TaxTMI 
TaxTMI 
2024 (6) TMI 1526
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....CIT(A) was not justified in confirming the disallowance of Rs. 6,57,00,396/- made by the A.O on account of cash purchases of raw jute by wrongly invoking the provisions of sec. 40A(3) of the Act. 3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition of Rs. 4,36,64,676/- made by the A.O. on account of alleged bogus creditors. 4. (a) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of alleged bogus purchase to the extent of Rs. 84,789/- being 8% of the total purchase of Rs. 10,59,861/- made from Smt. Anima Roy. (b) For that on the facts and in the circumstances of the case, the Ld. CIT(A) ought to have deleted the entire disallowance of Rs. 10,59,861/- made by the A.O. on account of alleged bogus purchases made from Smt. Anima Roy. 5. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Rs. 44,459/- made by the A.O. on account of Employees' contribution to Provident Fund by wrongly invoking the provisions of sec.36(1)(va) r.w.s 2(....
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....idering the statement and explanations furnished by the assessee, the Assessing Officer pointed out the following discrepancies: "a) For parties at Sl. No. 69 and 70, the assessee has informed in the party-wise details submitted that they are two persons, staying at different places. But a single ledger has been maintained for these two parties, as found from the ledger copy submitted. Sri Saboo was asked specifically (Q. No. 43) how the assessee can recognize the parties with the first name only. He replied that the assessee can recognize. But in respect of parties at SI. No. 69 & 70, the assessee could not recognize the parties even with the full name also, while these persons stay at different places. b) It is surprising to note that the assessee treated the parties mentioned under SI. No. 4, 62, 75, who are not individuals, as farmers/ growers and claimed that cash purchases from these parties also do not attract provisions of section 40A(3) of the I. T. Act, 1961. c) In respect of party at Sl. No. 77, the amount of purchase mentioned in party-wise list does not tally with the ledger account submitted. d) The total amount of cash purchases an....
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....te here that "raw jute is beyond doubt a produce and considering the nature of produce the assessee was forced to 'make payments in cash. Please appreciate that any unreasonable / imaginary restriction imposed by the department will force the businessmen dealing in such produce to close shop, which will rob the Iivelihood of the poor farmers and also the employees of such businesses. Copy of the submissions is annexed herewith and marked as Annexure: 'D'. (b) During the course of assessment proceedings, the Ld. A.O. further doubted the genuinity of transactions relating to such cash purchases. In this regard, the assessee submitted as under "It is a common practice in the jute industry to purchase raw jute from the farmers against cash payments. The farmers assemble at the business place of the buyers carrying raw jute and deliver the same to the buyers. Since the farmers usually do not have any bank account, payments in respect of such purchases of jute are made in cash. In support of the above contention, the assessee submitted a certificate from the Jute Balers Association before the A.O. (copy annexed and marked as Annexure: '....
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....nd genuineness of the parties and also its claim of purchases by cash, directly from farmers/ growers of cultivators. In this regard, it is humbly submitted that as per sub clause (e) of Rule 6DD where the payment is made for the purpose of agricultural and forest produce, no disallowance u/s. 40A(3) can be made. Since, raw jute is an agricultural produce, the assessee is entitled to claim exemption under Rule 6DD. Further, the assessee furnished the following documents / records in support of the genuinity of above-mentioned cash purchases - (i) Party wise details of purchases (ii) Purchase Register (ii) Stock Register (iv) Cash Book and Bank Book showing withdrawals from bank and payment to parties (v) GRNs mentioning details of raw jute purchased, which also mentions vehicle no. of the vehicle through which the goods were brought to the assessee's place. (vi) Xerox copy of register maintained at the place of procurement commonly known as jetty (vii) Xerox copy of tokens evidencing delivery of raw jute as well as subsequent receipt of payment by the raw jute suppliers. Further, as to the non-avai....
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....7 the amount of purchase mentioned in party -wise list does not tally with the ledger account submitted. In this regard, it is humbly submitted that in the details/ of purchase of raw jutes from farmers at Kankinara a sum of Rs. 12,31,234/- was shown in the name of Subal Mondal. The assessee maintained two ledger accounts in the name of Subal Mondal showing purchases of Rs. 9,33,790/- and 2,97,344/- separately. At the time of assessment proceedings the ld. AO only considered the ledger account of purchase of Rs. 9,33,790/ -. Copies of the ledger accounts of Subal Mondal are annexed herewith and marked as Annexure 'G'. (iv) The total amount of cash purchases and the C losing Balance as on 31.03.2012 mentioned in the party - wise list and audited accounts do not tally with the ledger accounts submitted. In respect of alleged discrepancies in the closing balance as on 31.03.2012, it is humbly submitted that the said difference is reconciled hereunder- Total of closing balance as on 31.03.2012 as per ledger (at page 19 of the Assessing Order) 4,46,53,247/- Less: Mistake was committed at the time of totalling 8,31,190/- Actual total shou....
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....token is given. The original cash token is received back when the payment is made. The ld. Counsel for the assessee, in this respect, has referred to pages 103 to 116 of the paper-book to submit that the date-wise details of the purchases were duly recorded by the assessee along with date, name of the farmer, name of the village, the quantity of purchase and amount paid/payable, which were duly furnished before the lower authorities. The ld. Counsel has further referred to page 118 of the paper-book, which is certificate of Jute Balers' Association, whereby, it has been certified that it is a common practice in the jute trade to purchase raw jute from the farmers against cash payments. That the farmers carry and deliver the same at the business place of the buyer. The ld. Counsel has further submitted that even the statement of Shri S.R. Saboo was also recorded, wherein, Shri Saboo duly explained the entire process of purchasing of raw jute by making cash payments to the farmers. The ld. Counsel has submitted that the Assessing Officer could not bring out any discrepancy in the statement of Shri Saboo. He has further submitted that the case of the assessee duly falls within ....
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....ct of cash purchases from the farmer. The assessee has also relied upon certificate of Jute Balers' Association in this respect, whereby, they have certified that that this is the common practice in the jute trade to purchase raw jute from the farmers against cash payments and that the farmers carry and deliver the raw jute at the business premises of the buyer. Shri S.R. Saboo, G.M. Purchase of the assessee company, was cross-examined by the Assessing Officer at length. The relevant questions put to him, referred to by both the ld. Representatives of the parties, are question nos.5,7, 15 & 16, which along with answers of Mr. Saboo, for the sake of ready reference, are reproduced as under: "Q5. Please inform the details of purchase activity of raw jute in respect of M/ s. Gunny Dealers Lid. Ans. There are 2-3 types of purchases, cash payment purchase, directly linked with growers and cultivators and farmers of different areas of West Bengal. But we are more or less specially focused on nearby cultivated areas of mill premises within radius of 50 kms. from mill location. Secondly, directly purchase of raw jute at Kolkata market from different brokers/sellers on....
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....from the farmers taken at the mill premises and all the purchase material was kept separate till the settlement with the growers, farmers etc. That after proper assortment and gradation of raw jute, the rates were finalized and then the payments were made. It had also been explained that a cash token to the concerned farmers/growers was given and after making payment, the original token was received back. The complete list with the name of the farmer/grower, name of the village, vehicle no. etc. was furnished before the Assessing Officer. The Assessing Officer, however, noted certain discrepancies in the list. The Assessing Officer noted that at serial no. 69 & 70, the name of two persons was mentioned staying at different places, however, a single ledger has been maintained for these two parties. Further the Assessing Officer noted that parties mentioned at serial no. 4,6,62 & 75 were not individual farmers and growers and therefore, they were not covered within the exception as provided Rule 6DD of the Rules. It has been further pointed out that in respect of party at serial no. 77, the amount of purchases mentioned in the party- wise list did not tally with the ledger account su....
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....o prove the genuineness of the transaction, the Assessing Officer has made a chart mentioning the details of the documents and the comments of the Assessing Officer thereupon, which, for the sake of ready reference, is reproduced as under: Sl. No. Documents Submitted Observation/ Deficiencies 1 Party wise details of Purchases The Details doesn't contain the complete name address or any evidence to prove that the purchases were made from farmers. 2 Purchase Register The Details doesn't contain any evidence to prove that the purchases being made from genuine farmers. 3 Stock Register The Stock Register cannot be treated as an evidence for the purchases were being made from genuine farmers. 4 Cash Book and Bank Book showing withdrawals from Bank and Payment On the basis of Cash and Bank Book, it is very difficult to justify for the payments were being made to the farmers. 5 GRN mentioning details of raw jute purchased, which also mentions vehicle no. through which the goods were brought to the Assessee's Place In the statement recorded during the Assessment proceedings, G.M of the Company had already confirmed in statem....
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....e Assessing Officer has not disputed the applicability of Rule 6DD in this case on the ground that the raw jute crop was not an agricultural produce. However, his sole contention is in the assessment order is that the assessee had failed to prove the identity of the farmers and genuineness of the transaction. In this respect, it is to be observed that the assessee has not only furnished the details with name of farmers and their villages but also has furnished their vehicle no. The assessee has furnished the details of as many as 87 farmers. The only contention of the Assessing Officer is that these details do not contain complete address of the parties. It is commonly observed that generally in small villages, the persons are identified by their name/father's name only. The assessee has furnished the name of 87 persons along with their name of village and vehicle no. It has also mentioned in the assessment order that the Assessing Officer has also served notices u/s 133(6) of the Act to some of the persons. However, it is not the case of the Assessing Officer that the persons with the above name and vehicle no. as furnished by the assessee were not residing in the villages men....
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....ty could have been examined by the Assessing Officer. Even the Assessing Officer asked Mr. Saboo regarding the transportation cost to which he specifically stated that the concerned supplier/seller bears the transportation cost and that they are purchasing the material on mill landing basis rates. Considering the above replies of the assessee and there is no rebuttal on the part of the Assessing Officer that the jute is not purchased from any market and further if the assessee could have purchased the jute from market, it would have also booked/claimed transport cost but no such transport expenses have ever been claimed by the assessee. There is not any single iota of evidence on file that the assessee has made the aforesaid purchases from some other party/parties. Even, the sales have not been doubted by the Assessing Officer. The Assessing Officer himself has mentioned that there cannot be sales without purchases. Therefore, the genuineness of the purchases has also been not been doubted by the Assessing Officer. The assessee had duly furnished the details and documents, which were available with the Assessing Officer regarding the identity of farmers/producers and the Assessing ....
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....ee is not benefited in any manner, in making the cash purchases. The purpose of disallowance u/s 40A(3) is that the income of the recipient should not escape from taxation, therefore, a statutory obligation is cast upon the payer not to make payment above threshold limit of Rs. 10,000/- in cash, failing which the disallowance of expenditure would occur in the case of payer. In the case in hand, the assessee has duly explained that the payments were made to the farmers and that the farmers insisted on cash payments and further the payment for the produce falls in the exception clause as carved out in Rule 6DD of the Rules. 8.3 At this stage, it will be relevant to reproduce the relevant part of the provisions of Rule 6DD of the Income Tax Rules, 1962: "6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account 2[account payee bank draft or use of electronic clearing system through a bank account or thro....
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....no more an agricultural produce. Moreover, it has not been doubted by the Assessing Officer that the assessee had purchased raw jute, the term 'raw jute' itself means that it is the raw crop which is brought by the farmers/producers, at the factory premises of the assessee. This observation of the CIT(A) stating that the crop brought by the farmers/producers was no more an agricultural produce, is not tenable and the same is rejected. In view of this, the raw jute produce by the assessee duly comes within the exception carved out in section 6DD(e)(i). 8.6 In view of this, the Ground No.2 of the appeal is partly allowed in favour of the assessee and the disallowance made/confirmed by the lower authorities on this issue is confirmed to the extent of cash payments made to three parties mentioned at Serial No. 4 (Rs. 157482/- ) Sr. No. 62 (Rs. 199642/-) & Sr. No. 75 (Rs. 662425/-) of the list as reproduced in the assessment order. The disallowance in respect of remaining parties is ordered to be deleted. 9. Ground No. 3 - Vide Ground No. 3, the assessee has agitated against the confirmation of addition of Rs. 4,36,64,676/- made by the Assessing Officer on account of alleg....