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C.I.T. v. M/S M.R. Soap - INCOME TAX REFERENCE No. 238 of 1991  RD-AH 696 (10 March 2005)
Income Tax Reference No. 238 of 1991
Commissioner of Income Tax, Meerut vs. M/s MR.Soap (P) Ltd. Modinagar.
Hon'ble R.K.Agrawal, J.
Hon'ble K.N.Ojha, J.
The Income Tax Appellate Tribunal, Delhi has referred the following question of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:-
" Whether on the facts and in the circumstances of the case, the I.T.A.T. was right to delete the addition made u/s 40-A(3) amounting to Rs. 4,99,175/- holding that there existed no violation of the provisions of Section 40A(3) of the I.T.Act,1961 and the payment were covered by Rule 6-DD of I.T.Rules, 1962?"
The present Reference relates to the Assessment Years 1985-86.
Briefly stated the facts giving rise to the present Reference are as follows:
The respondent-assessee is a Private Limited Company which is engaged in the manufacture and sale of soap. For the assessment year in question the I.A.C. (Assessment) has made the following disallowance under Section 40A(3) of the Act:
(i) M/s Hindustan Lever Ltd.,Ghaziabad Rs. 8,000/-
(ii)M/s Kipton India Ltd.,Ghaziabad Rs. 8,000/-
(iii)M/s Ganesh Flour Mills Ltd. Delhi Rs.3,69,985/-
(iv) M/s Hindustan Veg.OilCorpn.Ltd.Delhi Rs. 23,478/-
(v)M/s Modi Vanaspati Mfg.Co.Modinagar Rs. 62,000/-
(vi)M/s Ganesh Flour Mills Co.Ltd.Gurgaon. Rs. 23,712/-
(vii) M/s Adarsh Chemical & Soap Ind.Ghaziabad Rs. 4,000/-
Feeling aggrieved the respondent preferred an appeal before the Commissioner of Income Tax (Appeals) who had affirmed the disallowance. Still feeling aggrieved the respondent preferred second appeal before the Tribunal who has deleted the additions on the following findings:
"4. We have heard the learned representatives on both the sides and have also gone through the papers on the record. So far as the first item is concerned, it appears from the copy of account of M/s Hindustan Lever Ltd., Ghaziabad (copy at P.15) of the assessee's paper book) that the amount of Rs.8,000/- consisted of four items of Rs. 2,000/- each. Therefore, since there were four separate transactions on four different dates, each less than Rs. 2,500/-, the provisions of sec. 40A(3) could not be attracted. Moreover item 7 of the disposal contract dated 23.3.1984 contemplated that the delivery of goods would be given to the assessee after it had deposited the value of goods on a particular date. This would show insistence on cash payment. So far as the second item of Rs. 8,000/- for M/s Lipton India Ltd., Ghaziabad is concerned, it was explained that it was not maintaining any bank account in Modinagar and the assessee company was not maintaining any bank account at Ghaziabad. (Copies of the account and debit note etc. at PP.20 to 24 of the Paper Book showed the time of renewal and the banking hours). This is clear from Paper Nos. 22 to 24. Since the material was lifted late the assessee had also given an affidavit of Principal Officer before the IAC (Asstt.) as mentioned in its written reply before the IAC (Asstt.). Therefore, it satisfied the requirement of Rule 6DD(j) read with the Board's Circular No. 220 dated 31.5.1977. Therefore, this disallowance was also not justified. The third item was of Rs. 3,69,985/- relating to M/s Ganesh Flour Mills Ltd., Delhi. So far as this item is concerned, we find that for the Asstt. Year 1984-85 when the matter gone up to the Appellate Tribunal, the Appellate Tribunal vide its order dated 8.9.1988 in ITA No. 6435/Del/87 had considered the disallowance of a similar amount of Rs. 1,91,104/- paid to M/s Ganesh Flour Mills Co. Ltd. and the Appellate Tribunal relying upon the decision of the Rajasthan High Court in the case of Kanti Lal Purshottam & Co. vs. CIT (1985) 155 ITR 519 noticed that M/s Ganesh Flour Mills was a Government Company who had insisted on cash payment. A certificate had been filed by M/s Hindustan Vegetable Oil Corpn. Ltd., a Government of India Undertaking which had taken over the company formerly known as Ganesh Flour Mills and it showed that payment in cash/bank draft was a condition of a contract with the assessee. Therefore, the disallowance was deleted.
We find that the position is the same for the assessment year in question. The copy of the same certificate has been filed and the terms of payment mentioned in item 6 of the letter dated January 2, 1984 of M/s Ganesh Flour Mills Co. was also the same namely, payment should be made in advance by cash/demand draft. The assessee firm was not having any bank account at Delhi and the supplier company was not having any bank account at Modinagar. This being the factual position, there was no justification on facts for disallowance under sec.40A (3). The next item is Rs. 23,478/- in favour of M/s. Hindustan Vegetable Oil Corpn. Ltd., Delhi. The assessee filed the copy of statement of the account of this party. This is the Government of India Undertaking which has taken over Ganesh Flour Mills. The position in their regard is the same as in the case of Ganesh Flour Mills and the disallowance here also requires to be similarly deleted. The next amount of Rs. 62,000/- pertaining to M/s Modi Vanaspati Mfg. Co., Modinagar. This amount had been paid against their bills dated 28.12.1984 for material worth Rs. 72,498/- lifted on 24.12.1984. The material had been lifted after banking hours which is clear from the copy of Excise Gate-Pass at P.10. It is understandable that after loading the material in the vehicle the assessee would not be expected to make payment by draft or crossed cheque notice the banking hours were over. In this connection, it is also material to note that the next day i.e. 25.12.84 was a banking holiday. The assessee had filed the confirmation from M/s Modi Vanaspati Mfg. Co. indicating that the purchase had been made in cash. The assessee had also explained that the intimation for lifting the material from M/s Modi Vanaspati Mfg. Co. was received so late by the assessee that it had no time to arrange for funds and deposit the same in the bank account. An affidavit had also been filed by the Principal Officer as mentioned in the written submissions filed by the assessee before the IAC (Asstt.). Therefore, this item also could not be disallowed under sec. 40A(3). The next item relates to an amount of Rs. 23,712/- pertaining to M/s Ganesh Flour Mills, Gurgaon. Apart from its being a nationalized company, the case of the assessee was that it had dealt with this party at Gurgaon for the first time and therefore, the buyers and sellers were new to each other. Besides the assessee company was not maintaining any account at Gurgaon nor the supplier company was maintaining any account in Modinagar. It had also stated that it is only for the first transaction that cash payment exceeding Rs. 2,500/- was made and later on other small payments were made in cash or the amounts were paid through Bank Draft. Therefore, no disallowance was warranted here. The last amount is Rs. 4,000/- in the name of M/s. Adarsh Chemicals & Soap Industries, Ghaziabad. So far as this item is concerned, the assessee had explained that it had not purchased any material from M/s Adarsh Chemical & Soap Industries and that cash payment had been made to M/s Modi Vanaspati Mfg. Co. on behalf of M/s Adarsh Chemical & Soap Industries. Since these facts are not disputed, sec. 40A(3) could not be attracted. The result is that the disallowances made under sec. 40A(3) are all deleted."
We have heard Sri Shambhoo Chopra, learned standing counsel for the Revenue. Sri M.Mangalik has filed his appearance on behalf of the respondent-assessee. We have also perused the order of the Tribunal and find that the Tribunal has given cogent reasons for holding that the payments are covered by Rule 6-DD of the Income Tax Rules, 1962 as there was exceptional circumstances for making payment in cash. The said finding has been arrived at after appreciating the evidence and materials on record. In this view of the matter we do not find any legal infirmity in the order of the Tribunal.
We, accordingly, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.
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