M/s. Padmasri Poultries V. Income Tax Department

ITTA/501/2006

AI Insights

The case involves a partnership firm, the appellant-Assessee, which leased a poultry plant from another firm, M/s. Padmasri Poultries. The dispute arose when the Assessing Officer initially accepted the return of income but later issued a notice under Section 154 and subsequently under Section 148, leading to a reassessment. The reassessment disallowed certain cash payments made in contravention of Section 40(A)(3) of the Income Tax Act, which were above Rs.20,000. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, but the Income Tax Tribunal partially allowed the appeal, exempting some payments under Rule 6DD(f). The appellant challenged the Tribunal's decision, leading to the current appeal.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 808110 (HC-VISAKHAPATNAM)
• Appeal Type: Others
• Pronouncement Date: 12-04-2022
• Assessment Year: misc
• Other Referred Cases: Attar Singh Gurmukh Singh v. Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment Reopening; Cash payment; Exemption; Income Tax; Bank Services; Village Payment
• Section: 148; 154; 143(1); 40A(3); 44AB; 260A; 6DD; 40(A)(3)

Judgement Text

"HONOURABLE SRI JUSTICE C. PRAVEEN KUMAR And HONOURABLE SMT. JUSTICE V. SUJATHA I.T.T.A.No.501 of 2006 ORDER: (Per Hon’ble Sri Justice C. Praveen Kumar) The present appeal is filed under Section 260A of the Income Tax Act, 1961, challenging the order dated 06.04.2006 passed in I.T.A.No.24/Vizag/2002, on the file of Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam, as illegal, improper and incorrect. 2. The facts in issue are that the appellant-Assessee is a partnership firm. It has taken on lease another poultry plant belonging to another firm by name M/s. Padmasri Poultries. Both the firms are income tax assessee. For the year under consideration, the assessee has filed its return of income declaring the income as Rs.8,523/-. Initially, the return was accepted in the intimation processed under Section 143(1) and later on, a notice under Section 154 of the Income Tax Act was issued proposing to disallow the cash payments made allegedly in contravention of Section 40(A)(3), in excess of Rs.20,000/- as reflected in the Tax Audit Report under Section 44AB of the Income Tax Act. Later on, the Assessing Officer has withdrawn the notice issued under Section 154 of the Act, but, issued a notice under Section 148 of the Act after fourteen months. The assessment was reopened and the CPK, J & VS, J ITTA.No.501 of 2006 2 assessment proceedings were initiated. It is said that in spite of giving proper explanation by the assessee, the Assessing Officer has made additions observing that the payments were made in contravention of Section 40(A)(3) and he disallowed the same accordingly. Aggrieved by the order of Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (CIT) (Appeals). The Commissioner, after perusal of the record and considering the material available on record, held that the view taken by the Assessing Officer is correct and accordingly, dismissed the appeal. Challenging the said order, the assessee has preferred an appeal before the Income Tax Tribunal at Visakhapatnam. Vide order dated 06.04.2006, the Tribunal allowed the appeal in part, holding that the payments made by the assessee to M/s. Lakshmi Ganapati Dry Fish is squarely covered by the exemption mentioned in sub-clause (f) of Rule 6DD of the Income Tax Act, and accordingly, the payment made to M/s. Lakshmi Ganapati Dry Fish is hereby directed to be deleted. Challenging the same, the present appeal came to be filed. 3. Heard the learned counsel for the appellant and Smt. M. Kiranmayee, learned standing counsel for the respondent. 4. Learned counsel for the appellant mainly submits that subsequent to the passing of the order, the Commissioner of Income Tax (Appeals) in I.T.A.No.13/W1,PLK/CIT(A), RJY/05- 06 has accepted the request of the appellant and allowed the CPK, J & VS, J ITTA.No.501 of 2006 3 appeal ordering deletion of 20% disallowance. Apart from that, the learned counsel for the appellant took us through the provisions of the Income Tax Act to show that since the payee and the payer do not have the bank account in the village where they are residing, the transaction by way of cash cannot be found fault with and that the assessee is entitled for an exemption. 5. On the other hand, Smt. M. Kiranmayee, learned standing counsel for the Income Tax Department, would submit that since both lessor and lessee have bank account in Palakol, which is nearby town to the village and as they have been conducting business using the said bank, permitting them to claim exemption, may not be proper. In support of her contention, she relied upon a judgment in Attar Singh Gurmukh Singh v. Income Tax Officer1. 6. A perusal of the judgment referred to above would show that Section 40A (3) of the Income Tax Act empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of Section 40A (3) are not absolute. 1 (1991) 191 ITR 0667 CPK, J & VS, J ITTA.No.501 of 2006 4 Consideration of business expediency and other relevant factors are not excluded. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment, in the manner prescribed in Section 40A (3), was not practicable or would have caused genuine difficulty to the payee. It is for 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 circumstances specified under the rule. 7. In view of the above, it is very clear that payment by way of cash is not totally excluded, but the same is permissible when the payment by way of cheque or crossed cheque is not practicable or in case of any genuine difficulty to the payee. In the instant case, as seen from the above, the undisputed fact is that both the lessor and lessee are residents of Mattaparru village and they are also carrying on their business in the said address. It is also an undisputed fact that there are no bank services available in the said place. Clearing of cheques through banks have to take place in the branch situated at Palakol. Similar issue between the very same parties came up for consideration before the very same Commissioner of Income Tax (Appeals), Rajahmundry in ITANo.13/W1,PLK/ CIT(A),RJY/05-06, who accepted the plea of the appellant and allowed the claim. Though the claim was with respect to lease CPK, J & VS, J ITTA.No.501 of 2006 5 rent payment of Rs.2,17,676/-, being a final order, the same is placed on record has a persuasive value. Rule 6DD (g) reads as under: “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 person, who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town” 8. A reading of Rule 6DD (g) of the Income Tax Rules is very clear and unambiguous to the effect that the exemption is permissible in respect of cash payment made in a village to the person, who ordinarily resides or is carrying on any business or profession or vocation there, and such village is not served by any bank. As stated earlier, in the instant case, both the payer and the payee are residing and carrying on business in Mattaparru village. 9. Having regard to the above, we see that the Assessing Authority was not justified to decline grant of exemption in respect of payment made to M/s. Padmasree Poultries. 10. Accordingly, the appeal is allowed setting aside the order dated 06.04.2006 in I.T.A.No.24/Vizag/2002 passed by the Income Tax Appellate Tribunal, SMC, Bench, Visakhapatnam. It is needless to mention that this order does not preclude the parties to go the bank in the nearby villages to effect transaction when payment of cash would be most CPK, J & VS, J ITTA.No.501 of 2006 6 convenient method, more so, when there is no bank available in the said village. There shall be no order as to costs. As a sequel thereto, miscellaneous petitions, if any, shall stand closed. _________________________ C. PRAVEEN KUMAR, J ________________ V. SUJATHA, J Date: 12.04.2022 Ksn "