ORIENTAL INSURANCE COMPANY LTD THROUGH AUTHORISE SIGNATORY vs. PRAFULCHANDRA HIRJIBHAI TANNA

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FA/29/2013HC GujaratGJHC24038559201302 April 2019Bench: HONOURABLE MR. JUSTICE R.M.CHHAYA,HONOURABLE MR. JUSTICE S.H.VORA8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal's order was not infirm and did not give rise to any substantial question of law. The Tribunal had noted that during the assessment stage, the assessee had submitted all documents and confirmations, and each payee was a milk producer with a cattle farm. The Tribunal found that the AO had conducted inquiries and accepted the assessee's claim that the cash payments were made in exceptional circumstances covered by Rule 6DD(e)(ii). The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The High Court agreed with the Tribunal's findings of fact and the settled legal position regarding the invocation of Section 263, finding no reason to interfere with the impugned order. The appeal was accordingly dismissed.

What were the facts?

The Revenue has filed an appeal under Section 260A of the Income Tax Act, 1961, challenging an order of the Income Tax Appellate Tribunal (ITAT) dated 23.08.2021. The ITAT had quashed a revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Act for the assessment year 2010-2011. The PCIT had initiated revision proceedings based on an audit objection that cash payments exceeding Rs. 20,000/- amounting to Rs. 36,38,376/- were wrongly allowed as expenditure. The audit noted that these payments were made to milk traders, and the benefit of Rule 6DD was only available to milk producers. The PCIT held the assessment order to be erroneous and prejudicial to the interest of the Revenue.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in quashing the order passed under Section 263 of the Act, even though the Assessing Officer (AO) had passed the assessment order without making necessary inquiries or verification to ascertain whether the parties to whom cash payments were made were milk producers covered by Rule 6DD(e)(ii) of the Income Tax Rules. 2. Whether, on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in quashing the order passed under Section 263 of the Act without giving a finding on the applicability of Explanation 2(a) to Section 263(1) of the Act, on the basis of which the revision order was passed by the PCIT. Assessee's Contention (as per Tribunal's findings): The assessee contended that during the assessment proceedings, all necessary documents and confirmations from the parties were submitted. Each party was a milk producer with cattle farms. The AO had conducted detailed inquiries and accepted the claim that the transactions were not in violation of Section 40A(3) as they were covered by the exception in Rule 6DD(e)(ii). The assessee also submitted that all documents were provided during the reassessment proceedings under Section 143(3) read with Section 147. Revenue's Contention: The Revenue argued that the AO accepted the assessee's contention regarding exemption under Rule 6DD without making necessary inquiries to confirm if the parties were milk producers or only traders. It was also argued that the Tribunal failed to appreciate Explanation 2(a) of Section 263, which deems an order erroneous if passed without inquiries or verification, and that the Tribunal applied case laws prior to the insertion of this explanation.

Which sections of the Income-tax Act were involved?

Section 260A,Section 263,Section 143(3),Section 147,Section 40A(3)

AI-generated summary — verify with the full judgment below

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 275 of 2022 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 1 Versus SHUKLA DAIRY PVT. LTD. ========================================================== Appearance: MRS KALPANAK RAVAL(1046) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE A.J.DESAI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 13/06/2022

ORAL ORDER (PER : HONOURABLE MR. JUSTICE A.J.DESAI)

1.

Revenue has filed this appeal under section 260A of the Income Tax Act, 1961 (For short “the Act, 1961”) for the assessment year 2010-2011 challenging the judgment and order dated 23.08.2021 passed by the Income Tax Appellate Tribunal, Surat Bench, Surat in I.T.A. No. 309/SRT/2018. 2. Following substantial questions of law are proposed by the Revenue : “i) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in quashing the order passed u/s 263 of the Act even though the Assessing Officer had passed the assessment order without making inquiries or verification which should have been made to ascertain Page 1 of 8

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 whether the parties to whom cash payments were made were milk producers and were covered by circumstances sated in clause(e)(ii) of Rule 6DD of Income Tax Rules.

(ii) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in quashing the order passed u/s 263 of the Act without giving a finding on the applicability of clause (a) of Explanation-2 to sub-section(1) of section 263 of the Act on the basis of which the revision order u/s 263 of the Act was passed by the Principal Commissioner of Income-tax.” 3. Brief facts of the case are that the assessment under section 143(3) read with section 147 of the Act, 1961 was completed on 18.03.2016 determining total income at Rs.44,19,890/- by making various additions. 4. Revenue audit subsequently raised objection that payment in excess of Rs.20,000/- under Rule 8DD of the Income Tax Rules, 1962 amounting to Rs.36,38,376/- was wrongly allowed, as payment was made to traders of milk and the benefit of Rule 6DD was only available to milk producers. 5. Accordingly, the Principal Commissioner of Income Tax (For short “PCIT”) passed order dated 26.03.2018 under section 263 of the Act, 1961 holding that the assessment order was erroneous and prejudicial to the interest of the Revenue by setting aside the same with a direction to frame the assessment de novo after providing reasonable opportunity of being heard to the assessee. Page 2 of 8

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 6. Being aggrieved by the order passed under section 263 of the Act, 1961, the assessee preferred appeal before the Tribunal. The Tribunal allowed the appeal of the assessee holding that the Assessing Officer made inquiry into the transactions of cash payments in excess of Rs. 20,000/- and the action of the Assessing Officer in accepting the claim of the assessee that the transactions in question were not in violation of the provisions of section 40A(3) of the Act, 1961, after detailed inquiry was a plausible view. 7. It was submitted by learned advocate for the appellant that the Assessing Officer accepted the contention of the assessee that out of cash payment

Rs.93,56,628/-,

payment

of Rs.49,45,811/- was exempt under Rule 6DD of the Income Tax Rules,1962 without making necessary inquiries to confirm the fact that the parties to whom cash payments were made for purchase of milk were actually engaged in milk production or whether they were doing only trading in milk. 8. It was submitted that the Tribunal did not appreciate that Explanation 2(a) of section 263 as inserted by the Finance Act, 2015 with effect from 1.06.2015 stipulates that order passed by the Assessing Officer shall be deemed to be erroneous insofar as it is prejudicial to the interests of Revenue, if, in the opinion of the Page 3 of 8

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 PCIT order is passed without making inquiries or verification. It was pointed out that the Tribunal has applied the case laws to the facts of the case which are prior to insertion of Explanation 2(a) of section 263 of the Act, 1961.

9.

We have heard learned advocate for the appellant. The Tribunal while allowing the appeal filed by the appellant held as under : “12. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. PCIT and other materials brought on record. In ITA No.309/SRT/2018, for assessment year 2010-11, only one issue was raised by the ld. PCIT in his order under section 263 of the Act, which is that out of total cash payment in excess of Rs.20,000/-, of Rs.93,56,628/- which was found during survey, the then assessing officer allowed payment of Rs.49,45,811/- under rule 6DD of the Income Tax Rules, as it was paid against purchase of milk. It was however noticed by ld. PCIT, from cash book that in the following cases, payments of Rs.36,38,376/- were made to eight traders, (cash payment in excess of Rs.20,000/- in violation of the provisions of section 40A(3), as detailed below : Sr. No. Name of payee Amount in Rs. 1 Surbhi Dairy Pvt Ltd 1877750 2 Asmita Agro Vet Agency 1032750 3 BJiagwatimata Milk and Milk 410000 Page 4 of 8

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 Products 4 Dudh Ganga Milk Products 63700 5 Gangotri Dairy Products Pvt Ltd 79464 6 Jagdish Traders 62837 7 Karmbhoomi Dairy Products 61875 8 Laxmi Ice Factory-Dairy 50000 Total 36,38,376 The Id. PCIT observed that payments of Rs.36,38,376/- were made by assessee to traders in cash in excess of Rs.20,000/-, which is a violation of provisions of sect 40A(3) of the Act. The ld. PCIT was of the view that benefit of rule 6DD is available to milk producers and not to traders of milk, hence payment to traders in cash in excess of Rs.20,000/- is required to be disallowed. That is, assessing officer did not disallow Rs.36,38,376/-, therefore, ld. PCIT held that order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. We note that during the assessment stage, assessee has submitted all the documents and confirmations of all the parties. Each of the party is milk producer, each of them has the cattle farm having large number of cattle. During the assessment stage, the assessee has furnished the documents of milk producers, such as their declaration, their identity proof, the account copy etc. In declaration it is mentioned that supplier are having own lives stock and own arrangements for shed and milk storage. The ld. Counsel submitted before us a chart showing the total purchases from each of the eight parties listed in the notice and how they were paid. A careful look at the chart- data will show that though each of them were Page 5 of 8

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 milk producer, assessee tried to pay them mainly by cheque and only in an exceptionally situation, assessee paid the small portion in cash and the said payment to each of them is covered, vide the exception provided in sub clause (ii) of clause (e) of rule 6DD of the Income Tax Rules. We note that during the course of assessment proceedings, the Assessing Officer has rightly allowed the impugned payment as expenditure as it was covered by the exception provided in sub clause (ii) of clause (e) of rule 6DD of the Income Tax Rules, 1962. Thus, so far, this issue is concerned, the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. 13. Learned Counsel also submitted before us that about the issue of cash payment in excess of Rs.20,000/-, assessee has submitted each and every documents during the re-assessment proceedings under section 143(3) r.w.s. 147 of the Act, which is evident from para 3 and 4 of the assessment order, which is reproduced below: "3. During the year, the assessee firm was engaged in the business of manufacturing of dairy products. In this case a survey action U/s. 133A of the Act was carried out on 22/01/2013 at the business premises of the assessee. During the course of survey proceedings, statement on oath u/s 131 of the I.T. Act, of Shri Vimal Kumar Shukla, Director of Shukla Diary Pvt. Ltd. was recorded. In answer to question Q. No. 12 of his statement, he has stated that an amount to tune of Rs. 93,56,628/- was paid in cash during the F.Y. 2009-10. After affording full and adequate opportunity to the assessee

through

its

authorized representative,

the

assessment proceedings have been completed and in consequence, upon the conclusion of Page 6 of 8

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 proceedings and hearing of evidences, assessment is made by this order. 4. During the course of assessment proceedings, on perusal of the details submitted by the assessee, it is noticed that the assessee has made cash payments of Rs.93,56,628/- to various parties. Out of which, some amounts exceeding 5.20,000/- to a single party in a day. Therefore, the assessee was asked to explain vide show cause notice dated 14.03.2016, the relevant portion of the same are as under: "2. During the course of reassessment proceedings, on verification of the details submitted, you have made cash payments of Rs.93,56,628/- to various parties exceeds Rs.20,000/- in a day to a single party. Out of which, the payment made to purchase of Milk of Rs.49,45,811/- is exempted under Rule- 6DD of Income-tax Rules, 1962. The other

cash

payments

exceeding Rs.20,000/- in a day to a single party made by you during the F.Y. 2009-10, the bifurcation of which are as under: Sr.No. Particulars Amount Rs. 1 Other Expenses 824672 2 Transportation 1026223 3 Salary 674981 4 Deposit return 1230000 4 Printed Poly film payment 390007 Total 4145883

2.1 The above payments made in cash during the year under consideration violated the provisions of section 40A(3) of the I T. Act. Therefore, you are asked to explain why the above amount of Rs.41,45,883/- should not be disallowed and added to the total Page 7 of 8

C/TAXAP/275/2022 ORDER DATED: 13/06/2022 income. " 4.1 In response to which, the assessee submitted his reply vide letter dated 18.03.2016 and agreed upon the proposed disallowances as communicated in the show cause notice. Accordingly, the total payments made to various parties of Rs.41,45,883/- in contravention to Section 40A(3) of the I.T. Act is disallowed and added to the total income." 14. It is abundantly clear from para No.3 and 4 of assessment order that regarding excess payment of Rs.20,000/-, each and every document were there before the assessing officer and assessing officer examined them and has taken a possible view, therefore, assessment order passed by the assessing officer under section 143(3) r.w.s. 147 of the Act, dated 18.03.2016, is neither erroneous nor prejudicial to the interest of revenue.” 10. In view of above findings of fact arrived at by the Tribunal and in view of settled legal position with regard to invoking of section 263 of the Act, 1961, we are of the opinion that there is no infirmity in the impugned order passed by the Tribunal so as to give rise to any question of law much-less any substantial question of law as proposed or otherwise. 11. Tax Appeal is accordingly dismissed. (A.J.DESAI, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 8 of 8

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