2023 (6) TMI 429 - AT - Income Tax

Disallowance of paddy purchase - purchases from Societies and Samathies - HELD THAT - The assessee, in the instant case, has, despite abundant opportunity, abysmally failed to prove the incurring of the impugned expenditure, with, rather, there being material on record disproving the same. It is under the circumstances not considered necessary to travel to the question as to whether the same is merited u/s. 40A(3) as well. The same, even as noted by the ld. CIT(A), does not in fact arise for consideration when the expenditure itself is held by the Revenue as not incurred; it being a non-obstante clause providing further stipulation for allowance of an expenditure incurred in cash or other than by way of legal tender. A bogus purchase implies no purchase, while verification w.r.t. s. 40A(3) necessarily implies a seller and a purchaser, i.e., a payer and payee, both of whom coalesce into one in case of a bogus claim. AO, as indeed the Tribunal, referring thereto is only as, without prejudice. The same, not unprecedented, is misplaced in the facts of the case where the basic record is missing; the assessee admitting to the sourcing details from Samathies who are stated to be not maintaining the records, where the supplier is abroad and/or does not have agricultural land. Continuing further, in this view of the matter, the partrelief allowed by the ld. CIT(A), being contested by the assessee per it s CO, also fails. The same, it may be appreciated, forming part of the question arising for determination in appeal, does not entail any separate examination and adjudication. Decided in favour of revenue.

Summary

Issues Involved:
1. Disallowance of Paddy Purchase Expenses.
2. Applicability of Section 40A(3) of the Income Tax Act, 1961.
3. Genuineness of Purchases and Maintenance of Records.

Summary:

1. Disallowance of Paddy Purchase Expenses:
The assessee, a partnership firm operating a rice mill, reported a returned income of Rs. 71,15,290 but was assessed at Rs. 624.35 lacs due to the disallowance of Rs. 553.20 lacs in paddy purchases. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance to the extent of Rs. 16.14 lacs, leading to appeals by both the assessee and the Revenue.

2. Applicability of Section 40A(3) of the Income Tax Act, 1961:
The Revenue argued that the assessee's purchases were unsubstantiated and that the relief granted by the CIT(A) was unwarranted. The assessment order indicated that the purchases claimed by the assessee were not genuine and should be disallowed under Section 40A(3). However, the CIT(A) found the AO's application of Section 40A(3) contradictory because if the purchases were not genuine, Section 40A(3) would not apply. The Tribunal clarified that the AO's principal case was about the expenditure being not genuine under Section 37(1), with Section 40A(3) referenced without prejudice.

3. Genuineness of Purchases and Maintenance of Records:
The Tribunal found that the assessee failed to provide evidence supporting its claim for paddy purchases. The AO's investigation revealed that many farmers denied selling paddy to the assessee, and the Padasekhara Samathies and Societies also denied facilitating such purchases. The Tribunal observed that the assessee did not maintain proper records or provide necessary documentation such as weighment slips, test reports, or receipts. The Tribunal concluded that the assessee's claim was unsubstantiated and upheld the AO's disallowance of Rs. 553.20 lacs, while dismissing the assessee's cross-objection.

Conclusion:
The Tribunal allowed the Revenue's appeal and dismissed the assessee's cross-objection, emphasizing the lack of evidence and proper documentation to substantiate the assessee's claims for paddy purchases.