENT THROU GH ACCOUNT PAYEE CHEQUES IN SMALL BUSINESS WHICH ARE DEPENDENT ON SU CH SUPPLIES WOULD 13 ITA NO. 915/PN/2014, A.Y. 2009-10 BE TO COMPLETELY STIFLE, IF NOT STOP, THE BUSINESS ACTIVITIES. IT IS IN THAT SENSE THAT THE EXPRESSION 'REQUIRED' WOULD HAVE TO BE CONSTRUED. 10. IN VIEW OF THE ABOVE DISCUSSION, THIS COURT IS OF THE OPINION THAT ITA- 636/2012 PAGE 6 HAVING REGARD TO THE PECULIAR FACTS AND CIRCUMSTANCES, THE TRIBUNAL AND THE LOWER AUTHORITIES ADOPTED AN U NDULY NARROW AND TECHNICAL INTERPRETATION OF RULE 6DD(K), THE BENEFI T OF WHICH THE ASSESSEE CLEARLY WAS ENTITLED TO. THE QUESTION OF LAW IS ACC ORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 12. THUS, A PERUSAL OF THE ABOVE DECISIONS RENDERED BY T HE HON'BLE SUPREME COURT OF INDIA AND HON'BLE HIGH COURTS WOULD SHO W THAT CASH PAYMENTS MADE BY THE ASSESSEE DURING THE COURSE OF B USINESS PER SE WOULD NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) UNLESS T HE CIRCUMSTANCES IN WHICH THE CASH PAYMENTS ARE NOT EXPLAIN ED OR THE PERSONS TO WHOM SUCH PAYMENTS ARE MADE ARE NOT IDENT IFIABLE. THE INSTANCES GIVEN IN RULE 6DD OF THE INCOME TAX RULES ENUME RATE EXCEPTIONS TO THE PROVISIONS OF SECTION 40A(3). 13. IN THE PRESENT CASE THE PAYMENTS HAVE NOT BEEN DISPUTED BY THE REVENUE. THE ASSESSEE HAS SUPPORTED CASH PAYMENTS B Y THE BILLS/INVOICES IN THE BOOKS OF ACCOUNT WHICH ARE SUBJECT TO AUDIT. THE ASSESSING OFFICER WITHOUT VERIFYING GENUINENESS OF THE BILLS A ND THE CIRCUMSTANCES HAS INVOKED THE PROVISIONS OF SECTION 40A(3 ). THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF THE ASSE SSEE EITHER. THE ONLY REASON GIVEN FOR INVOKING THE PROVISIONS OF SECTION 4 0A(3) BY THE ASSESSING OFFICER IS THAT THE CASH PAYMENTS EXCEEDING ` 20,000/- HAVE BEEN MADE BY THE ASSESSEE IN A SINGLE DAY TO THE SAME VENDOR. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE HAS FILED CERT IFICATE FROM THE SARPANCH, GRAM PANCHAYAT OF VILLAGE BHILAREWADI STATING THAT THERE WAS NO BANKING FACILITIES AT THE PLACE OF WORK. THE SAID CE RTIFICATE WAS 14 ITA NO. 915/PN/2014, A.Y. 2009-10 NOT SENT BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO T HE ASSESSING OFFICER FOR VERIFICATION. IN OUR CONSIDERED VIEW THE ISSUE NE EDS A REVISIT TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE CERTIFICAT E ISSUED BY THE SARPANCH, GRAM PANCHAYAT OF VILLAGE BHILAREWADI AND FUEL BILLS FILED BY THE ASSESSEE. IN CASE THEY ARE FOUND TO BE GENUINE , THE ASSESSEE IS ELIGIBLE TO CLAIM EXPENDITURE FOR WHICH CASH PAYMENTS WERE M ADE. IN VIEW OF OUR ABOVE FINDINGS THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY, THE 04 TH DAY OF MARCH, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 04 TH MARCH, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-II, PUNE 4. ' / THE CIT-II, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE