Op/7697/2001 Of M/S.k.abu v. Income Tax Officer

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR MONDAY, THE 19TH NOVEMBER 2007 / 28TH KARTHIKA 1929 OP.No. 7697 of 2001(N) ---------------------- PETITIONER: ------------------- M/s.K.ABDU & CO.,GROCERY MERCHANTS,TALIPARAMBA REPRESENTED BYITS MANAGING PARTNERSHRI.K.ABDU. BY ADV. SRI.RAJESH NAMBIAR RESPONDENTS: ---------------------- 1.INCOME TAX OFFICER,WARD – 3, CANNANORE. 2.COMMISSIONER OF INCOME TAX,CALICUT. BY SRI.GEORGE K.GEORGE, SC FOR INCOME TAX. THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 19/11/2007, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ORDER ON CMP.No.12529 of 2001 OP.NO.7697 OF 2001-N. DISMISSED. 19.11.2007. Sd/- C.N.Ramachandran Nair, Judge. APPENDIX PETITIONER'S EXHIBITS:- P1:Copy of the intimation under Sec.143(i)(a) of the Income Tax Act for the Assessment year 1996-97.Act for the Assessment year 1996-97. P2:Copy of the notice under section 154/155 of the Income Tax Act, 1961 dtd.10.12.98.Act, 1961 dtd.10.12.98. P3:Copy of the order of the first respondent dtd.4.1.99 under Sec.154of the Income Tax Act.of the Income Tax Act. P4:Copy of the revision petition dtd.28.12.1999. P5:Copy of the letter dtd.17.1.2001. P6:Copy of the revisional order of the 2[nd] respondent dtd.18.1.2001. RESPONDENTS' EXHIBITS:-Nil. ( true copy ) P.S. TO JUDGE. kvs/- -------------------------------------------- -------------------------------------------- Dated this the 19th day of November, 2007 JUDGMENT C.R. Petitioner is challenging Ext.P6 order issued by theCommissioner of Income-tax under Section 264 of the Income-tax Actconfirming disallowance of addition made under Section 40A(3) forthe payments made in cash in excess of Rs. 10,000/-. During theprevious year, relevant to the assessment year 1996-97, petitioner madepayments of Rs. 19,05,964/- in cash against requirement of paymentthrough account payee cheque or DD which attracts addition of 20%under Section 40A(3) of the I.T. Act. Out of this amount, petitionerclaimed that an amount of Rs. 3,52,943/- and Rs. 4,74,971/- were paidby the petitioner to the bank account of the suppliers who suppliedgoods to the petitioner who is a grocery merchant. Even thoughinitially the claim was allowed by the assessing officer, he rectified itunder Section 154 and made addition under Section 40A(3) for thepayments made in cash in excess of Rs. 10,000/-. Against thispetitioner filed revision before the Commissioner, who rejected the same vide Ext.P6 order , which is under challenge in this O.P. 2. Heard counsel for the petitioner and standing counsel for the Income-tax Department. The claim put forward by the petitioner is thatpayments fall specifically within the exception clause, Rule 6DD(a) ofthe Income Tax Rules, 1962. For easy reference the said rule isextracted hereunder: 6DD. No disallowance under sub-section 3 of Section 40Ashall be made where any payment in a sum exceeding tenthousand rupees is made otherwise than by a crossedcheque drawn on a bank or by a crossed bank draft in thecases and circumstances specified hereunder, namely:- (a) where the payment is made to-- (i) the Reserve Bank of India or any bankingcompany as defined in clause (c) of section 5 of theBanking Regulation Act, 1949 (10of 1949); (ii) the State Bank of India or any subsidiary bank asdefined in section 2 of the State Bank of India(subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society as definedin clause (cii) of section 2 of the Reserve Bank ofIndia Act, 1934 (2 of 1934), or any primary creditsociety as defined in clause (civ) of that section; (v) the Life Insurance Corporation of Indiaestablished under section 3 of the Life InsuranceCorporation Act, 1948 (15 of 1948); (a) where the payment is made to-- (i) the Reserve Bank of India or any bankingcompany as defined in clause (c) of section 5 of theBanking Regulation Act, 1949 (10of 1949); (ii) the State Bank of India or any subsidiary bank asdefined in section 2 of the State Bank of India(subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society as definedin clause (cii) of section 2 of the Reserve Bank ofIndia Act, 1934 (2 of 1934), or any primary creditsociety as defined in clause (civ) of that section; (v) the Life Insurance Corporation of Indiaestablished under section 3 of the Life InsuranceCorporation Act, 1948 (15 of 1948); (vi) the Industrial Finance Corporation of Indiaestablished under Section 3 of the Industrial financeCorporation Act, 1948 (15 of 1948); (vii) the Industrial Credit and Investment Corporationof India Ltd. (viii) the Industrial Development Bank of Indiaestablished under Section 3 of the IndustrialDevelopment Bank of India Act, 1964 (18 of 1964); (ix) the Unit Trust of India established under section3 of the Unit Trust of India Act, 1963 (52 of 1963); (x) the Madras Industrial Investment CorporationLtd., Madras; (xi) the Andhra Pradesh Industrial DevelopmentCorporation Ltd., Hyderabad; (xii) the Kerala State Industrial DevelopmentCorporation Ltd., Trivandrum; (xiii) the State Industrial and Investment Corporationof Maharashtra Ltd., Bombay; (xiv) the Punjab State Industrial DevelopmentCorporation Ltd., Chandigarh; (xv) the National Industrial Development CorporationLtd., New Delhi; (xvi) the Mysore State Industrial Investment andDevelopment Corporation Ltd., Bangalore; (xvii) the Haryana State Industrial DevelopmentCorporation Ltd., Chandigarh; (xviii) any State Financial Corporation establishedunder Section 3 of the State Financial CorporationsAct, 1951 (63 of 1951); The contention of the petitioner is that payments were made to theaccount of the suppliers maintained with State Bank of Mysore andHassan District Co-op. Central Bank Ltd. Counsel for the petitionercontended that all these Banks come under clause (ii) of sub-rule (a) ofRule 6DD and therefore these two payments are eligible for exemptionfrom disallowance under Section 40A(3) of the Act. Counsel alsorelied on the decision of the Supreme Court in GURMUKH V. CIT,(1991) 2 K.L.T. 350 (SC) whereunder the Supreme Court has held thatpurpose of Section 40A(3) is to verify whether payments made aregenuine or not. Standing counsel for the Department on the other handcontended that petitioner is not entitled to the protection under Rule6DD(a) of the Rules because the payments made by the petitioner arenot to the institutions referred to therein. I am in agreement with the contention of counsel for the respondents because the protection underclause (a) of Rule 6DD is available only if the payments are made toany of the institutions referred to thereunder. Obviously in order toqualify for the benefit of Rule 6DD (a) the beneficiary of the payeeshould be an institution referred to therein. Even though counsel forthe petitioner contended that payments to any beneficiary in theaccount maintained in the Banks referred to in Rule 6DD(a) is alsocovered by the exception, I do not think the same can be acceptedbecause, some of the institutions referred to in the Rule, namely,Reserve Bank of India, State Financial Corporations, IndustrialDevelopment Corporation and other financial institutions are notengaged in banking operations. Therefore Rule 6DD (a) applies onlyfor payments to institutions referred to therein and not for paymentmade to any party's account maintained in the institutions referred totherein. In the circumstances, I reject the contention of the petitionerand uphold Ext.P6 order of the Commissioner of Income-taxconfirming the assessment revised under Section 154 of the Act. 3. The next contention raised by the petitioner is that cash 3. The next contention raised by the petitioner is that cash remittances in the account of the suppliers were made by entrusting thecash to the truck drivers and therefore the same is covered by clause (l)of Rule 6DD. This contention is seen not pressed before theCommissioner. In any case, the truck drivers who brought the goodscannot be treated as petitioner's agent who is required to make paymentin cash for the goods to the suppliers. In the circumstances, thiscontention is also rejected. O.P. is dismissed as devoid of any merit. (C.N. RAMACHANDRAN NAIR) Judge