M/s Pace Sea Foods Pvt Ltd., Visakhapatnam V. The ACIT, Circle-4(1)., Visakhapatnam

ITA 474/VIZ/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0754 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Section: 40A(3); 191

Judgement Text

ITA NO.474/VIZAG/2008 PACE SEA FOODS PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.474/VIZAG/2008 ASSESSMENT YEAR: 2005-06 PACE SEA FOODS PVT. LTD., VISAKHAPATNAM VS. ACIT, CIRCLE-4(1), VISAKHAPATNAM (APPELLANT) PAN NO: AABCP 0460 F (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI G.S.S. GOPINATH DR ORDER PER SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT (A) ON THE SOLITARY GROUND THAT THE CIT (A) IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.17,43,524/- U/S 40A (3) OF THE IN COME-TAX ACT. 2. THE FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF SHRIMP H ATCHERY, SHRIMP FARMING AND EXPORT OF SHRIMP. DURING THE COURSE OF THE ASSESSMENT PROCEEDING THE AO NOTED THAT THE ASSESSEE HAD PURCH ASED SHRIMPS WORTH RS.87,17,621/- FOR WHICH PAYMENTS WERE MADE IN CASH WHICH WAS VIOLATIVE OF THE PROVISIONS CONTAINED IN SEC.40A(3) OF THE AC T. THE AO FURTHER NOTED THAT I) CASH PAYMENTS WERE MADE IN GAPS OF A WEEK TO MON THS AT TIMES WHICH FACT SHOWED THAT PURCHASED WERE MADE FROM TRA DERS AND NOT FARMERS. ITA NO.474/VIZAG/2008 PACE SEA FOODS PAGE 2 OF 6 II) FOR MAKING PAYMENTS TO THE TRADERS, BANKING CHA NNELS COULD HAVE BEEN UTILIZED. III) THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT EXPRESSED HIS INABILITY TO PRODUCE THE SO CALLED FARMERS FOR EXAMINATION FR OM WHOM PURCHASES WERE CLAIMED TO HAVE BEEN MADE. IN VIEW OF THESE FACTS, THE AO CONCLUDED THAT EXEMPT ION PROVIDED IN RULE 6DD(F) IS NOT APPLICABLE TO THE PURCHASES. ACCORDIN GLY HE DISALLOWED AN AMOUNT OF RS.17,53,524/- BY INVOKING PROVISIONS OF SEC.40A(3) OF THE ACT. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSIONS THAT THE ASSESSEE COMPANY WAS FORMED AB OUT 13 YEARS BACK AND SINCE THEN HE WAS DEALING WITH THE AQUA CULTURE AND SEA FOODS. FOR THESE PURPOSES, THE ASSESSEE COMPANY PURCHASES SHRI MP FROM VARIOUS FISHERMEN/GROWERS/FARMERS AND HAD TO PAY THE PRICE TOWARDS THE SUPPLY OF SHRIMPS. SUCH FISHERMEN/GROWERS/FARMERS IMMEDIATELY AFTER THE HARVEST BRING THE MATERIAL TO THE PROCUREMENT CENTERS OF TH E COMPANY. SHRIMP IS WASHED AND WEIGHED AS WELL AS PHYSICALLY COUNTED. O N THE BASIS OF THE SAME, THE WEIGHMENT SLIPS AND BILLS MENTIONING THE QUANTITY AND COUNT IS GENERATED. THUS, ALL THE PURCHASES ARE SUPPORTED BY THE RECEIPTS. THEY ARE FURTHER SUPPORTED BY RECEIPTS OBTAINED FROM THE RES PECTIVE PERSONS ACKNOWLEDGING THE RECEIPT OF PAYMENT TOWARDS SUPPLY OF SHRIMP. IT WAS FURTHER ARGUED THAT ALL THE SHRIMPS WERE PURCHASED FROM FARMERS WHO ARE FROM THE UNORGANIZED SECTOR AND THEY INSIST UPON TH E CASH PAYMENT ON DELIVERY OF PRODUCTS. HENCE THE PROVISIONS OF RULE 6DD(F) ARE CLEARLY APPLICABLE IN THE CASE OF THE ASSESSEE COMPANY. 4. THE FARMERS FROM WHOM PURCHASES WERE MADE WERE F ROM THE UNORGANIZED SECTOR AND MOST OF THEM WERE ILLITERATE S AND MOST OF THE TIME AFTER HARVESTING THEY MIGRATE TO OTHER PLACES AND T HE SAME FARMER DO NOT CONTINUE TO SUPPLY IN THE SUBSEQUENT YEARS. THEREFO RE, IT WAS DIFFICULT TO PRODUCE THOSE FARMERS BEFORE THE AO AFTER LAPSE OF 2 YEARS WHEN THE ITA NO.474/VIZAG/2008 PACE SEA FOODS PAGE 3 OF 6 ASSESSMENT WAS TAKEN UP. HE HAS PLACED RELIANCE UPO N THE VARIOUS JUDGMENTS IN THE CASE OF K.P. VARGHESE V. ITO, 131 ITR 597 (SC) ATTAR SINGH GURMUKH SINGH V. ITO., 191 ITR 667 (SC); CIT V. KKSK LEATHER PROCESSORS (P) LTD., 292 ITR 669 (MAD.); ABDUL RAZA K P.M. V. ITO., 63 ITD., 398 ETC., BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE DISALLOWANCE. 5. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL. BESIDES REITERATING ITS CONTENTIONS RAISED BEFORE T HE CIT (A) LD COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE WRITT EN SUBMISSIONS FILED BEFORE THE CIT (A) AND THE ORDER OF THE TRIBUNAL IN THE CASE OF UTTAM CHUNA PATHAR UDYOG VS. ITO (1997), 59 TTJ (JP) 763: 65 IT D 460 IN SUPPORT OF HIS CONTENTION THAT THERE CANNOT BE A STANDARD TO MEASU RE RELIABILITY AND IT DEPENDS UPON ONES PERCEPTIONS. PERCEPTION, THOUGH A VARIABLE FACTOR, IN MATTERS OF JUDGING A STATE OF AFFAIRS, PARTICULARLY IN A TAXING STATUTE, SHOULD CONFORM TO COMMONSENSE, CUSTOM, USAGE, ETHOS, ECONO MIC UPLIFTMENT, DEVELOPMENT OF PROFESSIONAL ATTITUDE, HUMAN PROBABI LITIES AND SIMILAR SUCH FACTORS. THE LD COUNSEL FOR THE ASSESSEE HAS FURTHE R CONTENDED THAT THIS IS NOT FIRST YEAR IN WHICH THE ASSESSEE HAS MADE PURCH ASES IN CASH. IT WAS A GENERAL PRACTICE THAT THE PURCHASE OF SHRIMPS FROM THESE FARMERS, FISHERMEN OR GROWERS WHO ARE FROM UN ORGANIZED SECTOR ARE MAD E ON CASH AS THEY DO NOT HAVE THEIR BANK ACCOUNTS AND RATHER THEY DO NOT BELIEVE IN BANKING TRANSACTIONS. IT WAS FURTHER CONTENDED THAT IF THE A SSESSEE INSIST FOR THE PAYMENT THROUGH CHEQUES, HE WOULD NOT BE ABLE TO PU RCHASE ANY SHRIMPS FROM THEM ON THE PREVAILING RATE. THE LD COUNSEL FO R THE ASSESSEE FURTHER INVITED OUR ATTENTION THAT THE SAME CIT (A) IN ANOT HER CASE OF SANDHYA MARINES LTD WHO IS ALSO INVOLVED IN THE SAME ACTIVI TY AND HAS PURCHASED THE SHRIMPS IN CASH TO THE EXTEND OF RS.3,51,90,773/- H AS DELETED THE DISALLOWANCE WAS MADE BY THE AO U/S 40A(3) OF THE A CT. ITA NO.474/VIZAG/2008 PACE SEA FOODS PAGE 4 OF 6 6. THE LD DR ON THE OTHER HAND HAS PLACED RELIANCE UPON THE ORDER OF THE CIT (A). WITH REGARD TO SANDHYA MARINES LTD., T HE DR HAS SUBMITTED IN THAT CASE THE ASSESSEE HAS PLACED SOME EVIDENCE TO PROVE THAT THE PURCHASES WERE MADE FROM THE FARMERS. AS SUCH THE F ACTS OF THAT CASE ARE NOT IDENTICAL TO THE PRESENT CASE AND THUS NO RELIA NCE OF THE CASE OF SANDHYA MARINES LTD., CAN BE MADE. 7. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE RECORD, WE FIND THAT THE ASSESSEE HAS BEEN ENGAGED IN THIS BUSINESS OF SHRIMPS FOR THE LAST 13 YEARS AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE THAT IN THE EARLIER YEARS THE ASSESSEE HAD MADE PURCHASES OF SHRIMPS BY MAKING PAYMENT THROUGH CHEQUE. THE ASSES SEES CONTENTION THAT HE HAS BEEN MAKING PURCHASES OF SHRIMPS IN CAS H FROM HIS FARMERS/GROWERS AND NO DISALLOWANCE WAS EVER MADE U /S 40A(3) BY THE REVENUE. IN THE CURRENT YEAR THE ASSESSEE HAS TAKEN SPECIFIC PLEA THAT HE HAS PURCHASED THE SHRIMPS FROM FISHERMEN AND FARMER S WHO HAVE INSISTED FOR CASH PAYMENT ON DELIVERY OF PRODUCTS. THOUGH TH E AO HAS STATED THAT THESE PAYMENTS MADE IN A GAP OF WEEKS TO MONTHS AT A TIME, BUT NO INSTANCES WERE QUOTED IN THE ORDER. THE LD COUNSEL HAS FURTHER ARGUED THAT HE HAS MADE THE PAYMENT IN CASH ON THE DELIVERY OF THE PRODUCTS. 8. WE HAVE ALSO CAREFULLY EXAMINED THE ORDER OF THE CIT (A) IN THE CASE OF SANDHYA MARINES LTD., IN WHICH THE ASSESSEE WAS ENGAGED IN SOME ACTIVITY AND HAS PURCHASED THE SAME FROM THE FARMER S IN CASH. IN THAT CASE THOUGH THE ASSESSEE HAS FILED AFFIDAVITS IN SUPPORT OF HIS CONTENTION THAT THE PURCHASES WERE MADE IN CASH BUT THIS PRACTICE OF PU RCHASES OF SHRIMP IN CASH WERE NOT DISPUTED BY THE REVENUE AUTHORITIES M EANING THEREBY THEY HAVE ADMITTED THAT PURCHASE OF SHRIMPS ARE GENERALL Y MADE IN CASH FROM THE FARMERS/GROWERS/FISHERMEN. NOW FOR THE SIMPLE R EASON THAT IN ONE CASE, CERTAIN AFFIDAVITS OF FARMERS WERE FILED AND IN OTH ER CASE THE ASSESSEE COULD NOT FILE THESE AFFIDAVITS, DUE TO NON AVAILABILITY OF CONCERNED FARMERS, CIT ITA NO.474/VIZAG/2008 PACE SEA FOODS PAGE 5 OF 6 (A) SHOULD NOT HAVE TAKEN A DIFFERENT VIEW IN SIMIL AR TRANSACTIONS. WE HAVE ALSO CAREFULLY EXAMINED THE JUDGMENTS OF THE TRIBUN AL IN THE CASE OF UTTAM CHUNA PATHAR UDYOG VS. ITO (SUPRA) IN WHICH THE TRI BUNAL HAS PLACED EMPHASIS THAT THERE CANNOT BE STANDARD TO MEASURE R ELIABILITY. IT DEPENDS UPON ONES PERCEPTION AND THE PERCEPTION IS BASED O N DIFFERENT FACTORS. FOR THE SAKE OF REFERENCE WE EXTRACT THE RELEVANT PORTI ON OF THE TRIBUNAL HEREUNDER: 6. IN THE ASSESSMENT PROCESS, WHEN THE AO IS SCRUTI NIZING THE ACCOUNT BOOKS, HE HAS TO DO SO OBJECTIVELY AND JUDI CIOUSLY. HIS PRIME DUTY UNDER THE ACT IS TO ASSESS THE REAL INCO ME AS PER THE PROVISIONS OF ACT AND LEVY TAX THEREON. THESE, THAT IS, THE PRIME OBJECT OF THE ACT AND THE PRIME DUTY OF THE A O THERE UNDER, ARE SO ELEMENTARY TO THE PROCESS OF ASSESSME NT THAT IT HARDLY NEEDS ELABORATION. 7. WHERE ACCOUNTS ARE MAINTAINED BY AN ASSESSEE, TH E PROCESS OF DETERMINING THE INCOME WOULD START FROM THE INCOME AS REFLECTED BY THE BOOKS, AND THEN ADJUSTME NTS THERETO WILL BE MADE AS PER THE PROVISIONS OF THE A CT. IT IS A DIFFERENT MATTER WHERE BOOKS ARE NOT MAINTAINED, AN D AS WE ARE NOT CONCERNED WITH SUCH A SITUATION IN THE PRES ENT APPEAL, WE DO NOT DWELL UPON IT. SINCE INCOME REFLECTED BY THE BOOKS IS THE STARTING POINT, IT IS ABSOLUTELY IMPERATIVE THAT THE BOOKS ARE RELIABLE. SO NOW WE ENTER UPON THIS CONCEPT OF RELIABILITY. THE PERCEPTION OF RELIABILITY VARIES FROM PERSON TO PERSON, AND THE REASONS TO CONSIDER THE BOOKS RELIABLE OR OTHER WISE, MAY RANGE FROM, TO BORROW A PHRASE FROM A DECISION OF T HE KERALA HIGH COURT AS QUOTED IN P.A. ABDUL MUTHALIF ROWTHER VS. ITO (1976) 102 ITR 694 (KER.), THE STUPIDITY OF THE OF FICER TO THE CUPIDITY OF THE ASSESSEE. THE WORD RELIABLE MEAN S DEPENDABLE OR ONE WHICH IS TRUSTWORTHY OR ONE WHICH IS WORTHY OF CONFIDENCE. THERE CANNOT BE A STANDARD TO MEASURE RELIABILITY AND AS MENTIONED EARLIER, IT DEPENDS UP ON ONES PERCEPTION. PERCEPTION, THOUGH A VARIABLE FACTOR, I N MATTERS OF JUDGING A STATE OF AFFAIR, PARTICULARLY IN A TAXING STATUTE, SHOULD CONFIRM TO COMMONSENSE. CUSTOM, USAGE, ETHOS, ECONO MIC UPLIFTMENT, DEVELOPMENT OF PROFESSIONAL ATTITUDE, H UMAN PROBABILITIES AND SIMILAR SUCH FACTORS. 9. WE HAVE ALSO EXAMINED THE OTHER JUDGMENTS REFERR ED TO BY THE ASSESSEE BEFORE THE CIT (A) AND WE FIND THAT BEFORE DISALLOWING THE CLAIM OF ITA NO.474/VIZAG/2008 PACE SEA FOODS PAGE 6 OF 6 THE ASSESSEE THE AO SHOULD HAVE BROUGHT SOMETHING O N RECORD TO ESTABLISH THAT IN THIS TYPE OF BUSINESS PURCHASES ARE GENERAL LY MADE THROUGH CHEQUES ETC., ONE HE ADMITTED THAT IN SUCH TYPE OF BUSINESS PURCHASES ARE GENERALLY MADE THROUGH CASH FROM THE FARMERS OR FISHERMEN WHO WERE FROM THE UNORGANIZED SECTOR AND MOST OF THEM ARE ILLITERATE, HE SHOULD NOT HAVE TAKEN A DIFFERENT VIEW IN DIFFERENT CASES. IN SUCH T YPE OF CASES THE PROVISIONS OF RULE 6DD(F) ARE CLEARLY APPLICABLE AN D WE ARE OF THE VIEW THAT IN THIS CASE NO DISALLOWANCE U/S 40A(3) IS WARRANTE D. WE, THEREFORE, FIND NO MERIT IN THE ORDER OF THE CIT (A). WE ACCORDINGLY S ET ASIDE THE SAME AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. PRONOUNCED IN THE OPEN COURT ON 13.5.2010 SD/- SD/- (B R BASKARAN) (SUNIL KUMAR YADA V) ACCOUNTANT MEMBER JUDICIAL MEMBER PVV/SPS VISAKHAPATNAM, DATE:13 TH MAY, 2010 COPY TO 1 PACE SEA FOODS (P) LTD., 11-2-4/1, PLOT NO.10, OP P. GOVERNORS BUNGLOW, VISAKHAPATNAM -3 2 ACIT, CIRCLE-4(1), VISAKHAPATNAM 3 4 THE CIT (A)-I VISAKHAPATNAM THE CIT-2, VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM