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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-6, Kolkata dated 04.12.2015. Assessment was framed by ITO Ward-1(3), Hoogly u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 23.12.2011 for assessment year 2009-10. The grounds raised
by the assessee per its appeal are as under:- “1. For that the assessment is bad in law relying on misconceived in facts as well as in law.
2. For that the Ld. CIT(A)-6/Kol is erred in confirming the addition of whole amount of payment made in cash in excess of Rs.20,000/- in day aggregating to M/s China Automobile Vs. ITO Wd-1(3), Hgl. Page 2 Rs.15,83,647/- to SMS Auto for alleged violation of provision of Sec. 40A(3) of the Income Tax Act, 1961 read with Rule 6DD without considering the actual facts and circumstances and genuineness of case of your petitioner based on mere surmises and supposition. It is wholly bad and illegal and such expense being fully deductible business expenses.
For that in view of the facts and circumstances of the case the Ld. CIT(A)- 6/Kol was wholly wrong and unjustified in confirming addition under Section 40A(3) of the Income Tax Act, 1961 read with Rule 6DD without considering the fact that disallowance for cash payments not applicable if there is no dispute as to genuineness of payment and business compulsion and therefore bad in law. The order passed u/s. 143(3) is liable to be quashed or cancelled in the circumstances it may kindly be held accordingly.
For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds at the time of hearing.” Shri P.K. Das Ld. Advocate appeared on behalf of assessee and Shri A. Bhattacherjee, Ld. Departmental Representative appeared on behalf of Revenue.
Sole issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of Rs.15,83,647/- under the provision of Section 40A(3) of the Act.
3. Briefly stated facts are that assessee is an individual and dealer of two wheelers company namely M/s SMS. During the year under consideration, assessee has made payment in cash for Rs.15,83,647/- to SMS Auto exceeding Rs.20,000/-. The fact of cash payment was confirmed on the reply received from SMS Auto in response to the notice issued u/s. 133(6) of the Act. Accordingly, AO disallowed the same and added to the total income of assessee. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) The assessee before Ld. CIT(A) submitted that the sales were directly made by SMS Auto to the parties and assessee was acting as an agent of SMS Auto as delcredere agent. Therefore, assessee is entitled to make the payment in cash as per the provision of Rule 6DD of the IT Rules, 1962. The assessee also submitted that the AO has not verified the purchase register, cash memo for sales, or sale bill with VAT register of SMS Auto who claimed to have made sales through assessee. The assessee used to collect the sales proceeds from the customers on behalf of SMS Auto which was subsequently forwarded to SMS Auto. The confirmation received from SMS Auto does not have M/s China Automobile Vs. ITO Wd-1(3), Hgl. Page 3 any details of sale shown by SMS Auto to the third parties in the account of the assessee. Therefore, the confirmation received from SMS Auto is defective. However, Ld. CIT(A) disregarded the contention of assessee and confirmed the order of AO by observing as under:- “3,2 I have considered the facts of the case and the appellant’s submissions. The Assessing Officer disallowed payments in excess of Rs.200,0000/- made in cash in a day aggregating to Rs.15,83,647/- as per the clear provisions of Sec.4A(3) of the Act. The appellant’s argument is that the payments were not made on account of expenses of the appellant at all because the appellant was only an agent of SMS Auto and not a customer. SMS Auto used to sale motor cycles to its customers through the appellant and the appellant used to collect the sales proceeds for and on behalf of SMS Auto. It was also contended that the books of account and ledgers were not properly examined by the AO. The AR was given an opportunity to produce the books of account but on 27.11.2015, it was stated that the books of account could not be produced. I have examined the assessment record and find from the copy of account furnished by SMS Auto that bills used to be raised on the appellant as if the appellant was the customer of SMS Auto and the appellant used to pay by way of cheques or cash, as the case may be. Accordingly, a running ledger account was maintained. No evidence has been produced by the appellant to show that the appellant had not made the payments in cash on account of purchases and was an agent of SMS Auto. The material on record including the financial statements only go to prove that the appellant is a customer of SMS Auto and had made cash payments aggregating to Rs.15,83,647/- in violation of provision of Sec. 40A(3) of the Act. Hence, the disallowance of Rs.15,83,647/- made by the AO u/s 40A(3) is confirmed.” Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Ld. AR for the assessee filed paper book which comprises pages 1 to 30 and submitted that the sales were made by SMS Auto directly to the parties and this fact is evident from the invoice raised by SMS Auto to the assessee stating that “sale through China Automobile”. The copies of the tax invoice issued by SMS Auto are placed at pages 3 to 11 of the paper book. Therefore, it is clear that there was in existent the relationship of principal & agent between assessee and SMS Auto. He also submitted that assessee was registered under West Bengal Value Added Tax (VAT) under the category of agency business. Similarly, nature of business in tax audit report was specified as dealer and reseller of motor cycle. Thus, Ld. AR submitted that the M/s China Automobile Vs. ITO Wd-1(3), Hgl. Page 4 assessee was acting as agent of SMS Auto. Therefore, there was no violation of Rule 40A(3) of the Act. On the other hand, Ld. DR submitted that there is no evidence suggesting that there was existent the relationship of agency between assessee and the SMS Auto. Therefore the assessee has violated the provision of Section 40A(3) of the Act by making the cash payment. He vehemently relied on the order of Authorities Below.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the issue is related to the disallowance made by the AO u/s 40A(3) of the Act by making cash payment exceeding Rs.20,000/-. The view taken by the AO was subsequently confirmed by Ld. CIT(A). From the above discussion, it is clear that assessee has not been able to produce the documentary evidence suggesting that there was agency relationship between assessee and SMS Auto. However, the submission was made by assessee before AO as well as before Ld. CIT(A) that there is agency relationship between assessee and SMS Auto. The AO was very much aware of the address of SMS Auto but he did not exercise his power under the provision of law to verify the relationship between assessee and SMS Auto. 6.1 We also note that the assessee claimed to have acted as delcredere agent but assessee in the books of account has shown the transaction as purchased and sale in his books of account. Had assessee been acting as an agent of SMS Auto in the capacity of delcredere agent then he should have booked only the amount of commission income in his books of account. However, we note that books of account cannot be decisive in deciding whether assessee is delcredere agent. On perusal of other supporting evidence such as sale invoice issued by the SMS Auto wherein it was clearly recorded sale through China Automobile suggest that sale was directly made by SMS Auto to the parties. But, it was routed through its agent i.e. China Automobile. Similarly, we also note that the assessee has been registered under the West Bengal VAT under the category of agency business, which also suggest that assessee is acting as agent of SMS Auto. In view of above, we note that the situation of assessee is doubtful whether assessee is an agent of SMS Auto but AO was very