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TMI Blog2012 (8) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the provisions of section 40A(3)and he should have considered the payments made in cash at the stage of the supplier/producer of the milk - in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... s are the reasons for the additions made by the assessing officer. 5. Aggrieved, assessee preferred appeals before the CIT(A) for these two years. During the first appellate proceedings relevant for the assessment year 2004-05, the assessee made various submissions and filed details to prove that the impugned payments are made to the supplier of the milk and the said amounts never exceeded the sum of ₹ 20,000 and therefore, the provision of S.40A(3) are inapplicable. The amount paid to the Agents/representative is an irrelevant factor and these people have finally made the payments to the milk suppliers. The CIT(A) called for a remand report on the said details and evidences, and the AO submitted the remand report dated 19.6.2007, wherein the AO held that the case of the assessee is covered by exceptions in Rule 67DD(l) of the I.T. Rules, 1962. On finding that the said report was submitted without conducting requisite verification, the CIT(A) called for a further detailed report to be forwarded through the Additional CIT. AO accordingly submitted detailed report dated 18.7.2007, copy of which was made available to assessee for comments. In response, the assessee's counsel fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n centre, the members insisted on cash payments and gradually bank accounts were opened in nearby banks after which the payments were made through banks only. - The assessing officer has also mentioned that all these persons field confirmation letters stating that they were agents of the company. - It can be inferred on these facts that the milk representatives appointed by the vendors were acting not only a s representatives of the milk vendors at the milk collection centre, but they also acted as agents of the company for the purpose of performing various functions associated with the operation of milk collection centre, including disbursement of payments. - As per the provisions of the Indian Contract Act, an agent is a person employed to do any act for another or to represent another in dealing with third persons (section 182). Further, it is stated in this Act (S.186) that the authority of the agent may be expressed or implied. An authority is said to implied when it sis to be inferred from the circumstances of the case. In the present case, although there is no agency agreement in writing between the assessee company and the milk representatives working at the collectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of dairy produce from the producers of milk which would be covered by clause (f) of Rule 6DD. In support of the above findings, the CIT(A) placed reliance on the Bangalore Bench decision of the Tribunal in the case of Sri Renukeshwara Rice Mills V/s. ITO (93 ITD 263). With the above findings, the CIT(A) deleted the addition made by the assessing officer for the assessment year 2004-05. 6. Similarly, for the assessment year 2005-06, following the above order for the assessment year 2004-05 and for similar reasons, the CIT(A), deleted the corresponding addition made by AO for that year. 7. Aggrieved by the above relief granted by the CIT(A), Revenue is in appeal for both the years with the grounds noted in para-2 above. 8. During the proceedings before us, learned Departmental Representative, strongly supporting the orders of assessment submitted that the CIT(A) is not justified in granting relief to the assessee. He submitted that the payments exceeding ₹ 20,000 each made by the assessee in cash on purchase of milk, is clearly in violation of the provisions of S.40A(3) of the Act. He submitted that there was no principal-agent relationship between the assessee and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed copies of the same. They are: DCIT V/s. Allied Leather Finishers Pvt. Ltd. (32 SOT 549)-Luck; Gamdiwala Dairy V/s ACIT (2012) 20 Taxman 290)-Ahd; and CIT V Gamdiwala Dairy (TA1849/2010 dt 18.10.2011)-Guj (DB). 10. Ld counsel submitted that the Ahemdabad Bench of the Tribunal in the case of Gamdiwala Dairy (supra), noted against (b) above, is analogous on fact to the instant case involving the identical transactions of assessee making payments to the representatives, which is finally to be disbursed to the milk suppliers/producers, held that the cash payments exceeding ₹ 20,000/- when made to the representatives of the milk producers are covered by the exceptions under S.40A(3) read with Rule 6DD(f) of the Income-tax Rules, 1962. He submitted that the said decision of the Ahmedabad Bench of the Tribunal was approved by the Gujarat High Court decision, noted against (c) above, which is evident from the judgment dated 18.10.2011, copy of which is placed at page 51 of the paper/book. 11. We heard both sides and perused the orders of the lower authorities and have also gone through the various paper-books filed before us, besides the impugned orders of the lower authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative is not reflected in the books as the agency commission. Therefore the AO ignored the claim of the assessee in this regard. On the issue of quantity of the amounts paid by the assessee to the said representative, the AO holds that the said amounts paid in cash exceed the specified sum of ₹ 20,000/- and further, the said amounts since not paid directly to the producer of the dairy article and factually it was paid to the representative, therefore, as per the revenue, the provisions of clause (f) of rule 6DD imply direct payments to the producers of the dairy article and not through the representatives/agents. Further, the case of the revenue is that the relationship between the assessee and the representative is not that of the principle and agent and consequently, the transactions are outside the scope of the provisions of rule (l) of the said Rule. At the end, Ld DR is of strong views that the claim of the assessee is not allowable under any clause of Rule 6DD of the IT Rules, 1962 when there exists banking facilities in each and every village in India. 13. Stand of the assessee: Per contra, the case of the assessee is that the payments in cash made to the produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i)….. (ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming; or (iii)…; or (iv)..., to the cultivator, grower or producer of such articles, produce or products;…. (g) to (k)…; (l) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person…." 15. Bare reading of the provisions of clause (f) indicates that the payments made for purchase of produce of the animal husbandry or dairy etc to its producer are outside the scope of the provisions of section 40A(3) of the Act. It is also settled issue that the expressions 'to the cultivator, grower or producer of such articles, produce or products' placed at the end of clause (f) of the rule 6DD commonly apply to all four sub clauses of the said clause (f). Further, where assessee makes the payment cash to his agent who is required to make payment in cash for goods or services on behalf of such person, such payments are outside the scope of the provisions of section 40A(3) of the Act. There is no bar on the said agent to work in dual capacity to the milk producers too. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not lose their individual identity and each such farmer was paid for the milk sold by him at a fixed price, depending upon the quality of the milk, viz. fat contents and quantity and this fat coupled with the fact that none of the alleged societies were registered societies or legal entities of any sort, none had maintained any regular books of count, none had purchased the milk from the farmers independently and made over to the assessee, none of the entities maintained independent accounts of the farmers except the noting of the milk contributed by the farmers in terms of quantity, viz. fat contents they were paid by the assessee through the person who collected the milk from the farmers and supplied to the assessee. Further, the assessee during the course of assessment proceedings had filed the confirmations of various persons, who confirmed that they were procuring milk on behalf of the assessee from various producers of the milk and it was supplied to the assessee and, in turn, the assessee was making payments, which was to be handed over to the producers and they were handing over such amount to the respective milk producers. According to the farmers, the consideration paid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducers of the milk and it was supplied to the assessee and in turn the assessee was making payments, which was to be handed over to the producers and they were handing over such amount to the respective milk producers. We find that, according in the farmers, the consideration paid for the same are collected by the president and it was handed over the persons supplying the milk, in the ratio of the milk provided by each person. Thus, they have received the amount in the ratio of milk supplied in the name of dairy. These dairies are thus only the facilitating stations for the producer of milk and the assessee is making purchases directly from the producers and accordingly falls in the exceptions. In view of the above facts and circumstance, we allow this issue of the assessee's appeal and dismiss that of the Revenue's appeal. 5. This Court examined in the Tax Appeal No. 1545/2010 similar question. The same has been held in favour of the assessee and against the Revenue in the following manner: 5. It was noticed by the Tribunal that cash payment of ₹ 87,84,655/- was made to different persons for purchase of jaggery and since these purchases were in excess of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the purchases of jaggery had been made by the assessee from the agriculturist themselves and there was sufficient proof adduced by the assessee. What can be further noted is that the said payment was made by way of cash and there was no cheque payment. However, the Tribunal after noting that such explanation is permissible and is covered duly under Rule 6DD(f) of the Income Tax Rules and also holding that when the Assessing Officer had subjectively satisfied himself with the identities of the persons, it correctly held that the jaggery is produced at village level where no chemical process or any mechanical process is involved and in this background factual and legal, the Tribunal has correctly upheld the findings of the Assessing Officer. 6. In the instant case, the nature of transactions being similar and the provisions of law applied to the said dealings are also the identical and as Court earlier had upheld the order of Tribunal in almost similar circumstances, in the present case as the Tribunal has dealt with the issue in accordance with the law, issue requires no interference." 18. In the case of Renukeswara Rice Mills V/s ITO(93 ITD 263), Tribunal of Bangalore Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm of Agent' to be initially entertained by the assessee as well as the milk producers. It is a fact on approval by both parties, the assessee hands over the fat-measuring equipments and subsequently, the assessee periodically hands over the requisite cash for disbursal among the milk suppliers and of course, the milk producers hand over the milk for the assessee to the same representative. These representative cannot be considered as middleman considering the fact quite often, he is one among the suppliers of the milk and receive some incentive for the extra services rendered by him for both the assessee and the colleague members of the village. In the language of the cited decisions above, the milk suppliers do not lose their identity because of the representative/agent. That is where the role of the representative as an agent is existent. It is a fact that, quite frequently, the impugned representative works for money, which is an essential fact in the overall scheme of milk collection and supply to the milk chilling centres of the assessee. 21. On perusal of paras 4.5 to 4.11 of the impugned order of the CIT(A), it is noticed in para 4.5 that the assessing officer made the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are covered under any one of the exceptions prescribed in Rule 6DD, viz. either under clause (f) or clause (l) of Rule 6DD, even if not both. Further, it is relevant to mention that in the assessment year 2004-05, the disallowance made in terms of S.40A(3) is ₹ 23.78 crores, as against only ₹ 42,25,796 for assessment year 2005-06. This vast difference in the disallowance between these two years is on account of deviation in the approach of the assessing officer and acceptance of the assessee's arguments mentioned above. Therefore, on fairer side, the AO should not have considered the payments made in cash to the 'representative' for applying the provisions of section 40A(3) of the Act and he should have considered the payments made in cash at the stage of the supplier/producer of the milk. In any case, cash payments of any amount to such producers of milk are covered by the above said clauses of (f) and (l) of the Rule 6DD of I T Rules, 1962 and such payments must enjoy the exclusion benefits. 22. Therefore, also for the reasons mentioned in the preceding paragraphs of this order, we find no infirmity in the impugned order of the CIT(A). We accordingly uphold the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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