TaxTMI 
TaxTMI 
2016 (9) TMI 453
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..... For that the Ld. CIT(A) erred in law & on facts in not properly considering provisions of Sec. 144/145 of the IT Act." 2. The inter-connected issues Ld CIT(A) erred in confirming the order of AO by disallowing of the purchases of Rs. 2,15,47,820/- u/s 40(A)(3) of the Act. 3. Brief facts of the case are that assessee is an individual and engaged in the business of country liquor. During the year, assessee has made the purchase from two parties mainly - Asansol Bottling and Packaging Company Private Ltd and some purchases were also made from IFB Agro industries Ltd. Against 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 Rs. 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 assessee does not fall under the exceptions provided in clause 6DD of income Tax Rules of the IT Rules 1962. Therefore,....
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....gent & 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 TCS Certificate issued. The provision of Section 40A(3) was introduced in the act by Finance Act, 1968. As per the explanatory note para-73 "the provision is designed to counter evasion of tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and the reasonableness of the payment." Earlier also rule 6DD was enacted which read as under :- " in any other case where the assessee satisfied 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 ....
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....s prescribed in the rule. (b) Extent of banking facility available. (c) Consideration of business expediency and other relevant factors. The intention of the Act is very clear by the fact that the Act has not used the word "AND" which denotes that cumulative conditions are Not required to be full filled. The absence of the word "AND" implies that the Act has GIVEN" ALTERNATIVE INDEPENDENT CONDITIONS ((i.e. anyone of the condition given in the Act NEEDS to be fulfilled 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/e. No: 10306876975 with SBI, City Centre, Durgapur, Excise Regn. No: 19200052155, VAT No: 19200052058, CST No: 19200052252, TAN No: CALl01584C and Asansol Bottling & Packaging Pvt Ltd. PAN No. AAEC....
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....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, Government) to the payer - Retailers i.e. towards remuneration or commission, etc, arises. Provisions of Sec. 40A(3), therefore, are not applicable to this case under rule 6DD(b) also. 6. On the other hand the ld. DR vehemently supported the order of the lower authorities. 7. We have heard rival submissions and perused the materials available on record. After examining on the facts of the case and hearing the rival contentions of both the parties we find that the AO has disallowed the purchases where the payment was exceeding more than Rs. 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 y....
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....efore the assessee avoided the process of depositing the cash in his bank account and thereafter getting the demand draft in the name of the company in order to keep the stock within the prescribed limit at all the times. It is also important to note that the company was also not accepting the account payee cheque of the assessee as 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. 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 juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 06.07.1968 reiterates this view that "this provision is designed to counter evasion of a tax through claims for expenditure shown to....
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....ency, 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 also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of Rs. 17,90,571/- and ground no.1 is decided in favour of the assessee. " CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Jurisdictional High Court decision "It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding Rs. 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 Rs. 78,45,580/- and disallowed @ 20% thereon Rs. 15,69,116/-. It is also made clear that without the payment ....