2017 (10) TMI 597 - HC - Income Tax

Addition u/s 40A - Cash purchase - Whether the assessee s transactions are exempted under Rule 6DD - Paddy Purchase - Held that - Section 40A(3) is a deeming provision; Rule 6DD clearly exempts the agricultural produce -paddy-from the rigours of section 40A(3) of the IT Act. As to the genuineness of purchases, the paddy quantity, believed by the Revenue for determining the yield, speaks volumes. And on the pricing, the Revenue has no ground to suspect or disbelieve the assessee claim, for it has not ascertained the market rate prevailing then. So we affirm the Tribunal s findings on the disallowance there should be no disallowance. The Yield we must observe that the issue of yield is a pure question of fact. And the Tribunal, indeed, has meticulously analysed the issue, leaving no room for doubt. Yet, we discuss the issue in brief. KNT Agro Mills disclosed the rice yield at 66.69% during the relevant period; KKR Agro Mills disclosed the yield of 68% on the turnover of 42.95 crores. But the record does not disclose that this yield includes discoloured, sprouted and weevilled grains, immature, broken and discoloured grain, or only the marketable rice. So, we cannot rely on the yield statics of these two mills. Tribunal has concluded that there was a maximum tolerance limit fixed for the rice yielded. Discoloured, sprouted and weevilled grains, immature, broken and discoloured grain, de-husked grain, moisture content, and so forth are the factors that have gone into making the total yield of 68%. The Tribunal has also found that the Kerala State Civil Supplies Corporation has expected the hullers to supply 60% return in sortex grade rice. The assessee s yield of 62.66% is more than what was fixed by the Government.On this count, too, we concur with the majority of the Tribunal.

Issues Involved:
1. Applicability of Section 40A(3) of the Income Tax Act.
2. Discharge of statutory burden by the assessee.
3. Tribunal's interference with the Assessing Officer's findings under Section 145 of the Income Tax Act.
4. Genuineness of paddy purchase transactions.
5. Accuracy of the reported yield of rice from paddy.

Issue-Wise Detailed Analysis:

1. Applicability of Section 40A(3) of the Income Tax Act:
Section 40A(3) mandates that any payment exceeding ?20,000 must be made through an account payee cheque or demand draft. The assessee argued that only six out of 14,621 transactions exceeded this limit and involved payments to farmers, who are exempt under Rule 6DD. The court examined Rule 6DD, which exempts payments for agricultural produce made to cultivators. The court found that the transactions involved farmers and thus fell under the exemption provided by Rule 6DD(f)(i). Therefore, the Tribunal correctly deleted the disallowance under Section 40A(3).

2. Discharge of Statutory Burden by the Assessee:
The Revenue contended that the assessee failed to prove the genuineness of transactions with 14,621 farmers, providing only six ration cards as proof. The court noted that the Assessing Officer did not verify the authenticity of these farmers or the market price of paddy. Citing precedents from *Interseas* and *Attar Singh Gurmukh Singh*, the court emphasized that the assessee had provided sufficient documentation (purchase bills and vouchers) to discharge its burden. The court concluded that the Revenue's insistence on further proof was unnecessary given the statutory exemption.

3. Tribunal's Interference with the Assessing Officer's Findings:
The Tribunal's decision to allow the assessee's appeal and dismiss the Revenue's appeal was challenged. The court upheld the Tribunal's findings, noting that the Assessing Officer's conclusions were not supported by adequate verification or evidence. The Tribunal had meticulously analyzed the facts and statutory provisions, leading to a well-reasoned decision.

4. Genuineness of Paddy Purchase Transactions:
The assessee purchased paddy worth ?51,69,96,981, with 59% bought directly from farmers in cash. The Assessing Officer suspected these transactions, citing the repetition of names like "Yashoda" and "Vinoo" and lack of farmer signatures on bills. However, the court found that the Assessing Officer did not investigate the provided identities or market prices. The court reiterated that Rule 6DD exempted these transactions from the requirements of Section 40A(3), and the assessee had sufficiently proved the genuineness of its purchases.

5. Accuracy of the Reported Yield of Rice from Paddy:
The Assessing Officer doubted the reported yield of 62.66%, comparing it unfavorably to the standard yield of 68%. The court noted that the Tribunal had scrutinized this issue, considering factors like broken rice and foreign matter in the yield. The Tribunal found that the Supplyco of Kerala Civil Supplies Corporation expected a 60% yield of sortex rice, aligning with the assessee's reported yield. The court agreed with the Tribunal's factual analysis and declined to interfere with its findings.

Conclusion:
The court affirmed the Tribunal's findings, holding that the assessee's transactions were exempt under Rule 6DD and that it had sufficiently discharged its burden of proof. The Tribunal's decision to delete the disallowance under Section 40A(3) and accept the reported yield was upheld. The appeals were dismissed, and no order on costs was made.

← Previous Next →