ACIT-CIRCLE-3, Nagpur V. SHRI RAJESHKUMAR BABULAL JEJANI, Nagpur

ITA 145/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1704 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 01-04-2014
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: C J THAKAR AW SHRI S C THAKAR
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 145/NAG./2014 ( ASSESSMENT YEAR : 200708 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE3, NAGPUR APPELLANT V/S SHRI RAJESHKUMAR BABULAL JEJANI ANAJ BAZAR, ITWARI, NAGPUR PAN ACCPJ5579M .... RESPONDENT REVENUE BY : SHRI NARENDRA KANE ASSESSEE BY : SHRI C.J. THAKAR A/W SHRI S.C. THAKAR DATE OF HEARING 13.08.2015 DATE OF ORDER 28.08 .2015 O R D E R PER MUKUL K. SHRAWAT, J.M. THIS APPEAL FILED BY THE REVENUE IS EMANATING FROM TH E IMPUGNED ORDER DATED 27 TH DECEMBER 2013, PASSED BY THE LEARNED COMMISSIONER (APPEALS)-I, NAGPUR, FOR THE ASSESSMENT YEAR 200708, ON THE FOLLOWING GROUND OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF ` 31,86,125 MADE UNDER SECTION 40A(3) OF THE ACT, IGN ORING THAT SHRI RAJESHKUMAR BABULAL JEJANI 2 PURCHASE AND PAYMENTS ARE MADE THROUGH ADHATIYAS AN D THEY ALL HAVE BANK ACCOUNTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT CONSIDERING CIRCULA R NO.34 DATED 5 TH MARCH 1970 AND ALSO THE DECISION OF A.P. HIGH COUR T IN THE CASE OF SMT. CH. MANGAYAMMA V/S VOI, 239 ITR 687, W HICH SQUARELY APPLY TO THE ISSUE. 2. FACTS IN BRIEF, AS EMERGED FROM THE CORRESPONDING AS SESSMENT ORDER DATED 24 TH DECEMBER 2009, PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ), WERE THAT THE ASSESSEE, IN THE INDIVIDUAL CAPACITY, IS TRADING IN PULSES AND EARN ING COMMISSION. THE ASSESSEE WAS ASKED TO SUBMIT THE PARTYWISE BREAK UP OF PURCHASES BY THE ASSESSING OFFICER. FROM THE PARTYW ISE BREAKUP OF PURCHASES AND AFTER EXAMINING THE BANK STATEMENT OF THE ASSESSEE MAINTAINED WITH VARDHAMAN URBAN COOPERATIVE BANK LTD ., NAGPUR, IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE H AD REGULARLY MADE CASH PAYMENT EXCEEDING ` 20,000. A SHOW CAUSE WAS ISSUED AS TO WHY THE 20% OF THE CASH PURCHASES BE NOT DISALLOWED UNDER SECTI ON 40A(3) OF THE ACT. THE ASSESSEES EXPLANATION WAS T HAT THE PURCHASES WERE MADE FROM THE AGRICULTURIST. THROUGH KACHHA ARATIA PATTIS WERE ISSUED WHEREIN THE NAME OF THE AGRICULTURISTS WAS MENTIONE D AND ACCORDINGLY, THE PAYMENT WAS MADE. THE PAYMENT BY THE ASSESSEE WAS M ADE TO THE AGRICULTURISTS AND NOT TO ARHATIYA. THE ASSESSING O FFICER WAS NOT CONVINCED AND HELD THAT THE PAYMENT WAS MADE TO THE ARHATIYA. THE ASSESSING OFFICER HAD RAISED FEW QUERIES AND DISCUSSED IN DETAIL THE TERMS KACHHA AND PAKKA SHRI RAJESHKUMAR BABULAL JEJANI 3 ARHATIYA . THE ASSESSING OFFICER HAS DISCUSSED THE PROVISION S OF RULE 6DD(1) OF THE I.T. RULES, 1962, AS WELL AS CBDT CIRCULAR N O.34 DATED 5 TH MARCH 1970. AS PER THIS CIRCULAR, THE PAYMENT MADE TO ARHATIYA WAS HELD AS WITHIN THE PURVIEW OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. HOWEVER, THE PAYMENT MADE TO AGRICULTURISTS IN RESPECT OF AGRICU LTURAL COMMODITIES WAS EXEMPT VIDE RULE 6DD(1)(F) OF THE RULES. FINALLY, A FTER COMPUTING THE TOTAL PURCHASES, THE ASSESSING OFFICER HAD WORKED OUT THE 20% DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF RS 31, 86,125 AND ACCORDINGLY TAXED. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELL ATE AUTHORITY, THE LEARNED CIT(A) HAS AGAIN DISCUSSED THE RELEVANT TER MS IN THE LIGHT OF THE BOARD CIRCULAR AND AFTER PLACING RELIANCE ON THE DE CISION OF THE TRIBUNAL, BANGALORE BENCH, IN RENUKESWARA RICE MILLS V/S ITO, [2005] 93 TTJ (BANG) 912, ITA NO.1102/BANG./2002, ORDER DATED 27 TH AUGUST 2004, THE TRIBUNAL HELD AS UNDER:- THUS, IN THE LIGHT OF THE ABOVE ANALYSIS HIGHLIGHTING THE DIFFERENCE BETWEEN A A KACHHA ADATIYA AND A PUCCA ADATIYA, IT IS SEEN THAT THE ROLE OF T.HE ADATIYA IN THE CASE OF THE PRESENT APPELLANT IS THAT OF A KACCHHA ADATIYA IN AS MUCH AS THAT THE APPELLANT LIN HIS BOOKS HAS MAINTAINED THE LEDGER ACCOUNT OF THE INDIVIDUAL AGRICULTURIST WHO HAS SUPPLIED THE GOODS TO THE APPELLANT THROUGH SUCH KACHHA ADATIYA. FURTHER THAT, IT IS NOT A CASE THAT THE ADATIYA HAS SUPPLIED THE GOODS TO THE APPELLANT PURCHASED FROM TRADERS IN THE MARKET OTHER THAN THE AGRICULTURIST. THE BILLS / SALE PATTI BEARS THE NAME OF THE AGRICULTURIST AS SELLER AND THE APPELLANT AS THE PURCHASER, ALONG WITH BEEN SOLD TO THE APPELLANT THROUGH SUCH KACCHHA ADATIYA AND PAYMENT HAS BEEN EFFECTED THROUGH BEARER CHEQUES WITHDRAWN IN CASH BY THE SHRI RAJESHKUMAR BABULAL JEJANI 4 AGENT AND IN TURN PAID TO THE AGRICULTURIST, THE ACTUAL OWNERS OF THE PRODUCE. THUS, THIS FACT HAS NOT BEEN DISPUTED THAT THE AGRICULTURAL PRODUCE BELONGING TO THE FARMERS ONLY HAS BEEN SOLD TO THE APPELLANT FOR WHICH PAYMENT HAS BEEN MADE BY THE APPELLANT TO THE SAID FARMERS, BY THE BEARER CHEQUES, THROUGH THE AGENT, WHO HAS ACTED AS A KACHHA ADATIYA IN THE CASE OF THE APPELLANT IN RESPECT OF THE TRANSACTION IN QUESTION IN AS MUCH AS THAT THE ADATIYA HAS NOT ACCOUNTED FOR THE TRANSACTIONS AS HIS OWN AFFAIRS AND MERELY CHARGED HIS COMMISSION AS A MEDIATOR. SINCE THE AGRICULTURAL PRODUCE BELONGING TO THE AGRICULTURIST HAS BEEN SOLD TO THE APPELLANT, AND THERE BEING NOTHING CONTRARY TO THIS FACT, THE PAYMENTS CLAIMED TO HAVE BEEN MADE TO THE AGRICULTURISTS, THE OWNERS OF THE AGRICULTURE PRODUCE, CANNOT BE DOUBTED. THIS BEING NOT DISPUTED, THE RATIO THE RATIO LAID DOWN IN THE DECISION RELIED IN THE CASE OF SHRI RENUKESWARA RICE MILLS V/S INCOME TAX OFFICER BY HON' BLE ITAT, BANGALORE IS APPLICABLE TO THE FACTS OF THE PRESENT CASE, WHEREIN THE HON'BLE ITAT, BANGALORE, IS APPLICABLE TO THE FACTS OF THE PRESENT CASE, WHEREIN THE HONBLE ITAT HAS FURTHER HELD AS UNDER:- 'IT IS SEEN THAT THE PAYMENT IS MADE FOR PURCHASE OF AGRICULTURAL PRODUCE. THE PAYMENT IS MADE TO THE AGENT OPERATING AT THE MARKET YARD. AS PER THE REGULATION OF TRADE IN AGRICULTURAL PRODUCE, MARKET YARDS ARE SET UP AND THE STATE RMC A~SO REGU~A TES SUCH BUSINESS. THUS, FOR PURCHASE AND SALE OF AGRICULTURAL PRODUCE, THE TRANSACTION CAN BE ONLY THROUGH DEALERS AND AGENTS LICENSED TO OPERATE IN THE MARKET YARD. THUS, THE PERSON OPERATING THERE, IS NOT ONLY THE AGENT OF THE CULTIVATOR OF GROWER BUT ALSO OF THE PERSONS PURCHASING THE AGRICULTURAL PRODUCE. CLAUSE (F) OF R.6DD PROVIDED THAT WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF AGRICULTURAL PRODUCE TO THE CULTIVATOR, S.40A(3) WILL NOT APPLY. SIMILARLY, CL. (L) OF R. 6DD PROVIDES THAT WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS, S.40A(3) WILL NOT APPLY. SINCE THE ASSESSEE HAS PAID THE SUM TO HIS AGENT WHO IS THE PAYEE IN THE PRESENT CASE, AND WHO IN HIS TURN IS REQUIRED TO MAKE PAYMENT TO THE CULTIVATOR, INDIRECTLY, THE ASSESSEE HAS PAID FOR THE PURCHASE OF AGRICUL TURAL PRODUCE TO THE CULTIVATOR THROUGH THE AGENT. THUS, A COMBINED READING OF CLS (F) AND (I) OF RULE 6DD WILL TAKE AWAY THE TRANSACTION FROM THE CLUTCHES OF S.40A(3).' SHRI RAJESHKUMAR BABULAL JEJANI 5 9.0 IN VIEW THEREOF, I AM OF THE CONSIDERED OPINION THAT THE CASE OF THE APPELLANT DOES NOT FALL WITHIN THE AMBI T OF SECTION 40A(3) OF THE ACT AS THE SAME BEING COVERED BY RULE ' 6DD OF THE INCOME TAX RULES, 1962. THE ADDITION, THEREFORE , IS DIRECTED TO BE DELETED. HENCE THESE GROUNDS ARE ALL OWED. 4. WITH THIS BACKGROUND, WE HAVE HEARD BOTH THE SIDES. F ROM THE SIDE OF THE REVENUE, LEARNED DEPARTMENTAL REPRESENTAT IVE HAS SUPPORTED THE REASONS GIVEN BY THE ASSESSING OFFICER IN THE LIGHT OF THE PROVISIONS OF RULE 6DD AND THE CIRCULAR ISSUED. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ARGUED THAT THE PAYMENT I N RESPECT OF PURCHASES TO THE CULTIVATOR OR A PURCHASER OF THE AGRICULTURAL PRODUCT IS EXEMPT BUT IN CASE THE PAYMENT IS MADE NOT DIRECTLY TO THE AGRICULTURISTS BUT TO THE ARHATIYA, THEN NO RELIEF IS GRANTED IN THE ACT. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS PLACED STR ONG RELIANCE ON CBDT CIRCULAR DATED 5 TH MARCH 1970, THAT EXCEPTION WILL NOT APPLY TO PAYMENTS MADE TO ARTIYAS. IN ONE OF THE CIRCULARS IS SUED BY THE DEPARTMENT, A CLARIFICATION IN THE FORM OF QUESTION / ANSWER HAS ALSO BEEN ISSUED, WHICH WAS ALSO REFERRED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US AND FINALLY PLEADED THAT THE GROUNDS OF THE REVENUE ARE TO BE ALLOWED. 5. ON THE OTHER HAND, FROM THE SIDE OF THE ASSESSEE, TH E LEARNED COUNSEL FOR THE ASSESSEE HAS SUPPORTED THE ORDER OF THE LEARNED SHRI RAJESHKUMAR BABULAL JEJANI 6 CIT(A) AND REFERRED TO WRITTEN SUBMISSIONS, A PORTION IS REPRODUCED BELOW:- 2. THE ASSESSEE IS PURCHASING AGRICULTURAL PRODUCE FROM THE AGRICULTURIST. THE GENERAL PATTERN THEREOF IS AS DE SCRIBED HEREINAFTER. VARIOUS AGRICULTURIST COME TO NAGPUR F OR SALE OF THEIR PRODUCE. SOME AGRICULTURIST SELL THEIR PRODUCE FROM THEIR OWN VILLAGES. ASSESSEES ADATIA APPROACHES SUCH AGRICUL TURIST WHO DESIRE TO SELL THEIR PRODUCE. ADATIA TAKES SAMPLE A ND SHOWS TO THE ASSESSEE. IF THE SAMPLE IS APPROVED THEN THE RA TES ARE NEGOTIATED BY ADATIA WITHIN THE RANGE STATED BY THE ASSESSEE, WITH THE AGRICULTURIST. IF THE AGRICULTURIST ACCEPT S THE RATE THE DEAL IS FINALIZED. THEN THE ASSESSEE PREPARES KRISH AK KHAREDI PATTI IN WHICH THE NAME OF THE AGRICULTURIST WHOSE GOODS ARE BEING PURCHASED BY THE ASSESSEE IS STATED, NAME OF THE ASSESSEE IS STATED AS PURCHASE, NAME OF DALAL THROUGH WHOM T HE DEAL IS FINALIZED IS ALSO STATED, THE DESCRIPTION OF AGRICU LTURAL PRODUCE, ITS RATE AND TOTAL PRICE AND THE ATE ON WHICH THE PRODU CE IS PURCHASED IS STATED. COPY THEREOF IS GIVEN TO THE D ALAL. OR THAT BASIS DALAL PREPARES HIS MEMO WHICH IS STYLED AS KR ISHAK MAL BIKRI PATTI. IT CONTAINS ALL THE RELEVANT DETAILS S UCH AS NAME OF THE AGRICULTURIST, NAME OF THE PURCHASER I.E., THE ASSESSEE, THE DISCRPTION OF GOODS, ITS WEIGHT, RATE, PRICE, ETC. AND GIVES THE MEMO TO THE SAS. AFTER A FEW DAYS HE OR HIS SERVANT COMES TO THE ASSESSEE WITH THE COPY OF THE SAID MEMO WHEN TH E ASSESSEE MAKES PAYMENT OF THE AMOUNT STATED THEREIN BY BEARE R CHEQUE AND TAKES HIS SIGNATURE ON THE ORIGINAL MEMO WHICH IS WITH THE ASSESSEE ACKNOWLEDGING THE RECEIPT OF PAYMENT OF CH EQUE. CHEQUE IS DRAWN IN THE NAME OF DALAL OR HIS EMPLOYE E WHO COMES TO COLLECT THE PAYMENT. ON RECEIPT OF THE BEA RER CHEQUE DALAL GOES TO THE BANK, ENCASHES THE SAME, AND MAKE S PAYMENT TO AGRICULTURIST IN CASH WHOSE PRODUCE IS PURCHASED BY THE ASSESSEE THROUGH HIM. SINCE THE PURCHASE IS MADE FR OM THE AGRICULTURIST ON THE CONDITION OF CASH PAYMENT, THE ASSESSEE MAKES PAYMENT TO HIS BROKER BY BEARER CHEQUE WHO IN TURN ENCASHES THE SAME AND MAKES PAYMENT TO THE AGRICULT URIST SELLER. THE ASSESSEE IN HIS LEDGER OPENS THE ACCOUN T OF AGRICULTURIST. WHEN THE DELIVERY OF GOODS IS TAKEN BY THE ASSESSEE PRICE THEREOF IS CREDITED TO HIS ACCOUNT A ND WHEN THE PAYMENT IS MADE THROUGH BROKER BY BEARER CHEQUE THE ACCOUNT OF AGRICULTURIST SELLER IS DEBITED. THE ABOVE MODUS OPERANDI SHOWS THAT THE ASSESSEE PURCHASES THE AGRICULTURAL PRODUCE OF AGRICULTURIST WHOSE NAME IS STATED IN MAL KHAREDI PATTI AND IT IS THE ACCOUNT OF THE AGRICULTURIST THAT IS CREDIT IN THE BOOKS OF THE ASSESSEE BY THE AMOUNT OF PRICE OF GOODS PURCHASED, THOUGH, SHRI RAJESHKUMAR BABULAL JEJANI 7 THROUGH BROKER. THUS, THE PREVITY OF CONTRACT IS BE TWEEN THE ASSESSEE AND THE AGRICULTURIST. WHEN THE PAYMENT IS MADE BY THE ASSESSEE TO HIS BROKER BY BEARER CHEQUE THE ACC OUNT OF AGRICULTURIST IS DEBITED BY THE SAID AMOUNT AND THE TRANSACTION OR DEAL IS THUS FINALLY SETTLED. THEN THE ASSESSEES A DATIA EHNCHASES THE CHEQUE AND AS REQUIRED MAKES PAYMENT IN CASH FO R THE AGRICULTURAL PRODUCE TO THE AGRICULTURIST ON BEHALF OF THE ASSESSEE. 6. HAVING HEARD SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE CONSIDERED OPINION THAT THE FACTS HAVE CLEARLY REVEALED THAT T HE ASSESSEE HAD MADE PURCHASES FROM THE AGRICULTURISTS AND NOT FROM THE ARTIYAS. THE MODE AND MANNER IN WHICH THE ACCOUNTS MAINTAINED HAVE DEMONS TRATED THAT THE RESPECTIVE ACCOUNTS OF THE AGRICULTURIST WERE MAINT AINED ON THE BASIS OF THE MAL KHARIDI PATTI AND THEREUPON THE PAYMENT WAS MADE THROUGH BEARER CHEQUE WHICH WAS ENCASHED AS PER THE CONVENIENCE OF THE PARTIES. THERE ARE FEW DECISIONS WHICH HAVE APPROVED THIS TYPE OF METH OD OF PURCHASE OF AGRICULTURAL PRODUCE SO AS TO FALL UNDER THE CATEGO RY OF EXCEPTION PRESCRIBED UNDER RULE 6DD OF THE RULES. IN THE DECISION OF SHR I RENUKESWARA (SUPRA), 93 ITD 263 (BANGALORE) ALSO, IT WAS FOUND THAT THE PAYMENT WAS IN RESPECT OF PURCHASE OF AGRICULTURAL PRODUCE. THE SO CALLED AGENT WAS OPERATING IN THE MARKET YARD SET-UP UNDER THE STATE RMC ACT. THE PERSON SO OPER ATING IS ONLY AN AGENT OF THE CULTIVATOR AS WELL AS AN AGE NT OF THE BUYER. THE CULTIVATOR RECEIVED THE PAYMENT IN CASH, THEREFORE, THE PAYMENT MADE TO SUCH AN AGENT WAS IN A WAY AN INDIRECT PAYMENT TO T HE CULTIVATOR BUT THROUGH AGENT. THE RESPECTED CO-ORDINATE BENCH OF T HE TRIBUNAL HAS OPINED THAT ON COMBINED READING OF CLAUSE (F) AND CLAUSE ( I) OF RULE 6DD, R/W SECTION 40A(3), THE DISALLOWANCE WAS UNSUSTAINABLE. RESPECTFULLY FOLLOWING SHRI RAJESHKUMAR BABULAL JEJANI 8 THIS DECISION, WE HEREBY CONFIRM THE LEGAL AS WELL AS FACTUAL FINDINGS OF THE LEARNED CIT(A) AND DISMISS THE GROUND OF APPEAL RAI SED BY THE REVENUE. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08.2015 SD/ - SHAMIM YAHYA ACCOUNTANT MEMBER SD/ - MUKUL K. SHRAWAT JUDICIAL MEMBER NAGPUR, DATED: 28.08.2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPUR CITY CONCERNED; (5) THE DR, ITAT, NAGPUR; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY A SSISTANT REGISTRAR ITAT, NAGPUR