TMI Blog2015 (11) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made in the sum of ₹ 62,06,269/- u/s 40A(3) of the Act. - Decided in favour of assessee. - ITA No.67/Kol/2013 - - - Dated:- 7-10-2015 - Hon ble Shri M.Balaganesh, AM Shri S.S.Vishwanetra Ravi, JM] For The Appellant : Shri Manish Tiwari, FCA For The Respondent : Shri Pinaki Mukherjee, JCIT ORDER Per Shri M.Balaganesh, AM 1. This appeal of the assessee arises out of the order of the Learned CIT(A) in Appeal No94/CIT(A)-XXXIII/ITO.Ward-2,Hal/10-11 dated 5.10.2012 for the Asst Year 2008-09 passed against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The first issue to be decided in this appeal is as to whether the addition u/s 40A(3) of the Act could be made in the sum of ₹ 62,06,269/- in the facts and circumstances of the case. 3. The brief facts of this appeal is that the assessee is a proprietor of M/s Basanti Distributors engaged in the retail trading of poultry feeds . During the assessment year under appeal, the assessee made cash payments in excess of ₹ 20,000/- to a party M/s Pickme Feeds to the tune of ₹ 62,06,269/-. The boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Rules, 1962. He further argued that the area in which the poultry feeds business were operated by the assessee were drastically affected by swine flu and hence the assessee was forced to make payments in cash to M/s Pickme Feeds and it was also made as per the forced directions of the concerned supplier M/s Pickme Feeds. Hence it was paid in order to provide uninterrupted supply of poultry feeds to the farmers in the rural areas and the business expediency in this entire gamut of transactions and the genuineness of the same are never doubted by the revenue. The Learned AR argued that the supplier of poultry feeds M/s Pickme Feeds had deputed their representatives to the assessee s customer location ( i.e parties to whom poultry feeds is sold by the assessee) and received the sale proceeds directly from the said customer and deposited the same in the bank account of M/s Pickme Feeds for purchase of poultry feeds . Hence the assessee had no control over this transaction as he is carrying on his business in a rural area at Vill-Kishore Nagar, P.O. P.S. Contai Dist. Purba Medinipur. He further argued that the assessee was having only one bank account in a co-operative bank and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and agent and as such, the assessee s case falls under the exception provided in Rule 6DD(k) of IT Rules. However, we are in agreement with the arguments of the Learned AR that the purchase of poultry feeds falls under the exceptions clause provided in Rule 6DD(e) of the Income Tax Rules, 1962. For the sake of convenience, the relevant rule is reproduced here in below:- 6DD(e) Where the payment is made for the purchase of - (i) agricultural or forest produce ; or (i) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; . To the cultivator , grower or producer of such articles, produce or products. 3.3.2. We also agree the pressing emergency for the assessee to make payments in cash to M/s Pickme Feeds as the assessee was operating only in co-operative bank in his village which was practically taking 5-6 days for clearing a single cheque issued by the assessee to his suppliers and hence the supplier had insisted for payments in cash for uninterrupted and timely supplies of poultry feeds for onward supply of the same by the assessee to the farmers in the rural areas which is affected severe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bonafide of the assessee that pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment made to principal - Held, yes [ Paras 21 to 23] [ in favour of the assesse] Sri Laxmi Satyanarayana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhrapradesh High Court) Section 40A(3) of the Income-tax Act, 1961, read with Rule 6DD of the Income-tax Rules, 1962 Business disallowance Cash payment exceeding prescribed limit (Rule 6DD) Assessee made certain payment of purchase of ground nut in cash exceeding prescribed limit Assessee submitted that her made payment in cash because seller insisted on that and also gave incentives and discounts Further, seller also issued certificate in support of this Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3) Held, yes [ Para 23] [In favour of the assessee] CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P H) In this case the court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act that before invoking the provisions of section 40A(3) in the light of Rule 6DD as clarified by the Circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. We hold that the purpose of section 40A(3) is only preventive and to check evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transactions. Admittedly, this is not the case in the facts of the assessee herein. The assessee had directly deposited cash in the bank account of the supplier M/s Pickme Feeds which fact is also acknowledged by the concerned supplier by crediting the said cash receipts in the ledger account of the assessee and the same ledger account has been obtained by the Learned AO u/s 133(6) directly from the concerned supplier M/s Pickme Feeds. It is also pertinent to note that the Hon ble Rajasthan High Court in the case of Smt.Harshila Chordia vs ITO reported in (2008) 298 ITR 349 (Raj) had held that the exceptions contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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