AH TIAM TANNERY, Kolkata v. ITO, Ward - 33(4), Kolkata, Kolkata

ITA 2061/KOL/2009 | 2004-2005
Pronouncement Date: 28-05-2010

Appeal Details

RSA Number 206123514 RSA 2009
Bench Kolkata
Appeal Number ITA 2061/KOL/2009
Duration Of Justice 5 month(s) 24 day(s)
Appellant AH TIAM TANNERY, Kolkata
Respondent ITO, Ward - 33(4), Kolkata, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 28-05-2010
Appeal Filed By Assessee
Bench Allotted A
Tribunal Order Date 28-05-2010
Date Of Final Hearing 19-05-2010
Next Hearing Date 19-05-2010
Assessment Year 2004-2005
Appeal Filed On 04-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI D. K. TYAGI JM & HONBLE SRI C . D. RAO AM] I.T.A. NO.2061/KOL/2009 ASSESSMENT YEAR: 2004-05 AH TIAM TANNERY -VS- INCOME-TAX OFFICER WD-33 (4) KOLKATA (PA NO.AAFFA 1852 R) (APPELLANT) (RESPONDENT) APPELLANT BY : SRI I. BANERJEE RESPONDENT BY : SRI A. K. PRAMANICK O R D E R PER D. K. TYAGI JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE LD. CIT(A) KOLKATA DATED 7 TH SEPTEMBER 2009 FOR ASSESSMENT YEAR 2004-05 ON THE SOLE GROUND OF DISALLOWANCE MADE U/S. 40A(3) OF THE I. T . ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FINISHED LEATHER. DURING THE COURS E OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS MADE PAYMENTS EXCEEDING RS.20 000/- THROUGH BEARER CHEQUES TOTALING TO RS.66 05 568/- TO SUPPLIERS O F RAW HIDE IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE I. T. ACT. IT W AS SUBMITTED BEFORE THE AO THAT THE PAYMENTS WERE MADE TO THE PRODUCERS OF RAW HIDE AND THEREFORE SECTION 40A(3) IS NOT APPLICABLE IN VIEW OF RULE 6DD(F)(II). FROM THE PER USAL OF THE PURCHASE BILLS THE AO FOUND THAT THE SUPPLIERS WERE MERCHANTS. THE ASSESS EE COULD PRODUCE NO EVIDENCE BEFORE THE AO TO SHOW THAT PAYMENTS WERE MADE TO PRODUCERS . ALSO PAYMENTS TO THE SUPPLIERS WERE MADE A FEW MONTHS AFTER THE RAW HIDES WERE DIS PATCHED BY THEM TO THE ASSESSEE. THE AO THEREFORE HELD THAT THERE WAS NO BUSINESS EXPEDIENCY IN MAKING PAYMENTS THROUGH BEARER CHEQUES. THE AO ALSO NOTED THAT THE ASSESSEE FAILED TO SHOW ANY REASONABLE CAUSE OR UNAVOIDABLE CIRCUMSTANCES WHICH COULD JUSTIFY PAYMENTS THROUGH BEARER CHEQUES. THE AO THEREFORE INVOKED THE PROV ISIONS OF SECTION 40A(3) AND MADE AN ADDITION OF RS.13 21 114/-. IN APPEAL THE LD. C IT(A) CONFIRMED THE ACTION OF THE AO AND DISMISSED THE ASSESSEES APPEAL. BEING FURTHER AGGRIEVED NOW THE ASSESSEE IS IN APPEAL BEFORE US. 2 3. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFORE THE LD. CIT(A) FURTHER SUBMITTED THAT ALL PURCHASES ARE GENUINE AND HAVE NOT BEEN DISPUTED BY THE AO. THE ASSESSEE PURCHASED RAW HIDES FROM SUPPLIERS WHO HAVE PURCHASED RAW HID ES AND PROCESSED THEM FOR USE OF RAW MATERIAL AND SHOULD THEREFORE BE TERMED AS PR ODUCERS OF RAW HIDE IN TERMS OF RULE 6DD(F). AS THE PAYMENTS WERE MADE TO PRODUCERS OF RAW HIDE THE PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE. HE ALSO SUBMITTED THAT T HE SOURCE OF SUPPLY OF RAW HIDE IS IDENTICAL BEING FROM THE SELLERS WHO ALL THROUGH C ONTINUE TO DO AND PERFORM THE NECESSARY PROCESSING AND PRESERVATION OF THE RAW HI DE THAT THEY SELL TO THE LEATHER INDUSTRY OVER A RELATIVELY LONGER PERIOD. THE REVEN UE AUTHORITIES ALSO OMITTED TO APPRECIATE THAT ONLY BECAUSE OF CONTINUED AND CEASE LESS EFFORT OF PROCESSING AND PRESERVATION CARRIED OUT BY THE PROCESSORS THAT THE END LEATHER PRODUCT BECOMES A REALITY. IT IS NEEDLESS TO SAY THAT ANYTHING PERFORMED ON TH E RAW-SKIN ORIGINALLY PROCURED WOULD NOT RESULT IN ANYTHING TANGIBLE AT ALL FOR THE SIMP LE REASON THAT IN ITS VIRGIN STATE IT CANNOT BE USED IN THE INDUSTRY AS A RAW MATERIAL. T HESE VITAL DETERMINANTS WERE NEVER APPRECIATED NOR GIVEN EFFECT TO BEFORE DISMISSING T HE CLAIM AND APPEAL OF THE ASSESSEE. HE ALSO CONTENDED THAT IT IS A MATTER OF GREAT ASSU RANCE THAT IT WAS ONLY THE HONBLE TRIBUNAL WHICH TOOK UPON IT TO DELVE INTO THE CRUX OF THE ENTIRE ISSUE AND AFTER MAKING PROFOUND AND THREAD-BARE STUDY AND ANALYSIS APPREC IATED THAT IN ORDER TO BECOME RAW HIDE BEING THE RAW MATERIAL FIT FOR LEATHER INDUSTR Y THE RAW SKIN HAS GOT TO UNDERGO PROCESSING AND WITHOUT WHICH IT NEVER ASSUMES THE D ESIRED STATE. SUCH WELL- MERITED OBSERVATIONS AND THE CONDIGN VERDICT ARE DISCERNIBL E IN A NUMBER OF FOLLOWING JUDGMENTS WHICH THE LD. COUNSEL PLACED RELIANCE : I) CIT VS. CPL TANNERY (2008) 175 TAXMAN 316 (CAL ) II) ITA NO. 1377/KOL/2007 FOR AY 2003-04 IN THE CAS E OF M/S. CPL TANNERY VS-ACIT DATED 27.7.2007 III) ITA NO.88/KOL/2007 FOR AY 2003-04 M/S. YE FONG TANN ERY VS. ITO DATED 18.5.2007 IV) ITA NO. 153/KOL/2007 FOR AY 2003-04 M/S. DIAMOND TA NNERY & CO. VS. ITO DATED 14.9.2007 AND V) DCIT VS- ALLIED LEATHER FINISHERS PVT. LTD. ITA NO .58/LUC/.2009 DT. 17.4.2009. 3 HE ALSO CONTENDED THAT ALTHOUGH THE LD. CIT(A) HAS DISMISSED THE APPEAL BASED ON THE SPECIAL BENCH JUDGMENT ONE OF THE DIVISION BENCH J UDGMENT ( CPL TANNERY CASE BEARING ITA NO.1377/KO1/2007 E BENCH) HAVING BEEN ENDORSED AND UPHELD BY NONE ELSE THAN THE JURISDICTIONAL HIGH COURT AT KOLKATA SUCH JUDGMENT BY THE HONBLE CALCUTTA HIGH COURT TAKES PRECEDENCE IT IS HUMBLY SUBMITTED OVER THE SPECIAL BENCH JUDGMENT. IN OTHER WORDS THE DIVISION BENCH ITAT J UDGEMENT AS REFERRED TO ABOVE HAVING BEEN UPHELD BY THE HONBLE CALCUTTA HIGH COU RT (THE JURISDICTIONAL COURT) THE FACT OF PROCESSING BY THE SUPPLIER INEVITABLY AND I NDISPENSABLY IN RELATION TO THE RAW HIDE SO SUPPLIED BECOMES ABSOLUTELY AN IRREFUTABLE HARD FACT REQUIRING NO FURTHER PROOF OR ARGUMENT. HE ALSO CONTENDED THAT EVEN ON PERUSAL OF THE BILLS IT COULD KINDLY BE SEEN THAT ALL THE SUPPLIES BEING OF PROCESSED NATURE TH E FACT OF PROCESSING BY SUCH SELLERS (IRRESPECTIVE OF THEIR MARKET NOMENCLATURE) THEIR ELIGIBILITY AS PRODUCER CANNOT BE OVER- EMPHASIZED MORE SO WHEN THE SLAUGHTER HOUSES SELLI NG THE RAW SKIN DO NOT DO ANYTHING IN RELATION THERETO EXCEPTING SELLING IN ITS ORIGIN AL FORM. IT IS WORTH APPRECIATING THAT THE ITEM BEING RAWHIDE OBTAINABLE ONLY AFTER SOMETHING PERFORMED THEREON THE FACT OF PROCESSING BECOMES AKIN TO PRODUCTION MORE SO WHEN UNLIKE CROPS FRUITS AND OTHER VEGETATION RAW HIDES ARE INCAPABLE OF BEING PRODUC ED EXCEPTING BY WAY OF PROCESSING AS ELABORATED ABOVE. IT IS ALSO CONTENDED THAT IT I S EVIDENT THAT THE AO HAS MAINTAINED NO CONSISTENT STAND. OTHERWISE IN HIS ORDER U/S 143(3 ) FOR AY 2005-06 ON THE SAME LOGIC HE WOULD NOT HAVE ALLOWED U/S 40A(3) READ WITH RULE 6DD(F) EVIDENCING NO ADVERSITY. THE ADDITION MADE IN THE ASSESSMENT YEAR 2004-05 TH US STANDS OUT AS AN ACT OF ARBITRARINESS ERRONEOUS STAND DEVIATING FROM THE J UDICIAL PRONOUNCEMENTS RESULTING IN TOTAL REVERSAL AND CANCELLATION. IT IS THEREFORE P RAYED THAT THE UNLAWFUL ADDITION OF RS.13 21 114/- BE DIRECTED TO BE DELETED IN ITS ENT IRETY. 4. LD. DR ON THE OTHER HAND RELIED ON THE ORDER O F THE LOWER AUTHORITIES AND URGED BEFORE THE BENCH TO CONFIRM THE SAME. HE ALSO CONTE NDED THAT FROM THE BILLS FILED FROM THE PERSONS FROM WHOM SKIN AND HIDES WERE PURCHASED ARE BASED IN CALCUTTA HAVING THEIR SALES TAX REGISTRATION NO. ETC. THEREFORE IT CANNOT BE SAID THAT THEY ARE NOT HAVING THEIR BANK ACCOUNT AND THERE IS NO JUSTIFICATION FO R MAKING PAYMENT IN CASH. HE THEREFORE URGED BEFORE THE BENCH TO CONFIRM THE AC TION OF THE LOWER AUTHORITIES. 4 5. AFTER HEARING BOTH THE PARTIES PERUSING THE MAT ERIAL AVAILABLE ON RECORD AND THE CASE LAWS RELIED ON BY THE LD. COUNSEL FOR THE ASSE SSEE WE FIND THAT THE AO MADE THE DISALLOWANCE U/S. 40A(3) OF THE ACT AS THE ASSESSE E HAS MADE PAYMENTS EXCEEDING RS.20 000/- THROUGH BEARER CHEQUES TO SUPPLIERS OF RAW HIDE IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. HE ALSO S TATED THAT THE ASSESSEE COULD PRODUCE NO EVIDENCE BEFORE HIM TO SHOW THAT PAYMENTS WERE M ADE TO PRODUCERS. THE AO THEREFORE HELD THAT THERE WAS NO BUSINESS EXPEDIEN CY IN MAKING PAYMENTS THROUGH BEARER CHEQUES. ON APPEAL THE LD. CIT(A) HELD THA T THE ONUS IS ON THE ASSESSEE TO PRODUCE NECESSARY EVIDENCE TO SHOW THAT THE PAYMEN TS WERE MADE TO THE PRODUCERS.HE ALSO OBSERVED THAT THE LEGAL PRONOUNCEMENTS RELIED ON BY THE ASSESEE ARE DISTINGUISHABLE ON FACTS. IN THE PRESENT CASE THE ASSESSEE HAS FA ILED TO BRING ANY POSITIVE MATERIAL OR EVIDENCE ON RECORD TO SHOW THAT THE PAYMENTS WERE M ADE TO THE PRODUCERS DESPITE THE FACT THAT SUFFICIENT AND ADEQUATE OPPORTUNITY WAS G IVEN BY THE LOWER AUTHORITIES. WHILE IN THE CASES RELIED ON BY THE LD. COUNSEL THERE WA S NO DISPUTE THAT THE PAYMENTS WERE MADE TO THE PRODUCERS OF HIDE AND SKIN. THEREFORE THE RATIO AS LAID DOWN IN THOSE CASES IS NOT APPLICABLE TO THE FACTS OF THIS CASE. WE ALS O FIND THAT AFTER TAKING INTO CONSIDERATION THE RELEVANT CASE LAWS ON THE ISSUE T HE HONBLE SPECIAL BENCH OF KOLKATA ITAT IN THE CASE OF ITO VS- M/S. KENARAM SAHA & SU BHASH SAHA & ORS. REPORTED IN 116 ITD 1 (2009) HAS HELD AS UNDER : II. SECTION 40A(3) OF THE INCOME-TAX ACT 1961 RE AD WITH RULE 6DD OF THE INCOME-TAX RULES 1962 - BUSINESS DISALLOWANCE CASH PAYMENTS EXCEEDING PRESCRIBED LIMITS - ASSESSMENT YEA 2003-04 AND 2004-05 - ASSESSEE WAS A N INDIVIDUAL DERIVING INCOME FROM BUSINESS IN ELECTRONIC ITEMS ON WHOLESALE-CUM-RETAI L BASIS - DURING RELEVANT ASSESSMENT YEAR ASSESSEE MADE CASH PAYMENTS OF RS.1.09 CRORES - ASSESSING OFFICER APPLYING PROVISIONS OF SECTION 40A(3) DISALLOWED 20 PER CEN T OF CASH PAYMENTS - ON APPEAL COMMISSIONER (APPEALS) DELETED DISALLOWANCE - ON RE VENUES APPEAL IT WAS FOUND THAT COMMISSIONER (APPEALS) HAD DELETED DISALLOWANCE WIT HOUT GIVING ANY FINDING WITH REGARD TO ANY SPECIFIC CLAUSE OF RULE 6DD IN WHICH ASSESS EES CASE FELL - WHETHER ONCE THERE IS PAYMENT OF ANY EXPENDITURE IN VIOLATION OF SECTION 40A(3) ASSESSEE CAN ESCAPE DISALLOWANCE UNDER SAID SECTION ONLY IF HIS CASE FA LLS WITHIN AMBIT OF ANY OF CLAUSES OF RULE 6DD - HELD YES SINCE IN THIS CASE THE ASSESSEE FAILED TO POINT OU T THE EXEMPTION CLAUSE OF RULE 6DD UNDER WHICH THE ASSESSEES CASE DOES FALL WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THE APPEAL OF THE ASSESSEE IS THEREFORE DISMISSED. 5 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DI SMISSED. 7. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON _28 .5.10 SD/- SD/- (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28TH MAY 2010 COPY TO : 1. M/S. AH TIAM TANNERY 47 SOUTH TANGRA ROAD KOLKAT A-46 2. ITO WARD-33(4) KOLKATA. 3. CIT(A) KOLKATA. 4. CIT KOLKATA. 5. D.R. ITAT KOLKATA. TRUE COPY BY ORDER DEPUTY REGISTRAR JD.(SR.P.S.) I.T.AT. KOLKATA