S. .K. Agarwal Huf, Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 749/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

The I.T.O. cuke M/s S.K. Agarwal HUF, Prop. M/s Ward 5(1), Jaipur. Vs. S.S. Marketing, 126, Kanwar Nagar, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAGHS 5668 J vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph. fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal

lquokbZ dh rkjh[k@ Date of Hearing : 15/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

This is an appeal filed by the revenue against the order dated

20/06/2012 by the learned CIT(A)-II, Jaipur for A.Y. 2009-10. The Sole

ground of appeal is as under:

"On the facts and in the circumstances of the case and in law, the learned CIT(Appeals), Jaipur has erred in deleting the addition of 46,30,144/- made by the Assessing Officer U/s 40A(3) without appreciating the facts and circumstances of the case."

2 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

2. Brief facts of the case are that the assessee deals in the

wholesale trading of M/s Godfrey Phillips India Ltd. (for short GPI)

brands of cigarettes, tea and candy. In respect of book entries in

respect of incentives of Rs. 46,30,144/-, the Assessing Officer was of

the view that they amounted to cash payments in contravention of

provisions of Section 40A(3) of the Income Tax Act, 1961 (in short the

Act). Accordingly, the assessee was called on to show cause as to why

the corresponding disallowance should not be made.

2.1 The assessee replied that the disallowance is not called for

inasmuch as

(a) These are only book entries besides amounts have not

been claimed as expenditure to attract sec. 40A(3).

(b) Only debit notes were issued by GPI qua which credit notes

were received by the assessee, which are duly entered in the books of

account albeit through cash book.

(c) The assessee sales the cigarette cartoons to the sale

representatives of the GPI who distributed it to the various shop

keepers/dealers/Panwalas, qua which the incentives/promotional

schemes are declared by the GPI. Consequent to such distribution, the 3 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

details of the sales as incentives is provided to the assessee on the

basis whereof the relevant debit notes are raised by the assessee on

GPI, which are duly compensated by GPI by corresponding credit notes.

(d) The Assessing Officer took an adverse inference ignoring

the real nature of the transactions through debit and credit notes in

accordance with the distribution policy/incentives schemes declared by

the GPI. Merely because these entries were routed by the assessee

through its cash book, ld. Assessing Officer arbitrarily applied Section

40A(3) of the Act without appreciating the real nature of the book

entries. Thus Assessing Officer, wily nily made the above disallowance

holding the book entries to be cash payments in violation of Section

40A(3) of the Act.

3. Aggrieved, the assessee preferred first appeal before the learned

CIT(A), who had deleted the disallowance by following observations:-

"I have duly considered the submissions of the appellant. The only issue in the present case is whether amount of Rs.46,30,144/- debited to the account of GPI by the assessee which was incurred on promotional schemes of GPI and subsequently reimbursed by the GPI by way of credit note could be disallowed U/s 40A(3) or not. It is, however, noticed that the amount of Rs. 46,30,144/- was not paid to the GPI in cash as such. For example, the AO had alleged

4 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

that cash of Rs. 9,66,806/-was paid to M/s Godfrey Philips India Ltd. on 28.05.2008. However the AO had issued notice U/s 133(6) to M/s Godfrey Philips India Ltd. and copy of account of the assessee firm in their books of account was also obtained. It was clear on the perusal of said ledger account that the assessee had only issued debit note No. 46 dated 12.05.2008 which was received by them on 17.05.2008. Similarly the AO had alleged that cash of Rs 2,15,296/- was paid to M/s Godfrey Philips India Ltd. on 27.06.2008 however it was clear from the said ledger account submitted in response to notice U/s 133(6) that the assessee firm had only raised debit notes No. 3 &.4 dated 13.06.2008 and 14.06.2008 which were received by them on 25.06.2008. Thus the verification carried out by the AO itself showed that M/s Godfrey Philips India Ltd. had not shown any cash receipt from the assessee firm in their books of account. It is a fact on record that the assessee was a distributor of GPI. The GPI carried out various sales promotion activities through various retailers like Panwala Shops, Retails Shops, Kirana Shops etc. for display of its products by way of Hoardings, Glow Sign Boards, Display Counters, Brand shops etc. For inducing these shops keepers for displaying the products of the company, it provided them incentive of a particular value depending upon the location of the shops, periodicity of the display etc. This was distributed through the salesmen. The salesmen after distribution of the incentives provided the complete details containing the name 5 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

of the outlet, location, amount of incentive, date of incentive given and the signature of the recipient. On the basis of the information, a debit note was raised by the assessee firm on GPI which reimbursed such amount to the assessee by way of credit note. Though it was contended that the amount of incentive was paid by way of the free distribution of the cigarette packets but the same was not borne out from the documents/evidences filed by the assessee. I have also perused the payment/receivers list submitted by the counsel of appellant wherein it was merely mentioned that the incentives ranging from Rs 300/- to Rs 3500/- were paid to various retailers and nothing was mentioned that the cigarette packets were distributed. At the same time, however it is noticed by undersigned that the amount paid to various retailers/panwalas/shopkeepers was of various small amounts each being less than Rs. 20,000/-. These payments were made not to the GPI but to these small shopkeepers/retailers/panwalas through the sales persons. The GPI had not shown any receipt of the cash from the assessee. It had only issued the credit note in respect of the amount paid by the assessee on account of the GPI towards reimbursement. Even the AO in para 5 (iv) of his order had stated that GPI executed various sales promotion schemes for which it had to incur expenditure which were incurred through panwala/painters/petty sales persons who accepted the payments in cash only. The AO alleged that as per the instruction of the GPI, the cash was made available by the 6 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

assessee which was utilized by the sales persons of the company. Thereafter the assessee raised the debit note on the company which in turn issued credit note to the assessee. However, there was no evidence on record that cash was made available by the assessee to the sales person on instructions of the GPI. In fact from the record, it was evident that assessee, through the sales person, provided the incentives to shop keepers/panwalas/retailers etc. and on getting the complete details, it raised the debit note against which the company issued the credit note. Section 40A(3) applies when the payment or the aggregate of the payment made to a person in a day otherwise than by account payee cheque exceeds Rs.20,000l-. In this case, payment or the aggregate of the payments made to a person in a day did not exceed Rs.20,000/- as evident from the documents submitted by the appellant and that collected by the AO from the GPI. The GPI had also not shown any cash receipt from the assessee against the sales made to the assessee. Only because the entry was routed through the cash book, it could not be taken that cash was paid to the GPI ignoring the evidence of payment to the individual persons of less than Rs. 20,000/-. The Hon'ble Supreme Court in case of Attar Singh Gurmukh Singh Vs. ITO (199 ITR 667) has held that ITO should take a practical approach to the problem and strike a balance between the direction of the law and the hardship to the assessee. He should not enmesh himself in the technicalities. The object of section 7 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

404(3) was not to deprive the assessee of the deduction which he was otherwise entitled to claim. Moreover, the entries in the books of account were not conclusive for determining the nature of transactions. What was more relevant was the substance of the transactions. It was held by the Hon'ble Supreme Court in the case of Sutlez cotton Mills Ltd. vs CIT (116 ITR 001) that the way in which entries were made by an assessee in his books of account was not determinative of the question whether the assessee had earned any profit or suffered any loss. The assessee might, by making entries which were not in conformity with the proper principles of accountancy, conceal profit or show loss and the entries made by him could not, therefore, be regarded as conclusive one way or the other. What was necessary to be considered was the true nature of the transaction and whether in fact, it had resulted in profit or loss to the assessee. On the contrary, the AO had categorically mentioned in para (iii) on page 4 of the assessment order that none of the amount alleged to be paid in cash, was found entered in the cash book. If that was the case, the impugned disallowance U/s 40A(3) made by the AO had no basis. Under these circumstances, the disallowance made by the AO has no legs to stand and can't be sustained. I therefore direct the AO to delete the addition of Rs.46,30,144/-. This ground of appeal is allowed."

4. Aggrieved, the revenue is in appeal before us.

8 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

5. The learned Sr.D.R. vehemently supported the order of the

learned Assessing Officer.

6. The learned counsel for the assessee reiterated the facts,

submissions and contentions as filed in the written submissions and

furnished before the learned CIT(A). It is pleaded that merely because

some book entries are routed through the assessee's cash book the

learned Assessing Officer cannot ignore the real nature of the

transactions and arbitrarily hold them as cash payments. They are

neither cash payments nor claimed as expenditure by the assessee to

be held as violation of Section 40A(3) of the Act. The learned CIT(A)

has relied on the order of the Hon'ble Supreme Court Attar Singh

Gurmukh Singh Vs. ITO and Sutlez cotton Mills Ltd. vs CIT (supra) and

given the finding of facts that they are book entries and none of the

amount was paid in cash, therefore, provisions of Section 40A(3) of the

Act was not applicable.

7. We have heard the rival contentions of both the parties and

perused the material available on the record. The facts have been

narrated above. The fact that these were book entries based on credit

and debit notes have not been disputed. Similarly, the amounts

transacted were not claimed as expenditure and represented only 9 ITA 749/JP/2012_ ITO Vs. M/s S.K. Agarwal HUF

quantified amounts of incentives provided as per sales and distribution

policy of the GPI, they cannot be held as cash payments by any stretch

of imagination. These glaring facts could not be controverted by the

learned Sr.D.R. In view of the foregoing, we find no infirmity in the

order of the learned CIT(A), which are based on proper appreciation of

facts and law and are upheld.

8. In the result, revenue's appeal is dismissed.

Order pronounced in the open court on 13/02/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 13th February, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The ITO, Ward 5(1), Jaipur.

2. izR;FkhZ@ The Respondent-M/s S.K. Agarwal HUF, Jaipur.

3. vk;dj vk;qDr¼vihy½@The CIT(A)-II, Jaipur.

4. vk;dj vk;qDr@ CIT, Jaipur

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 749/JP/2012) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar