ITO, KHAMGAON, Bandara V. SHRI AGRAWAL MANISH SHANKARLAL, Buldhana

ITA 229/NAG/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93423 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: S C THAKAR; C J THAKAR
• Section: 40A(3)

Judgement Text

1 ITA NO. 229/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. ITA NO. 229/NAG/2013 ASSESSMENT YE AR : 2010 - 11. THE INCOME - TAX OFFICER, SHRI AGRAWAL MANISH SHANKARLAL, KHAMGAON. V/S. C/O SHRI GAJA NAN G & P FACTORY, AKOT ROAD, SHEGAON, DIST. BULDANA. PAN ABAPA6090M APPELLANT RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHR I C.J. THAKAR AND SHRI S.C. THAKAR. DATE OF HEARING : 22 - 06 - 2015 DATE OF PRONOUNCEMENT : 30 TH JUNE, 2015 O R D E R PER SHRI SHAMIM YAHYA, A.M THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 03 - 04 - 2013 AND PERTAINS TO ASSESSMENT YEAR 20 09 - 10. THE GROUNDS OF APPEAL READ AS UNDER : 2 ITA NO. 229/NAG/2013 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT APPEAL ER5RED IN DELETING THE ADDITION AMOUNTING TO ` .2,81,91,190/ - ON ACCOUNT OF PURCHASE OF RAW COTTON U/S 40A(3) READ WITH RULE 6DD. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT APPEAL ERRED IN DELETING THE ADDITION AT ` .5,26,857/ - ON ACCOUNT OF INTEREST U /S 36(1)(III) EVEN THOUGH THE ASSESSEE FAILED TO PROVE EXIGENCY OF THE TRANSACTIONS IN THE BUSINESS. 2. APROPOS GROUND NO. 1, IN THIS CASE THE ASSESSING OFFICER ON GOING THROUGH THE TRADING ACCOUNT, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, FOUN D THAT THE ASSESSEE HAS PURCHASED RAW COTTON DURING THE YEAR UNDER CONSIDERATION AT ` .3,37,36,357/ - . ON VERIFICATION, THE ASSESSING OFFICER DETECTED THAT THE ASSESSEE RESORTED TO MAKE PAYMENTS BY BEARER CHEQUES TO THE SELLER OF RAW COTTON. THE ASSESSEE WAS ASKED TO EXPLAIN REGARDING PAYMENTS RELATING TO ANY EXPENDITURE COVERED U/S 40A(3). THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE REPLIED THAT HIS CASE FALL IN THE AMBIT OF RULE 6DD(E) OF THE I.T. RULES, THE SELLERS BEING AGRICULTURISTS. THE ASSESSING OFFICER REASONED THAT THE ASSESSEE REQUIRED TO PROVE THE CLAIM WITH THE IDENTITY OF THE SELLERS BUT NOT MERE CLAIM. THE ASSESSING OFFICER WAS NOT SATISFIED ENTIRELY WITH THE SUBMISSION OF THE ASSESSEE. HE MADE A DISALLOWANCE OF ` .2,81,91,190/ - . 3. UPON A SSESSEES APPEAL, LEARNED CIT(APPEALS) ELABORATELY CONSIDERED THE ISSUE AND ALSO OBTAINED REMAND REPORT FROM THE ASSESSING OFFICER. BEFORE THE LEARNED CIT(APPEALS) THE ASSESSEE SUBMITTED THAT THE PURCHASES WERE FROM AGRICULTURISTS AND THE BUSINESS EXIGENCY REQUIRED TO MAKE PAYMENT IN CASH/BEARER CHEQUES TO THE AGRICULTURISTS . S INCE THE AGRICULTURISTS DEMANDED CASH PAYMENT, THE ASSESSEE HAD NO OTHER ALTERNATIVE BUT TO MAKE PAYMENT IN CASH/BEARER CHEQUES AND HENCE THE PAYMENT BY BEARER CHEQUE WAS PERMISSIBL E UNDER SECTION 40 A(3) READ 3 ITA NO. 229/NAG/2013 WITH RULE 6DD(E). OUT OF THE TOTAL PURCHASES OF ` .3,37,36,357/ - THE ASSESSING OFFICER HAS DISALLOWED PURCHASES OF ` .2,81,91.190. IN THIS REGARD THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF ITA T, BENGALORE IN THE CASE OF SRI RENUKESWAR RICE MILLS V/S. ITO 278 ITR (AT) 77. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE HAD FILED ALL HISAB PATTIS IN RESPECT OF COTTON PURCHASES FROM 293 AGRICULTURISTS AMOUNTING TO ` .2,81,91,190/ - AS DISALLOWED BY THE ASSESSING OFFICER. THE ASSESSEE ALSO CONTENDED THAT ALL THESE 7/12 EXTRACTS COUPLED WITH HISAB - PATTIS CONCLUSIVELY ESTABLISHES THAT ALL THE PERSONS FROM WHOM THE ASSESSEE MADE PURCHASES OF AGRICULTURAL PRODUCE AND TO WHOM THE ASSESSEE MADE PAYMENTS BY CHEQUES WERE AGRICULTURIS TS AND HENCE CONDITION STATED IN RULE 6DD(E) IS SATISFIED AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 40A(3). LEARNED CIT(APPEALS) OBTAINED REMAND REPORT FROM THE ASSESSING OFFICER IN THIS REGARD. IN THE REMAND REPORT THE ASSESSING OFFICER MADE FOLLOWIN G SUBMISSIONS : S.NO. PARTICULARS NO. OF ENTRIES AMOUNT INVOLVED REMARKS. 1 PURCHASES WHERE ALL DOCUMENTS HAVE BEEN SUBMITTED (ANNEXURE - I) 257 2,45,17,414 -------- 2 PURCHASES WHEREIN NO OTHER DOCUMENTS I.E. 7/12 EXTRACT SUBMITTED EXCEPT APMC RECEIPTS (ANNEXURE - II) 25 25,36,818 ASSESSEE HAS NOT SUBMITTED 7/12 EXTRACT. HENCE, IT REQUIRES TO EXPLAIN AS 4 ITA NO. 229/NAG/2013 WHETHER THE PERSON IS AGRICULTURIST OR NOT. 3 PURCHASES WHEREIN DOCUMENTS HAVE BEEN SUBMITTED BUT THE PRODUCTION AS PER 7/ 12 EXTRACT AND ACTUAL PURCHASE IS NOT COMMENSURATE (ANNEXURE - III) 10 11,36,958 THE QUANTITY OF PURCHASES AND PRODUCTION AS PER 7/12 EXTRACT NEEDS EXPLANATION. 4 S.N. 181 IS MISSING IN ASSESSMENT ORDER. 1 ---- ---- THE AO AGREED WITH THE APPELLANT THAT IN THE ASSESSMENT ORDER DISALLOWANCE OF THE PURCHASES AT ` .2,81,91,190/ - AS PER LIST OF 293 PERSONS AND STATED THAT THE TOTAL WORKED OUT IN THE ASSESSMENT ORDER IS NOT CORRECT AND WHICH SHOULD BE ` .2,68,06,000/ - . THEREAFTER THE LEARNED CIT(APPEALS) OBTAINED OBJECTIONS FROM THE ASSESSEE IN THIS REGARD AND DEALT WITH THOSE OBJECTIONS AS UNDER : IN RESPECT OF 25 PERSONS LISTED IN ANNEXURE - II OF THE AO'S REMAND REPORT, I ACCEPT THE CONTENTION OF TH E APPELLANT THAT NINE PERSONS WHOSE PURCHASES AMOUNTING TO ` .12,29,403/ - TALLIES WITH THE NAMES OF THE SELLER AGRICULTURIST AS GIVEN IN 7/12 EXTRACT AND THE FACT THAT THEY ARE AGRICULTURIST 5 ITA NO. 229/NAG/2013 STANDS PROVED. IN RESPECT OF ONE PERSON THE APPELLANT RELIED ONLY HISAB - PATTI AND APMC PAPERS FOR PURCHASE OF ` .87,340/ - AS 7/12 EXTRACT IS NOT AVAILABLE. BUT CONSIDERING THE INFORMATION AVAILABLE IN THE DETAILS OF APMC, THIS PERSON IS CONSIDERED AS AG RICULTURIST. IN RESPECT OF REMAINING 12 PERSONS FROM WHOM THE PURCHASES AMOUNT TO ` .12,20,075/ - , ARE CLAIMED TO BE AGRICULTURISTS AS THE CROP STATEMENT 7/12 EXTRACTS IN THE NAMES OF CLOSE FAMILY MEMBERS WERE SUBMITTED. THE APPELLANT ARGUED THAT EVEN TH OUGH THE AGRICULTURE ACTIVITIES ARE CARRIED OUT IN FAMILY LAND THE PRODUCE WILL BE BROUGHT BY ONE OF THE FAMILY MEMBER TO APMC. THE APPELLANT CONTENDED THAT SUCH PERSONS ARE ALSO AGRICULTURISTS AS THEY USE THE FAMILY MEMBERS LANDS FOR AGRICULTURAL PROD UCTION. CONSIDERING THE FACTS, I CONCUR WITH THE APPELLANT THAT THESE 12 PERSONS ARE ALSO TO BE TREATED AS AGRICULTURISTS FOR THE PURPOSE OF RULE 6DD(E). THE THIRD CATEGORY IS THE PERSONS WHO DO NOT HAVE SUFFICIENT LAND AS PER THE AO TO SUPPLY 475 QUIN TALS TO THE APPELLANT. THE AO HAS ESTIMATED THAT THE LAND WITH THESE PERSONS CAN PRODUCE ONLY 318.36 QUINTALS. CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT, THE TECHNOLOGICAL BREAKTHROUGHS IN AGRICULTURAL FIELD RESULT IN PRODUCT5ION MUCH MORE IN T HE AVAILABLE LAND, THERE COULD BE AVAILABILITY OF PRIOR YEAR STOCK, AND FURTHER LANDS MAY BE AVAILABLE WITH THE FAMILY MEMBERS. I AM NOT INCLINED TO GO WITH THE CONCLUSION MADE BY THE AO IN ESTIMATING ONLY 318.36 QUINTALS CAN BE SUPPLIED BY THESE PERS ONS. THE AO HAS NOT MADE OUT A CASE TO PROVE THAT THESE TEN PERSONS ARE NOT AGRICULTURISTS. THEREFORE THE PURCHASES MADE FROM THESE PERSONS FALLS IN EXCEPTION AS PER RULE 6DD(E) AND BECOMES ALLOWABLE EXPENDITURE EVENTHOUGH PAYMENT IS MADE THROUGH BEARE R CHEQUES. IN VIEW OF THE ABOVE AND ALSO IT IS NOT DISPROVED THAT THE PURCHASES WERE MADE OUTSIDE THE APMC YARD, I AM OF THE CONSIDERED OPINION THAT ENTIRE DISALLOWANCE OF PURCHASES FROM AGRICULTURIST FROM 293 AGRICULTURIST AMOUNTING TO ` .2,81,91,190 / - IS TO BE DELETED AS THE MODE OF PAYMENT DOES SATISFY THE ELIGIBILITY CONDITION UNDER RULE 6DD(E). THE APPELLANT SUCCEEDS IN HIS GROUNDS. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 4 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IT IS UNDISPUTED THAT THE ASSESSEE WAS DEALING WITH AGRICULTURAL PRODUCTS. HENCE 6 ITA NO. 229/NAG/2013 EXCEPTION AS PRESCRIBED IN RULE 6DD(E) IS ADMISSIBLE. THE ASSESSING OFFICER HAS HIMSELF AGREED ON THIS IS SUE WITH RESPECT TO ` .2,45,17,411/ - OF THE ADDITION. THE ASSESSING OFFICER HAS ALSO AGREED THAT HE HAD ERRED INASMUCH AS THE INITIAL DISALLOWANCE SHOULD HAVE BEEN ` . 26006000/ - AS AGAINST THE AMOUNT OF ` .2,81,91,190/ - . WITH RESPECT TO PURCHASE FROM 25 PERS ONS AMOUNTING TO ` .2,53,6,818/ - THE ASSESSING OFFICER HAS OBJECTED THAT THE ASSESSEE HAS NOT SUBMITTED 7/12 EXTRACTS. HENCE PRESUMABLY HE WAS NOT SATISFIED THAT THEY WERE AGRICULTURISTS. THIS ISSUE HAS BEEN DEALT WITH BY THE LEARNED CIT(APPEALS) BY ACCEPT ING THAT CLOSE RELATIVES OF THE AGRICULTURISTS ALSO WORKED ON THE LAND OF THE FAMILY. HENCE THEY SHOULD ALSO BE CONSIDERED AS AGRICULTURISTS. WE FIND THAT THIS REASON OF THE LEARNED CIT(APPE4ALS) IS COGENT AND HAS TO BE ACCEPTED. AS REGARDS PURCHASES FROM 10 PERSONS AMOUNTING TO ` . 11,36,958/ - THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE QUANTITY OF PURCHASES AND PRODUCTION AS PER 7/12 EXTRACT. WE FIND THAT THIS SUSPICION OF THE ASSESSING OFFICER IS PURELY BASED UPON SURMISES AND CONJECTURES. THE ASSESSI NG OFFICER CANNOT ESTIMATE BY MATHEMATICAL PRECISION THAT THESE PERSONS CAN PRODUCE ONLY 318.36 QUINTALS. IT IS ALSO NOT THE CASE THAT THESE 10 PERSONS ARE NOT AGRICULTURISTS. HENCE WE AGREE WITH THE LEARNED CIT(APPEALS) ORDER IN THIS REGARD. 5 . IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS) ON THIS ISSUE AND ACCORDINGLY WE UPHOLD THE SAME. 6 . APROPOS GROUND N O.2, ON THIS ISSUE, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE H AD OBTAINED THE UNSECURED LOAN FROM M/S NEHA COTTON CO. AND THE 7 ITA NO. 229/NAG/2013 OUTSTANDING UNSECURED LOAN WAS ` .2,15,22,387/ - AND THE ASSESSEE HAD CLAIMED INTEREST ON THE ABOVE BORROWED LOANS AT ` .26,34,281/ - @ 15% PER ANNUM. THE AO HAS STATED THAT THE A SSESSEE HAD ADVANCED LOANS/ADVANCES TO M/S SHASHANDER COTTON COMPANY AND M/S MODERN TERRY TOWELS LTD., @ 12% AND OBSERVED THAT THE DEBIT BALANCE DISCLOSED IN THE NAME OF M/S SHASHANDER COTTON COMPANY AND M/S MODERN TERRY TOWELS LTD. THERE IS BALANCE OF ` .9,15,8 82/ - AND ` .53,597/ - . THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE EX IGENCY FOR OBTAINING LOANS @ 15% WHEN IT WAS ITSELF ADVANCING LOANS @ 12% AND WHY THE DIFFERENCE OF 3% OF THE INTEREST DEBITED SHOULD BE DISALLOWED. THE ASSESSING OFFICER WAS NO T SATISFIED WITH THE ASSESSEES EXPLANATION THAT IT WAS A BUSINESS EX IGENCY THAT MADE THE ASSESSEE TO TAKE THE NECESSARY DECISIONS. THE ASSESSING OFFICER MADE A DISALLOWANCE OF ` .5,26,856/ - . 7 . CONSIDERING THE ASSESSEES SUBMISSION, LEARNED CIT(APPEALS) D ELETED THE ADDITION HOLDING AS UNDER : I HAVE CONSIDERED THE FACTS OF THE CASE, RECTIFICATION APPLICATION AND TH E SUBMISSIONS MADE THEREON. I A GREE WITH THE CONTENTIONS OF THE APPELLANT THAT THE BORROWINGS AND LENDING SHOULD BE SEEN IN A BROADED PURVI EW OF BUSINESS PURPOSE FROM THE POINT OF VIEW OF A BUSINESSMAN. THE RATE OF LENDING DEPENDS ON MARKET CONDITIONS, TIME PERIOD AND URGENCY OF F UNDS. IF THERE IS AN URGENT NEED OF MONEY IN A BUSINESS, THE RATE OF BORROWING MAY BE HIGHER TO MEET THE BUS INESS EXIGENCIES. BUT THE SAME RATE OF INTEREST CANNOT BE INSISTED AT THE TIME OF LENDING TO OTHER PARTIES. SO THE DIFFERENCE IN RATES OF INTEREST IS BOUND TO BE THERE. IT IS ALSO TO BE NOTED THAT THERE CAN BE SOURCES OF FUNDS AS PER THE BALANCE SHEET B UT IT IS A BUSINESS EXIGENCY THAT AT A PARTICULAR TIME, THE BUSINESSMAN MAY NOT HAVE LIQUIDITY; HENCE HE IS REQUIRED TO BORROW FROM THE MARKET. IN SUCH AN EXIGENCY, THERE WILL NOT BE ANY ALTERNATIVE BUT TO PAY THE MARKET RATE OF INTEREST CHARGED BY THE LENDER. CONSIDERING THE FACTS OF THE APPELLANT, I AM UNABLE TO AGREE WITH THE 8 ITA NO. 229/NAG/2013 REASONING OF AO IN DISALLOWING THE INTEREST PAYMENT. THEREFORE, I DIRECT THE AO TO ALLOW THE INTEREST AMOUNTING TO ` .5,26,857/ - AS EXPENSES AND ACCORDINGLY THE ADDITION IS DELETED. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 8 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(APPEALS) IS CORRECT IN HOLDING THAT BORROWINGS AND LENDING SHOULD BE SEEN IN A BROADER PURVIEW OF BUSINESS PURPOSE FROM THE POINT OF VIEW OF BUSINESS MAN. THE RATE OF LENDING CERTAINLY DEPENDS UPON VARIOUS FACTORS. THE BUSINESS MAN HAS TO TAKE A DECISION ON THE PREVAILING BUSINESS EXIGENCY. A BUSINESS MAN CERTAINLY CAN NOT F ORCE THE LENDER TO CHARGE LESSER RATE ON THE GROUND THAT THE BUSINESS MAN HAS GRANTED LOAN TO OTHERS AT A PARTICULAR RATE. IT IS SETTLED LAW THAT THE ASSESSING OFFICER CANNOT SIT INTO THE SEAT OF BUSINESS MAN AND DECIDE WHAT IS REASO NABLE. HENCE IN OUR CONSIDERED OPINION, THE ASSESSING OFFICERS DISALLOWANCE OF INTEREST AMOUNTING TO ` .5,26,857/ - AS UN REASONABLE HAS BEEN RIGHTLY DELETED BY THE LEARNED CIT(APPEALS). ACCORDINGLY WE UPHOLD THE ORDER OF THE LEARNED CIT(APPEALS). 9 . IN THE RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) (SHAMIM YAHYA) JUDICIAL MEMBER. ACCOUNTANT MEMBER NAGPUR, DATED: 30 TH JUNE, 2015. 9 ITA NO. 229/NAG/2013 COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR