DCIT Vs Smt. A. Gandhimathi (ITAT Chennai)
ITAT Chennai held that payment towards purchase of wet grinders and accessories were mainly made to a cottage industry and accordingly such payment is not hit by the provisions of section 40A(3) as payment made to a cottage industry is excluded under rule 6DD(F) of the Income Tax Rules.
Facts-
The assessment of the assessee was completed u/s.143(3) by making addition of Rs.33,52,296/-. Thereafter, a search and seizure operation u/s.132 of the Act, was conducted in the case of M/s.Butterfly Gandhimathi Appliances Ltd. (M/s. BGAL) and during the course of search, it was found that the assessee was a major supplier of wet grinders and spare parts to M/s.BGAL.
Consequent to survey, notice u/s.153C was issued calling for return of income. In response, the assessee had filed her ROI admitting total income of Rs.78,17,460/-.
During the course of assessment proceedings, the AO noticed that the assessee has made unregistered dealer purchases of Rs.5,25,66,330/-and for which, a sum of Rs.4,73,26,975/-, has been paid through banking channel. Further, a sum of Rs.10,95,793/- has been paid in cash, but each cash payment was less than Rs.20,000/-. The assessee had also made cash payment of Rs.41,43,562/- against unregistered dealer purchases and each cash payment is more than Rs.20,000/-. Therefore, the AO opined that unregistered dealer purchases claims to have made from certain persons, is not genuine which is not supported by necessary evidences. Therefore, disallowed total purchases claims to have been made from unregistered dealers amounting to Rs.5,25,66,330/- to total income.
CIT(A) allowed the appeal filed by the assessee. Being aggrieved, the revenue has preferred the present appeal.
Conclusion-
In this case, there is no dispute with regard to the fact that absolutely there is no incriminating material was found during the course of search in the case of M/s.BGAL, which pertains to the assessee and which shows undisclosed income pertains to these assessment years. Therefore, we are of the considered view that the AO ought not to have made assessment u/s.153C of the Act, and made additions towards purchases made from unregistered dealers. The Ld.CIT(A) has rightly apprised the facts and held that the action of the AO in framing the assessment u/s.153C of the Act, was only survey u/s.133A of the Act, conducted is legally incorrect.
We find that as claimed by the assessee wet grinders and accessories were purchased from unregistered dealers who were mainly a cottage industry without any VAT registration and PAN. Therefore, the assessee has declared purchases made from unregistered dealers in the VAT returns filed for the respect month and paid relevant VAT on said purchases. The assessee had also made 90% of payments against said purchase through proper banking channel. Although, the assessee has made small portion of payment by cash in excess of prescribed limit, but in our considered view, payment made by the assessee does not hit by provisions of Sec.40A(3) of the Act, because, any payment made to a cottage industry is excluded u/r.6DD(f) of IT Rules.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These appeals filed by the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-18, Chennai, dated 18.09.2018 and pertains to assessment years 2012-13 to 2014-15. Since, the facts are identical and issues are common, for the sake of convenience, these appeals are being heard together and disposed off, by this consolidated order.
2. The Revenue has, more or less, raised common grounds of appeal for all the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the AY 2012-13, are re-produced as under:
1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The learned CIT(A) erred in holding the assessment order passed u/s 143(3) r.w.s. 153C of the IT Act as invalid.
2.1 The learned CIT(A) ought to have appreciated the fact that the Chennai Tribunal in the case of ACIT vs. Leela Distilleries P. Ltd. (ITA no.2714-2716/Mds/2016 dt 28.07.2017) that where no asst. u/s.!43(3) has been completed, even though no incriminating materials were found during the course of search’, the AO has jurisdiction to make additions U/S.153A.
2.2 The learned CIT(A) ought to have appreciated the fact that the Hon’ble Supreme Court in the case of CIT vs. S.Ajit Kumar (404 ITR 526) has held in the context of asst. U/S.158BC, that survey conducted simultaneously can be brought within the scope of asst. u/s.158BC.
2.3 The learned CIT(A) ought to have appreciated that the addition was made by the AO based on the fact that M/s.Butterfly Gandhimathi Appliances Ltd.(BGAL) was inflating its purchases of wet grinders and spare parts, of which the major supplier was Ms.A. Gandhimathi, as a higher price was claimed to be paid for the materials purchased from the assessee.
3. The learned CIT(A) erred in deleting the disallowance by the AO of purchases from unregistered dealers.
3.1 The learned CIT(A) failed to appreciate that the AO as directed verified the purchases and in his submission clearly reported that Sri.GJeba, for the F.Y 201213, claims that he had received Rs.8,50,960 only, whereas the Ledger shows a gross receipt of Rs.15,18,300, VAT deducted was at Rs.72,300 and net paid was Rs.14,46,000.
3.2 The learned CIT(A) failed to appreciate that the in the remand report the AO has in his submission clearly reported that Shri Rajesh Kumar, for the F.Y. 201213, claims to have received of Rs.9,36,00, whereas the enclosed ledger shows the net amount atRs.14,32,000.
3.3 The learned CIT(A) failed to appreciate that the assessee had inflated the purchases in the ledger account furnished as the vendors were dependent on the assessee for their livelihood as the vendors have deposed that “the ledger extracts enclosed along with their confirmation letters were taken from the assessee only as they do not maintain proper books of accounts”
3.4 The learned CIT(A) having called for a remand report from the AO, did not consider the discrepancies and differences pointed out by the AO in the report, between the purchases claimed by the assessee and the ledger accounts furnished by the very same assessee and the claim of the vendors, though it was clearly brought out in the form of a tabular column.
4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
RELIEF CLAIMED IN APPEAL
The order of the learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
3. The brief facts extracted from ITA No.13/Chny/2019 for the AY 2012-13 are that the assessee is a Proprietor of M/s.East West Gandhimathi Combined Industries, filed her return of income for the AY 2012-13 on 28.09.2012 admitting a total income of Rs.44,67,170/-. In this case, the assessment has been completed u/s.143(3) of the Income Tax Act, 1961, on 27.02.2015 by making addition of Rs.33,52,296/-. A search and seizure operation u/s.132 of the Act, was conducted in the case of M/s.Butterfly Gandhimathi Appliances Ltd., (in short “M/s.BGAL”) on 19.03.2015 and during the course of search, it was found that the assessee was a major supplier of wet grinders and spare parts to M/s.BGAL. During the course of search, it was further noted that M/s.BGAL was inflating its expenditure in respect of its purchases. Therefore, a survey operation u/s.133A of the Act, was conducted in the case of the assessee on 19.03.2015. Consequent to survey, notice u/s.153C of the Act, dated 29.03.2016 was issued calling for return of income. In response, the assessee had filed her return of income on 08.06.2016 admitting total income of Rs.78,17,460/-.
4. During the course of assessment proceedings, the AO noticed that the assessee has made unregistered dealer purchases of Rs.5,25,66,330/-and for which, a sum of Rs.4,73,26,975/-, has been paid through banking channel. Further, a sum of Rs.10,95,793/- has been paid in cash, but each cash payment was less than Rs.20,000/-. The assessee had also made cash payment of Rs.41,43,562/- against unregistered dealer purchases and each cash payment is more than Rs.20,000/-. Therefore, the AO after considering relevant facts and also taken note of report submitted by the DDIT (Inv.), Unit-1, Coimbatore, opined that unregistered dealer purchases claims to have made from certain persons, is not genuine which is not supported by necessary evidences. Therefore, disallowed total purchases claims to have been made from unregistered dealers amounting to Rs.5,25,66,330/- to total income. The relevant findings of the AO are as under:
During the year under consideration, the AR stated that the assessee purchased stones worth Rs.5,25,66,330/- from unregister dealers and furnished the details of the mode of the payment as under:
