Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 06.12.2021, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 31.12.2015 for the assessment year 2013-14. The revenue has assailed the impugned order on the following grounds of appeal:
“1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made by the Assessing Officer by invoking provisions of Section 40A(3) of the IT Act, 1961 for Rs.2,09,35,3540/- for the A.Ys. 2013-14 on account of payment made in cash in excess of Rs.20,000/- in cash totaling to Rs.2,09,35,3540/-. 2. The order of the ld. CIT(A) is erroneous both in law and on facts. 3. Any other ground that may be adduced at the time of hearing.”
At the very outset of hearing of the appeal, it was submitted by the Ld. Departmental Representative (for short ‘DR’) that the present appeal involves a delay of 29 days. The Ld. DR submitted that the delay involved in filing of the appeal had occasioned due to various time barring matters which were pending in their office, shortage of staff, tracking of orders received from NFAC. The Ld. DR in support of his aforesaid contention has filed an application dated 30.08.2022 seeking condonation of delay, which reads as under:
“2. In the case of Murli Kumar Agrawal, Raipur PAN: AEHM7729L for A.Y.2013-14 Order u/s 250 was passed by NFAC on 06/12/2021 and the 3 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF) appeal order was received in the Office of the Pr.CIT-1, Raipur on 02/06/2022. Accordingly, limitation to file appeal before ITAT subsisted upto 31/07/2022. However, second appeal could not be filed before the Hon'ble ITAT due to voluminous orders received from NFAC through online portal. It would be worth mentioning here that the introduction of online receipt of appeal created instant delay on the part of this office which may kindly be Condon. Further, due to various time barring matters pending in this office and shortage of staff, tracking of orders received from NFAC could not be possible in due date.
3. It is therefore, request your good self to kindly Condon the delay in filling the appeal and admit to file this appeal.”
The Ld. DR submitted that as the delay of 29 days in filing of the present appeal had occasioned for bonafide reasons, therefore, the same in all fairness be condoned.
Per contra, the Ld. Authorized Representative (for short ‘AR’) did not seriously object to the seeking of condonation of delay in filing of the present appeal by the revenue appellant.
On a perusal of the condonation application, we find that the delay of 29 days involved in filing of the present appeal had occasioned due to the fact that there were various time barring matters which were at the relevant point of time pending with the department, shortage of staff and delay in tracking of orders received from NFAC etc. Considering the aforesaid facts, we are of the view that as the delay of 29 days involved in filing of the present appeal had occasioned due to bonafide reasons on the part of the revenue, thus, the same in all fairness merits to be condoned.
4 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF)
Succinctly stated, the assessee-HUF which is engaged in the business of manufacturing of rice had filed its return of income for A.Y. 2013-14 on 27.09.2013, declaring an income of Rs.34,25,250/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had made cash payments towards purchase of rice in excess of the prescribed limit of Rs.20,000/- as contemplated in Section 40A(3) of the Act, as under:
5 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF)
Accordingly, the A.O disallowed the aforesaid claim of expenditure and made addition/disallowance of Rs.2,09,35,340/-. After, inter alia, making the aforesaid disallowance of Rs.2,09,35,340/-, the A.O vide his order passed u/s. 143(3) dated 31.12.2015 determined income of the assessee at Rs.2,44,12,880/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). Observing, that the assessee on account of business expediency of running rice mill had to purchase paddy, i.e., raw material which was an agricultural produce, against which, it had to make payment towards purchase consideration to the farmer/agents in rural areas in cash as insisted by them, the CIT(Appeals) was 6 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF)
of the view that now when the A.O had not doubted the genuineness of the purchase transactions, therefore, there was no justification for him to have disallowed the same u/s. 40A(3) of the Act. For the sake of clarity, the relevant observations of the CIT(Appeals) are culled out as under:
“4.3 In the present case of the appellant, Assessing Officer had not formed any discrepancy in the price of purchase of paddy. Assessing Officer had neither attempted to establish that the transactions were not genuine. Assessing Officer simply disallowed of the purchases of Rs.2,09,35,340/- under Section 40A(3) of the Act. Assessing Officer failed to understand the business expediency of the appellant. In the business of rice mill, appellant had to purchase paddy, which was the raw material and also an agricultural produce. It would be difficult to convince the farmers/Agents in the rural areas to accept the payments through banking channel. In fact many of the farmers would not even have a bank account. In such scenario, unless the Assessing Officer had established that the purchases were not genuine, invoking provisions under Section 40A(3) of the Act would not be correct in law and in the circumstances and facts of the case. In view of the above the disallowance of Rs.2,09,35,340/- is deleted. Appeal on this ground is allowed.”
The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
Admittedly, it is a matter of fact borne from record that the assessee HUF had made cash purchases of rice aggregating to Rs.2,09,35,340/-. As the 7 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF)
expenditure incurred by the assessee towards purchase of rice was in excess of the prescribed amount of Rs.20,000/- and, thus, was not as per the mandate of Section 40A(3) of the Act, the same was disallowed by the A.O.
On appeal, the CIT(Appeals) had vacated the disallowance of Rs.2,09,35,340/- made by the A.O u/s.40A(3) of the Act apparently for two reasons, viz. (i) that as the A.O had not doubted the genuineness of the purchase transaction; hence there was no justification for him to have disallowed the purchase expenditure u/s.40A(3) of the Act; and (ii) that as the assessee had purchased paddy, a raw material used for manufacturing of rice, and also agricultural produce from the farmers/agents in the rural areas who had insisted for cash payments as majority of such persons did not have any bank account, therefore, the A.O could not have triggered the provisions of Section 40A(3) of the Act.
Shri B. Subramanyam, Ld. Authorized Representative (for short ‘AR’) for the assessee at the threshold of hearing of the appeal submitted that in the course of proceedings before the CIT(Appeals), the assessee had submitted that the rigors of provisions of Section 40A(3) of the Act could not have been triggered by the A.O for disallowing any part of expenditure that was incurred by the assessee towards purchase of rice for the reason that the same were saved by exceptions carved out in Rule 6DD(k) and Rule 6DD(j) of the Income Tax Rules, 1962. In sum and substance, it was the claim of the Ld. AR that as the assessee had made payments to the agents who had carried out purchases on its behalf and made the payments
8 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF) for goods in cash, thus, such purchase transactions were saved by Rule 6DD(k). Also, the Ld. AR submitted that as majority of the payments were required to be made on a day on which the banks were closed either on account of holiday or strike, thus, as per Rule 6DD(j) of the Income Tax Rules, 1962, no disallowance of the corresponding expenditure u/s. 40A(3) of the Act was liable to be made in its case.
On a specific query by the Bench as to whether the bifurcated details of the cash purchases in the backdrop of the specific instances where such cash payments were saved by the exceptions carved out in Rule 6DD (k)(j) furnished before the CIT(Appeals), the Ld. AR in all fairness answered in the negative.
We have thoughtfully considered the issue in hand and are unable to concur with the view taken by the CIT(Appeals) that disallowance u/s. 40A(3) of the Act by the A.O of the cash purchases of rice could not be sustained and was liable to be vacated for the reasons, viz., (i) that the A.O had failed to consider the business expediency of the assessee for making cash payments towards purchase of paddy, i.e., a raw material, an agricultural produce used for manufacturing of rice; (ii) that the assessee was constrained to make cash payments for purchase of goods to the farmers/agents in the rural area as they would insist for cash payments as majority of them would not have a bank account; and (iii) that now when the A.O had not doubted genuineness of the purchase transactions, therefore, there was no justification for him to make disallowance u/s. 40A(3) of the Act.
9 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF)
Apropos observation of the CIT(Appeals) that now when the A.O had not doubted the genuineness of the purchases transaction; therefore, he could not have disallowed any part of the assessee’s claim for deduction of purchase, u/s.40A(3) of the Act, we are unable to persuade ourselves to concur with the same. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Punjab & Haryana in the case of Gurdas Garg Vs. Commissioner of Income Tax, Bathinda (2015) 63 taxmann.com 289 (P&H), we find that though the Hon’ble High Court had observed that as the genuineness of the transaction made in cash was not disbelieved by the department therefore, the same could not have been disallowed u/s. 40A(3) of the Act, but thereafter, at Para 15 of its judgment, it had categorically observed that while arriving at the aforesaid conclusion, it had wrongly referred to the pre-amended Rule 6DD. Accordingly, the Hon’ble High Court had observed that Rule 6DD had, thereafter, been amended vide Notification dated 10.10.2018 by the Ministry of Finance (Department of Revenue), CBDT. Backed by the aforesaid facts, the Hon’ble High Court observed that as it had pronounced the judgment in the open court, it was not open for it to examine the effect of the amendment to Rule 6DD. Accordingly, the Hon’ble High Court in the aforesaid case, had admittedly observed that while disposing off the appeal for A.Y.2009-10, it had by mistake referred to the earlier pre-amended provision, i.e., that appliable up to 10.10.2008.
We, thus, in terms of our aforesaid observations, are unable to persuade ourselves to concur with the claim of the Ld. AR that as the genuineness of the 10 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF)
purchase transactions had not been doubted by the lower authorities, the same, thus, could not have been disallowed u/s. 40A(3) of the Act. We, say so, for the reason that the exclusive set of circumstances where the provisions of Section 40A(3) would not stand triggered, have been set out by the legislature in all its wisdom in Rule 6DD of the Income Tax Rules, 1962. Although the genuineness of the expenditure was, inter alia, one of the circumstances as per the pre-amended Rule 6DD(supra), but we are afraid that the same does not find any mention in the exceptions provided in the post-amended Rule 6DD as is available on the statute and applicable to the case of the assessee for the year under consideration, i.e. A.Y.2013-14. We, thus, finding no merit in the aforesaid observation of the CIT(Appeals), which, inter alia, had weighed in his mind for vacating the disallowance u/s. 40A(3) of the Act, reject the same.
As regards the observation of the CIT(Appeals) that the A.O had failed to consider the business expediency of the assessee for making cash payments towards purchase of paddy, i.e., an agricultural produce used in manufacturing of rice, the same in our considered view is based on perverse observation. As observed by us hereinabove, the assessee had purchased rice of Rs.2,09,35,340/- and not paddy from the farmers/agents. Apart from that, we are unable to concur with the view taken by the CIT(Appeals) who had failed to appreciate that the only set of exceptions to the applicability of Section 40A(3) of the Act are carved out in Rule 6DD of the Income Tax Rules, 1962. Also, we are of the view that in case it was the claim of the assessee that it had made certain purchases of raw material,
11 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF) i.e., agricultural produce, for which, cash payments were made to the farmers/agents in the rural area, then, it was incumbent on the part of the CIT(Appeals) to have called for the complete details about such instances that were covered by Rule 6DD(e)(i) of the Income Tax Rules, 1962. On similar footing, if it was the claim of the assessee, as had been raised before us, that, certain cash payments towards purchase of rice would be saved by Rule 6DD (j), i.e, for the reason that the payments were required to be made on a day on which the banks were closed either on account of holiday or strike, then the CIT(Appeals) ought to have verified the said claim and should not have summarily accepted the same. Also, where it was the claim of the assessee that the payments were justified as those were made to his agents who were required to make payments in cash for goods purchased on its behalf, the CIT(Appeals) was obligated to have verified the said claim of the assessee and ought not to have summarily accepted the same on the very face of it.
Backed by our aforesaid observations, we are unable to persuade ourselves to subscribe to the view taken by the CIT(Appeals) who had summarily accepted the claim of the assessee that no disallowance u/s. 40A(3) r.w. Rule 6DD was called for in assessee’s hands as regards the cash payments of Rs.2,09,35,340/- that were made by him for purchase of rice during the year under consideration. We, thus, in terms of our aforesaid observations, in all fairness, restore the matter to the file of the CIT(Appeals) with a direction to him to re-adjudicate the same after calling for the requisite details from the assessee company and verifying the 12 ACIT, Circle-1(1), Raipur Vs. Murli Kumar Agrawal (HUF)
records. Needless to say, the CIT(Appeals) in the course of set-aside proceedings shall afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its claim on the basis of documentary evidence, if any. Thus, the Ground of appeal No.1 raised by the revenue is allowed for statistical purposes in terms of our aforesaid observations.
Grounds of appeal Nos. 2 & 3 being general in nature are dismissed as not pressed.