The Ahmedabad Income Tax Appellate Tribunal ( ITAT ) recently affirmed an order passed by the Commissioner of Income Tax (Appeals) ( CIT(A) ) deleting an income tax addition of ₹12.92 Crore towards the annual income of an agricultural purchaser, while determining gross profit at 5.02% based on the gross profit of earlier years.
The decision was given in two income tax appeals filed by Assessee Rajeshbhai Naranbhai Patel, a resident of Vadodara against the Assistant Commissioner of Income Tax and vice versa against the order of the CIT(A) order with regards to the Assessment Year (A.Y.) 2016-17.
The Assessee had filed returns of income declaring a total income of₹22,38,020 while the Assessing Officer (AO) completed their assessment determining total income at ₹13,14,54,120 by making addition of ₹12,92,16,100 under Section 40A(3) of the Income Tax Act, 1961. Section 40A(3) prohibits cash payments exceeding ₹20,000 unless covered by exemptions under Rule 6DD(e)(i) of the Income Tax Rules, 1962.
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Senior Advocate Tushar Hemani with Authorized Representative Parimalsinh B Parmar, appearing for the Appellant contested the income tax addition of ₹5,15,136 through gross profit estimation arguing that the transactions complied with Rule 6DD(e)(i) of the Income Tax Rules which permits cash payments to farmers under specific conditions.
Whereas, Durga Dutt along with B. P. Srivastava for the Revenue refuted the Assessee’s claims averring that there was no nexus between the agricultural products sold by the farmers from whom the Assessee made purchases and the Assessee’s profit-generation business as well.
The two-member ITAT Bench constituted by Vice President Dr. B.R.R. Kumar and Judicial Member Siddhartha Nautiyal observed that the CIT(A) had rightfully deleted the income tax addition of ₹12,92,16,100 against the Assessee observing the relevance and applicability of the of Rule 6DD(e)(i) in the present matter.
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Taking into account confirmation from the seller farmers that the Assessee had directly purchased agricultural produce from them, the Bench found no infirmity with the CIT(A) order, while affirming that gross of earlier years may be used to determine taxable income of an Assessee when the circumstances and transactions are of similar nature.
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