M/s Raj Wines v. ITO, Ward-4(3), Thane
[Citation -2016-LL-0926-28]

Citation 2016-LL-0926-28
Appellant Name M/s Raj Wines
Respondent Name ITO, Ward-4(3), Thane
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 26/09/2016
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags condonation of delay • business expediency • crossed cheque • cash payment • bank draft
Bot Summary: Assessee s business model involves selling wines and alcoholic beverages across the counter and realize payment thereof in cash from the customer. The products in turn are purchased from wholesale vendors to whom payment is made invariably by cheque, but on rare occasions by cash. Out of these payments Rs.16,04.183 and Rs.12,25,790 were made in cash. To ensure regular supply of these high demand items, it is necessary that payments are made across the table to these parties and enable timely supply of stock of such items. Merely because entry in the books were shown in the next date, fact of payment having been made on Saturday and Sunday when the banks remain closed, cannot be denied. The Allahabad High Court in the case of CIT vs Raja Pal Automobiles 320 ITR 185, had held that in case the nature of business, which indicates that it cannot be done solely by crossed cheque or bank draft and the payment is proven from bills and cash memos, exceptional circumstances could be inferred, when it could be entertained under the Rules, where it is genuine and the payee is identified. Accordingly, where there is a genuine finding that the seller has insisted on cash payment and the payment is genuine; amount cannot be disallowed.


IN INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER . ITA No.6487 Mum 2014 ( Assessment Year :2010-2011 M s Raj W ines, C o Vs. ITO, Ward-4(3), thane, 6th Floor, P.N.Subramanian & co., Ashar IT Park, Road No.16-Z, th 703-704, 7 Floor, Wagle Industrial Estate, Thane- Commodity Exchange 400604 Bldg., Plot No.2,3&4, Sector-19, Vashi, Navi Mumbai-400705 . . PAN GIR No. : AAGFR 5657 L ( Appellant) .. ( Respondent) Assessee by : Shri Suresh Subramanian Revenue by : Shri Arvind Kumar Date of Hearing : 04 07 2016 Date of Pronouncement 26 09 2016 ORDER This is appeal filed by assessee against order of CIT(A)- Mumbai, for assessment year 2010-2011. 2. This appeal is barred by 5 days. Considering facts and circumstances of case and submission made by assessee in its application dated 4-12-2014, for condonation of delay, I condone delay of 5 days in filing present appeal in interest of substantial justice and appeal is heard on merit. 3. In this appeal assessee is aggrieved for disallowance made by AO u s.40A(3), which was confirmed by CIT(A). 4. Rival contentions have been heard and record perused. assessee is retail dealer in wines conducting his business in Virar for 2 ITA No.6487 14 over 2 decades. Assessee s business model involves selling wines and alcoholic beverages across counter and realize payment thereof in cash from customer. products in turn are purchased from wholesale vendors to whom payment is made invariably by cheque, but on rare occasions by cash. During previous year relevant to subject assessment year, assessee had made total purchases of Rs.4,30,87,568 -. Out of these purchases, amount of Rs.1,01,56,156 (23.57%) are purchases from M s Pinku Traders and amount of Rs.70,52,219 (16.36%) are purchases from M s Kalani Marketing. During year, assessee had paid amounts totalling to Rs.77,88,385 and Rs.78,15,295 to M s Pinku Traders and M s Kalani Marketing respectively. Out of these payments Rs.16,04.183 (20.59% - 11 payments out of 51 payments) and Rs.12,25,790 (15.68% - 2 payments out of 38 payments) were made in cash. AO disallowed payment by invoking provisions of Section 40A(3) r.w.rule 6DD. By impugned order CIT(A) confirmed action of AO. 5. I have considered rival contentions and found that payments in cash were necessitated due to business exigencies, to enable regular supplies from these vendors. peculiarities of business are such that certain brands are in greater demand as compared to others. To ensure regular supply of these high demand items, it is necessary that payments are made across table to these parties and enable timely supply of stock of such items. detailed submissions in respect of necessity to make these payments were explained to learned AO in 3 ITA No.6487 14 course of assessment proceedings and same have been reproduced by learned AO in his order. transactions entered into by assessee were also confirmed by vendors respectively, as also by their respective AOs in course of proceedings under section 133 (6) of Act. Therefore, bonafide nature of transaction is already established by account confirmations from respective parties. I also found that all these payments were made on Saturday and Sunday when banks were closed. Merely because entry in books were shown in next date, fact of payment having been made on Saturday and Sunday when banks remain closed, cannot be denied. Allahabad High Court in case of CIT vs Raja Pal Automobiles (2010) 320 ITR 185, had held that in case nature of business, which indicates that it cannot be done solely by crossed cheque or bank draft and payment is proven from bills and cash memos, exceptional circumstances could be inferred, when it could be entertained under Rules, where it is genuine and payee is identified. Various courts in case of err vs Chaudhary & Co (1996) 217 ITR 431 (All); George & Sons vs. ACIT (2006) 286 ITR 389 (Ker); Tarn Tarn Pedda Guruva Reddy vs JCIT (2007) 291 ITR 44 (Kar) have held that Section 40 (3) is not absolute in its terms. Accordingly, where there is genuine finding that seller has insisted on cash payment and payment is genuine; amount cannot be disallowed. Isn CIT vs Pravin & Co (2005) 274 ITR 534 (Guj), it was held that practicality of payment should be judged from view of businessmen and not Assessing Officer. Various courts in case of 4 ITA No.6487 14 Girdharilal Goenka vs ClT (1989) 179 ITR 122 (CaI); Venkata Subba Rao vs ClT (1988) 173 "ITR 340 (AP); CIT vs Dalip Chand & sons (2008) 3011TR 276 (HP); Harshila Chordia vs ITO (2008) 298 ITR 349 (Raj) have held that circumstances set out in Rule 6DD and Board Circulars are illustrative and not exhaustive and AO has to take into account surrounding circumstances and considerations of business expediency and facts of each particular case in exercising discretion either in favour or against assessee. 6. We also found that assessee has declared more than 10% of net profit of its gross turn over, therefore, there is no justification for coming to conclusion that by purchasing in cash, assessee has earned extra profit. 6. In view of peculiarity of business and genuineness of payments, as decided by various judicial authorities, additions of Rs.14,19,789 and Rs. 12,25,790 under Section 40A(3) of Act, is directed to be deleted. 7. In result, appeal of assessee is allowed. Order pronounced in open court on this 26 09 2016. Sd - (R.C.SHARMA) ACCOUNTANT MEMBER Mumbai; Dated 26 09 2016 . . pkm, . PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. ( ) CIT(A), Mumbai. 4. CIT 5. , , DR, ITAT, Mumbai 5 ITA No.6487 14 6. Guard file. True Copy BY ORDER, (Asstt. Registrar) , ITAT, Mumbai M/s Raj Wines v. ITO, Ward-4(3), Thane
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