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2015 (11) TMI 1128 - AT - Income TaxAddition u/s 40A(3) - cash payment - Held 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 (2006 (11) TMI 117 - RAJASTHAN HIGH COURT) had held that the exceptions contained in Rule 6DD of Income Tax Rules are not exhaustive and that the said rule must be interpreted liberally. Thus we have no hesitation in deleting the addition made in the sum of ₹ 62,06,269/- u/s 40A(3) of the Act. - Decided in favour of assessee.
Issues Involved:
1. Addition under Section 40A(3) of the Income Tax Act, 1961. 2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. Detailed Analysis: 1. Addition under Section 40A(3) of the Income Tax Act, 1961: The primary issue in this appeal was whether the addition of Rs. 62,06,269/- under Section 40A(3) of the Income Tax Act, 1961, was justified. The assessee, a proprietor of M/s Basanti Distributors engaged in retail trading of poultry feeds, made cash payments exceeding Rs. 20,000/- to M/s Pickme Feeds. The Assessing Officer (AO) disallowed this amount under Section 40A(3) as the payments were made in cash, which was confirmed by the CIT(A). The assessee argued that the poultry feeds are agricultural produce and thus fall under the exceptions provided in Rule 6DD(e)(i) and (ii) of the Income Tax Rules, 1962. The assessee also contended that due to swine flu, cash payments were necessary for uninterrupted supply and were made as per the supplier's directions. The supplier had mandated cash payments for timely supply, and the payments were directly deposited in the supplier's bank account, which the revenue did not dispute. The Tribunal found that the payments were genuine and the assessee had no control over the transactions as the supplier collected payments directly from the assessee's customers. The Tribunal disagreed with the assessee's argument that the payment was made to an agent under Rule 6DD(k) but agreed that the purchase of poultry feeds falls under the exceptions in Rule 6DD(e). The Tribunal noted the pressing emergency for cash payments due to the slow clearance of cheques in the cooperative bank. The Tribunal emphasized that the genuineness of the payments was not doubted and that the primary object of Section 40A(3) was to curb tax evasion and inculcate banking habits. The Tribunal cited several judicial precedents, including the Supreme Court's decision in Attar Singh Gurmukh Singh vs ITO, which upheld that genuine and bona fide transactions are not taken out of the sweep of Section 40A(3). The Tribunal concluded that since the payments were genuine and directly deposited in the supplier's bank account, Section 40A(3) was not applicable. The Tribunal deleted the addition of Rs. 62,06,269/-. 2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961: The second issue raised by the assessee regarding disallowance under Section 40(a)(ia) was not pressed by the Learned AR during the hearing. Consequently, this ground was dismissed as not pressed. Conclusion: The appeal was partly allowed. The Tribunal deleted the addition of Rs. 62,06,269/- under Section 40A(3) of the Income Tax Act, 1961, while the disallowance under Section 40(a)(ia) was dismissed as not pressed.
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