9911796707
TMI Blog2022 (5) TMI 1527X X X X Extracts X X X X X X X X Extracts X X X X ..... epherd (farmer) on the count that such payment has been made exceeding Rs. 20,000/- in a day to the person(s) in violation of the provision - absence of confirmation to show that payments are covered under Rule 6DD of the I. T. Rules, 1962 - HELD THAT:- When the word livestock clearly appears in exception clause in Rule 6DDE(ii) regarding of any circular is not required, as of the opinion formed by the Ld. CIT(A). According to the clarification the word produce of animal husbandry includes livestock and meat . Once the business of the assessee of livestock has been confirmed and approved by the Revenue as per the conditions specified in Para 4 of the Circular the appellant is not required to fulfill the conditions specified in the Circular which is applicable to the producer of meat and not in case of trader of livestock and therefore, the case of the assessee has been found squarely covered Rule 6DD and consequently no addition is found to be warranted. Decided against revenue. Disallowance of expenses - AO disallowed 1/5th of the total expenditure which was restricted on estimated basis to Rs. 5 lakhs by the CIT(A) in appeal preferred by the assessee - HELD THAT:- CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t affirmed by the assessee on 31.01.2022 explaining the delay in filing the instant Cross Objection. While justifying the delay in filing such Cross Objection Ld. Counsel submitted before us that the assessee was travelling out of the country for export dealing for his business during that period the appeal memo was received by the accountant of the appellant. After his return to India the said accountant forgot to handover the said copy to the assessee and the appeal could not be filed in due time. Immediately thereafter, in the month of March, 2020 the Covid pandemic 2019 in India started due to which the entire business was disrupted and the assessee was unable to file the Cross Objection during pandemic. He has further relied upon the direction dated 10.01.2022 passed by the Hon ble Supreme Court whereby and whereunder limitation period has been extended due to pandemic. In that view of the matter, there is no excessive or inordinate delay in filing the instant Cross Objection before us by the assessee and he, thus, prays for condonation of the same. In this regard, he has further relied upon the judgment passed by the Hon ble Apex Court in the matter of Collector, Land Acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment in the case of Shri Md. Arif Ibrahimbhai Shaikh, PAN : AHEPS2816H for A.Y. 2012-13. Assessee is an individual engaged in export of live animals (goats sheep) mainly to UAE. He is doing his business in the name of style of a proprietorship entity M/s. I K International. Assessee filed his return of income for A.Y. 2012-13 on 30.09.2012 declaring income of Rs.9,67,616/-. The same was assessed u/s. 143(3) and income was determined at Rs.9,92,620/- vide order dated 21/01/2015 During the verification of case records, it was noticed from cash book that assessee has made the payment in excess of Rs.20,000/- per persons in day and total cash payment comes to Rs.6,28,53,975/-. As per Section 40A(3) of the Act, where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. Since the expenditure has been incurred in violation of provision of section 40A(3), the same is required to be disallowed, Failure to do so resulted in und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the case of CIT vs. Kelvinator of India Ltd., reported in (2010) 187 taxman 312 (SC). While dealing with the identical issue the Hon ble Apex Court has been pleased to observe as follows: 4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987 , re- opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1-4-1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1-4-1989 , power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to revie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed with no order as to costs. 12. Thus, it appears that the power of the Ld. AO of reopening of assessment can be exercised only with the availability of tangible material . But we repeat that we do not find any tangible material in possession of the Ld. AO which could lead to the reason to believe that payment made by the assessee is in contravention to the provision of Section 40A(3) of the Act and further to come to a conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief culminating into reopening of assessment under Section 147 of the Act. The case in hand is nothing but mere change of opinion. Thus, respectfully relying upon the ratio laid down by the Hon ble Apex Court in the absence of any tangible material the reopening of assessment is found to be not sustainable in law and thus hereby quashed. ITA No. 1115/Ahd/2019 (A.Y. 2012-13):- 13. Once the assessment proceeding is held to be void and quashed by the order passed in the Cross Objection 10/Ahd/2022 for A.Y. 2012-13 as above, the appeal preferred by the Revenue arising out of the order of addition become infructuous. Hence, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78,63,369/-) in absence of any documentary evidences with regard to expenses claimed. (6) On the facts and circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. (7) It is, therefore, prayed that the order of ld. CIT(A) may be set aside and that of the Assessing Officer be restored. 15. The Revenue has come up in appeal challenging the order dated 05.03.2019 passed by the Ld. CIT(A) in restricting the disallowance made by the Ld. AO under Section 40A(3) of the Act from Rs. 4,62,50,000/- to Rs. 8,10,000/-. According to Revenue the AO has rightly made the disallowance under Section 40A(3) of the Act to the extent of Rs. 4,62,50,000/- holding payments made by the assessee not covered under Rule 6 DD of the I.T. Rules,1962. 16. Ground Nos. 1, 2, 3 4 all revolve within the periphery of disallowance made under Section 40A(3) of the Act as mentioned hereinabove. 17. The Ld. AO during the assessment proceeding issued show-cause notice dated 07.12.2016 proposing addition of Rs.1,25,63,451/- being 1/20th of the total cash purchase on the count of payment more than Rs.20,000/- to one person in one day violating the provision of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are purchased directly from the trader s payments whereof was made through A/c payee crossed cheque. The appellant further maintains a ledger of such broker in his books for the purpose of identification of the person through whom live stock is purchased. Under each such ledger the assessee maintains sub-ledger of all shepherds from whom the live stock is purchased in the form of register of total sheeps/goats purchased through such broker; party wise breakup of the person from whom the same is purchased is also maintained. Quantitative details qua broker/trader are also maintained by the assessee. Since the shepherds are generally nomads and do reside in far remote places which are not even villages and in the absence of banking facilities available with them in such rural areas cash payment is made to those shepherds/farmers. 20. It is relevant to mention that the entire details as mentioned hereinabove are stated to have been submitted before the First Appellate Authority by the assessee. The above modus operandi was duly made known to the Ld. AO by the assessee as well. So far as the payment is concerned, the assessee withdrawals from the bank and allocates to it different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out by the Ld. DR that total turnover of the assessee s business is of 7 crore per year whereas the profit element has been shown only about 9 lakhs. It is a clear case of inflated expenses made by the assessee which could be restricted to 50% as fair and reasonable as contended by the Ld. D.R. With the above argument the Ld. DR finally relied upon the order passed by the Ld. AO. 23. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on records. 24. During the course of appellate proceeding the appellant submitted written submissions on different dates. In short the following are the main contentions of the assessee before the First Appellate Authority: (i) While issuing notice under Section 144 of the Act also for finalizing assessment under Best Judgment Assessment, disallowance of Rs.1,25,63,451/- was proposed whereas ultimate disallowance was made to the tune of Rs.4,62,50,000/- under Section 40A(3) of the Act violating the principle of natural justice which vitiates the entire proceeding. (ii) On merit as the word livestock clearly mentioned in sub-clause (ii) of clause (e) of Rule 6DD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued summons on 04.07.2018 under Section 131 of the Act to those 34 parties from whom appellant purchased livestock as per addresses furnished by the assessee in order to verify the genuineness of the transaction and also to ascertain the fact that whether the livestock purchases were made from purchaser/shepherds in connection with applicability of Rule 6DDE(ii). Seven persons did not appear before the AO in compliance to the said summon. As per the reproduction of Remand Report in the order passed by the Ld. CIT(A), out of the 7 persons of TableB, the party named in serial No. 2 has expired and the service was returned by postal authority with the endorsement to that effect. 27. So far as, the six persons who did not attend the hearing pursuant to the summons issued by the Ld. AO, the assessee duly submitted the quantitative details in the form of purchase register and sale register supported by shipping bills. Since the 7 persons did not appear before the Ld. AO, Rs. 67,00,000/- in respect of the cash payment for purchase of livestock made to them cannot be verified as of the opinion of the AO. In the Remand Report the Ld. Assessing Officer proposed to restrict the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: Kamlaben S Bhatti 44 Taxman.com 459 (Guj.) Dharmamdev Finance Pvt. Limited 43 taxman. Com 395 (Guj.). ACIT vs. Jogindersingh (ITA No. 2942/Delhi/2011) ITAT, Delhi Anmol Colour India Pvt. Ltd. vs. ITO 31 SOT 18 (JP) 121 ITJ 269: ITAT, Jaipur. CIT vs. Khanpur Cool Synthicate (1964) 53 ITR 225 (SC): I have examined the contents of remand report and the rejoinder filed by the appellant 10.1 The first ground of appellant is against disallowance of the Act stating that the amount of Rs. 4,62,50,000/- paid in cash to various parties is in violation of Section 40A(3)of the IT Act and hence disallowed. The modus operandi of business of the appellant which is explained during assessment proceeding is that the appellant is engaged in business of trading in and export of Live stock viz. sheeps and goats. The live stock is generally available with the breeders of nearby village who are basically unorganized and illiterate farmers/shepherds etc. Hence, whenever they have an intention to sale the live stock, they appoint a broker who in turn approaches the nearby city area and approaches intended buyers like appellant. The payment of above purchase is made by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer has clearly failed in issuing appropriate show cause notice and has clearly vitiated principles of natural justice by making addition of Rs. 4.625 crore as against Rs. 1.25 crores as stated in the show cause notice. The appellant is of the opinion as to how the initial amount as stated in show cause notice of Rs. 1.25 crore was derived and how the same went up to Rs. 4.625 crores, is not apparent from assessment order. The contention raised by the appellant found to be correct. 10.3 Even on merits, the main contention assessing officer is that appellant has made payment exceeding of Rs. 20,000/- which is in clear violation as mentioned in Section 40 A(3) has been submitted, Assessing officer failed to appreciate the fact that appellant is engaged in trading of livestock and hence the case of the appellant is squarely covered under Rule 6DD(e)(ii) as the payment is made for purchase of live stock. Assessing officer has further called for details like documentary proof that payment in cash was made at their insistence . Such condition is no where stated section 40A(3) or Rule 6DD. Such a requirement has been specified only in circular 8/2006 which has been issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the traders/retail outlets would be considered as producer of livestock and meat. Appellant being in the business of trading of live stock, only the emphasis as supplied above, is applicable since the later part of the circular would be applicable in case of purchase of meat and hence, appellant is not required to fulfill the conditions specified in para 4 of the circular which is applicable to producer of meat only and not in case of trader of live stock. Hence, the case of appellant being squarely covered by Rule 6DD, therefore there is no case of additions. 10.4 Also, the genuineness of purchases made by Appellant has not been doubted by Assessing Officer. The appellant has relied upon the decision of Hon. Gujarat High court in case of Anupam Tele Services v Income Tax officer (366 ITR 122) where in it is held that when genuineness of payment is not in doubt no disallowance can be made under Section 40 A(3). Further, appellant has relied upon the decision of various high courts. I have carefully consider the decisions where in it is held that where the payment is genuine, there cannot be denial of deduction of genuine and bona fide business expenditure merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their business from Ahmedabad and they might be used to banking system. Further, on verification, it is also noticed that the assessee has made payments of purchase of live stock through banking channel. Copy of ledger a/cs. of these 02 persons/entities submitted by assessee during assessment proceedings is enclosed for your kind perusal and ready reference. As pointed out in assessment order, it is seen that the assessee has made payments for purchase of livestock of Rs.10,00,000/- Rs.4,00,000/- respectively from these 02 parties in cash aggregating to Rs. 14,00,000/- as during the year under consideration. Therefore, to this extent, the payments made to these 02 persons i.e, Rs.14,00,000/- cannot be allowed u/s 40A(3) read with Rule 6DD(e)(ii) of I.T Rules, 1962. (c) Further, out of 34 persons, 07 persons had not attended to the summons issued. In respect of one person viz. Ali Kosha Gaam (Ali Ibrarhim) (Sl.no. 24 of Table-A above), the summons was returned back with the remarks of postal authority as the person is deceased does not exist and returned back . With respect to remaining 06 persons [Sl.nos.1 (repeating at 31), 6, 8, 12,18, 23 of Table-A above), it is revealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases were made, as claimed by the assessee, could not be found out by the Department and that the burden was on the assessee to prove the genuineness of the parties? 2. Though the questions per se do not bring out the real controversy, having perused the orders on record with the assistance of the learned counsel for the Revenue, we find the following facts emerging from the record. 3. The respondent-assessee is engaged in the business of trading in finished fabrics. For the assessment year 2005-06, the Assessing Officer held that the purchases worth Rs.40,69,546 were unexplained. He, therefore, disallowed such expenditure claimed by the assessee and computed the total income of Rs. 41,10,187. 4. The issue was carried in appeal by the assessee before the Commissioner. The Commissioner rejected the appeal, upon which the assessee went in further appeal before the Tribunal. The Tribunal substantially allowed the assessee's appeal, in so far as the question of bogus purchase is concerned, the Tribunal concurred with the Revenue's views that such purchases were made from bogus parties. The Tribunal noted that the Assessing Officer had issued notice to all parties from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed. Thus, after considering the decision of Hon. Gujarat High Court as above, I am of the view that the total amount of Rs. 81,00,000/- should not be added to the total income of appellant as real income is required to be taxed not the turnover. Now the next step would be to determine the income of the appellant out of this gross expenditure. It is well settled that gross turnover cannot be added as income of the assessee only the profits element embedded in such receipts can be taxed as income. The real income is to be taxed not the turnover as has been held in various judicial orders. There is no denying the fact that the appellant is in export business and the total business receipts have been deposited in bank accounts which have not been disputed at any stage. Hon'ble ITAT, Ahmedabad in the case of Dineshbhai Dhansukhlal Mithaiwala Vs. ITO 152 ITD 874 (Ahd.) has held ''Where aggregate credits in undisclosed bank account of assessee were considered as cash sales, entire sales could not be considered as income bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 40A(3). The Ground No.1 is party allowed. 29. From the above it appears that while considering the matter on merit after perusal of the remand report furnished by the Ld. AO and the reply filed by the assessee against the same, the Ld. CIT(A) came to the finding that the show-cause issued by the Ld. AO though proposing disallowance of Rs.1.24 crores, the addition was ultimately made to the tune of Rs.4.265 crores violating of the principle of natural justice. The judgement passed by the Hon ble Delhi High Court in the case of Maruti Suzuki India Ltd vs. Addl. CIT reported in, TPO (2010) W.P. (C ) 6876 of 2008 has been duly taken care of by the Ld. CIT(A) in concluding that non-issuance of proper show cause can be fatal to the proceeding under the Income Tax Act. The Ld. AO clearly failed in issuing the appropriate show-cause notice thereby clearly vitiated the principle of natural justice by making addition of Rs.4.625 crores against the proposed addition of Rs.1.25 without showing reason as to how the same figure went up to Rs.4.625 crores as has rightly been agitated by the assessee before him. In our considered opinion such finding is found to be justified for the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of meat and not in case of trader of livestock and therefore, the case of the assessee has been found squarely covered Rule 6DD and consequently no addition is found to be warranted. 31. Against the issue raised by the assessee on the principle of commercial expediency and none of the payments exceeding 20,000/- was made by the assessee to a party in a day it is held by the Ld. CIT(A) that the appellant is not covered by the provision of Section 40A(3) of the Act and therefore, this particular issue is not required to be adjudicated upon, keeping in view that the particular aspect of the matter that the assessee is a livestock exporter and not a dealer in meat. Further that, from the remand report it appears that no doubt has been raised by the Revenue as to the export sales made by the appellant. Out of 34 parties upon whom summons were issued 27 duly appeared and their statements were recorded. It is also an admitted fact that all the shepherds were from unorganized sector and they are not maintaining books of accounts, neither been able to confirm the exact amount of sale made by them to the appellant. However, the payment outstanding at the end of the year was confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable on record. 35. During the year under consideration the assessee has incurred various following expenses: 1. Association Fees Exp. 2. Audit Fees Exp. 3. Bank Charges Commission Exp. 4. Bonus Salary (along with Supporting Vouchers) 5. Car Exp. 6. Car Insurance Exp. 7. Car Loan Interest Exp. 8. Conveyance Exp. (Along with Sample Supporting Vouchers) 9. Electric Exp. 10. Grass Chara Exp. (Along with Sample Supporting Vouchers) 11. Kasar Vatav Exp. 12. Labour Exp. (Along with Sample Supporting Vouchers) 13. Legal Fees Exp. 14. Loading and Unloading Exp. (Along with Sample abstract of Registered maintained by the Assessee. 15. Misc. Exp. 16. Office Exp. 17. Petrol Exp. 18. Staff Salary Exp. (Along with Sample Supporting Vouchers) 19. Port (Wharfage) Exp. (Along with Sample Supporting Vouchers) 20. Stationery Exp. 21. Telephone Exp. 22. Travelling Exp. 23. Vaternarry Health Certi. Exp. (Along with Sample Supporting Vouchers). 36. Fact remains that certain expenses were carried out by the assessee for business activities like Grass Chara (to feed the cattles), Vaternary Health Certificate, Transportation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
