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TMI Blog2014 (7) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... id Account through ATM and thereby no cash payment in involved. 3. The learned CIT-A erred in not appreciating that the provisions of Section 40A(3) of the Act are not applicable in respect of payments which are made by way of direct deposit into the Bank Account of the creditor which amounts to payment through banking channel only." 3. Although the assessee has raised multiple Grounds of Appeal but the solitary dispute relates to a disallowance of Rs. 54,79,648/- made by the Assessing Officer by invoking section 40A(3) of the Act. 4. In brief, the relevant facts are that in the course of assessment proceedings, the Assessing Officer noted that apart from carrying out business activity in grains and grocery, assessee had also carried out sale of mobile recharge vouchers on a wholesale basis. It was stated before the Assessing Officer that mobile recharge vouchers were being purchased from M/s Aircare Engineers (I) Pvt. Ltd. On a perusal of the details furnished, the Assessing Officer noted that assessee had made payments to the said concern of Rs. 54,79,648/- which was in violation of the provisions of section 40A(3) of the Act. Before the Assessing Officer, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, assessee is an individual who has undertaken dealings in mobile recharge vouchers on a wholesale basis. During the year under consideration, assessee made purchases of mobile recharge vouchers from M/s Aircare Engineers (I) Pvt. Ltd., Pune for a total sum of Rs. 62,23,541/-. As per the Assessing Officer, payments to the extent of Rs. 54,79,648/- made by the assessee to M/s Aircare Engineers (I) Pvt. Ltd., Pune to effect the aforesaid purchases, were in contravention of section 40A(3) of the Act. Notably, section 40A(3) of the Act prescribes that no deduction shall be allowed in respect of an expenditure for which payment is made to the other person otherwise than by way of an account payee cheque drawn on a bank on an account payee bank draft, in all cases where the amount exceeds Rs. 20,000/-. The case of the Revenue is that the payments of Rs. 54,79,648/- made by the assessee to M/s Aircare Engineers (I) Pvt. Ltd., Pune are made otherwise than by an account payee cheque drawn on a bank or an account payee bank draft, and therefore, the aforesaid sum is disallowable in terms of section 40A(3) of the Act. 8. In this context, the decision of the Cochin Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amendments per the Finance Act, 1995 w.e.f. 1/4/1996 and Finance Act (No.2), 1996 w.e.f. 1/4/1997. Vide the said amendments, firstly, the threshold limit qua each individual payment, i.e., for the applicability of the section, stood enhanced from rupees ten thousand to twenty thousand. Secondly, the extent of disallowance under the section, which was earlier mandated at 100% or the whole of the impugned expenditure, stood restricted to a fraction (20%) thereof. Rule 6DD of the Rules, specifying the saving circumstances, the existence of which would eschew application of the section, stood also amended; the extant clause (j) concerning itself with the payment of salary to an employee working on a ship under certain defined circumstances. The same, clearly, has no bearing to the earlier clause (j), or relevance to the assessee's case. Circular (# 717 dated 14/8/1995) issued by the CBDT, explaining the amendments effected vide Finance Act, 1995, including to s. 40A(3) of the Act, clarified that with the banking services having taken root even in rural areas, the accentuating circumstances providing exception to the rigour of s. 40A(3) in genuine and bona fide cases per r. 6DD(j) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o allow adequate opportunity to the assessee to produce the necessary evidence in support of its claim and readjudicate the matter in accordance with law". The assessment year under reference in the case of Eastern Condiments Pvt. Ltd. (supra), as also Ramaditya Investments Pvt. Ltd. (supra), was 1992-93 and, thus, the Hon'ble Courts were dealing with the provision as it stood prior to the said amendments. In the cited cases, the assessees found favour with the Courts on the ground of genuineness of payment and the peculiar circumstances of the trade, which stood established with reference to the saving clause of Rule 6DD, as clause (j) in the case of Eastern Condiments Pvt. Ltd. (supra). 5. In view of the decision by the Tribunal in the case of Vodafone Essar Cellular Ltd. (supra), which we have sought to explain vide para 4.4 of this order, we are of the clear view that the provision of section 40A(3) would not be applicable in the facts and circumstances of the case. The earlier part of the order, which suggests otherwise, is on the premise that the 'transfer' of the cards by the service-provider to the assessee-distributor represents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the matter has been appropriately dealt with by the Cochin Bench of the Tribunal, where reliance has been placed on the judgement of the Hon'ble Kerala High Court in the case of BPL Mobile Cellular Ltd. (supra) wherein the decision of the Hon'ble Supreme Court in the case of BSNL (supra) was followed and it was held that the value of SIM cards, recharge coupons, etc. do not represent sale of goods but was only a service rendered by the service provider which was liable to Service tax. Following the aforesaid view, the Cochin Bench of the Tribunal held that the distributor or the franchisee is all the time acting only for and on behalf of the service provider as a part of the service chain, and thus the payments made inter-se the chain only result in commission income. The relevant portion of the decision of the Cochin Bench of the Tribunal has been extracted in the earlier paras, which clearly shows that the aforesaid objection raised by the Revenue has been found to be untenable. We also hold so. 11. Further, as per the CIT(A) in the present case the purchase of the mobile recharge vouchers are not effected from the ultimate service provider but from another concern who is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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