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Shri Sanjay Manikchand Raisoni and Others Versus ITO, Ward-2 (1) , Pune

2016 (7) TMI 23 - ITAT PUNE

Disallowance u/s. 40A(3) - cash payments made to MSRTC and other Government organizations towards purchase of scrap - Held that:- Since the CIT(A) has upheld the disallowance made by the AO u/s.40A(3) by following his orders for earlier years in assessee’s own case and since the Tribunal has already deleted such disallowance, therefore, in absence of any contrary material brought to our notice against the order of the Tribunal in assessee’s own case, we hold that the provisions of section 40A(3) .....

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K. PANDA, AM : The above batch of appeals filed by the respective assessees are directed against the separate orders dated 31-03-2014 of the CIT(A)-II, Pune relating to Assessment Year 2009-10. Since identical grounds have been taken by the respective assessee s, therefore, these were heard together and are being disposed of by this common order. 2. First we take up ITA No.1467/PN/2014 (Smt. Sapna Sanjay Raisoni) as the lead case. Grounds of appeal No.1 to 5 by the assessee read as under : The f .....

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40A(3) in respect of the same. 2] The learned CIT (A) erred in holding that 'Maharashtra State Road Transport ' could not be considered as 'Government' for the purposes of Rule 6DD(b) and hence, the disallowance u/s. 40A(3) was attracted in respect of cash payments made to the above party. 3] The learned CIT (A) failed to appreciate that the Maharashtra State Road Transport Corporation was under the control of the Govt. and hence, any payment made to the said entity was covered .....

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for making payments in cash and accordingly, the disallowance made u/s. 40A(3) was not justified in law. 3. This is the second round of litigation before the Tribunal. Facts of the case, in brief, are that the assessee is the proprietor of M/s. Mahavir Sales Corporation carrying on the business of trading in scrap materials. During the course of assessment proceedings the AO noted that the assessee has made cash payment to the extent of ₹ 84,78,755/- to MSRTC for purchase of scrap for whi .....

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e confirmed the disallowance made by the AO u/s.40A(3) amounting to ₹ 84,98,755/- 5. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 6. The Ld. Counsel for the assessee at the outset filed a copy of the order of the Tribunal in assessee s own case vide ITA Nos. 1267 to 1269/PN/2014 order dated 29-02-2016 for A.Yrs. 2006-07 to 2008-09 and submitted that the Tribunal after considering the arguments advanced by the assessee has deleted the disallowance made u/s.40 .....

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s in assessee s own case has confirmed the disallowance of ₹ 84,98,755/- u.s.40A(3) in respect of cash payments made to MSRTC and other Government organizations towards purchase of scrap. We find the Tribunal in assessee s own case after elaborately discussing the issue has deleted such disallowance by holding as under : 8. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The only issue before us for adjudication .....

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f CIT(A) for deciding it afresh in the light of the observations made. The relevant extract of the observations made by the Tribunal are as under : 10. We are unable to accept the argument canvassed by the Ld. DR. The Article 12 of the Constitution reads as under: the state includes the Government and Parliament of India and Government and the Legislature of the states and all local or other authorities within the territory of India or under the control of the Government of India. 11. The defini .....

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a particular Corporation which is autonomous body is a part of Government, to be seen in the context of degree of control over management and policy decisions. We find that in the case of MSRTC as per the certificate of the share capital filed before us, the entire share capital is contributed by the State Government and the Central Government and there is no private participation. We further find that MSRTC is incorporated under special legislation i.e., Road Transport Corporation Act, 1950. We .....

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as held, as discussed hereinabove, that the autonomous bodies like State Road Transport Corporation or Warehousing Corporation where there is a full control by the Government, either Central or State, these are the instrumentalities of the Government only. 12. The term Government is very much wide under the constitutional set up. Government may be Central or State, or it may be Local Government which is envisaged by our Constitution, like Zilla Parishad, Municipal Corporations, Municipal Council .....

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f the Ld. CIT(A) to decide the same de novo in the light of our above observations and discussion. Accordingly, the relevant Grounds taken by the assessees in all these appeals are allowed for statistical purposes. Needless to say the CIT(A) is directed to give opportunity of being heard to the assessees as per the principles of natural justice. 10. A bare perusal of Article 12 shows that the definition of the State given in Article is inclusive and not exhaustive. The State includes : (a) the G .....

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gements. The Hon ble Supreme Court of India while interpreting the expression other authorities in the case of Som Prakash Rekhi Vs. Union of India reported as AIR 1981 SC 212 have culled out certain tests to determine as to when a Corporation should be said to be an instrumentality or Agency of the Government. The tests laid down by the Hon ble Apex Court are summarized as under : 1. If the entire share capital of the corporation is held by the Government, it would go a long way towards indicat .....

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agency of the Government. 5. If a department of a Government is transferred to a corporation, it would be a strong factor supporting this inference of the corporation being an instrumentality or agency of the Government. After applying the cumulative effect of all the relevant factors mentioned above, if the body is found to be an instrumentality of the agency of the Government, it would be an authority included in term State under Article 12 of the Constitution of India. However, the tests ind .....

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as full control over the working, policies and the framework of the Corporation. The Corporation is providing public transport facility to the subjects of the State, even in for remote areas, where sometimes it is not economically viable to provide transport service. Thus, it is providing vital function of public importance. 13. The Hon ble Bombay High Court in the case of Maharashtra State Road Transport Corporation Vs. Diwakar Madhukarrao Malkapure and Others in Writ Petition No.2762/2012 deci .....

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not a State and cash payments made to MSRTC are hit by the provisions of section 40A(3) of the Act. 15. In so far as genuineness of the payments to MSRTC by the assessees, they are not disputed by the department. Once it has been held that MSRTC is a State within the meaning of Article 12 of the Constitution of India, the payments cannot be disallowed u/s.40A(3). The provisions of Rule 6DD would protect the assessee from such disallowance. The assessees have explained that cash payments have bee .....

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e genuineness of payment is not doubted. The relevant extract of the observation of the Hon ble Court are as under : 18. . . . . . . . . . . Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disal .....

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taken out 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 .....

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ame cannot be disallowed u/s.40A(3) of the Act. 18. In view of the facts of the case and the case laws discussed above, we are of the considered view that the provisions of section 40A(3) are not attracted on the cash payments made by the assessees to MSRTC. The provisions of Rule 6DD (b) provide exception to Section 40A(3) where cash payments are made to Government. The aforesaid exception will operate in the case of the assessee. Thus, the CIT(A) has erred in holding that disallowance u/s.40A( .....

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