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2016 (6) TMI 244 - ITAT CHANDIGARH

2016 (6) TMI 244 - ITAT CHANDIGARH - [2016] 48 ITR (Trib) 289 - Addition invoking the provisions of section 40A(3) - elaborate submissions were made to prove that the expenses incurred in cash were genuine which were paid to distilleries through the Excise Department for purchase of liquor and there were practical expediency because of which the payments have to be made in cash - Held that:- Each person has licence in his own name to make the sales and purchases as per the terms of these licence .....

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ontention of the assessee with regard to the genuineness himself has held that it is not sufficient for the assessee to establish that the payments were genuine and the parties were identifiable. He was of the view that the assessee is further required to prove that due to exceptional and unavoidable circumstances as provided under the Rules, the payments were made in cash. Therefore, it is not a case of the Department that the payments so made in cash were not genuine. The reasons given by the .....

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he order of the learned Commissioner of Income-tax (Appeals) as regards ahata income. The Assessing Officer nowhere in his assessment order, nor in the remand report controverted the fact that for running ahata one has to take licence from the excise authority. Neither the Assessing Officer has placed on record any material to show that the assessee has taken this licence or in fact, the assessee is running the ahata. In this view, making addition on account of ahata income on estimate basis tha .....

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ng Officer has though proposed to reject the books of account but has not given any finding as to the rejection of the books of account of the assessee. He has not been able to pinpoint any instance of suppression of sales and only on the basis of suspicion, he has made the addition, that too on the estimated basis. These reasons are not enough to make such an addition. In this view, we confirm the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition - Decided in fa .....

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year 2010-11. ITA No. 1155/Chd/2013 2. The assessee has raised four grounds of appeal. However, the only issue is the addition of ₹ 7,91,05,385 made by the Assessing Officer invoking the provisions of section 40A(3) of the Income-tax Act, 1961 (in short "the Act"). 3. The facts of the case are that the assessee is a partnership firm engaged in the business of dealing Indian made foreign liquor, country liquor and all kinds of wine and beer. During the course of assessment procee .....

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Act. When questioned on this, the reply of the assessee was that since there were 12 partners in the assessee-firm, the assessee could not open the bank account and, therefore, all payments had to be made in cash. The Assessing Officer rejected this explanation of the assessee and observed that though the purchases made have been made separately through different vends but these were admittedly made on behalf of the assessee-firm. Once a firm is constituted, the concept of separate group of ven .....

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ed Commissioner of Income-tax (Appeals), the assessee submitted that there were 20 persons individually who have been successful bidders in respect of wine contracts at different places and they were allotted different vends in different areas individually. These persons joined hands together to form a partnership and the firm was formed in order to avoid competition and to carry on the business more collectively and effectively under the name and style of M/s. Dhuri Wine, i.e., the assessee. It .....

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orded separately and independently in the books of account by each of the vends owners, i.e., each of the partners. In this background, detailed submissions were made before the learned Commissioner of Income-tax (Appeals) that the provisions of section 40A(3) of the Act are not applicable to the facts of the assessee. The reasons for not opening bank account was also explained to the learned Commissioner of Income-tax (Appeals). It was submitted that all purchases, sales and payments were indep .....

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the Income-tax Rules to the effect that since the payments were made as per rules framed by the excise authorities, which is a Government authority, any such payment made under the authorities and the rules framed by the Government cannot be disallowed. Further, it was argued that since the payments have not been held to be not genuine, the same cannot be disallowed under section 40A(3) of the Act. The judgment of hon'ble jurisdictional Punjab and Haryana High Court in the case of Attar Sin .....

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e. Copy of the remand report was provided to the assessee, who filed rejoinder to the said report as on October 15, 2013, where again the detailed submissions in this regard were made and it was also submitted that since TCS as required under section 206C of the Act of each vend separately under the permanent account number of each partner, the payment made by cash cannot be clubbed together. The submissions earlier made before the Assessing Officer and the learned Commissioner of Income-tax (Ap .....

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king facilities in Dhuri. (ii) The payment made by different partners cannot be taken inde pendently for the purpose of compliance with section 40A(3) of the Act. (iii) Under rule 6DD(b), only payments made to the Government are exempt from the provisions of section 40A(3) of the Act. None of the parties to whom payment has been made by the assessee are Government undertakings. (iv) The applicability of rule 6DD clause (g) was also ruled out by the learned Commissioner of Income-tax (Appeals) as .....

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by each vend, the learned Commissioner of Income-tax (Appeals) was of the view that the payments made in excess of limit prescribed under section 40A(3) of the Act cannot be seen with reference to the individual persons but has to be seen with reference to the assessee-firm. 6. In view of the above factors, the learned Commissioner of Income-tax (Appeals) dismissed the ground of appeal raised by the assessee and for each of these reasons, he relied upon a number of judgments of various High Cour .....

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were made independent of each other by different persons being partners at different places. Though the assessee is a registered firm, the records are being maintained by each partner separately. Even the stock register of each and every vend on day-to-day basis is also maintained separately for different vends. A few samples of the stock records were also shown to us. In the nutshell, it was argued that each and every item of purchase, sale, licence fee, capital investment, stock registers were .....

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de independently by all different parties, then no payment in excess of ₹ 20,000 on a single day is made. Another argument made by the learned counsel for the assessee was that no disallowance under section 40A(3) of the Act can be made as the first proviso to section 40A(3) of the Act states very clearly that no disallowance shall be made having regard to the nature and extent of banking facilities available, consideration of business expediency and other relevant factors. It was prayed t .....

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2014, dated July 16, 2015). It was submitted that in this judgment of the hon'ble jurisdictional High Court, it has been held that once the transactions and the genuineness thereof is not questioned, the case is clearly made out of business expediency, in such circumstances, the provisions of section 40A(3) of the Act cannot be invoked. It was prayed that the disallowance made under section 40A(3) of the Act be deleted. 8. The learned Departmental representative relied upon the order of the .....

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d the material available on record. The only issue to be decided by us is whether on the given facts and circumstances of the case, the provisions of section 40A(3) of the Act can be applicable to the assessee or not. Section 40A(3) of the Act reads as under : 40A.(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thous .....

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aving regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors :" 10. Since heavy reliance was placed on a latest judgment of the hon'ble jurisdictional Punjab and Haryana High Court in the case of Gurdas Garg (supra), after perusing the said judgment we find that a very apt guidance is provided by the hon'ble High Court in deciding the issue in question. Therefore, at the very first instance, we would analyse .....

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e was established. The sale deeds were produced, the genuineness thereof was accepted. The amount paid in respect of each of these agreements was certified by the stamp registration authority. In this way, the learned Commissioner of Income-tax (Appeals) held that the bar against the grant of deductions under section 40A(3) of the Act was not attracted. The Tribunal did not upset these findings given by the learned Commissioner of Income-tax (Appeals) including as to the genuineness and the corr .....

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t as the payments were made in cash over ₹ 20,000. The hon'ble High Court, while deciding the issue, relied upon the judgment of the hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Raj), whereby it was held that there being no dispute about the genuineness of the transaction and the payment and identity of the receiver being disclosed, the disallowance under section 40A(3) of the Act cannot be made. The hon'ble Rajasthan High Court r .....

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the use of unaccounted money or reduce the chances to use black money for business transactions. After analysing all these, the hon'ble High Court held that the Tribunal has not disbelieved the transactions or the genuineness thereof, nor has it disbelieved the fact of payments having been made, more importantly, the reasons furnished by the assessee for making the cash payments have not been disbelieved. This clearly makes out a case of business expediency. In this view, the hon'ble Hi .....

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x Rules, invoking the provisions of section 40A(3) of the Act can be dispensed with if the assessee is able to prove the business expediency because of which it have to make the cash payments, the genuineness of the transactions have also to be verified. In the present case, detailed submissions with the corroborative evidences were filed at every stage including that of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals). Even before us, the voluminous paper book h .....

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er the terms of these licence agreements. Further, it is quite a known fact that in the business of the liquor, transactions are to be done in cash. All these facts have not been controverted by the Assessing Officer or even by the learned Commissioner of Income-tax (Appeals). This makes out a case that the assessee has business expediency under which it have to make payments in cash. Further, not a single transaction has been questioned at any stage. The learned Commissioner of Income-tax (Appe .....

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ne. The reasons given by the assessee at every stage have not been disbelieved. Since these reasons are correct, they really make out a case of business expediency. In this view, respectfully following the judgment of the hon'ble Punjab and Haryana High Court in the case of Gurdas Garg (supra), we hold that the payments cannot be disallowed under section 40A(3) of the Act. The addition is deleted. 12. The appeal of the assessee is allowed. C. O. No. 6/Chd/2014 (in ITA No. 1155/Chd/2013) : 13 .....

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6,40,000. 16. The brief facts of the case are that during the course of assessment proceedings, the Assessing Officer noted that the assessee has not shown any ahata income. The reply of the assessee was that it has not deposited any ahata fee and since there was no ahata income, it was not shown in the profit and loss account. The Assessing Officer was not satisfied with the reply of the assessee. He referred to the case of the sister concern of the assessee, M/s. Mehta and Co., which has show .....

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deposited any ahata fee and, hence, not received any ahata income. It was also submitted that as per the Excise Policy, ahata are only on optional basis with some specified conditions. The permission from the Excise Department for this has to be taken, which the assessee has not taken. In this way, it has contended that the Assessing Officer on the basis of wild estimate has made this addition. In the remand report dated September 17, 2013, the Assessing Officer reiterating his stand submitted t .....

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learned Departmental representative relied upon the order of the Assessing Officer, while the learned counsel for the assessee relied upon the order of the learned Commissioner of Income-tax (Appeals). 19. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On a reading of the order of the learned Commissioner of Income-tax (Appeals), we see that on this issue, he has given his finding at pa .....

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appellant was having ahata income is without any merit. The addition made by the Assessing Officer is, therefore, deleted. This ground of appeal is, accordingly, allowed." 20. On reading of this, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) as regards ahata income. The Assessing Officer nowhere in his assessment order, nor in the remand report controverted the fact that for running ahata one has to take licence from the excise authority. Nei .....

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. 3 of the cross objection is with regard to the addition of ₹ 20 lakhs made by the Assessing Officer on account of suppression of sales. 22. The facts of the case are that the Assessing Officer during the assessment proceedings observed that there was significant variation in the profit margin over purchases in respect of various vends. Rejecting the reply of the assessee filed in this behalf, the Assessing Officer held that there was not just possibility of suppression of sales but the s .....

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ends were lower than the other vends. The addition on estimated basis cannot be made. Regarding variation of sales in respect of each vend, it was submitted that due to geographical condition of various vends and its location, this variation cannot be doubted. As regards the non-maintenance of sale bills and sales in cash, it was submitted that it is common practice in this trade. In the alternative, it was submitted that if the addition on account of suppression of sales is made, no addition un .....

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e order of the learned Commissioner of Income-tax (Appeals). 25. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The findings of the learned Commissioner of Income-tax (Appeals) in this regard are appearing at page 35 in paragraph 6.5 of his order, which read as under : "6.5 I have carefully considered the rival submissions. The addition has been made purely on an ad hoc basis based .....

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