2024 (7) TMI 127 - AT - Income Tax

Addition u/s 40A - disallowance of expenditure in cash exceeding permissible limit in excess of Rs. 20,000 - HELD THAT - Assessee is a milk distributor and sales were carried out through the sub-distributors. The assessee received the milk products from a main supplier, Hisar Jind Co-Op. Milk Producers Union Ltd. The mode of collection against the sale of milk was in cash and the cash was paid through banking channel. Account statements show turnover was very high, the margins were very low in the business of milk distribution. As per ratio of judgments in Sri Renukeswara Rice Mills 2004 (8) TMI 319 - ITAT BANGALORE-B and Suresh Kumar s cases 2020 (12) TMI 1061 - ITAT DELHI it is well settled that since assessee paid amounts to others which could be verified a combined reading of Clauses (f) and (1) of Rule 6DD will take away the transaction from the clutches of Section 40A(3). From the bills produced by the assessee before the assessing officer it is evident that the assessee apart from paying price of the products also paid commission to the payee. Thus, the payee has become the agent of assessee also. Such agent is required to pay the company in cash. Accordingly, there is no violation of Section 40A(3). We accordingly uphold deletion of the disallowance in respect of payment made to the company. Decided in favour of assessee.

Summary

Issues:
Revenue department's appeal against the order of the Learned Commissioner of Income Tax (Appeals) partly allowing the assessee's appeal and deleting an addition while upholding a disallowance.

Analysis:
The case involved the assessment year 2017-18 where the assessee, a milk distributor, filed a return declaring income under Business and profession, selected for scrutiny due to cash deposits during demonetization. The assessing officer made additions and disallowances, leading to an appeal by the assessee before the Learned CIT(A), who partly allowed the appeal. The revenue department then appealed against this decision.

The revenue department argued that the addition made on account of disallowance of expenditure in cash was valid under section 40A(3) of the Income Tax Act, emphasizing the sufficiency of reasons and material available on record. The department sought acceptance of their appeal based on this ground.

However, the authorized representative for the assessee contended that the payment process followed by the assessee, involving cash collections deposited in the bank and paid through banking channels, did not violate section 40A(3). Citing relevant case laws, the representative argued that the payments were verifiable and fulfilled the criteria for genuine transactions, thus justifying the deletion of the disallowance.

The Tribunal analyzed the payment process in detail, considering the nature of transactions in the agricultural produce market and the role of agents in such transactions. Referring to specific clauses and rules, the Tribunal concluded that the transactions in question did not fall under the purview of section 40A(3) due to the payment structure involving agents and cultivators, thereby upholding the deletion of the disallowance.

Based on the arguments presented and the established legal principles, the Tribunal found the revenue department's contentions lacking merit and dismissed their appeal. The judgment highlighted the clear payment mechanisms followed by the assessee, in line with legal provisions and precedents, leading to the decision in favor of the assessee.

Overall, the judgment provided a detailed analysis of the payment process, legal interpretations, and relevant case laws to support the decision to dismiss the revenue department's appeal and uphold the deletion of the disallowance made by the assessing officer.