2018 (8) TMI 758 - HC - Income Tax

Additions u/s 40A(3) - payments exceeding ₹ 20,000/- were made in cash to various parties - the amount was shown to be paid to various farmers and even the receipts were also produced. However, the assessee could not furnish / produce those persons / farmers and the assessee explained that it could not produce furnish the names and addresses of the persons to whom cash payment was made - A.O. did not accept the said explanation. However, the A.O., without rejecting the Books of Accounts, made disallowance. - CIT(A) and ITAT deleted the additions. Held that - it is not in dispute that the assessee is engaged in the business as a Commission Agent for purchase/ sale of food-grain / agricultural produces and is also holding licence issued by the Agricultural Produce Market Committee. In the present case, Rule 6DD(e)(i) shall be applicable and the same is rightly applied by the learned CIT(A) as well as the learned ITAT. It cannot be disputed and it is not disputed that as such, the assessee was engaged in the business of Commission Agent for purchase /sale of food-grain and is also holding licence issued by the Agricultural Produce Market Committee. No substantial question of law arises. - Decided against the revenue.

Issues:
1. Disallowance under Section 40A(3) of the Income Tax Act, 1961 for payments exceeding ?20,000 made in cash to various parties.

Analysis:
The judgment involves a dispute where the Revenue challenged the decision of the Income Tax Appellate Tribunal (ITAT) to delete the addition of ?2,83,55,337 under Section 40A(3) of the Income Tax Act, 1961. The case revolved around an assessee who is a Commission Agent for the purchase/sale of food-grain and holds a license issued by the Agricultural Produce Market Committee. The Assessing Officer (A.O.) made the disallowance as payments exceeding ?20,000 were made in cash to various parties. The A.O. issued notices to the assessee to furnish details of these payments, but the assessee could not provide the names and addresses of the recipients, explaining that farmers are known by village names and tracking them was difficult. Despite this explanation, the A.O. disallowed the amount under Section 40A(3) without rejecting the Books of Accounts. However, the Commissioner of Income Tax (Appeals) deleted the disallowance, citing Rule 6DD(e)(i) of the Income Tax Rules, 1962, which allows cash payments above ?20,000 for agricultural produces. The ITAT upheld the CIT(A)'s decision, leading to the Revenue's appeal before the High Court.

The High Court noted that the assessee's business involved dealing with agricultural produces and holding a license from the Agricultural Produce Market Committee. The payments exceeding ?20,000 were shown in the Books of Accounts as made to various farmers, with receipts produced, although the list of farmers could not be provided. The Court emphasized that Rule 6DD(e)(i) permits cash payments above ?20,000 for agricultural produces, and in this case, the provision was rightly applied by the CIT(A) and ITAT. The Court highlighted that the A.O. did not reject the Books of Accounts but still made the disallowance under Section 40A(3), which was correctly deleted by the CIT(A) and upheld by the ITAT. Therefore, the Court concluded that no substantial question of law arose, and the appeal by the Revenue was dismissed.

In conclusion, the High Court's judgment clarified that the disallowance under Section 40A(3) of the Income Tax Act was correctly deleted by the CIT(A) and upheld by the ITAT. The Court emphasized the applicability of Rule 6DD(e)(i) for cash payments exceeding ?20,000 for agricultural produces, which justified the decision to allow the payments made by the assessee in this case.

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