Ramdayal H. Soni, Nashik V. Joint Commissioner of Income-tax,

ITA 645/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7524 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Business income
• Section: 40A(3); 131

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 645/PUN/2015 / ASSESSMENT YEAR : 2010-11 M/S. RAMDAYAL HANUMANDAS SONI, TILAK MAIDAN, YEOLA, DIST. NASHIK 423 401 PAN : AABFR7037B . /APPELLANT V/S JCIT, RANGE - 3, NASHIK . /RESPONDENT . / ITA NO. 649/PUN/2015 / ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE - 3, MALEGAON . /APPELLANT V/S M/S. RAMDAYAL HANUMANDAS SONI, TILAK MAIDAN, YEOLA, DIST. NASHIK 423 401 PAN : AABFR7037B . /RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : DR. VIVEK AGGARWAL / ORDER PER D. KARUNAKARA RAO, AM : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE. THEY ARE FILED AGAINST THE ORDER OF CIT(A)-I, NASHIK, 09 -03-2015 FOR THE ASSESSMENT YEAR 2010-11. THE ISSUES RAISED IN BOTH THE APPEAL S REVOLVE AROUND THE / DATE OF HEARING : 07.09.2017 / DATE OF PRONOUNCEMENT: 08.09.2017 2 ITA NO.645 AND 649/PUN/2015 M/S. RAMDAYAL HANUMANDAS SONI ESTIMATION OF PROFITS INVOLVING THE CASH PURCHASES ON ACCOUNT OF PAITHANI SAREES. 2. BRIEFLY RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING THE BUSINESS OF TRADING OF PAITHANI S AREES AND OTHER SILK SAREES ON WHOLESALE AND RETAIL BASIS. IT FILED THE RETURN OF INCOME ELECTRONICALLY ON 17-09-2010 DECLARING TOTAL INCOME OF RS.2,11,88,510 /-. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE REPORTED TOTAL SALES AMOUNTING TO RS.19,53,18.548/- FROM THE YEOLA AND NASHIK BRANCHE S. THE ASSESSEE HAS SHOWN NET PROFIT OF RS.2,09,05,830/-. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE RECORDED TOTAL CASH PURCHASES OF SAREES OF RS.4,58,89,501/-. AT THE END OF THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE NET PROFIT OFFERED BY THE ASSESSEE ONLY WORKS OUT TO 10.7% OF THE SALES. ON FINDING ASSESSEE MADE HUGE CASH PAYMENTS TO THE SELLERS/WEAVERS FOR BUYING THE SAREES, AO INVOKED THE PROVISIONS OF SECTION 131 IN RESPECT OF 59 OF THE WEAVERS. THE WEAVERS CONFIRMED THE RECEIPT OF THE CASH. FURTHER , AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE BEFORE COMING TO THE CONCLUS IONS THAT THERE IS A NEED FOR MAKING DISALLOWANCES ON ADHOC BASIS ON SUCH CAS H PAYMENTS MADE TO THE WEAVERS. AO ADOPTED 20% DISALLOWANCE ON THE ENTIRE CASH PURCHASES AND MADE ADDITION OF RS.91,77,900/- AS PER THE DISCUSSI ON GIVEN IN PARA 8 OF THE ASSESSMENT ORDER. IN THE PROCESS, AO DISMISSED THE AFFIDAVITS FILED BY 10 WEAVERS ON ONE GROUND OR THE OTHER. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE MADE ELABORATE SUBMISSIONS AND CONTESTED SUCH ADHOC DISALLOWANCE O F RS.91,77,900/-. AT THE END OF THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) OBSERVED THAT THE ASSESSEE 3 ITA NO.645 AND 649/PUN/2015 M/S. RAMDAYAL HANUMANDAS SONI DISPLAYED HIS INABILITY TO PRODUCE RELEVANT PURCHAS E BILLS, SALE BILLS AND OTHER DOCUMENTS IN RESPECT OF THE PAITHANI SAREES. KEEPI NG IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A) CAME TO THE CONCL USION THAT THE AO FAILED TO BRING ANY INCRIMINATING DOCUMENTS IN SUPPORT OF THE SAID DISALLOWANCE APPLYING THE FLAT RATE OF 20% OF THE CASH PURCHASES . HOWEVER, HE DID NOT RULE OUT THE POSSIBILITY OF INFLATION OF CASH PURCHASES. HE CAME TO THE CONCLUSION THAT RESTRICTING THE DISALLOWANCE TO 10% OF THE CAS H PURCHASES SHOULD MEET BOTH ENDS OF JUSTICE. THUS, HE GAVE PART RELIEF TO THE ASSESSEE AND CONFIRMED THE DISALLOWANCE OF RS.45,88,950/-. 5. AGGRIEVED WITH THE RELIEF GRANTED BY THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. FURTHER, AGGRIEVED WITH RESTRICT ION OF DISALLOWANCE TO 10% OF THE TOTAL SALES INSTEAD OF COMPLETELY DELETING T HE DISALLOWANCE, THE ASSESSEE IS IN APPEAL BEFORE US. 6. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE VARIOUS CONFIRMATION LETTERS, AFFIDAVITS AND THE ST ATEMENTS OF THE WEAVERS TO DEMONSTRATE THE GENUINENESS OF THE CASH PURCHASES O F PAITHANI SAREES. HE ALSO DETAILED VARIOUS REASONS TO HIGHLIGHT THE FACT OF CASH PURCHASES FROM THE WEAVERS WHO DOES NOT MAINTAIN BOOKS OF ACCOUNT IN V IEW OF THEIR SMALLNESS OF THE TURNOVER. CONSIDERING THE PECULIAR FACTS OF TH IS CASE, LD. COUNSEL FOR THE ASSESSEE REQUESTED THE BENCH TO DECIDE THE PROPER A ND REASONABLE PERCENTAGE OF THE CASH PURCHASES. 7. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF THE AO. 8. WE HEARD BOTH THE PARTIES ON THIS LIMITED ISSUE OF RESTRICTING THE DISALLOWANCE TO 10% OF THE CASH PURCHASES OF PAITHA NI SAREES FROM THE 4 ITA NO.645 AND 649/PUN/2015 M/S. RAMDAYAL HANUMANDAS SONI WEAVERS. WE FIND THAT IT IS AN UNDISPUTED FACT THA T THE AO DID NOT HAVE ANY BASIS FOR RESTRICTING THE DISALLOWANCE TO 20% OF TH E CASH PURCHASES. SIMILAR IS THE CASE WITH THE CIT(A) ALSO WHILE RESTRICTING THE DISALLOWANCE TO 10% OF THE CASH PURCHASES. THEREFORE, IT IS A CASE OF ADHOC A PPROACH OF THE REVENUE AUTHORITIES FOR MAKING DISALLOWANCE WITHOUT BRINGIN G ANY INCRIMINATING EVIDENCES AGAINST THE ALLEGATION OF INFLATION OF CA SH PURCHASES. IN PRINCIPLE, SUCH DISALLOWANCES ARE UNCALLED FOR. HOWEVER, THER E IS A PROBLEM WITH RELEVANT PURCHASE BILLS AND VOUCHERS. IN PRINCIPLE , THE PRACTICE OF MAKING CASH PURCHASES BY THE ASSESSEE IS NOT TO BE ENCOURAGED I N THESE TIMES AND CASES, WHOSE TURNOVER IS AROUND RS.19.53 CRORES (ROUNDED O FF). IT IS ALSO A FACT THAT NO PROPER BILLS (PURCHASE/SALE BILLS) ARE MAINTAINE D BY THE WEAVERS AND THE BILLS SUBMITTED FOR SCRUTINY DO NOT STAND THE TEST OF SCRUTINY OF THE AO. THERE IS ALSO AN ALLEGATION OF LIKELY APPLICABILITY OF SE CTION 40A(3) IF PROPER AGGREGATION IS DONE. CONSIDERING ALL THE ABOVE RE ASONS, WE ARE OF THE VIEW THAT THERE IS A CASE FOR MAKING CERTAIN DISALLOWANC E IN THIS CASE. IN THE ABSENCE OF ANY CREDIBLE METHOD FOR DISALLOWANCE, WE ARE OF VIEW THAT RESTRICTING THE DISALLOWANCE TO AROUND SOME FIGURE OF RS.25 LAKHS SHOULD MEET BOTH ENDS OF JUSTICE. THIS SHOULD NOT BECOME A PRE CEDENT FOR ANY SUCH DISALLOWANCE IN ANY OTHER ASSESSMENT YEARS OF THE A SSESSEE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF SEPTEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 8 TH SEPTEMBER, 2017. 5 ITA NO.645 AND 649/PUN/2015 M/S. RAMDAYAL HANUMANDAS SONI COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 1, NASHIK 4. CIT - I, NASHIK 5. , , B BENCH PUNE; 6. GUARD FILE.