M/S. DAW & CO.,HOOGHLY vs. I.T.O., WARD - 1(2), HOOGHLY, HOOGHLY

This appeal filed by the assessee is directed against the order of Commissioner of Income-Tax (Appeals)-XXXII, Kolkata dated 22.09.2014.

The assessee in the present case is a partnership firm which is engaged in the business of jute trading. The return income for the year under consideration was filed A.Y. 2005-06 M/s Daw & Co. vs. ITO Wd-1(2) HG. Page 2 by it on 19.09.2005 declaring total income of ₹2,29,650/-. During the course of assessment proceedings, it was noticed by AO that assessee has made payments through bearer cheques exceeding sum of ₹20,000/- against the local purchases made from different parties. In this regard, it was explained by assessee that all the relevant purchases were made from different parties but the payments against the same were made through their agents. On examination, the AO however found that the purchases were made by assessee directly from the concerned parties and not through the agents. He also found that the relevant transactions were shown by the said parties in their profit and loss account as sales and not commission or brokerage. According to him, the payments made by assessee to the said nine parties by bearer cheques in the amount exceeding ₹ 20,000/- thus were in violation of the provision of Sec. 40A(3) of the Act and the assessee therefore was called upon by him to offer its explanation in the matter. In reply, the following explanation was offered by assessee, reproduced:- 1. Item of purchase is an agricultural produce/product Rule 6DD(f)(i) states “where the payment is made for the purchase of agricultural or forest produce.” Thus the rule framed, itself exempts the agricultural produce from application of section 40A(3).

I have heard the arguments of both the parties on the issue and also perused the materials available on record. Ld. counsel for the assessee has submitted that the payments in question, made by the assessee through bearer cheques were against the purchases of raw jute which is an agricultural produce. He has contended that said payments made by assessee through agents, thus were exempt from the application of u/s 40A(3) of the Act as per the exceptions / given in the Rule 6DD of the IT Rules, 1962. He has contended that the Assessing Officer, however, rejected the explanation offered by assessee in this regard by relying on the enquire directly made by him to the concerned parties without giving any opportunity to the assessee to cross-examine the same. He has invited my attention to the copies of bills issued by the concerned parties placed in his paper book to show that the said parties were jute brokers and commission agents and the amount of commission charged by them was also duly reflected in the bills issued by them. He has contended that the assessee, however, could not establish its case on this issue in the absence of proper and sufficient opportunity afford either by the Assessing Officer or by Ld. CIT(A). He therefore has urged that this issue may be restored to the file of AO for giving the assessee such an opportunity. Although Ld. DR has raised the objection, in this regard, I find merit in this contention of the Ld. counsel for the assessee keeping in view all the relevant facts of the case, I therefore, consider it fit and proper and in the interest of justice to restore this issue to the file of AO with a direction to decide the same afresh after giving the assessee proper and sufficient opportunity of being heard.

As regards the issue raised in Ground No.3 relating to disallowance of ₹1,10,308/- made by AO u/s 40(a)(ia) of the Act and confirmed by Ld. CIT(A) the limited relief sought by the Ld. counsel for the assessee is that the concerned payees having included the amount in question paid by assessee in their respective income and having also paid tax thereon, the disallowance made u/s. 40(a)(ia) of the Act for A.Y. 2005-06 M/s Daw & Co. vs. ITO Wd-1(2) HG. Page 4 the failure on the part of assessee to Deduct Tax at Source (TDS) is not sustainable in view of Second proviso to Section 40(a)(ia) of the Act inserted by Finance Act, 2012 with effect from 01.04.2013 which has been held to be applicable retrospectively inter alia by the Tribunal in the case of M/s Abhoy Charan Bakshi vs. ACIT (ITA No. 1492/Kol/2015) dated 06.04.2016. He has submitted that this issue may therefore be restored to the file of AO for deciding the same, in the light of the Second proviso of Sec. 40(a)(ia) of the Act after necessary verification. Accordingly, this issue is also restored to the file of AO for deciding the same afresh in the light of Second proviso to Sec. 40(a)(ia) of the Act after necessary verification. Ground No.3 is accordingly treated as allowed for statistical purpose.