DIPAK KUMAR DEY,HOOGHLY vs. CIT, KOLKATA-9, KOLKATA

Per J. Sudhakar Reddy :-

This appeal filed by the assessee is directed against the order

of the ld. Pr. Commissioner of Income Tax-9, Kolkata (hereinafter

the ‘ld. CIT’), passed u/s 263 of the Income Tax Act, 1961 (the

‘Act’), dt. 30/03/2015, for the Assessment Year 2010-11, on the

following grounds:-

2 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey “1. For That none of the conditions precedent for the exemption of jurisdiction under section 263 (1) of the Income Tax Act, 1961 existed and/or have been complied with and/or fulfilled on the part of the Ld. Commissioner of Income Tax, Kolkata-9 in the instant case and the illegitimate order thus passed in pursuance to the impugned notice dated 18–02–2015 issued under section 263 of the Income Tax Act, 1961 solely and exclusively basing on the information provided by the Audit Party is ab initio void, ultra vires and ex-facie null in law. 2. For that the impugned Action of the Ld. Commissioner of income tax, Kolkata-nine, Kolkata in alleging non-application of mind on the part of the ld. Income Tax Officer, Ward 3, Haldia for making inadequate enquiries in respect of violation of section 40 A (3) of the Act is based on extraneous parameters not amenable to reason which is completely unfounded, unjustified and untenable in law. 3. For That on a true and proper interpretation of the scope and ambit of the provisions of section 263 (1) of the Income Tax Act, 1961, the ld. Commissioner of income tax, Kolkata – 9, Kolkata acted unlawfully in directing the ld. Income Tax Officer, Ward 3, Haldia for invoking the provisions of section 40 A (3) of the Act without satisfying the conditions laid down thereunder and the adverse finding reached on that behalf is wholly illegal, illegitimate and infirm in law.”

3 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey

The assessee, the proprietor of M/s Haldia Foreign Liquor Off

shop is assessed to income tax with the ITO, Ward – 27 (3), Haldia

(earlier Ward-3, Haldia) under the PAN: ACRPD 8980 B. This

return for the A.Y.2010-11 declaring therein a total income of Rs.

5,49,500/-was filed by the assessee on 04-10-2010 in ITR-4. The

return was accompanied by a tax audit report dated 24-09-2010 in

Form No. 3CD. The return was processed under section 143 (1) on

15-06-2011. The assessee’s case was selected manually for

scrutiny with the prior approval of the then Additional CIT, Haldia

range (now Range-27). Statutory notices were duly issued to and

served on the assessee by the A.O. claimed the scrutiny assessment

order on 16-11-2012 under section 143 (3) on a total income of Rs.

584,750/-, as a result of which an additional demand of Rs.

1,17,910/-was raised against the assessee which was inclusive of

education cess and interest levied u/s 234B, 234C & 234D. In the

assessment order the A.O. made an addition of Rs. 5427/- on

account of unexplained closing balance appearing in the ledger

account of M/s Mohan Meakin Ltd. He also disallowed a sum of Rs.

4 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey 29,822/- out of various expenses devoted to the P&L A/C for want

of verifiable evidences. The A.O. initiated penalty proceedings

under section 271 (I)(c) for furnishing of inaccurate particulars of

income by the assessee. Subsequent perusal of the assessment

record revealed that during the relevant year the assessee made

multiple cash payments of Rs. 20,000/- each on different dates to

M/s Johar & Co. (Wine Sales) Pvt. Ltd.

during the year, a tabular form, aggregating to Rs. 42,40,000/-, and

as those payments which contravened to section 40A (3) of the Act,

the ld. CIT issued a show cause notice to the assessee as to why the

provisions of section 263 of the Act should not be invoked. The

assessee submitted a detailed reply. The ld. Commissioner

considered the reply and held that: –

a) the assessee has not made payments to M/s Johar & Co.

(Wine Sales) Pvt. Ltd. and in some months at times there was a gap

of 2 to 3 days between consecutive payments and hence the

argument of the assessee that he never keeps accumulated cash

either in the shop or in the residence for the fear of the robbery, is

incorrect.

5 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey b) The assessee did not make a single cash payment to the

license agent during the months of June and December, 2009 and

the months of January and March, 2010. It is highly probable that

the assessee might have made cheque payments to the wholesaler.

Thus the submissions of the assessee on the nature of its business

complex cash sales, Business hours does not permit deposit of cash

in Bank etc. are factually incorrect.

c) No evidence is brought on record by the assessee to prove

that the M/s Johar & Co. (Wine Sales) Pvt. Ltd. refused to accept the

payments of the assessee in cheques.

d) As the license agent is a very big establishment, it cannot be

believed that it does not prefer payments through cheques. The

assessee has shown three or four cash payments each, amounting

to Rs. 20,000/-to the license agent through different money

receipts. Thus, splitting the cash payments was made with an

intention of circumventing the provision of 40 A (3) of the Act.

Thus, it proves that there were no exceptional circumstances as

stipulated in Rule 8DD of the Income Tax Rules, 1962.

e) Haldia, where the assessee’s business premise is located, is

not a remote place having no access to banking facilities.

6 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey 4. The ld. CIT, concluded that the assessee has violated the

provisions of section 40 A (3) of the Act and that the AO should

have disallowed the expenditure under the section. Omission to do

so by the assessing officer was held as, resulting in the assessment

order being erroneous and prejudicial to the interest of the

revenue. Hence, he exercised his powers u/s 263 of the Act, and

revised the assessment order passed u/s 143(3) and gave specific

directions to the Assessing Officer.

Aggrieved, the assessee is an appeal before us.

officer during the course of assessment proceedings had issued

notices under section 133 (6) to the supplies of funds and has

verified that the purchases, and the payments made by the

assessee to M/s Johar & Co. (Wine Sales) Pvt. Ltd., which is a

territorial licensed agent of Government of West Bengal. He filed a

paper book running to 124 pages. He referred to pages 34 to 39,

which is, an audit query and submitted that the show cause notice

issued by the ld. Pr. CIT, under section 263 of the Act was based on

the opinion/direction of an audit party and not on independent

application of mind by the ld. Pr. CIT. He argued that the statue

requires that the ld. Pr. CIT, applies his mind independently to the

7 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey information received from the audit party and thereafter

independently conclude as to whether there was an error which

caused prejudice to the interest of the revenue.

For the proposition that the ld. Pr. CIT has to independently

apply his mind, he relied on the following case laws:- • Jaswinder Singh vs. Commissioner of Income Tax (2012) 150 TTJ (Chd) (UO) 33 • Jeewanlal (1929) Ltd. vs. ACIT, 1977 (Cal.) • Arabinda Roy vs. CIT, ITA No. 1367/Kol/2013, dt. 24-08-2016

territorial licensed agent of the West Bengal Excise Department

and the genuineness of the payments has never been doubted

either by the assessing officer or by the ld. Pr. CIT. He submitted

that both the purchase and sales have been accepted as true and

correct by both the authorities after verification. He relied on the

decision of the Honourable Calcutta High Court in the case of

Commissioner of Income Tax versus Crescent Export Syndicate, ITA

No. 202 of 2008, order dt. 30th July, 2008, for the proposition that,

when the genuineness of the purchase was not in dispute,

disallowance under section 40 A (3) of the Act, cannot be made. He

submitted that the assessing officer, on verification of the

8 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey purchases, was satisfied with the genuineness of the same and

hence did not make any disallowance and in view of the decision of

the Honourable Calcutta High Court in the case of Crescent Export

Syndicate (supra), the view taken is a plausible view taken by the

assessing officer and hence the revision by the ld. Pr. CIT, is bad in

law. He relied on the following case law:-

1) Anupam Tele Service vs. ITO (2014) 366 ITR 122 (Guj.)

2) M/s. The Malabar Industrial Co. vs Commissioner Of Income-

Tax 243 ITR 83 (SC).

3) Chromo Business Ltd. vs. DCIT (2004) 82 TTJ (Cal) 540

4) CIT vs. Greenworld Corporation (2009) 314 ITR 81 (SC)

5) CIT vs. J.L. Morrison (2014) 366 ITR 593 (Cal)

He further relied on the order of the ITAT Kolkata’s decision

in the case of M/s. Amrai Pachwai & C.S Shop vs. D.C.I.T Circle-1

Durgapur ITA No.1251/Kol/2011 A.Y 2008-09, order dt. 15 -01-2014,

for the proposition that when payment in cash is made to

Government licensed agent who has been selected under the Rules

framed by the Government, fall within the ken of Rule provided by

the Rule 6DD of the Income Tax Rules, 1962, and hence no

disallowance can be made. He prayed that the specific direction

9 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey given by the ld. Pr. CIT, are not in consonance with the case law

cited. He prayed for relief.

assessee and submitted that the information received from the

audit party was merely an input to the ld. Pr. CIT and it is only on

application of mind that this showcause notice under section 263

of the Act was given to the assessee. He took the assessee through

the order of the ld. Pr. CIT passed under section 263 of the Act and

submitted that a plain reading of the same demonstrates not only

application of mind but careful consideration of each and every

submission of the assessee. He read the order of the ld. Pr. CIT and

submitted that the submission of the assessee was found to be

factually incorrect. He relied on this order and submitted that the

assessee has failed to demonstrate commercial expediency,

exceptional circumstances under Rule 6DD of the Income Tax

Rules, 1962. He further submitted that the assessee, by making

different payments of Rs. 20,000/- each on the same date, tried to

circumvent the provisions of the Act. He submitted that the order

of the ld. Pr. CIT be upheld.

10 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey 8. Rival contentions heard. On a careful consideration of the

facts of the case, perusing the papers on record, orders of the

Authorities below and the case laws cited, we hold as follows:-

8.1. The issue before us is whether the assessing officer has erred

in not invoking the provisions of section 40 A (3) of the Act in this

case. There is no dispute that during the course of assessment

proceedings, the assessing officer has issued notices under section

133 (6) and called for the information from M/s Johar & Co. (Wine

Sales) Pvt. Ltd., Gopalpur, Asansol, which is the territorial licensed

agent of Government of West Bengal. In the tax audit report given

in Form No. 3CD, Column 17H relating to expenditure covered

under section 40 A (3) is shown as “NIL”. The genuineness of the

purchases are not doubted. Under these circumstances, we have to

examine as to whether the specific finding of the ld. Pr. CIT at page

19 of his order is sustainable.

The specific findings read as follows: –

“the aggregate of cash payments amounting to Rs. 42,40,000/-, which comprise daily cash payments exceeding Rs. 20,000/-is clearly hit by the mischief of the provisions of S.40 A (3). The A.O. should have disallowed this expenditure under the said section. Omission to make such disallowance has rendered the assessment

11 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey order absolutely erroneous insofar as it is prejudicial to the interest of the revenue.”(emphasis ours)

8.2. The above specific findings and direction, the assessing

officer in the set aside proceedings would not have any choice but

to disallow the amount by invoking Section 40A(3) of the Act,

thought the ld. Pr. CIT, in the last para of his order directed the

Assessing Officer to give the assessee an opportunity and re-

adjudicate the matter.

On the issue as to whether the ld. Pr. CIT has applied his

mind to the information furnished by the audit party, we are of the

considered opinion that there is application of mind. Information

received from the audit party is information which can be acted

upon. The information is factual and we find no fault in the ld. Pr.

CIT issuing a show cause notice based on such information and

thereafter adjudicating the issue. Hence this argument of the

assessee is dismissed.

9.1. Coming to the case law relied upon by the learned counsel for

the assessee, in the case of Jaswinder Singh (supra), the Tribunal

has concluded that there was no application of mind by the ld. Pr.

CIT. We have held otherwise.

12 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey In the case of Jeewanlal (1929) Ltd. vs. ACIT (supra) the

Hon’ble Calcutta High Court was dealing with the case where in it

was held that the assessing officer’s order merged with the order of

the AAC and as such the notice issued for revision by the

Commissioner at the suggestion of the audit party was not valid. In

this case there is no such suggestion by the audit party, only certain

factual details were brought out by the audit party.

genuineness of the payment has not been doubted by the assessing

officer and hence no disallowance was made under section 40 A (3)

of the Act and that this view of the Assessing Officer in his order

u/s 143(3) of the Act, is a possible view and consequently no

revision u/s 263 of the Act, can be made.

We find that the Hon’ble Calcutta High Court in the case of

Crescent Export Syndicate (supra), has held as follows:-

“….Under the circumstances the purchases are considered to be genuine'. So the purchases have been held to be genuine. 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

13 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey computed the payments falling under provisions to 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 assessment order 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.”

The propositions of law laid down is that, when the genuineness of

the purchases were not in dispute, the addition made under section

40 A (3) of the Act, cannot be sustained. As already the genuineness

of the purchases have not been disputed by the Assessing Officer or

the ld. Pr. CIT. In fact they have been verified with the seller and

accepted as true and correct.

14 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey Applying the provisions of law laid down in the judgement of

the Hon’ble Jurisdictional High Court, we have the necessary hold

that the view taken by the assessing officer, not to invoke the

provisions of section 40 A (3) of the act, as he found that the

purchases made were genuine on verification by issue of notices

issued u/s 133(6) of the Act, is a plausible view and hence the

revision made by the ld. Pr. CIT, u/s 263 of the Act, is bad in law.

The Hon’ble Andhra Pradesh High Court in the case of

Spectra Shares and Scrips Pvt. Ltd. v. CIT (AP) 354 ITR 35 had

considered a number of judgements given by various Courts and

culled out the principles applicable to exercise jurisdiction by the

ld. CIT u/s 263 of the Act, as follows:-

“a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue – recourse cannot be had to Sec.263 (1) of the Act. b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the

15 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. c) To invoke suo moto revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo moto revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is

16 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey permitted, litigation would have no end except when legal ingenuity is exhausted f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment.” Applying the propositions of law laid down to the facts of this case, we have to accept the contentions of the assessee. 12. We also find that the payments are made for supplies allotted

to the assessee by the territorial licensed agent of Government of

West Bengal. The submission of the assessee that payments made

to this licensed territorial agent in cash, do not attract the

provisions of Section 40A(3) of the Act, r.w.r. 6DD (b) and Rule

17 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey 6DD(k) of the Rules, are supported by the decision of the Tribunal

in the case of M/s. Amrai Pachwai & C.S Shop vs. D.C.I.T Circle-1

Durgapur, (supra), wherein it has been held as follows:-

"We have considered the rival submissions. At the outset a perusal of the assessment order clearly shows that the AO has recognised the assessee's business in trading of country spirit and country liquor. Copy of Form of Licence issued by Durgapur Municipal Corporation and copy of Form III issued by Department of Excise, Govt. of WB were also found at pages 177 and 179 of the assessee's paper book. In any case the validity of licence of the assessee to trade in country spirit and country liquor is not the issue before us. The issue is whether the payments made by the assessee for the purchase of country spirit from the territorial licensee bottling plant, IFB Agro Industries Ltd, City Centre, Durgapur, falls within the exemption provided under rule 6DD(b) of the I T Rules 1962. Admittedly, the AO has recognised that the provision of Rule 6DD(b) of the IT Rules 1962 is applicable in case of payments made to government directly. This is found in page 2 of the assessment order. A perusal of the Kolkata Gazette Tuesday dated 20th Sept 2005 shows that the Government of West Bengal, Department of Excise has issued a notification, wherein the warehouse has been identified to mean the warehouse for supply of country spirit to the retail vendors, established at convenient places by the Commissioner at the expense of the State Government, or at the expense of a person to

18 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey whom the exclusive privilege of supplying or selling country spirit by wholesale has been granted u/s. 22 of the Act of a licensed wholesale vendor of country spirit. Further, it has been specifically identified that the authorised representative of the wholesale licensee shall realize the necessary amount of duty, cost price and bottling charge, if there be any, at the prescribed rate and such other imposition, as may be prescribed by law, from the retail vendor to whom the country spirit is to be issued from the concerned warehouse. It is also specifically mentioned in section (2) of the said notification that no retail vendor of country spirit shall deposit duty direct into the local treasury for issue of country spirit to be taken by him from the warehouse concerned, which clearly shows that the warehouse is for the supply of the country liquor, specifically, the warehouse is under the direct control and custody of the State Govt. The State Government has closed its doors in so far as the local treasury is concerned and the payment for the purchase of country spirit or country liquor has to be made to the warehouse, run by the government. This shows that any payment made to the warehouse which is under the direct control of the state government. is a payment made directly to the government. Once, this is accepted then the provisions of Rule 6DD(b) of the I T Rule 1962 which clearly spells out that the payment made to the Government in legal tender under the rules framed by the Government, is exempted from the rigours of section 40A(3) of the Act.

19 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey Here, it is noticed that the payments made by the assessee for purchase of country spirit and country liquor is to the government as per the notification issued by the government and is in legal tender specified by the notification. In the circumstances, we are of the view that the payment made by the assessee for the purchase of country liquor and country spirit from the territorial licensed bottling plant, IFB Agro industries Ltd, City Centre, Durgapur is protected by the exemption in terms of Rule 6DD (b) of the I.T Rules 1962. In the circumstances, the addition as made by the AO and as confirmed by the ld. CIT (A) by invoking the provisions of section 40 A (3) of the Act and 1961 stands deleted.”

No contrary decision is brought to our notice by the ld. DR.

Applying the propositions of law laid down in this decision to

the facts of the case, we have to hold that the conclusion is drawn

by the ld. Pr. CIT, directing that the assessing officer to make a

disallowance under section 40 A (3) of the Act, is bad in law. The

payments made in cash are protected by the exemption in term of

Rule 6DD(b) of the Income Tax Rules, 1962, as held in the above

case. Hence the revision is bad in law on this ground also.

20 I.T.A. No. 768/Kol/2015 Assessment Year: 2010-11 Dipak Kumar Dey 14. In view of the above discussion, we hold that the revisionary

order passed under section 263 of the Act by the learned Pr. CIT, dt.

30/03/2015, is bad in law. Hence, we cancel the same.

Kolkata, the 8th day of September, 2017. Sd/- Sd/- [S.S. Viswanethra Ravi] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated :08.09.2017 {SC SPS} Copy of the order forwarded to: 1. Dipak Kumar Dey C/o. S.N. Ghosh & Associates, Advocates Seben Borthers’ Lodge P.O. Buroshibtala P.S. Chinsurah Dist. Hooghle PIN- 712 105 2. Commissioner of Income Tax, Kolkata-9, Kolkata Aayakar Bhawan Dakshin 2, Gariahat Road (South) Kolkata – 700 068 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.