M/s. Dhavalamrut Milk Traders, Jalgaon V. ITO, Ward 2(2), Jalgaon

ITA 797/PUN/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7230 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-10-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 40A(3); 194C; 131; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 797 /P U N/201 3 / ASSESSMENT YEAR : 20 09 - 10 M/S. DHAVALAMRUT MILK TRADERS, HIRAPUR ROAD, DUDHSAGAR MARG, CHALISGAON, JALGAON 424101 PAN : AADFD8988P ....... / APPELLANT / V/S. INCOME TAX OFFICER, WARD 2(2), JALGAON / RESPONDENT . / ITA NO . 797/PUN/2015 / ASSESSMENT YEAR : 2010 - 11 M/S. DHAVALAMRUT MILK TRADERS, 1 HIRAPUR ROAD, DUDHSAGAR MARG, CHALISGAON, JALGAON 424101 PAN : AADFD8988P ....... / APP ELLANT / V/S. INCOME TAX OFFICER, WARD 2(2), JALGAON / RESPONDENT ASSESSEE BY : S HRI SUNIL GANOO REVENUE BY : SHRI ACHAL SHARMA / DATE OF HEARING : 17 - 10 - 2017 / DATE OF PRONOUNCEMENT : 31 - 10 - 2017 2 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 / ORDER PER VIKAS AWASTHY, JM : TH ESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - II, NASHIK FOR THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11. ITA NO. 797/PUN/2013 IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 18 - 02 - 2013 FOR ASSESSMENT YEAR 2009 - 10 AND ITA NO. 797/PUN/2015 IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATE D 30 - 03 - 2015 FOR ASSESSMENT YEAR 2010 - 11. SINCE, THE ISSUES RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE SIMILAR AND ARE ARISING FROM SAME SET OF FACTS , THESE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION AND ARE DECIDED BY THIS COMMON ORDER. 2. THE FACTS ARE CULLED OUT FROM APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 , THEREFORE, THE SAME IS TAKEN AS LEAD CASE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WHOLESALE TRADING OF MILK AND TRANSPORT BUSINESS. DURING THE COURSE OF SCRUTINY ASSESSMENT PR OCEEDINGS FOR ASSESSMENT YEAR 2009 - 10 , THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE PAYMENTS TOWARDS TRANSPORTATION CHARGES AND PASTEURIZATION AND FREEZING CHARGES AGGREGATING TO RS.10,74,762/ - ON WHICH THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194C O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). SINCE, THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS , THE ASSESSING OFFICER DISALLOWED THE SAID PAYMENT S U/S. 40(A)(IA) O F THE ACT. FURTHER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE CASH PAYMENTS EXCEEDING RS.20,000/ - FOR PROCURING MILK FROM PRABHAT DAIRY AND SHRIRAMPUR DUDH SANGH. THE ASSESSEE HAS ALSO MADE CASH PAYMENTS EXCEEDING RS.20,000/ - FOR PURCHASI NG DIESEL / OIL, TYRE S AND TUBE S . THE 3 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 AGGREGATE CASH PAYMENTS MADE BY THE ASSESSEE IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT ARE TO THE TUNE OF RS.19,80,676/ - . THE ASSESSING OFFICER MADE DISALLOWANCE OF THE AFORESAID AMOUNT S . AGGRIEVED BY THE ASSESSMENT ORDER DATED 09 - 12 - 2011, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEE HAS MADE CASH PAYMENTS FOR PURCHASE OF MILK TO THE TUNE OF RS.3.81 CRORES . THE COMMISSIONER OF INCOME TAX (APPEALS) ISSUED NOTICE FOR ENHANCEMENT ON 11 - 01 - 2013. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED ASSESSEES PLEA THAT THE PAYMENTS MADE FOR PURCHASE OF MILK FALL UNDER THE EXCEPTIONS PROVIDE UNDER RULE 6DD(E)(II) OR 6DD(K) AND DIRECTED THE ASSESSING OFFICER TO ENHANCE DISALLOWANCE U/S. 40A(3) BY RS.3,76,90,130/ - . NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN : I . C ONFIRMING DISALLOWANCE OF RS.10,74,762/ - U/S. 40(A)(IA); II . I N CONFIRMING THE DISALLOWANCE OF RS.19,80,676/ - U/S. 40A(3) ; AND III . E NHANCING DISALLOWANCE U/S. 40A(3) BY RS.3,76,90,130/ - . 3. THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS OF APPEAL. IN ADDITIONAL GROUND NO. 1 THE ASSESSEE HA S MADE AN ALTERNATE PRAYER THAT THE ISSUE RELATING TO DISALLOWANCE U/S. 40(A)(IA) BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER IN THE LIGHT OF SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY THE FINANCE ACT, 2012. IN ADDITIONAL GROUND NO. 2 , THE LD. AR HAS MADE AN ALTERNATE PRAYER THAT AFTER TAKING INTO CONSIDERATION VARIOUS DISALLOWANCES MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS) THE NET PROFIT WORKS OUT TO BE ABNORMALLY HIGH AND GIVES AN ABSURD FIGURE, THEREFORE, THE ASSESSING 4 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 OFFICER MAY BE D IRECTED TO WORK OUT REASONABLE NET PROFIT ON THE BASIS OF COMPARABLE CASES. 4 . SHRI SUNIL GANOO APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT IN GROUND NO. 1 OF APPEAL AND THE ADDITIONAL GROUND NO. 1 FILED O N 14 - 07 - 2014 , THE ASSESSEE HAS ASSAILED CONFIRMING OF DISALLOWANCE OF RS.10,74,762/ - AND IN ADDITIONAL GROUND OF APPEAL NO. 1 THE ASSESSEE HAS MADE AN ALTERNATE PRAYER TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO RE - ADJUDICATE IN THE LIGHT OF SECOND PROVISO TO SECTION 40(A)(IA). THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER O F INCOME TAX VS. ANSAL LAND MARK TOWNSHIP P. LTD. REPORTED AS 377 ITR 635 AND THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INCOME TAX OFFICER VS. SHRI BALAJI TUKARAM GAIKWAD IN ITA NO. 2444/PN/2012 FOR ASSESSMENT YEAR 2006 - 07 DECIDED ON 30 - 06 - 2014. 4 .1 IN RESPECT OF GROUND NO. 2 THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.19,80,676/ - U/S. 40A(3) AND HAS FURTHER ERRED IN ENHANCING DISALLOWANCE BY RS.3,76,90,130/ - . THUS, THE AGGREGATE DISALLOWANCE MADE U/S. 40A(3) IS RS.3,96,70,806/ - . THE LD. AR POINTED THAT THE DISALLOWANCE U/S. 40A(3) CAN BE DIVIDED IN TWO SEGMENTS. SEGMENTS 1 : I N FIRST SEGMENT THE ASSESSEE HAS SET UP ITS OWN MILK COLLECTION CENTRE UNDER THE NAME KR ISHN A DAIRY AT CHALISGAON. IN THE AFORESAID COLLECTION CENTRE FARMERS SUPPLY MILK AND COLLECT THE PAYMENT IN CASH. THE MILK IS ALSO SUPPLIED BY VARIOUS AGENTS OF THE ASSESSEE WHO COLLECT THE MILK FROM SMALL TIME MILK SUPPLIER S IN VILLAGES AROUND COLLECT ION CENTRE AND MAKE CASH PAYMENT S TO SUCH MILK SUPPLIERS ON BEHALF OF THE 5 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 ASSESSEE. THESE AGENTS IN TURN SUPPLY THE MILK COLLECTED AT COLLECTION CENTRE I.E. KRISHANA DAIRY CENTRE . THESE AGENTS COLLECT CASH PAYMENTS FOR SUPPLY OF MILK. THE ASSESSING OFFI CER HAS EXAMINED THE AGENTS OF ASSESSEE AND THEIR STATEMENTS WERE RECORDED ON OATH. THE STATEMENTS OF SHRI MOHAN MADHUKAR GAYKE, SHRI JAIN SAGAR RAVINDRA, SHRI DEVSING PARSHARAM PATIL, SHRI ISHWAR RAMSING RAJPU T AND SHRI SADASHIV KERUPPA GAVALI ARE AT PAG ES 36 TO 68 OF THE PAPER BOOK. ALL THE PERSONS HAVE ADMITTED TO HAVE ACTED AS AGENTS OF THE ASSESSEE FOR COLLECTING MILK AND MAKING CASH PAYMENTS TO THE FARMERS ON BEHALF OF THE ASSESSEE. THE LD. AR ASSERTED THAT THE PAYMENTS MADE BY ASSESSEE TO THE SUPP LIERS OF MILK DIRECTLY OR THROUGH AGENTS FALL UNDER EXCEPTIONS AS PROVIDED UNDER RULE 6DD(E)(II) OR RULE 6DD(K) OF THE INCOME TAX RULES, 1962. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENTS MADE TO THE FA RMERS FOR SUPPLY OF MILK FALL WITHIN THE EXCEPTIONS UNDER RULE 6DD(E)(II). THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INCOME TAX OFFICER VS. SHRI JAIPRAKASH H. PANDE IN ITA NO. 759/PN/2010 FOR ASSESSMENT YEAR 2002 - 03 DECIDED ON 15 - 12 - 2011. SEGMENT 2 : REFERRING TO THE TABLE AT PAGE 3 , PARA 5 OF THE IMPUGNED ORDER WHEREIN THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN THE LIST OF PARTIES TO WHOM CASH PAYMENTS EXCEEDING RS.20,000/ - WERE MADE , SUBMITTED , THAT THE ASSESSEE AFTER RECEIVING MILK FROM THE PARTIES MENTIONED AT SL. NOS. 2 TO 15 OF THE TABLE DIRECTLY DEPOSIT CASH IN THEIR RESPECTIVE BANK ACCOUNT S. THE PAY - IN - SLIPS /BANK RECEIPTS WERE FURNISHED BEFORE THE AUTHORITIES BELOW. THE ASSESSEE HAD ALSO FURNISHED COPY OF THE CONFIRMATIONS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE LD. AR SUBMITTED THAT NO DISALLOWANCE U/S. 40A(3) CAN BE MADE IN RESPECT OF 6 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 TRANSAC TIONS WHERE RECIPIENTS OF CASH ARE IDENTIFIABLE AND PAYMENTS ARE MADE DIRECTLY INTO THEIR BANK ACCOUNTS . THE LD. AR SUBMITTED THAT PAYMENTS TO THE SUPPLIERS OF THE MILK FALLING IN S EGMENT 2 ARE SQUARELY COVERED BY THE DECISION OF KOLKATA BENCH OF THE TRIB UNAL IN THE CASE OF RAMPADA PANDA VS. INCOME TAX OFFICER REPORTED AS 44 ITR (T) 691 AND THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DY. COMMISSIONER OF INCOME TAX VS. M/S. SANDUR SALES & SERVICES PVT. LTD. IN ITA NO. 872/BNG/2011 FOR ASS ESSMENT YEAR 2005 - 06 DECIDED ON 02 - 11 - 2012. 5 . ON THE OTHER HAND SHRI ACHAL SHARMA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING DISALLOWANCE U/S. 40(A)(IA) , AS WELL AS CONFIRMING / ENHANCING DISALLOWANCE U/S. 40A(3) OF THE ACT. THE LD. DR SUBMITTED THAT DETAILED ENQUIRY WAS CONDUCTED BY THE COMMISSIONER OF INCOME TAX (APPEALS) DURING THE FIRST APPELLATE PROCEEDINGS BEFORE CONFIRMING THE ADDITIONS. THE STATEMENTS OF SO CALLED AGENT S OF THE ASSESSEE , COLLECTING MILK AND SUPPLYING THE SAME AT KRISHNA DAIRY WERE RECORDED. THE LD. DR SUBMITTED THAT A PERUSAL OF STATEMENTS OF ONE OF THE AGENTS SHRI JAIN SAGAR RAVINDRA AT PAGE 49 OF THE PAPER BOOK WOULD SHOW THAT IN RESPONSE TO SPECIFIC QUESTION , HE HAS CATEGORICALLY DENIED TO HAVE WORKED AS COMMISSION AGENT ON BEHALF OF THE ASSESSEE. THE LD. DR FURTHER REFERRED TO THE STATEMENTS OF OTHER SO CALLED AGENTS OF THE ASSESSEE. ALL EXCEPT SHRI MOHAN MADHUKAR GAYAKE DENIED TO HAVE WORKED AS AGENT FOR ASSESSEE. THE ASSESSEE HAS FURTHER FAILED TO PLACE ON RECORD ANY AGENCY AGREEMENT AND /OR TERMS AND CONDITIONS FOR SUPPLY OF MILK BY THE SAID AGENTS. THE LD. DR SUBMITTED THAT SINCE, THE ASSESSEE HAS FAILED TO ESTABLISH ANY AGENCY AGREEMENT BETW EEN THE SUPPLIERS AND THE ASSESSEE , THE PROVISIONS OF RULE 7 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 6DD(K) WOULD NOT APPLY. THE LD. DR FURTHER SUBMITTED THAT AS PER RULE 6DD(E)(II) THE CASH PAYMENT WOULD FALL WITHIN EXCEPTIONS , IF THE PAYMENT IS MADE TO THE CULTIVATOR, GROWER, PRODUCER OF SUCH A RTICLES, PRODUCE OR PRODUCTS. SINCE, IT IS ASSESSEES OWN ADMISSION THAT THE PAYMENTS WERE MADE IN CASH TO THE PERSONS OTHER THAN THE DIRECT SUPPLIERS OF THE MILK , THE PROVISIONS OF RULE 6DD(E)(II) WOULD NOT BE ATTRACTED. THE LD. DR PRAYED FOR CONFIRMING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISSING THE APPEAL OF ASSESSEE. 6 . W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED VARIOUS DECISIONS ON WHICH THE LD. AR HAS PLACED RELIANCE AND HAVE EXAMINED THE STATEMENTS OF THE ALLEGED AGENTS OF THE ASSESSEE. 7 . IN SO FAR AS GROUND NO. 1 AND ADDITIONAL GROUND NO. 1 RELATING TO DISALLOWANCE U/S. 40(A)(IA) IS CONCERNED , THE LD. AR HAS MADE PRAYER FOR REMITTING THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR RECONSIDERATION IN ACCORDANCE WITH THE RECENTLY INSERTED SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. WE FIND MERIT IN THE ALTERNATE PRAYER MADE BY LD. AR. A T THE TIME OF ASSESSMENT PROCEEDINGS AND AT FIRST APPELLATE STAGE , THE LOWER AUTHORITIES DID NOT HAVE BENEFIT OF NEWLY INSERTED PROVISO TO SECTION 40(A)(IA) THAT WAS INTRODUCED BY THE FINANCE ACT, 2012 W.E.F. 01 - 04 - 2013. WE ARE OF CONSIDERED VIEW THAT IN THE INTEREST OF JUSTICE IT WOULD BE APT TO REMIT THE ISSUE OF DISALLOWANCE OF RS.10,74,762/ - TO THE FILE OF ASSESSING OFFICER FOR DE NOVO ADJUDICATION IN THE LIGHT OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE IS DIRECTED TO FURNISH NECE SSARY DOCUMENTS BEFORE THE ASSESSING OFFICER TO SHOW THAT THE PARTIES / RECIPIENTS HAVE DECLARED THE AMOUNT PAID BY ASSESSEE IN THEIR RESPECTIVE RETURN OF 8 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 INCOME AND THE AMOUNT IN QUESTION HAS BEEN ASSESSED TO TAX . T HE ASSESSING OFFICER WHILE ADJUDICATING T HIS ISSUE SHALL GRANT REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THUS, GROUND NO. 1 AND ADDITIONAL GROUND NO. 1 RAISED IN THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 8 . IN GROUND NO. 2 OF THE APPEAL , THE ASSESSEE HAS ASSAILED DISALLOWANCE OF RS.3,96,70,806/ - U/S. 40A(3). DURING THE COURSE OF SCRUTINY ASSESSMENT THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.19,80,676/ - . THESE ARE CASH PAYMENTS MADE TO PRABHAT DAIRY, SHRIRAMPUR DUDH SANGH AND FOR PURCHASE OF DIESEL & OIL. THE COMMISSIONER OF INCOME TAX (APPEALS) ENHANCED DISALLOWANCE U/S. 40A(3) BY RS.3,76,90,130/ - , TAKING THE TOTAL DISALLOWANCE U/S. 40A(3) TO RS.3,96,70,806/ - . THE COMMISSIONER OF INCOME TAX (APPEALS) MADE DISALLOWANCE U/S. 40A(3) ON ACCOUNT OF CASH PAYMENTS MADE BY ASSESSEE TO ALLEGED MILK SUPPLIERS. THE ASSESSEE HAS MADE CASH PAYMENTS FOR SUPPLY OF MILK TO THE FOLLOWING PARTIES. SR. NO. NAME AMOUNT (RS.) 1 KRISHNA DAIRY 3,25,22,750 2 WHITE STAR M & M PRODUCTS 16,30,000 3 WADILAL MILK PRODUCT 1,44,000 4 SUDARSHAN DAIRY 11,04,251 5 SHIVSUDHA DAIRY, ABAD 1,42,500 6 SANJIVANI MILK PVT. LTD. 1,00,000 7 SAIAMRUT MILK & MILK TRADERS 6,00,000 8 PREMIER DAIRY 3,28,000 9 DYANAMRUT DAIRY 2,00,000 10 DEVKINANDAN 3,57,454 11 ASHOK DAIRY 3,78,675 12 ANIK INDUSTRIES 1,50,000 13 INDUMATI DUDH KALASH 32,500 14 SHENDE (BARAMATI) 2,75,000 15 BALASAHEB BORADE 1,45,000 3,81,10,130 9 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 9 . THE ASSESSEE HAS SEGREGATED CASH PAYMENTS IN TWO SEGMENTS, ONE MADE TO KRISHNA DAIRY , AND SECOND TO THE REMAINING OTHER PARTIES IN THE TABLE ABOVE. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT MADE ANY DISALLOWANCE U/S. 40A(3) IN RESPECT OF PARTIES MENTIONED AT SR. NO. 14 AND 15 I.E. SHENDE (BARAMATI) AND BALASAHEB BORADE. AS REGARDS CASH PAYMENTS TO T HE PARTIES MENTIONED AT SR. NO. 2 TO 13 WHICH WORKS OUT TO RS.51,67,380/ - , IT HAS BEEN CONTENDED THAT CASH PAYMENTS HAVE BEEN DIRECTLY DEPOSITED IN THE BANK ACCOUNT S OF THE CONCERNED PARTIES. IT HAS BEEN CONTENDED THAT THE ASSESSEE HAS MADE CASH PAYMENTS DIRECTLY TO THE MILK PRODUCERS FOR SUPPLY OF MILK , T HEREFORE, SUCH PAYMENTS ARE COVERED UNDER EXCEPTION PROVIDED UNDER RULE 6DD(E)(II). RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF RAMPADA PANDA VS. INCOME TAX OFFICER (SUPRA). THE KOLKATA BENC H OF THE TRIBUNAL IN THE CASE OF RAMPADA PANDA VS. INCOME TAX OFFICER (SUPRA) HAS HELD THAT WHERE CASH IS DIRECTLY DEPOSITED IN THE BANK ACCOUNT OF SUPPLIERS , SUCH PAYMENTS FALL WITHIN THE EXCEPTION CONTAINED IN RULE 6DD, THEREFORE, NO DISALLOWANCE U/S. 40 A(3) IS TO BE MADE ON SUCH CASH PAYMENTS. A PERUSAL OF IMPUGNED ORDER SHOWS , THAT THE FACT WHE THER ASSESSEE HAS MADE DIRECT CASH PAYMENTS IN THE BANK ACCOUNT OF SUPPLIERS OF MILK HAS NOT BEEN VERIFIED. IN THE ABSENCE OF SUCH INFORMATION, WE DEEM IT APPRO PRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE FACT , WHETHER CASH PAYMENTS HAVE BEEN DIRECTLY MADE BY THE ASSESSEE TO THE BANK ACCOUNTS OF PARTIES AT SR. NO. 2 TO 13 OF THE TABLE ABOVE AND TO EXAMINE WHETHER THEY F ALL WITH IN EXCEPTION AS ENVISAGED UNDER RULE 6DD(E)(II). THE ASSESSING OFFICER AFTER VERIFYING THE FACT SHALL DECIDE THIS ISSUE IN THE LIGHT OF THE DECISION RENDERED IN THE CASE OF RAMPADA PANDA VS. INCOME TAX OFFICER (SUPRA). 10 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 CASH PAYMENT OF RS.3,25,22,750/ - TO KRISHNA DAIRY 1 0 . THE SECOND SEGMENT OF THE TRANSACTIONS ON WHICH DISALLOWANCE U/S. 40A(3) HAS BEEN MADE IS IN RESPECT OF CASH PAYMENTS EXCEEDING RS.20,000/ - MADE TO KRISHNA DAIRY. THE PLEA OF THE ASSESSEE IS THAT KRISHNA DAIRY IS ASSE SSEES OWN COLLECTION CENTRE. THE ASSESSEE HAS MADE CASH PAYMENTS TO VARIOUS MILK PRODUCERS AND THE AGENTS OF ASSESSEE WHO COLLECT MILK FROM SEVERAL SMALL TIME MILK PRODUCERS. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER HAS GIVEN A LIST OF PERS ONS TO WHOM SUBSTANTIAL CASH PAYMENTS HAVE BEEN MADE IN THE GUISE OF KRISHNA DAIRY. THE SAME IS REPRODUCED HERE - IN - BELOW : SR. NO. NAME AMOUNT (RS.) 1 SAGAR JAIN 88,64,674 2 VIJAY JAT 38,87,204 3 ASHOK CHUGULE 33,14,412 4 AABA GAYKE 24,39,759 5 RAJU BADGUJAR 14,18,377 TOTAL 1,99,24,426 11. THE ASSESSEE IS SEEKING SHELTER UNDER THE PROVISIONS OF RULE 6DD(E)(II) AND IN ALTERNATE RULE 6DD (K) TO ESCAPE FROM LIABILITY. AT THIS JUNCTURE IT WOULD BE RELEVANT TO REFER TO THE PROVISIONS OF RULE 6DD(E) (II) AND (K) . THE SAME ARE REPRODUCED HERE - IN - BELOW : 6DD . NO DISALLOWANCE UNDER SUB - SECTION (3) OF SECTION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB - SECTION (3A) OF SECTION 40A WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES IN THE CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY : - (E). WHERE T HE PAYMENT IS MADE FOR THE PURCHASE OF (I) AGRICULTUR AL OR FOREST PRODUCE; OR (II) THE PRODUCE OF ANIMAL HUSBANDRY ( INCLUDING LIVESTOCK, MEAT, HIDES AND SKINS) OR DAIRY OR POULTRY FARMING; OR 11 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 (III) FISH OR FISH PRODUCTS; OR (IV) THE PRODUCTS OF HORT ICULTURE OR APICULTURE, TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR PRODUCTS; .. .. (K) 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. 1 2 . ASSESSEES PLEA OF PAYMENT TO PRODUCERS : A BARE PERUSAL OF CLAUSE (E)(II) WOULD SHOW THAT CASH PAYMENTS MADE FOR THE PURCHASE OF DAIRY PRODUCTS FROM THE CULTIVATOR GROWER OR PRODUCER GET THE PROTECTION UNDER RULE 6DD (E) . THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT THE PERSONS WHO WERE SUPPLYING MILK AT KRISHNA DAIRY AND TO WHOM PAYMENTS WERE MADE IN CASH W ERE THE MILK PRODUCER THEMSELVES . DURING THE COURSE OF FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO MAKE NECESSARY ENQUIRIES. COMPLYING WITH THE SAID DIRECTIONS, THE ASSESSING OFFICER RECORDED ST ATEMENTS OF SHRI MOHAN MADHUKAR GAYKE, SHRI JAIN SAGAR RAVINDRA, SHRI DEVSING PARSHARAM PATIL, SHRI ISHWAR RAMSING RAJPUT AND SHRI SADASHIV KERUPPA GAVALI. THEIR STATEMENTS RECORDED U/S. 131 OF THE ACT ARE AT PAGES 36 TO 68 OF THE PAPER BOOK. A CLOSE EXA MINATION OF THE STATEMENTS RECORDED REVEAL THAT ALL THE PERSONS HAVE ADMITTED THAT THEY ARE IN THE BUSINESS OF TRADING OF MILK AND HAVE RECEIVED CASH PAYMENTS FROM ASSESSEE FOR SUPPLY OF MILK. EXCEPT FOR SHRI JAIN SAGAR RAVINDRA AND SHRI SADASHIV KERUPPA GAVALI NONE OF THE PERSONS EXAMINED HAVE MILCH CATTLES. SHRI JAIN SAGAR RAVINDRA AND SHRI SADASHIV KERUPPA GAVALI ARE HAVING SEVEN MILCH CATTLES EACH. HOWEVER, BOTH THE ABOVE SAID PERSONS HAVE ALSO ADMITTED THE FACT THAT THEY ARE ENGAGED IN MILK TRADING BUSINESS. ALL OTHER PERSONS WHOSE STATEMENTS WERE RECORDED CATEGORICALLY STATED THAT THEY DO NOT HAVE MILCH CATTLES. 12 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 TO FALL WITHIN THE EXCEPTION UNDER RULE 6DD(E)(II) IT IS IMPERATIVE THAT CASH PAYMENT IS MADE TO PRODUCER OF DAIRY ITEMS. A PERSON IS SA ID TO BE A PRODUCER OF DAIRY IF HE IS ENGAGED IN DAIRY FARMING AND OWNS MILCH CATTLES. IN OTHER WORDS, IF A PERSON DOES NOT OWN AND MANAGE MILCH CATTLES, HE WILL NOT BE CONSIDERED AS PRODUCER WITH REFERENCE TO DAIRY PRODUCTS UNDER RULE 6DD(E)(II). IN T HE INSTANT CASE ONLY TWO PERSONS ADMITTED TO HAVE MILCH CATTLES I.E. SHRI JAIN SAGAR RAVINDRA (4 BUFFALOES & 3 COWS) AND SHRI SADASHIV K. GAVALI (5 BUFFALOES & 2 COWS) . THEREFORE, CASH PAYMENTS TO ONLY THESE TWO PERSONS SHALL FALL WITHIN EXCEPTION UNDER R ULE 6DD(E)(II). HOWEVER, THE PAYMENTS MADE TO THESE TWO PERSONS SHALL BE SUBJECT TO VERIFICATION AND TO THE EXTENT OF MILK PRODUCED BY THEM. THEREFORE, WE DEEM IT APPROPRIATE TO REMIT THE ISSUE BACK TO ASSESSING OFFICER FOR RE - EXAMINATION OF CASH PAYMENT S MADE TO SHRI JAIN SAGAR RAVINDRA AND SHRI SADASHIV K. GAVALI AND TO EXCLUDE THE SAME TO THE EXTENT OF CASH PAYMENTS RELATABLE TO THEIR OWN PRODUCTION. SO FAR AS REMAINING CASH PAYMENTS EXCEEDING RS.20,000/ - TO THE ALLEGED MILK PRODUCERS ARE CONCERNED, THE ASSESSEE HAS NOT PLACED ON RECORD ANY MATERIAL IN SUPPORT OF ITS CLAIM. THUS, IN ABSENCE OF ANY COGENT EVIDENCE, THE CASH PAYMENTS MADE BY ASSESSEE IN THE NAME OF KRISHNA DAIRY WOULD NOT FALL WITHIN THE EXCEPTION UNDER RULE 6DD(E)(II). 13. ASSESSEES PLEA OF PAYMENT TO AGENTS : THE SECOND LIMB OF ARGUMENT OF THE ASSESSEE IS THAT THE SUPPLIERS OF MILK AT KRISHNA DAIRY TO WHOM CASH PAYMENTS ABOVE RS.20 ,000/ - WERE MADE WERE THE AGENTS OF THE ASSESSEE. IN SUPPORT OF THIS ARGUMENT , THE ASSESSEE HAS FAILED TO ESTABLISH AGENCY AGREEMENT BETWEEN THE SUPPLIER S OF THE MILK AND THE ASSESSEE. BARRING 13 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 SHRI MOHAN MADHUKAR GAYKE ALL OTHER PERSONS WHOSE STATEMENTS WERE RECORDED AND WERE SUPPLYING MILK TO THE ASSESSEE DENIED TO HAVE ANY RELATION WITH THE ASSESSEE AS AGENT. E XCEPT FROM BALD ASSERTIONS, THE ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT SUPPLIE R S OF THE MILK ARE AUTHORIZED AGENTS OF THE ASSESSEE. THUS, THE ASSESSEES PLEA OF GRANTING RELIEF UNDER RULE 6DD(K) ALSO FAILS. 14. AS REGARDS DISALLOWANCE OF RS.19,80,676/ - MADE BY ASSESSING OFFICER, THE LD. AR HAS NOT FURNISHED ANY EXPLANATION. THE AMOUNT INCLUDES CASH PAYMENTS MADE TO PRABHAT DAIRY RS.7,90,000/ - , SHRIRAMPUR DUDH SANGH RS.2,00,000/ - AND PAYMENTS FOR DIESEL & OIL RS.9,90,676/ - . THE ASSESSEE HAS NOT POINTED ANY EXCEPTION UNDER RULE 6DD IN RESPECT OF ABOVE PAYMENTS EITHER BEFORE THE FIRST APPELLATE AUTHORITY OR BEFORE US. HENCE, THE DISALLOWANCE OF RS.19,80,676/ - U/S. 40A(3) IS UPHELD. 15. TO SUM UP : (I) CASH PAYMENTS MADE TO PARTIES AT SR. NO. 2 TO 13 OF THE TABLE (PARA 8) ARE ALLOWED FOR STATISTICAL PURPOSE IN THE TERMS AFORESAID; (II) SINCE, THE ASSESSEE HAS FAILED TO ESTABLISH : (A) EXISTENCE OF ANY AG ENCY AGREEMENT BETWEEN THE SUPPLIE R S OF MILK AND THE ASSESSEE; (B) PAYMENTS WERE MADE DIRECTLY TO THE MILK PRODUCERS; DISALLOWANCE U/S. 40A(3) ON CASH PAYMENTS MADE TO KRISHNA DAIRY IS CONFIRMED EXCEPT PAYMENTS MADE T O SHRI JAIN SAGAR RAVINDRA AND SHRI SADASHIV K. GAVALI SUBJECT TO THE CONDITIONS MENTIONED ABOVE IN PARA 12. THUS, GROUND NO. 2 RAISED IN THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE IN TERMS, AFORESAID . 14 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 16 . THE LD. AR HAS MADE AN ALTERNATE SUBMISSION BY RAISING ADDITIONAL GROUND NO. 2 , SEEKING DIRECTION TO THE ASSESSING OFFICER TO WORK OUT REASONABLE NET PROFIT ON THE BASIS OF COMPARABLE CASES AS THE DISALLOWANCE MADE U/S. 40A(3) WOULD LEAD TO ABSURD RESULTS. WE ARE NOT INCLINE D TO ACCEPT THE ALTERNATE SUBMISSION MADE BY THE LD. AR , EITHER. T HERE IS NO PROVISION UNDER THE ACT TO RE - COMPUTE PROFITS WHERE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40A(3) IS MADE . DISALLOWANCE U/S. 40A(3) IS MADE WHERE THE ASSESSEE HAS MADE CAS H PAYMENTS IN VIOLATION OF THE PROVISIONS OF THE ACT. THE PROVISIONS OF SECTION 40A(3) ARE DETERRENT FOR INDUCING OR TRADING WITH UNACCOUNTED MONEY IN BUSINESS. THE PROVISIONS OF SECTION 40A(3) ARE PENAL IN NATURE FOR VIOLATING THE MANDATE OF MAKING PAYM ENT BY ACCOUNT PAYEE CHEQUE OR DRAFT, IF IT EXCE EDS THE LIMIT SPECIFIED. IN THE RESULT, THE ADDITIONAL GROUND NO. 2 RAISED IN THE APPEAL IS DISMISSED. 1 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 IS PARTLY ALLOWED FOR STATIST ICAL PURPOSE. ITA NO. 797/PUN/2015, (A.Y. 2010 - 11) 1 8 . SHRI SUNIL GANOO LD. AR OF THE ASSESSEE HAS STATED AT THE BAR THAT HE IS NOT PRESSING GROUND NOS. 2, 3 AND 5 IN THE APPEAL. ACCORDINGLY, THE SAME ARE DISMISSED AS NOT PRESSED. 1 9 . IN GROUND NO. 1 THE ASSESSEE HAS ASSAILED DISALLOWANCE U/S. 40A(3) IN RESPECT OF FOLLOWING PAYMENT S . I . PAYMENTS OF RS.1,77,576/ - MADE TO KRISHNA DAIRY ON 29 - 04 - 2009 FOR PURCHASE OF MILK. II . PAYMENT OF RS.1,25,905/ - MADE TO SUPER INDIA TYRE WORKS FOR PURCHASE OF TYRES FOR TR UCKS. III . PAYMENT OF RS.80,000/ - MADE TO MR. SAGAR JAIN FOR PURCHASE OF MILK. 15 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 IN SO FAR AS DISALLOWANCE U/S. 40A(3) IN RESPECT OF CASH PAYMENTS MADE TO KRISHNA DAIRY IS CONCERNED , IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WE HAVE REJECTED ASSESSEES EX PLANATION AND HAVE CONFIRMED THE ADDITION. FOR THE SIMILAR REASONS WE CONFIRM DISALLOWANCE U/S. 40A(3) IN RESPECT OF PAYMENTS MADE TO KRISHNA DAIRY IN ASSESSMENT YEAR 2010 - 11 . IN SO FAR AS PAYMENTS MADE TO SUPER INDIA TYRE WORKS AND MR. SAGAR JAIN FOR SU PPLY OF MILK IS CONCERNED , WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO RE - EXAMINE THE DOCUMENTS ON RECORD. A PERUSAL OF STATEMENT OF MR. SAGAR JAIN RECORDED DURING THE COURSE OF ENQUIRIES CONDUCTED DURING THE ASSESS MENT YEAR 2009 - 10 REVEAL THAT HE HAS MILCHING CATTLES AND WAS SUPPLYING MILK TO KRISHNA DAIRY. ACCORDINGLY, GROUND NO. 1 RAISED IN THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 20 . IN RESPECT OF GROUND NO. 4 THE ASSESSEE HAS ASSAILED ADDITIO N U/S. 68 IN RESPECT OF AMOUNT PAYABLE TO SAURABH DAIRY RS.1,83,869/ - , AMOUNT PAYABLE TO KRISHNA DAIRY RS.10,48,411/ - AND AMOUNT PAYABLE TO VRS FOODS RS.96,994/ - . THE LD. AR SUBMITTED THAT THE ADDITION U/S. 68 HAS BEEN MADE ONLY FOR THE REASON THAT THE AS SESSEE WAS NOT ABLE TO RECONCILE THE ACCOUNTS WITH THE CREDITORS. THE LD. AR SUBMITTED THAT NOW THE ASSESSEE IS IN POSITION TO EXPLAIN THE DIFFERENCE AND RECONCILE THE ACCOUNTS. THEREFORE, AN OPPORTUNITY MAY BE GRANTED TO EXPLAIN THE DIFFERENCE. 2 1 . O N THE OTHER HAND LD. DR VEHEMENTLY OPPOSED THE PRAYER OF THE ASSESSEE. THE LD. DR SUBMITTED THAT AM P LE OPPORTUNITY WAS GRANTED TO THE ASSESSEE TO RECONCILE THE ACCOUNTS. THE ASSESSEE FAILED TO FURNISH ANY VALID EXPLANATION FOR THE DIFFERENCE IN THE ACCOU NTS. 16 ITA NO S. 797/PUN/2013 & 797/PUN/2015, A.YS. 2009 - 10 & 2010 - 11 2 2 . AFTER HEARING BOTH THE SIDES AND CONSIDERING TOTALITY OF FACTS WE ARE OF VIEW THAT THE ISSUE REQUIRES REVISIT TO THE FILE OF ASSESSING OFFICER. THE ASSESSEE IS DIRECTED TO FURNISH RECONCILIATION STATEMENT BEFORE THE ASSESSING OFFICER AND EXPLA IN THE DIFFERENCE , IF ANY . THE ASSESSING OFFICER AFTER AFFORDING OPPORTUNITY OF HEARING TO THE ASSESSEE SHALL RE - ADJUDICATE THIS ISSUE, IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUND NO. 4 RAISED IN THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 2 3 . TO SUM UP , BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED ON TUESDAY, THE 31 ST DAY OF OCTOBER, 2017 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 31 ST OCTOBER, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - II, NASHIK 4. / THE CIT - II, NASHIK 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE