The DCIT, Circle-5, Baroda V. Vadodara District Co.Op. Sugarcane Growers Union Ltd., Baroda

ITA 1021/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7927 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Procedural lapse; Revised return
• Section: 40A(3); 143(3)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO. 1021/AHD/2015 AND ITA NO.2215/AHD/2016 / ASSESSMENT YEAR: 2008-09 ACIT, CIR.3(1) VADODARA. VS VADODARA DISTRICT CO-OP. SUGARCANE GROWERS UNION LTD. AT & PO : GANDHARA, TAL. KARJAN, BARODA 391 210. PAN : AAAAV 0287 H / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI V.K. SINGH, SR.DR ASSESSEE BY : SHRI MILIN MEHTA, AR / DATE OF HEARING : 09/07/2018 /DATE OF PRONOUNCEMENT : 12 /07/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ITA NO.1021/AHD/ 2015 IS DIRECTED AGAINST ORDER OF THE LD.CIT(A) DAT ED 5.1.2015 AND IT ARISES FROM AN ORDER PASSED UNDER SECTION 271(1)(C) OF THE ACT, WHILE ITA NO.2215/AHD/2016 IS DIRECTED AGAINST THE ORDER OF T HE LD.CIT(A) DATED 4.4.2016 WHICH ARISES FROM THE ASSESSMENT ORDER PAS SED UNDER SECTION 143(3) R.W.S 147 OF THE ACT. 2. FIRST WE TAKE QUANTUM APPEAL I.E. ITA NO.2215/AH D/2016. ITA NO.1021/AHD/2015 AND 2215/AHD/2016 - 2 - 3. GROUNDS TAKEN BY THE REVENUE ARE NOT IN CONSONAN CE WITH THE RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES , 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.2,25,65,154/- WHICH WAS DISALLOWED BY THE AO WIT H THE AID OF SECTION 40A(3) OF THE ACT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY WITH 52% SHAREHOLDING OF GOVERNMENT OF GUJARAT. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING SUGAR AND OTHER PRODUCTS FROM SUGARCANE. IT HAS FILED ITS RETURN OF INCOME UNDER SECTION 139(1) ON 29.9.2008 DECLARING NIL INCOME. THE ASSESSMENT WAS FRAMED UNDER SECTIO N 143(3) ON 28.12.2010 AND TOTAL LOSS WAS DETERMINED AT RS.22,3 0,11,720/- AS AGAINST TOTAL RETURNED LOSS AT RS.50,61,55,729/-. THE LD.A O THEREAFTER RECEIVED INFORMATION THAT THE ASSESSEE HAD MADE PAYMENT IN C ASH FOR PURCHASE OF GOODS AND SERVICES TO SHREE SARDAR SUGAR CO-OPERATI VE INDUSTRIES LTD. HE RECORDED REASONS AND REOPENED THE ASSESSMENT. T HE LD.AO ISSUED NOTICE UNDER SECTION 143(2)/142(1) AND INVITED EXPL ANATION OF THE ASSESSEE AS TO WHY CASH PAYMENT MADE TO THE EXTENT OF RS.2,25,65,154/- EXCEEDING RS.20,000/- SHOULD NOT BE DISALLOWED UNDE R SECTION 40A(3) OF THE ACT. IN RESPONSE TO THE QUERY OF THE AO, THE A SSESSEE HAS FILED WRITTEN SUBMISSIONS VIDE LETTER DATED 19.10.2012. THE LD.AO HAS REPRODUCED WRITTEN SUBMISSIONS AND DISALLOWED PAYME NT OF RS.2,25,65,154/-. THE SUBMISSIONS MADE BY THE ASSE SSEE AS WELL AS FINDING OF THE AO READS AS UNDER: DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE TH ROUGH ITS SUBMISSIONS DATED 10.10.2012 STATED AS UNDER: ITA NO.1021/AHD/2015 AND 2215/AHD/2016 - 3 - DURING THE YEAR THE SOCIETY HAD PURCHASED 25555.45 MT OF SUGAR CANE FROM SHREE SARDAR SUGAR COOPERATIVE INDUSTRIES LTD. AMOUNTING TO RS.3,08,66,514.26. AGAINST THESE PURCHASES, THE VA DODARA SUGAR HAS MADE PAYMENT OF RS.2,25,65,154/- IN CASH WHICH IS R EQUIRED TO BE ADDED AS DISALLOWANCE UNDER RULE 6DD OF THE INCOME TAX AC T, 1961. IN THE REVISED RETURN FILED BY US ON 16.4.2012 VIDE ACK NO .058160412000582, WE HAVE DISALLOWED A SUM OF RS.1,32,97,293/- AS A D ISALLOWANCE UNDER RULE 6DD WHICH PLEASE NOTE. THEREBY THE ASSESSEE HAS ADMITTED THAT IT HAD CONTRAVENED THE PROVISIONS OF SECTION 40A(3) OF THE ACT. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAD MADE PAYMENTS OF A SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT FOR PURCHASE OF SUGARCANE. THE SAID PAYMENTS IN CASH AMOUNTED TO RS .2,25,65,154/- .THUS THE ASSESSEE HAD CONTRAVENED THE PROVISIONS O F SUB SECTION 3 OF SECTION 40A OF THE ACT READ WITH RULE 6DD. HENCE, D EDUCTION TO THE TUNE OF RS. 2,25,65,154/- IS DISALLOWED AND ADDED BACK T O THE TOTAL INCOME OF THE ASSESSEE. I AM SATISFIED THAT, THE ASSESSEE FIR M HAS FURNISHED INACCURATE PARTICULARS OF INCOME. THEREFORE, PENALTY PROCEEDIN GS U/S.271(1 )(C): OF THE IT ACT IS INITIATED ON THIS ISSUE. A SEPARATE, NOTICE U/S. 271(1)(C) OF THE IT ACT IS BEING ISSUED. 5. ON APPEAL, THE LD.CIT(A) HAS DELETED THE DISALLO WANCE BY RECORDING FOLLOWING FINDING: 3.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. I AM INCLINED TO ACCEPT THE CONTENTION OF THE LD. AUTHORIZED REPRESE NTATIVE ON TWO GROUNDS. FIRSTLY, ALL PAYMENTS ARE MADE TO SHREE SA RDAR SUGAR CO- OPERATIVE INDUSTRIES LIMITED WHICH IS HAVING 52% SH AREHOLDING OF THE GOVERNMENT OF GUJARAT. THUS, THE GENUINENESS OF THE PAYMENTS IS NOT IN DOUBT. THE ASSESSING OFFICER HAS NOT POINTED OUT AN Y BOGUS OF INFLATED PURCHASE. THE MANAGEMENT OF THESE TWO CONCERNS IS S AME AS CLAIMED BY THE LD. AUTHORIZED REPRESENTATIVE AND THE ASSESSING OFFICER HAS NOT DISPUTED THIS FACT. SECONDLY, M/S SSIL IS MAKING PU RCHASE OF SUGAR CANE FROM THE FARMERS ON BEHALF OF THE APPELLANT AND MAK ING PAYMENTS TO THEM IN CASH. THUS, THE DESTINATION OF THE CASH PAID BY THE APPELLANT IS FARMERS AND SUCH PAYMENTS THROUGH THE AGENTS, ARE COVERED U NDER RULE 6DD AS CONTENDED BY THE AUTHORIZED REPRESENTATIVE AND AS H ELD BY THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF COMMISSIONER O F INCOME-TAX VS ITA NO.1021/AHD/2015 AND 2215/AHD/2016 - 4 - A.C. INDUSTRIES [2014] 43 TAXMANN.COM 290 (GUJ.), IT HAS BEEN HELD BY THE HIGH COURT AS UNDER:- '8. SECTION 40A(3) DISSUADES TRANSACTIONS OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE/DRAFT WHEN PAYMENT OF EXPENDIT URE EXCEEDS THE SUM OF RS.20,000/- BY DISALLOWING ANY DEDUCTION IN RESPECT OF SUCH EXPENDITURE. HOWEVER, WHEN PAYMENT IS MADE FOR PURCHASE OF AGRICULTURAL OR FOREST PRODUCE OR THE PRODUCE OF AN IMAL HUSBANDRY OR DAIRY OR POULTRY FARMING ETC. AS PER SUB-CLAUSE (E) OF RULE 6DD OR WHEN THE PAYMENT IS MADE BY ANY PERSON TO HIS AG ENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVI CES ON BEHALF OF SUCH PERSONS UNDER CLAUSE (K) OF RULE 6DD OF INCOME TAX RULES, NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTION 40A SHALL BE MADE. IN OTHER WORDS, EXEMPTIONS ARE CARVED OUT UND ER RULE 6DD WHEN PURCHASE IS OF AGRICULTURAL OR FOREST PRODUCE ETC. OR WHEN SUCH PURCHASE IS MADE THROUGH AGENT WHO WAS REQUIRE D TO PAY IN CASH.' I AGREE WITH THE LD. AUTHORIZED REPRESENTATIVE THAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL AND RULE 6DD IS APPLICAB LE IN THE PRESENT CASE. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE GUJA RAT HIGH COURT IN CASE OF A.C. INDUSTRIES (SUPRA), THE ADDITION OF RS .2,25,65,154/- IS DELETED AND THE SOLE GROUND OF APPEAL IS ALLOWED. 6. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD. THE LD.CIT(A) HAS DELETED THE DISALLOWANCE BY PUTTING RELIANCE UPON THE JUDGMENT OF THE HONBLE G UJARAT HIGH COURT IN THE CASE OF CIT VS. A.C. INDUSTRIES, 43 TAXMANN. COM 290. A REFERENCE TO RULE 6DD IS BEING MADE. WE WOULD LIKE TO MAKE R EFERENCE TO CLAUSE (E) AND CLAUSE (K) OF RULE 6DD WHICH ARE THE RELEVA NT PROVISIONS AND ON THE BASIS OF WHICH THE LD.CIT(A) HAS DELETED THE DI SALLOWANCE. THESE CLAUSES READ AS UNDER: (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF (I) AGRICULTURAL OR FOREST PRODUCE; OR (II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIVESTOC K, MEAT, ITA NO.1021/AHD/2015 AND 2215/AHD/2016 - 5 - HIDES AND SKINS) OR DAIRY OR POULTRY FARMING; OR (III) FISH OR FISH PRODUCTS; OR (IV) THE PRODUCTS OF HORTICULTURE OR APICULTURE, TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTIC LES, PRODUCE OR PRODUCTS; (K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGEN T WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BE HALF OF SUCH PERSONS 7. A PERUSAL OF THESE CLAUSES WILL INDICATE THAT IF PAYMENT IS BEING MADE FOR THE PURCHASE OF AGRICULTURAL OR FOREST PRO DUCES, THE DISALLOWANCE UNDER SECTION 40A(3) WOULD NOT BE MADE . SIMILARLY, SUB- CLAUSE (K) PROVIDES THAT WHERE PAYMENT IS MADE BY A NY PERSONS TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR G OODS OR SERVICES ON BEHALF OF SUCH PERSON. A PERUSAL OF THE WRITTEN SU BMISSIONS OF THE ASSESSEE FILED BEFORE THE AO WOULD INDICATE THAT TH E ASSESSEE ITSELF ADMITTED ABOUT THE VIOLATION OF SECTION 40A(3). IT HAS ITSELF MADE DISALLOWANCE OF RS.1.32 CRORES. A PERUSAL OF THIS DETAILS INDICATE TWO- THREE CONTRADICTORY SITUATIONS VIZ. IF ASSESSEE HAS ITSELF MADE DISALLOWANCE OF RS.1.32 CRORES WHETHER IT IS PART O F TOTAL PAYMENT OF RS.2.25 CRORES OR NOT, AND IF YES, THEN HOW THE AO HAS MADE DISALLOWANCE OF RS.2.25 CORES ? HE SHOULD HAVE ONL Y MADE DISALLOWANCE OF DIFFERENCE OF RS.2.25 CRORES MINUS RS.1.32 CRORE S. THE SECOND QUESTION ARISE IS, WHETHER SHREE SARDAR CO-OP. SUGAR INDUSTR IES HAS ACTED AS AN AGENT ON BEHALF OF THE ASSESSEE FOR PURCHASE OF SUG ARCANE FROM FARMERS. BENEFIT OF CLAUSE (E) AND (K) OF RULE 6DD WOULD BE GIVEN TO THE ASSESSEE IF SHREE SARDAR COOPERATIVE SUGAR INDUSTRIES HAS AC TED AS AN AGENT OF THE ASSESSEE AND MADE DIRECT PAYMENT TO THE FARMERS AFT ER RECEIVING FROM THE ASSESSEE. NO SUCH CIRCUMSTANCES HAVE BEEN DISC USSED BY THE ITA NO.1021/AHD/2015 AND 2215/AHD/2016 - 6 - LD.CIT(A). TAKING INTO CONSIDERATION ALL THE FACTS , WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR RE- ADJUDICATION. THE LD.AO SHALL DETERMINE WHETHER SH REE SARDAR COOPERATIVE SUGAR INDUSTRIES HAS ACTED AS AGENT OF THE ASSESSEE FOR PURCHASE OF SUGAR CANE FROM FARMERS. IF YES, THEN BENEFIT OF RULE 6DD IN TERMS OF HONBLE HIGH COURTS DECISION BE GIVEN TO THE ASSESSEE. SIMILARLY, HE WILL EXAMINE THE ISSUE WITH REGARD TO THE ADMISSION OF DISALLOWANCE MADE BY THE ASSESSEE. AFTER ASCERTAIN ING THE FACTS ON THESE TWO ASPECTS, HE WILL DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 8. NOW WE TAKE ITA NO.1021/AHD/2015 (PENALTY APPEAL ). 9. THE LD.CIT(A) HAS DECIDED THE APPEAL VIDE ORDER DATED 5.1.2015 I.E. PRIOR TO ADJUDICATION OF THE QUANTUM APPEAL, WHICH IS NOT PROCEDURALLY CORRECT. IT IS PERTINENT TO NOTE THAT SUB-CLAUSE ( III) OF SECTION 271(1)(C) PROVIDES MECHANISM FOR QUANTIFICATION OF PENALTY. IT CONTEMPLATES THAT THE ASSESSEE WOULD BE DIRECTED TO PAY A SUM IN ADDI TION TO TAXES, IF ANY, PAYABLE HIM, WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NOT EXCEED THREE TIMES OF THE AMOUNT OF TAX SOUGHT TO BE EVADE D BY REASON OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. IN OTHER WORDS, THE QUANTIFICATION OF THE PENALTY I S DEPENDED UPON THE ADDITION MADE TO THE INCOME OF THE ASSESSEE. IN TH E PRESENT CASE, THE ASSESSEE HAS FILED APPEAL BEFORE THE CIT(A) AGAINST QUANTUM ADDITION. ADJUDICATION OF QUANTUM ADDITION WAS PENDING BEFORE THE LD.CIT(A) AND THE PENALTY PROCEEDINGS IS SOLELY DEPENDED UPON THE ULTIMATE DETERMINATION OF INCOME, THEREFORE, APPEAL ARISING OUT OF IMPOSITION PENALTY CANNOT BE DECIDED BEFORE ADJUDICATION OF QU ANTUM APPEAL. ON ACCOUNT OF THIS SIMPLE PROCEDURAL IRREGULARITY, WE SET ASIDE THE ORDER OF THE ITA NO.1021/AHD/2015 AND 2215/AHD/2016 - 7 - LD.CIT(A) AND REMIT THIS ISSUE TO THE FILE OF THE A O FOR FRESH ADJUDICATION. THE LD.AO SHALL FIRST TAKE UP THE ISSUE OF QUANTUM ADDITION IN THE SET ASIDE PROCEEDINGS AND THEREAFTER SHALL DECIDE WHETHER PEN ALTY IS TO BE INITIATED AGAINST THE ASSESSEE OR NOT. 9. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE A LLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 12 TH JULY, 2018. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 12/07/2018