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2023 (6) TMI 429
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....rchase, upheld in first appeal to the extent of Rs. 16.14 lacs, so that both the assessee and the Revenue are in second appeal, i.e., qua Rs. 16.14 lacs (per Cross Objection - CO) and Rs. 537.06 lacs respectively. 3.1 Before us, the Revenue's case, reading out the relevant part of the assessment and the appellate order, reading as under, was that the assessee's case remains wholly unsubstantiated, and the relief allowed by the first appellate authority is, in the facts and circumstances of the case, wholly unwarranted: The assessment order: '3. The following points emerge from the above discussions. 3.1. The list of purchase furnished by the assessee does not conclusively prove that the contents in them represent the actual purchases made by the assessee during the Previous Year. The number of letters returned un-served raises serious doubts over the correctness of the list furnished as the purchase details. 3.2. The assessee has a contract with the Kerala State Civil Supplies Corporation, commonly known as Supplyco. According to this contract the assessee has to receive paddy from farmers as per allotment, transport, store, parboil, mill pack....
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....s directly by its agents. When the process of verification with the farmers did not help the assessee's stand it took the stand that the purchases were made with the assistance of Padasekhara Samathies and Societies. 3.8. The assessee has made cash payments for the purchases and claims that the money was paid through the Padasekhara Samathies and Societies. Three of the Padasekhara Samathies i.e. M/s Nandyattukari Padasekhara Samathi, Thenkarapacha Padasekhara Samathi and Thengupallikkarii Padasekhara Samathi, with whom verifications were made, have denied having made any supplies to the assessee or having assisted the assessee in procuring paddy through its members. One of the Societies M/s. Adat Farmers SBC with whom the assessee claimed to have made purchases have also denied making any sales to the assessee. A registered Co-op. society cannot accept cash unrecorded in its books. With the three Padasekhara Samathies and one society denying having made the sale or assisting the assessee making the purchase from its members the assessee has failed to identify from whom these purchases were made, nor could produce any receipt for having made the payment. The assessee a....
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....submission of the appellant. The appellant is a partnership firm and operates a rice mill. Its main business is to procure paddy and convert it to rice, before selling them. Just after the harvest, procurement of paddy is started. During the year under consideration, the appellant showed purchase worth Rs.68,01,32,694/- and out of this purchase worth Rs.15,95,46,806/- was claimed to have been made from unregistered dealers. During the course of assessment proceedings, the A.O. decided to investigate purchases from unregistered dealers. The AO directed the assessee to furnish details of purchases made from unregistered dealers. According to the AO, the assessee furnished details running into 514 pages containing names of 8503 persons. On random basis, the AO sent letters to 200 people out of the list. The letters came back unserved in respect of 78 of such people. Out of the balance, 39 people responded and only five of them confirmed to have made sale to the assessee. The AO has mentioned the responses of the people in the assessment order. Subsequently, another 12 people responded. The AO forwarded the detail of his inquiry to the assessee for assessee's response. In reply, th....
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....bsp; Rs.5,53,20,069.00 The assessee failed to identify the persons to whom payment of cash to the extent of Rs. 5,53,20,069/- was. made during the year for purchase of paddy. "Therefore the purchases are treated as not genuine and the claim of expenses of Rs. 5,53,20,069/- is disallowed ." On going through the assessment order and submission of the appellant, I realise that the AO has not understood the nature of assessee's business, nature of purchase of transaction carried on by him and therefore conducted incorrect investigation, received irrelevant information and ultimately reached untenable conclusion. The assessee operates a rice mill. The assessee is a partnership firm by the name M/s. Diamond Food Products, but the name of the rice mill is "Pavizham Mill". Most of the farmers known the assessee by the name of the Mill and not by the name of firm. Obviously, on being asked, whether the farmers have done any transaction with M/s. Diamond Food products, their reply would be in negative. At or towards the end of the harvesting season, the employees or agents of the assessee set out to procure paddy for the Mill. They come to the designated pla....
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....ucted by the AO was based on wrong premise, he also reached on wrong conclusion. The AO further drew wrong conclusion by saying on one hand that purchases amounting to Rs. 5,53,20,069/- are not genuine and then making disallowance u/s. 40A(3). Disallowance u/s. 40A(3) is made when payments in excess of Rs.20,000/- is made. These two statements are contradictory to each other. If the payments are not genuine and the purchases are fictitious, no question for disallowance u/s. 40A(3) arises. This fact displays the confused state of mind of the AO. The cash book was produced before the AO during assessment proceedings, but the AO has not pointed to a single instance where payment of more than Rs.20,000/- was made in cash to any of the individual seller/farmer. Clearly, the AO has assured that payment of Rs.20,000/- or more has been made in cash to individual farmers in respect of amount of Rs.5,53,20,069/-. Additions, based on wrong premises, wrong facts, assumptions and presumptions cannot be sustained. Having said this, this is also a fact that wherein cash payment is involved, in absence of any third-party evidence, the authenticity of purchase pricing cannot be vouched for....
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....s of or explains the assessee's CO. The denial of purchase transactions by the Samithies and Societies, relied upon by the AO, is for the reason that the purchases have not been routed through their books. There is, as such, no basis for them to have endorsed the transactions carried through their agency. They are in fact only facilitators, representing essentially the interest of farmers, enabling them to fetch good bargain for their produce. The sale by the farmers is only against cash. The non-identified sellers, referred to by the AO, are therefore only the farmers. There is, therefore, nothing to doubt the purchases. The part confirmation thereof by the ld. CIT(A), is, thus, also without merit and, in any case, be restricted to Rs. 0.10 per kg, i.e., the average price differential between the registered and unregistered purchasers. 2.3 On being queried by the Bench as to the absence of any evidence, Shri Pandalai would submit that the same is perforce the circumstances of the case. The transactions attract no tax under the Kerala Sales Tax Law. No bills are raised or expected from the farmers, who merely receives payment in cash against the paddy sold, which is, accor....
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....grave;-vis the first appellate authority, raising the following grounds before him: '1. The order of the assessing authority insofar as it is prejudicial to the appellant is opposed to law, facts and circumstances of the case. 2. The A.O. erred in disallowing a sum of Rs. 5,53,20,069 under section 40A(3) of the I.T. Act, 1961. The disallowance is arbitrary, illegal and against the fact and law. Hence the addition is liable to be deleted, and pray for the same.' Gd. 1 being general in nature, the disallowance was thus objected principally on, contrary to facts, the ground of invocation and application of s. 40A(3) of the Act, claiming the AO to be in two minds, i.e., as to the applicable provision of law. Having accepted the genuineness of the cash purchases, it was argued, he applied s. 40A(3), without the conditions for the same being satisfied. That is, before the ld. CIT(A), the assessee's case rested largely on the non-applicability of section 40A(3), reading as under: '(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn....
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.... assessee's books of account, particularly stock records, so that there could be in law no disallowance u/s. 37(1). We find the argument as mistaken, both on facts and in law. There is, firstly, nothing in law that prevents the assessing authority to disallow a claim of deductibility of business expenditure on account of it being not proved unless, as stated, he also rejects the books of account of the assessee as unreliable, so that the operating results of the assessee's business for the relevant year are to be itself, rejecting the books results, estimated on the basis of the material gathered by the AO, of course, upon duly confronting the assessee therewith where, as in the instant case, he joins the proceedings. The present is a case of, in contradistinction, a specific disallowance qua the assessee's purchases of paddy for the year at Rs. 6801.33 lacs, at Rs. 553.20 lacs. 3.4 The burden in law to prove it's return, as well as the claims preferred thereby, is on the assessee (CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC); Lakshmiratan Cotton Mills Co. v. CIT [1969] 73 ITR 634 (SC)). It cannot be otherwise, as it is only the assessee who has 'incurred' the expend....
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....say that it does not have or maintain details thereof. In fact, even here, it, while explaining it's modus operandi qua purchase, clearly states, in contradistinction, of its employees and agents- without of course specifying of their names, contacting the farmers to purchase their produce, also negotiating the rate/s. This is a clear contradiction, nowhere explained, in respect of the manner of purchase, i.e., a primary fact; quizzical to say the least, with, further, neither claim being substantiated. (refer para 3.7 of the assessment order) 3.6 We shall, nevertheless, consider either scenario. If the payment is made direct to the Samathies, even if in cash, for the purchases made over a period, the daily amount remitted or disbursed would be duly reported by it's office bearers/ representatives, with, rather, the details of the farmers and the respective amounts (if not also along with quantity and rate), bearing also their (farmer's) signatures, as also retaining a copy thereof, with the original being with the assessee-firm, for and whose behalf it is. This is as only this would discharge the assessee of the obligation in respect of the said purchases and, further, en....
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....ansaction attracting no charge. We state so as the Samathy, admittedly involved in the transaction, would have costs associated with it, which would stand to be recovered only from the parties to the transaction. The same are akin to the Agricultural Market Committees (AMCs), prevalent through-out the country. Be that as it may, weighment slip, and test report, determining the quantity and quality respectively of the goods being traded in, besides entailing incidental costs of the transaction, would surely stand to be generated. How else, one may ask, is the paddy quantified? To no answer by Sh. Pandalai, on being queried in the matter during hearing. Both the claim of no transaction cost as well as absence of any document being generated, is incorrect. No query was made during hearing in respect of test report, as it is only now, while perusing the material on record, that it transpires that the purchase directly from the farmers, i.e., as against through the State Agency, Supplyco, is made only in respect of paddy which does not conform to the prescribed moisture; impurity and chaff levels. The same would therefore necessarily require being determined, only whereupon would the ra....
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.... relevant previous year, being fy 2012-13, at an aggregate of rs.327.50 lacs. Now, how could that be inasmuch as the purchases, duly recorded in the assessee's accounts - stated by it to be old record, would simultaneously reveal the quantum from each, i.e., as in the case of Samathies? Rather, all that it was required to, was to produce confirmations therefrom, validating the information culled from it's accounts; again, not furnished, seeking time on the plea of it being 'old records'. Needless to add, no improvement in it's case stands made at the appellate stage. Coming back to self-made vouchers - not produced at any stage, on the strength of which the claim of purchases is made, we doubt, and neither is there any claim that the same contain the name and address and signature of the 'farmer', leave alone his identity verified. We state so as the assessee would not have, in that case, stated of it not maintaining any details inasmuch as the purchases are through the samathies and societies. Not only is the assessee's claim without any record, much less reliable, it fails to explain its absence. It is only where record is made available that the same could be subject to verifica....
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....ng to AY 2014-15). How, one wonders, is the same relevant, even as questioned by the AO? This denial remains unrebutted. The assessee's claim that there were two administrative committees of the said Society, and the purchases may have been made from the one other than who disclaimed, is neither here nor there. There is, firstly, nothing to exhibit the fact of two Committees, which is paradoxical. There is no mention of the names of the two Committees and, in any case, the explanation would make sense if the Society had confirmed the sales, clarifying the earlier denial as wrong; having been given by another Committee. The same in fact is not understood as, even as the AO states, the Society would nevertheless be maintaining a single set of accounts, only w.r.t. which the sales, if any, could be confirmed, which has been not. There is thus no evidence on record qua the purchases from the Societies, even the break-up of which, much less confirmations therefrom, is not furnished at any stage. As regards Samathies, there is again a specific denial, as against an absence of any positive material evidences the purchases therefrom - which extends to all, by each of the 3 Samathies. Again....
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....ibunal is necessarily to go by, and base its findings of fact/s on, the material on record. In that case, a similar argument, on the purchase being disproved and the claim in its respect found not genuine, found, in view of the quantity reconciliation, favour with the Tribunal, which opined that if not from the parties from whom it is so claimed, purchases would have been made by the assessee from others, for whatever reasons. This was squarely rejected by the Hon'ble Court as impermissible, stating that it was not open for the Tribunal to speculate qua matters not borne out by the record. The said decision, as its reading would show, is an application of several decisions by the Apex Court, which also find reference herein while discussing the law in the matter (para 3.4), exhorting the Tribunal as the final fact-finding authority, to necessarily base it's factual findings on the relevant material on record and, further, by considering the entirety of facts and circumstances of the case. Reliance by the assessee, not specifically made before us, though we find as included in it's compilation, on Steel Line (India) (in ITA Nos. 880-882, 1321-1323/Mum/2016, dated 29/8/2017), wou....
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....ould stand to increase by rs. 553.20 lacs, i.e., to rs. 1308 lacs, or to 16.34%, i.e., increases by 6.91%. This inference is, again, only with a view to complete the argument, and no further. The source of the funds, if any, involved in the purchases made in lieu of the impugned purchases, assuming so, i.e., going by the logic of the argument presented, may not necessarily be the funds debited in accounts by way of cash purchases for the year, and neither is the Revenue under an obligation to locate the same. We have also stated that the correspondence with sales is, again, not warranted in wake of purchases being found not genuine; it only signifying an admitted income, and it is for the assessee to exhibit circulation of funds. It is for this reason that even where the book results are completely rejected, estimating the profit of the business, if not also its turnover, an addition for unexplained credit u/s. 68 would survive unless the source of the funds is shown by the assessee to be the secreted profits of the business, kept outside books, since estimated and being brought to tax (refer: Kale Khan Mohd. Hanif vs. CIT [1963] 50 ITR 1 (SC); CIT v. (M.) Ganpathi Mudaliar [1964] ....
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....er, to issue Form 8E in respect of sales by him, copy of which is to be retained by the purchaser, admittedly not issued (refer para 2.17(d) of the assessment order), stand rebutted. The same, to our mind, has two consequences. One, it effectively disproves the assessee's claim, i.e., in contradistinction to it being unproved, even as the latter is itself sufficient in law to effect a disallowance. Two, it clarifies the extent to which the disallowance is made. That is, even as the broad findings qua the purchases from unregistered dealers, not dislodged, are definite and appropriate, the disallowance finally made is in respect of purchases from Societies and Samathies, in face of specific denial by them, supported by denial by majority of the responding farmers themselves. The plea of the absence of accounts with them as the reason for denial, is again a false plea inasmuch as they have denied any purchases through them. The assessee, who does not have even the basic documents of the purchase; it failing to furnish even the date-wise detail of purchases, has misled at every stage, furnishing the farmer details of supplies to Supplyco, as well as of purchases for the following year....