ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, GUWAHATI, INCOME TAX DEPARTMENT V. JAI KARNI TRADING PRIVATE LIMITED, GUWAHATI

ITA 210/GTY/2024

AI Insights

The case involves an appeal by the Revenue against Jai Karni Trading Private Limited concerning the disallowance of Rs. 9,00,86,500, which was initially added to the income of the assessee under Section 40A(3) of the Income Tax Act for cash purchases exceeding Rs. 20,000. The assessee argued that these were cash withdrawals used for purchasing agricultural products directly from farmers, which are exempt under Rule 6DD. The CIT(A) accepted the assessee's arguments, leading to the deletion of the addition, which the Revenue contested in the Tribunal. The Tribunal upheld the CIT(A)'s decision, noting the consistency of the assessee's business activities over the years and the lack of any violation of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772769 (ITAT-GUWAHATI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2017-2018
• Other Referred Cases: PCIT Vs Keerthi Agro Mills (P) Ltd (2018) 257 Taxmann 1 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAUSIK RAY
• Assessee Lawyers: SIDHARTH AGARWAL
• Keywords: Business income; Source of fund; Reason to believe
• Section: 147; 148; 143(3); 40A(3); 133A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘GUWAHATI’ BENCH, GUWAHATI’ BEFORE SHRI RAJESH KUMAR, AM AND SHRI MANOMOHAN DAS, JM ITA No.210/GTY/2024 (Assessment Year:2017-18) ACIT, Central Circle-2, Aaykar Bhavan, Christian Basti, G.S. Road, Guwahati-781005 Assam Vs. Jai Karni Trading Private Limited 507, Siddarth Hotel Building, HB Road, Fancy Bazar, Guwahati-781001, Assam (Appellant) (Respondent) PAN No. AABCJ7305H Assessee by : Shri Sidharth Agarwal, AR Revenue by : Shri Kausik Ray, DR Date of hearing: 22.07.2025 Date of pronouncement: 26.08.2025 O R D E R Per Rajesh Kumar, AM: This appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Guwahati (hereinafter referred to as the “Ld. CIT(A)”] dated 14.08.2024 for the A.Y. 2017- 18. 02. The only common issue raised by the Revenue is against the deletion of disallowance of ₹9,00,86,500/- as made by the ld. AO in respect of cash purchase out of withdrawals by ignoring the fact that the assessee failed to furnish even the evidences qua the said purchases and also the fact that the payments were made in violation of Section 40A(3) of the Act and the ld. CIT (A) further adding and holding that the Rule 6DD of the Act was applicable to the said purchase as the individual purchase exceeds ₹20,000/-. Printed from counselvise.com Page | 2 ITA No. 210/GTY/2024 Jai Karni Trading Private Limited; A.Y. 2017-18 03. The facts in brief are that the assessee filed the return of income on 15-11-2017, declaring total income at ₹ 47,56,440/-. The case of the assessee was reopened under Section 147 of the Income-tax Act, 1961 (the Act) after recording reasons under Section 148(2) of the Act that assessee has made huge withdrawals from the bank accounts maintained with IndusInd Bank and Axis Bank and that considering the said facts in the report/ dissemination notes from the DDIT (Inv) Unit-1(2), Guwahati through insight portal. The AO noted that in his opinion the deposits in bank accounts of the assessee against the above cash withdrawals were not explained and therefore, he has the reason to believe that the incomes were chargeable to tax has escaped assessment and accordingly, the notice u/s 148 of the Act was issued on 31st March 2021, which was complied with by the assessee by filing return of income on 21.04.2021 declaring income of ₹47,56,440/-. Thereafter, statutory notices along with questionnaire were issued and duly served upon the assessee. The assessee duly complied with the said notices via E-mail dated 27-01-2022 and 01- 02-2022 by making e-submissions. The ld. AO on perusal of e-mail has observed that assessee incurred expenditure in cash exceeding of ₹20,000 on various occasions totaling to ₹9,00,86,500/-, which comprises of three amounts i.e. ₹2,25,00,000 + ₹4,03,00,000 +₹2,72,86,500 in contravention of Section 40A(3) of the Act and the said expenditure was not allowable in terms of said provisions. Thereafter, the ld. AO issued show cause notice on 29-03-2022 along with the Draft Assessment Order, which was replied by the assessee via e-mail dated 30-03-2022, requesting for a personal hearing, which was accordingly granted and held on 31.03.2022. The ld. AO stated that the assessee has not furnished any evidences and only submitted that the bank withdrawals were genuine. The ld. AO finally held that the assessee had been following a Mercantile System of Accounting and therefore, question did not arise as to the withdrawals from the Printed from counselvise.com Page | 3 ITA No. 210/GTY/2024 Jai Karni Trading Private Limited; A.Y. 2017-18 banks being genuine or not and hence, section 40A(3) was clearly applicable. Finally The added the same to the income of the assessee in the assessment framed u/s 147 read with section 143(3) of the Act dated 31.03.2022. 04. In the appellate proceedings, the ld. CIT (A) allowed the appeal of the assessee after taking into consideration the submissions and contentions of the assessee by observing and holding as under: - “6.3.1. In these grounds, the Appellant contended that the AO erred in making disallowance u/s 40A(3) of Rs. 9,00,86,500/- in contravention of Rule 6DD. It has also been averred that impugned amount formed part of cash withdrawals and not cash expenses as stated in the assessment order. 6.3.2. In the assessment order, the AO mentioned that the Appellant had bank accounts in IndusInd Bank (A/c no. 257086015138) & Axis Bank (A/c No. 916020080432801) and further stated that there were cash withdrawals amounting to Rs. 2,25,00,000/-, Rs. 4,03,00,000/- & Rs. 2,72,86,500/- during the year under consideration. The exact amount of withdrawal from each account was not specified. The AO inferred that income has escaped assessment to the extent of the above-mentioned amounts. The Appellant duly produced all the details before the AO. The AO perused the submissions and observed that cash expenditure was incurred exceeding Rs. 20,000/- on various occasions in contravention to provisions of Section 40A(3) of the IT Act. The entire amount of cash withdrawals amounting to about Rs. 9 cr as reflected in the notice u/s 148 was interpreted to be cash expenditure. Accordingly, the AO issued Showcause Notice & draft assessment order with proposed addition of the impugned amount. The Appellant filed a submission and also attended a Video Conference with AO to produce all evidences in support of the claim of genuineness of withdrawals from bank accounts. The AO rejected the Appellant’s submission and proceeded to make disallowance of Rs. 9,00,86,500/- as per the provisions of Section 40A(3) of the Act. 6.3.3. During the appellate proceedings, the Appellant furnished detailed submissions vide letters dated 27/02/2023 & 08/08/2024. The Appellant stated that the cash withdrawals from the impugned bank accounts amounted to Rs. 14,07,94,790/- (Rs. 10,45,54,528/- from IndusInd Bank & Rs. 3,62,40,262/- from Axis Bank), which is higher than the amount mentioned in the assessment order. The Appellant furnished proof of submission of Cashbook to the AO during the assessment proceedings but the assessment order makes no mention of the findings of the same. Further, the Appellant furnished a copy of Cashbook inthis office. On perusal of the same, it is found that there is no payment in cash exceeding Rs. 20,000/- to any person in a day. So, there is no question of violation of provisions of Section 40A(3) of the Act. 6.3.4. Further, Rule 6DD lists out exceptions to Section 40A(3) wherein it is stated that cash payments made to cultivators of agricultural / forest produce are exempt from the limit of Rs. 20,000/-. The Appellant is a trader of betel Printed from counselvise.com Page | 4 ITA No. 210/GTY/2024 Jai Karni Trading Private Limited; A.Y. 2017-18 nuts which is an agricultural product and covered by the above-mentioned exceptions in Rule 6DD. In the case of PCIT Vs Keerthi Agro Mills (P) Ltd (2018) 257 Taxmann 1 (SC), the Hon’ble Supreme Court held that cash payments exceeding Rs. 20,000/- made for purchasing agricultural produce from farmers was saved by Rule 6DD and no disallowance could be made U/s 40A(3) of the IT Act. 6.3.5. The Appellant stated that it operates seven bank accounts and furnished the details of the deposits in those accounts. There have been deposits amounting to Rs. 3,73,00,000/- in Axis Bank and Rs. 12,32,44,410/- in IndusInd Bank. The sources of the said deposits were from the other five bank accounts of the Appellant itself. The Appellant also submitted party-wise details of deposits made in the five bank accounts. The ledger extracts of the parties from whom deposits were received were also furnished. Thus, source of source of the impugned amounts have also been clearly explained. The Appellant mentioned that all these details were explained to the AO during the Video Conference held at the time of the assessment proceedings. There is merit in the argument of the Appellant that its claims regarding cash deposits & cash withdrawals have been substantiated with sufficient explanation and documentary proof. 6.3.6. It is pertinent to note that the Appellant has been declaring business income in respect of trading activity of the same products for many years – both before & after the year under consideration. The Appellant furnished the summary of financials for the years from AY 2014-15 to AY 2018-19. It is observed that Gross Profit ratio & Net Profit ratio were similar over the years. The nature of business remained the same and the patterns of bank deposits & cash withdrawals were also similar all through the years. Assessment u/s 143(3) was completed for AY 2014-15, 2015-16 & 2018-19 but there was no addition on account of cash expenditure. Further, Survey action u/s 133A was conducted in the Appellant’s case and assessment for the concerned year (AY 2018-19) was completed without any addition. It is clear that the year under consideration was just another year of normal business activity for the Appellant. 6.3.7. In view of the above, it is clear that the AO was not justified in making addition u/s 40A(3) of the Act. There was no cash expenditure above the prescribed monetary limit. The cash withdrawals were part of the routine business transactions made without contravention of any provisions of the Act with regards to the regular business activities of the Appellant. There was no basis for the impugned addition made by the AO/ NFAC and the appellant deserves relief for the entire amount. Thus, the addition u/s 40A(3) of the IT Act, amounting to Rs. 9,00,86,500/- made in the assessment order is hereby deleted. Ground Nos. 5, 6, 7 & 8 are allowed accordingly.” 05. The Learned DR vehemently submitted before us that the assessee did not file the details before the Learned AO as to how the withdrawals were utilized by the assessee and hence, the ld. AO invoked the provisions of Section 40A(3) of the Act and disallowed these expenses to be incurred being exceeding ₹20,000/-. Printed from counselvise.com Page | 5 ITA No. 210/GTY/2024 Jai Karni Trading Private Limited; A.Y. 2017-18 06. The ld. DR stated that the ld. CIT (A) accepted the evidences in violation of provision of rule 46A of the Act without confronting the ld. AO the same and therefore the order passed by the learner CIT (A) deleting the addition is suffering from the vice of being passed without offering a reasonable opportunity of hearing to the Learned AO and therefore the appeal may kindly be restored to the file of the Learned AO. 07. Per contra, the ld. Counsel for the assessee drew the attention of the bench to the e-proceedings acknowledgement and submitted that all these evidences were filed before the Learned AO. He submitted that the assessee is engaged in the business of betel nuts (supari) in Assam and used to make the purchase of agricultural products from the agriculturalists directly. The ld. AR submitted that the ld. AO has treated the entire withdrawals from the banks utilized for making purchases in violation of provisions of Section 40A(3) of the Act. The AR submitted that none of the purchases were made, exceeding ₹20,000, from the individual cultivator / agriculturist. The learned AR also submitted that the said section is not applicable in case of purchase of agricultural products as covered by the above-mentioned exceptions in Rule 6DD of the Income Tax Rules 1962. The ld. AR submitted that the assessee has been engaged in the said business even prior to and subsequent to the instant assessment year and in all the assessment years the withdrawal made by the assessee for making similar type of purchases were accepted by the department and even finding of fact has been recorded by the learned CIT (A) to this effect in the appellate order. The ld. AR also referred to page number 24 and 25 of the appellate order wherein the reply of the assessee has been extracted by the learned CIT (A) wherein it has been explained in detail as to how the provisions of section 40A(3) of the Act is not applicable to the assessee’s case. Even the cash Printed from counselvise.com Page | 6 ITA No. 210/GTY/2024 Jai Karni Trading Private Limited; A.Y. 2017-18 withdrawals made during the month of October 2016 to March 2017 were extracted along with cash expenditure.Finally, the ld. AR relied on the Appellate Order heavily. The ld. AR submitted the accounts of the assessee were audited and the auditors have not givne any adverse interference on this issue. The ld. AR therefore prayed that the order of the ld. CIT (A) may kindly be affirmed by dismissing the appeal of the Revenue. 08. After hearing the rival contentions and perusing the materials available on record, we find that the assessee is engaged in the business of purchase and sale of betel nuts. The assessee has been doing its business for many years consistently. We note that the ld. AO has mentioned in the order that the assessee had made withdrawals of₹2,25,00,000, ₹4,03,00,000 and ₹2,72,86,500 from two bank accounts maintained with Indus Ind Bank and Axis Bank.The assessee placed before us withdrawals as per the records. We note that the cash withdrawals were to the tune of Rs 14,07,94,790/- (₹10,45,54,528/- in IndusInd Bank and ₹3,62,40,262/- in Axis bank). Further, in Para 6.3.4, Learned CIT (A) referred to the Rule 6DD of the Rules, which provides exceptions to Section 40A(3) of the Act wherein it is stated that cash payments made to cultivators /agriculturists for produce are exempt from the limit of ₹20,000/-. We also further note that the assessee furnished the party-wise details of deposits made in five bank accounts and explained the source of funds from whom the money /deposits were received. The ld. CIT (A) recorded the findings on the basis of said documents that assessee has proved the source of deposits into the bank accounts adequately. The ld. CIT (A) noted that the assessee furnished the summary of financial transactions from A.Y. 2014-15 to A.Y. 2018-19, where the nature of business remained the same and the patterns of bank deposits and cash withdrawals were also similar all through the years. Even the assessment was Printed from counselvise.com Page | 7 ITA No. 210/GTY/2024 Jai Karni Trading Private Limited; A.Y. 2017-18 framed u/s 143(3) of the Act but there was no addition on account of cash expenditure. The ld. CIT (A) further noted that even a survey under section 133A of the Act was conducted on the appellant in A.Y. 2018-19 and despite being surveyed, there was no addition. Therefore, the Learned CIT (A) recorded the finding that it is a normal business activity to make such deposits and withdrawals from the banks. Considering these facts and circumstances, we are not in a position to interfere with the Appellate Order, which is a very detailed and reasoned order, passed after taking into account all the submissions and arguments and facts on records. Accordingly, we dismiss the appeal of the Revenue. 09. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 26.08.2025. Sd/- Sd/- (MANOMOHAN DAS) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 26.08.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Guwahati 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "