9911796707
TMI Blog2023 (6) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... is missing; the assessee admitting to the sourcing details from Samathies who are stated to be not maintaining the records, where the supplier is abroad and/or does not have agricultural land. Continuing further, in this view of the matter, the partrelief allowed by the ld. CIT(A), being contested by the assessee per it s CO, also fails. The same, it may be appreciated, forming part of the question arising for determination in appeal, does not entail any separate examination and adjudication. Decided in favour of revenue. - ITA No. 51/Coch/2017 - - - Dated:- 28-4-2023 - Shri Sanjay Arora, Accountant Member And Shri Sandeep Gosain, Judicial Member For the Appellant : S/s. K.M.V. Pandalai, Advocate K.K. Chandra Sekharan, Advocate For the Respondent : Smt. J.M. Jamuna Devi, Sr. D.R. ORDER PER BENCH This is an Appeal by the Revenue and Cross Objection (CO) by the Assessee, directed against the Order by the Commissioner of Income Tax (Appeals)-2, Kochi ( CIT(A) for short) dated 14/12/2016, partly allowing the assessee s appeal contesting it s assessment under section 143(3) of the Income Tax Act, 1961 ( the Act hereinafter) dated 13/03/2016 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished a paddy receipt sheet issued to him by the KSCSC mentioning the name of the Mill as that of the assessee. 3.3. The respondents who claim to have received payments through banks only, are also not the persons who could have made sale to the assessee as the assessee has made the entire purchase from unregistered purchasers in cash. 3.4. The assessee has made purchases from Adat farmers SCB during the Financial Year 2013-14 only. However it has furnished in its list of purchases made in F.Y. 2012-13, the names and addresses of farmers who supplied to the SCB as seen from seven responses stating that they made sales to the Adat farmers SCB. 3.5. The fact is that the assessee claims that it does not issue Form 8E though it mandated by the Kerala State VAT Law. This goes to prove that the details furnished by the assessee with regard to the purchases are not trustworthy and are not backed by proper supporting evidences. 3.6. The assessee's contention that it effected purchases through Padasekhara Samathies either in its name or through the name of Pavizham Mills is also not supported by facts. 3.7. By furnishing list of large number of names and addresses the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made from Thengupallikari Padasekra Samathy Rs. 75,20,900 Rs.5,53,20,069 The assessee failed to identify the persons to whom payment of cash to the extent of Rs. 5,53,20,069 was made during the year for purchase of paddy. Therefore, the purchases are treated as not genuine and the claim of expenses of Rs. 5,53,20,069/- is disallowed. 4.1 Without prejudice to the above position that the purchases were not genuine assuming without conceding that there were purchases to the extent disallowed above, the fact was that letters issued to farmers were returned in most of the cases as discussed above. Majority of the replies from farmers stated that they did not sell paddy to the assessee. Three Padasekhara Samathies informed that it did not co-ordinate purchase or supply of paddy from its members by the assessee. Adat Farmers SBC, a Co-op. society stated that it did not sell the paddy from its members to the assessee during the year. The assessee could not produce confirmation for purchases in respect of societies to the extent of Rs3,27,49,659/- and prove that any payment was made to them. These would prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in paddy, presence of impurity, etc. and any paddy which is below the standard are not accepted by the millers on Supplyco account. In these cases, the Padasekhara Samathies negotiate with the rice millers for accepting for their own case. The millers pay cash to the farmers through the Padasekhara Samathies. The Padasekhara Samathies consist of some of the farmers in the area and are only facilitators and not agents. Assessee's aim is to purchase paddy at a competitive rate and they do not know the name and address of the farmers. Since the assessee is making payment of. such purchases by ready cash, they need not require maintaining their ledger or accounts in their books of accounts. The assessee relies on Padasekhara Samathies for names and addresses of the farmers as the mill owner is not directly interacting with the famers. Subsequent to this, the AO also conducted inquiries with the Padasekhara Samathies and they replied that they facilitate sale by farmers, help them in paper work, but do not make any sale themselves. Based on the inquiry conducted, the AO reached the following conclusion: In view of the above, the assessee has failed to furnish the proof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated between the farmers and the Mills. These Padasekhara Samathies give a little edge to the farmers in terms of bargaining power. Farmers coming in with relatively small quantity of paddy, sell their product, receive the consideration in cash and go back home. For the farmers, the transaction is full and final and its over for good. Normally, the farmers are neither required, nor do they maintain any books of accounts. On the other hand, the mills have to maintain books of accounts and therefore they are dependent on these Padasekhara Samathies for taking the names and addresses of the farmers, who transact and sell their paddy through a particular Padasekhara Samathy. Since the Mill has procured its paddy and settled the transaction through payment in cash there and then, it also does not require to maintain any ledger of these parties. The payment is made to farmers directly by the employees or agents of the mill and it is not made to the Padasekhara Samathies. Because of this unique system, opined that the direction of investigation by the AO was not correct. In the instant case, the assessee has made a total purchases of Rs.68,01,32,694/-. Out of the above, purchases wort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus addition of Rs.16,14,411/- is confirmed and balance is deleted. (emphasis, ours) 2.2 The assessee s case, on the other hand, making reference to the Revenue s Ground 2, reproduced as under, was that the Tribunal had wrongly regarded it as a case of disallowance u/s. 40A(3) of the Act: The learned Commissioner of Income Tax (Appeals) in considering that the disallowance has been made under section 40A(3) whereas the addition made by the Assessing Officer was on the grounds of purchases not proved genuine (para 3.9) of the order. In para 4.1 of the assessment order, the A.O merely states without prejudice to the above position that the purchases were not genuine, addition u/s 40A(3) is also warranted. Though there is reference to sec. 40A(3) in para 4.1 of the assessment order, the disallowance, in the final analysis, has been only u/s. 37(1) of the Act. In any case, even as pointed out by the ld. CIT(A), there is nothing on record to suggest that any payment has been made in excess of Rs.20,000, for section 40A(3) of the Act to be attracted. There is no mention of a single such payment by the Assessing Officer (AO). As regards section 37(1), it needs to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal through it s counsel. 2.5 Shri K.M.V. Pandalai, Advocate, the ld. counsel for the assessee, would, in rejoinder, state that the position had since altered in view of the Revenue having appealed against the impugned order. 3. We have heard the parties, and perused the material on record. 3.1 This is the second round before the Tribunal. In the first round, the Tribunal, vide it s order dated 13.11.2018, restored the matter back to the assessing authority to, in its words, examine whether each purchase is from the farmers and each payment is more than Rs.20,000/- so as to attract section 40A(3) of the Act. This, it may be noted, is in conformity with the orders by the Tribunal relied upon by the ld. CIT(A), also making reference to decisions by the Hon ble High Court. This order was, however, challenged by the assessee in appeal before the Hon'ble High Court who, set aside the said order, holding as under: - In the result, appeals are allowed and the order of the Tribunal in I.T.A.No. 51/Coch/2017 and CO No.21/Coch/2017 are set aside and the Tribunal is directed to dispose of the same afresh, after giving opportunity to the revenue and the assessee, not only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudice. It was, in fact, in this view of the matter; observing the ld. CIT(A) to have however not issued any finding qua s.40A(3), that led the Tribunal in the first round to remit the matter back for verification as to applicability of section 40A(3), which was assailed in further appeal, claiming it to be not a ground before it. Sure, but the same was admittedly before the ld. CIT(A); rather, the sole ground, and found as part of his adjudication. Before us, the assessee s claim is of the impugned disallowance, made u/s. 37(1),as not sustainable in law. The Hon'ble High Court has, however, as afore-noted, restored the matter for a de novo consideration. No fresh grounds or plea was though taken before us in the second round. It therefore becomes incumbent on us to understand the Revenue s caseper the assessment order inasmuch as the same furnishes the cause of grievance to the assessee in the first instance and, accordingly, forms the basis of it s case before the ld. CIT(A) and, thus, the relief allowed to it. This becomes also relevant as the ld. CIT(A) also finds the AO s stand as internally consistent as there is no question of disallowance u/s. 40A(3) if the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, in fact, the Hon'ble jurisdictional High Court enumerating the principles laid down by the Apex Court in the matter in Ram Bhadhur Thakur [2003] 261 ITR 390 (Ker)(FB): Travancore Titanium Product Ltd. v. CIT [1966] 60 ITR 277 (SC) CIT v. Radha Kishan Nandlal [1975] 99 ITR 143 (SC) Udhavdas Kewalram v. CIT [1967] 66 ITR 462 (SC) Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) CIT v. R. Venkataswamy Naidu [1956] 29 ITR 529 (SC) Dhiraj Lal Girdharilal v. CIT [1954] 26 ITR 736 (SC) The question, thus, in each case is one of fact, as to whether the expenditure, on the basis of the material on record, stands shown as incurred wholly and exclusively for the purposes of the business by the assessee. 3.5 The law having been clarified, the matter before us is essentially factual, even as held by the Hon ble Court, i.e., whether the assessee can be, in the facts and circumstances of the case, said to have satisfactorily proved the impugned expenditure on the anvil of s. 37(1)? In our view, the answer to the question aforesaid is an emphatic No . All that the assessee furnishes, after seeking time, stating of it as not having the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest, as of the Samathy representatives for the farmers. This, i.e., the purchases from the farmers through the Padasekhara Samathies, then, represents a happy reconciliation between the contrary claims of direct purchases from farmers by contacting them through it s personnel, on one hand, and of purchases therefrom through the Samathies representing the farmers, on the other. Sure, the assessee states so before the ld. CIT(A), but the same was, firstly, without any material in support and, two, negated by the contrary claims, justifying the nonavailability of details with it on that basis. In fact, acceptance of this state of affairs makes the absence of basic details arising spontaneously in the normal course of business, with, as well as the raising of pleas justifying the said absence by, the assessee, all the more flummoxing, raising serious doubts in the matter. 3.7 The basic document afore-said would thus stand to arise in any case, i.e., even assuming, as stated, absence of any charge on the transaction. This only would vouch the transaction, i.e., purchase of paddy at the stated quantity, rate, and time from a farmer, whose identity as such is relevant from the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion not attracting any levy/charge. The aforesaid in fact represents the basic minimum, and it may well be that further material stands to arise; each trade having its own peculiarities. The absence of basic material evidencing the transaction, absence of which remains unexplained throughout, thoroughly impugns the assessee s claim. No wonder, then, the Samathies deny the transactions, i.e., of being undertaken through them. Not only this, the farmers being obliged to supply to Supplyco, which gives them a better price for their produce, it is admittedly only the produce which does not meet the moisture and other purity standards, that is sold by the farmers to the Mills, whether through the Samathies, which enable them securing a better rate, or directly upon being approached by them. Why, a transaction, to avoid any dispute or misunderstanding arising, would, given the fact of the farmers being organized and, in any case, in the interest of both the parties, be mediated or at least witnessed by an independent party. This would eliminate, particularly considering the payment is in cash, any scope of any issue arising while concluding the transaction or, even later. The transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Societies. Rs. 3,27,49,659 Purchases claimed to have been made from Nandyattukari Padasekhara Samathy Rs.1,05, 03,560 Purchases claimed to have been made from Thenkanripacha Padasekhara Samathy Rs. 45,45,950 Purchases claimed to have been made from Rs. 75,20,900 Thengupallikari Padasekra Samathy Rs.5,53,20,069 3.9 We emphasize the non-production of any material and details, even basic and incidental to the transaction, arising in its normal course, and, thus, nonsubstantiation of it s claim by the assessee, for the reason that the same is the basic postulate of s. 37(1); nay, for that matter, any claim, and for that reason is by itself sufficient for disallowance of a claim thereunder, in whole or in part, by the assessing authority. We have already clarified that the Tribunal as the final fact finding authority, as indeed any authority issuing a finding of fact/s, has to necessarily base it s case on the material on record. Further, it is clearly permissible for it to, for the purpose, assess the amount claimed in excess or unexplained (refer: Swadeshi Cotton Mills Co. Ltd. v. CIT [1967] 63 ITR 57 (SC); Lakshmiratan Cotton Mills Co. Ltd. (supra); Lachminara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find the same as completely misplaced, both on facts and in law. The impugned purchases are unproved; nay, disproved, finding them as not genuine. Where, then, is the question of acceptance of the assessee s accounts, i.e., to that extent? There is no obligation in law for the AO to, before effecting a disallowance of any claim of expenditure, for the reason of the same not satisfying the mandate of the relevant provision of law; sec. 37(1) in the instant case, to reject the book-results and proceed to estimate the same. That is, to throw the baby with the bath-water, as it were. It is a case of a specific disallowance of a specific claim nothing more and nothing less, and is to regarded as such. The second limb of the ld. CIT(A) s argument is w.r.t. the quantitative details of the purchases and sales, duly reconciled, with the assessee maintaining a stock register, forming part of it s books of account, duly audited. But, then, so, i.e., audited, are the unregistered dealer purchases, or the impugned purchases for that matter! Quantity, representing the said purchases, stand duly processed, yielding output, either sold or in stock, both of which have not been doubted or adversel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orms the basis of the extent of disallowance. No such case has been made out, with, rather, no tax admittedly incident on the transaction. At the same time, there have been decisions by the Tribunal where the entire such purchase is disallowed. The argument of the sales being not doubted is again misplaced. The same, representing admitted income, has not been examined at all nothing more and, nothing less. The argument as to the quantity imbalance that would ensue, is, again, misplaced. It fails to appreciate that the impugned purchases have been found to have been not made, i.e., on the basis of the evidences led in substantiation, and, in the least, found as unproved and, thus, not eligible for deduction in computing income inasmuch as the pre-requisite condition therefor is not met. No doubt the assessment under the Act is to be of real income, but the same is further subject to the provisions of law (Poona Electric Supply Co. Ltd. v CIT [965] 57 ITR 521 (SC); Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577 (SC)). A ready example is a disallowance u/s. 40A(3)/(3A), to which we may include even that u/s. 37(1), where the relevant expense is either unproved or, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acs, working to 23.45% of the total purchases of rs. 6801.33 lacs, including rs. 66.51 lacs directly from the farmers. The disallowance being u/s. 37(1), the law in the matter was, to begin with, visited. To summarise, it is, in each case a matter of fact, with the law, in principle, having been laid down by the higher courts of law, the ingredients whereof are as under: - burden to prove its return and claims is on the assessee; - onus to prove the claim of expenditure is, again, squarely on the assessee; - the assessing authority, as indeed any Tribunal issuing a finding of fact is to base it s findings on the material on record, and not de hors the same, or by speculating as to what the state of affairs would be; - the assessing authority, once he proceeds to make a disallowance of a claim of expenditure, is empowered, nay, duty bound, to make an estimate which is integral to assessment, as to the extent the claim is excessive. In the facts of the instant case, not only there is nothing on record to substantiate, much less prove, the assessee s claim, so that the same is unproved, there is in fact no explanation for the absence thereof. The AO made an inquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whatever extent, is on an assessee. The same represents the settled law in the matter. The assessee, in the instant case, has, despite abundant opportunity, abysmally failed to prove the incurring of the impugned expenditure, with, rather, there being material on record disproving the same. It is under the circumstances not considered necessary to travel to the question as to whether the same is merited u/s. 40A(3) as well. The same, even as noted by the ld. CIT(A), does not in fact arise for consideration when the expenditure itself is held by the Revenue as not incurred; it being a non-obstante clause providing further stipulation for allowance of an expenditure incurred in cash or other than by way of legal tender. A bogus purchase implies no purchase, while verification w.r.t. s. 40A(3) necessarily implies a seller and a purchaser, i.e., a payer and payee, both of whom coalesce into one in case of a bogus claim. The AO, as indeed the Tribunal, referring thereto is only as, without prejudice. The same, not unprecedented, is misplaced in the facts of the case where the basic record is missing; the assessee admitting to the sourcing details from Samathies who are stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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