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TMI Blog2004 (8) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the market yard. Thus, the person operating there, is not only the agent of the cultivator or grower but also of the persons purchasing the agricultural produce. Clause (f) of rule 6DD provides that where the payment is made for the purchase of agricultural produce to the cultivator, section 40A(3) will not apply. Similarly, Clause (l) of Rule 6DD provides that where the payment is made by any person to his agent who is required to make payment in cash or goods, section 40A(3) will not apply. Since the assessee has paid the sum to his agent who is the payee in the present case, and who in his turn is required to make payment to the cultivator, indirectly, the assessee has paid for the purchase of agricultural produce to the cultivator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Co. (KP) invoking provisions of section 40A(3) and charging of interest under sections 234A and 234B. 3. The assessee is carrying on business of rice mill at Bhadravathi, a small town in Shimoga District of Karnataka. The assessee for the purpose of purchase of rice approached the Regional Market Yard at Davangere. It is stated that purchase and sale of rice being agricultural commodity is regulated under the RMC Act and transaction takes place at market yard only. The assessee instead of paying cash/cheque/draft to KP prepares a challan and deposits the cash to the account of KP. Such receipted challan is produced to KP and goods are purchased. The Assessing Officer on the basis of accounting entries in the books of KP noted that they ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al produce, through their Agent. The payments made to KP are to an Agent only as KP is registered as an agent under the Karnataka APMC Act and further, the nature of bills issued by them indicates that they are charging commission separately on the assessee. Further, the price of the goods is passed on to the agriculturists and the commission is retained by KP which clearly indicates that, KP is acting as an agent of the assessee. In the end he submitted that the spirit and intent of the entire provision of section 40A(3) of the Act, is to ensure monies are routed through Banking channels, which has been complied in all respects inasmuch as the amounts were deposited into the bank accounts of the supplier in a place other than, where the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provisions are not intended to restrict the 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 cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Considerations 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 op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuine and not out of the undisclosed source. It is also noted that section 40A(3) is intended to regulate business transactions and to prevent the use of un-accounted monies or to reduce the chances of use of black money for business transactions. In the present case it is seen that the assessee for purchase of rice, paid the amount directly to the bank account of the payee. The effect of issue of crossed cheque/DD is that the payee named therein receives the payment through banking channels. The purpose is dual. In the first instance it is to see that the payee and payee alone receives the payment and to ensure that the payment is routed through bank channel so as to trace the origin and conclusion of the transaction. In the case before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that where the payment is made by any person to his agent who is required to make payment in cash or goods, section 40A(3) will not apply. Since the assessee has paid the sum to his agent who is the payee in the present case, and who in his turn is required to make payment to the cultivator, indirectly, the assessee has paid for the purchase of agricultural produce to the cultivator through the agent. Thus, a combined reading of clauses (f) and (l) of Rule 6DD will take away the transaction from the clutches of section 40A(3). From the bills produced by the assessee to the Assessing Officer it was submitted that the assessee apart from paying price of the products also pays commission to the payee. Thus, the payee has become the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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