2025 (10) TMI 21 - AT - Income Tax

Assessee not liable under s.269ST for distributorship sales; invoices and EMD treated separately, matter remitted for fresh adjudication

Rajkot District Co. op. Milk Producers Union Ltd. Versus National Faceless Appeal Centre, Delhi And Assistant Commissioner of Income Tax, Circle -2 (1), Rajkot Versus Rajkot District Co. op. Milk Producers Union Ltd.

ITAT held the assessee did not contravene s.269ST: distributorship appointment is not a single 'event/occasion' so sales to distributors on different ... Penalty u/s 271DA - violation of Sec. 269ST - NFAC has held that the appellant’s case is hit by Clause (c) of Section 269ST i.e. transaction related to one even or occasion from one person - appellant entered into the only contract with distributors and total cash receipts from distributor was Rs. 3,00,000/- - assessee is a registered cooperative society HELD THAT:- In the affidavit it was acknowledged that in single day transaction on is less then 2,00,000/- hence there was no violation of section of 269 ST of the Income Tax Act and in respect of EMD of Rs. 3,00,000/- the amount received cash from one party in order to grant distributor and not cash receipt against sale hence does not attract section 269ST of the Act. We further have perused the materials available on record. We observe that the legal contract from appointment of a distributor cannot be considered as one ‘event’ or one ‘occasion’ u/s. 269ST; hence sale transactions made to them for supply of milk and milk produces on a different dates, or different quantities, under different tax invoices and orders cannot be clubbed or be treated as transactions relating one event or one occasion; hence the cash received from one person during the year cannot be and should not have been aggregated by the tax dept. for this purpose and thus, clause(c) of s 269ST is not violated, cash received per invoice does not exceed the threshold. In the distributorship contract was a legal document only for receiving the appointment terms in writing; it is not a physical, or even a virtual event or an occasion as normally understood in common or commercial parlance. Since the EMD accepted by the assessee is excluded from the purview of section 269ST of the Income Tax Act. We observed that EMD is Deposit taken for granting of distributorship and not received against the sale hence does not come in purview of Sect. 269 ST of the Act. section 268ST deal with transaction. Hence, the order of the Ld. CIT(A) is set aside and remit back to the filed of the Ld. CIT(A) for fresh adjudication. We observed that the CIT(A) has considered the affidavit without given an opportunity to the AO to accept the additional evidence and the same is not tenable. Therefore, the appeal is remitted back to the file of Ld. CIT(A)/NFAC. Hence, the ground no. 1 of the department appeal is also disposed with the above terms. ISSUES PRESENTED AND CONSIDERED 1. Whether receipts in cash from distributors/dealers of a cooperative society in respect of recurring sales transactions can be aggregated across multiple days under clause (c) of section 269ST (i.e., 'transaction related to one event or occasion') for triggering the prohibition and penalty under section 271DA. 2. Whether an earnest money deposit (EMD) received in cash for grant of distributorship/dealership falls within the scope of 'receipt' or 'transaction' under section 269ST and hence attracts penalty under section 271DA. 3. Whether the appellate authority (CIT(A)/NFAC) was entitled to admit and decide the appeal on the basis of additional affidavit/evidence supplied by the taxpayer without providing the Assessing Officer an opportunity to examine the additional evidence in terms of Rule 46A (and related principles of admissibility of additional evidence). ISSUE-WISE DETAILED ANALYSIS Issue 1: Aggregation of cash receipts from distributors under clause (c) of section 269ST Legal framework: Section 269ST prohibits receipt of cash of Rs. 2,00,000 or more in specified circumstances and clause (c) refers to receipt 'related to one event or occasion' from a person. Section 271DA prescribes penalty for contravention. Rule 46A (Income-tax Rules) governs admissibility of additional evidence before appellate authorities. Precedent treatment: The matter was considered in light of Circular No. 25/2022 (CBDT, 30.12.2022) which clarifies that for cooperative societies a dealership/distributorship contract by itself may not constitute an 'event or occasion' for the purpose of clause (c), and receipts related to such contracts that are within the prescribed limit on particular days and comply with clauses (a) and (b) need not be aggregated across multiple days for clause (c) purposes. Interpretation and reasoning: The Court examined the operational nature of a cooperative dairy (daily perishable commodity, multiple daily invoices to different buyers, contracts with distributors but day-to-day sales under separate invoices) and applied the CBDT clarification. It observed that a 'transaction' in commercial sense is an individual dealing evidenced by an order, delivery and invoice; an annual distributorship contract is a legal arrangement and not an 'event' or 'occasion' in ordinary parlance. Consequently, sale transactions on different dates under separate invoices do not constitute a single event or occasion such that cash receipts from them can be aggregated under clause (c). Ratio vs. Obiter: Ratio - clause (c) of section 269ST should not be applied to aggregate routine sale receipts arising under recurring supply arrangements with distributors where each sale is evidenced by separate invoices on different dates; an annual distributorship contract per se is not an 'event or occasion' for aggregation. Obiter - general observations on industry practice and perishability informing practical characterisation of transactions. Conclusions: Clause (c) cannot be invoked merely because a cooperative society has an annual distributorship contract and receives cash from that distributor at various times; aggregation across days to treat those receipts as related to one event/occasion is not warranted where each receipt/invoice is a distinct transaction and is within the prescribed daily limit. This reasoning supports exclusion of most of the alleged aggregated cash receipts from penalty under section 271DA, subject to verification of per-day limits. Issue 2: Whether earnest money deposit (EMD) in cash is within section 269ST Legal framework: Section 269ST targets receipts in cash in respect of transactions/occasions specified by the section. The legal character of the amount received (sale consideration vs deposit for grant of distributorship) determines applicability. Precedent treatment: No judicial precedent directly cited; assessment relied on statutory language and CBDT clarification (which addresses dealership receipts but not explicitly EMD). The authority treated EMD as not being a sale receipt. Interpretation and reasoning: The Court analysed the nature of EMD as a deposit for grant of distributorship and not as consideration for sale of goods. Since section 269ST addresses receipts in respect of transactions (sales) and clause (c) concerns 'transaction related to one event or occasion,' a deposit taken for appointment of distributor (EMD) is a contractual deposit and not a sale transaction; therefore, it falls outside the prohibition under section 269ST. The Court emphasised that receipt of EMD was not cash receipt against sale invoices and should therefore be excluded from the ambit of section 269ST. Ratio vs. Obiter: Ratio - EMD received for grant of distributorship, being a deposit and not sale consideration, does not attract section 269ST and consequent penalty under section 271DA. Obiter - distinctions drawn between different types of receipts (sales vs deposits) and practical commercial characterisations. Conclusions: The EMD of Rs. 3,00,000 received on a single date to secure distributorship was not a sale receipt and consequently not within section 269ST; it should be excluded from penalty calculation under section 271DA. However, the appellate authority's acceptance of this conclusion via affidavit required procedural regularity (see Issue 3). Issue 3: Admissibility of additional evidence (affidavit) and duty to grant opportunity to Assessing Officer (Rule 46A) Legal framework: Rule 46A of the Income-tax Rules and established principles require that additional evidence admitted by the appellate authority, if not previously available to the Assessing Officer, should be placed on record only after giving the AO opportunity to examine and comment. Natural justice requires that AO be allowed to test the veracity and implications of fresh evidence before final adjudication. Precedent treatment: The Tribunal applied Rule 46A principles and held that Ld. CIT(A) admitted and acted upon an affidavit and additional evidence without giving the AO an opportunity to examine it, which is procedurally impermissible. Interpretation and reasoning: The Court found that the CIT(A) accepted the taxpayer's affidavit and remand submissions as determinative on the penalty issue without remanding to or affording the AO the opportunity to verify, respond to, or examine the additional evidence. That procedure contravened Rule 46A and the requirement of affording the AO a fair opportunity to test additional evidence. On this basis, the Tribunal held the CIT(A)'s order unsustainable to the extent it was based upon additional evidence admitted without following required procedure. Ratio vs. Obiter: Ratio - Admission and reliance upon additional evidence by the appellate authority without complying with Rule 46A (i.e., without giving the Assessing Officer opportunity to examine/respond) vitiates the appellate order and necessitates remand for fresh adjudication. Obiter - commentary on requirement of procedural fairness in penalty proceedings. Conclusions: The appellate order that relied on additional affidavit evidence without providing the Assessing Officer the opportunity contemplated by Rule 46A was set aside. The matter was remitted to the appellate authority for fresh adjudication after providing the Assessing Officer appropriate opportunity to examine and comment on the additional evidence; statutory and procedural safeguards must be observed even where substantive CBDT clarifications favor the taxpayer. Disposition and Practical Outcomes (as deduced from Court's conclusions) 1. The view that distributorship contracts do not per se constitute an 'event or occasion' under clause (c) of section 269ST (per CBDT Circular No. 25/2022) is accepted for the cooperative-dairy factual matrix; routine sales under separate invoices on different dates should not be aggregated as a single event for clause (c) purposes, subject to factual verification of per-day limits. 2. Cash received as earnest money deposit for grant of distributorship is not a sale receipt and therefore falls outside section 269ST; such receipt should be excluded when considering penalty under section 271DA. 3. Notwithstanding substantive findings, the appellate order based on additional affidavit evidence admitted without complying with Rule 46A was procedurally unsound; the matter is remitted for fresh adjudication after affording the Assessing Officer the opportunity to examine the additional evidence and render remand/verification reports.