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2016 (4) TMI 856 - AT - Income TaxAddition on account of disallowance of claim of purchases u/s 40A(3) - CIT(A) deleted the addition - Held that:- Terms of Section 40A(3) of the Act are not absolute and that the genuine and bonafide transactions are not taken out of the sweep of the Section 40A(3) of the Act and it is open to the assessee to furnish to the satisfaction of the AO, the circumstances under which the payment in the manner prescribed u/s 40A(3) of the Act was not practicable or would have caused to the genuine difficulty to the payee. In the present case, the seller of the potatoes insisted for cash payments because he doubted the credibility of the assessee who required the purchases to be made for smooth running of its business. The purchases were made through the agent Sh. S.K. Tiwari who procured the potatoes from M/s R.A. Traders and this fact was not doubted by the AO that the purchases were made by the assessee through its agent Sh. S.K. Tiwari from M/s R.A. Traders, Moradabad in cash. In the instant case, the cash payments were made by the assessee to the agent Sh. S.K. Tiwari who in turn made the purchases in cash for the assessee and charged the commission for the said transaction which has been accepted as genuine and allowed to be set off against the income in the profits and loss accounts, by the AO. Therefore, the transaction relating to the purchases of potatoes was clearly covered by the exception laid down in Rule 6DD(k) of the I.T. Rules, 1962 and was outside the purview of the provisions of Section 40A(3) of the Act. We are of the view that the ld. CIT(A) rightly deleted the addition made by the AO . As regards to the remaining addition made by the AO and deleted by the ld. CIT(A) is concerned, the contention of the assessee was that those purchases were made directly from the small farmers, the said contention has not been doubted at any stage. Therefore, this transaction is covered under Rule 6DD(e) of the I.T. Rules, 1962 wherein cash payments made for purchase of agricultural produce is kept outside the purview of Section 40A(3) of the act. Therefore, we do not see any infirmity in the order of the ld. CIT(A) on this issue. - Decided against revenue
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