KHALID NADEEM ALLARAKHA,NAGPUR vs. I.T.O. WARD 3(4), NAGPUR

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.

“1. The order passed u/s 143(3) is illegal, invalid and bad in law.

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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

adjudication is required.

ISSUE NO.2

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).

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.

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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.”

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

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.

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