Income Tax Appellate Tribunal - Chennai
J.Balaji, Ooty vs Department Of Income Tax on 25 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI V. DURGA RAO, JUDICIAL MEMBER
I.T.A. No. 181/Mds/2013
(Assessment Year :2009-10)
The Income Tax Officer, Shri J. Balaji,
Ward - I(1), Prop: Balaji Agencies,
Income Tax Office, 2nd floor, v. BalajiNivas,
Christo Building, 169, Upper Bazaar, Ooty-643 001.
Ooty - 643 001.
PAN : ADXPB 2010 K
(Appellant) (Respondent)
Appellant by : Shri T.N. Betgiri, JCIT
Respondent by : Shri K. Navaneetan, Advocate
Date of Hearing : 25.07.2013
Date of Pronouncement : 25.07.2013
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the Revenue, it is aggrieved that the CIT(Appeals), vide his order dated 30.11.2012, deleted an addition of ` 15,63,339/- made by the Assessing Officer under Section 40A(3) of Income-tax Act, 1961 (in short 'the Act').
2 I.T.A. No. 181/Mds/13
2. Facts apropos are that assessee, a wholesale distributor of products of M/s Aachi Masala Foods, M/s Nestle India Pvt. Ltd. and M/s General Mills Pillsbury in the District of Nilgiris, had filed his return for the impugned assessment year declaring an income of ` 2,68,880/-. During the course of assessment proceedings, it was noted by the Assessing Officer that assessee had effected cash payments for purchases to the tune of ` 15,63,339/-. The total purchase turnover of the assessee during the relevant previous year was in excess of ` 4.43 Crores. Assessing Officer put the assessee on notice as to why the sum of ` 15,63,339/- should not be disallowed under Section 40A(3) of the Act. Reply of the assessee was that purchases for such amount were effected through an agent and by virtue of sub-rule (k) of Rule 6DD of Income-tax Rules, 1962, this was permitted. Assessee also produced self-made vouchers for the purchases claimed to have been made through his agent. Assessing Officer was of the opinion that assessee was not purchasing any agricultural produce and the agent was not compelled to make any cash payment for goods on behalf of the assessee. Further, as per the A.O., amounts mentioned in different copies of the self-made vouchers were different and assessee could not produce C-Form despite the purchases having been made from State of Karnataka. 3 I.T.A. No. 181/Mds/13 He was, therefore, of the opinion that Section 40A(3) was attracted. A disallowance of ` 15,63,339/- was made.
3. In his appeal before CIT(Appeals), argument of the assessee was that Assessing Officer had interpreted Rule 6DD(k) as per his convenience. According to assessee, he had filed letter and an affidavit of the agent and also produced vouchers for the purchases. CIT(Appeals) sought remand report from the Assessing Officer. In the remand report, Assessing Officer reiterated his contention that for claiming the benefit of Rule 6DD(k), it was necessary for the assessee to prove the compulsions that were there, for his agent to make payments in cash, for purchase of goods. In other words, as per the A.O., assessee could not establish that the agent was required to make the payments in cash. Assessee also contented before the CIT(Appeals) that purchases made through the agent did not attract CST since purchases were effected through vouchers and delivered at assessee's premises. As per the assessee, there was no inter-State purchases.
4. CIT(Appeals) was appreciative of the above contentions of the assessee. According to him, assessee had established that his agent was required to make payments in cash. Purchases were evidenced 4 I.T.A. No. 181/Mds/13 by vouchers as well as affidavit of commission agent. Taking this view, he deleted the addition of ` 15,63,339/-.
5. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that assessee was a wholesale distributor of products of reputed companies. According to him, assessee was not under any compulsion to buy in cash from any of these companies. Assessee being a distributor, was generally purchasing the goods directly from companies, and payments were made through cheques for such purchasers. It was not necessary for him to employ any agent in such purchases. When the assessee could not produce bills for some purchases, he had made self-vouchers and stated that the payments for such purchases were effected through an agent. Affidavit from commission agent nor the letter of agent would show the reason why purchases had to be effected through an agent. Payments in cash exceeded ` 20,000/- in each case and therefore, sub-section (3) of Section 40A was attracted. Assessee could not say that the rigour of the said sub-section was alleviated by Rule 6DD of Income-tax Rules, 1962.
6. Per contra, learned A.R. submitted that Revenue never doubted the contention of the assessee that purchases were effected through 5 I.T.A. No. 181/Mds/13 an agent. Once purchases were effected through an agent, assessee had every right to claim the benefit of sub-rule (k) of Rule 6DD. Purchase bills were not readily available. It was for this reason cash vouchers were prepared by the agent. Sales were effected by the agent to the assessee and hence it could be supported only by vouchers. Payments made to the agent, based on cash vouchers, would not fall within the purview of Section 40A(3) of the Act. Question of Central Sales Tax being attracted in the purchases was irrelevant. Disallowance under Section 40A(3) was not made for the reason that the purchases were not genuine. Therefore, according to him, CIT(Appeals) was justified in deleting the disallowance.
7. We have perused the orders and heard the rival submissions. In the first place what we notice is that assessee is a wholesale distributor of products of reputed companies. There is no case for the assessee that there were purchase of any agricultural produce from companies M/s Aachi Masala Foods, M/s Nestle India Pvt. Ltd. and M/s General Mills Pillsbury. Purchases totally effected by the assessee during the relevant previous year, came to `4,43,66,792/-, as noted by the Assessing Officer. As per the assessee, cash payments were made for purchases of ` 15,63,330/- through his 6 I.T.A. No. 181/Mds/13 agent for which, only self-made vouchers were there. There is no case for the assessee that the payments effected were less than ` 20,000/-in each case. Therefore, for such cash payments made for purchases, Section 40A(3) stood automatically attracted. Assessee can claim an exemption only if such payments fell within one or the other of the alleviating circumstances mentioned Rule 6DD of Income-tax Rules,1962. As per the assessee, it fell within sub-rule
(k) of Rule 6DD. Rule 6DD and relevant sub-rule (k) are reproduced hereunder:-
"6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely :--
.... .... ..... ..... ..... ..... ..... ..... ..... ..... .... .... ..... ..... ..... ..... ..... ..... ..... ..... .... .... ..... ..... ..... ..... ..... ..... ..... .....7 I.T.A. No. 181/Mds/13
(k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.
.... ..... ..... ..... ..... ..... ..... ..... ..... ....." Claim of the assessee is that the amounts were paid in cash to his agent and such an agent had in turn purchased goods on behalf of the assessee for which cash was to be paid. To come within this exemption, it is necessary to show that the agent was required to make payment in cash for the goods purchased by him. In other words, there should exist a set of circumstance which would show that the agent was essentially required to pay cash for the type of goods, he had purchased. Only in such a situation, can an assessee's claim that payment made in cash to his agent, would not attract the rigour of Section 40A(3). Assessee might have filed an affidavit of the agent and also letter of the agent. However, no explanation has been given at any point of time by the assessee as to the set of circumstance which compelled the agent to effect payment in cash for purchases made by him. As already mentioned by us, assessee was a major distributor of goods sold by major companies and in the ordinary course, there was no necessity for purchasing goods from them in cash and that too through an agent. In these circumstances, we are of the opinion that the A.O. was justified in 8 I.T.A. No. 181/Mds/13 disbelieving the version of the assessee and holding that Section 40A(3) stood attracted for such payments effected in cash.
8. Finding of the CIT(Appeals) that Assessing Officer had not made any enquiry regarding the genuineness of the purchase made by the agent on behalf of assessee and had brought nothing on record to prove that agent was not required to pay cash, in our opinion, is requiring the Assessing Officer to prove the negative. Once an assessee claims that he falls within one or other of an exemption clause for not applying a provision, then it is the duty of the assessee to prove that the conditions mentioned under such clause is satisfied. Assessee, when he seeks a concession, based on an exemption provision, he is required to establish clearly that he is covered by such a provision. Mere attempted compliance would not be enough. Mandatory requirements are to be obeyed and fulfilled exactly. Onus was on the assessee to show that that there were circumstances for his agent to effect payments in cash for making the purchases. This was not satisfied. We are of the opinion that the CIT(Appeals) fell in error in deleting the disallowance made 9 I.T.A. No. 181/Mds/13 under Section 40A(3) of the Act. Order of the CIT(Appeals) is set aside and addition made by the A.O. is reinstated.
9. In the result, appeal filed by the Revenue is allowed. Order was pronounced in the Court on Thursday, the 25thof July, 2013, at Chennai.
sd/- sd/-
(V.DurgaRao) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 25thJuly, 2013.
Kri.
Copy to: (1) Appellant
(2) Respondent
(3) CIT(A)-I, Coimbatore
(4) CIT-II, Coimbatore
(5) D.R.
(6) Guard file