ITO, WD-26(1), KOLKATA vs. RANJAN DEBNATH, KOLKATA

Ground no. 1 of revenue’s appeal reads as under:- 01. Whether on the facts and in the circumstances of the case, the ld. CIT(A) erred in law as well as facts in deleting the addition of Rs.2,07,52,802/- made by the Assessing Officer for cash purchases by the assessee from M/s. The Supreme Industries Ltd in violation of the provisions of Section 40A(3) of the Act.

Facts of the issue are that the assessee is an individual, who is engaged in three business (i) trading in fish & fish food in the name of M/s. RanjanDebnath, (ii) trading of plastic crates in the name of M/s. Santoshimata Enterprises and (iii) running a petrol pump in the name of M/s. Kamal Service Station. The AO noted that the assessee in the name of M/s. Santoshimata Enterprise had made a purchase of Rs. 4,06,44,483/- from M/s. Supreme Industries, Kolkata and assessee had paid Rs. 2,07,52,802/- in cash on different dates. The AO reproduced the details of said cash payment of Rs. 2,07,52,802/- in his order at pages 2 to 4 from 01-04-2014 to 31-03-2015. According to the AO since there was violation of provisions of section 40A(3) of the Income-tax Act, 1961 ( herein after referred to as the RanjanDebnath ‘Act’), he gave/issued notice to the assessee and after being not satisfied with the reply given by the assessee was pleased to disallow the said amount. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same by relying on the decision of this Tribunal in the case of Sri Rampada vs. ITO, Haldia in for the AY 2008-09 dated 07-10-2015. Aggrieved, the revenue is before us.

Shri Dhrubajyoti Ray, JCIT, Learned Departmental Representative ( hereinafter referred to as the ‘Ld. DR’) vehemently assailing the impugned order of the Ld. CIT(A) contended that the Ld. CIT(A) has wrongly relied upon order of this Tribunal in the case of Sri Rampada (supra) since in that case the assessee was dealing with the business in poultry foods, which is admittedly an agriculture produce and not what the assessee was engaged in. According to the Ld. DR since in that case 6DD of the Income Tax Rules 1962 ( in short, hereinafter the ‘Rules’ ) was attracted, the Tribunal gave relief to that assessee. According to the Ld. DR, the Ld. CIT(A) gave relief to the assessee by taking note that the genuineness of purchase, and the genuineness of payments in cash as well as the identity of the payee have not been disputed by the AO and therefore, after citing the case law of Sri Rampada (supra), he gave relief, which action is erroneous. It was also contended by him (Ld. DR) that there was no urgency for the assessee to have deposited the cash in the bank account. According to the Ld. AR, M/s. Supreme Industries is located in Kolkata and assessee could have given the payment by cheque/bank draft rather than giving by cash. According to the Ld. AR, a perusal of the page-3 of the assessment order would reveal that on 31-01-2015 an amount of Rs. 15 lakh was given in cash to M/s. Supreme Industries, which cannot be accepted. Therefore, according to the Ld. DR the impugned order of the Ld. CIT(A) need to be reversed.

Per contra, Shri Miraj D. Shah, Learned Authorised Representative ( hereinafter referred to as the ‘Ld. AR’) contended that the assessee being individual engaged in the business of trading in fish & fish food as well as he trades plastic crates for packing/storing of fish. According to him, the modus-operandi adopted by the assessee is that he purchases the plastic crates from M/s. Supreme Industries located at Kolkata on credit and transported it to the rural areas situated in State of Andhra Pradesh, wherein the plastic crates are sold to the farmers, who are engaged in farming of aqua culture of fish in the village ponds. According to the Ld. AR, the plastic-crates sold to farmers are article used for storage of fish and the consideration assessee receives from the farmers are duly deposited directly in RanjanDebnath to the bank account of M/s. Supreme Industries, which attracts exemption under rule 6DD. According to the Ld. AR, while the assessee goes to sell the plastic-crates, it also purchases fish from these farmers, which are packed and stored in the assessee’s own plastic crates, which is thereafter transported from Andhra Pradesh to Kolkata for selling the fish. The Ld. AR explained that since the payments for the plastic crates were given in cash by the farmers, there was risk to transport the cash back to Kolkata from A.P and therefore, the assessee deposited cash in the bank account of M/s. Supreme Industries. Therefore, the AO himself in his order clearly noted that “during the year, assessee has made the purchase from mainly – Supreme Industries. Against the aforesaid purchases, assessee has made the payment in cash by depositing money directly to the bank account of the aforesaid companies”. Therefore, according to the Ld. AR the question of genuineness of the payment cannot be disbelieved and the AO himself has not doubted about the genuineness of such payment. It was pointed out by the Ld. AR that the Ld. CIT(A) therefore has also noted that “the genuineness of purchase, genuineness of payments in cash as well as the identity of the payee have not been disputed by the AO in any manner”. According to the Ld. AR, this finding of the Ld. CIT(A) has not been challenged by the revenue while preferring this appeal specifically in its grounds of appeal

Having heard both the parties, we note that the assessee is an individual, who is engaged in the business/trading of fish & fish food as well as sales of plastic crates as well as engaged in the business of running a petrol pump. We note that the AO found that the assessee has made payment in cash to the tune of Rs. 2.07 crores in its business of purchase of plastic crates to M/s.Supreme Industries. Therefore, he disallowed the expenditure claim of Rs.2,07,52,802/- made by the assessee u/s. 40A(3) of the Act for the reason that there was no business expediency. The Ld. CIT(A) noted that the genuineness of purchase, genuineness of payments in cash as well as the identity of the payee have not been disputed by the AO. Therefore, by relying on the decision of this Tribunal in the case of Sri Rampada (supra) the Ld. CIT(A) was pleased to delete the addition. We note that the assessee is into the business of trading of fish & fish food as well as he trades plastic crates to the farmers which are intended to store the fish for transporting it to various destinations including other areas situated in India. We note that assessee sold fish-food and plastic crates to the farmers, who are engaged in the business of aqua culture fish farming. The Ld. CIT(A) noted that the farmers to whom assessee sold the fish food and plastic crates are located/ situated in far flung villages/rural areas. We note that the farmers farmed fish in the ponds in rural far flung villages. The modus operandi of the business of the assessee is that RanjanDebnath the assessee purchased plastic-crates on credit from M/s. Supreme Industries situated in Kolkata, which is one of the reputed &leading plastic manufacturer having more than Rs 100 crore business turnover. As noted the assessee purchased plastic crates on credit from M/s. Supreme Industries, Kolkata and for the purpose of selling it, transported it to the rural areas situated at far flung villages in the State of A.P and sold it as well as fish-food to the farmers and collected cash from them as well as buys fish also from them and then the fish bought by assessee are stored in the plastic crates and then transported back to Kolkata from State of AP for further trade in fish. Since the farmers purchased plastic crates for storage of fish & transportation to long destination, situated in other places of India. It is common knowledge that plastic-crates are desired/required for storage of fish because fish is perishable, so it has to be packed along with ice and when the temperature outside goes up ice melts and water start dripping, so to avoid that plastic-crates are used for storage and transporting. And the assessee collected cash from these farmers for sale of fish-food & plastic-crates, which the assessee deposited in the bank account of M/s. Supreme Industries. According to assessee there is risk of transporting of cash from State of Andhra Pradesh to Kolkata, so the assessee deposited the same in the nearest bank in the bank account of M/s. Supreme Industries. It was brought to our notice that this modus operandi the assessee has followed for the last so many years and the department had always accepted the transaction and never questioned the genuinety of the transaction and therefore, on this issue no disallowance was made in earlier years. However, according to the assessee, only in this year under consideration disallowance was made for the first time. And, thereafter, the Ld. Pr. CIT for the AY 2013-14 also interfered (vide order dated 26-03-2018) by exercising his revisional jurisdictional u/s. 263 of the Act(supra). We note that Tribunal in assessee’s own case for the AY 2013-14 (supra) has modified the direction given by the Ld. Pr. CIT u/s. 263 of the Act to the AO and directed the AO not to disallow payments remitted to M/s. Supreme Industries u/s. 40A(3), if the same are genuine. We note that the ld. CIT(A) has given a clear finding that the genuineness of purchase, and, the genuineness of payments in cash as well as the identity of the payee have not been disputed by the AO in any manner. This finding of fact has not been challenged by the revenue by raising specific ground of appeal before us. However, taking into consideration, our own order in assessee’s case though emanating from order passed under section 263 of the Act by the Ld. Pr. CIT, we would like the AO to examine the genuineness of expenditure and, if the AO find that the RanjanDebnath assessee made the deposits in the said bank account of M/s. Supreme Industries which practice the assessee has been consistently following for so many years and the department had consistently accepted the same, then no disallowance is warranted.

In the result, the appeal of revenue is allowed for statistical purpose.