2022 (3) TMI 1245 - HC - Income Tax

Addition u/s 69C read with Section 40A (3) - Whether ITAT was not justified in law in allowing relief to the assessee overlooking the fact that the purchases shown under the head Milk Purchase Tanki were made through the traders (other than farmers) in cash which was not covered under Rule 6DD read with Section 40A (3)? - HELD THAT - ITAT after considering the entire material on record and submissions of the parties, inter alia, held that the purchases under the head tanki have been duly recorded in the books of account and is reflected in the audited financial statements. The total purchases including Milk Tanki purchases have been debited to the profit and loss account and the entire source of purchases are duly recorded in the books of account thus source of such purchase/expenditure stands established as having been incurred out of the funds shown in the books of account. ITAT further held that therefore at the threshold, addition u/s 69C cannot be resorted to - ITAT further inter alia held that the nature of business of the assessee and modus operandi for milk tanki purchases has to be understood. ITAT noted that since the purchase of such a huge quantity of milk is from a large number of farmers and individuals, it is very difficult to make an individual account of each and every farmer who comes from nearby villages with their milk production to the assessee's factories to sell their milk. Tribunal acknowledged the fact that the assessee keeps the records of the person/farmer of each village who collects all the milk and send the same to the assessee's factory and common entry of purchase in the books of account is made in order to avoid multiple of hundreds of ledgers. The tribunal has also noted in the order that the assessee duly maintains other records i.e. when the milk is received at the factory gate, its weight/ quantity is taken and is then tested for quality; a quality slip is generated which contains the details of the milk including gross weight/ net weight, temperature, test, acidity contents, etc. The purchase invoices are also duly generated based on the weight and quality brought by the farmers and then payment is released to the farmers substantially in cash for which detailed reasons have been given. The tribunal noted that the quantity of purchase of the milk procured is again put to laboratory testing and there are test reports which are then sent for processing and are entered in the process. The assessee also duly maintains the stock register, sale register and the assessee had duly filed the supporting documents. Before proceeding further, it is necessary to examine the scope of 260A of the Act. Section 260A of the Act provides for an appeal to the High Court against a decision of ITAT. Sub-Section (1) of Section 260A of the Act provides for an appeal against the order of the Tribunal only on a substantial question of law. A bare perusal of Section 260A of the Income Tax Act makes it clear that the appeal is permissible in the High Court only if there involves a substantial question of law. The necessary corollary of Section 260A would be that the Income Tax Appellate Tribunal is the final arbiter of facts. The appeal before the High Court would be entertained only if it involves a substantial question of law. The object and purpose of establishing the ITAT would be defeated if the facts are agitated before the High Court also

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding addition of sum under Section 69C read with Section 40A(3) of Income Tax Act, 1961 for bogus purchase of "Tanki Milk" purchase.

Analysis:
1. Challenge to ITAT Order: The Principal Commissioner of Income Tax challenged the ITAT's decision to delete the addition of ?23,03,77,859 made by the Assessing Officer under Section 69C read with Section 40A(3) of the Act. The appellant contended that the ITAT erred in allowing relief to the assessee for purchases made in cash from traders under the head "Milk Purchase Tanki," which violated Rule 6DD of Income Tax Rules, 1962. The appellant argued that the purchases were not genuine as the identity and addresses of Tanki traders were not provided by the assessee.

2. Assessing Officer's Findings: The Assessing Officer found the purchases to be unverifiable due to the lack of information on Tanki traders. The purchases made in cash, exceeding ?20,000, were considered a violation of Section 40A(3) of the Act. Consequently, the Assessing Officer added the amount as a bogus purchase under Section 69C of the Act, along with provisions of Section 40A(3).

3. CIT (A) and ITAT Decisions: The CIT (A) upheld the Assessing Officer's addition, stating that the assessee failed to establish the bonafides of the purchases. However, the ITAT overturned this decision, noting that the purchases were duly recorded in the books of account and reflected in audited financial statements. The ITAT emphasized that the source of purchases was established through recorded transactions and the nature of the assessee's business model for milk tanki purchases.

4. Scope of Section 260A: The judgment discussed the scope of Section 260A of the Act, emphasizing that the High Court can only entertain appeals involving substantial questions of law. The ITAT's findings of fact are considered final unless they are irrational, perverse, or lack evidence. The Court highlighted the limited jurisdiction of the High Court to interfere with the Tribunal's factual determinations.

5. Final Decision: Upon review, the High Court found no perversity or manifest error in the ITAT's order. The Court concluded that the ITAT's factual findings were based on the evidence presented, and there was no substantial question of law warranting interference. Therefore, the appeal was dismissed, upholding the ITAT's decision regarding the addition of the sum related to the "Tanki Milk" purchase.