Shri Savalia Manubhai Madhabhai, RAJKOT-GUJARAT V. The Income Tax Officer, Ward-2(3), AMRELI

ITA 265/RJT/2011

• Counselvise Citation: 26524914 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-01-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 10-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J B JHAVERI D R
• Assessee Lawyers: DR ADHIA
• Keywords: Corroborative evidences; Benefit of exemption
• Section: 40A(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT BEFORE SHRI T. K. SHARMA, JM AND SHRI B. R. JAIN, A M ITA NO. 265/RJT/2011 / ASSESSMENT YEAR : 2004-05 SHRI SAVALIA MANUBHAI MADHABHAI, PROP. OF SAVALIA SEEDS FARM, BABAPUR, DIST : AMRELI PAN : AFHPS 6361 Q ( / APPELLANT) THE INCOME-TAX OFFICER WARD 2(3), AMRELI / RESPONDENT ! ' #$ / ASSESSEE BY SHRI D. R. ADHIA, AR % ! ' #$ / REVENUE BY SHRI J. B. JHAVERI, DR # & ' ! ( / DATE OF HEARING 09.01.2014 ) ! ( / DATE OF PRONOUNCEMENT 07.03.2014 / ORDER .. , / T. K. SHARMA, J. M.: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 15.03.2011 OF LD. CIT(A) -XXI, AHMEDABAD FOR THE ASSESSMENT YEAR 2004-05. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL, TRADING IN WHEAT, RAJKO, ETC. FOR THE ASSESSMENT YEAR UNDER APPEAL, HE FILED RETURN OF INCOME ON 26.10.2004 DECLARING TOTAL INCOME AT RS.78,432/- EXCLUDING AGR ICULTURE INCOME OF RS.2,75,600/-, ALONGWITH COPIES OF AUDITED ACCOUNTS IN FORM NO.3CB AND OTHER RELATED DOCUMENTS. IN PARAGRAPH 2 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS DEALING IN PRODUCTION AND SALE OF CERTIFIED SEED S OF WHEAT AND RAJKO. IN PARAGRAPH 4 OF THE ASSESSMENT ORDER, ON VERIFICATION OF ASSESSEES CASH BOOK FOR THE FY 2003-04, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD PUR CHASED WHEAT QUANTITY 1,80,000 KGS AT THE RATE OF RS.11.50 FROM RELATIVE AND OTHER PARTIES ON 16.10.2003 AND SOME OF THE PURCHASED WHEAT QUANTITY DURING THE MONTH EXCEP T ON 16.10.2003 AT THE AVERAGE RATE OF 8.50. ON THIS BASIS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE MADE PURCHASES AT A PRICE HIGHER BY RS.3/- FROM FRIENDS AND RELATIVES AND HE ACCORDINGLY MADE ADDITION OF RS.5,40,000/- (1,80,000 KGS X RS.3 = RS.5,40,000/-). 3. ON FURTHER VERIFICATION, THE ASSESSING OFFICER N OTICED THAT THE ASSESSEE MADE CASH PAYMENT EXCEEDING RS.20,000/- TO FIVE PERSONS (TOTALING TO RS.6,09,252/-) AS 265-RJT-2011 - SHRI SAVALIA MANUBHAI MADHABHAI 2 SPECIFIED IN PARAGRAPH 5 OF THE ASSESSMENT ORDER; T HEREFORE, HE DISALLOWED RS.1,21,850/- AT 20% ON GROSS CASH PAYMENT OF RS.6, 09,252/-. 4. IN PARAGRAPH 6 OF THE ASSESSMENT ORDER, THE ASSE SSING OFFICER MADE ADDITION OF RS.56,683/- BEING FINANCIAL CHARGES PAID TO BANK AS THE ASSESSEE HAS NOT CHARGED ANY INTEREST FROM SAVALIYA ELECTRICALS, A PROPRIETARY C ONCERN OF THE SON OF THE ASSESSEE TO WHOM THE ASSESSEE HAS GIVEN A LOAN OF RS.10,00,000/ - BY WAY OF DEMAND DRAFT. THE ASSESSING OFFICER ALSO MADE AN ADDITION OF RS.32,51 9/- BEING GODOWN RENT DEBITED IN THE P&L ACCOUNTS AS THE ASSESSEE HAS NOT FURNISHED SUPPORTING EVIDENCES REGARDING THE PAYMENT MADE TOWARDS GODOWN RENT BY CHEQUE OR C ASH TO M/S. INDIAN SEEDS CO. AND M/S LUCKY RICE MILLS. TO SUM-UP, IN THE ASSESS MENT ORDER, THE ASSESSING OFFICER MADE FOLLOWING FOUR ADDITIONS:- 1. RATE DIFFERENCE ON PURCHASES OF WHEAT AS DISCUSS ED IN VIDE PARAGRAPH 4 OF THE ASSESSMENT ORDER - RS.5,40,000/- 2. OUT OF CASH PAYMENT EXCEEDING RS.20,000/- AS DISCUSSED IN PARAGRAPH 5 OF THE ASSESSMENT ORDER - RS.1,21,850/- 3. OUT OF FINANCIAL CHARGES AS DISCUSSED IN VIDE PARAGRAPH 6 OF THE ASSESSMENT ORDER - RS . 56,683/- 4. OUT OF GODOWN RENT AS DISCUSSED IN VIDE PARAGRAPH 7 OF THE ASSESSMENT ORDER - RS . 32,519/- ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) CO NFIRMED ALL THE AFORESAID FOUR ADDITIONS. AGGRIEVED WITH THE ORDER OF LD. CIT(A) , THE ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIBUNAL, ON THE FOLLOWING GROUNDS:- 1. THE LD. C.I.T.(A) ERRED IN LAW AND FACTS IN CON FIRMING ADDITION OF AN AMOUNT OF RS.5,40,000/- MADE BY THE LD. A.O. IN RESPECT OF PAYMENTS TOWARDS PURCHASE OF WHEAT. THE ADDITION NEEDS DELETION. 2. THE LD. C.I.T.(A) ERRED IN LAW AND FACTS IN CONF IRMING ADDITION OF AN AMOUNT OF RS.1,21,850/- MADE BY THE LD. A.O. IN RESPECT OF DISALLOWANCE U/S 40A(3). THE DISALLOWANCE NEEDS DELETION. 3. THE LD. C.I.T.(A) ERRED IN LAW AND FACTS IN CONF IRMING ADDITION OF AN AMOUNT OF RS.56,683/- MADE BY THE LD. A.O. IN RESPECT OF F INANCIAL CHARGES. THE ADDITION NEEDS DELETION. 4. THE LD. C.I.T.(A) ERRED IN LAW AND FACTS IN CONF IRMING ADDITION OF AN AMOUNT OF RS.32,519/- MADE BY THE LD. A.O. IN RESPECT OF D ISALLOWANCE TOWARDS GODOWN RENT. THE ADDITION NEEDS DELETION. 265-RJT-2011 - SHRI SAVALIA MANUBHAI MADHABHAI 3 5. TAKING INTO CONSIDERATION THE LEGAL, STATUTORY A ND FACTUAL POSITION, AMOUNT OF RS.5,40,000/-, RS.1,21,850/-, RS.56,683/- AND RS .32,519/- OUGHT NOT TO HAVE BEEN CONFIRMED AND ADDITIONS/DISALLOWANCES MADE ON THIS ACCOUNT OUGHT TO HAVE BEEN DELETED. 5. SHRI D.R. ADHIA, LD. COUNSEL FOR THE ASSESSEE A SSAILING THE ADDITION OF RS.5,40,000/-, CONTENDED THAT WORDINGS FRIENDS AND RELATIVES ARE COMMON. NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(A) HAS BROUGHT AN Y MATERIAL OR ANY EVIDENCE THAT THE SELLERS ARE FRIENDS AND RELATIVES. MERELY TO SAY TH AT THEY ARE FRIENDS AND RELATIVES IS NOT USEFUL. IN THIS LINE OF BUSINESS ALMOST ALL PURCHAS ERS AND SELLERS AND IN PARTICULAR IN AGRICULTURE PRODUCTS WILL BE FRIENDS OR RELATIVES. IT IS NOT THE CASE THAT PAYMENT HAS NOT BEEN MADE. THESE WERE PAID AT PREVALENT MARKET PRIC E WHICH FLUCTUATES AT EVERY MOMENT AND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS INCURRED LOSS IN THESE TRANSACTIONS; THEREFORE, THE ADDITION OF RS.5 ,40,000/- MADE BE DELETED. 5.1 WITH REGARD TO THE ADDITION OF RS.1,21,850/- MA DE BY THE ASSESSING OFFICER U/S 40A(3) OF THE ACT, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT WHEAT ARE PURCHASED THROUGH COMMISSION AGENT AND PAYMENTS ARE MADE TO FARMERS IN CASH, AS THEY INSISTED THAT SUCH PAYMENTS AS PER PREVAILING PRACTICE. BOTH THE DEPARTMENTAL AUTHORITIES BELOW REJECTED THIS EXPLANATION ON DOUB T AND SUSPICION. THEREFORE, THE DISALLOWANCE OF RS.1,21,850/- MADE BY THE ASSESSING OFFICER INVOKING PROVISION OF SECTION 40A(3) OF THE ACT BE DELETED. 5.2 WITH REGARD TO CONFIRMING THE ADDITION OF RS.5 6,683/- BEING THE FINANCIAL CHARGES PAID TO BANK AND ADDITION OF RS.32,519/- IN RESPECT OF DISALLOWANCE OF GODOWN RENT; THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH OF THESE ADDITIONS BE DELETED KEEPING IN VIEW THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 6. ON THE OTHER HAND, SHRI J.B. JHAVERI, DR, APPEAR ED FOR THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT(A). HE POINTED OUT T HAT THE ASSESSEE PURCHASED WHEAT WEIGHING 1,80,000 KGS FROM FRIENDS AND RELATIVES AT RS.11.50 PER KG; WHEREAS IT WAS AVAILABLE AT A LESSER PRICE OF RS.8.50/- PER KG. TH EREFORE, THE ASSESSEE HAS PAID RS.3/- PER KG MORE THEREBY INFLATED THE PURCHASE PRICE; TH EREFORE, THIS ADDITION IS RIGHTLY CONFIRMED BY THE LD. CIT(A). 265-RJT-2011 - SHRI SAVALIA MANUBHAI MADHABHAI 4 6.1 REGARDING DISALLOWANCE U/S 40A(3) OF THE ACT, L D. DR POINTED OUT THAT THE ASSESSEE COULD HAVE PAID THE AMOUNT TO COMMISSION A GENT THROUGH ACCOUNT PAYEE CHEQUE AND COMMISSION AGENT COULD HAVE PAID IN CASH . A COMMISSION AGENT CAN CLAIM THE BENEFIT OF EXEMPTION U/S 40A(3) AND NOT THE ASS ESSEE; THEREFORE, THE ORDER OF LD. CIT(A) IN THIS REGARD BE UPHELD. 6.2 FINALLY, REGARDING THE ADDITION OF RS.56,683/- BEING FINANCIAL CHARGES PAID TO THE BANK, LD. DR POINTED OUT THAT THE ASSESSEE HAS GIVE N A LOAN OF RS.10,00,000/- TO HIS SON WITHOUT INTEREST, WHEREAS HE HAS INCURRED THE FINAN CIAL CHARGES ON THIS TRANSACTION AMOUNTING TO RS.56,683/-. SINCE THESE FINANCIAL CHA RGES WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS, THIS DISALLOWANCE WAS RIGHTLY MADE. SIMILARLY, NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LD. CIT(A) THE ASS ESSEE HAS FURNISHED THE PROOF OF PAYMENT OF GODOWN RENT, EITHER IN CASH OR THROUGH B ANK; THEREFORE THE DISALLOWANCE OF RS.32, 519/- IS RIGHTLY MADE. 7. RIVAL SUBMISSIONS WERE CONSIDERED WITH REFERENCE TO MATERIAL ON RECORD. IT IS TRUE THAT THE ASSESSEE HAS PURCHASED CERTIFIED WHEAT WEI GHING 1,80,000 KGS @ RS.11.50 PER KG ON 16.10.2003. ACCORDING TO THE ASSESSING OFFICE R, THE AVERAGE PRICE OF WHEAT PURCHASED, EXCEPT ON 16.10.2003, IS RS.8.50 PER KG. ON THIS BASIS, HE REACHED TO THE CONCLUSION THAT THE ASSESSEE HAS PAID RS.3/- PER KG HIGHER ON PURCHASE OF CERTIFIED WHEAT WEIGHING 1,80,000 KGS. IN OUR CONSIDERED OPI NION, THIS IS NOT A SCIENTIFIC BASIS FOR MAKING THE ADDITION. NO SPECIFIC PURCHASE INSTANCES ON A PARTICULAR DATE NEAR TO 15.10.2003 OR 17.10.2003 ARE BROUGHT ON RECORD BY T HE ASSESSING OFFICER. IT IS ALSO NOT THE CASE OF THE REVENUE THAT WHEAT PURCHASED AT THE RATE OF 11.50 KG IS SOLD AT A PRICE LESSER THAN THE PURCHASED PRICE. KEEPING IN VIEW O F THESE CONSPICUOUS FACTS OF THE CASE, WE ARE OF THE VIEW THAT THIS ADDITION IS MADE ON DOUBT AND SUSPICION; THEREFORE, THE ADDITION OF RS.5,40,000/- MADE BY ASSESSING OFF ICER IS DELETED. GROUND NO. 1 IS ALLOWED. 7.1 BEFORE BOTH THE DEPARTMENTAL AUTHORITIES BELOW THE ASSESSEE CLAIMED THAT THE ASSESSEE MADE CASH PAYMENT EXCEEDING RS.20,000/- TO FIVE PARTIES (AGRICULTURISTS), LISTED BY THE ASSESSING OFFICER IN PARAGRAPH 5 OF T HE ASSESSMENT ORDER, THROUGH 265-RJT-2011 - SHRI SAVALIA MANUBHAI MADHABHAI 5 COMMISSION AGENT. THE EXPLANATION OF THE ASSESSEE I S REJECTED ON DOUBT AND SUSPICION. IT IS WELL KNOWN FACT THAT AGRICULTURISTS ARE SOLD THEIR WHEAT THROUGH COMMISSION AGENT AND MANY A TIMES AGRICULTURISTS ARE PRESENT IN THE MARKET AND THEY WANT CASH IMMEDIATELY. IN THE PRESENT CASE, COMMISSION AGENT IS AGENT OF THE AGRICULTURISTS; THEREFORE, LD. CIT(A) OUGHT TO HAVE ACCEPTED THE EX PLANATION OF THE ASSESSEE AS THESE PAYMENTS DO NOT VIOLATE THE PROVISION CONTAINED IN SECTION 40A(3) OF THE ACT. WE, THEREFORE, DELETE THE DISALLOWANCE OF RS.1,21,850/- . GROUND NO.2 IS ALLOWED. 7.2 NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LD. CIT(A) THE ASSESSEE HAS FURNISHED THE EVIDENCE TO SUGGEST THAT LOAN TO M/S. SAVALIYA ELECTRICALS WAS FROM HIS CURRENT ACCOUNT AT SBI, RAKHIYAL BRANCH, AHMEDABAD . IN THESE CIRCUMSTANCES, THE ASSESSING OFFICER RIGHTLY TOOK THE VIEW THAT LOAN T O M/S. SAVALIYA ELECTRICALS, A PROPRIETORSHIP CONCERN OF ASSESSEES SON, WAS NOT F OR THE PURPOSE OF BUSINESS. THEREFORE, FINANCIAL CHARGES INCURRED BY THE ASSESS EE AMOUNTING TO RS.56,683/- IS RIGHTLY DISALLOWED. WE, THEREFORE, DECLINE TO INTER FERE. GROUND NO.3 IS REJECTED. 7.3 IN RESPECT OF GODOWN RENT RECEIPT OF RS.32,519/ -, NEITHER BEFORE THE DEPARTMENTAL AUTHORITIES BELOW NOR BEFORE US THE ASSESSEE HAS FU RNISHED THE PROOF OF PAYMENT, EITHER IN CASH OR THROUGH BANK ACCOUNT. IN THESE CIRCUMSTA NCES, THE ASSESSING OFFICER IS LEGALLY AND FACTUALLY CORRECT IN DISALLOWING THE GO DOWN RENT AMOUNTING TO RS.32,519/-. GROUND NO.4 IS REJECTED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 10. SINCE ONE OF US (THE AM) IS NOT AVAILABLE AT RA JKOT, THIS ORDER SHALL BE DEEMED TO HAVE BEEN PRONOUNCED ON THE DATE ON WHICH IT IS NOT IFIED ON THE NOTICE BOARD OF RAJKOT BENCH IN TERMS OF RULE 34 OF THE INCOME-TAX (APPELL ATE TRIBUNAL) RULES. SD/- SD/- (B. R. JAIN) (T. K. SHARM A) $( #*% / ACCOUNTANT MEMBER #*% /JUDICIAL MEMBER *$+ ,*-/ ORDER DATE 07.03.2014 /RAJKOT *BT 265-RJT-2011 - SHRI SAVALIA MANUBHAI MADHABHAI 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT- SHRI SAVALIA MANUBHAI MADHABHAI, PROP. OF SAVALIA SEEDS FARM, BABAPUR, DIST : AMRELI 2. /RESPONDENT- THE INCOME-TAX OFFICER, WARD 2(3), A MRELI 3. #-2- & 3 / CIT-III, RAJKOT 4. & 3 - / CIT(A)-XXI, AHMEDABAD 5 . 678 , , / DR, ITAT, RAJKOT 6 . 89 :; / GUARD FILE. *$+ #$ / BY ORDER , PRIVATE SECRETARY, , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.