TMI Blog2019 (9) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial precedents cited before us. Therefore, the action of AO does not satisfy the twin conditions for invoking revisional jurisdiction u/s. 263 in the light of the ratio of the decision of Hon ble Supreme Court in Malabar Industrial Co. Ltd [ 2000 (2) TMI 10 - SUPREME COURT] . The view of the AO in the light of the facts discussed at any rate cannot be termed as unsustainable in law and, therefore, on this issue the AO s action cannot be faulted with for invocation of sec. 263 jurisdiction by Pr. CIT. Excess claim under the head purchase of paddy - HELD THAT:- Assessment order framed by the AO is neither erroneous nor prejudicial to the interest of the revenue and therefore, the Ld. Pr. CIT s impugned action of interfering with the order of AO invoking the revisional jurisdiction under section 263 of the Act is without jurisdiction and, therefore, null in the eyes of law and so it is quashed. Appeal of assessee is allowed. - I.T.A. No. 1684/Kol/2019 - - - Dated:- 20-9-2019 - Shri J. Sudhakar Reddy, AM And Shri A. T. Varkey, JM For the Appellant : Shri S. K. Tulsiyan, Advocate For the Respondent : Dr. P. K. Srihari, CIT, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Mondal was paid ₹ 5,20,63,560/- either in cash or by bearer cheques; iii) Ajay Agarwal was paid more than ₹ 90,00,000/- in cash and iv) Arjun Shaw was paid ₹ 93,00,834/- in cash 3. After reflecting the aforesaid instances in his assessment order, the AO noted that there are several other instances of payment by cash and thereafter AO expressed his opinion that there can be no farmers in India who could have grown paddy valued more than ₹ 1 cr. According to AO, the assessee had admitted that the persons to whom the payments made were not farmers but were suppliers of paddy, who used to purchase paddy from local farmers and sell the same to the assessee. The AO noted that the assessee admitted that the aggregate payments made to such persons during the year was to the tune of ₹ 14,08,50,854/-. Thereafter, the AO issued notice to the assessee vide letter dated 27.12.2016 asking why the amount paid to suppliers of paddy in violation of the provision of section 40A(3) of the Act could not be disallowed, pursuant to the SCN, the assessee replied on 28.12.2016 [a portion of which was reproduced by the AO] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter considering submissions dated 28.12.2016 wherein it was stated by 6. Pursuant to the show cause notice as stated above, the assessee filed its objection before the Pr. CIT which is found placed at page 11 to 21 of the paper book. Thereafter, the Ld. Pr. CIT has passed the impugned order u/s. 263 of the Act dated 27.03.2019 wherein he cancelled the assessment order dated 29.12.2016 and set aside the matter back to the file of the AO to pass a fresh assessment order. Aggrieved by the action of Ld. Pr. CIT the assessee is before us by assailing the invocation of revisionary jurisdiction by Ld Pr CIT under section 263 of the Act in the facts and circumstances of the case. 7. Assailing the action of Ld PR CIT, the Ld. AR submitted that the assessee is running a rice mill and manufactures rice from paddy. For doing this business activity, the assessee had to procure paddy in large quintals from farmers directly or through its agents/suppliers/kaccha Arahatiyas. According to Ld. AR, the farmers insist on cash as consideration for their paddy and does not sell paddy, if assessee or agents/suppliers/kaccha Arahatiy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s agents/Kaccha Arahitayas on behalf of the assessee firm in procuring the paddy directly from the farmers. The entire sum of ₹ 26,75,14,300/- paid in cash for purchase of paddy was made out of business expediency since the farmers residing in far flung villages/small towns do not accept cheque payments and insists for cash payments because the farmers had to pay immediately for groceries etc taken by them on credit. More so, it was pointed out by the Ld. AR that there were no proper banking facilities in those areas far flung villages where the paddy is harvested. Therefore for smooth functioning of the business and uninterrupted supply of paddy which is the lifeline of the business of the assessee, the assessee was forced to make payment in cash or the farmers refused to sell the paddy to assessee/agent/kaccha Arahatiyas, which is a commercial expediency. Moreover, the Ld. AR pointed out that the assessee had also made cheque payments to the agents/suppliers which suggest that the assessee had no issues to make payments even through normal banking channels, if the farmers accepted the payment through cheque. However, in cases where the farmers refused to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the Revenue should be satisfied, before the Pr CIT usurp the revisionary jurisdiction under section 263 of the Act. According to Ld. AR, every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the Revenue. According to him, the Hon ble Supreme Court has clearly held that when the AO has adopted one of the course permissible in law and it has resulted in loss to the revenue, it cannot be treated as prejudicial to the interest of revenue; and where two views are possible in the given facts of the case, and the AO has taken one view with which Ld. Pr. CIT does not agree, cannot be a ground to invoke revisionary jurisdiction since action of AO cannot be treated as erroneous. Further, the Ld. AR explained that the issue of cash payment for purchase of paddy was taken note by the AO during assessment proceedings and he made enquiries on this issue and after going through the oral and documentary submission made by assessee/Ld AR and after perusal of the books of account of the assessee, has taken a view after application of mind, which is definitely a plausible view and, therefore, cannot be interfered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee s books of account, the AO noted that the assessee had made payments mostly by way of cash in excess of ₹ 20,000/- on a single day. Further, the AO also noted that certain payments were made by bearer cheques from its bank account held in Oriental Bank of Commerce, Burdwan. The AO noted that certain persons through whom payments were made were in excess of more than a crore. Taking note of this fact the AO observed that there cannot be any farmer who has land which can produce paddy worth more than a crore of rupees. Therefore, he asked the assessee to explain the modus operandi of procurement of paddy. The AO notes that assessee had admitted that these payments were made to suppliers who had collected paddy from the farmers. The AO thereafter, notes that the assessee had admitted that it had made aggregate payment to the suppliers of rice to the tune of ₹ 14,08,50,854/- and thereafter he made a disallowance of ₹ 14,08,50,854/- which action of the AO has been interfered by the Ld. Pr. CIT while exercising his revisional jurisdiction u/s. 263 of the Act. The Ld. Pr. CIT has found two faults on which he has issued Show Cause Notice (SCN) wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We note that AO called for explanation from assessee in respect of cash payment and after going through the explanations given by assessee on 16.12.2016 and 28.12.2016, the AO has restricted the disallowance to the tune of ₹ 14,08,50,854/- which part of payment in cash according to AO, did not qualify to get exception under Rule 6DD meaning after the AO raised his initial intention to disallow the entire cash payment to the tune of ₹ 26,75,14,300/- however after going through the replies of assessee dated 16.12.2016 and 28.12.2016 and after going through the ledger account and books of account of the assessee has accepted partly the claim of the assessee to the tune of ₹ 12,66,63,446/- and disallowed u/s. 40A(3) of the Act ₹ 14,08,50,854/-. However, according to Ld. AR, the entire purchase of paddy to the tune of ₹ 26,75,14,300/- falls in the ken of Rule 6DD(e)(i) read along with Rule 6DD(k) and, therefore, could not have been at the first place disallowed by AO u/s. 40A(3) of the Act. In any event, according to Ld. AR, the AO has partly accepted the claim of the assessee and has taken note that out of its purchase in cash of ₹ 26,75,14,300/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Arahitayas) that the assessee had made a payment of cash to the tune of ₹ 11,70,000/- on various dates. Page 96 of paper book reveals the weighment of paddy in quintal from four different parties i.e. Dinabandhu Ghosh, Azizul Mallick, Haru Sarkar and Gopal Ghosh had shown that total quantity of 430 qntl is shown and separate amount of jalpani of ₹ 2332/- has been reflected which means Mr. A. Biswas (supplier) had collected from four farmers 430 qntl of paddy for a cash payment of ₹ 4,67,668/- and has made payments to them. It is also revealed that for his services rendered, the assessee had made payment of ₹ 2332/- (jalpani). Page 97 to 100 of paper book are weighment certificate issued by Shri Bishnu Weigh Bridge in respect of paddy procured by Shri A. Biswas. We note that in the aforesaid facts and circumstances the AO s action of not disallowing ₹ 12,66,63,446/- cannot be termed as erroneous since the AO has made enquiries on this issue. To be precise the AO has made enquiries on the cash payments made by the assessee and after eliciting the explanation of the assessee and after going through the records had partly accepted the assessee s contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WBSEDCL 10,49,537/- Electricity Bill enclosed at page 228-230 20.07.2013 Other Expenses 18,215/- Other Expenses 12.09.2013 Other Expenses 18,000/- Other Expenses 12/12/2013 Other Expenses 9,010/- Other Expenses Total 12,14,512/- According to ld. AR, the said difference was explained to the learned AO during assessment and since the difference was reconciled, no addition was made by him in this regard. 14. We note that in the order passed u/s 263 of the Act, it has been alleged that the issue of difference in purchases was not carefully examined by the Assessing Officer before allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this specific fault no. 2, the assessee s reply is found at page 18 of the paper book wherein assessee pointed out at para 22, that difference in purchase of paddy figure between statement and P L Account was due to inadvertent error of booking other allowable expenses into the purchases. When the assessee explained this fact to the AO, the AO accepted the same and did not draw any adverse inference against the assessee, however, the AO did not mention the same while framing the assessment order, which cannot be treated as a case of failure to enquire by AO. Be that as it may be, when the assessee replied to the SCN issued by the Ld. Pr. CIT about lack of enquiry by AO on this discrepancy to the tune of ₹ 12,14,512/- and when the assessee asserted that it was queried by the AO and the assessee had explained to the AO and reconciled the inadvertent error, the Ld. Pr. CIT ought to have called the AO to ascertain whether the assessee s explanation is correct or not i.e. the fact of enquiry by AO and assessee s explanation. In any way the assessee has explained the difference of ₹ 12,14,512/- to Ld. Pr. CIT and contended that certain allowable expenses has been inadvertentl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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