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2008 (9) TMI 412 - AT - Income TaxDisallowance of cash payment u/s 40A(3) - suppliers of carcass - Cash payments by the agent for the purpose of purchase of products of animal husbandry on behalf of the assessee - right to object the point of dispute which was decided by the CIT(A) against the assessee though not appeal as per rule 27 of tribunal. HELD THAT - Rule 27 of ITAT Rules is very specific and clear. Whatever point has been rejected by the CIT(A), the respondent assessee can support his argument against the appeal filed by appellant i.e., the Department. Though, the ld CIT(A) has rejected the claim of the assessee under cl. (f) of r. 6DD, but. as stated above, in view of r. 27 of ITAT Rules, the assessee can raise/support his claim. The ratios of decisions of the Hon'ble Supreme Court CIT vs. Mahalakshmi Textile Mills Ltd. 1967 (5) TMI 4 - SUPREME COURT and that of Hon'ble Gauhati High Court In case of Assam Company (India) Ltd. vs. CIT 2002 (4) TMI 43 - GAUHATI HIGH COURT , are in support of the case of the assessee. Clause (f)(ii), reproduced in this order, is also very clear by which it has been provided that no disallowance can be made u/s. 40A(3) if the payments are made on account of purchase of animal produce including hide and skin. Undisputedly, the payments are made in respect of animal produce. Therefore, as per cl. (f)(ii) the claim of the assessee is also allowable. We further note that the issue is also covered by the decision in Jt. CIT vs. Al Noor Exports for AY 1997-98. In this case also AO made addition u/s. 40A(3) on account of payment made in cash for purchase of animal produce. CIT(A) deleted the disallowance in view of cl. (f)(ii) of r. 6DD of IT Rules. On second appeal, by the Department, the Tribunal confirmed the order of the CIT(A). Following the decision in the case of Al Noor Exports, we hold that no disallowance can be made u/s. 40A(3) on the facts of the present case. Accordingly, we confirm the order of the ld CIT(A). In the result, the appeal of the Revenue is dismissed.
Issues Involved:
1. Applicability of Section 40A(3) of the Income Tax Act. 2. Interpretation of Rule 6DD clauses (f) and (l). 3. Validity of cash payments to agents for the purchase of animal husbandry products. 4. Relevance of previous judicial decisions and circulars. Detailed Analysis: 1. Applicability of Section 40A(3) of the Income Tax Act: The Department appealed against the CIT(A)'s decision to delete the disallowance of Rs. 10,02,58,664 made under Section 40A(3) for cash payments exceeding Rs. 20,000. The AO had disallowed 20% of the total purchases made in cash, citing that the payments were not directly made to the producers but through intermediaries or agents. 2. Interpretation of Rule 6DD clauses (f) and (l): The assessee argued that their case fell under the exclusionary provisions of Rule 6DD clauses (f) and (l), which exempt certain transactions from the purview of Section 40A(3). Clause (f) pertains to payments for the purchase of animal husbandry products directly from the producer, while Clause (l) pertains to payments made to agents who, in turn, make payments in cash on behalf of the assessee. 3. Validity of Cash Payments to Agents for the Purchase of Animal Husbandry Products: The CIT(A) found that the assessee's transactions were covered under Clause (l) of Rule 6DD, as payments were made to agents who then paid the producers. The CIT(A) relied on the Bangalore Tribunal's decision in the case of Sri Renukeswara Rice Mills vs. ITO, which held that payments made to agents for agricultural produce are exempt under Rule 6DD. The CIT(A) also noted that the AO himself admitted that payments were made through agents. 4. Relevance of Previous Judicial Decisions and Circulars: The AO relied on the Allahabad High Court's decision in the case of Pehlaj Rai Daryanmal, which was rendered before the insertion of Clause (l) in Rule 6DD in 1995. The CIT(A) and the Tribunal found this reliance misplaced as Clause (l) was applicable during the relevant assessment year (2003-04). The Tribunal also referred to the Supreme Court's decision in CIT vs. Mahalakshmi Textile Mills Ltd., which allows for relief on different grounds if the subject matter remains the same. Additionally, the Tribunal noted that the assessee's case was supported by CBDT Circulars No. 4 and No. 8 of 2006, which clarified the exemption for payments made for animal husbandry products. Conclusion: The Tribunal concluded that the Department could not succeed in its appeal. The Tribunal upheld the CIT(A)'s decision, stating that the assessee's transactions were covered under both Clause (f) and Clause (l) of Rule 6DD. The Tribunal emphasized that the payments made for animal husbandry products through agents were exempt from disallowance under Section 40A(3). The Tribunal also referenced the Delhi Bench's decision in the case of Jt. CIT vs. Al Noor Exports, which supported the assessee's claim. Final Judgment: The appeal of the Revenue was dismissed, and the CIT(A)'s order deleting the disallowance under Section 40A(3) was confirmed.
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