Section 40A(3) not applies on cash purchases made from Mandi Samiti

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Case Law Details

Case Name : KRBL Ltd. Vs DCIT (ITAT Delhi)

Appeal Number : ITA No. 1196/Del/2020

Date of Judgement/Order : 09/05/2022

Related Assessment Year : 2010-11

Courts :All ITAT ITAT Delhi

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KRBL Ltd. Vs DCIT (ITAT Delhi)

During the course of assessment proceedings, the appellant submitted that the cash purchases were made by it from Mandi Samitis located across UP from farmers and hence did not fall under the ambit of the provisions of section 40A(3) of the Act, as the same were covered by Rule 6DD of the Income Tax Rules, 1962. As per the AO, in order to claim benefit of Rule 6DD, it is the primary onus of the appellant to prove that cash purchases were made from bonafide agriculturists/cultivators, however, the appellant only relied upon the submission that purchases were made from Mandi where only agriculturist sell their produce which was not found correct by the AO.

Rule 6DD (e) states that the provisions of section 40A(3) will not apply where the payment is made for the purchase of agricultural produce, animal husbandry or dairy or poultry farming, fish or fish products to the cultivator, grower or producer of such articles. CBDT vide Circular no. 08/2006 dated 06 October, 2006 has provided for specific mechanism for verification of sellers in case of the produce of animal husbandry but no such circular has been issued in case of agricultural produce for fulfillment of condition under Rule 6DD. No specific rule or provision of law as per the Income-tax has been brought on record by the assessing officer which required the assessee to collect any evidences to prove that the sellers were producer or cultivators. On perusal of Rule 6DD, specific Circular for animal husbandry and in the absence of any such conditions in case of agricultural produce and failure of the assessing officer to bring the relevant provision or rule requiring collection of evidences regarding sellers on record, I agree with the contention of the appellant that there is no specific requirement under the Income-tax Act or Rules to collect any evidences regarding the sellers in case of agricultural produce and furnishing of documentary evidence to show that paddy was purchased through Form No. 6 of Mandi Samiti would suffice as evidence to show that the appellant had purchased agricultural produce from cultivator, grower or producer of paddy.

Further, on perusal of the Mandi Samiti Act and rules, it was observed that these did not require the buyer to obtain any evidence from the seller for his verification as producer / farmer. On perusal of section 2(p) of the Mandi Act and Rule 131 of the Mandi Rules, it was observed that the Director of the Mandi shall make enquiries from the Tehsildar regarding the produce/ (as to whether he cultivates the land himself or engaged in producing agriculture produce or carrying on business as trader etc) to determine his status on receipt of a complaint in this behalf. Thus, it is evident from the provisions of Mandi Act that the appellant or the Mandi officials were not required to obtain all these documents at the time of transactions in the Mandi because then the Director would not need to make such inquiries from the Tehsildar but there would be a provision to verify the documents held by the Mandi Samiti or the buyer. This shows that the appellant was not required to obtain any documentary evidences regarding land area, cultivation etc. about the seller even under the provisions of Mandi Act.

In view of discussion above, it is observed that the assessee is not required to collect any evidence from the seller to show that he is a farmer or producer once paddy has been purchased through Form No. 6. The status of the seller as farmer or trader is determined by the Mandi Samiti at the time of his entry and the assessee undertakes transactions on the basis of said determination. It is also clear from the provisions of Mandi Act that the authority to decide whether the seller is a farmer or not is solely in the domain of Director of the Mandi Samiti as per the relevant Act and not the Assessing Officer. It is also a settled law that when an authority has been designated for the purpose, then none else can decide the said issue. The assessing officer has not brought on record any case where any person claimed as farmer by the assessee has been declared otherwise by the Director of Mandi Samiti. In the absence of the any such adjudication, no adverse cognizance can be taken and the sellers declared as farmers by the assessee and confirmed by the Mandi Samiti officials has to be considered as conclusive proof of the fact that the purchases were made from farmers.

The ld. CIT(A) deleted the addition made u/s 40A(3) considering the various judgments including PCIT Vs Keerthi Agro Mills (P.) Ltd. [2018] 95 taxmann.com 282 (SC) and CIT Vs Sunil Kumar Agrawal [2013] 38 taxmann.com 386 (Allahabad) have upheld applicability of Rule 6DD of Income Tax Rules for purchase of paddy.

Principle of consistency is applicable considering the fact that the case of the appellant was completed u/s 143(3) of Income Tax Act in earlier years prior to search where similar cash purchases had been made but no disallowance was made. Even in assessment order u/s 143(3) for A.Y.2017-18, similar cash purchases have been accepted by the Assessing Officer. In view of Mandi Samiti rules, all agricultural produce sold through Form No.6 constituted sale from producers and appellant was entitled to exception to Section 40A(3) provided in Rule 6DD(e) of Income Tax Rules.

FULL TEXT OF THE ORDER OF ITAT DELHI

The assessee as well as the Revenue have been filed these cross appeals against the separate orders of the ld. CIT(A)-24, New Delhi, dated 11.03.2020.

2. In ITA No.1196/Del/2020, the assessee has raised following grounds of appeal:

“Ground 1: General

1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances aggregating to INR 15,20,51,511 (detailed in grounds of appeal at Sl.no.2 to 4 below) made by the Learned Deputy Commissioner of Income Tax, Central Circle-07, New Delhi (‘Ld. AO’) in the impugned order dated 31.12.2018 passed under section 153A read with section 143(3) of the Act (‘Impugned Assessment Order’) for the subject year.

1.2 On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the above referred additions/disallowances were made by Ld. AO merely on conjecture, surmises without due application of mind and/or affording reasonable opportunity of being heard to the Appellant, and in complete violation of the principles of natural justice.

Ground 2: No incriminating material was unearthed during search

2.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the additions made by the Ld. AO in the Impugned Assessment Order completed under section 153A of the Act for the subject year, without appreciating that no incriminating material/ information was unearthed during the course of search operations at Appellant’s premises, and therefore the additions made in absence of any incriminating material/ information are liable to be deleted.

2.2 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances made in the Impugned Assessment Order for subject year by ignoring the factual and legal position that these issues were accepted/ considered in assessment proceeding for subject year completed under section 143(3) of the Act, and hence the additions made by Ld. AO and affirmed by Ld. CIT(A) are illegal and liable to be deleted.

Ground 3: Impugned addition of INR 4,76,843/- on account of alleged difference between purchase/sales made to certain parties treating these as ungenuine/bogus transactions and commission paid to such parties for arranging such alleged bogus bills

3.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the impugned addition of INR 4,76,843/- made by the Ld. AO by alleging that the Appellant has failed to discharge its onus to prove the genuineness of the transactions without appreciating evidences/records/ information/ submissions furnished before the Ld. AO & Ld. CIT(A) that clearly proves that these transactions were genuine and undertaken through normal banking channel and trading results of the Appellant for subject year have been duly accepted by the Income-tax Department.

3.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the above addition without appreciating that the Impugned Assessment Order was passed without confronting the Appellant in respect of alleged evidences/ information collected by the Ld. AO and without allowing cross examination of the witnesses whose statements/ letters were used against the Appellant, even after specific and repeated request of the Appellant.

Ground 4: Addition of INR 15,15,74,668/- in respect of the income earned by M/s KRBL DMCC, Dubai, a wholly owned subsidiary of the Appellant by alleging it as the income of the Appellant

4.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming an addition of INR 15,15,74,668/- in respect of the income received by M/s KRBL DMCC, Dubai, a wholly owned subsidiary of the Appellant in Dubai from M/s Interdev Aviation Services Pte. Ltd. by alleging that the same belongs to the Appellant. The Ld. CIT(A) has erred in not appreciating that this income accrued to/ and was received by KRBL DMCC entirely outside India, and duly accounted in its books of account, and consolidated with financial results of Appellant for the subject year as available in public domain.

4.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that KRBL DMCC is an independent legal entity incorporated in Dubai, and beyond the jurisdiction of Ld. AO, and hence transactions undertaken by it during the subject year with other non-resident entities are outside the scope of tax assessment in India.

4.3 On the facts and circumstance of the case and in law, the Ld. CIT(A) has failed to appreciate that no incriminating material was found during the course of search nor brought on record by the Ld. AO which may demonstrate that the said income belongs to the Appellant, and thus this addition made merely on conjecture and surmises should be deleted.

4.4 On the facts and circumstance of the case and in law, the Ld. CIT(A) has failed to appreciate that the transactions detailed in the Impugned Assessment Order for subject year between KRBL DMCC, Dubai and certain overseas entities and between Appellant and these overseas entities were bonafide commercial/ business transaction undertaken by the Appellant in its normal course of business through normal banking channels, in compliance with applicable Indian laws and duly accounted in the books of account of the Appellant.

4.5 On the facts and circumstance of the case and in law, the Ld. CIT(A) has failed to appreciate that the above income earned by KRBL DMCC Dubai, a wholly owned subsidiary of the Appellant was subsequently declared and distributed as divided to the Appellant, and duly offered to tax in India by the Appellant under section 115BBD of the Act in its return of income for the respective year of receipt.

4.6 Without prejudice to the above, even for the sake of argument, if it is presumed that the said income belongs to the Appellant, the necessary relief of the taxes already paid and discharged under section 115BBD of the Act should be granted to the Appellant, as the same income cannot be taxed twice under two different heads of income.

Ground 5: The impugned order passed by the Ld.AO is time barred in accordance with the provisions of section 153A/153B of the Act

5.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in holding that the Impugned Assessment Order passed by the Ld.AO for subject year is within the extended time limit prescribed under the provisions of the Act, and in not appreciating that the Impugned Assessment Order was passed on 31.12.2018 as against limitation period of on or before 31.12.2017, and consequently the same is bad-in-law, void and liable to be annulled.

Ground 6: Levy of interest under section 234A of the Act

6.1 That on the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in dismissing the ground raised by the Appellant with respect to levy of interest under section 234A of the Act, and has failed to appreciate that there was no delay in filing the return of income on part of the Appellant for the subject year. Thus, the interest levied under section 234A of the Act is unlawful/incorrect and liable to be deleted.”

3. In ITA No.1197/Del/2020, the assessee has raised following grounds of appeal:

“Ground 1: General

1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances aggregating to INR 29,98,74,335 (detailed in grounds of appeal at Sl.no.2 to 3 below) made by the Learned Deputy Commissioner of Income Tax, Central Circle-07, New Delhi (‘Ld. AO’) in the impugned order dated 31.12.2018 passed under section 153A read with section 143(3) of the Act (‘Impugned Assessment Order’) for the subject year.

Ground 2: No incriminating material was unearthed during search

2.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the additions made by the Ld. AO in the Impugned Assessment Order completed under section 153A of the Act for the subject year, without appreciating that no incriminating material/ information was unearthed during the course of search operations at Appellant’s premises, and therefore the additions made in absence of any incriminating material/ information are liable to be deleted.

Ground 3: Impugned addition of INR 29,98,74,335/-on account of alleged difference between purchase/sales made to certain parties treating these as ungenuine/bogus transactions and commission paid to such parties for arranging such alleged bogus bills

3.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the impugned addition of INR 29,98,74,335/- made by the Ld. AO by alleging that the Appellant has failed to discharge its onus to prove the genuineness of the transactions without appreciating evidences/records/ information/ submissions furnished before the Ld. AO & Ld. CIT(A) that clearly proves that these transactions were genuine and undertaken through normal banking channel and trading results of the Appellant for subject year have been duly accepted by the Income-tax Department.

3.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the above addition without appreciating that the Impugned Assessment Order was passed without confronting the Appellant in respect of alleged evidences/ information collected by the Ld. AO and without allowing cross examination of the witnesses whose statements/ letters were used against the Appellant, even after specific and repeated request of the Appellant.

Ground 4: The impugned order passed by the Ld.AO is time barred in accordance with the provisions of section 153A/153B of the Act

4.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in holding that the Impugned Assessment Order passed by the Ld.AO for subject year is within the extended time limit prescribed under the provisions of the Act, and in not appreciating that the Impugned Assessment Order was passed on 31.12.2018 as against limitation period of on or before 31.12.2017, and consequently the same is bad-in-law, void and liable to be annulled.

Ground 5: Levy of interest under section 234A of the Act

5.1 That on the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in dismissing the ground raised by the Appellant with respect to levy of interest under section 234A of the Act, and has failed to appreciate that there was no delay in filing the return of income on part of the Appellant for the subject year. Thus, the interest levied under section 234A of the Act is unlawful/incorrect and liable to be deleted.”

4. In ITA No.1198/Del/2020, the assessee has raised following grounds of appeal:

“Ground 1: General

1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances aggregating to INR 5,27,159 (detailed in grounds of appeal at Sl.no.2 to 3 below) made by the Learned Deputy Commissioner of Income Tax, Central Circle-07, New Delhi (‘Ld. AO’) in the impugned order dated 31.12.2018 passed under section 153A read with section 143(3) of the Act (‘Impugned Assessment Order’) for the subject year.

Ground 2: No incriminating material was unearthed during search

2.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the additions made by the Ld. AO in the Impugned Assessment Order completed under section 153A of the Act for the subject year, without appreciating that no incriminating material/ information was unearthed during the course of search operations at Appellant’s premises, and therefore the additions made in absence of any incriminating material/ information are liable to be deleted.

Ground 3: Impugned addition of INR 5,27,159/- on account of alleged difference between purchase/sales made to certain parties treating these as ungenuine/bogus transactions and commission paid to such parties for arranging such alleged bogus bills

3.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the impugned addition of INR 5,27,159/- made by the Ld. AO by alleging that the Appellant has failed to discharge its onus to prove the genuineness of the transactions without appreciating evidences/records/ information/ submissions furnished before the Ld. AO & Ld. CIT(A) that clearly proves that these transactions were genuine and undertaken through normal banking channel and trading results of the Appellant for subject year have been duly accepted by the Income-tax Department.

3.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the above addition without appreciating that the Impugned Assessment Order was passed without confronting the Appellant in respect of alleged evidences/ information collected by the Ld. AO and without allowing cross examination of the witnesses whose statements/ letters were used against the Appellant, even after specific and repeated request of the Appellant.

Ground 4: The impugned order passed by the Ld.AO is time barred in accordance with the provisions of section 153A/153B of the Act

Ground 5: Levy of interest under section 234A of the Act

5. In ITA No.1199/Del/2020, the assessee has raised following grounds of appeal:

“Ground 1: General

1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances aggregating to INR 14,07,06,177/-(detailed in grounds of appeal at Sl.no.2 to 3 below) made by the Learned Deputy Commissioner of Income Tax, Central Circle-07, New Delhi (‘Ld. AO’) in the impugned order dated 31.12.2018 passed under section 153A read with section 143(3) of the Act (‘Impugned Assessment Order’) for the subject year.

Ground 2: No incriminating material was unearthed during search

2.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the additions made by the Ld. AO in the Impugned Assessment Order completed under section 153A of the Act for the subject year, without appreciating that no incriminating material/ information was unearthed during the course of search operations at Appellant’s premises, and therefore the additions made in absence of any incriminating material/ information are liable to be deleted.

Ground 3: Impugned addition of INR 14,07,06,177/-on account of alleged difference between purchase/sales made to certain parties treating these as ungenuine/bogus transactions and commission paid to such parties for arranging such alleged bogus bills

3.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the impugned addition of INR 14,07,06,177/- made by the Ld. AO by alleging that the Appellant has failed to discharge its onus to prove the genuineness of the transactions without appreciating evidences/records/ information/ submissions furnished before the Ld. AO & Ld. CIT(A) that clearly proves that these transactions were genuine and undertaken through normal banking channel and trading results of the Appellant for subject year have been duly accepted by the Income-tax Department.

3.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the above addition without appreciating that the Impugned Assessment Order was passed without confronting the Appellant in respect of alleged evidences/ information collected by the Ld. AO and without allowing cross examination of the witnesses whose statements/ letters were used against the Appellant, even after specific and repeated request of the Appellant.

Ground 4: The impugned order passed by the Ld.AO is time barred in accordance with the provisions of section 153A/153B of the Act

Ground 5: Levy of interest under section 234A of the Act

6. In ITA No.1200/Del/2020, the assessee has raised following grounds of appeal:

“Ground 1: General

1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances aggregating to INR 49,72,24,635/-(detailed in grounds of appeal at Sl.no.2 to 3 below) made by the Learned Deputy Commissioner of Income Tax, Central Circle-07, New Delhi (‘Ld. AO’) in the impugned order dated 31.12.2018 passed under section 153A read with section 143(3) of the Act (‘Impugned Assessment Order’) for the subject year.

Ground 2: No incriminating material was unearthed during search

2.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the additions made by the Ld. AO in the Impugned Assessment Order completed under section 153A of the Act for the subject year, without appreciating that no incriminating material/ information was unearthed during the course of search operations at Appellant’s premises, and therefore the additions made in absence of any incriminating material/ information are liable to be deleted.

2.2 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances made in the Impugned Assessment Order for subject year by ignoring the factual and legal position that these issues were accepted/ considered in assessment proceeding for subject year completed under section 143(3) of the Act, and hence the additions made by Ld. AO and affirmed by Ld. CIT(A) are illegal and liable to be deleted.

Ground 3: Impugned addition of INR 49,72,24,635/-on account of alleged difference between purchase/sales made to certain parties treating these as ungenuine/bogus transactions and commission paid to such parties for arranging such alleged bogus bills

3.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the impugned addition of INR 49,72,24,635/- made by the Ld. AO by alleging that the Appellant has failed to discharge its onus to prove the genuineness of the transactions without appreciating evidences/records/ information/ submissions furnished before the Ld. AO & Ld. CIT(A) that clearly proves that these transactions were genuine and undertaken through normal banking channel and trading results of the Appellant for subject year have been duly accepted by the Income-tax Department.

3.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the above addition without appreciating that the Impugned Assessment Order was passed without confronting the Appellant in respect of alleged evidences/ information collected by the Ld. AO and without allowing cross examination of the witnesses whose statements/ letters were used against the Appellant, even after specific and repeated request of the Appellant.

Ground 4: The impugned order passed by the Ld.AO is time barred in accordance with the provisions of section 153A/153B of the Act

4.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in holding that the Impugned Assessment Order passed by the Ld.AO for subject year is within the extended time limit prescribed under the provisions of the Act, and in not appreciating that the Impugned Assessment Order was passed on 31.12.2018 as against limitation period of on or before 31.12.2017, and consequently the same is bad-in-law, void and liable to be annulled.

Ground 5: Levy of interest under section 234A of the Act

7. In ITA No.1201/Del/2020, the assessee has raised following grounds of appeal:

“Ground 1: General

1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances aggregating to INR 31,36,47,795/-(detailed in grounds of appeal at Sl.no.2 to 3 below) made by the Learned Deputy Commissioner of Income Tax, Central Circle-07, New Delhi (‘Ld. AO’) in the impugned order dated 31.12.2018 passed under section 153A read with section 143(3) of the Act (‘Impugned Assessment Order’) for the subject year.

1.2 On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the above referred additions/disallowances were made by Ld. AO merely on conjecture, surmises without due application of mind and/or affording reasonable opportunity of being heard to the Appellant, and in complete violation of the principles of natural justice.

Ground 2: No incriminating material was unearthed during search

2.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the additions made by the Ld. AO in the Impugned Assessment Order completed under section 153A of the Act for the subject year, without appreciating that no incriminating material/ information was unearthed during the course of search operations at Appellant’s premises, and therefore the additions made in absence of any incriminating material/ information are liable to be deleted.

Ground 3: Impugned addition of INR 31,36,47,795/-on account of alleged difference between purchase/sales made to certain parties treating these as ungenuine/bogus transactions and commission paid to such parties for arranging such alleged bogus bills

3.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the impugned addition of INR 31,36,47,795/- made by the Ld. AO by alleging that the Appellant has failed to discharge its onus to prove the genuineness of the transactions without appreciating evidences/records/ information/ submissions furnished before the Ld. AO & Ld. CIT(A) that clearly proves that these transactions were genuine and undertaken through normal banking channel and trading results of the Appellant for subject year have been duly accepted by the Income-tax Department.

3.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the above addition without appreciating that the Impugned Assessment Order was passed without confronting the Appellant in respect of alleged evidences/ information collected by the Ld. AO and without allowing cross examination of the witnesses whose statements/ letters were used against the Appellant, even after specific and repeated request of the Appellant.

Ground 4: The impugned order passed by the Ld.AO is time barred in accordance with the provisions of section 153A/153B of the Act

Ground 5: Levy of interest under section 234A of the Act

8. In ITA No.1202/Del/2020, the assessee has raised following grounds of appeal:

“Ground 1: General

1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming additions/ disallowances aggregating to INR 40,68,38,614/-(separately dealt in grounds of appeal at Sl.no.2 to 5 below) made by the Learned Deputy Commissioner of Income Tax, Central Circle-07, New Delhi (‘Ld. AO’) in the impugned order dated 31.12.2018 passed under section 153A read with section 143(3) of the Act (‘Impugned Assessment Order’) for the subject year.

Ground 2: No incriminating material was unearthed during search

2.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the additions made by the Ld. AO in the Impugned Assessment Order completed under section 153A of the Act for the subject year, without appreciating that no incriminating material/ information was unearthed during the course of search operations at Appellant’s premises, and therefore the additions made in absence of any incriminating material/ information are liable to be deleted.

Ground 3: Impugned addition of INR 36,54,70,992/-on account of alleged difference between purchase/sales made to certain parties treating these as ungenuine/bogus transactions and commission paid to such parties for arranging such alleged bogus bills

3.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in affirming the impugned addition of INR 36,54,70,992/- made by the Ld. AO by alleging that the Appellant has failed to discharge its onus to prove the genuineness of the transactions without appreciating evidences/records/ information/ submissions furnished before the Ld. AO & Ld. CIT(A) that clearly proves that these transactions were genuine and undertaken through normal banking channel and trading results of the Appellant for subject year have been duly accepted by the Income-tax Department.

3.2 On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the above addition without appreciating that the Impugned Assessment Order was passed without confronting the Appellant in respect of alleged evidences/ information collected by the Ld. AO and without allowing cross examination of the witnesses whose statements/ letters were used against the Appellant, even after specific and repeated request of the Appellant.

Ground 4: Impugned addition of INR 2,07,72,796/- on account of stock difference in rice during physical verification

4.1 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in confirming addition of INR 2,07,72,796/- on account of alleged difference in value of stock-in-trade and has failed to appreciate the details/documents/stock reconciliation laced on record that clearly reflects that there was no difference in stock-in-trade as per books of account and as per physical verification. The ld. CIT(A) has failed to appreciate that the impugned difference determined by the Ld. AO was entirely on account of incorrect/estimated counting of stock-in-trade by officials of Income-tax Department without actual measurement thereof, and hence such estimation cannot be relied upon for purpose of making the impugned addition. The Appellant prays that the impugned addition made by the Ld. AO and affirmed by ld. CIT(A) is illegal/unjustified and liable to be deleted.

Ground 5: The impugned addition of INR 2,05,94,826/- alleging the same as unaccounted money of the Appellant

5.1 On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in affirming addition/disallowance to the extent of INR 2,05,94,826/- on account of alleged unexplained credit in books of account of the Appellant. The Ld. AO and ld. CIT(A) have erred in not appreciating the details/information/submissions furnished by the Appellant during assessment and appellate proceedings that clearly explains and depicts the source and genuineness of the underlining transactions.

Ground 6: Levy of interest under section 234A of the Act

9. In ITA No.1338/Del/2020, the Revenue has raised following grounds of appeal:

“1. Whether in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs. 182,02,93,457/- by holding that no incriminating material was found during search without appreciating the fact that incriminating material in the form of Annexures A-7, LP-1 & LP-2 was available on record.

2. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in holding that no addition can be made in completed assessments without incriminating material without appreciating that no such condition is stipulated by the provisions of section 153A of the Income Tax Act, 1961.

3. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 182,02,93,457/- by relying upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Meeta Gutgutia without appreciating that the issue has been challenged by the department in various SLPs filed before the Hon’ble Supreme Court which is pending for adjudication.

4. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 182,02,93,457/- by holding that in view of Rules of Mandi Samiti and form 6 issued by the assessee company, it is clear that the purchases were made from producers without appreciating that the Mandi Samiti has no system of identifying a particular seller as producer or agent/middleman.

5. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 182,02,93,457/- without appreciating that in the light of incriminating material seized during search, the assessee has failed to discharge its onus to prove that the cash purchases were made from farmers and the benefit of Rule 6DD(e) is available to it.

6. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in propounding the theory of consistency without appreciating that every assessment under Income Tax Act is separate assessment and the fact that no such addition was made in any earlier year cannot become the ground for holding that no such addition can be made in the present assessment year.”

10. In ITA No.1339/Del/2020, the Revenue has raised following grounds of appeal:

“1. Whether in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs. 273,82,50,495/- by holding that no incriminating material was found during search without appreciating the fact that incriminating material in the form of Annexures A-7, LP-1 & LP-2 was available on record.

3. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 273,82,50,495/- by relying upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Meeta Gutgutia without appreciating that the issue has been challenged by the department in various SLPs filed before the Hon’ble Supreme Court which is pending for adjudication.

4. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 273,82,50,495/- by holding that in view of Rules of Mandi Samiti and form 6 issued by the assessee company, it is clear that the purchases were made from producers without appreciating that the Mandi Samiti has no system of identifying a particular seller as producer or agent/middleman.

5. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 273,82,50,495/- without appreciating that in the light of incriminating material seized during search, the assessee has failed to discharge its onus to prove that the cash purchases were made from farmers and the benefit of Rule 6DD(e) is available to it.

6. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in propounding the theory of consistency without appreciating that every assessment under Income Tax Act is separate assessment and the fact that no such addition was made in any earlier year cannot become the ground for holding that no such addition can be made in the present assessment year.”

11. In ITA No.1340/Del/2020, the Revenue has raised following grounds of appeal:

“1. Whether in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs. 258,39,34,682/- by holding that no incriminating material was found during search without appreciating the fact that incriminating material in the form of Annexures A-7, LP-1 & LP-2 was available on record.

3. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 258,39,34,682/- by relying upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Meeta Gutgutia without appreciating that the issue has been challenged by the department in various SLPs filed before the Hon’ble Supreme Court which is pending for adjudication.

4. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 258,39,34,682/- by holding that in view of Rules of Mandi Samiti and form 6 issued by the assessee company, it is clear that the purchases were made from producers without appreciating that the Mandi Samiti has no system of identifying a particular seller as producer or agent/middleman.

5. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 258,39,34,682/- without appreciating that in the light of incriminating material seized during search, the assessee has failed to discharge its onus to prove that the cash purchases were made from farmers and the benefit of Rule 6DD(e) is available to it.

6. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in propounding the theory of consistency without appreciating that every assessment under Income Tax Act is separate assessment and the fact that no such addition was made in any earlier year cannot become the ground for holding that no such addition can be made in the present assessment year.”

12. In ITA No.1341/Del/2020, the Revenue has raised following grounds of appeal:

“1. Whether in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs. 281,79,18,607/- by holding that no incriminating material was found during search without appreciating the fact that incriminating material in the form of Annexures A-7, LP-1 & LP-2 was available on record.

3. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 281,79,18,607/- by relying upon the decision of Hon’ble Delhi High Court in the case of CIT Vs. Kabul Chawla and PCIT vs. Meeta Gutgutia without appreciating that the issue has been challenged by the department in various SLPs filed before the Hon’ble Supreme Court which is pending for adjudication.

4. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 281,79,18,607/- by holding that in view of Rules of Mandi Samiti and form 6 issued by the assessee company, it is clear that the purchases were made from producers without appreciating that the Mandi Samiti has no system of identifying a particular seller as producer or agent/middleman.

5. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 281,79,18,607/- without appreciating that in the light of incriminating material seized during search, the assessee has failed to discharge its onus to prove that the cash purchases were made from farmers and the benefit of Rule 6DD(e) is available to it.

6. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in propounding the theory of consistency without appreciating that every assessment under Income Tax Act is separate assessment and the fact that no such addition was made in any earlier year cannot become the ground for holding that no such addition can be made in the present assessment year.”

13. In ITA No.1342/Del/2020, the Revenue has raised following grounds of appeal:

“1. Whether in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs. 443,67,45,973/- by holding that in case of paddy purchases benefit of Rule 6DD(e) should be given to assessee.

2. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in relying upon case laws without appreciating that the facts of present case are distinguished from the facts of relied upon cases.

3. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 443,67,45,973/- by holding that in view of Rules of Mandi Samiti and form 6 issued by the assessee company, it is clear that the purchases were made from producers/farmers without appreciating that the Mandi Samiti has no system of identifying a particular seller as producer/farmer or agent/middleman.

4. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 443,67,45,973/- without appreciating that in the light of incriminating material seized during search, the assessee has failed to discharge its onus to prove that the cash purchases were made from farmers and the benefit of Rule 6DD(e) is available to it.

5. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in propounding the theory of consistency without appreciating that every assessment under Income Tax Act is separate assessment and the fact that no such addition was made in any earlier year cannot become the ground for holding that no such addition can be made in the present assessment year.”

14. In ITA No.1343/Del/2020, the Revenue has raised following grounds of appeal:

“1. Whether in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs. 355,12,10,948/- by holding that in case of paddy purchases benefit of Rule 6DD(e) should be given to assessee.

3. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 355,12,10,948/- by holding that in view of Rules of Mandi Samiti and form 6 issued by the assessee company, it is clear that the purchases were made from producers/farmers without appreciating that the Mandi Samiti has no system of identifying a particular seller as producer/farmer or agent/middleman.

4. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 355,12,10,948/- without appreciating that in the light of incriminating material seized during search, the assessee has failed to discharge its onus to prove that the cash purchases were made from farmers and the benefit of Rule 6DD(e) is available to it.

15. In ITA No.1344/Del/2020, the Revenue has raised following grounds of appeal:

“1. Whether in the circumstances of the case, the Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs. 200,70,05,333/- by holding that in case of paddy purchases benefit of Rule 6DD(e) should be given to assessee.

3. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.200,70,05,333/- by holding that in view of Rules of Mandi Samiti and form 6 issued by the assessee company, it is clear that the purchases were made from producers without appreciating that the Marini Samiti has no system of identifying a particular seller as producer or agent/middleman.

4. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.200,70,05,333/- without appreciating that in the light of incriminating material the assessee has failed to discharge its onus to prove that the cash purchases were made from the farmers and the benefit of Rule 6DD(e) is available to it.

6. Whether in the circumstances of the case, the ld. CIT(A) has erred on facts and in law in restricting the addition of Rs. 31,06,44,235/- to Rs.2, 05,94,826/-without appreciating that the addition was based on seized document and the same was correctly made by the A.O.

7. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in restricting the addition of Rs. 31,06,44,235/- to Rs. 2,05,94,826/- on the basis of peak balance by giving benefit of telescoping without appreciating that the seized cash book was not part of the regular cash book and therefore no benefit of telescoping should be given to the assessee.

8. Whether in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in restricting the addition of Rs. 31,06,44,235/- to Rs. 2,05,94,826/-without appreciating that cash withdrawals mentioned in the seized cash book were unexplained and unrecorded income of assessee company which was used for meeting out unexplained expenses and for redepositing the same and hence benefit of telescoping should not be given to assessee.

A.Y. 2010-11 (Departmental Appeal)

1. Addition u/s 40A(3)

A.Y. 2010-11 (Assessee’s appeal)

1. Difference between Purchase & Sale

2. Earnings of subsidiary

A.Y. 2011-12

A.Y. 2012-13 and

A.Y. 2013-14

Issues involved are same as above.

16. The assessee is a rice miller and engaged in milling paddy and manufacturing and dealing in rice. During the year, the assessee purchased paddy from various Mandi Samitis all over India where payments were made through cheques and cash.

Addition u/s 40A(3):

17. The AO made addition u/s 40A(3) of the Income Tax Act, 1961 pertaining to purchase of paddy and Difference between Purchase & Sale – Rs.4,76,843/-, earning of Dubai subsidiary.

18. The ld. CIT(A) deleted the addition u/s 40A(3) holding that since the search has been carried on 30.03.2016, the Assessment for the Assessment Year 2010-11 being unabated assessment, no addition can be made u/s 153A in the absence of any incriminating material found and seized during the search. The ld. CIT(A) confirmed the additions on account of Difference between Purchase & Sale, earning of Dubai subsidiary.

19. We find that the addition is not based on seizure of any incriminating material. The fact is not in dispute, hence, we decline to interfere with the order of the ld. CIT(A) in deleting the addition u/s 40A(3) and decline to affirm the addition confirmed by the ld. CIT(A). The only reason, the revenue filed appeal before us is that the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Meeta Gutgutia relied upon by the ld. CIT(A) has been challenged by the department before the Hon’ble Supreme Court which is pending for adjudication.

20. Since, the A.Y. 2010-11, A.Y. 2011-12, A.Y. 2012-13 and A.Y. 2013-14 are being unabated assessments, the additions made in the absence of any incriminating material are not legally justifiable.

A.Y. 2014-15 (Departmental Appeal)

A.Y. 2015-16 (Departmental Appeal)

A.Y. 2016-17 (Departmental Appeal)

Disallowance under Rule 6DD(e):

21. In para 5 of the assessment order, the AO has discussed the payments made in violation of Section 40A(3) of the Act. In respect of this issue, the AO in para 5.1 of the assessment order noted the relevant material i.e. Annexure A-7, Annexure LP-1 and Annexure LP-2 seized from the appellant’s premises at village Achheja, Bulandshahar Road, Dadri, Gautam Budh Nagar UP. It was noted by the AO that such documents are related to the purchases made in cash by the appellant. It was found by the A.0 that during the course of the search, statement of Shri Govind Mittal, Sr. Manager was recorded however, he could not provide any explanation with regard to the discrepancies in respect of the same. During the course of assessment proceedings the appellant was asked to provide the details of purchases made in cash in excess of Rs. 20,000/- and further explain as to why the said purchases were not hit by the provisions of Section 40A(3) of the Act.

22. During the course of assessment proceedings, the appellant submitted that the cash purchases were made by it from Mandi Samitis located across UP from farmers and hence did not fall under the ambit of the provisions of section 40A(3) of the Act, as the same were covered by Rule 6DD of the Income Tax Rules, 1962. As per the AO, in order to claim benefit of Rule 6DD, it is the primary onus of the appellant to prove that cash purchases were made from bonafide agriculturists/cultivators, however, the appellant only relied upon the submission that purchases were made from Mandi where only agriculturist sell their produce which was not found correct by the AO. It was found by the AO that as per the UP Krishi Uppadhan Niyamavali, 1965, traders (village traders, wholesale traders), commission agents etc., are authorized to sell their produce in the Mandi areas and even the agriculturists can sell their produce through commission agents. The AO also made the analysis of the details filed by the appellant during proceedings and found that no evidence in respect of any of the persons claimed to be producer agriculturists has been filed. It was found by the AO that the appellant had shown to have made purchasers from 13062, 13208, 16647, 13441, 15002, 18398 & 13113 no of farmers during the AYs 2010-11, 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 & 2016-17 respectively, but the complete address of not even one farmer had been provided and the only evidence relied upon by the appellant is a document called Form 6R which is issued by the appellant to the seller at the time of making purchase in Grain Mandis across UP. The appellant has claimed that Form 6R is given only to such persons who are cultivator producers/agriculturists.

23. The AO in para 5.6 of the assessment order tabulated the list of top 50 persons from whom the appellant has made purchases in cash in excess of Rs. 20,000/-, and it was noticed by the AO that quantum of purchases are quite huge purchases, however, the appellant could not provide the address of such persons and has merely claimed that such persons are agriculturists. In para 5.7 of the assessment order, the AO also made analysis of the purchases made in cash from the alleged farmers and it was found that in most of the cases the purchases were made in huge quantity from the alleged farmers. On the basis of the analysis, it was noticed by the AO that huge purchases running into crores have been claimed to have been made from agriculturists which is quite unusual. The AO in paras 5.9-5.11 of the assessment order brought out analysis of the average production per acre and average land holding per person, and on that basis it was found that in normal circumstances average yield of Basmati paddy per farmer will be around 44.5 Quintals per farmer, however, as per the details of the appellant it was found that average purchase made by the appellant per farmer from AY 2010-11 to 2016-17 was ranging between approx. 82 quintals to 102 quintals, which shows that the appellant has not made purchases from the farmers.

24. In respect of the contention of the appellant that purchases were duly entered into the Mandi Shulk Register maintained by the Mandi Samiti, it was found by the AO that as per the Rules governing the Mandi transactions, Mandi Shulk Register is simply maintained for record of tax paid by the buyers in respect of transactions made by them in the Mandi premises and the entry of transactions in this register in no manner establishes that purchases were made from cultivators/producers only. In respect of the assessment orders passed by the Mandi Authorities in respect of the purchases made by the appellant within the Mandi premises it was found by the AO that such orders nowhere state that the purchases had been made only from the agriculturists. The details of the analysis were intimated to the appellant vide letter dated 20.11.2018 the appellant was also show caused as why the above purchases may not be disallowed u/s 40A(3) of the Act.

25. The AO also deputed Inspectors to Grain Mandi, Dadri, Greater Noida, UP to find out the procedure regarding the purchases being made in the Mandi premises, and the reportj of the Inspectors in respect of the procedure in the Mandi Samiti has been reproduced in para 5.16 of the assessment order. The AO made analysis of such report in para 5.17 of the assessment order. In response to show’ cause notice on 20.11.2018 the appellant filed reply vide letter dated 27.11.2018 which has been reproduced in para 5.18 of the assessment order. The AO considered the reply of the appellant and found it unacceptable. It was found by the AO that in the reply the appellant itself has admitted that while making purchases the appellant cannot identify the fanner and that the appellant only ascertains the quality & quantity of paddy and the name of such person is either told to them by such person or by Mandi Samiti representative and the appellant simply accepts the statement of the seller that he is the producer of the agricultural produce.

The AO also found that the appellant itself has admitted that on various occasions some leader of farmer in the village collects the produce of many farmers and sells in a bigger lot in a mandi in his own name so as to procure a better price, which shows that the appellant has not made purchases directly from the farmers or producers but from their agents or village leaders or village traders.

26. In view of the same, it was found by the AO that the appellant has violated the provisions of section 40A(3) of the Act, as such, he issued a show cause notice on 03.12.2018 which has been reproduced in para 5.21 of the assessment order. In response to the show cause notice, the appellant filed its reply, which is extracted in para 5.22 of the assessment order. From the reply of the appellant, it was found by the AO that the appellant has again admitted that it does not have any power and method to verify that the seller in the mandi samiti campus is not a farmer. The AO also wrote to the Secretary Mandi Samiti, Dadri on 04.12.2018 with regard to the procedure followed by them regarding the verification of seller being actual farmers and such letter written has been extracted in para 5.24 of the assessment order. The reply of the Secretary Mandi Samiti has been received by the AO on 07.12.2018 and the same has also been extracted in para 5.25 of the assessment order. On the basis of the reply of the Secretary, Mandi Samiti, it was found that Mandi Samiti does not maintain any record of the persons selling their produce if they are actual farmers and there is no check of the persons selling their produce being actual farmers as the identity of such persons being farmers is not recorded in records of the Mandi Simiti. It was also stated that the particulars in From No. 6R is filled by the buyer/trader and the Mandi Simiti has no role while particulars in Form No. 6R are filled in. The AO held that since Form No. 6R was filled in by the appellant as such the primary onus was on the appellant to ensure that it is issued to the actual producer and not his agent, group leader or a village trader. It was therefore held that while making purchases from the persons in the Mandi premises, the appellant has only believed that such persons are farmers and that there is no evidence in its possession that they are actual producers of paddy and hence the appellant has violated the provisions of Rule 6DD of the Income Tax Rules, 1962. In view thereof, the AO again issued a show cause notice on 11.12.2018 which was replied by the appellant which has been reproduced in para 5.27 of the assessment order.

27. The AO considered the reply of the appellant and recorded his finding in paras 5.28 to 5.36 of the assessment order. The AO held that since the appellant has made purchase in excess of Rs. 20,000/- in cash as such onus was on the appellant to prove that purchases made by the appellant was from persons who actual farmers and the appellant has failed to produce any evidence with regard to the purchases having been made from the actual producers. It was held that belief cannot override evidence when a particular provision explicitly provides for irrefutable evidence to claim the benefit provided by provision. The AO also noted that the appellant has filed a copy of letter dated 06.12.2018 written by Secretary, Mandi Samiti, Dhankaur to DCIT, Central Circle-7, which was not received by the AO. It was found by the AO that Mandi Samiti officials as well as the appellant only believe that that person declaring himself a farmer is actually a farmer and therefore on this belief the appellant issues Form 6R and purchases the produce in cash without satisfying itself that it is actually purchasing such produce from an actual farmer. It was found that purchase made by appellant is not a single off transaction where a person came to him and sold his produce and walked off with his payment as the appellant has made several trades with most of these persons claimed to be farmers who had brought huge quantities of produce which is unlikely to be in the case of a farmer. The AO also illustrated the same when he found that from one Love Singh S/O Jagat Singh- J Bad, the appellant made 42 trades from 08.10.2013 to 28.12.2013, and purchased a huge quantity of 4645.70 quintal from this person. It was therefore stated that if a person who is like a permanent seller of his produce to the appellant and he is selling such huge quantities of paddy to the appellant frequently, in the first instance only the appellant should come to know that the person from whom purchase are being made cannot be a farmer. The appellant cannot just rely upon the statement or declaration given by such person that he is a farmer and make payments in cash. Similar analysis was also done by the AO in respect of few other sellers in para 5.33 of the assessment order. On the basis of the aforesaid analysis, the AO held that entire purchase made by the appellant from the persons claimed to be farmers shows similar pattern. Accordingly, the AO held that since the appellant has acted in belief without any satisfaction by obtaining relevant evidences from such persons before making cash payments to such persons and hence the appellant has not been able to prove that the purchase made in cash in violation of section 40A(3) of the Act were made from the actual cultivators of produce and therefore, payments made by the appellant in excess of Rs. 20,000/- in making such purchases amounting to Rs.443,67,45,973/- were disallowed and added back to the income of the appellant.

28. Before the ld. CIT(A), the assessee submitted as under:

“ …………. that its entire purchases of paddy in the state of UP is governed by the UP Krishi Utpadan Mandi Adhiniyam, 1964 and UP Krishi Utpadan Niyamavali, 1965. In terms of the said j Adhiniyam, no farmer can sell his agricultural produce other than for home consumption except in a Mandi Samili Campus, if the said producer is located within 20 kms radius from the Mandi Samiti Campus. Similarly no person can buy agricultural produce directly from any farmer and has to purchase the same at the Mandi Samiti Campus if the buyer is located within 20 kms radius of the Mandi Samiti. For the said purpose section 9 of the Adhiniyam need to be seen which has been filed by the assessee vide Paper Book Pages No. j 4523 to 4583. Niyamavali is at page nos. 4584 to 4634. The assessee has stated that its factory at Bulandsher Road, Ghaziabad is located within 20 kms radius from Dadri Mandi Campus Hence, it could not procure any paddy from any fanner directly outside the Mandi Samiti Campus. The quantity of paddy purchased by the assessee from the farmers as per its books of account in the Mandi Samiti Campuses have also been certified by the Mandi Samiti officials as from the farmers only.

2. The assessee has also stated that as per the Rule 48 of the UP Krishi Uipadan Mandi Niyamvali, 1965 every Mandi Samiti has to maintain statutory records in respect of agricultural produce brought in a Mandi Samiti Campus and sold thereafter as per list placed at PB page nos. 4594 to 4596.

3. The assessee has also stated that sale of paddy in the Mandi Samiti Campus is subject levy of Mandi Cess which is recovered by the Secretary of the Mandi Samiti who is a government employee as Government Revenue and anybody who purchases paddy from the farmers in the Mandi Samiti Campus has to pay Mandi Cess thereon to the Mandi Samiti whose officials verify the transactions from beginning to end before issuing a gate pass for removal of the goods from the Mandi Samiti compound.

4. The entire purchases of paddy or any agricultural produce in the Mandi Samiti Campus is through auction regulated by the Mandi Samiti Officials.

5. Then Mandi Samiti Officials issue gate pass for removal of agricultural produce from Mandi Samiti Campus only after complete verification of quantity of agriculture produce brought in and which have been subjected to levy of Mandi Cess.

6. In case a person in the Mandi Samiti Campus who has purchased the goods from the farmer on the strength of the Form No 6 and has paid the Mandi Samiti Cess thereon, sells the agriculture produce to anybody else in the Mandi Samiti Campus then he sells the same by issuing a Form no. 9 which certifies that the agricultural produce in the said sates has already been subjected to levy of Mandi Cess.

7. The assessee has also slated that all purchases in the Mandi Samiti Campus from other ahartiyas and not from the farmers were certified by the sellers on the strength of Form 9 issued by them and for the entire purchases made by assessee in the Mandi Samiti Campus from farmers has been subject to Mandi Cess paid by the assessee on the strength of Form 6 which is the only basis for recovery of Mandi Cess by the revenue and the same is always correct except for minor clerical errors which are rectified on learning. The said form is basically a treasury receipt for payment of Mandi Cess to the government on first purchases from the farmers in a Mandi Samiti campus.

8. The assessee has not purchased any paddy in UP from a place which is not located in the Mandi Samiti Campus and where farmers also compulsorily have to sell their agricultural produce as is statutory required for various purposes. In absence of proper record of receipts of agricultural produce in the Mandi Samiti campus, its Secretary cannot keep proper control of the agricultural produce brought and sold therein.

9. The Assessing Officer has accepted the purchases and has not disturbed the manufacturing results. The addition has primarily been made only because the assessee could not produce record of the farmers.

10. It is also the law that anybody who is undertaking a business activity in the Mandi Samiti Campus even as ‘Palledaar’ has to get license and register himself with the Mandi Samiti but a farmer is not required to have a license to sell his agricultural produce therein.

11. The assessee has also contended that a letter dated 06/12/2018 (placed at PB page 2350) was received by assessing officer from the Secretary Dankaur Mandi Samiti which has stated that complete record of receipts of the agricultural produce farmer-wise till its exit from the Mandi Samiti campus is to be maintained statutorily. The letter dated 07/12/2018 from the Secretary Dadri Mandi Samiti is also very clear and supports the contentions of the assessee in respect of the records maintained there. The assessee also stated that no cross examination of any material gathered at the back of the assessee or of the Mandi Officials whose statements were relied on was allowed to the assessee though specifically demanded by the assessee.

12. The assessing officer has also not addressed the submissions of the assessee that in absence of complete record of farmers and their sales to the assessee in their campuses, the Mandi Samiti official could not give complete details of purchases made from the farmers by the assessee which tallied with the books of account of the assessee. It is mandatory for the Secretary Mandi Samiti to not only to keep proper records in the prescribed register of the agricultural produce brought in the Mandi Campus for which requisite dale pass in the prescribed form is issued but also to ensure proper safe custody and storage of the unsold stocks in the evening by maintaining proper records of the same.

13. It has also been stated that any delinquency in maintaining the statutory records by the Mandi Samiti officials would have caused revenue loss and which has not been reported by the State Government and this fact has not been denied by the assessing officer who made the addition merely on surmise and conjectures. The law has not prescribed any rules to take any evidence of agriculturist while making purchases from them by an assessee on the platform of Mandi Samitis. The circumstantial and direct evidence clearly demonstrate that the said purchases were from the agriculturists.

14. The assessee has also contended that wherever the subject is of the Stale exchequer proper rules are framed and scrupulously followed by every and all as otherwise the same is a crime and accordingly punishable.

15. No incriminating material was found during the course of search in respect of the said cash purchases duly recorded in the regular books of account and which were very much accepted in the assessment orders passed u/s 143(3) of the Act till the AY 2013-14.

16. The assessee has also stated that no cross examination of any material or statement taken by the revenue in respect of rice purchases and sold in Delhi market by the assessee except of Mr. Ashok Kumar Gupta, who was completely vague and evasive besides was avoiding the same for the best reason. It has also been stated that all the said purchases and sales are properly recorded in the books of account of the assessee and no discrepancy in the quantity and its value has been pointed out in the assessment order.

17. The assessee has also stated that to controvert the false averments of Mr. Ashok Kumar Gupta in his statement / cross examination, affidavits of Mr. Praveen Mittal broker and Mr. Surender Sharma were filed which have not been controverted in the assessment order and they were not even examined by the Assessing Officer during the assessment proceedings resulting into acceptance of the said two affidavits as per the judgment of the Hon’ble Supreme Court.

18. The assessing officer must be directed to confirm the above facts on law and if he has on his record any information of deviation by the assessee from the settled law as above which is punishable and prosecutable or by any Mandi Samiti Official or farmer for which any of them has been punished for breach of any law as above, the same may be reported as the assessee has stated that no such breach has been reported by the state authorities. For above verification, necessary assistance of the assessee may be taken.”

29. The explanation of the assessee was remanded to the Assessing Officer. The remand report submitted by the Assessing Officer vide letter dated 17.10.2019 is as under:

Brief facts of the case:

“Search & seizure operations under section 132 of the Income Tax Act, 1961 was carried out on KRBL Group on 30.03.2016 including the Assessee Company. This case was centralized to Central Circle-7, New Delhi as per the order passed u/s 127 of the I.T. Act, 1961 by the Pr. CIT-(C)-3, New Delhi. The assessment proceedings in the case of Assessee Company for A.Y.s 2010-11 to 2015-16 were completed u/s 153A/143(3) and for A. Y. 2016-17 the same was completed u/s 143(3) of the Act vide orders dated 31.12.2018 after making various additions/disallowances on account of non-genuine loss shown by the Assessee, commission paid on accommodation entry, amount paid in violation of section 40A(3) and undisclosed income.

Now, during the appellate proceedings before your goodself the Assessee Company has filed synopsis dated 11.09.2019 of written submissions for A.Y.s 2010-11 to 2016-17 and the under signed is directed to send comments on points 1 to 18 raised by the applicant in the synopsis. The requisite point wise comments are as under:-

1. In points no. 1 to 14 of the submissions, the Assessee Company has contended that its entire purchases of paddy in the slate of UP is governed by UP Krishi Utpadan Mandi Adhiniyam, 1964 and UP Krishi Utpadan Niyamawali, 1965 which prohibits farmers & purchases from selling/purchasing of agricultural produce except in a Mandi Samiti Campus, if the producer/purchaser is located within 20 kms radius from Mandi Samiti Campus The Assessee Company has filed the copies of relevant section and niyamawali of above Act and Rules as pages 4523 to 4634 of paper book The Assessee Company has further stated that its factory is located within 20 Kms radius from Dadri Maridi Samiti Campus and hence it could not procure any paddy from any farmer directly outside the Mandi Samiti Campus. The Assessee Company has also alleged that quantity of paddy purchased by it from fanners as per books of accounts has also been certified by the Mandi Samiti officials as purchased from farmers only.

In this regard, it is submitted that the Assessee Company without bringing any cogent evidence on record has simply contended that certain rules and regulations as to purchase of paddy in the Mandi Samiti exists and that the same should have been followed by it. Just because the provisions of UP Krishi Utpadan Mandi Adhiniyam, 1964 and UP Krishi Utpadan Niyamawali, 1965 prohibits the Assessee Company from procuring the paddy from open market does not mean that the Assessee Company has followed the same and has procured all of its purchases within the Mandi Samiti from farmers only. During the course of search proceedings in the case of assessee certain documents showing purchases of paddy by Assessee Company in cash were found and seized. During the course of assessment proceedings, the assessee failed to prove that the purchase of paddy was made within the Mandi Samiti and the same was made from farmers and therefore the same are not covered by the provisions of Section 40A(3) of the Act as provided in Rule 6DD of the I. T. Rules, 1962. The Assessee Company was unable to produce any evidence to prove that purchases were made from bonafide farmers and not from traders. The enquiries made by the AO through Inspectors and from Mandi Samiti officials shows that no record as to a particular person being a farmer is kept by the Mandi Samiti. Further, the Assessee Company in its reply has itself admitted that it has to believe that the seller itself is the producer of the agricultural produce and that sometimes the leader of the farmers collects the produce from many farmers and sell it in the Mandi in their own name to procure a better price which clearly prove that the Assessee Company has not made purchases directly from the farmers or producers but from their agents or village leaders or village traders. To sum up, the Assessee Company has not filed any evidence either during the assessment proceedings or during appellate proceedings to prove that it has made all of its purchases from persons mentioned in Rules 6DD and that the provisions of Section 40A(3) are not applicable in its case.

2. In point 15 to 17 of the submission, the Assessee Company has contended that no incriminating material was found during the course of Search in respect of cash purchases which were duly recorded in books of accounts and accepted in the assessment order passed u/s 143(3) of the Act. It has been further contended that no cross examination of any material or statement except Sh. Ashok Kumar Gupta was done by the Assessee and that to controvert the averments of Sh. Ashok Kumar Gupta made in his statement, the Assessee Company has filed affidavits of Sh. Praveen Mittal, broker and Sh. Surender Sharma which have not been controverted and examined by the AO in the assessment order and therefore the same are deemed to be accepted.

In this regard, it is submitted that during the course of Search proceedings in the case of Assessee Company certain documents related to cash purchases made by Assessee Company such as purchase invoices and vouchers for sellers, addresses of persons from whom rice/paddy was purchased were found with certain discrepancies and the same were seized. The same has been mentioned by the AO in assessment order passed u/s 153A of the Act. Hence, the contention of the Assessee Company that no incriminating material related to cash purchases was found during the course of Search is not acceptable and liable to be rejected. Further, the contention of the Assessee Company that no cross examination of any material or statement except Sh. Ashok Kumar Gupta was allowed to be done by the Assessee is also wrong and liable to be rejected. The cross examination of Sh. Ashok Kumar Gupta and Sh. Anuj Kumar Gupta was undertaken by the Assessee on 24.12.2018 and even during cross examination Sh. Ashok Kumar Gupta has stated that he had not made any genuine sale/purchase and that the transactions were in the nature of accommodation entries. Further, during assessment proceedings, the assessee has been intimated that the other persons whose statements were recorded during the course of Search are not available at the addresses given by them and even the Inspectors deputed to find these persons were unable to trace them. The Assessee was further intimated that since it has conducted sales/purchases transactions with these persons therefore the primary onus of proving the same as genuine is upon the Assessee Company and it cannot absolve from its onus by just alleging that no cross examination of such persons is allowed to it. Further, the revenue has not solely relied on the statements of these persons and apart from it there are other evidences proving accommodation entries being taken by Assessee Company. The last contention of Assessee Company that affidavits of Sh. Praveen Mittal, broker and Sh. Surender Sharma field by it have not been controverted and examined by the AO in the assessment order and therefore the same are deemed to be accepted is also wrong and liable to be rejected as the same have been duly discussed and considered by the AO while passing the assessment order.

3. In point 18 of the of the submission, the Assessee Company has contended that the AO may be directed to report any deviation by it from the settled law of UP Mandi Adhiniyam. In this regard, it is submitted that detailed necessary verifications has already been made by the AO during assessment proceedings and therefore there is no need to do the same again at this point.

4. In view of above, it is submitted that the contentions of the Assessee Company made in the written submissions may kindly be rejected and the additions/disallowance made by the AO may kindly be sustained.”

30. The rejoinder of the assessee against the remand report dated 17.10.2019 was submitted before the ld. CIT(A) on 02.11.2019 which is as under:

“The assessing officer has raised the following averments in his remand report:

a) During the search, certain documents showing purchase of paddy in cash were found and seized though as per the assessment order only for the period relevant to AY 2016-17 and duly very much recorded in the regular books of account of the appellant.

b) The assessing officer has averred that the appellant company without bringing any cogent evidence on record has simply contended that certain rules and regulations as to purchase of paddy in the Mandi Samiti exist and that the same were followed in real spirit by it.

c) The rules prohibits the appellant from procuring paddy from a place outside the Mandi Samiti Compound does not mean that the appellant company followed the same and procured all its purchases within the Mandi Samiti from farmers only.

d) The appellant failed to prove that the purchase of paddy was made within Mandi Samiti and the same was made from farmers and therefore not covered u/s 40A(3) as provided by the Rule 6 of the IT Rules.

e) The enquiries made by the AO through Inspectors from the Mandi Samiti Officials show that no record as to a particular person being a farmer is kept by the Mandi Samiti.

f) The appellant admitted that it has to believe the seller itself that he is a producer of the agricultural produce and that sometimes the leader of the farmer collects the produce from many farmers and sells it in the Mandi in his own name to procure a better price for all which clearly proves that the appellant company has not made purchases directly from the farmers or producers but their agents/village leaders or traders.

g) To sum up, the appellant company has not filed any evidence during the assessment proceedings or during the appellate proceedings to prove that it has made all of its purchases from the farmers.

h) Certain documents related to cash purchases made by the appellant such as purchase invoices, vouchers for sellers, addresses etc. with certain discrepancies were found and were seized as mentioned in the assessment order. Thus, the contention of the appellant company that no incriminating material was found during search is not acceptable.

i) The cross-examination of Mr. Ashok Kumar Gupta and Mr. Anuj Kumar Gupta was undertaken by the appellant wherein they stated that they have not made any genuine sale / purchase and that their transactions with the appellant were in the nature of accommodation entries.

j) The appellant was intimated that the other persons whose statements were recorded during the course of search were not available at their given addresses. Since, the appellant has conducted sales and purchases from these parties, the onus of proving the same as genuine is upon the appellant and it cannot absolve from its onus by alleging that no cross-examination of such persons has been allowed.

k) The revenue has not solely relied on the statements of these persons but there are other evidences proving the accommodation entries being taken by the appellant.

l) The affidavits of Mr. Praveen Mittal and Mr. Surender Sharma cannot be deemed to be accepted as the same have been duly discussed and considered by the AO while passing the assessment order.

m) As regards the contention of the appellant that the AO may be directed to report any deviation by it from the settled law of UP Mandi Adhiniyam, it is submitted that detailed necessary verification has been made by AO during assessment proceedings and therefore, there is no need to do the same again.

Submissions of the appellant

31. On perusal of the remand report, it would be seen that the assessing officer has not mentioned anything about the commission received from Inter dev and thus, no comments on the said ground are required. Moreover, this amount has already been received by the appellant as dividend from KRBL DMCC in its books of account and declared as income.

Purchases from farmers:

No incriminating material at all was found during the

course of search:

32. No material pertaining to the AYs 2010-11 to 2015-16 was seized during the course of search to suggest that the appellant did not purchase the paddy from fanners. Thus, no adverse cognizance can be taken for the said years at all.

33. Some documents evidencing the cash purchases were seized from Dadri office for the FY 2015-16 i.e. AY 2016-17 (refer para 5.1 of the assessment order) but those were not at all incriminating as those documents did not show that purchases were not genuine rather the said documents formed part of the primary record of the appellant and the books of account. Detailed submission explaining the nature of the said seized material has been made on pages no. 46-47 of the letter dated 14/03/2019. The assessing officer has not controverted the same or referred to any other seized material in the remand report to show that the same was incriminating in any manner. Thus, no adverse cognizance can be taken for the same even for the A Y 2016-17.

34. The assessing officer has stated that some discrepancies were found in the seized material showing the cash purchases but has not specifically mentioned about the same in the remand report. The issues pointed out in the assessment order have already been explained in detail in the written submissions and do not require any fresh comments. The appellant relies on the written / oral submissions already made challenging the additions /disallowances made in the assessment orders.

Mandi Samiti Officials are public servants and presumption is that they have acted in good faith and bonafide manner:

35. As has been submitted earlier also the section 26 of the UP Krishi Utpadan Adhiniyam 1964 provides that every officer or servant of a Committee is equivalent to a public servant within the meaning of section 21 of the Indian Penal Code. A public servant is supposed to act only as per law while undertaking his official duties. Wherever a government official undertakes action in good faith, his action has to be understood with no malafide against anybody including the officials of other government departments as has also been provided in the income-tax provisions and CrPC.

36. Thus, any error or negligence by the Mandi Samiti officials in maintaining statutory records as per the law cannot be considered against the appellant in any manner in this proceeding as there was no fault of the appellant for the same.

The purchases were made as per rules and regulations unless adverse evidence is brought on record:

37. As per settled law of the land, law abiding actions of every person are presumed unless proved otherwise. There is no presumption in favour of illegality of a transaction; in fact the presumption is the other way round. When a particular transaction is subjected to a law, then intention of the parties is always to follow law. If one does not follow the law, then the government / concerned department / officials will definitely take action against the defaulters.

38. The appellant has explained in detail the rules and regulations regarding the working of the Mandi Samiti, documents to be kept by the Mandi Samiti Officials regarding the transactions undertaken in their Campus which included register showing primary arrival, register showing secondary arrival, Arrival register in the form no. 51 and entry slip in the form no. 53 at the entry gate containing details of all persons bringing material in the campus, farm no. 44A i.e. Krishi Utpadan Krya and Vikrya Register where the arrival is recorded by the Mandi official and form no. 44B i.e. daily arrival and sale register by the arahatiya. Form VIII i.e. Auction Register, gate pass in form V-A and many more. As explained in the above paragraphs and earlier, the presumption is that the Mandi officials have acted in good faith and in bonafide manner and must have maintained all the registers as required by the relevant Act, Rules and Regulations.

39. The Mandi Samiti is required to maintain the said documents statutorily which have evidentiary value. The record of purchases, calculation of Mandi Cess to be paid thereon have the same evidentiary value as the assessment order determining the assessable income as both these documents have been maintained by the government officials as per the powers provided to them as, per the relevant statutes.

40. Thus, form 6R is not the only document to prove that the purchases were made from farmers but the above mentioned documents and registers which are maintained on day-to-day basis by the Mandi Samiti Officials are there to show that the purchases made by the appellant were from the farmers. The Dadri and Dankaur Mandi Samitis have confirmed the quantities purchased by the appellant from the farmers on the basis of the said official and statutory record maintained by them otherwise they could not give the said figures. It must be appreciated that the form 6R is filled by the buyer but these registers are filled by the Mandi officials and buyer has no control over them. Further the particulars mentioned in the 6R are verified by the Mandi official from their records before issuing a gate pass to remove the agricultural produce from the Mandi Campus and verify the amount of Mandi Cess to be paid thereon before exit from the Mandi Campus. Thus, it is not a case where the particulars filled in by the appellant are considered correct without verification by the Mandi officials.

41. As regards the averment of the Assessing Officer that it is not necessary that the appellant has followed all the rules, it is submitted that if the appellant had not followed the same, then some adverse action would have been taken by the Mandi officials / state government against the appellant. However, there is no such report on the record nor found during the search. Thus, the only and only presumption which can be drawn is that the appellant has followed all the rules and regulations and which is a fact.

42. Presuming but without admitting, even if the appellant had not followed the rules, the Mandi Samitis officials must have followed the same as per the presumption applicable for the public servants unless there is some evidence to the contrary. However, if the assessing officer was not satisfied, he could have summoned the officials and recorded their statements, he could have made further inquiries but the assessing officer chose to keep quite because somewhere he was satisfied that the Mandi officials are working as per rules and regulation. However, just for the sake of making additions, the assessing officer reiterated the averments made in the assessment order.

Letters issued by the Mandi Samiti Vs. Enquiry made by the Inspectors:

43. The appellant has made a detailed analysis of the Inspectors’ report in para 1.49 to 1.51 of the letter dated 14/03/2019 and explained the inconsistencies therein. The assessing officer has not mentioned anything about the said inconsistencies in his remand report. In view of the same, the inspectors’ report is not at all a reliable evidence.

44. Even as per para (it) of the said report, the Mandi Samiti officials have admitted that the Form no. VI is issued to the farmers only. As per the Inspector report, the Secretary stated that Farmer’s record is not maintained by the Mandi Samiti but by the arhatiya / trader. However, the same secretary in his letter dated 0 7/1 Z’2018, (reproduced at page 75 of the assessment order) submitted in reply to the letter issued by the assessing officer confirmed the claim that the 87862.44 Quintals of paddy were purchased from the farmers by the appellant and the information is entered into Register 44A by the Samiti official in addition to the Form 6R. Detailed discussion about the said letter has been made in para 1.531.54 of the letter dated 14/03/2019 which has not been controverted by the assessing officer.

45. Undisputedly, the secretary of the Mandi Samiti is a public servant. The letter given in writing by the Secretary of the Mandi Samiti is a direct evidence and has more evidentiary value than the report of the Inspector which is purely based on some verbal and unauthenticated conversation with the officials who never signed the same However, the said letter of the Mandi Official is duly signed by the Mandi Samiti officials on the basis of statutory record maintained by them whereas there is nothing to prove the authenticity of the verbal conversation^ between Inspectors and Mandi Samiti Officials as neither their statements were recorded in writing nor the said report contain the signatures of any such persons.

46. The said letter was placed in the paper book and was available before the assessing officer. However, the assessing officer ignored the said third party direct evidence filed in response to the notice issued by him to the Mandi Samiti and placed reliance on the Inspectors report which is not based on any evidence. The said letter has been issued by the Mandi Samiti on the basis of documentary evidences kept by them. It must be appreciated that once the said letter of Mandi Samiti confirming the facts stated by the appellant was placed on record then the onus cast on the appellant got discharged and the onus shifted on the assessing officer to bring evidences on record to prove otherwise. The assessing officer did not bring any evidence on record except reiterating the facts staled in the assessment order.

47. The assessing officer did not take any cognizance of the letter issued by Dankaur Samiti slating that the said letter has not been directly placed on his record by the Samiti. Though the assessing office had paucity of time while completing the assessment proceedings, however, the assessing officer had sufficient time during the remand proceedings to carry out verification of the same if required.

48. The assessing officer has not mentioned single word about the letter issued by Dankaur Samiti either in the assessment order or in the remand report. This shows that either the assessing officer was satisfied with the facts staled in the said letter or did not get anything adverse in the verification done by him. Thus, the cognizance of the said letter has to be taken in these proceedings. The said letter has been discussed in detail in para 1.57 and 1.58 of the letter dated 14/03/2019.

49. The assessing officer made enquiries from two Mandi Samitis who confirmed the fact that the appellant had purchased the agricultural produce from the farmers. The Mandi Samitis also staled about the documents maintained by them regarding the first arrival (form no. 44A, 44B, 51 and 53). Thus, it has been confirmed by the Samiti that the Form 6R filled in by the appellant is not the only evidence to prove that the sellers were farmers but there are various other records required to be maintained by the samiti mandatorily which prove that the sales were made by the farmers.

50. The assessing officer has neither brought anything adverse on record in support of his averments, nor controverted the facts stated in the letters issued by Mandi Samiti Officials but has merely reiterated his averments made in the assessment order for which detailed submissions have already been made.

Provisions of Mandi Samiti Act:

51. The only question for consideration of the addition is whether the sellers of the agricultural produce were farmers or not and which authority and documents will determine their status as farmers. However, the Form 6R and the documents maintained by the Mandi Samiti officials are sufficient to prove their status as farmers. However, in case of any dispute, the Rule 131 of the UP Krishi Mandi Niyamavali 1965 provides as under:

“131. Dispute regarding a person being a producer [Section 2(p)]

(1) When any question arises as to whether any person is a producer or not for the purposes of the Act, the Director on receipt of a complaint in this behalf, shall make enquiries from the Tahsildar concerned, whether the person against whom complaint has been made, either cultivates the land himself or holds any lien in the land in any capacity under the U.P. Zamindari Abolition and Land Reforms Act, 1950, or is engaged in producing, rearing or catching any produce of agriculture, horticulture, apiculture, sericulture, animal husbandry or of forest in the Market Area.

(2) The Director shall also make enquiries whether the person against whom complaint has been made carries on any business of sale or purchase or storage or processing, or works as a trader or broker nr commission agent in respect of agricultural produce.”

52. On perusal of the same, it would be seen that the Director on receipt of a complaint in this behalf shall make enquiries from the Tehsildar regarding the producer as to whether he cultivates the land himself or engaged in producing agriculture in the market area or he carries on the business as a trader etc. Thus, the Director will made all the requisite enquiries regarding land holding and other activities of the said cultivator to determine his status. This clearly shows that the appellant was not required to collect the said documents at the time of purchase. Such documentary evidences are to be collected by the director only when he enquires into the complaint regarding a particular cultivator. If the Mandi officials were required to obtain all these documents at the time of entry in the Mandi or the buyer was required to obtain the same before issuing form 6R, then the Director would not need to make such inquiries from the Tehsildar but would have verified the documents held by the Mandi Samili or the buyer. Thus this rule supports the contention of the appellant that the appellant was not required to obtain any documentary evidences regarding land area, cultivation etc. about the, seller. Thus, the assessing officer cannot ask the appellant to produce the said evidences to prove that the sellers were farmers. However, in case he was not satisfied then he was to make a reference, in the form of a complaint that the appellant had purchased agricultural produce from non-farmers in the Mandi Samiti Campus on the strength of Form no. 6R. However, the same was not done by him, a duty which he should have performed while discharging his official function. He, thus, now cannot allege infraction of the legal provisions merely on his surmises.

53. The Section 2(p) of the U.P. Krishi Utpadan Mandi Adhiniyam, 1964 is as under:

“Producer means a person who, whether by himself or through hired labour, produces, rears or catches, any agricultural produce, not being a producer who also works as a trader, broker or Dalai, commission agent or Arhatiya or who is otherwise ordinarily engaged in the business of storage of agricultural produce:

Provided that if a question arises as to whether any person is a producer or not for the purposes of this Act, the decision of the Director, made after an enquiry conducted in such manner as may be prescribed, shall be final.”

54. Thus, there exist specific provisions in the said Statute to resolve this debate but for the reasons best known to the AO, he refrained from those despite the fact that complete Act and Rules were placed on his record.

55. The certificate of the Mandi Officials is sacrosanct for the purpose of income-tax assessment and has to be accepted by the appellate authority because the AO failed to make further enquires and reference is prescribed by the Statute itself. The Mandi Officials have also not commented that any of the farmer selling paddy to the appellant was ever declared as non-farmer by the Director. In fact, had there been any such instance the same would have found mention in the certificate whose quantity matches the purchases as per the books of account of the appellant.

56. Exception is provided for purchase of agricultural produce from the producer and many more exceptions have been provide in the CBDT vide CIRCULAR NO 08/2006, Dated: October 06, 2006 besides a specific mechanism regarding the produce of animal husbandry; but no such mechanism is provided for agricultural produce. It was provided ‘4. The benefit of rule 6DD of the I.T. Rules, 1962 shall be available to the person referred to at para 3 above subject to furnishing of the following:

“(i) A declaration from the person receiving the payment that he is a producer of meat;

(ii) A confirmation that the payment, otherwise than by an account payee cheque or account payee bank draft, was made on his insistence; and

(iii) A further confirmation from a veterinary doctor certifying that the person specified in the certificate is a producer of meal and that slaughtering was done under his supervision.”

57. However, no mechanism has been provided in respect of an agricultural produce and therefore, it is submitted compliance be examined on general legal principles and considering the facts and circumstances in view. It is only lately that the section 269 ST has been inserted to place specified requirements when cash payment exceeds Rs 200000/-. The AO cannot impose same burden of proof which is required for claiming exempt agricultural income u/s 10(1) and expect an assessee to produce land& revenue records, purchase of seeds/ fertilizer etc. of the seller. Manner and methodology of establishing applicability of the exception would always vary on the basis of purposes and characteristics of exception It was held by Supreme Court in ITC Ltd /2004j 2004 taxmann.com 349 (SC) that “It has been correctly submitted on behalf of the appellant that declarations required under diverse statutes have different characteristics and consequences depending upon the nature of the declaration. A declaration may be (1) an assurance of an existing state of affairs or (2) an assurance of a future course of conduct by the declarant himself or (3) a statement of required conduct by a third party. In the first two kinds of declarations the onus is on the declarant to make good the declaration. In other words the truth of the declaration may be verified. But when all that is stated in the declaration is a requirement to be fulfilled by another, what is to be enquired into is the compliance with the requirement and not be correctness of the declaration itself. ….Declaration to be furnished in Form ‘C’ by registered purchasing dealers under Section 8(1) of the Central Sales Tax Act, 1956 which certify that the purchasing dealer is a registered dealer in respect of commodities mentioned in the declaration, are illustrative of the first kind of declaration. Thus it was held in the State of Madras v. M/s. Radio and Electricals Ltd. (1966) Suppl. SCR 198 that the Sales Tax Authority was competent to scrutinize the certificate to find out whether it is genuine. He could also made an enquiry about the contents of the certificate of registration to satisfy himself whether the goods purchased were covered by the certificate or not. But once he was satisfied that the certificate is genuine and that it Covers the goods being purchased, the Sales Tax Officer was incompetent to hold an enquiry whether the goods so specified could be used for any of the purposes mentioned in Form ‘C’ or whether the goods purchasing were in fact not used for the purposes declared in the certificate. M/s. Chuni Lai Parshadi Lal v. Commissioner of Sales Tax, 1986 SCC 501 followed the decision in State of Madras v. Radio and Electricals Ltd. (supra) and held that for the purpose of the U.P. Sales Tax Act, 1948, the Sales Tax Authorities could only look into the question whether the certificate was forged or fabricated and the Sales Tax Officer could not hold an enquiry whether the purchasing dealer, notwithstanding the declaration, was likely to use the goods purchased for purposes other than that mentioned in the Form ‘C’. If the certificate was valid and covered the goods purchased, the Court held that it raised an irrebuttable presumption that the goods would be used for the purposes mentioned, since the purpose of the rule was to make the object of the provision of the act workable which was realization of tax at one single point, i.e. at the point of sale to the consumer, (p.511)…”

58. It is submitted that the present case falls under third category. The Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 imposes legal prohibition upon everyone not to buy paddy directly from the farmers within the Mandi Samiti specified controlled area other than in the Mandi Samiti Campus. All purchases were undisputedly in the Mandi Samiti campus and delivery of goods received in the Mandi campus as purchased paddy have been taken outside the Mandi campus through proper gale passes issued by the Mandi Samiti officials on the basis of Form no. VI issued to the farmers. Proof of transport of goods to the factory / warehouse from the Mandi Campus is on record. Mandi Samiti Officials have collected Mandi Samiti tax on the purchases of paddy by the assessee directly from the farmers in the Mandi Samiti Campus and this receipt of lax is recorded / authenticated by officials in the Form No. VI issued by the assessee. Thus, the revenue cannot allege that these forms were bogus as the Mandi Samiti officials have accepted those forms and collected tax from the assessee. Further, the assessee has also purchased paddy from various ahartiyas from the Mandi for which tax was paid by aharliyas to the Mandi Samiti. It is utmost important to note that only the farmers and the Ahartiyas registered u/s 9 of the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 can sell paddy in the Mandi Samiti Campus. Kind reference is invited to section 50 of this Adhiniyam “PROVIDING THAT all carts / sellers shall assemble at a fixed place and at fixed time etc., when Samiti officials permit sellers to enter and sell their paddy in campus. Any purchaser is entitled to believe that those who are not registered ahartiyas are farmers as there is no reason to guess otherwise. Employees / staff of the Assessee being involved in astronomical amount purchases of paddy year after year do recognise the registered ahartiyas well. It is pertinent to note that there is no advantage to the assessee to purchase paddy in cash as mandi tax is to be borne by the assessee in respect of the purchases from the farmers. As far as cash is concerned, the assessee maintained bank accounts with branches nearby to the Mandis and its purchasing staff transmit payments for all purchases from farmers there from and the head office transfers money to the bank accounts near Mandi. Request is made to the bank to arrange cash and such requests have always been fulfilled since the bank branches know the system and their substantial business, if not 100%, is related to mandi sales. All these correlated transactions i.e. cash purchases, payments, transfer of funds to bank, cash withdrawal and then cash payment is all part of record. NOT ONLY THIS, GOODS CAN BE SOLD IN CAMPUS ONLY AND ONLY THROUGH AUCTIONS AND NOT THROUGH PRIVATE NEGOTIATIONS. IT IS NOT POSSIBLE TO FAKE FARMER AS A TRADER OR VICE VERSA IN AN OPEN AUCTION. When one acts bonafide as per the procedure laid down by a statutory authority, he cannot be asked to establish that particular statutory authority was acting in accordance with the statute in question. The Hon’ble Supreme Court in State of Maharashtra v. Suresh Trading Co. [1998] 109 STC 439 (SC) has held that “5. In our view, the High Court was right. A purchasing dealer is entitled by law to rely upon the certificate of registration of the selling dealer and to act upon it. Whatever may be the effect of a retrospective cancellation upon the selling dealer, it can have no effect upon any person who has acted upon the strength of a registration certificate when the registration was current. The argument on behalf of the department that it was the duty of persons dealing with registered dealers to find out whether a state of facts exists which would justify the cancellation of registration must be rejected. To accept it would be to nullify the provisions of the statute which entitle persons dealing with registered dealers to act upon the strength of registration certificates”. Thus, it is settled issue that everyone except the farmer has to take a license from the local Mandi Samiti to transaction about an agricultural produce in the Mandi Samiti area and also to pay Mandi Samiti tax on such purchases from farmers. Since, here the sellers of paddy to the assessee did not have any license to trade / sell their agricultural produce in the Mandi Samiti controlled area and were allowed to sell their produce by the Mandi Samiti in its complex as a farmer as they did not pay any Mandi Samiti tax on their sales, they were none but the farmers as otherwise the Mandi Samiti would have subjected them to the levy of tax on their sales as per the law. Reliance for such rule is supported by the judgment of the Apex Court in Virendra Kumar & others vs Krishi Utpadan Mandi Samiti and others 1987 SCC (4) 454. It is submitted that Madras High Court decision in Lakshminarayana Reddy vs Subhadri Ammal (1903) 13 MLJ 7 holding that “I may also refer to the case of the Hire Purchase Furnishing Co v. Rishens L.R. 20 Q. B.D. 387 in the Court of Appeal, in which Bowen L.J., stated the law in the following terms: “There, is a broad principle that where a defendant is attempting to set aside a transaction for illegality and the facts connected with it are equally consistent with the transaction being legal or illegal, it lies on the defendant to prove the illegality. The law presumes against illegality and this presumption holds in all civil and other proceedings for whatever purposes originated.” Applies in full force to present case.

59. In this regard if the averment of the AO is accepted then it will tantamount to attribute unlawful acts and illegality at least to following:

“A] The farmer / producers who sell paddy to trader outside the campus

B] The traders who purchase paddy outside campus

C] The Mandi officials who allow paddy to enter campus unauthorizedly as paddy is always received in campus or in issuing bogus form to show taking out of paddy by the assessee

D] The salaried staff of the assessee who actually buys from trader but show as purchased from farmer and prepare bogus documents for this purpose and

E] All those who sign on cash payment receipts without receiving cash.”

60. It must be appreciated that the farmers in India are poor and uneducated and had no access to the banking facilities at least till Jan Dhan bank accounts were opened in the year 2016 In fact in many villages, there was no bank branch or even if there was one, then it would have taken many weeks to collect a cheque of the buyer with a risk of bouncing the same also. Thus, the farmers were only accepting cask against their sale proceeds. Recently, an amendment in the Act has been made by which on withdrawal of more than Rs. one crore from a bank account in a particular financial year, 2% TDS has to be made by the bank. However, to avoid such problems to payments to the farmers in Mandi Samiti complexes, a Notification no. 70/2019 has been issued by the CBDT on 20/09/2019 on the same for Income-tax Deduction at Source u/s 194N of the Act for cash withdrawals from the bank accounts by assessee which is as below:

“S.O.3427(E).- In exercise of the powers conferred by clause(v) of the proviso to section 194N of the Income-tax Act, 1961 (43 of 1961), the Central Government after consultation with the Reserve Bank of India, hereby specifies the commission agent or trader, operating under Agriculture Produce Market Committee (APMC), and registered under any Law relating to Agriculture Produce Market of the concerned State, who has intimated to the banking company or co-operative society or post office his account number through which he wishes to withdraw cash in excess of rupees one crore in the previous year along with his Permanent Account Number (PAN) and the details of the previous year and has certified to the banking company or co-operative society or post office that the withdrawal of cash from the account in excess of rupees one crore during the previous year is for the purpose of making payments to the farmers on account of purchase of agriculture produce and the banking company or co-operative society or post office has ensured that the PAN quoted is correct and the commission agent or trader is registered with the APMC, and for this purpose necessary evidences have been collected and placed on record.”

61. In the above circular also, the CBDT has not directed a payer to collect any information and evidence of the payee farmer as a farmer while making payment to him in cash for his agricultural produce in the Mandi Samiti campus and has accepted that the Mandi Samitis work as per the legal framework prescribed for them by the Statute. Factually also, there is no scope of any infraction of the same as the same is a big source of revenue collection of the Stale Government on agricultural produce which is normally not subject to VAT etc. The State Government is very conscious in regulating the same, particularly, the form 6R which is basis of collecting Mandi Cess on the sale value mentioned therein.

Cross-examination of the parties has to be allowed:

62. No incriminating seized material was found during the course of search to suggest that the purchases or sales of rice made from / to the said 35 parties are not genuine. The assessing officer made some post search enquiries which included the recording of statements of various parties to allege that the said transactions were not genuine. Thus, the assessing officer made the said allegation mainly on the basis of the statements of the said parties which were collected at the back of the appellant and thus, now the said parties are department witnesses and thus, the cross-examination of the same was a pre-requisite for placing reliance on the same.

63. It must be appreciated that the said parties were found at their given addresses by the department when the revenue recorded their statements after the search operation on the appellant which shows that the said parties were existent on the said addresses and the entire purchase / sales money was routed through proper banking channels No incriminating material in any manner was found during the course of search and any post search enquiries not based on any incriminating material cannot be used in the assessment proceedings u/s 153A of the Act. CIT Vs. Dr. Shiv Kant Mishra (2016) 97 CCH 0119 All HC All these transactions were properly recorded in the books of account and were accepted in the assessment orders passed u/s 143(3) of the Act upto the A Y 2013-14. The entire impugned addition is based on surmises. Thus, the appellant has discharged its onus as it provided the copies of bills, bank accounts of the parties and their addresses where they were found located. However, it appears that since the said parties have not recorded these transactions in their books of account properly, they have absconded. However, no adverse view of the same can be taken against the appellant who has discharged its onus. Moreover, since those were the witnesses of the revenue, it was incumbent on the revenue to produce them not only for cross examination but also for testifying the authenticity of the statements and deponents therein.

64. The assessing officer has stated in the remand report that he has not solely relied upon the statements but also on the other evidences. However, no such evidences have been mentioned in the remand report nor in the assessment orders. The appellant has filed detailed submissions as regards to the averments made in the assessment order and thus does not require any comments. As regards the cross examination of Mr. Ashok Kumar Gupta and his son Mr. Anuj Kumar Gupta, the appellant has already made detailed submissions on which no comment to controvert those has been made by the AO in the report.

65. At the outset, we are taking up the issue of assessment u/s 153A and validity thereof.

66. The AR of the appellant submitted their arguments in writing dated 26.08.2019 before the ld. CIT(A) which have been reiterated before us.

The AYs 2010-11 to 2014-15 were completed assessments and were not pending on the date of search since either the assessment orders u/s 143(2) were passed or the time to issue notice u/s 143(2) was passed much before the date of search on 30/03/2016.
On perusal of the assessment order for the AY 2011-12, it would be seen that the additions have been made on the following issues:

a) Addition for the commission received from M/s Interdev Aviation Services Pte Ltd. by KRBL DMCC, a subsidiary company of the assessee in the hands of the assessee though the said income was duly declared in the balance sheet of the said company.

b) Disallowance of purchases u/s 40A(3) for the cash purchases of paddy from farmers in Mandi duly recorded in the books of account.

c) Disallowance for alleged bogus purchases in excess of sales and commission paid on such purchase bills

All these additions have been made on merely on surmises and conjectures and not on the basis of any incriminating material seized during the course of search. No documentary evidence was found during the course of search to show that

a) the commission was actually received by the assessee or it was actually the income of the assessee.

b) the purchases made in cash were not made from farmers.

c) The purchases made from some parties were bogus as the assessing officer has not referred to any such incriminating seized material in the assessment order and the additions have been made without any reference to any seized material but on the basis of post search enquiries. The assessing officer has referred to some seized material which was a part of the record and books of account on the basis of which transactions were recorded in the books and were not incriminating at all. This clearly shows that no incriminating material was found during the course of search regarding the said additions. The scope of assessments made u/s 153A of the Act is limited. No cognizance of any material gathered or statements recorded after conclusion of the search in these proceedings can legally be taken.

It is a settled law that in case of completed assessments, additions can be made only on the basis of incriminating seized material found during the course of search as has been held in the undernoted authorities. Copies of all these judgments can be submitted, if desired.

a) CIT vs Kabul Chawla 2015-TIOL-2006-HC-DEL-IT

b) Pr CIT vs Meeta Gutgutia 2017-TIOL-1000-HC-DEL-IT

c) Pr CIT vs Kurele Paper Mills Pvt. Ltd. (2016) 380 ITR 571 (Delhi) (SLP dismissed by the Apex Court)

d) Pr CIT vs Dharampal Premchand Ltd. 2017-TIOL-1649-HC-DEL-IT

e) Pr CIT vs Lata Jain 2016-TIOL-886-HC-DEL-IT

Thus, in absence of any incriminating material found from the premises of the appellant during the course of search, no addition can be made u/s 153A of the Act in case of completed but not abated assessments and thus the additions made should be deleted.”

67. The ld. CIT(A) held with regard to provisions of Section 153A and the additions made, the ld. CIT(A) dismissed the contentions of the assessee.

68. The facts are as under:

In A.Y. 2014-15, notice u/s 143(2) was issued before the search on 31.08.2015 and assessment proceedings u/s 143(3) were pending on the date of search i.e. 30.03.2016. In view of these facts, the assessment did not stand completed on the date of search and hence addition could be made even in the absence of incriminating material as held by Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla [2016] 380 ITR 573 (Delhi).
In A.Y. 2015-16, the appellant had not filed return of income upto date of search i.e. 30.03.2016. Return of income was filed on 25.08.2017 in response to notice u/s 153A of Income Tax Act. Hence, assessment proceedings did not stand completed on the date of search i.e. 30.03.2016. Since the appellant had not filed return of income for A.Y. 2015-16 upto the date of search, the assessment did not stand completed on the date of search and hence addition could be made even in the absence of incriminating material as held by Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla [2016] 380 ITR 573 (Delhi).
In A.Y. 2016-17, the appellant had not filed return of income upto date of search i.e. 30.03.2016. Return of income was filed on 25.08.2017 in response to notice u/s 153A of Income Tax Act. Hence, assessment proceedings did not stand completed on the date of search i.e. 30.03.2016. Since the appellant had not filed return of income for A.Y. 2016-17 upto the date of search, the assessment did not stand completed on the date of search and hence addition could be made even in the absence of incriminating material as held by Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla [2016] 380 ITR 573 (Delhi).

69. In view of above facts, the Assessing Officer was justified in making additions u/s 153A and u/s 143(3) of Income Tax Act in A.Ys. 2014-15 to 2016-17 even in the absence of incriminating material. Hence, we affirmed the order of the ld. CIT(A).

Adjudication on the issue of disallowance u/s 40A(3):

70. With regard to disallowance u/s 40A(3), the ld. CIT(A) held that the factum of purchase has been confirmed by the Mandi Samiti Officials.

71. In this regard, relevant part of Rule 6DD of Income Tax Rules is reproduced below:

“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 [account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] in the cases and circumstances specified hereunder, namely:—

(a) ………………………….

(b) …………………………

(e) where the payment is made for the purchase of—

i. agricultural or forest produce; or

ii. the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or

iii. fish or fish products; or

iv. the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products;

72. Rule 6DD (e) states that the provisions of section 40A(3) will not apply where the payment is made for the purchase of agricultural produce, animal husbandry or dairy or poultry farming, fish or fish products to the cultivator, grower or producer of such articles. CBDT vide Circular no. 08/2006 dated 06 October, 2006 has provided for specific mechanism for verification of sellers in case of the produce of animal husbandry but no such circular has been issued in case of agricultural produce for fulfillment of condition under Rule 6DD. No specific rule or provision of law as per the Income-tax has been brought on record by the assessing officer which required the assessee to collect any evidences to prove that the sellers were producer or cultivators. On perusal of Rule 6DD, specific Circular for animal husbandry and in the absence of any such conditions in case of agricultural produce and failure of the assessing officer to bring the relevant provision or rule requiring collection of evidences regarding sellers on record, I agree with the contention of the appellant that there is no specific requirement under the Income-tax Act or Rules to collect any evidences regarding the sellers in case of agricultural produce and furnishing of documentary evidence to show that paddy was purchased through Form No. 6 of Mandi Samiti would suffice as evidence to show that the appellant had purchased agricultural produce from cultivator, grower or producer of paddy.

73. Further, on perusal of the Mandi Samiti Act and rules, it was observed that these did not require the buyer to obtain any evidence from the seller for his verification as producer / farmer. On perusal of section 2(p) of the Mandi Act and Rule 131 of the Mandi Rules, it was observed that the Director of the Mandi shall make enquiries from the Tehsildar regarding the produce/ (as to whether he cultivates the land himself or engaged in producing agriculture produce or carrying on business as trader etc) to determine his status on receipt of a complaint in this behalf. Thus, it is evident from the provisions of Mandi Act that the appellant or the Mandi officials were not required to obtain all these documents at the time of transactions in the Mandi because then the Director would not need to make such inquiries from the Tehsildar but there would be a provision to verify the documents held by the Mandi Samiti or the buyer. This shows that the appellant was not required to obtain any documentary evidences regarding land area, cultivation etc. about the seller even under the provisions of Mandi Act.

74. In view of discussion above, it is observed that the assessee is not required to collect any evidence from the seller to show that he is a farmer or producer once paddy has been purchased through Form No. 6. The status of the seller as farmer or trader is determined by the Mandi Samiti at the time of his entry and the assessee undertakes transactions on the basis of said determination. It is also clear from the provisions of Mandi Act that the authority to decide whether the seller is a farmer or not is solely in the domain of Director of the Mandi Samiti as per the relevant Act and not the Assessing Officer. It is also a settled law that when an authority has been designated for the purpose, then none else can decide the said issue. The assessing officer has not brought on record any case where any person claimed as farmer by the assessee has been declared otherwise by the Director of Mandi Samiti. In the absence of the any such adjudication, no adverse cognizance can be taken and the sellers declared as farmers by the assessee and confirmed by the Mandi Samiti officials has to be considered as conclusive proof of the fact that the purchases were made from farmers.

75. The ld. CIT(A) deleted the addition made u/s 40A(3) considering the various judgments including PCIT Vs Keerthi Agro Mills (P.) Ltd. [2018] 95 taxmann.com 282 (SC) and CIT Vs Sunil Kumar Agrawal [2013] 38 taxmann.com 386 (Allahabad) have upheld applicability of Rule 6DD of Income Tax Rules for purchase of paddy.

76. Principle of consistency is applicable considering the fact that the case of the appellant was completed u/s 143(3) of Income Tax Act in earlier years prior to search where similar cash purchases had been made but no disallowance was made. Even in assessment order u/s 143(3) for A.Y.2017-18, similar cash purchases have been accepted by the Assessing Officer. In view of Mandi Samiti rules, all agricultural produce sold through Form No.6 constituted sale from producers and appellant was entitled to exception to Section 40A(3) provided in Rule 6DD(e) of Income Tax Rules.

77. Before us, the ld. DR relied on the Assessment Order and the ld. AR relied on the order of the ld. CIT(A).

78. Heard the arguments of both the parties and perused the material available on record.

79. Taking into consideration, the undisputed fact of purchases being made from Mandi Samiti, provisions of Mandi Samiti Act, 1964, provisions of Rule 6DD, Circular No. 8 of 2006 of CBDT and the judgments of various Hon’ble High Courts on the issue of disallowance u/s 40A(3), applicability of the provisions of Rules 6DD for purchase of paddy, we decline to interfere with the order of the ld. CIT(A) on this issue.

80. The appeals of the Revenue on this ground for the A.Y. 2014-15, A.Y. 2015-16 and A.Y. 2016-17 stands dismissed.

A.Y. 2016-17 (Departmental Appeal)

Restriction of addition of Rs.31.06 Crores to Rs.2.05Crores:

81. The assessee challenged the addition of Rs.31,06,44,235/-as unexplained credits on the basis of seized material. The facts of the case are that a cash book for the period from 31.12.2015 to 31.03.2016 was found and seized as Annexure A-2 from the Lahori Gate Office of the appellant. The assessee was asked to explain whether the transactions mentioned in the cash book were recorded in the regular books of accounts of the assessee. The assessee filed a reply and a chart which is reiterated at 9395 of the assessment order. It was found that some of the entries were verifiable from the cash book of the appellant but certain other entries under the category “I owe you” were not found recorded in the cash book. The credit of the said amount was Rs.30,53,58,167/- and the debit side was short by Rs.52,86,068/- and thus, an addition of Rs.31,06,44,235/- was made.

82. A copy of the said Annexure A-2 along with the chart explaining the transaction placed on record is reproduced below:

Annexure A-2

transaction placed

83. It was submitted by the appellant that this cash book was maintained by one Mr. Shyam Lal who was not an employee of the appellant therefore, there could be many transactions which could not pertain to the appellant.

84. The appellant submitted that ‘I owe you’ is never recorded in the books of account in the business circle. It is an amount given to an employee or connected person as imprest for short period for expenses to be incurred by him for the appellant. Many times, no expenses are incurred for which the money and amounts are refunded but whenever expenses are incurred against the ‘I owe you’, those are directly recorded in the cash book and I owe you slip is tom or cancelled and taken out from the cash box. The appellant also submitted that as per the chart, the balance as per cash book was always higher and sufficient to meet the all the ‘I owe you’ and there was never any short fall in the funds to meet the expenses. The appellant further submitted that even if any addition to be made, it should be of the peak cash balance and benefit of telescoping should be allowed.

85. The ld. CIT(A) has perused the seized cash book and the chart placed on record and held that some entries were found recorded in the regular books of account whereas some entries were not. It was held that the said cash book is not part of regular books of account but contained some undisclosed and unrecorded transactions of cash receipts and payments. Since the source of the said receipts and payment has not been explained by the assessee during the assessment proceedings or the appellate proceedings, the same cannot be considered as explained and are held as undisclosed income of the appellant. However, the assessing officer has made addition for the entire amount received by the appellant without giving any benefit of telescoping for the payments made. The seized day book was maintained by one person i.e. Shyam Lal and it contained transactions from 01.01.2016 to 31.03.2016. Since there are regular cash deposits and withdrawals during the period, it is logical to conclude that withdrawals were available for subsequent deposits.

86. Hence, benefit of telescoping has to be allowed for undisclosed cash receipts and cash payments and addition can be made only for the peak balance. The assessee was asked by the Ld.CIT(A) to submit the working of the peak balance. The appellant submitted peak balance of cash as per the said chart was computed at Rs. 1,67,95,639/-. However, from perusal of above chart, Ld. CIT(A) held that highest peak cumulative balance on 22.02.2016 was Rs.2,05,94,826/-. Hence, addition on account of peak balance of Rs. 2,05,94,826/-was confirmed and balance addition of Rs.29,00,49,409/-was deleted.

A.Y. 2016-17: (Assessee’s Appeal): Ground No. 4

87. The has assessee filed appeal before the Tribunal against the confirmation of Rs.2,05,94,826/-

89. Heard the arguments of both the parties and perused the material available on record.

90. We have perused the paper book page nos. 571 to 628 consisting of details pertaining to Cash Book – Ghaziabad Plant with reconciliation of cash-in-hand, Cash Book – H.O. with reconciliation of cash-in-hand, Cash Book – Alipur plant with reconciliation of cash-in-hand, unpaid dividend, other non operating income, farmers purchases of paddy through bearer cheque/cash (in excess of Rs.20,000/- for each transaction), account statement of KRBL (amalgamated company), additional depreciation u/s 32(1)(iia) and reconciliation of income/TDS as per Form 26AS.

91. Further, at page no. 651 to 683 of the Paper Book Vol.-II, the details pertaining to copy of cash book of assessee maintained at head office at C-32, Sector-62, Noida-201301 from 31.12.2015 to 31.03.2016, copy of ledger a/c and voucher of Shri Arun Kumar Gupta in the books of Khushi Ram Behari Lal, copy of voucher of cash deposited and relevant page of bank statement of HDFC bank of Khushi Ram Behari Lal, Details of cash withdrawal from banks by Shri Anil Kumar Mittal & Shri Arun Kumar Gupta alognwith the relevant pages of bank statement and copy of voucher of cash deposited and relevant page of bank statement of HDFC bank of KRBL Foods Ltd.

92. The assessee submitted that peak balance of the cash as per the chart would be Rs.1.67 Crores. The ld. CIT(A) observed that the peak cumulative balance was Rs.2.05 Crores. While the remission of Rs.29.00 crores is not being interfered by us, we deem it proper to remand the matter to the file of the Assessing Officer for the purpose of re-computation and determine the peak balance.

A.Y. 2014-15: (Assessee’s Appeal): Ground No. 3 A.Y. 2015-16: (Assessee’s Appeal): Ground No. 3 A.Y. 2016-17: (Assessee’s Appeal): Ground No. 3 Difference between Purchase/sale-Bogus Bills:

93. The Assessing Officer made an addition of Rs. 49,72,24,635/- for A.Y. 2014-15, Rs. 31,36,47,795/- for A.Y. 2015-16, Rs. 36,54,70,992/- for A.Y. 2016-17 on account of commission paid to the parties for arranging bogus purchase/ sale bills of rice. On perusal of the Annexures A1-A3, it was observed that these registers contain the detail of the arrival of rice in the factory. On the basis of examination of these registers, the assessing officer became suspicious for certain arrivals as the entries were with different handwriting and their particulars were written in a different way. Further, bills of Aastha overseas were found during the course of search which did not contain transport bill, dharamkanta parchi and fake truck numbers were mentioned thereon. The AO held that these seized material indicated that the appellant was involved in some bogus purchases / sale. The JMD of the appellant company and VP (accounts) could not explain the nature of these documents and the discrepancy therein. Though the transactions mentioned in these registers were recorded in the books of account but the seized material along with post search inquiries clearly revealed the true nature of transaction that the purchases from these parties were nothing but accommodation bills. Thus, it cannot be said that 110 incriminating material was found during the course of search. The post search enquiries were undertaken to collect more evidences to prove that these bills were bogus bills. These parties stated in their statements recorded during the course of survey proceedings that they were engaged in giving bogus bills and thus the fact that the appellant was making bogus purchases stood established.

94. The AO held that the purchases / sales transactions were made by the appellant from these parties and thus the onus was on the appellant to prove the genuineness of the purchase and sale from these parties. The appellant submitted various evidences like bills, PAN, VAT particulars of these parties and showed that all the transactions were undertaken through banking channel.

95. The AO held that the cases where the statement of the parties have been recorded by the department where they have accepted that they were not doing genuine business transactions and copies of the same were provided to the appellant for rebuttal and the cases where the Assessing Officer has issued notices u/s 133(6) of the Act and the same were either not served and returned back or were not complied with and the same was confronted with the appellant, then the onus cannot be said to be discharged merely on the submission of such evidences which can be given by paper entities as no entity can carry out the even the accommodation transactions without PAN, VAT registration and bank account.

96. The ld. CIT(A) while confirming the addition made by the AO held as under:

“5.4.64 As regards the statement of other parties, it is submitted that even if no cognizance is given to their statements and the same are ignored for the purpose of assessment, even then it is a fact that the notices u/s 133(6) of the Act issued to the said parties remained uncom plied with and the inspector report showed that the said parties were found non-existent at the given addresses. Once the issue of noncompliance of notice u/s 133(6) of the Act was brought to the notice of the appellant then the appellant was duty bound to bring confirmations from the parties and produce them before the assessing officer to prove the authenticity of the transactions as the onus again shifted on the appellant. Similarly, when the inspector report was brought to the notice of the appellant that the companies were found non-existent, then the onus shifted on the appellant to prove the physical existence of the said parties. However, the appellant merely filed replies stating that the inspector report is not reliable or that the appellant cannot force the parties to comply with the notices or that the parties may have left or changed their business premises but did not make any effort to file confirmations or reply to notices u/s 133(6) of the Act or to produce any one of them before the assessing officer. Thus, due to inquiries made in the inspector report and non- compliance of notices u/s 133(6) of the Act, the onus shifted back on the assessee which was not discharged by the appellant.

5.4.65 The appellant alleged that the report of the inspector was false and was prepared in the office of the income-tax department without visiting any of the premises as nothing about the enquiries from the neighbourhood, bank, person available at the time of visit etc. has been mentioned. Every inspector has its own way of writing the reports and he cannot be asked to write a report in a particular manner. The appellant could have produced some parties if not all to substantiate its allegation that the inspectors did not visit their premises. Thus, this allegation of the assessee is merely on presumption and without any basis.

5.4.66 The assessing officer has made detailed enquiriesinto the transactions of the appellant and how the money has been routed in case of transactions with these 36 parties. On perusal of the ledger accounts of various parties mentioned in the assessment order, the flow of funds from the appellant to these parties and then transferring back to the appellant through layering of funds was clearly apparent. The appellant did not bring any evidence on record to rebut that the said amount was not received back by it.

5.4.67 The appellant submitted that transport department have not uploaded complete and correct information and further enquiries from the transport authority and owners of vehicles should have been made and no adverse cognizance can be taken for the fake truck number. What enquiries are to be conducted is the prerogative of the assessing officer who conducted enquiries through the official website of transport department and found the truck numbers to be fake. The appellant did not bring any evidence to controvert the allegation of the assessing officer. The appellant made mere allegation that the information on the website is not correct and complete that too without producing a single evidence to show how this vague presumption has been drawn. The fake number of trucks on the bills proves that the said goods have actually not been transported and the truck numbers have been mentioned to fulfill the particulars in the bills. The appellant could not explain the reason beyond the fake truck numbers during the course of search as well as during the appellate proceedings but made submissions merely on presumptions.

5.4.68 The appellant argued that the bogus purchases are of two categories and the case of the assessee falls in the category where the actual purchases have been made from one party but the bills are provided by the other party and even in that case no addition should be made in the hands of the appellant as the appellant has undertaken the transactions on the prevalent market price and declared high gross profit on these transactions. This shows that the appellant has itself accepted this fact that these 36 parties gave only bills on commission basis and goods were not actually purchased from them. If this is the case, then requisite addition is required to be made in the hands of the appellant.

5.4.69 In view of the above facts, it is established that appellant booked bogus sale / purchase transaction with these said 36 parties to claim non-genuine loss and to set off profit and reduce payment of taxes. The assessing officer has made addition for the excess of purchases over sales and no addition has been made where the sale value was more than purchases. Thus, the assessing officer has correctly made the addition only in those years where more bogus purchases were made to book loss.

5.4.70 Broadly, the following evidences were collected by the Department to show that the appellant was making bogus purchases:

(i) Statement on oath of Shri Arun Gupta, JMD of M/s KRBL Ltd., recorded u/s 132(4) of Income Tax Act in which he could not explain about the reason as to how a firm M/s Aastha Overseas with which M/s KRBL Ltd is doing business doesn’t exist at the address. He was confronted with the fake/bogus truck numbers (verified from govt., portal “VAAHAN” and Haryana Govt.’s website https://haryanatransport.gov.in/SRR ep orts/vahan/rep ort/jsp/Search De ta ils.jsp) written on some of the bills issued by M/s Aastha Overseas such as Page 30 of Annexure A-6 seized from KRBL Ltd’s corporate office (Premise Code-K02). He was again evasive and said that he had nothing to say.

(ii) Statement of Sh. Vipul Goel, VP(Accounts) of KRBL Ltd. was also recorded u/s 132(4) of I T Act, 1961. Sh. Vipul Goel stated that in case of purchases from suppliers transporters LR or GR may not be available with the bills. However, transporters details, truck numbers are mentioned on the bills. In case of FOR purchases, transporters LR/GR may be missing. When he was confronted with the fact that truck number written on many bills were found to be fake/non-genuine on being verified from the official application of transport dept. “VAHAN”, he said that he has no knowledge about it.

(iii) Statement on oath of Sh. Dinesh Jain and Shri Rajpal Sharma

(iv) Statement on oath of Sh. Vijay Kumar, Sh. Amit Goel, Sh. Vinod Kumar Goel, Sh. Yogender Kumar, Sh. Manoj Kumar, Sh. Tejpal, Sh. Vikas Bansal, Sh. Rajesh Kumar and Sh. Data Ram

(v) Funds of some firms being routed back to the appellant

(vi) Non compliance to notices u/s 133(6) notices

(vii) Inspectors report stating parties were non-existent at the given addresses

5.4.71 The above evidences were duly confronted to the appellant. In view of above evidences, onus had shifted to the appellant to prove that the purchases from 36 parties were genuine. The appellant has failed to discharge this onus. Hence, addition of Rs. 49,72,24,635/- for A.Y. 2014-15, Rs. 31,36,47,795/- for A.Y. 2015-16, Rs. 36,54,70,992/- for A.Y. 2016-17 on account of non- genuine losses as well as commission paid to the parties for arranging bogus purchase/ sale bills of rice is hereby confirmed and Ground No. 3 for A.Y. 2014-15 to 2016-17 are dismissed.

97. Aggrieved the assessee filed appeal before us.

98. During the arguments before us, the ld. AR argued mainly on three legal points and relied on various judicial pronouncements.

99. The first being, Books of accounts have been accepted as correct and complete then purchases cannot be disallowed.

> CIT vs. Paradise Holidays: 325 ITR 13 (Del)

> Pr. CIT vs. Santha Build-Tech India Pvt. Ltd.: TCA Nos. 161 to 164 of 2017 (Madras HC)

> ACIT vs. Ravi Agricultural Industries: 117 ITD 338 (Agra)

100. The second being, where sales in quantity and value have been accepted, corresponding purchase could not be disallowed.

> Ashok Nanda vs. DCIT: 54 ITR(T) 54 (Indore Trib.)

> ACIT vs. Mahesh Shah: 184 TTJ 702 (Mum)

> Ganesh Dass Piara Lai Jain vs. ITO: 49 ITR(T)

> Fancy Wear vs. ITO: 194 TTJ 125 (Mum)

> ITO vs. Pushpal Kumar Das: ITA No. 1442/Kol./2012

101. The third argument being, transactions with parties cannot be doubted and adjustment thereof cannot be made to the income of the assessee, merely because the parties fail to appear or respond to notices issued by the Assessing Officer.

> CIT vs. Fancy International: 166 Taxman 183 (Delhi)

> CIT vs. Nikunj Eximpt Enterprises P Ltd: ITA No.5604 of 2010 (Bombay HC)

> M/s Lalsons Jewellers Ltd vs. ACIT: ITA No.5726/Del/2010 (Del Trib.)

> M/s Lalsons Jewellers Ltd vs. ACIT: ITA No.5241/Del/2004 (Del Trib.)

102. Further, the assessee submitted details of sales and purchase which are as under:

Details of sales and purchase

Details of sales and purchase 2

Details of sales and purchase 3

103. As per the table reproduced above, page no. 827, the total weight as per the books was 3,56,194 Quintals amounting to Rs.109,45,62,503/- which tallies with the chart prepared by the Income Tax Department and there is no difference between the purchases as per the books and as per material before the revenue.

104. Page no. 828, the total weight as per the books was 7931 Quintals amounting to Rs.1,86,30,839/- which tallies with the chart prepared by the Income Tax Department on gross terms and there is no difference between the purchases as per the books and as per material before the revenue.

105. Further, page no. 829, the total weight as per the books was 298 Quintals amounting to Rs.10,43,561/-.

106. Similarly, page nos. 830 & 831, the total weight as per the books was 337899 Quintals amounting to Rs.96,64,94,516/-which tallies with the chart prepared by the Income Tax Department on gross terms and there is no difference between the purchases as per the books and as per material before the revenue.

107. Since, there is no qualitative, quantitative difference or any difference in the value of the sales & purchases, no addition is called for on this account.

Stock Difference:

108. Vide ground no. 4, the assessee has contended that the Assessing Officer making an addition of Rs. 2,07,72,796/- on account of stock difference in rice where there was no difference as explained during the course of assessment proceedings that the same was on account of estimated counting of rice stocks at some locations by the revenue officials. Thus, the addition must be deleted.

109. The submission of the assessee before the revenue authorities is as under:

“2. The fourth ground of appeal is to challenge the addition of Rs 2,07,72,796/- made on account of value of alleged extra stock of rice found at the time of search on 6 locations of the appellant, rejecting the explanation given as per the assessment order mentioned in para 7.2, 7.3 and 7.4 alongwith a reconciliation of stocks available as per the books of account and physically inventorized at the time of search. The Assessing Officer ignored that at the time of search the assessee had 3,32,339 metric tons i.e. 33,23,390 quintals of rice as per books of account duly mentioned in its audited books of account us on 31.03.2016 when the search was continuing. This quantity’ was equivalent to 33,200 truck load and could not be actually physically verified in such a short period. Further, as per the said balance sheet, the assessee handled a total quantity of 9,24,081 metric tons i.e. 92,40,810 quintals during the relevant period as is mentioned in its audited balance sheet. A photocopy of the Annexure XV part of the tax audit report for the relevant period showing quantitative details of the quantity Imndled Juis heen, placed at page no. 5351 of the common paper book. Thus, as per an established fact, the weight of any agricultural produce increases or decreases seasonally due to dampness / dryness etc. even if there is no pilferage or theft / consumption by the labour. Further, it is physically impossible to weigh the actual quantity lying at a particular place in a day or two without putting each rice bag on the weighing scale as quantity in each bag varies but which at the time of receipt / recording in the books of account is based on actual measurement on scales. The entire stock is maintained on SAP with full control for inwards and outwards. Any laxity therein will doom the company as the workers /staff will loot the same as the management is not there. The difference was because the Revenue Officials estimated the physical quantity of rice without any actual measurement. Further, the assessee also submitted that the excess stock found varied from 300 quintals to 2,400 quintals at a site. In fact, on perusal of the chart in the assessment order, it would be seen that the quantity of rice available in those premises was 5,50,358 quintals in which an excess stock of 6,180 quintals was determined which is little over 1%. The books of account of the assessee have not been rejected. No evidence of any purchases outside the regular books of account was found from any premises at the time of search so as to suggest that unaccounted stock could be there in any manner. The assessee has valued its closing stock on the basis of quantity available in its stocks. The value of rice including stock as on 31.03.2016 as per the balance sheet of the assessee was Rs 995,52,85,000/- (almost Rs 1000 crores) and the impugned difference is just 0.20%. The difference is only due to human error in estimating the quantity which was in the said 6 locations almost 5,500 trucks of 100 quintals each.

Admittedly, no actual weighment was undertaken by the Revenue Officers. Thus, the addition of Rs 1,88,14,912/- made on this account on surmises should be deleted.

4.1 Further, the Assessing Officer made another addition of Rs 19,57,884/- alleging undisclosed gross profit on quantity of rice valued at Rs 84,28,258/- which was allegedly found short in other locations. The appellant submitted that this shortage was due to estimation and partly due to evaporation in sorting etc. which is accounted at the yearend in the books of account. No evidence was found at the time of search of any sale of rice outside books of account. On perusal of the said chart in the assessment order it would be seen that the quantity of rice as per the books was 16,60,622 quintals and the percentage of shortage is negligible at 0.167%. The quantity in stock was almost 16,240 trucks and it could not be physically measured by the Revenue Officers. Thus, the said addition has to be deleted. Presuming but without admitting that the figures of the Revenue are correct then telescoping has to be made for the extra stock found against the shortage and the addition could only be made for the net quantity found excess.”

110. As per the revenue a total quantity of 6,180.98 quintals of rice was found excess and therefore the addition of Rs. 1,88,14,912/ was made by applying the rate of Rs. 3,044/- per quintal. As regards the quantity of 2,768.81 quintals of rice found short, the addition of Rs. 19,57,884/- was made @ 23.23% being the gross profit shown by the assessee. Thus, total addition of Rs. 2,07,72,796/- was made.

111. We find that the assessee has handled a total quantity of 92,40,810 Quintals and had 33,23,290 Quintals as on 31.03.2016 which is equal to approximately 33,200 truck loads. The excess stock of 6,180 Quintals of excess stock is just little over 1% of the total quantity at the premises. Similarly, the shortage of quantity of 2,768 Quintals was 0.16% of 16,60,600 Quintals of the rice as per the books. While dealing with such high volume, there could be error of computation of quintals/sacks/bags of price. It is also an undisputed fact that no actual weighment was undertaken during the process of stock taking at the time of search. Hence, keeping in view the peculiar facts of the business of the instant case, we hold that no addition on account of stock difference is called for.

112. In the result, the appeal of the assessee on this ground is allowed.

113. In the result, the appeals of the assessee are allowed and the appeals of the Revenue are dismissed.

Order Pronounced in the Open Court on 09/05/2022.