MA PARAMESHWARI AGRO PVT. LTD.,BURDWAN vs. ACIT, CIR-2, BURDWAN, BURDWAN

O R D E R

PER S.S.Godara, Judicial Member:

1. 1. First, there is a survey conducted during which these facts are uncovered.

2. The director who runs the business is examined under oath, u/s 131 of the Act and admits that the impugned payments are made to several business parties in cash.

3. He, at no point of time contends that these payments were made to any agent of his. This is a primary source of evidence coming from the person who runs the business. The evidence is under oath and has not been denied at any point of time or retracted. In any case it would be reasonable to presume that this is a truthful submission since it is not of a technical nature requiring an analysis of accounts. The payments are of large amounts and to a very few number of people; they also relate to the primary business activity of the appellant arid therefore, it would be reasonable to presume that the main director would be in the know of the correct state of affairs. He makes no mention of agents, but in fact identifies them as business parties. The veracity of his statements is further strengthened when we examine the statement closely and find that not only has he identified such parties as business parties but has in fact been able to successfully identify his own employees and suppliers from the recipients of payments in cash and exclude such persons from the list of persons, cash payments to whom would attract the provisions of section 40A(3). This statement assumes the nature of a reliable piece of primary evidence.

4. During assessment proceedings, however, with the benefit of legal advice, the appellant comes up with several pleas. While there is nothing wrong with legal advice, the questions have to be examined closely when such legal advice is found to try and twist the facts from their original form. So, the appellant now comes up with several pleas that fall within various clauses of rule 600.

5. The appellant says that the said payments were made to agents - that the suppliers of paddy were actually his agents. He adduces no evidence to prove his point.

6. After taking into account the AO's observations, the appellant, without producing any reason whatsoever as to why this evidence was not adduce before the AO, before whom he had to discharge his primary onus of proving that the said persons were his agents, tried to present documents etc. to try and establish the existence of the agency. The introduction of such new evidence has to be examined in its proper perspective. The, appellant has not made out a case for the induction of such evidence at this stage. It was never his case that sufficient opportunity was not afforded to him or that the AO did not allow him to adduce such evidence or that there were some other A.Y 2010-11 Ma Parameswari Agro Pvt. Ltd. vs. ACIT, Cir-2,Bwn. Page 3 circumstances that would explain why the appellant did not deem it proper to produce evidence in support of his claims. In view of this, I hold that fresh evidence cannot be admitted at this stage in an attempt to artificially enhance the period of scrutiny and to allow the appellant to keep coming up with new arguments - relevant or irrelevant, truthful or not, originally existing or fabricated as an afterthought. The fact is that the appellant is provided with sufficient opportunity to render his explanations with regard to a certain transaction. Thereafter, he becomes aware of a legal provision that might turn out be useful to him and the entire set of proceedings that follow, at the assessment stage or the subsequent appellate stages, become witness to a never ending evolution of new evidences and new stands and once again new evidences to support the new stands... the process, if allowed to go on like this can carry on endlessly, defeating the provisions of any law. The issues to be examined in the introduction of evidence are to seem whether there lay sufficient cause before the appellant for the non-induction of fresh evidence. This has to be tempered with a certain amount of leniency when new legal stands are being taken by the appellant - which themselves are established to be allowable - and further evidence in their support is sought to be introduced. Such, however, is not the case here. We are being made witness to new evidence sought to be inducted without providing any reasonable cause and a continuous transformation of the appellant's stand - merely to somehow make his case fall within anyone provision of the concerned rule 6DD. In this context, it must also he appreciated that the framers of such rules did so for providing relief in respect of the bona fide hardships that an assessee might be forced to face on account a particular form of a transaction insisted upon by the statute. For example, there is exemption provided for payments on bank holidays. This has to be read with the urgency or absolute necessity of making these payments on such holidays. The evidence of this contingency has to be established by the assessee himself to the reasonable satisfaction of the assessing authority. Without this satisfaction, the assessee cannot evail a blanket umbrella under the said provision. The apex court in Attar Singh Gurmukh Singh Vs ITO 191 ITR 667 has held that "there is no restriction on the assessee in his trading activities .... The payment by crossed cheque or draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or not or whether it was out of income from undisclosed sources .... Considerations of business expediency and other relevant factors have are not excluded. . .. It is open to the assessee to furnish to the satisfaction of the assessing officer the circumstances under which payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee." Now, the reason that this judgment has been cited out of the plethora of decisions underlining the same points is that it is this very judgment that has been relied upon by the appellant himself in the instant case. A study of the above extract and the judgment itself show that the apex court has been singularly considerate in taking into account the genuine difficulty A.Y 2010-11 Ma Parameswari Agro Pvt. Ltd. vs. ACIT, Cir-2,Bwn. Page 4 that may be caused to the payee or the r-restrictions that may caused to be placed upon the performance of his business activities, if he were forced to adhere to the provisions of section 40A(3) of the Act. The Hon'ble Court has held that it is always open to the appellant to establish before the AO as to circumstances under which payments in the manner prescribed were not practicable or would have caused genuine hardship to the appellant or would otherwise have restricted his business expediency. The essentiality of reading rule 6DD is also an echo of the same sentiments. The provisions of rule 6DD also have to be read in the same context if recourse has to be sought to them. Having established the legal context created by the judicial pronouncements with relevance to the reading of rule 6DD, we examine how they apply to the present appeal. The appellant has tried to take recourse to certain legal provisions after the fact. An chronological examination of his submissions shows that he has progressively been trying to seek shelter within various clauses of rule 6DD. I have already commented upon the exigency of payment that has to be established if a payment is said to be made on a bank holiday. The context- created by rule 6DD and the above discussions is that not every cash payment made on a holiday - even if it has been established to have been made on a bank holiday which it has not here - can be said to have been made out of some urgency. This fact needs establishing - and at the hands of the appellant. Unfortunately, this has not been done by him and therefore, the umbrella of the relevant clause cannot be made available to him as a blanket provision without defeating the entire purpose of section 40A(3) and its prescribed reading with rule 6DD. The appellant has not made any attempt to explain such an expediency or the hardship that he might have suffered had he adhered to the prescribed form of payment. Similarly, when a payment is made through an agent - without prejudice to the fact that the said agency has not been established by the appellant and that even if the appellant's contentions are accepted, (which they are not) there is nothing to show that the appellant did indeed have the said persons as his agents - as per the remand report, without prejudice to the fact that this evidence has not been admitted, such persons could at best be considered only to be the agents of the farmers and not the appellant - it has to be established by the appellant that such agents were required to make payments to persons to whom such payments were made in cash. This fact has also not been established by the appellant. In any case without prejudice to the above, we find that the fact of agency has not been proved by the appellant who at first identified these persons as suppliers in his deposition then tried to prove that they were agents. This also was not proved since no payments of consideration were made to these so-called agents for the work that they performed except to get food/lodging for which also no expenses were shown by the appellant. His assertion - not admitted as evidence - that e obtained certain commission from the suppliers in fact establishes them to be the suppliers agents and not his. This contention of the appellant therefore cannot be accepted. Coming to the fact that there were no banks in the region we fine that the appellant has tried to introduce evidence, again, without A.Y 2010-11 Ma Parameswari Agro Pvt. Ltd. vs. ACIT, Cir-2,Bwn. Page 5 sufficient case, at the appellate stage. But, without prejudice to the veracity of such evidence and the fact it cannot be introduced at this stage, we can still examine the provisions of the relevant clause of rule 6DD in this regard. We find that such a clause has been introduced to ensure that the business expediency of the assessee does not suffer. An assessee should not be proscribed from conducting his business activity, say, when a payment has to be made to a supplier at a place where there is no bank, then that transactions cannot place because of the absence of the bank and the supplier’s reluctance to take a cheque. In this case, the suppliers are shown to have long term business relationships with the appellant; they have indulged in extensive and large-scale and large amount transactions with the appellant over a length of time. It is a fact that even though there is no bank within four kilometres of the appellant’s business place, such banks are vey well located at a distance of four kilometres it is not the appellant’s case that he is confined to the place where such transactions took place. It is a fact that the appellant maintains several bank accounts in Burdwan. It is also a fact that there are banks at a short distance of only about four kilometres from the place of such transactions – as brought out by the report of the inspector during remand proceedings – and which were functional at the time of such transactions. It is also not the case of the appellant that the supplies were actually farmers who are exempt for the reason that they have to be attached to their land are not expected to travel to far off place places in search of banks. These are suppliers who are businessmen who collect paddy from farmers and transport it to the appellant, of whom it is being suggested that they could not travel four kilometres to deposit a cheque. The appellant has not brought anything on record to suggest that this cash transaction was per force and could not have been dispensed with. Reference once again has to be made to the averments of the apex court in the context of proving the necessity of invoking the excepts embedded in rule 6DD and the fact that this onus lies upon the assessee. The exceptions of rule 6DD are not invoked automatically and have to be demonstrably invocabale. This demonstration has been given by the assessee. Failing this demonstration, the default provisions applicable are the provisions of section 40A(3). In the instant case, this has not been demonstrated by the appellant. He has failed to demonstrated how an appellant or a supplier who are admittedly travelling much larger distances and conducting the very same business activities and have been conducting business of large amount s of, both, money and goods, over extended periods are obviously men of the world, would have suffered hardship had they tavelled a mere four kilometres to avail of banking facility this is especially true since it would be a more convenient and safer mode of transfer of payments from one party to the other. The obvious conclusion is that there never was any intention to allow banking transactions to interfere with the business of the appellant and not to allow the control concomitant with such adherence to prescriptions as laid down in section 40A(3) of the Act to provide any transparency to his transactions. The fact that the said findings emerged out of the direct action of a survey u/s. 133A of the Act and ever since that discovery the appellant has been trying his best to try and twit and conjure up facts to get out of provisions that he has violated, shows the appellant’s intentions and bona fides very clearly. This demeanor and the actions cast a doubt on the intentions of the appellant and therefore A.Y 2010-11 Ma Parameswari Agro Pvt. Ltd. vs. ACIT, Cir-2,Bwn. Page 6 necessitate the application of section 40A(3) of the Act which is essentially a section that is pre-emptive in nature and designed to keep any non- genuineness of the assessee in check – this is especially true when it comes to an effort to keep in control the black money that is generated without check in cash transactions. To escape the provision of this section even after making cash transactions, the learned legal opinion has held that the entire demeanor and intention of the appellant has to be examined and found to be bona-fide.. Even on this count, the appellant fails. In view of the above discussions and the emergent circumstances of this case, I hold there nothing wrong with the action of the AO in invoking the provisions of section 40A(3) in respect of the said payments in cash. Hi action is confirmed. The ground is accordingly dismissed.”

3. We have given our thoughtful considerations to rival contentions against and in support of the impugned disallowances / additions. Some key facts emerge from the instant cases file. There is no dispute that this assessee is a company engaged in rice milling business. It has purchased raw-paddy for rice milling. It made the impugned payments to five persons namely Sunil Ghosh, Nemai Paul, Tapas Nandi, Suman Chowdhary & Mansa Chowdhary totalling to ₹68,62,049/- followed by similar sums ₹5,97,905/-; coming to impugned disallowance. Both the lower authorities have rejected the assessee’s case claiming these five persons to be its agents. They have not doubted its case in principle that it had purchased the raw-paddy for rice milling. We observe in these facts and circumstances that the assessee’s case squarely falls under rule 6DD(e)(i) of Income Tax Rules, 1962 carving out an exception to section 40A(3) in case of purchase of agricultural produce in lieu of cash payments. We further reiterate that the area in question is not having banking facilities even as per CIT(A)’s above extracted findings. Neither of the lower authorities has disputed the assessee’s details filed of the rice cultivators / growers as well as lack of banking facilities in their rural area. We therefore direct the Assessing Officer to delete the impugned sec. 40A(3) disallowance of ₹74,59,954/- as the assessee duly satisfies Rule 6DD(e)(i) and (g) being both payments made for purchasing agricultural produce and lack of banling facility; respectively 5. Next comes the latter issue of correctness of estimated gross profit addition amounting to ₹7,43,940/- @ 6% of the alleged difference in opening