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Bijoy Narayan Roy Versus Income Tax Officer

2016 (9) TMI 453 - ITAT KOLKATA

Disallowance / addition u/s 40A(3) - AO has disallowed the purchases where the payment was exceeding more than ₹ 20,000/- in accordance with the provision of section 40A(3) - Held that:- From the submission of the assessee we find that the assessee was the only authorized dealer in Asansol for the supply of country liquor to the authorized Excise Vendors. The assessee can take the delivery of the goods only after depositing the payment with the company. The assessee was to keep sufficient .....

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it will take couple of days time in clearance. So in our considered view the exception provided in the provisions of section 40A(3) with regard of the business expediency then applicable for the assessment year 2008- 09 is met by the assessee. - It is pertinent to note that the primary object of enacting section 40A(3) were two folds, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate .....

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there is no doubt about the identity of the party. The ld. AR has directly deposited the cash in the account of the companies and has produced the sales bills of the company. The AO has also verified the transactions from the companies by issuing notice under Section 133(6) of the Act. So in the instant case there is no evasion of tax by claiming the bogus expenditure in cash. - Decided in favour of assessee. - ITA No. 1602/Kol /2011 - Dated:- 1-6-2016 - Shri Waseem Ahmed, Accountant Member And .....

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er:- 1(A) For that the Ld. Commissioner of Income Tax (Appeals) erred in law as well as on facts in confirming disallowance / addition us 40A(3) for purchases made ₹ 2,15,47,820/- from Asansol Bottling & Packaging Co. Pvt. Ltd. and IFB Agro Industries Ltd. 1(B) For that the confirmation by Ld. CIT(A) of disallowance / addition u/s 40A(3) is legally & FACTUALLY wrong, illegal & unjustified. 2. For that the Ld. CIT(A) erred in law & on facts in not properly considering provis .....

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the aforesaid purchases assessee has made the payment in cash by depositing money directly to the bank account of the aforesaid companies. Almost in all the cases, the payment for the purchase was exceeding ₹ 20,000/- which was the clear violation of the provisions of Section 40(A)(3) of the Act. During the assessment proceeding, AO held that the payment made by the assessee in cash has clearly violated the provisions of Section 40(A)(3) of the Act. The AO also observed that the case of as .....

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. Shri K.K.Khemka, Ld. Authorized Representative appearing on behalf of assessee and Shri Sital Chandra Das, Ld. Departmental Representative appearing on behalf of Revenue. 5. Before us Ld. AR filed a paper book which is running pages from 1 to 196 and submitted that assessee is Authorised Retailer Agent (franchise) of country sprit of West Bengal Government under Bengal Excise Act & Rules. The payments were made by way of deposit of cash directly in the bank a/c of Wholesaler Agent of West .....

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ng Pvt Ltd. P.O. KALLACH - 713340, Burdwan. The wholesaler Agent of WB Govt. supplied printed paying slips of his Bank, wherein name and Bank A/c no. was printed in some paying slip even quantities supplies with rate has been mentioned on the back of the paying slip. In the invoice issued the supplier has specifically mentioned the amount of Bank deposit and cash received column was remained BLANK (see copies Paper Book Page 14 to 196. The ITO has verified the entire purchase from the wholesaler .....

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d and sold 18 as an Agent & franchise of WB. Government subject to strict checking by the State Excise Authority, who put their stamp and seal on Stock Register maintained (see copies at page No: 14. to 196 paper book). Even TCS u/s. 206C of the I. T. Act has been collected by the wholesale Agent and paid to Central Govt. which has been filed before the ITO for claiming Tax Credit. (TAN No: of the party CALl0l584G / 59(2)) and CALA05758E/59(2) the WHOLESALER AGENT OF W.B. GOVT. is clear from .....

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tisfied the income tax officer that the payment could not be made by a cross cheque drawn on a bank or by a cross cheque bank draft a) Due to exceptional or unavoidable circumstances, b) Because payment in the manner in aforesaid was not practicable, would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof and also furnishes evidence to the satisfaction of the income tax officer as to the genuineness of .....

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s and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors". INTEREPRETATI N OF LAW" ....................... The comma - websters New World Dictionary - Oxford (see paper Book page No 251 (1) The use of "Comma" 1. Use a comma to separate and introductory clause or phase from a main clause. 9. Use a comma to separate, words, phrases and clauses in .....

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y of the payee (b) Reasonableness of the payment (c) Considerations of business expediency and other relevant factors (d) The act as introduced in 1968 read with rules 6DDj requires to exempt the provision of section 40A(3) if cash payment is due to genuine difficulty and the evidence thereof is produced at the time of assessment. This rule 6DDj was incorporated in act itself by Finance Act 2007 by using the word considerations of business expediency and other relevant factors . (a) Circumstance .....

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to claim exemption from operation of See. 40A(3) of the Act. AND NOT THE CUMULATIVE CONDITION. IN THIS CASE the condition" Consideration of Business expediency & other relevant factors" has been fully satisfied which entitle the assessee to claim exemption of operation of See. 40A(3) of the I. T. Act. SECONDLY 4A. In this case the assessee has been able to proof (A) identity of the payee wholesaler AGENT of WB. Govt. having IFB Agro Industries Ltd having PAN No: AAACI6487L Bank A/ .....

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ers Bank A/e. on the printed stationery supplied by the wholesaler Agent of W.B. Govt. IFB Agro Industries Ltd. and Asansol Bottling & Packaging Pvt. Ltd., which is the proof the consideration of the business expediency. 4B. The ITO has verified the total transaction from the suppliers by issue of notice u/s. 133(6) of the Act and got reply thereto, confirming the entire transaction and also the fact of bank deposit through its bill. THIRDLY 5A. The payments by way of deposit of cash directl .....

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e of county sprit ", 5(2) No retail vender of Country Sprit shall deposit duty direct into the local treasury for issue of Country Spirit r Duty cost price, bottling charge shall be paid by the retail vender to the Credit of the wholesale Licensee concerned. 5(3) The Wholesale licensee shall realise the necessary amount to duty, cost price and bottling charge And shall debit the amount of duty for the issue from the personal Ledger Account ………. The authorized representa .....

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plier) acting under Bengal Excise Rules through its Authorised wholesaler Licensee (agent), both de facto and de jure, is one of "Principal" and "agent". The retailer at all times acting only for and all behalf of the supplier (WB. Government) as link only in the supply chain and, thus, the payments by it to the principal - supplier are only in terms of and in pursuance of Gazette Notification. The question of no separate payment being made by the payee - principal (WB, Gover .....

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the payment was exceeding more than ₹ 20,000/- in accordance with the provision of section 40A(3). In our view this issue needs to be adjudicated from different dimensions as enumerated below : 1) What were the provisions of section 40A(3) then applicable for the assessment year 2008-09. 2) The purpose of introduction of the section 40A(3) in the Income Tax Act. 3) Case laws of various courts. The provisions of the section 40A(3) of the Act then applicable for the assessment year 2008-09 .....

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s year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than any an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the amount of payment exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits .....

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ceptions have been provided then applicable for the assessment year 2008-09 and one of them is with regard to the business expediency of the assessee. From the submission of the assessee we find that the assessee was the only authorized dealer in Asansol for the supply of country liquor to the authorized Excise Vendors. The assessee can take the delivery of the goods only after depositing the payment with the company. The assessee was to keep sufficient stock of country liquor as prescribed by t .....

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nce. So in our considered view the exception provided in the provisions of section 40A(3) with regard of the business expediency then applicable for the assessment year 2008- 09 is met by the assessee. 7.1 The provision of section 40A(3) was inserted by the Finance Act 1968. The purpose for bringing the section was mentioned in the explanatory note Para 73 which read as under : It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this ju .....

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tinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of ₹ 2,500 (Rs.10,000 after the 1987 amendment) 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 rea .....

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ertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not 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 wo .....

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s to use black money for business transactions. CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential 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 bona fide of the assessee that payments are made to producers of hides and skin are al .....

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l) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding ₹ 20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for ₹ 78,45,580/- and disallowed @ 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 stipula .....

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Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)-Assessment year 2006-07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge 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 - I .....

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Court) Section 40A(3) of the Income-tax Act, 1961, read with Rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limit (Rule 6DD) - Assessee made certain payment of purchase of ground nut in cash exceeding prescribed limit - Assessee 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 p .....

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