ACIT, WARDHA CIRCLE, Wardha V. M/S RANA OIL INDUSTRIES, Yavatmal

ITA 270/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1621 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 12-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Permanent establishment; Cost of acquisition
• Section: 40A(3); 143(3)

Judgement Text

1 ITA NO. 270 /NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 270/NAG/2013 ASSESSMENT YEAR : 2009 - 10. ASSTT. COMMISSIONER OF INCOME - TAX, M/S RANA OIL INDUSTRIES, WARDHA CIRCLE, WARDHA. VS. YAVATMAL. PAN AADFR4459H. APPELLANT . RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHRI MAHAVIR ATAL. DATE OF HEARING : 05 - 08 - 2015 DATE OF PRONOUNCEMENT : 30 TH OCT., 2015 O R D E R PER MU KUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE REVENUE EMANATING FROM THE ORDER OF LEARNED CIT(APPEALS) - II, NAGPUR DATED 28 - 03 - 2013. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,71,18,992/ - MADE U/S 40A(3) ON THE GROUND THAT PARTIES ARE KACHHA ADATIYAS AND NOT TRADERS; THUS ELIGIBLE FOR EXEMPTION UNDER RULE 6DD ? 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) IS JUSTIFIED IN RELYING ON THE DECISION OF CIT(A) WHICH ARE NOT BINDING PRECEDENTS. MOREOVER THE FACTS OF THE CASES ARE NOT KNOWN. WHEN THE ASSESSEE HAS RECORDED THE PURCHASE TRANSACTIONS IN HIS BOOKS OF ACCOUNTS WITH THESE PARTIES AND HAS MADE PAYM ENTS FOR THE COMPLETE PURCHASE COST INSTEAD OF MERELY COMMISSION ACCOUNTS? 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) IS JUSTIFIED IN HOLDING THE PARTIES AS KACHHA ADATIYAS WHEN 2 ITA NO. 270 /NAG/2013 THE ASSESSEE HAS RECORDED THE PURCHASE TRANSA CTIONS IN HIS BOOKS OF ACCOUNTS WITH THESE PARTIES AND HAS MADE PAYMENTS FOR THE COMPLETE PURCHASE COST INSTEAD OF MERELY COMMISSION AMOUNT? 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) IS JUSTIFIED IN NOT DRAWING ANY DISTINCTI ON BETWEEN ADATIYAS AND KACHHA ADATIYAS WHEREAS THE CBDTS CIRCULAR NO. 452 DATED 17.03.1986 STRICTLY APPLICABLE TO THE CASE WHERE THE PESON INVOLVED IS KACHHA ADATIYAS IT DEFEATS THE PURPOSE FOR WHICH SEC. 40A(3) WAS INTRODUCED I.E. TO CURB THE CIRC ULATION OF BLACK MONEY? 2. ALL THE GROUNDS OF THE REVENUE REVOLVE AROUND A SINGLE ISSUE AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S 143(3) DATED 29 - 12 - 2011 THAT WHETHER THE PURCHASES MADE BY THE ASSESSEE WERE FROM KACHHA ADATIYAS OR NO T. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF COTTON GINNING AND PRESSING. ON VERIFICATION OF BOOKS OF ACCOUNTS IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD MADE PURCHASES OF COTTON IN CASH EXCEEDING RS.20,000/ - . THE AO HAD MADE A LIST OF TRADERS FR OM WHOM THE PURCHASES ABOVE RS.20,000/ - WAS MADE AS UNDER : NAME OF TRADERS AMOUNT OF PURCHASE ABOVE RS.20,000/ - DURING THE YEAR 08 - 09. (I) KISHORE UPLCNCHWAR RS. 19,94,909 (II) ARUN BHURE RS. 90,27,174 (III) GOPAL TRADERS RS. 21,69,717 (IV) INDIAN TRADERS RS. 11,08,653 (V) RAJESHWARI TRADERS RS. 1,27,445 (VI) SH AHBUDDIN LALANI RS. 15,17,534 (VII) SHANKAR RATHOD RS. 11,73,560. 2.1 AFTER INVOKING THE PROVISIONS OF SECTION 40A(3) READ WITH RULE 6DD(F) THE AO HAS FINALLY HELD THAT THE ASSESSEE WAS UNABLE TO PRODUC E THOSE TRADERS/KACHHA ADATIYAS, H ENCE CONTRAVENED THE PROVISIONS OF SECTION 40A(3). RESULTANTLY THE IMPUGNED AMOUNT WAS TAXED IN THE HANDS OF THE ASSESSEE. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3 ITA NO. 270 /NAG/2013 3. THE EXPLANATION OF ASSESSEE WAS THAT THE THAT THE APPELLANT IS ENGAGED IN COTTON TRADING BUSINESS AT YAVATMAL AND PURCHASED COTTON FROM VARIOUS PARTS OF THE DISTRICT AND SUCH PURCHASES ARE NORMALLY EFFECTED EITHER FROM FARMERS DIRECTLY OR BY APPOINTING COTTON COLLECTING AGENT (CCA) AS THE FARME R S ARE UNABLE TO MOVE TO EVERY PART FOR SELLING THE COTTON. IT WAS EXPLAINED THAT SUCH CCAS CAN ALSO BE TERMED AS KACCHA ADATIYA SINCE THEY PURCHASE GOODS AS PER THE DIRECTION OF THE APPELLANT AND THE RELATION BETWEEN BOTH THE PARTIES ARE OF PRINCIPAL AND AGENT. IT WAS EXPL AINED THAT THE FARMERS APPROACHES KACCHA ADATIYA FOR SALES OF THEIR PRODUCE AND THE KACCHA ADATIYAS CHARGED COMMISSION FROM THE AGRICULTURIST. THEY DO NOT HAVE ANY FIXED PLACE OF BUSINESS AND THEY MOVED AROUND TO SMALL VILLAGES FOR THEIR BUSINESS , AND T HAT THEY DO NOT PURCHASE G OODS IN THEIR OWN NAME NOR THEY SELL IN THEIR OWN NAME. IT WAS EXPLAINED THAT KACCHA ADATIYAS GETS COMMISSION FROM FARMERS ONLY AND THEY HAVE NO PERSONAL INTEREST OR D O MAIN OVER THE GOODS. IT WAS EXPLAINED THAT MOST OF THE FARMER S ARE RESIDING IN REMOTE PARTS OF THE DISTRICT WHERE BASIC FACILITIES ARE NOT AVAILABLE AND FARMERS ARE ALWAYS IN NEE D S OF MONEY. THEY ARE ILLITERATE AND HAVING NO KNOWLEDGE OF BANKING AND THEREFORE PAYMENTS HAVE TO BE MADE TO THE FARMERS IN CASH WHICH I S DONE BY THE KACCHA ADATIYAS. IT WAS EXPLAINED THAT PAYMENTS MADE TO KA CCHA ADATIYAS IS COVERED BY RULE 6DD(K). 3.1 . THE APPELLANT HAS PLACED BEFORE THE LEARNED CIT(APPEALS) THE APMC COTTON BILL PATTI, COTTON SOUDA PATTI AND KATA PATTI. ON ACCOUNT OF THE PRODUCTION OF CERTAIN EVIDENCES, THE LEARNED CIT(APPEALS) HAS CALLED FOR A REMAND REPORT. IT HAS ALSO BEEN MENTIONED BY LEARNED CIT(APPEALS) THAT THE AO HAD CALLED THE KACCHA ADATIYA TO HIS OFFICE AND EXAMINED THOSE PARTIES. ONE INSPECTOR OF THE REVENUE DEPARTMENT WAS ALSO DEPUTED TO ENQUIRE THE DETAILS FROM APMC, GHATANJI. LEARNED CIT(APPEALS) HAS REPRODUCED THE REPORT FURNISHED BY THE AO. 4 ITA NO. 270 /NAG/2013 ON EXAMINING THE FACTS OF THE CASE AND THE REPORT OF THE AO, CERTAIN CONCLUSIONS HAVE BEEN DRAWN BY THE LEARNED CIT(APPEALS) IN SHORT AS UNDER : THE LD. AO IN HIS REMAND REPORT HAS STATED THAT HIS INSPECTOR WAS DEPUTED TO APMC, GHATANJI TO VERIFY IF THE SAID PERSONS WERE ADATIYA OR NOT FO R THE YEAR UNDER CONSIDERATION AND THAT THE INSPECTOR IN HIS REPORT DATED 14 - 02 - 2013 HAS STATED THAT THE SAID THREE PARTIES ARE REGISTERED AS ADATIYAS IN APMC. THE APPELLANT HAS ALSO FILED ONE CERTIFICATE FROM THE APMC, GHATANJI WHEREIN THE ABOVE FACTS HAS BEEN AFFIRMED AND NIT HAS BEEN STATED THAT THE 3 PERSONS ARE WORKING AS KACCHA ADATIYAS. I HAVE ALSO PERUSED THE DOCUMENTATION THAT SUPPORTS EACH OF HE TRANSACTION ENTERE3D INTO BY THE APPELLANT. THE SAID DOCUMENT IS CALLED KAPUS HISHOB PATTI WHICH CONT AINS THE VARIOUS DETAILS INCLUDING THE FOLLOWING: I) O WNER OF GOODS. II) PURCHASERS NAME. III) NET WEIGHT. IV) ADAT. V) FARMERS SIGNA TURE. VI) PURCHASERS SIGNATURE. FROM THE SAID DOCUMENT ITSELF IS BECOMES CLEAR THAT THE KA IS ONLY GETTING ADAT FOR FACILITATING THE SAID TRANSACTION. THIS DOCUMENT IS A CRUCIAL PIECE OF EVIDENCE TO ESTABLISH THE CLAIM OF THE APPELLANT THAT THE SAID PARTIES ARE KAS. ASSESSMENT DETAILS OF THE THREE PARTIES WOULD ALSO CONSTITUTE VITAL EVIDENCE. DURING THE COURSE OF ENQUIRY CONDUCTED BY THE LD . AO, THE INCOME TAX RETURNS AND BALANCE SHEET OF 3 PARTIES INVOLVED WERE SOUGHT BY HIM. IT IS SEEN THAT SHRI KISHORE UPLENCHWAR HAS NOT FILED ANY INCOME TAX RETURN FOR THE A.Y. 2009 - 10 AS HIS INCOME WAS BELOW TAXABLE LIMIT. HOWEVER INCOME TAX RETURN WAS FILED FOR A.Y. 2010 - 11 IS SHOWING INCOME OF RS.1,80,876/ - FROM COMMISSION ONLY. IN RESPECT OF SHRI ARUN BHURE HE HAS SHOWING INCOME OF RS.2,03,806/ - . ON PERUSAL OF HIS P&L A/C IT IS SEEN THAT THE ONLY RECEIPTS ARE IN RESPECT OF COMMISSION / BROKERAGE. SIM ILARLY, IN THE CASE OF SHAHABUDDIN LALANI IT IS SEEN HAT HE HAS SHOWN RETURNED INCOME OF RS.3,90,420/ - AND HAS SHOWN ADAT COMMISSION OF RS. 6,41,621/ - . THUS THERE IS INDEPENDENT EVIDENCE WHICH CLEARLY ESTABLISHES THAT 3 PARTIES ARE ADATIYAS. 5 ITA NO. 270 /NAG/2013 3.2 IN THE LIGHT OF THE ABOVE DISCUSSION, LEARNED CIT(APPEALS) HAS REFERRED AN ORDER OF THE TRIBUNAL AND THEREAFTER DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER : IN THE CASE OF THE APPELLANT ALSO, COMPLETE EVIDENCES ARE AVAILABLE ON RECORD WHICH ESTABLISH ES THAT THE PARTIES IN RESPECT OF WHOM DISALLOWANCE U/S 40A(3) HAVE BEEN MADE ARE KACCHA ADATIYAS. THEIR STATEMENTS HAVE BEEN RECORDED TO THAT EFFECT AND INDEPENDENT EVIDENCES IN THE FORM OF CERTIFICATION OF AMPC GHA TANJI ARE ALSO AVAILABLE. THE INSPECTOR OF THE LD. AO HAS ALSO MADE RELEVANT ENQUIRIES AND ALSO COME TO THE SAME CONCLUSION. THEIR RETURN OF INCOME ALSO ESTABLISHED THEM TO BE COMMISSION AGENTS. THEY HAVE APPEARED B EFORE THE LD. AO AND HAVE EXPLAINED WHY THEY ARE KAS AND NOT TRADERS. CONSIDERING THE ABOVE FACTS AND LEGAL POSITION AS DISCUSSED ABOVE, THE SAID PURCHASES ARE KACCHAW ADATIYA AND THEREFORE THE PROVISIONS OF SECTION 40A(3) ARE HELD TO BE NOT APPLICABLE AND CASH PURCHASES MADE BY THE APPELLANT THROUGH SUCH KACCHA ADATIYA. THE LD. AO IS THEREFORE DIRECTED TO DELETE THE ADDITION MADE OF RS.1,71,18,992/ - . 4. IN THE LIGHT OF THE ABOVE DISCUSSION, WE HAVE HEARD BOTH THE SIDES. THE FACTS OF THE CASE AS WELL AS THE EVIDENCES REMAINED UNCONTROVERTED BEFORE US. THE ASSESSEE WAS PURCHASING COTTON FOR THE PURPOSE OF COTTON TRADING AS WELL AS COTTON GINNING AND PRESSING. THE PURCHASES HAVE BEEN MADE EITHER DIRECTLY FROM THE FARMERS OR BY APPOINTING COTTON COLLEC TING AGENTS (CCA) . IN THIS CONNECTION THE CONTROL OF APMC HAS ALSO BEEN DISCUSSED BY THE REVENUE AUTHORITIES AND THAT TO O WAS AN ACCEPTED FACTUAL POSITION. COTTON COLLECTING AGENTS WERE IN COMMON PRACTICE ARE TERMED AS KACCHA ADATIYAS. IT HAS BEEN EXPL AINED THAT THE COTTON WAS PURCHASED AS PER THE DIRECTION OF THE ASSESSEE. THOSE KACCHA ADATIYAS HAVE ONLY CHARGED COMMISSION. THOSE KACCHA ADATIYAS MOVED AROUND FROM VILLAGE TO VILLAGE AND PURCHASE COTTON AND GET COMMISSION FROM THE PARTIES. THE ROLE PLAY ED BY THE KACCHA ADATIYAS IN PROCURING THE COTTON HAS THUS BEEN CLAIMED TO HAVE BEEN COVERED BY RULE 6DD(K) WHICH SAYS THAT WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF SUCH PERSON THEN NO 6 ITA NO. 270 /NAG/2013 DISALLOWANCE U/S 40A(3) SHALL BE MADE. IT HAS ALSO BEEN CLARIFIED BEFORE US THAT INADVERTENTLY THE AO HAD MENTIONED RULE 6DD(F), ALTHOUGH THAT WAS NOT AT ALL THE CLAIM OF THE ASSESSEE. OUR ATTENTION HAS ALSO BEEN DRAWN ON SOME OF THE PERSO NS WHO WERE EXAMINED BY THE AO. THEIR STATEMENTS WERE RECORDED AS WELL AS THEIR BANK ACCOUNTS WERE VERIFIED. OUR ATTENTION HAS ALSO BEEN DRAWN ON A CLARIFICATION ISSUED BY THE CBDT AS PER CIRCULAR NO. 452 DATED 17 - 03 - 1986. THIS CIRCULAR HAS DEFINED DISTIN CTION BETWEEN PAKKA ADATIYA AND KACCHA ADATIYA. THE KACCHA ADATIYA ACTS ONLY AS AN AGENT OF HIS CONSTITUENTS AND NEVER ACTS AS A PRINCIPAL. ON THE OTHER HAND, A PAKKA ADATIYA IS ENTITLED TO SUBSTITUTE HIS OWN GOODS TOWARDS THE CONTRACT MADE. THE RE MUNERATION OF A KACCHA ADATIYA CONSISTS SOLELY OF COMMISSION. A KACCHA ADATIYA IS NOT INTERESTED IN THE PROFITS/LOSSES MADE BY HIS CONSTITUENTS. A KACCHA ADATIYA HAS NO DOMINION OVER THE GOODS. IN ADDITION TO THIS CBDT CIRCULAR, LEARNED A.R. HAS AL SO EXPLAINED THE ROLE OF AGRICULTURAL PRODUCE MARKETING COMMITTEE (APMC). FARMERS GENERALLY PREFER TO TAKE THEIR PRODUCE TO APMC WHERE THEY CAN FIND SUITABLE BUYERS OR AGENTS. THE TRANSACTION IN APMC IS A RECORDED TRANSACTION AS PER KAPUS HISHOB PATTI WHICH CONTAINS THE FOLLOWING DETAILS: I KASTAKAR (FARMER ) NAME II PURCHASERS NAME III NET WEIGHT IV ADAT (COMMISSION OR BROKERAGE) V FARMERS THUMB IMPRESSION OR SIGNATURE VI KACCHA ADATIYAS SIGNATURE VII PURCHASERS SIGNATURE. IN SUPPORT OF THE ABOVE CONTENTION THE SAMPLES OF THE APMC PATTIS AND THE CERTIFICATES WERE PLACED ON RECORD. RELIANCE WAS PLACED ON A DECISION OF ITAT, PUNE IN THE CASE OF ITO VS. MAHENDRA J. AGRAWAL BEARING ITA NOS. 1280 TO 1286/PN/2008 FOR ASSESSMENT YEARS 2000 - 01 TO 20 06 - 07, ORDER DATED 24 - 06 - 2010 AND A DECISION OF HONBLE MADRAS HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. SRI SHANMUGA GINNING FACTORY 37 TAXMANN .COM 422 (MADRAS). 7 ITA NO. 270 /NAG/2013 THEREFORE, U NDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND CONSIDERING THE LAW LAID DOWN BY THE HONBLE COURT, WE HEREBY UPHOLD THE FINDINGS OF LEARNED CIT(APPEALS). RESULTANTLY THE GROUNDS RAISED BY THE REVENUE ARE HEREBY DISMISSED. 5. IN THE R 0 ESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF OCT., 2015. SD/ - SD/ - ( SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER. JUDICIAL MEMBER NAGPUR, DATED: 30 TH OCT., 2015. COPY FORWARDED TO : 1. M/S RANA OIL INDUSTRIES, A - 82, MIDC, LOHARA, TAVATMAL. 2. A. C.I.T., WARDHA CIRCLE, WARDHA. 3. CIT(APPEALS) - II, NAGPUR. 4. C.I.T. CONCERNED. 5. D.R. ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR.