9911796707
TMI Blog2018 (4) TMI 1989X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment, the AO had examined this issue pointedly. This therefore was a scrutinized issue. We may also remember that the impugned notice has been issued beyond the period of four years from the relevant assessment year. We may approach the different grounds which weighed with the AO which are summarized above, with this background in mind. The combined effect of these ground pressed in service by the AO seems to be that during the post survey inquiries, he put the entire burden of reestablishing the genuineness of the purchasers on the assessee. These purchases were made several years before from thousands of individual agriculturists who were the growers of the crop. The fact that the assessee could not produce documentary evidence to prove that the sellers were the cultivators during the survey can therefore hardly be a factor which could weigh while judging that income chargeable to tax has escaped assessment. The agriculturists who had sold the crop to the assessee at the relevant time, would be reluctant to come before the Revenue authorities and this therefore, by itself, may also not be a relevant factor. In any case, we are informed that in the present year, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The assessee makes domestic as well as export sales. For the assessment year 2010 11, the petitioner had filed return of income on 23.09.2010, declaring total income of Rs.4.85 crores (rounded off). After first processing the return under section 143(1) of the Income Tax Act, 1961 ('the Act' for short) the same was taken in scrutiny. During such scrutiny assessment proceedings, the Assessing Officer examined the petitioner's purchases of cotton directly from farmers, for which, payments in cash were made even though the purchases exceeded Rs.20,000/ . The petitioner replied to the queries raised by the Assessing Officer with supporting materials. The Assessing Officer passed the order of assessment on 05.03.2013 and accepted the petitioner's income as returned making following observations: 2. In response to the said notices issued Shri Haresh Dadhania, CA from M/s. H. Jamnadas Co., CAs. duly authorized representative of the assessee attended from time to time and furnished the details as called for. The books of account along with bills and vouchers were called for and examined on test check basis. The case was also discussed with him. 3. The assessee company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (mainly raw cotton) which was running into crores of rupees every year for last 7 financial year. These were the purchases of mainly cotton which the assessee stated to have made directly from the farmers for which the company had issued self made cash vouchers. Large number of vouchers recorded cash purchases of more than 3 4 lacs per voucher. Further the total quantum of cash URD purchases was huge for the 7 FY covered under the search whose FY wise quantum was determined from the books of accounts seized/impounded during the search/survey and is as under Sr No FY URD Cash Purchases 1 2009 10 53,36,83,200 2 2010 11 151,87,07,315 3 2011 12 161,78,68,411 4 2012 13 136,81,27,130 5 2013 14 154,96,44,344 6 2014 15 210,96,25,006 7 2015 16 127,84,63,154 8 2016 17 57,44,97,384 Further it was found that assesse has claimed all these cash purchases exceeding Rs 20,000 as business expenses in light of the provisions of section 40A(3) rw Rule 60D(e). It is important to mention here that rule 6DD(e) grants immunity from the provisions of section 40A(3) only if cash payments in excess of Rs. 20,000 are made to the cultivator, grower or producer for the purchase of agricultural produce. Hence d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch assessee had recorded against their names in its books of account. In percentage terms it can be stated that 61% of the purchase parties were non verifiable from the electoral records of the respective villages. Hence the purchases made from these persons becomes doubtful and the claim of the assessee u/s 40A(3) rw Rule 6DD becomes further weak based on the outcome of this exercise for the concerned persons. It reveals a fabricated modus operandi wherein real net profit is concealed to give way to net profit which is abysmal. The NP ratio of assessee ranges from 0% to 2% from FY 2009 10 to FY 2015 16. t cannot be a prudent business practice in terms of return of income to show such less marginal NP. Investigation Wing Rajkot conducted further enquiry through Revenue Department granted access to the land records (Form No-7/12) of Saurashtra region. In this exercise the existence of land in the names of the URD purchase parties of the assessee was verified for respective villages with the purpose whether these parties as submitted by the assessee were actually farmers and did they have land to produce agriculture earnings. The data retrieved from the land revenue records shows tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the assessee to disclose truly and fully all material facts. The notice is therefore bad in law. III. Counsel submitted that the Assessing Officer has proceeded on completely erroneous premises as can be seen from the reasons recorded. Further, the reopening of the assessment is based on conjectures and surmises. Notice has been issued for mere verification. Counsel submitted that failure on the part of the petitioner to produce large number of farmers before the Revenue authorities during the post survey inquires, would not enable the Assessing Officer to reopen the assessment. After a long period of time, the farmers would in any case be reluctant to appear before the authorities, particularly when their income being tax exempt, they had no stakes in the matter. 8. On the other hand, learned counsel Shri Bhatt for the department opposed the petition contending that Assessing Officer had voluminous material at his command to enable him to form a belief that income chargeable to tax has escaped assessment. There were large scale discrepancies in the information supplied by the petitioner with respect to the farmers. When such information was tallied or checked with the State R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is enough material available, prima facie suggesting that the purchases were bogus and in the large number of cases, the farmers producers either did not exist or did not carry out agricultural activities of producing sufficient cotton to sell to the petitioner, the very foundation of the petitioner's disclosures would become shaky. However, when the Assessing Officer is seeking to reopen the assessment several years after the completion of the financial year and long number of years even after the completion of assessment proceedings, the nature of the material at his command with a limited purpose of ascertaining its existence, would certainly be called for. 10. In this context, we would have to refer to the material on record at some length. Before doing that, we may summarize the reasons why the Assessing Officer desires to reopen the assessment. In the reasons recorded, he noted that the assessee had made cash purchases of cotton by issuing vouchers. Typically, these purchases were in the range of Rs.3 to 4 lakhs. For different assessment years, the total of such purchases varied. In the assessment year 2010 11, the assessee had made such cash purchases, total value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... farmers do not own lands in their names. The assessee could not satisfy these discrepancies. 09.04.18 12. In the objections raised as well as before us, the assessee has been contending that the reasons cited by the Assessing Officer were not valid. The assessee could not be expected to present the producers or growers of the cotton before the authorities several years after the purchases were made. Evidence shows that majority of the purchasers were owning lands. In some cases, the lands were in the names of the family members, that by itself, would not mean that the person from whom such produce was purchased was not a genuine producer. In India, the agricultural operations are often carried out by persons who may not be owning the lands. The assessee's profit ratio for the current year was as good or better than the current year and in any case, the assessee in making profit higher than other entities engaged in the same business. The sellers being agriculturists, their income was exempt. Question of providing their PAN or returns did not arise. 13. We must remember that in the present case, the return filed by the assessee was originally taken in scrutiny and during which s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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