M/s. Gamdiwala Dairy, Ahmedabad V. The ACIT, Circle-3, Ahmedabad

ITA 1497/AHD/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8613 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-02-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 26-05-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL SRDR
• Assessee Lawyers: P M MEHTA; S N SOPARKAR
• Keywords: Gross profit estimation; Depreciation; Assessment record
• Section: 40A(3); 13; 22; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1497 & 1591/AHD/2005 ASSESSMENT YEAR:2001-02 DATE OF HEARING:11.2.10 DRAFTED:8.3.10 M/S. GAMDIWALA DAIRY, SANKADI SHERI, MANEKCHOWK, AHMEDABAD PAN NO.AADFG5260B ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-3, 5 TH FLOOR INSURANCE BLDG. ASHRAM ROAD, AHMEDABAD -380014 V/S . V/S . ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-3, 5 TH FLOOR, INSURANCE BLDG. ASHRAM ROAD, AHMEDABAD M/S. GAMDIWALA DAIRY, SHANKDI SHERI, MANEKCHOWK, AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S.N.SOPARKAR & SHRI P.M. MEHTA, AR REVENUE BY:- SHRI GOVINDSINGHAL, SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE CROSS APPEALS ONE BY THE ASSESSEE AND OTHE R BY REVENUE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APP EALS)-VII, AHMEDABAD IN APPEAL NO. CIT(A) VII/CIR.3/90/04-2005 DATED 22-03-2005. T HE ASSESSMENT WAS FRAMED BY THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-3, AH MEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 29-03- 2004 FOR THE ASSESSMENT YEAR 2001-02. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I N ITA NO.1497/AHD/2005 IS AS REGARDS TO THE ORDER OF CIT(A) IN NOT CONSIDERING T HE GROUND THAT THE ORDER OF ASSESSING OFFICER IS VOID AND DESERVED TO BE CANCEL LED. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 2 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT HE HAS INSTRUCTED FROM ASSESSEE THAT NOT TO PRESS THIS ISSUE. ACCORDINGLY, WE DISMISS THE SAME AS NOT PRESSED. 4. THE NEXT COMMON ISSUE IN THESE CROSS APPEALS OF THE REVENUE AS WELL AS THAT OF ASSESSEE IS AS REGARDS TO PARTIALLY CONFIRMING T HE DISALLOWANCE U/S.40A(3) OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUND NO.2.1 :- ITA NO.1497/AHD/2005 FOR THE ASSESSEE. 2.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN SUSTAINING, EVE N IF PARTIALLY, THE DISALLOWANCE U/S.40A(3) OF THE I.T. ACT, 1961, ON T HE PAYMENTS AGGREGATING TO RS.33,38,014 (THE QUANTUM OF THE DISALLOWANCE SUSTA INED BEING RS.6,67,603 @ 20% OF RS.33,38,014). SHE OUGHT TO HAVE ORDERED F OR THE DELETION OF THE DISALLOWANCE U/S.40A(3) IN ENTIRE. AND REVENUE HAS RAISED THE FOLLOWING GROUND :- ITA NO.1591/AHD/2005 FOR THE REVENUE. THE LD. CIT(A) HAS ERRED IN LAW AND ON FATS OF THE CASE IN HOLDING THAT 1. CASH PAYMENT OF RS.2,42,55,424/- ARE NOT HIT BY THE PROVISION OF SECTION 40A(3) AND HENCE NO DISALLOWANCE AN BE MADE. 2. RELIEF OF RS.48,51,084/- BE GRANTED. 3. THE ARRANGEMENT MADE BY THE ASSESSEE FOR MAKING CASH PAYMENTS THROUGH INTERMEDIARIES IS NOT COVERED BY THE PROVIS IONS OF SEC. 40A(3) OF THE IT ACT. 5. THE BRIEF FACTS RELATING TO THE ABOVE COMMON GRO UNDS ARE THAT THE ASSESSEE- FIRM IS IN THE BUSINESS OF PROCESSING AND TRADING O F MILK AND OTHER DIARY PRODUCTS. THE ASSESSEE-FIRM PURCHASES MILK AND OTHER PRODUCTS FROM DIFFERENT ENTITIES LOCATED AT DIFFERENT PLACES SURROUNDING AHMEDABAD MAINLY OF MEHSANA DISTRICT. THE ASSESSEE-FIRM PASTEURIZED AND SALE MILK IN POUCH PA CKING AND ALSO IN LOOSE CANS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE PRODUCED THE BOOKS OF ACCOUNT ALONG WITH SUPPORTING BILLS AND VOUCHERS. T HE ASSESSING OFFICER NOTICED FROM THE ACCOUNTS THAT THE ASSESSEE IS MAKING REGUL AR PAYMENT IN CASH IN EXCESS OF RS.20,000/- FOR PURCHASES OF MILK FROM DIFFERENT EN TITIES LOCATED AT DIFFERENT PLACES. THE AO IMPOUNDED THE CASH BOOK U/S.131 OF THE ACT A ND NOTED THAT THE ASSESSEE HAS BEEN MAKING HUGE AMOUNT OF CASH PURCHASE IN EXC ESS AMOUNTING TO RS.20,000/- . THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY TH E PROVISION OF SECTION 40A(3) OF THE ACT SHOULD NOT BE INVOKED AND HE ALSO ENCLOSED THE DETAILS AMOUNTING TO ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 3 RS.3,29,27,598/- FOR INVOKING THIS PROVISION. THE A SSESSEE REPLIED THAT THE PAYMENTS WERE MADE TO FARMERS AND VILLAGERS AND THEREFORE AR E COVERED BY THE EXCEPTIONS U/S.40A(3) OF THE ACT R.W.S RULE 6DD(F) OF THE RULE , 1962. THE ASSESSEE WAS REQUIRED TO PROVE THAT THE PURCHASES WERE MADE FROM FARMERS AND VILLAGERS AND SUBSTANTIATED THE SAME WITH EVIDENCE. THE ASSESSEE PRODUCED CONFIRMATION FROM VARIOUS DIARIES STATING THAT THEY WERE COLLECTING T HE MILK FROM THE FARMERS AND SUPPLIED IT TO THE ASSESSEE AND IT ALSO PRODUCED TH E KEY-PERSON OF THE DIARIES WHICH SUPPLIED MILK TO THE ASSESSEE. ALL OF THEM CONFIRM ED THAT THEY PURCHASED MILK FROM VILLAGERS, WHO HAVE CATTLE AND IN TURN SOLD TO THE ASSESSEE. MOST OF THEM ALSO CONFIRMED THAT THEY WERE PAID HONARIUM FOR FACILITA TING THE SERVICES TO THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT ASSESSEE IS MAKING CASH PAYMENT TO DIFFERENT PARTIES, I.E. THE DIARIES AND INDIVIDUALS WHO HAVE NOT PRODUCED MILK OR MILK PRODUCTS AND SOLD BY THEM. THE ASSESSING OFFICER NOTED THAT THESE DIARIES HAVE INDEPENDENT IDENTITY AND THESE ARE NOT FRONT ORGANIZATIONS FOR PRODUCING AND SELLING MILK TO THE ASSESSEE. THE ASSESSING OFFICER NOTED THE FOLLOWING CONCLUSION:- I) NONE OF THEM HAD ANY PROOF OF THEIR BEING EITHE R PRAMUKH / MANTRIES OF THESE DIARIES. I) NONE OF THESE DIARIES WERE REGISTERED IN THE FIR ST PLACE WITH APPROPRIATE AUTHORITY OF THE GOVERNMENT. IN MOST OF THE CASES I T WAS FOUND THAT THERE WAS EXISTING REGISTERED DIARY CO-OPERATIVE FUNCTIONING IN THE VILLAGES IN WHICH THE DAIRIES UNDER CONSIDERATION ARE LOCATED. III) NONE OF THEM MAINTAINED ANY BOOKS OF ACCOUNT N OR ANY EVIDENCES OF THE PROCURING AND SELLING OF MILK. IV) IN SOME CASES, ASSESSEE PRODUCED CERTIFICATE OF THE SARPANCHES OF THE RESPECTIVE VILLAGES WHICH STATES THAT THE VILLAGERS WHO ARE PRODUCERS OF MILK SELL THEIR MILK TO THESE DAIRIES UNDER CONSIDERATIO N. BESIDES THIS NO FACTUAL EVIDENCE OF THE PROCESSION OF LIVESTOCK IN SUCH NUM BER AS COULD BE SUFFICIENT TO CATER TO THE SALES MADE TO GAMDIWALA DAIRY WAS [ PRODUCED BEFORE THE UNDERSIGNED. V) NONE OF THESE DAIRIES HAVE ANY LIVESTOCK SUFFICI ENT ENOUGH TO SUSTAIN THE TRANSACTION MADE BETWEEN THE DAIRIES AND THE ASSESS EE. VI) SOME OF THE DAIRIES LIKE MADHURAM ICE FACTORY ( NO EVIDENCE PRODUCED TO ESTABLISH THAT THEY ARE PRODUCERS), SIMOLI CORPORAT ION ARE ESTABLISHED BEYOND DOUBT THAT THEY ARE NOT A PRODUCERS OF MILK. SIMOLI CORPORATION IS OWNED BY SHRI YOGESH PATEL, WHO IS AN EMPLOYEE OF THE ASSESS EE. SHRI SURESH PATEL, IS ANOTHER EMPLOYEE OF THE ASSESSEE FIRM IN WHICH HIS WIFE AND OTHER FAMILY MEMBERS ARE PARTNERS. SHRI SURESH PATEL APPEARED BE FORE THE UNDERSIGNED ON 23.02.04. THIS PERSON IS ALSO INVOLVED IN SELLIN G MILK TO THIS FIRM. ON ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 4 ENQUIRY ABOUT THE MODUS OPERANDI OF SIMOLI CORPORAT ION THE PURCHASE AND SELLING OF MILK SHRI SURESH PATEL INFORMED THAT SIM OLI CORPORATION PURCHASE THE MILK FROM OPEN MARKET AND SELLS THE SAME TO THE ASSESSEE FIRM. ON ANALYZING ALL THE ABOVE THE FOLLOWING EMERGES: - THAT THESE DAIRIES ARE DISTINCT ENTITIES WHICH TR ANSACT THE BUSINESS OF PROCURING THE MILK AND IN TURN SELLING THE SAME TO THE ASSESSEE. - THEY BY THEMSELVES DO NOT PRODUCE THE MILK BUT TH EY PURCHASE IT FROM THE PRODUCERS. THUS IT IS ESTABLISHED BEYOND THE DOUBT THAT THE PA RTIES TO WHOM THESE PAYMENTS ARE MADE ARE NOT PRODUCERS OF MILK. 6. THE ASSESSING OFFICER ALSO NOTED THAT ALL MOST A LL THE BILLS AND VOUCHERS PRODUCED IN SUPPORT OF PAYMENTS MENTIONED IN THE CA SH BOOK WERE DEFECTIVE AND MAJORITY OF THEM LIKE THE SIGNATURE OF THE RECIPIEN TS, DATE OF PAYMENT, NO REVENUE STAMP AND EVEN DATES ARE WRITTEN AT LATER POINT OF TIME AND SO ON. AS THE ASSESSING OFFICER WAS APPLYING THE PROVISIONS OF 40A(3) OF TH E ACT, HE OVERLOOKED THE DEFECT IN THE VOUCHERS. ACCORDINGLY, HE HELD THAT THE PAYMENT MADE FOR PURCHASES OF MILK ARE NOT ELIGIBLE FOR EXCEPTIONS AS PROVIDED UNDER RULE 6DD(F) OF IT RULES AND THE PROVISIONS U/S.40A(3) WILL APPLY. HE MADE THE REASO NING FOR THE SAME THAT IN NONE OF THE CASES ABOVE IT HAS BEEN ESTABLISHED THAT THE PA YMENTS ARE IN FACT MADE TO PRODUCERS OF MILK. ACCORDING TO HIM, THE PRODUCE SH OULD PRIMARILY PURCHASED FROM A PRODUCER ONLY BUT THE EXCUSE MADE BY THE ASSESSEE T HAT ANOTHER PARTY HAS MERELY PURCHASED FROM THE PRODUCER FOR THE PURPOSE OF SELL ING TO CONSUMER AND SO IS ENTITLED FOR THE EXEMPTION GIVEN TO THE PRODUCER IS A FAR FETCHED AND TOTALLY UNACCEPTABLE ARGUMENT. HE NOTED THAT THE ACT SPECI FICALLY AND IN NO AMBIGUOUS TERMS PROVIDES FOR EXEMPTION ONLY TO THE CULTIVATO R, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS. ACCORDINGLY, HE NAR RATED THAT THE CASH PAYMENTS FOR PURCHASE OF MILK DOES NOT FALL UNDER THE EXCEPTIONS AS PROVIDED UNDER RULE, 6DD(F) OF THE I.T. RULES. ACCORDING TO HIM, THE PAYMENT TO THE EXTENT OF RS.2,75,93,579/- ARE COVERED UNDER THE PROVISION OF SECTION 40A(3) OF TH E ACT AND MADE ADDITION OF RS.55,18,715/-. AGGRIEVED, THE ASSESSEE PREFERRED A PPEAL BEFORE CIT(A). THE CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE VID E PARA-3.3 OF HIS APPELLATE ORDER AS UNDER:- 3.3 I HAVE CONSIDERED RIVAL SUBMISSIONS IN SOME DE TAIL AND MY FINDING IS THAT THE APPELLANT BEING INVOLVED IN MILK PROCESSING IS DEFINITELY OBTAINING THE REQUISITE QUANTITIES THROUGH AN ORGANIZED NETWORK O F COLLECTION POINTS OR CENTRES. THE MOOT POINT TO BE DECIDED IS WHETHER TH E COLLECTION CENTRES / ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 5 DAIRIES ARE BUYING THE MILK FROM VILLAGERS AND SELL ING TO THE APPELLANT IN WHICH CASE AN ELEMENT OF PROFIT OR COMMISSION PAYMENTS FO R THESE CENTRES OR DIARIES IS INVOLVED OR WHETHER THESE CENTRES ARE ONLY FACIL ITATING THE FLOW OF MILK FROM PARTICULAR RURAL AREAS TO THE APPELLANTS PLANT IN AHMEDABAD. FROM ITS SIDE THE APPELLANT PRODUCED CONFIRMATIONS AS WELL AS THE PRA MUKHS OR MANAGERS OF THE DAIRIES, BUT, THE AO ONLY EXAMINED SEVEN OF THEM. F ROM SUCH A SMALL SAMPLE OF PERSONS, THE ASSESSING OFFICER COULD NOT HAVE RE ASONABLY CONCLUDED THAT THESE PEOPLE DID NOT POSSES ENOUGH LIVESTOCK OR CAT TLE TO BE ABLE TO CATER TO THE REQUIREMENTS OF THE APPELLANT, THEREBY IMPLYING THAT THESE DAIRIES WERE LARGE CO-OPS AND WERE BUYING MILK FROM ALL OVER AND SELLING TO THE APPELLANT. HOWEVER, NO EVIDENCE TO THIS EFFECT HAS BEEN ADDUCE D BY THE AO. IF THESE DAIRIES WERE SERVING AS MIDDLEMEN/COMMISSION AGENTS /ARDHTIS THEY WOULD HAVE TO HAVE BOOKS OF ACCOUNT TO KEEP TRACK OF PURC HASES, SALES, PROFITS ETC. BUT, THE AO HAS HIMSELF MAINTAINED THAT THAT WAS NO T THE CASE. IT ALSO APPEARS REASONABLE TO ASSUME THAT THE APPELLANT HAD TO HAVE LARGE QUANTITIES OF MILK EVERYDAY AND TO SUCCESSFULLY DO THAT IT COULD NOT H AVE PURCHASED THE SAME FROM INDIVIDUAL VILLAGERS. THE ARRANGEMENT SET UP B Y THE APPELLANT APPEARS TO BE A REASONABLE ONE. HOWEVER, MY ASSESSMENT, ESPECI ALLY IN THE LIGHT OF WHAT HAS BEEN INITIALLY ADMITTED BY SH. SURESH PATEL (ON PG 4 PREVIOUS) IS THAT THE APPELLANT HAS COLLECTION POINTS OR DAIRIES FROM WHO M MILK IS AVAILABLE IN A SEAMLESS FLOW, BUT ALSO THAT (BECAUSE OF COMMITMENT TO PATRONS OR OTHER BUSINESS REQUIREMENTS) IT ALSO BUYS MILK DIRECTLY F ROM THE OPEN MARKET. UNDER THE CIRCUMSTANCES, THE APPELLANTS EXPLANATION IN R ESPECT OF CASH PAYMENTS AT SR. NOS. 2-24 (ON PG 5 SUPRA) IS ACCEPTABLE. PAYMEN T MADE TO SARDAR KISHAN DAIRY (FUDEDA) OF RS.22,40,741 IS NOT ALLOWED IN VI EW OF SH. SURESH B. PATELS ADMISSION BEFORE THE AO THAT HE SOLD MILK TO THE AP PELLANT. HIS AFFIDAVIT, DATED 29.9.04 HAS BEEN SWORN IN 6 MONTHS AFTER THE ASSESSMENT IN THE CASE HAS BEEN COMPLETED AND STATES THAT THERE ARE CERTAI N DISCREPANCIES IN HIS ANSWERS TO QUESTIONS IN RESPECT OF HIS STATEMENT GI VEN BEFORE THE AO ON 22.3.04. HE HAS EXPLAINED THAT THE DISCREPANCIES HA VE ARISEN DUE TO MENTAL TENSION. THE AFFIRMATION IN THE AFFIDAVIT APPEARS C ONTRIVED AND UNRELIABLE. SIMILARLY, PAYMENTS MADE IN RESPECT OF FIRMS/COMPAN IES MENTIONED AT SR.NOS. 25, 26, 27 ARE DISALLOWED AS IT IS DIFFICULT TO IMA GINE THAT THESE CONCERNS REPRESENT COLLECTION CENTRES OF THE SORT MENTIONED ABOVE IN PARA 3.1 ABOVE. AS FAR AS PAYMENTS MADE TO OTHERS AT SR. NO.1-13 (O N PG 5 PREVIOUS) ARE CONCERNED, THE AO HAS NOT SPECIFICALLY DEALT WITH E ACH BEYOND NOTING THAT INTER BRANCH TRANSFERS OF FUNDS, AND ELECTRICITY PA YMENTS AS ALSO PAYMENTS MADE THROUGH D.D. TO ZALORE DUDH UTPADAK ARE BEING EXCLUDED FROM THE APPLICATION OF SEC.40A(3). YET, SALARY PAYMENT MADE BY THE APPELLANT AT KANUSHA BRANCH (SR.NO.2) HAS BEEN ALLOWED ONLY TO T HE EXTENT OF RS.50,2000/- WHILE RS.2,13,820 OUT OF THE SAME PAYM ENT IS DISALLOWED. SIMILARLY, INTER BRANCH TRANSFER (SR.NO.1) OF RS.48 ,95,000/- HAS BEEN ALLOWED TO THE EXTENT OF RS.43,75,000/- WHILE RS.5,20,000/- IS DISALLOWED. AGAIN GEB BILL PAID IN RESPECT OF KHANUSHA BRANCH (SR.NO.3) I S ALLOWED TO THE EXTENT OF RS.47,978/- AND RS.2,86,691/- IS DISALLOWED. SIMILA RLY, SALES COMMISSION TO HAWKERS (SR.NO.4) IS DISALLOWED COMPLETELY. SINCE T HE APPELLANT HAS CONTENDED THAT NONE OF THESE SINGLE PAYMENTS EXCEED ED RS.20,000/- AND THE AO HAS NOTED NOTHING TO THE CONTRARY, THE WHOLE PAY MENT OF RS.2,93,148/- IS ALLOWED. THE TRANSACTION AT SR.NO.5 TO M/S PATEL & C. IS REPAYMENT OF LOAN AND IS NOT A PURCHASE. THEREFORE, SEC. 40A(3) WILL NOT BE APPLICABLE TO IT. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 6 SR.NO.6 PERTAINS TO SHRESHTHA CORNER, A RETAIL OUTL ET OF THE APPELLANT. THIS AMOUNT AGAIN DOES NOT REPRESENT EXPENDITURE AND IS IN FACT A BANK TRANSACTION WRONGLY POSTED IN APPELLANTS BOOKS AND LATER REVER SED IN ITS CASH BOOK. EVIDENCE OF THE SAME IS PROVIDED BY THE APPELLANT. THIS, THEREFORE, IS EXEMPT FROM APPLICATION OF SEC. 40A(3). SR.NO.7 PERTAINS T O PAYMENT OF GEB BILL MADE IN CASH BY M/S. JYOTI PRIME FINANCE LTD. THE APPELL ANT PAID THE CONCERN IN CASH, WHICH IS NOT TO BE ALLOWED. THIS TRANSACTION WILL BE AFFECTED BY SEC. 40A(3). SR.NO.8 REPRESENTS SHRI CHINUBHAI S PATELS (PARTNER) ELECTRICITY BILL PAYMENT. THE EXPENDITURE HAS NOT BEEN DEBITED BY TH E APPELLANT IN ITS ACCOUNT BOOKS. INSTEAD THE CAPITAL ACCOUNT OF SHRI CHINUBHAI HAS BEEN DEBITED. THEREFORE, THE PROVISIONS OF SEC. 40A(3) D O NOT APPLY. ALSO, PAYMENT (AT SR.NO.9) OF SALARY AT AHMEDABAD OFFICE IS ALLOW ED BY THE AO TO THE EXTENT OF RS.25,174/- AND RS.25,039/- IS DISALLOWED. SINCE NO REASON HAS BEEN ASCRIBED BY THE ASSESSING OFFICER THE FULL PAYMENT IS ALLOWED. TO CONCLUDE, THE FOLLOWING TRANSACTIONS DISALLOWED BY AO NOW STA ND DELETED: SR NO. NAME OF PARTY DISALLOWED 1 YOGESHWAR KISHAN DAIRY (TECHAVA) 1018514 2 3 RAMKISHAN DAIRY (COT) JAY KISHAN DAIRY (RIDROL) 804609 3206793 4 UMIYA KISHAN DAIARY (SARDARPUR) 1433373 5 UMIYA KISHAN DAIRY (PEROJPURA) 610104 6 KISHAN DAIRY (RANSIPUR) 1165473 7 UMIYA DAIRY (PIPLEJ) 211339 8 AMBICA DAIRY (DEGHROTA) 524882 9 NILKANTH DAIRY (MALOSAN) 2638093 10 SARDAR KISHAN DAIRY (KADOLI) 1902772 11 MADHURAM ICC FACTORY 1408629 12 LAXMANBHAI (PALANPUR) 1403010 13 SURESHBHAI (VASAI) 361652 14 PATEL BHAGUBHAI (JORAPURA) 262832 15 BHOGIBHAI (DHANERA) 589225 16 RAMANLAL GUPTA (DHANPURA) 23310 17 GANPATBHAI (DHANERA) 34916 18 PATEL VISHNUBHAI I (KANAKPURA) 30000 19 GOVINDBHAI JIVABHAI MODI (PALANPUR) 1340367 20 UNSHBHAI KAMUBHAI SHEKH (SATNAGAR) 14070 21 VIHOL KANUSHING L (KOTADI) 930985 22 PATEL VISHNUBBAI G (RANASAN) 1398273 23 CASH PURCHASE 1388510 OTHERS 1 GAMDIWALA DAIRY (MALANKA) 520000 2 KHANUSHA BRANCH (SALARY) 213820 3 KHANUSHA BRANCH (GEB BILL) 286691 4 SALES COMMISSION (HAWKERS) 293148 5 M/S. M.S.PATEL & CO. (LOAN) 35585 6 SHRESHTHA CORNER COMPANY (DEPO) 30960 7 CHUNIBHAI S PADTEL (ELECTRIC BILL) 22350 ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 7 8 SALARY EXP. (ABD) 26039 TOTAL 24255424 AO IS DIRECTED TO RECALCULATE 20% OF THE BALANCE DI SALLOWANCE VIZ. 1) SARDAR KISHAN DAIRY : RS.22,40,741 2) SIMOLI CORPORATION :RS. 2,00,228 3) GANGOTRIO DAIRY :RS. 1,05,000 4) ZALORE SIROHI JILLA :RS. 7,67,100 5) JYOTI PRIME FIN. :RS. 24,945 TOTAL :RS.33,38,014 THE APPELLANT, THEREFORE, GETS RELIEF TO THE EXTENT MENTIONED ABOVE. AGGRIEVED, AGAINST THE PARTIAL CONFIRMATION, THE AS SESSEE FOR RS.33,38,014/- TO FALL U/S.40A(3) OF THE ACT, THE ASSESSEE CAME AND FOR TH E BALANCE DELETION OF RS.2,42,55,424/- THE REVENUE CAME, IN SECOND APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER, THE ORDER OF CIT(A) AND PAPER BOO KS FILED BY THE LD. COUNSEL FOR THE ASSESSEE CONSISTING OF PAGES 1 TO 474. WE FIND THAT THE ASSESSEE BEFORE ASSESSING OFFICER AS WELL AS CIT(A), FURNISHED EXPL ANATION THAT THE PAYMENTS WERE MADE TO THE FARMERS AND VILLAGERS WERE COVERED BY E XCEPTION AS PROVIDED U/S.40A(3) R.W.S. RULE 6DD(F) OF THE RULES. THE LD. COUNSEL FO R ASSESSEE, SHRI S.N. SOPARKAR STATED THE FACT THAT THE ASSESSEE BEFORE THE ASSESS ING OFFICER HAS PROVIDED A LIST OF VARIOUS PARTIES TO WHOM, AGGREGATE OF SUCH PAYMENTS WERE MADE AND ALSO STATED BY HIM THAT THE SELLER OF THE MILK TO THE ASSESSEE IN THE LIST ARE EITHER DAIRIES LOCATED AT DIFFERENT PLACES OR INDIVIDUALS PROCURING THE MILKS FROM VARIOUS PLACES ON BEHALF OF THE ASSESSEE. HE STATED THAT THE AO HAS EXAMINED TH E PERSONS PRODUCED BUT THE CONTENTIONS OF THE ASSESSEE ARE NOT ACCEPTED BY HIM . HE HAS MADE THE DISALLOWANCE ON THE GROUNDS THAT THE PAYMENTS WOULD NOT BE COVER ED:- A) AS PAYMENTS FALLING WITHIN ANY OF THE EXCEPTIONS PROVIDED FOR IN RULE 6DD(E), (F) & (G) OF THE RULES, 1962 READ WITH THE SECOND PROVISO TO SECTION 40A(3); B) THAT, IN PARTICULAR, NONE OF THE PAYMENTS COULD BE REGARDED AS BEING COVERED BY EITHER OF THE CLAUSES (E), (F) OR (H) OF THE AFORESAID RULE 6DD. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE AS SESSMENT ORDER AND STATED THAT IN MAKING ABOVE DECISION, THE AO HAS MADE VARIOUS OBSE RVATIONS AND THE RELEVANT ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 8 OBSERVATIONS ARE REPRODUCED AT PARA-5 AT PAGE-3 OF THIS ORDER. HE STATED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS DETAILS OF THE TRANSACTIONS WERE CALLED FOR AND THE ASSESSEE HAD FURNISHED SUCH DETAILS INCLUDING P URCHASE OF MILK AND OTHER OUTGOINGS TOTALING UP TO RS.3,29,27,598/-. THE ASSE SSING OFFICER AFTER CONSIDERING THESE DETAILS DISALLOWED 20% OF RS.2,75,93,442/- VI Z. RS.55,18,715/-. HE ALSO NARRATED THE FACT THAT THE ABOVE TOTAL CASH PAYMENT /OUTGOINGS INCLUDE PAYMENTS FOR PURCHASER OF MILK RS.2,63,10,904 (NOTED AT PAGE 5 & 6 OF PARA-6 OF THIS ORDER AND DETAILS OF SR.NO.1 TO 27 ABOVE) AND THE BALANCE OF THE PAYMENTS OF RS.59,50,890 IS FOR OTHERS OUTGOINGS (SR.NO.1 TO 13). THE LD. COUN SEL FOR THE ASSESSEE MADE ARGUMENT THAT THE ASSESSING OFFICER HAS FAILED TO A PPRECIATE THAT SO FAR AS THE ASSESSEE IS CONCERNED THE PAYMENTS ARE MADE TO VARI OUS PERSONS WHO MANAGED THE COLLECTION CENTRES FOR MILK BECAUSE IT IS NOT P OSSIBLE EITHER FOR THE ASSESSEE OR FOR THE INDIVIDUAL PRODUCERS OF MILK SO TO DO. THE ASSE SSEE AND THE PRODUCERS OF MILK MUTUALLY AGREED UPON THE ARRANGEMENT THAT THE PRODU CERS OF MILK IN PARTICULAR VILLAGE COLLECTIVELY SELECTED ANY ONE OF THEM TO LOOK AFTER THE COLLECTION OF MILK FROM THE FARMERS AND IN TURN SUPPLYING THE MILK TO THE ASSES SEE AND THE ASSESSEE AGREED TO MAKE PAYMENT TO THE FARMERS FOR THE MILK SOLD BY TH EM THROUGH SUCH MUTUALLY AGREED UPON PERSONS AMONGST THE SAID FARMERS OF EACH VILLA GE. ACCORDING TO HIM, THE AFORESAID ARRANGEMENT WAS PUT INTO OPERATION BY THE FARMERS OF EACH VILLAGE. THEY DECIDED TO GIVE HIGH SOUNDING NAMES TO SUCH COLLECT ION CENTRE SUCH AS UMIYA KISHAN DAIRY PEROJPURA, RAMKISHAN DAIRY COT, JAY KISHAN DAIRY RIDROL AND SO ON. IN SHORT, THE LD. COUNSEL ARGUED THAT THE FARME RS OR THE PRODUCERS OF MILK DID NOT LOOSE THEIR INDIVIDUAL IDENTITY AND EACH SUCH FARME R WAS PAID FOR THE MILK SOLD BY THEM AT A FIXED PRICE DEPENDING UPON THE QUALITY OF THE MILK VIZ. FAT CONTENTS AND QUANTITY. HE FURTHER NARRATED THAT THIS FACT COUPLE D WITH THE FACT THAT NONE OF THE ALLEGED SOCIETIES ARE REGISTERED SOCIETIES OR LEGAL ENTITIES OF ANY SORT, NONE HAS MAINTAINED ANY REGULAR BOOKS OF ACCOUNT, NONE HAS P URCHASED THE MILK FROM THE FARMERS INDEPENDENTLY AND MADE OVER TO THE ASSESSEE , NONE OF THE ENTITIES MAINTAINED INDEPENDENT ACCOUNTS OF THE FARMERS EXCE PT THE NOTING OF THE MILK CONTRIBUTED BY THE FARMERS IN TERMS OF QUANTITY AND QUALITY VIZ. FAT CONTENTS THEY WERE PAID BY THE ASSESSEE THROUGH THE PERSONS WHO COLLEC TED THE MILK FROM THE FARMERS AND SUPPLIED TO THE ASSESSEE. ACCORDING TO HIM, THE SE NOTINGS CAN NEVER BY ANY STRETCH OF IMAGINATION BE EQUATED TO MAINTAINING BO OKS OF ACCOUNT ETC. WHEN CONSIDERED IN TOTALITY IT WOULD BE CLEAR THAT THE M ILK WAS PURCHASED BY THE ASSESSEE ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 9 FROM THE PRODUCERS OF MILK. IN SUPPORT OF ABOVE AR GUMENTS, THE LD. COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT THE ASSESSEE DURING TH E COURSE OF ASSESSMENT PROCEEDINGS HAD FILED THE CONFIRMATIONS OF VARIOUS PERSONS, WHO CONFIRMED THAT THEY WERE PROCURING MILK ON HALF OF THE ASSESSEE FROM VA RIOUS PRODUCERS OF THE MILK AND IT WAS SUPPLIED TO THE ASSESSEE AND IN TURN THE ASSESS EE WAS MAKING PAYMENTS, WHICH WAS TO BE HANDED OVER TO THE PRODUCERS AND THEY WER E HANDING OVER SUCH AMOUNT TO THE RESPECTIVE MILK PRODUCERS. ACCORDING TO THE LD. COUNSEL, THIS CONFIRMATION IS ON THE RECORD AND SIMILARLY, THE ASSESSEE ALSO PRODUCE D CONFIRMATION OF VARIOUS PERSONS WHEREIN THEY HAD STATED THAT THEY WERE SUPPLYING MI LK TO GAMADIWALA DAIRY FOR SEVERAL YEARS BUT FOR THE PURPOSE OF FACILITY THEY WERE PROCURING THE MILK IN THE NAME OF SOCIETIES AND SUPPLYING THE SAME TO THE ASSESSEE . HE FURTHER STATED THAT, ACCORDING TO THE FARMERS, THE CONSIDERATION PAID FO R THE SAME ARE COLLECTED BY THE PRESIDENT AND IT WAS HANDED OVER TO THE PERSONS SUP PLYING THE MILK, IN THE RATIO OF THE MILK PROVIDED BY EACH PERSON. THUS, THEY HAVE RECEI VED THE AMOUNT IN THE RATIO OF MILK SUPPLIED IN THE NAME OF DAIRY. THE AO WAS THUS PROVIDED THE CONFIRMATION IN THE ABOVE MANNER IN RESPECT OF ALL THE ABOVE PARTIES LI STED AT SL.NO.1 TO 23 AND 25 TO 27. THE AO THEREAFTER CALLED UPON ONLY 7 PERSONS FOR EX AMINATION WITH REFERENCE TO SUCH CONFIRMATION WHO WERE EXAMINED ON BEHALF OF SUCH SO CIETIES/DAIRIES. THUS, HE FURTHER STATED THAT THE ASSESSING OFFICER WAS SATISFIED WIT H THE EXPLANATION IN RESPECT OF THE ALL THE OTHER CONFIRMATION FURNISHED BEFORE HIM AND HE PREFERRED TO EXAMINE ONLY 7 PARTIES WHO WERE SOCIETIES/MANDLIS. THEREFORE, THER E WAS NO JUSTIFICATION FOR MAKING ANY DISALLOWANCE WITH REFERENCE TO ANY OTHER PARTIE S REFERRED TO IN THE ABOVE LIST AT SL.NO.1 TO 27. 8. THE LD. COUNSEL FOR THE ASSESSEE, SHRI S.N. SOPA RKAR FURTHER REFERRED TO THE FACT THAT THE ASSESSING OFFICER RECORDED THE STATEM ENTS OF FEW OF THE SOCIETIES, COPIES OF THE SAID STATEMENTS ARE ENCLOSED. HE NARR ATED, WHAT WAS THE FACT STATED IN THE STATEMENTS AND HE ARGUED THAT, IT MAY BE PERUSE D FROM THESE STATEMENTS THAT THEY HAVE STATED MORE OR LESS THE FOLLOWING:- A) STATEMENT OF SHRI DAHYABHAI GOBARDAS PATEL OF UM IYA KISAN DAIRY- PEROJPURA, TAL. VIJAPUR, DIST.MEHSANA 1) WE THE VILLAGERS ABOUT 30 MEMBERS ARE THERE IN THE UMIYA KISAN DAIRY. I AM A MEMBER OF THIS, I AM SELLING MILK THROUGH THIS MANDLI. 2) UMIYA KISAN DAIRY HA NO ASSETS OF ITS OWN. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 10 3) NO OUR IS A COLLECTION CENTRE FOR MILK. WE ARE N OT EARNING ANY PROFIT BY SELLING MILK. ONE MAN NAMELY SHRI JAYESHKUMAR KANTI LAL PATEL IS KEEPING DAY- TO-DAY ACCOUNTS OF MEMBERS AND HE IS PAID RS.500 PE R MONTH WHICH IS COLLECTED FROM ALL MEMBERS. 4) WE VILLAGERS SELL MILK INDIVIDUALLYO AT A COLLEC TION POINT AT .. .. OWNED BY ONE OF THE MEMBERS AND NO RENT IS PAID TO ANY ONE. OURS IS A CO-OPERATIVE WORKING MANDALI WITHOUT PROFIT MAKING. 5) MEMBERS OF THE MANDALI INDIVIDUALY BRINGS MILK T O THE COLLECTION POINT. 6) YES, WE SELL MILK TO GAMDI DAIRY F.Y. 2000-01. 7) WE GET PAYMENTS IN CASH, AT THE INTERVAL OF 5 TH 15 TH AND 25 TH OF THE MONTH GENERALLY. WE GET IT DISTRIBUTED TO MEMBERS. THERE IS NO PROFIT MAKING BODY OURS IS A COLLECTIE EFFORT FOR THE BENEFIT OF EVERY MEMBERS. B) STATEMENT OF SHRI KARSANBHAI RANCHODDAS, RAUSIPU R OR KISHAN DAIRY, RAUSIPUR, TAL. VIJAPUR, DIST. MEHSNA. 1) I HAVE THREE BUFFALOES AND I HAVE THREE CHILDREN ALL OF THEM HAVE BUFFALOS AND ONE OX WHICH IS REQUIRED FOR AGRICULTURE. I DO NOT HAVE ANY CATTLE. 2) I AND MY KISAN DAIRY HAVE NOT PAID ANY TAX ANY T IME. I DO NOT HAVE INCOME- TAX NUMBER. 3) WE COLLECT MILK FROM FARMERS AND SENT THE SAME T O GAMDIWALA DAIRY. WE ALSO SUPPLY OUR GOODS. WE DO NOT GET ANY REMUNERATI ON FOR THAT. WE DO NOT EARN ANY PROFIT IN THE MILK COLLECTED. 4) WE COLLECT MILK FROM FARMERS VARIOUS FARMERS AND SENT IT TO GAMDIWALA DAIRY. DURING 2000-01 WE HAVE GIVEN MILK TO GAMDIWA LA DAIRY ONLY AND TO NONE ELSE. 5) WE COLLECTED THE MILK OF KISAN DAIRY AND SENT IT TO GAMDIWALA DAIRY. WE DO NOT EARN ANY PROFIT FROM THAT MILK IS COLLECTED AND HANDED OVER TO GAMDIWALA DAIRY. 6) WE WERE GIVEN MONEY AT THE END OF 10 DAYS IN CAS H. WE HAVE RECEIVED ALL THE MONEY AND THERE WAS NO DIFFICULTY. FOR 10 DAYS THE VALUE OF MILK SUPPLIED WORKS OUT TO RS.70,000 TO RS.80,000. HE ALSO DISTINGUISHED THE FACTS FROM THE STATEMENT OF SHRI SURESHBHAI BHAGWANDAS PATEL OF TULSI VAS, FUDEDA, TAL. VIJAPUR, DIST. MEH SANA (FOR PURCHASES IN THE NAMES OF SHRI SARDAR KISAN DAIRY), AND FURTHER STATED THA T, HE HAS CLAIMED TO HAVE MAINTAINED BOOKS OF ACCOUNT AND HE HAS FAT TESTING MACHINE AND ALSO CLAIMED TO HAVE MAINTAINED THE ACCOUNTS FOR PURCHASE OF MILK. THE LD. COUNSEL ARGUED THAT SO FAR AS THE ASSESSEE KNOWS HE DOES NOT MAINTAIN ANY REGULAR ACCOUNT FOR THE ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 11 PURCHASE OF MILK. THE SOCIETY IN QUESTION IS NOT A REGISTERED SOCIETY. THUS, EXCEPT FOR ALL THE TALL CLAIMS THAT THE ALLEGED SOCIETY HAS MA DE THE COLLECTIONS THROUGH THEIR MEMBERS IS IN NO WAY DIFFERENT FROM THE OTHER SOCIE TIES WHOSE STATEMENTS ARE ENCLOSED. EVEN SHRI SURESHBHAI HAS CONFIRMED THAT H E COLLECTED MILK FROM FARMERS AND HANDED IT OVER TO THE ASSESSEE AND HE USED TO C OLLECT THE MONEY AND HANDED IT OVER TO THE FARMERS. THEY HAVE CONFIRMED THIS POSIT ION BY WAY OF SEPARATE AFFIDAVITS (COPIES BEING SUBMITTED SEPARATELY). AS FOR THE PA RTIES APPEARING AT SR.NOS. 8 & 11 IS CONCERNED THEY WERE NOT EXAMINED BUT THE POSITIO N IS THE SAME. THE PARTY AT SL.NO.12 VIZ. MADHURAM ICE FACTORY IT IS ONLY AN AD DRESS FROM WHERE THE MILK IS COLLECTED, NECESSARY CONFIRMATION WAS ENCLOSED BEFO RE THE LOWER AUTHORITIES. COPIES OF CONFIRMATIONS FROM PARTIES AT SR.NO.9 TO 23 WERE ENCLOSED IN THE PAPER BOOK. 9. THE LD. COUNSEL FOR THE ASSESSEE MADE FURTHER AR GUMENT THAT OUT OF THE SEVEN PERSONS WHO WERE EXAMINED AS MEMBERS OF THE SOCIETI ES AND THE SAID SOCIETIES WERE SUPPLIED OF MILK IN THE SAME FASHION TO ROYAL DAIRY LTD., IN WHOSE CASE THE ASSESSMENT FOR ASSESSMENT YEAR 1998-99 WAS FINALIZE D ON 28-02-2000 ACCEPTING THE FACT THAT THE MILK IS COLLECTED FROM THE PRODUCERS. THE AO AFTER EXAMINING THE DETAILS FILED IN THAT CASE HAD ACCEPTED THAT THEY WERE THE PERSONS PRODUCING THE MILK AND THE EVIDENCE IN THEIR CASE WERE ACCEPTED BY HIM. THE LD . COUNSEL FURTHER ARGUED THAT IF THE AO OF THE ROYAL DAIRY LTD. HAD AFTER EXAMINED T HE FACTS HELD THAT THEY WERE PRODUCERS OF MILK AND SUPPLIERS THEREOF TO THE ASSE SSEE, THE FACTS WOULD NOT DIFFER IN THE CASE OF ASSESSEE AND THERE WAS NOT JUSTIFICATIO N FOR AO FOR TAKING A DIFFERENT VIEW IN THIS CASE. A COPY OF THE ASSESSMENT ORDER IN THE CASE OF ROYAL DAIRY LTD. WAS ENCLOSED IN THE PAPER BOOK OF THE ASSESSEE. ACCORDI NG TO THE LD. COUNSEL, IN VIEW OF THIS CLEAR FINDING OF ONE OF THE ASSESSING OFFICERS OF THE DEPARTMENT ITSELF THERE IS NO JUSTIFICATION TO DIFFERENTIATE THE POSITION WITHOUT ANYTHING MORE AND PROCEED TO DISALLOW THE CLAIM UNDER RULE 6DD(F)(II) OF THE I.T . RULES. ALTERNATIVELY, HE ARGUED THAT WITHOUT PREJUDICE TO THE ABOVE, EVEN ASSUMING WITHOUT ACCEPTING THAT THE ASSESSEE HAD UTILIZED SERVICES OF PERSONS WHOSE STA TEMENTS HAD BEEN RECORDED FOR COLLECTING MILK FROM THE FARMERS AND IN TURN PAYING THE PURCHASE CONSIDERATION TO THE FARMERS THROUGH SUCH PERSONS, SUCH PAYMENTS WOULD B E COVERED UNDER RULE 6DD(I) OF THE I.T. RULES. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 12 10. AS REGARDS TO THE CASH PURCHASES AT SR.NO.24 AB OVE OF RS.13,88,510 THE AO HAS DISALLOWED RS.2,77,702/- (BEING 20% OF RS.13,88 ,510/-) INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT AT THE MILK MARKET AT KALUPUR THE MILK IS SOLD WHICH IS COLLECTED FROM MILK PRODUCERS WHO BRING THEIR MILK BY TRAIN EARLY IN THE MORNING, THE LD. COUNSEL STATED THAT THE MARKET FUNCTIONS FROM M ORNING, HENCE, THE PAYMENTS ARE TO BE MADE IN CASH AND THERE WAS NO JUSTIFICATION F OR THE DISALLOWANCE OF RS.2,77,702/- THE PAYMENTS ARE NOT NON-GENUINE. THE PAYMENTS TO PARTIES AT SR. NO.25 TO 27 INVOLVE CASH PAYMENTS OF RS.9,77,328/- AS DETAILED BELOW:- SR.NO.25 RS.2,00,228 SR.NO.26 RS.1,05,000 SR.NO.27 RS.6,72,100 (RS. 7,67,100 AS MENTIONED B Y THE A.O LESS PAYMENTS BY D.D.RS.95,000) __________ RS.9,77,328 THE PAYMENTS THOUGH MADE IN CASH ARE ACCEPTED TO BE GENUINE. IT BEING SO, THERE IS NO JUSTIFICATION FOR DISALLOWING RS.1,95,466/- BEIN G 20% OF RS.9,77,328/- IN THIS REGARD RELIANCE IS PLACED ON THE DECISION OF CALCUT TA HIGH COURT IN THE CASE OF GIRIDHARILAL GOENKA V. CIT (1989)179 ITR 122 (CAL). IN RESPECT OF OTHER AMOUNTS ADDED BY THE AO THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED AS UNDER:- I) REGARDING SR.NO.1 GAMDIWALA DAIRY (MALANKA): GAMDIWALA DAIRY IS THE BRANCH OF THE ASSESSEE. THE ASSESSEE HAD MADE PAYMENT TO THAT BRANCH OFFICE. IN OTHER WORDS, THE PAYMENTS ARE TO SELF. THEREFORE, THERE IS NO JUSTIFICATION TO INVOKE SECT ION 40A(3) OF THE I.T. ACT FOR THE PAYMENT OF RS.5,20,000 AS THERE ARE INTER-BRANC H TRANSACTIONS FOR WHICH THE IMPUGNED PROVISIONS OF SECTION 40A(3) OF THE I. T. ACT DO NOT APPLY. THE DISALLOWANCE OF R.1,04,000 BEING 20% OF RS.5,20,000 IS NOT CALLED FOR. II) REGARDING SR.NO.2 SALARY PAYMENT TO KANUSHA B RANCH: THE KANUSHA BRANCH IS A COLLECTING CENTRE AND HAS A N ESTABLISHMENT OF COLD STORAGE OF THE MILK COLLECTED FROM MEHSANA DISTRICT . THE ASSESSEE HAS PAID SALARY OF RS.2,13,820 WHICH IS INCLUDED IN THE TOTA L PAYMENT OF RS.2,54,020 DELAILA ALONG WITH VOUCHERS ARE ENCLOSED (ENCL). IT MAY BE OBSERVED THAT THESE ARE SALARY PAYMENTS AND NON OF THE EMPLOYEES OF THE ASSESSEE IN THAT BRANCH WAS PAID AMOUNT EXCEEDING THE PRESCRIBED LIM ITS U/S./40A(3) OF THE I.T. ACT. THEREFORE, THE DISALLOWANCE OF RS.42,764 BEING 20% OF RS.2,13,820 IS UNCALLED FOR. IT IS THE RESULT OF LACK OF APPRECIAT ION OF THE FACTS. III) REGARDING SR.NO.3 PAYMENT OF ELECTRICITY BIL LS OF KANUSHA BRANCH: THE PAYMENTS WERE MADE TO THE GUJARAT ELECTRICITY B OARD WHO DO NOT ACCEPT CHEQUES. NECESSARY DETAILS OF ELECTRICITY PAYMENT A ND VOUCHERS ARE ENCLOSED (ENCL). THERE IS NO JUSTIFICATION IN DISALLOWING RS .67,338 BEING 20% OF ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 13 RS.2,86,691 FROM PARTICULARLY WHEN THE ASSESSING OF FICER HIMSELF HAS ALLOWED THE EXPENDITURE OF RS.47,978 INCURRED BY THE ASSESS EE UNDER THE SAME HEAD IN SIMILAR MANNER. THE DISALLOWANCE DESERVES TO BE DELETED. IV) REGARDING SR.NO.4 SALES COMMISSION TO HAWKERS : THESE ARE DETAILS OF THE PAYMENTS MADE BY THE ASSES SEE TO THE HAWKERS/DELIVERY PERSONS FOR HOME DELIVERY ETC. ARE ENCLOSED (ENCL). IT MAY BE PERUSED THAT THE INDIVIDUAL PAYMENTS DO NOT EXCE ED THE PRESCRIBED LIMITS U/S.40A(3) OF THE I.T. ACT. THEREFORE, THERE IS NO JUSTIFICATION IN DISALLOWING RS.58,630 BEING 20% OF RS.2,93,148. IT DESERVES TO BE DELETED. V) REGARDING SR.NO.5 M.S. PATEL & CO. LOAN: THE AMOUNT OF RS.35,585 REPRESENTS SARAFI TRANSACTI ONS. THEREFORE THERE IS NO JUSTIFICATION TO INVOKE THE PROVISIONS OF SECTION 4 0A(3) FOR DISALLOWING THE AMOUNT OF RS.7,117. IT MAY NOT BE OUT OF PLACE TO P OINT OUT THAT THE ASSESSING OFFICER HIMSELF HAS PROCEEDED TO INITIATE THE PROCE EDINGS FOR THE LEVY OF PENALTY U/S.271E OF THE I.T. ACT ON THE GROUND THAT IT WAS A REPAYMENT F LOAN PARTLY MADE OTHERWISE THAN AS PROVIDED FOR U/S.269T OF THE I.T. ACT. NEEDLESS TO POINT OUT THAT THIS INITIATION ITSELF WITHOUT GOING INTO THE MERITS OF SUCH INITIATION CONCLUSIVELY ESTABLISHED THAT THE PAYM ENT IS NOT AN EXPENDITURE AND THE PROVISIONS OF SECTION 40A(3) DO NOT APPLY. THE DISALLOWANCE OF RS.7,117 BEING 20% OF RS.35,585 IS NOT CALLED FOR. VI) REGARDING SR.NO.6 PAYMENT TO SHRESHTH CORNER: SHRESHTH CORNER IS A RENTAL OUTLET OF THE ASSESSEE AT VASTRAPUR. THE TRANSACTION IS IN RESPECT OF THE BANK TRANSACTION W RONGLY POSTED IN THE ASSESSEE BOOKS OF ACCOUNT, WHICH HAS BEEN SUBSEQUEN TLY REVERSED BY HAWALA IN CASH BOOK. IN ANY CASE THE AMOUNT DOES NO T REPRESENT EXPENDITURE. THE PROVISIONS OF SECTION 40A(3) WOULD NOT APPLY. D ISALLOWANCE OF RS.6,192 BEING 20% OF RS.30,960 IS UNCALLED FOR. VII) REGARDING SR.NO.7 JYOTI PRIME FIN. P.LTD. (G EB BILLS): THE PAYMENTS ARE TO GUJARAT ELECTRICITY BOARD. THIS PAYMENTS WERE MADE IN CASH THROUGH JYOTI PRIUME FIN. P. LTD. WHO HAS BEEN ENTRUSTED THE WORK OF PAYMENT. UNFORTUNATELY THEIR ACCOUNT WAS DEBITED WH ICH HAS BEEN REVERSED. THEREFORE, THE DISALLOWANCE OF RS.4,989 OUT OF THE TOTAL PAYMENT OF RS.24,945 DESERVES TO BE DELETED. VIII) REGARDING SR.NO.8 CHINUBHAI S. PATEL (ELECT RIC BILL): THE FACTS ARE THAT THE AMOUNT WAS PAID IN CASH TO C HINUBHAI S. PATEL FOR PAYMENT OF ELECTRIC BILL. THE ASSESSEE HAS NOT DEBI TED THE AMOUNT AS EXPENDITURE IN ITS ACCOUNT BOOKS. THEREFORE, THE PR OVISIONS OF SECTION 40A(3) DO NOT APPLY. THE DISALLOWANCE OF RS.4,470 BEING 20 % OF RS.22,359 IS UNCALLED FOR. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 14 IV) REGARDING SR.NO.9 SALARY EXPENSES (ABAD): THE POSITION IS SAME AS KHANUSHA BRANCH SALARY. THE RE IS NO JUSTIFICATION IN DISALLOWING RS.5,008 BEING 20% OF RS.25,039 INVOKIN G THE PROVISIONS OF SECTION 40A(3) WHEN NO INDIVIDUAL EMPLOYEE IS PAID THE SALARY EXCEEDING THE PRESCRIBED LIMIT AND THE ASSESSING OFFICER HIMSELF HAS DELETED RS.25,174 FOR THE SALARY PAID IN THE SIMILAR MANNER AS AN ALLOWAB LE EXPENDITURE. THE DISALLOWANCE IS UNCALLED FOR. IN VIEW OF WHAT IS STATED ABOVE, DISALLOWANCE OF RS .2,90,508 BEING 20% OF RS.14,52,538 (5,20,000 + 2,13,820 + 2,88,691 + 2,93 ,148 + 35,585 + 30,960 + 24,945 + 22,359 + 25,039) IS UNCALLED FOR. 11. ON THE OTHER HAND, THE LD. SR-DR SHRI GOVIND SI NGHAL ARGUED THAT IN NONE OF THE CASE IT HAS BEEN ESTABLISHED THAT THE PAYMENTS ARE IN FACT MADE TO PRODUCERS OF MILK AND IT IS ALSO A FACT THAT NONE OF THE PARTIES IS PRODUCER OF MILK RATHER THESE ARE ORGANIZED DIARIES AND IT IS VERY OBVIOUS THAT ANY P RODUCT SHOULD PRIMARILY BE PURCHASED FROM A PRODUCER ONLY. HE STATED THAT THE ASSESSEES EXCUSE THAT ANOTHER PARTY HAS MERELY PURCHASED IT FROM THE PRODUCE FOR THE PURPOSE OF SELLING TO THE CONSUMER AND SO IS ENTITLED FOR THE EXEMPTION GIVEN TO THE PRODUCER IS A FAR FETCHED AND TOTALLY UNACCEPTABLE ARGUMENT. HE STATED THAT T HE ACT SPECIFICALLY AND IN NO AMBIGUOUS TERMS PROVIDES FOR A EXEMPTION ONLY TO T HE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS,. AND NONE O F THE PARTIES NOWHERE FALL UNDER THIS CATEGORY. THEREFORE THE CONTENTION OF THE ASSE SSEE THAT THE CASH PAYMENTS ARE FOR PURCHASES FROM PRODUCERS OF MILK AND SO ELIGIBL E FOR EXEMPTION AS PROVIDED FOR IN THE R6DD(F) OF THE I.T. RULES IS RIGHTLY REJECTED B Y THE ASSESSING OFFICER AS FACTUALLY NOT CORRECT. HE FURTHER STATED THAT, IT IS PERTINEN T TO NOTE THAT THE RULE HAD BEEN MODIFIED W.E.F. 1-12-1995 WHICH HAS REMOVED THE DIS CRETION AVAILABLE WITH THE ASSESSING OFFICER IN THE EARLIER TIMES AND CLAUSE ( J) HAS BEEN SUBSTITUTED AND UNDER SUCH SCENARIO IT IS MANDATORY THAT ONLY PAYMENTS MA DE TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS, ARE TO BE EXEMPTED AND NO OTHER PAYMENTS. IN VIEW OF THESE ARGUMENTS, THE LD. SR-DR STATED THAT THE ORDER OF THE ASSESSING OFFICER SHOULD BE UPHELD IN TOTO. 12. FIRST OF ALL, IT IS TO BE NOTED THAT THE ASSESS ING OFFICER IN THE CASE OF SEVEN PARTIES, WHO WERE EXAMINED AS MEMBERS OF THE SOCIET Y AND THIS SOCIETY SUPPLIED MILK TO ROYAL DIARY LTD., IN WHOSE CASE THE ASSESSM ENT FOR ASSESSMENT YEAR 1998- ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 15 99 WAS FINALIZED ON 28-02-2000 AND AFTER EXAMINING THE DETAILS FILED IN THAT CASE, THE AO HAS ACCEPTED THE THAT THE PERSONS PRODUCING THE MILK ARE SUPPLYING TO THE SOCIETIES, IS ACCEPTED AS SUPPLIED BY PRODUCERS OF MILK. THIS POSITION IS ACCEPTED BY THE AO IN THE CASE OF SEVEN SOCIETIES IN THE SAME F ASHION THAT OF THE ASSESSEE. THE FACTS OF THE PRESENT CASE ARE NO DIFFERENT FROM THE FACTS OF ROYAL DIARY LTD., PRODUCE BEFORE US IN THE ASSESSEES PAPER BOOK. WE FURTHER FIND THAT SO FAR AS ASSESSEE BEFORE US IS CONCERNED, THE PAYMENTS ARE MADE TO VA RIOUS PERSONS WHO MANAGED TO COLLECTION SINCE FOR MILK BECAUSE IT IS NOT POSSIBL E EITHER BY THE ASSESSEE OR FOR THE INDIVIDUAL AS IS EVIDENT FROM THE ASSESSMENT RECORD OF ROYAL DIARY LTD. PRODUCED BEFORE US IN THE ASSESSEES PAPER BOOK. WE FURTHER FIND THAT, SO FAR AS THE ASSESSEE IS CONCERNED, THE PAYMENTS ARE MADE TO VARIOUS PERS ONS, WHO MANAGED THE COLLECTION CENTRES FOR MILK BECAUSE IT IS NOT POSSI BLE EITHER FOR THE ASSESSEE OR FOR THE INDIVIDUAL PRODUCERS OF MILK SO TO DO. THE ASSESSEE AND THE PRODUCERS OF MILK MUTUALLY AGREED UPON THE ARRANGEMENT THAT THE PRODU CERS OF MILK IN PARTICULAR VILLAGE COLLECTIVELY SELECTED ANY ONE OF THEM TO LOOK AFTER THE COLLECTION OF MILK FROM THE FARMERS AND IN TURN SUPPLYING THE MILK TO THE ASSES SEE AND THE ASSESSEE AGREED TO MAKE PAYMENT TO THE FARMERS FOR THE MILK SOLD BY TH EM THROUGH SUCH MUTUALLY AGREED UPON PERSONS AMONGST THE SAID FARMERS OF EACH VILLA GE. WE FIND FROM THE RECORDS THAT THE AFORESAID ARRANGEMENT WAS PUT INTO OPERATI ON BY THE FARMERS OF EACH VILLAGE AND THEY DECIDED TO GIVE HIGH SOUNDING NAMES TO SUC H COLLECTION CENTRE SUCH AS UMIYA KISHAN DAIRY PEROJPURA, RAMKISHAN DAIRY CO T, JAY KISHAN DAIRY RIDROL AND SO ON. IN VIEW OF THE ABOVE FACT IT IS CLEAR TH AT THE FARMERS OR THE PRODUCERS OF MILK DID NOT LOOSE THEIR INDIVIDUAL IDENTITY AND EA CH SUCH FARMER WAS PAID FOR THE MILK SOLD BY THEM AT A FIXED PRICE DEPENDING UPON THE QU ALITY OF THE MILK VIZ. FAT CONTENTS AND QUANTITY AND THIS FACT COUPLED WITH THE FACT TH AT NONE OF THE ALLEGED SOCIETIES ARE REGISTERED SOCIETIES OR LEGAL ENTITIES OF ANY SORT, NONE HAS MAINTAINED ANY REGULAR BOOKS OF ACCOUNT, NONE HAS PURCHASED THE MILK FROM THE FARMERS INDEPENDENTLY AND MADE OVER TO THE ASSESSEE, NONE OF THE ENTITIES MAI NTAINED INDEPENDENT ACCOUNTS OF THE FARMERS EXCEPT THE NOTING OF THE MILK CONTRIBUT ED BY THE FARMERS IN TERMS OF QUANTITY AND QUALITY VIZ. FAT CONTENTS THEY WERE PA ID BY THE ASSESSEE THROUGH THE PERSONS WHO COLLECTED THE MILK FROM THE FARMERS AND SUPPLIED TO THE ASSESSEE. ACCORDINGLY, THESE NOTINGS IN ROUGH SHEETS CAN NEVE R BY ANY STRETCH OF IMAGINATION BE EQUATED TO MAINTAINING BOOKS OF ACCOUNT ETC. WHE N CONSIDERED IN TOTALITY IT WOULD BE CLEAR THAT THE MILK WAS PURCHASED BY THE ASSESSE E FROM THE PRODUCERS OF MILK. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 16 WE FURTHER FIND THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD FILED THE CONFIRMATIONS OF VARIOUS PERSONS, WHO CON FIRMED THAT THEY WERE PROCURING MILK ON HALF OF THE ASSESSEE FROM VARIOUS PRODUCERS OF THE MILK AND IT WAS SUPPLIED TO THE ASSESSEE AND IN TURN THE ASSESSEE WAS MAKING PA YMENTS, WHICH WAS TO BE HANDED OVER TO THE PRODUCERS AND THEY WERE HANDING OVER SUCH AMOUNT TO THE RESPECTIVE MILK PRODUCERS. WE FIND THAT, ACCORDING TO THE FARMERS, THE CONSIDERATION PAID FOR THE SAME ARE COLLECTED BY THE PRESIDENT AN D IT WAS HANDED OVER TO THE PERSONS SUPPLYING THE MILK, IN THE RATIO OF THE MIL K PROVIDED BY EACH PERSON. THUS, THEY HAVE RECEIVED THE AMOUNT IN THE RATIO OF MILK SUPPLIED IN THE NAME OF DAIRY. THE AO WAS THUS PROVIDED THE CONFIRMATION IN THE ABOVE MANNER IN RESPECT OF ALL THE ABOVE PARTIES LISTED AT SL.NO.1 TO 23 AND 25 TO 27 . THE AO THEREAFTER CALLED UPON ONLY SEVEN PERSONS FOR EXAMINATION WITH REFERENCE T O SUCH CONFIRMATION WHO WERE EXAMINED ON BEHALF OF SUCH SOCIETIES/DAIRIES. THUS, THE ASSESSING OFFICER WAS SATISFIED WITH THE EXPLANATION IN RESPECT OF THE AL L THE OTHER CONFIRMATION FURNISHED BEFORE HIM AND HE PREFERRED TO EXAMINE ONLY SEVEN P ARTIES WHO WERE SOCIETIES/MANDLIS. THEREFORE, THERE WAS NO JUSTIFIC ATION FOR MAKING ANY DISALLOWANCE WITH REFERENCE TO ANY OTHER PARTIES REFERRED TO IN THE ABOVE LIST AT SL.NO.1 TO 27. 13. AS REGARDS TO THE PAYMENTS MADE TO THE SUPPLIER S OF MILK AT KALUPUR STATION OF RS.13,88,510 THE AO HAS DISALLOWED RS.2,77,702/- (B EING 20% OF RS.13,88,510/-) INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE AC T. WE FIND THAT THE PAYMENT MADE FOR THE MILK MARKET AT KALUPUR THE MILK IS SOLD WHI CH IS COLLECTED FROM MILK PRODUCERS WHO BRING THEIR MILK BY TRAIN EARLY IN THE MORNING, AND THE FACT IS THAT THE MARKET FUNCTIONS FROM MORNING, HENCE, THE PAYMENTS ARE TO BE MADE IN CASH AND THERE WAS NO JUSTIFICATION FOR THE DISALLOWANCE OF RS.2,77,70 2/- THE PAYMENTS ARE NOT NON- GENUINE. AS REGARDS TO THE PAYMENTS TO PARTIES AT SR. NO.25 TO 27 INVOLVE CASH PAYMENTS OF RS.9,77,328/- AS DETAILED BELOW:- SR.NO.25 RS.2,00,228 SR.NO.26 RS.1,05,000 SR.NO.27 RS.6,72,100 (RS. 7,67,100 AS MENTIONED B Y THE A.O LESS PAYMENTS BY D.D.RS.95,000) __________ RS.9,77,328 THE PAYMENTS THOUGH MADE IN CASH ARE ACCEPTED TO BE GENUINE. IT BEING SO, THERE IS NO JUSTIFICATION FOR DISALLOWING RS.1,95,466/- BEIN G 20% OF RS.9,77,328/-. SIMILARLY, ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 17 THE OTHER PAYMENTS, WHICH ARE SMALLER PAYMENTS, THE LD. SR-DR HAS NOT MADE ANY SERIOUS DOUBTS OR ARGUMENTS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS RIGHTLY BEEN DELE TED BY THE CIT(A). 14. FURTHERMORE, WE FIND FROM THE ASSESSMENT ORDER IN THE CASE OF ROYAL DIARY LTD. DATED 28-02-2000 FOR THE ASSESSMENT YEAR 1998- 99, WHICH IS ANNEXED AT PAGE 271 TO 279 OF THE ASSESSEES PAPER BOOK. FROM THIS ASSESSMENT ORDER, IT IS CLEAR THAT ROYAL DIARY LTD. WAS IN THE BUSINESS OF PROCESSING & SELLING OF PASTEURIZED MILK IN THE BRAND NAME OF ROYAL. THE ASSESSING OFFICER OF THIS ASSESSEE HAS NOTED THE PARTIES AT SR. NO.1 TO 17 AT PAGE 5 OF THE ASSESSME NT ORDER, WHICH ARE COMMON IN THE CASE OF ASSESSEE ALSO AND THAT HAS BEEN ACCEPTE D AS PAYMENT MADE TO THE PRODUCER OF DIARY FOR THE PURCHASE OF MILK. ONCE T HE AO HAS TAKEN A VIEW, ON SIMILAR FACTS IN ANOTHER CASE THE AO CANNOT TAKE A DIFFEREN T VIEW. EVEN OTHERWISE, THIS ISSUE FALLS UNDER THE EXCEPTIONS PROVIDED UNDER RULE 6DD( E), (F), & (G) OF I.T. RULES. THE RELEVANT CLAUSES READS AS UNDER:- [CASES AND CIRCUMSTANCES IN WHICH THE PAYMENT OR AG GREGATE OF PAYMENTS EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE TO A P ERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT.] 6DD CASES AND CIRCUMSTANCES IN WHICH PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE OTHERWISE THAN BY AN AC COUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. NO DISALLOWANCE UNDER CLAUSE (A) OF SUB-SECTION (3) OF SECTION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED T BE THE PROFITS AND GAINS OF BUSIN ESS OR PROFESSION UNDER CLAUSE (B) OF SUB-SECTION (3) OF SECTION 40A WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT IN THE CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY:- (A) (B) (C) (D) (E) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF (I) AGRICULTURAL OR FOREST PRODUCE; OR (II) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIV ESTOCK, MEAT, 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 ARTICLES, PRODUCE OR PRODUCTS; ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 18 (F) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF T HE PRODUCTS MANUFACTURED OR PROCESSED WITHOUT THE AID OF POWER IN A COTTAGE INDUSTRY, TO THE PRODUCER OF SUCH PRODUCES; (G) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN , WHICH ON THE DATE OF SUCH PAYMENT IS SNOT SERVED BY ANY BANK, TO ANY PER SON WHO ORDINARILY RESIDES, OR IS CARRYING ON ANY BUSINESS, PROFESSION OR VOCATION, IN ANY SUCH VILLAGE OR TOWN; WE FIND FROM THE ABOVE PROVISIONS OF RULE 6DD, THAT THE ASSESSEES CASE IS THE FARMERS OR THE PRODUCERS OF MILK DID NOT LOOSE THEI R INDIVIDUAL IDENTITY AND EACH SUCH FARMER WAS PAID FOR THE MILK SOLD BY THEM AT A FIXE D PRICE DEPENDING UPON THE QUALITY OF THE MILK VIZ. FAT CONTENTS AND QUANTITY AND THIS FACT COUPLED WITH THE FACT THAT NONE OF THE ALLEGED SOCIETIES ARE REGISTERED SOCIETIES O R LEGAL ENTITIES OF ANY SORT, NONE HAS MAINTAINED ANY REGULAR BOOKS OF ACCOUNT, NONE HAS P URCHASED THE MILK FROM THE FARMERS INDEPENDENTLY AND MADE OVER TO THE ASSESSEE , NONE OF THE ENTITIES MAINTAINED INDEPENDENT ACCOUNTS OF THE FARMERS EXCE PT THE NOTING OF THE MILK CONTRIBUTED BY THE FARMERS IN TERMS OF QUANTITY AND QUALITY VIZ. FAT CONTENTS THEY WERE PAID BY THE ASSESSEE THROUGH THE PERSONS WHO COLLEC TED THE MILK FROM THE FARMERS AND SUPPLIED TO THE ASSESSEE. ACCORDINGLY, THESE NO TINGS IN ROUGH SHEETS CAN NEVER BY ANY STRETCH OF IMAGINATION BE EQUATED TO MAINTAI NING BOOKS OF ACCOUNT ETC. WHEN CONSIDERED IN TOTALITY IT WOULD BE CLEAR THAT THE M ILK WAS PURCHASED BY THE ASSESSEE FROM THE PRODUCERS OF MILK. WE FURTHER FIND THAT TH E ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD FILED THE CONFIRMATIONS OF VARIOUS PERSONS, WHO CONFIRMED THAT THEY WERE PROCURING MILK ON HALF OF THE ASSESSEE FROM VARIOUS PRODUCERS OF THE MILK AND IT WAS SUPPLIED TO THE AS SESSEE AND IN TURN THE ASSESSEE WAS MAKING PAYMENTS, WHICH WAS TO BE HANDED OVER TO THE PRODUCERS AND THEY WERE HANDING OVER SUCH AMOUNT TO THE RESPECTIVE MILK PRO DUCERS. WE FIND THAT, ACCORDING TO THE FARMERS, THE CONSIDERATION PAID FOR THE SAME ARE COLLECTED BY THE PRESIDENT AND IT WAS HANDED OVER TO THE PERSONS SUPPLYING THE MILK, IN THE RATIO OF THE MILK PROVIDED BY EACH PERSON. THUS, THEY HAVE RECEIVED T HE AMOUNT IN THE RATIO OF MILK SUPPLIED IN THE NAME OF DAIRY. THESE DAIRIES ARE TH US ONLY THE FACILITATING STATIONS FOR THE PRODUCER OF MILK AND THE ASSESSEE IS MAKING PUR CHASES DIRECTLY FROM THE PRODUCERS AND ACCORDINGLY FALLS IN THE EXCEPTIONS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ALLOW THIS ISSUE OF THE ASSESSEE S APPEAL AND DISMISS THAT OF THE REVENUES APPEAL. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 19 15. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE ASSESSING OFFIC ER IN REJECTING THE BOOKS OF ACCOUNT U/S.145 OF THE ACT AND THEREBY ESTIMATING T HE GROSS PROFIT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 3.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE L EARNED ASSESSING OFFICERS ACTION OF REJECTING THE APPELLANTS BOOKS OF ACCOUN T U/S.145 FOR ASSUMING JURISDICTION TO ESTIMATE THE APPELLANTS INCOME FRO M ITS MALANKA BRANCH. 3.2 3.3 3.4 WITHOUT PREJUDICE TO THE FOREGOING,, IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS FURTHER GROSSLY ERRED IN SUSTAINING THE IMPUGNED ADDITION OF A HUGE RS.18,18,889 MADE BY THE LEARNED ASSESSING OFFICER ON THE ASSUMPTION THA T THE APPELLANTS OPERATIONS AT ITS MALANKA BRANCH OUGHT TO HAVE RESU LTED INTO A PROFIT AT THE SAME RATE AS THAT OF ITS AHMEDABAD BRANCH. 16. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT THE ASSESSEES BOOKS OF ACCOUNT DO NOT REFLECT TRUE PICTURE OF THE FINANCIA L PROFITS OF THE ASSESSEE, AS IT HAS RETURNED GP @ 8.01% FOR MALANKA BRANCH, AS AGAINST THE GP AT 16.20% FOR THE REST OF THE BUSINESS OF THE ASSESSEE FOR THE IMMEDIATE P RECEDING YEAR. THE AO ALSO NOTED THAT THE GP RATE FOR AHMEDABAD OFFICE WAS AT 11.78% FOR THE YEAR UNDER CONSIDERATION AND HE ALSO NOTED THAT THERE WAS NO I NCREASING OF PACKING MATERIALS, HE REQUIRED THE ASSESSEE TO EXPLAIN LOW GP OF MALAN KA BRANCH. THE ASSESSEE COULD NOT ADDUCE ANY SUBSTANTIAL AND ACCORDINGLY HE REJEC TED THE BOOK RESULTS AND ADOPTED A GP FOR MALANKA BRANCH THAT OF AHMEDABAD BRANCH. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CO NFIRMED THE ACTION OF THE AO BY GIVING FOLLOWING FINDINGS IN PAGE NO.12 & 13 :- IN MY OPINION, THE BOTTOM LINE IS THAT ALL THESE C IRCUMSTANCES EXISTED IN RESPECT OF THE MALANKA OFFICE IN THE PRECEDING ASSE SSMENT YEAR TOO AND YET THE GP RATE RETURNED BY IT WAS DOUBLE THAT OF THE Y EAR UNDER CONSIDERATION. THE APPELLANT HAS FINALLY ALSO CONTENDED THAT THE G P OF THE BUSINESS AS A WHOLE SHOULD BE CONSIDERED. IT HAS SUBMITTED THAT G P OF THE WHOLE BUSINESS HAS IMPROVED FROM 7.7% IN A.Y. 1999-2000 TO 7.9% IN A.Y. 2000-01 TO 10.9% IN THE CURRENT ASSESSMENT YEAR. HOWEVER, SINCE THE APPELLANT HAS ITSELF BEEN MAINTAINING AND PRESENTING ITS ACCOUNTS FOR ITS TWO UNITS SEPARATELY, IT IS REASONABLE TO EXPECT THE TWO TO BE CONSIDERED SEPAR ATELY. THE APPELLANT HAS QUOTED THE CASE OF MD UMDER VS. CIT (1975) 101 ITR (PATNA HC), WHEREIN IT WAS HELD THAT THE FINDING OF THE ITAT UPHOLDING THE REJECTION OF BOOK PROFIT SHOWN BY THE APPELLANT WAS INITIATED B REASON OF IT S RELIANCE ON SUSPICION, ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 20 SURMISE ETC. THE RULING OF THE HON. HIGH COURT WILL NOT BE APPLICABLE IN THE PRESENT CONTEXT AS THE AO'S ASSESSMENT IS BASED ON COMMON SENSE AND PRUDENT BUSINESS PRACTICES. NONE OF THE ARGUMENTS F ORWARDED BY THE APPELLANT ARE UNIQUE ONLY TO THE CURRENT ASSESSMENT YEAR THE SAME CIRCUMSTANCES EXISTED IN THE PRECEDING ASSESSMENT Y EAR TOO. ALSO, THE APPELLANTS CONTENTION THAT IT HAD MAINTAINED PROPE R BOOKS OF ACCOUNT AND, THEREFORE, THE SAME COULD NOT BE REJECTED U/S.145 I S COUNTERED BY THE FACT THAT ON PAGE 6 OF THE ASSESSMENT ORDER, THE AO HAS NOTED THAT ALMOST ALL BILLS AND VOUCHERS PRODUCED BY THE APPELLANT WERE DEFECTIVE I N VARIOUS WAYS. IN VIEW OF THE FOREGOING, THE ACTION OF THE AO IS UPHELD AND T HIS GROUND OF APPEAL IS DISMISSED. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE ARGUME NTS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE PAPER BOOK OF THE ASSESSEE THAT TH E BOOKS OF ACCOUNT WERE REJECTED ON THE VERY BASIS THAT THERE IS LOW GP IN MALANKA BRANCH AND THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT POINTED OUT BY THE A SSESSING OFFICER. IT IS A FACT THAT THE ASSESSEES GROSS PROFIT IN THIS YEAR IS BETTER THAN EARLIER YEAR. FROM THE WORKING OF THE RATES OF GP OF THE OPERATIONS AT BOTH THE LO CATIONS, THE GP OF THE ASSESSEES MALANKA BRANCH FOR THE PRESENT ASSESSMENT YEAR WAS IN REALITY AT 18.77% OF ITS SALES AND COMPARED VERY WELL WITH THE GP RATE OF 19 .13% OF ITS AHMEDABAD BRANCH AND THEREFORE THE AUTHORITIES BELOW HAD REALLY CON SIDERED THE GP OF THE MALANKA BRANCH VIS--VIS THE GP OF THE AHMEDABAD BRANCH, HE WOULD HAVE REALIZED THAT THE VERY BASIS FOR HIS INVOKING THE PROVISIONS OF SECTI ON 145 OF THE ACT FOR REJECTING THE ASSESSEES BOOKS AND ESTIMATING THE INCOME OF ITS M ALANKA BRANCH DID NOT AT ALL EXISTS. THE REAL ISSUE INVOLVED DID NOT PERTAIN TO GP AS SUCH BUT TO OTHER ITEMS OF EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNTS OF THE AHMEDABAD BRANCH AND MALANKA BRANCH OF THE ASSESSEE AND THAT JUST BECAUS E THE EXPENDITURE PERTAINING TO ONE BRANCH MAY HAVE COME TO BE ACCOUNTED IN ANOTHER BRANCH OR JUST BECAUSE, ON ACCOUNT OF OTHER VALID REASONS, EARLIER YEAR EXPEND ITURE HAD TO BE ACCOUNTED THIS YEAR IN ONE BRANCH AND FOR SUCH OR OTHER REASONS, T HE OPERATING RESULTS OF THE TWO BRANCHES CAME TO BE DISSIMILAR, BOOKS OF ACCOUNT CA NNOT BE REJECTED AND INCOME COULD NOT BE ESTIMATED ON THAT GROUND. ACCORDINGLY , THE BOOK RESULTS REJECTED BY ASSESSING OFFICER, IS WITHOUT ANY BASIS AND WE ACCE PT THE BOOK RESULTS AND DELETE THE ADDITION MADE AND CONFIRMED BY LOWER AUTHORITIE S. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. ITA NO.1497 & 1591/AHD/2005 A.Y. 2001-02 M/S. GAMDIWALA DAIRY V. ACIT CIR-3 ABD PAGE 21 18. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN SUSTAINING THE DISALLOWANCE OF DEPRECIATION ON MOTO R CARS. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND :- 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE OF RS.1,06,480 ON ACCOUNT OF DEPRECIATION ON MOTOR CARS DISPUTED B Y THE APPELLANT VIDE GROUND NO.4 OF ITS APPEAL BEFORE HER. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESS ING OFFICER HAS DISALLOWED 1/5 TH OF MOTOR CAR EXPENSES INCLUDING DEPRECIATION FOR PE RSONAL USER. THE LD. COUNSEL FOR THE ASSESSEE HAS ONLY REQUESTED FOR FAIR DISALLOWAN CE. WE FIND THAT THE DISALLOWANCE AT 1/10 TH OF DEPRECIATION WILL MEET THE ENDS OF JUSTICE. AC CORDINGLY, THIS ISSUE OF THE ASSESSEE APPEAL IS PARTLY ALLOWED. 20. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S REGARDING CHARGING INTEREST U/S.234B OF THE ACT. THIS ISSUE BEING CONSEQUENTIA L IN NATURE, HENCE, NEEDS NO ADJUDICATION. 21. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED A ND THAT OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 12/03/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 12/03/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 4. THE CIT CONCERNS. 2. THE RESPONDENT. 5 . THE DR, ITAT, AHMEDABAD 3. THE CIT(APPEALS)- VII, AHMEDABAD 6. GUARD FI LE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD