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TAXAP/1849/2010 7/ 7 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 1849 of 2010
For
Approval and Signature:
HONOURABLE
MR.JUSTICE AKIL KURESHI
HONOURABLE
MS JUSTICE SONIA GOKANI
====================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To
be referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
====================================================
COMMISSIONER
OF INCOME TAX - I - Appellant(s)
Versus
M/S
GAMDIWALA DAIRY - Opponent(s)
====================================================
Appearance
:
MRS MAUNA M
BHATT for
Appellant(s) : 1,
None for Opponent(s) :
1,
====================================================
CORAM
:
HONOURABLE
MR.JUSTICE AKIL KURESHI
and
HONOURABLE
MS JUSTICE SONIA GOKANI
Date
: 18/10/2011
CAV
JUDGMENT
(Per
: HONOURABLE MS JUSTICE SONIA GOKANI)
1. The
appellant-Revenue, being aggrieved by the order of Income Tax
Appellate Tribunal dated 12th March, 2010 has preferred
the present Appeal u/s. 260-A of the Income Tax Act, 1961,
(hereinafter referred to as “the Act”) proposing
the following questions of law for determination of this Court:
[A] Whether the Appellate
Tribunal is right in law and on facts and has correctly the facts on
record in deleting the disallowance made u/s. 40A(3) ?
[B] Whether the Appellate
Tribunal is right in law and on facts and thereby holding that the
action of the Assessing Officer in rejecting the books of account
u/s. 145 was not proper and consequently deleting addition of
Rs.18,18,889/- made by the Assessing Officer as assessee’s profit ?
[C] Whether the Appellate
Tribunal is right in law and on facts in deleting the disallowance of
Rs.1,06,480/- made on account of depreciation on motor cars ?
2. Heard learned counsel
Mr.Manish Bhatt appearing for the Revenue. On closely examining the
materials placed before this Court and having regard to the
submissions made as also considering the orders of adjudicating
authorities, for the reasons to be
followed hereinafter, the appeal requires to be dismissed.
3. The 1st
question relates to disallowance made u/s. 40A(3) of the Act by the
Assessing Officer where the cash payments were made by the
assessee-respondent to various diaries/societies as well as other
milk vendors. The Assessing Officer disallowed the 20% of the total
amount on the ground that there was high sounding names given to the
collection centers but, in fact, it was a camouflage. There were
seven parties examined by the Assessing Officer and although there
was nothing to indicate that they were not supplying milk to the
societies, Assessing Officer disbelieved the entire transactions.
CIT(A) deleted the said
disallowance and the Tribunal concurred with the CIT(A) . Tribunal
noted that there was sufficient explanation furnished by the assessee
both before the Assessing Officer and CIT(A) . These payments were
made to the farmers and villagers and they were covered u/s. 40A(3)
read with Income Tax Rules 6DDF with substantive materials on
record, and therefore disallowance was not proper.
4. Entire issue has been
dealt with extensively by the Tribunal and it thereafter allowed the
assessee’s appeal giving clear findings that exception provided under
Rule 6DD would be made applicable to the case of assessee in the
words of the Tribunal . It has held thus :
“We find
from the above provisions of Rule 6DD, that the assessee’s case is
the farmers or the producers of milk did not loose their individual
identify and each such farmer was paid for the milk sold by them at a
fixed price depending upon the quality of the milk viz. fat contents
and quality and this fact coupled with the fact that none has
maintained any regular books of account, none has purchased the milk
from the farmers independently and made over to the assessee, none of
the entities maintained independent accounts of the farmers except he
nothing of he milk contributed by the farmers in terms of quantity
and quality viz. fat contents they were paid by the assessee through
the persons who collected the milk from the farmers and supplied to
the assessee. Accordingly, these noting in rough sheets can never by
any stretch of imagination be equated to maintaining books of account
etc. when considered in totality it would be clear that the milk was
purchased by the assessee from the producers of milk. We further find
that the assessee during the course of assessment proceedings had
filed the confirmations of various persons who confirmed that they
were procuring milk on half of the assessee from various producers
of the milk and it was supplied to the assessee and in turn the
assessee was making payments, which was to be handed over to the
producers and they were handing over such amount to the respective
milk producers. We find that, according in the farmers,
the consideration paid for the same are collected by the president
and it was handed over the persons supplying the milk, in the ratio
of the milk provided by each person. Thus, they have received the
amount in the ratio of milk supplied in the name of dairy. These
dairies are thus only the facilitating stations for the producer of
milk and the assessee is making purchases directly from the producers
and accordingly falls in the exceptions. In view of
the above facts and circumstance, we allow this issue of the
assessee’s appeal and dismiss that of the Revenue’s appeal.
5. This Court examined
in the Tax Appeal No. 1545/2010 similar question. The same has
been held in favour of the assessee and against the Revenue in the
following manner:
5. It
was noticed by the Tribunal that cash payment of Rs.87,84,655/- was
made to different persons for purchase of jaggery and since these
purchases were in excess of Rs.20,000/-, there was contravention of
the provisions of Section 40A(3)and hence 20% of such cash purchases
were added to the income of the assessee. The Tribunal was of the
opinion that the Assessing Officer had specifically asked for the
details of the purchase of jaggery and the proof of purchase as there
was a direct purchase from various agriculturists. It also noted that
the requisite material had been placed before the Assessing Officer
with regard to the purchases of jaggery and copies of village form
No.7/12 and 8A were also brought forth to prove the facts that they
were purchased from the agriculturists. The Tribunal also noted that
the same were duly covered under Rule 6DD(f)(i) of the Income Tax
Rules and after due satisfaction, the Assessing Officer had allowed
this amount and, therefore, the order of the Assessing Officer has
been upheld by the Tribunal. Rule 6DD and sub-clause (f) of Rule 6DD
are reproduced hereunder:-”
“6DD. 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 payment 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:-
**** **** **** (f) Where the
payment is made for the purchase of the products and manufactured or
processed without the aid of power in a cottage industry, to the
producer of such products;”
**** **** ****" 6. Rule
6DD(f) mentions one of the circumstances, which indicates that when
the payment is made of the products manufactured or processed without
the aid of power in a cottage industry, to the producer of such
products, injunction specified under Section 40A(3) would not come
into play. In other words, if any person purchases any product
manufactured or processed from the producers directly, who has
processed such a product, without the aid of power in a cottage
industry, even if the payment is made in aggregate exceeding
Rs.20,000/- in a day to a particular person otherwise than by way of
cheque, the same may not incur disqualification in terms of rejection
of disallowance.
7. What
can be found here in the case of the present assessee respondent is
that the purchases of jaggery had been made by the assessee from the
agriculturist themselves and there was sufficient proof adduced by
the assessee. What can be further noted is that the said payment was
made by way of cash and there was no cheque payment. However, the
Tribunal after noting that such explanation is permissible and is
covered duly under Rule 6DD(f) of the Income Tax Rules and also
holding that when the Assessing Officer had subjectively satisfied
himself with the identities of the persons, it correctly held that
the jaggery is produced at village level where no chemical process or
any mechanical process is involved and in this background factual and
legal, the Tribunal has correctly upheld the findings of the
Assessing Officer.
6. In
the instant case, the nature of transactions being similar and the
provisions of law applied to the said dealings are also the identical
and as Court earlier had upheld the order of Tribunal in almost
similar circumstances, in the present case as the Tribunal has dealt
with the issue in accordance with the law, issue requires no
interference.
7. The
2nd
question relates to deletion of addition made by the Assessing
Officer after rejecting the books of account u/s. 145 of the Act. As
noted by the Tribunal, Assessing Officer rejected the books of
account of assessee u/s. 145 and added the gross profit. CIT(A)
confirmed the said order of Assessing Officer. This was done on the
ground that
the assessee’s books of account did not reflect true picture of
financial profit of the assessee. According to the Assessing Officer,
on account of much variation of gross profit rate also, this was so
done. The Tribunal did not agree with the findings of either of the
adjudicating authorities and gave its elaborate reasons in this
regard. It clearly held that there was no defect in the books of
account maintained by the assessee and the gross profit of the
assessee for the year under consideration was better than the earlier
years. It also further considered the gross profit of Malank branch
vis-a-vis the gross profit of Ahmedabad branch of
assessee-respondent to hold that merely because expenditure
pertaining to one branch was accounted in another branch or just
because certain sustainable grounds existed for earlier year’s
expenditure to be accounted this year in one branch, resulting into
anomaly in the books of account , the books of account cannot be
rejected nor would that permit the Assessing Officer to make
estimation . Resultantly, this addition was quashed . Tribunal since
has given cogent reasons and there being absolutely no infirmity
in the findings arrived at for not sustaining the orders of both the
authorities, this issue requires no further consideration.
8. As
regards the 3rd
question which relates to disallowance made on account of
depreciation on motor cars, instead of 1/5th
of motor car expenses disallowed by Assessing Officer including
depreciation for personal user, disallowance at 1/10th
of depreciation was found justifiable by the Tribunal. Although
there is no much discussion over the
issue, but, on the ground that assessee needed fair disallowance,
Tribunal has so done it. This aspect being factual in nature and
when discretion is used by the Tribunal and the amount being
small, no interference is called for.
Resultantly, this Tax
Appeal raising no question of law for consideration is dismissed.
{Akil
Kureshi, J.}
{Ms.Sonia
Gokani,J.}
Bina**
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