Basu Distributor Pvt Ltd v. Asst Commissioner of Income Tax

R.V.EASWAR, J FEBRUARY 06,2012 hs rrA56t20tl Page I ofl ? $-32,33 &,34 * IN TIIE TIIGH COURT OF DELHI AT NEW DEI.,HI Date of dectiiort d" Febrtnry, 2012 + ITA 48l20tl + tTA 49l20II + TTA 56/2011 BASU DISTRIBUTOR PVT LTD ..'.. Appellant Through: Mr. Kaanan KaPur, Adv. VETSUS ASST CoMMls'srorven oF INCOME TAX ..... Respondent Through: Mr. Abhishek Maratha, Sr. Standing Counsel. COR.AM: IION'ELE MR. JUSTICE SANJIV KHANNA I{ON'BLE MR. JUSTICE R.V"EASWAR. JUDGMENT SANJIV K[IANI'{A. J: (ORAL)

¶1Basu Distributors Pvt. Ltd. has filed the above noted three appeals against the common impugned order of the Income Tax Appellate Tribunal ('Tribunal', for short) dated 07.08.2009 disposing of ITA No.4262lDell2007, ITA No. 4263lDell2007 and ITA No.4264lDeIl2007 pertaining to assessment years Lgg2-g3,Igg3-g4 and 1 gg4-g5 respectively.

¶2After hearing counsel for both the parties, we hereby fiame the tT A 4812011, 49 lz0ll & 56/201 | Page I of9 Io substantial question of law, being common to the three appeals, as under: - "(i) Whether Income Tax Appellate Tribunal was right in holding that the payments above Rs.10,000/- each made in cash by the appellant assessee violated Section 40A (3) of the Income Tctx Act, l96l readwith Rule 6 DD (i) of the Inc.ome Tax Rules, 1962." 4,' The appellant-assessee is engaged in the business ol film distribution. During the three relevant assessment years, the appellant-assessee made payments in cash, the details of which are given as under: - DESCKIPTION OF CASH TRANSACTION FOR ASSESSMENT YEARS ]992-93, ]993-94 & ]994-95 INVOLVED IN TI]E APPEALS'' ASSESSMENT YEAR 1 99 2-9 3., I. Rs.50,000/- on 13.09.1991to A[/s. Honey Enterprises

¶2Rs.25,000/-on 20.11.1991 to A[/s. Honey Enterprisds i. Rs.22,500/-on 01.01.1992 to IWs. Honey Enterprises Total : Rs.97,500/-ASSESSMENT YEAR 1993-94: -

¶1Rs.50,000/- on 04.05.1992 to IWs. Honey Enterprtses

¶2fis.31000/- on 08.05.1992 to IWs. Honey Enterprises

¶3Rs.15,000/- on 11.05.1992 to IUI/s. Honey Enterprises

¶4Rs.20,000/- on 13.07.1992 to iVI/s. Bedi Assoctates

¶5Rs.13,000/- on 13.06.1992 to ItI/s. Film Jagat

¶6Rs.25,000/- on 02.09.1992 to IUI/s,. Chipu Pictures Total: Rs./,5& 000/- ? ASSESSMENT YEAR T994-95.. - IT A 4812011, 49/2017 & 5612011 P age 2 of 9 I. Rs.41,000/- on 08.04.1993 to MI/s. Bobby Art International

¶2Rs.12,500/-on 15.05.1993 to IWs. Film Jagat -

¶3Rs.15, 000/- on 22.05.1993 to IuI/q. Film Jagat

¶4Rs.30,000/- on 01.06.1993 to IWs. Film Jagat

¶5Rs.12,500/- on 22.05.1993 to fuI/s. MKD Film Enterprises

¶6Rs. I l,B3 l/- on 03.03. 1994 to iWs. Elcta Films

7.' Rs.38,000/-on 23.06.1993 to IrOs. Honey Enterprises} Total.' ,Rs. /, 60,83I/-

¶5The issue raised is whether the aforesaid cash payrnents made by the appellant-assessee violated provisions of Secrion 40A (3) of the Incorne Tax Act, 1961 ('Act', for short) read with Rule 6 DD (i) of the Income Tax Rules, 1962.

¶6It is an admitted position that the Circular No.220 dated 31.05.1997 was applicable to clause (f) of the said Rule, which reads as under: -"Clause 0 of rule 6 DD of the Inconte-tax Rules, !962, provides that no disallowance under section 40A(i) of the' Income-tax Act, 1961, shall be made where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft -

(a) due to exceptional or unavoida'ble circumstances; or

(b) because payment in the mqnner aforesaid was not practicable, or would have caused genuine dfficultlt to the payee, having regard to the nature of the transaction and the necessity fo, expeditious settlement thereof; and also furnishes evidence to the satisfaction of the rTA 4812011.49/20rr & s6t20rl Page 3 of9 rl f^ r\ I lz-Income-tax Officer as to the genuineness of the payment and the ideptity of the payee. tXXXX XXXX

¶4Alt the circumstances in which the conditions laid down in rule 6DD(j) 'vvould be applicable cannot be spelt out. However, sotne of them which would seem to meet the requirements of the said rule are:

(i) The purchaser ts new to the seller; or (i, The transacfions are made at a place where either the purchaser or the seller does not have a bank account; or ;. (ii, The transactions and payments are made on a bank holtday; or

(ir) The seller is refusing to atcc€pt the payment b1t way of crossed cheque/ draft and the purchaser's 2n';"^u:,,,;;':;"';""X:":i^"#:,f :;;:,,"i;; particular seller; or (") The seller, acting as a eommission agent, zs required to pay cash in turn to persons frorn whom he has purchased the goods; or ("i) Specific discount zs given by the seller for payment to be made by way of cash.

¶5It can be said that it would genbrally satisfy the requirements of rule 6DD 0, ,f o. letter to tlte above effect is produced ir1 respect of each transaction falling wtthin'the categories listed above.fro* the seller giving full parti.culars of hts address, sales tax number/ permanent account number, if any, for the purposes of proper identification to enable the ITA 48/2011,49/2071 & 561201I L3 Income-tax Officer to satisfy himself about the genuineness oJ' the transaction. The Income-tax Officer will, however, record his satbfaction before allowing the benefit of rule 6DD(i).

¶6It'ts further clarified that thb above circumstances are not exhaustive but illustrative. There could be cases other than those falling within the above categories whicl't wootld also meet the requirements of rule 6DD(j)."

¶7The Tribunal has rejected the explanation given by the appellant-assessee, inter alia holding that the said payments should have been made through account payee drafts and by depositing cash in the bank account in order to issue the drafts. The reasoning given by the Tribunal in the impugned order reads as under: "12. The general rule is that the explanation offered by the assessee should not be vegue, fantastic or fanciful. It must be an explanation acceptable to the fact finding authority. h must be supported w,ith cogent reliable and relevant evidence only then the explanation offered by the assessee could. be called genu.ine and bonafide. In the instant case in order to get out of the clutches of the provisions of Sub-Sec. 3 of 5.40 A, the assessee first time made the payments by crossed cheques. However, there zJ no explanation as to why sfficient annount was not available in the banlc account of the assessee which led to the bouncing of the cheques. Even { the cheques bounced as to what preventefl the assessee front tssuing crossed bank drafts in favour of ihe principal by depositing cash in the banlcfor making the banlc drafts in case the assessee actually and gerruinely wanted to create confidence in the principals for maintain good .business relation in future. Further, the assessee has not explained as to wherefrom it obtained the cashfor making the payments in lTA 4812011,49/2011 &. s6l20rr Page 5 of9 v t\ cash and whether it was its owtt cash:or it was an amount borrowed fro* someone. In case the hssessee had obtai,ned the amount as loan in cash for making payment to the' principals, thgn the assessee has again violated provisions oJ'

5.269 SS by obtaining loan in cash and not by account payee cheques or account payee bank draft

¶12From the facts explained hereinabove, it is evident tha't in" fact the assessee never. genuinely intended to make the ' payments inittally by crossed cheques/ drafts in compliance with the provisions of Sub-Sec. 3 of 5.40A read with Rule 6 ' DD and simply adopoted this route to get protectton utzder clause (j) of Rule 6DD of LT. Rules by ultimately succeeding' in.making the payments in cash to the principals, which appears to be the real intention of the assessee right ftom the beginning. From the facts narrated above, we conclude that the explanation offered by the assessee is fantastic a,nd ftnrrfuI btt does not appeal to reason in view of the circumstances, as detailed hereinabove, and, hence, the sanxe cannot be accepted being not bonafide and genuine and is accordtngllt rejected. For the reasons stated above the , consolidated order of CIf@), confirming the order of AO in , making the impugned addition under provisions of S. 40A(3) of I.T. Act, is upheld. The ground nos.l to 3 of the instant appeals of the assessee are rejected."

¶8There is no dispute in the present case regarding the identity of the payqe and genuineness of the transaction/ payment and the respondent-Revenue has not denied andl or contested the same. The respondent-Revenue, accepts the identity of the payee and genuineness of the transactionl payments. The contentions raised before us, pertain to rn'hether or not the appellant-assessee has been' rT A 4812011. 49 l20tt & s6l20lr a-able to establish 1!Ee exceptional or Page 6 of9 1) unavoidable circumstances why the payment made in as it was not practicable to make such payment by bank draft. cash or was justified a crossed checlue or I- '

¶9In the present case, the appellant assessee had filed before the Tribunal a copy of their bank account statements as well as ledger aocount of thg parties to whom the payment was required to be made. It is apparent that the appellant-assessee was not doing well in its business and was facing liquidity. and financial crunch. An examination of the bank account statement shows that whenever cash deposit was rnade in the bank accouut, it was immediately thereafter utilized to issue cheques torvarcls the expenditure. The explanation of the appellant-assessee was that payments were made in cash, as preparation of a bank instrutnent or issue of cheque would have resulted in a missed opportunity or failure of a favourable.or good business deal with the third parties. The provisions of Section 40A

(3) and Rule 6 DD fi) have been incorporated in the Act in order to check the incurring of bogus and fictitious expenses to non existing parties. In the present case, the appellant-assessee had furnished explanations on the basis of the bank statements as well as the ledger accounts of the payees to show that the appellant-assessee did not have sufficient cash balance. This rTA 48/201t.49l20rr & s612011 Page 7 of9 It I position is clear and cannot be doubted. The appellant-assessee had submitted that if they had failed to make cash.payments, they woulcl have breached terms of the agreements entered into with the third parties or would have missed out on the business opportunity. In cases of 'earlier bounced cheques and when a party is facing liquidity problem, it can get difficult as third parties are reluctant to accept cheques and insist on cash payments. Arranging funds is also a problem and not easy. It is submitted that the Assessing Officer did not doubt the funds and no addition on this ground and reason was made. The stand of the appellant was that the bash was made available since AzI/s. Ritz Theatres (P) Ltd. was holding the cash collection out of the hire charges. On the said aspect an order of rerr.it was passed by the tribunal and no addition or adverse observation was rnade by the Assessing Officer. These were relevant and material aspects which were required to be considered and examined by the tribunal but have been overlooked. I(eeping in view.the quantum of the total amount, we were initially inclined to remit the matter. However, looking at the averments made, the assessment years in question and explanation given, we refi'ain from issuing the said direction and accept the contention of the appellant. I 1. In view of the aforementioned, the answer to the above question is in rr A 48/201t, 49/201r & s6/2011 Page 8 of9 t1 rl negative and in favour of the appellant and against the Revenue. The appeal is allowed. No costs. i FEBRUARY 06,2012 hs rTA 4812011.49/20rr & s6l20rr -/l '/La , l/ L / lr SANJIV KTIANNA, J lr lI t V!1,a.-1 . R..V.EASWAR, J I bg^(@ Page 9 of9 ..- [--" o^1 sVhl,"@tur-4') Ju nt" 3l * a .i I + ,,, % $-29 to 31. *IN THE HIGH GOURT OF DELHI AT NEW DELHI ITA Nos. 4812011. 4912011 & 5612011 BASU DISTRIBUTOR PVT LTD ... Appellant Through Mr. Kaanan Kapur, Advocate. VETSUS ASST COMMISSIONER OF INCOME TAX. Respondent Through Nemo. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V.EASWAR ORDER

27.03.20',12 CM No. 572512012 in ITA No. 48/2011 GM No. 5723/2012 in ITA No. 49/2011 CM No. 572412012 in ITA No. 56/2011 By mistake, Private Secretary of one of us (R.V. Easwar, J.) had included the draft, uncorrected and unsigned version in the folder of the daily order sheets transmitted/sent to the website and had also senUtransmitted the correct and signed judgment to the judgment folder of the web site. The copying agency also by mistake did not down load and examine the judgment folder of the web site and issued certified copy on the basis of the down load available on the daily order sheet website. We have verified from the copying tt' agency and it transpires that the copy agency wi\ examining the original file had issued the certified copy. We clarify that the judgment in the judgment folder of the website is correct and the final judgment. lt is identical and same as the signed judgment. The draft uncorrected order available on the daily order sheet website should be blocked and cancelled. Counsel for the parties should be issued a fresh certified copy on the basis of the correct final judgment available in the judgment folder. The certified copy will be given and sent 't free of cost to the counsel for the parties along with this order. '-, The applications are disposed of. rr ' (-? ./, (-- L-ll

SANJIV KHANNA, J. tl tr IN-n-t.

R.V. EASWAR, J. MARCH 27,2012 vKR r,z \.'{

vo $-34 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: 6'h February, 2012 + TTA 56120IT BASU DISTRIBUTOR PVT LTD ..... Appellant Through: Mr. Kaanan Kapur, Adv. versus ASST COMMISSIONER OF INCOME TAX ..... Respondent Through: Mr. Abhishek Maratha, Sr. Standing Counsel. CORAM: HON'BLE MR. JUSTICE SANJIV KI{ANNA HON'BLE MR. JUSTICE R.V.EASWAR JT'DGMENT SANJIV KIIANNA. J: (ORAL) For orders see ITANo.48/20I1. _,1( -, SANJIV KTIAI\NA, J [1,"--*