R.Deiva Sigamani (HUF), CHENNAI V. ITO, Cuddalore

ITA 1072/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8702 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: P RAJASEKHARAN
• Keywords: Opportunity of being heard; Permanent establishment; Corroborative evidences; Notional interest
• Section: 40A(3); 56; 144; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , ! . ' , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.1072, 1073 & 1074/MDS/2016 # % &% / ASSESSMENT YEARS :2009-2010, 2010-2011 & 2011-2 012. R. DEIVASIGAMANI, (HUF) MUTTAM VILLAGE, KUTTUMANNAR KOIL TALUK, CUDDALORE DIST. VS THE INCOME TAX OFFICER, WARD I(3) CUDDALORE [PAN AEVPD 4240A] ( / APPELLANT) ( /RESPONDENT) APPELLANT BY : SHRI. P. RAJASEKHARAN, C.A. '()* + , /RESPONDENT BY : SHRI. P. RADHAKRISHNAN, JCIT. ' + - /DATE OF HEARING : 28-06-2016 .& + - /DATE OF PRONOUNCEMENT : -07-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF COMMISSIONER OF INCOME-TAX (A PPEALS), PUDUCHERRY DATED 24.03.2016 FOR THE ASSESSMENT YEAR 2009-2010 PASSED U/S.144 OF THE ACT AND FOR ASSESSMENT YEARS 2010-2011 AND 20 12-13 PASSED ITA NO.1072 TO 1074/MDS/2016. :- 2 -: U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961. SINCE THE ISSUE IN THESE APPEALS ARE COMMON IN NATURE, THESE APPEALS A RE CLUBBED, HEARD TOGETHER, AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP ITA NO.1072/MDS/2016 OF ASSESSMEN T YEAR 2009-2010 FOR ADJUDICATION. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF BRICK WORK, TEXTILE TRADING AND AGRICULTURAL ACTIVITIES AND FILED RETURN OF INCOME ADMITTING TOT AL INCOME OF >5,41,870/- ON 30.09.2009 AND THE RETURN OF INCOME WAS PROCESSE D U/S.143(1) OF THE ACT DATED 12.11.2010. SUBSEQUENTLY UNDER CASS THE C ASE WAS SELECTED AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. SUBSE QUENTLY ISSUED ANOTHER NOTICE CALLING FOR CLARIFICATION ON NINETEEN POINTS INCLUDING EXAMINATION AND GENUINENESS OF AGRICULTURAL INCOME. FURTHER, I N COMPLIANCE TO NOTICE U/S.143(2) AND 143(1) OF THE ACT, THE LD. AUTHORISE D REPRESENTATIVE OF THE ASSESSEE APPEARED AND FILED DETAILS AS PER QUESTION AIRE AND PRODUCED BOOKS OF ACCOUNT. THE LD. ASSESSING OFFICER ON PERU SAL OF THE BOOKS OF ACCOUNT HAS RAISED CERTAIN DOUBTS AND CALLED FOR C LARIFICATIONS. SINCE NO CLARIFICATION WAS FILED THE LD. ASSESSING OFFICER M ADE ASSESSMENT U/S.144 OF THE ACT BEST JUDGMENT BY DISALLOWING EXPENDITURE O N PURCHASES APPLYING PROVISIONS U/S.40A(3) OF THE ACT IN RESPECT OF BR ICK TRADE WITH OTHER DISALLOWANCES AND RESTRICTED THE SOURCE OF AGRICUL TURAL INCOME ITA NO.1072 TO 1074/MDS/2016. :- 3 -: FOR WANT OF SUPPORTING EVIDENCE AND PASSED ORDER U/ SEC.144 OF THE ACT DATED 31.12.2011. AGGRIEVED BY THE ORDER, THE ASSE SSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 3. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED RE PRESENTATIVE OF ASSESSEE ARGUED THE GROUNDS AND EXPLAINED THE T RANSACTION OF BRICK TRADE AND GENUINENESS REASONS FOR CASH PAYMENTS AND SUPPORTED THE GROUNDS ON AGRICULTURAL INCOME WITH DOCUMENTARY EV IDENCE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON DISALLOWAN CE IN BRICK TRADE U/S.40A(3) OF THE ACT CONSIDERED THE ASSESSEE SUBMI SSIONS AND CALLED FOR THE REMAND REPORT OF THE LD. ASSESSING OFFICER. SIN CE THE ASSESSEE HAS SUBMITTED FEW DETAILS IN ASSESSMENT PROCEEDINGS AND BALANCE DETAILS COULD NOT BE SUBMITTED. THE LD. ASSESSING OFFICER HAS C OMPLETED THE ASSESSMENT U/SEC. 144 OF THE ACT IN ABSENCE OF DETA ILS. THE LD. CIT(A) PRODUCED COPY OF REMAND REPORT TO ASSESSEE FOR THE COMMENTS. THE LD. AUTHORISED REPRESENTATIVE FILED WRITTEN SUBMISSIONS ON THE DISPUTED ISSUES. BUT THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) BASED ON THE FINDINGS OF THE LD. ASSESSING OFFICER IN ASSESSMEN T ORDER U/S.144 OF THE ACT REFERRED AT PAGE 5 & 6 OF THE ORDER AND OBSERV ED THAT THE CASH PAYMENTS IN RESPECT OF BRICK TRADE ARE IN EXCESS O F >20,000/- AND ASSESSEE HAS VIOLATED THE PROVISIONS UNDER SEC. 40 A(3) OF THE ACT. AS THE ITA NO.1072 TO 1074/MDS/2016. :- 4 -: CIRCUMSTANCES DOES NOT FALL IN EXCEPTIONS OF RULES 6DD AND CONFIRMED THE ADDITION OF THE LD. ASSESSING OFFICER. 3.1. ON SECOND DISPUTED ISSUE, THE ASSESSEE HAS DI SCLOSED IN THE RETURN OF INCOME AGRICULTURAL INCOME OF >82,22,866/ - AND PRODUCED BILLS FOR SALE OF PADDY FROM DIFFERENT PARTIES TO THE EXT ENT OF >78,91,705/-. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE COMMENTS OF THE LD. ASSESSING OFFICER IN REMAND REPORT DULY SUPPORT ED WITH SALE RECEIPTS AND WERE LD. ASSESSING OFFICER CONCLUDED THAT EXPEN SES ARE NOT FULLY VOUCHED AND ESTIMATED AGRICULTURAL INCOME DISALLOWA NCE TO THE EXTENT OF >34,40,902/- AND RESTRICTED THE AGRICULTURAL INCOME TO >57,25,953/- BUT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS AL LOWED CREDIT OF AGRICULTURAL INCOME ON SALE OF PADDY, SUGARCANE, CO CONUT TO THE EXTENT OF >40,00,000/- AND CONSIDERED >17,25,953/- AS INCOME FROM OTHER SOURCES OUT OF DISALLOWANCE OF >34,40,902/- BY THE LD. ASSE SSING OFFICER. FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DELET ED >17,14,949/- AND PARTLY ALLOWED THE APPEAL ON OTHER DISPUTED GROUNDS . AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASS ESSEE FILED AN APPEAL BEFORE TRIBUNAL. 3.2. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED AND REITERATED THE SUBMISSIONS MADE IN THE ASSESSMENT ITA NO.1072 TO 1074/MDS/2016. :- 5 -: PROCEEDINGS AND APPELLATE PROCEEDINGS AND ALSO HIGH LIGHTED THE OBJECTIONS RAISED ON THE REMAND REPORT. ON THE FIR ST DISPUTED ISSUE OF DISALLOWANCE U/SEC. 40A(3) OF THE ACT, THE LD. AUTH ORISED REPRESENTATIVE EXPLAINED THAT THE ASSESSEE REGULARLY PURCHASE F IRE WOOD AND CLAY FOR BRICK LINE OPERATIONS FROM VILLAGERS WHO CARRY O N AGRICULTURAL ACTIVITIES. THE FARMERS AND AGRICULTURALIST RESIDING IN VILLAGE S DO NOT HAVE BANK ACCOUNT AND THE LD. ASSESSING OFFICER HAS FILED T HE REMAND REPORT WITH THE STATEMENT OF DETAILS ON PAYMENTS, NAME OF TH E SELLER AND NATURE OF PROCUREMENT AND VALUE. THE LD. ASSESSING OFFICER IN STEAD OF CONSIDERING GENUINENESS OF PAYMENT HAS BECOME SUSPICIOUS ON TH E TRANSACTIONS AND DISALLOWED THE AMOUNT APPLYING THE PROVISIONS OF S EC. 40(A)(3) OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELIE D ON THE PROVISIONS BUT CONCURRED WITH THE FINDINGS OF THE LD. ASSESSIN G OFFICER WHICH IS BAD IN LAW AND PRAYED FOR ALLOWING THE GROUNDS. 3.3 CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RE LIED ON THE ORDERS OF ASSESSING OFFICER AND OPPOSED THE GROUND S. 3.4 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND EVIDENCE. THE ASSESSEE IS A KARTHA OF HUF AND IN THE BUSINESS OF BRICKS AND TEXTILES AND DERIVING AGRICULTURAL INCO ME. THE FACTS THAT THE ITA NO.1072 TO 1074/MDS/2016. :- 6 -: ASSESSEE PURCHASES FIRE WOOD FOR THE USE IN BRICK L INE AS REGULAR BUSINESS TRANSACTIONS. THE FIRE WOOD IS PURCHASED FROM FARME RS OF THE VILLAGES WHO ARE ILLITERATE AND DOES NOT HAVE BANK ACCOUNT AND B ELIEVE ONLY IN CASH TRANSACTIONS. THE CASH PAYMENTS ARE MANDATORILY M ADE DUE TO BUSINESS EXIGENCIES AND THE TRANSACTIONS ARE WITH FARMERS WHO ARE MOSTLY UNEDUCATED AND THE BANK TRANSACTIONS ARE NOT APPRE CIATED BY THE FARMERS FOR SUPPLY OF RAW MATERIAL AND ALWAYS INSIST FOR CA SH AND MOVE FROM PLACE TO PLACE. THE FARMERS WHO SUPPLY FIRE WOODS AT BRICK LINE DO NOT HAVE PERMANENT PLACE OF BUSINESS AND DEAL IN CASH A ND IT IS NOT PRACTICAL TO EDUCATE THE FARMERS AT THAT INSTANT FOR OPENING THE BANK ACCOUNT. THE LD.AUTHORISED REPRESENTATIVE CONTENTION THAT THE PA YMENTS ARE MADE TO AGRICULTURIST AND VILLAGERS FOR FOREST PRODUCE WIT HIN RULE 6DD OF INCOME TAX RULES. THE ASSESSEE CONSIDERED BUSINESS EXPEDIE NCY AND CASH PAYMENTS ARE MADE IN PECULIAR SITUATIONS WERE VILLA GES MANDATORILY INSIST FOR CASH PAYMENTS. WE PERUSED THE PROVISIONS OF SE C. 40A(3) OF THE ACT READ AS:- WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPE CT OF WHICH A PAYMENT OF AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. ITA NO.1072 TO 1074/MDS/2016. :- 7 -: AND RULE 6DD AND EXCEPTION UNDER INCOME TAX RULE S NO DISALLOWANCE UNDER SUB-SECTION (3) OF SECTION 40 A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3A) OF SECTION 40A WHERE A PAYME NT 59 OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEED S TWENTY THOUSAND RUPEES IN THE CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NA MELY : (A)WHERE THE PAYMENT IS MADE TO ( I ) THE RESERVE BANK OF INDIA OR ANY BANKING COMPANY AS DEFINED IN CLAUSE ( C ) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); ( II ) THE STATE BANK OF INDIA OR ANY SUBSIDIARY BANK AS DEFINED IN SECTION 2 OF THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 195 9 (38 OF 1959); ( III ) ANY CO-OPERATIVE BANK OR LAND MORTGAGE BANK; ( IV ) ANY PRIMARY AGRICULTURAL CREDIT SOCIETY OR ANY PRIMARY CREDIT SOCIETY AS DEFINED UNDER SECTION 56 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); ( V ) THE LIFE INSURANCE CORPORATION OF INDIA ESTABLISHED UNDER SECTION 3 OF THE LIFE INSURANCE CORPORATION ACT, 1956 (31 OF 195 6); (B) WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND, UN DER THE RULES FRAMED BY IT, SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER; (C) WHERE THE PAYMENT IS MADE BY ( I ) ANY LETTER OF CREDIT ARRANGEMENTS THROUGH A BANK; ( II ) A MAIL OR TELEGRAPHIC TRANSFER THROUGH A BANK; ( III ) A BOOK ADJUSTMENT FROM ANY ACCOUNT IN A BANK TO ANY OTHER ACCOUNT IN THAT OR ANY OTHER BANK; ( IV ) A BILL OF EXCHANGE MADE PAYABLE ONLY TO A BANK; ( V ) THE USE OF ELECTRONIC CLEARING SYSTEM THROUGH A BAN K ACCOUNT; ( VI ) A CREDIT CARD; ( VII ) A DEBIT CARD. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE AND CLAUSE ( G ), THE TERM BANK MEANS ANY BANK, BANKING COMPANY OR SOCIETY REFERRED TO IN SUB-CLAUSES ( I ) TO ( IV ) OF CLAUSE ( A ) AND INCLUDES ANY BANK [NOT BEING A BANKING COMPAN Y 65 AS DEFINED IN CLAUSE ( C ) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949)], WHETHER INCORPORATED OR NOT, WHICH IS ESTAB LISHED OUTSIDE INDIA; ( D ) WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMENT AGAINST THE AMOUNT OF ANY LIABILITY INCURRED BY THE PAYEE FOR ANY GOODS SUPPL IED OR SERVICES RENDERED BY THE ASSESSEE TO SUCH PAYEE; 6 ( 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, HIDES AND SKINS) OR DAIRY OR POULTRY FARMING; OR ( III ) FISH OR FISH PRODUCTS 68 ; OR ITA NO.1072 TO 1074/MDS/2016. :- 8 -: ( IV ) THE PRODUCTS OF HORTICULTURE OR APICULTURE, TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTIC LES, PRODUCE OR PRODUCTS; ( F ) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF THE P RODUCTS MANUFACTURED OR PROCESSED WITHOUT THE AID OF POWER IN A COTTAGE IND USTRY, TO THE PRODUCER OF SUCH PRODUCTS; 69 ( G ) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WHI CH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WH O ORDINARILY RESIDES, OR IS CARRYING ON ANY BUSINESS, PROFESSION OR VOCATION, I N ANY SUCH VILLAGE OR TOWN; ( H ) WHERE ANY PAYMENT IS MADE TO AN EMPLOYEE OF THE ASS ESSEE OR THE HEIR OF ANY SUCH EMPLOYEE, ON OR IN CONNECTION WITH THE RETIREM ENT, RETRENCHMENT, RESIGNATION, DISCHARGE OR DEATH OF SUCH EMPLOYEE, O N ACC OUNT OF GRATUITY, RETRENCHMENT COMPENSATION OR SIMILAR TERMINAL BENEF IT AND THE AGGREGATE OF SUCH SUMS PAYABLE TO THE EMPLOYEE OR HIS HEIR DOES NOT EXCEED FIFTY THOUSAND RUPEES; ( I ) WHERE THE PAYMENT IS MADE BY AN ASSESSEE BY WAY OF SALARY TO HIS EMPLOYEE AFTER DEDUCTING THE INCOME- TAX FROM SALARY IN ACCORDANCE WITH THE PROVISIONS O F SECTION 192 OF THE ACT, AND WHEN SUCH EMPLOYEE ( I ) IS TEMPORARILY POSTED FOR A CONTINUOUS PERIOD OF FI FTEEN DAYS OR MORE IN A PLACE OTHER THAN HIS NORMAL PLACE OF DUTY OR ON A SHIP; AND ( II ) DOES NOT MAINTAIN ANY ACCOUNT IN ANY BANK AT SUCH P LACE OR SHIP; 70 ( J ) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE; ( K ) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGEN T 71 WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHAL F OF SUCH PERSON; ( L ) WHERE THE PAYMENT IS MADE BY AN AUTHORIZED DEALER OR A MONEY CHANGER AGAINST PURCHASE OF FOREIGN CURRENCY OR TRAVELLERS CHEQUES IN THE NORMAL COURSE OF HIS BUSINESS. FURTHER, THE LD. ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF PAYMENTS MADE TO VILLAGERS/FARMERS BY CASH BUT THE PAYMENT SHOULD BE MADE THROUGH ACCOUNT PAYEE CHEQUES. THE ASSESSEE I S FOLLOWING THIS BUSINESS PRACTICE FROM EARLIER YEARS. FURTHER, TH E PROVISIONS OF SEC.40A(3) OF THE ACT MUST NOT BE READ IN ISOLATION OF EXCLUDING RULE 6DD UNDER INCOME TAX RULES. IT IS A CLEAR CASE THAT THE SE PROVISIONS ARE NOT INTERPRETED OR INTENDED TO RESTRICT BUSINESS ACTIVI TIES AND THE LD. ASSESSING ITA NO.1072 TO 1074/MDS/2016. :- 9 -: OFFICER IS ALLOWED ONLY TO DISALLOW THE CLAIM AND NOT TO RESTRICT THE BUSINESS OF THE ASSESSEE AND SHALL CONSIDERED THE G ENUINENESS AND BUSINESS EXPEDIENCY. NO DOUBT THE PAYMENT ALSO INC LUDES TRANSPORT OF SAND SINCE THE ASSESSEE IS HAVING DIVERSIFIED BUSIN ESS AND SHOULD NOT ACTIVATE THE SYSTEM OF THE CASH TRANSACTIONS IN VIO LATION OF PROVISIONS OF SEC. 40A(3) OF THE ACT EVEN THOUGH THERE ARE EXEMPT IONS AVAILABLE AND THE LD. DEPARTMENTAL REPRESENTATIVE EMPHASIZED THAT THE ASSESSEE COULD NOT FILE ANY EVIDENCE AND REASONS FOR MAKING CASH P AYMENTS IN LINE WITH THE PROVISIONS OF RULE 6DD. WE HAVING CONSIDERED THE APPARENT FACTS, MATERIAL AND EVIDENCE AND PROVISIONS OF LAW, DIRECT THE LD. ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 50% ONLY AND PASS THE ORDERS AND THE GROUND OF THE ASSESSEE IS PARTLY ALL OWED. 4. ON THE NEXT GROUND, THE ASSESSEE HUF HOLDS AGRICULT URAL LAND AND OFFER INCOME ON SALE OF AGRICULTURAL PRODUCTS F ROM OWN LAND, MORTGAGE LAND, SALE OF SUGARCANE AND COCONUT. DURI NG THE HEARING PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE EXPL AINED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD CALLED FOR THE REMAND REPORT AND AS PER THE CLAUSE (7) OF REPORT, IT WA S MENTIONED BY THE LD. ASSESSING OFFICER THAT DURING THE COURSE OF HEARING , THE ASSESSEE HAS PRODUCED ALL ORIGINAL BILLS FOR SALE OF AGRICULTURA L PRODUCE FROM HIS OWN ITA NO.1072 TO 1074/MDS/2016. :- 10 -: LAND AND LEASE LAND WHICH ARE IN ORDER AND IN THE N AME OF MEMBERS OF HUF AND BILL WISE LIST OF SALE OF PADDY WERE FILED. THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE ANNEXURE I OF THE REMAND REPORT WERE THE DETAILS WERE FURNISHED WITH SL. NO. DATE, BILL NO, NAME OF THE PURCHASER, NAME OF THE SELLER, NUMBER OF BAG S, BILL AMOUNT AND ALSO RECONCILIATION EXPLAINED IN THE LAST PAGE WERE THE ASSESSEE HAS OFFERED AND DISCLOSED AGRICULTURAL INCOME OF ALL TH E CROPS >82,16,138/-. THE LD. ASSESSING OFFICER IN THE ASSESSMENT PROCEED INGS ACCEPTED THE GROSS INCOME WITH SUPPORTING BILLS AND FORMED AN O PINION THAT THE CLAIM OF THE ASSESSEE CANNOT BE COMPLETELY ACCEPTED AND DISALLOWED >34,40,902/-. AGAINST THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4.1 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FORMED AN OPINION BASED ON THE FINDINGS OF THE LD. ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS AND REMAND REPORT THAT AGRICULTURAL EXPENSES ARE NOT FULLY VOUCHED AN D ESTIMATED AGRICULTURAL INCOME IRRESPECTIVE OF FACT OF DISALLO WANCE BY THE LD. ASSESSING OFFICER AND CONSIDERED NET AGRICULTURAL I NCOME OF >40,00,000/-AND SUSTAINED ADDITION OF >17,25,593/- AS INCOME FROM OTHER SOURCES. AGAINST THE ORDER OF COMMISSIONER O F INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE T RIBUNAL. ITA NO.1072 TO 1074/MDS/2016. :- 11 -: 4.2 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE ARGUED THAT CIT(A) ERRED ON THE FACTS THAT THE ASSESSEE HAS FURNISHED DETAILS OF AGRICULTURAL LANDS OWNED AND AGRICULTURAL CROP PROD UCE ALONGWITH GOVERNMENT RECORDS SUPPORTING THE AGRICULTURAL INCO ME. THE ASSESSEE HAS BEEN RECEIVING AGRICULTURAL INCOME FROM EARLIER YEARS. THE LD. AUTHORISED REPRESENTATIVE PRODUCED COPY OF ASSESSME NT ORDER PASSED U/S.143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2007- 2008 WERE THE THEN LD. ASSESSING OFFICER HAS ACCEPTED THE AGRICUL TURAL INCOME OF >29,13,540/- IN HIS ORDER U/S.143(3) OF THE ACT DAT ED 28.10.2009 AND THE ASSESSEE ALSO PRODUCED THE PROFIT AND LOSS ACC OUNT AND BALANCE SHEET TO SUPPORT THE AGRICULTURAL INCOME. WE CONSID ERING THE APPARENT FACTS, THE NATURE OF INCOME AND EVIDENCE FILED BY T HE ASSESSEE BEFORE LD. ASSESSING OFFICER AND LD. COMMISSIONER OF INCOM E TAX (APPEALS). THE INCOME OF THE ASSESSEE FROM AGRICULTURAL ACTIVI TIES CANNOT BE DOUBTED AS THE INCOME OFFERED BY THE ASSESSEE CONSI DERED BY THE LD. ASSESSING OFFICER IN EARLIER ASSESSMENT YEARS AND THERE EXIST GENUINENESS OF AGRICULTURAL INCOME. THE ACTION O F THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN ESTIMATING THE AGRICULTURAL INCOME AND SUSTAINING THE ADDITION OF >17,25,953/- AND TREATING AS INCOME FROM OTHER SOURCES CANNOT BE PRIME FACIE BE ACCEPTED, CONSIDERING THE EXTENT OF HOLDING OF LAND BY ASSES SEE AND HIS ITA NO.1072 TO 1074/MDS/2016. :- 12 -: MEMBERS OF HUF AND MORTGAGE LANDS. WE ARE THE OPI NION THAT SINCE THE ASSESSING AUTHORITY HAS ACCEPTED THE OWNERSHIP OF AGRICULTURAL LANDS AND THE AGRICULTURAL INCOME DISCLOSED BY TH E ASSESSEE WAS ACCEPTED IN EARLIER YEARS. THE LD. ASSESSING OFFIC ER SHALL RE-EXAMINE THE CASE FOR LIMITED PURPOSE AND WE REMIT THE DISP UTED ISSUE OF >17,25,953/- TO THE FILE OF ASSESSING OFFICER TO VE RIFY THE GENUINENESS SUPPORTED BY THE OWNERSHIP AND SALE BILLS AND PASS THE ORDER ON MERITS AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSE. 4.3 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1072/MDS/2016 IS ALLOWED FOR STATISTICAL PURPOSE . 5. NOW, WE TAKE UP ITA NO.1073/MDS/2016 OF ASSESSME NT YEAR 2010-2011:- THE GROUND RAISED IN RESPECT OF AGRICU LTURAL INCOME QUANTIFICATION BY THE ASSESSEE. WE HAVE CONSIDERE D THE FACTS AND SUBMISSIONS MADE BY THE LD. AUTHORISED REPRESENTATI VE AND DEPARTMENTAL REPRESENTATIVE, AND SIMILAR ISSUE ADJ UDICATED FOR THE ASSESSMENT YEAR 2009-2010 IN ITA NO.1072/MDS/2016 A T PARA 4.2 ABOVE AND WE ALLOW THE GROUND OF THE ASSESSEE FOR STATISTICAL PURPOSE. ITA NO.1072 TO 1074/MDS/2016. :- 13 -: 5.1 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.1073/MDS/2016 IS ALLOWED FOR STATISTICAL PURPOSE . 6. NOW, WE TAKE UP ITA NO.1074/MDS/2016 OF ASSESSME NT YEAR 2011-2012:- 6.1 THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DIS ALLOWANCE OF >2,47,735/- WITHOUT MENTIONING THE REASONS AND SPE CIFIC HEADS OF EXPENDITURE. 6.2 IN THE ASSESSMENT PROCEEDINGS, THE LD. ASSESSIN G OFFICER BASED ON THE VERIFICATION OF BILLS AND VOUCHERS PRO DUCED IN SUPPORT OF CLAIM OF EXPENSE REFLECTED IN PROFIT AND LOSS ACCO UNT. THE REASON ENVISAGE BY THE LD. ASSESSING OFFICER THAT VOUCHER S ARE NOT PROPERLY SUPPORTED AND ARE SELF MADE AND DUE TO INABILITY TO PRODUCE PROPER VOUCHERS BY THE ASSESSEE, THE LD. ASSESSING OFFICER HAS DISALLOWED THE CLAIM. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 6.3 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) NOT CONVINCED WITH THE SUBMIS SIONS OF THE LD. AUTHORISED REPRESENTATIVE ON DISALLOWANCE AND RELIE D ON THE FINDINGS OF THE LD. ASSESSING OFFICER ON SELF MADE VOUCHERS . EVEN IN APPELLATE ITA NO.1072 TO 1074/MDS/2016. :- 14 -: PROCEEDINGS, THE ASSESSEE COULD NOT SUBMIT PROPER EXPLANATIONS AND THE ACTION OF LD. ASSESSING OFFICER WAS CONFIRMED. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 6.4 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE EX PLAINED THAT THE ASSESSEE IS RUNNING BUSINESS OF BRICKS AND TEXT ILES AND FILED PROFIT AND LOSS ACCOUNT FOR BOTH THE BUSINESS SEPARATELY. WEREAS THE LD. ASSESSING OFFICER HAS MADE DISALLOWANCE OF >2,47,73 5/- WITHOUT REFERRING TO ANY SPECIFIC EXPENSES AND THE ASSESSE E IS MAINTAINING PROPER BOOKS OF ACCOUNT AS IN EARLIER YEARS AND WER E ACCEPTED BY THE REVENUE. THEREFORE, THE ACTION OF THE LD. ASSESSIN G OFFICER MAKING ADHOC DISALLOWANCE OF EXPENSES IS INCORRECT AND PRA YED FOR ALLOWING THE APPEAL. 6.5 CONTRA, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMEN TLY OPPOSED THE GROUNDS. 6.6 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD. THE LD. ASSESSING OFFICER HAD DISALLOWED T HE EXPENSES OF >2,47,775/- WITHOUT REFERRING TO ANY SPECIFIC HEAD OF EXPENDITURE. ON PERUSAL OF ASSESSMENT ORDER, IT IS NOT CLEAR WHETHE R IT IS A SPECIFIC ITA NO.1072 TO 1074/MDS/2016. :- 15 -: DISALLOWANCE OUT OF CONSOLIDATED EXPENDITURE OR ADH OC DISALLOWANCE. THEREFORE, WE ARE OF THE OPINION THAT THE MATTER HA S TO BE RE-EXAMINED BY THE LD. ASSESSING OFFICER ON THE GENUINENESS OF EXPENSES AND IDENTITY OF HEAD OF EXPENDITURE. THEREFORE, WE REM IT THE DISPUTED ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER FOR EXAMINATION AND LD. ASSESSING OFFICER SHALL PASS THE ORDER AFTER PROVI DING OPPORTUNITY OF BEING HEARD. THE GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 6.7 THE SECOND GROUND RAISED BY THE ASSESSEE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF >5,27,000/- U/SEC. 40A(3) OF THE AC T. 6.8 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS M ADE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPRESEN TATIVE, SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE ASSESSMENT YEAR 2009-2010 IN ITA NO.1072/MDS/2016 AT PARA 3.4 AND WE PARTLY ALLOW TH E GROUND OF THE ASSESSEE. 6.9 THE LAST GROUND RAISED BY THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITI ON OF >5,27,000/- MADE TOWARDS NOTIONAL INTEREST OF AGRICULTURAL INCO ME. ITA NO.1072 TO 1074/MDS/2016. :- 16 -: 6.10 THE LD. ASSESSING OFFICER FOUND THAT THE ASSES SEE HAS DECLARED >91,19,399/- AS AGRICULTURAL INCOME AND PRODUCED DE TAILS OF AGRICULTURAL LAND AND REVENUE RECORDS AND EXPLAINED THAT THE LA ND ACQUIRED ARE UNDER MORTGAGE FROM LOCAL VILLAGERS WHO GAVE THE LA ND POSSESSION TO THE ASSESSEE AND ALSO PROMISSORY NOTES EXECUTED AS EVI DENCE. THE LD. ASSESSING OFFICER FOUND ON PERUSAL OF PROMISSORY N OTES INTEREST AT 1% PER MONTH WOULD BE CHARGED ON LOAN AMOUNT AND THE LD. A SSESSING OFFICER PRESUMED THAT THE ASSESSEE HAS NOT OFFERED ANY INT EREST INCOME OR DISCLOSED LOAN IN BALANCE SHEET AND THE LD. ASSESSI NG OFFICER CALCULATED NOMINAL INTEREST AT 12% PER ANNUM OUT OF AGRICULTU RAL INCOME AND A SUM OF >5,27,000/- TREATED AS INCOME FROM OTHER SOURCES AND ADDED TO THE RETURNED INCOME. AGGRIEVED BY THE ORDER, THE ASSESS EE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 6.11 IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORIS ED REPRESENTATIVE ARGUED THE GROUNDS AND EXPLAINED THAT THE LD. ASSES SING OFFICER ERRED IN MAKING AN ADDITION OF >5,27,000/- TOWARDS INTEREST INCOME WHICH WAS NOT RECEIVED AND ALSO THERE IS UNCERTAINTY OF RECEIVIN G ANY AMOUNT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAVING CONSIDE RED THE SUBMISSIONS, FINDINGS OF THE LD. ASSESSING OFFICER, LAND RECORDS AND PROOF OF INCOME AND OVERLOOKED THE FACT THAT THERE IS NO SUCH CLAUSE IN ITA NO.1072 TO 1074/MDS/2016. :- 17 -: PROMISSORY NOTES EXECUTED IN THIS YEAR BY AGRICUL TURISTS AND FILED COPIES OF PROMISSORY NOTES. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT THE PROMISSORY NOTES ARE EXECUTED IN DIFFERENT NAMES OF FAMILY MEMBERS AND IN THE ABSENCE OF ANY FULL PROOF DOCUM ENTARY EVIDENCE PRESUMED THAT THE ASSESSEE MIGHT HAVE RECEIVED INT EREST AND CONFIRMED THE ADDITION OF THE LD. ASSESSING OFFICER. AGGRIE VED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASSESSEE ASSAILE D AN APPEAL BEFORE TRIBUNAL. 6.12. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS ON THE INTER EST INCOME AND EXPLAINED THAT THE LD. ASSESSING OFFICER HAS ACCEPT ED THE LANDS WERE POSSESSED ON MORTGAGE FROM LOCAL VILLAGERS ON PROMI SSORY NOTES AND THESE PROMISSORY NOTES WERE RECEIVED FOR ABUNDANT C AUTION AS SECURITY MEASURES AND THE ASSESSEE DOES NOT CHARGE OR RECEIV E ANY INTEREST FROM MORTGAGED LAND AS IN EARLIER YEARS. THE ASSES SEE IS CARRYING ON AGRICULTURAL OPERATIONS AND EARNING AGRICULTURAL IN COME FROM EARLIER YEARS AND WERE ACCEPTED BY THE REVENUE AND PRAYED FOR ALLOWING THE APPEAL. ITA NO.1072 TO 1074/MDS/2016. :- 18 -: 6.13. CONTRA, LD. DEPARTMENTAL REPRESENTATIVE RELI ED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMENTLY OPPOSED THE GROUNDS. 6.14 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND EVIDENCE FILED. THE MAIN CRUX OF THE IS SUE BEING CHARGING OF INTEREST ON PROMISSORY NOTES BY THE LD. ASSESSI NG OFFICER. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT AS A SECUR ITY MEASURE AND ABUNDANT CAUTION THESE PROMISSORY NOTES WERE ACCEPT ED AS THE LAND WERE UTILIZED UNDER MORTGAGE FROM LOCAL VILLAGERS ON BASIS OF PROMISSORY NOTES. THE LD. AUTHORISED REPRESENTATI VE EXPLAINED THAT THE LD. ASSESSING OFFICER HAS ESTIMATED THE INCOME BASED ON PROMISSORY NOTES. WE ON PERUSAL FOUND THAT THE LD. ASSESSING OFFICER HAS NOT MADE INQUIRY ON PAYMENT OF INTEREST WITH V ILLAGERS OR SOURCES OF ASSESSEE AS INTEREST INCOME AND ALSO ESTIMATED INCOME BASED ON THE EVIDENCE PRODUCED IN GOOD FAITH IN THE ASSESSM ENT PROCEEDINGS. CONSIDERING THE APPARENT FACTS, WE ARE NOT CONVINCE D WITH THE EXPLANATIONS OF LOWER AUTHORITIES WERE ADDITION WA S MADE WITHOUT INVESTIGATION. THEREFORE, WE REMIT THE ENTIRE DISP UTED ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO VERIFY WHETHER GENU INELY INTEREST HAS BEEN COLLECTED BY THE ASSESSEE WITH AUTHENTIC DOCUM ENTARY PROOF. SO, ITA NO.1072 TO 1074/MDS/2016. :- 19 -: WE SET ASIDE THE ORDER OF LD.CIT(A) ON THIS GROUND AND ALLOW THE GROUND OF THE ASSESSEE FOR STATISTICAL PURPOSE. 6.15 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.1704/MDS/2016 IS ALLOWED FOR STATISTICAL PURPOSE . 7. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN IT A NOS. 1072 TO 1074/MDS/2016, ASSESSMENT YEARS 2009-2010, 2010-201 1 AND 2011- 2012 ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 21 ST DAY OF JULY, 2016 AT CHENNAI. SD/- SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( . ) (G. PAVAN KUMAR) ! ' / JUDICIAL MEMBER / CHENNAI / / DATED:21ST JULY, 2016. KV 0 + '#-12 32&- / COPY TO: 1 . )* / APPELLANT 2. '()* / RESPONDENT 3. ' 4- () / CIT(A) 4. ' 4- / CIT 5. 2 78 '#-# / DR 6. 89% : / GF