ITO, ERODE vs. SHRI B. KAMARAJ, ERODE

As both the appeals are related to the same assessee and being inter-connected, both the appeals are disposed off by this common order.

Shri N.Madhavan, ACIT represented on behalf of the Revenue and Shri S.Sridhar, Adv., Erode, represented on behalf of the assessee.

It was submitted by the Ld.DR that the assessee is an individual who is dealing in trading of rice. It was a submission that for the AY 2013-14, the assessee had a turnover of nearly Rs.1.04 Crs. and for the AY 2012-13, a turnover of nearly Rs.59.00 lakhs. It was a submission that in the course of the assessment, it was noticed that the assessee had made purchases of the rice from various Rice Mills as has been specified in the Assessment Order, in cash. It was a submission that the AO had consequently, disallowed the payment in respect of the purchase of the rice by applying the provisions of Sec.40A(3) of the Act. It was a submission that consequent addition for the relevant AY 2013-14 was Rs.89.31 lakhs and for the AY 2012-13 was Rs.50.82 lakhs. It was a submission that the assessee had claimed that the assessee had purchased the rice from the Rice Mills through his Agents to whom he had to pay cash. It was a submission that the Agents have been identified as the wife of the assessee, the mother of the assessee and some of the employees of the assessee. It was a submission that the Ld.CIT(A) had deleted the addition on the ground that the provisions of Rule 6DD(k) of the Act, applied. It was a further submission that the Ld.CIT(A) had consequently, rejected the assessee’s books of accounts and had estimated the income of the assessee at 2.5% of the turnover. It was a submission that the estimation as done by the Ld.CIT(A), in fact, brought & :- 3 -: the income of the assessee below the returned income. It was a submission that the order of the Ld.CIT(A) was liable to be reversed.

In reply, Ld.AR submitted that the Revenue has challenged only the fact that the Ld.CIT(A) has accepted the Rule 6DD(k) of the Act applied in respect of the purchases in so far as the payment had been made to the Agents of the assessee for the purpose of the purchase of the rice from the Rice Mills. It was a submission that the Rice Mills were situated about one hour drive from Erode. It is admitted that two of the Agents were the assessee’s mother and assessee’s wife, but none of the assessee’s employees were acting as Agents of the assessee and this is not the claim in the Assessment Order. It was a further submission that the purchases are all below Rs.20,000/- and only because the total purchases during a particular day has exceeded Rs.20,000/-, the AO has invoked the provisions of Sec.40A(3) of the Act. It was a submission that the order of the Ld.CIT(A) was liable to be sustained.

We have considered the rival submissions. Admittedly, the assessee is a dealer of rice. Rice is a commodity which once sold, it would be difficult to recover back. Rice Mill owners, themselves, are in precarious financial position and it is a known fact that they demand cash. The genuineness of the purchase is not in dispute. In fact, by making the disallowance, the AO has practically disallowed and made an addition of 80% of the purchase of the assessee. The AO has also disallowed the & :- 4 -: commission paid to the Agents. The Inspector of the AO has examined the Commission Agents substantially and they have all confirmed having received the commission payment and they have also identified the Rice Mills from where the purchases have been made. These are also found to be genuine. This being so, it cannot be said that the provisions of Rule 6DD(k) does not apply to the assessee’s case. However, a perusal of the order of the Ld.CIT(A) shows that after deleting the disallowance made by the AO by invoking the provisions of Sec.40A(3) of the Act, the Ld.CIT(A) has estimated the income of the assessee at 2.5% of the turnover, which has resulted in the assessed income going below the returned income.

In the result, the appeals filed by the Revenue in & 2598/Mds/2016 are partly allowed.