2024 (3) TMI 144 - AT - Income Tax

Addition u/s. 40A(3) r.w.r 6DD - cash purchases of husk beyond the prescribed limit of Rs. 20,000/- per day - Payment by assessee to farmers - HELD THAT - In the instant case, since the Ld. AO has not disputed the fact that the husk is an agricultural produce whereas the CIT(A)-NFAC has also by relying on the decision of CIT vs. Cynamid India Ltd ( 1999 (4) TMI 2 - SUPREME COURT held that husk is an agricultural produce, in our opinion the provisions of section 40A(3) r.w.r 6DD of the Income Tax Rules, 1962 cannot be invoked in the instant case as it is covered under Clause-(e) of Rule 6DD of Income Tax Rules, 1962. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance u/s 40A(3) of the Income Tax Act, 1961.
2. Applicability of Rule 6DD(e) of the Income Tax Rules, 1962.
3. Genuineness of cash purchases from farmers.

Summary:

1. Disallowance u/s 40A(3) of the Income Tax Act, 1961:
The Revenue filed an appeal against the order of the Ld. CIT(A)-NFAC, which deleted the addition made by the Ld. AO u/s 40A(3). The Ld. AO had disallowed 80% of the total cash purchases of Rs. 4.81 Crs on the grounds that the assessee violated the provisions of section 40A(3) by making cash payments exceeding Rs. 20,000/- per day. The Ld. AO also questioned the genuineness of the purchases as the assessee failed to produce the farmers for verification.

2. Applicability of Rule 6DD(e) of the Income Tax Rules, 1962:
The assessee contended that the purchases were made from agriculturists, and hence, the payments fall under the exceptions specified in Rule 6DD(e). The Ld. CIT(A)-NFAC accepted this argument, relying on the Supreme Court decision in CIT vs. Cynamid India Ltd, which held that husk is an agricultural produce. The Tribunal upheld this view, noting that the provisions of section 40A(3) r.w.r 6DD(e) were applicable, and the disallowance was not justified.

3. Genuineness of Cash Purchases from Farmers:
The Ld. AO questioned the genuineness of the purchases, stating that the assessee failed to produce the farmers and relied on self-made vouchers. However, the Tribunal found that the Ld. AO accepted the sales reflecting in the VAT returns and did not dispute the quantitative details of the turnover. The Tribunal noted that the Ld. AO contradicted himself by accepting the sales but disallowing the purchases. The Tribunal also referred to the Gujarat High Court decision in Principal Commissioner of Income Tax vs. Keshvalal Mangaldas, which supported the assessee's position.

Conclusion:
The Tribunal found no infirmity in the order of the Ld. CIT(A)-NFAC and dismissed the Revenue's appeal, holding that the cash transactions were covered under Clause-(e) of Rule 6DD and the provisions of section 40A(3) were not applicable. The appeal filed by the Revenue was dismissed.