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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal is preferred by the Revenue against the order of Commissioner of Income Tax (Appeals)-Asansol in Appeal No. 148/CIT(A)/Asl/R-2/Asl/12-13 dated 23.04.2013for the Assessment Year (AY) 2010-11 and the same is being disposed off along with Cross Objection (CO) filed by the assessee being CO No.120/Kol/2013.
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 2 Assessment was framed by JCIT, Range-2, Asansol u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 27.11.2012.
Shri Rajat Kumar Kureel, Ld. SR-Departmental Representative represented on behalf of Revenue and Shri Sumit Ghosh and Shri Raichand Baid,Ld. advocates appeared on behalf of assessee. First we take up Revenue’s appeal in ITA No.1882/Kol/2013. 2. The grounds raised by the Revenue per its appeal are as under:- “1. That the Ld. CIT(A), Asansol has erred in law and on facts in deleting the addition of Rs.17,35,999/- made by the AO on account of Bogus Purchase;
That the Ld. CIT(A), Asansol has erred in law and on facts in deleting the addition of Rs.39,93,662/- made by the AO u/s 40A(3) on account of cash payment exceeding Rs.20,000/-.”
First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for ₹17,35,999/- on account of bogus purchases.
Facts in brief are that assessee in the present case is a partnership firm and engaged in business of sand and stone bolder. For the year under consideration, assessee filed its return of income on 22.02.2011 declaring total income of ₹4,75,775/- which was processed u/s. 143(1) of the Act accepting the returned income. Thereafter the case was selected for scrutiny and accordingly notices u/s 143(2) r.w.s. 142(1) were issued with questionnaire on dated 23.09.2011. During the year, assessee has made sales to the following parties:- a) Simplex Infrastructure Ltd. b) Larsen & Turbo Ltd. c) Tampus Infrastructure Ltd. During the assessment proceedings, assessee failed to produce the supporting documents in respect of sales made to Larsen & Turbo Ltd. and Tampus Infrastructure Ltd. The assessee submitted that sales were made to the aforesaid parties on verbal contract basis but the said parties made payment by way of cheques against the supply
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 3 of sand. The Assessing Officer to confirm the transactions from the said two parties issued notice u/s. 133(6) of the Act for cross-verification but found no reply. Similarly, u/s. 133(6) of the Act to M/s Amkura Grm Sabha Balu Ghat, the supplier of sand notice u/s. 133(6) of the Act for the verification of genuineness of purchase but notice came back from the party as “un-served”. Accordingly, AO disallowed the purchase of sand of 7698.444 metric tonne along with transportation charges by treating as bogus expense which is coming to ₹17,35,999/- and added back to the total income of assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted the sale was made to Larsen & Turbo Ltd. and Tampus Infrastructure Ltd. Therefore cheques were received from the said companies. No response to the notice issued u/s.133(6) of the Act cannot become a ground for treating the amount of purchase as bogus. Considering the submissions placed before Ld. CIT(A), he deleted the addition by observing as under:- “5. I had considered all aspects. The most incontrovertible aspect of any business transaction is receipt of sums by cheque. When X receives a sum by way of account payee cheque from Y issued on a scheduled Bank then transaction goes out of all elements of suspicions. Here in bank account of appellant sums are credited complete with cheque number. This receipt has been taken to P&L A/c. This being the case there is no case for doubting receipt. When receipt is proved and taken to P&L A/c there is no case to state that sand has not been purchased. Hence, I delete the addition of Rs.17,35,999/- made by the Assessing Officer. The ground is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us Ld. DR submitted that assessee failed to produce any documentary evidence with regard to sale made to the aforesaid parties and assessee also failed to produce any evidence for the transportation of sand to the site of the aforesaid parties. Both the buyers are limited companies and these companies must have responded to the notice issued u/s. 133(6) of the Act had the sales been made to these parties. The Ld. DR vehemently relied on the order of AO.
On the other hand, Ld. AR before us filed paper book which is running pages from 1 to 21 and submitted that assessee has received the payment by way of cheques against
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 4 the supply of 7698.44 MT sand from the aforesaid two parties. These two parties were acting as contractor at a particular site and at the time of assessment proceedings these two parties left the place of the site as the assignment got completed. Therefore, the notice has not been duly served upon the above two parties. Ld. AR requested the Bench to confirm the order of Ld. CIT(A).
We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that AO has treated the amount of ₹17,35,999/- as bogus purchase on the ground that the parties to whom the sales were made were not traceable in spite of the fact that notice u/s 133(6) of the Act was issued. However, Ld. CIT(A) deleted the addition by observing that the payment was received from the aforesaid two parties through cheques. Therefore, the genuineness of the said transactions cannot be doubted. Now the question before us arise so as to whether the non-service of notice u/s. 133(6) of the Act to the parties amounts to bogus purchases. In the instant case, we find that the sale has been duly accepted by AO but corresponding purchase has not been accepted on the ground of notice to the party was not served. It is undisputed fact that the assessee, in the instant case, can make the sale of sand only after making purchase of the sand. In the facts and circumstances of the case, sale amount has been duly accepted by the AO without accepting the corresponding purchase against such sale. We find that AO has not brought any defect in the books of account of assessee. Therefore, in our considered view, authorities below have to accept the purchase in the connection of amount of sale. It is not possible to accept the sale without accepting the purchase. In the facts and circumstances, aforesaid two parties have made the payment by way of cheques which assessee claimed to have supplied the sand against those cheques. Before us Ld. DR has not brought anything contrary to the arguments advance placed by Ld. AR. In the background of the above discussions and precedent we do not find any infirmity in the order of Ld. CIT(A) and accordingly we uphold the same. In the circumstances, the ground issue of Revenue is dismissed.
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 5 8. Next issue raised by Revenue is as regards that Ld. CIT(A) erred in deleting the addition made by AO for an amount of ₹39,93,662/- u/s. 40A(3).
During the year, assessee has shown purchase from the following parties:- Sl No. Name of party Amount (Rs) 1 Amkura Gram Sabha Balu Ghat 21,93,812/- 2 M/s Dhameja Mining 21,84,772/-
The Assessing Officer during the course of assessment proceedings, found that M/s Amkura Gram Sabha Balu Ghat supplier sand has issued total five invoices to the assessee in each month beginning from April to July and one invoice was issued on 31.10.2009 only as detailed below :- Item Month Amount Bill No. & date of Total payment as per copies of payment bills furnished by the assessee. Sand April,09 2,33,000/- 1/2009-10 10,94,595/- dt.30.4.09 Sand May, 09 1,86,000/- 2/2009 ddt.31.5.09 5,55,415/- Sand June, 09 1,63,000/- 3/2009-10 2,52,605/- dt.30.6.09 Sand July,09 2,85,310/- 4/2009-10 2,89,564/- dt.31.7.09 Sand Aug,09 1,75,000/- Sand Sept.09 1,85,000/- Sand Oct.09 2,10,000/- 5/2009 10- 1,633/- dt.31.10.09 Sand Nov.09 2,24,000/- Sand Dec.09 2,53,000/- Sand Jan.10 18,502/- Sand Mar.10 1,55,000/- 21,93,812/-
The total date-wise details of payment as per copies of details of cash payment for purchase of stone boulder as under:- Amount (₹) Amount (₹) Bill & date Date of cash Total payment payment as per made in cash as copy of details on date as per of payments copy of details of cash payments 01/09-10 dt. 3,64,239.51 Upto 31.8.09 3,64,000/- 3,64,000/- 31.8.09 02/09-10 date 6,29,016.39 01.09.09 to 81,000/- 4,45,000/- 20.09.09 20.09.09 03/09-10 dt. 4,64,029.35 21.09.09 to 78,000/- 5,23,000/-
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 6 01.10.09 01.10.09 04/09-10 dt. 4,46,989.64 02.10.09 to 3,64,000/- 8,87,000/- 30.11.09 30.11.09 05/09-10 dt. 1,16,169.70 01.12.09 to 1,00,000/- 9,87,000/- 16.12.09 16.12.09 06/09-10 dt. 70,248.02 17.12.09 to 87,000/- 10,74,000/- 31.12.09 31.12.09 07/09-10 dt. 94,079.48 01.01.10 to 1,71,000/- 12,45,000/- 20.01.10 20.01.10 01.02.10 to 7,27,000/- 19,72,000/- 14.03.10 Total 21,84,772.09 19,72,000/- 19,72,000/- From the above details, AO found that payment has been made in cash exceeding ₹ 20,000/- in a day. Therefore, AO disallowed the entire purchases for an amount of ₹39,93,662/-. Accordingly, it was held that the purchase made by assessee was in contravention to the provision of Sec. 40A(3) of the Act. 10. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- “… … They amounted to Rs.18,08,890/- for purchase f sand and Rs.21,84,772/- for purchase of boulder. The per requisite to working a disallowance u/s. 40A(3) is identification of a payment above Rs.20,000/- on a day to a particular person. Once such a payment is identified and after screening though rule 6DD, disallowance is effected. There has to be an emphatic finding of violation of provision of section 40A(3) r.w. rule 6DD before disallowance is made. Effectively it should not be assumption based.
I had gone through the assessment order. The Assessing Officer came to the finding that purchase are not proved. If purchases are not proved then he has to either reject books of account and go for estimation or disallow such purchase as identified as bogus. Recourse to section 40A(3) is not an available option in such a situation.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 11. Before us both the parties relied on the orders of Authorities Below as favourable to them. 12. We have heard the rival contentions and perused the materials available on record. We find that from the details submitted by assessee on pages 2 to 7, 9 to 13 of the paper book, in none of the case, the payment has been made by assessee exceeding the limit of ₹ 20,000/-. In rejoinder, Ld. DR failed to bring anything contrary to the submission made by Ld. AR before us. We also find that genuineness of the
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 7 transaction has not been doubted by the Authorities Below. We also find that several courts have held where the genuineness of the party is not doubted regress of provision of Sec. 40A(3) of the Act cannot be attracted. In this connection, we rely in the following judgments. Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) “Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of Rs.2,500 (Rs.10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict 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 upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration 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 has 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 clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions.”
CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) “The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bona fide of the assessee that payments are made to producers of hides and skin are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of Rs. 17,90,571/- and ground no.1 is decided in favour of the assessee. “
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 8
CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 – Jurisdictional High Court decision “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 hearer cheques and has 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.” Anupam Tele Services vs ITO in (2014) 43 taxmann.com 199 (Guj) “Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 – Business disallowance – Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006-07 – Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers – Principal company Tata insisted that cheque payment from assessee’s co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account – If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayed by 4/5 days which would severely affect its business operation – Assessee, therefore, made cash payment – Whether in view of above, no disallowance under section 40A (3) was to be made in respect of payment made to principal - Held, yes [Paras 21 to 23] [in favour of the assessee]” Sri Laxmi Satyanarayana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhra Pradesh High Court) “Section 40A(3) of the Income-tax Act, 1961, read with Rule 6DD of the Income-tax Rules, 1962 – Business disallowance – Cash payment exceeding prescribed limit (Rule 6DD) – Assessee made certain payment of purchase of ground nut in cash exceeding prescribed limit – Assessee submitted that her made payment in cash because seller insisted on that and also gave incentives and discounts – Further, seller also issued certificate in support of this – Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3) – Held, yes [Para 23] [In favour of the assessee]” CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P&H)
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 9 In this case the court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee.
In view of above, we find that payment in none of the case, is exceeding the limit as specified u/s. 40A(3) of the Act. Besides the above, genuineness of the party has also not been doubted. Therefore, we find no reason to interfere in the order of Ld. CIT(A). Accordingly, we uphold the same. This ground of Revenue is dismissed. 13. In the result, Revenue’s appeal is dismissed. Coming to assessee’s CO No. 120/Kol/2013 14. Grounds of CO, raised by assessee are reproduced below:- “1) For that on the facts of the case the Ld. CIT(A) was legally justified in deleting the addition of Rs.17,35,999/- on A/c of sand purchase, and the respondent supports the order.
2) For that on the facts of the case the AO was not legally justified in making disallowance u/s. 40A(3) on presumption and guesswork and the Ld. CIT(A) was LEGALLY JUSTIFIED in deleting the addition and the respondent supports the order.”
In the CO, the assessee has merely supported the impugned order of Ld. CIT(A), whereby he deleted the disallowance made by the Assessing Officer. Since, we have already uphold the order of Ld. CIT(A) giving relief to the assessee on both the issues while dismissing the appeal of the Revenue, the CO filed by the assessee has become infructuous and the same is accordingly dismissed. 16. In the result, appeal of Revenue stands dismissed and that of assessee’s CO is dismissed as infructuous. Order pronounced in open court on 09 /09/2016
Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp "दनांकः- 09 /09/2016 कोलकाता / Kolkata
ITA No.1882/Kol/2013 & CO No. 120/Kol/2013 A.Y. 2010-11 ITO Wd-2(3), Asl vs. M/s Premier Traders self-help Group Page 10
आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Premier Traders Self Help Group, H/o Kishore Mondal, Begunia, barakar, Burdwan-713 324 2. राज�व/Revenue-ITO, Ward-3), 54, G.T. Road, (West), Asansol-713304 3. संबं%धत आयकर आयु'त / Concerned CIT 4. आयकर आयु'त- अपील / CIT (A) 5. (वभागीय �+त+न%ध, आयकर अपील�य अ%धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड- फाइल / Guard file.
By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ%धकरण, कोलकाता