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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: Shri Sanjay Garg & Shri Rakesh Mishra
order : June 27, 2024 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 28.11.2023 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. The assessee in this appeal has taken the following grounds of appeal: “1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) ought to haye considered that the order u/s 143(3) was passed by an authority who lacks jurisdiction over the appellant, and as such, the said order is bad in law and is liable to be quashed.
2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Assessment Years: 2012-13 M/s Gunny Dealers Ltd Rs.6,57,00,396/- made by the A.O on account of cash purchases of raw jute by wrongly invoking the provisions of sec. 40A(3) of the Act.
3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition of Rs.4,36,64,676/- made by the A.O. on account of alleged bogus creditors.
4. (a) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of alleged bogus purchase to the extent of Rs. 84,789/- being 8% of the total purchase of Rs. 10,59,861/- made from Smt. Anima Roy. (b) For that on the facts and in the circumstances of the case, the Ld. CIT(A) ought to have deleted the entire disallowance of Rs.10,59,861/- made by the A.O. on account of alleged bogus purchases made from Smt. Anima Roy.
5. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Rs.44,459/- made by the A.O. on account of Employees' contribution to Provident Fund by wrongly invoking the provisions of sec.36(1)(va) r.w.s 2(24)(x).
6. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.”
3. Ground No.1 – Vide Ground No.1, the assessee pleaded that the concerned Assessing Officer did not have jurisdiction to pass the impugned assessment order, however, no arguments have been advanced by the ld. Counsel in this respect. Therefore, Ground No.1 is dismissed as not pressed. Ground No.2 – Vide Ground No.2, the assessee has agitated 4. against the confirmation of disallowance by the CIT(A), made by the Assessing Officer u/s 40A(3) of the Act on account of cash purchases of raw jute.
4.1 The brief facts of the case are that the assessee was engaged in trading of raw jute for group companies. The Assessing Officer during the assessment proceedings noted that out of total purchases of raw jute claimed by the assessee at Rs.11,63,35,360/-, the assessee had shown to have made cash payments of Rs.6,57,00,396/- in respect of Assessment Years: 2012-13 M/s Gunny Dealers Ltd “raw jute purchased at Kankinara from farmers”. On being show- caused as to why the payments made in cash for the raw jute should not be disallowed u/s 40A(3) of the Act, the assessee submitted that it’s case was covered under exceptions as provided under Rule 6DD of the Income Tax Rules, 1962 (‘the Rules’). The Assessing Officer asked the assessee to furnish relevant record to prove the purchases. Statement of Shri S.R. Saboo, G.M., Purchase of the assessee company, was also recorded in this respect by the Assessing officer u/s 131 of the Act, wherein, Mr. Saboo stated that cash payments were made to cultivators/growers/farmers who had brought their produce to the factory premises of the assessee. A register was maintained for cash purchases. He explained that whenever the produce was purchased, cash token was given to concerned growers/farmers which was presented by the concerned farmer at the cash counter for getting payment. After the payment was made, the cash token was received back in original and was kept in records. Apart from the issue of cash purchases, the Assessing Officer also cross-examined the said official of the assessee company at length relating to the veracity/genuineness of the purchases etc. Thereafter, show-cause notices were also issued by the Assessing Officer to the assessee to supply the relevant evidences and explanations which were replied by the assessee. After considering the statement and explanations furnished by the assessee, the Assessing Officer pointed out the following discrepancies:
“a) For parties at Sl. No. 69 and 70, the assessee has informed in the party-wise details submitted that they are two persons, staying at different places. But a single ledger has been maintained for these two parties, as found from the ledger copy submitted. Sri Saboo was asked specifically (Q. No. 43) how the assessee can recognize the parties with the first name only. He replied that the assessee can recognize. But in respect of parties at SI. No.69 & 70, the assessee could not recognize the parties even with the full name also, while these persons stay at different places.
Assessment Years: 2012-13 M/s Gunny Dealers Ltd b) It is surprising to note that the assessee treated the parties mentioned under SI. No. 4, 62, 75, who are not individuals, as farmers/growers and claimed that cash purchases from these parties also do not attract provisions of section 40A(3) of the I. T. Act, 1961. c) In respect of party at Sl. No. 77, the amount of purchase mentioned in party-wise list does not tally with the ledger account submitted. d) The total amount of cash purchases and the Closing Balance as on 31.03.2012 mentioned in the party-wise list and audited accounts do not tally with the ledger accounts submitted.” 4.2 The Assessing Officer, accordingly, concluded that in this case, the assessee had failed to establish the identity of the farmers from whom the raw jute was allegedly purchased in cash. He observed that though there is a circular issued by CBDT being Circular No.220 dated 31.05.1977, which elaborates and illustrates, though not exhaustively, the circumstances in which it is not practicable to comply with the requirements of section 40A(3), yet, that the circular nowhere stated that it was not necessary for a person claiming the benefit of rule 6DD(j) to establish the genuineness of the payment and the identity of the payee. He, however, also observed that it was a fact on the file that if there was no purchase, there could not be any sale of goods. The Assessing Officer did not doubt the sales but observed that the assessee company had failed to substantiate the genuineness of the transaction and the identity of the parties. He observed from the accounts of the assessee that the assessee had claimed to have made cash payments of Rs.6,57,00,396/- during the year under consideration. He, invoking the provisions of section 40A(3) of the Act, disallowed the entire cash purchases and added back the same to the income of the assessee.
5. Being aggrieved by the said order of the Assessing Officer, the assessee preferred the appeal before the CIT(A).
5.1 Before the Ld. CIT(A), the assessee made the following submissions on this issue:
Assessment Years: 2012-13 M/s Gunny Dealers Ltd “(a) In the relevant year, the assessee - company made cash purchase of raw jute. During the course of assessment proceedings, the Ld. A.O. asked queries in respect of applicability of provision of sec. 40A(3) of £he Act on the said cash purchases. In reply, the assessee made a submission in respect of non-applicability of provision of sec. 40A(3) which is reproduced 'hereunder: "It is humbly submitted that Rule 6DD of, Income Tax Rules lists a number of exceptions to the provisions of sec. 40A(3) hereby, permitting payments in cash. Your good-self is attention is invited to, sub-clause (e) of Rule 6DD which enlists "agricultural and forest produce for the purpose of allowability of cash payments in the peculiarity of conduct of business of enlisted note here that "raw jute is beyond doubt a produce and considering the nature of produce the assessee was forced to 'make payments in cash. Please appreciate that any unreasonable / imaginary restriction imposed by the department will force the businessmen dealing in such produce to close shop, which will rob the Iivelihood of the poor farmers and also the employees of such businesses. Copy of the submissions is annexed herewith and marked as Annexure: 'D'. (b) During the course of assessment proceedings, the Ld. A.O. further doubted the genuinity of transactions relating to such cash purchases. In this regard, the assessee submitted as under "It is a common practice in the jute industry to purchase raw jute from the farmers against cash payments. The farmers assemble at the business place of the buyers carrying raw jute and deliver the same to the buyers. Since the farmers usually do not have any bank account, payments in respect of such purchases of jute are made in cash. In support of the above contention, the assessee submitted a certificate from the Jute Balers Association before the A.O. (copy annexed and marked as Annexure: 'E). (c) It is further submitted that the Ld. A.O. issued summon a/s. 131 to Shri S.R. Saboo who is a General Manager of the Purchase Department and conducts entire purchase of raw jute and looks after such purchases to verify the genuineness of cash purchases of raw jute. In response. Shri S.R. Saboo appeared before the Ld. A.O. and his statement was recorded u/s.
On perusal of the said statement, it is clear that he was able to satisfactorily reply to all the queries raised by the Ld. A.O. Thus, the contention about the genuinity of the transaction and business expediency of making cash purchases was proved beyond doubt by the assessee company. (d) In the assessment order, the Ld. A.O. contended as under- Assessment Years: 2012-13 M/s Gunny Dealers Ltd “It has also been stated that materials were also purchased from brokers. But no brokerage expenses have been claimed in the profit and loss account for AY. 2012-13 and it has been claimed in the accounts that all purchases are direct purchases, either from farmers through cash or from different other parties, through cheque. Therefore, the statement of Shri S.R. Saboo is contradictory in nature. In this regards, it is humbly submitted that S.R. Saboo. G.M. (Jute Purchase) rightly stated in his deposition before the Ld. A.O. that a part of purchases made by the assessee were from different brokers / sellers on their usual payment basis. It was also clarified during the course of assessment that certain brokers moves around in the villages and collect raw jute from small farmers and sell to concerns like assessee company on their behalf but issues bills in their own name. In due course, depending upon the credit terms, they were paid by account payee cheques. In this arrangement, the assessee company was not liable to pay any brokerage. (e) The Ld. A.O. further contended that - "It has also been stated that the assessee is not in a position to prove that they are all farmers. Therefore, the assessee is not entitled to claim exemption under Rule 6DD. It is an established fact that the assessee has been deliberately not disclosing the exact details of the purchasers and not giving sufficient scope to the undersigned for conducting a process of physical verification or spot verification of its claim of cash purchases of raw jute, even for the current F. Y. This raises serious doubt about the identity and genuineness of the parties and also its claim of purchases by cash, directly from farmers/ growers of cultivators. In this regard, it is humbly submitted that as per sub clause (e) of Rule 6DD where the payment is made for the purpose of agricultural and forest produce, no disallowance u/s. 40A(3) can be made. Since, raw jute is an agricultural produce, the assessee is entitled to claim exemption under Rule 6DD. Further, the assessee furnished the following documents / records in support of the genuinity of above-mentioned cash purchases - (i) Party wise details of purchases (ii) Purchase Register (ii) Stock Register (iv) Cash Book and Bank Book showing withdrawals from bank and payment to parties (v) GRNs mentioning details of raw jute purchased, which also mentions vehicle no. of the vehicle through which the goods were brought to the assessee's place. (vi) Xerox copy of register maintained at the place of procurement commonly known as jetty Assessment Years: 2012-13 M/s Gunny Dealers Ltd (vii) Xerox copy of tokens evidencing delivery of raw jute as well as subsequent receipt of payment by the raw jute suppliers. Further, as to the non-availability of detailed address of the farmers, the assessee submitted before the A.O that the farmers who visit the business premises of the assessee to sell raw jute do not provide complete address. The assessee is also unable to insist for the ID proof from them in the absence of any provision in the law of the land. However, the Ld. A.O. did not consider the above -mentioned submissions and facts of the assessee in proper perspective and made a disallowance of Rs.6,57,00,396/- by wrongly invoking the provisions of sec. 40A(3) of the Act. (f) During the course of assessment proceedings, the assessee submitted a party wise list of purchases (as reproduced in the assessment order) and individual ledger copy for cash purchases. On perusal of the said documents, the Ld. A.O noticed the following alleged discrepancies, but did not give any opportunity to explain the same - (i) For parties al SI No. 69 and 70, the assessee has informed in the party – wise details submitted that they are two persons, staying at different places. But a single ledger has been maintained for these two parties, as found from the ledger copy submitted. Sri Saboo was asked specifically (A. No. 43) how the assessee can recognize the parties with the first name only. He replied that the assessee can recognize. But in respect of parties at SI No. 69 & 70, the assessee could not recognize the parties even with the full name also, while these persons stay at different places. In this regard, it is humbly submitted that the name of Sri Saroj Jain appearing in the SI. Nos. 69 and 70 relates to the same person. However, since he supplied materials from two different places i.e., from Achintola and Gangarampur. his name appeared twice in the list. (ii) It is surprising to note that the assessee treated the parties mentioned under SI. No. 4, 62, 75 who are not individuals, as farmers/growers and claimed that cash purchases from these parties also do not attract provisions of section 40A(3) of the I.T. Act, 1961. In this regard, it is humbly submitted that the names appearing at Sl. Nos 4, 62 & 75 are the agents of farmers who actually moves around in the villages and collect raw jute from small farmers and sell to concerns like appellant company on their behalf but issues bills in their own name (iii) In respect of party at Sl. No. 77 the amount of purchase mentioned in party -wise list does not tally with the ledger account submitted. In this regard, it is humbly submitted that in the details/of purchase of raw jutes from farmers at Kankinara a sum of Rs. 12,31,234/- was Assessment Years: 2012-13 M/s Gunny Dealers Ltd shown in the name of Subal Mondal. The assessee maintained two ledger accounts in the name of Subal Mondal showing purchases of Rs. 9,33,790/- and 2,97,344/- separately. At the time of assessment proceedings the ld. AO only considered the ledger account of purchase of Rs. 9,33,790/-. Copies of the ledger accounts of Subal Mondal are annexed herewith and marked as Annexure ‘G’. (iv) The total amount of cash purchases and the C losing Balance as on 31.03.2012 mentioned in the party - wise list and audited accounts do not tally with the ledger accounts submitted. In respect of alleged discrepancies in the closing balance as on 31.03.2012, it is humbly submitted that the said difference is reconciled hereunder- Total of closing balance as on 31.03.2012 as per ledger 4,46,53,247/- (at page 19 of the Assessing Order) Less: Mistake was committed at the time of totalling 8,31,190/- Actual total should be 4,38,22,057/- Less: Payment wrongly shown in the column of closing 1,57,482/- balance instead of payment column (at Sl. No.4) Closing balance as per party ledger/sundry creditors’ 4,36,64,575/- list and audited accounts 5.2. The ld. CIT(A) called a remand report from the Assessing Officer in respect of documents and explanations furnished by the assessee. The Ld. Assessing Officer, however, reiterated his findings in the remand report. The assessee filed objections/reply to the said remand report. The ld. CIT(A) after considering the submissions of the assessee confirmed the findings of the Assessing Officer that the assessee had failed to furnish the necessary documents on file to prove the identity of the farmers. The ld. CIT(A) further goes on observing that the producers/sellers undertake a process known as retting to extract jute fibre before it is sold in the primary market to the weaving mills and further goes on holding that the jute purchased by the assessee was in processed form and could not be characterised as agricultural produce and held that the exceptions of Rule 6DD(e)(i) were not applicable to the case of the assessee. He further held that it was not clear from the Assessment Years: 2012-13 M/s Gunny Dealers Ltd submissions that the sellers or producers were farmers as such. The ld. CIT(A), thereafter, referred certain case laws and held that the assessee has not been able to prove with enough evidence that the case of the assessee falls within the exceptions as provided under Rule 6DD(e)(i) and confirmed the disallowance made by the Assessing Officer on this issue. Being aggrieved by the said order of the CIT(A), the assessee has come in appeal before us.
Before us, the ld. Counsel for the assessee has reiterated the submissions as were made before the lower authorities and has further submitted that as per the established practice, the farmers/growers/producers of the raw jute come to the factory premises with their produce. Sometimes, they are accompanied by local brokers/agents. Their produce of raw jute brought by them is purchased at the factory premises. That no bills or vouchers are maintained in this respect. That at the time of purchases of raw jute at factory premises against cash payments, the date, the name of the producer/farmer, the name of his village and vehicle no. in which the produce is brought is noted down in the register and cash token is given. The original cash token is received back when the payment is made. The ld. Counsel for the assessee, in this respect, has referred to pages 103 to 116 of the paper-book to submit that the date-wise details of the purchases were duly recorded by the assessee along with date, name of the farmer, name of the village, the quantity of purchase and amount paid/payable, which were duly furnished before the lower authorities. The ld. Counsel has further referred to page 118 of the paper-book, which is certificate of Jute Balers’ Association, whereby, it has been certified that it is a common practice in the jute trade to purchase raw jute from the farmers against cash payments. That the farmers carry and deliver the same at the business place of the buyer.
Assessment Years: 2012-13 M/s Gunny Dealers Ltd The ld. Counsel has further submitted that even the statement of Shri S.R. Saboo was also recorded, wherein, Shri Saboo duly explained the entire process of purchasing of raw jute by making cash payments to the farmers. The ld. Counsel has submitted that the Assessing Officer could not bring out any discrepancy in the statement of Shri Saboo. He has further submitted that the case of the assessee duly falls within the exceptions as provided under Rule 6DD of the Rules. The ld. Counsel in this respect has relied upon the following case laws:
1 Case-laws on 40A(3)- business expediency (a) ITAT order in the case of Srabani Chakraborty vs. ITO, Order dated 27.03.14 (b) ITAT order in the case of Samar Biri Factory vs. ACIT (c) ITAT order in the case of Sri Manoranjan Raha vs. ITO (d) Gist of decision of Hon'ble Gujarat High Court in the case of Anupam Tele Services vs. ITO (e) Gist of decision of Hon'ble Calcutta High Court in the case of CIT vs. CPL Tannery 175 Taxman 316 Case laws on 40A(3) - Payments made through agents (a) DCIT vs. Hind Industries Ltd. 120 TTJ 505 (Del.) (b) Gamidiwala Dairy vs. ACIT 136 TTJ 33 (U.0.) (c) Sri Renukeswara Rice Mills vs. ITO 93 ITD 263 (Bangalore) (d) DCIT vs. Allied Leather Finishers (P) Ltd. 32 SOT 549 (Luck) 7. The ld. DR, on the other hand, has relying upon the findings of both the lower authorities has submitted that almost 94% of the purchases were made in cash. That in respect of sundry creditors, the payment was shown in the books but remain unpaid. He referred to page 19 of the assessment order to submit that the Assessing Officer has also made the observation that though it has been claimed that the Assessment Years: 2012-13 M/s Gunny Dealers Ltd cash payment to the parties had been made at Kankinara out of cash withdrawals from bank account maintained in Kolkata, however, there was no mention of cash withdrawals in the cash book at Kolkata and that entry in this respect was directly made in Kankinara cash book. The ld. DR, therefore, has submitted that the assessee had failed to prove the source of the purchases.
We have heard the rival contentions and gone through the record. In this case, the assessee right from the very beginning has claimed that the raw jute is brought for sale by the farmers/producers at the premises of the assessee. That after checking the quality/quantity etc. of the crop, the price is determined and the farmer is given cash coupon. The relevant details such as date, name of the farmer, name of the village, vehicle no. etc. have been duly noted in the purchase register. It has been categorically stated that apart from these details, no further details such as bills, vouchers and challans have been maintained in respect of cash purchases from the farmer. The assessee has also relied upon certificate of Jute Balers’ Association in this respect, whereby, they have certified that that this is the common practice in the jute trade to purchase raw jute from the farmers against cash payments and that the farmers carry and deliver the raw jute at the business premises of the buyer. Shri S.R. Saboo, G.M. Purchase of the assessee company, was cross-examined by the Assessing Officer at length. The relevant questions put to him, referred to by both the ld. Representatives of the parties, are question nos.5,7, 15 & 16, which along with answers of Mr. Saboo, for the sake of ready reference, are reproduced as under:
“Q5. Please inform the details of purchase activity of raw jute in respect of M/s. Gunny Dealers Lid.
Assessment Years: 2012-13 M/s Gunny Dealers Ltd Ans. There are 2-3 types of purchases, cash payment purchase, directly linked with growers and cultivators and farmers of different areas of West Bengal. But we are more or less specially focused on nearby cultivated areas of mill premises within radius of 50 kms. from mill location. Secondly, directly purchase of raw jute at Kolkata market from different brokers/sellers on our usual payment basis. There are certain purchases also which we purchase on cash discount basis as per requirement and needness of the company. Q6. Please inform the purchase activity of other companies of the group. Ans. Same as above i.e. answer to Q no.
Q7. is seen from the record that the other companies of the group have purchased jute from M/s. Gunny Dealers Ltd. But in your statement, you have not stated the same. Please explain. Ans. First we purchase jute from different cultivators/growers and farmers from different cultivated areas surrounding to mill for cash payment segment basis. Then we take delivery from the different cultivators/growers/farmers from which we have purchased at our premises which is situated within our mill premises and al the purchase material we keep separate till settlement from the growers, farmers etc. After proper assortment and gradation of proper raw jute we finalise the rates as per prevailing market and call the related persons of jute growers from whom jute belongs and settle the prices. Before taking this system whenever goods arrived at mill by lorry, rickshaw van same are properly weighed in presence of growers and cultivators. Q15. Please inform the documentary evidences maintained for cash purchases. Ans. We maintain register for cash purchases. We serve cash token to concern growers/farmers for making payment. After making payment we receive the original token and keep in our records. Q16. Can you produce these tokens for the period A.Y 2012-13(F.Y 2011- 12) or F.Y 2014-15? Ans. I will require one month time to produce the same.” 8.1 A perusal of the aforesaid reply given by Shri Saboo during his statement recorded on oath reveals that Mr. Saboo has stated that there were 2-3 types of purchases viz. cash payment purchase made to the farmers from the jute purchases of nearby cultivated areas from mill locations and secondly, there were direct purchases of raw jute at Kolkata market from different brokers/sellers on usual payment basis Assessment Years: 2012-13 M/s Gunny Dealers Ltd and further there were certain purchases also which were made on cash discount basis as per requirement and need of the company. It was also explained by him that the assessee company purchased jute from different cultivators/growers and farmers. That as per the practice, the delivery of the jute from the farmers taken at the mill premises and all the purchase material was kept separate till the settlement with the growers, farmers etc. That after proper assortment and gradation of raw jute, the rates were finalized and then the payments were made. It had also been explained that a cash token to the concerned farmers/growers was given and after making payment, the original token was received back. The complete list with the name of the farmer/grower, name of the village, vehicle no. etc. was furnished before the Assessing Officer. The Assessing Officer, however, noted certain discrepancies in the list. The Assessing Officer noted that at serial no.69 & 70, the name of two persons was mentioned staying at different places, however, a single ledger has been maintained for these two parties. Further the Assessing Officer noted that parties mentioned at serial no.4,6,62 & 75 were not individual farmers and growers and therefore, they were not covered within the exception as provided Rule 6DD of the Rules. It has been further pointed out that in respect of party at serial no.77, the amount of purchases mentioned in the party- wise list did not tally with the ledger account submitted. Fourthly, the Assessing Officer noted that the total amount of cash purchases and closing balance as on 31.03.2012 mentioned in the party-wise list and audited accounts did not tally with the ledger account submitted. However, the assessee, in respect of the above noted discrepancies pointed out by the Assessing Officer, the assessee duly replied pointwise. In respect of discrepancies pointed out by the Assessing Officer that at serial no.69 to 70, two persons residing at different Assessment Years: 2012-13 M/s Gunny Dealers Ltd places has been mentioned, whereas, a single ledger has been maintained, the assessee has explained that at serial no.60 and 70 the name of only one person only namely Saroj Jain has been mentioned, however, he supplied materials from two different places, therefore, his name was mentioned twice in the list but under single ledger. Further, in respect of observation of the Assessing Officer that parties mentioned at serial no.4, 62 & 75 were not individuals. It has been replied that they are agents of the farmers who actually move around in the villages and collect raw jute from farmer and sell to the assessee-company on their behalf and that their name was noted in the register. So far as the contention of the Assessing Officer that in respect of party no.77, the amount of purchase mentioned in the party-wise list did not tally with the ledger account, it has been submitted that the assessee maintained two ledger accounts in the name of the said party namely Subal Mondal showing purchase of Rs.933790/- and 297344/- separately. That at the time of assessment proceedings, the Assessing Officer only considered the ledger account of purchase of Rs.933790/-. In respect of 4th discrepancy that the total amount of cash purchases and closing balance as on 31.03.2012 mentioned in the party-wise list did not tally with the audited account, the reconciled statement has been furnished by the assessee.
At this stage, it is pertinent to note here, that in respect of explanations and details furnished by the assessee, a remand report was called by the CIT(A) from the Assessing Officer, a copy of which has been placed at page 84 to 87 of the paper-book. A perusal of the said remand report would reveal that the same reiteration of the observations made by the Assessing Officer in the assessment proceedings. However, in respect of specific documents furnished by the assessee to prove the genuineness of the transaction, the Assessing Officer has made a chart mentioning Assessment Years: 2012-13 M/s Gunny Dealers Ltd the details of the documents and the comments of the Assessing Officer thereupon, which, for the sake of ready reference, is reproduced as under:
Sl. Documents Submitted Observation/Deficiencies No. 1 Party wise details of The Details doesn't contain the complete Purchases name address or any evidence to prove that the purchases were made from farmers. 2 Purchase Register The Details doesn't contain any evidence to prove that the purchases being made from genuine farmers. 3 Stock Register The Stock Register cannot be treated as an evidence for the purchases were being made from genuine farmers. 4 Cash Book and Bank On the basis of Cash and Bank Book, it is Book showing very difficult to justify for the payments were withdrawals from being made to the farmers. Bank and Payment 5 GRN mentioning In the statement recorded during the details of raw jute Assessment proceedings, G.M of the purchased, which also Company had already confirmed in mentions vehicle no. statement that neither he could provide any through which the documentary evidence nor he could inform goods were brought to the actual location and address where the the Assessee's Place farmers stay and work. Therefore he cannot prove that they were farmers. Therefore the details of the Vehicle no. cannot be any way be treated as documentary evidence for the goods being purchased from farmers.
6. Xerox copy of register As already stated that the Assessee did not maintained at the have any evidence to prove the identity of the procurement documents and so the procurement register commonly known as cannot be submitted as evidence for the jetty. purchase being made from farmers. 6 Xerox Copy of tokens During the course of Statement, General evidencing delivery of Manager of the company was being asked to raw jute as well as produce the evidences for the purchases subsequent receipt of being made from farmers in Q:- 15 & Q: -16, payment by the raw he failed to submit the same. Jute Suppliers Assessment Years: 2012-13 M/s Gunny Dealers Ltd 8.2 A perusal of the above observation/notes of the Assessing Officer shows that the Assessing Officer rejected the documents/details furnished by the assessee in a casual manner. So far as the justification for making the cash purchases is concerned, the assessee had duly explained about the practice followed in respect of jute purchase business explaining that the concerned farmers/growers bring their produce at the factory premises and their name, village name, vehicle no, quantity, quality etc. is duly noted down in the register and further that they are issued cash coupons, which are received back in original when the payment is made at the cash counter. There is no rebuttal to the aforesaid averments of the assessee despite Mr. Saboo, GM of the assessee, having been examined and cross-examined on oath. It has been observed time and again that generally persons like farmers who bring their crops at the factory premises insist on cash payments. They do not generally maintain bank account. If they are paid in cash, they may take away and sell their crop to some other party. It is in the nature of business exigency of the assessee to purchase the crops against cash payments. Considering such circumstances, an exception has been carved out in Rule 6DD of the Income Tax Rules, 1962, barring the application of section 40A(3) of the Act in respect of cash payments made for purchases of agricultural/forest produce. The Assessing Officer has not disputed the applicability of Rule 6DD in this case on the ground that the raw jute crop was not an agricultural produce. However, his sole contention is in the assessment order is that the assessee had failed to prove the identity of the farmers and genuineness of the transaction. In this respect, it is to be observed that the assessee has not only furnished the details with name of farmers and their villages but also has furnished their vehicle no. The assessee has furnished the details of as many as 87 farmers. The only contention of the Assessing Officer is that Assessment Years: 2012-13 M/s Gunny Dealers Ltd these details do not contain complete address of the parties. It is commonly observed that generally in small villages, the persons are identified by their name/father’s name only. The assessee has furnished the name of 87 persons along with their name of village and vehicle no. It has also mentioned in the assessment order that the Assessing Officer has also served notices u/s 133(6) of the Act to some of the persons. However, it is not the case of the Assessing Officer that the persons with the above name and vehicle no. as furnished by the assessee were not residing in the villages mentioned or when they were contacted, they denied any transaction of selling their produce to the assessee. The Assessing Officer has simply noted that the complete address was not mentioned of all the parties, however, he has conveniently remained silent about the verification done by him from the concerned parties. So far as the Assessing Officer doubted about the source of the funds, the assessee duly explained the same and the Assessing Officer has not made any comment and even no additions have been made on account unexplained purchase u/s 69C of the Act. The only contention raised by the Assessing Officer is that it is not established that the aforesaid persons were farmers. In respect of the vehicle nos. through which the produce was brought at the assessee’s place, the Assessing Officer has simply rejected the aforesaid evidence furnished by the assessee saying that the vehicle no. given cannot, in any way, be treated as documentary evidence. In respect of copies furnished by the assessee evidencing delivery of raw jute as well as subsequent payment, the Assessing Officer simply rejected the said document stating that the said document was not furnished during recording of statement of Mr. Saboo during the assessment proceedings. It is to be noted that Mr. Saboo in his statement has duly stated that he has not brought with him the aforesaid cash coupons but he could produce the same which were duly produced by the Assessment Years: 2012-13 M/s Gunny Dealers Ltd assessee in the appellate/remand proceedings. In our view, when the assessee had furnished the aforesaid details, the G.M. (Purchases) of the assessee company having been also examined on oath, the burden shifted on the Assessing Officer to rebut the same. Even while examining Mr. Saboo, G.M. Purchase, the Assessing Officer asked him a specific question no.36 to inform the detailed location of market from where raw jutes are purchased and the also the open days of the markets, to which Mr. Saboo specifically responded that the raw jute is not purchased from any market and that they insisted the growers and cultivators to come to their mills and sell the raw jute. In reply to question no.39, he has specifically stated that the farmers belong to different places of West Bengal, surrounding mill premises within a radius of 50 kms, which means that the villages of the farmers fall within the 50 kms radius to the mill premises and their identity could have been examined by the Assessing Officer. Even the Assessing Officer asked Mr. Saboo regarding the transportation cost to which he specifically stated that the concerned supplier/seller bears the transportation cost and that they are purchasing the material on mill landing basis rates. Considering the above replies of the assessee and there is no rebuttal on the part of the Assessing Officer that the jute is not purchased from any market and further if the assessee could have purchased the jute from market, it would have also booked/claimed transport cost but no such transport expenses have ever been claimed by the assessee. There is not any single iota of evidence on file that the assessee has made the aforesaid purchases from some other party/parties. Even, the sales have not been doubted by the Assessing Officer. The Assessing Officer himself has mentioned that there cannot be sales without purchases. Therefore, the genuineness of the purchases has also been not been doubted by the Assessing Officer. The assessee had duly furnished the details and documents, which Assessment Years: 2012-13 M/s Gunny Dealers Ltd were available with the Assessing Officer regarding the identity of farmers/producers and the Assessing Officer has failed to rebut the same with any evidence that the aforesaid details furnished by the assessee were wrong or false. The Assessing Officer has been given wide powers under the Income Tax Act to enquire/investigate, summon the parties and the Assessing Officer could have verified the existence of the parties and as well as relating to the veracity of the transaction by sending the Inspector to the village mentioned. At this stage, it is to be noted that in the assessment order (page 10) it has been mentioned that notices u/s 133(6) were issued to some of the parties for the purpose of verification of purchases. However, notice has been received unserved in case of Smt. Anima Roy and further no reply was received from (a) Shri Damodardas J. Wadhwa, (b) M/s Shree Bhagirath Commercial Co. and (c) M/s Subhsagar Mercantiles Pvt. Ltd. However, the assessee had replied to the aforesaid query issued by the Assessing Officer, wherein, it has been mentioned that in case of Smt. Anima Roy whatever address was available with the assessee, that was furnished before the Assessing Officer. However, in respect of other parties, the assessee came to know that they have responded pursuant to the notice issued by the Assessing Officer u/s 133(6) of the Act. However, a perusal of the subsequent paras of the assessment order would reveal that the Assessing Officer has conveniently skipped the aforesaid reply and has nowhere mentioned that as replied by the assessee to him, the reply was received from the said parties confirming the transaction. Even, the Assessing Officer has not mentioned as to whom and to how many parties, the notices u/s 133(6) of the Act were issued/served. The Assessing Officer conveniently mentioned the name of only four parties in whose case, the notice was either received back unserved or no reply was received despite service. The Assessing Officer did not mention about any detail as to how many parties, the notices were Assessment Years: 2012-13 M/s Gunny Dealers Ltd issued/served and whether they have confirmed the transaction or not. In this case, we are of the view, that the assessee has duly discharged the initial burden upon it by furnishing relevant details of the farmers/producers, however the Assessing officer failed to rebut the same and simply pointed out minor discrepancies in the list and accounts, which have been duly explained /reconciled by the assessee. Moreover, the assessee is not benefited in any manner, in making the cash purchases. The purpose of disallowance u/s 40A(3) is that the income of the recipient should not escape from taxation, therefore, a statutory obligation is cast upon the payer not to make payment above threshold limit of Rs.10,000/- in cash, failing which the disallowance of expenditure would occur in the case of payer. In the case in hand, the assessee has duly explained that the payments were made to the farmers and that the farmers insisted on cash payments and further the payment for the produce falls in the exception clause as carved out in Rule 6DD of the Rules.
8.3 At this stage, it will be relevant to reproduce the relevant part of the provisions of Rule 6DD of the Income Tax Rules,1962: “6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account 2[account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] in the cases and circumstances specified hereunder, namely:- (e) where the payment is made for the purchase of (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or Assessment Years: 2012-13 M/s Gunny Dealers Ltd (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products;” 8.4 A perusal of the above Rule would show that the purchases made from cultivators, grower or producer of the agricultural or forest produce would fall in the aforesaid exception clause. The Assessing Officer as per his second discrepancy has pointed out that the parties mentioned under serial no.4,65 & 75 are not individual farmers. The assessee, however, has explained that the produce was sold by the said parties to the assessee on behalf of the farmers. However, we are not convinced with the above explanation furnished by the assessee. The name mentioned in the list is not of any farmer but of broker which means that the produce was brought and sold at the factory premises of the assessee by the broker and not by any farmer or producer of the crop. Therefore, in our view, the disallowance u/s 40A(3) of the Act is attracted in respect of purchases made from aforesaid three parties mentioned at serial no.4, 62 & 75 of the list as reproduced in the assessment order. However, in respect of the remaining parties, we, do not find justification on the part of the Assessing Officer in invoking the provisions to section 40A(3) of the Act in respect of cash payments made by the Assessing Officer to the said parties/farmers.
8.5 Now, coming to the observations of the CIT(A), who by referring to some extracts from the website of ‘National Jute Board’ has observed that producers/sellers have to undertake a process known as retting to extract jute fibre before it is being sold in the primary market to the weaving mills concerned. We note that most of the crops are to be processed before being brought for sale in the market. Merely because the concerned growers/producers undertake some processing for making the crop fit for sale in the market, that does not change the Assessment Years: 2012-13 M/s Gunny Dealers Ltd nature of the crop and it does not mean that it is no more an agricultural produce. Moreover, it has not been doubted by the Assessing Officer that the assessee had purchased raw jute, the term ‘raw jute’ itself means that it is the raw crop which is brought by the farmers/producers, at the factory premises of the assessee. This observation of the CIT(A) stating that the crop brought by the farmers/producers was no more an agricultural produce, is not tenable and the same is rejected. In view of this, the raw jute produce by the assessee duly comes within the exception carved out in section 6DD(e)(i). 8.6 In view of this, the Ground No.2 of the appeal is partly allowed in favour of the assessee and the disallowance made/confirmed by the lower authorities on this issue is confirmed to the extent of cash payments made to three parties mentioned at Serial No.4 (Rs. 157482/- ) Sr. No.62 (Rs. 199642/-) & Sr. No.75 (Rs. 662425/-) of the list as reproduced in the assessment order. The disallowance in respect of remaining parties is ordered to be deleted. Ground No.3 – Vide Ground No.3, the assessee has agitated 9. against the confirmation of addition of Rs.4,36,64,676/- made by the Assessing Officer on account of alleged bogus creditors. 9.1 The brief facts relating to the issue are that, as noted above, the assessee purchased raw jute from farmers, which is brought to its premises by the said farmers. The Assessing Officer noted that the assessee had shown sundry creditors of Rs.4,36,64,676/- relating to the cash purchases of raw jute. The assessee in this respect has explained that the farmers brought their produce in the premises of the assessee, however, if the assessee has already achieved its targeted purchase, then the farmers are offered to sell their produce on credit Assessment Years: 2012-13 M/s Gunny Dealers Ltd basis. It was also explained before the CIT(A) as well as during the remand proceedings that the payment had been made in subsequent years. However, the Assessing Officer held the aforesaid credit purchases/sundry creditors as bogus only on the ground that the identity of the concerned farmers/sellers were not established. Since the purchases have also not been doubted by the assessing officer and even the corresponding sales have also not been doubted by the Assessing Officer but, only the identity of the sellers/farmers have been doubted by him, hence, in view of our observation made above in respect of the issue relating to disallowance u/s 40A(3) of the Act, the addition on the ground of identity of the sundry creditors also cannot be held to be justified. Moreover, the Assessing Officer has not doubted the purchase as he himself has written that there cannot be sales without purchases. In view of this, the addition on account of sundry creditors is not sustainable. This ground of appeal is accordingly allowed and additions assailed vide ground No.3 are ordered to be deleted. Ground No.4 - Vide Ground No.4, the assessee has agitated 10. against the action of the CIT(A) in confirming the disallowance of the alleged bogus purchases to the extent of Rs.84,789/- being 8% of the total purchase of Rs.10,59,861/-. The ld. counsel has not made any convincing argument in respect of this ground. Ground No.4 is, therefore, dismissed.
11. Ground No.5 – Vide Ground No.5, the assessee has agitated against the action of the CIT(A) in confirming the disallowance made by the Assessing Officer on account of late deposit of employees’ contribution to PF invoking the provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act.