Gujarat High Court
Principal Commissioner Of Income Tax 1 vs Shukla Dairy Pvt. Ltd on 13 June, 2022
Author: A.J.Desai
Bench: A.J.Desai, Bhargav D. Karia
C/TAXAP/275/2022 ORDER DATED: 13/06/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 275 of 2022
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PRINCIPAL COMMISSIONER OF INCOME TAX 1
Versus
SHUKLA DAIRY PVT. LTD.
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Appearance:
MRS KALPANAK RAVAL(1046) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE A.J.DESAI
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 13/06/2022
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE A.J.DESAI)
1. Revenue has filed this appeal under section 260A of the Income Tax Act, 1961 (For short "the Act, 1961") for the assessment year 2010-2011 challenging the judgment and order dated 23.08.2021 passed by the Income Tax Appellate Tribunal, Surat Bench, Surat in I.T.A. No. 309/SRT/2018.
2. Following substantial questions of law are proposed by the Revenue :
"i) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in quashing the order passed u/s 263 of the Act even though the Assessing Officer had passed the assessment order without making inquiries or verification which should have been made to ascertain Page 1 of 8 Downloaded on : Sat Dec 24 18:43:04 IST 2022 C/TAXAP/275/2022 ORDER DATED: 13/06/2022 whether the parties to whom cash payments were made were milk producers and were covered by circumstances sated in clause(e)(ii) of Rule 6DD of Income Tax Rules.
(ii) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in quashing the order passed u/s 263 of the Act without giving a finding on the applicability of clause (a) of Explanation-2 to sub-section(1) of section 263 of the Act on the basis of which the revision order u/s 263 of the Act was passed by the Principal Commissioner of Income-tax."
3. Brief facts of the case are that the assessment under section 143(3) read with section 147 of the Act, 1961 was completed on 18.03.2016 determining total income at Rs.44,19,890/- by making various additions.
4. Revenue audit subsequently raised objection that payment in excess of Rs.20,000/- under Rule 8DD of the Income Tax Rules, 1962 amounting to Rs.36,38,376/- was wrongly allowed, as payment was made to traders of milk and the benefit of Rule 6DD was only available to milk producers.
5. Accordingly, the Principal Commissioner of Income Tax (For short "PCIT") passed order dated 26.03.2018 under section 263 of the Act, 1961 holding that the assessment order was erroneous and prejudicial to the interest of the Revenue by setting aside the same with a direction to frame the assessment de novo after providing reasonable opportunity of being heard to the assessee.
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6. Being aggrieved by the order passed under section 263 of the Act, 1961, the assessee preferred appeal before the Tribunal. The Tribunal allowed the appeal of the assessee holding that the Assessing Officer made inquiry into the transactions of cash payments in excess of Rs. 20,000/- and the action of the Assessing Officer in accepting the claim of the assessee that the transactions in question were not in violation of the provisions of section 40A(3) of the Act, 1961, after detailed inquiry was a plausible view.
7. It was submitted by learned advocate for the appellant that the Assessing Officer accepted the contention of the assessee that out of cash payment of Rs.93,56,628/-, payment of Rs.49,45,811/- was exempt under Rule 6DD of the Income Tax Rules,1962 without making necessary inquiries to confirm the fact that the parties to whom cash payments were made for purchase of milk were actually engaged in milk production or whether they were doing only trading in milk.
8. It was submitted that the Tribunal did not appreciate that Explanation 2(a) of section 263 as inserted by the Finance Act, 2015 with effect from 1.06.2015 stipulates that order passed by the Assessing Officer shall be deemed to be erroneous insofar as it is prejudicial to the interests of Revenue, if, in the opinion of the Page 3 of 8 Downloaded on : Sat Dec 24 18:43:04 IST 2022 C/TAXAP/275/2022 ORDER DATED: 13/06/2022 PCIT order is passed without making inquiries or verification. It was pointed out that the Tribunal has applied the case laws to the facts of the case which are prior to insertion of Explanation 2(a) of section 263 of the Act, 1961.
9. We have heard learned advocate for the appellant. The Tribunal while allowing the appeal filed by the appellant held as under :
"12. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. PCIT and other materials brought on record. In ITA No.309/SRT/2018, for assessment year 2010-11, only one issue was raised by the ld. PCIT in his order under section 263 of the Act, which is that out of total cash payment in excess of Rs.20,000/-, of Rs.93,56,628/- which was found during survey, the then assessing officer allowed payment of Rs.49,45,811/- under rule 6DD of the Income Tax Rules, as it was paid against purchase of milk. It was however noticed by ld. PCIT, from cash book that in the following cases, payments of Rs.36,38,376/- were made to eight traders, (cash payment in excess of Rs.20,000/- in violation of the provisions of section 40A(3), as detailed below :
Sr. No. Name of payee Amount in
Rs.
1 Surbhi Dairy Pvt Ltd 1877750
2 Asmita Agro Vet Agency 1032750
3 BJiagwatimata Milk and Milk 410000
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C/TAXAP/275/2022 ORDER DATED: 13/06/2022
Products
4 Dudh Ganga Milk Products 63700
5 Gangotri Dairy Products Pvt 79464
Ltd
6 Jagdish Traders 62837
7 Karmbhoomi Dairy Products 61875
8 Laxmi Ice Factory-Dairy 50000
Total 36,38,376
The Id. PCIT observed that payments of Rs.36,38,376/- were made by assessee to traders in cash in excess of Rs.20,000/-, which is a violation of provisions of sect 40A(3) of the Act. The ld. PCIT was of the view that benefit of rule 6DD is available to milk producers and not to traders of milk, hence payment to traders in cash in excess of Rs.20,000/- is required to be disallowed. That is, assessing officer did not disallow Rs.36,38,376/-, therefore, ld. PCIT held that order passed by the assessing officer is erroneous and prejudicial to the interest of revenue.
We note that during the assessment stage, assessee has submitted all the documents and confirmations of all the parties. Each of the party is milk producer, each of them has the cattle farm having large number of cattle. During the assessment stage, the assessee has furnished the documents of milk producers, such as their declaration, their identity proof, the account copy etc. In declaration it is mentioned that supplier are having own lives stock and own arrangements for shed and milk storage.
The ld. Counsel submitted before us a chart showing the total purchases from each of the eight parties listed in the notice and how they were paid. A careful look at the chart- data will show that though each of them were Page 5 of 8 Downloaded on : Sat Dec 24 18:43:04 IST 2022 C/TAXAP/275/2022 ORDER DATED: 13/06/2022 milk producer, assessee tried to pay them mainly by cheque and only in an exceptionally situation, assessee paid the small portion in cash and the said payment to each of them is covered, vide the exception provided in sub clause (ii) of clause (e) of rule 6DD of the Income Tax Rules. We note that during the course of assessment proceedings, the Assessing Officer has rightly allowed the impugned payment as expenditure as it was covered by the exception provided in sub clause (ii) of clause (e) of rule 6DD of the Income Tax Rules, 1962. Thus, so far, this issue is concerned, the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue.
13. Learned Counsel also submitted before us that about the issue of cash payment in excess of Rs.20,000/-, assessee has submitted each and every documents during the re-assessment proceedings under section 143(3) r.w.s. 147 of the Act, which is evident from para 3 and 4 of the assessment order, which is reproduced below:
"3. During the year, the assessee firm was engaged in the business of manufacturing of dairy products. In this case a survey action U/s. 133A of the Act was carried out on 22/01/2013 at the business premises of the assessee. During the course of survey proceedings, statement on oath u/s 131 of the I.T. Act, of Shri Vimal Kumar Shukla, Director of Shukla Diary Pvt.
Ltd. was recorded. In answer to question Q. No. 12 of his statement, he has stated that an amount to tune of Rs. 93,56,628/- was paid in cash during the F.Y. 2009-10. After affording full and adequate opportunity to the assessee through its authorized representative, the assessment proceedings have been completed and in consequence, upon the conclusion of Page 6 of 8 Downloaded on : Sat Dec 24 18:43:04 IST 2022 C/TAXAP/275/2022 ORDER DATED: 13/06/2022 proceedings and hearing of evidences, assessment is made by this order.
4. During the course of assessment proceedings, on perusal of the details submitted by the assessee, it is noticed that the assessee has made cash payments of Rs.93,56,628/- to various parties. Out of which, some amounts exceeding 5.20,000/- to a single party in a day. Therefore, the assessee was asked to explain vide show cause notice dated 14.03.2016, the relevant portion of the same are as under:
"2. During the course of reassessment proceedings, on verification of the details submitted, you have made cash payments of Rs.93,56,628/- to various parties exceeds Rs.20,000/- in a day to a single party. Out of which, the payment made to purchase of Milk of Rs.49,45,811/- is exempted under Rule- 6DD of Income-tax Rules, 1962. The other cash payments exceeding Rs.20,000/- in a day to a single party made by you during the F.Y. 2009-10, the bifurcation of which are as under:
Sr.No. Particulars Amount Rs.
1 Other Expenses 824672
2 Transportation 1026223
3 Salary 674981
4 Deposit return 1230000
4 Printed Poly film payment 390007
Total 4145883
2.1 The above payments made in cash during the year under consideration violated the provisions of section 40A(3) of the I T. Act. Therefore, you are asked to explain why the above amount of Rs.41,45,883/- should not be disallowed and added to the total Page 7 of 8 Downloaded on : Sat Dec 24 18:43:04 IST 2022 C/TAXAP/275/2022 ORDER DATED: 13/06/2022 income. "
4.1 In response to which, the assessee submitted his reply vide letter dated 18.03.2016 and agreed upon the proposed disallowances as communicated in the show cause notice. Accordingly, the total payments made to various parties of Rs.41,45,883/- in contravention to Section 40A(3) of the I.T. Act is disallowed and added to the total income."
14. It is abundantly clear from para No.3 and 4 of assessment order that regarding excess payment of Rs.20,000/-, each and every document were there before the assessing officer and assessing officer examined them and has taken a possible view, therefore, assessment order passed by the assessing officer under section 143(3) r.w.s. 147 of the Act, dated 18.03.2016, is neither erroneous nor prejudicial to the interest of revenue."
10. In view of above findings of fact arrived at by the Tribunal and in view of settled legal position with regard to invoking of section 263 of the Act, 1961, we are of the opinion that there is no infirmity in the impugned order passed by the Tribunal so as to give rise to any question of law much-less any substantial question of law as proposed or otherwise.
11. Tax Appeal is accordingly dismissed.
(A.J.DESAI, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 8 of 8 Downloaded on : Sat Dec 24 18:43:04 IST 2022