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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
Per Dr. A. L. Saini: The captioned appeal filed by the Revenue, pertaining to Assessment Year 2011-12, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-7, Kolkata,in Appeal No.562/CIT(A)-7/Wd-27(3)/15-16, dated 11.05.2016, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 30.03.2014.
The grievances raised by the Revenueare as follows:
“1 That in the facts and circumstances of the case the learned CIT(A) has erred in deleting Rs.2,89,00,710/- added on account of violation of the provision of section 40A(3) of the Income Tax Act, 1961, as in this case Rule 6DD(k) of the Income Tax Rules, 1962 is not applicable. 2. That the Department craves leave to add, modify or alter any of the ground(s) of appeal and/or adduce additional evidence at the time of hearing of the case.”
Manas Kumar Giri Assessment Year: 2011-12 3. The brief facts qua the issue are that during the assessment proceedings, the assessee has furnished ledger copy of his creditor viz. M/s Vijay Kapoor in his books in support of his claim for purchase Rs.3,00,50,710/- as per his profit and loss account and also in support of his creditors balance of Rs.11,50,000/-. In this regard, the said party had confirmed his claim kept on record but through the said reply M/s VijayKapoor had also claimed that the entire payments was made in cash by the assessee. Therefore, thepayments made to the said party located at the prime city of Delhi to whom he is familiar with asevidenced from providing credit facility was found to have made violationof provisions of section 40A(3) of theAct.In this regard the assessee was asked to explain the purchases in cash. In response, the assessee submitted that all the payments were made bydirect depositing cash to the bank account of M/s Vijay Kapoor (HUF). Therefore, the payments were very much made throughbanking channel only. As the turnover was cross verified, therefore, the very essence of thesection regarding money- laundering was not vitiated and genuineness of payments is established in the assessee`s case. Hence, noany disallowance should be made u/s 40A(3) of the Act. However, the Assessing Officer has rejected the contention of the assessee and held that since the assessee has admitted that payments were made by depositing cash in the bank account of M/s Vijay Kapoor (HUF). The assessee, failed toadduce any documentary evidence like counterpart of deposit slip etc. The tax audit report contains exception clause of Rule 6DD(k) of the Act, but facts and circumstances of the case shows that the ‘Fruits’were sent by M/s Vijay Kapoor from Delhi for Rs.3,00,50,710/-and there was nothing on record which may suggest that M/s Vijay Kapoor was required to make payments in cash for such goods sent from Delhior on behalf of the assessee. The Accounts revealed that balance outstanding of Rs.11,50,000/- was arriving at a series of credit purchases and corresponding thereof. In view of the above findings, the Assessing Officer made addition to the tune of Rs.2,89,00,710/- (i.e. Rs.3,00,50,710 - Rs.11,50,000).
Manas Kumar Giri Assessment Year: 2011-12 4. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) with success. The ld CIT(A) noted that the suppliers have requested the assessee to make the payments in their Bank account and the payments were made through the PNB, Panskura Branch. The assessee has deposited the payments in the PNB to the credit of the suppliers accounttowards purchases amounting to Rs.2,89,00,710/-.The AO during the assessment proceedings has called for the information from the supplier, Mr.Vijay Kapoor, who has confirmed the sales to the assessee as well as receipt of the proceeds either in cash or bank deposits, therefore, ld CIT(A) noted that there is no any tax evasion and hence deleted the addition.
Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.
The ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee defended the order passed by the ld. CIT(A).
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that the assesseeis doing the business of trading in fruits through his proprietorship business, M/s. Santoshi Trading company. In its audited accounts, the assessee has shown purchase of Rs.3,00,50,710/-,which entirely was from M/s. Vijay Kapoor (HUF), a Delhi based Aratiya of the fruits. The assessee had time to time made payments to M/s. Vijay Kapoor (HUF) for supplies made. Such payments were made by directly depositing into the credit of the bank account maintained by the said supplier. The assessee deposited the cash sums from PNB Panskura into his bank account of PNB Delhi. The virtual effect payments were made through banking channel, fully verifiable as deposited into the suppliers’ bank account.
Manas Kumar Giri Assessment Year: 2011-12 We note that in the assessee`s case under consideration, the identity of the payee is not in doubt and it is proved in a positive way by getting reply u/s 133(6) of the Act and reasonableness of the payment is also self- evidenced. The Assessing Officer in the assessment has accepted the genuineness of the payments. Therefore, since the genuineness of the payments made to the party is not doubted by the Revenue, the provisions of section 40A(3) could not be made applicable to the facts of the assessee’s case. The assessee had taken enough precautions from his side to ensure that the payee also does not escape from the ambit of taxation on these receipts by directly depositing the cash in the bank account of the payee and this fact also not disputed by the Revenue. For that we rely on the judgment of the Coordinate Bench of ITAT, Kolkata, vide order dated 07.10.2015 in of 2013 in the case of Rampada Panda v. I.T.O, Haldia wherein the similar facts were discussed and held as follows: “We hold that since the genuinity of the payments made to the party is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It is observed that the assessee had taken enough precautions from his side to ensure that the payee also don't escape from the ambit of taxation on these receipts by directly depositing the cash in the bank account of the payee. This fact is also not disputed by the revenue. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act, 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that "this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment."
We note that the supplier has requested the assessee to make the payments in their Bank account and the payments were made through the PNB, Panskura Branch. The assessee has deposited the payments in the PNB to the credit of the suppliers accounttowards purchases amounting to Rs.2,89,00,710/-. Since, the PNB, Panskura Branch, is covered in core-banking system, the assessee could be able to make the deposits in the account of Mr. Vijay Kapoor (HUF) to the credit of his account at PNB, Delhi. We also note that the supplier has recorded the cash payments in his books of accounts and the Assessing Officer during the assessment proceedings has called for the information from the supplier, Mr.Vijay Kapoor, who has confirmed the sales to the assessee as well as receipt of the Manas Kumar Giri Assessment Year: 2011-12 proceeds either in cash or bank deposits. Therefore, it is evidently clear that both the purchases and sales were duly accounted in the books of accounts of the assessee as well as the supplier. Therefore, there were no unaccounted transactions and the entire transactions were accounted and there is no tax avoidance in this case. For that, on the identical issue, we rely on the judgment of the Coordinate Bench of ITAT, Kolkata in of 2013 (supra) wherein it was held that provisions of section 40A(3) should not be applied in genuine transactions and deleted the addition made by the Assessing Officer u/s 40A(3) of the Act.
Similarly, Hon'ble Calcutta High Court in the case of CIT, Kolkata-Xl vs. Crescent Export Syndicate, of 2008, order dated 30thJuly, 2008held as follows:
“It also appears that the purchases have been held to be genuine by the learned CIT (Appeal) but the learned CIT (Appeal) has invoked Section 40A(3) for payment exceeding Rs.20,000/- since it is not made by crossed cheque or bank draft but by bearer cheques and has computed the payments falling under provisions of section 40A(3) for Rs.78,45,580/- and disallowed @20% thereon Rs.15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the Ld. CIT (Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the transaction that neither the Assessing Officer nor the CIT (Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Accordingly, in our opinion, the learned Tribunal has correctly came to the conclusion by deleting the addition of Rs.15,69,116/- under section 40A(3) of the Act.”
We note that the primary object of enacting section 40A(3) of the Act was two fold, viz: 1) Putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transactions and 2) To inculcate the banking habits amongst the business community. We note that the cash payments were accounted in the books of accounts of the supplier. The assessee also furnished the copy of the balance sheet wherein the PNB bank is reported in the assets side of the balance sheet. The AO during the assessment proceedings has called for the information from the supplier, Mr.Vijay Kapoor, who has confirmed the sales to the assessee as well as receipt of theproceeds either in cash or bank deposits. From the above it is clear that both the purchases and sales were duly accounted in the books of accounts of the assessee as well as the supplier. Page | 5
Manas Kumar Giri Assessment Year: 2011-12 Therefore, there were no unaccounted transactions and the entire transactions were accounted. That being so, we decline to interfere in the order passed by the ld. CIT(A) and his order on this issue is hereby upheld and the grounds raised by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order is pronounced in the open court on 31.07.2018.