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Facts
The assessee filed an appeal against the order of the Ld. CIT(A) for AY 2009-10. The appeal involved two issues: disallowance of payments made to suppliers under section 40A(3) and disallowance for non-deduction of TDS under section 40(a)(ia). The assessee claimed that payments were made via bearer cheques to individuals in villages without bank branches, and certificates from Mukhia confirmed this.
Held
The Tribunal held that the provisions of Rule 6DDJ apply as there were no bank accounts in the relevant villages, thus no disallowance can be made for payments made by bearer cheques. For the second issue regarding TDS, the matter was restored to the Assessing Officer to verify if the recipients had offered the income to tax.
Key Issues
Disallowance of payments made by bearer cheques under Section 40A(3) and disallowance for non-deduction of TDS under Section 40(a)(ia).
Sections Cited
40A(3), 40(a)(ia), Rule 6DDJ
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PATNA BENCH
Before: SHRI GEORGE MATHAN & SHRI SANJAY AWASTHI
Present for: Appellant by : Shri Soumitra Choudhury, Advocate & Shri Pranabesh Sarkar, Advocate Respondent by : Shri Ashwani Kr. Singal, JCIT Date of Hearing : 25.02.2025 Date of Pronouncement : 25.02.2025 O R D E R Per Bench : This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), Patna-3 [hereinafter referred to as “the Ld. CIT(A)”] vide order no. ITBA/APL/S/250/2023-24/1057473295(1) dated 28.10.2023 passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2009-10.
Shri Soumitra Choudhury, Advocate and Shri Pranabesh Sarkar, Advocate appeared on behalf of the assessee and Shri Ashwani Kr. Singal, JCIT appeared on behalf of the revenue.
It was submitted by the Ld. AR that this is a second round of litigation. It was a submission that two issues are involved – one is a disallowance made in respect of the payments made to the suppliers of material in the assessee’s contract business by applying the provisions of section 40A(3) of the Act to an extent of Rs.52,61,916/-. The second issue was against the action of the Ld. CIT(A) in confirming the disallowance made by invoking the provisions of section 40(a)(ia) in respect of the non- deduction of TDS on the payment made to the Mangla Planners for map design to an extent of Rs.2,95,000/-. It was the submission that the amount of Rs. 1,00,000/- was paid to Mangla Planners and the balance of Rs.1,95,000/- was paid to some other persons for the map and design of water cover. It was the submission that in respect of the disallowance u/s. 40A(3) of the Act though the issues have been restored to the file of the Assessing Officer for re-adjudication and the Assessing Officer in the second round has recorded that the assessee had not provided the details the Ld. AR drew our attention to page 3 of the paper book which was the tracking record of the first notice and the said track consignment reads as under:
It was a submission that the notice was received on 21.11.2018. In regard to the second notice, the Ld. AR drew our attention to page 7 which was the tracking consignment, which reads as follows :
And the notice is seen to be served on 06.12.2018. It was the submission that both the notices were served after the date of hearing. A perusal of the assessment order in para 5 shows that the notice was issued on 19.11.2018 for compliance on 26.11.2018. However, a perusal of the tracking consignment shows that the notice was despatched only on 26.11.2018. Similarly, the second notice is dated 29.11.2018 and compliance date is given as 04.12.2018. The notice has been despatched only on 03.12.2018 as per the track consignment. Thus, no fault in respect of the normal presentation can be placed on the folder of the assessee. It was the argument of the Ld. AR in respect of the disallowance u/s. 40A(3) that the payments have been made by bearer cheques to various individuals for supply of material and the necessary certificates from the Mukhias of the relevant Gram Panchayat had also been produced before the Assessing Officer in the course of the original proceedings itself wherein it has been categorically admitted that there is no branch of any bank in the village where the suppliers were operating. Copy of one of the certificates issued reads as follows:
It was a submission that in view of the provisions of Rule 6DDJ as there was no bank account in the relevant village, the provisions of section 40A(3) of the Act could not be applied on the limited issue of disallowance as the assessee could not be expected to do an act which was impermissible in law. It was also the submission that the total purchase of the assessee was to an extent of Rs.7,77,93,578/- and the gross profit declared by the assessee itself was 18% and the net profit at 7.5%. It was the submission that the disallowance as made by the Assessing Officer and confirmed the Ld. CIT(A) may be deleted.
In reply, the Ld. Sr. DR vehemently supported the orders of the Assessing Officer and the Ld. CIT(A). It was the submission that adequate opportunity has been granted to the assessee and the assessment order was passed only on 10.12.2018 and nothing estopped the assessee from complying with the notice even, if the same was received late. It was the submission that there has been a trend in not complying with notices just by saying it has been received late. It was the submission that it is only on account of the non-cooperation by the assessee that the addition has made.
We have considered the rival submissions. Without going into the issue as to who is responsible for the non-compliance but considering only the facts, it is clear that even, in the course of the original proceedings, the certificate issued by the Mukhia of the relevant villages were available. Obviously, the Mukhias are the Gram Pradhan who were elected representatives and who know the facts and the ground reality. They represented to the Government also in their respective villages. Such Mukhias have specifically confirmed that there are no banks or any branch of banks operating in the respective villages. Thus, obviously, the provisions of Rule 6DDJ would come into play and no disallowance can be made in respect of the payment made by bearer cheques to the various suppliers of material. This being so, the addition as made by the Assessing Officer and confirmed by the Ld. CIT(A) to the extent of Rs.52,62,916/- stands deleted.
In respect of the addition made by invoking the provisions of section 40(a)(ia) of the Act, it was submitted by the ld. AR that in view of the principles laid down by the Hon’ble Supreme Court in the case of Hindusthan Coca Cola Beverage (P) Ltd. reported in 163 Taxman 355 (SC) the issue could be restored to the file of the Assessing Officer for verification as to whether the recipients of the amount of Rs.2,95,000/- being Rs. 1,00,000/- paid to Mangalam Planners and the amount of Rs.1,95,000/- paid to the different persons for the design and planning of the water towers have been offered by the recipients to tax as their income. The Assessing Officer will also consider the fact as to whether the recipients are liable to tax or whether their incomes are below the taxable limit.
In the result, the appeal of the assessee is partly allowed for statistical purposes.