2022 (12) TMI 29 - AT - Income Tax

Disallowance u/s 40A(3) - purchase of sugarcane in cash - assessee made purchases from farmers of their agricultural produce - As argued AO grossly erred in law and on facts for applying provisions of Section 40A(3) read with Rule 5DD(j) - HELD THAT - In the light of specific exception provided under Rule 6DD(e) in respect of agricultural produce, since the assessee made purchases of sugarcane, which is essentially an agricultural produce, coupled with the fact that Revenue has earlier accepted this claim of the assessee, we therefore, do not see any infirmity into the impugned order. Same is hereby sustained. This ground of Revenue s appeal is dismissed. Addition u/s 68 - assessee in this case has failed to provide the genuineness of the transaction and creditworthiness of the lender from whom loans were received - CIT-A deleted the addition - HELD THAT - CIT(Appeals) has categorically recorded that the amount of unsecured loan during the relevant financial year was received in the earlier financial year and was disclosed in the relevant balance-sheet as such. The ground raised by the Revenue thus lacks merit and is dismissed.

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Deletion of addition under Section 40A(3) of the Income-tax Act.
3. Deletion of addition under Section 68 of the Income-tax Act.

Detailed Analysis:

1. Legality of the CIT(A)'s Order:
The first ground of appeal by the Revenue is general in nature and does not require separate adjudication.

2. Deletion of Addition under Section 40A(3):
The second ground of appeal concerns the deletion of an addition of Rs. 180,82,22,234/- made by the Assessing Officer (AO) under Section 40A(3) of the Income-tax Act. The AO had made this addition on the basis that the assessee made cash purchases exceeding the limit prescribed, without supporting the transactions with bank statements, bills, or vouchers, and by invoking CBDT Circular No. 220 dated 31.05.1977.

The CIT(A) deleted this addition, noting that the assessee made purchases from farmers of their agricultural produce, which falls under the exceptions provided in Rule 6DD(e) of the Income-tax Rules, 1962. Rule 6DD(e) exempts payments made for the purchase of agricultural produce directly from the cultivator, grower, or producer from the disallowance under Section 40A(3).

The Tribunal upheld the CIT(A)'s decision, emphasizing that the specific exception under Rule 6DD(e) applies to the assessee's case, as the purchases were of sugarcane, an agricultural produce. The Tribunal found no infirmity in the CIT(A)'s order and dismissed this ground of the Revenue's appeal.

3. Deletion of Addition under Section 68:
The third ground of appeal addresses the deletion of an addition of Rs. 40,99,90,801/- made by the AO under Section 68 of the Income-tax Act. The AO had added this amount, alleging that the assessee failed to prove the genuineness of the transaction and the creditworthiness of the lender.

The CIT(A) found that the impugned loan amount was not taken during the assessment year in question but was a carry-forward from previous years, as reflected in the assessee's audited balance sheets. The CIT(A) noted that the assessee had provided details regarding the unsecured loans at both the appellate and assessment stages, which were not freshly taken during the relevant financial year.

The Tribunal agreed with the CIT(A)'s findings, noting that the Revenue did not provide any contrary material to dispute the facts. The Tribunal held that since the unsecured loan was received in earlier financial years and disclosed in the relevant balance sheets, it does not fall under the purview of Section 68 for the assessment year in question. Consequently, this ground of the Revenue's appeal was also dismissed.

Conclusion:
The Tribunal dismissed the Revenue's appeal in its entirety, upholding the CIT(A)'s order that deleted the additions made under Sections 40A(3) and 68 of the Income-tax Act. The order was pronounced in open court on 28th Nov. 2022.

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