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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI WASEEM AHMED, AM & SHRI S.S.VISWANETHRA RAVI, JM
सुनवाई क� तार�ख / Date of Hearing : 23/05/2016 घोषणा क� तार�ख/Date of Pronouncement 15/07/2016 आदेश / O R D E R PER WASEEM AHMED (A.M): The assessee has preferred this appeal against the order dated 26- 08-20013, passed by ld. Commissioner of Income Tax(Appeals), Asansol, relating to assessment year 2008-2009 on the following grounds :-
1. For that the order of ld. CIT(A) is bad in law as well as on facts.
2. For that the payment of the retailers to the organizer by cash cannot be treated as payment by your appellant and addition of Rs.26,05,178.00 on account of cash payment is bad in law as well as on fact.
3. For that addition of Rs.60,000.00 on account of short drawings is bad in law as well as on fact.
The first issue raised by the assessee in ground of appeal is that the Ld. CIT(A), erred in confirming the order of AO by disallowing the cash Act.
Facts of the case are that the assessee in the present case is an Individual/Proprietor and engaged in lottery business of the State Government under the name and style of M/s Gee I Paul ta. The assessee filed his return of income declaring business income of Rs.3,67,497/-. Thereafter notices u/s.143(2) and 142(1) of the Act along with questionnaire were issued and served upon the assessee. The assessee during the assessment proceedings submitted audited report, profit and loss account, balance sheet, bank statement, family tree, copy of purchase and sale ledger, party ledger, books of account comprising cash book, ledger etc. The AO during assessment proceedings found that the payment exceeding Rs.20,000/- in cash for the purchases of tickets has been made to M/s Vira Enterprises and M/s Best & Co. The AO gathered this information after issuing notice u/s.133(6) of the Act to the above stated parties. On query for the violation of the provisions of Section 40A(3) of the Act, read with rule 6DD of Income Tax Rules, it was submitted that the assessee was acting as a sub-distributor of the aforesaid companies. The assessee used to buy lottery tickets from these companies and used to sell to its retailers which were located at different parts of West Bengal. The suppliers i.e. M/s Vira Enterprises and M/s Best & Co., of the tickets used to collect payment from the retailers on behalf of the assessee which were adjusted in the ledger account of the respective parties maintained by the assessee. The suppliers used to give statement record in his books of account as the cash collected and simultaneously used to show the payment to the suppliers. However, factually there was no movement of cash at all. It was an adjustment entry which is allowed as per clause ‘d’ of Rule 6DD of the Income Tax Rules. However, the AO has rejected the plea of the assessee by holding that there was no adjustment entries passed in the books of accounts. The payment acknowledgement receipts issued by the suppliers clearly establish that payment was made only in cash. The AO also observed that assessee failed to furnish the name and address of the agents, who used to collect money on behalf of the distributors. In view of the above, the AO disallowed a sum of Rs.26,05,178/- and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal before the ld. CIT(A), where the assessee submitted that the suppliers namely M/s Best & Co. and Vira Enterprises were collecting money from the retailers on behalf of the assessee. Thereafter the amount which was payable by the assessee to the suppliers on account of purchases of lottery tickets used to be adjusted with the collections made by the supplier. However, ld. CIT(A) disregarded the claim of the assessee by observing as under :- 10. The appellant claimed that Rule 6DD(d) applies in his case. Rule 6DD(d) reads as under :- “(d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any 4 Indrajit Paul goods supplied or services rendered by the assessee to such payee.” The interpretation of same is mutual adjustment on bilateral basis and not adjustment on multilateral basis. In this case, as spelt out with reference to an example in paragraph 8 of this order, it can be seen that the figure disallowed by Assessing Officer is the residual sum after al adjustments made by Assessing Officer. In no way Rule 6DD(d) applies in the context of the case.
Considering all aspects discussed in paragraph 7 to 10, I hold that the Assessing Officer was justified in invoking section 40A(3) in the instant case. Accordingly, I dismiss the ground.
Being aggrieved by this order of ld. CIT(A) assessee came in second appeal before us.
The ld. AR before us submitted that the retailers appointed by the assessee used to sell the tickets on a particular limited local area on cash basis. To increase sales and quick debt realisation, the suppliers of the tickets used to send his personnel to these retailers for and on behalf of the assessee for the collection of money received from the sale of the tickets. Many of the retailers were not having bank account. The suppliers used to send the statement of such collections from the retailers to the assessee for recording the transactions in the books of account as entire collection from the debtor and also cash payment to the suppliers. As per accounting principles, the accounting entry is correct but the so-called fact i.e. cash payment by the assessee is not correct. Ld. AR further submitted that the case of the assessee is duly covered under the Rule 6DD(k) of Income Tax Rules, 1962. This payment made in cash should also be allowed after considering the business expediency and other relevant factors. As many retailers were not having bank account then it was necessary to collect the cash from them and accordingly payment was realised in cash. Ld. AR also submitted that the payment were made to the genuine parties and it should be allowed in terms of Hon’ble Supreme Court Judgment in the case of Attar Singh Gurmukh Singh Vs. Income Tax Officer, 191 ITR 667. At the end ld. AR prayed for the deletion of the addition made by the AO.
On the other hand the ld. DR vehemently supported the orders of the lower authorities.
We have heard rival parties and perused the materials available on record. From the foregoing discussion, we find that the AO has disallowed cash payment under the provisions of Section 40A(3) of the Act and the same was confirmed by the ld. CIT(A). At the outset, we find that genuineness of the payment has not been doubted by the lower authorities and various courts have held the same issue in favour of the assessee, where genuineness of the parties to whom payment in cash was not subject matter of the dispute. We find in the similar facts and circumstances where the genuineness has not been doubted, the Hon’ble jurisdictional High Court in the case of Girdharilal Goenka vs. Commissioner of Income Tax (1989) 80 CTR 0140 : (1989) 179 ITR 0122 has held as under :
“The ground of disallowance of the payments is that there was a time-lag between the date of the bill and the payment made. The object of the provision of s. 40A(3) is to check evasion of taxes so that the payment is made from the disclosed sources. Both the payer and the payee would be showing in the respective account the payments made and received. It presupposes that the transaction must be genuine transaction. In this case, genuineness of the transactions has not been disputed by the Revenue authorities. The only ground is the delay in making payment. It is not in dispute that it is the first year of the business of the assessee which was started in December, 1973, and the accounting year ended on 22nd October, 1974, and this was the first year of assessment. The payments were made almost before the close of the accounting year before Dewali. A certificate was produced from the seller, M, who stated in the certificate that they "asked the purchaser to make payment of different bills in cash as there was necessity of liquid funds for the expediency of the business". Dates of the bills and permanent account number were also mentioned in the certificate. Thus, the seller insisted upon the assessee's paying the bills in cash. The identity of the payee who was an income-tax assessee was established and the genuineness of the transactions was not doubted or disputed. The ITO has to take a pragmatic view of the matter. The ITO should take a practical approach to problems and strike a balance between the direction of law and hardship to the assessee. He should not enmesh himself in technicalities. After all, the object is not to deprive the assessee of the deduction which he is otherwise entitled to claim. Where the amount was paid in cash or received in cash, the Assessing Officer has to find out whether the transaction is genuine or not and if he finds that the transaction is genuine, he should allow the deduction. The CBDT circular No. 220 dt. 31st May, 1977 is not exhaustive; it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee. There may be an oral agreement between the assessee and the seller for payment in cash. A seller may not be willing to accept cheques; cash payment may be made at the request of the payee who is also an assessee and a certificate to that effect filed; absence of banking facilities in places where cash payments are made. All such cases would come within the purview of exceptional or unavoidable circumstances. On the facts of this case, where the assessee has satisfied the Assessing Officer as to the genuineness of the payment and the identity of the payee, the circumstance that there was a delay in making payment of the bills by itself would not take the case out of the ambit of exceptional or unavoidable circumstances referred to in r. 6DD(j) and deduction of the expenditure which is otherwise allowable to him cannot be denied.
Where the assessee has satisfied the Assessing Officer as to the genuineness of the payment and the identity of the payee, and that payee insisted on cash payment the circumstance that there was a delay in making payment of the bills by itself would not take the case out of the ambit of exceptional or unavoidable circumstances referred to in r. 6DD(j).”
Further Ld. AR in support the claim of assessee that has submitted the confirmation from M/s Vira Enterprises stating that there was an agency between the assessee and Vira Enterprises which is placed on record.
Respectfully following the aforesaid decisions, we are inclined to set aside the orders of lower authorities. AO is directed accordingly, hence, this ground raised by assessee is allowed. confirming the order of AO in disallowing a sum of Rs.60,000/- on account of short drawings.
The assessee, for the year under consideration, has shown the drawings of Rs.30,000/-, which was very low in the opinion of the AO. It was observed that assessee’s family comprising of himself, wife and school going daughter. The assessee along with his wife, who is separate assessee has shown drawings together for Rs.30,000/- per annum individually. The AO observed that the drawings is very law comparing to the status of the assessee as he was owing a multi-storey building, car etc. The drawings were utilised towards municipal tax liability, the electricity expenses, household expenses, using motor car running expenses, road tax, car insurance and maintenance, expenses towards social obligation, daughter’s education expenses. Accordingly, the AO made addition of Rs.60,000/- towards drawings of the assessee and the added to the total income of the assessee.
Aggrieved, assessee preferred appeal to the ld. CIT(A), who has confirmed the action of AO by observing as under :-
“13. I had gone through the facts of the addition. I find that the Assessing Officer is moderate in the addition made on account of low drawings. Even the enhanced figure is moderate since we are dealing with F.Y.2007-08. Hence, I dismiss the ground.”
Being aggrieved by the order of ld. CIT(A), the assessee is in second appeal before us.
8 Indrajit Paul 10. At the outset and after considering the reasoning given by the AO for making disallowance of Rs.60,000/-, we find that no reasons to interfere in the order of ld. CIT(A). Besides the above the ld. AR also failed to bring anything contrary to the findings of lower authorities.
Hence, we uphold the orders of lower authorities and ground by assessee is dismissed. 7. In the result, appeal of the assessee is allowed in part.
Order pronounced in the open court on this 15/07/ 2016.
Sd/- Sd/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता Kolkata; �दनांक Dated 15/07/2016 �.कु.�म/pkm, �न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata 4. आयकर आयु�त / CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,