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TMI Blog2016 (4) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... wari who in turn made the purchases in cash for the assessee and charged the commission for the said transaction which has been accepted as genuine and allowed to be set off against the income in the profits and loss accounts, by the AO. Therefore, the transaction relating to the purchases of potatoes was clearly covered by the exception laid down in Rule 6DD(k) of the I.T. Rules, 1962 and was outside the purview of the provisions of Section 40A(3) of the Act. We are of the view that the ld. CIT(A) rightly deleted the addition made by the AO . As regards to the remaining addition made by the AO and deleted by the ld. CIT(A) is concerned, the contention of the assessee was that those purchases were made directly from the small farmers, the said contention has not been doubted at any stage. Therefore, this transaction is covered under Rule 6DD(e) of the I.T. Rules, 1962 wherein cash payments made for purchase of agricultural produce is kept outside the purview of Section 40A(3) of the act. Therefore, we do not see any infirmity in the order of the ld. CIT(A) on this issue. - Decided against revenue - ITA No. 4087/Del/2013 - - - Dated:- 26-2-2016 - Sh. N. K. Saini, AM And Smt. Been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee that if the transaction between the assessee and the other party is within 6DD(k) of I.T. Rules, same will hold true and in norms between the agent of the assessee and the other party too and if the same between the assessee and third party is in contravention of provisions of section 40(A)(3) of I.T. Act, same transaction cannot be said to be within norms if the same is done between the agent of the assessee and third party, notwithstanding with the facts in this case that agent was not at all involved in the process of transaction as the invoice has been signed between purchaser and seller. 7. Any other ground that may be urged at the time of hearing. 3. From the above grounds it is gathered that only grievance of the department in this appeal relates to the deletion of addition of ₹ 1,20,00,000/- made by the AO on account of disallowance of claim of purchases u/s 40A(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 4. Facts of the case in brief are that the assessee filed the return of income electronically on 14.10.2010 declaring an income of ₹ 1,59,770/- which was processed u/s 143(1) of the Act. Later on, the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exist any circumstances warranting cash payment. Delivery of goods was made much after transaction, so no exigency, could be established to make cash payment. In his application u/s 144A, the assessee has claimed that as the payment was through agent, the assessee was authorized to make the payment in cash. This claim could not be accepted as the assessee could not prove as to how it was required to make payment in cash. Requirement does not mean the facility or willingness, rather there must be legal requirement. The assessee could not establish as to how and in what circumstances, the payment were required to be made in cash. The only fact, the assessee has produced is that by making debit entry of ₹ 1,20,000/-, payment made under the head purchases may be allowed. Directions to ITO, Budaun In view of the above observations, I am of the view that the assessee has contravened the provisions contained in section 40A(3) of I.T.Act1961 read with 6DD of Income Tax Rules. Rule 6DD basically allows cash payments for considerations of business expediency and other relevant factors. Here in this case the assessee has purchased potatoes in cash and has i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of the assessee. 7. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the assessee purchased potatoes valuing ₹ 1,17,12,000/- from R.A. Traders, Moradabad through its agent Sh. S.K. Tiwari in the month of April 2009 and the payments were made through the said agent who was assigned this work of dealing with the said firm for procuring the potatoes but the seller firm M/s R.A. Traders was not comfortable with the market credibility of the assessee and had demanded advance payment in cash. It was further stated that the assessee could not find storage space in cold storage for storing the purchased stock and as potatoes began to rot, those were sold at loss in the open market. However, the question of quantum of sale and purchases made by the assessee was not in dispute. It was further stated that M/s R.A. Traders furnished the confirmed copy of account before the AO clearly specifying the fact that the payments had been received from the assessee through its agent Sh. S.K. Tiwari who had charged commission on this transaction, which has been accepted by the department. It was further submitted that the Hon ble Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances under which purchases in cash exceeding a specified limit are allowed to be made. The ld. CIT(A) pointed out that in the assessee s case, M/s R.A. Traders, the seller had confirmed to the AO in response to notice u/s 133(6) of the Act, on the copy of account that the payments had been made through one Sh. S.K. Tiwari. Therefore, the entire transaction of purchase between the parties amounting to ₹ 1,17,12,000/- were executed between the assessee and M/s R.A. Traders through the agent Sh. S.K. Tiwari and even the payments were made through him. The ld. CIT(A) also pointed out that Sh. S.K. Tiwari had filed a confirmatory letter before the AO that he had acted as an agent and had earned brokerage in this deal, which had been debited by the assessee in the audited profit and loss account which had also been accepted by the AO. As regards to the decision of the Hon ble Supreme Court in the case of Attar Singh Gurmukh Singh (supra) relied by the Joint Commissioner of Income Tax, Moradabad, the ld. CIT(A) pointed out that in the said case it has been held that genuine transactions are kept outside the purview of Section 40A(3) of the Act and while upholding constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing from agriculturist farmers. Accordingly, the addition of ₹ 2,88,000/- was also deleted. 9. Now the department is in appeal. The ld. DR strongly supported the order of the AO and reiterated the observations made in the assessment order dated 26.03.2013. He further submitted that the assessee made the purchases in cash from M/s R.A. Traders and the partner of the assessee firm signed the cash vouchers which clearly established that the purchases were made in cash exceeding ₹ 20,000/-, so it was hit by the provisions of Section 40A(3) of the Act and the AO rightly made the addition. Therefore, the ld. CIT(A) was not justified in deleting the same. 10. In his rival submissions the ld. Counsel for the assessee strongly supported the impugned order passed by the ld. CIT(A) and reiterated the submissions made before the authorities below. It was further submitted that the assessee purchased the potatoes from M/s R.A. Traders through agent Sh. S.K. Tiwari who charged the commission which had been accepted by the department. Therefore, no disallowance could have been made u/s 40A(3) of the Act as the transaction was covered under the exception laid down in Rule 6DD(k) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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