Case Law Details

Case Name : Kamta Prasad Mittal Vs Dy. CIT (ITAT Lucknow)
Appeal Number : ITA No.145/LKW/2015
Date of Judgement/Order : 2010-11
Related Assessment Year :

Kamta Prasad Mittal Vs Dy. CIT (ITAT Lucknow)

It is an undisputed fact that a Demand Note was issued by BSNL requiring the assessee to make payments in cash and genuinity of the payments to BSNL was never doubted by the With regard to the observation of the ld. CIT(A) that BSNL is not a State within the meaning of Article 12 of the Constitution of India, we find that it is in the contrary as per various judicial pronouncements. The definition of State as enshrined in Article 12 includes local or other authorities within the territory of India or under the control of the Government of India. Therefore, it is clear that BSNL is a body which is an instrumentality of the agency of the Government and taking guidance from the order of the Pune Bench of the Tribunal in the case of Income Tax Officer, Ward 2(1), Pune vs. Smt. Sapna Sanjauy Raisoni (supra), we hold that BSNL is a State under Article 12 of the Constitution of India. The facts evolves and brings out that assessee was required by BSNL to make payments in cash which is evidenced from the Demand Note issued by BSNL which is placed on record. We have also gone through findings of the Chandigarh Bench of the Tribunal in the case of DCIT, Circle IV vs. Dhuri Wine (supra). In that case also genuineness of transaction is never doubted. In the present case also the payments made to BSNL were not doubted by the Revenue and it is proved that BSNL is a State within Article 12 of the Constitution of India and moreover as per Demand Note issued by BSNL, payments were made in cash for the business expediency of the assessee and as per requirement specified by BSNL. Under these circumstances, even if the assessee does not fall in any of the clause of Rule 6DD, invoking the provisions of section 40A(3) can be dispensed with.

FULL TEXT OF THE ITAT JUDGMENT

This appeal preferred by the assessee emanates from the order of the ld. CIT(A)-I, Lucknow dated 5/12/2014.

2. The sole issue raised in the grounds of appeal relates to the confirmation of addition of Rs.4,14,00,108/- under section 40A(3) of the Act.

3. The facts of the case in brief are that the assessee is engaged in the business of purchase and sale of SIM cards and recharge The return was e-filed on 14/10/2010 declaring total income at Rs.14,39,130/-. The assessment was completed on a total income of Rs.4,28,39,240/- after making addition of Rs.4,14,00,108/- under section 40A(3) of the Act.

4. Being aggrieved by the order of the Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Assessee filed detailed written submission before the ld. CIT(A) and it was contended that the object of enacting section 40A(3) is to check evasion of taxes and ensure that payments, in respect of which deductions are claimed by the taxpayers, are genuinely made and accommodation payments are not claimed by the taxpayers as deductions. The provisions of section 40A(3) of the Act are not absolute. It was further contended that consideration of business expediency and other relevant factors are not excluded. Genuine and bona-fide transactions are taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulties to the payer. It was argued that the payments to statutory bodies do not attract the provisions of section 40A(3) of the Act. The payments were made in cash as per the demand of BSNL. The payments are covered by exceptional circumstances provided under rule 6DD(b) of the Rules.

5. The crux of the arguments of the assessee before the ld. CIT(A) was that the payments were made in cash as required by BSNL and that BSNL is a Government company and the genuineness of payments are not doubted. The payments were made in cash in view of the business expediency. The ld. CIT(A) after considering the submissions of the assessee and the order of the Assessing Officer, upheld the addition made by the Assessing Officer under section 40A(3) of the Act as per the reasons appearing in his order.

6. Being further aggrieved, the assessee is in appeal before the Tribunal. At the time of hearing, the ld. A.R. of the assessee brought to our notice the Demand Note iss ued by BSNL, which is placed at page 13 of the paper book and submitted that as per the Demand Note assessee was required to make payment in cash and the genuineness of the payment to BSNL is not doubted by the Department. The ld. A.R. of the assessee further contended that as per Article 12 of the Constitution of India, definition of State includes local or other authorities within the territory of India or under the control of the Government of India. To elaborate this, the ld. A.R. of the assessee drew our attention to page 2 of the paper book , which is the copy of ‘STATE’ FOR PURPOSES OF FUNDAMENTAL RIGHTS, Chapter II, wherein regarding BSNL it is clearly stated that BSNL is a State within the meaning of Article 12 of the Constitution of India, since a ll the assets of the Department of Telecommunication along with liabilities were transferred to BSNL and all the employees except group A and B were absorbed in the BSNL. The remaining employees are on deputation without deputation allowance. So, for the practical purpose BSNL is a State as per Article 12 of the Constitution of India.

7. The ld. A.R. of the assessee also placed reliance upon the order of the Pune Bench of the Tribunal in the case of Income Tax Officer, Ward 2(1), Pune vs. Smt. Sapna Sanjauy Raisoni ini ITA No.1267 to 1269/Pune/2014, order dated 29/2/2016 with the submission that BSNL is a State as per Article 12 of the Constitution of India. In that order , it was observed that the expression “other authorities” used in Article 12 is neither defined in the Constitution of India nor in any other statute. The Courts have interpreted in various judgments the expression “other authorities” and after applying the cumulative effect of all the relevant factors, if the body is found to be an instrumentality of the agency of the Government, it would be an authority included in term “State” under Article 12 of the Constitution of India.

8. The ld. A.R. of the assessee also placed reliance upon the order of the Chandigarh Bench of the Tribunal in the case of DCIT, Circle IV vs. Dhuri Wine in ITA No.1155/Chd/2013, order dated 9/10/2015 wherein the question was even if the case of the assessee does not fall in any of the clauses of rule 6DD of the rules, invoking the provisions of section 40A(3) of the Act, can be dispensed with if the assessee is able to prove the business expediency because of which it had to make cash payments and genuineness of the transactions have to be verified. In that case the Tribunal while allowing the appeal of the assessee held that detailed submissions along with corroborative evidences proved that the expenses incurred in cash were genuine which were paid through the Excise Department and there were practical expediency because of which the payments have to be made in cash. These facts were not controverted by the Assessing Officer or by the ld. CIT(A). The assessee under business expediency had to make payments in cash. Further, not a single transaction had been questioned at any stage. The ld. CIT(A) in this case held that it was sufficient for the assessee to establish that the payments were genuine and the parties were identifiable. He was also of the view that the assessee was further required to prove that due to exceptional and unavoidable circumstances, payments were made in cash. Therefore, it was not the case of the Department that the payments made in cash were not genuine. The reasons given by the assessee at every stage has not been disbelieved. Since these reasons were correct, disallowance under section 40A(3) of the Act was not warranted. The ld. A.R. of the assessee submitted that the case of the assessee is squarely covered by the aforesaid orders of the Tribunal and, therefore, the addition made by the Assessing Officer and confirmed by the ld. CIT(A) under section 40A(3) of the Act may be deleted.

9. The ld. D.R., on the other hand, relied upon the orders of the authorities below.

10. We have perused the case records, heard the rival contentions, analysed the facts and circumstances and considered the judicial decisions placed before us. It is an undisputed fact that a Demand Note was issued by BSNL requiring the assessee to make payments in cash and genuinity of the payments to BSNL was never doubted by the With regard to the observation of the ld. CIT(A) that BSNL is not a State within the meaning of Article 12 of the Constitution of India, we find that it is in the contrary as per various judicial pronouncements. The definition of State as enshrined in Article 12 includes local or other authorities within the territory of India or under the control of the Government of India. Therefore, it is clear that BSNL is a body which is an instrumentality of the agency of the Government and taking guidance from the order of the Pune Bench of the Tribunal in the case of Income Tax Officer, Ward 2(1), Pune vs. Smt. Sapna Sanjauy Raisoni (supra), we hold that BSNL is a State under Article 12 of the Constitution of India. The facts evolves and brings out that assessee was required by BSNL to make payments in cash which is evidenced from the Demand Note issued by BSNL which is placed on record. We have also gone through findings of the Chandigarh Bench of the Tribunal in the case of DCIT, Circle IV vs. Dhuri Wine (supra). In that case also genuineness of transaction is never doubted. In the present case also the payments made to BSNL were not doubted by the Revenue and it is proved that BSNL is a State within Article 12 of the Constitution of India and moreover as per Demand Note issued by BSNL, payments were made in cash for the business expediency of the assessee and as per requirement specified by BSNL. Under these circumstances, even if the assessee does not fall in any of the clause of Rule 6DD, invoking the provisions of section 40A(3) can be dispen sed with. In view of the above discussion, we set aside the order of the ld. CIT(A) and delete the addition made under section 40A(3) of the Act.

11. In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 21/02/2018.

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