Pandurang Dayanand Hiremath, Kolhapur V. Income tax Officer, Kolhapur

ITA 520/PUN/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7654 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 03-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Corroborative evidences; Commercial expediency
• Section: 40A(3); 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO. 520 /P U N/201 7 / ASSESSM ENT YEAR : 20 1 1 - 1 2 PANDURANG DAYANAND HIREMATH, 166/1/2, KADGAON, GADHINLAJ, KOLHAPUR 416502 . / APPELLANT PAN: A DMPH5451K VS. THE INCOME TAX OFFICER , WARD 1 (4) , KOLHAPUR . / RESPONDENT / APPELLA NT BY : NONE / RESPONDENT BY : S HRI MUKESH JHA / DATE OF HEARING : 1 8 . 0 4 .201 8 / DATE OF PRONOUNCEMENT: 25 . 0 4 .201 8 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY THE ASSESSEE I S AGAINST THE ORDER OF CIT (A) - 1 , KOLHAPUR , DATED 05 . 0 1 .20 1 7 RELATING TO ASSESSMENT YEAR 20 1 1 - 1 2 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: - 1. THE LEARNED CIT(A) - 1, KOLHAPUR ERRED IN LAW & ON FACTS IN SUSTAINING THE INCORRECT DISALLOWANCE OF RS.26,80,721/ - MADE BY THE LEARNED AO BY INVOKING SEC 40A(3) OF THE INCOME TAX ACT 1961. ITA NO. 520 /P U N/20 1 7 PANDURANG DAYANAND HIREMATH 2 2. THE L EARNED CIT(A) - 1, KOLHAPUR APPEALS ERRED IN REJECTING THE EXPLA NATION FILED D URING THE COURSE OF THE HEARING IN WHICH THE PAYMENTS MADE BY CROSSED - ACCOUNT PAYEE CHEQUE TO THE EXTENT OF RS. 1,69,705/ - FOR AKSHAY TRADERS & RS. 87,290/ - F OR B R TRADERS WERE EVIDENCED BY CONFIRMATION LETTER AND BANK STATEMENT & THEREFORE T HESE PAYM ENTS DO NOT ATTRACT ANY DISALLOWANCE U/ S 40A(3). 3. THE LEARNED CIT(A) - 1, KOLHAPUR APPEALS ERRED IN IGNORING THE FACT THAT ALL THE PAYMENTS WERE FOR AGRICULTURAL PRODUCE, DIRECTLY MADE TO THE FARMER OR INDIRECTLY MADE THROUGH TRADERS & KACHHA AAR TIYAS . THESE PAYMENTS ARE MADE FOR PURCHASE OF AGRICULTURAL PRODUCE NAMELY, MAKK A & SOYA BEA N WHICH ULTIMATELY GOES TO THE FA RMER AND CULTIVATORS WHICH IS EXEMPT UNDER INCOME TAX RULES. 4. THE LEARNED CIT(A) - 1, KOLHAPUR APPEALS ERRED IN CONFIRMING THE DIS ALLOWANCE OF THE PAYMENT FOR PURCHASE OF A GRI C UL T URAL PRODUCE FOR WHICH THE QUANTITATIVE DETAILS ARE AVAILABLE. THE ASSESSEE DOES NOT HAVE EITHER OPENING STOCK OR CLOSING STOCK. ALL THE GOODS PURCHASED ARE SOLD IT BEING AGRICULTURAL PRODUCE WHICH MAY DETE RIORATE IF IT IS KEPT IN STOCK. SINCE THE QUANTITY PURCHASED AND QUANTITY SOLD MATCHES IN ALL RESPECTS, ANY DISALLOWANCE OF PAYMENT FOR PURCHASE, MAY RESULT M MISMATCH OF PURCHASE QUANTITY & SALE QUANTITY. THE CIT(A) - 1, KOLHAPUR ERRED IN NOT CONSIDERING TH IS FACT OF MISMATCH OF QUANTITY STOCK. 5 . THE LEARNED CIT(A) - 1, KOLHAPUR APPEALS E R RED IN DISALLOWING THE PURCHASES WHICH ARE OTHERWISE SUPPORT ED BY BILLS AND ARE MADE FROM IDENTIFIABLE PERSONS. IN VIEW OF ME ABOVE FACTS, DISALLOWANCE OF RS. 26,80,7 21/ - I S NOT JUSTIFIABLE. 6 . ALTERNATIVELY & WITHOUT PREJUDICE, THE LEARNED CIT(A) - 1 , KOLHAPUR APPEALS E RR ED IN FACT & ALSO IN LAW, IN NOT APPRECIATING THAT THE SITUATIONS EXEMPTING RIGORS OF SEC 40A(3) ARE NOT LIMITED TO THOSE CONTAINED IN RULE 6DD OF IT RULES. THE IT AUTHORITIES ERRED IN NOT APPRECIAT ING THAT ONCE PAYEE IS IDENTIFIED, ONCE TRANSACTION IS BONAFIDE & COMMERCIAL EXPEDIENCY IS ESTABLISHED, DISALLOWANCE U/S 40A(3) IS UNCALLED FOR. 7 . THE LEARNED CIT(A) - 1, KOLHAPUR APPEALS ERRED IN CONFIRMING THE IN COME WHICH IS EARNED IN THE RURAL & THE MOST BACKWARD AREA OF THE KOLHAPUR DISTRICT WHEREIN THE INCOME LEVEL OF SMALL ASSESSES IS ALWAYS BELOW THE AVERAGE AND NEAR ABOUT THE BASIC TAXABLE LIMIT OF THE INCOME . 3. THE ISSUE WHICH ARISES IN THE PRESENT APPEA L IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT AT 26,80,721/ - . 4. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHALF OF ASSESSEE NOR ANY APPLICATION WAS MOVED FOR ADJOURNMENT AND BECAUSE OF SMALLNESS OF THE ISSUE, PRESENT APPEAL IS DECIDED AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE R EVENUE. ITA NO. 520 /P U N/20 1 7 PANDURANG DAYANAND HIREMATH 3 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME OF 4,67,127/ - . THE ASSESSEE WAS ENGAGED IN TRADING OF AGRICULTURAL PRODUCE AND SOYA. ON VERIFICATION OF BANK ACCOUNTS, THE ASSESSING OFFIC ER NOTED THAT THE ASSESSEE HAD MADE PAYMENTS TO DIFFERENT TRADERS IN EXCESS OF 20,000/ - BY CASH / BEAR ER CHEQUES. THE LIST OF SAID PAYMENTS WERE DRAWN UP BY THE ASSESSING OFFICER AND WAS ENCLOSED AS ANNEXURE - A TO THE ASSESSMENT ORDER. THE TOTAL PAYMENT S MADE BY THE ASSESSEE IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT W ERE 26,80,726/ - . THE ASSESSEE WAS CONFRONTED WITH THE SAME. HOWEVER, THE ASSESSING OFFICER HELD THE ASSESSEE TO HAVE DEFAULTED IN VIEW OF SECTION 40A(3) OF THE ACT AND HENCE, EXPENDITURE OF 26,80,726/ - WAS DISALLOWED. 6. BEFORE THE CIT(A), CONTENTION OF ASSESSEE WAS THAT THE PAYMENT WAS MADE FOR AGRICULTURAL PRODUCE TO THE FARMERS EITHER DIRECTLY OR INDIRECTLY. IN SUPPORT THEREOF, THE ASSESSEE FILED WRITTEN SUBMISSI ONS DATED 18.02.2015 ALONG WITH CONFIRMATION FROM THE TRADERS AND THE AGRICULTURISTS. THE ASSESSEE CONTENDED THAT HE WAS A DEALER IN AGRICULTURAL PRODUCE I.E. MAKKA, WHEREIN HE PURCHASES AGRICULTURAL PRODUCE FROM FARMERS AND MAKES PAYMENT TO THE FARMERS B Y WITHDRAWING THE AMOUNTS FROM BANK. THE PAYMENTS MADE TO FARMERS FOR AGRICULTURAL PRODUCE WAS COVERED UNDER THE PROVISIONS OF RULE 6DD(E)(I) OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). ANNEXURE - I WAS ATTACHED, WHICH REFLECTS THE DETAILS OF SUC H PAYMENTS MADE TO FARMERS. HE FURTHER EXPLAINED THAT ON CERTAIN OCCASIONS, MAKKA WAS PURCHASED FROM A TRADER, WHO IN TURN, ACTS AS COMMISSION AGENT ON BEHALF OF FARMERS. THE PAYMENT MADE BY THE ASSESSEE TO SUCH TRADER WAS DIRECTLY PASSED ON TO THE RESPE CTIVE FARMERS AND THE DETAILS ALONG WITH CLARIFICATION FROM THE TRADER THAT HE HAD MADE PAYMENTS TO THE FARMERS FOR AGRICULTURAL PRODUCE WERE PLACED IN ANNEXURE - 2 TO THE LETTER. IT WAS FURTHER POINTED OUT THAT PAYMENT IN TWO CASES OF ITA NO. 520 /P U N/20 1 7 PANDURANG DAYANAND HIREMATH 4 TRADERS , NAMELY AKSHA Y ENTERPRISES AND B R TRADERS MADE FROM FEDERAL BANK ACCOUNT NUMBER 78, WERE MADE THROUGH CROSSED ACCOUNT PAYEE CHEQUE. THE ASSESSEE ALSO ENCLOSED EVIDENCES IN THIS REGARD. THE TWO PAYMENTS TOTALED TO 2,56,996/ - AND IT WAS SUBMITTED THAT THE SAID PAYME NT BY CROSSED CHEQUES DO NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE REMAINING SUM OF 24,23,731/ - WAS HELD TO BE OUTSIDE THE PURVIEW OF SECTION 40A(3) OF THE ACT, IN VIEW OF RULE 6DD(E)(I) OF THE RULES. THE CIT(A) FORWARDED THE SAID E VIDENCE TO THE ASSESSING OFFICER FOR HIS EXAMINATION AND COMMENTS. THE ASSESSING OFFICER SUBMITTED ITS REMAND REPORT, COPY OF WHICH WA S GIVEN TO THE ASSESSEE. HOWEVER, THE ASSESSEE DESPITE SEVERAL OPPORTUNITIES, ALLOWED, FAILED TO APPEAR BEFORE THE CIT(A ), WHO DECIDED THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE CIT(A) NOTES THAT THE ASSESSEE HAD FILED CONFIRMATION LETTERS RECEIVED FROM THE FARMERS AND THE TRADERS. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER HAD NO OCCASION TO VERIFY THE SAID ENTRIES, WHEREIN THE PAYMENTS WERE MADE TO FARMERS AND TRADERS. IN FACT, THE ASSESSING OFFICER IN THE REMAND REPORT HAD CATEGORICALLY MENTIONED THAT NO SUPPORTING EVIDENCES WERE FILED BEFORE HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS DURING APPELLATE PROCEEDINGS. HENCE, THE CLAIM OF ASSESSEE OF CASH PAYMENTS COULD NOT BE VERIFIED. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO PRODUCE FARMERS WHO WERE PAID IN CASH OR THROUGH BEARER CHEQUES BU T NOT A SINGLE PERSON WAS PRODUCED. THE CIT(A) FURTHER HELD THAT THE PAYMENTS MADE BY ASSESSEE WERE ON ACCOUNT OF THREE CATEGORIES I.E. (A) PAYMENT TO FARMERS, (B) PAYMENT MADE TO TRADERS AND (C) PAYMENTS MADE THROUGH CROSSED ACCOUNT PAYEE CHEQUES. THE C IT(A) WAS OF THE VIEW THAT THOUGH EXCEPTION IS PROVIDED IN RULE 6D OF THE RULES FOR MAKING PAYMENTS TO AGRICULTURISTS IN CASH ABOVE 20,000/ - BUT THE SAME COULD NOT BE APPLIED WITH OUT THE ASSESSEE HAVING ESTABLISHED THE SAME WITH NECESSARY DOCUMENTARY EVI DENCE. WITH RESPECT TO PAYMENTS TO TRADERS, THE CIT(A) HELD THAT THERE WAS ITA NO. 520 /P U N/20 1 7 PANDURANG DAYANAND HIREMATH 5 NO EXCEPTION PROVIDED IN THE RULES . I N RESPECT OF PAYMENTS THROUGH CHEQUE, IN THE ABSENCE OF SUFFICIENT DETAILS, THE SAME WAS ALSO NOT ACCEPTED. THE CIT(A) FURTHER COMMENTS ON TH E EVIDENCE FILED I.E. CONFIRMATION LETTERS OF AGRICULTURISTS. HE OBSERVED THAT ALL THE CONFIRMATIONS FILED WERE STEREO TYPED AND HAD NO DETAILS EXCEPT FOR MENTIONING THE BANK NAME, ACCOUNT NUMBER AND AMOUNT. THUS, THE PLEA OF ASSESSEE WAS REJECTED AND AD DITION OF 26,80,726/ - WAS UPHELD. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 8. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHALF OF ASSESSEE NOR ANY APPLICATION WAS FILED FOR ADJOURNMENT. THE APPEAL IS DECIDED AFTER HEARING THE LEA RNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE BECAUSE OF THE ISSUE INVOLVED. THE ONLY ISSUE WHICH IS RAISED IN THE PRESENT APPEAL IS AGAINST INVOKING OF PROVISIONS OF SECTION 40A(3) OF THE ACT. AS PER THE SAID SECTION, THERE IS AN EMBARGO ON CASH PAYM ENTS ABOVE 20,000/ - . THE SAID SECTION PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE, IN RESPECT OF WHICH PAYMENT OR AGGREGATE OF PAYMENT IS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE CHEQUE EXCEE DING 20,000/ - , THEN NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. RULE 6DD OF THE RULES, HOWEVER, PROVIDES EXCEPTION TO PROVISIONS OF SECTION 40A(3) OF THE ACT. THE SAID RULE LAYS DOWN THAT EVEN IN CASES WHERE PAYMENT MADE TO A PERSON I N A DAY OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR BANK DRAFT EXCEED S 20,000/ - , THEN NO DISALLOWANCE WAS WARRANTED UNDER SECTION 40A(3) OF THE ACT , IN THE CASES AND CIRCUMSTANCES SPECIFIED THEREUNDER. WE ARE CONCERNED WITH CLAUSE (E) OF RULE 6DD OF TH E RULES, WHICH PROVIDES THAT WHERE THE PAYMENT IS MADE FOR PURCHASE OF AGRICULTURAL OR FOREST PRODUCE OR THE PRODUCE OF ANIMAL HUSBANDRY OR DIARY OR POULTRY FARMING, FISH OR ITA NO. 520 /P U N/20 1 7 PANDURANG DAYANAND HIREMATH 6 FISH PRODUCTS OR THE PRODUCTS OF HORTICULTURE OR APICULTURE, TO THE CULTIVATOR, GR OWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS. HENCE, IN ORDER TO INVOKE PROVISIONS OF SECTION 40A(3) OF THE ACT, THE FIRST CONDITION IS THAT THE PAYMENT SHOULD BE MADE OTHERWISE THAN CROSSED CHEQUE OR BANK DRAFT EXCEEDING 20,000/ - IN A DAY. IN RESPECT OF TWO OF THE PAYMENTS, THE CASE OF ASSESSEE IS THAT THE SAME WERE PAID THROUGH CHEQUES. THE EVIDENCES IN THIS REGARD WERE FILED. HOWEVER, THE SAME WERE NOT ACCEPTED BY THE CIT(A) AS THE LETTER DID NOT MENTION ANY DETAILS OF ANY ACCOUNT OR PAYMENTS RECEIVED THROUGH ACCOUNT PAYEE CHEQUES. THE ASSESSEE CLAIMS THAT IT HAD MADE THE PAYMENTS THROUGH CHEQUES FOR WHICH EVIDENCE WAS ALSO FILED, THE NAME OF PERSON WA S ALSO CLEAR , THEN IN SUCH CIRCUMSTANCES, THERE WA S NO MERIT IN D ISALLOWING THE SAID AMOUNT BEING MADE IN CASH. 9. NOW, COMING TO THE SECOND SET OF PAYMENTS, WHERE THE ASSESSEE WA S ENGAGED IN SALE AND PURCHASE OF AGRICULTURAL PRODUCE ; THE ASSESSEE CLAIMS THAT THE PAYMENTS WE RE MADE EITHER DIRECTLY TO THE FARMERS, WHO S OLD THEIR AGRICULTURAL PRODUCE OR THROUGH TRADERS TO THE FARMERS, WHO IN TURN, ALSO SOLD THEIR AGRICULTURAL PRODUCE TO THE ASSESSEE. UNDER RULE 6DD(E)(I) OF THE RULES, WHERE PAYMENT IS MADE FOR AGRICULTURAL OR FOREST PRODUCE TO THE CULTIVATORS OR THE GROW ERS THOUGH IN CASH, BUT THE SAME IS NOT HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE ASSESSEE HAS FILED THE EVIDENCE IN THIS REGARD BUT THE CIT(A) HAS COMMENTED ON THE EVIDENCE SAYING THAT IT CONTAINS CERTAIN BANK ACCOUNT NUMBERS. THERE IS NO MERIT IN THE OBSERVATIONS OF CIT(A), SINCE THE PAYMENT TO AGRICULTURISTS WAS MADE IN CASH. THE ASSESSEE HAD FURNISHED THE DETAILS AND THE EVIDENCE IN THIS REGARD BEFORE THE CIT(A) AS IS MENTIONED IN THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. THE ASSE SSEE WAS TRADING IN AGRICULTURAL PRODUCE I.E. MAKKA, AGAINST WHICH AFORESAID PAYMENTS WERE BEING MADE. IN VIEW THEREOF, WHERE THE BUSINESS OF ASSESSEE INVOLVED DEALING IN ITA NO. 520 /P U N/20 1 7 PANDURANG DAYANAND HIREMATH 7 AGRICULTURAL PRODUCE, THEN THE CASE OF ASSESSEE MERITS TO BE ACCEPTED AND THERE IS N O BASIS FOR MAKING ANY DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT. 10. COMING TO THE SECOND SET OF PAYMENTS I.E. T O THE TRADERS, WHERE THE PAYMENTS ARE MADE TO TRADER S , WHICH IN TURN, DIRECTLY PASSED ON TO THE RESPECTIVE FARMERS IS ALSO NOT HIT BY PROVI SIONS OF SECTION 40A(3) OF THE ACT BEING PAYMENTS MADE TO THE AGRICULTURISTS. ACCORDINGLY, DISALLOWANCE MADE BY THE CIT(A) IS REVERSED. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF 26,80,721/ - . 1 1 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF APRIL , 201 8 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 25 TH APRIL , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 1 , KOLHAPUR ; 4. THE PR. CIT - 1 , KOLHAPUR ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE