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2016 (9) TMI 1000 - ITAT KOLKATA

2016 (9) TMI 1000 - ITAT KOLKATA - TMI - Disallowance u/s 40A(3) - Held that:- In the present case, the following facts are not disputed. - 1) The APPELLANT is a resident of CHAKDOLA village and he carries out his business of distribution of Kerosene Oil, from the said village, distributing the same to various M R shops in the region. - 2) The said CHAKDOLA vii/age is located in a remote corner s of the District of Burdwan, nearest town being Jamuria s situated about 5 KM away , and the .....

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6) Even though the appellant has a bank Nc at Jamuria town , it is mostly inoperative, because it is practically not possible to pay by A/c payee cheques, because a single cheque will take 15 days time for clearance, and the entire chain of distribution will break down. - Assessee would fall within clause (h) of Rule 6DD of the Rules and therefore no disallowance ought to have been made u/s.40A(3) of the Act. Though the Assessee made the above submissions before the CIT(A), the CIT(A) has .....

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Member For The Assessee : Shri U. Dasgupta, Advocate. For The Department : Shri M.K. Biswas, JCIT, Sr. D.R. ORDER Per Shri S.S. Viswanethra Ravi :- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Asansol dated 15.05.2013 for the assessment year 2006-07 on the following grounds:- 1. For that the order passed by the ld. CIT(A), Asansol is arbi trary, excessive, hence bad in law. 2. For that on the facts of the case the CIT(A) was not just i f ied .....

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peal before or at the t ime of hearing. 3. Ground no.1 is general in nature and requires no adjudication. Hence, the same is dismissed. 4. During the course of hearing before us the ld.AR for the assessee has not pressed ground no.3. Hence, the same is dismissed 5. Ground 2 is against disallowance u/s 40A(3) amounting to ₹ 18,88,560/- made by the Assessing Officer. 6. The Assessee is a firm filed engaged in the business of acting as dealer in purchase and sale of kerosene oil. In the cours .....

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made by the assessee notices u/s. 133(6) of the Act were issued for checking and verification w.r.t books of account, bills, vouchers as produced by the ld.AR of the assesse. On perusal of the ledger account and copy of cash memo furnished w.r.t 133(6) by the distributors namely General Mercantile Corporation, M/s. Rupnarayan Supply Agency, Kanhailal Matadin Sharma, M/s. B.N Ojha, Phulchand Omprakash, Murarilal Jugalkishore regarding purchase of K.Oil by the assessee firm, the AO found that paym .....

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e AO held that the assessee made the payment in contravention of Section 40A(3) of the Act. Accordingly, 20% of total cash payment of ₹ 94,42,806/- i.e ₹ 18,88,560/- was disallowed u/s. 40A(3) and added the same to the total income of the assessee firm. 7. Aggrieved by such order of the AO, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) considering the submissions of the assessee has disposed of the appeal by stating as under:- "The appellant partnership fir .....

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is a big dealer in such chain. The Department of food and supplies issues allotment memo to the appellant for purchase of kerosene oil of a specified quantity from a specified AGENT. Similarly, allotment memos are also issued, to the appellant for supply of kerosene oil to the specified M. R. The purchase price to be paid to the agent as also the sale price to be charged from M.R. dealer is periodically determined by the Department of food and supplies. As per the allotment memo issued to the ap .....

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NT. Therefore, when the appellant is working as a licensee being a part of the public distribution system of the Government of West Bengal, it is bound to make the payment as directed by the Government of West Bengal. He, therefore, submitted that in the case of the assessee neither the identity of the seller nor the genuineness of the purchase is doubtful. Moreover, the payment has been made as per the rate fixed by the Government of West Bengal. Against the above back drop, certain FACTS are a .....

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lage . Now in the year 2013, also there are no Banks at Chakdola Village. 4) Payments in CASH are made by the appellant for purchase of goods at Govt. fixed rates, at Chakdola village. 5) Kerosene Oil are transported in OIL TANKERS, to Chakdola Village, and stored in OIL DRUMS for further distribution, down the line, and tank are also paid by the appellant. 6) Even though the appellant has a bank Nc at Jamuria town , it is mostly inoperative, because it is practically not possible to pay by A/c .....

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gal. 9) Under the circumstances the appellant cannot unilaterally decide the mode of payment to the Govt. AGENT. The above factual aspect are undisputed. Now our arguments are two fold: First, the CASH payments made by the appellant are covered by exception to Rule 6 DD (h) of the I. T. Rules, 62, which exempt cash payment at a place not served by a bank and in this case payments made at Chakdola village, is certainly covered. We are also relying in the case of Basudev Seth V CIT ITA No. 1460 (K .....

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f. Further, on this issue we would like to draw your notice to the provisions of The Essential Commodities Act'55 . Sec 5 of the said Act '55 clearly specifies that power to make orders or issue notification under section 3 shall, - direction, be exercised also by (a) such officer or authority subordinate to the Central Government, or ( b ) such State Government or such officer or such authority subordinate to a State Government" , Sec 2 of the said Act'55, empowers the Sub Divi .....

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of Sec 6 of the said Act, provides the overriding effect. As considering all aspects of the matter J it is humbly prayed before your Honour, that the addition made u/s 40A(3) may please be deleted because the same is covered by exceptions under Rule 600, clause (h) and also clause (b) of the I. T.Rules '62." He also relied on the decision in ITA No. 1460 K 06 A.Y. 2003-04 in case of Sri Basudeb Seth vs. ITO, Ward-2(3), Hooghly, which according to him is squarely applicable. 5. The appli .....

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so provides certain exceptions where Sec. 40A (3) is not applicable. The exemption from applicability of Sec.40A (3) is to be allowed having regard to the (i) nature and extent of banking facilities available, (ii) consideration of business expediency, and (iii) other relevant factors. He stated that the second to Sec. 40A (3) is a provision of the law, full effect of which should be given. Therefore, even if the facts of the case of an assessee are not squarely covered by any of the clauses of .....

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cases 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. 11 [Emphasis supplied] From the above, it is evident that no disallowance under this sub-section shall be made where any payment in a sum exceeding ₹ 20,000/- is made otherwise than by a crossed cheque/crossed bank draft in such cases and under such circumstances as may be prescribed. Thus, the man .....

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yment exceeding ₹ 20,000/- other than by cross cheque/bank draft. In pursuance to this proviso, Rule 6DD has been brought into the Statute vide I. T. (Amendment) Rules, 1969 w. e.f 1.4. 1969. Rule 6DD prescribes the cases and the circumstances in which payment in a sum exceeding ₹ 20, 000/- may be made otherwise than by crossed, cheque drawn on a bank or a crossed bank draft. Thereafter this rule has been amended from time to time. Rule 6DD, as applicable to the assessment years invo .....

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lish under which particular clause his case falls. 16. Now we revert back to the facts of each case, First we will take up I T.A. No. 1545 (Kal)/2007, i.e. ITO vs. Kenaram Saha & Subhash Saha. 16.1. The assessee is an AOP which is a big dealer in the chain of agents involved in the public distribution system far supply . of kerosene ail within the State of West Bengal. During! the year under consideration the assessee made the payment of ₹ 1, 34,58, 430/- far purchase of kerosene oil i .....

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also covered by Rule 6DD (b). However on perusal of the orders of the authorities below we find that before the A. O. the assessee did not make a specific claim under which clause of Rule 600 case calls, The claim was that the purchase was made from the Government. The assessee s explanation before the A. O. was of general nature explaining the manner in which the business is being carried on by it. The C.I. T(A) has mentioned that the assessee's case falls within Rule 6DD(k) and also alter .....

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ng whether Rule 6DD(k) is applicable in the case or the assessee. 16.2. Rule 6DD(1) would be applicable where the payment is made by any person to his agent, who is required to make the payment in cash for goods or services on behalf of such person. Whereas Rule 600 (b) would be applicable "where the payment is made to Govt. and, under the rules framed by it, such payment is required to be made in legal tender." It was claimed by the assessee that as per the public distribution system .....

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only where the payment is made by the assessee to his agent. While claiming exemption under Rule 6oo(b), it was claimed by the assessee that the agent is the representative Govt. of west Bengal and, therefore, payment made to the agent being representative of Govt. of West Bengal is a payment to the Govt. of West Bengal. However, as we have noted, no such claim was made by the assessee before the A.O. It was also stated by the Ld. Departmental Representative that the necessary facts are not ava .....

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also further facts are required to be examined. The learned counsel for the assessee has given the copy of the supply order issued by Sub-Divisional Controller, Food & Supplies, Jangipur giving direction to the assessee to make the payment in cash. However, it was pointed out by the Ld. Departmental Representative that these supply orders are dated 2007 and, therefore, will not be applicable to the year under consideration. What was the exact direction of the supply order in the accounting y .....

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the assessee. 6. The decision referred by the appellant was taken by C.I.T. to Hon'ble High Court and the court held that no substantial question of law is involved. Going by decision of Hon'ble Spl. Bench of IT A T it is a matter of fact as to which of the Sub-Rule of Rule 6DD the case of appellant falls, if any. 7. The gist of factual submission made by appellant are as under: (a) Appellant is big dealer and has to pay M.R. Dealer. (b) Purchase price and sale price is fixed. (c) In all .....

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authenticated by Sub-Divisional Controller, Food and Civil supplies, Asansol. This order valid for 7 days is signed by two different persons implying that the hand written part was introduced later since as per Govt. Rules, at a particular point of time, only one person can hold charge of a post of officer. (d) The fact to be considered to decide availability of banks is point of payment and not point of sale. At point of payment, even if a payer has no bank account" has the option to purch .....

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not a matter of significance). He has bank account in Jamuria just 5 Kms from Chakdola and issue of crossed Demand Draft will do away feared long period for cheque clearance. (f) Rule 6DD(b) applies to payment to Government. In the instant case no payment is made to Government. The order of ?ub-Divisional Controller cannot override provision of Income Tax Act. The linkage to Essential Commodities Act 1955 brought by appellant has no bearing as Section 40A(3) r.w. Rule 600 does not impede the adm .....

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ential Commodities Act 1955 has been produced authorizing Sub-Divisional Controller to issue direction such as to effect cash payments are produced. In regard to (b) and (c) above, if at all any such notification has been issued it ordinarily should be in form of a Gazette Publication. 9. Considering the above, I hold that the requirement on part of appellant to prove fitting in to any of the sub-clause of Rule 6DD has not been met. It is also held that M.R Dealer is not Government and sub-rule .....

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may please be deleted. On the other hand, the ld.DR has relied on the orders of the authorities below. 10. We have heard the rival submissions and perused the material available on record. Sec.40A(3) of the Act as applicable for AY 2006-07 reads thus: Where the assessee incurs any expenditure** in respect of which payment is made, after such date (not being later than 31st day of March, 1969), as may be specified in this behalf by the Central Government by notification in the Official Gazette in .....

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any payment in respect thereof in a sum exceeding ***[twenty thousand] rupees otherwise than by $[an account payee cheque drawn on a bank or account payee bank draft] the allowance originally made shall be deemed to have been wrongly made and the $$$[Assessing Officer] may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of fo .....

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re and extent of banking facilities available, considerations of business expediency and other relevant factors." Rule 6DD is the rule prescribed under the second proviso to Sec.40A(3) of the Act and the relevant rule, in so far as this case is concerned viz., Rule 6DD(h) reads thus: Rule 6DD. Cases and circumstances in which payment in a sum exceeding twenty thousand rupees may be made otherwise than by crossed cheque drawn on a bank or by a crossed bank draft.-No disallowance under Sub-se .....

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; 11. In CIT v. Sri Basudev Seth I.T.A. No. 386 of 2007 (Cal), the Hon ble Calcutta High Court held as under: We have heard learned Counsel for the appellant. Perused the order passed by the Tribunal. We find, that no substantial question of law is involved in this matter. Hence this appeal being I. T. A. No. 386 of 2007 is dismissed. 12. Thus the Hon'ble jurisdictional High Court has approved the order of the Income-tax Appellate Tribunal by dismissing the Revenue's appeal, holding that .....

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that there was no branch of United Bank of India at the place where the business of the assessee is located. The assessee's case also finds support from the above mentioned decision in the case of ITO v. Shri Binod Kr. Aganuala decided by the hon'ble Income-tax Appellate Tribunal, Kolkata. We are therefore, of the opinion that the addition made by the Assessing Officer underSection 40A(3) of the Income-tax Act 1961 was not justified in the instant case. 13. From the above it is evident t .....

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which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; 14. In the present case, the following facts are not disputed. 1) The APPELLANT is a resident of CHAKDOLA village and he carries out his business of distribution of Kerosene Oil, from the said village, distributing the same to various M R shops in the region. 2) The said CHAKDOLA vii/age is located in a remote corn .....

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