SOMANI GINNING & PRESSING,AURANGABAD vs. ITO WD- 1(3), AURANGABAD

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ITA 1968/PUN/2025Status: DisposedITAT Pune06 May 2026AY 2015-168 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the assessee had filed additional evidence before the CIT(A) which was not considered. The Tribunal restored the matter to the CIT(A) for fresh adjudication after considering the additional evidence and providing a proper opportunity of hearing.

What were the facts?

The assessee firm made significant cash purchases of cotton, some of which were not through the APMC. The Assessing Officer disallowed a portion of these purchases under Section 40A(3) for violating cash payment rules. The CIT(A) upheld this disallowance.

What were the issues?

Whether cash purchases of cotton not made through APMC and in violation of Rule 6DD(e)(i) are disallowable under Section 40A(3), and whether additional evidence filed during appeal should be considered.

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, PUNE

Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA

For Appellant: Shri Rajiv Thakkar
For Respondent: Shri Gaurav K. Singh

आयकर अपीलीय अधिकरण “बी” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE

BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1968/PUN/2025 धििाारण वर्ा / Assessment Year : 2015-16 Somani Ginning & Pressing, Income Tax Officer, Gut No. 340, Balanagar Paithan, Ward – 1(1), Aurangabad Aurangabad-431105 Vs. PAN : AAMFS9478A अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Rajiv Thakkar Department by : Shri Gaurav K. Singh Date of hearing : 26-03-2026 Date of 06-05-2026 Pronouncement : आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the assessee is directed against the order dated 02.07.2025 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)/NFAC”] pertaining to Assessment Year (“AY”) 2015-16.

2.

Briefly stated the facts of the case are that the assessee is a firm having four partners and engaged in the business of ginning and pressing the cotton along with extracting of oil from cotton seed and sale of cotton, oils and by-product i.e. Gad and cake. For AY 2015-16, the assessee e- filed its return of income on 24.09.2015 declaring total income of Rs.5,67,520/-. The case of the assessee was selected for complete scrutiny through CASS. Accordingly, statutory notice(s) were issued and served upon the assessee in response to which the assessee submitted the relevant documents through its authorized representative. On verification of the documents/details submitted by the assessee, the Ld. Assessing Officer (“AO”) noted that an amount of Rs.9,30,71,873/- is paid in cash by the assessee to various cotton growers for purchase of cotton comprising of payments of Rs.37,05,462/- below Rs.20,000/-. Thus, total payment to farmers above Rs. 20,000/- is Rs. 8,93,66,411/- which is debited to cotton purchase during the relevant AY. It was further noted by the Ld. AO that the assessee purchases cotton through APMC. During the

2 ITA No. 1968/PUN/2025, AY 2015-16

FY 2014-15 as per the details furnished by the assessee, it made purchases of total 23687 quintals of cotton whereas as per the APMC register the total purchases are 20243.75 quintals of cotton. Therefore, the difference 3443.25 quintal is purchased in cash from the agents and private parties which in violation of rule 6DD(e)(i) of the Income Tax Rules, 1962 (the “Rules”) as these purchases are not through APMC. Accordingly, the Ld. AO concluded that by taking average rate of cotton purchases @ 3900 the value of cash purchases not from agriculturist is valued at Rs.1,34,28,675/- and he disallowed the same u/s 40A(3) of the Income Tax Act, 1961 (the “Act”) and assessed the total income of the assessee for AY 2015-16 at Rs.1,39,96,195/- u/s 143(3) of the Act vide his order dated 29.12.2017 thereby making an addition of Rs.1,34,28,675/- on account of disallowance u/s 40A(3) of the Act to the income of Rs.5,67,520/- returned by the assessee.

3.

Aggrieved, the assessee filed an appeal before the Ld. CIT(A)/NFAC who dismissed the appeal of the assessee by observing as under:

“7.2 In the A.Y. 2015-16, the appellant has paid Rs. 9,30,71,873/- (Rs. 8,93,66,411/-total payment above Rs.20,000/- and Rs. 37,05,462/- Total payment below 20,000/-) for purchase of cotton from various cotton growers. Further, AO found that appellant firm purchases cotton through APMC. During the year under consideration, the appellant made purchases of total 23687 quintals of cotton. However, as per the APMC register, the total purchases made by the appellant during the FY 2014-15 is 20243.75 quintals of cotton. Thus, it is found that a difference of 3443.25 quintals of cotton purchased, found in cash and the same is purchased from agents and private party in violation of rule 6DD (e) (1) as these purchases are not through APMC. Therefore, AO concluded that by taking average rate of cotton purchases @3900/-, the value of cash purchases not from agriculturist is valued at Rs. 1,34,28,6765/-and the same is disallowed u/s 40A(3) of the Act for the year under consideration. 7.3 During the course of appellate proceedings, the appellant has claimed that the AO has considered the purchases made by the appellant firm from APMC only for the period 22.10.2014 to 30.03.2015 and the AO has not taken any efforts to review or reconcile the same with the statement submitted by the appellant for the period from 01.04.2014 to 31.03.2015 During the course of assessment proceedings, the appellant was asked to furnish the copy of the purchase bill for purchasing cotton from farmers through APMC and the same was furnished before the AO. On verification of those purchase documents, it is observed by the AO that the purchase bills are found without signature of farmers who had sold their cotton to the appellant. Further, it is observed by the AO that all the purchase bills are prepared by one person in one sitting. The AO has impounded the purchase bills u/s 131(3) of the Act. The AO has summoned the Secretary of APMC Shri Nitin Vikhe whereas the Assistant Secretary Shri Chandraprakash Vithalrao Kharat has appeared and produced the register maintained by APMC, Paithan. The AO has verified the entire register for the period 01.04.2014 to 31.03.2015 and found that the appellant has purchased the total of 20243.75 Quintals of cotton only during the period 24.10.2014 to 30.03.2015 through APMC and there is no purchase in the name of the appellant for the period 01.04.2014 to 23.10.2014 through APMC. From the perusal of APMC register, it is established that the remaining quantity of

3 ITA No. 1968/PUN/2025, AY 2015-16

3443.25 quintals of cotton were purchased from outside the APMC through non-agriculturist ice agents. During the course of appellate proceedings, the appellant has simply mentioned about the quantity of 3443.25 quintals of cotton were purchased from farmers. The appellant has not furnished any other documentary evidences to prove that the purchases were made from farmers through APMC. Therefore, it is established that the purchase of 3443.25 quintals of cotton from the agents and the same is not covered under rule 6DD, hence, section 40A(3) is applicable on the purchase of 3443.25 quintals of cotton. In view of the above-mentioned facts and discussions, in the absence of supporting documents for the claim of the appellant, the addition made by the AO on account of cash purchases of Rs.1.34.28,675/- is confirmed and the appeal is decided against the appellant. The appellant has raised the objection on disallowing the amount of Rs. 1,34,28,675/- u/s 40A(3) through ground no. 1, therefore, the ground no. 1 is decided against the appellant.”

4.

Dissatisfied, the assessee is in appeal before the Tribunal raising the following grounds of appeal :

“1. On facts and circumstance prevailing in the case and as per provisions and scheme of the Act, it be held that the Ld. AO framed the assessment order without issuing the proper and adequate show cause notice to the Appellant which is violation of principles of natural justice and not in accordance with the provisions of law. The assessment so framed shall be treated as null and void. Appellant be granted just and proper relief in this respect. 2. Without prejudice to Ground no. 1 and on facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that, addition made of Rs.1,34,28,675/- on account of payment made to alleged non-agriculturist is improper, unjustified and contrary to the provisions and scheme of the Act and facts prevailing in the case on the ground of natural justice. The additions made be deleted. The Appellant be granted just and proper relief in this respect. 3. Without prejudice to Ground no. 1 and Ground no. 2 and on facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that, the Ld. AO has erred in disallowing an amount of Rs. 1,34,28,675/- under section 40A(3) of the Act. The disallowance so made is improper, unjustified and contrary to the provisions and scheme of the Act and facts prevailing in the case. The Appellant be granted just and proper relief in this respect. 4. The Appellant prays to be allowed to add, amend, modify, rectify, delete, and raise any grounds of appeal at the time of hearing.”

5.

The Ld. AR submitted that the Ld. AO issued the show cause notice to the assessee on 20.12.2017 (reproduced in para 7 of the assessment order) asking the assessee to show cause as to why the entire amount of Rs.8,93,66,411/- for payment of purchases in cash above Rs.20,000/- should not be added in assessee‟s total income for the year under consideration u/s 40A(3) of the Act. In response thereto, the Ld. AR furnished written submission which is reproduced in para 8 of the assessment order.

4 ITA No. 1968/PUN/2025, AY 2015-16

5.1 The Ld. AR further submitted that the summons u/s 131(1) of the Act were issued to Shri Bhaskar Murlidhar Gode (Mahapadi of APMC) on 20.12.2017 and to Shri Nitin Vikhe (secretary of APMC) on 27.12.2017 at Paithan. As Shri Nitin Vikhe could not attend the proceedings, Shri Chandraprakash Vithhal Rao Kharat (Assistant Secretary of APMC) attended and their statements on oaths were recorded u/s 131 of the Act on 22.12.2017 and 27.12.2017 respectively (pages 119 – 121 of the paper book refers). Referring to Q. Nos. 4 and 5 of the statement of Shri Bhaskar Muridhar Gode and Q. Nos. 4, 5 and 6 of the statement of Shri Chandraparkash Vithal Rao Kharat, the Ld. AR submitted that these statements were never confronted to the assessee. He further submitted that assessee filed certain additional evidence under Rule 46A of the Rules during the appellate proceedings before the Ld. CIT(A)/NFAC containing weighment receipts („Kata Pavti‟) for the relevant period not considered in the statement including the reconciliation statement between the quantity details submitted by the assessee and the quantity details by the Secretary of APMC . However, the Ld. CIT(A)/NFAC has not considered the additional evidence filed by the assessee and has given an incorrect finding that the assessee has not submitted any supporting documentary evidences in support of its claim that the purchases were made from farmers through APMC.

5.2 Without prejudice to his above argument, the Ld. AR also submitted that the cotton purchases below Rs.20,000/- for 960.23 quintal of cotton, the bifurcation details of which is given in para 10 of the assessment order should not be taxed.

6.

The Ld. DR, on the other hand, relied on the order of the Ld. CIT(A)/NFAC and the Ld. AO.

7.

We have heard the Ld. Representatives of the party and perused the material available on record and paper book filed by the Ld. AR on the behalf assessee. The facts of the case are not in dispute. We find that the Ld. AO arrived at the difference of 3443.25 quintals of cotton purchased found in cash from agents and private party which is tabulated in Para 10 of the assessment order reproduced below :

5 ITA No. 1968/PUN/2025, AY 2015-16

8.

The Ld. AO by applying the average rate of cotton purchases at Rs.3,900/- disallowed Rs.1,34,28,675/- being value of cash purchases not from agriculturist which is in violation of Rule 6DD(e)(i) of the Rules and added the same back u/s 40A(3) of the Act to the total income of the assessee firm. The Ld. CIT(A)/NFAC upheld the order of the Ld. AO and dismissed the appeal of the assessee for the reasons which are already reproduced in the preceding paragraphs. We find that the Ld. CIT(A)/NFAC has upheld the action of the Ld. AO for the reason that the assessee has failed to furnish any supporting documentary evidences to prove that the purchases were made from farmers through APMC. Before us, the Ld. Counsel for the assessee has submitted that the assessee was not provided with adequate opportunity by the Ld. AO to explain and substantiate its claims as the show cause notice was issued only on 20.12.2017 to the assessee and the statement(s) of Shri Bhasakar Murlidhar Gode and Shri Chandraprakash Vithal Rao Kharat from APMC were recorded on 20.12.2017 and 27.12.2017 respectively and soon thereafter the Ld. AO proceeded to pass the impugned assessment order on 29.12.2017 without giving an opportunity of cross examination of the said persons to the assessee. We also find that the assessee has filed additional evidence before the Ld. CIT(A)/NFAC giving the documentary evidence/ details in support of its claim which is reproduced hereunder (pages 29- 116 of the paper book refers) :

6 ITA No. 1968/PUN/2025, AY 2015-16

7 ITA No. 1968/PUN/2025, AY 2015-16

9.

In addition to the above, the assessee also filed summary of payments made - less than Rs.20,000/- in cash and more than Rs.20,000/- in cash placed on pages 31-63 of the paper book. Further copy of sample kattapati for the period from 01.04.2014 to 31.05.2015 were also submitted during the appellate proceedings before the Ld. CIT(A)/NFAC (pages 64-116 of the paper book refers).

8 ITA No. 1968/PUN/2025, AY 2015-16

10.

It is the contention of the Ld. AR that the Ld. CIT(A)/NFAC has upheld the order of the Ld. AO and dismissed the appeal of the assessee without considering these additional evidences filed by the assessee during the course of appellate proceedings before him. The Ld. AR has also taken an alternate plea that cotton purchases of 960.23 quintals below Rs.20,000/- in cash should not be disallowed and brought to tax. Considering the totality of the facts and in the circumstances of the case we deem it fit, in the interest justice, to restore the matter back to the file of the Ld. CIT(A)/NFAC to decide the impugned issue afresh as per fact and law in light of the additional evidence filed by the assessee, after giving reasonable opportunity of hearing to the parties. Needless to say, the assessee shall provide full support in terms of filing the requisite details/ documents as may be required/called upon by the Ld. CIT(A)/NFAC on the appointed date, without seeking any adjournment unless required for a sufficient cause, failing which the Ld. CIT(A)/NFAC shall be at liberty to pass appropriate order as per law. We direct and order accordingly. The grounds raised by the assessee are thus allowed for statistical purposes.

11.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 06th May, 2026.

Sd/- Sd/- (R.K. Panda) (Astha Chandra) JUDICIAL MEMBER VICE PRESIDENT पुणे / Pune; दिन ांक / Dated : 06th May, 2026. रदि Ravi Kumar Digitally signed by Ravi Kumar Date: 2026.05.07 14:35:41 +05'30' आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : अपील र्थी / The Appellant. 1. प्रत्यर्थी / The Respondent. 2. 3. The Pr. CIT concerned. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “बी” बेंच, 4. पुणे / DR, ITAT, “B” Bench, Pune. ग र्ड फ़ इल / Guard File. 5. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER,

सहायक पंजीकार/ Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune

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