Gujarat High Court
Commissioner Of Income Tax Ii vs A C Industries....Opponent(S) on 9 January, 2014
Author: Sonia Gokani
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/15/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 15 of 2014
With
TAX APPEAL NO. 16 of 2014
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COMMISSIONER OF INCOME TAX II....Appellant(s)
Versus
A C INDUSTRIES....Opponent(s)
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Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 09/01/2014
ORAL ORDER
(PER : HONOURABLE MS JUSTICE SONIA GOKANI) Aggrieved by the order of the Income Tax Appellate Tribunal dated 21.6.2013 for the assessment years 2006-07 and 2007-08, these Tax Appeals are preferred under section 260A of the Income Tax Act ('the Act' hereinafter). Questions of fact and law being common, both these are being decided by this common judgment.
For the purpose of adjudication, facts/question of law revealed in Tax Appeal No.15 of 2014 shall be referred.
Assessee-respondent filed return of income declaring total income for the assessment year 2006-07 at Rs.5.98 lacs (rounded off). The firm of the assessee is dealing and trading in purchase of cotton, cotton seeds, processing of cotton seeds and extracting cotton seeds oil, etc. Page 1 of 5 O/TAXAP/15/2014 ORDER A survey was carried out under section 133A of the Act of the business premises of the assessee. During the course of survey, physical stock was taken containing various items like cotton seeds, cotton bales, cotton cakes, etc. It was also noted that certain scrap materials were not recorded in the books of accounts. The assessee also purchased raw cotton either directly from agriculturists or from commission agents. Majority of the payments were made against such purchase by cash though the payments were exceeding Rs.20,000/-. Therefore, for contravention of the provisions of section 40A(3) of the Act, explanations were called for. The assessee admitted that the payments were made by cash, however, explaining the reasons and claiming exemptions which did not find favour with the Assessing Officer and accordingly, the Assessing Officer had made certain additions.
These additions were when challenged before the CIT (Appeals), it chose to seek report of the Assessing Officer and on closely examining the entire material, it concluded that payments made for the purchase of agricultural and forest produces, exemption was available. It also noted that most of the transactions were through Agricultural Produce Market Committee (APMC). On the basis of the report of the Assessing Officer at the remand stage and considering the additional evidences filed by the respondent-assessee, the CIT (Appeals) held in favour of assessee. It also noted that specific verification was made of various samples taken on random basis and no infirmity at any stage was found. Accordingly, it chose to confirm the addition to the extent of Rs.34.91 lacs and the balance was deleted.
Aggrieved by the said decision, when the Revenue challenged it before the Tribunal, it partly sustained the order of CIT(A) by holding thus:
Page 2 of 5O/TAXAP/15/2014 ORDER "6. We have heard rival contentions, perused material available on record and orders of the authorities below. We find that during the course of appellant proceedings, additional evidences were filed, on which the ld. CIT(A) has sought report from the AO. The AO in the remand proceedings made inquiries and has reported back to the ld. CIT (A) that the factum of purchases and payment in cash has been admitted by the farmers. It is observed by the ld. CIT(A) that verification of each and every case in cash exceeding Rs.20,000/- was neither practical nor was done by the AO due to number of such cases being very large. It is undisputed that during the survey proceeding partner of the assessee-firm has admitted in the statement that the purchases were also made through commission agents, and he has disclosed all additional income of Rs.15 lakhs on account of violation of section 40A(3). Undisputedly, nothing has been brought on record that there was any other purchases in violation of section 40A(3). We are of the considered view that in the absence of the same, the ld. CIT(A) was not justified in making estimation, therefore, the addition of Rs.34,91,946/- is reduced to Rs.15,00,000/-. We are in agreement with the contention of the learned DR that the assessee himself has made disclosure of additional income of Rs.15 lakhs on account of purchases made from the commission agent. In view of this statement, the addition of Rs.15 lakhs (Rupees Fifteen lakhs) is retained. The AO is directed accordingly."
Challenging such decision of the Tribunal, present Tax Appeals are preferred raising following questions of law before us:
"1. Whether on the facts and circumstances and in law the ITAT was justified in not upholding the disallowance u/s 40A(3) of the Act sustained by CIT (A) without appreciating that the assessee had itself admitted during the course of survey action that its purchases were covered within the ambit of 40A(3) of the Act?
2. Whether on the facts and circumstances and in law the ITAT was justified in not upholding the disallowance u/s 40A(3) of the Act to the extent of Rs.19,91,946/- for A.Y. 2006-07 without appreciating that the assessee had failed to furnish evidence to show that the said expenditure was covered within the exception provided in Rule 6DD(j), unlike the purchases of Rs.15 lakhs Page 3 of 5 O/TAXAP/15/2014 ORDER admitted by the assessee as liable for disallowance u/s 40A(3) of the Act?"
We have heard learned counsel Mr.Parikh for the Revenue and with his assistance examined the material on record. We are of the firm opinion on due consideration that these Tax Appeals deserve no consideration inasmuch as essentially both the authorities have concurrently held in favour of the respondent-assessee based on the factual matrix presented before them.
Section 40A(3) dissuades transactions otherwise than by account payee cheque/draft when payment of expenditure exceeds the sum of Rs.20,000/- by disallowing any deduction in respect of such expenditure. However, when payment is made for purchase of agricultural or forest produce or the produce of animal husbandry or dairy or poultry farming etc. as per sub-clause (e) of rule 6DD or when 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 persons under clause (k) of Rule 6DD of Income Tax Rules, no disallowance under sub-section (3) of section 40A shall be made. In other words, exemptions are carved out under rule 6DD when purchase is of agricultural or forest produce etc. or when such purchase is made through agent who was required to pay in cash.
We notice from the material on record that at length examined the issue has been examined threadbare and considering the magnitude of the transactions of cash amount exceeding Rs.20,000/-, both the authorities rightly observed verification was neither practicable nor was done by the Assessing Officer in each and every case. However, being satisfied that substantiating the claim, cogent evidences were relied upon Page 4 of 5 O/TAXAP/15/2014 ORDER by both the authorities to conclude that the purchases were made from agriculturists as also through common agents, we hold that the case of respondent was correctly held to be falling under exception provided under clause (e) and (k) of Rule 6DD of Income Tax Rules. The assessee had disclosed additional income on account of violation of section 40A(3) and addition of Rs.15 lacs has already therefore been retained in view of the statement made before the authority, we see no reason to interfere in absence of any question of law much less substantial question of law arising in these Tax Appeals.
Both the appeals are therefore, dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) vijayan Page 5 of 5