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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI P.K. BANSAL & SHRI AMARJIT SINGH
PER AMARJIT SINGH, J.M.
The assessee has filed the present appeal against the impugned
order dated 15th March 2013, passed by the learned Commissioner
(Appeals)–II, Nagpur, relevant to the assessment year 2009–10.
The grounds raised by the assessee is reproduced below:–
“1. The order passed u/s 143(3) is illegal, invalid and bad in law.
On the fact and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Nagpur erred in confirming the addition made at Rs.1,03,50,968 by assessing officer applying the provisions of section 40A(3), therefore order passed is unjustified, unwarranted and excessive.
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On the fact and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Nagpur erred in confirming the addition made at Rs. 1,53,976/- disallowing the commission income by assessing, therefore order passed is unjustified, unwarranted and excessive.
On the fact and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Nagpur erred in confirming the addition made at Rs.56,81,006/- by assessing officer applying the provisions of section 40(a)(i), therefore order passed is unjustified, unwarranted and excessive.
The Commissioner of Income Tax (Appeals)-I, Nagpur erred in not considering the detailed reply and submission of assessee therefore order passed is illegal, invalid and bad in law.”
Brief facts of the case are that the assessee filed his return of income on 24th August 2009, declaring total income of ` 4,35,970. The
return of income was processed under section 143(1) on 25th August
2010. The assessee filed revised return of income declaring total income to the tune of ` 2,23,240 on 9th September 2010. The return of
income was processed on 29th March 2011. In the year under
consideration, the assessee derived business income by way of trading
and commission agent under the name and style “M/s. Kisan Alu
Company, Kalamna Nagpur”. Books of account have duly been audited
and audit report in form no.3CB / 3CD was filed by the assessee for
the assessment year 2008–09 and 2009–10. The case was selected for
scrutiny under CASS. Notices under section 143(2) and 142(1) were
issued which were duly served upon the assessee. At the time of
assessment, the Assessing Officer observed that the assessee made
payment to 11 parties totaling to the tune of ` 1,03,50,968 without
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complying to the provisions of section 43A(3). Therefore, the said
payment was declared and added to the income of the assessee. There
was a difference in turnover and regarding non–deduction of TDS on
payment made to the transporter. The Assessing Officer assessed the
commission @ 4% to the tune of ` 1,53,976 and added to the total
income of the assessee. The assessee also paid the transportation
charges to the tune of ` 56,81,006 against the purchase to the tune of
` 2,30,14,686, without complying to the provisions of section
40(a)(ia). Therefore, the amount of ` 56,81,006 was disallowed and
added to the income of the assessee. The income of the assessee was
assessed at ` 1,64,09,190. Feeling aggrieved, the assessee has filed
appeal before the learned Commissioner (Appeals) who dismissed the
appeal of the assessee. Therefore, the assessee filed the present
appeal before us.
ISSUE NO.1
This issue being general in nature, therefore, no separate
adjudication is required.
ISSUE NO.2
Under this issue, the assessee has challenged the confirmation of
the addition to the tune of ` 1,03,50,968 in view of the provisions of
section 40A(3) of the Act. The assessee was in the business of trading
and commission agent under the name and style of “M/s. Kisan Alu
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Company, Kalamna Nagpur”. The contention of the assessee is that
the assessee was purchasing the agricultural produce on behalf of the
buyer from the farmers and was receiving only commission. He was
collecting the amount from the purchaser and was paying to the
farmers. It is also contended that the provisions of section 40A(3) is
not applicable to the case of the assessee in view of the law settled in
the following case laws relied upon by the learned Counsel for
assessee:–
i) Sri Renukeswara Rice Mills v/s Income Tax Officer, (2005) TTJ 0912 (Bangalore);
ii) Avtar Singh Gurmukh Singh Etc. v/s Income Tax Officer, [1991] 191 ITR0667 (SC);
iii) Rampada Panda v/s Income Tax Officer, (2016) 156 ITD 0784 (Kolkata);
iv) Anurag Radhesham Attan -Vs.- Income Tax Officer, (2016) 158 ITD 0867 (Pune); and
v) Income Tax Officer -Vs.- Ram Prakash, (2015) 67 SOT 0126 (Agra).
It is also argued by the learned Counsel for assessee that the
assessee made payment by using electronic clearing system through a
bank account, therefore, the provisions of rule 6DD of the I.T. Rules,
were applicable and accordingly, no tax of any kind was liable to be
deducted. No doubt, the learned Departmental Representative has
strongly placed reliance on the order passed by the learned
Commissioner (Appeals) in question. In view of the arguments
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advanced by the parties and on a perusal of the material on record, we
noticed that the transaction of the assessee was not in dispute. He was
working as commission agent and was purchasing the agricultural crop
from the farmers on behalf of the purchaser. The matter in
controversy has been adjudicated by the Tribunal in Renukeswara Rice
Mills v/s ITO, [2005] 93 ITD 263 (Bang.), wherein, the Tribunal has
held as under:–
“6. We have carefully considered rival submissions and relevant facts of the case. Hon'ble Supreme Court while, interpreting the provision of Section 40A(3) in the case of Attar Singh Gurmukh Singh v. ITO 191 ITR 667 at page 672 and 673 held thus "Section 40A(3) must not be read in isolation or to the exclusion of Rule 6DD. The section must be read along with the rule. If read together it will be dear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only 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 on 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. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. 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 also open to the assessee to identify the person who 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. It will be dear from the provisions of Section 40A(3) and Rule 6DD that they are intended to regulate business transactions and to prevent the use of un-accounted money or reduce the chances to use black money for business transactions. (See Mudiam Oil Company v. ITO [1973] 92 ITR 519 (AP). If the payment is made by a crossed cheque drawn on a bank or crossed bank draft, then it will be easier to ascertain, when
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deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute, the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business." (emphasis supplied) The Hon'ble Supreme Court noted that the intention to make payment by crossed cheque or crossed DD is to enable the assessing authority to ascertain that the payment is genuine and not out of the undisclosed source. It is also noted that Section 40A(3) is intended to regulate business transactions and to prevent the use of un-accounted monies or to reduce the chances of use of block money for business transactions. In the present case, it is seen that the assessee for purchase of rice, paid the amount directly to the bank account of the payee. The effect of issue of crossed cheque/DD is that the payee named therein receives the payment through banking channels. The purpose is dual. In the first instance it is to see that the payee and payee alone receives the payment and to ensure that the payment is routed through bank channel so as to trace the origin and conclusion of the transaction. In the case before us, it is seen that instead of issuing cheque/DD the assessee prepared a challan and along with the cash the challan was presented to the bank of the payee for the credit of the same in the account of payee. In the result it is ensured that the payee and payee alone receives the payment and the origin and conclusion of transaction is traceable. Thus payment of sum directly in the bank account of payee fulfils the criteria for ensuring the object of introduction of Section 40A(3). This is not a direct payment to the payee but only to the credit of this bank account without the payee actually receiving the cash. We accordingly hold that such payment is not in violation of provision of Section 40A(3) and hence no disallowance is called for.
It is seen that the payment is made for purchase of agricultural produce. The payment is made to the agent operating at the market yard. As per the regulation of trade in agricultural produce, market yards are set up and the State RMC Act also regulates such business. Thus for purchase and sale of agricultural produce, the transaction can be only through dealers and agents licensed to operate in the market yard. Thus, the person operating there, is not only the agent of the cultivator or grower but also of the persons purchasing the agricultural produce. Clause (f) of Rule 6DD provides that where the payment is made for the purchase of agricultural produce to the cultivator, Section 40A(3) will not apply. Similarly, Clause (1) of Rule 6 DD provides that where the payment is made by any person to his agent who is required to make payment in cash for goods, Section 40A(3) will not apply. Since the assessee has paid the sum to his agent who is the payee in the
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present case, and who in his turn is required to make payment to the cultivator, indirectly, the assessee has paid for the purchase of agricultural produce to the cultivator through the agent. Thus, a combined reading of Clauses (f) and (1) of Rule 6DD will take away the transaction from the clutches of Section 40A(3). From the bills produced by the assessee to the assessing officer it was submitted that the assessee apart from paying price of the products also pays commission to the payee. Thus, the payee has become the agent of assessee also. Such agent is required to pay the cultivator in cash. Accordingly, there is no violation of Section 40A(3). We accordingly delete the disallowance of Rs.2,04,000/- in respect of payment made to KP.”
The Tribunal, Pune Bench, has also identical issue in appeal in ITA no.829 and 863/Pn./2012 dated 11th March 2016, wherein it has
been held that if the assessee purchased agricultural produce from
farmer through them and make direct payment to the farmers then
there shall be no disallowance under section 40A(3). The Hon’ble P&H
High Court in CIT v/s Smt. Shelly Passi, 350 ITR 227 (P&H), has held
that direct deposit in the bank account of the recipient by the payer
assessee not violating provisions of section 40A(3) r/w rule 6DD of the
Rules. In view of the said law, it is quite clear that the payment by the
assessee on account of purchase of agricultural produce nowhere come
within the ambit of section 40A(3) r/w rule 6DD(c)(v). Therefore, in
view of the aforesaid circumstances, the finding of the learned
Commissioner (Appeals) is wrong against law and facts and cannot be
sustained in the eyes of law. Accordingly, we set aside the findings of
the learned Commissioner (Appeals) on this ground and delete the
addition to the tune of ` 1,03,50,968.
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ISSUE NO.3
Under this issue, the assessee has challenged the disallowance of
commission of ` 1,53,976. The difference of turnover was found to the
tune of ` 38,49,405. The assessee was called upon to show cause as
to why the same should not be added @ 4%. The explanation of the
assessee was not proper. However, the assessee explained that the
difference was minimal in such a high turnover and it is not at all
proper to arrive at a turnover on the basis of a reverse calculation
from the figure of commission received. The Assessing Officer
conducted enquiry from APMC and the assessee was confronted.
Nothing was explained. The same situation was before the learned
Commissioner (Appeals) as well as before us. Since the assessee failed
to clear the ambiguity, therefore, the 4% addition on the differential
turnover to the tune of ` 1,53,976 was confirmed. Accordingly, the
issue is decided against the assessee and in farour of the Revenue.
ISSUE NO.4
This issue is in connection with the addition of an amount of ` 8.
56,81,006 under section 40(a)(ia). The Assessing Officer made the
addition on account of payment to transporter. The learned Counsel
for assessee has argued that the transportation of goods is a part of
entire sale consideration. The owner of the goods while passing on the
buyer at delivery point and the transporter of goods was a step in the
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execution of sale of goods and in fact there was no contract for
carriage of goods, hence, provisions of section 194C were not
applicable. The learned Counsel for assessee has also placed reliance
from the law settled in by the Hon’ble High Court of Gujarat in CIT v/s
Krishak Bharati Co-op. Ltd., (2012) 349 ITR 68 (Guj.). The learned
Departmental Representative has strongly placed reliance on the order
passed by the learned Commissioner (Appeals) in question. The nature
of business of the assessee has already been explained. The assessee
was purchasing the agricultural produce on behalf of the purchaser
and was transporting the produce to the purchaser. The assessee did
not incur any expenditure for transportation nor claimed in his Profit &
Loss account. Therefore, in the said circumstances, there is no
question to deduct the TDS. In fact, the transaction was not on the
part of the assessee. No doubt, in the said circumstances, the addition
to the tune of ` 56,81,006 is wrong against law and facts. Accordingly,
we decide this issue in favour of the assessee and against the
Revenue. The addition is hereby ordered to be deleted.
In the result, appeal is partly allowed.
Order pronounced in the open Court on 27.06.2017
Sd/- Sd/- P.K. BANSAL AMARJIT SINGH VICE PRESIDENT JUDICIAL MEMBER
NAGPUR, DATED: 27.06.2017
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Copy of the order forwarded to:
(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Dy./Asstt. Registrar) ITAT, Nagpur