RADHAKRISHNA AGRO PRODUCTS,BARDHAMAN vs. ITO, WARD-2(4), BURDWAN. , BURDWAN

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.1245/Kol/2023 Assessment Year: 2017-18

Radhakrishna Agro Products Income Tax Officer, Ward- Vill & P.O. Belari, P. S. Aushgram, Vs. 2(4), Burdwan. Bardhaman-713141, West Bengal (PAN: AALFR4797A) (Appellant) (Respondent)

Present for: Appellant by : Shri S. K. Tulsiyan, Advocate & Sm. Puja Somani & Sm. Neetu Singh, AR Respondent by : Shri P. P. Barman, Addl. CIT, Sr. DR. Date of Hearing : 18.01.2024 Date of Pronouncement : 21.02.2024 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of Ld. CIT(A), Kolkata-27 dated 14.10.2023 passed against the assessment order by Ld. ITO, Ward-2(4), Burdwan u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 26.12.2019 for AY 2017-18.

2 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 25.11.2019, 11.11.2019, 10.10.2019, 16.07.2019 & 24.09.2018 respectively which formed part of the assessment as well as appeal records. 1c. That, the Ld. CIT(A) further erred in having confirmed the arbitrary additions made to the total income vide assessment order passed u/s. 143(3) dated 26.12.2019 without mentioning any reason on merits in his impugned ex parte order in spite of the fact that as per provisions of sec.250(6) of the Act, the Ld. CIT(A) was required to dispose of the appeal in writing with reasons for decision by passing a speaking order on the basis of material available on record. 2. That, the Ld. CIT(A) erred in having upheld the arbitrary and wrongful addition of Rs.2,65,55,000/- made U/S 40A(3) of the Act on the allegation that the payments made to the agents of the farmers through bearer cheques being payments made to the traders were not coming within the exception clauses of Rule 6DD of the Rules in spite of the fact that the said payments made at the instance of the farmers for business exigency were covered by Rules 6DD(e)(i) and 6DD(k) of the Rules and hence did not fall within the mischief of sec. 40A(3) of the Act. 3. That, the Ld. CIT(A) further erred on facts and in law in having upheld the of Rs.84,000/- u/s 40A(3) of the Act made on the alleged ground of cash payments made to Bardhaman Trading against purchase of rubber roll from them in spite of the fact that such cash payments in a day did not exceed the limit of Rs.10,000/- and hence there was no violation of the provisions of sec.40A(3) of the Act. 4. That, the Ld. CIT(A) without properly verifying the evidences already on record erred in having upheld the disallowance of machinery repairing charges of Rs.53,081/- paid in cash to Universal Engineers on the alleged ground of lack of evidence in support of the said payments when the said transaction and payment thereof stood reflected in the books and ledger with date wise cash memos etc. and these were forming part of the assessment ecords. 5. That the Ld. CIT(A) on surmise and conjectures and without rejecting the audited books of account erred in having upheld the addition of Rs.38,00,000/- made u/s. 69A of the Act in the guise of unexplained cash deposit during the demonetization period without even considering that out of the normal cash retail sales of Rs.1,55,22,790/- in November, 2016 the cash deposited during the demonetization period of Rs.52 lakhs was inclusive of the said cash of Rs.38 lakhs and furthermore the said cash deposited in the bank was part of the income returned for the A.Y. under appeal. 6. That, the Ld. CIT(A) also erred in having upheld the disallowance of business expenditure incurred on donation/subscription and audit fees totalling to Rs.13,000/- and further sum of Rs.30,000/- debited as accounting charges and addition of the same to the total income on the sole allegation that the self-made vouchers produced did not prove the identity of the said expenditure. 7. That, therefore, as the ex parte order of the Ld. CIT(A), Kolkata-27 suffers from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 8. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.”

3 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 3. Brief facts of the case as culled out from records are that assessee owns rice mills and is engaged in the business of manufacturing rice and rice bran from paddy. Return of income was filed on 28.12.2017 reporting total income of Rs.10,63,120/-. In respect of disallowance of Rs.2,65,55,600/- made u/s. 40A(3) of the Act read with Rule 6DD, Ld. AO had noted from the perusal of bank statement of the assessee that bearer cheques were issued exceeding value of Rs.20,000/- throughout the year to six different persons. According to ld. AO, assessee failed to furnish any satisfactory explanation about the payments made in large sums of money through bearer cheques. The details of payments made through bearer cheques to the six different parties are tabulated as under: Sl. No. Name of the person paid Amount Paid (Rs.) Return filed through bearer cheque 1. Biman Bajar 30,73,000/- Yes 2. Purnendu Saha 82,07,600/- Yes 3. Sk Badruddaja 41,05,000/- Yes 4. Sovan Ghosh 28,85,000/- Yes 5. Sunil Das 31,30,000/- No 6. Tarun Kumar Bajar 51,55,000/- Yes

3.1. For all the above six parties, assessee had furnished details in respect of their income tax returns filed by them and their PAN details also. Statements of four of these parties were recorded u/s. 131 of the Act in the course of assessment proceeding wherein these parties had acknowledged in their respective statements that they used to collect paddy from farmers and deliver the said paddy so collected to the assessee and that the cash received through bearer cheques from the assessee were distributed among the farmers after retaining certain percentage as commission. However, Ld. AO was of the opinion that these parties are not farmers but traders, selling paddy to the assessee after collecting the same from farmers and in the process earned income out of the said activity.

4 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 3.2. In the course of assessment proceedings, assessee explained its modus operandi of the business according to which assessee procured paddy in large quantity from farmers directly or through its agents/suppliers/joint liability groups/farmer interest groups. Assessee procured paddy from different villages from the farmers through its agents/Artias. These persons go to the earmarked villages and first encash bearer cheques given to them by the assessee, thereafter these agents purchase paddy from farmers on behalf of assessee and gave cash to the farmers. According to the assessee, for its rice mill huge quantities of paddy is required for production of rice. In order to meet such high levels of quantity of paddy, assessee had adopted this mode of procuring paddy from the farmers, since the villages are situated at far-flung areas. 3.3. Assessee also submitted that the business activity of production of rice from paddy is a seasonal activity and, therefore, requires concerted efforts in procuring the maximum produce of paddy from the farmers during each harvest season. According to the assessee, this procurement of paddy from the farmers by engaging the agents/Artias is an agricultural produce which is procured directly as well as indirectly by it and falls in the ken of Rule 6DD(e)(i) as well as Rule 6DD(k) of the Income Tax Rules, 1962 (hereinafter referred to as the “Rules”). According to the assessee, these six parties were acting as a mediator between him and the farmers. These parties have accepted that they sold paddy to the assessee after procuring the same from the farmers which was done on behalf of the assessee. Ld. AO did not find himself satisfied with the submissions made by the assessee and made the disallowance of Rs.2,65,55,000/- u/s. 40A(3) of the Act. 3.4. In the course of assessment proceedings, Ld. AO required the assessee to furnish details of source of cash deposited in the bank

5 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 during the demonetization period amounting to Rs. 38 lakh. According to the assessee, this entire deposit was out of retail cash sales made by the assessee. According to the assessee, complete date-wise details of cash, details of monthly retail sales made by the assessee were furnished. The relevant details from the retail sales register and cash book as furnished by the assessee and reproduced in the order of Ld. CIT(A) is extracted below:

3.5. Assessee had reported cash sales of Rs.1,36,86,345/- in the month of October, 2016 and had sufficient cash in hand to deposit it during the period from 10.11.2016 to 12.11.2016. It was further stated by the assessee that there was no unusual increase in cash sales or cash deposits during the demonetisation period as compared

6 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 to the immediately preceding year. In this respect the factual details are summarized as under: Particulars FY 2015-16 FY 2016-17 (relevant year) (In Rs.) Cash Deposits in Banks 1,47,05,000/- 1,10,00,000/- Retail cash Sales 22,57,99,788/- 12,80,69,784/- Cash Deposits during 45,40,000/- 38,00,000/- demonetisation period

3.6. It was further stated that sales made by the assessee during the year and offered to tax as well as assessed as such, is undisputed. Assessee thus, explained the source and nature of deposit of cash in the bank account which according to the Ld. AO was unsatisfactory. He thus proceeded to make an addition of Rs. 38 lakh u/s. 69A of the Act. 3.7. Apart from the above two disallowances/addition, there are several other small additions made by the Ld. AO, all of which pertaining to disallowance u/s. 40A(3) for making payments in cash exceeding Rs.20,000/-. Aggrieved by the addition and disallowance, assessee went in appeal before the Ld. CIT(A) who sustained the same. Aggrieved, assessee is in appeal before the Tribunal. 4. Ground nos. 1(a) to (c) relates to ex parte order passed by Ld. CIT(A) without complying with the provisions of section 250(6) of the Act. In this respect, we have perused the order of Ld. CIT(A) and note that the appeal has been disposed of summarily without dealing with merits of the case and giving appropriate reasoning for sustaining the addition. It is a cryptic order wherein a paragraph containing eight lines has been mentioned which is in utter non-compliance of section 250(6) of the Act. The relevant para from the order of Ld. CIT(A) is extracted below: “5. In the instance of the case the appellant failed to make any submissions in support of grounds of appeal, this gives rise to an undisputable conclusion

7 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 that the assessee has got nothing more to say in this regard. I have gone through the record before me and based on the record I have decided to adjudicate the issue on the merits of the case. In the instant case the AO has rightly assessed an income of Rs.3,15,98,201/-. Since the appellant failed to substantiate appellant’s claim and addition made by the Assessing Officer of Rs.3,05,05,081/- is hereby confirmed.”

4.1. Section 250(6) cast a duty on Ld. CIT(A) to pass an order in appeal which should state the points for determination and a decision as well as the reason for arriving at such decision. In the present case before us, even though assessee has made its submissions along with supporting documents, compliance has not been met while disposing of the appeal by Ld. CIT(A). We deprecate the approach adopted by the Ld. CIT(A). In order to avoid multiple proceeding, we, instead of remitting the matter, proceed to decide the appeal on the strength of oral and written submissions made before us. Accordingly, ground no. 1(a) to 1(c) taken by the assessee is allowed for statistical purposes. 5. With regard to ground no. 2 in respect of disallowance u/s. 40A(3) of the Act amounting to Rs.2,65,55,000/-, we note that the allegation of the Ld. AO is that payments have been made by the assessee to the agents of the traders through bearer cheques which does not come within the exception clause of Rule 6DD. We have taken note of the modus operandi of business activity undertaken by the assessee which is already narrated above. It is important to take note of certain undisputed and verifiable facts that sales of the assessee for the year under consideration is of Rs.40.19 Cr. against which raw material consumed is of Rs.37.19 Cr., there is a closing stock of paddy reported in the audited financial statement of Rs.5.62 Cr. Assessee has reported net profit before claiming interest on partners’ capital and remuneration to partners of Rs.50,33,123/-. These facts demonstrate the scale of business activity of the assessee when running the rice mill for which the dominant raw material is paddy.

8 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 5.1. We also take note of the fact that the business of the assessee is a seasonal one, depending upon the harvest of paddy available for only few months during any given year. Assessee has procured paddy directly from farmers as well as through its agents/Artias who in turn have procured it from the farmers and supplied to the assessee. Procurement of paddy by the assessee during the year has been both, by way of payments made through cheques as well as by issuing bearer cheques. Details of sales and purchases as well as stock reported in the audited financial statements have been duly accepted in the course of assessment and are undisputed. The only contest is in respect of mode of payment which is not in compliance with the provisions of section 40A(3), not fall within the exception provided in rule 6DD of the Rules. Hence, disallowed and added to the total income reported by the assessee. 5.2. It is worth noting that Ld. AO had issued summons to the six parties to whom bearer cheques were issued for procurement of paddy from the farmers located in far flung village areas. Statement u/s. 131 had been recorded wherein these parties have confirmed about the modus operandi of the business activity for procurement of paddy adopted by the assessee. From one of the statements recorded in the case of Shri Sunil Das which is reproduced in the impugned assessment order at page 9, it is pertinent to take note of answer to question no. 8 which is reproduced as under: “Q.8. Please state whether you had any business relation with M/s. Radhakrishna Agro Products (PAN-AALFR4797A) of Belari, Aushgram, Burdwan 713141 during the FY 2016-17. Ans. During the FY 2016017, I used to sale paddy grown by me and group of farmers in my village to the mill named M/s. Radhakrishna Agro Products. In turn I was paid the price of the paddy sold to the mill and I subsequently divided the same price amongst farmers as cost of their paddy sold to the mill after keeping some commission and fare of my tractor trolly.” 5.3. From the answer to this question, it is noted that Shri Sunil Das had categorically stated that he himself grows paddy and sold it to the

9 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 assessee. He also supplied paddy by procuring it from group of farmers. Similar is the statement given by Shri Tarun Kumar Bajar in question no. 9 which is reproduced by Ld. AO at page 13. Thus, on perusal of the statements recorded u/s. 131 of these parties, it is noted that they used to sell paddy grown by themselves or by the farmers to the assessee and in turn they used to receive the price of the paddy from the assessee which was distributed to the farmers after retaining certain percentage of commission. We also note that identity of these parties is established who have acknowledged the transaction of procurement of paddy. 5.4. Before we draw our conclusion on the issue before us, it is worth taking note of rule 6DD(e) and (k) of the Rules which is as under:

5.5. From the perusal of above provision, we note that if payment is made for the purchase of agricultural produce to the cultivator, grower or producers then no disallowance shall be made u/s. 40A(3) of the Act. In clause (k), payments made to the agents for goods or service on behalf of such person also falls in the exception. In the present

10 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 case before us, the six parties have acted as agents of the assessee for procurement of paddy from the farmers, two of them being farmers themselves. Hence, rigours of section 40A(3) do not apply in the said procurement for which disallowance has been made u/s. 40A(3). We also note that identity of the suppliers, genuineness of the purchases made and payments made to the farmers or the agents are not in dispute. Trading results of the assessee has been accepted and sales made by the assessee are not in doubt. Accordingly, we hold that no disallowance u/s. 40A(3) is warranted as made by Ld. AO by applying provisions of section 40A(3) on the procurement of paddy. Accordingly, ground no. 2 raised by the assessee is allowed. 5.6. To buttress our conclusion, we draw force from the legislative intent for bringing provisions of section 40A(3) which is to check unaccounted money and not to restrict the business activity of the assessee. In this respect, Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO [1991] 59 Taxman 11 (SC) has observed as under: “"Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of section 40A(3 )are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A( 3) and rule 6DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black-money for business transactions. Any restraint intended

11 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business." 6. For disallowance of Rsl.84,000/- u/s. 40A(3) in ground no. 3, the fact is that assessee purchased rubber roll for which Ld. AO noted that payments have been made in cash in excess of Rs. 20,000/-. To corroborate the claim made by the assessee, Ld. Counsel pointed to the ledger of Bardhaman Trading from whom rubber roll were purchased which is placed at page 36 in the paper book. From the said ledger, it was demonstrated that there was no entry of cash payment exceeding Rs.20,000/-. Considering this, we delete the disallowance made and allow ground no. 3 taken by the assessee. 7. In respect of disallowance of Rs.53,081/- paid to Universal Engineers by applying section 40A(3), it was pointed out from the ledger of Universal Engineers that payments have been made by cheque. Only a sum of Rs.10,081/- was paid in cash out of the total amount, therefore no disallowance is warranted u/s. 40A(3) of the Act. 7.1. We have gone through the record and accordingly delete the disallowance so made and allow ground no. 4 taken by the assessee. 8. Ground no. 5 relates to addition made u/s. 69A towards deposit of cash in the bank account during demonetisation period. Relevant factual details have already been narrated above. We note that out of the normal cash retail sales of Rs.1,55,22,790/- in November, 2016 cash of Rs.52 lakh was deposited which was inclusive of Rs.38 lakhs in specified bank notes (SBN). Assessee has evidently demonstrated and corroborated about the nature and source of cash availability for the deposit made during the demonetisation period. By taking into consideration the factual details extracted above, we delete the addition of Rs.38 lakhs made u/s. 69A of the Act and allow ground no. 5 taken by the assessee.

12 ITA No.1245/Kol/2023 Radhakrishna Agro Products, AY 2017-18 9. In ground no. 6, assessee has challenged the disallowance of business expenditure of Rs.3000/- towards donation/subscription, Rs. 10,000/- towards audit fees and Rs.30,000/- towards accounting charges which have been disallowed u/s. 40A(3). In this respect, it was submitted that assessee paid Rs.2,500/- per month to Shri Muktipada Dey for accounting purpose. Similarly, audit fee of Rs.10,000/- was paid to M/s. Sunil Ghosh & Associates for conducting tax audit for AY 2017-18 and Rs.30,000/- paid to one local village for Sankranti festivals. All these expenditures were incurred in cash since assessee had sufficient cash in hand. Relevant bills and vouchers were furnished which are placed on record in the paper book. Ld. Counsel for the assessee took us through these relevant documentary evidences to demonstrate their veracity. On perusal of the same, we find it appropriate to delete the disallowance made in this respect. Accordingly, ground no. 6 taken by the assessee is allowed. 10. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 21st February, 2024 Sd/- Sd/- (Rajpal Yadav) (Girish Agrawal) Vice President Accountant Member Dated:21st February, 2024 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent. 3. CIT(A), Kolkata-27 4. CIT 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata