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TMI Blog2022 (11) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... s - AO held that the provisions of Rule 6DD(e) were not applicable to the facts of the assessee s case - HELD THAT:- CIT(A) has gone to the root cause of the disallowance u/s 40A(3) and owing to the genuineness of the purchase, provisions of the rules and dates/days on which the payments have been made and the purpose thereof, has cogently held that the provisions of Section 40A(3) are not attracted in this case, the decision of which, we decline to interfere with the order of the ld. CIT(A). As a consequence, the adhoc estimation @ 0.23% of the sales made by the ld. CIT(A) is also liable to be deleted. Ad-hoc estimated disallowances - AO made ad-hoc disallowance of 30% on the power fuel, packing material and repairs maintenance and on administrative distribution expenses and also on finance charges - CIT (A) restricted it to 10% on adhoc basis and deleted the disallowance made on financial charges - HELD THAT:- We hold that no disallowance is called for on financial charges owing to submission of complete documentary evidences. Hence, the order of the ld. CIT(A) deleting the financial expenses is affirmed. With regard to the ad-hoc disallowances on account of transport a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any basis. 3. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in not upholding the action of the AO in disallowance of Rs.108,34,15,088/- u/s 40A(3) of the Act and in holding that no addition was made by the AO u/s 40A(3) whereas the AO had categorically mention this addition in the order and also initiated penalty u/s 271(1)(c); though no separate addition was made considering the disallowance of higher amount on account of bogus purchases. 4. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in adjudicating the addition made under section 40A(3) of the Act when the assessee had not taken any ground in this respect. 5. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in misinterpreting the provisions of Rule 6DD of the I.T. Rules read with section 40A(3) of the Act and in observing that no disallowance u/s 40A(3) can be made in case of GP addition, when the AO had not made any GP addition. 6. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in restricting the disallowance of 30% of transportation expense to 10% only without appreciating that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 by relying on the Judgment of Hon ble Apex Court in the case of Super Malls Pvt. Ltd. in CA No. 2006 to 2007 of 2020, by following the very same ratio since the satisfaction recorded by the ACIT, Central Circle-21 who is the common AO of the searched person and the other person, the Ground No. 1 raised by the assessee are liable to be dismissed. 5. With regard to the objection that the addition has not been based on seized material, we hold that the instant assessment is not an abated assessment owing to the recording of satisfaction and issue of notice u/s 153C on 26.09.2012 and filing of the regular return of income on 30.09.2011. The assessment cannot be said to be unabated. Hence, the judgment in the case of PCIT Vs. Kabul Chawla 380 ITR 573 is not applicable to the instant case. Accordingly, we do not find merit in the Ground No. 2 of the C.O. Thus, we dismiss the Ground No. 2 of the C.O. In view of the same, the issues are being examined on merits of the case in the appeal of the revenue along with Ground No. 3 of the Cross Objection. ITA No. 5474/Del/2015 : A.Y. 2010-11 (Revenue) ITA No. 5475/Del/2015 : A.Y. 2011-12 (Revenue) 6. Brief facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the partial additions made under the different heads. The details of the additions made by the A.O., relief granted by the ld. CIT(A) and the additions sustained by the ld. CIT(A) are as under:- S.No Particulars of the disallowance made by the A.O. A.Y 2010-11 A.Y 2011-12 By order of A.O By order of CIT(A) By order of A.O By order of CIT(A) Addition Relief Sustained Addition Relief Sustained 1 Transportation charges 43,60,977 29,07,318 14,53,659 62,25, 643 41,50 462 20,75,181 2 Unexplained Purchases 1,77,31,37,509 1,76,89,24,311 42,13,198 2,24,99,95.254 2,23,81 36,837 1,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and un-replied further, the assessee has also failed to file confirmation of account in respect of supplies of milk along with the bill of vouchers and books of accounts for verification. However, the Assessing Officer has also taken altogether contradictory stand while making disallowance u/s 40A(3) of the Income Tax Act, 1961 wherein held that all the said purchases were verified and genuine on the basis of enquiry report of investigation Wing, New Delhi and made disallowance of Rs. 108,34,15,088/- being cash purchases out of total purchases of Rs. 177,31,37,509/-. 11. The Assessing Officer by way of questionnaires asked the assessee to submit party wise details of the purchasers. The notice sent u/s 133(6) of the Income Tax Act, 1961 to the following parties returned undelivered. Rohit Dairy, Nawada Road, Gajaraula, Uttar Pradesh Rishi Dairy, Chaudhary Sarai Choki, Adampur Road Malisarai, District Sambhal Misrar Khan Prem Dairy Shrawan Dairy etc. 12. The assessee has provided the new address of the above mentioned parties, which were duly served on the above parties in the given addresses. 13. The issue pertaining to unexplained purchases has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned party were in cash. Accordingly, the disallowance of purchases made in cash are being considered in the later part of the order u/s 40(A)(3). 5.2 Apart from the above parties, letters u/s 133 (6) have been sent to following parties also. i. Malook Food Industries ii. Himalaya Food Industries iii. Malook Milk Plant iv. Sarvan Dairy v. Lakshya Dairy Pvt. Ltd. However, no reply has been received. It is also seen that the purchases from these parties are also in partly cash which is also being considered for disallowance u/s 40(A)(3). Notwithstanding, disallowance of purchases made in cash u/s 40(A)(3) it is necessary to verify the genuineness of the purchases. 5.3 In view of the fact that notices u/s 133(6) issued to suppliers remained uncomplied/ un-replied and that the assessee has not submitted confirmed copy of the account in respect of suppliers of the milk along with the bill of vouchers and books of account for verification. The purchases made by the assessee remained unverified. The assessee has also not furnished party wise details of the purchases neither replied show cause notice dated 15.03.2013. The only information available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the ld. CIT(A) is reproduced as under: (xvii) All the parties who did not turn up during 153C proceedings were summoned u/s 131 by the undersigned and their statements were recorded in the presence of the AO concerned AO, Shree Rajesh Kumar, ACIT, Central Circle-15, New Delhi who could not find any anomalies or falsities or contradictions in their statements even though all such parties deposed on oath that they had supplied milk to the appellant both in cash as well as cheque. Thus the identity, genuineness and creditworthiness of all the parties in respect of whom sales (purchase by appellant) were held to be bogus by the AO u/s 153C became accomplished facts. (xviii) Since under the overall circumstances, the correctness of the appellant s claim had been established by furnishing relevant bills, bank statements and considering the fact that without purchases of such material and job charges incurred, the manufacture could not have been possible, the impugned addition treating purchases as bogus was not justified. (xix) The erstwhile AO forgot to reject the books of account of the appellant. Similarly, the sales were also not doubted. It is an admitted po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The fact that the parties supplied milk to the assessee company could not be disputed. The AO has also held that milk purchases were made not from farmers but through the intermediaries of the milk traders, thus contradicted the fact that the purchases remain unverifiable. Under such circumstances, the action of the Assessing Officer resorting to disallowance of entire purchases is bad in law. Since, the identity, genuineness and supply-worthiness of all the parties has been proved by the way of statement recorded u/s 131 of the Act and all the suppliers were duly paid, we refrain from interfering with the order of the ld. CIT(A) on this issue. Accordingly, Ground No. 1 2 of the Revenue s Appeal are dismissed. Disallowance Section 40A(3) of the Act: 16. Ground No. 3 to 5 are directed against action of the Ld. CIT(A) in deleting the disallowance of Rs.108,34,15,088/- u/s 40A(3) of the Act made by the Ld. A.O. 17. While disallowing the purchases to the tune of Rs.177,31,37,509/-, the Assessing Officer has also resorted to disallowance of Rs.108,34,15,088/- u/s 40A(3) on account of cash payments made to milk suppliers. The AO held that the provisions of Rule 6DD(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949); (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender; (c) where the payment is made by- (i) any letter of credit arrangements through a bank; (ii) a mail or telegraphic transfer through a bank; (iii) a book adjustment from any account in a bank to any other account in that or any other bank; (iv) a bill of exchange made payable only to a bank; (v) to (vii) 3 [ *** ] Explanation.-For the purposes of this clause and clause (g), the term bank means any bank, banking company or society referred to in subclauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside India; (d) where the payment is made by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, where a transaction's found to be genuine and the identity of the payee is established, a liberal view of compelling and mitigating circumstances should be taken. Payments made after the close of banking hours or payments made to new parties or payments where the seller or the purchaser did not have a bank account are held to fall within this exception. Similarly, when the supplier insists for cash payment since the earlier cheques given were dishonored, such cash payment fall within this exception. The principal contactor s cash payment to the sub-contractor could not be treated as an expenditure and s. 40A(3) will not be applicable. Likewise, where the assessee was dealing with a party for the first time and the party insisted for cash payment, the situation was held to fall within the exception. Payment of market fee in cash when the market committee filed a letter to the effect that it was not accepting market fee by cheque was held to be falling within this exception and hence, allowable. Cash payment due to financial stringency to genuine parties in genuine transactions could be held to fall within this exception. Payments of cash to lorry drivers were held not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 363 (Andhra Pradesh) 3. CIT vs. C. V. Sebastian (2014) 45 taxmann.com 349 (Kerala) 4. CIT, Aligarh vs. Sunil Kumar Agarwal (2013) 38 taxmann.com 386 (Allahabad) 5. CIT-II vs. Hindustan Equipment (P) Ltd (2013) 30 taxmann.com 295 (Madhya Pradesh) 6. CIT(Central) Ludhiana vs. S.A. Builders Ltd. (2013) 38 taxmann.com 255 (Punjab Haryana) 7. CIT vs. Balaji Engineering Construction Works (2010) 323 ITR 351 (Kar.) 8. CIT-II1, Ludhiana vs. Smt. Shelly Passi (2013) 31 taxmann.com 173 (Punjab Haryana) 9. CIT-I vs. Magnificent Construction (P) Ltd (2013) 40 taxmann.com 306 (Madhya Pradesh) 10. R.C. Goel vs. CIT (2013) 29 taxmann.com 406 (Delhi) 11. CIT vs. Sri Shanmuga Ginning Factory (2013) 37 taxmann.com 422 (Madras) 12. CIT vs. Kishor Project (P) Ltd (2013) 36 taxmann.com 94 (Gujarat) 13. ITO vs. Navjivan Synthetics (2013) 32 taxmann.com 125 (Ahmadabad - Trib.) 14. CIT, Jaipur-II, Jaipur vs. Precious Jewels Corporation (2012) 17 taxmann.com 264 (Raj) 15. C1T-IV vs. Shree Rama Multi Tech Ltd (2013) 34 taxmann.com 329 (HC Gujarat) 16. CIT-1, Mumbai vs. Nikunj Eximp Enterprises (P) Ltd (2013) 35 taxmann.co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO has made an addition of Rs. 72,18,132/- on account of deemed dividend under section 2(22)(e) of Income Tax Act, 1961 for the reason that on perusal of annexure 12 of the balance sheet, assessee company has to pay Rs. 1,15,40,789/- to M/s AIMS Promoters Private Limited as advance taken from said concern and Shri Malook Nagar was having 84.11% share holding in M/s AIMS Promoters Private Limited and 66.81% in the assessee company. 29. On appeal, the CIT(A) has deleted the addition on account of deemed dividend u/s 2(22)(e) in the hands of the appellant. The CIT(A) has observed on Page No. 344 of the appellate order that, .the AO was totally unwarranted in adding the unsecured loan, treating It as deemed dividend u/s 2(22)(e) when the appellant company was not a registered shareholder in M/s AIMS Promoters Pvt. Ltd. Even otherwise the above issue was decided by me against the appellant s company director Shree Malook Nagar, upholding the addition in the hands of Shree Malook Nagar, Having regard to the above fact the same amount is not considered fit for addition in two hands 30. The ld. DR vehemently relied on the Assessment Order. 31. It is found from the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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