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TMI Blog2022 (8) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... hri 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 furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d admitted the appeals for hearing. Against the submissions made in the affidavit by the Department, the ld. Counsel for the assessee has not raised any serious objection. Consequently, since the Department was prevented by sufficient cause, the delay of three/four days in filing of the appeals stands condoned and admitted the appeals for adjudication. The Revenue has raised the following grounds: 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The learned CIT(A) erred in directing the AO to delete the addition/disallowance made u/s 40A(3) of the LT. Act amounting to Rs.9,59,37,128/-. 3. The Id.CIT(A) failed to appreciate that there is no requirement envisaged by section 40A(3) to the effect that the recipient entities ought to be bogus or there should be inflation of purchases to invoke the provisions of section 40A(3) of the LT. Act. 4. Without prejudice to the above grounds of appeal, it may noted that the assessee and the so called agents could not provide full addresses of the farmers/suppliers of copras nor any details have been maintained with regard to payment made for copra purchases. In f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 40A(3) of the Act and rule 6DD(k) are applicable and hence the order of the Commissioner of Income Tax (Appeals) is correct and the contention of the revenue are liable to be dismissed. 3. Facts are, in brief, that the assessee M/s. Achu Traders is a partnership firm run by Shri Shahjahan and Smt. Nihar Bhanu, W/o. Shri Shahjahan. M/s. Appu Traders is engaged in the business of purchase and supply of copras. During the financial year 2011-12, it had mainly supplied copras to M/s. VVD Sons (P) Limited. The assessee firm originally filed its return of income for the assessment year 2012-13 admitting Nil income and the case was selected for scrutiny through CASS and the scrutiny assessment was completed by the ITO, Ward-5, Palakkad, assessing the total income at ₹. Nil, by way of making certain disallowance of expenditure. 3.1 Subsequently, a search action under section 132 of the Income Tax Act, 1961 [ Act in short] was conducted in the case of M/s. VVD Sons (P) Limited, Tuticorin. Simultaneously, search action was also conducted in the business premises of M/s. Achu Traders on 17.11.2015. 3.2 During the course of search conducted on 17.11.2015 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raders identified in the name of Shri Chinna, Appu Traders identified in the name of Shri Senthil, Alfas Traders Madeena Traders identified in the name of Shri Natajan. In the sworn statement recorded on 23.12.2015 from Shri Shahjahan, while answering to Q. No. 5, he has stated that Shri Natarajan, Senthil and Chinna are the three persons who had procured copras from various placed - in and around Pollachi and brought it near the Govindapuram, Check post, Kerala viz. near the location of M/s.Appu Traders, and on their direction over phone, Shri Shahjahan has prepared sales invoices as per the market rate. Thereafter, he has prepared purchase bills in his firm's name M/s. Appu Traders at the rate as reduced by 0.25 paise per kg. After this preparation of purchase bill, he logs into Kerala commercial tax website and has upload the transaction as Inter-state purchase' and prepared 'sales invoices' in favour of M/s. VVD Sons (P) Limited for the same quantity of copra in the firm's name M/s. Appu Traders, at the rate as increased by 0.25 paise per kg. After preparing sales bills in favour of M/s. VVD Sons (P) Limited he has stated to have handed ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jan are only aware of the full details of copra purchase. During the course of search on 17.11.2015 certain books such as a note book (Kasthuri book) were found seized vide Ann/PC/MS/B D/S dated 17.11.2015, which contain bank account numbers and cheque book details. However, During the search assessment proceedings it was found on verification of the said note and cheque books that the cheque books were handed by the above three persons, in which it was ascertained that there were no entries found to be made in the cheque books. The cheque leaves appeared to be fresh. The details of the names of the firms run by M/s. Shahjahan and his wife Smt. Nihar Bhanu and the persons who are operating the bank accounts held in their names are as follows: Name of the Trader Bank Account No. Operated by Alfas Traders IDBI 000451 to 0005000 Natarajan Alfas Traders ICICI, Pollachi 016726 to 016750 Natarajan Alfas Traders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Traders. While the same was verified with respect to the bank account statement of M/s. Achu Traders for the said period it is found that for every of amount of credit from VVD Sons there is an equal debit entry found on the same day with a narration 'SELF'. It is also seen that the amount withdrawn through such selfcheques are found to be amounts each exceeding rupees twenty thousand, almost all the withdrawal entries ranges to ₹.2,00,000/- to ₹.7,00,000/-. It is evident from the bank statement that in a month the approximate withdrawal found to be ₹. 20,00,000 for a annual payment of ₹.9,66,67,671/- made by M/s. VVD Sons. In the case of M/s. Appu Traders, the self-cheques issued by Shri Shahjahan were withdrawn by Shri Chinna at Pollachi, as per sworn statement of Shri Shajahnan and Chinna. A sworn statement was recorded from Shri Godhandapani @ Chinna in which he was asked to furnish the details of farmers from whom copras were procured, quantity procured the mode of payment/settlement therein. However, in his answer to Q.No. 8 he has categorically stated that I do not know any details of any farmers I have not maintained any record for thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in violation of section 40A(3) of the Act of ₹. 9,59,37,128/- and completed the assessment order under section 143(3) r.w.s. 153C of the Act. 4. On appeal, the ld. CIT(A) has deleted the addition made by the Assessing by observing as under: 6. Decision on grounds of appeal: 6.1. The perusal of the written submissions filed during the course of appellate proceedings, it is observed that the first ground of appeal is pertaining to the assertion made by the appellant that the assessment is barred by time limitation and hence it is liable to be cancelled. It is submitted that the demand notices and assessment order along with the notices for initiating for penalty proceedings are dated 8.1.2018, whereas the date of limitation was 31.12.2017 and hence the order is time barred. 6.2. In respect of this contention, the assessee relied upon the decision of Karnataka High Court in the case of M/s.Maharaja Shopping Complex Vs. DCIT Circle-I (2), in ITA No.832/2008, and the judgment in the case of Government of Wood Works Vs. State of Kerala in the High Court of Kerala. The factual matrix of the above assertion of the appellant was looked into and it is noted that f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the material seized and the statements recorded during the search u/s 132 of the I.T Act. Once the AO has relied upon the seized material the sufficiency of the seized material cannot be questioned. Therefore, this ground of the appellant that the issues are not emanating from the material seized during is not correct and hence it is dismissed. 6.4. Secondly, during the course of appellate proceedings, it was also submitted that the assessment u/s. 153C is invalid since the satisfaction as per requirements by section 153C was not made. It is stated further by the appellant that the satisfaction was not made available to the appellant by the Assessing Officer despite request for same therefore presumption is that the said satisfaction was not recorded and hence rendering the assessment void and liable to be quashed. This objection of the appellant was also looked into and relevant details were asked for from the Assessing Officer vide letter No. ITA No.363 to 366 dated 8.11.2018. The AO has submitted the reply vide letter in PAN-AIYPS1815P/CC-2/MDU/2018-19 dated 13.11.2018 where by the satisfaction is recorded for the respective years in the case of M/s.Achu Traders have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the Assessment order, Para-9, Shri Shahjahan has stated that he has supplied copras to VVD and Sons P limited by procuring copras through the agents (herein called three persons) at Pollachi namely, ShriSenthil, Natrajan and Chinna . Statement of Shri Senthil, Natarajan and Chinna were recorded during the search. In the statement recorded they have not denied that they are working as agents for commission for Shri Shahjahan. The purchases were infact made for VVD sons and they received their amount from Shri Shahjahan who gave them signed self-cheques to get them encashed and make further payments to other respective suppliers. It is nowhere the case of the AO that it is a case of bogus purchases or inflation of purchase bills. Nowhere the transactions of the cheque payment received from VVD has been questioned. 3. The turnover of the appellant in the years involved for the assessment u/s. 153C has not been challenged and the same tallied even with the VAT return furnished with the Kerala Government. 4. Now the question whether the provisions of Section 40A(3) are attracted in the case of these payments made to the agents who in turn enabling,, supplies of agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stating their function of purchase of copra and the payment of the purchase price through them. No evidence whatsoever is obtained during the assessment u/s.253C of the Act contradicting or opposing the facts of the case as stated above. In the above circumstance, the application of provisions u/s.40A(3) in the assessment U/S.153C are not sustainable. (3) In respect of all the assessments, except in the case of Mr.M.Shahjahan, it is specifically stated in the assessment orders that the assessments are completed on a 'protective basis. I may submit that there should be a substantive assessment under the provisions of section 40A(3) in the case of searched assessee u/s.153A, specifically u/s.40A(3). When such assessment is existing only, there can be a protective assessment in the above cases. At the moment, I am not aware of any such substantive assessment u/s.40A(3) in the case of the searched assessee on a substantive basis. Since this information is not available with the assessee, a verification may be done to this effect by your goodself. (4) During the assessment proceedings, the creditors payable are verified, in respect of major amounts, confirmations are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining balance will be issued to the farmers from whom I have purchased copra. Approximately I receive Rs. 5000/- per month as commission. D.Godhandapani @ Chinna Q.No.2. Identify yourself: Ans: My name is D.Godhandapani @ Chinna. I am residing at 5/312, Goppanurpudur, Kappalankarai Post, Kindathukadavu Taluk for the past 5 years. Age 36. My wife name is G.Sangeetha, I got one female and male children. My CellNo:9443933561. Q.No.3. Explain in detail regarding your business and income. Ans: I am acting as a commission agent/broker for the past 4 years, in purchasing copra for Shahjahan Traders. I used to purchase copra from various farmers in the area of Anaimalai, Ganapathipalayam, Semampathi, Moongamadai, Kilavanpudur, Negamam and send the same to Shahjahan Trader. In this lused to get Rs.500/-per load. I get approximately Rs.30,000/- to 40,000 per year. Q.No.4. In the aforesaid question No.3 you have told that you used to purchase the copra from various farmers. How your transport the same to Shahjahan Traders? Ans: I will send the purchased copra in the lorries which were arranged by him. For this Shahjahan used to issue cheque on the same day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase amount? Explain whether you are maintaining the ledgers for particulars/account for the purchase and sale? Ans: I am not having the aforesaid particulars. The sale amount will be transferred by WD Sons through RTGS to Shahjahan who is having the accounts in the name of Madeena Traders and Alfas Traders. I used to withdraw the amount by using the signed self-cheques of Shahjahan and settle the amount in cash to the local agriculturists from which I have purchased the copra. 6.8. The perusal of the above statements show that the persons are acting on behalf of the appellant i.e. Shri Shahjahan partner in the concern and are earning commission from the services they are providing to the appellant. Even the payments are further made to the agriculturists. It is nowhere the case of the Assessing officer that the transaction of purchase of Copra from these entities is bogus or the purchases are inflated. Thus the obvious conclusion is that these are indeed actual transactions. The other fact is that payment for these purchases are made by RTGS to the appellant who in turn issues self-cheques to his agents who further disburse them to the farmers. The self-cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the first appellate authority as well as the Tribunal is totally a finding of fact, we are not inclined to interfere with the same. Consequently, we find no merits in this appeal and the question of law is answered against the Revenue. Accordingly, the tax case appeal is dismissed. (2013) 37 taxmann.com 422(Madras). [In the above judgement though the rule referred is 6DD(i) which is an inadvertent mistake however the matter pertains to rule 6DD(k) only]. 5. First, we shall take the Cross objections of the assessee for adjudication. By referring to the first ground of cross objection, the ld. Counsel for the assessee has submitted that the Assessing Officer has completed the assessment on 31.12.2017, which is in time. However, it was only served on the assessee on 08.01.2018 and submitted that it is barred by limitation. Further, the ld. Counsel for the assessee has relied on the judgement of the Hon ble Supreme Court in the case of CIT v. Mohammed Meeran Shahul Hameed (2021) 438 ITR 288(SC) and submitted that the assessment order may be quashed. 6. On the other hand, the ld. DR has submitted that in this case, the assessment order was passed on 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that there is no delay in passing the assessment order and therefore, the Cross Objection raised by the assessee is dismissed. 7.5 The second cross objection raised by the assessee was not argued before the Tribunal and the same is dismissed. 7.6 The third cross objection raised by the assessee is being dealt by the Tribunal while deciding the merits of the case. 7.7 Since common grounds of cross objection has been raised by all the assessee on an identical facts and circumstances and therefore, all the cross objections filed by the assessee are dismissed. 8. So far as appeals filed by the Department are concerned, against the order passed by the ld. CIT(A), the Revenue has preferred further appeal and the ld. DR has submitted that the assessee has received the money through RTGS and the money was withdrawn through bearer cheques by the assessee s agent and payments were made to farmers as claimed by the assessee. However, there is no evidence that what payment is made to whom, no details of farmers or details of purchases made are brought on record before the Assessing Officer inspite of repeated request made by the Assessing Officer, no such details are file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efully the statements given by the assessee as well as his agent, Shri Shahjahan, the assessee is stating that he is not aware of purchase of copra and Chinna is only directly dealing with M/s. VVD Sons and he is not aware of any quantity details supplied to M/s. VVD Sons. In the sworn statement, the agent of the assessee Chinna is stating that he is procuring copras on behalf of Shri Shahjahan and same is sending to Shri Shahjahan and after two days he receives bearer cheque and thereafter payments are made. Chinna does not know the details of farmers, such as, the farmers from whom he has purchased, what is the quantity, what are the payments to be made. He is not maintaining any books of accounts. The facts remain that he is withdrawing the cash more than Rs.20,000/- and says that payments are made to farmers, but, he is not aware of the details of farmers and he is not aware of any other details for the reason that the copras are supplied by Shri Shahjahan to M/s. VVD Sons. Shri Shahjahan says that he is only receiving the copras and he is not aware of its purchases and after sales to M/s. VVD Sons, Shri Shahjahan is receiving RTGS payments and in turn, he issues bearer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely :- (a) to (i) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; 9.1 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven by the assessee and wrongly deleted the addition. The order passed by the ld. CIT(A) is without any basis and it requires interference. 9.5 So far as case law relied on by the ld. CIT(A) in the case of Shanmuga Ginning Factory v. CIT (2013) 37 taxmann.com 422 (Madras) is concerned, the ITAT gave a factual finding that the agents are actually participated in the auction process and 1 per cent commission has been charged and therefore, the Tribunal has held that the agents are acted on behalf of the assessee and entitled to protection under Rule 6DD(i) of the Rules. Apart from that, by going through the nature of business and transaction between the parties, the Hon ble Jurisdictional High Court went on to hold that the element of commercial expediency was involved and dismissed the appeal of the Revenue. However, in the present case, neither the assessee proved nor the assessee s agent proved of payments made to farmers or furnished any iota of details required in this case. Therefore, the Hon ble Jurisdictional High Court s decision has no application and the ld. CIT(A) has wrongly passed the appellate order. 9.6 So far as case law relied on by the ld. DR in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom provision of section 40A(3) of the Act, the Tribunal has upheld the order of the Assessing Officer. 9.10 In the case of International Ships Stores Suppliers v JCIT [2016] 75 taxmann.com 130 (Mumbai - Trib.), the assessee was engaged in business of supplier of stores to ocean going ships and made certain payments to suppliers upfront in cash. The Assessing Officer disallowed the said cash payment under section 40A(3), which was upheld by the ld. CIT(A). Before the Tribunal, it was submitted that genuineness and veracity of purchase transactions under consideration were not in doubt, coupled with fact that same were prompted on account of business exigencies, no disallowance under section 40A(3) was warranted. The Tribunal has held that mere finding of purchase transactions as genuine would not in simpliciter take same beyond scope of disallowance contemplated under section 40A(3) of the Act since assessee had not been able to demonstrate that its case was covered by either of exceptions contemplated under rule 6DD and therefore, confirmed the disallowance made under section 40A(3) of the Act. 9.11 In the case of P.K. Ramasamy Nadar Bros. v ITO (2014) 41 taxmann.com 538 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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