High Court Of Karnataka
ITO & ANR. vs. K.N. Pramod
Section 40A(3), IT Rule 6DD
Asst. Year 2005-06
V.G. Sabhahit & S.N. Satyanarayana, JJ.
IT Appeal No. 5 of 2007
29th October, 2009
Counsel Appeared :
M.V. Seshachala, for the Appellants : Anant N. Bhat & N.P. Vivek Mehta, for the Respondent
JUDGMENT
V.G. Sabhahit, J. :
This appeal by the Revenue is filed being aggrieved by the order passed by the Asstt. CIT, Bangalore Bench, Bangalore, in ITA No. 1082/Bang/2005.
2. The assessee is a wholesale distributor of lottery tickets and was purchasing lottery tickets from Mysore Sales International Ltd. (MSIL). Lottery Division, Government of Karnataka organisation. The assessee had made total sales of lottery tickets to the tune of Rs. 1,02,26,070 and no profit was declared by the assessee from the said sales of Rs. 1,02,26,070. The AO found that the assessee had purchased lottery tickets from the Government organisation by making payments in cash exceeding Rs. 20,000 amounting to Rs. 45,93,810. The explanation of the assessee was called for and the assessee submitted that the payments were made to Mysore Sales International Ltd., a Government organisation and since the agents of MSIL were coming for collection of cash regarding the tickets purchased from MSIL, he was forced to pay the amount in cash. The AO being not satisfied with the explanation offered by the assessee in accordance with s. 40A(3) 20 per cent, of the total payment of Rs. 45,83,810 comprising payment each in respect of Rs. 20,000 was disallowed as excess and added to the total income of the assessee by order dt. 31st March, 2004. Being aggrieved by the said order passed by the AO, the assessee preferred an appeal before the CIT(A), Hubli, in ITA No. 117/CIT(A)/HBL/2004-05 and the appellate authority by order dt. 30th March, 2005, held that the lottery tickets were purchased by the assessee from Mysore Sales International Ltd. (MSIL) which does not accept bearer cheque and wherefore, necessarily payment has to be made by way of cash or demand draft. Accordingly, the said payments come within the purview of r. 6DD(b) of the IT Rules, 1962 (hereinafter referred to as “the Rules”), and wherefore the said amount paid to the Government company could not be added by the AO towards income and accordingly allowed the appeal by order dt. 30th March, 2005. Being aggrieved by the said order passed by the appellate authority, the Revenue preferred an appeal before the Tribunal and the Tribunal by order dt. 3rd Aug., 2006, confirmed the order passed by the appellate authority holding that Mysore Sales International Ltd. (Lottery Division) is a Karnataka Government company. The sale of lottery tickets has been vouched by the vouchers given by the assessee and the assessee has to make payment immediately as it is only on receipt of payment, lottery tickets will be given to the distributors. It was also explained that payment that has to be made depends upon the number of lottery tickets purchased and MSIL does not accept bearer cheques and wherefore, applying the provisions of r. 6DD(b) of the rules, the Tribunal confirmed the order passed by the appellate authority and being aggrieved by the said order dt. 3rd Aug.,
2006, passed by the Tribunal, the Revenue has preferred this appeal.
3. The appeal was admitted on 21st Feb., 2009, for considering the following substantial question of law :
“Whether the payment made in cash in excess of Rs. 20,000 contrary to s. 40A towards the purchase of lottery tickets from M/s Mysore Sales International Ltd. is entitled for exemption under r. 6DD(b) of the IT Rules, 1962 ?”
4. We have heard learned counsel appearing for the appellants and the learned counsel for the respondent. Learned counsel appearing for the appellants submitted that the finding of the Tribunal confirming the order of the appellate authority that the payment made to MSIL a Government company would not be covered under r.
6DD(b) of the IT Rules, 1962, and wherefore, the concurrent finding is perverse, arbitrary and baseless and the matter may be remitted for fresh consideration of the said question of fact.
5. The learned counsel for the respondent submitted that MSIL is a Government company and the agents of MSIL were coming to the office of the assessee for collecting the money even after office hours and, therefore, payment had to be made in cash and there is a concurrent finding that the payment is exempted under r. 6DD(b) of the IT Rules, 1962.
6. We have given our careful consideration to the contention of the learned counsel appearing for the parties and scrutinised the material on record. Having regard to the contentions urged, the substantial question of law raised on 21st Feb., 2009, is modified as follows : “Whether the finding of the Tribunal confirming the order of the appellate authority that the payment made to MSIL in cash is exempted under r. 6DD(b) of the IT Rules, 1962, is perverse and arbitrary and calls for interference in this appeal ?”
7. We answer the substantial question of law in favour of the Revenue and against the assessee for the following reasons :
8. The fact that payment in excess of Rs. 20,000 on various occasions have been made by the assessee in cash to the tune of Rs. 45,93,810 is not in dispute. However, the assessee claims exemption under r. 6DD(b) of the rules. It is clear on scrutiny of the order passed by the Tribunal and also the order passed by the appellate authority- CIT(A), Hubli, that both the authorities have proceeded on the basis that payment made to MSIL is payment to the Government in accordance with the rules framed and considered the question as to whether payment to a Government company or undertaking would amount to payment to the Government and would be exempted under r. 6DD(b) of the Rules. The reasoning of the Tribunal and the CIT(A) that MSIL does not accept bearer cheques and wherefore payment had to be made by cash or demand draft and that lottery tickets would not be given unless amount is paid is perverse and arbitrary as it is the very contention of the assessee that the agents of MSIL were coming for collection of money in respect of the lottery tickets purchased contrary to the explanation submitted. In that view of the matter, we do not wish to express any opinion on the question of fact since this Court cannot go into the question of fact under s. 260A of the Act and the fact finding authority, the CIT(A) and the Tribunal confirming the order of the CIT(A), Hubli, is perverse and arbitrary and wherefore the matter is required to be remitted to the CIT(A) for fresh disposal of the appeal in accordance with law. Accordingly, we pass the following order.
9. The appeal is allowed by answering the substantial question of law in favour of the Revenue. The order passed by the Tribunal, Bangalore Bench ‘A’ dt. 3rd Aug., 2006, confirming the order passed by the CIT(A) dt. 30th March, 2005 in ITA No. 117/CIT(A)/HBL/2004-05 is set aside and ITA No. 117/CIT(A)/HBL/2004-05 is restored to the file of the CIT(A), Hubli, with a direction to dispose of the appeal afresh in accordance with law.
[Citation : 328 ITR 669]
