Gujarat High Court
Principal Commissioner Of Income ... vs Maruti Ginning And Pressing Inds on 30 August, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/654/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 654 of 2016
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PRINCIPAL COMMISSIONER OF INCOME TAX-III, RAJKOT....Appellant(s)
Versus
MARUTI GINNING AND PRESSING INDS,....Opponent(s)
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Appearance:
MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 30/08/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 22.01.2016 raising following question for our consideration:
"Whether the ITAT has erred in law and in facts in quashing the setting aside revision proceedings initiated under Section 263 of the Income Tax Act?"
2. We have perused the orders on record with the assistance of learned counsel for the Revenue. The issue pertains to exercise of revisional powers by the Commissioner under Section 263 of the Income Tax Act,1961 ['the Act' for short]. Upon reopening of the assessment, the Assessing Officer questioned the assessee Page 1 of 5 HC-NIC Page 1 of 5 Created On Fri Sep 02 00:12:41 IST 2016 O/TAXAP/654/2016 ORDER about cash payments in excess of Rs. 20,000/- in terms of Section 40A(3) of the Act. The case of the assessee was that total expenditure of Rs. 3.98 crores was made for purchase of cotton directly from farmers, producers. Undisputedly, if such payments were for purchase of agricultural produce made to the cultivators or growers or producers of such produce, the provisions of Section 40A(3) would not apply. In this context, the assessee produced list of hundreds of agriculturists, producers from whom he had purchased cotton of specified brand called URD Kapas and details of their land holding and other relevant records. The Assessing Officer accepted such explanation and limited the disallowance only to 20% of expenditure of Rs. 30,800/- where no such documents have provided.
3. The Commissioner was of the opinion that such order of the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. He, therefore, after hearing the assessee, exercised revisional powers under Section 263 of the Act. He noticed certain discrepancies in the records pertaining to the farmers to whom such payments were made. The Commissioner, therefore, set aside the order of assessment and directed the Assessing Officer to verify the genuineness of the claim of purchases of URD Kapas by making necessary investigation and verification in respect of agricultural land holding, crop taken and actual purchases by the assessee from the concerned traders and then pass a fresh order of assessment.
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O/TAXAP/654/2016 ORDER
4. It is this order that the assessee challenged before the Tribunal. The Tribunal, by the impugned judgement, allowed the appeal and set aside the order of the Commissioner making following observations:
"We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below as well as the judgements relied upon by the ld. Counsel for the assessee. The undisputed facts are that, in this case, the assessment was reopened on the ground that the purchases of URD Kapas of Rs. 3,98,60,119/- had been made in violation of provision of section 40A(3) r.w.s. 6DD(J) of the I.T.Rules, 1962. There is no dispute that the AO had issued a notice requesting the assessee to explain such purchases. In reply thereto, the assessee had submitted that the cash payment made by it are covered by the exception embedded under Rule 6DD(e)(i) as all such payments are made for agricultural produce. There is no dispute with regard to the legal position that in case the assessee makes purchase of agricultural produce and payments in excess of Rs. 20,000/- is made to the cultivator/grower or producer of such produce or products, in that event, the provisions of section 40A(3) of the Act would not be applicable. So, the assesssee was required to demonstrate that the purchases are made of agricultural produce and the payments are made to the cultivator or grower of such produce. The AO was required to examine this aspect and to verify the claim of the assessee by making necessary enquiry in this regard. If the AO fails to make inquiry with regard to the claim of the assessee, then in our considered view, the order of the AO would be erroneous and prejudicial to the interests of the Revenue and the ld. CIT would be within its jurisdiction to revise such order u/s. 263 of the Act. In the present case, the AO has made enquiry from the assessee and in response thereto, the assessee submitted certain details. On the basis of such enquiry, the AO formed an opinion with regard to genuineness of the purchases. However, from the records it appears that the Page 3 of 5 HC-NIC Page 3 of 5 Created On Fri Sep 02 00:12:41 IST 2016 O/TAXAP/654/2016 ORDER AO has not given any finding on the enquiry so made. Once we come to the conclusion that the AO has made the inquiries and then formed an opinion, it cannot be open to us to sustain the revision proceedings on the facts of this case. Merely because the impugned order should have been better written, or more elaborate cannot be reason enough to subject it to revision proceedings. As for the Hon'ble Jurisdictional High Court's judgement in the case of Adani Agro (P.) Ltd. (supra) it cannot be and is not, a support for the proposition that merely because the matter has been remitted to the file of the Assessing Officer for fresh adjudication and uninfluenced by observation on merits, revision proceedings cannot be faulted de hors the facts of the case not warranting assumption of jurisdiction under section 263. Such an approach will reduce the time limits for completion of assessments to an empty ritual, and make finality of proceedings meaningless. In the light of these discussions, as also bearing in mind entirety of the case, we quash the revision proceedings as unsustainable on merits. The assessee gets the relief accordingly."
5. As noted, the Assessing Officer in the process of framing assessment had made inquiries with the assessee regarding cash payments in excess of Rs. 20,000/-. The assessee pointed out that such payments were for purchase of cotton and the payments were made to the producers. This being an agricultural products such payments would be outside the purview of Section 40A(3) of the Act. The Commissioner, however, found that there were certain discrepancies in the records produced. We notice that the assessee had produced list of hundreds of farmers, producers to whom such payments were made and documents concerning their lands were also produced. Merely because there were some minor discrepancies Page 4 of 5 HC-NIC Page 4 of 5 Created On Fri Sep 02 00:12:41 IST 2016 O/TAXAP/654/2016 ORDER in some of them would not be sufficient to conclude that the Assessing Officer did not make a proper inquiry. The revisional powers could not have been exercised for making better or further inquiry.
6. In the result, tax appeal is dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) Jyoti Page 5 of 5 HC-NIC Page 5 of 5 Created On Fri Sep 02 00:12:41 IST 2016