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TMI Blog2016 (6) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... in law & on facts in not properly considering provisions of Sec. 144/145 of the IT Act." 2. At the outset it was observed that the ld. DR has filed an application on dated 12.11.2014 vide no. CIT(ITAT)/Kol/C/2014-15/2577 to the Hon'ble President of ITAT for constituting the Special Bench in connection with the aforesaid appeal. The reason in the application was mentioned that there are several conflicting judgments passed by the Hon'ble ITATs and different Hon'ble High Courts on the issue raised in appeal. The constitutional validity of Section 40A(3) is not an issue after several judicial decisions upholding the same. However, there is conflict in the decisions of ITAT, Kolkata Bench in the case of Smt.Puspalata Mondal vs. ITO Wd.2(2), Asansol (ITA No.965/Kol/2010, AY 2007-08 dated28.07.2011 and M/s Amrai Pachwai & CS Shop vs. DCIT Cirl.1 Durgapur (ITA No.1251/Kol/2011 AY 2008-09 dated 15.01.2014). Original appeals were heard and orders were passed by Accountant Member, Sri C.D.Rao and Judicial Member Shri B.R.Mittal and Accountant Member, Sri P.K.Bansal and Judicial Member Sri George Mathan respectively. In the case of Smt. Puspalata Mondal the decision given by the Tribunal K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated upon by ITAT. (ii) In similar type of case, the Rajasthan High Court in CIT vs. Kalyan Pd. Gupta (reported in 239 CTR-(Raj) 447 was not available before ITAT in Ruspalata's case. (copy at page 19 of last paper book.) (c) The interpretation of Law & effect of "comma" in Sec. 40A(3) was not a subject-matter of adjudication by the ITAT. (d) (i) The decision of ITAT Bangalore Bench in Sri Renukeswara Rice Mills vs. ITO (93-TTI(Bang) 912 was not property understood and adjudicated by Hon'ble ITAT & the decision of Sundur Sales & Services Pvt. Ltd. (Bangalore ITAT) was not considered there. (ii) Similar type of the case was decided by Hon'ble Punjab & Haryana High Court in assessee's favour reported in CIT vs. Shelly Passi (350 ITR 227) (P&H) copy at page 225 to 257 of supplementary paper book. As well as decision of Gujarat High Court in Anupum Tele Services vs. ITO (copy at 20 to 36 of last paper book) not considered by ITAT (e) The decision of Hon'ble Kerala High Court in K. Abdu & Co. vs. ITO (2008) 170 taxmann 297, which has been relied upon by Hon'ble ITAT, is also not factually applicable, as in Abdu Case, the amounts were IN FACT handed over to TRUCK DRIVERS & not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which favours the assessee must be adopted. As there are two different orders on the grounds of appeal favouring and against the assessee. The Hon'ble Apex Court directs to take the view favourable to the assessee. Therefore considering the facts of the case in totality and object of the section 40A(3) of the Act, we are of the considered view that this case does not require the reference to the Special Bench. Hence in our considered view this case does not require to be referred to the Special Bench. 6. 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. 7. 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 purchases were exceeding Rs. 20,000/- which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 487L Bank A/e. No. 10306876975, SBI, City Centre Durgapur and Axis Bank, Durgapur A/e. No. 21301020001645 Excise No. 19200052155, CST No. 19200052252, Vat No. 19200052058, TAN No. CALl01584C. and Asansol Bottling & Packaging Pvt. Ltd having PAN. AAECA2535R Bank A/e. - SBI, Asansol CST No. 6940 (B.A)C, VAT No. BA/13650, TAN no. CALA05758E. The entire material purchased and sold 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 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 ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expendiency and other relevant factors". (a) Circumstances as 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. ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough its wholesale Agent. The relationship, between the assessee (franchise Authorised Retailer) and W.B. GOVERNMENT (the supplier) 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, 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. 10. On the other hand the ld. DR vehemently supported the order of the lower authorities. 11. 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as prescribed by the Excise Department and in case stock falls short of the prescribed limit otherwise the Department used to impose penalty. Therefore 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 day time in clearance. So in our considered view the exception provided in the provisions of section 40A(3) with regard to the business expediency then applicable for the assessment year 2008-09 is met by the assessee. 11.1 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade under section 40A(3) - Held, yes [Para 23] [In favour of the assessee]" CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P&H) In this case the court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee. 11.3 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 the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to be fallen on account of non-observation of Section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions being free from vice of any device of evasion of tax is relevant consideration. With regard to the purpose of bringing the provisions of section there is no doubt about the identity of the party. The ld. AR has directly deposited the cash in the account o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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