2022 (8) TMI 300 - AT - Income Tax

Addition u/s 40A(3) - payment made to the driver of the lorry of the Supplier - As per AO payments have been made to labours for cleaning of pond, for JCB baffling charges, for purchase of sand, bricks, jally, purchase of salt, etc. and the assessee has not provided any evidences namely, bills and vouchers to prove that said payments had been made to cultivator, grower or producer in order to be excluded under section 40A(3) by virtue of Rule 6DD(e) - HELD THAT - Assessee has to make the payment by account payee cheque drawn on a bank or account payee bank draft and then only deduction will be allowed. In the present case, the assessee has paid to his agent through bearer cheque, in turn; his agent has withdrawn the cash. From the above it is very clear that the assessee has violated section 40A(3). In this case, neither the assessee nor his agent has able to establish that the payments are made to farmers. The Agent of the assessee Shri Chinna says that he was not having any details of farmers and after purchase, the entire material has been transported to the assessee and the assessee is only handling the remaining part of the business. Shri Chinna further says that he was not having the details of farmers to whom payment was made. The assessee Shri Shahjahan says that he was not aware from whom the copras were purchased by his agent and also supplied directly by his agent to M/s. VVD Sons. Ultimately, neither the assessee nor his agent is able to prove that the payments have been made to the farmers. Therefore, the case of the assessee does not come within the purview of exception provided under Income Tax Rules in Rule 6DD(k). That apart, during the course of assessment proceedings, the Assessing Officer has asked the assessee to furnish the details of purchases and supplies made to M/s. VVD Sons and no details are filed inspite of repeated request made by the Assessing Officer. Even before us, no details are filed. Only in the written submissions, figures are stated and figures are not amounting to details of purchases and sales which are actually required for adjudication. Assessee has not furnished any details as to whom the payments were made. Accordingly, we reverse the common order passed by the ld. CIT-A for all the assessment years under appeal and restore that of the assessment order passed by the AO. Accordingly, the ground raised by the Revenue is allowed for all the assessment years. Since similar grounds on identical facts and circumstances have been raised by the Revenue in respect of all other assessee and accordingly, the appellate order passed by the ld. CIT(A) in respect of other assessee have also been reversed and restored that of the assessment order passed by the Assessing Officer for all the assessment years under appeal. Accordingly, all the appeals filed by the Revenue are allowed.

Issues Involved:
1. Delay in filing appeals by the Revenue.
2. Erroneous order by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Deletion of addition/disallowance under Section 40A(3) of the Income Tax Act.
4. Validity of assessment order due to time barring.
5. Application of Rule 6DD(k) in relation to Section 40A(3).

Detailed Analysis:

1. Delay in Filing Appeals by the Revenue:
The appeals filed by the Revenue were delayed by three to four days. The Revenue filed petitions supported by an affidavit for condonation of the delay, explaining the cause. The assessee did not raise serious objections. Consequently, the delay was condoned, and the appeals were admitted for adjudication.

2. Erroneous Order by the Commissioner of Income Tax (Appeals) [CIT(A)]:
The Revenue contended that the CIT(A) erred in directing the Assessing Officer (AO) to delete the addition/disallowance made under Section 40A(3) amounting to ?9,59,37,128/-. The CIT(A) failed to appreciate that there is no requirement under Section 40A(3) for the recipient entities to be bogus or for there to be inflation of purchases to invoke the provisions. The CIT(A) also failed to note that the assessee did not produce any material before the AO to substantiate its contention that the self-cheque recipients were agents of the assessee.

3. Deletion of Addition/Disallowance under Section 40A(3) of the Income Tax Act:
The AO noted that during the search at the premises of M/s. VVD & Sons (P) Limited, it was found that copras were purchased from M/s. Achu Traders through agents. The payments were made through bearer cheques, which were withdrawn in cash, violating Section 40A(3). The CIT(A) deleted the addition, stating that the payments were made to agents who further paid the farmers, thus falling under the exception provided in Rule 6DD(k). However, the Tribunal found that neither the assessee nor the agents could provide details of the farmers or maintain any records of the transactions, thus failing to establish that payments were made to farmers.

4. Validity of Assessment Order Due to Time Barring:
The assessee argued that the assessment order was barred by limitation as it was served on 08.01.2018, beyond the due date of 31.12.2017. The Tribunal held that the assessment order was passed on 31.12.2017, within the period of limitation, and the delay in service was due to postal authorities. Therefore, the assessment order was not barred by limitation.

5. Application of Rule 6DD(k) in Relation to Section 40A(3):
The Tribunal analyzed the applicability of Rule 6DD(k), which exempts payments made to agents required to make cash payments on behalf of the assessee. The Tribunal found that the assessee failed to provide any evidence that payments were made to farmers. The agents' statements were contradictory and lacked details of the farmers or the transactions. Therefore, the Tribunal concluded that the payments did not fall under the exception provided in Rule 6DD(k).

Conclusion:
The Tribunal reversed the order of the CIT(A) and restored the assessment order passed by the AO, disallowing the payments under Section 40A(3) for all the assessment years under appeal. The appeals filed by the Revenue were allowed, and the cross objections filed by the assessee were dismissed.

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