TaxTMI 
TaxTMI 
2018 (4) TMI 1989
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.... petitioner had filed return of income on 23.09.2010, declaring total income of Rs.4.85 crores (rounded off). After first processing the return under section 143(1) of the Income Tax Act, 1961 ('the Act' for short) the same was taken in scrutiny. During such scrutiny assessment proceedings, the Assessing Officer examined the petitioner's purchases of cotton directly from farmers, for which, payments in cash were made even though the purchases exceeded Rs.20,000/­. The petitioner replied to the queries raised by the Assessing Officer with supporting materials. The Assessing Officer passed the order of assessment on 05.03.2013 and accepted the petitioner's income as returned making following observations: "2. In response to the said notices issued Shri Haresh Dadhania, CA from M/s. H. Jamnadas & Co., CAs. duly authorized representative of the assessee attended from time to time and furnished the details as called for. The books of account along with bills and vouchers were called for and examined on test check basis. The case was also discussed with him. 3. The assessee company is engaged in the business of Manufacturing of Cotton & Cotton Seeds ....
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.... (mainly raw cotton) which was running into crores of rupees every year for last 7 financial year. These were the purchases of mainly cotton which the assessee stated to have made directly from the farmers for which the company had issued self­made cash vouchers. Large number of vouchers recorded cash purchases of more than 3­4 lacs per voucher. Further the total quantum of cash URD purchases was huge for the 7 FY covered under the search whose FY­wise quantum was determined from the books of accounts seized/impounded during the search/survey and is as under Sr No FY URD Cash Purchases 1 2009­10 53,36,83,200 2 2010­11 151,87,07,315 3 2011­12 161,78,68,411 4 2012­13 136,81,27,130 5 2013­14 154,96,44,344 6 2014­15 210,96,25,006 7 2015­16 127,84,63,154 8 2016­17 57,44,97,384 Further it was found that assesse has claimed all these cash purchases exceeding Rs 20,000 as business expenses in light of the provisions of section 40A(3) rw Rule 60D(e). It is important to mention here that rule 6DD(e) grants immunity from the provisions of s....
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....after tallying the names in the URD purchases against the electoral records. On analysis of the data it emerges that out of the 794 URD purchase entries whose electoral records were retrieved, 484 names were non­existent in the respective villages which assessee had recorded against their names in its books of account. In percentage terms it can be stated that 61% of the purchase parties were non­verifiable from the electoral records of the respective villages. Hence the purchases made from these persons becomes doubtful and the claim of the assessee u/s 40A(3) rw Rule 6DD becomes further weak based on the outcome of this exercise for the concerned persons. It reveals a fabricated modus operandi wherein real net profit is concealed to give way to net profit which is abysmal. The NP ratio of assessee ranges from 0% to 2% from FY 2009­10 to FY 2015­16. t cannot be a prudent business practice in terms of return of income to show such less marginal NP. Investigation Wing Rajkot conducted further enquiry through Revenue Department granted access to the land records (Form No-7/12) of Saurashtra region. In this exercise the existence of land i....
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....ked for. After being satisfied about the genuineness of the purchases, the Assessing Officer passed the order of assessment. Any attempt on part of the Assessing Officer now to reassess such income would amount to change of opinion. II. Impugned notice has been issued beyond a period of four years from the end of relevant assessment year. There was no failure on the part of the assessee to disclose truly and fully all material facts. The notice is therefore bad in law. III. Counsel submitted that the Assessing Officer has proceeded on completely erroneous premises as can be seen from the reasons recorded. Further, the reopening of the assessment is based on conjectures and surmises. Notice has been issued for mere verification. Counsel submitted that failure on the part of the petitioner to produce large number of farmers before the Revenue authorities during the post survey inquires, would not enable the Assessing Officer to reopen the assessment. After a long period of time, the farmers would in any case be reluctant to appear before the authorities, particularly when their income being tax exempt, they had no stakes in the matter. 8. On the other hand, learn....
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....d full disclosure on the part of the assessee leading to income chargeable to tax escaping assessment would also arise. However, the question of true and full disclosures in a case like the present one would have a close link with the fresh or the additional material the Assessing Officer may have gathered after the assessment was completed. If the Assessing Officer is in a position to demonstrate that there is enough material available, prima­facie suggesting that the purchases were bogus and in the large number of cases, the farmers producers either did not exist or did not carry out agricultural activities of producing sufficient cotton to sell to the petitioner, the very foundation of the petitioner's disclosures would become shaky. However, when the Assessing Officer is seeking to reopen the assessment several years after the completion of the financial year and long number of years even after the completion of assessment proceedings, the nature of the material at his command with a limited purpose of ascertaining its existence, would certainly be called for. 10. In this context, we would have to refer to the material on record at some length. Before doing that, we ....
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....pancies. Land was not in the name of the person from whom purchases were made and the land record did not show cotton as the crop in some cases. (iv) The assessee could not produce PAN or returns of the sellers. (v) The election card details of the farmers did not match with the Government's official record in some cases. (vi) The net profit ratio of the assessee was very low. (vii) In large number of cases, the records were not verifiable. The farmers do not own lands in their names. The assessee could not satisfy these discrepancies. 09.04.18 12. In the objections raised as well as before us, the assessee has been contending that the reasons cited by the Assessing Officer were not valid. The assessee could not be expected to present the producers or growers of the cotton before the authorities several years after the purchases were made. Evidence shows that majority of the purchasers were owning lands. In some cases, the lands were in the names of the family members, that by itself, would not mean that the person from whom such produce was purchased was not a genuine producer. In India, the agricultural operations are often carried out b....