2013 (7) TMI 573 - HC - Income Tax

Addition u/s 40A(3) - Cash payment in excess of prescribed limit - Whether the Tribunal was right in deleting the additions under section 40A(3) by applying the exemption rule 6DD(i), when the assessee has not proved that the payee had acted as agents of the assessee and cash payment were to be paid to the growers by the payee on behalf of the assessee in the capacity of agent - When that being the factual finding in respect of the status of those persons, concurrently, by the first appellate authority as well as by the Tribunal by holding that those persons have acted as agents of the assesse - In the absence of an element of sale in the transaction between the society and the assessee the contention of the assessee that the said co-operative society was acting as the agent of the assessee has to be necessarily accepted - assessee is entitled to protection under rule 6DD(i) of the Rules as the disputed payments were made only to its agents - Apart from that aspect, by going through the nature of business and transaction between the parties an element of commercial expediency was also involved in this case which we can take judicial notice there are no other materials placed by the Revenue to take a different view appeal decided against revenue.

Summary

Issues:
- Interpretation of section 40A(3) of the Income-tax Act
- Application of rule 6DD(i) of the Income-tax Rules
- Determination of whether the payees acted as agents of the assessee
- Validity of cash payments exceeding Rs. 20,000 for purchase of raw cotton

Analysis:

The case involved an appeal by the Revenue regarding the assessment year 1998-99, focusing on the deletion of additions under section 40A(3) by applying exemption rule 6DD(i) to cash payments made by the assessee. The Assessing Officer disallowed 20% of payments exceeding Rs. 20,000 for raw cotton purchases, stating they violated section 40A(3). The assessee claimed the payees acted as agents, covered by rule 6DD(i). The Commissioner of Income-tax (Appeals) found the payees were agents based on factual evidence and deleted the additions. The Tribunal upheld this decision, emphasizing the payees' commission charged by the assessee and their role in the auction process.

Regarding specific payments to M/s. P. K. R. Murugan Commission Mundy and Tiruchengode Agricultural Producers Marketing Society Ltd., the Tribunal remitted the matter for further verification. The Revenue contested these payments, alleging violations of section 40A(3) due to cash transactions. However, the Tribunal and the first appellate authority found the payees acted as agents, justifying the application of rule 6DD(i) for protection. The Tribunal highlighted the commercial expediency involved in the transactions and upheld the assessee's position, leading to the dismissal of the Revenue's appeal.

In conclusion, the court upheld the application of rule 6DD(i) to protect the assessee's cash payments made to agents for raw cotton purchases, based on factual findings by the Tribunal and the first appellate authority. The court emphasized the commission charged by the payees and the commercial expediency in the transactions, leading to the dismissal of the Revenue's appeal.