This appeal, filed by the AO, is directed against learned CIT(A)'s order dt. 6th Dec., 2012, in the matter of assessment under s. 143(3) of the IT Act, 1961 for the asst. yr. 2008-09.
2. In ground Nos. 1 and 2, which we will take up together, the assessee (sic-AO) has raised the following grievances:
"I. The order of the learned CIT(A) is erroneous in law and on facts in deleting the addition of Rs. 10,00,000 since the assessee failed to produce all the creditors and thus voluntarily surrendered an amount of Rs. 10,00,000 out of the credit balance ofRs. 80,27,616 for taxation.
2. The learned CIT(A) has erred in law and on facts in holding that surrender letter submitted by the assessee is ambiguous/defective and being made without any basis, was accepted by the AO in part, finds no place on order-sheet and not in the handwriting of the assessee."
3. So far as these grievances are concerned, the relevant material facts are like this. The assessee is engaged in the business of foodgrains. During the course of the assessment proceedings, the AO noticed that the assessee has shown unsecured creditors amounting to Rs. 80,27,616 but, as certain payments made to these persons were in cash, 'the assessee was required to produce all the 12 creditors for verification'. Even though the 'assessee produced all these persons, and apparently there were no infirmities in the documents produced too, the AO made an addition by observing as follows:
"3.2 On the date fixed that assessee filed a reply stated that ' I am herewith producing the 12 sundry creditors along with photo identity and Khasra Khatoni and filed all the affidavits and Khasras of sundry creditors. I am herewith surrendering Rs. 10,00,000 subject to no penal action……” .
3.3 I have considered the reply of the assessee. It is true that in the trade of Adartia mostly payment has been made in cash. As account confirmations, names and addresses of the parties mentioned above have already been provided by the assessee, there appears a prima facie evidence to show that the said parties are real and having business relations With the assessee. Merely on the basis of not being income-tax assessee or in absence of banking transaction, the identity of the creditors cannot be doubted. It is also true that the small traders and agriculturists living in small villages scare to come forward before any authority and scared to be examined on oath. Moreover, barring the credits surrendered by the assessee of Rs. 10,00,000. In these circumstances, it would be better to accept the surrender of the assessee as voluntary disclosure. Accordingly, the amount of Rs. 10,00,000 is added to the income of the assessee."
4. Aggrieved by stand so taken by the AO, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) noted that "all the sundry creditors were and are verifiable" and that "considering the entire documentary evidences, I am of the clear view that there was no reason With the appellant to make such a surrender". Accordingly, he concluded that "the surrender is held to be unwarranted and is being cancelled as objected and claimed by the appellant". The addition of Rs. 10,00,000 was, accordingly, deleted. The AO is aggrieved and is in appeal before us.
5. We have heard the rival contentions, perused the material on record and duly considered factual 'matrix of the case in the light of the applicable legal position.
6. We have noted that even though learned CIT(A) has given categorical findings on merits as also on the admissibility of surrender, the AO has raised grievance only against the latter. The issue raised before us is thus infructuous inasmuch as even if the surrender is in order but the addition was not warranted on merits, it is only elementary that merely because the assessee has, under misconception of facts or law, surrendered an income, no addition can be made in respect of the same. We have also noted that as evident from the observations of even the AO, there were no specific'. reasons for making the addition of Rs. 10,00,000 save and except for the alleged surrender made by the assessee. The issue in appeal is also covered, in favour of the assessee, by a Coordinate Bench of this Tribunal in the case of Asstt. CIT us. Satya Narayan Agarwal (2004) 91 ITJ (Kol) 481 wherein it is held that no addition can be made on the basis of a surrender simplictor even when surrender is made during the course of survey proceedings under s. 133A. In view of these discussions, as also bearing in mind entirety of the 'case, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
7. Ground Nos. 2 and 3 are thus dismissed.
8. In ground No.3, the AO has raised the following grievance:
"3. The learned CIT(A) in his order dt. 6th Dec., 2012 in appeal No. 761/2010-11/GZB-Alg and further Appeal No. 1006j2011-12jGZB-Alg has erred in law and on facts in accepting the contention of the assessee that disallowance made under s. 40A(3) at Rs. 3,62,202 [which was rectified under s. 154/143(3) to Rs. 18,11,008] was covered by cls. (e) of r. 6DD and find support by cls. (f) and (h) of r. 6DD."
9. So far as this grievance is concerned, it is sufficient to take note of the fact that when the AO issued a show-cause notice in respect of the cash payments aggregating to Rs. 23,47,561, it was pointed out by the assessee that the assessee is an Aaratia and purchases the foodgrains from farmers or his agents i.e. Kachcha Aaratias. It was thus pointed out that the exceptions set out in r. 6DD(e) come into play and, accordingly, disallowance under s. 40A(3) , as proposed by the AO, cannot be made. Without assigning any reasons, the contentions of the assessee were simply brushed aside. The disallowance of Rs. 3,62,202, by excluding payments made on weekends, was made. Aggrieved, assessee carried the matter in appeal before the CIT(A). It was noted by the CIT(A) that the payments were made to the farmers or the Kacha Aaratias who de facto act as agents of the farmers and are simply conduits for payments. Under these circumstances, and taking note of the judicial precedents holding that s. 40A(3) disallowances cannot be invoked in such cases, learned CIT(A) deleted this disallowance as well. The AO is aggrieved and is in appeal before us.
10. Having heard the rival contentions, and having perused the material on record, we find no reasons to interfere in the findings on this issue either. We find that. as is the settled position, even a payment to Kacha Aaratia is to be taken as a payment to the farmer as such Aaratia holds agency relationship; he does not receive payment in his own right. We have also taken note of Co-ordinate Bench decisions in the cases of Shri Renkushwara Rice Mills us ITO (2005) 93 TTJ (Bang) 912 and Dy. CIT us. Hind Industries Ltd. (2008) 14 DTR (Del)(Trib) 561 : (2009) 120 TTJ (Del) 505 : (2008) 26 SOT 196 (Del) which support this proposition. Once the payment is treated as having been made to the farmer, s. 40A(3) will not come into play. In view of these discussions, as also bearing in mind entirety of the case, we approve conclusions arrived at by the CIT(A) and decline to interfere in the matter.
11. Ground No. 3 is thus dismissed.
12. In ground Nos. 4 and 5, the AO has raised the following grievances: "4. The learned CIT(A) has also erred in law and on facts in deleting the addition made under s. 40(a)(ia) at Rs. 5,54,023 by accepting, on one hand, applicability of s. 40(a)(ia), on the other hand on the basis of judgment delivered by the Hon'ble Tribunal in the case of Merilyn Shipping & Transports us. Addl. CIT (2012) 146 TTJ (Visakha)(SB) 1 : (2012) 70 DTR (Visakha)(SB)(Trib) 81 : (2012) 136 ITD 23 (Visakha)(SB); as an interim suspension against this judgment has been granted by the Hon'ble AP High Court on appeal.
5. The learned CIT(A) has erred in law and on facts in ignoring the jurisdictional High Court's decision in the case of Dey's Medical (U.P.) (P) Ltd. us. Union of India & Ors. (2008) 216 CTR (All) 83 : (2008) 4 DTR (All) 235 : (2009) 316 ITR 445 (All) that once a deduction of a particular amount is not allowable under the Act, it is liable to be taxed."
13. The relevant material facts are like this. In the course of the assessment proceedings, the AO disallowed a sum of Rs. 5,42,023 on the ground that the assessee has not deducted tax at source from these payments made to the transporters. In appeal. learned CIT(A) deleted the disallowance on the ground that entire payment was made during the year itself and nothing survived for being 'payable' at the year-end which could justify a disallowance under s. 40(a)(ia). In coming to this conclusion, learned CIT(A) followed Special Bench decision by this Tribunal in the case of Merilyn Shipping & Transports us. Addl. CIT (2012) 146 TTJ (Visakha)(SB) 1 : (2012) 70 DTR (Visakha)(SB)(Trib) 81 : (2012) 136 ITD 23 (Visakha)(SB). The AO is' aggrieved and is in appeal before us.
14. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
15. We find that as the assessee is in the jurisdiction of Hon'ble Allahabad High Court, this issue is to be treated as covered in favour of the assessee by a decision of Agra Bench of this Tribunal. in the case of Dy. CIT us. Gupta Ouerseas (2014) 160 TTJ (Agra) 257 : (2014) 99 DTR (Agra)(Trib) 162 : (2014) 42 taxmann.com 42 (Agra), wherein the Tribunal has, inter alia, observed as follows:
"38. We are, however, saved of taking this call as, at this stage, it is useful to take note of the CBDT Circular No. IO/DV/2013 (F. No. 279/Misc/M61/2012-s. 40 (a)(i) of the IT Act, 1961) dt. 16th Dec., 2013, which, inter alia, observes as follows:
'3.3. The Hon'ble Allahabad High Court in CIT us. Vector Shipping Services (P) Ltd. (2013) 262 CTR (All) 545: (2013) 94 DTR (All) 101 : (2013) 38 taxmann.com 77 (All) has affirmed the decision of the Special Bench in Merilyn Shipping that for disallowance under s. 40(a)(ia) of the Act, the amount should be payable and not which has been paid during the year .'
39. The said circular then expressed the Departmental view to the effect that the disallowance under s. 40(a)(ia) will not only include the amount payable at the year-end but also the amount paid during the year. Having said so, the circular also observed as follows:
'5. Where any High Court decides an issue contrary to the 'Departmental view', the 'Departmental view' thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court.. .'
40. An analysis of the stand so taken by the CBDT, which is binding on all the field officers under s. 119 of the Act, leads us to the conclusion that so far as Allahabad High Court decision is concerned, it is to be treated as approval of Merilyn Shipping decision (supra), and, accordingly, there is no requirement for tax withholding with respect to payments actually made to the residents during the relevant previous year itself. No doubt, this circular does not bind this Tribunal, but, as is the binding legal position in the light of a series of decisions by Hon'ble Supreme Court, such a circular, being in the nature of a benevolent circular, binds the IT authorities. This circular is, therefore, required to be given effect by lfs, to that extent, as well. Once it is accepted, as has been accepted by the CBDT itself, that Hon'ble Allahabad High Court has decided this issue in favour of the assessee, the rigour of disallowance under s. 40(a)(ia) must stand relaxed in the area falling within the jurisdiction of Hon'ble Allahabad High Court. It cannot, "therefore, be said that there, for the purposes of disallowance under s. 40(a)(ia), so far as the assessee before us is concerned, it is necessary that the assessee should have deducted tax at source so far as payments made during the relevant previous year are concemed "
16. Following the view so taken by Agra Bench of the Tribunal, we uphold the stand of the leamed CIT(A) on this issue as well, and decline to interfere in the matter.
17. Ground Nos. 4 and 5 are also dismissed.
18. In the result, the appeal is dismissed .