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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:-
These are cross appeals of the assessee and Revenue for the assessment year 2008-2009 directed against the order dated 11.04.2012 of the ld. Commissioner of Income Tax (Appeals)-VIII, Chennai.
Grounds taken by the Revenue run into three numbers, out of which 1 & 3 are general in nature needing no specific adjudication. Grounds taken by the assessee are two, of which ground 2 is general again needing no adjudication.
Effective ground which is left in Revenue’s appeal is ground 3.
No.2 and in assessee’s appeal is ground number 1. Revenue assails the order dated 11.04.2012 of Commissioner of Income Tax (Appeals)- VIII, Chennai deleting an addition of �2,70,00,000/- out of a total addition of �3,00,00,000/- made by the ld. Assessing Officer. As against this assessee is aggrieved on the sustenance of the addition to the extent of � 30,00,000/-
Facts apropos are that the assessee engaged in sale of marine products had filed a return of income for the impugned assessment year disclosing income of �33,20,727/-. There was survey
ITA Nos.1461 & 1463/2012. :- 3 -: u/s.133A of the Income Tax Act, 1961( herein referred as ‘’the Act’’) in the premises of the assessee on 27.03.2008. It seems a statement was recorded from one Shri. Belavendiran, Account Manager of the assessee during the course of survey. In such statement Shri.
Belavendiran explained the process of acquisition of raw material and also the manufacturing method used by the assessee. A question was raised regarding expected sales and purchases. Shri. Belavendiran, it seems gave figure of �50 Crores for sales and �38 Crores for purchases. However, in the financial statements filed alongwith return of income, assessee had disclosed gross sales of �49.57 Crores and purchases worth of �44.10 Crores. As per ld. Assessing Officer though the sales figure came close to the figure stated by Shri. Belavendiran, purchase figure was much higher. According to the ld. Assessing Officer, purchases over a short period of four days viz-a-viz 28.03.2008 to 31.03.2008, reflected an increase of about �5.47 crores which came to 12.4% of the whole year purchase. Ld. Assessing Officer calculated average monthly purchase which came to �3.67 Crores upto February, 2008 and compared it with the purchase of �5.47 Crores for the last for four days of March, 2008. Further, as per ld. Assessing Officer, assessee had submitted before Union Bank of India a stock statement in which sales was shown as �65 Crores. Ld. Assessing Officer also noted that Shri. Belavendiran had in answer to a question, stated that ITA Nos.1461 & 1463/2012. :- 4 -: no pucca stock register with quantity particulars was being maintained.
Further, as per ld. Assessing Officer closing stock shown by assessee in its final account for the relevant financial year came to �14.05 Crores against total sales of �49.57 Crores and total purchase of �41.10 Crores. According to ld. Assessing Officer such a high level of closing stock was not probable especially since assessee was dealing in perishable items. Thus, according to ld. Assessing Officer the assessee had inflated its purchase figures with a motive to reduce profits.
Ld. Assessing Officer also noted that assessee had effected 5. major purchases in cash. The purchases which were effected from fishermen were based on advance given in cash. As per ld. Assessing Officer for the following purchases, cash payments in excess of �20,000/- aggregated to � 1,57,93,664/-.
Sl. Purchase Location of Total cash Individual Individual No from purchase purchase cash cash payment payment below above ₹ 20,000/- ₹ 20,000 1 Khan Kottaipattinam 20,78,737 15000 20,63,737 Mandapam 2 Raj Mandapam, 36,04,889 24,320 35,80,569 local 3 Karthikeyan Kottaipattinam 21,08,479 42,261 20,66,217 4 Manickam Rameshwaram 28,21,815 20,000 28,01,815 Mandapam 5 Santhya Rameshwaram 39,64,299 6,602 39,57,697 Mandapam 6 Ennem Mandapam local 6,25,907 3,30,907 2,95,000
ITA Nos.1461 & 1463/2012. :- 5 -:
7 Seurya Mandapam, 9,16,636 4,50,000 4,66,636 local 8 Sebastin Mandapam, 11,84,597 6,22,605 5,61,992 local 9 Murugan Syalkudi, 42,04,200 42,04,200 0 Mandapam 10 Sabubar Syalkudi, 61,844 61,844 0 Mandapam Total 1,73,67,624 15,73,960 1,57,93,664 Though the assessee relied on Rule 6DD(e) of Income Tax Rules,1962, the ld. Assessing Officer was of the opinion that fishermen could not be equated to the cultivator or grower or producer of the type of article or product mentioned in the said rule. The ld. Assessing Officer also noticed that fishermen were from Rameshwaram & Mandapam where there were bank facilities and there was no reason for the assessee to make payments in cash. Ld. Assessing Officer applied Sec. 40A(3) of the Act and made disallowance of �1,57,93,664/-.
For the alleged bogus purchases, mentioned by us at para 4 above, ld. Assessing Officer was of the opinion that a part of the additional purchases of �5.47 Crores could have been genuine. He, therefore held that �3 Crores out of �5.47 Crores worth of materials purchased by the assessee during the period 28.03.2008 to 31.03.2008 could be considered as bogus. Since a sum of �1,57,93,664/- was disallowed u/s.40A(3) of the Act by him, the ld.
ITA Nos.1461 & 1463/2012. :- 6 -:
Assessing Officer restricted the addition for bogus purchase to �1,42,06,336/-. Effectively the total addition came to �3 Crores.
Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Argument of the assessee was that shrimps were purchased from fishermen who were located in coastal areas through its centers situated in disparate places.
Argument of the assessee was that it had centers at Chindratripet, Cuddalore, Mandapam, Nagapattinam, Nellore, Pattukottai, Sirkazhi, Tuticorin. In addition as per assessee, it had purchase centers located at Earwadi, Jagathapattinam, Kottaipattinam, Mimisal, Mandapam, Rameshwaram, Sayalkudi, Muthuput, Gudur, Mallipattnam, SB Chathiram, Palayar, Sirkazhi, Colachai, Ovary, Quilon and Vizhingiam, where no banking facilities. Further as per assessee Rule 6DD(e) of Income Tax Rules had to be independently applied and could not conditioned with a requirement of not having banking facilities.
In so far as, addition made towards bogus purchase was concerned, contention of the assessee before ld. Commissioner of Income Tax (Appeals) was that the comparison attempted by ld. Assessing Officer with purchase figure given in audited financial statements was incorrect. As per the assessee purchase figure of ITA Nos.1461 & 1463/2012. :- 7 -:
�44,10,65,796/- included feed purchases, chemical purchases and various other items. Contention of the assessee was that purchase of shrimps included in the said amount of �40,90,44,260/- only. Thus, as
per assessee any comparison attempted should have been with the figures of �40,90,44,260/-. So far as low business profits was concerned, the contention of the assessee before ld. Commissioner of Income Tax (Appeals) was that miscellaneous income of �24,17,555/- was totally ignored by ld. Assessing Officer though such income related to its business.
The ld. Commissioner of Income Tax (Appeals) after 9. considering the contentions of the assessee mentioned above was of the opinion that ld. Assessing Officer could not show any evidence for bogus purchases. As per ld. Commissioner of Income Tax (Appeals) the additions were made purely on surmises and the comparison attempted by Assessing Officer between estimated raw materials cost stated by Account Manager and actual raw materials cost accounted by assessee was itself wrong. However, since many of the vouchers produced by the assessee in support of its claim of purchases were self made, the ld. Commissioner of Income Tax (Appeals) held that there could at best be inflation to the extent of � 30,00,000/- only.
So far as application of Sec. 40A(3) of the Act was concerned, the ld.
ITA Nos.1461 & 1463/2012. :- 8 -:
Commissioner of Income Tax (Appeals) was of the opinion that exception under Rule 6DD(e) could be availed by the assessee. He thus held that addition under Sec. 40A(3) was not correct. Thus, out of total addition of �3 Crores he upheld addition to the extent of �30,00,000/- and deleted the balance.
Now before us, as already mentioned, Revenue is in appeal against scaling down of the addition. Whereas assessee is aggrieved on sustenance of �30,00,000/-. Ld. Departmental Representative in support of Revenue’s appeal submitted that Shri. Belavendiran had clearly mentioned the figure of sales and purchases for the year. The purchases mentioned by him very much lower than what was given by the assessee in the financial accounts. As per ld. Departmental Representative Shri. Belavendiran was the Account Manager of the assessee and therefore the figures given by him on the date of survey could not be disbelieved. Ld. Departmental Representative pointed out that survey itself was conducted on 27.03.2008. According to him, a short period of four days left there could not have been a purchase of �5.47 Crores which was far in excess of normal average purchases.
Apart from that, as per ld. Departmental Representative, assessee was in the habit of inflating its figures as evident by the stock statement furnished given by it to M/S. Union Bank of India. Ld. Departmental Representative also pointed out that assessee never maintained pucca
ITA Nos.1461 & 1463/2012. :- 9 -: stock register. As per the Ld. Departmental Representative cash purchases of the assessee were not entirely made from fishermen.
Ld. Departmental Representative placing reliance on paper book from page nos.24 to 26 filed by the assessee submitted that payments effected to many of the sellers were huge sums and not small amounts. Thus according to him, claim of the assessee that all purchases were made fishermen could not be accepted. As per ld. Departmental Representative, Sec. 40(3) of the Act was clearly applicable. Ld. Departmental Representative submitted that addition made by the ld. Assessing Officer was based on the above hard facts not on surmises.
Per contra, and in its support of assessee appeal, ld. Authorised Representative submitted that whole of the addition made was based on a statement recorded from the Account Manager of the assessee. Account Manager himself had stated that the figures were estimated by him. As per the ld. Authorised Representative, undue reliance was placed on the statement of the Account Manager.
Further, as per ld. Authorised Representative sales figure given in the financial statement was not disturbed but only the purchase figure was disbelieved. As per ld. Authorised Representative, its Account Manager could not have made a correct guess work on 27.03.2008, when the survey was conducted only on one premises whereas & 1463/2012. :- 10 -: purchases were effected through various purchases centers. Thus, according to him no addition would have been made for any bogus purchase and ld. Commissioner of Income Tax (Appeals) fell in error in sustaining such additions to the extent of � 30,00,000/-. Supporting the view taken by the ld. Commissioner of Income Tax (Appeals) that u/s.40A(3) was not applicable, ld. Authorised Representative submitted that Rule 6DD(e) clearly applied and hence ld. Commissioner of Income Tax (Appeals) was right in ruling so.
We have considered the rival contentions and perused the orders of the authorities below. In the statement recorded from Shri.
Belavendiran, Account Manager at the time of survey on 27.03.2008, there was a question regarding the sales turnover, posed to him. The said question and its reply are reproduced hereunder:-
‘ ‘’Question 15:- What would be your sales turnover for the remaining period till 31.03.2008.
Answer 15 – Approximately, the sales turnover will be 50 crores and purchases at 38 crores’’ The question is on sales turnover for the remaining period till 31.03.2008. Remaining period started on 27.03.2008 immediately after the recording of the statement to the midnight of 31.03.2008.
So, the answer given by Shri. Belavendiran, if we take it in its literal sense, could only mean that assessee would have a turnover of �50 & 1463/2012. :- 11 -:
Crores and purchases of �38 Crores during the above remaining period. Account Manager did not mention that turnover and purchases approximated by him were for the whole of the financial year. Now coming to the breakup of purchases, it is not disputed by the Department that total purchases � 44,10,65,796/- taken by the ld. Assessing Officer for comparison was comprised of various items of direct cost. Breakup of the sum of �44,10,65,796/- has been given at page book page 22 and this reads as under:-
Sl.No Particulars Amount
1 Raw materials 409044260 2 Feed purchases 9726085 3 Chemical purchase 117558 4 Vehicle Hire charges 500000 5 Carriage inwards 12797863 6 Vehicle maintenance 9629045 7 Brokerage & Commission 397093 8 Variation in stock of prawn feed (1158623) 9 Variation in stock of prawn chemicals 12515
Total 441065796 Obviously, raw materials purchased for the relevant previous year came to �40,90,44,260/- only. Considering for a moment that the figures mentioned by Shri. Belavendiran was for the full year, the above mentioned purchase figure is not far away from the estimated purchases of � 38 Crores mentioned by him. Assessee could have had & 1463/2012. :- 12 -: many reason to make higher purchases in the month of March. Unless Assessing Officer could show with hard evidence that the recorded purchases were bogus a conclusion for inflation of purchases, in our opinion was not justified. Other than statistical data and his finding that many of the purchases were made though self vouchers nothing has been brought on record to substantiate the conclusion regarding inflation of purchases. Thus, according to us, ld. Commissioner of Income Tax (Appeals) was justified in holding that ld. Assessing Officer has made a comparison of two uncomparable items and bogus purchases if at all there could have been only to the extent of �30,00,000/-.
As for the addition made by the ld. Assessing Officer u/s.40A(3) of the Act, the ld. Assessing Officer had held that Rule 6DD(e) (iii) could not be applied since there were banking facilities available in the place of purchase. Rule 6DD (e) is reproduced hereunder:
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 payment59 or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely :— a ................................ b. ................................
& 1463/2012. :- 13 -: c. ................................ d. ................................ 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 products68; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles., produe or products; It is clear that there presence or absence of bank facilities is not stipulated as a pre-condition for applying Rule 6DD (e) (iii). Thus, even if payment of excess of �20,000/- is paid in cash for purchase of fish or fish products to a cultivator, grower or producer of such fish or fish product who was having a bank account there can be no disallowance u/s.40A(3) of the Act. However, the details of purchases placed at paper book 24 to 27 show that the many of the purchases were effected through limited companies, like M/s. Kausulaya Aqua Marine Products Exports Pvt. Ltd, Bismi Prawn Farms (P) Ltd, Chinnu Aqua Tech (P) Ltd, CP Aqua Culture (P) Ltd etc. Assessee had not shown how these persons were cultivator, grower or producer of fish or fish product. Thus, for atleast for part of purchases Sec. 40A(3) of the Act might have applied. In our opinion, considering all these aspects, disallowance of �30 lakhs out of the total purchases done by the ld. Commissioner of Income Tax (Appeals), though for a different & 1463/2012. :- 14 -: reason cannot be faulted. We, are therefore of the opinion that nothing has been shown by either of the parries which require an interference with the order of the ld. Commissioner of Income Tax (Appeals).
In the result, the appeals of the Revenue and assessee are dismissed.
14th Order pronounced on Friday, the day of October, 2016, at Chennai.