DCIT CENTRAL CIRCLE 2, TUTICORIN vs. VVD & SONS (P) LIMITED, TUTICORIN

The Cross Objections filed by the assessee for both the assessment years are delayed by 11 days in filing the CO, for which, the assessee has filed affidavits for condonation of delay, to which the ld. DR has not raised any serious objection. Consequently, since the assessee was prevented by sufficient cause, the delay of 11 days in filing the COs stands condoned and admits the Cross Objections for adjudication.

The Revenue has raised following grounds for the AY 2013-14:

The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal.

There was a typographical error in the Assessment order i.e. instead taking the period April, 2011 and May, 2011 to March 2012 the AO has mentioned as April, 2011 to June, 2011. It is pertinent to note that though the AO has stated that no reply was given for the said discrepancy, the assessee had furnished proof of his reply on 07.03.2016 before the ADIT (Inv.), Madurai. Copies of which was also furnished before the Assessing Officer vide letter dated 14.12.2017, wherein the assessee has explained that as per SAP, the wastage of packing materials were deducted only at the end of the each financial year. Also it was explained that as per the SAP, the closing stock Was valued at weighted average rate of raw material, but as per the return the closing stock was valued at the cost price existing at the end of the month i.e. 31st March which is the accounting standard followed by the company. The assessee has not explained clearly about the grounds on which the difference has cropped up.

The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal.

The CTA) has opined that it is simple arithmetical adjustment made for the F.Y. 2014-15 and 2015-16 and the reworking of A0 on notional basis without any proof of sale of excess stock and consequent receipt of cash is not a proper conclusion and hence deleted this addition. It is submitted that, though the quantification of stock under this head for the F.Y. 2010-11 to 2013-14 are made based on the calculation with reference to F.Y. 2014-15 and 2015-16 on the basis of seized materials. Therefore, further appeal.

The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal.

There was a typographical error in the Assessment order i.e. instead taking the period April, 2011 and May, 2011 to March 2012 the AO has mentioned as April, 2011 to June, 2011. It is pertinent to note that though the AO has stated that no reply was given for the said discrepancy, the assessee had furnished proof of his reply on 07.03.2016 before the ADIT (Inv.), Madurai. Copies of which was also furnished before the Assessing Officer vide letter dated 14.12.2017, wherein the assessee has explained that as per SAP, the wastage of packing materials were deducted only at the end of the each financial year. Also it was explained that as per the SAP, the closing stock Was valued at weighted average rate of raw material, but as per the return the closing stock was valued at the cost price existing at the end of the month i.e. 31st March which is the accounting standard followed by the company. The assessee has not explained clearly about the grounds on which the difference has cropped up.

The learned CIT(A) had deleted the addition made by the AO regarding on money payment made by the assessee company for Rs. 17,68,655/-. The assessee company has produced bank account copies, and the relevant copy of property registration for having made the payment of Rs. 17,68,655/-. The assessee has produced the bank details for the source for having made the payment and also property registration document. However, second appeal is suggested to consider the case on merits.

The learned CIT(A) has deleted the additions made by the AO under purchase of copra from market committee on the ground that the assessee company has not made direct purchase from market committee and purchases of copra were from traders and which were recorded in the books. The assessee has furnished reply to the AO at the time of search assessment proceedings. Also suitable reply was furnished in letter dated 29.02.2016 address to the ADIT (Inv.), Tirunelveli. On verification of the details available on record, the purchases of copra were made through traders and not directly from the market committee. Second appeal is suggested to consider the issue on merits. In assessment year 2016-17, the Revenue has raised following grounds:

Brief facts of the case are that the assessee, M/s. VVD and Sons (P) Limited is engaged in manufacture & sale of coconut oil & gingili oil, in operating wind mill and also in letting out ware-house etc. The assessee originally filed its return of income for the assessment year 2013-14 on 30.09.2013 admitting a total income of ₹.16,84,97,950/-. A search and seizure operation under section 132 of the Income Tax Act, 1961[“Act” in short] was conducted on 17.11.2015 in the group cases of M/s. VVD and Sons (P) Ltd. During the course of search, several incriminating documents relating to unaccounted transactions were stated to have been unearthed and seized. A notice under section 153A of the Act dated 27.12.2016 was issued to the assessee and in response thereto, the assessee has filed its return of income for the assessment year 2013-14 on 27.01.2017 admitting a total income of ₹.17,98,12,440/- which includes the undisclosed income of ₹.1,12,45,946/- for purchase of coconut through bought-notes now offered in the return of income filed in response to notice under section 153A of the Act. During the search, it was noticed that the following payments were made to family members as 'Salary' during for the F.Y 2012-13 relevant to the assessment year 2013- 14 under the heads: Salary details Amount in (Rs.) Management salary 23,93,020

After scrutinizing the books of account of M/s. VVD & Sons (P) Ltd. as well as considering the sworn statement recorded from Shri D. Kabilan, one of the directors of the assessee company, the Assessing Officer disallowed the claim of expenditure made in terms of special salary, commission charges to the extent of ₹.2,25,23,490/- for the assessment year 2013-14 and brought the same to tax. Similarly, the Assessing Officer disallowed ₹.2,23,08,498/- for the assessment year 2014-15 and ₹.1,75,36,048/- for the assessment year 2015-16. 7. The assessee carried the matter in appeal before the ld. CIT(A). While deleting the addition, the ld. CIT(A) has observed as under:

As regards the ground relating to addition made u/s.40A(3) in respect of the claim of the appellant viz., payments made to relatives, the issue is decided as under: Contesting the said addition, the AR submitted that it is a fact that the recipients of salary and commission payments, are relatives of the management but at the same time they are compensated only for the services rendered by them in the improvement of the business. Even though the said payments were claimed as expenditure in the hands of the appellant, it is to be mentioned that the said receipts have been duly offered for income tax purposes by the relatives. The AR further submitted that wherever TDS provisions are applicable, they have been duly adhered to. In support of the claim of the AR, the copies of the returns of income filed by the recipients, TDS returns which have been filed during assessment proceedings have also been produced during appellate proceedings. The AR further submitted that the AO solely relied on the oral statement of Mr. Kabilan recorded at the time of search in the late hours of the night and did not conduct further enquiry with the persons to whom salary and remuneration was paid.

Aggrieved, the Revenue is in appeal before the Tribunal.

1 The Ld. CIT-DR submitted that impugned addition has been made on the basis of statement recorded form the director of the assessee- company.

2 The Ld. AR, on the other hand, supported the impugned order and submitted that the salary payment has been disallowed merely on the basis of statement without verifying the factum of rendering of services. Similar salary payments made by the assessee to same parties, has been accepted in assessment in subsequent years. Further, the recipients have offered the salary to tax in their respective hands.

3

4 With regard to the deletion of additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, commission, etc. the only contention of the Department was that the ld. CIT(A) failed to note that the sworn statement given by the Executive Director, D. Kabilan, one of the Directors on 17.11.2015. Before us, the ld. DR also submitted that impugned addition has been made on the basis of statement recorded form the director of the assessee-company. In view of the decision in the 12 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 case of PCIT v. Abhisar Buildwell Pvt. Ltd. (supra), the statement recorded from Shri Kabilan alone is not sufficient to make addition in the absence of any incriminating material evidence unearthed during the course of search. However, in the appellate order, the ld. CIT(A) has observed that the Assessing Officer did not examine the nature of services rendered by them and did not record a finding that that the remuneration paid was unreasonable and excessive compared to similar services in other cases. This onus of proof lies on the assessing officer, which he failed to discharge, and he miserably failed to make out a case under section 40A(2) of the Act. Further, the Assessing Officer has not examined the individuals (recipients) separately to bring on record and to prove that either they did not render any service warranting any payments or that the payments are not commensurate with the services rendered by them. This amply proves that the addition was made in a mechanical manner as per the appraisal report without independent application of mind and without making independent enquiries. Accordingly, the ld. CIT(A) has rightly held that the payments made by the assessee are not of personal in nature and have been incurred due to business exigency and correctly deleted the additions for the assessment years under appeal. We find no reason to interfere with the order passed by the ld.

With regard to deletion of made towards payment made to contractors, after analysing various documents, the Assessing Officer noted that the assessee made contractual payments viz., filling charges, loading (finished goods) and drier machine charges as follows: Name Contract Amount (Rs.) Neethirajan Filling charges 74,38,845 Navaneethakrishnan Filling charges 8,10,951 Uthirapandi Unloading, drier charges 13,86,641 Esakkimuthu Filling & drier charges 20,54,178 Veerapandi Filling charges 65,048 Total 1,17,55,663 Since the assessee has not deducted tax at source on the above payments of ₹.1,17,55,663/- to contractors for the assessment year 2013- 14, the Assessing Officer invoked the provisions of section 40(a)(ia) and made the disalalowance. Similarly, the Assessing Officer disallowed ₹.1,28,43,955/- for the assessment year 2014-15 ₹.1,53,27,125/- for the assessment year 2015-16 and ₹.1,13,62,992/- for the assessment year 2016-17. 9.1 The assessee carried the matter in appeal before the ld. CIT(A). While deleting the addition, the ld. CIT(A) has observed as under:

Coming to the ground relating to payment made to contractors without making TDS, it is submitted by the AR that S/Shri Uthirapandi, Navaneethan, Easakkimuthu, Veerapandi and Kumar are the head-labourers and the workers under them are in the muster roll of the appellant and are covered by the ESI/ PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the five contract-labourers' cases. In fact they are the regular workers borne in the acquaintance roll of the appellant. As regards the payments made to these five people, TDS provisions were not attracted, as the entire payments do not relate to them only and it is to be disbursed further to the workers coming under their control. The AR further stated that it was brought to the notice of the assessing officer during assessment proceedings that the appellant paid labour charges to the labourers through the head labourer and all the labourers are borne in the Provident Fund records of the appellant and the assessing officer never disputed the above claim of the appellant in the impugned orders. When all the labourers are treated as persons directly employed by the assessee for the purpose of Provided Fund Act and merely because the wages are disbursed through the head labourer for convenience, it cannot be said by any stretch of imagination that there was an element of contract involved. I have carefully gone through the assessment order and the submissions made by the AR. It is true that the labourers are regular workers of the appellant company and the payments are made to them through the head labourers which do not warrant any deduction of tax at source and hence it cannot be said that the appellant had contravened the provisions of section 40(a) (ia) thereby entailing disallowance in respect such payments. In view of the above discussion, the entire disallowance under section 40(a)(ia) made in respect of the above five Head Labourers, viz., Rs.43,16,818/- (AY 2013-14), Rs.53,30,063/- (AY 2014-15) and Rs.15,34,752/- (i.e. 30% of 51,15,742 (AY 2015-16) and Rs.36,48,716/- AY 2016-17) is deleted.

2 Aggrieved, the Revenue is in appeal before the Tribunal. The Ld. CIT-DR submitted that the payments were contractual in nature which would require TDS u/s 194C of the Act.

3 On the other hand, the ld. Counsel for the assessee has strongly supported the order passed by the ld. CIT(A).

4

With regard to the addition towards variation in stock, during the course of search proceedings, a sworn statement was recorded on 19-11- 2015 from Shri D. Kabilan, director of the assessee-company. While answering to Question No.9, Shri Kabilan had admitted before the Assessing Officer that the variation between physical verification of stock and the books stock in respect of production of oil. It has been submitted that as per SAP software application maintained, the yield ratio for copra to coconut oil was prefixed as 63%, whereas the actual production is higher than that of 63% leading to discrepancy. The said discrepancy is noted in the books of accounts as ‘vain’. Also, it was noticed that there was invariable excess stock in the physical inventory ranging from 500 to 1000 litres than the stock as per computerized SAP for each year. The details of adjustment entries made for the earlier period prior to F.Y 2014- 15 could not be obtained during the course of search proceedings. Therefore, based on the available data for the complete financial year of 18 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 2014-15, the total quantity of adjustment entries for the F.Y 2008-09 to 2013-14 were calculated as below: Total quantity of coconut oil sold for F.Y 2014-15: 1,08,89,160.28 litres. Adjustment entries made for excess stock F.Y 2014-15: 6,033.49 litres. Ratio (10889160.28/6033.49): 0.00055408 Accordingly, applying the multiplying factors i.e. the above ratio was worked out for the A.Y 2013-14 at 5335.58 X Rs.95 [multiplying factor:0.0005541]. Thus, the Assessing Officer has worked out the value of excess stock adjusted by way of recording fake entries in the books of account for the A.Y 2013-14 at ₹.5,06,880/- and treated the same unaccounted income earned by the assessee by the way of off-setting the excess physical stock on account of adjustment entries made. Hence, the Assessing Officer added the above amount on account of adjustment entries made to off-set the excess physical stock. Similarly, the Assessing Officer made addition of ₹.6,41,814/- for the assessment year 2014-15 and ₹.9,89,492/- for the assessment year 2015-16 and ₹.16,10,604/- for the assessment year 2016-17. 10.1 On appeal, after considering the submissions of the assessee, the ld. CIT(A) has observed as under:

Next ground of appeal relates to alleged excess stock said to be found during the course of search and the consequent addition made thereto. In this regard the AR submitted that a norm has been fixed with regard to the percentage of oil extracted from certain quantity of copra crushed. This percentage has been fixed at 63%. Even

2 Aggrieved, the Revenue is in appeal before the Tribunal.

3 The Ld. CIT-DR submitted that excess physical stock was found which justifies the addition.

4 However, Ld. AR relied on the actual findings rendered in the impugned order.

5 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. With regard to the alleged excess stock said to be found during the course of search, while reiterating the submissions as made before the ld. CIT(A), the ld. Counsel for the assessee has submitted that a norm has been fixed with regard to the percentage of oil extracted from certain quantity of copra crushed. This percentage has been fixed at 63%. Even though it has been fixed at 63%, at times the resultant output i.e. oil extracted may be more or less depending upon the quality of the copra fed in the crusher. This excess / deficiency of crushed oil is used to be accounted in the books as either (-) % or (+) %. However, the Assessing Officer has taken the (+) percentage as excess stock (as if not accounted for) and computed the value thereof and added the same as unaccounted (excess) stock. By considering the submissions of the assessee, the ld. CIT(A) has observed that Assessing Officer had mistakenly considered

With regard to the disallowance of expenditure violating the provisions of Section 40A(3) and bogus purchase made by the company, in the assessment order for the assessment year 2013-14, the Assessing Officer has observed as under:

Madeena Traders, Palakkad.

Alfas Traders, Palakkad.

Shajahan Traders, Palakkad

3 He has stated that Shri Natarajan, Senthil and Chinna are the three persons who had purchased copra in and around Pollachi and on their direction Shri Shajahan has prepared sales invoices for the specified quantity, the rate as fixed by M/s. VVD & Sons Pvt. Limited. Thereafter, he has prepared purchase bill in his concern name M/s. Appu Traders, M/s. Achu Traders, M/s. Alfas Traders, M/s. Madeena Traders and M/s. Shajahan Traders at the rate as reduced by 0.25 paise per kg. After raised the purchase bills, he has logged into Kerala commercial tax website and used to 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 firms names at the rate as increased by 0.25 paise per kg. After preparing sales bills in favour of Ms. VVD & Sons (P) Limited he has stated to have handed over the sales invoices to the persons namely Chinna. Natarajan, Senthil, who were waiting at Kerala Check post. Thereafter, the lorry driver carrying the copras had driven the lorry with goods into Kerala and stayed there for an hour and after one hour, again the lorry driver with load copra returns to Tamil Nadu with the sales bills drawn by Shri Shajahan in favour of Ms. VVD & Sons. He has stated to have not known the details of where the copras were supplied. He has also stated that with the raising of purchase bills and thereafter raising sales invoices in favour of Ms VVD & Sons, his work is done/over. For which work done Shajahan he has stated to have received a commission amount of Rs. 1000-2000 per load from M/s. VVD & Sons Pvt. Limited. Shri Shajahan has also stated that he is not aware of the money deposited by M/s. VVD & Sons (P) Limited for his having supplied to copra t M/s. VVD & Sons. The assessee has also stated that the money transactions are known only to Shri Chinna, Senthil and Natarajan.

4 From the above facts, it is learnt that the real suppliers are Shri Chìnna, Senthil and Natarajan of Pollachi and not Shajahan since he has supplied the copras in the capacity of a commission agent alone and not as a seller. This fact is also confirmed from the above mentioned facts and also from the statements recorded from the three persons Shri Chinna, Natarajan and Senthil.

5 During the search assessment proceedings while recording sworn statement recorded u/s. 131 from shri Gothandapani @ Chinna on 16.11.2017 it is ascertained that shri Gothandapani has made purchases of copra from farmers at Pollachi and supplied copras to M/s. VVD & Sons from his own concern name i.e. M/s. Sree Karpagam traders through Shri Kandasamy, the broker of M/s. VVD & Sons, who is a Tuticorin based broker for VVD & Sons.

6 Also it is ascertained from Shri Natarajan that he has purchased copras from farmers at Pollachi and supplied copras to M/s. VVD & Sons, on information given by Shri Kandasamy, the broker of M/s. VVD & Sons. For this supply the payment is sent to Shajahan in the names of M/s. Alfas Traders, M/s. Madeena Traders in the bank accounts opened in the said concerns name of Shri Shajahan at Pollachi. Shri Natarajan has stated that a self bearer cheque singed by Shajahan would be available with him always to encash the payment. Soon after the VVD & Sons makes payment through RTGS for the above supply of copra he would receive a SMS and then he would withdraw the amount by presenting the self bearer cheque signed by Shajahan, which is already available with him. Similar, is the case with Shri Rengaraj @ Senthil in respect of copra purchase and supply to M/s. VVD & Sons.

7 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 containing bank account numbers and cheque books details maintained by the Shri Shajahan. However, During the search assessment proceedings it was found on verification of the said note and cheque books seized that though the bank accounts have been opened in Shajahan's firms names were actually maintained and operated by the above three persons as detailed below. Name of the trader Bank/account No. Operated by Alfas Traders IDBI 000451 to 000500 Natarajan Alfas Traders ICICI, Pollachi 016726 to 016750 Natarajan Alfas Traders IDBI 169091 to 169140 Natarajan Appu Traders Axis Bank 025521 to 025535 Chinna Appu Traders Axis Bank 037427 to 037425 Chinna Appu Traders Axis Bank 053276 to 053358 Chinna From the above it is very clear that Shri Shajahan has opened bank accounts in his traders names but were operated by the three persons at Pollachi. It is also confirmed from their sworn statements that the sms regarding the payment made through RTGS by M/s. VVD & Sons has also received by the three persons. Moreover, the said three persons only have withdrawn the payments credited through RTGS by presenting the self cheques issued by Shajahan. After withdrawing the payments from RTGS, the three persons have made in turn payments to the farmers from whom they have purchased the copras and commission to Shri

8 From the above narration, it is found that Shri Shajahan and his concerns are not real suppliers of copra from his firms run by Shri Shajahan are found to be only "colorable devices" used by the assessee-company M/s. VVD & Sons P. Ltd. to accommodate for raising sales bill for their copra purchases from traders in Pollachi to avoid sales-tax, leviable in Tamil Nadu. Evidences found highlight that VVD group has purchased copra from three persons S/shri Senthil, Natarajan and Kothandapani @ Chinna who had withdrawn the amounts from bank by presenting bearer-cheques, as discussed in the earlier paras of this order.

9 To verify the above facts of the case as presented above, during search assessment proceedings, further necessary actions were made by way of deputing this office Inspector to examine and verify the instruments of payments as available in the records of various banks in Pollachi and on verification made , it was found from the sample instruments for payment made by VVD Company towards copra purchases found that almost all the instruments were only self-bearer cheques and not account-payee cheques, given by Shajahan to the three persons namely Natarajan, Senthil and Chinna, which were encashed by them. The copies of self cheques issued by Shri Achu Traders, Madeena Traders issued Shri Shajahan to the three persons are incorporated below, as a sample of proof for having verified the instruments issued by Shri Shajahan [scan copy of cheque]

10 Even though VVD& Sons P Ltd. claims that all the payments are only through RTGS, the same has not been proved by the three persons and Shri Shajahan because during the hearing, they did not provide the necessary details of the farmers from whom copras wee purchased by them, this leads to raise a suspicion whether the copras were really purchased from farmers or someone else. If they had purchased from farmers, the onus lies on Shajahan and the three persons to prove that the purchases were from In the absence of farmers details, it could be construed that all the RTGS payments said to be made by M/s. VVD & Sons have not at all reached the farmers either. Shri Shajahan has also stated in his statements that he has worked as commission agent alone, for which he has stated to have received his commission part. In this circumstances, it is not ascertainable whether the entire

11 From the above facts it is not ascertainable as to who is the final and actual with receiver of the RTGS payments made by VVD & Sons. In such a situation as regard to copra purchases said to have been made remained doubtful as to who is the real supplier of copra to VVD & Sons, since Shajahan and the three persons remains silent and stated throughout the proceedings that they are only the agents for supplying copras by getting only commission payment.

12 From the findings made as discussed in the earlier paragraphs, a fact is obvious that Shri Shajahan has been paid by the VVD & Sons only a sum of 1000/- to 2500/- per load as his part of commission. Shri Shajahan was asked to raise fake purchase invoices to M/s. VVD & Sons and provide sales accommodation entries, for which act he has been paid commission. The entire payment towards fake purchase of copras from Shajahan including the commission paid for raising such fake invoices are considered unlawful u/s. 37(1) of the I.T. Act, which warrant disallowance of the same. Further “As per the provisions of Section 40A(3) of the Income Tax Act, 1961 where the assessee-company incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise than by way of an account payee cheque drawn on a bank or an account-payee bank draft, exceed Rs.20,000/-, no deduction shall be allowed in respect of such expenditure." The entire financial transactions entered by VVD Company by making RTGS payment with the three persons and Shajahan are only paper transactions which attract the provisions of Sec.40A(3) of the 1.T. Act, 1961. Since VVD & Sons had employed a plan in which Shajahan was made to act as a middle man by preparing fake invoices, giving accommodation entries for sales, issuing self bearer cheques and not an account payee cheque or account payee bank draft to the three persons, which clearly brings to light the real intention of VVD & Sons to inflate the purchases for evasion of income tax.

14 One more fact is again recollected from the statement recorded from Shri Shajahan that the main broker of M/s. VVD & Sons, Shri KADASAMY has only contacted the three persons for placing orders for purchase of copras and not Shri Shajhan and also the payments of RTGS for the said supply are also en-cashed by the three persons only and not Shajahan, to whom the money was meant. By seeing all the facts of the case, it is very clear Shajahan is not real the supplier of copras to M/s. VVD & Sons. The real suppliers are the three persons who had obtained copras from farmers and supplied through Shajahan to M/s.VVD & Sons. By doing so, primarily, M/s. VVD & Sons hasbenefited in a way by avoiding payment of sales tax to Tamil Nadu Government. Secondly, the three persons have made payments to the farmers at Pollachi by withdrawing from the bank accounts maintained by Shajahan's concerns on presenting of self bearer cheques issued by Shajahan. This scheme of action attracts the provision of Section 40A(3) because the identity of the RTGS payments made in the various bank accounts of Shajahan firms (namely M/s. Achu Traders, M/s. Alfas Traders, Madeena Traders, Shajahan Traders, Achu

15 The assessee's authorized representative has filed his reply on 20.12.2017 regarding the purchases of copra from Shajahan group concerns. The content of his reply were fully considered and the same are not acceptable. An amount of Rs. 21,09,09,180/- is disallowed and added u/s 40A(3) towards violation of the provisions of the said Section for the A.Y 2012-13, since the payments towards purchase from Shajahan were made through bearer-cheques and not through account payee cheques or account-payee demand drafts as required u/s 40A(3).

16 It is abundantly clear that actually no sale of copra took place between M/s. Appu Traders and M/s. VVD & Sons. Only in order to reduce the tax liability as well as to avoid provisions of Sec. 40A(3) , M/s. VVD & Sons had resorted to a kind of dubious method, as if through purchases were made from Shajahan and his group concerns. The whole exercise is only a colourable device employed by M/s. VVD & Sons to reduce the tax liability by utilizing the name of Shajahan and his group concerns, as supplier of copras.

17 Tax planning must be a legitimate provided it is within the framework of law. The assessee company had employed colourable devices, which cannot be part of its tax planning and it cannot encouraged or entertained on the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It could be concluded that the method adopted by the assessee company is only a sham transaction arranged for purchase of copras, which was got executed through the three Pollachi agents S/shri Chinna, Natarajan and Senthil as if through Shri Shajahan & his group concerns. The whole exercise is only a colourable device employed by M/s. VVD & Sons to reduce the tax liability by utilizing the name of Shajahan and his group concerns, as supplier of copras.

18 As per the above discussion it is very clear that the assessee company has violated the provisions of the Sec. 40A(3) of the Act, with regard to the purchase of copras claimed by it to have been made from Shri Shajahan and his group concerns. Therefore, the entire transaction amount involved therein amounting to Rs. 21,09,09,180/- considered for substantive addition in the hands of M/s. VVD & Sons.

1 Similarly, the Assessing Officer made disallowance under section 40A(3) of the Act for the assessment year 14-15 of ₹.28,94,09,448/- and for the assessment year 2015-16 of ₹.28,25,35,800/-.

2 On being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) for all the assessment years under appeal. After considering the submission of the assessee, the ld. CIT(A) has observed as under:

Now coming to the ground relating to disallowance made u/s. 40A(3) the facts are to be crisply brought out to know the exact modus operandi adopted by the appellant. The appellant used to acquire copra from wherever they are available at competitive price with an eye on the quality of the same also. As per the invoices raised by the Kerala supplier, payments are made by the appellant through RTGS. The AR submitted that the AO had gone through the books of account of Kerala supplier and found that cash payments were made. Any how the fact remains that the appellant paid the entire money only through RTGS and without appreciating these facts, resorted to disallowance u/s.40A(3) as if cash payments were made by the appellant. It is seen from the assessment order that the AO has admitted the fact that payments were made through RTGS. In fact the AO attached the photo copy of the bearer cheque issued by the Kerala supplier only and nowhere the AO has proved that appellant indulged in cash payment. The AO has not made a mention or proved that for the purchase of copra cash payments were made by the appellant. Likewise, the AO has also not refuted the purchase of copra. I am of the considered view that so long as the appellant has not made cash payments and all the payments were through RTGS, invoking the provisions of section 40A(3) is not correct and hence the resultant disallowance also is uncalled for. Further, the main contention of the appellant is that all the payments to the group concerns of Mr. Shajahan were made by RTGS and the same is not disputed by the AO. On the other hand, the assessing officer relied on the books of accounts seized from the residential premises of Mr Shajahan without giving an opportunity to the appellant for cross examination. In this regard, a copy of the letter addressed by the AR to the AO is reproduced below: [attached copy of the letter] The AR submitted that seized material or evidences collected at the back of the appellant has no evidentiary value unless an opportunity of cross examination is given. Even after thorough investigation by Investigation team, there is absolutely no evidence brought on record to prove that part of the amount paid by RTGS came back to the appellant. Any disallowance under section 40A(3) can be considered only in the case of group concerns of Shri Shajahan and not in the hands of the appellant. The AR also brought to the notice of the undersigned that similar addition on this count has been made in the case of M/s.Appu Traders, Achu Traders, Shajahan Traders, Madina Traders and Alfa Traders. The disallowance under section 40A(3) cannot be made twice, once in the case of group concerns of Mr. Shajahan and again in the hands of the appellant.

3 Aggrieved, the Revenue is in appeal before the Tribunal.

4 The Ld. CIT-DR submitted that the findings of Ld. AO establishes that the actual purchases were made from Pollachi parties and not from Kerala parties as claimed by the assessee. The Pollachi parties were paid in cash which justifies invocation of section 40A(3) of the Act.

5 The Ld. AR, on the other hand, controverted the same and submitted that the purchases were evidenced by copies of invoices. All the payments were made to Kerala parties through RTGS. All these parties were filing Sales Tax return. Considering all these evidences, the impugned additions have been deleted.

6 We have considered the rival contentions. The case of the assessee is that the assessee used to acquire copra from wherever they

7 We have gone through the paper book filed by the assessee and find that the payments made by the assessee to its agents are through RTGS. This fact was not disputed by the Assessing Officer. The only case of the Assessing Officer was that the assessee’s agent issued

With regard to bogus purchase of copra, in the assessment for the assessment year 2013-14, the Assessing Officer has observed as under:

Bogus Purchase of copra: On verification, it is found that Shri.Shajahan has played a vital role in purchase of copra by the company. The assessee-company was requested to state whether any agreement has been entered into by the company with Shajahan and to furnish bills, relevant ledger copies, invoices etc. transport such as LR copies, transporters name and address through whom the copras were transported from Shajahan to VVD company. When the rates of copra quoted in the invoices raised by Shajahan group concerns are compared with that quoted by another supplier on a particular date, it is found that the rate quoted in the invoices prepared in the name of Shajahan group concerns is higher than that of the another supplier. The inflated value of copra purchased from Shajahan group for the financial year 2012-13 relevant to the 32 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 assessment year: 2013-14 is worked out at Rs.57,38,397/- and the same is treated as bogus purchase for the said Assessment Year: 2013-14. It is noticed from the invoices of Shri.Shajahan group that the inflated value of purchases made during the F.Y 2012-13 relevant to the Assessment Year 2013-14 was arrived at Rs. Rs.57,38,39 7/- (for a quantity of 4904613.18 on an inflated rate of 1.17 per kg), The said amount of Rs. Rs.57,38,39 7/- I- is treated as bogus purchase from Shajahan group concerns for the A.Y 2013-14. The same is disallowed and added.

1 Similarly, the Assessing Officer made disallowance towards bogus purchase of copra for the assessment year 2014-15 of ₹.1,08,59,175/- and for the assessment year 2015-16 of ₹.1,13,40,886/-.

2 On appeal, with regard to the deletion of addition made towards bogus purchase and rate variation, the ld. CIT(A) has observed as under:

The next ground relates to bogus purchase and rate variation: The AO resorted to the impugned addition based on the illogical conclusion that there is rate variation in the purchase of copra resulting in inflation of purchase price. The AR explained the reason for rate variation and attributed the same to quality of copra acquired. Depending on the quality of the copra prices tend to vary from supplier to supplier. Without taking into consideration this basic fact, the AO resorted to the impugned addition. The AR further submitted that the AO erred in resorting to disallowance towards alleged bogus purchase without even referring to the specific entries in the seized material and without explaining how the excess rate was arrived at. It appears that the assessing officer simply copied the appraisal report in the assessment order without application of independent mind and without even seeing the relevant seized material. I have gone through the discussion made by the AO in the assessment order and the submissions made by the AR during appellate proceedings It is anybody's guess that prices may vary depending on the quality of the product, here it is copra. If a high quality of copra is to be acquired definitely the appellant may have to pay a higher price. So unless one sits on the chair of the appellant and look into the matters in the proper perspective, any guess work may lead to unimaginable and incredible result which may not take one to any desired end. The AO cannot dictate or expect that the appellant should purchase only from a particular buyer whose prices are comparatively less. The appellant is in the market for the past several years and has acquired a reputation for its products. In such circumstances, acquiring high standard of copra for crushing is essential and unavoidable to achieve high quality of end product and consequently it has to pay a higher price. Without taking into 33 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 account this basic requirement for consideration, indulging in an exercise to make such an addition is not correct. Even otherwise neither the investigation team nor the assessing officer has brought any material on record to show that part of the purchase price was received back by the assessee, I find that this addition has been made purely based on doubt, suspicion, assumption, and surmises.

3 Aggrieved, the Revenue is in appeal before the Tribunal for the assessment years 2013-14, 2014-15 and 2015-16. 12.4 The Ld. CIT-DR supported the findings of Ld. AO that the comparison of purchase price with other parties would show that there was inflation of purchase expenditure.

5 The Ld. AR submitted that there is no scope of presumption or assumptions and the additions have to be based on concrete evidences only.

6 We have considered the rival submissions. In the assessment order, the Assessing Officer has observed that there is rate variation in the purchase of copra resulting in inflation of purchase price. After considering the submissions of the assessee, the ld. CIT(A) has observed that the assessee was in the business for the past several years and has acquired a reputation for its products. It was further observed that in order

With regard to the difference in closing stock as per SAP vs. Return of income, in the assessment order for the assessment year 2013-14, the Assessing Officer has observed as under:

Difference in closing stock as per SAP vs. Return of income: During the search operation, it was noticed that the assessee-company is utilizing SAP software for their accounting system including inventory control and financial management. There is a discrepancy in value of closing stock as per SAP and return of income. On examination, it is found that the value of closing stock of raw materials, packing materials and finished goods as per the data extracted from the seized material differs from the value of closing stock as shown in the return of income for the Assessment Year 2013-14. The difference is furnished as under:

1 Similarly, the Assessing Officer made addition towards difference in closing stock as per SAP vs. Return of income for the assessment year 2015-16 at ₹.32,25,318/-.

2 On appeal, the ld. CIT(A) has observed as under:

The last ground relates to AY 2013-14 to 2015-16 purported suppression of closing stock. The AR submitted that during the FY 2011-12 the appellant company switched over from Tally system of accounting to SAP system of accounting. The AO was of the view that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. The appellant duly given a reconciliation statement and reasons for the difference before the AO. Unfortunately this was not considered properly. The appellant vide its letter dated 14/ 12/2017 submitted as under “5. At the end of the financial year, the actual value of closing stock (with quantity) is furnished to central excise department. The copy is enclosed herewith.

In the SAP, the closing stock is valued at the weighted average rate for raw material and packing material. In the balance sheet, the closing stock is valued at cost price prevailing at the end of the month i.e. 31st March. It is the accounting standard followed by the company.

In the SAP, the wastage of packing materials are not taken into account It was deducted manually at the end of the year.

The stock as on 31.03. 12 as per SAP was Rs. 11, 31,93, 820/- whereas the actual stock was Rs. 8,84,01,709/ - In the case of copra and coconut oil, the on value of the stock is higher in balance sheet. Hence the actual closing stock value is correct.” The AR submitted that the AO never bothered to examine the above reply with reference to the records maintained by the appellant, but he simply stated in the assessment order that the reply was not acceptable without giving reasons for non- acceptance. It is seen that the assessing officer merely followed the appraisal report without independent application of mind and without conducting independent enquiries regarding the submission made by the assessee. After considering the reply of the appellant with reference to the records maintained by the assessee, I find that the reply is acceptable in respect of facts and figures submitted by the assessee and the appellant was free to follow the weighted average method for SAP and cost price method for income tax purposes. The AO has not made any attempt to reconcile the stock position as per the Tally system of accounting and SAP accounting system. He has also not brought on record any evidence as to why he could not accept the appellant's explanation for the variation in stock position which is due to the switching over of accounting system from Tally to SAP. In fact, for the AY 2012-13 the value of closing stock of Rs.2,47,72,535/- added by the AO, was deleted in the appellate order vide ITA No.344. 345 and 346/17-18 dated 16.4.2018. Accordingly considering the above addition in the closing stock, for the AY 2012-13, addition on account of telescopic effect was made in the AYs 2013-14 and 2015-16 for Rs.21,33, 110/- and Rs.32,25,318 respectively. Now that the value of closing stock of Rs.2,47,72,535/- has been directed to be deleted in the AY 2012-13, the addition on account of telescopic effect made for the AYs 2013- 14 and 2015-16 for Rs.21,33,110/- and Rs.32,25,318 respectively is hereby deleted.

3 Aggrieved, the Revenue is in appeal before the Tribunal for both the assessment years 2013-14 and 2015-16. 37 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18

4 The Ld. CIT-DR supported the computations made by Ld. AO. However, ld. AR submitted that the variation was only due to the fact that the assessee switched to SAP based accounting software.

5 We have considered the rival contentions. In the assessment order, the Assessing Officer has noted that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. Accordingly, the assessee has duly submitted the reconciliation statement and reasons for the difference before the Assessing Officer, which was unfortunately not considered. Before the ld. CIT(A) the assessee has produced copy of the actual value of closing stock (with quantity) as furnished to the Central Excise Department. After considering the detailed written submission filed by the assessee as was submitted before the Assessing Officer, which was not considered by him, the ld. CIT(A) has also considered the value of closing stock of ₹.2,47,72,535/- added by the Assessing Officer which was deleted in the appellate order dated 16.04.2018 and the Tribunal also confirmed the order of the ld. CIT(A) on further appeal by the Revenue. Accordingly considering the above addition in the closing stock, for the assessment year 2012-13, the addition on account of telescopic effect was made in the assessment years 2013-14 and 2015-16 for ₹.21,33,110/- and ₹.32,25,318/-

The next ground relates to purchase made from Market Committee and the consequential addition in the assessment year 2015-16 and 2016-17. In the assessment order for the AY 2015-16, the Assessing Officer has observed as under:

Cash Purchase of copra from Market Committee out of unaccounted income: During the search, it was found that M/s. VVD & Sons (P) Limited has purchased copras directly from various market committees and regulated market which are controlled by Tamilnadu Agricultural Marketing board. The details of copra purchases made by VVD for the period 1.4.2015 to 25.12.2015 from Coimbatore Market Committee and the details are summarized as below: Name of the market committee F.Y. 2014-15 Pollachi 45,42,000 Negamam 39,69,048 Pethappampatti 51,53,600 Total 1,36,46,648 During the search, it was found that the copra purchased from various market committees are not recorded in the books of accounts of VVD Company. The said market committees are governed by Department of Agricultural marketing and agricultural business Government of Tamilnadu. The entire purchases were made by remitting cash in the respective market committee with 1% cess levied by the 39 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 committee. During the post search also, when enquired about the purchase made from market committee, Shri Kabilan, one of the Executive Director of VVD & Sons has not given any proper evidence/explanation. Even during the course of search assessment proceedings, the assessee company did not gave any explanation about the cash purchase made from market committee. In the absence of any corroborative evidence about the cash purchase of Rs. 1,36,46,648/- from market committee the undisclosed production out of unaccounted copra purchase from market is arrived by adopting the gross profit ratio adopted at 20.16%. The gross profit of undisclosed production out of unaccounted copra purchases for the A.Y. 2015-16 is worked out at Rs. 2,09,10,485/-. A total sum of Rs. 3.45,57,133/- is treated as income earned out of unaccounted and undisclosed income of the assessee company and hence added to the total income.

1 Similarly, the Assessing Officer made addition of ₹.4,53,75,915/- for the assessment year 2016-17. 14.2 On appeal, while deleting the addition for both the assessment years, the ld. CIT(A) has observed as under:

The next ground relates to purchases made from Market Committee and the consequential addition in AY 2015-16 and 2016-17: The appellant acquires copra through various sources. One such source is obtaining copra from Market Committee. But the appellant cannot straight away acquire copra from Market Committee directly. The Market Committee conducts auction and the participant bid the auction. Without knowing the techniques of the auction, the appellant is not in a position to participate in the auction. Hence persons knowing the techniques participate in the auction. From the successful bidder the appellant acquires the copra. In all the documents till the bidder obtains the quantity of auctioned copra from the market committee the documents such as cess payment challan etc. will be in the name of the successful bidder. But once the successful bidder transfers the quantity of copra to the end user, here it is VVD & Sons, the document viz., Permit to move the goods from the market committee to the end user will be in the name of VVD & Sons only. To substantiate the above submission of the appellant, for sample, following two documents have been attached viz., (1) Proof for payment of Cess by the trader M/s.Selva Vinayaga Oil Mill (cess receipt No, 467694 dated 15.11.2015) and (2) related Permit (No.552894 dated 15.11.2015) through which the trader transfers the copra to the appellant. From this it is evident that the appellant had not indulged in purchases directly from market committee and the purchases were only from traders, which purchases were duly accounted. Without understanding these modalities the AO came to the conclusion that appellant had purchased copra from market committee which is basically a wrong notion and accordingly he made the impugned addition. Based on this wrongful conclusion, the AO also calculated deemed gross profit. From the 40 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 following narration it will be easily guessed as to how the AO went wrong in arriving at the deemed gross profit. For the Ay 2015-16 the purported total purchases from the market committee had been taken at Rs.1,36,46,648/- The gross profit arrived at on this illusory purchase is computed at Rs.2,09, 10,485/- This is to say the gross profit has been worked out at 153.22% By no stretch of imagination this gross profit can be achieved. In the AY 2016-17, such purchases have been taken at Rs.4,53,75,915/- and no gross profit has been worked out and surprisingly added the entire purchase cost. It is needless to say that the value of purchases made from the traders, who participated in the auction conducted by the Market Committee, has already been booked in the regular accounts. Thus it can be seen that the AO indulged in a futile exercise in making the impugned addition. After going through the various documents produced by the appellant such as Permit to move the copra from the market committee to the appellant, proof of cess payment by the successful bidder etc. which were furnished before the AO during assessment proceedings, I am of the view that the explanation offered by the appellant are plausible. The permit to move the copra from the place of origin to the place of destination that is the factory of the appellant etc. has been gone through. Even admitting but not accepting for a while that the appellant had indulged in purchases from market committee directly, neither the Investigation Team nor the AO has found out any corroborative documents either to prove that the appellant indulged in purchase directly from the market committee or for corresponding unaccounted sales. After taking into account all these into consideration, I am convinced that the addition made on this count is unwarranted and accordingly the addition of ₹.3,45,57,133/- for the AY 2015-16 and ₹.4,53,75,915/- for the AY 2016-17 is deleted. This ground of appeal for both the AYs is allowed.

3 Aggrieved, the Revenue is in appeal before the Tribunal.

4 The Ld. CIT-DR submitted that the assessee was unable to furnish any plausible explanation with respect to cash purchases made from market committee. The Ld. AR submitted that sufficient evidences were adduced by the assessee to support its claim.

5 We have heard both the sides, perused the orders of authorities below. In the assessment order, the Assessing Officer has stated that the 41 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 assessee has purchased copras directly from various market committees and regulated market which are controlled by Tamilnadu Agricultural Marketing board. However, the ld. CIT(A) has observed that the assessee acquires copra through various sources. One such source was obtaining copra from Market Committee, but not straight away acquired copra from Market Committee. The Market Committee conducts auction and the participant bid the auction. The Traders having permit and paying cess, acquire the copra from whom the assessee purchased the copra. In all the documents till the bidder obtains the quantity of auctioned copra from the market committee the documents such as cess payment challan etc. will be in the name of the successful bidder. But once the successful bidder transfers the quantity of copra to the end user, here it is VVD & Sons, the document viz., Permit to move the goods from the market committee to the end user will be in the name of VVD & Sons only. To substantiate the above submission of the assessee, for sample, following two documents have been furnished before the ld. CIT(A) viz., (1) Proof for payment of Cess by the trader M/s.Selva Vinayaga Oil Mill (cess receipt No, 467694 dated 15.11.2015) and (2) related Permit (No.552894 dated 15.11.2015) through which the trader transfers the copra to the assessee. From this, the ld. CIT(A) has noted that the assessee had not 42 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 indulged in purchases directly from market committee and the purchases were only from traders, which purchases were duly accounted. Without understanding these modalities the Assessing Officer came to the conclusion that the assessee had purchased copra from market committee and accordingly the impugned addition was made. Based on this wrongful conclusion, the Assessing Officer also calculated deemed gross profit. The ld. CIT(A) has further observed that for the AY 2015-16 the purported total purchases from the market committee had been taken at ₹.1,36,46,648/-. The gross profit arrived at on this illusory purchase was computed at ₹.2,09,10,485/-. This is to say the gross profit has been worked out at 153.22%. Thus, it was observed that by no stretch of imagination this gross profit can be achieved. In the AY 2016-17, such purchases have been taken at ₹.4,53,75,915/- and no gross profit has been worked out and surprisingly added the entire purchase cost. It is needless to say that the value of purchases made from the traders, who participated in the auction conducted by the Market Committee, has already been booked in the regular accounts. Thus it is clear that the Assessing Officer indulged in a futile exercise in making the impugned addition. By considering various documents produced by the assessee such as Permit to move the copra from the market committee to the 43 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 assessee, proof of cess payment by the successful bidder etc. which were furnished before the Assessing Officer during assessment proceedings, copy of the same were part of the appellate order, the ld. CIT(A) opined that the explanation offered by the assessee are plausible. After examining the permit to move the copra from the place of origin to the place of destination that is the factory of the assessee etc., the ld. CIT(A) further opined that even admitting but not accepting for a while that the assessee had indulged in purchases from market committee directly, neither the Investigation Team nor the Assessing Officer has found out any corroborative documents either to prove that the assessee indulged in purchase directly from the market committee or for corresponding unaccounted sales. Under the above facts and circumstances, we are of the considered opinion that the ld. CIT(A) has rightly deleted the addition of ₹.3,45,57,133/- for the assessment year 2015-16 and ₹.4,53,75,915/- for the assessment year 2016-17. We find no reason to interfere with the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed for both the assessment years.

With regard to the deletion of addition made towards alleged on- money payment made towards acquisition of land by the assessee for 44 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 ₹.17,68,655/- in the assessment year 2015-16, in the assessment order, the Assessing Officer has observed as under:

On money payment for purchase of solar project : During the search it was found that an c-mail sent by one Shri Narayanswamy Sahadevan to Shri D. Kabilan Executive Director of M/s. VVD & Sons reveals that there was necessarily of fund for purchase of land for VVD's Solar Project. In the e-mail of Shri Narayanasamy Sahadevan (nara1936@Yahoo.com) sent to Shri D Kabilan, (ID No. Kabilan @vvd.in) it was mentioned about the fund requirement for purchase of land for VVD 's solar project. A revised fund requirement statement was seized vide ANN/VRH/VVD/LS/S-I dated 19.11.2015. The statement was prepared on 10.11.2014. As per the materials, the assessee company purchased 5.96 areas of land in Melaiyur Village, Aruppukottai Taluk, Virudhunagar District from ShriK Srinivasan for a sum of Rs. 3,40,000/- per acre. It was also seen that the company has paid Rs. 14,70,655/- as cash to Sri K Srinivasan, While raising a specific question in this aspect Shri D. Kabilan, vide his sworn statement in answer 6 has stated that the amount of Rs.14.70.655/- is the difference between the actual sale consideration agreed and the guidelines value prescribed by the Government. Sri Kabilan has agreed to admit the said amount as undisclosed income for the respect assessment year. Therefore, the payment of on money for the purchase of land at Rs. 14,70,655 and the brokerage paid by cash of Rs. 2,98,000/- are brought to tax for the A.Y, 2015-16. 15.1 On appeal, the ld. CIT(A) has observed as under:

The next ground relates to addition on account of alleged on-money payment in acquisition of land. This addition relates to the AY 2015-16. The facts are that the company has purchased 5.96 Acre of land at Meliyur Village for Solar power project for Rs.6,27,420/- on 23.01. 15. Apart from that, the payment details are given below: Rs. On money payment 14,70,655 Brokerage & other expenses 87,639 Total 15,58,294 As per the AR, for the purpose of the above payments Rs. 19,00,000/- was withdrawn (Rs.950000 on 05.01.15 & 950000/- on 06.01.15) from Axis bank, Tuticorin; out of this withdrawal Rs. 15,42,855/- (Rs. 1558294 less TDS Rs15439) was paid to Mr.R.Jeyabalaserma Ganesan who is the intermediary and broker for the purchase of the land. The balance Rs.3,57,145/- was deposited in the Axis bank (A/c. No. 105010200002875) on 24.01. 15. This payment was made as land development charges and TDS was made. So the payment was made by withdrawing from the 45 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 bank and duly accounted in the books of accounts, It is not an unaccounted transaction. The AR further submitted that on the contrary the AO based on a message in the e mail came to the conclusion that on-money payment was involved in the transaction. The AO was mi irected by the message wherein in addition to the cost of the land some more payment had to be paid. The AR submitted that in addition to actual cost of the land some more amount has been paid but that was not towards any on-money payment but it was for the purpose of land developing charge. In fact this was booked in the accounts and through accounted source only this amount was paid. Hence there is no question of any on-money payment. On going through the materials available on record and the submissions made by the AR, it is seen that the actual cost of land was Rs.6,27,420/-. The balance Rs. 14,70,655/- represents land development charges and paid from the books of account. This was also shown to the AO during assessment proceedings and the appellant proved to the satisfaction of the AO that no unaccounted money was involved. Disbelieving this explanation the AO added the sum of Rs. 17,68,655/- as on-money payment, including brokerage of Rs.2,98,000/-. The AO while resorting to the said addition, has not examined the vendor and recorded any sworn statement to bring to surface that he has received any on-money payment. Without doing such an exercise, it is not known as to how the AO came to the conclusion that there was on- money payment. In the absence of any corroborative evidence supported by any sworn statement from the vendor I am inclined to agree with the explanation offered by the appellant. Further the appellant has offered substantial additional income for AYs 2010-11 to 2016-17 towards bogus bought notes as per the details given below: Bought Note Purchase offered in the return of income filed in response to notice u/s. 153(A) Sl.No. AY Rs. 1 2010-11 14268681 2 2011-12 17132430 3 2012-13 6935852 4 2013-14 11245946 5 2014-15 15874995 6 2015-16 19948175 7 2016-17 11315448 Total 96721527

2 Aggrieved, the Revenue is in appeal before the Tribunal.

3 The Ld. CIT-DR submitted that the additions is based on certain communication. However, Ld. AR submitted that the entire payment was accounted for by the assessee in the books of accounts.

4 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In the assessment order, the Assessing Officer made addition on account of alleged on-money payment in acquisition of land. The case of the assessee is that the company has purchased 5.96 acre of land at Meliyur village for solar power project for ₹.6,27,420/- on 23.01.2015 and in addition to the above, the assessee also paid ₹.15,58,294/- [₹.15,58,294 less TDS ₹.15,439/-] towards land development charges by withdrawing ₹.19,00,000/- [₹.9,50,000/- on 05.01.2015 and ₹.9,50,000/- on 06.01.2015 from Axis Bank, Tuticorin and paid to Mr. R. Jeyabalaserma Ganesan, who was the intermediary and broker for the purpose of the land. The ld.

The assessee has preferred Cross Objections for the assessment years 2013-14 and 2014-15 challenging confirmation of addition towards disallowance of ₹.74,38,845/- and ₹.75,13,892/- under section 40(a)(ia) of the Act respectively with regard to the non-deduction of tax at source in respect of payments made to Mr. A. Chandrasekar. With regard to the addition towards labour payment, before the ld. CIT(A), the assessee has submitted that Mr. A. Chandrasekar has duly disclosed the payments in his individual return of income, in support of which, Form 26A has been filed during the course of assessment itself. However, the ld. CIT(A) confirmed the addition on the ground that the contractor has filed his return of income for the AYs 2013-14 and 2014-15 belatedly as per section 139 of the Act.

1 Before us, by reiterating the above submissions, the ld. Counsel for the assessee has submitted that once the payment was duly declared as income in the return filed by the payee (Mr. Chandrasekar), no addition could be made in the hands of the assessee and prayed for deleting the addition confirmed by the ld. CIT(A) for the assessment years 2013-14

2 On the other hand, the ld. DR supported the order of the ld. CIT(A) on this issue.

3 We have heard the rival contentions and gone through the orders of authorities below. It is an undisputed fact that Mr. A. Chandrasekar has duly disclosed the payment in his individual return of income for the assessment years 2013-14, 2014-15 and 2015-16. Since Mr. Chandrasekar filed his return for the assessment year 2015-16 within the time prescribed under section 139 of the Act, the ld. CIT(A) deleted the addition, whereas, since the return for the assessment years 2013-14 and 2014-15 were filed belatedly, the ld. CIT(A) confirmed the addition. The point at issue is whether the recipient has disclosed the payment received in his return of income and paid tax thereon. Once the recipient has disclosed the payment in his return of income, the assessee is not liable for TDS. As per proviso to section 201(1) of the Act, where a person fails to deduct tax at source on the sum paid to a resident or on the sum