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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
Per: - Anikesh Banerjee, JM: The instant appeal of the revenue was filed against the order of the ld. Commissioner of Income Tax (Appeals) -1,Amritsar, Camp at Bathinda, [in brevity ‘the CIT (A)’] order passed u/s 250(6) of the Income Tax Act 1961, [in brevity ‘the Act’] for A.Y. 2015-16. The impugned order was emanated from the order of the ld. ITO Ward-1(2), Bathinda (in brevity the AO) order passed u/s 143(3)/147 of the Act.
The revenue has taken the following grounds: “(i) The CIT(A) erred in deleting the disallowance u/s 40A(3) of the Act thereby failing to appreciate that the assessee had contravened the provisions of Section 40A(3) of the Act by incurring the expenditure otherwise than by the mode prescribed under this section.
(ii) The CIT(A) failed to appreciate that the exceptions in which the assessee could make expenditure exceeding the prescribed limits u/s 40A(3) of the Act are prescribed under Rule 6DD and that expenditure incurred by the assessee otherwise than the mode prescribed u/s 40A(3) of the Act by making payment to a third party was not covered in any exceptions to Rule 6DD of the Rules.”
Brief fact of the case is that the assessment was completed with addition amount of Rs.1,85,15,120/- u/s 40A (3) of the Act. The assessee purchased goods from M/s Rama Krishna Spintex Pvt Ltd. But the payment was made to the third party namely Sh. Makhan Lal. The expenditure amount of Rs.1,85,11,610/- was added back for contravention of section 40A (3) of the Act. The assessee had paid interest against the late deposit of income tax to the tune of Rs.3,510/- and the same amount was also added back with total income. So, the total addition was made amount to Rs.1,85,15,120/- (Rs. 1,85,11,610/- + Rs.3,510/-). The assessee filed an appeal before the ld. CIT(A) by challenging the order of the ld. AO. The assessee only challenged the issue related to addition u/s 40A(3). The assessee submitted a submission before the ld. CIT(A). After considering the submission of the assessee. the ld. CIT(A) had deleted the addition made by the ld. AO u/s 40A(3) amount to Rs.1,85,11,610/-. The balance interest amount of Rs.3510/- was remained unchallenged. Being aggrieved assessee filed an appeal before us.
The ld. DR vehemently argued and fully relied on the order of the ld. Assessing Authority. The ld. DR argued that the assessee had violated the provision of section 40A(3) of the Act and no exception could be allowed for assessee u/R 6DD of Income Tax Rules 1962 (in brevity the Rule). 5. The ld. AR vehemently argued and placed that the entire payment was made through account payee cheque or by banking channel. The ld. AR relied on the order of the ld. CIT(A). The appeal order page 3, the relevant paragraph is extracted as below: “Therefore, it is not the case of the AO that the purchases to the tune of Rs 185,11,610/- by the appellant from M/s Rama
Krishna Spintex P Ltd was bogus or non-genuine. In the assessment proceeding when confronted by the AO, the assessee had stated that payments have been made to Sh. Makhan lal as confirmed by M/s Rama Krishna Spintex P ltd through undertaking, and that all the payments have been made through account payee cheque in favour of Sh. Makhan Lal. In the assessment order the AO has not refuted the said explanation of the appellant. The only objection of the AO in the assessment order is that the assessee had shown to have made payment have been made to the third party/person and that it has not proved the business exigency. Admittedly, the payments of Rs 185,11,610/- for purchase of goods had been made by the appellant to Sh. Makhan Lai by account payee cheque. The purchases of the said amount from M/s Rama Krishna Spintex P Ltd, Maur are not bogus or ingenuine. In the circumstances the provisions of section 40A(3) of the act are not violated and no disallowance is called for. Accordingly the disallowance of Rs 185,11,610/- u/s 40A(3) of the act is deleted.”
We heard the rival submission and relied on the documents available in the record. The assessee purchased goods from M/s Rama Krishna Spintex Pvt Ltd. and payment was made through a/c payee cheque amount to Rs.1,85,11,610/-. The assessee submitted the tax audit report u/s 44AB of the Act. The ld. AO admitted the audit report and profit and loss account. There is no grievance at the end of the ld. AO about the genuineness of the purchased. Only the third party payment by the assessee was taken as violation of section 40A(3). The ld. AR respectfully relied on the order of the ITAT Mumbai Bench in the case of M/s Lion Mercantile P. Ltd. Vs. ITO in date of order 27.06.2018.The relevant paragraph no15 of the said order is extracted as below: “15. We have considered rival contentions and perused material on record. We have observed that assessee has made purchases from M/ Flora Texculture P. Ltd. and to the tune of Rs. 10,41,394/- payments were made by M/s Challenger Trade Link (India) Private Limited directly to said concern M/s Flora Texculture P. Ltd. on behalf of the assessee instead of the assessee making payments directly to said concern M/s Flora Texculture P. Ltd. for its purchases. The assessee had raised sale invoice to the tune of Rs. 10,41,394/- in favour of M/s Challenger Trade Link (India) Private Limited for goods sold by the assessee to said concern and instead of making payments to the assessee against said invoice, the said concern M/s Challenger Trade Link (India) Private Limited made payments through banking channel to M/s Flora Texculture P. Ltd. on behalf of the assessee. The assessee adjusted said payments made by debtor directly to the creditor of the assessee through
journal voucher adjustments in its books of account. The genuineness and bonafide of the transactions of sale and purchases made by the assessee is not disputed by Revenue. The identities of the parties is also not doubted/disputed by Revenue. The payments of Rs. 10,41,394/- made by M/s Challenger Trade Link (India) Private Limited was through approved banking modes to M/s Flora Texculture P. Ltd. which is also not doubted by Revenue. There were other sales to the tune of Rs. 3,83,838/- made by the assessee to said concern M/s Challenger Trade Link India Private Limited on 24-12-2009 for which payments through banking channels was made by the said concern to the assessee on 21-12-2009 and 19-2-2010. The confirmation of said party namely M/s Challenger Trade Link India Private Limited is also placed on record in pb/page 11 . The certificate dated 07-09-2013 issued by State Bank of India on behest of M/s Challenger Trade Link India Private Limited for making payment to said concern Flora Texculture P. Ltd. is also placed on record at page 12/pb. Section 40A(3) is undisputedly anti tax avoidance provision to check evasion of taxes and to discourage movement of funds exceeding monetary limits specified in Section 40A(3) in the economy otherwise than through the prescribed modes of payments viz. account payee cheques or account payees drafts or the use of electronic clearing system through a bank account with a view to discourage movements of funds of large magnitude otherwise than through prescribed and approved banking channels in order to check evasion of taxes . The Section 40A(3) only stipulate positive condition of making payment to a person in prescribed and approved modes of banking channel which in the instant case was met as the payee M/s Flora Texculture Private Limited was paid through approved modes although payments were made by M/s Challenger Trade Link (India) Private Limited on behalf of the assessee and the said party namely M/s Challenger Trade Link (India) Private Limited is identifiable, transactions are undisputedly genuine , verifiable , audit trails are available and are through banking channel in an approved mode which is again not disputed by Revenue but the only grievance of the Revenue is that the payment should have been made by the assessee to its creditor namely M/s Flora Texculture Private Limited instead of directing M/s. Challenger Trade Link (India) Private Limited to make payment through approved banking modes on its behalf in settlement of sales made by assessee to said concern M/s. Challenger Trade Link (India) Private Limited directly to M/s Flora Texculture Private Limited against consideration payable by the assessee for purchases made by the assessee from said concern namely M/s Flora Texculture Private Limited . The cardinal rational and objective being to plug evasion of taxes so as to ensure that unaccounted money of the tax-payer does not get recycled in the form of cash payments towards ghost expenditures or ghost payees which are out of ambit of tax net and also that recipient of money is traceable and brought within ambit of taxation if the payments are made through approved banking means and both the tax-payer and the payee does not escape the tax-net by making or receiving payments in cash , thus onus is cast while making payment of expenses that payment of higher magnitude exceeding stipulated thresholds be made only through prescribed and approved modes of payments through banking channel. In our considered view based on evidence on record and keeping in view factual matrix of the case, the said payment made directly by assessee’s debtor namely M/s Challenger Tradelink P. Ltd. to assessee’s creditor namely M/s. Flora Texculture P. Ltd. through approved banking mode as prescribed in Section 40A(3) in settlement of inter-se transaction between debtor and creditor will not trigger provisions of Section40A(3) and hence no disallowance as was made by Revenue is warranted under these circumstances . We hereby order for deletion of the said addition to the tune of Rs. 10,41,394/- made by the authorities below u/s 40A(3). We order accordingly.” 6.1 We fully relied on the order of ITAT-Mum Bench in the case of M/s Lion Mercantile P. Ltd. (supra). The assessee had transacted entire amount by cheque or through banking channel. The ld. AO was not able to substantiate that th transaction was made by cash. The application of section 40A(3) in banking transaction is made the order perverse. The ld. DR was unable to submit any adverse judgment against the submission of the ld. AR. In our considered view we do not interfere in the order of the ld. CIT(A). Accordingly, the grounds of the revenue are dismissed. In the result, the appeal of the revenue bearing 7. dismissed. Order pronounced in the open court on 07.07.2023 Sd/- Sd/- (Dr. M. L. Meena) (ANIKESH BANERJEE) Accountant Member Judicial Member AKV Copy of the order forwarded to: