Principal Commissioner Of Income Tax 1 v. Shukla Dairy Pvt. Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 275 of 2022 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 1 VersusSHUKLA DAIRY PVT. LTD. ========================================================== Appearance: MRS KALPANAK RAVAL(1046) for the Appellant(s) No. 1 for the Opponent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE A.J.DESAIand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 13/06/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE A.J.DESAI) 1. Revenue has filed this appeal under section 260Aof the Income Tax Act, 1961 (For short “the Act,1961”) for the assessment year 2010-2011challenging the judgment and order dated23.08.2021 passed by the Income Tax AppellateTribunal, Surat Bench, Surat in I.T.A. No.309/SRT/2018. 2. Following substantial questions of law areproposed by the Revenue :proposed by the Revenue : “i)Whether on the facts and in thecircumstances of the case and in law, thelearned Tribunal was justified in quashing theorder passed u/s 263 of the Act even though theAssessing Officer had passed the assessmentorder without making inquiries or verificationwhich should have been made to ascertain whether the parties to whom cash payments weremade were milk producers and were covered bycircumstances sated in clause(e)(ii) of Rule6DD of Income Tax Rules. (ii) Whether on the facts and in thecircumstances of the case and in law, thelearned Tribunal was justified in quashing theorder passed u/s 263 of the Act without givinga finding on the applicability of clause (a) ofExplanation-2 to sub-section(1) of section 263of the Act on the basis of which the revisionorder u/s 263 of the Act was passed by thePrincipal Commissioner of Income-tax.”circumstances of the case and in law, thelearned Tribunal was justified in quashing theorder passed u/s 263 of the Act without givinga finding on the applicability of clause (a) ofExplanation-2 to sub-section(1) of section 263of the Act on the basis of which the revisionorder u/s 263 of the Act was passed by thePrincipal Commissioner of Income-tax.” 3. Brief facts of the case are that the assessmentunder section 143(3) read with section 147 ofthe Act, 1961 was completed on 18.03.2016determining total income at Rs.44,19,890/- bymaking various additions.under section 143(3) read with section 147 ofthe Act, 1961 was completed on 18.03.2016determining total income at Rs.44,19,890/- bymaking various additions. 4. Revenue audit subsequently raised objection thatpayment in excess of Rs.20,000/- under Rule 8DDof the Income Tax Rules, 1962 amounting toRs.36,38,376/- was wrongly allowed, as paymentwas made to traders of milk and the benefit ofRule 6DD was only available to milk producers.payment in excess of Rs.20,000/- under Rule 8DDof the Income Tax Rules, 1962 amounting toRs.36,38,376/- was wrongly allowed, as paymentwas made to traders of milk and the benefit ofRule 6DD was only available to milk producers. 5. Accordingly, the Principal Commissioner ofIncome Tax (For short “PCIT”) passed order dated26.03.2018 under section 263 of the Act, 1961holding that the assessment order was erroneousand prejudicial to the interest of the Revenueby setting aside the same with a direction toframe the assessment de novo after providingreasonable opportunity of being heard to theassessee.Income Tax (For short “PCIT”) passed order dated26.03.2018 under section 263 of the Act, 1961holding that the assessment order was erroneousand prejudicial to the interest of the Revenueby setting aside the same with a direction toframe the assessment de novo after providingreasonable opportunity of being heard to theassessee. 5. Accordingly, the Principal Commissioner ofIncome Tax (For short “PCIT”) passed order dated26.03.2018 under section 263 of the Act, 1961holding that the assessment order was erroneousand prejudicial to the interest of the Revenueby setting aside the same with a direction toframe the assessment de novo after providingreasonable opportunity of being heard to theassessee.Income Tax (For short “PCIT”) passed order dated26.03.2018 under section 263 of the Act, 1961holding that the assessment order was erroneousand prejudicial to the interest of the Revenueby setting aside the same with a direction toframe the assessment de novo after providingreasonable opportunity of being heard to theassessee. 6. Being aggrieved by the order passed undersection 263 of the Act, 1961, the assesseepreferred appeal before the Tribunal. TheTribunal allowed the appeal of the assesseeholding that the Assessing Officer made inquiryinto the transactions of cash payments in excessof Rs. 20,000/- and the action of the AssessingOfficer in accepting the claim of the assesseethat the transactions in question were not inviolation of the provisions of section 40A(3) ofthe Act, 1961, after detailed inquiry was aplausible view. section 263 of the Act, 1961, the assesseepreferred appeal before the Tribunal. TheTribunal allowed the appeal of the assesseeholding that the Assessing Officer made inquiryinto the transactions of cash payments in excessof Rs. 20,000/- and the action of the AssessingOfficer in accepting the claim of the assesseethat the transactions in question were not inviolation of the provisions of section 40A(3) ofthe Act, 1961, after detailed inquiry was aplausible view. 7. It was submitted by learned advocate for theappellant that the Assessing Officer acceptedthe contention of the assessee that out of cashpaymentofRs.93,56,628/-,paymentofRs.49,45,811/- was exempt under Rule 6DD of theIncome Tax Rules,1962 without making necessaryinquiries to confirm the fact that the partiesto whom cash payments were made for purchase ofmilk were actually engaged in milk production orwhether they were doing only trading in milk. 8. It was submitted that the Tribunal did notappreciate that Explanation 2(a) of section 263as inserted by the Finance Act, 2015 with effectfrom 1.06.2015 stipulates that order passed bythe Assessing Officer shall be deemed to beerroneous insofar as it is prejudicial to theinterests of Revenue, if, in the opinion of theappreciate that Explanation 2(a) of section 263as inserted by the Finance Act, 2015 with effectfrom 1.06.2015 stipulates that order passed bythe Assessing Officer shall be deemed to beerroneous insofar as it is prejudicial to theinterests of Revenue, if, in the opinion of the C/TAXAP/275/2022 ORDER DATED: 13/06/2022 PCIT order is passed without making inquiries orverification. It was pointed out that theTribunal has applied the case laws to the factsof the case which are prior to insertion ofExplanation 2(a) of section 263 of the Act,1961. 9. We have heard learned advocate for theappellant. The Tribunal while allowing theappeal filed by the appellant held as under : C/TAXAP/275/2022 ORDER DATED: 13/06/2022 PCIT order is passed without making inquiries orverification. It was pointed out that theTribunal has applied the case laws to the factsof the case which are prior to insertion ofExplanation 2(a) of section 263 of the Act,1961. 9. We have heard learned advocate for theappellant. The Tribunal while allowing theappeal filed by the appellant held as under : “12. We have heard both the parties andcarefully gone through the submission putforth on behalf of the assessee along withthe documents furnished and the case lawsrelied upon, and perused the fact of thecase including the findings of the ld. PCITand other materials brought on record. InITA No.309/SRT/2018, for assessment year2010-11, only one issue was raised by theld. PCIT in his order under section 263 ofthe Act, which is that out of total cashpayment in excess of Rs.20,000/-, ofRs.93,56,628/- which was found duringsurvey, the then assessing officer allowedpayment of Rs.49,45,811/- under rule 6DD ofthe Income Tax Rules, as it was paid againstpurchase of milk. It was however noticed byld. PCIT, from cash book that in thefollowing cases, payments of Rs.36,38,376/-were made to eight traders, (cash payment inexcess of Rs.20,000/- in violation of theprovisions of section 40A(3), as detailedbelow : The Id. PCIT observed that payments ofRs.36,38,376/- were made by assessee totraders in cash in excess of Rs.20,000/-,which is a violation of provisions of sect40A(3) of the Act. The ld. PCIT was of theview that benefit of rule 6DD is availableto milk producers and not to traders ofmilk, hence payment to traders in cash inexcess of Rs.20,000/- is required to bedisallowed. That is, assessing officer didnot disallow Rs.36,38,376/-, therefore, ld.PCIT held that order passed by the assessingofficer is erroneous and prejudicial to theinterest of revenue. We note that during the assessment stage,assessee has submitted all the documents andconfirmations of all the parties. Each ofthe party is milk producer, each of them hasthe cattle farm having large number ofcattle. During the assessment stage, theassessee has furnished the documents of milkproducers, such as their declaration, theiridentity proof, the account copy etc. Indeclaration it is mentioned that supplierare having own lives stock and ownarrangements for shed and milk storage. The ld. Counsel submitted before us a chartshowing the total purchases from each of theeight parties listed in the notice and howthey were paid. A careful look at the chart-data will show that though each of them were C/TAXAP/275/2022 ORDER DATED: 13/06/2022 milk producer, assessee tried to pay themmainly by cheque and only in anexceptionally situation, assessee paid thesmall portion in cash and the said paymentto each of them is covered, vide theexception provided in sub clause (ii) ofclause (e) of rule 6DD of the Income TaxRules. We note that during the course ofassessment proceedings, the AssessingOfficer has rightly allowed the impugnedpayment as expenditure as it was covered bythe exception provided in sub clause (ii) ofclause (e) of rule 6DD of the Income TaxRules, 1962. Thus, so far, this issue isconcerned, the order passed by the assessingofficer is neither erroneous nor prejudicialto the interest of revenue. 13. Learned Counsel also submitted before usthat about the issue of cash payment inexcess of Rs.20,000/-, assessee hassubmitted each and every documents duringthe re-assessment proceedings under section143(3) r.w.s. 147 of the Act, which isevident from para 3 and 4 of the assessmentorder, which is reproduced below: 13. Learned Counsel also submitted before usthat about the issue of cash payment inexcess of Rs.20,000/-, assessee hassubmitted each and every documents duringthe re-assessment proceedings under section143(3) r.w.s. 147 of the Act, which isevident from para 3 and 4 of the assessmentorder, which is reproduced below: "3. During the year, the assessee firmwas engaged in the business ofmanufacturing of dairy products. Inthis case a survey action U/s. 133A ofthe Act was carried out on 22/01/2013at the business premises of theassessee. During the course of surveyproceedings, statement on oath u/s 131of the I.T. Act, of Shri Vimal KumarShukla, Director of Shukla Diary Pvt.Ltd. was recorded. In answer toquestion Q. No. 12 of his statement, hehas stated that an amount to tune ofRs. 93,56,628/- was paid in cash duringthe F.Y. 2009-10. After affording fulland adequate opportunity to theassesseethroughitsauthorizedrepresentative,theassessmentproceedings have been completed and inconsequence, upon the conclusion of proceedings and hearing of evidences,assessment is made by this order. 4. During the course of assessmentproceedings, on perusal of the detailssubmitted by the assessee, it isnoticed that the assessee has made cashpayments of Rs.93,56,628/- to variousparties. Out of which, some amountsexceeding 5.20,000/- to a single partyin a day. Therefore, the assessee wasasked to explain vide show cause noticedated 14.03.2016, the relevant portionof the same are as under: "2. During the course of reassessmentproceedings, on verification of thedetails submitted, you have made cashpayments of Rs.93,56,628/- to variousparties exceeds Rs.20,000/- in a day toa single party. Out of which, thepayment made to purchase of Milk ofRs.49,45,811/- is exempted under Rule-6DD of Income-tax Rules, 1962. TheothercashpaymentsexceedingRs.20,000/- in a day to a single partymade by you during the F.Y. 2009-10,the bifurcation of which are as under: 2.1 The above payments made in cashduring the year under considerationviolated the provisions of section40A(3) of the I T. Act. Therefore, youare asked to explain why the aboveamount of Rs.41,45,883/- should not bedisallowed and added to the total income. " 4.1 In response to which, the assesseesubmitted his reply vide letter dated18.03.2016 and agreed upon the proposeddisallowances as communicated in theshow cause notice. Accordingly, thetotal payments made to various partiesof Rs.41,45,883/- in contravention toSection 40A(3) of the I.T. Act isdisallowed and added to the total income." 14. It is abundantly clear from para No.3and 4 of assessment order that regardingexcess payment of Rs.20,000/-, each andevery document were there before theassessing officer and assessing officerexamined them and has taken a possible view,therefore, assessment order passed by theassessing officer under section 143(3)r.w.s. 147 of the Act, dated 18.03.2016, isneither erroneous nor prejudicial to theinterest of revenue.” 10.In view of above findings of fact arrived atby the Tribunal and in view of settled legalposition with regard to invoking of section 263of the Act, 1961, we are of the opinion thatthere is no infirmity in the impugned orderpassed by the Tribunal so as to give rise to anyquestion of law much-less any substantialquestion of law as proposed or otherwise. 11. Tax Appeal is accordingly dismissed. (A.J.DESAI, J) (BHARGAV D. KARIA, J)