ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3, AMRITSAR vs. SHRI RAJDEEP SINGH UPPAL PROP, AMRITSAR

Objection filed by the assessee against the order dated 24.07.2019 passed by the ld. Commissioner of Income Tax (Appeals)-1, Amritsar (hereinafter referred to as ‘the CIT(A)’, in respect of Assessment Year 2010-11.

2. The revenue has raised the following grounds of appeal in ITA No. 643Asr/2019:

“1. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs.2,93,20,000/- made by the Assessing Officer on account of cash deposited in the bank account without appreciating the fact that the assessee did not produce necessary documentary evidence, as called for by the Assessing Officer, in support of genuineness of cash deposited in the bank account.

2. Whether on the facts & circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs.2,93,20,000/- without appreciating the facts that the assessee has disclosed only commission receipt and did not show the quantum and value of goods received from the suppliers and the quantum and value of the goods supplied to the petty vendors on behalf of suppliers and, therefore, the claim of the assessee that the substantial amount of cash was received from the buyers of the goods was not proved.

3. Appellant craves leave to add, amend or alter any ground of appeal.”

Ors Asstt. CIT v. Rajdeep Singh Uppal 3. The assessee has raised the following cross objections for AY 2010- 11:

“1. That on the facts and in the circumstances of the case and in law the learned CIT(A) has erred in not accepting the ground raised by the appellant /assessee, that the notice u/s 148 was illegal, unjust and arbitrary and was merely on reasons to suspect and in order conduct roaming enquires against the assessee.

2. That on the facts and in circumstances of the case and in law the observations of the CIT(A) are contrary to the true facts and circumstances of the case. That the observations of the CIT (A) that the AO had prime facie reasons to believe that on perusal of cash deposited in bank, it is noticed that the assessee is indulging in purchase and sale of agriculture produce and income from such transactions have not been reported by the assessee in his return of income. The observations of the AO were totally erroneous under the facts of the case when it was on record that the assessee in the firm Rajdeep Trading Company was a 'Kacha Arthia' for more than 20 years and the transactions were duly reflected in books of accounts.

3. That the AO at the time of issue of notice and while framing assessment erred in observing that purchase and sale of agricultural crop sold as a commission agent (Kacha Arthia) needed to be recorded as the sale and purchase of the Commission agent. Inability to understand the accounting and business of the assessee could not be considered as a prima facie reasons to believe which has been wrongly observed by the AO and opinion by the CIT (Appeals), on the basis of which the additions were deleted on merits.

4. That the appellant /cross objector reserves the right to amend, add or alter appeal before or at the time of hearing of appeal.”

4. Briefly the facts are that based on CIB information that the assessee had made cash deposit of Rs 293,20,000/- with SBI (Bikaner & Jaipur) and Rs 32,75,520/- with ICICI bank in the name of M/s Rajdeep

Ors Asstt. CIT v. Rajdeep Singh Uppal Trading Co, a concern of the assesse, the AO u/s 133(6) asked the assessee to explain the sources of above transactions with documentary evidences/accounts. The assessee replied that the assessee had deposited a sum of Rs 293,20,000/- in the account of M/s Rajdeep trading Co maintained with State bank of Bikaner & Jaipur and a sum of Rs 32,75,520/- in the account maintained in ICICI bank ltd. Both are current accounts of M/s Rajdeep Trading Co, proprietorship concern of the assessee who is in the business of Aharat of vegetables and filing the return of income with audited accounts. The sale and purchase of agriculture produce is duly reflected in the audited accounts of the assessee submitted with the return of income, the copies of bank statements of ICICI bank and State Bank of Bikaner & Jaipur of Rajdeep Trading Co. was enclosed and submitted before the AO and the said documents had been declared in the return of income as well as form part of audited accounts furnished by the assessee with the details of cash deposited. The sale proceeds of agriculture produce which was sold on commission basis have been deposited in the bank and the payments have been made from the said accounts to the suppliers of onion, tomato and potato etc. The appellant had enclosed the copy of trading account, P&L account of Rajdeep trading Co from the audit report. However the AO being

Ors Asstt. CIT v. Rajdeep Singh Uppal not satisfied with the reply of the assesse to the query raised stated that it was not found tenable with reference to deposits made in the bank accounts and accordingly the cash deposited in the bank accounts to the tune of Rs 2,93,20,000/- was held unexplained and added back to the total income of the assesse.

5. The assessee being aggrieved with the assessment order, went before the Ld. CIT(A) who has granted relief to the assesse on merits by observing as under:

“I have considered the assessment order and the written submissions of the appellant filed in appeal proceedings. The assessee is in appeal against the addition of Rs 293,20,000/- as unexplained cash deposits in the current bank account of an Aharatia concerned which is regular income tax assessee and is in the business of sale of vegetables in the vegetable market for the last more than 40 years. The appellant had explained the AO vide reply to notice u/s 133(6) dated 28.02.2017 seeking explanation about the source of cash deposits of Rs 267,37,000/- in the current account, that the amount was deposited in the current accounts of M/s Rajdeep Trading Co maintained with State bank of Bikaner & Jaipur and ICICI bank ltd, a proprietor concern of the assessee. The copy of audit report, trading account, P&L account and bank statements were filed with the reply. In the written submission filed by the appellant dated 20.3.2017 in response to notice u/s 133(6) whereby not only the copies of returns, audit report and bank statements were filed but copies of all the books of accounts were submitted. The appellant in the written submission filed in appeal proceeding has reproduced the certified copies of the order sheets of the AO in the proceeding u/s 133(6) of the act. As per the said order sheet entries, Sh. Jatinder Nagpal, AR appeared on 22.3.2017 and submitted the copy of cash book and the dates when the cash was deposited. The AR was asked by AO to produce audit report P&L account and balance sheet on 23.3.2017. On 23.3.2017 the AO has noted on order sheet that the copy of audit report with Ors Asstt. CIT v. Rajdeep Singh Uppal P&L account and balance sheet was submitted. Therefore the audit report of the appellant for AY 2010-11 along with P& L account, balance sheet, copies of bank statements and copies of books of accounts were submitted before the AO by the appellant in the assessment proceeding but the AO in the assessment order has not pointed out any defect or short coming in the said audit report, trading and P&L account or balance sheet of the appellant for the year under consideration or in the cash book of the appellant for the year under consideration. The books of accounts of the appellant were not rejected u/s 145(3) of the act.

Regarding the business of the assessee it was submitted that the assessee is a katcha aharatia and runs his business as a proprietor of the firm M/s Rajdeep Trading Cd at Welha mandi, Amritsar which is doing business of aharat only. The nature of business is that vegetable arrive in the mandi from various houses and agriculturists by trucks/trolleys which was heaped and sold on commission basis to various vegetable vendors and pheriwalas in Amritsar district and surrounding areas. The appellant sells the vegetables to the small vendors who collect the vegetables and sell the same at various places. As a routine practice in Welha mandi, the small vendors sometime pay in the account and sometime pay their old dues and collect vegetables from the appellant. The payments received by the appellant from these vendors, pheriwalas and small shopkeepers on daily basis are deposited in the bank and from this bank account payment are made to the vegetable suppliers.

The appellant explained that the cash deposits in the bank is in fact cash received from these buyers and aharat for the supply of vegetables. Hence, the purchases and sales are not the purchases and sales of the assessee but accounted for as debtors and creditors because the assessee is a katcha aharatia. Thus the appellant is responsible for receiving payments from the vendors, pheriwalas and small shopkeepers and responsible for making payments to the suppliers of the vegetables in the welha mandi to the appellant. The appellant only charges commission on the price of vegetables determined in the mandi each day. Therefore no stock of purchases are kept by the assessee because vegetables are perishable items and purchased on daily basis as per demand of particular vegetables on a particular day in the mandi. The appellant had also furnished before the AO and undersigned the copies of bank statements and copy of relevant pages of cash book regarding the above entries of cash deposits. The books of accounts of the assessee are Ors Asstt. CIT v. Rajdeep Singh Uppal subject to audit and the return of income as originally filed by the appellant was accompanied with audited account. The appellant had also furnished the copies of transportation receipts of every and each truck and trolley to the AO but the AO has not pointed out any defect or discrepancy therein with respect to the books of account of the appellant.

It is relevant that as pointed out by the appellant the same AO, in subsequent year accepted the same pleas of the appellant with the same set of documents was satisfied for similar deposits in the next year in the proceedings u/s 133(6) of the act.

It was pointed out by the appellant that the assessee is a regular income tax assessee and assessed to tax for last more than 35 years at PAN AGHPS2490M. The assessee submitted that his father Sh. Satpal Singh Uppal was earlier proprietor of M/s Rajdeep Trading Co which is basically aharat concern. The firm M/s Rajdeep Trading Co runs a shop in sabji mandi, Amritsar for last more than 50 years which is in the business of vegetables and assessee firm is a katcha aharatia and registered as such with market committee and other government bodies. The copy of certificate issued by market committee set up under the market committee act by Punjab Government certified that the firm M/s Rajdeep Trading Co, Sabji mandi shop no. 67, sabji mandi wala is carrying on business as commission agent of vegetables under the market committee license number 5031 issued on 31.3.1993 which has regularly been renewed till 31.3.2023.

It is observed that the saving bank account no. 61005579951 with state bank of Bikaner 8& Jaipur and account no. 6605005784 in ICICI bank ltd of the appellant is reflected in the balance sheet of M/s Rajdeep Trading Co for the year under consideration. The audited accounts of M/s Rajdeep Trading Co also reveals the commission received on sale of vegetables as well as details of debtors and creditors. As explained by the appellant to the undersigned that the creditors are the parties who are basically the suppliers of vegetables while the debtors are the parties to whom the vegetables are sold in the mandi.

As already discussed above the practice of trade is that various agriculture produce are sent to the vegetable market by the vegetable suppliers/vegetable growers and placed in the mandi which are sold through aharatias like the assessee to vegetable vendors and small vegetable sellers, who remained in the mandi everyday for purchase of fresh vegetables, make

Ors Asstt. CIT v. Rajdeep Singh Uppal payments of purchased vegetables. Generally, these vegetable vendors and small vegetable sellers purchase from aharatias on credit and make payments after selling the vegetables purchased earlier from the aharatias and so on. Therefore the cash deposited in the bank account is in fact the sale proceeds of agriculture produce including the amount realized from the various debtors. When the sale of vegetable produce is made, the account of the suppliers are credited and the accounts of the buyers as debited and when the amount is realized from the buyers, the same is deposited in the bank account and payments are made to the suppliers of vegetables/agriculture produce. It was explained by the appellant that the buyers of vegetable are small vendors and make payments in cash only. This is the practice in the vegetable market.

Complete books of accounts are maintained by the assessee and which was subject to audit u/s 44AB of the act wherein all the transactions are recorded. In the assessment order the AO has not rejected the books of accounts of the appellant u/s 145(3) of the act and had not pointed out any defect therein. It was pointed out by the appellant that the transport vehicle numbers in which vegetables arrived in the mandi, the record of freight paid at the time of entry of vegetables in the mandi, complete copy of account of the parties are maintained in the regular books of accounts and all the parties are verifiable.

Therefore from the above discussion it is clear that the deposit in the bank account of the assessee are business transaction of the assessee and realization of sale produce. It is understood that the assessee is a katcha aharatia and the purchase of goods and sale of goods is not of the assessee. The assessee has to pay market fees to mandi committee of all the goods which arrived in the mandi and commission on the goods sold is collected from the buyers of produce. In the year under consideration the appellant had shown commission of Rs 839,083/- from the said concern M/s Rajdeep Trading Co.

As explained by the appellant the firm M/s Rajdeep Trading Co running a shop in sabji mandi, Amritsar for the last more than 50 years which is in the business of vegetables as a katcha aharatia and registered as such with the market committee and other government bodies. Therefore the facts of the case of the appellant are the same in all the years for more than 30 years and as pointed out by the appellant, never had such an addition been made and all the officers had accepted the method of accounting, which has been followed in the same line of business. Therefore, since the method of Ors Asstt. CIT v. Rajdeep Singh Uppal accounting of the appellant is an accepted method of accounting by the department in the past and subsequent years, therefore the rule of consistency applies in the year under consideration as well.

Therefore in view of the above discussion, the modus operandi of the nature of business of the appellant as a katcha aharatia dealing in vegetables in welha mandi, Amritsar; the maintenance of complete books of accounts which was subject to audit and no defect therein was pointed out' by the AO in the assessment proceeding and the books of accounts of the appellant had not been rejected u/s 145(3) of the act; the rule of consistency whereby the method of accounting of the appellant had been accepted by the department in the past and in subsequent years as in AY 2012-13; that all the receipts in cash and payments made to the suppliers of the vegetables were duly recorded in the cash book/books of account of the appellant in respect of which no defect was pointed out by the AO in the assessment order; that both the current accounts of the appellant M/s Rajdeep Trading Co bearing number 61005579951 with State bank of Bikaner & Jaipur and account no. 6605005784 in ICICI bank ltd are duly recorded in the audited balance of the appellant in M/s Rajdeep Trading Co. as on 31.3.2010; therefore it is held that the assessee had maintained proper record of its business transactions and therefore the source of cash deposits in the bank accounts of the appellant to Rs. 2,93,20,000/- were duly explained with respect to its books of accounts being sale proceeds of agriculture produce which was sold on commission basis and no addition in respect of the said deposits is called for. Accordingly the addition of Rs 293,20,000/- is deleted.”

Ors Asstt. CIT v. Rajdeep Singh Uppal receipt and did not show the quantum and value of goods received from the suppliers and the quantum and value of the goods supplied to the petty vendors on behalf of suppliers and, therefore, the claim of the assessee that the substantial amount of cash was received from the buyers of the goods was not proved. However, he has nothing to submit in rebuttal to the finding of fact given by the Ld. CIT(A) in the impugned order.

Assessee’s submission

“405-406. Compulsory Audit - Whether the provision is applicable to commission agents, arahtias, etc.

Ors Asstt. CIT v. Rajdeep Singh Uppal business and no uniform pattern is followed by the commission agents, consignment agents, brokers, kachha arahtias and pacca arahtias dealing in different commodities in different parts of the country. The primary necessity in each instance is to ascertain with precision what are the express terms of the particular contracts under consideration. Each transaction, therefore, requires to be examined with reference to its terms and conditions and no hard and fast rule can be laid down as to whether the agent is acting only as an agent or also as a principal.

A pacca arahtia is not, in the proper sense of the word, an agent or even del credere agent. The relation between him and his constituent is substantially that between the two principals. On the basis of various Court pronouncements, following principals of distinction can be laid down between a kachha arahtia and a pacca arahtia:

A kachha arahtia acts only as an agent of his constituent and never acts (i) as a principal. A pacca arahtia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his personal account and thus he acts as regards his constituent.

A kachha arahtia brings a privity contract between his constituent and the (ii) third party so that each becomes liable to the other. The pacca arahtia, on the other hand, makes himself liable upon the contract not only to the third party but also to his constituent.

Though the kachha arahtia does not communicate the name of his (iii) constituent to the third party, he does communicate the name of the third party to the constituent. In other words, he is an agent for an unnamed principal. The pacca arahtia, on the other hand, does not inform his constituent as to the third party with whom he has entered into a contract on his behalf.

Ors Asstt. CIT v. Rajdeep Singh Uppal The remuneration of a kachha arahtia consists solely of commission and (iv) he is not interested in the profits and losses made by his constituent as is not the case with the pacca arahtia.

The kachha arahtia, unlike the pacca arahtia, does not have any dominion (v) over the goods.

The kachha arahtia has no personal interest of his own when he enters (vi) into transaction and his interest is limited to the commission agent’s charges and certain out of pocket expenses whereas a pacca arahtia has a personal interest of his own when he enters into a transaction.

In the event of any loss, the kachha arahtia is entitled to be indemnified (vii) by his principal as is not the case with pacca arahtia.

Circular : No. 452 [F. No. 20l/3/85-IT(A-IIJ], dated 17-3-198/5.

JUDICIAL ANALYSIS

EXPLAINED IN - In Jeyar Consultant & Investment (P.) Ltd. v. Assistant Commissioner [ 1993] 46 1TD 71 (Mad.-Trib.), it was observed that it is ex facie clear from the CBDT Circular No. 452 of 17-3-1986 which came to be issued in relation to kacha and pacca arhatias, who are an integral part of the trading sector, that instructions issued by the Board as respects kacha and pacca arliatias could not be applied to the case of the assessee who has arranged finances for other for a fee. The assessee may choose to label the fee as brokerage or even as commission. But the fee—or to use a generic expression ‘receipt’—could not be regarded as turnover proper.

Ors Asstt. CIT v. Rajdeep Singh Uppal RELIED ON IN - The above circular was relied on in ITO v. Shantilal Chunilal & Co. [1993] 45 ITD 581 (Pune - Trib.), with the following observations:

". . . Further, reference was made by assessee to pages 52 to 54 which contains Board’s Circular No. 452, dated 17-3-1986 which has been issued in connection with section 44AB of the Income-tax Act. 1961 Reliance was placed on para 4 of the said circular according to which the Board were advised that so far as kachha arahatias were concerned, the turnover did not include sales effected on behalf of the principals and only gross commission has to be considered for the purpose of section 44AB. The submission of the learned counsel for the assessee was that the case of the assessee is one of kachha arahatia and not a pucca arahatia and, therefore, only gross commission has to be considered for the purpose of section 44AB of the Income-tax Act, 1961.

. . . The CIT (Appeals) has excluded the adat receipt as well as interest receipt from the purview of turnover for the purpose of section 44AB. Relying on the clarifications given by the Board in its Circular No. 452, dated 17-3-1986, he has categorised the assessee as Icachha arahatia and he has charged expenses * incurred on such business which resulted in gross profit rate of 1.09 per cent. Therefore, it is very much relevant to clinch the issue whether the assessee is a kachha arahatia or not. Going by the clarification issued by the Board in the aforesaid Circular No. 452. dated 17-3-1986 the case of the assessee fits in with the kachcha arahatia vis-à-vis case of pucca arahatia….” (pp. 585-586)

REFERRED TO IN – Manish Textiles v. ACIT [1991] 38 ITD 365 (Bom.).”

". . . Further, reference was made by assessee to pages 52 to 54 which contains Board’s Circular No. 452, dated 17-3-1986 which has been issued in connection with section 44AB of the Income-tax Act. 1961 Reliance was placed on para 4 of the said circular according to which the Board were advised that so far as kachha arahatias were concerned, the turnover did not include sales effected on behalf of the principals and only

Ors Asstt. CIT v. Rajdeep Singh Uppal gross commission has to be considered for the purpose of section 44AB. The submission of the learned counsel for the assessee was that the case of the assessee is one of kachha arahatia and not a pucca arahatia and, therefore, only gross commission has to be considered for the purpose of section 44AB of the Income-tax Act, 1961.”

The assessee had to pay market fees to mandi committee of all the goods which arrived in the mandi and commission on the goods sold was collected from the buyers of produce. In the year under consideration the appellant had shown commission of Rs 839,083/- from the said concern M/s Rajdeep Trading Co. Thus, the modus operandi of the nature of business of the appellant has been proved beyond doubt as a katcha aharatia dealing in vegetables in welha mandi, Amritsar. It is also noted that both the current accounts of the appellant M/s Rajdeep Trading Co bearing number 61005579951 with State bank of Bikaner & Jaipur and account no. 6605005784 in ICICI bank ltd are duly reflected in the audited balance sheet of the appellant in M/s Rajdeep Trading Co. as on 31.3.2010; that the maintenance of complete books of accounts which was subject to audit and the AO has neither pointed out any defect therein nor rejected the books of accounts of the appellant u/s 145(3) of the act, during

Ors Asstt. CIT v. Rajdeep Singh Uppal the assessment proceeding and that the method of accounting of the appellant had been accepted by the department in the past and in subsequent years in AY 2012-13 as well, therefore rule of consistency has to be followed as per settled law.