NATIONAL AGRO FOODS,TIRUPPUR vs. ITO, TIRUPPUR

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the assessee is directed against the order of

the Commissioner of Income Tax (Appeals) – II, Coimbatore, dated

19.06.2014 and pertains to assessment year 2009-10.

submitted that the first issue arises for consideration is with regard

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to addition of `3,55,16,000/- under Section 69C of the Income-tax

Act, 1961 (in short "the Act"). According to the Ld. counsel, the

assessee was supplier of jaggery to Tamil Nadu Civil Supplies

Corporation Ltd. The assessee purchased jaggery from

agriculturists and traders and made payments for such purchases.

In fact, the jaggery was purchased during the months of December,

2008 and January, 2009. During the course of assessment

proceeding, the Assessing Officer on surmise found that the

purchase of jaggery was made outside the books of account prior to

12.01.2011. The Assessing Officer has also observed that the

withdrawals from the bank after the payment received from Tamil

Nadu Civil Supplies Corporation Ltd. were shown as payments by

the assessee. However, the payments could not have been made.

Referring to assessment order, the Ld. counsel submitted that the assessee purchased 1297 MT of jaggery for `3,55,16,000/- and

made cash payments. According to the Ld. counsel , the assessee

purchased 1297 MT of jaggery from various farmers on credit who

can easily be identified. The amount was paid to the farmers after

receipt of money from Tamil Nadu Civil Supplies Corporation Ltd.

According to the Ld. counsel, it is a customary practice in villages to

purchase jaggery on credit basis and settle in a later stage. The Ld.

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counsel further submitted that no evidence is available on record to

suggest that the assessee has made payment after 12.01.2009.

The Assessing Officer has not made enquiry with the farmers from

whom the jaggery was purchased. Therefore, the addition made by

the Assessing Officer is not justified.

Representative , submitted that during the year under consideration,

the assessee claimed that the jaggery was purchased to the extent of `18,94,40,963/-. The assessee has not maintained any books of

account. The assessee claimed before the Assessing Officer that

the jaggery was purchased from 99 farmers. The assessee has

produced only self-made vouchers. The assessee claimed that the

purchases were made from 02.01.2009 to 30.01.2009. Referring to

the order of the Assessing Officer, the Ld. D.R. submitted that the

assessee was expected to supply jaggery well before the Pongal

festival. The assessee, in fact, supplied 2766.67 MT invoiced at `7,69,81,118.09 before 12.01.2009. The Ld. D.R. further submitted

that the assessee has also purchased 1171 MT of jaggery in the

month of December, 2008 from the traders.

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page 7, the Ld. D.R. submitted that jaggery supplied to Tamil Nadu

Civil Supplies Corporation Ltd. before 12.01.2009 was 2766.617

MT. The assessee purchased 1171 MT of jaggery from farmers.

The assessee has also claimed purchase of jaggery in cash before

12.01.2009 to the extent of 298.620 MT. Accordingly, the

Assessing Officer as well as the CIT(Appeals) computed the excess

quantity of jaggery supplied, at 1297 MT. According to the Ld. D.R.,

the assessee has not accounted the purchase of jaggery to the

extent of 1297 MT. In order to balance the books of account of the

assessee, the payments are shown as made in cash after

13.01.2009. The Assessing Officer, according to the Ld. D.R.,

found that 1297 MT of jaggery claimed to be purchased by paying

cash after 12.01.2009 is nothing but purchases made outside the

books of account. Therefore, the Assessing Officer estimated the value of 1297 MT of jaggery at `3,55,16,000/- and made the

addition. According to the Ld. D.R., the assessee simply claimed

that the purchases were made in cash just to balance the books of

account after 12.01.2009. According to the Ld. D.R., the purchases

were made outside the books of account prior to accounting of such

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purchases. Therefore, the Assessing Officer has rightly made the

addition.

perused the relevant material available on record. The assessee

claimed that 2766.617 MT of jaggery was supplied to Tamil Nadu

Civil Supplies Corporation Ltd. before 12.01.2009. The assessee

has also claimed that 1171 MT was purchased from the traders and

another 298.620 MT was purchased from the farmers in cash before

12.01.2009. The Assessing Officer found that the excess quantity

of 1297 MT of jaggery was supplied to Tamil Nadu Civil Supplies

Corporation Ltd. for Pongal before 12.01.2009 outside the books of

account from unexplained sources. The Assessing Officer has also

found that the purchases made after 13.01.2009 are shown in the

books of account as made in cash. It shows that the assessee has

purchased to some extent outside the books prior to 12.01.2009.

The Assessing Officer further found that after receipt of money from

Tamil Nadu Civil Supplies Corporation Ltd., cash to the extent of `3.30.Crores was withdrawn from the bank and cash purchases

were booked in the books of account. The withdrawal of money

from bank was shown as paid for the fictitious purchase of jaggery.

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The question arises for consideration is whether the assessee had

surplus cash balance for making purchases to the extent of 1297

MT on the date of purchase? The assessee claims that the

purchases were made on credit basis and the payments were made

at a later stage. This contention of the assessee was disbelieved by

the Assessing Officer as well as the CIT(Appeals). The

CIT(Appeals), after referring to Rule 6DD(e) of Income Tax Rules,

1962, found that it was an usual practice among the farmers to

insist cash payments and Rule 6DD(e) provides for exemption of

such cash payments. It is also to be seen that depending upon the

creditworthiness of the merchants, jaggery may also be purchased

on credit basis. However, it would depend upon the situation which

prevails in a particular village and the respect that merchants

commend in the locality. Therefore, the independent farmers have

to be examined and find out whether the jaggery was sold by the

independent farmers on credit basis or on receipt of money.

Unfortunately, the Assessing Officer has not taken any step to

examine the farmers from whom the jaggery was purchased. It is

also to be examined whether the purchases were made from the

traders. Since such an exercise was not done by the Assessing

Officer by examining the farmers and traders from whom the

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purchases were made, this Tribunal is of the considered opinion

that the matter needs to be re-examined by the Assessing Officer.

Accordingly, the orders of the lower authorities are set aside and the

Assessing Officer shall re-examine the issue afresh after examining

the farmers and traders from whom the assessee claims to have

purchased jaggery and thereafter decide the issue after giving

reasonable opportunity to the assessee.

disallowance of the rent paid by the assessee to Shri K.

Soundarajan.

building at Kannampalayam to M/s Sri Rajeshwari Textiles.

However, tax was not deducted as required under Section 194-I of

the Act. Hence, according to the Ld. counsel, the Assessing Officer

disallowed the claim under Section 40(a)(ia) of the Act. According

to the Ld. counsel, the assessee has already paid the amount,

therefore, no amount remains to be payable. In view of the decision

of Special Bench in Merilyn Shipping and Transport v. ACIT (2012)

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16 ITR (Trib.) 1 (SB), according to the Ld. counsel, the assessee is

not liable to deduct tax.

Representative, submitted that the decision of Special Bench in

Merilyn Shipping and Transport (supra) was held to be not a good

law by Gujarat High Court in CIT v. Sikandarkhan N. Tunvar (2013)

357 ITR 312 and Calcutta High Court in CIT v. Crescent Export

Syndicate (2013) 262 CTR 525. Under the scheme of Income-tax

Act, the assessee has to deduct tax while making the payment or

giving credit in the books of account. In this case, the assessee has

already paid the amount. The TDS has to be made at the time of

payment, otherwise the entire scheme of Income-tax Act would

have no meaning. The amount which remains to be payable is not

subject matter of any TDS under the scheme of Income-tax Act.

Therefore, the disallowance cannot be made on the amount which

remains to be payable unless the same was given credit in the

books of account. In the case before us, the assessee has

admittedly paid the amounts, therefore, the assessee is expected to

deduct tax at the time of payment. The contention of the assessee

that the tax has to be deducted only on the amount remains to be

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payable and the amount already paid cannot be a subject matter of

disallowance under Section 40(a)(ia) of the Act is, according to the

Ld. D.R., contrary to the scheme of Income-tax Act.

perused the relevant material available on record. In the case

before us, the assessee has admittedly paid the amounts, therefore,

the assessee is expected to deduct tax at the time of payment. The

contention of the assessee that the tax has to be deducted only on

the amount remains to be payable and the amount already paid

cannot be a subject matter of disallowance under Section 40(a)(ia)

of the Act is contrary to the scheme of Income-tax Act. In case the

assessee gives credit in the books of account and the amount was

not actually paid, then the assessee has to naturally deduct tax and

claim the amount as expenditure in mercantile system of

accounting.

High Court in Vector Shipping Services (P.) Ltd. (supra). The

Allahabad High Court has not discussed elaborately about the

provisions of Section 40(a)(ia) of the Act and simply referred the

decision of Special Bench of this Tribunal in Merilyn Shipping and

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Transport (supra) and confirmed the order of this Tribunal.

However, the Calcutta High Court in Crescent Export Syndicate

(supra) and the Gujarat High Court in Sikandarkhan N. Tunvar

(supra) examined the issue elaborately. In fact, the Cochin Bench

of this Tribunal in Shri Thomas George Muthoot v. ACIT in I.T.A.

No. 63 & 64/Coch/2014 dated 28.08.2014, observed as follows:-

“11. The next contention of the assessee is that the has already paid the amount, provisions of section 40(a)(ia) is applicable only in respect of amount which remains to be payable on the last day of the financial year. The Ld. representative placed his reliance on the decision of Special Bench of this Tribunal in Merilyn Shipping and Transport v. Addl.CIT (2012) 70 DTR 81 and also the judgment of the Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd. I.T.A. No. 122 of 2013 judgment dated 09-07-2013 and submitted that the SLP filed by the revenue in the Apex Court against the judgment of the Allahabad High Court in M/s Vector Shipping Services (P) Ltd. (supra) is dismissed by the Apex Court. It is well settled principles of law that the law laid down by the Apex Court is binding on all courts and authorities including this Tribunal under Article 141 of the Constitution of India. It is also equally settled principle that a dismissal of SLP without any discussion is not the law declared by the Apex Court. The Apex Court thought it fit that it was not a fit case to be admitted for consideration. Therefore, while dismissing the SLP, the Apex Court did not declare any law. Hence, we cannot say that the Apex Court has declared the law declaring that section 40(a)(ia) is applicable only in respect of the amounts remains to be payable at the last day of the financial year.

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otherwise of the decision rendered by the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra). However, we find that the Gujarat High Court in the case of CIT vs Sikandarkhan N Tunvar ITA Nos 905 of 2012, 709 & 710 of 2012, 333 of 2013, 832 of 2012, 857 of 2012, 894 of 2012, 928 of 2012, 12 of 2013, 51 of 2013, 58 of 2013 and 218 of 2013 judgment dated 02-05-2013 considered the decision of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra) and specifically disagreed with the principles laid down by the Special of this Tribunal in Merilyn Shipping & Transports (supra). The Calcutta High Court also in the case of Crescent Exports Syndicate & Another in ITAT 20 of 2013 and GA 190 of 2013 judgment dated 03-04-2013 considered elaborately the judgment of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra) and found that the decision rendered by the Special Bench of this Tribunal is not the correct law. It is well settled principles of law that when different High Courts expressed different opinions on a point of law, then, normally, the benefit of doubt under the taxation law would go to the assessee. It is also equally settled principles of law that the judgment which discusses the point in issue elaborately and gives an elaborate reasoning has to be preferred when compared to the judgment which has no reasoning and discussion. Admittedly, the Calcutta High Court and Gujarat High Court have discussed the issue elaborately and the specific reasoning has also been recorded as to why the Special Bench is not correct. Therefore, this Tribunal is of the considered opinion that the judgments of the Calcutta High Court Crescent Exports Syndicate & Another (supra) and Gujarat High Court in Sikandarkhan N Tunvar (supra) have to be preferred when compared to the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra).

Calcutta High Court in Crescent Exports Syndicate & Another (supra)

“Before dealing with the submissions of the learned Counsel appearing for the assessees in both the appeals we have to examine the correctness of the majority views in the case of Merilyn Shipping. We already have quoted extensively both the majority and the minority views expressed in the aforesaid case. The main thrust of the majority view is based on the

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fact “that the Legislature has replaced the expression “amounts credited or paid” with the expression ‘payable’ in the final enactment. Comparison between the pre-amendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. This is precisely what was done by the Apex Court in the case of CIT Vs. Kelvinator reported in 2010(2) SCC 723. But the same comparison between the draft and the enacted law is not permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature. The Learned Tribunal fell into an error in not realizing this aspect of the matter. The Learned Tribunal held “that where language is clear the intention of the legislature is to be gathered from the language used”. Having held so, it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies. The Learned Tribunal held that “Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head “income from business and profession”: if the assessee does not deduct TDS on such expenses are disallowed”. Having held so was it open to the Tribunal to seek to justify that “this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid”? Does this not amount to deliberately reading something in the law which is not there? We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in

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the case of Bhuwalka Steel Industries vs. Bombay Iron & Steel Labour Board reported in 2010(2) SCC 273. ‘Unprotected worker’ was finally defined in Section 2(11) of the Mathadi Act as follows:- ‘’unprotected worker’ means a manual worker who is engaged or to be engaged in any scheduled employment.” The contention raised with reference to what was there in the bill was rejected by the Supreme Court by holding as follows: “It must, at this juncture, be noted that in spite of Section 2(11), which included the words “but for the provisions of this Act is not adequately protected by legislation for welfare and benefits of the labour force in the State”, these precise words were removed by the legislature and the definition was made limited as it has been finally legislated upon. It is to be noted that when the Bill came to be passed and received the assent of the Vice-President on 05-06-1969 and was first published in the Maharashtra Government Gazette Extraordinary, Part IV on 13-06-1969, the aforementioned words were omitted. Therefore, t his would be a clear pointer to the legislative intent that the legislature being conscious of the fact and being armed with all the Committee reports and also being armed with the factual data, deliberately avoided those words. What the appellants are asking was to read in that definition, these precise words, which were consciously and deliberately omitted from the definition. That would amount to supplying the casus omissus and we do not think that it is possible, particularly, in this case. The law of supplying the casus omissus by the courts is extremely clear and settled that though this Court may supply the casus omissus, it would be in the rarest of the rate case and thus supplying of this casus omissus would be extremely necessary due to the inadvertent omission on the part of the legislature. But, that is certainly not the case here. We shall now endeavour to show that no other interpretation is possible. The key words used in Section 40(a)(ia), according to us, are “on which tax is deductible at source under Chapter XVII-B”. If the question is “which expenses are sought to be disallowed?” The answer is bound to be “those expenses on which tax is deductible at source under Chapter XVII-B. Once this is realized nothing turns on the basis of the fact that the legislature used the word ‘payable’ and not ‘paid or credited’. Unless any amount is payable, it can neither be paid nor credited. If n amount has neither been paid nor credited, there can be no occasion for claiming any deduction.

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The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to treat the payments made or credited in favour of a contractor of subcontractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words “mounts credited or paid” were used only in relation to a contractor of sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor of sub-contractor shall not be deducted in com putting the income of an assessee in case he has not deducted, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Mr. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping & Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected.”

Gujarat High Court in Sikandarkhan N Tunvar(supra)

“23. Despite this narrow interpretation of section 40(a)(ia), the question still survives if the Tribunal in case of M/s Merilyn Shipping & Transpors vs. ACIT (supra) was accurate in its opinion. In this context, we would like to examine two aspects. Firstly, what would be the correct interpretation of the said provision. Secondly, whether our such understanding of the language used by the

15 I.T.A. No.2554/Mds/14

legislature should waver on the premise that as propounded by the Tribunal, this was a case of conscious omission on the part of the Parliament. Both these aspects we would address one after another. If one looks closely to the provision, in question, adverse consequences of not being able to claim deduction on certain payments irrespective of the provisions contained in Sections 30 to 38 of the Act would flow if the following requirements are satisfied:- (a) There is interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident or amounts payable to a contractor or sub-contractor being resident for carrying out any work. (b) These amounts are such on which tax is deductible at source under XVIII-B. (c) Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub- Section (1) of Section 39. For the purpose of current discussion reference to the proviso is not necessary.

16 I.T.A. No.2554/Mds/14

required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight tht we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of he Supreme Court in the case of Commissioner of Income-Tax, Gujarat vs. Ashokbhai Chimanbhai (supra), would no6t alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period i.e. the accounting year. In this context, last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to last date of the accounting period. Particularly, in the context of requirements f Section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on 31st March of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on 31t March. 25. This brings us to the second aspect of this discussion, namely, whether this is a case of conscious omission and therefore, the legislature must be seen to have deliberately brought about a certain situation which does not require any further interpretation. This is the fundamental argument of the Tribunal in the case of M/s Merilyn Shipping & Transports vs. ACIT (supra) to adopt a particular view.

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This decision of Cochin Bench of this Tribunal was confirmed by the Kerala High Court by judgment dated 3rd July, 2015 in Shri

George Muthoot v. CIT in ITA.No.278 of 2014 as follows:-

18 I.T.A. No.2554/Mds/14

“17. Another contention that was pressed into service was that the appellants had already paid the amount and therefore, the provisions of Section 40(a)(ia), applicable only in respect of the amount which remains to be payable on the last day of the financial year, is not attracted. Therefore, according to the appellants, disallowance cannot be sustained. This contention was sought to be substantiated by relying on the judgment of the Allahabad High Court in Commissioner of Income Tax v. Vector Shipping Services (P) [(2013) 357 ITR 642 (All)]. Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual, who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant an interpretation that it is attracted only if the interest remains payable on the last day of the financial year. If this contention is to be accepted, this Court will have to alter the language of Section 40(a)(ia) and such an interpretation is not permissible. This view that we have taken is supported by judgments of the Calcutta High Court in Crescent Exports Syndicate and another [ITAT 20 of 2013] and the Gujarat High Court in the case of Commissioner of Income Tax v. Sikandadarkhan N. Tunvar [ITA Nos.905 of 2012 & connected cases], which have been relied on by the Tribunal.”

In view of the above, this Tribunal is of the considered opinion that

the judgment of Allahabad High Court in Vector Shipping Services

(P) Ltd. (supra) may not be applicable to the facts of the case. By

respectfully following the judgments of Calcutta High Court in

Crescent Export Syndicate (supra), Gujarat High Court in

Sikandarkhan N. Tunvar (supra) and Kerala High Court in Shri

George Muthoot (supra), the orders of the lower authorities are

confirmed.

19 I.T.A. No.2554/Mds/14

Order pronounced on 7th April, 2016 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 7th April, 2016.

Kri. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-II, Coimbatore 4. आयकर आयु�त/CIT-III, Coimbatore 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.