2009 (8) TMI 55 - HC - Income Tax

Payment in Cash in excess of Rs. 20,000 Procurement of Paddy fro co-operative societies Applicability of provisions of section 40A(3) read with Rule 6DD Held that - admittedly, the assessee made the payment in cash for procuring paddy to the primary agricultural credit society. Therefore, they were entitled to exemption from the rigour of the provisions of Section 40A(3) of the Income Tax Act, 1961.

Summary

Issues:
- Appeal against the Income Tax Appellate Tribunal's judgment and order regarding cash payment for purchasing paddy exceeding the statutory limit.
- Disallowance of 20% of cash payment under Section 40A(3) of the Income Tax Act, 1961.
- Interpretation of Rule 6DD(a)(iv) of the Income Tax Rules regarding payments to primary agricultural credit society.
- Exemption from Section 40A(3) disallowance for cash payments made to primary agricultural credit society.
- Assessment of the tribunal's decision on the assessee's contention.

Analysis:
The High Court of Calcutta heard an appeal by the department challenging a judgment and order of the Income Tax Appellate Tribunal concerning cash payments exceeding the statutory limit for purchasing paddy. The assessing officer disallowed 20% of the cash payment under Section 40A(3) of the Income Tax Act, 1961, totaling Rs.24,57,391. However, it was established that the payments were made to cooperative societies for procuring paddy, leading to a rejection of the revenue's contention by the Commissioner of Income Tax and the Appellate Tribunal.

The key issue revolved around the interpretation of Rule 6DD(a)(iv) of the Income Tax Rules, which exempts disallowance under Section 40A(3) for payments exceeding Rs.20,000 made to primary agricultural credit societies. The rule specifically includes primary agricultural credit societies within its ambit for such exemptions. As the assessee made cash payments to the primary agricultural credit society for procuring paddy, they were entitled to the exemption provided by Rule 6DD(a)(iv) of the Income Tax Rules.

The High Court upheld the tribunal's decision, stating that there was no substantial error of law in accepting the assessee's contention. Consequently, the appeal was summarily dismissed, and no costs were awarded. The court directed all parties to act promptly upon receiving a signed copy of the order. This judgment clarifies the application of Rule 6DD(a)(iv) in cases involving cash payments to primary agricultural credit societies for specific transactions, providing guidance on exemptions under Section 40A(3) of the Income Tax Act, 1961.