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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
PER SUSHMA CHOWLA, JM:
The appeal filed by assessee is against the order of CIT(A)-4, Pune, dated 27.03.2017 relating to assessment year 2013-14 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal:- 1) The Assessing Officer has in fact concluded, it is clear that Shri Vinayak Kale has sold live stock to the Assessee may be through an intermediary and also received money from him (Point 13 of Assessment Order). As the Assessing officer has not disputed
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genuineness Transaction and identity of receiver, there was no question of refuting any contention of the Assessing officer at the Appellate stage and to submit any specific evidence in this regard. The Assessing officer has not considered the purchases from Shri Vinayak Kale as bogus and has made addition for violation of provisions of sec 40A(3) only. The purchases from Shri Vinayak Kale were of Rs.1104065 and payment through the bearer cheques were of Rs.1080000. The Assessing officer has made addition of Rs.1080000 and not Rs.1104065. In view of the above facts and circumstances the Commissioner (Appeals) is not justified in confirming the addition of Rs.1080000. (2) The Assessee has purchased live stock (buffaloes) from weekly markets, tabelas, from farmers, village places directly and through agents. Purchases were made from Shri Vinayak Suresh Kale through agent and therefore he was not able to identify the Assessee, though he identifies the middlemen who was the agent of Assessee in the purchases transactions. The purchases were genuine and bonafide. Shri Vinayak Suresh Kale is in the trade of live stock and he sells his stock to a lot of customers every year and many of the sales are through agents. The transaction relates to F.Y. 2012-2013 and his statement was recorded much later F.Y.2015-2016. As the purchases were made through agents and the long time elapsed between the transaction and the date of statement Shri Vianyak Suresh Kale was unable to identify the Assessee though he identifies the agent who was the middlemen Live stock (Buffalo) trading like the other agricultural activities is very un-organized sector and many transaction are done in cash. However the Assessee has made payment through bearer cheque and it is obvious that Shri Vinayak Kale has received payments from the Assessee by bearer cheques and it is against the sale. The bearer cheque were issued to him as a matter of business expediency in the same manner as the payments were made to other 4 persons viz. (1) Shri Irfan Quresh (ii) Gulam Nabi Rashid Qureshi (iii) Shri Shahnawaz Rashid Qureshi & (iv) Shri Manoj Kumar and his case also falls in the Exceptions of provisions of sec 6DD(e), 6DD(f), 6DD(G) and 6DD(k). In view of the above facts and circumstances the Commissioner (Appeals) is not justified in confirming the addition of Rs.1080000. (3) Following is the working for the Profitability ratios of the Assessee for the last three years. Working for Gross Profit and Net profit Ratios for the last three years on the basis of Audited Financial statements of FIROZ NAZIR SAUDAGAR. Particulars A.Y.2011-2012 A.Y.2012-13 A.Y.2013-14 2.2E+07 19356475 32615334 Sales 527410 595073 661679 Gross Profit 220374 290347 347739 Net Profit 2.39 3.07 2.03 G.P. Ratio 1.00 1.50 1.07 N.P. Ratio
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The above working for Gross profit and Net profit Ratios for the assessee shows a variation of half to one percent. The Gross profit ratio is 1.04% less and Net profit ratio 043% less in the A.Y. 2013-14 as compared to A.Y. 2012- 2013. In view of the above Figures and ratios the Commissioner (Appeals) is not justified in confirming the addition of Rs.1080000.
Despite service of notice, none appeared on behalf of assessee nor any application was moved for adjournment. However, because of smallness of the issue, appeal is decided ex-parte the assessee after hearing the learned Departmental Representative for the Revenue.
The only issue raised in the present appeal is against disallowance made under section 40A(3) of the Act.
Briefly, in the facts of the case, the assessee was engaged in trading of buffaloes and had made purchases in cash of 41 buffaloes from Shri Vinayak Suresh Kale totaling ₹ 11,04,065/-. The payments were made through bearer cheques. Further purchases were also made from some other parties. Though the Assessing Officer disallowed the same being cash purchases under section 40A(3) of the Act, but the CIT(A) has restricted the disallowance only in respect of Shri Vinayak Suresh Kale. Vide para 5.3.2 at page 9 of appellate order, the CIT(A) notes that the said party had appeared before the Assessing Officer and deposed that he did not know the assessee and the Assessing Officer had arrived at the conclusion that the said payments in bearer cheques might have been made through intermediary and ultimately were returned back to the assessee and hence, the CIT(A) further holds that no such evidence was filed so as to ensure that the said claim was not a bogus claim. The said purchases were held to be bogus expenditure by the CIT(A), against which the assessee is in appeal.
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First of all, it may be pointed out that the assessee is a small trader in buffaloes i.e. he is dealing in livestock and had furnished return of income declaring total income of ₹ 3,58,320/-. The case of Assessing Officer was that purchases have been made in cash and hence, provisions of section 40A(3) of the Act were to be applied. However, Rule 6DD(e) of the Income Tax Rules, 1962 (in short ‘the Rules’) clearly lays down that in case payment is made for purchase of livestock in cash, then it is not to be held as violation of provisions of section 40A(3) of the Act. Such proposition has been applied by the CIT(A) in respect of purchases made by assessee from other parties, which was also disallowed by the Assessing Officer and he has deleted the addition of ₹ 23,50,000/-.
Now, coming to balance expenditure of ₹ 10,80,000/-, case of assessee was that he had not made purchases from Shri Vinayak Kale directly but through a commission agent and the amounts were paid through bearer cheques. The amounts have been debited to IDBI Bank. In such circumstances, purchases cannot be held to be bogus though the statement of said person was recorded, but the reason for holding it to be bogus was that payments in bearer cheques might have been made. The Assessing Officer accepts that payments in bearer cheques might have been made through intermediary but then, he goes on to hold that the same was returned back to the assessee. However, no such evidence was brought on record either by the Assessing Officer or CIT(A) that the cash has been returned back to the assessee. Under such circumstances, there is no merit in the orders of
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authorities below and the same are reversed and addition of ₹ 10,80,000/- is thus, deleted.
In the result, appeal of assessee is allowed.
Order pronounced on this 8th day of February, 2019.
Sd/- (SUSHMA CHOWLA) न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 8th February, 2019. GCVSR आदेश की प्रयिलऱपप अग्रेपषि/Copy of the Order is forwarded to : 1. अऩीऱाथी / The Appellant; 2. प्रत्यथी / The Respondent; 3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-4, Pune; 4. The Pr.CIT-3, Pune; ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे, एक-सदस्य 5. मामऱा / DR ‘SMC’, ITAT, Pune; गार्ड पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune