ACIT, CIRCLE-4(1), KOLKATA, KOLKATA vs. M/S. CONTEMPORARY INDUSTRIES LTD., KOLKATA

We come to the first issue of bogus purchases disallowance amounting to Rs.12,22,587/-. This assessee is a tea manufacturer. It further trades in plywood, shares, export and in leasing business. The department appears to have received information from its Investigation Wing that the assessee had availed bogus purchase entries from various hawala dealers Suraj Timber Mart, Shyam Traders and Ronak Enterprises involving sums of Rs.1,50,175/-, Rs.8,15,195/- and Rs.2,57,217/- M/s Contemporary Industries Ltd. A.Y.2009-10 2 respectively. This culminated in section 148 proceedings being initiated The tax payer’s case in consequential reassessment proceedings was that it had been having all the relevant details, address, VAT, CST and bills of the concerned three parties followed by payments made to have done through account payee cheques. It further stated that the relevant payments had also been made through banking channels only. The Assessing Officer rejected all the said pleas in his assessment order. He went by Investigation Wing’s information only to conclude that all of the assessee’s above purchase totalling to Rs.12,22,587/- were bogus since routed through hawala dealers.

The assessee preferred appeal. The CIT(A) reversed the assessment findings as under : “I have gone through the written submission of the appellant and the assessment order. The Ld. A.O had no evidence or any other material available on record which could establish the purchases made by the appellant as bogus. He has merely assumed that the aforesaid purchases are bogus relying on the information provided by the Investigation wing and non-compliance of notices issued u/s 133(6). Neither did the Ld. A.O provide the copy of information available with him to the appellant nor did he give an opportunity' to cross examine the principal officers of the firms who have admitted to give bogus entries. On the other hand, the A/R of the appellant had stated that no addition can be made merely on the basis of noncompliance of notices issued u/s 133(6) and information received from investigation wing without conducting any independent inquiries. He has further stated that the Ld. A.O has treated the sale as genuine and every sale has corresponding purchase. I have considered the written submission filed by the appellant and on the basis of arguments made by the appellant and case laws provided, I concur with the submission of the A/R. Hence, the addition made by the AO of Rs 1222587 is deleted and the ground no 2 of the appellant is allowed.”

Mr. Dasgupta vehement’s contention during the course of hearing is that the Assessing Officer had rightly disallowed the impugned purchases since routed through hawala dealers in question. We do not see any substance in the instant argument. It is evident first of all that the assessee’s detailed evidence filed before the Assessing Officer have not been considered even nor the Assessing Officer ever supplied relevant information note(s) . He did not afford corresponding opportunity to cross examination to the tax payer as per in hon’ble apex court’s decision in Andaman M/s Contemporary Industries Ltd. A.Y.2009-10 3 Timber Industries Ltd. Vs Commissioner of Central Excise (2015) 62 Taxman 3 (SC) order dated November, 16, 2015 . It has further come on record that relevant sales already stand assessed as genuine business income. We take into account of all these facts and circumstances to conclude that the CIT(A) has rightly deleted the impugned alleged bogus purchase disallowance.

The Revenue’s second substantive grievance seeks to revive section 40A(3) disallowance of Rs.32,58,648/- invoking on account of the fact that the assessee had made cash payment exceeding the threshold limit for purchase of tea leaves. The CIT(A) first of all holds that the said amount involved salary payment of Rs.3,28,648/- not coming under Rule 6DD of Income Tax Rules. Coming to the balance payments, we find that the CIT(A) quotes the hon’ble apex court’s decision in Union of India vs Belgachia Tea Co. Ltd. 304 ITR 1 (SC) that tea leaves are agricultural produce giving rise to agricultural income only. Learned Departmental representative fails to dispute that Rule 6DD(e)(i) itself excludes payment made for agricultural produce from the rigor of section 40A(3) of the Act. We therefore uphold the CIT(A) findings qua the second issue.

Learned Departmental Representative thereafter invites our attention to third and last substantive ground seeking to revive travelling expenditure disallowance of Rs.7,17,312/- made by the Assessing Officer out of assessee’s gross claim of Rs.15,38,553/-. The CIT(A) has partly accepted assessee’s arguments in the lower appellate proceedings in restricting impugned disallowance @5% only as against the earlier one made by the Assessing Officer @ almost 47%. We do not see any detailed discussion in the assessment order pinpointing towards specific material while terming the assessee’s instant expenditure to have been incurred for personal purposes. We thus find no merit in Revenue’s instant last substantive ground as well.

This Revenue’s appeal is accordingly dismissed.