Income Tax Appellate Tribunal - Panji
Madhav Govind Dhulshete,, Latur vs Income-Tax Officer,, on 28 February, 2018
आयकर अपीलीय अिधकरण,
अिधकरण पुणे यायपीठ "बी
बी"
बी पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
ी डी.
डी क णाकरा राव , लेखा सद य
एवं ी िवकास अव थी,
अव थी याियक सद य के सम
BEFORE SHRI D.KARUNAKARA RAO, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.2146/PUN/2016
िनधा रण वष / Assessment Year : 2009-10
Madhav Govind Dhulshete,
At Post Jalkot,
Dist. Latur - 413 532
PAN : ANDPD8642F .... अपीलाथ /Appellant
Vs.
ITO, Ward-3, Latur .... यथ / Respondent
आयकर अपील सं. / ITA Nos.2147 & 2148/PUN/2016
िनधा रण वष / Assessment Year : 2009-10
Madhav Govind Dhulshete,
At Post Jalkot,
Dist. Latur - 413 532
PAN : ANDPD8642F .... अपीलाथ /Appellant
Vs.
The JCIT, Latur .... यथ / Respondent
Assessee by : Shri Bharat Raichandani
Respondent by : Dr. Vivek Aggarwal, CIT-DR
सुनवाई क तारीख / घोषणा क तारीख /
Date of Hearing : 22.02.2018 Date of Pronouncement: 28.02.2018
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
There are 3 appeals filed by the Assessee under consideration involving assessment year 2009-10. ITA No. 2146/PUN/2016 pertains to re-assessment order dated 02-03-2015 and ITA Nos. 2147 & 2148/PUN/2016 relate to the penalty orders made u/s.271D and 271E of the Act respectively.
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2. We shall take up appeal-wise adjudication in the following paragraphs.
ITA No.2146/PUN/2016
( A.Y. 2009-10)
3. Before us, Ld. Counsel for the assessee submitted that the assessee raised 8 grounds in all and the core issue mentioned in these grounds revolves around the invoking of provisions of section 40A(3) of the Act in respect of the cash payments made by the assessee towards the purchase of Kerosene from the principal dealer, the dealer notified by the Department of Civil Supplies under the scheme of Public Distribution System. In the grounds, there is a reference to the gross violation of principles of natural justice and the failure of CIT(A) in not considering certain judgmental laws and non granting of benefits of proviso to section 40A(3) of the Act relating to the agriculturists. Assessee is also aggrieved against the finding of CIT(A) holding the assessee as not a commission agent.
4. Background facts of the case are that the assessee is an individual and engaged in the business of sale of Kerosene purchased from the notified dealers and sale of the same to the Ration Card holders under the guidelines issued by the State Government. During the year, assessee made purchases of Kerosene to the tune of Rs.55,93,673/- from M/s. Baldawa and Company and other companies. Sale of kerosene to the assessee, leave-alone other suppliers/sellers, the purchases from M/s. Baldawa and Company was the subject matter of scrutiny assessment. AO noticed that assessee purchased kerosene from the said company to the tune of Rs.39,00,960/-. Assessee made the payments to the seller both by way of cheque as well as cash. The cash segment out of Rs.39,00,960/-, works out to Rs.36,16,500/-. The details of payment 3 of cash by the assessee to M/s. Baldawa and Company are tabulated in Page 3 of the assessment order. In this factual matrix, AO invoked the provisions of section 40A(3) of the I.T. Act.
5. In response, assessee submitted that the provisions of this section are not applicable to the purchases made by the assessee as per the guidance of the District Civil Supply Officer of the State Government. AO noticed that both the assessee and the seller are blessed with banking facilities and there is operating bank accounts involving the parties. Therefore, AO came to the conclusion that it is a fit case for invoking the provisions of section 40A(3) of the Act. AO relies on the decision of the Tribunal in the case of ITO Vs. Nam Estates Pvt. Ltd. 141 ITD 659 and the judgment of Punjab & Haryana High Court in the case of Ramesh Chand (HUF) Vs. CIT 217 Taxman 75 (P&H-HC). Eventually, AO made addition of Rs.36,15,500/- as per the discussion in Para 4 of the assessment order.
6. During the First Appellate proceedings, this issue was addressed by the CIT(A) in Para Nos.7 to 9 of his order. In response to the assessee's submission that assessee is merely a commission agent, therefore, the provisions of section 40A(3) of the Act applies to the purchase transactions, CIT(A) gave a finding that the amount of cash payments made by the assessee to M/s. Baldawa and Company are for the purchase of kerosene. Accordingly, the CIT(A) dismissed this part of argument of the assessee. Going into the reasons given by the assessee on the impracticability or impossibility of making all payments by cheque, the Ld.CIT(A) held that explanation given by the assessee is unsustainable for the reason that both the parties are blessed with banking facilities in their locations and infact, the assessee made certain payments to the party through the banking channels only. On 4 examining that the assessee failed to prove that he falls in the exceptions provided in the statute, CIT(A) proceeded to confirm the addition made by the AO. CIT(A) relied on the judgment of Gujarat High Court in the case of Associated Engineering Enterprises Vs. CIT 216 ITR 366 (Guj.) CIT(A) dealt with the fact that the assessee is under obligation not only to demonstrate the genuineness of the transaction but also the existence of circumstances warranting cash payments to the seller. CIT(A) also gave a finding that the assessee does not fall in the exceptions provided in Rules 6DD(j) and 6DD. He accordingly confirmed the disallowance made by the AO.
7. Aggrieved with the same, assessee filed the present appeal with the issues narrated in the above paras.
8. Before us, Ld. Counsel for the assessee submitted the above factual matrix of the case and other various developments in the assessment on the appellate proceedings and submitted that the orders of AO/CIT(A) require reversal of the decision.
9. Firstly, mentioning about the case laws cited by the assessee, during the First Appellate proceedings, Ld. Counsel for the assessee submitted that the said decisions were not referred or distinguished at all by the CIT(A). Further, he submitted that CIT(A) failed to appreciate that the assessee is merely a commission agent and therefore the provisions of section 40A(3) does not apply. The payment in cash is a commercial expediency for free flow of kerosene from the principal dealer to the consumers and it is a business decision to make the payment. Therefore, the provisions of section 40A(3) should not be applied. Further, he mentioned that when the payment is genuine and the same is not doubted by the lower authorities, the provisions of section 40A(3) should not be applied. Further, he referred to the provisions of Rule 6DD 5
(j) of the I.T. Rules, 1962 and submitted that the Calcutta Bench of the Tribunal in the case of Shanti Ram Mehata Vs. ACIT (2009) 123 TTJ 12 (Kol.) (TM) will help the assessee. The requirement of making payment within 2 days to the seller was also repeatedly cited by the Ld. Counsel for the assessee before us.
10. In reply, Ld. DR for the Revenue relied heavily on the orders of the AO and the CIT(A). Further, Ld. DR submitted that this is a case where the assessee will not fall into any of the exceptions provided in Rule 6DD(j) of the I.T. Rules, 1962. Therefore, the orders of the AO and the CIT(A) required to be confirmed. Referring to the reasonable cause linked to the payments in cash, Ld. DR submitted that this is a case where assessee is having bank transactions already with the supplier and there is no reason why these payments are also not paid in cheque or Demand Draft. Further, he submitted that there are plenty of banking facilities in both the locations of the buyer as well as the seller. Therefore, it is a fit case for invoking the provisions of section 40A(3) of the Act.
11. We heard both the sides on this issue and perused the orders of the Revenue as well as the decisions cited by the parties before us. We also perused the contents of Para Nos. 8 and 9 of the CIT(A)'s order and find it relevant to extract the same which reads as under :
"8. I have considered the arguments lead by the assessee. First and foremost, I am not convinced by the averment made by the assessee that it is not engaged in any business and that it has not incurred any expenditure in the conduct of his business. The assessee has stated that since it cannot distribute the kerosene or sell it to any other person other than those who are holding the ration card, there is neither purchase nor sale. The assessee had erroneously stated that there is no purchase or sale involved in the transaction of obtaining kerosene from the main dealers and supplying /selling the same to the target population. The assessee is not a commission agent. A commission agent is a person who transacts business on commission, typically on behalf of a principal. He is paid a percentage of the sales he or she generates. The Agent offers products to potential clients in an assigned territory, strictly in accordance with the sale conditions indicated to it by the Principal. Agent is a person who solicits and procures business from potential customers on behalf of one or more principals, usually against payment of a percentage of the realized sales revenue as 6 commission. In the instant case, the assessee is not an agent of M/s. Baldawa & Co. He also does not work as middlemen between vendors and buyers. In general, commission agents purchase and sells items on behalf of a principal, usually a company. These individuals Work independently as contracted, third-party workers, not employees of their principals. Commission agents conduct business under their own names, which affords a measure of anonymity to their principals while allowing the agents a certain degree of autonomy. Commission agents possess a fair amount of freedom when it comes to purchasing or selling materials for a principal. Usually, principals outline their material needs and a project's purchase budget, or the desired price of sale, along with a set of preferred conditions for a deal. The commission agent is responsible for meeting the ideal conditions requested by the principal, and must stay within the provided budget or the price of sale. As long as commission agents conform to these stipulations, they possess the freedom to act and make deals as they choose. In a nutshell, a commission agent is a person who transacts business on commission, typically on behalf of a principal. There exists a fiduciary relationship between two parties in which one (the 'agent') is under the control of (is obligated to) the other (the 'principal'). The agent is authorized by the principal to perform certain acts, for and on behalf of the principal. The principal is bound by the acts of the agent, performed in carrying out entrusted duties and within the scope of agent's authority. In the instant case, there is no such fiduciary relationship between the assessee and M/s. Baldawa & Co. The assessee is not an agent of the Government either. While it is true that the business of sale of kerosene is a part of the PDS, and the assessee does not enjoy the latitude to sell kerosene to any person that he likes but is duty bound to sell the kerosene at a fixed price to the ration card holders. This does not imply that the assessee is not doing any business independently and is merely a recipient of commission. The assessee enters into pro-per contract of purchase with the main dealers and enters into a contract for sale with the consumers. The assessee has incorrectly stated that ownership of goods does not pass onto him. In fact, he makes purchases from the authorised main dealers and sells the same goods to the final consumers. The act that trading of kerosene is covered under the Essential Commodities Act, 1958 does not make any difference to the nature of the activity indulged into by the assessee. The activity of the assessee is an act of simple sale and purchase. He is therefore a trader of kerosene and carries out the business of dealing in kerosene, In view of the above, I hold that the provisions of section 40A(3) Will be applicable on the assessee.
9. The appellant has not mentioned impracticability or impossibility of payment by cheque and other reasons which compelled him to make payment in cash. It is also not acceptable because appellant has not specified the Rule rider which the appellant's case falls. Therefore, under this situation, applicability of the cases relied upon by the appellant cannot be linked to the facts of the present case and the argument in this regard is rejected. Further, I so rely on the decision of Hon'ble Rajasthan High Court, in the case of Nahgi Lal vs. CIT, reported in 167 ITR 139 (Raj) where on the issue of disallowance u/s.40A(3) under Rule 6DD(J), it is held that it is not sufficient for the assessee merely to establish that the purchases were genuine and the payments were identifiable. The assessee is further required to prove that due to exception and unavoidable circumstances, or because payment by cheques was not practicable, cash payments were made. Further, the Hon'ble Gujarat High Court in the case of Associated Engineering Enterprises vs. CIT reported in 216 ITR 366 (Guj.) held on the issue of disallowance u/s.40A(3) regarding exception and unavoidable circumstances that certificate given by the payee does not even remotely indicate any genuine difficulty faced by parties necessitating cash payments. It cannot be said that cash payments were made by the assessee due to any exceptional or unavoidable circumstances. It is 7 also held that it is not merely the genuineness of the transaction but also the existence of the circumstances warranting payments by cash which is required to be proved. considering the above decisions and facts discussed, the appellant's case does not fall either in exceptional circumstances provided in Rule 6DD(J) or in 6DD. Therefore, the reference to business exigencies in the proviso to section 40A(3) will not be attracted in this case. The only exception provided in Rule 6DD(J) of the Income-tax Rules to such transactions is that the payments were made on a date which was on a day when the banks were closed on account of holiday or a strike. The assessee has given a few instances which were holidays. Therefore the payments made on these days will fall under the exception to section 40A(3) and other payments will be covered by the rigours of the section. In view of the above discussion, I hold that the Assessing Officer rightly made the disallowance u/s.40A(3). However, the assessing officer shall verify whether the bank was closed on the dates on which the payments were made and if so then to exclude such payments from disallowance u/s. 40A(3). The grounds of appeal in this regard are partly allowed."
12. From the above, it is evident that the CIT(A) dealt with the issue relating to the reasonable cause for not paying the amounts through the banking channels by passing a speaking order. He also dealt with the exceptions mentioned in Rule 6DD(j) of the Act before holding the same against the assessee. Further, we find there is no dispute about the facts relating to the existence of bank accounts in both the locations and also about the payments through the banking transactions to M/s. Baldawa and Company intermittently during the year under consideration. No specific case is made out by the assessee as to why the assessee resorted to making the payment by way of cash.
13. Further, we have gone through the following decisions relied on by the assessee before us.
(1) ITO Vs. Madan Lal Mittar 8 SOT 880 (2) Shanti Ram Mehata Vs. ACIT 123 TTJ 12 (Kol.)(TM) (3) Attar Singh Gurmukh Singh Vs. ITO 1991 AIR 2109 (4) M/s. Uttam Polyrubs India Pvt. Ltd. Vs. ACIT - ITA No.570/JP/15, order dated 18-04-2016 (5) ITO Vs. Smt. Asha Agarwal - ITA No. 92/LKW/2014, order dated 16-04-2015
14. We find the Lucknow Bench of the Tribunal in the case of ITO Vs. Smt. Asha Agarwal has observed as under :
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"7. Having carefully examined the orders of the lower authorities in the light of the detailed submissions of the assessee extracted in the order of the Id. CIT(A), various judicial pronouncements referred to by the assessee and the relevant provisions of the Act and we find that there is no substantial change in section 40A of the Act. By inserting sub-section (3A), it has been made clear that for the purpose of disallowance, total payment to a particular party in a day is to be seen and not the individual transaction. In the instant case, the assessee has also explained the peculiar circumstances and the nature of activities undertaken by it at distant places where banking facilities are not available and also the time constraint in which tender work is to be completed and the Id. CIT(A) having taken into account all these facts, came to the conclusion that the payments were made under the compelling circumstances on account of business expediency. Therefore, no disallowance of these payments is called for and he accordingly deleted the addition. During the course of hearing, except placing reliance upon the order of the Assessing Officer, no defect has been pointed out in the order of the Id. CIT(A) by the Revenue. Moreover, the Id. CIT(A) has adjudicated the issue in the light of various judicial pronouncements including the judgment of the jurisdictional High Court in the case of CIT vs. Suresh Kumar Agarwal, 249 ITR 113. Since the Id. CIT(A) has adjudicated the issue in detail in the light of various judicial pronouncements, we find no infirmity in it and we accordingly confirm the same."
15. From the above, it is evident that the assessee has undertaken the business activities at distant places where banking facilities are not available and proved the business expediency. From that point of view, the facts are distinguishable. However, in the instant case, the banking facilities are available at the locations where the assessee undertook his business activities with the kerosene dealer.
16. We find the Hon'ble Apex court in the case of Attar Singh Gurmukh Singh (supra) has dismissed the appeal of the assessee. Therefore, the ratio cannot be applied to the present case.
17. Further, we find the case before the Kolkata Bench of the Tribunal in the case of Shanti Ram Mehata Vs. ACIT (supra) is on the applicability of provisions of section 40A(3) when each of the cash payment exceeded Rs.20,000/-. This is not the case in the present appeal. Therefore, the judgment has no application to the facts of the present case.
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18. Considering the above extracted portions of the judgmental law, we are of the opinion that the case laws cited by the assessee do not pertain to a case, where parties have bank accounts, location of the parties have adequate banking facilities and the commercial transactions between the parties already registered the transactions through banking facilities. Therefore, we are of the opinion that the decision of CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, the grounds raised by the assessee are dismissed.
19. In the result, appeal of the assessee is dismissed. ITA No.2147/PUN/2016 u/s.271D of the Act ITA No.2148/PUN/2016 u/s.271E of the Act
20. Now we proceed to deal both these appeals together in a composite manner considering the assessee's submission that both these orders were finalised by the JCIT, Latur Range, Latur without hearing the assessee. Otherwise, the JCIT passed the penalty orders u/s.271D and 271E of the Act on common date, i.e. 01-07-2015 without granting opportunity of being heard to the assessee. Penalty orders confirm the same. In these background facts, Ld. Counsel for the assessee raised the issue relating to the violation of principles of natural justice vide Ground No.3 in both the appeals. Therefore, he prayed for remanding the issues raised in both the appeals to the file of JCIT, Latur Range, Latur.
21. On hearing both the parties, we find the request of Ld. Counsel for the assessee for remanding the issues raised in both the appeals to the file of JCIT, Latur Range, Range is reasonable. Accordingly, the issues raised by the assessee in both the appeals are remanded to the file of AO for fresh adjudication. Thus, the grounds raised by the assessee in the above appeals are allowed for statistical purposes. 10
22. In the result, appeals of the assessee are allowed for statistical purposes.
23. To sum up, ITA No.2146/PUN/2016 filed by the assessee is dismissed and ITA Nos. 2147 and 2148/PUN/2016 filed by the assessee are allowed for statistical purposes.
Order pronounced in the open court on this 28th day of February, 2018.
Sd/- Sd/-
(VIKAS AWASTHY) (D. KARUNAKARA RAO)
याियक सद य /JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 28th February, 2018
सतीश
आदेश क
ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2.
यथ / The Respondent
3. The CIT(A)-2, Aurangabad
4. CIT-2, Aurangabad
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, "B Bench"
Pune;
6. गाड फाईल / Guard file.
आदेशानुसार/ BY ORDER,स
स यािपत ित //True Copy//
//True Copy// Senior Private Secretary
आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune