Income Tax Appellate Tribunal - Chandigarh
Dhuri Wine, Dhuri vs Assessee on 9 October, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.1155/Chd/2013
(Assessment Year : 2010-11)
M/s Dhuri Wine, Vs. The D.C.I.T.,
Lohar Bazar, Near PNB, Circle-IV,
Dhuri. Ludhiana.
PAN: AAHFD0310M
(Appellant) (Respondent)
And
C.O.No.6/Chd/2014
Arising out of
ITA No. 1155/Chd/2013
(Assessment Year : 2010-11)
The A.C.I.T., Vs. M/s Dhuri Wine,
Circle-IV, Lohar Bazar, Near PNB,
Ludhiana. Dhuri.
PAN: AAHFD0310M
And
ITA No. 1176/Chd/2013
(Assessment Year : 2010-11)
The A.C.I.T., Vs. M/s Dhuri Wine,
Circle-IV, Lohar Bazar, Near PNB,
Ludhiana. Dhuri.
PAN: AAHFD0310M
Assessee by : S/Shri Sudhir Sehgal
& Ashok Goyal
Respondent by : Shri S.K.Mittal, DR
Date of hearing : 18.09.2015
Date of Pronouncement : 09.10.2015
2
O R D E R
PER RANO JAIN, A.M. :
Both the cross appeals and the Cross Objection filed by the Revenue are directed against the order of learned Commissioner of Income Tax (Appeals)-II, Ludhiana dated 23.10.2013 for assessment year 2010-11.
ITA No.1155/Chd/2013 :
2. The assessee has raised four grounds of appeal. However, the only issue is addition of Rs.7,91,05,385/- made by the Assessing Officer invoking the provisions of section 40A(3) of the Income Tax Act, 1961 (in short 'the Act').
3. The facts of the case are that the assessee is a partnership firm engaged in the business of dealing Indian Made Foreign Liquor, Country Liquor and all kinds of wine and beer. During the course of assessment proceedings, the Assessing Officer noted that the assessee had maintained more than one ledger account in respect of each party from whom purchases were made. The explanation of the assessee was that the accounts have been maintained vend-wise since the payments to various parties were also made vend-wise. The Assessing Officer found that the total payment made to each party on single day was invariably more than Rs.20,000/-, which was in excess of the limit prescribed under section 40A(3) of the 3 Act. When questioned on this, the reply of the assessee was that since there were 12 partners in assessee firm, the assessee could not open the bank account and, therefore, all payments had to be made in cash. The Assessing Officer rejected this explanation of the assessee and observed that though the purchases made have been made separately through different vends but these were admittedly made on behalf of the assessee firm. Once a firm is constituted, the concept of separate group of vends ceased to exist. Accordingly, the payment in respect of various groups of vends separately had no meaning. These were payments made by or on behalf of the firm. The Assessing Officer was of the view that to be eligible for deduction as expenditure, the requisite conditions of the provisions of the Act are to be fulfilled. As all these payments were in excess of limit prescribed under section 40A(3) of the Act, the Assessing Officer made disallowance of Rs.7,91,05,385/-.
4. Before the learned CIT (Appeals), the assessee submitted that there were 20 persons individually who have been successful bidders in respect of wine contracts at different places and they were allotted different vends in different areas individually. These persons joined hands together to form a partnership and the firm was formed in order to avoid competition and to carry on the business more collectively and effectively under the name and style of M/s Dhuri Wine, i.e. the assessee. It was 4 further submitted that the combined books of account had been maintained but the licence fee of each and every vend, sales and purchases had been recorded separately in the books of account and even the purchases were made on the basis of permission obtained from the Excise Authorities in individual name of each successful bidder and, thus, the common books of account were being maintained, but each and every item of expenses, purchase, sales, licence fee of different vends have been recorded separately and independently in the books of account by each of the vends owners i.e. each of the partners. In this background, detailed submissions were made before the learned CIT (Appeals) that the provisions of section 40A(3) of the Act are not applicable to the facts of the assessee. The reasons for not opening bank account was also explained to the learned CIT (Appeals). It was submitted that all purchases, sales and payments were independent to the extent that the sanctions in respect of purchases were made in each partner's name. The procedures for making purchases against the cash payment were explained to the learned CIT (Appeals). Reliance was also placed on Rule 6DD(g) of the Income Tax Rules to the effect that since the assessee is not maintaining any bank account, the provisions of section 40A(3) of the Act are not applicable to it. Reliance was also placed on clause (b) of Rule 6DD of the Income Tax Rules to the effect that since the payments were made as per rules framed by the Excise Authorities, which is a 5 Government Authority, any such payment made under the authorities and the rules framed by the Government cannot be disallowed. Further it was argued that since the payments have not been held to be not genuine, the same cannot be disallowed under section 40A(3) of the Act. The judgment of Hon'ble Jurisdictional Punjab & Haryana High Court in the case of Attar Singh Gurmukh Singh Vs. ITO (1991) 191 ITR 667 was relied upon. The learned CIT (Appeals) forwarded the submissions of the assessee to the Assessing Officer and a Remand Report was called for. The Assessing Officer in his Remand Report dated 17.9.2013 reiterated the stand taken by him in the assessment order and further stated that the provisions of Rule 6DD clauses (b) and (g) the Income Tax Rules as submitted by the assessee are not applicable in the given case. Copy of the Remand Report was provided to the assessee, who filed rejoinder to the said report as on 15.10.2013, where again the detailed submissions in this regard were made and it was also submitted that since TCS as required under section 206C of the Act of each vend separately under the PAN number of each partner,, the payment made by cash cannot be clubbed together. The submissions earlier made before the Assessing Officer and the learned CIT (Appeals) were again reiterated.
5. The learned CIT (Appeals) after considering the said submissions of the assessee and the Remand Report and after analyzing in detail each and every aspect of the 6 applicability of section 40A(3) of the Act confirmed the addition made by the Assessing Officer giving following reasons :
i) The assessee being a partnership firm having no bank account, does not absolve it of the requirements of section 40A(3) of the Act as there are adequate banking facilities in Dhuri.
ii) The payment made by different partners cannot
be taken independently for the purpose of
compliance with section 40A(3) of the Act.
iii) Under Rule 6DD(b), only payments made to the Government are exempt from the provisions of section 40A(3) of the Act. None of the parties to whom payment has been made by the assessee are Government undertakings.
iv) The applicability of Rule 6DD clause (g) was also ruled out by the learned CIT (Appeals) as the assessee has not shown a single case where payments were made to a person who was residing in village or town, which was not served by any bank.
v) On the issue of genuineness of expenditure incurred in cash, the learned CIT (Appeals) was of the view that the language of section 40A(3) of the Act is clear and unambiguous and, therefore the full effect is to be given to the language used in section 40A(3) of the Act.
vi) On the issue of TCS being deducted separately by each vend, the learned CIT (Appeals) was of the view that the payments made in excess of limit prescribed under section 43A(3) of the Act 7 cannot be seen with reference to the individual persons but has to be seen with reference to the assessee firm.
6. In view of the above factors, the learned CIT (Appeals) dismissed the ground of appeal raised by the assessee and for each of these reasons, he relied upon a number of judgments of various High Courts and that of different Benches of the I.T.A.T.
7. Aggrieved by the said order of the learned CIT (Appeals), the assessee has come up in appeal before us. The learned counsel for the assessee while arguing before us reiterated again in detail the submissions made before the lower authorities by referring to various pages of a voluminous Paper Book filed by it. The submissions were made to emphasize the fact that all the transactions of cash payments were made independent of each other by different persons being partners at different places. Though the assessee is a registered firm, the records are being maintained by each partner separately. Even the stock register of each and every vend on day-to-day basis is also maintained separately for different vends. A few samples of the stock records were also shown to us. In the nutshell, it was argued that each and every item of purchase, sale, licence fee, capital investment, stock registers were being recorded independently and each one of the individual persons were carrying on the business independently and only for the limited purpose of avoiding the competition, they formed a partnership firm. The 8 payment of more than Rs.20,000/- on a single day happened only if the cash payment made by different individual vends actually are clubbed together, whereas the case of the assessee is that if the payment is taken of each separate vend independently since the purchases and sales are made independently by all different parties, then no payment in excess of Rs.20,000/- on a single day is made. Another argument made by the learned counsel for the assessee was that no disallowance under section 40A(3) of the Act can be made as the first proviso to section 40A(3) of the Act states very clearly that no disallowance shall be made having regard to the nature and extent of banking facilities available, consideration of business expediency and other relevant factors. It was prayed that since none of the lower authorities have questioned the genuineness of the payments so made, no disallowance is called for. The learned counsel for the assessee relied upon a number of judgments of various High Court and Benches of the Tribunal and filed a compilation of such judgments. A very heavy reliance was placed on a latest judgment of the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of Gurdas Garg Vs. CIT in ITA No.413 of 2014 dated 16.7.2015. It was submitted that in this judgment of the Hon'ble Jurisdictional High Court, it has been held that once the transactions and the genuineness thereof is not questioned, the case is clearly made out of business expediency, in such circumstances, provisions of section 9 40A(3) of the Act cannot be invoked. It was prayed that disallowance made under section 40A(3) of the Act be deleted.
8. The learned D.R. relied upon the order of the Assessing Officer as well as the learned CIT (Appeals) and prayed that since it is an undisputed fact that the assessee firm has made cash payments on a single day to a single entity of more that Rs.20,000/- and the provisions of section 40A(3) of the Act being very clear, the disallowance made by the Assessing Officer is correct and as per law.
9. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The only issue to be decided by us is whether on the given facts and circumstances of the case, the provisions of section 40A(3) of the Act can be applicable to the assessee or not. Section 40A(3) of the Act reads as under:
Section 40A(3) :
[(3) Where the assessee incurs any expenditure in respect of which 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, no deduction shall be allowed in respect of such expenditure.
Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, 10 otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed , having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors :]
10. Since heavy reliance was placed on a latest judgment of the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of Gurdas Garg (supra), after perusing the said judgment we find that a very apt guidance is provided by the Hon'ble High Court in deciding the issue in question. Therefore, at the very first instance, we would analyze the said judgment of the Hon'ble Jurisdictional High Court. In this case, the assessee was engaged in the business of trading in properties. Admittedly, certain payments were made in cash in excess of Rs.20,000/- per day. Invoking the provisions of section 40A(3) of the Act, the Assessing Officer made the disallowance. The learned CIT (Appeals) in his order gave finding that the identity of the payees i.e. the vender in respect of the land purchased by the assessee was established. The sale deeds were produced, the genuineness thereof was accepted. The amount paid in respect of each of these agreements was certified by the Stamp Registration Authority. In this way, the learned CIT (Appeals) held that the bar against the grant of deductions under section 40A(3) of the Act was not attracted. The Tribunal did not upset these findings given by the learned CIT (Appeals) including as to the genuineness and the correctness of the transactions. In fact, the Tribunal noted the contention on behalf of the assessee 11 that there was a boom in the real estate market, that it was necessary, therefore, to conclude the transactions at the earliest and not to postpone them, that the assessee did not know the vendors and obviously, therefore, insisted for payment in cash. The Tribunal did not doubt this case. However, the Tribunal held that claim for deduction was not sustainable in view of section 40A(3) of the Act as the payments were made in cash over Rs.20,000/-. The Hon'ble High Court while deciding the issue relied upon the judgment of Hon'ble Rajasthan High Court in the case of Smt.Harshila Chordia Vs. ITO (2008) 298 ITR 349, whereby it was held that there being no dispute about the genuineness of the transaction and the payment and identity of the receiver being disclosed, the disallowance under section 40A(3) of the Act cannot be made. The Hon'ble Rajasthan High Court relied upon a Circular of the CBDT dated 31.5.1977 reported in (1977) 108 (St.) 8. Further the Hon'ble Punjab & Haryana High Court also made a reference to a judgment of the Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh Vs. ITO (1991) 4SCC 385, whereby it was held that the provisions of section 40A(3) of the Act and Rule 6DD of the Income Tax Rules were intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. After analyzing all these, the Hon'ble High Court held that the Tribunal has not disbelieved the transactions or the genuineness thereof, nor has it disbelieved the fact of payments having been made, more importantly, the reasons 12 furnished by the assessee for making the cash payments have not been disbelieved. This clearly makes out a case of business expediency. In this view, the Hon'ble High Court held the payments to be outside the purview of section 40A(3) of the Act.
11. Taking the guidance from the above said judgment of the Hon'ble Jurisdictional High Court, which is also a very recent judgment of the Hon'ble High Court we now advert to analyze the case of the present assessee. The proposition laid down by the Hon'ble High Court is quite unambiguous to the effect that even if the case of the assessee does not fall in any of the clauses of Rule 6DD of the Income Tax Rules, invoking the provisions of s e c t i o n 4 0 A ( 3 ) of the Act can be dispensed with if the assessee is able to prove the business expediency because of which it have to make the cash payments, the genuineness of the transactions have also to be verified. In the present case, detailed submissions with corroborative evidences were filed at every stage including that of the Assessing Officer as well as the learned CIT (Appeals). Even before us, the voluminous Paper Book has been filed . The elaborate submissions were made to prove that the expenses incurred in cash were genuine which were paid to distilleries through Excise Department for purchase of liquor and there were practical expediency because of which the payments have to be made in cash. This is an undisputed fact that the assessee firm has twelve partners, who are operating business through vends located at distinct 13 places. Each person has licence in his own name to make the sales and purchases as per the terms of these licence agreements. Further, it is quite a known fact that in the business of the liquor, transactions are to be done in cash. All these facts have not been controverted by the Assessing Officer or even by the learned CIT (Appeals). This makes out a case that the assessee has business expediency under which it have to make payments in cash. Further, not a single transaction has been questioned at any stage. The learned CIT (Appeals) while adjudicating the contention of the assessee with regard to the genuineness himself has held that it is not sufficient for the assessee to establish that the payments were genuine and the parties were identifiable. He was of the view that the assessee is further required to prove that due to exceptional and unavoidable circumstances as provided under the Rules, the payments were made in cash. Therefore, it is not a case of the Department that the payments so made in cash were not genuine. The reasons given by the assessee at every stage have not been disbelieved. Since these reasons are correct, they really make out a case of business expediency. In this view, respectfully following the judgment of the Hon'ble Punjab & Haryana High Court in the case of Gurdas Garg (supra), we hold that the payments cannot be disallowed under section 40A(3) of the Act. The addition is deleted
12. The appeal of the assessee is allowed.
14C.O.No.6/Chd/2014 (in ITA No. 1155/Chd/2013):
13. In the Cross Objection filed by the Department, the ground No.1 relates to disallowance made by the Assessing Officer under section 40A(3) of the Act and confirmed by the learned CIT (Appeals).
14. Since this ground only supports the order of the learned CIT (Appeals) and the finding in this regard has already been given in ITA No.1155/Chd/2013, we do not find any need to adjudicate the same.
15. The ground No.2 is with regard to Ahata income of Rs.6,40,000/-.
16. The brief facts of the case are that during the course of assessment proceedings, the Assessing Officer noted that the assessee has not shown any Ahata income. The reply of the assessee was that it has not deposited any Ahata fee and since there was no Ahata income, it was not shown in the Profit & Loss Account. The Assessing Officer was not satisfied with the reply of the assessee. He referred to the case of the sister concern of the assessee M/s Mehta & Co., which has shown income of Rs.84,000/- from Ahata. He pointed out that M/s Mehta & Co. was operating four liquor vends and had a turnover of Rs.437.49 lacs, while the assessee was operating 42 vends with a turnover of Rs.2153.63 lacs. Applying the ratio of turnover, the 15 Assessing Officer estimated an amount of Rs.6,40,000/- as Ahata income and made addition in the hands of the assessee.
17. Before the learned CIT (Appeals), it was contended that the assessee had not deposited any Ahata fee and hence, not received any Ahata income. It was also submitted that as per the Excise Policy, Ahata are only on optional basis with some specified conditions. The permission from the Excise Department for this has to be taken, which the assessee has not taken. In this way, it has contended that the Assessing Officer on the basis of wild estimate has made this addition. In the Remand Report dated 17.9.2013, the Assessing Officer reiterating his stand submitted that the assessee is running liquor business, which is consumed with some eatables and snacks which are covered by means of Ahata. Since similar vends are operated by the sister concerns, there has to be some Ahata income of the assessee, which it had not shown. The assessee filed a rejoinder to the Remand Report reiterating the submissions earlier made. On the basis of these submissions, the learned CIT (Appeals) deleted the addition made by the Assessing Officer.
18. The learned D.R. relied upon the order of the Assessing Officer, while the learned counsel for the assessee relied upon the order of the learned CIT (Appeals).
19. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On a reading of 16 the order of learned CIT (Appeals), we see that on this issue, he has given his finding at page 31 in para 5.5 which reads as under :
"5.5 I have carefully considered the rival submissions. Addition has been made purely on an adhoc and estimated basis without any specific evidence regarding the appellant having earned any ahata income. It is a fact on record, as explained by the appellant, that appellant had not deposited any license fee for taking the Ahatas, which is charged separately by the Government. In these circumstances, the finding of the AO that the appellant was having ahata income is without any merit. The addition made by the AO is therefore deleted. This ground of appeal is accordingly allowed."
20. On reading of this, we do not find any infirmity in the order of the learned CIT (Appeals) as regards Ahata income. The Assessing Officer nowhere in his assessment order, nor in the Remand Report controverted the fact that for running Ahata one has to take licence from the Excise Authority. Neither the Assessing Officer has placed on record any material to show that the assessee has taken this licence or in fact, the assessee is running the Ahata. In this view, making addition on account of Ahata income on estimate basis that too, comparing the case of the assessee with that of another assessee is not correct. The action of the learned CIT (Appeals) in deleting the addition is found to be as per law. This ground of Cross Objection is dismissed.
21. The ground No.3 of the Cross Objection is with regard to addition of Rs.20 lacs made by the Assessing Officer on account of suppression of sales.
17
22. The facts of the case are that the Assessing Officer during the assessment proceedings observed that there was significant variation in the profit margin over purchases in respect of various vends. Rejecting the reply of the assessee filed in this behalf, the Assessing Officer held that there was not just possibility of suppression of sales but the sales have actually been suppressed. Accordingly, an addition of Rs.20 lacs on an estimated basis was made by the Assessing Officer.
23. Before the learned CIT (Appeals), the assessee submitted that the books of account have been maintained and are duly audited by the Chartered Accountant and no discrepancy has been noticed by the Assessing Officer during the course of various hearings and books have been rejected just because profit margin in respect of certain vends were lower than the other vends. The addition on estimated basis cannot be made. Regarding variation of sales in respect of each vend, it was submitted that due to geographical condition of various vends and its location, this variation cannot be doubted. As regards non-maintenance of sale bills and sales in cash, it was submitted that it is common practice in this trade. In the alternative, it was submitted that if the addition on account of suppression of sales is made, no addition under section 40A(3) of the Act can be made. In the Remand Report, the Assessing Officer repeated the contention raised by him in the assessment order. In the rejoinder, the assessee also reiterated its earlier submissions. After 18 considering all these, the learned CIT (Appeals) deleted the addition made by the Assessing Officer.
24. The learned D.R. relied upon the order of the Assessing Officer, while the learned counsel for the assessee relied upon the order of the learned CIT (Appeals).
25. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The findings of learned CIT (Appeals) in this regard are appearing at page 35 in para 6.5 of his order, which read as under :
"6.5 I have carefully considered the rival submissions. The addition has been made purely on an adhoc basis based on conjectures and surmises. It is a matter of business practice in the type of trade which the appellant is involved in, that the sales are made in cash and no record of such sales in the form of sales bill can be maintained. From the facts and circumstances explained by the appellant, it is seen that the appellant has satisfactorily explained the vide variation in the profit margins of different vends. In these facts and circumstances, addition made by the AO on this ground is deleted. This ground of appeal is accordingly allowed."
26. Considering the facts and circumstances of the case, we do not find any infirmity in the order of the learned CIT (Appeals) since it is a common fact that in liquor business, transactions are done through cash. We observe that the Assessing Officer has though proposed to reject the books of accounts, but has not given any finding as to the rejection of the books of account of the assessee. He has not been able to pinpoint any instance of suppression of sales and only on the basis of suspicion, he has made the addition, that too on 19 estimated basis. These reasons are not enough to make such an addition. In this view, we confirm the order of the learned CIT (Appeals). The ground of Cross Objection raised by the Revenue is dismissed.
27. The Cross Objection filed by the Revenue is dismissed.
ITA No.1176/Chd/2013 :
28. Since all the issues raised by the Department in this appeal are same as raised in Cross Objection No.6/Chd/2014. The appeal of the Revenue becomes infructuous as all these issues have already been adjudicated upon under the Cross Objection No.6/Chd/2014.
29. The appeal of the Revenue is dismissed.
30. In the result :
i) The appeal of the assessee is allowed.
ii) The Cross Objection and appeal filed by Revenue are dismissed.
Order pronounced in the open court on this 9th day of October, 2015.
Sd/- Sd/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACOUNTANT MEMBER Dated : 9 t h October, 2015 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh 20