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2015 (11) TMI 1128 - ITAT KOLKATA

2015 (11) TMI 1128 - ITAT KOLKATA - [2015] 44 ITR (Trib) 691 (ITAT [Kolk]) - Addition u/s 40A(3) - cash payment - Held that:- The purpose of section 40A(3) is only preventive and to check evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transactions. Admittedly, this is not the case in the facts of the assessee herein. The assessee had directly deposited cash in the bank account of .....

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Rule 6DD of Income Tax Rules are not exhaustive and that the said rule must be interpreted liberally.

Thus we have no hesitation in deleting the addition made in the sum of ₹ 62,06,269/- u/s 40A(3) of the Act. - Decided in favour of assessee. - ITA No.67/Kol/2013 - Dated:- 7-10-2015 - Hon ble Shri M.Balaganesh, AM & Shri S.S.Vishwanetra Ravi, JM] For The Appellant : Shri Manish Tiwari, FCA For The Respondent : Shri Pinaki Mukherjee, JCIT ORDER Per Shri M.Balaganesh, AM 1. Th .....

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The brief facts of this appeal is that the assessee is a proprietor of M/s Basanti Distributors engaged in the retail trading of poultry feeds . During the assessment year under appeal, the assessee made cash payments in excess of ₹ 20,000/- to a party M/s Pickme Feeds to the tune of ₹ 62,06,269/-. The books of accounts were not produced by the assessee before the Learned AO. Only certain details such as bank statements, debtors list, purchasers name and address, copy of debit vouch .....

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with Rule 6DD of IT Rules. Accordingly, a sum of ₹ 62,06,269/- was disallowed u/s 40A(3) of the Act which was also confirmed by the Learned CITA. Aggrieved, the assessee is in appeal before us on the following grounds:- 1(a) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) has erred in confirming the action of Assessing Officer who made disallowance u/s 40A(3) by referring to cash receipts recorded in assessee s ledger maintained by Pickme Fees. 1(b) That on the fa .....

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1961 is not maintainable in law. 3.1. Shri.Manish Tiwari, FCA, the Learned AR argued on behalf of the assessee and Shri.Pinaki Mukherjee, JCIT, the Learned DR argued on behalf of the revenue. 3.2. The Learned AR argued that the poultry feeds are made out of maize and soya and hence come under the ambit of agricultural produce and accordingly his case is covered under the exceptions provided in Rule 6DD(e)(i) of the Income Tax Rules, 1962 as payment is made for procuring agricultural produce. He .....

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M/s Pickme Feeds. Hence it was paid in order to provide uninterrupted supply of poultry feeds to the farmers in the rural areas and the business expediency in this entire gamut of transactions and the genuineness of the same are never doubted by the revenue. The Learned AR argued that the supplier of poultry feeds M/s Pickme Feeds had deputed their representatives to the assessee s customer location ( i.e parties to whom poultry feeds is sold by the assessee) and received the sale proceeds dire .....

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AR further placed a letter dated 23.3.2007 from the supplier of Poultry Feeds M/s Pickme Feeds wherein the concerned supplier had mandated to receive only cash payments in order to have uninterrupted supply of poultry feeds to the assessee on a timely basis and in the event of payment by cheques, the supply of goods to the assessee would be made only after clearance of the cheques. He also argued that since the payments were directly deposited in the bank account of M/s Pickme Feeds by the suppl .....

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have heard the rival submissions and perused the materials available on record. We find that though the assessee had raised three grounds on this issue but all the grounds centre only around the disallowance u/s 40A(3) of the Act and hence they are taken up together. Admittedly, the assessee had made payments to M/s Pickme Feeds in cash by directly depositing cash in the bank account of M/s Pickme Feeds for supply of poultry feeds to the assessee. The assessee in turn supplies the poultry feeds .....

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t the revenue had not doubted the genuineness of the payments made to the aforesaid party by the assessee. 3.3.1. We are not in agreement with the argument of the Learned AR that the payment is made to an agent and that the relationship of the assessee with this supplier is one of principal and agent and as such, the assessee s case falls under the exception provided in Rule 6DD(k) of IT Rules. However, we are in agreement with the arguments of the Learned AR that the purchase of poultry feeds f .....

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ellip;………. To the cultivator , grower or producer of such articles, produce or products. 3.3.2. We also agree the pressing emergency for the assessee to make payments in cash to M/s Pickme Feeds as the assessee was operating only in co-operative bank in his village which was practically taking 5-6 days for clearing a single cheque issued by the assessee to his suppliers and hence the supplier had insisted for payments in cash for uninterrupted and timely supplies of poultry .....

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tly depositing the cash in the bank account of the payee. This fact is also not disputed by the revenue. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that this provision is designed to counter evasion of a tax through .....

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t) 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 th .....

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ut 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 circ .....

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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 bonafide 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 ₹ 17,90,571/- and ground no.1 is decided .....

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allowed @20% thereon ₹ 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 Assess .....

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harge 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 sec .....

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ssee 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 (20 .....

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the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of non-observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. In the instant case, the cash has been deposited directly in the bank account of the suppli .....

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required held that in the consequence to follow there must be nexus between the consequence that befall for non-compliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter. The Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner is implicit in section 57(2) and .....

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Tax Act. Apparently, it is a relevant consideration for the assessing authority under the Income Tax Act that before invoking the provisions of section 40A(3) in the light of Rule 6DD as clarified by the Circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. We hold that the purpose of section 40A(3) is only preventive and to .....

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