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2023 (10) TMI 187 - ITAT CHENNAIAddition u/s 40A(3) - cash payment in excess of Rs. 20,000/- - AO noted that these payments for purchase of rice is in excess of Rs. 20,000/- to a single person in a single day in violation of provisions of section 40A(3) and assessee does not fall under any of the exempted categories as per Rule 6DD - CIT(A) concluded that the assessee is a contractor and has purchased rice from rice mills who are the processor and not from the grower/purchaser/cultivator therefore, it is does not fall under any of the exceptions covered under Rule 6DD - HELD THAT:- Admittedly, the assessee is a trader in rice purchasing rice from rice mills who are the processor and not the grower / producer / cultivator i.e., agriculturists directly. Admittedly, the assessee is also not an agent or the rice mill is not an agent as claimed by assessee, even the assessee could not show me any business expediency that required to be considered in the light of the exceptions as provided under Rule 6DD of the Rules. As considered the facts whether the assessee’s case requires any estimation of profit. I noted that the assessee made a claim before us that the assessee has made 98% of purchases in account payee cheque or bank draft or through banking channel only as envisaged in the provisions of section 40A(3) - But due to compulsion imposed by some of the farmers who wanted their money back from the rice mill, clearly reveals that there was a business expediency to make cash payment that being a very minimal amount ranging from 6.92% to 0.28% in various years. The assessee also argued that there was fluctuating demand in the rice due to which there is price raise of rice commodity and due to that the farmers agreed to sell in cash to the rice mills. In turn, the rice mill asked the assessee to make part of payment during some months in cash. Considering the entirety of facts, I’m of the view that on the disputed purchase, the AO can apply a higher profit rate instead of profit rate declared by assessee of 0.26%. Thus estimation of profit @ 10% of the disputed purchases disallowed by AO by invoking the provisions of section 40A(3) of the Act will meet the ends of justice because otherwise this will distort the profit and seeing commercial expediency in the given facts and circumstances - Assessee appeal are partly-allowed.
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