TaxTMI 
TaxTMI 
2019 (9) TMI 1005
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....y is not intentional, we are inclined to condone the delay and admit the appeal for hearing. 2. Brief facts of the case are that the assessee had filed return of income on 30.11.2014 disclosing taxable income of Rs. 17,64,000/-. Thereafter, the case was taken up for scrutiny. The AO noted that the assessee is engaged in the business of running of rice mill where it manufactures rice from paddy. From the manufacturing and trading account, the AO observed that assessee had claimed gross turnover of Rs. 64,93,16,230/- and had purchased paddy for Rs. 63,33,84,264/-. The AO asked the assessee to furnish the names and complete address of the persons from whom it had purchased paddy during the year under consideration. According to AO, the assessee furnished the list of persons from whom it purchased paddy. The AO noted that the assessee had furnished the ledger account of the said persons in its books of account. The AO observed "from the details of purchase and from a perusal of the personal ledger account of the respective parties revealed that most of the payments towards purchase of paddy were made in cash all in excess of Rs. 20,000/- in a single day". The AO also took note th....
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....he assessee, which was as under: Returned Income --- Rs. 17,64,000/- Add: Disallowance u/s. 40A(3) as discussed above --- Rs. 14,08,50,854/- Taxable income as per this order --- Rs. 14,26,14,854/- Rounded off to --- Rs. 14,26,14,850/- 5. Against the aforesaid action of AO, the assessee preferred an appeal before the Ld. CIT(A) . Meanwhile, the Ld. Pr.CIT, Burdwan issued show cause notice u/s. 263 of the Act dated 18.02.2019 wherein he expressed his desire to exercise his revisionary jurisdiction against the aforesaid assessment order of AO dated 29.12.2016 on the following grounds (relevant portion of Show Cause Notice is reproduced): "Issue No. 1: At para 5 of assessment order, the AO had disallowed expenses incurred to the extent of Rs. 14,08,50,854/- towards purchase of paddy, which were held by him to be in violation of provisions of section 40A(3) of Income Tax. This disallowance was made by AO after considering submissions dated 28.12.2016 wherein it was stated by 6. Pursuant to the show cause notice as stated above, the assessee filed its objection before the Pr. CIT which is found placed at page 11 to 21 of the pap....
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....ish products; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products. Rule 6DD(k) of the Income tax Rules, 1962, reads as follows: (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." 8. The Ld. AR submitted that payments to suppliers amounting to Rs. 26,75,14,300/- in excess of Rs. 20,000/- per day falls under exception to Section 40A(3) of the Act by virtue of combined reading of Rule 6DD(e) and Rule 6DD(k) of the Rules as discussed in the preceding paras. Explaining the modus operandi, the Ld. AR submitted that these suppliers were mediators between assessee firm and the farmers and were acting as agents/Kaccha Arahitayas on behalf of the assessee firm in procuring the paddy directly from the farmers. The entire sum of Rs. 26,75,14,300/- paid in cash for purchase of paddy was made out of business expediency since the farmers residing in far flung villages/small towns do not accept cheque payments and insists for cash payments because the farmers had to pay immediately for groceries ....
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.... 71 Taxman 585 (Bom.); vii)Dawjee Dadabhoy & Co. Vs. S. P. Jain (1957) 31 ITR 872 (Cal) 9. Further explaining the facts, the Ld. AR submitted that the action of the AO in accepting part payment made by cash of the total amount of Rs. 26,75,14,300/- i.e. to the tune of Rs. 12,66,63,446/- not to be disallowed (Rs. 26,75,14,300/- - Rs. 14,08,50,854/- = Rs. 12,66,63,446/-) cannot be termed as erroneous in view of various judicial precedents cited above. According to Ld. Counsel, as per the Hon'ble Supreme Court's decision in Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) the twin conditions i.e. the AO's order should be erroneous as well as prejudicial to the interest of the Revenue should be satisfied, before the Pr CIT usurp the revisionary jurisdiction under section 263 of the Act. According to Ld. AR, every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the Revenue. According to him, the Hon'ble Supreme Court has clearly held that when the AO has adopted one of the course permissible in law and it has resulted in loss to the revenue, it cannot be treated as prejudicial to the interest of revenue; and wh....
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....t the assessee is engaged in the business of running of rice mill where it manufactures rice from paddy. It is noted that in this assessment year, the assessee firm has claimed gross turnover of Rs. 64,93,162,230/- and had purchased paddy for Rs. 63,33,84,264/-. During the assessment proceedings, the AO asked the assessee to furnish the details like name, complete address of the persons from whom assessee had purchased paddy. Pursuant to the same, the assessee furnished the details and the AO after going through the list of persons from whom it purchased the paddy and the ledger account of the said persons reflected in assessee's books of account, the AO noted that the assessee had made payments mostly by way of cash in excess of Rs. 20,000/- on a single day. Further, the AO also noted that certain payments were made by bearer cheques from its bank account held in Oriental Bank of Commerce, Burdwan. The AO noted that certain persons through whom payments were made were in excess of more than a crore. Taking note of this fact the AO observed that there cannot be any farmer who has land which can produce paddy worth more than a crore of rupees. Therefore, he asked the assessee to ....
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....ks of account maintained by the assessee in the regular course of business and has accepted the figures shown by the assessee in its books in respect of purchase of paddy. Though the assessee had claimed before the AO that it had purchased paddy through cheque (bearer) as well as cash from farmers as well as suppliers/agents/Arahitayas, and that said action of assessee is not hit by Sec. 40A(3) of the Act since the action of assessee falls in the ken of rule 6DD(e)(i) read along with Rule 6DD(k) has not been completely accepted by the AO. We note that AO called for explanation from assessee in respect of cash payment and after going through the explanations given by assessee on 16.12.2016 and 28.12.2016, the AO has restricted the disallowance to the tune of Rs. 14,08,50,854/- which part of payment in cash according to AO, did not qualify to get exception under Rule 6DD meaning after the AO raised his initial intention to disallow the entire cash payment to the tune of Rs. 26,75,14,300/- however after going through the replies of assessee dated 16.12.2016 and 28.12.2016 and after going through the ledger account and books of account of the assessee has accepted partly the claim o....
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....in the ken of rule 6DD(e)(i) as well as Rule 6DD(k). We note that even though the assessee explained the modus operandi to the AO, he accepted only certain written part of replies and has not bothered to appreciate the modus-operandi explained by Ld. AR of the assessee before him and has disallowed Rs. 14,08,50,854/- paid by the assessee to the suppliers/agent/Arahitayas. We note from a perusal of page 95 of the paper book, the ledger of Shri A. Biswas (one of the supplier/agent/Arahitayas) that the assessee had made a payment of cash to the tune of Rs. 11,70,000/- on various dates. Page 96 of paper book reveals the weighment of paddy in quintal from four different parties i.e. Dinabandhu Ghosh, Azizul Mallick, Haru Sarkar and Gopal Ghosh had shown that total quantity of 430 qntl is shown and separate amount of jalpani of Rs. 2332/- has been reflected which means Mr. A. Biswas (supplier) had collected from four farmers 430 qntl of paddy for a cash payment of Rs. 4,67,668/- and has made payments to them. It is also revealed that for his services rendered, the assessee had made payment of Rs. 2332/- (jalpani). Page 97 to 100 of paper book are weighment certificate issued by Shri Bish....
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....50/- Other Expenses 20.05.2013 WBSEDCL 10,49,537/- Electricity Bill enclosed at page 228-230 20.07.2013 Other Expenses 18,215/- Other Expenses 12.09.2013 Other Expenses 18,000/- Other Expenses 12/12/2013 Other Expenses 9,010/- Other Expenses Total 12,14,512/- According to ld. AR, the said difference was explained to the learned AO during assessment and since the difference was reconciled, no addition was made by him in this regard. 14. We note that in the order passed u/s 263 of the Act, it has been alleged that the issue of difference in purchases was not carefully examined by the Assessing Officer before allowing assessee's claim for purchases in the Purchase Ledger Account and that no query was raised by the AO in this regard which makes the order of AO erroneous. In this context, the Ld. AR submitted that during assessment, the AO noted the said difference and asked the Ld. AR of the assessee to explain the discrepancy. Accordingly, the Ld. AR of the assessee explained and reconciled the difference of Rs. 12, 14,512/- in the purchases A/c. It was explained before the AO that inadvertently a f....
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....ot be treated as a case of failure to enquire by AO. Be that as it may be, when the assessee replied to the SCN issued by the Ld. Pr. CIT about lack of enquiry by AO on this discrepancy to the tune of Rs. 12,14,512/- and when the assessee asserted that it was queried by the AO and the assessee had explained to the AO and reconciled the inadvertent error, the Ld. Pr. CIT ought to have called the AO to ascertain whether the assessee's explanation is correct or not i.e. the fact of enquiry by AO and assessee's explanation. In any way the assessee has explained the difference of Rs. 12,14,512/- to Ld. Pr. CIT and contended that certain allowable expenses has been inadvertently booked in the purchase, this fact as shown in the chart (supra) was before the ld. Pr. CIT, which goes on to show that certain allowable expenses have been inadvertently booked into the purchases which fact has not been found to be wrong or erroneous, so the second limb that the prejudicial to the interest of revenue is not satisfied. So, the twin conditions are not satisfied for invoking sec. 263 jurisdiction. In this regard we may gainfully refer to the Hon'ble Delhi High Court in the case of Commissioner of In....
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....se persons, who are not proved to be the producers of the paddy as such and those persons, (sundry creditors in present case), are only the traders or the brokers or any other middle man, by whatever name the assessee calls them in it's books of accounts. There is yet another aspect when one looks at ledger accounts of different sundry creditors as appearing in assessee's books of accounts, which have been referred in table above. From said table, it becomes amply clear that apart from making cash payments, those very sundry creditors, were also paid either from account number xxxx727 maintained by the assessee with Oriental Bank of commerce Burdwan or from account maintained with SBI, on number of occasions, so the reply of the tax payer that these suppliers are not habituated to take payment through bank, is not a convincing line of argument. 4.2 Based on data of above table, what was required to be disallowed under provision of section 40A (3) of the Act, was an amount of Rs. 26,75,14,300/-, but AO, because of wrong appreciation of facts and without making any enquiry whatsoever in respect of sundry creditor's ledger accounts, has disall....